Security Deposit Disputes in Market Stall Leases (Philippine Context)
1 | Legal Framework Governing Market-Stall Leasing
| Source of rules | What it contributes |
|---|---|
| Civil Code of the Philippines (Arts. 1654-1688, 1278-1290, 22, 1179-1191) | General law of lease; delineates lessor/lessee obligations, compensation or set-off, unjust enrichment, and rescission. |
| Local Government Code (“LGC,” RA 7160) – esp. §§447(a)(2)(xi), 458(a)(2)(xi) | Empowers sanggunians to “regulate markets” and “fix stall rentals, fees, and charges,” including security-deposit schemes. |
| Local market ordinances/Market Codes | Spell out the exact deposit amount (often 2-3 months’ rent), refund timelines, grounds for forfeiture, and administrative grievance routes (Market Committee, City Treasurer, Mayor). |
| Special laws • Rent Control Act (RA 9653, but covers residential only) • Urban Land Reform legislation (PD 1517; RA 7279 “UDHA”) • COVID moratoria (Bayanihan 1 & 2; DTI MC 20-29) |
Occasionally affect commercial stalls (e.g., moratorium on eviction/forfeiture during lockdowns, prohibition on applying deposits to unpaid rent without lessee’s written consent). |
| Commission on Audit (COA) rules | LGUs must treat security deposits as trust funds; refunds require obligation requests and disbursement vouchers subject to post-audit. |
| Supreme Court jurisprudence (selected below) | Clarifies when forfeiture is valid, when withholding equals unjust enrichment, and how legal interest is computed. |
2 | Nature of the Security Deposit
- Purpose. A guarantee fund to answer for unpaid rentals, utilities, or physical damage, not advance rent.
- Ownership. Remains property of the lessee; the lessor (or LGU) is a trustee. Wrongful retention is actionable as quasi-contract (Art. 22, Civil Code).
- Interest. Unless the lease or ordinance says otherwise, Philippine law does not compel the lessor to place the money in an interest-bearing account. If the lessor does earn interest, it belongs to the depositor (Art. 1983).
- Tax treatment. Under BIR rulings, the deposit is not rental income until (a) actually applied to rent or damages, or (b) validly forfeited.
3 | Typical Contract/Ordinance Clauses
- Amount & form – cash equal to 2-3 months’ stall fees; sometimes a cash bond plus a clean-up bond.
- Adjustability – if rent escalates, deposit is “topped-up.”
- Forfeiture triggers – (a) rental arrears ≥ 1 month; (b) sub-leasing; (c) sanitary violations; (d) structural alterations without permit.
- Return timetable – 30-60 days after turn-over of the stall in good condition; lessee must present • clearance from Market Administration & Treasurer, • last utility bills, • original receipts for the deposit.
- Inspection & accounting – joint inventory within 24-48 hours of surrender; written statement of deductions with official receipts for repair costs.
4 | Why Disputes Arise
| Issue | Common fact patterns |
|---|---|
| Total non-refund | Lessor claims “automatic forfeiture” even when stall is surrendered undamaged; stallholder contests blanket clause as unconscionable. |
| Excessive deductions | Charging for “re-tiling” or “re-painting” that qualifies as ordinary wear and tear under Art. 1657. |
| Offsetting arrears | Lessor offsets deposits against back-rent without any demand; lessee says set-off requires mutual consent or formal notice under Arts. 1278-1279. |
| Delay in release | LGU refund stuck in bureaucracy > 1 year; interest claim arises under Nacar v. Gallery Frames (6 % p.a. from extrajudicial demand). |
| Unilateral escalation | Lessor refuses to refund unless lessee pays a “contract pre-termination fee” not found in the ordinance. |
5 | Remedies & Procedure
Demand & negotiation.
- Send a demand letter with (a) copy of contract/ordinance, (b) proof of deposit (ORs), (c) pictures of vacated stall, (d) proposed computation.
- Cite Art. 1159 (obligatory force of contracts) and Art. 22 (unjust enrichment).
Barangay conciliation (Katarungang Pambarangay – RA 7160 Ch. VII) – mandatory for claims ≤ ₱400 000 between private parties in the same city/municipality. Not required when the adverse party is an LGU.
Administrative channels for public-market disputes
- Market Committee/Market Administrator (initial grievance)
- City/Municipal Treasurer (refund processing)
- Mayor/Sanggunian (appeal under LGC §445/455)
- Commission on Audit money-claim route if refund is disallowed by local disbursing officer.
