Heirs of Reyes v. Court of Appeals

A lease contract containing an automatic rescission clause—stipulating that the lessor may declare the contract cancelled and terminated upon the lessee's breach—needs no judicial rescission before the lessor may eject the lessee, provided the breach is established and not denied. The Court of Appeals likewise has no authority to execute its own decision pending appeal, and contempt cannot arise from good-faith exercise of proprietary rights when no lawful order is in effect.

Brothers Justice Jose Benedicto Luna Reyes (Justice J. B. L. Reyes) and Dr. Edmundo A. Reyes were co-owners of a parcel of land exceeding one hectare located at Taft Avenue, Pasay City, near Buendia, covered by two Transfer Certificates of Title. On November 30, 1976, the brothers entered into a 25-year lease contract with Metro Manila Builders, Inc. (MMB, Inc.) at a low monthly rental of P15,000.00 to P30,000.00, in consideration of the lessee's undertaking to insure all present and future improvements against fire, earthquake, and extended coverage risks, and to maintain the premises in good, sanitary, and tenantable condition at all times. The contract contained a rescission clause permitting the lessor, in his absolute discretion, to declare the contract cancelled and terminated and to require the tenant to vacate upon default or breach. Upon the brothers' deaths, their heirs—the Heirs of Justice J. B. L. Reyes, represented by Adoracion D. Reyes, and the Heirs of Edmundo A. Reyes, namely Ma. Teresa P. Reyes and Carlos P. Reyes—succeeded to their ownership rights.

Brothers Justice Jose Benedicto Luna Reyes and Dr. Edmundo A. Reyes were co-owners of a parcel of land exceeding one hectare located at Taft Avenue, Pasay City, near Buendia, covered by two Transfer Certificates of Title. On November 30, 1976, the brothers entered into a 25-year lease contract with Metro Manila Builders, Inc. (MMB, Inc.) at a low monthly rental ranging from P15,000.00 to P30,000.00. The low rental was in consideration of the lessee's undertaking to cover all present and future improvements with insurance against fire, earthquake, and extended coverage risks, and to maintain the premises in good, sanitary, and tenantable condition at all times. The contract also required MMB, Inc. to secure the lessor's prior written consent before assigning or transferring any of its rights, and contained a rescission clause permitting the lessor, in his absolute discretion, to declare the contract cancelled and terminated and to require the tenant to vacate upon default or breach.

In the course of the lease, the lessors discovered that MMB, Inc. had not properly maintained the premises or covered them with adequate insurance. Worse, MMB, Inc. had sub-leased the property to third parties without the lessors' consent and was earning approximately P500,000.00 a month therefrom. On December 2, 1996, the heirs of the Reyes brothers served on MMB, Inc. a notice terminating the lease contract and demanding that it vacate and surrender the premises. When MMB, Inc. failed to comply, the petitioners filed a complaint for unlawful detainer on February 3, 1997 with the Metropolitan Trial Court, Pasay City, Branch 45, docketed as Civil Case No. 113-97, based on breach of the lease contract. MMB, Inc. filed its answer on March 5, 1997, not denying the violations imputed to it but questioning the absence of a judicial rescission of the lease contract.

The MTC rendered judgment on May 9, 1997 in favor of the petitioners, ordering MMB, Inc. to vacate and surrender possession, to pay P300,000.00 per month from notice to vacate until turnover, plus attorney's fees of P20,000.00 and costs. Petitioners moved for execution of the eviction judgment on May 16, 1997. MMB, Inc. appealed to the Regional Trial Court, Pasay City, Branch 113, but failed to file its appeal memorandum on time, resulting in dismissal. MMB, Inc. never raised the issue of jurisdiction during that appeal. MMB, Inc. then filed an appeal with the Court of Appeals on November 5, 1997, but withdrew it before the appellate court could rule on injunctive relief, with the withdrawal allowed on February 17, 1998. Simultaneously, MMB, Inc. filed a petition for annulment of the ejectment decision before RTC, Pasay City, Branch 231, on the ground that the MTC had no jurisdiction. The RTC dismissed the petition on April 14, 1998, holding that jurisdiction should have been raised at the first opportunity and that the remedy under Rule 47 was unavailable since appeal had been abandoned.

