~epublic of tbe ,f,bilippines

~upreme <!Court
;fflllanila

FIRST DIVISION

NOTICE

Sirs/Mesdames:

Please take notice that the Court's First Division issued a Resolution
dated August 9, 2023 which reads as follows:

"G.R. No. 189370 (Maun/ad Construction and Developmen

Corporation vs. Bargain Specialists, Inc.); and G.R. No. 20879
(Maun/ad Construction and Development Corporation, represented b
Nemencio C. Pulumbarit, Sr. vs. The Province of Bulacan and Bargai
Specialists, Inc.). - Before the Court are two consolidated 1 Appeals 2 b
certiorari. Both cases arose out of the petition/complaint for prelimina
injunction with prayer for the issuance of a temporary restraining orde
(TRO) and for declaration of nullity of lease agreement filed by Maunla
Construction and Development Corporation (petitioner) against th
Provincial Government of Bulacan (PGB) and Bargain Specialists, Inc. (BS
before the Regional Trial Court of Malolos City, Branch 9 (RTC), dockete
as Civil Case No. 641-M-2005.

The first appeal, docketed as G.R. No. 189370 in this Court, seeks t
reverse and set aside the August 28, 2009 Decision 3 of the Court of Appeal
(CA) in CA-G.R. CV No. 88477. The CA denied the appeal assailing th
April 7, 2006 4 and July 14, 2006 5 Orders of the RTC, which granted th
motion to dismiss filed by BSI and dismissed the complaint as against th
latter.

By virtue of the Reso lution dated December 4, 2013; rollo (G.R. No . 189370), p. 165 and rollo (G.
No. 208798), p. 12 I.
Rollo (G.R. No. 189370), pp. 29-56; rollo (G.R. No. 208798), pp. 28-51.
Rollo (G.R. No. 189370), pp . 14-26; penned by Associate Justice Isaias P. Dicdican and concurred r
by Associate Justices Remedios A. Salazar-Fernando and Romeo F. Barza.
RTC record s, Vol. I, pp. 489-493; penned by Acting Judge Manuel R. Ortiguerra.
Id. , Vol. II, pp. 80-81.

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Notice of Resolution 2 G.R. Nos. 189370 and 208798
August 9, 2023

The second appeal, docketed as G.R. No. 208798, seeks to reverse and
set aside the August 30, 2013 Decision 6 of the CA in CA-G.R. CV No.
96812. The CA affinned the March 15, 2011 Decision 7 of the RTC, which,
after a full-blown trial, dismissed the complaint against the PGB.

The Antecedents

On June 21, 199 5, petitioner entered into a Lease Agreement 8 with the
PGB. The property subject of the lease is a parcel of land located at
MacArthur Highway, Malolos, Bulacan, with an area of 8,653 square meters
and covered by Original Certificate of Title No. 40-2172 (OCT-104) in the
name of the PGB (subject property). 9

The purpose of the lease was to utilize the premises for office and
commercial purposes, for a term of 25 years commencing on June 1, 1995,
renewable upon the mutual agreement of the parties. Petitioner, thereafter,
constructed Maunlad Mall 3 on the subject property and operated the same. 10

During the effectivity of the lease, petitioner failed to pay rentals on

their due dates. Hence, on September 23, 2002, the PGB instituted a
complaint for ejectment against petitioner before the Municipal Trial Court
in Cities, Malolos City, Bulacan, Branch 2 (MTCC), docketed as Civil Case
No. 02-112 (ejectment case). The MTCC decided in favor of the PGB in its
May 20, 2003 Decision, 11 the dispositive portion of which reads:

WHEREFORE, under the premises, judgment is hereby rendered

in favor of the plaintiff by ordering the defendant and his [successor-in-
interest]:

1. To vacate the premises subject matter of the lease agreement

and to deliver the peaceful possession thereof to the plaintiff;

2. To pay the plaintiff [P]S,940,429.92 as rentals in arrears;

3. To pay the plaintiff a rental of[P)91,310.78 per month counted

from September 2002 and every succeeding end of the [month]
thereafter; and

6
Rollo (G.R. No. 208798), pp. 53-66; penned by Associate Justice Sesinando E. Villon and concurred in
by Associate Justices Fiorito S. Macalino and Pedro B. Corales.
RTC records, Vol. Ill , pp. 486-506; penned by Presiding Judge Veronica A. Vicente-De Guzman.
Rollo (G.R. No. 208798), pp. 78-82 .
9
Id. at 54 .
10
Id. at 54-55.
11
MTCC records, Vol. I, pp. 150-153; penned by Judge Nemesio V. Manlangit.

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 Notice of Resolution 3 G.R. Nos. 189370 and 208798
August 9, 2023

4. To pay plaintiff attorney's fees of [P]20,000.00 plus cost of

suit.

SO ORDERED. 12

The trial court ruled, among others, that petitioner failed to pay rentals
due in violation of the terms and conditions of the Lease Agreement, and
that such constituted sufficient ground for the termination of the lease. 13

Dissatisfied, petitioner filed a Notice of Appeal. 14

The PGB filed a Motion for Immediate Execution 15 of the May 20,
2003 Decision, which was granted by the MTCC in an Order 16 dated June
18, 2003. The MTCC ratiocinated that petitioner failed to either file a
supersedeas bond to stay the execution of the judgment, or pay the accrued
rentals. A Writ of Execution 17 was issued by the MTCC on the same date,
but was not implemented. 18

In the meantime, on August 5, 2003, petitioner entered into a Contract

of Lease 19 with BSI over Maunlad Mall 3 for a period of 10 years beginning
September 1, 2003. This contract, a sublease agreement, excluded an area
which petitioner retained to house its offices. 20

On December 10, 2003, petitioner's appeal of the ejectment case was

dismissed due to petitioner's failure to file its appeal memorandum. 21 On
August 26, 2005, the PGB filed before the MTCC a Motion for Issuance of
[an] Alias Writ of Execution.22

On September 21, 2005, petlt10ner instituted a Petition 23 for

preliminary injunction with prayer for the issuance of a TRO against the
PGB before the RTC. This was docketed as Civil Case No. 641-M-2005 and
is the action subject of these appeals.

12
Id. at 153.
13
1d. at l5 2- l 53.
14
ld. at 157.
15
Id.at 158-160.
16
Id. at 16 l.
17
ld .atl62- l63.
18
Rollo (G .R. No. 208798), p. 56 .
19
RTC records, Vol. II, pp. 729-735.
20
Rollo (G.R. No. 208798), p. 56; MTCC records, Vol. II, p. 80.
21
MTCC records, Vol. I, p. 172.
21
Id ., Vol. II , pp . 1-4.
2:1 RTC records, Vol. I, pp. 7-22.

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 Notice of Resolution 4 G.R. Nos. 189370 and 208798
August 9, 2023

Meanwhile, the MTCC granted the motion of the PGB and in its
September 29, 2005 Order, 24 directed the court sheriff to implement the Writ
of Execution earlier issued on June 18, 2003 . Upon service of said Order and
the attached Writ of Execution to BSI, then the sublessee of petitioner, BSI
constructively turned over the subject property through a Letter25 dated
September 30, 2005 addressed to the city sheriff. 26

On October 4, 2005, the PGB and BSI entered into a Lease

Agreement27 over the subject prope1iy.

As a result of this, petitioner filed an Amended Petition/Complaint28

in Civil Case No. 641-M-2005, captioning it as one for "preliminary
injunction with prayer for the issuance of temporary restraining order; and
for declaration of nullity of lease agreement," and impleaded BSI as a
defendant.

On July 20, 2006, the PGB filed before the MTCC an Urgent Ex Parte
Motion to Order the City Sheriff to Fully Implement the Writ of Execution. 29
This was in relation to the refusal of petitioner to vacate its offices located
on the subject property, and its nonpayment of the remaining monetary
obligation in the amount of P2,726,279.96. 30 In an Order31 dated July 27,
2006, the MTCC granted the motion - and issued an Alias Writ of
Execution. 32

In the Sheriffs Report33 dated August 7, 2006, the city sheriff

described that in each of her visits to petitioner's office (DOPS Room) on
the premises to serve the Alias Writ of Execution, the door was always
closed. the PGB moved for the issuance of a break-open order, which the
MTCC granted in its August 11, 2006 Resolution. 34

24
MTCC records, Vol. II, pp. 85-86.
25
Id . at 89.
26
Id. at 78.
27
Id. at 92-99.
28 RTC records , Vol. I, pp. 194-217.
2') MTCC records, Vol. II , pp. 77-84 .
30
Id . at 80.
31
Id. at I 00- IO I.
32
ld.at102-103 .
.1.1 Id. at I 06 .
34
ld.atlll-112 .

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Notice of Resolution 5 G.R. Nos. 189370 and 208798
August 9, 2023

G.R. No. 189370 - Dismissal

of the case against BS/

On December 16, 2005, BSI filed a Motion to Dismiss 35 the complaint

against it.

