338 Phil. 994
HERMOSISIMA, JR., J.:
“Sometime in 1967, the predecessor-in-interest of appellant Ninoy International Airport Authority (‘NAIAA’), the Civil Aeronautics Administration (‘CAA’), an agency of the Republic of the Philippines, leased to the appellee a parcel of land fronting the Manila Domestic Airport in Pasay City. This is a portion of the land described in TCT No. 6735 registered in the name of the Republic of the Philippines.‘2. That within the leased premises, the LESSEE shall construct the hotel building and other necessary improvements x x x. The final plans and specifications for the hotel building and other necessary improvements including the ‘Golf Driving Range’ x x x shall be submitted to the LESSOR for approval within Ninety (90) days from receipt of a copy of this Contract as approved by the Secretary of Public Works and Communications. x x x The LESSEE shall begin construction within Ninety (90) days from receipt by the LESSEE of the written notification by the LESSOR that the leased premises are free from squatters and other occupants, to be completed within Two (2) years thereafter.
This piece of government property was leased because the area was ‘an eyesore to the airport premises due to the fact that a major portion of it consist[ed] of swampy and talahib infested silt and abandoned fishponds and occupied by squatters and some CAA employees with ungainly makeshift dwellings.’ Thus, in accordance with its general plan to improve and beautify the airport premises and in pursuance of its desire to provide facilities and conveniences as may be necessary for the comfort, convenience and relaxation of transients, tourists and the general public, the CAA leased the subject premises to appellee, a private corporation engaged in hostelry and allied businesses, who [was] ready, willing and able to cooperate with the CAA in the implementation of its general development plan for the airport premises.
The lease contract provided, among other things, that:
The lease was approved on 15 February 1967.On January 15, 1992, the trial court issued a temporary restraining order enjoining petitioners from collecting aforementioned Concessionaire’s Privilege Fees on the sub-lessees’ use of the premises leased out to private respondent Salem and from evicting the latter from the premises in case of non-payment of said fees.
In compliance with its obligation under the lease contract, appellee paid the stipulated monthly rentals. It also ejected about 700 squatter families on the leased premises and filled up the area which was then swampy and overgrown with ‘talahib’ (i.e., cogon grass). The appellee also prepared the plans and specifications of the proposed [h]otel and submitted the same to [the CAA]. The plans were approved by the CAA through its Senior Civil Engineer, Chief of the Airport Division and the Director of Civil Aviations. The construction of the hotel, however, did not materialize as the previous officials of appellant corporation under the administration of the late President Ferdinand Marcos withheld approval allegedly to avoid displeasing former First Lady Imelda Romualdez Marcos who was then in the process of constructing the nearby Philippine Village Hotel x x x.
In lieu of the hotel, appellee was instead allowed to construct a cinema, a driving range and other structures in a portion of the leased premises x x x.
Sometime afterwards, appellee requested the appellants to allow it to construct offices and stores in the vacant portions of the leased areas to avoid its being idle but such request was declined by appellants in a letter to appellee dated 20 July 1989. In said letter, it was explained that the rental rate, which is P2,007.60 a month was one of the reasons why the construction permit was not granted. The appellee was also informed that the appellant found the renewal clause x x x as disadvantageous to the latter. Hence, as early as August 1987, the then Manila International Airport Authority (MIAA) Board of Directors had instructed the MIA Management to renegotiate the terms and conditions of the lease contract before the application for a construction permit can be considered x x x.
On 18 August 1989, appellee replied and asked for a reconsideration of the denial of the application for a construction permit. Two other follow-up letters were also sent by the appellee on 4 October 1989 and 8 November 1989 x x x.
In November 1989, the appellant responded through a letter stating that it has deferred action on the application as it was updating its master plan of development of the NAIA that will involve utilization of the property leased to the appellee x x x.
Earlier, the Office of the Government Corporate Counsel, Department of Justice, released its Opinion No. 071, dated 3 April 1989, stating that appellant NAIAA cannot decline appellee’s application for permit to construct offices and stores within the leased premises.
