G.R. No. L-31920 - Limpan Investment Corp. vs. Lim Sy

Case Summary (G.R. No. L-31920)

Lease History and Prior Litigation

Lim Sy had occupied the leased premises beginning 1953, when the property was then owned and registered in the name of Isabelo P. Lim, and he continued occupation continuously up to the time of the later suit. In August and September 1953, he paid a monthly rental of P400 for each door or P800 for the entire leased premises. From October to the end of 1953, the rental was reduced to P350 per door. Beginning 1954, Lim Sy requested a further reduction, but no agreement was reached.

On October 5, 1954, Isabelo P. Lim filed in the Municipal Court of Manila an action for ejectment and for payment of rental at P800 a month until Lim Sy vacated. After trial, the Municipal Court dismissed the complaint. Isabelo P. Lim appealed to the Court of First Instance of Manila, where a trial de novo was held. The Court of First Instance rendered judgment for Lim Sy: it denied the ejectment prayer but ordered Lim Sy to pay rental at P361 a month for the two doors beginning January 1, 1954.

Isabelo P. Lim then appealed to the Court of Appeals, which on April 22, 1957 affirmed denial of ejectment and modified the rental to P300 per door or P600 total. Lim Sy thereafter paid rentals regularly on the basis of that appellate ruling. In July 1959, however, notice was given that rentals beginning August 1959 would be increased to P750 a month. Lim Sy refused to pay the increased amount and instead paid only the “reasonable compensation” fixed by the Court of Appeals.

On October 30, 1959, Limpan Investment Corporation and Isabelo P. Lim, as joint owners, filed an ejectment action in the Municipal Court of Manila, docketed as Civil Case No. 72309, alleging refusal to pay the increased rental of P750 a month. Lim Sy moved to dismiss, invoking res judicata based on the earlier Court of Appeals decision. On December 24, 1959, the Municipal Court sustained the motion to dismiss and dismissed the ejectment case. Neither Limpan Investment Corporation nor Isabelo P. Lim appealed the order of dismissal, and it became final. Lim Sy continued to occupy the premises and pay the rentals due.

Termination Notice and the Second Ejectment Suit

On June 25, 1963, Limpan Investment Corporation claimed to be the sole owner and sent Lim Sy a letter terminating his monthly lease effective June 30, 1963 and requesting restoration of possession in good habitable condition. The letter stated that if Lim Sy desired to continue occupation beyond that date, he would have to pay P950 monthly rent effective July 1, 1963 until he vacated, with a recommendation to avoid a detainer suit by vacating on June 30, 1963. On July 3, 1963, counsel for Lim Sy replied, informing Limpan Investment Corporation that Lim Sy was not agreeable to paying the increased rental of P950 a month but would continue paying the same rate fixed by the Court of Appeals.

On August 21, 1963, Limpan Investment Corporation filed an ejectment action in the City Court of Manila, praying for Lim Sy’s ejectment and for payment of monthly rental at P950, beginning July 1, 1963, should Lim Sy continue occupancy until he vacated. Lim Sy moved to dismiss on the ground that the action was barred by prior judgments. The City Court denied the motion and Lim Sy raised res judicata as a special defense. After trial, the City Court dismissed the complaint on the ground that the Court of Appeals decision in CA-G.R. No. 17476-R, fixing the reasonable rental at P600 a month, and the Municipal Court order in Civil Case No. 72309 dismissing the earlier ejectment case, constituted res judicata to the present action.

Rulings in the Lower Courts and the Court of Appeals

From the City Court’s dismissal, the plaintiff appealed. The Court of Appeals affirmed. It held that the present action was brought to nullify and set at naught CA-G.R. No. 17476-R because the lessor did not need the premises and the apparent purpose of the termination notice was to collect a higher rental of P950 a month. The Court of Appeals further found no change in the condition of the premises and no revision of the real estate tax assessment that would justify a reexamination of rental reasonableness. It stated that if any change were warranted, it should be a reduction rather than an increase. It also sustained the award of P500 attorney’s fees, reasoning that Lim Sy had been compelled to incur unnecessary expenses of litigation due to the plaintiff’s unreasonable act.

The Court of Appeals’ ruling thus left in place the dismissal of petitioner’s ejectment complaint and the attorney’s fees and costs adjudged below. Petitioner then elevated the matter by petition for review on certiorari.

Issues Framed for Review

The petition presented two principal issues: first, whether a lessor could terminate a month-to-month lease upon oral and written notice of termination and proceed with ejectment; and second, whether res judicata applied to bar the later ejectment action. Petitioner contended that the Court of Appeals erred in treating the action as a mere attempt to increase rent rather than to terminate a month-to-month lease, and it likewise challenged the application of res judicata, as well as the attorney’s fees award.

The Court’s Legal Reasoning on Termination and Increased Rent

The Court held that petitioner’s petition was impressed with merit and applied the Civil Code, explaining that the case was “transpired in 1970” and thus fell outside Republic Act 6359. The Court emphasized a “clear and indubitable right” of the lessor to eject the lessee once the period of the lease expired at the end of every monthly period. The Court reasoned that because rentals were paid monthly in advance and the lease terms, whether oral or written, were clear, the lease was renewed from month to month unless sooner terminated upon due notice.

Respondent argued that the termination effective June 30, 1963 was a mere device to raise rentals effective July 1963. The Court rejected this view by invoking settled doctrine: the owner had the right both to terminate the lease at the expiration of its term and to demand a new rate of rent. The tenant had the option either to accept the new rent or vacate the premises. If the tenant refused to accept the new rent or vacate after termination, the tenant became a deforciant and could be ousted judicially without the need of a separate demand, citing Art. 1669 of the Civil Code and the line of cases including Iturralde vs. Alfonso, Iturralde vs. Evangelista, Iturralde vs. Magcauas, Cortez vs. Ramos, and Co Tiamco vs. Diaz.

