NINOY AQUINO INTERNATIONAL AIRPORT AUTHORITY (NAIAA), PETITIONER, VS. COURT OF APPEALS, UNITED BUS LINES AND JOSE M. SILVA, RESPONDENTS.

Ninoy Aquino International Airport Authority versus United Bus Lines

The Case

This is a petition for review on certiorari brought by the Ninoy Aquino International Airport Authority, the government instrumentality that succeeded the Civil Aeronautics Administration, against United Bus Lines and its owner Jose M. Silva. The respondents sued for reformation of their lease contract and for the fixing of a new term, claiming they had been deprived of the leased premises by squatters and adverse claimants. The case matters because it settles two rules every reviewee must carry: that a lease of a determinate whole carries an indivisible obligation to deliver and maintain possession, so that deprivation of a portion is, in law, dispossession from the area in question; and that a contract is the law between the parties, binding even a government instrumentality as though it were a private person.

Procedural History

The dispute began in the Pasay City Court, where the Civil Aeronautics Administration filed an unlawful detainer case against the respondents. Judgment by default was rendered in favor of the administration, ordering the respondents to vacate. On appeal, the Court of First Instance of Rizal, Branch 27 in Pasay City, reversed the city court, holding that the complaint was really one for rescission and that the city court had no jurisdiction. The parties then entered into a compromise agreement dated May 7, 1982, which was judicially approved.

Less than a year before the amended lease expired, the respondents filed a complaint for reformation of contract and fixing of term of lease before Branch 113 of the Regional Trial Court of Pasay City. The trial court ruled for the respondents, declaring the lease extended for another ten years from the finality of the decision and fixing the annual rental at 10,000 pesos for the entire area. The Court of Appeals affirmed. The matter then reached the Supreme Court by petition for review on certiorari.

Facts

By a lease contract executed on November 22, 1963, the Civil Aeronautics Administration leased to United Bus Lines a portion of a state-owned lot at the Manila International Airport in Pasay City, measuring 60,115 square meters, for a term of twenty-five years at an annual rental of 1,200 pesos. The lessee bound itself to build at its expense a bus terminal and the facilities of a first class land transportation station. The lessor, for its part, warranted good title and bound itself to indemnify the lessee for losses arising from any restriction, encumbrance, or defect in its rights to the premises.

The contract also provided that if the lessee were prevented from occupying the premises by war, civil commotion, act of God, or any other cause beyond its control, the rentals would abate, and the terms of the contract would be considered extended for a period of time equal to that during which the lessee was not in possession.

Beginning in 1980, squatters and various persons and entities claiming title entered the premises. The respondents repeatedly demanded that the administration clear the area, and the administration itself assured them that the premises would be cleared. The respondents testified that they lost about ninety percent of the premises. The administration's own witness admitted that squatters had entered in 1980 and that a few remained even after 1983. The amended lease expired on May 7, 1990.

Issues

• Whether or not the respondents are entitled to an extension of the lease contract under the contractual provision on extension of term.
• Whether or not the respondents waived their right to raise the issue of dispossession under the May 7, 1982 compromise agreement.
• Whether or not the extension applies only where the lessee is totally dispossessed of the premises.
• Whether or not the extension of the lease impairs the petitioner's freedom of contract or is oppressive for being indefinite.
• Whether or not the respondents violated their obligations as lessee, warranting the petitioner's counterclaim.

Applicable Provisions

The lease contract's provision on extension of term, as quoted in the decision, provides:

Should the LESSEE, due to war, civil commotion, act of God, or any other cause beyond their control, be prevented from occupying the leased premises or be obliged to give up possession thereof, the rentals hereinabove agreed upon shall abate during the time that the leased premises are not occupied by the LESSEE. It is, however, agreed that during that time, the LESSOR may lease the premises to any person or persons until such days as LESSEE may occupy them, and the terms of this Contract shall be considered as extended for a period of time equal to that during which LESSEE was not in possession of the leased premises.

This is the very stipulation the Court applied, extending the lease for the period the lessee was deprived of possession.

Ruling

On the first issue, the Court held that the dispossession of the respondents from portions of the premises for about ten years, from 1980 to 1990, was an established fact, based not only on the respondents' evidence but also on the admissions of the petitioner's own witness. Under the contract, the term of the lease must therefore be extended for the period the lessee was deprived of possession.

On the second issue, the Court held that there was no waiver. The compromise agreement waived only the issues that arose out of the unlawful detainer case. The respondents' failure to have full possession through no fault of their own was never asserted or touched upon in that case or in the compromise.

On the third issue, the Court held that the provision applies regardless of whether the dispossession is total or partial. The obligation to deliver the entire premises and maintain the lessee in peaceful, uninterrupted possession is indivisible. When the lessee could not occupy and use portions of the premises, it was in effect deprived of possession, because there was incomplete performance of the petitioner's principal prestation.

On the fourth issue, the Court held that a contract is the law between the parties, and courts have no choice but to enforce it so long as it is not contrary to law, morals, good customs, or public policy. The petitioner is bound by its terms like any private person.

On the fifth issue, the Court held that the counterclaim was not sufficiently proven. The respondents built a garage for the taxis, and the lease contract contained no express prohibition against subleasing.

The Court, however, modified the reckoning of the extension. It could not run from the finality of the trial court's decision, for that would give the respondents more than they were entitled to. The extension must begin on May 8, 1990, the day after the amended lease terminated, and last until May 8, 2000. Since the respondents had in fact remained in continuous possession during the pendency of the case, they had already occupied the premises for the full ten-year period, and the judgment of the trial court is deemed enforced.

Doctrine

A contract is the law between the parties, and courts have no choice but to enforce it so long as it is not contrary to law, morals, good customs, or public policy. A government instrumentality party to a contract is bound by its terms like any private person.

Where the lease covers a determinate whole, the lessor's obligation to deliver the entire premises and maintain the lessee in peaceful, uninterrupted possession is indivisible. Deprivation of a portion is equivalent to dispossession from the entire area in question, and the contractual provision on extension of term applies regardless of whether the dispossession is total or partial.

A compromise agreement waives only the issues that arose out of, or were connected with, the case it settled. It does not bar a claim never asserted or touched upon in that case.

Disposition

The Court affirmed the decision of the Court of Appeals with the modification that the ten-year extension be reckoned from May 8, 1990, and, as the respondents had continuously possessed the property during the pendency of the case, their right to the extension up to May 8, 2000 was deemed enforced, and the lease contract was deemed terminated.

Remember This

Memorize the line: a contract is the law between the parties, and the obligation to deliver the whole leased premises is indivisible, so partial dispossession is dispossession from the entire area. Examiners use this case on the binding force of contracts against government instrumentalities, on the indivisibility of the lessor's obligation, and on the scope of a compromise agreement.