University of the Philippines College of Law

Block F2021

Topic Conditional obligations – Kinds of conditions as to the cause or origin (Mixed)

Case No. G.R. No. 70789 /October 19, 1992
Case Name Rustan Pulp and Paper Mills v. IAC
Ponente Melo, J.
Case assigned to Cole/ Juno

SUMMARY OF FACTS

 Nature of Obligation: Supply contract (raw materials)

 Subject Persons: Rustans – petitioner/buyer; Romeo Lluch – private respondent/supplier
 Prestations: For Lluch to deliver the raw materials and for Rustans to receive the same
 Controversy and its classification: Non-Performance; Rustans imposed stoppage of the delivery of the
raw materials
 Remedies sought: Specific performance (lift the stoppage and accept the deliveries of supplier)
 Remedies granted by the SC: Specific performance (lift the stoppage and accept the deliveries of
supplier), moral damages and attorney’s fees

RELEVANT FACTS

 In 1966, Rustan Pulp and Paper Mills (Rustan) established a pulp and paper mill in Baloi, Lanao del
Norte; In April 1968, petitioner Rustan and private respondent Romeo Lluch (a holder of forest product
license) executed a contract where respondent Lluch would supply petitioner Rustan with pulp wood
raw materials; petitioner Rustan agreed to pay respondent Lluch the price of P30.00 per cubic meter of
pulp wood raw materials to be delivered at Rustan’s plant in Baloi, Lanao del Norte;

 Pertinent stipulations in the contract are as follow:

“ 3. That the BUYER shall have the option to buy form other SELLERS who are equally
qualified…
xxx xxx xxx

7. That the BUYER shall have the right to stop delivery of the said raw materials by the
seller covered by this contract when supply if the same shall become sufficient until such
time when need for said raw materials shall have become necessary provided, however,
that the SELLER is given sufficient notice.”

 On September 30, 1968, the petitioner Rustan issued a letter to private respondent Lluch and other
suppliers stopping the deliveries of pulp raw materials. The reason stated in the letter “that the supply
of raw materials to us [petitioner Rustan] has become sufficient and we will not be needing further
delivery from you. As per terms of our contract, please stop delivery thirty (30) days from today.” The
real reason however was the machinery line had major defects upon test run of the pulp mill and the
Japanese supplier of the machinery advised petitioner Rustan to stop the delivery of the raw materials
from the suppliers.

 Private respondent Lluch tried to clarify the tenor (terms) of the September 30 letter whether what was
intended was the stoppage of delivery or complete termination of the contract; this was not answered
however. Private respondent Lluch resumed deliveries after series of talks with Romeo Vergara, the
 University of the Philippines College of Law
Block F2021

resident manager of the pulp mill but delivery was ultimately stopped on December 23. It was
established that Rustan had taken in materials from other suppliers after the stoppage.

 A complaint of breach of covenant was filed by the private respondents Lluch et.al., at the court of origin
but was dismissed. This was appealed to the Intermediate Appellate Court where the private
respondent Lluch won with modified decision directing the petitioner Rustan to pay the private
respondent Lluch the sum of P30,000 as moral damages and P15,000 as attorney’s fees.

ISSUE

 W/N the petitioner Rustan has the right to stop delivery from its supplier Lluch.

Issue
W/N the petitioner Rustan
has the right to stop delivery
from its supplier Lluch.
WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that only petitioner Rustan Pulp and
Paper Mills is ordered to pay moral damages and attorney’s fees as awarded by respondent court.
SO ORDERED.
University of the Philippines College of Law
Block F2021
RATIO DECIDENDI
Ratio
No.
The Supreme Court held that the provision in Section 7 of the Contract has a
potestative condition that relates to a fulfillment of an already existing
obligation: the idea that the petitioner Rustan can stop delivery of pulp wood
from the private respondent Lluch if the supply in the plant is sufficient and to
subject the private respondent Lluch to re-delivery when the need arises also
determined by petitioners Rustan. The Court further held that the said
provision had a diminished legal efficacy with the condition attached to it,
which, was dependent exclusively on the petitioner’s will. The said condition
was struck down without affecting the rest of the stipulations.
RULING
NO SEPARATE OPINION