Campo Assets Corporation vs. Club X. O. Company

A lessor's affirmative right of action to eject a lessee who has abandoned leased premises constitutes a valid defense against a forcible entry action, and a third party not privy to the lease contract cannot claim a better right to possession than the lessee who forfeited that right through abandonment.

Campo Assets Corporation held a contract of lease with the owner of premises located at the corner of Roxas Boulevard and San Luis Street, Pasay City. Alma Arambulo operated a food and entertainment business on those premises pursuant to a Memorandum of Agreement executed on January 5, 1991 between her husband and Campo Assets. On August 3, 1993, Arambulo renewed the Memorandum of Agreement with Campo Assets, agreeing to pay a guaranteed monthly income of ₱88,000, with the agreement co-terminus with Campo Assets' lease from the owner. In June 1994, Arambulo entered into a partnership with Chan York Gui (Allan) for the operation of the business, which was renamed Club X. O. Disco Theater and registered with the Securities and Exchange Commission as Club X. O. Company.

Alma Arambulo operated a food and entertainment business establishment at the corner of Roxas Boulevard and San Luis Street, Pasay City, pursuant to a Memorandum of Agreement executed on January 5, 1991 between her husband and Campo Assets Corporation, which held a contract of lease with the owner of the subject premises. On August 3, 1993, Arambulo renewed the Memorandum of Agreement with Campo Assets to continue operating the business, then known as "Hand-in-Hand Disco." Under the renewed agreement, Arambulo undertook to pay a guaranteed monthly income of ₱88,000 to Campo Assets on or before the 15th day of each month starting June 1993, with the agreement co-terminus with Campo Assets' lease from the owner. Paragraph VI of the Memorandum of Agreement provided that in case the premises were deserted or vacated before expiration of the agreement, Campo Assets could enter the premises as Arambulo's agent, either by force or otherwise, without liability for prosecution, and could retake and operate the business or relet it, applying income to the guaranteed monthly payment and holding Arambulo liable for any deficiency.

Sometime in June 1994, Arambulo entered into a partnership agreement with Chan York Gui (Allan) for the operation of the business, which was renamed Club X. O. Disco Theater. The partnership was registered as Club X. O. Company with the Securities and Exchange Commission. Club X. O. operated the business and introduced improvements on the premises. According to Campo Assets, Arambulo and Allan had been clandestinely operating the business without involving Campo Assets, and when Campo Assets discovered the fraud, Arambulo and Allan abandoned the business, leaving their personnel on the abandoned premises.

On or about January 13, 1996, Campo Assets took possession of the club's premises, claiming that Arambulo had abandoned the premises and that the re-taking was pursuant to Paragraph VI of the Memorandum of Agreement. Club X. O. alleged that Campo Assets sent several security guards who took possession by means of force and intimidation, padlocked the club's entrance, and detained some employees for about a day. Campo Assets denied these allegations, asserting that the premises had already been abandoned and that the presence of employees was explained by the fact that Arambulo and Allan had left their personnel behind when they abandoned the business.

On April 1, 1996, Club X. O. Company, represented by Allan, filed a complaint for forcible entry in the Metropolitan Trial Court, Pasay City, docketed as Civil Case No. 256-96, to recover possession of the premises and damages. The MeTC found that Arambulo had failed to pay the guaranteed income, violated the agreement, and abandoned the premises, and that Campo Assets' taking of possession was pursuant to the valid resolutory condition in Paragraph VI. The RTC affirmed this finding in toto, stating that "when Alma Arambulo failed to pay the guaranteed income to appellee, she did violate the agreement and worse, she deserted the premises as in fact she abandoned it." The Court of Appeals reversed, holding that Club X. O.'s prior possession gave it a cause of action for forcible entry and declaring Paragraph VI void for being against public order.

• Abandonment as Factual Finding: Petitioner contended that the Court of Appeals overlooked the trial court's factual finding that the premises had been actually abandoned by Arambulo, and that since the leased property was already abandoned, no force was necessary and none was employed in taking over the premises.
• Validity of Paragraph VI: Petitioner sought to confine the core issue to the validity of Paragraph VI of the Memorandum of Agreement, arguing that the stipulation was in the nature of a resolutory condition not proscribed by law.

• Prior Possession: Respondent insisted that it was in complete possession of the leased premises when the questioned takeover took place, having entered the premises when the active management of the business was turned over by Arambulo pursuant to their partnership agreement, and that it therefore had the right to seek redress through the court.
• Consent to Takeover: Respondent claimed that by its own conduct, Campo Assets had consented to the take-over of the operation of the business by the Club X. O. partnership.

• Validity of Paragraph VI: Whether Paragraph VI of the Memorandum of Agreement, authorizing the lessor to re-enter the leased premises by force or otherwise upon abandonment or vacation, is void for being against public order.
• Cause of Action for Forcible Entry: Whether respondent Club X. O. has a valid cause of action for forcible entry against Campo Assets given the factual finding of abandonment by Arambulo and the absence of privity of contract between Club X. O. and Campo Assets.

• Validity of Paragraph VI: The stipulation is legally vulnerable but no definitive pronouncement was made, recourse to Paragraph VI having been unnecessary in this case. The clause authorizes unqualified force against persons in actual possession without requiring notice, which would allow the lessor to take the law into his own hands and undermine the philosophy behind the remedy of forcible entry.
• Cause of Action for Forcible Entry: No. The forcible entry action fails because the trial courts' factual finding of abandonment by Arambulo is binding, giving Campo Assets an affirmative right of action to eject that constitutes a valid defense against the suit, and Club X. O. is not privy to the lease and cannot claim a better right than Arambulo, who had already lost her right to possession.

