UST Golden Notes 2011 - Lease

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LEASE Q: What is contract of lease? A: A contract by which one of the parties agrees to give the other for a fixed time and price the use or profit of a thing or of his service to another who undertakes to pay some rent, compensation or price. Q: What are the characteristics of a contract of lease? A:

1. Consensual; 2. Bilateral; 3. Commutative; 4. Principal contract; 5. Nominate; 6. Subject matter must be within the

commerce of man; 7. Purpose is to allow enjoyment or use of

a thing; 8. Purpose to which the thing will be

devoted should not be immoral; 9. Onerous; 10. Period is temporary; 11. Period may be definite or indefinite;

and 12. Lessor need not be the owner.

Q: What are the kinds of lease? A:

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1. Lease of things (immovable/ movable) – One of the parties binds himself to give to another the enjoyment or use of a thing for a price certain. Period: definite or indefinite but not more than 99 years. (Art. 1634) Note: It may be made orally but if the lease of real property is for more than one year, it must be in the writing (Statute of Frauds). Statute of Frauds requires certain agreements to be in writing before they can be proved and enforced in a judicial action. However, non‐compliance does not make the oral contract void. The only effect is that no action for the enforcement of the contract can be proved. Moreover, the right to invoke the Statute of Frauds may be waived by failure to object to the presentation of oral evidence, or by cross examining the

witness on the issue. (Pineda, Obligations and Contracts, pgs. 577, 579, 580)

2. Lease of work (contract for a piece of work) – One of the parties binds himself to produce a result out of his work or labor for a certain price. Note: Duties of a contractor who furnishes work and materials:

1. to deliver; 2. to transfer ownership; and 3. to warrant eviction and hidden

defects. Remedy of employer in case of defects:

1. Ask contractor to remove the defect or to execute another work;

2. If contractor fails or refuses, employer can ask another at the contractor’s expense.

3. Lease of service – One party binds

himself to render to the other some service for a price certain.

Q: When is lease considered a contract of sale? A: A lease of personal property with option to buy, where title is transferred at the end of the contract provided rents have been fully paid. Q: Distinguish lease from sale. A:

LEASE SALEOnly the use or

enjoyment is transferred Ownership is transferred

Transfer is temporary Transfer is permanentLessor need not to be the

owner Seller must be the owner at the time of delivery

The price of the object (distinguished from the rent) is usually not

mentioned

Usually, the selling price is mentioned

Q: Distinguish lease from usufruct. A:

LEASE USUFRUCTOwnership on the part of

the lessor is not necessary

Ownership of the thing on the part of the grantor

is necessary GR: Personal right

XPN: Real right

Real right

Limited to the use specified in the contract

Includes all possible uses and enjoyment of the

thing

U N I V E R S I T Y O F S A N T O T O M A S F a c u l t a d d e D e r e c h o C i v i l

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA VICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

UST GOLDEN NOTES 2011

Lessor places and maintains the lessee in the peaceful enjoyment

of the thing

Owner allows the usufructuary to use and

enjoy the property

Definite period May be for an indefinite

period Created by contract as a

general rule Created by law, contract, last will or prescription

Lessee has no duty to make repairs

Usufructuary has duty to make repairs

Lessee has no duty to pay taxes

Usufructuary has a duty to pay taxes

Lessee cannot constitute a usufruct of the property

leased

Usufructuary may constitute a sublease

440 CIVIL LAW TEAM: ADVISER: ATTY. ELMER T. RABUYA; SUBJECT HEAD: ALFREDO B. DIMAFELIX II; ASST. SUBJECT HEADS: KAREN FELIZ G. SUPNAD, LAMBERTO L. SANTOS III; MEMBERS: PAUL ELBERT E. AMON, ALSTON ANARNA, OZAN J. FULLEROS, CECILIO M. JIMENO, JR., ISMAEL SARANGAYA, JR.; CONTRIBUTORS: LOISE RAE G. NAVAL, MONICA JUCOM

I. LEASE OF THINGS

Q: Is lease of real property a real right? A:

GR: Lease of a real property is a personal right XPNs: It is a real right: 1. If it is for more than one year and to be

enforceable – must be writing 2. If it is registered with Registry of

Property ‐ regardless of its period Q: What are the effects if the lease of real property is not registered? A:

1. It is not binding on third persons; 2. Such third person is allowed to

terminate the lease in case he buys the property from the owner‐lessor;

3. Actual knowledge of existence and duration of lease is equivalent to registration; or

4. A stranger who knows of the existence of the lease, but was led to believe that the lease would expire soon or before the new lease in favor of him begins, the stranger can still be considered innocent.

