Lease
common carrier (Art. 1732) to do or perform a service for Duellowe v. Gotoco, (1963). The lease of a building naturally
Chapter I: General Provisions
Art. 1642. The contract of lease may be of things, or of work and
service.
Concept and Nature of Contract of Lease
(1) 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
therefor
(2) GR: Lease is only a personal right
XPN: It is a real right only as in the case of lease of real estate
recorded in the Registry of Property which makes it binding upon
third persons, like a purchaser. In the absence of registration, the
purchaser may terminate the lease, save when there is a
stipulation in the contract of sale, or when the purchaser knows of
the existence of the lease. (Art. 1676), actual knowledge being
equivalent to registration. (Art. 1648)
(3) Sui Man Hui Chan v. CA, (2004). A lease contract is not
essentially personal in character in the sense that the rights
and obligations therein are transmissible to the heirs. The
death of a party does not excuse non-performance of a
contract, which involves a property right, and the rights and
obligations thereunder pass to the successors or
representatives of the deceased.
1997 Bar, Q. XVII(a): Stating briefly the thesis to support your
answer to each of the following cases, 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).
Kinds of Lease According to Subject Matter
(1) Lease of Things – 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);
(2) Lease of Work - 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);
(3) Lease of service involving an obligation on the part of the
housekeeper (Art. 1689), laborer or employee (Art. 1700), or
the head of a family, or master, employer, or passenger or
shipper of goods, respectively, in consideration of
compensation.
Under the CC, this kind of lease covers household service (Art.
1689-1699), contract of labor (Art. 1700-1712), contract for a
piece of work (Art. 1713-1731) and common carriers (Art. 1732-
1766)
Characteristics and Elements of the Contract
(1) It is consensual, bilateral, onerous, commutative, nominate
and principal (CBO-CNP)
 In lease as in sale, there is an exchange of equivalent values.
 The use by the lessee of the thing, work, or service is
considered the equivalent to the rent, compensation, or
price paid to the lessor.
(2) As in ordinary contracts, a contract of lease has three (3)
elements, namely:
(a) Consent of the contracting parties;
(b) Object certain which is the subject matter of the contract;
and
(c) Cause of the obligation which is established. (Art. 1318)
Art. 1643. In the lease of things, one of the parties binds himself
to give to another the enjoyment or use of a thing for a price
certain, and for a period which may be definite or indefinite.
However, no lease for more than ninety-nine years shall be valid.
Lease of Things
Gutierrez v. Santos, (1960). In legal parlance and in ordinary
usage, the term “landlord’’ means lessor or owner and the word
“tenant’’ means lessee.
(1) Essence of Lease
Yngson v. Sec. of Agriculture and Natural Resources, (1983). The
essence or essential purpose of the lease of things is 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. Hence, the object of the lease must be within
the commerce of man (Art. 1374); otherwise, it is void. Thus, a
lease of property belonging to the public domain such as a road or
a public plaza is void ab initio.
includes the lease of the lot on which it stands, and the rentals of
the buildings include those of the land.
(2) Subject-Matter of Lease
 Art. 1643 applies to lease of things, whether movable or
immovable.
 The CC makes no special provision for lease of movables.
Nevertheless, the provisions of the Code on leases of lands
are also applicable to leases of personal property except
those provisions which by their nature and intent, can only
be applied where the object of the lease is immovable.
National Labor Union v. Dinglasan, (1956). In a lease of chattels,
the lessor loses complete control over the chattel leased although
the lessee would be responsible to the lessor should he make bad
use thereof
(3) Ownership of Thing
 The lessor need not be the owner of the thing leased as long
as he can transmit its enjoyment or use to the lessee since
ownership is not being transferred.
 The usufructuary may personally enjoy the thing in usufruct
or he may lease it to another but the lease contract shall
terminate upon the expiration of the usufruct saving only
leases of rural lands, which shall be considered as subsisting
during the agricultural year. (Art. 572)
 But an easement cannot be leased independently of the
estate to which it actively or passively belongs as it is
inseparable therefrom (Art. 617), being an accessory thing
whose very existence depends upon the principal thing
(immovable).
 Even the lessee himself may lease the property to another;
in such case, a sublease results (Art. 1650)
(4) Consideration of Lease
 The cause of a contract of lease of things must be a price
certain generally called “rent’’ or “rental’’ in money or its
equivalent, such as products, fruits, or other useful things, or
some other prestation or labor which the lessee binds
himself to undertake.
 The important thing is that what is given by the lessee has
value.
(a) Arroyo v. Azur, (1946). The phrase “price certain” means
that the price of the lease or rent has been determined by
the parties or is at least capable of determination under the
contract. A price certain exists when the same can be
ascertained according to the usage or customs of the place
(b) The amount must not be nominal or so insignificant as to
indicate an intention to enter into a contract of
commodatum which is essentially gratuitous. (Art. 1933)
(c) Vda. de Roxas v. CA, (1975). Since lease is essentially a
consensual contract, in the absence of a law fixing a ceiling
on rentals, the lessor has the right to fix the amount of the
rent, and upon the expiration of the contract, to demand an
increase thereof. The lessee may agree with the rent or not
consent to the lease.
(d) Ledesma v. Javellana, (1983). During the period fixed in the
contract where there is a stipulated rent, the lessor cannot
increase the rental without the consent of the lessee.
Neither can the court fix a different rental, even where there
is an increase in realty taxes.
(5) Period of Lease
 The period may be definite or indefinite. In any case, the
period is temporary, not perpetual.
(a) When the period is definite or fixed – the longest is 99 years
Report of Code Commission. Art. 1643 “limits a lease to 99 years
because it is an unsound economic policy to allow ownership and
enjoyment to be separated for a very long time. A similar
limitation applies in Philippine law to sales with a right of
redemption, fideicommerssary substitutions, and other cases.’’
(b) In case the period fixed is more than 99 years – the lease
should be considered as having expired after the end of said
term. Where is an implied new lease (Art. 1670), the lease
will be for an indefinite time.
(c) If a 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. (Art. 1196). A
contract established to be a lease can only be for a
determinate period for a lease, by its very nature, must be
temporary
(d) If no term is fixed – Art. 1682 applies for lease of rural lands,
and Art. 1687, for lease of urban lands
(e) Evangelista v. Alvarez, (CA). A verbal contract of lease “for
as long as the lessees are doing business and as long as they
can pay just rents” has been held to be a lease from month
to month under Art. 1687 and not one of indefinite duration,
terminable without necessity of a special notice upon the
expiration of any month.
(f) Elizegui v. Lawn Tennis Club, (1903). 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.
(g) Singson Encarnacion v. Baldomar, (1946). 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. If the lessee elected to
pay rentals, the lessor would never be able to terminate the
lease. On the other hand, if the lessor should desire to
continue the lease, the lessee could thwart his purpose by
the simple expedient of stopping the payment of rentals.
Such an arrangement is contrary to Art. 1308 which prohibits
the validity or compliance with a contract to be left to the
will of one of the parties.
Illustrative Cases:
Allied Banking Corp. v. CA, (1998). The lease contract expressly
gives the lessor the sole option to renew the lease.
(1) Principle of Mutuality of Contracts
“Art. 1308, CC expresses what is known in law as the principle of
mutuality of contracts. It provides that ‘the contract must bind
both the contracting parties; its validity or compliance cannot be
left to the will of one of them.’ This binding effect of a contract on
both parties is based on the principle that the obligations arising
from contracts have the force of law between the contracting
parties, and there must be mutuality between them based
essentially on their equality under which it is repugnant to have
one party bound by the contract while leaving the other free
therefrom.
The ultimate purpose is to render void a contract containing a
condition which makes its fulfillment dependent solely upon the
uncontrolled will of one of the contracting parties.’’
(1) Sole Option of Lessee to Renew, An Integral Part of the
Agreement
“An express agreement which gives the lessee the sole option to
renew the lease is frequent and subject to statutory restrictions,
valid and binding on the parties. This option, which is provided in
the same lease agreement, is fundamentally part of the
consideration in the contract and is no different from any other
provision of the lease carrying an undertaking on the part of the
lessor to act conditioned on the performance by the lessee. It is a
purely executory contract and at most confers a right to obtain a
renewal if there is compliance with the conditions on which the
right is made to depend.
The right of renewal constitutes a part of the lessee’s interest in
the land and forms a substantial and integral part of the
agreement.’’
(2) Mutuality Obtains in the Contract
“The fact that such option is binding only on the lessor and can be
exercised only by the lessee does not render it void for lack of
mutuality. After all, the lessor is free to give or not to give the
option to the lessee. And while the lessee has a right to elect
whether to continue with the lease or not, once he exercises his
option to continue and the lessor accepts, both parties are
thereafter bound by the new lease agreement. Their rights and
obligations become mutually fixed, and the lessee is entitled to
retain possession of the property for the duration of the new
lease, and the lessor may hold him liable for the rent therefor. The
lessee cannot thereafter escape liability even if he should
subsequently decide to abandon the premises.
Mutuality obtains in such a contract and equality exists between
the lessor and the lessee since they remain with the same
faculties in respect to fulfillment.’’
(3) Lessor Bound by the Option He Has Conceded to Lessee
“The case of Lao Lim vs. CA (1990) relied upon by the trial court is
not applicable here. In that case, the stipulation in the disputed
compromise agreement was to the effect that the lessee would be
allowed to stay in the premises ‘as long as he needs it and can pay
the rents.’ In the present case, the questioned provision states
that the lease ‘may be renewed for a like term at the option of the
lessee.’ The lessor is bound by the option he has conceded to the
lessee. The lessee likewise becomes bound only when he
exercises his option and the lessor cannot thereafter be excused
from performing his part of the agreement.
Likewise, reliance by the trial court on the 1967 case of Garcia v.
Rita Legarda, Inc. (1976), is misplaced. In that case, what was
involved was a contract to sell involving residential lots, which
gave the vendor the right to declare the contract cancelled and of
no effect upon the failure of the vendee to fulfill any of the
conditions therein set forth. In the instant case, we are dealing
with a contract of lease which gives the lessee the right to renew
the same.’’
(4) Meaning of Clause “May be Renewed for A Like Term at the
Option of the Lessee”
“With respect to the meaning of the clause ‘may be renewed for a
like term at the option of the lessee,’ we sustain petitioner’s
contention that its exercise of the option resulted in the
automatic extension of the contract of lease under the same
terms and conditions. The subject contract simply provides that
‘the term of this lease shall be fourteen (14) years and may be
renewed for a like term at the option of the lessee.’ As we see it,
the only term on which there has been a clear agreement is the
period of the new contract, i.e., fourteen (14) years, which is
evident from the clause ‘may be renewed for a like term at the
option of the lessee,’ the phrase ‘for a like term’ referring to the
period. It is silent as to what the specific terms and conditions of
the renewed lease shall be. Shall it be the same terms and
conditions as in the original contract, or shall it be under the
terms and conditions as may be mutually agreed upon by the
parties after the expiration of the existing lease?”
(5) Where Contract Failed to Specify the Terms and Conditions
to be Embodied in Renewed Contract
In Ledesma vs. Javellana (1983), this Court was confronted with a
similar problem. In that case, the lessee was given the sole option
to renew the lease, but the contract failed to specify the terms
and conditions that would govern the new contract. When the
lease expired, the lessee demanded an extension under the same
terms and conditions. The lessor expressed conformity to the
renewal of the contract but refused to accede to the claim of the
lessee that the renewal should be under the same terms and
conditions as the original contract. In sustaining the lessee, this
Court made the following pronouncement:
In the case of Hicks vs. Manila Hotel Company, a similar issue was
resolved by this Court. It was held that ‘such a clause relates to
the very contract in which it is placed, and does not permit the
defendant upon the renewal of the contract in which the clause is
found, to insist upon different terms than those embraced in the
contract to be renewed’; and that ‘a stipulation to renew always
relates to the contract in which it is found and the rights granted
thereunder, unless it expressly provides for variations in the terms
of the contract to be renewed.
The same principle is upheld in American Law regarding the
renewal of lease contracts. In 50 Am. Jur. 2d, Sec. 1159, at p. 45,
we find the following citations: ‘The rule is well-established that a
general covenant to renew or extend a lease which makes no
provision as to the terms of a renewal or extension implies a
renewal or extension upon the same terms as provided in the
original lease.’
In the lease contract under consideration, there is no provision to
indicate that the renewal will be subject to new terms and
conditions that the parties may yet agree upon. It is to renewal
provisions of lease contracts of the kind presently considered that
the principles stated above squarely apply. We do not agree with
the contention of the appellants that if it was intended by the
parties to renew the contract under the same terms and
conditions stipulated in the contract of lease, such should have
expressly so stated in the contract itself. The same argument
could easily be interposed by the appellee who could likewise
contend that if the intention was to renew the contract of lease
under such new terms and conditions that the parties may agree
upon, the contract should have so specified. Between the two
assertions, there is more logic in the latter.
The settled rule is that in case of uncertainty as to the meaning of
a provision granting extension to a contract of lease, the tenant is
the one favored and not the landlord. ‘As a general rule, in
construing provisions relating to renewals or extensions, where
there is any uncertainty, the tenant is favored, and not the
landlord, because the latter, having the power of stipulating in his
own favor, has neglected to do so; and also upon the principle
that every man’s grant is to be taken most strongly against
himself.’ (50 Am Jur. 2d, Sec. 1162, p. 48; see also 51 C.J.S. 599.)’’
(6) Terms and Conditions No Longer Subject to Mutual
Agreement
“Besides, if we were to adopt the contrary theory that the terms
and conditions to be embodied in the renewed contract were still
subject to mutual agreement by and between the parties, then
the option — which is an integral part of the consideration for the
contract — would be rendered worthless. For then, the lessor
could easily defeat the lessee’s right of renewal by simply
imposing unreasonable and onerous conditions to prevent the
parties from reaching an agreement, as in the case at bar.
As in a statute no word, clause, sentence, provision or part of a
contract shall be considered surplusage or superfluous,
meaningless, void, insignificant or nugatory, if that can be
reasonably avoided. To this end, a construction which will render
every word operative is to be preferred over that which would
make some words idle and nugatory.’’
Jespajao Realty Corp. v. CA, (2002). The lease contract stipulates
an indefinite period, the lease to continue for as long as the lessee
is paying the rent
(1) Article 1687 NOT applicable
“We agree with the ruling of the CA. Art. 1687 finds no application
in the case at bar.
The lease contract between petitioner and respondents is with a
period subject to a resolutory condition. The wording of the
agreement is unequivocal: ‘The lease period xxx shall continue for
an indefinite period provided the lessee is up-to-date in the
payment of his monthly rentals.’ The condition imposed in order
that the contract shall remain effective is that the lessee is up-to
date in his monthly payments. It is undisputed that the lessees
Gutierrez and Co Tong religiously paid their rent at the increasing
rate of 20% annually.
The agreement between the lessor and the lessees are therefore
still subsisting, with the original terms and conditions agreed
upon, when the petitioners unilaterally increased the rental
payment to more than 20% or P3,500.00 a month.’’
(2) Factual Backgrounds in Cases Cited by Petitioner NOT the
Same as in the Case at Bar
“Petitioner cites Puahay Lao vs. Suarez (1968) where it said that
‘the Court in the earlier case of Singson vs. Baldomar (1946),
rejected the theory that a lease could continue for an indefinite
term so long as the lessee paid the rent, because then its
continuance and fulfillment would depend solely on the free and
uncontrolled choice of the tenant between continuing to pay
rentals or not, thereby depriving the lessors of all say in the
matter as it would be contrary to the spirit of Art. 1256 of the Old
Civil Code, now Art. 1308, NCC which provides that validity or
compliance of contracts cannot be left to the will of one of the
parties.’
A review of the Puahay and Singson cases shows that the factual
backgrounds therein are not the same as in the case at bar. In
those cases, the lessees were actually in arrears with their rental
payments. The Court, in the Puahay case, ruled that the lessor had
the right to terminate the lease under par. 3, Art. 1673, CC,
declaring that the lessor may judicially eject the lessee for
violation of any of the conditions agreed upon in the contract. In
the case of Singson, the lease contract was expressly on a month-
to-month basis.’’
(3) Stipulation Not Contrary to Art. 1308, CC
“The contention of the petitioner that a provision in a contract
that the lease period shall subsist for ‘an indefinite period
provided the lessee is up-to-date in the payment of his monthly
rentals’ is contrary to Art. 1308, CC is not plausible. As expounded
by the Court in the case of Philippine Banking Corporation vs. Lui
She (1967): ‘We have had occasion to delineate the scope and
application of Art. 1308 in the early case of Taylor vs. Uy Tieng
Piao (1922) We said in that case:
‘Art. 1256 [now Art. 1308] of the Civil Code in our opinion creates
no impediment of the insertion in a contract for personal service
of a resolutory condition permitting the cancellation of the
contract by one of the parties. Such a stipulation, as can be readily
seen, does not make either the validity or the fulfillment of the
contract dependent upon the will of the party to whom is
conceded the privilege of cancellation; for where the contracting
parties have agreed that such option shall exist, the exercise of
the option is as much in the fulfillment of the contract as any
other act which may have been the subject of agreement. xxx’
Also held in the recent case of Allied Banking Corp. vs. CA (1998)
where this Court upheld the validity of a contract provision in
favor of the lessee.
As correctly ruled by the MTC in its decision, the grant of benefit
of the period in favor of the lessee was given in exchange for no
less than an automatic 20% yearly increase in monthly rentals.
This additional condition was not present in the Puahay and
Singson cases.
Moreover, the express provision in the lease agreement of the
parties that violation of any of the terms and conditions of the
contract shall be sufficient ground for termination thereof by the
lessor, removes the contract from the application of Article 1308.’’
(4) Lessor in Estoppel
Lastly, after having the lessees believe that their lease contract is the State while he remains in possession of the leased property and not a lease, because in contracts of lease, as distinguished
one with an indefinite period subject only to prompt payment of and until he surrenders possession to the lessor. from those sale, it is plain redundancy to fix or make any mention
the monthly rentals by the lessees, we agree with private of the price of the thing which is the subject matter thereof.
respondents that the lessor is estopped from claiming otherwise. Geminiano v. CA, (1996). This estoppel applies even though the
lessor had no title at the time the relation of lessor and lessee was Conditional Sales of Goods
In the case of Opulencia vs. CA (1998), this Court held that created. It may be asserted not only by the original lessor, but also
petitioner is estopped from backing out of her representations in by those who succeed to his title. Vda. De Jose v. Veloso Barruesco, (1939). A lease of personalty
the contract with respondent, that is, she may not renege on her with option to buy is an installment sale and not a lease. Sellers
own acts and representations, to the prejudice of the respondents Tamio v. Ticson, (2004). Indeed, the relation of lessor and lessee desirous of making conditional sales of their goods, but who do
who relied on them. We have held in a long line of cases that does not depend on the former’s title but on the agreement not wish openly to make a bargain in that form, for one reason or
neither the law nor the courts will extricate a party from an between the parties as long as the lessee remains in undisturbed another, have frequently resorted to the device of making
unwise or undesirable contract he or she entered into with all the possession, it is immaterial whether the lessor has a valid title — contracts in the form of leases either with option to the buyer to
required formalities and willfull awareness of its consequences.’’ or any title at all — at the time the relationship was entered into. purchase for a small consideration at the end of term, provided
However, due to the peculiar circumstances availing in a case, the the so-called rent has been duly paid, or with stipulation that if
(5) Petitioner’s Allegation of Respondents’ Non-payment is rule may be relaxed to avoid unjust enrichment in favor of the the rent throughout the term is paid, title shall thereupon vest in
False lessor at the expense of the lessee such as in a case where the the lessee.
lessee would, in effect, be paying in rental twice for the use of the
Anent the second issue, we likewise hold that the contention of same property for the same period of time — to the real It is obvious that such transactions are leases only in name. The
petitioner is without merit. The Court of Appeals found that the owner if he were to still pay the lessor. so-called rent must necessarily be regarded as payment of the
petitioner’s allegation of respondents’ non-payment is false. This price in installments since the due payment of the agreed amount
is a finding of fact which we respect and uphold, absent any Heirs of Florencio v. Heirs of De Leon, (2004). Under the Rules of results, by the terms of the bargain, in the transfer of title to the
showing of arbitrariness or grave abuse on the part of the court. Court, conclusive presumptions include: “(b) The tenant is not lessee.
Furthermore, the statement of petitioner that the correct amount permitted to deny the title of his landlord at the time of the
of rents cannot be considered in a consignation case but only in commencement of the relation of landlord and tenant between Lease Distinguished from Commodatum
the ejectment case is misleading because nowhere in the decision them.” (Sec. 3-b, Rule 131, ROC) A judgment rendered in
of the appellate court did it state otherwise. This second issue is ejectment cases, however, shall not bar an action between the Lease Commodatum
clearly just a futile attempt to overthrow the appellate court’s same parties respecting title to land and shall not be conclusive as Onerous contract, although Essentially gratuitous (Art.
ruling. to the facts found therein in a case between the same parties the rent may subsequently be 1933)
upon a different cause of action involving possession of the same condoned or remitted
(6) Rationale for Consignation property. In ejectment cases, the issue is the physical or material Not essentially personal in Purely personal in character,
possession and any pronouncement made by the trial court on character and, therefore, the and consequently, the death
“Nevertheless, suffice it to be stated that under Article 1258 of the question of ownership is provisional in nature. right may be transmitted to of either the bailor or the
the Civil Code which provides: the heirs bailee extinguishes the
Lease Distinguished from Sale contract (Art. 1939)
Art. 1258. Consignation shall be made by depositing the things Consensual contract Real contract as it is
due at the disposal of judicial authority, before whom to tender of Lease Sale perfected only upon delivery
payment shall be proved, in a proper case, and the announcement Only the enjoyment or use is Ownership is transferred of the object thereof (Art.
of the consignation in other cases. The consignation having been transferred 1934)
made, the interested parties shall also be notified thereof.’ Transfer is temporary Transfer is permanent, unless Both contracts consist in the transmission of the enjoyment or
subject to a resolutory use of a thing to another (Art. 1933)
the rationale for consignation is to avoid the performance of an condition (Art. 1465)
obligation becoming more onerous to the debtor by reason of The lessor need not be the The seller must be the owner Lease Distinguished from Mutuum
causes not imputable to him. Whether or not petitioner has a owner or at least authorized by the
cause of action to eject private respondents from the leased owner to transfer ownership, Lease Mutuum
premises due to refusal of the lessees to pay the increased of the thing sold at the time it The owner of the property The lender or creditor loses
monthly rentals had been duly determined in the ejectment case is delivered (Art. 1459) does not lose his ownership ownership of the thing
by the Municipal Trial Court which was correctly upheld by the The price of the subject The price of the thing is loaned which becomes the
Court of Appeals. matter, is usually not usually fixed in the contract property of the borrower or
mentioned, being immaterial (Art. 1473) debtor (Art. 1953)
Estoppel Against Lessee
The relationship is one of The relationship is that of
H.E. Heacock Co. v. Buntal Mfg. Co., (1937). In case of doubt, the lessor and lessee creditor or obligee and
VSC Commercial Enterprises, Inc. v. CA, (2002). A lessee is intention of the parties is an important factor in determining the debtor or obligor (Art. 1953)
stopped from asserting title to the thing leased as against the contract entered into. Thus, the fact that the price of the thing The subject matter may be It is only money or any other
lessor (Art. 1436), or to deny the lessor’s title, or to assert a better (machine) was fixed in the contract, makes said contract a sale real and/or personal property fungible thing
title not only in himself, but also in some third person, including
Governed by the statute of
frauds where the thing leased
is real property for more than
one year (Art. 1403(e))
Not governed by the Usury
Law
Lease Distinguished from Usufruct
Lease
A real right only in the case of
the lease of real property
where the lease is registered
Lessor may or may not be the
owner
The lessor has the active
obligation to maintain the
lessee in the enjoyment or
use of the property
The lessee generally pays no
taxes
The lessee generally has no
obligation to pay for repairs
The lessee cannot constitute
a usufruct on the property
As a rule, may be created
only by contract
Generally covers particular
uses limited by the contract
Lease Distinguished from Deposit
Lease
The enjoyment or use of the
thing leased is the essential
purpose
The lessor cannot demand
the thing leased before the
expiration of the contract
Both movable and
immovable property may be
the object
Onerous
Consensual
Not governed by the Statute
of Frauds (Art. 1403)
Governed by Usury Law (Art.
1175, 1961)
Usufruct
Always a real right (Art. 567,
par. 3)
The creator of the right must
be the owner or one duly
authorized by him (Art. 563)
The owner has the passive
duty to allow the
usufructuary to enjoy or use
the same (Art. 562)
Usufructuary pays the annual
charges and taxes on the
fruits (Art. 596)
The usufructuary is obliged to
make the ordinary repairs
needed by the thing given in
usufruct (Art. 592)
The usufructuary may lease
the thing in usufruct to
another (Art. 581)
May be created by law,
contract, last will and
testament, or prescription
(Art. 563)
As a rule, covers all possible
uses of the property (Art.
562, 564, 566)
Deposit
The safekeeping of the thing
delivered is the principal
purpose
The depositor can demand
the return of the subject
matter at will (Art. 1972)
If it is extrajudicial, only
movable (corporeal) things
may be the object (Art. 1966)
May be gratuitous (Art. 1565)
Real Contract perfected only
upon delivery of the object
thereof (Art. 1963)
other some service for a price certain, but the relation of
Lease of Chattels Distinguished from Employment principal and agent does not exist between them.
Lease of Chattels Employment  In a lease of work, the object is the execution of a piece
The relationship is that of It is one of employer- work for an employer by an independent contractor (Art.
lessor and lessee employee 1713)
The lessor loses control or The employer retains control  In a lease of service, it is the performance of some service or
management over the chattel or management over his an employer by a househelper (Art. 1689) or laborer (Art.
leased chattel 1700) or for a passenger or owner of goods by a common
The lessor has no control or The employer exercises carrier. (Art. 1732)
supervision over the lessee control and supervision over  In both kinds of lease, the employer or passenger or owner
his employee of goods binds himself to pay some remuneration or
The lessee pays rent to the The employer pays wage or compensation in favor of the independent contractor,
lessor for the enjoyment or salary for the services of the employee, or common carrier and the relation of principal
use of the chattel employee and agent does not exist between the parties.
Service as Driver Under the Boundary System Lease of Work or Service Distinguished from Agency
National Labor Union v. Dinglasan, (1955). Under the boundary Lease of Work or Service Agency
system, the relation between the driver and the jeepney owner is The basis is employment The basis is representation
that of employer and employee, not lessor and lessee. The lessor performs a The agent executes a juridical
material act for the benefit of act for and in behalf of his
Thus, in a case, where the respondent is the owner and operator his employer without principal (Art. 1868)
of TPU jeepneys, while the petitioners are drivers who had an oral representation of the latter
contract with the respondent for the use of his jeepneys in (Art. 1644)
consideration of P7.50 for 10 hours’ use, the drivers receiving no The work or service must be It is presumed for a
salaries or wages, their days’ earnings being the excess over the for a price or compensation compensation (Art. 1875)
P7.50 that they paid for the use of the jeepneys, and the The will of both parties is The will of one is sufficient
respondent’s supervision over the drivers consisted only in necessary for the for the extinguishment of the
inspection of the jeepneys when they passed his gasoline station extinguishment of the relationship (Art. 1919(1)(2),
for water, and checking the route prescribed by the Public Service relationship (Art. 1159) 1920, 1928)
Commission (now Land Transportation Franchising and Regulatory Only two persons are Three persons are involved:
Board), the Supreme Court held: involved: the lessor and the the principal, the agent, and
lessee the third person with whom
“The only features that would make the relationship of lessor and the agent has contracted
lessee between the respondent, owner of the jeeps, and the The risk of loss before The risk is borne by the
drivers, members of the petitioner union, are the fact that he delivery is borne by the principal since the agent acts
does not pay them any fixed wage but their compensation is the independent contractor, merely as his representative
excess of the total amount of fares earned or collected by them especially in the lease of
over and above the amount of P7.50 which they agreed to pay to work for a fixed price (Art.
the respondent, and the fact that the gasoline burned by the jeeps 1717, 1718)
is for the account of the drivers. These two features are not, The independent contractor The agent is not personally
however, sufficient to withdraw the relationship between them is personally liable for his liable for his contracts with
from that of employer-employee, because the estimate earnings contracts with third persons third persons, unless he
for fares must be over and above the amount they agreed to pay expressly binds himself or
to the respondent for a ten-hour shift or ten-hour a day operation exceeds the limits of his
of the jeeps. Not having any interest in the business because they authority (Art. 1897)
did not invest anything in the acquisition of the jeeps and did not
The lessor (like a servant or The agent exercises
participate in the management thereof, their service as drivers of
laborer) ordinarily performs discretionary powers (Art.
the jeeps being their only contribution to the business, the
only ministerial duties 1876, 1877, 1881, 1882,
relationship of lessor and lessee cannot be sustained.
1884, 1887, 1888)
Art. 1644. In the lease of work or service, one of the parties Illustrative Case:
binds himself to execute a piece of work or to render to the
Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., (1968). approval of Lepanto. Nielson, then, was to act only as an
Respondent corporation claims that the management contract it intermediary, not as an agent. Lease of Work or Service Distinguished from Partnership
entered into with petitioner corporation is a contract of agency
such that it has the right to revoke and terminate the said (3) Contract NOT Terminable at Will Lease of Work or Service Partnership
contract, as it did terminate the same. There is no principle of Every partner is an agent of
Lepanto contends that the management contract in question representation the partnership for the
(1) Distinctions Between Agency and Lease of Services being one of agency it had the right to terminate the contract at purpose of its business (Art.
will pursuant to the provision of Article 1733 of the old Civil Code. 1818)
In both agency and lease of services one of the parties binds We find, however, a proviso in the management contract which The lessor performs a The partners into commercial
himself to render some service to the other party. Agency, militates against this stand of Lepanto. Paragraph XI of the material act for the benefit of or business transactions for
however, is distinguished from lease of work or services in that contract provides: the employer the realization of profits (Art.
the basis of agency is representation, while in the lease of work or 1767)
services the basis is employment. The lessor of services does not ‘Both parties to this agreement fully recognize that the terms of Only two persons are A juridical personality
represent his employer, while the agent represents his principal. this Agreement are made possible only because of the faith or involved (partnership) separate and
confidence that the Officials of each company have in the other; distinct from that of each of
There is another obvious distinction between agency and lease of therefore, in order to assure that such confidence and faith shall the partner is formed (Art.
services. Agency is a preparatory contract, as agency ‘does not abide and continue, Nielson agrees that Lepanto may cancel this 1768)
stop with the agency because the purpose is to enter into other Agreement at any time upon ninety (90) days written notice, in The work or service is The partners perform acts
contracts.’ The most characteristic feature of an agency the event that Nielson for any reason whatsoever, except acts of dependent upon the ends or conducive to their own
relationship is the agent’s power to bring about business relations God, strike and other causes beyond its control, shall cease to purposes of the lessee business purposes (Art. 1767)
between his principal and third persons. ‘The agent is destined to prosecute the operation and development of the properties The work or service must be The partners share in the
execute juridical acts (creation, modification or extinction of herein described in good faith and in accordance with approved for a price or compensation profits or losses (Art. 1797)
relations with third parties). Lease of services contemplate only mining practice.’ The will of both parties is The will of any partner is
material (non-juridical) acts. necessary for the sufficient for the
It is thus seen, from the above-quoted provision of paragraph XI extinguishment of the extinguishment of the
(2) Principal and Paramount Undertaking of Nielson of the management contract, that Lepanto could not terminate relationship (Art. 1159) relationship (Art. 1830(1)(a),
the agreement at will. Lepanto could terminate or cancel the (2))
In the light of the interpretations we have mentioned in the agreement by giving notice of termination ninety days in advance
The independent contractor A partner is generally not
foregoing paragraphs, let us now determine the nature of the only in the event that Nielson should prosecute in bad faith and is personally liable for his liable for his contracts with
management contract in question. not in accordance with approved mining practice the operation contracts with third persons third persons
and development of the mining properties of Lepanto. Lepanto
The lessor (like a servant) Every partner as an agent of
It thus appears that the principal and paramount undertaking of could not terminate the agreement if Nielson should cease to
ordinarily performs only the partnership, exercises
Nielson under the management contract was the operation and prosecute the operation and development of the mining
ministerial duties discretionary powers.
development of the mine and the operation of the mill. All the properties by reason of acts of God, strike and other causes
other undertakings mentioned in the contract are necessary or beyond the control of Nielson.’’
Compensation in Lease of Work or Service
incidental to the principal undertaking — these other
undertakings being dependent upon the work on the (4) Cause for Revocation of Contract
(1) Where There is an Agreement
development of the mine and the operation of the mill. In the
performance of this principal undertaking Nielson was not in any “There is no showing that Nielson had ceased to prosecute the
Arroyo v. Hospital de San Pedro, (1948). The lessee must be
way executing juridical acts for Lepanto, destined to create, operation and development of the mines in good faith and in
compelled to pay the agreed price unless it is found to be
modify or extinguish business relations between Lepanto and accordance with approved mining practice which would warrant
iniquitous or unreasonable in which case the courts may fix a
third persons. In other words, in performing its principal the termination of the contract upon ninety-days written notice.
reasonable and just remuneration. Where the compensation is
undertaking Nielson was not acting as an agent of Lepanto, in the In fact, there was no such written notice of termination. It is an
renounced or waived after the service has been rendered, there is
sense that the term agent is interpreted under the law of agency, admitted fact that Nielson ceased to operate and develop the
still a lease of service although it has become gratuitous
but as one who was performing material acts for an employer, for mines because of the war — a cause beyond the control of
a compensation. Nielson.
(2) Where the Agreement May Be Implied
It is true that the management contract provides that Nielson Indeed, if the management contract in question was intended to
Arroyo v. Azur, (1946). On principle one who performs work or
would also act as purchasing agent of supplies and enter into create a relationship of principal and agent between Lepanto and
service in favor of another who impliedly consents thereto and
contracts regarding the sale of mineral, but the contract also Nielson, paragraph XI of the contract should not have been
who benefits thereby, is entitled to compensation by virtue of an
provides that Nielson could not make any purchase, or sell the inserted because as provided in Art. 1733 [now Art. 1920], agency
innominate contract (Art. 1307) of facio ut des (I give that you
minerals, without the prior approval of Lepanto. It is clear, is essentially revocable at the will of the principal — that means
may do) or of the case of services tacitly contracted in which case
therefore, that even in these cases Nielson could not execute with or without cause. But precisely said paragraph XI was
the courts will fix the reasonable worth of the services rendered.
juridical acts which would bind Lepanto without first securing the inserted in the management contract to provide for the cause of
revocation. The provision of paragraph XI must be given effect.
Reguera v. Tanodra, (1948). No one should be enriched by the
work of another unless the services are expressly stated to be
gratuitous.
(a) Perez v. Pomar, (1903). The tacit agreement of both parties
with respect to the services of interpreter rendered by the
plaintiff to the defendant and reciprocal benefits accruing to
each, are the best evidence that there was an implied
contract sufficient to be binding. Art. 1644 is applicable
(b) G. Urrutia & Co. v. Pasig Steamer and Lighter Co. (1912).
When a vessel has been disabled by the breaking of its shaft
at sea and hoists signals for aid, and another vessel goes to
its relief and takes it in tow, such service is one of salvage
and not merely towage, and must be remunerated
(3) Where NO Rate or Amount is Fixed in the Contract
Perez v. Pomar, (1906). Although no exact amount may have
been expressly determined by the parties as the consideration for
the contract of hiring, the contract is nevertheless valid if the
amount can be ascertained in the light of the customs and usages
of the place, or by findings of fact on the basis of evidence
submitted in case of disagreement.
Arroyo v. Azur. A price certain exists when the same can be
ascertained according to the customs and usages of the place.
(a) Imperial v. Alejandre, (1909). When no rate has been fixed
in a contract of hire of services, such as those rendered by a
physician to a sick person, the court, in case of
disagreement, shall determine a reasonable and equitable
compensation according to usages and customs of the place
and the evidence in the case, with or without the testimony
of experts
(b) Perez v. Pomar. With respect to the value of the services
rendered on different occasions, the most important of
which was the first, as it does not appear that any salary was
fixed upon by the parties at the time the services were
accepted, it devolves upon the court to determine, upon the
evidence presented, the value of such services, taking into
consideration the few occasions on which they were
rendered. The fact that no fixed or determined
consideration for the rendition of the services was agreed
upon does not necessarily involve a violation of the
provisions of Article 1644, because at the time of the
agreement this consideration was capable of being made
certain.
(c) Majarabas v. Leonardo, (1908). Where it was stipulated that
the plaintiff would be liberally compensated by “providing
for the maintenance of herself, her husband, and their child
during all the time that the services of the plaintiff were
required’’ as wet nurse and governess of defendant’s infant
daughter, the fact that the exact amount to be paid for the
hired services is not precisely fixed is no bar to an action to
recover provided that the contract by its terms, furnishes a
basis or measure of ascertaining the amount agreed upon.
In this case, the contracting parties fixed the maintenance of the
plaintiff and her family as the price for the services required for
her. Said maintenance is the specific and determinate thing that in
its turn fixes the price, inasmuch as its cost determines the price
according to the agreement of the parties to the contract. There
might be a question as to the actual cost of the plaintiff’s
maintenance, but this is a matter of fact which in such a case
would have to be proven. Be it as it may, whatever might be the
cost of said subsistence, it would constitute the price for the
services rendered by the plaintiff.
Art. 1645. Consumable goods cannot be the subject matter of a
contract of lease, except when they are merely to be exhibited
or when they are accessory to an industrial establishment.
Lease of Consumable Goods (Art. 1645)
 The essence of a lease of things is the enjoyment or use of
the property (Art. 1643) with the obligation on the part of
the lessee to return the same upon the expiration of the
lease (Art. 1665)
 Ownership is not transferred to the lessee. Hence, things
which by their nature cannot be used without being
consumed, cannot be the subject matter of lease.
Chapter II: Lease of Rural and Urban Lands
Section 1: General Provisions
Art. 1646. The persons disqualified to buy referred to in Articles
1490 and 1491, are also disqualified to become lessees of the
things mentioned therein.
Rural Lands Distinguished from Urban Lands
Fabia v. IAC, (1984). The focal or determining factor is generally
the location of the property. The word “rural’’ has been defined
as relating to, or associated with, or typical of, the country, the
word being derived from the Latin word “ruralis’’ meaning
country. It pertains to a country as distinguished from a city or
town. However, it is the legal definition of the word with which
we are concerned. Thus, a construction of the word “rural’’ that is
an consonance with the legislative purpose must be followed.
Having in view the legislative objective, the word “rural’’ has been
defined as relating to or constituting tenement in land adopted
and used for agricultural or pastoral purposes. It is one which,
regardless of site, is principally used for the purpose of obtaining
products from the soil as opposed to urban lands, which are
principally for the purpose of residence
Persons Disqualified to Become Lessees (Art. 1646)
 Art. 1490 refers to the relative incapacity of husband and
wife to sell property to each other
 Art. 1491, to the incapacity of the persons enumerated
therein who, by the special relations they have with the
property under their charge or peculiar control, are
prohibited from purchasing said property.
 The prohibition is adopted in Article 1646 because of the
similarity between the contract of lease and that of sale.
Lease of Real Property by Aliens
 Foreigners are prohibited by the Constitution, except only in
cases of hereditary succession, to acquire lands in the
Philippines. (Secs. 7, 2, par. 1, Art. XII, Constitution.)
Nevertheless, they can lease real or immovable property in
the Philippines.
Smith Bell & Co., Ltd. V. Register of Deeds, (1953). It is true that
there is a similarity between the one and the other but it is only
apparent, superficial. The lessee has apparently the same rights
as the owner; but between the one and the other, there exists
an important, substantial difference as regards ownership. The
lessor does not have the possession of the thing but he preserves
the title, the ownership. The lessee enjoys the use of the
immovable, nothing, more; he does not exercise any proprietary
right. The foreigner who buys a land becomes the owner,
exercises ownership over the same; but a lessee does not obtain
more than the possession or use of the land; there is no danger
that a lessee be converted into an owner of the land; the
ownership is preserved in the lessor.
Krivenko v. Register of Deeds, (1947). Since the residence of
aliens in the Philippines is temporary, they may be granted
temporary rights such as a lease contract which is not forbidden
by the Constitution.
Phil. Banking Corp. v. Lui She, (1967). The parties, however, will
not be permitted to resort to another transaction for the purpose
of disguising the transfer in violation of the Constitution.
Accordingly, it has been held that a contract whereby an alien is
given not only a lease but also an option to buy a parcel of land by
virtue of which the Filipino owner cannot sell or otherwise dispose
of her property, this to last for 50 years, is a virtual transfer of
ownership and circumvents the constitutional ban against alien
landholding; which qualifies the ruling laid down in Rellosa vs.
Gaw Chee Hun (1953), and subsequent similar cases. Incidentally,
under P.D. 471, the maximum period allowable for the duration of
leases of private lands to aliens or alien-owned entities not
qualified to acquire private lands under the Constitution is 25
years, renewable for another period of 25 years upon mutual
agreement of both lessor and lessee.

