SECOND DIVISION

[G.R. No. 107112. February 24, 1994.]

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M.

MAGGAY, petitioners, v s . THE COURT OF APPEALS AND
CAMARINES SUR II ELECTRIC COOPERATIVE, INC.
(CASURECO II), respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATION AND CONTRACTS; RULE WHERE A PERSON

BY HIS CONTRACT CHARGES HIMSELF WITH AN OBLIGATION POSSIBLE TO BE
PERFORMED. — The case of Reyes v. Caltex (Philippines), Inc. 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 performance in
the event of contingencies arising thereto, 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: "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 the obligor still responsible." In other words, fair and
square consideration underscores the legal precept therein.
2. ID.; ID.; "SERVICE" UNDER ART. 1267 REFERS TO THE
PERFORMANCE OF AN OBLIGATION; CASE AT BAR. — Petitioners assert
earnestly that Article 1267 of the New Civil Code is not applicable primarily
because the contract does not involve the rendition of service or a personal
prestation and it is not for future service with future unusual change. Instead,
the ruling in the case Occeña, et al. v. Jabson, etc, et al., (G.R. No. L-44349,
October 29, 1976, 73 SCRA 637) which interpreted the article, should be
followed in resolving this case. Besides, said article was never raised by the
parties in their pleadings and was never the subject of trial and evidence.
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.
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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, 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. ID.; ID.; POTESTATIVE CONDITION; MEANING THEREOF;

APPLICATION IN CASE AT BAR. — 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, 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 a potestative condition, 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 (sic) its
operation as a public service and it becomes necessary to remove the electric
light post (sic);" 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.
4. ID.; PRESCRIPTION OF ACTIONS; RULE ON WRITTEN CONTRACT. —
Article 1144 of the New Civil Code provides, inter alia, that an action upon a
written contract must be brought within ten (10) years from the time the right
of the action accrues. Clearly, the ten (10) year period is to be reckoned from
the time the right of action accrues which is not necessarily the date of
execution of the contract. As correctly ruled by respondent court, private
respondent's right of action arose "sometime during the latter part of 1982 or in
1983 when according to Atty. Luis General, Jr. . . ., he was asked by (private
respondent's) Board of Directors to study said contract as it already appeared
disadvantageous to (private respondent). (Private respondent's) cause of action
to ask for reformation of said contract should thus be considered to have arisen
only in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in
this case was filed, ten (10) years had not yet elapsed."

DECISION

NOCON, J : p

The case of Reyes v. Caltex (Philippines), Inc. 1 enunciated the doctrine

CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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 performance in the event of
contingencies arising thereto, it is his duty to provide the basis therefor in his
contract. LibLex

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, 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 the
obligor still responsible." 2

In other words, fair and square consideration underscores the legal precept
therein.
Naga Telephone Co., Inc. remonstrates mainly against the application by
the Court of Appeals of Article 1267 in favor of Camarines Sur II Electric
Cooperative, Inc. in the case before us. Stated differently, the former insists
that the complaint should have been dismissed for failure to state a cause of
action. prLL

The antecedent facts, as narrated by respondent Court of Appeals are, as

follows:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company
rendering local as well as long distance 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.
On November 1, 1977, the parties entered into a contract (Exh. "A") 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 in the following places:
"(a) 3 units — The Main Office of (private respondent);

(b) 2 Units — The Warehouse of (private respondent);

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

 (c) 1 Unit — The Sub-Station of (private respondent) at
Concepcion Pequeña;

(d) 1 Unit — The Residence of (private respondent's)

President;

(e) 1 Unit — The Residence of (private respondent's) Acting

General Manager; &

(f) 2 Units — To be determined by the General Manager. 3

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, abandoned [sic] its operation as a public service
and it becomes necessary to remove the electric lightpost;" (sic) 4

It was prepared by or with the assistance of the other petitioner, Atty.

Luciano M. Maggay, then a member of the Board of Directors of private
respondent and at the same time the legal counsel of petitioner.

