G.R. No. 183794, June 13, 2016
SPOUSES JAIME AND MATILDE POON, Petitioners, v. PRIME SAVINGS BANK REPRESENTED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AS STATUTORY LIQUIDATOR, Respondent.
D E C I S I O N
Before this Court is a Petition for Review on Certiorari1 assailing the Court of Appeals (CA) Decision2 which affirmed the Decision3 issued by Branch 21, Regional Trial Court (RTC) of Naga City.
The RTC ordered the partial rescission of the penal clause in the lease contract over the commercial building of Spouses Jaime and Matilde Poon (petitioners). It directed petitioners to return to Prime Savings Bank (respondent) the sum of P1,740,000, representing one-half of the unused portion of its advance rentals, in view of the closure of respondent's business upon order by the Bangko Sentral ng Pilipinas (BSP).
24. Should the lease[d] premises be closed, deserted or vacated by the LESSEE, the LESSOR shall have the right to terminate the lease without the necessity of serving a court order and to immediately repossess the leased premises. Thereafter the LESSOR shall open and enter the leased premises in the presence of a representative of the LESSEE (or of the proper authorities) for the purpose of taking a complete inventory of all furniture, fixtures, equipment and/or other materials or property found within the leased premises.Barely three years later, however, the BSP placed respondent under the receivership of the Philippine Deposit Insurance Corporation (PDIC) by virtue of BSP Monetary Board Resolution No. 22,7 which reads:ChanRoblesVirtualawlibrary
The LESSOR shall thereupon have the right to enter into a new contract with another party. All advanced rentals shall be forfeited in favor of the LESSOR.6chanroblesvirtuallawlibrary
On the basis of the report of Mr. Candon B. Guerrero, Director of Thrift Banks and Non-Bank Financial Institutions (DTBNBF1), in his memorandum dated January 3, 2000, which report showed that the Prime Savings Bank, Inc. (a) is unable to pay its liabilities as they became due in the ordinary course of business; (b) has insufficient realizable assets as determined by the Bangko Sentral ng Pilipinas to meet its liabilities; (c) cannot continue in business without involving probable losses to its depositors and creditors; and (d) has wilfully violated cease and desist orders under Section 37 that has become final, involving acts or transactions which amount to fraud or a dissipation of the assets of the institution; x x x.8 (Emphasis supplied)The BSP eventually ordered respondent's liquidation under Monetary Board Resolution No. 664.9chanrobleslaw
WHEREFORE, judgment is hereby entered ordering the partial rescission of the Contract of Lease dated November 3, 1996 particularly the second paragraph of Par. 24 thereof and directing the defendant-spouses Jaime and Matilde Poon to return or refund to the Plaintiff the sum of One Million Seven Hundred Forty Thousand Pesos (P1,740,000) representing one-half of the unused portion of the advance rentals.The trial court ruled that the second clause in paragraph 24 of the Contract was penal in nature, and that the clause was a valid contractual agreement.14 Citing Provident Savings Bank v. CA15 as legal precedent, it ruled that the premature termination of the lease due to the BSP's closure of respondent's business was actually involuntary. Consequently, it would be iniquitous for petitioners to forfeit the entire amount of P 3,480,000.16 Invoking its equity jurisdiction under Article 1229 of the Civil Code,17 the trial court limited the forfeiture to only one-half of that amount to answer for respondent's unpaid utility bills and E-VAT, as well as petitioner's lost business opportunity from its former bakery business.18chanrobleslaw
Parties' respective claims for damages and attorney's fees are dismissed.
Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part.The theory of rebus sic stantibus in public international law is often cited as the basis of the above article. Under this theory, the parties stipulate in light of certain prevailing conditions, and the theory can be made to apply when these conditions cease to exist.35 The Court, however, has once cautioned that Article 1267 is not an absolute application of the principle of rebus sic stantibus, otherwise, it would endanger the security of contractual relations. After all, parties to a contract are presumed to have assumed the risks of unfavorable developments. It is only in absolutely exceptional changes of circumstance, therefore, that equity demands assistance for the debtor.36chanrobleslaw
Clearly, the closure of respondent's business was not an unforeseen event. As the lease was long-term, it was not lost on the parties that such an eventuality might occur, as it was in fact covered by the terms of their Contract. Besides, as We have previously discussed, the event was not independent of respondent's will.