Art. 1647. If a lease is to be recorded in the Registry of Property,
the following persons cannot constitute the same without
proper authority:
(a) the husband with respect to the wife's paraphernal real
estate,
(b) the father or guardian as to the property of the minor or
ward, and
(c) the manager without special power.
Proper Authority Required If Lease to be Recorded in Registry of
Property (Art. 1647)
 If a lease is to be recorded in the Registry of Property, the
persons mentioned in Art. 1647 cannot constitute the same
without proper authority (i.e., power of attorney) to
constitute the same
 Art. 1647 does not specify the term of the lease. Every lease
of real estate may be recorded, and if recorded, creates a
real right binding upon third persons. (Arts. 1648, 1676)
 The registration of the lease is, therefore, an act of strict
ownership; hence, a special power of attorney is necessary.
 But if the lease is not to be recorded, the lease entered into
by said persons is valid even without a special power
 Under Art. 1878(8), a special power of attorney is necessary
“to lease any real property to another person for more than
one year.’’ This requirement is imposed whether or not the
lease will be recorded. In the absence of a special power, a
lease for than one (1) year executed by the persons
mentioned in Art. 1647 is valid only for one (1) year but void
as to the excess
 The word “administrator” in the Old Civil Code is changed to
“manager” in Art. 1647. Said word has been held to apply:
(a) To an administrator of conjugal property
(b) Property owned in common
(c) Property of a decedent
(d) Patrimonial or private property of the State
Art. 1648. Every lease of real estate may be recorded in the
Registry of Property.
Unless a lease is recorded, it shall not be binding upon third
persons.
Effect of Registration of Lease of Real Estate
(1) As Against Third Persons
 A lease contract is valid and binding between the parties,
their privies, and their heirs (Art. 1311), unless it be an oral
lease for a longer period than one (1) year in which case it
cannot be enforced by action for non-compliance with the
statute of frauds. (Art. 1403(2)(e))
 To affect or bind third persons, a lease of real property
should be registered in the Registry of Property. Unless so
recorded, an innocent purchaser for value is not bound to
respect the existing lease and he may terminate the same.
(Art. 1676) A contract of lease of land must be in a public
instrument so that it may be recorded.
Report of Code Commission. Art. 1648 “is intended to protect the
lessee, who cannot be ousted by the buyer if the lease is
recorded. The right of the buyer to terminate the lease should be
curbed as much as possible because it is unjust to the lessee, and
practically sanctions a violation of the contract of lease by the
lessor.
Domestic Savings and Loan Assoc v. Villafenia-Caguioa, (1982).
The lessor may be compelled by the court to deliver to the lessee
the certificate of title over the property leased so that the lease
may be annotated therein
(2) As Between the Parties
 Lease is a mere personal right. Its inscription in the Registry
of Property to bind third persons does not in any way alter
or modify the rights and obligations of the parties under the
contract which has a life of its own independent of the
registration.
 Thus, where the instrument registered is invalid or legally
defective, registration will not render it valid or cure its
defect. Lease partakes of the nature of a real right when it is
recorded on the title of the lessor (regardless of duration)
only in the sense that it is binding even as against third
persons without actual notice of the transaction.
Lease of Personal Property
 Art. 1648 applies only to lease of real estate; hence, leases
of personal or movable property cannot be registered.
 Under Art. 1625, an assignment of a credit, right, or action
shall affect third persons if the assignment appears in a
public instrument. By analogy with said rule, leases of
personal property shall be binding on third persons if they
appear in a public instrument.
Effect of Actual Notice of Unregistered Lease by Purchaser
GR: Where the contract of lease entered into by the lessee with
the former owner was not recorded, said contract cannot bind a
purchaser of the property.
(1) Gustillo v. Maravilla, (1925). Where a purchaser of land at
the time of the purchase has full knowledge of the fact that
the land has been leased to a third person and is informed of
the terms of such lease, he is bound to respect said lease,
although it is not entered upon the certificate of title. The
lease, in effect, became a part of the contract of sale.
(2) Sayo v. Manila Railroad Co., (1922). Where the plaintiff
(lessee) was in open possession of the land at the time the
condemnation proceedings were instituted and that long
before the railroad company bought the land from the
Archbishop of Manila, the plaintiff presented his claim in the
condemnation proceedings asking that he be allowed to
intervene therein, but that his motion for intervention was
resisted by the railroad company and, therefore, denied by
the court, the railroad company cannot be regarded as a
third party within the meaning of Art. 1648, CC and Article
34 of the Mortgage Law.
(3) Quimson v. Suarez, (1924). Where at the time of the
execution of the contract of lease the plaintiff knew that the
defendant was in possession of the land, but was told by the
landlords that defendant’s lease would expire before the
beginning of term of the plaintiff’s lease, by virtue of its
registration, the plaintiff’s lease held priority over the
defendant’s unregistered lease and the plaintiff’s knowledge
of the fact that the defendant was in possession of the land
was not sufficient to charge him with notice of the duration
of the term of the defendant’s lease, but that he had a right
to rely on the certificate of title and was not bound to make
further inquiries. Here, the plaintiff believed in good faith
the representation of the landlords, which was not true. His
information was that the lease had expired. He was
considered an innocent third person.
Art. 1649. The lessee cannot assign the lease without the
consent of the lessor, unless there is a stipulation to the
contrary.
Manlapat v. Salazar, (1956). In an assignment of lease, the
personality of the lessee (assignor/debtor) disappears. The lessee
makes an absolute transfer of his lease, involving not only his
rights but also obligations as such lessee and thus, dissociates
himself from the original contract of lease. There arises the new
juridical relation between the lessor and the assignee who is
converted into a new lessee. There is, in effect, a novation by
substituting the person of the debtor (Art. 1291(2)) and novation
cannot take place without the consent of the creditor. (Art. 1293)
Hence, the lessee cannot assign the lease without the consent of
the lessor (creditor), unless there is a stipulation granting him that
right.
Dakudao v. Consolacion, (1983). The objective of the prohibition
is to protect the lessor owner of the leased property.
Caco v. CA, (1977). An assignment of lease without the consent of
the lessor is a ground for rescission of the lease.
2005 Bar, Q. XIV(b): 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 two (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.
In case of rescission, discuss the rights and obligations of the
parties.
A: In case of rescission, the rights and obligations of the parties
should be as follows:
(a) 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.
(b) Both Joel and Ernie have to surrender possession and are
liable for damages.
(c) 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.
(d) Ernie can file a cross-claim against Joel for damages on
account of the rescission of the contract of assignment.
(e) 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.
Rohde Shotwell v. Manila Motor Co. Inc., (1956). What is
contemplated by Art. 1649 is a transfer whereby the original
lessee is released from his obligations under the contract. In other
words, there must be transfer of the contract itself, not merely of
the rights of the lessee. Where the assignee of the lessee did not
assume the liabilities and obligations of the lessee under an
express stipulation that the assignment “does not carry with it any
of the liabilities and obligations’’ of the lessee-assignor, the
assignee cannot be held liable for the rentals unpaid by the
lessee-assignor. Here, the lessor’s consent is not required and he
has no right of action against the assignee.
2005 Bar, Q. XIV(a): 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 two (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.
Will the action prosper? If so, against whom? Explain.
A: Yes, the action for rescission of the lease will prosper because
Joel cannot a ssign the lease to Ernie without the consent of
Victor. (Art. 1649, CC). But Joel may sublet to Conrad because
there is no express prohibition (Art. 1650, CC; Alipio v. CA, 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 two
(2) years from January 1, 1991, and had not yet lapsed when the
action was filed on May 15, 1992.
1990 Bar, Q. VI(b): A leased a parcel of land to B for a period of
two (2) years.
The lease contract did not contain any express prohibition
against the assignment of the leasehold or the subleasing of the
leased premises.
During the third year of the lease, B subleased the land to C.
In turn, C, without A’s consent, assigned the sublease to D.
A then filed an action for the rescission of the contract of lease
on the ground that B has violated the terms and conditions of
the lease agreement.
If you were the judge, how would you decide the case,
particularly with respect to the validity of: C's assignment of the
sublease to D?
Explain your answer.
A: C’s assignment of the sublease to D is not valid. Under Art.
1649, CC, the lessee cannot assign the lease without the consent
of the lessor, unless there is a stipulation to the contrary. There is
no such stipulation in the contract. If the law prohibits assignment
of the lease without the consent of the lessor, all the more would
the assignment of a sublease be prohibited without such consent.
This is a violation of the contract and is a valid ground for
rescission by A.
Art. 1650. When in the contract of lease of things there is no
express prohibition, the lessee may sublet the thing leased, in
whole or in part, without prejudice to his responsibility for the
performance of the contract toward the lessor.
Sublease by Lessee of Thing Leased
(1) Filoil Refinery Corp. v. Mendoza, (1987). Unlike in
assignment of a lease, a lessee may sublease the property in
the absence of express prohibition.
 A violation of the prohibition entitles the lessor to rescission
of the contract and indemnification for damages or only the
latter allowing the contract to remain in force. (Art. 1659)
 That the sublessee is financially solvent is not a defense. If
the prohibition is merely implied, a sublease is still allowed.
The contract of lease must expressly stipulate the
prohibition on subletting.
(2) A. Maluenda & Co. v. Enriquez, (1924). In sublease, the
lessee remains a party to the contract. The personality of the
lessee does not disappear. There are two leases and two
distinct juridical relations: between the lessor and the
lessee, and between the sublessor (lessee) and the
sublessee, although intimately related to each other. The
sublessee generally does not have any direct action against
the lessor to require compliance with his or lessee’s
obligations, or vice versa. The sublessor is the one directly
liable to the sublessee whose damages are included in
whatever damages the former may recover from the lessor.
(3) Celis v. De Vera, (CA). The sublease of a leased property
cannot affect the efficacy of the contract of lease which
subsists with all its legal consequences notwithstanding said
sublease.
(4) Ng Sui Tian v. Amparo, (1948). A judgment of eviction
against the lessee affects the sublessee even if the latter is
not sued in the ejectment case. This is so because the
sublessee can invoke no right superior to that of the
sublessor from which his own right is derived, and the
moment the sublessor is duly ousted from the premises, the
sublessee has no leg to stand on. His possession is entirely
dependent on the lessee. His right, if any, is to demand
reparation for damages from his sublessor, should the latter
be at fault
Illustrative Case:
Malasarte v. CA, (1989). The lessee, without the written consent
of the lessors, accepted boarders in their apartment, the latter
alleging that the lessee violated the prohibition against subleasing
any portion of the premises without their written consent
(1) Accepting Boarders NOT Equivalent to Subleasing

