GR L 80231; (October, 1988) (Digest)
G.R. No. L-80231 October 18, 1988
CELSO A. FERNANDEZ, petitioner, vs. THE HONORABLE COURT OF APPEALS and MIGUEL TANJANGCO, respondents.
FACTS
On July 31, 1973, respondent Miguel Tanjangco, as lessor, and petitioner Celso A. Fernandez, as lessee, entered into a ten-year Contract of Lease over a parcel of land in Pandacan, Manila. The contract contained a clause stating it was “renewable for another ten (10) years at the option of both parties under such terms, conditions and rental reasonable at that time.” Before the lease’s expiration on July 1, 1983, Tanjangco notified Fernandez of his intention not to renew. Fernandez, however, asserted his unilateral option to renew for another ten years to recover his construction investments on the property.
Fernandez filed an action in the Regional Trial Court seeking to compel renewal. The trial court ruled in his favor, declaring the lease renewed for another ten years and fixing increased rental rates. Tanjangco appealed to the Court of Appeals, which reversed the trial court’s decision. The appellate court held that the contract language required mutual consent for renewal, which was absent. Fernandez then elevated the case to the Supreme Court via a Petition for Review on Certiorari.
ISSUE
The sole issue is the correct interpretation of the lease contract clause stating it is “renewable for another ten (10) years at the option of both parties under such terms, conditions and rental reasonable at that time.”
RULING
The Supreme Court affirmed the decision of the Court of Appeals and denied the petition. The Court held that the contract clause is clear and unambiguous. The phrase “at the option of both parties” unequivocally means that the consent of both the lessor and the lessee is indispensable for the contract’s renewal. A new lease contract cannot spring into existence upon the expiration of the original term through the unilateral act of one party alone.
The clause consists of two integral parts. First, the option to renew is granted jointly to both parties, necessitating their mutual and consensual exercise. Second, the renewal is to be “under such terms, conditions and rental reasonable at that time,” which directs the parties to negotiate and mutually agree upon the specific terms of the new contract, with only the ten-year period being pre-agreed. This requirement for future mutual agreement is specified with adequate precision. The Court cited the precedent in Millare vs. Hernando, where a similar stipulation for renewal “under the terms and conditions as will be mutually agreed upon” was held not to grant a unilateral right to renew but merely an agreement to agree. Consequently, Fernandez could not compel Tanjangco to renew the lease against his will. The contract had expired, and no new lease was created due to the lack of mutual assent.