I. SHORT TITLE: SPOUSES POON v.

PRIME SAVINGS

II. FULL TITLE: SPOUSES JAIME AND MATILDE POON versus PRIME SAVINGS
BANK REPRESENTED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION
AS STATUTORY LIQUIDATOR - G.R. No. 183794, June 13, 2016, SERENO, C.J.

III. TOPIC: The New Central Bank Act - Closure

IV. STATEMENT OF FACTS:

Spouses Poon owned a commercial building in Naga City, which they used for their bakery
business. In November 2006, Matilde Poon and Prime Savings Bank executed a 10-year
Contract of Lease over the building for the latter's use as its branch office in Naga City. They
agreed to a fixed monthly rental of P60,000, with an advance payment of the rentals for the
first 100 months in the amount of P6,000,000. As agreed, the advance payment was to be
applied immediately, while the rentals for the remaining period of the Contract were to be
paid on a monthly basis.

In addition, paragraph 24 of the Contract provides: Should the lease[d] premises be closed,
deserted or vacated by the LESSEE, the LESSOR shall have the right to terminate the lease
without the necessity of serving a court order and to immediately repossess the leased
premises. xxx. The LESSOR shall thereupon have the right to enter into a new contract with
another party. All advanced rentals shall be forfeited in favor of the LESSOR.

Barely three years later, however, the BSP placed respondent under the receivership of the
Philippine Deposit Insurance Corporation (PDIC) by virtue of BSP Monetary Board
Resolution No. 22 which provides that PSB has wilfully violated a cease and desist orders
that has become final, involving acts or transactions which amount to fraud or a dissipation of
the assets of the institution, among other grounds. The BSP eventually ordered respondent's
liquidation.

In May 2000, the respondent vacated the leased premises and surrendered them to petitioners.
Subsequently, the PDIC issued petitioners a demand letter asking for the return of the unused
advance rental amounting to P3,480,000 on the ground that paragraph 24 of the lease
agreement had become inoperative, because respondent's closure constituted force majeure.
The PDIC likewise invoked the principle of rebus sic stantibus under Article 1267 of the
Civil Code as an alternative legal basis for demanding the refund. Petitioners, however,
refused the PDIC's demand. They maintained that they were entitled to retain the remainder
of the advance rentals following paragraph 24 of their Contract

V. STATEMENT OF THE CASE:

Respondent sued petitioners before the RTC of Naga City for a partial rescission of contract
and/or recovery of a sum of money. RTC ordered the partial rescission of the lease agreement
and directed petitioner spouses Poon to return or refund the sum of Pl,740,000 representing
1/2 of the unused portion of the advance rentals. The trial court ruled that the second clause in
paragraph 24 of the Contract was penal in nature, and that the clause was a valid contractual
agreement, and that the premature termination of the lease due to the BSP's closure of
respondent's business was actually involuntary. Consequently, it would be iniquitous for
petitioners to forfeit the entire amount of P 3,480,000. CA affirmed the RTC Decision.

VI. ISSUE:
1. Whether the respondent may be released from its contractual obligations to petitioners
on grounds of fortuitous event under Article 1174 of the Civil Code and unforeseen
event under Article 1267 of the Civil Code
2. Whether the proviso in the parties' Contract allowing the forfeiture of advance rentals
was a penal clause
3. Whether the penalty agreed upon by the parties may be equitably reduced under
Article 1229 of the Civil Code.

VII. RULING:
1. NO. The Court ruled that the closure of respondent's business was neither a fortuitous nor
an unforeseen event that rendered the lease agreement functus officio.

The period during which the bank cannot do business due to insolvency is not a fortuitous
event, unless it is shown that the government's action to place a bank under receivership or
liquidation proceedings is tainted with arbitrariness, or that the regulatory body has acted
without jurisdiction.

In this case, there is no indication or allegation that the BSP's action in this case was tainted
with arbitrariness or bad faith. Instead, its decision to place respondent under receivership
and liquidation proceedings was pursuant to Section 30 of The New Central Bank Act (1993).
Moreover, the respondent was partly accountable for the closure of its banking business. It
cannot be said, then, that the closure of its business was independent of its will as in the case
of Provident Savings Bank. The legal effect is analogous to that created by contributory
negligence in quasi-delict actions.

The Court cannot also give due course respondent lessee’s invocation of the doctrine of
unforeseen event under Article 1267 of the Civil Code

Tagaytay Realty Co., Inc. v. Gacutan lays down the requisites for the application of Article
1267, as follows:
1. The event or change in circumstance could not have been foreseen at the time of
the execution of the contract.
2. It makes the performance of the contract extremely difficult but not impossible.
3. It must not be due to the act of any of the parties.
4. The contract is for a future prestation.

The first and the third requisites, however, are lacking. It must be noted that the lease
agreement was for 10 years. As shown by the unrebutted testimony of Jaime Poon during
trial, the parties had actually considered the possibility of a deterioration or loss of
respondent's business within that period. Moreover, the closure of respondent's business was
not an unforeseen event. As the lease was long-term, it was not lost on the parties that such an
eventuality might occur, as it was in fact covered by the terms of their Contract. Besides, the
event was not independent of the respondent's will.

2. YES. The forfeiture clause in the contract is a penal clause.

It is settled that a provision is a penal clause if it calls for the forfeiture of any 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 thereof. This kind of agreement may be
validly entered into by the parties. The clause is an accessory obligation meant to ensure the
performance of the principal obligation by imposing on the debtor a special prestation in case
of nonperformance or inadequate performance of the principal obligation.

3. YES. A reduction of the penalty agreed upon by the parties is warranted under Article
1129 of the Civil Code.

If this were an ordinary contest of rights of private contracting parties, respondent lessee
would be obligated to abide by its commitment to petitioners. The general rule is that courts
have no power to ease the burden of obligations voluntarily assumed by parties, just because
things did not turn out as expected at the inception of the contract.

It must be noted, however, that this case was initiated by the PDIC in furtherance of its
statutory role as the fiduciary of Prime Savings Bank. As the state-appointed receiver and
liquidator, the PDIC is mandated to recover and conserve the assets of the foreclosed bank on
behalf of the latter's depositors and creditors. In other words, at stake in this case are not just
the rights of petitioners and the correlative liabilities of respondent lessee. Over and above
those rights and liabilities is the interest of innocent debtors and creditors of a delinquent
bank establishment. These overriding considerations justify the 50% reduction of the penalty
agreed upon by petitioners and respondent lessee in keeping with Article 1229 of the Civil
Code

VIII. DISPOSITIVE PORTION:

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The
Court of Appeals Decision dated 29 November 2007 and its Resolution dated 10 July 2008 in
CA-G.R. CV No. 75349 are hereby MODIFIED in that legal interest at the rate of 6% per
annum is imposed on the monetary award computed from the finality of this Decision until
full payment.