Millare vs. Hernando

A lease renewal clause that leaves renewal to the terms and conditions to be mutually agreed upon by the parties does not obligate the lessor to renew absent such agreement, and courts cannot prescribe the terms of a contract for the parties. Prior barangay conciliation under P.D. No. 1508 is not jurisdictional, and a subsequent Certification to File Action constitutes substantial compliance.

Pacifica Millare was the lessor and Elsa Co, married to Antonio Co, the lessee of the People’s Restaurant in Bangued, Abra under a written lease. The written lease contained a renewal clause, and P.D. No. 1508 required prior barangay conciliation for certain disputes before filing in court.

On 17 June 1975, Pacifica Millare, as lessor, and Elsa Co, married to Antonio Co, as lessee, executed a five-year Contract of Lease over the “People’s Restaurant” located at the corner of McKinley and Pratt Streets in Bangued, Abra, at a monthly rental of P350.00, expiring on 31 May 1980. Paragraph 13 of the Contract of Lease stated that the lease may be renewed after a period of five years under the terms and conditions as would be mutually agreed upon by the parties at the time of renewal.

During the last week of May 1980, according to the Co spouses, Millare informed them that they could continue leasing the People’s Restaurant if they were amenable to paying increased rentals of P1,200.00 a month. The Co spouses counteroffered P700.00 a month. Millare allegedly stated that the amount of monthly rentals could be resolved at a later time since “the matter is simple among us,” which the Co spouses supposedly took to mean that the Contract of Lease had been renewed, prompting them to continue occupying the premises and to forego their search for a substitute place to rent. Millare flatly denied ever having considered, much less offered, a renewal of the Contract of Lease.

On 22 July 1980, Millare wrote the Co spouses requesting them to vacate the leased premises because she had no intention of renewing the Contract of Lease, which had already expired. In reply, the Co spouses reiterated their unwillingness to pay the P1,200.00 monthly rentals supposedly sought by 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 because Millare refused to accept their counteroffer. Another letter of demand from Millare was received on 28 July 1980 by the Co spouses, who responded by depositing the rentals for June and July at P700.00 a month in court.

On 30 August 1980, a Saturday, the Co spouses filed a Complaint in Civil Case No. 1434 with the then Court of First Instance of Abra against Millare, seeking judgment (a) ordering the renewal of the Contract of Lease at a rental rate of P700.00 a month and for a period of ten years, (b) ordering Millare to collect the sum of P1,400.00 deposited by the plaintiffs with the court, and (c) ordering Millare to pay damages in the amount of P50,000.00. The following Monday, on 1 September 1980, Millare filed an ejectment case against the Co spouses in the Municipal Court of Bangued, Abra, docketed as Civil Case No. 661; the Co spouses set up lis pendens as a defense against the complaint for ejectment.

Millare then filed an Omnibus Motion to Dismiss Civil Case No. 1434 on grounds of lack of cause of action due to the plaintiffs’ failure to establish a valid renewal of the Contract of Lease, and lack of jurisdiction by the trial court over the complaint for failure of the plaintiffs to secure a certification from the Lupong Tagapayapa of the barangay wherein both disputants reside attesting that no amicable settlement had been reached despite efforts to arrive at one, as required by Section 6 of Presidential Decree No. 1508. The record showed that two complaints were submitted to the barangay authorities for conciliation—one by Millare for ejectment and the other by the Co spouses for renewal of the Contract of Lease—and both were heard by the Lupong Tagapayapa in the afternoon of 30 August 1980. After attempts at conciliation proved fruitless, Certifications to File Action authorizing the parties to pursue their respective claims in court were issued at 5:20 p.m. that same afternoon, as attested to by the Barangay Captain in a certification presented in evidence by Millare. Millare nevertheless assailed the proceedings because the Co spouses allegedly filed their complaint at 4:00 p.m. on 30 August 1980, one hour and twenty minutes before the certification was issued.

