Silahis International Hotel, Inc. vs. Court of Appeals

G.R. No. 223865 (June 13, 2023)

Facts:

Silahis International Hotel, Inc. (SIHI) entered into a Contract of Lease with the Philippine Amusement and Gaming Corporation (PAGCOR) on December 23, 1999, for the use of the second and third stories of SIHI's Grand Boulevard Hotel for casino operations. The lease was for four years, with PAGCOR obligated to pay restoration costs upon termination of the lease. The contract specified that a cash deposit of PHP 2,250,000 would cover restoration costs, and any excess determined by an independent appraiser would be paid by PAGCOR.

The lease was renewed on June 15, 2004, and continued on a month-to-month basis. SIHI notified PAGCOR of its intention to terminate the lease effective July 2006 and claimed a restoration cost of PHP 115,200,000. However, the parties failed to appoint appraisers to determine the restoration cost.

On July 10, 2006, SIHI filed a complaint for specific performance against PAGCOR in the Regional Trial Court (RTC) of Manila. The RTC ruled in favor of SIHI, designating an independent appraiser to determine the restoration cost. This decision was later modified by the Court of Appeals (CA), which required PAGCOR to follow a bidding process for appointing its appraiser.

The CA's decision became final and executory on May 25, 2012. During execution proceedings, SIHI and PAGCOR agreed on a restoration cost of PHP 102,114,040. Meanwhile, Pacific Wide Holdings, Inc. (Pacific Wide) purchased the Grand Boulevard Hotel in a tax delinquency sale on November 7, 2007, but only obtained the final deed of sale in September 2013.

Pacific Wide filed a motion in the RTC claiming entitlement to the restoration cost as SIHI's successor-in-interest. The RTC denied this motion, leading to Pacific Wide's appeal to the CA, which ruled that Pacific Wide was an indispensable party and annulled the RTC's previous decisions.

SIHI subsequently filed a Petition Ad Cautelam with the Commission on Audit (COA) for the payment of the restoration cost, which was dismissed on the grounds that the claim was not liquidated due to the nullification of the RTC's decision by the CA.

Legal Issues:

1. Did the CA err in nullifying the 2006 RTC Decision as modified by the 2012 CA Decision?
2. Did the COA act with grave abuse of discretion in denying SIHI's Petition Ad Cautelam?

Arguments:

• SIHI's Arguments:

  • The 2006 RTC Decision had become final and executory and could not be reopened.
  • Pacific Wide should not be allowed to intervene as it was not a party to the original contract and its rights did not extend to the restoration cost.
  • The obligation to pay the restoration cost was solely PAGCOR's and had accrued before Pacific Wide acquired ownership.

• Pacific Wide's Arguments:

  • As the new owner of the property, it claimed to be SIHI's successor-in-interest and entitled to the restoration cost.
  • The CA correctly ruled that it should be allowed to intervene in the RTC proceedings as it would be directly affected by the outcome.

• COA's Arguments:

  • The COA maintained that it could only act on liquidated claims, and since the 2006 RTC Decision was nullified, SIHI's claim was not liquidated.

Court's Decision and Legal Reasoning:

The Supreme Court ruled that the CA erred in nullifying the 2006 RTC Decision. The Court emphasized that Pacific Wide was not an indispensable party in the RTC case, as the dispute arose from a contract between SIHI and PAGCOR, and Pacific Wide was not a party to that contract. The Court noted that the right to payment for restoration costs accrued before Pacific Wide acquired the property, and thus, its ownership did not affect SIHI's contractual rights.

The Court also clarified that the proper remedy for Pacific Wide would have been to intervene in the execution proceedings rather than nullifying the RTC's decisions. The Court reinstated the 2006 RTC Decision, as modified by the 2012 CA Decision, which had become final and executory.

Regarding the COA's dismissal of SIHI's Petition Ad Cautelam, the Court found that the COA acted correctly at the time of its decision, as the claim was not liquidated due to the nullification of the RTC's decision. However, with the reinstatement of the RTC's decision, SIHI's claim became liquidated, and the Court remanded the case to the COA for resolution of the monetary claim.

Significant Legal Principles Established:

1. An indispensable party is one whose rights would be directly affected by the outcome of a case, and their absence can render the court's actions void.
2. A final and executory decision is binding and cannot be altered by subsequent rulings unless properly appealed or challenged.
3. The COA's jurisdiction over money claims is limited to liquidated claims, which must be based on final and executory judgments.