OBJECT OF CONTRACTS
Article 1347. All things which are not outside the commerce of men,
including future things, may be the object of a contract. All rights
which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases
expressly authorized by law.
All services which are not contrary to law, morals, good customs, public
order or public policy may likewise be the object of a contract.
Object of Contracts - The object of a contract may be defined as the
thing, right or service which is the subject matter of the obligation which
is created or established.
As a general rule, all things, rights or services may be the object of
contracts. It is however, essential that the following requisites must
concur:
a) The object should be within the commerce of men; in other
words, it should be susceptible of appropriation and
transmissible from one person to another;
b) The object should be real and possible; in other words, it
should exist at the moment of the celebration of the contract, or
at least, it can exist subsequently or in the future;
c) The object should be licit; in other words, it should not be
contrary to law, morals, good customs, public order or public
policy;
d) The object must be transmissible;
e) The object should be determinate, or at least, possible of
determination, as to its kind. The fact that the quantity is not
determinate shall not be an obstacle to the existence of the
contract, provided it is possible to determine the same, without
the need of a new contract between the parties (Article 1349).
THINGS, RIGHTS OR SERVICES THATH CANNOT BE THE
OBJECT OF CONTRACTS:
a) Things which are outside the commerce of men, including
future things;
b) Rights which are intransmissible;
c) Future inheritance except in cases expressly authorized by
law;
d) Services which are contrary to law, morals, good customs,
public order orpublic policy (Article 1347);
e) Impossible things or services (Article 1348);
f) Objects which are not determinate as to their kind (Article
1349).
If the parties enter into a contract with respect to the above contracts,
the contract is void or inexistent.
 Services with imply an absolute submission by those who by
those who render them sacrificing their liberty, their
independence or beliefs
 Personal rights such as marital authority, status and capacity of
a person and honorary titles and distinction.
 Public offices, inherent attributes of public authority and
political rights of an individual such as suffrage.
 Property while they pertain to the public dominion.
 Sacred things, common things such as air and sea
Requisites In order that a contract may fall within the provision of this
article:
 That the succession has not yet been opened
 That the object of the contract
  That the promisor has with respect to the object, an expectancy
or right which is purely hereditary in nature
 Not part of inheritance
 When the object of the contract is not a part of inheritance, the
provision does not apply even if the delivery of such object is
dependent upon death of one of the contracting parties.
 Contrary to law or morals
 The contract is void if at the time it is entered into the object of
object is contrary to law or morals. The law violated need not to
be penal in nature, it is enough that it be mandatory or prohibited.
 Prestation of third party
 The prestation promised in a contract must be personal to the
party. A person can be obligate himself he cannot obligate a third
person
ARTICLE 1348. Impossible things or services cannot be the object
of contracts. (1272)
Things are impossible when:
1.Things are not susceptible for existence. Example: visible air
2.Things are outside the commerce of man. Example: public
plazas
Personal services are beyond the physical strength or power of man to
perform.
Example: crossing the Pacific Ocean by swimming
Absolute or Objective Impossibility Relative or Subjective Impossibility
Nobody can perform it
Due to the special conditions or qualifications
cannot be performed
Nullifies the contract If temporary, does not nullify the contract; If permanent, nullifies
the contract
Liability for Damages.
If the thing or service is impossible, there is no contract. Can
there be any claim for damages against the debtor if the creditor incurred
actual damages? The answer is, it depends. If both parties are fully
aware of the impossibility of the thing or service, there is no liability for
damages because both the debtor and creditor are considered in bad
faith. If the debtor knew of the impossibility or could have known it by
exercising ordinary diligence, he is liable for damages because he is in
bad faith or is negligent. But if the debtor is ignorant of the
impossibility, and his ignorance is justifiable or unavoidable, he cannot
be held liable for the damages suffered by the creditor.
Partly Impossible.
The divisibility of the thing or service will determine whether
the partially possible and partially impossible thing or service will be
void or valid.
