REPUBLIC v. PIC

Republic of the Philippines through its Trustee, The Privatization and Management Office vs. Philippine International Corporation

G.R. No. 181984

March 20, 2017

Facts:

In 1976, Cultural Center of the Philippines and respondent PIC entered into a Lease Agreement. CCP leased to PIC a parcel of land located within the CCP Complex including the building erected on a portion thereon. The term of the lease shall be twenty five years from and after the date of the contract, renewable for a like period under the same terms and conditions at the option of the LESSEE. The LESSEE may however terminate this lease at any time by giving the LESSOR sixty days’ notice in advance. Eight years later, CCP alienated the subject property through a Deed of Dacion in payment with lease. In the same Deed, PNB leased the subject property back to CCP for a period of five years. On December 8, 1986, Proclamation No. 50 was issued. It launched a program for the privatization of certain government corporations and assets and created the Committee on Privatization and the Asset Privatization Trust. PNB assigned the subject property to the national government under a Deed of Transfer pursuant to the proclamation No. 50. PIC then requested PNB to annotate the former’s leasehold rights.

However, PNB refused the request in view of the transfer of the subject property to APT, that it was not bound by the Lease Agreement between CCP and PIC. PIC instituted a complaint to compel CCP, PNB, and APT to respect the terms and conditions of the Lease Agreement and compelled to deliver the title of the subject property so that the lease could be annotated thereon. The RTC ruled in favour of PIC after finding that APT already had constructive notice of the Lease. Upon appeal, the CA dismissed APT’s petition and affirmed the RTC decision. PIC succeeded in having its leasehold rights annotated on the title of the subject property. Prior to the expiration, PIC wrote APT to reiterate an earlier letter, in that letter; PIC stated that it was exercising its option to renew the lease pursuant to the Lease Agreement. APT denied the supposed request. Meanwhile the term of APT expired. By virtue of Executive Order, the PMO was created.

It was mandated to take over the assets of APT and inherit the latter’s powers and functions. Thus, the PMO now holds the subject property on behalf of the national government. In view of the forthcoming expiration, PMO informed PIC that its option to renew the lease had been denied. PIC insisted. As a result, PMO demanded that PIC vacate the subject property upon the latter’s refusal. PMO filed a complaint before the MeTC of Pasay City. MeTC ruled in favour of PIC, it held that the lease was deemed renewed for another 25 years under the same Lease Agreement. PMO appealed to the RTC and raised the contention that the lease contract could not bind a non-party thereto like PMO. The RTC dismissed the appeal; it held that PMO stepped into the shoes of its predecessor-in-interest. Undaunted, PMO proceeded to the CA, which denied the appeal and affirmed the lower courts.

Issue: 

Whether or not PMO is bound by the Lease Agreement?

Held:

Yes. It is undisputed that PMO is the successor agency of APT. it assumes the existing obligations of APT upon the termination of the latter’s existence. Republic Act No. 8758 provides that, “upon the expiration of the terms of the Committee on Privatization and the Asset Privatization Trust, all their powers, function, duties and responsibilities, all properties, real or personal assets, equipment and records, as well as their obligations and liabilities, shall devolve upon the national government.” In turn, the national government devolved the powers, functions, obligations, and assets of APT to PMO through E.O 323. On account, PMO is obligated to respect the lease contract as the former’s successor agency. As correctly ruled by the CA, the mere failure to agree on a new rental rate can no longer divest PIC of the latter’s vested right to renew the lease pursuant to paragraph 1.01 of the Lease Agreement.