SALES AND LEASE REVIEWER

SALES
A. GENERAL PROVISIONS

Definition
By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

Nature of contract of sale

A contract of sale is a consensual contract which means that the sale is perfected by mere consent.
Delivery of the thing or payment of the price is not necessary for the perfection of the contract; and
failure of the vendee to pay the price after the execution of the contract does not make the sale null and
void for lack of consideration but results at most in default on the part of the buyer- vendee for which
the vendor may exercise his legal remedies such as rescission.

Sale is not a mode for acquisition for transmission of ownership, it is merely a title. The contract of
sale by itself does not transfer or effect ownership, the most that sale does is to create the obligation to
transfer ownership. It is tradition or delivery as a consequence of sale that actually transfers
ownership. Note that even if there was no delivery, a contract of sale is perfected the delivery is only the
act that transfers ownership.

ESSENTIAL ELEMENTS OF SALE

The essential elements of sale are:
1. Consent
2. Object
3. Price in money or its equivalent AND manner of payment.

Essential element: Object

To constitute a valid subject matter in the contract of sale object of contract must be:
1. Lawful
2. Maybe existing or not at the time of the perfection of the contract , so long as it has the possibility of
existence at some future time
3. It must be determinate at the time of perfection.
4. The vendor has the right to transfer ownership

As to existence of object
The goods which form the subject of a contract of sale may either be existing, owned or possessed by
the seller or manufactured or acquired by the seller after the perfection of the contract of sale. Thus,
not only existing goods but also future and after acquired property may be the subject of sale.

As to determinateness of object
A thing is determinate when it is particularly designated or physically segregated at the time the
contract is entered into.

As to right of vendor to transfer ownership

Ownership by the seller of the thing sold at the time of the perfection of the contract of sale is not an
element for its perfection. What the law requires is that the seller has the right to transfer ownership at
the time the thing is delivered.

What is the effect if seller cannot transfer ownership at the time of delivery?
General rule: There will be no transfer of ownership as no one can transmit a right he does not have.
However despite of the fact that the vendor does not have a right to transfer the ownership of the thing
at the time of delivery, the sale does not become invalid, instead they would only be a breach of
contract.

Exception: Despite the fact that the mortgagor is not the owner of the mortgaged property, the
mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy.
"Mortgagee in good faith"

Essential element: Price

Requisites of a price
1. Must be real and true
2. Must be in money or equivalent
3. It must be certain

Price must be real and true.

If the price is absolutely simulated contract is void but the act may be shown to have been in reality a
donation or some other act or contract. If the price is partially simulated then it is merely a rescissible
contract and not a void contract.

Note: Failure to pay the consideration is different from lack of consideration. The former gives rise to
an action for fulfillment (specific performance) or cancellation of the obligation (rescission) while the
latter prevents the existence of a contract.

Price must be certain.

In order that the price may be considered certain, it shall be sufficient.

As a rule, the price may be fixed by a third person or persons. If such person or persons acted in bad
faith or by mistake, the court may fix the price.

The fixing of the price can never be left to the discretion of one of the contracting parties. However, if
the price fixed by one of the parties is accepted by the other, the sale is perfect.

Effect of inadequacy of price

Gross inadequacy of price does not affect a contract of sale. However, it may be indicative of a defect in
the consent or her that the parties really intended at the nation or some other act or contract.

Contract of sale vs. Contract to sell

Distinguish
In contract of sale, title passes to the buyer upon delivery of the thing sold, whereas in contract to sell
ownership is reserved in the seller until it a buyer pays in full the price.

In contract of sale, non-payment is a negative resolutory condition. in contract to sell a full payment is
a positive condition.

In contract of sale, the seller has lost in cannot recover ownership unless the contract is rescinded.
while in contract to sell title remains in the seller and when he seeks to eject the buyer he is nearly
enforcing is a contract and not resolving it.

Kinds of contract of sale

1. Absolute sale - When a contract of sale is devoid of any condition. Thus, it is absolute when title to
the property passes to the buyer upon delivery of the thing sold.

2. Conditional sale - The contract is conditional when the agreement is subject to any condition. a
perfect example is a contract to sell where ownership or title is retained until the fulfillment of a
positive suspensive condition normally and the payment of the purchase price in the manner agreed
upon.

B. CAPACITY TO BUY OR SELL

Capacity
Both parties in a contract of sale must have the capacity to act. If both parties are incapacitated to
enter a contract such contract is considered unenforceable. If only one of the parties is incapable of
entering into a contract such contract is considered voidable.

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. (1458a)

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. (1459a)

Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption,
compromises and renunciations. (n)

Discussion

Husband and wife

As a rule, the husband and wife cannot sell property to each other. A sale done between them is
considered null and void. the exception is when both parties agreed on a complete separation of
property in a marriage settlement or when there has been a judicial separation of their property.

Sale between guardian and wards

The guardian cannot acquire by purchase, directly or indirectly, the property of the ward under his
guardianship. assailed on between the guardian and his or her war he is considered null and void. The
prohibition however is not permanent. It exists only during the existence of the guardianship
agreement.