Q: What can be the subject matter of a lease? A: Things within the commerce of man. Note: Lease of properties belonging to the public domain is void. Q: What are the properties that may be leased? A:

1. By Filipinos – public domain with an area of 500 hectares and may acquire not more than 12 hectares

2. By corporations a. If at least 60% Filipinos‐owned

– public domain for a period of 25 years, renewable for another 25 years; the area not to exceed more than 1,000 hectares

Q: What are the rules on lease of things when lessee is an alien? A:

Personal property – 99 year limit applies. Aliens cannot lease public lands, and cannot

acquire private lands except through succession

If lease of real property (private lands), maximum of 25 years renewable for another 25 years (P.D. 713)

Under the Investor ‘s Lease Act of 1995, the 25 year period was extended to 50 years provided the following conditions are met:

Lessee must make investments Lease is approved by DTI If terms are violated, DTI can terminate it

Note: The ILA did not do away with P.D. 713, under ILA the consent of DTI is required, while in P.D. 713 no consent is required. Q: What is rent? A: The compensation either in money, provisions, chattels or labor, received by the lessor from the lessee. Q: What are the requisites of rent? A:

1. Not fictitious or nominal, otherwise the contract becomes gratuitous;

2. Capable of determination; and 3. May be in the form of products, fruits,

or construction, as long as it has value. Note: Owner has the right to fix the rent because the contract is consensual and not imposed by law. Increasing the rent is not an absolute right of the lessor. The new rate must be reasonable and in no case shall the lessor be allowed to increase the rental when the term has not yet expired, unless, the tenant consents. (Paras, p. 262)

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If the rent is fixed for the first time, courts cannot interfere, but if it is a renewal, the courts can settle the disagreements. Q: What is the right of a purchaser of a leased property? A:

GR: Purchaser of thing leased can terminate the lease. XPNs: 1. Lease is recorded in Registry of

Property; 2. There is a stipulation in the contract of

sale that the purchaser shall respect the lease;

3. Purchaser knows the existence of the lease;

4. Sale is fictitious; or 5. Sale is made with a right of repurchase.

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SUBLEASE Q: What is sublease? A: It is an agreement between a sublessor and sublessee whereby the former grants temporarily the enjoyment or use of the same thing, service or work subject of the original contract of lease to the latter in exchange for compensation or price, respecting the terms and conditions of original contract of lease between the lessor and lessee. Q: What is the nature of sublease? A: It is a separate and distinct contract of lease wherein the original lessee becomes a sublessor to a sublessee. Q: What are the requisites of a valid sublease? A: There must be no express prohibition for sublease in a contract of lease. Also, the duration of sublease cannot be longer than that of the lease to which it is dependent Q: Who are the parties to a sublease? A:

1. Lessor 2. Sublessor (original lessee in the contract

of lease) 3. Sublessee

Q: Does the lessee have the right to sublease the property? A: Yes, unless expressly stipulated. Note: If the prohibition to sublease is not express but only implied, the sublease will still be allowed. (Art.1650) Q: What is the remedy of the lessor if the lessee violates the prohibition as to sublease? A: Rescission and damages or only damages allowing the contract to remain in force. The sublessee is subsidiarily liable for any rent due. The lessor has an accion directa against the sublessee for unpaid rentals and improper use of the object. Q: Can rights under a contract of lease be assigned? A:

GR: Lessee cannot assign the lease without consent of lessor (Art. 1649, NCC) XPN: Stipulation to the contrary

Q: When does an assignment of lease take place? A: It exists when the lessee made an absolute transfer of his leasehold rights in a contract, and he has disassociated himself from the original contract of lease. (Pineda, p. 451) Note: The assignment has the effect of novation consisting in the substitution. There being a novation, the consent of lessor is necessary to effect assignment unless the contract of lease allows the lessee to assign. (Pineda, p. 452) Q: What is the effect of assignment of lease? A: The personality of the original lessee disappears and there only remain in the juridical relation of two persons: the lessor and the assignee, who is converted into a lessee. (Pineda, p. 451)


Q: Distinguish sublease from assignment of lease. A:


SUBLEASE ASSIGNMENT OF LEASE

There are 2 leases and 2 distinct juridical

relationships although immediately connected and related to each other

There is only one juridical relationship, that of the lessor and the assignee, who is converted into a

lease

Personality of the lessee does not disappear

Personality of the lessee disappears

Lessee does not transmit absolutely his rights and

obligations to the sublessee

Lessee transmits absolutely his rights to

the assignee

Sublessee, generally, does not have any direct action against the lessor

Assignee has a direct action against the lessor

Q: May a lessee sublease a leased property without the consent of the lessor? A: Yes, provided that there is no express prohibition against subleasing. Under the law, when in the contract of lease of things, there is no express prohibition, the lessee may sublet the thing leased without prejudice to his responsibility for the performance of the contract toward the lessor. (Art. 1650, NCC) In case there is a sublease of the premises being leased, the sublessee is bound to the lessor for all the acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee. (Art. 1651, NCC) 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 the rent due form him. As to the lessee, the latter shall still be responsible to the lessor for the rents; bring to the knowledge of the lessor every usurpation or untoward act which any third person may have committed or may be openly preparing to carry out upon the thing leased; advise the owner the need for all repairs; to return the thing leased upon the termination of the lease just 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; responsible for the deterioration or loss of the thing leased, unless he

proves that it took place without his fault. (1999 Bar Question) Q: What is the responsibility of the lessee to the lessor in case he subleases the property? A: By express provision of Article 1650, NCC, the lessee is still responsible for the performance of his obligations toward the lessor. Q: What are the responsibilities of a sublessee to the lessor? A:

GR: No juridical relationship between lessor and sublessee. XPNs: All acts which affect the use and

preservation of the thing leased For any rent due to the lessor from the

lessee which the latter failed to pay the lessor must collect first from the lessee if the lessee is insolvent, the sublessee becomes liable (subsidiary liability)

Q: When is a sub‐lessee liable to the lessor? A:

1. All acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee

2. The sublessee is subsidiary liable to the lessor for any rent due from the lessee

REMEDIES IN SUBLEASE

Q: What is accion directa? A: A direct action which the lessor may bring against a sublessee who misuses the subleased property. Q: What are the remedies when either the lessor or the lessee did not comply with his obligations? A: RED

1. Rescission and damages; 2. Damages only (contract will be allowed

to remain in force); or 3. Ejectment

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IMPLIED NEW LEASE Q: What is tacita reconducion (implied new lease)? A: A lease that arises if at the end of the contract the lessee should continue enjoying the thing leased for 15 days with the acquiescence of the lessor, unless a notice to the contrary had previously been given by the either party. Q: What are the requisites for tacita reconducion? A:

The term of the original contract has expired The lessor has not given the lessee a notice

to vacate The lessee continued enjoying the thing

leased for at least 15 days with the acquiescence of the lessor

Q: When is there no implied new lease? A:

1. Before or after the expiration of the term, there is a notice to vacate given by either party;

2. There is no definite fixed period in the original lease contract as in the case of successive renewals.

Q: What are the effects of an implied new lease? A:

1. The period of the new lease is not that stated in the original contract; but for then legal periods established by law in Art. 1682, if the lease is rural lease, or Art. 1687, if the lease is urban lease.

2. Accessory obligations contracted by a third person are extinguished (Art. 1672, NCC)

3. Other terms of the original contract are revived

Note: The terms that are revived are only those which are germane to the enjoyment of possession, but not those with respect to special agreements which are by nature foreign to the right of occupancy or enjoyment inherent in a contract of lease.

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DURATION OF SUBLEASE

Q: What is the duration of the lease? A: 1. With determinate or fixed period – Lease will

be for the said period and it ends on the day fixed without need of a demand

2. No fixed period a. For rural lands (Art. 1682,

NCC) – It shall be all time necessary for the gathering of fruits which the whole estate may yield in 1 year, or which it may yield once

b. For urban lands 3. If rent is paid daily, lease is from the day to

day 4. If rent is paid weekly, lease is from week to

week 5. If rent paid monthly, lease is from month to

month 6. If rent is paid yearly, lease is from year to

year Q: When is the lessee entitled to a reduction of rent? A:

GR: In case of the loss of more than one‐half of the fruits through extraordinary and unforeseen fortuitous events. XPN: Stipulation to the contrary.

Note: It is applicable only to lease of rural lands. Q: What are the rules on the extension of the lease period? A:

1. If a lease contract for a definite terms allows lessee to duly notify lessor of his desire to so extend the term, unless the contrary is stipulated

2. “May be extended” as stipulation – lessee can extend without lessor’s consent but lessee must notify lessor

3. “May be extended for 6 years agreed upon by both parties” as stipulation – this must be interpreted in favor of the lessee. Hence, oridinarily the lessee, at the end of the original period, may either:

a. leave the premises; or b. remain in possession

4. In co‐ownership, assent of co‐owner is needed, otherwise, it is void or

U N I V E R S I T Y O F S A N T O T O M A S F a c u l t a d d e D e r e c h o C i v i l



ineffective as against non‐consenting co‐owners

5. Where according to the terms of the contract, the lease can be extended only by the written consent of the parties thereto, no right of extension can rise without such written consent

6. If the option is given to the lessor, the lessee cannot renew the lease against the former’s refusal

7. The lessor may impose additional conditions after the expiration of the original period

8. Par. 2, Art. 1687, NCC provides that in the event that the lessee has occupied the leased premises for over a year, courts may fix a longer term of lease Note: The power of the courts to establish a grace period is potestative or discretionary, depending on the particular circumstances of the case.

Q: What is perpetual lease? A: A lease contract providing that the lessee can stay in the premises for as long as he wants and for as long as he can pay the rentals and its increase. Note: It is not permissible. It is a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee.

TERMINATION OF LEASE Q: When does immediate termination of lease apply? A:

1. Only to dwelling places or any other building intended for human habitation

2. Even if at the time the contract was perfected, the lessee knew of the dangerous condition or waived the right to rescind the contract on account of this condition

Q: What are the grounds for termination of lease? A: WiRe‐LEx‐Run

1. Expiration of the period 2. Resolution of the right of lessor (i.e.:

when the lessor is a usufructuary and the usufruct is terminated)

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3. By the will of the purchaser or transferee of the thing

4. Loss of the thing 5. Rescission due to the performance of

the obligations of one of the parties stated under Art. 1654 and 1657.