• Validity of Paragraph VI: While parties to a lease contract may agree on stipulations delineating their rights and obligations, provided these are not contrary to law, morals, good customs, public policy, or public order, Paragraph VI goes beyond what was upheld in Viray vs. IAC, where the stipulation did not authorize the use of force. Paragraph VI employs prefatory words limiting its operation to situations where the premises are deserted or vacated, implying re-entry against property only, but does not proscribe re-taking by force against persons still in actual possession under a questioned right. Moreover, there is no requirement of notice before re-entry, contrary to jurisprudence requiring notice of resolution when parties expressly reserve an option to rescind upon violation of a resolutory condition. Permitting unqualified force without notice would allow the lessor to take the law into his own hands, undermining the philosophy behind forcible entry, which is to prevent breach of the peace and compel parties to resort to law alone. However, the Court found it unnecessary to make a definitive pronouncement because recourse to Paragraph VI was not necessary: the trial court's finding of abandonment, affirmed by the RTC, meant Campo Assets had acquired a right of action to judicially eject the lessee regardless of Paragraph VI.

• Cause of Action for Forcible Entry: The MeTC's factual finding that Arambulo had abandoned the premises, affirmed by the RTC, is binding upon the appellate court. When a lessor has licitly terminated the lease and acquired an affirmative right of action to oust the tenant, that right constitutes a valid defense against, and is fatal to, any action by the lessee to regain possession. With more reason must the forcible entry case fail here because Club X. O. is not even privy to the contract of lease between Arambulo and Campo Assets. Club X. O. cannot claim a better right than Arambulo, who had already lost her right to retake possession when she abandoned the leased property. The Court found no basis for the CA's statement that Campo Assets could not barge into the premises and forcibly retake possession without resorting to proper judicial processes, given the binding factual finding of abandonment.

• Resolutory Condition in Lease Contracts — A stipulation allowing the lessor to re-enter and take possession of leased premises upon breach by the lessee may be valid as a resolutory condition, provided it is not contrary to law, morals, good customs, public policy, or public order. The Court in Viray vs. IAC upheld such a stipulation that did not authorize force, but cautioned that a stipulation authorizing unqualified force against persons in actual possession, without notice, is legally vulnerable as it would allow self-help and undermine the policy behind forcible entry proceedings.

• Affirmative Right of Action as Defense in Forcible Entry — When a lessor has licitly terminated a lease and acquired an affirmative right of action to oust the tenant, such right constitutes a valid defense against, and is fatal to, any action by the lessee to regain possession. This doctrine applies with greater force where the party filing the forcible entry suit is not even privy to the lease contract.

• Binding Factual Findings of Trial Courts — Factual findings of the trial court, especially when affirmed by the RTC, are binding upon the appellate court and are generally not disturbed on review, particularly on questions of abandonment and possession.

• Privity of Contract — A party who is not privy to a contract of lease cannot claim a better right to possession than the lessee under that contract. Where the lessee has forfeited the right to possession through abandonment, a third party deriving its interest from that lessee has no independent cause of action for forcible entry against the lessor.

• "Permitting the use of unqualified force to repossess the property and without condition of notice upon the lessee is fraught with dangerous possibilities." — The Court articulated why Paragraph VI was legally vulnerable, even though it declined to make a definitive ruling on its validity, emphasizing the dangers of allowing self-help repossession without notice.

• "Certainly, in filing the case of forcible entry against Campo Assets, Club X. O. cannot claim a better right than that of the lessee, Arambulo, who had already lost her right to retake possession when she abandoned the leased property." — This passage states the ratio decidendi on the lack of cause of action, tying the absence of privity to the lessee's forfeiture of possession through abandonment.

• "When the lessor has licitly terminated the lease and had therefore acquired an affirmative right of action to oust the tenant, such an affirmative right of action constitutes a valid defense against, and is fatal to any action by the lessee against the lessor to regain possession." — The Court applied this doctrine from earlier jurisprudence to hold that Campo Assets' right to eject the abandoning lessee defeated Club X. O.'s forcible entry claim.

• Viray vs. Intermediate Appellate Court, 198 SCRA 786 (1991) — Controlling precedent on the validity of resolutory conditions in lease contracts authorizing lessor re-entry without judicial action. The Court upheld the stipulation there because it did not authorize the use of force, and distinguished Paragraph VI as going beyond what was sanctioned in Viray.

• Consing vs. Jamandre, 64 SCRA 1 (1975) — Earlier case sustaining a substantially identical resolutory condition in a written lease agreement, cited to support the general validity of such stipulations.

• Zulueta vs. Mariano, 111 SCRA 206 (1982) — Cited for the proposition that resort to courts may be necessary when the right involves retaking property not voluntarily surrendered, and that no one should take the law into his own hands.

• Apundar vs. Andrin, 42 Phil. 356 (1921) and Medel vs. Militante, 41 Phil. 526 (1921) — Cited for the doctrine that a lessor's affirmative right of action to eject constitutes a valid defense against a lessee's action to regain possession.

• Palay, Inc. vs. Clave, 128 SCRA 638 (1983) — Cited for the requirement that notice of resolution must be given to the other party when a right to rescind upon a resolutory condition is expressly reserved.

• Article 1306, Civil Code (implied) — The principle that parties may establish stipulations in contracts provided they are not contrary to law, morals, good customs, public policy, or public order, applied to assess the validity of Paragraph VI.

• Article 576, Civil Code — Cited in relation to the philosophy behind the remedy of forcible entry, which is to prevent breach of the peace and criminal disorder and to compel parties to resort to law alone.

Melo, Vitug, Panganiban, and Purisima, JJ., concurred.