156 SUPREME COURT REPORTS Same; Same; Courts may equitably objective.

Its resolution would depend on such

ANNOTATED reduce a stipulated penalty in the contracts in factor as, but not necessarily confined to, the
Florentino vs. Supervalue, Inc. two instances: (1) if the principal obligation type, extent and purpose of the penalty, the
has been partly or irregularly complied with; nature of the obligation, the mode of breach
G.R. No. 172384. September 12, 2007. *
and (2) even if there has been no compliance if and its consequences, the supervening
ERMINDA F. FLORENTINO, the penalty is iniquitous or unconscionable in realities, the standing and relationship of the
petitioner, vs. SUPERVALUE, INC., accordance with Article 1229 of the Civil parties, and the like, the application of which,
respondent. Code.—As a general rule, courts are not at by and large, is addressed to the sound
Obligations and Contracts; Penal liberty to ignore the freedoms of the parties to discretion of the court. x x x.
Clauses; Words and Phrases; Penal clause is agree on such terms and conditions as they see Lease; Malls; It is consonant with human
an accessory undertaking to assume greater fit as long as they are not contrary to law, experience that les-sees, before occupying the
liability in case of breach, attached to an morals, good customs, public order or public leased premises, especially store spaces located
obligation in order to insure performance and policy. Nevertheless, courts may equitably inside malls and big commercial
has a double function—(1) to provide for reduce a stipulated penalty in the contracts in establishments, would renovate the place and
liquidated damages, and (2) to strengthen the two instances: (1) if the principal obligation introduce improvements thereon according to
coercive force of the obligation by the threat of has been partly or irregularly complied with; the needs and nature of their business and in
greater responsibility in the event of breach.— and (2) even if there has been no harmony with their trademark designs as part
A penal clause is an accessory undertaking to of their marketing ploy to attract customers.—
assume greater liability in case of breach. It is _______________ It is consonant with human experience that
attached to an obligation in order to insure lessees, before occupying the leased premises,
THIRD DIVISION.
performance and has a double function: (1) to
*

157 especially store spaces located inside malls

provide for liquidated damages, and (2) to and
VOL. 533, SEPTEMBER 12, 2007 157 big commercial establishments, would
strengthen the coercive force of the obligation renovate the place and introduce
by the threat of greater responsibility in the Florentino vs. Supervalue, Inc. improvements thereon according to the needs
event of breach. The obligor would then be compliance if the penalty is iniquitous or and nature of their business and in harmony
bound to pay the stipulated indemnity without unconscionable in accordance with Article with their trademark designs as part of their
the necessity of proof of the existence and the 1229 of the Civil Code which clearly provides: marketing ploy to attract customers.
measure of damages caused by the breach. Art. 1229. The judge shall equitably reduce Certainly, no inducement or
Article 1226 of the Civil Code states: Art. the penalty when the principal obligation has misrepresentation from the lessor is necessary
1226. In obligations with a penal clause, the been partly or irregularly complied with by the for this purpose, for it is not only a matter of
penalty shall substitute the indemnity for debtor. Even if there has been no performance, necessity that a lessee should redesign its
damages and the payment of interests in case the penalty may also be reduced by the courts place of business but a business strategy as
of noncompliance, if there is no stipulation to if it is iniquitous or unconscionable. well.
the contrary. Nevertheless, damages shall be Same; Same; Standard to Determine Same; Builders in Good Faith; To be
paid if the obligor refuses to pay the penalty or Whether Penalty is Un-conscionable.—In entitled to reimbursement for improvements
is guilty of fraud in the fulfillment of the ascertaining whether the penalty is introduced on the property, the party claiming
obligation. The penalty may be enforced only unconscionable or not, this court set out the must be considered a builder in good faith.—
when it is demandable in accordance with the following standard in Ligutan v. Court of To be entitled to reimbursement for
provisions of this Code. Appeals, 376 SCRA 560 (2002), to wit: The improvements introduced on the property, the
question of whether a penalty is reasonable or petitioner must be considered a builder in
iniquitous can be partly subjective and partly
good faith. Further, Articles 448 and 546 of the always be in the power of the tenant to “WHEREFORE, premises considered, the
Civil Code, which allow full reimbursement of “improve” his landlord out of appeal is PARTLY GRANTED. The April 30,
useful improvements and retention of the his property. 2001 Decision of the Regional Trial Court of
premises until reim- Makati, Branch 57 is therefore MODIFIED to
158 PETITION for review on certiorari of the wit: (a) the portion ordering the [herein
158 SUPREME COURT REPORTS decision and resolution of the Court of respondent] to pay the amount of P192,000.00
ANNOTATED Appeals. representing the security deposits and
Florentino vs. Supervalue, Inc. P50,000.00 as attorney’s fees in favor of the
bursement is made, apply only to a The facts are stated in the opinion of the [herein petitioner] as well as giving
possessor in good faith, i.e., one who builds on Court. [respondent] the option to reimburse
land with the belief that he is the owner Amiel A. Vicente for petitioner. [petitioner] 1/2 the value of the improvements
thereof. A builder in good faith is one who is introduced by the [petitioner] on the leased
Victor L. Chan for respondent.
unaware of any flaw in his title to the land at [premises] should [respondent] choose to
the time he builds on it. In this case, the CHICO-NAZARIO, J.: appropriate itself or require the [petitioner] to
petitioner cannot claim that she was not remove the improvements, is hereby
aware of any flaw in her title or was under the Before this Court is a Petition for Review REVERSED and SET ASIDE; and (b) the
belief that she is the owner of the subject on Certiorari under Rule 45 of the Revised portion ordering the return to [petitioner] the
premises for it is a settled fact that she is Rules of Court, filed by petitioner Erminda properties seized by [respondent] after the fo
merely a lessee thereof. rmer settled her obligation with the latter is
F. Florentino, seeking to reverse and set however MAINTAINED.”
Same; Same; Lessees are not possessors or
3

