MULA, Iane Gem M.

Extinguishment; Loss; Impossible Service (1993)

In 1971, Able Construction, Inc. entered into a contract with Tropical Home Developers, Inc.
whereby the former would build for the latter the houses within its subdivision. The cost of each
house, labor and materials included, was P100,000.00. Four hundred units were to be constructed
within five years. In 1973, Able found that it could no longer continue with the job due to the
increase in the price of oil and its derivatives and the concomitant worldwide spiraling of prices of
all commodities, including basic raw materials required for the construction of the houses. The
cost of development had risen to unanticipated levels and to such a degree that the conditions and
factors which formed the original basis of the contract had been totally changed. Able brought a
suit against Tropical Homes praying that the Court relieve it of its obligation. Is Able Construction
entitled to the relief sought?

Suggested answer:
Yes, the Able Construction. Inc. is entitled to the relief sought under Article 1267, Civil Code. The
law provides: "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."
Art. 1267 contemplates a situation, exactly like the present case, where the unforeseen difficulty
takes place subsequent to, and was manifestly beyond the contemplation of the parties at the time
of the making of the contract.
The basis of Art. 1267 is the principle of rebus sic stantibus wherein parties stipulate in the light
of certain prevailing conditions, and once these conditions cease to exist, the contract also ceases
to exist.
Hence, the Court can release Able Construction Inc. from its obligation in whole or in part.