Difficulty of Performance.
When there is a mere difficulty or great inconvenience to comply
with an obligation that is not impossibility. A party who committed
himself to do a difficult obligation is not relieved from his responsibility
even if he would suffer inconvenience or increased expenses in the
fulfillment thereof.
Article 1349. The object of every contract must be determinate as
to its kind. The fact that the quantity is not determinate shall not be
an obstacle to the existence of the contract,provided it is possible to
determine the same,without the need of a new contract between the
parties.
Determinate
or itspecific
of the debtor thing -Particularly or physically segregated
others of the same class.
Examples:
1. The t-shirt levi’s i am wearing
2. The toyota car with plate No. AST 143 2016
Generic or Indeterminate thing
 1. A brand new t-shirt
2. A 2016 toyota car
In article 1349, what makes the contract void?
If the object is indeterminate and no further agreement was
conducted between the parties the contract is void.
CAUSE OF CONTRACTS
Article 1350 In onerous contracts the cause is understood to be, for
each contracting party the prestation or promise of a thing or
service by the other; in remuneratory ones, the service or benefit
which remunerated; and in contracts of pure beneficence, the mere
liberality of the benefactor.
Onerous Contracts
An onerous contract is a contract in which the aggregate cost
required to fulfill the agreement is higher than the economic benefit to
be obtained from it. … Another example of an onerous contract is when
a lessee is still obligated to make payments under the terms of an
operating lease, but is no longer using the assets.
In onerous contracts something is given or promised as a
consideration for the engagement or gift, or some service, interest, or
condition is imposed on what is given or promised, although unequal to
it in value.
Now the cause here is deemed for both parties in good faith.
Remuneratory Contracts- is one where a party gives something t o
another because of some service or benefit given or rendered by the
latter to the former.
Note that such service or benefit is not due to legal obligations.
Example: Karl gave Dane 1 live Carabao, in consideration of the latters
act in saving the former’s cows in times of typhoon .
Gratuitous Contracts- Gratuitous contracts are essentially agreements
to give donations, Generosity or liberality is the cause of such contracts,
Mutual promise as a cause- a promise made by one party in accordance
with the forms required by law, may be a good cause or consideration.
Example: Karl promises to sell a parcel of land to Dane for the sum of
P10,000 by virtue of the promise on the part of Dane to pay the said
amount for the land.
Accessory contracts– here the performance of another’s contract has
been secured by other person either by acting as a surety on a bond or
by giving his property by way of Mortgage to secure such other person’s
contract.
The cause of contract here is pure beneficience
Beneficence- the act of doing good…
Article 1351. The particular motives of the parties in entering into
a contract are different from the cause thereof. (n)
Motive and Causes, Difference
The cause of a contract is the objective and juridical reason for the
establishment of a contract and is always the same. while motive is the
psychological or personal purpose of a party in getting the object and
differs with each person. Each party may have his own personal reasons
or motives in entering into a contract. Motive or even with illegal
motives does not affect the validity of the contract.
Exception: If the motive predetermines the purpose of the contract,
motive may be regarded as cause.
Article 1352. Contracts without cause, or with unlawful cause,
produce no effect whatever. The cause is unlawful if it is contrary
to law, morals, good customs, public order or public policy.
Contract is meeting of the minds. If there is no essential cause for this,
there is no contract at all.
Examples of unlawful contract: Let steal the silver spoon and forks in
the party.
Example of contract contrary to good morals: Let us have our own
paramours even we are married.
Example of contract contrary to public orders: Let’s create riot this
evening.
A contract of sale is null and void if there is no CAUSE or
CONSIDERATION.
Cause of Contract is the purpose of the contract. It is the essential reason
which moves the parties to enter into the contract.
Illegality of Cause arises when the same is contrary to law, morals,
public order, good customs or public policy. It is produced to for the
purpose of preventing a prosecution for a crime.
