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FACTS: (background of the case)

Petitioner leased a parcel of land located at 2068 Quirino Avenue, Pandacan, Manila. The
lease contract was for a period of fifteen years to commence on 1 June 1979 and to end
on 1 June 1994 "subject to renewal for another ten (10) years, under the same terms and
conditions." Petitioner then constructed a building and paid the required monthly rental
of P200. Private respondents later demanded a gradual increase in the rental until it
reached P400 in 1985. For July and August 1991, petitioner paid private
respondents P1,000 as monthly rental;

On 6 December 1991, private respondents counsel wrote petitioner informing her of the
increase in the rent to P1,576.58 effective January 1992 pursuant to the provisions of the
Rent Control Law. Petitioner, however, tendered 6 checks for only P400 each. As might be
expected, private respondents refused to accept the same.
On 9 August 1993, petitioner filed with the RTC of Manila a complaint for specific
performance with prayer for consignation. She prayed that private respondents be ordered
to accept the rentals in accordance with the lease contract and to respect the lease of
fifteen years, which was renewable for another ten years, at the rate of P200 a month.
During the pendency of the controversy, counsel for private respondents wrote petitioner
reminding her that the contract expired on 1 June 1994 and demanding that she pay the
rentals in arrears, which then amounted to P33,000.
On 29 August 1995, the RTC declared the lease contract automatically renewed for ten
years and considered as evidence thereof (a) the stipulations in the contract giving the
lessee the right to construct buildings and improvements and (b) the filing by petitioner of
the complaint almost one year before the expiration of the initial term of fifteen years. It
then fixed the monthly rent at P400 from 1 June 1990 to 1 June 1994; P1,000 from 1 June
1994 until 1 June 1999; and P1,500 for the rest of the period or from 1 June 2000 to 1 June
2004, reasoning that the continuous increase of rent from P200 to P250 then P300, P400
and finally P1,000 caused "an inevitable novation(the act of either: replacing an obligation
to perform with another obligation; or. adding an obligation to perform; or. replacing a
party to an agreement with a new party.) of their contract.
On appeal, the Court of Appeals reversed the decision of the RTC, and ordered petitioner
to immediately vacate the leased premises on the ground that the contract expired on 1
June 1994 without being renewed and to pay the rental arrearages at the rate of P1,000
According to the Court of Appeals, the phrase in the contract "this lease shall be for a
period of fifteen (15) years effective June 1, 1979, subject to renewal for another ten (10)
years, under the same terms and conditions" is unclear as to who may exercise the option
to renew. The stipulation allowing the construction of a building and other improvements
and the fact that the complaint was filed a year before the expiration of the contract are
not indicative of automatic renewal. It applied the ruling in Fernandez v. CA that without
a stipulation that the option to renew the lease is solely for the benefit of one party any
renewal of a lease contract must be upon the agreement of the parties. Since private
respondents were not agreeable to an extension, the original term of the lease ended on 1
June 1994. Private respondents refusal to accept petitioners checks for P400 was justified
because although the original contract specified a monthly rental of P200, the tender and
acceptance of the increased rental of P1,000 novated the contract of lease; thus, petitioner
was estopped from claiming that the monthly rental is otherwise.
The Court of Appeals denied petitioners motion for reconsideration. Hence this petition.
Petitioner maintains that the phrase "renewable for another ten years at the option of both
parties" in the Fernandez case clearly indicated the intention of the parties to renew the
contract only upon mutual agreement. Whereas in this case the contract states, "[T]his
lease shall be for a period of fifteen (15) years effective June 1, 1979, subject to renewal for
another ten (10) years, under the same terms and conditions," making this stipulation
subject to interpretation with due regard to the contemporaneous and subsequent acts of
the parties. The stipulation in the contract allowing the lessee to construct buildings and
improvements; her filing of the complaint a year before the expiration of the initial 15-year
term; and private respondents acceptance of the increased rental are contemporaneous
and subsequent acts that signify the intention of the parties to renew the contract;
Private respondents argue that the alleged contemporaneous and subsequent acts do not
determine the real intention of the parties as regards renewal of the lease contract.

Issue: Does the stipulation "this lease shall be for a period of fifteen (15) years effective June 1,
1979, subject to renewal for another ten (10) years, under the same terms and
conditions." Equate to automatic renewal?

