Fort Bonifacio Development Corporation vs. Yllas Lending Corporation

A stipulation in a lease contract authorizing the lessor to appropriate the lessee's properties left on the premises to satisfy unpaid rentals is a valid forfeiture clause and not a void pactum commissorium, because the lessor's possession of the properties is incidental to the lease and does not constitute the delivery required to perfect a contract of pledge.

FBDC leased a commercial unit to Tirreno, Inc. Upon Tirreno's default, FBDC terminated the lease, entered the premises, and appropriated Tirreno's properties pursuant to Section 22 of the contract. Subsequently, respondents, who held a chattel mortgage over the same properties executed after FBDC's seizure, filed a foreclosure action with replevin, prompting the sheriff to seize the properties from FBDC.

• Lease Contract and Default: FBDC leased a unit to Tirreno, Inc. Section 20 of the contract allowed FBDC to terminate the lease upon default without judicial action. Section 22 gave FBDC a lien over the lessee's properties, authorizing retention or sale to offset unpaid rentals. Tirreno defaulted, accumulating over P5 million in arrears. FBDC issued a written notice of termination on 19 September 2000 and took possession of the premises and the properties left therein on 29 September 2000.
• Chattel Mortgage and Seizure: On 9 November 2000, Tirreno executed a Deed of Chattel Mortgage over the same properties in favor of respondents to secure a P1.5 million loan. Respondents filed a complaint for foreclosure with replevin on 27 September 2001. On 4 March 2002, the sheriff served an alias writ of seizure, taking the properties from FBDC's possession and delivering them to respondents without requiring an indemnity bond despite FBDC's third-party claim.

• Validity of Forfeiture Clause: Petitioner argued that Section 22 of the lease contract constitutes a valid forfeiture clause or dacion en pago, not a void pactum commissorium.
• Propriety of Intervention: Petitioner maintained that a third-party claimant may vindicate rights over properties taken in a replevin action by intervening in the action itself, rather than filing a separate suit.
• Due Process and Indemnity Bond: Petitioner contended that property was taken without due process because the sheriff delivered the properties to respondents without requiring an indemnity bond for FBDC's protection.

• Pactum Commissorium: Respondent countered that Section 22 of the lease contract partakes of a pledge and contains a void pactum commissorium under Article 2088 of the Civil Code, as it provides for the automatic appropriation of the lessee's properties upon default.
• Remedy of Third-Party Claimant: Respondent argued that FBDC's proper remedy is a separate and independent action, not intervention, relying on the ruling in Bayer Phils. v. Agana.

• Validity of Section 22: Whether Section 22 of the lease contract, authorizing the lessor to retain and sell the lessee's properties upon default, constitutes a void pactum commissorium.
• Remedy of Third-Party Claimant: Whether a third-party claimant in a replevin action must file a separate independent action or may intervene in the pending case.
• Sheriff's Liability: Whether the sheriff properly delivered the seized properties to the mortgagee without an indemnity bond.

• Validity of Section 22: Section 22 is a valid forfeiture clause, not a void pactum commissorium. A pactum commissorium presupposes a valid contract of pledge, which requires delivery of the thing pledged to the creditor. The fourth requisite of pledge was absent; the lessee's properties were in FBDC's building due to the lease, not by delivery to perfect a pledge. Since no pledge existed, the automatic appropriation clause was not a pactum commissorium but a valid penal clause securing unpaid rent.
• Remedy of Third-Party Claimant: Intervention was proper. The reliance on Bayer Phils. v. Agana was misplaced because Bayer involved a third-party claim during execution, where intervention is no longer allowed. FBDC filed its claim during trial, where intervention is permitted under Rule 19, Section 1, given FBDC's legal interest in the property subject of litigation.
• Sheriff's Liability: The sheriff was not obligated to turn over the properties without an indemnity bond under Section 14, Rule 57 of the Rules of Court. FBDC may hold the sheriff liable for damages for the taking and keeping of the properties due to the lack of the bond.

• Forfeiture Clause in Lease Contracts — A provision calling for the forfeiture of the lessee's properties left on the leased premises to answer for unpaid rentals is a valid penal clause. It serves as a security for the lessor and is not contrary to law, morals, good customs, or public policy.
• Requisites of Pledge and Pactum Commissorium — For a stipulation to be void as a pactum commissorium, there must first be a valid contract of pledge. A contract of pledge requires: (1) constitution to secure a principal obligation; (2) pledgor's absolute ownership; (3) free disposal or legal authorization; and (4) delivery of the thing pledged to the creditor or third person. Possession incidental to a lease does not satisfy the fourth requisite.
• Intervention vs. Separate Action for Third-Party Claims — The remedy of a third-party claimant depends on the timing of the claim. During execution (post-judgment), a separate action is required. During trial (pre-judgment), as in a replevin suit, intervention is permitted because the intervenor has a legal interest in the matter in litigation.

• "There is non-compliance with the fourth requisite even if Tirreno's personal properties are found in FBDC's real property. Tirreno's personal properties are in FBDC's real property because of the Contract of Lease, which gives Tirreno possession of the personal properties. Since Section 22 is not a contract of pledge, there is no pactum commissorium."
• "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 timing of the filing of the third party claim is important because the timing determines the remedies that a third party is allowed to file. A third party claimant under Section 16 of Rule 39... may vindicate his claim to the property in a separate action, because intervention is no longer allowed as judgment has already been rendered. A third party claimant under Section 14 of Rule 57... may vindicate his claim to the property by intervention because he has a legal interest in the matter in litigation."

• Bayer Phils. v. Agana — Distinguished. Declared that third-party claimants must file a separate action, but this applies to claims made during execution, not during trial where intervention is permissible.
• Consing v. Jamandre — Followed. Upheld the validity of contractually stipulated termination clauses allowing lessors to take possession without judicial intervention.
• Country Bankers Insurance Corp. v. Court of Appeals — Followed. Upheld the validity of forfeiture clauses in lease contracts as penal clauses securing unpaid rent.
• Philippine National Bank v. Pineda — Followed. Defined dacion en pago as the alienation of property to the creditor in satisfaction of a debt, requiring transfer of ownership.
• BA Finance Corporation v. Court of Appeals — Followed. Held that when a mortgagee's right to possession is contested by an adverse possessor, inclusion of other parties is essential for a complete determination, justifying intervention.

• Articles 2085 and 2093, Civil Code — Enumerate the requisites of a contract of pledge. Applied to determine that the fourth requisite (delivery to the creditor) was absent, negating the existence of a pledge.
• Article 2088, Civil Code — Prohibits the creditor from appropriating things given by way of pledge or mortgage. Applied to determine that because no pledge existed, the prohibition did not apply to the forfeiture clause.
• Article 1245, Civil Code — Defines dacion en pago. Cited to distinguish the forfeiture clause from a dation in payment.
• Section 16, Rule 39, 1997 Rules of Civil Procedure — Governs third-party claims during execution. Distinguished from the present case, which arose during trial.
• Section 14, Rule 57, 1997 Rules of Civil Procedure — Governs third-party claims in attachment/replevin. Applied to allow intervention and to require an indemnity bond before the sheriff delivers the property to the attaching party.
• Section 1, Rule 19, 1997 Rules of Civil Procedure — Governs intervention. Applied to justify FBDC's intervention given its legal interest in the litigated property.

Chief Justice Reynato S. Puno, Associate Justice Adolfo S. Azcuna, Associate Justice Ruben T. Reyes, Associate Justice Teresita J. Leonardo-De Castro