G.R. No. 176986. January 13, 2016.

*
 
NISSAN CAR LEASE PHILIPPINES., INC., petitioner,  vs.  LICA MANAGEMENT,
INC. and PROTON PILIPINAS, INC., respondents.

Mercantile Law; Corporations; Separate Legal Personality; As a rule, a corporation has a

separate and distinct personality from its directors and officers and can only exercise its
corporate powers through its board of directors.—As a rule, a corporation has a separate and
distinct personality from its directors and officers and can only exercise its corporate powers
through its board of directors. Following this rule, a verification and certification signed by an
individual corporate officer is defective if done without authority from the corporation’s board of
directors.
Remedial Law; Civil Procedure; Appeals; Factual findings of the Court of Appeals (CA) are
binding and conclusive on the parties and upon the Supreme Court (SC) and will not be reviewed
or disturbed on appeal.—Factual findings of the CA are binding and conclusive on the parties and
upon this Court and will not be reviewed or disturbed on appeal. While the rule admits of certain
exceptions, NCLPI failed to prove that any of the exceptions applies in this case. The crux of the
controversy rather revolves around the validity of LMI’s act of extrajudicially rescinding its
Contract of Lease with NCLPI.
Same; Special Civil Actions; Forcible Entry; Unlawful Detainer; Rule 70 of the Rules of
Court sets forth the procedure in relation to the filing of suits for forcible entry and unlawful
detainer.—Rule 70 of the Rules of Court sets forth the procedure in relation to the filing of suits
for forcible entry and unlawful detainer. The action filed by LMI against NCLPI, however, is one
for the recovery of a sum of money. Clearly, Section 2 of Rule 70 is not applicable. In fact, it does
not appear that it was even necessary for LMI to eject NCLPI from the leased premises. NCLPI
had already vacated the same as early as October 11, 1996 when it surrendered possession of the

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*  THIRD DIVISION.

 
 
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premises to Proton, by virtue of their Memorandum of Agreement, so that the latter can
commence renovations. NCLPI also 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.
Civil Law; Obligations; Reciprocal Obligations; Rescission; Art. 1191 provides that the
power to rescind is implied in reciprocal obligations, in cases where one (1) of the obligors should
fail to comply with what is incumbent upon him.—It is true that NCLPI 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.
Same; Same; Same; Same; Whether a contract provides for it or not, the remedy of rescission
is always available as a remedy against a defaulting party.—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, 726 SCRA 259 (2014), 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

 
 
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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.”
Same; Same; Same; Same; 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.—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 canextrajudicially rescind its contract with NCLPI 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, NCLPI’s nonpayment 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 NCLPI on account of the latter’s breach of
its obligations.
Same; Lease; Interest Rates; Considering that the Contract of Lease does not stipulate an
applicable interest rate, again following our ruling in Nacar v. Gallery Frames, 703 SCRA 439
(2013), the rate shall be six percent (6%) from the time of judicial or extrajudicial demand.—
Considering, however, that the Contract of Lease does not stipulate an applicable interest rate,
again following our ruling in  Nacar v. Gallery Frames, 703 SCRA 439 (2013),  the rate shall
be six percent (6%) from the time of judicial or extrajudicial demand. The records of this case
show thatthe first time NCLPI raised the issue on the security deposit was in its Briefdated March
25, 2003 filed

 
 
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with the CA.  Thus, the interest should be computed starting only on said date until the
finality of this Decision, after which the total amount shall earn interest at the rate of six percent
(6%) from the finality of this Decision until satisfaction by LMI.

PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
  Ponce Enrile, Reyes & Manalastas for petitioner.
  Quiroz, Dumas, Capistrano & Teleron Law Offices for respondent Proton Pilipinas.
  Mercedes Buhayang-Margallo for respondent Lica Management, Inc.

JARDELEZA, J.:
 
This is a Petition for Review on Certiorari1 filed by Nissan Car Lease Philippines,
Inc. (NCLPI) to assail the Decision2  and Resolution3  dated September 27, 2006 and
March 8, 2007, respectively, of the Court of Appeals (CA) in C.A.-G.R. CV No. 75985.
The CA affirmed with modification the Decision4 of the Regional Trial Court dated June
7, 2002 and ruled that there was a valid extrajudicial rescission of the lease contract
between NCLPI and Lica Management, Inc. (LMI). It also ordered NCLPI to pay its
unpaid rentals and awarded damages in favor of LMI and third party respondent Proton
Pilipinas, Inc. (Proton).

_______________

1  Rollo, pp. 11-35.

2    Id., at pp. 39-52. Penned by Associate Justice Fernanda Lampas-Peralta, with Associate Justices
Bienvenido L. Reyes (now a member of this Court) and Myrna Dimaranan-Vidal, concurring.
3  Id., at pp. 54-58.
4  Id., at pp. 144-168. Penned by Judge Marissa Macaraig-Guillen.

