Millare v.

Hernando
GR 55480, Jun. 30, 1987

Term of lease contract in case of renewal depends upon will of both

lessor and lessee.

Facts: A five-year contract of lease was entered into between R (lessor) and E
(lessee). Under the contract, the same “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.’’

Notwithstanding the failure of the parties to reach agreement on the terms and
conditions of the renewal of the contract, the lower court ordered the renewal on the
ground that the lease has never expired because the contract expressly mandated its
renewal.

Issue: Is the second paragraph of Article 1197 applicable?

Held: No. Art 1197 para 2 The courts shall also fix the duration of the period when it
depends upon the will of the debtor.

In this case, under the quoted clause, the duration of the renewal period was not left
to the will 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.
The clause can only mean that R and E may agree to renew the contract upon
reaching agreement on the terms and conditions to be embodied in such renewal
contract.

This failure to reach such agreement prevented the contract from being renewed at
all. Hence, there was in fact no contract at all the period of which could have been
fixed. (Millare vs. Hernando, 151 SCRA 484 [1987].)

Note: Article 1197 does not apply to a contract of lease which fixes a period, e.g., an
original period of five years, which has expired, and where the parties reserved to
themselves the faculty of agreeing upon the period of the renewal contract. It does
not also apply if the duration of the renewal period is not left to the will of the lessee
alone, but rather to the will of the lessor and the lessee. Art. 1197 applies only where
a contract of lease clearly exists. If the contract is not renewed at all, there could be
no contract the period of which could be fixed. (Paras)
 Qui vs. CA,
66 SCRA 523[1975]

No breach or violation is committed before period for fulfillment of obligation is

fixed by the court.

Facts: Under the lease contract executed between R (lessor) and E (lessee), upon the
expiration of the lease for 20 years, the factory building to be constructed by E shall
belong to R. The building constructed by E was destroyed by fire. E could not rebuild
the building because the insurance proceeds were not yet paid. R filed a suit for
ejectment. R contended that E have not instituted a judicial action through Art. 1197
as there is not fixed period as to when the building should be constructed.

Issue: Is the action of R proper?

Held: No. Art. 1197. 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.

In this case, truly, the parties have not fixed a period for when stipulated building
must be constructed or replaced in case of destruction. However, it can be inferred
that they have intended for which a building is to be built, erected, constructed, and
maintained. Thus, his remedy is to institute an action so that the court can fix the
period for the reconstruction of the burned building. Only after a competent court
shall have fixed such period in a proper action pursuant to the provisions of Article
1197 can there be a breach or violation of the lease contract entered into R’s
complaint for ejectment is dismissed. (Qui vs. Court of Appeals, 66 SCRA 523
[1975].)
 Song Fo & Co. vs. Oria,
33 Phil. 3[1915]

FACTS: Song Fo and Co. sold a launch to the defendant Manuel Oria for P16,000
payable in quarterly installments of P1,000 each. The launch was made security for
the debt. Shortly after delivery to Oria, it was shipwrecked in a storm.

Issue: Should the buyer still pay? If so, when?

HELD: Yes, Art. 1198 (3) provides that the debtor shall lose every right to make use
of the period… when by his own acts he has impaired said guaranties or securities
after their establishment, and when through a fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory.

In this case, he must still pay, since the loss of the money (a generic thing) has not
been extinguished. Moreover, the whole balance becomes due immediately because
the security has disappeared even though thru a force majeure, unless he can
substitute equally good securities. Hence, the seller can now collect the entire
balance.

In this case, the security for the payment of the purchase price of the launch itself
having disappeared as a result of an unforeseen event and no other security
having been substituted therefor, S was clearly entitled to recover judgment not
only for the installments of the indebtedness due under the terms of the contract at
the time when he instituted the action, but also for all installments which, but for
the loss of the vessel, had not matured at that time. (De Leon)
 Gaite vs. Foncier,
112 Phil. 728

Existence of obligation to pay is recognized and merely the exact date for payment is
undetermined.

