G.R. No.

178610
17, 2010

November

a labor dispute arose which resulted to the

termination of petitioners as employees.

HONGKONG AND SHANGHAI BANKING

CORP., LTD. STAFF RETIREMENT PLAN,
Retirement Trust Fund, Inc.)Petitioner,
vs.
SPOUSES BIENVENIDO AND EDITHA
BROQUEZA, Respondents.

Because of their dismissal, petitioners

were not able to pay the monthly
amortizations of their respective loans.
Hence
suit
for
recovery
against
petitioners.
The Metropolitan Trial Courts Ruling

DECISION

RTC- petitioner

the loans secured by their future

retirement benefits to which they are no
longer entitled are reduced to unsecured
and pure civil obligations. As unsecured
and pure obligations, the loans are
immediately demandable.

CA respondents

The Regional Trial Courts Ruling

Hence this petition

The RTC ruled that Gerong and Editha

Broquezas termination from employment
disqualified them from availing of benefits
under their retirement plans. As a
consequence, there is no longer any
security for the loans. HSBCL-SRP has a
legal
right
to
demand
immediate
settlement of the unpaid balance because
of
Gerong
and
Editha
Broquezas
continued default in payment and their
failure to provide new security for their
loans. Moreover, the absence of a period
within which to pay the loan allows HSBCLSRP to demand immediate payment. The
loan obligations are considered pure
obligations, the fulfillment of which are
demandable at once.

CARPIO, J.:
MTC petitioner

The Facts
The appellate court narrated the facts as
follows:
Petitioners Gerong and [Editha] Broqueza
(defendants below) are employees of
Hongkong
and
Shanghai
Banking
Corporation (HSBC). They are also
members of respondent Retirement Plan.
[Editha] Broqueza obtained a car loan and
appliance loan.
Geriong was granted an emergency loan.
Both were paid through automatic salary
deduction.
On the other hand, petitioner Gerong
applied and was granted an emergency
loan in the amount of Php35,780.00 on
June 2, 1993. These loans are paid through
automatic salary deduction.

The Ruling of the Court of Appeals

complaints for recovery of sum of money
against Gerong and the spouses Broqueza
are premature as the loan obligations
have not yet matured. Thus, no cause of
action accrued in favor of HSBCL-SRP.
Issues

WON the unpaid loans became

pure obligations due to the
termination of the respondents

under the provisions of Rule 39, Section 12

of the Rules of Court.15
In ruling for HSBCL-SRP, we apply the first
paragraph of Article 1179 of the Civil
Code:

The Courts Ruling

The petition is meritorious. We agree with
the rulings of the MeTC and the RTC.

PROMISSORY NOTE

Art. 1179. Every obligation whose

performance does not depend upon a
future or uncertain event, or upon a past
event
unknown
to
the
parties,
is demandable at once.

P_____ Makati, M.M. ____ 19__

x x x. (Emphasis supplied.)

FOR VALUE RECEIVED, I/WE _____ jointly

and severally promise to pay to THE HSBC
RETIREMENT PLAN (hereinafter called the
"PLAN") at its office in the Municipality of
Makati, Metro Manila, on or before until
fully paid the sum of PESOS ___ (P___)
Philippine Currency without discount, with
interest from date hereof at the rate
of Six per cent (6%) per annum, payable
monthly.

We affirm the findings of the MeTC and the

RTC that there is no date of payment
indicated in the Promissory Notes. The RTC
is correct in ruling that since the
Promissory Notes do not contain a period,
HSBCL-SRP has the right to demand
immediate payment. Article 1179 of the
Civil
Code
applies.
The
spouses
Broquezas obligation to pay HSBCL-SRP is
a pure obligation. The fact that HSBCL-SRP
was content with the prior monthly checkoff from Editha Broquezas salary is of no
moment. Once Editha Broqueza defaulted
in her monthly payment, HSBCL-SRP made
a demand to enforce a pure obligation.

The Promissory Notes uniformly provide:

I/WE agree that the PLAN may, upon

written notice, increase the interest rate
stipulated in this note at any time
depending on prevailing conditions.
I/WE hereby expressly consent to any
extensions or renewals hereof for a portion
or whole of the principal without notice to
the other(s), and in such a case our
liability shall remain joint and several.
1avvphi1

In case collection is made by or through

an attorney, I/WE jointly and severally
agree to pay ten percent (10%) of the
amount due on this note (but in no case
less than P200.00) as and for attorneys
fees in addition to expenses and costs of
suit.
In case of judicial execution, I/WE hereby
jointly and severally waive our rights

In their Answer, the spouses Broqueza

admitted that prior to Editha Broquezas
dismissal from HSBC in December 1993,
she
"religiously
paid
the
loan
amortizations, which HSBC collected
through payroll check-off."16 A definite
amount is paid to HSBCL-SRP on a specific
date. Editha Broqueza authorized HSBCLSRP to make deductions from her payroll
until her loans are fully paid. Editha
Broqueza, however, defaulted in her
monthly loan payment due to her
dismissal. Despite the spouses Broquezas
protestations, the payroll deduction is
merely a convenient mode of payment
and not the sole source of payment for the
loans. HSBCL-SRP never agreed that the

loans will be paid only through salary

deductions. Neither did HSBCL-SRP agree
that if Editha Broqueza ceases to be an
employee of HSBC, her obligation to pay
the loans will be suspended. HSBCL-SRP
can immediately demand payment of the
loans at anytime because the obligation to
pay has no period. Moreover, the spouses
Broqueza have already incurred in default
in paying the monthly installments.
Finally, the enforcement of a loan
agreement
involves
"debtor-creditor
relations founded on contract and does
not in any way concern employee
relations. As such it should be enforced
through a separate civil action in the
regular courts and not before the Labor
Arbiter."17
WHEREFORE, we GRANT the petition.
The Decision of the Court of Appeals in
CA-G.R. SP No. 62685 promulgated on 30
March
2006
is REVERSED and SET
ASIDE. The decision of Branch 139 of the
Regional Trial Court of Makati City in Civil
Case No. 00-787, as well as the decision of
Branch 61 of the Metropolitan Trial Court
of Makati City in Civil Case No. 52400
against the spouses Bienvenido and
Editha Broqueza, are AFFIRMED. Costs
against respondents.
SO ORDERED.

PAY VS PALANCA
issue is whether a creditor is barred by
prescription in his attempt to collect on a
promissory note executed more than
fifteen years earlier with the debtor sued
promising to pay either upon receipt by
him of his share from a certain estate or
upon demand, the basis for the action
being the latter alternative.
The lower court held that the ten-year
period of limitation of actions did apply,
the note being immediately due and
demandable,
the
creditor
admitting
expressly that he was relying on the
wording "upon demand.".
George pay creditor of palanca who died
many years ago by virtue of a promissory
note. He ask for letters of admin in favor
of palancas wife to settle the estate and
be paid. Wife refused alleging that the
action of George already prescribed.
Court ruled
prescribed.

that

the

action

has

already

HELD:
it would appear that petitioner was
hopeful that the satisfaction of his credit
could he realized either through the
debtor sued receiving cash payment from
the estate of the late Carlos Palanca
presumptively as one of the heirs, or, as
expressed therein, "upon demand." There
is nothing in the record that would indicate
whether or not the first alternative was
fulfilled. What is undeniable is that on
August 26, 1967, more than fifteen years
after the execution of the promissory note
on January 30, 1952, this petition was
filed. The defense interposed was
prescription. Its merit is rather obvious.
Article 1179 of the Civil Code provides:
"Every obligation whose performance does

not depend upon a future or uncertain

event, or upon a past event unknown to
the parties, is demandable at once." This
used to be Article 1113 of the Spanish
Civil Code of 1889.
The obligation being due and demandable,
it would appear that the filing of the suit
after fifteen years was much too late. For
again, according to the Civil Code, which is
based on Section 43 of Act No. 190, the
prescriptive period for a written contract is
that of ten years. 7 This is another instance
where this Court has consistently adhered to
the express language of the applicable
norm. 8 There is no necessity therefore of
passing upon the other legal questions as to
whether or not it did suffice for the petition to
fail just because the surviving spouse refuses
to be made administratrix, or just because the
estate was left with no other property. The
decision of the lower court cannot be
overturned.

