Lease Reviewer - 1642-79

2S 2011-2012 Reviewer Title VIII. - LEASE CHAPTER 1 GENERAL PROVISIONS -----------------------------------------------------------------------------Art. 1642. The contract of lease may be of things, or of work and service. ------------------------------------------------------------------------------The contract of lease is an agreement whereby one person (lessor) binds himself to grant temporarily the enjoyment or use of a thing or to render some work or service to another (lessee) who undertakes to pay rent, compensation or price therefore. General Rule: Lease is only a personal right. Exception: It is a real right only by exception as in case of lease of real estate recorded in the Registry or Property which makes it binding upon third persons, like a purchaser. A lease contract is not essentially personal in character in the sense that the rights and obligations therein are transmissible to the heirs. Kinds of Lease according to subject matter: 1.

2.

3.

Lease of things – whether real or personal, involving an obligation on the part of the lessor to deliver the thing which is the object thereof and the correlative right of the lessee to the peaceful and adequate enjoyment thereof for a price certain (Art. 1654); or Lease of work – which refers to a contract for a piece of work, involving an obligation on the part of the contractor (lessor) to execute a piece of work for the employer (lessee) in consideration of a certain price or compensation (Art. 1713); or Lease of service – involving an obligation on the part of the housekeeper, laborer or employee, or common carrier to do or perform a service for the head of a family, or master, employer, or passenger or shipper of goods, respectively, in consideration of compensation.

Characteristics 1. Consensual 2. Bilateral 3. Onerous 4. Commutative 5. Nominate, and 6. Principal 3 Elements 1. Consent of the contracting parties; 2. Object certain which is the subject matter of the contract; and 3. Cause of the obligation which is established.

Sales and Lease

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------------------------------------------------------------------------------Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid. ------------------------------------------------------------------------------LEASE OF THINGS Landlord – lessor or owner Tenant – lessee Essence: the transmission of the temporary enjoyment or use by the lessee of a thing for a certain period in consideration of the undertaking to pay rent therefor. The object of lease must be within the commerce of man; otherwise it is void. The lease of a building includes the lease of the lot on which it stands, and the rentals of a building include those of the land. Subject-matter of lease – movable or immovable In a lease of chattels, the lessor loses complete control over the chattel leased although the lessee would be responsible to the lessor should he make bad use thereof. The lessor need not be the owner of the thing leased as long as he can transmit its enjoyment or use to the lessee since ownership is not being transferred. Even the lessee himself may lease the property to another; in such case, a sublease results. Consideration of lease of things – must be price certain generally called “rent” or “rental” in money or its equivalent, such as products, fruits, or other useful things, or some other prestation or labor which the lessee binds himself to undertake. The important thing is that what is given by the lessee has value.  “Price certain” – means that the price of the lease or rent has been determined by the parties or is at least capable of determination under the contract. A price certain exists when the same can be ascertained according to the usages or customs of the place.  The amount must not be nominal or so insignificant as to indicate an intention to enter into a contract of commodatum which is essentially gratuitous.  Since lease is essentially a consensual contract, in the absence of a law fixing a ceiling on rentals, the lessor has the right to fix the amount of the rent, and upon the expiration of the contract, to demand an increase thereof.  During the period fixed in the contract where there is a stipulated rent, the lessor cannot increase the rental without the consent of the lessee. Neither can a court

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

Sales and Lease

2S 2011-2012 Reviewer

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fix a different rental, even where there is an increase in realty taxes.

to-date in the payment of his monthly rentals’, is the contract void?

Period of lease – may be definite or indefinite. In any case, the period is temporary, not perpetual.  When the period is definite or fixed, the longest is 99 years. Reason: because it is an unsound economic policy to allow ownership and enjoyment to be separated for a very long time.  In case the period fixed is more than 99 years, the lease should be considered as having expired after the end of said term. Where there is an implied new lease, the lease will be for an indefinite time.  If the term is fixed but it is indefinite but from the circumstances it can be inferred that a period was intended, the court may fix the duration thereof.  If not term is fixed, Art. 1682 applies for leases of rural lands, and Art. 1687, for leases of urban lands.  A verbal contract of lease “for as long as the lessee are doing business and as long as they can pay just rents” has been held to be a lease from month to month under Art. 1687 and not one of indefinite duration, terminable without necessity of a special notice upon expiration of any month.  A lease of things during the lifetime of one of the parties is for an indefinite period. A lease for such time as the lessor or the lessee may please, is one for life, ending upon the death of either party.  The continuance and fulfillment of a lease of a house cannot be made to depend solely upon the uncontrolled choice of the lessee on whether or not the lessee would pay rentals, thus depriving the lessor of any say on the matter.

A: No. The lease period between the parties is with a period subject to a resolutory condition. Such a stipulation Does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom it is conceded the privilege of cancellation; for where the contracting parties have agreed that such option shall exist, the exercise of the option is as much in the fulfillment of the contract as any other act which may have been the subject of agreement.

Q: Is a stipulation in the contract of lease to the effect that a contract “may be renewed for a like term at the option of the lessee” is void for being potestative? A: No. The lessor is bound by the option he has conceded to the lessee. The lessee likewise becomes bound only when he exercises his option and the lessor cannot thereafter be excused from performing his part of the agreement. The clause simply means that the lessee’s exercise of the option resulted in the automatic extension of the contract of lease under the same terms and conditions. Rule: In case of uncertainty as to the meaning of a provision granting extension to a contract of lease, the tenant is the one favored and not the landlord. Reason: the landlord having the power of stipulating in his own favor, has neglected to do so; and also upon the principle that every man’s grant is to be taken most strongly against himself. Q: When the parties to a contract agreed that the lease period shall subsist for “an indefinite period provided the lessee is up-

Estoppel against lessee A lessee is estopped from asserting title to the thing leased as against the lessor, or to deny the lessor’s title, or to assert a better title not only in himself, but also in some third person., including the State while he remains in possession of the leased property and until he surrenders possession to the lessor. Exception: Where the lessee would, in effect, be paying rental twice for the use of the same property for the same period of time – to the real owner if he were to pay the lessor. Conclusive presumptions include: “(b) The tenant is not permitted to deny the title of his landlord at the time of the commencement of the relation of landlord and tenant between them. “ (Sec. 3-b, Rule 131, RC) Lease vs. Sale LEASE OF THINGS Only the enjoyment or use is transferred Transfer is temporary The lessor need not be the owner

The price of the subject matter, is usually not mentioned, being immaterial

SALE Ownership is transferred Transfer is permanent, unless subject to a resolutory condition The owner must be the owner or at least authorized by the owner to transfer ownership, of the thing sold at the time it is delivered The price of the thing is usually fixed in the contract

In case of doubt, the intention of the parties is an important factor in determining the contract entered into. Note: A lease of personalty with option to buy is an installment sale and not a lease. Lease vs. Commodatum LEASE Onerous contract, although the rent may subsequently be condoned or remitted

COMMODATUM Essentially gratuitous

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

Sales and Lease

2S 2011-2012 Reviewer Not essentially personal in character and, therefore, the right may be transmitted to the heirs

Purely personal in character, and consequently, the death of either the bailor or the bailee extinguishes the contract Consensual contract Real contract as it is perfected only upon delivery of the object thereof Both contracts consist in the transmission of the enjoyment or use of a thing to another

no taxes

By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Generally covers particular uses limited by the contract

Lease vs. Mutuum LEASE The owner of the property does not lose his ownership

The relationship is one of lessor and lessee The subject matter may be real and/or personal property The first is governed by the statute of frauds where the thing leased is real property for more than one year Not governed by Usury Law

MUTUUM The lender or creditor loses ownership of the thing loaned which becomes the property of the borrower or debtor It is that of creditor or oblige and debtor or obligor It is only money or any other fungible thing Not governed by the statute of frauds Governed by said law

Note: Central Bank Circular No. 905 (Dec. 10, 1982) suspended the effectivity of the Usury Law. It removed the ceiling on interest rates. Simple loan may be gratuitous or with stipulation. Lease vs. Usufruct LEASE Real right only in the case of the lease of real property where the lease is registered The lessor may or may not be the owner The lessor has the active obligation to maintain the lessee in the enjoyment or use of the property The lessee generally pays

USUFRUCT always a real right

The creator of the right must be the owner or one duly authorized by him The owner has the passive duty to allow the usufructuary to enjoy or use the same The usufructuary pays the

The lessee generally has no obligation to pay for repairs The lessee cannot constitute a usufruct on the property As a rule may be created only by contract

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annual charges and taxes on the fruits The usufructuary is obliged to make the ordinary repairs needed by the thing given in usufruct The usufructuary may lease the thing in usufruct to another May be created by law, contract, last will and testament or prescription As a rule covers all possible uses of the property

Usufruct gives a right to enjoy the property of another with the obligation of preserving its form and substance, unless the title constituting it or the law otherwise provides. Lease vs. Deposit LEASE The enjoyment or use of the thing leased is the essential purpose The lessor cannot demand the thing leased before the expiration of the contract Both movable and immovable property may be the object Onerous Consensual

DEPOSIT The safekeeping of the thing delivered is the principal purpose The depositor can demand the return of the subject matter at will If it is extrajudicial, only movable (corporeal) things may be the object May be gratuitous Real contract perfected only upon delivery of the object thereof

A Deposit is constituted from the moment a person received a thing belonging to another, with the obligation of safe keeping it and of returning the same. Lease of Chattels vs. Employment LEASE OF CHATTELS EMPLOYMENT The relationship is that of It is one of employer and lessor and lessee employee The lessor loses control or The employer retains management over the control or management over chattel leased his chattel The lessor has no control or The employer exercises supervision over the lessee control and supervision over his employee The lessee pays rent to the The employer pays wage or lessor for the enjoyment or salary for the services of the use of the chattel employee Note: Under the boundary system, the relation between the driver and the jeepney owner is that of employer and employee, not of lessor and lessee.

