1267.
Said contract also provided: “(a)
EXAMPLE:
X agreed to construct a road near a mountain. A very strong
typhoon caused an avalanche making the construction of the
road dangerous to human lives. (Note: The obligation is not
impossible of performance. In this case, X may be released, in
whole or in part, from his obligation to continue with the
construction.
Facts: E (LTBC) leased from R the latter’s
certificates of convenience covering certain
transportation lines. The lease contract was
approved by the (defunct) Public Service
Commission. Subsequently, E filed with the
Commission petition for authority to suspend the
operation on the lines on the ground of alleged
high prices of spare parts and gasoline, and the
reduction of its dollar allocations. During the
pendency of the petition, R filed a complaint in
the lower court for recovery of rentals in arrears.
Meanwhile, the Commission granted E’s petition.
Issue: Are the causes alleged by E for the
suspension of the operation on the lines leased
sufficient ground to release E from liability or at
least to a reduction of the rentals payable by it?
Held:No. Performance is not excused by
subsequent inability to perform and by
unforeseen difficulties, by unusual or unexpected
expenses, by failure of a party to avail himself of
the benefits to be had under the contract, by
weather conditions, by financial stringency, or by
stagnation of business. Neither is performance
excused by the fact that the contract turns out to
be hard and improvident, unprofitable or
impracticable, ill-advised, or even foolish, or less
profitable, or unexpectedly burdensome.
Furthermore, it appeared that the alleged causes
already existed at the time the contract of lease
was executed. They could not, therefore, be
ascribed to fortuitous events or circumstances
beyond their control, but to E’s own voluntary
desistance. Finally, “since by the lease, the lessee
was to have the advantage of casual profits of the
leased premises, he should run the hazard of
casual losses during the term and not lay the
whole burden upon the lessor.”
Facts: Petitioner N is a telephone company
rendering local as well as long distance telephone
services in Naga City while private respondent C
is a private corporation established for the
purpose of operating an electric power service in
the same city. On November 1, 1977, the parties
entered into a contract for the use by N in the
operation of its telephone service the electric
light posts of C in Naga City. In consideration
therefor, N agreed to install, free of charge, ten
(10) telephone connections for the use by C in
specified places.
That the term or period of this contract shall be
as long as the party of the first part [N] has need
for the electric posts of the party of the second
part [C] 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 operation as a public
service and it becomes necessary to remove the
electric light post (sic);’’ After the contract had
been enforced for over ten (10) years, C filed on
January 2, 1989 with the Regional Trial Court of
Naga City against N for reformation of the
contract with damages, on the ground that it is
too one-sided in favor of petitioners; that it is not
in conformity with the guidelines of the National
Electrification Administration (NEA) which direct
that the reasonable compensation for the use of
the posts is P10.00 per post, per month; that
after eleven (11) years of petitioners’ use of the
posts, 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 that the contract be reformed
to abolish the inequities thereon. In N’s answer, it
averred, among others, its utilization of C’s post
could not have caused their deterioration
because they have already been in use for eleven
(11) years; and that the value of their expenses
for the ten (10) telephone lines long enjoyed by C
free of charge are far in excess of the amounts
claimed by the latter for the use of the posts, so
that if there was any inequity, it was suffered by
N. On the basis of the countervailing evidence of
the parties, the trial court found, as regards C’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 C’s
operation and when its Board of Directors did not
yet have any experience in that business, it had
become disadvantageous and unfair to C because
of subsequent events and conditions, particularly
the increase in the volume of the subscribers of N
for more than ten (10) connections to C 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. Thus, said court ruled that the contract
should be reformed by ordering N to pay C
compensation for the use of its posts in Naga
City, while C should also be ordered to pay the
monthly bills for the use of the telephones also in
Naga City. And taking into consideration the
guidelines of the NEA on the rental of posts by
telephone companies and the increase in the
costs of such posts, the trial court opined that a
monthly rental of P10.00 for each post of C used
by N is reasonable, which rental it should pay
from the fi ling of the complaint in this case on
January 2, 1989. And in like manner, C should pay
N from the same date its monthly bills for the use
and transfers of its telephones
in Naga City at the same rate that the public are
paying.
Disagreeing with the foregoing judgment, N
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
condition void. N asserts that Article 1267 of the
New Civil Code is not applicable primarily
because the contract does not involve the
rendition of service personal prestation and it is
not for future service with future unusual change.
Instead, the ruling in the case of Occeña vs.
Jabson (73 SCRA 637[1976].) which interpreted
the article, should be followed in resolving this
case.
Issues: (1) Does Article 1267 apply to obligations
to do?(2) Is Article 1267 applicable to the case at
bar?