WHEREFORE, the lower court decision of

July 24, 1968 is affirmed. Costs against
George Pay.

G.R. No. L-16570

1922

March 9,

SMITH, BELL & CO., LTD., plaintiffappellant,

vs.
VICENTE SOTELO MATTI, defendantappellant.
FACTS:
A contract of sale between smith bell co
and matti involving the FF:
a) 2 steel tanks
b) 2 expllers
c) 2 electric motors
With a stipulation to deliver within 90 days
but not guaranteed. The objects arrived
late. Matti refused to receive and pay.
Smith filed a case
Matti alleged that, as a consequence of
the plaintiff's delay in making delivery of
the goods, which the intervenor intended
to use in the manufacture of cocoanut oil,
the intervenor suffered damages in the
sums of one hundred sixteen thousand
seven hundred eighty-three pesos and
ninety-one centavos (P116,783.91) for the
nondelivery of the tanks, and twenty-one
thousand two hundred and fifty pesos
(P21,250) on account of the expellers and
the motors not having arrived in due time.
Lower court absolved the defendant
insofar as tanks and elec motors were
concered but ordered them to pay
expellers.
ISSUE: whether or not, under the contracts
entered into and the circumstances
established in the record, the plaintiff has
fulfilled, in due time, its obligation to bring

the goods in question to Manila. If it has,

then it is entitled to the relief prayed for;
otherwise, it must be held guilty of delay
and liable for the consequences thereof.
To solve this question, it is necessary to
determine what period was fixed for the
delivery of the goods.
As regards the tanks, the contracts A and
B (pages 61 and 62 of the record) are
similar, and in both of them we find this
clause:
To be delivered within 3 or 4
months

The
promise
or
indication of shipment carries with
it absolutely no obligation on our
part Government regulations,
railroad embargoes, lack of vessel
space, the exigencies of the
requirement of the United States
Government, or a number of
causes may act to entirely vitiate
the indication of shipment as
stated. In other words, the order is
accepted on the basis of shipment
at Mill's convenience, time of
shipment
being
merely
an
indication of what we hope to
accomplish.
In the contract Exhibit C (page 63 of the
record), with reference to the expellers,
the following stipulation appears:
The following articles, hereinbelow
more particularly described, to be
shipped at San Francisco within the
month of September /18, or as
soon as possible. Two Anderson
oil expellers . . . .
And in the contract relative to the motors
(Exhibit D, page 64, rec.) the following
appears:

Approximate delivery within ninety

days. This is not guaranteed.
This sale is subject to our being
able to obtain Priority Certificate,
subject to the United States
Government requirements and also
subject
to
confirmation
of
manufactures.
In all these contracts, there is a final
clause as follows:
The sellers are not responsible for
delays caused by fires, riots on
land or on the sea, strikes or other
causes known as "Force Majeure"
entirely beyond the control of the
sellers or their representatives.
Under these stipulations, it cannot be said
that any definite date was fixed for the
delivery of the goods. As to the tanks, the
agreement was that the delivery was to be
made "within 3 or 4 months," but that
period was subject to the contingencies
referred to in a subsequent clause. With
regard to the expellers, the contract says
"within the month of September, 1918,"
but to this is added "or as soon as
possible." And with reference to the
motors, the contract contains this
expression, "Approximate delivery within
ninety days," but right after this, it is
noted that "this is not guaranteed."
The oral evidence falls short of fixing such
period.
From the record it appears that these
contracts were executed at the time of the
world war when there existed rigid
restrictions on the export from the United
States of articles like the machinery in
question, and maritime, as well as
railroad, transportation was difficult, which
fact was known to the parties; hence
clauses were inserted in the contracts,
regarding
"Government
regulations,

railroad embargoes, lack of vessel space,

the exigencies of the requirements of the
United States Government," in connection
with the tanks and "Priority Certificate,
subject to the United State Government
requirements," with respect to the motors.
At the time of the execution of the
contracts, the parties were not unmindful
of the contingency of the United States
Government not allowing the export of the
goods, nor of the fact that the other
foreseen circumstances therein stated
might prevent it.
Considering these contracts in the light of
the civil law, we cannot but conclude that
the term which the parties attempted to
fix is so uncertain that one cannot tell just
whether, as a matter of fact, those articles
could be brought to Manila or not. If that is
the case, as we think it is, the obligations
must be regarded as conditional.
Obligations for the performance of
which a day certain has been fixed
shall be demandable only when the
day arrives.
A day certain is understood to be
one which must necessarily arrive,
even though its date be unknown.
If the uncertainty should consist in
the arrival or non-arrival of the day,
the obligation is conditional and
shall be governed by the rules of
the
next
preceding
section. (referring to pure and
conditional obligations). (Art. 1125,
Civ. Code.)
And as the export of the machinery in
question was, as stated in the contract,
contingent upon the sellers obtaining
certificate of priority and permission of the
United States Government, subject to the
rules and regulations, as well as to railroad
embargoes, then the delivery was subject

to a condition the fulfillment of which

depended not only upon the effort of the
herein plaintiff, but upon the will of third
persons who could in no way be compelled
to fulfill the condition. In cases like this,
which are not expressly provided for, but
impliedly covered, by the Civil Code, the
obligor will be deemed to have sufficiently
performed his part of the obligation, if he
has done all that was in his power, even if
the condition has not been fulfilled in
reality.

CHAVEZ VS GONZALES
1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT
FOR NON-PERFORMANCE; FIXING OF PERIOD BEFORE
FILING OF COMPLAINT FOR NON-PERFORMANCE,
ACADEMIC. Where the time for compliance had
expired and there was breach of contract by nonperformance, it was academic for the plaintiff to have
first petitioned the court to fix a period for the
performance of the contract before filing his
complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE
1197 OF THE CIVIL CODE OF THE PHILIPPINES.
Where the defendant virtually admitted nonperformance of the contract by returning the
typewriter that he was obliged to repair in a nonworking condition, with essential parts missing,
Article 1197 of the Civil Code of the Philippines
cannot be invoked. The fixing of a period would thus
be a mere formality and would serve no purpose than
to
delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT
BAR. Where the defendant-appellee contravened
the tenor of his obligation because he not only did
not repair the typewriter but returned it "in
shambles, he is liable for the cost of the labor or
service expended in the repair of the typewriter,
which is in the amount of P58.75, because the
obligation or contract was to repair it. In addition, he
is likewise liable under Art. 1170 of the Code, for the
cost of the missing parts, in the amount of P31.10,
for in his obligation to repair the typewriter he was
bound, but failed or neglected, to return it in the
same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR
ATTORNEYS FEES NOT RECOVERABLE; NOT ALLEGED
OR PROVED IN INSTANT CASE. Claims for damages
and attorneys fees must be pleaded, and the
existence of the actual basis thereof must be proved.
As no findings of fact were made on the claims for
damages and attorneys fees, there is no factual
basis upon which to make an award therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT
OF FIRST INSTANCE TO SUPREME COURT; ONLY
QUESTIONS OF LAW REVIEWABLE. Where the

appellant directly appeals from the decision of the

trial court to the Supreme Court on questions of law,
he is bound by the judgment of the court a quo on its
findings of fact.

