Case Digest (G.R. No. 78223)
Facts:
On January 30, 1998, D.M. Ragasa Enterprises, Inc. (lessor) and Equitable Banking Corporation (lessee) executed a five‐year Contract of Lease for the ground and second floors of a commercial building at 175 Tomas Morato Avenue, Quezon City, from February 1, 1998 to January 31, 2003, at a monthly rental of ₱122,607.00. The lessee paid three months’ advance rental and a three‐month security deposit totaling ₱735,642.00. The lease contained an automatic termination clause for breach (item 8[p]) and a penalty clause providing forfeiture of the deposit upon non‐compliance with the term (item 8[m]), plus attorney’s fees and 14% interest on default (item 10). After legal mergers, Banco de Oro, Inc. (successor lessee) sent a “Notice of Pre‐termination” effective June 30, 2001 and vacated the premises. Ragasa demanded unpaid rentals for the remaining term (₱3,146,596.42) but the bank insisted only forfeiture of the deposit. On March 11, 2002, Ragasa filed a complaint in the RTC of QuezonCase Digest (G.R. No. 78223)
Facts:
- Lease Contract
- On January 30, 1998, D.M. Ragasa Enterprises, Inc. (lessor) and Equitable Banking Corporation (lessee) executed a five-year lease (Feb. 1, 1998–Jan. 31, 2003) of commercial premises at 175 Tomas Morato Ave., QC, for a monthly rent of ₱122,607, inclusive of VAT and withholding tax, with an annual 10% increase.
- The contract required three months’ advance rental (₱367,821) and three months’ security deposit (₱367,821). Key provisions were:
- Clause 8(m): forfeiture of full deposit upon non-compliance with the lease “Term” (period) and “cannot be applied to Rental.”
- Clause 8(p): automatic termination upon breach of any provision (especially non-payment).
- Clause 10: in case of litigation for non-compliance, the defaulting party pays attorney’s fees (≥₱15,000), interest at 14% p.a., and “other damages that the honorable court may allow.”
- Merger and Pre-termination
- Equitable Bank merged into Equitable PCI Bank, then into Banco de Oro (BDO), which closed the subject branch as impractical to maintain.
- On May 28, 2001, BDO served a notice pre-terminating the lease effective June 30, 2001, and vacated the premises. Ragasa demanded payment of rent for the unexpired term (July 1, 2001–Jan. 31, 2003) totaling ₱3,146,596.42. BDO replied that its only liability was forfeiture of the security deposit under clause 8(m).
- Judicial Proceedings
- Ragasa filed a complaint in RTC QC (2002). On April 4, 2006, RTC awarded:
- Rent for the unexpired term (₱3,146,596.42)
- 3% monthly penalty under clause 8(n)
- 14% p.a. interest
- Attorney’s fees (₱30,000) and costs
- CA (Mar. 27, 2009) reversed, holding that breach triggered automatic termination (clause 8(p)) and only security deposit forfeiture (clause 8(m)) applies; collection of both rent and penalty would be unjust enrichment. CA denied reconsideration (Nov. 25, 2009).
- Ragasa filed a Rule 45 petition before the SC, raising four issues.
Issues:
- Whether the CA erred in holding that BDO’s liability was limited to forfeiture of the security deposit, contrary to Arts. 1170 and 1308 of the Civil Code.
- Whether the applicable penalty clause is item 8(m) (deposit forfeiture) rather than item 8(n) (3% monthly penalty).
- Whether the lease contract was automatically terminated by BDO’s pre-termination.
- Whether allowing Ragasa to recover the unexpired rent plus penalty would constitute unjust enrichment.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)