DANIEL T.

SO,
Petitioner,


G.R. No. 183628


-versus-


FOOD FEST LAND, INC.
Respondent

x------------------------------------------x

FOOD FEST LAND, INC.,
Petitioner,


-versus-

G.R. No. 183670

Present:

PUNO, C.J., Chairperson,
CARPIO MORALES,
LEONARDO-DE CASTRO,
BERSAMIN,

DANIEL T. SO,
Respondent.
VILLARAMA, JR., JJ.

Promulgated:

April 7, 2010
x-----------------------------------------------------------------------------------------x



D E C I S I O N

CARPIO MORALES, J .

Food Fest Land Inc. (Food Fest) entered into a September 14, 1999 Contract
of Lease
[1]
with Daniel T. So (So) over a commercial space in San
Antonio Village, Makati City for a period of three years (1999-2002) on
which Food Fest intended to operate a Kentucky Fried Chicken carry out branch.

Before forging the lease contract, the parties entered into a preliminary
agreement dated July 1, 1999, the pertinent portion of which stated:

The lease shall not become binding upon us unless and until the government
agencies concerned shall authorize, permit or license us to open and
maintain our business at the proposed Lease Premises. We shall promptly
make an application for permits, licenses and authority for our business and
shall exercise due diligence to obtain it, provided, however, that you shall
assist us by submitting such documents and papers and comply with such
other requirements as the governmental agencies may impose. We shall give
notice to you when the permits, license and authorities have been
obtained. We shall also notify you if any of the required permits, licenses
and authorities shall not be be (sic) given or granted within fifteen days (15)
from your conform (sic)hereto. In such case, the agreement may be canceled
and all rights and obligations hereunder shall cease.
[2]
(underscoring
supplied)


While Food Fest was able to secure the necessary licenses and permits for
the year 1999, it failed to commence business operations. For the year 2000, Food
Fests application for renewal of barangay business clearance was held in
abeyance until further study of [its] kitchen facilities.
[3]


As the barangay business clearance is a prerequisite to the processing of
other permits, licenses and authority by the city government, Food Fest was unable
to operate. Fearing further business losses, Food Fest, by its claim, communicated
its intent to terminate the lease contract to So who, however, did not accede and
instead offered to help Food Fest secure authorization from the barangay. On Sos
advice, Food Fest wrote requests addressed to city officials for assistance to
facilitate renewal.

In August 2000, Food Fest, for the second time, purportedly informed So of
its intent to terminate the lease, and it in fact stopped paying rent.

So later sent a November 22, 2000 demand letter to Food Fest for the
payment of rental arrearages and reiterated his offer to help it secure clearance
from the barangay. Thus So wrote: With regard to securing permits from the
barangay & the City Hall, [with] which I am trying to help you, some form of
representation, maybe not in cash, would definitely help in forging a longer term
relationship.
[4]
Food Fest demurred to the offer.

By letter of March 26, 2001,
[5]
So again demanded payment of rentals from
Food Fest from September 2000 to March 2001 amounting to P123,200.00. Food
Fest denied any liability, however, and started to remove its fixtures and equipment
from the premises.

On April 2, 2001, So sent Food Fest a Final Notice of Termination with
demand to pay and to vacate.
[6]


On April 26, 2001, So filed a complaint for ejectment and damages against
Food Fest before the Metropolitan Trial Court (MeTC) of Makati City.

Branch 64 of the MeTC, by Decision of July 4, 2005,
[7]
rendered judgment
in favor of So, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against defendant, Food Fest Land, Inc., as
follows:

a. Ordering the defendant to pay the unpaid rentals from August 2000 until
March 2001 with penalties accrued thereon. The security deposit in the sum
of Sixty Four Thousand Pesos (Php64,000.00) is forfeited in favor of the
plaintiff;


b. Ordering the defendant to pay liquidated damages in a sum equivalent to
25% of the total sum due and demandable;
c. Ordering the defendant to pay the plaintiff a sum equivalent to 25% of the
total claim as and for attorneys fees; and
d. The costs of suit.

