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NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M.

MAGGAY, petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II),respondents.

Facts:
NATELCO- telephone company (local and long distance services)

CASURECO- electric power service

November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the operation of its telephone
service the electric light posts of private respondent in Naga City. In consideration therefor, petitioners agreed to install,
free of charge, ten (10) telephone connections for the use by private respondent.

Said contract also provided:

(a) That the term or period of this contract shall be as long as the party of the first part has need for the
electric light posts of the party of the second part it being understood that this contract shall terminate
when for any reason whatsoever, the party of the second part is forced to stop, abandoned [sic] its
operation as a public service and it becomes necessary to remove the electric lightpost; (sic) 4

It was prepared by or with the assistance of the other petitioner, Atty. Luciano M. Maggay, then a member of the Board of
Directors of private respondent and at the same time the legal counsel of petitioner.

After the contract had been enforced for over ten (10) years, private respondent filed on January 2, 1989 with the
Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against petitioners for reformation of the contract with
damages (1st cause of action), on the ground that it is too one-sided in favor of petitioners; that it is not in conformity with
the guidelines of the National Electrification Administration (NEA) which direct that the reasonable compensation for the
use of the posts is P10.00 per post, per month; that after eleven (11) years of petitioners' use of the posts, the telephone
cables strung by them thereon have become much heavier with the increase in the volume of their subscribers, worsened
by the fact that their linemen bore holes through the posts at which points those posts were broken during typhoons; that
a post now costs as much as P2,630.00; so that justice and equity demand that the contract be reformed to abolish the
inequities thereon.

As second cause of action, private respondent alleged that starting with the year 1981, petitioners have used 319 posts
in the towns of Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside Naga City, without any contract with it; that
at the rate of P10.00 per post, petitioners should pay private respondent for the use thereof the total amount of
P267,960.00 from 1981 up to the filing of its complaint; and that petitioners had refused to pay private respondent said
amount despite demands.

And as third cause of action, private respondent complained about the poor servicing by petitioners of the ten (10)
telephone units which had caused it great inconvenience and damages to the tune of not less than P100,000.00

In petitioners' answer to the first cause of action, they averred that it should be dismissed because (1) it does not
sufficiently state a cause of action for reformation of contract; (2) it is barred by prescription, the same having
been filed more than ten (10) years after the execution of the contract; and (3) it is barred by estoppel, since
private respondent seeks to enforce the contract in the same action. Petitioners further alleged that their utilization of
private respondent's posts could not have caused their deterioration because they have already been in use for eleven
(11) years; and that the value of their expenses for the ten (10) telephone lines long enjoyed by private respondent free of
charge are far in excess of the amounts claimed by the latter for the use of the posts, so that if there was any inequity, it
was suffered by them.

Regarding the second cause of action, petitioners claimed that private respondent had asked for telephone lines in areas
outside Naga City for which its posts were used by them; and that if petitioners had refused to comply with private
respondent's demands for payment for the use of the posts outside Naga City, it was probably because what is due to
them from private respondent is more than its claim against them.

And with respect to the third cause of action, petitioners claimed, inter alia, that their telephone service had been
categorized by the National Telecommunication Corporation (NTC) as "very high" and of "superior quality."

The RTC concluded that while in an action for reformation of contract, it cannot make another contract for the
parties, it can, however, for reasons of justice and equity, order that the contract be reformed to abolish the
inequities therein. Thus, said court ruled that the contract should be reformed by ordering petitioners to pay private
respondent compensation for the use of their posts in Naga City, while private respondent should also be
ordered to pay the monthly bills for the use of the telephones also in Naga City. And taking into consideration the
guidelines of the NEA on the rental of posts by telephone companies and the increase in the costs of such posts, the trial
court opined that a monthly rental of P10.00 for each post of private respondent used by petitioners is reasonable, which
rental it should pay from the filing of the complaint in this case on January 2, 1989. And in like manner, private respondent
should pay petitioners from the same date its monthly bills for the use and transfers of its telephones in Naga City at the
same rate that the public are paying.

On private respondent's second cause of action, the trial court found that the contract does not mention anything about
the use by petitioners of private respondent's posts outside Naga City. Therefore, the trial court held that for reason of
equity, the contract should be reformed by including therein the provision that for the use of private respondent's posts
outside Naga City, petitioners should pay a monthly rental of P10.00 per post, the payment to start on the date this case
was filed, or on January 2, 1989, and private respondent should also pay petitioners the monthly dues on its telephone
connections located outside Naga City beginning January, 1989.

