Adamson University

College of Law

Obligations and Contracts

Impossibility of Performance
Naga Telephone Company vs Court of Appeals,230SCRA351

FACTS

On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC for the supply of
NATELCO entered into contract with CASURECO II for the use in operation of its telephone service,
electric light posts of CASURECO II and in return, there will be free use of 10 telephone connections as
long as NATELCO needs electric light posts. The period would last for as long as NATELCO needs
electric light posts. In other words, the contract will terminate when they are forced to stop, abandon
operation and remove light posts. After 10 years, CASURECO filed for reformation of contract with
damages, for petitioner’s failure to conform to the guidelines of National Electrification Administration of
reasonable compensation for use of posts. Compensation is worth P10, but the consumption of telephone
cables costs P2,630. NATELCO, who used 319, without the contract of P10 each, refused to pay.
Moreover, respondent alleged poor servicing. All in all, an amount of not less than P100,000 is claimed as
damages.

ISSUE

Whether or not the the Art.1267 is applicable in this case

RULING

Yes. The allegations in private respondent’s complaint and the evidence it has presented sufficiently
made out a cause of action under Article 1267. The Court, therefore, released the parties from their
correlative obligations under the contract. However, the Court has to take into account the possible
consequences of such condition—disruption of electric services to the public and prejudice to business of
petitoners. The provision speaks of service (meaning performance of the obligation) w/c has become so
difficult. It doesn’t require that the contract be for future service w/future unusual change. Rather, it
speaks of unforeseen events or the discredited theory of rebus sic stantibus in public international law
wherein parties stipulate in the light of certain prevailing conditions & once these conditions cease to exist
the contract also ceases. Equity & good faith demand that when basis of the contract disappears, the
prejudiced party has a right to relief.

The fact that this provision was not raised by the parties in their pleadings & was never subject of trial is
immaterial. Court has discretion to consider an unassigned error that is closely related to an error properly
assigned as long as the consideration is necessary in arriving at a just decision. The material allegations
of fact in the complaint & not the legal conclusion made or the prayer that determines the relief to w/c the
plaintiff is entitled and plaintiff is entitled to as much relief as the facts warrant although that relief is not
specifically prayed for. NATELCO was given the opportunity to present its evidence WRT this matter
when they were given the chance to answer the issue of WON the contract has become too one-sided in
its favor & too iniquitous, unfair & disadvantageous to CASURECO.

PNCC vs Court of Appeals,272SCRA183

FACTS:

On November 18, 1985, private respondents and petitioner entered into a contract of lease of a parcel of
land owned by the former. The terms and conditions of said contract of lease are as follows: a) the lease
2
Obligations and Contracts
Course Outline
shall be for a period of five (5) years which begins upon the issuance of permit by the Ministry of Human
Settlement and renewable at the option of the lessee under the terms and conditions, b) the monthly rent
is P20, 000.00 which shall be increased yearly by 5% based on the monthly rate, c) the rent shall be paid
yearly in advance, and d) the property shall be used as premises of a rock crushing plan.

On January 7, 2986, petitioner obtained permit from the Ministry which was to be valid for two (2) years
unless revoked by the Ministry. Later, respondent requested the payment of the first annual rental. But
petitioner alleged that the payment of rental should commence on the date of the issuance of the
industrial clearance not on the date of signing of the contract. It then expressed its intention to terminate
the contract and decided to cancel the project due to financial and technical difficulties. However,
petitioner refused to accede to respondent’s request and reiterated their demand for the payment of the
first annual rental. But the petitioner argued that it was only obligated to pay P20,000.00 as rental for one
month prompting private respondent to file an action against the petitioner for specific performance with
damages before the RTC of Pasig. The trial court rendered decision in favor of private respondent.
Petitioner then appealed the decision of the trial court to the Court of Appeals but the later affirmed the
decision of the trial court and denied the motion for reconsideration.

ISSUE:

Whether or not petitioner can avail of the benefit of Article 1267 of the NCC

RULING:

No. The petitioner cannot take refuge of the said article. Article 1267 of the New Civil Code provides that
when the service has become so difficult as to manifestly beyond the contemplation of the parties, the
obligor may also be released therefrom, in whole or in part. This article, which enunciates the doctrine of
unforeseen events, is not, however an absolute application of the principle of rebus sic stantibus, which
would endanger the security of contractual relations. The parties to the contract must be presumed to
have assumed the risks of unfavorable developments. It is therefore only in absolutely exceptional
chances of circumstances that equity demands assistance for the debtor. The principle of rebus sic
stantibus neither fits in with the facts of the case. Under this this theory, the parties stipulate in the light of
certain prevailing conditions, and once these conditions cease to exist, the contract also ceases to exist.

In this case, petitioner averred that three (3) abrupt changes in the political climate of the country after the
EDSA Revolution and its poor financial condition rendered the performance of the lease contract
impractical and inimical to the corporate survival of the petitioner. However, as held in Central Bank v.
CA, mere pecuniary inability to fulfill an engagement does not discharge a contractual obligation, nor does
it constitute a defense of an action for specific performance.

Yam vs Court of Appeals,303SCRA1

FACTS:

The parties herein entered into a Loan Agreement with Assumption of Solidary Liability. Petitioner
subsequently obtained a second Industrial Guarantee and Loan Fund. The petitioner had paid the first
debt, it so happened that the private respondent was placed under receivership. The petitioner made a
partial payment to the second loan and the private respondent sent an answer letter to the petitioner that
their penalty charges will decreased provided that they can pay on or before July 30, 1986. Because of
the failure of the petitioner to pay the specific amount totaled private respondent filed a complaint against
the petitioner. The petitioner now contending that they had fully paid their obligation where before July 2,
1986, Yam and his wife the president of the respondent’s corporation agreed to waive the penalties and
services charge provided petitioners paid the principal and interest.

ISSUE:
3
Obligations and Contracts
Course Outline
Whether or not the private respondents have condoned the remaining loan - NO

RULING:

No. Art. 1270, par. 2 of the Civil Code provides that express condonation must comply with the forms of
donation. 12 Art. 748, par. 3 provides that the donation and acceptance of a movable, the value of which
exceeds P5,000,00, must be made in writing, otherwise the same shall be void. In this connection, under
Art. 417, par. 1, obligations, actually referring to credits, l3 are considered movable property. In the case
at bar, it is undisputed than the alleged agreement to condone P266,196.88 of the second IGLF loan was
not reduced in writing.

The notation in "full payment of IGLF loan" merely states petitioners' intention in making the payment, but
in no way does it bind private respondent. It would have been a different matter if the notation appeared in
a receipt issued by respondent corporation, through its receiver, because then it would be an admission
against interest. Indeed, if private respondent really condoned the amount in question, petitioners should
have asked for a certificate of full payment from respondent corporation, as they did in the case of their
first IGLF loan of P500,000.00.

Moreover, it is to be noted that the alleged agreement to condone the amount in question was supposedly
entered into by the parties sometime in July 1986, that is, after respondent corporation had been placed
under receivership on November 4, 1985. As held in. Thus, Sobrepeas had no authority to condone the
debt.