SO ORDERED.
[8]


On appeal, Branch 143 of the Regional Trial Court (RTC), by Decision
of November 30, 2006,
[9]
reversed the MeTC Decision, disposing as follows:

WHEREFORE, premises considered, the judgment of the lower court
dated 04 July 2005 is hereby REVERSED and SET ASIDE, ordering
plaintiff Daniel T. So to pay defendant Food Fest the amount of Thirty Two
Thousand Pesos (P32,000.00) as reimbursement for rentals paid for the
months of July and August 2000; Twenty Thousand Pesos (P20,000.00) as
exemplary damages; Twenty Thousand Pesos (P20,000.00) as attorneys
fees and costs of suit.

SO ORDERED.
[10]


In reversing the MeTC, the RTC found that Food Fest already vacated the
leased premises before So filed the complaint for ejectment; and whereas
possession is the only issue for resolution in an ejectment case, Sos cause of
action only pertained to collection of the rental arrears.

As to Sos claim for payment of arrears, the RTC noted that since the claim
exceeded the jurisdictional amount over which it can cognize, the RTC, applying
Sec. 8, Rule 40 of the Rules of Court,
[11]
treated the case as if it was originally filed
with it.


On the merits, the RTC held that Food Fests failure to secure the authority
to commence business operations resulted in the termination of its contractual
obligations to So, including the obligation to pay rent.

On petition for review, the Court of Appeals, by Decision of April 18,
2008,
[12]
upheld the RTCs jurisdiction over the complaint. It, however, declared
that Food Fests obligation to pay rent was not extinguished upon its failure to
secure permits to operate. Thus, it disposed:

WHEREFORE, premises considered, the assailed decision dated
November 30, 2006 of the RTC, Branch 143, Makati City is hereby
REVERSED and SET ASIDE, ordering respondent FFLI to pay petitioner
Daniel T. So the following:

1. Unpaid rentals from August 2000 until March 31, 2001 with penalties
accrued thereon. The security deposit is forfeited in favor of petitioner So;
2. Temperate damages in the amount of P50,000.00;
3. P20,000.00 as attorneys fees; and
4. Costs of suit.

SO ORDERED.
[13]



The parties respective motions for reconsideration having been denied, they
filed their respective petitions before this Court which, by Resolution of October 6,
2008, resolved to consolidate G.R. No. 183628 (Daniel T. So vs. Food Fest Land,
Inc.) with G.R. No. 183670 (Food Fest Land, Inc. vs. Daniel T. So).

So maintains that the MeTC had jurisdiction over his complaint for
ejectment. For, So contends, Food Fest did not vacate the leased premises before
his filing (on April 26, 2001) of the complaint.

So admitted in his Complaint, however, that Food Fest started pulling out
equipment and other machineries from the premises even before the final notice
was received by it on April 2, 2001.

13. In or the last few days of March 2001, defendant FOOD FEST LAND,
INC. started to remove and pull out its equipment, appliances, fittings,
furnishings, movable articles and other accessories and facilities that it had
earlier placed and installed in the leased premises, but due to its wanton lack
of care in doing so, so much damage and destruction was caused to the
leased premises, resulting in the breakage of and damage to the concrete
walls and partition in the building as well as the steel gate leading to the
leased premises and other parts of the building and its
premises.
[14]
(emphasis and underscoring supplied)

Two elements are paramount in possession there must be occupancy,
apprehension or taking, and there must be intent to possess.
[15]
In the present case,
given the immediately quoted allegation-admission of So, intent to possess was not
present on Food Fests part.

In another vein, So claims that Food Fest did not exercise care in removing
the installations and fixtures, thereby causing destruction to the premises to thus
entitle him to damages, as well as to damages corresponding to unrealized profits
(lucrum cessans) to answer for the period during which the unit was not rented out.

Unrealized profits fall under the category of actual or compensatory
damages. If there exists a basis for a reasonable expectation that profits would have
continued to be generated had there been no breach of contract, indemnification for
damages based on such expected profits is proper. This is, however, subject to the
rule that a party is entitled to an adequate compensation only for such pecuniary
loss suffered by him as he has duly proved.
[16]


Other than the photographs evincing damage to the premises, no evidence
was proffered to show Sos entitlement to unrealized profits. That the leased unit
was not subsequently leased is not solely attributable to Food Fest. As borne by the
records, no renovation was undertaken by So for almost three years following Food
Fests vacation of the premises in 2001. The quotations issued by construction
companies for purposes of renovation were issued only in 2004.

