Obligations and Contracts Case Digests

 due to the surety company's fault because it was its duty to do everything
and take all steps necessary to prevent that... departure. This could have
PEOPLE VS. FRANKLIN been accomplished by seasonably informing the Department of Foreign
Affairs and other agencies of the government of the fact that the accused for
Facts: whose pro-visional liberty it had posted a bail bond was facing a criminal
charge in a... particular court of the country.
 Natividad Franklin was charged with estafa.
 Upon bail posted by Asian Surety and Insurance Company, she was released PNCC VS. NLRC
from custody
 CFI set her arraignment on July 14,1962 but it was postponed upon motion of  On 22 May 1979, private respondent, Romeo Buan, was hired by petitioner,
counsel for surety company Philippine National Construction Corporation ("PNCC") to work as Civil
 Accused failed to appear again for which reason the court ordered her arrest and Engineer III in Saudi Arabia for a period of two (2) years with a monthly salary
required the surety company to show cause why the bail bond posted should not of US$1,024.00. While in Saudi Arabia, respondent was assigned to work in the
be forfeited Saudi Government's Mecca Stormwater Drainage Project where petitioner was a
 Sept 25,1962, court granted the surety company 30 days to produce or surrender sub-contractor of Saudi Research and Development Corporation ("REDEC"), the
accused, upon failure to do so, bail bond was forfeited main contractor. After private respondent had served the full term of his two-year
 Subsequently, surety company filed a motion for reduction of bail alleging that contract, he entered into another two-year contract of employment with petitioner
inability to produce and surrender accused was due to the fact that PH under which he was hired as Senior Engineer at a higher monthly salary of
government had allowed her to leave the country and proceed to the US. US$1,350. This new contract of employment provided, among other things, that:
 All expenses for entry visas to Saudi Arabia or residence permits thereof of the
 Motion for reconsideration for bail was denied
EMPLOYEE shall be borne by the COMPANY. The COMPANY shall assist the employee in
 Appellant now contends that the lower court should have released it from all the renewal of his Residence permit during the term of this contract. Should the renewal of
liability under the bail bond posted by it because its failure to produce and the said permit be denied by the concerned authorities for any reason, this contract shall be
surrender the accused was due to the negligence of the Philippine Government cancelled as of the end of the residence period without prejudice to the rights of the
itself in issuing a passport to said... accused, thereby enabling her to leave the employee, benefits or privileges accrued at the time of the cancellation of this Agreement.
country.  On 21 August 1981, private respondent arrived in Saudi Arabia on a re-entry visa
 provisions of Article 1266 of the New Civil Code are invoked. sponsored by REDEC. On 1 September 1981, however, private respondent's
 contention is untenable... same speaks of the relation between a debtor and a Residence and Work Permit ("Iqama") expired. Petitioner transmitted to the
creditor, which does not exist in the case of a... surety upon a bail bond, on project manager of REDEC a letter requesting extension of private respondent's
the one hand, and the State, on the other. Residence and Work permit. However, this request was returned by one Mr. Ziad
 U.S. vs. Bonoan Yamut with the notation "returned without renewal" together with a handwritten
"The rights and liabilities of sureties on a recognizance or bail bond are, in note stating — "having been dissatisfied with the performance —BUAN — we
many respects, different from those of sureties on ordinary bonds or suggest that you send him back on the reason that REDEC has refused to renew
commercial contracts. The former can discharge themselves from liability the IQAMA." As a result, private respondent was repatriated on 26 November
by... surrendering their principal; the latter, as a general rule, can only be 1981.
released by payment of the debt or perform-ance of the act stipulated."  Respondent then filed a complaint against petitioner PNCC before public
 in the eyes of the law a surety becomes the legal custodian and jailer of the respondent Philippine Overseas Employment Administration ("POEA") for
accused, thereby assuming the obligation to keep the latter at all times under breach of contract or illegal dismissal. In a decision dated 15 April 1986, POEA
his surveillance, and to pro-duce and surrender him to the court upon the ordered petitioner to pay private respondent his salary corresponding to the
latter's demand. unexpired term of the second contract of employment in the total amount of
 Obligations and Contracts Case Digests

