NOVEMBER 18, 2012 CIV2 CASES

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 178610 November 17, 2010

HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT PLAN, Retirement Trust Fund, Inc.) Petitioner, vs. SPOUSES BIENVENIDO AND EDITHA BROQUEZA, Respondents. DECISION CARPIO, J.: G.R. No. 178610 is a petition for review1 assailing the Decision2 promulgated on 30 March 2006 by the Court of Appeals (CA) in CA-G.R. SP No. 62685. The appellate court granted the petition filed by Fe Gerong (Gerong) and Spouses Bienvenido and Editha Broqueza (spouses Broqueza) and dismissed the consolidated complaints filed by Hongkong and Shanghai Banking Corporation, Ltd. Staff Retirement Plan (HSBCL-SRP) for recovery of sum of money. The appellate court reversed and set aside the Decision3 of Branch 139 of the Regional Trial Court of Makati City (RTC) in Civil Case No. 00-787 dated 11 December 2000, as well as its Order4 dated 5 September 2000. The RTCs decision affirmed the Decision5 dated 28 December 1999 of Branch 61 of the Metropolitan Trial Court (MeTC) of Makati City in Civil Case No. 52400 for Recovery of a Sum of Money. 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 Hongkong Shanghai Banking Corporation, Ltd. Staff Retirement Plan (HSBCL-SRP, plaintiff below). The HSBCL-SRP is a retirement plan established by HSBC through its Board of Trustees for the benefit of the employees. On October 1, 1990, petitioner [Editha] Broqueza obtained a car loan in the amount of Php175,000.00. On December 12, 1991, she again applied and was granted an appliance loan in the amount of Php24,000.00. 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. Meanwhile [in 1993], a labor dispute arose between HSBC and its employees. Majority of HSBCs employees were terminated, among whom are petitioners Editha Broqueza and Fe Gerong. The employees then filed an illegal dismissal case before the National Labor Relations Commission (NLRC) against HSBC. The legality or illegality of such termination is now pending before this appellate Court in CA G.R. CV No. 56797, entitled Hongkong Shanghai Banking Corp. Employees Union, et al. vs. National Labor Relations Commission, et al.

Because of their dismissal, petitioners were not able to pay the monthly amortizations of their respective loans. Thus, respondent HSBCL-SRP considered the accounts of petitioners delinquent. Demands to pay the respective obligations were made upon petitioners, but they failed to pay.6 HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L. Custodio, filed Civil Case No. 52400 against the spouses Broqueza on 31 July 1996. On 19 September 1996, HSBCL-SRP filed Civil Case No. 52911 against Gerong. Both suits were civil actions for recovery and collection of sums of money. The Metropolitan Trial Courts Ruling On 28 December 1999, the MeTC promulgated its Decision7 in favor of HSBCL-SRP. The MeTC ruled that the nature of HSBCL-SRPs demands for payment is civil and has no connection to the ongoing labor dispute. Gerong and Editha Broquezas termination from employment resulted in the loss of continued benefits under their retirement plans. Thus, 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. The dispositive portion of the MeTCs decision reads: WHEREFORE, premises considered and in view of the foregoing, the Court finds that the plaintiff was able to prove by a preponderance of evidence the existence and immediate demandability of the defendants loan obligations as judgment is hereby rendered in favor of the plaintiff and against the defendants in both cases, ordering the latter: 1. In Civil Case No. 52400, to pay the amount of Php116,740.00 at six percent interest per annum from the time of demand and in Civil Case No. 52911, to pay the amount of Php25,344.12 at six percent per annum from the time of the filing of these cases, until the amount is fully paid; 2. To pay the amount of Php20,000.00 each as reasonable attorneys fees; 3. Cost of suit. SO ORDERED.8 Gerong and the spouses Broqueza filed a joint appeal of the MeTCs decision before the RTC. Gerongs case was docketed Civil Case No. 00-786, while the spouses Broquezas case was docketed as Civil Case No. 00-787. The Regional Trial Courts Ruling The RTC initially denied the joint appeal because of the belated filing of Gerong and the spouses Broquezas memorandum. The RTC later reconsidered the order of denial and resolved the issues in the interest of justice. On 11 December 2000, the RTC affirmed the MeTCs decision in toto.9 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 HSBCL-SRP to demand immediate payment. The loan obligations are considered pure obligations, the fulfillment of which are demandable at once. Gerong and the spouses Broqueza then filed a Petition for Review under Rule 42 before the CA. The Ruling of the Court of Appeals On 30 March 2006, the CA rendered its Decision10 which reversed the 11 December 2000 Decision of the RTC. The CA ruled that the HSBCL-SRPs 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. The dispositive portion of the appellate courts Decision reads as follows: WHEREFORE, the assailed Decision of the RTC is REVERSED and SET ASIDE. A new one is hereby rendered DISMISSING the consolidated complaints for recovery of sum of money. SO ORDERED.11 HSBCL-SRP filed a motion for reconsideration which the CA denied for lack of merit in its Resolution12promulgated on 19 June 2007. On 6 August 2007, HSBCL-SRP filed a manifestation withdrawing the petition against Gerong because she already settled her obligations. In a Resolution13 of this Court dated 10 September 2007, this Court treated the manifestation as a motion to withdraw the petition against Gerong, granted the motion, and considered the case against Gerong closed and terminated. Issues HSBCL-SRP enumerated the following grounds to support its Petition: I. The Court of Appeals has decided a question of substance in a way not in accord with law and applicable decisions of this Honorable Court; and II. The Court of Appeals has departed from the accepted and usual course of judicial proceedings in reversing the decision of the Regional Trial Court and the Metropolitan Trial Court.14 The Courts Ruling The petition is meritorious. We agree with the rulings of the MeTC and the RTC. The Promissory Notes uniformly provide: PROMISSORY NOTE P_____ Makati, M.M. ____ 19__

