FINAL EXAM REVIEWER

SALES & LEASE

EXTINGUISHMENT OF SALE

Causes for extinguishment of sale:

 Common Causes
o Payment
o Loss of thing
o Condonation
 Special causes

 Extra special causes

o Conventional redemption
o Legal redemption

 CONVENTIONAL REDEMPTION
o is the right of the vendor to reacquire the property sold provided he returns to the
vendee the price of sale, expenses of the contract and other expenses in a given
period of time as stipulated in the contract.
o Real and personal property may be subject of pacto de retro sales or sales with
right to repurchase

Nature
 Contractual – right created and not mandated by law
 Accidental stipulation
 Real right when registered and binds third person’
 Potestative because depends on the right of the vendor
 Resolutory condition because vendee’s ownership is extinguished when exercised
 Privilege that the vendor has reserved

Note: Deed of Absolute Sale and an option to buy cannot be considered as contract of sale with
pacto de retro.

Right to Redeem Right of Repurchase

 By force of law: purchaser at public  After the expiry of period, purchaser
auction is bound to accept redemption may or may not resell the property
 Within the discretion to set higher
price

 Equitable Mortgage – lacks the proper formalities prescribed by law but shows the
intention of the parties to make the property as security for a debt.

 To be presumed when:
1. Price of sale with right to repurchase is unusually inadequate
2. Vendor remains in possession as lessee
3. Extending the period of redemption
4. Purchaser retains for himself part of purchase price
5. Vendor binds to pay taxes in the thing sold
6. Intention to secure payment of debt

 Requisites:
o Contract of Sale with a right to repurchase
o The intention is to secure an existing debt

Note: Parol evidence is admissible to prove that the contract was in truth and in fact given as
merely a security for payment of loan.
 Pacto de Retro
 Ownership is transferred upon
delivery with the condition that the
seller has the right to recover
ownership within a period of time
 If not repurchased, seller loses all
interest/ title to the property
 There is no obligation upon the
purchaser to foreclose and the seller
loses the right to redeem after period
stipulated.--> The vendee has the
right to sell the property to a third
person.
Mortgage
 Ownership is not transferred but
property is just subjected to a charge
or lien as security for loan
 Mortgagor does not lose his interest
even he fails to pay debt but only
subject the property to foreclosure
and public sale.
 The mortgagee has the duty to
foreclose property upon non-payment
of debt.

 Pacto de retro
o Vendor stands as the debtor and the vendee as creditor of the repurchased
price.
o The property is not used as security.
o A sale subsequently made by the vendor a retro to an IPV could defeat the
vendees right to repurchase if not properly registered.

 Note: Pactum commissorium – stipulation that mortgagee acquires ownership of the

thing automatically upon non-payment of obligation without the need of foreclosure 
unlawful and void.

Circumstances indicative of the intention to execute mortgage:

1. Vendor in urgent need of money
2. Automatic appropriation by vendee of property sold stipulated/ pactum commisorium
3. Vendee given the possession of certificate if title
4. Escalation of purchase price every month stipulated
5. Vendor borrowed from vendee money used in buying property sold
6. Vendor of low intelligence and illiterate

Article 1603: In case of doubt, contract of sale with right of repurchase shall be construed as
equitable mortgage.

Article 1604: Aticle 1602 shall also apply to contract of absolute sale.

Effect where contract held as an equitable mortgage

1. Formal requirements of mortgage deemed complied.
2. Contract is subordinate to an existing/ subsequent registered mortgage
3. Title remains to vendor
4. Remedy of creditor is to foreclose
5. Conveyance of land shall not affect mortgagor/vendor’s right of redemption

Article 1605: Reformation – the remedy granted by law where a written instrument is made to
express the real intention of the parties.  there has been meeting of minds but the written
instrument did not express their true intention.

 Period of redemption
o Absence of stipulation  4 years
o If stipulated shouls not be more than 10 years.
o Should be effective from the date of the contract or the fulfillment of the
suspensive condition if stipulated.
o After expiration of period of redemption, extension is void
o Before expiration of period of redemption, extension is allowed but should not
exceed 10 years.
  Stipulation that failure to pay rental of the vendor-lessee shall cause termination of Pacto
de retro and shall vest absolute ownership to the vendee is valid and legal.