In support of this principle, the Court cited Bulahan et al. vs. Tuazon, et al. and Roxas vs. Alcantara, and reiterated that only the owner had the right to fix rents and that the Court could not determine rents and compel the lessor to conform thereto while allowing continued occupancy on the rents fixed by the lessee. The Court likewise referenced Lim Bi vs. him (as quoted in Roxas vs. Alcantara) for the same proposition.

The Court’s Ruling on Res Judicata

The Court also rejected respondent’s argument that the earlier Court of Appeals ruling fixing rental at P600 and the dismissal of

Case Syllabus (G.R. No. L-31920)

Parties and Procedural Posture

Limpan Investment Corporation filed a petition for review on certiorari seeking reversal of the Court of Appeals decision in CA-G.R. 35152-R and the resolution denying reconsideration in the same case.
The Court of Appeals had affirmed the Court of First Instance of Manila decision dismissing Limpan Investment Corporation’s unlawful detainer complaint against Lim Sy.
The petition sought to set aside both the appellate affirmance and the denial of the Motion for Reconsideration dated April 14, 1970.
The Court of Appeals treated the controversy as involving both the propriety of lease termination and the applicability of res judicata.
Yap (Chairman), Melencio-Herrera, and Sarmiento, JJ., concurred, and Padilla, J., took no part.

Key Factual Background

Lim Sy was a lessee of premises Nos. 706-708 Misericordia Street, City of Manila, in a building owned by Limpan Investment Corporation.
Lim Sy originally occupied the premises beginning 1953, when the property was then owned and registered in the name of Isabelo P. Lim, and he continued occupancy up to the case.
For the initial period in 1953, Lim Sy paid P400 per door or P800 for the entire leased premises.
For the remainder of 1953, the rental was reduced to P350 per door after the reduction.
Beginning 1954, Lim Sy requested a further rental reduction, but no agreement was reached with the building owner.
On October 5, 1954, Isabelo P. Lim filed an action in the Municipal Court of Manila (Civil Case No. 33492) for ejectment and for Lim Sy to pay rental at the rate of P800 a month until he vacated.
The Municipal Court of Manila dismissed the complaint, and Isabelo P. Lim appealed to the Court of First Instance of Manila.
After a trial de novo, the Court of First Instance of Manila denied ejectment but ordered payment of rental at P361 a month for the two doors beginning January 1, 1954.
Isabelo P. Lim appealed to the Court of Appeals, which on April 22, 1957 affirmed denial of ejectment but fixed the monthly rental at P300 per door or P600 total.
Based on the Court of Appeals ruling, Lim Sy paid rentals regularly until July 1959, when he received notice that rentals would increase to P750 a month starting August of that year.
Lim Sy did not pay the increased rental and instead paid only the monthly amount he considered reasonable based on the Court of Appeals determination.
On October 30, 1959, Limpan Investment Corporation and Isabelo P. Lim, as joint owners, filed Civil Case No. 72309 in the Municipal Court of Manila seeking ejectment due to nonpayment of P750 a month.
Lim Sy moved to dismiss on the ground that the Court of Appeals decision was res judicata, and the Municipal Court sustained the motion.
No appeal was taken from the dismissal order in Civil Case No. 72309, and it became final.
After the dismissal, Lim Sy continued to occupy the premises and continued paying rentals based on the prior Court of Appeals determination.
On June 25, 1963, the Limpan Investment Corporation claimed sole ownership and notified Lim Sy that the monthly lease would be terminated effective June 30, 1963, and that continued occupation required payment of P950 monthly rent effective July 1, 1963 until he vacated.
Lim Sy’s counsel replied on July 3, 1963 that Lim Sy was not agreeable to pay the increased rental of P950 but would continue paying the rate fixed by the Court of Appeals.
On August 21, 1963, Limpan Investment Corporation filed an action in the City Court of Manila praying for ejectment and for payment of monthly rental at P950 beginning July 1, 1963 if Lim Sy continued occupying.
The City Court of Manila denied a motion to dismiss and proceeded to trial, eventually dismissing the complaint on the ground that a prior Court of Appeals decision fixing rental at P600 and the earlier dismissal in Civil Case No. 72309 constituted res judicata.
On appeal, the Court of Appeals agreed with the lower court that the present action effectively attempted to annul the earlier Court of Appeals decision, and it found no factual basis to revise the reasonableness of the rental upward.

Issues Raised

The case posed the issue of whether the lessor could terminate a month-to-month lease upon oral and written notice of termination and notice to vacate.
The case also posed the issue of whether the rule of res judicata applied to bar the second ejectment action.
A related issue involved whether the lessor could impose a new rental rate after notice of termination on a month-to-month arrangement.
Another issue concerned the propriety of the award of P500 for attorney’s fees against the lessor.

Statutory and Doctrinal Framework

The decision treated the applicable law as the Civil Code, because the controversy arose in 1970, which was not covered by Republic Act 6359, approved and effective in 1971.
The Court relied on doctrine recognizing a lessor’s right to terminate a lease at the end of each monthly period.
The Court treated the lease renewal as occurring from month to month unless sooner terminated upon due notice.
The Court invoked Art. 1669, New Civil Code, in describing the consequence of refusal by lessees to accept the new rent or vacate after termination.
The Court emphasized that rental payments were monthly and advance, aligning the lease period with monthly cycles.
The Court treated the tenant’s failure to vacate after termination and refusal to pay the new rent as sufficient basis to allow judicial ouster.

Contentions of the Parties

Limpan Investment Corporation argued that the lower courts erred in characterizing the action as aimed to increase rent rather tha