Phil Export Corp v. Eusebio ConstructionFACTS:

November 8, 1980: State Organization of Buildings (SOB), Ministry of Housing and Construction, Baghdad, Iraq, awarded the construction of the Institute of Physical Therapy–Medical 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 counter-guarantee in its favor from the PhilguaranteeThe 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 KuwaitSOB 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 1981Prior 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-guaranteeVPECI 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 ProjectVPECI  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 contractorCentral Bank authorized the remittance to Al Ahli BankPhilguarantee 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 RTCRTC 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 oursIn 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 oursdelay 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

VictoriaG.R. No. L-6648, 25 July 1955Facts: 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 AppealsG.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 60’s.

In 1963, Phil Free Press purchased a parcel of land and constructed a building therein which later on became the company’s 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  of price must fall. The categorical conclusion of the Court  of  Appeals, 

confirmatory  of  that  of the trial court, is that the  price  paid  for  the  Free

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 petitioner’s 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 Press’s 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 company’s 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).