G.R. No.

L-55480, June 30, 1987 -151 SCRA 484

Pacifica Millare, petitioner, v. Hon. Harold M. Hernando, CO-Spouses., respondents
Feliciano, J.

Facts:
 Pacifica Millare (lessor) leased the "People's Restaurant" in Bangued, Abra, to Elsa Co and Antonio Co (lessees) for a
period of five years, ending on 31 May 1980, at a monthly rate of P350.00.
 Near the lease's expiration, negotiations for renewal occurred, with the lessees offering P700.00 monthly against the
lessor's demand of P1,200.00.
 The lessor, Millare, eventually informed the Co spouses that she did not intend to renew the lease, prompting them to
deposit the disputed rental amount in court.
 The Co spouses then filed a complaint seeking renewal of the lease for ten years at the rate of P700.00 per month,
while Millare filed an ejectment case.

RTC Ruling:
 The trial court denied Millare's motion to dismiss, which cited a lack of cause of action and failure to secure a
barangay conciliation certification, and ordered the lease's renewal.

Issue:
Whether or not the Co spouses have a valid cause of action for the renewal of the lease contract.

Supreme Court Ruling:

No. The Supreme Court found that the Co-spouse did not have a valid cause of action for the renewal of the lease.

The Supreme Court applied the doctrine that a contract of lease cannot be renewed without the mutual agreement of
both parties on the terms of such renewal.

The original lease had a clause that allowed for the possibility of renewal "under the terms and conditions as will be
mutually agreed upon by the parties at the time of renewal." The Court pointed out that the absence of an agreement on
these terms, particularly the rental price and the term of renewal, meant that there was no renewal of the contract.

Furthermore, the Court explained the misapplication of Articles 1197 and 1670 of the Civil Code by the lower court. Article
1197 deals with the fixing of the duration of obligations when no period is specified, but the Court noted that it was
inapplicable since the original contract did indeed specify a period and the renewal was contingent upon mutual
agreement.

Article 1670 pertains to tacit or implied renewal of leases but was deemed irrelevant as the continued occupation of the
property was not with the lessor's agreement, and in any case, an implied new lease would not extend for five years but
would instead be a month-to-month lease based on the payment of monthly rentals under the original contract.