SPS. POON vs. PRIME SAVINGS BANK

SPOUSES JAIME AND MATILDE POON, Petitioners, v.
PRIME SAVINGS BANK REPRESENTED BY THE

PHILIPPINE DEPOSIT INSURANCE CORPORATION AS STATUTORY LIQUIDATOR
GR No. 183794, June 16, 2016
By: Darius King B. Villarmea
FACT/S:
Petitioner spouses owned a commercial building which they had their bakery business. A real
estate broker approached the spouses informing them that a client wanted to lease the building. Upon
several negotiations, petitioner yielded to Prime Savings Bank’s intention to lease their building and thus
given up their bakery business. Both petitioner and respondent agreed on November 3, 2022 3, 2006
that the lease shall be 10 year period and the latter will pay 100 months advance payment for the lease
in the amount of 6,000,000.00 and the remaining months shall be paid in monthly lease rental.
Three years later, Prime Savings Bank was placed by the BSP for receivership under PDIC on the
grounds of “(a) is unable to pay its liabilities as they became due in the ordinary course of business; (b)
has insufficient realizable assets as determined by the Bangko Sentral ng Pilipinas to meet its liabilities;
(c) cannot continue in business without involving probable losses to its depositors and creditors; and (d)
has wilfully violated cease and desist orders under Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the institution”. Respondent
vacated the place and surrendered the same to petitioner. However, PDIC issued a demand letter
requesting petitioner to return the unused advance payment of rental in the amount of 3,480,000.00 on
the ground that paragraph 24 of the lease agreement had become inoperative, because respondent's
closure constituted force majeure. The PDIC likewise invoked the principle of rebus sic stantibus under
Article 1267 of Republic Act No. 386 (Civil Code) as alternative legal basis for demanding the refund.
Petitioner refused and argued that they are entitled to retain the remainder of the advance rental
payment basing on paragraph 24 of their contract. Respondent filed before the RTC for partial rescission
of contract and/or recovery of a sum of money.
The RTC granted the petition and ordered petitioner spouses to refund respondent in the
amount of 1,740,000.00 for the unused portion of advance rentals. The CA also affirmed RTC’s decision
ratiocinating that provision of forfeiture of advance rentals is a penal clause and the consequent
application of Article 1229. The appellate court found that the forfeiture clause in the Contract was
intended to prevent respondent from defaulting on the latter's obligation to finish the term of the lease.
It further found that respondent had partially performed that obligation and, therefore, the reduction of
the penalty was only proper.
ISSUE/S:
1. Whether the closure of Prime Savings Bank a fortuitous event.

2. Whether the provision on forfeiture of advance rentals a penal clause.
RULING:
1. No, the closure of respondent's business was neither a fortuitous nor an unforeseen event that
rendered the lease agreement functus officio. The period during which the bank cannot do
business due to insolvency is not a fortuitous event, unless it is shown that the government's
action to place a bank under receivership or liquidation proceedings is tainted with arbitrariness,
or that the regulatory body has acted without jurisdiction.
2. Yes, the forfeiture clause in the Contract is penal in nature. It is settled that a provision is a penal
clause if it calls for the forfeiture of any remaining deposit still in 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 reason of the lessee's violation of any of the terms and
conditions thereof. This kind of agreement may be validly entered into by the parties. The clause
is an accessory obligation meant to ensure the performance of the principal obligation by
imposing on the debtor a special prestation in case of nonperformance or inadequate
performance of the principal obligation. In effect, the penalty for the premature termination of
the Contract works both ways. As the CA correctly found, the penalty was to compel respondent
to complete the 10-year term of the lease. Petitioners, too, were similarly obliged to ensure the
peaceful use of their building by respondent for the entire duration of the lease under pain of
losing the remaining advance rentals paid by the latter.
The forfeiture clauses of the Contract, therefore, served the two functions of a penal clause, i.e.,
(1) to provide for liquidated damages and (2) to strengthen the coercive force of the obligation
by the threat of greater responsibility in case of breach.47 As the CA correctly found, the
prestation secured by those clauses was the parties' mutual obligation to observe the fixed term
of the lease. For this reason, We sustain the lower courts' finding that the forfeiture clause in
paragraph 24 is a penal clause, even if it is not expressly labelled as such.

SPS. POON vs. PRIME SAVINGS BANK

Uploaded by

Copyright:

Available Formats

SPS. POON vs. PRIME SAVINGS BANK

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SPS. POON vs. PRIME SAVINGS BANK

Uploaded by

Copyright:

Available Formats

SPOUSES JAIME AND MATILDE POON, Petitioners, v.

PRIME SAVINGS BANK REPRESENTED BY THE

GR No. 183794, June 16, 2016

By: Darius King B. Villarmea

1. Whether the closure of Prime Savings Bank a fortuitous event.

You might also like