CHAPTER 3.

FORM OF CONTRACTS

CHAPTER 3. 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. 

Contracts are binding upon the contacting parties in whatever form they may have
been entered into as long as all the essential requisites for their validity are present.

Form of a contract-refers to a manner in which a contract is executed or manifested.

When form is Essential:

 
1. when the law requires a form for the validity of the contract.

2. When the law requires certain agreements to be in writing to be enforceable, or that

contracts must be proven in a certain way.

3. When the law requires a special form.

Examples:

Beth left a note in the store of Nathy offering Php 1,000.00 for a table Nathy is
selling. The following day Nathy called Beth by phone accepting the offer of Beth
who promised to pay the next day.

The note and the oral acceptance constitute a legally enforceable contact and both
Beth and Nathy are fully bound.

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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.

Kung hinihingi ng batas, ang isang dokumento o iba pang espesyal na porma, na
tulad ng gawa at mga kontratang nabanggit sa mga  sumusunod na artikulo, ang
nakikipagkontratang partido ay maaring pilitin ang bawat isa na sundin ang itsura
hanggang sa mabuo ang kontrata. Ang karapatan na ito ay maaaring gawin ng
tuloy-tuloy na may pagkilos sa kontrata.

Example:

Kristia donated a real property to Bryan in a private instrument. The donation is void.

Donation of real property is required to be in a public instrument to be valid.

Sale of Real property orally executed is valid but unenforceable because the law
requires it to be in writing. While exchange of land is valid although not in writing.

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 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. 

Ang sumusunod ay dapat lumitaw sa isang pampublikong dokumento:

(1) Mga gawain at kasunduang na may layong lumikha, maghatid, magbago o

magwakas ng mga tunay na karapatan sa hindi nalilipat na ari-arian; mga benta
ng tunay na ari-arian o ng isang interes sa loob nito na pinamamahalaan ng
Artikulo 1403, Blg. 2, at 1405;

(2) Ang pagsasalin, pagtatakwil o pagtalikod sa mga karapatan ng pagmamana o

yaong mga naipundar sa ilalim ng kasal;

(3) Ang kapangyarihang mangasiwa ng ari-arian, o anumang iba pang

kapangyarihan na may layong gumawa ng gawaing ilalagay o kaya’y dapat ilagay
sa isang pampublikong dokumento, o kaya’y makasasama sa ibang tao;

(4) Ang pagsasalin ng mga aksyon o mga karapatang nagmumula sa isang

gawaing umiiral na sa isang pampublikong dokumento.

Lahat ng iba pang mga kasunduan kung saan ang sangkot na halaga ay lampas sa
limang daang piso ay dapat nakasulat, gayon din yaong pribado. Ngunit ang
bentahan ng mga kalakal, chattels o mga bagay sa aksyon ay pinamamahalaan ng
Artikulo, 1403, Blg. 2 at 1405.

Article 1358 NCC | speaks of…

Contracts which must appear in a public document

 The law does NOT require the accomplishment of certain acts OR contracts in
a public instrument in order to validate the act OR contract
  BUT ONLY to insure its efficacy so that after the existence of the act OR
contract has been admitted/established, the party bound may be compelled
to execute the document.

 Formal requirements are for the benefit of third parties

 for the purpose of informing as well as binding them.
 Non-compliance does NOT adversely affect the validity of the contract
NOR the contractual rights and obligations of the parties.

 Public document/instrument
 one which is acknowledged before a notary public OR any official
authorized to administer oath, by the person who executed the same;
 any other instrument is private, UNLESS it becomes part of an official
record and is certified by a public officer duly authorized by law

Article 1358 NCC | example:

 As security for his debt, Ryan mortgaged his land to Elsa.

 The mortgage must appear in a public document.
 The extinguishment of the mortgage, upon payment of the debt by Ryan, must
likewise appear in a public document.

CHAPTER 4. REFORMATION
OF INSTRUMENTS
CHAPTER 4. REFORMATION 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.
Kapag ang magkabilang partido ay namayagan sa kasunduan, ngunit ang kanilang
dokumento ay naiiba sa kanilang napagkasunduan, ito ay maaring ipabago ng
kahit sinong partido. Ngunit kapag magkaiba ang iniisip na napagkasunduan ng
magkabilang panig, ang kasunduan ay maari lamang ipawalang bisa.