Sale between agent and principal

The agent cannot acquire by purchase, directly or indirectly to the property of the principal whose
administration for sale me have been entrusted to him. Such sale is void. However, the rule does not
apply if the principal consents to the sale of the property to the agent.
Sale between executor or administrator and estate of the deceased
Defector her administrator cannot acquire by purchase directly or indirectly the property of the state
under his administration. such sale is void. However, he may acquire property through hereditary
rights. the prohibition is not permanent acquire after the settlement of the estate.

Sale involving properties of the government

Public officers and employees cannot acquire the property of the state or any of its subdivision,
administration of which has been entrusted to them. The prohibition is permanent.

Sale of property in litigation

The transfer of property must take place during the pendency of the litigation involving the property.
Thus, the prohibition does not apply to a contingency fee arrangement which grants the lawyer
proprietary rights to the property in litigation since the payment of said fee is not made during the
pendency of the litigation but only after the finality of the favorable judgment.

Earnest money distinguished from option money

"Earnest money" and "option money" are not the same but distinguished thus:
(a) Earnest money is part of the purchase price, while option money is the money given as a distinct
consideration for an option contract;

(b) Earnest money is given only where there is already a sale, while option money applies to a sale not
yet perfected; and,

(c) When earnest money is given, the buyer is bound to pay the balance, while when the would-be
buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of
the option.

C. EFFECTS OF THE CONTRACT WHEN THE THING IS LOST

Effect of loss before the perfection of the contract.

 When the object of the contract is other than "goods"

o If lost entirely - The contract is without any effect.

o If lost in part only - The buyer-vendee may choose between:

(1) Withdrawing from the contract; OR

(2) Demanding the remaining part , paying its price in proportion to the total sum
agreed upon.

 When the object of sale is "specific goods"

o In case the specific goods have, without the knowledge of the seller, perished in part or
have wholly or in a material part so deteriorated as to substantially changed in
character, the buyer may at his option treat the sale as:

(1) Avoided; or

(2) Valid in full existing goods or to those that have not deteriorated if the sale was
divisible.
Effect of loss of thing after perfection but prior to delivery

Should the determinate thing be lost by reason of fortuitous event and without fault of the vendor, the
seller vendor is freed from the obligation to deliver the thing provided there is no delay on his part. As a
rule, if lost occurred before delivery, the risk of loss is borne by the seller who is still the owner.

Should the indeterminate thing we lost and the sale is made independently and for a single price or
without consideration of their weight number or measure the rule on respirit domino applies.

However, if sold for a price fix according to unit, number or measure, the interest shall not be imputed
to the buyer until they have been weighed or measured.

Rules in sale of goods.

Is a good remain at the seller's risk until the ownership there in his transfer to the buyer. the rule on
respirit domino applies. Except (1504 par. 1, 2, and art. 1523 (3)

TRANSFER OF OWNERSHIP

When does transfer of ownership happen?

Ownership is deemed transferred upon delivery.

Rule on delivery of goods to carrier

General rule: As a rule, delivery to carrier is considered delivery to the buyer. the carrier
is deemed the baby of the buyer for the purpose of transportation.

Exception: In the following instances the delivery to a carrier is not considered delivery
to the buyer

1. When the contrary intention of years for when the seller reserves the right of
possession or ownership in the good until certain conditions have been fulfilled

2. When ownership is deemed impliedly reserve by the seller in the following cases:
 Where goods are shipped, and by the bill of lading the goods are deliverable to
the seller or his agent, or to the order of the seller or of his agent, the seller
thereby reserves the ownership in the goods. But, if except for the form of the
bill of lading, the ownership would have passed to the buyer on shipment of the
goods, the seller's property in the goods shall be deemed to be only for the
purpose of securing performance by the buyer of his obligations under the
contract.
 Where goods are shipped, and by the bill of lading the goods are deliverable to
order of the buyer or of his agent, but possession of the bill of lading is retained
by the seller or his agent, the seller thereby reserves a right to the possession of
the goods as against the buyer.
 Where the seller of goods draws on the buyer for the price and transmits the bill
of exchange and bill of lading together to the buyer to secure acceptance or
payment of the bill of exchange, the buyer is bound to return the bill of lading if
he does not honor the bill of exchange, and if he wrongfully retains the bill of
lading he acquires no added right thereby. If, however, the bill of lading provides
that the goods are deliverable to the buyer or to the order of the buyer, or is
indorsed in blank, or to the buyer by the consignee named therein, one who
purchases in good faith, for value, the bill of lading, or goods from the buyer will
 obtain the ownership in the goods, although the bill of exchange has not been
honored, provided that such purchaser has received delivery of the bill of lading
indorsed by the consignee named therein, or of the goods, without notice of the
facts making the transfer wrongful. (Art. 1503)

Effect of sale and delivery of goods by one not the owner or with a voidable title.

1. Sale by non-owner
As a rule where the goods are sold by a person who is not the owner thereof and who
does not sell them under authority or without consent of the owner, the buyer acquires
no better title to the goods that the seller had, unless the owner of the goods is by his
conduct precluded from denying the seller's authority to sell.