aside the The factual and procedural antecedents of

builders in good faith.—In Geminiano v. Court 159
of Appeals, 259 SCRA 344 (1996), this Court the instant petition are as follows:
VOL. 533, SEPTEMBER 12, 2007 159
was emphatic in declaring that lessees are not Petitioner is doing business under the
possessors or builders in good faith, Florentino vs. Supervalue, Inc. business name “Empanada Royale,” a sole
thus: Being mere lessees, the private Decision, dated 10 October 2003 and the
1
proprietorship engaged in the retail
respondents knew that their occupation Resolution, dated 19 April 2006 of the
2
of empanada with outlets in different
of the premises would continue only for Court of Appeals in CA-G.R. CV No. malls and business establishments within
the life of the lease. Plainly, they cannot 73853. The appellate court, in its assailed Metro Manila. 4

beconsidered as possessors nor builders Decision and Resolution, modified the

in good faith. In a plethora of cases, this Decision dated 30 April 2001 of the _______________
Court has held that Article 448 of the Civil Regional Trial Court (RTC) of Makati,
Code, in relation to Article 546 of the same Penned by Associate Justice Elvi John S.
Branch 57, in Civil Case No. 00-1015, Asuncion with Associate Justices Godardo A. Jacinto
1

Code, which allows full reimbursement of

finding the respondent Supervalue, Inc., and Lucas P. Bersamin, concurring. Rollo, pp. 8-17.
useful improvements and retention of the
premises until reimbursement is made, liable for the sum of P192,000.00, Id., at p. 9.
2

representing the security deposits made Id., at pp. 16-17.

3

applies only to a possessor in good faith, i.e., Records, p. 1.

4

one who builds on land with the belief that he by the petitioner upon the commencement 160
is the owner thereof. It does not apply where of their Contract of Lease. The dispositive 160 SUPREME COURT REPORTS
one’s only interest is that of alessee under portion of the assailed appel-late court’s ANNOTATED
a rental contract; otherwise, it would Decision thus reads:
 Florentino vs. Supervalue, Inc. delivery or delay in the delivery of stocks In a letter dated 8 May 2000, petitioner
Respondent, on the other hand, is a to her outlets, again in violation of the demanded that the respondent release the
domestic corporation engaged in the terms of the contract. A stern warning was equipment and personal belongings it
business of leasing stalls and commercial thus given to petitioner to refrain from seized from the SM Megamall store space
store spaces located inside SM Malls found committing similar and return the security deposits, in the
all throughout the country. 5 sum of P192,000.00, turned over by the
_______________
On 8 March 1999, petitioner and petitioner upon signing of the Contracts of
respondent executed three Contracts of 5 Id. Lease. On 15 June 2000, petitioner sent
Lease containing similar terms and 6 Id., at pp. 55-56. respondent another letter reiterating her
conditions over the cart-type stalls at SM 7 Id., at p. 58. previous demands, but the latter failed or
Id.
North Edsa and SM Southmall and a store refused to comply therewith.
8
15
9 Id.
space at SM Megamall. The term of each 10 Id. On 17 August 2000, an action for
contract is for a period of four months and 161 Specific Performance, Sum of Money and
may be renewed upon agreement of the VOL. 533, SEPTEMBER 12, 2007 Damages
161 was filed by the petitioner
parties.
6 Florentino vs. Supervalue, Inc. against the respondent before the RTC of
Upon the expiration of the original infractions in the future in order to avoid Makati, Branch 57. 16

