GREGORIO ARANETA, INC., PETITIONER, VS. THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., RESPONDENT.

Petition for certiorari to review a judgment of the Court of Appeals,
in its CA-G.R. No. 28249-R, affirming with modification, an amend­atory
decision of the Court of First Instance of Manila, in its Civil Case No. 36303,
entitled “Philippine Sugar Estates Development Co., Ltd., plaintiff,
versus J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc., defendants”.

As found by the Court of Appeals, the facts of this case are:

J.M. Tuason & Co., Inc. is the
owner of a big tract of land si­tuated in Quezon City, otherwise known as
the Sta. Mesa Heights Subdivision, and covered by a Torrens
title in its name.  On July 28, 1950, through Gregorio Araneta, Inc., it (Tuason &
Co.) sold a portion thereof with an area of 43,034.4 square meters, more or
less, for the sum of P430,514.00, to Philippine Sugar
Estates Development Co., Ltd.  The
parties stipulated, among others, in the contract of purchase and sale with
mortgage, that the buyer will –

“Build on the said parcel of land the Sto
Domingo Church and Convent;”

while the seller
for its part 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, Philippine Sugar Estates Development Co., Ltd.,
finished the construction of Sto. Domingo Church and
Convent, but the seller, Gregorio Araneta, Inc.,
which began constructing the streets, is unable to finish the construction of
the street in the Northeast side (named Sto. Domingo
Avenue) 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; hence, on May 7, 1958, Philippine Sugar
Estates Development Co., Ltd. filed its complaint against J.M. Tuason & Co., Inc. and Gregorio Araneta,
Inc., in the above stated court of first 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.

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 prosper.

The issues having been joined, the lower court proceeded with the
trial, and upon its termination, it dismissed plaintiff’s complaint (in a
decision dated May 31, 1960),
upholding the defenses interposed by defendant Gregorio Araneta,
Inc.

Plaintiff moved to reconsider and modify the above decision,
praying that the court fix a period within which defendants will comply with
their obligation to construct the streets in question.

Defendant Gregorio Araneta, Inc.
opposed said motion, maintaining that plaintiff’s complaint did not expressly
or impliedly allege and pray for the fixing of a
period to comply with its obligation and that the evidence presented at the
trial was insufficient to warrant the fixing of such a period.

On July 16, 1960, the lower court, after finding that “the
proven facts precisely warrants the fixing of such a period”, issued an
order granting plaintiff’s motion for reconsideration and amending the dispositve portion of the decision of May 31, 1960, to read
as follows:

“WHEREFORE, judgment is hereby rendered giving 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.”

Defendant Gregorio Araneta, Inc.
presented a motion to reconsider the above quoted order, which motion,
plaintiff opposed.

On August 16, 1960,
the lower court denied defendant Gregorio Araneta,
Inc.’s motion; and the latter perfected its appeal to the Court of Appeals.

In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly that the relief granted,
i.e., fixing of a period, under the amendatory decision of July 16, 1960, was
not justified by the pleadings and not supported by the facts submitted at the
trial of the case in the court below and that the relief granted in effect
allowed a change of theory after the submission of the case for decision.

Ruling on the above contention, the appellate court declared that
the fixing of a period was within the pleadings and that there was no true
change of theory after the submission of the case for decision since
defendant-appellant Gregorio Araneta, Inc. itself
squarely placed said issue by alleging in paragraph 7 of the affirmative
defenses contained in its answer which reads –

“7.     Under the Deed of
Sale with Mortgage of July 28, 1950, herein defendant has a reasonable time
within which to comply with its obligations to construct and complete the
streets on the NE, NW and SW sides of the lot in question; that under the
circumstances, said reasonable time has not elapsed;

Disposing of the other issues raised by appellant which were
ruled as not meritorious and which are not decisive in the resolution of the
legal issues posed in the instant appeal before us, said appellate court
rendered its decision dated December 27, 1963, the dispositive
part of which reads –

“IN VIEW WHEREOF, judgment affirmed and modified; as a consequence,
defendant is given Two (2) years from the date of finality of this decision to
comply with the obligation to construct streets on the NE, NW and SW sides of
the land sold to plaintiff so that the same would be a block surrounded by
streets on all four sides.”

Unsuccessful in having the above decision reconsidered, defendant-appellant
Gregorio Araneta, Inc. resorted to a petition for
review by certiorari to this Court.  We
gave it due course.

We agree with the petitioner that the decision of the Court of
Appeals, affirming that of the Court of First Instance is legally untenable.  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.” Neither of the
courts below seems to have noticed that, on the hypothesis stated, what the
answer put in issue was not whether the court should fix the time of
performance, but whether or not the parties agreed that the petitioner should
have reasonable time to perform its part of the bargain.  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, as averred in the
complaint, and fix the resulting damages. 
On the other hand, if the reasonable time had not yet elapsed, the court
perforce was bound to dismiss the action for being premature.  But in no case can it be logically held that
under the plea above quoted, the intervention of the court to fix the period
for performance was warranted, for Article 1197 is precisely predicated on the
absence of any period fixed by the parties.

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 was first amended; for the original decision is
clear that the complaint proceeded on the theory that the period for
performance had already elapsed, that the contract had been breached and
defendant was already answerable in damages.

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 last
paragraph of Article 1197 is clear that the period can not be set arbitrarily.  The law expressly prescribes that –

“the Courts shall determine such
period as may under the circumstances have been probably contemplated by the
parties.”

All that the trial court’s amended decision (Rec. on Appeal, p.
124) says in this respect is that “the proven facts precisely warrant the
fixing of such a period”, a statement manifestly insufficient to explain
how the two-year period given to petitioner herein was arrived at.

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.

In this connection, it is to be borne in mind that the contract
shows that the parties were fully aware that the land described therein was
occupied by squatters, because the fact is expressly mentioned therein (Rec. on
Appeal, Petitioner’s Appendix B, pp. 12-13). 
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 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.

It follows that there is no justification in law for the setting
of the date of performance at any other time than that of the eviction of the
squatters occupying the land in question; and in not so holding, both the trial
Court and the Court of Appeals committed reversible error.  It is not denied that the case against one of
the squatters, Abundo, was still pending in the Court
of Appeals when its decision in this case was rendered.

IN VIEW OF THE FOREGOING, the decision appealed from is re­versed,
and the time for the performance of the obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at the date that all the
squatters on affected areas are finally evicted therefrom.

Costs against respondent Philippine Sugar
Estates Development, Co., Ltd.

SO ORDERED.

Concepcion, C.J., Dizon,
Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez,
and Castro, JJ.,
concur.