A sale entered into by a person without any authorization shall be considered

unenforceable, unless the sale in wholesale parcel of land or any interest in which case
the sale becomes void because of failure to comply with the formalities required by law.
2. Seller has voidable title
- where the seller of the goat has a voidable title thereto , but his title has not been
avoided at the time of the sale , the buyer acquires a good title to the goods provided if
he buys them in good faith and for value without notice of the sellers defect of title.

Double Sale
(Rule if a seller sells the same thing to two or more buyers.)

Requisites of double sale

1. The two or more sales transactions must constitute a valid sale
2. The two or more sales transactions must pertain to exactly the same thing.
3. The two or more buyers at odds over the rightful owner ship of the subject matter
must each represent conflicting interests
4. The two or more buyers at odds over the rightful ownership of the subject matter
must each have both from the same seller.

If sale involves movable property: The ownership shall be transferred to the person
who may have first taken possession thereof in good faith.

If sale involves an immovable property: The ownership shall belong to the person
acquiring it who in good faith first recorded it in the registry of property. Should there be
no inscription in the title, ownership shall pertain to the person who in good faith was
first in the possession; and, should they possess property at the same time, to the
person who represents the oldest title provided that person acted in good faith.

Note that the seller must be the true owner in that he sells the same property to second
buyer while he is still the owner of the said property.

The rule on double sale is held in applicable if one of the contracts is a contract to sell.
show both contracts must be a contract of sale.

A contract to sell is not even considered as a conditional contract of sale. This is because
in a conditional contract of sale the first element of consent is present although it is
conditioned upon the happening of a contingent event which may or may not occur. If
the suspensive condition is not fulfilled, the perfection of the contract of sale is
completely abated. However, if the suspensive condition is fulfilled, the contract of sale
is there by perfected, such that if there had already been previous delivery of the
property to the buyer, ownership thereto automatically transferred to the buyer by
operation of law without need of any further act to be performed by the seller.

On the other hand, in a contract to sell, a fun in the fulfillment of suspensive condition
which is in the full payment of the purchase price, ownership will not automatically
transfer. the prospective seller still has to convey title to the prospective buyer by
 entering into a contract of absolute sale.

Note that the 2nd buyer in a double sale may acquire property sold to the first buyer if he
registers it before the first buyer AND that registration is made in good faith. Good faith
and registration must concur. Knowledge gained by the 2nd buyer of the first sale defeat
his rights even if he is first to register the second sale.

Registration must be made under the land registration act. registration under any low
moderate and land registration act is not considered as a registration at all that would
give the first registrant title over the object of a double sale.

D. OBLIGATIONS OF THE VENDOR

Obligations of the vendor, in general

1. To transfer ownership of the thing which is the object of the sale
2. To deliver it
3. To warrant the same

Transfer of ownership
As to transfer of ownership
Delivery as used in this in the law on sales refers to any concurrent transfer of possession and
ownership. Thus, there is no delivery to speak off if what was transferred was possession only.

Delivery
Time of delivery
As a rule, in reciprocal obligations the fulfillment of the parties' respective obligations should be
simultaneous.

The exception is where a period for the payment of the price has been fixed in the contract. in that case
the seller is already found to deliver the thing sold although the period has not collapse or although he
has not collected the price. (parang installment)

The exception to the exception is that when the vendee uses the right to make use of the term as
provided in article 1198 of the civil code.

Place of delivery
1. In case of sale of goods
a. Place designated
b. If determinate where thing might be at the moment the obligation was constituted.

2. In other cases
a. Domicile of the debtor. If the debtor changes his domicile in bad faith or incur delay,
expenses for delivery shall be borne by the debtor.

To whom delivered
It must be delivered to the actual buyer or his successors in interest or any person authorized to
receive it such as an agent.

What must be delivered

As a rule a defender is bank to deliver the thing sold and its accessions and accessories in a condition
in which they were a pond the perfection of the contract. fruits shall belong to the buyer from the day
on which the contract is perfected.

Quantity or area and quality to be delivered.

As a rule the obligation to deliver the thing sold includes everything there is including all the accession
and accessories in the control of the seller that is mentioned in the contract.

Real property.
In case of sale of real property - there are two types of pricing agreement in sale of real property: (1)
unit price; and (lump sum)
 In a unit price contract the statement of area of immovable is not conclusive and the price may
be reduced or increased depending on the area actually delivered.
o Kung ang binigay ay mas mababa sa napagkasunduan na laki yung buyer pwede
niyang gawin ang mga sumusunod:

1. Obliged the vendor to deliver what was agreed upon

2. Ask for reduction of the price if the seller cannot not deliver what was agreed upon
or ask for rescission if the lack in area is more than one tenth of the area agreed upon
to be delivered in the contract.

o If the area is the same but any part is not of the quality specified the buyer may:

1. Obliged the vendor to deliver what was agreed upon

2. Ask for reduction of the price if the seller cannot not deliver what was agreed upon
or ask for rescission if the inferior value of the thing sold is more than one tenth of the
price agreed upon in the contract.