 Article 1608: The vendor can exercise right of redemption against every possessor
whose right is derived from the vendee (even not stipulated in the second contract) for
as long as it is within the period of redemption.

 Article 1611: Vendee may compel vendor a retro to repurchase entire parcel of land so
that property will not revert back to co-ownership.

 Co-owners can only exercise their right of redemption for the share they own. But
vendee may compel all co-owners to redeem the whole property.

 Article 1618: Vendor a retro has the right to recover thing sold free from charges/
encumbrances but should respect lease agreements.

CONVENTIONAL REDEMPTION LEGAL REDEMPTION

 Stipulation in the contract  Right of redemption conferred by law/
statutory

LEGAL REDEMPTION

 The right to be subrogated, upon the same terms and conditions stipulated, in the place
of one who acquires a purchase or dation in payment.

 Dation or dacion en pago – is the transmission of the ownership of a thing by the

debtor to the creditor as the accepted equivalent of the performance of obligation.

 Article 1620: Right of legal redemption of co-owner:

To whom granted Requisites Notes

by the statute/ law
Article 1620: Co- 1. Co-ownership of a thing  Redemption is not a mode of
owners 2. Alienation of the share of anyone terminating co-ownership. If redeemed
of them by one of the co-owners it should be
3. Sale to third person/ stranger for the benefit of the co-owners.
4. Sale before the partition
5. Redemption must be done within
period provided
6. Reimbursement/ payment for the
sale price

Article 1621: 1. Both land should be rural  Preference between adjacent owners:
Adjoining owners of 2. Land must be adjacent owner of smaller area…if same, the
rural land 3. There is alienation one who requested first.
4. Rural land alienated not  Rural land – used for agricultural or
exceeding 1 hectare pastoral purposes
5. Vendee owns the rural land
6. Adjacent land not separated
by brooks, ravines, roads
Article 1622: 1. Urban land  Pre-emption – act/right of purchasing
Adjoining owners of 2. Land is so small before others
urban land 3. Bought merely for  Redemption – exercised after the sale
speculation has been perfected against the vendee
4. Land is resold  Preference between adjacent owners:
one whose intended use of land
appears best justified.
 Urban land – located within the center
of population of city/town.

  Article 1623:
o Must be exercised 30 days upon written notice of the vendor that the property
was sold  Absolute and non-extendible.
o The right of redemption of co-owners excludes that of adjoining owners.
o Actual knowledge of sale is sufficient to exercise right of redemption.

ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS

 Assignment of Credit – is a contract which the creditor (assignor) transfer either

onerously or gratuitously to another (assignee) his rights and actions against the third
person (debtor).

 Perfection
o Perfected upon agreement of parties on the assignment and the price
o Assignee will acquire ownership only upon delivery
o Execution of public instrument is equivalent to delivery of incorporeal right
 Consent of the debtor in the assignment of credit is not necessary.

Assignment as distinguished to other terms:

 Renunciation involves abandonment of right without transfer.
 Agency involves representation of the agent for the principal not transmission .
 Substitution is change by the previous debtor by a new debtor in the same creditor.
 Subrogation is the change in the person of creditor with his credit being transferred to
the new creditor.
 Dation in payment is the alienation of property for the satisfaction of a debt in money.

Article 1625: Binding Effect of Assignment

 Valid between parties even appearing to private instrument so long that the laws does
not specify form for validity.
 To affect third person, it should be executed in a public instrument.
 If it involves real property, the instrument shall be registered.
 The assignee merely steps in the shoes of the assignor.

Article 1626: The debtor who paid his creditor, absence knowledge of assignment, shall be
released from the obligations.

Article 1627: The assignment of credit includes all the accessory right such as guaranty,
mortgage, pledge or preference.

