Case Summary (G.R. No. 176986)
Default and Attempted Debt Conversion
By May 1996, NCLPI’s rent arrears amounted to ₱1,741,520.85. The parties verbally agreed to convert these arrears into a promissory note and postdated checks, but NCLPI failed to sign the note or honor checks from June to October 1996.
Notice of Termination and Demand
On October 16, 1996 (sent October 18), LMI extrajudicially rescinded the lease under Civil Code Article 1191 and contractual paragraphs 16 and 18, demanded ₱2,651,570.39 for unpaid rentals, and required NCLPI to vacate within five days.
Proton’s Entry and Sublease Negotiations
Proton requested temporary occupancy for display purposes and agreed not to disrupt NCLPI’s lease. NCLPI then signed a memorandum allowing Proton to renovate pending a formal sublease, promising to deliver a three-month rental check upon execution of the sublease.
Concurrent Proceedings and Claims
LMI executed a new lease with Proton on November 8, 1996. On November 12, 1996, LMI sued NCLPI for unpaid rentals, damages, attorneys’ fees, and costs. NCLPI countered with a third-party complaint against Proton, alleging collusion and seeking damages and attorneys’ fees.
Trial Court Findings
The Regional Trial Court (June 7, 2002) held that NCLPI’s non-payment and unauthorized sublease breached the lease, justified extrajudicial rescission, and entitled LMI to unpaid rentals, exemplary damages (₱200,000), attorneys’ fees (₱200,000), and litigation expenses (₱50,000). It denied NCLPI’s third-party claims and awarded Proton exemplary damages and attorneys’ fees (₱200,000).
Court of Appeals’ Modification
The Court of Appeals (September 27, 2006) affirmed with modifications: reduced exemplary damages and attorneys’ fees to ₱50,000 each for LMI and Proton; adjusted unpaid rentals to ₱2,365,569.61; and ordered return of the security deposit balance of ₱883,253.72.
Authority to Sign Verification
The Supreme Court confirmed that the petition’s verification by NCLPI’s president complied with requirements, obviating a board resolution, and thus the petition was validly filed.
Validity of Extrajudicial Rescission
Under Article 1191 of the Civil Code, reciprocal contracts allow the non-defaulting party to rescind extrajudicially upon substantial breach. LMI’s rescission was proper given NCLPI’s admitted arrears and unauthorized sublease. Rule 70, Section 2, governing forcible entry, was inapplicable to a sum-of-money action.
Rental Arrearages and Interest
The Court upheld NCLPI’s liability for ₱2,365,569.61 in unpaid rent. Pursuant to Nacar v. Gallery Frames, interest accrues at 6% per annum from October 18, 1996 (extrajudicial demand) until finality, and 6% thereafter until full payment.
Security Deposit and Interest
LMI must return the bal
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Facts of the Case
- Lica Management, Inc. (LMI) owned a commercial property in Makati City and leased it to Nissan Car Lease Phils., Inc. (NCLPI) for ten years (July 1, 1994–June 30, 2004) at an initial rent of ₱308,000.00 per month, with a 10% annual escalation.
- NCLPI permitted its subsidiary, Nissan Smartfix Corporation (NSC), to occupy the premises with LMI’s consent.
- From mid-1994 onward, NCLPI defaulted on rent payments, accruing arrears amounting to ₱1,741,520.85 as of May 1996.
- In May 1996, the parties orally agreed to convert the arrearages into a promissory note and twelve post-dated checks for ₱162,541.95 each, but NCLPI failed to sign the note and dishonored checks from June to October 1996.
- On October 16, 1996, LMI sent NCLPI a registered letter terminating the lease for breach and demanding ₱2,651,570.39 in unpaid rent and vacation of the premises within five days.
- Proton Pilipinas, Inc. (Proton) sought temporary use of the premises for an Audi display; NCLPI agreed and entered a Memorandum of Agreement allowing renovations in anticipation of a future sublease.
- NCLPI wrote LMI on October 24, 1996, acknowledging arrears but requesting a deferment of legal action in view of sublease negotiations.
- LMI contracted directly with Proton on November 8, 1996, and on November 12, 1996 filed suit against NCLPI for unpaid rentals (₱2,696,639.97), interest, penalties, exemplary damages, attorney’s fees, and costs.
- NCLPI countered by demanding Proton vacate, then alleged collusion between LMI and Proton to oust it, filing a third-party complaint against Proton for damages.
- Proton answered, asserted its own valid agreement with NCLPI and later LMI, and counterclaimed for exemplary damages and attorney’s fees.
- The trial court admitted the third-party complaint and, after trial, found NCLPI in breach for nonpayment and unauthorized sublease, allowed extrajudicial rescission by LMI, and awarded unpaid rent, interest, exemplary damages, attorney’s fees, and litigation expenses in favor of LMI and Proton.
Decision of the Regional Trial Court
- Found that NCLPI substantially breached the lease by defaulting on rentals and subleasing without consent.
- Held that under Civil Code Article 1191 and lease provisions (¶ 16 and ¶ 18), LMI validly rescinded extrajudicially and claimed unpaid rent and damages.
- Denied NCLPI’s th