WATERFIELDS INDUSTRIES CORPORATION, REPRESENTED BY ITS PRESIDENT ALIZA MA, PETITIONER, VS. SPOUSES ALEJANDRO MANZANILLA AND REMEDIOS VELASCO, RESPONDENTS.
CRUZ, J.
Pursuant to their Contract of Lease dated May 24, 1994 (or “Contract”), respondents leased the subject property to petitioner at a monthly rental of P18,000.00 payable within the first ten days of each month, with the latter making a rental deposit in the amount of P216,000.00 as provided in Sec. 4 thereof.
The lease was for a period of 25 years beginning on May 24, 1994, which date was later changed to June 6, 1994.
On July 9, 1997, petitioner’s president, Aliza H. Ma, wrote to respondents promising to pay on July 10, 1997 the amount of P70,000.00 representing its unpaid rentals for April 10, 1997 to July 10, 1997 and to give a check in the sum of P18,000.00 as advance payment for the August 1997 rental.
Because of petitioner’s failure to pay rentals aggregating P108,000.00 for December 1997 to May 1998, respondents wrote the former, per letters dated May 27, 1998, June 10, 1998 and June 30, 1998, asking payment of its rental arrearages, terminating the lease and demanding that it vacate the subject property. As their demands were not heeded, respondents filed the abovementioned action for unlawful detainer on July 30, 1998.
In answer, petitioner averred that it never refused or failed to pay the rentals as it was merely utilizing its rental deposit to pay for the unpaid rentals as provided in Sec. 4 of the Contract; and that it was willing to replenish the applied rental deposit within 45 days to update its account.
On May 7, 1999, a decision was rendered by the MTC, the dispositive portion of which reads:
“WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering the latter to-
1. vacate subject premises and surrender same peacefully to plaintiffs;
2. to pay plaintiffs the sum of P108,000.00 representing rental arrears from December, 1997 to May, 1998, and the sum of P18,000.00 a month thereafter, until it has actually vacated and surrendered subject premises;
Toward this end, whatever rental deposit defendant may have, shall be taken into account to answer for the latter’s arrearages.
3. to pay the costs of suit.
SO ORDERED.”
Petitioner appealed to the Regional Trial Court of Manila (Branch 42) which, in a decision dated July 4, 2000, affirmed in toto that of the MTC.
Undaunted, petitioner filed the instant petition submitting that “the main issues involved and to be resolved in this appeal are (a) whether the appealed judgments are in accord with law and the record of this case, and whether respondents are entitled to the relief of ejectment, or (b) whether the appealed judgments should be reversed and set aside, the complaint dismissed, and (petitioner) awarded reasonable damages in this case.”
Petitioner submits that the lower court erred in not applying Sec. 4 of the Contract in respect to the unpaid rentals; that the Contract could not have been validly amended by Ms. Ma’s unsubscribed letter as it is unenforceable under the Statute of Frauds pursuant to Art. 1403, par. 2(e), of the Civil Code; that all rentals due and payable are fully paid, covered by a supersedeas bond deposited in court, exclusive of the P216,000.00 rental deposit; and that the assailed judgments are contrary to law, the record of the case and the general principle of law against unjust enrichment.
We now resolve.
According to par. 7 of the complaint, petitioner “failed to pay the rentals for the past six months already, covering the period December 1997 to May 1998 at P18,000.00 monthly or a total of P108,000.00.” Consequently, as of the filing of the action (on July 30, 1998), petitioner’s rental arrearages aggregated P144,000.00, whereas it had a rental deposit of P216,000.00.
Prior to the institution of the action, respondents terminated the Contract. Thus, par. 8 of the complaint states that “(i)n view of (petitioner’s) aforesaid violations, the lease contract of the parties was terminated and/or rescinded” per respondents’ “final letter terminating (the) subject lease contract.”
Petitioner claims that its P216,000.00 rental deposit should have been applied to their unpaid rentals pursuant to Sec. 4 of the Contract, which reads:
“Section 4. DEPOSIT. LESSORS hereby acknowledge receipt from LESSEE a rental deposit in the amount of TWO HUNDRED SIXTEEN THOUSAND (216,000.00) PESOS, Philippine currency, to answer for any unpaid rentals, damages, penalties and unpaid utility charges. Such deposit or any balance thereof shall be refunded to the LESSEE immediately upon the termination or expiration of this contract.”
In the July 9, 1997 letter, however, petitioner, thru its president, stated that the rental deposit would be utilized as follows:
“The deposit stipulated in our lease contract shall be used exclusively for the payment of unpaid utilities, if any, and other incidental expenses only and applied at the termination of the lease.”
In effect, Sec. 4 of the Contract was amended thru the July 9, 1997 letter. Such amendment was stated in par. 5 of the complaint, and admitted by petitioner in its answer (par. 2). As amended, the Contract now provides that the rental deposit would be “used exclusively for the payment of unpaid utilities, if any, and other incidental expenses only and applied at the termination of the lease.”
Respondents do not claim that as of the termination of the lease (on June 30, 1998) or as of the filing of the action (on July 30, 1998), petitioner had “unpaid utilities” and/or “incidental expenses” which could be offset against its rental deposit. In other words, petitioner’s P216,000.00 rental deposit was intact as of the termination of the lease and even as of the filing of the action.
Compensation shall take place when two persons, in their own right, are creditors and debtors of each other (Art. 1278, Civil Code). As of the filing of the action, petitioner was indebted to respondents in the amount of P144,000.00 as unpaid rentals covering the period December 1997 to July 1998, while respondents owed petitioner the sum of P216,000.00 representing its rental deposit. Offsetting the P144,000.00 unpaid rentals against the P216,000.00 rental deposit, petitioner emerges as the creditor to the tune of P72,000.00. In other words, as of the filing of the action, respondents were even overpaid in the sum of P72,000.00.
Consequently, respondents had no cause of action against petitioner for alleged violation of the Contract, particularly non-payment of rentals.
WHEREFORE, the petition is GRANTED. The decision dated May 7, 1999 of the Metropolitan Trial Court of Manila (Branch 4), as affirmed by the Regional Trial Court of Manila (Branch 42), is REVERSED and SET ASIDE and judgment is rendered DISMISSING respondents’ action for unlawful detainer against petitioner. Costs against respondents.
SO ORDERED.
Reyes, Jr. and Lanzanas, JJ., concur.