Leveriza vs. Intermediate Appellate Court

The Court held that the Administrator of the Civil Aeronautics Administration (CAA) is expressly vested by law—specifically Section 32(24) of Republic Act No. 776—with the authority to enter into, execute, and cancel contracts of lease over real property belonging to the Republic of the Philippines under the CAA's administration, without need for approval from the Department Head. Consequently, the cancellation of Contract A due to the lessee's unauthorized sublease was valid, and the subsequent Contract C between the CAA and Mobil Oil was enforceable.

The dispute centered on three overlapping lease contracts over a 3,000-square meter parcel of land at the Manila International Airport area. In 1965, the CAA leased the land to Rosario C. Leveriza (Contract A). Later that year, Leveriza subleased the same property to Mobil Oil Philippines, Inc. (Contract B) without the CAA's consent. In 1968, the CAA directly leased the property to Mobil Oil (Contract C). Mobil Oil sought the rescission of Contracts A and B, arguing that Contract A had been validly cancelled and that Contract C was the only subsisting agreement. The Leveriza heirs contested the cancellation and validity of Contract C.

• On April 2, 1965, the CAA (for the Republic) leased a 4,502 sq.m. parcel at MIA to Rosario Leveriza for 25 years (Contract A).
• On May 21, 1965, Leveriza subleased 3,000 sq.m. of the same parcel to Mobil Oil for 25 years (Contract B) without the CAA's consent.
• On June 1, 1968, the CAA directly leased the same 3,000 sq.m. parcel to Mobil Oil for 25 years (Contract C).
• On June 28, 1966, the CAA Airport General Manager, Guillermo P. Jurado, cancelled Contract A via letter to Leveriza, citing the unauthorized sublease (Contract B) as a violation of Contract A's terms.
• The trial court and Intermediate Appellate Court found that Contract A was validly cancelled, Contract B consequently ceased, and Contract C was valid.

• Petitioners (Leveriza heirs) argued that Contract A remained valid and subsisting because its cancellation was ineffective, as the Airport General Manager lacked the authority to cancel a contract approved by the Department Head.
• They contended that Contract B was a valid sublease not requiring the CAA's prior consent under Article 1650 of the Civil Code, and thus did not violate Contract A.
• They asserted that Contract C was null and void for lack of approval by the Secretary of Public Works and Communications, as required by Sections 567 and 568 of the Revised Administrative Code.

• Respondent Mobil Oil argued that Contract A was validly cancelled on June 28, 1966, making Contract B ineffective, and that Contract C was the only valid and subsisting lease.
• Respondent CAA, in its final comment before the Supreme Court, adopted the lower courts' ruling, asserting that the CAA Administrator had the power to execute and cancel lease contracts under Section 32(24) of R.A. 776 without needing Department Head approval.

• Procedural Issues: N/A
• Substantive Issues:
  1. Whether the CAA Administrator had the statutory authority to cancel Contract A (approved by the Department Head) without the Department Head's approval.
  2. Whether the unauthorized sublease (Contract B) constituted a valid ground for the cancellation of Contract A.
  3. Whether the CAA Administrator had the authority to execute Contract C without the approval of the Department Head.

• Procedural: N/A
• Substantive:
  1. The Court ruled that the CAA Administrator had the authority to cancel Contract A. The terms for revocation were already provided in Contract A itself (paragraph 8), and its implementation did not require further Department Head approval. The cancellation by the Airport General Manager, acting "For the Director," enjoyed a presumption of regularity and was subsequently ratified.
  2. The Court held that the unauthorized sublease (Contract B) violated paragraph 7 of Contract A, which required the lessor's prior consent for any "transfer of rights to the leased premises." This violation constituted sufficient ground for revocation under paragraph 8 of Contract A.
  3. The Court found that the CAA Administrator was expressly vested by law with the authority to execute Contract C. Section 32(24) of Republic Act No. 776 (a special law) granted the Administrator the power to enter into contracts and lease real property under the CAA's administration. This specific grant prevails over the general provisions of Sections 567 and 568 of the Revised Administrative Code. The absence of a requirement for presidential or departmental approval for leases (unlike for sales) in R.A. 776 indicated the legislature's intent to vest such authority in the Administrator.

• Statutory Construction: Special Law Prevails Over General Law — The Court applied the principle that a special statute (R.A. 776, governing the CAA) prevails over a general statute (Revised Administrative Code) on the same subject. Since R.A. 776 specifically vested the authority to lease CAA-administered property in the Administrator, it controlled over the general requirements for departmental approval in the Administrative Code.
• Presumption of Regularity — The Court held that the act of the Airport General Manager in cancelling Contract A, performed in the regular course of duty and signed "For the Director," enjoyed the presumption of regularity in the performance of official functions.

• "The terms and conditions under which such revocation or cancellation may be made, have already been specifically provided for in Contract 'A' which has already been approved by the Department Head. It is evident that in the implementation of aforesaid contract, the approval of said Department Head is no longer necessary if not redundant."
• "...the Civil Aeronautics Administration has the power to execute the deed or contract involving leases of real properties belonging to the Republic of the Philippines, not because it is an entity duly designated by the President but because the said authority to execute the same is, by law expressly vested in it."

• San Mauricio Mining Company v. Ancheta, 105 SCRA 391 — Cited for the principle that errors of government personnel should not affect public interest and that the government may rectify such errors to protect public interest. Applied to reject the argument that a subsequent erroneous billing by the CAA's Accounting Department waived the cancellation of Contract A.
• Sto. Domingo v. De los Angeles, 96 SCRA 139; De Jesus v. People, 120 SCRA 760; Wil Wilhelsen, Inc. v. Baluyot, 83 SCRA 38 — Cited collectively to support the doctrine that a special statute prevails over a general statute.

• Section 32(24) of Republic Act No. 776 — The special law creating the CAA and granting its Administrator the power to "enter into, make and execute contracts of any kind," including to "acquire, hold, purchase, or lease any personal or real property." The Court held this expressly vested authority, making departmental approval unnecessary for leases.
• Sections 567 and 568 of the Revised Administrative Code — The general provisions requiring contracts involving real property of the Republic to be executed by the President or his designate, or with Department Head approval. The Court found these inapplicable due to the specific grant of authority in R.A. 776.
• Paragraphs 7 and 8 of Contract A — The contractual provisions requiring the lessor's prior consent for any transfer of rights and allowing revocation for non-compliance, which formed the basis for the valid cancellation.