Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 116896 May 5, 1997

PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner,

vs.
COURT OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S. RAYMUNDO,
ANTONIO S. RAYMUNDO, RENE S. RAYMUNDO, and AMADOR S. RAYMUNDO, respondents.

DAVIDE, JR., J.:

This petition for review on certiorari has its roots in Civil Case No. 53444, which was sparked by
petitioner's refusal to pay the rentals as stipulated in the contract of lease   on an undivided portion of
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30,000 square meters of a parcel of land owned by private respondents.

The lease contract, executed on 18 November 1985, reads in part as follows:

1. TERM OF LEASE — This lease shall be for a period of five (5) years, commencing
on the date of issuance of the industrial clearance by the Ministry of Human
Settlements, renewable for a like or other period at the option of the LESSEE under
the same terms and conditions.

2. RATE OF RENT — LESSEE shall pay to the LESSOR rent at the monthly rate of
TWENTY THOUSAND PESOS (P20,000.00), Philippine Currency, in the manner set
forth in Paragraph 3 below. This rate shall be increased yearly by Five Percent (5%)
based on the agreed monthly rate of P20,000.00 as follows:

Monthly Rate Period Applicable

P21,000.00 Starting on the 2nd year

P22,000.00 Starting on the 3rd year

P23,000.00 Starting on the 4th year

P24,000.00 Starting on the 5th year

3. TERMS OF PAYMENT — The rent stipulated in Paragraph 2 above shall be paid

yearly in advance by the LESSEE. The first annual rent in the amount of TWO
HUNDRED FORTY THOUSAND PESOS (P240,000.00), Philippine currency, shall
be due and payable upon the execution of this Agreement and the succeeding
annual rents shall be payable every twelve (12) months thereafter during the
effectivity of this Agreement.

4. USE OF LEASED PROPERTY — It is understood that the Property shall be used

by the LESSEE as the site, grounds and premises of a rock crushing plant and field
office, sleeping quarters and canteen/mess hall. The LESSORS hereby grant to the
LESSEE the right to erect on the Leased Property such structure(s) and/or
improvement(s) necessary for or incidental to the LESSEE's purposes.

xxx xxx xxx

11. TERMINATION OF LEASE — This Agreement may be terminated by mutual

agreement of the parties. Upon the termination or expiration of the period of lease
without the same being renewed, the LESSEE shall vacate the Leased Property at
its expense.

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On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a Temporary Use
Permit   for the proposed rock crushing project. The permit was to be valid for two years unless
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sooner revoked by the Ministry.

On 16 January 1986, private respondents wrote petitioner requesting payment of the first annual
rental in the amount of P240,000 which was due and payable upon the execution of the contract.
They also assured the latter that they had already stopped considering the proposals of other
aggregates plants to lease the property because of the existing contract with petitioner.  3

In its reply-letter, petitioner argued that under paragraph 1 of the lease contract, payment of rental
would commence on the date of the issuance of an industrial clearance by the Ministry of Human
Settlements, and not from the date of signing of the contract. It then expressed its intention to
terminate the contract, as it had decided to cancel or discontinue with the rock crushing project "due
to financial, as well as technical, difficulties." 
4

Private respondents refused to accede to petitioner's request for the pretermination of the lease
contract. They insisted on the performance of petitioner's obligation and reiterated their demand for
the payment of the first annual rental. 
5

Petitioner objected to private respondents' claim and argued that it was "only obligated to pay . . . the
amount of P20,000.00 as rental payments for the one-month period of lease, counted from 07
January 1986 when the Industrial Permit was issued by the Ministry of Human Settlements up to 07
February 1986 when the Notice of Termination was served"   on private respondents.
6

On 19 May 1986, private respondents instituted with the Regional Trial Court of Pasig an action
against petitioner for Specific Performance with Damages.   The case was docketed as Civil Case
7

No. 53444 at Branch 160 of the said court. After the filing by petitioner of its Answer with
Counterclaim, the case was set for trial on the merits.

