2023 BAR REVIEW CIVIL LAW

Handout No. 24
SALES AND LEASE

The sale of the subject property between Zenaida and the Spouses Basas was valid and binding
despite the failure to immediately register the sale in the Register of Deeds. Registration is not
a recognized mode of acquiring ownership but binds the whole world, especially innocent
purchasers for value. It bears emphasis that the nature of a sale is a consensual contract
because it is perfected by mere consent. The essential elements of a contract of sale are the
following: (a) consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price; (b) determinate subject matter; and (c) price certain in money or its
equivalent.

A contract of sale is consensual in nature, and is perfected upon the concurrence of its essential
requisites, thus: The essential requisites of a contract under Article 1318 of the New Civil Code
are: (1) consent of the contracting parties; (2) object certain which is the subject matter of the
contract; and (3) cause of the obligation which is established. Thus, contracts, other than real
contracts are perfected by mere consent which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. Once perfected,
they bind other contracting parties and the obligations arising therefrom have the force of law
between the parties and should be complied with in good faith. The parties are bound not only
to the fulfillment of what has been expressly stipulated but also to the consequences which,
according to their nature, may be in keeping with good faith, usage and law. Being a consensual
contract, sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the form of contracts. A
perfected contract of sale imposes reciprocal obligations on the parties whereby the vendor
obligates himself to transfer the ownership of and to deliver a determinate thing to the buyer
who, in tum, is obligated to pay a price certain in money or its equivalent. Failure of either party
to comply with his obligation entitles the other to rescission as the power to rescind is implied in
reciprocal obligations. Thus, for purposes of validity of the sale, the mutual agreement of the
parties on the subject matter of the sale and its price would suffice and no required form is
necessary. Nevertheless, the execution of a written instrument such as a deed of sale is important
for purposes of: 1) the enforceability of executory contracts under Article 1403 of the Civil Code;
2) the convenience of the parties under Article 1358 of the same Code; and 3) the eventual
registration of the sale with the land registration authority under Presidential Decree (P.D.) No.
1529. The Heirs of Zenaida B. Gonzales, represented by Arnel B. Gonzales vs. Spouses
Dominador and Estefania Basas and Romeo Munda, G.R. No. 206847, June 15, 2022; Tamayao
vs. Lacambra, G.R. No. 244232, November 3, 2020; Pasco vs. Cuenca, G.R. No. 214319,
November 4, 2020

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Handout No. 24
SALES AND LEASE

The Civil Code provides that in a contract of sale, the seller binds himself to transfer the
ownership of the thing sold, and thus consequently, he must have the right to convey ownership
of the thing at the time of its delivery.

Settled is the rule that "no one can give what one does not have; nemo dat quad non habet. One
can sell only what he owns or is authorized to sell, and the buyer can acquire no more right than
what the seller can transfer legally." In Spouses Sabitsana, Jr. vs. Muertegui, we underscored that
"mere registration of a sale in one's favor does not give him [or her] any right over the land if the
vendor was no longer the owner of the land, having previously sold the same to another even if
the earlier sale was unrecorded. Neither could [the registration] validate the purchase thereof by
[the second buyer], which is null and void. Registration does not vest title; it is merely the
evidence of such title. Our land registration laws do not give the holder any better title than what
he [or she] actually has." The Heirs of Zenaida B. Gonzales, represented by Arnel B. Gonzales vs.
Spouses Dominador and Estefania Basas and Romeo Munda, G.R. No. 206847, June 15, 2022

In a contract to sell, the payment of the purchase price is a positive suspensive condition;
whereas, in a contract of sale, non-payment of the price is a negative resolutory condition.

In a contract to sell, title remains with the vendor and does not pass on to the vendee until the
purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a
positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual
or serious, but a situation that prevents the obligation of the vendor to convey title from
acquiring an obligatory force. This is entirely different from the situation in a contract of sale,
where non-payment of the price is a negative resolutory condition. The effects in law are not
identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover
it, unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor
remains the owner for as long as the vendee has not complied fully with the condition of paying
the purchase price. The Heirs of Zenaida B. Gonzales, represented by Arnel B. Gonzales vs.
Spouses Dominador and Estefania Basas and Romeo Munda, G.R. No. 206847, June 15, 2022

Despite the title of the Agreement, an examination of the entries therein shows that it is
actually a contract of sale subject to the resolutory conditions stated therein.

