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.