Rustan Pulp vs.

Intermediate Appellate Court

Summary: A paper mill started operations and accepted offers to supply raw materials from several
suppliers. One supplier executed a contract with the paper mill with a condition that the paper mill has
the right to stop accepting deliveries whenever the supply was sufficient. The paper mill exercised that
right, but continued accepting periodic deliveries from other suppliers.

Rule of Law: When the fulfillment of the condition depends on the sole will of the debtor, the
conditional obligation shall be void. .
Article 1182, Civil Code .

Facts:

When Rustan Pulp & Paper Mills (D) started operations Romeo Lluch (P) offered to supply raw materials.
Rustan Pulp (D) proposed a non-exclusive contract to buy wood pulp from Lluch (P). However, a
condition in the contract gave Rustan Pulp (D) the right to stop accepting deliveries when the supply
became sufficient until such time the raw materials are needed.

During the test run of the pulp mill, major defects on the machinery were discovered prompting the
Japanese supplier of the machinery to recommend the stoppage of the deliveries. The suppliers were
informed to stop deliveries, but were not informed as to the reasons for the stoppage.

Lluch (P) sought to clarify the tenor of the notice as to whether stoppage of delivery or termination of the
contract of sale was intended, but Rustan Pulp (D) failed to reply. This alleged ambiguity notwithstanding,
Lluch (P) and the other suppliers resumed deliveries after a series of talks between Lluch (P) and Romeo
Vergara, the manager of Rustan Pulp (D).

Later, Lluch (P) filed a complaint for breach of contract. The case was dismissed, but at the same time, the
court enjoined Rustan Pulp (D) to honor the contract. On appeal, the court ruled that Rustan Pulp's (D)
suspension of deliveries was not in the lawful exercise of its rights under the contract of sale.

Issues:

Is the suspension of deliveries by Rustan (D) a proper exercise of its rights under the contract of sale?

Ruling:

No. There is basis for the apprehension on the illusory resumption of deliveries at Rustan Pulp (D)
because the prerogative suggests a condition solely dependent upon its exclusive will. The literal import of
contested condition is that Rustan Pulp (D) can stop delivery of pulp wood from Lluch (P) if the supply at
the plant is sufficient as ascertained by Rustan Pulp (D), subject to re-delivery when the need arises as
determined likewise by Rustan Pulp (D).

A purely potestative imposition of this character must be obliterated from the face of the contract without
affecting the rest of the stipulations considering that the condition relates to the fulfillment of an already
existing obligation and not to its inception (Civil Code Annotated, by Padilla, 1987 Edition, Volume 4,
Page 160).

A condition which is both potestative (or facultative) and resolutory may be valid, even though the saving
clause is left to the will of the obligor as this Court ruled in Taylor vs. Uy Tieng Piao (43 Phil. 873). But the
Taylor case, which allowed a condition for unilateral cancellation dependent on the arrival of factory
machinery, cannot be applied because the facts relate to the birth of the undertaking and not to the
fulfillment of an existing obligation.