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G.R.No.107112

TodayisSaturday,July11,2015

RepublicofthePhilippines
SUPREMECOURT
Manila
SECONDDIVISION

G.R.No.107112February24,1994
NAGATELEPHONECO.,INC.(NATELCO)ANDLUCIANOM.MAGGAY,petitioners,
vs.
THECOURTOFAPPEALSANDCAMARINESSURIIELECTRICCOOPERATIVE,INC.(CASURECOII),
respondents.
ErnestoP.Pangalanganforpetitioners.
LuisGeneral,Jr.forprivaterespondent.

NOCON,J.:
ThecaseofReyesv.Caltex(Philippines),Inc.1 enunciated the doctrine that where a person by his contract charges
himself with an obligation possible to be performed, he must perform it, unless its performance is rendered impossible by
the act of God, by the law, or by the other party, it being the rule that in case the party desires to be excused from
performanceintheeventofcontingenciesarisingthereto,itishisdutytoprovidethebasisthereforinhiscontract.

With the enactment of the New Civil Code, a new provision was included therein, namely, Article 1267 which
provides:
When the service has become so difficult as to be manifestly beyond the contemplation of the
parties,theobligormayalsobereleasedtherefrom,inwholeorinpart.
InthereportoftheCodeCommission,therationalebehindthisinnovationwasexplained,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,thecourtshouldbeauthorizedtoreleasetheobligorinwholeorinpart.Theintentionofthe
parties should govern and if it appears that the service turns out to be so difficult as to have been
beyondtheircontemplation,itwouldbedoingviolencetothatintentiontoholdtheircontemplation,it
wouldbedoingviolencetothatintentiontoholdtheobligorstillresponsible.2
Inotherwords,fairandsquareconsiderationunderscoresthelegalprecepttherein.
NagaTelephoneCo.,Inc.remonstratesmainlyagainsttheapplicationbytheCourtofAppealsofArticle1267in
favorofCamarinesSurIIElectricCooperative,Inc.inthecasebeforeus.Stateddifferently,theformerinsiststhat
thecomplaintshouldhavebeendismissedforfailuretostateacauseofaction.
Theantecedentfacts,asnarratedbyrespondentCourtofAppealsare,asfollows:
PetitionerNagaTelephoneCo.,Inc.(NATELCO)isatelephonecompanyrenderinglocalaswellaslongdistance
telephoneserviceinNagaCitywhileprivaterespondentCamarinesSurIIElectricCooperative,Inc.(CASURECO
II)isaprivatecorporationestablishedforthepurposeofoperatinganelectricpowerserviceinthesamecity.
OnNovember1,1977,thepartiesenteredintoacontract(Exh."A")fortheusebypetitionersintheoperationof
its telephone service the electric light posts of private respondent in Naga City. In consideration therefor,
petitionersagreedtoinstall,freeofcharge,ten(10)telephoneconnectionsfortheusebyprivaterespondentin
thefollowingplaces:
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(a)3unitsTheMainOfficeof(privaterespondent)
(b)2UnitsTheWarehouseof(privaterespondent)
(c)1UnitTheSubStationof(privaterespondent)atConcepcionPequea
(d)1UnitTheResidenceof(privaterespondent's)President
(e)1UnitTheResidenceof(privaterespondent's)ActingGeneralManager&
(f)2UnitsTobedeterminedbytheGeneralManager.3
Saidcontractalsoprovided:
(a)Thatthetermorperiodofthiscontractshallbeaslongasthepartyofthefirstparthasneedfor
the electric light posts of the party of the second part it being understood that this contract shall
terminatewhenforanyreasonwhatsoever,thepartyofthesecondpartisforcedtostop,abandoned
[sic]itsoperationasapublicserviceanditbecomesnecessarytoremovetheelectriclightpost(sic)
4

