Formal notice is not essential.

As long as the debtor has knowledge of the

assignment, he is not released from the responsibility should he pay the
original creditor (PINEDA, Sales, supra at 412).
The consent of the debtor is not necessary to make an assignment of credit
effective (DE LEON, Sales, supra at 499).
Reason: His duty to pay does not depend upon his consent to the
assignment. Otherwise, all creditors would be prevented from assigning
their credits because of the possibility of the debtors refusal to give
consent (Rodriguez v. CA, G.R. No.4 84220 March 25, 1992).
Assignment does not result in extinguishing the debtors liability, even when
such is effected without his consent (South City Homes, Inc. v.BA Finance
corp., G.R. No. 135462, December 7, 2001).
Warranties of the Assignor of Credit:
1. The existence of the credit at the time of assignment.
2. The legality of the credit unless he sold it as doubtful, (i.a., he is not
sure of the validity of his acquisition of the thing sold which fact he
has disclosed to the assignee);
3. The solvency of the debtor, if expressly stipulated, sale and of
common knowledge (CIVIL CODE, art. 1628).
Liabilities of the Assignor of Credit for Violation of his Warranties:
1. Assignor in good faith Liability is limited only to the price
received and to the expenses of the contract, and any other
legitimate payments by reason of the assignment (CIVIL CODE,
Art. 1628, par. 2).
2. Assignor in bad faith Liable not only for the payment of the price
and all the expenses but also for damages (CIVIL CODE, rt. 1628,
par. 3).
Legal Redemption in Sale of Credit or Other Incorporeal Right in
Litigation (CIVIL CODE, Art. 1634)

Sale of Credit or Other Incorporeal Rights General Rule: Debtor has

the right of the legal redemption in sale of credit or incorporeal rights
in litigation. The debtor must pay the assignee:
1. The price paid by him;
2. The judicial costs incurred and
3. Interest on the price from the date of payment (CIVIL CODE, Art.
1634).
Exceptions:
1. Sale to a co-heir or co-owner of the right assigned
Reason: the law does not favor co-ownership (DE LEON, Sales,
supra at 511);
2. SaIe to a creditor in payment of his credit
Presumption: The assignment is above suspicion and is in the
form of dacion en pago, thus perfectly legal (Id.).
3. SaIe to the possessor of property in question
Purpose: to presumably preserve the tenement, and not to
speculate at the expense of the debtor (Id.; CIVIL CODE, Art.
1635)
Barter
A contract whereby one of the parties binds himself to give one this in
consideration of the others promise to give another thing (CIVIL CODE,
Art. 1638).
It is similar to a sale with the only difference that instead of paying in price
in money, another thing is given in lieu thereof (CIVIL CODE, Art. 1468).
A contract whereby one person transfer the ownership of non fungible
this to another with the obligation on the part of the latter to give things of
the same kind, quantity and quality (CIVIL CODE, Art. 1954).
The use of the term barter in describing a contract is not controlling
(Baluran v. Navarro, G.R. Nc. L-44428, September 30, 1977).

Perfection and Consummation

Perfected from the moment there is meeting of minds upon the tings
promised by each party in consideration of other (Civil Code, Art. 1475).
Consummated from the time of mutual delivery by the contracting parties
of the tings promised (Tagaytay Development Corp. V. Osorio, G.R. No. L46069, November 16, 1939).
Rules Governing Barter:
1. Where the giver of the thing bartered is not the lawful owner thereof,
the aggrieved party cannot be compelled to deliver the thing which he
has promised. He is also entitled to damages (CIVIL CODE, Art.
1639).
2. Where a party is evicted of the thing exchanged, the injured party is
given the option, either to recover the property he has given in
exchange with damages, or claim an indemnity for damages (CIVIL
CODE, Art. 1640).
3. As to matters not provided for by the provisions on barter, the
provisions on Sales will apply suppletorily (CIVIL CODE, Art. 1641).
A contract where one binds himself to grant temporary use of a thing or the
rendering of some service to another who undertakes to pay some rent,
compensation or price (PARAS, Sales, supra at 322).
Rent
It is the cause of the contract of lease, in money or in its equivalent, such
as products, fruits or other useful things or some other presentation which
the lessee binds himself to undertake (DE LEON, Sales, supra at 589 590). It must be capable of determination (since the law say price certain)
(PARAS, Sales, supra at 324).
It must not be ctitious or nominal. Otherwise, there is a possibility that the
contract is one of commodatum (which is essentially gratuitous)(CIVIL
CODE , Art. 1933).

