Comglasco Corporation v. Santos Car Check Center Corporation
REITERATIONFacts
The Antecedents: Respondent Santos Car Check Center Corporation (Santos) leased its showroom to petitioner Comglasco Corporation (Comglasco) for five years. Comglasco pre-terminated the lease after a little over a year, citing business reverses due to the 1997 Asian financial crisis. Santos refused to accede, and Comglasco vacated the premises and stopped paying rentals. Santos sent demand letters, which were ignored. Procedural History: Santos filed a suit for breach of contract. After summons were served, Comglasco filed an Answer. Santos moved for a judgment on the pleadings, which the Regional Trial Court (RTC) granted, ordering Comglasco to pay unpaid rentals, attorney's fees, litigation expenses, and exemplary damages. The RTC later granted execution pending appeal. Comglasco appealed, raising issues on the propriety of judgment on the pleadings, material issues in its Answer, and the award of damages. The Court of Appeals (CA) affirmed the RTC judgment but reduced attorney's fees and deleted litigation expenses and exemplary damages. The Petition: Comglasco filed a petition for review with the Supreme Court, reiterating its arguments on the propriety of judgment on the pleadings, the existence of material issues, the availability of summary judgment, the crediting of advance rentals and deposit, and the basis for attorney's fees. Comglasco invoked Article 1267 of the Civil Code, arguing that business setbacks due to the Asian financial crisis made performance difficult and beyond contemplation, thus justifying pre-termination.
Issue(s)
Whether judgment on the pleadings was properly invoked by the trial court and whether material issues were raised in Comglasco's Answer. Whether summary judgment or judgment on the pleadings is the proper remedy under the circumstances. Whether the amount deposited for advance rental and deposit should be credited to Comglasco's account. Whether attorney's fees may be granted without proof and legal basis.
Ruling
The petition is denied for lack of merit. The Supreme Court affirmed the decision of the Court of Appeals, upholding the judgment on the pleadings rendered by the RTC, with modifications on the awards.
Ratio Decidendi
On the propriety of judgment on the pleadings and material issues: The Court held that Comglasco's Answer failed to tender a genuine issue of fact. The CA correctly found that Comglasco admitted the material allegations in Santos' complaint, including the existence and terms of the lease contract, and its pre-termination. Comglasco's invocation of Article 1267 of the Civil Code was found to be without merit. The Court reiterated the ruling in Philippine National Construction Corporation v. CA (PNCC), stating that the payment of lease rentals is not a prestation 'to do' covered by Article 1267, and that mere financial inability does not discharge a contractual obligation. The Court emphasized that the Asian currency crisis occurred before Comglasco entered into the lease, meaning Comglasco assumed the risks with open eyes. The Court found no 'absolutely exceptional changes of circumstances that equity demands assistance for the debtor.' Therefore, the RTC correctly resorted to a judgment on the pleadings under Rule 34, Section 1 of the Rules of Court, as there was no controverted matter after the Answer was filed. The Court noted that Comglasco could have moved for a summary judgment under Rule 35, Section 2, where it could have adduced supporting evidence, but it did not. This further supports the conclusion that no genuine issue of fact was presented. On the availability of summary judgment: The Court noted that Comglasco could have moved for a summary judgment under Rule 35, Section 2, where it could have adduced supporting evidence, but it did not. This further supports the conclusion that no genuine issue of fact was presented. On the crediting of advance rentals and deposit: The Court ruled that Comglasco could not raise the issue of crediting advance rentals and deposit because it was never raised in its Answer to the complaint nor in its appeal to the CA. Issues not raised in the lower courts cannot be raised for the first time on appeal. On the award of attorney's fees: The Court affirmed the award of attorney's fees, citing Article 2208(2) of the Civil Code, which allows recovery when the defendant's act or omission compelled the plaintiff to incur expenses to protect his interest. Comglasco's pre-termination and subsequent non-payment, despite demand letters, compelled Santos to litigate. While acknowledging the policy against placing a premium on litigation, the Court agreed with the CA that the reduced amount of P100,000.00 was more reasonable than the P200,000.00 awarded by the RTC.
Main Doctrine
A lessee cannot invoke Article 1267 of the Civil Code to justify pre-termination of a lease contract due to financial difficulties arising from general economic downturns, especially when the lease was entered into after the economic crisis began and the difficulties are not absolutely exceptional changes of circumstances. Furthermore, a judgment on the pleadings is proper when the answer fails to tender an issue or admits the material allegations of the complaint, and the lessee's claim for deduction of advance rentals and deposit is not a valid issue if not raised in the pleadings.