LUZ J. HENSON, PETITIONER, VS. THE INTERMEDIATE APPELLATE COURT, ELY FUDERANAN AND LUISA COMMENDADOR, RESPONDENTS.

Whether or not the judicial interpretation of the lease contract
amounts to the courts’ contracting for the parties is the issue in this petition
for review of the decision of the then Intermediate Appellate Court which upheld
the Court of First Instance of Manila’s dismissing the petitioner’s complaint
for recovery of the balance of unpaid rentals due for one year under the lease
contract in question.

The petitioner leases out office spaces in her building at
#494 Soldado
Street, Ermita,
Manila.  The lessee in
the disputed lease contract was designated as Sto.
Niño Travel and Tour Agency, a sole proprietorship
duly organized and existing under the laws of the
Philippines,
represented by private respondent Ely Fuderanan, its
President and General Manager.

On May 15,
1980, the petitioner received the sum of P8,000.00 as “reservation deposit” for Apartment No. 116 at
Luz J.
Henson
Building for which she issued a
receipt to private respondent Fuderanan as
follows:

“This reservation is good up to May 15, 1980, at 4:00
P.M.; failure to sign the Lease Contract, pay the required Three (3)
months advance rental and Three (3) months guarantee deposits, the
reservation is forfeited, monthly rental is P2,000.00 —
net of W. H. Tax. Lease Contract is for one year.”

On the same day, the petitioner and private respondent Fuderanan entered into a lease contract which, in part,
provides:

“1.  That this contract shall have a duration of one
year, commencing from May 15, 1980; Provided that, at the expiration hereof, the
lease shall be deemed renewed on a month to month basis under the same terms and
conditions as this contract, unless either party, at least one month before this
contract expires, informs the other in writing of his desire not to be bound
anymore after said period; Provided Further, that should LESSEE terminate this
contract before its termination or be cancelled for any of the causes
enumerated, the LESSEE shall for his breach of this contract, have his guarantee
deposit automatically forfeited and still be liable to LESSOR as penalty and
liquidated damages for the rentals of the unexpired portion of this lease,
irrespective of whether or not LESSOR subsequently finds another person to lease
the vacated premises for the duration of said unexpired portion;

“2.  That LESSEE agrees to pay rentals for the premises
leased as above-described at the rate of TWO THOUSAND PESOS Net of Withholding
Tax (P2,000.00), Philippine Currency, a month, due and payable without need of
further demand and notice on the due date of the corresponding month, at LESSOR’s office or residence; LESSEE shall pay in advance
the amount of SIX THOUSAND PESOS (P6,000.00), Philippine Currency, as rentals
for the first two (2) months of this contract and one month end of lease. 
Rentals are payable monthly in advance.  A fraction of a
month is considered one month rental;

“Upon execution of this contract, the LESSOR (should be LESSEE)
(shall) deposit with the LESSOR the amount equivalent to SIX THOUSAND PESOS
(P6,000.00), three months rental.  This
deposit shall answer for any damages, losses, breakage, utilities destroyed
including damages caused by renovation done on the leased premises and any
extensions thereof, and shall be returned only upon expiration of this Lease
Contract; Provided, that all Meralco Bills are fully
paid and that charges for any and all long distance calls are paid duly
certified by the PLDT Co.  Nothing herein contained shall be
understood as granting the LESSEE the right to require, before the termination
of this lease, that this deposit shall be applied against over due rentals and
other outstanding accounts owing to LESSOR in order to keep the LESSEE’s account current, deposits bear no
interest.”

Pursuant to the lease contract between the petitioner and private
respondent Fuderanan, the latter paid Henson the
amount of P6,000.00 in cash as deposit for rentals,
water service and four keys (Exhibit A-1) and P1,660.00 in cash and P4,640.00 in
a postdated check as rentals due from May 15, 1980 to July 14, 1980 (Exhibit
A-1; Exhibit D).  This postdated check was later replaced by
another postdated check of private respondent Luisa Commendador which was dishonored due to insufficiency of
funds as indicated by the bank’s dishonor slip (Exhibit D-1).

On May 30,
1980, the Chief of the Licensing and Inspection Division of the
Bureau of Tourism Services, Ministry of Tourism disapproved the request of the
private respondents to transfer their office to the premises owned by the
petitioner on the ground that the place failed to meet the minimum 50 square
meter-space requirement of the Bureau (Exhibit 6).

On June 10,
1980, the private respondents informed the petitioner in writing that
they had to vacate the leased premises in question on or about June 14, 1980 in view of the
disapproval of their request to operate their business in the office space
rented from the petitioner (Exhibit B).

On June 16,
1980, the petitioner notified the private respondents in writing of
the dishonor of Commendador’s postdated check (Exhibit
C).

On July 9,
1980, the petitioner wrote the private respondents demanding that
they make good their dishonored check in compliance with the terms and
conditions of their lease contract (Exhibits F and F-1).