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. 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. 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 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: 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. x x x. (Emphasis supplied.) 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 check-off 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. 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 HSBCL-SRP 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

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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.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. L-29900 June 28, 1974 IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA, Deceased, GEORGE PAY, petitioner-appellant, vs. SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee. Florentino B. del Rosario for petitioner-appellant. Manuel V. San Jose for oppositor-appellee.

FERNANDO, J.:p There is no difficulty attending the disposition of this appeal by petitioner on questions of law. While several points were raised, the decisive 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." On the above facts as found, and with the law being as it is, it cannot be said that its decision is infected with error. We affirm. From the appealed decision, the following appears: "The parties in this case agreed to submit the matter for resolution on the basis of their pleadings and annexes and their respective memoranda submitted. Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3, 1963. The claim of the petitioner is based on a promissory note dated January 30, 1952, whereby the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay George Pay the amount of P26,900.00, with interest thereon at the rate of 12% per annum. George Pay is now before this Court, asking that Segundina Chua vda. de Palanca, surviving spouse of the late Justo Palanca, he appointed as administratrix of a certain piece of property which is a residential dwelling located at 2656 Taft Avenue, Manila, covered by Tax Declaration No. 3114 in the name of Justo Palanca, assessed at P41,800.00. The idea is that once said property is brought under administration, George Pay, as creditor, can file his claim against the administratrix." 1 It then stated

that the petition could not prosper as there was a refusal on the part of Segundina Chua Vda. de Palanca to be appointed as administratrix; that the property sought to be administered no longer belonged to the debtor, the late Justo Palanca; and that the rights of petitioner-creditor had already prescribed. The promissory note, dated January 30, 1962, is worded thus: " `For value received from time to time since 1947, we [jointly and severally promise to] pay to Mr. [George Pay] at his office at the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with interest thereon at the rate of 12% per annum upon receipt by either of the undersigned of cash payment from the Estate of the late Don Carlos Palanca or upon demand'. . . . As stated, this promissory note is signed by Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca." 2 Then came this paragraph: "The Court has inquired whether any cash payment has been received by either of the signers of this promissory note from the Estate of the late Carlos Palanca. Petitioner informed that he does not insist on this provision but that petitioner is only claiming on his right under the promissory note ." 3 After which, came the ruling that the wording of the promissory note being "upon demand," the obligation was immediately due. Since it was dated January 30, 1952, it was clear that more "than ten (10) years has already transpired from that time until to date. The action, therefore, of the creditor has definitely prescribed." 4 The result, as above noted, was the dismissal of the petition. In an exhaustive brief prepared by Attorney Florentino B. del Rosario, petitioner did assail the correctness of the rulings of the lower court as to the effect of the refusal of the surviving spouse of the late Justo Palanca to be appointed as administratrix, as to the property sought to be administered no longer belonging to the debtor, the late Justo Palanca, and as to the rights of petitioner-creditor having already prescribed. As noted at the outset, only the question of prescription need detain us in the disposition of this appeal. Likewise, as intimated, the decision must be affirmed, considering the clear tenor of the promissory note. From the manner in which the promissory note was executed, 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. As far back as Floriano v. Delgado, 5 a 1908 decision, it has been applied according to its express language. The well-known Spanish commentator, Manresa, on this point, states: "Dejando con acierto, el caracter mas teorico y grafico del acto, o sea la perfeccion de este, se fija, para determinar el concepto de la obligacion pura, en el distinctive de esta, y que es consecuencia de aquel: la exigibilidad immediata." 6 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.

