G.R. No.

183794, June 13, 2016

Spouses Poon vs. Prime Savings Bank
Sereno, J.

Facts:

The Spouses Jaime and Matilde Poon (petitioners) owned a commercial building leased to Prime Savings Bank
(respondent) for 10 years. An advance payment covering the first 100 months' rent was made by the respondent. The
contract included a clause stating that all advance rentals would be forfeited in favor of the lessors if the premises were
vacated by the lessee. The Bangko Sentral ng Pilipinas (BSP) later placed the respondent under receivership, leading to the
business's closure and the vacating of the leased premises. The Philippine Deposit Insurance Corporation (PDIC), acting for
the respondent, demanded the return of the unused advance rental, which the petitioners refused. The respondent then
filed a case for the partial rescission of the contract and recovery of the sum of money.

RTC Ruling:

The Regional Trial Court (RTC) of Naga City ordered the partial rescission of the penal clause in the lease contract and
directed the petitioners to return one-half of the unused portion of the advance rentals to the respondent.

Court of Appeals Ruling:

The Court of Appeals (CA) affirmed the RTC decision but clarified that the closure of the respondent's business was not a
fortuitous event. It held that the forfeiture clause in the contract was penal in nature, and applying Article 1229 of the Civil
Code, it was proper to reduce the penalty given the partial performance of the obligation by the respondent.

Issue:

Whether the respondent may be released from its contractual obligations due to the closure of its business being a
fortuitous event or unforeseen event; whether the forfeiture clause is penal in nature; and whether the penalty agreed
upon can be equitably reduced.

Supreme Court Ruling:

The Supreme Court denied the petition, sustaining the CA's decision with modifications. The Court ruled that the closure
of the respondent's business was neither a fortuitous nor an unforeseen event that would render the lease agreement
void. It further affirmed that the forfeiture clause was penal in nature and that the reduction of the penalty was warranted
under Article 1229 of the Civil Code. The Court applied legal interest at the rate of 6% per annum on the monetary award
from the finality of the decision until full payment, emphasizing the need for equity and fairness to the parties involved
and the interests of innocent creditors and depositors of the respondent bank.