What transpired next was summarized by the trial court in this wise:

Plaintiffs rested their case on September 7, 1987 (p. 87 rec.). Defendant asked for
postponement of the reception of its evidence scheduled on August 10, 1988 and as
prayed for, was reset to August 25, 1988 (p. 91 rec.) Counsel for defendant again
asked for postponement, through representative, as he was presently indisposed.
The case was reset, intransferable to September 15 and 26, 1988 (p. 94 rec.) On
September 2, 1988, the office of the Government Corporate Counsel entered its
appearance for defendant (p. 95, rec.) and the original counsel later withdrew his
appearance. On September 15, 1988 the Government Corporate Counsel asked for
postponement, represented by Atty. Elpidio de Vega, and with his conformity in open
court, the hearing was reset, intransferable to September 26 and October 17, 1988,
(p. 98, rec.) On September 26, 1988 during the hearing, defendant's counsel filed a
motion for postponement (urgent) as he had "sore eyes", a medical certificate
attached.

Counsel for plaintiffs objected to the postponement and the court considered the
evidence of the government terminated or waived. The case was deemed submitted
for decision upon the filing of the memorandum. Plaintiffs filed their memorandum on
October 26, 1988. (p. 111, rec.).

On October 18, 1988 in the meantime, the defendant filed a motion for
reconsideration of the order of the court on September 26, 1988 (p. 107, rec.) The
motion was not asked to be set for hearing (p. 110 rec.) There was also no proof of
notice and service to counsel for plaintiff . The court in the interest of justice set the
hearing on the motion on November 29, 1988. (p. 120, rec.) but despite notice, again
defendant's counsel was absent (p. 120-A, dorsal side, rec.) without reason. The
court reset the motion to December 16, 1988, in the interest of justice. The motion for
reconsideration was denied by the court. A second motion for reconsideration was
filed and counsel set for hearing the motion on January 19, 1989. During the hearing,
counsel for the government was absent. The motion was deemed abandoned but the
court at any rate, after a review of the incidents and the grounds relied upon in the
earlier motion of defendant, found no reason to disturb its previous order.  8

On 12 April 1989, the trial court rendered a decision ordering petitioner to pay private respondents
the amount of P492,000 which represented the rentals for two years, with legal interest from 7

2
January 1986 until the amount was fully paid, plus attorney's fees in the amount of P20,000 and
costs.  9

Petitioner then appealed to the Court of Appeals alleging that the trial court erred in ordering it to pay
private respondent the amount of P492,000 and in denying it the right to be heard.

Upon the affirmance of the trial court's decision   and the denial of its motion for reconsideration,
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petitioner came to this Court ascribing to respondent Court of Appeals the same alleged errors and
reiterating their arguments.

First. Petitioner invites the attention of this Court to paragraph 1 of the lease contract, which reads:
"This lease shall be for a period of five (5) years, commencing on the date of issuance of the
industrial clearance by the Ministry of Human Settlements. . . ." It then submits that the issuance of
an industrial clearance is a suspensive condition without which the rights under the contract would
not be acquired. The Temporary Use Permit is not the industrial clearance referred to in the contract;
for the said permit requires that a clearance from the National Production Control Commission be
first secured, and besides, there is a finding in the permit that the proposed project does not conform
to the Zoning Ordinance of Rodriguez, (formerly Montalban), Rizal, where the leased property is
located. Without the industrial clearance the lease contract could not become effective and petitioner
could not be compelled to perform its obligation under the contract.

Petitioner is now estopped from claiming that the Temporary Use Permit was not the industrial
clearance contemplated in the contract. In its letter dated 24 April 1986, petitioner states:

We wish to reiterate PNCC Management's previous stand that it is only obligated to

pay your clients the amount of P20,000.00 as rental payments for the one-month
period of the lease, counted from 07 January 1986 when the Industrial Permit was
issued by the Ministry of Human Settlements up to 07 February 1986 when the
Notice of Termination was served on your clients.   (Emphasis Supplied).
11

The "Industrial Permit" mentioned in the said letter could only refer to the Temporary Use
Permit issued by the Ministry of Human Settlements on 7 January 1986. And it can be
gleaned from this letter that petitioner has considered the permit as industrial clearance;
otherwise, petitioner could have simply told private respondents that its obligation to pay
rentals has not yet arisen because the Temporary Use Permit is not the industrial clearance
contemplated by them. Instead, petitioner recognized its obligation to pay rentals counted
from the date the permit was issued.

