LEASE

I. Lease of things
- CHARACTERISTIC OR REQUISITES
1. consensual
2. principal
3. nominate
4. 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)
5. subject matter must be within the commerce of man
6. purpose to which the thing will be devoted should not be
immoral
7. onerous (there must be rent or price certain)
8. period is temporary (not perpetual, hence, the longest period
is 99 years)
9. lessor need not be the owner (e.g. a usufructuary may lease
the premises in favour of a stranger, such lease to end at the time that the
usufruct itself ends.)

RULE FOR LEASE OF CONSUMMABLE GOODS (Art. 1645)

GL: Consumable goods cannot be the subject matter of a contract of lease
Reason: to use or enjoy them they will have to be consumed. This
cannot be done in lease since ownership over them is not transferred
by the contract of lease.
EXC:
a. when they are merely to be exhibited or
b. when they are accessory to an industrial establishment

II. Lease of work or services

In the lease of work or service, one of the parties binds himself to execute a piece of
work or to render to the other some service for a price certain, but the relation of
principal and agent does not exist between them (Article 1644).

LEASE OF WORK - Lease of work which refers to contract for a piece of work
one of the parties binds himself to produce a result out of his work or labor and the
other party binds himself to pay a remuneration thereof
DUTIES OF CONTRACTOR WHO FURNISHES WORK & MATERIAL:
(a) duty to deliver
(b) duty to transfer ownership
(c) duty to warrant eviction and hidden defects

REMEDY OF EMPLOYER IN CASE OF DEFECTS:

a. ask contractor to remove the defect or to execute another work
b. if contractor fails or refuses, employer can ask another at the
contractor’s expense

LEASE OF SERVICE
one party binds himself to render some service to the other party consisting his own
free activity of labor, and not its result and the other party binds himself to pay a
remuneration therefor.
3 KINDS:
a. household
b. contract of labor
c. common carriers

III. Lease of rural and urban lands

A. Qualified persons
 If a lease is to be recorded in the Registry of Property, the following persons
cannot constitute the same without proper authority (power of attorney to
constitute the lease):
1. the husband with respect to the wife's paraphernal real estate
2. the father or guardian as to the property of the minor or ward
3. the manager (administrator)with respect to the property under
administration (Art. 1647).
Manager may be:
a. the administrator of conjugal property
b. administrator of co-ownership
c. administrator of state patrimonial property
B. Registration
- Every lease of real estate may be recorded in the Registry of Property.
Unless a lease is recorded, it shall not be binding upon third persons (Art.
1648).
- Purpose is to notify strangers to the transaction
- GL: Lease of real property is personal right
- EXC: Lease partakes of the nature of a real right if:
a. Lease of real property is more than 1 year
b. Lease of real property is registered regardless of duration.
- Note: Lease of personal property cannot be registered. To be binding
against 3rd persons, the parties must execute a public instrument.
- EFFECT IF LEASE IS NOT REGISTERED:
1. the lease is not binding on third persons;
2. such third person is allowed to terminate the lease in case he buys
the property from the owner-lessor;
3. actual knowledge of existence and duration of lease, is equivalent to
registration;
4. stranger knows of the existence of the lease, but was led to believe
that the lease would expire soon or before the new lease in favor of
him begins, the stranger can still be considered innocent.

C. Prohibitions
The persons disqualified to buy are also disqualified to become lessees of
the things mentioned therein - referred to in Articles 1490 and 1491. (Art.
1646)
1. The husband and the wife cannot sell property to each other, except:
a. When a separation of property was agreed upon in the marriage
settlements; or
b. When there has been a judicial separation or property under
Article 191.
Reasons:
a. To prevent prejudice to creditors
b. To prevent the stronger spouse from influencing unduly the
weaker spouse
2. Persons disqualified to in Article 1491 are disqualified because of
fiduciary relationships.

