Extraordinary Inflation/Deflation

EUFEMIA and ROMEL ALMEDA v. BATHALA MARKETING

G.R.No. 150806, January 28, 2008
FACTS: In May 1997, Bathala Marketng, renewed its Contract of Lease with Ponciano
Almeda. Under the contract, Ponciano agreed to lease a porton of Almeda Compound
for a monthly rental of P1,107,348.69 for four years. On January 26, 1998, petitioner
informed respondent that its monthly rental be increased by 73% pursuant to the
condition No. 7 of the contract and Article 1250. Respondent refused the demand and
insisted that there was no extraordinary inflation to warrant such application.
Respondent refused to pay the VAT and adjusted rentals as demanded by the
petitioners but continually paid the stipulated amount. RTC ruled in favor of the
respondent and declared that plaintiff is not liable for the payment of VAT and the
adjustment rental, there being no extraordinary inflation or devaluation. CA affirmed the
decision deleting the amounts representing 10% VAT and rental adjustment.
ISSUE: Whether the amount of rentals due the petitioners should be adjusted by reason
of extraordinary inflation or devaluation
RULING: Petitioners are stopped from shifting to respondent the burden of paying the
VAT. 6th Condition states that respondent can only be held liable for new taxes imposed
after the effectivity of the contract of lease, after 1977, VAT cannot be considered a
new tax. Neither can petitioners legitimately demand rental adjustment because of
extraordinary inflation or devaluation. Absent an official pronouncement or declaration
by competent authorities of its existence, its effects are not to be applied.

The factual circumstances obtaining in the present case

do not make out a case of extraordinary inflation or
devaluation as would justify the application of Article
1250 of the Civil Code. We would like to stress that the
erosion of the value of the Philippine peso in the past
three or four decades, starting in the mid-sixties, is
characteristic of most currencies. And while the Court
may take judicial notice of the decline in the purchasing
power of the Philippine currency in that span of time,
such downward trend of the peso cannot be considered
as the extraordinary phenomenon contemplated by
Article 1250 of the Civil Code. Furthermore, absent an
official pronouncement or declaration by competent
authorities of the existence of extraordinary inflation

during a given period, the effects of extraordinary

inflation are not to be applied.
MARIO S. ESPINA v. THE COURT OF APPEALS and RENE G. DIAZ G.R. No. 116805 June 22, 2000
Facts:
Mario S. Espina is the registered owner of a Condominium Unit No. 403, Victoria Valley Condominium,
Valley Golf Subdivision, Antipolo, Rizal. Such ownership is evidenced by Condominium Certificate of Title
No. N-10.
On November 29, 1991, Mario S. Espina and Rene G. Diaz executed a Provisional Deed of Sale,
whereby the former sold to the latter the aforesaid condominium unit for the amount of P100,000.00 to be
paid upon the execution of the contract and the balance of P1,400,000.00 to be paid through six (6) PCI
Bank postdated checks.
Subsequently, in a letter dated January 22, 1992, Diaz informed Espina that his checking account with
PCI Bank has been closed and a new checking account with the same bank is opened and that the
postdated checks issued will be replaced with new ones in the same bank.
On January 25, 1992, Diaz through his wife Ms. Socorro Diaz paid Mario Espina P200,000.00,
acknowledged by him as partial payment for the condominium unit subject of this controversy.
On July 26, 1992, Espina sent Diaz a "Notice of Cancellation" of the Provisional Deed of Sale. However,
despite this notice, Espina still accepted payment from Diaz per Metrobank Check No. 395694 dated and
encashed on October 28, 1992 in the amount of P100,000.00.
On February 24, 1993, Espina filed a complaint for Unlawful Detainer against Diaz before the Municipal
Trial Court of Antipolo. The trial court rendered its decision, ordering Diaz and all persons claiming rights
under him to vacate the condominium unit; to pay the total arrears covering the period July 1991 up to the
filing complaint, and to pay P7,000.00 every month thereafter as rentals unit he vacates the premises;
and to pay the attorney's fees and costs of suit. Espina may refund to Diaz the balance from P400,000.00
after deducting all of Diaz total obligations as specified in the decision from receipt of said decision.
Diaz appealed to the Regional Trial Court and the said appellate court affirmed in all respects the decision
of the trial court. Diaz filed with the Court of Appeals a petition for review, and the Court of Appeals
reversed the appealed decision and dismissed the complaint for Unlawful Detainer with costs against
Espina. Espina filed a motion for reconsideration of the decision of the Court of Appeals, and this was
denied. Hence, this appeal via petition for review on certiorari.
Issue:
Whether or not the Court of Appeals erred in ruling that the provisional deed of sale novated the existing
contract of lease and that petitioner had no cause of action for ejectment against respondent Diaz.
Held:
The Supreme Courts answer is no. The novation must be clearly proved since its existence is not
presumed. "In this light, novation is never presumed; it must be proven as a fact either by express
stipulation of the parties or by implication derived from an irreconcilable incompatibility between old and
new obligations or contracts." Novation takes place only if the parties expressly so provide, otherwise,
the original contract remains in force. In other words, the parties to a contract must expressly agree that
they are abrogating their old contract in favor of a new one. Where there is no clear agreement to create
a new contract in place of the existing one, novation cannot be presumed to take place, unless the terms

