Case No. 15 HernandoBar
Case No. 15 GR No. 219698 2021-09-27
PNTC COLLEGES v. TIME REALTY
👨⚖️ HERNANDO, J.
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| Case No. 15 GR No. 219698 2021-09-27 |
Binding force and effect of contract; Mutuality of contract; Penalty clause; Unjust enrichment ; Compulsory counterclaim.
Related:
• Cases penned by Justice Ramon Paul L. Hernando PART 1 case no. 1 to 40 [FULLTEXT].pdf
• Cases penned by Justice Hernando (Part II) Case No. 41 to 80.
• Cases penned by HERNANDO, J. (Part III) Case No. 81 to 120.
• Cases Penned by Justice Hernando (Part IV) Case No. 121 to 160.
• Cases penned by HERNANDO, J. (Part 5) Case No. 161 to 200.
• Cases penned by HERNANDO, J. (Part 6) Case No. 201 to 240.
• How I did it; how I aced the Bar Exams.
Binding force and effect of contract.
"it is well to remember that a contract is the law between the parties. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. The parties are allowed by law to enter into stipulations, clauses, terms and conditions they may deem convenient which bind the parties as long as they are not contrary to law, morals, good customs, public order or public policy."
Essentially, the stipulations in the Contract of Lease "are clear and show no contravention, of law, morals, good customs, public order or public policy. As such, they are valid, and the parties' rights shall be adjudicated according to them, being the primary law between them. When the terms of the contract are clear and leave no doubt as to the intention of the contracting parties, the rule is settled that the literal meaning of its stipulations should control."
A compulsory counterclaim is described as follows:
A compulsory counterclaim is a defendant's claim for money or other relief which arises out of, or is necessarily connected with, the subject matter of the complaint.
In Spouses Ponciano v. Hon. Parentela, Jr.:
A compulsory counterclaim is any claim for money or other relief which a defending party may have against an opposing party, which at the time of suit arises out of, or is necessarily connected with, the same transaction or occurrence that is the subject matter of plaintiff's complaint. It is compulsory in the sense that if it is within the jurisdiction of the court, and does not require for its adjudication the presence of third parties over whom the court cannot acquire jurisdiction, it must be set up therein, and will be barred in the future if not set up.
Jurisprudence holds that there is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.
The statutory basis for the principle of unjust enrichment is Article 22 of the Civil Code which provides that
'[e]very person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.'
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The principle of unjust enrichment under Article 33 requires two conditions:
(1) that a person is benefited without a valid basis or justification, and
(2) that such benefit is derived at another's expense or damage. There is no unjust enrichment when the person who will benefit has a valid claim to such benefit.
In Ligutan v. Court of Appeals, we held that a penalty clause, expressly recognized by law, is an accessory yundertaking to assume greater liability on the part of an obligor in case of breach of an obligation.
It functions to strengthen the coercive force of the obligation and to provide, in effect for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. Although a court is not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with.
Pertinently, Article 1229 of the Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.
In light of this, the Court deems the penalty charge of 3% per month for unpaid rentals unconscionable, especially considering that PNTC only failed to pay when it was already clearing out of the premises. Thence, We find it equitable to reduce the interest rate from 3% to 1% per month or a total of 12% per annum in accordance with Article 1229 of the Civil Code. As such, the amount of P870,038.40 should be subject to the interest rate of 1% per month or 12% per annum counting from May 2007 until full payment.
WHEREFORE, the instant petition is hereby DENIED. The assailed Decision dated April 8, 2014 and Resolution dated March 26, 2015 rendered by the Court of Appeals in CA-G.R. CV No. 97119 are hereby AFFIRMED with MODIFICATIONS in that PNTC Colleges, Inc. is ORDERED to pay Time Realty, Inc. the following amounts, less the deposit amounting to P743,640.00:
(End of emphasis).
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