G.R. No. 177232 - RCJ Bus Lines, Inc. vs. Master Tours and Travel Corp.

On February 9, 1993, Master Tours and Travel Corporation (Master Tours) entered into a five-year lease agreement with RCJ Bus Lines, Incorporated (RCJ).
The agreement covered four Daewoo air-conditioned buses described as "presently junked and not operational."
The lease term was from February 15, 1993, to February 15, 1998, for a total lease fee of P600,000.00, payable in two installments: P400,000 upon signing and P200,000 upon completion of rehabilitation by RCJ.
Marciano T. Tan signed as Master Tours’ Executive Vice-President and Rolando Abadilla signed as RCJ’s President and Chairman.

On June 16, 1997, Master Tours sent a letter to RCJ demanding the return of the four buses, which were at RCJ’s garage for “safekeeping.”
Master Tours wanted to settle obligations with creditors who were foreclosing the buses. RCJ did not return the buses following this letter.
On January 16, 1998, Master Tours again demanded the return of the buses and payment of the unpaid lease fee of P600,000.
On February 2, 1998, RCJ, through counsel, replied that it was not obligated to pay the lease fee and would only return the buses after Master Tours paid storage fees on the buses.

Master Tours filed a collection suit before the Regional Trial Court (RTC) of Manila, Branch 49.
RCJ asserted as defense that the lease had been novated into a contract of deposit with payment of storage fees of P4,000 per month. RCJ cited the June 16, 1997 letter as proof of this new agreement.
On November 5, 2001, the RTC ruled that no novation occurred due to lack of consent from Master Tours and ordered RCJ to pay P600,000 plus 6% interest from filing, attorney’s fees of P50,000, and costs.
The Court of Appeals (CA) affirmed the RTC decision on October 26, 2006, and denied RCJ’s motion for reconsideration on March 27, 2007.

Whether or not the Court of Appeals erred in ruling that there was no novation of the lease agreement into an agreement of deposit for storage of the buses.

Assuming absence of novation, whether or not the CA erred in holding RCJ liable for the full lease fee despite the buses never becoming operational.

Whether or not the CA erred in affirming the RTC’s award of attorney’s fees of P50,000 plus costs against RCJ.