1. LANDLORD AND TENANT; FAILURE OF LESSEE TO PAY RENT; RIGHT OF LANDLORD TO ELECT BETWEEN PERFORMANCE AND RESOLUTION OF CONTRACT; DAMAGES. — Upon failure of a lessee to pay the stipulated rent at the time agreed, the lessor may elect between the remedies of performance and the resolution (rescission) of the lease. In either case he is entitled to such damages as are appropriate to the particular remedy chosen but he may not upon resolution of the contract recover the damages that are appropriate only where performance is demanded.

2. ID.; ID.; DAMAGES INCIDENT TO RESOLUTION OF LEASE; LIABILITY OF LESSEE FOR FUTURE RENT. — If, in the case stated, the lessor decides to insist on a resolution of the contract and voluntarily takes back the leased property, he cannot recover in the character of damages the rent accruing subsequently to the return of the property.

3. ID.; ID.; SURRENDER OF LEASE; VOLUNTARY ACCEPTANCE BY LESSOR RESERVATION AS TO RESPONSIBILITY OF LESSEE FOR DAMAGES. — A surrender of leased property by the lessee and voluntary acceptance thereof by the lessor puts an end to the liability of lessee for future rent; and the case is not altered by the circumstance that the lessor inserts in his demand for the surrender of the property the statement that such demand for made without prejudice to the ulterior responsibility of the lessee for damages for breach of contract.

This action was instituted in the Court of First Instance of the City of Manila by Manuel Rios and wife, Paciencia Reyes, for the purpose of recovering the sum of P23,300, with legal interest, and costs, as damages alleged to have been incurred by the plaintiffs by reason of breach of a contract of lease. The defendants named in the complaint are the firm of Jacinto, Palma y Hermanos, S. C, as lessee, and Rafael Palma and Perfecto Jacinto, general partners in the same firm. Upon hearing the cause the trial court absolved the defendants from the complaint and the plaintiffs appealed.

No transcript of the oral testimony appears in the record with the result that our review of the case will be limited to the questions of law arising upon the facts found by the trial court, in connection with the letter (Exhibit K) referred to in the opinion.

It appears that by contract dated September 1, 1920, the plaintiffs, as owners of a parcel of land on Gagalangin Street, Tondo District, Manila, let the same, with the improvements thereon, to the firm of Jacinto, Palma y Hermanos, S. C., for the term of fifteen years at a monthly rental of P400 payable in advance during the first ten days of each month. Among the provisions contained in this contract we note clause 9, which is to the effect that the terms and conditions of the contract shall be obligatory upon and redound to the benefit of the persons composing the lessee firm, their heirs, executors, administrators, successors, and assigns, as well as the successors and assigns of the lessors. The lessee entered upon the possession of the leased premises upon the date above stated; and the payment of the agreed rental was continued until November and December of the year 1923, for which months the rent fell into arrears.

Meanwhile several successive reorganizations of the lessee firm had been effected as follows: The first lessee, Jacinto, Palma y Hermanos, S. C., was succeeded by the firm of P. & F. Jacinto, and the latter in turn by the firm of a Palma Brothers & Co., Ltd., to be itself again succeeded by Palma & Co., a corporation. The plaintiffs were informed of these changes in the personality of the lessee and, as the trial court found, acquiesced therein.

In view of the default in the payment of the monthly rental for the months of November and December, 1923, Mr. Gregorio Araneta, as attorney for Manuel Rios, addressed a letter, on December 27, 1923, to Rafael Palma, as partner in the original firm and its former manager. In the course of this letter the writer asked Mr. Palma, in case the lessee could not continue to pay the rent, to return the property at once to Rios, "without prejudice to ulterior responsibility for damages for breach of contract." The writer added that Rios desired prompt action in the matter and that he must have possession of the property on or before the 29th of the month, otherwise he would be compelled to begin a detainer suit.