Contracts of Lease, the parties agreed to the termination of the lease contract.
11

_______________
renew the same by extending their terms In the second letter, respondent
until 31 March 2000. 7
informed the petitioner that it will no 11Id.
Before the expiration of said Contracts longer renew the Contracts of Lease for 12Id., at p. 13.
of Lease, or on 4 February 2000, petitioner the three outlets, upon their expiration on 13Rollo, p. 39.
Id.
received two letters from the respondent,
14

31 March 2000. 12
15Id., at pp. 14-15.
both dated 14 January 2000, transmitted In a letter-reply dated 11 February 16Records, pp. 1-5.
through facsimile transmissions. 8
2000, petitioner explained that the “mini- 162
In the first letter, petitioner was embutido” is not a new variety of em- 162 SUPREME COURT REPORTS
charged with violating Section 8 of the panada but had similar fillings, taste and ANNOTATED
Contracts of Lease by not opening on 16 ingredients as those of pork empanada; Florentino vs. Supervalue, Inc.
December 1999 and 26 December 1999. 9
only, its size was reduced in order to make In her Complaint docketed as Civil Case
Respondent also charged petitioner it more affordable to the buyers.
13
No. 00-1015, petitioner alleged that the
with selling a new variety Such explanation notwithstanding, respondent made verbal representations
of empanada called “mini-embutido” and respondent still refused to renew its that the Contracts of Lease will be
of increasing the price of her merchandise Contracts of Lease with the petitioner. To renewed from time to time and, through
from P20.00 to P22.00, without the prior the contrary, respondent took possession the said representations, the petitioner
approval of the respondent. 10
of the store space in SM Megamall and was induced to introduce improvements
Respondent observed that petitioner confiscated the equipment and personal upon the store space at SM Megamall in
was frequently closing earlier than the belongings of the petitioner found therein the sum of P200,000.00, only to find out a
usual mall hours, either because of non- after the expiration of the lease contract. year later that the respondent will no
14
longer renew her lease contracts for all 17 Id. personal belongings without prior notice
Id.
three outlets. were illegal. The decretal part of the RTC
18
17
19 Id.

In addition, petitioner alleged that the 20 Id. Judgment reads:

respondent, without justifiable cause and 163 “WHEREFORE, premises duly considered,
without previous demand, refused to VOL. 533, SEPTEMBER 12, 2007 judgment
163 is hereby rendered ordering the
return the security deposits in the amount Florentino vs. Supervalue, Inc. [herein respondent] to pay [herein petitioner]
of P192,000.00. the amount of P192,000.00 representing the
18
closing earlier than the agreed closing
security deposits made by the [petitioner] and
Further, petitioner claimed that the hours. Respondent finally averred that P50,000.00 as and for attorney’s fees.
respondent seized her equipment and petitioner is liable for the amount The [respondent] is likewise ordered to
personal belongings found inside the store P106,474.09, representing the penalty for return to the [petitioner] the various
space in SM Megamall after the lease selling a new variety of empanada, properties seized by the former after settling
contract for the said outlet expired and electricity and water bills, and rental her account with the [respondent].
despite repeated written demands from adjustment, among other charges Lastly, the [respondent] may choose either
the petitioner, respondent continuously incidental to the lease agreements. to reimburse the [petitioner] one half (1/2) of
refused to return the seized items. 19
Respondent claimed that the seizure of th e value of the improvements introduced by
Petitioner thus prayed for the award of petitioner’s personal belongings and the plaintiff at SM Megamall should
actual damages in the sum of P472,000.00, equipment was in the exercise of its [respondent] choose to appropriate the
representing the sum of security deposits, improvements to itself or require the
retaining lien, considering that the
[petitioner] to
cost of improvements and the value of the petitioner failed to settle the said
personal properties seized. Petitioner also obligations up to the time the complaint _______________
asked for the award of P300,000.00 as was filed. 21

moral damages; P50,000.00 as exemplary Considering that petitioner already Id., at pp. 20-28.
21