6. The dwelling place or any other building is unfit for human habitation and is dangerous to life or health.

Q: Will the death of the lessee extinguish the lease agreement? A: No. The death of the lessee will not extinguish the lease agreement, since lease is not personal in character and the right is transmissible to the heirs. (Heirs of Dimaculangan v. IAC, G.R. No. 68021, Feb. 20, 1989) (1997 Bar Question) Q: What are the remedies of the aggrieved party in case of non‐compliance of the other party’s obligations under Arts. 1654 (obligations of lessor) and 1657 (obligations of lessee)? A:

1. Rescission with damages 2. Damages only allowing the lease to

subsists Q: What are the restrictions in exercising the right to rescind? A: JAS

1. Breach must be Substantial and fundamental (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. Q: In case of action to rescind, may the other party validly request for time within which to comply with his duties? A: No. The aggrieved party seeking rescission will prevail. Under Article 1659, NCC, the court has no discretion to refuse rescission, unlike the situation covered by Art. 1191, NCC, in the general rules on obligations [Bacalla v. Rodriguez, et. al., C.A. 40 O.G. (supp.), Aug. 30, 1941] Q: How is the amount of damages measured? A: Difference between the rents actually received and that amount stipulated in the contract representing the true rental value of the premises. (A. Maluenda and Co. vs. Enriquez, 49 Phil. 916)

CIVIL LAW TEAM: ADVISER: ATTY. ELMER T. RABUYA; SUBJECT HEAD: ALFREDO B. DIMAFELIX II; ASST. SUBJECT HEADS: KAREN FELIZ G. SUPNAD, LAMBERTO L. SANTOS III; MEMBERS: PAUL ELBERT E. AMON, ALSTON ANARNA, OZAN J. FULLEROS, CECILIO M. JIMENO, JR., ISMAEL SARANGAYA, JR.; CONTRIBUTORS: LOISE RAE G. NAVAL, MONICA JUCOM

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Q: Under a written contract dated December 1, 1989, Victor leased his land to Joel for a period of five (5) years at a monthly rental of P1,000.00, to be increased to P1,200.00 and P1,500.00 on the third and fifth year, respectively. On January 1, 1991, Joel subleased the land to Conrad for a period of 2 years at a monthly rental of P1,500.00. On December 31, 1992, Joel assigned the lease to his compadre, Ernie, who acted on the belief that Joel was the rightful owner and possessor of the said lot. Joel has been faithfully paying the stipulated rentals to Victor. When Victor learned on May 15, 1992 about the sublease and assignment, he sued Joel, Conrad and Ernie for rescission of the contract of lease and for damages.

1. Will the action prosper? If so, against whom? Explain.

2. In case of rescission, discuss the rights and obligations of the parties.

A:

1. Yes, the action for rescission of the lease will prosper because Joel cannot assign the lease to Ernie without the consent of Victor (Art. 1649, NCC). But Joel may sublet to Conrad because there is no express prohibition (Art. 1650, NCC; Alipio v. CA, G.R. No. 134100, Sept. 29, 2000).



Victor can rescind the contract of lease with Joel, and the assignment of the lease to Ernie, on the ground of violation of law and of contract. The sub‐lease to Conrad remained valid for 2 years from January 1, 1991, and had not yet lapsed when the action was filed on May 15, 1992.

2. In case of rescission, the rights and

obligations of the parties should be as follows: At the time that Victor filed suit on May 15, 1992, the assignment had not yet lapsed. It would lapse on December 1, 1994, the very same date that the 5‐year basic lease would expire. Since the assignment is void, Victor can get the property back because of the violation of the lease. Both Joel and Ernie have to surrender possession and are liable for damages. But Conrad has not yet incurred any liability on the sublease which still subsisted at the time of the filing of the action on May 15, 1992.

Ernie can file a cross‐claim against Joel for damages on account of the rescission of the contract of assignment. Conrad can file a counter‐claim against Victor for damages for lack of causes of action at the time of the filing of the suit. (2005 Bar Question)

Q: A is the owner of a lot on which he constructed a building in the total cost of P10,000,000. Of that amount B contributed P5,000,000 provided that the building as a whole would be leased to him (B) for a period of ten years from January 1, 1985 to December 31, 1995 at a rental of P100,000 a year. To such condition, A agreed. On December 20, 1990, the building was totally burned. Soon thereafter, A’s workers cleared the debris and started construction of a new building. B then served notice upon A that he would occupy the building being constructed upon completion, for the unexpired portion of the lease term, explaining that he had spent partly for the construction of the building that was burned. A rejected B’s demand. Did A do right in rejecting B’s demand? A: Yes, A was correct in rejecting the demand of B. As a result of the total destruction of the building by fortuitous event, the lease was extinguished. (Art. 1655, NCC) (1993 Bar Question)

II. LEASE OF WORK OR SERVICES

Q: What is a contract for a piece of work? A: A contract whereby one of the parties binds himself to produce a result out of his work or labor and the other party binds himself to pay remuneration therefor. Q: What is a contract for lease of services? A: A contract whereby one party binds himself to render some service to the other party consisting his own free activity of labor, and not its result and the other party binds himself to pay a remuneration therefor. (Pineda Sales, p. 440‐441, 2002 ed) Q: Distinguish lease of services from agency. A: LEASE OF SERVICES AGENCY

Based on employment –the lessor of services does not represent his employer nor does he execute juridical acts

Based on representation – agent represent his principal and enter into

juridical acts


Principal contract Preparatory contract


Q: Distinguish contract of piece of work and contract of lease services. A:

PIECE OF WORK LEASE OF SERVICESObject of contract is the

result of the work without considering the labor that produced it

Object of contract is the service itself and not the result which it generates

If the result promised is not accomplished, the lessor or promissory is

not entitled to compensation

Even if the result intended is not attained,

the services of the lessor must still be paid

Q: What if the value has not been agreed upon in a contract of lease of service? A: When no rate has been fixed, the same shall be determined by the courts according to the uses and customs of the place and the evidence, unless the services by agreement were to be rendered gratuitously. (Pineda Sales, p. 444, 20002 ed)