Article 1353. The statement of a false cause in contracts shall render
them void, if it should not be proved that they were founded upon
another cause which is true and lawful. (1276)
Void contracts cannot be ratified, but based on Article 1353, as long as
it can be proven that another cause that is true and lawful supports it,
then the contract will still have a valid cause to sustain it.
Article 1353 can also be applied to absolutely simulated contracts that
are considered as void contracts. Again, even if the contract is already
void, if it can be established that there is another cause for it which is
valid, then the contract is valid.
Article 1354. Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the
contrary.
`In the event that the contract does not state its cause, it must be
presumed that the cause exists and is lawful. This presumption, though,
is rebuttable. If the debtor can prove otherwise, the existence of the
cause, or its legality can be questioned.
This principle is related to Article 1403, par. 2 which states:
Article 1403. The following contracts are unenforceable, unless they
are ratified:
xxx (2) Those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases, an agreement hereafter made
shall be unenforceable by action, unless the same, or some note or
memorandum thereof, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary
evidence of its contents.. xxx
Hence, Article 1354 applies to contracts which must be evidenced by
writing under the Statute of Frauds.
Burden of proof- The person who has the burden of establishing that
there was no consideration is the debtor.
Article 1355. Except in cases specified by law, lesion or inadequacy
of cause shall not invalidate a contract, unless there has been fraud,
mistake or undue influence.
*The effect of lesion or inadequacy of cause when it resulted from fraud,
mistake or undue influence is that the lesion became a good ground for
rescission of the contract.
FORM OF CONTRACTS
Article 1356. Contracts shall be obligatory, in whatever form they
may have been entered into, provided all the essential requisites for
their validity are present. However, when the law requires that a
contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such cases, the right
of the parties stated in the following article cannot be exercised.
(1278a)
Contracts are binding upon the contracting parties in whatever
form they may have been entered into as long as all the essential
requisites for their validity are present. However, when can we consider
form as essential requisite of a contract?
The form of a contract is essential:
1.When the law requires that a contract be in certain form for its
validity; (refers to solemn or formal contracts).
2.When the law requires that a contract be in certain form for its
enforceability. (refers to the agreements covered by the Statute
of Frauds. (Art. 1403, par 2.)
Article 1357. If the law requires a document or other special form,
as in the acts and contracts enumerated in the following article, the
contracting parties may compel each other to observe that form,
once the contract has been perfected. This right may be exercised
simultaneously with the action upon the contract. (1279a)
When form is required by law for its convenience only and the
contract is in not that form, contracting parties may compel each other
to observe that form, once the contract required by the law but if not not
essential for validity .of the contract then this art. cannot be made.
Illustration: Almarion sold leviste a house and lot but the contract
appears in a private writing. under the law, when sale refers real property
like house and lot, almario cannot compel leviste to execute a deed of
sale in public documents.
Article 1358. The following must appear in a public document:
(1) acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein
are governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or
of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which
has for its object an act appearing or which should appear in a
public document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one. But sales of goods,
chattels or things in action are governed by Articles, 1403, No. 2 and
1405. (1280a)
Article 1358 of the Civil Code provides that acts and contracts
which have for their object the transmission of real rights over
immovable property or the sale of real property must appear in a public
document. If the law requires a document or other special form, the
contracting parties may compel each other to observe that form, once
the contract has been perfected.
In Fule v. Court of Appeals, the Court held that Article 1358 of the Civil
Code, which requires the embodiment of certain contracts in a public
instrument, is only for convenience, and registration of the instrument
only adversely affects third parties. Formal requirements are, therefore,
for the benefit of third parties.
Non-compliance therewith does not adversely Art. 1358. The
following must appear in a public document:
1. Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest
therein a governed by Articles 1403, No. 2, and 1405;
2. The cession, repudiation or renunciation of hereditary rights or
of those of the conjugal partnership of gains;
 3. The power to administer property, or any other power which has
for its object an act appearing or which should appear in a public
document, or should prejudice a third person;
4. The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one. But sales of
goods, chattels or things in action are governed by Articles, 1403, No. 2
and 1405. (Emphasis supplied.)