Itwaspreparedbyorwiththeassistanceoftheotherpetitioner,Atty.LucianoM.Maggay,thenamemberofthe
BoardofDirectorsofprivaterespondentandatthesametimethelegalcounselofpetitioner.
Afterthecontracthadbeenenforcedforoverten(10)years,privaterespondentfiledonJanuary2,1989withthe
RegionalTrialCourtofNagaCity(Br.28)C.C.No.891642againstpetitionersforreformationofthecontractwith
damages, on the ground that it is too onesided in favor of petitioners that it is not in conformity with the
guidelinesoftheNationalElectrificationAdministration(NEA)whichdirectthatthereasonablecompensationfor
theuseofthepostsisP10.00perpost,permonththataftereleven(11)yearsofpetitioners'useoftheposts,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
thatthecontractbereformedtoabolishtheinequitiesthereon.
Assecondcauseofaction,privaterespondentallegedthatstartingwiththeyear1981,petitionershaveused319
posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside Naga City, without any
contractwithitthatattherateofP10.00perpost,petitionersshouldpayprivaterespondentfortheusethereof
thetotalamountofP267,960.00from1981uptothefilingofitscomplaintandthatpetitionershadrefusedtopay
privaterespondentsaidamountdespitedemands.
Andasthirdcauseofaction,privaterespondentcomplainedaboutthepoorservicingbypetitionersoftheten(10)
telephoneunitswhichhadcauseditgreatinconvenienceanddamagestothetuneofnotlessthanP100,000.00
Inpetitioners'answertothefirstcauseofaction,theyaverredthatitshouldbedismissedbecause(1)itdoesnot
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
utilizationofprivaterespondent'spostscouldnothavecausedtheirdeteriorationbecausetheyhavealreadybeen
inuseforeleven(11)yearsandthatthevalueoftheirexpensesfortheten(10)telephonelineslongenjoyedby
privaterespondentfreeofchargearefarinexcessoftheamountsclaimedbythelatterfortheuseoftheposts,
sothatiftherewasanyinequity,itwassufferedbythem.
Regardingthesecondcauseofaction,petitionersclaimedthatprivaterespondenthadaskedfortelephonelines
inareasoutsideNagaCityforwhichitspostswereusedbythemandthatifpetitionershadrefusedtocomply
with private respondent's demands for payment for the use of the posts outside Naga City, it was probably
becausewhatisduetothemfromprivaterespondentismorethanitsclaimagainstthem.
Andwithrespecttothethirdcauseofaction,petitionersclaimed,interalia,thattheirtelephoneservicehadbeen
categorizedbytheNationalTelecommunicationCorporation(NTC)as"veryhigh"andof"superiorquality."
Duringthetrial,privaterespondentpresentedthefollowingwitnesses:
(1)DioscoroRagragio,oneofthetwoofficialswhosignedthecontractinitsbehalf,declaredthatitwaspetitioner
Maggaywhopreparedthecontractthattheunderstandingbetweenprivaterespondentandpetitionerswasthat
thelatterwouldonlyusethepostsinNagaCitybecauseatthattime,petitioners'capabilitywasverylimitedand
they had no expectation of expansion because of legal squabbles within the company that private respondent
agreedtoallowpetitionerstouseitspostsinNagaCitybecausethereweremanysubscribersthereinwhocould
not be served by them because of lack of facilities and that while the telephone lines strung to the posts were
verylightin1977,saidpostshavebecomeheavilyloadedin1989.
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(2)Engr.AntonioBorja,Chiefofprivaterespondent'sLineOperationandMaintenanceDepartment,declaredthat
the posts being used by petitioners totalled 1,403 as of April 17, 1989, 192 of which were in the towns of Pili,
Canaman,andMagarao,alloutsideNagaCity(Exhs."B"and"B1")thatpetitioners'cablesstrungtothepostsin
1989aremuchbiggerthanthoseinNovember,1977thatin1987,almost100postsweredestroyedbytyphoon
Sisang: around 20 posts were located between Naga City and the town of Pili while the posts in barangay
Concepcion,NagaCitywerebrokenatthemiddlewhichhadbeenboredbypetitioner'slinementoenablethemto
stringbiggertelephonelinesthatwhilethecostperpostin1977wasonlyfromP700.00toP1,000.00,theircosts
in 1989 went up from P1,500.00 to P2,000.00, depending on the size that some lines that were strung to the
posts did not follow the minimum vertical clearance required by the National Building Code, so that there were
cases in 1988 where, because of the low clearance of the cables, passing trucks would accidentally touch said
cablescausingthepoststofallandresultinginbrownoutsuntiltheelectriclineswererepaired.
(3) Dario Bernardez, Project Supervisor and Acting General Manager of private respondent and Manager of
RegionVofNEA,declaredthataccordingtoNEAguidelinesin1985(Exh."C"),fortheusebyprivatetelephone
systems of electric cooperatives' posts, they should pay a minimum monthly rental of P4.00 per post, and
consideringtheescalationofpricessince1985,electriccooperativeshavebeenchargingfromP10.00toP15.00
perpost,whichiswhatpetitionersshouldpayfortheuseoftheposts.
(4)EngineerAntonioMacandog,DepartmentHeadoftheOfficeofServicesofprivaterespondent,testifiedonthe
poor service rendered by petitioner's telephone lines, like the telephone in their Complaints Section which was
usuallyoutofordersuchthattheycouldnotrespondtothecallsoftheircustomers.Incaseofdisruptionoftheir
telephone lines, it would take two to three hours for petitioners to reactivate them notwithstanding their calls on
theemergencyline.
(5)Finally,Atty.LuisGeneral,Jr.,privaterespondent'scounsel,testifiedthattheBoardofDirectorsaskedhimto
studythecontractsometimeduringthelatterpartof1982orin1983,asithadappearedverydisadvantageousto
privaterespondent.Notwithstandinghisrecommendationforthefilingofacourtactiontoreformthecontract,the
formergeneralmanagersofprivaterespondentwantedtoadoptasoftapproachwithpetitionersaboutthematter