III. LEASE OF RURAL AND URBAN LANDS Q: What is a rural land (Product‐Producing Lands)? A: Regardless of site, if the principal purpose is to obtain products from the soil, the lease is of rural lands. Hence, as used here, rural lands are those where the lessee principally is interested in soil products. Q: What is an urban land (Non‐Product Producing Lands)? A: Lands leased principally for purposes of residence are called urban lands. Q: What is the form required of a contract of lease of things? A: Lease may be made orally, but if the lease of real property is for more than a year, it must be in writings under the statute of frauds. Note: Where the written contract of lease called for the erection by the tenant, of a building of strong wooden materials, but what he actually did construct on the leased premises was semi‐concrete edifice at a much higher cost, in accordance with a subsequent oral agreement with the lessor, oral evidence is admissible to prove the verbal modification of the original terms of the lease.

(Paterno v. Jao Yan, GR. No. L‐12218, February 28, 1961) Q: What is the purpose in recording a lease? A: A lease does not have to be recorded in the Registry of Property to be binding between the parties; registration is useful only for the purpose of notifying strangers to the transaction. (Art 1648, NCC) Q: What is meant by proper authority? A: Proper authority means a power of attorney to constitute the lease. Q: When is a proper authority required? A:

1. Husband – with respect to the paraphernal real estate of the wife;

2. Father or Guardian – with respect to the property of the minor or the ward;

3. Manager – with respect to the property under administration.

Q: Who is a manager? A:

1. administrator of a conjugal property 2. administrator of a co‐ownership 3. administrator of state patrimonial

property

Q: Is the husband the administrator of the paraphernal real property? A: No, unless such administrator has been transferred to him by virtue of a public document. (Art. 110, FC) Q: A husband was properly given his wife authority to administer the paraphernal real property. Does this necessarily mean that just because the husband is now the administrator, he can lease said property without any further authority? A: It depends.

1. If the lease will be for one year or less, no other authority is required.

2. If the lease on the real property will be for more than a year, then a special power of attorney (aside from the public instrument transferring administration) is required. (Art.1878, NCC)

3. Furthermore, whether it be a) or b), if the lease is to be recorded, there must

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be a special power of attorney. (Art 1647, NCC).

Note: If it is the wife who is administering her paraphernal real estate, the husband has no authority whatever, to lease, in any way, or administer the property. Q: If a father, who is administering the real estate of his minor son, wants to record the lease, should he ask for judicial permission? A: Yes (Art. 1647, NCC). But even if no judicial authorization is asked, such defect cannot be invoked by a lessee who has dealt with him. (Summers v. Mahinay, [CA] 40 O.G. [11th S] No. 18, p.40). Only the son or his own heirs may question the validity of the transaction. Q: How can leases of personal property be binding on third persons? A: By executing a public instrument (by analogy, Art. 1625, NCC).



A. QUALIFIED PERSONS Q: Who are persons disqualified to become lessees? A: Persons disqualified to buy referred to in article 1490 and 1491, are also disqualified to become lessees of the things mentioned therein. (Article 1646) Q: Are foreigners disqualified to lease lands in the Philippines? A:

GR: Yes

XPN: lease of lands for residential purposes (Smith, Bell and Co. vs. Register of Deeds, 96 Phil 53)

B. REGISTRATION

Q: What is the effect of recording of contract of lease? A: Even if not recorded with the Registry of Property, the lease is binding between the parties. However, if third persons have to be bound, the contract must be recorded. Note: However, if a purchaser has actual knowledge of the existence of the lease, which knowledge is equivalent to registration, he is

bound by the lease. (Quimson vs. Suarez, 45 Phil. 901) Q: When is “proper authority” required for the recording of contract of lease? A:

1. Spouse with respect to the separate or exclusive properties of the other, unless the administration of such properties has been transferred to said spouse done in a public instrument duly recorded. (Art. 110, Family Code) Note: Conjugal property cannot be leased without the joint consent of the spouses

2. Father or guardian with respect to the real property of a minor child or ward

3. Administrator or manager of a realty with respect to the property under his administration

a. (Art. 1 647) Note: the proper authority is a special power of

attorney duly executed if the lease is for more than one year (Art. 1878 (8)) Q: When is lease of real property a real right? A: Generally, a lease of real property is a personal right. However, it is considered real under the following conditions:

1. If it is for mo re than one year and to be enforceable, it must be in writing If it is registered with the Registry2. of Property, regardless of its period. (Pineda Sales, p. 449, 2002 ed)

C. PROHIBITIONS

Q: What is the rule regarding sublease of rural or urban lands? A: The lessee may sublet the property in absence of an express prohibition.

Note: the sublease may be of the whole or part only of the thing leased. This right to sublease is without prejudice to the sublessor’s responsibility in the performance of the contract towards the lessor. (Art. 1650, NCC)



IV. RIGHTS AND OBLIGATIONS OF LESSORS AND LESSEES

Q: Who are the persons disqualified to become lessees? A:

GR: Husband and wife with respect to their separate properties. XPN: Separation of property agreed upon or judicial separation of property.

Those disqualified due to fiduciary relationship.