Notwithstanding this opinion as well as the series of letters sent by the appellee, the appellant corporation, however, still refused to issue the requested construction permit.
The appellee then instituted a complaint for specific performance with prayer for damages and mandatory injunction on 17 August 1990 before the Regional Trial Court in Pasay City. Through their complaint, the appellee sought to compel the appellants to issue a construction permit for the construction of a building housing offices and stores within the leased premises x x x.
In their answer, the appellants controverted the action on the ground that the lease contract envisions a hotel and not the construction of offices and stores x x x.
The appellee then filed an amended complaint with leave of court on 14 February 1991 praying alternatively for the construction of a hotel as provided for in the lease contract x x x.
On 17 April 1991, while the case was pending, the appellant wrote the appellee requiring the latter to submit the plans and drawings of the proposed hotel for endorsement to Air Transportation Office. This request was made in anticipation of possible amicable settlement that may be achieved during the pre-trial of the case x x x.
On 29 April 1991, the appellee submitted the required plans and specifications with a reminder that the same had been previously submitted and that the Director of Civil Aviation, now Air Transportation Office, had already approved it x x x.
A supplemental complaint with petition for preliminary injunction and restraining order was filed on 30 July 1991 by the appellee. The appellee prayed that the appellant be restrained from collecting concessionaire’s privilege fees for its subleases and other amounts not contemplated in the lease contract x x x.”
1) ordering [NAIAA] to issue a permit to [Salem] for the construction of offices and stores and/or hotel pursuant to the lease contract;
2) allowing [Salem] to use and occupy the leased premises for a period of twenty-five years from the issuance of the permit, the same to be renewable for another twenty-five years thereafter at [Salem’s] option under the same terms and conditions;
3) declaring null and void [NAIAA’s] concessionaires fees and all other similarly situated collection process imposed unto [Salem] not otherwise covered embraced or authorized under the lease contract;
4) ordering [NAIAA] to pay [Salem] the sum of P500,000 compensatory damages per annum beginning March 1984 and yearly thereafter, until the subject construction permit is finally issued; [and]
5) ordering [NAIAA] to pay[Salem] the sum of P200,000 as attorney’s fees.”[6]
“The first argument hinges on the fact that, by its terms, the lease contract had expired on 15 February 1992.‘By and large, considering that the obligation to issue the permit to construct the hotel devolves upon the defendants and that the principal purpose of the Lease Contract was to construct the hotel, the period of the lease should commence on the date when the construction permit is issued. In other words, unless the permit is issued, the term of the lease cannot be deemed to have commenced, with respect to the envisioned hotel aspect. The rationale being that ‘when a contract is subject to a suspensive condition, its birth or effectivity can take place only if and when the event which constitutes the condition happens or is fulfilled.’ However, with respect to the other areas which have been occupied by the plaintiff, upon prior authorization from the defendants, the remaining period by reason of partial novation of contract shall be 25 years only, representing the renewal term which plaintiff had the option x x x.’
The trial court opined that:
Strictly speaking, the term of the contract should be reckoned from the date of its approval by the Secretary of Public Works and Communications, which was on 15 February 1967. This is expressly provided for in the contract itself.The respondent appellate court, echoing the disquisition of the trial court, categorically found petitioner liable for a patent violation by petitioners of its obligation under the lease contract to issue the building permit that would have officially allowed private respondent Salem to proceed with the construction of the proposed hotel.
We do agree with the trial court, however, that under the circumstances of this case, the term of the contract cannot be considered as having commenced on the date of such approval.
It will be recalled that, as stated by the trial court, the principal objective of the lease contract is the construction of a hotel within the leased premises. This is in line with the desire to improve and beautify the airport premises. It was not merely for the appellant to lease out the premises.
The construction of the hotel is, likewise the principal obligation of the lessee. The accomplishment of this obligation, however, is conditioned on the grant of a construction permit by the appellant corporation. The construction permit, in turn, was to be granted after the appellee complied with certain preliminary obligations, such as clearing and filling up the area, and preparation of plans and specifications for the hotel to be constructed.
