Case Summary (G.R. No. 202989)
Key Dates and Contract Terms
Lease commenced August 16, 2000 for five years. Agreed rent: P60,000/month (1st year), P66,000/month (2nd year), P72,600/month (3rd–5th years). Lease clause permitting pre-termination with cause in first three years and without cause after the third year. Comglasco notified pre-termination by letter dated October 4, 2001 (effective December 1, 2001), vacated premises January 15, 2002 and ceased rental payments. Santos filed suit for breach of contract on October 20, 2003; summons served January 21, 2004. RTC judgment rendered August 18, 2004; Court of Appeals decision dated August 10, 2011; petition to the Supreme Court resulted in denial (appeal disposition noted in the provided record).
Factual Background and Trial Court Disposition
Comglasco pre-terminated the five-year lease after a little over one year of occupancy, citing business reverses attributed to the 1997 Asian financial crisis. Santos rejected the pre-termination, issued repeated demands for unpaid rent (ignored by Comglasco), and sued for unpaid rentals from January 16, 2002 to August 15, 2003. The Regional Trial Court granted Santos’ motion for judgment on the pleadings and ordered Comglasco to pay unpaid rentals totaling Php1,333,200.00 with 12% interest, attorney’s fees (Php200,000), litigation expenses (Php50,000), exemplary damages (Php400,000), and costs. Execution pending appeal was authorized.
Issues Raised on Appeal and in the Petition for Review
Comglasco’s appellate and petition issues included: (1) whether judgment on the pleadings was properly invoked; (2) whether its Answer raised material issues of fact or instead admitted the complaint’s allegations; (3) whether summary judgment or judgment on the pleadings was the proper remedy; (4) whether advance rental and deposit (totaling P309,000) should be credited against Santos’ recovery; and (5) whether attorney’s fees could be awarded without proof and legal basis.
Legal Standards Applied: Judgment on the Pleadings and Summary Judgment
The Supreme Court reiterated the procedural standards: Section 1, Rule 34 permits judgment on the pleadings when the answer fails to tender an issue or otherwise admits the material allegations of the opposing pleading. Judgment on the pleadings is a decision based exclusively on the pleadings and annexes. Summary judgment under Rule 35 is the appropriate remedy when the defending party wishes to present supporting affidavits, depositions or admissions to obtain judgment in its favor without trial; summary judgment procedures permit reception of supporting evidence to show absence of genuine issue of fact.
Application of Article 1267 (Doctrine of Unforeseen Events) and Pre-termination Defense
Comglasco invoked Article 1267 of the Civil Code (doctrine of unforeseen events / rebus sic stantibus) asserting that the 1997 Asian currency crisis rendered performance manifestly beyond contemplation and thus justifying pre-termination. The Court declined that argument for multiple reasons: (a) rent payment obligations in a lease constitute a prestation “to give” not a service subject to Articles 1266–1267; (b) the doctrine is narrowly applied and requires absolutely exceptional changes in circumstances; (c) Comglasco entered into the lease on August 16, 2000—more than three years after the 1997 crisis began—so it assumed the business risks existing at inception; and (d) precedent (Philippine National Construction Corporation v. CA) holds that mere financial difficulty or general adverse business climate does not discharge a lessee’s obligation to pay rent. The Court accordingly found Article 1267 inapplicable to excuse Comglasco’s failure to pay rentals.
Pleadings Analysis: Admission by Failure to Tender Issues
The Supreme Court agreed with the Court of Appeals that Comglasco’s Answer admitted the material allegations of Santos’ complaint: existence and terms of the five-year lease, Comglasco’s pre-termination and vacation of the premises, and Comglasco’s nonpayment of rent. Because the Answer did not sufficiently plead factual matters to controvert those allegations or present admissible evidence under Rule 35, the RTC acted within its discretion in granting judgment on the pleadings under Section 1, Rule 34. The Court emphasized that a genuine issue of fact requires presentation of evidence and must not be a sham, fictitious, contrived or false issue.
Availability and Proper Use of Summary Judgment Procedure
The Court noted that Comglasco could have pursued relief as a defending party under Section 2, Rule 35 (summary judgment) by submitting supporting affidavits, depositions or admissions to justify its pre-termination defense, but it did not do so. Thus, Comglasco’s failure to invoke Rule 35 with supporting evidence precluded use of that remedy to prevent judgment on the pleadings.
Claim for Credit of Advance Rentals and Deposit
Comglasco contended that its advance rentals and security deposit (totaling P309,000) should be credited against Santos’ recovery. The Supreme Court declined to consider this claim because Comglasco did not raise it in its Answer nor in its appeal to the Court of Appeals; accordingly, the issue was not properly before the Court and was forfeited.
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...continue readingCase Syllabus (G.R. No. 202989)
Case Caption, Citation and Court
- G.R. No. 202989; reported at 757 Phil. 241; Third Division of the Supreme Court; Decision dated March 25, 2015.