of the new contract are fully incompatible with the former agreement on every point. Thus, a deed of
cession of the right to repurchase a piece of land does not supersede a contract of lease over the same
property.
In the provisional deed of sale in this case, after the initial down payment, respondent's checks in
payment of six installments all bounced and were dishonored upon presentment for the reason that the
bank account was closed. Consequently, on July 26, 1992, petitioner terminated the provisional deed of
sale by a notarial notice of cancellation. Nonetheless, respondent Diaz continued to occupy the
premises, as lessee, but failed to pay the rentals due. On October 28, 1992, respondent made a payment
of P100,000.00 that may be applied either to the back rentals or for the purchase of the condominium
unit. On February 13, 1993, petitioner gave respondent a notice to vacate the premises and to pay his
back rentals. Failing to do so, respondent's possession became unlawful and his eviction was proper.
Hence, on February 24, 1993, petitioner filed with the Municipal Trial Court, Antipolo, Rizal an action for
Unlawful Detainer against respondent Diaz.
The respondent contends that the petitioner's subsequent acceptance of such payment effectively
withdrew the cancellation of the provisional sale. The Supreme Court did not agree. Unless the
application of payment is expressly indicated, the payment shall be applied to the obligation most onerous
to the debtor. In this case, the unpaid rentals constituted the more onerous obligation of the respondent
to petitioner. As the payment did not fully settle the unpaid rentals, petitioner's cause of action for
ejectment survives.
Thus, the Court of Appeals erred in ruling that the payment was "additional payment" for the purchase of
the property.
The Court grants the petition for review on certiorari, and reversed the decision of the Court of Appeals.

TEDDY G. PABUGAIS, petitioner, vs. DAVE P. SAHIJWANI, respondent.

FACTS
Petitioner Teddy G. Pabugais, for P15,487,500.00, agreed to sell to respondent
Dave P. Sahijwani a 1,239 square meter lot located at North Forbes Park,
Makati. Respondent paid petitioner the amount of P600,000.00 as
option/reservation fee and the balance of P14,887,500.00 to be paid within 60
days from the execution of the contract. The parties further agreed that failure

on the part of respondent to pay the balance of the purchase price entitles
petitioner to forfeit the P600,000.00 option/reservation fee; while non-delivery
by the latter of the necessary documents obliges him to return to respondent
the said option/reservation fee with interest at 18% per annum
Petitioner failed to deliver the required documents. In compliance with
their agreement, he returned to respondent the latter's P600,000.00
option/reservation fee by way of Far East Bank & Trust Company Check which
was, however, dishonored.
What transpired thereafter is disputed by both parties.
Petitioner claimed that he twice tendered to respondent, through his counsel,
the amount of P672,900.00 in the form of a Manager's Check No. 088498 but
said counsel refused to accept the same. On August 11, 1994, petitioner wrote a

