Rustan Vs IAC Digest

Rustan Pulp Paper Mills, Tantaco, Guevara vs.
Intermediate Affiliate Court and

Iligan Diversified Projects, Inc., Lluch and Romero
G.R. No. 70789 1992
Facts: Sometime in 1966, Rustan established a pulp and paper mill in Baloi, Lano del Norte. On March
20, 1967, respondent Lluch, who is a holder of a forest products license, transmitted a letter to Rustan
for the supply of raw materials by the former to the latter. In response thereto, Rustan proposed,
among other things, in the letter-reply:
“That the contract to supply is not exclusive because Rustan shall have the option to buy from other
suppliers who are qualified and holder of appropriate government authority or license to sell and
dispose pulp wood.”
These prefatory business proposals culminated in the execution, during the month of April,
1968, of a contract of sale whereby Romeo A. Lluch agreed to sell, and Rustan Pulp and Paper Mill, Inc.
undertook to pay the price of P30.00 per cubic meter of pulp wood raw materials to be delivered at the
buyer's plant in Baloi, Lanao del Norte.
The following are the significant stipulations in the bilateral undertaking:

“That BUYER shall have the option to buy from other SELLERS who are equally qualified and holders of
appropriate government authority or license to sell or dispose, that BUYER shall not buy from any other
seller whose pulp woods being sold shall have been established to have emanated from the SELLER'S
lumber and/or firewood concession”
“And that SELLER has the priority to supply the pulp wood materials requirement of the BUYER”
“That the BUYER shall have the right to stop delivery of the said raw materials by the seller covered by
this contract when supply of the same shall become sufficient until such time when need for said raw
materials shall have become necessarily provided, however, that the SELLER is given sufficient notice.”
In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc.
recommended the acceptance of deliveries from other suppliers of the pulp wood materials for which
the corresponding deliveries were made. But during the test run of the pulp mill, the machinery line
thereat had major defects while deliveries of the raw materials piled up, prompting Rustan to send a
notice of stoppage of delivery in September 30, 1968. However, Rustan stopped accepting deliveries
until December 23, 1968.
Lluch sought to clarify the tenor of the letter as to whether stoppage of delivery or termination
of the contract of sale was intended, but the query was not answered by petitioners..
On January 23, 1969, the complaint for contractual breach was filed which, as earlier noted, was
dismissed but was reversed by IAC
Merits by IAC:
First, the fact that appellees were buying and accepting pulp wood materials from other sources other
than the appellants even after September 30, 1968 belies that they have more than sufficient supply of
pulp wood materials, or that they are unable to go into full commercial operation or that their
machineries are defective or even that the pulp wood materials coming from appellants are sub-
standard.
Second, even with one predicament in which defendant Rustan found itself wherein commercial
operation was delayed, it accommodated all its suppliers of raw materials, Rustan continue accepting
deliveries of raw materials.
Furthermore, there is evidence on record that appellees have been accepting deliveries of pulp wood
materials from other sources, i.e. Salem Usman, Fermin Villanueva and Pacasum even after September
30, 1968.
Lastly, it would be unjust for the court a quo to rule that the contract of sale be temporarily suspended
until Rustan, et al., are ready to accept deliveries from appellants. This would make the resumption of
the contract purely dependent on the will of one party — the appellees, and they could always claim, as
they did in the instant case, that they have more than sufficient supply of pulp wood when in fact they
have been accepting the same from other sources. Added to this, the court a quo was imposing a new
condition in the contract, one that was not agreed upon by the parties.
Issue: WON Rustan Pulp and Paper Mills may legally exercise the right of stoppage should there be a glut
of raw materials at its plant?
Ruling: No.
And insofar as the express discretion on the part of petitioners is concerned regarding the right of
stoppage, We feel that there is cogent basis for private respondent's apprehension on the illusory
resumption of deliveries inasmuch as the prerogative suggests a condition solely dependent upon the
will of petitioners .
“Petitioners can stop delivery of pulp wood from private respondents if the supply at the plant is
sufficient as ascertained by petitioners, subject to re-delivery when the need arises as determined
likewise by petitioners”
This is Our simple understanding of the literal import of paragraph 7 of the obligation in question.
We feel that there is cogent basis for private respondent's apprehension on the illusory resumption of
deliveries inasmuch as the prerogative suggests a condition solely dependent upon the will of
petitioners. Petitioners can stop delivery of pulp wood from private respondents if the supply at the
plant is sufficient as ascertained by petitioners, subject to re-delivery when the need arises as
determined likewise by petitioners.
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
It is, of course, a truism in legal jurisprudence that 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
WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that only petitioner Rustan
Pulp and Paper Mills is ordered to pay moral damages and attorney's fees as awarded by respondent
Court.
SO ORDERED.

Rustan Vs IAC Digest

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Rustan Pulp Paper Mills, Tantaco, Guevara vs.

Intermediate Affiliate Court and

The following are the significant stipulations in the bilateral undertaking:

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