Note: If the vendor delivers more than the area stated in the contract, the vendee has the option to
accept only the amount agreed upon or to accept the whole area including the excess and pay for it.

 Lump sum sale.

In case the area of the immovable is stated in the contract based on an estimate the actual
area delivered may not measure exactly with the area stated in the contract.

Unlike in a sale of a unit, in a sale by lump sum there shall be no increase or decrease of the
price although there be a greater or lesser area or number and then that stated in the contract.
however the discrepancy must not be substantial.

Where both the area in the boundaries of the movable are declared, the area covered within the
boundaries off the immovable prevails over the stated area. in cases of conflict between areas
and boundaries, it is the boundaries would should prevail.

Prescriptive period
Prescriptive period of actions arising from sale for a price per unit of measure and sale for a
lump sum is 6 months counted from the day of delivery.

Sale of goods (quantity and quality)

If the seller delivers a quantity less than he contracted to sell, the buyer may:
1. Reject the whole thing delivered

2. If the fire except for retains the goods, knowing that the seller is not going to perform the contract in
full, he must pay for them a contract rate.

3. If the buyer has used or disposed of the goods delivery before he knows that the seller is not going to
perform his contract in full, the buyer shall not be liable for more than the fair value to him of the
goods so received.

If a seller delivers a quantity larger than he contracted to sell, the buyer may:
1. Except the goods included in the contract in reject the excess.

2. If the buyer accepts the whole of the gosho delivered he must pay for them at the contract price.

3. If the subject matter is indivisible, the fire may reject a whole of the goods.
If seller delivers goods, he contracted to sell mixed with goods of different description not included in
the contract, the following rules shall apply:
1. You may accept the goods which are in accordance with a contract and reject the rest

2. If the subject matter is indivisible, the buyer may reject the whole of the goods.

Essential element: To warrant the same

Warranty
A warranty is a statement of representation made by the seller of goods as to the character, quality for
title of the goods. warranties by the seller may be expressed or implied.

Express warranty
Requisites:
1. it consists of an affirmation of fact or any promise by the seller relating to the thing
2. The affirmation of fact for any promise in relation to the thing sold must induce the buyer to
purchase the thing.
3. the fire purchases the thing relying upon such affirmation or promise.

As a rule, the seller’s opinion shall not be construed as a warranty unless the seller made such
affirmation or statement as an expert and it was relied upon by the buyer.

Prescription of periods of action based on express warranty shall be that stipulated in the contract or
in case of absence within four years from perfection of contract.

Implied warranty
What are implied warranties by the seller in a contract of sale:
1. Warranty of ownership
2. Warranty against eviction
3. Warranty against hidden faults or defects
4. Warranty against non-apparent burden
5. Warranty against redhibitory defects on animals.
6. Warranty as to fitness
7. Warranty for consumer goods.

Warranty against eviction.

Requisites:
1. The buyer has been deprived of the the whole or part of the thing sold
2. This election is by a final judgment
3. The basis their office by virtue of a right prior to the sale made by the vendor.
4. A vendor has been made a co-defendant in the selection at the instance of the vendee.

The contracting parties may increase or diminish the legal obligation of the vendor for his implied
warranty against eviction. however any stipulation totally exempting the vendor from the obligation to
answer for eviction shall be void if he acted in bad faith.

Prescriptive period of actions based on breach of implied warranty against eviction shall be 6 months
from date of delivery.

Warranty against hidden defects.

Requisites:
1. Must be hidden
2. Such defects must have rendered the thing unfit for the use for which it was intended.

Must be hidden. the vendor shall be liable for any defects that are hidden but shall not be answerable
for patent defects or those which may be visible or for those which are not visible if the fire is an expert
who by reason of his trade or profession should have known them.

Warranties as to fitness
1. In sale of goods - There is an implied warranty or condition as to the quality or fitness of the goods if
the buyer makes known to the sellers a particular purpose for which the goods are acquired.
2. In sale of animals (redhibitory) - To be a ground for recession the defect must be hidden. although
an expert intervenes the defect maybe of such nature that expert knowledge is not enough to discover
them in which case the defect is still considered hidden. However, if the defect was not discovered
because of the expertise ignorance or bad faith the expert shall be liable to the buyer and the seller
because in that case the defect is not deemed hidden because its non-discovery was due to the
ignorance or bad faith of the expert itself.

The defect of one animal only gives rise to its redhibition, and not of the others. but if it should appear
that the buyer would not have purchased the sound animal or animals without the defective one, the
entire contract must be rescinded.

Note: There is no warranty against hidden defects of animals when sold at fares or public auctions.

Remedies in case of breach of warranty against hidden defects. We have two alternative (election
of bars the other) remedies:
1. Withdraw from the contract and ask for damages
2. Ask for a proportionate reduction of the price with damages.

Warranty against non-apparent burden (immovable)

If the encumbrance is not mentioned in the agreement and there was no way for the buyer to have
knowledge thereof, the buyer may:
1. Ask for rescission of the contract; OR
2. Demand payment of appropriate indemnity

If encumbrances are recorded in the registry of property, the buyer has no cause of action against the
seller unless there is an express warranty that the thing is free from full burden and encumbrances.