Zaldivar (Chairman), Barredo, Antonio, Fernandez and Aquino, JJ., concur.

MITH, BELL & CO., LTD VS. VICENTE SOTELO MATTI G.R. No. L-16570 March 9, 1922

FACTS: Smith Bell and Co. entered into contract with Mr. Vicente Sotelo in August 1918. Two steel tanks were to be sold to Sotelo in the amount of P21,000.00; two expellers at P25,000.00 each and two electric motors at P2,000.00 each. The steel tanks are to be delivered within 3 or 4 months; the expellers to be delivered in September 1918 or as soon as possible; electric motors approximate delivery within 90 days and is not guaranteed. The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October, 1918; and the motors on the 27th of February, 1919. The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods, but Mr. Sotelo refused to receive them and to pay the prices stipulated. The plaintiff brought suit against the defendant, based on four separate causes of action, 1.) alleging, among other facts, that it 2.) immediately notified the defendant of the arrival of the goods, and 3.) asked instructions from him as to the delivery thereof, and that the defendant 4.) refused to receive any of them and to pay their price. The plaintiff, further, alleged that the expellers and the motors were in good condition. In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and By-Products Co., Inc., denied the plaintiff's allegations as to the shipment of these goods and their arrival at Manila, the notification to the defendant, Mr. Sotelo, the latter's refusal to receive them and pay their price, and the good condition of the expellers and the motors, alleging as special defense that Mr. Sotelo had made the contracts in question as manager of the intervenor, the Manila Oil Refining and By-Products Co., Inc which fact was known to the plaintiff, and that "it was only in May, 1919, that it notified the intervenor that said tanks had arrived, the motors and the expellers having arrived incomplete and long after the date stipulated." As a counterclaim or set-off, they also allege 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.

ISSUE:

Was the condition dependent upon chance or upon will of third persons?

RULING: Yes. 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. In such cases, the decisions prior to the Civil Code have held that the obligee having done all that was in his power, was entitled to enforce performance of the obligation. This performance, which is fictitious not real is not expressly authorized by the Code, which limits itself only to declare valid those conditions and the obligation thereby affected; but it is neither disallowed, and the Code being thus silent, the old view can be maintained as a doctrine.

CHAVES VS. GONZALES 32 SCRA 547

FACTS: Plaintiff Chaves delivered to defendant Gonzales a typewriter for routine cleaning and servicing. The defendant was not able to finish the job after some time despite repeated reminders by plaintiff. Eventually, Chaves took back his typewriter which was returned to him in shambles with some parts missing. Chaves had the typewriter fixed by someone else which cost him a total of Php 89.85. Subsequently, Chaves filed a case before the CFI demanding Php 90 as actual damages among others. The CFI found for the plaintiff but ruled that the total cost of Php 89.85 should not be fully charged against the defendant and that only the total value of the missing parts at Php 31.10 should be paid by Gonzales to Chaves. Chaves appealed to the Supreme Court with the contention that under Article 1167 defendant

should pay him the whole cost of labor and materials that went into the repair of the machine. Gonzales, on the other hand, contended that he is not liable at all for anything because his contract with Chaves did not contain a period and that Chaves should have first filed a petition for the court to fix the period under 1167 of the Civil Code.

ISSUE: Does the contract contain a period?

RULING: Yes. Based on the facts it was clear that both parties had a perfected contract for cleaning and servicing a typewriter; that they intended that the defendant was to finish it at some future time although such time was not specified; and that such time had passed without the work having been accomplished. The time for compliance having evidently expired, and there being a breach of contract by non-performance, it was academic for plaintiff to have first petitioned the court to fix a period. 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 non-working condition with essential parts missing. For such contravention, Gonzales is liable under Article 1167 of the Civil Code which makes him liable for the cost of executing the obligation in a proper manner. In addition, he is likewise liable under Article 1170 of the Code for cost of the missing parts, in the amount of Php 31.10 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.

