G.R. No. 176986 January 13, 2016
NISSAN CAR LEASE PHILS., INC., Petitioner, vs. LICA MANAGEMENT, INC. and PROTON PILIPINAS, INC., Respondents.

FACTS

Lica Management, Inc. (LMI) owned a property in Makati. On June 24, 1994, it entered into a ten-year lease contract with Nissan Car Lease Philippines, Inc. (NCLPI) with a monthly rental of ₱308,000.00. NCLPI later became delinquent in its rental payments, accumulating arrearages of ₱1,741,520.85. In May 1996, the parties verbally agreed to convert the arrearages into a debt covered by a promissory note and twelve postdated checks. NCLPI delivered the checks but failed to sign the promissory note and to pay the checks for June to October 1996. Consequently, in a letter dated October 16, 1996, LMI informed NCLPI that it was terminating the Contract of Lease due to arrears, demanded payment of unpaid rentals, and required NCLPI to vacate within five days.
Meanwhile, Proton Pilipinas, Inc. (Proton) sent an undated request to NCLPI to use the premises temporarily as a display center. NCLPI acceded. On October 11, 1996, NCLPI and Proton entered into a Memorandum of Agreement allowing Proton to commence renovation work prior to executing a Contract of Sublease. In a letter dated October 24, 1996, NCLPI acknowledged its arrears but requested LMI to defer court action, citing negotiations for a possible sublease. However, on November 8, 1996, LMI entered into a Contract of Lease with Proton over the same premises.
LMI filed a Complaint for sum of money with damages to recover unpaid rentals. NCLPI filed an Answer and a Third-Party Complaint against Proton, alleging that LMI and Proton schemed to unlawfully oust it. Proton countered that NCLPI had vacated the premises and authorized renovations, and that it entered into a lease with LMI only after NCLPI failed to secure consent for the sublease and its lease was terminated.
The Regional Trial Court ruled in favor of LMI, ordering NCLPI to pay unpaid rentals, exemplary damages, and attorney’s fees, and dismissing NCLPI’s third-party complaint while ordering it to pay Proton exemplary damages and attorney’s fees. The Court of Appeals affirmed with modifications, reducing the amounts of damages and unpaid rentals, and ordering LMI to return the balance of NCLPI’s security deposit. NCLPI filed a Petition for Review on Certiorari.

ISSUE

1. Whether a contract may be rescinded extrajudicially despite the absence of a special contractual stipulation therefor.
2. Whether the prevailing facts warrant the dismissal of LMI’s claims and the award of NCLPI’s claims.
3. How much interest should be paid for the delay in the release of a security deposit in a lease contract.

RULING

The Supreme Court denied the Petition for lack of merit.
1. On extrajudicial rescission: The Court held that extrajudicial rescission is permitted under Article 1191 of the Civil Code, which allows the aggrieved party to rescind the obligation and seek damages if the other party fails to comply. The power to rescind is implied in reciprocal obligations. While judicial approval is required for the rescission to produce legal effects, the act of rescission by the aggrieved party can be done extrajudicially. The Court found that LMI validly exercised its right to rescind extrajudicially due to NCLPI’s breach from non-payment of rentals. The lease contract itself contained provisions allowing termination for non-payment, further supporting LMI’s action.
2. On the merits of the claims: The Court found no merit in NCLPI’s claims. The evidence established that NCLPI breached the lease contract by failing to pay rentals. LMI’s rescission was valid, and its subsequent lease with Proton was legitimate as NCLPI had already vacated the premises. The Court upheld the awards for unpaid rentals, exemplary damages, and attorney’s fees in favor of LMI and Proton, as modified by the Court of Appeals, finding them justified due to NCLPI’s breach and bad faith. NCLPI’s claims for damages were properly dismissed.
3. On interest for delayed release of security deposit: The Court modified the interest rate on the security deposit to be refunded. Applying Nacar v. Gallery Frames, the legal interest for loans or forbearance of money is 6% per annum from the time of judicial demand until June 30, 2013, and 6% per annum from July 1, 2013 until full payment. The security deposit, amounting to ₱883,253.72, was to be returned by LMI to NCLPI, with interest computed from the date of judicial demand (the filing of the Answer with Counterclaim on April 17, 1998) until full payment.
The Court affirmed the Court of Appeals’ Decision with the modification on the interest rate for the security deposit.