Also worth noting is petitioner's earlier letter, thus:

[P]lease be advised of PNCC Management's decision to cancel or discontinue with

the rock crushing project due to financial as well as technical difficulties. In view
thereof, we would like to terminate our Lease Contract dated 18 November, 1985.
Should you agree to the mutual termination of our Lease Contract, kindly indicate
your conformity hereto by affixing your signature on the space provided below. May
we likewise request Messrs. Rene, Jose and Antonio, all surnamed Raymundo and
Mrs. Socorro A. Raymundo as Attorney-in-Fact of Amador S. Raymundo to sign on
the spaces indicated below.  12

It can be deduced from this letter that the suspensive condition — issuance of industrial clearance —
has already been fulfilled and that the lease contract has become operative. Otherwise, petitioner
did not have to solicit the conformity of private respondents to the termination of the contract for the
simple reason that no juridical relation was created because of the non- fulfillment of the condition.

Moreover, the reason of petitioner in discontinuing with its project and in consequently cancelling the
lease contract was "financial as well as technical difficulties," not the alleged insufficiency of the
Temporary Use Permit.

Second. Invoking Article 1266 and the principle of rebus sic stantibus, petitioner asserts that it
should be released from the obligatory force of the contract of lease because the purpose of the
contract did not materialize due to unforeseen events and causes beyond its control, i.e., due to the
abrupt change in political climate after the EDSA Revolution and financial difficulties.

It is a fundamental rule that contracts, once perfected, bind both contracting parties, and obligations
arising therefrom have the force of law between the parties and should be complied with in good
faith.   But the law recognizes exceptions to the principle of the obligatory force of contracts. One
13

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exception is laid down in Article 1266 of the Civil Code, which reads: "The debtor in obligations to do
shall also be released when the prestation becomes legally or physically impossible without the fault
of the obligor."

Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only to
obligations "to do," and not to obligations "to give."   An obligation "to do" includes all kinds of work
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or service; while an obligation "to give" is a prestation which consists in the delivery of a movable or
an immovable thing in order to create a real right, or for the use of the recipient, or for its simple
possession, or in order to return it to its owner. 
15

The obligation to pay rentals   or deliver the thing in a contract of

16

lease   falls within the prestation "to give"; hence, it is not covered within the scope of Article 1266.
17

At any rate, the unforeseen event and causes mentioned by petitioner are not the legal or physical
impossibilities contemplated in the said article. Besides, petitioner failed to state specifically the
circumstances brought about by "the abrupt change in the political climate in the country" except the
alleged prevailing uncertainties in government policies on infrastructure projects.

The principle of rebus sic stantibus   neither fits in with the facts of the case. Under this theory, the
18

parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist,
the contract also ceases to exist.   This theory is said to be the basis of Article 1267 of the Civil
19

Code, which provides:

Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or
in part.

This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus, which would endanger the security of contractual
relations. The parties to the contract must be presumed to have assumed the risks of unfavorable
developments. It is therefore only in absolutely exceptional changes of circumstances that equity
demands assistance for the debtor.  20

In this case, petitioner wants this Court to believe that the abrupt change in the political climate of
the country after the EDSA Revolution and its poor financial condition "rendered the performance of
the lease contract impractical and inimical to the corporate survival of the petitioner."

This Court cannot subscribe to this argument. As pointed out by private respondents:  21

It is a matter of record that petitioner PNCC entered into a contract with private
respondents on November 18, 1985. Prior thereto, it is of judicial notice that after the
assassination of Senator Aquino on August 21, 1983, the country has experienced
political upheavals, turmoils, almost daily mass demonstrations, unprecedented,
inflation, peace and order deterioration, the Aquino trial and many other things that
brought about the hatred of people even against crony corporations. On November 3,
1985, Pres. Marcos, being interviewed live on U.S. television announced that there
would be a snap election scheduled for February 7, 1986.

On November 18, 1985, notwithstanding the above, petitioner PNCC entered into

the contract of lease with private respondents with open eyes of the deteriorating
conditions of the country.