The RTC Ruling

In its April 7, 2006 Order, the RTC granted the motion to dismiss. The
dispositive portion provides:

WHEREFORE, on the basis of the laws/jurisprudence applicable

thereon, the foregoing Motion To Dismiss is hereby GRANTED. The
case against private respondent/defendant Bargain Specialists, Inc. is
ordered DISMISSED.

SO ORDERED. 36

First, the RTC held that petitioner's representative, Nemencio C.

Pulumbarit (Pulumbarit), was not duly authorized by the Board of Directors
of petitioner to file the Amended Petition/Complaint against BSI. Pulumbarit
argued that his authority was derived from the board resolution attached to
the original petition, but the RTC observed that such resolution failed to
include any statement authorizing Pulumbarit to institute and pursue action
against BSI. Thus, he had no legal capacity to sign the certification against
forum shopping and he had no capacity to sue BSI in the absence of any
board resolution authorizing him to do so. This, for the RTC, necessitates the
dismissal of the case against BSI. 37

Second, the RTC ruled that the complaint states no cause of action
against BSI. It observed that the May 20, 2003 Decision of the MTCC in the
ejectment case had attained finality. BSI had already turned over and
surrendered the subject property to the PGB. Simply, BSI cannot be blamed
for its reliance on the final judgment of the MTCC. The contract of lease it
entered into with the PGB is but a logical consequence of an exercise of the
right of the PGB as the prevailing party in the ejectment case. BSI violated
no legal right of petitioner. 38

15 RTC records, Vol. I, pp. 421-458.

16
Id. at 493.
37
Id. at 489-490.
18
Id . at 491-492.

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Notice of Resolution 6 G.R. Nos. 189370 and 208798
August 9, 2023

Third, the RTC held that the doctrine of res judicata, pa1iicularly in its
aspect of conclusiveness of judgment, mandates the dismissal of the
complaint against BSI. It noted that, although BSI was not a party in the
ejectment case, the matters determined therein, such as the termination of the
June 21, 1995 lease contract between the PGB and petitioner, as well as the
transfer of ownership of the subject property, are "conclusive as to the
matters adjudged involving herein defendant movant [BSI]." 39

Petitioner filed a motion for reconsideration, which the RTC denied in

its July 14, 2006 Order.

Aggrieved, petitioner filed a Notice of Appeal, 40 elevating the matter

to the CA. The case was docketed as CA-G.R. CV No. 88477.

The CA Ruling

In its August 28, 2009 Decision, the CA denied the appeal and
affirmed the April 7, 2006 and July 14, 2006 Orders of the RTC. Thefallo
reads:

WHEREFORE, in view of all the foregoing premises, the instant

appeal is DENIED and, consequently, DISMISSED and the assailed
orders dated April 7, 2006 and July 14, 2006 issued by the Regional Trial
Court (RTC), Branch 9, in Malolos City in Civil Case No. 641-M-2005
are hereby AFFIRMED.

SO ORDERED. 41

On the alleged lack of authority of Pulumbarit to file the complaint

against BSI, the CA held that his authority to file the Amended
Petition/Complaint was confirmed and ratified by petitioner when it attached
the Board Resolution dated April 20, 2006 to its motion for reconsideration
to the April 7, 2006 Order of the RTC. This constituted substantial
compliance with procedural rules. 42

On the merits, however, the CA agreed with the RTC. It held that the
allegations in the Amended Petition/Complaint did not constitute a cause of
action. The CA observed that petitioner's right had long been dissolved

3') Id. at 492-493.

40
Id . at 84-85 .
41
Rollo (G .R. No. 189370), p. 25 .
41
Id. at 20-2 1.

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Notice of Resolution 7 G.R. Nos. 189370 and 208798
August 9, 2023

when it violated the Lease Agreement with the PGB. Further, the CA agreed
with BSI that the acceptance of rental in arrears does not constitute waiver of
default in the payment of rentals as a valid cause of action for ejectment. The
termination of the Lease Agreement between petitioner and the PGB carried
with it the termination of the sublease contract between petitioner and BSI.
BSI cannot be said to have acted in bad faith against petitioner when it only
observed court processes and orders involving the subject property it
subleased. Finally, assuming the allegations in the Amended
Petition/Complaint are true, the trial court could not render a valid judgment
since petitioner failed to file a sufficient supersedeas bond to stay the
execution of the judgment of ejectment. The Amended Petition/Complaint
also failed to allege facts that would be a valid ground to declare the lease
contract between the PGB and BSI null and void. 43

On the applicability of the doctrine of conclusiveness of judgment, the

CA held that the ejectment case already settled the issue of possession by
petitioner of the subject property. The lease contract between petitioner and
the PGB was deemed terminated due to the violation of the terms and
conditions thereof. Petitioner cannot anymore litigate on the issue of its
rights as a lessee under the original Lease Agreement with the PGB and as a
lessor in its sublease agreement with BSI. The termination of its lease
contract barred petitioner's action to assail the validity of the lease
agreement between the PGB and BSI. 44

Aggrieved, petitioner filed the instant appeal for certiorari before this
Court, docketed as G.R. No. 189370.

G.R. No. 208798 - Dismissal

of the case against the PGB

Meanwhile, the case against the PGB proceeded. The PGB filed a
Motion to Dismiss 45 the action against it on the following grounds: ( 1) the
act sought to be restrained and enjoined has become moot and academic; (2)
the complaint states no cause of action; and (3) the doctrine of res judicata
applies. 46 The RTC deferred the resolution of the motion, allowed petitioner
to finish presenting its evidence, and continued with the main case. 47

43
Id. at 23 .
44 Id. at 23-25.
45
RTC records, Vol. II , pp. 319-336.
46
Id . at 319-320.
47
Id. at 577.

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Notice of Resolution 8 G.R. Nos. 189370 and 208798
August 9, 2023

The RTC Ruling

In its March 15, 2011 Decision, the RTC dismissed the action against
the PGB for want of cause of action. Thefallo reads:

WHEREFORE, finding no valid reason to enJom the acts of

possession or ownership of herein respondent Provincial Government of
Bulacan over the property subject of the Lease Agreement (Exhibit
" C"/Exhibit " l ") executed by and between Maunlad Construction and
Development Corporation and the Province of Bulacan, this case is hereby
DISMISSED for want of cause of action.

SO ORDERED. 48

Preliminarily, the RTC remarked that since the issue of propriety of

he dismissal of the complaint as against BSI was pending before this Cami,
he issues that it must resolve were limited to the following: (1) the propriety
f issuing an order restraining or enjoining the issuance of the alias writ of
xecution by the MTCC; and (2) the propriety of issuing an order restraining
r enjoining the PGB from exercising acts of possession and ownership over
he subject prope1iy in question, including the permanent structures built by
etitioner on the subject property. 49

On the first issue, the RTC held that it is constrained to deny the same
ince the acts sought to be enjoined were already moot and academic. The
TCC had already issued the alias writ of execution, and possession of the
ubject property had already been delivered to the PGB. 50

On the second issue, the RTC ratiocinated that the action before it is
ne for injunction, and thus, it cannot rule on the matter involving the
uilding or mall built by petitioner on the subject property since the case was
ot for recovery of possession. The RTC is limited to determining whether
here is good reason to enjoin the PGB from acts of possession or ownership
ver the subject property. 51

Petitioner argued that the payments it made to the PGB after the
endition of the judgment in the ejectment case established a novation of the
arties' original lease contract. The RTC rejected such claim. It found that

8
Id. , Vol. 111, pp. 505-506.
9
Id . at 501-502.
0
Id. at 502 .
. I Id.

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Notice of Resolution 9 G.R. Nos. 189370 and 208798
August 9, 2023

the communication 52 from Ma. Gladys Sta. Rita (Sta. Rita), the Provincial
Administrator of the PGB, to Pulumbarit does not establish that a new
contract or arrangement was entered into between them. Besides, any new
agreement could not have been valid because it had not been entered into by
the Provincial Governor of Bulacan as the duly authorized representative of
the PGB. Lastly, the RTC held that petitioner merely continued payment of
its arrears under its original Lease Agreement with the PGB. 53

Petitioner again filed a Notice of Appeal. 54 The appeal before the CA

was thereafter docketed as CA-G.R. CV No. 96812.

The CA Ruling

In its August 30, 2013 Decision, the CA affirmed the March 15, 2011
Decision of the RTC. The dispositive portion provides:

WHEREFORE, in light of all the foregoing , the decision dated

March 15 , 2011 of Branch 9, Regional Trial Court of Malolos City,
Bulacan in Civil Case No. 641-M-2005 is hereby AFFIRMED.

