Lease1

[Follow the Outline]

Part ONE
Modified True or False. Consider the statement true only when it is absolutely true.
Explain ALL your answers.

1. A contract where one of the parties delivers a thing to another for the enjoyment or use of the
thing is a lease of thing.
2. Consumable goods cannot be the subject matter of a contract of lease.

a. TRUE, Art. 1665. --- according to source.

i. Alternative answer: FALSE, Art. 1645. When the lease of the thing, although fungible, is only
for exhibit or it is an accessory to an industrial establishment, it can be the subject matter of a
lease.

3. The husband and the wife cannot lease property to each other.
4. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to
the contrary. True. Art. 1649

5. The sublessee is solidarily liable to the lessor for any rent due from the lessee. False. Art.1652
sublessee is subsidiarily liable.
6. 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. True Art. 1656.
7. 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. True. Art. 1664.
8. 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, save always when
there is a specific stipulation to the contrary. Issue there is no right unless there is a stipulation.
Codal: there is a right in case there is loss of more than ½ of the fruits through extraordinary and
unforeseen fortuitous events.
9. The lease of an urban 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.
False. Pertains to lease of a piece of rural land Art. 1682.
10. 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. Art. 1729.

Part TWO
Multiple Choice. Choose the best answer.
1. In this contract, one of the parties binds himself to give to another the use of the thing for a price
certain:
a. Commodatum b. Mutuum c. Lease d. Deposit e. Pledge

2. In lease of thing, the thing is NOT:

a. Consumable b. Non-consumable c. Fungible d. Non-fungible

3. If the guardian leased the property of his ward, the contract is:
a. Valid b. Rescissible c. Voidable d. Unenforceable e. Void

4. If the lessor failed to maintain the lessee in peaceful and adequate enjoyment of the thing leased,
the remedies of the lessee are, EXCEPT:
a. Consider the contract of lease extinguished
b. Rescission of the lease
c. Rescission with damages
d. Damages only
e. Suspend the payment of the rent

5. A contract of lease is void if it is for more than:

a. 5 years b. 20 years c. 50 years d. 100 years e. none of the above

6. If the thing leased is destroyed partially by a fortuitous event, the lessee may choose between a
proportional reduction of the rent and:
a. specific performance b. rescission c. damages
d. accion subrogatoria e. accion quanti minoris

7. If at the end of the contract the lessee should continue enjoying the thing leased for _____ 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.
a. 15 days b. 30 days c. 3 months d. 6 months d. 1 year

8. 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
a. ½ of their value at the time the lease is extinguished.
b. their value at the time the lease is extinguished.
c. ½ of the amount spent for the improvement
d. the amount spent for the improvement
e. nothing.

9. The contractor is responsible for the damage if the edifice falls, within ______ from the
completion of the structure, 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.
 a. 1 year b. 4 years c. 10 years d. 15 years e. 25 years

10. The lease of a 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
_______, or which it may yield once, although two or more years have to elapse for the purpose.
a. 1 season b. 2 seasons c. 1 year d. 2 years e. none of the above

Part THREE
Give direct and concise but complete answers.
Cite authorities, if any.

1. Stating briefly the thesis to support your answer to each of the following cases, will the death
of the lessee extinguish the lease agreement? As a rule, it does not extinguish the lease
contract since it is not a purely personal contract except there is a stipulation that the rights
under the contract are intransmissible.
2. A: In a lease of thing, death of the lessee does not terminate the contract. A contract of lease is not
essentially a personal contract therefore upon the death of the lessee, it may be continued until the
expiration of period of the lease by the heirs. (Case: Heirs of Dimaculangan vs. IAC)

2. “O” verbally leased his house and lot to “L” for two years at a monthly rental of P250.00
a month. After the first year, “O” demanded a rental of P500.00 claiming that due to the
energy crisis, with the sudden increase of the price of oil, which no one expected, there
was also a general increases in prices. “O” proved an inflation rate of 100%. When “L”
refused to vacate the house, “O” brought an action for ejectment. “O” denied that he had
agreed to a lease for two years.
a) Can the lessee testify on a verbal contract of lease? Reasons.

ANSWER: Yes. Even if the contract covers real property and the period is more than 2 years, the contract has been taken out of the
operation of the Statute of Frauds by part performance. This is because it has been more than a year that O was receiving rentals,
he cannot now claim that the contract is unenforceable since there was already part performance.

3. Lino entered into a written agreement for the repair of his private plane with Aero Repair
Works, Inc. for P500,000. Additional work was done by Aero incurring an expense of
P250,000. 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?

