G.R. No. L-17858-9 and L-17865-6; July 18, 1962
MANUEL S. CAMUS, petitioner, vs. PRICE, INC., respondent. PRICE, INC., petitioner, vs. HON. COURT OF APPEALS and MANUEL S. CAMUS, respondents.

FACTS

On March 30, 1951, Manuel S. Camus (Lessor) and Price, Inc. (Lessee) entered into a 10-year lease contract for a parcel of land in Malabon, Rizal. The contract required the Lessee to construct a factory and warehouse at its own expense and to insure these buildings for at least P50,000.00, with ownership transferring to the Lessor upon the contract’s termination. The Lessor, for his part, obligated himself to fill a portion of the lot and construct a concrete stone wall topped with barbed wire within one year from the contract’s signing. The agreement contained stipulations for liquidated damages and attorney’s fees in case of breach by the Lessee.
Subsequently, both parties accused each other of breaching the contract. Price, Inc. filed an action for specific performance and damages against Camus, alleging his failure to complete the filling and wall construction. Three days later, Camus filed an ejectment case against Price, Inc. for non-payment of rentals since February 1953. The ejectment case reached the Supreme Court in an earlier certiorari proceeding (G.R. No. L-8253), where it was preliminarily found that Camus had not constructed the stipulated concrete wall with barbed wire, casting doubt on the propriety of the ejectment order. The consolidated cases at bar stem from the appeals of both parties from the subsequent Court of Appeals decision.

ISSUE

The core issue is whether the contract of lease was validly rescinded by either party, and what are the corresponding rights and obligations of the parties given their mutual breaches.

RULING

The Supreme Court affirmed the decision of the Court of Appeals, holding that the parties were in pari delicto (in equal fault) and the contract was deemed extinguished. The legal logic rests on the reciprocal nature of the obligations under the contract of lease and the impossibility of determining who committed the first substantial breach. The Court found that both parties failed to perform their essential covenants: Price, Inc. did not secure the required insurance on the buildings it constructed, and Camus did not complete the stipulated filling and concrete wall with barbed wire. Since both obligations were material conditions of the agreement and both breaches were established, it could not be definitively ascertained which infraction came first to justify rescission by the other.
Consequently, the contract was considered terminated, with each party bearing their own losses. However, given that Price, Inc. continued to occupy and profit from the use of the premises throughout the litigation while Camus was deprived of both possession and rental income, equity demanded compensation. The Court thus upheld the appellate court’s order for Price, Inc. to pay Camus a reasonable compensation of P200.00 per month from February 16, 1953, until it vacates the premises. Correlatively, upon termination of the lease, the buildings constructed by Price, Inc. would be transferred to Camus without cost, as originally stipulated in the contract.