And with respect to private respondent's third cause of action, the trial court found the claim not sufficiently proved.

CA affirmed RTC decision but based on different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable
and (2) that the contract was subject to a potestative condition which rendered said condition void.
Issues:

1) WoN CA erred in making a contract for the parties by invoking Article 1267 of the New Civil Code;

2) WoN CA erred in ruling that prescription of the action for reformation of the contract in this case commenced from the
time it became disadvantageous to private respondent; and

3) WoN CA erred in ruling that the contract was subject to a potestative condition in favor of petitioners.

Held/Ratio:

1. We agree with appellant that in order that an action for reformation of contract would lie and may prosper, there must
be sufficient allegations as well as proof that the contract in question failed to express the true intention of the parties due
to error or mistake, accident, or fraud. Indeed, in embodying the equitable remedy of reformation of instruments in the
New Civil Code, the Code Commission gave its reasons as follows:

Equity dictates the reformation of an instrument in order that the true intention of the contracting parties may be
expressed. The rationale of the doctrine is that it would be unjust and inequitable to allow the enforcement of a written
instrument which does not reflect or disclose the real meeting of the minds of the parties.
Here, plaintiff-appellee did not allege in its complaint, nor does its evidence prove, that there was a mistake on its part or
mutual mistake on the part of both parties when they entered into the agreement Exh. "A", and that because of this
mistake, said agreement failed to express their true intention.
Also, the fact that said contract has become inequitous or disadvantageous to plaintiff as the years went by did not,
however, give plaintiff a cause of action for reformation of said contract, for the reasons already pointed out earlier. But
this does not mean that plaintiff is completely without a remedy, for we believe that the allegations of its
complaint herein and the evidence it has presented sufficiently make out a cause of action under Art. 1267 of the
New Civil Code for its release from the agreement in question.
Despite the increase in the volume of appellant's subscribers and the corresponding increase in the telephone cables and
wires strung by it to plaintiff's electric posts in Naga City for the more 10 years that the agreement Exh. "A" of the parties
has been in effect, there has been no corresponding increase in the ten (10) telephone units connected by appellant free
of charge to plaintiff's offices and other places chosen by plaintiff's general manager which was the only consideration
provided for in said agreement for appellant's use of plaintiffs electric posts. Not only that, appellant even started using
plaintiff's electric posts outside Naga City although this was not provided for in the agreement Exh. "A" as it extended and
expanded its telephone services to towns outside said city.
The conclusion is indeed ineluctable that the agreement Exh. "A" has already become too one-sided in favor of
appellant to the great disadvantage of plaintiff, in short, the continued enforcement of said contract has
manifestly gone far beyond the contemplation of plaintiff, so much so that it should now be released therefrom
under Art. 1267 of the New Civil Code to avoid appellant's unjust enrichment at its (plaintiff's) expense. As stated
by Tolentino in his commentaries on the Civil Code citing foreign civilist Ruggiero, "equity demands a certain economic
equilibrium between the prestation and the counter-prestation, and does not permit the unlimited impoverishment of one
party for the benefit of the other by the excessive rigidity of the principle of the obligatory force of contracts.
We therefore, find nothing wrong with the ruling of the trial court, although based on a different and wrong premise (i.e.,
reformation of contract), that from the date of the filing of this case, appellant must pay for the use of plaintiff's electric
posts in Naga City at the reasonable monthly rental of P10.00 per post, while plaintiff should pay appellant for the
telephones in the same City that it was formerly using free of charge under the terms of the agreement Exh. "A" at the
same rate being paid by the general public. In affirming said ruling, we are not making a new contract for the parties
herein, but we find it necessary to do so in order not to disrupt the basic and essential services being rendered by both
parties herein to the public and to avoid unjust enrichment by appellant at the expense of plaintiff, said arrangement to
continue only until such time as said parties can re-negotiate another agreement over the same
subject-matter covered by the agreement Exh. "A". Once said agreement is reached and executed by the parties, the
aforesaid ruling of the lower court and affirmed by us shall cease to exist and shall be substituted and superseded by their
new agreement. .