US$28,080.00, or its equivalent in Philippine currency at the time of actual sponsor the renewal of private respondent's Residence and Work permit had
payment, plus attorney's fees. Petitioner appealed, the decision of the POEA was rendered it legally impossible for petitioner to continue to implement its contract
affirmed by the National Labor Relations Commission ("NLRC") with some of employment in Saudi Arabia of private respondent. There is no dispute that
modifications in respect of the award granted. Thus this Petition for Certiorari REDEC was not subject to the control of petitioner; indeed, it was petitioner
with prayer for temporary restraining order. which was wholly subject to the control and even the whims of REDEC. To insist
that petitioner should pay for private respondent's wages under the second
Issue contract of employment under the circumstances of this case, is to impose an
unfair burden upon the latter and to sanction the unjust enrichment of private
Whether NLRC abused its discretion in holding petitioner liable for breach of contract respondent at the expense of petitioner. To require petitioner to retain the services
despite the fact that termination of the overseas contract was due to force majuere and of private respondent in Saudi Arabia would be to require petitioner to violate the
events not foreseen by the parties. labor laws of its host country. So to require, would be to impose an intolerable
burden upon petitioner.
Decision
 There is a third and final reason why private respondent cannot hold petitioner
 Yes. We are unable to agree with public respondent NLRC. While it may be true liable for breach of the second contract of employment. Paragraph 13 of the
that under our labor laws petitioner is the employer of private respondent, it must second contract expressly envisaged the possibility that renewal of the Residence
be noted that the employment contract entered into by private respondent is an and Work permit of private respondent could "be denied by the concerned
overseas employment contract to be implemented in Saudi Arabia and which authorities for any reason," in which case, the contract would be "cancelled."
implementation must comply with Saudi Arabian law. It is not disputed that Private respondent was, of course, aware that his original permit was about to
petitioner had no official standing in Saudi Arabia being only a sub-contractor of expire when he left for Saudi Arabia the second time. He must or should have
REDEC, the principal contractor. Indeed, the NLRC conceded that "under the been also alerted by the second contract of employment to the possibility of non-
Saudi Arabian law it is only REDEC which can sponsor the renewal of private renewal of his Residence and Work permit and the ensuing cancellability of the
respondent's work permit." Under Saudi Arabian law, REDEC was to be, in contract. Petitioner did not, in other words, conceal the legal and practical
effect, the employer of private respondent. situation from private respondent. We find no bad faith on the part of petitioner.
 Appraising the second employment contract between petitioner and private
PNCC VS CA
respondent in terms of Philippine law, there are three (3) reasons why petitioner
cannot be held liable under that contract for breach thereof under the  On 18 November 1985, private respondents and petitioner entered into a contract
circumstances of this case. The first reason relates to paragraph 13 of the second
of lease of a parcel of land owned by the former. The terms and conditions of said
contract, quoted earlier. It will be seen that the renewal of private respondent's contract of lease are as follows: a) the lease shall be for a period of five (5) years
Residence and Work permit constituted a condition to his continued employment which begins upon the issuance of permit by the Ministry of Human Settlement
in Saudi Arabia. That condition was resolutory in nature, that is, the non-renewal and renewable at the option of the lessee under the terms and conditions, b) the
of private respondent's permit had the effect of resolving, or rendering monthly rent is P20, 000.00 which shall be increased yearly by 5% based on the
cancellable, that contract. monthly rate, c) the rent shall be paid yearly in advance, and d) the property shall
 The second reason is found in the rule that an obligor shall be released from his be used as premises of a rock crushing plan.
obligation when the prestation has become legally or physically impossible
without fault on his part. The supervening impossibility of performance, based
upon some factor independent of the will of the obligor, releases the obligor from
his obligation after restitution of what he may have received, if any, in advance  On January 7, 1986, petitioner obtained permit from the Ministry which was to be
from the other contracting party; 8 the obligor incurs no liability for damages for valid for two (2) years unless revoked by the Ministry. Later, respondent
his inability to perform. In the case at bar, the failure of refusal of REDEC to
 Obligations and Contracts Case Digests

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.

ISSUE: Whether or not petitioner can avail of the benefit of Article 1267 of the New
Civil Code.

RULING:

 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 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 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. 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