Article 1628: Warranties of the Assignor:

1. Warrants the existence and legality of credit
2. Does not warrant solvency of the debtor unless expressly stipulated

Article 1629: Duration of assignor’s liability when debtors solvency is guaranteed:

 Period stipulated
 1 year from credit assignment when credit has matured
 1 year after maturity when credit is yet to expired

Article 1630:
 Hereditary rights in an estate can be validly sold before partition.
 The seller of hereditary right warrants only the fact of his heirship but does not warrant
the objects which make up his inheritance.

Sale of Hereditary Rights Waiver of Hereditary Rights

 Contract of sale between parties  Mode of extinction of ownership /
intentional relinquishment of a known
right
Article 1632: Should the vendor have profited by some of the fruits or received anything from the
inheritance sold, he shall pay the vendee, unless contrary is stipulated.

To whom Requisites Notes

granted by the
statute/ law
Article 1634: 1. Sale/ assignment of credit  Redemption is not a mode of
Debtor in case a of incorporeal right terminating co-ownership. If
credit or 2. Credit is under litigation redeemed by one of the co-
incorporeal right 3. Pending litigation at the owners it should be for the
in litigation is time of assignment benefit of the co-owners.
sold. 4. Assignee must demand
payment to debtor
5. Debtor must reimburse the
assignee
6. Payment must be made
30 days from demand

Article 1635: Exceptions to debtors right to legal redemption:

1. To a co-heir or co-owner
2. To creditor
3. To possessor of a land which is subject of litigation

Article 1636:
 Goods
o Stock certificate is goods
o Real property is not goods
o Money is not goods
 Ascertained goods
o Specific – if identified and agreed upon during the contract of sale
o Not specific – identification takes place afterwards
o Existing goods – owned and possessed by the seller
o Future goods – to be manufactured by the seller.

BARTER

 Contract of Barter – one of the parties binds himself to give one thing in consideration
of others promise to give another thing.

 Consensual – perfected by mere meeting of minds

 Consummated during the mutual delivery of contracting parties

 Article 1939: When the giver is not the lawful owner of the thing delivered, aggrieved
party cannot be compelled to deliver the thing promised.

 Article 1940: In case of eviction, the injured party is given the option either to recover the
property (subject to the right of the IPV) or claim damages.
 LEASE
 Contract of Lease
o Agreement whereby one person (lessor) binds himself to grant temporary
enjoyment or use of a thing or to render work or service to another (lessee) who
undertakes to pay rent or compensation.
o Personal right except lease of real estate recorded in the registry of deeds and is
binding upon third person.
o Not essentially personal in character and is binding heirs except otherwise
stipulated

 Kinds of Lease
1. Lease of things – obligation on the part of the lessor to deliver the thing which is
the object of the lease

2. Lease of work refers to contract for a piece of work – involving an obligation of

the independent contractor (lessor) to execute a piece of work for the employer
(lessee)

3. Lease of service involving an obligation on the part of the laborer or common

carrier to do or perform service in consideration of compensation.

 Elements
o Consensual, bilateral, onerous, commutative, nominate and principal

 Article 1643: one of the parties binds himself to give to another enjoyment/ use of a thing
for certain price, for a period which may be definite or indefinite.
o No lease for more than 99 years shall be valid.
Essence
o Transmission of temporary use/ enjoyment
o The act of parking a vehicle in the garage upon payment of fixed amount is a
lease.
Subject Matter
o The object of lease must be within the commerce of man.
Ownership
o The lessor need not be the owner of the thing leased for as long as he can
transmit enjoyment and use. Ex. Sublease or usufruct
Consideration
o Rent/ rental in money or its equivalent such as products, fruits, or other useful
things
o Lessor cannot increase the rental without the consent of the lessee during the
period fixed in the contract.
Period
o 99 years maximum
o Verbal contract of “for as long as doing business…” means month to month and
not indefinite duration
o “during the lifetime”, ending upon death of either party

Note: In case of uncertainty as to the meaning of the provision granting extension, the tenant is
the one favored.