This Court finds that the Agreement reinforced the DOAS executed between the Spouses Basas
and Zenaida, since both contracts are actually not in conflict with each other, but actually reflect
the intention of the parties during their execution. Although the Agreement indicates that it was
Zenaida, as buyer, who was tasked to secure a permit to sell the subject property from the NRA,

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we find that this obligation likewise requires the active participation of the Basas couple. Thus,
we give credence to petitioners' claim that the true intention of the parties was for the Spouses
Basas to procure the consent of the NRA such that Zenaida withheld payment of the balance of
the purchase price until the Spouses Basas obtained the same. Undoubtedly, the DOAS
transferred the ownership of the subject property from the Spouses Basas to Zenaida. An
examination of the entries in the Agreement shows that it is actually a contract of sale subject to
the resolutory conditions stated therein, i.e., the Spouses Basas to procure the consent/approval
of the NRA for the transfer of the subject property and the subsequent payment of the balance
of the purchase price by Zenaida. As underscored by the RTC, paragraph 5 of the Agreement
reflects the intention of the parties to transfer ownership of the subject property from the
Spouses Basas, as sellers, to Zenaida, as buyer upon execution of the Agreement. Said provision
reads: “5. That it is understood that the SELLER reserves the right to repossess the ownership of
the property subject of this agreement and refund the amount so far paid by the BUYER, provided
that he exercises such right before the final payment of 1,250,000.00 shall have been tendered
to him by the BUYER; xxx”. The RTC aptly pointed out that the right to repossess the ownership
of the subject property could not have been conferred upon the Spouses Basas if the ownership
of said property had not been transferred to and consequently constructively possessed by
Zenaida. Since there is no showing that the Spouses Basas availed of any legal remedies to
repossess the subject property, ownership of the same was retained by Zenaida pursuant to both
the DOAS and the Agreement. Thus, despite the nomenclature of the Agreement, it is actually a
contract of sale wherein ownership of the subject property was transferred to Zenaida upon the
execution of said contract, subject to the negative resolutory conditions stated therein. Upon this
Court's scrutiny, we find that both the DOAS and Agreement contain all the three requisites of a
contract of sale. Moreover, by virtue of the Agreement being a contract of sale, the subject
property was constructively delivered to Zenaida subject to the resolutory conditions stated
therein, even though the Spouses Basas remained in possession of the subject property, albeit in
a different capacity. The Heirs of Zenaida B. Gonzales, represented by Arnel B. Gonzales vs.
Spouses Dominador and Estefania Basas and Romeo Munda, G.R. No. 206847, June 15, 2022

In order for Article 1544 of the Civil Code on double sale to apply, the following circumstances
must concur: "(a) the two (or more) sales transactions in the issue must pertain to exactly the
same subject matter, and must be valid sales transactions; (b) the two (or more) buyers at odds
over the rightful ownership of the subject matter must each represent conflicting interests; and
(c) the two (or more) buyers at odds over the rightful ownership of the subject matter must
each have bought from the very same seller." Thus, the rule on double sales "applies when the
same thing is sold to multiple buyers by one seller but not to sales of the same thing by multiple
sellers."

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Handout No. 24
SALES AND LEASE

Here, the Spouses Basas sold the subject property to Zenaida in 1996, and sold the same as well
to Munda on August 25, 1997. However, the foregoing requisites of a double sale are absent
because the sale of the subject property by the Basas to Munda was not a valid sale transaction
since by that time, the Spouses Basas were no longer the owners of the property, and thus, they
had no right to transfer the same. The Heirs of Zenaida B. Gonzales, represented by Arnel B.
Gonzales vs. Spouses Dominador and Estefania Basas and Romeo Munda, G.R. No. 206847,
June 15, 2022; Spouses German vs. Spouses Santuyo, G.R. No. 210845, January 22, 2020

Even if the provision on double sale were applicable, Zenaida, as represented by petitioners,
had a better right to the subject property since Munda was a buyer and registrant in bad faith.