Rollo, pp. 38-43.

damages; and P80,000.00 as attorney’s
22

committed several breaches of contract, 164

fees and expenses of litigation.
20
the respondent thus opted not to renew its 164 SUPREME COURT REPORTS
For its part, respondent countered that Contracts of Lease with her anymore. The ANNOTATED
petitioner committed several violations of security deposits were made in order to Florentino vs. Supervalue, Inc.
the terms of their Contracts of Lease by ensure faithful compliance with the terms
remove the improvements, even though the
not opening from 16 December 1999 to 26 of their lease agreements; and since principal thing may suffer damage thereby.
December 1999, and by introducing a new petitioner committed several infractions [Petitioner] shall not, however, cause anymore
variety of empanadawithout the prior thereof, respondent was justified in impairment upon the said leased premises
consent of the respondent, as mandated by forfeiting the security deposits in the than is necessary.
the provision of Section 2 of the Contract latter’s favor. The other damages claimed by the plaintiff
of Lease. Respondent also alleged that On 30 April 2001, the RTC rendered a are denied for lack of merit.”
petitioner infringed the lease contract by Judgment in favor of the petitioner and
22 Aggrieved, the respondent appealed the
frequently found that the physical takeover by the adverse RTC Judgment to the Court of
respondent of the leased premises and the Appeals.
_______________
seizure of petitioner’s equipment and
 In a Decision dated 10 October 2003,
23 _______________ LESSEE under this contract. If the LESSEE
the Court of Appeals modified the RTC shall faithfully perform every provision of this
23 Id., at pp. 8-17. lease[,] the deposit shall be refunded to the
Judgment and found that the respondent 24 Id.
was justified in forfeiting the security 25 Id., at p. 19.
LESSEE upon the expiration of this Lease and
upon satisfaction of all monetary obligation to
deposits and was not liable to reimburse 26 Id., at pp. 22-37.

165 the LESSOR.

the petitioner for the value of the
VOL. 533, SEPTEMBER 12, 2007 xxxx
165
improvements introduced in the leased Section 18. TERMINATION.—Any
premises and to pay for attorney’s fees. In Florentino vs. Supervalue, Inc.
breach, non-per formance or non-
modifying the findings of the lower court, observance of the terms and
the appellate court declared that in view of 1. II.Whether or not the respondent is conditions herein provided shall
the breaches of contract committed by the liable to reimburse the petitioner for constitute default which shall be
the sum of the improvements she sufficient ground to terminate this lease,
petitioner, the respondent is justified in
introduced in the leased premises. its extension or renewal. In which event,
forfeiting the security deposits. Moreover, 2. III.Whether or not the respondent is
since the petitioner did not obtain the the LESSOR shall demand that LESSEE
liable for attorney’s fees.
27
immediately vacate the premises,
consent of the respondent before she
and LESSOR shall forfeit in its favor the
introduced improvements on the SM The appellate court, in finding that the deposit tendered without prejudice to any
Megamall store space, the respondent has respondent is authorized to forfeit the such other appropriate action as may be
therefore no obligation to reimburse the security deposits, relied on the provisions legally authorized.” 28

petitioner for the amount expended in of Sections 5 and 18 of the Contract of

connection with the said Lease, to wit: _______________
improvements. The Court of Appeals,
24
“Section 5. DEPOSIT.—The LESSEE shall
Id., at pp. 27-28.
however, maintained the order of the trial
27

make a cash deposit in the sum of SIXTY Records, pp. 9-10.

