Philippine National Construction Corporation vs. Court of Appeals

G.R. No. 116896. May 5, 1997

MAIN TOPIC: Extinguishment of Obligations – Tender of Payment


On November 18, 1985, PNCC entered into the contract of lease with private respondents for  a period of five (5) years commencing on the date of issuance of the industrial clearance by the  Ministry of Human Settlements for P20,000.00 which shall be increased yearly by Five Percent  (5%). On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a  Temporary Use Permit for the proposed rock crushing project.  

On 16 January 1986, private respondents demanded for the first annual rental in the amount of  P240,000 which was due and payable upon the execution of the contract. Petitioner argued that  under paragraph 1 of the lease contract, payment of rental would commence on the date of the  issuance of an industrial clearance by the Ministry of Human Settlements, and not from the date  

of signing of the contract. It then expressed its intention to terminate the contract, as it had  decided to cancel or discontinue with the rock crushing project “due to financial, as well as  technical, difficulties. Private respondents refused to accede to petitioner’s request for the pre termination of the lease contract and demanded for the payment of first annual rent. Petitioner  objected and argued that they are only obligated to pay for one-month period of lease counted  upon the issuance of Industrial permit until the termination was served. 

Private respondents filed a case for Specific Performance with Damages with the Regional Trial  Court. The rendered decision is to pay private respondents the amount of P492,000 which  represented the rentals for two years, with legal interest from 7 January 1986 until the amount  was fully paid, plus attorney’s fees in the amount of P20,000 and costs. It was affirmed by the  Court of Appeals. 

Petitioner invokes Article 1266 and the principle of rebus sic stantibus which is said to be the  basis of Article 1267 of the Civil Code, 

Article 1266. “The debtor in obligations to do shall also be released when the prestation becomes legally  or physically impossible without the fault of the obligor.” 

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.” 


(1) Whether or not petitioner invoking Article 1266, should be released from the obligatory  force of the contract of lease because the purpose of the contract did not materialize due to  unforeseen events and causes beyond its control

(2) Whether or not the principle of rebus sic stantibus shall apply to release the petitioner from the obligatory force which under 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


1. No. Petitioner cannot, however, successfully take refuge in the said article, since it is  applicable only to obligations “to do,” and not obligations “to give.” The obligation to pay  rentals1 or deliver the thing in a contract of lease falls within the prestation “to give”; hence,  it is not covered within the scope of Article 1266. At any rate, the unforeseen event and  causes mentioned by petitioner are not the legal or physical impossibilities contemplated in  the said article. Besides, petitioner failed to state specifically the circumstances brought  about by “the abrupt change in the political climate in the country” except the alleged  prevailing uncertainties in government policies on infrastructure projects. 

2. No. The principle of rebus sic stantibus neither fits in with the facts of the case. Petitioner  wants this Court to believe that the abrupt change 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.” The cause or essential purpose in a contract of lease is the use or enjoyment of a thing. As a  general principle, the motive or particular purpose of a party in entering into a contract does  not affect the validity nor existence of the contract; an exception is when the realization of  such motive or particular purpose has been made a condition upon which the contract is  made to depend.The exception does not apply here. 


WHEREFORE, the instant petition is DENIED and the challenged decision of the Court of  Appeals is AFFIRMED in toto.


It is a fundamental rule that contracts, once perfected, bind both contracting parties, and  obligations arising therefrom have the force of law between the parties and should be complied  with in good faith.

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