Rustan Pulp vs.

Intermediate Appellate Court

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.