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

Sales and Lease

2S 2011-2012 Reviewer ------------------------------------------------------------------------------Art. 1644. In the lease of work or service, one of the parties binds himself to execute a piece of work or to render to the other some service for a price certain, but the relation of principal and agent does not exist between them. ------------------------------------------------------------------------------LEASE OF WORK OR SERVICE Lease of work vs. lease of service LEASE OF WORK LEASE OF SERVICE The object is the execution It is the performance of of a piece of work for an some service or an employer by an employer by a househelper independent contractor or laborer or for a passenger or owner of goods by common carrier In both kinds of lease, the employer or passenger or owner of goods binds himself to pay some remuneration or compensation in favor of the independent contractor, employee, or common carrier and the relation of principal and agent does not exist between the parties Lease of work or service vs. Agency LEASE OF AGENCY WORK/SERVICE The basis is employment It is representation The lessor performs a The agent executes a material act for the benefit juridical act for and in behalf of his employer without of his principal representation of the latter The work or service must It is presumed for a be for a price or compensation compensation The will of both parties is The will of one is sufficient necessary for the extinguishment of the relationship Only two persons are Three persons: the involved: the lessor and principal, the agent and the lessee third person with whom the agent has contracted The risk of loss before The risk is borne by the delivery is borne by the principal since the agent independent contractor, acts merely as his esp. in the lease of work for representative a fixed price In the lease of work, the The agent is not, unless he independent contractor is expressly binds himself or personally liable for his exceeds the limits of his contracts with third persons authority In the lease of service, the The agent exercises lessor ordinarily performs discretionary powers only ministerial duties By contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

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Lease of work or service vs. Partnership LEASE OF PARTNERSHIP WORK/SERVICE There is no principle of every partner is an agent of representation the partnership for the purpose of its business The lessor performs a The partners enter into material act for the benefit commercial or business of the employer transactions for the realization of profits Only two persons are A juridical personality involved (partnership) separate and distinct from that of each partner is formed The work or service is The partners perform acts dependent upon the ends conducive to their own and purposes of the lessee business purposes The work or service must The partners share in the be for a price or profits or losses compensation The will of both parties is The will of any partner is necessary for the sufficient extinguishment of relationship In the lease of work, the A partner is generally not independent contractor is personally liable for his contracts with 3rd persons In the lease of service, the Every partner as an agent lessor (like servant) of the partnership, ordinarily performs only exercises discretionary ministerial duties powers Compensation in lease of work or service 1.

Where there is agreement – the lessee must be compelled to pay the agreed price unless it is found to be iniquitous or unreasonable in which case the courts may fix a reasonable and just remuneration. Where the compensation is renounced or waived after the service has been rendered, there is still a lease of service although it has become gratuitous.

2.

Where the agreement may be implied – on principle one who performs work or service in favor of another who impliedly consents thereto and who benefits thereby, is entitled to compensation by virtue of an innominate contract of facio ut des (I give that you may do) or of the case of services tacitly contracted in which case the courts will fix the reasonable worth of the services rendered.

3.

Where no rate or amount is fixed in the contract – the contract is nevertheless valid If the amount can be ascertained in the light of the customs and usages of the place, or by findings of fact on the basis of evidence submitted in case of disagreement.

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

2S 2011-2012 Reviewer Note: A price certain exists when the same can be ascertained according to the customs and usages of the place. ------------------------------------------------------------------------------Art. 1645. Consumable goods cannot be the subject matter of a contract of lease, except when they are merely to be exhibited or when they are accessory to an industrial establishment. ------------------------------------------------------------------------------LEASE OF CONSUMABLE GOODS Under the old Civil Code, “fungible things which are consumed by use cannot be the subject of lease.” The rule is the same under Art. 1645 with the qualification now that consumable goods may be the object of lease when they are merely to be exhibited or when they are accessory to an industrial establishment. The essence of a lease of things is the enjoyment or use of the property with the obligation on the part of the lessee to return the same upon the expiration of the lease. Ownership is not transferred to the lessee. Hence, things which by their nature cannot be used without being consumed, cannot be the subject matter of lease. CHAPTER 2 LEASE OF RURAL AND URBAN LANDS SECTION 1. - General Provisions --------------------------------------------------------------------------Art. 1646. The persons disqualified to buy referred to in Articles 1490 and 1491, are also disqualified to become lessees of the things mentioned therein. ---------------------------------------------------------------------------Rural lands - relating to, or associated with, or typical of, the country, the word being derived from the Latin word “ruralis” meaning country. Legal definition -relating to or constituting tenement in land adopted and used for agricultural or pastoral purposes. -one which, regardless of site, is principally used for the purpose of obtaining products from the soil as opposed to urban lands, which are principally for the purpose of residence. Persons disqualified to buy in accordance with Articles 1490 and 1491 are likewise disqualified to lease the thing therein mentioned. Art. 1490 – relative incapacity of husband and wife to sell property to each other Art. 1491 – incapacity of persons enumerated therein who, by the special relations they have with the property under their charge or peculiar control, are prohibited from purchasing said property.

Sales and Lease

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The prohibition is adopted in Art. 1646 because of the similarity between the contract of lease and that of sale. ___________________________________________________ Art. 1490. The husband and the wife cannot sell property to each other, except: (1) When a separation of property was agreed upon in the marriage settlements; or (2) When there has been a judicial separation or property under Article 191. Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: (1) The guardian, the property of the person or persons who may be under his guardianship; (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; (3) Executors and administrators, the property of the estate under administration; (4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale; (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession. (6) Any others specially disqualified by law. ___________________________________________________ _____________ Foreigners are prohibited by the Constitution, except only in cases of hereditary succession, to acquire lands in the Philippines. (Secs. 7,2, par. 1, Art. XII, Constitution.) Nevertheless, they can lease real or immovable property in the Philippines. Since the residence of aliens in the Philippines is temporary, they may be granted temporary rights such as a lease contract which is not forbidden by the Constitution. The maximum period allowable for the duration of leases of private lands to aliens or alien-owned entities not qualified to

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

2S 2011-2012 Reviewer acquire private lands under the Constitution is 25 years, renewable for another period of 25 years upon mutual agreement of both lessor and lessee. (PD 471) -------------------------------------------------------------------------------Art. 1647. If a lease is to be recorded in the Registry of Property, the following persons cannot constitute the same without proper authority: the husband with respect to the wife's paraphernal real estate, the father or guardian as to the property of the minor or ward, and the manager without special power. -----------------------------------------------------------------------------Proper authority required if leased to be recorded in Registry of Property The registration of the lease is an act of strict ownership; hence a special power of attorney is necessary. But if the lease is not to be recorded, the lease entered into by said persons is valid even without a special power. Art. 1878(8) – a special power of attorney is necessary “to lease any real property to another person for more than one year.” This requirement is imposed whether or not the lease will be recorded. In the absence of a special power, a lease for more than 1 year executed by the persons mentioned Art. 1647 is valid only for 1 year but void as to the excess. -----------------------------------------------------------------------------Art. 1648. Every lease of real estate may be recorded in the Registry of Property. Unless a lease is recorded, it shall not be binding upon third persons. --------------------------------------------------------------------------------Effect of registration of lease of real estate As against 3rd persons A lease contract is valid and binding between the parties, their privies, and their heirs. (Art. 1311) Exception: An oral lease for a longer period than 1 year in which case it cannot be enforced by action for non-compliance with the statute of frauds. [1403 (2,e)] To affect or bind third persons, a lease of real property should be registered in the Registry of Property. Unless so recorded, an innocent purchaser for value is not bound to respect the existing lease and he may terminate the same. (Art. 1676) A contract of lease of land must be in public instrument so that it may be recorded. Purpose: Art. 1648 is intended to protect the lessee, who cannot be ousted by the buyer if the lease is recorded. The right of the buyer to terminate the lease should be curbed as much as possible because it is unjust to the lessee, and practically sanctions a violation of the contract of lease by the lessor.” As between parties Lease is merely a personal right.