MMB, Inc. thereafter filed a series of petitions and motions with the Court of Appeals seeking injunctive relief against the execution of the ejectment judgment. The Court of Appeals consolidated the second and third CA cases and, on August 21, 1998, promulgated a decision setting aside the MTC decision and the RTC orders, ordering petitioners to restore the subject property to MMB, Inc.'s possession, and permanently enjoining petitioners from disturbing MMB, Inc.'s possession until lease expiration. On the same date, MMB, Inc. filed an urgent ex parte motion for execution pending appeal. On September 14, 1998, petitioners elevated the CA decision to the Supreme Court by petition for review. Notwithstanding the pending petition, the Court of Appeals promulgated its resolution on September 18, 1998, granting execution pending appeal, issuing a writ of execution, declaring petitioners guilty of indirect contempt and sentencing them to pay a fine of P30,000.00, and ordering complete restoration of the property to MMB, Inc. On September 21, 1998, the Court of Appeals designated a special sheriff—an employee of the mailing section who was not bonded as required by law—who evicted the petitioners from the premises and restored possession to MMB, Inc. On September 29, 1998, petitioners filed with the Supreme Court a petition for certiorari to nullify the CA resolution allowing execution pending appeal, the writ of execution, and the contempt finding.

• Nature of the Action: Petitioners maintained that the complaint filed with the MTC was for unlawful detainer based on breach of the lease contract, over which the MTC properly exercised jurisdiction, and that judicial rescission was unnecessary because the contract itself stipulated automatic cancellation upon breach.
• Mootness and Academicity: Petitioners argued that the petition of private respondent had become moot and academic because the entire premises had already been turned over by the sheriff, except for 14 lessees allowed to remove their improvements within fifteen days.
• Forum Shopping: Petitioners contended that private respondent was guilty of forum shopping, as the issues pending in the second CA case, the RTC Quezon City case, and the third CA case were one and the same.
• Absence of Contempt: Petitioners asserted they were not guilty of contempt since there was no order violated, and that Judge Ylagan committed no abuse of discretion.
• No Irreparable Injury: Petitioners argued that private respondent failed to allege, much less prove, irreparable injury to it.

• Jurisdiction: Respondent MMB, Inc. argued that the nature of the complaint was for rescission of contract, not ejectment, and that the Metropolitan Trial Court had no jurisdiction over the case, necessitating judicial rescission of the lease contract before eviction could proceed.
• Annulment of Judgment: Respondent MMB, Inc. maintained that the MTC's ejectment decision was void for lack of jurisdiction and sought annulment under Rule 47 of the Rules of Court.
• Execution Pending Appeal: Respondent MMB, Inc. pressed for immediate execution of the CA decision, asserting that it would be deprived of income from its business endeavors, that the appellate courts were clogged with cases causing delay, and that petitioners acted with bad faith and malice.

• Jurisdiction and Judicial Rescission: Whether the Court of Appeals erred in ruling that the nature of the complaint was for rescission of contract, not ejectment, over which the Metropolitan Trial Court did not have jurisdiction.
• Restoration of Possession: Whether the Court of Appeals erred in directing that respondent MMB, Inc. be restored in possession of the leased premises.
• Execution Pending Appeal: Whether the Court of Appeals erred in immediately executing its resolution dated September 18, 1998, transferring possession of the property from petitioners to respondent MMB, Inc. by a "special sheriff."
• Indirect Contempt: Whether the Court of Appeals erred in declaring petitioners guilty of indirect contempt of court and sentencing them to pay a fine of P30,000.00.

• Jurisdiction and Judicial Rescission: No. There was no need for judicial rescission of the lease contract before MMB, Inc. could be compelled to vacate, because the contract itself provided for automatic cancellation upon breach, and MMB, Inc. did not deny the violations imputed to it.
• Restoration of Possession: No. The Court of Appeals erred in ordering MMB, Inc. restored to possession, as the MTC's ejectment decision was proper and the RTC's dismissal of the annulment petition was correct.
• Execution Pending Appeal: No. The Court of Appeals had no authority to execute its own decision pending appeal; discretionary execution under Rule 39, Section 2(a) applies only to judgments of trial courts, and no good reasons justified the writ.
• Indirect Contempt: No. Petitioners were not guilty of indirect contempt because they acted in good faith in the exercise of their proprietary rights after the temporary restraining order had lapsed, and there was no willful disobedience to a lawful order.

• Jurisdiction and Judicial Rescission: The contract between the parties expressly stipulated in Section 18, paragraph 4(a) and (b) that in the event of default or breach, the lessor may, in his absolute discretion, declare the contract cancelled and terminated and require the tenant to vacate the leased premises. MMB, Inc. violated three substantial conditions: paragraph 8 (requiring insurance coverage), paragraphs 9 and 10 (requiring maintenance and repair), and paragraph 11 (requiring prior written consent before assignment or sub-leasing). The law on obligations and contracts does not prohibit parties from agreeing that a violation of contractual terms would cause cancellation even without judicial intervention. Contracts are respected as the law between the parties, and stipulations not contrary to law, morals, good customs, public policy, or public order have the force of law. Since MMB, Inc. did not deny the violations, the automatic rescission clause operated by its own force, and no judicial rescission was required before the ejectment suit could prosper.

