Country Bankers v.
CA (1991) chargeable against Sys bond supplied by Country Bankers which Sy
Petitioners: Country Bankers Insurance Corporation
Respondents: CA, Osar OVEC
DOCTRINE: Article 1226. In obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment of interests
in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance
with the provisions of this Code.
FACTS:
1. Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and the
petitioner Enrique F. Sy, as lessee, entered into a 6 year lease
agreement over the Avenue, Broadway and Capitol Theaters and the
land on which they are situated in Cabanatuan City, including their air-
conditioning systems, projectors and accessories needed for showing the
films or motion pictures.
2. After more than 2 years of operation, the lessor OVEC made demands
for the repossession of the said leased properties in view of the Sy's
arrears in monthly rentals and non-payment of amusement taxes.
3. By reason of Sy's request for reconsideration of OVECs demand for
repossession of the 3 theaters, Sy was allowed to continue operating the
leased premises upon his conformity to certain conditions imposed by
OVEC as contained in a supplemental agreement.
4. Pursuant to this, Sys arrears in rental was reduced. However, the
accrued amusement tax liability of the 3 theaters to the City Government
of Cabanatuan City had accumulated to P84K despite the fact that Sy
had been deducting the amount of P4K from his monthly rental with the
obligation to remit the said deductions to the city government.
5. Demands were made to Sy for the payment of arrears in rentals and
amusement tax delinquency.
6. Upon failure to pay, OVEC took repossession of the 3 theaters.
7. Sy filed an action for reformation of the lease agreement, damages and
injunction
8. Trial Court ruled in favor of OVEC. The repossession of the 3 theaters
after termination and cancellation of the lease was in accordance with
the stipulation of the parties in the lease agreement between the parties
a. Sy not entitled to reformation
9. CA- Appeal: in favor of OVEC; cancellation of the agreement prior to
expiration is justified due to Sys own non-compliance with the terms of
the agreement and not by fraid or greed; OVEC entitled to P100K
posted upon filing the complaint.
ISSUE: WON CA erred in holding the bond supplied by Country Bankers
Insurance liable
PROVISION:
RULING + RATIO: NO, Country Bankers bond is liable
10. A provision which calls for the forfeiture of the remaining deposit still in
the possession of the lessor, without prejudice to any other obligation still
owing, in the event of the termination or cancellation of the agreement by
reason of the lessee's violation of any of the terms and conditions of the
agreement is a penal clause that may be validly entered into.
11. As a general rule, in obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of interests in
case of non-compliance.
12. In such case, proof of actual damages suffered by the creditor is not
necessary in order that the penalty may be demanded.
13. However, there are exceptions to the rule that the penalty shall substitute
the indemnity for damages and the payment of interests in case of non-
compliance with the principal obligation.
a. when there is a stipulation to the contrary
b. when the obligor is sued for refusal to pay the agreed penalty
c. when the obligor is guilty of fraud
14. It is evident that in all said cases, the purpose of the penalty is to punish
the obligor. Therefore, the obligee can recover from the obligor not only
the penalty but also the damages resulting from the non-fulfillment or
defective performance of the principal obligation.
15. In the case at bar, inasmuch as the forfeiture clause provides that the
deposit shall be deemed forfeited, without prejudice to any other
obligation still owing by the lessee to the lessor, the penalty cannot
substitute for the P100K supposed damage resulting from the issuance
of the injunction against the P290K remaining cash deposit.
16. This supposed damage suffered by OVEC was the alleged P10K a
month increase in rental, which OVEC failed to realize for 10 months in
the total sum of P100K
17. This opportunity cost which was duly proven before the trial court, was
correctly made chargeable by the said court against the injunction bond.
DISPOSITION: ACCORDINGLY, finding no merit in the grounds relied upon
by petitioners in their petition, the same is hereby DENIED and the decision
dated June 15, 1988 and the resolution dated September 21, 1988, both of
the respondent Court of Appeals are AFFIRMED.