G.R. No. 176986 - Nissan Car Lease Phils., Inc. vs. Lica Management, Inc.

Case Summary (G.R. No. 176986)

Factual Background

LMI owned a 2,860-square-meter property at 2326 Pasong Tamo Extension, Makati City. LMI and NCLPI executed a ten-year lease dated June 24, 1994 with monthly rent of P308,000.00 and an annual escalation of ten percent. NCLPI allowed its subsidiary, Nissan Smartfix Corporation, to use the premises. NCLPI became delinquent in rentals, producing arrearages that grew over time. In May 1996 the parties verbally agreed to convert arrears into a promissory note and twelve postdated checks, but NCLPI failed to sign the note and failed to pay checks covering June to October 1996. LMI sent a termination and demand letter dated October 16, 1996, demanding payment of P2,651,570.39 for unpaid rentals and asking NCLPI to vacate within five days from receipt.

Transactions with Proton and Subsequent Acts

Proton sought temporary use of the premises as a display center and later entered into a Memorandum of Agreement with NCLPI dated October 11, 1996 allowing it to commence renovations prior to execution of any sublease. Proton allegedly tendered a check equivalent to three months’ rent payable upon execution of a sublease. NCLPI, asserting continuing negotiations for a sublease, wrote to LMI on October 24, 1996 acknowledging arrears but requesting deferral of court action. LMI executed a Contract of Lease with Proton on November 8, 1996. NCLPI thereafter demanded Proton vacate but Proton maintained it leased from LMI.

Procedural History at Trial

LMI filed a complaint for sum of money with damages on November 12, 1996 seeking recovery of unpaid rentals, interest and penalties, exemplary damages, attorney’s fees, and costs. NCLPI answered and filed a third-party complaint against Proton alleging collusion to oust NCLPI and seeking compensatory and exemplary damages and attorney’s fees. The trial court admitted the third-party complaint and, after trial, rendered judgment on June 7, 2002 in favor of LMI, ordering NCLPI to pay unpaid rentals of P2,696,639.97 (inclusive of interest and penalties to November 12, 1996) with post-judgment interest at twelve percent, and awarding exemplary damages and attorney’s fees of P200,000.00 and litigation expenses of P50,000.00. The trial court denied NCLPI’s third-party complaint and ordered NCLPI to pay Proton P200,000.00 for exemplary damages and attorney’s fees.

Court of Appeals Disposition

The CA affirmed the RTC decision with modifications. It reduced the award of exemplary damages and attorney’s fees to P50,000.00 each for both LMI and Proton, reduced the amount of unpaid rentals from P2,696,639.97 to P2,365,569.61 exclusive of interest, and ordered LMI to return the balance of the security deposit amounting to P883,253.72 to NCLPI. The CA denied NCLPI’s motion for reconsideration and clarified that the reduced unpaid rentals figure was inclusive of interest and penalties up to November 12, 1996, with interest at twelve percent per annum thereafter until paid.

Issues Presented to the Supreme Court

NCLPI raised principal issues: whether a contract may be rescinded extrajudicially absent an express contractual stipulation allowing such rescission; whether the facts warranted dismissal of LMI’s claims and an award in favor of NCLPI; and the correct interest to be applied for delay in the release of a security deposit.

Parties’ Contentions Before the Supreme Court

NCLPI contended that extrajudicial rescission required an express contractual provision and that LMI’s extrajudicial termination was defective for failure to comply with Rule 70, Sec. 2, Rules of Court in giving only five days to vacate rather than fifteen days. NCLPI also asserted damages against LMI and Proton for unlawful ouster and sought the return of improvements and equipment. LMI and Proton maintained that NCLPI breached the lease by nonpayment and by engaging in a sublease and renovations without consent, that LMI validly rescinded the lease pursuant to contract terms and civil-law principles, and that NCLPI came to court with unclean hands.

Technical Pleading Issue

LMI challenged the sufficiency of the petition’s verification, contending that the individual who signed lacked authority absent a board resolution. The Court found Luis Manuel T. Banson was President of NCLPI at time of filing and therefore was authorized to sign the verification and certification against forum shopping without a board resolution, citing prior jurisprudence on corporate officers able to verify pleadings.

Supreme Court Ruling — Validity of Extrajudicial Rescission

The Court denied the petition and upheld the CA decision with modifications. It held that NCLPI committed substantial breaches: failure to pay rent and unauthorized subleasing and renovations without LMI’s consent in violation of Paragraphs 2, 4, and 5 of the contract. The Court ruled that a lessor may extrajudicially rescind a contract pursuant to Article 1191 of the Civil Code, even absent an express contractual stipulation, and that a rescinding party proceeds at its own risk subject to judicial review. The Court rejected NCLPI’s reliance on Rule 70, Sec. 2, because that provision governs forcible entry and unlawful detainer actions and was inapplicable to LMI’s action for recovery of a sum of money; the Court also found that NCLPI had effectively surrendered possession to Proton on October 11, 1996.