Anent petitioner's alleged poor financial condition, the same will neither release petitioner from the
binding effect of the contract of lease. As held in Central Bank v. Court of Appeals,   cited by private
22

respondents, mere pecuniary inability to fulfill an engagement does not discharge a contractual
obligation, nor does it constitute a defense to an action for specific performance.

With regard to the non-materialization of petitioner's particular purpose in entering into the contract
of lease, i.e., to use the leased premises as a site of a rock crushing plant, the same will not
invalidate the contract. The cause or essential purpose in a contract of lease is the use or enjoyment
of a thing.   As a general principle, the motive or particular purpose of a party in entering into a
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contract does not affect the validity nor existence of the contract; an exception is when the
realization of such motive or particular purpose has been made a condition upon which the contract
is made to depend.   The exception does not apply here.
24

Third. According to petitioner, the award of P492,000.00 representing the rent for two years is
excessive, considering that it did not benefit from the property. Besides, the temporary permit,

4
conformably with the express provision therein, was deemed automatically revoked for failure of
petitioner to use the same within one year from the issuance thereof. Hence, the rent payable should
only be for one year.

Petitioner cannot be heard to complain that the award is excessive. The temporary permit was valid
for two years but was automatically revoked because of its non-use within one year from its
issuance. The non-use of the permit and the non-entry into the property subject of the lease contract
were both imputable to petitioner and cannot, therefore, be taken advantage of in order to evade or
lessen petitioner's monetary obligation. The damage or prejudice to private respondents is beyond
dispute. They unquestionably suffered pecuniary losses because of their inability to use the leased
premises. Thus, in accordance with Article 1659 of the Civil Code,   they are entitled to
25

indemnification for damages; and the award of P492,000.00 is fair and just under the circumstances
of the case.

Finally, petitioner submits that the trial court gravely abused its discretion in denying petitioner the
right to be heard.

We disagree. The trial court was in fact liberal in granting several postponements   to petitioner
26

before it deemed terminated and waived the presentation of evidence in petitioner's behalf.

It must be recalled that private respondents rested their case on 7 September 1987 yet.   Almost a 27

year after, or on 10 August 1988 when it was petitioner's turn to present evidence, petitioner's
counsel asked for postponement of the hearing to 25 August 1988 due to conflict of schedules,   and 28

this was granted.   At the rescheduled hearing, petitioner's counsel, through a representative, moved
29

anew for postponement, as he was allegedly

indisposed.   The case was then reset "intransferable" to September 15 and 26, 1988.   On 2
30 31

September 1988, the Office of the Government Corporate Counsel, through Atty. Elpidio J. Vega,
entered its appearance for the
petitioner,   and later the original counsel withdrew his appearance.   On 15 September 1988, Atty.
32 33

Vega requested for postponement to enable him to go over the records of the case.   With his34

conformity, the hearing was reset "intransferable" to September 26 and October 17, 1988.   In the 35

morning of 26 September 1988, the court received Atty. Vega's Urgent Motion for Postponement on
the ground that he was afflicted with conjunctivitis or sore eyes.   This time, private respondents
36

objected; and upon their motion, the court deemed terminated and waived the presentation of
evidence for the petitioner.   Nevertheless, before the court considered the case submitted for
37

decision, it required the parties to submit their respective memoranda within thirty days.   But 38

petitioner failed to comply.

Likewise, the court was liberal with respect to petitioner's motion for reconsideration.
Notwithstanding the lack of request for hearing and proof of notice and service to private
respondents, the court set the hearing of the said motion on 29 November 1988.   Upon the denial
39

of the said motion for lack of merit,   petitioner filed a second motion for reconsideration. But during
40

the hearing of the motion on a date selected by him, Atty. Vega was absent for no reason at all,
despite due notice.  41

From the foregoing narration of procedural antecedents, it cannot be said that petitioner was
deprived of its day in court. The essence of due process is simply an opportunity to he heard.   To 42

be heard does not only mean oral arguments in court; one may be heard also through pleadings.
Where opportunity to be heard, either through oral arguments or pleadings, is accorded, there is no
denial of procedural due process.  43

WHEREFORE, the instant petition is DENIED and the challenge decision of the Court of Appeals is
AFFIRMED in toto.

No pronouncements as to costs.

SO ORDERED.