SAURA IMPORT & EXPORT CO., INC.

V DEVELOPMENT BANK OF THE PHILIPPINES

Facts:
 Saura Inc applied to the RFC - Rehabilitation Finance Corporation (now DBP – Development Bank of the
Philippines) for an industrial loan of 500k 
 o However, before the loan application, Saura had already
purchased the jute mill machinery on the strength of a letter of credit extended by Prudential 
 o ** The
proceeds of the loan from DBP was to be applied to Prudential
 but since the loan did not proceed, Saura
was not able to fulfill its 
 obligation to Prudential. 

 DBP passed Resolution No. 145 approving the loan application with specifications 
 on how to spend the
money (construction, machinery, working capital) 

 Resolution No. 736: Reassessment resulting in Resolution No. 3989 reducing the 
 loan to 300k 

 Saura: 500k, DBP denied 

 DBP cancelled 300k, in view of the withdrawal of China Engineers Ltd. (China 
 Engineers was a signatory to
the original Res 145) 

 Saura asked for reinstatement of 500k, with China Engineers as signatory 

 Resolution No. 9083 restored loan to 500k with 2 new conditions 
 o Certification from Dept of Agriculture and
Natural Resources Use local raw materials 

 However, Saura could not comply with the conditions (local raw materials were not available) 

 Saura did not pursue and requested DBP to cancel the mortgage. DBP executed the corresponding deed of
cancellation and delivered it to Ramon Saura (President of Saura Import) 

 7years later, Saura applied for another loan with DBP for another project. DBP denied. 2years later, this
action for damages was instituted by Saura against DBP for allegedly failing to release the loan proceeds. 


Issue: 
 Whether or not Saura was entitled to damages by the alleged breach of contract by DBP.

Held: No. There was mutual desistance. Saura’s request for the cancellation of mortgage carried no reservation of
whatever rights it believed it might have against DBP for the latter’s non-compliance. It was only 9years after the loan
agreement had been cancelled at its own request that Saura brought this action for damages.

ANGEL V. TALAMPAS, JR. vs. MOLDEX REALTY, INC.

FACTS:

The petitioner entered into a contract with the respondent to develop a residential subdivision known as the Metrogate
Silang Estates for the contract price of P10,500,000.00.

The petitioner undertook the construction of the roadworks, earthworks and site-grading, procurement of materials,
placing labor, equipment, tools as specified in the contract. The construction is projected to be completed by the petitioner
within three hundred (300) calendar days from the starting date of the contract. Later however, respondent Moldex Realty
through its project manager asked the petitioner to suspend its construction work on the site for one week due to a
change in the project’s subdivision plan. The suspension, lasted for more than one week leaving the petitioner’s personnel
and equipment idle at the site for three weeks until on June 16, 1993, petitioner received a letter from respondent its
decision to terminate the contract.
The petitioner demanded from the respondent the payment for the mobilization of its equipment during the period of
suspension and 20% of the P10,500,000.00 contract price as cost of opportunity lost due to the respondent’s early
termination of their contract. Moldex refused contending averred that petitioner consented to the termination by its
subsequent acts and communications it sent to respondent, thus, they cannot be held liable.

ISSUE: Whether Moldex Realty is liable for its unilateral termination of its contract with petitioner Talampas
HELD: YES. Contracts have the force of law between the parties and must be complied with in good faith. A contracting
party’s failure, without legal reason, to comply with contract stipulations breaches their contract and can be the basis for
the award of damages to the other contracting party.

Respondent Moldex failed to comply with its contractual stipulations on the unilateral termination when it terminated their
contract due to the redesign of the subdivision plan.
The respondent contended that the petitioner ratified the termination of their contract by accepting payments for progress
billings, costs of equipment mobilization/demobilization, refund of insurance bond payments, and the release of retention
fees. However, we do not see the petitioner’s receipt of these payments to be acts of ratification or consent to the
contract’s termination. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain, and the acceptance, whether express or implied,
must be absolute.