IV. Rights and obligations of lessor and lessee

OBLIGATIONS OF THE LESSOR
1. delivery of the object (cannot be waived)
2. making of necessary repairs
3. maintenance in peaceful and adequate possession (Article 1654). The
obligation arises only when legal trespass disturbs the lessee’s peaceful
enjoyment thereof
4. cannot alter the form of the thing leased (Article 1661)
OBLIGATIONS OF THE LESSEE
1. to pay rent (Article 1657)
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 (Article 1657)
 An illegal use such as for prostitution allows the lessor to end the
contract
 The lessee is liable for any deterioration caused by members of his
household, guests and visitors (Article 1668)
3. To pay expenses for the deed of lease (Article 1657).
4. GL: the lessee is obliged to tolerate the work (urgent repairs upon the
thing leased, which cannot be deferred until the termination of the lease)
although it may be very annoying to him, and although during the same,
he may be deprived of a part of the premises.
EXC: When the work is of such a nature that the portion which the
lessee and his family need for their dwelling becomes uninhabitable,
he may rescind the contract if the main purpose of the lease is to
provide a dwelling place for the lessee (Article 1662).
5. Bring to the knowledge of the proprietor, within the shortest possible time,
every usurpation or untoward act which any third person may have
committed or may be openly preparing to carry out upon the thing leased
(Art. 1663)..
Reason:
1. so that the lessor may bring proper action against the
usurper.
2. it is unjust to compel the lessor to stand idly and trust the
defense of his property to a mere lessee.
6. Notify the lessor of need for repairs
Reason: Because the lessee is in possession and the lessor has no
duty to make constant inspection. Notification is not essential if the
lessor actually knows the need for the repairs.
7. Return the thing leased, upon the termination of the lease, as he received
it, save what has been lost or impaired by
 the lapse of time, or
 by ordinary wear and tear, or
 from an inevitable cause/FE (Art. 1665).

Note: If the lessee fails to comply with 5 and 6, he would be liable for
damages which the lessor would suffer and which could have been avoided
by lessee’s diligence (Article 1663 (3))

SUBLEASE
 a lessee may sublease the thing unless there is an express prohibition to do
so
 if the prohibition to sublease is not express but only implied, the sublease will
still be allowed
 remedy of lessor if lessee violates prohibition: action for rescission of the
lease and may seek for damages
 duration of sublease cannot be longer than that of the lease to which it is
dependent on.

RESPONSIBILITIES OF A SUBLESSEE TO THE LESSOR:

1. for all acts which affect the use and
2. preservation of the thing leased
 3. for any rent due to the lessor from the lessee which the latter failed to
pay
4. the lessor must collect first form the lessee
5. if the lessee is insolvent, the sublessee becomes liable (subsidiary
liability

V. Special rules for lease of rural/urban lands

ON LEASES OF RURAL LANDS

REDUCTION OF RENT
GL: The lessee shall have no right to a reduction of the rent:
1. on account of the sterility of the land leased, or
2. by reason of the loss of fruits due to ordinary fortuitous events (Article 1680);
3. the fruits are lost after they have been separated from their stalk, root or
trunk (Article 1681).
EXCEPT: Loss of more than one-half of the fruits through extraordinary and
unforeseen fortuitous events, UNLESS there is a specific stipulation to the contrary
(Article 1680).

DURATION OF LEASE
No fixed period (indefinite)
It shal be 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 (Art. 1682)

OBLIGATION (Article 1683)

 Outgoing lessee
He shall allow the incoming lessee or the lessor the use of the premises and
other means necessary for the preparatory labor for the following year.
 Incoming lessee/lessor
Permit the outgoing lessee to do whatever may be necessary for the
gathering or harvesting and utilization of the fruits, all in accordance with the
custom of the place
LAND TENANCY ON SHARES shall be governed by:
 special laws
 stipulations of the parties
 provisions on partnership
 customs of the place. (Art. 1684)
The tenant on shares cannot be ejected except in cases specified by law. (Art.
1685)

ON LEASE OF URBAN LANDS

The kind of repairs on urban property for which the lessor shall be liable;
Governed by (Art. 1686):
a. special stipulation and in default thereof
b. custom of the place
Note: In case of doubt it is understood that the repairs are chargeable against
him.