Ruling: No. The literal meaning of the stipulations shall control if the terms of the contract are
clear and leave no doubt upon the intention of the contracting parties. However, if the
terms of the agreement are ambiguous resort is made to contract interpretation which is
the determination of the meaning attached to written or spoken words that make the
contract. Also, to ascertain the true intention of the parties, their actions, subsequent or
contemporaneous, must be principally considered.

The Court ruled that the phrase "subject to renewal for another ten (10) years" is
unclear on whether the parties contemplated an automatic renewal or extension of the
term, or just an option to renew the contract; and if what exists is the latter, who may
exercise the same or for whose benefit it was stipulated.

In this jurisdiction, a fine delineation exists between renewal of the contract and
extension of its period. Generally, the renewal of a contract connotes the death of the old
contract and the birth or emergence of a new one. A clause in a lease providing for an
extension operates of its own force to create an additional term, but a clause providing
for a renewal merely creates an obligation to execute a new lease contract for the
additional term. As renewal of the contract contemplates the cessation of the old
contract, then it is necessary that a new one be executed between the parties

There is nothing in the stipulations in the contract and the parties actuation that shows
that the parties intended an automatic renewal or extension of the term of the contract.

In the case at bar, it was not specifically indicated who may exercise the option to
renew, neither was it stated that the option was given for the benefit of herein
petitioner. Thus, pursuant to the Fernandez ruling and Article 1196 of the Civil Code,
the period of the lease contract is deemed to have been set for the benefit of both parties.
Renewal of the contract may be had only upon their mutual agreement or at the will of
both of them. Since the private respondents were not amenable to a renewal, they
cannot be compelled to execute a new contract when the old contract terminated on 1
June 1994. It is the owner-lessors prerogative to terminate the lease at its
expiration. The continuance, effectivity and fulfillment of a contract of lease cannot be
made to depend exclusively upon the free and uncontrolled choice of the lessee between
continuing the payment of the rentals or not, completely depriving the owner of any say
in the matter. Mutuality does not obtain in such a contract of lease and no equality
exists between the lessor and the lessee since the life of the contract would be dictated
solely by the lessee.

FACTS: Gregorio Araneta, Inc. (through President Jose Araneta) offered for sale a parcel of
land with the improvements thereon. This property was bought by Investment
Corporation through Maria Lachica, the wife of the Esteban Sadang who was sales
agent of defendant corporation.

The terms of the contract stated that the price was P20,000, of which P8,000 was to be
paid in cash and the balance of P12,000 in installments of
P 1,000 on or before December 31, 1943
P 1,000 on or before December 31, 1944
P 10,000 on or before December 31, 1945.
What the parties signed was a contract of exact content as stated, which however
omitted the words or before. Thus, it would appear that the payment of the
installments would be on and not on or before the dates as specified.

The contract further added that this same property will be mortgaged to us to
guarantee the unpaid balance, and the same will bear an interest of 8 percent per
annum; said interest to be paid monthly in advance.

The terms were complied with, together with some resolved differences, until on Sept. 5,
1944, plaintiff Sadang went to see Araneta to pay the entire balance, including the
interest thereon and ask for the cancellation of the mortgage, but Araneta refused to
accept the tender of payment. Araneta gave as his reason for his non-acceptance that
such payment was not in accordance with the terms of the deed of sale with mortgage.

Plaintiff, through counsel, deposited the sum (balance) supposed to be paid to Araneta
with the CFI of Manila by way of consignation, and at the same time presented the
complaint. The defendant alleges that payment should be on the date specified, not
before; the plaintiffs claim that such payment may be made on or before the date

ISSUE: Should Araneta be compelled to accept the payment?

RULING: Yes. The contract does not prohibit if it is done before. A term is fixed and it is
presumed to have been established for the benefit of the creditor as sell as that of the
debtor, unless from its tenor or from other circumstances it should appear that the
terms as established for the benefit of one or the other. (Art. 1127, now 1196 Civil
Code). And the contract specifically provides that these periods of payment have been
agreed for the benefit of the vendor and the vendee. Such mutual benefit has been
interpreted to consist of the time granted a debtor to find means to comply with his
obligation, and the fruits, such as interest, accruing to the creditor.

From the SC decision in Villaseor vs. Javellana, the only impediment to a debtor
making payment before the term fixed, is the denial to the creditor of the benefits, such
as interests, accruing to the later by reason of the fixed term. This, coupled with the fact
that the contract did not prohibit payment before the fixed date, justifies the conclusion
that under the terms signed, plaintiffs could do so. To hold otherwise, would be virtually
compelling an obligor to assume an obligation later when he offers to, and could very
well, discharge it earlier. The law should not be interpreted as to compel a debtor to
remain so, when he is in a position to release himself.