2. In reformation of contracts, what is reformed is not the contract itself, but the instrument embodying the contract. It
follows that whether the contract is disadvantageous or not is irrelevant to reformation and therefore, cannot be an
element in the determination of the period for prescription of the action to reform.

Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must be brought within ten
(10) years from the time the right of action accrues. Clearly, the ten (10) year period is to be reckonedfrom the time the
right of action accrues which is not necessarily the date of execution of the contract.

3. A potestative condition is a condition, the fulfillment of which depends upon the sole will of the debtor, in which case,
the conditional obligation is void. Based on this definition, respondent court's finding that the provision in the contract, to
wit:

(a) That the term or period of this contract shall be as long as the party of the first part (petitioner) has
need for the electric light posts of the party of the second part (private respondent) . . ..

is a potestative condition, is correct. However, it must have overlooked the other conditions in the same provision, to wit:

. . . it being understood that this contract shall terminate when for any reason whatsoever, the party of the
second part (private respondent) is forced to stop, abandoned (sic) its operation as a public service and it
becomes necessary to remove the electric light post (sic);

which are casual conditions since they depend on chance, hazard, or the will of a third person. 20 In sum, the contract is
subject to mixed conditions, that is, they depend partly on the will of the debtor and partly on chance, hazard or the will
of a third person, which do not invalidate the aforementioned provision.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated May 28, 1992 and its
resolution dated September 10, 1992 are AFFIRMED.

OSMEÑA VS. RAMA


JOHNSON, September 9, 1909

NATURE: APPEAL from a judgment of the Court of First Instance of Cebu.

FACTS
-15 Nov 1890: Doña Rama executed and delivered to Victoriano Osmeña a contract (EXHIBIT A) which stated that she
received P200 in cash from Don Osmeña which she would pay in sugar in January/February the next year at the price on
the day of delivering the sugar into the Don Osmena’s warehouses + Interest w/ rate of half a cuartillo per month on each
peso from Nov 15 to the day of the settlement; if ever that Doña Rama could not pay in full, a balance shall be struck,
showing the amount outstanding at the end of each month, including interest, and outstanding balance of the respondent
would be considered as capital which the respondent would pay in sugar. The respondent also promised that she would
sell to Don Osmeña all her sugar that would be harvested, and as security, she pledged all her present and future
property, and as a special security, she would give her house in Pagina. The contract was signed by 2 witnesses.
-27 Oct. 1891: Defendant asked a further loan from the Don of P70, P50 of which would be loaned to Don Peñares, and
the P70 would be paid in sugar.
-Some time after the execution and delivery of the above contracts, Don Osmeña died. In the settlement and division of
the property of his estate the above contracts became the property of one of his hieirs, Agustina Rafols. Later(no date
given) the said Agustina Rafols ceded to the present plaintiff all of her right and interest in said contracts.
-15 March 1902: Doña Rama recognized her obligations in the said contract with Don Osmeña, stated in the contract she
executed (EXHIBIT C) that if her house in Pagina would be sold she would use the money to pay for her debts.
-26 June 1906: Doña Tomasa did not pay the amount due so the plaintiff commenced this action in CFI Cebu.
CFI deci judgment in favor of the plaintiff and against the defendant for the sum of P200 with interest at the rate of 18 3/4
per cent per annum, from the 15th day of November, 1890, and for the sum of P20, with interest at the rate of 18 per cent
per annum, from the 27th day of October, 1891, until the said sums were paid.
Plaintiff’s Claim the execution and delivery of the above contracts, the demand for payment, and the failure to pay on the
part of the defendant, and the prayer for a judgment for the amount due on the said contracts.

Defendant’s defense general denial and setting up the special defense of prescription. (no evidence presented)

ISSUE: WON the proof presented during the trial in CFI is sufficient for the lower court to recognize the debt of Doña
Rama, provided that she imposed the condition that she would pay her debts upon selling her house?

HELD: YES, the proof presented is sufficient.


Ratio A condition imposed upon a contract by the promisor, the performance of which depends upon his exclusive will, is
void, in accordance with the provisions of article 1115 of the Civil Code.
Reasoning It was suggested during the discussion of the case in this court that, in the acknowledgment of the
indebtedness made by the defendant, she imposed the condition that she would pay the obligation if she sold her house.
If that statement found in her acknowledgment of the indebtedness should be regarded as a condition, it was a condition
which depended upon her exclusive will, and is, therefore, void. (Art. 1115, Civil Code.) The acknowledgment, therefore,
was an absolute acknowledgment of the obligation and was sufficient to prevent the statute of limitation from barring the
action upon the original contract.