 
 
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404 SUPREME COURT REPORTS ANNOTATED

Nissan Car Lease Philippines, Inc. vs. Lica Management,
Inc.

The Facts
 
LMI is the absolute owner of a property located at 2326 Pasong Tamo Extension,
Makati City with a total area of approximately 2,860 square meters.5 On June 24, 1994,
it entered into a contract with NCLPI 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 P308,000.00
and an annual escalation rate of ten percent (10%).6Sometime in September 1994,
NCLPI, with LMI’s consent, allowed its subsidiary Nissan Smartfix Corporation (NSC)
to use the leased premises.7
Subsequently, NCLPI became delinquent in paying the monthly rent, such that its
total rental arrearages8  amounted to P1,741,520.85.9  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 P162,541.95 as monthly payments
starting June 1996 until May 1997.10
While NCLPI 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, which was sent on October 18, 1996 by
registered mail, LMI informed NCLPI that it was terminating their Contract of Lease
due to arrears in the payment of rentals. It also demanded that NCLPI (1) pay the

_______________

5   Id., at pp. 60, 65.

6   Id., at pp. 65-71.
7   Id., at pp. 60, 72.
8   As of May 1996, id., at p. 60.
9   Id.
10  Id., at p. 61.

 
 
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amount of P2,651,570.39 for unpaid rentals11 and (2) vacate the premises within five
(5) days from receipt of the notice.12
In the meantime, Proton sent NCLPI an undated request to use the premises as a
temporary display center for “Audi” brand cars for a period of ten (10) days. In the same
letter, Proton undertook “not to disturb [NCLPI and LMI’s] lease agreement and ensure
that [NCLPI] will not breach the same [by] lending the premises x  x  x without any
consideration.”13 NCLPI acceded to this request.14
On October 11, 1996, NCLPI 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.”15 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.16
In a letter dated October 24, 1996, NCLPI, 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, NCLPI requested LMI to defer
taking court action on the matter.17
LMI, on November 8, 1996, entered into a Contract of Lease with Proton over the
subject premises.18

_______________

11  Covering a portion of July 1996 up to and including October 1996. Id., at p. 73.

12  Id.
13  Id., at pp. 102-103.
 14  Id., at p. 104.
15  Id., at pp. 142-143.
16  Id.
17  Id., at pp. 74-75; pp. 61-62.
18  Id., at p. 139.

 
 
406

406 SUPREME COURT REPORTS ANNOTATED

Nissan Car Lease Philippines, Inc. vs. Lica Management,
Inc.

On November 12, 1996, LMI filed a Complaint19 for sum of money with damages
seeking to recover from NCLPI the amount of P2,696,639.97, equivalent to the balance
of its unpaid rentals, with interest and penalties, as well as exemplary damages,
attorney’s fees, and costs of litigation.20
On November 20, 1996, NCLPI demanded Proton to vacate the leased
premises.21 However, Proton replied that it was occupying the property based on a lease
contract with LMI.22 In a letter of even date addressed to LMI, NCLPI asserted that its
failure to pay rent does not automatically result in the termination of the Contract of
Lease nor does it give LMI the right to terminate the same.23 NCLPI also informed LMI
that since it was unlawfully ousted from the leased premises and was not deriving any
benefit therefrom, it decided to stop payment of the checks issued to pay the rent.24
In its Answer25  and Third-Party Complaint26  against Proton, NCLPI alleged that
LMI and Proton “schemed” and “colluded” to unlawfully force NCLPI (and its
subsidiary NSC) from the premises. Since it has not abandoned its leasehold right,
NCLPI asserts that the lease contract between LMI and Proton is void for lack of a valid
cause or consideration.27  It likewise prayed for the award of: (1) P3,000,000.00, an
amount it anticipates to lose on account of LMI and Proton’s deprivation of its right to
use and occupy the premises; (2)

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19  Docketed as Civil Case No. 96-1840 before the RTC, Branch 60 of Makati City. Id., at pp. 59-64.
20  Id., at p. 63.
21  Id., at pp. 105-106.
22  Id., at p. 109.
23  Id., at p. 107.
24  Id., at p. 108.
25  Id., at pp. 84-94.
26  Id., at pp. 111-118.
27  Id., at p. 88.