• Restoration of Possession: Because no judicial rescission was necessary and the MTC properly exercised jurisdiction over the unlawful detainer case, the Court of Appeals' decision setting aside the MTC ruling and ordering restoration of possession to MMB, Inc. was erroneous. The RTC Branch 231 correctly dismissed MMB, Inc.'s petition for annulment, holding that jurisdiction should have been raised at the first opportunity and that the remedy under Rule 47 was unavailable as appeal had been abandoned. The CA's directive restoring MMB, Inc. to possession was thus without legal basis.

• Execution Pending Appeal: The Court of Appeals has no authority to issue immediate execution pending appeal of its own decision. Discretionary execution under Rule 39, Section 2(a) of the 1997 Rules of Civil Procedure applies only to judgments or final orders of trial courts, upon good reasons stated in a special order after due hearing. A judgment of the Court of Appeals cannot be executed pending appeal; once final and executory, it must be remanded to the lower court where a motion for execution may be filed only after entry. The "good reasons" cited by the Court of Appeals—respondent's loss of income, the congestion of appellate court dockets, and petitioners' alleged bad faith—were insufficient. A party's precarious financial condition is not a compelling circumstance warranting immediate execution. The assertion that the Supreme Court is clogged with cases was characterized as an assault on the integrity of the Court. Moreover, the petition for review was filed with the Supreme Court on September 14, 1998, four days before the CA's resolution of September 18, 1998, which stayed the finality of the CA decision and precluded any execution. The Court of Appeals also had no authority to appoint a special sheriff, much less an unbonded employee of the mailing section.

• Indirect Contempt: The Court of Appeals declared petitioners guilty of indirect contempt for implementing the writ of execution of the trial court and proceeding to demolish improvements on the property. However, the temporary restraining order issued by the Court of Appeals had lapsed after sixty days, and no restraining order was in effect until the court decided the case on the merits. Petitioners therefore acted in good faith in the exercise of their proprietary rights. There was no willful disobedience to a lawful order. The power to punish for contempt must be exercised on the preservative, not vindictive principle, and on the corrective, not retaliatory idea of punishment. Courts must exercise this power judiciously and sparingly, with utmost self-restraint, as it is intended as a safeguard for the judicial function, not for the judges as persons.

• Automatic Rescission Clause in Lease Contracts — Parties to a lease contract may stipulate that a violation of the contract's terms causes its automatic cancellation without need for judicial intervention. Such stipulations, when not contrary to law, morals, good customs, public policy, or public order, have the force of law between the contracting parties. Where the contract provides that the lessor may declare the contract cancelled and terminated upon the lessee's breach, and the breach is established and not denied, no judicial rescission is required before the lessor may eject the lessee.

• Execution Pending Appeal Limited to Trial Court Judgments — Discretionary execution under Rule 39, Section 2(a) of the 1997 Rules of Civil Procedure applies only to judgments or final orders of trial courts, upon good reasons to be stated in a special order after due hearing. A judgment of the Court of Appeals cannot be executed pending appeal. Once final and executory, the judgment must be remanded to the lower court, where a motion for execution may be filed only after its entry. Good reasons justifying premature execution must constitute superior circumstances demanding urgency that will outweigh the injuries to the adverse party if the decision is reversed; a party's precarious financial condition and docket congestion are not good reasons.

• Contempt Power — Preservative, Not Vindictive — The power to punish for contempt must be exercised on the preservative, not vindictive principle, and on the corrective, not retaliatory idea of punishment. It is intended as a safeguard for the functions that courts exercise, not for the judges as persons. Courts must exercise this power judiciously and sparingly, with utmost self-restraint. Good faith in the exercise of proprietary rights, absent willful disobedience to a lawful order, does not constitute indirect contempt.

• Filing of Petition for Review Stays Finality — By the mere fact of filing a petition for review with the Supreme Court, the finality of the Court of Appeals' decision is stayed, and there can be no entry of judgment, precluding any premature execution.

• Court of Appeals Cannot Appoint a Special Sheriff — The Court of Appeals has no authority to appoint a special sheriff, particularly one who is not bonded as required by law.

