Philippine National Construction v. CA 272 S 183

Case Digest:
Phil. National Construction v. CA
GR 116896
Petitioner PNC and private respondent entered into a lease contract which term of lease states: 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.

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.

Private respondents wrote petitioner requesting payment of the first annual rental in the amount ofP240,000 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.

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."

Petitioner also argued that it was only obligated to pay the amount ofP20,000.00 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.

RTC and CA ruled in favor of private respondent ordering petitioner to pay P492,000.
Hence this petition.


1.       Petitioner argues that the Temporary Use Permit is not the industrial clearance referred to in the term of lease, therefore, do not make the obligation effective. ---They are already estopped from claiming that TUP was not the industrial clearance contemplated in the contract. In the letter they sent, it can be gleamed that the petitioner considered the TUP as an industrial clearance; otherwise, petitioner could have simply told the 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 rental counted from the date the permit was issued. In another letter conforming to the termination of the contract, 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 the 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.

2.       Petitioner invokes Article 1266 and the principle of rebus sic stantibus. Whether or not petitioner 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 abrupt change in political climate after the EDSA Revolution and  financial difficulties. --- Although the contract has the force of law between the parties, Art.1266 is an exception 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." However, the provision contemplates an obligation ‘to do’ and not an obligation ‘to give’. 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 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 ofrebus 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.

                In this case, petitioner PNCC entered into the contract of lease with private respondents with open eyes of the deteriorating conditions of the country. 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.

3.       Whether or not P492,000 award representing the two-year rent was 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 is fair and just under the circumstances of the case.

4.       Whether or not petitioners were denied of due process for not being 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.

Powered by Blogger.