G.R. No.

190512 June 20, 2018

D.M. RAGASA ENTERPRISES, INC., Petitioner, v. BANCO DE ORO, INC. (FORMERLY EQUITABLE PCI
BANK, INC.), Respondent.

CAGUIOA, J.

Ragasa filed a petition against the bank for payment of monthly rentals of the remaining term of
the lease contract pre-terminated by the bank.

FACTS:

Ragasa and then Equitable Banking Corporation (Equitable Bank) executed a Contract of Lease, as
lessor and lessee, respectively, over a commercial building for a period of five years. Pursuant to the lease
contract, Equitable Bank paid amounts representing three months advance rentals and another three
months rentals as security deposit.

Equitable Bank entered into a merger with Philippine International Bank thereby forming
Equitable PCI Bank, Inc., which eventually, pending the present case, merge with Banco de Oro, Inc. to
form the respondent bank.

As a result of this merger, the bank closed and joined branches of its constituents which were in
close proximity, including the branch located in the subject premises. The bank sent notice, informing
Ragasa that the former was pre-terminating their lease contract. Ragasa responded with a demand letter
for payment of monthly rentals of remaining term of the lease contract, inasmuch as there is no express
provision allowing pre-termination. The bank countered that its only liability is the forfeiture of its security
deposit pursuant to the provision in their contract, and thereafter vacated the subject premises.

Ragasa filed with the RTC for the collection of the sum and damages, arguing that the forfeiture
of the bank’s security deposit did not exempt it from payment of rentals of the remaining term of the
lease because the act of pre-terminating was a major breach of its terms. Bank replied that the provision
Ragasa was pertaining was actually a penal clause, which replaced the damages and interests in case of
breach. The RTC ruled in favour of Ragasa. The CA however reversed for lack of legal basis, stating that
bank indeed breached the provision of the contract, but to allow Ragasa to collect the value of the
unexpired term would constitute unjust enrichment.

ISSUE:

Is the bank liable for its act of pre-terminating the Contract of Lease?

RULING:

The Court ruled that Ragasa is not entitled to the rental for the unexpired period of the lease
contract, and it is only entitled to the forfeiture of the full deposit and the amount stipulated as attorney’s
fees pursuant to the provisions in the contract.

Entitlement to rentals after the termination of the lease pursuant to an automatic rescission or
termination clause is possible in the case where the lessor invokes the clause and the lessee refuses to
vacate the premises. The lessee shall then be liable for damages of its possession from the termination
of the lease until he vacates the premises. The bank did not continue to possess the leased premises
after its automatic termination, as it vacated the same.

DOCTRINE:

Entitlement to rentals after the termination of the lease pursuant to an automatic rescission or
termination clause is possible in the case where the lessor invokes the clause and the lessee refuses to
vacate the premises.