GR 169656; (October, 2007) (Digest)
G.R. No. 169656 October 11, 2007
FELSAN REALTY & DEVELOPMENT CORPORATION, petitioner, vs. COMMONWEALTH OF AUSTRALIA, respondent.
FACTS
Petitioner Felsan Realty leased a residential property in Makati to respondent Commonwealth of Australia for two years, with the respondent paying advance rentals for the entire lease term. A fire, determined by the Bureau of Fire Protection to be accidental due to an overheated electric fan, damaged a major portion of the premises, rendering it uninhabitable. The respondent demanded pre-termination of the lease and a refund of the unused advance rentals and security deposit, claiming the property was no longer suitable for its intended use. The petitioner refused, alleging the fire resulted from the respondent’s negligence and that any pre-termination required a public document under Article 1358 of the Civil Code.
ISSUE
The core issues were: (1) whether the respondent was entitled to pre-terminate the lease and recover the unused advance rentals; and (2) whether such pre-termination required execution in a public document.
RULING
The Supreme Court affirmed the Court of Appeals’ decision, ruling in favor of the respondent. On the first issue, the Court held that the respondent validly exercised its right to pre-terminate the lease. The fire constituted a fortuitous event that rendered the property substantially unfit for its intended use as a residence, a condition recognized under the lease contract and the Civil Code as a ground for termination. The petitioner failed to prove the respondent’s negligence, as the fire investigators’ testimonies consistently classified the cause as accidental, with no evidence of fault attributable to the respondent’s occupants. Consequently, the respondent was entitled to a refund of the proportionate unused advance rentals.
On the second issue, the Court ruled that the requirement for a public document under Article 1358 is not mandatory for the validity of the act of rescission or pre-termination itself. The provision is merely a formality for convenience and does not invalidate an otherwise legally justified termination. The respondent’s written demand for pre-termination, based on a valid legal ground, was sufficient. Therefore, the respondent lawfully terminated the lease and was entitled to recover the balance of its advance payments.