 
 
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P1,000,000.00 as exemplary damages; and (3) P500,000.00 as attorney’s fees, plus

P2,000.00 for every court appearance.28
 The trial court admitted29 the third party complaint over LMI’s opposition.30
Subsequently, or on April 17, 1998, Proton filed its Answer with Compulsory
Counterclaim against NCLPI.31  According to Proton, the undated letter-request
supposedly sent by Proton to NCLPI was actually prepared by the latter so as to keep
from LMI its intention to sublease the premises to Proton until NCLPI is able to secure
LMI’s consent.32  Denying NCLPI’s allegation that its use of the lease premises was
made without any consideration, Proton claims that it “actually paid [NCLPI] rental of
P200,000.00 for the use of subject property for 10 days x x x.”33
Proton further asserted that NCLPI had vacated the premises as early as during the
negotiations for the sublease and, in fact, authorized the former to enter the property and
commence renovations.34 When NCLPI ultimately failed to obtain LMI’s consent to the
proposed sublease and its lease contract was terminated, Proton, having already incurred
substantial expenses renovating the premises, was constrained to enter into a Contract of
Lease with LMI. Thus, Proton prayed for the dismissal of the Third-Party Complaint,
and asked, by way of counterclaim, that NCLPI be ordered to pay exemplary damages,
attorney’s fees, and costs of litigation.35

_______________

28  Id., at pp. 88-89.

29  Id., at p. 136.
30  Id., at pp. 76-83.
31  Id., at pp. 137-143.
32  Id., at p. 137.
33  Id.
34  Id., at p. 139.
35  Id., at pp. 139-140.

 
 
408

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Nissan Car Lease Philippines, Inc. vs. Lica Management,
Inc.

Ruling of the Trial Court

On June 7, 2002, the trial court promulgated its Decision,36 the decretal portion of
which reads:
 
WHEREFORE, in view of the foregoing, judgment is rendered in plaintiff
LICA MANAGEMENT, INCORPORATED’s favor. As a consequence of this,
defendant NISSAN CAR LEASE PHILIPPINES, INC. is directed to pay plaintiff
the following:
1.) [P]2,696,639.97 representing defendant’s unpaid rentals inclusive
of interest and penalties up to 12 November 1996, plus interest to be
charged against said amount at the rate of twelve percent (12%) beginning
said date until the amount is fully paid.
2.) Exemplary damages and attorney’s fees amounting to Two
Hundred Thousand Pesos ([P]200,000.00) and litigation expenses
amounting to Fifty Thousand Pesos ([P]50,000.00).
The third party complaint filed by defendant is DENIED for lack of merit and
in addition to the foregoing and as prayed for, defendant NISSAN is ordered to
pay third party defendant PROTON PILIPINAS, INC. the sum of Two Hundred
Thousand Pesos ([P]200,000.00) representing exemplary damages and attorney’s
fees due.
SO ORDERED.37
 The trial court found that NCLPI 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.38Under Article 1191 of the Civil Code, LMI was therefore
entitled to rescind the contract between

_______________

36  Id., at pp. 144-168.

37  Id., at p. 168.
38  Id., at p. 166.

 
 
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the parties and seek payment of the unpaid rentals and damages.39 In addition, the
trial court ruled that LMI’s act of notifying NCLPI of the termination of their lease
contract due to nonpayment of rentals is expressly sanctioned under paragraphs 1640and
1841 of their contract.42
Contrary to NCLPI’s claim that it was “fooled” into allowing Proton to occupy the
premises for a limited period after which the latter unilaterally usurped the premises for
itself, the trial court found that it was NCLPI “which misrepresented itself to [Proton] as
being a lessee of good standing, so that it could induce the latter to occupy and renovate
the premises when at that time the negotiations were underway the lease between [LMI]
and [NCLPI] had already been terminated.”43
Aggrieved, NCLPI filed a Petition for Review with the CA. In its Appellant’s
Brief,44  it argued that the trial court erred in: (1) holding that there was a valid
extrajudicial rescission of its lease contract with LMI; and (2) dismissing NCLPI’s claim
for damages against LMI and Proton while at the same

_______________

39  Id.
40  Id., at p. 69. This paragraph reads:
16. BREACH OR DEFAULT — Any breach or default by either party of any of the terms and conditions
of this Contract shall be sufficient ground for the aggrieved party to rescind the same.
41  Id. This paragraph reads:
18. DAMAGES — It is hereby mutually agreed and covenanted that noncompliance by either party with
any of the provisions of this Contract to be performed by it and which may be the basis of a suit by the other
shall entitle the injured party to collect such damages it may sustain.
42  Id., at pp. 65-71, 162.
43  Id., at p. 164.
44  Id., at pp. 169-206.