DURATION OF LEASE (Article 1687):

If there is no fixed period (indefinite)
a. from day to day, if the rent is to be paid dailyt
*the courts may also fix a longer period after the lessee has stayed in the
place for over one month
b. from week to week, if the rent is weekly
*the courts may likewise determine a longer period after the lessee has
been in possession for over six months
 c. from month to month, if it is monthly
*the courts may fix a longer term for the lease after the lessee has
occupied the premises for over one year
d. from year to year, if the rent agreed upon is annual

When the lessor of a house, or part thereof, used as a dwelling for a family,
or when the lessor of a store, or industrial establishment, also leases the
furniture, the lease of the latter shall be deemed to be for the duration of the
lease of the premises. (Art. 1688)

VI. Household service

Article 1689-1699
Jurado: For purposes of the Bar examination, this part of NCC is taken up in Labor
Law.

VII. Contract of labor

A. Obligation in case of death/injury of laborers Art. 1711 - 1712

GL: Owners of enterprises and other employers liable for compensation:
1. if the death or personal injury arose out of and in the course of the
employment even though the event may have been purely accidental or
entirely due to a fortuitous cause.
2. if the employee contracts any illness or disease caused by such employment
or as the result of the nature of the employment.
3. If employee's lack of due care contributed to his death or injury, the
compensation shall be equitably reduced.
4. If the death or injury is due to the negligence of a fellow worker, the latter and
the employer shall be solidarily liable for compensation

EXC:
1. If the mishap was due to the employee's
a. own notorious negligence, or
b. voluntary act, or
c. drunkenness.
2. If a fellow worker's intentional malicious act is the only cause of the
death or injury UNLESS it should be shown that the latter did not
exercise due diligence in the selection or supervision of the plaintiff's
fellow worker.

VIII.Contract for piece of work

 By the contract for a piece of work the contractor binds himself to execute a
piece of work for the employer, in consideration of a certain price or
compensation. The contractor may either employ only his labor or skill, or
also furnish the material. Art. 1713
 If the contractor agrees to produce the work from material furnished by him,
he shall deliver the thing produced to the employer and transfer dominion
over the thing.
 This contract shall be governed by the following articles as well as by the
pertinent provisions on warranty of title and against hidden defects and the
payment of price in a contract of sale (Art. 1714).

Mechanic’s lien
Refers to the right of retention recognized in Article 1731 by virtue of which he who
has executed work upon a movable has a right to retain it by way of pledge until he is
paid.
The contract shall execute the work in such a manner that it has the qualities agreed
upon and has no defects which destroy or lessen its value or fitness for its ordinary or
stipulated use. Should the work be not of such quality, the employer may require that
the contractor remove the defect or execute another work. If the contract fails or
refuses to comply with this obligation, the employer may have the defect removed or
another work executed, at the contractor's cost. Art. 1715

GL:An agreement waiving or limiting the contractor's liability for any defect in the work
is not void
EXC:if the contractor acted fraudulently (Art. 1716)

WHO SUFFERS LOSS BEFORE ITS DELIVERY (Art. 1717).:

 GL: Contractor if he bound himself to furnish the material
 EXC: there has been delay in receiving it.
 EFFECT:
GL: The contractor who has undertaken to put only his work or skill, cannot claim
any compensation if the work should be destroyed before its delivery, EXC:
1. there has been delay in receiving it OR
If, in the execution of the work, an act of the employer is required,
and he incurs in delay or fails to perform the act, the contractor is
entitled to a reasonable compensation. (Art. 1721)

2. if the destruction was caused by the poor quality of the material, provided
this fact was communicated in due time to the owner.

NOTE: If the material is lost through a fortuitous event, the contract is extinguished.
(Art. 1718.)

