ETERNAL GARDENS MEMORIAL PARK CORPORATION VS.

CA Case Digest

ETERNAL GARDENS MEMORIAL PARK CORPORATION VS. COURT OF APPEALS and NORTH PHILIPPINE
UNION MISSION OF THE SEVENTH DAY ADVENTIST

Facts: Petitioner EGMPC and private respondent NPUM entered into a Land Development Agreement
dated October 6, 1976. Under the agreement, EGMPC was to develop a parcel of land owned by NPUM
into a memorial park subdivided into lots. The parties further agreed that EGMPC had the obligation to
remit monthly to NPUM forty percent (40%) of its net gross collection from the development of a
memorial park on property owned by NPUM. It also provides for the designation of a depository/trustee
bank to act as the depository/trustee for all funds collected by EGMPC.

Later, two claimants of the parcel of land surfaced Maysilo Estate and the heirs of a certain Vicente
Singson Encarnacion. EGMPC thus filed an action for interpleader against Maysilo Estate and NPUM. The
Singson heirs in turn filed an action for quieting of title against EGMPC and NPUM.

From these two cases, several proceedings ensued. One such case, from the interpleader action, EGMPC
assailed the appellate court's resolution requiring "petitioner Eternal Gardens [to] deposit whatever
amounts are due from it under the Land Development Agreement with a reputable bank to be
designated by the respondent court."

The trial court dismissed the cases and the appellate court affirmed insofar as it dismissed the claims of
the intervenors, including the Maysilo Estate, and the titles of NPUM to the subject parcel of land were
declared valid; and the trial court's decision favor of the Singson heirs was reversed and set aside.
Through the resolution issued by the Supreme Court resolution, the Court of Appeals proceeded with
the disposition of the case and required the parties to appear at a scheduled hearing on June 16, 1994,
"with counsel and accountants, as well as books of accounts and related records,' to determine the
remaining accrued rights and liabilities of said parties."

The accounting of the parties' respective obligations was referred to the Court's Accountant, Mrs.
Carmencita Angelo, with the concurrence of the parties, to whom the documents were to be submitted.
NPUM prepared and submitted a Summary of Sales and Total Amounts Due based on the following
documents it likewise submitted to the court. However, EGMPC did not submit any document
whatsoever to aid the appellate court in its mandated task. Thus, the appellate court declared that
EGMPC has waived its right to present the records and documents necessarily for accounting, and that it
will now proceed "to the mutual accounting required to determine the remaining accrued rights and
liabilities of the said parties…and that the Court will proceed to do what it is required to do on the basis
of the documents submitted by the NPUMC. Ms. Angelo submitted her Report dated January 31, 1995,
to which the appellate court required the parties to comment on. EGMPC took exception to the
appellate court's having considered it to have waived its right to present documents. Considering
EGMPC's arguments, the court set a hearing date where NPUM would present its documents "according
to the Rules [of Court], and giving the private respondent [EGMPC] the opportunity to object thereto."
ISSUE: Whether or not EGMPC is liable for interest because there was still the unresolved issue of
ownership over the property subject of the Land Development Agreement of October 6, 1976.

RULING: The Supreme Court held that the argument is without merit. EGMPC under the agreement had
the obligation to remit monthly to NPUM forty percent (40%) of its net gross collection from the
development of a memorial park on property owned by NPUM. It also provides for the designation of a
depository/trustee bank to act as the depository/trustee for all funds collected by EGMPC. There was no
obstacle, legal or otherwise, to the compliance by EGMPC of this provision in the contract, even on the
affectation that it did not know to whom payment was to be made.

Even disregarding the agreement, EGMPC cannot "suspend" payment on the pretext that it did not
know who among the subject property's claimants was the rightful owner. It had a remedy under the
New Civil Code of the Philippines to give in consignation the amounts due, as these fell due.

Consignation produces the effect of payment. The rationale for consignation is to avoid the performance
of an obligation becoming more onerous to the debtor by reason of causes not imputable to him. For its
failure to consign the amounts due, EGMPC’s obligation to NPUM necessarily became more onerous as
it became liable for interest on the amounts it failed to remit.

Thus, the Court of Appeals correctly held Eternal Gardens liable for interest at the rate of twelve percent
(12%). The withholding of the amounts due under the agreement was tantamount to a forbearance of
money.

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

CA AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II)

G.R. No. 107112 February 24, 1994

FACTS: Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as
long distance telephone service in Naga City while private respondent Camarines Sur II Electric
Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operating an
electric power service in the same city.

On November 1, 1977, the parties entered into a contract 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.
The said contract also provided:

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;

After the contract had been enforced for over ten (10) years, private respondent filed with RTC against
petitioners for reformation of the contract with damages, 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.

