Case Summary (G.R. No. 116896)
Applicable Law
1987 Philippine Constitution; Civil Code Articles 1159, 1308, 1315, 1356 (binding force of contracts), 1266 (impossibility of performance), 1267 (unforeseen events doctrine), 1659 (lessor/lessee remedies)
Key Dates
• Lease executed November 18, 1985
• Temporary Use Permit issued January 7, 1986
• Civil Case No. 53444 filed May 19, 1986
• Trial decision rendered April 12, 1989
• CA decision affirmed 1995
• SC decision handed down May 5, 1997
Lease Contract Provisions
– Term: five years commencing on “industrial clearance” issuance by the Ministry of Human Settlements, renewable by lessee’s option
– Rent: ₱20,000/month, payable yearly in advance, with 5% annual increments (rising from ₱21,000 in Year 2 to ₱24,000 in Year 5)
– Use: site for rock-crushing plant, field office, sleeping quarters, mess hall; lessee may erect necessary improvements
– Termination: only by mutual agreement or upon expiration without renewal, with lessee vacating at its expense
Permits and Their Legal Effect
PNCC obtained a two-year Temporary Use Permit requiring prior clearance from the National Production Control Commission. PNCC treated this permit as the contract’s industrial clearance, despite zoning nonconformity, by recognizing rental obligations from its issuance.
Dispute and Termination Correspondence
Lessors demanded the first annual rent of ₱240,000 upon contract signing. PNCC contended rent only became due upon “industrial clearance,” then notified lessors it would terminate the lease due to financial and technical difficulties. Lessors refused, insisting on full performance.
Trial Court Proceedings
Lessors filed for specific performance with damages in May 1986. PNCC’s counsel repeatedly sought postponements over more than a year. After lessors rested in September 1987, PNCC’s evidence phase was postponed several times until the court deemed PNCC to have waived its evidence. Motions for reconsideration were denied.
Trial Court Decision
On April 12, 1989, the RTC ordered PNCC to pay ₱492,000 (two years’ rent) with legal interest from January 7, 1986, plus ₱20,000 attorney’s fees and costs.
Court of Appeals Review
The CA affirmed, rejecting PNCC’s defenses: that the Temporary Use Permit was not the industrial clearance, that changed circumstances or financial difficulty excused performance, that damages were excessive, and that PNCC was denied its day in court.
Supreme Court’s Analysis on Condition Precedent
PNCC’s own correspondence treated the Temporary Use Permit as the industrial clearance, estopping it from denying contract effectivity. The suspensive condition was fulfilled, making the lease operative.
Analysis on Impossibility of Performance (Art. 1266)
Rent obligations are “to give” and not subject to release under Article 1266. PNCC failed to demonstrate legal or physical impossibility without its fault. Financial or technical difficulties do not qualify.
Doctrine of Rebus Sic Stantibus (Art. 1267)
Extraordinary hardship doctrine applies narrowly to obligations “to do” and
...continue readingCase Syllabus (G.R. No. 116896)
Facts
- On November 18, 1985, Philippine National Construction Corporation (PNCC) as lessee entered into a five-year lease of 30,000 sqm with the Raymundo family as lessors, subject to issuance of an industrial clearance by the Ministry of Human Settlements.
- Monthly rent was fixed at ₱20,000, to be paid yearly in advance (first installment of ₱240,000 upon execution), with a 5% annual increase through Year 5.
- The leased property was designated for a rock-crushing plant and related facilities, and lessee was permitted to erect necessary improvements.
- PNCC obtained a two-year Temporary Use Permit on January 7, 1986; lessors demanded payment of the first annual rent on January 16, 1986.
- PNCC replied that rent would only begin upon issuance of the industrial clearance, expressed intent to terminate the lease due to financial and technical difficulties, and later offered to pay ₱20,000 for one month’s occupancy (Jan 7–Feb 7, 1986).
- Lessors refused termination and insisted on full payment; PNCC maintained its limited‐period rent position.
Procedural History
- May 19, 1986: Lessors filed Civil Case No. 53444 in RTC Pasig for specific performance with damages.
- September 7, 1987: Plaintiffs rested their evidence.
- August–September 1988: PNCC repeatedly sought postponements of its evidence; counsel from Government Corporate Counsel entered and withdrew appearance.
- September 26, 1988: Trial court, over objection, deemed PNCC’s evidence terminated and the case submitted on memoranda.
- April 12, 1989: RTC rendered judgment ordering PNCC to pay ₱492,000 (two years’ rent), legal interest from January 7, 1986, attorney’s fees of ₱20,000, and costs.
- CA affirmed the RTC decision; PNCC’s motion for reconsideration was denied.
- PNCC filed a petition for review on certiorari to the Supreme Court.