Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 116896 May 5, 1997
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner,
vs.
COURT OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S. RAYMUNDO, ANTONIO S.
RAYMUNDO, RENE S. RAYMUNDO, and AMADOR S. RAYMUNDO, respondents.
DAVIDE, JR., J.:
This petition for review on certiorari has its roots in Civil Case No. 53444, which was sparked by
petitioner's refusal to pay the rentals as stipulated in the contract of lease 1 on an undivided portion of
30,000 square meters of a parcel of land owned by private respondents.
The lease contract, executed on 18 November 1985, reads in part as follows:
1. TERM OF LEASE — This lease shall be for a period of five (5) years, commencing on
the date of issuance of the industrial clearance by the Ministry of Human Settlements,
renewable for a like or other period at the option of the LESSEE under the same terms
and conditions.
2. RATE OF RENT — LESSEE shall pay to the LESSOR rent at the monthly rate of
TWENTY THOUSAND PESOS (P20,000.00), Philippine Currency, in the manner set
forth in Paragraph 3 below. This rate shall be increased yearly by Five Percent (5%)
based on the agreed monthly rate of P20,000.00 as follows:
Monthly Rate Period Applicable
P21,000.00 Starting on the 2nd year
P22,000.00 Starting on the 3rd year
P23,000.00 Starting on the 4th year
P24,000.00 Starting on the 5th year
3. TERMS OF PAYMENT — The rent stipulated in Paragraph 2 above shall be paid
yearly in advance by the LESSEE. The first annual rent in the amount of TWO
HUNDRED FORTY THOUSAND PESOS (P240,000.00), Philippine currency, shall be
due and payable upon the execution of this Agreement and the succeeding annual rents
shall be payable every twelve (12) months thereafter during the effectivity of this
Agreement.
4. USE OF LEASED PROPERTY — It is understood that the Property shall be used by
the LESSEE as the site, grounds and premises of a rock crushing plant and field office,
sleeping quarters and canteen/mess hall. The LESSORS hereby grant to the LESSEE
the right to erect on the Leased Property such structure(s) and/or improvement(s)
necessary for or incidental to the LESSEE's purposes.
xxx xxx xxx
11. TERMINATION OF LEASE — This Agreement may be terminated by mutual
agreement of the parties. Upon the termination or expiration of the period of lease
without the same being renewed, the LESSEE shall vacate the Leased Property at its
expense.
On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a Temporary Use
Permit 2 for the proposed rock crushing project. The permit was to be valid for two years unless sooner
revoked by the Ministry.
On 16 January 1986, private respondents wrote petitioner requesting payment of the first annual rental
in the amount of P240,000 which was due and payable upon the execution of the contract. They also
assured the latter that they had already stopped considering the proposals of other aggregates plants to
lease the property because of the existing contract with petitioner. 3
In its reply-letter, petitioner argued that under paragraph 1 of the lease contract, payment of rental would
commence on the date of the issuance of an industrial clearance by the Ministry of Human Settlements,
and not from the date of signing of the contract. It then expressed its intention to terminate the contract,
as it had decided to cancel or discontinue with the rock crushing project "due to financial, as well as
technical, difficulties." 4
Private respondents refused to accede to petitioner's request for the pretermination of the lease
contract. They insisted on the performance of petitioner's obligation and reiterated their demand for the
payment of the first annual rental. 5
Petitioner objected to private respondents' claim and argued that it was "only obligated to pay . . . the
amount of P20,000.00 as rental payments for the one-month period of lease, counted from 07 January
1986 when the Industrial Permit was issued by the Ministry of Human Settlements up to 07 February
1986 when the Notice of Termination was served" 6 on private respondents.
On 19 May 1986, private respondents instituted with the Regional Trial Court of Pasig an action against
petitioner for Specific Performance with Damages. 7 The case was docketed as Civil Case No. 53444 at
Branch 160 of the said court. After the filing by petitioner of its Answer with Counterclaim, the case was
set for trial on the merits.