Private respondent also 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.

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

The RTC ruled 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.

Petitioners appealed to respondent CA, however the same was affirmed.

ISSUES:

1. Whether Article 1267 of the New Civil Code is applicable

2. Whether contract should be reformed

3. Whether the contract was subject to a potestative condition which rendered said condition void.

HELD: 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. In the present case, the obligation of private respondent consists in
allowing petitioners to use its posts in Naga City, which is the service contemplated in said article.
Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the
contract be for future service with future unusual change. According to Senator Arturo M. Tolentino, 10
Article 1267 states in our law the doctrine of unforseen events. This is said to be based on the
discredited theory of rebus sic stantibus in public international law; 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. Considering practical needs and the demands of equity and good faith, the
disappearance of the basis of a contract gives rise to a right to relief in favor of the party prejudiced.

On the issue of reformation of contract, petitioners allege that respondent court's ruling that the right of
action "arose only after said contract had already become disadvantageous and unfair to it due to
subsequent events and conditions, which must be sometime during the latter part of 1982 or in 1983 . .
." is erroneous. 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 reckoned from the time the right of action accrues which is not necessarily
the date of execution of the contract. As correctly ruled by respondent court, private respondent's right
of action arose "sometime during the latter part of 1982 or in 1983 when according to Atty. Luis
General, Jr. . . ., he was asked by (private respondent's) Board of Directors to study said contract as it
already appeared disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989). (Private
respondent's) cause of action to ask for reformation of said contract should thus be considered to have
arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this case was filed,
ten (10) years had not yet elapsed."

Regarding the last issue, petitioners allege that there is nothing purely potestative about the prestations
of either party because petitioner's permission for free use of telephones is not made to depend purely
on their will, neither is private respondent's permission for free use of its posts dependent purely on its
will.

Petitioners' allegations must be upheld in this regard. 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 ;

which are casual conditions since they depend on chance, hazard, or the will of a third person. 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.

COMGLASCO v. Santos Car Check Center

GR No. 202989, 25 March 2015

FACTS: On August 16, 2000, respondent Santos Car Check Center Corporation (Santos), owner of a
showroom located at 75 Delgado Street, in Iloilo City, leased out the said space to petitioner Comglasco
Corporation (Comglasco), an entity engaged in the sale, replacement and repair of automobile
windshields, for a period of five years at a monthly rental of P60,000.00 for the first year, P66,000.00 on
the second year, and P72,600.00 on the third through fifth years.

On October 4, 2001, Comglasco advised Santos through a letter that it was pre- terminating their lease
contract effective December 1, 2001. Santos refused to accede to the pre-termination, reminding
Comglasco that their contract was for five years. On January 15, 2002, Comglasco vacated the leased
premises and stopped paying any further rentals. Santos sent several demand letters, which Comglasco
completely ignored. On September 15, 2003, Santos sent its final demand letter, which Comglasco again
ignored. On October 20, 2003, Santos filed suit for breach of contract.

ISSUE: Whether or not there was a valid cause for the plaintiff to pre-terminate the lease

HELD: NO. Petition Denied

In Philippine National Construction Corporation v. CA (PNCC), which also involves the termination of a
lease of property by the lessee “due to financial, as well as technical, difficulties,” the Court ruled:

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 petitioner contemplates not the legal or physical impossibilities in said article.
Besides, petitioner failed to state specifically the circumstances brought about by “the abrupt change in
the political climate in the country” except the alleged prevailing uncertainties in government policies
on infrastructure projects.

The principle of rebus sic 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. This theory is said to be the basis of Article 1267 of the Civil Code,
which provides:

Art. 1267. 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.

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 changes of circumstances that equity
demands assistance for the debtor.

In this case, petitioner wants this Court to believe that the abrupt change 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.”

Relying on Article 1267 of the Civil Code to justify its decision to pre-terminate its lease with Santos,
Comglasco invokes the 1997 Asian currency crisis as causing it

Much difficulty in meeting its obligations. But in PNCC, the Court held that the payment of lease rentals
does not involve a prestation “to do” envisaged in Articles 1266 and 1267 which has been rendered
legally or physically impossible without the fault of the obligor-lessor. Article 1267 speaks of a prestation
involving service, which has been rendered so difficult by unforeseen subsequent events as to be
manifestly beyond the contemplation of the parties. To be sure, the Asian currency crisis befell the
region from July 1997 and for sometime thereafter, but Comglasco cannot be permitted to blame its
difficulties on the said regional economic phenomenon because it entered into the subject lease only on
August 16, 2000, more than three years after it began, and by then Comglasco had known what business
risks it assumed when it opened a new shop in Iloilo City.