The RTC aptly found Munda as a buyer in bad faith because at the time of the registration of the
sale in March 1998, an adverse claim was already annotated by Zenaida on October 29, 1997.
The CA also correctly held that at the time of execution of Munda's deed of sale with the Spouses
Basas on August 25, 1997, he may have had no knowledge yet of the defect in the Basas' title as
sellers, since Zenaida’s adverse claim was annotated only on October 29, 1997. However, there
are other circumstances that established Munda's bad faith. Records show that Munda already
had knowledge of the defect in the sellers' title: (a) when he procured the NHA's approval dated
December 1, 1997; (b) when he paid the transfer fee on January 30, 1998, and (c) subsequently
upon submission of the foregoing documents to the Register of Deeds. Thus, upon submission of
Munda's documentary requirements with the Register of Deeds on September 22, 1997 in order
to register the sale, he was not yet apprised of the defect in the title since Zenaida's adverse claim
was not yet annotated therein. However, Munda's submission of the requirements on said day
was merely a partial compliance of the documentary requirements for the registration of the sale
because as per the Referral Slip dated on the same day, he was still required to submit the NHA's
approval. Thus, as of September 22, 1997, Munda did not yet fully comply with all the
requirements for the registration of the sale. But when he returned to the Register of Deeds to
complete his application for registration after payment of the transfer fee on January 30, 1998,
and after securing the NHA's December 1, 1997 approval to transfer ownership of the subject
property, he was already aware of the defect in the title in view of the annotation of Zenaida’s
adverse claim on October 29, 1997. Thus, Munda was not a registrant in good faith. The Heirs of
Zenaida B. Gonzales, represented by Arnel B. Gonzales vs. Spouses Dominador and Estefania
Basas and Romeo Munda, G.R. No. 206847, June 15, 2022; Malabanan vs. Malabanan, Jr., G.R.
No. 187225, March 6, 2019

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Article 1544 requires that such registration must be coupled with good faith. Jurisprudence
teaches us that "(t)he governing principle is primus tempore, potior jure (first in time, stronger
in right).”

Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights
except where the second buyer registers in good faith the second sale ahead of the first, as
provided by the Civil Code. Such knowledge of the first buyer does not bar her [or him] from
availing of her [or his] rights under the law, among them, to register first her [or his] purchase as
against the second buyer. But in converso, knowledge gained by the second buyer of the first sale
defeats his [or her] rights even if he [or she] is first to register the second sale, since such
knowledge taints his [or her] prior registration with bad faith. This is the price exacted by Article
1544 of the Civil Code for the second buyer being able to displace the first buyer; that before the
second buyer can obtain priority over the first, he [or she] must show that he [or she] must show
that he [or she] acted in good faith throughout (i.e., in ignorance of the first sale and of the first
buyer's rights) - from the time of acquisition until the title is transferred to him [or her] by
registration or failing registration, by delivery of possession." The Heirs of Zenaida B. Gonzales,
represented by Arnel B. Gonzales vs. Spouses Dominador and Estefania Basas and Romeo
Munda, G.R. No. 206847, June 15, 2022; Tamayao vs. Lacambra, , G.R. No. 244232, November
3, 2020

In a sale with right to repurchase (pacto de retro), the title and ownership of the property sold
are immediately vested in the vendee, subject to the vendor's exercise of his or her right of
redemption within the stipulated period. In fine, the failure of the vendor a retro to repurchase
the property vests upon the vendee a retro, by operation of law, absolute title and ownership
over the property sold.

The law does not look kindly on transactions that are claimed to be a sale with the right of
repurchase. Art. 1603 of the Code provides that, in case of doubt, a contract purporting to be a
sale with right to repurchase should be considered an equitable mortgage. The policy of the law
is to discourage pacto de retro sales and thereby prevent the circumvention of the prohibition
against usury and pactum commissorium. This Court has taken judicial notice of the fact that
pacto de retro sales have been frequently used to conceal contracts of loan secured by a
mortgage. The provisions of the Civil Code, which consider certain types of sales as equitable
mortgages, are intended for the protection of those who are the unlettered and who are
penurious vis-à-vis their creditors. Collectively, when a party to a pacto de retro sale complains,
the provisions of the Civil Code on pacto de retro sales require the courts to closely scrutinize the
transaction, and if certain facets of the sale correspond with the factors mentioned in Article
1602, to consider it an equitable mortgage. The law's intention is to protect those who are
vulnerable due to circumstances such as poverty, penury, and lack of education from being taken

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advantage of by creditors. Their vulnerabilities invariably find themselves in no position

whatsoever to bargain fairly with their lenders. Froilan Dala vs. Edith A. Auticio, G.R. No. 205672,
June 22, 2022

An equitable mortgage masquerading as a sale with pacto de retro is a contract which, though
lacking the formality, form, or words, or other requisites demanded by the statute, reveals the
intention of the parties to burden a piece or pieces of real property only to secure the payment
of a debt. It has two (2) requisites: (1) the parties enter into what appears to be a contract of
sale; but (2) their intention is to secure an existing debt by way of a mortgage.

