Naga Telephone Co., vs.

Court of Appeals

Facts:

The petitioner Naga Telephone Co., and The private respondents entered into a contract for the
use by petitioners in the operation of its telephone service the electric light posts of the respondent in
Naga City. The petitioners agreed to install free of charge 10 telephone connections for the use of the
respondents. The contract stated that the term of period of this contract shall be as long as the part of
the first part has need for the electric light posts and once it is terminated the party of the second part
is forced to stop, abandon its operation as a public service and it becomes necessary to remove the
electric light posts. After the contract has been enforced for over 10 years, the private respondent filed
a case in RTC Naga against the petitioners for reformation of the contract with damages. Stating that
the contract is too one-sided in favor of the petitioners; and at 1981, the petitioners had used 319 posts
outside Naga City without a contract; and that the petitioner's poor service of 10 telephone units which
had caused it great inconvenience and damages. The petitioners sought to dismiss the complaint for
insufficient cause of action, lapse of prescription period for answer and estoppel. The lower court ruled
in favor of the respondent due to increase in volume of petitioner's subscribers, and that the contract
should be reformed to abolish the inequities. The Court of Appeals agreed on the RTC's ruling but
upheald that Article 1267 should be applicable. Hence this case.

Issue:

Whether or not Article 1267 of the New Civil Code is applicable in the case at bar?

Ruling:
YES. 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 consist 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,
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 exit the
contract also cease to exit. Considering practical needs and the demands of equity and good faith, the
disappearance of the basis of contracts gives rise to a right to relief in favor of the party prejudiced.