Prescriptive period for warranty of non-apparent burden

1. Ask for rescission OR for damages within a year from execution of the deed.
2. Ask for damages only if action is made after a year from execution of the deed.

Effect of vendors knowledge of hidden defects

 If not aware, the seller is liable if the thing is lost in consequence of hidden faults and shall
return the price and interest.
 If aware, the seller shall bear the loss and shall be obliged to return the price and refund the
expenses of the contract with damages even if the thing is lost by reason of a fortuitous event.

E. OBLIGATIONS OF THE VENDEE (BUYER)

Obligations of the buyer

1. Accept delivery; and
2. Pay the price of the thing sold.

Duty to Accept

1. Acceptance in sale of goods

As a rule the buyer of goods is not found to accept delivery by installment unless otherwise agreed.

If delivery by installments is agreed upon and the seller makes defective deliveries in respect of some
installment or buyer neglects or refuses without justifiable cause to accept delivery for some
installment: the following rules shall govern-
i. If the breach is so material - the injured party may refuse to proceed to further and sue for
damages for breach of the entire contract
ii. If the breach is severable, the injured party may claim for compensation but he does not have
the right to treat the whole contract has broken.
Note: the buyer must be given a reasonable time to examine upon delivery the thing bought. In the
absence of a reasonable time to examine the buyer is not deemed to have accepted them.

The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted
them or when he retains the goods after a lapse of a reasonable time.

Effect of acceptance of buyer despite sellers breach of promise or warranty.

The buyers acceptance shall not discharge the seller from any liability in damages or other legal
remedy for breach of any such promises or warranty. But if after acceptance of the good the by your
fails to give notice to the seller of the beach within a reasonable time the seller shall not be liable
therefor.

What is the responsibility of the buyer if he refuses to accept delivery of goods?

 If the refusal is justified, the buyer is not required to return the goods do the seller, it being
sufficient that he notifies the seller that he refuses to accept them. however if you voluntarily
constitutes himself as a depositary he shall be liable as such.
 If refusal is without just cause, ownership of the goods passes to the buyer and therefore the
buyer shall be liable for any loss or destruction.

2. Obligation to pay the Price

Note: Buyer is required to pay the price fixed in the contract.
Can buyer suspend payment?
Yes, the buyer may suspend payment in case of disturbance or reasonable grounds to fear disturbance.
However, such is not the case when the seller gives security for the return of the price in a proper case.

With respect to sale of subdivision lots or condominium units, the failure of the owner or developers to
develop the subdivision allows the buyer to suspend payment and wait for further developments or may
demand reimbursement of the total amount paid.

Obligation to pay interest

The buyer shall owe interest for the period between the delivery of the thing and the payment of the
price if it has been stipulated or if the buyer is in default after judicial or extra judicial demand was
made by the seller.

F. REMEDIES OF PARTIES

Recto Law

Recto Law or the Installment Sales Law

The Recto Law protects those who acquire personal property on installment rather than real
property.

Who is covered by the Recto Law?

Both the buyer and seller of personal property are affected by this rule. The buyer (or lessee or
mortgagor) can select from the three alternatives as well, insofar as they are applicable. This law will
also govern leases with an option to purchase, such as in the aforementioned case. However, the Recto
Law does not cover straight sales wherein a down payment is given and the remaining balance is
agreed to be fulfilled through a single payment.

Remedies available to the seller under Recto Law

i. Demand fulfillment or specific performance (demand payment)

ii. Cancel the sale

 iii. Foreclose the mortgage
1. If the vendor elected fulfillment or specific performance.

The filing of collection suit bars the foreclosure of the mortgage. The filing of an ordinary action or
collection operate as a waiver of the mortgagee-creditor's remedy to foreclose the mortgage.

Note: Filing of criminal case of bp 22 does not bar foreclosure of mortgage. it is not the collection suit
contemplated by law. Also the filing of an action for recovery of possession with replevin as a
provisional remedy is not an action for collection contemplated under the law.

2. If vendor elected cancellation or rescission of the contract.

The seller may not recover the balance of the price.

3. If seller elected foreclosure of chattel mortgage.

As a rule, the seller shall have no further action against the purchaser and its guarantor to recover any
unpaid balance of the price. any agreement to the contrary shall be void.

However, where the mortgagor plainly refuses to deliver the personal property subject of the mortgage
upon failure to pay two or more installments for his he conceals and place it beyond the reach of the
mortgagee, an action for prep living should be allowed to recover reasonable expenses in affecting the
seizure of the chattel.

In order for a prohibition to apply there must be an actual foreclosure of the mortgage. it is the actual
sale of the personal property that would power to the creditor who chooses to foreclose from recovering
any unpaid balance.

Sale of Immovable Property

In a sale of an immovable property where the seller has reasonable grounds to fear being left without
the price and without the thing, he may immediately ask for the rescission with damages of the sale OR
ask for specific performance.

Maceda Law

Applicability of Maceda Law

This law applies to contract of sales of real estate on installments, including residential condominium
apartments but excluding industrial lots, commercial buildings and sales to tenants.

