(1) Pryce v PAGCOR (2) Florentino v Supervalue

PRYCE CORP. v PAGCOR G.R. No. 157480, 06 May 2005 FACTS: PAGCOR leased some hotel space from Pryce Corp. (Pryce) in Cagayan de Oro City to put up a casino. It is fraught with problems from the start as frequent protests by locals and civic leaders plagued the casino. PAGCOR is subsequently advised to stop operations by no less than the President of the Philippines. PAGCOR stopped paying the rent after ceasing operations despite the fact that the lease contract had not yet expired. Pryce sent several letters demanding the unpaid balance to no avail. After exhausting all possible options, Pryce decided to exercise its contractual right to terminate the lease contract and to claim the supposedly forfeited deposits of PAGCOR. This right to forfeiture was stipulated in the contract as a penalty. ISSUE: Is Pryce entitled to the unpaid rentals by PAGCOR? HELD: Although the contract falls under one of those exceptions where both the actual damages and the penalty may be claimed by virtue of the provision which states that “aside from the payment of the rentals corresponding to the remaining term of the lease, the lessee shall also be liable 'for any and all damages, actual or consequential, resulting from such default and termination of this contract.” The right to claim the forfeiture of the future rentals may not be exercised by Pryce, as such penalty would be unconscionable and iniquitous. The question of whether a penalty is reasonable or iniquitous is addressed to the sound discretion of the courts. To be considered in fixing the amount of penalty are factors such as, but not limited to, the type, extent and purpose of the penalty; the nature of the obligation; the mode of the breach and its consequences; the supervening realities; the standing and relationship of the parties; and the like. In this case, PAGCOR's breach was occasioned by events that, although not fortuitous in law, were in fact real and pressing. From the CA's factual findings, which are not

contested by either party, we find that PAGCOR conducted a series of negotiations and consultations before entering into the contract. It did so not only with Pryce, but also with local government officials, who assured it that the problems were surmountable. Likewise, PAGCOR took pains to contest the ordinances before the courts, which consequently declared them unconstitutional. On top of these developments, the gaming corporation was advised by the Office of the President to stop the games in Cagayan de Oro City, prompting the former to cease operations prior to September 1993.Also worth mentioning is the CA's finding that PAGCOR's casino operations had to be suspended for days on end since their start in December 1992; and indefinitely from July 15, 1993, upon the advice of the Office of the President, until the formal cessation of operations in September 1993. Needless to say, these interruptions and stoppages meant that PAGCOR suffered a tremendous loss of expected revenues, not to mention the fact that it had fully operated under the Contract only for a limited time. While petitioner's right to a stipulated penalty is affirmed, we consider the claim for future rentals to the tune of Php 7,037,835.40 to be highly iniquitous. The amount should be equitably reduced.

FLORENTINO v SUPERVALUE G.R. No. 172384, 12 September 2007 FACTS: Florentino is a lessee of Supervalue (SM). Florentino is the owner of Empanada Royale, a food cart business entered into a contract of lease with SM. The contract was good for 4 months and after the end of the contract, both parties had the option to either renew or terminate the contract. Florentino and SM was able to renew the contract several times that it even lasted for a year. However, SM terminated the contract with Florentino for the following violations: failure to open on two separate occasions; closing before mall closing time ;introducing a new variety of empanada without the approval of SM. The store management then ordered the foreclosure of the space and along with it were the personal belongings of the petitioner. Florentino demanded for the return of her personal belongings and of the security deposit that she has given SM. ISSUE: 1. Whether or not Florentino can claim for reimbursement on the improvements that she has made? 2. Whether or not Florentino is entitled to claim for the security bond that she has posted? HELD: (1) Florentino is no longer entitled for reimbursment on the improvements that she has done on her stall. Article 1678: If the lessee makes in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased,the lessor upon the termination of the lease shall pay the lessee one-half of the of the improvements at that time. Should the lessor refused to reimburse said amount the

lessee may remove the improvements, even though the principal thing may suffer damages thereby. He shall not, however, cause any more impairment upon the property leased than is necessary." As stated in Geminiano vs CA: "Being mere lessees, the private respondents knew that their occupation of the premises would continue only for the life of the lease. Plainly, they cannot be considered as possessors nor builders in good faith" (2) Florentino is entitled to half of the security deposits made with SM because it would unconscionable for the former to be imposed such penalty. Obligations with Penal clause: Article 1226: In obligations with penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this code. As a rule the courts are not in the liberty to ignore the freedoms of the parties to agree on such terms and conditions.The courts may equitably reduce a stipulated penalty in the contracts in two instances: 1. if the principal obligation has been partly or ireegularly complied with; 2. If there has been no compliance if the penalty is iniquitous or unconscionable in accordance with Article 1229: Article 1229: The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.