Q: What are the obligations of the lessor? A: ReD‐CaP

1. To Deliver the things in such condition as to render it fit for the use intended (cannot be waived)

2. GR: To make, during the lease all the necessary Repairs in order to keep it suitable for the use to which it has been devoted XPN: 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

4. Cannot alter the form of the thing leased

Q: What are the rules on changing the form of thing leased? A:

1. Lessor can alter the thing leased provided there is no impairment of the use to which the things are devoted under the terms of the lease

2. Alteration can be made by lessee provided the value of property is not substantially impaired

Q: What are the rules if urgent repairs are necessary? A:

1. Lessee is obligated to tolerate the work, although it may be annoying to him and although during the same time he may be deprived of a part of the premises, if repairs last for not more than 40 days

2. If repairs last for 40 days or more, lessee can ask for reduction of the rent in proportion to the time – including the 1st 40 days – and the part of the property of which he is deprived

Note: In either case, rescission may be availed of if the main purpose of the lease is to provide a dwelling place and the property becomes uninhabitable. Q: What are the effects if the lessor fails to make urgent repairs? A: The lessee may:

1. order repairs at the lessor’s cost; 2. sue for damages; 3. suspend the payment of the rent; or 4. ask for rescission, in the case of

substantial damage to him. Q: What are the kinds of trespass in lease? A:

1. Trespass in the fact (perturbation de mere hecho) – physical enjoyment is reduced. Lessor will not be liable.

2. Trespass in the law (perturbation de derecho) – a 3rd person claims legal right to enjoy the premises. Lessor will be held liable.

Q: What are the obligations of the lessee? A: TRUE‐PRU

1. Pay the price of the lease according to the terms stipulated

2. 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 nature of thing leased, according to the custom of the place

3. Pay the Expenses of the deed of lease 4. Notify the lessor of Usurpation or

untoward acts 5. To notify the lessor of need for Repairs 6. To Return the property leased upon

termination of the lease in the same condition as he receive it except when what has been lost or impaired by lapse of time, ordinary wear and tear or inevitable cause/ fortuitous event

7. Tolerance of urgent repairs which cannot be deferred until the end of lease (par. 1, Art. 1662, NCC)

LEASE

Q: What is the effect of the destruction of the thing leased? A:

1. Total destruction by fortuitous event – Lease is extinguished.

2. Partial destruction a. Proportional reduction of

rent; or b. Rescission of the lease.

Q: When may lessee suspend payment of rent? A: When the lessor fails to:

1. undertake urgent repairs; or 2. maintain the lessee in peaceful and

adequate enjoyment of the property leased.

Note: For the intervening period, the lessee does not have to pay the rent. Q: When does the suspension become effective? A: The right begins:

1. In the case of repairs – from the time of the demand and it went unheeded

2. In case of eviction – from the time the final judgment for eviction becomes effective

Q: What are the alternative remedies of the aggrieved party in case of non‐fulfillment of duties? A:

1. Rescission and damages 2. Damages only, allowing the contract to

remain in force (specific performance)



V. SPECIAL RULES FOR LEASE OF RURAL AND URBAN LANDS

RURAL LANDS

Q: What is the effect of sterility of land in case of rural lease? A: There is no reduction. The fertility or sterility of the land has already been considered in the fixing of the rent. Q: What is the effect of damage caused by a fortuitous event on the rural lease? A:

1. Ordinary fortuitous event – no reduction. The lessee being the owner of crops must bear the loss. Res perit domino

2. Extraordinary fortuitous event – a. More than one‐half of the

fruits were lost, there is a reduction (XPN: specific stipulation to the contrary)

b. Less than one‐half, or if the loss is exactly one‐half, there is no reduction

Note: The rent must be reduced proportionately. Q: X leased his land to Y for the purpose of growing crops thereon. Due to an extraordinary fortuitous event, more than one‐half of the crops were. In the lease contract, the rent was fixed at an aliquot (proportional) part of the crops. Is Y entitled to a reduction in rents? A: No, because here the rent is already fixed at an aliquot part of the crops. Thus, every time the crops decrease in number, the rent is reduced automatically. If therefore, the tenant here refuses to give the stipulated percentage, he can be evicted. (Hijos de I. dela Rama v. Benedicto, 1 Phil. 495) Q: What is the rule for reduction of rent? A: The reduction on rent can be availed of only if the loss occurs before the crops are separated from their stalk, root, or trunk. If the loss is afterwards, there is no reduction of rent. Q: What is the duration of rural lease with an unspecified duration? A: The lease of a piece of rural land, when its duration has not been fixed, is understood to have been 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 have to elapse for the purpose. (Art. 1682, NCC) Q: A rural lease was agreed upon to last for a certain definite period. But the tenant planted fruit trees which would require a long period of time to bear fruit, as well as introduce certain more or less valuable improvements. Has this act of the tenant changed the duration of the contract? A: No, the duration of the lease has not been changed. There was a fixed period for the lease and therefore the nature of the fruit trees or