An acceptance is considered absolute and unqualified when it is identical in all respects with that of the offer so as to
produce consent or a meeting of the minds. We find no such meeting of the minds between the parties on the matter of
termination because the petitioner’s acceptance of the respondent’s offer to terminate was not absolute. To terminate their
contract, the respondent offered to pay the petitioner billings for accomplished works, unrecouped costs of equipment
mobilization and demobilization, unrecouped payment of insurance bond, and the release of all retention fees ―
payments that the petitioner accepted or received. But despite receipt of payments, no absolute acceptance of the
respondent’s offer took place because the petitioner still demanded the payment of equipment rentals, cost of opportunity
lost, among others. In fact, the payments received were for finished or delivered works and for expenses incurred for the
respondent’s account. By making the additional demands, the petitioner effectively made a qualified acceptance or a
counteroffer, which the respondent did not accept. Under these circumstances, we see no full consent.

GBMLT MANPOWER V. MALINAO

Doctrine: When a person executing a waiver or quitclaim has done so voluntarily with a full understanding of its terms
and conditions, coupled with the other person’s payment of credible and reasonable consideration, there is no choice but
to uphold the transaction as valid and binding.

FACTS:
1. Malinao applied as teacher for deployment abroad. She went through the application and was interviewed by
the president of an Ethiopian University.
a. Was endorsed as an accounting lecturer.
2. Malinao paid for the fees equivalent to one month salary and signed a Contract of Employment covering 2
academic years, approved by POEA.
3. Upon her arrival in Ethiopia, she was told that her credentials would have to be reevaluated. She was
presented a new contract for signing.
a. Doubtful to sign at first, but signed anyway seeing as it is a copy of the original contract.
4. She was assigned to Alemaya Univ but decided to discontinue because she said that auditing, not
accounting, was her specialization.
a. Another lecturer took over and she had no teaching load.
5. Malinao’s rank was demoted from lecturer to assistant pursuant to a memorandum issued by the school
(included also a request to sign a new contract reflecting change of rank and salary)
6. Malinao refused and instead went to the Ministry of education to protest the reranking.
7. In a meeting, she was shouted at by the VP but subsequently apologized saying that she thought Malinao
was the leader of a protest.
8. Another instructor has replaced Malinao because of a students’ petition with the signatures of such. Malinao
checked the memo and saw that some students were not from her class.
9. There was also an issue about the qualification of respondent not having a graduate degree
a. Malinao answered that she was a CPA and a law graduate, and this, in the PH, is of a level higher than a
master’s degree.
 10. VP issued the notice of termination, indicating the two instances where the Dept of Accounting had to replace
Malinao.
a. The letter indicated that as per Article X sub article 2 of the contract, the employer is obliged to give
employee three months advanced notice as regards contract termination. In the meantime employee is
expected to continue work.
b. Also that Malinao kept of insulting the school and the students.
11. Malinao answered saying that she cannot be terminated based on mere allegations. She said that the 3 mos
prior notice is for termination without cause.
12. While waiting for the 3 month period to expire, Malinao was offered a post at the Internal Audit dept (IAD) and
accepted the job. However, she signified in a letter her change of mind and rejected the post.
13. She was then repatriated and signed a quitclaim and release in favor of employer with 900 USD as
consideration.
14. Malinao filed a case in the Labor Arbiter against Petitioner and Alemaya University for the unexpired portion
of her contract.

Labor Arbiter: Malinao unduly repatriated in breach of employment contract and should not be dismissed just because she
did not have a master’s degree. In the end however, LA found that Malinao was constructively dismissed. The amount of
the quitclaim was also unreasonable. Also entitled to moral damages for the verbal abuse:

NLRC: Appeal by Petitioner. In her Motion to Dismiss Appeal, respondent indicated that when petitioner filed its
memorandum of appeal on 20 April 2007, it issued a check as payment for the appeal bond. The check was presented for
payment only on 23 April 2007. Considering that it takes three days for checks to clear - and that checks only
produce the effect of payment when they have been cashed - the appeal bond was posted beyond the 10-day
reglementary period. Hence, according to respondent, petitioner's appeal was not perfected, and the labor arbiter's
ruling had attained finality.
 NLRC ruled that the quitclaim was valid and that the termination of employment was because Malinao
rejected the new offer by President Kassa in the IAD. Her employment did not terminate but was to be
continued by the new offer, in a different capacity. Thus, she was not constructively dismissed.