The taking in of boarders by the petitioner in the leased premises,
without the consent of the lessors, did not violate the lease
agreement, for a prohibition against subleasing may not embrace
the taking in of boarders. Accepting boarders is not equivalent to
subleasing the premises. The lessee, by accepting boarders and
assigning rooms or bed spaces for them in the leased premises,
does not relinquish or surrender his lease to them. He did not
cease to become the actual occupant and possessor of the
demised premises. He did not surrender the possession and
control of the leased premises or a part thereof.
The word ‘sublet’ has a clear and distinct meaning, that is, it
means to make a sublease, accompanied by a surrender of the
possession and control of the premises, or at least a part thereof.
(2) Boarders Merely Provided with Meals and Lodging for a
Price
By accepting boarders in the apartment, the petitioner did not
sublease portions of the apartment to the boarders, but only
agreed to provide them with meals and/or lodging for a price.
To this effect are the following rulings:
‘Letting a room for personal occupation to a lodger does not
constitute a subletting’ (51C C.J.S., citing Pembrook vs. Goldman,
App., 176 So. 888).
‘Since a roomer or lodger is not a tenant in the strict legal sense, it
has generally been held that the taking in of roomers or lodgers
by a lessee does not constitute a violation of a covenant or
provision against subletting. However, where the lease of one of
the two houses of a double brick dwelling contained a provision
that there should be no subletting of the leased premises, it was
held that there was a technical violation of the lease where the
lessees rented one of the rooms of such house to a person who
was not related to the lessees in any way, and who, in addition to
having a room and private bath, had breakfast with the lessees,
and who was certified by such lessees as a tenant to the Price
Administration.’ (49 Am. Jur. 2d Section 490, pp. 476.)
A sublease is a grant by a tenant of an interest in the demised
premises less than his own, retaining to himself a reversion, and a
subtenant is a person who rents all or a portion of leased
premises from the lessee for a term less than the original one,
leaving a reversionary interest in the first lessee.’ (49 Am. Jur. 2d
Sec. 480, p. 469.)
‘A lessee’s common-law right to sublet may be expressly
restricted by a covenant or stipulation against subletting, but
since such restriction are in restraint of alienation, they are not
looked upon with favor by the courts; they are construed with the
utmost jealousy, and very easy modes have always been
countenanced for defeating them.’ (49 Am. Jur. 2d Sec. 485, pp.
472-473.)
‘Permitting lodgers or boarders to occupy rooms in a demised
building is not a subletting.’ (White v. Maynard, 111 Mass 250, 15
Am. Rep. 28; 32 Am. Jur., pp. 331-332.)’’
(3) Lease Contract Has Not Been Violated
Since neither the law (B.P. 25, as amended.) nor his contract with
the property owner prohibits the petitioner from accepting
roomers, bed spacers, or boarders in the leased apartment, the
lease has not been violated. The lessors have no cause of action
for the judicial ejectment of petitioner-lessee.
2014 Bar, Q. XXVI: Isaac leased the apartment of Dorotea for two
(2) years, six (6) months after; Isaac subleased a portion of the
apartment due to financial difficulty. Is the sublease contract
valid?
(a) Yes, it is valid for as long as all the elements of a valid
sublease contract are present.
(b) Yes, it is valid if there is no express prohibition for
subleasing in the lease contract.
(c) No, it is void if there is no written consent on the part of the
lessor.
(d) No, it is void because of breach of the lease contract.
1999 Bar, Q. XIV(a): May a lessee sublease the property leased
without the consent of the lessor, and what are the respective
liabilities of the lessee and sub-lessee to the lessor in case of
such sublease?
A: Yes, provided that there is no express prohibition against
subleasing.
Under the law, when in the contract of Iease 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).
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)
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 from him. (Art. 1652)
As to the lessee, the latter shall still be responsible to the lessor
for the rents; bring to the knowledge of jthe 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.
1994 Bar, Q. VIII(2): In January 1993, Four-Gives Corporation
leased the entire twelve floors of the GQS Towers Complex, for a
period of ten years at a monthly rental of P3,000,000.00. There is
a provision in the contract that the monthly rentals should be
paid within the first five days of the month. For the month of
March, May, June, October and December 1993, the rentals
were not paid on time with some rentals being delayed up to ten
days. The delay was due to the heavy paper work involved in
processing the checks.
Four-Gives Corporation also subleased five of the twelve floors
to wholly-owned subsidiaries. The lease contract expressly
prohibits the assignment of the lease contract or any portion
thereof. The rental value of the building has' increased by 50%
since its lease to FourGives Corporation.
Can the building owner ask for the cancellation of the contract
for violation of the provision against assignment?
A:
(a) No. Sublease is different from assignment of lease. Sublease,
not being prohibited by the contract of lease is therefore
allowed and cannot be invoked as a ground to cancel the
lease.
(b) No, the lessor cannot have the lease cancelled for alleged
violation of the provision against assignment. The lessee did
not assign the lease, or any portion thereof, to the
subsidiaries. It merely subleased some floors to its
subsidiaries. Since the problem does not state that the
contract of lease contains a prohibition against sublease, the
sublease is lawful, the rule being that in the absence of an
express prohibition a lessee may sublet the thing leased, in
whole or in part, without prejudice to his/its responsibility to
the lessor for the performance of the contract.
1990 Bar, Q. VI(a): A leased a parcel of land to B for a period of
two (2) years.
The lease contract did not contain any express prohibition
against the assignment of the leasehold or the subleasing of the
leased premises.
During the third year of the lease, B subleased the land to C.
In turn, C, without A’s consent, assigned the sublease to D.
A then filed an action for the rescission of the contract of lease
on the ground that B has violated the terms and conditions of
the lease agreement.
If you were the judge, how would you decide the case,
particularly with respect to the validity of: B’s sublease to C?
Explain your answer.
A: B’s sublease to C is valid. Although the original period of two
years for the lease contract has expired, the lease continued with
the acquiescence of the lessor during the third year. Hence, there
has been an implied renewal of the contract of lease. Under Art.
1650, CC, the lessee may sublet the thing leased, in whole or in
part, when the contract of lease does not contain any express
prohibition. (Art. 1650, 1670, CC).
A’s action for rescission should riot prosper on this ground.
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
Direct Liability of Sublessor to Lessor
GR: The sublessee is not a party to the contract between the
lessor and the lessee; hence, under the general rule in contracts
(Art. 1311), the sublessee can only be held liable directly to the
sublessor
XPN: Art. 1651
Ortiz v. Balgos, (1929). The lessor may bring an action directly
against the sublessee if he does not use and preserve the thing
leased in accordance with the agreement between the lessor and
the lessee or with the nature of the property. (Art. 1657(2)) It is
not necessary that the sublessor be joined as a defendant.
 The duty of the sublessee insofar as the use and
preservation of the thing leased is concerned is without
prejudice to his obligation towards the sublessor.
2000 Bar, Q. XIX(a): A leased his house to B with a condition that
the leased premises shall be used for residential purposes only.
B subleased the house to C who used it as a warehouse for
fabrics.
Upon learning this, A demanded that C stop using the house as a
warehouse, but C ignored the demand.
A then filed an action for ejectment against C, who raised the
defense that there is no privity of contract between him and A,
and that he has not been remiss in the payment of rent.
Will the action prosper?
A: Yes. the action will prosper. Under Art. 1651, CC, 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.
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
extra-judicial demand by the lessor.
Payments of rent in advance by the sublessee shall be deemed
not to have been made, so far as the lessor's claim is concerned,
unless said payments were effected in virtue of the custom of
the place.
Subsidiary Liability of Sublesee to Lessor
(1) Remedy to Collect Rents from The Sublessee
 Although the sublessee has assumed no direct obligation to
answer for the rents due from the lessee to the lessor, the
law grants the lessor the right to demand payment from the
sublessee the rents which the sublessor failed to pay the
lessor.
 The evident purpose of the remedy is to prevent a situation
where the lessee collects rents from the sublessee but does
not pay his rents to the lessor.
Vera v. Fisher, (CA). Art. 1652 does not annul the contractual
relations between the lessee and sublessee but simply helps the
owner of the property to collect the rentals on the same. The
demand to pay rents made by the lessor on the sublessee does
not exempt the latter from his obligation to pay the sublessor the
rents which said sublessee failed to pay the lessor.
(2) Amount of Rent Recoverable
 The liability of the sublessee is limited to the amount of rent
due from him to the sublessor under the terms of the
sublease at the time of the extrajudicial demand by the
lessor.
 Future rents cannot be recovered.
Note: The liability of the sublessee is subsidiary, i.e., he is liable to
the lessor only for rents the lessee failed to pay the lessor.
(3) Liability Fore Rents Paid in Advance
Celis v. De Vera, (CA). Art. 1651 and 1652 impose upon the
sublessee certain obligations which imply the grant of a direct
action in favor of the lessor against the former. Under the second
paragraph of Art. 1652, 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. The sublessee continues to be
subsidiarily liable to the lessor for any rent unpaid by the lessee.
The rule is a precaution to avoid collusion between the lessee and
lessee. With the insolvency of the sublessee and the supposed
advance payment by the sublessee, the rights of the lessor might
be rendered nugatory
Art. 1653. The provisions governing warranty, contained in the
Title on Sales, shall be applicable to the contract of lease.
In the cases where the return of the price is required, reduction
shall be made in proportion to the time during which the lessee
enjoyed the thing.
Warranty of Lessor (Art. 1653)
 In a lease contract, the lessor likewise warrants that he has a
right to lease the thing, that the lessee shall enjoy the legal
and peaceful possession of the thing, and that the thing is fit
for the use for which it is intended and free from any hidden
fault or defect. (Art. 1654)
 In case of eviction of the lessee, and the return of the rents
paid is required, a reduction shall be made taking into
account the period during, which the lessee enjoyed the
thing. The lessee has also the right to ask for the
proportionate reduction of the rents agreed upon where the
area or number of the object of the lease is less than that
stated in the contract. (Art. 1542)
Lessor’s Warranty Distinct from His Liability for Damages
 In connection with a lease, warranty is the obligation to
repair or correct any fault or defect existing when the lessee
took over the property leased, but when the law declares
that the lessor must warrant the thing leased; it is not to be
understood that he must also indemnify the lessee. Liability
for the warranty is not equivalent to liability in damages, as
the latter is an obligation distinct from the former
Yap Kim Chuan v. Tiaoqui, (1915). The lessor’s obligation to
warrant the thing leased, whether or not he knew of the existence
therein of defects that rendered it unsuitable for the use for
which the lessee intended it, is distinct from his liability for
damages, which only attaches when he knew about such defects
and failed to reveal them to the lessee or concealed them, in
which case fraud and bad faith may be presumed on his part.
U.S. Lines Co. v. San Miguel Brewert, Inc. (1964). In a lease of a
cold storage plant for foodstuffs, the lessor is understood as
having warranted that the leased premises would be free from
rats. In this warranty, fraud or bad faith on the part of the lessor is
not a necessary element. A lessor of a cold storage plant may be
held liable for the deterioration of the foodstuffs stored therein
by the lessee because some foodstuffs were gnawed by rodents.
Section II: 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.
Obligations of the Lessor
 Another obligation of the lessor is that he cannot alter the
form of the thing leased (Art. 1661)
(1) Delivery of the Property
 The thing leased must be delivered in order that the lessee
may enjoy or use the same. Delivery, may, of course, be
actual or constructive. (Art. 1496)
(a) At the time of delivery, the thing must be in a condition fit
for the use intended. The contract, however, may validly
provide that the thing, when delivered, shall be in the same
condition in which it might be at the time of the perfection
of the contract. The parties may stipulate regarding the
fitness of the thing and the particular use to which it will be
devoted by the lessee.
(b) Republic v. De Los Angeles, (1971). When a lessee rents a
building which turns out, however, to be occupied by
another person, and the former cannot obtain possession,
his (the lessee’s) cause of action is against the lessor for
breach of contract in that the latter violated the obligation
of delivering to him the peaceful possession of the leased
premises. The lessee has no cause of action against the
possessor because he has no relation, contractual or ex
delicto, with the latter.
Rivera v. Halili, (1963). A lessee who fails to take possession of
the leased premises on account of the presence of third persons
unwilling to vacate the premises because of some previous act or
transaction of the lessor, should institute the action against the
lessor based upon the latter’s failure to comply his obligation to
deliver the same.
(2) Making of Necessary Repairs
 Art. 1654 speaks of necessary repairs to keep the thing
leased suitable for the use to which it has been devoted
unless there is a stipulation to the contrary.
 In default of a special stipulation, the custom of the place
shall be observed as to the kind of repairs. (Art. 1686)
 If the lessor fails in the performance of this duty, the lessee
may suspend the payment of rent (Art. 1658) or avail himself
of the other remedies provided in the law. The lessor is not
liable for repairs for damages or deterioration caused by the
lessee himself.
(a) Gonzales v. Mateo, (1944). The lessee may agree to do
repairs and relieve the lessor of the duty, as where the
lessee is to pay only a very moderate if not nominal, rent.
(b) Albano v. Villanueva, (1906). The word “repairs’’ implies the
putting back of something in the condition in which it was
originally, while an “improvement’’ is the adding of
something new thereto; hence, the filling of a vacant lot is
not a repair, nor the construction of a house.
(c) Lizares v. Alunan, (1920). The word “repairs,’’ in its ordinary
acceptation, must be understood to apply to the restoration
of things after injury or partial destruction, without
complete loss of identity in the thing repaired.
The obligation to make repairs is very different from
reconstruction in case of total loss. Thus, the lessor’s obligation to
make repairs does not extend to the obligation to reconstruct a
camarin which has been totally destroyed by fire. Repairs mean
the restoration of the camarin which had deteriorated from use or
has been partially destroyed without total loss of identity.
(d) Donato v. Lack, (1911). When the lessor agrees to keep a
building under lease in a proper condition but fails to do so,
and the lessee vacates the building before the expiration of
the lease, the lessor cannot recover damages nor rent for
the unexpired term
(e) Gregorio Araneta, Inc. v. Lyric Film Exchange, Inc. (1933).
There are no authorities to the effect that it is incumbent
upon the owner to constantly inspect the premises and that
if he fails to do so or through error of judgment fails to make
repairs before the damage is material, the lessee has a cause
of action. As the lessee is in possession and if repairs are
necessary, which it is the duty of the owner to make, the
lessee should call upon the owner to make the necessary
repairs. If the owner then fails to perform his duty, action
would lie
(f) Yap Kim Chuan v. Tiaoqui, (1915). Where the lessee’s goods
got wet as a result of torrential rain even though the roof of
the building occupied by the lessee was in good condition
and there was no proof that the lessor knew that it had
cracks or defects, the lessor cannot be held liable for
damages in the absence of express agreement to that effect.
Note: While the lessor is not liable for damages due to a
fortuitous event or force majeure, he must make the repairs after
he has been advised by the lessee of the necessity thereof within
the shortest time possible.
2010 Bar, Q. II(A): A had a 4-storey building which was
constructed by Engineer B. After five years, the building
developed cracks and its stairway eventually gave way and
collapsed, resulting to injuries to some lessees. Who should the
lessees sue for damages?
1. A, the owner
2. B, the engineer
3. both A & B
A: (3). The lessee may proceed against A for breach of contract,
and against B for tort or statutory liability.
Under Art. 1654(2), NCC, the lessor is obliged to make all the
necessary repairs in order to keep the leased property suitable for
the use to which it has been devoted. Consequently, under Art.
1659, NCC, the proprietor of a building or structure is resppnsible
for the damages resulting from its total or partial collapse, if it is
due to the lack of necessary repairs.
Under Art. 1723, NCC, the engineer or architect who drew up the
plans and specifications for a building is liable for damages if
within 15 years from the completion of the structure, the same
should collapse by reason of a defect in those plans and
specifications, or due to the defects in the ground. This liability
may be enforced against the architect or engineer even by a third
party who has no privity of contract with the architect or engineer
under Art. 2192, NCC.
Alternative: The lessee can sue only the lessor for breach of
contract under Art. 1659 in relation to Art. 1654, NCC. The lessee
cannot sue the architect or the engineer because there was no
privity of contract between them. When sued, however, the lessor
may file a third party claim against the architect or the engineer.
Alternative: Under Art. 1723, NCC, the engineer or architect who
drew up the plans and specifications for a building is liable for
damages if within 15 years from the completion of the structure,
the same should collapse by reason of a defect in those plans and
specifications, or due to the defects in the ground. Under Art.
2192, NCC, however, if the damages should be the result of any of
the defect in the construction mentioned in Art. 1723, NCC, the
third person suffering damages may proceed only against the
engineer or architect or contractor within the period fixed therein.
The damages suffered by the lessee in the problem are clearly
those resulting from defects in the construction plans or
specifications.
(3) Keeping Lessee in Peaceful and Adequate Enjoyment
Liwayway Publications, Inc. v. Permanent Concrete Workers
Union, (1981). The lessor’s obligation to maintain the lessee arises
when acts termed “legal trespass’’ disturb, dispute, or place
difficulties in the lessee’s peaceful and adequate enjoyment of the
leased premises that in some manner or other cast doubt upon
the right of the lessor to execute the lease. The lessor must
answer for such legal trespass
(a) De La Cruz v. Seminary of Manila, (1911). The lessor who
fails in the performance of his obligations shall be subject to
indemnity for the losses and damages caused thereby. The
true measure of damages for the breach of such a contract is
what the plaintiff has lost by the breach.
(b) Bobol v. Torres. The warranty of the lessor is that the lessee
shall not be disturbed in his legal, not physical possession
Heirs of Ormaechea v. Cu Chee Gan & Co. (CA). The lessor is not
liable for physical trespass, but is liable when his non-payment of
his real estate tax results in the eviction of the lessee.
Sayo v. Manila Railroad Co., (1922). The lessor, however, is not
responsible for his lessee’s eviction through condemnation
proceedings for the reason that expropriation is involuntary.
(c) Vda. De Villareal v. Manila Motor Co. (1958). The act of the
Japanese Armed Forces in evicting the lessee from the
leased premises constituted not merely an act of trespass
(pertubacion de mero hecho) but a trespass under a color of
title (perturbacion de derecho) chargeable to the lessor. The
lessee’s obligation to pay rentals ceased during such
deprivation.
(d) Ninoy Aquino International Airport Authority v. CA, (2003).
In a case where the agreement of the parties is for the lease
of an entire area and “the term of the lease shall be
considered as extended for a period equal to that during
which the lessee was not in possession of the leased
premises’’, the failure of the lessee to use a portion of the
leased premises was held equivalent to a dispossession from
the entire area in question, for there was incomplete
performance by the lessor of its principal prestation, thereby
calling for the application of the contractual provision on
extension of term
(e) Tagbilaran Integrated Sellers Assoc. v. CA, (2004). The
obligation of the lessor to maintain the lessee in the
peaceful and adequate enjoyment of the lease persists only
for the duration of the contract
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.
Effect of Destruction of Thing Leased by Fortuitous Event
(1) Destruction Total
Roces v. Rickards, (CA). In this case, the lease is extinguished,
because of the absence of the object of the contract. The lessee of
a room in a building which is subsequently destroyed cannot
consider himself a lessee of the land on which said building was
constructed and from which he is sought to be ousted, just
because he was a lessee of one of the rooms of said buildings. His
lease came to an end when the building was destroyed, so that, to
make him lessee of the land thereafter, a new contract of lease
would have to be made.
Rohde Shotwell v. Manila Motors Co. Inc., (1957). Where the
buildings and the land, which formed part of the causa or
consideration of the lease contract, constituted an indivisible unit,
the destruction of the buildings extinguished the obligation or
terminated the lease contract.
1993 Bar, Q. IX: A is the owner of a lot on which he constructed a
building in the total cost of P10,000,000.00.
Of that amount B contributed P5,000,000.00 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 P10,000.00 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, CC)
(2) Destruction Partial
 In this case, the lessee is given the option to choose
between a proportionate reduction of the rent and
rescission of the lease. Once the choice of the lessee has
been communicated to the lessor, the former cannot change
it. (Art. 1201)
 If reduction of rent is chosen, the same shall be retroactive
to the date the partial destruction occurred. In case of
rescission, the general rule is that it will not be granted for
slight or trivial causes.
 The partial destruction, under the circumstances, should be
important or substantial as to defeat the purpose of the
lessee in entering into the contract of lease.
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.
Right of Lessor to Continue Same Business or Industry Engaged
in by Lessee
City of Naga v. CA, (1954). Art. 1656 permits the lessor of a
business or industrial establishment to continue engaging in the
same business or industry to which the lessee has devoted the
thing leased. A lease is no warranty by the lessor to the lessee that
the latter’s business would be successful. Even if the lessee should
suffer losses, he would still be bound to fulfill the terms of the
lease.
 Neither does a lease create a right in favor of the lessee to
be free from competition offered by the lessor or other
persons.
 It is submitted that the lessor may engage or continue to
engage in the same business of the lessee, unless there is a
stipulation to the contrary.
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
Obligations of the Lessee (Art. 1657)
 Another obligation of the lessee is to notify the lessor of
every usurpation or untoward act by any third person and of
the necessity of urgent repairs. (Art. 1663)
(1) Payment of Agreed Price of Lease
Sugar Estates v. Iribar, (1905). The obligation of the lessee to pay
the rent agreed upon arises only when the thing leased has been
delivered to the lessee for the purposes stipulated in the contract.
Thus, where the agreement to lease a vessel was never
consummated for the reason that the defendant did not accept
delivery of the same because it was not what it was represented
to him, the lessee was not liable for rent
(a) Lim Si v. Lim, (1960). Only the lessor has the right to fix the
rents. The court cannot determine the rent and compel the
lessor to conform thereto and allow the lessee to enjoy the
premises on the basis of the rents fixed by it.
Imperial Insurance, Inc. v. Simon, (1965). It is error for the court
to fix a monthly rental at an amount which is lower than what the
lessee is willing to pay for the leased premises.
(b) Bulahan v. Tuason, (1960). The lessor has not only the right
to terminate the lease upon the expiration of the term but
also to increase the rent in case of renewal. The lessee has
to option to accept the new rate or vacate the premises;
otherwise, he will be considered a possessor in bad faith of
the property.
(c) Camus v. Price, Inc., (1962). Where the lessee was in
continuous possession of the leased building and lot during
the pendency of the case, operating its business therein and
making profits thereby, whereas the lessor was not only
deprived of the possession of his property but also of the
rental therefor, said lessee must be required to compensate
the lessor for such occupancy until it vacates the premises.
M&M Management Aids, Inc. v. CA, (1985). The lessee is obliged
to pay rentals during the pendency of the action for rescission of
the lease.
(d) Filoil Refinery Corp. v. Mendoza, (1987). Where on few
occasions the lessee paid late the rentals due, but the delay
was only for a few days, such breaches are not so substantial
and fundamental to warrant the rescission of the lease.
(e) Beech v. Jimenez, (1908). The fact that the vendor-lessee
has a right to repurchase the lots sold by him under a pacto
de retro sale and leased to him by the vendee, is no excuse
for failure to pay rentals. The sale and the lease are
independent of each other.
(f) Lim v. Lim. The disagreement between a lessor and a lessee
as to the amount of rent to be paid cannot be decided in an
action of consignation (Art. 1256) but in that of forcible
entry and unlawful detainer that the lessor institutes when
the lessee refuses to pay the rents that the lessor has fixed
for the property
(g) The place for the payment of rental is governed by the same
rules regarding payment of obligation in general (Art. 1251)
(2) Proper Use of the Thing Leased
 The lessee must exercise the diligence of a good father of a
family.
 He must devote the thing to the use stipulated, and if none
was stipulated, to that which may be inferred from the
nature of the thing leased according to the custom of the
place.
 The use of the thing for an illegal purpose entitles the lessor
to terminate the contract.
Tolentino. When a thing by its nature is susceptible of various
uses, the lessee may use it for any of the purposes for which it
may be suitable. The lessee need limit himself to the use to which
the thing was devoted at the time of the lease. Thus, a lot may at
the time of the contract may have been used as a depositary for
lumber; the lessee may use it as a motor compound or even for
purposes of constructions suitable to the place. But when the
lease is of a commercial establishment dedicated to a particular
business, such as a bakery or grocery, the lessee cannot change
the purpose of such establishment.
(3) Payment of Expenses for Deed of Sale
 In sale, the expenses for the execution and registration of
the deed of sale shall be borne by the vendor, unless there is
a stipulation to the contrary. (Art. 1487)
 In lease, the law imposes the obligation to pay expenses for
the deed of lease on the lessee. By agreement, the
obligation may be assumed by the lessor.
Art. 1658. The lessee may suspend the payment of the rent in
case the lessor fails to make the necessary repairs or to maintain
the lessee in peaceful and adequate enjoyment of the property
leased.
Suspension of the Payment of Rent (Art. 1658)
 A similar rule in sales permit the vendee to suspend the
payment of the price should he be disturbed in the
possession or ownership of the thing bought, by a
vindicatory action or foreclosure of mortgage. (Art. 1590)
 In the case of sale, however, the rule is justified for the
vendee may lose the price he paid and the thing bought.
 In lease, there is no risk that the lessee will lose both his
rental payment and his possession of the thing leased except
where the rentals have been paid in advance.
(1) In the case of repairs, the lessee may suspend payment from
the time demand is made upon the lessor and the latter fails
to perform his obligation.
(2) Heirs of Ormachea v. Cu Chee Gan & Co., (CA). In case of
eviction, the lessee is released form the obligation to pay
rents from the time he is unlawfully disposed
Madamba v. Araneta, (1958). Where the disturbance in the
lessee’s possession is caused by mere intruder who acted without
any color of title or right, the disturbance is a mere act of trespass
for which the lessor is not liable. The lessee has a direct against
the trespasser.
 If the cause for suspending payment has ceased to exist, the
lessee has no liability to pay the rents, for the intervening
period unless the lessor can prove that the suspension was
not legally justifiable.
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.
Alternative Remedies of Aggrieved Party (Art. 1659)
(1) Mina v. Rodriguez, (CA). Art. 1659 follows the general rule
in obligations contained in Art. 1191 with the difference that
while the courts are granted by said article the discretion to
grant an obligor additional time for performance (par. 3
thereof), under Art. 1659, there is no such discretion granted
to courts.
(2) A violation of the lease contract entitles the aggrieved party
to demand indemnity for damages
(a) Yunti v. Dy Yco, (1906). An action which has for its object
the recovery of damages is quite different from an action for
ejectment which has for its object the recovery of the
possession of the leased property
(b) Maluenda & Co. v. Enriquez, (1924). As to the amount of
damages recoverable by the lessor, it is the difference
between the rental actually obtained and that stipulated in
the contract of lease.
Rios v. Jacinto, (1926). The indemnity for damages does not
include rents for the future where the termination of the lease
abrogated liability for future rents.
(c) Hernaez v. Montelibano, (1916). Where the lessee fails to
pay on time the stipulated rents, the lessor has the right to
rescind the contract, recover the unpaid rents, and eject the
lessee.
Rescission of Lease Contract
(1) Chua v. Victorio, (2005). In addition to the general remedy
of rescission granted under Art. 1191, CC, Art. 1659 grants
the remedy of rescission for breach of any of the lessor’s or
lessee’s statutory obligation. Ordinarily, an obligee’s
remedies upon breach of an obligation are judicial in nature.
This is implicit in the third paragraph of Art. 1191, and in Art.
1659. In certain exceptional cases, the law recognizes the
availability of extrajudicial remedies, which exist in addition
to the judicial remedies given in the above provisions.

