ERMINDA F. FLORENTINO, petitioner, v. SUPERVALUE, INC.

, respondent
G.R. NO. 172384, SEPTEMBER 12, 2007

FACTS: Florentino is a sole proprietor of a business engaged in the retail of empanada outlets in malls, named Empanada
Royale. Suprvalue is a dometic corporation engaged in the business of leasing stalls and commercial store spaces in SM
Malls. The 2 parties executed a lease contract with a 4-month term, renewable upon their agreement. After the 1st
contract expired, another was executed. However, before the 2nd contract expired, Supervalue sent letters to petitioner
stating the latter has violated its Lease Contract by not opening on the designated date, and that she is selling anew
variety of empanada called mini-embutido. Supervalue also observed that petitioner was closing earlier than the usual
mall hours. Respondent also mentioned in one of the letters that they will no longer renew petitioner’s contract.

Petitioner averred that the mini-embutido is not a new variety but a scaled down version of a regular empanada to
make it more affordable to customers. Respondent still refused to renew its contract and took possession of the store
space in SM Megamall, confiscated the equipment and did not return the security deposits despite demands.

RTC – In favor of Florentino. The physical takeover by respondent and seizure of equipment and personal belongings is
illegal.

CA – reversed. Respondent was justified in forfeiting security deposits and was not liable to reimburse and to pay
attorney’s fees.

ISSUE: (1) Whether or not respondent is liable to return the security deposits to petitioner; (2) Whether or not
respondent is liable to reimburse the petitioner for the sum of the improvements made thereon.

HELD: (1) Yes. Art 1226 of the Civil Code stated that in obligations with a penal clause, the penal shall substitute the
indemnity for damages and the payment of interests in case of noncompliance. A penal clause is an accessory
undertaking to assume greater liability in case of breach, attached to an obligation in order to insure performance and
has the function to : (a) provide liquidated damages, and ; (b) strengthen the coercive force of the obligation by the
threat of greater responsibility. Additionally, Art 1229 of the same code states that the judge shall equitably reduce the
penalty when the principal obligation has been partly or irregularly complied with by the debtor. Courts are not at
liberty to ignore the freedoms of the parties to agree on such terms and conditions as they see fit. Nevertheless, they
may still reduce a stipulated penalty if it has been partly or irregularly complied with and if there has been no
compliance if the penalty is iniquitous or unconscionable.
In this case, the forfeiture of the security deposits was excessive and unconscionable considering that the gravity
of breaches committed by petitioner is not of such degree that the respondent was unduly prejudiced. The respondent
is therefore under the obligation to return 50% of the security deposits.

(2) No. The Lease Contract mandates that before the petitioner can introduce any improvements, she should first obtain
respondent’s consent. In this case, it was not shown that petitioner previously secured such consent. It was not even
alleged that she attempted to even secure the same.
It is consonant with human experience that renovation of the place is made according to the needs and nature
of their business. RTC relied on Art 1169 stating that the lessor upon termination of the lease shall pay ½ of the value of
the improvements at the time. However, to be entitled to reimbursement for such improvements petitioner must be
considered to be a builder in good faith. A builder in good faith is one who is unaware of any flaw in his title to the land
at the time he builds on it. In this case, petitioner cannot claim that she was a builder in good faith because she is just a
lessee of the subject premises and not he owner thereof.