Mutuality of Contract

Lease
 Only enjoyment or use is transferred
 Transfer is temporary
 Lessor need not be the owner
 Price of subject matter is not
Sale
 Ownership is transferred
 Transfer is permanent
 Vendor must be the owner /
authorized by the owner
 Price is fixed in the contract
 mentioned
Lease
 Onerous contract which requires
payment
 Right may be transmitted to heirs
 Consensual contract
 Transmission of enjoyment/ use of a
thing
Lease
 Ownership is retained
 Lessor-lessee
 Real or personal property
 Covered by Statutes of Fraud
Lease
 Real right when involves real
properties and registered
 May or may not be the owner
 Lessor has active obligation to
maintain lessee enjoyment
 Pay no taxes
 Lessee has no obligation for repairs
 Created by contract
 Limited use based on the contract
Article 1644: Lease of work or service
 Lease of work, the object is the execution of a piece of work for an employer by an
independent contractor.
 Lease of service
o performance of some service
o Employer by a house helper
o Laborer
o Passenger or owner of goods by a common carrier
Contract of Lease
 Employment
 Lessor performs material act for the
benefit of the employer
 Work/ service must be for a
compensation
 Will of both parties is needed for
extinguishment of relation
 Parties are lessor and lessee
 Independent contractor is personally
liable for contracts for third person
 Servant/ laborer performs ministerial
duty
Commodatum
 Gratuitous
 Purely personal and the death of any
of the party extinguishes the contract
 Real contract and is perfected upon
delivery of object

Mutuum
 Lender loses ownership and the
borrower becomes the owner
 Creditor-debtor
 Money or consumable goods
 Not covered
Usufruct
 Always a real right
 Must be the owner
 Owner has passive duty to allow the
usufructuary to enjoy/ use
 Annual charges/ taxes
 Usufructuary is obliged to do ordinary
repairs
 Created by law, contract, last will or
prescription
 Covers all possible use
Contract of Agency
 Basis is representation
 Agent executes a juridical act in
behalf of principal
 Presumed for a compensation
 Will of one is sufficient
 Parties: Principal, agent, third person
 Not liable unless he exceeds his
authority
 Agent exercise discretionary powers
 LEASE PARTNERSHIP
 No principle of representation  Every partner is an agent of
partnership
 Lessor performs material act for the  Enters into transactions for profit
benefit of the employer
 Two persons are involved  Juridical person of the partnership is
involved
 Work/ service is dependent on the  Performs act conducive for their
lessee business
 Work/ service must be for a price  For profit
 Will of both parties for the  Will of any partner is sufficient
extinguishment of relationship
 Lessor has ministerial duty  Every partner has discretionary
powers

 Compensation in lease of work or service

o Lessee is compelled to pay the agreed price
o Compensation if not stipulated can be determined thoru reasonable and
equitable compensation according to customs/ evidence.
o Court may fixed the amount when conflict arise
o Boundary system as scheme for owner-operator is not a lessee-lessor
relationship but an employee-employer relationship.

 Article 1645: Consumable goods cannot be subject matter of a contract of lease except
when they are used for mere exhibit or when they are accessory to an industrial
establishment.

LEASE OF RURAL AND URBAN LANDS

 Article 1646: Person disqualified to become lessees:

o Article 1490: Husband and wife
o Article 1491: Guardian and ward , agents administering lands, executors and
administrators, public officials and employees for the property of the state, judges
& justices, lawyers as to property object of litigation
o Foreigners can lease immovable property for a period of 25 years renewable for
another 25 years.

 Article 1648: Lease shall be recorded in the Registry of property to bind third person.
o Unregistered contract of lease cannot bind purchaser of the property.

 Article 1649: The lessee cannot assign lease without consent of the lessor; sublease
arrangement is not covered.

 Article 1650: Sublease in whole or in part absence the express prohibition… there are
three parties and two distinct juridical relations.
o Accepting boarders not equivalent to subleasing… there is no surrender of
possession and control of the leased premises.