CA: Reinstated the LA decision. 900 USD unconscionable and her educational attainment must not be taken against her.
Quitclaim signed by force of necessity. Offer in the IAD in the purview of a new contract. As for the bond, CA ruled that
since the check was encashed only after the allowed period, the appeal was filed out of time. According to the
CA, the rules provide that only a cash or surety bond may be considered as appeal bond, and noncompliance
with the rule was fatal to petitioner's cause.

ISSUES: WON Malinao was illegally dismissed.

WON the Quitclaim and Release was valid
WON the appeal was filed on time

RULING + RATIO:

Appeal filed on time

Posting of bond is required for the perfection of an appeal as required by 228 of the Labor Code. “In case of a judgment
involving a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety
bond issued by a reputable bonding company duly accredited by the Commission in the amount equivalent to the
monetary award in the judgment appealed from.”

In several cases, the word “only” is construed as an appeal being perfected only by a cash or surety bond, hence
exclusive. The rationale being that the workers are assured of the receipt of money judgment in their favor if ever they
will win and so that employers could not use an appeal to delay proceedings. the intention of the requirement is fulfilled
when the employer is able to deposit with the NLRC an amount that is equivalent to the monetary award adjudged by the
labor arbiter in the employee's favor, and that shall subsist until the final resolution of the appeal.
In this case, there is no question that the NLRC accepted the appeal bond posted by petitioner through a current-dated
check as evidenced by a receipt. Malinao also did not dispute the sufficiency of the bond or the petitioner’s statement that
the bond is still in effect.

Nevertheless, we have had occasion to rule that the appeal bond requirement for judgments involving monetary awards
may be relaxed in meritorious cases as in instances when a liberal interpretation would serve the desired objective
of resolving controversies on the merits. We do not see why the same liberality - if at all needed - cannot be applied to
this case in particular, in which it is clear that respondent's allegations of illegal dismissal and money claims are
unfounded.

Respondent legally dismissed

A plain reading of RA 8042 states that the salaries for the unexpired portion only applies to those illegally dismissed
overseas workers or dismissed without just cause. Malinao was dismissed pursuant to Article X of the contract which
states:
“This contract may be terminated by either party, at any time and for no cause by giving three months notice to
the other party.” It is well to note that the right to terminate the Contract of Employment at will was also available to
respondent, who exercised that right when she signified her change of mind and rejected the job at the Internal Audit
Department. This detail was appreciated even by the labor arbiter who found that respondent had quit her job.

Such contract has the force of law between the parties as long as its stipulations are not contrary to law, morals, public
order etc. Such stipulatiosn are valid as long as exercised in good faith. The issue of the master’s degree is one of
misunderstanding.

Quitclaim and Release is Valid

where a person executing a waiver has done voluntarily with full understanding of its terms, coupled with the payment of
consideration, it should be upheld. Malinao admits that indeed she had full understanding of the terms and conditions. The
issue here is the 900 USD To reiterate, the entitlement to the salaries for the unexpired portion of the employment
contract obtains only for illegally dismissed employees. In view of our finding that respondent was not illegally dismissed,
she is not entitled to such salaries.

As aptly observed by the NLRC, respondent is a learned professional and a teacher no less. Anyone would be hard put to
trick her into agreeing to something like signing a waiver. In this case, no proof was presented to show that petitioner had
defrauded or deceived her into signing the document. Absent that proof, we are bound to uphold the Quitclaim and
Release as valid and binding.

Wherefore, CA decision reversed and set aside.

PHIL. NATIONAL CONSTRUCTION CORP V. COURT OF APPEALS, MA. TERESA RAYMUNDO-ABARRA, ET AL.

CASE LAW/ DOCTRINE: ARTICLE 1267. 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. (n)
The principle of rebus sic stantibus. 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.

