Validity of an extra-judicial repossession clause in a lease contract

Can it be validly stipulated in a lease contract that upon failure of the lessee to comply with the terms and conditions of the same and/or the lessee's default with the obligation to pay the monthly rentals, the lessor shall have the right — upon written notice to the lessee — to extra-judicially enter and retake possession of the leased property?

Apart from such clause, is it also legal to stipulate that in the exercise of the lessor's right to retake possession, the latter may resort to the padlocking of the leased unit? Incipiently, it is well to remember that a contract is the law between the parties. Precisely, in Article 1159 of Republic Act (RA) 386, otherwise known as the "New Civil Code of the Philippines," it is stated that:

"Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith."

As such, parties to a contract are allowed by law to enter into stipulations, clauses, terms, and conditions they may deem convenient as long as they are not contrary to law, morals, good customs, public order or public policy. (See Article 1306 of RA 386)

The decision of the Supreme Court in the case of Viray and De Asis v. Intermediate Appellate Court (GR 81015 July 4, 1991) penned by Chief Justice Andres R. Narvasa is very enlightening where the Supreme Court held that it is not illegal, there being nothing in the law proscribing such kind of agreement allowing the extra-judicial right to repossession on the part of the lessor. Thus:

"This Court ruled that the stipulation "is in the nature of a resolutory condition, for upon the exercise by the Sub-lessor of his right to take possession of the leased property, the contract is deemed terminated;" and that such a contractual provision "is not illegal, there being nothing in the law prescribing such kind of agreement."

Pertinently, concerning the issue on the propriety of resorting to the use of padlock, the Supreme Court in the same case citing an American Jurisprudence dictates:

"[T]he better view seems to be, x x x, where a lease provides that if the tenants hold over after the expiration of his term, the landlord may enter and take possession of the premises, using all necessary force to obtain the actual possession thereof, and that such entry should not be regarded as a trespass, be sued for as such, or in any wise be considered unlawful, the landlord may forcibly expel the tenant upon the termination of the tenancy, using no more force than is necessary, and will not be liable to the tenant therefor, such a condition in a lease being valid. X x x where a lease expressly gives a landlord a right to use such reasonable force as is necessary in making re-entry and dispossessing a tenant, when the landlord becomes entitled to possession because of the termination of the term, the landlord can use force in making re-entry and dispossessing the tenant."

it is indubitable that stipulations permitting a lessor to retake possession of the leased property upon the lessee's breach or default to pay rentals are sanctioned by our laws and jurisprudence. Besides, as in the abovementioned case of Viray and De Asis, the facts in your query also provide for a prior written notice to the lessee before the actual repossession.

On the other hand, it is worth emphasizing that in the exercise of the lessor's right to retake possession, the latter may use reasonable amount of force and may resort to reasonable measures in the exercise of the same. Nonetheless, guided by the jurisprudential pronouncement, it would be best if aside from the use of reasonable force and the consequent padlocking of the premise — the lessor should likewise stipulate on the proper inventory and attendant witness or witnesses in the actual exercise of repossession.

In sum, the gist of our laws permitting the same is to avoid the absurd situation wherein a lessee ousted under the circumstances would be restored to possession, but only to be subjected to ejectment proceedings by the lessor to recover possession of the property. To prevent circuity of action, therefore, as in the words of the Supreme Court — we must recognize the affirmative right of action on the part of the lessor as complete and efficacious.

Source: Manila Times

Four things to look for before you borrow

What Are there things you should watch out before you take out a loan?

Before you take out that easy loan for the dream home you have been working hard to acquire, consider first the following four factors.

1. Is the interest quoted on simple or effective basis?

The Bangko Sentral ng Pilipinas defines simple interest as the ratio between the peso interest paid and the original loan amount if the loan were settled with one payment after one year and with the amount of upfront cash received by the borrower equal to the said loan amount. Any deductions made to the upfront cash to be received by the borrower—such as but not limited to loan processing fee, convenience fee, collection fee, notarial fee, handling fee, verification fee —will have the effect of raising the interest rate, which is now the effective interest rate. In this case, the peso interest to be paid once after a year should be compared with the net upfront cash received by the borrower.