SO ORDERED. 55

The CA held that there was no merit to petitioner's appeal. It declared

that petitioner does not have any clear or vested right which warrants the
issuance of an injunction, whether provisionally or permanently. Further,
petitioner seeks to enjoin the execution of the May 20, 2003 Decision of the
MTCC in the ejectment case. However, the same was already executory.
Hence, injunction is no longer a viable recourse for petitioner. Besides, the
act sought to be enjoined - the delivery of the subject property to the PGB -
had already been performed or accomplished. Injunction will not lie
anymore since the act sought to be enjoined had already become fait
accompli or an accomplished act. As regards the validity of the October 4,
2005 Lease Agreement between the PGB and BSI, BSI is an indispensable
party in such issue, and thus, the RTC could no longer rule thereon after it
granted BSI's motion to dismiss. 56

52 Id., Vol. 11 , p. 744.

53
Id., Vol. 111, pp. 503-505.
5
~ Id. at 507-508 .
55
Rollo (G .R. No. 208798), p. 65.
56
Id. at 60-65.

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Notice of Resolution 10 G.R. Nos. 189370 and 208798
August 9, 2023

Dissatisfied, pet1t10ner instituted before this Court the appeal by

certiorari docketed as G.R. No. 208798.

The Issues

In G.R. No. 189370, petitioner raised the following issues:

DID THE COURT OF APPEALS COMMIT A [sic] ORA VE

ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION, WHEN IT CONCLUDED THAT THE
AL LEG A TIO NS OF THE AMENDED PETITION/COMPLAINT TN
CIVIL CASE NO. 641-M-2005 DO NOT CONSTITUTE A VALID
CAUSE OF ACTION AS AGAINST BARGAIN SPECIALISTS, INC.,
ONE OF THE DEFENDANTS THEREIN?

11

DID THE COURT OF APPEALS COMMIT A [sic] ORA VE

ABUSE OF DISCRETION, AMOUNTING TO LACK OR EXCESS OF
JURISDICTION, WHEN IT HELD THAT THE CONTRACT OF
LEASE BETWEEN THE PROVINCIAL GOVERNMENT OF
BULACAN (BULACAN) AND MAUNLAD CONSTRUCTION AND
DEVELOPMENT CORPORATION (MCDC); AND THE CONTRACT
OF LEASE BETWEEN MCDC AND BARGAIN SPECIALISTS, INC.
(BSI) HA VE CEASED TO EXIST; AND THAT THE CONTRACT OF
LEASE BETWEEN BULACAN AND BSI, IS VALID AND
SUBSISTING, WITHOUT THE APPELLATE COURT FIRST
WAITING FOR THE DECISION THEREON OF THE RTC, THEREBY
TRANGRESSING TI-IE RULE ON JUDICIAL HIERARCHY?

III

DID THE COURT OF APPEALS COMMIT A [sic] GRAVE

ABUSE OF DISCRETION, AMOUNTING TO LACK OR EXCESS OF
JURISDICTION, WHEN IT DIGNIFIED, IN EFFECT, THE
IMPLEMENTATION OF THE ALIAS WRIT OF EXECUTION IN THE
EJECTMENT CASE BY THE [MTCC] DESPITE THE CHANGE IN
THE SITUATION OF THE PARTIES WHICH MADE THE
IMPLEMENTATION OF THE ALIAS WRIT OF EXECUTION
INEQUITABLE?

IV

DID THE COURT OF APPEALS COMMIT A [sic] GRAVE

ABUSE OF DISCRETION, AMOUNTING TO LACK OR EXCESS OF
JURISDICITON, WHEN IT RULED THAT THE DECISION OF THE
[MTCC] IN THE EJECTMENT SUIT BARS THE AMENDED

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 Notice of Resolution 11 G.R. Nos. 189370 and 208798
August 9, 2023

PETITION/COMPLAINT IN RTC CIVIL CASE NO. 641-M-2005,

APPL YING THE PRINCIPLE OF RES JUDICATA? 57

In G.R. No. 208798, petitioner raised the following issues:

DID THE COURT OF APPEALS ERR IN SUSTAINING THE

RULING OF THE RTC WHICH DENIED THE PRAYER FOR
INJUNCTION OF PETITIONER ON THE GROUND OF FAIT
ACCOMPLI DESPITE THERE BEING NO VALID DELIVERY OR
SURRENDER OF THE SUBJECT PROPERTY BY PETITIONER TO
RESPONDENT PROVINCIAL GOVERNMENT OF BULACAN?

II

DID THE COURT OF APPEALS ERR IN ADOPTING THE

FINDINGS OF FACT OF THE TRIAL COURT ON THE MERE
PRESUMPTION THAT "FINDINGS OF FACT OF THE TRIAL
COURT ARE ENTITLED TO GREAT WEIGHT ON APPEAL AND
SHOULD NOT BE DISTURBED EXCEPT FOR STRONG AND
VALID REASONS? 58 (Italics omitted)

Arguments of the Parties

G.R. No. 1893 70

First, petitioner asserts that a careful reading of its allegations in the

Amended Petition/Complaint shows that petitioner's rights as lessor of BSI
were violated when the latter, in bad faith and utter disregard of its
subsisting contract of lease with petitioner, surreptitiously entered into
another contract of lease with the PGB. Worse, BSI turned over to the PGB
the building constructed by petitioner without the latter's knowledge and
consent. Thus, with these allegations, the Amended Petition/Complaint
states a valid cause of action against BSI. 59

Second, petitioner claims that the CA erred when it ruled on the

validity and/or subsistence of the three different contracts of lease involved
in the case at bar. These issues were being litigated between petitioner and
the PGB before the RTC. They had yet to be determined by the RTC. It was
not for the CA to make any determination or pronouncement regarding the

57
Rollo (G.R. No . 189370), pp. 40-41 .
,x Id. at 38.
5') Id . at 42.

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 Notice of Resolution 12 G.R. Nos. 189370 and 208798
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validity, subsistence, extinguishment, or status of the various contracts of

lease. It was not within the CA's province to decide on the issue of good
faith or bad faith in the dealings of the parties. This was the province of the
RTC, where, at the time the CA rendered its decision, the main case was still
being tried. 60

Third, petitioner contends that another valid cause of action against

the PGB and BSI is petitioner's charge that it made payments to the PGB
pursuant to a new agreement. Judgment in the ejectment case had been
novated, and the execution of the MTCC Decision would be inequitable and
unjust to petitioner since the PGB would be unjustly enriched at petitioner's
expense. 61

Fourth, pet1t10ner insists that the principle of res judicata does not
apply in the case at bar. The elements of res judicata, it claims, are not
present. The ejectment case involved the issue of possession, while the
instant case involves the issue of ownership of the mall, the validity of the
three contracts of lease, and the enforcement of the alias writ of execution in
the ejectment case. Further, petitioner contends that the causes of action in
an ejectment case are not the same as the causes of action in a civil case for
annulment of contracts. 62

In its February 8, 2010 Comment, 63 BSI argues that the appeal by

certiorari raises issues of fact, not of law, which is not allowed in said mode
of appeal. BSI claims that the lower court's finding that the Amended
Petition/Complaint did not present a valid cause of action against BSI is a
question of fact since it entails the examination of the Amended
Petition/Complaint itself as evidence. Similarly, the issues as to the validity
of the contracts of lease and the propriety of the implementation of the alias
writ of execution all necessitate an inquiry into the facts and evidence on
record. Further, the petition contains a mere reiteration of the issues already
passed upon by the CA. Finally, BSI echoes the CA's discussion on the
application of res judicata in the concept of conclusiveness of judgment. It
prays that the Court dismiss the appeal for lack of merit. 64

60
Id. at 43-45.
61
Id . at45-47.
62
Id. at 47-48.
<, 3 Id . at 108-113.
6
-1 ld.atl0S-112.

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Notice of Resolution 13 G.R. Nos. 189370 and 208798
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G.R. No. 208798

First, petitioner argues that contrary to the findings of the CA, there
was no valid delivery of the subject property to the PGB. Petitioner cites
Clause 8 of its Lease Agreement with the PGB, 65 which provides that:

8. TURN OVER OF PREMISES

Upon the termination or expiration of the lease, the LESSEE shall

peacefully and quietly surrender the leased premises to the LESSOR, and
likewi se any permanent structures or improvements shall be transfeJTed to
the possession and ownership of the LESSOR. 66

Petitioner contends that it remains the owner of the improvements

constructed on the leased premises because it has not transferred possession
and ownership thereof to the PGB. Petitioner points out that the decision of
the MTCC in the ejectment case only ordered the transfer of the possession
of the leased premises, meaning the parcel of land leased. The transfer of
ownership and possession of the improvements may only be ordered by a
court of competent jurisdiction, in a proper case brought for such purpose,
and not by an ejectment court. Further, the surrender of the subject property
to the PGB was defective and irregular. It was done by BSI, a third party,
and not by petitioner. Petitioner asserts that it did not authorize BSI to effect
such surrender. Thus, there was no valid surrender of the subject property
and no fait accompli. 67