 Article 1651: Sublessee is bound to the lessor for all acts which refer to use and
preservation of the thing leased in the manner stipulated between the lessor and the
lessee.
 Article 1652: The lessor has the right to demand payment from the sublessee the rents
which the sublessor (lessee) failed to pay to the lessor.

 Article 1653: Warranties of Lessor

o Lessor has the right to lease the thing
o Lessee shall enjoy peaceful possession
o Thing is fit for use for intended purpose
 o Free from hidden fault or defect

RIGHTS AND OBLIGATIONS OF THE LESSOR

Obligation of lessor:
1. Deliver the thing object of the contract
2. To make necessary repairs in order to keep the thing suitable for use
3. To maintain the lessee in the peaceful and adequate enjoyment

 If stipulated, the lessee has a right that the lessor’s first offer shall be in his favor.

 Article 1655: If thing leased in totally destroyed by a fortuitous event, lease is

extinguished. If partial, proportional reduction or rescission.

 Article 1656: the lessor of a business establishment may continue engaging in the same
business same with the lessee unless there is express prohibition.

Obligation of the lessee:

1. Pay the price of lease
2. Use thing leased as diligent father of a family
3. Pay expenses for the deed of lease

 Article 1658: Lessee may suspend payment of rent in cases

1. lessor fails to make necessary repairs.
2. Evection

 Non performance of obligations of either the lessee and the lessor  aggrieved party
may ask for the recission of the contract and indemnification or indemnification and
continuation of contract.

 Whenever the leased property is a dwelling place or building dangerous to life or health,
the lessee has an option to rescind the contract.

 In case of urgent repairs:

o Lessee has no choice but to bear the burden of inconvenience.
o If repair is more than 40 days, lessee has the right for proportionate reduction. If
less than 40 days, lessee cannot ask for reduction.
o If main purpose is for dwelling place and the repair make the place uninhabitable,
lease can be rescinded.
 Lessee has the obligation to notify lessor of usurpation or untoward act of third person. I

 In case of Trespass:
1. Mere act of trespass – the lessor is not liable for the disturbance and the lessee
has a direct action against intruder
2. Trespass in law or legal trespass – lessor becomes liable to the lessee.

 Lessee has the obligation to return the thing leased upon expiration of lease.
 The lessee is liable for any deterioration caused by members of his household and
guests.
 The lease terminates on the day fixed in the contract without the need of a demand or
notice to vacate and return possession.
o When lessee refuses to pay but continues in his possession of the premises, he
is withholding the property unlawfully.
o When the lessee continues to pay rent and with the consent of the lessor, this
constitutes implied renewal. If payment is done monthly, the contract is deemed
to be renewed monthly.
 Except when there is an express prohibition against implied renewal.
 o Demand letter is a prerequisite for an action of unlawful detainer
o When there is a stipulation of condition on the termination of the contract and the
condition happens, the lease shall be deemed terminated.
 There is a presumption of receipt of thing leased in good condition absence the
stipulation.
 The lessee is responsible for the deterioration and loss of thing leased, unless lessee
proves it took place without his fault.
 Continuous possession by lessee over lessor’s objection  possessor in bad faith.

 Fair rental value in cases of forcible entry and unlawful detainer cases amount which
a willing lessee would pay and a willing lessor would receive.

 Lessor may judicially eject lessee on any of the following cases:

1. Expiration of period stipulated

2. Lack of payment
3. Violation of terms
4. Improper use of the leased property -- Lessee devote the thing leased to any use
not stipulated which causes deterioration

 The lessor is entitled to a writ of preliminary injunction to restore him in his possession
in case of appeal. RTC in its appellate jurisdiction can grant writ.
 Purchaser of land with unregistered lease may terminate the lease except when there is
stipulation in the contract of sale or purchaser knows the existence of lease.

 In case of sale with the right to redemption, the purchaser cannot eject the lessee until
the end of period of redemption.

 The lessee has the right of 50% reimbursement with regards to useful improvements. If
the lessor refused to pay, the lessee can remove the improvements even thought
principal thing may suffer.
o Necessary repairs are essential to preserve the thing rented example: repair on
wire, plumbing system  lessee is entitled full reimbursement.
o Repairs on window, kitchen cabinets and wooden fixtures constitute useful
improvements – one half the value at the termination of lease.