 
 
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 time holding NCLPI liable to them for exemplary damages and attorney’s fees.45
 
Ruling of the Court of Appeals
 
The CA denied NCLPI’s appeal and affirmed the trial court’s decision with
modification. The decretal portion of the CA’s Decision46 reads:
 
WHEREFORE, the appealed Decision dated June 7, 2002 of the trial court is
affirmed, subject to modification that:
(1) The award of exemplary damages of P100,000.00 each in favor of
plaintiff-appellee and third party defendant-appellee is reduced to P50,000.00
each;
(2) The award of attorney’s fees of P100,000.00 each in favor of plaintiff-
appellee and third party defendant-appellee is reduced to P50,000.00 each;
(3) The amount of unpaid rentals is reduced from P2,696,639.97 to
P2,365,569.61, exclusive of interest; and
(4) Plaintiff-appellee is ordered to return the balance of the security deposit
amounting to P883,253.72 to defendant-appellant.
The Decision dated June 7, 2002 is affirmed in all other respects.
SO ORDERED.47

NCLPI sought for a reconsideration48 of this decision. LMI, on the other hand, filed a
motion to clarify whether the amount of P2,365,569.61 representing unpaid rentals was
inclusive of interest.49 The CA resolved both motions, thus:

_______________

45  Id., at p. 171.
46  Id., at pp. 39-52.
47  Id., at pp. 51-52.
48  CA Rollo, pp. 269-295.
49  Id., at pp. 205-268.

 
 
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WHEREFORE, the motion for reconsideration filed by defendant-appellant

Nissan Car Lease is denied for lack of merit.
With respect to the motion for clarification filed by plaintiff-appellee Lica
Management, Inc., paragraph (3) of the dispositive portion of the Decision is
hereby clarified to read as follows:
(3) The amount of unpaid rentals is reduced from P2,696,639.97 to
P2,365,569.61, inclusive of interest and penalties up to November 12, 1996,
plus interest to be charged against said amount at the rate of twelve percent
(12%) beginning said date until the amount is fully paid.
SO ORDERED.50
 
Hence, this petition.
 
The Petition
  
NCLPI, in its Petition, raises the following questions:
1. May a contract be rescinded extrajudicially despite the absence of a special
contractual stipulation therefor?
2. Do the prevailing facts warrant the dismissal of [LMI]’s claims and the award of
NCLPI’s claims?
3. How much interest should be paid in the delay of the release of a security
deposit in a lease contract?51

 The Court’s Ruling

 
We deny the Petition for lack of merit.

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50  Rollo, pp. 54-58.

51  Id., at p. 11.

 
 
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Nissan Car Lease Philippines, Inc. vs. Lica Management,
Inc.

Before going into the substantive merits of the case, however, we shall first resolve
the technical issue raised by LMI in its Comment52dated August 22, 2007.
According to LMI, NCLPI’s petition must be denied outright on the ground that Luis
Manuel T. Banson (Banson), who caused the preparation of the petition and signed the
Verification and Certification against Forum Shopping, was not duly authorized to do so.
His apparent authority was based, not by virtue of any NCLPI Board Resolution, but on
a Special Power of Attorney (SPA) signed only by NCLPI’s Corporate Secretary Robel
C. Lomibao.53
As a rule, a corporation has a separate and distinct personality from its directors and
officers and can only exercise its corporate powers through its board of directors.
Following this rule, a verification and certification signed by an individual corporate
officer is defective if done without authority from the corporation’s board of directors.54
The requirement of verification being a condition affecting only the form of the
pleading,55 this Court has, in a number of cases, held that:

[T]he following officials or employees of the company can sign the

verification and certification without need of a board resolution:  (1) the
Chairperson of the Board of Directors, (2)  the President of a corporation,  (3)
the General Manager or Acting General Manager, (4) Personnel Officer, and (5)
an Employment Specialist in a labor case.
 

_______________

52  Id., at pp. 312-327.

53  Id., at p. 315.
54  Swedish Match Philippines, Inc. v. The Treasurer of the City of Manila, G.R. No. 181277, July 3, 2013,
700 SCRA 428, 434.
55  Id., citing Shipside, Incorporated v. Court of Appeals, G.R. No. 143377, February 20, 2001, 352 SCRA
334, 345-346.
  
 
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x x x [T]he determination of the sufficiency of the authority was done on a case to

case basis. The rationale applied in the foregoing cases is to justify the authority
of corporate officers or representatives of the corporation to sign x x x, being “in
a position to verify the truthfulness and correctness of the allegations in the
petition.”56 (Emphasis and underscoring supplied)
 
In this case, Banson was President of NCLPI at the time of the filing of the
petition.57  Thus, and applying the foregoing ruling, he can sign the verification and
certification against forum shopping in the petition without the need of a board
resolution.58
Having settled the technical issue, we shall now proceed to discuss the substantial
issues.