Judicial action
- Small Claims (A.M. 08-8-7-SC) – money claims up to ₱400 000; simple, no lawyers’ fees recoverable, decision in 30 days.
- MTC/RTC – ordinary civil action for amounts beyond the small-claims cap, or if action also seeks damages and interest and declaratory relief on forfeiture clause.
- Unlawful detainer vs. collection – withholding the deposit does not convert a pure money claim into ejectment.
Alternative Dispute Resolution – Check contract; commercial arbitration is enforceable under the ADR Act (RA 9285).
6 | Burden of Proof & Evidence
| Party | Must show |
|---|---|
| Lessee/Stallholder | Existence & amount of deposit (official receipts, acknowledgement in lease); compliance with lease obligations (paid-up rentals; sanitation certificate; photographs proving no damage). |
| Lessor/LGU | Itemized accounting of deductions; inspection report signed by both parties; proof of actual cost (invoices) for repairs; authority under ordinance or contract to forfeit. |
7 | Relevant Supreme Court Decisions
- Salazar v. Angeles, G.R. No. 162714, September 24 2012 – deposit remains lessee’s property; lessor liable for 6 % legal interest from date of demand when refund is unjustifiably refused.
- City Government of Tagbilaran v. Sarsaba, G.R. No. 150103, December 10 2008 – LGU may impose deposits by ordinance, but forfeiture requires notice and hearing; due process applies even to stall awards deemed “privileges.”
- Villanueva v. Gamboa, G.R. No. 180764, August 1 2012 – blanket forfeiture clauses are subject to equity; court may order partial refund if damage deductions lack evidentiary support.
- Nacar v. Gallery Frames, G.R. No. 189871, August 13 2013 – sets prevailing 6 % p.a. legal interest for monetary awards, applicable to security-deposit refunds.
- Municipality of San Miguel v. CA, G.R. No. 119190, June 30 1998 – cancellation of public-market stall requires compliance with ordinance-mandated procedure; failure makes forfeiture invalid.
- Agcaoili v. GSIS, G.R. No. 162795, February 8 2007 – illustrates application of unjust enrichment when lessor applies deposit to arbitrary charges.
8 | Computation of Amount Due
- Start with gross deposit.
- Deduct supported repair charges (attach receipts).
- Deduct unpaid rentals/utility bills (must be liquidated and previously demanded).
- Add legal interest (6 % p.a.) from extrajudicial demand or filing of action until full payment.
- Add damages (e.g., ₱ 20 000 moral + exemplary) if bad-faith withholding is proved.
9 | Prescription
- Written contract – 10 years from accrual (Art. 1144).
- Oral/implied quasi-contract – 6 years (Art. 1145).
- Accrual date is usually date of demand or lease termination, whichever is later.
10 | Practical Drafting & Compliance Tips
| For lessors / LGUs | For stallholders |
|---|---|
| • Use a separate paragraph for advance rent and deposit. • Provide a fixed refund period (e.g., “within 30 days of clearance”). • State that any deductions require receipted proof. |
• Obtain official receipt for the deposit; photocopy it. • Insist on a joint inspection and have both parties sign the checklist. • Send a written demand; verbal follow-ups do not interrupt prescription. |
| • Make deposits part of a trust fund, segregated from general income. | • Keep photos/video of the stall upon move-in and move-out for “before/after” comparison. |
| • If forfeiture is contemplated, insert a “cure period” (e.g., 15 days to pay arrears) to avoid due-process issues. | • If the stall will be surrendered mid-month, put that in writing; compute prorated rent to avoid deposit offset later. |
11 | Conclusion
In Philippine public and private markets alike, the security deposit sits at the intersection of contract, local-government regulation, and equity. Because it remains the stallholder’s property until properly applied, any withholding must pass three tests: (1) a clear contractual or ordinance basis, (2) documented actual costs or arrears, and (3) observance of due-process notice. Lessees who arm themselves with written demands and evidentiary documentation can recover wrongly retained deposits—often with interest and damages—through barangay conciliation, administrative appeal, or court action. Conversely, lessors who treat the deposit as a trust fund, keep meticulous records, and follow their own market codes minimize the risk of litigation and COA disallowances.
When in doubt, consult counsel experienced in local-government franchising or real-estate litigation; nuances vary per city or municipality, and recent ordinances or COA circulars may modify the general principles summarized here.