REFFORMATION OF INSTRUMENTS
Article 1359. When, there having been a meeting of the minds of the
parties to a contract, their true intention is not expressed in the
instrument purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties
may ask for the reformation of the instrument to the end that such
true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented
a meeting of the minds of the parties the proper remedy is not
reformation of the instrument but annulment of the contract. (n)
Par. 1 [Ill. In a contract of construction of a building, the parties agreed
that payment in dollars. The dollar sign was used in the original draft.
However what was typewritten in the contract, occassioned by mistake,
was the peso sign. Reformation was ordered by the court.
Par. 2 [Ill. Where a party is leasing his property to another, the latter
through fraud was able to make him sign an absolute deed of sale, the
action is not for reformation but for annulment of the instrument.
Reformation is a remedy in equity by means of which a written
instrument is made or construed so as to express or confirm the real
intention of the parties when some error or mistake is committed.
It would be unjust and inequitable to allow the enforcement of a written
instrument which does not reflect or disclose the real meeting of the
minds of the parties. The rigor of the legallistic rule that a written
instrument should be the final and inflexible criterion and measure of
the rights and obligations of the contracting parties is thus tempered, to
forestall the effects of of mistake, fraud, inequitable conduct, or
accident.
The court which orders the reformation of the instrument does not make
a new contract for the participating parties in the document but merely
orders that the instrument express their true agreement.
Requisites of Action for Reformation
1. There is a contract agreed upon where there is a meeting of the
minds
2. The real intention of the parties was not expressed in the
instrument.
3. The reason for the instrument to express the real intention of the
parties is mistake, fraud, inequitable conduct or accident did not
prevent the meeting of the minds of the parties.
4. The said intervening mistake, fraud, inequitable conduct or
accident did not prevent the meeting of the minds of the parties.
Article 1360. The principles of the general law on the reformation
of instruments are hereby adopted insofar as they are not conflict
with the provisions of this Code.
General Law on Reformation:
The Chapter on Reformation of Instruments is based on
American Law. The prevailing jurisprudence in America will be
persuasive but not necessarily binding, provided the same does not
contradict with the provisions of the code and other Philippine laws.
The governing law is: Article 17.
The forms and solemnities of contracts, wills, and other public
instruments shall be governed by the laws of the country in which they
are executed.
When the acts referred to are executed before the diplomatic or
consular officials of the Republic of the Philippines in a foreign country,
the solemnities established by Philippine laws shall be observed in their
execution.
Prohibitive laws concerning persons, their acts or property, and those
which have for their object public order, public policy and good customs
shall not be rendered ineffective by laws or judgments promulgated, or
by determinations or conventions agreed upon in a foreign country.
(11a)
Article 1361. When a mutual mistake of the parties causes the
failure of the instrument to disclose their real agreement, said
instrument may be reformed. (n)
Article 1361 applies to contracts whose parties have committed
a mutual mistake, the same mistake which caused the failure of the
instrument to express their true agreement. Thus, the proof to establish
the mutual mistake must be clear and convincing, and not just a mere
preponderance of evidence. Also, the mistake must be a mistake of fact
and not a mistake of law, because everybody is supposed to know the
law and ignorance of the law excuses no one. Subsequently, reformation
will not be granted, unless the proof of mutual mistake is clear and
strong.
Article 1362. If one party was mistaken and the other acted
fraudulently or inequitably in such a way that the instrument does
not show their true intention, the former may ask for the
reformation of the instrument.
Ordinarily, the unilateral mistake of a party will not exempt the
other party from the effects of the contract. However, the presence of
fraud or inequitable conduct justifies the reformation of the contract.
Article 1363. When one party was mistaken and the other knew or
believed that the instrument did not state their real agreement, but
concealed that fact from the former, the instrument may be
reformed.
