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The Supreme Court of the Philippines ruled that the bond supplied by Country Bankers Insurance was liable for damages arising from the cancellation of a lease agreement. Oscar Ventanilla Enterprises Corporation leased three theaters to Enrique Sy under a 6-year agreement. Sy fell behind on rental payments and amusement taxes, violating the agreement. When OVEC repossessed the theaters, Sy sued for damages. The trial court and Court of Appeals both found in favor of OVEC, determining the repossession was justified due to Sy's noncompliance. The Supreme Court affirmed the lower courts' rulings, finding the bond supplied by Country Bankers was liable for P100,000 in opportunity costs suffered by OVEC.
The Supreme Court of the Philippines ruled that the bond supplied by Country Bankers Insurance was liable for damages arising from the cancellation of a lease agreement. Oscar Ventanilla Enterprises Corporation leased three theaters to Enrique Sy under a 6-year agreement. Sy fell behind on rental payments and amusement taxes, violating the agreement. When OVEC repossessed the theaters, Sy sued for damages. The trial court and Court of Appeals both found in favor of OVEC, determining the repossession was justified due to Sy's noncompliance. The Supreme Court affirmed the lower courts' rulings, finding the bond supplied by Country Bankers was liable for P100,000 in opportunity costs suffered by OVEC.
The Supreme Court of the Philippines ruled that the bond supplied by Country Bankers Insurance was liable for damages arising from the cancellation of a lease agreement. Oscar Ventanilla Enterprises Corporation leased three theaters to Enrique Sy under a 6-year agreement. Sy fell behind on rental payments and amusement taxes, violating the agreement. When OVEC repossessed the theaters, Sy sued for damages. The trial court and Court of Appeals both found in favor of OVEC, determining the repossession was justified due to Sy's noncompliance. The Supreme Court affirmed the lower courts' rulings, finding the bond supplied by Country Bankers was liable for P100,000 in opportunity costs suffered by OVEC.
CA (1991) chargeable against Sys bond supplied by Country Bankers which Sy
posted upon filing the complaint. Petitioners: Country Bankers Insurance Corporation Respondents: CA, Osar OVEC ISSUE: WON CA erred in holding the bond supplied by Country Bankers Insurance liable DOCTRINE: Article 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests PROVISION: in case of noncompliance, if there is no stipulation to the contrary. RULING + RATIO: NO, Country Bankers bond is liable Nevertheless, damages shall be paid if the obligor refuses to pay the 10. A provision which calls for the forfeiture of the remaining deposit still in penalty or is guilty of fraud in the fulfillment of the obligation. the possession of the lessor, without prejudice to any other obligation still owing, in the event of the termination or cancellation of the agreement by The penalty may be enforced only when it is demandable in accordance reason of the lessee's violation of any of the terms and conditions of the with the provisions of this Code. agreement is a penal clause that may be validly entered into. 11. As a general rule, in obligations with a penal clause, the penalty shall FACTS: substitute the indemnity for damages and the payment of interests in 1. Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and the case of non-compliance. petitioner Enrique F. Sy, as lessee, entered into a 6 year lease 12. In such case, proof of actual damages suffered by the creditor is not agreement over the Avenue, Broadway and Capitol Theaters and the necessary in order that the penalty may be demanded. land on which they are situated in Cabanatuan City, including their air- 13. However, there are exceptions to the rule that the penalty shall substitute conditioning systems, projectors and accessories needed for showing the the indemnity for damages and the payment of interests in case of non- films or motion pictures. compliance with the principal obligation. 2. After more than 2 years of operation, the lessor OVEC made demands a. when there is a stipulation to the contrary for the repossession of the said leased properties in view of the Sy's b. when the obligor is sued for refusal to pay the agreed penalty arrears in monthly rentals and non-payment of amusement taxes. c. when the obligor is guilty of fraud 3. By reason of Sy's request for reconsideration of OVECs demand for 14. It is evident that in all said cases, the purpose of the penalty is to punish repossession of the 3 theaters, Sy was allowed to continue operating the the obligor. Therefore, the obligee can recover from the obligor not only leased premises upon his conformity to certain conditions imposed by the penalty but also the damages resulting from the non-fulfillment or OVEC as contained in a supplemental agreement. defective performance of the principal obligation. 4. Pursuant to this, Sys arrears in rental was reduced. However, the 15. In the case at bar, inasmuch as the forfeiture clause provides that the accrued amusement tax liability of the 3 theaters to the City Government deposit shall be deemed forfeited, without prejudice to any other of Cabanatuan City had accumulated to P84K despite the fact that Sy obligation still owing by the lessee to the lessor, the penalty cannot had been deducting the amount of P4K from his monthly rental with the substitute for the P100K supposed damage resulting from the issuance obligation to remit the said deductions to the city government. of the injunction against the P290K remaining cash deposit. 5. Demands were made to Sy for the payment of arrears in rentals and 16. This supposed damage suffered by OVEC was the alleged P10K a amusement tax delinquency. month increase in rental, which OVEC failed to realize for 10 months in 6. Upon failure to pay, OVEC took repossession of the 3 theaters. the total sum of P100K 7. Sy filed an action for reformation of the lease agreement, damages and 17. This opportunity cost which was duly proven before the trial court, was injunction correctly made chargeable by the said court against the injunction bond. 8. Trial Court ruled in favor of OVEC. The repossession of the 3 theaters after termination and cancellation of the lease was in accordance with DISPOSITION: ACCORDINGLY, finding no merit in the grounds relied upon the stipulation of the parties in the lease agreement between the parties by petitioners in their petition, the same is hereby DENIED and the decision a. Sy not entitled to reformation dated June 15, 1988 and the resolution dated September 21, 1988, both of 9. CA- Appeal: in favor of OVEC; cancellation of the agreement prior to the respondent Court of Appeals are AFFIRMED. expiration is justified due to Sys own non-compliance with the terms of the agreement and not by fraid or greed; OVEC entitled to P100K