Sy vs. Andok's Litson Corporation

A lessor's failure to address a co-tenant's obstructive construction and unresolved unpaid utility bills, despite repeated demands, constitutes a substantial breach of the obligation to maintain the lessee in peaceful and adequate enjoyment of the lease, warranting rescission under Article 1659 of the Civil Code.

Petitioner Cely Sy owned a 316-square-meter lot in Sta. Cruz, Manila, which she leased to respondent Andok's Litson Corporation for a five-year term. Andok's paid P480,000.00 covering advance rent and a security deposit. Before Andok's could construct its outlet, two impediments arose: Sy had an outstanding MERALCO bill of P400,000.00, and a prior tenant, Mediapool, Inc., was constructing a billboard structure on a portion of the leased premises, causing delay. Andok's sent four letters to Sy over a span of eight months requesting that the billboard construction be expedited, but Sy took no action. Consequently, Andok's filed a complaint for rescission of contract and damages.

• The Lease Contract: On July 5, 2005, Cely Sy and Andok's entered into a five-year lease contract over Sy's 316-square-meter lot at a monthly rental of P60,000.00 for the first two years and P66,000.00 for the remaining term, subject to a 10% annual escalation starting the fourth year. Andok's paid P480,000.00 upon signing, representing four months' advance deposit and four months' security deposit.
• Impediments to Enjoyment: Andok's discovered that Sy had an unpaid MERALCO bill amounting to P400,000.00, which hindered the application for a new electrical connection. Furthermore, the construction of Andok's outlet was delayed because another tenant, Mediapool, Inc., was constructing a billboard structure on a portion of the leased premises.
• Repeated Demands: Between August 2005 and February 2008, Andok's sent four letters to Sy requesting that the billboard construction be expedited. Sy ignored these communications.
• Contractual Stipulation on Billboard: The lease contract provided that Andok's would allow persons to construct billboard structures on the excluded portion only upon the written approval of both Andok's and the lessor, specifically to avoid disruption of Andok's business operations.
• Lesser's Defense: Sy denied the existence of the unpaid MERALCO bill and claimed faithful compliance with the lease contract. She argued that Andok's had contractually assumed the risk of delay by agreeing to the billboard construction.

• Denial of Due Process: Petitioner argued that the affirmance of the default judgment infringed upon her right to due process, claiming she was deprived of the opportunity to present her evidence.
• Assumption of Risk of Delay: Petitioner maintained that Andok's contractually assumed the risk of delay by allowing Mediapool, Inc. to construct a billboard structure on the leased premises, and thus such delay could not be a ground for rescission.
• Imposition of Legal Interest: Petitioner contended that the imposition of legal interest on the monetary award was a departure from judicial precedent.

• Validity of Ex-Parte Presentation: Respondent countered that the trial court correctly allowed the ex-parte presentation of evidence because petitioner's non-appearance at the pre-trial was unjustified, the motion for postponement having failed to substantiate its claim with pertinent proof such as a case number or calendar of hearing.
• Substantial Breach of Contract: Respondent argued that petitioner repeatedly failed to comply with her obligations under the lease contract despite repeated demands, specifically the failure to maintain the lessee in peaceful and adequate enjoyment of the lease, warranting rescission and damages.

• Pre-trial Non-appearance: Whether the trial court correctly allowed the ex-parte presentation of evidence and rendered judgment based thereon due to the defendant's non-appearance at the pre-trial conference.
• Rescission of Lease: Whether the lessor's failure to address the delay in the billboard construction and the unpaid MERALCO bills constituted a substantial breach warranting the rescission of the lease contract under Article 1659 of the Civil Code.
• Legal Interest: Whether the imposition of legal interest on the monetary award was proper.

• Pre-trial Non-appearance: The ex-parte presentation of evidence was proper. Under Section 5, Rule 18 of the Rules of Court, a defendant's failure to appear at the pre-trial allows the plaintiff to present evidence ex-parte. The trial court did not abuse its discretion in denying the motion to reset because the motion merely alleged that counsel had a hearing in another branch without substantiating it with the case number or calendar of hearing. No denial of due process occurred, as the essence of due process is the reasonable opportunity to be heard, which petitioner was afforded but failed to utilize.
• Rescission of Lease: Rescission was justified. A lease is a reciprocal obligation where the lessor must deliver the thing in a condition fit for its intended use and maintain the lessee in peaceful and adequate enjoyment. Sy's indifference to Andok's repeated requests to expedite the billboard construction violated her obligation to maintain peaceful enjoyment. The contractual stipulation regarding the billboard was conditioned upon approval to avoid disruption of Andok's operations; thus, Sy could not claim Andok's assumed the risk of unreasonable delay. The unpaid MERALCO bills further demonstrated Sy's failure to render the premises fit for use, constituting a substantial breach of the contract's fundamentals.
• Legal Interest: The imposition of legal interest was correct. Pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals, an interest of 6% per annum applies to the adjudged amount from the date of the trial court's judgment on July 24, 2008, as the damages were thereby established with reasonable certainty. A 12% per annum interest applies from the finality of the judgment until its satisfaction.

