CARLOS SUPER DRUG CORPORATION, PETITIONER, VS. HON. COURT OF APPEALS AND BANK OF THE PHILIPPINE ISLANDS, RESPONDENTS.

Carlos Super Drug Corporation versus Court of Appeals and Bank of the Philippine Islands

The Case

This is a petition for review on certiorari brought by Carlos Super Drug Corporation against the Court of Appeals and the Bank of the Philippine Islands. The dispute began as a simple matter of unpaid rent in a Quezon City commercial arcade, but it grew into a question of procedure: may a lessor who has already obtained a compromise judgment in one unlawful detainer case file a second unlawful detainer case founded on the expiration of the lease embodied in that very compromise? The case matters because it draws the line between enforcing a final judgment and filing a new action, and it reminds the reviewee that jurisdiction over the subject matter is conferred by law and cannot be fixed by the agreement or the convenience of the parties.

Procedural History

The first unlawful detainer case was filed by the Bank of the Philippine Islands against Carlos Super Drug before the Metropolitan Trial Court of Quezon City, Branch 35. The parties settled it through a compromise agreement, which the court approved in May 1989. When the bank later moved for execution and for the ejectment of Carlos Super Drug, Branch 35 denied the motion, holding that the compromise agreement did not provide for ejectment and that to grant it would modify a final judgment.

The bank then filed a second unlawful detainer case, this time before Branch 38 of the same Metropolitan Trial Court. Branch 38 dismissed the case, finding that the lease had not yet expired until a new contract was formally executed, but it ordered Carlos Super Drug to pay compensation for its use and occupancy of the premises. Both parties appealed to the Regional Trial Court of Quezon City, Branch 81, which affirmed the dismissal but on a different ground: that Branch 38 had no jurisdiction, because the bank was in truth seeking to enforce the compromise agreement, and its remedy lay in the first case before Branch 35.

On appeal, the Court of Appeals reversed the Regional Trial Court. It sustained the jurisdiction of Branch 38, found that the lease had expired, held that an implied new lease had arisen, and ordered Carlos Super Drug to vacate the premises and pay the rentals due under the compromise agreement. Carlos Super Drug then came to the Supreme Court by petition for review on certiorari.

Facts

Sometime in 1978, the Bank of the Philippine Islands, then owner of the BPI Cubao Arcade in Quezon City, leased two units designated as Bays 4 and 5 to Carlos Super Drug Corporation.

In August 1985, following purported non-payment of rentals, the bank filed a complaint for unlawful detainer before Branch 35 of the Metropolitan Trial Court of Quezon City. The parties later entered into a compromise agreement, approved by the court in May 1989. Under it, effective November 16, 1988 for a term of one year, Carlos Super Drug agreed to pay a new monthly rate of 26,116 pesos and 39 centavos, and a new contract of lease was to be executed by the parties. From May 1989 onward, however, Carlos Super Drug paid only 9,564 pesos and 64 centavos, corresponding to the rental of Bay 4 alone, relying on a remark by the bank's former counsel that there should already be an imaginary line between Bays 4 and 5.

In March 1990, the bank moved for execution of the compromise judgment, and later moved to direct the sheriff to eject Carlos Super Drug. Branch 35 denied the ejectment motion, reasoning that the compromise agreement did not speak of ejectment and that granting the motion would modify a final and executory judgment. The bank then filed a second unlawful detainer case before Branch 38, anchored on the expiration of the lease and the failure to pay the agreed rentals.

Issues

• Whether or not the bank could validly file a second unlawful detainer case before Branch 38 notwithstanding the compromise agreement in the earlier case before Branch 35.
• Whether or not the lease period provided for in the compromise agreement had expired.
• Whether or not Carlos Super Drug may be ordered to vacate the subject premises.

Applicable Provisions

Section 33 of Batas Pambansa Blg. 129, as amended by Section 3 of Republic Act No. 7691, on the jurisdiction of municipal trial courts, provides:

Municipal trial courts shall have exclusive original jurisdiction over cases of forcible entry and unlawful detainer.

This is the provision the Court of Appeals invoked to sustain the jurisdiction of Branch 38, and it bears on the case because it shows that jurisdiction over the second action was conferred by law and did not depend on the existence of the compromise judgment.

Paragraph 3 of the compromise agreement, which the Court quotes in its decision, provides:

That effective November 16, 1988 for a term of one year, defendant agrees to pay a new monthly rental rate of P26,116.39. For this purpose, a new contract of lease shall be executed by the parties.

This is the clause the Court reads to fix the one-year term and to show that the lease had already expired before the second case was filed.

Ruling

On the first issue, the Court held that the second unlawful detainer case was properly filed. The bank had in fact filed a motion for execution before Branch 35, and Carlos Super Drug opposed it. More importantly, the Court looked to the allegations of the complaint in the second case, which anchored the cause of action on the expiration of the lease, the failure to pay back rentals, and the refusal to vacate. Jurisdiction over the subject matter is conferred by law, and the municipal trial court had exclusive original jurisdiction over unlawful detainer.

On the second issue, the Court held that the lease had expired. The compromise agreement fixed a term of one year from November 16, 1988, and the Court quoted the clause to show that the term ended on November 16, 1989. Since the one-year lease had expired, Carlos Super Drug was already unlawfully withholding possession of the premises when the bank filed the second case in June 1990.

On the third issue, the Court held that Carlos Super Drug could be ordered to vacate. Its claim that the bank was estopped from asserting that the lease covered both bays did not lie, because when Carlos Super Drug requested the relinquishment of Bay 5, it was notified that the bank's management had disapproved the request. More importantly, Carlos Super Drug knowingly entered into the judicially approved compromise agreement under which it undertook to pay the monthly rental for the two units leased.

Doctrine

A lessor may file a separate action for unlawful detainer founded on the expiration of the lease, even if the lease terms are embodied in a compromise judgment in an earlier case, because jurisdiction over the subject matter is conferred by law and not by the agreement of the parties. The cause of action is determined by the allegations of the complaint, and where those allegations rest on the expiration of the lease and the refusal to vacate, the municipal trial court has exclusive original jurisdiction under Section 33 of Batas Pambansa Blg. 129, as amended. A compromise agreement is final and executory and may not be modified by the court that approved it, but that rule does not bar a new action whose cause of action has arisen independently of the compromise. Finally, a party who knowingly enters into a judicially approved compromise agreement is bound by its terms and cannot later invoke estoppel against the other party on the basis of an unapproved request.

Disposition

The petition was denied, and the decision of the Court of Appeals was affirmed, so the bank prevailed and Carlos Super Drug was ordered to vacate the premises and pay the rentals due under the compromise agreement.

Remember This

The single line worth memorizing is that jurisdiction over the subject matter is conferred by law and not by the parties, so a compromise judgment does not bar a later unlawful detainer action grounded on the expiration of the lease. Examiners like to use this case to test the distinction between enforcing a final judgment and filing a new action, and to test whether a candidate can identify the cause of action from the allegations of the complaint.