Sales and Lease

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Lease partakes of the nature of a real right when it is recorded on the title of the lessor (regardless of duration) only in the sense that it is binding even against 3rd persons without actual notice of the transaction. Leases of personal property Art. 1648 applies only to lease of real estate; hence, leases of personal or movable property cannot be registered. An assignment of a credit, right, or action shall affect 3 rd persons if the assignment appear in a public instrument. (Art. 1625). By analogy with said rule, leases of personal property shall be binding on 3rd persons if they appear in a public instrument. Effect of actual notice of unregistered lease by purchaser Where a purchaser of land at the time of the purchase has full knowledge of the fact that the land has been leased to a third person and is informed of the terms of such lease, he is bound to respect said lease, although it is not entered upon the certificate of title. The lease, in effect, became a part of the contract of sale. (Gustillo vs. Maravilla) -----------------------------------------------------------------------------Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. -------------------------------------------------------------------------------Assignment of lease by lessee In an assignment of lease, the personality of the lessee (assignor/debtor) disappears. The lessee makes an absolute transfer of his lease, involving not only and his rights but also obligations as such lessee and thus, dissociates himself from the original contract of lease. There arises the new juridical relation between the lessor and the assignee who is converted into a new lessee. There is in effect, a novation by substituting the person of the debtor (Art. 1291 [2]) and novation cannot take place without the consent of the creditor. (Art. 1293). Hence, the lessee cannot assign the lease without the consent of the lessor (creditor), unless there is a stipulation granting him that right. Objective: to protect the lessor or owner of the leased property. An assignment of lease without the consent of the lessor is a ground for rescission of the lease. -------------------------------------------------------------------------------Art. 1650. When in the contract of lease of things there is no express prohibition, the lessee may sublet the thing leased, in whole or in part, without prejudice to his responsibility for the performance of the contract toward the lessor. --------------------------------------------------------------------------------Sublease by lessee of thing leased Unlike inn assignment of a lease, a lessee may sublease the property in the absence of express prohibition. In sublease, the lessee remains a party to the contract. There are two leases and two distinct juridical relations: 1) Between the lessor and the lessee, and

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

Sales and Lease

2S 2011-2012 Reviewer 2)

Between the sublessor (lessee) and the sublessee

The lessee is still responsible for the performance of his obligations toward the lessor A judgment of eviction against the lessee affects the sublessee even if the latter is not sued in the ejectment case. 

Reason: the sublesee can invoke no right superior to that of the sublessor from which his own right is derived, and the moment the sublessor is duly ousted from the premises, the sublessee has no leg to stand on. Q: The lessee, without the written consent of the lessor, accepted boarders in their apartment. Is the lease agreement violated? A: No. Accepting boarders not equivalent to subleasing. The lessee does not relinquish or surrender his lease to them. He did not cease to become actual occupant and possessor of the demised premises. He did not surrender the possession and control of the leased premises or a part thereof. (Malasarte vs. CA) -----------------------------------------------------------------------------Art. 1651. Without prejudice to his obligation toward the sublessor, the sublessee is bound to the lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee. ------------------------------------------------------------------------------------The lessor may bring an action directly against the sublessee if he does not use and preserve the thing leased in accordance with the agreement between the lessor and the lessee or with the nature of the property. It is not necessary that the sublessor be joined as a defendant. ------------------------------------------------------------------------------Art. 1652. The sublessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor. Payments of rent in advance by the sublessee shall be deemed not to have been made, so far as the lessor's claim is concerned, unless said payments were effected in virtue of the custom of the place. -----------------------------------------------------------------------------Subsidiary liability of sublessee to lessor 1)

Remedy to collect rents from the sublessee

The law grants the lessor the right to demand payment from the sublessee the rents which the sublessor failed to pay the lessor.

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p[ay the sublessor the rents which said sublessee failed to pay the lessor. Purpose: To prevent a situation where the lessee collects rents from the sublessee but does not pay his rents to the lessor. 2)

Amount of rent recoverable

The liability of the sublessee is limited to the amount of rent due from him to the sublessor under the terms of the sublease at the time of the extrajudicial demand by the lessor. Future rents cannot be recovered. He is liable to the lessor only for rents the lessee falied to pay the lessor. Note: The liability of the sublessee is subsidiary. 3)

Liability for rents paid in advance

The sublessee continues to be subsidiarily liable to the lessor for any rent unpaid by the lessee. The rule is to avoid collusion between the lessee and the sublessee. ------------------------------------------------------------------------------------Art. 1653. The provisions governing warranty, contained in the Title on Sales, shall be applicable to the contract of lease. In the cases where the return of the price is required, reduction shall be made in proportion to the time during which the lessee enjoyed the thing. -----------------------------------------------------------------------------------Warranty of the lessor Art. 1653 applies to leases the warranties in sales. (Arts. 1547, 1548, 1561, 1566) The lessor likewise warrants: 1) That he has a right to lease the thing 2) That the lessee shall enjoy the legal and peaceful possession of the thing, and 3) That the thing is fit for the use for which it is intended and free from any hidden fault or defect. (1654) In case of eviction of the lessee, and the return of the rents paid is required, a reduction shall be made taking into account the period during, which the lessee enjoyed the thing. The lessee has also the right of proportionate reduction of the rents agreed upon where the area or number of the object of the lease is less than that stated in the contract. (Art. 1542) Liability for the warranty is not equivalent to liability in damages, as the latter is an obligation distinct from the former.

The demand to pay rents made by the lessor on the sublessee does not exempt the latter from his obligation to Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

Sales and Lease SECTION 2 Rights and Obligations of the Lessor and the Lessee ------------------------------------------------------------------------------------Art. 1654. The lessor is obliged: (1) To deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) To make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary; (3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract. ------------------------------------------------------------------------------------ Rights and obligations arising from Lease Contract Are Transmissible to the Heirs  A lease contract is not essentially personal in character  The rights and obligations are transmissible to the heirs  The death of the party does not excuse nonperformance of contract which involves a property right and the rights and obligations pass to the successors or representatives of the deceased  BASIC OBLIGATIONS OF THE LESSOR a. To deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended  The thing must be delivered, without delivery there could be no lease because delivery goes to the essence of the contract.  Delivery cannot be waived Republic vs. De los Angeles Held: By analogy, when a lessee rents a building which turns out to be occupied by another person and the former cannot obtain possession, the lessee’s cause of action is against the lessor for breach of contract in that the latter violated his obligation to deliver the peaceful possession of the leased premises. The lessee has no cause of action against the possessor because he has no relation, contractual or ex-delicto, with the latter.  Failure of the Lessee To Use Portion of the Entire Area Leased -the effect is that it is equivalent to a dispossession from the entire area in question b.

to make on the thing leased all the necessary repairs during the existence of the lease to keep it suitable for the use which it has been devoted, unless there is a stipulation to the contrary

8 Repair implies the putting of something back into his its original serviceable condition. It is intended to preserve the thing in a condition suitable for which it is destined as agreed upon.  When repairs were made, lessee cannot unilaterally cancel contract of lease -after the plaintiff has made the necessary repairs upon the compliant of the defendant and the former made the repairs within reasonable time, the defendant cannot unilaterally cancel the contract of lease. (gregorio araneta vs. Lyric film exchange Inc) 

 Sublessor liable for necessary repairs in relation to the sublessee -it is the duty of the sublessor to make the necessary repairs on the leased premises and to maintain the sublessee in the peaceful and adequate enjoyment of the lease -the lessor (or sublessor) cannot be compelled to fulfill the following acts the same not being considered reapairs:  Filling and Improvement of a lot- it is not for preservation of the lot. Improvement is adding something new to the thing leased.  Construction of a house is not a repair  Rebuilding or reconstruction which presupposes the total loss of the thing leased. Repairs and its ordinary acceptation, must be understood to apply to the restoration of the things after the injury or partial destruction, without complete loss of identity in the thing repaired Parties may agree that lessee shall rebuikd, reconstruct or replace the building within a specific period, in case it is destroyed.  Potestative Promise to Build- if the lessee agreed to reconstruct the building destroyed because of the war but the stipulation is potestative in nature, he cannot be compelled to reconstruct the destroyed building (shotwell vs Manila Motor Co.)  Duty of the Lessee To Notify the Lessor About the Need for Necessary Repairs- he may be liable for damages if through his negligence, the owner suffers damages. -if the lessor is not informed about the needed repairs, he could not be held liable for damages for failure to perform his obligation imposed by Art. 1654. c.

To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract  This duty of the lessor also constitutes warranty against eviction or warranty against hidden defects

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

Sales and Lease

Since the lessee is in the possession of the thing it is his duty to notify the lessor of every usurpation or untoward act or acts of a third person against the property  the duty to maintain the lessee in the peaceful and adequate enjoyment of the lease for the duration of the contract, is merely a warranty that the lessee shall not be disturbed in his legal, not physical possession.  Trespass in fact- when it is merely trespass in fact, the lessor cannot be faulted for any breach. The lessee can file a direct action against the trespasser such as forcible entry or illegal detainer.  Force Majeure- when the lessee suffered damages due to  force majeure, the lessor is not liable for any breach of duty  Eviction of Lessee due to Lessor’s Failure to Pay Taxes- Ormachea vs Cua Chee Gan and Co.- the property was forfeited because of the plaintiff’s failure to pay the taxes. The plaintiff is guilty of breach of his duty to maintain the lessee in peaceful enjoyment of the property. It is not just and fair compel the a lessee to pay rental for the leased property when he vacates it, not of his own free will, but in obedience to the orders of constituted authorities and through the fault of the lessor himself  Ejectment through condemnation proceedings- if the tenant was ejected by reason of condemnation proceedings the landlord cannot be held liable for damages. Expropriation is an act of the state and is involuntary on the part of the owner. The lessee can recover damages from the agency or entity which expropriated the property.  Measure of Damages When Lessee failed to Take Possession of the Thing Leased- the true test for the breach is what the injured party has lost by reason of such breach.  Liability of the Lessee- even if the lessee suffers losses in his business venture carried on in the place leased, he is still bound to pay the rentals. A lease is no warranty that the lessee will realize the profits in the venture. Duty not Alter Form

9

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d.