28

court for respondent to return to petitioner THOUSAND PESOS 166

her properties after she has settled her (P60,000.00) equivalent to three (3) 166 SUPREME COURT REPORTS
obligations to the respondent. The months rent as security for the full ANNOTATED
appellate court denied petitioner’s Motion and faithful performance to each and
every term, provision, covenant and
Florentino vs. Supervalue, Inc.
for Reconsideration in a Resolution dated
25
Since it was already established by the
19 April 2006. condition of this lease and not as a pre-
payment of rent. If at any time during the trial court that the petitioner was guilty of
Hence, this instant Petition for Review committing several breaches of contract,
term of this lease the rent is increased[,] the
on Certiorari filed by the petitioner
26
LESSEE on demand shall make an additional the Court of Appeals decreed that she
assailing the Court of Appeals Decision. deposit equal to the increase in rent. The cannot therefore rightfully demand the
For the resolution of this Court are the LESSOR shall not be required to keep the return of the security deposits for the
following issues: deposit separate from its general funds and same are deemed forfeited by reason of
the deposit shall not be entitled to interest. evident contractual violations.
1. I.Whether or not the respondent is The deposit shall remain intact during the
It is undisputed that the above-quoted
liable to return the security deposits entire term and shall not be applied as
to the petitions. payment for any monetary obligations of the
provision found in all Contracts of Lease is
in the nature of a penal clause to ensure
petitioner’s faithful compliance with the 30Ligutan v. Court of Appeals, 427 Phil. 42, unconscionable considering that the
51; 376 SCRA 560, 568 (2002).
terms and conditions of the said contracts. gravity of the breaches committed by the
167
A penal clause is an accessory VOL. 533, SEPTEMBER 12, 2007 petitioner
167 is not of such degree that the
undertaking to assume greater liability in respondent was unduly prejudiced
Florentino vs. Supervalue, Inc.
case of breach. It is attached to an thereby. It is but equitable therefore to
courts may equitably reduce a stipulated
obligation in order to insure performance reduce the penalty of the petitioner to 50%
penalty in the contracts in two instances:
and has a double function: (1) to provide of the total amount of security deposits.
(1) if the principal obligation has been
for liquidated damages, and (2) to It is in the exercise of its sound
partly or irregularly complied with; and
strengthen the coercive force of the discretion that this court tempered the
(2) even if there has been no compliance if
obligation by the threat of greater penalty for the breaches committed by the
the penalty is iniquitous or
responsibility in the event of breach. The 29 peti-
unconscionable in accordance with Article
obligor would then be bound to pay the
1229 of the Civil Code which clearly _______________
stipulated indemnity without the
provides:
necessity of proof of the existence and the Filinvest Land, Inc. v. Court of Appeals,
“Art. 1229. The judge shall equitably reduce 31

measure of damages caused by the the penalty when the principal obligation has supra note 29 at pp. 269-270.
breach. Article 1226 of the Civil Code
30
been partly or irregularly complied with by the
Supra note 30 at p. 52; p. 568.
32

states: 168
debtor. Even if there has been no performance, 168 SUPREME COURT REPORTS
“Art. 1226. In obligations with a penal clause, the penalty may also be reduced by the courts
the penalty shall substitute the indemnity for if it is iniquitous or unconscionable.” 31
ANNOTATED
damages and the payment of interests in case In ascertaining whether the penalty is Florentino vs. Supervalue, Inc.
of noncompliance, if there is no stipulation to
unconscionable or not, this court set out tioner to 50% of the amount of the security
the contrary. Nevertheless, damages shall be
the following standard in Ligutan v. Court deposits. The forfeiture of the entire sum
paid if the obligor refuses to pay the penalty or of P192,000.00 is clearly a usurious and
is guilty of fraud in the fulfillment of the of Appeals, to wit:
32

