FLORENTINO VS SUPERVALUE, INC ingredients as those of pork empanada; only, its size
was reduced in order to make it more affordable to the
ERMINDA F. FLORENTINO is doing business under
the business name "Empanada Royale," engaged in the
retail of empanada with outlets in different malls and
business establishments within Metro Manila.
SUPERVALUE, INC, on the other hand, is a domestic
corporation engaged in the business of leasing stalls
and commercial store spaces located inside SM Malls
found all throughout the country.
1999 march, FLORENTINO and SUPERVALUE, INC
executed three Contracts of Lease containing similar
terms and conditions over the cart-type stalls at SM
North Edsa and SM Southmall and a store space at SM
Megamall. The term of each contract is for a period of
FOUR MONTHS and may be renewed upon agreement
of the parties.
Upon the expiration of the original Contracts of Lease,
the parties agreed to renew the same by extending
their terms until 31 March 2000.
Before the expiration of said Contracts of Lease, or
on 4 February 2000, petitioner received two letters
from the respondent, both dated 14 January 2000,
transmitted through facsimile transmissions
In the first letter, petitioner was charged with violating
Section 8 of the Contracts of Lease by not opening on
16 December 1999 and 26 December 1999.
Respondent also charged FLORENTINO with selling a
new variety of empanada called "mini-embutido" and of
increasing the price of her merchandise from ₱20.00 to
₱22.00, without the prior approval of the respondent.10
SUPERVALUE, INC observed that petitioner was
frequently closing earlier than the usual mall hours,
either because of non-delivery or delay in the
delivery of stocks to her outlets, again in violation
of the terms of the contract. A stern warning was thus
given to petitioner to refrain from committing similar
infractions in the future in order to avoid the termination
of the lease contract.
2ND LETTER, SUPERVALUE, INC tinformed the
petitioner that it will no longer renew the Contracts of
Lease for the three outlets, upon their expiration on 31
March 2000.
In a letter-reply dated 11 February 2000, petitioner
explained that the "mini-embutido" is not a new variety
of empanada but had similar fillings, taste and
buyers.
Such explanation notwithstanding, respondent still
refused to renew its Contracts of Lease with the
petitioner. To the contrary, respondent took possession
of the store space in SM Megamall and confiscated the
equipment and personal belongings of the petitioner
found therein after the expiration of the lease contract.
In a letter dated 8 May 2000, petitioner demanded that
the respondent release the equipment and personal
belongings it seized from the SM Megamall store
space and return the security deposits, in the sum
of ₱192,000.00, turned over by the petitioner upon
signing of the Contracts of Lease. On 15 June 2000,
petitioner sent respondent another letter reiterating her
previous demands, but the latter failed or refused to
comply therewith.
On 17 August 2000, an action for Specific
Performance, Sum of Money and Damages was filed by
the petitioner against the respondent before the RTC of
Makati,
Further, petitioner claimed that the respondent seized
her equipment and personal belongings found inside the
store space in SM Megamall after the lease contract for
the said outlet expired and despite repeated written
demands from the petitioner, respondent continuously
refused to return the seized items.
FLORENTINO thus prayed for the award of actual
damages in the sum of ₱472,000.00
For its part, respondent countered that petitioner
committed several violations of the terms of their
Contracts of Lease
 by not opening from 16 December 1999 to 26
December 1999, and by introducing a new
variety of empanada without the prior consent of
the respondent
 that petitioner infringed the lease contract by
frequently closing earlier than the agreed
closing hours.
 averred that petitioner is liable for the amount
₱106,474.09, representing the penalty for
selling a new variety of empanada, electricity
and water bills, and rental adjustment, among
other charges incidental to the lease
agreements.
  seizure of petitioner’s personal belongings and
equipment was in the exercise of its retaining
lien, considering that the petitioner failed to
settle the said obligations up to the time the
complaint was filed.
Considering that petitioner already committed several
breaches of contract, the respondent thus opted not to
renew its Contracts of Lease with her anymore. The
security deposits were made in order to ensure faithful
compliance with the terms of their lease agreements;
and since petitioner committed several infractions
thereof, respondent was justified in forfeiting the
security deposits in the latter’s favor.
