G.R. No. 85161, 9 September 1991


Sy (petitioner) leased theaters owned by Oscar Ventanilla Enterprises Corporation (OVEC) (respondent). Despite numerous demands and a supplemental agreement, Petitioner failed to pay the monthly rentals and amusement taxes as stipulated in their contract. Respondent thereafter repossessed said properties in accordance with their written agreement. Sy filed to enjoin said action of OVEC.


WON the repossession is valid.


Yes. The repossession is valid as the same constitutes a penal clause.

Article 1226 of the Civil Code provides that as a general rule, in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance.

There is no merit in petitioners’ argument that the forfeiture clause stipulated in the lease agreement would unjustly enrich the respondent at the expense of petitioners is contrary to law, morals, good customs, public order or public policy. 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. The petition is denied.

* Case digest by Ariel M. Acopiado, LLB-1, Andres Bonifacio Law School, SY 2017-2018