View full case

MELQUIADES D. AZCUNA v. CA

## FACTS:

The case involves a dispute between the petitioner, Azcuna, Jr., and the private respondent, Barcelona, regarding the lease of three units in a building owned by Barcelona's family. The lease contract was for one year, starting on July 1, 1992, and ending on June 30, 1993, with the possibility of renewal upon agreement. However, when the lease expired, no renewal agreement was made and Azcuna, Jr. failed to surrender the leased units despite Barcelona's demands. As a result, Barcelona filed an ejectment case against Azcuna, Jr. before the Municipal Trial Court. The court ruled in favor of Barcelona, and this decision was upheld by the Regional Trial Court and the Court of Appeals on subsequent appeals. The court ordered Azcuna, Jr. to vacate the premises and to pay monthly rent of P25,000.00, damages of P3,000.00 per day for failure to turn over the premises, attorney's fees of P5,000.00, and the costs of the suit. Azcuna, Jr. appealed to the Supreme Court, primarily contesting the award of damages of P3,000.00 per day. He argued that the only damages that can be recovered in an ejectment suit are the fair rental value or reasonable compensation for the use and occupation of the property, citing previous cases. However, the Supreme Court held that the damages awarded were proper because they were stipulated upon in the lease contract as liquidated damages. The court emphasized the freedom of the contracting parties to make stipulations in their contract, provided they are not contrary to law, morals, good customs, public order, or public policy. The court noted that the indemnity/penalty clause in the lease contract did not appear to have been forced upon or fraudulently foisted on Azcuna, Jr. The court also cited a previous case, "Gozon v. Vda. de Barrameda," which involved similar facts and upheld the award of liquidated damages in an ejectment suit. Therefore, the Supreme Court denied Azcuna, Jr.'s petition for review and affirmed the lower courts' decision.

## ISSUES:

  1. Is the award of P3,000.00 per day as damages, in addition to the fair rental value or reasonable compensation for the use and occupation of the premises, proper?

## RULING:

The Supreme Court denied the petition for review by way of certiorari, affirming the decision of the lower courts to impose liquidated damages of P3,000.00 per day for not vacating the premises after the lease termination. The Court held that the liquidated damages were in line with the agreement specifically stipulated in the lease contract and were not contrary to any legal principle.

The Court distinguished this case from previous jurisprudence cited by the petitioner (Felesilda v. Villanueva, Shoemart, Inc. v. CA, Hualam Construction and Development Corp. v. CA) by noting that those cases dealt with additional damages and charges other than liquidated damages defined in contracts. Here, the Court found that the lease agreement explicitly provided for a penalty of P1,000.00 per day per unit in case of failure to vacate, amounting to P3,000.00 per day for all three units, which represents a pre-agreed form of liquidated damages enforceable upon lease termination.

## PRINCIPLES:

  1. Liquidated Damages in Lease Contracts: A clause stipulating liquidated damages in a lease contract for failure to vacate the premises after termination is both legally enforceable and binding.

  2. Freedom of Contract: Contracting parties have the freedom to establish stipulations, clauses, terms, and conditions that they deem convenient, provided these are not contrary to law, morals, good customs, public order, or public policy.

  3. Jurisdiction Over Ejectment Cases: Inferior courts have exclusive jurisdiction over cases of forcible entry and unlawful detainer regardless of the value of the damages demanded.

  4. Role of Stipulated Damages in Contract Enforcement: Stipulations in a contract specifying a sum certain to be paid as damages for breach (liquidated damages) must be upheld, unless shown to be unconscionable or unreasonable.

  5. Non-Applicability of General Legal Propositions to Stipulated Damages: General legal rules regarding compensation for use and occupancy do not override specific contract stipulations regarding liquidated damages agreed upon by parties within contractual boundaries.