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
(Br. 28) C.C. No. 89-1642 against petitioners 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. prLL

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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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 utilization of private
respondent'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 private respondent 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 them.
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 that if petitioners had refused to comply with
private respondent's demands for payment for the use of the posts outside
Naga City, it was probably because what is due to them from private
respondent is more than its claim against them.

And with respect to the third cause of action, petitioners claimed, inter
alia, that their telephone service had been categorized by the National
Telecommunication Corporation (NTC) as "very high" and of "superior quality."

During the trial, private respondent presented the following witnesses:

(1) Dioscoro Ragragio, one of the two officials who signed the contract
in its behalf, declared that it was petitioner Maggay who prepared the contract;
that the understanding between private respondent and petitioners was that
the latter would only use the posts in Naga City because at that time,
petitioners' capability was very limited and they had no expectation of
expansion because of legal squabbles within the company; that private
respondent agreed to allow petitioners to use its posts in Naga City because
there were many subscribers therein who could not be served by them because
of lack of facilities; and that while the telephone lines strung to the posts were
very light in 1977, said posts have become heavily loaded in 1989. LLphil

(2) Engr. Antonio Borja, Chief of private respondent's Line Operation

and Maintenance Department, declared that the posts being used by
petitioners totalled 1,403 as of April 17, 1989, 192 of which were in the towns
of Pili, Canaman, and Magarao, all outside Naga City (Exhs. "B" and "B-1"); that
petitioners' cables strung to the posts in 1989 are much bigger than those in
November, 1977; that in 1987, almost 100 posts were destroyed by typhoon
Sisang: around 20 posts were located between Naga City and the town of Pili
while the posts in barangay Concepcion, Naga City were broken at the middle
which had been bored by petitioner's linemen to enable them to string bigger
telephone lines; that while the cost per post in 1977 was only from P700.00 to
P1,000.00, their costs 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 cables causing the posts to fall
and resulting in brown-outs until the electric lines were repaired.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

 (3) Dario Bernardez, Project Supervisor and Acting General Manager of
private respondent and Manager of Region V of NEA, declared that according to
NEA guidelines in 1985 (Exh. "C"), for the use by private telephone systems of
electric cooperatives' posts, they should pay a minimum monthly rental of
P4.00 per post, and considering the escalation of prices since 1985, electric
cooperatives have been charging from P10.00 to P15.00 per post, which is what
petitioners should pay for the use of the posts.
(4) Engineer Antonio Macandog, Department Head of the Office of
Services of private respondent, testified on the poor service rendered by
petitioners' telephone lines, like the telephone in their Complaints Section
which was usually out of order such that they could not respond to the calls of
their customers. In case of disruption of their telephone lines, it would take two
to three hours for petitioners to reactivate them notwithstanding their calls on
the emergency line.

(5) Finally, Atty. Luis General, Jr., private respondent's counsel,

testified that the Board of Directors asked him to study the contract sometime
during the latter part of 1982 or in 1983, as it had appeared very
disadvantageous to private respondent. Notwithstanding his recommendation
for the filing of a court action to reform the contract, the former general
managers of private respondent wanted to adopt a soft approach with
petitioners about the matter until the term of General Manager Henry Pascual
who, after failing to settle the matter amicably with petitioners, finally agreed
for him to file the present action for reformation of contract.
On the other hand, petitioner Maggay testified to the following effect:

(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 Board
of Directors of private respondent, was the one who saw to it that the contract
was fair to both parties.
(2) With regard to the first cause of action:
(a) Private respondent has the right under the contract to use ten (10)
telephone units of petitioners for as long as it wishes without paying anything
therefor except for long distance calls through PLDT out of which the latter get
only 10% of the charges. LLpr