While the appellee complied with its preliminary obligation as well as its obligation to pay rentals, the appellant refused to grant the necessary construction permit. This refusal was not due to defects in the plans and specification or some other fault on the part of the lessee, but to some impediment attributable to the appellant. Since the permit is, by the terms of the lease contract, a necessary condition for the construction of the hotel, the project never materialized.
Under the circumstances, there is basis for the trial court to consider the issuance of the construction permit as a suspensive condition before the contract can become effective. The principal object of the contract, its reason for being, as it were, which is the construction of a hotel will never materialize without the issuance of the permit.
Indeed, the appellee’s right to compel appellant to comply with its obligations under the lease contract should not be rendered moot and academic by the supposed expiration of the contract. This is because the failure of the appellee to enjoy the full benefits and to implement the principal objective of the contract is not due to its fault but to the appellants’ fault. The appellee, in fact, had applied for the construction permit even before the term of the lease supposedly expired. It must also be stressed that the plans and specifications submitted by the appellee were already approved by the officers of the then Civil Aviation Administration. Thus, no fault can be attributed to the appellee with respect to the non-implementation of the primary objective of the lease contract.
We, therefore, find no reversible error in the conclusion of the trial judge that the term of the lease contract with respect to the hotel aspect cannot be deemed to have commenced, unless the permit is issued.
The contract not having expired, it still remains the law between the appellant and the appellee with respect to their obligations relating to the property in question x x x.
The appellant, therefore, cannot object to the application of the renewal clause which objection is now being raised in the appellant’s second assignment of error. Likewise, the appellant cannot impose fees or payments on the appellee which were not contemplated in the lease contract. Significantly, the appellant has not shown us any provision of the contract or an alternative interpretation of its terms that would show that the imposition of additional fees is not precluded by the contract.
The alleged disadvantage to the appellant due to the relatively low rental rate vis-à-vis the increasing commercial value of the property is not enough reason to disregard the obligatory force of the contractual stipulations regarding rentals and renewal, or for that matter, of all other obligations arising from contract. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence x x x. As has been held, the fact that the bargain was a hard one coupled with the mere inadequacy of price, when both parties are in a position to form an independent judgment concerning the contract, is not a sufficient ground for cancellation of the contract x x x.
It also does not help the appellants’ cause for them to argue that the lease contract in question was a political favor granted during the term of the late President Marcos. Significantly, no moves has been made to have the contract nullified. The appellants also have not shown any concrete proof to show that fraud or undue influence has attended the execution of the lease contract.
Under the circumstances, the trial court did not err in upholding the renewal clause of the lease contract as well as in disallowing the concessionaire and other fees imposed on the appellee by the appellant.”[7]
“With respect to the award of compensatory damages and of attorney’s fees, the appellant has not convinced us that such award is unjustified. Those who in the performance of their obligation are guilty of delay are liable for damages x x x.Hence this petition on the following grounds:
It is an undisputed fact that the appellee has not been able to construct the hotel it envisioned due to the fault of the appellant. Instead it was only allowed to construct a driving range, cinema and a building housing several offices. Meanwhile, a good part of the land cleared up and prepared by the appellant remained idle. Clearly, therefore, it has not realized the profits it would have earned had it been allowed to build the hotel as early as 1967 when the contract was entered into by the parties.
We also agree with the trial court’s finding of bad faith on the part of the appellant. This is contrary to the argument of the appellant that it was not guilty of bad faith or grave abuse of discretion. The unjustified refusal of the appellant to act on the application for the construction permit forced the appellee to institute this case to protect its interests, thereby incurring expenses in the process. We note that the appellant still refused to issue the permit even as the Office of the Government Corporate Counsel rendered an opinion categorically stating that the appellant cannot escape its obligations under the lease contract. Another circumstance evidencing bad faith is the fact that the refusal of the appellant to issue a permit is not due to the fault of the appellee or defects in its plans and specifications but rather to force the negotiation of a higher lease rental.
The award of damages is, therefore, proper.”[8]