Though petitioner and respondent memorialized their transaction as a Deed of Sale Under Pacto
De Retro, their intent was not to sell the land with right of repurchase, but simply to set it up as
a security for petitioner's debt of P32,000.00. As directed by the verbal phrase "shall be
presumed," the Court is required by Article 1602 of the Civil Code to presume conclusively a
contract to be an equitable mortgage if any of circumstances [enumerated therein] is present.
The presence of any of these circumstances is enough for the presumption to arise. No
concurrence or an overwhelming number is necessary. In Bellido vs. Court of Appeals, the Court
held that being financially distressed at the time of the transaction is a strong indicator of an
equitable mortgage transaction than of a sale with right of repurchase. Also, in Go vs. Bacaron,
the Court found that the parties actually intended an equitable mortgage as shown by the fact
that the seller was driven to obtain the loan at a time when he was in urgent need of money and
that he signed the Deed of Sale, despite knowing that it did not express their real intention. In a
sale with right to repurchase, title and ownership of the property sold are immediately vested in
the vendee subject to the vendor's right to repurchase within the stipulated period. Where the
vendor, however, remains in physical possession of the land, for no explicable reason, this fact is
an indicium of an equitable mortgage. Here, petitioner remained in actual physical possession of
the property for at least seventeen (17) more months since the execution of the Deed, without
any showing that he had arranged with respondent for maintenance expenses or rental
payments. This continuous and uninterrupted possession by petitioner indicates lack of interest
in the land for purposes of the vesture of ownership upon respondent under a truthful contract
of sale. His possession also erodes her claim of title, as this fact constitutes a badge of equitable
mortgage. Froilan Dala vs. Edith A. Auticio, G.R. No. 205672, June 22, 2022

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The Civil Code further states that Article 1602 shall also apply to a contract purporting to be an
absolute sale, and in case of doubt, a contract purporting to be a sale with right to repurchase
shall be construed as an equitable mortgage. The command to the courts is clear from the
imperative tone of the legislation.

The reason is palpable - the policy of the law is to discourage pacto de retro sales. Article 1602
was designed primarily to curtail the evils brought about by contracts of sale with right of
repurchase, such as the circumvention of the usury law and pactum commissorium. It particularly
envisions contracts of sale with right of repurchase where the real intention of the parties is that
the pretended purchase price is actually a loan, and in order to secure its payment, a contract
purporting to be a sale with pacto de retro is drawn up. Froilan Dala vs. Edith A. Auticio, G.R.
No. 205672, June 22, 2022

For the sale of immovable property, [Article 1592] governs its rescission. This provision
contemplates (1) a contract of sale of an immovable property and (2) a stipulation in the
contract that failure to pay the price at the time agreed upon will cause the rescission of the
contract. The vendee or the buyer can still pay even after the time agreed upon, if the
agreement between the parties has these requisites. This right of the vendee to pay ceases
when the vendor or the seller demands the rescission of the contract judicially or extrajudicially.
In case of an extrajudicial demand to rescind the contract, it should be notarized.

Was the suspensive condition fulfilled when Raquel paid the P600,000.00 balance of the purchase
price on October 23, 1997 or 173 days counted from April 30, 1997 in the form of a check payable
to Victor Espinosa and not Anacleto's estate without the approval of his heirs and the probate
court? The Court observed in Cabrera vs. Ysaac:

For the sale of immovable property, the following provision governs its rescission:

Article 1592. In the sale of immovable property, even though it may

have been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of the period, as long
as no demand for rescission of the contract has been made upon
him either judicially or by notarial act. After the demand, the court
may not grant him a new term.

This provision contemplates (1) a contract of sale of an immovable property and

(2) a stipulation in the contract that failure to pay the price at the time agreed
upon will cause the rescission of the contract. The vendee or the buyer can still

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pay even after the time agreed upon, if the agreement between the parties has
these requisites. This right of the vendee to pay ceases when the vendor or the
seller demands the rescission of the contract judicially or extrajudicially. In case of
an extrajudicial demand to rescind the contract, it should be notarized.

