The Philippines has its roots in civil law principles.

Although, it may also be said that the

Philippine legal system is a peculiar November 2007 The Underpinnings of Contractual Relations
hybrid mix of civil and common law principles, tracing its roots from our Spanish and American
influences.
In a Supreme Court ruling, the highest magistrate held that under the theory of rebus sic
stantibus, the parties stipulate in the light of certain prevailing conditions, and once these
conditions cease to exist the contract also ceases to exist. 1

This theory is said to be the basis of Article 1267 of the Civil Code, which provides:

ART. 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.

Thus, in the case of Philippine National Construction Corporation (PNCC) vs. CA, et.al.,
GR No. 116896, May 5, 1997, the Philippine Supreme Court had occasion to ruminate on the
principle of change circumstances as well as the procedure in application of the doctrine.

First, it should be established that a contract is existing. It is a fundamental rule that in

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.2 In the said case,
Petitioner PNCC as lessee entered into a lease contract with private respondents as lessors covering
an undivided portion of 30,000 square meters of a parcel of land owned by the private respondents.
3

Second, the law recognizes exceptions to the principle of the obligatory force of contracts.
One exception is laid down in Article 1266 of the Civil Code, which reads: "The debtor in
obligations to do shall also be released when the prestation becomes legally or physically
impossible without the fault of the obligor." In invoking Article 1266 as a remedy and the principle
of rebus sic stantibus, it must be assured that the kind of obligation that they are into is an obligation
“to do” and not to obligations "to give." 4 An obligation "to do" includes all kinds of work or
service; while an obligation "to give" is a prestation which consists in the delivery of a movable
or an immovable thing in order to create a real right, or for the use of the recipient, or for its simple
possession, or in order to return it to its owner. 5 In the prevailing jurisprudence, the obligation to

1
The Underpinnings of Contractual Relations- when can a promise be broken?. Mary Jude Cantorias

2
Articles 1159, 1308, 1315, and 1356 of the Civil Code
3
PNCC v.CA. GR NO.116896. May 15 1997
4
ESIDERIO P. JURADO, Comments and Jurisprudence on Obligations and Contracts 292 ( 10th revised
ed. 1993) (hereafter JURADO).
5
IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of the Philippines
57 (1991) (hereafter IV TOLENTINO).
pay rentals 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 1266.6

6
PNCC v.CA. GR NO.116896. May 15 1997
 Third, It must be established that the parties to the contract must be presumed to have
assumed the risks of unfavorable developments. It is therefore only in absolutely exceptional
changes of circumstances that equity demands assistance for the debtor.7 Since rebus sic stantibus
is based for Art. 1267 which says “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”. It enunciates the doctrine of unforeseen events, however, it is not an absolute application
of the principle of rebus sic stantibus since it endangers the security of contractual relations.
PNCC cited the assassination of Senator Benigno Aquino Jr. (Senator Aquino) on August
21, 1983 and the ensuing national political and economic crises as putting it in such a difficult
business climate that it should be deemed released from its lease contract. The Court held that the
political upheavals, turmoils, almost daily mass demonstrations, unprecedented inflation, and
peace and order deterioration which followed Senator Aquino’s death were a matter of judicial
notice, yet despite this business climate, PNCC knowingly entered into a lease with therein
respondents on November 18, 1985, doing so with open eyes of the deteriorating conditions of the
country. 8
In Singson v Caltex GR. No.137798. October 4, 2000 petitioner invokes by analogy the
principle of rebus sic stantibus in public international law, under which a vital change of circumstances
justifies a state's unilateral withdrawal from a treaty. In the herein case, petitioner posits that in pegging
the monthly rental rates of P2.50 and P3.00 per square meter, respectively, the parties were guided by
the economic conditions prevalent in 1968, when the Philippines faced robust economic prospects.
Petitioner contends that between her and respondent, a corporation engaged in high stakes business and
employing economic and business experts, it is the latter who had the unmistakable advantage to analyze
the feasibility of entering into a 20-year lease contract at such meager rates.9

The same case cited an example of an unforeseen events, specifically, an extraordinary inflation
as cited by the Court in Filipino Pipe and Foundry Corporation vs. NAWASA is that which
happened to the deutschmark in 1920. Thus:

"More recently, in the 1920s, Germany experienced a case of

hyperinflation. In early 1921, the value of the German mark was 4.2 to the U.S.
dollar. By May of the same year, it had stumbled to 62 to the U.S. dollar. And as
prices went up rapidly, so that by October 1923, it had reached 4.2 trillion to the
U.S. dollar!" (Bernardo M. Villegas & Victor R. Abola, Economics, An
Introduction [Third Edition]).

As reported, "prices were going up every week, then every day, then every
hour. Women were paid several times a day so that they could rush out and
exchange their money for something of value before what little purchasing power
was left dissolved in their hands. Some workers tried to beat the constantly rising

7
COMGLASCO CORPORATION/AGUILA GLASS v. SANTOS CAR CHECK CENTER CORPORATION. G.R.
No. 202989. March 25 2005.
8
Id.
9
Singson v Caltex GR. No.137798. October 4, 2000
 prices by throwing their money out of the windows to their waiting wives, who
would rush to unload the nearly worthless paper. A postage stamp cost millions
of marks and a loaf of bread, billions." (Sidney Rutberg, "The Money Balloon",
New York: Simon and Schuster, 1975, p. 19, cited in "Economics, An
Introduction" by Villegas & Abola, 3rd Ed.)10

10
SINGSON v. CALTEX GR. No.137798. OCTOBER 4, 2000 Filipino Pipe and Foundry
Corporation vs. NAWASA, 161 SCRA 32.