- Decision penned by Justice Reyes; concurred in by Justices Velasco, Jr. (Chairperson), Peralta, Villarama, Jr., and Jardeleza.
- Division Clerk of Court received the original decision on May 7, 2015.
Factual Background
- Santos Car Check Center Corporation (Santos) owned a showroom at 75 Delgado Street, Iloilo City.
- On August 16, 2000, Santos leased the showroom to Comglasco Corporation/Aguila Glass (Comglasco), a business engaged in sale, replacement and repair of automobile windshields.
- Lease term: five years, with monthly rentals of P60,000.00 for the first year, P66,000.00 for the second year, and P72,600.00 for the third through fifth years.
- On October 4, 2001, Comglasco sent a letter advising Santos that it was pre-terminating the lease effective December 1, 2001.
- Santos refused to accept the pre-termination, reminding Comglasco that the lease was for five years.
- Comglasco vacated the premises on January 15, 2002, and ceased paying rent thereafter.
- Santos sent multiple demand letters (including a final demand on September 15, 2003) which Comglasco ignored.
Procedural History (Trial Court to Supreme Court)
- Santos filed suit for breach of contract on October 20, 2003.
- Summons and complaint served on Comglasco on January 21, 2004; Comglasco moved to dismiss for improper service; RTC of Iloilo City, Branch 37 denied motion and ordered summons served anew.
- Comglasco filed its Answer on June 28, 2004.
- Santos moved for judgment on the pleadings; the RTC granted the motion.
- RTC rendered judgment on August 18, 2004. Dispositive portion ordered Comglasco to pay unpaid rentals from January 16, 2002 to August 15, 2003 totaling Php1,333,200.00 plus 12% interest per annum; awarded Santos Php200,000.00 as attorney's fees, Php50,000.00 as litigation expenses, Php400,000.00 as exemplary damages, and costs of suit.
- Santos moved for execution pending appeal on February 14, 2005; the trial court granted execution on May 12, 2005.
- Court of Appeals (CA), in a Decision dated August 10, 2011, affirmed the RTC judgment but reduced attorney's fees to P100,000.00 and deleted the awards for litigation expenses and exemplary damages.
- Comglasco filed a petition for review to the Supreme Court raising several issues.
Issues Presented to the Supreme Court
- Whether judgment on the pleadings was properly invoked by the trial court as basis for rendering its decision.
- Whether material issues were raised in Comglasco’s Answer.
- Whether summary judgment or judgment on the pleadings was the proper remedy for Santos under the circumstances.
- Whether the amount deposited for advance rental and deposit (identified by Comglasco as P309,000.00) should be credited to Comglasco’s account.
- Whether attorney’s fees may be granted by the trial court without proof and legal basis.
Contractual Provision at Issue
- Paragraph 15 of the lease: permits pre-termination with cause in the first three years and without cause after the third year (text paraphrased from the parties’ lease as cited in the record).
- Comglasco relied on an asserted contractual provision allowing pre-termination with cause in the first three years as the basis for its action.
Comglasco’s Contentions and Defense
- Comglasco invoked Article 1267 of the Civil Code, asserting that business reverses ascribed to the 1997 Asian financial crisis constituted the “cause” allowing pre-termination of the lease.
- Argued that its Answer did not admit the material allegations of the complaint because it pleaded a valid cause (the aforesaid business reverses) for pre-terminating the lease before three years.
- Contended that under Article 1267 the obligation should be excused because the service (performance) became so difficult as to be manifestly beyond the contemplation of the parties.
- Asserted that its claimed advance rentals and deposit totaling P309,000.00 should be credited against any sum awarded to Santos.
- Challenged the factual and legal basis for the trial court’s award of damages and attorney’s fees.
Santos’ Position and Procedural Posture
- Santos maintained that the lease was valid and for five years and that Comglasco’s attempted pre-termination was not accepted.
- Santos sent repeated demands for unpaid rentals which Comglasco ignored, compelling Santos to sue for breach.
- At trial and on appeal Santos sought enforcement of the lease and recovery of unpaid rents and litigation costs; Santos obtained judgment at RTC and largely obtained affirmation at CA with modification of damages.
Governing Legal Provisions and Precedents Cited by the Court
- Article 1267, Civil Code: “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.” (quoted in the decision)
- Section 1, Rule 34, Rules of Court: Judgment on the pleadings where answer fails to tender an issue or admits material allegations.
- Rule 35, Section 2, Rules of Court (Summary Judgment for defending party): procedure for a party to move for summary judgment with supporting affidavits, depositions or admissions.
- Article 2208(2), Civil Code: basis cited for awarding attorney’s fees where the defendant’s act or omission compelled the plaintiff to incur expenses to protect his interest.
- Precedents relied upon in the decision include:
- Philippine National Construction Corporation v. Court of Appeals (PNCC), 338 Phil. 691 (1997) — discussed at length regarding Article 1267, the doctrine of unforeseen events, and rebus sic stantibus.
- Central Bank v. Court of Appeals and other cited aut