letter to respondent saying that he is consigning the amount tendered with the
Regional Trial Court of Makati City. On August 15, 1994, petitioner filed a
complaint for consignation.
Respondent on the other hand, admitted that his office received petitioner's
letter but claimed that no check was appended thereto. He averred that there
was no valid tender of payment because no check was tendered and the
computation of the amount to be tendered was insufficient.
Trial court rendered a decision declaring the consignation invalid for failure to
prove that petitioner tendered payment to respondent and that the latter
refused to receive the same. It further held that even assuming that respondent
refused the tender, the same is justified because the manager's check allegedly
offered by petitioner was not legal tender, hence, there was no valid tender of
payment.
The Court of Appeals: Petitioner's motion to withdraw the amount consigned
was denied and the decision of the trial court was affirmed with modification
as to the amount of moral damages and attorney's fees.
On a motion for reconsideration, the Court of Appeals declared the
consignation as valid. It held that the validity of the consignation had the effect
of extinguishing petitioner's obligation to return the option/reservation fee to
respondent. Hence, petitioner can no longer withdraw the same.
ISSUE:
Whether or not there;
(1) Was there a valid consignation? Can petitioner withdraw the amount
consigned as a matter of right?
RULING:
YES, there was a valid tender of payment in an amount sufficient to
extinguish the obligation, the consignation is valid.
Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment
and it generally requires a prior tender of payment. In order that consignation
may be effective, the debtor must show that: (1) there was a debt due; (2) the
consignation of the obligation had been made because the creditor to whom

tender of payment was made refused to accept it, or because he was absent or
incapacitated, or because several persons claimed to be entitled to receive the
amount due or because the title to the obligation has been lost; (3) previous
notice of the consignation had been given to the person interested in the
performance of the obligation; (4) the amount due was placed at the disposal of
the court; and (5) after the consignation had been made the person interested
was notified thereof. Failure in any of these requirements is enough ground to
render a consignation ineffective.
The issues to be resolved in the instant case concerns one of the
important requisites of consignation, i.e., the existence of a valid tender
of payment.
As testified by the counsel for respondent, the reasons why his client did not
accept petitioner's tender of payment were (1) the check mentioned in the
August 5, 1994 letter of petitioner manifesting that he is settling the obligation
was not attached to the said letter; and (2) the amount tendered was
insufficient to cover the obligation.
It is obvious that the reason for respondent's non-acceptance of the tender of
payment was the alleged insufficiency thereof and not because the said
check was not tendered to respondent, or because it was in the form of
manager's check. While it is true that in general, a manager's check is not legal
tender, the creditor has the option of refusing or accepting it. Payment in check
by the debtor may be acceptable as valid, if no prompt objection to said
payment is made. Consequently, petitioner's tender of payment in the form of
manager's check is valid.
The manager's check which was tendered but refused by respondent, and
thereafter consigned with the court, was enough to satisfy the obligation.
There being a valid tender of payment in an amount sufficient to
extinguish the obligation, the consignation is valid.
The amount consigned with the trial court can no longer be withdrawn by
petitioner because respondent's prayer in his answer that the amount
consigned be awarded to him is equivalent to an acceptance of the
consignation, which has the effect of extinguishing petitioner's obligation.
Llobrera vs Fernandez
Subject of the controversy is a 1,849 square-meter parcel of land, covered by Transfer
Certificate of Title No. 9042. Respondent Josefina V. Fernandez, as one of the
registered co-owners of the land, served a written demand letter upon petitioners

