SPOUSES RAMON AND REBECCA NIEVES, PETITIONERS, VS. HONORABLE COURT OF APPEALS, HON. TOMAS V. TADEO AND LEO YADAO, RESPONDENTS.

This petition seeks the reversal of the decision of the Court of
Appeals in C.A.-G.R. No. 10809 entitled “Spouses Ramon and Rebecca Nieves
versus Hon. Tomas V. Tadeo, Jr., as Presiding Judge, Regional Trial Court,
Branch 105, Quezon City and Leo Yadao,” which affirmed the decision of the
Regional Trial Court ordering the eviction of petitioners from the premises
subject of the controversy.

The facts are as follows:

Spouses Ramon and
Rebecca Nieves were lessees of an apartment building owned by Leo Yadao located
at No. 3-A, 18th Avenue, Murphy, Cubao, Quezon City.  The letter-contract dated April 10, 1980
evidencing the lease agreement for a
period of four (4) years, to end on June 1, 1984, was presented as Annex
“A” to complaint.  The monthly
rental was P363.00 with a ten percent (10%) yearly increase.  (p. 21, Rollo).

The lessor-lessee relationship between the parties continued
despite the lapse of the written contract.

On June 15, 1985, Yadao wrote the Nieves spouses stating that the
rental for the period from July 1, 1985 to December 31, 1985 would be
P642.00.  The latter did not object.

After the lapse of one month or on July 15, 1985, Yadao again
wrote the Nieves spouses informing them that effective August 1, 1985, the
monthly rental would be increased to P1,300.00. 
The Nieves spouses refused to
agree to the increase.  Their payment of
P641.82 for the month of August, 1985 was refused by Yadao.

On August 6, 1985, Yadao demanded from the Nieves spouses the
payment of P1,300.00 monthly rental or should they not agree to the increase,
that they vacate the premises.  The
spouses refused to pay the increased rent
and to vacate the leased premises.

The matter was brought to the Katarungang Pambarangay but no
settlement was reached by the parties. 
Hence, on September 9, 1985, Yadao brought an action for ejectment
before the Metropolitan Trial Court of Quezon City.  The case was docketed as Civil Case No.
37-48454 (p. 3, Rollo).

The Nieves spouses for their part, filed a petition for
consignation and annulment of document with the Regional Trial Court of Quezon
City, docketed as Civil Case No. 46303
[46304] (p. 3, Rollo).

After trial, a decision (pp. 13-16, Rollo) in Civil Case
No. 37-48454 dated April 30, 1986 was rendered dismissing Yadao’s complaint for
ejectment on two grounds, to wit:  1)
failure of Yadao to comply with the three (3) month advance notice to evict as
required by B.P. 877 (Rent Control Law); and 2) the lease contract between the
parties was renewed in the letter (Annex “2” of the Answer) of Yadao
and he is estopped from unilaterally amending or revoking said contract. 
He appealed to the Regional Trial Court of Quezon City.

Meanwhile, on November 24, 1986, the parties in Civil Case No.
46303 for consignation and annulment, entered into an agreement setting the
monthly rental to P641.82 for the period from August 1985 to November
1986.  This settlement was confirmed by
the court (p. 18, Rollo).

In the ejectment case, the decision of the Municipal Trial Court
was reversed by the Regional Trial Court in a decision dated November 25, 1986
(pp. 21–24, Rollo), concluding that: 
1) upon the termination of the four year written contract of lease, the
lease was on a month to month
basis; and 2) the rule requiring three (3) month prior notice to evict does not apply because the lease is not covered
by B.P. 877.  The dispositive portion of
the decision reads:

“WHEREFORE, premises considered, the decision appealed from is
hereby REVERSED; and a new one is hereby rendered:

“a) ordering
the defendants and all persons claiming rights under them to vacate the
premises in question and surrender possession thereof to plaintiff; and,

“b)  ordering defendants to pay unto plaintiff
rental computed at P1,300.00 monthly from August 1, 1985 up to the time
defendants vacate the premises.

“NO COST.” (p. 24, Rollo)

The Nieves spouses filed a petition for review of the Regional
Trial Court decision with the Court of Appeals. 
On June 15, 1988, the Court of Appeals dismissed the petition and
affirmed the decision of the Regional Trial Court (pp. 25-33, Rollo).  The Court of Appeals
agreed with the Regional Trial Court that:

“There seems to be no question that the month-to-month lease
agreement between the parties in the case had been duly terminated by the
private respondent’s letter of August 6, 1985 which demanded that the
petitioners pay a monthly rental of P1,300.00 or to vacate the premises should
they not agree to the rental demanded. 
Since the petitioners did not agree to the rental asked for by the
private respondent, their monthly lease agreement is terminated.  This is sanctioned by Articles 1673 and 1687
of the Civil Code of the Philippines.