(b) In most cases, only drop wires and not telephone cables have been
strung to the posts, which posts have remained erect up to present;
(c) Petitioners' linemen have strung only small messenger wires to
many of the posts and they need only small holes to pass through; and
(d) Documents existing in the NTC show that the stringing of
petitioners' cables in Naga City are according to standard and comparable to
those of PLDT. The accidents mentioned by private respondent involved trucks
that were either overloaded or had loads that protruded upwards, causing them
to hit the cables.
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 (3) Concerning the second cause of action, the intention of the parties
when they entered into the contract was that the coverage thereof would
include the whole area serviced by petitioners because at that time, they
already had subscribers outside Naga City. Private respondent, in fact, had
asked for telephone connections outside Naga City for its officers and
employees residing there in addition to the ten (10) telephone units mentioned
in the contract. Petitioners have not been charging private respondent for the
installation, transfers and re-connections of said telephones so that naturally,
they use the posts for those telephone lines.
(4) With respect to the third cause of action, the NTC has found
petitioners’ cable installations to be in accordance with engineering standards
and practice and comparable to the best in the country.
On the basis of the foregoing countervailing evidence of the parties, 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. Thus, said court ruled that the contract should
be reformed by ordering petitioners to pay private respondent compensation
for the use of their posts in Naga City, while private respondent 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 private
respondent used by petitioners is reasonable, which rental it should pay from
the filing of the complaint in this case on January 2, 1989. And in like manner,
private respondent should pay petitioners 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. cdll

On private respondent's second cause of action, the trial court found that
the contract does not mention anything about the use by petitioners of private
respondent's posts outside Naga City. Therefore, 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 court found the claim not sufficiently proved.
Thus, the following decretal portion of the trial court's decision dated July
20, 1990:
"WHEREFORE, in view of all the foregoing, decision is hereby
rendered ordering the reformation of the agreement (Exh. A); ordering
the defendants to pay plaintiff's electric poles in Naga City and in the
towns of Milaor, Canaman, Maragao 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, per month
beginning January, 1989 and ordering also the plaintiff to pay
defendant NATELCO the monthly dues of all its telephones including
those installed at the residence of its officers, namely; Engr. Joventino
Cruz, Engr. Antonio Borja, Engr. Antonio Macandog, Mr. Jesus Opiana
and Atty. 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." llcd

Disagreeing with the foregoing judgment, petitioners appealed to respondent

Court of Appeals. In the decision dated May 28, 1992, respondent court
affirmed the decision of the trial court, 5 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. The motion for reconsideration was denied in the resolution
dated September 10, 1992. 6 Hence, the present petition.
Petitioners assign the following pertinent errors committed by respondent
court:
1) in making a contract for the parties by invoking Article
1267 of the New Civil Code;
2) in ruling that prescription of the action for reformation of
the contract in this case commenced from the time it became
disadvantageous to private respondent; and
3) in ruling that the contract was subject to a potestative
condition in favor of petitioners.

Petitioners assert earnestly that Article 1267 of the New Civil Code is not
applicable primarily because the contract does not involve the rendition of
service or a personal prestation and it is not for future service with future
unusual change. Instead, the ruling in the case Occeña, et al. v. Jabson, etc, et
al., 7 which interpreted the article, should be followed in resolving this case.
Besides, said article was never raised by the parties in their pleadings and was
never the subject of trial and evidence.
In applying Article 1267, respondent court rationalized:
"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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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
Commission gave its reasons as follows:
'Equity dictates the reformation of an instrument in order
that the true intention of the contracting parties may be
expressed. The courts by the reformation do not attempt to
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 allow the enforcement of a
written instrument which does not reflect or disclose the real
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 obligations of the
contracting parties is thus tempered to forestall the effects of
mistake, fraud, inequitable conduct, or accident.' (pp. 55-56,
Report of Code Commission)
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil
Code provide in essence that where through mistake or accident on
the part of either or both of the parties or mistake or fraud on the part
of the clerk or typist who prepared the instrument, the true intention of
the parties is not expressed therein, then the instrument may be
reformed at the instance of either party if there was mutual mistake on
their part, or by the injured party if only he was mistaken. cdphil

