Cheng v. Donini
REITERATIONFacts
The Antecedents: Petitioner Serafin Cheng and respondents Spouses Vittorio and Ma. Helen Donini entered into an oral lease agreement for a property to be used as a restaurant, with a monthly rental of ₱17,000, commencing December 1, 1990. Respondents, with an interim grant of authority from petitioner, proceeded to introduce improvements on the premises. However, before a final lease agreement was signed, disagreements arose, and petitioner demanded payment of deposit and rentals. Respondents continued to occupy the premises until April 17, 1991, when they voluntarily surrendered the property. Procedural History: Respondents filed a complaint for specific performance and damages, praying for a five-year lease or reimbursement of their expenses and unearned income. The Regional Trial Court (RTC) dismissed the complaint and awarded damages to petitioner. Upon appeal, the Court of Appeals (CA) set aside the RTC decision and ordered petitioner to pay respondents ₱964,000 for the repairs and improvements. Petitioner's motion for reconsideration was denied. The Petition: Petitioner filed a petition for certiorari, arguing that the CA erred in considering respondents as possessors in good faith under Articles 448 and 546 of the Civil Code and in applying Article 1678 incorrectly, as well as in awarding damages and fixing the amount of reimbursement.
Issue(s)
Whether the Court of Appeals erred in ordering the petitioner to reimburse the respondents the full value of the expenses for repairs and improvements, considering their status as lessees. Whether the Court of Appeals erred in deleting the award of moral and exemplary damages and attorney's fees in favor of the petitioner.
Ruling
The petition is PARTIALLY GRANTED. The Court of Appeals decision is MODIFIED: (1) Petitioner Serafin Cheng is ORDERED to pay respondents Spouses Vittorio and Ma. Helen Donini the amount of ₱171,650.95 as indemnity for the useful improvements; and (2) Respondents Spouses Vittorio and Ma. Helen Donini are ORDERED to pay petitioner Serafin Cheng ₱100,000.00 for moral damages, ₱50,000.00 for exemplary damages, and ₱25,000.00 for attorney's fees.
Ratio Decidendi
On the issue of reimbursement for improvements: The Court held that the relationship between the petitioner and respondents was governed by the Civil Code provisions on lease, specifically Article 1678. This article provides that a lessor, upon termination of the lease, shall pay the lessee one-half of the value of useful improvements made in good faith, or allow the lessee to remove them. The Court clarified that Articles 448 and 546, which allow full reimbursement and retention of the premises, apply only to possessors or builders in good faith who believe they are the owners, a status not applicable to lessees. The Court found that respondents, as lessees, introduced improvements at their own risk and could not claim full reimbursement. However, considering the circumstances, including the infeasibility of removing the improvements and the fact that the property was already leased to another entity, the Court applied equity and ordered petitioner to pay one-half of the value of the useful improvements, amounting to ₱256,650.95. This amount was then offset by the unpaid rentals of ₱85,000, resulting in an indemnity of ₱171,650.95. The Court also noted that respondents were not entitled to reimbursement for ornamental expenses, as per Article 1678, and by failing to remove them, they were deemed to have waived their right. On the issue of damages and attorney's fees: The Court found that the CA erred in deleting the award of damages and attorney's fees granted by the RTC. While the RTC's award of ₱500,000 for moral damages and ₱100,000 for exemplary damages was deemed excessive, the Court found ₱100,000 for moral damages and ₱50,000 for exemplary damages to be reasonable and sufficient under the circumstances. These damages serve to compensate for moral suffering and act as a deterrent against socially deleterious actions, respectively. Furthermore, the Court reinstated the award of ₱25,000 for attorney's fees, as allowed by Article 2208 of the Civil Code when exemplary damages are awarded and when litigation is necessitated by the adverse party's actions.
Main Doctrine
Under Article 1678 of the Civil Code, a lessee is not entitled to full reimbursement for useful improvements made on the leased premises; the lessor has the option to pay one-half of the value of the improvements or allow the lessee to remove them. Articles 448 and 546, which apply to possessors in good faith, do not govern the relationship between a lessor and lessee.