Spouses Llobrera, et al., to vacate the premises within fifteen (15) days from notice.
Receipt of the demand letter notwithstanding, petitioners refused to vacate,
necessitating the filing by the respondent of a formal complaint against them before the
Barangay Captain of Barangay 11, Dagupan City. Upon failure of the parties to reach
any settlement, the Barangay Captain issued the necessary certification to file action.
Respondent then filed a verified Complaint for ejectment and damages against the
petitioners before the MTCC of Dagupan City, which complaint was raffled to Branch 2
thereof.
By way of defense, petitioners alleged in their Answer that they had been occupying the
property in question beginning the year 1945 onwards, when their predecessors-ininterest, with the permission of Gualberto de Venecia, one of the other co-owners of
said land, developed and occupied the same on condition that they will pay their
monthly rental of P20.00 each. From then on, they have continuously paid their monthly
rentals to Gualberto de Venecia or Rosita de Venecia or their representatives, such
payments being duly acknowledged by receipts. Beginning sometime June 1996,
however, the representative of Gualberto de Venecia refused to accept their rentals,
prompting them to consign the same to Banco San Juan, which bank deposit they
continued to maintain and update with their monthly rental payments.
Issue:
At the heart of the controversy is the issue of whether petitioners possession of the
subject property is founded on contract or not.
Ruling:
Petitioners failed to present any written memorandum of the alleged lease
arrangements between them and Gualberto De Venecia. From the absence of proof of
any contractual basis for petitioners possession of the subject premises, the only legal
implication is that their possession thereof is by mere tolerance.
The judgment favoring the ejectment of petitioners being consistent with law and
jurisprudence can only be affirmed. The alleged consignation of the P20.00 monthly
rental to a bank account in respondents name cannot save the day for the petitioners
simply because of the absence of any contractual basis for their claim to rightful
possession of the subject property. Consignation based on Article 1256 of the Civil
Code indispensably requires a creditor-debtor relationship between the parties, in the
absence of which, the legal effects thereof cannot be availed of.
Unless there is an unjust refusal by a creditor to accept payment from a debtor, Article
1256 cannot apply. In the present case, the possession of the property by the
petitioners being by mere tolerance as they failed to establish through competent
evidence the existence of any contractual relations between them and the respondent,
the latter has no obligation to receive any payment from them. Since respondent is not a

creditor to petitioners as far as the alleged P20.00 monthly rental payment is concerned,
respondent cannot be compelled to receive such payment even through consignation
under Article 1256. The bank deposit made by the petitioners intended as consignation
has no legal effect insofar as the respondent is concerned.
Benos v Lawilao

Facts: Petitioner Benos spouses and respondent Lawilao spouses executed a Pacto de
Retro Sale5 where the Benos spouses sold their lot and the building erected thereon for
P300,000.00, one half of which was to be paid in cash to the Benos spouses and the
other half to be paid to the bank to pay off the loan of the Benos spouses which was
secured by the same lot and building. Under the contract, the Benos spouses could
redeem the property within 18 months from date of execution by returning the contract
price, otherwise, the sale would become irrevocable without necessity of a final deed to
consolidate ownership over the property in the name of the Lawilao spouses.
After paying the P150,000.00, the Lawilao spouses immediately took possession of the
property and leased out the building thereon. However, instead of paying the loan to the
bank, Janice Lawilao restructured it twice. Eventually, the loan became due and
demandable.
On August 14, 2000, a son of the Benos spouses paid the bank P159,000.00. The
Lawilaos try to do the same but the bank does not accept their payment. Thus, the respondents
decide to consign the thing with court and file an action for consignation against the bank w/out
however informing the Benos spouses. The action is dismissed by the RTC. The Lawilaos
nevertheless manage to consolidate ownership over the purchased property. The case goes up to
the CA, which affirms the adverse decision of the RTC. Hence, the present case.
Held: There was no valid consignation as the Lawilaos did not inform the Benos
spouses (parties interested in the fulfillment of the obligation) of the consignation.
Article 1271 was not complied with. Furthermore, the lower court erred in
consolidating the ownership as by their reply, the Benos spouses had already
exercised their right to rescind the contract. Under 1291, the Benos spouses had the
right to rescind the contract on account of the failure of the Lawilao spouses to
comply with the contractual stipulations. Thus, the Benos spouses got their land
back but were also ordered to return the 150k (payment made to them) to the
Lawilao spouses.
B.E. SAN DIEGO, INC. vs ROSARIO T. ALZUL
G.R. No. 169501 (June 8, 2007)
Facts: Respondent Alzul purchased from petitioner B.E. San Diego, Inc. four (4)
subdivision lots with an aggregate area of 1,275 square meters located at
Malabon. Respondent took immediate possession of the subject property.
Respondent signed a Conditional Deed of Assignment and Transfer of Rights which

