SPOUSED MANZANILLA V. WATERFIELDS INDUSTRIES CORP.

July 18, 2014

Facts:
The spouses Manzanilla are the owners of a 25,000-square meter parcel of land in Batangas, a portion of which was
being leased to Waterfields (represented by its President Aliza Ma). The Contract of Lease (dated May 24, 1994)
provides a 25-year period and renewable upon the option of the lessee. Theres a provision acknowledging the
lessees payment of a rental deposit amounting to P216,000 which is meant to answer for unpaid rentals, damages,
penalties and unpaid utility charges. Such deposit or any balance thereof shall be refunded to the lessee immediately
upon the termination or expiration of the contract. The parties executed on June 6, 1994 an Amendment to the
Contract of Lease which retained the terms and conditions of the original contract.
Beginning April 1997, however, Waterfields failed to pay the monthly rental. Hence, Ma sent the spouses Manzanilla a
letter dated July 7, 1997. The letter contains Mas promise to pay the rentals in arrears by way of check payment and
a statement that the deposit stipulated in the lease contract be used exclusively for the payment of the unpaid utilities
and other incidental expenses. It also stated that the original contract shall be amended according to the provision of
the letter.
Spouses Manzanilla filed before the MTC a Complaint for Ejectment against Waterfields. Paragraph 5 of the
complaint alleges: subsequently, the said Contract of Lease was amended on 06 June 1994 and on 09 July 1997 x
x x.
In its Answer, Waterfields admitted1 paragraphs 4 and 5 of the Complaint. It alleged that it had built substantial
improvements over the land; that it just recently suffered business losses. It claimed that it did not fail or refuse to pay
the monthly rentals but was just utilizing the rental deposit in the amount of P216,000.00 (equivalent to one year
rentals) as rental payment in accordance with Section 4 of the original Contract of Lease. Hence, it argued that the
spouses Manzanilla have no cause of action against it.
MTC: Ruled in favor of Manzanilla. It held that Mas letter of July 9, 1997 had amended the Contract of Lease. In
particular, Section 4 of the Contract of Lease which provides that the rental deposit shall answer for any unpaid
rentals, damages, penalties and unpaid utility charges was superseded by the portion in Mas July 9, 1997 letter
which states that the deposit stipulated in our lease contract shall be used exclusively for the payment of unpaid
utilities, if any, and other incidental expenses only and applied at the termination of the lease. Hence, the MTC
found no merit in Waterfields claim that it did not fail or refuse to pay the monthly rentals as it was applying the rental
deposit to its payment of the same.
RTC: Waterfields, in its Answer admitted paragraph 5 of the Complaint which states that the Contract of Lease was
amended on June 6, 1994 and July 9, 1997.
CA: Spouses Manzanilla have no cause of action against Waterfields. Spouses Manzanilla terminated the Contract
of Lease. Upon such termination, it held that the rental deposit should have been applied as payment for unpaid
utilities and other incidental expenses, if any, in view of the July 9, 1997 letter. And since the spouses Manzanilla did
not allege that there were unpaid utilities or incidental expenses for the account of Waterfields as of the termination of
the contract, the whole amount of P216,000.00 should have been returned by the former to the latter when the

1 Paragraph 2 of the Answer provides: Paragraphs 4, 5, and 6 of the Complaint are admitted.

contract was terminated. Not having done so, the spouses Manzanilla therefore, became debtors of Waterfields
insofar as the said amount is concerned. And since Waterfields is also a debtor of the spouses Manzanilla with
respect to the unpaid rentals, compensation should take place.
Issues: Whether or not there was a violation of the lease which will justify a complaint for unlawful detainer. (YES)
Held:

Spouses Manzanilla, on account of Waterfields alleged violation of the contract of lease by non-payment of rentals,
considered the contract terminated and demanded for the latter to pay its obligation and vacate the property. As
demand proved futile, the said spouses filed the Complaint for ejectment [unlawful detainer].2
There is no issue with respect to demand. What is in question is the presence of a cause of action. As mentioned
above, courts, in order to ascertain whether there is cause of action for unlawful detainer, must inquire into (a) the
existence of the lease contract and, (b) the violation of that lease by the lessee. Since in this case the existence of a
lease contract between the parties is undisputed, the focus is on the supposed violation of the lease, that is,
Waterfields alleged non-payment of rent. However, since Waterfields denies that it failed to pay rent and puts up the
claim that it was utilizing the rental deposit as rental payment, a preliminary question emerges, viz: May the rental
deposit be utilized as rental payment?
The violation of the lease through non-payment of rent is what constitutes the cause of action. Hence, once the failure
to pay rent is established, a cause of action for unlawful detainer arises. The CAs acknowledgement that Waterfields
failed to pay rent, as shown by its declaration that the latter is the debtor of the spouses Manzanilla with respect to the
unpaid rentals, is clearly inconsistent with the conclusion that no cause of action for ejectment exists against
Waterfields. Failure to pay the rent must precede termination of the contract due to non- payment of rent. It therefore
follows that the cause of action for unlawful detainer in this case must necessarily arise before the termination of the
contract and not the other way around as what the CA supposed. Indeed, in going beyond the termination of the
contract, the CA went a bit too far in its resolution of this case.

Waterfields cannot now contradict its judicial admission3 that the Contract of Lease was amended on July 9,
1997; the doctrine of estoppel likewise bars it from falsifying Mas July 9, 1997 letter in this litigation.

2 For the purpose of bringing an unlawful detainer suit, two requisites must concur: (1) there must be failure to pay
rent or comply with the conditions of the lease, and (2) there must be demand both to pay or to comply and
vacate. The first requisite refers to the existence of the cause of action for unlawful detainer, while the second
refers to the jurisdictional requirement of demand in order that said cause of action may be pursued.

3 Section 4, Rule 129 of the Rules of Court provides:SEC. 4. Judicial admissions. An admission, verbal or written,
made by a party in the course of the proceedings in the same case, does not require proof. The admission may be
contradicted only by showing that it was made through palpable mistake or that no such admission was made.
A party may make judicial admissions in (a) the pleadings, (b) during trial, either by verbal or written manifestations
or stipulations, or (c) in other stages of the judicial proceeding.

Clearly, Waterfields admitted in its Answer the truth of the material allegation that the Contract of Lease was amended
on July 9, 1997. It is well- settled that judicial admissions cannot be contradicted by the admitter who is the party
[itself] and binds the person who makes the same, and absent any showing that this was made thru palpable mistake
(as in this case), no amount of rationalization can offset it.
Moreover, [u]nder the doctrine of estoppel, an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon. A party may not go back on his
own acts and representations to the prejudice of the other party who relied upon them. In the law of evidence,
whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a
particular thing [to be] true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act,
or omission, be permitted to falsify it.
In view of these, any effort on the part of Waterfields to impugn the July 9, 1997 letter is futile.
Even without the above-mentioned admission of Waterfields, the contemporaneous and subsequent acts (which,
according to Article 1371 of the Civil Code, shall be considered in judging the intent of the contracting parties) of the
parties reveal their intention to amend the original Contract of Lease.
The doctrine of unjust enrichment does not apply in this case since any benefit that the spouses Manzanilla may
obtain from the subject premises cannot be said to be without any valid basis or justification.