DECISION

REYES, J.B.L., J.:

Chavez delivered to Gonzales a typewriter for repair.

Gonzales failed to comply. After a lengthy delay,
chavez demanded for the return of the typewriter.
Upon opening the package, it was already in
shambles.
Chavez sent a letter of demand. Chavez had his
typewriter fixed by another company.
Chavez filed a collection suit against Gonzales.
Lower court only awarded the value of the missing
parts, hence this appeal.

HELD:
chavez argues that : "ART. 1167. If a person obliged
to do something fails to do it, the same shall be
executed
at
his
cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation.
Furthermore it may be decreed that what has been
poorly
done
he
undone."
cralaw

virtua1aw

library

On the other hand, the position of the defendantappellee, Fructuoso Gonzales, is that he is not liable
at all, not even for the sum of P31.10, because his
contract with plaintiff-appellant did not contain a
period, so that plaintiff-appellant should have first
filed a petition for the court to fix the period, under
Article 1197 of the Civil Code, within which the
defendant appellee was to comply with the contract
before said defendant-appellee could be held liable
for
breach
of
contract.
SC: The time for compliance having evidently
expired, and there being a breach of contract by nonperformance, it was academic for the plaintiff to have
first petitioned the court to fix a period for the
performance of the contract before filing his
complaint in this case. Defendant cannot invoke
Article 1197 of the Civil Code for he virtually
admitted
non-performance
by
returning
the
typewriter that he was obliged to repair in a nonworking condition, with essential parts missing. The
fixing of a period would thus be a mere formality and
would serve no purpose than to delay (cf. Tiglao. Et.
Al. V. Manila Railroad Co. 98 Phil. 18l).
It is clear that the defendant-appellee contravened
the tenor of his obligation because he not only did
not repair the typewriter but returned it "in
shambles", according to the appealed decision. For
such contravention, as appellant contends, he is
liable under Article 1167 of the Civil Code. jam quot,

for the cost of executing the obligation in a proper

manner. The cost of the execution of the obligation in
this case should be the cost of the labor or service
expended in the repair of the typewriter, which is in
the amount of P58.75. because the obligation or
contract
was
to
repair
it.
In addition, the defendant-appellee is likewise liable,
under Article 1170 of the Code, for the cost of the
missing parts, in the amount of P31.10, for in his
obligation to repair the typewriter he was bound, but
failed or neglected, to return it in the same condition
it
was
when
he
received
it.
Appellants claims for moral and temperate damages
and attorneys fees were, however, correctly rejected
by the trial court, for these were not alleged in his
complaint (Record on Appeal, pages 1-5). Claims for
damages and attorneys fees must be pleaded, and
the existence of the actual basis thereof must be
proved. 2 The appealed judgment thus made no
findings on these claims, nor on the fraud or malice
charged to the appellee. As no findings of fact were
made on the claims for damages and attorneys fees,
there is no factual basis upon which to make an
award therefor. Appellant is bound by such judgment
of the court, a quo, by reason of his having resorted
directly to the Supreme Court on questions of law.
IN VIEW OF THE FOREGOING REASONS, the appealed
judgment is hereby modified, by ordering the
defendant-appellee to pay, as he is hereby ordered
to pay, the plaintiff-appellant the sum of P89.85, with
interest at the legal rate from the filing of the
complaint. Costs in all instances against appellee
Fructuoso Gonzales.

G.R. No. L-264

1946

October 4,

VICENTE
SINGSON
ENCARNACION, plaintiff-appellee,
vs.
JACINTA
BALDOMAR,
ET
AL., defendants-appellants.
HILADO, J.:
Vicente Singson Encarnacion, as lessor of
a house in favor of baldomar to ba paid
monthly.

dismiss filed by them in the municipal

court) based upon the ground that the
municipal court had no jurisdiction over
the subject matter due to the aforesaid
claim for damages and that, therefore, the
Court of First Instance had no appellate
jurisdiction over the subject matter of the
action. That motion to dismiss was denied
by His Honor, Judge Mamerto Roxas, by
order dated July 21, 1945, on the ground
that in the municipal court plaintiff had
waived said claim for damages and that,
therefore,
the
same
waiver
was
understood also to have been made in the
Court of First Instance.
lawphil.net

After Manila was liberated in the last war,

plaintiff demanded baldomar to vacate on
or before April 15, 1945, because plaintiff
needed it for his offices as a result of the
destruction of the building where said
plaintiff had said offices before.
Despite this demand, defendants insisted
on continuing their occupancy. When the
original action was lodged with the
Municipal Court of Manila on April 20,
1945, defendants were in arrears in the
payment of the rental corresponding to
said month, the agrees rental being
payable within the first five days of each
month. That rental was paid prior to the
hearing of the case in the municipal court,
as a consequence of which said court
entered judgment for restitution and
payment of rentals at the rate of P35 a
month from May 1, 1945, until defendants
completely vacate the premises. Although
plaintiff included in said original complaint
a claim for P500 damages per month, that
claim was waived by him before the
hearing in the municipal court, on account
of which nothing was said regarding said
damages in the municipal court's decision.
When the case reached the Court of First
Instance
of
Manila
upon
appeal,
defendants filed therein a motion to
dismiss (which was similar to a motion to

In the Court of First Instance the graveman

of the defense interposed by defendants,
as it was expressed defendant Lefrado
Fernando during the trial, was that the
contract which they had celebrated with
plaintiff since the beginning authorized
them to continue occupying the house
indefinetly and while they should faithfully
fulfill their obligations as respects the
payment of the rentals, and that this
agreement had been ratified when
another ejectment case between the
parties filed during the Japanese regime
concerning the same house was allegedly
compounded in the municipal court. The
Court of First Instance gave more credit to
plaintiff's
witness,
Vicente
Singson
Encarnacion, jr., who testified that the
lease had always and since the beginning
been upon a month-to-month basis.

Furthermore,
carried
to
its
logical
conclusion, the defense thus set up by
defendant Lefrado Fernando would leave
to the sole and exclusive will of one of the
contracting parties (defendants in this
case) the validity and fulfillment of the
contract of lease, within the meaning of
article 1256 of the Civil Code, since the
continuance and fulfillment of the contract

would then depend solely and exclusively

upon their free and uncontrolled choice
between continuing paying the rentals or
not, completely depriving the owner of all
say in the matter. If this defense were to
be allowed, so long as defendants elected
to continue the lease by continuing the
payment of the rentals, the owner would
never
be
able
to
discontinue
it;
conversely, although the owner should
desire the lease to continue, the lessees
could effectively thwart his purpose if they
should prefer to terminate the contract by
the simple expedient of stopping payment
of the rentals. This, of course, is prohibited
by the aforesaid article of the Civil Code.