Meaning of reformation.

Reformation is that remedy by means of which 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.

Reason for reformation.

“Equity orders the reformation of an instrument in order that the intention of the
contracting parties may be expressed.

The courts do not attempt to make another contract for the parties. The rationale of the
doctrine is that 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 legalistic rule that the 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 mistake, fraud,
inequitable conduct, or accident.”

Requisites of reformation.

In order that reformation may be availed of as a remedy, the following requisites must
be present:

(1) There is a meeting of the minds of the parties to the contract;

(2) The written instrument does not express the true agreement or intention of the
parties;
(3) The failure to express the true intention is due to mistake, fraud, inequitable
conduct, or accident;(4) The facts upon which relief by way of reformation of the
instrument is sought are put in issue by the pleadings; and

(5) There is clear and convincing evidence1 (which is more than mere preponderance
of evidence) of the mistake, fraud, inequitable conduct, or accident.

Reformation and annulment distinguished.

In reformation, there has been a meeting of the minds of the parties (Art. 1359, par.
1.); hence, a contract exists but the written instrument purporting to embody the
contract does not express the true intention of the parties by reason of mistake, fraud,
inequitable conduct, or accident. Under the technical rules of law, the real contract
cannot be enforced until it is reformed.

In annulment, there has been no meeting of the minds, the consent of one of the
parties being vitiated by mistake, etc.

Reformation and annulment are thus inconsistent with each other. While the first gives
life to a contract upon certain conditions, the second involves a complete nullification
of it.

Illustration:

Cedie sold his mansion to Princess Sarah. It was agreed that the sale will include all
the furniture and appliances inside the mansion. However, the contract as signed by
the parties, states that the mansion is being sold is excluding the furniture pieces and
appliances. In this case, the remedy is reformation because there has been a meeting
of the minds.

If Cedie was willing to sell the mansion excluding the furniture and appliances, while
B was willing to buy the mansion including the furniture and appliances, there has
been no meeting of the minds and therefore the remedy is annulment.

Article 1360. The principles of the general law on the reformation of instruments
are hereby adopted insofar as they are not in conflict with the provisions of this
Code.
 Artikulo 1360. Ang prinsipyo ng pangkalahatang batas sa repormasyon ng
instrumento ay pinagtibay hangga’t ito ay hindi laban sa probisyon ng kodigo.

PRINCIPLES OF THE GENERAL LAW ON REFORMATION

In case of conflict between the provisions of the new Civil Code and the principles of
the general law on reformation, the former prevail. The latter will have only
suppletory effect.

REQUISITES OF REFORMATION

There must have been a meeting of minds upon the contract

Instrument or document evidencing the contract does not express the true
agreement between the parties

Failure of the instrument to express the agreement must be due to mistake,

fraud, inequitable conduct, or accident.

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.

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.

Kapag ang parihong pagkakamali ng mga partido ay nagdulot ng pagkabigo ng

instrumento na ihayag ang tunay na kasunduan, and nasabing instrumento ay
maaring baguhin.

Comment:

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.

This article applies when the mistake is mutual that is both parties committed the
same mistake which caused the failure of the instrument to express their true
agreement.

Illustration:

Salvy sold to Ben lot no. 5 which was erroneously designated as lot number 10 in the
deed of sale. Subsequently, Salvy sold to Catherine lot number 5 in the deed of sale.
In this case reformation is proper because there is a simple mistake in drafting the
documents of sale. There being meeting of the minds of the parties to their contracts.

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.

COMMENT:
In this Article, the mistake is unilateral but the other party acted fraudulently or
inequitably.

Example:

            Jean agreed with Rey that Jean would be loaned P5, 000, 000.00 by Rey. In
the contract signed by Jean and Rey, it was stated that Jean was selling her house to
Rey for said amount. Jean signed the contract in the belief that it was really a contract
of loan. Who may ask for the reformation of the instrument if Rey had acted
fraudulently?

Answer: Jean may ask for the reformation of the instrument because after the meeting
of the minds, one party (Rey) acted fraudulently or inequitably in such a way that the
contract does not show their real intention.  In such a case, the law provides that the
person who acted by mistake may ask for the reformation of the instrument.

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.

The remedy of formation may be availed of the party who acted in good faith. The
concealment mistake by the other party constitute Fraud.

