G.R. No. 219698, September 27, 2021
PNTC COLLEGES, INC., Petitioner, v. TIME REALTY, INC., Respondent.
D E C I S I O N
This Petition for Review on Certiorari1 challenges the April 8, 2014 Decision2 and March 26, 2015 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 97119, which set aside the June 15, 2010 Decision4 and April 4, 2011 Order5 of the Regional Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 07-117895.
PNTC Colleges, Inc. (PNTC) and Time Realty, Inc. (Time Realty) entered into a Contract of Lease6 wherein Time Realty leased to PNTC the Extremadura Streets, Sampaloc, Manila, from 2005 to 2007.7 While the term of the lease ended on December 31, 2005, the contrast was impliedly renewed on a monthly basis after said date. With the acquiescence of Time Realty, PNTC continued to occupy the premises for an increased rental rate.8
Eventually, Time Realty notified PNTC of its (Time Realty's) intent not to extend the lease on the fourth floor anymore, For this reason, Time Realty provided PNTC two options: (1) to extend the lease on the fourth floor hut only until April 2007; or (2) to transfer to the second floor of the same building. In a letter9 dated April 4, 2007, PNTC informed Time Realty of its decision to terminate its lease in the fourth floor which would take effect at the end of April 2007.10
Sometime in April 2007, PNTC commenced the transfer of its operations to its new site in Intramuros, Manila. However, Time Realty alleged that PNTC did so without settling its (PNTC's) outstanding rentals and service (electricity and water) charges, plus interest/surcharges. Hence, Time Realty ordered PNTC to cease its moving out operations, then retained the remaining properties of PNTC in the premises.11
Time Realty averred that its retention of PNTC's properties as security was in accordance with Paragraph 23 of the Contract of Lease, viz.:chanroblesvirtualawlibrary
Breach of DefaultOn May 7, 2007, PNTC sent a Letter (Re; Unjustified Withholding of Numerous [Equipment], Machineries, and Other Related Materials Which Greatly Damage our Operations)13 to Time Realty stating its intention to seek legal action to protect its interests.14
x x x
LESSEE hereby agrees that all the provisions contained in this contract shall be deemed as conditions, as well as covenants, and that this contract shall be automatically terminated and cancelled without resorting to court action should LESSEE violate any or all said conditions, including the payment of rent and other charges indicated in this contract due within the time herein stipulated and in any such cases, LESSEE hereby irrevocably appoints LESSOR, its authorized agents, employees and/or representatives as his duly authorized attorney-in-fact, with full authority to open, enter, repossess, secure, enclose, fence and otherwise take full and complete physical possession and control of the leased premises and its contents without resorting to court action and/or summarily disconnect electrical and/or water services thereof, and that LESSEE hereby irrevocably empowers LESSOR, its authorized agents, employees and/or representatives to take inventory and possession of whatever equipment, furniture, articles, merchandise, appliances, etc. found therein belonging to the LESSEE, consignors and/or to any other person and to place the same in LESSOR'S warehouse for safekeeping, charging LESSEE the corresponding storage fees therefore, that in case LESSEE fails to claim, said equipment, furniture, articles, merchandise, appliances, etc. from storage and simultaneously liquidate any liability with LESSOR within ten (10) days from date of said transfer to LESSOR'S warehouse, LESSOR is likewise hereby expressly authorized and empowered by LESSEE to dispose of said property/properties in a public sale through a Notary Public of LESSOR'S choice and to apply the proceeds thereof to whatever liability and/or indebtedness LESSEE may have to LESSOR plus reasonable expenses for the same, including storage fees and balance, if any, shall be turned over to LESSEE, that LESSEE hereby expressly agrees that any or all acts performed by LESSOR, its authorised agents, employees and/or representatives [under the provisions] of this Section may not be the subject of aqy petition for a Writ of Preliminary Injunction or Mandatory Injunction in court, and that LESSOR and/or his authorized agents, employees and/or representatives shall be free from any civil and/or criminal liability or responsibility whatsoever therefore.12
[PNTC] itself admitted its liability to [Time Realty] in its reply to answer of the latter saying that it never refused to pay any alleged obligation. Further, as claimed by [PNTC], it agreed through a certain Ms. Natividad Ocampo that whatever deficiency, if any, would be paid after the transfer to its new office site.The appellate court held that Time Realty presented sufficient evidence to prove its counterclaims, "i.e., [PNTC's] violation of the contract of lease such as non-payment of rentals, utilities, surcharges and cost of repairs, which [PNTC] failed to dispute."43 Thus, it ruled that it was grave error for the trial court to dismiss Time Realty's counterclaims for lack of basis.44
Moreover, in the same reply, [PNTC] said that checks and vouchers were prepared and ready for transmittal; that it no longer turned over the checks as it has suffered tremendous losses and sustained considerable damages by the unjustified and unlawful action on the part of [Time Realty].