Philippine National Bank vs. Chan

G.R. No. 20603| March 13, 2017

Facts: Chan owns a three-story commercial building located along Paco, Manila. She leased said
commercial building to Philippine National Bank (PNB) for a period of five years from December 15,
1999 to December 14, 2004, with a monthly rental of ₱ 76,160.00. When the lease expired, PNB
continued to occupy the property on a month-to-month basis with a monthly rental of ₱ 116,788.44.
PNB vacated the premises on March 23, 2006.

Meanwhile, Chan obtained a ₱ l,500,000.00 loan from PNB which was secured by a Real Estate
Mortgage constituted over the leased property. In addition, Chan executed a Deed of Assignment over
the rental payments in favor of PNB. The amount of the Chan’s loan was subsequently increased to
₱7,500,000.00. Thus, PNB and Chan executed an "Amendment to the Real Estate Mortgage by
Substitution of Collateral", where the mortgage over the leased property was released and substituted
by a mortgage over a different parcel of land also located in Paco, Manila,.

Chan then filed a Complaint for Unlawful Detainer before the MTC of Manila against PNB, alleging that
the latter failed to pay its monthly rentals from October 2004 until August 2005. In its defense, PNB
claimed that it applied the rental proceeds from October 2004 to January 15, 2005 as payment for
respondent's outstanding loan which became due and demandable in October 2004. As for the monthly
rentals from January 16, 2005 to February 2006, PNB explained that it received a demand letter from a
certain Lamberto Chua (Chua) who claimed to be the new owner of the leased property and requested
that the rentals be paid directly to him, reckoned from January 15, 2005 until PNB decides to vacate the
premises or a new lease contract with Chua is executed. PNB thus deposited the rentals in a separate
non-drawing savings account for the benefit of the rightful party.

Issue: Whether there was proper consignment done by PNB to make it not liable to pay interest due to
delay?

Held: Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment. It generally requires a prior tender of payment.
Under Art. 1256 of the Civil Code, consignation alone is sufficient even without a prior tender of
payment a) when the creditor is absent or unknown or does not appear at the place of payment; b)
when he is incapacitated to receive the payment at the time it is due; c) when, without just cause, he
refuses to give a receipt; d) when two or more persons claim the same right to collect; and e) when the
title of the obligation has been lost.

For consignation to be valid, the debtor must comply with the following requirements under the law: a)
there was a debt due; b) valid prior tender of payment, unless the consignation was made because of
some legal cause provided in Article 1256; c) previous notice of the consignation has been given to the
persons interested in the performance of the obligation; d) the amount or thing due was placed at the
disposal of the court; and, e) after the consignation had been made, the persons interested were
notified thereof. Failure in any of the requirements is enough ground to render a consignation
ineffective.

In the present case, the records show that: first, PNB had the obligation to pay Chan a monthly rental of
₱ l16,788.44, amounting to ₱ l,348,643.92, from January 16, 2005 to March 23, 2006; second, PNB had
the option to pay the monthly rentals to Chan or to apply the same as payment for Chan’s loan with the
bank, but PNB did neither; third, PNB instead opened a non-drawing savings account at its Paco Branch
under Account No. 202- 565327-3, where it deposited the subject monthly rentals, due to the claim of
Chua of the same right to collect the rent; and fourth, PNB consigned the amount of Pl,348,643.92 with
the Office of the Clerk of Court of the MTC of Manila on May 31, 2006.

Note that PNB's deposit of the subject monthly rentals in a non-drawing savings account is not the
consignation contemplated by law, precisely because it does not place the same at the disposal of the
court. Consignation is necessarily judicial; it is not allowed in venues other than the courts.
Consequently, PNB's obligation to pay rent for the period of January 16, 2005 up to March 23, 2006
remained subsisting, as the deposit of the rentals cannot be considered to have the effect of payment.

It is important to point out that PNB's obligation to pay the subject monthly rentals had already fallen
due and demandable before PNB consigned the rental proceeds with the MTC on May 31, 2006.
Although it is true that consignment has a retroactive effect, such payment is deemed to have been
made only at the time of the deposit of the thing in court or when it was placed at the disposal of the
judicial authority. Based on these premises, PNB's payment of the monthly rentals can only be
considered to have been made not earlier than May 31, 2006.

Given its belated consignment of the rental proceeds in court, PNB clearly defaulted in the payment of
monthly rentals to the respondent for the period January 16, 2005 up to March 23, 2006, when it finally
vacated the leased property, As such, it is liable to pay interest in accordance with Article 2209 of the
Civil Code.