So is not without recourse under the lease contract, however. Thus the
pertinent provisions of the lease contract provide:

7. LIABILITY OF LESSEE FOR DAMAGES- LESSEE hereby agrees
that any damage to the leased premises or its appurtenances caused by said
LESSEE or its agents, employees, customers, guests or any other person
without the fault of LESSOR shall be LESSEEs sole responsibility and
liability, which damage shall, upon demand by LESSOR be repaired
promptly at its expense.


16. TERMINATION OF THE LEASE- LESSEE agrees to return and
surrender the leased premises at the expiration of the term of this lease in as
good condition as reasonable wear and tear will permit and without delay
whatsoever, devoid of all occupants, furniture, machinery, equipment and
signages, articles and effects of any kind, other than such alterations or
improvements which cannot be removed without damaging the leased
premises.


23. PENALTY CLAUSE Any and all accounts payable by LESSEE under
this Contract of Lease and other charges which may be claimed against
LESSEE, but not paid by LESSEE to LESSOR within fifteen (15) days
from due date shall be subject to penalty charges of ONE PERCENT (1%)
per month from due date until the account is paid in full.

23.1. Should LESSOR be compelled to seek judicial relief against
LESSEE the latter shall, in addition to any other claim for damages pay
as liquidated damages to LESSOR an amount equivalent to twenty-five
percent (25%) of the amount due, but in no case less than P500.00: and
an attorneys fee in the amount equivalent to 25% of the amount claimed
but in no case less than P3,000.00 as well as all expenses of litigation.
[17]



Respecting Sos claim for renovation expenses, the same must be denied
absent proof as to the actual cost of renovation. Only firm offers or quotations from
construction companies are in the records. Following Article 2224 of the Civil
Code,
[18]
however, the appellate courts award of temperate damages is in order.

This Court notes that the appellate court did not award liquidated damages in
contravention of the contract. As for the appellate courts award of P20,000.00 as
attorneys fees, the contractual stipulation should prevail.

As for Food Fests invocation of the principle of rebus sic stantibus as
enunciated in Article 1267 of the Civil Code to render the lease contract functus
officio, and consequently release it from responsibility to pay rentals, the Court is
not persuaded. Article 1267 provides:

Article 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part.


This article, which enunciates the doctrine of unforeseen events, is not,
however, an absolute application of the principle of rebus sic stantibus, which
would endanger the security of contractual relations. The parties to the contract
must be presumed to have assumed the risks of unfavorable developments. It is,
therefore, only in absolutely exceptional changes of circumstances that equity
demands assistance for the debtor.
[19]


Food Fest claims that its failure to secure the necessary business permits and
licenses rendered the impossibility and non-materialization of its purpose in
entering into the contract of lease, in support of which it cites the earlier-quoted
portion of the preliminary agreement dated July 1, 1999 of the parties.
[20]


The cause or essential purpose in a contract of lease is the use or enjoyment
of a thing.
[21]
A partys motive or particular purpose in entering into a contract does
not affect the validity or existence of the contract; an exception is when the
realization of such motive or particular purpose has been made a condition upon
which the contract is made to depend. The exception does not apply here.

It is clear that the condition set forth in the preliminary agreement pertains to
the initial application of Food Fest for the permits, licenses and authority to
operate. It should not be construed to apply to Food Fests subsequent
applications. Consider the following qualification in the preliminary agreement:

xxx We shall also notify you if any of the required permits, licenses and
authorities shall not be be (sic) given or granted within fifteen days (15)
from your conform (sic) hereto. In such case, the agreement may be
canceled and all rights and obligations hereunder shall
cease.
[22]
(underscoring supplied)

Food Fest was able to secure the permits, licenses and authority to operate
when the lease contract was executed. Its failure to renew these permits, licenses
and authority for the succeeding year, does not, however, suffice to declare the
lease functus officio, nor can it be construed as an unforeseen event to warrant the
application of Article 1267.

Contracts, once perfected, are binding between the contracting parties.
Obligations arising therefrom have the force of law and should be complied with in
good faith. Food Fest cannot renege (DEFAULT) from the obligations it has freely
assumed when it signed the lease contract.






WHEREFORE, the Court of Appeals Decision of April 18,
2008 is AFFIRMED with MODIFICATION.

Food Fest is ORDERED to pay So liquidated damages in the amount
equivalent to 25% of the total sum due and demandable. Further, So is ORDERED
to pay attorneys fees in the amount equivalent to 25% of the total sum due and
demandable. In all other respects, the decision is AFFIRMED.