G.R. No. 148632

Republic of the Philippines
SUPREME COURT

SECOND DIVISION

G.R. No. 148632 August 31, 2005

BELEN DELA TORRE, Petitioners,
vs.
BICOL UNIVERSITY, represented by DR. LYLIA CORPORAL-SENA and/or DR. EMILIANO ABERIN, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which seeks to set aside the decision1 of the Court of Appeals dated 26 January 2001 which affirmed with modification the decision of Branch 8 of the Regional Trial Court (RTC) of Legazpi City ordering, among other things, the termination of the Contract of Lease2 subject of this case, and its Resolution dated 19 June 2001 denying petitioner’s motion for reconsideration.

The factual antecedents are stated in the decision of the Court of Appeals.

On April 2, 1990, plaintiff Belen dela Torre and defendant Bicol University (BU for brevity), through its then president Patria G. Lorenzo, entered into a Contract of Lease allowing plaintiff to construct and operate an eatery business within defendant university’s compound for a monthly rental of Php 5.00 per square meter. A total of forty-nine (49) square meters, or seven meters long and seven meters wide, were leased to plaintiff.

After plaintiff completed the construction of her canteen valued at Php110,000.00, she started to operate the same after compliance with all the necessary license and permits.

On February 28, 1994, defendant Lylia Corporal-Sena brought to the attention of plaintiff the discovery of illegal electrical connections in her eatery, which were tapped to the mainline of the university, and at the same time demanding settlement or payment of the unauthorized consumption. To determine plaintiff’s accountability, defendant university’s electrician, Engr. Arturo Gesmundo, was directed to inspect the appliances and lights installed in plaintiff’s canteen. Plaintiff was fist assessed the amount of Php25,500.00, which was later on reduced to Php9,726.48, payable either in full or installment, at the option of [plaintiff’s] husband, who is employed at BU.

Simultaneous with the assessment of unpaid electrical consumptions, plaintiff was likewise assessed her unpaid rentals from April 2, 1990 up to May 3, 1994 in the amount of Php14, 750.00.

In the meantime, defendant Sena issued Office Memorandum No. 178 dated August 2, 1994 directing the persons named therein to stop the operation of small temporary stores and ambulant vendors within the BU compound and to confiscate the goods if they continue to defy the order.

On September 17, 1994, defendant Aberin sent a handwritten memorandum to plaintiff’s husband, Romeo dela Torre, enjoining compliance with the earlier memorandum to avoid embarrassment. In reply thereto, Romeo dela Torre wrote Dr. Aberin on September 19, 1994 inquiring as to the authenticity of the handwritten memorandum and in essence invoking the authority given to his wife to operate the canteen. Again, on September 22, 1994, defendant Sena issued Office Memorandum No. 206 reiterating the stoppage of operation of temporary stores within the campus.

In a letter dated October 4, 1994, defendant Sena terminated the Contract of Lease effective ninety (90) days from October 4, 1994 stating therein that "it is the desire of the Board of Regents to rid the campus of ambulant vendors, small stores, rolling stores, etc. operated within the reservation of the University as a way of protecting the constituencies from any form of sickness/ailments/security that may be brought by these stores".

Believing that the unilateral termination of the lease contract by the defendant was a violation of their agreement, plaintiff instituted an action for breach of contract with damages before the court a quo.3

Petitioner Belen dela Torre filed the Complaint for Breach of Contract and Damages4 on 18 October 1994 before the RTC of Legazpi City which was raffled to Branch 8 thereof. She alleged that from the time the lease contract was terminated by respondent Lylia Sena on 4 October 1994, she still had two (2) more years to operate the eatery before the expiration of the lease which would coincide with the retirement of her husband from Bicol University (BU). In terminating the lease contract, she claimed that respondents had a sinister motive of favoring, if not associating with, a certain Edgar Narvaez, another BU personnel, in the opening and operation of the same line of business she is in. She asked that respondents be ordered to pay the cost of the building, lost income for the remaining two years, moral damages, attorney’s fees, exemplary damages and costs of suit.

In their Answer5 filed on 28 November 1994, respondents revealed that petitioner had blatantly and repeatedly violated the terms and conditions of the Contract of Lease, among them being:

a) She has exceeded the area allowed her by the university under the contract, i.e., that she could occupy only an area of 49 sq. meters, the dimension of which is 7 meters wide by 7 meters long; the actual area occupied is some 88 sq. meters.

b) The building is not made of light materials.

c) Plaintiff did not pay rentals in accordance with the terms of the contract.

d) Plaintiff did not put up her own power and water supply but illegally tapped the same from the university’s power and water lines.

