G.R. No. 131680 ; September 14, 2000
SUBIC BAY METROPOLITAN AUTHORITY, et al., petitioners, vs. UNIVERSAL INTERNATIONAL GROUP OF TAIWAN, et al., respondents.

FACTS

Petitioner Subic Bay Metropolitan Authority (SBMA) entered into a Lease and Development Agreement with respondent Universal International Group of Taiwan (UIG). The contract contained a stipulation allowing SBMA, as landlord, to extrajudicially terminate the lease and repossess the property upon the tenant’s material breach and failure to cure after notice. SBMA alleged that UIG committed several defaults, including failure to complete the golf course rehabilitation for the APEC Summit and to pay accumulated rentals. After sending notices and a show-cause letter, SBMA declared UIG in default, sent a pre-termination letter, and took over the premises on September 12, 1997.
On the same day, respondents filed a complaint for Injunction and Damages with the Regional Trial Court (RTC), which granted a writ of preliminary mandatory and prohibitory injunction, ordering SBMA to restore possession to respondents and refrain from interfering in their operations. The RTC also denied SBMA’s Motion to Dismiss. The Court of Appeals affirmed the RTC’s orders, prompting SBMA to elevate the case to the Supreme Court via a Petition for Review on Certiorari.

ISSUE

Whether the Court of Appeals erred in affirming the RTC’s issuance of the writ of preliminary injunction that restored possession to respondents, despite a contractual stipulation authorizing SBMA to extrajudicially rescind the agreement and recover possession upon UIG’s default.

RULING

The Supreme Court granted the petition and reversed the Court of Appeals. The legal logic is anchored on the validity and enforceability of contractual stipulations for extrajudicial rescission. The Court held that such a stipulation, known as a pactum commissorium, is lawful under Article 1308 of the Civil Code, which gives contracts the force of law between the parties. While a judicial determination of the factual issue of breach is generally necessary if the defaulting party validly objects, this requirement is dispensed with when the breach is not denied. In this case, respondents did not dispute the occurrence of the contractual breaches cited by SBMA. Their defense was solely that the rescission clause itself was void. Since the fact of breach was uncontested, SBMA was legally entitled to enforce the stipulation and extrajudicially terminate the lease. Consequently, the RTC committed a grave abuse of discretion in issuing the preliminary injunction, which disturbed SBMA’s lawful possession obtained through a valid contractual remedy. The writ of injunction was improperly granted as it prematurely restored possession to the defaulting party without a judicial finding that SBMA’s rescission was unjustified, which was unnecessary given the admitted breach.