Second, petitioner argues that interference with the final and

executory decision of the MTCC in the ejectment case is proper because of
intervening events. In particular, petitioner points out the alleged agreement
between itself and the PGB for the settlement of petitioner's judgment by
installment payments until December 2005. Petitioner made payments and
only P2,374,080.20 remained outstanding. The PGB, however, did not wait
until December 2005 for the full payment, but instead proceeded to enforce
the writ of execution. Petitioner asserts that this belies the intent of the PGB
to get ownership and possession of the building and permanent
improvements after being paid the full amount of the judgment debt. This
constitutes unjust enrichment at the expense of petitioner. Given the

65
Rollo (G.R.. No. 208798), p. 39 .
66
Id. at 80.
67
Id. at 39-4 1.

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Notice of Resolution 14 G.R. Nos. 189370 and 208798
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foregoing, the enforcement of the MTCC Decision in the ejectment case had
become patently inequitable and unjust to petitioner. 68

Third, petitioner contends that the CA erred in ruling that it is bound

by the findings of fact of the RTC. The CA should have reviewed and
reevaluated the findings of fact of the lower court since the latter ignored,
misunderstood, and failed to properly appreciate the facts and evidence
presented by petitioner. 69

In its Comment, 70 the PGB argues that petitioner's arguments are

seriously misplaced. The adverse judgment rendered by the MTCC in the
ejectment case is directed to petitioner and all persons claiming rights under
it. Hence, it is binding on BSI who was in possession of the subject property.
BSI did not err when it voluntarily surrendered possession to the PGB. With
the lawful delivery of possession to the PGB, there is nothing to enjoin.
Further, the Decision of the MTCC in the ejectment case had already
attained finality. Petitioner was obliged to peacefully and quietly surrender
the leased premises to the PGB and to transfer ownership of any permanent
structure or improvement built thereon. The subject property was voluntarily
surrendered by BSI, petitioner's sublessee. Hence, there is nothing more to
enjoin. Finally, the PGB alleges that the payments made to it by petitioner
were in partial compliance with the execution of the MTCC Decision, and
not a new agreement depriving the PGB from reaping the fruits of its
successful ejectment suit. 71

The Court's Ruling

The consolidated appeals are denied for lack of merit.

Preliminarily, the Court restates the issues for simplicity: ( 1) whether

the CA erred in affirming the dismissal of the case against BSI; (2) whether
the Amended Petition/Complaint against BSI is barred by res judicata; (3)
whether the enforcement of the May 20, 2003 Decision of the MTCC may
be enjoined or restrained; and (4) whether the lease agreement between the
PGB and BSI should be declared null and void.

r,8 Id. at 41-43 .

69
Id. at 43-44.
70
Id. atl 48-15 3.
71
Id. at 148-151.

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The Amended Petition/Complaint

against BS! did not fail to state a
cause of action.

The CA held that the dismissal of the case against BSI was proper
because petitioner failed to state a cause of action against BSI in its initiatory
pleading and that the doctrine of res judicata bars the action.

To properly determine whether the Amended Petition/Complaint

stated a cause of action against BSI, a scrutiny of the allegations in said
pleading is necessary. At this juncture, BSI's contention that the Court
cannot take cognizance of this appeal because this particular issue is a
question of fact must be addressed.

The question of whether the Amended Petition/Complaint stated a

cause of action against BSI is not a question of fact but a question of law.

It is axiomatic that there is a question of fact when the doubt or

controversy arises as to the truth or falsity of the alleged facts. Meanwhile,
there is a question of law when the issue does not call for an examination of
the probative value of the evidence presented, the truth or falsehood of facts
being admitted, and the doubt concerns the correct application of law and
jurisprudence on the matter. 72

In the instant case, the controversy lies in detennining whether the

allegations made by petitioner in its Amended Petition/Complaint constitute
a cause of action against BSI. It does not involve determining the truth or
falsity of such allegations. In short, the Court needs only to refer to the
allegations in the Amended Petition/Complaint and apply the principles
governing causes of action to resolve the issue. The truth or falsity of pieces
of evidence need not be determined by the Court to properly resolve the
matter; it needs only to apply the law to arrive at a conclusion. Thus, plainly,
this issue is one of law and not of fact.

Section 2, Rule 2 of the 2019 Revised Rules of Civil Procedure

defines a cause of action as the act or omission by which a party violates a
right of another.

Otherwise stated, a cause of action has three elements, to wit, (1) a

right in favor of the plaintiff by whatever means and under whatever law it

72 Heirs ofCabigas v. Limbaco, 670 Phil. 274 , 285(2011 ).

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arises or is created; (2) an obligation on the part of the named defendant to

respect or not to violate such right; and (3) an act or omission on the part
of such defendant violative of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the plaintiff. 73

Petitioner arranged its Amended Petition/Complaint by discussing two

causes of action.

For its first cause of action, petitioner detailed the payments it made to
the PGB from May 15, 2003 to August 23, 2005, 74 then proceeded to allege
as follows:

FIRST CAUSE OF ACTION

xxxx

03. THAT the May 20, 2003 decision dignified the LEASE
AGREEMENT between the Provincial Government of Bulacan [(PGB)]
and the defendant, MAUNLAD [CONSTRUCTION] AND
DEVELOPMENT CORP. [(Maunlad)] , particularly the provision
req uiring the faithful compliance of the provision about the payment of
rentals and the sanctions [in case] of the [nonpayment] thereof. The
contract imposed upon [Maunlad] the obligation to pay its monthly
rentals. This contractual imposition was violated with [nonpayments];
thus, the Honorable Court [a quo] directed [Maunlad] to pay its rental
arrearages in the amount of [f>]S ,940,429.92. The Honorable Court also
directed [Maunlad] "to pay the [PGB] rental of [P]91,310.78/monthly
from September 2002 and every succeeding end of the month thereafter;
to pay [attorney's] fees in the amount of [P]20,000.00"; and, to vacate the
premises and deliver the peaceful possession thereof to the plaintiff.
While there was a WRIT OF EXECUTION that was ordered by the
Honorable Court [a quo], the same was never implemented. Why? It
was not because of the appeal to the Honorable Regional Trial Court;
but, because the parties agreed to enter into a new arrangement. This
is unequivocably [sic] and clearly shown thru the foregoing payments
made by [Maunlad] and the corresponding [acknowledgment] by the
[PGB]. The old obligation of [Maunlad] under the lease agreement is on
every point incompatible with the new arrangement between the same
parties. [T]here have been changes in the principal conditions. The old
obligation under the initial lease agreement was obliterated. There was
novation x xx.

04. THAT undeniably the [PGB] has absolute rights as owner of the land
in issue. It could never be said that the [PGB] slept on its rights because it
enforced and protected the same rights [vis-a-vis] its lease agreement with
[Maunlad] thru the instant judicial action. And, the Honorable Court

n China Banking Co,p. v. Court of Appeals, 499 Phil. 770, 775 (2005).
74
RTC records, Vol. I, pp. 197-206.

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judiciously recognized these rights of the [PGB]. Be that as it may, the

[PGB] abandoned and relinquished those rights, advantage, benefit,
claim or privilege when it gave [Maunlad] the opportunity to comply
with its obligations under the lease agreement under a new set of
arrangements. These new arrangements between the parties were
deliberately and intelligently made by them. Consequently, the [PGB)
waived its rights under the initial lease agreement and acknowledged the
new proposals for payment offered by [Maunlad]. The [PGB] and
[Maunlad] defined their new relationship. [Maunlad] complied with its
new obligations and the [PGB], on the other hand, acknowledged said
compliance inspite the sporadic failures of [Maunlad] to pay. [n a number
of occasions, the [PGB] demanded for payments under the new
arrangements. Everytime demands were made, [Maunlad] paid. And, the
[PGB] acknowledged receipt of such payments.

There was waiver on the part of the [PGB] of its contractual rights
under the initial lease agreement and even on the sporadic failures of
[Maunland] to pay under the new arrangement. When the jPGB],
under the new arrangement, accepted payments after every demand,
it may then be considered as having waived its rights which it
intended to enforce and to protect under the demands. And, this being
so, the [PGB] is under estoppel to enforce such rights. It is crystal clear
that it has adhered to renew their new contractual relationship every
time it acknowledges payments made by [Maunlad]. The [PGB]
benefited from the payments made by [Maunlad]. It cannot renege from
[its] acceptance of payments from [Maunlad]. In "MACAHILIG vs.
HEIRS OF GRACE M. MAGALIT, x x x", the High Tribunal said -
"After having performed affirmative acts upon which a person acted in
good faith, the actor cannot thereafter repudiate those acts or renege on
their effects, to the prejudice of the former." When the [PGB] agreed to
the new proposals of [Maunlad] and accepted payments under the same
agreement, it cannot disown its bilateral arrangements with [Maunlad]
without jeopardize [sic] the rights of the latter. The Supreme Court has to
say about this. It ruled that "A party should not, after its opportunity to
enjoy the benefits of an agreement, be allowed to later disown the
arrangement when the terms thereof ultimately would prove to operate
against its hopeful expectations."

xxxx

12. The issuance of the writ of execution or an alias writ of execution has
become ministerial to the Honorable Presiding Judge, [MTCC], Branch II,
Malolos City, upon the finality of the judgment. However, in view of the
intervening events of payments by [Maunlad) and the corresponding
[acknowledgment] of payments by the [PGB], it is more conformable
to the principles of justice and equity that the issuance of an alias writ
[of] execution must be enjoined. 75 (Emphases supplied; underscoring and
citations omitted)

75
Id. at 206-21 I.

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From the foregoing excerpt, it is evident that the first cause of action
of petitioner is based on its perceived right arising from the alleged novation
of the Lease Agreement between itself and the PGB. This new arrangement
is allegedly based on the PGB's acceptance of payments after the rendition
of the MTCC Decision in the ejectment case. According to petitioner, the
PGB, having accepted the payments, cannot renege on the new arrangement.
Thus, petitioner claimed that the PGB violated its rights under the new
agreement when the PGB applied for the issuance of an alias writ of
execution of the MTCC Decision. All elements of a cause of action are
present herein. Since there is no controversy regarding the sufficiency of the
allegations of this particular cause of action, the Court will not belabor on
this point.