(a) Pamintuan v. Tiglao, (1929). Upon nonpayment of rent by
the lessee, the lessor may elect to treat the contract as
rescinded and thereby determine the right of the lessee to
continue in possession; and his right to recover possession
may be enforced in an action for unlawful detainer. It is not
necessary, in such situation, that an independent action for
the rescission of the lease should first be instituted for the
purpose of putting an end to the right of the tenant to
remain in possession under the lease, unlike resolution of
reciprocal obligations under Art. 1191
(b) Pamintuan v. CA, (1971). The lessor may rescind the lease
for the lessee’s failure to pay the rentals. If the lessor does
not accept the rentals, the lessee’s remedy is tender of
payment and consignation. Rescission under Art. 1659 is
different from the automatic rescission if the lessee failed to
make the required deposit of rentals. In making the deposit,
the lessee prevents the automatic cancellation of the lease
but does not preclude the lessor from suing for rescission of
the lease for the lessee’s failure to pay the stipulated
rentals.
(c) Luna v. Carandang, (1968). A judgment rescinding a lease
should order the lessee to vacate and return the premises to
the lessor. The court has no discretion under Article 1659 to
grant the lessee a longer period for performance. The lessee
should pay the accrued rent.
(d) Hernaez v. Montelibano, (1916). A lessee cannot take
advantage of his own wrong to rescind the lease. He cannot
refuse to pay rent and then declare the lease rescinded. A
stipulation allowing the lessor to rescind the lease for
nonpayment of rentals does not mean that the lessee may
refuse to pay the rentals and thereby produce the
abrogation of the lease
Fernandez Hermanos v. Pitt, (1916). Rescission is a remedy
granted only to the injured party and cannot be availed of by the
wrongdoer. If a person could rescind an obligation by the simple
act of refusing to fulfill it, then contracts would be a worthless
thing and if one may take advantage of his own wrong then there
is no inducement to do right.
(e) Rios v. Jacinto, (1926). Where the lessor takes possession of
the leased land for nonpayment of rentals and the lessee
voluntarily surrenders it, the lessor has no right to recover
the rent accruing subsequently.
(f) Dayao v. Shell Co., (1980). A lessor may seek rescission of a
lease contract and ejectment of the lessee simultaneously in
a single action for unlawful detainer.
(2) Vda. De Santi v. Alcid, (CA). An action to annul a lease and
the grounds therefor provided by law, and an action for
rescission thereof and the grounds upon which the same
may be based, should not be confused. Failure on the part of
the lessor or lessee to comply with their contract gives rise
to an action to rescind the same and not one to annul it. The
allegation of non-performance of lessee’s obligation to pay
the rental agreed upon made in lessor’s complaint is
obviously not a ground to annul the lease but to rescind it.
(3) Veloso v. Avila, (CA). In an action for rescission of a contract
of lease and indemnity for losses and damages, the
withdrawal made by the lessor of the amounts deposited
with the Clerk of Court by the lessee for rentals due, does
not constitute a waiver of the right of action for ejectment in
which the complaint of said lessor is based and with more
reason when such withdrawal was made with the authority
of the court
(4) Song & Co. v. Hawaiian-Philippine Co., (1925). Rescission
will not be permitted for a slight or casual breach of the
contract, but only for such breaches as are so substantial
and fundamental as to defeat the object of the parties in
making the agreement
Delta Motor Corp. v. Genuino, (1989). The question of whether a
breach is substantial depends upon the attendant circumstances
(a) Phil. Amusement Enterprises, Inc. v. Natividad, (1967).
Where the defendant leased a jukebox for a stipulated
period for 75% of the gross receipts per week, and once in a
while coins would be stuck but such sticking-up of the coins
was a normal occurrence, the defendant was held not
justified in trying to return the jukebox and considering the
contract automatically rescinded, for in order that an action
of rescission to prosper, the breach must be substantial, not
like the stick-up in this case, which happened only
occasionally.
(b) Filoil Refinery Corp. v. Mendoza, (1987). Where time is not
of the essence of the contract, a slight delay on the part of
the lessor or lessee in the performance of his obligation is
not a sufficient ground for the rescission of the contract.
Thus, it has been held that delay on four (4) occasions in the
payment of rentals for a few days did not constitute
substantial breaches in a contract of lease because the law is
not concerned with trifles. De minimis non curat lex.
(c) Carciller v. CA, (1999). The lessee sent a letter on January
15, 1986 to the lessor manifesting his intent to exercise the
option to purchase the leased property subject of the option
within the lease period ending January 30, 1986 but
requesting for a six-month extension of the lease contract
for the alleged purpose of raising funds intended to
purchase the property. The request was denied by the lessor
on February 14, 1986. By a letter dated February 18, 1986,
the lessee notified the lessor of his desire to exercise the
option formally. It was held that the delay of 18 days was
neither “substantial’’ nor “fundamental’’ and did not
amount to breach that would defeat the intention of the
parties when they executed the lease contract with option
to purchase.
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.
Dwelling Place or Building Dangerous to Life or Health (Art.
1660)
Report of Code Commission. This right of the lessee is a
precaution for public safety which is above any stipulation. It
cannot be waived (Art. 6, CC)
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.
Alteration of Form of Lease
(1) By The Lessor (Art. 1661)
Banate v. Cunada, (CA). To constitute an alteration within the
purview of the law, the modification must be in such a manner
that it would destroy the substance of the thing leased or change
its conditions in such a way to render the thing leased
unserviceable for the use intended. Under the facts presented in a
case, it was held that the conversion of the main gate into a
concrete culvert did not at all alter the form of the thing leased in
such a way as to impair the use of the thing leased and render it
unserviceable.
(2) By the Lessee
 The lessee may alter the form of the lease so long as the
value of the property is not impaired by the alteration.
Enriquez v. Watson & Co., (1912). The lessee of a building under
an 18-year lease had the right to make such changes as the
business established therein required, provided that neither the
value nor the solidity of the building was impaired. Said lessee
undertook to remove a thick masonry wall and substitute therefor
a reinforced concrete wall, which would add materially to the
floor space, which he needed in his business, and at the same
time strengthen the building and add materially to the value of
the building. The lessors claimed the lease should be rescinded
because the form and substance of the leased premises had been
changed.
Held: Not such alteration of the form and substance under the
circumstances of the leased premises as to entitle the lessor to
rescission of the lease.
In re: Building and Loan Association and Penaloza, (1909). If the
object leased were a house, the lessee might effect such
improvements for use, recreation or comfort as would not change
its form or substance as he deemed fit; he could build a bower or
luxurious pavilion more expensive than the house itself, to which,
at the expiration of the lease, the owner of the house would have
no right whatever, unless the lessee could not remove the same
without injury to the house to which it was attached as an
improvement, excepting, of course, the right to cause the same to
be demolished so that the house might be returned to him in the
same condition that the lessee received it as provided in Art.
1665.
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 (40) days the rent shall be
reduced in proportion to the time - including the first forty (40)
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.
Rule in Case of Urgent Repairs
(1) Need to Make Repairs (Art. 1662, par. 1)
 The lessor has the obligation to make necessary repairs (Art.
1654[2]) and the lessee is obliged to notify the lessor of the
urgency of such repair. (Art. 1663, par. 2)
 If the repairs are not urgent, the lessee can refuse to be
disturbed in the enjoyment of the thing leased. But if the
repairs are so urgent that they cannot be deferred until the
termination of the lease, the lessee has no choice but to
bear the burden of whatever inconvenience they may cause.
 The burden is on the lessor to prove the urgency of the
repair.
Note: Art. 1662 speaks of repairs. Modifications or improvements
which the lessor may want to make on the property during the
period of the lease cannot be done against the objection of the
lessee.
(2) Length of Time for the Repairs (Art. 1662, par. 2)
 If the repairs did not last 40 days, the lessee cannot ask for
reduction in the absence of a provision in the contract giving
him such right.
(3) Rescission of the Lease (Art. 1662, par. 3)
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 Art. 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.
Obligation of Lessee to Notify Lessor
 To the obligations of the lessee under Art. 1657, Art. 1663
adds the obligation to notify the lessor of any usurpation
and of the need for repairs. In both cases, the lessee shall be
liable for the damages which, through his negligent failure to
give the required notice, may be suffered by the lessor.
(1) Usurpation or Untoward Act by A Third Person
Simpao v. Dizon, (1901). The purpose of the notice is to enable
the owner to maintain his civil possession, by suit if necessary. A
possessor must be respected in his possession.
Roxas v. Mijares, (1907). The owner is entitled to defend his
property from any aggression in order to prevent serious injury to
his interests which would happen if this was left to the lessee who
has no interest and has no real right in the property leased.
Whatever may be the nature of the disturbance occurring, so long
as it may affect the possession or the right of the owner over the
leased property, he is entitled to institute the proper action. It
would be a judicial absurdity to deny him such a right and trust
and the defense of his interests to the lessee whose obligations
and rights are entirely different.
(2) Need of Repairs
Gregorio Araneta, Inc. v. Lyric Film Exchange, Inc., (1933). As the
lessee is in possession and if repairs are necessary, which it is the
duty of the owner to make, the lessee should call upon the owner
to make the necessary repairs. If the owner then fails to perform
his duty, action would lie. It is not the duty of the lessor to
constantly inspect the premises to see if there is a need to make
repairs.
Johnson-Pickett Rope Co. v. Grey, (CA). The last paragraph is
new, adopting the principle laid down in a Court of Appeals case,
to wit:
“We believe that this provision does not deprive the lessee of the
right to adopt certain measures to protect his interests and avoid
losses and damages or minimize them, making for his account the
repairs of the nature mentioned in Article 1554, paragraph 2, and
to later claim against the lessor what he spent for them so long as
having advised him of the necessity of said repairs the lessor
should fail to make them. Such right becomes clearer above all
when the repairs are urgent which cannot be delayed without
serious damage to the lessee or to the public.
It appears unjust to us to impose upon the lessee interested in the
continuance of the lease the attitude of resigning to bear the
losses and damages and satisfying himself with the hope of
claiming them afterwards from the lessor. To interpret Article
1556 in this manner is to give it a limited sense that it would not
only diminish its practical utility but it would make it an
anachronism in this modern age of progress and advancement in
which we live. And it cannot be said that to grant the lessee the
right which we mention is to open to him the way of taking the
law into his own hands since it is only a means of protection, a
defense, always justified when they are prompted by culpable and
negligent acts of him who in the last analysis would have to
answer for losses and damages if they are not avoided.’’
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.
Rule in Case of Mere Act of Trespass
There are two (2) kinds of trespass with respect to property:
(a) Mere act of trespass (disturbance in fact) where a third
person claims no right whatever, as in forcible entry; and
(b) Trespass in law (disturbance in law) where a third person
claims a legal right to the property, such as an action to
recover possession based on ownership.
 In case of a mere act of trespass by a third person upon the
leased property, the lessor is not liable to the lessee for the
disturbance of the latter’s possession. The lessee shall have
a direct action against the usurper or intruder.
 In case of trespass in law, the real party in interest is the
lessor who becomes liable to the lessee. The lessor may
maintain an action to recover title (accion reinvindicatoria)
or to establish his better right of possession (accion
publiciana).
Vda. De Villaruel v. Manila Motor Co., (1958). The act of the
Japanese armed forces in evicting the lessee from the leased
premises and occupying the same was a trespass in law under the
rules of “belligerent occupation.’’ Our Constitution (Sec. 2, Art. II.)
adopts the generally accepted principles of international law as
part of the law of the land.
Sayo v. Manila Railroad Co., (1922). A lessor is not responsible for
his lessee’s eviction through condemnation proceedings and
cannot be held liable for damages therefor. The lessee must look
to the expropriating plaintiff for his compensation.
Manresa. Reason for the non-liability of the lessor in trespass in
fact only:
“A necessary condition of the enjoyment of the lessee, the chief
feature of the lease, is the possession he must have to the thing;
without that, there can be no enjoyment. True it is that the lessee
does not hold such possession in the capacity of owner and that,
therefore, he cannot and should not derive from it the effects
which, under other circumstances, would ensue; but, after all, he
is a possessor. If we carefully examine that relation of possession,
we shall see that it is double; on the one hand, he possesses the
thing as a condition of enjoying it while, on the other, he
possesses his right to the enjoyment of the thing. In certain
respects, he holds possession of the thing in the name of its
owner, in so far as this latter has not ceased to hold it for the
purpose of prescription, for example, because he leases the
property; but the possession of his right of use pertains to him in
his own name, as acquired by virtue of a just title, that is, the
contract of lease. If then, the trespass in fact only refers to the use
of the thing who but the lessee can have the personality to
oppose it?
It must be carefully noted that Article 1560 [now Art. 1664]
speaks of trespass in fact only in the use of the property leased
and that if such trespass is translated into anything material which
affects the property itself, then only so far as it is a disturbance of
the use of the property is it incumbent upon the lessee to repel it.
True it is that, pursuant to paragraph 3, of Article 1554 [now
1654], the lessor must maintain the lessee in the peaceful
enjoyment of the lease during all of the time covered by the
contract, and that, in consequence thereof, he is obliged to
remove such obstacles as impede said enjoyment, but, as in
warranty in a case of eviction, the obstacles to enjoyment which
the lessor must remove are those that in some manner or order
cast doubt upon the right by virtue of which the lessor himself
executed the lease and, strictly speaking, it is this right that the
lessor should guarantee to the lessee.
Briefly, if the act of the trespass is not accompanied or preceded
by anything which reveals a really juridic intention on the part of
the trespasser, in such wise that the lessee can only distinguish
the material fact, stripped of all legal forms or reason, we
understand it to be trespass in fact only (de mero becho).’’
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.
Return of Thing Leased Upon Expiration of Lease (Art. 1665)
(1) Arevalo v. Llantos, (CA). Such obligation to return the leased
premises is not deemed fulfilled if the lessor cannot resume
possession because of some impediment for which the
lessee is responsible, or when there is an occupant, placed
by the lessee, who refuses to leave. In such instance, the
relation of landlord and tenant is not dissolved, and the
lessee will be considered as holding over and held liable for
the injuries resulting from the lessor’s inability to have
dominion of the property subject-matter of the lease
(2) Godoy v. Ramirez, (1988). As a general rule, the whole of
the property subject to the lease and not only a part thereof,
must be returned to the lessor.
(3) Maceda v. Pedraza, (CA). There is no legal obstacle for the
owner to allow a defaulting tenant to remain in the rented
property one month, one year or even more. That consent,
no matter how long it may last, makes the tenant’s
possession lawful. Only when that consent is withdrawn and
the owner demands the tenant to leave the property is
when the owner’s right of possession is asserted and the
tenant’s refusal or failure to move out makes his possession
unlawful, because it is violative of the owner’s preferential
right of possession.
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.
Presumption of Receipt of thing Leased in Good Condition (Art.
1666)
 The presumption is merely prima facie. The lessee may
prove the contrary.
 No such presumption arises where there is a statement or
representation, written or oral, concerning the actual
condition of the thing at the time the lease was constituted.
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.
Responsibility of Lessee for Deterioration or Loss of Thing Leased
GR: The lessee is responsible on the presumption that he is guilty
of fault or negligence. Hence, the burden of proof is upon the
lessee to overcome the presumption.
XPN: There is no presumption when the destruction is due to a
natural calamity. In such case, it is unjust to impose upon the
lessee the burden of proving due diligence. It is more probable
that the lessee was not negligent. The burden of proving that the
lessee was negligent lies on the lessor.
(1) Santos v. Villegas, (CA). In the absence of proof that the
current of the river was so swift that the collision was
unavoidable, or that the wind that blew was strong and
unexpected which carried inevitably the craft to the scow
causing one to collide with the other, we cannot accept the
theory that the sinking was caused by a fortuitous event.
The burden is upon the defendants to show that there was
no negligence on their part or on the part of their agent, for
such negligence is presumed from the mere sinking of the
craft.
(2) Lizares v. Hernaez, (1920). When a question arises as to the
responsibility of a lessee for the loss of the thing leased
resulting from fire, and the trial court finds that reasonable
precautions were taken by the lessee to prevent fires, but
that nevertheless a fire did occur, of inscrutable origin which
destroyed the property in spite of all reasonable efforts that
could be put forth to prevent it, this is equivalent to a
finding that lessee was without fault and that the loss was
due to an inevitable cause.
 Ordinarily, fire is not a natural calamity. It is not mentioned
in Art. 1667. The lessee must prove he was without fault.
(3) Lizares v. Hernaez, (1920). When a loss of leased property
occurs, there is a presumption against the lessee, which
makes him responsible, in the absence of proof that the loss
happened without his fault. But the question whether there
has been fault on his part must be determined in relation
with other provisions of the Civil Code as well as in the light
of the general principles of jurisprudence. Under Art. 1665,
the lessee of lands is not responsible for a loss resulting from
inevitable cause: and in Art. 1174 the general rule is
declared that, in the absence of express provision to the
 contrary, no one is liable for events which cannot be
foreseen or which, if foreseen, were inevitable.
(4) Gonzales v. Mateo, (1942). Under a stipulation in a lease
contract that the lessee would be responsible for necessary
repairs on the building leased, the failure of the lessee to
make the repairs which caused the eventual destruction of
the building, renders him liable to the lessor.
Art. 1668. The lessee is liable for any deterioration caused by
members of his household and by guests and visitors.
Deterioration Caused by Others (Art. 1668)
 He is made legally responsible for their acts as in quasi-
delicts (Arts. 2176, 2180.) under the principle of “command
responsibility.’’
Tolentino. The liability of the lessee for the acts of third persons is
based on the contract itself, under which the lessee has assumed
custody of the thing of which the lessor has been dispossessed.
There is no need of proving that he was negligent in selecting and
supervising his household helpers, visitors and guests. He is liable
from the mere fact of having allowed them into the immovable
leased.
 The law makes no distinction between intentional and
negligent acts of the third persons. The lessee, however,
may recover from them what he has paid in satisfaction of
the claim of the lessor.
Art. 1669. If the lease was made for a determinate time, it ceases
upon the day fixed, without the need of a demand.
Lease Made for a Determinate Time (Art. 1669)
(1) Bulahan v. Tuason, (1960). When the lessee refuses to pay
the new rent but continues in his possession of the
premises, he becomes a deforciant withholding the property
unlawfully.
Vda v. De Nunga v. Chan, (1968). But if he agrees to pay the
increased rent, he cannot be ejected until he fails to comply with
said obligation.
(2) Ramon Catholic Archbishop of Manila v. De Ocampo, (CA).
The continuous possession of the leased premises after the
end or expiration of the time fixed in the contract, with the
acquiescence of the lessor, constitutes an implied renewal of
the lease, not for the period of the original contract, but for
the time established in Art. 1682 and 1687, so that if rentals
were stipulated to be paid monthly, the new lease is
deemed to have been renewed from month to month and
may be terminated each month upon demand.
(3) De Santos v. Vivas, (1955). Under Rule 71, Sec. 2, ROC, a
demand on the lessee is a prerequisite to an action for
unlawful detainer, when the action is ‘for failure to pay rent
due or to comply with the conditions of his lease,’ and not
where the action is to terminate the lease because of the
expiration of its term.
(4) Laguda v. Javellana, (CA). In a contract of lease of urban
property for an indefinite period, a notice to increase the
rent is equivalent to a notice of the termination of the
contract.
(5) Ducusin v. CA, (1983). Where a lease contract expressly
stipulates that the lessor may terminate the lease when his
children shall need the same, the lease shall be deemed
terminated when the condition happens.
Madriaga v. CA, (1988). When the agreement between the lessor
and the lessee is that the lease is only temporary and that it may
be terminated in case the former needs the same for business, the
lease is deemed terminated when the lessee is notified
accordingly.
Extension or Renewal of Lease
(1) Authority of Court
Gindoy v. Tapucar, (1977). A court is without authority to extend
a lease where the stipulated period of the contract has already
expired, especially if the lessor is unwilling to extend the same.
Such extension is completely devoid of legal basis
(2) Lease NOT to be Deemed Extended or Renewed by
Implication
Ramon Magsaysay Award Foundation v. CA, (1985). Where a
lease contract expressly stipulates that the lease shall not be
deemed extended or renewed by implication beyond the
contractual period for any cause or reason whatsoever but only by
negotiations, the mere fact that the lessee was willing to pay what
he claimed to be a reasonable rent — which was less than that
demanded by the lessor — did not operate in any sense to extend
the lease. To hold that there had been such implied renewal of
the lease simply because the lessee continued to occupy the
premises after the expiration of the fixed period of the lease,
would lead to the absurd consequence that all that an overstaying
lessee would have to do to defeat the right of the lessor to change
the prevailing rentals would be to resist and delay the ejectment
action
(3) Lease Extendible for a Similar Period
Cruz v. Alberto, (1919). A stipulation that a lease is “extendible’’
for a further similar period is to be understood as giving the lessee
the right to the additional period or to quit upon the expiration of
the first term. The word “extendible’’ standing without
qualification in a contract of lease means that the term of the
lease may be extended and is equivalent to a promise by the
lessor to extend and as a unilateral stipulation obliges the lessor
to fulfill his promise. As a general rule, in construing such a
provision, where there is an uncertainty or doubt, the lessee is
favored, and not the lessor, because the latter, having the power
of stipulating in his favor, has neglected to do so; and upon the
principle that a grant should be taken most strongly against the
grantor.
(4) Lease Renewable at Option of Both Parties
Fernandez v. CA, (1988). A stipulation that the lease of a parcel of
land will be “renewable for another 10 years at the option of both
parties under such terms, conditions and rentals reasonable at the
time,’’ means that there should be mutual agreement as to the
renewal of the lease.
(5) Option to Renew Given to Lessor
Ong Ching v. Ramolete, (1973). In Cruz and Koh, the option to
renew the lease was given to the lessee. If the option is given to
the lessor, the lessee cannot renew the lease against the former’s
refusal. The lease is deemed terminated.
(6) Extension Exclusively for The Benefit of Lessor
Litao v. National Assoc. of Retired Civil Employees, (1963). The
stipulation in a lease contract extending the lease term beyond
that originally agreed upon, in order to save the lessor the trouble
of reimbursing the lessee in cash for the expenses incurred on the
leased premises was exclusively for the benefit of the lessor;
hence, the latter has the right to terminate the lease upon the
expiration of the original period, or at any other time thereafter,
by tendering to the lessee, or consigning to the court, the
outstanding balance of his expenditures. The lessor should be
given the option to either reimburse the balance of the
expenditures or demand that the lessee should account for and
credit the lessor for the fruits of the properties since the
expiration of the lease against the balance due to the lessee,
turning over any excess to the lessor.
(7) Option to Renew Given to Lessee
Gustillo v. CA, (1983). Where a lessee is given the option to
continue or renew the contract of lease and is silent upon the
rentals, the old terms are to be followed in the renewed lease.
Ledesma v. Javellana. A covenant to renew a lease which makes
no provision as to the terms of the extension or renewal implies
an extension or renewal upon the same terms as provided in the
original lease.
The continued possession of the lessee is evidence of his exercise
of the option to extend the lease. There is no necessity to notify
the lessor of the extension in the absence of stipulation to the
contrary.
Illustrative Case:
Roxas v. Alcantara, (1982). Before the expiration of the lease, the
lessor communicated to the lessee the terms and conditions
under which the lease shall be renewed but after the lease
expired, the lessor accepted a month’s payment of rent sent by
the lessee, which is less than the amount the lessor had indicated
to the lessee.
(1) Right of Lessor to Fix Rents
In the case of Lim Si vs. Lim (1956), this Tribunal categorically
stated: ‘Only the owner has the right to fix the rents. The court
cannot determine the rents and compel the lessor or owner to
conform thereto and allow the lessee to occupy the premises on
the basis of the rents fixed by it.
A subsequent case, that of Bulahan, et al. vs. Tuason (1960), is
almost on all fours with the case at bar. There, the lease contracts
were to expire on December 31, 1953. As early as January of the
same year, therein lessors sent letters to the lessees reminding
them of the expiry date of their lease contracts and offering to
renew the same at an increased rental. The lessees, however,
ignored the proposed terms for the renewal of the lease
contracts, and after the expiration thereof, they continued to
occupy the premises but refused to pay the new rent fixed by the
lessors. The lessees filed an action for the court to fix a reasonable
rental and a reasonable duration for the lease of the properties
there in question. Holding for the lessors, this Court ruled as
follows:
‘The rule is settled that the owner of the land leased has the right
not only to terminate the lease at the expiration of the term, but
also to demand a new rate of rent. The tenant or lessee has the
option either to accept the new rent or vacate the premises. As
(lessees), after the termination of their lease, refused either to
pay the new rent or to vacate the lots after the termination of
their lease, they have evidently become deforciants, and can be
ousted judicially without the need of a demand.’
The Bulahan ruling is reiterated in the more recent case of Gindoy
vs. Hon. Tapucar. (1977)
The case of Velasco vs. Court of Agrarian Relations and Domingo
(1960) cited by respondent Court of First Instance is not in point.
It involved a contract of lease of a parcel of agricultural land, the
existence of which agreement was not disputed by the parties. It
was a case of reformation of such contract voluntarily entered
into on the ground that the rental agreed upon was excessive. It
had nothing to do with the right of a lessor to demand an increase
in rental as a condition for a renewal of a lease contract.
Likewise, the cases of Peligrino vs. General Base Metals, Inc.,
(1971) Teresa Realty, Inc. vs. Sison (1962), and the five Tuason
cases in (1960), cited by respondent Court of First Instance, do not
support its ruling that the court has the authority to fix a
reasonable rental when the lessor tries to demand, after the
termination of a lease contract, an exorbitant rental for the
renewal of the lease.
In Peligrino, the contract of lease was for an indefinite period and
the rents agreed upon were payable on a monthly basis. The
company that acquired the lease-hold rights of the original lessee
refused to pay the increased rental demanded by the lessor. This
Court held that the company was entitled to have its right of
possession extended for one year, and reduced the increased
rental which it found to be excessive. In the instant case, on the
other hand, the contract of lease is for a definite term of ten (10)
years which had already expired, and respondent-lessee has not
shown any right to continue in possession of the premises owned
by petitioner.
In the case of Teresa Realty, Inc., this Court affirmed the trial
court’s finding that the increased rental demanded by the lessor
was reasonable for it represented only 12% of the assessed value
of the leased property. Such a finding was, however, made by the
Court only for the purpose of determining how much therein
lessee Sison should pay the lessor Teresa Realty, Inc. as rental for
the period during which the case remained pending final decision,
and not for the purpose, as in the case at bar, of fixing the rent to
be paid by the lessee during a supposed extension or renewal of
the lease contract.
The aforementioned Tuason cases are inapplicable for
substantially the same reason as the Peligrino case, i.e., the
Tuason lease contracts were not for a fixed period but from year
to year. This Court held that “if at the end of the year, the owner
demands a rental which is exorbitant, the courts may determine
what is a reasonable rental and allow the lessee to continue with
the lease. (1960)
According to [the] Court, petitioner’s statement in his letter to
private respondent dated August 11, 1977, Exh. C, that ‘If I will not
receive a reply within 15 days from date of your receipt, it is
understood that you are amenable, and I will no longer accept any
other offers for the lease of the building,’ coupled with the
circumstance that petitioner in fact did not lease the property to
another person after September 30, 1977, and further, that
private respondent paid P550.00, the monthly rental paid for the
month of October, 1977, taken together all lead to the conclusion
that the ten-year lease contract entered into on October 16, 1967
was tacitly renewed. The Court of First Instance also stated thus:
‘(that petitioner) did not return the check to the (private
respondent) . . . shows he was agreeable to the renewal of the
terms of the lease contract for another ten (10) years.’
We do not agree. Petitioner’s letter of August 11, 1977 was a
reminder to private respondent of the impending expiration of
the lease contract, with a statement that was in effect an offer or
proposal to renew the contract on the terms and conditions,
namely: (1) that the rental would be P4,000.00 a month; (2) that
three years advance rental should be paid by private respondent;
and (3) that a 15% yearly increase in rental would be imposed. In
other words, petitioner laid down the foregoing stipulations as
conditions sine qua non for any subsequent contract that might
be negotiated with private respondent. Thus clear from the letter,
is that if private respondent were not agreeable to any or all of
the new stipulations, there would be no renewal of the lease.
Private respondent was to communicate his reply within fifteen
(15) days from receipt of Exh. C, absent which petitioner would
take it to mean that his conditions were acceptable to private
respondent and their contract renewed on the specified terms.
However, private respondent’s letter, Exh. F, evidently posted
before the expiration of the period allowed within which to
decide, did not give a categorical affirmative or negative answer
to petitioner’s proposition, and merely manifested the said
lessee’s desire to study the matter until the end of the following
month of September, 1977, or up to the termination of the then
existing contract of lease.
Petitioner’s failure to reply to the letter, Exh. F, can only be taken
to mean that he acceded to the request for additional time. For
the obvious reason that the lease contract was expiring, it became
more imperative for private respondent to make a final decision
within and not later than the extended period which he asked for.
Thus, when petitioner did not hear from private respondent at the
end of the aforesaid month of September, private respondent
ceased to have any legal right to possess and occupy the premises
in question commencing the first day of the following month of
October.
That the petitioner did not lease the property to another is
understandable, as he had no idea as to when private respondent
intended to vacate the premises. Thus, although petitioner might
have had offers from third persons, circumstances beyond his
control held him back from finalizing any kind of agreement
involving the property in question.’’
(2) Effect of acceptance of the P500.00 check
“Likewise, petitioner’s acceptance of the P500.00 check
supposedly to answer for the rental for the month of October,
1977, cannot be taken against him. As in the case of Hautea vs.
Magallon and Soriano (1964), such acceptance is irrelevant to the
issue. This is an ejectment case premised on the expiration of the
lease contract between the parties, and not on any alleged
violation of a lease contract for non-payment of rent. Moreover,
petitioner had no other choice but to keep the check sent to him.
Private respondent, after all, continued to stay in the premises
and use the same for his hardware and construction materials
business.’’