Facts: X, owner of a mining claim, appointed Y as attorney-in-fact to enter into a

contract with any individual or juridical person for the exploration and development of
said claim on a royalty basis. Y himself embarked upon the exploitation of the claim.
Subsequently, X revoked the authority granted by him to Y who assented thereto
subject to certain conditions. As a result, a document was executed wherein Y
transferred to X all of Y’s rights and interests over the “24 tons of iron ore, more or less”
that Y had already extracted from the mineral claims in consideration of the sum of
P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and “the
balance of P65,000.00 will be paid from and out of the first letter of credit covering the
first shipment of iron ores and of the first amount derived from the local sale of iron
ore” from said claims.

To secure the payment of the balance, X executed in favor of Y a surety bond. No sale of
approximately 24,000 tons of iron ore had been made nor had the balance of
P65,000.00 been paid to Y.

Issue: Is the shipment or local sale of the iron ore a condition precedent (or suspensive
condition) to the payment of the balance, or only a suspensive period or term?

Held: Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.
A day certain is understood to be that which must necessarily come, although it may not
be known when.
If the uncertainty consists in whether the day will come or not, the obligation is
conditional, and it shall be regulated by the rules of the preceding Section.

The obligation of X is one with a term. The words of the contract express no
contingency in the buyer’s obligation to pay. There is no uncertainty that the payment
will have to be made sooner or later; what is undetermined is merely the exact date at
which it will be made. By the very terms of the contract, therefore, the existence of the
obligation to pay is recognized; only its maturity or demandability is deferred.

Furthermore, to subordinate X’s obligation to the sale or shipment of the ore as a

condition precedent, would be tantamount to leaving the payment at his discretion (Art.
1182.), for the sale or shipment could not be made unless he took steps to sell the ore.
(Gaite vs. Fonacier,1 2 SCRA 831 [1961].)

The balance of price in a sale of iron ore was stipulated to be paid out of the first
proceeds from a transshipment of the ore. The court held that said transhipment is a
suspensive term (not a suspensive condition) because whether or not there could be a
transhipment, the balance still owing had to be paid. The stipulation on transhipment
was intended merely to fix the future date of the payment. (Paras)
 Gonzales vs. Jose,
66 Phil. 369
Facts: De Jose (DJ) took it upon himself through a promissory note to pay Gonzalez
(G) “as soon as possible.” Eventually, G demanded for such payment, to DJ probably
refused to do. Before the court, he interposed that the complaint is uncertain as it
does not specify when the indebtedness incurred or when it is demandable. Though
Art. 1197 grants courts power to fix period, it has already prescribed, which is set 10
years from the execution of the promissory notes.

Issue: Given the facts, the question posed is whether or not DJ is absolved from his
debts by virtue of prescription.

Rule: (?)Art. 1134, Art. 1197

Application: Though it is true that it is inferred that a period was granted to DJ to

pay for such debts, the courts may fix the same (Art. 1197). However, by virtue of
Sec. 43(1) of Civil Procedure, such duty to fix the period may have already
prescribed.

Conclusion: From the foregoing, it seems that DJ will be absolved from his debts by
virtue of prescription.

(Bar Question)
Facts: D borrowed P2,000 from C in 1958. The debt is evidenced by a promissory
note executed by D wherein he promised to pay as soon as he has money or as soon
as possible. C has made repeated demands upon D for payment, but up to now no
payment has been made. Suppose that C will bring an action against D for payment
of the debt, will the action prosper?

Ruling: No, the action will not prosper.

ART. 1128. If the obligation does not specify a term, but it is to be inferred from its
nature and circumstances that it was intended to grant the debtor time for its
performance, the period of the term shall be fixed by the court.

The court shall also fix the duration of the term when it has been left to the will of
the debtor.