Rule under Maceda law

1. If the buyer has paid less than two years installments.

In exercising cancellation for rescission of the contract it is important for the seller to give notice of
cancellation or demand for rescission by a notarial act. This is a mandatory requirement.

2. If buyer has paid at least two years installment.

The seller may cancel only after he piece to the buyer the cash surrender value of the payment on the
property equivalent to 50% of the total payments and give a notice of cancellation or demand for
rescission by a notarial act.

Note: For both, actual cancellation of the contract takes place after 30 days from receipt by the buyer
of the notice of cancellation or demand for rescission.

Remedies for Sale of Goods

Remedies for sale of goods are:

1. Alien on the goods or right to retain while it is in his possession

2. In case of insolvency of the buyer the right of stoppage in transitu

3. A right of resale

4. A right to rescind the sale.

Note: The unpaid seller's right of lien or stoppage in transitu is not affected by any subsequent sale
which the buyer may have made unless the buyer consented thereto.

1. Meaning of lien on goods or right of retention

It contemplates and that the title to the goods has passed to the buyer but the goods are still in the
possession of the seller.

The unpaid seller of goods loses his lien when he delivers the goods to a carrier without reserving the
ownership in the goods or when the buyer or his agent lawfully obtains possession of the goods.

2. Meaning of stoppage in transitu

It is a right which the seller of the good to recall them while they are in possession of a carrier or other
middle man who received them for delivery to the buyer on the discovery of the insolvency of the buyer.

Note: The goods are still considered in transit if the goods are rejected by the buyer and the carrier
continuous in possession of them.

Note: The exercise of the right of stoppage in transitu does not necessarily rescind the contract of sale
but simply restores the goods to the possession of the seller.
3. Right to resale

Where the goods are of perishable nature or where the seller has expressly reserved the right of resale
in case the buyer should make default the right to resale may be exercised.

Notice of an intention to resell the goods by the seller to the buyer is not essential. However, notice is
required when the goods is not of a perishable nature.

4. Right to rescind.

When the seller has expressly reserved the right to rescind in case the buyer should make default or
when the buyer has been in default for an unreasonable length of time.

In exercising his try to rescind it is necessary for the seller to give notice to the buyer of the intention to
rescind.

Actions for Breach of Contract of Sale of Goods.

On the part of the seller.

1. Action for purchase price

2. Action for damages for non-acceptance

On the part of the buyer.

1. Action for specific performance or damages.

2. Where there is breach of warranty.

a. Accept or keep the goats and set up against the seller the breach of warranty by way of
diminution or extinction of the price

b. Accept or the goods and maintain an action against the seller for damages for the breach of
warranty.

c. Refuse to accept the goods and file an action for damages for the breach of warranty.

d. Rescind the contract of sale and refuse to receive the goods, if the goods have already been
received, return it to the seller and recover the price.
E. EXTINGUISHMENT OF SALE
Modes of Extinguishing Sale:

1. Common modes of extinguishment

2. Special modes

3. Conventional and legal redemption

Conventional redemption or Pacto de retro

Concept:

Conventional redemption take place when the seller reserves the right to repurchase the thing sold
with the obligation of returning to the buyer the price of the sale the expenses of the contract and any
other legitimate payments made by reason of the sale.

Title to and ownership of property are immediately transferred to the buyer subject only to the
resolutory condition that the seller repurchases it within the stipulated period.

As a rule, the right of repurchase must be made in the same instrument. However, when the two
contracts, the deed of sale AND the document embodying the option to repurchase, are prepared,
signed and notarized on the same day, even if they are embodied into separate contracts the same shall
be construed as only one transaction of sale.

Period of redemption in conventional redemption.

Redemption must be exercised within the period agreed upon but that period cannot exceed 10 years.
In the absence of an express agreement it shall be 4 years from the date of the contract.

Effect of vendee's alienation

In order to protect itself the seller shall register his right to repurchase under the Land Registration
Act. The registration would protect the vendor and is enforceable against any person deriving title from
the vendee a retro, including a purchaser for value.

Equitable Mortgage

Concept
An equitable mortgage is defined as one which although lacking in some formality, or form or words, or
other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real
property as security for a debt, and contains nothing impossible or contrary to law. Its essential
requisites are: (1) that the parties entered into a contract denominated as a contract of sale; and
(2) that their intention was to secure an existing debt by way of a mortgage.
Here, the parties enter into what appears to be a contract of sale but their intention really is to secure
an existing that by way of mortgage.

Badges of Equitable Mortgage

Article 1602 of the Civil Code states that a contract shall be presumed to be an equitable mortgage, in
any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.
Article 1604 of the Civil Code, in turn, provides that the abovementioned badges of an equitable
mortgage apply to a contract purporting to be an absolute sale, such as in the instant case.

In any of the foregoing cases,

i. Any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws. (Article 1602)

ii. The apparent seller, who in reality is a mortgagor, may ask for reformation of contracts under
Rule 63.

iii. Is there is a stipulation in the sale with pacto de retro providing that complete in absolute title
shall be vested on the buyer should the seller fail to redeem the property on the specified date
the same is avoid. such stipulation that the ownership of the property would automatically
pass to the buyer in case no redemption cause affected his void for being a PACTUM
COMMISSORIUM which enables the mortgagee to acquire ownership over the mortgaged
property without need of foreclosure.