Meanwhile, peht10ner set out its second cause of action m the

following paragraphs:

SECOND CAUSE OF ACTION

15. Meanwhil e, in addition to the foregoing facts and circumstances, on or

about August 5, 2003 , petitioner/plaintiff Maunlad Construction
Development Corporation [(Maunlad)] entered into a Contract of Lease
with respondent/defendant Bargain Specialists, Inc. [(BSI)] covering the
parcel of land leased by respondent/defendant [PGB] to Maunlad, but this
time the Contract of Lease between Maunlad and [BSI] covered also the
permanent improvements constructed by Maunlad on the property
including, among others, a building, Maunlad spending therefor more than
['P] 164 Million. The Contract of Lease, Xerox copy of which is hereto
attached as Annex " D" hereof, fixed a period of ten ( 10) years counted
from September I, 2003 , as term of the lease.

16. Respondent/defendant [BSI] incurred rental arrearages

amounting to more than [P]2 Million, in violation of its Contract of
Lease with petitioner/plaintiff [Maunlad]. Demands for payment of
said rentals-in-arrears made by petitioner/plaintiff [Maunlad] remain
uheeded [sic] by respondent/defendant [BSI] up to now and without
any _justifiable reason.

17. In disregard of its obligations under the terms and conditions of the
Contract of Lease to petitioner/plaintiff [Maunlad], respondent/defendant
[BSI], hoodwinking the former, leading it to believe that [BSI] was
pleading for leniency in the payment of its rentals-in-arrears as well as its
current monthly rental payments, was in fact , and in bad faith , already
secretly dealing directly with respondent/defendant [PGB] , for the
establishment of an agreement of lease between [BSI] and the [PGB], in
total disregard, albeit illegally, of the subsisting Contract of Lease between
petitioner/plaintiff [Maunlad], as lessor, and respondent/defendant [BSI],
as lessee. In fact, under date of October 4, 2005, the lease agreement
between the respondent/defendant [PGB] and respondent/defendant

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[BSI] appears to have been executed without the knowledge and

consent of petitioner/plaintiff [Maunlad]. Such new agreement of lease
is null and void because the contract of lease between Maunlad and
[BSI].

18. The execution of the agreement between respondent/defendant

fPGB] and fBSI] as lessee, violates the rights of petitioner/plaintiff
[Maunlad] under its subsisting Contract of Lease with [BSIJ which
cannot just be brushed aside and disregarded since rights have
already accrued thereunder in favor of Maunlad. Moreover, such
conduct of both respondents/defendants fPGB and BSIJ constitutes
clear violations of the provisions of the Civil Code on Human
Relations. Among other things, respondents/defendants did not act with
justice, nor did they give [Maunlad] its due, and observed honesty and
good faith. Their conduct is contrary to law and good customs, among
others.

19. It likewise surfaced that when the [MTCC] of Malolos ordered the
issuance of an alias writ of execution in the ejectment case, and the writ
was served by the Sheriff of said Court on respondent/defendant [BSI],
in bad faith and in utter disregard of its overdue obligation to pay
rentals-in-arrears to petitioner/plaintiff [Maunlad],
respondent/defendant [BSI] pretended to have surrendered possession
of the subject matter of the Contract of Lease including the
permanent improvements therein ownership of which still belongs up
to now to [Maunlad], something which only [Maunlad] could do
because under par. 8 of the agreement of lease:

" 8. Turnover of Premises. Upon the termination or

expiration of the lease, the LESSEE shall peacefully and
quietly surrender the leased premises to the LESSOR, and
likewise any permanent structures or improvements shall
be transferred to the possession and ownership of the
LESSOR."

20. Clearly, not even the [MTCC] of Malolos in the ejectment suit could
order the transfer of ownership of the permanent structures referred to
above due to lack of jurisdiction the issue of ownership being a matter that
pertains exclusively to courts of general jurisdiction, i.e. , the RTC.

21. In view of the foregoing, it is all too clear that the agreement of lease
between the respondents/defendants [PGB] and (BSI] is null and void
having been entered into in clear violation of the human relations
provisions of the Civil Code and other legal precepts; and while the
Contract of Lease between Maunlad and fBSI] was and is still
subsisting. Technically, the said agreement between
respondents/defendants [PGB and BSI] is a simulated agreement,
and, all the more so that it is void [ab initio].

22. Consequently, all the proceedings held before the (MTCC] of

Malolos in the ejectment suit insofar as enforcement of the alias writ
of execution issued therein is concerned, including the pretended

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voluntary surrender by [BSIJ of the premises, to cover possession and

ownership of the permanent structures therein built and owned by
petitioner/plaintiff [Maunlad], are null and void; and any and all
further acts under the circumstances by or through/under the
authority of respondent Judge are beyond the latter's jurisdiction,
and may be enjoined by injunction, otherwise, Maunlad, which has
already suffered heavy losses, will continue to suffer irreparable damage
and may not be amply protected in its rights which have been violated
with impunity . As above-pointed out, Maunlad is willing to post the
required injunction bond in such reasonable amount as may be fixed by
this Honorable Court. 76 (Emphases supplied; underscoring omitted)

It is evident from the foregoing that the second cause of action of

petitioner is for the nullification of the lease agreement between the PGB
and BSI and the enforcement of petitioner's own lease agreement with BSI.
The theory of petitioner for this second cause of action is rooted in its belief
that it remains the owner of the improvements built on the subject property
since it was the owner at the inception, and ownership and possession
thereof was not properly transferred to the PGB. As such, for petitioner, it
remains the owner of the improvements and the proper lessor of such
improvements. Its contract of lease with BSI subsists and must be respected.
Its right as an owner was violated by the PGB and BSI when they entered
into their own lease agreement. Further, when BSI turned over possession of
the subject property to the PGB, BSI did so in violation of petitioner's rights
under its lease with the PGB. Petitioner even quoted Clause 8 of said Lease
Agreement between itself and the PGB as basis. Hence, it prayed that the
lease agreement between the PGB and BSI be nullified, its own lease
agreement with BSI be enforced, and that injunction be issued to enjoin the
PGB and BSI from exercising acts of possession and ownership over the
permanent structures allegedly owned by petitioner.

Do these allegations set out a cause of action against BSI?

The Comi answers in the affirmative.

Contrary to the findings of the RTC and the CA, these allegations
sufficiently set out a cause of action concerning the nullification of the lease
agreement between the PGB and BSI, the enforcement of petitioner's lease
agreement with BSI, and the issuance of a writ of injunction to enjoin the
PGB and BSI from exercising acts of possession and ownership over the
improvements. All the elements of a cause of action - the assertion of a
right, the concomitant obligation of the other party to respect the same, and

76
RTC records, Vol. I, pp. 211-214.

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the alleged violation of such right by the other party - were alleged by
petitioner in its Amended Petition/Complaint.

Truth be told, the disquisition of the RTC and the CA concerning this
issue leaves a lot to be desired. The discussions of both deal with the merits
of the cause of action, not the sufficiency of the allegations itself. To recall,
the RTC held that the complaint states no cause of action against BSI
because BSI did not violate any legal right of petitioner. It found that BSI
merely relied on the final judgment of the MTCC in surrendering possession
of the subject property to the PGB. Further, the RTC stated that the lease
contract BSI entered into with the PGB is a logical consequence of the
prevailing right of the PGB. The CA agreed with the RTC. It held that
petitioner's right under its Lease Agreement with the PGB had long been
dissolved when it violated the terms thereof. It held that, even assuming the
allegations in the Amended Petition/Complaint are true, no valid judgment
may be rendered thereon since petitioner failed to file a supersedeas bond to
stay the execution of the MTCC Decision. Plainly, the discussion of both the
RTC and the CA involve the merits of petitioner's contentions.

