Phil Export Corp v.

Eusebio Construction
FACTS:
November 8, 1980: State Organization of Buildings (SOB), Ministry of
Housing and Construction, Baghdad, Iraq, awarded the construction of the
Institute of Physical TherapyMedical Rehabilitation Center, Phase II, in
Baghdad, Iraq, (Project) to Ajyal Trading and Contracting Company (Ajyal), a
firm duly licensed with the Kuwait Chamber of Commerce for ID5,416,089/046
(or about US$18,739,668)
March 7, 1981: 3-Plex International, Inc. represented by Spouses Eduardo
and Iluminada Santos a local contractor engaged in construction business, entered
into a joint venture agreement with Ajyal. However since it was not accredited
under the Philippine Overseas Construction Board (POCB), it had to assign and
transfer all its right to VPECI.
VPECI entered into an agreement that the execution of the project will be
under their joint management.
To comply with the requirements of performance bond of ID271,808/610
and an an advance payment bond of ID541,608/901, 3-Plex and VPECI applied
for the issuance of a guarantee with Philguarantee, a government financial
institution empowered to issue guarantees for qualified Filipino contractors to
secure the performance of approved service contracts abroad.
Subsequently, letters of guarantee were issued by Philguarantee to the
Rafidain Bank of Baghdad. Al Ahli Bank of Kuwait was, therefore, engaged to
provide a counter-guarantee to Rafidain Bank, but it required a similar counterguarantee in its favor from the Philguarantee
The Surety Bond was later amended to increase the amount of coverage
from P6.4 million to P6.967 million and to change the bank in whose favor the
petitioner's guarantee was issued, from Rafidain Bank to Al Ahli Bank of Kuwait
SOB and the joint venture VPECI and Ajyal executed the service
contract for the construction of the Institute of Physical Therapy Medical
Rehabilitation Center, Phase II, in Baghdad, Iraq. It commenced only on the last
week of August 1981 instead of the June 2 1981
Prior to the deadline, upon foreseeing the impossibility to meet it, the
surety bond was also extended for more than 12 times until May 1987 and
the Advance Payment Guarantee was extended three times more until it was
cancelled for reimbursement
On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the
petitioner demanding full payment of its performance bond counter-guarantee
VPECI requested Iraq Trade and Economic Development Minister
Mohammad Fadhi Hussein to recall the telex call on the performance guarantee
for being a drastic action in contravention of its mutual agreement that (1) the
imposition of penalty would be held in abeyance until the completion of the
project; and (2) the time extension would be open, depending on the
developments on the negotiations for a foreign loan to finance the completion of
the project.

VPECI advised the Philguarantee not to pay yet Al Ahli Bank

because efforts were being exerted for the amicable settlement of the
Project
VPECI received another telex message from Al Ahli Bank stating
that it had already paid to Rafidain Bank the sum of US$876,564 under its
letter of guarantee, and demanding reimbursement by Philguarantee
VPECI requested the Central Bank to hold in abeyance the payment by the
Philguarantee "to allow the diplomatic machinery to take its course, for otherwise,
the Philippine government , through the Philguarantee and the Central Bank,
would become instruments of the Iraqi Government in consummating a clear act
of injustice and inequity committed against a Filipino contractor
Central Bank authorized the remittance to Al Ahli Bank
Philguarantee informed VPECI that it would remit US$876,564 to Al Ahli
Bank, and reiterated the joint and solidary obligation of the respondents to
reimburse the Philguarantee for the advances made on its counter-guarantee but
they failed to pay so a case was filed in the RTC
RTC and CA: Against Philguarantee since no cause of action since it was
expired because VPECI. Inequity to allow the Philguarantee to pass on its losses
to the Filipino contractor VPECI which had sternly warned against paying the Al
Ahli Bank and constantly apprised it of the developments in the Project
implementation.
ISSUE: W/N the Philippine laws should be applied in determining VPECI's default in the
performance of its obligations under the service contract
HELD: YES.
No conflicts rule on essential validity of contracts is expressly provided
for in our laws
The rule followed by most legal systems, however, is that the
intrinsic validity of a contract must be governed by the lex contractus or
"proper law of the contract." This is the law voluntarily agreed upon by
the parties (the lex loci voluntatis) or the law intended by them either
expressly or implicitly (the lex loci intentionis) - none in this case
In this case, the laws of Iraq bear substantial connection to the transaction,
since one of the parties is the Iraqi Government and the place of performance is in
Iraq. Hence, the issue of whether respondent VPECI defaulted in its obligations
may be determined by the laws of Iraq. However, since that foreign law was not
properly pleaded or proved, the presumption of identity or similarity, otherwise
known as the processual presumption, comes into play. Where foreign law is not
pleaded or, even if pleaded, is not proved, the presumption is that foreign law is
the same as ours
In the United States and Europe, the two rules that now seem to have
emerged as "kings of the hill" are (1) the parties may choose the governing law;
and (2) in the absence of such a choice, the applicable law is that of the State that
"has the most significant relationship to the transaction and the parties Another
authority proposed that all matters relating to the time, place, and manner of
performance and valid excuses for non-performance are determined by the law of