assigned to a certain Wilson P. Yu her rights under the Contract to Sell. Petitioner
was notified of the execution of such deed. Later on, the Contract to Sell in
respondents name was cancelled, and a new one was issued in favor of Yu.
Respondent informed petitioner about Yus failure and refusal to pay the amounts
due under the conditional deed. She also manifested that she would be the one to
pay the installments due to respondent on account of Yus default.
Respondent commenced an action for rescission of the conditional deed of
assignment against Yu before Caloocan RTC. The RTC ruled in favor in the rescission
case. The decision was affirmed by the SC. Petitioner notified respondent that
Contract to Sell No. 867 was declared rescinded and cancelled. On April 28, 1989,
the subject lots were sold to spouses Carlos and Sandra Ventura.
On July 12, 1996, an Entry of Judgment was issued. In an attempt to comply with
the SC directive, herein respondent tried to serve payment upon petitioner,
however, petitioner allegedly refused to accept payment from respondent.
Respondents counsel wrote a letter to petitioner citing therein that due to the
refusal, respondent would just consign the balance due to petitioner before the
proper judicial authority.
Thinking that an action for consignation alone would not be sufficient to allow for
the execution of a final judgment in her favor, respondent filed an action for
consignation and specific performance against petitioner before the Housing and
Land Use Regulatory Board.
The CA agreed with the HLURB that no valid consignation was made by respondent
but found that justice would be better served by allowing respondent Alzul to effect
the consignation, albeit belatedly.
Issue
Whether or not respondent Alzul is still entitled to consignation despite the lapse of
the period provided by the Court.
Ruling:
The SC accorded respondent Alzul expectant rights over the disputed lots, but such
is conditioned on the payment of the balance of the purchase price. Having been
conceded such rights, respondent had the obligation to pay the remaining balance
to vest absolute title and rights of ownership in his name over the subject
properties.
The SC clearly specified thirty (30) days from entry of judgment for respondent to
promptly effect the full payment of the balance of the purchase price for the subject
properties. The non-compliance with the SCs June 1996 Resolution is fatal to
respondent Alzuls action for consignation and specific performance

Unfortunately, respondent failed to effect such full payment of the balance of the
purchase price for the subject properties. It is clear as day that respondent did not
attempt nor pursue consignation within the 30-day period given to her in
accordance with the prescribed legal procedure. She received a copy of the entry of
judgment on August 21, 1996 and had 30 days or until September 20, 1996 to pay
the balance of the purchase price to petitioner. She made a tender of payment on
August 29, 1996, August 30, 1996, and September 28, 1996, all of which were
refused by petitioner.
It must be borne in mind however that a mere tender of payment is not
enough to extinguish an obligation. There is no dispute that a valid tender of
payment had been made by respondent. Absent however a valid consignation, mere
tender will not suffice to extinguish her obligation and consummate the acquisition
of the subject properties.
Instead of consigning the amount with the court of origin, respondent filed
her November 11, 1996 Manifestation informing this Court of petitioners unjust
refusal of the tender of payment. Respondent failed to take the cue by her inaction
to consign the amount with the court of origin. Undoubtedly, pursuing the action for
consignation over a year after the Court issued its January 28, 1997 Resolution is
way beyond a reasonable time thereafter. This is already inexcusable neglect on
the part of respondent.

G.R. No. 171298

April 15, 2013

SPOUSES
OSCAR
and
THELMA
CACAYORIN
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, INC.

vs.

FACTS: Oscar Cacayorin is a member of Armed Forces and Police Mutual Benefit Association Inc.
(AFPMBA). In 1994, Oscar and his wife, Thelma applied to purchase a piece of property owned
by AFPMBA located in Puerto Princesa through a loan facility. To gain financing, the petitioners
entered a Loan and Mortgage Agreement with Rural Bank of San Teodoro under the auspices of
PAG-IBIG.
The Rural Bank thereafter issued a letter of guaranty informing AFPMBAI that the proceeds of
petitioners approved loan in the amount of P77,418.00 shall be released to AFPMBAI after title
to the property is transferred in petitioners name and after the registration and annotation of the
parties mortgage agreement. In response to such letter of guaranty, AFPMBAI executed in
petitioners favor a Deed of Absolute Sale, and a new title was also issued in petitioners name,
with the corresponding annotation of their mortgage agreement with the Rural Bank.
Unfortunately, the arrangement between PAG-IBIG and the Rural bank did not push through; the
Rural bank was closed and was placed under receivership by the Philippine Deposit Insurance

