Mañas vs. Nicolasora

In an implied renewal of a lease contract under Article 1670 of the New Civil Code, only terms germane to the lessee's continued use and enjoyment of the property are revived; the right of first refusal, being alien to the right of occupancy, does not carry over to the impliedly renewed lease.

Spouses Allan and Lena Isabelle Y. Mañas operated a business on a property in Tacloban City owned by the estate of the late Chy Tong Sy Yu, represented by his widow Rosalina Roca Nicolasora. On April 18, 2005, the spouses entered into a one-year Lease Contract containing a right of first refusal that obligated the lessor to notify the lessee before selling and granted the lessee thirty days to accept or counter-offer. The contract provided for renewal at the option of the lessee. After the term expired in April 2006, the spouses continued occupying the premises and paying monthly rentals without executing an express renewal. On February 14, 2008, Rosalina and her children Janet and Anthony Nicolasora sold the property, including the leased premises, to Ma. Therese Roselle Uy-Cua without prior notice to the Mañas Spouses.

• The Lease Contract and Right of First Refusal: On April 18, 2005, Spouses Allan and Lena Isabelle Y. Mañas entered into a Lease Contract with Rosalina Roca Nicolasora over real property in Tacloban City owned by Rosalina's deceased husband, Chy Tong Sy Yu. The contract fixed a duration of one year, renewable at the option of the lessee. It expressly granted the lessee a right of first refusal, requiring the lessor to notify the lessee before selling and giving the lessee thirty days to accept or make a counter-offer. The contract also contained a mediation clause referring disputes to the Philippine Mediation Center.
• Expiration and Continued Occupation: The Lease Contract lapsed in April 2006 without express renewal or notification by the lessee of their intent to renew. However, the Mañas Spouses continued using the premises and paying monthly rentals of P6,000.00 without objection from Rosalina or her children, Janet and Anthony Nicolasora.
• The Sale to Uy-Cua: On February 14, 2008, the property was sold by the Nicolasoras to Ma. Therese Roselle Uy-Cua. The Deed of Absolute Sale bore the conformity of Rosalina, Janet, and Anthony. The Certificate of Title was transferred to Roselle. The Mañas Spouses alleged they received no prior notice of the sale nor an opportunity to exercise their right of first refusal.
• Demand to Vacate: On June 2, 2008, the Mañas Spouses received a letter from RMC Trading (representing the new owners) informing them that the land had new owners who intended to construct improvements, and requesting the spouses to relocate their business/residence within 30 days.
• Trial Court Proceedings: The Mañas Spouses filed a Complaint for Rescission of Contract of Sale, Cancellation of Certificates of Title, and Enforcement of Right of First Refusal. Respondent Roselle filed a Motion to Dismiss arguing the complaint stated no cause of action because the right of first refusal expired with the original lease term and was not revived in the implied month-to-month renewal under Article 1670. She also raised failure to comply with barangay conciliation under R.A. 7160 as a condition precedent. Respondents Rosalina, Janet, and Anthony filed an Answer with Counterclaim, similarly arguing the right of first refusal was granted only during the original term. The RTC granted the Motion to Dismiss on January 7, 2009, finding that the implied renewal did not revive the right of first refusal as it was not germane to possession, that the "whereas" clauses were merely introductory, and that barangay conciliation was mandatory.
• Appellate Proceedings: The Court of Appeals affirmed the dismissal on April 17, 2013, holding that continued possession with acquiescence constituted an implied renewal under Article 1670 for a month-to-month period, but that the right of first refusal did not carry over to the implied renewal.

