NAGA TELEPHONE CO., INC.
(NATELCO) & Luciano Maggay, petitioners, should pay the monthly bills for the use of former’s phone lines in Naga.
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.
 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 3 rd 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 CASURECO’s posts at P10.00/post while the latter
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:
1. 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.
2. 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 answer the issue of WON the contract has become too one-
sided in its favor & too iniquitous, unfair & disadvantageous to CASURECO.
1
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.
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.

3. 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.

4. 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.

Holding: Petition denied. CA decision affirmed.