Facts:

The case involves a lease agreement between Melquiades D. Azcuna, Jr. (the petitioner) and the Barcelona family (the private respondents), which commenced on July 1, 1992, and was set to end on June 30, 1993. The lease was renewable upon mutual agreement. Upon the expiration of the lease, the petitioner failed to vacate the premises despite demands from the private respondents. Consequently, the private respondents filed an ejectment case against the petitioner in the Municipal Trial Court.

The Municipal Trial Court ruled in favor of the private respondents, a decision that was subsequently affirmed by the Regional Trial Court and the Court of Appeals. The court ordered the petitioner to vacate the premises and pay the private respondents various amounts, including P25,000.00 monthly for the continued use of the leased units, P3,000.00 per day as damages for failing to vacate, P5,000.00 for attorney's fees, and the costs of the suit. The petitioner did not contest the order to vacate or the monthly rental but specifically challenged the award of P3,000.00 per day as damages.

The petitioner argued that the award of daily damages was improper based on previous jurisprudence, which stated that only fair rental value or reasonable compensation for the use and occupation of the property could be recovered in ejectment cases. The petitioner cited cases such as "Felesilda v. Villanueva," "Shoemart, Inc. v. CA," and "Hualam Construction and Development Corp. v. CA" to support this claim.

Legal Issues:

  1. Whether the award of P3,000.00 per day as damages for the continued occupation of the leased premises was proper under the circumstances.
  2. Whether the petitioner could contest the award of liquidated damages stipulated in the lease contract.

Arguments:

  • Petitioner’s Argument: The petitioner contended that the award of P3,000.00 per day as damages was improper and contrary to established legal principles. He argued that the only recoverable damages in an ejectment suit are the fair rental value or reasonable compensation for the use and occupation of the property, and that any additional damages must be claimed in a separate ordinary action.

  • Private Respondent’s Argument: The private respondents countered that the P3,000.00 per day award was a valid enforcement of a liquidated damages clause in the lease contract. They argued that the lease explicitly stipulated that in case of failure to vacate, the lessee would be liable for P1,000.00 per day, which, for three units, totaled P3,000.00 per day. They maintained that this clause was legally binding and enforceable.

Court’s Decision and Legal Reasoning:

The Supreme Court denied the petition for review, affirming the lower courts' decisions. The Court reasoned that the award of P3,000.00 per day was a valid liquidated damages provision agreed upon by both parties in the lease contract. The Court distinguished the present case from the cited jurisprudence, noting that those cases dealt with claims for damages that were not stipulated in the contract.

The Court emphasized the principle that parties are free to stipulate terms in their contracts, provided they do not contravene laws or public policy. The stipulated amount for damages was not deemed excessive or unconscionable, and the petitioner could not evade liability for the agreed-upon liquidated damages simply because he found the amount burdensome after the fact.

The Court also referenced the case "Gozon v. Vda. de Barrameda," which supported the notion that agreed-upon liquidated damages in a lease contract are enforceable and do not fall under the limitations imposed on damages recoverable in ejectment cases.

Significant Legal Principles Established:

  1. Parties to a contract have the freedom to stipulate terms, including liquidated damages, which are enforceable as long as they are not contrary to law or public policy.
  2. In ejectment cases, while only reasonable compensation for use and occupation is typically recoverable, if a liquidated damages clause is present in the lease agreement, it is enforceable and can be claimed in addition to rental payments.
  3. A party cannot later contest the validity of a liquidated damages clause simply because it becomes burdensome after the breach of contract.