• Express Renewal: The Mañas Spouses maintained that the Lease Contract was expressly renewed, carrying with it all original terms including the right of first refusal. They argued that their continued occupation and payment of rentals constituted an exercise of the option to renew, rendering the renewal express rather than implied.
• Scope of Implied Renewal: Alternatively, they contended that even if the renewal were implied, all terms of the original contract were revived, including the right of first refusal. They relied on the "whereas" clauses of the contract stating the lessee was interested in buying the property "during the existence of the lease or thereafter," arguing this created a perpetual right to first refusal.
• Void Sale for Incapacity: In their Opposition to the Motion to Dismiss and their Appeal Brief, petitioners alleged that the Deed of Absolute Sale was void because vendee Roselle was a minor (14 years old) at the time of sale in February 2008.
• Procedural Error: They argued that the trial court erred in granting the Motion to Dismiss based on defenses raised by respondents rather than on the ultimate facts alleged in the Complaint, asserting that the complaint sufficiently stated a cause of action for rescission based on violation of the right of first refusal.

• Implied Renewal Limited to Possession: Respondent Roselle countered that the lease was only impliedly renewed because petitioners never notified the lessor of their intent to renew. Under Article 1670, only terms germane to possession are revived in an implied renewal; the right of first refusal, being alien to possession, was not renewed and expired with the original one-year term.
• Prematurity and Condition Precedent: Respondents argued that the complaint was prematurely filed because petitioners failed to comply with the mandatory barangay conciliation requirement under Section 412 of R.A. 7160 before filing suit.
• Lack of Standing to Challenge Incapacity: Regarding the minority of the vendee, respondents maintained that petitioners were not proper parties to raise this issue. Under Article 1397 of the Civil Code, persons who are capable cannot allege the incapacity of those with whom they contracted. Furthermore, incapacity is a ground for annulment, not rescission, and petitioners were not parties to the Deed of Sale nor obliged principally or subsidiarily thereunder.
• Improper Action: Respondent Roselle pointed out that petitioners prayed for rescission but were actually seeking annulment of the contract, constituting a mischaracterization of their cause of action.

• Implied Renewal and Right of First Refusal: Whether the Court of Appeals erred in affirming the dismissal on the ground that the complaint stated no cause of action, specifically whether the implied renewal of the lease under Article 1670 included the right of first refusal.
• Vendee's Incapacity: Whether the Court of Appeals erred in not ruling that the Deed of Absolute Sale must be rescinded due to the incapacity of vendee Ma. Therese Roselle Uy-Cua.
• Condition Precedent: Whether the Court of Appeals erred in affirming the dismissal for failure to comply with the condition precedent of barangay conciliation.

• Implied Renewal and Right of First Refusal: The dismissal was proper because the right of first refusal was not included in the implied renewal. Under Article 1670 of the Civil Code, an implied renewal occurs when the lessee remains in possession for fifteen days after expiration with the lessor's acquiescence, but the revival of terms is limited to those germane to the lessee's continued use and enjoyment of the property. Relying on Dizon v. Court of Appeals, the Court held that special agreements foreign to the right of occupancy—such as an option to buy or right of first refusal—are not deemed incorporated in the impliedly renewed contract. The original right of first refusal expired with the termination of the one-year lease in 2006; thus, petitioners had no basis to compel rescission of the 2008 sale.
• Vendee's Incapacity: The claim regarding Roselle's minority was procedurally barred and substantively misplaced. Petitioners were not proper parties to allege incapacity under Article 1397 of the Civil Code, as they were not parties to the Deed of Sale. Moreover, incapacity is a ground for annulment of contract, not rescission, and petitioners failed to file the proper action.
• Condition Precedent: The dismissal was additionally warranted by the failure to comply with Section 412 of R.A. 7160, which mandates barangay conciliation as a condition precedent to filing complaints in court. None of the statutory exceptions (detention, habeas corpus, provisional remedies, or statute of limitations) were present.

