G.R. No. 183628 & G.R. No. 183670, April 7, 2010
DANIEL T. SO vs. FOOD FEST LAND, INC. and FOOD FEST LAND, INC. vs. DANIEL T. SO

FACTS

Food Fest Land, Inc. (Food Fest) entered into a Contract of Lease with Daniel T. So for a commercial space to operate a Kentucky Fried Chicken branch. A preliminary agreement conditioned the lease on Food Fest obtaining the necessary government permits and licenses, with a provision allowing cancellation if these were not granted within 15 days from So’s conformity. Food Fest secured initial permits for 1999 but failed to commence operations. For the year 2000, its application for a barangay business clearance—a prerequisite for other permits—was held in abeyance, preventing operations. Food Fest claimed it communicated its intent to terminate the lease, stopped paying rent, and eventually vacated the premises.
So demanded payment of rental arrears and offered assistance to secure the barangay clearance. Upon Food Fest’s refusal to pay, So filed a complaint for ejectment and damages. The Metropolitan Trial Court (MeTC) ruled in favor of So, ordering Food Fest to pay unpaid rentals and damages. The Regional Trial Court (RTC) reversed the MeTC, holding that Food Fest’s failure to secure permits terminated its obligations, including rent payment. The Court of Appeals reversed the RTC, reinstating Food Fest’s liability for rentals.

ISSUE

The primary issue is whether Food Fest’s failure to secure and renew the necessary business permits for the year 2000 extinguished its obligation to pay rent under the lease contract.

RULING

The Supreme Court affirmed the Court of Appeals decision with modification, ruling that Food Fest’s obligation to pay rent was not extinguished. The legal logic is anchored on the principle of the obligatory force of contracts under Article 1159 of the Civil Code. The preliminary agreement’s condition for obtaining permits was fulfilled when Food Fest secured them for 1999, thereby perfecting the lease contract. The subsequent failure to renew permits for 2000 was a business risk undertaken by Food Fest and did not constitute a resolutory condition or a fortuitous event that would nullify the contract under Article 1267.
The Court emphasized that contracts, once perfected, bind the parties. Food Fest’s inability to operate was a consequence of its own failure to comply with regulatory requirements, not a supervening event that rendered the lease impossible or inequitable. Its obligation to pay rent persisted as it continued to hold the leased premises. The offer of assistance from So did not alter this core obligation. Therefore, Food Fest remained liable for unpaid rentals from the time it stopped payment until it vacated the premises, and for liquidated damages as stipulated.