PNTC Colleges, Inc. vs. Time Realty, Inc.

A lessor's retention of a lessee's properties as security pursuant to an express, valid lease stipulation does not extinguish the lessee's unpaid obligations and does not constitute unjust enrichment, so the lessor's compulsory counterclaims for arrears, restoration, and stipulated relief must be granted. The 3% per month interest on unpaid rentals, being a penalty clause that is iniquitous or unconscionable, was equitably reduced to 1% per month or 12% per annum under Article 1229 of the Civil Code.

PNTC Colleges, Inc. was the lessee and Time Realty, Inc. the lessor of portions of a building on Extremadura Streets, Sampaloc, Manila under a written Contract of Lease. The original fixed term expired, but Time Realty acquiesced to PNTC's continued occupancy at an increased rental, giving rise to an implied new lease or tacita reconduccion under Article 1670 of the Civil Code with the other terms of the original contract revived. Paragraphs 1, 23, and 24 of that contract governed deposits, breach or default and remedies including retention and disposition of the lessee's properties, and judicial relief with penalty interest and attorney's fees.

Time Realty leased to PNTC portions of its building on Extremadura Streets, Sampaloc, Manila under a Contract of Lease covering 2005 to 2007. Although the stated fixed term ended on December 31, 2005, the lease was impliedly renewed on a monthly basis thereafter, with Time Realty acquiescing to PNTC's continued occupancy at an increased rental rate. Time Realty later notified PNTC of its intent not to extend the lease on the fourth floor anymore, giving PNTC the options to extend on the fourth floor only until April 2007 or to transfer to the second floor of the same building. By letter dated April 4, 2007, PNTC informed Time Realty of its decision to terminate its fourth-floor lease effective end of April 2007.

Sometime in April 2007, PNTC commenced transfer of its operations to its new site in Intramuros, Manila. According to Time Realty, PNTC did so without settling outstanding rentals and service charges for electricity and water, plus interest or surcharges, and without restoring the premises; Time Realty thus ordered PNTC to cease moving-out operations and retained PNTC's remaining properties as security pursuant to Paragraph 23 of the Contract of Lease. PNTC, for its part, claimed serious losses from the withholding of properties inventoried by its employees at P561,360.00, and asserted an agreement through Time Realty's representative Natividad Ocampo that obligations would be settled after completion of the transfer. On May 7, 2007, PNTC wrote Time Realty protesting the withholding and stating its intent to seek legal action, then filed the complaint for delivery with damages.

Time Realty answered with counterclaim, alleging PNTC started vacating without formal notice and without paying remaining obligations, and that the retained items, most of which could not be removed without damaging the property, were inventoried and withheld to cover payables and damage. By counterclaim it sought unpaid rentals and service charges with interest from May 2007, reimbursement of P5,095,822.24 as of December 3, 2008 for engaging a general contractor to restore the premises to tenantable condition, and attorney's fees, while admitting PNTC had rental deposits totaling P743,640.00. In reply, PNTC denied the contract was still in effect at confiscation, invoked a monthly rental basis, submitted copies of check vouchers payable to Time Realty that were prepared but not actually tendered, and stated readiness to pay unpaid rentals and service charges less security deposits. The trial court factually found continued occupancy creating tacita reconduccion, PNTC's receipt of the Statement of Account, non-tender of rental and service payments since termination in April 2007, and Time Realty's complete physical possession and control of the properties.

• Alleged Consent and Deferred Payment Agreement: Petitioner argued that Time Realty was aware of the intended transfer, as PNTC could not have moved out 90% of its properties without notice and consent evidenced by gate passes issued and security guards posted, and that the parties agreed through Natividad Ocampo that liabilities, if any, would be settled after complete transfer.
• Admissions and Summary of Payables: Petitioner maintained that the Court of Appeals unduly emphasized its supposed admissions of liability and questioned the admission of the Summary of Payables prepared by its finance department, since the document was only presented during mediation proceedings.
• Unjust Enrichment and Valuation: Petitioner argued that granting the counterclaims without proper accounting and valuation of the retained properties would unjustly enrich Time Realty, and that the actual values of the properties might already suffice to compensate for its accountabilities.
• Restoration Costs: Petitioner insisted it should not reimburse restoration expenses for the fourth floor, denying that it inflicted damage on the premises.
• Attorney's Fees: Petitioner questioned the award of attorney's fees in favor of Time Realty.

• Continuing Obligation Despite Security: Respondent countered that the grant of counterclaims is compatible with possession of PNTC's properties because the mere existence of a security does not extinguish the obligation, so PNTC's undisputed obligations continue to exist.
• Unjust Enrichment and Execution: Respondent argued that prior accounting is unnecessary, that unjust enrichment could only possibly arise if it refused to turn over the properties after PNTC satisfies the monetary award, and that recognition of the counterclaims gives it the choice to satisfy liabilities through the possessory lien or other means allowed by the Rules of Court on execution.
• Factual Issues Beyond Rule 45: Respondent contended that the alleged prior agreement to allow removal before payment and the entitlement to restoration reimbursement are factual issues outside a Rule 45 petition, correctly resolved in its favor, especially as PNTC did not appeal the RTC dismissal and did not actually dispute costs below.
• Attorney's Fees: Respondent claimed entitlement to attorney's fees under the lease contract.

