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RCJ BUS LINES v. MASTER TOURS

FACTS:

Respondent Master Tours and Travel Corporation (Master Tours) entered into a five-year lease agreement with petitioner RCJ Bus Lines, Incorporated (RCJ) on February 9, 1993. The lease covered four Daewoo air-conditioned buses that were described as "presently junked and not operational." The lease amount was P600,000.00, with P400,000.00 payable upon signing and P200,000.00 payable after the rehabilitation of the buses. The agreement was signed by the respective parties' representatives.

After more than four years into the lease, on June 16, 1997, Master Tours demanded the return of the four buses, which were stored in RCJ's garage, so that it could settle its obligation with creditors. RCJ did not comply with the demand.

On January 16, 1998, Master Tours wrote another letter to RCJ, demanding the return of the buses and payment of the unpaid lease fee amounting to P600,000.00 since 1993. RCJ responded through counsel on February 2, 1998, stating that it had no obligation to pay the lease fee and that it would only return the buses after Master Tours pays the storage fees. As a result, Master Tours filed a collection suit against RCJ before the Regional Trial Court (RTC).

RCJ argued in defense that there was a modification of the lease agreement into a contract of deposit, wherein Master Tours agreed to pay storage fees of P4,000.00 a month. RCJ cited Master Tours' letter from June 16, 1997, where it acknowledged that the buses were brought to RCJ's garage for "safekeeping."

The RTC ruled on November 5, 2001, ordering RCJ to pay Master Tours P600,000.00 as the lease fee with interest, attorney's fees, and costs. The lower court rejected RCJ's claim of novation from a lease agreement to a contract of deposit since there was no proof of Master Tours' consent to such a change.

On appeal, the Court of Appeals (CA) affirmed the RTC decision in its entirety. The CA also denied RCJ's motion for reconsideration. Thus, RCJ filed the present petition for review.

ISSUES:

  1. Whether or not the Court of Appeals erred in holding that there had been no novation in the agreement of the parties from one of lease of the buses to one of deposit of the same;

  2. Assuming absence of novation, whether or not the Court of Appeals erred in ruling that RCJ can be held liable for rental fee notwithstanding that the buses never became operational; and

  3. Whether or not the Court of Appeals erred in affirming the Regional Trial Court's award of P50,000.00 in attorney's fees plus cost of suit against RCJ.

RULING:

  1. The Court of Appeals did not err in holding that there had been no novation in the agreement of the parties from one of lease of the buses to one of deposit of the same;

  2. The Court of Appeals did not err in ruling that RCJ can be held liable for rental fee notwithstanding that the buses never became operational; and

  3. The Court of Appeals did not err in affirming the Regional Trial Court's award of P50,000.00 in attorney's fees plus cost of suit against RCJ.

PRINCIPLES:

  • Novation requires the mutual consent of the parties and the substitution of a new obligation for the old one, which must be extinguished.

  • The non-operation of the buses does not absolve RCJ from its obligation to pay the lease fee.

  • The award of attorney's fees and cost of suit is discretionary upon the court based on certain circumstances, such as when the defendant acted in gross and evident bad faith.