On account of these violations, respondents maintain that they have every right to terminate the contract. They pray that the complaint be dismissed, and on the compulsory counterclaim, they ask that petitioner be ordered to immediately vacate the premises, to pay for the power and water consumptions occasioned by her illegal tapping from the university’s facilities, deficiency rentals, moral and exemplary damages, attorney’s fees and costs of suit.

On 10 March 1995, an ocular inspection was conducted on the eatery being operated by petitioner.6 On 21 March 1995, pre-trial was terminated. After trial, the RTC rendered its decision7 on 24 June 1996. It said in part:

Plaintiff’s violations are apparent, substantiated and remained uncontroverted. These violations by itself (sic) already constitute breach of the contract. Basic is the principle that he who comes to court must come with clean hands. In the instant case, here is the plaintiff who is herself guilty of breach of contract and yet charges the defendants also of breach for the latter’s exercise of its right to terminate in case of any violation of the contract. The court finds it quite ironic.

. . .

Defendants’ acceptance of payment for rentals beyond the grace period and the assessment of power consumptions despite the illegal tapping may be deemed to be a waiver of their right to rescind or terminate on these grounds. This is probably the reason why they chose to terminate the contract "as a way of protecting the [constituencies] from any form of sickness/ailments/security that may be brought about by (these) stores. x x x in consonance with the Department of Health in safeguarding the health of the BU population and for the protection and general safety of the university as a whole." (Exhibit F). Plaintiff assailed this by trying to prove that no violent incident transpired in her canteen and no sickness or illness has been contracted by any of the BU community on account of the food being served at her canteen. As the contract itself is worded: "x x x if the leased premises POSES DANGER to the security and safety of the BU property, its students and personnel and/or other analogous courses." Danger means a hazard, peril or that which may injure or harm. It does not, require that some form of sickness or injury has in fact been sustained. Defendants’ act of terminating the contract was, therefore, but an exercise of its right under the contract and is legal.

It disposed of the case as follows:

ALL THE FOREGOING CONSIDERED, judgment is hereby rendered in favor of the defendants and against the plaintiff. The Contract of Lease is hereby ordered terminated and the plaintiff is hereby ordered (1) to vacate the leased premises within thirty (30) days from receipt of this Decision and to remove any and all improvements she has introduced thereon; (2) to pay the rentals from October 14, 1994 until she vacates the premises corresponding to the 75.3 square meters actually occupied by her; (3) to pay such amount representing power and water consumptions occasioned by her illegal and unauthorized tapping from the time of the operation of her canteen until disconnection; (4) to pay deficiency rentals from July 15, 1990 to September 1994 pertaining to 26.3 square meters (75.3 sq. m.) as found out by the court during the ocular inspection, minus 49 square meters) the area in excess of the 49 square meters allowed in the contract at the rate of P5.00 per square meters; (5) to pay the costs.

Dissatisfied, petitioner appealed to the Court of Appeals.8 In the meantime, she vacated the leased premises on 12 December 1996, the day her husband, Romeo dela Torre, retired from BU.

On 26 January 2001, the Court of Appeals affirmed the RTC decision with modification as to the award of costs. The decretal portion of the decision reads:

WHEREFORE, premises considered, the appealed decision is hereby AFFIRMED WITH MODIFICATION as to the award of costs which is hereby deleted for lack of basis.

The motion for reconsideration filed by petitioner was denied on 19 June 2001.

Petitioner is now before us via an appeal under Rule 45 of the 1997 Rules of Civil Procedure. She contends that:

THE RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN PRE-TERMINATING THE CONTRACT OF LEASE BETWEEN PETITIONER AND PRIVATE RESPONDENT BASED ON THE GROUNDS NOT MENTIONED IN THE PRE-TERMINATION LETTER DATED OCTOBER 4, 1994 WHOSE GROUNDS OR VIOLATIONS WERE ALREADY WAIVED AND ABANDONED BY PRIVATE RESPONDENT BEING NOT MENTIONED IN THE PRE-TERMINATION LETTER.

She poses the question: Can a Contract of Lease be pre-terminated on a ground not mentioned in the pre-termination letter?

We answer in the negative.