obligation. The question of whether a penalty is iniquitous penalty for the transgressions
committed by the petitioner. The
The penalty may be enforced only when it reasonable or iniquitous can be partly
is demandable in accordance with the subjective and partly objective. Its resolution respondent is therefore under the
provisions of this Code.” would depend on such factor as, but not obligation to return the 50% of P
necessarily confined to, the type, extent and 192,000.00 to the petitioner.
As a general rule, courts are not at liberty
purpose of the penalty, the nature of the Turning now to the liability of the
to ignore the freedoms of the parties to obligation, the mode of breach and its
agree on such terms and conditions as they consequences, the supervening realities, the respondent to reimburse the petitioner for
see fit as long as they are not contrary to standing and relationship of the parties, and one-half of the expenses incurred for the
law, morals, good customs, public order or the like, the application of which, by and large, improvements on the leased store space at
public policy. Nevertheless, is addressed to the sound discretion of the SM Megamall, the following provision in
court. x x x.” the Contracts of Lease will enlighten us in
_______________ In the instant case, the forfeiture of the resolving this issue:
29 Filinvest Land, Inc. v. Court of Appeals, G.R. No.
entire amount of the security deposits in “Section 11. ALTERATIONS, ADDITIONS,
138980, 20 September 2005, 470 SCRA 260, 269. the sum of P192,000.00 was excessive and IMPROVEMENTS, ETC.—The LESSEE shall
not make any alterations, additions, or “The Court ruled that the stipulation of the “Art. 1678. If the lessee makes, in good faith,
improvements without the prior written parties in their lease contract “to be useful improvements which are suitable to the
consent of LESSOR; and all alterations, renewable” at the option of both parties use for which the lease is intended, without
additions or improvements made on the leased
stresses that the faculty to renew was given altering the form or substance of the property
premises, except movable or fixtures put in at
not to the lessee alone nor to the lessor by leased, the lessor upon the termination of the
LESSEE’s expense and which are removable, himself but to the two simultaneously; hence, lease shall pay the
without defacing the buildings or damaging its
both must agree to renew if a new contract is
floorings, shall become LESSOR’s property to come about. _______________
without compensation/reimbursement but th Petitioner’s contention that respondents
33 G.R. No. L-80231, 18 October 1988, 166 SCRA
e LESSOR reserves the right to require the had verbally agreed to extend the lease
577, 587-588.
removal of the said alterations, additions or
indefinitely is inadmissible to qualify the 34 Josefa v. San Buenaventura, G.R. No. 163429, 3

improvements upon expiration of the lease.”terms of the written contract under the parole March 2006, 484 SCRA 49, 60.
The foregoing provision in the Contract of evidence rule, and unenforceable under the 170
Lease mandates that before the petitioner statute of frauds.” 34
170 SUPREME COURT REPORTS
can introduce any improvement on the Moreover, it is consonant with human ANNOTATED
leased premises, she should first obtain experience that lessees, before occupying Florentino vs. Supervalue, Inc.
the leased premises, especially store
respondent’s consent. In the case at bar, it lessee one-half of the value of the
was not shown that petitioner previously spaces located inside malls and big improvements at that time. Should the lessor
secured the consent of the respondent commercial establishments, would refuse to reimburse said amount, the lessee
before she made the improvements on the renovate the place and introduce may remove the improvements, even though
leased space in SM Megamall. It was not improvements thereon according to the the principal thing may suffer damage
even alleged by the petitioner that she needs and nature of their business and in thereby. He shall not, however, cause any
harmony with their trademark designs as more impairment upon the property leased
obtained such consent or she at least
part of their marketing ploy to attract than is necessary.”
attempted to secure the same. On the
customers. Certainly, no inducement or While it is true that under the above-
other hand, the petitioner asserted that
misrepresentation from the lessor is quoted provision of the Civil Code, the
respondent allegedly misrepresented to
necessary for this purpose, for it is not only lessor is under the obligation to pay the
her that it would renew the terms of the
a matter of necessity that a lessee should lessee one-half of the value of the
contracts from time to time after their
re-design its place of business but a improvements made should the lessor
expirations, and that the petitioner was so
business strategy as well. choose to appropriate the improvements,
induced thereby that she expended the
In ruling that the respondent is liable Article 1678 however should be read
sum of P200,000.00 for the improvement
to reimburse petitioner one half of the together with Article 448 and Article 546
of the store space leased.
169 amount of improvements made on the of the same statute, which provide:
“Art. 448. The owner of the land on which
VOL. 533, SEPTEMBER 12, 2007 leased
169 store space should it choose to
anything has been built, sown or planted in
Florentino vs. Supervalue, Inc. appropriate the same, the RTC relied on good faith, shall have the right to appropriate
This argument was squarely addressed by the provision of Article 1678 of the Civil as his own the works, sowing or planting, after
this court in Fernandez v. Court of Code which provides: payment of the indemnity provided for in
Appeals, thus:
33 articles 546 and 548, or to oblige the one who
built or planted to pay the price of the land, to the land at the time he builds on it. In _______________
35

and the one who sowed, the proper rent. this case, the petitioner cannot claim that
However, the builder or planter cannot be
35 Lopez v. Sarabia, G.R. No. 140357, 24
she was not aware of any flaw in her title September 2004, 439 SCRA 35, 49.
obliged to buy the land if its value is or was under the belief that she is the 36 328 Phil. 682, 689-690; 259 SCRA 344, 351
considerably more than that of the building or
owner of the subject premises for it is a (1996).
trees. In such case, he shall pay reasonable 172
settled fact that she is merely a lessee
rent, if the owner of the land does not choose 172 SUPREME COURT REPORTS
to appropriate the building or trees after thereof.
In Geminiano v. Court of Appeals, this ANNOTATED
proper indemnity. The parties shall agree 36