Time and again, the Court has stressed the difference between failure
to state a cause of action and lack of a cause of action. It is the former, not
the latter, that could be a ground for a motion to dismiss:

Failure to state a cause of action and lack of a cause of action are

not the same. Failure to state a cause of action refers to an insufficiency
of the allegations in the petition/complaint. It is a ground for dismissal
under Rule 16 of the Rules of Court before the defendant or respondent
files a responsive pleading. Notably, the dismissal is without prejudice to
the refiling of an amended complaint.

On the other hand, the lack of a cause of action refers to an

insufficiency of factual or legal basis to grant the complaint. It applies
to a situation where the evidence failed to prove the cause of action
alleged in the pleading. It is a ground for dismissal using a demurrer to
evidence under Rule 33 after the plaintiff has completed presenting his
evidence. The dismissal constitutes res judicata on the issue and will bar
future suits based on the same cause of action.77 (Emphases and italics in
the original)

Analyzed against this background, it is evident that the RTC and the
CA erred when they both concluded that the Amended Petition/Complaint
did not state a cause of action. In reaching this conclusion, both courts
mistakenly resolved the merits of petitioner's allegations when they should

77
Apostolic Vicar o/Tabuk, Inc. v. Spouses Sison, 779 Phil. 462, 469-470(2016).

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have focused on the sufficiency thereof. The Amended Petition/Complaint

sufficiently alleged a cause of action.

Petitioner, in G.R. No. 189370, prays that the CA Decision in CA-

G.R. CV No. 88477 be set aside, and that it be granted such other reliefs as
may be just and equitable. While not explicitly spelled out in the pleadings,
the practical effect of petitioner's prayer would be to have the Court remand
the case for trial on the merits in relation to petitioner's action against BSI.
However, a remand at this point would serve no practical purpose.

A scrutiny of the allegations in petitioner's Amended

Petition/Complaint readily reveals that the underlying rights being asserted
by petitioner are the alleged novation of its lease agreement with the PGB,
and its continued ownership of the improvements built on the subject
property. The resolution of these issues, now before the Court in G .R. No.
208798, is determinative of any cause of action petitioner may have against
BSI.

At this juncture, it must be mentioned that petitioner's statement of its

second cause of action also included allegations of conduct on the part of the
PGB and BSI violative of the provisions of the Civil Code on Human
Relations. Ordinarily, such allegations are made when setting out a cause of
action for damages on the basis of Article I 9, Art. 20, or Art. 2 I of the Civil
Code, whichever is applicable. In addition to this, petitioner also generally
averred that BSI accumulated rental arrears under its lease agreement.
However, it is apparent that, aside from making general allegations,
petitioner did not pray for either an award of damages or the payment of
accrued rental arrears. In fact, petitioner made no mention of any specific
amounts in relation to either claim. Considering that neither a claim for
damages nor for rental arrears were included in the prayer, the necessary
docket fees for the R TC to properly acquire jurisdiction over the subject
matter of these two causes of action were not paid. These circumstances led
the Court to conclude that petitioner did not intend to pursue these two
causes of action in the present action.

The principle of res judicata in

the concept of conclusiveness of
judgment finds application in
the suit against BS!.

Petitioner maintains, contrary to the findings of the RTC and the CA,
that the principle of res judicata does not apply in its case against BSI

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because the ejectment case involves the issue of possession, while the instant
case involves the issue of the ownership of the mall, the validity of the three
contracts of lease, and the enforcement of the writ of execution in the
ejectment case. Further, it insists that the cause of action in ejectment and in
annulment of contracts are distinct from each another.

Jurisprudence on res judicata 1s well-established. In Deni/a v.

Republic, 78 the Com1 elucidated:

Res judicata is defined as a matter adjudged; a thing judicially

acted upon or decided; a thing or matter settled by judgment. Under this
rule , a final judgment or decree on the merits by a court of competent
jurisdiction is conclusive of the rights of the parties or their privies, in all
later suits and on all points and matters determined in the previous suit. To
invoke res judicata, the elements that should be present are: (a) the
judgment sought to bar the new action must be final; (b) the decision must
have been rendered by a court having jurisdiction over the subject matter
and the parties; (c) the disposition of the case must be a judgment on the
merits; and (d) there must be as between the first and second action,
identity of parties, subject matter, and causes of action.

[Corollary], judgments and final orders constituting res judicata

are categorized into different concepts which have distinctive effects as
provided under Section 47 of Rule 39 as follows:

SECTION 47. Effect ofjudgments orfinal orders. -The effect of a

judgment or final order rendered by a court of the Philippines, having
jurisdiction to pronounce the judgment or final order, may be as follows:

(a) In case of a judgment or final order against a specific thing or

in respect to the probate of a will, or the administration of the
estate of a deceased person, or in respect to the personal,
political, or legal condition or status of a particular person or
his relationship to another, the judgment or final order is
conclusive upon the title to the thing, the will or administration,
or the condition, status or relationship of the person; however,
the probate of a will or granting of letters of administration
shall only be prima .facie evidence of the death of the testator
or intestate;

(b) In other cases, the judgment or final order is, with respect to
the matter directly adjudged or as to any other matter that
could have been raised in relation thereto , conclusive between
the parties and their successors in interest by title
subsequent to the commencement of the action or special
proceeding, litigating for the same thing and under the same
title and in the same capacity; and,

7
x G.R. No. 206077, July I 5, 2020, 943 SCRA 599.

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(c) In any other litigation between the same parties or their

successors in interest, that only is deemed to have been
adjudged in aformer judgment or final order which appears
upon its face to have been so ad.judged, or which was
actually and necessarily included therein or necessary thereto.

It can be deduced in the aforementioned provisions that there are

three (3) loose categories of final and executory judgments as regards their
effects on subsequent and related proceedings. Paragraph (a) of the
foregoing rule is commonly known to speak of judgments in rem;
paragraph (b) is said to refer to judgments in personam; and paragraph (c)
is the concept understood in law as "conclusiveness of judgment."79
(Emphases and italics in the original)

The RTC and the CA both held that res judicata in the concept of
conclusiveness of judgment applies to petitioner's suit against BSI. The rule
concerning the application of this principle of res judicata has been
explained in the following manner:

For res judicata to serve as a bar to a subsequent action, the

following elements must be present: (1) the judgment sought to bar the
new action must be final; (2) the decision must have been rendered by a
court having jurisdiction over the subject matter and the parties; (3) the
disposition of the case must be a judgment on the merits; and (4) there
must be as between the first and second action, identity of parties, subject
matter, and causes of action. Should identity of parties, subject matter, and
causes of action be shown in the two cases, res judicata in its aspect as a
"bar by prior judgment" would apply. If as between the two cases, only
identity of parties can be shown, but not identical causes of action,
then res judicata as "conclusiveness of judgment" applies. 80 (Emphasis
supplied)

The Court further elucidated:

[R]es judicata in the concept of conclusiveness of judgment, also known

as preclusion of issues, states:

[x x x A] fact or question which was in issue in a

former suit, and was there judicially passed on and
determined by a court of competent jurisdiction, is
conclusively settled by the judgment therein, as far as
concerns the parties to that action and persons in privity
with them, and cannot be again litigated in any future
action between such parties or their privies, in the same
court or any other court of concurrent jurisdiction on either

79
Id . at 682-684 .
°
8
Cruz v. Tolentino, 830 Phil. 196, 2 I 0-211 (2018).

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the same or a different cause of action, while the judgment

remains unreversed or unvacated by proper authority. 81

There is no serious dispute that the first three elements of res judicata
are present between the complaint for unlawful detainer and the instant
action for injunction and declaration of nullity of lease agreements: (I) the
MTCC judgment in the ejectment suit is final; (2) it is undisputed that the
MTCC had jurisdiction over the subject matter and over the parties; and (3)
the disposition by the MTCC in the ejectment suit was a judgment on the
merits.

There is likewise identity of the parties involved in the two cases.

Both petitioner and the PGB are the same party-litigants in both suits. As to
BSI, while it was not yet in the picture at the time the MTCC rendered its
judgment, it is undoubtedly bound by the same, having derived its interest
over the subject property from petitioner as the latter's sublessee.

It is settled that a judgment directing a party to deliver possession

of a property to another is in personam. It is conclusive, not against the
whole world, but only "between the parties and their successors in
interest by title subsequent to the commencement of the action." An
action to recover a parcel of land is a real action but it is an action in
personam, for it binds a particular individual only although it concerns the
right to a tangible thing. Any judgment therein is binding only upon the
parties properly impleaded and duly heard or given an opportunity to be
heard. However, this rule admits of the exception that even a non-party
may be bound by the judgment in an ejectment suit where he is any of
the following: (a) trespasser, squatter or agent of the defendant
fraudulently occupying the property to frustrate the judgment; (b) guest or
occupant of the premises with the permission of the defendant; ( c)
transferee pendente lite; (d) sublessee; (e) co-lessee; or (f) member of the
family, relative or privy of the defendant. 82 (Emphases supplied)

It cannot be gainsaid that the main relief sought in the action for
unlawful detainer was the eviction of petitioner. Even so, an action for
unlawful detainer may involve the subject matter of the termination of the
parties' lease contract. The termination of a contract need not undergo
judicial intervention, and the option to terminate may be exercised by the
parties themselves. It is only upon disagreement between the parties as to
how it should be undertaken that parties may resort to courts. Thus, the

81
Sanggacala v. National Power Corporation , G.R. No. 209538, July 7, 2021.
8
" Heirs ol Yusingco v. Busilak, 824 Phil. 454, 462-463 (2018).