01 July 2013
Eleizegui v. The Manila Lawn Tennis Club
Digest G.R. No. 967
Eleizegui v. The Manila Lawn Tennis Club

that, "When the term has not been fixed

for the lease, it is understood to be for
years when an annual rental has been
fixed, for months when the rent is monthly.
. . ." The second clause of the contract
provides as follows: "The rent of the said
land is fixed at 25 pesos per month."

G.R. No. 967 May 19, 1903

Facts:

A contract of lease was executed on

January 25, 1980 over a piece of land
owned by the plaintiffs Eleizegui (Lessor)
to the Manila Lawn Tennis Club, an English
association
(represented
by
Mr.
Williamson) for a fixed consideration of
P25 per month and accordingly, to last at
the will of the lessee. Under the contract,
the lessee can make improvements
deemed desirable for the comfort and
amusement of its members. It appeared
that the plaintiffs terminated the lease
right on the first month. The defendant is
in the belief that there can be no other
mode of terminating the lease than by its
own will, as what they believe has been
stipulated.

As a result the plaintiff filed a case for

unlawful detainer for the restitution of the
land claiming that article 1569 of the Civil
Code provided that a lessor may judicially
dispossess the lessee upon the expiration
of the conventional term or of the legal
term; the conventional term that is, the
one agreed upon by the parties; the legal
term, in defect of the conventional, fixed
for leases by articles 1577 and 1581. The
Plaintiffs argued that the duration of the
lease depends upon the will of the lessor
on the basis of Art. 1581 which provides

The lower court ruled in favor of the

Plaintiffs on the basis of Article 1581 of the
Civil Code, the law which was in force at
the time the contract was entered into. It
is of the opinion that the contract of lease
was terminated by the notice given by the
plaintiff. The judgment was entered upon
the theory of the expiration of a legal term
which does not exist, as the case requires
that a term be fixed by the courts under
the provisions of article 1128 with respect
to obligations which, as is the present, are
terminable at the will of the obligee.
THE CONTRACT PROVIDES: "First. . . . They
lease the above-described land to Mr.
Williamson, who takes it on lease, . . . for
all the time the members of the said club
may desire to use it . . . Third. . . . the
owners of the land undertake to maintain
the club as tenant as long as the latter
shall see fit, without altering in the
slightest degree the conditions of this
contract, even though the estate be sold."

ISSUE: a) Whether or not the parties have

agreed upon the duration of the lease
b) Whether or not the lease
depends upon the will of the lessee

RULING:

a)
YES, the parties have agreed upon a
term hence Art. 1581 is inapplicable.

The legal term cannot be applied under

Art 1581 as it appears that there was
actually an agreement between the
parties as to the duration of the lease,
albeit implied that the lease is to be
dependent upon the will of the lessee. It
would be absurd to accept the argument
of the plaintiff that the contract was
terminated at its notice, given this
implication.

Interestingly, the contract should not be

understood as one stipulated as a life
tenancy, and still less as a perpetual lease
since the terms of the contract express
nothing to this effect, even if they implied
this idea. If the lease could last during
such time as the lessee might see fit,
because it has been so stipulated by the
lessor, it would last, first, as long as the
will of the lessee that is, all his life;
second, during all the time that he may
have succession, inasmuch as he who
contracts does so for himself and his heirs.
(Art. 1257 of the Civil Code.) The lease in
question does not fall within any of the
cases in which the rights and obligations
arising from a contract can not be
transmitted to heirs, either by its nature,
by agreement, or by provision of law.
Moreover, being a lease, then it must be
for a determinate period. (Art. 1543.) By
its very nature it must be temporary, just
as by reason of its nature, an emphyteusis
must be perpetual, or for an unlimited
period. (Art. 1608.)

B) The duration of the lease does not

depend solely upon the will of the Lessee
(defendant).

It cannot be concluded that the

termination of the contract is to be left
completely at the will of the lessee simply
because it has been stipulated that its
duration is to be left to his will.

The Civil Code has made provision for

such a case in all kinds of obligations. In
speaking in general of obligations with a
term it has supplied the deficiency of the
former law with respect to the "duration of
the term when it has been left to the will
of the debtor," and provides that in this
case the term shall be fixed by the courts.
(Art. 1128, sec. 2.) In every contract, as
laid down by the authorities, there is
always a creditor who is entitled to
demand the performance, and a debtor
upon whom rests the obligation to perform
the undertaking. In bilateral contracts the
contracting parties are mutually creditors
and debtors. Thus, in this contract of
lease, the lessee is the creditor with
respect to the rights enumerated in article
1554, and is the debtor with respect to the
obligations imposed by articles 1555 and
1561. The term within which performance
of the latter obligation is due is what has
been left to the will of the debtor. This
term it is which must be fixed by the
courts.

The only action which can be maintained

under the terms of the contract is that by
which it is sought to obtain from the judge
the determination of this period, and not
the unlawful detainer action which has
been brought an action which

presupposes the expiration of the term

and makes it the duty of the judge to
simply decree an eviction. To maintain the
latter action it is sufficient to show the
expiration of the term of the contract,
whether conventional or legal; in order to
decree the relief to be granted in the
former action it is necessary for the judge
to look into the character and conditions
of the mutual undertakings with a view to
supplying the lacking element of a time at
which the lease is to expire.
The lower courts judgement is erroneous
and therefore reversed and the case was
remanded with directions to enter a
judgment of dismissal of the action in
favor of the defendant, the Manila Lawn
Tennis Club.

G.R. No. L-17587

12, 1967

September

PHILIPPINE BANKING CORPORATION,

representing the estate of JUSTINA
SANTOS
Y
CANON
FAUSTINO,
deceased, plaintiff-appellant,
vs.
LUI SHE in her own behalf and as
administratrix of the intestate estate
of Wong Heng, deceased, defendantappellant.
Nicanor S. Sison for plaintiff-appellant.
Ozaeta, Gibbs & Ozaeta for defendantappellant.

CASTRO, J.:
Justina Santos y Canon Faustino and her
sister Lorenzo were the owners in common
of a piece of land in Manila. Wong had
been a long-time lessee of a portion of the
property, paying a monthly rental of
P2,620.
Justina Santos became the owner of the
entire property as her sister died with no
other heir. Then already well advanced in
years. Her only companions in the house
were her 17 dogs and 8 maids. Wong took
care of all expenses of justina.
"In grateful acknowledgment of the
personal services of the lessee to her,"
Justina Santos executed on November 15,
1957 a contract of lease (Plff Exh. 3) in
favor of Wong, the entire property with an
option to buy the property. The lease was
for 50 years and can be terminated at the
option of WONG.
The option was conditioned on his
obtaining Philippine citizenship, a petition
for which was then pending in the Court of
First Instance of Rizal. It appears, however,

that this application for naturalization was

withdrawn when it was discovered that he
was not a resident of Rizal. On October 28,
1958 she filed a petition to adopt him and
his children on the erroneous belief that
adoption would confer on them Philippine
citizenship. The error was discovered and
the proceedings were abandoned.
On November 18, 1958 she executed two
other contracts, one (Plff Exh. 5) extending
the term of the lease to 99 years, and
another (Plff Exh. 6) fixing the term of the
option of 50 years. Both contracts are
written in Tagalog.
In two wills executed on August 24 and 29,
1959 (Def Exhs. 285 & 279), she bade her
legatees to respect the contracts she had
entered into with Wong, but in a codicil
(Plff Exh. 17) of a later date (November 4,
1959) she appears to have a change of
heart. Claiming that the various contracts
were
made
by
her
because
of
machinations and inducements practiced
by him, she now directed her executor to
secure the annulment of the contracts.
On November 18 the present action was
filed in the Court of First Instance of
Manila. The complaint alleged that the
contracts were obtained by Wong "through
fraud,
misrepresentation,
inequitable
conduct, undue influence and abuse of
confidence and trust of and (by) taking
advantage of the helplessness of the
plaintiff and were made to circumvent the
constitutional provision prohibiting aliens
from acquiring lands in the Philippines and
also of the Philippine Naturalization Laws."
The court was asked to direct the Register
of Deeds of Manila to cancel the
registration of the contracts and to order
Wong to pay Justina Santos the additional
rent of P3,120 a month from November
15, 1957 on the allegation that the
reasonable rental of the leased premises
was P6,240 a month.

