CONCLUSIONES

FACTS;

Lica Management, Inc. (LMI) is the absolute owner of a property. On June 24, 1994, it entered into a contract with Nissan Car Lease Phils. (Nissan) for the latter to lease the property for a term of ten (10) years (or from July 1, 1994 to June 30, 2004) with a monthly rental of ₱308,000.00 and an annual escalation rate of ten percent (10%). Sometime in September 1994, NCLPI, with LMI’s consent, allowed its subsidiary Nissan Smartfix Corporation (NSC) to use the leased premises. Nissan became delinquent in paying the monthly rent. In May 1996, Nissan and Lica verbally agreed to convert the arrearages into a debt to be covered by a promissory note and twelve (12) postdated checks, each amounting to ₱162,541.95 as monthly payments starting June 1996 until May 1997.

While Nissan was able to deliver the postdated checks per its verbal agreement with LMI, it failed to sign the promissory note and pay the checks for June to October 1996. Thus, in a letter dated October 16, 1996, LMI informed Nissan that it was terminating their Contract of Lease due to arrears in the payment of rentals. It also demanded that Nissan (1) pay the amount of ₱2,651,570.39 for unpaid rentals and (2) vacate the premises within five (5) days from receipt of the notice. In the meantime Nissan entered into a Memorandum of Agreement with Proton whereby the former agreed to allow Proton "to immediately commence renovation work even prior to the execution of the Contract of Sublease x x x. In consideration, Proton agreed to transmit to NCLPI a check representing three (3) months of rental payments, to be deposited only upon the due execution of their Contract of Sublease.

Nissan through counsel, replied to LMI’s letter of October 16, 1996 acknowledging the arrearages incurred by it under their Contract of Lease. Claiming, however, that it has no intention of abandoning the lease and citing efforts to negotiate a possible sublease of the property. LMI filed a Complaint for sum of money with damages against for its unpaid rentals, with interest and penalties, as well as exemplary damages, attorney’s fees, and costs of litigation.

In its Answer and Third-Party Complaint against Proton, Nissan alleged that LMI and Proton "schemed" and "colluded" to unlawfully force Nissan from the premises.

Ruling of the Trial Court

The trial court ruled in favor of LMI. The trial court found that Nissan purposely violated the terms of its contract with LMI when it failed to pay the required rentals and contracted to sublease the premises without the latter’s consent.The CA denied Nissan appeal and affirmed the trial court’s decision with modification.

Nissan maintains that LMI cannot unilaterally and extrajudicially rescind their Contract of Lease in the absence of an express provision in their Contract to that effect because - the power to rescind is judicial in nature and the Supreme Court has allowed extrajudicial rescission if such remedy is specifically provided for in the contract.

ISSUE:

Whether or not a contract may be rescinded extrajudicially despite the absence of a special contractual stipulation therefor?

HELD:

Yes.

It is true that Nissan and LMI’s Contract of Lease does not contain a provision expressly authorizing extrajudicial rescission. LMI can nevertheless rescind the contract, without prior court approval, pursuant to Art. 1191 of the Civil Code.

Art. 1191 provides that the power to rescind is implied in reciprocal obligations, in cases where one of the obligors should fail to comply with what is incumbent upon him.

Otherwise stated, an aggrieved party is not prevented from extrajudicially rescinding a contract to protect its interests, even in the absence of any provision expressly providing for such right. The rationale for this rule was explained in the case of University of the Philippines v. De los Angeles wherein this Court held:

[T]he law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203).

(Emphasis and underscoring supplied)

We are aware of this Court’s previous rulings in Tan v. Court of Appeals, Iringan v.

Court of Appeals, and EDS Manufacturing, Inc. v. Healthcheck International, Inc., for example, wherein we held that extrajudicial rescission of a contract is not possible without an express stipulation to that effect.

The seeming "conflict" between this and our previous rulings, however, is more apparent than real.

Whether a contract provides for it or not, the remedy of rescission is always available as a remedy against a defaulting party. When done without prior judicial imprimatur, however, it may still be subject to a possible court review. In Golden Valley Exploration, Inc. v. Pinkian Mining Company, we explained:

This notwithstanding, jurisprudence still indicates that an extrajudicial rescission based on grounds not specified in the contract would not preclude a party to treat the same as rescinded. The rescinding party, however, by such course of action, subjects himself to the risk of being held liable for damages when the extrajudicial rescission is questioned by the opposing party in court. This was made clear in the case of U.P. v. De los Angeles, wherein the Court held as follows:

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court.Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it

proceeds at its own risk . For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. x x x (Emphasis and underscoring in the original)

The only practical effect of a contractual stipulation allowing extrajudicial rescission is "merely to transfer to the defaulter the initiative of instituting suit, instead of the rescinder."In fact, the rule is the same even if the parties’ contract expressly allows extrajudicial rescission. The other party denying the rescission may still seek judicial intervention to determine whether or not the rescission was proper.