LEASE

A. General Provision

General Provisions
Chapter 1
Art. 1642. The contract of lease may be of things, or of work and service. (1542)

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. (1543a)

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. (1544a)

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. (1545a)

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. (n)

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. (1548a)

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. (1549a)

Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a
stipulation to the contrary. (n)

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. (1550)

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. (1551)

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.
(1552a)

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. (1553)

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. (1554a)

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. (n)

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. (n)

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. (1555)

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.
(n)

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. (1556)

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. (n)

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. (1557a)

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. (1558a)

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.

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. (1559a)

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. (1560a)

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. (1561a)

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. (1562)

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. (1563a)

Art. 1668. The lessee is liable for any deterioration caused by members of his household and by guests
and visitors. (1564a)

Art. 1669. If the lease was made for a determinate time, it ceases upon the day fixed, without the need
of a demand. (1565)

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. (1566a)

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. (n)

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. (1567)

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. (1569a)

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. (n)

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. (1570)

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. (1571a)

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. (1572)

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 their value at the time the lease is extinguished. (n)

Art. 1679. If nothing has been stipulated concerning the place and the time for the payment of the
lease, the provisions or Article 1251 shall be observed as regards the place; and with respect to the
time, the custom of the place shall be followed. (1574)

SECTION 3. - Special Provisions for Leases of Rural Lands

Art. 1680. The lessee shall have no right to a reduction of the rent on account of the sterility of the
land leased, or by reason of the loss of fruits due to ordinary fortuitous events; but he shall have such
right in case of the loss of more than one-half of the fruits through extraordinary and unforeseen
fortuitous events, save always when there is a specific stipulation to the contrary.

Extraordinary fortuitous events are understood to be: fire, war, pestilence, unusual flood, locusts,
earthquake, or others which are uncommon, and which the contracting parties could not have
reasonably foreseen. (1575)

Art. 1681. Neither does the lessee have any right to a reduction of the rent if the fruits are lost after
they have been separated from their stalk, root or trunk. (1576)

Art. 1682. 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. (1577a)

Art. 1683. The outgoing lessee shall allow the incoming lessee or the lessor the use of the premises and
other means necessary for the preparatory labor for the following year; and, reciprocally, the incoming
lessee or the lessor is under obligation to permit the outgoing lessee to do whatever may be necessary
for the gathering or harvesting and utilization of the fruits, all in accordance with the custom of the
place. (1578a)

Art. 1684. Land tenancy on shares shall be governed by special laws, the stipulations of the parties,
the provisions on partnership and by the customs of the place. (1579a)

Art. 1685. The tenant on shares cannot be ejected except in cases specified by law. (n)

SECTION 4. - Special Provisions of the Lease of Urban Lands

Art. 1686. In default of a special stipulation, the custom of the place shall be observed with regard to
the kind of repairs on urban property for which the lessor shall be liable. In case of doubt it is
understood that the repairs are chargeable against him. (1580a)
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 to be paid daily. However, even though a monthly rent is
paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the
lessee has occupied the premises for over one year. If the rent is weekly, 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. (1581a)

Art. 1688. When the lessor of a house, or part thereof, used as a dwelling for a family, or when the
lessor of a store, or industrial establishment, also leases the furniture, the lease of the latter shall be
deemed to be for the duration of the lease of the premises. (1582)

Discussion on general provisions

Concept
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.

Note: Lessor need not be the owner of the property leased.

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.

Parties to a contract
Rule: All those capacitated to enter into a contract can be a lessor or lessee.
Exception
1. Those disqualified under Art. 1490 and 1491 are disqualified to become lessees.
2. Foreigners investing in the PH may lease private lands for a period not exceeding 50
years, renewable once for a period of 25 years and must be for the purpose agreed
upon by the parties.
3. Foreigners not investing in the PH may lease private lands for a maximum period of 25
years, renewable for another 25 years.

Kinds of Lease according to subject matter:

1. 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

2. 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

3. 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.

Lease of things.
 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 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

Formalities required – As a rule no form is required for a lease to be valid. However, a contract
of lease over a real property must be in writing IF the lease contract is for more than one year.
A lease contract for a piece of land must be recorded or else the purchaser of the land may
terminate the lease if there is no stipulation in the contract of sale or when he (purchaser) had
no knowledge of the existence of the lease when he entered into a contract of sale with the
lessor-owner.

Period of lease
When the period is definite or fixed, the longest is 99 years. The reason is because it would be
unsound economic policy to allow ownership and enjoyment to be separated for a very long
time.

Note:

 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 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.

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.

B. Rights and Obligations of the lessor (nagpaparenta)

Obligations of the lessor

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. (1554a)

(4) 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. 1661)

Duty to make repairs.

It only covers necessary repairs to keep it suitable for the use for which it was contracted. It
includes duty to make necessary repairs whether the damage was caused by a fortuitous
event, BUT it does not cover those brought by the fault of the lessee himself or his privies and
servants.

