Millare v.

Hernando
GR 55480, Jun. 30, 1987

Paras Art 1197

This Article 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.

Deleon 1197

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. 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 fi
xed. (Millare vs. Hernando, 151 SCRA 484 [1987].)
 Qui vs. CA,
66 SCRA 523[1975]

Deleon Art 1197 pp 190

B bought lumber from the store of S on credit. The period for payment in the invoice
is left blank. From the nature of the obligation, it can be inferred that a period is
intended. (see Cosmic Lumber Co., Inc. vs. Manaois, 106 Phil. 1015 [1960]; see Qui
vs. Court of Appeals, 66 SCRA 523 [1975].)

Art 1197 Deleon

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 fi led a suit for
ejectment.

Issue: Is the action of R proper?

Held: No. 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]

Paras Art 1198

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, 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.

De leon Art 1198

Right of seller to recover whole purchase price of vessel sold on installment basis,
which disappeared, while being delivered, due to a fortuitous event.

Facts: S sold to B a launch for P16,000.00 payable in quarterly installments of

P1,000.00 each with interest at 10% per annum. The launch was shipwrecked and
became a total loss while en route to B’s place of business. S brought action for the
recovery of the whole purchase price.

Issue: Is S entitled to the whole purchase price or only for the amount of the unpaid
installments due under the express terms of the contract when the complaint was fi
led?

Held: Yes. 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.5 (Song Fo & Co. vs. Oria, 33 Phil. 3 [1915].)
 Gaite vs. Foncier,
112 Phil. 728

Deleon Art 1193

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: 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].)

Paras pp238 Art 1193

NOTE: In Gaite v. Fonacier, et al., L-11827, Jul. 31, 1961, the balance of price in a
sale of iron ore was stipulated to be paid out of the fi rst 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.

Gonzales vs. Jose,

66 Phil. 369
 Calero vs. Carreon, et. al.,
L-13246, March 30, 1960

Art 1197 Deleon pp 1197 (refer also to the book pp211)

On obligations coming within the purview of Article 1197, the only action that can be
maintained is to ask the court fi rst 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. The duration of the period should be fixed in an action
brought for that express purpose separate from the action to enforce payment but
such technicality need not be adhered to when a prior and separate action would be
a mere formality and would serve no other purpose than to delay. (Concepcion vs.
People, 74 Phil. 63 [1942]; Gonzales vs. De Jose, 66 Phil. 369 [1938]; see Tiglao vs.
Manila Railroad Co., 98 Phil. 181 [1956]; Calero vs. Carrion, 107 Phil. 549 [1960];
Borromeo vs. Court of Appeals, 47 SCRA 65 [1972]; Pages vs. Basilan Lumber Co.,
104 Phil. 882 [1958].)
 Berg v. Magdalena Estate, Inc.
92 Phil. 110

Paras pp241 Art 1193

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.)

DBP vs. Sta. Ines, et. al.,

G.R. No. 193068 and G.R. No. 193099, February 1, 2017
 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.