G.R. No. L-55480, June 30, 1987
Pacifica Millare vs. Hon. Harold M. Hernando, et al.

FACTS

Petitioner Pacifica Millare and private respondent Elsa Co entered into a five-year Contract of Lease for a restaurant, expiring on May 31, 1980. The lessee, Elsa Co, claimed that near the contract’s end, Millare offered a renewal at an increased rental of P1,200 monthly, to which the Co spouses counter-offered P700. Millare allegedly stated the rental amount could be settled later, which the spouses interpreted as a renewal agreement, leading them to continue occupancy. Millare denied any renewal offer. After the contract expired, Millare demanded that the Co spouses vacate. The spouses refused, deposited rentals at their offered rate with the court, and on August 30, 1980, preemptively filed a complaint (Civil Case No. 1434) in the Court of First Instance seeking to compel renewal of the lease for ten years at P700 monthly. On September 1, 1980, Millare filed an ejectment case in the Municipal Court. In Civil Case No. 1434, Millare moved to dismiss, arguing lack of cause of action and lack of jurisdiction due to the spouses’ failure to secure a prior barangay conciliation certification as required by P.D. 1508. The respondent judge denied the motion and later rendered a “Judgment by Default,” ordering a five-year lease renewal at P700 monthly.

ISSUE

The primary issue is whether private respondents have a valid cause of action for the judicial renewal of the lease contract.

RULING

The Supreme Court granted the petition, annulled the challenged orders and judgment, and dismissed Civil Case No. 1434. On the jurisdictional issue, the Court clarified that while non-compliance with the barangay conciliation requirement under P.D. 1508 does not deprive a court of jurisdiction, the defect here was cured as certifications to file action were issued by the barangay authorities on the same day the complaint was filed, albeit shortly afterward. The decisive ground for dismissal was the absolute lack of cause of action. The Court emphasized that a contract of lease is consensual and cannot be renewed by judicial fiat without mutual consent. The alleged conversations between the parties did not establish a clear and definite agreement on essential terms like rental rate and duration, which are necessary for a binding contract. The respondent judge’s imposition of lease terms constituted an arbitrary exercise of power, as courts cannot create contracts for parties. The right to fix the terms of a contract is inherent in the principle of autonomy of contracts under Article 1306 of the Civil Code. A judge cannot supply the volition of the parties; to do so is to act tyrannically and in excess of jurisdiction. Since no valid cause of action for renewal existed, the complaint should have been dismissed.