G.R. No. 124221 ; August 4, 2000
VICTORINO MAGAT, JR., substituted by heirs, et al., petitioners, vs. COURT OF APPEALS and SANTIAGO A. GUERRERO, respondents.

FACTS

Petitioner Victorino Magat, Jr., as General Manager of Spectrum Electronic Laboratories, entered into a contract with respondent Santiago Guerrero on September 25, 1972, for the sale and delivery of radio transceivers. Guerrero needed these for his taxicab fleet operation within the Subic Naval Base, having won a bid for the service. The contract was conditioned on Guerrero providing an assigned radio frequency and was made “taking note of Government Regulations.” Shortly after the contract’s execution, President Marcos issued Letter of Instruction No. 1 on September 22, 1972, and the Radio Control Office issued Administrative Circular No. 4 on September 25, 1972, suspending the acceptance and processing of permits to own or possess radio transmitters, with limited exemptions that did not cover commercial taxi operations.
Guerrero was assigned a frequency by the Subic Naval Base authorities in October 1972. However, he failed to open a letter of credit for the purchase, ultimately because the Philippine government, pursuant to the new regulations, refused to issue the necessary import permit for the transceivers. Magat, who had already placed an order with a Japanese supplier, demanded compensation for losses. Guerrero refused, leading Magat to file a complaint for damages.

ISSUE

Whether respondent Santiago Guerrero is liable for damages for his failure to perform his obligation under the contract to purchase radio transceivers from petitioner.

RULING

No, Guerrero is not liable. The Supreme Court affirmed the Court of Appeals’ decision dismissing the complaint. The contract was subject to an implied resolutory condition—the continued legality and feasibility of its object. The issuance of LOI No. 1 and Admin. Circular No. 4, which suspended permits for radio transceivers like those contracted for, constituted a supervening event that rendered the performance of the obligation legally impossible. This was a fortuitous event by governmental or executive act that neither party could have foreseen at the time of contracting.
The legal logic is grounded in Article 1267 of the Civil Code, which allows for the release from an obligation when the service has become so difficult due to an unforeseen event. The government’s regulatory act made it impossible for Guerrero to legally import and possess the transceivers, the very object of the contract. This impossibility was not due to Guerrero’s fault; he applied for the import permit but was refused by the Central Bank due to the new circular. Consequently, the obligation was extinguished, and no liability for damages arises from its non-performance. The claim for unrealized profits by Magat’s heirs therefore had no basis.