Official Notes of the Butas Party List

A hole Makes Us Whole

Intro to Law Notes Pol Sci Notes by JLA
1
Obligations and Contracts DIGESTS

Republic of the Philippines as plaintiff-appellee v Luzon Stevedoring Corporation as
defendant-appellant

Case of Fortuitous event

Facts: A barge being towed by tugboats "Bangus" and "Barbero" all owned by Luzon
Stevedoring Corp. rammed one of the wooden piles of the Nagtahan Bailey Bridge
due to the swollen current of the Pasig after heavy rains days before. The Republic
sued Luzon Stevedoring for actual and consequential damages. Luzon Stevedoring
claimed it had exercised due diligence in the selection and supervision of its
employees; that the damages to the bridge were caused by force majeure; that
plaintiff has no capacity to sue; and that the Nagtahan bailey bridge is an obstruction
to navigation.


Issue: Whether or not the collision of appellant's barge with the supports or piers of
the Nagtahan bridge was in law caused by fortuitous event or force majeure.


Held: There is a presumption of negligence on part of the employees of Luzon
Stevedoring, as the Nagtahan Bridge is stationary. For caso fortuito or force
majeure (which in law are identical in so far as they exempt an obligor from
liability) by definition, are extraordinary events not foreseeable or avoidable, "events
that could not be foreseen, or which, though foreseen, were inevitable" (Art. 1174,
Civ. Code of the Philippines). It is, therefore, not enough that the event should not
have been foreseen or anticipated, as is commonly believed, but it must be one
impossible to foresee or to avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same. Luzon Stevedoring knew the perils posed by the
swollen stream and its swift current, and voluntarily entered into a situation involving
obvious danger; it therefore assured the risk, and can not shed responsibility merely
because the precautions it adopted turned out to be insufficient. It is thus liable for
damages.


Juntilla v Fontanar : Contract of Carriage
Facts: Herein plaintiff was a passenger of the public utility jeepney on course from
Danao City to Cebu City. The jeepney was driven by driven by defendant Berfol
Camoro and registered under the franchise of Clemente Fontanar. When the jeepney
reached Mandaue City, the right rear tire exploded causing the vehicle to turn turtle.
In the process, the plaintiff who was sitting at the front seat was thrown out of the
vehicle. Plaintiff suffered a lacerated wound on his right palm aside from the injuries
he suffered on his left arm, right thigh, and on his back.

Plaintiff filed a case for breach of contract with damages before the City Court of
Cebu City. Defendants, in their answer, alleged that the tire blow out was beyond
their control, taking into account that the tire that exploded was newly bought and
was only slightly used at the time it blew up.

Issue: Whether or not the tire blow-out is a fortuitous event?

Requirement of Fortuitous event: (1) The cause of the unforeseen and unexpected
occurrence, or of the failure of the debtor to comply with his obligation, must be
independent of the human will. (2) It must be impossible to foresee the event which
constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid.
(3) The occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner. And (4) the obligor (debtor) must be free from any
participation in the aggravation of the injury resulting to the creditor.

WHEREFORE, the decision of the Court of First Instance of Cebu, Branch IV
appealed from is hereby REVERSED and SET ASIDE, and the decision of the City
Court of Cebu, Branch I is REINSTATED, with the modification that the damages
shall earn interest at 12% per annum and the attorney's fees are increased to SIX
HUNDRED PESOS (P600.00). Damages shall earn interests from January 27, 1975

Held: No. In the case at bar, the cause of the unforeseen and unexpected
occurrence was not independent of the human will. The accident was caused either
through the negligence of the driver or because of mechanical defects in the tire.
Common carriers should teach drivers not to overload their vehicles, not to exceed
safe and legal speed limits, and to know the correct measures to take when a tire
blows up thus insuring the safety of passengers at all tines.

Guillermo Austria petitioner v CA & Pacifico & Maria Abad

Maria G. Abad received from Guillermo Austria a pendant with diamonds to be sold
on a commission basis or to be returned on demand. While walking home, the
purse containing the jewelry and cash was snatched by two men. A complaint of the
incident was filed in the Court of First Instance against certain persons. Abad failed to
return the jewelry or pay for its value despite demands made by Austria. Austria
brought an action against the Abad spouses for the recovery of the pendant or of its
value and damages. Abad spouses set up the defense that the alleged robbery had
extinguished their obligation.