untilthetermofGeneralManagerHenryPascualwho,afterfailingtosettlethematteramicablywithpetitioners,
finallyagreedforhimtofilethepresentactionforreformationofcontract.
Ontheotherhand,petitionerMaggaytestifiedtothefollowingeffect:
(1) It is true that he was a member of the Board of Directors of private respondent and at the same time the
lawyer of petitioner when the contract was executed, but Atty. Gaudioso Tena, who was also a member of the
BoardofDirectorsofprivaterespondent,wastheonewhosawtoitthatthecontractwasfairtobothparties.
(2)Withregardtothefirstcauseofaction:
(a)Privaterespondenthastherightunderthecontracttouseten(10)telephoneunitsofpetitionersforaslongas
itwisheswithoutpayinganythingthereforexceptforlongdistancecallsthroughPLDToutofwhichthelatterget
only10%ofthecharges.
(b) In most cases, only drop wires and not telephone cables have been strung to the posts, which posts have
remainederectuptothepresent
(c)Petitioner'slinemenhavestrungonlysmallmessengerwirestomanyofthepostsandtheyneedonlysmall
holestopassthroughand
(d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga City are according to
standardandcomparabletothoseofPLDT.Theaccidentsmentionedbyprivaterespondentinvolvedtrucksthat
wereeitheroverloadedorhadloadsthatprotrudedupwards,causingthemtohitthecables.
(3)Concerningthesecondcauseofaction,theintentionofthepartieswhentheyenteredintothecontractwas
thatthecoveragethereofwouldincludethewholeareaservicedbypetitionersbecauseatthattime,theyalready
had subscribers outside Naga City. Private respondent, in fact, had asked for telephone connections outside
NagaCityforitsofficersandemployeesresidingthereinadditiontotheten(10)telephoneunitsmentionedinthe
contract.Petitionershavenotbeenchargingprivaterespondentfortheinstallation,transfersandreconnections
ofsaidtelephonessothatnaturally,theyusethepostsforthosetelephonelines.
(4)Withrespecttothethirdcauseofaction,theNTChasfoundpetitioners'cableinstallationstobeinaccordance
withengineeringstandardsandpracticeandcomparabletothebestinthecountry.
On the basis of the foregoing countervailing evidence of the parties, the trial court found, as regards private
respondent'sfirstcauseofaction,thatwhilethecontractappearedtobefairtobothpartieswhenitwasentered
into by them during the first year of private respondent's operation and when its Board of Directors did not yet
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haveanyexperienceinthatbusiness,ithadbecomedisadvantageousandunfairtoprivaterespondentbecause
ofsubsequenteventsandconditions,particularlytheincreaseinthevolumeofthesubscribersofpetitionersfor
morethanten(10)yearswithoutthecorrespondingincreaseinthenumberoftelephoneconnectionstoprivate
respondentfreeofcharge.Thetrialcourtconcludedthatwhileinanactionforreformationofcontract,itcannot
makeanothercontractfortheparties,itcan,however,forreasonsofjusticeandequity,orderthatthecontractbe
reformedtoabolishtheinequitiestherein.Thus,saidcourtruledthatthecontractshouldbereformedbyordering
petitioners to pay private respondent compensation for the use of their posts in Naga City, while private
respondentshouldalsobeorderedtopaythemonthlybillsfortheuseofthetelephonesalsoinNagaCity.And
taking into consideration the guidelines of the NEA on the rental of posts by telephone companies and the
increaseinthecostsofsuchposts,thetrialcourtopinedthatamonthlyrentalofP10.00foreachpostofprivate
respondent used by petitioners is reasonable, which rental it should pay from the filing of the complaint in this
caseonJanuary2,1989.Andinlikemanner,privaterespondentshouldpaypetitionersfromthesamedateits
monthlybillsfortheuseandtransfersofitstelephonesinNagaCityatthesameratethatthepublicarepaying.
Onprivaterespondent'ssecondcauseofaction,thetrialcourtfoundthatthecontractdoesnotmentionanything
abouttheusebypetitionersofprivaterespondent'spostsoutsideNagaCity.Therefore,thetrialcourtheldthat
forreasonofequity,thecontractshouldbereformedbyincludingthereintheprovisionthatfortheuseofprivate
respondent'spostsoutsideNagaCity,petitionersshouldpayamonthlyrentalofP10.00perpost,thepaymentto
startonthedatethiscasewasfiled,oronJanuary2,1989,andprivaterespondentshouldalsopaypetitioners
themonthlyduesonitstelephoneconnectionslocatedoutsideNagaCitybeginningJanuary,1989.
And with respect to private respondent's third cause of action, the trial court found the claim not sufficiently
proved.
Thus,thefollowingdecretalportionofthetrialcourt'sdecisiondatedJuly20,1990:
WHEREFORE, in view of all the foregoing, decision is hereby rendered ordering the reformation of
theagreement(Exh.A)orderingthedefendantstopayplaintiff'selectricpolesinNagaCityandin
the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places where
defendant NATELCO uses plaintiff's electric poles, the sum of TEN (P10.00) PESOS per plaintiff's
pole,permonthbeginningJanuary,1989andorderingalsotheplaintifftopaydefendantNATELCO
themonthlyduesofallitstelephonesincludingthoseinstalledattheresidenceofitsofficers,namely
Engr.JoventinoCruz,Engr.AntonioBorja,Engr.AntonioMacandog,Mr.JesusOpianaandAtty.Luis
General, Jr. beginning January, 1989. Plaintiff's claim for attorney's fees and expenses of litigation
and defendants' counterclaim are both hereby ordered dismissed. Without pronouncement as to
costs.
Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of Appeals. In the decision
datedMay28,1992,respondentcourtaffirmedthedecisionofthetrialcourt,5butbasedondifferentgroundstowit:
(1) that Article 1267 of the New Civil Code is applicable and (2) that the contract was subject to a potestative condition
whichrenderedsaidconditionvoid.ThemotionforreconsiderationwasdeniedintheresolutiondatedSeptember10,1992.6
Hence,thepresentpetition.

