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Naga Tel. Co. v.

 NATELCO is a telephone company while CASURECO is an electric corporation in the same city
 Pet. Entered into a contract to use the light posts of resp in their telephone services in exchange for 10, free of charge, telephone
 “(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
 After the contract had been enforced for over 10 yrs, respondent filed with the RTC to reform the contract on the gronud that it is
too one-sided in favor of petitioners, not in conformity daw with NEA guidelines which mandate a reasonable compensation of 10
pesos per post + after 11 years, the telephone cable become heavier brought about by increase in the volume of their subscribers
o 2nd CoA = petitioners allegedly used 319 posts outside naga city
o 3rd CoA= supot service of the 10 telephone units  NOT SUFFICIENTLY PROVED
 TC found the contract, which was FAIR at first, now became disadvantageous and unfair to respondent because of subsequent
events and conditions (increase in the volume of the subscribers of the petitioners for more than 10 years without the corresponding
increase in the number of telephone connection to respondent free of charge)
o IT CANNOT make another contract for the parties BUT, for reasons of justice, order the contract be reformed  pay for
use of posts and for use of monthly telephone bills
o 2nd CoA  the contract should be reformed by including the posts outside Naga
 CA AFFIRMED BUT said 1267 is applicable
o Contract was subject to a potestative condition which rendered the condition void
 PETITIONERS assert 1267 not applicable primarily because the contract does not involve the rendition of service or a personal
prestation and it is NOT for future service with future unusual change
 CA rationalized
o ‘Equity dictates the reformation of an instrument in order that the true intention of the contracting parties may be expressed.
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.
o Inflexibility of obligations should be tempered to forestall the effects of mistake, fraud, inequitable conduct, or accident
o 1359, 1361, 1363, 1364 of the NCC  the instrument may be reformed at the instance of either party if there was mutual
mistake on their part, or by the injured party if only he was mistaken  resp did not allege fraud on mistake on the part of
both parties tho
o BUT believed that the evidence sufficiently made out a CoA under 1267  the contract has become too one sided
o ‘’equity demands a certain economic equilibrium between the prestation and the counterprestation, 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” – Tolentino
o 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
renegotiate another agreement over the same subject­matter covered by the agreement Exh. “A”.
 Article 1267 speaks of “service” which has become so difficult. Taking into consideration the rationale behind this provision, the
term “service” should be understood as referring to the “performance” of the obligation
 Tolentino  art 1267 states in our law the doctrine of unforeseen events
 Rebus sic stantibus is public international law  the parties stipulate in the light of prevailing conditions, and once these conditions
cease to exist the contract also ceases to exist
o SC took into account the possible consequences of merely releasing the parties therefrom
 Disruption of essential public service
 Used CA ratio  “x x x 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 x x x.”
 Issue of 1267 never being raised by the paries in their pleadings
o It is settled that when the trial court decides a case in favor of a party on a certain ground, the appellate court may uphold
the decision below upon some other point which was ignored or erroneously decided by the trial court
o Furthermore, the appellate court has the discretion to consider an unassigned error that is closely related to an error properly
o it is the material allegations of fact in the complaint, not the legal conclusion made therein or the prayer, that determines
the relief to which the plaintiff is entitled
 on the issue of being purely potestative
o contract is subject ot MIXED conditions

 Petioners as lessee entered into a lease contract with respondent
o TERM OF LEASE—This lease shall be for a period of five (5) years, commencing on the date of issuance of the industrial
clearance by the Ministry of Human Settlements, renewable for a like or other period at the option of the LESSEE under
the same terms and conditions. 