Examples:

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. Six
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.

Nang dahil sa walang kaalaman, walang kasanayan, kapabayaan, may masamang

intensiyon, sa panig ng taong nagsususog ng kapamaraanan, o ang tagatala,
angkapamaraanan o instrumento na hindi nagpapahayag ng tunay na intensiyon
ng mga partido, ang hukuman ay pwedeng mag-atas na baguhin ang
kapamaraanan.

Ignorance, lack of skill, negligence or bad faith must be on the part of a third person.
Under the above article, neither party is responsible for the mistake. Hence, either
party may ask for reformation.

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.

Kung ang dalawang partido ay sumang-ayon sa sangla o pangako ng tunay o

personal na ari-arian, ngunit ang instrumento ay nagsasaad na ang ari-arian ay
ganap na naibenta o mayroong karapatan na bilhin itong muli, ang pagbabago ng
instrumento ay angkop.

Article 1365 NCC | speaks of…

Mortgage or pledge stated as sale

  When any of the circumstances enumerated in the law exists, an instrument
purporting to be a sale with right of repurchase shall be presumed to be an
equitable mortgage.
 The true intention of the parties must prevail.

Article 1365 NCC | example:

 Angeles purchased a parcel of land from Velasquez.

 By the terms of the document, the contract is one of sale.
 Later on, Justo bought the subject land from the heirs of Angeles.
 The heirs of Velasquez sued Justo contending that the contract between
Angeles and Velasquez is a mortgage.
 Justo argued that it is a sale with the right of repurchase
 HOWEVER, in one of the clauses in the document, it appears that Velasquez
did NOT reserve the right to repurchase the property, but bound himself to
return the principal interest.
 This contract is a mortgage.

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.

Hindi maaring baguhin ang simple na donasyon, pamana, at kung ang tunay na
kasunduan ay walang bisa.

Cases when reformation not allowed.

(1) Simple donations inter vivos where no condition is imposed. — Donation is an act
of liberality whereby a person disposes gratuitously of a thing or right in favor of
another, who accepts it. (Art. 725.) When the donor intends that the donation shall
take effect during his lifetime, it is a donation inter vivos. It is distinguished from
donation mortis causa in that this kind of donation takes effect after the donor’s death.
(a) In donation, the act is essentially gratuitous and the donee has, therefore, no just
cause for complaint. If in the deed of donation, a mistake or defect has been
committed, it is a mere failure in a bounty which, as the donor was not bound to make,
he is not bound to correct. (see 45 Am. Jur. 599.) Of course, the donor may ask for the
reformation of a deed of donation.

(b) If the donation is conditional or is onerous in character, the deed may be reformed
so that the true conditions imposed by the donor or the real intention of the parties
might be expressed.

(2) Wills. — A will is an act whereby a person is permitted with the formalities
prescribed by law to control to a certain degree the disposition of his estate, to take
effect after his death. (Art. 783.) Like a donation, the making of a will is a strictly
personal and a free act which cannot be left to the discretion of a third person (see Art.
784.); hence, upon the death of the testator, the right to reformation is lost.
Furthermore, a will may be revoked by the testator any time before his death and this
right is not subject to waiver or restriction. (see Art. 828.)

(3) Where the real agreement is void. — If the real agreement is void, there is nothing
to reform. Reformation would be useless because the real agreement being void, it is
unenforceable.

(4) Art. 1367

Illustration:

Jellybee donated the trademark for his fried chicken to Mangdo without conditions. In
this case, the act is essentially gratuitous and Mangdo has no just cause for complaint.

Article 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.

Artikulo 1367. Kapag ang isa sa mga partido ay nagsampa ng aksiyon upang
maipatupad ang instrumento, hindi siya makakahiling ng malalim na
pagbabago.
Article 1367 is based on estoppel (Art. 1431.) or ratification. When a party brings an
action to enforce the contract, he admits its validity and that it expresses the true
intention of the parties. The bringing of the action is thus inconsistent with
reformation. There is no prohibition against joining in one action the reformation of
instrument and its enforcement as reformed.

ILLUSTRATION

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 Anna filed a case against Ben 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.

Art. 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.
Ang pagbabago ay maaring ipag utos ng sinuman sa partido o taga pagmana kapag
ang pagkakamali ay sa parihong partido, sa petisyon ng partidong agrabyado o
kanyang tagapagmana o tinalaga.