SINGSON ENCARNACION VS. BALDOMAR 77 PHIL 470

FACTS: Vicente Singson Encarnacion leased his house to Jacinta Baldomar and her son, Lefrando Fernando upon a month-to-month basis. After Manila was liberated in the last war, Singson Encarnacio notified Baldomar and her son Fernando to vacate the house because he needed it for his office as a result of the destruction of the building where he had his office before. Despite the demand, the Baldomar and Fernando continued their occupancy.

The defense of Baldomar and Fernando was that the contract with Singson Encarnacion authorized them to continue occupancy indefinitely while they should faithfully fulfill their obligation with respect to payment of rentals. Singson Encarnacion contended that the lease had always and since the beginning been upon a month-to-month basis.

ISSUE: Was it tenable for Singson Encarnacion to discontinue the lease of Baldomar and her son?

RULING: The continuance and fulfillment of the contract of lease cannot be made to depend solely and exclusively upon the free and uncontrolled choice of the lessees between continuing paying the rentals or not, completely depriving the owner of all say in the matter. The defense of Baldomar and Fernando would leave to the sole and exclusive will of one of the contracting parties the validity and fulfillment of the contract of lease, within the meaning of Article 1256 of the Civil Code. For if this were allowed, so long as the lessee elected to continue the lease by continuing the payment of the rentals the owner would never be able to discontinue the lease; conversely, although the owner should desire the lease to continue, the lessee could effectively thwart his purpose if he should prefer to terminate the contract by the simple expedient of stopping payment of the rentals.

ELEIZEGUI VS MANILA LAWN TENNIS CLUB G.R. 967

FACTS: This suit concerns the lease of a piece of land for a fixed consideration and to endure at the will of the lessee. By the contract of lease the lessee is expressly authorized to make improvements upon the land, by erecting buildings of both permanent and temporary character, by making fills, laying pipes, and making such other improvements as might be considered desirable for the comfort and amusement of the members. With respect to the term of the lease the present question has arisen. In its decision three theories have been presented: One which makes the duration depend upon the will of the lessor, who, upon one month's notice given to the lessee, may terminate the lease so stipulated;

another which, on the contrary, makes it dependent upon the will of the lessee, as stipulated; and the third, in accordance with which the right is reversed to the courts to fix the duration of the term. The first theory is that which has prevailed in the judgment below, as appears from the language in which the basis of the decision is expressed: "The court is of the opinion that the contract of lease was terminated by the notice given by the plaintiff on August 28 of last year . . . ." And such is the theory maintained by the plaintiffs, which expressly rests upon article 1581 of the Civil Code, the law which was in force at the time the contract was entered into (January 25, 1890). The judge, in giving to this notice the effect of terminating the lease, undoubtedly considers that it is governed by the article relied upon by the plaintiffs, which is of the following tenor: "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."

ISSUE: Was there a conventional term, a duration, agreed upon in the contract in question?

RULING: Yes. The obligations which, with the force of law, the lessors assumed by the contract entered into, so far as pertaining to the issues, are the following: "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." In view of these clauses, it can not be said that there is no stipulation with respect to the duration of the lease, or that, notwithstanding these clauses, article 1581, in connection with article 1569, can be applied. If this were so, it would be necessary to hold that the lessors spoke in vain that their words are to be disregarded a claim which can not be advanced by the plaintiffs nor upheld by any court without citing the law which detracts all legal force from such words or despoils them of their literal sense.