FACTS:
 18 November 1985-private respondents and petitioner entered into a contract of lease of a parcel of land owned
by the former.
 The terms and conditions of said contract of lease are as follows: 1) the lease shall be for a period of five (5)
years which begins upon the issuance of permit by the Ministry of Human Settlement and renewable at the option
of the lessee under the terms and conditions; 2) the monthly rent is P20, 000.00 which shall be increased yearly
by 5% based on the monthly rate; 3) the rent shall be paid yearly in advance; and 4) the property shall be used as
premises of a rock crushing plan.
  7 January 1986-petitioner obtained permit from the Ministry which was to be valid for two (2) years unless
revoked by the Ministry.
 Respondent requested the payment of the first annual rental (P240,000)
 Petitioner alleged that the payment of rental should commence on the date of the issuance of the industrial
clearance (Par. 1 of the lease contract), not on the date of signing of the contract. It then expressed its intention to
terminate the contract and decided to cancel the project due to financial and technical difficulties (abrupt change
in the political climate of the country after EDSA Revolution)
 However, respondents refused to accede to petitioner’s request and reiterated their demand for the payment of
the first annual rental. But the petitioner argued that it was only obligated to pay P20, 000.00 as rental for one
month prompting private respondent to file an action against the petitioner for specific performance with damages
Trial court: in favor of private respondent and ordered the petitioner to pay P492,000 (2years); CA: affirmed

ISSUE(S): Whether or not PNCC can avail of the benefit of Article 1267 of the New Civil Code.

HELD: No. Petition denied. CA decision affirmed.

RATIO:
 This article, which enunciates the doctrine of unforeseen events, is not, however an absolute application of the
principle of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the
contract must be presumed to have assumed the risks of unfavorable developments. It is therefore only in
absolutely exceptional changes of circumstances that equity demands assistance for the debtor. The principle of
rebus sic stantibus neither fits in with the facts of the case. 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.
However, as held in Central Bank v. CA, mere pecuniary inability to fulfill an engagement does not discharge a contractual
obligation, nor does it constitute a defense of an action for specific performance.

OSMENA V SSS (2007)

DOCTRINE
When the service has become so difficult as to be manifestly beyond the contemplation of the parties, total or partial
release from a prestation and from the counter-prestation is allowed.

Under the theory of rebus sic stantibus, the parties stipulate in the light of certain prevailing conditions, and once these
conditions cease to exist, the contract also ceases to exist.

FACTS
SSS took steps to liquefy its long term investments and diversify them into higher yielding and less volatile investments.
Among its assets determined as needing to be liquefied were its shareholdings in EPCIB. Albeit there were other
interested parties, only Banco de Oro Universal Bank (BDO) and its investment subsidiary, respondent BDO Capital,
appeared in earnest to acquire the shares in question.

In the final draft of the Share Purchase Agreement (SPA), the parties mutually agreed to the purchase by the BDO Capital
and the sale by SSS of all the latter’s EPCIB shares at the closing date at the specified price of P43.50 per share or a
total of P8,171,383,258.50. COA and DOJ approved the proposed SPA.

The records do not show whether or not any interested group/s submitted bids. The bottom line, however, is that even
before the bid envelopes, if any, could be opened, the herein petitioners commenced the instant special civil action for
certiorari, setting their sights primarily on the legality of the Swiss Challenge angle and a provision in the Instruction to
Bidders under which the SSS undertakes to offer the Shares to BDO should no bidder or prospective bidder qualifies.
Under the Swiss Challenge format, one of the bidders is given the option or preferential “right to match” the winning bid.

SSC (Social Security Commission) issued a resolution approving the proposed sale of the entire equity stake of the SSS
in Equitable PCI Bank, Inc. (EPCIB or EPCI) through the Swiss Challenge bidding procedure. Petitioners filed a petition
for certiorari and prohibition of the resolution by SSC.

