G.R. No. 192885 - Subic Bay Metropolitan Authority vs. Court of Appeals

Petitioner Subic Bay Metropolitan Authority (SBMA) is a government agency created under Republic Act No. 7227 to develop the Subic Special Economic and Freeport Zone.
Private respondent Subic International Hotel Corporation is a private locator within the Freeport Zone.

On December 1, 1992, and June 8, 1993, SBMA and the private respondent entered into two separate lease agreements; these were later consolidated into a Lease and Development Agreement dated November 24, 1996.
The private respondent agreed to rehabilitate the former Subic Naval Base facilities by constructing hotel and restaurant amenities to serve businessmen and tourists.

Section 6.1 of the Lease and Development Agreement stipulated that the private respondent would pay service fees calculated at $0.10 per square meter of the leased property, representing the tenant’s proportional share of costs incurred by SBMA in providing and maintaining services and common facilities.
Services enumerated included water, electricity, telephone, garbage removal, security, police and fire protection, insurance, landscaping, maintenance, janitorial services, professional fees, and others.

An internal audit revealed that SBMA did not charge the private respondent and other locators for service fees.
SBMA issued a billing statement on August 25, 2005, demanding $265,053.50 in accumulated service fees.
Private respondent contested the charges, arguing the services were provided by independent contractors, not SBMA itself.

SBMA’s Board waived future service fees and advised the private respondent to formally protest the accumulated charges.
Private respondent requested reconsideration, maintaining that the fees were unjustified as SBMA did not directly render most of the services.

Private respondent filed a Petition for Declaratory Relief before the Regional Trial Court (RTC), Branch 74, Olongapo City, seeking judicial determination on SBMA’s right to collect accumulated service fees.
The parties jointly stipulated facts and filed a Motion for Summary Judgment.

On March 22, 2006, the RTC ruled in favor of the private respondent, declaring SBMA has no legal right under Section 6.3 of the Lease and Development Agreement to enforce collection of the accumulated service fees.
The RTC denied SBMA’s motion for reconsideration on May 31, 2006.

SBMA appealed; however, on January 21, 2010, the CA affirmed the RTC’s decision, dismissing SBMA’s appeal.
The CA held that private respondent’s obligation to pay service fees was conditional upon SBMA’s performance of its reciprocal duty to provide services. Since SBMA failed to perform, it could not demand payment.

SBMA filed a petition for certiorari under Rule 65 alleging grave abuse of discretion and lack or excess of jurisdiction by the CA.
SBMA argued that service fees are not dependent upon actual service rendition but are a proportional share of costs incurred, as an additional rent.
The Supreme Court proceeded to resolve the petition.

Whether SBMA has the legal right under the Lease and Development Agreement to collect accumulated service fees from private respondent, despite not directly providing most of the enumerated services.

Whether the obligation to pay service fees under the Agreement depends on the actual rendition of services by SBMA.

Whether the CA gravely abused its discretion in affirming the RTC’s ruling that SBMA could not collect unpaid service fees.