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termination of a lease contract 1s congruent with an action for unlawful

detainer. 83

Indeed, in deciding the ejectment case, the MTCC specifically ruled

that petitioner's nonpayment of rentals constituted a breach of the Lease
Agreement which was sufficient ground for its termination. It was on this
basis that petitioner was ordered to transfer possession of the subject
property to the PGB. Thus, the Court agrees with the RTC and the CA that
the principle of res judicata in the concept of conclusiveness of judgment
applies, but hereby clarifies that it is conclusive only insofar as the issue of
termination of the Lease Agreement between petitioner and the PGB and
possession over the subject property are concerned.

The issue concerning ownership of the improvements built was not

raised or adjudged in the complaint for unlawful detainer before the MTCC
and is thus not barred by res judicata. In any case, it is well-established that
any ruling as to ownership in an action for ejectment is merely provisional
and will not preclude another action involving title to the same property. 84

There was no novation of the

Lease Agreement between
petitioner and the PGB.

It is undisputed that the May 20, 2003 Decision of the MTCC in the
ejectment suit had attained finality. As a matter of course, the PGB, as the
prevailing party, is entitled to enforcement thereof. Despite this, petitioner
pursued the instant case, arguing that a supervening event rendered the
enforcement of the same inequitable.

Time and again, the Court has ruled that a final judgment cannot be
altered, amended, or modified, even if it is to correct an erroneous judgment.

This is the principle of immutability of judgments - to put an end to what

would be an endless litigation. Interest reipublicae ut sit.finis litium . In the
interest of society as a whole, litigation must come to an end. But this
tenet admits several exceptions, these are: (1) the correction of clerical
errors; (2) the so-called nunc pro tune entries which cause no prejudice to
any party; (3) void judgments; and (4) whenever circumstances transpire

83 Huibonhoa v. Court of Appeals, 378 Phil. 386, 423 ( 1999).

84 Estrellado v. Presiding Judge, MTCC, /J th Judicial Region, Br. 3, Davao City, 820 Phil. 556, 571
(2017) .

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August 9, 2023

after the finality of the decision rendering its execution unjust and
inequitable. 85

It is this last exception that petitioner relies on in the instant case. It

argues that the Lease Agreement between itself and the PGB was novated
when the PGB accepted its payment of the rental arrears immediately
preceding the rendition of the MTCC judgment, and even thereafter. The
acceptance of payments, per petitioner, constituted a supervening event that
rendered the execution of the MTCC judgment in the ejectment suit unjust
and inequitable.

The Court disagrees .

Contrary to the view of petitioner, there was no novation of its Lease

Agreement with the PGB.

In Spouses Reyes v. BPI Family Savings Bank, Inc., 86 the Court

discussed the concept of novation:

Novation is defined as the extinguishment of an obligation by the

substitution or change of the obligation by a subsequent one which
terminates the first, either by changing the object or principal conditions,
or by substituting the person of the debtor, or subrogating a third person in
the rights of the creditor.

Article 1292 of the Civil Code on novation further provides:

Article 1292. In order that an obligation may be

extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point
incompatible with each other.

The cancellation of the old obligation by the new one is a

necessary element of novation which may be effected either expressly or
impliedly. While there is really no [hard-and-fast] rule to determine what
might constitute sufficient change resulting in novation, the touchstone,
however, is irreconcilable incompatibility between the old and the new
obligations.

In Garcia, Jr. v. Court ofAppeals, we held that:

In every novation there are four essential requisites:

( 1) a previous valid obligation; (2) the agreement of all the

85
Republic v. Heirs o/G otengco, 824 Phil. 568, 578(2018).
80
520 Phil. 80 I (2006).

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Notice of Resolution 28 G.R. Nos. 189370 and 208798
August 9, 2023

parties to the new contract; (3) the extinguishment of the

old contract; and (4) validity of the new one. There must
be consent of all the parties to the substitution, resulting
in the extinction of the old obligation and the creation of
a valid new one. xx x To sustain novation necessitates that
the same be declared in unequivocal terms or that there is
complete and substantial incompatibility between the two
obligations. An obligation to pay a sum of money is not
novated in a new instrument wherein the old is ratified by
changing only the terms of payment and adding other
obligations not incompatible with the old one or wherein
the old contract is merely supplementing the old one. 87
(Emphases supplied; citation omitted)

Thus, for there to be novation, all parties must have consented to the
change in contractual relationship, thus leading to the extinction of the old
obligation and the creation of a valid new one. Further, there must be
absolute incompatibility between the old agreement and the new one.

Aside from the existence of a previous valid lease contract, none of

the other essential elements of novation are present in the instant case.

It is undisputed that petitioner incurred delay in paying the rentals due

the PGB under the Lease Agreement. Thus, the PGB sent a demand letter to
petitioner on April 22, 2002 for the latter to vacate the subject property and
to pay its arrears. Despite demand, petitioner failed to comply, resulting in
the institution and successful prosecution of the complaint for unlawful
detainer.

In demanding that petitioner vacate the subject property and pay the
rental arrears, the PGB was exercising its right to terminate the Lease
Agreement pursuant to Clause 9 thereof:

9. VIOLATION OF TERMS AND CONDITIONS

Any violation of the terms and conditions of this lease agreement

as herein provided shall be sufficient ground for the termination of the
lease. The rescission or termination of the lease pursuant to this provision
may be effected by the LESSOR or LESSEE as the case may be. 88

87
Id. at 806-808.
88
Rollo (G.R . No. 208798), p. 80.

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Clause 9 of the Lease Agreement uses both the terms "rescission" or

"termination." The Comi previously explained the difference between said
legal terms in Huibonhoa v. Court ofAppeals: 89

The Regional Trial Court incorrectly held that the complaint was
also for rescission of contract, a case that is certainly not within the
jurisdiction of the Metropolitan Trial Court. By the allegations of the
complaint, the Gojoccos' aim was to cancel or terminate the contract
because they sought its partial enforcement in praying for rental
arrearages. There is a distinction in law between cancellation of a
contract and its rescission. To rescind is to declare a contract void in its
inception and to put an end to it as though it never were. It is not
merely to terminate it and release parties from further obligations to each
other but to abrogate it from the beginning and restore the parties to
relative positions which they would have occupied had no contract ever
been made.

Termination of a contract is congruent with an action for

unlawful detainer. The termination or cancellation of a contract
would necessarily entail enforcement of its terms prior to the
declaration of its cancellation in the same way that before a lessee is
ejected under a lease contract, he has to fulfill his obligations
thereunder that had accrued prior to his ejectment. However,
termination of a contract need not undergo judicial intervention . The
parties themselves may exercise such option. Only upon disagreement
between the parties as to how it should be undertaken may the parties
resort to courts. 90 (Emphases supplied)

In the instant case, the PGB clearly elected to terminate the lease
agreement between itself and petitioner since it sought to enforce the terms
thereof through the demand to pay the rental arrears and to vacate the subject
property. This is the very essence of an action for unlawful detainer - the
termination of the lease contract which entails enforcement of the terms
thereof concerning the lessee's duty to pay rental fees (including arrears) and
the concomitant obligation to vacate upon termination or expiration of the
lease.

Hence, when the PGB accepted petitioner's payments of its rental

arrears from May 15, 2003 to August 23, 2005, it was merely enforcing the
terms of the existing Lease Agreement in pursuance of the termination. It
must be remembered that the PGB instituted the complaint for unlawful
detainer on September 23, 2002. At that point in time, the PGB had already
elected to pursue termination of the Lease Agreement. The acceptance of
rental arrears from petitioner is not incompatible in even the slightest degree

89
Supra note 83.
90
Id . at 422-423.

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with the original Lease Agreement. It is, in fact, merely enforcement of the
terms thereof.

Petitioner even argues that the PGB' s acceptance of the rental arrears
and insistence on enforcing the writ of execution belies the PGB 's intent to
attain ownership and possession of the building and permanent
improvements after being paid close to the full amount of the judgment debt,
constituting unjust enrichment.

This is absolutely incorrect.

The Court cannot stress enough that the demand to vacate the subject
property did not affect, in any manner whatsoever, petitioner's obligation to
pay the rental fees. Petitioner must be reminded that an action for unlawful
detainer requires a prior demand to pay the rental fees due and to vacate the
leased property. Furthermore, the judgment in an action for unlawful
detainer itself would order the payment of rental fees and the peaceful
delivery of the possession of the leased premises to the lessor. These twin
reliefs are not incompatible in any manner whatsoever.