A contract of lease, if pre-termination is allowed or agreed upon, should be allowed on a ground or grounds mentioned in the pre-termination letter. Only the ground or grounds stated therein should be considered in the contract’s pre-termination. This is in keeping up with the principle of due process. Due process demands that a party to a contract should be fully apprised as to why the contract is being pre-terminated so he will know if the ground or grounds relied upon are allowed and provided for in the contract. To allow the pre-termination for a reason other than that contained in the pre-termination letter is unfair to the other party. This will deprive him the right to air his side on the matter. If there are other grounds that would justify the pre-termination of the contract, the same should be included in the pre-termination letter. If said grounds are not mentioned therein, they should not be considered.

Petitioner argues that the Court of Appeals erred when it pre-terminated the contract of lease on grounds not mentioned in the pre-termination letter dated 04 October 1994. She adds that these grounds or violations have already been waived and abandoned by their non-inclusion in the pre-termination letter.

The argument is fully misleading.

Quite the contrary, the Court of Appeals stated clearly in its decision that only grounds contained in the termination letter should be considered in resolving the issue of whether or not there was a valid termination of the lease contract by respondents. It said:

The sole issue to be resolved is whether or not there was a valid termination of the lease by the appellees.

In the resolution of the foregoing issue, the grounds for termination of the Lease Contract advanced by defendants in their Answer which were not contained in the termination letter should not be considered. This is so because they are deemed to have been waived or condoned by their non-inclusion in the termination letter. Besides, plaintiff’s cause of action is premised on the termination letter which does not include the other grounds mentioned in the Answer. Hence, they are irrelevant and immaterial to the present case.9

The ground or justification contained in the termination letter dated10 04 October 1994 is the protection of the BU population from any form of sickness/ailments/security that may be brought about by ambulant vendors, small stores and rolling stores operating within the campus of BU. The termination of the contract was prompted by the report of the Department of Health that the province was affected by cholera. Part of the letter reads:

As President, it is the desire of the Board of Regents that the campus should be rid of ambulant vendors, small stores, rolling stores, etc. operated within the reservation of the University as a way of protecting the constituencies from any sickness/ailments/security that may be brought about by these stores. This move is also in consonance with the Department of Health in safeguarding the health of the BU population and for the protection and general safety of the university as a whole.

On the other hand, the grounds or violations stated in respondents’ Answer were: area occupied exceeded that allowed in the contract, the store was not made of light materials, payments of rentals were not in accord with the contract, and failure to put up own power and water supply.

Can respondents now validly terminate the contract of lease on the ground stated in the letter of termination?

The answer is YES.

It is a time-honored rule that a contract constitutes the law between the parties and they are, therefore, bound by its stipulations. If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall control.11 The agreement or the contract between the parties is the formal expression of the parties’ rights, duties and obligations12 and where there is nothing in it which is contrary to law, morals, good customs, public policy or public good, its validity must be sustained.13

In the case at bar, the contract of lease entered into by the parties permits termination or rescission. Paragraphs 4(d) and 5 authorize the same.

4. d) Lessor has the right to terminate this contract and consequently to order the lessee to vacate the premises by removing her eatery and all the improvements she has introduced thereon, at her own expense, in the event that lessor needs the place for the expansion of its project such as construction of new buildings, roads, housing units for the personnel etc., and if the leased premises poses danger to the security and safety of the BU property, its students and personnel/and/or other analogous courses.

. . .

5. That the parties hereby agree and bind themselves to abide by the foregoing terms and conditions faithfully; otherwise, any violation thereof shall be a ground for either the rescission or termination of this Contract. (Emphasis supplied.)

Paragraph 4(d) gives BU the right to terminate the contract and to order petitioner to vacate the premises by removing her eatery and all the improvements she has introduced thereon, at her own expense, if the leased premises poses danger to the security and safety of the BU property, its students and personnel. The reason for the termination as stated in the letter of termination is obviously covered by this paragraph. We agree with the Court of Appeals when it said:

The reason stated in the letter of termination is covered by the stipulation of the parties, particularly item no. 4(d) thereof, which grants to the lessor the right to terminate the contract even before its expiration, if the leased premises poses danger to the security and safety of the BU property, its students and personnel and/or other analogous cases.

As to what circumstances may be considered in determining whether or not the leased premises poses danger to the security and safety of the BU community is a matter that is lodged to the discretion of BU, the only limitation being that the prerogative should be exercised in good faith and not arbitrarily. To hold otherwise would be tantamount to supplanting item no. 4(d) of the Lease Contract, which grants in no uncertain terms the unilateral right of the lessor to cancel or rescind the lease contract if upon its determination the leased premises poses danger to the security and safety of the BU community. . . .

. . .