 Place of payment
o As stipulated
o Domicile of lessee
o Leased premises
o Where the determinate thing is
 Time of payment
o As stipulated
o Custom of the place

LEASE FOR RURAL LANDS

Article 1680: General Rule: Lessee shall have no right in the reduction of rent

except:
 The land leased is rural
 More than half of fruits has been lost
 Due to extra ordinary and unforeseen fortuitous event (flood, fire,
pestilence)
 There is no express prohibition in the contract

 Duration of rural lease

o Fixed in the contract
 o In the absence, fixed by law:
 Time necessary to gather fruits / 1 year in case of agricultural grops
 ---?

 Obligation of outgoing and incoming lessee or lessor

o The outgoing lessee shall allow the incoming lessee or lessor to make
preparatory works for the crop the following year
o The incoming lessee and lessor shall permit the outgoing lessee to gather or
harvest and utilize the fruits he has produced.

LEASE FOR URBAN LANDS

 The lessor is obliged to make necessary repairs on the property leased. In case of doubt
as to who shall bear the cost of repair, it shall be chargeable to the lessor.
 Lease of premises together with furniture.

WORK AND LABOR

HOUSEHOLD SERVICES

 Household or domestic service is that rendered by a domestic worker who works in

the house with whom helper usually lives.
o Domestic worker refers to person engaged in domestic work within employment
relationship such as househelp, yaya, cook, gardener, laundry person, driver,
etc.
o Domestic worker is entitled to reasonable compensation., suitable lodging
food and medical attendance.
o Household service cannot be gratuitous. Any stipulation that the services is
without compensation is against public morals and is void.

 Minimum wage:
o 2, 500/ month – NCR
o 2, 000 / month – cities and first class municipalities
o 1, 500/ month – municipalities
 Obligation of the head of the family to provide:
1. quarters, food and medical attendance
2. under 18, elementary education
3. suitable clothing
4. treated just and humane manner
5. 4 days vacation/ month, work not more than 10 hours a day
6. Funeral expenses
7. Termination for just cause

 Duration is two years and can be renewed every year.

CONTRACT FOR A PIECE OF WORK

Contract for a piece of work Lease of Service

 Direct object of contract is the
complete and finished work done by
independent contractor
 Controls the results or the end
 Risk is upon the independent
contractor
 Price is not payable unless work is
completed and accepted
 No employer-employer relationship
 Direct object is the service itself
 Controls the manner and means used
to produce the result
 Even if result is not achieved
renumeration is still due for the
service rendered
 Payment after the services has been
performed
 Relationship exist
 Material furnished by the contractor:
o To deliver the thing produced
o Transfer dominion over the thing
o To warrant against eviction and hidden defects

 Remedy of employer in case of defects:

o Require contractor to remove defect or execute another
o At the expense of the contractor

 Stipulation waiving or limiting contractor’s liability for defects is void and contrary to
public policy.
 Loss before delivery should be suffered by contractor.

 Delivery and acceptance relieves contractor of any liability except for hidden defects.
 Default employer/ non-performance, contractor is entitled of compensation.
 Non-completion attributable to the employer – contractor can demand for compensation/
reimbursement.

 General rule: If there’s price stipulated in building of a structure,

o the contractor cannot withdraw from the contract,
o Demand increase even if materials should increase
o Claim quantum meruit
 Exceptions:
 Change has been authorized in writing
 Agreed upon by parties in writing.

 The owner has the right to withdraw from construction and indemnify the contractor with
expenses, work and damages.
 Rescission of contract
o Death of contractor
o Unavoidable circumstances beyond the control of the contractor

 Contractor is responsible for the work done by persons employed by him.

 Subsidiary liability of owner to laborers in case of:

o Payments made by the owner to the contractor before they are due
o Renunciation by the contractor of any amount due to him from the owner.

 Right of retention of the contractor until he is paid.