Pending consideration of the petition, supervening events and corporate movements transpired that radically altered the
factual complexion of the case. BDO made public its intent to merge with EPCIB. Under what BDO termed as “Merger of
Equals”, EPCIB shareholders would get 1.6 BDO shares for every EPCIB share. Owing to the foregoing developments,
the Court, on October 3, 2006, issued a Resolution requiring the ‘parties to CONFIRM news reports that price of subject
shares has been agreed upon at P92; and if so, to MANIFEST whether this case has become moot.”
It appears that BDO, or BDO-EPCI, Inc. to be precise, has since issued BDO common shares to respondent SSS
corresponding to the number of its former EPCIB shareholdings under the ratio and exchange procedure prescribed in the
Plan of Merger. In net effect, SSS, once the owner of a block of EPCIB shares, is now a large stockholder of BDO-EPCI,
Inc.

ISSUE
Whether parties were released from the agreement due to supervening events.

HELD: Yes. The petition has become moot.

It cannot be overemphasized, however, that the Shares, as a necessary consequence of the BDO-EPCIB merger which
saw EPCIB being absorbed by the surviving BDO, have been transferred to BDO and converted into BDO common
shares under the exchange ratio set forth in the BDO-EPCIB Plan of Merger. As thus converted, the subject Shares are
no longer equity security issuances of the now defunct EPCIB, but those of BDO-EPCI, which, needless to stress, is a
totally separate and distinct entity from what used to be EPCIB. In net effect, therefore, the 187.84 Million EPCIB
common shares are now lost or inexistent. And in this regard, the Court takes judicial notice of the disappearance of
EPCIB stocks from the local bourse listing. Instead, BDO-EPCI Stocks are presently listed and being traded in the PSE.

Under the law on obligations and contracts, the obligation to give a determinate thing is extinguished if the object is lost
without the fault of the debtor. And per Art. 1192 (2) of the Civil Code, a thing is considered lost when it perishes or
disappears in such a way that it cannot be recovered. In a very real sense, the interplay of the ensuing factors: a) the
BDO-EPCIB merger; and b) the cancellation of subject Shares and their replacement by totally new common shares of
BDO, has rendered the erstwhile 187.84 million EPCIB shares of SSS “unrecoverable” in the contemplation of the
adverted Civil Code provision.

With the above consideration, respondent SSS or SSC cannot, under any circumstance, cause the implementation of the
assailed resolutions, let alone proceed with the planned disposition of the Shares, be it via the traditional competitive
bidding or the challenged public bidding with a Swiss Challenge feature.

At any rate, the moot-and-academic angle would still hold sway even if it were to be assumed hypothetically that the
subject Shares are still existing. This is so, for the supervening BDO-EPCIB merger has so effected changes in the
circumstances of SSS and BDO/BDO Capital as to render the fulfillment of any of the obligations that each may have
agreed to undertake under either the Letter-Agreement, the SPA or the Swiss Challenge package legally
impossible. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, total or
partial release from a prestation and from the counter-prestation is allowed.

Under the theory of rebus sic stantibus, the parties stipulate in the light of certain prevailing conditions, and
once these conditions cease to exist, the contract also ceases to exist. Upon the facts obtaining in this case, it is
abundantly clear that the conditions in which SSS and BDO Capital and/or BDO executed the Letter-Agreement upon
which the pricing component – at P43.50 per share – of the Invitation to Bid was predicated, have ceased to
exist. Accordingly, the implementation of the Letter- Agreement or of the challenged Res. Nos. 428 and 485 cannot
plausibly push through, even if the central figures in this case are so minded.

SO v FOODFEST

FACTS:

Food Fest Land Inc. (Food Fest) entered into a September 14, 1999 Contract of Lease1 with Daniel T. So (So) over a
commercial space in San Antonio Village, Makati City for a period of three years (1999-2002) on which Food Fest
intended to operate a Kentucky Fried Chicken carry out branch.

Before forging the lease contract, the parties entered into a preliminary agreement dated July 1, 1999, the pertinent
portion of which states that the lease shall not become binding upon us unless and until the government agencies
concerned shall authorize, permit or license us to open and maintain our business at the proposed Lease Premises.
While Food Fest was able to secure the necessary licenses and permits for the year 1999, it failed to commence business
operations. For the year 2000, Food Fest’s application for renewal of barangay business clearance was "held in abeyance
until further study of [its] kitchen facilities."

