G.R. No. L-31920 April 8, 1988
LIMPAN INVESTMENT CORPORATION, petitioner, vs. LIM SY, respondent.

FACTS

Limpán Investment Corporation sought to eject Lim Sy from leased premises in Manila. Lim Sy had been a lessee since 1953. A prior judicial history existed: in 1954, the then-owner, Isabelo P. Lim, filed an ejectment case. The Court of Appeals, in a 1957 decision, ultimately fixed the reasonable monthly rental at P600 and denied ejectment. Lim Sy paid this rate. In 1959, the owners demanded an increase to P750 and filed a new ejectment case, which the municipal court dismissed on grounds of res judicata, a decision that became final. In 1963, Limpan, now claiming sole ownership, sent a notice terminating the lease as of June 30, 1963, and demanding a new rental of P950. Upon Lim Sy’s refusal, Limpan filed the present ejectment action.
The City Court dismissed the complaint, upholding Lim Sy’s defense of res judicata, a decision affirmed by the Court of First Instance and the Court of Appeals. The appellate court found no change in conditions to justify a rental re-examination and viewed the action as an attempt to nullify the final 1957 CA decision. Limpan elevated the case to the Supreme Court via certiorari.

ISSUE

Whether the principle of res judicata bars the present ejectment action filed after a valid notice to terminate the lease and a demand for a new rental rate.

RULING

The Supreme Court REVERSED the Court of Appeals. The legal logic centers on the distinction between a continuing lease and a terminated one. The 1957 CA decision fixed a reasonable rental for the occupancy during the subsistence of the lease. However, the owner-lessor retains the right to terminate the lease upon its expiration and to propose new terms for renewal. The notice sent in June 1963 was a valid termination of the monthly lease. This termination created a new juridical situation. The subsequent demand for a new rental (P950) was an offer for a new contract. Lim Sy’s refusal to accept the new rate or vacate constituted a new cause of action for unlawful detainer, distinct from the prior cases which involved disputes over rental rates during an ongoing lease. The Court cited Viray vs. Marinas, ruling that a final dismissal in a prior ejectment case does not preclude a new action based on a fresh demand and refusal after lease termination. Res judicata does not apply because the cause of action here—detainer after a valid termination and rejection of new terms—is not identical to the cause in the prior suits, which involved the reasonableness of rent during the lease’s continuance. The owner’s right to fix rent for a new lease period cannot be usurped by the courts.