Hence, this provision does not apply if it is not a contract of sale of an immovable
property and merely a contract to sell an immovable property. A contract to sell
is "where the ownership or title is retained by the seller and is not to pass until
the full payment of the price, such payment being a positive suspensive condition
and failure of which is not a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from acquiring binding
force.”

In a similar case entitled Manuel vs. Rodriguez Sr., Eusebio Manuel offered to buy
the land owned by Payatas Subdivision, Inc.. An initial payment was made, and a
final payment was to be made nine (9) to ten (10) months later. Manuel never
paid for the latter installment; hence, Eulogio Rodriguez, Sr., the Secretary-
Treasurer of Payatas Subdivision, Inc., cancelled their agreement and sold the land
to someone else.

In Manuel, this court categorically stated that Article 1592 "does not apply to a
contract to sell or promise to sell, where title remains with the vendor until
fulfillment to a positive suspensive condition, such as full payment of the price.”
This court upheld that the contract to sell was validly canceled through the
nonpayment of Eusebio Manuel. The same conclusion applies in this case. The law
does not prescribe a form to rescind a contract to sell immovable property. In
Manuel, the nonpayment operated to cancel the contract. If mere nonpayment is
enough to cancel a contract to sell, the letter given to petitioner's lawyer is also
an acceptable form of rescinding the contract. The law does not require
notarization for a letter to rescind a contract to sell immovable property.
Notarization is only required if a contract of sale is being rescinded. Raquel
Estipona (Lelandlord E. Sto. Domingo) and Sps. Alberto Co and Lulu Co vs. Estate
of Anacleto Aquino and Lorna Fe Espinosa, Administratrix of the Estate of
Anacleto Aquino, G.R. No. 207407, September 29, 2021

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The payment of the purchase price beyond the expiration of the stipulated period is allowed
only in the sale of immovable property and not in a contract or promise to sell, over the
objection of the vendor or his/her heirs.

Since Article 1592 of the Civil Code where the vendee may pay, even after the expiration of the
period agreed upon, as long as no demand for rescission of the contract has been made judicially
or by a notarial act, is not applicable to a contract to sell or a promise to sell, the non-payment
of Raquel of the balance of the purchase price on or before April 30, 1997 as stipulated in the
SREI signaled the non-fulfillment of the suspensive condition and rendered without obligatory
force or effect the SREI. The payment of the purchase price beyond the expiration of the
stipulated period is allowed only in the sale of immovable property and not in a contract or
promise to sell, over the objection of the vendor or his/her heirs. Raquel was not without any
remedy despite the death of Anacleto before April 30, 1997. She could have tendered the
payment of the P600,000.00 balance of the purchase price and effected its consignation pursuant
to Article 1256 of the Civil Code. Raquel could have enforced the SREI against the heirs of
Anacleto pursuant to Article 1311 of the Civil Code. In the present case, what Raquel acquired
upon the constitution of the SREI, being an obligation subject to a suspensive condition, was only
a mere hope or expectancy. But, pursuant to Article 1188 of the Civil Code, "the creditor may,
before the fulfillment of the condition, bring the appropriate actions for the preservation of his
right." In case of the fulfillment of the suspensive condition, which was the full payment of the
purchase price, the right that would have been vested was clearly a property right; and the
obligation of the vendor, Anacleto, to transfer ownership to the buyer, Raquel, involved a
patrimonial obligation, which was definitely transmissible. Raquel Estipona (Lelandlord E. Sto.
Domingo) and Sps. Alberto Co and Lulu Co vs. Estate of Anacleto Aquino and Lorna Fe Espinosa,
Administratrix of the Estate of Anacleto Aquino, G.R. No. 207407, September 29, 2021

A contract of lease is a special form of contract in civil law. The Civil Code outlines a number of
provisions that guide the parties and limit the stipulations that may be agreed upon in the lease
contract. It specifies the rights and obligations of the lessor and the lessee, as well as the rules
on the payment and ejectment.