What transpired next was summarized by the trial court in this wise:
Plaintiffs rested their case on September 7, 1987 (p. 87 rec.). Defendant asked for
postponement of the reception of its evidence scheduled on August 10, 1988 and as
prayed for, was reset to August 25, 1988 (p. 91 rec.) Counsel for defendant again asked
for postponement, through representative, as he was presently indisposed. The case
was reset, intransferable to September 15 and 26, 1988 (p. 94 rec.) On September 2,
1988, the office of the Government Corporate Counsel entered its appearance for
defendant (p. 95, rec.) and the original counsel later withdrew his appearance. On
September 15, 1988 the Government Corporate Counsel asked for postponement,
represented by Atty. Elpidio de Vega, and with his conformity in open court, the hearing
was reset, intransferable to September 26 and October 17, 1988, (p. 98, rec.) On
September 26, 1988 during the hearing, defendant's counsel filed a motion for
postponement (urgent) as he had "sore eyes", a medical certificate attached.
Counsel for plaintiffs objected to the postponement and the court considered the
evidence of the government terminated or waived. The case was deemed submitted for
decision upon the filing of the memorandum. Plaintiffs filed their memorandum on
October 26, 1988. (p. 111, rec.).
On October 18, 1988 in the meantime, the defendant filed a motion for reconsideration
of the order of the court on September 26, 1988 (p. 107, rec.) The motion was not asked
to be set for hearing (p. 110 rec.) There was also no proof of notice and service to
counsel for plaintiff . The court in the interest of justice set the hearing on the motion on
November 29, 1988. (p. 120, rec.) but despite notice, again defendant's counsel was
absent (p. 120-A, dorsal side, rec.) without reason. The court reset the motion to
December 16, 1988, in the interest of justice. The motion for reconsideration was denied
by the court. A second motion for reconsideration was filed and counsel set for hearing
the motion on January 19, 1989. During the hearing, counsel for the government was
absent. The motion was deemed abandoned but the court at any rate, after a review of
the incidents and the grounds relied upon in the earlier motion of defendant, found no
reason to disturb its previous order. 8
On 12 April 1989, the trial court rendered a decision ordering petitioner to pay private respondents the
amount of P492,000 which represented the rentals for two years, with legal interest from 7 January
1986 until the amount was fully paid, plus attorney's fees in the amount of P20,000 and costs. 9
Petitioner then appealed to the Court of Appeals alleging that the trial court erred in ordering it to pay
private respondent the amount of P492,000 and in denying it the right to be heard.
Upon the affirmance of the trial court's decision 10 and the denial of its motion for reconsideration,
petitioner came to this Court ascribing to respondent Court of Appeals the same alleged errors and
reiterating their arguments.
First. Petitioner invites the attention of this Court to paragraph 1 of the lease contract, which reads: "This
lease shall be for a period of five (5) years, commencing on the date of issuance of the industrial
clearance by the Ministry of Human Settlements. . . ." It then submits that the issuance of an industrial
clearance is a suspensive condition without which the rights under the contract would not be acquired.
The Temporary Use Permit is not the industrial clearance referred to in the contract; for the said permit
requires that a clearance from the National Production Control Commission be first secured, and
besides, there is a finding in the permit that the proposed project does not conform to the Zoning
Ordinance of Rodriguez, (formerly Montalban), Rizal, where the leased property is located. Without the
industrial clearance the lease contract could not become effective and petitioner could not be compelled
to perform its obligation under the contract.
Petitioner is now estopped from claiming that the Temporary Use Permit was not the industrial
clearance contemplated in the contract. In its letter dated 24 April 1986, petitioner states:
We wish to reiterate PNCC Management's previous stand that it is only obligated to pay
your clients the amount of P20,000.00 as rental payments for the one-month period of
the lease, counted from 07 January 1986 when the Industrial Permit was issued by the
Ministry of Human Settlements up to 07 February 1986 when the Notice of Termination
was served on your clients. 11 (Emphasis Supplied).