Held: (1) Former rule on liability for non-
performance modified. — The case of Reyes vs.
Caltex (Philippines), Inc. (84 Phil. 654 [1949].),
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, whereby the other
party, it being the rule that in case the party
desires to be excused from performance in the
event of contingencies arising there to, it is his
duty to provide the basis therefor in his contract.
With the enactment of the New Civil Code, a new
provision was included therein, namely, Article
1267 which provides: x x x Art. 1267361 ‘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 the
obligor still responsible.’ In other words, fair and
square consideration underscores the legal
precept therein.’’(2) Term “service’’ refers to
performance. — “Article 1267 speaks of ‘service’
which has become so difficult. Taking into
consideration the rationale behind this provision,
the term ‘service’ should be understood as
referring to the ‘performance’ of the obligation. In
the present case, 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 are
requirement thereunder that the contract be for
future service with future unusual change.
According to Senator Arturo M. Tolentino
(Commentaries and Jurisprudence on the Civil
Code of the Philippines, 1991 Ed., p. 347.), Article
1267 states in our law the doctrine of unforeseen
events. This is said to be based on the discredited
theory of rebus sic stantibus in public
international law; under this theory, the parties
stipulate in the light of certain prevailing
conditions, and once these conditions cease to
exist the contract also ceases to exist.
Considering practical needs and the demands of
equity and good faith, the disappearance of the
basis of a contract gives rise to a right to relief in
favor of the party prejudiced.’’(3) Contract in
question has manifestly become too
disadvantageous in favor of C manifestly beyond
the contemplation of the parties. — “In applying
Article 1267, respondent court rationalized: That
the aforesaid contract has become inequitous or
unfavourable or disadvantageous to the plaintiff
with the expansion of the business of appellant
and the increase in the volume of its subscribers
in Naga City and environs through the years,
necessitating the stringing of more and bigger
telephone cable wires by appellant to plaintiff’s
electric posts without a corresponding increase in
the ten (10) telephone connections given by
appellant to plaintiff free of charge in the
agreement Exh. ‘A’ as consideration for its use of
the latter’s electric posts in Naga City, appear,
however, undisputed from the totality of the
evidence on record and the lower court so found.
And it was for this reason that in the later
(sic)part of 1982 or 1983 (or five or six years after
the subject agreement was entered into by the
parties), plaintiff’s Board of Directors already
asked Atty. Luis General who had become their
legal counsel in 1982, to study said agreement
which they believed had become
disadvantageous to their company and to make
the proper recommendation, which study Atty.
General did, and thereafter, he already
recommended to the Board the filing of a court
action to reform said contract, but no action was
taken on Atty. General’s recommendation
because the former general managers of plaintiff
wanted to adopt a soft approach in discussing the
matter with appellant, until, during the term of
General Manager Henry Pascual, the latter, after
failing to settle the problem with Atty. Luciano
Maggay who had become the president and
general manager of appellant, already agreed for
Atty. General’s fi ling of the present action. The
fact that said contract has become inequitous or
disadvantageous to plaintiff as the years went by
did not, however, give plaintiff a cause of action
for reformation of said contract, for the reasons
already pointed out earlier. But this does not
mean that plaintiff is completely without a
remedy, for we believe that the allegations of its
complaint herein and the evidence it has
presented sufficiently make out a cause of action
under Art. 1267 of the New Civil Code for its
release from the agreement in question. In truth,
as also correctly found by the lower court, despite
the increase in the volume of appellant’s
subscribers and the corresponding increase in the
telephone cables and wires strung by it to
plaintiff’s electric posts in Naga City for the more
than 10 years that the agreement Exh. ‘A’of the
parties 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 general manager which was the only
consideration provided for in said agreement for
appellant’s electric posts outside Naga City
although this was not provided for in the
agreement Exh. ‘A’ as it extended and expanded
its telephone services to towns outside said city.
Hence, while very few of plaintiff’s electric posts
were being used by appellant in 1977 and they
were all in the City of Naga, the number of
plaintiff’s electric posts that appellant was using
in 1989 had jumped to 1,403,192 which are
outside Naga City. (Exh. ‘B.’)Add to this, the
destruction of some of plaintiff’s poles during
typhoons like the strong typhoon Sisang in 1987
because of the heavy telephone cables attached
thereto, and the escalation 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 one-sided in favor of
appellant to the great disadvantage of plaintiff, in
short, the continued enforcement of said contract
has manifestly gone far beyond the
contemplation of plaintiff, so much so that it
should now be released therefrom under Art.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 counter-prestation, and
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 contract.
Facts: D (developer) fi led a complaint against L
(landowner) for modification of a subdivision
contract between D and L providing a sharing