Under the Civil Code provisions on lease, when the lease has a definite period, it ceases on the
day fixed without need for a demand from the lessor. The lessee, then, shall return the thing
leased, as they received it, to the lessor. However, if at the end of the contract, the lessor allows
the lessee to enjoy the lease for 15 days, there arises an implied lease and the terms of the
original contract are revived. It is presumed by law that the lessor is amenable to its renewal.
When there is an implied lease, the lease will continue based on the period of payment. For
instance, if the lease is paid monthly, the implied lease would only be renewed every month. The
implied lease is a lease with a definite period, and it is "terminable at the end of each month

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upon demand to vacate by the lessor." On the other hand, if the lessor refuses to renew the
lease, it is necessary for him or her to furnish the lessee with a formal notice to vacate the
premises. If the lessee continues to possess the premises against the lessor's will, the lessee
would be holding the property illegally and a judicial action may be filed. Moreover, the lessee
"shall be subject to the responsibilities of a possessor in bad faith." Under Article 1673, "the lessor
may judicially eject the lessee" in the following instances: (1) if the period agreed upon has
expired; (2) if the lessee fails to pay the price stipulated; (3) if the lessee violates any of the
conditions of the contract; and (4) if the thing leased suffered deterioration due to use or service
not stipulated. However, judicial action is not always required to eject the lessee. CJH
Development Corporation vs. Corazon D. Aniceto, G.R. No 224006, July 6, 2020

In Consing vs. Jamandre, the petitioner-sublessee of a hacienda in Negros Occidental allegedly

failed to pay the respondent-sublessor. Because of this, the respondent regained possession of
the hacienda, relying on a provision of their lease contract stating that when the lessee fails to
comply with any of its term and conditions, the lessor is authorized "to take possession of the
leased premises including all its improvements without compensation to the [sublessee] and
without necessity of resorting to any court action." The petitioner went to this Court, assailing
its validity.

This Court ruled that such stipulation in a lease contract, which authorized the sublessor to take
possession of the premises without judicial action, is valid and binding because the stipulation is
in the nature of a resolutory condition. It held:

This stipulation is in the nature of a resolutory condition, for upon the exercise by the sub-
lessor of his right to take possession of the leased property, the contract is deemed
terminated. This kind of contractual stipulation is not illegal, there being nothing in the
law proscribing such kind of agreement. As held by this Court in Froilan vs. Pan Oriental
Shipping Co:

Under Article 1191 of the Civil Code, in case of reciprocal

obligations, the power to rescind the contract where a party incurs
in default, is impliedly given to the injured party. Appellee
maintains, however, that the law contemplates of rescission of
contract by judicial action and not a unilateral act by the injured
party; consequently, the action of the Shipping Administration
contravenes said provision of the law. This is not entirely correct,
because there is also nothing in the law that prohibits the parties
from entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without court

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intervention. In other words, it is not always necessary for the

injured party to resort to court for rescission of the contract. As
already held, judicial action is needed where there is absence of
special provision in the contract granting to a party the right of
rescission."

Judicial permission to cancel the agreement was not, therefore,

necessary because of the express stipulation in the contract of sub-
lease that the sub-lessor, in case of failure of the sub-lessee to
comply with the terms and conditions thereof, can take-over the
possession of the leased premises, thereby cancelling the contract
of sub-lease. Resort to judicial action is necessary only in the
absence of a special provision granting the power of cancellation.

Consing teaches that while Article 1673 provides for judicial action to eject the lessee, it is only
required if the lease contract has no special provision granting the cancellation of the lease. CJH
Development Corporation vs. Corazon D. Aniceto, G.R. No 224006, July 6, 2020

Viray vs. Intermediate Appellate Court reiterated this doctrine. There, a similar provision, which
authorized the sublessor repossession without court action, was assailed for contravening
public policy. In upholding its validity, this Court held that there was no law against
extrajudicial ejectment.

Stipulations may authorize the use of "all necessary force" or "reasonable force" for the sublessor
to repossess the lessor of the premises. This Court ruled that the stipulation "is in the nature of
a resolutory condition, for upon the exercise by the sub-lessor of his right to take possession of
the leased property, the contract is deemed terminated;" and that such a contractual provision
"is not illegal, there being nothing in the law proscribing such kind of agreement." Similarly, there
is considerable authority in American law upholding the validity of stipulations of this nature. CJH
Development Corporation vs. Corazon D. Aniceto, G.R. No 224006, July 6, 2020

The lessee may be ejected from the leased premises without any court action as long as there
is a stipulation to this effect.