Significantly, [PNTC] marked in evidence as Exhibit '2' the Summary of Payables prepared and signed by one Francilita O. Corres from the former's finance department manifesting its unpaid rents and electricity and water charges for the months of March and April 2007.
Likewise, in paragraph 4 of [PNTC's] Comment/Opposition dated 24 September 2010, [PNTC] agreed with the findings of the [RTC] that its nonpayment is sufficient basis for [Time Realty] 'to take full and complete physical possession and control of the personal property taken by [Time Realty] pursuant to paragraph 23 of the Contract of Lease of the parties.'42
WHEREFORE, in view of the foregoing, the Order dated 4 April 2011 of the Regional Trial Court of Manila, Branch 21 denying the Motion for Partial Reconsideration of defendant-appellant Time Realty[,] Inc. is hereby REVERSED and SET ASIDE.PNTC asked for a reconsideration48 which the CA denied in a Resolution49 dated March 26, 2015. PNTC then filed the instant Petition for Review on Certiorari50 before the Court and raised the following –
Accordingly, plamtiffisppeilee PNTC Colleges, Inc. is ORDERED to pay the defendant-appellant [Time Realty, Inc.] the following amounts:cralawlawlibrary
- Php870,038.40 for unpaid rentals;
- Php340,090.48 for unpaid utilities (electricity and water);
- Php5,095,822.34 for the restoration of the leased premises; and,
- Php100,000,00 for attorney's fees.
WHETHER THE COURT OF APPEALS ERRED WHEN IT REVERSED AND SET ASIDE THE ORDER OF THE RTC MANILA DATED APRIL 4, 2011 DENYING TIME REALTY'S MOTION FOR PARTIAL RECONSIDERATION OF THE DECISION OF THE RTC MANILA DATED JUNE 15, 2010.
WHETHER THE COURT OF APPEALS ERRED IN ORDERING PNTC TO PAY TO TIME REALTY P870,038.40 FOR UNPAID RENTALS, P340,090.48 FOR UNPAID UTILITIES (ELECTRICITY AND WATER), P5,095,822.34 FOR THE RESTORATION OF THE LEASED PREMISES, AND P100,000.00 FOR ATTORNEY'S FEES.51
A compulsory counterclaim is a defendant's claim for money or other relief which arises out of, or is necessarily connected with, the subject matter of the complaint. In Spouses Ponciano v. Hon. Parentela, Jr.:Contrary to the claim of PNTC and the finding of the RTC, there would he no unjust enrichment to speak of, as Time Realty withheld the properties pursuant to Paragraph 23 of the Contract of Lease, a provision which PNTC knowingly agreed to. In other words, Time Realty retained the said properties as security to compel PNTC to pay and not to unduly enrich itself. To support this finding:chanroblesvirtualawlibrary
A compulsory counterclaim is any claim for money or other relief which a defending party may have against an opposing party, which at the time of suit arises out of, or is necessarily connected with, the same transaction or occurrence that is the subject matter of plaintiff's complaint. It is compulsory in the sense that if it is within the jurisdiction of the court, and does not require for its adjudication the presence of third parties over whom the court cannot acquire jurisdiction, it must be set up therein, and will be barred in the future if not set up.72
Jurisprudence holds that there is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience. The statutory basis for the principle of unjust enrichment is Article 22 of the Civil Code which provides that '[e]very person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.'The circumstances in the instant case do not show that Time Realty unjustly benefitted from the retention of the properties without valid basis, as it merely acted in accordance with the lease contract to ensure recovery of what is due to it. If anything, the so-called "benefit" which Time Realty is "enjoying" by withholding the properties is the assurance that it would be able to collect from PNTC, Additionally, it cannot be said that Time Realty is using the said properties as these were being kept in storage pursuant to the lease contract.
