DM Ragasa Ent vs. Banco de Oro
DM Ragasa Ent vs. Banco de Oro
DM Ragasa Ent vs. Banco de Oro
DM RAGASA V BDO
FACTS:
- Ragasa and Equitable Banking Corporation (Equitable Bank) entered into a Contract of Lease over
the ground and second floors of a commercial building for a period of 5 years, commencing on
February 1, 1998 up to January 31, 2003, with a monthly rental of P122,607.00.
- Equitable Bank merged with Philippine Commercial International Bank (PCI Bank) thereby forming
Equitable PCI Bank, Inc. and later on merged with BDO.
- As a result of the merger, the bank closed and joined the branches of its banks which were in close
proximity to be practical.
- One of the branches which had to be closed is the branch located in the subject premises.
- The bank sent a notice informing Ragasa that they are pre-terminating their Lease Contract
- Ragasa responded with a demand letter for the payment of monthly rentals for the remaining term
of the Lease Contract from July 1, 2001 to January 31, 2003 totaling P3,146,596.42, because there
is no express provision in the Lease Contract allowing pre-termination.
- The bank alleged that its only liability for pre-terminating the contract is the forfeiture of its security
deposit.
- Later on, the bank vacated the subject premises without heeding Ragasa's demand for payment.
- Ragasa filed before the RTC a Complaint for Collection of Sum of Money and Damages.
- RTC: in favor of Ragasa; the bank may not unilaterally pre-terminate the Lease Contract; hence, it
is still liable to pay the rentals for the remaining duration of the said contract.
- CA: Reversed the ruling of RTC; bank's failure to continue the Lease Contract until its expiration
constituted a breach of its provision.
ISSUE:
- WON there was a breach of the contract.
RULING:
- In the case at bar, there is no question that the bank breached the Lease Contract. When it served
upon Ragasa the Notice of Pre-termination effective June 30, 2001 and when it, indeed, vacated the
subject premises on said date, the bank, in effect, breached item 2 of the Lease Contract, providing
for a five-year term. It must be noted that the Lease Contract does not contain a pre-termination
clause.
- Article 1170 of the Civil Code mandates that those who, in the performance of their obligations, are
guilty of fraud, negligence, or delay, and those who, in any manner, contravene the tenor thereof,
are liable for damages.
- Having contravened the tenor of the Lease Contract regarding its term or period, the bank should be
liable for damages.
- If the lessor or the lessee should not comply with their obligations, the aggrieved party may ask for
either the rescission of the contract and indemnification for damages, or only the latter, allowing the
contract to remain in force.
- In the present case, there is an express stipulation in item 8(p) of the Lease Contract that "breach or
non-compliance of any of the provisions of this Contract, especially non-payment of two consecutive
monthly rentals on time, shall mean the termination of this Contract.”
- There is nothing wrong if the parties to the lease contract agreed on certain mandatory provisions
concerning their respective rights and obligations, such as the procurement of the insurance and
rescission clause.
- To force either party to continue with a contract that is automatically terminated in case of its breach
by either party (pursuant to its express provision) is not in furtherance of or sanctioned by the
contract. Rather, it is a contravention thereof and it negates the autonomy characteristic of
contracts.
- On Ragasa’s claim to damages, lessee will be liable for damages equivalent to the rentals for the
duration of its possession from the termination of the lease until he vacates the premises.