In his answer, Wong admitted that he

enjoyed her trust and confidence as proof
of which he volunteered the information
that, in addition to the sum of P3,000
which he said she had delivered to him for
safekeeping, another sum of P22,000 had
been deposited in a joint account which he
had with one of her maids. But he denied
having taken advantage of her trust in
order to secure the execution of the
contracts in question. As counterclaim he
sought the recovery of P9,210.49 which he
said she owed him for advances.
Wong's admission of the receipt of
P22,000 and P3,000 was the cue for the
filing of an amended complaint. Thus on
June 9, 1960, aside from the nullity of the
contracts, the collection of various
amounts allegedly delivered on different
occasions was sought.
Judgment of lower court : all contracts are
void except the 1st lease contract.
Pending appeal, both parties died and
were substituted.
Justina Santos maintained that the
lease contract should have been annulled.
Paragraph 5 of the lease contract states
that "The lessee may at any time
withdraw from this agreement." It is
claimed that this stipulation offends article
1308 of the Civil Code which provides that
"the contract must bind both contracting
parties; its validity or compliance cannot
be left to the will of one of them."
We have had occasion to delineate the
scope and application of article 1308 in
the early case of Taylor v. Uy Tieng
Piao.1 We said in that case:
Article 1256 [now art. 1308] of the
Civil Code in our opinion creates no
impediment to the insertion in a

contract for personal service of a

resolutory condition permitting the
cancellation of the contract by one
of the parties. Such a stipulation,
as can be readily seen, does not
make either the validity or the
fulfillment
of
the
contract
dependent upon the will of the
party to whom is conceded the
privilege of cancellation; for where
the
contracting
parties
have
agreed that such option shall exist,
the exercise of the option is as
much in the fulfillment of the
contract as any other act which
may have been the subject of
agreement.
Indeed,
the
cancellation of a contract in
accordance with conditions agreed
upon beforehand is fulfillment.2
And so it was held in Melencio v. Dy Tiao
Lay 3 that a "provision in a lease contract
that the lessee, at any time before he
erected any building on the land, might
rescind the lease, can hardly be regarded
as a violation of article 1256 [now art.
1308] of the Civil Code."
The case of Singson Encarnacion v.
Baldomar 4 cannot be cited in support of
the claim of want of mutuality, because of
a difference in factual setting. In that case,
the lessees argued that they could occupy
the premises as long as they paid the rent.
This is of course untenable, for as this
Court said, "If this defense were to be
allowed, so long as defendants elected to
continue the lease by continuing the
payment of the rentals, the owner would
never
be
able
to
discontinue
it;
conversely, although the owner should
desire the lease to continue the lessees
could effectively thwart his purpose if they
should prefer to terminate the contract by
the simple expedient of stopping payment
of the rentals." Here, in contrast, the right
of the lessee to continue the lease or to

terminate it is so circumscribed by the

term of the contract that it cannot be said
that the continuance of the lease depends
upon his will. At any rate, even if no term
had been fixed in the agreement, this case
would at most justify the fixing of a
period5 but not the annulment of the
contract.
Nor is there merit in the claim that as the
portion of the property formerly owned by
the sister of Justina Santos was still in the
process of settlement in the probate court
at the time it was leased, the lease is
invalid as to such portion. Justina Santos
became the owner of the entire property
upon the death of her sister Lorenzo on
September 22, 1957 by force of article
777 of the Civil Code. Hence, when she
leased the property on November 15, she
did so already as owner thereof. As this
Court explained in upholding the sale
made by an heir of a property under
judicial administration:
That the land could not ordinarily
be levied upon while in custodia
legis does not mean that one of the
heirs may not sell the right,
interest or participation which he
has or might have in the lands
under administration. The ordinary
execution of property in custodia
legis is prohibited in order to avoid
interference with the possession by
the court. But the sale made by an
heir of his share in an inheritance,
subject to the result of the pending
administration, in no wise stands in
the way of such administration.6
It is next contended that the lease
contract was obtained by Wong in
violation of his fiduciary relationship with
Justina Santos, contrary to article 1646, in
relation to article 1941 of the Civil Code,
which disqualifies "agents (from leasing)
the property whose administration or sale

may have been entrusted to them." But

Wong was never an agent of Justina
Santos. The relationship of the parties,
although
admittedly
close
and
confidential, did not amount to an agency
so as to bring the case within the
prohibition of the law.
Just the same, it is argued that Wong so
completely dominated her life and affairs
that the contracts express not her will but
only his. Counsel for Justina Santos cites
the testimony of Atty. Tomas S. Yumol who
said that he prepared the lease contract
on the basis of data given to him by Wong
and that she told him that "whatever Mr.
Wong wants must be followed."7
ACCORDINGLY, the contracts in question
(Plff Exhs. 3-7) are annulled and set aside;
the land subject-matter of the contracts is
ordered returned to the estate of Justina
Santos as represented by the Philippine
Banking Corporation; Wong Heng (as
substituted by the defendant-appellant Lui
She) is ordered to pay the Philippine
Banking
Corporation
the
sum
of
P56,564.35, with legal interest from the
date of the filing of the amended
complaint; and the amounts consigned in
court by Wong Heng shall be applied to
the payment of rental from November 15,
1959 until the premises shall have been
vacated by his heirs. Costs against the
defendant-appellant.

LOURDES
VALERIO
LIM, petitioner,
vs.
PEOPLE
OF
THE
PHILIPPINES, respondent.

to
the
house
of
the
appellant several times, but
the appellant often eluded
her; and that the "camarin"
the appellant was empty.