The "Industrial Permit" mentioned in the said letter could only refer to the Temporary Use Permit
issued by the Ministry of Human Settlements on 7 January 1986. And it can be gleaned from this
letter that petitioner has considered the permit as industrial clearance; otherwise, petitioner
could have simply told private respondents that its obligation to pay rentals has not yet arisen
because the Temporary Use Permit is not the industrial clearance contemplated by them.
Instead, petitioner recognized its obligation to pay rentals counted from the date the permit was
issued.
Also worth noting is petitioner's earlier letter, thus:
[P]lease be advised of PNCC Management's decision to cancel or discontinue with the
rock crushing project due to financial as well as technical difficulties. In view thereof, we
would like to terminate our Lease Contract dated 18 November, 1985. Should you agree
to the mutual termination of our Lease Contract, kindly indicate your conformity hereto
by affixing your signature on the space provided below. May we likewise request
Messrs. Rene, Jose and Antonio, all surnamed Raymundo and Mrs. Socorro A.
Raymundo as Attorney-in-Fact of Amador S. Raymundo to sign on the spaces indicated
below. 12
It can be deduced from this letter that the suspensive condition — issuance of industrial clearance —
has already been fulfilled and that the lease contract has become operative. Otherwise, petitioner did
not have to solicit the conformity of private respondents to the termination of the contract for the simple
reason that no juridical relation was created because of the non- fulfillment of the condition.
Moreover, the reason of petitioner in discontinuing with its project and in consequently cancelling the
lease contract was "financial as well as technical difficulties," not the alleged insufficiency of the
Temporary Use Permit.
Second. Invoking Article 1266 and the principle of rebus sic stantibus, petitioner asserts that it should be
released from the obligatory force of the contract of lease because the purpose of the contract did not
materialize due to unforeseen events and causes beyond its control, i.e., due to the abrupt change in
political climate after the EDSA Revolution and financial difficulties.
It is a fundamental rule that contracts, once perfected, bind both contracting parties, and obligations
arising therefrom have the force of law between the parties and should be complied with in good
faith. 13 But the law recognizes exceptions to the principle of the obligatory force of contracts. One
exception is laid down in Article 1266 of the Civil Code, which reads: "The debtor in obligations to do
shall also be released when the prestation becomes legally or physically impossible without the fault of
the obligor."
Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only to
obligations "to do," and not to obligations "to give." 14 An obligation "to do" includes all kinds of work or
service; while an obligation "to give" is a prestation which consists in the delivery of a movable or an
immovable thing in order to create a real right, or for the use of the recipient, or for its simple
possession, or in order to return it to its owner. 15
The obligation to pay rentals 16 or deliver the thing in a contract of
lease 17 falls within the prestation "to give"; hence, it is not covered within the scope of Article 1266. At
any rate, the unforeseen event and causes mentioned by petitioner are not the legal or physical
impossibilities contemplated in the said article. Besides, petitioner failed to state specifically the
circumstances brought about by "the abrupt change in the political climate in the country" except the
alleged prevailing uncertainties in government policies on infrastructure projects.
The principle of rebus sic stantibus 18 neither fits in with the facts of the case. Under this theory, the
parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, the
contract also ceases to exist. 19 This theory is said to be the basis of Article 1267 of the Civil Code, which
provides:
Art. 1267. 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.
This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus, which would endanger the security of contractual
relations. The parties to the contract must be presumed to have assumed the risks of unfavorable
developments. It is therefore only in absolutely exceptional changes of circumstances that equity
demands assistance for the debtor. 20
In this case, petitioner wants this Court to believe that the abrupt change in the political climate of the
country after the EDSA Revolution and its poor financial condition "rendered the performance of the
lease contract impractical and inimical to the corporate survival of the petitioner."