Having established that LMI can extrajudicially rescind its contract with Nissan even absent an express contractual stipulation to that effect, the question now to be resolved is whether this extrajudicial rescission was proper under the circumstances.

As earlier discussed, Nissan’s non-payment of rentals and unauthorized sublease of the leased premises were both clearly proven by the records. We thus confirm LMI’s rescission of its contract with Nissan on account of the latter’s breach of its obligations.

WHEREFORE, in view of the foregoing, the petition is DENIED.

REBECCA FULLIDO vs. GINO GRILLI G.R. No. 215014, February 29, 2016 NATURE OF ACTION: Unlawful Detainer TOPIC: VOID CONTRACT

PONENTE: MENDOZA, J.:

FACTS:

Grilli financially assisted Fullido in procuring a lot from her parents which was registered in her name On the said property, they constructed a house, which was funded by Grilli. Upon completion, they maintained a common-law relationship and lived there whenever Grilli was on vacation in the Philippines twice a year.

In 1998, Grilli and Fullido executed a contract of lease, to define their respective rights over the house and lot. The lease contract stipulated, among others, that Grilli as the lessee, would rent the lot, registered in the name of Fullido, for a period of fifty (50) years, to be automatically renewed for another fifty (50) years upon its expiration in the amount of P10,000.00 for the whole term of the lease contract; and that Fullido as the lessor, was prohibited from selling, donating, or encumbering the said lot without the written consent of Grilli. Their harmonious relationship turned sour after 16 years of living together. Both charged each other with infidelity. They could not agree who should leave the common property, and Grilli sent formal letters to Fullido demanding that she vacate the property, but these were unheeded. On September 8, 2010, Grilli filed a complaint for unlawful detainer with prayer for issuance of preliminary injunction against Fullido before the MCTC Fullido argues that she could not be ejected from her own lot based on the contract of lease and the MOA because those documents were null and void for being contrary to the Constitution, the law, public policy, morals and customs; that the MOA prevented her from disposing or selling her own land, while the contract of lease favoring Grilli, a foreigner, was contrary to the Constitution as it was a for a period of fifty (50) years, and, upon termination, was automatically renewable for another fifty (50) years.

Grilli, on the other hand, contends that Fullido could not question the validity of the said contracts in the present ejectment suit unless she instituted a separate action for annulment of contracts. Thus, the Court is confronted with the issue of whether a contract could be declared void in a summary action of unlawful detainer.

The MCTC dismissed the case after finding that Fullido could not be ejected from their house and lot. The MCTC opined that she was a co-owner of the house as she contributed to it by supervising its construction. The RTC reversed and set aside the MCTC decision. The RTC was of the view that Grilli had the exclusive right to use and possess the house and lot by virtue of the contract of lease executed by the parties.

The CA upheld the decision of the RTC emphasizing that in an ejectment case, the only issue to be resolved would be the physical possession of the property. The CA was also of the view that as Fullido executed both the MOA and the contract of lease, which gave Grilli the possession and use of the house and lot, the same constituted as a judicial admission that it was Grilli who had the better right of physical possession.

ISSUE:

May patently null and void contracts be a basis of an ejectment order?

HELD:

No.

A void or inexistent contract may be defined as one which lacks, absolutely either in fact or in law, one or some of the elements which are essential for its validity. It is one which

has no force and effect from the very beginning, as if it had never been entered into; it produces no effect whatsoever either against or in favor of anyone.²¹Quod nullum est nullum producit effectum. Article 1409 of the New Civil Code explicitly states that void contracts also cannot be ratified; neither can the right to set up the defense of illegality be waived. Accordingly, there is no need for an action to set aside a void or inexistent contract.

A review of the relevant jurisprudence reveals that the Court did not hesitate to set aside a void contract even in an action for unlawful detainer. In Spouses Alcantara v.

Nido, which involves an action for unlawful detainer, the petitioners therein raised a defense that the subject land was already sold to them by the agent of the owner. The Court rejected their defense and held that the contract of sale was void because the agent did not have the written authority of the owner to sell the subject land.

Clearly, contracts may be declared void even in a summary action for unlawful detainer because, precisely, void contracts do not produce legal effect and cannot be the source of any rights. To emphasize, void contracts may not be invoked as a valid action or defense in any court proceeding, including an ejectment suit. The next issue that must be resolved by the Court is whether the assailed lease contract and MOA are null and void.

WHEREFORE, the petition is GRANTED.

JUANA VDA. DE ROJALES, SUBSTITUTED BY HER HEIRS, REPRESENTED BY CELERINA ROJALES-SEVILLA, Petitioner, v. MARCELINO DIME, SUBSTITUTED BY HIS HEIRS, REPRESENTED BY BONIFACIA MANIBAY, Respondent

G.R. No. 194548, February 10, 2016

NATURE OF ACTION: Petition for the Consolidation of Ownership and Title TOPIC: Pacto de Retro Sale (Privity of contract)