ratio of 60% for the developer and 40% for the
landowner. D cites the worldwide increase in
prices.
Issue: Does the complaint allege a sufficient
cause of action for modification of the contract in
question.
Held: No. It has no basis in law and must,
therefore, be dismissed for failure to state a
cause of action. Article 1267 does not authorize
the courts to modify or revise the subdivision
contract between the parties or fix a sharing ratio
different from that contractually stipulated with
the force of law between the parties, so as to
substitute its own terms for those covenanted by
the parties themselves. If D’s complaint were to
be released from having to comply with the
subdivision contract, assuming it could show at
the trial that the service undertaken contractually
by it had “become so diffi cult as to be manifestly
beyond the contemplation of the parties,” then
the complaint would be justifiable under Article
1207. Without said article, D would remain bound
by its contract under the theretofore prevailing
doctrine that performance therewith is not
excused “by the fact that the contract turns out
to be hard and improvident, unjustifiable, or
unexpectedly burdensome” (Reyes vs.Caltex
[Phils.], Inc., supra.), since in case a party desires
to be “excused from performance in the event of
such contingencies arising, it is his duty to
provide therefor in the contract.”But D’s
complaint seeks not release from the contract but
for its modification. Under the particular
allegation of D’s complaint and the circumstances
therein averred, the courts cannot even in equity
grant the relief sought.
1268.
1269.
1270.
Facts: D executed a promissory note for P500.00
in favor of C. Later, C died. D contends that he
did not borrow from C but that the latter acted as
intermediary to obtain the loan for D from F, C’s
friend, and that afte rhe was notified of the death
of C, he paid F P200.00 as part payment of the
P500.00 loan, offering at the same time to pay
the balance in a few days but F made him
understand that he was condoning the debt.
Issue: Upon the facts, is the alleged remission
sufficiently established?
Held: No. D was the sole witness who testified
about it. F, the creditor, was not presented to
confirm it. The promissory note evidencing the
debt was never returned by F to C or his legal
representative. The partial payment of P200.00
made by D belies the alleged condonation.
Moreover, if the said remission were true, it would
benefit only the estate of C and not D. The act of
generosity of F must have been towards his friend
C whose death bereaved him, or the family of the
latter. D had no relation of friendship with F.
1271.
1272.
D owes C P1,000.00 evidenced by a promissory
note. The note, signed by D, is given to C. If the
promissory note is voluntarily delivered to D, the
presumption is that the debt must have been
paid by D .If it is known that D has not yet paid C,
it must be presumed that the obligation has been
remitted by C. (Art. 1271.) Suppose it is not
known how D came into possession of the
promissory note. The presumption is that it was
voluntarily delivered byC, unless C proves the
contrary.
1273.
1274.
1275.
D owes C P1,000.00 for which D executed a
negotiable promissorynote1 in favor of C. C
indorsed the note to X who, in turn, indorsed it to
Y .Now, Y bought goods from the store of D.
Instead of paying cash, Y just indorsed the
promissory note to D. Here, D owes himself.
Consequently, his obligation is extinguished by
merger.(2) W (wife) has a claim against H
(husband) for the support of their children C, etc.
Subsequently, W died. H also died later. Since C,
etc. as heirs of W (creditor) are also heirs of H
(debtor), the obligation sued upon is
extinguished.(3) C, mortgage-creditor, is the
purchaser of the mortgaged property belonging
to D, mortgage-debtor, which was sold at public
auction after extra-judicial foreclosure. Under
ordinary circumstances, if a person has a
mortgage credit over a property which was sold
in an auction sale, the only right left to him is to
collect his mortgage credit from the purchaser
,who becomes a debtor to the mortgage-creditor
In the example, there is a merger between the
creditor and debtor in the person of C.(4) X and Y
are the heirs of Z. In his will, Z gave to X a parcel
of land in usufruct for ten years. The naked
ownership to the same parcel was given to Y.
Later, Y sold his interest in the land to X. In this
case, the usufruct is naturally extinguished and X
will now have full ownership over the land.(5) D
borrowed money from C. As security, D
mortgaged his land. Subsequently, D sold the
land to C. In this case, the mortgage is
extinguished, but the obligation subsists. The
extinguishment of the accessory obligation does
not carry with it that of the principal obligation.
Facts: A, etc., and B, etc., entered into a contract
of partnership for the construction of a railroad
line between their haciendas. It was agreed that
the parties should pay the cost in equal parts. A,
etc., were entrusted with the administration of
the partnership. While the construction was going
on, B, etc., sold their hacienda to C, etc., who
obligated themselves “to respect the aforesaid
contract and all obligations arising therefrom.
”Afterwards, C, etc., bought from A, etc., the 1/2
of the railroad line pertaining to the latter. B, etc.,
failed to pay 1/2 of the amount expended by A,
etc., upon the construction of the railroad line. A,
=etc., brought action for the recovery of said
amount. B, etc., alleged as a defense that their
obligation was extinguished by the merger of the
rights of debtor and creditor in C, etc., who
assumed the liability of B, etc., and subsequently to pay the principal obligation subsists. G now, as
acquired the credit of A, etc. the new creditor, can demand payment from D.