Since it was already established by the trial court that
the petitioner was guilty of committing several
breaches of contract, the Court of Appeals decreed
that she cannot therefore rightfully demand the return of
the security deposits for the same are deemed forfeited
by reason of evident contractual violations.
It is undisputed that the above-quoted provision found
in all Contracts of Lease is in the nature of a penal
clause to ensure petitioner’s faithful compliance
with the terms and conditions of the said contracts.
The question of whether a penalty is reasonable or
iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factor
as, but not necessarily confined to,
 the type
 extent and purpose of the penalty
 the nature of the obligation
 the mode of breach and its consequences
 the supervening realities
 the standing and relationship of the parties, and
the like
 the application of which, by and large, is
addressed to the sound discretion of the court
In the instant case, the forfeiture of the entire amount
of the security deposits in the sum of ₱192,000.00 was
excessive and unconscionable considering that the
gravity of the breaches committed by the petitioner is
not of such degree that the respondent was unduly
prejudiced thereby. It is but equitable therefore to
reduce the penalty of the petitioner to 50% of the
total amount of security deposits.
It is in the exercise of its sound discretion that this court
tempered the penalty for the breaches committed by the
petitioner to 50% of the amount of the security deposits.
The forfeiture of the entire sum of ₱192,000.00 is clearly
a usurious and iniquitous penalty for the transgressions
committed by the petitioner.
The respondent is therefore under the obligation to
return the 50% of ₱192,000.00 to the petitioner.
IMPROVEMENTS
The foregoing provision in the Contract of Lease
mandates that before the petitioner can introduce any
improvement on the leased premises, she should first
obtain respondent’s consent. In the case at bar, it was
not shown that petitioner previously secured the
consent of the respondent before she made the
improvements on the leased space in SM Megamall. It
was not even alleged by the petitioner that she obtained
such consent or she at least attempted to secure the
same.
DIAMOND BUILDERS VS COUNTRY BANKERS
 Rogelio Acidre (sole proprietor of Diamond Builders)
was sued by Marceliano Borja for breach of his
obligation to construct a residential and commercial
building
 Rogelio entered into a compromise agreement with
Borja
 Rogelio in order to secure himself, entered into surety
bond with Country Bankers
 Under the Surety Bond, Rogelio and his spouse and
other petitioners in this case signed an indemnity
agreement consenting to their joint and several liability
to Country Bankers should the surety bond be executed
upon
 Rogelio violated the compromise agreement
 A writ of execution was issued against Country Bankers
for violation of Rogelio to the compromise agreement
 Country bankers payed the surety bond and ask for
reimbursement from petitioners
 Petitioners refused to pay
 Country bankers filed a complaint for sum of money
against petitioners\
Issue: ??
RULING:
The Compromise Agreement between Borja and
Rogelio explicitly provided that the latter’s failure to
complete construction of the building within the
stipulated period shall cause the full
implementation of the surety bond as a penalty for
the default, and as an award of damages to Borja.
Furthermore, the Compromise Agreement contained a
default executory clause in case of a violation or
avoidance of the terms and conditions thereof.
Therefore, the payment made by Country Bankers to
Borja was proper, as failure to pay would have
amounted to contumacious disobedience of a valid
court order.
As Rogelio’s obligation under the compromise
agreement, and approved by the RTC Caloocan, had a
penal clause which is monetary in nature, the writ of
execution availed of by Borja, and paid by Country
Bankers, strictly complied with the rules on execution of
money judgments.
In compliance with the Compromise Agreement,
Rogelio obtained a Surety Bond from Country Bankers
in favor of the spouses Borja
In the meantime, after Country Bankers was compelled
to pay the amount of the surety bond, it demanded
reimbursement from the petitioners under the Indemnity
Agreement. However, petitioners refused to reimburse
Country Bankers.
As a result, Country Bankers filed a complaint for sum
of money against the petitioners which, as previously
stated, the RTC Manila dismissed.