-the lessor has also the duty not to alter the form of the thing leased as to impair the use of the said thing to which it is devoted under the terms of the lease (art. 1661) ------------------------------------------------------------------------------------Art. 1655. If the thing leased is totally destroyed by a fortuitous event, the lease is extinguished. If the destruction is partial, the lessee may choose between a proportional reduction of the rent and a rescission of the lease. -------------------------------------------------------------------------------------

 Total destruction  the lease is extinguished if the thing is totally destroyed  the lessee cannot compel the lessor to reconstruct the destroyed property  the lessee of the lot and building which has been totally destroyed by fortuitous event cannot be considered as lessee of the land after the building had been totally destroyed by the fortuitous event (roces vs. Richard)  while the land has not been affected, consideration should be taken of the fact that generally the land was leased only as an incident to the lease of the building (shotwell vs. manila motors co)  However what was leased is the lot and the lessee constructed a building thereon with the consent of the lessor the destruction of the building will not extinguish the lease, the reason being that the building is just an incident of the lease of the land, on which the owner of the land has no direct interest  Partial Destruction  Lease is not extinguished  Lessee has two options: a. Seek proportional reduction of the rent b. To rescind the lease  The choice is on the lessee and not to the lessor  If the reduction of the rent is opted by the lessee, it shall be reckoned from the time of partial destruction  The lessee can rescind the lease only if the destruction is substantial ------------------------------------------------------------------------------------Art. 1656. The lessor of a business or industrial establishment may continue engaging in the same business or industry to which the lessee devotes the thing leased, unless there is a stipulation to the contrary. ------------------------------------------------------------------------------------General rule: the lessor may engage in business similar to that the lessee, whether the lessor runs his business in the same building which he powns and part thereof is leased to th lessee. Exception: stipulation by the parties 

The lessor only warrants the peaceful and adequate enjoyment of the thing leased but not the success of the business of the lessee

------------------------------------------------------------------------------------Art. 1657. The lessee is obliged: (1) To pay the price of the lease according to the terms stipulated; (2) To use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the custom of the place; (3) To pay expenses for the deed of lease. -------------------------------------------------------------------------------------

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

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 Basic Obligations of the Lessee  To pay the rentals agreed upon  To use the thing properly according to the use it is devoted to and use it with the diligence of a good father of a family  To pay the expenses for the deed of lease  To notify the lessor of any usurpation by a third person or persons on the property and the of the urgent repairs needed  Term of Lease Contract IF DEFINITE- ceases upon the arrival of the date fixed without need of demand IF INDEFINITE- the court may fix the period if the parties cannot agree, however the court has no authority to fix rentals of a contract with definite period.  The lessee is obliged to pay rentals for the lease contract  It is the duty of the lessor to deliver the thing leased and to maintain the lessee in peaceful and adequate enjoyment of the thing and for the lessee to pay the the rentals for the use and enjoyment of the thing.

 Who can fix the rents General rule: only the owner -the court cannot determine the rents and compel the lessor to conform thereto and allow the lessee to enjoy the premises on the basis of the rents fixed by the latter. -the lessor has also the right to terminate the lease at the expiration of the term but also to demand a new rate of rent. -the lessee has the option to accept the new rent or vacate the premises FAIR RENTAL -the amount at which the a willing lesse would pay and a willing lessor would receive for the use of a certain property, neither being under the compulsion and both parties having a reasonable knowledge of all facts such as extent character and utility of the property, sales and holding prices of similar land and highest and best use of the property -is recoverable in the concept of actual damages -reasonable compensation for the use and occupation of the leased property  a. b. c. d. e.

Factors to Determine Reasonableness of Rental Prevailing rates in the vicinity Location of the property Use of the property Inflation rate The testimony of one of the private respondents

-the burden of proving that the increased rental is unconscionable, rests on the lessee -while the lessor has the prerogative to fix rents, nevertheless there are exceptions to the rule. If the rentals are exorbitant or unreasonable, the courts can intervene as a matter of fairness and equity. -when the lessor unjustifiably refuses to accept payment, the lessee’s remedy is not to violate his obligation but to make tender of payment of such rentals and if refused, to make consignation in the proper court. -refusal of the landlord to receive payments of rentals is not an excuse for the lessee’s non-payment and is no defense against ejectment.  Place of Payment Art. 1251: Payment shall be made in the place designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to venue under the Rules of Court. -the lessee has the obligation to use the thing leased properly and to exercise the diligence of a good father of a family so that at the end of the lease, the property shall be returned to the lessor or heirs in the condition it was received. -the lessee may be dispossessed or ejected on the ground of improper use of the leased premises -the lessee is not liable for deterioration or loss due to fortuitous event but is liable for the loss or deterioration occasioned by his fault. Neither he is liable for loss or impairment due to lapse of time or as a result of wear and tear -lessee is liable for the expenses incurred in the preparation of the deed of lease. In sale, it is the seller who is liable for the execution of the sale subject to contrary agreement -the subleasing of a leased property cannot afftect the efficacy of the contract of lease which subsists with all its legal consequences notwithstanding the sublease. -No juridical relationship is created between the lessor and the sublessee by the sublease -if the lessor has recognized the sublease by collecting rentals from the sublessee, the former is stopped from questioning the sublease

-it is a settled that rental stipulated in the contract of lease that has expired or terminated may no longer be the reasonable value for the use and occupation of the premises as a result or by reason of the charges or rise in values.

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

Sales and Lease 11

------------------------------------------------------------------------------------Art. 1658. The lessee may suspend the payment of the rent in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the property leased. ------------------------------------------------------------------------------------ Suspension of Payment of Rentals The lessee may suspend the payment of the agreed rentals under the following circumstance: a. b.

The lessor failed to make the necessary repairs despite notice The lessor failed to maintain the lessee in peaceful and adequate enjoyment of the property

-the grounds for suspension is limitative, in the absence of any of the two grounds, it is grave abuse of discretion for a judge to allow suspension of payment -a lessee cannot stop payment on the pretext there was trespass on the premises when the trespass is only in fact and not in law -if the lessor refuses to make urgent repairs despite notice the remedy of the lessee is to make the urgent repairs themselves and to charge the cost to the lessor and not suspend payment of rentals. ------------------------------------------------------------------------------------Art. 1659. If the lessor or the lessee should not comply with the obligations set forth in Articles 1654 and 1657, the aggrieved party may ask for the rescission of the contract and indemnification for damages, or only the latter, allowing the contract to remain in force. ------------------------------------------------------------------------------------The aggrieved party has two options in case of his obligations a. Rescission of the contract with damages -failure of lessor to place the lessee in possession of the premises leased is a case of lessor’s non-compliance with his obligation b. action for damages only allowing the lease to remain subsisting  On the part of the lessor, instead of rescinding the contract, he may directly file an action for ejectment against the lessee  If the aggrieved party has chosen the option of rescission under article 1659, the court has no discretion to grant the non-fulfillment in an ordinary obligation under article 1191  Lessor is under obligation to respect lessee’s right of first refusal is a contract of lease Lucrative Realty and Dev. Corp vs. bernabe Jr.

-it is not correct to say that there is no consideration for the grant of the right of first refusal if such is embodied in the same contract of lease -rent paid by the lessee constitutes sufficient consideration for the grant of a right of first refusal aside from the fact that such right is stipulated in the contract of lease Tanay Recreation Center and Development Corp vs. Fausto Held: a right of first refusal means identity of terms and conditions to be offered to the lessee and all other prospective buyers and a contract of sale entered into in violation of a right of first refusal of another person, while valid is rescissible -the basis of the right of the first refusal must be current offer to sell of the seller or offer to purchase of any prospective buyer  A right of first refusal may be proved by parol evidence Vacating Leased Premises Before the Expiration of lease Contract “a lessee who binds himself to lease the premises until a fixed period cannot vacate the premises and rescind the lease before the expiration of the period on the ground of loss in his business and if he does so, without the assent of his lessor the latter may invoke the provisions of art. 1659.” Reason: the term is for the benefit of both the parties. Hence, the contract cannot be unilaterally terminated by a party Restrictions To Rescission 1. Rescission is not applied when the breach is only slight or minor because of the principle “de minimis non curat lex”--- the law is not concerned with trifles. 2. It requires judicial action 3. It can be filed only by the aggrieved party  Rescission necessarily requires the return of the thing leased to the lessor.  The measure of damages (under art 1659) is the difference between the rents actually received and that amount stipulated in the contract representing the true rental value of the premises  Damages cannot include future rents precisely because after the termination of the lease, the lessee’s liability to pay future rents is abrogated  However, in ejectment cases, as long as the lessee keeps possessing the property until finally ejected, he remains liable for reasonable rentals for the occupancy of the premises  When parties are guilty of default in the performance of their respective obligations, but it could not be

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

Sales and Lease 12

determined with definiteness who of them committed the first infraction of the terms of the contract, they are considered in pari delicto.  An agreement to the effect that the lessor may take possession of the leased premises in case of violation of the provisions of lease contract is valid.