• Implied Renewal of Lease (Article 1670) — Implied renewal occurs when a lessee continues enjoying the leased thing for fifteen days after contract expiration with the lessor's acquiescence, without notice to the contrary from either party. The new lease is not for the original period but for the time established in Articles 1682 and 1687 (month-to-month if rent was paid monthly). In this case, the Court applied this doctrine to find that the Mañas Spouses' continued possession after April 2006 created an implied month-to-month lease, not a revival of the original one-year term with all its conditions.
• Limited Revival of Terms in Implied Renewal — In an implied renewal under Article 1670, only terms germane to the lessee's continued use and enjoyment of the property are revived. Terms alien to possession—such as options to purchase or rights of first refusal—do not carry over to the impliedly renewed lease. The presumption of revival covers only terms related to possession, such as rental amount, payment dates, care of property, and responsibility for repairs. The Court applied this to hold that the right of first refusal was not revived.
• Distinction Between Rescission and Annulment — Rescission (under Article 1380 et seq.) is a remedy for contracts that are valid but cause damage to one party or third persons, or for non-fulfillment of resolutory conditions. Annulment (under Article 1390) is a remedy for voidable contracts, such as those where one party is incapable of giving consent. The proper parties to annulment are those obliged principally or subsidiarily under the contract, and capable persons cannot allege the incapacity of those with whom they contracted (Article 1397). The Court applied this to bar petitioners from raising the minority of the vendee.
• Barangay Conciliation as Condition Precedent — Section 412 of the Local Government Code (R.A. 7160) requires confrontation before the lupon or pangkat before filing complaints in court, unless specific exceptions apply (detention, habeas corpus, provisional remedies, or statute of limitations). The Court applied this to affirm the dismissal for non-compliance.

• "Dizon v. Court of Appeals instructs us that a lease contract's implied renewal does not mean that all the terms in the original contract are deemed revived. Only the terms that affect the lessee's continued use and enjoyment of the property would be considered part of the implied renewal. Indeed, the right of first refusal has nothing to do with the use and enjoyment of property."
• "Necessarily, if the presumed will of the parties refers to the enjoyment of possession the presumption covers the other terms of the contract related to such possession, such as the amount of rental, the date when it must be paid, the care of the property, the responsibility for repairs, etc. But no such presumption may be indulged in with respect to special agreements which by nature are foreign to the right of occupancy or enjoyment inherent in a contract of lease."
• "The concept of implied renewal is a matter of equity recognized by law. Technically, no contract between a lessor and a lessee exists from the end date of a lease contract to its renewal. But if there is no notice to vacate and the lessee remains in possession of the property leased, it would only be proper that the lessor is still paid for the use and enjoyment of the property."
• "Persons who are capable cannot allege the incapacity of those with whom they contracted."

• Dizon v. Court of Appeals, 361 Phil. 963 (1999): Controlling precedent establishing that implied renewals under Article 1670 do not include options to purchase or rights of first refusal as these are alien to possession. The Court followed this doctrine to conclude that the right of first refusal expired with the original lease term.
• Arevalo Gomez Corporation v. Lao Hian Liong, 232 Phil. 343 (1987): Cited to explain that Article 1670 applies where no negotiations for renewal occur before expiration, and the lessee is not asked to vacate within fifteen days.
• Dizon v. Magsaysay, 156 Phil. 232 (1974): Cited in Dizon v. Court of Appeals and referenced here to reinforce that express agreements on renewal govern over implied renewals where incompatibility exists regarding special rights like preferential purchase.

• Article 1670, New Civil Code — Governs implied renewal of lease contracts; provides that if the lessee continues enjoying the thing for fifteen days with acquiescence, an implied new lease is created for the period established in Articles 1682 and 1687, and "the other terms of the original contract shall be revived." The Court interpreted this to limit revived terms to those germane to possession.
• Article 1643, New Civil Code — Defines lease as a contract where one party gives another the enjoyment or use of a thing for a price; establishes that the lessee's main obligation is to allow enjoyment of the use of the thing leased.
• Article 1390, New Civil Code — Lists voidable or annullable contracts, including those where one party is incapable of giving consent.
• Article 1397, New Civil Code — Specifies who may institute annulment: those obliged principally or subsidiarily; prohibits capable persons from alleging incapacity of contracting parties.
• Section 412, Republic Act No. 7160 (Local Government Code) — Mandates barangay conciliation as a condition precedent to filing complaints in court.

Gesmundo, Carandang, Zalameda, and Gaerlan, JJ.