Peralta vs.

Raval
G.R. No. 188467 / 188764. March 29, 2017
REYES, J.:
Facts:
Spouses Flavio and Magdalena Arzaga, as lessors, entered into a Contract of Lease with
petitioner Renato Peralta, as lessee, over the subject lots and the improvements and agreed on a
term of 40 years. 14 years later, Flaviano Arzaga Jr., adopted son and heir of spouses Arzaga,
filed for the annulment of lease contract alleging that petitioner breached in his obligations under
the lease contract which the trial court dismissed and the CA affirmed. Flaviano, then, assigned
all his rights, interests and participation in the subject properties to respondent Jose Roy Raval
for P500,000.00. However, petitioner refused to recognize the validity of the assignment to
respondent and still deposit his rental payments to Flaviano, Jr. With the failure of the party to
settle the issue, respondent’s father and counsel, Atty Castor Raval, demanded petitioner to
vacate the second storey of the house and pointed out the improvements made which is not part
of the lease agreement. After several demands, respondent filed for rescission of lease while
petitioner filed for a counterclaim. The trial court dismissed both Raval’s complaint ruling
Peralta had been depositing his monthly rentals in the bank accounts that were opened “in trust
for” Raval and specifically for the purpose of effecting the payments; and Peralta’s counterclaim
holding that it was not proved that the institution of the rescission case was prompted by malice,
fraud or bad faith. Upon denial of motions for reconsiderations, thus, this petition.
Issue:
Whether the lease agreement may be rescinded?
Rule of law:
Article 1659 of the NCC
Application:
It must be emphasized though that specifically on the matter of rescission of lease
agreements, Article 1659 of the NCC applies as a rule. Under Article 1659 of the NCC, an
aggrieved party in a lease contract may ask for any of the following remedies: (1) the rescission
of the contract; (2) rescission and indemnification for damages; and (3) only indemnification for
damages, allowing the contract to remain in force. These remedies were further explained by the
Court in Cetus Development, Inc. v. Court of Appeals, 176 SCRA 72 (1989), wherein it held that:
The existence of said cause of action gives the lessor the right under Article 1659 of the [NCC]
to ask for the rescission of the contract of lease and indemnification for damages, or only the
latter, allowing the contract to remain in force. Accordingly, if the option chosen is for specific
performance, then the demand referred to is obviously to pay rent or to comply with the
conditions of the lease violated. However, if rescission is the option chosen, the demand must be
for the lessee to pay rents or to comply with the conditions of the lease and to vacate.
Conclusion:
WHEREFORE, the petition filed by Jose Roy B. Raval is DENIED while the petition
filed by Renato Ma. R. Peralta is PARTLY GRANTED. The Decision of CA is AFFIRMED
with MODIFICATION in that the order upon Renato Ma. R. Peralta to pay the unpaid monthly
rentals, interest and attorney’s fees is DELETED.