On July 18, 1980, the private respondents replied by stating that
they had to rescind the lease contract and requested the refund of the amounts
they paid by way of advance and deposit rentals less the amount of rental due
(Exhibit 5).  Their request was not granted by the petitioner
(Exhibits E and E-1).

On January 16,
1981, the petitioner filed an action against the private respondents
to recover the value of the dishonored check worth P4,640.00 plus 12% interest per annum from May 30, 1980 until paid and the amount of
P22,000.00 as rental fees corresponding to the unexpired portion of the term of
the lease contract between them.

On March 24, 1982, the private respondents filed their answer,
which was later amended on July 29, 1981, alleging, among others, that private
respondent Commendador was wrongly sued because she
was not a party to the lease contract having issued the check merely for accomodation purposes; that the private respondents did not
make good the dishonored check since the Ministry of Tourism had disapproved
their request to transfer their office to the petitioner’s premises; and that
under the circumstances the private respondents had no other alternative but to
rescind the lease contract and vacate the premises.  A counterclaim
was filed for the refund of P6,200.00 representing the
advance rentals paid by the private respondents and for the award of moral
damages, attorney’s fees, and expenses of litigation.

After trial, the trial court, on March 18, 1982, rendered
judgment in favor of the private respondents.  The dispositive portion of the decision
reads:

“WHEREFORE, judgment is hereby rendered dismissing the complaint of
the plaintiff Luz J. Henson against the defendants Ely Fuderanan and Luisa Commendador,
doing business under the name and style ‘Sto. Niño Travel and Tours Agency,’ and
upon the latter’s counterclaim against the former, ordering the plaintiff to
refund to the defendants the amount of P5,600.00.  Costs against the
plaintiff.”

The appellate court affirmed the trial court’s judgment. 
A motion for reconsideration was denied in a resolution dated October 9, 1985.  Hence,
this present petition assigning as errors the following:

I

The Intermediate Appellate Court erred when its decision ‘made a new
contract’ for the parties.

II

The Intermediate Appellate Court erred in rendering a decision not
sanctioned by equity.

The Intermediate Appellate Court dismissed the petitioner’s
complaint thereby giving the private respondents the right to a refund of the
sum they advanced as rental fees when they executed the contract of
lease.  The court did not find the private respondents in breach of
their obligations under said contract.  In the words of the
appellate court:

“The reason for the non-compliance of the obligation to occupy the
leased premises came from a third party.”

By “third party”, it meant the Chief of
the Licensing and Inspection Division of the Bureau of Tourism Services,
Ministry of Tourism.

We are constrained under the circumstances of this
case to uphold the time-honored principle that contracts are respected as the
law between the contracting parties (Castro v. Court of Appeals, 99
SCRA 722; Escano v. Court of
Appeals, 100 SCRA 197).  In the case at bar, the lease
contract executed by the petitioner and the private respondents remains as the
law between them.  In litigations involving the adjudication of
rights and obligations between the lessor and the
lessee, the lease contract shall govern (Chua Peng Hian v. Court of Appeals, 133 SCRA
572).

The disputed lease contract is plain and unequivocal in its
terms.  The stipulations are expressed in clear and explicit
language that leaves no doubt as to the intention of the contracting
parties.  Nowhere is it provided in the contract that the
fulfillment of the terms and conditions of the lease depend upon an act of a
third party, i.e., the final action to be taken by the Chief of the
Licensing and Inspection Division of the Bureau of Tourism. 
Neither is there any indication from the evidence presented that would
justify either of the contracting parties to impugn the lease contract they
executed.

The facts of the case constrain us to apply the rule that
contracts are to be interpreted according to their literal meaning when the
terms and conditions are clear and leave no doubt as to the intention of the
contracting parties (Gonzales v. Court of Appeals, 124 SCRA 630;
Matienzo v. Servidad, 107 SCRA 276;
see also Article 1370 of the Civil Code of the Philippines).  It
was error on the part of the appellate court to make room for construction of
the provisions of the subject lease contract when the case plainly calls for
application thereof.  We reiterate our ruling in the case of
San Mauricio Mining Company v. Ancheta (105 SCRA 371, 418)
that:

xxx                                
xxx                               xxx

“x x x The primary and elementary rule of construction of
documents is that when the words or language thereof is clear and plain or
readily understandable by any ordinary reader thereof, there is absolutely no
room for interpretation or construction anymore.  x x x.”
(See also Pichel v. Alonzo, 111 SCRA
341)

The first stipulation in the disputed lease contract provided for
a specific period of one year as the duration of the lease.  This
ought to be followed (See Vda. de
San Juan v. Tan, 116 SCRA
447).  For the respondent court to hold that the private
respondents-lessees are justified in disregarding their obligation to pay for
the leased premises throughout the term of the lease due to the requirement of
the Ministry of Tourism that travel agencies must operate their business in an
area mandated by the rules is tantamount to the court’s revising the contract
for the parties.  The courts, be it the original trial court or the
appellate court, have no power to make contracts for the parties (Top-Weld
Manufacturing, Inc. v. ECED, S.A., 138 SCRA 118).

