The heirs are bound by the contracts entered into by their predecessors-in-interest except when the rights and obligations therein are not transmissible by their nature, by stipulation or by provision of law (Article 1311, Civil Code). This is the rule applied in this case.
The case is about a parcel of land (Lot 249-D-1) with an area of 1,554 square meters which formed part of Lot 249-D owned by Nario. On December 2, 1975 Nario leased Lot 249-D-1 in favor of his nephew Romy for a period of five years renewable for another 5 years at Nario’s option. On March 31, 1978, Romy assigned all his rights and interest under the lease contract in favor of his cousin Orly and the latter’s heirs, successors and assigns. Nario agreed to the transfer of rights but granted Orly a period up to December 3, 1983 only renewable for another four years or up to December 2, 1987. It was also stipulated in the lease contract with Orly that during the period of the lease, the property cannot be sold, transferred or conveyed in whatever manner to a third party.
Since Orly would use the property as a gasoline station and to comply with the requirements of the oil company, Orly convinced Nario to amend their lease so as to give him an additional option to renew the lease contract for an aggregate period of ten years at five year intervals that is, from December 3, 1987 to December 2, 1992 and from December 3, 1992 to December 2, 1997. So on June 24, 1978, Orly and Nario executed a Supplementary Agreement amending the March 31, 1978 lease contract.
On November 27, 1983, or 26 days prior to the expiration of original period of the lease contract, Orly died. Upon his death his wife Fenny took over the operation of the gasoline station and continued possession of the leased property without notifying Nario that as surviving spouse and guardian of her minor children, she was exercising the option to renew the contract of lease that would expire on December 3, 1983. Nario allowed the set up out of his close blood relationship with Orly who was his nephew.
Meanwhile on January 29, 1987, Nario sold Lot 249-D-1 to his sons Ed and Jorge. Several months thereafter or on September 7, 1987, Nario died.
Sometime in 1993, Ed tried to get back the property from Fenny and her children. He claimed that Fenny’s possession of said property was merely out of tolerance as the lease between their late father Nario and Fenny’s deceased husband Orly had long expired and was not renewed.
In response Fenny as surviving spouse and administrator of Orly’s estate and guardian of her minor children sued Ed and George and the latter’s mother Fely. She claimed that when Nario sold Lot 249-D-1 to Ed and Jorge on January 29, 1987, the lease contract was still in full force, thus said sale was fraudulent, in bad faith and invalid because it is in violation of the provision therein prohibiting the sale, transfer or conveyance of the subject lot to any third party while it is in force. Was Fenny correct?
No. A contract of lease involves a property right and is therefore generally transmissible to the heirs of the lessor and the lessee. As such, the death of a party does not excuse the non-performance of the contract. The heirs of the deceased lessor are bound to respect the period of lease as much as the heirs of the lessee are bound by the covenants to renew the lease which are not personal but run with the land. Accordingly, the rights and obligations in the March 31, 1978 Agreement with option to renew where Romy as lessee transferred his rights to Orly, his “heirs, successors and assigns”, were transmitted from Orly to his heirs upon his death on November 7, 1983.
In resolving this case therefore, it is necessary to determine whether the said Agreement was renewed upon its expiration on December 3, 1983 and so was still in force at the time of the sale of the subject lot in favor of Ed and Jorge on January 29, 1987.
When Orly died on November 7, 1983, the lease contract was set to expire 26 days later or on December 3, 1983 unless renewed by Orly’s heirs (Fenny and her children) for another four years. While the option to renew is an enforceable right, it must necessarily be exercised first to be given effect. The lessor must be notified thereof by the lessee or his heirs prior to or at least at the time of the expiration of the original term. In this case, Fenny did not notify Nario that they were exercising the option. She just continued possession of the subject lot. The exercise of the option to renew cannot be inferred from such continued possession and operation of the gasoline station even after the death of Orly on November 7, 1983 and the expiration of the lease contract on December 3, 1983. There must be some positive acts that Orly’s heirs exercised the option to renew the lease.
Hence at the time of the sale of subject lot to Ed and Jorge on January 29, 1987, the lease agreement had long been terminated for failure of Orly or his heirs to validly renew the same. As a result there was no longer any obstacle to said sale as the prohibitory clause under the lease contract was no longer in force (Estate of Llenado et. al. vs. Llenado et. al, G.R. 145736, March 4, 2009)
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