This Court cannot subscribe to this argument. As pointed out by private respondents: 21
It is a matter of record that petitioner PNCC entered into a contract with private
respondents on November 18, 1985. Prior thereto, it is of judicial notice that after the
assassination of Senator Aquino on August 21, 1983, the country has experienced
political upheavals, turmoils, almost daily mass demonstrations, unprecedented,
inflation, peace and order deterioration, the Aquino trial and many other things that
brought about the hatred of people even against crony corporations. On November 3,
1985, Pres. Marcos, being interviewed live on U.S. television announced that there
would be a snap election scheduled for February 7, 1986.
On November 18, 1985, notwithstanding the above, petitioner PNCC entered into the
contract of lease with private respondents with open eyes of the deteriorating conditions
of the country.
Anent petitioner's alleged poor financial condition, the same will neither release petitioner from the
binding effect of the contract of lease. As held in Central Bank v. Court of Appeals, 22 cited by private
respondents, mere pecuniary inability to fulfill an engagement does not discharge a contractual
obligation, nor does it constitute a defense to an action for specific performance.
With regard to the non-materialization of petitioner's particular purpose in entering into the contract of
lease, i.e., to use the leased premises as a site of a rock crushing plant, the same will not invalidate the
contract. The cause or essential purpose in a contract of lease is the use or enjoyment of a thing. 23 As a
general principle, the motive or particular purpose of a party in entering into a contract does not affect
the validity nor existence of the contract; an exception is when the realization of such motive or
particular purpose has been made a condition upon which the contract is made to depend. 24 The
exception does not apply here.
Third. According to petitioner, the award of P492,000.00 representing the rent for two years is
excessive, considering that it did not benefit from the property. Besides, the temporary permit,
conformably with the express provision therein, was deemed automatically revoked for failure of
petitioner to use the same within one year from the issuance thereof. Hence, the rent payable should
only be for one year.
Petitioner cannot be heard to complain that the award is excessive. The temporary permit was valid for
two years but was automatically revoked because of its non-use within one year from its issuance. The
non-use of the permit and the non-entry into the property subject of the lease contract were both
imputable to petitioner and cannot, therefore, be taken advantage of in order to evade or lessen
petitioner's monetary obligation. The damage or prejudice to private respondents is beyond dispute.
They unquestionably suffered pecuniary losses because of their inability to use the leased premises.
Thus, in accordance with Article 1659 of the Civil Code, 25 they are entitled to indemnification for
damages; and the award of P492,000.00 is fair and just under the circumstances of the case.
Finally, petitioner submits that the trial court gravely abused its discretion in denying petitioner the right
to be heard.
We disagree. The trial court was in fact liberal in granting several postponements 26 to petitioner before it
deemed terminated and waived the presentation of evidence in petitioner's behalf.
It must be recalled that private respondents rested their case on 7 September 1987 yet. 27 Almost a year
after, or on 10 August 1988 when it was petitioner's turn to present evidence, petitioner's counsel asked
for postponement of the hearing to 25 August 1988 due to conflict of schedules, 28 and this was
granted. 29 At the rescheduled hearing, petitioner's counsel, through a representative, moved anew for
postponement, as he was allegedly
indisposed. 30 The case was then reset "intransferable" to September 15 and 26, 1988. 31 On 2
September 1988, the Office of the Government Corporate Counsel, through Atty. Elpidio J. Vega,
entered its appearance for the
petitioner, 32 and later the original counsel withdrew his appearance. 33 On 15 September 1988, Atty.
Vega requested for postponement to enable him to go over the records of the case. 34 With his
conformity, the hearing was reset "intransferable" to September 26 and October 17, 1988. 35 In the
morning of 26 September 1988, the court received Atty. Vega's Urgent Motion for Postponement on the
ground that he was afflicted with conjunctivitis or sore eyes. 36 This time, private respondents objected;
and upon their motion, the court deemed terminated and waived the presentation of evidence for the
petitioner. 37 Nevertheless, before the court considered the case submitted for decision, it required the
parties to submit their respective memoranda within thirty days. 38 But petitioner failed to comply.