ATTY. SALES Q. Now to the offer of that real estate broker for possible lease of your property at No. 38 General Luna Street, Naga City which was then the Madam Poon Bakery, what did you tell your real estate broker? WITNESS (JAIME POON) A. When Mrs. Lauang approached me, she told me that she has a client who wants to lease a property in Naga City. Q. Did she disclose to you the identity of her client? A. Yes, Sir. Q. What was the name of her client? A. That is the Prime Savings Bank. Q. After you have known that it was the Prime Savings Bank that [wanted] to lease your property located at No. 38 General Luna St., Naga City, what did you tell Mrs. Lauang[?] A. I told her that if the price is good, I am willing to give up the place where this bakery of mine is situated. Q. So, did Mrs. Lauang give you the quotation as to the price? A. Yes, Sir. Q. What was the amount? A. She asked first if how much I demand for the price. Q. What did you tell her? A. I told her, if they can give me P100,000.00 for the rental, I will give up the place. Q. What do you mean P100,000.00 rental? A. That is only for the establishment [concerned]. Q. What was the period to be covered by the P100,000.00 rental? A. That is monthly basis. Q. So after telling Mrs. Lauang that you can be amenable to lease the place for P100,000.00 monthly, what if any, did Mrs. Lauang tell you? A. She told me it is very high. And then she asked me if it is still negotiable, I answered, yes. Q. So, what happened after your clarified to her that [it is] still negotiable? A. She asked me if there is other condition, and I answered her, yes, if your client can give me advances I can lease my property. x x x x Q. So what is your answer when you were asked for the amount of the advances? A. I told her I need 7 million pesos because I need to pay my debts. x x x x Q. Who was with her when she came over? A. A certain guy name Ricci and said that he is the assistant manager of the Prime Savings Bank. Q. What did you and Mr. Ricci talk about? A. I told him the same story as I talked with Mrs. Lauang. Q. Was the agreement finally reached between you and Mr. Ricci? A. Not yet, Sir. Q. What happened after that? A. He said that he [will discuss] the matter with his higher officer, the branch manager in the person of Henry Lee. Q. Were you able to meet this Henry Lee? A. After a week later. Q. Who was with Henry Lee? A. Mrs. Lauang. Q. Was there a final agreement on the day when you and Henry Lee met? A. Not yet, he offered to reduce the rental and also the advances. Finally I gave way after 2 or 3 negotiations. Q. What happened after 2 or 3 negotiations? A. We arrived at P60,000.00 for monthly rentals and P6,000,000.00 advances for 100 months. Q. Was the agreement between you and the representative of the Prime Savings Bank reduced into writing? A. Yes Sir. x x x x Q. Now, Mr. Poon, I would like to direct your attention to paragraphs 4 and 5 of the contract of lease which I read: Inasmuch as the leased property is presently mortgaged with the PCI Bank, the Lessor and the Lessee hereby agree that another property with a clean title shall serve as security for herein Lessee; Provided that the mortgaged property with PCI Bank is cancelled, the Lessee agrees that the above-mentioned property shall be released to herein Lessor; paragraph 5 says: It is hereby stipulated that should the leased property be foreclosed by the PCI Bank or any other banking or financial institution, all unused rentals shall be returned by the Lessor to the Lessee. Now, my question is: Who asked or requested that paragraphs 4 and 5 be incorporated in the contract of lease? A. Mr. Lee himself. Q. The representative of the plaintiff? A. Yes, Sir. Q. Q. For what purpose did Mr. Lee ask these matters to be incorporated? A. Because they are worried that my building might be foreclosed because it is under [mortgage] with the PCI Bank, that is why I gave them protection of a clean title. But I also asked them, what will happen to me, in case your bank will be closed? Q. When you asked that question, what did Mr. Lee tell you? A. He told me that I don't have to worry I will have P6,000,000 advances. Q. What was your protection as to the 6 million payment made by the plaintiff? A. That is the protection for me because during that time I have my bakery and I myself [spent] 2 million for the improvement of that bakery and I have sacrificed that for the sake of the offer of lease. Q. In what manner that you are being protected for that 6 million pesos? A. They said that if in case the bank will be closed that advance of 6 million pesos will be forfeited in my favor. Q. And that is what is found in paragraph 24 of the Contract of Lease which I asked you to read? A. That is true.44
5. It is hereby stipulated that should the leased property be foreclosed by PCI Bank or any other banking or financial institution, all unused rentals shall be returned by the LESSOR to the LESSEE; x x x.46chanroblesvirtuallawlibraryIn effect, the penalty for the premature termination of the Contract works both ways. As the CA correctly found, the penalty was to compel respondent to complete the 10-year term of the lease. Petitioners, too, were similarly obliged to ensure the peaceful use of their building by respondent for the entire duration of the lease under pain of losing the remaining advance rentals paid by the latter.