*On this article if the party is guilty of concealment and attended with
bad faith therefore reformation is authorized to avoid injustice and
inequity while if the second party is not aware of the imperfection and
acted in good faith as the first party therefore the mistake becomes
mutual and reformation is authorized.
Note: There is no case indicated on this article.
Illustration:
Mrs. Dy owed 5M to Mrs. Gong and made a promissory note that she
will pay Mrs. Gong her land title in Cavite which is equivalent to the
amount that she owed. 6 months after their contract was made Mrs. Dy
delivered her land title to Mrs. Gong as her payment for her debt to the
latter. Mrs. Gong accepted the land title but she noticed that it was the
land title of Mrs. Dy in Ilocos Norte which is 3x more than the amount
that Mrs. Dy owed but she concealed it to Mrs. Dy. Therefore Mrs. Dy
is entitled for the reformation of instrument that they used in their
contract.
Article 1364. When through the ignorance, lack of skill, negligence
or bad faith on the part of the person drafting the instrument or of
the clerk or typist, the instrument does not express the true
intention of the parties, the courts may order that the instrument be
reformed.
What should be the mistakes that a drafter, clerk or typist, who
did the mechanical act of preparing the instrument can commit for an
instrument to be able to be reformed?
The mistake must be due to his ignorance, lack of skill or bad faith.
Article 1365. If two parties agree upon the mortgage or pledge of
real or personal property, but the instrument states that the
property is sold absolutely or with a right of repurchase,
reformation of the instrument is proper.
TERMINOLOGY:
Pacto de Retro – title and ownership of the property sold is immediately
vested in the vendee; a sale with stipulation for repurchase
Reformation – A remedy in equity by means of which a written
instrument is made or construed to express or confirm the real intention
of the parties when some error or mistake is committed.
Parol Evidence – refers to verbal expressions or words; verbal evidence
or extraneous evidence such as an oral agreement (a parol contract), or
even a written agreement, that is not included in the relevant written
document.
Applicability – Article applies to a mortgage of real property or pledge
of personal property but the instrument signed is an absolute sale or sale
with pacto de retro. The reformation of the instrument is authorized to
express the real intention of the parties.
Factors in Determining Intention of Parties –
May be inferred from their simultaneous or subsequent acts as well as
from their stipulations in the contract; The CA considered the word
“debt” used in the agreement as an indicator of the true intention of the
parties. This term implies the existence of a debtor-creditor relationship
between the parties which is not in accord with a purchase and sale
transaction.
Parol Evidence is Admissible –
To prove that the agreement of the parties is not one of sale but of a
mortgage, parol evidence can be used.
Article 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is
imposed;
(2) Wills;
(3) When the real agreement is void.
Donations and Wills. Both donations and wills are essentially
acts of pure liberality. Reformation is not required unless there is an
imperfect or erroneous descriptions of persons or property ensuring that
the manner of property disposal remains.
Void Agreements. Stated in Article 1409 are contracts that are void and
inexistent from the beginning. These are
1. Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the time of the
transaction;
4. Those whose object is outside the commerce of men;
5. Those which contemplate an impossible service;
 6. Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
7. Those expressly prohibited or declared void by law.
Reformation is not allowed in case the real agreement is void
because such a procedure would be useless. Once reformation is made,
the new instrument would be void precisely because the true agreement
and intention are void.
What are the cases that need no reformation?
There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is
imposed;
(2) Wills;
(3) When the real agreement is void.
Article 1367. When one of the parties has brought as action to
enforce the instrument, he cannot subsquently ask for its
reformation.
Example: Anna who is need of money negotiated a contract of chattel
mortgage with Ben using Anna’s Car for security. Through machination
perpetrated by Ben, Anna signed a document of sale believing that it
was a chattel mortgage. Later Ben filed a case against Anna for delivery
of the car based on the deed of sale. The action failed. Ben can no longer
seek the reformation of the instrument to consider it a chattel mortgage.