Dispositive We are satisfied, from all of the evidence adduced during the trial, that the judgment of the lower court should
be affirmed. So ordered.

Smith, Bell & Co. v Sotelo Matti (1922)

FACTS: Plaintiff Smith, Bell & Co and the defendant Mr. Vicente Sotel entered into a contract. Plaintiff has to deliver (1)
two steel tanks shipped from New York to Manila within three or four months, (2) two expellers shipped from
SanFrancisco in the month of September 1918 or as soon as possible, and (3) two electric motors with “approximate
delivery within ninety days. – This is not guaranteed.”

The tanks arrived at Manila on 27 April 1919; the expellers on 26 October 1918; and the motors on 27 February 1919.
Upon notification from plaintiff, defendant refused to receive any of the goods or to pay for their price. Plaintiff alleged that
the expellers and motors were in good condition.

Plaintiff filed a complaint against the defendant. The defendant, Mr Sotelo and intervenor, Manila Oil Refining and By-
Products Co., Inc., denied the plaintiff’s allegations. They allege that due to plaintiff’s delay in the delivery of goods, the
intervenor suffered damages
.
The lower court absolved the defendants from the complaint insofar as the tanks and the electric motors were concerned,
but rendered judgment against them ordering them to receive expellers and pay the sum of P50,000, with legal interest
and cost.

Both parties appealed to the Court.

ISSUE: What period was fixed for the delivery of the goods? Did the plaintiff incur delay in the delivery of goods?

HELD: In all these contracts, there is a final clause as follows:


“The sellers are not responsible for delays cause by fires, riots on land or on the sea, strikes or other causes
known as ‘force majeure’ entirely beyond the control of the sellers or their representatives.
Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the goods. xxx. From the
record it appears that thee contracts were executed at the time of the world war when there existed rigid restrictions on
the export from the United States xxx; hence clauses were inserted in the contracts, regarding “Government regulations,
railroading embargoes, lack of vessel space, the exigencies of the requirements of the United States Government” xxx. At
the time of the execution of the contracts, the parties were not unmindful of the contingency of the United States
Government not allowing the export of the goods xxx.

We cannot but conclude that the term which parties attempted to fix is so uncertain that once cannot tell just whether, as a
matter of fact, those articles could be brought to manila or not. The obligation must be regarded as conditional. The
delivery was subject to a condition the fulfillment of which depended not only upon the effort of the plaintiff, but upon the
will of third persons who could in no way be compelled to fulfill the condition.
It is sufficiently proven in the record that the plaintiff has made all the efforts it could possibly be expected to make under
the circumstances, to bring the goods in question to Manila, as soon as possible. Xxx it is obvious that the plaintiff has
complied with its obligation.

When the time of delivery is not fixed in the contract, time is regarded unessential. In such cases, the delivery must be
made within a reasonable time. Xxx Reasonable time for the delivery of the goods by the seller is to be determined by
circumstances attending the particular transactions. Whether of not the delivery of the machinery in litigation was offered
to the defendant within a reasonable time, is a question to be determined by the court. Xxx The plaintiff has not been
guilty of any delay in the fulfillment of its obligation.

Rustan Pulp vs. Intermediate Appellate Court


Consumer (D) vs. Supplier (P)
GR 70789

Summary: A paper mill started operations and accepted offers to supply raw materials from several suppliers. One
supplier executed a contract with the paper mill with a condition that the paper mill has the right to stop accepting
deliveries whenever the supply was sufficient. The paper mill exercised that right, but continued accepting periodic
deliveries from other suppliers.

Rule of Law: When the fulfillment of the condition depends on the sole will of the debtor, the conditional obligation shall be
void.
—Article 1182, Civil Code.

Facts: When Rustan Pulp & Paper Mills (D) started operations Romeo Lluch (P) offered to supply raw materials. Rustan
Pulp (D) proposed a non-exclusive contract to buy wood pulp from Lluch (P). However, a condition in the contract gave
Rustan Pulp (D) the right to stop accepting deliveries when the supply became sufficient until such time the raw materials
are needed.

