Manila Bay Club Corp v CA

G.R. No. 110015 October 13, 1995

Civil Code, Art. 1306 – The contracting parties may establish such stipulations, clauses, terms and conditions NOT contrary to law, morals, good customs, public order or public policy.

Facts:

Sabenianos as owners-lessors and Manila Bay Club Corporation as lessee executed ten-year lease contract.

But the lease agreement was short-lived because the Sabenianos unilaterally terminated the lease due to the following contract violations:

(a)  For unpaid accumulated rentals in arrears;

(b)  For using the leased premises for gambling and prostitution; and

(c)   Failure to insure the leased building.

They invoked the "Special Clause" of the lease contract that in case the MBCC fail or neglect to perform or comply with the stipulations, the lease contract shall become automatically terminated and cancelled and the said premises shall be peacefully vacated by the LESSEE.

The "Special Clause" of the lease contract as found in paragraph 19 thereof to justify their action. It reads:

19. If the rental herein stipulated or any part thereof at any time, shall be in arrears or unpaid, or if the tenant shall at any time fail or neglect to perform or comply with any of the covenants, conditions, agreements or restrictions stipulated or if the tenants shall become bankrupt or insolvent or shall compound with his creditors, then and in any of such above cases, this lease contract shall become automatically terminated and cancelled and the said premises shall be peacefully vacated by the LESSEE for the LESSOR to hold and enjoy henceforth as if these presents have not been made and it shall be lawful for the LESSOR or any person duly authorized in his behalf, without any formal notice or demand to enter into and upon said leased premises or any part thereof without prejudice on the part of the LESSOR to exercise all rights on the contract of lease and those given by law. And upon such cancellation of the contract, the LESSEE hereby grants to the LESSOR the legal right to enter and take possession of the leased premises as though the term of the lease contract has expired.

 The trial court abandoned the first two grounds for lack of sufficient evidence, but found MBCC violated the "insurance clause" (paragraph 22) of the contract, which CA affirmed.

MBCC argued that Sabenianos cannot unilaterally rescind the lease contract because its purported violation of the "insurance clause" was merely slight or casual.

Issue:

WoN the strict compliance with the "insurance clause" is mandatory to result in the automatic termination and cancellation of the lease in case of non-observance.

Held:

          Yes, the Supreme Court finds petitioner's failure to comply with the mandatory requirement of insuring the building shall result in the automatic termination and cancellation of the lease as stipulated in their contract.

          Article 1306 of the New Civil Code provides that the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.

In the case at bar, it can be fairly judged from the tenor of the contract that the parties intended mandatory compliance with all the provisions of the contract. Certainly, there is nothing wrong if the parties to the lease contract agreed on certain mandatory provisions concerning their respective rights and obligations, such as the procurement of the insurance and the rescission clause.

          Thus, the petition is DENIED for lack of merit.