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Home arrow Law Updates arrow Validity of forfeiture clauses in lease contracts
Validity of forfeiture clauses in lease contracts Print
In Fort Bonifacio Development Corporation vs. Yllas Lending Corporation, et al. G.R. No. 158997. October 6, 2008 the Court upheld the validity of a forfeiture clause. A forfeiture clause is a provision which calls for the forfeiture of the remaining deposit still in the possession of the lessor, without prejudice to any other obligation still owing, in the event of the termination or cancellation of the agreement by reason of the lessee’s violation of any of the terms and conditions of the agreement is a penal clause that may be validly entered into. A penal clause is an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special prestation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled. In one case, the Court allowed the forfeiture of the lessee’s advance deposit of lease payment. Such a deposit may also be construed as a guarantee of payment, and thus answerable for any unpaid rent or charges still outstanding at any termination of the lease.
 
In the case at bar, the Supreme Court allowed FBDC’s forfeiture of Tirreno’s properties in the leased premises. By agreement between FBDC and Tirreno, the properties are answerable for any unpaid rent or charges at any termination of the lease. Such agreement is not contrary to law, morals, good customs, or public policy. Forfeiture of the properties is the only security that FBDC may apply in case of Tirreno’s default in its obligations.
 
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