------------------------------------------------------------------------------------Art. 1661. The lessor cannot alter the form of the thing leased in such a way as to impair the use to which the thing is devoted under the terms of the lease. ------------------------------------------------------------------------------------

----------------------------------------------------------------------Art. 1660. If a dwelling place or any other building intended for human habitation is in such a condition that its use brings imminent and serious danger to life or health, the lessee may terminate the lease at once by notifying the lessor, even if at the time the contract was perfected the former knew of the dangerous condition or waived the right to rescind the lease on account of this condition. -----------------------------------------------------------------------Applicability- this refers to a dwelling place on a building intended for human habitation-which means a place for residential purposes Example: a riparian land abutting a river has gravely eroded by strong currents of the river thus affecting the very foundation of the leased house standing therein, the lessee need not wait to be injured. He could outrightly terminate the lease to protect his life and personal belonging from danger. Effect of Knowledge of the Negative Condition of the Property Leased on the Waiver of the Lessee’s Right to Rescind -some rights are waivable but other rights such as right to live are unwaivable -if the right is unwaivable, the waiver is not binding upon the person making it. -the article is a precaution on public safety which cannot be stipulated  The rule also applies to commercial buildings where workers perform their jobs.  A contract of lease, if pre-termination is allowed or agreed upon , should be allowed on a ground or grounds mentioned in pre-termination letter- due process demands that a party to contract should be fully apprised as to why the contract is being pre-terminated so he will know if the ground or grounds relied upon are allowed and provided for in the contract (de la torre vs. bicol university)





it is the right of the lessee to be maintained in peaceful enjoyment of the property the lessor cannot alter the form of the thing leased. Thus, the lessor cannot convert a Riceland under lease into a fishpond. Such alteration will materiallpy change the form of the property the modification must be in such manner that it would destroy the substance of the thing leased unserviceable for the use intended. Thus the conversion of the main water gate into culvert did not alter the form of the thing in such a way as to impair the use of the thing leased and render it unserviceable

------------------------------------------------------------------------------------Art. 1662. If during the lease it should become necessary to make some urgent repairs upon the thing leased, which cannot be deferred until the termination of the lease, the lessee is obliged to tolerate the work, although it may be very annoying to him, and although during the same, he may be deprived of a part of the premises. If the repairs last more than forty days the rent shall be reduced in proportion to the time - including the first forty days - and the part of the property of which the lessee has been deprived. When the work is of such a nature that the portion which the lessee and his family need for their dwelling becomes uninhabitable, he may rescind the contract if the main purpose of the lease is to provide a dwelling place for the lessee. ------------------------------------------------------------------------------------Tolerance of Urgent Repairs -in case urgent repairs are needed upon the thing leased, which cannot be deferred until the end of the lease, the lessee has to tolerate the works although the same may annoy him and even if he be deprived of the part of the premises during the repairs -if the place becomes uninhabitable for the lessee and his family and the main purpose of the place is for dwelling, the lessee may rescind the contract -if the lessee does not choose to rescind, he may seek the reduction of the rentals if the repairs will last for more than 40 days in proportion to the time of deprivation. -if the period is less than 40 days, he cannot ask for reduction ------------------------------------------------------------------------------------Art. 1663. The lessee is obliged to bring to the knowledge of the proprietor, within the shortest possible time, every usurpation or untoward act which any third person may have committed or may be openly preparing to carry out upon the thing leased.

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

Sales and Lease 13

He is also obliged to advise the owner, with the same urgency, of the need of all repairs included in No. 2 of Article 1654. In both cases the lessee shall be liable for the damages which, through his negligence, may be suffered by the proprietor. If the lessor fails to make urgent repairs, the lessee, in order to avoid an imminent danger, may order the repairs at the lessor's cost. -------------------------------------------------------------------------------------if a third person commits acts of usurpation or any prejudicial acts against the rights of the lessor as owner of the thing and known to the lessee, the latter must immediately inform the proprietor about these acts so that the latter may be able to take action to protect himself and the property leased and to maintain his civil possession over the property -if necessary repairs are needed, the lessee has the same duty to notify the proprietor. If the lessee failed to do so and the lessor suffered damages as a consequence of such negligence, the lessee is liable therefor. -the lessor has no duty to constantly inspect the leased premises to see if there are repairs to be made -notice to the lessor is not necessary if he has personal knowledge of the needed repairs -if despite notice, the lessor failed to make the needed repairs, the lessee may order the repairs at the expense of the lessor. If the repairs are truly needed to avoid imminent danger Options of the lessee: 1. suspension of payment 2. rescission of lease, in case he suffered substantial and not trivial damages. 3. Indemnification for damages -if lessor refuses to make repairs despite notice, the remedy of tenants is not suspension of payment but to make urgent repairs themselves and charge the cost to the lessor ------------------------------------------------------------------------------------Art. 1664. The lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder. There is a mere act of trespass when the third person claims no right whatever. ------------------------------------------------------------------------------------Trespass in Lease 2 kinds of trespass Trespass in fact- disturbance in fact or perurbacion de mere hecho -merre physical disturbance on the property leased -the lessor is not obliged to answer for mere act of trespass, the lessee is authorized by the law to pursue a direct action like forcible entry against the intruder

Trespass in Law- perturbacion de derecho -the trespasser is laying a legal claim or legal right to posssess the property leased -the lessor is responsible for trespass in law ------------------------------------------------------------------------------------Art. 1665. The lessee shall return the thing leased, upon the termination of the lease, as he received it, save what has been lost or impaired by the lapse of time, or by ordinary wear and tear, or from an inevitable cause. ------------------------------------------------------------------------------------General Rule:upon termination of the lease contract the lessee shall return the thing leased in the same condition as when he received it from the lessor. Exceptions: a. If due to lapse of time, the thing is lost or impaired b. If the loss or impairment is due to ordinary wear and tear c. If the same consequences are the results of inevitable causes such as acts of God or force majeure How and When the Returning is Effected -personal things are returned physically while real estates are returned constructively -the returning is an act of delivery by the lessee to the lessor -the duty to return arises from the moment of termination of the lease contract -the lease may be terminated even before its term has expired such as by mutual agreement or in case of premature termination by either party due to certain causes recognized by law. -if the lessee refuses the return of the thing leased at the end of the contract the lessee becomes a deforciant or unlawful possessor unless the lessor agrees to extend the lease like in tacita reconduccion -lessees are under estoppels fro denying the lessor’s title ------------------------------------------------------------------------------------Art. 1666. In the absence of a statement concerning the condition of the thing at the time the lease was constituted, the law presumes that the lessee received it in good condition, unless there is proof to the contrary. -------------------------------------------------------------------------------------the law presumes that the thing leased was in good condition at the time the lease was constituted. Contrary evidence is admissible to prove otherwise. -is applicable only if at the time of the execution of the contract of lease, nothing was mentioned of the status or condition of the thing. If there is, then that statement as to the condition of the thing will be considered at the time of restoration.

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

Sales and Lease 14

-if there is no statement that the building is uninhabitable and inadequate at the time of the constitution of the lease, it is ------------------------------------------------------------------------------------Art 1667. The lessee is responsible for the deterioration or loss of the thing leased, unless he proves that it took place without his fault. This burden of proof on the lessee does not apply when the destruction is due to earthquake, flood, storm or other natural calamity. ------------------------------------------------------------------------------------Lessee is presumed at fault in case of Loss or Deterioration of the Property This presumption is rebuttable.

presumed that it was habitable and adequate. The liability of the lessee for acts of third persons is based on the contract itself, under which the lessee has assumed custody of the thing of which the lessor has been dispossessed. He is liable from the mere fact of having allowed them into the immovable leased. Deterioration caused by the Lessee’s employees does not excuse him. If a lessee is liable for deterioration of the leased property made by his guest, with more reason should he be liable for destruction made by his employees.

The burden of proof is on the lessee to show that the loss or deterioration is not due to his own fault, such as when the deterioration resulted from lapse of time, ordinary wear and tear, or from inevitable cause (Art. 1665).

The law makes no distinction between intentional and negligent acts of the third persons. The lessee, however, may recover from them what he has paid in satisfaction of the claim of the lessor.