Supreme Court Rationale on Conflicting Jurisprudence

The Court reconciled prior cases that appeared to require express contractual authorization for extrajudicial rescission by explaining that the remedy of rescission is available against a defaulting party whether or not the contract contains an express stipulation. The Court emphasized that when rescission is exercised extrajudicially, the rescinder bears risk of liability if a court later finds the rescission unjustified, and cited University of the Philippines v. De los Angeles and subsequent authority to support that principle.

Rental Arrearages and Interest

The Court affirmed the CA computation of unpaid rentals at P2,365,569.61, which represented undisputed arrears admitted by NCLPI. Because the lease did not stipulate a default interest rate, the Court applied the rule in Nacar v. Gallery Frames and fixed interest at six percent per annum from October 18, 1996 (date of LMI’s extrajudicial demand) until finality of the judgment, and six percent thereafter until satisfaction.

Security Deposit and Interest

The Court ordered LMI to return the balance of the security deposit amounting to P883,253.72 to NCLPI. In the absence of a contractual interest rate for return of the deposit, the Court applied the six percent rate of Nacar. The Court fixed the accrual of interest on the de

Case Syllabus (G.R. No. 176986)

Parties and Procedural Posture

NISSAN CAR LEASE PHILS., INC. filed a Petition for Review on Certiorari from the decision and resolution of the Court of Appeals in CA-G.R. CV No. 75985.
LICA MANAGEMENT, INC. sued NISSAN CAR LEASE PHILS., INC. in the Regional Trial Court, Branch 60, Makati City, docketed as Civil Case No. 96-1840, for sum of money with damages.
PROTON PILIPINAS, INC. was impleaded as third-party defendant and later filed a compulsory counterclaim against NISSAN CAR LEASE PHILS., INC..
The RTC rendered judgment on June 7, 2002, the Court of Appeals rendered its Decision on September 27, 2006 and Resolution on March 8, 2007, and the Supreme Court promulgated its decision on January 13, 2016 in G.R. No. 176986.

Key Factual Allegations

LICA MANAGEMENT, INC. owned the subject property at 2326 Pasong Tamo Extension, Makati City, and on June 24, 1994 leased it to NISSAN CAR LEASE PHILS., INC. for ten years from July 1, 1994 to June 30, 2004 at a monthly rental of P308,000 with an annual escalation of ten percent.
NISSAN CAR LEASE PHILS., INC. allowed its subsidiary Nissan Smartfix Corporation to use the leased premises with LICA MANAGEMENT, INC.'s consent but subsequently became delinquent in rental payments.
The parties verbally agreed in May 1996 to convert arrearages into postdated checks, but NISSAN CAR LEASE PHILS., INC. failed to sign the promissory note and failed to honor checks for June to October 1996.
By letter dated October 16, 1996 and sent October 18, 1996 by registered mail, LICA MANAGEMENT, INC. notified NISSAN CAR LEASE PHILS., INC. that it was terminating the lease for nonpayment and demanded payment of P2,651,570.39 and vacation of the premises within five days.
NISSAN CAR LEASE PHILS., INC. entered into a Memorandum of Agreement with PROTON PILIPINAS, INC. on October 11, 1996 permitting renovations and conditional payment of three months' rent pending execution of a sublease.
LICA MANAGEMENT, INC. executed a lease with PROTON PILIPINAS, INC. on November 8, 1996, and filed the complaint against NISSAN CAR LEASE PHILS., INC. on November 12, 1996.

Issues Presented

Whether a contract may be rescinded extrajudicially despite the absence of a special contractual stipulation therefor.
Whether the facts warranted dismissal of LICA MANAGEMENT, INC.'s claims and the award of damages to NISSAN CAR LEASE PHILS., INC..
What interest rate applies to the delay in the release of a security deposit in a lease contract.

Contentions of the Parties

NISSAN CAR LEASE PHILS., INC. contended that extrajudicial rescission was improper absent an express contractual stipulation and that it was unlawfully ousted and thus entitled to damages.
LICA MANAGEMENT, INC. contended that NISSAN CAR LEASE PHILS., INC. materially breached the lease by nonpayment and unauthorized sublease and lawfully rescinded the contract extrajudicially under Article 1191 and contractual paragraphs.
PROTON PILIPINAS, INC. contended that it incurred expenses and paid consideration to NISSAN CAR LEASE PHILS., INC. for its temporary use and that it lawfully contracted with LICA MANAGEMENT, INC. after the latter's lease with NISSAN CAR LEASE PHILS., INC. had been terminated.

Trial Court and Appellate Rulings

The RTC found that NISSAN CAR LEASE PHILS., INC. breached the lease by defaulting in rentals and by subleasing without consent, rescinded the lease, and awarded P2,696,639.97 for unpaid rentals, exemplary damages and attorney's fees of P200,000, litigation expenses of P50,000, and P200,000 to PROTON PILIPINAS, INC. for exemplary damages and fees.
The Court of Appeals affirmed the RTC decision with modification by reducing exemplary damages and attorney's fees to P50,000 each for LICA MANAGEMENT, INC. and PROTON PILIPINAS, INC., reducing unpaid rentals to P2