He is estopped for the law has deemed him to have waived the action
for reformation.
Article 1368. Reformation may be ordered at the instance of either
party or his successors in interest, if the mistake was mutual;
otherwise, upon petition of the injured party, or his heirs and
assigns.
Reformation is define as the remedy allowed by law by means of a
written instrument is amended or rectified so as to express or conform
to the real agreement or intention of the parties when by reason of
mistake,fraud,inequitable conduct, or accident, the instrument fails to
express such agreement or intention.
Example
X and Y entered into a contract whereby X sold to Y his 9mm pistol. By
mistake, the written contract and signed by the parties states that the sold
pistol is Cal.45. In this case, the instrument may be reformed on the
ground of mutual mistake. (Art. 1361)
Supposing that the the contract was made by a third person through
ignorance, etc. under Art. 1364, neither party is responsible for the
mistake. Hence, either party may ask for reformation.
Article 1369. The procedure for the reformation of instruments
shall be governed by rules of court to be promulgated by the
Supreme Court.
An action for the reformation of instruments happens to “quiet
title to real property or remove clouds therefrom.” This action for
reformation of instruments falls under the jurisdiction of the Regional
Trial Court.
INTERPRETATION OF CONTRACTS
Article 1370. If the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of
its stipulations shall control.
If the words appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former.
It is a cardinal rule in the interpretation of contracts that if the
terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulation shall control.
The Court must not read into any other intention of the contracting
parties contradictory to the plain meaning.
The terms of an agreement or writing are presumed to have been
used in their primary and general acceptation. However, evidence may
be admitted to show that they are used in a local, technical or otherwise
peculiar signification.
Legal Meaning
In interpreting a writing according to its legal meaning, it is to be
interpreted according to the legal meaning it bears in the place of its
execution, unless the parties intended otherwise (Rule 130, Section 10
of the Rules of Court).
The MTC has no jurisdiction of the issue is interpretation, enforcement
and/or rescission of the contracts.
Only the laws existing at the time of the execution of the contract applies
to the contract unless the intention is for it to retroact.
Article 1371. In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be
principally considered.
When we say contemporaneous this will occur in the same
period of time and the Subsequent Acts is the one which following in
time or order of the acts of the contracting parties.
Article 1372. However general the terms of a contract may be, they
shall not be understood to comprehend things that are distinct and
cases that are different from those upon which the parties intended
to agree. (1283)
Can the general terms used in a contract can comprehend things
that are distinct and different from those agreed upon by the parties?
No, no matter how general the terms used in a contract, they do
not comprehend things that are distinct and different from those agreed
upon by the parties.
Illustrative case:
Carrot man built s house on a lot containing an area of 350 sqm.
Cabbage man protested to the construction alleging that their agreement
was that Carrot man could occupy only that space where the house was
constructed. This interpretation is erroneous because if that was the
intention they could have used the words “portion” or “part” and not the
word “lot”.
Article 1373. If some stipulation of any contract should admit of
several meanings, it shall be understood as bearing that import
which is most adequate to render it effectual. (1284)
From Article 1370 to 1379 these are the rules of Interpretation of
Contracts
When an agreement is susceptible of several meanings, one of
which would render if effectual, it should be given that interpretation.
Thus if one interpretation makes a contract valid and other makes it
illegal, the former interpretation is one which is warranted by the rules
of Article 1373
Example
A provision in an employ¬ment contract which prohibited an employee
for two years from calling on any customer of the employer called on
by the employee during the last six months of employment would
generally be valid.
Article 1374. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly. (1285)
Illustrative case.The Bank of the Phil. Islands- petitioner-appellant
vs. Ty Camco Sobrino,et al – respondent-appellees
The mortgage contract should be read in its entirely. If so read,
it is at once seen that while the making of the 2nd mortgage except with
the written consent of the mortgage is prohibited , the contract continues
and states the penalty for such violation namely, it gives to the mortgage
the right immediately foreclose mortgage. It does not give the mortgages
the right to treat the second mortgage as null and void.
