GR L 21876; (September, 1967) (Digest)
G.R. No. L-21876 September 29, 1967
PHILIPPINE AMUSEMENT ENTERPRISES, INC., plaintiff-appellant, vs. SOLEDAD NATIVIDAD and MARIANO NATIVIDAD, defendants-appellees.
FACTS
On January 6, 1961, plaintiff Philippine Amusement Enterprises, Inc. (lessor/operator) and defendant Soledad Natividad (lessee/proprietor) entered into a three-year lease agreement for an automatic phonograph (jukebox). Key terms included: the operator’s duty to replace parts damaged from ordinary wear and tear; a rental of 75% of gross receipts but not less than P50.00 weekly; the operator’s exclusive right to maintain a phonograph on the premises; automatic renewal for like periods; and provisions on breach, including liquidated damages of P50.00 per week for each unexpired week and attorney’s fees. In July 1961, defendant Mariano Natividad (Soledad’s husband) wrote letters demanding the plaintiff retrieve its jukebox, citing occasional malfunctions (coins getting stuck, failure to play selected music) and claiming they had previously inquired about buying the unit but, receiving no response, ordered one from the United States. The plaintiff replied, offering to address service complaints and insisting on its exclusive right under the contract, demanding reinstallation of its jukebox and removal of the defendants’ new one. The defendants refused. The plaintiff filed an action for recovery of the phonograph and payment of liquidated damages (P5,850), exemplary damages, attorney’s fees, and litigation expenses. The trial court rescinded the contract in favor of the defendants, denied the plaintiff’s claims, and dismissed the defendants’ counterclaim.
ISSUE
Whether the defendants were legally justified in unilaterally rescinding the contract of lease.
RULING
No. The Supreme Court reversed the trial court’s decision.
1. Rescission of reciprocal obligations must be invoked judicially unless the contract stipulates otherwise. The lease contract contained no provision granting the defendants the power to cancel unilaterally. Therefore, the defendants’ act of terminating the contract by themselves, without judicial intervention, was unjustified.
2. Rescission is warranted only for a substantial breach that defeats the object of the contract. The defendants’ claim of occasional malfunctions (“there are times”) constituted at most a slight or casual breach, insufficient to justify rescission. The evidence did not show frequent failures rendering the jukebox unsuitable.
3. The defendants’ conduct indicated their true motive was to operate their own jukebox for greater profit, not a material breach by the plaintiff. Their haste in demanding removal, threat to charge space rental, and installation of their own unit shortly after ordering it from abroad demonstrated a culpable violation of the contract, particularly the exclusive right clause.
The Court rescinded the contract in favor of the plaintiff and ordered the defendants to return the automatic phonograph, pay liquidated damages of P5,850 plus 6% interest from the filing of the complaint, and pay attorney’s fees of P200.