ANSWER: YES. By express provision of the law, i.e., Art. 1724, the authorization of the additional work and the additional
compensation must be both in writing to entitle the contractor to such additional compensation. (Chung vs. Olanday Construction)

4. After leasing his restaurant to B, A leased the adjoining room to C knowing fully well
that C was going to put up another restaurant, which he did.
 Is A liable to B for the damage he may have suffered as a result of the opening of C’s
restaurant? Why?
NO.
5. 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 the 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 (10 th) year of his
possession, he was able to build a three-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 the 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.

a) What are the rights of B?

b) What are the rights of the landowner?

1. 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 ws 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.
2. b)  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, Civil Code)

6. 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.

Can Boboy be held liable for damages for removmg the improvements over
Anselmo's objection?
ANSWER: There is a contract of lease. Boboy’s claim of being a builder a good faith is untenable because he did not make such
improvements on the property as the owner thereof. Art. 448 applies only to a builder who was such in the concept of an owner.

However, Boboy cannot be held liable for damages. Anselmo, as the lessor, already made a choice of NOT appropriating the
improvements. As such, the lessee would have the right to remove the necessary and useful improvement even if it caused damage
to the principal. So long as no unnecessary damage was caused. In the problem, there wasn’t even damage to the thing leased
since it was stated that the building was left in its original state.

1. Boboy’s claim that he is a bui

lder in good faith has no legal basis. A builder in good faith is someone who occupies the property in the
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, Article 1678 Civil Code, 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 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.

2. 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 on the
property leased than what is necessary, he will be liable for damages (Art. 1678).

7. “O”, lot owner, contracted with “B”, builder, to build a multi-story office building designed by
“A”, architect. “A” was paid a fee to supervise the construction and execution of his design.
When completed, “O” accepted the work and occupied the building, but within one year, it
collapsed in an earthquake that destroyed only the building and not the surrounding buildings.
Construction was faulty. The building cost P3,000,000.00, but reconstruction cost would reach
P10,000,000.00.

a) What are the rights of “O” against “A” and “B”? Explain briefly.
b) Could “O” demand reconstruction of the building? On what ground? Amplify.

ANSWER:

1. 1)  O can hold A and B liable for damages. Even if the collapse was due to an earthquake, it was clear in the problem that
the construction was faulty. Moreover, only the building of O collapse and not the surrounding buildings. As such, B, as
the builder is liable for such faulty construction.

On the other hand, A would be solidarily liable with B, since he supervised the construction.

2. 2)  Yes. The law is clear that if the work is poorly done, the creditor has the right to have it undone at the expense of the
debtor, plus damages. However, he cannot demand from A and B the reconstruction if the latter does not want,
otherwise it would violate the proscription against involuntary servitude. O, however, can have the work done by another
at the expense of A and B.
8. A leased to B a fishpond for 5 years. During the second year of the lease, he received only ½ of
the usual harvest from the fishpond as he could visit and supervise it only occasionally due to the
presence of armed men who were extorting money from him and other fishpond operators by
threats to their lives.

May B demand the reduction of the rent for the second year and the extension of the lease for one
year on the ground that the lessor failed to comply with his obligation to maintain the lessee in
the peaceful and adequate enjoyment of the lease?

Failure to comply with no. 2 and 3 above: Suspension of the payments of rent: The remedy of the lessee is to suspend the payment
of rent in the event that the lessor fails to make the necessary repairs or maintain the lessee in peaceful and adequate enjoyment
of the property.

Art. 1658. The lessee may suspend the payment of the rent in case the lessor fails to make the necessary repairs or to maintain the
lessee in peaceful and adequate enjoyment of the property leased. (n)

The lessee cannot seek extension of the lease period nor a reduction in the rent.

Extension: of the term of the lease is a matter left to the parties. The lessee can not demand an extension of the lease term even if
the cause of his inability to use the property is an extraordinary fortuitous event, such as the Second World War. (Nielsen vs.
Lepanto Mining)

Right to a reduced rent:

1. In case of loss of more than 1⁄2 of the fruits;

2. The cause of the loss is extraordinary and unforesen fortuitous events.

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.

Note, however, that in the event of a partial loss on the thing, the lessee has the option to continue with the lease for a reduced
rent under Art. 1655. (see Termination at the end of Lease below)

9. In a 20-year lease contract over a building, the lessee is expressly granted a right of first refusal
should the lessor decide to sell both the land and building. However, the lessor sold the property
to a third person who knew about the lease and in fact agreed to respect it. Consequently, the
lessee brings an action against both the lessor-seller and the buyer (a) to rescind the sale and (b)
to compel specific performance of his right of first refusal in the sense that the lessor should be
ordered to execute a deed of absolute sale in favor of the lessee at the same price. The defendants
contend that the plaintiff can neither seek rescission of the sale nor compel specific performance
of a “mere” right of first refusal. Decide the case. (5%)

A: The action filed by the lessee, for both rescission of the offending sale and specific performance of the right
of first refusal which was violated, should prosper. The ruling in Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc, (264 SCRA 482), a case with similar facts, sustains both rights of action because the
buyer in the subsequent sale knew the existence of right of first refusal, hence in bad faith.