Validity of Extrajudicial
Rescission of Lease Contract
 
It is clear from the records that NCLPI committed substantial breaches of its
Contract of Lease with LMI.
Under paragraph 2, NCLPI bound itself to pay a monthly rental of P308,000.00 not
later than the first day of every month to which the rent corresponds. NCLPI, however,
defaulted on its contractual obligation to timely and properly pay its rent, the arrearages
of which, as of October 16, 1996,

_______________

56  PCI Travel Corporation v. National Labor Relations Commission, G.R. No. 154379, October 31, 2008,
570 SCRA 315, 321, citing Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue, G.R. No.
151413, February 13, 2008, 545 SCRA 10, 18-19. See also  University of the East v. Pepanio, G.R. No.
193897, January 23, 2013, 689 SCRA 250, 258.
57  Rollo, p. 35.
58  See also PCI Travel Corporation v. National Labor Relations Commission, supra.

 
 
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amounted to P2,651,570.39.59  This fact was acknowledged and admitted by

NCLPI.60
Aside from nonpayment of rentals, it appears that NCLPI also breached its
obligations under paragraphs 461 and 562 of the Contract of Lease which prohibit it from
subleasing the premises or introducing improvements or alterations thereon without
LMI’s prior written consent. The trial court found:
 
As revealed from the evidence presented by PROTON however, even before
[NCLPI] represented that it would try to negotiate a possible sublease of the
premises, it had, without any semblance of authority
 

_______________

59  Rollo, p. 73.
60  Id., at pp. 23, 74-75.
61  Id., at pp. 66-67. This paragraph reads:
4. USE OF LEASED PREMISES — The LESSEE shall use and allow the use of the Leased Premises
exclusively for legitimate business, industrial and commercial purposes and for such purposes as the premises
are presently devoted and shall not divert the same or allow the diversion thereof to other uses or purposes
without the written consent of the LESSOR. The LESSOR shall provide the LESSEE with written notice
requesting that the LESSEE cease any operations and activities which the LESSOR deems to be
non[-]acceptable use of the premises.
The LESSEE shall not sublease the premises to other parties without the prior written consent of the
LESSOR[.]
62  Id., at p. 67. This paragraph reads:
5. IMPROVEMENTS — The LESSEE may not introduce any structural changes, improvements or
alterations to the Leased Premises without the LESSOR’S prior written consent, however, any such
improvements or alterations shall upon the expiration or termination of this Contract inure to the benefit of the
Leased Premises and become the LESSOR’S property, without any obligation on the latter’s part to pay or
refund the LESSEE for its cost or value, except those improvements which can be removed without causing
damage to the Leased Premises.

 
 
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from [LMI,]  already effectively subleased the subject premises to

PROTON and allowed the latter not only to enter the premises but to
renovate the same.
[NCLPI]’s assertion that they only allowed PROTON to utilize the premises
for ten days as a display center for Audi cars on the occasion of the historic visit
of Chancellor Helmut Kohl of Germany to the Philippines is  belied by the
evidence offered by PROTON that by virtue of a Memorandum of
Agreement [NCLPI] had  already permitted PROTON “to immediately
commence renovation work  even prior to the execution of the Contract of
Sublease”  and had accepted a check  from PROTON representing the rental
deposit under the yet to be executed Contract of Sublease. x x x
x x x x
Besides, the court is not inclined to show [NCLPI] any sympathy x  x  x
because  it came to court with unclean handswhen it accused [LMI] and
PROTON of being guilty parties when they supposedly connived with each
other to oust [NCLPI] from the leased premises  when in truth and in fact,
[NCLPI]’s lease was already terminated when it pursued negotiations to
sublease the premises to PROTONthen giving the latter the assurance they
would be able lo obtain [LMI]’s consent to the sublease when this was very
remote, in light of [NCLPI]’s failure to update its rental payments.63  (Emphasis
and underscoring supplied)
  
This factual finding was affirmed by the CA:

There is no merit in [NCLPI]’s claim for damages allegedly arising from [LMI]’s
failure to maintain it in peaceful possession of the leased premises.  It was
[NCLPI] who breached the lease contract by defaulting in the

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63  Rollo, pp. 163-164, 167.

 
 
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payment of lease rentals,  entering into a sublease contract with [Proton] and
allowing [Proton] to introduce renovations on the leased premises without the
consent of [LMI].64 x x x (Emphasis supplied)
 
Factual findings of the CA are binding and conclusive on the parties and upon this
Court and will not be reviewed or disturbed on appeal. While the rule admits of certain
exceptions,65 NCLPI failed to prove that any of the exceptions applies in this case.
The crux of the controversy rather revolves around the validity of LMI’s act of
extrajudicially rescinding its Contract of Lease with NCLPI.
NCLPI maintains that while a lessor has a right to eject a delinquent lessee from its
property, such right must be exercised in accordance with law:
 