Non-Applicability of Presumption This presumption does not apply when the loss or destruction is due to: (a) Earthquake (b) Flood (c) Storm (d) Other natural calamities like volcanic eruptions

------------------------------------------------------------------------------------Art 1669. If the lease was made for a determinate time, it ceases upon the day fixed, without need of a demand. -------------------------------------------------------------------------------------

Reason: It is unjust to impose upon the lessee the burden of proving due diligence. It is more probable that in such cases he was not negligent. (Code Commission) If the negligence or fault of the obligor coincided with the occurrence of the fortuitous event, and caused the loss or damage or the aggravation thereof, the fortuitous event cannot shield the obligor from liability for his negligence. (CAP vs. Belfranlt Devt. Inc.) Ordinarily, fire is not a natural calamity. It is not mentioned in Art 1667. The lessee must prove that he was without fault. Failure to effect necessary repairs If the lessor and the lessee agreed that the lessee will make necessary repairs, and the building collapsed because the lessee failed to make such repairs, the latter’s negligence makes him liable for damages caused. (Gonzales vs. Mateo) ------------------------------------------------------------------------------------Art 1668. The lessee is liable for any deterioration caused by members of his household and by guests and visitors. ------------------------------------------------------------------------------------Deterioration caused by others Although the deterioration was not caused by the lessee himself, he is still liable under the law if the deterioration was made byhis household, guests and visitors. His liability is akin to civil liability in quasi-delict. (Art. 2180)

Lease with a Definite Period Terminates on the day fixed on the contract. Its cessation does not need any demand from the lessor. Definite Period, meaning. – Having distinct of certain limits; determinate in extent or character; limited; fixed. If the parties failed to fix any definite period, Art. 1687 applies. When Demand is Necessary as a Procedural Requirement For purposes of an action for unlawful detainer on the ground of the lessee’s failure to pay rents or violation of the terms of the lease, Rule 70 (RoC) requires that demand be made upon the lessee giving him 5 days (in case of buildings) and 15 days (in case of land), within which to pay the unpaid rentals and to vacate the premises. The demand to vacate must be definite and must not provide an alternative. The demand required under Rule 70 is only a procedural requirement and does not, if not complied with, change the fact that the lease contract has ended upon the termination of the period fixed for its existence. When Demand to vacate is Unnecessary When the action is to terminate the lease, demand is not necessary.

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

Sales and Lease 15

The expiration of the term of the lease immediately gives rise to a cause of action for unlawful detainer in which case, demand to vacate is no longer necessary. Extinguishment of Lease (a) Total loss or destruction of the thing leased (b) Rescission due to non-performance of the obligations of a party (c) Mutual agreement to terminate the lease contract (d) By action of the purchaser or transferee of the property leased in good faith against the lessee whose lease contract is not duly recorded Extension or renewal of lease (1) Authority of Court When the parties have stipulated on the period of the lease, upon its expiration the Court cannot extend the period since it has no authority to do so. (2) Lease not to be deemed extended or renewed by implication Where a lease contract expressly stipulates that the lease shall not be deemed extended or renewed by implication beyond the contractual period for any cause or reason whatsoever but only by negotiations, the mere fact that the lessee was willing to pay what he claimed to be a reasonable rent – which was less than that demanded by the lessor – did not operate in any sense to extend the lease. (3) Lease extendible for a similar period A stipulation that a lease is “extendible” for a further similar period is to be understood as giving the lessee the right to the additional period or to quit upon the expiration of the first term. (4) Lease renewable at the option of both parties A stipulation that the lease of a parcel of land will be “renewable for another 10 years at the option of both parties under such terms, conditions and rentals reasonable at the time,” means that there should be mutual agreement as to the renewal of the lease. (5) Option to renew given to lessor If the option is given to the lessor, the lessee cannot renew the lease against the former’s refusal. The lease is deemed terminated. (6) Extension exclusively for the benefit of the lessor. The stipulation in a lease contract extending the lease term beyond that originally agreed upon, in order to save the lessor the trouble of reimbursing the lessee in cash for the expenses incurred on the leased premises was exclusively for the benefit of the lessor; hence, the latter has the right to terminate the lease upon the expiration of the original period, or at any other time thereafter, by tendering to the lessee, or consigning to the court, the outstanding balance of his expenditures. The lessor should be given the option to either reimburse the balance of the expenditures or demand that the lessee should account for and credit the lessor for the fruits of the properties since the

expiration of the lease against the balance due to the lessee, turning over any excess to the lessor. (7) Option to renew given to lessee Where a lessee is given the option to continue or renew the contract of lease and is silent upon the rentals, the old terms are to be followed in the renewed lease. ------------------------------------------------------------------------------------Art 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in articles 1682 and 1687. The other terms of the original contract shall be revived. ------------------------------------------------------------------------------------Tacita Reconduccion or Implied New Lease If the lessee continues to possess the leased property for at least 15 days after the expiration of the contract of lease with the acquiescence of the lessor, there arises an implied new lease. The period of the lease is not for the original period of the lease but for the legal period established by law. Art. 1682 applies if the lease is rural lease. -----------------------------------------------------------------------Art 1682. The lease of a piece of rural land, when its duration has not been fixed, is understood to have been made for all the time necessary for the gathering of the fruits which the whole estate leased may yield in one year, or which it may yield once, although two or more years may have to elapse for the purpose. -----------------------------------------------------------------------Art. 1687 applies if the lease is urban lease. -----------------------------------------------------------------------Art 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is paid, and no period for the lease has been set, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month. -----------------------------------------------------------------------Requisites for Tacita Reconduccion or Implied New Lease (1) The term of the original contract must have already expired; (2) Neither the lessor nor lessee has given notice to vacate;

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

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(3) The lessee continues to possess the property leased for at least 15 days with the acquiescence of the lessor.

The notice required under Art 1670 is the one given after the expiration of the lease period for the purpose of aborting an implied renewal of lease. The notice to vacate constitutes an express act on the part of the lessor that he no longer consents to the continue occupation by the lessee of the leased property. Revival of Original Conditions; Restrictions CASE: Dizon vs. Magsaysay The conditions in the original lease contract are revived like the amount of rentals, manner and time of payment. Said terms must be germane or connected with the lessee’s enjoyment of the leased property but will not include things like preferential right to buy or right of first refusal. Effect of Express Notice to Vacate Before the Lapse of the 15-day Period CASE: Arevalo vs. Lao  Where the lessor is unwilling to renew the lease, it will be necessary for him to serve on the lessee a formal notice to vacate. As no talks have been held between the lessor and the lessee concerning the renewal of the lease, there can be no inference that the former, by his inaction, intends to discontinue it. In such a case, no less than an express notice to vacate must be made within the statutory 15-day period.  A conditional notice to vacate where the condition was not accepted has the effect of absence of tacit renewal. If there is a letter sent to the lessee telling him to vacate, there is no implied renewal of the lease. (Llano vs. Mamaril) Instances when implied renewal not applicable: (1) Stipulation against implied renewal (2) Invalidity of original lease (3) Acceptance of rentals beyond original term (4) Acceptance of rentals less than amounts stipulated (5) Non-payment of rentals The Principle of Implied Renewal Does Not Apply to Cases of Successive Renewals Under Article 1687. If by the terms of the lease the period of its duration was five years, and a monthly, quarterly or yearly rental was reserved, and upon its expiration the tenant, with the acquiescence of the landlord, holds over for fifteen days, this does not bring about a tacit renewal of the lease for another term of five years, but creates a tenancy from month to month, from quarter to quarter or from year to year, as the case may be. (Ottofy vs. Dunn) ------------------------------------------------------------------------------------Art 1671. If the lessee continues enjoying the thing after the expiration of the contract, over the lessor’s objection, the former shall be subject to the responsibilities of a possessor in bad faith.

------------------------------------------------------------------------------------When Lessee Becomes a Possessor in Bad Faith In this article, the lessee becomes a usurper and has no right to continue using and enjoying the property. As a usurper, he will be bound to the consequences of unlawful possession. Being in bad faith, the following Articles will apply to him: -----------------------------------------------------------------------Art 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity. ----------------------------------------------------------------------------------------------------------------------------------------------Art 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the land, and the sower the proper rent. ----------------------------------------------------------------------------------------------------------------------------------------------Art 549. The possessor in bad faith shall reimburse the fruits received and those which the legitimate possessor could have received, and shall have a right only to the expenses mentioned in paragraph 1 of Article 546 and in Article 443. The expenses incurred in improvements for pure luxury or mere pleasure shall not be refunded to the possessor in bad faith, but he may remove the objects for which such expenses have been incurred, provided that the thing suffers no injury thereby, and that the lawful possessor does not prefer to retain them by paying the value they may have at the time he enters into possession. -----------------------------------------------------------------------------------------------------------------------------------------------------------Art 1672. In case of an implied new lease, the obligations contracted by a third person for the security of the principal contract shall cease with respect to the new lease. ------------------------------------------------------------------------------------Security For Principal Contract of Leases The creation of an Implied New Lease, in effect, constitutes a novation of the contract of lease as the original period is changed (Art. 1291, par. 1). The implied new contract is binding only between the lessor and lessee. If there is any guaranty given by a third person for the payment of the rentals by the lessee under the original agreement, the same is extinguished. It cannot extend to the new lease without his consent. (Art. 1567). -------------------------------------------------------------------------------------

