Abella v. CA

G.R. No. 107606 (June 20, 1996)

Court affirmed Colarina's lease contract, ordering Abella to return P22k and reimburse costs.

Facts:

On May 26, 1987, Mercedes N. Abella (petitioner) and Conrado Colarina (private respondent) entered into a lease agreement for a portion of the Juanabel Building located in Naga City. The lease was set for a duration of four years, from July 1, 1987, to July 1, 1991, with a monthly rental fee of Three Thousand Pesos (₱3,000.00). Upon signing the contract, Colarina paid Abella an amount of Forty Thousand Pesos (₱40,000.00), which Abella acknowledged through a receipt.

Colarina intended to use the leased premises for a pawnshop business and made improvements to the property, spending Sixty-Eight Thousand Pesos (₱68,000.00) on renovations. Although Colarina paid the monthly rent regularly, he stopped payments from November 1987 to April 1988. In response, Abella made several demands for payment and eventually took possession of the premises on May 1, 1988, with the assistance of local authorities.

On May 5, 1988, Colarina filed a case against Abella in the Regional Trial Court (RTC) of Naga, seeking enforcement of the lease contract, a preliminary mandatory injunction, and damages. The RTC ruled in favor of Abella, ordering her to return ₱40,000.00 less ₱18,000.00 for unpaid rent, and dismissed Colarina's case for lack of merit.

Colarina appealed the RTC's decision, and the Court of Appeals reversed the ruling, ordering Abella to restore possession of the premises to Colarina, return the improvements, or pay their value, and to cover the costs of the suit. Abella then filed a petition for review on certiorari, raising issues regarding the alleged violation of the lease contract and the restoration of possession.

Legal Issues:

  1. Did Conrado Colarina violate the lease contract, justifying Abella's extrajudicial rescission of the lease?
  2. Should possession of the leased premises be restored to Colarina?

Arguments:

  • Petitioner (Abella):

    • Abella argued that Colarina's failure to pay rent from November 1987 to April 1988 constituted a breach of the lease contract, warranting rescission.
    • She contended that the ₱40,000.00 received was merely "goodwill money" and not an advance deposit for rent.
    • Abella claimed that the receipt did not reflect her true intention and sought reformation of the contract based on alleged fraud.

  • Respondent (Colarina):

    • Colarina maintained that the ₱40,000.00 was an advance deposit to cover any unpaid rent, as stated in the receipt.
    • He argued that he was not in arrears at the time Abella took possession of the premises, thus the rescission was improper.
    • Colarina sought restoration of possession and compensation for the improvements made to the property.

Court's Decision and Legal Reasoning:

The Supreme Court upheld the findings of the Court of Appeals, concluding that Colarina did not violate the lease contract. The Court emphasized the clear language of the receipt, which indicated that the ₱40,000.00 was an advance deposit for rent, contrary to Abella's claim of it being goodwill money. The Court noted that the interpretation of contracts should adhere to the literal meaning of their terms when clear.

The Court also dismissed Abella's claims of fraud and the need for reformation of the receipt, stating that she, as a businesswoman, was presumed to have acted with due care and knowledge of the document's contents. The Court found no merit in her assertion that the receipt did not reflect her true intention, as there was no evidence to support her claims of fraud.

Regarding the second issue, the Court noted that the lease term had expired on July 1, 1991, rendering the question of restoring possession moot. Therefore, while Abella was ordered to return the ₱40,000.00 less the unpaid rent and to compensate Colarina for the improvements, the right to possession was no longer applicable.

Significant Legal Principles Established:

  1. The interpretation of contracts must adhere to the clear and unequivocal terms agreed upon by the parties, with written evidence taking precedence over oral testimony.
  2. A party's intent regarding a contract can be determined from the language of the contract itself, and claims of fraud must be substantiated with evidence.
  3. The expiration of a lease contract terminates the lessee's right to possession, making restoration of possession moot after the lease term has ended.