Further, the acceleration clause in the contract signed by the parties state that in the
event of defaults in payment of any amount due, either for capital or interest, the whole
balance shall automatically become due and payable, and the vendor shall have the
right to foreclose the mortgage in its entirety. While the clause is standard one
contained in most mortgage deeds where the mortgage loan is payable in several
installments, still we cannot escape the conclusion, derived from the clause itself, that
payments may be made by the vendee before the dates stated in the contract.

FACTS: J. M. Tuason& Co., Inc. is the owner of Sta. Mesa Heights Subdivision. Through
Petitioner Araneta, it sold a portion thereof (43, 034.4 sq. m.) for the sum of
Php430,514.00 to Respondent on July 28, 1950. They agreed on the following
Respondent will build on the parcel land the Sto. Domingo Church and Convent; and
the seller will construct streets on the NE and NW and SW sides of the land herein sold
so that the latter will be a block surrounded by streets on all four sides; and the street
on the NE side shall be named Sto. Domingo Avenue.

The buyer finished constructing the church and a convent but the seller, Gregorio
Araneta, Inc. was unable to finish constructing the street in the NE side because of
Manuel Abundo, who was physically occupying the middle part thereof and refused to
vacate the same.

On May 7, 1958, Respondent filed a complaint against J. M. Tuason& Co., Inc. seeking
to compel the latter to comply with their obligation and/or to pay damages in the event
they failed or refused to perform the obligation. Both defendants J. M. Tuason and Co.
and Gregorio Araneta, Inc. answered the complaint, the latter particularly setting up
the principal defense that the action was premature since its obligation to construct the
streets in question was without a definite period which needs to be fixed first by the
court in a proper suit for that purpose before a complaint for specific performance will

The lower court and the Court of Appeals decided in favor of Respondent, giving
Petitioner two years from the date of finality of the decision to comply with the
obligation of constructing and completing the streets.

ISSUE: Whether or not the fixing of the period by the Trial Court and the Court of Appeals was

RULING: Negative. The application of Art. 1197 of the Civil Code requires 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).
Once the preliminary point is settled, the Court must then decide what period was
"probably contemplated by the parties.

Ultimately, the Court cannot fix a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown to have intended. In the
case at bar, 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.

The parties were fully aware that the land described therein was occupied by squatters,
because the fact is expressly mentioned in their pleadings. As the parties must have
known that they could not take the law into their own hands, but must resort to legal
processes in evicting the squatters, they must have realized that the duration of the
suits to be brought would not be under their control nor could the same be determined
in advance. The conclusion is thus forced that the parties must have intended to defer
the performance of the obligations under the contract until the squatters were duly
evicted, as contended by the petitioner Gregorio Araneta, Inc. The time for the
performance of the obligations of petitioner Gregorio Araneta, Inc. was fixed at the date
that all the squatters on affected areas are finally evicted therefrom.

FACTS: The plaintiff owned a building that was insured against fire by the defendant in the sum
of Php 30,000, including the merchandise therein contained in the sum of Php 15,000. Both the
house and merchandise insured were burned in February 28, 1923 while the policies issued by
the defendant in favor of the plaintiff were still in force.

The CFI of Iloilo granted the case in favor of the plaintiff that The Century Insurance Co. should
pay Ong Guan Can the sum of Php 45,000 as the total value of the insured house and
merchandise. The Insurance Company appealed that the judgment be modified to permit it to
rebuild the house and that they be relieved from the payment of the sum in which the building
was insured.

ISSUE: Whether the defendant-appellant can rebuild the house burnt as a sufficient idemnity to
the inured for the actual loss suffered by him.

HELD: Yes. The defendant may build the house as an alternative prestation, freeing him from
the payment of the sum in which the building was insured. This conclusion is in line with The
Civil Codes Article 1131.

Paying the sum in which the building was insured is one of the 2 prestations provided in one of
the clauses stipulating the conditions of the policies. Based on the same Article of the Civil Code,
the complete performance of one of them is sufficient to extinguish the obligation. While there
are several prestations, only one is due.


Article 1199:

A person alternatively bound by different prestations shall completely perform one of them.

The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131)