10. Tess leased her 1,500 sq. m. lot in Antipolo City to Ruth for a period of three (3) years,
from January 2010 to February 2013. On March 19, 2011, Tess sent a letter to Ruth, part
of which reads as follows:
“I am offering you to buy the property you are presently leasing at
P5,000.00 per sq. m. or for a total of P7,500,000.00. You can pay the contract
price by installment for two (2) years without interest. I will give you a period of
one (1) year from receipt of this letter to decide whether you will buy the
property.”
After the expiration of the lease contract, Tess sold the property to her niece for a total
consideration of P4 million.
Ruth filed a complaint for the annulment of the sale, reconveyance and damages against
Tess and her niece. Ruth alleged that the sale of the leased property violated her right to
buy under the principle of right of first refusal.
Is the allegation of Ruth tenable?

ANSWER: No. What is involved in this problem is an option to buy, not the right of first refusal. It appears that Ruth did not
exercise her option to buy because the lease term, which is also the period within which she can exercise such right, already
expired.

11. May a lessee sublease the property leased without the consent of the lessor?
12. A: Yes, provided that there is no express prohibition against subleasing. Under the law, when in the
contract of lease of things there is no express prohibition, the lessee may sublet the thing leased
without prejudice to his responsibility for the performance of the contract toward the lessor (Art.
1650). 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 the lessor every usurpation or untoward act which any third person
may have committed or may be openly preparing to carry out upon the thing leased; advise the
owner the need for all repairs; to return the thing leased upon the termination of the lease just as he
received it, save what has been lost or impaired by the lapse of time or by ordinary wear and tear or
from an inevitable cause; responsible for the deterioration or loss of the thing leased, unless he
proves that it took place without his fault.

12. A leased a parcel of land to B for a period of two 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:

a) B’s sublease to C? and

 b) C’s assignment of the sublease to D?

Explain your answers.

ANSWER: B did not violate the terms and conditions of the contract since there was no prohibition against sublease and
assignment. As such, since there was no prohibition, the law allows the lessee to sublease.

UP Law Center: Assignment of the sublease by C to D is not valid since the law prohibits assignment of the lease without the
express consent of the lessor, and in the problem, there was no such consent.

Uribe: C did not assign the “lease”, he assigned a “sublease”. The rights of D are those of C. If the sublease to C is not prohibited,
then the assignment to of the sublease to D should also not be prohibited.

TEST to determine if sublease or assignment: If in the agreement, there is an absolute transfer of rights of the lessee to the third
person, sich that the personality of the lessee would disappear dissociating himself from the lease, practically making the third
person the new lessee – assignment of the lease.

But, if in the agreement with the third person, the lessee retains a reversionary inerest, no matter how small – sublease.

Thus, if the contract of lease was to expire June 1, 1967, and the lessee in the middle of the contract entered into an agreement
with a person which will expire on May 31 of the same year. As such, upon expiration of the agreement, there will be left a day
where the lessee would be reverted back to the status of a lessee, there is no absolute transfer of rights, the agreement is a
sublease. (Manlapat vs. Salazar)

If the lessee prohibits the sublessee from cutting down the trees in the leased premises, the agreement is a sublease since the
lessee reserved rights in the contract.

13. Jude owned a building which he had leased to several tenants. Without informing his tenants,
Jude sold the building to Ildefonso. Thereafter, the latter notified all the tenants that he is the new
owner of the building. Ildefonso ordered the tenants to vacate the premises within thirty (30) days
from notice because he had other plans for the building. The tenants refused to vacate, insisting
that they will only do so when the term of their lease shall have expired. Is Ildefonso bound to
respect the lease contracts between Jude and his tenants? Explain your answer. (3%)

Yes, Ildefonso must respect the lease contracts between Jude and his tenants. While it is true
that the said lease contracts were not registered and annotated on the title to the property,
Ildefonso is still not an innocent purchaser for value. He ought to know the existence of the
lease because the building was already occupied by the tenants at the time he bought it.
Applying the principle of caveat emptor, he should have checked and known the status of the
occupants of their right to occupy the building before buying it.

Lease fave 1649 1650 1670

14. 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.
15. On January 1, 1980, Nestor leased the fishpond of Mario for a period of three 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.