Here, plaintiff-appellee did not allege in its complaint, nor does

its evidence prove, that there was a 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, then a
member of plaintiff's Board of Directors and its legal counsel at that
time, who was also the legal counsel for defendant-appellant, so that
as legal counsel for both companies and presumably with the interests
of both companies in mind when he prepared the aforesaid agreement,
Atty. Maggay must have considered the same fair and equitable to
both sides, and this was affirmed 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 73-year old
Justino de Jesus, Vice President and General manager of appellant at
the time who signed the agreement Exh. "A" in its behalf and who was
one of the witnesses for the plaintiff (sic), both parties complied with
said contract 'from the very beginning' (p. 5, tsn, April 17, 1989).
That the aforesaid contract has become iniquitous or unfavorable
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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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 filing of the present action. The fact that said
contract has become iniquitous 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. LibLex

xxx xxx xxx

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, the President of plaintiff in 1977 and one of its two officials
who signed said agreement in its behalf, as follows:
'Our understanding at that time is that we will allow
NATELCO to utilize the posts of CASURECO II only in the City of
Naga because at that time the capability of NATELCO was very
limited, as a matter of fact we do [sic] not expect to be able to
expand because of the legal squabbles going on in the NATELCO.
So, even at that time there were so many subscribers in Naga
City that cannot be served by the NATELCO, so as a matter of
public service we allowed them to sue (sic) our posts within the
Naga City.' (p. 8, tsn April 3, 1989)
Ragragio also declared that while the telephone wires strung to
the electric posts of plaintiff were very light and that very few
telephone lines were attached to the posts of CASURECO II in 1977,
said posts have become 'heavily loaded' in 1989 (tsn, id.).
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 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 plaintiff's general manager which was the only consideration provided
for in said agreement for appellant's use of plaintiff's electric posts. Not
only that, appellant even started using plaintiff'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 of 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
contracts (IV Tolentino, Civil Code of the Philippines, 1986 ed., pp. 247-
248). LexLib

We therefore, find nothing wrong with the ruling of the trial court,
although based on a different and 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 formerly using
free of charge under the terms of the agreement Exh. "A" at the same
rate being paid by the general public. 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 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-
negotiate another agreement over the same subject-matter covered
by the agreement Exh. "A". Once said agreement is reached and
executed by the parties, the aforesaid ruling of the lower court and
affirmed by us shall cease to exist and shall be substituted and
superseded by their new agreement. . . ." 8

Article 1267 speaks of "service" which has become so difficult. Taking into
consideration the rationale behind this provision, 9 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 a requirement
thereunder that the contract be for future service with future unusual change.
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 According to Senator Arturo M. Tolentino, 10 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.

In a nutshell, private respondent in the Occeña 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 shares
that should pertain to them out of the gross proceeds from the sales of
subdivided lots. We ordered the dismissal of the complaint therein for failure to
state a sufficient cause of action. We rationalized that the Court of Appeals
misapplied Article 1267 because:
". . . respondent's complaint seeks not release from the
subdivision contract but that the court 'render judgment modifying the
terms and conditions of the contract . . . by fixing the proper shares
that should pertain 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 contractually stipulated with the force of law between
the parties, so as to substitute its own terms for 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 allegations of respondent's complaint
and the circumstances therein averred, the courts cannot even in
equity the relief sought." 11

The ruling in the Occeña case is not applicable because we agree with
respondent court that the allegations in private respondent's complaint and
the evidence it has presented sufficiently made out a cause of action under
Article 1267. We, therefore, release the parties from their correlative
obligations under the contract. However, our disposition of the present
controversy does not end here. We have to take into account the possible
consequences of merely releasing the parties therefrom: petitioners will
remove the telephone wires/cables in the posts of private respondent,
resulting in disruption of their essential service to the public; while private
respondent, in consonance with the contract 12 will return all the telephone
units to petitioners, causing prejudice to its business. We shall not allow such
eventuality. Rather, we require, as ordered by the trial court: 1) petitioners
to pay private respondent for the use of its posts in Naga City and in the
towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other
places where petitioners use private respondent's posts, the sum of ten
(P10.00) pesos per post, per month, beginning January, 1989; and 2) private
respondent to pay petitioner the monthly dues of all its telephones at the
same rate being paid by the public beginning January, 1989. The peculiar
circumstances of the present case, as distinguished further from the Occeña
case, necessitates exercise of our equity jurisdiction. 13 By way of emphasis,
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 we reiterate the rationalization of respondent court that: cdll