Furthermore, the fact that possession of the subject property was

transferred to the PGB is but a natural consequence of the enforcement of
the terms of the Lease Agreement. Clause 8 of the Lease Agreement governs
the turnover of premises after the termination or expiration of the lease:

8. TURN OVER OF PREMISES

Upon the termination or expiration of the lease, the LESSEE shall

peacefully and quietly surrender the leased premises to the LESSOR, and
likewise any permanent structures or improvements shall be transferred to
the possession and ownership of the LESSOR. 91

From the foregoing, it is evident that upon either termination or

expiration of the lease, the lessee, in this case petitioner, is obliged to
peacefully and quietly surrender the leased premises to the lessor, the PGB.
Hence, the transfer of possession over the subject property is but a
consequence of the terms of the Lease Agreement.

The Court rejects petitioner's theory of novation of the Lease

Agreement for absolute lack of merit. There is no new agreement to speak

•ii Rollo (G .R. No . 208798), p. 80.

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of; the payment of the rental fees was merely in compliance with and an
enforcement of the terms of the Lease Agreement itself, and was in
compliance with the MTCC judgment. Thus, petitioner's contention that a
supervening event rendered the execution of the final and executory MTCC
judgment unjust and inequitable lacks merit.

There was valid delivery of the

subject property, including
improvements thereon, to the
PGB.

Petitioner asseverates that, contrary to the findings of the RTC and the
CA, there is no fait accompli because there was no valid delivery of the
subject property to the PGB. It cites Clause 8 of the Lease Agreement,
quoted above, and argues that said clause requires that the lessee, meaning
petitioner, not BSI, be the one to effect the delivery so as to properly transfer
possession of the subject property, along with the buildings and
improvements thereon, to the PGB. Since BSI was the one that surrendered
possess10n thereof to the PGB, there was no valid delivery and no fait
accompli.

In addition to the foregoing, petitioner contends that it remains the

owner of the improvements made to the subject property since there was no
valid delivery thereof to the PGB. As such, its lease agreement with BSI is
subsisting and must be respected. The lease agreement entered into by the
PGB and BSI is void since it contravenes the subsisting lease agreement
between petitioner and BSI.

Once more, petitioner is sorely mistaken on both counts.

First, there was valid delivery of the subject property, including the
improvements thereon, by BSI to the PGB.

As discussed above, a judgment in an ejectment case directing a party

to deliver possession of a property to another is conclusive, not only between
the paiiies, but also to their successors-in-interest by title subsequent to the
commencement of the action. The judgment in an ejectment suit is likewise
binding on a sub lessee of the defendant even if not a party to the case. 92 This
is precisely BSI's relationship to petitioner as regards the subject property.
As a sublessee who came into the subject property after the commencement

92
Heirs q/ Yusingc:o v. Busilak, supra note 82.

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of Civil Case No. 02-112, BSI is undoubtedly bound by the judgment of the
MTCC .

The rationale behind this is not difficult to infer. Such relationship to

the defendant in an ejectment suit renders such other person similarly bound
by any judgment rendered therein. In particular, a sublessee's authority to
occupy the leased premises is contingent on the right of the lessee to
continue occupying and subleasing the same. Thus, when the lessee's right
to possess the leased property ceases to exist, so does the right of the
sublessee cease to exist. A spring cannot rise higher than its source.

Thus, petitioner's myopic position cannot be countenanced. The fact

that Clause 8 of the Lease Agreement specifies that it is the lessee who
peacefully and quietly surrenders possession over the leased premises to the
lessor does not preclude a valid delivery thereof by BSI to the PGB. BSI,
then petitioner's sublessee, is bound by the final and executory MTCC
. Decision. In fact, both the MTCC Decision itself and the Alias Writ of
Execution 93 issued by the MTCC are specifically directed against petitioner
and its successors-in-interest.

Hence, BSI was merely complying with the orders of the MTCC when
it peacefully delivered the subject property, including improvements, to the
PGB. Considering that the final and executory judgment of the MTCC in the
ejectment suit had already been enforced, the issue concerning the propriety
of enjoining its enforcement has been rendered moot and academic. It is fait
accompli.

Second, pet1t10ner ceased to be the owner of the improvements it

introduced to the subject property upon termination of the Lease Agreement
between itself and the PGB .

At this juncture, the Court must address the RTC's statement that it
cannot rule on the matter involving the building or mall built by petitioner
on the subject property because petitioner's cause of action is not one for
recovery of possession. Rather, the RTC limited itself to determining if there
is good reason to enjoin the PGB from acts of possession or ownership over
the subject property.

Contrary to the RTC's finding, it should have made a ruling on the

ownership over the building or mall built by petitioner on the subject

93
MTCC records, Vol. II , pp . I 02- I 03.

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property. While the RTC is correct that recovery of possession is not one of
the causes of action of petitioner, the issue concerning ownership over the
improvements made upon the subject property has been squarely raised by
virtue of the cause of action for declaration of nullity of the lease agreement
between the PGB and BSI. This was raised by petitioner as an issue in its
Amended Petition/Complaint and was litigated before the trial court. A full
disposition of the issues raised in the Amended Petition/Complaint requires
a ruling on this matter.

Again, the Court turns its attention to Clause 8 of the Lease

Agreement:

8. TURN OVER OF PREMISES

Upon the termination or expiration of the lease, the LESSEE shall

peacefully and quietly surrender the leased premises to the LESSOR, and
likewise any permanent structures or improvements shall be transferred to
the possession and ownership of the LESSOR.

Clause 8 of the Lease Agreement is as plain as day. Upon termination

or expiration of the Lease Agreement, any permanent structures or
improvements made to the subject property shall be transferred to the
possession and ownership of the lessor - the PGB. This transfer of
ownership and possession is automatic upon either the termination or
expiration of the lease. It does not depend on any delivery by lessee to
lessor. The use of the conjunctive "and" plainly illustrates that the condition
" [u ]pon the termination or expiration of the lease" results in the occurrence
of two events: ( 1) the peaceful and quiet surrender of the leased premises to
the lessor; and (2) the transfer of any permanent structures or improvements
to the possession and ownership of the lessor.

Petitioner's contentions hold no water and cannot be given even the

slightest weight. Upon termination of the lease, which is congruent with the
institution of the unlawful detainer case, petitioner ceased to be the owner of
the improvements it introduced to the property and ownership thereof was
transferred to the PGB. At that point in time, petitioner no longer had any
right to lease the subject property or the improvements thereon to BSI since
its rights, under the Lease Agreement with the PGB, had been terminated.
The PGB, by entering into a separate lease agreement with BSI, was merely
exercising its rights as an owner.

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Notice of Resolution 34 G.R. Nos. 189370 and 208798
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Accordingly, petitioner's prayer for declaration of nullity of the lease

agreement between the PGB and BSI must likewise be denied for absolute
lack of merit.

At the end of the day, it is apparent to the Court that petitioner's bone
to pick lies in the amount it spent for the construction of the improvements
to the subject property. However, petitioner must abide by the terms of the
Lease Agreement it entered into with the PGB. When it defaulted on its
payment of rental fees, it violated the te1ms thereof and gave cause for the
termination of the Lease Agreement. Such termination resulted in the
transfer of ownership of the improvements from itself to the PGB. These are
contractual stipulations that the parties freely entered into and expressly
acknowledged in the course of trial. The lease agreement governs the
respective rights and obligations of the parties. It must be strictly adhered to
for the continued stability of commercial relations.

WHEREFORE, the consolidated appeals in G.R. No. 189370 and

G.R. No. 208798 are DENIED for absolute lack of merit. The Decisions of
the Court of Appeals dated August 28, 2009 in CA-G.R. CV No. 88477 and
August 30, 2013 in CA-G.R. CV No. 96812 are AFFIRMED.

SO ORDERED."

By authority of the Court:

~
MARIA TERESA B. SIBULO
Deputy Division Clerk of Court and
Acting Division Clerk of Court~~
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AUG 2 2 202·

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Resolution 35 G.R. Nos. 189370 and 208798
August 9, 2023

M.B. TOMACRUZ ASSOCIATES Court of Appeals (x)

LAW OFFICES 1000 Manila
Counsel for Petitioner (CA-G.R. CV Nos. 88477 & 96812)
7429 Bernardino Street, Guadalupe Viejo
12 l 1 Makati City PROVINCIAL LEGAL OFFICE
Counsel for Resp. Province of Bulacan
Provincial Capitol Building
Malolos City, 3000 Bulacan

BALGOS GUMARU FALLERTAN

&JAVIER
Counsel for Resp. Bargain Specialists, Inc.
1009 West Tektite Tower
Philippine Stock Exchange Centre
Exchange Road, Ortigas Center
1605 Pasig City

The Hon. Presiding Judge

Regional Trial Court, Branch 9
Malolos City, 3000 Bulacan
(Civil Case No. 641-M-2005)

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