At the time BU terminated the lease contract, there was a prevalence of Cholera in the area and the province was identified by the Department of Health as one of the affected areas. In order to contain further spread of the disease, BU deemed it necessary to stop the operation of ambulant vendors and temporary stores operated by its employees within the reservation. Hence, BU’s exercise of its discretion under item no. 4(d) of the Lease Contract was done in good faith.

Petitioner insists that the contract of lease should not have been terminated because there was neither any evident incident that transpired in the canteen nor any sickness or illness having been contracted by any member of the BU community on account of the food or beverages they were selling.14

We do not agree. Termination of the contract can be effected if the leased premises poses danger to the security and safety of the BU property, its students and personnel. The phrase "poses danger" does not contemplate a situation where injury or damage has already been inflicted, or that illness or disease has already spread. It is enough that the danger sought to be prevented -- the spread of cholera -- may be aggravated by the continued operation of petitioner’s eatery.

Under the circumstances, we find the termination of the contract of lease to be justified and in accordance with the authority granted in the contract.

We fully agree with the Court of Appeals that the termination was made in good faith and not in an arbitrary manner. There was no bad faith and arbitrariness on the part of the respondents. As shown by Office Memorandum No. 178, s. of 1994, dated 2 August 1994 issued by respondent Sena, the order not to allow the continued operation and presence of ambulant vendors and temporary stores was applied to all without any particular individual being singled out. In other words, no ambulant vendor or temporary store holder was spared from such directive.

Petitioner contends that respondents already waived and abandoned the other grounds or violations they raised in their Answer for failure to mention them in the pre-termination letter.

Such contention is partially correct. It is correct in the sense that respondents cannot utilize these grounds in the determination of whether the termination of the contract of lease was validly made for the simple reason that same were not mentioned in the termination letter. However, as to petitioner’s liability for these violations, i.e., nonpayment of rentals and deficiency rentals, and payment of electric and water consumption, respondents have not relinquished their claim thereon. In fact, respondents filed a counterclaim to collect the amounts due them. A counterclaim partakes of the nature of a complaint and/or a cause of action against the plaintiff in a case.15 The RTC ordered petitioner to pay rentals and back rentals, as well as the amount equivalent to her consumption of power and water coming from her unauthorized and illegal tap in BU’s power and water lines. The Court of Appeals affirmed said award and we have no reason to deviate therefrom.

WHEREFORE, premises considered, the decision dated 26 January 2001 of the Court of Appeals is hereby AFFIRMED in toto.

SO ORDERED.

MINITA V. CHICO-NAZARIO

Associate Justice

WE CONCUR:

REYNATO S. PUNO

Associate Justice

Chairman

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

ROMEO J. CALLEJO, SR.

Associate Justice

DANTE O. TINGA

Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO

Associate Justice

Chairman, Second Division

C E R T I F I C A T I O N

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman’s Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

HILARIO G. DAVIDE, JR.

Chief Justice

Footnotes

1 Penned by Associate Justice Rodrigo V. Cosico with Associate Justices Ramon A. Barcelona and Alicia L. Santos, concurring.

2 Exh. A; Records, pp. 6-8.

3 Rollo, pp. 61-62.

4 Records, pp. 1-14.

5 Id. at 21-27.

6 Id. at 55.

7 Id. at 162-174.

8 Id. at 175.

9 Rollo, p. 65.

10 Exh. F; Records, p. 13.

11 R & M General Merchandise, Inc. v. Court of Appeals, G.R. No. 144189, 05 October 2001, 366 SCRA 679.

12 Arwood Industries, Inc. v. D.M. Consunji, Inc., G.R. No. 142277, 11 December 2002, 394 SCRA 11.

13 Hanil Development Co., Ltd. v. Court of Appeals, G.R. No. 113176 and M.R. Escobar Explosive Engineers, Inc. v. Court of Appeals, G.R. No. 123342, 30 July 2001, 362 SCRA 1.

14 TSN, 31 March 1995, p. 10.

15 Matela v. Chua Tay, G.R. No. L-16407, 30 May 1962, 5 SCRA 163; Philippine Columbia Enterprises Co. v. Lantin, G.R. No. L-29072, 07 June 1971, 39 SCRA 376; Dy v. Enage, G.R. No. L-35351, 17 March 1976, 70 SCRA 96; Arceo v. Oliveros, G.R. No. L-38251, 31 January 1985, 134 SCRA 308; Cokaliong Shipping Lines, Inc. v. Amin, G.R. No. 112233, 31 July 1996, 260 SCRA 122.

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