RELOVA, J.:
Petitioner Lourdes Valerio Lim was found
guilty of the crime of estafa
From this judgment, appeal was taken to
the then Court of Appeals which affirmed
the decision of the lower court but
modified the penalty imposed
ISSUE: is whether the receipt, Exhibit "A",
is a contract of agency to sell or a contract
of sale of the subject tobacco between
petitioner and the complainant, Maria de
Guzman
Vda.
de
Ayroso,
thereby
precluding criminal liability of petitioner
for the crime charged.
The findings of facts of the appellate court
are as follows:
... The appellant is a
businesswoman. On January
10, 1966, the appellant
went to the house of Maria
Ayroso and proposed to sell
Ayroso's tobacco. Ayroso
agreed to the proposition of
the appellant to sell her
tobacco consisting of 615
kilos at P1.30 a kilo. The
appellant was to receive the
overprice for which she
could sell the tobacco.
Demands for the payment
of the balance of the value
of the tobacco were made
upon the appellant by
Ayroso, and particularly by
her sister, Salud Bantug.
Salud
Bantug
further
testified that she had gone

1. Whether or not the

Honorable Court of Appeals
was legally right in holding
that
the
foregoing
document
(Exhibit
"A")
"fixed a period" and "the
obligation was therefore,
immediately demandable as
soon as the tobacco was
sold" (Decision, p. 6) as
against the theory of the
petitioner
that
the
obligation does not fix a
period, but from its nature
and the circumstances it
can be inferred that a period
was intended in which case
the only action that can be
maintained is a petition to
ask the court to fix the
duration thereof;
2. Whether or not the
Honorable Court of Appeals
was legally right in holding
that "Art. 1197 of the New
Civil Code does not apply"
as against the alternative
theory of the petitioner that
the fore. going receipt
(Exhibit "A") gives rise to an
obligation
wherein
the
duration of the period
depends upon the will of the
debtor in which case the
only action that can be
maintained is a petition to
ask the court to fix the
duration of the period; and
3. Whether or not the
honorable Court of Appeals

was legally right in holding

that the foregoing receipt is
a contract of agency to sell
as against the theory of the
petitioner that it is a
contract of sale. (pp. 3-4,
Rollo)
It is clear in the agreement, Exhibit "A",
that the proceeds of the sale of the
tobacco should be turned over to the
complainant as soon as the same was
sold, or, that the obligation was
immediately demandable as soon as the
tobacco was disposed of. Hence, Article
1197 of the New Civil Code, which
provides that the courts may fix the
duration of the obligation if it does not fix
a period, does not apply.
Anent the argument that petitioner was
not an agent because Exhibit "A" does not
say that she would be paid the
commission if the goods were sold, the
Court of Appeals correctly resolved the
matter as follows:

was
Ayroso
who
had
requested her to sell her
tobacco, it would not have
been the appellant who
would have gone to the
house of Ayroso, but it
would have been Ayroso
who would have gone to the
house of the appellant and
deliver the tobacco to the
appellant. (p. 19, Rollo)
The fact that appellant received the
tobacco to be sold at P1.30 per kilo and
the proceeds to be given to complainant
as soon as it was sold, strongly negates
transfer of ownership of the goods to the
petitioner. The agreement (Exhibit "A')
constituted her as an agent with the
obligation to return the tobacco if the
same was not sold.
ACCORDINGLY, the petition for review on
certiorari is dismissed for lack of merit.
With costs.
SO ORDERED.

... Aside from the fact that

Maria Ayroso testified that
the appellant asked her to
be her agent in selling
Ayroso's
tobacco,
the
appellant herself admitted
that
there
was
an
agreement that upon the
sale of the tobacco she
would be given something.
The
appellant
is
a
businesswoman, and it is
unbelievable that she would
go to the extent of going to
Ayroso's house and take the
tobacco with a jeep which
she had brought if she did
not intend to make a profit
out of the transaction.
Certainly, if she was doing a
favor to Maria Ayroso and it

GREGORIO ARANETA, INC., petitioner,

vs.
THE
PHILIPPINE
SUGAR
ESTATES
DEVELOPMENT CO., LTD., respondent.
REYES, J.B.L., J.:
RTC CA ruled in favor of Phil sugar as plaintiff
FACTS:
Araneta, in behalf of JM tuason, sold a lot to
Phil sugar estate.
The parties stipulated, among in the contract
of purchase and sale with mortgage, that the
buyer will
Build on the said parcel land the Sto.
Domingo Church and Convent
while the seller for its part will
Construct streets on the NE and NW
and SW sides of the land herein sold
so that the latter will be a block
surrounded by streets on all four
sides; and the street on the NE side
shall be named "Sto. Domingo
Avenue;"
Phil sugar as buyer complied with its
obligation while Gregorio araneta failed to
comply because of a third person who refused
to vacate. Phil sugar filed a case for specific
performance.
DEFENSE: action is premature because there
is no period fixed yet for compliance
TC dismissed.

1wph1.t

MR was granted court fixed the period for 2

years.
CA upheld the decision of the TC. .
Ruling on the above contention, the appellate
court declared that the fixing of a period was
within the pleadings and that there was no

true change of theory after the submission of

the case for decision since defendantappellant Gregorio Araneta, Inc. itself squarely
placed said issue by alleging in paragraph 7
of the affirmative defenses contained in its
answer which reads
7. Under the Deed of Sale with
Mortgage of July 28, 1950, herein
defendant has a reasonable time
within which to comply with its
obligations to construct and complete
the streets on the NE, NW and SW
sides of the lot in question; that under
the circumstances, said reasonable
time has not elapsed;
ISSUE: Won the court gravely abused its
discretion when it fixed a period for the parties
pursuant to 1197? YES
We agree with the petitioner that the decision
of the Court of Appeals, affirming that of the
Court of First Instance is legally untenable.
The fixing of a period by the courts under
Article 1197 of the Civil Code of the
Philippines is sought to be justified on the
basis that petitioner (defendant below) placed
the absence of a period in issue by pleading
in its answer that the contract with respondent
Philippine Sugar Estates Development Co.,
Ltd. gave petitioner Gregorio Araneta, Inc.
"reasonable time within which to comply with
its obligation to construct and complete the
streets." Neither of the courts below seems to
have noticed that, on the hypothesis stated,
what the answer put in issue was not whether
the court should fix the time of performance,
but whether or not the parties agreed that the
petitioner should have reasonable time to
perform its part of the bargain. If the contract
so provided, then there was a period fixed, a
"reasonable time;" and all that the court
should have done was to determine if that
reasonable time had already elapsed when
suit was filed if it had passed, then the court
should declare that petitioner had breached
the contract, as averred in the complaint, and
fix the resulting damages.

On the other hand, if the reasonable time had

not yet elapsed, the court perforce was bound
to dismiss the action for being premature. But
in no case can it be logically held that under
the plea above quoted, the intervention of the
court to fix the period for performance was
warranted, for Article 1197 is precisely
predicated on the absence of any period fixed
by the parties.
Even on the assumption that the court should
have found that no reasonable time or no
period at all had been fixed (and the trial
court's amended decision nowhere declared
any such fact) still, the complaint not having
sought that the Court should set a period, the
court could not proceed to do so unless the
complaint in as first amended; for the original
decision is clear that the complaint proceeded
on the theory that the period for performance
had already elapsed, that the contract had
been breached and defendant was already
answerable in damages.
Granting, however, that it lay within the
Court's power to fix the period of performance,
still the amended decision is defective in that
no basis is stated to support the conclusion
that the period should be set at two years
after finality of the judgment. The list
paragraph of Article 1197 is clear that the
period can not be set arbitrarily. The law
expressly prescribes that
the Court shall determine such period
as may under the circumstances been
probably contemplated by the parties.
All that the trial court's amended decision
(Rec. on Appeal, p. 124) says in this respect is
that "the proven facts precisely warrant the
fixing of such a period," a statement
manifestly insufficient to explain how the two
period given to petitioner herein was arrived
at.
It must be recalled that Article 1197 of the Civil
Code involves a two-step process. The Court
must first determine that "the obligation does
not fix a period" (or that the period is made to
depend upon the will of the debtor)," but from
the nature and the circumstances it can be

inferred that a period was intended" (Art.

