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Jul 30, 2008

G.R. No. 135721, May 27, 2004


This is a case for collection of back rentals plus interest and attorney’s fees filed by Agricom against Chua Tee Dee, doing business as Pioneer Enterprises.

On May 22, 1985, Agricom and Dee entered into a 15-year lease contract over the rubber plantation owned by the former. Among the stipulations in the contract was the payment of deposit in the amount of P135,000.00 and payment of back rentals in case of non-payment of rentals for three months. The contract also stipulated that Agricom had the duty to maintain Dee in the quiet peaceful possession and enjoyment of the leased premises.

However, sometime in 1986, a labor case for illegal dismissal and unfair labor practice was filed against Agricom, Amado Dee (Chua Tee Dee’s husband) and Pioneer. This case arose from the fact that some of the plantation laborers were dismissed from work due to the contract of lease with Dee. The labor case dragged on for a number of years. In addition, Dee also complained of being pestered by some individuals who claimed portions of the plantation as their own property.
Later on, Pioneer defaulted in its monthly payments, prompting Agricom to file a complaint for sum of money. In its Answer, Dee asserted that Agricom committed breach of contract for its failure to maintain her in peaceful possession and enjoyment of the leased premises. The breach, in turn, entitled her to suspend payment of rentals.

While the case was pending, Dee extended a personal loan of P30,000 to Lillian Carreido. When judgment was finally rendered, the complaint was dismissed and the lease contract terminated, the court stating that it was Agricom’s duty as lessor to maintain the lessee in peaceful possession and enjoyment of the leased premises.

Upon motion for recommendation, the lower court reversed its own ruling, ordering Dee to pay Agricom back rentals and rentals for the first three years of the lease already paid for. The CA affirmed the order.

Hence this appeal.


  • Whether or not CA committed grave abuse of discretion in upholding the validity of the lease contract and holding Dee liable for back rentals, including rentals already paid for

The Supreme Court ruled partly in favor of Dee.

On the issue of suspension of payment of rentals, Dee anchors her argument on Art. 1658, NCC, which entitles the lessee to suspend payment of rent in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the property leased. Dee asserted that she was harassed by squatters and several claimants of the leased premises.

The duty “to maintain the lessee in the peaceful and adequate enjoyment of the lease for the duration of the contract” is merely a warranty that the lessee shall not be disturbed in his legal, and not physical, possession. In the present case, however, petitioner had not been disturbed in her legal possession of the property.

As to the claims of loss due to the labor dispute, the Supreme Court agreed with the CA that Dee failed to prove this. During the period of pendency of the labor case, Dee regularly paid the monthly rentals. It was only after the labor case has been resolved that she started to fail to pay her rentals, strongly indicating that the labor case has not dampened her peaceful and adequate possession of the leased premises.

The Supreme Court, however, ruled that Dee should not be made to pay rentals for the first three years of the lease, since those rentals were already paid for. Moreover, the personal loan extended by Dee to Lillian Carriedo should not be charged against Agricom. While it is true that the petitioner and Carriedo had agreed that the personal loan of the latter shall be “chargeable against Agricom’s account,” the private respondent is not privy to the agreement; nor did it agree to pay the said loan. It must be stressed that the private respondent has a personality separate and distinct from its stockholders.


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