The principle of unjust enrichment under Article 33 requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at another's expense or damage. There is no unjust enrichment when the person who will benefit has a valid claim to such benefit.73
A scrutiny of the records reveals that PNTC failed to demonstrate that the dire condition of the fourth floor was not due to its own actions. It should be noted that PNTC occupied the premises for more than two years, and it did not show any proof that during the said period, it reported issues with the doors, floors, lighting, rest rooms and water sources to the administrator of the building. Thus, there is an assumption that PNTC's personnel initially occupied the premises in tenantable condition and that over time, their employees or their agents caused the state of disrepair due to poor maintenance.82
- The vinyl flooring, floer, and wall, [tiles] destroyed;
- Door knobs were dismantled and carted away;
- Fire exit doors, plywood partitions, and cubicle doors at the comfort room are destroyed or in a state of disrepair;
- Comfort rooms are clogged;
- Lavatory, water closet, at comfort rooms are either destroyed or in a state of disrepair; lighting fixtures, light switches and outlets were removed and/or carted away;81
In Ligutan v. Court of Appeals, we held that a penalty clause, expressly recognized by law, is an accessory yundertaking to assume greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation and to provide, in effect for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. Although a court is not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with.In light of this, the Court deems the penalty charge of 3% per month for unpaid rentals unconscionable,87 especially considering that PNTC only failed to pay when it was already clearing out of the premises. Thence, We find it equitable to reduce the interest rate from 3% to 1% per month or a total of 12% per annum88 in accordance with Article 122989 of the Civil Code. As such, the amount of P870,038.40 should be subject to the interest rate of 1% per month or 12% per annum counting from May 2007 until full payment.
Pertinently, Article 1229 of the Civil Code states:chanroblesvirtualawlibraryArt. 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.In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.86
Should [Time Realty] be compelled to seek judicial relief against [PNTC], the latter shall, in addition to the damages mentioned in [paragraph 23], pay an amount equivalent to 20% of the amount, claimed in the complaint, but in no case less than P10,000.00 as attorney's fees aside from the costs of the litigation and other expenses which the law may entitle [Time Realty] to recover from [PNTC].Based on the foregoing, in calculating for the attorney's fees, twenty percent (20%) of the amounts claimed in Time Realty's counterclaims should be computed, which in all cases should not be less than P10,000.00. In its counterclaim, Time Realty asked for the payment of P977,314.46 (or the remainder thereof after application of PNTC's deposit) for unpaid rentals including E-VAT and surcharges for late payment of previous rentals. However, it only presented sufficient proof for the amount of P870,038.40 as reflected in the Statement of Account,94 which the CA actually awarded and which Time Realty no longer questioned. For purposes of illustration, let Us assume that the deposit of PNTC amounting to P743,640.00, when subtracted from the amount of P870,038.40, yields the remainder of P126,398.40. This should be added to the claimed amount of P340,090.48 for service charges as well as P5,095,822.34 for the cost of restoration of the premises. The total would be P5,562,311.22, 20% of which yields P1,112,462.24, represents attorney's fees pursuant to Paragraph 24 of the Contract of Lease.
Provisions of a penal character in the other sections of this contract shall be considered as cumulative to the relief granted by this section.93
1Rollo, pp. 3-21.
2 Id. at 202-214. Penned by Associate Justice Danton Q. Bueser and concurred in by Associate Justices Rebecca De Guia-Salvador and Ramon R. Garcia.
3 Id. at 241-242. Penned by Associate Justice Damon Q. Bueser and concurred in by Associate Justices Ramon R. Garcia and Rodil V. Zalameda (new a number of this Court).
4 Id. at 116-120. Penned by Judge Amor A. Reyes.
5 Id. at 146-147. PenMed by Judge Amor A. Reyes.
6 Id. at 43-53.
7 Id. at 202-203.
8 Id. at 39.
9 Id. at 54 and 58.
10 Id. at 203.
12 Id. at 51.
13 Id. at 32.
14 Id. at 205.
15 Id. at 25-29.
16 Id. at 31.
17 TSN, June 15, 2009; pp. 6-7.
18Rollo, pp. 35-42.
19 Id. at 74.
20 Id. at 205-206.
21 Id. at 206.
22 Id. at 206.
23 Id. at 40.
24 Id. at 55-57.
25 Id. at 55 and 206.
26 Id. at 59-62.
27 Id. at 55; TSN, June 15, 2009, p. 20.
28 TSN, August 7, 2009, p. 15.
29Rollo, p. 55; TSN, June 15, 2009, pp. 11-13.
30 TSN, June 15, 2009, pp. 25-26.
31Rollo, pp. 116-120.
32 Id. at 120.
33 Id. at 119.
34 Id. at 120.
35 Id. at 137-141.
36 Id. at 121-129.
37 Id. at 146-147
38 Id. at 146.
39 Id. at 148-149.
40 Id. at 202-214.
41 Id. at 209-210.
42 Id. at 209.
43 Id. at 210.
44 Id. at 211.
45 Id. at 211-212.
46 Id. at 212-213.
47 Id. at 213.
48 See id. at 215-219 and 223-327.
49 Id. at 241-242.
50 Id. at 3-21.
51 Id. at 10.
52 Id. at 73; A document issued by PNTC which indicated that it had accountabilities for March and April 2007 covering rental arrears and utility charges.