1197, pars. 1 and 2). This preliminary point
settled, the Court must then proceed to the
second step, and decide what period was
"probably contemplated by the parties" (Do.,
par. 3). So that, ultimately, the Court can not
fix a period merely because in its opinion it is
or should be reasonable, but must set the
time that the parties are shown to have
intended..
In this connection, it is to be borne in mind
that the contract shows that the parties were
fully aware that the land described therein
was occupied by squatters, because the fact
is expressly mentioned therein (Rec. on
Appeal, Petitioner's Appendix B, pp. 12-13).
As the parties must have known that they
could not take the law into their own hands,
but must resort to legal processes in evicting
the squatters, they must have realized that the
duration of the suits to be brought would not
be under their control nor could the same be
determined in advance. The conclusion is thus
forced that the parties must have intended to
defer the performance of the obligations under
the contract until the squatters were duly
evicted, as contended by the petitioner
Gregorio Araneta, Inc.
The Court of Appeals objected to this
conclusion that it would render the date of
performance indefinite. Yet, the circumstances
admit no other reasonable view; and this very
indefiniteness is what explains why the
agreement did not specify any exact periods
or dates of performance.
It follows that there is no justification in law for
the setting the date of performance at any
other time than that of the eviction of the
squatters occupying the land in question; and
in not so holding, both the trial Court and the
Court of Appeals committed reversible error. It
is not denied that the case against one of the
squatters, Abundo, was still pending in the
Court of Appeals when its decision in this case
was rendered.
In view of the foregoing, the decision
appealed from is reversed, and the time for
the performance of the obligations of

petitioner Gregorio Araneta, Inc. is hereby

fixed at the date that all the squatters on
affected areas are finally evicted therefrom.

PACIFICA
MILLARE, petitioner,
vs.
HON. HAROLD M. HERNANDO, In his
capacity as Presiding Judge, Court of
Instance of Abra, Second Judicial District,
Branch I, ANTONIO CO and ELSA
CO, respondents.

FELICIANO, J.:
5 year lease contract by pacifica in favor of
respondent elsa co.
Expiry date May 31 1980.

According to the Co spouses, sometime

during the last week of May 1980, the lessor
informed them that they could continue
leasing the People's Restaurant so long as
they were amenable to paying creased rentals
of P1,200.00 a month. In response, a
counteroffer of P700.00 a month was made by
the Co spouses. At this point, the lessor
allegedly stated that the amount of monthly
rentals could be resolved at a later time since
"the matter is simple among us", which
alleged remark was supposedly taken by the
spouses Co to mean that the Contract of
Lease had been renewed, prompting them to
continue occupying the subject premises and
to forego their search for a substitute place to
rent.

(a) ordering the renewal of the Contract of Lease

at a rental rate of P700.00 a nionth and for a
period of ten years, (b) ordering the defendant to
collect the sum of P1,400.00 deposited by
plaintiffs with the court, and (c) ordering the
defendant to pay damages in the amount of
P50,000.00. The following Monday, on 1
September 1980, Mrs. Millare filed an ejectment
case against the Co spouses in the Municipal
Court of Bangued, Abra, docketed as Civil Case
No. 661. The spouses Co, defendants therein,
sut)sequently set up lis pendens as a Civil Case
No. 661. The spouses Co, defendants therein,
subsequently set up lis pendens as a defense
against the complaint for ejectment.

Mrs. Millare, defendant in Civil Case No.

1434, countered with an Omnibus Motion to
Dismiss 6 rounded on (a) lack of cause of action
due to plaintiffs' failure to establish a valid
renewal of the Contract of Lease, and (b) lack of
jurisdiction by the trial court over the complaint
for failure of plaintiffs to secure a certification
from the Lupong Tagapayapa of the barangay
wherein both disputants reside attesting that no
amicable settlement between them had been
reached despite efforts to arrive at one, as
required by Section 6 of Presidential Decree No.
1508.
RTC denied MTD and ordered the renewal of
the lease.

. Furthermore plaintiffs were allowed to

deposit all accruing monthly rentals in court,
while defendant Millare was directed to submit
her answer to the complaint. 8 A motion for
reconsideration 9 was subsequently filed which,
however, was likewise denied. 10 Hence, on 13

In contrast, the lessor flatly denied ever having

considered, much less offered, a renewal of the
Contract of Lease.

November 1980, Mrs. Millare filed the instant Petition for

Certiorari, Prohibition and Mandamus, seeking injunctive relief
from the abovementioned orders. This Court issued a temporary
restraining order on 21 November 1980 enjoining respondent,
judge from conducting further proceedings in Civil Case No.
1434. 11 Apparently, before the temporary restraining order
could be served on the respondent judge, he rendered a
"Judgment by Default" dated 26 November 1980 ordering the
renewal of the lease contract for a term of 5 years counted from
the expiration date of the original lease contract, and fixing
monthly rentals thereunder at P700.00 a month, payable in
arrears. On18 March 1981, this Court gave due course to the
Petition for Certiorari, Prohibition and Mandamus. 12

On 30 August 1980, a Saturday, the Co

spouses jumped the gun, as it were, and filed
a Complaint 5 (docketed as Civil Case No.
1434) with the then Court of First Instance of
Abra against Mrs. Millare and seeking judgment

Two issues are presented for resolution: (1)

whether or not the trial court acquired
jurisdiction over Civil Case No. 1434; and (2)
whether or not private respondents have a
valid cause of action against petitioner.

We turn to the second issue, that is, whether

or not the complaint in Civil Case No. 1434
filed by the respondent Co spouses claiming
renewal of the contract of lease stated a valid
cause of action. Paragraph 13 of the Contract
of Lease reads as follows:
13. This contract of lease is
subject to the laws and
regulations ofthe goverrunent;
and that this contract of lease
may be renewed after a period
of five (5) years under the
terms and conditions as will be
mutually agreed upon by the
parties at the time of
renewal;
...
(Emphasis
supplied.)
The respondent judge, in his Answer and
Comment to the Petition, urges that under
paragraph 13 quoted above.
there
was
already
a
consummated and finished
mutual agreement of the
parties to renew the contract
of lease after five years; what
is only left unsettled between
the parties to the contract of
lease is the amount of the
monthly rental; the lessor
insists Pl,200 a month, while
the lessee is begging P700 a
month which doubled the
P350 monthly rental under the
original contract .... In short,
the lease contract has never
expired because paragraph 13
thereof
had
expressly
mandated
that
it
is
renewable. ... 16
In the "Judgment by Default" he rendered, the
respondent Judge elaborated his views
obviously highly emotional in character in
the following extraordinary tatements:
However, it is now the
negative posture of the
defendant-lessor to block,
reject and refuse to renew said

lease contract. It is the

defendant-lessor's
assertion
and position that she can at
the mere click of her fingers,
just throw-out the plaintiffslessees from the leased
premises and any time after
the original term of the lease
contract had already expired;
This negative position of the
defendantlessor, to the mind of
this Court does not conform to
the principles and correct
application of the philosophy
underlying the law of lease; for
indeed, the law of lease is
impressed with public interest,
social justice and equity;
reason for which, this Court
cannot sanction lot owner's
business and commercial
speculations by allowing them
with "unbridled discretion" to
raise rentals even to the
extent
of
"extraordinary
gargantuan proportions, and
calculated to unreasonably
and unjustly eject the helpless
lessee because he cannot
afford said inflated monthly
rental and thereby said lessee
is
placed
without
any
alternative,
except
to
surrender and vacate the
premises mediately,-" Many
business
establishments
would be closed and the public
would directly suffer the direct
consequences; Nonetheless,
this is not the correct concept
or perspective the law of
lease, that is, to place the
lessee always at the mercy of
the
lessor's "Merchant
of
Venice" and to agit the latter's
personal whims and caprices;
the defendant-lessor's hostile
attitude by imposing upon the
lessee
herein
an "unreasonable
and
extraordinary
gargantuan
monthly rental of P1,200.00",
to the mind of this Court, is