PHILIPPINE BANKING CORPORATION VS. LUI SHE

1967 SEPTEMBER 12

FACTS: Justina Santos y Canon Faustino and her sister Lorenza were the owners in common of a piece of land in Manila. The sisters lived in one of the houses, while Wong Heng, a Chinese, lived with his family in the restaurant. Wong had been a long-time lessee of a portion of the property, having a monthly rental of P2,620. On September 22, 1957 Justina Santos became the owner of the entire property as her sister died with no other heir. Then already well advanced in years, being at the time 90 years old, blind, crippled and an invalid, she was left with no other relative to live with, but she was taken cared of by Wong. "In grateful acknowledgment of the personal services of the Lessee to her," Justina Santos executed on November 15, 1957, a contract of lease in favor of Wong, covering the portion then already leased to him and another portion fronting Florentino Torres street. The lease was for 50 years, although the lessee was given the right to withdraw at any time from the agreement; the monthly rental was P3,120. Ten days later (November 25), the contract was amended so as to make it cover the entire property, including the portion on which the house of Justina Santos stood, at an additional monthly rental of P360. On December 21 she executed contract giving Wong the option to buy the leased premises for P120,000, payable within ten years at a monthly installment of P1,000. The option was conditioned on his obtaining Philippine citizenship,a petition for which was then pending in the Court of First Instance of Rizal. On November 18, 1958 she executed two other contracts, one extending the term of the lease to 99 years, and another fixing the term of the option at 50 years. Both contracts are written in Tagalog. In two wills executed on August 24 and 29, 1959, she bade her legatees to respect the contracts she had entered into with Wong, but in a codicil 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 practised by him, she now directed her executor to secure the annulment of the contracts. Both parties however died, Wong Heng on October 21, 1962 and Justina Santos on December 28, 1964. Wong was substituted by his wife, Lui She, the other defendant in this case, While Justina Santos was substituted by the Philippine Banking Corporation. Justina Santos maintained now reiterated by the Philippine Banking Corporation that the lease contract should have been annulled along with the four other contracts because it lacks mutuality, among others

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."

ISSUES: 1. (OBLICON ISSUE) Was the insertion in the contract of a resolutory condition, permitting the cancellation of the contract by one of the parties, valid? 2. (RELATED, but Consitutional Issue) Was the contract between Wong (Lui She) and Justina Santos (Phil. Banking) enforceable?

RULING: 1. Yes. In the early case of Taylor vs. Uy Tiong Piao, the Supreme Court said: 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 Further, in the case at bar, the right of the lessee to continue the lease or to terminate it was 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 period but not the annulment of the contract. 2. No. The contract of lease, as in this case, cannot be sustained. However, to be sure, a lease to an alien for a reasonable period was valid, so was an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship. But if an alien was given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then it became clear that the arrangement was a virtual transfer of ownership whereby the owner divested himself in stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi)

rights the sum total of which make up ownership. It was just as if today the possession is transferred, tomorrow, the use, the next day, the disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in an alien. And yet this was just exactly what the parties in this case did within this pace of one year, with the result that Justina Santos' ownership of her property was reduced to a hollow concept. If this can be done, then the Constitutional ban against alien landholding in the Philippines, is indeed in grave peril. The contracts in question are annulled and set aside; the land subject-matter of the contracts was ordered returned to the estate of Justina Santos as represented by the Philippine Banking Corporation.

LIM VS. PEOPLE 133 SCRA 333

FACTS: On January 10, 1966, appellant Lourdes Valerion Lim who is a businesswoman went to the house of Maria Ayroso and proposed to sell Ayrosos tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she could sell the tobacco. This agreement was made in the presence of the plaintiffs sister, Salud Bantug. Salvador Bantug drew the document which apprised of a certification that appellant had received from Ayroso the amount of 615 kilos of leaf tobacco to be sold at P1.30 per kilo. It is also stated there that the proceeds in the amount of P799.50 will be given to Ayroso as soon as it was sold. It was signed by the appellant and witnessed by the complainants sister Salud Bantug and the latters maid Genoveva Ruiz. The appellant that time was bringing jeep, and the tobacco was simply loaded in the jeep. However, of the total value of P799.50, the appellant had paid to Ayroso only P240.00 and this was paid on three different times. As no further amount was paid, complainant Ayroso filed a complaint against appellant Lim for estafa. Judgment was rendered against appellant. In this petition for review on certiorari, appellant claimed that the obligation does not fix a period and that the court should fix the duration thereof pursuant to Article 1197 of the Civil Code.

ISSUE: Is appellants contention, saying that Article 1197 applies, correct?

RULING: No. It is clear in the agreement 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. The agreement constituted her as an agent with the obligation to return the tobacco if the same was not sold. The fact that appellant received the tobacco and the proceeds to be given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the appellant. Furthermore, where a person obliged himself to pay to another the proceeds of the latters tobacco as soon as they are disposed of, a period exists for payment of the obligation and, therefore, Article 1197 does not apply. The receipt, therefore, should be considered as a contract of agency to sell the subject tobacco between the appellant and complainant.