• "We rule that there is no need for a judicial rescission of the lease contract between lessors heirs of Justice J. B. L. Reyes, et al. and lessee MMB, Inc." — This is the ratio decidendi on the central issue: where a lease contract contains an automatic rescission clause and the breach is undisputed, judicial rescission is unnecessary before ejectment.

• "The law on obligations and contracts does not prohibit parties from entering into agreement providing that a violation of the terms of the contract would cause its cancellation even without judicial intervention." — This articulates the doctrinal basis for upholding automatic rescission clauses, grounded in the autonomy of contracts.

• "A judgment of the Court of Appeals cannot be executed pending appeal. Once final and executory, the judgment must be remanded to the lower court, where a motion for its execution may be filed only after its entry." — This defines the limitation on execution pending appeal, restricting discretionary execution to trial court judgments and prohibiting the Court of Appeals from executing its own decisions before finality.

• "The power to punish for contempt must be exercised on the preservative, not vindictive principle, and on the corrective and not retaliatory idea of punishment." — This is the canonical formulation of the contempt power's purpose, frequently cited in subsequent jurisprudence on the scope and limits of contempt.

• People's Industrial and Commercial Corp. vs. Court of Appeals, 281 SCRA 206 (1997) — Followed for the principle that contracts are respected as the law between the parties and stipulations not contrary to law, morals, good customs, public policy, or public order have the force of law.

• Pangilinan vs. Court of Appeals, 279 SCRA 590 (1997) — Followed for the proposition that the law on obligations and contracts does not prohibit parties from agreeing that violation of contractual terms causes cancellation without judicial intervention.

• Yasay vs. Recto, G.R. No. 129521, September 7, 1999 — Followed for the principle that the power to punish for contempt must be exercised on the preservative, not vindictive principle, and that courts must exercise this power judiciously and sparingly.

• Diesel Construction Co., Inc. vs. Jollibee Foods Corp., G.R. No. 136805, January 28, 2000 — Followed for the principle that a party's precarious financial condition is not a compelling circumstance warranting immediate execution.

• Conducto vs. Judge Monzon, 353 Phil. 796 (1998) — Followed for the principle that inferior courts must maintain a becoming modesty and conscious realization of their position in the integrated judicial system, and that there is only one Supreme Court from whose decisions all other courts should take their bearings.

• Commissioner of Public Highways vs. San Diego, 31 SCRA 616 (1970) — Followed for the principle that the Court of Appeals has no authority to appoint a special sheriff.

• Section 18, Paragraphs 4(a) and (b), Lease Contract — The rescission clause providing that the lessor may, in his absolute discretion, declare the contract cancelled and terminated and require the tenant to vacate upon default or breach. Applied as the contractual basis for automatic rescission without judicial intervention.

• Paragraphs 8, 9, 10, and 11, Lease Contract — The obligations breached by MMB, Inc.: insurance coverage (par. 8), maintenance and repair (pars. 9-10), and prior written consent for assignment or sub-leasing (par. 11). These breaches triggered the rescission clause.

• Rule 39, Section 2(a), 1997 Rules of Civil Procedure, as amended — Governs discretionary execution pending appeal, applicable only to judgments of trial courts upon good reasons stated in a special order after due hearing. The Court held this provision does not authorize the Court of Appeals to execute its own decision pending appeal.

• Rule 51, Sections 10 and 11, 1997 Rules of Civil Procedure, as amended — Section 10 provides that the filing of a petition for review stays the finality of the Court of Appeals' decision; Section 11 governs remand of the judgment to the lower court upon finality for execution. Applied to show that the CA's execution pending appeal was void because the petition for review had already been filed.

• B.P. No. 129, Section 11 — Requires the unanimous vote of three members of a Court of Appeals division for the pronouncement of a decision or final resolution, reached in consultation. Applied to hold that the CA resolution signed by only two justices was void.

• Revised Internal Rules of the Court of Appeals, Rule 6, Section 2(c)(2) — Provides that the rule on unanimity applies to interlocutory resolutions. Applied to the void CA resolution.

• Rule 58, Section 5, last paragraph, 1997 Rules of Civil Procedure, as amended — Provides that a temporary restraining order expires after sixty days. Applied to show that no restraining order was in effect when petitioners acted, negating contempt.

• Revised Administrative Code of 1917, Section 330 — Requires sheriffs to be bonded. Applied to show that the CA's designation of an unbonded mailing section employee as special sheriff was invalid.

Davide, Jr., C.J., Melo, Puno, Kapunan, Mendoza, Panganiban, Quisumbing, Purisima, Buena, Gonzaga-Reyes, Ynares-Santiago, and De Leon, Jr., JJ., concurred.