". . . 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 parties
herein to the public and to avoid unjust enrichment by appellant at the
expense of plaintiff . . . ." 14

Petitioners' assertion that Article 1267 was never raised by the parties in
their pleadings and was never the subject of trial and evidence has been
passed upon by respondent court in its well reasoned resolution, which we
hereunder quote as our own:
"First, we do not agree with defendant-appellant that in applying
Art. 1267 of the New Civil Code to this case, we have changed its
theory and decided the same on an issue not invoked by plaintiff in 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 iniquitous
or disadvantageous to the plaintiff and too one-sided 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
defendant-appellant from further unjustly enriching itself at plaintiff's
expense. It is indeed unfortunate that defendant had turned deaf ears
to plaintiff's 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 express their true intent), this
does not mean that plaintiff is absolutely without a remedy in order to
relieve itself from a contract that has gone far beyond its
contemplation and has become highly iniquitous 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 Court to administer justice, it must do so in
this case in the best way and manner it can in the light of the proven
facts and the law or laws applicable thereto. cdphil

It is settled that when the trial court decides a case in favor of a

party on a certain ground, the appellate court may uphold the decision
below upon some other point which was ignored or erroneously
decided by the trial court (Garcia Valdez v. Tuazon, 40 Phil. 943;
Relativo v. Castro, 76 Phil. 563; Carillo v. Salak de Paz, 18 SCRA 467).
Furthermore, the appellate court has the discretion to consider an
unassigned error that is closely related to an error properly assigned
(Paterno v. Jao Yan, 1 SCRA 631; Hernandez v. Andal, 78 Phil. 196). It
has also been held that the Supreme Court (and this Court as well) has
the authority to review matters, even if they are not assigned as errors
in the appeal, if it is found that their consideration is necessary in
arriving at a just decision of the case (Saura Import & Export Co., Inc.
v. Phil. International Surety Co. and PNB, 8 SCRA 143). For it is the
material allegations of fact in the complaint, not the legal conclusion
made therein or the prayer, that determines the relief to which the
plaintiff is entitled, and the plaintiff is entitled to as much relief as the
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 facts warrant although that relief is not specifically prayed for in the
complaint (Rosales v. Reyes and Ordoveza, 25 Phil. 495; Cabigao v.
Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil. 120). To quote an old but
very illuminating decision of our Supreme Court through the pen of
American jurist Adam C. Carson:

'Under our system of pleading it is the duty of the courts to

grant the relief to which the parties are shown to be entitled by
the allegations in their pleadings and the facts proven at the
trial, and the mere fact that they themselves misconstrue the
legal effects of the facts thus alleged and proven will not prevent
the court from placing the just construction thereon and
adjudicating the issues accordingly.' (Alzua v. Johnson, 21 Phil.
308)

And in the fairly recent case of Caltex Phil. Inc. v. IAC, 176 SCRA
741, the Honorable Supreme Court also held:
'We rule that the respondent court did not commit any
error in taking cognizance of the aforesaid issues, although not
raised before the trial court. The presence of strong
consideration of substantial justice has led this Court to relax the
well-entrenched rule that, except questions on jurisdiction, no
question will be entertained on appeal unless it has been raised
in the court below and it is within the issues made by the parties
in their pleadings (Cordero v. Cabral, L-36789, July 25, 1983, 123
SCRA 532). . . .'