Petitionersassignthefollowingpertinenterrorscommittedbyrespondentcourt:
1)inmakingacontractforthepartiesbyinvokingArticle1267oftheNewCivilCode
2)inrulingthatprescriptionoftheactionforreformationofthecontractinthiscasecommencedfrom
thetimeitbecamedisadvantageoustoprivaterespondentand
3)inrulingthatthecontractwassubjecttoapotestativeconditioninfavorofpetitioners.
PetitionersassertearnestlythatArticle1267oftheNewCivilCodeisnotapplicableprimarilybecausethecontract
doesnotinvolvetherenditionofserviceorapersonalprestationanditisnotforfutureservicewithfutureunusual
change.Instead,therulinginthecaseofOccea,etal.v.Jabson,etc.,etal.,7whichinterpretedthearticle,should
befollowedinresolvingthiscase.Besides,saidarticlewasneverraisedbythepartiesintheirpleadingsandwasneverthe
subjectoftrialandevidence.

InapplyingArticle1267,respondentcourtrationalized:
We agree with appellant that in order that an action for reformation of contract would lie and may
prosper, there must be sufficient allegations as well as proof that the contract in question failed to
express the true intention of the parties due to error or mistake, accident, or fraud. Indeed, in
embodying the equitable remedy of reformation of instruments in the New Civil Code, the Code
Commissiongaveitsreasonsasfollows:
Equity dictates the reformation of an instrument in order that the true intention of the
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contractingpartiesmaybeexpressed.Thecourtsbythereformationdonotattemptto
make a new contract for the parties, but to make the instrument express their real
agreement. The rationale of the doctrine is that it would be unjust and inequitable to
allowtheenforcementofawritteninstrumentwhichdoesnotreflectordisclosethereal
meeting of the minds of the parties. The rigor of the legalistic rule that a written
instrument should be the final and inflexible criterion and measure of the rights and
obligationsofthecontractingpartiesisthustemperedtoforestalltheeffectsofmistake,
fraud,inequitableconduct,oraccident.(pp.5556,ReportofCodeCommission)
Thus,Articles1359,1361,1362,1363and1364oftheNewCivilCodeprovideinessencethatwhere
throughmistakeoraccidentonthepartofeitherorbothofthepartiesormistakeorfraudonthepart
oftheclerkortypistwhopreparedtheinstrument,thetrueintentionofthepartiesisnotexpressed
therein, then the instrument may be reformed at the instance of either party if there was mutual
mistakeontheirpart,orbytheinjuredpartyifonlyhewasmistaken.
Here,plaintiffappelleedidnotallegeinitscomplaint,nordoesitsevidenceprove,thattherewasa
mistake on its part or mutual mistake on the part of both parties when they entered into the
agreement Exh. "A", and that because of this mistake, said agreement failed to express their true
intention. Rather, plaintiff's evidence shows that said agreement was prepared by Atty. Luciano
Maggay,thenamemberofplaintiff'sBoardofDirectorsanditslegalcounselatthattime,whowas
also the legal counsel for defendantappellant, so that as legal counsel for both companies and
presumablywiththeinterestsofbothcompaniesinmindwhenhepreparedtheaforesaidagreement,
Atty.Maggaymusthaveconsideredthesamefairandequitabletobothsides,andthiswasaffirmed
by the lower court when it found said contract to have been fair to both parties at the time of its
execution. In fact, there were no complaints on the part of both sides at the time of and after the
execution of said contract, and according to 73year old Justino de Jesus, Vice President and
GeneralmanagerofappellantatthetimewhosignedtheagreementExh."A"initsbehalfandwho
wasoneofthewitnessesfortheplaintiff(sic),bothpartiescompliedwithsaidcontract"fromthevery
beginning"(p.5,tsn,April17,1989).
Thattheaforesaidcontracthasbecomeinequitousorunfavorableordisadvantageoustotheplaintiff
withtheexpansionofthebusinessofappellantandtheincreaseinthevolumeofitssubscribersin
NagaCityandenvironsthroughtheyears,necessitatingthestringingofmoreandbiggertelephone
cablewiresbyappellanttoplaintiff'selectricpostswithoutacorrespondingincreaseintheten(10)
telephone connections given by appellant to plaintiff free of charge in the agreement Exh. "A" as
considerationforitsuseofthelatter'selectricpostsinNagaCity,appear,however,undisputedfrom
thetotalityoftheevidenceonrecordandthelowercourtsofound.Anditwasforthisreasonthatin
thelater(sic)partof1982or1983(orfiveorsixyearsafterthesubjectagreementwasenteredinto
bytheparties),plaintiff'sBoardofDirectorsalreadyaskedAtty.LuisGeneralwhohadbecometheir
legalcounselin1982,tostudysaidagreementwhichtheybelievedhadbecomedisadvantageousto
their company and to make the proper recommendation, which study Atty. General did, and
thereafter,healreadyrecommendedtotheBoardthefilingofacourtactiontoreformsaidcontract,
butnoactionwastakenonAtty.General'srecommendationbecausetheformergeneralmanagers
ofplaintiffwantedtoadoptasoftapproachindiscussingthematterwithappellant,until,duringthe
term of General Manager Henry Pascual, the latter, after failing to settle the problem with Atty.
LucianoMaggaywhohadbecomethepresidentandgeneralmanagerofappellant,alreadyagreed
forAtty.General'sfilingofthepresentaction.Thefactthatsaidcontracthasbecomeinequitousor
disadvantageoustoplaintiffastheyearswentbydidnot,however,giveplaintiffacauseofactionfor
reformationofsaidcontract,forthereasonsalreadypointedoutearlier.Butthisdoesnotmeanthat
plaintiffiscompletelywithoutaremedy,forwebelievethattheallegationsofitscomplainthereinand
theevidenceithaspresentedsufficientlymakeoutacauseofactionunderArt.1267oftheNewCivil
Codeforitsreleasefromtheagreementinquestion.
xxxxxxxxx
The understanding of the parties when they entered into the Agreement Exh. "A" on November 1,
1977 and the prevailing circumstances and conditions at the time, were described by Dioscoro
Ragragio,thePresidentofplaintiffin1977andoneofitstwoofficialswhosignedsaidagreementin
itsbehalf,asfollows:
Our understanding at that time is that we will allow NATELCO to utilize the posts of
CASURECOIIonlyintheCityofNagabecauseatthattimethecapabilityofNATELCO
wasverylimited,asamatteroffactwedo[sic]notexpecttobeabletoexpandbecause
of the legal squabbles going on in the NATELCO. So, even at that time there were so
manysubscribersinNagaCitythatcannotbeservedbytheNATELCO,soasamaterof
publicserviceweallowedthemtosue(sic)ourpostswithintheNagaCity.(p.8,tsnApril
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3,1989)
Ragragio also declared that while the telephone wires strung to the electric posts of plaintiff were
verylightandthatveryfewtelephonelineswereattachedtothepostsofCASURECOIIin1977,said
postshavebecome"heavilyloaded"in1989(tsn,id.).
Intruth,asalsocorrectlyfoundbythelowercourt,despitetheincreaseinthevolumeofappellant's
subscribers and the corresponding increase in the telephone cables and wires strung by it to
plaintiff'selectricpostsinNagaCityforthemore10yearsthattheagreementExh."A"oftheparties
has been in effect, there has been no corresponding increase in the ten (10) telephone units
connected by appellant free of charge to plaintiff's offices and other places chosen by plaintiff's
generalmanagerwhichwastheonlyconsiderationprovidedforinsaidagreementforappellant'suse
ofplaintiffselectricposts.Notonlythat,appellantevenstartedusingplaintiff'selectricpostsoutside
NagaCityalthoughthiswasnotprovidedforintheagreementExh."A"asitextendedandexpanded
its telephone services to towns outside said city. Hence, while very few of plaintiff's electric posts
werebeingusedbyappellantin1977andtheywereallintheCityofNaga,thenumberofplaintiff's
electricpoststhatappellantwasusingin1989hadjumpedto1,403,192ofwhichareoutsideNaga
City(Exh."B").Addtothisthedestructionofsomeofplaintiff'spolesduringtyphoonslikethestrong
typhoonSisangin1987becauseoftheheavytelephonecablesattachedthereto,andtheescalation
of the costs of electric poles from 1977 to 1989, and the conclusion is indeed ineluctable that the
agreement Exh. "A" has already become too onesided in favor of appellant to the great
disadvantageofplaintiff,inshort,thecontinuedenforcementofsaidcontracthasmanifestlygonefar
beyondthecontemplationofplaintiff,somuchsothatitshouldnowbereleasedtherefromunderArt.
1267 of the New Civil Code to avoid appellant's unjust enrichment at its (plaintiff's) expense. As
stated by Tolentino in his commentaries on the Civil Code citing foreign civilist Ruggiero, "equity
demands a certain economic equilibrium between the prestation and the counterprestation, and
does not permit the unlimited impoverishment of one party for the benefit of the other by the
excessiverigidityoftheprincipleoftheobligatoryforceofcontracts(IVTolentino,CivilCodeofthe
Philippines,1986ed.,
pp.247248).
Wetherefore,findnothingwrongwiththerulingofthetrialcourt,althoughbasedonadifferentand
wrong premise (i.e., reformation of contract), that from the date of the filing of this case, appellant
must pay for the use of plaintiff's electric posts in Naga City at the reasonable monthly rental of
P10.00 per post, while plaintiff should pay appellant for the telephones in the same City that it was
formerlyusingfreeofchargeunderthetermsoftheagreementExh."A"atthesameratebeingpaid
by the general public. In affirming said ruling, we are not making a new contract for the parties
herein,butwefinditnecessarytodosoinordernottodisruptthebasicandessentialservicesbeing
rendered by both parties herein to the public and to avoid unjust enrichment by appellant at the
expense of plaintiff, said arrangement to continue only until such time as said parties can re
negotiateanotheragreementoverthesame
subjectmatter covered by the agreement Exh. "A". Once said agreement is reached and executed
bytheparties,theaforesaidrulingofthelowercourtandaffirmedbyusshallceasetoexistandshall
besubstitutedandsupersededbytheirnewagreement.....8
Article1267speaksof"service"whichhasbecomesodifficult.Takingintoconsiderationtherationalebehindthis
provision,9theterm"service"shouldbeunderstoodasreferringtothe"performance"oftheobligation.Inthepresentcase,
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
statesinourlawthedoctrineofunforseenevents.Thisissaidtobebasedonthediscreditedtheoryofrebussicstantibus
inpublicinternationallawunderthistheory,thepartiesstipulateinthelightofcertainprevailingconditions,andoncethese
conditions cease to exist the contract also ceases to exist. Considering practical needs and the demands of equity and
goodfaith,thedisappearanceofthebasisofacontractgivesrisetoarighttoreliefinfavorofthepartyprejudiced.