Corporation (PDIC). Despite the closure though, AFPMBAI somehow was able to take
possession of petitioners loan documents.
It so happened also that after AFPMBAI made a demand for payment; petitioners were unable to
pay the loan/consideration for the property.
In July 2003, petitioners filed a Civil Case with the RTC about a Complaint for consignation of loan
payment, recovery of title and cancellation of mortgage annotation against AFPMBAI, PDIC and the
Register of Deeds of Puerto Princesa City.
Petitioners alleged in their Complaint that as a result of the Rural Banks closure and PDICs claim
that their loan papers could not be located, they were left in a quandary as to where they should tender
full payment of the loan and how to secure cancellation of the mortgage annotation. In response to this
AFPMBAI filed a Motion to Dismiss, claiming that petitioners Complaint falls within the jurisdiction
of the Housing and Land Use Regulatory Board (HLURB) and not the Puerto Princesa RTC, as it was
filed by petitioners in their capacity as buyers of a subdivision lot and it prays for specific
performance of contractual and legal obligations decreed under Presidential Decree No. 957
Puerto Princessa RTC decided in favor of the Cacayorins, declaring that since title has been
transferred in the name of petitioners and the action involves consignation of loan payments, it
possessed jurisdiction to continue with the case. It further held that the only remaining unsettled
transaction is between petitioners and PDIC as the appointed receiver of the Rural Bank. AFPMBAI
filed a motion for reconsideration which was later denied by the RTC.
The Court of Appeals on the other hand held an opposite decision. It declared that the RTC has no
jurisdiction to hear the case and that such jurisdiction is exclusive to the Housing and Land Use
Regulatory Board (HLURB).
ISSUE: Whether or not there is a valid consignation albeit prior tender of payment
Whether or not the court can exercise authority over the issue of consignation with regards to
contractual and legal obligations of parties in a sale of subdivision lots

HELD: The Supreme Court held in the affirmative. Under Article 1256 of the Civil Code, the debtor shall be
released from responsibility by the consignation of the thing or sum due, without need of prior tender
of payment, when the creditor is absent or unknown, or when he is incapacitated to receive the
payment at the time it is due, or when two or more persons claim the same right to collect, or when the
title to the obligation has been lost.
Applying Article 1256 to the petitioners case, with regards to their allegations in their Complaint, the
Court finds that a case for consignation arose, as it now appears that there are two entities which
petitioners must deal with in order to fully secure their title to the property: 1) the Rural Bank (through
PDIC), which is the apparent creditor under the July 4, 1994 Loan and Mortgage Agreement; and 2)
AFPMBAI, which is currently in possession of the loan documents and the certificate of title, and the
one making demands upon petitioners to pay. Clearly, the allegations in the Complaint present a
situation where the creditor is unknown, or that two or more entities appear to possess the same right
to collect from petitioners. Whatever transpired between the Rural Bank or PDIC and AFPMBAI in
respect of petitioners loan account, if any, such that AFPMBAI came into possession of the loan
documents , it appears that petitioners were not informed thereof, nor made privy thereto.

On the question of jurisdiction, Supreme Court decided that petitioners case should be tried in the
Puerto Princesa RTC, and not the HLURB. Consignation is necessarily judicial, as the Civil Code
itself provides that consignation shall be made by depositing the thing or things due at the disposal of
judicial authority, thus:
Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the announcement
of the consignation in other cases.
Phil. National Construction vs CA
272 S 183
Facts: On 18 November 1985, petitioner Philippine National Construction Corporation (PNCC) executed
a contract of lease with private respondents, stipulating to pay rent for the use of land, at the monthly rate
of P 20,000.00 payable yearly in advance. The said land is to be used by petitioner as site for a rock
crushing plant. The term of lease is for five years, commencing on the date of issuance of an industrial
clearance by the Ministry of Human Settlements (Ministry).
On 7 January 1986 PNCC obtained a Temporary Use Permit from the Ministry for the proposed rock
crushing project. Nine days later private respondents wrote to PNCC, asking for the first annual rental,
and assuring that they have stopped considering proposals of other aggregates plants in favor of PNCC.
In reply, PNCC argued that the contract must commence on the date of issuance by the Ministry of an
industrial clearance in their favor. It also expressed its desire to terminate the contract it executed with
respondents, due to financial, as well as technical difficulties. Respondents refused to accede to

They insisted on the performance of petitioner's

obligation and reiterated their demand for the payment of the first annual
rental. On 19 May 1986, instituted an action against PNCC for Specific Performance with Damages.
PNCCs request for pre termination.