Issue: Is there a merger of the rights of debtor 1277.

and creditor in C?
A, B, and C are jointly liable to D in the amount of
Held: None. The rights and titles which A, etc., P9,000.00 evidenced by a negotiable promissory
sold to C, etc., refer only to 1/2 of the railroad line note. D endorsed the note to E, who, in turn
in question. Hence, the credit which they had endorsed it to A .In this case, A’s share in the
against B, etc., for the amount of 1/2 of the cost obligation is extinguished because of confusion in
of construction of the said line was not included his person. However, the indebtedness of B and C
in the sale. in the amount of P3,000.00 each remains
because as to them there is no confusion.
Facts: C held a mortgage credit, in which the Consequently, B and C would be liable to A, the
property mortgaged was the Steamship Yusingco. new creditor,P3,000.00 each.
This vessel was sold in execution to satisfy a
judgment in favor of X. In the execution sale, C 1278.
bid for and purchased the vessel. From the
proceeds of the sale, the judgment in favor of X A owes B the amount of P1,000.00.B owes A the
was paid. C now seeks to recover what had been amount of P700.00.Both debts are due and
paid to X, on the ground that its mortgage credit payable today. Here compensation takes place
had preference over the judgment in favor of X. partially, that is, to the concurrent amount of
P700.00. So, A shall be liable to B for only
Issue: What is the effect of the purchase by C of P300.00. If the two debts are of the same
the vessel at public auction? amount, there is total compensation. (Art.
1281.)The two debts are extinguished without
Held: After the vessel had been sold in execution,
actual transfer of money between the parties.
the only right left to C was to collect his mortgage
credit from the purchaser thereof at public
auction, in as much as a mortgage directly and
immediately subjects the property on which it is
imposed whoever its possessor may be, to the
fulfillment of the obligation for the security of
which it was created. It so happens, however,
that C cannot take such step in this case,
because he was the purchaser of the vessel at
public auction, and it was so with full knowledge
that he had a mortgage credit on said vessel.
Obligations are extinguished by the merger of the
rights of credit or and debtor. Therefore, C’s claim
may not prosper.

1276.

D is indebted to C with G as a guarantor. The

merger of the characters of debtor and creditor in
D shall free G from liability as guarantor.
Similarly, merger which takes place in the person
of C benefits G because the extinction of the
principal obligation carries with it that of the
accessory obligation of guaranty.

Suppose, in the example above, C assigns his

credit to X, who, in turn, assigns the credit to G,
the guarantor .In this case, the contract of
guaranty is extinguished. However, D’s obligation