“As to the question of whether or not the area is within a
zone specified as an urban land reform area, the petitioners has failed to show
that the respondent Judge committed error in finding that the leased premises
is not in “one of the 244 sites in Metro Manila as areas for priority
development and urban land reform zone as specified in Proclamation No. 1967
dated May 14, 1980.” (pp. 30-31, Rollo)

The spouses moved for the reconsideration of the decision,
alleging for the first time the existence of a compromise agreement by the
parties in the consignation case.  On September 7, 1988, the motion for
reconsideration was dismissed (pp. 34-35, Rollo).

In this petition, the Nieves spouses raise the following
assignment of errors:

I.  THE HONORABLE COURT OF APPEALS ERRED IN
FAILING TO APPRECIATE THE LEGAL NOVATION EFFECTED BY THE COMPROMISE AGREEMENT
DATED NOVEMBER 24, 1986 FIXING THE MONTHLY RENTAL DUE ON THE DECISION OF THE
RESPONDENT COURT.

II.  THE HONORABLE COURT OF APPEALS ERRED IN
FAILING TO CONSIDER OR TAKE JUDICIAL NOTICE OF THE FACT THAT SUBJECT APARTMENT IS
WITHIN AN AREA FOR PRIORITY DEVELOPMENT (APD) ZONE AND THEREFORE PETITIONERS BY
FORCE OF PD 1517 AND PRESIDENTIAL PROCLAMATION 1967 ARE BENEFICIARIES OF
“NO EVICTION RULE” UNDER THE SAME.

III.  THE HONORABLE COURT OF APPEALS ERRED IN
FAILING TO REVERSE THE DECISION OF RESPONDENT COURT IN FAVOR OF PETITIONERS.

In their first assignment of error, there is no merit in the
contention of petitioners that the compromise agreement entered into by the
parties on November 24, 1986 effected a novation in the lease contract and had
the effect of res judicata in the ejectment case.

First, the said agreement, although captioned “Compromise
Agreement” was not a compromise in contemplation of our existing civil
laws.  The compromise agreement entered
into by the respective counsel of the parties in the case for consignment and
annulment of document is hereunder quoted:

“COMPROMISE
AGREEMENT

“COME NOW counsel of both parties in the above entitled case
manifesting their agreement as to the amount of rental in arrear for the period FROM August, 1985 up to November 1986
inclusive.

“Both counsel are in agreement in the amount of P10,269.12 as
the rental in arrear for the above PERIOD.

“x x x.” (p.17, Rollo).

A compromise is a
contract whereby the parties, by making reciprocal concessions, avoid a
litigation or put an end to one already commenced (Art. 2028, New Civil Code of
the Philippines).  A compromise has upon
the parties the effect and authority of res judicata (Art. 2037,
supra), with respect to matters definitely stated
therein, or which by implication from its
terms should be deemed to have been
included therein (Art. 2016, supra).

In the instant case, the parties did not agree to put an end to
the ejectment case as part of the concession in their compromise
agreement.  Neither party filed a motion
to dismiss the appeal in the ejectment case in view of the “compromise
agreement” in the consignation
case.  In fact, the respondent Court of
Appeals had correctly refused to consider the matter of the “compromise
agreement” since the petitioners brought this to its attention only in the
motion for reconsideration of its decision.

Second, there was no more contract of lease to be novated.  Contracts are created by the meeting of the
minds of the parties.  When, from the
facts of the case, the lessor had clearly shown his disagreement to enter into
a contract of lease with another unless the lessee will pay him the increased
rent, no contract of lease is created, there was no more lessor-lessee
relationship between petitioners and private respondent.  Private respondent
had from then a cause of action against the petitioners.  Thus, in Ching Pue v. Gonzales, G.R. Nos.
L-2554-2564, July 21, 1950, 87 Phil. 81, We ruled:

“Another question to be considered is the relation between the
petitioners and respondent.  As already
stated, the former claim that they are debtors of Gonzales and as such they
made tender of payments of the rentals, and when tender was refused, they made
the deposits in court.  Up to February,
1947, when the landlord (Gonzales) notified his tenants to either pay the
increased rents or vacate the premises, the petitioners as regards the old
rentals due might be regarded as debtors of their landlord; but after that time
when they refused to pay the increased rents, as a result of which the landlord
decided to terminate the leases which according to him, he had right to do
because the leases were from month to month, such relation of debtor and
creditor ceased.  x x x.”

The “compromise agreement” is not a new lease contract
voluntarily entered into by the parties because the intention of the private
respondent to the contrary is
clear.  No contract of lease was created
by the “compromise agreement”. 
Only a reasonable payment in arrears for actual use of the premises was
provided therein and the months following the execution of the agreement were not
covered.

