Sime Darby v. Goodyear (G.R. No. 182148; June 8, 2011)


FACTS: Macgraphics owned several billboards across Metro Manila and other surrounding municipalities, one of which was a 35 x 70 neon billboard located at the Magallanes Interchange in Makati City.The Magallanes billboard was leased by Macgraphics to Sime Darby in April 1994 at a monthly rental of P120,000.00. The lease had a term of four years and was set to expire on March 30, 1998. Upon signing of the contract, Sime Darby paid Macgraphics a total ofP1.2 million representing the ten-month deposit which the latter would apply to the last ten months of the lease. Thereafter, Macgraphics configured the Magallanes billboard to feature Sime Darby's name and logo.

On April 22, 1996, Sime Darby executed a Memorandum of Agreement[(MOA)with Goodyear, whereby it agreed to sell its tire manufacturing plants and other assets to the latter for a total ofP1.5 billion.

Just a day after, on April 23, 1996, Goodyear improved its offer to buy the assets of Sime Darby from P1.5 billion toP1.65 billion. The increase of the purchase price was made in consideration, among others, of the assignment by Sime Darby of the receivables in connection with its billboard advertising in Makati City and Pulilan, Bulacan.

On May 9, 1996, Sime Darby and Goodyear executed a deed entitled "Deed of Assignment in connection with Microwave Communication Facility and in connection with Billboard Advertising in Makati City and Pulilan, Bulacan"(Deed of Assignment),through which Sime Darby assigned, among others, its leasehold rights and deposits made to Macgraphics pursuant to its lease contract over the Magallanes billboard.

Sime Darby then notified Macgraphics of the assignment of the Magallanes billboard in favor of Goodyear through a letter-notice datedMay 3, 1996.

After submitting a new design for the Magallanes billboard to feature its name and logo, Goodyear requested that Macgraphics submit its proposed quotation for the production costs of the new design. In a letterdated June 21, 1996 Macgraphics informed Goodyear that the monthly rental of the Magallanes billboard isP250,000.00 and explained that the increase in rental was in consideration of the provisions and technical aspects of the submitted design.

Goodyear replied on July 8, 1996 stating that due to budget constraints, it could not accept Macgraphics offer to integrate the cost of changing the design to the monthly rental. Goodyear stated that it intended to honor the P120,000.00 monthly rental rate given by Macgraphics to Sime Darby. It then requested that Macgraphics send its quotation for the simple background repainting and re-lettering of the neon tubing for the Magallanes billboard.

Macgraphics then sent a letter to Sime Darby, dated July 11, 1996, informing the latter that it could not give its consent to the assignment of lease to Goodyear. Macgraphics explained that the transfer of Sime Darbys leasehold rights to Goodyear would necessitate drastic changes to the design and the structure of the neon display of the Magallanes billboard and would entail the commitment of manpower and resources that it did not foresee at the inception of the lease.

Attaching a copy of this letter to a correspondence dated July 15, 1996, Macgraphics advised Goodyear that any advertising service it intended to get from them would have to wait until after the expiration or valid pre-termination of the lease then existing with Sime Darby.On September 23, 1996, due to Macgraphics refusal to honor the Deed of Assignment, Goodyear sent Sime Darby a letter,via facsimile, demanding partial rescission of the Deed of Assignment and the refund ofP1,239,000.00, the pro-rata value of Sime Darby's leasehold rights over the Magallanes billboard.

As Sime Darby refused to accede to Goodyears demand for partial rescission, the latter commenced Civil Case No. 97-561 with the RTC. In its complaint, Goodyear alleged that Sime Darby [1] was unable to deliver the object of the Deed of Assignment and [2] was in breach of its warranty under Title VII, Section B, paragraph 2 of the MOA, stating that "no consent of any third party with whom Sime Darby has a contractual relationship is required in connection with the execution and delivery of the MOA, or the consummation of the transactions contemplated therein."

Including Macgraphics as an alternative defendant, Goodyear argued that should the court find the partial rescission of the Deed of Assignment not proper, it must be declared to have succeeded in the rights and interest of Sime Darby in the contract of lease and Macgraphics be ordered to pay it the amount of P1,239,000.00.

ISSUE: Is partial rescission of the Deed of Assignment is proper?

HELD: The petition of Sime Darby remains bereft of any merit. Article 1649 of the New Civil Code provides:

Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. (n)

In an assignment of a lease, there is a novation by the substitution of the person of one of the parties the lessee.The personality of the lessee, who dissociates from the lease, disappears. Thereafter, a new juridical relation arises between the two persons who remain the lessor and the assignee who is converted into the new lessee. The objective of the law in prohibiting the assignment of the lease without the lessors consent is to protect the owner or lessor of the leased property.

Broadly, a novation may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions one to extinguish an existing obligation, the other to substitute a new one in its place.This requires a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.

While there is no dispute that the first requisite is present, the Court, after careful consideration of the facts and the evidence on record, finds that the other requirements of a valid novation are lacking.A review of the lease contract between Sime Darby and Macgraphics discloses no stipulation that Sime Darby could assign the lease without the consent of Macgraphics.

Moreover, contrary to the assertions of Sime Darby, the records are bereft of any evidence that clearly shows that Macgraphics consented to the assignment of the lease. As aptly found by the RTC and the CA, Macgraphics was never part of the negotiations between Sime Darby and Goodyear.Neither did it give its conformity to the assignment after the execution of the Deed of Assignment.

The consent of the lessor to an assignment of lease may indeed be given expressly or impliedly. It need not be given simultaneously with that of the lessee and of the assignee. Neither is it required to be in any specific or particular form. It must, however, be clearly given. In this case, it cannot be said that Macgraphics gave its implied consent to the assignment of lease. DENIED.