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.The reasonableness of a penalty depends on the circumstances in each case, because what is iniquitous and unconscionable in one may be totally just and equitable in another.53 In resolving this issue, courts may consider factors including but not limited to the type, extent and purpose of the penalty; the nature of the obligation; the mode of the breach and its consequences; the supervening realities; and the standing and relationship of the parties.54chanrobleslaw
1Rollo, pp. 4-25.
2 Id. at 26-37; Dated 29 November 2007, penned by Associate Justice Edgardo P. Cruz with Associate Justices Fernanda Lampas Peralta and Normandie B. Pizarro, concurring.
3 Id. at 40-50; Dated 15 April 2002, penned by Judge Ramon A. Cruz.
4 Id. at 63-65.
5 Id. at 63.
6 Id. at 64-65.
7 Dated 7 January 2000.
8 RTC Records, p. 16 (Annex "B" of the Complaint). Emphasis supplied.
9 Dated 27 April 2000; id. at 17 (Annex "C" of the Complaint).
10 Id. at 18 (Annex "D" of the Complaint).
11 Id. at 19 (Annex "E" of the Complaint).
12 Id. at 20 (Annex "F" of the Complaint).
13Rollo, pp. 49-50.
14 Id. at 48.
15 G.R. No. 97218, 17 May 1993, 222 SCRA 125.
16Rollo, p. 48.
17 CIVIL CODE, Article 1229 provides:
chanRoblesvirtualLawlibraryThe judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
18Rollo, p. 49.
19 Id. at 37.
20 G.R. No. 97218, 17 May 1993, 222 SCRA 125.
21Rollo, pp. 31-32.
22 Id. at 34-36.
23 Id. at 38-39.
24 Art. 1381. The following contracts are rescissible:
chanRoblesvirtualLawlibrary(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)
25cralawred Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. (1292)
26ASB Realty Corp. v. Ortigas and Co., Ltd. Partnership, G.R. No. 202947, 9 December 2015.
27Ong v. Court of Appeals, 369 Phil. 243 (1999).
28 Supra note 6, at 6. Paragraphs 12 and 13 of the Complaint reads:ChanRoblesVirtualawlibrary12) The refusal of defendant to return the unused portion of advance rental is a manifest abuse of right which contravenes Art. 19 of the Civil Code, which provides that:ChanRoblesVirtualawlibrary29 G.R. No. 97218, 17 May 2013, 222 SCRA 125."Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."13) The Lease Contract, particularly Sec. 24, par. 2 thereof, which is being invoked by the defendant in refusing to return the unused portion of the advance rental, was executed during the time the bank was still of sound financial standing and profitably operating. In insisting that the terms of the provision of the contract be applied at this time, when the bank is already closed due to illiquidity, the defendant is manifestly taking undue advantage of the plaintiffs predicament. In order to protect the plaintiff from such abuse of the defendant, the provision of Article 24 of the Civil Code is invoked, as follows:ChanRoblesVirtualawlibrary"Art. 24. In all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection."
