LEASE

Extinguishment; Total Destruction; Leased Property (1993)

A is the owner of a lot on which he constructed a building in the total cost of P10,000,000.00. Of t
hat 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
P100,000.00 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 has a right in rejecting B’s demand?

SUGGESTED ANSWER:

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, Civil Code.)

Implied New Lease (1999)

Under what circumstances would an implied new lease or a tacita reconduccion arise?

SUGGESTED ANSWER:

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.

Lease of Rural Lands (2000)

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?

SUGGESTED ANSWER:

No, Mark is not entitled to a reduction. Under Article 1680 of the Civil Code, 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 ANSWER:

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.

Leasee & Lessor; Rights and Obligations (1990)

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)-story 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.

a) What are the rights of B?

b) What are the rights of the landowner?

SUGGESTED ANSWER:

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.

SUGGESTED ANSWER:

b) The landowner/lessor may refuse to reimburse 1/2 of the value of the improvements and require
the lessee to remove the improvements. [Article 1678, Civil Code),

Leasee; Death Thereof; Effects (1997)

Stating briefly the thesis to support your answer to each of

the following cases, will the death – a) of the lessee extinguish the lease agreement?

SUGGESTED ANSWER:

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 vs. IAC, 170 SCRA 393).

Option to Buy; Expired (2001)

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?

SUGGESTED ANSWER:

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.

Sublease vs. Assignment of Lease; Rescission of Contract (2005)

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 Pl,000.00, to be increased to Pl,200.00 and Pl,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 Pl,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 18, 1992 about the
sublease and assignment, he sued Joel, Conrad and Ernie for rescission of the contract of lease and for
damages.

a) Will the action prosper? If so, against whom?Explain.

SUGGESTED ANSWER:

Yes, the action of for rescission of the contract of lease and for damages will prosper. Under Article 1659
of the Civil Code, “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 rescission of the
contract and indemnification for damages, or only the latter, allowing the contract to remain in force.”
Article 1649 of the same Code provides that “the lessee cannot assign the lease without the consent of
the lessor, unless there is a stipulation to the contrary.” Consent is necessary because assignment would
cause novation by the substitution of one of the parties (Bangayan v. Court of Appeals, G.R. No.
123581, August 29, 1997). However, the rule is different in the case of subleasing. When there is no
express prohibition in the Contract of Lease, the lessee may sublet the thing leased. (Art. 1650, Civil
Code)

In the given case, when Joel assigned the lease to Ernie, the same was done without the consent of Victor.
The assignment is void. However, there is no indication that in the written contract of lease between
Victor and Joel, that subleasing the premises is prohibited. Hence, the sublease
of Joel with Conrad is valid. In view of the foregoing, Victor can file the case of rescission and
damages only against Joel and Ernie but he cannot include Conrad.

b) In case of rescission, discuss the rights and obligations of the parties.

SUGGESTED ANSWER:

Rescission of the lease necessarily requires the return of the thing to the lessor. Hence, the judgment
granting rescission of the contract should also order the lessee to vacate and return the leased premises
to the lessor. However, since the

sublessee can invoke no right superior to that of his sublessor, the moment the sublessor is duly ousted
from the premises, the sublessee has no leg to stand on. The
sublessee’s right, if any, is to demand reparation for damages from his sublessor, should the latter
be at fault. (Heirs of Sevilla v. Court of Appeals, G.R. No. 49823, February 26, 1992).

Sublease; Delay in Payment of Rentals (1994)

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 Four-Gives Corporation.

1) Can the building owner eject Four-Gives Corporation on grounds of the repeated delays in the
payment of the rent?

2} Can the building owner ask for the cancellation of the contract for violation of the provision against
assignment?

SUGGESTED ANSWERS:

1) 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 building 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 paperwork 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 in delay if he falls 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, (Article 1673 (2), New Civil Code),

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, 216 SCRA 293). The delay of ten (10)) days is not such a substantial an
d 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.

SUGGESTED ANSWER:

2) 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.

Sublease; Sublessee; Liability (1999)

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? (3%)

SUGGESTED ANSWER:

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.

Sublease; Sublessee; Liability (2000)

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?

SUGGESTED ANSWER:
Yes, the action will prosper. Under Article 1651 of the Civil Code, 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.

Sublease; Validity; Assignment of Sublease (1990)

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?

SUGGESTED 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 of the Civil Code, the lessee may sublet
the thing leased, in whole or in part, when the contract of lease does not contain any express prohibition
(Articles 1650, 1670 Civil Code). A’s action for rescission should not prosper on this ground.

SUGGESTED ANSWER:

(b) C’s assignment of the sublease to D is not valid. Under Art. 1649, of the Civil Code, 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.