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.
Implied New Lease
(1) When It Takes Place
 An implied new lease (tacita reconduccion) arises when the
lessee, with the acquiescence of the lessor, holds over after
the expiration of the contract of lease, under the same
terms and conditions except that instead of the original
period, the period of the new lease will be according to the
character of the property and mode of payment of the rent,
i.e., that established in Art. 1682 (rural lease) whose period
extends to one (1) year or period necessary to gather the
fruits or in Art. 1687 (urban lease) whose period depends
upon the periods of payment.
 Thus, where the rent for a 10-year period lease which has
expired was paid monthly, the implied new lease must be
deemed from month to month and may be terminated after
each month.
2011 Bar, Q. (46): The term of a 5-year lease contract between X
the lessor and Y the lessee, where rents were paid from month
to month, came to an end. Still, Y continued using the property
with X’s consent. In such a case, it is understood that they
impliedly renewed the lease
(a) from month to month under the same conditions as to the
rest.
(b) under the same terms and conditions as before.
(c) under the same terms except the rent which they or the
court must fix.
(d) for only a year, with the rent raised by 10% pursuant to the
rental control law.
1999 Bar, Q. XIV(b): Under what circumstances would an implied
new lease or a tacita reconduccion arise?
A: An implied new lease or tacita reconduccion 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, and unless
a notice to the contrary by either parties has previously been
given (Art. 1670).
In short, in order that there may be tacita reconduccion there
must be expiration of the contract; there must be continuation of
possession for 15 days or more; and there must be no prior
demand to vacate.
(2) Terms Which Are Revived
Dizon v. Magsaysay, (1974). The original terms of the original
contract which are revived are only those which are germane to
the lessee’s right of continued enjoyment of the property leased
or related to such possession, such as the amount of rental, the
date when it must be paid, the care of the property, the
responsibility for repairs, etc. No such presumption may be
indulged in with respect to special agreements (e.g., preferential
right given to lessee to purchase leased property) which by their
nature are foreign to the right of occupation or enjoyment
inherent in a contract of lease.
(3) Requisites
(a) The term of the original contract of lease are:
(b) The lessee continues enjoying the thing leased for at least 15
days;
(c) The continuation of the occupation by the lessee is with the
acquiescence of the lessor; and
(d) The lessor or lessee has not previously given a notice to
vacate
Tagbilaran Integrated Settlers Assoc. v. CA, (2004). The notice
required under Art. 1670 is the one given after the expiration of
the lease period for the purpose of aborting an implied renewal of
lease. The notice to vacate constitutes an express act on the part
of the lessor that he no longer consents to the continued
occupation by the lessee of the leased property.
 A lessor who gives notice after the 15-day period has no
cause of action for unlawful detainer as there is already an
implied new lease.
Instances When Implied Renewal NOT Applicable
(1) Stipulation Against Implied Renewal
Ramon Magsaysay Award Foundation v. CA, (1985). There can be
no implied renewal of the lease where the parties stipulated that
there would be no renewal by implication.
Agaloos v. IAC, (1985). There can be no implied renewal where
the renewal requires mutual consent.
(2) Invalidity of Original Lease
Estate of J. Santos v. De Veyra, (1969). Where the original lease
was declared void for being repugnant to the Constitution and the
lessor and the lessee could not agree on the rental to be paid, the
acceptance by the former of monthly payments from the latter
with reservation or condition cannot be considered as evidence of
an implied new lease.
(3) Acceptance of Rentals Beyond Original Term
Torres v. CA, (1992). The acceptance of rentals beyond the
original term by the lessor who had previously informed the
lessee that she was not renewing the lease and, in fact, later
demanded the lessee to vacate the property, did not signify that
she had agreed to the implied renewal of the lease where the
lessee remained in possession and had to pay rentals for the use
of the property. Instead of implied renewal, there was an express
termination of the contract of lease.
(4) Acceptance of Rentals Less Than Amounts Stipulated
Uichangco v. Laurilla, (1960). The fact that the lessor had
accepted partial payments from the lessee, in amounts less than
the stipulated monthly rentals, may not be considered as a
renewal of lease contract. While a lessor may tolerate the
continued default of the lessee, hoping that the latter would
eventually pay all his back rentals, said lessor could not very well
refuse to accept payments by the lessee just because they did not
cover full unpaid rentals. That would have been unwise and
unbusiness-like. If he did that, he might get nothing from his
delinquent lessee.
2001 Bar, Q. XIV: On January 1, 1980, Nestor leased the fishpond
of Mario for a period of three (3) years at a monthly rental of
P1,000.00, with an option to purchase the same during the
period of the lease for the price of P500,000.00.
After the expiration of the three-year period, Mario allowed
Nestor to remain in the leased premises at the same rental rate.
On June 15, 1983, Nestor tendered the amount of P500,000.00
to Mario and demanded that the latter execute a deed of
absolute sale of the fishpond in his favor.
Mario refused, on the ground that Nestor no longer had an
option to buy the fishpond. Nestor filed an action for specific
performance.
Will the action prosper or not? Why?
A: No, the action will not prosper. The implied renewal of the
lease on a month-to-month basis did not have the effect of
extending the life of the option to purchase which expired at the
end of the original lease period. The lessor is correct in refusing to
sell on the ground that the option had expired.
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.

Continuous Possession by Lessee Over Lessor’s Objection
 The lessee may, with the acquiescence of the lessor,
continue enjoying the thing leased after the expiration of the
contract and thereby create an implied new lease. (Art.
1670)
 If he continues the lease over the objection of the lessor, he
becomes a possessor in bad faith and subjects himself to the
liabilities of such possessor.
 The remedy of the lessor is to bring an action of unlawful
detainer to recover possession of the premises and the rents
or fair rental value of the premises.
Damages in Forcible Entry and Unlawful Detainer Cases
(1) While damages may be adjudged in forcible and detainer
cases, these damages mean “rents’’ or “the reasonable
compensation for the use and occupation of the premises,’’
or “fair rental value of the property.”
(a) Profits which the plaintiff might have received were it not
for the forcible entry or detainer do not represent a fair
rental value. Although Section 1 of Rule 70 uses the word
“damages,’’ the authors of the Rules of Court in drafting
Section 6 (now Sec. 17) of Rule 70 on the judgment to be
pronounced, eliminated the word “damages,’’ placing in lieu
thereof, the word “reasonable compensation for the use and
occupation of the premises.’’
(b) Baens v. CA, (1983). The damages which a plaintiff expects
to obtain from his business to be located in the premises, or
for material injury caused to the premises cannot also be
claimed in connection with or as incidental to an action of
illegal detainer or forcible entry. Actual moral and exemplary
damages are different from rentals or “reasonable
compensation for the use and occupation of the premises,’’
hence, they cannot be awarded.
(2) Asian Transmission Corp. v. Canlubang Sugar Estates,
(2003). Fair rental value is recoverable in the concept of
actual damages. It is clear from Section 17 of Rule 70 that
the trial court is empowered to award reasonable
compensation only if the claim is true. In fixing the
reasonable amount of rent, the court must base its action on
the evidence adduced by the parties. Fair rental value has
been defined as the amount at which a willing lessee would
pay and a willing lessor would receive, for the use of certain
property neither being under compulsion and both parties
having a reasonable knowledge of all facts, such as the
extent character and utility of the property, sales and
holding prices of similar land and the highest and best use of
the property.
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.
Effect of Implied New Lease on Accessory Obligations Contracted
by a Third Person
 The renewal of the lease is, in effect, a novation of the
original contract of lease. (Art. 1291)
 The renewal of lease is considered a new lease. The general
rule is that when the principal obligation is extinguished in
consequence of a novation, accessory obligations (e.g.,
guaranty) are also extinguished. (Art. 1296)
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 Art. 1657, as regards the use thereof.
The ejectment of tenants of agricultural lands is governed by
special laws.
Causes for Judicial Ejectment of Lessee (Art. 1673)
 With respect to tenants of agricultural lands, their ejectment
is governed by special laws. (Art. 1684)
(1) Chua v. Victorio, (2004). Art. 1673 must be read in
conjunction with Section 2, Rule 70, ROC, which provides
that a demand to pay or to comply with the conditions of
the lease and to vacate the premises is a condition
precedent for the institution of an ejectment suit against the
lessee. The import of these provisions is to grant the lessor
the option of extrajudicially terminating the lease by simply
serving a written notice upon the lessee. This extrajudicial
termination has the same effect as rescission. Thus, in Dio
vs. Concepcion (1998), reiterating the ruling in Vda. De
Pamintuan vs. Tiglao (1929), it was explained that the
rescission of lease of contracts under Art. 1659 is not one
that requires an independent action, unlike resolution of
reciprocal obligations under Art. 1191, CC.
(2) Lanuza v. Munoz, (2004). Section 2, Rule 70 is applicable
only where there is a lessor-lessee relationship under a
contract of lease and only in instances where the grounds
relied upon for ejectment is non-payment of rentals or
violation of any of the conditions of the lease. In such
situations, notice to vacate is crucial. A demand is a
prerequisite to an action for unlawful detainer where the
action is based on either ground but not where the action is
to terminate the lease because of the expiration of its term.
Expiration of the Period
The period in a contract of lease may be:
(a) Conventional or that fixed by agreement of the parties;
(b) Legal or that fixed by law in accordance with Art. 1682 in
case of rural leases and Art. 1687 in case of urban leases
(1) Santos v. CA, (1984). Ejectment lies without the need of a
demand, when the period of the lease has expired. The
notice of the lessor is immaterial.
Zarroga v. Sleeper, (1913). He is free to dispose of the leased
property to another lessee.
(2) Lesaca v. Cuevas, (1983). A lease on a month-to-month basis
is for a definite period and may be terminated at the end of
any month.
Cruz v. Puno, (1983). It is valid for the parties to stipulate that
either party may terminate a month-to-month lease on a 30-day
notice.
(3) Dakudao v. Consolacion, (1983). The lessee must restore
possession of the leased property after the expiration of the
stipulated period. The unlawful holding or deprivation of
possession is to be counted from the date of the demand to
vacate.
Pharma Industries, Inc. v. Pajarilla, (1980). Prior possession of the
plaintiff is not necessary in an unlawful detainer case.
(4) Prieto v. Reyes, (1965). Possession of land by tolerance
becomes an unlawful detainer, from the time a demand to
vacate is made.
(5) Murga v. Chan, (1968). A notice giving the lessee the
alternative either to pay the increased rental or otherwise to
vacate the leased premises is not the demand contemplated
in an unlawful detainer case. The demand to vacate must be
definite, subject to no condition; otherwise, the lessor
cannot bring the action of unlawful detainer.
(6) Golden Gate Realty Corp. v. IAC, (1987). A lessor’s letter to
the lessee demanding payment of back rentals, and that if
the latter failed to pay, an ejectment suit would be filed
against him is a sufficient notice. The omission of the word
“vacate’’ in the notice is immaterial.
(7) Magen v. Avelino, (1984). It is not a valid defense in
ejectment cases that the lessor refused to receive the rent.
The lessee must consign in court the rent due from him.

Lack of Payment of Stipulated Rental
 The lessee is obliged to pay the price of the lease according
to the terms stipulated. (Art. 1657(1))
 His failure to comply with this principal duty entitles the
lessor to ask for rescission of the lease or fulfillment, with
right to damages in either case. (Art. 1659)
(1) Zobel v. Abreu, (1955). Mere failure to pay rents, or a
breach of contract to pay rents, does not render the
possession of the lessee per se unlawful, nor may the action
for his ejectment from the land accrue upon such failure or
breach. In accordance with Section 2, Rule 70 of the Rules of
Court, the right to bring the action of ejectment or unlawful
detainer must be counted from the time the defendant has
failed to pay rents as agreed upon in a contract, but it is the
failure to pay the rents after a demand therefor is made that
entitles the lessor to bring an action of unlawful detainer.
(2) Belmonte v. Marin, (1946). If the default in the payment of
rent is based on the fact that the rent sought to be collected
is not that agreed upon, an action for ejectment will not lie.
(3) Iturralde v. Garduno, (1907). A lessor has the right to
increase the rent from and after the expiration of the period
of lease, and if the tenant thereafter remains in possession
without agreeing to the increase, he is bound to pay the
reasonable value of the use and occupation of the property
leased. This reasonable amount is a question of evidence
(4) Cortez v. Ramos, (1924). The lessor has the right not only to
terminate the lease at the expiration of the term, but to
demand a new rate of rent. The question whether or not the
new rate of rent fixed by the owner is reasonable must be
decided according to the evidence. The testimony of the
owner that another person was willing to lease the property
at an annual rent equal to that demanded by the plaintiff of
the defendant, is prima facie proof that the new rate of rent
demanded by him is reasonable.
(5) Chua v. Victorio, (2004). Where the lessee refuses to pay
the stipulated rentals and the lessor initiates an ejectment
suit, the juridical bond between the parties is severed. They
cease to be connected by the link of a lessor-lessee relation.
No amount of subsequent payment by the lessee can
automatically restore the parties to what they once were.
Nor will the lessor’s acceptance of the increased rentals
have the effect of reviving the earlier contract of lease. Upon
the moment of acquiescence by the lessor to the increased
amount, an entirely new contract of lease is entered into,
forging an entirely new juridical relation.
1994 Bar, Q. VIII(1): In January 1993, Four-Gives Corporation
leased the entire twelve floors of the GQS Towers Complex, for a
period of ten years at a monthly rental of P3,000,000.00. There is
a provision in the contract that the monthly rentals should be
paid within the first five days of the month. For the month of
March, May, June, October and December 1993, the rentals
were not paid on time with some rentals being delayed up to ten
days. The delay was due to the heavy paper work involved in
processing the checks.
Four-Gives Corporation also subleased five of the twelve floors
to wholly-owned subsidiaries. The lease contract expressly
prohibits the assignment of the lease contract or any portion
thereof. The rental value of the building has' increased by 50%
since its lease to FourGives Corporation.
Can the building owner eject Four-Gives Corporation on grounds
of the repeated delays in the payment of the rent?
A:
(a) The “repeated delays" in the payment of rentals would, at
best, be a slight or casual breach which does not furnish a
ground for ejectment especially because the delays were
only due to heavy paper work. Note that there was not even
a demand for payment obviously because the delay lasted
for only-a few days (10 days being the longest), at the end of
which time payments were presumably made and were
accepted. There was, therefore, no default. Note also that
there was no demand made upon the lessee to vacate the
premises for non-payment of the monthly rent.” There is,
therefore no cause of action for ejectment arising from the
“repeated delays”
(b) The buildipg owner cannot eject Four-Gives Corporation on
the ground of repeated delays in the payment of rentals. The
delay in the payment of the rentals is minimal and cannot be
made the basis of an ejectment suit. The delay was due to
the heavy paper work involved in processing the checks. It
would be otherwise if the lease contract stated that in the
payment of rentals within the first five days of the month,
time is of the essence or that the lessee will be indelay if he
fails to pay within the agreed period without need of
demand. In this case he can judicially eject the tenant on the
ground of lack of payment of the price stipulated after a
demand to vacate. (Art. 1673(2), CC).
(c) No. Resolution of a contract will not be permitted for a slight
or casual breach, but only for such substantial and
fundamental breach as would defeat the very object of the
parties in making the agreement. (Zepeda v. CA). The delay
of ten (10) days is not such a substantial and fundamental
breach to warrant the resolution of the contract of lease
specially so when the delay was due to the heavy paperwork
in processing the checks.
Violation of Any Condition Agreed Upon
(1) A violation of any such conditions, etc. agreed upon would
constitute breach of the lease contract. Thus, a violation by
the lessee of the prohibition against devoting the property
to a use not stipulated in the contract, or introducing
improvements without the consent of the lessor, is enough
ground to eject the lessee.
(2) A demand is a prerequisite in an action of unlawful
detainer when it is for failure to comply with any of the
conditions of the lease, but not when that action is to
terminate the lease because of the expiration of the term.
(Art. 1669)
(3) Consing v. Jamadre, (1975). A lease contract may validly
stipulate that the lessor may take possession of the leased
premises without resorting to judicial action, upon failure
of the lessee to comply with any of the terms and
conditions of the contract.
(4) Intramuros Administration v. Contacto, (2003). When a
lease provides for the payment of the rent in installments,
each failure to pay an installment is a separate cause of
action. In an action upon such a lease for the recovery of
rent, all installments due and demandable at the time the
action is brought, should be pleaded, and failure to do so will
constitute a bar to a subsequent action for the payment of
that rent.
Improper Use of the Leased Property
 The second principal duty of the lessee is to use the thing
leased, exercising the diligence of a good father of a family,
according to the terms of the contract, or in the absence of
stipulation, the nature of the thing leased. (Art. 1657[2])
 It is his duty to return the thing, upon the termination of the
lease, just as he received it. (Art. 1665)
 The law presumes that he received it in good condition. (Art.
1666)
 Without the duty to take care of the thing, the lessee would
not be liable even if it is lost or destroyed through his fault
or negligence, thus rendering illusory the obligation to
return.
Regulation of Rentals of Certain Residential Units
 A number of laws have been enacted freezing rentals for a
certain period of time at their current level for the benefit of
the lower income group.
 The common feature of these laws is the suspension of the
application of par. (1) of Art. 1673, CC (except when the
lease is for a definite period) during the period of their
effectivity, to lease of a dwelling unit or of land on which
another’s dwelling is located.
(1) P.D. 20 (Oct. 12, 1972) which amended R.A. No. 6359,
prohibits the increase of the monthly rental agreed upon
between the lessor and the lessee when said monthly rental
does not exceed P300.00.
(2) B.P. Blg. 25 (April 10, 1979) prohibits for a duration of five
(5) years from its effectivity, the increase of monthly rentals
of all residential units not exceeding P300.00, for any one (1)
 year period, by more than 10% of the monthly rentals
existing at the time of the approval of the Act.
(3) B.P. Blg. 877 (June 6, 1985) provides that beginning July 1,
1985 and for a duration of two and half years thereafter
ending December 31, 1987, monthly rentals of all residential
units not exceeding P480 shall not be increased by the lessor
by more than 10% in 1985, 20% in 1986 and 20% in 1987,
which increases shall be cumulative and compounded.
(4) R.A. No. 6643 (Dec. 28, 1987) extends the effectivity of B.P.
Blg. 877 for another two (2) years, fixing the allowable
maximum increase for the two-year period to not more than
20% in 1988 and 20% in 1989, which increases shall be
cumulative and compounded.
(5) R.A. No. 7644 (Dec. 28, 1992) extends the effectivity of B.P.
Blg. 877 for five (5) years, fixing the allowable maximum
increase for the five-year period from 1993 to 1997 at 20%
yearly, which increases shall be cumulative and
compounded.
(6) R.A. No. 8437 (Dec. 22, 1997) extends the effectivity of B.P.
Blg. 877 for four (4) years, fixing the allowable maximum
increase for the four-year period from 1998 to 2001 at 15%
yearly, which increases shall be cumulative and
compounded.
R.A. 9161: Rental Reform Act of 2002
Sec. 1. Short Title – This Act shall be known and cited as the
“Rental Reform Act of 2002.’’
Sec. 2. Declaration of Policy – The State shall, for the common
good, undertake a continuing program of urban land reform and
housing which will make available at affordable cost decent
housing and basic services to underprivileged and homeless
citizens in urban centers and resettlement areas.
Toward this end, the State shall establish reforms in the regulation
of rentals of certain residential units.
Sec. 3. Monthly Rentals and Maximum Increases – Beginning 01
January 2002 and for a duration of three (3) years thereafter
ending on 31 December 2004, the monthly rentals of all
residential units in the National Capital Region and other highly
urbanized cities not exceeding Seven thousand five hundred pesos
(P7,500.00) and the monthly rentals of all residential units in all
other areas not exceeding Four thousand pesos (P4,000.00) shall
not be increased annually by the lessor, without prejudice to
existing contracts, by more than ten percent (10%).
Sec. 4. Definition of Terms – The following terms as used in this
Act shall be understood as:
(a) “Rental” shall mean the amount paid for the use or
occupancy of a residential unit whether payment is made on
a monthly or other basis.
(b) “Residential unit” shall refer to an apartment, house and/or
land on which another’s dwelling is located and used for
residential purposes and shall include not only buildings,
parts or units thereof used solely as dwelling places,
boarding houses, dormitories, rooms and bedspaces offered
for rent by their owners, except motels, motel rooms,
hotels, hotel rooms, but also those used for home industries,
retail stores or other business purposes if the owner thereof
and his or her family actually live therein and use it
principally for dwelling purposes.
(c) “Immediate members of family of the lessee or lessor” for
purposes of repossessing the leased premises, shall be
limited to his or her spouse, direct descendants or
ascendants, by consanguinity or affinity.
(d) “Lessee” shall mean the person renting a residential unit.
(e) “Owner/Lessor” shall include the owner or administrator or
agent of the owner of the residential unit.
(f) “Sublessor” shall mean the person who leases or rents out a
residential unit leased to him by an owner.
(g) “Sublessee” shall mean the person who leases or rents out a
residential unit from a sublessor.
(h) “Assignment of lease” shall mean the act contemplated in
Article 1649 of the Civil Code of the Philippines.
Sec. 5. Rental and Deposit – Rental shall be paid in advance within
the first five (5) days of every current month or the beginning of
the lease agreement unless the contract of lease provides for a
later date of payment. The lessor cannot demand more than one
(1) month advance rental and two (2) months deposit.
Sec. 6. Assignment of Lease or Subleasing – Assignment of lease
or subleasing of the whole or any portion of the residential unit,
including the acceptance of boarders or bedspacers, without the
written consent of the owner/lessor is prohibited.
Sec. 7. Grounds for Judicial Ejectment – Ejectment shall be
allowed on the following grounds:
(a) Assignment of lease or subleasing of residential units in
whole or in part, including the acceptance of boarders or
bedspacers, without the written consent or the
owner/lessor;
(b) Arrears in payment of rent for a total of three (3) months:
Provided, that in the case of refusal by the lessor to accept
payment of the rental agreed upon, the lessee may either
deposit, by way of consignation, the amount in court, or
with the city or municipal treasurer, as the case may be, or
in a bank in the name of and with notice to the lessor, within
one (1) month after the refusal of the lessor to accept
payment.
The lessee shall thereafter deposit the rental within ten (10) days
of every current month. Failure to deposit the rentals for three (3)
months shall constitute a ground for ejectment. If an ejectment
case is already pending, the court upon proper motion may order
the lessee or any person or persons claiming under him to
immediately vacate the leased premises without prejudice to the
continuation of the ejectment proceedings. At any time, the lessor
may, upon the authority of the court, withdraw the rentals
deposited.
The lessor, upon authority of the court in case of consignation or
upon joint affidavit by him and the lessee to be submitted to the
city or municipal treasurer and to the bank where deposit was
made, shall be allowed to withdraw the deposits;
(c) Legitimate need of the owner/lessor to repossess his or her
property for his or her own use or for the use of any
immediate member of his or her family as a residential unit:
Provided, however, That the lease for a definite period has
expired: Provided, further, That the lessor has given the
lessee formal notice three (3) months in advance of the
lessor’s intention to repossess the property and: Provided,
finally, That the owner/lessor is prohibited from leasing the
residential unit or allowing its use by a third party for a
period of at least one year from the time of repossession;
(d) Need of the lessor to make necessary repairs of the leased
premises which is the subject of an existing order of
condemnation by appropriate authorities concerned in order
to make the said premises safe and habitable: Provided, That
after said repair, the lessee ejected shall have the first
preference to lease the same premises: Provided, however,
That the new rental shall be reasonably commensurate with
the expenses incurred for the repair of the said residential
unit and: Provided, finally, That if the residential unit is
condemned or completely demolished, the lease of the new
building will no longer be subject to the aforementioned
first-preference rule in this subsection; and
(e) Expiration of the period of the lease contract.
Sec. 8. Prohibition Against Ejectment by Reason of Sale or
Mortgage – No lessor or his successor-in-interest shall be entitled
to eject the lessee upon the ground that the leased premises have
been sold or mortgaged to a third person regardless of whether
the lease or mortgage is registered or not.
Sec. 9. Rent-to-Own Scheme – At the option of the lessor, he or
she may engage the lessee in a written rent-to-own agreement
that will result in the transfer of ownership of the particular
dwelling in favor of the latter. Such an agreement shall be exempt
from the coverage of Section 3 of this Act.
Sec. 10. Application of the Civil Code and Rules of Court of the
Philippines – Except when the lease is for a definite period, the
provisions of paragraph (1) of Article 1673 of the Civil Code of the
Philippines, insofar as they refer to residential units covered by
this Act, shall be suspended during the effectivity of this Act, but
other provisions of the Civil Code and the Rules of Court on lease
contracts, insofar as they are not in conflict with the provisions of
this Act shall apply.

