GR 171365; (October, 2010) (Digest)
G.R. No. 171365 ; October 6, 2010
ERMELINDA C. MANALOTO, et al., Petitioners, vs. ISMAEL VELOSO III, Respondent.
FACTS
This case originated from an unlawful detainer action filed by petitioners-lessors against respondent-lessee for non-payment of rent. The Metropolitan Trial Court (MeTC) ruled for the petitioners. On appeal, the Regional Trial Court (RTC) reversed the MeTC, ordering the respondent to pay arrearages but giving him the option to stay subject to reimbursement for improvements, a decision which eventually became final. While that appeal was pending, the petitioners distributed copies of the unfavorable MeTC decision to homeowners in the village. Subsequently, after the unlawful detainer case concluded, the respondent filed a separate Complaint for Breach of Contract and Damages before another RTC branch (Branch 227). His complaint alleged two causes: first, for moral and exemplary damages due to humiliation from the distribution of the MeTC decision; and second, for breach of contract and reimbursement for alleged advance payments for property repairs.
ISSUE
The core issue is whether the respondent’s Complaint for Breach of Contract and Damages, particularly its first cause of action for damages arising from the distribution of the MeTC decision, constitutes a splitting of a cause of action and is barred by prior judgment.
RULING
The Supreme Court partially granted the petition. It held that the second cause of action for breach of contract and reimbursement was indeed barred by res judicata. The claims for advances and improvements were compulsory counterclaims that could and should have been raised in the prior unlawful detainer case, which had been finally adjudicated. Therefore, splitting this cause of action was impermissible.
However, the Court ruled that the first cause of action for damages based on the distribution of the MeTC decision was not barred. This claim did not exist at the time of the unlawful detainer filing; it accrued only when the petitioners disseminated the decision while the appeal was pending. It constituted a separate, distinct cause of action for quasi-delict or abuse of rights, not arising from the lease contract itself. The Court clarified that a hypothetical admission of allegations for a motion to dismiss only tests the sufficiency of the complaint, not its ultimate merit. Thus, the complaint was reinstated solely for the first cause of action, and the case was remanded to the RTC for trial on the merits regarding whether the act of distribution was done in bad faith to justify an award of damages.