During the test run of the pulp mill, major defects on the machinery were discovered prompting the Japanese supplier of
the machinery to recommend the stoppage of the deliveries. The suppliers were informed to stop deliveries, but were not
informed as to the reasons for the stoppage.

Lluch (P) sought to clarify the tenor of the notice as to whether stoppage of delivery or termination of the contract of sale
was intended, but Rustan Pulp (D) failed to reply. This alleged ambiguity notwithstanding, Lluch (P) and the other
suppliers resumed deliveries after a series of talks between Lluch (P) and Romeo Vergara, the manager of Rustan Pulp
(D).

Later, Lluch (P) filed a complaint for breach of contract. The case was dismissed, but at the same time, the court enjoined
Rustan Pulp (D) to honor the contract. On appeal, the court ruled that Rustan Pulp's (D) suspension of deliveries was not
in the lawful exercise of its rights under the contract of sale.

Issues: Is the suspension of deliveries by Rustan (D) a proper exercise of its rights under the contract of sale?

Ruling: No. There is basis for the apprehension on the illusory resumption of deliveries at Rustan Pulp (D) because the
prerogative suggests a condition solely dependent upon its exclusive will. The literal import of contested condition is that
Rustan Pulp (D) can stop delivery of pulp wood from Lluch (P) if the supply at the plant is sufficient as ascertained by
Rustan Pulp (D), subject to re-delivery when the need arises as determined likewise by Rustan Pulp (D).

A purely potestative imposition of this character must be obliterated from the face of the contract without affecting the rest
of the stipulations considering that the condition relates to the fulfillment of an already existing obligation and not to its
inception (Civil Code Annotated, by Padilla, 1987 Edition, Volume 4, Page 160).

A condition which is both potestative (or facultative) and resolutory may be valid, even though the saving clause is left to
the will of the obligor as this Court ruled in Taylor vs. Uy Tieng Piao (43 Phil. 873). But the Taylor case, which allowed a
condition for unilateral cancellation dependent on the arrival of factory machinery, cannot be applied because the facts
relate to the birth of the undertaking and not to the fulfillment of an existing obligation.
ROMERO vs. CA
G.R. No. 107207 November 23, 1995

Facts: Romero, a civil engineer, was engaged in the business of production, manufacture and exportation of perlite filter
aids, permalite insulation and processed perlite ore. In 1988, he decided to put up a central warehouse in Metro Manila.
Flores and his wife offered a parcel of land measuring 1,952 square meters. The lot was covered in a TCT in the name of
private respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and, except for the presence of
squatters in the area, he found the place suitable for a central warehouse. Flores called on petitioner with a proposal that
should he advance the amount of P50,000.00 which could be used in taking up an ejectment case against the squatters,
private respondent would agree to sell the property for only P800/square meter. Romero agreed. Later, a "Deed of
Conditional Sale" was executed between Flores and Ongsiong.Purchase price = P1,561,600.00; Downpayment = P50K;
Balance = to be paid 45 days after the removal of all the squatters; upon full payment, Ongsiong shall execute deed of
absolute sale in favor of Romero.Ongsiong sought to return the P50,000.00 she received from petitioner since, she said,
she could not "get rid of the squatters" on the lot. She opted to rescind the sale in view of her ‘failure to get rid of the
squatters’. She was able to eject the squatters but at a much later date agreed upon 60-day period in the contract.
Regional Trial Court of Makati rendered decision holding that private respondent had no right to rescind the contract since
it was she who "violated her obligation to eject the squatters from the subject property" and that petitioner, being the
injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement.

Issue: Is there a perfected contract of sale?

Held: YES. A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and to
transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. (BILATERAL and
RECIPROCAL CHARACTERISTIC OF SALE).

In determining the real character of the contract, the title given to it by the parties is not as much significant as its
substance. For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute
in nature, if title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally
rescind the contract predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. From
the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and
law. Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of the
squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own
obligation, i .e to pay the balance of the purchase price. Private respondent’s failure "to remove the squatters from the
property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code.

This option clearly belongs to petitioner and not to private respondent. There was no potestative condition on the part of
Ongsiong but a "mixed" condition "dependent not on the will of the vendor alone but also of third persons like the
squatters and government agencies and personnel concerned."