PACIFICA MILLARE, PETITIONER, VS. HON. HAROLD M. HERNANDO, IN HIS CAPACITY AS PRESIDING JUDGE, COURT OF FIRST INSTANCE OF ABRA, SECOND JUDICIAL DISTRICT, BRANCH I, ANTONIO CO AN…

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 the lessee 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 increased rentals of P1,200.00 a month.  In
response, a counter-offer
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 expired.^[3]
In reply, the Co spouses reiterated their unwillingness to pay the P1,200.00 monthly rentals supposedly sought by 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 counter­offer.^[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 P700.00 a month) in court.

 On 30 August 1980, a Saturday, the Co spouses
jumped the gun, as it were, and filed a Complaints^[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 month 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,
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] grounded 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.  On 18 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 record 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 afternoon, 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 technicality, 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 Lupong 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 compliance 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 of the government; 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; x x x” (Underscoring 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 P1,200 a month, while the lessee is begging P700 a month which
doubled the P350 monthly rental under the original contract x x x.  In short, the lease contract has never
expired because paragraph 13 thereof had expressly mandated that it is
renewable.  x x x”^[16]

In the “Judgment by
Default” he rendered, the respondent judge elaborated his views —
obviously highly emotional in character — in the following extraordinary
statements:

“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
defendant-lessor, 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 immediately;’ Many business establishments would
be closed and the public would directly suffer the direct consequences;
Nonetheless, this is not the correct concept or perspective of 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:

x x x

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; it is 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 liable 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 P1,2000.00 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 English 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.” (Underscoring 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 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.  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 other terms of the
original contract shall be revived.” (Underscoring supplied.)

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 tacita reconduccion had occurred, the
implied new lease could not possibly have a period of five years, but rather
would have been a month-to-month 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 in Articles 1197 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 (Articles 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 Court is hereby made permanent. 
No pronouncement as to costs.

SO ORDERED.

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

^[1]
Rollo, p. 48, Annex “1” of Answer and Comment.

^[2]
Id., pp. 14-17, Complaint,
Annex “A” of Petition.

^[3]
Id., p. 66, Annex “A” of Comment.

^[4]
Id., p. 67, Annex
“B” of Comment.

^[5]
Id., pp. 14-17, Annex “A” of Petition.

^[6]
Id., pp. 18-23, Annex “B” of Petition.

^[7]
Id., pp. 24-26, Annex “C” of Petition.

^[8]
Id., p. 29, Annex “F” of Petition.

^[9]
Id., pp. 30-33, Annex “G” of Petition.

^[10]
Id., pp. 38-39, Annex
“I” of Petition.

^[11]
Id., p. 40.

^[12]
Id., p. 93.

^[13]
On the issue of jurisdiction, respondent judge denied the motion to dismiss on
the erroneous assumption that barangay conciliation proceedings need not have
been undertaken since the complaint was “coupled with the provisional
remedy of making monthly deposits or consignment (sic) of the due and accruing
rentals (with) this Court”. 
Consignation is not of course a provisional remedy, the Revised
Rules of Court enumerating only five such remedies, namely:  attachment, preliminary injunction,
receivership, replevin and support pendente lite.

^[14]
Ebol vs. Amin, 135 SCRA 438 (1985); see also Royales vs.
Intermediate Appellate Court, 127 SCRA 438 (1984).

^[15]
Rollo, p. 35, Annex “G-1” of Petition.

^[16]
Id., pp. 43-47, at 45.

^[17]
Id., pp. 120-122; underscoring in the original.

^[18]
26 SCRA 620 at 628
(1969).

^[19]
The respondent judge ceased to be a
judge in 1983; he was not re-appointed in connection with the 1983
reorganization of the judiciary, under B.P. Blg. 129.