• Lack of Cause of Action: Petitioner argued that private respondents had no valid cause of action because they failed to establish a valid renewal of the Contract of Lease.
• Lack of Jurisdiction / Barangay Conciliation: Petitioner argued that the trial court lacked jurisdiction over Civil Case No. 1434 because private respondents failed to secure the required certification from the Lupong Tagapayapa under Section 6 of P.D. No. 1508 before filing; she also assailed the complaint as filed at 4:00 p.m. on 30 August 1980, before the certification was issued at 5:20 p.m.

• Renewal Under Paragraph 13: Respondent judge maintained that paragraph 13 of the Contract of Lease had already produced a consummated and finished mutual agreement to renew after five years, leaving only the amount of monthly rental to be settled; the lease had never expired because paragraph 13 expressly mandated that it is renewable.
• Authority to Fix Terms: Respondent judge invoked Articles 1197 and 1670 of the Civil Code and considerations of public interest, social justice, and equity to justify ordering renewal and fixing monthly rentals at P700.00.
• Continued Occupancy as Renewal: The Co spouses maintained that Millare had informed them they could continue leasing if amenable to P1,200.00 monthly, that they counteroffered P700.00, and that Millare’s remark that the matter was simple among them led them to believe the lease had been renewed, so they continued occupying the premises and forewent looking for a substitute place.

• Jurisdiction / Barangay Conciliation: Whether the trial court acquired jurisdiction over Civil Case No. 1434 despite the timing of the barangay certification under P.D. No. 1508.
• Cause of Action / Contract Renewal: Whether private respondents had a valid cause of action against petitioner for renewal of the Contract of Lease.

• Jurisdiction / Barangay Conciliation: Yes. Barangay conciliation under P.D. No. 1508 is not jurisdictional, and the subsequent Certifications to File Action constituted substantial compliance with the requirement.
• Cause of Action / Contract Renewal: No. Paragraph 13 only allowed renewal upon mutual agreement on terms and conditions; none was reached, so there was no contract to renew, and courts cannot prescribe contract terms for the parties.

• Jurisdiction / Barangay Conciliation: The SC held that the trial court acquired jurisdiction. Under P.D. No. 1508, prior barangay conciliation is not a jurisdictional requirement; failure to have prior recourse does not deprive a court of jurisdiction over the subject matter or over the person of the defendant. Here, two complaints—Millare’s ejectment complaint and the Co spouses’ renewal complaint—were submitted to the barangay authorities and heard by the Lupong Tagapayapa on the afternoon of 30 August 1980; after conciliation failed, Certifications to File Action were issued at 5:20 p.m. that same afternoon. Although the Co spouses allegedly filed their complaint at 4:00 p.m., before the certification, the defect was cured by the subsequent issuance of the certifications, which constituted substantial compliance with P.D. No. 1508. The SC also noted that the respondent judge’s reliance on consignment as a provisional remedy was erroneous, but jurisdiction still existed. It cited Ebol vs. Amin and Royales vs. Intermediate Appellate Court.

• Cause of Action / Contract Renewal: The SC held that the complaint stated no valid cause of action for renewal. Paragraph 13 of the Contract of Lease provided that the 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.” This meant the lessor and lessee could agree to renew only upon reaching agreement on the terms and conditions of the renewal contract; failure to agree prevented renewal. Here, the parties failed to agree on the rental amount and the term of the renewed contract. Article 1197 did not apply: the original lease fixed a five-year period that had expired; the renewal period was not left to the will of the lessee alone but to both parties; and Article 1197 applies only where a contract clearly exists, but no renewal contract existed. Article 1670 did not apply: the respondents did not claim that continued occupancy after 31 May 1980 was with the lessor’s acquiescence; even if an implied new lease arose, it would have been month-to-month because rentals were payable monthly, and it would have expired at the latest by the end of July 1980 due to Millare’s written demands to vacate. The SC held that, save in the limited and exceptional situations under Articles 1197 and 1670, courts have no authority to prescribe the terms and conditions of a contract for the parties. Citing Republic vs. Philippine Long Distance Telephone Co., it stressed that parties cannot be coerced to enter into a contract where no agreement is had on the principal terms and conditions; contractual terms created by a court are a contradiction in terms, and a judge who imposes them acts tyrannically, arbitrarily, and in excess of jurisdiction.