Trial court ruled in favor of respondents and ordered PNCC to pay rentals for two years, with legal
interests plus attorneys fees. The Court of Appeals affirmed the decision of the trial court upon appeal by
PNCC; hence, this case.
Issues:
Whether or not PNCC should be released from its contract with respondents due to unforeseen events
and causes beyond its control
Held: Petition denied.

Invoking Article 1266 and the principle of rebus sic stantibus,

petitioner asserts that it should be released from the obligatory force of the
contract of lease because the purpose of the contract did not materialize due
to unforeseen events and causes beyond its control, i.e., due to abrupt
change in political climate after the EDSA Revolution and financial difficulties.
Ratio:

PNCC executed the contract with open eyes on the deteriorating conditions of the country and mere
pecuniary inability to fulfill an engagement does not discharge a contractual obligation. The unforeseen
events and causes beyond its control cited by PNCC are not the legal and physical impossibilities
contemplated in Art. 1266, which reads: "The debtor in obligations to do shall also be

released when the prestation becomes legally or physically impossible without

the fault of the obligor."
Petitioner cannot successfully take refuge in the said article, since it is
applicable only to obligations "to do", and not to obligations "to give". An
obligation "to do" includes all kinds of work or service; while an obligation "to
give" is a prestation which consists in the delivery of a movable or an
immovable thing in order to create a real right, or for the use of the recipient,
or for its simple possession, or in order to return it to its owner.
Besides, petitioner failed to state specifically the circumstances brought
about by the abrupt change in the political climate in the country except the
alleged prevailing uncertainties in government policies on infrastructure
projects.
The parties to the contract must be presumed to have assumed the risks
of unfavorable developments. It is therefore only in absolutely exceptional
changes of circumstances that equity demands assistance for the debtor.
Victorino Magat Jr. vs Court of Appeals and Santiago Guerrero
G.R. No. 124221. August 4, 2000.
Concept:
Article 1267. When the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the obligor may also be released therefrom, in
whole or in part
Facts:
Guerrero is the President and Chairman of the Guerrero Transport Services (GTS),
a single proprietorship. IN 1972, the GTS won a bidding to operate a fleet of
taxicabs in Subic. As the highest bidder, Guerrero was required to have four door,
four wheel, radio controlled, meter controlled and sedans taxi services.
Guerrero and Magat, General Manager of the Spectrum Electronic Laboratories,
executed a letter-contract for the purchase of transceivers at $77,620.59 FOB,
Yokohoma. Magat was to deliver within the 60-90 days after receiving from the
Guerrero the assigned frequency. Magat then contacted his Japanese supplier
(Koide & Co., Ltd.) and placed an order for the transceivers.
On Sept. 22, 1972, in the event of the Martial Law, the then President Marcos issued
the Letter of Instructions (LOI) no. 1 which stated: SEIZURE AND CONTROL OF ALL
PRIVATELY OWNED NEWSPAPERS, MAGAZINES, RADIO AND TELEVISION FACILITIES
AND ALL OTHER MEDIA OF COMMUNICATION., said LOI was for the prevention of
Propaganda actions against the government.
On Sept. 25, 1972. Pursuant to the LOI, the Radio Control Office issued
Administrative Circular no. 4, which stated: SUSPENDING THE ACCEPTANCE AND
PROCESSING OF APPLICATIONS FOR RADIO STATION CONSTRUCTION PERMITS AND
FOR PERMITS TO OWN AND/OR POSSESS RADIO TRANSMITTERS OR

TRANSCEIVERS said circular suspended the sale and purchase of radio transmitters
or transceivers.
The permit to import the transceivers was denied because of the Martial Law.
Guerrero testified that this prevented him from securing a letter of credit from the Central Bank. He then
did not continue with the contract.
Issue: Whether or not there is a breach of contract
Held: The law provides that when the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor may also be
released therefrom, in whole or in part. Here in the case, the denial of permit to
import resulted in the non-compliance of the obligation and the inability to secure
the letter of credit. Guerrero's inability to secure a letter of credit and to comply with his obligation
was a direct consequence of the denial of the permit to import. For this, he cannot be faulted.