In similar cases decided by the Supreme Court (Gonzales vs. Jose, 66 Phil. 369), it
was held, that where the debtor promises to pay his obligation as soon as he has
money or as soon as possible, the duration of the term or period depends exclusively
upon the will of the debtor;

Consequently, the only remedy of the creditor is to bring an action against the
debtor in accordance with Art. 1197 of the Civil Code for the purpose of asking the
court to fix the duration of the term or period. It is only after the duration of the
term or period has been fixed by the court that any other action involving the
fulfillment or performance of the obligation can be maintained.
 Calero vs. Carreon, et. al.,
L-13246, March 30, 1960

Art. 1197. If the obligation does not fix a period, the courts may fix one.
Art. 1452, Art. 1453. Provisions regarding implied trust.
Statute of Limitations. Prescribes the period when a person may make an action of
recovery.

Facts: Calero (C) contends that he undertook a verbal agreement with petitioners
Carrion (CCC), which essentially summarizes that CCC would have the exclusive
name to the property he alleges they jointly paid for. He furthers that they devised
such plan to avoid (legal?) complications in designating the title of property to both
parties. CCC deny such allegations. However, the parties agree on one statement and
was expressly provided – that C shall be granted 20% of the proceeds when CCC
resells the property (implied period). Alas, CCC refused to sell the property. He
argues he cannot claim his share as the condition did not happen. CCC state that C
cannot claim anymore or pray to court to fix a period as the action to claim has
already prescribed (Statute of Limitations). C refutes that an implied trust cannot be
prescribed, given that they verbally agreed on jointly buying the property.

Issue: Whether or not the claim for the proceeds has prescribed

Rule: Art. 1197. 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.
Art. 1452, Art. 1453, Statute of Limitations in general

Application: In this case, plaintiff could have instituted a judicial action to fix a
period for they may have intended for a period (Art. 1197), even if CCC refused to sell
the property. Alas, such remedy has expired as defendant only took act only after
almost 20 years (Statute of Limitations). Also nowhere is it stated in their contract
that they would have joint purchase. If anything, C was merely a broker to the
acquisition by CCC of the property. He cannot therefore avail implied trust as
defense (Art. 1452, 1453).

On obligations coming within the purview of Article 1197, the only action that can
be maintained is to ask the court first to determine the term within which the
obligor must comply with his obligation for the reason that fulfillment of the
obligation itself cannot be demanded until after the court has fixed the period for
its compliance and such period has arrived.
 Berg v. Magdalena Estate, Inc.
92 Phil. 110

Art 1193 If the uncertainty consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by the rules of the preceding
Section.

The clause “until the defendant shall have obtained a loan from the National City
Bank of New York, or after it has obtained funds from other sources” should be
considered a condition (and not a term), for the obtaining of funds may or may not
happen. (As a matter of fact, here the loan never materialized.) (Paras)
 DBP vs. Sta. Ines, et. al.,
G.R. No. 193068 and G.R. No. 193099, February 1, 2017

Art. 1186 A condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfilment.
Art. 1198 (4) a debtor loses the right to make use of the period when the debtor
violates any undertaking, in consideration of which the creditor agreed to the period.

Facts: Sta. Ines’ et. al. (S) and NDC (N), executed a Memorandum of Agreement
which includes important stipulations, particularly the agreement for N to buy the
entire shares of S in Galleon Co. through a share purchase agreement (SPA).
Eventually, S took it upon the courts, alleging various allegations between their
agreement. On its defense, N averred that it may not be liable to the purchase price
of Galleon as it was still studying the outstanding accounts of the company against
its debtors. Consequently, they have not undertaken no SPA; to which N concludes
that there is no contract between them.

Issue: Whether or not N’s defense of no contract is tenable.

Rule: Art. 1186, Art. 1198

Application: In this case, as declared in their MoA (to which they have signed),
before sale of the entire shares of S in Galleon should be made, an SPA must first be
executed – the condition. Preventing such condition, the same is deemed fulfilled
(Art. 1186); consequently, N must buy the shares agreed upon. Furthermore, by
virtue of Art. 1198, N has lost every right to period as he violated an undertaking in
the MoA – the execution of the SPA itself.