• Barangay conciliation is not jurisdictional — Under P.D. No. 1508, prior recourse to the Lupong Tagapayapa is not a jurisdictional requirement; failure to comply does not deprive a court of jurisdiction over the subject matter or the person of the defendant. The SC applied this by holding that the trial court had jurisdiction despite the complaint being filed before the certification, because the subsequent Certifications to File Action cured the defect and constituted substantial compliance.
• Renewal clause requiring mutual agreement — A lease clause stating that the contract may be renewed after five years under terms and conditions mutually agreed upon by the parties at the time of renewal does not create an automatic right to renewal. The SC applied this by holding that no renewal arose because the parties failed to agree on the rental amount and the term of the renewed contract.
• Courts cannot prescribe contract terms — Save in the limited and exceptional situations under Articles 1197 and 1670 of the Civil Code, courts have no authority to prescribe the terms and conditions of a contract for the parties. The SC applied this by annulling the trial court’s order fixing the renewal period and rental, because contractual terms created by a court are a contradiction in terms and violate freedom to stipulate.
• Implied new lease (tacite reconduccion) — Under Article 1670, an implied new lease arises if the lessee continues enjoying the thing for 15 days with the acquiescence of the lessor and no notice to the contrary has been given; it is not for the original period but for the period in Articles 1682 and 1687. The SC applied this by holding that there was no acquiescence, and even if an implied lease existed, it would have been month-to-month and ended by the written demands to vacate.
• Article 1197 inapplicable absent a contract — Article 1197 allows courts to fix a period when the obligation does not fix one but a period was intended, or when the period depends on the will of the debtor. The SC applied this by holding that Article 1197 could not justify the renewal order because the original lease had a fixed five-year term, the renewal period depended on the will of both parties, and no renewal contract existed.

• “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.” — The SC construes the renewal clause and holds that no renewal arises without mutual agreement on the renewal terms.
• “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.” — The SC explains why Article 1197 cannot justify the trial court’s order fixing a renewal period.
• “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.” — The SC rejects judicial imposition of lease terms absent agreement between the parties.
• “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.” — The SC rules that barangay conciliation is not jurisdictional.

• Ebol vs. Amin, 135 SCRA 438 (1985) — Cited by the SC for the rule that barangay conciliation under P.D. No. 1508 is not jurisdictional.
• Royales vs. Intermediate Appellate Court, 127 SCRA 438 (1984) — Also cited for the same rule on the non-jurisdictional nature of barangay conciliation.
• Republic vs. Philippine Long Distance Telephone Co., 26 SCRA 620 at 628 (1969) — Cited for the rule that parties cannot be coerced to enter into a contract where no agreement is had on the principal terms and conditions, and that freedom to stipulate is of the essence of the contractual system.

• Section 6, Presidential Decree No. 1508 — Required a certification from the Lupong Tagapayapa that no amicable settlement had been reached despite efforts. The SC held this was not jurisdictional and that the subsequent Certifications to File Action constituted substantial compliance.
• Article 1197, Civil Code — Allows courts to fix a period when the obligation does not fix one but a period was intended, or when the period depends on the will of the debtor. The SC held it inapplicable because the original lease had a fixed five-year term, the renewal period depended on the will of both parties, and no renewal contract existed.
• Article 1670, Civil Code — Provides for an implied new lease when the lessee continues enjoying the thing for 15 days with the lessor’s acquiescence and no notice to the contrary. The SC held it inapplicable because there was no acquiescence; even if an implied lease existed, it would have been month-to-month and ended by the demands to vacate.
• Articles 1306, 1336, and 1337, Civil Code — Cited in the SC’s discussion of freedom to stipulate; a contract may be annulled if tainted by violence, intimidation, or undue influence. The SC used these to reinforce that contractual terms cannot be imposed by a judge.
• Revised Rules of Court — The SC noted that consignment is not a provisional remedy; the Rules enumerate only attachment, preliminary injunction, receivership, replevin, and support pendente lite. This corrected the respondent judge’s assumption but did not affect the finding of jurisdiction.