Court was emphatic in declaring that Florentino vs. Supervalue, Inc.

upon the terms of the lease and in case of
disagreement, the court shall fix the terms lessees are not possessors or builders in Anent the claim for attorney’s fees, we
thereof. good faith, thus: resolve to likewise deny the award of the
xxxx “Being mere lessees, the private same. Attorney’s fees may be awarded
Art. 546. Necessary expenses shall be respondents knew that their occupation when a party is compelled to litigate or to
refunded to every possessor; but only of the premises would continue only for incur expenses to protect its interest by
possessor in good faith may retain the thing the life of the lease. Plainly, they cannot reason of unjustified act of the other. 37

until he has been reimbursed therefor. be considered as possessors nor builders In the instant petition, it was not shown
Useful expenses shall be refunded only to in good faith. that the respondent unjustifiably refused
the possessor in good faith with the same right In a plethora of cases, this Court has held to grant the demands of the petitioner so
of retention, the person who has defeated him that Article 448 of the Civil Code, in relation
as to compel the latter to initiate legal
in the possession having the option of to Article 546 of the same Code, which allows
refunding the amount of the expenses or of full reimbursement of useful improvements
action to enforce her right. As we have
paying the increase in value which the thing and retention of the premises until found herein, there is basis for
may have acquired by reason thereof.” reimbursement is made, applies only to a respondent’s refusal to return to petitioner
Thus, to be entitled to reimbursement for possessor in good faith, i.e., one who builds on the security deposits and to reimburse the
improvements introduced on the property, land with the belief that he is the owner costs of the improvements in the leased
the petitioner must be considered a thereof. It does not apply where one’s only premises. The award of attorney’s fees is
builder in good faith. Further, Articles 448 interest is that of a lessee under a rental therefore not proper in the instant case.
contract; otherwise, it would always be in WHEREFORE, premises considered,
and 546 of the Civil Code, which allow full
the power of the tenant to “improve” his the instant Petition is PARTLY
reimbursement of useful im-
landlord out of his property.” GRANTED. The Court of Appeals Decision
171
VOL. 533, SEPTEMBER 12, 2007 Since
171 petitioner’s interest in the store dated 10 October 2003 in CA-G.R. CV No.
space is merely that of the lessee under the 73853 is hereby AFFIRMED with the
Florentino vs. Supervalue, Inc.
lease contract, she cannot therefore be MODIFICATION that the respondent
provements and retention of the premises
considered a builder in good faith. may forfeit only 50% of the total amount of
until reimbursement is made, apply only
Consequently, respondent may the security deposits in the sum of
to a possessor in good faith, i.e., one who
appropriate the improvements introduced P192,000.00, and must return the
builds on land with the belief that he is the
on the leased premises without any remaining 50% to the petitioner. No costs.
owner thereof. A builder in good faith is
obligation to reimburse the petitioner for SO ORDERED.
one who is unaware of any flaw in his title
the sum expended.
 Ynares-
Santiago (Chairperson), Austria-
Martinez, Nachura and Reyes, JJ.,
concur.
Petition partly granted, judgment
affirmed with modification.
Notes.—It is Article 1678 of the New
Civil Code that governs a lessee’s
right vis-à-vis the improvements built on
leased premises. (Sia vs. Court of
Appeals, 272 SCRA 141 [1997])
Article 1229 of the Civil Code
specifically empowers the judge to reduce
the civil penalty equitably, when the
principal

_______________

37Philippine Air Lines, Inc. v. Court of

Appeals, 193 Phil. 560, 580; 106 SCRA 391, 411
(1981).
173
VOL. 533, SEPTEMBER 12, 2007 173
Sales vs. Commission on Elections
obligation has been partly or irregularly
complied with. (Banco Filipino Savings
and Mortgage Bank vs. Diaz, 493 SCRA
248 [2006])

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