GR 159821; (August, 2005) (Digest)
G.R. No. 159821. August 19, 2005.
PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, Petitioner, vs. COURT OF APPEALS and QVEGG MARINE TRANSPORT and BUILDERS CORPORATION, Respondents.
FACTS
Petitioner Philippine Fisheries Development Authority (PFDA) and respondent QVEGG Marine Transport and Builders Corporation entered into a 10-year lease contract for port facilities. The contract stipulated a monthly rental and provided that failure to pay rentals for two successive months would be a ground for termination. Respondent fell into arrears, prompting PFDA to terminate the contract by letter dated November 16, 1992. Respondent requested restructuring, which PFDA granted via a letter dated February 1, 1993, setting forth specific instructions for payment of arrears and current rentals, with a caveat that failure to comply would result in termination.
Respondent paid its January 1993 rental and utility bills on February 22, 1993. PFDA, considering this a failure to strictly comply with the February 1 letter’s requirement for “regular payment of 1993 current monthly rentals,” terminated the contract by letter dated March 1, 1993. Respondent filed a complaint for enforcement of contract, arguing the termination was illegal.
ISSUE
Whether PFDA validly terminated the lease contract based on respondent’s alleged failure to comply with the terms set in the restructuring letter of February 1, 1993.
RULING
The Supreme Court denied PFDA’s petition and upheld the validity of the lease contract, declaring the termination illegal. The legal logic centered on contract interpretation and the parties’ contemporaneous acts. The Court ruled that the February 1, 1993 letter did not novate or supersede the original lease contract’s paragraph 3, which granted a two-month grace period before termination for non-payment. The letter’s instruction for “regular payment” of current rentals had to be read in conjunction with, not in isolation from, this original stipulation.
Crucially, the Court emphasized that the parties’ practical construction of their agreement evidenced their intent to retain the grace period. PFDA accepted respondent’s payment for January 1993 made on February 22 without immediate protest, effectively recognizing that the payment, though delayed within the month, was still within the contractual framework. This contemporaneous act indicated that the two-month grace period remained operative. Therefore, when PFDA terminated the contract on March 1, 1993, only one month of rental (for February) was arguably unpaid, which did not meet the contractual threshold for termination of two successive months of default. The termination was thus premature and without legal basis.