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

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Art 1673. The lessor may judicially eject the lessee for any of the following causes: (1) When the period agreed upon, or that which is fixed for the duration of leases under articles 1682 and 1687, has expired; (2) Lack of payment of the price stipulated; (3) Violation of any of the conditions agreed upon in the contract; (4) When the lessee devotes the thing leased to any use or service not stipulated which causes the deterioration thereof; or if he does not observe the requirement in No. 2 of article 1657, as regards the use thereof. The ejectment of tenants of agricultural lands is governed by special laws. ------------------------------------------------------------------------------------Judicial Grounds for Ejectment of Lessees (1) Expiration of period of the lease The period of the lease contract may be: (a) Conventional – when the period is by agreement of the parties (b) Legal – when the period is fixed by law under Arts. 1682 and 1687 General Rule: Upon the expiration of the period, the lease contract is terminated. If a determinate time was stipulated, the lease ceases without need of a demand (Art. 1669). Exception: In case of tacita reconduccion or implied new lease (Art. 1670). After termination of the lease, the lessor is free to dispose of the property in favor of another lessee. The payment of all rents then due will be immaterial. As long as the period has expired, the lessee can be ejected. (2) Non-payment of the rentals agreed upon One of the principal obligations of the lessee is to pay the rentals agreed upon (Art. 1657 par. 1). It is the cause or consideration for the use and enjoyment of the property leased. Non-payment of the rentals after a demand therefor is a justifiable ground for the lessor to rescind the contract and eject the lessee. (3) Violation of any condition Any violation of the terms and conditions of a contract of lease, whether it is essential or accidental in nature, will constitute a violation of the lease contract and will justify the filing of an ejectment case against the lessee.

The theory that a lease could continue for an indefinite term as long as the lessee pays the rentals had already been rejected by the SC because the validity or compliance of contracts cannot be left to the will of one of the parties (Art 1308). Where the contract of lease prohibits the lessee from introducing improvements and making repairs and the lessee did so, he violated this condition. This violation is a basis for ejectment. (4) Improper use or enjoyment of the property leased The lessee is obliged to use the thing leased as a diligent good father of a family. If due to improper use of the property, the same is lost, destroyed or deteriorated, the lessor may immediately file a suit for restitution or ejectment. He need not wait for the expiration of the period of the lease. Rent Control Act of 2005 (RA No. 9341) AN ACT ESTABLISHING REFORMS IN THE REGULATION OF RENT OF CERTAIN RESIDENTIAL UNITS, PROVIDING THE MECHANISMS THEREFOR AND FOR OTHER PURPOSES July 25, 2005 Declaration of Policy The State shall, for the common good, undertake a continuing program of encouraging the development of affordable housing for the lower income brackets. Toward this end, the State shall continue to protect housing tenants in the lower income brackets from unreasonable rent increases. SEC. 3. Limit on Increases in Rent The rent of any residential unit covered by this Act shall not be increased by more than 10% annually as long as the unit is occupied by the same lessee. When the residential unit becomes vacant, the lessor may set the initial rent for the next lessee. SEC. 4. Definition of Terms. (a) Rent – the amount paid for the use or occupancy of a residential unit whether payment is made on a monthly or other basis. (b) Residential Unit – an apartment, house and/or land on which another’s dwelling is located and used for residential purposes and shall include not only buildings, part or units thereof used solely as dwelling places, boarding houses, dormitories, rooms and bedspaces offered for rent by their owners, except motels, motel rooms, hotels, hotel rooms, but also those used for home industries, retail stores or other business purposes if the owner thereof and his or her family actually live therein and use it principally for dwelling purposes.

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

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(c) "Immediate members of family of the lessee or lessor" for purposes of repossessing the leased premises, shall be limited to his or her spouse, direct descendants or ascendants, by consanguinity or affinity. (d) Lessee – the person renting a residential unit. (e) Owner/Lessor – shall include the owner or administrator or agent of the owner of the residential unit. (f) Sublessor – the person who leases or rents out a residential unit leased to him by an owner. (g) Sublessee – shall mean the person who leases or rents out a residential unit from a sublessor.

SEC. 5. Rent and Requirement of Bank Deposit.  Rent shall be paid in advance within the first 5 days of every current month or the beginning of the lease agreement unless the contract of lease provides for a later date of payment.  The lessor cannot demand more than 1 month advance rent.  Neither can he demand more than 2 months deposit which shall be kept in a bank under the lessor's account name during the entire duration of the lease agreement.  Any and all interest that shall accrue therein shall be returned to the lessee at the expiration of the lease contract.  In the event however, that the lessee fails to settle rent, electric, telephone, water or such other utility bills or destroys any house components and accessories, the deposits and interests therein shall be forfeited in favor of the latter in the amount commensurate to the pecuniary damage done by the former. SEC. 6. Assignment of Lease or Subleasing Assignment of lease or subleasing of the whole or any portion of the residential unit, including the acceptance of boarders or bedspacers, without the written consent of the owner/lessor is prohibited. SEC. 7. Grounds for Judicial Ejectment Ejectment shall be allowed on the following grounds: (a) Assignment of lease or subleasing of residential units in whole or in part, including the acceptance of boarders or bedspacers, without the written consent of the owner/lessor; (b) Arrears in payment of rent for a total of 3 months: Provided, That in the case of refusal by the lessor to accept payment of the rent agreed upon, the lessee may either deposit, by way of consignation, the amount in court, or with the city or municipal treasurer, as the case may be, or in a bank in the name of and with notice to the lessor, within one month after the refusal of the lessor to accept payment. The lessee shall thereafter deposit the rent within 10 days of every current month. Failure to deposit the

rent for 3 months shall constitute a ground for ejectment. The lessor, upon authority of the court in case of consignation or upon joint affidavit by him and the lessee to be submitted to the city or municipal treasurer and to the bank where deposit was made, shall be allowed to withdraw the deposits; (c) Legitimate need of the owner/lessor to repossess his or her property for his or her own use or for the use of any immediate member of his or her family as a residential unit: Provided, however, That the lease for a definite period has expired: Provided, further, that the lessor has given the lessee the formal notice 3 months in advance of the lessor's intention to repossess the property and: Provided, finally, that the owner/lessor is prohibited from leasing the residential unit or allowing its use by a third party for a period of at least 1 year from the time of repossession. (e) Need of the lessor to make necessary repairs of the leased premises which is the subject of an existing order of condemnation by appropriate authorities concerned in order to make the said premises safe and habitable: Provided, That after said repair, the lessee ejected shalI have the first preference to lease the same premises: Provided, however, That the new rent shall be reasonably commensurate with the expenses incurred for the repair of the said residential unit and: Provided, finally, That if the residential unit is condemned or completely demolished, the lease of the new building will no longer be subject to the aforementioned first preference rule in this subsection; and (f) Expiration of the period of the lease contract. SEC. 8. Prohibition Against Ejectment by Reason of Sale or Mortgage No lessor or his successor-in-interest shall be entitled to eject the lessee upon the ground that the leased premises have been sold or mortgaged to a third person regardless of whether the lease or mortgage is registered or not. SEC. 9. Rent-to-Own Scheme At the option of the lessor, he or she may engage the lessee in a written rent-to-own agreement that will result in the transfer of ownership of the particular dwelling in favor of the latter. Such an agreement shall be exempt from the coverage of Section 3 of this Act. SEC. 10. Application of the Civil Code and Rules of Court of the Philippines Except when the lease is for a definite period, the provision of paragraph 1 of Article 1673 of the Civil Code of the Philippines, insofar as they refer to residential units covered by this Act, shall be suspended during the effectivity of this Act, but other provisions of the Civil Code and the Rules of Court on lease

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

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contracts, insofar as they are not in conflict with the provisions of this Act shall apply. SEC. 11. Coverage of this Act All residential units in the National Capital Region and other highly urbanized cities the total monthly rent for each of which does not exceed P10,000.00 and all residential units in all other areas the total monthly rent for each of which does not exceed Five thousand pesos P5,000.00 as of the effectivity date of this Act shall be covered, without prejudice to existing contracts. SEC. 12. Penalties. - A fine of not less than P5,000.00 nor more than P15,000.00 or imprisonment of not less than 1 month and 1 day to not more than 6 months or both shall be imposed on any person, natural or juridical, found guilty of violating any provision of this Act. ------------------------------------------------------------------------------------Art 1674. In ejectment cases where an appeal is taken the remedy granted in article 539, second paragraph, shall also apply, if the higher court is satisfied that the lessee’s appeal is frivolous or dilatory, or that the lessor’s appeal is prima facie meritorious. The period of ten days referred to in said article shall be counted from the time the appeal is perfected. ------------------------------------------------------------------------------------Applicability This article applies only after an ejectment case had already been decided by the inferior court and the losing party has appeals to the higher court. The cases covered are ejectment cases which may either be: (a) Unlawful detainer or (b) Forcible entry Rationale To put an end to the then state of the law which unjustly allowed the lessee to continue in possession during an appeal to the higher court. (Code Commission) The article provides for an additional basis to execute a judgment in ejectment cases before it becomes final in order not to prolong any further the unlawful stay of the illegal occupant on the property. Remedy Grantable Under the Article Writ of Preliminary Mandatory Injunction (Art. 539 par. 2) If the injunction is granted, that will compel the immediate restoration of the possession of the person unlawfully and forcibly removed from his premises. Reason: There are many prolonged litigations between the owner and usurper, and the former is frequently deprived of his possession for a long time even when he has an immediate right thereto. (Code Commission)

