1 | O b l i g a ti o n a n d C o n t r a c t s C a s e D i g e s t s SULAW 2015

ARANETA VS. PHIL. SUGAR ESTATES DEVELOPMENT CO.

20 SCRA 330
GR. No. L-22558
May 31, 1967

Art. 1197. 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.

Facts:
On July 28, 1950, J. M. Tuason & Co., Inc., owner of a big tract land, sold a portion thereof to
Philippine Sugar Estates Development Co., Ltd (buyer). The parties stipulated, among in the contract of
purchase and sale with mortgage, that the buyer will build on the said parcel land the Sto. Domingo Church
and Convent while the seller for its part will construct streets. The buyer finished its construction but the
seller, Gregorio Araneta, Inc., was unable to finish the construction of the street in the Northeast side because
a certain third-party, squatting/occupying in the middle part thereof, refused to vacate the same.
On May 7, 1958, Philippine Sugar Estates Development Co., Lt. filed its 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 said obligation. Araneta set as a principal defense that the action was
premature since its obligation to construct the street was without a definite period which needs to be fixed
first by the court before complaint for specific performance will prosper.

The lower court and the appellate court ruled in favor of Phil. Sugar estates, and fixed a period of 2
years for defendant Gregorio Araneta, Inc. to comply with its obligation under the contract. Gregorio Araneta,
Inc. resorted to a petition for review by certiorari to this Court.

Issues:
1. Was there a period fixed in the stipulation of the contract?
2. Was it within the powers of the lower court to set the performance of the obligation in two years
time?

Ruling:
1. Yes. 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." 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.

2. NO. Even on the assumption that the court should have found that no reasonable time or no period at all
had been fixed, still, the complaint not having sought that the Court should set a period, the court could
not proceed to do so unless the complaint included it as first amended;
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.
2 | O b l i g a ti o n a n d C o n t r a c t s C a s e D i g e s t s SULAW 2015

The list paragraph of Article 1197 is clear that the period cannot be set arbitrarily. Article 1197 of the
Civil Code involves a two-step process:
 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." This preliminary point settled.
 second step, decide what period was "probably contemplated by the parties." So that 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... 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.

Does “reasonable time” mean that the date of performance would be indefinite? The Court of Appeals
objected to this conclusion that it would render the date of performance indefinite... no justification in law
for the setting the date of performance at any other time than that of the eviction of the squatters
occupying the land.