the place of performance or lex loci solutionis, which is useful because it is

undoubtedly always connected to the contract in a significant way
In this case, the laws of Iraq bear substantial connection to the transaction,
since one of the parties is the Iraqi Government and the place of performance is in
Iraq. Hence, the issue of whether respondent VPECI defaulted in its obligations
may be determined by the laws of Iraq. However, since that foreign law was not
properly pleaded or proved, the presumption of identity or similarity, otherwise
known as the processual presumption, comes into play. Where foreign law is not
pleaded or, even if pleaded, is not proved, the presumption is that foreign law is
the same as ours
delay or the non-completion of the Project was caused by factors not
imputable to the respondent contractor such as the war in Iraq
petitioner as a guarantor is entitled to the benefit of excussion, that is, it
cannot be compelled to pay the creditor SOB unless the property of the debtor VPECI has
been exhausted and all legal remedies against the said debtor have been resorted to by the
creditor. It could also set up compensation as regards what the creditor SOB may owe the
principal debtor VPECI. In this case, however, the petitioner has clearly waived these
rights and remedies by making the payment of an obligation that was yet to be shown to
be rightfully due the creditor and demandable of the principal debtor

Victoria
G.R. No. L-6648, 25 July 1955
Facts: The petitioners Victorias Planters Association, Inc. and North Negros Planters
Association, Inc. are non-stock corporations and are composed of sugar cane planters having
been established as the representative entities of the numerous sugar cane planters in the
districts of Victorias, Manapla and Cadiz. The sugar cane productions were milled by the
respondent corporation. Petitioners are the ones in charge of taking up with the respondent
corporation problems which may come up. At various dates, the sugarcane planters executed
identical milling contracts setting forth the terms and conditions which the sugar central North
Negros Sugar Co. Inc. would mill the sugar produced by the sugar cane planters.
Because of the Japanese occupation, the North Negros Sugar Co., Inc. did not
reconstruct its destroyed central and it had made arrangements with the respondent Victorias
Milling Co., Inc. for said respondent corporation to mill the sugarcane produced by the planters of
Manapla and Cadiz holding milling contracts with it. When the planters-members of the North
Negros Planters Association, Inc. considered that the stipulated 30-year period of their milling
contracts had already expired and terminated and the planters-members of the Victorias Planters
Association, Inc. likewise considered the stipulated 30-year period of their milling contracts as
having likewise expired and terminated.
Respondent has refused to accept the fact that the 30-year period has expired. They
contend that the 30 years stipulated in the contracts referred to 30 years of milling not 30 years
in time. They contend that as there was no milling during 4 years of the recent war and 2 years of
reconstruction, 6 years of service still has to be rendered by petitioners.
Issues: Whether or not respondent is correct.
Held: The trial court rendered judgment, which the Supreme Court affirmed.
Wherefore, the Court renders judgment in favor of the petitioners and against the
respondent and declares that the milling contracts executed between the sugar cane planters of
Victorias, Manapla and Cadiz, Negros Occidental, and the respondent corporation or its
predecessors-in-interest, the North Negros Sugar Co., Inc., expired and terminated upon the
lapse of the therein stipulated 30-year period, and that respondent corporation is not entitled to
claim any extension.
Ratio: The reason the planters failed to deliver the sugar cane was the war or a fortuitious event.
The appellant ceased to run its mill due to the same cause.
Fortuitious event relieves the obligor from fulfilling a contractual obligation. The fact that
the contracts make reference to "first milling" does not make the period of thirty years one of thirty
milling years.
The seventh paragraph of Annex "C", not found in the earlier contracts (Annexes "A", "B",
and "B-1"), quoted by the appellant in its brief, where the parties stipulated that in the event of
flood, typhoon, earthquake, or other force majeure, war, insurrection, civil commotion, organized
strike, etc., the contract shall be deemed suspended during said period, does not mean that the
happening of any of those events stops the running of the period agreed upon. It only relieves the
parties from the fulfillment of their respective obligations during that time.
To require the planters to deliver the sugar cane which they failed to deliver during the
four years of the Japanese occupation and the two years after liberation when the mill was being
rebuilt is to demand from the obligors the fulfillment of an obligation which was impossible of
performance at the time it became due. Nemo tenetur ad impossibilia.

