PANGADIL v.

CFI
Simulation of Contracts

FACTS:

A parcel of land owned by Pangadil was conveyed in favor of the respondent Tandingan through a
verbal sale. After the death of Pangadil, his daughter Salandang executed the document called
"Ratificacion De Una Venta" wherein she acknowledged the verbal sale made by her deceased father
Pangadil over the parcel of land in favor of respondent Tandingan. The sale was approved by the
guardianship court.

21 years later, Salandang filed a civil case before the CFI seeking to annul the “Ratificacion De Una
Venta”. Salandang averred that she and her sister were made to sign the document on the
misrepresentation that it was merely to ratify a verbal mortgage executed by her father during his
lifetime, and not to confirm a verbal sale of the land.

CFI dismissed the case on the ground of prescription, and declared that the document "Ratificacion De
Una Venta" was legal, binding and effective, hence, the action to annul the sale which was filed more
than 21 years after the approval thereof is already barred by the statute of limitations.

In their present petition for review on certiorari, Salandang disputed the CFI’s ruling on the ground that
the document known as "Ratificacion De Una Venta" is inexistent and void and the action for a
declaration of its non-existence does not prescribe pursuant to Art. 1410 of the Civil Code.

ISSUE:

W/N the document known as "Ratificacion De Una Venta" is inexistent and void, and the action is
imprescriptible.

HELD: No.

There is less legal basis to hold that the questioned document is inexistent and void ab initio for being
supposedly a simulated or fictitious contract.

Under the law, the simulation of a contract may either be absolute or relative. It is only when the
contract is absolutely simulated or fictitious that it is deemed void. There is absolute simulation "when
the parties do not intend to be bound at all." In case the parties merely conceal their true agreement,
the simulation is relative, and the contract with that defect is binding upon the parties unless it
prejudices a third person and is intended for a purpose contrary to law, morals, good customs, public
order or public policy.

The document in question may not be deemed absolutely simulated or fictitious. By petitioners' own
admission, they intended to be bound thereby; they merely contend that they thought it was to ratify a
contract of oral mortgage, instead of an oral sale of land. In short, it is not a contract wherein the parties
do not intend to be bound at all which would thereby make it absolutely simulated and, therefore, void.
As for the issue on prescription, the imprescriptibility of an action to declare the inexistence of a
contract under Article 1410 refers only to the contracts expressly enumerated in Article 1409 of the Civil
Code (Void and Inexistent Contracts).

Fraud would only make the contract voidable or annulable. If the action to annul a voidable contract is
based on fraud, it prescribes in four years from the time of the discovery of the fraud. (Art. 1391, Civil
Code.)

The petitioner’s inaction for 21 years reflects on the credibility of their pretense that they merely
intended to confirm a verbal mortgage, instead of a verbal sale of the land in question.

Oil and Natural Gas Commission v. CA and Pacific Cement Company

(How to interpret a contract, when it contains stipulations which admit of several meanings – Art 1373)

FACTS:

Pacific Cement Company, a Philippine corporation, (private respondent) undertook to supply a foreign
corporation owned by the Indian government, called Oil and Natural Gas Commission (petitioner) with
4,300 metric tons of oil well cement. However, Pacific Cement failed to deliver the cargo,
notwithstanding the fact that they had already received payment. The parties then negotiated that
Pacific Cement will replace the entire 4,300 metric tons of oil well cement with Class "G" cement.
However, upon inspection, the Class "G" cement did not conform to the Commission’s specifications.
This induced the Commission to refer the matter to an arbitrator pursuant to Clause 16 of their contract.

The chosen arbitrator ruled in favor of the Commission. To enable the petitioner to execute the above
award in its favor, it filed a Petition before a foreign court in India. This foreign court also ruled in favor
of the Commission, and ordered the enforcement of the arbitrator’s ruling. However, Pacific Cement still
refused to pay.

Hence, the Commission filed a complaint with the RTC for the enforcement of the foreign court’s ruling.
However, the RTC ruled in favor of Pacific Cement, and held that the referral of the matter to an
arbitrator pursuant to the Clause 16 of the contract was erroneous. The CA affirmed the RTC’s ruling.

Hence this petition for review on certiorari.

ISSUE: W/N the non-delivery of the cargo was a matter properly cognizable by the provisions of Clause
16 of the contract.
HELD: No.

Clause 16 covers 3 matters that may be resolved through arbitration. The Commission’s contention was
that the non-delivery of the cargo falls under the third matter, which reads:

(3) otherwise concerning the materials or the execution or failure to execute the same during
stipulated/extended period or after the completion/abandonment thereof.

The non-delivery of the oil well cement is definitely not in the nature of a dispute arising from the failure
to execute the supply order/contract design, drawing, instructions, specifications or quality of the
materials. Clause 16 should pertain only to matters involving the technical aspects of the contract
because the underlying purpose of a referral to arbitration is for such technical matters to be
deliberated upon by a person possessed with the required skill and expertise which may be otherwise
absent in the regular courts.

Non-delivery of cargo is not a technical aspect of the contract, but a nonfulfillment of an obligation
which is an matter that is cognizable by the regular courts. Hence, the matter falls within the ambit of
Clause 15 of their contract, which states:

“All questions, disputes and differences, arising under out of or in connection with this supply
order, shall be subject to the exclusive jurisdiction of the court, within the local limits of whose
jurisdiction and the place from which this supply order is situated.”

This conclusion was based from the following provisions:

Art. 1373 NCC - 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.

Art. 1374 NCC - The various stipulations of a contract shall be interpreted together, attributing
the doubtful ones that sense which may result from all of them taken jointly.

Rule 130 Section 11 Rules of Court. In the construction of an instrument, where there are
several provisions or particulars, such a construction is, if possible, to be adopted as will give
effect to all.

Thus, this Court has held that the provisions of a contract should not be read in isolation from the rest of
the instrument but, on the contrary, interpreted in the light of the other related provisions. The whole
and every part of a contract must be considered in fixing the meaning of any of its harmonious whole.
Equally applicable is the canon of construction that in interpreting a statute or a contract, care should be
taken that every part thereof be given effect, on the theory that it was enacted as an integrated
measure and not as a hodge-podge of conflicting provisions. The rule is that a construction that would
render a provision inoperative should be avoided; instead, apparently inconsistent provisions should be
reconciled whenever possible as parts of a coordinated and harmonious whole.

The Commission’s interpretation of Clause 16 would render Clause 15 a mere superfluity and ineffective.
A perusal of Clause 16 shows that the parties did not intend arbitration to be the sole means of settling
disputes. This is manifest from Clause 16 itself which is prefixed with the proviso, "Except where
otherwise provided in the supply order/contract . . .", thus indicating that the jurisdiction of the
arbitrator is not all encompassing, and admits of exceptions as may be provided elsewhere in the supply
order/contract.

The correct interpretation to give effect to both stipulations in the contract is for Clause 16 to be
confined to all claims or disputes arising from or relating to the design, drawing, instructions,
specifications or quality of the materials of the supply order/contract, and for Clause 15 to cover all
other claims or disputes.