"fly-by
night
unjust
enrichment" at the expense of
said lessees; but, no Man
should unjustly enrich himself
at the expense of another;
under
these
facts
and
circumstances
surrounding
this case, the action therefore
to renew the lease contract! is
"tenable" because it falls
squarely within the coverage
and command of Articles 1197
and 1670 of the New Civil
Code, to wit:
xxx xxx xxx
The term "to be renewed" as
expressly stipulated by the
herein parties in the original
contract of lease means that
the lease may be renewed for
another term of five (5) years;
its equivalent to a promise
made by the lessor to the
lessee, and as a unilateral
stipulation, obliges the lessor
to fulfill her promise; of course
the lessor is free to comply
and honor her commitment or
back-out from her promise to
renew the lease contract; but,
once expressly stipulated, the
lessor shall not be allowed to
evade or violate the obligation
to renew the lease because,
certainly, the lessor may be
held hable for damages
caused to the lessee as a
consequence
of
the
unjustifiable termination of the
lease or renewal of the same;
In other words, the lessor is
guilty of breach of contract:
Since the original lease was
fixed for five (5) years, it
follows, therefore, that the
lease contract is renewable for
another five (5) years and the
lessee is not required before
hand to give express notice of
this fact to the lessor because
it was expressly stipulated in

the original lease contract to

be renewed; Wherefore, the
bare refusal of the lessor to
renew the lease contract
unless the monthly rental is
P1,200.00 is contrary to law,
morals, good customs, public
policy, justice and equity
because no one should
unjustly enrich herself at the
expense of another. Article
1197 and 1670 of the New
Civil Code must therefore
govern the case at bar and
whereby
this
Court
is
authorized to fix the period
thereof by ordering the
renewal of the lease contract
to another fixed term of five (5)
years. 17
Clearly, the respondent judge's grasp of both
the law and the Enghsh language is tenuous
at best. We are otherwise unable to
comprehend how he arrived at the reading set
forth above. Paragraph 13 of the Contract of
Lease can only mean that the lessor and
lessee may agree to renew the contract upon
their reaching agreement on the terms and
conditions to be embodied in such renewal
contract. Failure to reach agreement on the
terms and conditions of the renewal contract
will of course prevent the contract from being
renewed at all. In the instant case, the lessor
and the lessee conspicuously failed to reach
agreement both on the amount of the rental to
be payable during the renewal term, and on
the term of the renewed contract.
The respondent judge cited Articles 1197 and
1670 of the Civil Code to sustain the
"Judgment by Default" by which he ordered
the renewal of the lease for another term of
five years and fixed monthly rentals
thereunder at P700.00 a month. Article 1197
of the Civil Code provides as follows:
If the obligation does not fix a
period, but from its nature and
the circumstances it can be
inferred that a period was
intended, the courts may fix
the duration thereof.

The courts shall also fix the

duration of the period when it
depends upon the will of the
debtor.
In every case, the courts shall
determine such period as may,
under the circumstances, have
been probably contemplated
by the parties. Once fixed by
the courts, the period cannot
be
changed
by
them.
(Emphasis supplied.)
The first paragraph of Article 1197 is clearly
inapplicable, since the Contract of Lease did
in fact fix an original period of five years,
which had expired. It is also clear from
paragraph 13 of the Contract of Lease that the
parties reserved to themselves the faculty of
agreeing upon the period of the renewal
contract. The second paragraph of Article
1197 is equally clearly inapplicable since the
duration of the renewal period was not left to
the wiu of the lessee alone, but rather to the
will of both the lessor and the lessee. Most
importantly, Article 1197 applies only where a
contract of lease clearly exists. Here, the
contract was not renewed at all, there was in
fact no contract at all the period of which could
have been fixed.
Article 1670 of the Civil Code reads thus:
If at the end of the contract the
lessee
should
continue
enjoying the thing left for 15
days with the acquiescence of
the lessor and unless a notice
to the contrary by either party
has previously been given. It is
understood that there is an
implied new lease, not for the
period of the original contract
but for the time established in
Articles 1682 and 1687. The
ther terms of the original
contract shall be revived.
(Emphasis suplied.)
The respondents themselves, public and
private, do not pretend that the continued

occupancy of the leased premises after 31

May 1980, the date of expiration of the
contract, was with the acquiescence of the
lessor. Even if it be assumed that tacite
reconduccion had occurred, the implied new
lease could not possibly have a period of five
years, but rather would have been a month-tomonth lease since the rentals (under the
original contract) were payable on a monthly
basis. At the latest, an implied new lease (had
one arisen) would have expired as of the end
of July 1980 in view of the written demands
served by the petitioner upon the private
respondents to vacate the previously leased
premises.
It follows that the respondent judge's decision
requiring renewal of the lease has no basis in
law or in fact. Save in the limited and
exceptional situations envisaged inArticles ll97
and 1670 of the Civil Code, which do not
obtain here, courts have no authority to
prescribe the terms and conditions of a
contract for the parties. As pointed out by Mr.
Justice J.B.L. Reyes in Republic vs. Philippine
Long Distance Telephone,Co., 18
[P]arties cannot be coerced to
enter into a contract where no
agreement is had between
them as to the principal terms
and conditions of the contract.
Freedom to stipulate such
terms and conditions is of the
essence of our contractual
system, and by express
provision of the statute, a
contract may be annulled if
tainted
by
violence,
intimidation or undue influence
(Article 1306, 1336, 1337, Civil
Code of the Philippines).
Contractual terms and conditions created by a
court for two parties are a contradiction in
terms. If they are imposed by a judge who
draws upon his own private notions of what
morals, good customs, justice, equity and
public policy"
demand, the resulting
"agreement" cannot, by definition, be
consensual or contractual in nature. It would
also follow that such coerced terms and
conditions cannot be the law as between the

parties themselves. Contracts spring from the

volition of the parties. That volition cannot be
supplied by a judge and a judge who pretends
to do so, acts tyrannically, arbitrarily and in
excess of his jurisdiction. 19
WHEREFORE, the Petition for Certiorari,
Prohibition and mandamus is granted. The
Orders of the respondent judge in Civil Case
No. 1434 dated 26 September 1980 (denying
petitioner's motion to dismiss) and 4
November 1980 (denying petitioner's motion

for reconsideration), and the "Judgment by

Default" rendered by the respondent judge
dated 26 November 1980, are hereby
annulled and set aside and Civil Case No.
1434 is hereby dismissed. The temporary
restraining order dated 21 November 1980
issued by this ourt, is hereby made
permanent. No pronouncement as to costs.
SO ORDERED.