Since We have ruled above that the “Compromise
Agreement” entered into by the parties was not a compromise agreement in
contemplation of law, the same cannot operate as res judicata in the ejectment case.  Besides, one of the requisites for res
judicata to
apply is not present.  There is no
identity of causes of action in the two cases.  In determining the question of the identity
of causes of action, the following test is as a rule sufficient:  “Would the same evidence support and
establish both the present and the former cause of action?” (Penalosa v.
Tuason, 22 Phil. 303).  In an action for
unlawful detainer, evidence is presented to prove that the occupation is
legal.  In an action for consignation a
different set of evidence is presented to prove that, there being a
creditor-debtor relationship, the creditor refuses, without just cause, to
receive payment by the debtor.

In the case at bar, there exists a sufficient ground on the part
of the private respondent to eject the petitioners from the premises and that
is, the latter’s refusal to pay the increased rate.

“The rule is settled that the owner of the land leased has the
right not only to terminate the lease at the expiration of the term, but also
to demand a new rate of rent.  The tenant
or lessee has the option either to accept
the new rent or vacate the premises. 
(Iturralde v. Alfonso, 7 Phil. 576; Iturralde v. Evangelista, 7 Phil.
588; Iturralde v. Magcauas, 9 Phil. 599; Cortez v. Ramos, 46 Phil. 189).  As plaintiffs, after the termination of this
lease, refused either to pay the new rent or to vacate the lot after the
termination of their lease, they have evidently become deforciants, and can be ousted
judicially without the need of demand [Bulahan, et al. v. Tuason, et al., 109
Phil. 251, citing Co Tiamco v. Diaz, 75 Phil. 672, Article 1669, New Civil
Code; reiterated in Gindoy v. CA, 97 SCRA 453 cited in Lesaca v. Cuevas,
L-48419, October 27, 1983).”

Only where the rental demanded is clearly exorbitant or
unreasonable would the courts intervene as a matter of fairness and
equity.  The burden of proof to show that
the rental demanded is exorbitant and unreasonable rested upon the lessee, and
since the lessee presented no evidence in substantiation of his claim other
than the original cost to the lessor of
the property, he has manifestly
failed to discharge its burden (Vda.
de Roxas v. Court of Appeals, 63
SCRA 302).  The trial court justified the
increase in rental demanded by private respondent by the fact that the
apartment is located near the commercial area in Cubao and the two military
camps, Aguinaldo and Crame.

Presidential Decree No. 1642 dated September 21, 1979, froze the
rates of rentals of residential and commercial buildings, apartment houses and
dwelling units within Metropolitan Manila above three hundred (P300.00) pesos
as the monthly rental then prevailing. 
No law was subsequently passed expressly repealing P.D. 1642.  Considering however, that in Batas Pambansa
Bilang 877, passed on June 12, 1985, the maximum rent regulated by the rent control law was already
P480.00, higher than the minimum monthly rental covered by P.D. 1642, and which
has, as of January 1, 1992 been upped to
P1,891.92 (R.A. 6828), P.D. 1642 is deemed repealed and is no longer good law.

It is settled that the rent control law does not apply to this
case because the prevailing rental agreeable to the parties at the time of the
effectivity of BP 877 was already P584.61 (p. 21, Rollo), while BP 877
which became effective on June 12, 1985, only covered rentals not exceeding
P480.00.

The respondent appellate court, however, erred in ruling that the
premises in question are not within the area for Priority Development Zone
decreed under Presidential Proclamation 1967 pursuant to Section 4 of P.D. 1517 (Urban Land Reform Act).  The apartment and the lot fall within an
urban land reform zone as provided in No. 49, Quezon City, Presidential
Proclamation 1967.

The fact that the apartment in question lies within an area
declared as an urban land reform zone however, does not help petitioners’
cause.  Beneficiaries of the Urban Land Reform Law (Presidential Decree 1517) should
refer to tenants or families qualified to
avail of its benefits and not the properties covered
by it (Vergara v. IAC, G.R. No. 74998, May 7, 1990, emphasis
supplied).

The “no eviction” rule invoked by petitioners as
embodied under Section 6 of PD 1517 provides:

SECTION 6. Land Tenancy in Urban Land Reform Areas.  Within the Urban Zones legitimate tenants who
have resided on the land for ten years or more who have built their homes on
the land and residents who have legally occupied the lands by contract,
continuously for the last ten years shall not be dispossessed of the land and
shall be allowed the right of first refusal to purchase the same within a
reasonable time and at reasonable prices,
under terms and conditions to be determined by the Urban Zone
Expropriation and Land Management Committee created by Section 8 of this
Decree.

The rule applies only to land tenants who have resided for ten
years or more on the land declared as within the Urban Land Reform Zone and who
have built their homes on the land.  It
does not apply to apartment dwellers.

ACCORDINGLY, the petition is DENIED.  The questioned decision of the Court of
Appeals is AFFIRMED with the
modification that the monthly rentals of P1,300.00 be paid not from
August 1, 1986 but from December 1, 1987.

SO ORDERED.

Narvasa, (Chairman), Cruz, and
Gancayco, JJ., concur.

Grino-Aquino, J., on leave.