Country Bankers Insurance Corp & Sy v CA

G.R. No. 85161 September 9, 1991

Art. 1226 – Obligations with a penal clause
Art. 1228 – Proof of actual damages

Facts:

·       Respondent Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, entered into a lease agreement with petitioner Enrique F. Sy, as lessee 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, for the term of 6 years.

·       After more than 2 years of operation, the lessor OVEC demanded for the repossession of the said leased properties in view of the Sy's arrears in monthly rentals and non-payment of amusement taxes.

·       They had a conference. Sy requested for reconsideration of OVEC’s demand for repossession of the 3 theaters.  OVEC allowed Sy to continue operating the leased premises upon his conformity to certain conditions: the payment of the arrears in rentals and amusement tax delinquency.

·       But despite demands and warnings, SY failed to pay rentals and tax in full amounts, which prompted OVEC to padlock the leased properties and took possession thereof.

·       Sy filed an action for reformation of the lease agreement, damages and injunction.

·       The trial court concluded that Sy is not entitled to the reformation of the lease agreement and that OVEC repossession was in accordance with the stipulation of the parties in the said agreement and the law applicable thereto, thereby forfeiting the injunction bond posted by CBISCO to pay damages which OVEC may suffer as a result of the injunction. 

·       The CA affirmed in toto, justifying such forfeiture as a penal clause stipulated in the lease agreement in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.

• On appeal, the petitioner cited the error of the court in charging and holding the injunction bond liable for all the awards of damages which unjustly enriched or benefited the respondent — contrary to law, morals, good customs, public order or public policy.

Issues:

(1) WoN the forfeiture of injunction bond serving a penal clause in the lease contract is lawful.
           (2) WoN proof of actual damages suffered by the creditor is necessary so that the penalty may be demanded.

Held:

            (1) Yes, the Court finds no ambiguity in the provisions of the lease agreement, holding the same fair and reasonable and therefore, should be respected and enforced as the law between the parties.

            The forfeiture of the remaining deposit still in the possession of the lessor constitutes a penal clause, which is an accessory obligation attached to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special presentation in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.

            As specifically provided for in Article 1226, par. 1, New Civil Code, in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance with the principal obligation, subject to the following exceptions: (1) when there is a stipulation to the contrary; (2) when the obligor is sued for refusal to pay the agreed penalty; and (3) when the obligor is guilty of fraud.

            In the case at bar, it is evident that the purpose of the penalty is to punish the obligor for non-compliance with the principal obligation. 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.

            (2) No, the Court holds that is not necessary that OVEC shall present proof of actual damages it suffered in order to demand penalty as expressly provided for in Article 1228, New Civil Code.
            It is evident that in all said cases, the purpose of the penalty is to punish the obligor in case of non-compliance with the principal obligation. 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.
            Thus, the petition is DENIED.