6.15. In this case, [LMI] did not comply with the requirement laid down in
Section 2 of Rule 70 of the Rules of Court, in unceremoniously ejecting [NCLPI]
from the property. The said Rule explicitly provides that the lessor shall serve a
written notice of the demand to pay or comply with the conditions of the lease and
to vacate or post such notice on the premises if no person is found thereon, giving
the lessee 15 days to comply with the demand. [LMI]’s demand letter dated 16
October 1996 provides only a period of  five days  for [NCLPI] to comply with
such demand and, thus, defective.66(Emphasis and underscoring supplied)

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64  Id., at p. 48.
65  Bank of the Philippine Islands v. Leobrera, G.R. No. 137147, November 18, 2003, 416 SCRA 15, 18,
citing Vicente v. Planters Development Bank, G.R. No. 136112, January 28, 2003, 396 SCRA 282, 290.
66  Rollo, p. 23.

 
 
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 NCLPI’s reliance on Section 2, Rule 7067 in this case is misplaced.
Rule 70 of the Rules of Court sets forth the procedure in relation to the filing of suits
for forcible entry and unlawful detainer. The action filed by LMI against NCLPI,
however, is one for the recovery of a sum of money. Clearly, Section 2 of Rule 70 is not
applicable.
In fact, it does not appear that it was even necessary for LMI to eject NCLPI from
the leased premises. NCLPI had already vacated the same as early as October 11, 1996
when it surrendered possession of the premises to Proton, by virtue of their
Memorandum of Agreement, so that the latter can commence renovations.68
NCLPI also 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.69 According to NCLPI:

6.1. The power to rescind is judicial in nature. x x x

6.2. Nevertheless, the Supreme Court has allowed extrajudicial rescission if

such remedy is specifically provided for in the contract. A provision granting the
non- defaulting party merely a right to rescind would be su-

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67  Rules of Court, Rule 70, Sec. 2 provides:

SEC. 2. Lessor to proceed against lessee only after demand.—Unless otherwise stipulated, such action
by the lessor shall be commenced only after demand to pay or comply with the conditions of the lease and to
vacate is made upon the lessee, or by serving written notice of such demand upon the person found on the
premises, or by posting such notice on the premises if no person be found thereon, and the lessee fails to
comply therewith after fifteen (15) days in the case of land, or five (5) days in the case of buildings.
68  Rollo, pp. 139, 142.
69  Id., at pp. 17-20.

 
 
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perfluous because by law, it is inherent in such contract [see by

analogy Villanueva, PHILIPPINE LAW ON SALES, p. 238 (1998)].
x x x x
6.4. [Paragraph 16],70  however, cannot be construed as an authority for either
party to unilaterally and extrajudicially rescind the  Lease Contract  in case of
breach by the other party. All that [paragraph] 16 affords the aggrieved party is
merely the right to rescind the lease contract, which is the very same right already
granted under Article 1191 of the Civil Code.71  (Emphasis and underscoring in
the original)
 
It is true that NCLPI 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.72 The rationale for this rule was explained in the case of
 
_______________

70  Id., at p. 124. This paragraph reads:

16. BREACH OR DEFAULT — Any breach or default by either party of any of the terms and conditions
of this Contract shall be sufficient ground for the party to rescind the same. (Emphasis supplied)
71  Id., at pp. 185-186, 188.
72  Multinational Village Homeowners Association, Inc. v. Ara Security & Surveillance Agency, Inc., G.R.
No. 154852, October 21, 2004, 441 SCRA 126, 135;Casiño, Jr. v. Court of Appeals, G.R. No. 133803,
September 16, 2005, 470 SCRA 57, 67-68. See also University of the Philippines v. De los Angeles, No. L-
28602, September 29, 1970, 35 SCRA 102, 107; and the Concurring Opinion of Justice

 
 
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University of the Philippines v. De los Angeles73 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,74 Iringan v.
Court of Appeals,75  and  EDS Manufacturing, Inc. v. Healthcheck International,
Inc.,76  for example, wherein we held that extrajudicial rescission of a contract is not
possible without an express stipulation to that effect.77
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

_______________

Marvic Mario Victor F. Leonen in EDS Manufacturing, Inc. v. Healthcheck International, Inc., G.R. No.
162802, October 9, 2013, 707 SCRA 133, 147-148.
73  University of the Philippines v. De los Angeles, id.
74  G.R. No. 80479, July 28, 1989, 175 SCRA 656.
75  G.R. No. 129107, September 26, 2001, 366 SCRA 41, 48.
76  EDS Manufacturing, Inc. v. Healthcheck International, Inc., supra note 72 at p. 143, citing Iringan v.
Court of Appeals, id.
77  Alcaraz v. Tangga-an, G.R. No. 128568, April 9, 2003, 401 SCRA 84, 92. See also Tan v. Court of
Appeals, supra at p. 662.

 
 
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 Inc.