We believe that the above authorities suffice to show that this

Court did not err in applying Art. 1267 of the New Civil Code to this
case. Defendant-appellant stresses that the applicability of said
provision is a question of fact, and that it should have been given the
opportunity to present evidence on said question. But defendant-
appellant cannot honestly and truthfully claim that it (did) not (have)
the opportunity to present evidence on the issue of whether the
continued operation of the contract Exh. "A" has now become too one-
sided in its favor and too iniquitous, unfair, and disadvantageous to
plaintiff. As held in our decision, the abundant and copious evidence
presented by both parties in this case and summarized in said decision
established the following essential and vital facts which led us to apply
Art. 1267 of the New Civil Code to this case: Cdpr

xxx xxx xxx." 15

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 disadvantageous and
unfair to it due to subsequent events and conditions, which must be sometime
during the latter part of 1982 or in 1983 . . ." 16 is erroneous. In reformation of
contracts, what is reformed is not the contract itself, but the instrument
embodying the contract. It follows that whether the contract is disadvantageous
or not irrelevant to reformation and therefore, cannot be an element in the
determination of the period for prescription of the action to reform.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

 Article 1144 of the New Civil Code provides, inter alia, that an action upon
a written contract must be brought within ten (10) years from the time the right
of the action accrues. Clearly, the ten (10) year period is to be reckoned from
the time the right of action accrues which is not necessarily the date of
execution of the contract. As correctly ruled by respondent court, private
respondent's right of action arose "sometime during the latter part of 1982 or in
1983 when according to Atty. Luis General, Jr. . . ., he was asked by (private
respondent's) Board of Directors to study said contract as it already appeared
disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989). (Private
respondent's) cause of action to ask for reformation of said contract should
thus be considered to have arisen only in 1982 or 1983, and from 1982 to
January 2, 1989 when the complaint in this case was filed, ten (10) years had
not yet elapsed." 17
Regarding the last issue, petitioners allege that there is nothing purely
potestative about the prestations of either party because petitioner's
permission for free use of telephones is not made to depend purely on their
will, neither is private respondent's permission for free use of its posts
dependent purely on its will. llcd

Apart from applying Article 1267, respondent court cited another legal
remedy available to private respondent under the allegations of its complaint
and the preponderant evidence presented by it:
". . . we believe that the provision in said agreement —

'(a) That the term or period of this contract shall be as long as

the party of the first part [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 operation as a public service and it becomes necessary to
remove the electric light post [sic]'; (Emphasis supplied)

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 plaintiffs 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: llcd

'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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 lessee since the life of the contract is dictated solely by the
lessee.'
The above can also be said of the agreement Exh. "A" 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 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 iniquitous 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. . . ." 18

Petitioners' allegations must be upheld in this regard. 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. 19 Based on this
definition, respondent court's finding that the provision in the contract, 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) . . ." LLjur

is a potestative condition, 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 (sic) its operation as a public
service and it becomes necessary to remove the electric light post
(sic);"

which are casual conditions since they depend on chance, hazard, or the will
of a third person. 20 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. 21 Nevertheless, in view of our discussions under the first and
second issues raised by petitioners, there is no reason to set aside the
questioned decision and resolution of respondent court.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of

Appeals dated May 28, 1992 and its resolution dated September 10, 1992 are
AFFIRMED.
SO ORDERED.

Narvasa, C .J ., Padilla, Regalado and Puno, JJ ., concur.

Footnotes
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 1. 84 Phil. 654.

2. Report of the Code Commission, p. 133; cited in Rollo , p. 57.

3. Records, p. 6.

4. Ibid, pp. 6-7.

5. Rollo , p. 62.
6. Rollo , p. 71.
7. G.R. No. L-44349, October 29, 1976, 73 SCRA 637.
8. Rollo, pp. 54-59.
9. Supra.
10. Commentaries and Jurisprudence on the Civil Code of the Philippines, 1991
Edition p. 347.
11. At p. 641.

12. Records, p. 7.
13. Agne, et al. v. Director of Lands, et al., G.R. No. L-40399, February 9, 1990,
181 SCRA 793.

14. Rollo, p.59.

15. Rollo , pp. 66-69.
16. Rollo , pp. 53-54.
17. Rollo , pp. 53-54.
18. Rollo , pp. 59-61.
19. Article 1182 of the New Civil Code.
20. Civil Code of the Philippines Annotated by Edgardo L. Paras, 1985, p. 171.

21. Ibid.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com