In MS Excel, and assuming that loan amortizations are on a monthly basis, the formula to use is =RATE(NPER,-PMT,PV)*12. NPER is the number of periods or term of the loan; PMT is payment or the monthly amortization expressed as a negative number as it is a cash outflow for the borrower; and PV is the amount of the net upfront cash received. Multiplying the result by 12 just converts the resulting monthly interest rate to an annual one (assuming your MS Excel automatically returns an answer in percent form; otherwise, multiply the answer by 100). 2. Compare the effective interest rate with those of larger commercial banks to see if what is being offered you is within market rates.

Is the interest rate quoted as a small percentage on a monthly basis? If so, ask if the method used to arrive at the quoted monthly interest rate is add-on-rate or A-O-R. If so, simply multiplying the quoted rate by 12 will not give the effective interest rate. To arrive at the effective interest rate, use the formula given in No.1, making sure that what is used as PV is the net upfront cash received.

3. Is the interest quoted for a one-time loan payment after a very short term like seven or 14 days?

If so, use the formula =RATE(NPER,PMT,PV,-FV)*(365÷NPER). This time around, use the value “0” for PMT, use the net upfront cash received as PV and the negative of the one-time loan payment as FV or future value. Multiplying the resulting rate by (365÷NPER) is just to convert the periodic rate to an annual one.

In a related development, the Securities and Exchange Commission (SEC) imposed a cap of 15 percent per month on the effective interest rates imposed by lending and financing companies, including their online lending platforms. Also, lending and financing companies may only charge up to 5 percent per month for late payments on outstanding scheduled amounts due. And a total cost cap of 100 percent of the total amount borrowed, applying to all interest, other fees and charges, and penalties, regardless of time the loan has been outstanding, is imposed.

4. Ask if the lender will be charging loan processing fees when you prepay your loan partly or fully in advance.

Under the Consumer Act of the Philippines, any unpaid balance of a consumer loan may be prepaid in full or in part at any time without penalty. Examples of consumer loans are housing, lot, vehicle, credit card and personal loans. Lenders take advantage of a loophole in the law by calling the penalty loan processing fee. Also, some lenders insist that prepayments may only be done during loan anniversary dates or when the loan was first released. If you face such a lender, just thank them for the offer and tell them you will be looking for one who does not charge for such prepayments and who do not insist that prepayments can only be done on loan anniversary dates. It is so easy to borrow. It is in repaying such loans, especially with high rates, that the difficulty arises.

The Neighbor’s Dog Barks Constantly! Nuisance?

Nuisance is specifically governed by Article 694 of the New Civil Code of the Philippines, which states that:

"A nuisance is any act, omission, establishment, business, condition of property or anything else which: (1) Injures or endangers the health or safety of others; or (2) Annoys or offends the senses; or (3) Shocks, defies or disregards decency or morality; or (4) Obstructs or interferes with the free passage of any public highway or street, or any body of water; or (5) Hinders or impairs the use of property."

The presence of nuisance depends upon the existence of the conditions enumerated in the afore-cited law and it does not depend on how loud the noise one is complaining about.

This finds support in the pronouncement of the court in the case of Frabelle Properties Corp. vs. AC Enterprises Inc. (G.R. 245438, Nov. 3, 2020) where the Supreme Court speaking through Honorable former chief justice Diosdado M. Peralta stated that:

".... Noise can be considered a nuisance only if it injuriously affects the health or comfort of ordinary people in the vicinity to an unreasonable extent.

In AC Enterprises, the court held:

The test is whether rights of property, of health or of comfort are so injuriously affected by the noise in question that the sufferer is subjected to a loss, which goes beyond the reasonable limit imposed upon him by the condition of living or of holding property, in a particular locality in fact devoted to uses, which involve the emission of noise although ordinary care is taken to confine it within reasonable bounds; or in the vicinity of property of another owner who, though creating a noise, is acting with reasonable regard for the rights of those affected by it. ...

The determining factor when noise alone is the cause of complaint is not its intensity or volume. It is that the noise is of such character as to produce actual physical discomfort and annoyance to a person of ordinary sensibilities, rendering adjacent property less comfortable and valuable. If the noise does that it can well be said to be substantial and unreasonable in degree, and reasonableness is a question of fact dependent upon all the circumstances and conditions. There can be no fixed standard as to what kind of noise constitutes a nuisance. ..."

There is no law or jurisprudence, which sets an absolute quantifiable standard as to the noise level or the intensity or volume and the same is not a determining factor to consider noise as nuisance.

To consider noise as a nuisance, you have to determine if the noise is of such character as to produce actual physical discomfort and annoyance to a person of ordinary sensibilities.