BPI-Family Savings Bank, Inc. v. Spouses Domingo
REITERATIONFacts
The Antecedents: Julian Cruz leased a commercial lot and building to Family Savings Bank (FSB). Later, BPI-FSB (after acquiring FSB) executed a new lease agreement with Cruz. Both contracts allowed subleasing but prohibited assignment without lessor's written consent. BPI-FSB subleased the premises to Benjamin Villa, a former VP of BPI-FSB. Villa operated a restaurant, "Carousel Food House," but decided to close it. Villa negotiated with Spouses Zenaida and Abundio Domingo to take over the premises for ₱650,000.00. Villa informed the Domingos he could not assign his sublease rights and that a rescission of his contract with BPI-FSB was necessary for BPI-FSB to directly sublease to the Domingos. Villa received ₱300,000.00 from the Domingos as partial payment. On June 18, 1990, BPI-FSB executed a sublease contract with the Domingos. On June 21, 1990, BPI-FSB and Villa executed a Deed of Rescission of their sublease agreement. Villa received the remaining ₱350,000.00 from the Domingos on June 26, 1990, issuing a receipt assigning his rights, goodwill, and improvements. Villa vacated the premises. The next day, the Domingos found the premises padlocked by Julian Cruz, with a "not for lease" sign posted. Efforts by Villa and BPI-FSB to place the Domingos in possession were futile due to Cruz's refusal. Procedural History: The Domingos filed a suit for sum of money with damages against Villa and BPI-FSB, alleging they were assured possession. Villa and BPI-FSB filed third-party complaints against Cruz, blaming him for the failure to comply with their promises due to his actions. The RTC found BPI-FSB and Villa solidarily liable to the Domingos for actual, moral, and exemplary damages, plus attorney's fees. It ordered Cruz to reimburse BPI-FSB and Villa for any amounts paid to the Domingos and to pay BPI-FSB and Villa attorney's fees and damages. The CA affirmed the RTC decision in toto. BPI-FSB appealed to the Supreme Court. The Petition: BPI-FSB assails the CA's decision, arguing it erred in holding BPI-FSB solidarily liable with Villa for the return of ₱650,000.00 and other damages, citing Articles 1207 and 1311 of the Civil Code and claiming it was not privy to the transaction between Villa and the Domingos.
Issue(s)
Whether BPI-FSB can be held solidarily liable with Benjamin Villa for the return of the ₱650,000.00 paid by the Spouses Domingo. Whether BPI-FSB can be held liable for moral and exemplary damages. Whether Julian Cruz is ultimately liable for the damages awarded.
Ruling
The Supreme Court affirmed the Court of Appeals' decision, holding BPI-FSB and Benjamin Villa solidarily liable for actual damages, but deleted the awards for moral and exemplary damages against all parties. Julian Cruz was correctly adjudged to reimburse BPI-FSB and Villa for amounts they would pay the Domingos.
Ratio Decidendi
On the solidary liability of BPI-FSB and Villa: The Court held that both BPI-FSB and Villa could not escape liability by disclaiming privity to an agreement with the Domingos. There were multiple relevant agreements: the sublease between BPI-FSB and Villa, the sale of goodwill and assignment of rights by Villa to the Domingos, and the second sublease between BPI-FSB and the Domingos. The CA found, and the Supreme Court agreed, that both BPI-FSB and Villa assured the Domingos they would be placed in possession. Villa breached his contract with the Domingos by selling his rights and goodwill, and BPI-FSB breached its sublease contract with the Domingos by failing to give them possession. Therefore, they were correctly held accountable for breach of contract and solidarily liable for the actual damages representing the amount paid by the Domingos. On the liability for moral and exemplary damages: The Court agreed with BPI-FSB that the imposition of moral and exemplary damages was harsh. The failure of BPI-FSB and Villa to place the Domingos in possession was not due to their fault but to the actions of Cruz in padlocking the premises. The Court found no bad faith, malice, or wanton attitude on the part of BPI-FSB, Villa, or Cruz that would warrant moral and exemplary damages. Article 201 of the Civil Code states that in cases of good faith, damages are limited to natural and probable consequences that were foreseen or could have been foreseen. Therefore, the award of moral and exemplary damages in favor of the Domingos was deleted. On the ultimate liability of Julian Cruz: The Court affirmed the trial court's and CA's judgment that Julian Cruz was ultimately liable. The Court clarified the distinction between a sublease and an assignment of rights under the lease agreement between Cruz and BPI-FSB. The lease allowed subleasing without the lessor's consent but prohibited assignment without it. The Court found that the agreement between BPI-FSB and the Domingos was a sublease, not an assignment, and thus did not require Cruz's written consent. Cruz's act of padlocking the premises and posting notices prevented the Domingos from taking possession, directly causing the breach of contract by BPI-FSB and Villa. Therefore, Cruz was correctly ordered to reimburse BPI-FSB and Villa for whatever amounts they would pay the Domingos.
Main Doctrine
Both a sublessor and a sublessee can be held solidarily liable for damages arising from their respective breaches of contract in failing to place the sublessee in possession of the premises, even if the ultimate cause of the failure was the lessor's intervention, provided that the sublessor and sublessee made separate undertakings to the sublessee.