Here, before the second lease lapsed on May 17, 2007, Aniceto asked CJH Development to renew
the Lease Contract. While CJH Development refused the request, it still allowed Aniceto to keep
occupying the premises. Only on January 30, 2008 did it notify her to vacate the premises. From

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then on, despite Aniceto's persistent requests to renew the lease, CJH Development refused and
reminded her to vacate the premises, and that she had until March 1, 2008 to do so. Clearly,
there was an implied lease between the parties. When the lease expired on May 17, 2007, CJH
Development acquiesced to Aniceto's continued occupancy. It did not send a notice to vacate
and even accepted Aniceto's monthly payments until February 28, 2008. As it was paid monthly,
the implied lease ran on a month-to-month renewal, in accordance with Article 1687 of the Civil
Code. It follows that the lease would be terminated by the end of each month, and CJH
Development may choose not to renew the lease and demand repossession of the premises. In
sending the notice to vacate on January 30, 2008, CJH Development signified that it no longer
wished to continue the lease. By then, the month-to-month implied lease was terminated. The
lessee can no longer insist on staying in the premises against the lessor's will because there is no
longer a contract of lease to speak of. Thus, when Aniceto refused to surrender the premises, the
Lease Contract provided CJH Development recourse. Article X, Section 2 authorized it to enter
the premises and extrajudicially regain possession if Aniceto failed to promptly deliver the
premises upon the termination of the Lease Contract. This provision is neither unconstitutional
nor illegal, contrary to Aniceto's assertions. As this Court has consistently held, the lessee may be
ejected from the leased premises without any court action as long as there is a stipulation to this
effect. Due process was not violated here, considering that the lessor owns the property and
merely allowed the lessee to occupy and possess it for a certain period. There is no deprivation
of property without due process when the law and the provision of the lease contract allow the
lessor to immediately repossess the property when the lease is terminated. More so, in an
implied lease, the lessee cannot unreasonably insist on continuing it. Nor can the lessee keep on
badgering the lessor into renewing the lease when the contract has already expired. Even if the
lease was repeatedly renewed, it does not give the lessee a better right over the property. The
lessor, as the property owner, may decide not to renew the implied lease and devote the
property to other use. CJH Development Corporation vs. Corazon D. Aniceto, G.R. No 224006,
July 6, 2020

The last sentence of the Lease Contract's Article VI, Section 1 provides that CJH Development
does not have to reimburse Aniceto for her permanent improvements on the premises. This
outright violates Article 1678, which mandates the lessor to choose whether or not to
appropriate the improvement. If so, the lessee must be reimbursed half of its value; if not, the
lessee has the right to remove the improvements. Either way, the lessor cannot own the
improvement without paying the lessee.

The last sentence of Article VI, Section 1 of the Lease Contract provides: “All permanent
improvements or alterations made on the Leased Premises shall upon completion thereof, form
an integral part of the Leased Premises, and shall not be removed therefrom, but shall belong to
and become the exclusive property of the LESSOR and the LESSEE shall have no right to

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reimbursement of the cost or value thereof.” Article 1678 of the Civil Code provides the rule on
improvements introduced by the lessee upon the premises. In Land Bank of the Philippines vs.
AMS Farming Corporation, this Court explained that a lessee who builds on the leased premises
is treated differently from a builder in good faith. Unlike a lessee, a builder in good faith believed
that he or she owned the land. Under Articles 448 and 546 of the Civil Code, the builder in good
faith is granted the rights of retention and reimbursement for the necessary and useful expenses
spent on the improvements. On the other hand, a lessee is conclusively presumed to know that
he or she does not own the land. If the lessee introduces improvements on the leased premises,
the law only grants him or her the right to remove these improvements, or be paid 50% of their
value in case the lessor decides to retain. Because the lessee is deemed to have known the nature
of occupation and possession of the premises, he or she is deemed to have introduced the
improvements at his or her own risk. The lessee knows that at some point, the life of the lease
contract will end, and the lessor will eventually demand the premises back. Moreover, the
reimbursement to the lessee is predicated on the lessor's choice to appropriate the
improvements introduced by the lessee. The lessee cannot compel the lessor to retain the
improvement or pay the reimbursement. The lessee may only remove the improvements if the
lessor refused to appropriate and reimburse. Here, the last sentence of the Lease Contract's
Article VI, Section 1 provides that CJH Development does not have to reimburse Aniceto for her
permanent improvements on the premises. This outright violates Article 1678, which mandates
the lessor to choose whether or not to appropriate the improvement. If so, the lessee must be
reimbursed half of its value; if not, the lessee has the right to remove the improvements. Either
way, the lessor cannot own the improvement without paying the lessee. Hence, CJH
Development cannot insist on a blanket provision that grants it ownership over the structure of
the restaurant. For this, the last sentence of Article VI, Section 1 must be struck down. CJH
Development Corporation vs. Corazon D. Aniceto, G.R. No 224006, July 6, 2020

A lease contract is onerous in character containing reciprocal obligations; any ambiguities in

its terms are interpreted in favor of the greatest reciprocity of interests.