• Reversal of RTC Order: Whether the Court of Appeals erred when it reversed and set aside the Order of the RTC Manila dated April 4, 2011 denying Time Realty's Motion for Partial Reconsideration of the Decision dated June 15, 2010.
• Monetary Awards: Whether the Court of Appeals erred in ordering PNTC to pay Time Realty P870,038.40 for unpaid rentals, P340,090.48 for unpaid utilities, P5,095,822.34 for restoration of the leased premises, and P100,000.00 for attorney's fees.

• Reversal of RTC Order: No. Reversal was proper because PNTC's violation and judicial admissions established liability and Time Realty's retention rested on a valid contractual right, negating unjust enrichment.
• Monetary Awards: No, except as modified. The awards for arrears, utilities, restoration, and attorney's fees were sustained in principal, subject to reduced penalty interest, applicable legal interest, and deduction of the P743,640.00 deposit at execution.

• Reversal of RTC Order: PNTC's liability for rental arrears and service charges was affirmed on the records, including judicial admissions noted by the Court of Appeals that it never refused to pay, that any deficiency would be paid after transfer, that checks and vouchers were prepared, and the Summary of Payables for March-April 2007, plus agreement in its Comment/Opposition that non-payment justified possession under Paragraph 23. The alleged deferred-payment agreement through Natividad Ocampo was not proved with sufficient evidence, so obligations were adjudicated under the law and the lease willingly signed. Time Realty's counterclaims, intimately related to the withheld properties subject of the complaint, were compulsory and properly set up in the Answer with Counterclaim after PNTC preempted an independent collection suit by suing for recovery while refusing to pay.
• Monetary Awards: The principal figures from Time Realty's Statement of Account for March-April 2007 were maintained as undisputed and unmodified on appeal: P870,038.40 for rentals and P340,090.48 for utilities, plus P5,095,822.34 for restoration. Restoration liability was sustained because PNTC failed to show the fourth floor's dire condition — destroyed vinyl flooring, tiles, dismantled door knobs, damaged fire-exit doors, partitions, cubicle and comfort-room doors, clogged comfort rooms, destroyed lavatories and water closets, and removed lighting fixtures, switches and outlets — was not due to its own acts during more than two years of occupancy without reported complaints to the building administrator. The stipulated 3% per month interest on unpaid rentals was deemed an unconscionable penalty and equitably reduced to 1% per month or 12% per annum from May 2007 until finality; utilities, not being a loan or forbearance, bear 6% per annum from judicial demand on January 7, 2008 until finality; restoration bears 6% from finality until full payment; all sums due bear 6% from finality until satisfaction. Attorney's fees were kept at P100,000.00 as prayed and awarded below, Time Realty not having appealed that amount, and the P743,640.00 admitted deposit was ordered deducted at execution, the contract's forfeiture clause not prohibiting its application to arrears.

• Contract as law between the parties — Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith; parties may stipulate such clauses, terms and conditions as they deem convenient provided they are not contrary to law, morals, good customs, public order or public policy. Applied to enforce Paragraphs 1, 23, and 24 of the lease, including retention of properties for non-payment, there being no contravention shown.
• Literal meaning of clear contractual terms — When the terms of the contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations controls. Applied to adjudge the parties' rights according to the lease, particularly the lessor's prerogative to take control or possession upon violation including non-payment.
• Tacita reconduccion — If at the end of the contract the lessee continues enjoying the thing leased for fifteen days with the acquiescence of the lessor, unless notice to the contrary was previously given, an implied new lease arises not for the original period but for the time in Articles 1682 and 1687, with other terms of the original contract revived. Applied to hold that continued occupancy after expiry created an implied monthly lease under Article 1670 of the Civil Code.
• Judicial admissions — An admission, verbal or written, made by a party in the course of proceedings in the same case does not require proof and may be contradicted only by showing palpable mistake or denial that it was made. Applied to treat PNTC's reply statements, exhibits, and Comment/Opposition as establishing unpaid obligations and justification for retention.
• Compulsory counterclaim — A compulsory counterclaim is any claim for money or other relief which a defending party has against an opposing party, which at the time of suit arises out of or is necessarily connected with the same transaction or occurrence subject of the complaint, and must be set up therein if within jurisdiction and without need for non-joinable third parties, else barred. Applied to sustain Time Realty's counterclaims as intimately related to the withheld properties.
• Unjust enrichment — There is unjust enrichment when a person unjustly retains a benefit to another's loss, or retains money or property against justice, equity and good conscience; under Article 22 of the Civil Code, one who acquires or possesses something at another's expense without just or legal ground shall return it, requiring (1) benefit without valid basis and (2) benefit at another's expense. Applied to reject PNTC's defense because retention was with valid claim under Paragraph 23 as security for collection, with properties kept in storage, not used.
• Equitable reduction of penalty — A penalty clause strengthens coercive force and provides liquidated damages without need to prove measure, but under Article 1229 of the Civil Code the judge shall equitably reduce the penalty when the principal obligation was partly or irregularly complied with, and even without performance if iniquitous or unconscionable, considering circumstances of each case. Applied to reduce 3% monthly interest on rentals to 1% monthly, citing 2%-3% monthly penalties previously held unconscionable in MCMP Construction Corp. vs. Monark Equipment Corp. and Pentacapital Investment Corp. vs. Mahinay.
• Legal interest on non-loan obligations and final judgments — Service charges not constituting loan or forbearance bear 6% per annum from judicial demand, and all monetary awards bear 6% per annum from finality until full satisfaction pursuant to Nacar vs. Gallery Frames and BSP-MB Circular No. 799. Applied to fix interest on utilities from January 7, 2008 and post-finality interest.
• No affirmative relief for non-appealing appellee — An issue not properly raised on appeal is waived, and an appellee who has not appealed cannot obtain affirmative relief beyond that granted below. Applied to keep attorney's fees at P100,000.00 as prayed and awarded, despite 20% computation under Paragraph 24 yielding a higher figure.