Sec. 11. Coverage of this Act – All residential units in the National
Capital Region and other highly urbanized cities the total monthly
rental for each of which does not exceed Seven thousand five
hundred pesos (P7,500.00) and all residential units in all other
areas the total monthly rental for each of which does not exceed
Four thousand pesos (P4,000.00) as of the effectivity date of this
Act shall be covered, without prejudice to existing contracts.
Sec. 12. Penalties – A fine of not less than Five thousand pesos
(P5,000.00) nor more than Fifteen thousand pesos (P15,000.00) or
imprisonment of not less than one (1) month and one (1) day to
not more than six (6) months or both shall be imposed on any
person, natural or juridical, found guilty of violating any provision
of this Act.
Art. 1674. In ejectment cases where an appeal is taken the
remedy granted in Art. 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 Art. shall be counted
from the time the appeal is perfected.
Preliminary Mandatory Injunction to Restore Possession Pending
Appeal
Sycip v. Soriano, (CA). Chapter 2, although entitled “Lease of
Rural and Urban Lands,’’ refers not only to the lease of lands but
also to the buildings standing thereon on the principle that the
accessory follows the principal. While Art. 539 seems to refer only
to forcible entry actions, Art. 1674 expressly refers to ejectment
cases or those in which there is a pre-existing relationship of
lessor and lessee.
(1) Ground (Art. 1674)
De la Cruz v. Bocar, (1956). For the purpose of Art. 1674, it is
enough that the plaintiff is the owner of the land and the
defendant is in temporary occupancy thereof whether under a
lease contract or on mere tolerance or under a temporary permit.
Where, after the termination of the lease contract or the
revocation of the permit, the lessee or occupant unlawfully
prolongs his occupation of the premises, there is unlawful
detainer.
(2) Summary Character
Mara, Inc. v. Estrella, (1975). Art. 1674 is an consonance with the
summary character of an ejectment suit which is an expeditious
means for recovering possession of realty but the effectiveness of
which is often frustrated by the lessee’s dilatory tactics often
tolerated by Municipal Trial Courts.
Montemayor v. Bermejo, Jr., (2004). Actions for forcible entry
and unlawful detainer involve perturbation of social order which
must be resolved as promptly as possible and accordingly,
technicalities or details of procedure which may cause
unnecessary delay are carefully avoided.
(3) Rationale
Report of Code Commission. The remedy is intended “to put an
end to the present state of the law which unjustly allows the
lessee to continue in possession during an appeal.’’
Abellana v. Gomez, (CA). The ordinary action to revindicate
ownership or to recover possession as a right is not expeditious;
yet in such action where judgment is rendered in favor of the
plaintiff, the trial court may, under Section 2, Rule 39, ROC, “upon
good reasons,’’ order immediate execution of the judgment. This
being so, there is more reason to order immediate execution of
the judgment in a case of unlawful detainer with respect to the
restoration of possession where it is obvious that the defendant
has no valid defense and that his appeal is dilatory or frivolous.
(4) Remedy Given to Lessor
De la Cruz v. Bocar. The remedy is available to the lessor in
unlawful detainer cases but only in case of an appeal. In the
original case, the possession of the lessee is presumed to be
lawful. In forcible entry case, the writ may be granted even when
there is no appeal. (par. 2, Art. 539.) The 10-day period for filing a
motion to secure the writ shall be counted from the date when
the petitioning party (lessor) is notified of the perfection of the
appeal
(5) Issuance Vested in “Higher Court”
Sycip v. Soriano. The issuance of the writ is expressly vested by
Art. 1674 in the “higher court’’ or appellate court. Thus, the
Regional Trial Court in ejectment cases, being an appellate court,
may grant the writ.
(6) Supersedeas Bond and Monthly Deposit by Lessee
De Laureano v. Adil, (1976). The preliminary mandatory
injunction refers to the possession of the realty in litigation. The
superdeas bond and monthly deposit are primarily designed to
insure that the lessor would be paid back the back rentals.
 Should the lessee fail to make the payments from time to
time during the pendency of the appeal, execution shall
issue. (Sec. 19, Rule 70, ROC.)
 Art. 1674 provides an additional ground for execution before
judgment.
Art. 1675. Except in cases stated in Art. 1673, the lessee shall
have a right to make use of the periods established in Articles
1682 and 1687.
Use by Lessee of Legal Period
GR: The lessee is entitled to make use of the (conventional) period
agreed upon (Art. 1669) or the (legal) period established in Art.
1682 and 1687
XPN: Unless there is a proper ground for his ejectment (Art. 1673)
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.
Termination of Lease by Purchaser of Leased Land
Tolentino. Although 1676 makes express reference only to sales,
its intent and reason justify its application to any other form of
alienation, like donation.
Rivera v. Trinidad, (1925). It applies only to lease for a fixed term
and not to those from month to month. Where the lease is on a
month to month basis and the purchaser seeks to recover from
the lessee property which said lessee had leased from the vendor,
the purchaser’s right of action is not based on the provisions of
Art. 1676 authorizing him to terminate the lease but is based on
his right as the owner or vendee to recover possession from a
tenant holding over after the termination of the right to hold
possession. In such a case, the vendee’s action is governed by the
provisions of the Rules of Court, Rule 70, on forcible entry and
detainer.
 Lease binds only the parties, their assigns and heirs. (Art.
1311). It does not create a real right unless recorded in the
Registry of Property in which case it shall be binding upon
third persons. (Art. 1648)
 The purchaser is not entitled to terminate the lease even if
he has no actual knowledge of its existence. He has
 constructive knowledge which is equivalent to actual
knowledge.
Unrecorded Lease
GR: The purchaser may terminate the lease:
XPN:
(1) There is a stipulation in the contract of sale he must respect
the existing lease;
(2) He knows of the existence of the lease; or
(3) The property is sold fictitiously just to terminate the lease
 An innocent purchaser for value without notice of an
unrecorded lease has a right to rely on the certificate of title.
If the lease is not annotated thereon, the lessee does not
deserve to be protected.
 A purchaser with full knowledge of the existence of an
unrecorded lease is bound to respect it because actual
knowledge is equivalent to registration. The lease, in effect,
becomes a part of the contract of sale.
Manila Building and Loan Assoc. v. Green, (CA). The right granted
in the second paragraph of Article 1676 to a lessee to gather the
fruits of the crop corresponding to the current agricultural year,
does not extend to the gathering of fishes, which require two
years before they are of any commercial value
Report of Code Commission. The last paragraph states when the
sale is presumed to be fictitious. It “is calculated to discourage the
practice which has developed in recent years of fictitiously selling
the premises in order to oust the lessee before the termination of
the lease.’’
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.
Where Sale Subject to Right of Redemption
 In case of sale with right of repurchase by the vendor (Art.
1601), the vendee cannot terminate an existing lease
entered into between the vendor and a third person until
after the period for redemption has expired.
 He may, however, make use of the power to oust the lessee
if any of the grounds for ejectment under Art. 1673 is
present.
Dorado v. Virina, (1916). This limitation contained in said article
refers to the tenant or lessee who has contracted with the vendor
and who has had no relation whatever with the purchaser under
an agreement of redemption. Such tenant is a third person with
respect to said vendor and purchaser. If the vendor should by
redemption recover the property, the lessee would again be
entitled to the enjoyment of the lease; wherefore, the limitation
of the purchaser’s right is proper and just
Gonzales v. Salas, (1926). Art. 1677 is not applicable to a case
where the vendor, on disposing of real property under right of
repurchase, continues nevertheless in possession thereof by
virtue of a special agreement, not as owner, but as a tenant of the
purchaser by the payment of rent. So, a vendor who remains in
possession as a lessee and violates any of the conditions agreed
upon in the contract of lease (Art. 1673) may be evicted by the
vendee even before the end of the redemption period.
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.
Right of Lessee with Regard to Useful Improvements and
Ornamental Expenses
(1) Reimbursement or Removal as to Useful Improvements
Report of Code Commission. The first paragraph is intended to
prevent the unjust enrichment of the lessor, which is allowed by
Article 1573 of the present Code. Expenses for useful
improvements are reimbursed to a possessor in good faith, under
Articles 453 [now Art. 456] and 361 [now Art. 448] of the Code
now in force. True, the lessee is not a possessor in good faith in
the sense that he believes himself to be the owner, but neither is
he a possessor in bad faith. He is in possession by virtue of a
contract, so his possession is lawful. The reform requires: (1) that
lessee should make the improvements in good faith; (2) that the
improvements be suitable to the use for which the lease is
intended; and (3) that the form and substance of the property
leased be not altered. These requisites will prevent the lessee
from making such valuable improvements that the lessor may
never recover the property leased.
Moreover, the lessee has a right to make reasonable
improvements to attain his purpose in entering upon the lease.
The lessor is to pay only one-half of the value of the
improvements at the time the lease terminates because the
lessee has enjoyed the same. On the other hand, the lessor will
enjoy them indefinitely thereafter.’’
(2) Requirements
Susana Realty, Inc. v. Hernandez, (CA). With respect to useful
improvements, to be entitled to reimbursement, there are three
(3) requisites:
(a) The lessee should make useful improvements in good faith;
(b) The improvements must be suitable to the use for which the
lease is intended; and
(c) The form and substance of the property leased should not
be altered
 The improvements can be considered made in good faith if
they are not in violation of the lease contract.
Lopez v. Sarabia, (2004). The right to indemnity under Article
1678 (par. 1.) arises only if the lessor opts to appropriate the
improvements.
Lapena v. Morfe, (1995). Under Art. 1678 (par. 2.), the lessor, not
the lessee, is given the option provided for therein.
Chua Beng She v. Lee Chy Kao, (CA). The lessee cannot compel
the lessor to appropriate the improvements and pay him one-half
of their value.
PNB v. Pineda, (1969). Certainly, the lessee has no right to
reimbursement by the lessor of improvements made after the
termination of the lease
2013 Bar, Q. IV: Anselmo is the registered owner of a land and a
house that his friend Boboy occupied for a nominal rental and on
the condition that Boboy would vacate the property on demand.
With Anselmo's knowledge, Boboy introduced renovations
consisting of an additional bedroom, a covered veranda, and a
concrete block fence, at his own expense.
Subsequently, Anselmo needed the property as his residence
and thus asked Boboy to vacate and turn it over to him. Boboy,
despite an extension, failed to vacate the property, forcing
Anselmo to send him a written demand to vacate.
In his own written reply, Boboy signified that he was ready to
leave but Anselmo must first reimburse him the value of the
improvements he introduced on the property as he is a builder
in good faith. Anselmo refused, insisting that Boboy cannot ask
for reimbursement as he is a mere lessee. Boboy responded by
removing the improvements and leaving the building in its
original state.
(a) Resolve Boboy's claim that as a builder in good faith, he
should be reimbursed the value of the improvements he
introduced.
(b) Can Boboy be held liable for damages for removing the
improvements over Anselmo’s objection?
A:
(a) Boboy’s claim that he is a builder in good faith has no basis.
A builder in good faith is someone who occupies the
property in concept of an owner. The provisions on builder-
planter-sower under the Civil Code cover cases in which the
builder, planter and sower believe themselves to be owners
of the land, or at least, to have a claim of title thereto.
As Boboy is a lessee of the property, even if he was paying
nominal rental, Art. 1678, CC, is applicable. Under this provision, 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 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.
(b) No. Boboy cannot be held liable for damages.
The lessor, Anselmo, refused to reimburse one-half of the value of
the improvements, so the lessee, Boboy, may remove the same,
even though the principal thing may suffer damage thereby. If in
removing the useful improvements Boboy caused more
impairment in the property leased than is necessary he will be
liable for damages (Art. 1678, CC)
1990 Bar, Q. I(a): A vacant lot several blocks from the center of
the town was leased by its owner to a young businessman B, for
a term of fifteen (15) years renewal upon agreement of the
parties.
After taking possession of the lot, the lessee built thereon a
building of mixed materials and a store.
As the years passed, he expanded his business, earning more
profits.
By the tenth (10th) year of his possession, he was able to build a
three (3)-storey building worth at least P300,000.00.
Before the end of the term of the lease, B negotiated with the
landowner for its renewal, but despite their attempts to do so,
they could not agree on the new conditions for the renewal.
Upon the expiration of the term of the lease, the landowner
asked B to vacate the premises and remove his building and
other improvements.
B refused unless he was reimbursed for necessary and useful
expenses.
B claimed that he was a possessor and builder in good faith, with
right of retention.
This issue is now before the court for resolution in a pending
litigation.
What are the rights of B?
A: B has the right to remove the building and other improvements
unless the landowner decides to retain the building at the time of
the termination of the lease and pay the lessee one-half of the
value of the improvements at that time. The lessee may remove
the building even though the principal thing may suffer damage
but B should not cause any more impairment upon the property
leased than is necessary. The claim of B that he was a possessor
and builder in good faith with the right of retention is not tenable.
B is not a builder in good faith, because as lessee he does not
claim ownership over the property leased.
1990 Bar, Q. I(b): A vacant lot several blocks from the center of
the town was leased by its owner to a young businessman B, for
a term of fifteen (15) years renewal upon agreement of the
parties.
After taking possession of the lot, the lessee built thereon a
building of mixed materials and a store.
As the years passed, he expanded his business, earning more
profits.
By the tenth (10th) year of his possession, he was able to build a
three (3)-storey building worth at least P300,000.00.
Before the end of the term of the lease, B negotiated with the
landowner for its renewal, but despite their attempts to do so,
they could not agree on the new conditions for the renewal.
Upon the expiration of the term of the lease, the landowner
asked B to vacate the premises and remove his building and
other improvements.
B refused unless he was reimbursed for necessary and useful
expenses.
B claimed that he was a possessor and builder in good faith, with
right of retention.
This issue is now before the court for resolution in a pending
litigation.
What are the rights of the landowner?
A: The landowner/lessor may refuse to reimburse 1/2 of the value
of the improvements and require the lessee to remove the
improvements. (Art. 1678, CC).
1996 Bar, Q. VII(4): Bartolome constructed a chapel on the land
of Eric. What are Bartolome's rights if he were: A usufructuary of
the land?
A: Lessee – The owner of the land, as lessor, can acquire the
improvement by paying for one-half of its value. Should the lessor
refuse to reimburse said amount, the lessee may remove the
Improvement, even though the principal thing may suffer damage
thereby (Art. 1678, CC)
(3) With Regard to Ornamental Expenses (Art. 1678, par. 2)
 The rule is similar to the expenses for pure luxury of a
possessor in good faith.
Right of Lessee Over Necessary Repairs
Alburo v. Villanueva, (1906). Necessary repairs are those made
for the preservation of the thing upon which they have been
expended. When a repair is essential to preserve the thing rented
in a condition suitable to the use agreed upon, it is, in law deemed
a necessary repair.
 Repairs, for example, made on the plumbing system and
electrical wiring are necessary repairs, and the lessee is
entitled to full reimbursement of the total amount spent
therefor.
Ty v. Acuna, (CA). Repairs of the window screens, kitchen cabinets
and wooden fixtures in the house constitute useful improvements
only, for which the lessee, under Article 1678 is entitled to claim
one half the value thereof at the termination of the lease
Valencia v. Ayala de Roxas, (1909). The construction of a garage,
as well as the filling and fencing of a lot, are not necessary
expenses.
Art. 1679. If nothing has been stipulated concerning the place
and the time for the payment of the lease, the provisions or Art.
1251 shall be observed as regards the place; and with respect to
the time, the custom of the place shall be followed.
Place and Time for Payment of Lease
(1) Art. 1251 applies to the obligation of a lessee to pay rent
which is usually in the form of money, an indeterminate
thing. Payment should be at the place designated in the least
contract; in the absence of stipulation, at the domicile of the
lessee or the place where the leased premises are located,
or if the rent is payable in the form of a determinate thing,
wherever the thing might be at the moment the contract
was entered into.
(2) As regards the time of payment, the custom of the place
shall be followed unless there is a contrary stipulation in the
lease contract.
Section III: 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.
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.
Reduction of Rent in Rural Areas
(1) Application
Laguna Tayabas Co. v. Manabat, (1974). Art. 1680 is a special
provision for leases of rural lands. It cannot be applied
analogously to ordinary leases, for precisely because of its special
character, it was meant to apply only to a special specie of lease.
It is a provision of social justice designed to relieve poor farmers
from the harsh consequences of their contracts, with rich
landowners. In this light, the article provides no refuge to lessees
whose financial standing or social position is equal to, or even
better than the lessor.
(2) Requisites
(a) The land leased is rural
(b) More than one-half of the fruits have been lost;
(c) The loss occurred through extraordinary and unforeseen
fortuitous event; and
(d) There is no specific stipulation that the lessee is nevertheless
not entitled to reduction
(3) Cases That Do NOT Justify Reduction
(a) on account of the sterility of the land leased;
(b) by reason of the loss of the fruits due to ordinary fortuitous
events, regardless of the extent of the loss;
(c) by reason of the loss of less than one-half of the fruits even
though extraordinary and unforeseen events;
(d) by reason of the loss of the fruits through extraordinary but
foreseen events, regardless of the extent of the loss;
(e) by reason of the loss of more than one-half of the fruits
through extraordinary and unforeseen events, where there
is a specific stipulation to the contrary; and
(f) where the loss of the fruits occurred after they have already
been gathered, regardless of the extent of the loss.
2000 Bar, Q. XIX(b): In 1995, Mark leased the rice land of Narding
in Nueva Ecija for an annual rental of P1,000.00 per hectare.
In 1998, due to the El Nino phenomenon, the rice harvest fell to
only 40% of the average harvest for the previous years. Mark
asked Narding for a reduction of the rental to P500.00 per
hectare for that year but the latter refused. Is Mark legally
entitled to such reduction?
A: No, Mark is not entitled to a reduction. Under Art. 1680, CC,
the lessee of a rural land is entitled to a reduction of the rent only
in case of loss of more than 1/2 of the fruits through extraordinary
and unforeseen fortuitous events. While the drought brought
about by the “El Nino" phenomenon may be classified as
extraordinary, it is not considered as unforeseen.
Alternative: Yes, Mark is entitled to a reduction of the rent. His
loss was more than 1 /2 of the fruits and the loss was due to an
extraordinary and unforeseen fortuitous event. The “El Nino"
phenomenon is extraordinary because it is uncommon; it does not
occur with regularity. And neither could the parties have foreseen
its occurrence. The event should be foreseeable by the parties so
that the lessee can change the time for his planting, or refrain
from planting, or take steps to avoid the loss. To be foreseeable,
the time and the place of the occurrence, as well as the
magnitude of the adverse effects of the fortuitous event must be
capable of being predicted. Since the exact place, the exact time,
and the exact magnitude of the adverse effects of the “El Nino"
phenomenon are still unpredictable despite the advances in
science, the phenomenon is considered unforeseen.
(4) Other Cases
(a) Hijos de I. De La Rama v. Benedicto, (1902). Where by the
terms of the contract of lease the rent is fixed at an aliquot
part of the crops, the tenant cannot demand a reduction on
account of loss of more than half of the crop by fortuitous
events under Article 1680, and the failure to deliver the
stipulated proportion of the crop gathered entitles the
landlord to evict the tenant. That article does not refer to a
contract of this nature
(b) Sibug v. Municipality of Hagonoy, (1956). Where a bidding
was held by a municipality for the lease of the municipal
fishponds, and the lease was awarded by lot and by area of
the fishponds involved, reduction of the rent is not proper
although it turns out that the areas of the fishponds were
actually smaller than those given in the notice of bid. Since
the lessee undertook to make all the necessary repairs and
maintain the dikes at all times, he is not entitled to
reimbursement for the repairs of the damages due to
typhoon and action of the sea
Fortuitous Events
 Under Art. 1680, the fortuitous event must not only be
extraordinary or uncommon but also one which the
contracting parties could not have reasonably foreseen.
 One of the essential characteristics of fortuitous events is
that “the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with his
obligation must be “independent of the human will.’’
 The phrase must be given the meaning of “independent of
the will of the debtor or his agents.’’
(1) Reyes v. Crisostomo, (CA). War, although dependent upon
the will of the combatants, is recognized in the second
paragraph of Art. 1680 as an extraordinary fortuitous event;
and violence of robbers, while not independent of the
human will, is recognized as caso fortuito that excused non-
performance and has been always so recognized in the
ancient law (“fuerza de ladrones,’’ in Law II, Tit. 33, Partida
VII). The will of a third person who prevents performance of
the obligation is an inevitable cause, fuerza mayor, which
comes under the general description of caso fortuito in Art.
1174, CC.
(2) Estrada v. Hermogeno, (CA). War, already existing when the
contract was entered does not come under category of
fortuitous event contemplated in the article. Neither are
typhoons because in this country it cannot be said that they
are extraordinary or uncommon and cannot be reasonably
foreseen by the contracting parties.
Cuyugan v. Dizon, (1947). When the cause already existed when
the contract was executed, the same cannot be ascribed to a
fortuitous event or circumstance beyond the control of the lessee.
(3) Panayotti v. Tan Lim Te, (CA). Fire is not ordinary a
fortuitous event. Floods must be unusual. Typhoons and
floods submerging the land under water lasting for about a
day or two and the water receding immediately after, are
conditions that could be foreseen. But when the depth of
the water was from 6 to 8 feet, the inundation of the
ricefields lasting from two to three weeks, and after the
water had receded the ricefields were infested by rodents
 causing destruction on the crops, the occurrence were
extraordinary and unforeseen fortuitous events, that even
granting they could have been foreseen, they were,
however, inevitable. Such condition of the floods is,
“unusual’’ as contemplated in Art. 1680 which could justify
the reduction of rents.
Percentage of Reduction
 Art. 1680 does not determine the percentage of reduction of
the rental to which the lessee becomes entitled. It is logical
that the rent stipulated be reduced in the same ratio that
the actual receipts bear to the normal income obtainable
from the land leased. The rent must be reduced
proportionately.
 Manresa’s formula: Normal fruits are to fruits actually
received as rent stipulated is to X.
Reyes v. Crisostomo. It appeared from the record that the
appellant obtained during the first year P28,000 for the sale of fish
and P7,000 for the sale of nipa leaves, or a total of P35,000, in
Japanese currency which, at the proved exchanged rate of 14 to
one, represented around P2,500 in Philippine currency. But for
the second year appellant only obtained P800. The testimony of
the appellant’s witness about the receipts of the lessee was not
found credible, since he was not placed in charge of the fishpond
until 1947. In consequence, the rent for the second year, was
reduced to 8/ 25ths of P14,000 (the rent originally stipulated), i.e.,
P4,480. For the third year (1946-1947), no rental was due since
the lessee was dispossessed completely and received nothing on
account of the products.
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.
Duration of Rural Lease
(1) The duration is that fixed in the contract of lease between
the parties.
(2) In the absence of stipulation, the duration is fixed by law, to
wit:
(a) The time necessary to gather the fruits which ordinarily
would cover one (1) year in case of agricultural crops; or
(b) More than one (1) year in case the land may yield only once
and two or more years may have to elapse for the purpose.
Iturralde v. Garduno, (1906). Since the duration of a lease
depends upon the stipulations in the contract of lease, it cannot
be affected by the more or less valuable improvements voluntarily
made by the lessee upon the property. Thus, the fact that the
defendant or his ancestors had built a house and planted fruit
trees on the land in question, which impressed upon the contract
the character of an indefinite term and implied long duration,
would not affect the stipulated duration, for the reason that the
duration of lease contracts depends on what many have been
stipulated by the parties at the time when the same were entered
into, and not on the more or less importance of the improvements
introduced or effected by the tenant on the leased property
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.
Obligation of Outgoing/Incoming Lessee or Lessor
Even before the end of the lease, in the absence of a contrary
stipulation, a reciprocal obligation/privilege is given by the
present article as follows:
(1) The outgoing lessee shall allow the incoming lessee or lessor
to make the necessary work preparatory for the crop the
following year; and
(2) The incoming lessee and lessor shall permit the outgoing
lessee to gather or harvest and utilize the fruits he has
produced.
Escay v. Teodoro, (1959). Where the lease of a sugar hacienda
was to expire with the 1953-1954 crop-year and the lessor sued
the lessee in November 27, 1953 to allow him to cultivate the
fields already harvested, a writ of injunction secured by the lessor
to restrain the lessee from preventing him to enter the land was
held properly issued. The action is not for unlawful detainer to
eject the lessee before the expiration of the lease but one based
on Art. 1683.
Jison v. Hernaez, (1942). Where the lease of a sugar hacienda
with an area of 192 hectares was to expire with the 1938-1939
