PRYCE CORP.

v PAGCOR conducted a series of negotiations and

G.R. No. 157480, 06 May 2005 consultations before entering into the contract.
It did so not only with Pryce, but also with local
FACTS: government officials, who assured it that the
PAGCOR leased some hotel space from Pryce problems were surmountable. Likewise,
Corp. (Pryce) in Cagayan de Oro City to put up PAGCOR took pains to contest the ordinances
a casino. It is fraught with problems from the before the courts, which consequently declared
start as frequent protests by locals and civic them unconstitutional. On top of these
leaders plagued the casino. PAGCOR is developments, the gaming corporation was
subsequently advised to stop operations by no advised by the Office of the President to stop the
less than the President of the Philippines. games in Cagayan de Oro City, prompting the
PAGCOR stopped paying the rent after ceasing former to cease operations prior to September
operations despite the fact that the lease 1993.Also worth mentioning is the CA's finding
contract had not yet expired. Pryce sent several that PAGCOR's casino operations had to be
letters demanding the unpaid balance to no suspended for days on end since their start in
avail. After exhausting all possible options, December 1992; and indefinitely from July 15,
Pryce decided to exercise its contractual right to 1993, upon the advice of the Office of the
terminate the lease contract and to claim the President, until the formal cessation of
supposedly forfeited deposits of PAGCOR. This operations in September 1993. Needless to say,
right to forfeiture was stipulated in the contract these interruptions and stoppages meant that
as a penalty. PAGCOR suffered a tremendous loss of
expected revenues, not to mention the fact that
ISSUE: it had fully operated under the Contract only for
Is Pryce entitled to the unpaid rentals by a limited time.
PAGCOR?
While petitioner's right to a stipulated penalty is
HELD: affirmed, we consider the claim for future rentals
Although the contract falls under one of those to the tune of Php 7,037,835.40 to be highly
exceptions where both the actual damages and iniquitous. The amount should be equitably
the penalty may be claimed by virtue of the reduced.
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
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.