valuable improvements is immaterial. (Iturralde v. Garduno, 9 Phil. 605) Q: If at the end of the lease, there are still pending crops, who will own them? A: The lessee. However, a contrary stipulation will prevail. Q: What is the rule for land tenancy on shares? A: This refers to the contracts of aparceria. Land tenancy on shares are primarily governed by special laws (ex: Agricultural Tenancy Act, RA 1199), and suppletorily, by the stipulations of the parties, the provisions on partnership, and the customs of the place. Q: Who is a tenant? A: A tenant is a person, who, himself, and with the aid of available from within his immediate farm household, cultivates the land belonging to, or possessed by another, with the latter’s consent for the purpose of production, sharing the produce with the landholder under the share tenancy system, or paying to the landlord a price certain or ascertainable in produce, or in money or both, under the leasehold tenancy system. (Pangilinan v. Alvendia, GR no. 10690, June 28, 1957) Q: What is included in an immediate farm household? A: This includes the members of the family of the tenant, and such other person/s, whether related to the tenant or not, who are dependent upon him for support, and who usually help him operate the farm enterprise. Q: Can a tenant work for different landowners? A: It is prohibited for a tenant, whose holding is 5 hectares or more, to contract work at the same time on two or more separate holdings belonging to different landholders without the knowledge and consent of the landholder with whom he had first entered into the tenancy relationship. (Sec. 24, RA 1199) Q: What are the grounds for ejectment of the tenant on shares?

450

A: 1. voluntary surrender of the land 2. bona fide intention of the landholders

to cultivate the land himself personally

or thru the employment of farm machineries

3. tenant violates or fails to comply with the terms and conditions of the contract or the RA 1199

4. failure to pay the agreed rental or deliver the landholder’s share

5. tenant uses the land for different purpose

6. share‐tenant fails to follow farm practices which will contribute towards the proper care and increased production

7. negligence permits serious injury to land which will impair its productive capacity

8. conviction by a competent court of a tenant or any member of his immediate family or farm household of a crime against the landholder or a member of his immediate family.

Q: Will the sale of the land extinguish the farm‐tenancy relationship? A: No. The purchaser or the transferee shall assume the rights and obligations of the former landholder in relation to the tenant. Q: Does death extinguish the tenancy relationship? A: It depends.

1. Death of tenant – extinguishes relationship but heirs and members of his immediate farm household may continue to work on the land until the close of the agricultural year.

2. Death of landholder – does not extinguish the relationship because his heirs shall assume his rights and obligation.

Q: Does the expiration of the period of the contract of tenancy fixed by the parties extinguish the relationship? A: No. The landlord is required by law, if the tenant does not voluntarily abandon the land or turn it over to him, to ask the court for an order of dispossession of the tenant. (Sec. 49, RA 1199, as amended by RA 2263)

CIVIL LAW TEAM: ADVISER: ATTY. ELMER T. RABUYA; SUBJECT HEAD: ALFREDO B. DIMAFELIX II; ASST. SUBJECT HEADS: KAREN FELIZ G. SUPNAD, LAMBERTO L. SANTOS III; MEMBERS: PAUL ELBERT E. AMON, ALSTON ANARNA, OZAN J. FULLEROS, CECILIO M. JIMENO, JR., ISMAEL SARANGAYA, JR.; CONTRIBUTORS: LOISE RAE G. NAVAL, MONICA JUCOM

LEASE

URBAN LANDS Q: What are the rules applicable to repairs which an urban lessor is liable? A:

1. Special stipulation 2. If none, custom of the place.

Q: What are the rules when the duration of lease is not fixed? A:

1. If there is a fixed period ‐ the lease would be for the said period.

2. If there are no fixed period ‐ apply the following:

a. rent paid daily – lease is from day to day

b. rent paid weekly – lease is from week to week

c. rent paid monthly – lease from month to month

d. rent paid yearly – lease from year to year



VI. HOUSEHOLD SERVICE Q: What is the scope of household service? A: It includes the work of family servants and driver but not that of laborers in a commercial or industrial enterprise. Q: Is working to reduce indebtedness allowed? A: Yes. What is prohibited is to work as a servant for free. Q: When is medical attendance given free? A: Medical attendance shall be given free only if the injury or illness arose out of and in the course of employment. Q: What is the duration of the contract for household service? A: 2 years. Any period agreed upon in excess of two years is void. Note: Upon expiration, however, it is subject to a renewal for such periods as may be agreed upon by the parties. (Pineda Sales, p. 551, 2002 ed, Article 142, Labor Code)

Q: What is the effect if the contract for household service is more than 2 years? A: The contract is void insofar as the excess is concerned. Q: Is there a form of contract required for household service? A: No formalities are required for the contract of household service, and even if the term of employment should exceed one year, the Statute of Frauds will not apply because in the contract, performance is supposed to commence right away. Q: Can house helpers work more than ten hours a day? A: Yes because the law says “shall not be required.” Hence, if the helper agrees to work overtime, this is clearly permissible. (Baloloy v. Uy, [CA] 62 O.G. 5661) Q: When can additional compensation be demanded? A:

1. if the voluntary overtime work is agreed upon;

2. if the nature of the work so demands such overtime service.

Q: What are included in the computation of period for hours of work? A: The hours of work include not only those of actual work but also the time during which the services of the helper are “available” to the employer, even if the services are not availed of. Q: What is the rule for yayas? A: A “yaya” or nursemaid for small children, by the nature of her work, may render more than 10 hours work, but she is evidently entitled to a higher rate of compensation. Q: What is the rule on vacation for helpers? A: The law says “four days” vacation each month, with pay. If the helper insists on this, the employer must grant the vacation, and he cannot insist on merely giving the monetary value.


