Case Summary (G.R. No. 172384)
Facts of the Case
Florentino received two facsimile letters on 14 January 2000: one alleging breaches (failure to open on specified dates, unauthorized new empanada variety, early closures), and another declining lease renewal. After the lease expired on 31 March 2000, Supervalue seized her equipment and retained P192,000 security deposits. Florentino demanded return of deposits and seized property, and compensation for P200,000 in leasehold improvements, but Supervalue refused.
Procedural History
Petitioner filed an action for specific performance, sums of money, and damages before the Regional Trial Court (RTC) of Makati (Civil Case No. 00-1015) on 17 August 2000. The RTC (30 April 2001) ordered Supervalue to return deposits (P192,000), pay P50,000 attorney’s fees, reimburse or allow removal of improvements at one‐half value, and return seized property. Supervalue appealed to the Court of Appeals (CA), which (10 October 2003) modified the RTC decision: it upheld the forfeiture of deposits, denied reimbursement for improvements and attorney’s fees, but maintained the order to return seized property. The CA denied reconsideration (19 April 2006). Petitioner then filed a Rule 45 petition for review.
Issue: Liability to Return Security Deposits
Whether Supervalue was authorized to forfeit the P192,000 security deposits under the lease agreements.
Applicable Law on Penal Clauses
1987 Philippine Constitution applies. Civil Code provisions:
• Article 1226 (penal clauses substitute indemnity for damages).
• Article 1229 (court may equitably reduce penalties if partly complied or penalty is unconscionable).
Lease provisions (Sections 5 and 18) designate deposits as non-prepaid rent, forfeitable upon breach.
Court’s Reasoning on Forfeiture
The Court found petitioner’s breaches established by the RTC. The security deposit clause is a valid penal stipulation: it ensures faithful performance, allows stipulated damages without proof, and may only be reduced if penalty is unconscionable. Considering the relatively minor breaches and undetermined prejudice to the lessor, the Court reduced the forfeiture to 50% of P192,000 under its equitable power. It held that the full forfeiture was iniquitous and tempered the penalty accordingly.
Issue: Liability to Reimburse Leasehold Improvements
Whether Supervalue must reimburse Florentino one‐half of the P200,000 she spent on improvements at SM Megamall.
Applicable Law on Improvements
Civil Code provisions:
• Article 1678 (lessee in good faith entitled to half value of useful improvements if lessor appropriates them).
• Article 448 and Article 546 (reimbursement of useful/necessary expenses applies only to a bona fide possessor—one who believes himself owner).
Lease Section 11 prohibits alterations without lessor’s written consent, and makes non-removable improvements lessor’s property without reimbursement.
Court’s Reasoning on Improvements
Petitioner failed to secure prior written consent before making improvements. Verbal misrepresentations regarding renewal cannot override the written lease under the parol evidence rule. Lessees are not possessors in good faith; they know they do not own the property. Consequently, Articles 448 and 546 do not apply, and under Section 11 of t
...continue readingCase Syllabus (G.R. No. 172384)
Facts
- Petitioner Erminda F. Florentino operates “Empanada Royale,” a sole proprietorship retailing empanadas in various Metro Manila malls.
- Respondent Supervalue, Inc. is a domestic corporation leasing stalls and commercial store spaces inside SM Malls nationwide.
- On March 8, 1999, the parties executed three four-month lease contracts (renewable by agreement) for two cart-type stalls (SM North Edsa, SM Southmall) and one store space (SM Megamall).
- The leases were extended to March 31, 2000.
Breaches and Correspondence
- February 4, 2000: Petitioner received two facsimile letters dated January 14, 2000.
- First letter accused her of:
• Failing to open on December 16 and 26, 1999 (Section 8 violation)
• Selling a “mini-embutido” empanada and raising prices from ₱20 to ₱22 without approval
• Closing earlier than mall hours due to delivery delays - Second letter notified petitioner that leases would not be renewed upon March 31, 2000 expiration.
- First letter accused her of:
- February 11, 2000: Petitioner explained the “mini-embutido” was merely a reduced size of existing pork empanada.
- Despite explanations, respondent repossessed the SM Megamall space and seized petitioner’s equipment and belongings after lease expiry.
- May 8 and June 15, 2000: Petitioner demanded return of seized items and refund of ₱192,000 security deposits; respondent refused.
Complaint and Prayer
- August 17, 2000: Petitioner filed Civil Case No. 00-1015 for Specific Performance, Sum of Money and Damages.
- Alleged verbal representations of lease renewals induced her to spend ₱200,000 on improvements.
- Alleged wrongful refusal to return ₱192,000 security deposits and wrongful seizure of property.
- Prayed for:
• Actual damages of ₱472,000 (security deposit, improvements cost, value of seized items)
• Moral damages ₱300,000
• Exemplary damages ₱50,000
• Attorney’s fees and litigation expenses ₱80,000
Respondent’s Counterclaims
- Alleged petitioner breached lease terms by:
• Failing to open on specified dates
• Introducing an unauthorized empanada variety and changing prices
• Early closures contrary to agreed hours - Claimed unpaid obligations totaling ₱106,