EDSEL LIGA, PETITIONER, VS. ALLEGRO RESOURCES CORP., RESPONDENT.

Liga versus Allegro Resources

The Case

This is the story of a stallholder in the Greenhills Shopping Arcade who stayed on after her original lease chain had collapsed, signed a new sublease with the incoming lessee, and then stopped paying. Edsel Liga, the petitioner, asks the Supreme Court to reverse the Court of Appeals, which had ordered her to pay back rentals to the new lessee, Allegro Resources Corporation, and also to the original owner, Ortigas and Company, a party who never sued her. The case matters for two enduring lessons: a judgment may not award relief to a stranger to the action, and a contract freely signed is the law between the parties, with interest running from extrajudicial demand.

Procedural History

Allegro filed a complaint for ejectment before the Metropolitan Trial Court of San Juan, Branch 57. The Metropolitan Trial Court ruled for Allegro, ordering Liga to vacate the stall and to pay back rentals and reasonable compensation for the use of the premises. On appeal, the Regional Trial Court affirmed but modified the money awards, extending the lease for two years at a lower monthly rental of 20,000 pesos. Allegro then filed a petition for review under Rule 42 before the Court of Appeals, which granted the petition, set aside the Regional Trial Court decision, and ordered Liga to pay Ortigas back rentals of 20,000 pesos a month from January to August 2001, to pay Allegro 40,000 pesos a month from September 2001 until she vacates, and to pay attorney's fees and costs. The Court of Appeals denied Liga's motion for reconsideration. Liga came to the Supreme Court by petition for review under Rule 45.

Facts

In October 1975, Ortigas leased a parcel of land in San Juan to La Paz Investment and Realty Corporation for twenty five years, ending on 31 December 2000. La Paz built the Greenhills Shopping Arcade and subleased stalls to various parties, among them Edsel Liga, who held the leasehold right to Unit Number 26, Level A. When the La Paz lease expired, the stallholders tried to have their rights extended, but Ortigas refused. Even so, Ortigas allowed Liga to remain in possession.

In August 2001, Ortigas informed the stallholders' association of the impending lease of the arcade to Allegro Resources Corporation. In September 2001, Ortigas and Allegro executed a contract of lease, with an addendum directing Allegro to take immediate possession and control of the premises and to assist in collecting back rentals due Ortigas from January to August 2001. Allegro then offered to sublease Unit Number 26 to Liga, and they entered into an agreement called Rental Information, under which Liga agreed to pay 40,000 pesos monthly starting 1 September 2001, plus the back rentals due Ortigas. She paid one month advance rental and one month security deposit, each 40,000 pesos.

That was the end of her compliance. Despite repeated demands, Liga failed to pay her rentals and the back rentals. Allegro sued for ejectment.

Issues

• Whether or not the Court of Appeals erred in ordering Liga to pay Ortigas back rentals for January to August 2001, when Ortigas is not a party to the case.
• Whether or not Allegro is estopped from claiming 40,000 pesos monthly rentals because it filed a motion to release the cash bond in its favor.
• Whether or not Liga is liable for attorney's fees and costs of suit.

Applicable Provisions

Section 1 of Rule 70 of the Rules of Court provides:

SECTION 1. Who may institute proceedings, and when. Subject to the provisions of the next succeeding sections, a person deprived of the possession of any land or building by force, intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or other person against whom the possession of any land or building is unlawfully withheld after the expiration or termination of the right to hold possession, by virtue of any contract, express or implied, or the legal representatives or assigns of any such lessor, vendor, vendee, or other person, may at any time within one (1) year after such unlawful deprivation or withholding of possession, bring an action in the proper Municipal Trial Court against the person or persons unlawfully withholding or depriving of possession, or any person or persons claiming under them, for the restitution of such possession, together with damages and costs.

This provision defines who may sue for restitution and damages, and the Court uses it to test whether Allegro could recover Ortigas's back rentals.

Article 1159 of the Civil Code provides:

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

This anchors the ruling that Liga is bound by the 40,000 peso rental she agreed to.

Article 1306 of the Civil Code provides:

The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

This supports the binding force of the Rental Information as between Liga and Allegro.

Article 2208 of the Civil Code, as invoked by the Court, allows attorney's fees and costs where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim.

Finally, the Court applies its guidelines on interest, under which, in the absence of stipulation, the rate of interest is twelve percent per annum computed from default, that is, from judicial or extrajudicial demand.

Ruling

On the first issue, the Court ruled for Liga. Ortigas is not a party to the case, and no relief can be extended in a judgment to a stranger. Although Section 1 of Rule 70 allows the legal representatives or assigns of a lessor to sue, Allegro never averred in its complaint that it was acting as Ortigas's legal representative, and there was no allegation, prayer, or evidence seeking collection of Ortigas's back rentals. A judgment must conform to both the pleadings and the evidence; it must be secundum allegata et probata, meaning according to what is alleged and proved. The Court cited earlier cases where relief not prayed for was struck down.

On the second issue, the Court ruled for Allegro. A contract is the law between the parties, and Liga had acquiesced to the 40,000 peso rate when she signed the Rental Information. The filing of the motion to release the cash bond did not estop Allegro, because estoppel cannot rest on mere argument or doubtful inference, and Allegro's petition for review itself challenged the reduction of the rental rate. The Court noted that partial execution of a money judgment in an ejectment suit at the plaintiff's instance is procedurally sound.

On the third issue, the Court upheld the award of attorney's fees and costs, since Liga acted in gross and evident bad faith in refusing to satisfy a plainly valid and demandable claim. The Court, however, added interest, quoting its guidelines:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

The back rentals being equivalent to a loan or forbearance of money, interest at twelve percent per annum runs from the extrajudicial demand on 15 December 2001.

Doctrine

First, no relief may be granted in a judgment to a person who is not a party to the case; a lessee suing for ejectment cannot recover the former lessor's back rentals unless it pleads and proves that it sues as that lessor's legal representative or assign under Section 1 of Rule 70, and unless the complaint prays for that relief.

Second, a judgment must conform to the pleadings and the evidence, secundum allegata et probata, and courts must limit themselves to the issues the parties raised.

Third, obligations arising from contracts have the force of law between the parties and must be complied with in good faith; the literal meaning of clear stipulations controls, and estoppel cannot be sustained by mere argument or doubtful inference.

Fourth, attorney's fees and costs may be awarded where the defendant acted in gross and evident bad faith in refusing to satisfy a plainly valid, just and demandable claim, and back rentals are treated as a forbearance of money, earning twelve percent interest per annum from extrajudicial demand.

Disposition

The petition was denied; the Court of Appeals decision was affirmed with the modification that the award of back rentals to Ortigas was deleted and Liga was ordered to pay Allegro twelve percent interest per annum on the back rentals from 15 December 2001 until fully paid.

Remember This

Memorize this line: a judgment cannot bind or benefit a stranger to the case, and a contract is the law between the parties. Examiners use this case for the rule against awarding relief to non parties and for the twelve percent interest on back rentals from extrajudicial demand.