In response to this demand the occupant, Palma Bros. & Co., Ltd., or Palma & Co., or whoever had actual possession, vacated the premises on December 29, giving notification to the plaintiff Manuel Rios, who at once assumed possession. We gather from the record that the rent for November and December, 1923, has subsequently been paid but the premises appear to have been entirely vacant during the months of January and February, 1924, and for this period no compensation has been paid to the plaintiffs by any one. Beginning with March, 1924, the property was let by the plaintiffs for a term of three years, renewal for another three, to the firm of Walter A. Smith Co., Inc., upon the best terms then procurable in the market, which was at a monthly rental of P250.

In this court the plaintiffs, as appellants, have assigned error, among other things, to the failure of the trial court give judgment for the sum of P800, the stipulated rent for January and February, 1924, and for the further sum of P22,500, being the difference between the amount which the lessee had agreed to pay during the twelve years that the lease was to run from the time when the plaintiffs resumed possession and the amount which, during the same period, the plaintiffs would obtain from the new lessee, or others, at the rate of P150 a month.

The firm of Jacinto, Palma y Hermanos, S. C., allowed a default judgment to be entered in this case for its failure to answer, but the individual defendants interposed an answer relying upon two special defenses which will be examined in turn. It is first claimed that the original lessee and the partners in that concern were discharged by a novation of the original contract whereby the lessee was changed and a new debtor substituted for the original debtor. We are of the opinion that there is no merit in this defense and that the facts found by the trial court are not sufficient in law to show a discharge of the parties liable upon the original lease. What appears to have occurred, and what the court found, was that the plaintiff Rios said that it was all right when told of the successive changes in the personality of the lessee, and he seems to have been content to receive the monthly rent from anybody who wanted to pay it.

But by reference to clause 9 of the contract, it will be seen that the lessors really had no choice in their attitude to these changes. It was there stipulated that the provisions of the lease should be obligatory upon and redound to the benefit not only of the persons composing the lessee firm but their assigns. The transfer of the lease was therefore anticipated in the lease and stipulated for, and the lessors had no right to complain as the leased premises passed from one entity to another. The contract, however, does not stipulate that the original lessee should be discharged by any such assignment, and an agreement to this effect cannot be implied from the mere forced acquiescence of the lessors in the transfer of the lease. Under article 1204 of the Civil Code the only situation where a novation having the effect of extinguishing a prior obligation will be implied, in the absence of express stipulation, is where the new and old obligations are incompatible in every respect. In the case under consideration the new obligation assumed by the successive entities taking over the lease was not at all incompatible with the continued liability of the original lessee. It is a very common thing in business affairs for a stranger to a contract to assume its obligations; and while this may have the effect of adding to the number of persons liable, it by no means necessarily implies the extinguishment of the liability of the first debtor. (Michigan Stove Co. v. A. H. Walker & Co., 150 Iowa, 363 Ann. Cas. 1912D, 505; Testate Estate of Mota v. Serra, 47 Phil., 464.)

The second ground of defense to the action is, in the opinion of the majority of the members of the court, of a more meritorious character. This defense is planted upon the fact that after the default occurred in the payment of rent for the months of November and December, 1923 the lessors voluntarily, and upon their own demand, resumed possession of the premises. It is insisted for the defense that this relieved the original lessee and all other persons liable upon the lease from any liability for future rent and therefore from any liability for damages that may have accrued, or might accrue, to the lessors during the remainder of the term of the lease. The situation is one that must be considered in the light of certain provisions of the Civil Code, to which attention will be directed.

In article 1124 of the Civil Code it is declared that an obligation may be resolved if one of the obligors fails to comply with that which is incumbent upon him; and it is declared that the person prejudiced may elect between exacting the fulfillment of the obligation (specific performance) and its resolution, with compensation for damage and payment of interest in either case. This general principle is substantially reproduced in the special provisions of the Civil Code dealing with the rights and obligations of lessors and lessees. In the first paragraph of article 1555 it is declared to be the duty of the lessee to pay the price of the lease in the manner agreed upon. In article 1556 the failure of the lessee to comply with this obligation is declared to be a ground for the rescission of the contract and the recovery of damages, or the latter only, leaving the contract in force. It will thus be seen that the lessor is permitted to elect between the two remedies of (1) rescission, or resolution, with damages and (2) specific performance, with damages. It will be noted that he is not entitled to pursue both