ACE-AGRO DEVELOPMENT CORPORATION (Petitioner) vs.

COURT OF APPEALS
(Respondent)

Facts:
 Ace-Agro Development Corporation had been cleaning soft drinks bottle and repairing wooden shells for
Cosmos, rendering its services within the company premises in San Fernando, Pampanga. The parties
entered into service contracts which they renewed every year.
 On April 25, 1990, fire broke out in the private respondent’s (Cosmos) plant that resulted to stop the work
of Ace-Agro.
 On May 15, 1990 the petitioner requested Cosmos to resume its services but they were advised that on
account of the fire burning nearly all the bottles and shells, Cosmos was terminating their contract. Ace-
Agro requested Cosmos to reconsider its decision but upon receiving no reply, the petitioner decided to
inform its employees of the termination of their employment, which led the employees to file a complaint
for illegal dismissal before the Labor Arbiter against both Ace-Agro and Cosmos Bottling.
 On July 17, 1990, the petitioner sent another letter for reconsideration to Cosmos which they replied that
they could resume work outside company premises. Ace-Agro refused the offer, claiming that working
outside the company premises would incur additional transportation costs. Cosmos then advised Ace-Agro
to resume work within their premises but then petitioner unjustifiably refused because it wanted contract
extension to make up for the period of inactivity.
 Petitioner brought this case against respondent for breach of contract and damages due to illegal and
arbitrary termination of its service contract.

Issue:
 Because the suspension of work under a contract has been brought about by force majeure, is the period
during which work has been suspended justify an extension of the term of the contract?
 Whether or not the Cosmos Bottling Corporation has the right to unilateral termination of contract on
account of a force majeure extinguished obligation

Ruling:
 No. suspension of work due to fire does not merit automatic extension. The stipulation the in the event of a
fortuitous event or force majeure the contract shall be deemed suspended during the said period and that
does not mean that it stopped the running of the contract duration.
 Yes, the Court holds that there are other causes of extinguishment of obligations which are not expressly
provided for in Article 1231 of the CCP (Obligations are extinguished by payment or performance, by the
loss of the thing due, by the condonation or remission of the debt, by the confusion or merger of the rights
or creditor & debtor, by compensation and by novation. Other causes of extinguishment of obligations,
such as annulment, rescission, fulfilment of a resolutory condition and prescription, are governed
elsewhere in this Code). In some contracts, either because of its indeterminate duration or because of the
nature of the prestation which is its object, one of the parties may free himself from the contractual tie by
his own will (unilateral extinguishment). In the case at bar, Cosmos unilaterally terminated the agreement it
had with the petitioner because the fire practically burned all of the soft drink bottles and wooden shells,
which respondent was working on under contract agreement. Cosmos implied that the object of their
agreement had been lost and destroyed. Apparently, such situation will fall within what – according to
Tolentino – would be:
Obligations may be extinguished by the happening of unforeseen events, under whose influence the
obligation would never have been contracted, because in such cases, the very basis upon which the
existence of the obligation is founded would be wanting.
Thus, the petitioner for review is DENIED and the decision of the Court of Appeals is AFFIRMED.