As the barangay business clearance is a prerequisite to the processing of other permits, licenses and authority by the city
government, Food Fest was unable to operate. Fearing further business losses, Food Fest, by its claim, communicated its
intent to terminate the lease contract to So who, however, did not accede and instead offered to help Food Fest secure
authorization from the barangay.

On April 26, 2001, So filed a complaint for ejectment and damages against Food Fest before the Metropolitan Trial Court
(MeTC) of Makati City.
 The MeTC, by Decision of July 4, 2005,7 rendered judgment in favor of So.The Regional Trial
Court (RTC), by Decision of November 30, 2006,9 reversed the MeTC Decision.
 Court of Appeals however, declared that
Food Fest’s obligation to pay rent was not extinguished upon its failure to secure permits to operate.

ISSUE:

WON Principle of rebus sic stantibus is applicable to the instant case.

RULING:

No. The parties to the contract must be presumed to have assumed the risks of unfavorable developments.—As for Food
Fest’s invocation of the principle of rebus sic stantibus as enunciated in Article 1267 of the Civil Code to render the lease
contract functus officio, and consequently release it from responsibility to pay rentals, the Court is not persuaded. Food
Fest was able to secure the permits, licenses and authority to operate when the lease contract was executed. Its failure to
renew these permits, licenses and authority for the succeeding year, does not, however, suffice to declare the lease
functus officio, nor can it be construed as an unforeseen event to warrant the application of Article 1267. 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. This article, which enunciates the doctrine of unforeseen events, is not, however, an
absolute application of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The
parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is, therefore, only in
absolutely exceptional changes of circumstances that equity demands assistance for the debtor.

COMGLASCO CORPORATION/AGUILA GLASS v. SANTOS CAR CHECK CENTER CORPORATION

FACTS:
On August 16, 2000, respondent Santos Car Check Center Corporation (Santos), owner of a showroom located at 75
Delgado Street, in Iloilo City, leased out the said space to petitioner Comglasco Corporation (Comglasco). On October 4,
2001, Comglasco advised Santos through a letter that it was pre-terminating their lease contract effective December 1,
2001. Santos refused to accede to the pre-termination, reminding Comglasco that their contract was for five years. On
January 15, 2002, Comglasco vacated the leased premises and stopped paying any further rentals. Santos sent several
demand letters, which Comglasco completely ignored. On September 15, 2003, Santos sent its final demand letter, which
Comglasco again ignored. On October 20, 2003, Santos filed suit for breach of contract.
On August 18, 2004, the trial court rendered its judgment in favor of Santos. On February 14, 2005, Santos moved for
execution pending Comglasco’s appeal, which the trial court granted on May 12, 2005. In its Decision9 dated August 10,
2011, the Court of Appeals (CA) affirmed the judgment of the RTC.

ISSUE: Whether or not a lessee may pre-terminate lease agreement under Art. 1267 of the Civil Code.

HELD: NO. In Philippine National Construction Corporation v. CA (PNCC), which also involves the termination of a lease
of property by the lessee “due to financial, as well as technical, difficulties,” the Court ruled:

The obligation to pay rentals or deliver the thing in a contract of lease falls within the prestation “to give”; hence, it
is not covered within the scope of Article 1266. At any rate, the unforeseen event and causes mentioned by
petitioner are not the legal or physical impossibilities contemplated in said article. Besides, petitioner failed to
state specifically the circumstances brought about by “the abrupt change in the political climate in the country”
except the alleged prevailing uncertainties in government policies on infrastructure projects.