Valley Exploration, Inc. v. Pinkian Mining Company,78 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 ofU.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 itproceeds at its own risk.  For it is only the final
judgment of the corresponding court that will conclusively
 

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78  G.R. No. 190080, June 11, 2014, 726 SCRA 259, 273.

 
 
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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.”79
In fact, the rule is the same even if the parties’ contract expresslyallows extrajudicial
rescission. The other party denying the rescission may still seek judicial intervention to
determine whether or not the rescission was proper.80
Having established that LMI  can  extrajudicially rescind its contract with NCLPI
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, NCLPI’s nonpayment 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 NCLPI on account of the latter’s breach of its obligations.
Rental Arrearages and Interest
 
Having upheld LMI’s extrajudicial rescission of its Contract of Lease, we hold that
NCLPI is required to pay all rental arrearages owing to LMI, computed by the CA as
follows:

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79  University of the Philippines v. De Los Angeles, supra note 72 at p. 108.

80  Golden Valley Exploration, Inc. v. Pinkian Mining Company, supra note 78 at pp. 272, 274, citing De
Luna v. Abrigo,  No. L-57455, January 18, 1990, 181 SCRA 150, 158. See also  Olympic Mines and
Development Corp. v. Platinum Group Metals Corporation, G.R. No. 178188, August 14, 2009, 596 SCRA
314; Pangilinan v. Court of Appeals, G.R. No. 83588, September 29, 1997, 279 SCRA 590.

 
 
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In its appellant’s brief, [NCLPI] admitted that it had rental arrears of

P1,300,335.60 as of May 1996. Additionally, the statement of account submitted
by [LMI] showed that  from June 1996 to October 1996  the rental arrears of
[NCLPI] amounted to P1,065,234.01. Hence, the total of said rental arrears not
disputed by the parties is  P2,365,569.61  x  x  x.81(Emphasis and underscoring
supplied)
 
The Contract of Lease shows that the parties did not stipulate an applicable interest
rate in case of default in the payment of rentals. Thus, and following this Court’s ruling
in  Nacar v. Gallery Frames,82  the foregoing amount of rental arrearages shall earn
interest at the rate of six percent (6%) per annum computed from October 18, 1996, the
date of LMI’s extrajudicial demand,83  until the date of finality of this judgment. The
total amount shall thereafter earn interest at the rate of six percent (6%) per annum from
such finality of judgment until its satisfaction.

Security Deposit
 
NCLPI also argues that, assuming LMI could validly rescind their Contract of Lease,
the security deposit must be returned, with interest at the rate of twelve percent
(12%)  per annum, the obligation to return being in the nature of a forbearance of
money.84
NCLPI is partly correct.

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81  Rollo, p. 50.
82  G.R. No. 189871, August 13, 2013, 703 SCRA 439, 457-459.
83    Rollo, p. 73.  See also  Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank General
Insurance Co., Inc., G.R. No. 189563, April 7, 2014, 720 SCRA 726, 741.
84  Rollo, p. 31.

 
 
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Paragraph 385 of the Contract of Lease provides that, in case of termination of the
lease, the balance of the security deposit must be returned to NCLPI within seven (7)
days. Since “there is no question that [LMI] is retaining the security deposit” in the
amount of P883,253.72 (after deduction of the expenses for water and telephone
services),86 LMI must return the same to NCLPI, with interest.
Considering, however, that the Contract of Lease does not stipulate an applicable
interest rate, again following our ruling inNacar,  the rate shall be  six percent
(6%) from the time of judicial or extrajudicial demand. The records of this case show
that the first time NCLPI raised the issue on the security deposit was in its  Briefdated
March 25, 2003 filed with the CA.87 Thus, the interest should be computed starting only
on said date until the finality of this Decision, after which the total amount shall earn
interest at the rate of six percent (6%) from the finality of this Decision until satisfaction
by LMI.88

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85  Id., at p. 121. This paragraph reads:

3. SECURITY DEPOSIT — During the effectivity of this Contract, the LESSEE shall ensure that there is
on deposit at all time with the LESSOR an amount equivalent to three (3) months rental payments which shall
answer for water, gas[,] electricity, telephone, garbage fees, or damages to the premises aside from ordinary
wear and tear, the liabilities for which shall be deducted from the deposit and the balance, if any, shall he
refunded to the LESSEE not later than seven (7) days from the termination of this lease. The security
deposit cannot be applied against unpaid rental payments. x x x (Emphasis and underscoring supplied)
86  Id., at p. 51.
87  Id., at pp. 202-203.
88  Nacar v. Gallery Frames, supra note 82.