Right to fix rent belongs to lessor as lease is a consensual contract,

similar to sale. If the rentals being claimed are exorbitant, the courts could
intervene as a matter of fairness and equality. The burden of the proof to
show the unreasonableness of the rent is on the lessee (Ramon
Magsaysay Award Foundation v. CA, G.R. No. L-55998, January 17, 1985).
Right to increase rent - not an absolute the part of the lessor (Ramon
Magsaysay Award Foundation v. CA, GR. No. L-55998, January 17, 1985)
Kinds of Lease as to the Subject Matter:
1. Lease of things;
2. Lease of service; and
3. Lease of work (CIVIL CODE, Art. 1642).
Characteristics or requisites for lease of things
1. Consensual;
2. Bilateral;
3. Onerous (there must be rent or price certain);
4. Commutative;
5. Nominate;
6. Principal;
7. Purpose is to allow enjoyment or use of a thing (person enjoying is the
lessee; the person allowing the enjoyment by another is the lessor);
8. Subject matter must be within the commerce of man;
9. Purpose to which the thing will be devoted should not be immoral;
10. Period is temporary (not perpetual; hence, the longest period is 99
years);

11. Period is either denite or indenite (PARAS, Civil Code of the

Philippines, supra at 323-325), and
No term fixed: apply article 1682 or Article 1687
Term fixed is definite: the court will fix the term, e.g., tenant may
use for as long as he desires (CIVIL CODE, Art. 1197).
12. Lessor need not to be the owner, e.g a usufructuary may lease the
premises in favor of the stranger such lease to end at the time that the
usufruct itself ends, saving lease of rural lands, which shall be considered
as subsisting during the agricultural years (CIVIL CODE, Art. 572).
Form of Lease Contract
Lease may be made orally, but if the lease of real property is for more than
one (1) year; it must be in writing, in compliance with the Statue of Frauds
(CIVIL CODE, Article 1403, par. 2 [e]).
Lease v. Sale
Lease

Sale

Transfer of Ownership
There is no transfer of ownership
because the rights of the lessee are
Ownership is transferred upon
limited to the use and enjoyment of
delivery
the thing leased.
Extent of Transfer
Transfer is temporary
Transfer is permanent
Who may Convey the property
Lessor need to be the owner
Seller must be the owner at the time
the property is delivered
Significance of price of object
The price of the object, distinguished
Usually the selling price is
from the rent, is usually not
mentioned
mentioned
(De LEON, Sales, supra at 602)

Lease v. Simple Loan

Lease

Simple Loan
(Mutuum)

Transfer of Ownership
Lessor does not lose ownership
Lender loses ownership
Relationship Between the parties
Lessor and lessee
Obligor and oblige
Applicability of the statue of fraud
If what is leased is real property for
Not governed by the Statue of
more than one (1) year, the statue of
Frauds
frauds must be complied with
Object
Covers real and personal property
Covers personal property only
(Id. at 604)

Lease v. Commodatum
Lease

Commmodatum

Transfer of ownership
No transfer of ownership
No transfer of ownership
Cause
onerous
Essentially gratuitous; if there is a
price or rent, the contract ceases to
be commodatum
Nature
Not essentially personal in
Personal in character, Thus the
character. Hence, the right may be
death of either the bailor or bailee
transmitted to the heirs
ends the commodatum
(Id. at 603)
Lease v. Usufruct
Lease

Usufruct

Extent
Limited of the use specified in the
Includes all possible uses and
contract
enjoyment of the thing

Nature of Right
A real right only by exception when it
Always a real right
involves land, and it is for more than
1 year, or is registered
Creator of the Right
The lessor may or may not be the
Can be created only be the owner,
owner, therefore he may or may not or by duly authorized agent acting in
be the creator of the right
behalf of the owner
Origin
May be created only by contract;
May be created by law, by the will of
and by way of exception, by law (as
private persons expressed in acts
in the case of implied new lease; or
inter vivos or in a last will and
when a builder has built in good faith
testament. And by prescription
a building on the land of another,
when the land is considerably worth
more in value than the building)
Cause
Owner or lessor is more or less
The owner is more or less passive
active, and the makes the lessee
and he allows the usufructuary to
enjoy the thing hace gozar
enjoy the thing given in usufruct
dejagozar
Repairs
The lessee generally has no duty to
The usufructuary has the duty to
pay for repairs
make the ordinary repairs
Taxes
The lessee generally pays no taxes
The usufructuary pays for annual
charges and taxes on the fruits
As to other things
The lessee cannot constitute a
A usufructuary may lease the
usufruct on the property leased
property itself to another
(Id, at 604 - 605)

Lease v. Deposit
Lease

Deposit

Nature
A real right only by exception that is
when it involves land and it is for
more than 1 year, or is registered
Object
Covers real and personal property
Purpose
Renting out of the thing for a
consideration