There is also no merit in Bonanza's contention that the contract which was "effective July 1, 2003
and until such time that it is replaced or amended by another resolution" had expired because
the Board of Directors had already issued a board resolution terminating the lease. Bonanza
interprets the term "resolution" to mean a board resolution from Bonanza. This erroneous
interpretation is offensive to the mutuality and obligatory force of contracts. The contract
actually states: “8. Effectivity - This agreement shall be effective July 1, 2003 and until such time
that it is replaced or amended by another resolution agreement.” We point out that Bonanza has
conveniently omitted the word "agreement" whenever it cited the effectivity of the contract.
This omission is misleading and unethical. A lease contract is onerous in character containing
reciprocal obligations; any ambiguities in its terms are interpreted in favor of the greatest

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reciprocity of interests. Accordingly, "resolution" or "resolution agreement" should be

interpreted to mean a subsequent agreement between the lessor and the lessee instead of a
unilateral resolution from the lessor's board of directors. Efren S. Quesada vs. Bonanza
Restaurants, Inc., G.R. No. 207500, November 14, 2016

Article 1657 of the Civil Code enumerates Efren's statutory obligations as a lessee: Article 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.

Bonanza's complaint theorized that by constructing concrete structures on the property without
Bonanza's permission, Efren effectively forestalled the sale of the property, constructively
fulfilling the resolutory condition of the lease. However, this argument is without basis. There is
no logical connection between the construction of concrete structures on the property and
Bonanza's inability to sell it. The argument is a non sequitur. Moreover, the lease contract itself
specifically recognized the lessee's right to construct on the property: “5. Improvements - All
construction improvements introduced by LESSEE shall be to his own account. It is also
understood that all materials used in the improvements shall be turned over to LESSEE upon the
sale of the property based on a submitted control listing of all approved improvements and their
respective costs at the end of the construction period.” Bonanza's approval is only relevant with
respect to Efren's right to the turnover of materials used upon the sale of the property. Other
than that, the contract does not oblige Efren to secure Bonanza's consent prior to constructing
improvements. Bonanza failed to show how any of Efren's constructions go against the
permissible use of the property based on its nature. Accordingly, Bonanza had no basis to
unilaterally terminate the lease without offending the mutuality of contracts. Efren S. Quesada
vs. Bonanza Restaurants, Inc., G.R. No. 207500, November 14, 2016

A summary proceeding for unlawful detainer contemplates a situation where the defendant's
possession, while initially lawful, had legally expired. Under the Civil Code, a lessor may
judicially eject the lessee for any of the causes under Article 1673.

The presence of any of these circumstances authorizes the lessor to directly resort to the
MTC/MeTC for summary ejectment. The lessor is no longer required to file a separate complaint
for rescission before the RTC. However, none of these circumstances is present in this case. First,
the contract did not specifically fix the period of the obligation. Therefore, we cannot conclude
that the lease had already expired. While the nature and the circumstances of the contract make

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it apparent that a period was intended, this does not authorize the lessor to unilaterally conclude
that the period had lapsed or to summarily eject the lessee. The Civil Code only grants the lessor
the right to ask the courts to fix the period. Second, the complaint did not allege that Efren had
been remiss in the payment of the stipulated rent. Third, Bonanza failed to establish that Efren
committed a substantial breach - as opposed to a casual breach - of his legal obligations (both
under the contract and under Article 1657 of the Civil Code) that would defeat the very object of
the parties in making the agreement and warrant the rescission of the contract. Lastly, Bonanza
failed to show that Efren had dedicated the property to a use that is contrary to its commercial
nature and that caused its deterioration. On the contrary, Efren had maintained the property and
made improvements on it. Efren S. Quesada vs. Bonanza Restaurants, Inc., G.R. No. 207500,
November 14, 2016

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