• "Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith." — States the foundational contract principle used to enforce the lease stipulations willingly signed by PNTC.
• "When the terms of the contract are clear and leave no doubt as to the intention of the contracting parties, the rule is settled that the literal meaning of its stipulations should control." — Provides the interpretive rule for applying Paragraphs 23 and 24 literally to retention, interest, and attorney's fees.
• "There is no unjust enrichment when the person who will benefit has a valid claim to such benefit." — Supplies the decisive test negating unjust enrichment because Time Realty withheld properties under a valid contractual security right.
• "The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable." — Quotes Article 1229 of the Civil Code as basis for reducing the 3% monthly rental interest to 1%.

• D.M. Ragasa Enterprises, Inc. vs. Banco De Oro, Inc., 833 Phil. 640 (2018) — Cited for the principles that contract is law between parties, obligations under Article 1159 must be performed in good faith, stipulations under Article 1306 bind if valid, and clear terms under Article 1370 control literally.
• Spouses Ponciano vs. Hon. Parentela, Jr., 387 Phil. 621 (2000), via Intramuros Administration vs. Offshore Construction Development Co., 827 Phil. 303 (2018) — Cited to define compulsory counterclaim and sustain Time Realty's counterclaims as arising from the same transaction as the complaint.
• Car Cool Philippines, Inc. vs. Ushio Realty & Development Corp., 515 Phil. 376 (2006); Government Service Insurance System vs. Commission on Audit, 694 Phil. 518 (2012) — Cited to define unjust enrichment under Article 22 and its two requisites, supporting rejection of PNTC's defense.
• Ligutan vs. Court of Appeals, 427 Phil. 42 (2002); Imperial vs. Jaucian, 471 Phil. 42 (2005); MCMP Construction Corp. vs. Monark Equipment Corp., 746 Phil. 383 (2014); Pentacapital Investment Corp. vs. Mahinay, 637 Phil. 283 (2010) — Cited to characterize stipulated interest as penalty clause and to hold 2%-3% monthly penalties unconscionable and reducible under Article 1229.
• Nacar vs. Gallery Frames, 716 Phil. 267 (2013), via Nissan Gallery-Ortigas vs. Felipe, 720 Phil. 828 (2013) — Cited with BSP-MB Circular No. 799 to impose 6% per annum legal interest on utilities from judicial demand and on awards from finality.
• Mondragon International Philippines, Inc. vs. Union Bank of the Philippines, G.R. No. 228530, January 21, 2019 — Cited for the rule that a non-appealing appellee cannot obtain additional affirmative relief and for reducing penalty interest to 12% per annum.

• Article 1159, Civil Code — Provides that obligations arising from contracts have force of law and must be complied with in good faith; applied to bind PNTC to rental, charges, and remedies it willingly stipulated.
• Article 1306, Civil Code — Allows parties to establish stipulations not contrary to law, morals, good customs, public order or policy; applied to uphold Paragraphs 1, 23, and 24 of the lease.
• Article 1370, Civil Code — Requires literal enforcement when contractual terms are clear; applied to give effect to retention, interest, and attorney's fee clauses.
• Article 1670, Civil Code — Creates implied new lease upon continued enjoyment with lessor's acquiescence; applied to treat post-expiry occupancy as monthly tacita reconduccion reviving other original terms.
• Article 22, Civil Code — Basis of unjust enrichment requiring return of benefit acquired without just or legal ground; applied but found unsatisfied because retention had contractual ground.
• Article 1229, Civil Code — Authorizes equitable reduction of iniquitous or unconscionable penalty; applied to cut 3% monthly rental interest to 1% monthly.
• Rule 129, Section 4, Rules of Court — Provides judicial admissions need no proof; applied to PNTC's reply, exhibit, and Comment/Opposition statements.
• Rule 39, Section 1, Rules of Court, via Booklight, Inc. vs. Tiu — Governs execution; valuation and depreciation disputes over retained properties deferred to execution stage after finality.

Perlas-Bernabe (Chairperson), Inting, Gaerlan, and Dimaampao, JJ., concur.