ISSUE:
Should the Abad spouse be held liable for the loss of the pendant?

RULING:
No. The Court ruled that the exempting provision of Article 1174 of the Civil Code is
applicable in the case. It is a recognized jurisdiction that to constitute a caso
fortuito that would exempt a person from responsibility, it is necessary that the event
must be independent of the human will or of the obligors will; the occurrence must
render it impossible for the debtor to fulfill the obligation in a normal manner; and that
the obligor must be free of participation in, or aggravation of, the injury to the
creditor. To avail of the exemption granted, it is not necessary that the persons
responsible for the event should be found or punished. It is sufficient that to
unforeseeable event which is the robbery took place without concurrent fault or
negligence on the part of the obligor which can be proven by preponderant evidence.
It was held that the act of Maria Abad in walking home alone carrying the jewelry was
not negligent for at that time the incidence of crimes was not high.


Arrieta v. National Rice and Corn Corporation

Paz Arrieta is a rice dealer/importer. In May 1952, she participated in a public bidding
held by the National Rice and Corn Corporation (NARIC). NARIC was looking for
someone to supply 20,000 metric tons of Burmese Rice. Arrieta was the lowest
bidder at $203.00 per metric ton hence she won the bidding. So a contract was made
whereby Arrieta is to deliver the rice supply and NARIC is to pay for the imported rice
by means of an irrevocable, confirmed and assignable letter of credit in U.S.
currency in favor of the Arrieta and/or supplier in Burma, immediately. Arrieta then
proceeded to contact her supplier in Burma (Thiri Setkya) and arranged the sale of
the 20k metric ton of Burmese Rice, Arrieta promised Setkya that he will be paid by
NARIC on August 4, 1952. Arrieta also made a 5% deposit (P200k) as advance
payment to Setkya.
Meanwhile, NARIC tried to open a letter of credit ion the amount of $3,614,000.00
with the Philippine National Bank. PNB agreed to open the letter of credit but only on
the condition that NARIC deposits 50% of the said amount. NARIC failed to do this
and the letter of credit was not opened when the obligation to pay Setkya became
due. Because of this, Arrieta lost the opportunity to profit from the sale as the
agreement was eventually forfeited. Her 5% depoit was likewise forfeited pursuant to
Burma laws.
ISSUE: Whether or not Arrieta is entitled to damages.
HELD: Yes. It is clear upon the records that the sole and principal reason for the
cancellation of the allocation contracted by Arrieta in Rangoon, Burma, was the
failure of the letter of credit to be opened with the contemplated period. The letter of
credit is in US currency. Normally, parties can stipulate as to which currency shall be
used in paying off an obligation provided that the exchange rate prevailing at the time
of judgment shall prevail over the rate of exchange at the time of the breach. This
rule however is of no application in the case at bar due to the passage of Republic
Act 529 which expressly declares such stipulations as contrary to public policy, void
and of no effect. If there is any agreement to pay an obligation in a currency other
than Philippine legal tender, the same is null and void as contrary to public policy
(Republic Act 529), and the most that could be demanded is to pay said obligation in
Philippine currency to be measured in the prevailing rate of exchange at the time the
obligation was incurred.


Official Notes of the Butas Party List
A hole Makes Us Whole
Intro to Law Notes Pol Sci Notes by JLA
2



NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY,
petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE,
INC.
(CASURECO II), respondents.

