G.R. No. 96825 - Rava Development Corp. vs. Court of Appeals

On February 16, 1983, RAVA Development Corporation (RAVA) and Wheels Distributors, Inc. (WHEELS) executed a lease contract over a parcel of land at No. 3, Aurora Boulevard, Quezon City, which included existing buildings and improvements.
A key stipulation of the lease provided that its term would run from February 16, 1983, until midnight on February 15, 1988, with the provision that any extension must be mutually agreed upon under new conditions. In case of sale, the lessee had a right of first refusal.
On August 1, 1985, RAVA and Frabal Fishing and Ice Plant Corporation (FRABAL) merged for the purpose of economic stability and efficiency. Consequently, RAVA was absorbed by FRABAL, and the leased premises were transferred to FRABAL.

On January 4, 1988, FRABAL informed WHEELS that upon expiration of the lease, the new monthly rental would be set at P75,000.00 for the first year with a 5% yearly escalation for the following four years.
WHEELS expressed its desire to renew the lease for another five years; however, it contended that a 200% increase in rental was unreasonable and requested reconsideration of the proposed adjustment.
On February 11, 1988, WHEELS exercised its so-called "right of first refusal" by notifying both RAVA and FRABAL regarding its intent.
On February 15, 1988, FRABAL, replying by letter, denied the request to exercise the right of first refusal, stating that the merger did not constitute a sale and lacking mutual agreement on the rental increase, it considered the lease terminated effective February 16, 1988.
On the same day, FRABAL communicated that if WHEELS did not accept the rental adjustment deemed fair based on two real estate appraisals, WHEELS was free to vacate the premises.
Subsequently, WHEELS, through counsel, indicated its willingness to seek an amicable settlement.

On February 15, 1988, WHEELS filed a complaint for specific performance and damages before the Regional Trial Court, Branch 96, Quezon City, challenging:

The transfer of lease rights without allowing the exercise of its right of first refusal.
The excessive and unjustified increase in rental.
Additional claims for damages and other reliefs including a request that courts compel acceptance of rentals consigned in court.

A temporary restraining order (TRO) was issued on March 1, 1988, by Judge Lucas P. Bersamin to prevent the ejectment of WHEELS and to require the parties to appear and show cause regarding the preliminary injunction.
On March 14, 1988, during a hearing, the TRO was elevated to a writ of preliminary injunction, directing RAVA and FRABAL to maintain the status quo pending the resolution of the case.
Following various pleadings and motions, including opposition from RAVA and FRABAL and subsequent filings by WHEELS:

On November 25, 1988, Judge Bersamin granted a motion to dismiss the complaint for lack of a cause of action and simultaneously lifted the writ of preliminary injunction.
WHEELS filed a motion for reconsideration, and on December 20, 1988, the writ of preliminary injunction was reinstated ex parte.
On May 5, 1989, after reconsideration, the trial court set aside its earlier dismissal and reiterated the injunction.

On July 3, 1989, RAVA and FRABAL filed a petition for certiorari and prohibition with the Court of Appeals, challenging the orders of reinstatement of the preliminary injunction on the ground of grave abuse of discretion and lack of jurisdiction.
On March 28, 1990, the Court of Appeals annulled the orders of December 20, 1988, and May 5, 1989.
However, on January 8, 1991, upon motion for reconsideration by WHEELS, the Court of Appeals reversed its previous ruling, holding that courts cannot extend their review beyond the allegations contained in the complaint when ruling on a motion to dismiss for lack of a cause of action.
RAVA and FRABAL then elevated the case to the Supreme Court via petition for review on certiorari.

Whether the court erred in affirming the principle that in motions to dismiss for lack of a cause of action, only the allegations contained in the complaint are to be considered, without resorting to external evidence or pleadings filed subsequently.

The petitioners argued that all pleadings, including annexes, motions, and evidence on record, should be appraised since an answer had already been filed, thereby converting the motion to dismiss into a motion for judgment based on the pleadings.
The issue revolves around the appropriate scope of the court's consideration of the pleadings in determining the existence of a cause of action.

Whether the issuance and later reinstatement of the writ of preliminary injunction violated due process and improperly altered the existing juridical relationship between the parties.

The petitioners contended that reinstating the writ ex parte deprived them of the opportunity to be heard.
The question also involves whether the preliminary injunction genuinely maintained the status quo or whether it imposed a new relationship between the contracting parties.