In a nutshell, private respondent in the Occea case filed a complaint against petitioner before the trial court
praying for modification of the terms and conditions of the contract that they entered into by fixing the proper
sharesthatshouldpertaintothemoutofthegrossproceedsfromthesalesofsubdividedlots.Weorderedthe
dismissalofthecomplaintthereinforfailuretostateasufficientcauseofaction.WerationalizedthattheCourtof
AppealsmisappliedArticle1267because:
...respondent'scomplaintseeksnotreleasefromthesubdivisioncontractbutthatthecourt"render
judgment modifying the terms and conditions of the contract . . . by fixing the proper shares that
shouldpertain to the herein parties out of the gross proceeds from the sales of subdivided lots of
subject subdivision". The cited article (Article 1267) does not grant the courts (the) authority to
remake, modify or revise the contract or to fix the division of shares between the parties as
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contractuallystipulatedwiththeforceoflawbetweentheparties,soastosubstituteitsowntermsfor
those covenanted by the parties themselves. Respondent's complaint for modification of contract
manifestly has no basis in law and therefore states no cause of action. Under the particular
allegationsofrespondent'scomplaintandthecircumstancesthereinaverred,thecourtscannoteven
inequitygrantthereliefsought.11
TherulingintheOcceacaseisnotapplicablebecauseweagreewithrespondentcourtthattheallegationsin
privaterespondent'scomplaintandtheevidenceithaspresentedsufficientlymadeoutacauseofactionunder
Article1267.We,therefore,releasethepartiesfromtheircorrelativeobligationsunderthecontract.However,our
disposition of the present controversy does not end here. We have to take into account the possible
consequencesofmerelyreleasingthepartiestherefrom:petitionerswillremovethetelephonewires/cablesinthe
posts of private respondent, resulting in disruption of their service to the public while private respondent, in
consonance with the contract12 will return all the telephone units to petitioners, causing prejudice to its business. We
shallnotallowsucheventuality.Rather,werequire,asorderedbythetrialcourt:1)petitionerstopayprivaterespondentfor
theuseofitspostsinNagaCityandinthetownsofMilaor,Canaman,MagaraoandPili,CamarinesSurandinotherplaces
where petitioners use private respondent's posts, the sum of ten (P10.00) pesos per post, per month, beginning January,
1989and2)privaterespondenttopaypetitionerthemonthlyduesofallitstelephonesatthesameratebeingpaidbythe
publicbeginningJanuary,1989.Thepeculiarcircumstancesofthepresentcase,asdistinguishedfurtherfromtheOccea
case,necessitatesexerciseofourequityjurisdiction.13Bywayofemphasis,wereiteratetherationalizationofrespondent
courtthat:

. . . In affirming said ruling, we are not making a new contract for the parties herein, but we find it
necessary to do so in order not to disrupt the basic and essential services being rendered by both
partieshereintothepublicandtoavoidunjustenrichmentbyappellantattheexpenseofplaintiff...
.14
Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings and was never the
subjectoftrialandevidencehasbeenpasseduponbyrespondentcourtinitswellreasonedresolution,whichwe
hereunderquoteasourown:
First, we do not agree with defendantappellant that in applying Art. 1267 of the New Civil Code to
thiscase,wehavechangeditstheoryanddecidedthesameonanissuenotinvokedbyplaintiffin
the lower court. For basically, the main and pivotal issue in this case is whether the continued
enforcement of the contract Exh. "A" between the parties has, through the years (since 1977),
become too inequitous or disadvantageous to the plaintiff and too onesided in favor of defendant
appellant, so that a solution must be found to relieve plaintiff from the continued operation of said
agreement and to prevent defendantappellant from further unjustly enriching itself at plaintiff's
expense. It is indeed unfortunate that defendant had turned deaf ears to plaintiffs requests for
renegotiation, constraining the latter to go to court. But although plaintiff cannot, as we have held,
correctly invoke reformation of contract as a proper remedy (there having been no showing of a
mistake or error in said contract on the part of any of the parties so as to result in its failure to
expresstheirtrueintent),thisdoesnotmeanthatplaintiffisabsolutelywithoutaremedyinorderto
relieve itself from a contract that has gone far beyond its contemplation and has become so highly
inequitous and disadvantageous to it through the years because of the expansion of defendant
appellant's business and the increase in the volume of its subscribers. And as it is the duty of the
Courttoadministerjustice,itmustdosointhiscaseinthebestwayandmanneritcaninthelightof
theprovenfactsandthelaworlawsapplicablethereto.
It is settled that when the trial court decides a case in favor of a party on a certain ground, the
appellant court may uphold the decision below upon some other point which was ignored or
erroneouslydecidedbythetrialcourt(GarciaValdezv.Tuazon,40Phil.943Relativov.Castro,76
Phil.563Carillov.SalakdePaz,18SCRA467).Furthermore,theappellatecourthasthediscretion
toconsideranunassignederrorthatiscloselyrelatedtoanerrorproperlyassigned(Paternov.Jao
Yan,1SCRA631Hernandezv.Andal,78Phil.196).IthasalsobeenheldthattheSupremeCourt
(andthisCourtaswell)hastheauthoritytoreviewmatters,eveniftheyarenotassignedaserrorsin
theappeal,ifitisfoundthattheirconsiderationisnecessaryinarrivingatajustdecisionofthecase
(SauraImport&ExportCo.,Inc.v.Phil.InternationalSuretyCo.andPNB,8SCRA143).Foritisthe
materialallegationsoffactinthecomplaint,notthelegalconclusionmadethereinortheprayer,that
determinestherelieftowhichtheplaintiffisentitled,andtheplaintiffisentitledtoasmuchreliefas
thefactswarrantalthoughthatreliefisnotspecificallyprayedforinthecomplaint(Rosalesv.Reyes
and Ordoveza, 25 Phil. 495 Cabigao v. Lim, 50 Phil. 844 Baguioro v. Barrios, 77 Phil. 120). To
quoteanoldbutveryilluminatingdecisionofourSupremeCourtthroughthepenofAmericanjurist
AdamC.Carson:
"Underoursystemofpleadingitisthedutyofthecourtstogranttherelieftowhichthe
partiesareshowntobeentitledbytheallegationsintheirpleadingsandthefactsproven
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at the trial, and the mere fact that they themselves misconstrue the legal effect of the
factsthusallegedandprovenwillnotpreventthecourtfromplacingthejustconstruction
thereonandadjudicatingtheissuesaccordingly."(Alzuav.Johnson,21Phil.308)
AndinthefairlyrecentcaseofCaltexPhil.,Inc.vIAC,176SCRA741,theHonorableSupremeCourt
alsoheld:
Werulethattherespondentcourtdidnotcommitanyerrorintakingcognizanceofthe
aforesaid issues, although not raised before the trial court. The presence of strong
consideration of substantial justice has led this Court to relax the wellentrenched rule
that,exceptquestionsonjurisdiction,noquestionwillbeentertainedonappealunlessit
hasbeenraisedinthecourtbelowanditiswithintheissuesmadebythepartiesintheir
pleadings(Corderov.Cabral,L36789,July25,1983,123SCRA532)....
WebelievethattheaboveauthoritiessufficetoshowthatthisCourtdidnoterrinapplyingArt.1267
of the New Civil Code to this case. Defendantappellant stresses that the applicability of said
provisionisaquestionoffact,andthatitshouldhavebeengiventheopportunitytopresentevidence
onsaidquestion.Butdefendantappellantcannothonestlyandtruthfullyclaimthatit(did)not(have)
theopportunitytopresentevidenceontheissueofwhetherthecontinuedoperationofthecontract
Exh."A"hasnowbecometooonesidedinitsfavorandtooinequitous,unfair,anddisadvantageous
toplaintiff.Asheldinourdecision,theabundantandcopiousevidencepresentedbybothpartiesin
thiscaseandsummarizedinsaiddecisionestablishedthefollowingessentialandvitalfactswhichled
ustoapplyArt.1267oftheNewCivilCodetothiscase:
xxxxxxxxx15
On the issue of prescription of private respondent's action for reformation of contract, petitioners allege that
respondent court's ruling that the right of action "arose only after said contract had already become
disadvantageousandunfairtoitduetosubsequenteventsandconditions,whichmustbesometimeduringthe
latterpartof1982orin1983..."16iserroneous.Inreformationofcontracts,whatisreformedisnotthecontractitself,
but the instrument embodying the contract. It follows that whether the contract is disadvantageous or not is irrelevant to
reformationandtherefore,cannotbeanelementinthedeterminationoftheperiodforprescriptionoftheactiontoreform.