• Effect of Failure to Appear at Pre-trial — Under Section 5, Rule 18 of the 1997 Rules of Civil Procedure, the failure of the defendant to appear at the pre-trial conference authorizes the plaintiff to present evidence ex-parte and the court to render judgment on the basis thereof. A motion for postponement must be substantiated by valid cause; a mere allegation of counsel's engagement in another hearing, without proof such as a case number or calendar of hearing, does not constitute a valid excuse.
• Lessor's Obligation to Maintain Peaceful Enjoyment — The lessor is obliged to maintain the lessee in the peaceful and adequate enjoyment of the lease for its entire duration. This obligation requires the lessor to ensure that enjoyment is not interrupted by the lessor's own acts or by the acts of others, including co-tenants. Indifference to a lessee's repeated requests to address obstructive construction by another tenant constitutes a breach of this obligation.
• Rescission of Lease Contract — Under Article 1659 in relation to Articles 1654 and 1191 of the Civil Code, the aggrieved party in a lease contract may ask for rescission and indemnification for damages if the lessor fails to comply with the obligation to deliver the thing fit for its intended use or to maintain the lessee in peaceful and adequate enjoyment. The remedies available are: (1) rescission of the contract; (2) rescission and indemnification for damages; or (3) only indemnification for damages, allowing the contract to remain in force.

• "The lessor must see that the enjoyment is not interrupted or disturbed, either by others' acts x x x or by his own. By his own acts, because, being the person principally obligated by the contract, he would openly violate it if, in going back on his agreement, he should attempt to render ineffective in practice the right in the thing he had granted to the lessee; and by others' acts, because he must guarantee the right he created, for he is obliged to give warranty x x x and, in this sense, it is incumbent upon him to protect the lessee in the latters’ peaceful enjoyment."
• "While Andok’s agreed to allow MediaPool, Inc. to construct a billboard structure but it was conditioned on Andok’s and the lessor’s approval to avoid disruption of its business operation. Sy is thus cognizant of the fact that the said billboard structure construction might disrupt, as it already did, the intended construction of respondent’s outlet."

• Philippine American Life & General Insurance Company v. Enario, G.R. No. 182075 (September 15, 2010) — Followed. Cited to support the proposition that the essence of due process is the reasonable opportunity to be heard and submit evidence; where such opportunity is accorded, there is no denial of procedural due process.
• CMS Investments and Management Corporation v. Intermediate Appellate Court, 223 Phil. 294 (1985) — Followed. Cited for Manresa's commentary on the lessor's obligation to maintain the lessee in peaceful and adequate enjoyment of the lease, requiring the lessor to protect the lessee from interruptions caused by the lessor's own acts or the acts of others.
• Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412 (July 12, 1994) — Followed. Applied to determine the proper imposition of legal interest: 6% per annum on damages from the date of judgment establishing the claim with reasonable certainty, and 12% per annum from the finality of the judgment until its satisfaction.

• Section 4, Rule 18, 1997 Rules of Civil Procedure — Requires the parties and their counsel to appear at the pre-trial. Non-appearance may be excused only if a valid cause is shown or a fully authorized representative appears. Applied to emphasize the mandatory nature of pre-trial appearance.
• Section 5, Rule 18, 1997 Rules of Civil Procedure — Provides that the failure of the defendant to appear at the pre-trial shall be cause to allow the plaintiff to present evidence ex-parte and the court to render judgment on the basis thereof. Applied to justify the trial court's ex-parte reception of evidence and subsequent judgment.
• Article 1191, Civil Code — Provides the power to rescind obligations in reciprocal contracts in case one obligor does not comply with what is incumbent upon him. Applied to recognize rescission as a remedy in the lease contract.
• Article 1654, Civil Code — Enumerates the obligations of the lessor, including delivering the thing fit for its intended use and maintaining the lessee in peaceful and adequate enjoyment of the lease. Applied to define the obligations breached by Sy.
• Article 1657, Civil Code — Enumerates the obligations of the lessee. Cited in relation to the remedies available under Article 1659.
• Article 1659, Civil Code — Provides that if the lessor or lessee fails to comply with obligations under Articles 1654 and 1657, the aggrieved party may ask for rescission and indemnification for damages, or only the latter. Applied as the direct legal basis for granting rescission and damages to Andok's.

Carpio, A.T. (Chairperson), Brion, A.D., Del Castillo, M.C., and Abad, R.A.