Chua v. Victorio
REITERATIONFacts
The Antecedents: Respondent Mutya Victorio, owner of commercial units, filed ejectment cases against petitioners Leonardo Chua and Heirs of Yong Tian, occupants of said units. An earlier ejectment case was settled via a compromise agreement, which stipulated rental increases every four years, not exceeding 25% every four years, and payment of accrued differentials within one year. In September 1994, respondent demanded a 25% rental increase based on a survey. Petitioners refused, leading to new unlawful detainer cases. These were dismissed by the MTCC and RTC but reversed by the Court of Appeals, which ordered ejectment. The decision became final and executory, and writs of execution were issued. Petitioners moved to quash, claiming supervening events and having acceded to the rental increase. The MTCC found that petitioners had paid the increased rentals even before the Court of Appeals decision became final, and respondent accepted these payments. The MTCC quashed the writs, a decision affirmed by the Supreme Court on procedural grounds. Petitioners remained in possession. Procedural History: On October 10, 1998, respondent demanded a significant rental increase (from P6,551.25 to P15,000.00 per unit), which petitioners refused, deeming it beyond the allowable increase under the compromise agreement. Respondent filed new ejectment cases (Civil Cases Nos. 21-2761 and 21-2762). The MTCC dismissed these complaints. On appeal, the RTC initially reversed but later affirmed the MTCC's dismissal. Respondent appealed to the Court of Appeals, which reversed the RTC's order, ruling that the compromise agreement was abrogated by petitioners' refusal to pay the 1994 increased rentals. The CA held that the acceptance of increased rentals created a new monthly lease agreement under Article 1687 of the Civil Code, allowing the lessor to increase rents monthly. The CA granted petitioners one year to vacate. Petitioners' motion for reconsideration was denied. The Petition: Petitioners seek review, arguing the compromise agreement still governs their lease relationship and that the demanded rental increase was invalid. They invoke a prior Supreme Court Resolution in a similar case involving the same lessor.
Issue(s)
Whether the compromise agreement continues to govern the lease relationship between the parties. Whether the lessor is entitled to demand a rental increase beyond the terms stipulated in the compromise agreement, and whether the acceptance of increased rentals by the lessor created a new lease agreement and, if so, what its terms are. Whether the prior Supreme Court Resolution in G.R. No. 148262 is determinative of the issues in the present case. Whether the period to vacate should be modified.
Ruling
The petition is denied. The decision of the Court of Appeals is affirmed with modification, ordering petitioners to vacate the premises one month after finality of the decision and to pay monthly compensation for the use of the premises.
Ratio Decidendi
On the continued validity of the compromise agreement: The Court held that the compromise agreement was abrogated when petitioners refused to pay the increased rentals in 1994, and respondent initiated ejectment suits. This refusal and subsequent legal action severed the lessor-lessee relationship governed by the compromise agreement. The Court clarified that while judicial action is ordinarily required for rescission under Article 1191 of the Civil Code, in lease agreements, Article 1673, read in conjunction with Rule 70, Section 2 of the Rules of Court, grants the lessor the option to extrajudicially terminate the lease by serving written notice. This extrajudicial termination has the same effect as rescission. The Court cited Vda. de Pamintuan v. Tiglao and Dio v. Concepcion to support the principle that non-payment of rent allows the lessor to elect to treat the contract as rescinded, and this right can be enforced in an unlawful detainer action without a separate rescission suit. On the effect of accepting increased rentals and the creation of a new lease agreement: The Court ruled that the lessor's acceptance of the increased rentals did not revive the earlier contract of lease. Instead, it created an entirely new contract of lease, forging a new juridical relation. Since the payment of rentals in this new contract was made on a monthly basis, Article 1687 of the Civil Code became applicable. This article provides that if the rent is paid monthly and no period is set, the lease is considered to be from month to month. Consequently, the lessor was within her rights to increase the rental of her properties each month, subject to existing laws. Upon petitioners' refusal to acquiesce to the new rental demand, the contract of lease was once more terminated, giving the respondent the right to demand that petitioners vacate. On the applicability of the prior Supreme Court Resolution: The Court found that the Resolution in G.R. No. 148262, invoked by petitioners, had no relevance to the parties in the present case. The Court emphasized that the parties herein are bound by res judicata in the concept of "conclusiveness of judgment" under Rule 39, Section 47 of the Rules of Court. The earlier final and executory decisions of the Court of Appeals ordering ejectment in Civil Cases No. II-370 and II-371 were premised on the severance of the lessor-lessee relationship. This severance necessarily involved a conclusive determination that the compromise agreement no longer governed the parties' relation. Therefore, the issue of the continued validity of the compromise agreement had already been decisively settled and became conclusive on the parties. On the modification of the period to vacate: While the Court of Appeals granted petitioners one year to vacate in the exercise of equity jurisdiction, the Supreme Court found this unnecessary given the time that had already elapsed since the CA decision. The Court modified the period to vacate to one month after the finality of its decision, deeming it sufficient time for petitioners to wrap up their business affairs.
Main Doctrine
The refusal of lessees to pay increased rentals demanded by the lessor, which is within the lessor's rights under a subsequently formed monthly lease agreement, constitutes a breach of contract, entitling the lessor to demand ejectment. Acceptance of increased rentals by the lessor does not revive a previously terminated contract but creates a new lease agreement, which, if monthly, allows for periodic rental adjustments.