ARANETA VS PHIL. SUGAR ESTATES DEVELOPMENT CO. 20 SCRA 330

FACTS: J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, and on July 28, 1950, [through Gregorio Araneta, Inc.] sold a portion thereof to Philippine Sugar Estates Development Co., Ltd. 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. But the seller, Gregorio Araneta, Inc., which began constructing the streets, is unable to finish the construction of the street in the Northeast side because a certain third-party, by the name of Manuel Abundo, who has been physically occupying a middle part thereof, refused to vacate the same; Both buyer and seller know of the presence of squatters that may hamper the construction of the streets by the seller. On May 7, 1958, Philippine Sugar Estates Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc., and instance, seeking to compel the latter to comply with their obligation, as stipulated in the above-mentioned deed of sale, and/or to pay damages in the event they failed or refused to perform said obligation. The lower court and the appellate court ruled in favor of Phil. Sugar estates, and gave defendant Gregorio Araneta, Inc., a period of two (2) years from notice hereof, within which to comply with its obligation under the contract, Annex "A". Gregorio Araneta, Inc. resorted to a petition for review by certiorari to this Court.

ISSUES: Was there a period fixed?

RULING: Yes. 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." 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, Was it within the powers of the lower court to set the performance of the obligation in two years time? NO. 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 included it as first amended; 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. 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. As the record stands, the trial Court appears to have pulled the two-year period set in its decision out of thin air, since no circumstances are mentioned to support it. Plainly, this is not warranted by the Civil Code.

Does reasonable time mean that the date of performance would be indefinite? 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.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-55480 June 30, 1987 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.: On 17 June 1975, a five-year Contract of Lease 1 was executed between petitioner Pacifica Millare as lessor and private respondent Elsa Co, married to Antonio Co, as lessee. Under the written agreement, which was scheduled to expire on 31 May 1980, the lessor-petitioner agreed to rent out to thelessee at a monthly rate of P350.00 the "People's Restaurant", a commercial establishment located at the corner of McKinley and Pratt Streets in Bangued, Abra. The present dispute arose from events which transpired during the months of May and July in 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. 2 In contrast, the lessor flatly denied ever having considered, much less offered, a renewal of the Contract of Lease. The variance in versions notwithstanding, the record shows that on 22 July 1980, Mrs. Millare wrote the Co spouses requesting them to vacate the leased premises as she had no intention of renewing the Contract of Lease which had, in the meantime, already expirecl. 3 In reply, the Co spouses reiterated their unwillingness to pay the Pl,200.00 monthly rentals supposedly sought bv Mrs. Millare which they considered "highly excessive, oppressive and contrary to existing laws". They also signified their intention to deposit the amount of rentals in court, in view of Mrs. Millare's refusal to accept their counter-offer. 4 Another letter of demand from Mrs. Millare was received on 28 July 1980

by the Co spouses, who responded by depositing the rentals for June and July (at 700.00 a month) in court. 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 (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. The Co spouses opposed the motion to dismiss. 7 In an Order dated 15 October 1980, respondent judge denied the motion to dismiss and ordered the renewal of the Contract of 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 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 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. Turning to the first issue, petitioner's attack on the jurisdiction of the trial court must fail, though for reasons different from those cited by the respondent judge. 13 We would note firstly that the conciliation procedure required under P.D. 1508 is not a jurisdictional requirement in the sense that failure to have prior recourse to such procedure would not deprive a court of its jurisdiction either over the subject matter or over the person of the defendant.14 Secondly, the acord shows that two complaints were submitted to the barangay authorities for conciliation one by petitioner for ejectment and the other by private respondents for renewal of the Contract of Lease. It appears further that both complaints were, in fact, heard by the Lupong Tagapayapa in the afternoon of 30 August 1980. After attempts at conciliation had proven fruitless, Certifications to File Action authorizing the parties to pursue their respective claims in court were then issued at 5:20 p.m. of that same aftemoon, as attested to by the Barangay Captain in a Certification presented in evidence by petitioner herself. 15

Petitioner would, nonetheless, assail the proceedings in the trial court on a technicaety, i.e., private respondents allegedly filed their complaint at 4:00 p.m. of 30 August 1980, or one hour and twenty minutes before the issuance of the requisite certification by the Lupng Tagapayapa. The defect in procedure admittedly initially present at that particular moment when private respondents first filed the complaint in the trial court, was cured by the subsequent issuance of the Certifications to File Action by the barangay Lupong Tagapayapa Such certifications in any event constituted substantial comphance with the requirement of P.D. 1508. 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 plaintiffs-lessees 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.

Yap (Chairman), Narvasa, Melencio-Herrera, Cruz, Gancayco and Sarmiento, JJ., concur.