Likewise, the court was liberal with respect to petitioner's motion for reconsideration. Notwithstanding
the lack of request for hearing and proof of notice and service to private respondents, the court set the
hearing of the said motion on 29 November 1988. 39 Upon the denial of the said motion for lack of
merit, 40 petitioner filed a second motion for reconsideration. But during the hearing of the motion on a
date selected by him, Atty. Vega was absent for no reason at all, despite due notice. 41
From the foregoing narration of procedural antecedents, it cannot be said that petitioner was deprived of
its day in court. The essence of due process is simply an opportunity to he heard. 42 To be heard does
not only mean oral arguments in court; one may be heard also through pleadings. Where opportunity to
be heard, either through oral arguments or pleadings, is accorded, there is no denial of procedural due
process. 43
WHEREFORE, the instant petition is DENIED and the challenge decision of the Court of Appeals is
AFFIRMED in toto.
No pronouncements as to costs.
SO ORDERED.
Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.
Footnotes
1 Exhibit "A," Original Record (OR), 68.
2 Exhibit "C," OR, 77; Rollo, 57.
3 Exhibit "B," OR, 76.
4 Exhibit "D," OR, 78.
5 Exhibit "E," Id., 80.
6 Exhibit "F," Id., 81-82.
7 Id., 1-7.
8 Order of 19 January 1989, OR, 129-130; Decision, 2-3.
9 OR 134-137; Rollo, 53-56. Per Judge Mariano M. Umali.
10 Rollo, 24-31. Per then Associate Justice Justo P. Torres, Jr. (now Associate Justice
of the Supreme Court), with the concurrence of then Associate Justice Bernardo P.
Pardo and Associate Justice Corona Ibay-Somera.
11 Exhibit "F-1," OR, 82.
12 Exhibit "D," Id., 78-79.
13 Articles 1159, 1308, 1315, and 1356 of the Civil Code.
14 DESIDERIO P. JURADO, Comments and Jurisprudence on Obligations and
Contracts 292 ( 10th revised ed. 1993) (hereafter JURADO).
15 IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of
the Philippines 57 (1991) (hereafter IV TOLENTINO).
16 JURADO, 283.
17 IV TOLENTINO 57.
18 At this point of affairs; in these circumstances. A name given to a tacit condition, said
to attach to all treaties, that they shall cease to be obligatory so soon as the state of
facts and conditions upon which they were founded has substantially changed. (Black's
Law Dictionary, 1139 [5th ed., 1979]).
19 Naga Telephone Co. v. Court of Appeals, 230 SCRA 351, 365 [1994] citing IV
TOLENTINO 347.
20 IV TOLENTINO 347.
21 Memorandum for the Private Respondents, 17; Rollo, 160.
22 139 SCRA 46 [1985], citing Repide v. Afzelius, 39 Phil. 190 [1918].
23 V TOLENTINO 206 [1992]; V EDGARDO E. PARAS, Civil Code of the Philippines,
307 [1995].
24 V TOLENTINO 535.
25 It provides:
Art. 1659. If the lessor or the lessee should not comply with the obligations set forth in
Articles 1654 and 1657, the aggrieved party may ask for rescission of the contract and
indemnification for damages, or only the latter, allowing the contract to remain in force.
26 Ocampo v. Arboleda, 153 SCRA 374, 381 [1987].
27 OR, 87.
28 OR, 89.
29 Id., 91.
30 Id., 94.
31 Id.
32 Id., 95.
33 Id., 99.
34 Id., 98.
35 Id.
36 Id., 101.
37 Id., 106.
38 Id.
39 Id., 120.
40 Id., 128.
41 Id., 127.
42 Roces v. Aportadera, 243 SCRA 108, 114 [1995]; Vallende v. NLRC, 245 SCRA 662,
666-667 [1995]; Navarro III v. Damasco, 246 SCRA 260, 265 [1995].
43 Mutuc v. Court of Appeals, 190 SCRA 43, 49 [1990].