VII. CONTRACT OF LABOR Q: What is a contract of labor? A: It is a consensual, nominate, principal, and commutative contract whereby one person, called the employer, compensates another, called the laborer, worker, or employee, for the latter’s service. It is relationship impressed with public interest in keeping with our constitutional policy of social justice.


Q: What are the essential characteristics of a contract of labor? A:

1. Employer(Er) freely enters into a contract with the employee(Ee);

2. Employer can select who his Ee will be 3. Employer can dismiss the Ee; the

worker in turn can quit his job; 4. Employer must give remuneration; and 5. Employer can control and supervise the

conduct of the Ee.

A. OBLIGATION IN CASE OF DEATH OR INJURY OF LABORERS

Q: What are the rules regarding Er’s liability in case of death or injury? A:

1. If the cause of the death or personal injury arose out of and in the course of employment, the Er is liable.

2. If the cause was due to the Ee’s own notorious negligence, or voluntary act or drunkenness, the employer shall not be liable.

3. If the cause was partly due to the Ee’s lack of sue care, the compensation shall be inequitably reduced.

4. If the cause was due to the negligence of a fellow Ee, the Er and the guilty Ee shall be liable solidarily.

5. If the cause was due to the intentional or malicious act of fellow Ee, the felloe Ee is liable; also the Er unless he exercised due diligence in selecting and supervising said Ee.

VIII. CONTRACT FOR PIECE OF WORK Q: Distinguish contract for piece of work from lease of services. CONTRACT FOR PIECE

OF WORK LEASE OF SERVICES

The object is the resultant work or object.

The object is services.

The risk is borne by the worker before delivery.

The risk is generally borne by the Er, not by the worker unless the latter is guilty of fault or negligence.

Q: What are the elements of the contract of work? A:

1. Consent 2. Object – execution of piece of work 3. Cause – certain price or compensation

Q: Who is a contractor? A: The worker is also called a contractor. He in turn may obtain the services of others, who will work under him. Q: What is the test to determine if one is an Ee or an independent contractor? A: The “right of control” test is used. If the person for whom services are to be performed controls only the end to be achieved, the worker is a contractor; if the former controls not only the end but also the manner and means to be used, the latter is an employee. Q: What can the contractor furnish? A: The contractor may furnish:

1. Both material and the labor, 2. Or only the labor.

Q: What are the duties of a contractor who furnishes both work and the material? A: This is equivalent to sale; therefore, these are the duties:

1. To deliver 2. To transfer ownership 3. To warrant against eviction and hidden

defects

LEASE

453U N I V E R S I T Y O F S A N T O T O M A S

F a c u l t a d d e D e r e c h o C i v i l


Q: What are the remedies of the Er in case of defects? A:

1. Ask the contractor to remove the defect or to execute another work.

2. If the contractor fails or refuses, the Er can ask another at the contractor’s expense. If a building is involved, expenses for correction and completion may be recovered.

Q: What is the rule on agreements waiving or limiting the contractor’s liability? A:

1. In the absence of fraud, the agreement would ordinarily be valid.

2. In the absence of prohibitory statute, the validity of a limitation is generally upheld, with a view of obtaining compensation commensurate to the risk assumed.

Q: A asked B to make a radio cabinet. B bound himself to furnish the material. Before the radio cabinet could be delivered, it was destroyed by a fortuitous event. A) Who suffers the loss? B) Is the contract extinguished? A:

B suffers the loss of both the materials and the work, unless there was mora accipiendi. If there was mora accipiendi, it is evident that A suffers the loss.

No, and therefore B may be required to do the work all over again, unless there had been a prior stipulation to the contrary or unless a re‐making is possible. (Art. 1717, NCC)

Note: The law merely refers to the burden of the loss, and not to the extinguishment of the contract. Q: Who suffers the loss in case of a fortuitous event or an unavoidable accident? A: As a general principle, in the absence of an express agreement to the contrary, the contractor must bear the loss from the destruction of work underway, even in case of an unavoidable accident. Q: What is the effect when the Er accepts the work? A:

1. The contractor is generally relieved of liability.

2. If the acceptance is made without objection, the Er may still sue for hidden defects.

Q: Where is the place of payment? A:

1. Where stipulated 2. If no stipulation, then at time and place

of delivery. Q: What are the rules on liability for collapse of a building? A:

1. The collapse of the building must be within 15 years from the completion of the structure.

2. The prescriptive period is 10 years following the collapse.

3. If the engineer or architect supervises the construction, he shall be solidarily liable with the contractor.

4. The liability does applies to collapse or ruin, not to minor defects.

5. Even if payment has been made, an action is still possible. (Art. 1723, NCC)

Q: Who is liable when a building collapses during an earthquake? A: It depends.

1. If the proximate cause of the collapse of the building is an earthquake, no one can be held liable in view of the fortuitous event.

2. If the proximate cause is, however, defective designing or construction, or directly attributable to the use of inferior or unsafe material, it is clear that liability exists.

Q: Can the contractor withdraw or demand for a higher price when the work is already stipulated? A:

GR: the contractor cannot withdraw or demand a higher price even if there be a higher cost of labor or materials.

XPNs: 1. if there was a written authorized

change of plans and specifications; 2. if the additional price is also in

writing, agreed upon by both parties.

UST Golden Notes 2011 - Lease

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