Real right

In extrajudicial deposit, only a

movable thing may be the object
safekeeping

Rule for Lease of Consumable Goods

General Rule: Consumable goods cannot be the subject matter of a
contract of lease of things (CIVIL CODE, Art. 1645).
Reason: to use or enjoy them, they will have to be consumed. This cannot
be done in lease since returning the thing is the essence of lease (CIVIL
CODE, Art. 1643).
Exceptions:
1. If they are merely exhibited; or
2. If they are accessory to an industrial establishment (CIVIL CODE, Art.
1645).
Persons disqualified to be lessees because of disqualification to buy:
1. A husband and a wife and common law spouses cannot lease lo each
other their separate properties except:
a. If separation of property was agreed upon in the marriage
settlements; or
b. If there has been judicial separation of property (CIVILCODE, Art.
1490).
Reasons:
a. To prevent commission of fraud or prejudice to third persons.

b. To prevent the stronger spouse from unduly inuencing the weaker

spouse.
c. To avoid indirect donations (DE LEON, Sales, supra at 157-158).
Note: The prohibition applies to common law spouses, otherwise said
spouses would be placed in a better position than legitimate spouses (ld.
at 157).
2. Persons referred to in Art. 1491 of the Civil Code are disqualified
because of duciary relationships (CIVIL CODE, Art. 1646).
Note: Foreigners are not disqualied to become lessees of lands in
the Philippines for residential purposes. This is not prohibited by the
Constitution.
Proper Authority Required
If a lease is to be recorded, the following persons must have proper
authority (special power of attorney to constitute the lease):
1. The husband with respect to the paraphernal real estate of the wife,
unless the administration of such properties has been transferred to
the husband done in a public instrument duly recorded (FAMILY
CODE, Art. 110). Conjugal property cannot be leased without the joint
consent of the spouses.
2. The father or guardian with respect to the property of the minor or the
ward.
3. The manager (administrator) with respect to the property under his
administration (CIVIL CODE, Art. 1647) .
The word manager in the law is a broad term and may be:
a. The administrator of conjugal property (Rodriguez v. Borromeo, GR.
No. 17772, June 9, 1922);
b. Administrator of co-ownership (Melencio v. Dy Tiao Lay, G.R. No. L32047, November 1, 1930);
c. Administrator of state patrimonial property (Tiptopn V. Andueza, G.R.
No. 2070, January 2, 1906).

Recording of the Lease of Real Property

Its purpose is to notify strangers to the transaction (CIVIL CODE, Art.
1648). It is intended to protect the lessee, who cannot be ousted by the
buyer if the lease is recorded (Report of the Civil Code Commission, p.
142).
However, if the purchaser has actual knowledge of the existence of the
lease, which knowledge is equivalent to registration, he is bound by the
lease (Quimson V. Suarez, G.R. No. L-21381, April 5, 1924).
General Rule: The lease of a real property is a personal right (DE LEON,
Sales, Supra at 622).
Exceptions: Lease partakes of the nature of real right if:
1. Lease of real property is more than one (1) year, and to be
enforceable, it must be in writing; or
2. Lease of real property is registered regardless of duration with
Registry of Property (CIVIL CODE, Art. 1648).
Note: Lease of personal property cannot be registered. To be binding
against third persons the parties must execute a public instrument (DE
LEON, Sales, supra at 622).
Effect of Actual Notice of Unregistered Lease by the Purchaser
Where a purchaser of a land at the time of the purchase has the full
knowledge that the land has been leased to a third person, he is bound to
respect said lease, although it is not entered upon the certificate of sale
(Lao v. Lao, G.R. No. 149599, May 16, 2005).
Assignment of Lease
General Rule: A lease cannot assign the lease without consent of lessor
(CIVIL CODE, Art. 1649).
Reasons: In an assignment the personality of the lessee (assignor/debtor)
disappears; there arises a 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 and novation cannot take effect
without the consent of the debtor (CIVIL CODE, Art. 1291, par. 2).
The objective of the prohibition is to protect the lessor or owner of the
leased property (Dakudao V. Consolacion, G.R. No. L-54753, June 24,
1983). An assignment of lease without the consent of the lessor is a ground
for the rescission of the lease (Caco v. CA, G.R. No. L-46205, December
29, 1977).
Exception: If there is stipulation to the contrary (CIVIL CODE, Art, 1649)
An assignment exist when the lessee made an absolute transfer of his
lease hold rights in a contract, and he has disassociated himself from the
original contract of lease. Consequently, the juridical relations is only
between the lessor and the assignee (Manapat V. Salazar, L-8221, January
31,1956).
It is a separate and distinct contract of lease wherein the original tessee
become a sub lessor to a sub lessee of the thing, whole or in part, without
prejudice to his responsibility for the performance of the contract toward the
lessor (CIVIL CODE, Art. 1650).
As the existence of the sublease depends upon the tease, the sublease is
terminated upon the rescission of the lease contract (Go King V. Geronimo,
G. R. No. L-2126, August 27, 1948).
A sublease cannot have a term longer than that for the lease on which it is
dependent. It terminates upon the termination of the lease unless the lease
is for a shorter term (Blas v. CA, G.R. No. 82813, December 14, 1989).