Requisite for Issuance of the Injunction (1) The appeal of the lessee – who lost his case in the inferior court – is frivolous and dilatory.  The appeal is obviously without merit and is interposed only for purposes of delaying the final disposition of the case and necessarily to prolong the stay of the appellant in the premises (2) The appeal of the lessor – who lost his case in the inferior court – is apparently meritorious.  The court has the discretion to determine the weight of the evidence already adduced, but he must not abuse his sound discretion in considering the merit of the case. Time to Seek Injunction Within 10 days from the time the appeal is perfected. ------------------------------------------------------------------------------------Art 1675. Except in cases stated in article 1673, the lessee shall have a right to make use of the periods established in articles 1682 and 1687. ------------------------------------------------------------------------------------The lessee is entitled to periods agreed upon in the lease contract (conventional) or those established in articles 1682 and 1687 (implied new lease). However, these rights are restricted if there are grounds or causes for the ejectment of the lessee under Art 1673. To enjoy peace, the lessee must be faithful to his obligations as such. When the lessee is guilty of a cause of ejectment under Art 1673, he is also deprived of the right to enjoy the period of grace under Art 1687. ------------------------------------------------------------------------------------Art 1676. The purchaser of a piece of land which is under a lease that is not recorded in the Registry of Property may terminate the lease, save when there is a stipulation to the contrary in the contract of sale, or when the purchaser knows of the existence of the lease. If the buyer makes use of this right, the lessee may demand that he be allowed to gather the fruits of the harvest which corresponds to the current agricultural year and that the vendor indemnify him for damages suffered. If the sale is fictitious, for the purpose of extinguishing the lease, the supposed vendee cannot make use of the right granted in the first paragraph of this article. The sale is presumed to be fictitious if at the time the supposed vendee demands the termination of the lease, the sale is not recorded in the Registry of Property. ------------------------------------------------------------------------------------Coverage of Article

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

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Applies to sales of land and other forms of alienation such as donation, assignment, etc. The principle is the same. Applicability This article applies only to contracts of lease with fixed terms and not month-to-month leases. Effect of Sale of Leased Property on the Lease Contract If a parcel of land is leased and the same was sold by the owner to a third person: (1) The purchaser shall respect the lease in the following situations: a. When the lease is registered with the proper Register of Deeds. b. When the deed of sale provides for the recognition and respect of the lease by the purchaser until termination of the period. c. When the purchaser has actual knowledge of the existence of the lease. d. The lease cannot also be terminated by the purchaser in a fictitious sale and by the purchaser in a sale with pacto de retro until the expiration of the period to redeem. Only a purchaser in good faith of the leased property is granted protection by the law. (2) In any other case, the purchaser is not obliged to respect the lease contract. He has the option to continue or discontinue the lease. The sale of a leased property places the vendee into the shoes of the original lessor to whom the lessee bound himself to pay. General Rule: A new owner can terminate the lease. A contract of lease created only personal rights and obligations which are binding and effective only between the contracting parties. Since it does not create a real right, it cannot bind an innocent purchaser for value without notice of the existence of the lease. Exception: To bind third persons, the lease must be duly registered with the appropriate Registry of Property. Right of First Refusal A contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible. Basis of Right: The right must be expressly agreed upon in a contract. When exercised, the basis must be the current offer of the seller or the offer to purchase of the prospective buyer. Breach of Right of First Refusal must be sufficiently proved.

Remedy if Vendee is not in bad faith Action for damages, because the contract may not be rescinded. Effect of Failure of New Owners to Notify Lessee About their Ownership This means that they allowed the lessee to continue. If the lessee has been notified of the purchase, he shall pay the rentals owing to the new owner. Right of Lessee If New Owner Terminates The Unrecorded Lease The lessee may demand that he be allowed to gather the fruits of the harvest which corresponds to the current agricultural year and that the vendor indemnify him for damages suffered (Art. 1676 par 2). Fictitious Sale of Leased Property Meaning –  If at the time the supposed buyer demands the termination of the lease, the deed of sale is not yet registered in the appropriate Registry of Property (Art. 1676 par. 3)  If it is a simulated sale intended merely to extinguish the existing lease. In the eyes of the law, it does not exist (Art. 1409). Effect: The false “vendee” cannot terminate the lease even if the same is unrecorded. Rationale: To discourage the practice which has developed in recent years of fictitiously selling the premises in order to oust the lessee before the termination of the lease (Code Commission) ------------------------------------------------------------------------------------Art 1677. The purchaser in a sale with the right of redemption cannot make use of the power to eject the lessee until the end of the period for the redemption. ------------------------------------------------------------------------------------This article applies only if the lessee is a third person, not if a seller in a pacto de retro sale remains as lessee by special agreement. Rationale: CASE: Dorado vs. Viriña The provision of Article 1572 (now 1677) is not applicable to a case where the vendor, in disposing of real property under right of repurchase, continues nevertheless in possession thereof by virtue of a special agreement, not as owner, but as a tenant of the purchaser by the payment of rent. The limitation contained in the article refers to the tenant or lessee who contracts with the vendor, who has no relation whatever with the purchaser under

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

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right of redemption, and who is a third person with respect to said vendor and purchaser, because, if the vendor should by redemption recover the property, the lessee would again be entitled to the enjoyment of the lease; wherefore the limitation of the purchaser’s right is proper and just. Against this third person the law limits the right of the purchaser, whose ownership is revocable during the period for redemption, because, if the vendor should recover the realty sold, the lessee would again be entitled to the enjoyment of the lease. For this reason said limitation is very just and proper and is inapplicable to the vendor who, notwithstanding the sale, continues in possession of the alienated property, not as owner, but as the owner's tenant by the payment of rent. ------------------------------------------------------------------------------------Art 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary. With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may remove the ornamental objects, provided no damage is caused to the principal thing, and the lessor does not choose to retain them by paying value at the time the lease is extinguished. ------------------------------------------------------------------------------------Rationale The first paragraph is intended to prevent unjust enrichment of the lessor. True, the lessee is not a possessor in good faith in the sense that he believes himself to be the owner, but neither is he a possessor in bad faith. He is in possession by virtue of a contract, so his possession is lawful. Moreover, the lessee has a right to make reasonable improvements to attain his purpose in entering upon the lease. The lessor is to pay only one-half of the value of the improvements at the time the lease terminates because the lessee has enjoyed the same. On the other hand, the lessor will enjoy them indefinitely thereafter. Rights of the Lessee Who Introduced Improvements The lessor shall pay the lessee one-half of the value of the improvements computed at the time of the termination of the lease if the following conditions are fulfilled – (1) That the lessee should have made the useful improvements in good faith;

(2) The improvements are suitable to the purpose or use for which the lease is intended; (3) That the form and substance of the thing leased are not altered or modified. These requisites will prevent the lessee from making such valuable improvements that the lessor may never recover the property leased. It is the lessor who has the option to appropriate the useful improvements and reimburse the lessee therefor. It is discretionary with the lessor to retain the useful improvements by paying one-half of their value. The lessee cannot compel the lessor to appropriate and reimburse him for the improvements. A lessee who builds on the property leased is not a possessor in good faith. Inasmuch as the lessee who builds on the leased premises is not a builder in good faith, he has no right of retention until reimbursed for the value of the improvement. The lessor and lessee may stipulate that all improvements introduced by the lessee shall pertain to the lessor. However, if the value of the improvement is considerably more than the value of the leased premises, merely creating prejudice to the lessee instead of enforcing the contract literally, Art 1678 may be applied. Ornamental Expenses Expenses incurred which cater only to the personal comfort, convenience or enjoyment of a person. The lessee has no right of reimbursement for ornamental expenses. He may remove them provided he does not cause any damage to the thing leased. The lessor, if he so desires, may retain them after paying their value to the lessee. ------------------------------------------------------------------------------------Art 1679. If nothing has been stipulated concerning the place and the time for the payment of the lease, the provisions of article 1251 shall be observed as regards the place; and with respect to the time, the custom of the place shall be followed. ------------------------------------------------------------------------------------Rules on Place of Payment of Rentals (1) Shall be made at the place agreed upon by the parties. (2) If there is no stipulation, at the domicile of the lessee. If the lessor has not collected the rentals at the domicile of the lessee, the latter cannot be considered in default. Time of Payment

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.

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(1) Stipulation of the parties (2) In the absence of agreement, in accordance with the custom of the place (3) If there is no custom, within the reasonable hours of the day.

Prepared by: ALCOBILLA, Irene Mae. OCFEMIA, Rea Nina. SOLA, Camille. 2-S 2011-2012. REFERENCES: De Leon, H. Pineda, E.