8/13/2019 PNCC v CA

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PHILIPPINE NATIONAL CONSTRUCTION

CORPORATION (PNCC) vs. COURT OF APPEALS, MA.TERESA S. RAYMUNDO-ABARRA, JOSE S.RAYMUNDO, ANTONIO S. RAYMUNDO, RENE S.RAYMUNDO, and AMADOR S. RAYMUNDOMay 5, 1997

Impossibility of performance – obligation to do

FACTSPetitioner (lessee) and respondents (lessor) executed alease contract on Nov 18 1985 on a parcel of land owned

by respondents. Provisions of contract:  Lease period of 5 years, commencing on the date

of the issuance of the industrial clearance by theMinistry of Human Settlements (MHS)

  Monthly rate: P20,000, to be increased yearly by5%, as follows: P21,000 starting on the 2nd yr,P22,000 on the 3rd yr, P23,000 on the 4th yr,

P24,00 on the 5th yr

  Rent to be paid yearly in advance. First annualrent of P240,000 due and payable upon execution

of the agreement. Succeeding annual rentspayable every 12 months thereafter.

  Leased property shall be used by the lessee asthe site of a rock crushing plant and filed office,sleeping quarters and canteen/mess hall. Lesseehas the right to erect structures/improvementsnecessary or incidental to the latter’s purposes

  Termination of lease: by mutual agreement.Lessee shall vacate the leased property at its

expense upon termination/expiration of theperiod of lease without renewal

January 7 1986 - petitioner obtained from the MHS aTemporary Use Permit (TPU) for the rock crushing project,valid for 2 yrs.

Respondents requested payment of the first annualpayment from the petitioners, said to be due upon theexecution of the contract. Petitioners replied that under

the contract, payment would commence on the date ofthe issuance of industrial clearance, not the date of thesigning of the contract. It expressed intention toterminate contract due to “financial, technical difficulties”leading to the cancellation of the rock crushing project.Respondents refused, insisted on performance/payment.Petitioners argued that they are only obligated to payP20,000, from Jan 7 (issuance of TPU) until Feb 7 1986(service of Notice of Termination of Contract upon therespondents)

Respondents filed an action for specific performance withdamages against the petitioners. RTC decided in favor of

respondents, ordering petitioners to pay P492,000 (twoyears’ rent) with legal interest from January 7 1986 until

fully paid, P20,000 atty’s fees, costs. CA affirmed. 

Hence, this petition. Petitioner’s arguments (ISSUES): 

  The issuance of an industrial permit is asuspensive condition without which rightsunder the contract would not be acquired. TheTPU is not such permit referred to in the contract.Without the industrial clearance the lease contractcould not become effective and petitioner could

not be compelled to perform its obligation underthe contract.

  Based on Art. 1266 and the principle of rebus sicstantibus, petitioner should be released from theobligatory force of the contract of lease because

the purpose of the contract did not materialize

due to unforeseen events and causes beyond itscontrol, i.e. the abrupt change in politicalclimate after the EDSA Revolution andfinancial difficulties. Such change “renderedthe performance of the contract impractical

and inimical to the corporate survival of thepetitioner.” 

  Rent payable should only be for one year because1.) petitioner did not benefit from the property,and 2.) the TPU was deemed automatically

revoked as per the provisions of the leasecontract for failure of the petitioner to use thesame within one year from issuance.

RULINGa. Petitioner is estopped from claiming that the TPU isnot the industrial clearance contemplated in the contact,

based on its letter to respondent where it mentioned thatit is only obligated to pay P20,000 one-month rental,counted from the date when the Industrial Permit was

issued by the Ministry of Human Settlements (January 7,1986). From this, it can be gleaned that the petitionerconsidered the TPU as industrial clearance, because itrecognized its obligation to pay rental counted from thedate the permit was issued. Moreover, in petitioner’searlier letter to respondents (giving notice to respondentsre: petitioner’s decision to terminate the contract andsoliciting respondent’s conformity), it can be deduced thatthe suspensive condition – issuance of industrial clearance

– was already fulfilled and that the lease contract hasbecome operative, otherwise, the conformity of therespondents to the termination of the contract based onthe non-fulfillment of the suspensive condition was notnecessary. Also, petiitoner’s decision to discontinue itsrock crushing project (and eventually, cancelling the leasecontract) was based on “financial and technical

diff iculties”, not the insufficiency of the TPU.

b. Art. 1266 NCC ("The debtor in obligations to do shall

also be released when the prestation becomes legally orphysically impossible without the fault of the obligor.") isnot applicable in this case, as it is only applicable toobligations “to do”. The obligation to pay rentals/ deliverthe thing in a contract of lease falls within the prestation “to give”, hence, not covered. Also, the unforeseen eventand causes mentioned by petitioner are not the legal orphysical impossibilities contemplated in said article. Theprinciple of rebus sic stantibus is also not applicablein this case. It is of judicial notice that before PNCCentered into contract with respondents on Nov 18, 1985,the country experienced political upheavals, turmoils,mass demonstrations, inflation, et al after the

assassination of Senator Aquino. Despite this, PNCCentered into contract with the respondents. Mere

pecuniary inability to fulfill an engagement does notdischarge a contractual obligation, nor does it constitute a

defense to an action for specific performance. The non-materialization of petitioner’s purpose in entering into thecontract will also not invalidate the contract as the motiveor particular purpose of a party in entering into a contractdoes not affect the validity of its existence – the essentialpurpose of a contract of lease is the use or enjoyment of athing.

c. Not excessive. The non-use of the permit and non-entry into the property were both imputable to thepetitioner and cannot be used to evade or lessenpetitioner’s monetary obligation. Respondents suffered

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