Conclusion: From the foregoing, it seems the Court will compel N to deliver on its
promise provided in the MoA and will pay S for the latter’s shares in the Galleon.
 Agoncillo and Mariano vs. Javier,
38 Phil. 424 [1918]

Obligation is to pay money, but debtor may elect instead to transfer property at a
valuation by not paying debt at maturity.

Facts: D, etc. executed in favor of C a document wherein they bound themselves to

pay their indebtedness to C, mortgaged their house and lot as security, and agreed to
the cession of said house and lot to C, transferring to her all their rights to the
ownership and possession thereof, in case of insolvency on their part. D, etc. paid no
part of their indebtedness.

Issue: Is the agreement to convey the house and lot at an appraised valuation in the
event of failure to pay the debt in money at its maturity valid?

Held: Yes. The agreement is simply an undertaking that if the debt is not paid in
money, it will be paid in another way. The agreement is not open to the objection
that the stipulation is a pacto commisorio. (see Art. 2088.) It is not an attempt to
permit the creditor to declare a forfeiture of the security upon the failure of the
debtors to pay the debt at maturity. It is simply provided that if the debt is not paid
in money it be paid in another specific way by the transfer of property at a valuation.
The title to the property is not to be transferred to C ipso facto upon the failure of C,
etc., to pay the debt at its maturity.

The obligations assumed by D, etc., were alternative and they had the right to elect
which they would perform. (Agoncillo and Mariano vs. Javier, 38 Phil. 424 [1918].)

Agoncillo v. Javier
30 Phil. 124
FACTS: A borrowed money from B. It was agreed that at the maturity of the debt, A
will give B either the sum lent or a particular house and lot.

Issue: Is this stipulation valid?

HELD: Yes, this stipulation is valid because it is simply an alternative obligation,

which is expressly allowed by the law. The agreement to convey the house and lot at
an appraised valuation in the event of failure to pay the debt in money at its maturity
is, however, in our opinion perfectly valid. It is simply an undertaking that if the
debt is not paid in money, it will be paid in another way. As the contract reads, the
agreement is not open to the objection that the stipulation is a pacto commisorio. It
is not an attempt to permit the creditor to declare a forfeiture of the security upon
the failure of the debtor to pay the debt at maturity. It is simply provided that if the
debt is not paid in money it shall be paid in another specific way by the transfer of
the property at a valuation. Of course, such an agreement unrecorded, creates no
right in rem, but as between the parties, it is perfectly valid, and specific
performance by its terms may be enforced unless prevented by the creation of
superior rights in favor of third persons.
The contract now under consideration is not susceptible of the interpretation that
the title to the house and lot in question was to be transferred to the creditor ipso
facto upon the mere failure of the debtors to pay the debt at its maturity. The
obligations assumed by the debtors were in the alternative, and they had the right to
elect which they would perform. The conduct of the parties show that it was not their
understanding that the right to discharge the obligation by the payment of money
was lost to the debtors by their failure to pay the debt at its maturity. The plaintiff
(B) accepted a partial payment from Anastacio Alano (A) in 1908, several years after
the debt matured. The prayer of the complaint is to execute a conveyance of the
house and lot after its appraisal, unless the defendants pay the plaintiff the debt
which is the subject of this action.

It is quite clear, therefore, that under the terms of the contract, as we read it, and the
parties themselves have interpreted it, the liability of the defendant as to the
conveyance of the house and lot is subsidiary and conditional, being dependent upon
their failure to pay the debt in money. It must follow, therefore, that if the action to
recover the debt was prescribed, the action to compel a conveyance of the house and
lot is likewise barred, as the agreement to make such conveyance was not an
independent principal undertaking, but merely a subsidiary alternative pact relating
to the methods by which the debt might be paid.