crop-year, the lessee was required to allow the lessor to take
possession in August, 1938 of 80 hectares of the hacienda which
was not cultivated to enable him to cultivate it for the 1939-1940
crop-year.
 The privilege given to the outgoing lessee to harvest the
fruits evidently indicates that existing crops at the
termination of the lease shall belong to him.
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.
Art. 1685. The tenant on shares cannot be ejected except in
cases specified by law.
Rules Governing Law Tenancy on Shares
Report of Code Commission. Land tenancy should be governed by
special laws because agrarian problems need legislative solution
from time to time, as changing conditions may warrant. Only
those laws of a more or less permanent nature should be included
in a Civil Code. It goes without saying that the customs of the
place, referred to in the article should not be contrary to law or to
public policy, such as social justice
Special Laws on Land Tenancy
Agricultural tenancy is now governed by:
(1) R.A. No. 3844, as amended, otherwise known as the Code of
Agrarian Reforms of the Philippines;
(2) P.D. 27, as amended (particularly by E.O. 228.), otherwise
known as the Tenants Emancipation Decree
(3) E.O. 229 which provides the mechanisms needed initially to
implement the Comprehensive Agrarian Reform Program
(CARP) as instituted by Proclamation No. 131
(4) R.A. 6657, otherwise known as the Comprehensive Agrarian
Reform Law (CARL) of 1988, which institutes a new
Comprehensive Agrarian Reform Program, and
(5) Other existing laws and regulations related to agrarian
reform insofar as they are not inconsistent with the CARL of
1988.
Agricultural tenancy is classified into:
(a) Share tenancy, where the produce is divided between the
landholder and the tenant in proportion to their respective
contributions (abolished)
(b) Leasehold tenancy, where rent is paid by the tenant either
in percentage of the production or a fixed amount in money,
or both.
Extinguishment of Leasehold Relation
The following are the causes or modes by which the agricultural
leasehold relation may be extinguished:
(1) Abandonment of the landholding without the knowledge of
the lessor;
(2) Voluntary surrender of the landholding by the lessee,
written notice of which shall be served three (3) months in
advance;
(3) Absence of a successor or heir in the event of death or
permanent incapacity (such as total blindness, insanity, etc.)
of the lessee (Sec. 8, R.A. No. 3844, as amended by R.A. No.
6839.);
(4) Termination of the leasehold by the lessee under Section 28;
(5) Acquisition of the land in question by the lessee;
(6) Mutual consent of the parties; and
(7) Judicial ejectment of the lessee under Section 36.
Causes for Dispossession of Leasehold Tenant
(1) Declaration of suitability for non-agricultural purposes. —
Declaration of the landholding by the Department of
Agrarian Reform (now Land Reform) to be suited for
residential, commercial, industrial or some other urban
purposes;
(2) Non-compliance with obligations. — Failure of the lessee to
substantially comply with his contractual and legal
obligations except if caused by fortuitous event;
(3) Use of land contrary to stipulations. — Planting crops or
using the landholdings for a purpose other than what had
been previously agreed upon;
(4) Non-adoption of proven farm practices. — Failure of the
lessee to adopt proven farm practices;
(5) Wrongful injury to land. — Substantial damage or
destruction or unreasonable deterioration of the land or
other substantial improvements thereon through the fault
or negligence of the lessee;
(6) Non-payment of rental. — Failure of the lessee to pay the
lease rental; and
(7) Employment of sub-lessee. — Employing a sub-lessee except
if the lessee is ill or temporarily incapacitated.
Section IV: Special Provisions for 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.
Kinds of Repairs on Urban Property by Lessor
 The lessor is obliged to make the necessary repairs on the
property leased. (Art. 1654(2))
 The kind of repairs he is required to make is that provided in
the lease agreement, and in the absence of a special
stipulation, the same must be determined in accordance
with the custom of the place.
Gonzales v. Mateo, (1942). In case of doubt as to who shall bear
the cost of the repairs, it is understood that it is chargeable
against the lessor. While it is the duty of the lessor to make on the
property leased all repairs necessary in order to keep it in
serviceable condition for the purpose for which it was intended,
the parties are at liberty to stipulate the contrary, in which case,
the lessor is relieved of that duty.
 The right to repair may be waived by the lessee or he may
assume the duty to repair.
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.
Duration of Lease Depending on Period at Which Rent Payable
(1) Application of Provisions
Acasion v. Corporacion de los PP Dominicos de Filipinas, (1956).
Art. 1687 is based on the presumed intention of the parties. It
applies only to a lease without a fixed period (Art. 1669) and to a
lessee, that is, one who has a contract of lease with the owner.
Hence, a sublessee, much less a mere occupant, is not entitled to
its benefits.
 Art. 1687 does not apply where there is a fixed period,
whether such period is definite or indefinite.
(a) Sy Yong Gim v. Sia Song Peck, (CA). A lease contract on a
month-to-month basis is a lease with a definite period; it
expires at the end of each month without the need of a
demand.
Junson v. Martinez, (2003). A previous demand by the lessor to
vacate can justify ejectment
Chua v. CA, (1995). The lease is terminable at the end of each
month upon demand to vacate by the lessor. The subsequent
acceptance by the lessor of rental payments does not, absent any
circumstance that may indicate a contrary conclusion, legitimize
the unlawful character of the lessee’s possession.
2005 Bar, Q. I(B): TX filed a suit for ejectment against BD for non-
payment of condominium rentals amount to P150,000. During
the pendency of the case, BD offered and TX accepted the full
amount due as rentals from BD, who then filed a motion to
dismiss the ejectment suit on the ground that the action is
already extinguished.
Is BD’s contention correct? Why or why not? Reason.
A: BD’s contention is not correct. TX can still maintain the suit for
ejectment. The acceptance by the lessor of the payment by the
lessee of the rentals in arrears even during the pendency of the
ejectment case does not constitute a waiver or abandonment of
the ejectment case. (Sps. Clutario v. CA, 1992).
(b) Lim v. Legarda Vda. De Prieto. A lease stipulating that the
lessee will vacate as soon as the lessor needed the premises,
fixes a period.
Junson v. Martinez. If it is shown that the lessor needs the
property, the lease is considered terminated as of the end of the
month after proper notice or demand to vacate is given.
(c) Jespayo Realty Corp. v. CA, (2002). Art. 1687 finds no
application in the case of a lease contract with a period
subject to a resolutory condition, i.e., “the lease period shall
continue for an indefinite period provided the lessee is up-
to-date in the payment of his monthly rentals.’’
Chua v. Victorio, (2004). The lessor is within his right to increase
the rental each period (year, month, or day, as the case may be)
subject to existing laws; and the lessee is similarly within his right
to refuse to acquiesce. Upon this refusal, the contract of lease
between the parties is terminated. The lessor thus has the right to
demand that the lessee vacate the leased property.
(2) Two Distinct Provisions
(a) If the contract has no fixed duration, the law fixes the term
according as the parties have agreed to pay the rentals
annually, monthly, weekly, or daily; and
(b) Even if the parties have agreed as to the periodical payment
of rentals, the law empowers the courts, nevertheless, to
exercise their discretion in fixing the term, if the lessee has
stayed in the premises for a certain length of time. It should
be noted that the second portion gives the court discretion
and does not compel it to fix the duration of the contract.
Susana Realty, Inc. v. Hernandez, (CA). Art. 1687 contemplates a
situation where neither of the parties being at fault, the lessor
decided to terminate the contract of lease.
(3) Implied New Lease
 A lease whose duration is dependent upon the mode of
payment of the rental may also arise, where at the
expiration of a lease for a fixed term, the lessee should
continue to enjoy the thing leased for at least 15 days with
the acquiescence of the lessor, not for the period of the
 original contract, but for the time established in Art. 1687.
(Art. 1670)
(4) Discretion of Court to Fix a Longer Period
Prieto v. Santos, (1956). The court is authorized to fix a longer
term if the lessee who is not at fault has been in occupation of the
premises for a certain period and the lessor decided to terminate
the lease. It may, however, legally refuse to do so, if the
circumstances surrounding the case warrants such action.
(a) Gregorio Araneta, Inc. v. De Mesa, (1970). The extension of
the lease should be commensurate with the period during
which the lessee had been occupying the premises. Where
the lessee had stayed for 50 years, an extension of three (3)
years was held reasonable.
(b) Imperial Insurance, Inc. v. Simon, (1965). Art. 1687 does not
contemplate an unwarrant extension of the period of the
lease as to make the period indefinite. The court may not
grant an extension beyond the period sought by the lessee
himself. Thus, if the lessee asked for a one-year extension,
the court should not grant two (2) years.
(c) Elizegui v. Lawn Tennis Club, (1903). Art. 1687 does not
apply to a lease whose termination is expressly left to the
lessee. In such a case, a term may be fixed under the general
provisions of Art.1197.
(d) Melotindos v. Tobias, (2002). Art. 1687 does not grant a
lessee an absolute right to an extension of the lease term
but merely gives the courts the discretion to allow additional
time for the lessee to prepare for his eventual ejection.
(e) Lim v. Legarda Vda. De Prieto. Art. 1197 is not applicable
where the duration of the lease is left to the will of the
lessor. In a lease, the lessor is the creditor and the lessee,
the debtor.
(f) Fernandez v. CA, (1988). The stipulation that the lease can
be renewed at the option of both parties implies that the
lease cannot be renewed without the lessor’s consent.
(g) Ramon Magsaysay Award Foundation v. CA, (1985). The
lessee cannot be granted an extension of the lease when the
parties stipulated that the lease shall not be renewed or
extended by implication.
(h) The mere fact that Art. 1687 does not authorize the court to
fix the term of the lease when the rental is payable yearly,
would not prevent it from fixing the period of the lease
under Art. 1197.
(i) Ramirez v. Sy Chit. It is not necessary for the lessor to file an
independent action. The power to extend the period of lease
may be exercised by the court as an incident of the
ejectment suit.
Legarda Vda. De Prieto v. Lim, (CA). It would be an idle and costly
procedure to require a lessor to file one action to have the term of
the lease fixed, with all the possible delays attendant upon a
lawsuit, and then file another action for ejectment on the ground
that the period fixed in the first one has expired
(j) Cajucom v. Manila Remnant Co. Inc., (1966). A subsequent
agreement between the parties to a lease contract over a
parcel of land, authorizing an agent to sell the land owned
by the lessor and the improvements thereon, owned by the
lessee, and fixing the rental a month until the property shall
have been actually sold, does not make the purported sale a
condition precedent for the termination of the lease. Rather,
it merely authorizes the lessee to remain in possession until
the sale is effected, or it becomes clear that the property
could not be sold. Where the agent resigns his commission
because of his expressed inability to sell the property on the
terms specified, then said agreement becomes functus
officio and its binding force is terminated. The consequence
is that the situation of the parties reverted to what it was
before said agreement. Since the former agreement did not
specify the period of lease, then it was on a month-to-month
basis because the rental was monthly.
(k) Hunniecutt v. Flores, (CA). There is no law conferring on a
lessee the preferential right to occupy the premises over
other prospective lessees after the termination of the lease.
To compel the owner to grant the lessee that concession
would be sheer intrusion on the right of ownership which is
violative of the due process clause of the Constitution
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.
Lease of Premises Together with Furniture
 Art. 1688 does not say that the lease of the premises is
presumed to include the furniture, but that the lessor also
leases the furniture. The lease of the furniture shall be
deemed to be for the duration of the lease of the premises
because the former is considered as an accessory to the
latter.
 Nevertheless, under the attendant circumstances, it may be
inferred that the intention of the parties is that the lease of
the premises also covers the furniture contained therein
although not expressly included by the terms of the lease
agreement.
Chapter III: Work and Labor
Section I: Household Services
New Provisions
Report of Code Commission. There is a section ‘Household
Service.’ The domestic servants in the Philippines have not, as a
general rule, been fairly treated. Social justice is to be measured
by the manner in which the humblest servant is dealt with, for no
social system can rise above its lowliest class any more than a
chain is stronger than its weakest link. Consequently, under the
heading of ‘Household Service,’ there are provisions to strengthen
the right of domestic servants.
Art. 1689. Household service shall always be reasonably
compensated.
Any stipulation that household service is without compensation
shall be void.
Such compensation shall be in addition to the house helper's
lodging, food, and medical attendance.
Scope of Household Service
Rosales v. Tan Que, (CA). Household or domestic service is that
rendered by a domestic servant, who works in the house or with
the family with whom the helper usually lives.
Balolong v. Uy, (CA). The family he serves is that of his master and
no one else. The term includes service performed by a family
driver
Zamora v. Sy, (CA). A laborer, worker, or employee in a
commercial, or industrial enterprise is not a domestic servant.
Thus, a waiter and any person employed in a hotel, club,
corporation, or society, to serve its members, are not “domestic
servants,’’ in the proper sense of this term under Art. 1689
Reasonable Compensation for Household Service
 A house helper or domestic servant is entitled to reasonable
compensation in addition to suitable lodging, food and
medical attendance. Household service cannot be
gratuitous.
De los Reyes v. Alojado, (1910). Any stipulation that household
service is without compensation is against public morals and void.
No agreement may subsist in law in which it is stipulated that any
domestic service shall be absolutely gratuitous, unless it be
admitted that slavery may be established in this country through a
covenant entered into between the interested parties.
Art. 1690. The head of the family shall furnish, free of charge, to
the house helper, suitable and sanitary quarters as well as
adequate food and medical attendance.
Obligations of Head of the Family
 The term “head of family,’’ as used in the law, may refer to
the husband or father, the wife or mother, or any person
 who lives alone or with another or other persons, but has
servant/s in his or her employ.
 Some of the obligations imposed on the head of the family
are also applicable to the other members of the family, to
wit:
(1) To furnish, free of charge, to the house helper, suitable and
sanitary quarters as well as adequate food and medical
attendance (Art. 1690);
(2) To give an opportunity to the house helper who is under the
age of 18, for at least elementary education (Art. 1691.);
(3) To provide the house helper suitable clothing (Art. 1693);
(4) To treat the house helper in a just and humane manner (Art.
1693);
(5) To allow the house helper four (4) days’ vacation each
month, with pay, and not to require him/her to work more
than 10 hours a day;
(6) To bear the funeral expenses in case of death of the house
helper (Art. 1696);
(7) To terminate the contract before that expiration of the term
only for a just cause (Art. 1697);
(8) To pay the house helper unjustly dismissed compensation
already earned plus that for 15 days by way of indemnity
(Ibid.); and
(9) To give the house helper, upon demand, a written statement
on the nature and duration of the service and the conduct
and efficiency of the house helper. (Art. 1699)
Medical Attendance
 The right of house helpers to medical attendance —
exclusive of hospitalization — is purely statutory in
character, and where specifically conferred by statute, is
deemed subject to the “rule of necessity,’’ in the sense that
it is dependent upon the need for said medical attendance.
 Hence, the determination of the question whether
“expenses of hospitalization’’ are included in “medical
attendance’’ must depend upon the circumstances
surrounding each case.
Cuajao v. Chua Lo Tan, (1962). Even assuming that house helpers’
expenses of hospitalization can, in proper cases, be deemed to be
within the purview of “medical attendance,’’ it will only be fair
that, except in cases of extreme urgency, the party who may have
to defray the cost of medical attendance and/or hospitalization,
be given a say in the choice of the physician who will treat the
patient and/or the hospital in which he will be confined.
Art. 1691. If the house helper is under the age of eighteen years,
the head of the family shall give an opportunity to the house
helper for at least elementary education. The cost of such
education shall be a part of the house helper's compensation,
unless there is a stipulation to the contrary.
Opportunity for at Least Elementary Education (Art. 1691)
 Literally, construed, a house helper under 18 years of age is
not entitled to secondary education at the head of the
family’s expense; if 18 years or above, not even to
elementary education.
Art. 1692. No contract for household service shall last for more
than two years. However, such contract may be renewed from
year to year.
Duration of Household Service (Art. 1692)
 A contract for more than two (2) years is void as to the
excess
Art. 1693. The house helper's clothes shall be subject to
stipulation. However, any contract for household service shall be
void if thereby the house helper cannot afford to acquire
suitable clothing.
Clothes of the House Helper (Art. 1693)
 If the house helper cannot afford to acquire suitable
clothing, the house helper cannot waive this right by
stipulation. Any such stipulation is void.
Art. 1694. The head of the family shall treat the house helper in
a just and humane manner. In no case shall physical violence be
used upon the house helper.
Treatment of House Helper (Art. 1694)
 A house helper shall be treated by the head of the family in a
just and humane manner. Whatever the infractions he/she
may have committed, will not justify the use of physical
violence upon his/her person.
 A similar provision is contained in Art. 147 of the Labor
Code, except that the obligation is imposed on an employer.
(P.D. 442, as amended.)
Art. 1695. House helpers shall not be required to work more
than ten hours a day. Every house helper shall be allowed four
days' vacation each month, with pay.
Ten-Hour A Day Work
Balolong v. Uy, (CA). The prohibition contained in Art. 1695 is
against requiring house helpers to work more than the prescribed
period. What is unlawful is for house helpers to be compelled by
their employers to do so, but not for both parties to agree
otherwise upon payment of additional compensation. However,
unless the existence of such agreement is clearly established
whatever doubt there may be should be resolved in favor of the
house helper. This rule of construction in case of doubt is
necessary lest the law be made a refuge of unscrupulous heads of
the family.
Zamora v. Sy, (CA). The househelper cannot demand payment of
compensation for overtime work done, unless such overtime work
be required by the employer, or is demanded by the nature of the
work.
Vacation Leave
Zamora v. Sy, (CA). Such vacation leave with pay, if not enjoyed,
could not be accumulated. The house helper is not entitled to
payment for such leave, unless he had asked therefor and his
employer refused his request, for in such case there is an implied
agreement on the part of the employer to pay for such vacation
Art. 1696. In case of death of the house helper, the head of the
family shall bear the funeral expenses if the house helper has no
relatives in the place where the head of the family lives, with
sufficient means therefor.
Funeral Expenses (Art. 1696)
 The head of the family must bear the funeral expenses
where the relatives, although with sufficient means, do not
live in the same locality.
Art. 1697. If the period for household service is fixed neither the
head of the family nor the house helper may terminate the
contract before the expiration of the term, except for a just
cause. If the house helper is unjustly dismissed, he shall be paid
the compensation already earned plus that for fifteen days by
way of indemnity. If the house helper leaves without justifiable
reason, he shall forfeit any salary due him and unpaid, for not
exceeding fifteen days.
Termination of Household Service
(1) If no period for household service is fixed, the head of the
family may terminate the same at any time by giving notice
(Art. 1698) but he must act in good faith and under
circumstances to avoid undue prejudice to the house helper.
(2) If a period is fixed, neither party may terminate the contract
before the expiration of the term, except for a just cause.
(a) In case of unjust dismissal, the house helper is entitled to be
paid the compensation already earned plus 15 days wages as
indemnity.
(b) If the house helper leaves without justifiable reason, he
forfeits any salary earned and unpaid, for not more than 15
days.
Art. 1698. If the duration of the household service is not
determined either by stipulation or by the nature of the service,
the head of the family or the house helper may give notice to
put an end to the service relation, according to the following
rules:
(1) If the compensation is paid by the day, notice may be given
on any day that the service shall end at the close of the
following day;
(2) If the compensation is paid by the week, notice may be
given, at the latest on the first business day of the week,
that the service shall be terminated at the end of the
seventh day from the beginning of the week;
(3) If the compensation is paid by the month, notice may be
given, at the latest, on the fifth day of the month, that the
service shall cease at the end of the month.
Notice To Terminate Service Relation Where No Period Fixed
 The head of the family or the house helper, as the case may
be, may give the notice to put an end to the service relation
according to the rule provided in the present article,
depending as to whether the compensation is paid by the
day, by the week, or by the month.
Balolong v. Uy, (CA). In lieu of the required notice, the monetary
value may be given by the head of the family. Thus, where a
house helper, being paid by the month, is dismissed without
notice by the head of the family, the latter is liable to pay the
former the equivalent of one (1) month’s pay.
Art. 1699. Upon the extinguishment of the service relation, the
house helper may demand from the head of the family a written
statement on the nature and duration of the service and the
efficiency and conduct of the house helper.
Written Statement from Head of the Family
 The written statement mentioned in Art. 1699 may become
necessary in case the house helper applies for employment
in another household or even in other kinds of work.
Section II: Contract of Labor
Art. 1700. The relations between capital and labor are not
merely contractual. They are so impressed with public interest
that labor contracts must yield to the common good. Therefore,
such contracts are subject to the special laws on labor unions,
collective bargaining, strikes and lockouts, closed shop, wages,
working conditions, hours of labor and similar subjects.
Art. 1701. Neither capital nor labor shall act oppressively against
the other, or impair the interest or convenience of the public.
Art. 1702. In case of doubt, all labor legislation and all labor Section III: Contract of Piece of Work
contracts shall be construed in favor of the safety and decent
living for the laborer. Art. 1713. By the contract for a piece of work the contractor
binds himself to execute a piece of work for the employer, in
Art. 1703. No contract which practically amounts to involuntary consideration of a certain price or compensation. The contractor
servitude, under any guise whatsoever, shall be valid. may either employ only his labor or skill, or also furnish the
material.
Art. 1704. In collective bargaining, the labor union or members
of the board or committee signing the contract shall be liable for Contract for a Piece of Work Distinguished from Lease of Service
non-fulfillment thereof.
Contract for a Piece of Work Lease of Service
Art. 1705. The laborer's wages shall be paid in legal currency. Locatio operis Locatio operarum
The direct object of the The direct object of the
contract is the result, the contract is the service itself
Art. 1706. Withholding of the wages, except for a debt due, shall complete and finished work by the hired servant or
not be made by the employer. done by the independent laborer/employee
contractor (lessor or
Art. 1707. The laborer's wages shall be a lien on the goods promissor)
manufactured or the work done. The person for whom the The person for whom the
services are to be performed services are to be performed
Art. 1708. The laborer's wages shall not be subject to execution controls only the result or also controls the manner and
or attachment, except for debts incurred for food, shelter, end to be accomplished means to be used to produce
clothing and medical attendance. the stipulated result
The risk is upon the Even if the result intended is
independent contractor not accomplished without
Art. 1709. The employer shall neither seize nor retain any tool or
fault of the lessor,
other Articles belonging to the laborer.
remuneration is still due for
the service rendered
Art. 1710. Dismissal of laborers shall be subject to the The price is generally not It is after the service has
supervision of the Government, under special laws. payable until the work is been performed
completed and accepted
Art. 1711. Owners of enterprises and other employers are There is no relation of Employer-employee exists
obliged to pay compensation for the death of or injuries to their employer-employee
laborers, workmen, mechanics or other employees, even though (although the contract is
the event may have been purely accidental or entirely due to a referred to in the law as
fortuitous cause, if the death or personal injury arose out of and employer)
in the course of the employment. The employer is also liable for In both, there is a price certain or compensation and the
compensation if the employee contracts any illness or disease relation of principal and agent does not exist between the
caused by such employment or as the result of the nature of the lessor and the lessee. (Art. 1644)
employment. If the mishap was due to the employee's own
notorious negligence, or voluntary act, or drunkenness, the  There is also no employer-employee relation between a
employer shall not be liable for compensation. When the common carrier and the passenger, or owner or shipper of
employee's lack of due care contributed to his death or injury, goods. (Art. 1722)
the compensation shall be equitably reduced.
Art. 1714. If the contractor agrees to produce the work from
Art. 1712. If the death or injury is due to the negligence of a material furnished by him, he shall deliver the thing produced to
fellow worker, the latter and the employer shall be solidarily the employer and transfer dominion over the thing. This contract
liable for compensation. If a fellow worker's intentional or shall be governed by the following Articles as well as by the
malicious act is the only cause of the death or injury, the pertinent provisions on warranty of title and against hidden
employer shall not be answerable, unless it should be shown defects and the payment of price in a contract of sale.
that the latter did not exercise due diligence in the selection or
supervision of the plaintiff's fellow worker. Material Furnished by the Contractor