The principle of rebus sic stantibus neither fits in with the facts of the case. 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. This theory is said to be the basis of Article 1267 of the Civil Code, which provides:
Art. 1267. 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 this case, petitioner wants this Court to believe that
the abrupt change in the political climate of the country after the EDSA Revolution and its poor financial
condition “rendered the performance of the lease contract impractical and inimical to the corporate survival of
the petitioner.” Relying on Article 1267 of the Civil Code to justify its decision to pre-terminate its lease with
Santos, Comglasco invokes the 1997 Asian currency crisis as causing it much difficulty in meeting its obligations. But in
PNCC, the Court held that the payment of lease rentals does not involve a prestation “to do” envisaged in Articles 1266
and 1267 which has been rendered legally or physically impossible without the fault of the obligor-lessor. Article
1267 speaks of a prestation involving service which has been rendered so difficult by unforeseen subsequent events as to
be manifestly beyond the contemplation of the parties. To be sure, the Asian currency crisis befell the region from July
1997 and for sometime thereafter, but Comglasco cannot be permitted to blame its difficulties on the said regional
economic phenomenon because it entered into the subject lease only on August 16, 2000, more than three years after it
began, and by then Comglasco had known what business risks it assumed when it opened a new shop in Iloilo City.

TAGAYTAY REALTY CO., INC. v. ARTURO G. GACUTAN

FACTS:
On September 6, 1976, the respondent entered into a contract to sell with the petitioner for the purchase on installment of
a residential lot with an area of 308 square meters situated in the Tagaytay then being developed by the petitioner.
Earlier, on June 30, 1976, the petitioner executed an express undertaking the development of the roads, gutters, drainage
system, water and electrical systems, as well as amenities such as, swimming pool, pelota court, tennis and/or basketball
court, bath house, children's playground and a clubhouse within a period of two years from 15 July 1976. Further, it was
stipiulated that failure on their part to develop within the stipulated period, the VENDEE will have the option to suspend
payment of its monthly amortization without incurring penalty interest, save in cases of any act of God, any act or event
constituting force majeure or fortuitous event. Respondent notified the petitioner that he was suspending his amortizations
because the amenities had not been constructed in accordance with the undertaking after the lapse of the period
stipulated. But instead of making true of the undertaking, the petitioner sent to respondent a statement of account
demanding the balance of the price, plus interest and penalty. The respondent sued the petitioner for specific
performance in the HLURB. The petitioner sought to be excused from performing its obligations under the contract,
invoking Article 1267 of the Civil Code as its basis. It contended that the depreciation of the Philippine Peso since the time
of the execution of the contract is a valid justification for its release from the obligation.

The HLURB Arbiter ruled in favor of the respondent. The petitioner appealed to the Office of the President (OP) which
office upheld the decision of the HLURB Board of Commissioners. When the case was elevated to the CA and the
appellate court sustained the findings of both the HLURB and the OP.

ISSUE: Whether the petitioner released from its obligation to construct the amenities in the Foggy Heights Subdivision
alleging inflation using Article 1267 of the Civil Code as basis?

HELD: No. Petitioner was not relieved from its statutory and contractual obligations to complete the amenities.

There is no question that the petitioner did not comply with its legal obligation to complete the construction of the
subdivision project. Instead, it unilaterally opted to suspend the construction of the amenities to avoid incurring
maintenance expenses. In so opting, it was not driven by any extremely difficult situation that would place it at any
disadvantage, but by its desire to benefit from cost savings.

Considering that the petitioner's unilateral suspension of the construction of the amenities was intended to save itself from
costs, its plea for relief from its contractual obligations was properly rejected because it would thereby gain a position of
advantage at the expense of the lot owners like the respondent. Its invocation of Article 1267 of the Civil Code, which
provides that "(w)hen 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," was factually unfounded. For Article 1267 to apply, the
following conditions should concur, namely: (a) the event or change in circumstances could not have been foreseen at the
time of the execution of the contract; (b) it makes the performance of the contract extremely difficult but not impossible; (c)
it must not be due to the act of any of the parties; and (d) the contract is for a future prestation. The requisites did not
concur herein because the difficulty of performance under Article 1267 of the Civil Code should be such that one party
would be placed at a disadvantage by the unforeseen event. Mere inconvenience, or unexepected impediments, or
increased expenses did not suffice to relieve the debtor from a bad bargain.