Rights of the Lessee to Sublease

Unlike in assignment, a lessee may generally sublease the property in the
absence of express prohibition (CIVIL CODE, Art. 1650).

Reasons: The lessee remains a party (bound by the terms and conditions
of the contract) to the lease even if he has already created sublease
thereon (DE LEON, Sales, supra at 625).
Note: Under R.A. 9653 (Rent Control Act of 2009), assignment of lease or
subleasing of the whole or any portion of the residential unit, including the
acceptance of boarders of bed spacers, without the written consent of the
owner / lessor is prohibited.
Limitation: The sub lessee 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 (CIVILCODE, Art. 1652).
Note: If the lessor was compelled to file a complaint, which is equivalent to
a judicial demand, the lessor can claim other forms of damages from the
sub lessee like attorneys fees, costs, etc. (PINEDA, Sales and Other
Special Contracts, (2002), p. 457) [hereinafter PINEDA, Sales 2002].
Necessity of Judgment against the Lessee
There must be a judgment against the lessee evicting the latter from the
premises, or cancelling the lessees lease contract, when he cannot pay
the rentals and the sub lessee to pay the rentals does not make the sub
lessee subsidiarily liable (Wheelers Club Intl v Bonifacio, Jr., G.R. No.
130540, June 29, 2005).
Obligations of the Lessor: (CT-DAN)
1. Cannot alter the form of the thing leased (CIVIL CODE, Art. 1661).
Alteration to constitute alteration the modification must be in such
manner that it would destroy the substance of the thing leased
unserviceable for the use intended (DE LEON p. 648).
2. The obligation to protect the lessee covers acts of Third persons and
of the lessors (Bercero v. Capitol Development Corp., G.R. No.
154765, March 29, 2007);
3. Delivery of the object (actual or constructive; cannot be waived)
(CIVIL CODE, Art. 15647[1]);

4. Maintenance in peaceful and adequate possession (CIVIL CODE, Art.

1654[3]). The obligation arises only when legal trespass disturbs the
lessees peaceful enjoyment thereof (Bercero v. Capitol Development
Corp., G.R. No. 154755, March 29, 2007); and
5. Making of Necessary repairs (CIVILCODE, Art. 1654[2]).
Note: The obligation to maintain the lessee in the peaceful and
adequate enjoyment of the leased property seeks to protect the
lessee not only from the acts of third persons but also from the acts of
the lessor (Bercero V. Capitol Development Corp., G.R. No. 154765,
March 29, 2007).
Rules on Alternation of the Form of the Lease
Lessor can alter provided there is no impairment of the use to which the
thing is devoted under the terms of the lease (CIVIL CODE, Art. 1661).
Reasons: Right of the lessee to be maintained in peaceful enjoyment of
property.
Lessee can alter so long as the value of the property is not substantially
impaired (DE LEON, Sales, supra at 649).
Note: To constitute alteration, the modification must be in such manner that
it would destroy the substance of thing leased unserviceable for the use
intended (Id. at 648).
Rules in Case of Useful Improvements and Ornamental Expenses
Rights of Lessee:
1. In case of useful improvement
a. To remove the improvements should the lessor refuse to
reimburse although the principal may suffer damage; or
b. To be reimbursed by one-half of the value of said improvements at
the time of termination of the lease should the lessor choose to
appropriate it (CIVIL COD, Art. 1678, par. 1)

Parties may stipulate that the lessor may appropriate them without
reimbursing the lessee should the latter fail to comply with the
terms of the lease contract. Courts may equitably reduce a
stipulated penalty in the contracts (1) the principal obligation has
been partly or irregularly complied with and (2) even if there has
been no compliance if the penalty is iniquitous or unconscionable
in accordance with Article 1229 of the Civil Code (Florentino V.
Supervalue, Inc., G.R. No. 172384, September 12, 2007).
To be entitled to either two remedies, the following must concur:
a. Lessee must be a considered a builder in good faith (Florentino V.
Supervalue, Inc., G.R. No. 172384, September 12, 2007);
b. 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 (Susana Realty, Inc. V. Hernandez, [C,A] 54 O.G. 2206).
2. In case of ornamental expenses
The lessee has no right of reimbursement but he may remove them
provided:
a. No damage is caused to the principal thing; and