30 193 Phil. 328 (1981).
31 Supra note 26.
32 The New Central Bank Act (1993).
33 See Spouses Larrobis, Jr. v. Philippine Veterans Bank, 483 Phil. 33 (2004).
34 See Central Bank v. Court of Appeals, supra note 30.
35Naga Telephone Co., Inc. v. Court of Appeals, G.R. No. 107112, 24 February 1994.
36So v. Food Fest Land, Inc., 631 Phil. 537 (2010); PNCC v. Court of Appeals, 338 Phil. 691 (1997).
37 G.R. No. 160033, 1 July 2015.
40Central Bank v. Court of Appeals, 223 Phil. 266 (1985), citing Repide v. Afzelius, 39 Phil. 190 (1918).
41 Supra note 36.
42The Wellex Group, Inc. v. U-Land Airlines, Co., Ltd., G.R. No. 167519, 14 January 2015, 745 SCRA 563 (2015), citing Asuncion v. Court of Appeals, G.R. No. 109125, 2 December 1994, 238 SCRA 602.
43Spouses Sy v. Andok's Litson Corp., 699 Phil. 184 (2012).
44 TSN, 27 November 2001, pp. 7-16. Emphasis supplied.
45Fort Bonifacio Lending Corp. v. Yllas Lending Corp., 588 Phil. 748 (2008), citing Country Bankers Insurance Corp. v. Court of Appeals, 278 Phil. 463 (1991).
46Rollo, p. 63.
47Social Security System v. Moonwalk Development and Housing Corp., G.R. No. 73345, 7 April 1993, 221 SCRA 119.
48 Art. 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other.
49LL and Company Development and Agro-Industrial Corp. v. Huang Chao Chun, 428 Phil. 665 (2002).
50New World Developers and Management, Inc. v. AMA Computer Learning Center, Inc., G.R. Nos. 187930 & 188250, 23 February 2015, 751 SCRA 331.
51 Republic Act No. 7653 (1993), Section 30 provides:
chanRoblesvirtualLawlibrarySECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of the head of the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:ChanRoblesVirtualawlibrary(a) is unable to pay its liabilities as they become due to the ordinary course of business: Provided, That this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community;The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court but shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the institution: Provided, That the receiver may deposit or place the funds of the institution in non-speculative investments. The receiver shall determine as soon as possible, but not later than ninety (90) days from take-over, whether the institution may be rehabilitated or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public: Provided, That any determination for the resumption of business of the institution shall be subject to prior approval of the Monetary Board.
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution.
x x x x
If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in accordance with the next preceding paragraph, the Monetary Board shall notify in writing the board of directors of its findings and direct the receiver to proceed with the liquidation of the institution. The receiver shall:ChanRoblesVirtualawlibraryx x x x52Balayan Bay Rural Bank, Inc. v. National Livelihood Development Corporation, G.R. No. 194589, 21 September 2015.
(2) convert the assets of the institution to money, dispose of the same to creditors and other parties, for the purpose of paying the debts of such institution in accordance with the rules on concurrence and preference of credit under the Civil Code of the Philippines and he may, in the name of the institution, and with the assistance of counsel as he may retain, institute such actions as may be necessary to collect and recover accounts and assets of, or defend any action against, the institution. The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall, from the moment the institution was placed under such receivership or liquidation, be exempt from any order of garnishment, levy, attachment, or execution. (Emphasis supplied.)
53Marquez v. Elisan Credit Corporation, G.R. No. 194642, 6 April 2015.
54Ligutan v. Court of Appeals, 427 Phil. 42 (2002).
55Borromeo v. Court of Appeals, 150-B Phil. 770 (1972).
56Carceller v. Court of Appeals, 362 Phil. 332 (1999).
57Public Estates Authority v. Chu, 507 Phil. 472 (2005).
58Talampas Jr. v. Moldex Realty, Inc., G.R. No. 170134, 17 June 2015.
59Nacar v. Gallery Frames, G.R. No. 189871, 13 August 2013, 703 SCRA 439, 458.