GL:Acceptance of the work by the employer relieves the contractor of liability for any
defect in the work, unless:
EXC:
1. The defect is hidden and the employer is not, by his special knowledge,
expected to recognize the same; or
2. The employer expressly reserves his rights against the contractor by reason
of the defect. (Art. 1719)

Payment of Price or Compensation

 The price or compensation shall be paid at the time and place of delivery of
the work, unless there is a stipulation to the contrary.
 If the work is to be delivered partially, the price or compensation for each part
having been fixed, the sum shall be paid at the time and place of delivery, in
the absence if stipulation. (Art. 1720)
 Reasonable compensation if employer incurs in delay (Art. 1721) - the
amount of the compensation is computed, on the one hand, by the duration
of the delay and the amount of the compensation stipulated, and on the other
hand, by what the contractor has saved in expenses by reason of the delay
or is able to earn by a different employment of his time and industry.
 Equitable part of the compensation proportionally to the work done, and
reimbursement for proper expenses made - If the work cannot be completed
on account of a
o defect in the material furnished by the employer, or
o because of orders from the employer, without any fault on the part of
the contractor ( Art. 1722)
Liable for Damages (Article 1723)
1. Engineer or Architect
 if within fifteen years from the completion of the structure, the same
should collapse by reason of a:
1. defect in those plans and specifications, or
2. due to the defects in the ground.
2. The contractor is likewise responsible for the damages
 if within fifteen years from the completion of the structure, the edifice
falls, on account of
o defects in the construction or
o the use of materials of inferior quality furnished by him, or
o due to any violation of the terms of the contract.
NOTE:
 If the engineer or architect supervises the construction, he shall
be solidarily liable with the contractor.
 Acceptance of the building, after completion, does not imply
waiver of any of the cause of action by reason of any defect
mentioned in the preceding paragraph.
 Prescriptive Period: The action must be brought within ten years
following the collapse of the building.

CONTRACTORS WITHDRAWAL/INCREASE OF THE PRICE (Art. 1724 & 1725)

By the CONTRACTOR
GL: The contractor who undertakes to build a structure or any other work for
a stipulated price, in conformity with plans and specifications agreed upon
with the land-owner, can neither withdraw from the contract nor demand an
increase in the price on account of the higher cost of labor or materials.
EXC: there has been a change in the plans and specifications, provided:
1. Such change has been authorized by the proprietor
in writing; and
2. The additional price to be paid to the contractor has
been determined in writing by both parties.

BY THE OWNER
The owner may withdraw at will from the construction of the work, although it
may have been commenced, indemnifying the contractor for all the latter's
expenses, work, and the usefulness which the owner may obtain therefrom,
and damages.

RESCISSION OF CONTRACT (Art. 1726)

1. When a piece of work has been entrusted to a person by reason of
his personal qualifications, the contract is rescinded upon his death.
2. The same rule shall apply if the contractor cannot finish the work due
to circumstances beyond his control.
In this case the proprietor shall pay the heirs of the contractor in proportion to
the price agreed upon, the value of the part of the work done, and of the
materials prepared, provided the latter yield him some benefit.

LIABILITY OF CONTRACTOR FOR ACTS OF EMPLOYEES

 Liabilities from work done by persons employed by him. (Art. 1727)
 claims of laborers and others employed by him, and of third persons
for death or physical injuries during the construction. (Art. 1728)

ACTION AGAINST OWNER FOR UNPAID WAGES/MATERIALS

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.
 The following shall not prejudice the laborers, employees and furnishers of
materials:
1. Payments made by the owner to the contractor before they
are due;
2. Renunciation by the contractor of any amount due him from
the owner. (Art. 1729)
3.
NOTES:
 If it is agreed that the work shall be accomplished to the satisfaction of the
proprietor, it is understood that in case of disagreement the question shall be
subject to expert judgment (Art. 1730)
If the work is subject to the approval of a third person, his decision shall be
final, except in case of fraud or manifest error.
 He who has executed work upon a movable has a right to retain it by way of
pledge until he is paid (Art.1731)