Case Summary (G.R. No. 219698)
Key Dates
• Original Lease Term: January 1, 2005–December 31, 2005, with tacit monthly renewals thereafter
• PNTC’s Notice of Termination (Fourth Floor): April 4, 2007
• PNTC’s Transfer of Operations: April 2007
• Complaint Filed by PNTC (Delivery of Personal Properties): August 18, 2007
• RTC Decision: June 15, 2010; Order Denying Reconsideration: April 4, 2011
• CA Decision: April 8, 2014; Resolution Denying Reconsideration: March 26, 2015
• SC Decision on Certiorari: September 27, 2021
Applicable Law
• 1987 Philippine Constitution: Freedom of Contract (Art. 11, Sec. 4); due process guarantees
• Civil Code, Articles 1159, 1306, 1370 (contract law); Art. 1670 (tacita reconducción); Arts. 1910–1911 (lessor’s obligations); Arts. 1229 (penalty reduction), 22 and 33 (unjust enrichment)
• Rules of Court Rule 129 (judicial admissions), Rule 39 (compulsory counterclaims), Rule 45 (petition for review)
• BSP-MB Circular No. 799 (legal interest)
Facts
- Time Realty leased its building’s fourth floor to PNTC from 2005, tacitly renewed monthly after December 2005.
- PNTC continued occupancy at a higher rental rate with Time Realty’s acquiescence.
- Time Realty offered PNTC either a lease extension of the fourth floor until April 2007 or relocation to the second floor.
- PNTC elected to terminate its lease effective end-April 2007 and began vacating.
- Time Realty retained PNTC’s remaining equipment and furniture under Paragraph 23 of the Contract of Lease, citing unpaid rentals, utilities, surcharges, and damages to the premises.
- PNTC filed a complaint for delivery of its personal properties and damages. Time Realty answered with a counterclaim for unpaid rentals, utilities, restoration costs, and attorney’s fees.
Procedural History
• RTC found an implied monthly lease (tacita reconducción), held that PNTC breached Paragraph 23 by vacating without settling obligations, justified property retention, and dismissed PNTC’s complaint but denied Time Realty’s counterclaims.
• CA reversed, granting Time Realty’s counterclaims for unpaid rentals, utilities, restoration costs, and attorney’s fees, and remanded for satisfaction of judgment.
• SC review pursuant to Rule 45 of the Rules of Court.
Issues
- Whether the CA erred in reversing the RTC’s denial of Time Realty’s counterclaims.
- Whether the CA erred in ordering PNTC to pay specified amounts for unpaid rentals, utilities, restoration, and attorney’s fees.
Ruling
The petition is denied. The appellate decision is affirmed with modifications:
- PNTC’s liability for unpaid rentals (Php 870,038.40) is undisputed. Interest is reduced from 3% to 1% per month (12% per annum) from May 2007 until finality, equitable under Civil Code Article 1229.
- PNTC’s liability for unpaid utilities (Php 340,090.48) accrues legal interest at 6% per annum from January 7, 2008 (date of judicial demand) until finality.
- Restoration costs (Php 5,095,822.34) are payable with 6% per annum interest from finality of this decision until full payment.
- Attorney’s fees of Php 100,000.00 are final and binding, as neither party appealed this specific award.
- PNTC’s admitted security deposit of Php 743,640.00 shall be deducted from the total award at the execution stage.
- All monetary awards earn 6% per annum legal interest from finality until full satisfaction.
Legal Analysis
• Contractual Stipulations: Under the 1987 Constitution’s protection of contractual freedom (Art. 11, Sec. 4) and Civil Code principles, the parties are bound by clear, lawful lease provisions,
Case Syllabus (G.R. No. 219698)
Facts of the Case
- PNTC Colleges, Inc. (lessee) and Time Realty, Inc. (lessor) entered into a lease contract for premises on Extremadura Street, Sampaloc, Manila from 2005 to 2007.
- Though the fixed term expired on December 31, 2005, both parties tacitly reconducted the lease on a monthly basis at an increased rental rate.
- In early 2007, Time Realty declined to extend the lease of the fourth floor beyond April 2007, offering PNTC either a short extension until April or relocation to the second floor.
- By letter dated April 4, 2007, PNTC elected to terminate its lease on the fourth floor effective end-April 2007 and began transferring operations that month.
- Time Realty alleged PNTC had unpaid rentals and utility charges, invoked Paragraph 23 of the lease to seize PNTC’s remaining property as security, and retained them in warehouse.
- PNTC protested by letter (May 7, 2007) and filed a Complaint (August 18, 2007) for delivery of personal properties with damages (claimed value P561,360).
Contractual Lien Provision (Paragraph 23)
- The lease automatically terminates upon lessee’s breach (e.g., non-payment), authorizing lessor to repossess premises and contents without court action.
- Lessor (and agents) may inventory, warehouse, and charge storage fees; unclaimed items after 10 days may be sold publicly.
- Lessor’s actions under this clause are immune from injuncti