NAGA TELEPHONE CO., INC. (NATELCO) & Luciano Maggay, petitioners, vs.

COURT OF APEALS and Camarines Sur II Electric Cooperative, Inc. (CASURECO II), respondents [1994] ⇒ NATELCO: telephone co. rendering local & long distance services in Naga ⇒ CASURECO II: private corporation w/c operates electric power service in Naga ⇒ The 2 companies entered into a contract wherein NATELCO will be using CASURECO electric light posts in Naga in operating its telephone services. In return, former will install 10 phone connections for the use of the latter free of charge. Term/period will be as long as former needs to use the latter’s posts. Contract will be terminated if the latter will forced to stop, abandon its operation as a public service & it becomes necessary to remove the posts. Contract was prepared by Atty. Maggay, member of the CASURECO Board of Directors & legal counsel of NATELCO.

CASURECO’s posts at P10.00/post while the latter should pay the monthly bills for the use of former’s phone lines in Naga. Amount should be computed from the date of filing of the complaint. Same has been held for the 2nd cause of action. While the 3rd cause of action was not sufficiently proven. CA: affirmed trial court decision based on the ff grounds:


1st cause of action: After 10 yrs of enforcing the contract, CASURECO filed for reformation of the contract w/damages to abolish inequalities based on the ff grounds: 1. it was too one-sided in favor of NATELCO 2. it was not in accordance w/the National Electrification Administration (NEA) guidelines w/c provide that the reasonable compensation for the use of posts should be P10/post/month. 3. telephone cables strung on the posts have become much heavier & worsened by linemen who bore holes thru the posts w/c resulted into posts broken during typhoons w/c posts cost P2,630.00 each. 2nd cause of action: CASURECO likewise alleged that since 1981, NATELCO used 319 of their posts outside Naga w/o any contract and latter company should pay P10.00/post amounting to P267,960.00 w/c the latter refused to pay despite demands. 3rd cause of action: Former also complained that the latter provided poor service causing great inconvenience & damages amounting to not less than P100k. NATELCO’s answer prayed for the dismissal of the 1st cause of action since it does not sufficiently state a cause of action, and it’s barred by estoppel & prescription. They claim that they could not have caused the deterioration of CASURECO’s posts since they’ve used them for 11 yrs. Also, their expenses for the 10 free phones lines are far in excess of the amounts claimed by CASURECO. They refused to pay the amount specified in the 2nd cause of action because what is due to them from CASURECO is more than latter’s claim against them. WRT the 3rd cause of action, they claim that the National Telecommunication Corporation (NTC) classified their service as very high & of superior quality. Both companies presented witnesses to support their allegation. Atty. Magay testified supporting NATELCO’s claims. Trial Court: contract has become disadvantageous to CASURECO due to increase in volume of NATELCO’s subscribers. Contract should be reformed to abolish the inequities. NATELCO should pay for the use of


New Civil Code Art. 12671. Although the contract was fair to both parties at the time of its execution (then, NATELCO still had very limited capability), supervening circumstances (NATELCO’s expansion) have made the contract too one-sided in favor of NATELCO to the great disadvantage of CASURECO. Continued enforcement of the contract has gone beyond the contemplation of the latter, thus it should be released therefrom. Equity demands certain economic equilibrium between the prestation the counter-prestation & 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. Contract was subject to a potestative condition w/ rendered the condition void.

Issues & Ratio: 1. WON Art. 1267 is applicable. -YES ⇒ NATELCO claims it’s not since contract in this case doesn’t involve rendition of service/personal prestation and it’s not for future service w/future unusual change. It invokes Occena vs. Jabson. And the article was never raised by CASURECO.

The provision speaks of service (meaning performance of the obligation) w/c has become so difficult. It doesn’t require that the contract be for future service w/future unusual change. Rather, it speaks of unforeseen events or the discredited theory of rebus sic stantibus in public international law wherein parties stipulate in the light of certain prevailing conditions & once these conditions cease to exist the contract also ceases. Equity & good faith demand that when basis of the contract disappears, the prejudiced party has a right to relief. Fact that this provision was not raised by the parties in their pleadings & was never subject of trial is immaterial. Court has discretion to consider an unassigned error that is closely related to an error properly assigned as long as the consideration is necessary in arriving at a just decision. The material allegations of fact in the complaint & not the legal conclusion made or the prayer that determines the relief to w/c the plaintiff is entitled and plaintiff is entitled to as much relief as the facts warrant although that relief is not specifically prayed for. NATELCO was given the opportunity to present its evidence WRT this matter when they were given the chance to


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.

answer the issue of WON the contract has become too one-sided in its favor & too iniquitous, unfair & disadvantageous to CASURECO. 2. ⇒ WON the ruling in Occena is applicable. – NO. Case provides that Art. 1267 doesn’t authorize the courts to remake, modify or revise the contract or to fix the division of shares between the parties as contractually stipulated w/the force of law between the parties. Complaint for the modification of contract was dismissed for failure to state a cause of action. In this case, CASURECO’s complaint & evidence it presented sufficiently made out a cause of action under Art. 1267. Parties are released from their correlative obligations under the contract. But taking into account the possible consequences of merely releasing the parties from the contract, the SC decided to uphold the trial court ruling WRT payment for use of post and the phone lines so as not disrupt the basic & essential services being rendered by both companies and to avoid unjust enrichment by NATELCO at the expense of CASURECO. Cause of action has not yet prescribed since CC Art. 1144 provides that an action upon a written contract must be brought w/in 10yrs from the time the rt of cause of action accrues. In this case, cause of action arose when CASURECO asked its counsel to review the contract w/c was in 1982/83. Case was filed in 1989, thus, 10 yrs has not lapsed. Prestations are not purely potestative. Conditions do not depend solely on the will of either party. CA, in ruling that the term/period (3rd bullet, Facts part) of the contract is potestaive, overlooked the condition that the contract will be terminated when CASURECO will be forced to stop, abandon its operation as a public service & it becomes necessary to remove the electric light post. They are actually casual conditions w/c depend on chance, hazard or will of a 3rd person. The contract is subject to mixed conditions w/c don’t invalidate the contract stipulations.

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Holding: Petition denied. CA decision affirmed.

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