Given the simple and unambiguous document of lease in this case,
the lessees, at the most, would be entitled to a refund of the advance
rental fees only if the rule on equity can be applied under the
circumstances.  However, there are no circumstances in this case
that warrant the application of equitable considerations.

The predicament in which Sto. Niño Travel and Tour
Agency found itself is entirely of its own
making.  It should have ascertained all the rules and requirements
for the operation of a travel agency before it even started to look for premises
to house its office.  The petitioner had absolutely nothing to do
with the private respondents’ violating the requirements. 
Moreover, the record shows that the petitioner-lessor offered the occupancy of the bigger rooms in her
apartments for lease to the the private respondents in
order that they could meet the minimum space requirement of 50 square meters
ordered by the Ministry of Tourism.  The private respondents
declined the offer because they were not willing to pay for the corresponding
increase in the rental fees.

The appellate court opined that the petitioner, in offering the
bigger rooms for lease at a higher rent value, gave the private respondents no
other choice but to stop the operation of their travel agency business as
against renting one of the bigger rooms and operating at a loss in view of the
increased rental fees.  The records do not show upon what evidence
the respondent court based this finding.  The questioned decision
itself shows that the court’s conclusion is purely conjectural and cannot
support the application of equity.  It states:

“However, the record shows
that defendants-appellees finally rejected leasing
these larger rooms because the rents were ‘different’.  We
presume that, by the word ‘different’, appellees meant the rents were higher which they could not
afford.” (Emphasis supplied).

The rule that travel agencies should have at least 50 square
meters of office space is a reasonable regulation intended to dignify the
business as a whole and avoid fly-by-night operators working out of cramped and
dingy quarters.  If the private respondents did not bother to look
into this requirement before entering into a lease contract, they have no right
to visit upon the petitioner the results of their negligence.

The petitioner contends that under the disputed lease contract,
the lessor is not bound to make sure that her lessee
realizes profit out of the latter’s travel agency business while occupying the
leased premises in the same way that it is not incumbent upon her to see to it
that her lessee observes the regulatory measures laid down by the Ministry of
Tourism for travel agencies.  She states that the only business
with which she is concerned is that of leasing office spaces in her apartment
building to those lessees who agree to the terms and conditions of the lease
such as the private respondents.  This may be a rigid and
hardhearted approach to the problem but it is correct.  The
contract of lease was never conditioned on the lessees’ ability to comply with
governmental requirements pertaining to their business.  We also
note that the contract was executed on May 15, 1980.  Part of the consideration was
in the form of a postdated check for P4,600.00. 
The denial by the Inspection Division of the Bureau of Tourism Services
was dated May 30,
1980.  When the postdated check fell due the following
day, May 31, the funds to meet the check were insufficient and the bank
had to dishonor the check.

The private respondents argue that their failure to comply
with their obligations under the lease contract may be justified by Stipulation
No. 9 in the lease contract which provides that:

“Compliance With Law. — The LESSEE shall
promptly obey, execute and fulfill any and all laws, ordinances, rules,
regulations and orders of the national or city government or of any bureau,
board or commission for the sanitation and safety of the leased
premises.”

The aforequoted stipulation in the lease
contract must be read in the context of the petitioner’s business of leasing
office spaces, not in that of the private respondents’ travel agency
business.  The laws, ordinances, rules, regulations, and orders
which the lessee ought to obey, execute, and fulfill pertain to those relating
to the business of the petitioner such as the payment of expenses for the deed
of lease, the settlement of electric, water and phone bills or the installation
of safety measures in cases of fire and other similar emergencies.

In view of the foregoing discussion, there is no question that the
subject lease contract which is the law between the parties herein admits of no
gap that the rule on equity may rightfully bridge.

WHEREFORE, the petition is hereby GRANTED. 
The decision appealed from is REVERSED and SET ASIDE and a new one is
rendered:

1. Ordering private respondent Ely Fuderanan to
   replace or pay the value of the dishonored check of P4,640.00 with 12% interest per annum from May 30, 1980 until
   paid;

2. Ordering private respondent Ely Fuderanan to pay the rentals corresponding to the unexpired
   portion of the lease provided, however, that the P6,000.00 deposited by the
   private respondent which the petitioner is obliged to return may be offset
   against the unpaid rentals under the lease contract;
   and

3. Ordering private respondent Ely Fuderanan to pay P2,000.00 as
   attorney’s fees plus costs of the suit.

SO
ORDERED.

Fernan, (Chairman), Alampay, Paras, Padilla, and
Cortes, JJ.,
concur.
Bidin , J., no part.

Justice Abdulwahid A. Bidin took no part as he was one of the members who
concurred in the decision of the then Intermediate Appellate Court.