G.R. No. 107112 February 24, 1994
NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners, vs. THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II), respondents.

FACTS

Petitioner Naga Telephone Co., Inc. (NATELCO) and private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) entered into a contract on November 1, 1977. Under this contract, NATELCO was allowed to use CASURECO II’s electric light posts in Naga City for its telephone service operations. In consideration, NATELCO agreed to install and provide, free of charge, ten telephone connections for CASURECO II’s use at specified locations. The contract term was stipulated to be “as long as the party of the first part [NATELCO] has need for the electric light posts of the party of the second part [CASURECO II],” and would terminate only if CASURECO II was forced to stop its operations and remove the posts. The contract was prepared with the assistance of petitioner Atty. Luciano M. Maggay, who was then both a member of CASURECO II’s Board of Directors and NATELCO’s legal counsel.
After over ten years, CASURECO II filed a complaint for reformation of contract with damages. It alleged that the contract had become too one-sided and inequitable because: (1) NATELCO’s use of the posts had expanded significantly, with heavier cables and increased subscribers, causing damage to the posts (some bored through by NATELCO’s linemen), and the cost of posts had risen substantially; (2) NATELCO had used 319 posts outside Naga City without any contract, for which compensation was due; and (3) NATELCO provided poor servicing of the ten free telephone units. NATELCO defended the contract, arguing the complaint stated no cause of action, was barred by prescription and estoppel, and that the value of the free telephone service exceeded any rental claim.
The trial court dismissed the complaint. The Court of Appeals reversed, applying Article 1267 of the Civil Code, and ordered NATELCO to pay a reasonable rental for the posts and to pay damages for the poor telephone service. NATELCO appealed to the Supreme Court.

ISSUE

Whether the Court of Appeals correctly applied Article 1267 of the Civil Code to release CASURECO II, in part, from its contractual obligations due to a change in circumstances that rendered the service so difficult as to be manifestly beyond the contemplation of the parties.

RULING

Yes, the Supreme Court affirmed the decision of the Court of Appeals. The Court held that Article 1267 of the Civil Code was applicable. The provision allows an obligor to be released from an obligation when the service has become so difficult as to be manifestly beyond the contemplation of the parties. The rationale is to adhere to the parties’ original intention and prevent injustice when an unforeseen change in circumstances renders performance excessively burdensome.
The Court found that the contract was executed when NATELCO’s operations were limited and its expansion unforeseen. Over more than a decade, NATELCO’s use of the posts expanded in volume and geographic scope (even outside Naga City), the cables became heavier, the posts deteriorated (some were bored through and broken), and the cost of posts increased significantly. These supervening events made the service (allowing use of posts for only ten free telephones) much more difficult and onerous for CASURECO II than originally contemplated. Therefore, CASURECO II was entitled to be released, in part, from the contract. Equity demanded that NATELCO pay a reasonable rental (P10.00 per post per month as per NEA guidelines) for the use of the posts. The Court also upheld the award of damages for the poor telephone service, as NATELCO failed to refute the specific instances of inefficiency presented by CASURECO II.
The Court further addressed NATELCO’s argument that the contract contained a potestative condition (dependent solely on the debtor’s will) which would render it void. While the clause “as long as NATELCO has need” was potestative, the contract also contained casual conditions for termination (if CASURECO II stops operations), making it subject to mixed conditions, which do not invalidate the contract. However, this did not affect the applicability of Article 1267. The petition was denied.