 
 
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Improvements
 
In its Petition, NCLPI also prayed for the return of “all the equipment installed and
the other improvements on the property, or their value, pursuant to the mandate of
mutual restitution.”89
 
NCLPI errs.
Under paragraph 5 of the Contract of Lease, NCLPI is entitled only to the return of
those improvements introduced by it which can be removed without causing damage to
the leased premises.90Considering, however, that the issue of ownership of the
improvements within the premises appears to be subject of another case initiated by
NCLPI’s subsidiary, NSC,91 this Court will not rule on the same.

Denial of NCLPI’s claim and

award of damages in favor
of LMI and Proton proper
 
Both the trial court and CA found that NCLPI breached the Contract of Lease. In
sustaining the denial of NCLPI’s claim for damages, the CA held:

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89  Rollo, p. 31. Emphasis supplied.

90  Id., at p. 122, paragraph 5 of the Contract of Lease states:
5. IMPROVEMENTS — The LESSEE may not introduce any structural changes, improvements or
alterations to the Leased Premises without the LESSOR’s prior written consent, however any such
improvements or alterations shall upon the expiration or termination of this Contract inure to the benefit of the
Leased Premises and become the LESSOR’s property, without the obligation on the latter’s part to pay or
refund the LESSEE for its cost or value, except those improvements which can be removed without causing
damage to the Leased Premises. (Underscoring supplied)
91  Docketed as Civil Case No. 98-595. See RTC Records (Vol. I), pp. 302-303.

 
 
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There is  no  merit in [NCLPI]’s claim for damages allegedly arising from
[LMI]’s failure to maintain it in peaceful possession of the leased premises. It was
[NCLPI] who breached the lease contract. x  x  x Moreover, the lease contract
between [LMI] and [Proton] was entered into only on November 8, 1996 x  x  x
after the lease contract between [LMI] and [NCLPI] had been terminated. As
aptly noted by the trial court:
x x x x
In other words, while in its responsive pleading [NCLPI] claims [that] it
was fooled into allowing [Proton] to occupy the subject premises for a
limited period, alter which the latter, in alleged collusion with [LMI]
unilaterally usurped the premises for itself, the evidence shows that it was
[NCLPI] which misrepresented itself to PROTON as being a lessee of
good standing, so that it could induce the latter to occupy and renovate
the premises when at that time the negotiations were underway, the
lease between [LMI] and [NCLPI] had already been
terminated.92(Emphasis and underscoring supplied)
 
Contrary to NCLPI’s claims of an unlawful “scheme” devised by LMI and Proton to
force it out of the leased premises, we find that it was NCLPI who was in bad faith and
itself provided the bases for the cancellation of its Contract of Lease with LMI and its
eventual ejectment from the leased premises. Accordingly, we affirm (1) the award of
exemplary damages and attorney’s fees in favor of LMI and Proton and (2) the denial of
NCLPI’s claim for damages.93
WHEREFORE, in view of the foregoing, the petition isDENIED. The Decision
dated September 27, 2006 and the

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92  Rollo, pp. 48-49.

93  Id., at pp. 48-50.
  
 
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Resolution dated March 8, 2007 rendered by the CA in C.A.-G.R. CV No. 75985 are,
however, MODIFIED as follows:
(1) NCLPI is ordered to pay LMI and Proton exemplary damages of P50,000.00
and attorney’s fees of P50,000.00, each;
(2) NCLPI is ordered to pay the amount of P2,365,569.61 unpaid rentals, with
interest at the rate of six percent (6%) per annum computed from October 18, 1996 until
the date of finality of this judgment. The total amount shall thereafter earn interest at the
rate of six percent (6%) per annum from the finality of judgment until its satisfaction;
(3) LMI is ordered to return to NCLPI the balance of the security deposit
amounting to P883,253.72, with interest at the rate of six percent (6%) starting March
25, 2003 until the finality of this Decision, after which the total amount shall earn
interest at the rate of six percent (6%) from the finality of this Decision until satisfaction
by LMI.94
SO ORDERED.
 

Velasco, Jr. (Chairperson), Bersamin,** Villarama, Jr. and Mendoza,*** JJ., concur.

Petition denied, judgment and resolution modified.

Notes.—The remedy of rescission is not available in contracts to sell. (Diego vs.

Diego, 691 SCRA 361 [2013])

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94  Nacar v. Gallery Frames, supra note 82.

**  Designated additional member, in lieu of Associate Justice Bienvenido L. Reyes, per Raffle dated
September 3, 2014.
***  Designated additional member, in lieu of Associate Justice Diosdado M. Peralta, per Raffle dated
November 11, 2015.

 
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In reciprocal obligations, either party may rescind the contract upon the other’s
substantial breach of the obligation/s he had assumed thereunder. (Golden Valley
Exploration, Inc. vs. Pinkian Mining Company, Inc., 726 SCRA 259 [2014])
 
 
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