Report of Code Commission. The contractor furnishes both the
material and his labor. “Some jurists consider this as a contract of
sale. Indeed, it is very similar to sale.’’
Hence, he has the obligation:
(1) To deliver the thing produced to the employer;
(2) To transfer dominion over the thing; and
(3) To warrant against eviction and hidden defects. (Art. 1545)
Accordingly, the contract shall be governed not only by the
provisions of Section 3 but also by the pertinent provisions on
warranty of title and against hidden defects and the payment of
price in a contract of sale.
Art. 1715. The contract shall execute the work in such a manner
that it has the qualities agreed upon and has no defects which
destroy or lessen its value or fitness for its ordinary or stipulated
use. Should the work be not of such quality, the employer may
require that the contractor remove the defect or execute
another work. If the contract fails or refuses to comply with this
obligation, the employer may have the defect removed or
another work executed, at the contractor's cost.
Remedy of Employer in Case of Defects
Report of Code Commission. The contractor must execute the
work in accordance with the qualities stipulated and without
defects which destroy or lessen its value or fitness for the use
intended.
If the contractor does not comply with his contract, the employer
may:
(1) Require the contractor to remove the defect or execute
another; or
(2) Have the defect removed or another work executed, at the
expense of the contractor if fails or refuses to do so.
The above rules arise from the nature of the contract.
Ramcar, Inc. v. Garcia, (1962). Art. 1715 may be available only
when there is proof of defects in the work. In the absence of proof
to the contrary the work is presumed satisfactory.
Marker v. Garcia, (1905). The measure of damages for failure to
complete a construction, is the amount spent by the owner to
complete it and correct its defects.
Illustrative Case:
Philam Life Insurance Co. v. Santamaria, (1970). Petitioners
accepted only the offer of respondent to make a topographic
survey rejecting the offer to make a subdivision survey, and
discrepancies arose as a result of the absence of the latter survey.
(1) Use of Topographic Map Which is Not Linearly Plotted
“When a topographic map which is not linearly plotted and whose
boundaries are consequently not accurate is used in sketching the
road lay-out and other parts of the subdivision scheme, such
procedure would be improper unless the sketch is intended to be
merely a preliminary lay-out, subject to final adjustment after a
fixed boundary survey has been made.
In planning a scheme for a new housing project, there should be
not only a topographic survey of the entire project area but also
an accurate planimetric survey of the same indicating the exact
boundaries thereof.’’
(2) Obligation of Contractor Under Article NOT Absolute
Petitioner would have us construe the obligation of the contractor
to execute the work in such a manner that it had the qualities
agreed upon and was free from defects which destroyed or
lessened its value or fitness as well-nigh absolute. It would impose
the duty on the party thus bound to perform such work to attain,
in each and every case, a degree of perfectibility on pain of being
visited with a liability for damages. That is to misread Art. 1715. It
is to give it an interpretation at war with the demands of reason.
It might have been otherwise if the work agreed upon to be
performed consisted of machinery, which must be constructed
according to specification, otherwise it would not serve the
purpose contemplated. Such is not the case, however. As Justice
Holmes noted, there is no such principle ‘against using common
sense in construing laws.’
Petitioner, however, appears to be of a different mind. Ignoring
the vital circumstance that precluded respondent Santamaria’s
work from being as satisfactory as was hoped for, for which it
could not escape responsibility as it rejected his offer to conduct
both a topographic and a subdivision survey, it would interpret
this codal provision without any thought of the canons of fairness.
It would stretch its meaning in an unwarranted manner. No legal
norm should be susceptible to such a reproach.’’
Art. 1716. An agreement waiving or limiting the contractor's
liability for any defect in the work is void if the contractor acted
fraudulently.
Agreement Waiving or Limiting Contractor’s Liability for Defects
Report of Code Commission. The agreement or “stipulation, if the
contractor acted fraudulently is contrary to public policy’’ and is
void.
 Art. 1716 is similar to Art. 1553 which declares void any
stipulation exempting the vendor from the obligation to
answer for eviction if he acted in bad faith.
Art. 1717. If the contractor bound himself to furnish the
material, he shall suffer the loss if the work should be destroyed
before its delivery, save when there has been delay in receiving
it.
Risk of Loss Where Material Furnished by Contractor
Tuason v. Zamora, (1903). Here, the contractor furnishes both his
labor and material. He shall suffer the loss if the work should be
destroyed even if due to a fortuitous event, before its delivery,
unless the lessee-owner is guilty of mora accipiendi, in which case
the risk is shifted to him. Thus, where the contractor of a building
completed its construction and the owner wrongfully refused to
accept delivery, the latter must bear the loss although there has
been no actual delivery by reason of the loss of the building by
fire.
 The contract is not extinguished, and, therefore, the
contractor may be required to do the work again, unless
there is a stipulation to the contrary or a repetition of the
work has become impossible.
Art. 1718. The contractor who has undertaken to put only his
work or skill, cannot claim any compensation if the work should
be destroyed before its delivery, unless there has been delay in
receiving it, or if the destruction was caused by the poor quality
of the material, provided this fact was communicated in due
time to the owner. If the material is lost through a fortuitous
event, the contract is extinguished.
Risk of Loss Where Contractor Furnished Only His Work
Under Art. 1718, the contractor has undertaken to put only his
work or skill and the work is destroyed by a fortuitous event
before its delivery. He cannot claim any compensation for his
labor or work unless:
(1) He lessee-owner is guilty of mora accipiendi; or
(2) The destruction was caused by the poor quality of the
material furnished by the owner, provided the contractor
communicated this fact in due time to the owner.
If the material is lost through a fortuitous event, the contract is
extinguished. The contractor is not liable for damages or for the
value of the materials. If the loss or destruction is due to the
contractor’s fault, he may be obliged to do the work all over again.
Art. 1719. Acceptance of the work by the employer relieves the
contractor of liability for any defect in the work, unless:
(1) The defect is hidden and the employer is not, by his special
knowledge, expected to recognize the same; or
(2) The employer expressly reserves his rights against the
contractor by reason of the defect.
Effect of Acceptance by the Employer (Art. 1719)
(1) Choy v. Heredia, (1908). The acceptance of the building
without objecting with reference to the work or material
furnished in the construction of the house has the effect of
acknowledging that the work and material had been
performed and furnished substantially as agreed upon. This
acceptance, of course, would not prevent the defendant
from subsequently raising the objection that there existed
hidden defects in the construction of said house.
(2) Ang Toa v. Alvarez, (1908). The acceptance of a building
under protest is not a waiver of any claim for damages for
defects in its construction.
(3) Limjap v. J. Machuca & Co., (1918). From the very nature of
things, it is impossible to determine by the simple inspection
of a concrete wall, floor, or platform whether it has been
made of reinforced concrete, for the reason that this work is
done by embedding iron or steel rods in the concrete in such
manner as to increase its strength
Art. 1720. The price or compensation shall be paid at the time
and place of delivery of the work, unless there is a stipulation to
the contrary. If the work is to be delivered partially, the price or
compensation for each part having been fixed, the sum shall be
paid at the time and place of delivery, in the absence if
stipulation.
Time and Place of Payment of Price or Compensation (Art. 1720)
Illustrative Cases:
Gonzales v. CA, (1983). Architect/contractor who was guilty of
delay in the submission of working drawings and specifications of
a proposed condominium building, was ordered by the Court of
Appeals to return the amount paid to him for the building plans
which he submitted on time as per contract, and attorney’s fees.
(1) Compensation Apportioned According to Stage of Services
to be Rendered
It is fundamental that contracts are to be interpreted according to
their liberal meaning when the terms and conditions are clear and
leave no doubt as to the intention of the contracting parties. An
examination of the contract reveals that the compensation of
Gonzales was apportioned in accordance with the stage of
services to be rendered.
Upon his being commissioned. Gonzales received P10,000.00
under item 5(a) of the contract. And under item 5 (b), he was paid
P20,000.00 upon approval of the plans by the Engineering
Department of Ayala Securities Corporation. Gonzales is entitled
to those payments by the very terms of the contract. He had
performed the services required and had earned his fees.
(2) Effect of Abandonment of Project for Payments Received
for Services Already Rendered
The fact that the condominium project was later abandoned
should not result in the forfeiture by Gonzales of those payments.
Nor the fact that the contract has been rescinded and would
ordinarily create the obligation to return the things which were
the object of the contract, and the price with its interest. Upon a
showing that an architect has fully performed services relating to
the completion of specifications and general working drawings, he
is entitled to recover payments specified for such services even
though the project is thereafter abandoned so as to prevent
performance of other services for which additional compensation
has been provided.
(3) Delay Only with Submission of Working Drawings and
Specifications
While it may be true that Gonzales incurred in delay, as found by
both the Trial and Appellate Courts, which finding is binding on us,
that delay was only with respect to the submission of working
drawings and specifications as provided in item 5(c) of the letter-
agreement. By reason of that delay, Gonzales is not entitled to the
compensation provided therefor, or P20,000.00, even though he
may have already submitted those drawings and specifications to
Endel. Besides, the delay in the presentation of those working
drawings are not the only cause for the failure of the contract.
Endel itself had decided to abandon the project for other reasons.
If time were, indeed, of the essence of the contract, as Endel
alleges, it could have cancelled it in April, 1972 and it should not
have allowed Gonzales to continue working further on the
drawings and specifications under item 5(c) of the agreement.
Neither do we deem it just and equitable that Endel should
recover attorney’s fees under Article 2208 of the Civil Code.
Pasay City Government v. CFI, (1984). Petitioner requires
respondent (contractor) to file a new performance bond equal to
the cost of the entire unfinished work instead of 20% of the cost
of the next stage of the construction to be undertaken by
respondent.
(1) Stage by stage construction and payment approach
An sub-paragraph H of paragraph 1 and paragraph 2 of the
compromise agreement also reiterated the stage by stage
construction and payment as follows: [2].
Subparagraph B of paragraph 1 of the compromise agreement, to
wit: [3] read together with the stage-by-stage construction and
payment approach, would inevitably lead to the conclusion that
the parties to the compromise contemplated a divisible obligation
necessitating therefore a performance bond ‘in proportion to’ the
uncompleted work.’’
(2) Performance Bond to Cover Only Remaining Cost of Next
Stage of Work to be Done
“What is crucial in sub-paragraph B of paragraph 1 of the
compromise agreement are the words “in proportion.’’ If the
parties really intended the legal rate of 20% performance bond to
refer to the whole unfinished work, then the provision should
have required the plaintiff contractor to submit and file a new
performance bond to cover the remaining value/cost of the
unfinished work of the construction. Using the words in
proportion then significantly changed the meaning of the
paragraph to ultimately mean a performance bond equal to 20%
of the next stage of work to be done.’’
Art. 1721. If, in the execution of the work, an act of the employer
is required, and he incurs in delay or fails to perform the act, the
contractor is entitled to a reasonable compensation.
The amount of the compensation is computed, on the one hand,
by the duration of the delay and the amount of the
compensation stipulated, and on the other hand, by what the
contractor has saved in expenses by reason of the delay or is
able to earn by a different employment of his time and industry.
Default of Employer
If the employer incurs in delay or fails to perform an act required
of him under the contract, the contractor is entitled to reasonable
compensation to be determined by considering the following:
(1) The duration of the delay;
(2) The amount of compensation stipulated;
(3) Expenses saved by the contractor by reason of the delay;
and
(4) The amount he would have earned by a different
employment of his time and industry.
The general rule is that an obligor incurs in delay from the time
the obligee judicially or extrajudicially demands from him the
fulfillment of his obligation. (Art. 1169)
Art. 1722. If the work cannot be completed on account of a
defect in the material furnished by the employer, or because of
orders from the employer, without any fault on the part of the
contractor, the latter has a right to an equitable part of the
compensation proportionally to the work done, and
reimbursement for proper expenses made.
Non-Completion Attributable to Employer
 Art. 1722 grants the contractor the right to an equitable part
of the compensation due him under the contract and to
reimbursement for his expenses, if the work cannot be
completed because the materials furnished by the employer
are defective or because of orders from the employer.
 The amount of compensation to which the contractor shall
be proportional to the work already done.
Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within fifteen
years from the completion of the structure, the same should
collapse by reason of a defect in those plans and specifications,
or due to the defects in the ground. The contractor is likewise
responsible for the damages if the edifice falls, within the same
period, on account of defects in the construction or the use of
materials of inferior quality furnished by him, or due to any
violation of the terms of the contract. If the engineer or architect
supervises the construction, he shall be solidarily liable with the
contractor.
Acceptance of the building, after completion, does not imply
waiver of any of the cause of action by reason of any defect
mentioned in the preceding paragraph.
The action must be brought within ten years following the
collapse of the building.
Liability of Engineer or Architect/Contractor for Collapse of
Building Constructed
(1) Liability of Engineer or Architect
The engineer or architect who drew up the plans and
specifications shall be liable for damages, if:
(a) The collapse took place within 15 years from the completion
of the structure;
(b) It took place by reason of a defect in the plans and
specifications, or due to the defects in the ground; and
(c) The action for damages is brought within 10 years following
the collapse of the building.
(2) Liability of Contractor
The contractor is likewise responsible for the damages if:
(a) The edifice falls within the same period;
(b) The collapse took place on account of defects in the
construction or the use of materials of inferior quality
furnished by him, or due to any violation of the terms of the
contract; and
(c) The action for damages is brought within 10 years following
the collapse of the building.
(3) Solidary Liability
 In case the engineer or architect supervised or directed the
construction he shall be solidarily liable (Arts 1207, 1216.)
with the contractor.
Bosque v. Chipco, (1909). Note that Art. 1723 speaks of a building
that should “collapse’’ or edifice that “falls’’; hence, it does not
apply to minor defects.
However, a third person suffering damage as a result of any
defect in the construction may proceed, against the engineer or
architect or contractor. (Art. 2192)
(4) Effect of Acceptance of Work
GR: In a contract for a piece of work is that acceptance of the
work by the employer relieves the contractor of liability for any
defect in the work. (Art. 1719) But mere acceptance of the
building after competition, does not imply waiver of any of the
causes of action arising from any defect in the construction.
Hospicio de San Jose v. Findley Miller Timber Co., (1926). The
owner of a building is not estopped from claiming damages for
defective construction by the circumstance that the cost of
construction has been paid to the contractor, before discovery of
the defects, upon certificates as to the progress of the work
issued by the architect representing the owner.
Koster v. Zulueta, (1956). A contractor’s engagement is to build
according to plans and specifications. Since the designs are made
by the architect, the builder-contractor is not responsible as to the
sufficiency or inadequacy of the structure carrying the weight of
the building.
Illustrative Case:
Nakpil & Sons v. CA, (1988). After an earthquake, the building in
question sustained major damage, but after three subsequent
earthquakes, the damage caused resulted in its eventual
demolition for which the architect and the builder-contractor
were sought to be held liable.
(1) After partial collapse, there was unavoidable collapse
United gave considerable emphasis on the fact that the PBA
building did not collapse as found by the trial court and affirmed
by the Court of Appeals. Otherwise stated, United wishes to stress
that subject building did not disintegrate completely as the term
‘collapse’ is supposed to connote.
Be that as it may, it will be observed that in the assailed decision,
this Court is in complete accord with the findings of the trial court
and affirmed by the Court of Appeals, that after the April 2, 1968
earthquake, the building in question was not totally lost, the
collapse was only partial and the building could still be restored at
the expense of P900,000.00. But after the subsequent
earthquakes on April 7, 9, and 12, 1970, there was no question
that further damage was caused to the property resulting in an
eventual and unavoidable collapse or demolition (complete
collapse). In fact, on April 30, 1970, the building was authorized by
the trial court to be demolished at the expense of the plaintiff.
Note that a needed demolition is in fact a form of ‘collapse’.
The bone of contention is, therefore, not on the fact of collapse
but on who should shoulder the damages resulting from the
partial and eventual collapse. As ruled by this Court in said
decision, there should be no question that the NAKPILS and
UNITED are liable for the damage.
Citing the case of Tucker v. Milan (49 O.G. 4379, 4380) as the case
in point, the pertinent portion of the decision reads:
‘One who negligently creates a dangerous condition cannot
escape liability for the natural and probable consequences
thereof, although the act of a third person, or an act of God for
which he is not responsible, intervenes to precipitate the loss.’’’
(2) Charging PBA with Full Supervision of Construction Without
Legal or Contractual Basis
United argues that it is the legal duty of PBA to provide full-time
and active supervision in the construction of subject building.
Failing to cite any provision of law to support its arguments,
United insists on the inherent legal duty of the owner, reinforced
by practice, usage and custom, to exercise such supervision. Apart
from the fact that United seems to have completely contradicted
its own view that this construction involves highly technical
matters and, therefore, beyond the ambit of ordinary
understanding and experience, the contrary appears to be more in
accord with ordinary practice, which is to avail oneself of the
services of architects and engineers whose training and expertise
make them more qualified to provide effective supervision of the
construction. In fact, it was on the suggestion of Juan F. Nakpil,
one of the petitioners herein, that the construction was
undertaken on an administration basis. Thus, the trial court did
not err in holding that charging the owner with full time
supervision of the construction has no legal or contractual basis.’’
(3) Wanton Negligence of United and Nakpil Equivalent to Bad
Faith
United points out that bad faith is a question of fact which was
not established. The Commissioner, the trial court, and the Court
of Appeals, all of which are triers of fact, allegedly concede that
there was negligence but not bad faith.
A careful study of the decision will show that there is no
contradiction between the above finding of negligence by the trial
court which was affirmed by the Court of Appeals and the ruling
of this Court. On the contrary, on the basis of such finding, it was
held that such wanton negligence of both the defendant and the
third-party defendants in effecting the plans, designs,
specifications, and construction of the PBA building is equivalent
to bad faith in the performance of their respective tasks.
Note: United and Nakpils were held solidarily liable for damages
under Article 1723
Art. 1724. The contractor who undertakes to build a structure or
any other work for a stipulated price, in conformity with plans
and specifications agreed upon with the land-owner, can neither
withdraw from the contract nor demand an increase in the price
on account of the higher cost of labor or materials, save when
there has been a change in the plans and specifications,
provided:
(1) Such change has been authorized by the proprietor in
writing; and
(2) The additional price to be paid to the contractor has been
determined in writing by both parties.
Right of Contractor to Withdraw or Ask for Increase in Price
 An owner may withdraw at will from the construction of the
work (Art. 1725) but not the contractor.
(1) General Rule
 If the building of a structure or any other work is for a
stipulated price in accordance with agreed plans and
specifications, the contractor cannot withdraw from the
contract, or demand an increase in the contract price even if
the cost of labor or materials should increase.
 Neither can he claim a reasonable value of the work done
based on quantum meruit.
 The contract being for a definite work at a stipulated price
for the cost of the construction, the contractor assumes the
risk that the cost might go up arising from increase in cost of
labor and materials.
(2) When Increase in Price Justified
It is justified when there has been a change in the plans and
specifications, subject to two (2) conditions:
(a) The change has been authorized in writing by the proprietor;
and
(b) The additional price to be paid to the contractor has been
agreed upon by both parties, also in writing.
Santos v. Cruz, (CA). Art. 1724 apparently revokes the ruling in
Hamano vs. Papa (1929]) that the contractor may recover for
extra labor and materials although the changes in the plans and
specifications were not in writing. The contractor who has no such
written authorization cannot recover additional price and is not
justified in suspending the construction upon the refusal of the
owner.
(3) Purpose of Written Authorization
Report of Code Commission. The two (2) conditions have been
added “to avoid a misunderstanding between the parties
The evident purpose is to prohibit oral testimony and prevent
litigation for additional costs incurred by reason of additions or
changes in the original plan.
Diego v. Sayson, (1961). The requirement for a written
authorization is not merely to prohibit admission of oral testimony
against the objection of the adverse party. This can be inferred
from the fact that the provision is not included among those
specified in the Statute of Frauds (Art. 1403). As it does not
appear to have been intended as an extension of the Statute of
Frauds, it must have been adopted as a substantive provision or a
condition precedent to recovery
Marquez v. Cruz, (CA). This is true even if the changes have
benefited the owner. The contractor cannot recover.
(4) Applicability of Art. 1724
Arenas v. CA, (1989). The provision refers to contractors who
undertake “to build a structure or any other work’’ and
contemplates disputes arising from increased cost of labor and
materials. It does not apply to an architect claiming payment for
his professional services as such.
Royal Lines, Inc. v. CA, (1986). It cannot apply to work done upon
a vessel, which is not erected on a piece of land, like the
conversion of a yatch into a passenger and cargo vessel. The
additional work done on the vessel may be orally authorized.
Regarding this matter, the applicable rules are the general rules
on contract. As a general rule, a contract may be oral or written
1987 Bar, Q. X: Lino entered into a written agreement for the
repair of his private plane with Airo Repair Works, Inc. for
P500,000.
Additional work was done upon the verbal request and authority
of a duly recognized representative of Lino.
Lino refused to pay for the additional work, interposing as a
defense the absence of a written contract for the additional
work done.
Is the defense put up by Lino valid? Explain?
A: The defense put up by Lino is valid under Art. 1724, CC.
The change must have been authorized by the proprietor in
writing, and the additional price to be paid the contractor must
have been determined in writing by both parties.
Alternative: It appearing that the additional work was done upon
verbal request and authority of a duly authorized representative
of Lino, and the benefits have been received by Lino in
consequence of the actual repair and the additional work, the
defense put up by Lino is not valid on the ground that no person
may unjustly enrich himself at the expense of another.
Art. 1725. The owner may withdraw at will from the
construction of the work, although it may have been
commenced, indemnifying the contractor for all the latter's
expenses, work, and the usefulness which the owner may obtain
therefrom, and damages.
Right of Owner to Withdraw
 Art. 1725 provides an exception to the general rule in
contracts, that after a contract is perfect, the parties are
bound by their agreement and neither party may withdraw
therefrom (Arts. 1159, 1345.); otherwise, the aggrieved
party is entitled to demand for specific performance or
rescission with damages in either case. (Arts. 1170, 1191.)
 It grants the owner the exceptional right to withdraw from a
building contract, provided he indemnifies the contractor for
all the latters’ expenses, work, and the usefulness he
obtained therefrom, plus damages.
Adams v. Sociedad v. Naton, (1919). The right of the owner to
withdraw from a building contract is absolute. The contractor
cannot insist upon completing the contract and enforcing
payment of the full amount of the contract price. The right of the
owner to desist being absolute, it follows that its exercise cannot
be made to depend upon whether the contract price has or has
not been paid in advance, wholly or partially. If the total amounts
paid the builder at the time the owner elects to abandon the
projected building are more than sufficient to reimburse him for
his outlay and to indemnify him for the loss of his prospective
profit, the builder must be subject to an action for the recovery of
the difference between the amounts received by him and those
which he would have been entitled to recover under Article 1728
had no payment been made him at the time of the abandonment
of the project by the owner.
Art. 1726. When a piece of work has been entrusted to a person
by reason of his personal qualifications, the contract is rescinded
upon his death.
In this case the proprietor shall pay the heirs of the contractor in
proportion to the price agreed upon, the value of the part of the
work done, and of the materials prepared, provided the latter
yield him some benefit.
The same rule shall apply if the contractor cannot finish the work
due to circumstances beyond his control.
Rescission of Contract
(1) Death of Contractor
Javier Security Special Agency v. Shell Craft & Bulton, Corp.,
(1963). When a piece of work has been entrusted to a person by
reason by his personal qualifications, and that person dies before
the completion of the work, the contract is rescinded.
The obligation arising out of such contract is personal in nature;
hence, it is not transmissible to the heirs but is extinguished by
death. (Art. 1311) In this case, the proprietor shall pay the heirs of
the contractor as provided in the second paragraph of Art. 1726
the proportionate value of the work done.
(2) Unavoidable Circumstances (Art. 1726, par. 2)
Art. 1727. The contractor is responsible for the work done by
persons employed by him.
Liability of Contractor for Work Done by His Workers
Manila Railroad v. Compania Translantica, (1918). The contractor
is liable for any damage to the work caused by persons employed
by him. For breach of contract (culpa contractual), the defense of
due diligence in the selection and supervision of his employees
charged to do the work is not available to the contractor although
it may mitigate his damages
 The fact that the contractor failed to comply with his
contractual obligation, is sufficient basis for affixing liability
for damages.
Art. 1728. The contractor is liable for all the claims of laborers
and others employed by him, and of third persons for death or
physical injuries during the construction.
Liability of Contractor for Death or Physical Injuries (Art. 1728)
Note: The liability is limited to death or injuries “during the
construction.
 Under Art. 1711, employers are obliged to pay
compensation for the death of, or injuries to, their laborers,
workmen, mechanics or other employees, if such death or
personal injury arose out of and in the course of the
employment, even though the event may have been purely
accidental or entirely due to a fortuitous event.
Art. 1729. Those who put their labor upon or furnish materials
for a piece of work undertaken by the contractor have an action
against the owner up to the amount owing from the latter to the
contractor at the time the claim is made. However, the following
shall not prejudice the laborers, employees and furnishers of
materials:
(1) Payments made by the owner to the contractor before they
are due;
(2) Renunciation by the contractor of any amount due him
from the owner.
This Article is subject to the provisions of special laws.
Subsidiary Liability of Owner to Laborers and Materialmen
 The contractor is primarily liable for the payment of the
compensation of his laborers and the price of materials he
uses. The owner has no direct contractual relation with the
contractor’s laborers and suppliers of materials.
Velasco v. CA, (1954). Art. 1729 gives two (2) instances when
laborers and materialmen have a right of action not only against
the contractor but also directly against the owner. It is intended to
protect the laborers and materialmen from being taken advantage
of by unscrupulous contractors and from possible connivance
between the owner and the contractor. Under Art. 2242(3) and
(4), the claims of laborers and materialmen enjoy preference
among the creditors of the owner
Special Laws Regarding Contractor’s Bond
(1) Act No. 3688 provides that “any person, * * * or corporation
entering into a formal contract with the Government of the
Philippine Islands for * * * the prosecution and completion
of any public work, * * * shall be required, before
commencing such work, to execute the usual penal bond,
with good and sufficient sureties, with the additional
obligation that such contractor or his or its sub-contractors
shall promptly make payments to all persons supplying him
or them with labor and materials in the prosecution of the
work provided for in such contract.’’
Bautista v. Auditor General, (1955). The claim of the government
under the Act enjoys priority over other claims.
New Manila Lumber Co. v. Republic, (1960). The remedy of a
person who furnished materials in the construction of a public
building is to intervene in the action of the Government on the
contactor’s bond. If the government does not institute such suit,
he may file an action in the name of the Government against said
bond.
(2) Act No. 3959 makes it obligatory for any person, company,
firm or corporation owning any work of any kind executed
by contract to require the contractor to furnish a bond
guaranteeing the payment of the laborers and provides
penalties for its violation. Where the builder did not require
the contractor to furnish a bond in an amount equivalent to
the cost of labor and to execute an affidavit showing that
the wages of the laborers employed in the work have been
paid, he is solidarily liable with the contractor for the
payment of such wages.
U.P. v. Gabriel, (1987). Art. 1729 which provides that its
provisions are subject to special laws, is not applicable to the
University of the Philippines (U.P.) which is subject to Act No.
3688, a special law for the protection of persons furnishing
materials and labor for the construction of public works.
Art. 1730. If it is agreed that the work shall be accomplished to
the satisfaction of the proprietor, it is understood that in case of
disagreement the question shall be subject to expert judgment.
If the work is subject to the approval of a third person, his
decision shall be final, except in case of fraud or manifest error.
Satisfactory Completion of Work
(1) If the work is to be performed to the “satisfaction of the
proprietor,’’ the question shall be referred to a person who
is an expert on the matter for decision in case of
disagreement.
(2) If the work is subject to the approval of a third person, his
decision shall be final except in case fraud or manifest
error.
(a) Takao v. Belando, (1926). The certificate of the architect,
who had been appointed by and represented the owner of
the buildings, that the buildings had been completed, was
sufficient to show the completion of the contract and to
entitle the builder to the right to recover the balance due
under his contract. The owner of the buildings was bound by
the certificate of his own architect as to the completion of
the buildings.
(b) Taylor v. Pierce, (1911). When it is not expressly agreed in
the contract that the materials furnished and the labor
performed shall, before acceptance, be passed upon by a
third person, such approval by a third person cannot be
insisted upon. Thus, where an ordinance of the City of
Manila provides that before a steam boiler shall be
permitted to operate within the city limits, it shall be passed
upon and approved by a particular city official, the approval
of such official is not a condition precedent to the
enforcement of the contract with respect to the collection of
the amount due under the agreement for the materials
furnished and the labor performed, unless the terms of the
 contract expressly provide therefor. If it was not agreed that
a third person had to approve the work, no third person may
decide upon the fulfillment of the contract.
Art. 1731. He who has executed work upon a movable has a right
to retain it by way of pledge until he is paid.
Mechanic’s Lien
 The right of a worker to be paid for work done on a movable
is in the nature of a mechanic’s lien. He has a right to retain
it by way of pledge until he is paid. The laborer’s wages shall
be a lien on the goods manufactured or the work done. (Art.
1707)
(1) Bachrach Motor Co. v. Mendoza, (1922). Where the vendee
of a truck brought it to the vendor’s shop for repairs, the
latter has the right to retain the truck until the cost of the
repair had been paid.
(2) Bachrach v. Mantel, (1913). Where the mortgagee in a
chattel mortgage covering an automobile personally delivers
the automobile, which has suffered great damage by reason
of an accident, to a mechanic for repairs, requests that they
be made and superintends and advises at various times
during the progress of the repairs, he is personally liable for
the value of the repairs made.
(3) BPI v. Walter A. Smith & Co., (1931). Where the mortgagor
of a chattel retains possession of the property with the right
to use the same, the cost of any repairs made thereon by an
artisan, to the extent reasonably necessary to the continued
use of the chattel, will, under Article 1731, constitute a lien
on the chattel superior to the mortgage, so long as the
person making such repairs retains the chattel in his
possession. A person who buys the chattel at a sale made to
enforce this lien will obtain a valid title.
(4) Phil. Trust Co. v. Smith Navigation Co., (1937). The repair
man is not a party to the terms and provisions in a chattel
mortgage to the effect that the mortgagor cannot encumber
the auto for subsequent repairs without the written consent
of the mortgagee, and in the absence of personal knowledge
of their existence, he is not legally bound by such provisions
in the chattel mortgage.
(5) Chartered Bank v. Constantino, (1932). Art. 1731 is not
applicable to salaried employees. Where a lumber company
sold and delivered lumber to a bank, which attempts to
export it but is prevented by the employees of the lumber
company who have done work on the lumber and have not
been paid for their work, the bank has a right to an
injunction to restrain the employees of the lumber company
from interfering or impeding the bank in the exportation of
lumber.
Section IV: Common Carriers
Subsection I: General Provisions
Art. 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
Art. 1733. Common carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the
circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is
further expressed in Articles 1734, 1735, and 1745, Nos. 5, 6, and
7, while the extraordinary diligence for the safety of the
passengers is further set forth in Articles 1755 and 1756.
Subsection II: Vigilance Over Goods
Art. 1734. Common carriers are responsible for the loss,
destruction, or deterioration of the goods, unless the same is due
to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster
or calamity;
(2) Act of the public enemy in war, whether international or
civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3,
4, and 5 of the preceding Article, if the goods are lost, destroyed
or deteriorated, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as required in Art. 1733.
Art. 1736. The extraordinary responsibility of the common carrier
lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until
the same are delivered, actually or constructively, by the carrier to
the consignee, or to the person who has a right to receive them,
without prejudice to the provisions of Art. 1738.
Art. 1737. The common carrier's duty to observe extraordinary
diligence over the goods remains in full force and effect even
when they are temporarily unloaded or stored in transit, unless
the shipper or owner has made use of the right of stoppage in
transitu.
Art. 1738. The extraordinary liability of the common carrier
continues to be operative even during the time the goods are
stored in a warehouse of the carrier at the place of destination,
until the consignee has been advised of the arrival of the goods
and has had reasonable opportunity thereafter to remove them or
otherwise dispose of them.
Art. 1739. In order that the common carrier may be exempted
from responsibility, the natural disaster must have been the
proximate and only cause of the loss. However, the common
carrier must exercise due diligence to prevent or minimize loss
before, during and after the occurrence of flood, storm or other
natural disaster in order that the common carrier may be
exempted from liability for the loss, destruction, or deterioration
of the goods. The same duty is incumbent upon the common
carrier in case of an act of the public enemy referred to in Art.
1734, No. 2.
Art. 1740. If the common carrier negligently incurs in delay in
transporting the goods, a natural disaster shall not free such
carrier from responsibility.
Art. 1741. If the shipper or owner merely contributed to the loss,
destruction or deterioration of the goods, the proximate cause
thereof being the negligence of the common carrier, the latter
shall be liable in damages, which however, shall be equitably
reduced.
Art. 1742. Even if the loss, destruction, or deterioration of the
goods should be caused by the character of the goods, or the
faulty nature of the packing or of the containers, the common
carrier must exercise due diligence to forestall or lessen the loss.
Art. 1743. If through the order of public authority, the goods are
seized or destroyed, the common carrier is not responsible,
provided said public authority had power to issue the order.
Art. 1744. A stipulation between the common carrier and the
shipper or owner limiting the liability of the former for the loss,
destruction, or deterioration of the goods to a degree less than
extraordinary diligence shall be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the
service rendered by the common carrier; and
(3) Reasonable, just and not contrary to public policy.
Art. 1745. Any of the following or similar stipulations shall be
considered unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or
shipper;
(2) That the common carrier will not be liable for any loss,
destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in
the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence
less than that of a good father of a family, or of a man of
ordinary prudence in the vigilance over the movables
transported;
(5) That the common carrier shall not be responsible for the
acts or omission of his or its employees;
(6) That the common carrier's liability for acts committed by
thieves, or of robbers who do not act with grave or
irresistible threat, violence or force, is dispensed with or
diminished;
(7) That the common carrier is not responsible for the loss,
destruction, or deterioration of goods on account of the
defective condition of the car, vehicle, ship, airplane or other
equipment used in the contract of carriage.
Art. 1746. An agreement limiting the common carrier's liability
may be annulled by the shipper or owner if the common carrier
refused to carry the goods unless the former agreed to such
stipulation.
Art. 1747. If the common carrier, without just cause, delays the
transportation of the goods or changes the stipulated or usual
route, the contract limiting the common carrier's liability cannot
be availed of in case of the loss, destruction, or deterioration of
the goods.
Art. 1748. An agreement limiting the common carrier's liability for
delay on account of strikes or riots is valid.
Art. 1749. A stipulation that the common carrier's liability is
limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered. by the
owner or shipper for the loss, destruction, or deterioration of the
goods is valid, if it is reasonable and just under the circumstances,
and has been fairly and freely agreed upon.
Art. 1751. The fact that the common carrier has no competitor
along the line or route, or a part thereof, to which the contract
refers shall be taken into consideration on the question of
whether or not a stipulation limiting the common carrier's liability
is reasonable, just and in consonance with public policy.
Art. 1752. Even when there is an agreement limiting the liability of
the common carrier in the vigilance over the goods, the common
carrier is disputably presumed to have been negligent in case of
their loss, destruction or deterioration.
Art. 1753. The law of the country to which the goods are to be
transported shall govern the liability of the common carrier for
their loss, destruction or deterioration.
Art. 1754. The provisions of Articles 1733 to 1753 shall apply to
the passenger's baggage which is not in his personal custody or in
that of his employee. As to other baggage, the rules in Articles
1998 and 2000 to 2003 concerning the responsibility of hotel-
keepers shall be applicable.
Subsection III: Safety of Passengers
Art. 1755. A common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for
all the circumstances.
Art. 1756. In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence as prescribed in Articles 1733 and 1755.
1992 Bar, Q. X(a)(b): As the result of a collision between a public
service passenger bus and a cargo truck owned by D. X sustained
physical injuries and Y died. Both X and Y were passengers of the
bus. Both drivers were at fault, and so X and Z, the only heir and
legitimate child of the deceased Y, sued the owners of both
vehicles.
(a) May the owner of the bus raise the defense of having
exercised the diligence of a good father of a family?
(b) May D raise the same defense?
A:
(a) No. The owner of the bus cannot raise the defense because
the carrier's liability is based on breach of contract.
(b) Yes. D can raise the defense because his liability is based on
a quasi-delict.
2000 Bar, Q. XX(b): Despite a warning from the police that an
attempt to hijack a PAL plane will be made in the following
week, the airline did not take extra precautions, such as frisking
of passengers, for fear of being accused of violating human
rights. Two days later, an armed hijacker did attempt to hijack a
PAL flight to Cebu. Although he was subdued by the other
passengers, he managed to fire a shot which hit and killed a
female passenger. The victim’s parents sued the airline for
breach of contract, and the airline raised the defense of force
majeure. Is the airline liable or not?
A: The airline Is liable. In case of death of a passenger, common
carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence (Art. 1756, CC). The failure of the airline to take extra
precautions despite a police warning that an attempt to hijack the
plane would be made, was negligence on the part of the airline.
Being negligent, it is liable for the death of the passenger. The
defense of force majeure is not tenable since the shooting
incident would not have happened had the airline taken steps that
could have prevented the hijacker from boarding the plane.
Alternative: Under Art. 1763, CC, the common carrier is not
required to observe extraordinary diligence in preventing injury to
its passengers on account of the willful acts or negligence of other
passengers or of strangers. The common carrier, in that case, is
required to exercise only the diligence of a good father of a family;
hence, the failure of the airline to take EXTRA precautions in flying
the passengers and by leaving that matter to the security
personnel of the airport, does not constitute a breach of that duty
so as to make the airline liable. Besides, the use of irresistible
force by the hijackers was force majeure that could not have been
prevented even by the observance of extraordinary diligence
Art. 1757. The responsibility of a common carrier for the safety of
passengers as required in Articles 1733 and 1755 cannot be
dispensed with or lessened by stipulation, by the posting of
notices, by statements on tickets, or otherwise.
Art. 1758. When a passenger is carried gratuitously, a stipulation
limiting the common carrier's liability for negligence is valid, but
not for willful acts or gross negligence.
The reduction of fare does not justify any limitation of the
common carrier's liability.
Art. 1759. Common carriers are liable for the death of or injuries
to passengers through the negligence or willful acts of the
former's employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of
the common carriers.
This liability of the common carriers does not cease upon proof
that they exercised all the diligence of a good father of a family in
the selection and supervision of their employees.
Art. 1760. The common carrier's responsibility prescribed in the
preceding Article cannot be eliminated or limited by stipulation,
by the posting of notices, by statements on the tickets or
otherwise.
Art. 1761. The passenger must observe the diligence of a good
father of a family to avoid injury to himself.
Art. 1762. The contributory negligence of the passenger does not
bar recovery of damages for his death or injuries, if the proximate
cause thereof is the negligence of the common carrier, but the
amount of damages shall be equitably reduced.

Art. 1763. A common carrier is responsible for injuries suffered by

a passenger on account of the willful acts or negligence of other
passengers or of strangers, if the common carrier's employees
through the exercise of the diligence of a good father of a family
could have prevented or stopped the act or omission.

Subsection IV: Common Provisions

Art. 1764. Damages in cases comprised in this Section shall be

awarded in accordance with Title XVIII of this Book, concerning
Damages. Art. 2206 shall also apply to the death of a passenger
caused by the breach of contract by a common carrier.

Art. 1765. The Public Service Commission may, on its own motion
or on petition of any interested party, after due hearing, cancel
the certificate of public convenience granted to any common
carrier that repeatedly fails to comply with his or its duty to
observe extraordinary diligence as prescribed in this Section.

Art. 1766. In all matters not regulated by this Code, the rights and
obligations of common carriers shall be governed by the Code of
Commerce and by special laws.