Article 1267 which provides:
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.
In the report of the Code Commission, the rationale behind this innovation was
explained, thus:
The general rule is that impossibility of performance releases the obligor. However, it
is submitted that when the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the court should be authorized to release the obligor
in whole or in part. The intention of the parties should govern and if it appears that
the service turns out to be so difficult as to have been beyond their contemplation, it
would be doing violence to that intention to hold their contemplation, it would be
doing violence to that intention to hold the obligor still responsible

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. 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

Said contract also provided:
(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, abandonedits 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 on January 2, 1989 with the Regional Trial
Court of Naga City against petitioners for reformation of the
contract with damages, on the ground that it is too one-sided in
favor of petitioners. As second cause of action, private respondent
alleged that starting with the year 1981, petitioners have used 319
posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines
Sur, all outside Naga City, without any contract with it; that at
the rate of P10.00 per post, petitioners should pay private
respondent for the use thereof the total amount of P267,960.00 from
1981 up to the filing of its complaint; and that petitioners had
refused to pay private respondent said amount despite demands. And
as third cause of action, private respondent 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. Regarding the second cause of action,
petitioners claimed that private respondent had asked for telephone
lines in areas outside Naga City for which its posts were used by
them. And with respect to the third cause of action, petitioners
claimed, that their telephone service had been categorized by the
National Telecommunication Corporation as "very high" and
of "superior quality."

The trial court found, as regards private respondent's first cause
of action, that while the contract appeared to be fair to both
parties when it was entered into by them during the first year of
private respondent's operation and when its Board of Directors did
not yet have any experience in that business, it had become
disadvantageous and unfair to private respondent because of
subsequent events and conditions, particularly the increase in the
volume of the subscribers of petitioners for more than ten (10)
years without the corresponding increase in the number of telephone
connections to private respondent free of charge. The trial court
concluded 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. As regards the second cause of
action, the trial court held that for reason of equity, the contract
should be reformed by including therein the provision that for the
use of private respondent's posts outside Naga City, petitioners
should pay a monthly rental of P10.00 per post, the payment to start
on the date this case was filed, or on January 2, 1989, and private
respondent should also pay petitioners the monthly dues on its
telephone connections located outside Naga City beginning January,
1989. And with respect to private respondent's third cause of
action, the trial court found the claim not sufficiently proved.

Petitioners appealed to respondent Court of Appeals. In the decision
dated May 28, 1992, respondent court affirmed the decision of the
trial court, but based on different grounds to wit: (1) that Article
1267 of the New Civil Code is applicable and (2) that the contract
was subject to a potestative condition which rendered said condition
void.


ISSUE:
Whether or not the contract was subject to a potestative condition
which rendered said contract void

RULING:
The Supreme Court ruled that the provision in the agreement is
invalid for being purely potestative on the part of appellant as it
leaves the continued effectivity of the aforesaid agreement to the
latter's sole and exclusive will as long as plaintiff is in
operation. A similar provision in a contract of lease wherein the
parties agreed that the lessee could stay on the leased
premises "for as long as the defendant needed the premises and can
meet and pay said increases" was recently held by the Supreme Court
in Lim v. C.A., 191 SCRA 150, citing the much earlier case of
Encarnacion v. Baldomar, 77 Phil. 470, as invalid for being "a
purely potestative condition because it leaves the effectivity and
enjoyment of leasehold rights to the sole and exclusive will of the
lessee." Further held the High Court in the Lim case:

The continuance, effectivity and fulfillment of a contract of lease
cannot be made to depend exclusively upon the free and uncontrolled
choice of the lessee between continuing the payment of the rentals
or not, completely depriving the owner of any say in the matter.
Mutuality does not obtain in such a contract of lease of no equality
exists between the lessor and the lessee since the life of the
contract is dictated solely by the lessee.

The above can also be said of the agreement between the parties in
this case. There is no mutuality and equality between them under the
afore-quoted provision thereof since the life and continuity of said
agreement is made to depend as long as appellant needs plaintiff's

Official Notes of the Butas Party List
A hole Makes Us Whole
Intro to Law Notes Pol Sci Notes by JLA
3
electric posts. And this is precisely why, since 1977 when said
agreement was executed and up to 1989 when this case was finally
filed by plaintiff, it could do nothing to be released from or
terminate said agreement notwithstanding that its continued
effectivity has become very disadvantageous and inequitous to it due
to the expansion and increase of appellant's telephone services
within Naga City and even outside the same, without a corresponding
increase in the ten (10) telephone units being used by plaintiff
free of charge, as well as the bad and inefficient service of said
telephones to the prejudice and inconvenience of plaintiff and its
customers. . . .

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, is a potestative
condition, 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 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 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