The orders of CFI of pangasinan are affirmed with cost against the
appellant.
Article 1375. Words which may have different significations shall
be understood in that which is most inkeeping with the nature and
object of the contract. (1286)
If a word is susceptible to two or more meanings shall be understood to
follow the eaning which is most in keeping with the nature and object
of the agreement.
Article 1376. The usage or customs of the place shall be borne in
mind in the interpretation of the ambiguities of a contract, and shall
fill the omission of stipulations which are ordinarily established
1. Effect of Usage or Custom of the Place
Examples:
1. 1. A made a contract with B regarding “pesetas.” In the place
where the contract was made, Mexican pesetas were more commonly
used than Spanish pesetas. The Supreme Court held that the term
“pesetas” should be construed to mean Mexican pesetas.
2. 2. If a contract for a lease of services does not state how much
compensation should be given, the custom of the place where the
services were rendered should determine the amount.
Article 1377. The interpretation of obscure words or stipulations in
a contract shall not favor the party who caused the obscurity. (1288)
It is fair, logical and sensible not to favor that one who caused
the ambiguity in the contract because he should not benefit from it.
Therefore, drafters of contract must be very careful and cautious in the
choice of words or term they are going to use. The terms should be clear
and should leave no room for doubt regarding the true intention of the
parties.
The same article applies to contracts of adhesion where the terms
are prepared by only one party while the other merely makes a choice
whether he wants to take it or leave it. Contracts of adhesion become
void when the weaker party is reduced to the alternative of taking ir or
leaving it, and is absolutely deprived of the opportunity to bargain on
equal footing.
Article 1378. When it is absolutely impossible to settle doubts by the
rules established in the preceding articles, and the doubts refer to
incidental circumstances of a gratuitous contract, the least
transmission of rights and interests shall prevail. If the contract is
onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests.
If the doubts are cast upon the principal object of the contract in
such a way that it cannot be known what may have been the
intention or will of the parties, the contract shall be null and void.
If Articles 1370 to 1377 cannot apply, this article will be considered
as the last resort.
1. In case of doubts on the incidental circumstances of the contract,
and the contract is gratuitous, the least transmissible of rights and
interest shall prevail.
E.g.:
A pacto de retro sale should be interpreted as providing for the least
transmissible of rights. The construction favoring the right to redeem
should be adopted which right is considered a natural right.
2. In case of doubts on the incidental circumstances of the contract, it bears in the place of its execution, unless the parties intended
and the contract is onerous, the doubt shall be construed in favor of the otherwise.”.
greatest reciprocity of interests.
E.g.:
When there is doubt as to whether the contract is a loan or a sale, to hold
that the land was conveyed as security for a loan would afford greater
reciprocity of interest.

3. If there is doubt on the principal object of the contract and it

cannot be determined what might have been the intention or will of the
contracting parties, the contract shall be void. This is in line with Article
1409, par. 6.

Article 1379. The principles of interpretation stated in Rule 123 of

the Rules of Court shall likewise be observed in the construction of
contracts.
These are the classifications of defective contracts:
1. Rescissible contracts
2. Voidable or annullable contracts
3. Unenforceable contracts
4. Void or inexistent contracts
Note: There is no case indicated on this article.

Illustration:
Mr. A is a businessman and he really want to buy the rice field of Mr. B
for the construction of his commercial building. He issued a written
contract to Mr. B who is a farmer and the owner of 15 hectares of rice
field, since Mr. B doesn’t know how to read and right, Mr. A should
interpret first the written contract that he issued to Mr. B before the latter
agreed and signed upon it because according to art. 1379 The
interpretation stated in Rule 123 of the Rules of Court shall likewise be
observed in the construction of contracts which stated in “Sec.10
Interpretation of a writing according to its legal meaning – that the
language of a writing is to be interpreted according to the legal meaning