Author: Therese

Naga Telephone Co., Inc. v. Court of

Appeals (1994)
Petition: Review Court of Appeals decision
Petitioner: Naga Telephone Co, Inc., and Luciano
Maggay
Respondent: Court of Appeals and Camarines Sur II
Electric Cooperative
Ponencia: Nocon
DOCTRINE: (casual conditions)
Casual conditions depend on chance, hazard, or the will
of a third person. The contract present in this case,
regarding the use of electrical light posts for stringing
telephone lines by petitioner, has both casual conditions
and potestative conditions (depends on the sole will of
the debtor). In sum, the contract is subject to mixed
conditions.
FACTS:
1. Petitioner NATELCO is a telephone company
rendering local as well as long distance telephone
service in Naga City. Petitioner Maggay was then a
member of the Board of Directors of private
respondent and currently legal counsel of petitioner.
2. Private respondent CASURECO II is a private
corporation established for the purpose of operating
an electric power service in the same city.
3. Both entered into a contract on November 1, 1977
for petitioners to use the electric light posts of
private respondent in the operation of its
telephone service in Naga City.
4. In consideration of that, petitioners agreed to
install free of charge 10 telephone connections
for private respondents use.
5. After the contract had been enforced for over 10
years, private respondent filed a complaint with
RTC of Naga City for reformation of the contract
with damages, on the ground of the contract being
too one-sided in favor of petitioners. Other
grounds include:
a. not in conformity with National Electrification
Guidelines (reasonable compensation for use of
posts is P10 per post, per month)
b. after 11 years of use, the telephone cables
have become much heavier with the increase of
subscribers (posts were broken during typhoons)
6. As second cause of action, private respondent
alleged that starting 1981, petitioners have used 319
posts in towns outside Naga City and should pay
P267,960.00 for its use. Petitioners refused to pay
despite demands.

7. As third cause of action, private respondent claimed

about the poor servicing of the 10 telephone units
which caused it great inconvenience and damages
worth P100,000.00.
8. Regarding the first cause of action, petitioners
averred that it should be dismissed because there
was no sufficient ground for reformation of contract
and it was barred by prescription and estoppel
(seeking to enforce and reform the contract in the
same action).
9. Regarding the second cause of action, petitioners
claimed that private respondent had asked for
telephone lines in areas outside Naga City for which
its posts were used by them. What is due to them
from private respondents is more than its claim
against them (why NATELCO didnt pay).
10. For the third cause of action, petitioners claimed
that their telephone service had been categorized by
the National Telecommunication Corporation as of
superior quality.
11. Private respondent presented witnesses, notably
Dioscoro Ragragio (one of the officials who signed
the contract) who said that the understanding
between the parties was that the petitioner would
only use the posts in Naga City because their
capability was very limited, and Engr. Antonio Borja
(Chief of private respondents Line Operation and
Maintenance Department) who said that some lines
that were strung to the posts did not follow the
minimum vertical clearance required by the National
Building Code (accidents happened regarding
trucks).
12. Petitioner Maggay testified that when he was a
member of the Board of Directors, he found the
contract fair to both parties.
13. RTC ordered reformation of agreement, ruling that
petitioners should pay private respondent
compensation for use of their posts in Naga City
while private respondent should pay the monthly bills
for the use of the telephones also in Naga City.
Taking into consideration NEA guidelines, petitioners
should pay monthly rental of P10 for each post of
private respondent used by them. Private
respondent should also pay petitioners its monthly
bills for the use and transfers of its telephones in
Naga City at the same rate that the public are
paying.
14. Regarding the second cause of action, RTC found
that the contract does not mention anything
about the use by petitioners of private
respondents posts outside Naga City. Contract
should be reformed to include a provision covering
that and that petitioners should pay a monthly rental
of P10 per post. Private respondent should also pay

Author: Therese
petitioners the monthly dues on its telephone
connections outside Naga City.
15. Regarding the third cause of action, RTC did not
find the claim sufficiently proved.
16. Petitioners appealed to Court of Appeals who
affirmed the RTC decision but on different
grounds: (1) Article 1267, NCC is applicable and
(2) contract was subject to a potestative condition
which rendered said condition void.

ISSUES:
1. WoN the Court of Appeals erred in applying
Article 1267 considering that the contract does
not involve, according to petitioners, the
rendition of service or a personal prestation and
it is not for future service with future unusual
changes; and said article was never raised by
the parties in their pleadings and was never the
subject of trial and evidence.
2. WoN private respondents action for reformation
of contract has prescribed
3. WoN the prestations of either party are purely
potestative
PROVISION:
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.

Pertinent provision of contract: (a) That the

term or period of this contract shall be as long as
the party of the first part (petitioner) has need for
the electric light posts of the part of the second part
(private respondent) x x x.

Other pertinent part of contract: x x x it being

understood that this contract shall terminate when
for any reason whatsoever, the party of the second
part (private respondent) is forced to stop, abandon
its operation as a public service and it becomes
necessary to remove the electric light post;

RULING + RATIO:
1. NO. CA correctly applied Article 1267. The
contract had become disadvantageous for
private respondent but there were no
mistakes regarding the intention of the
parties in entering into the contract involved

so the remedy of reformation of contract is

not applicable to them.
- CA believed that the evidence presented
sufficiently made out a cause of action under
Article 1267 so private respondent could be
released from the agreement.
- The continued enforcement of the contract
has gone far beyond the contemplation of
private respondent (it is unjustly enriching
petitioners at its expense).
- SC clarifies meaning of service to mean
performance of the obligation. In the
present case, the obligation of private
respondents consists in allowing petitioners
to use its posts in Naga City.
- SC released the parties from their
correlative obligations under the contract but
considering the consequences thereof,
required both parties to follow trial courts
ruling regarding payments (see first cause of
action).
2. NO. In reformation of contracts, what is
reformed is not the contract itself, but the
instrument embodying the contract.
- Whether the contract is disadvantageous or
not is irrelevant to reformation and therefore,
cannot be an element in the determination of
the period for transcription of the action to
reform.
- Considering Article 1144 of the New Civil
Code which says that an action upon a
written contract must be brought within 10
years from the time the right of action
accrues, the date of execution of the
contract does not necessarily mean counting
the period should start there. The time of
filing of complaint should be considered. 10
years has not elapsed yet (complaint was
filed in January 2, 1989).
3. YES and NO. The contract is subject to
mixed conditions. They depend partly on the
will of the debtor and partly on chance,
hazard or the will of a third person, which do
not invalidate the aforementioned provision.
- A potestative condition is a condition
wherein the fulfillment of which depends
upon the sole will of the debtor, in which
case, the conditional obligation is void.
- The other quoted provision of the contract is
a casual condition since they depend on
chance, hazard, or the will of a third person.

DISPOSITION: Petition denied.

- CA decision affirmed.