o TERMINATION OF LEASE—This Agreement may be terminated by mutual agreement of the parties. Upon the
termination or expiration of the period of lease without the same being renewed, the LESSEE shall vacate the Leased
Property at its expense.
 Resp requested payment of first annual rental but petitioner said payment of rentals hasn’t commenced yet (on the date of issuance
of an industrial clearance by the ministry of human settlements NOT from date of signing daw) THEN Expressed intention to can
cancel the project due to financial as well as technical difficulties
o PET said 20 k lang yung rent  jan (issuance of the cleareance) to feb (notice of termination)
 TC  ordered pet to pay respondent 492k (rentals from 2 years) + attys fees  CA AFFIRMED
SC  1266 and 1267 DO NOT AVAIL
 Petitioner estopped form claiming the temporary use permit is not the industrial clearance (mentioned in in a letter and used
“industrial perm.” Consequently, it couldn’t refer to any other document except for the temporary use permit
o THUS, it can be deduced from this letter that the suspensive condition—issuance of industrial clearance—has already been
fulfilled and that the lease contract has become operative.
o PLUS the reason of the discontinuance of project was financial as well as technical difficulties, NOT the alleged
insufficiency of the temporary use permt
 PETTITIONER INVOKE 1266 and the principle of rebus sic stantibus  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 
abrupt change in political climate after EDSA revolution and financial difficulties
o Contracts have force of law between the parties BUT law recognizes exceptions i.e. 1266 (legally or physically impossible
without the fault of the obligor)
o Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only to obligations “to do,”
and not obligations “to give.”
o 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 imm ovable 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.
o The obligation to pay rentals or deliver the thing in a contract of lease falls within the prestation “to give”; hence, it is not
covered within the scope of Article 1266. At any rate, the unforeseen event and causes mentioned by petitioner are not the
legal or physical impossibilities contemplated in the said article.
 Failed to state specifically the circumstances brought about by the abrupt change in the political climate in the
o The principle of rebus sis stantibus neither fits in with the facts of the case. Under 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  said to
be basis of 1267
o BUT 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.
 BEFORE EDSA 2, medyo marami ng upheavals i.e. Aquino assassination on 1983, plus announcing of marcos
of a snap election BUT respondent still enterered into the contract on November 18, 1985
 That the petitioner wasn’t able to use the site as a rock crushing plant DOES NOT AVAIL (wont affect validity
of contract)
 492 k award is FAIR AND JUST  non use of facilities fault of the petitioners!!

So v. Food fest land

 Food Fest entered into Contract of Lease with So over a commercial space in San Antonio Village, Makati City for a period of three
years (1999-2002) on which Food Fest intended to operate a Kentucky Fried Chicken
 Before the lease agreement, they entered into a preliminary agreement
o “The lease shall not become binding upon us unless and until the government agencies concerned shall authorize, permit
or license us to open and maintain our business
o So shall assist with requirements with the government agencies
o In such case, the agreement may be canceled and all rights and obligations hereunder shall cease.”
 While Food Fest was able to secure the necessary licenses and permits for the year 1999, it failed to commence business operations.
For the year 2000, Food Fest’s application for renewal of barangay business clearance was “held in abeyance until further study
of [its] kitchen facilities.” THUS it wasn’t able to operate
 Fearing business losses, food fest intended to terminate the lease contract but So did not accede but instead offered to help to secure
the barangay clearance  Happened twice
o So even offered to help by giving “representation to forge a long term relationship”
 So again demaneded but Food fest denied any liability and started to remove its fixtures and equipment from the premises  So
filed with MeTC an ejectment and damages suit  RULED IN FAVOR OF SO (resp to pay rentals from august 2000 to march
o found that Food Fest already vacated the leased premises before So filed the complaint for ejectment; and whereas
possession is the only issue for resolution in an ejectment case, So’s cause of action only pertained to collection of the
rental arrears
o On the merits, the RTC held that Food Fest’s failure to secure the authority to commence business operations resulted in
the termination of its contractual obligations to So, including the obligation to pay rent.
 CA  reversed RTC
o declared that Food Fest’s obligation to pay rent was not extinguished upon its failure to secure permits to operate. (rentals
from august 2000-march 31, 2001 with penalties)
 Denied renovation expenses claims since there is no proof as to the actual cost of the renovation
 On Food fest’s invocation of rebus sic stantibus + 1267  COURT IS NOT PERSUADED
o 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.
o Parties presumed to have assume the risks of unfavorable developments SO only allow in absolutely exceptional changes
o Food Fest claims that its failure to secure the necessary business permits and licenses rendered the impossibility and
non-materialization of its purpose in entering into the contract of lease
o BUT it is clear that the condition in the preliminary agreement pertains of the INITIAL application of permits, NOT food
fest’s subsequent applications
o Food Fest was able to secure the permits, licenses and authority to operate when the lease contract was executed. Its failure
to renew these permits, licenses and authority for the succeeding year, does not, however, suffice to declare the lease
functus officio, nor can it be construed as an unforeseen event to warrant the application of Article 1267.