G.R. No. 116896, 5 May 1997


On November 18, 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: a) 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, b) the monthly rent is P20, 000.00 which shall be increased yearly by 5% based on the monthly rate, c) the rent shall be paid yearly in advance, and d) the property shall be used as premises of a rock crushing plan.

On January 7, 2986, petitioner obtained permit from the Ministry which was to be valid for two (2) years unless revoked by the Ministry. Later, respondent requested the payment of the first annual rental. But petitioner alleged that the payment of rental should commence on the date of the issuance of the industrial clearance 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. However, petitioner refused to accede to respondent’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 before the RTC of Pasig. The trial court rendered decision in favor of private respondent. Petitioner then appealed the decision of the trial court to the Court of Appeals but the later affirmed the decision of the trial court and denied the motion for reconsideration.


Whether or Not petitioner can avail the benefit of Article 1267 of the New Civil Code.


No. The petitioner cannot take refuge of the said article. Article 1267 of the New Civil Code provides that when the service has become so difficult as to 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 chances 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 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.

In this case, petitioner averred that three (3) abrupt changes 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. 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.

* Case digest by Neah Hope L. Bato, LLB-1, Andres Bonifacio Law School, SY 2017-2018