53 Id. at 11-12.
54 Id. at 12-13 and 346.
55 Id. at 13-14 and 347.
56 Id. at 14-15 and 348.
57 Id. at 256-258.
58 Id. at 258.
60 Id. at 258-259.
61 Id. at 259-260.
62 Id. at 260.
63 Id. at 261.
64 Id. at 262-263.
65D.M. Ragasa Enterprises, Inc. v. Banco De Oro, Inc., 833 Phil. 640, (2018) citing Morla v. Belmonte, 678 Phil. 102, 107 (2011).
66 Id. citing CIVIL CODE, Art. 1159.
67 Id. citing CIVIL CODE, Art. 1306.
69 Id. citing CIVIL CODE, Art. 1370 and Heirs of Uy Ek Liong v. Castillo, 710 Phil 261, 275-276 (2013).
70 RULES OF COURT, Rule 129, § 4.Section 4. Judicial Admissions. – An admission, verbal or written, made by the party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.71 Said lease contract was renewed monthly, as Time Realty acquiesced to PNTC's continued lease of the premises even if the parties' initial contract already expired, pursuant to Article 1670 of the Civil Code, to wit:chanroblesvirtualawlibraryArticle 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in articles 1682 and 1687. The other terms of the original contract shall be revived.72Intramuros Administration v. Offshore Construction Devlopment Co., 827 Phil 303, 330 (2018) citing Spouses Ponciano v. Hon. Parentela, 387 Phil. 621 (2000).
73Department of Public Works and Highways, Region IV-A v. Commission on Audit, G.R. No. 237987, March 19, 2019, citing Car Cool Philippines, Inc. v. Ushio Realty & Development Corp., 515 Phil 376, 384 (2006); and Cabrera v. Ameco Contractors Rental Inc., G-R. No. 201560, June 20, 2012 (Minute Resolution); and Government Service Insurance System v. Commission on Audit, 694 Phil. 518, 526 (2012).
74Rollo, pp. 31 and 74. Unfortunately, ihe inventories of both parties do not match. These need further verification during the execution of the judgment in this case.
75Booklight, Inc. v. Tiu, G.R. No. 213650, June 17, 2019 citing RULES OF COURT, Rule 39, Section 1.
76Rollo, p. 40.
77 Id. at 211.
79 Cf. D.M. Ragasa Entreprises, Inc. v. Banco de Oro, Inc., supra note 65, and Bio-Research, Inc. v. Univille Development Corporation, G.R. No. 199257 (Notice), Aril 18, 2018.
80Rollo, pp. 76-77.
81 See id. at 107.
82See: CIVIL CODE, Arts. 1910 and 1911.
83Rollo, p. 78.
84 Id. at 43.
86Bio-Research, Inc. v. Univille Development Corporation, supra note 79; citing Ligutan v. Court of Appeals, 427 Phil 42, 42-55 (2002) and Imperial v. Jaucian, 471 Phil. 42 (2005).
87 Id. citing the following: In MCMP Construction Corp. v. Monark Equipment Corp., 746 Phil. 383, 393 (2014), we held that the penalty charge of 2% per month is unconscionable. Similarly, in Pentacapital Investment Corporation v. Mahinay, 637 Phil. 283, 304 (2010) we held that the penalty charge of 3% per month is unconscionable and reduced it accordingly.
88Mondragon International Philippines, Inc. v. Union Bank of the Philippines, G.R. No. 228530, January 21, 2019.
89Art. 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 perfomance, the penalty may also be reduced by the courts if ii is iniquitous or unconscionable.
90Rollo, pp. 41-42.
91Nissan Gallery-Ortigas v. Felipe, 720 Phil. 828, 840 (2013), citing Nacar v. Gallery Frames, 716 Phil. 267, 281-283 (2013) which cited BSP-MB Circular No. 799 dated May 16, 2013.
92Rollo, p. 35.
93 Id. at 52.
94 Id. at 78.
95 Id. at 42.
96 Id. at 262-263.
97Mondragon International Philippines, Inc. v. Union Bank of the Philippines, supra note 88, citing Hiponia-Mayuga v. MBTC, 761 Phil. 523, 530 (2035), ana Javines v. XLibris, G.R. No. 214301, June 7, 2017, 826 SCRA 640, 647.
98Manese v. Jollibee Foods Corp., 697 Phil. 322 (2012).
99Rollo, pp. 41-42.cralawredlibrary