Philippine Free Press , Inc. vs Court of Appeals

G.R. No. 132864 | October 24, 2005 | J. Garcia
Background Information:
Petitioner is a domestic corporation engaged in the publication of Philippine Free
Press Magazine, one of the . . . widely circulated political magazines in the
Philippines during the 60s.
In 1963, Phil Free Press purchased a parcel of land and constructed a building
therein which later on became the companys main office.
In the 1965 Presidential Elections, Phil Free Press supported the late President
Diosdado Macapagal against then Senate President Ferdinand Marcos. Upon the
election of Marcos, Phil Free Press printed numerous articles exposing
corruption and abuses of the Marcos Regime and the plan of the Marcoses to
impose a dictatorship in the guise of Martial Law.
In September 20, 1972, the soldiers of Marcos seized control over the main
office of Phil Free Press and padlocked the establishment after forcing out its
employees at gunpoint. Teodoro Locsin Sr., the President of the company, was
informed that Martial Law had been declared and that Marcos instructed the
soldiers to close the printing press.
After the printing press was forcibly closed, Locsin was arrested and was locked
up in a maximum security block at Fort Bonifacio. He was later on released
subject to certain conditions; the one related to the printing press is that he was
not to publish the Philippine Free Press.
Since the publication of the Philippine Free Press ceased, the property remained
locked up and under heavy military guard. The cessation of publication led to the
financial ruin of the company. The situation was further aggravated when the
employees demanded for the payment of their separation pays as a result of the
closure of the company. Also, the minority stockholders demanded that Locsin
buy out their shares.

Facts:
1. In early 1973, Locsin was approached several times by Marcos representatives
with offers to buy the Philippine Free Press, Inc. However, Locsin declined the
offer stating that it was not for sale.
2. In mid 1973, Locsin was again contacted but this time, by Brig. General Hans
Menzi, concerning the sale of the PFP, Inc. They held a meeting at the building of
the company and there, Menzi reiterated the offer to buy the property once
again, asserting that Marcos cannot be denied. Locsin then made a counteroffer
that he will sell everything but that he will be allowed to keep the name of PFP,
Inc.
3. Menzi contacted Locsin thereafter informing the latter that Marcos was
amenable to the counteroffer and is offering the purchase price of P5,750,000.

4. In August 1973, Menzi tendered a check for P1,000,000 to Locsin for the
downpayment of the sale and the latter accepted the same.
5. In October 1973, Menzi paid the balance of the purchase price and the parties
executed 2 notarized deeds of sale of the property in dispute.
6. Locsin used the proceeds of the sale to pay the separation pays of the employees
and to buy out the shares of the minority stockholders of the company.
7. In February 1987, PFP filed a complaint for Annulment of Sale on the grounds of
vitiated consent and gross inadequacy of the purchase price.
Issue:
1. Does the gross inadequacy of the purchase price indicate vitiation of consent to
the contract of sale which would make the sale voidable?
2. Does the utilization of the proceeds of the sale constitute as implied ratification
of the sale?
Held:
On both counts, no. The Supreme Court dismissed the petition.
Ratio:
1. Gross inadequacy of the purchase price does not, as a matter of civil
law, per se affect a contract of sale. Article 1470 of the Civil Code says so. It
reads:
Article 1470. Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect in the consent, or
that the parties really intended a donation or some other act or
contract.

Following the codal provision, petitioner must first prove a defect in the
consent, failing which its case for annulment contract of sale on ground gross
inadequacy
Court
the

of
price

of

price

Appeals,
paid

must

fall.

confirmatory
for

The
of

the Free

categorical

that

conclusion

of

the

of the trial court, is that

Press office

building,

and

other

physical assets is not unreasonable to justify the nullification of the sale. This
factual

determination,

predicated

as

it

were

on

offered evidence, notably petitioners Balance Sheet as of November 30, 1972 (Exh.
13), must be accorded great weight if not finality. (Balance Sheet indicates that the
net book value of the Properties was actually only P994,723.66.)
2. The Supreme Court reiterated the ruling of the Court of Appeals:

In the case at bench, Free Presss own witnesses admitted

that the proceeds of the 1973 sale were used to settle the claims of its
employees, redeem the shares of its stockholders and finance the
companys entry into money-market shareholdings and fishpond
business activities (TSN, 2 May 1988, pp. 16, 42-45). It need not be
overemphasized that by using the proceeds in this manner, Free Press
only too clearly confirmed the voluntaries of its consent and
ratified the sale. Needless to state, such ratification cleanses the
assailed contract from any alleged defects from the moment it was
constituted (Art. 1396, Civil Code).