Article 1144 of the New Civil Code provides, interalia, that an action upon a written contract must be brought
withinten(10)yearsfromthetimetherightofactionaccrues.Clearly,theten(10)yearperiodistobereckoned
fromthetimetherightofactionaccrueswhichisnotnecessarilythedateofexecutionofthecontract.Ascorrectly
ruledbyrespondentcourt,privaterespondent'srightofactionarose"sometimeduringthelatterpartof1982orin
1983whenaccordingtoAtty.LuisGeneral,Jr....,hewasaskedby(privaterespondent's)BoardofDirectorsto
study said contract as it already appeared disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989).
(Privaterespondent's)causeofactiontoaskforreformationofsaidcontractshouldthusbeconsideredtohave
arisenonlyin1982or1983,andfrom1982toJanuary2,1989whenthecomplaintinthiscasewasfiled,ten(10)
yearshadnotyetelapsed."17
Regardingthelastissue,petitionersallegethatthereisnothingpurelypotestativeabouttheprestationsofeither
partybecausepetitioner'spermissionforfreeuseoftelephonesisnotmadetodependpurelyontheirwill,neither
isprivaterespondent'spermissionforfreeuseofitspostsdependentpurelyonitswill.
Apart from applying Article 1267, respondent court cited another legal remedy available to private respondent
undertheallegationsofitscomplaintandthepreponderantevidencepresentedbyit:
...webelievethattheprovisioninsaidagreement
(a)Thatthetermorperiodofthiscontractshallbeaslongasthepartyofthefirstpart
[herein appellant] has need for the electric light posts of the party of the second part
[herein plaintiff] 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
operationasapublicserviceanditbecomesnecessarytoremovetheelectriclightpost
[sic]"(Emphasissupplied)
isinvalidforbeingpurelypotestativeonthepartofappellantasitleavesthecontinuedeffectivityof
the aforesaid agreement to the latter's sole and exclusive will as long as plaintiff is in operation. A
similarprovisioninacontractofleasewhereinthepartiesagreedthatthelesseecouldstayonthe
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
conditionbecauseitleavestheeffectivityandenjoymentofleaseholdrightstothesoleandexclusive
willofthelessee."FurtherheldtheHighCourtintheLimcase:
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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
continuingthepaymentoftherentalsornot,completelydeprivingtheownerofanysay
inthematter.Mutualitydoesnotobtaininsuchacontractofleaseofnoequalityexists
betweenthelessorandthelesseesincethelifeofthecontractisdictatedsolelybythe
lessee.
TheabovecanalsobesaidoftheagreementExh."A"betweenthepartiesinthiscase.Thereisno
mutuality and equality between them under the aforequoted provision thereof since the life and
continuityofsaidagreementismadetodependaslongasappellantneedsplaintiff'selectricposts.
Andthisispreciselywhy,since1977whensaidagreementwasexecutedandupto1989whenthis
casewasfinallyfiledbyplaintiff,itcoulddonothingtobereleasedfromorterminatesaidagreement
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
plaintifffreeofcharge,aswellasthebadandinefficientserviceofsaidtelephonestotheprejudice
andinconvenienceofplaintiffanditscustomers....18
Petitioners'allegationsmustbeupheldinthisregard.Apotestativeconditionisacondition,thefulfillmentofwhich
depends upon the sole will of the debtor, in which case, the conditional obligation is void. 19 Based on this
definition,respondentcourt'sfindingthattheprovisioninthecontract,towit:

(a)Thatthetermorperiodofthiscontractshallbeaslongasthepartyofthefirstpart(petitioner)
hasneedfortheelectriclightpostsofthepartyofthesecondpart(privaterespondent)....
isapotestativecondition,iscorrect.However,itmusthaveoverlookedtheotherconditionsinthesameprovision,
towit:
...itbeingunderstoodthatthiscontractshallterminatewhenforanyreasonwhatsoever,theparty
of the second part (private respondent) is forced to stop, abandoned (sic) its operation as a public
serviceanditbecomesnecessarytoremovetheelectriclightpost(sic)
which are casual conditions since they depend on chance, hazard, or the will of a third person. 20 In sum, the
contractissubjecttomixedconditions,thatis,theydependpartlyonthewillofthedebtorandpartlyonchance,hazardor
thewillofathirdperson,whichdonotinvalidatetheaforementionedprovision. 21Nevertheless,inviewofourdiscussions
under the first and second issues raised by petitioners, there is no reason to set aside the questioned decision and
resolutionofrespondentcourt.

WHEREFORE,thepetitionisherebyDENIED.ThedecisionoftheCourtofAppealsdatedMay28,1992andits
resolutiondatedSeptember10,1992areAFFIRMED.
SOORDERED.
Narvasa,C.J.,Padilla,RegaladoandPuno,JJ.,concur.

#Footnotes
184Phil.654.
2ReportoftheCodeCommission,p.133citedinRollo,p.57.
3Records,p.6.
4Ibid,pp.67.
5Rollo,p.62.
6Rollo,p.71.
7G.R.No.L44349,October29,1976,73SCRA637.
8Rollo,pp.5459.
9Supra.
10CommentariesandJurisprudenceontheCivilCodeofthePhilippines,1991Editionp.347.
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11Atp.641.
12Records,p.7.
13Agne,etal.v.DirectorofLands,etal.,G.R.No.L40399,February9,1990,181SCRA793.
14Rollo,p.59.
15Rollo,pp.6669.
16Rollo,pp.5354.
17Rollo,pp.5354.
18Rollo,pp.5961.
19Article1182oftheNewCivilCode.
20CivilCodeofthePhilippinesAnnotatedbyEdgardoL.Paras,1985Edition,
p.171.
21Ibid.
TheLawphilProjectArellanoLawFoundation

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