To maintain the lessee in the peaceful and adequate enjoyment of the lease for the
entire duration of the contract
The kind of trespass contemplated is legal trespass and not trespass in fact. There is legal
trespass when a third person claims a legal right to enjoy the premises owned by the lessor.

The lessee is required to notify the lessor for any kind of legal trespass within a reasonable
time otherwise he may be held liable for damages for failure to do so.

Business engagement
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.

Rights of the lessor

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.

Rights of the lessor

1. To rescind the contract with damages in case of breach or failure to comply with the
obligations under Art. 1657.
2. Ask for damages only also in case of a breach or failure to comply with the
obligations under Art. 1657.
3. File for an unlawful detainer case against the lessee should he or she refuse to
vacate after the expiration of lease to recover possession
4. To rescind the contract and file for a judicial ejectment against the lessee.
C. Rights and Obligations of the lessee (nagrerenta)

Obligations 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. (1555)

Additional:

4. To notify lessor of legal trespass within a reasonable time

5. Notify lessor of any urgent repairs

6. To tolerate urgent repairs

7. To return the thing

Deterioration or destruction
As a rule, the lessee (his household members and visitors) is responsible for the
deterioration or loss of the thing leased, unless he proves that it took place without his
fault.

Should the thing leased be destroyed by fortuitous event, the lease contract is
extinguished if it be totally lost. If the destruction is partial, the lessee may choose
between recission of the lease contract or proportionate reduction of the price.

To tolerate urgent repairs

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.

To return the leased

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. (Art. 1665)

Rights of the lessee

1. Choose between reduction of rent or rescission of contract

a. should lessor not comply with the obligations set forth in Articles 1654 and 1657
 2. Ask for proportionate reduction

3. Terminate lease in case of danger to life even if the lessee knew at the time the contract was
perfected of the dangerous condition or waived the right to rescind;

4. Demand delivery of the thing subject of lease

5. Peaceful and adequate enjoyment

6. Sub-lease – To sublease the thing in the absence of any prohibition. Note that the lessee
cannot assign the lease contract without the consent of the lessor, unless there is a stipulation
to the contrary.

7. Suspend payment

a. Lessor fails to make necessary repairs

b. Lessor fails to maintain the lessee in peaceful and adequate enjoyment of the property
leased.

D. Termination of lease

The grounds for termination of lease contract over lands are:

1. Expiration of the period

2. Total loss of the thing

3. Resolution of the right of the lessor

4. By will of the purchaser

5. By rescission due to non-performance of the obligation of one of the parties.

Expiration of the period

As a rule, if lease was constituted for a definite period, it ceases to be as such without the
need of a demand.

An implied new lease arises when it is shown that:

1. The term of the original lease has expired;

2. The lessor has not given the lessee a notice to vacate; and

3. The lessee continued enjoying the thing leased for 15 days with the acquiescence of
the lessor.

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

Period under implied new lease

 If rural land - 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.

 If urban land - 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
to be paid daily. However, even though a monthly rent is paid, and no period for the
lease has been set, the courts may fix a longer term for the lease after the lessee
has occupied the premises for over one year. If the rent is weekly, 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.

Other terms of the original contract is not revived in an implied new lease.

Except for the period in the original lease contract, the other terms of the are not revived in
an implied new lease. Therefore, special agreements (e.g. right of first refusal) contained in
the original contract is deemed not renewed.

Grounds for Ejectment

1. When the period agreed upon has expired

2. Lack of payment of the price stipulated

3. Violation of any conditions agreed in the contract

4. When the lessee devotes the thing to any use or service not stipulated, which
causes deterioration thereof or if he did not observe DOAGFOAF.

In case of Rent Control Law (residential units in the NCR or highly urbanized areas)
ejectment may be effected in case of the following:

a. Assignment of lease or subleasing of residential units, including 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. In case of refusal on the

 part of the lessor to accept payment, the lessee shall deposit the same by
way of consignation to municipal treasurer, barangay chairman or bank
with notice to the lessor within 1 month from refusal of the lessor. Failure
to deposit rent for three months shall constitute a ground for ejectment.

c. Legitimate need of the owner/lessor or for the use of his family provided
that:

c.i. The lease has expired

c.ii. A 3-month advance notice has been given to the lessee

c.iii. The owner is prohibited from leasing the same or allow its use by a
3rd person for a period of at least 1 year from the time of
repossession.

c.iv. Need of the lessor to make necessary repairs of the leased premises
which is the subject of an existing order of condemnation.

Rule on improvements introduced by the lessee.

As a rule, introduction of valuable improvements does not give the lessee the
right of retention and reimbursement which rightfully belongs to a builder in
good faith.

Over useful improvements

The lessor has the primary option of paying ½ of the value of improvements
which was introduced by the lessee in good faith. The lessee may remove the
improvement even if it may cause damage to the principal thing should the
lessor refuse to reimburse.

Rule on ornamental improvements

The lessee is not entitled to reimbursement, but the lessee may remove it
provided that the principal will not be damaged by such removal.

End