Comment:

Reformation of an instrument cannot be just be done according to the whims and

caprice of one or even both parties but it is done only upon order of the court.

If by mutual mistake there in non meeting of the minds of the parties, either parties or
their successor in interest or their heir may petition the court for the reformation of the
instrument.

If mistake is not mutual, the reformation of the instrument may be petition by the
injured party, his heirs or assigns. An action for reformation of a contract prescribes
after ten(10) years.

Illustration:

“A” entered a contract to “B” for the construction of a building. The parties agreed
that the payment be made in dollars. However what was typewritten in the contract
occasioned by mistake was the peso sign. Either party or the successor in interest of A
or B may petition the court for reformation of the instrument within ten years.

Article 1369. The procedure for the reformation of instrument shall be governed
by rules of court to be promulgated by the Supreme Court.

Ang proseso sa pagbabago ng instrumento ay sinasaklawan ng mga alituntunin

ng korte na na ipapahayag ng korte suprema.
 CHAPTER 5. INTERPRETATION
OF CONTRACTS
CHAPTER 5. 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. (1281)

Kung ang mga napagkasunduan sa kontrata ay malinaw at hindi nang-iiwan ng

pagdududa sa intensyon ng mga partido, ang literal na ibig sabihin ng mga
napagkusunduan ang mananaig.

Interpretation of a contract is the determination of the meaning of the terms or words

used by the parties in their contract.

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.

Example:

A contract was executed between Shiela and Bon. The contract recites that it is a sale
of parcel of land belonging to Shiela for Php100,000.00. In the contract Shiela
described as the vendor and Bon, the vendee. The terms of the contract are clear and it
does not appear from the circumstances that the intention of the parties is contrary to
the literal meaning of said terms.

Article 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
Upang hatulan ang intensyon ng mga nagkasundo, ang kaalinsabay at kasunod na
kilos ang syang pangunahing ikonsidera.

Example:

Kristia and Bryan entered into a contract entitled Contract of Lease. Although the
contract refers to Kristia as lessor and to Bryan as Lessee, it states that possession and
ownership of the land are transferred to Bryan. The title to the land was given by
Kristia to Bryan who registered the land in his name. Before the date of the contract,
Bryan wrote a letter to Kristia offering to buy the land.

By their acts, the party clearly indicate that their evident intention is to make Bryan
the owner of the land. Hence, the contract should be interpreted as one of sale.

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. 

Gaanuman ka-pangkalahatan ang mga tuntunin ng isang kontrata, hindi sila

dapat intindihin upang unawain ang mga bagay na naiiba at mga kaso na iba mula
sa mga pinagkasunduan ng mga partido.

Article 1372 NCC | speaks of…

Special intent over general intent

 Even if the terms used in the contract/agreement may be general, the

interpretation should NOT ever be far from the intention of the parties;
 that intention to be determined accd. to circumstances.

 GENERAL RULE | Where in a contract there are general and special

provisions covering the same subject matter that are inconsistent,
  special provisions prevail over general provisions when the two CANNOT
stand together.

Article 1372 NCC | example:

 Charlie is building a house on a 350 sqm. lot with an existing structure that was
less than 350 sqm. in area.
 Ben protested alleging that Charlie could occupy ONLY the space where the
existing structure lies.
 Charlie, however, argued that accd. to their agreement, he could occupy the lot.
 Ben’s 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. 

Kung ang kasunduan ay merong kahulugan maliban sa isa, ang kahulugan na

magbibigay silbi dito ang masusunod.

Interpretation of stipulation with several meanings.

When an agreement is susceptible of several meanings, one of which would render it

effectual, it should be given that interpretation. Thus, if one interpretation makes a
contract valid or effective and the other makes it illegal or meaningless, the former
interpretation is one which is warranted by the rule stated in Article 1373.

Illustration:

Sabit Singson owns two lands, one he owns exclusively and one he co-owns with Irap
Estrada. Without specifying, Sabit sells “his parcel of land” to Ate Glow. Irap did not
give his consent to the sale.

In this case, the sale should refer to the land owned by Sabit Singson alone as this
would make the contract effectual.
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.

Artikulo 1374. Ang iba’t ibang kasunduan ng isang kontrata ay dapat bigyang-
kahulugan ng magkasama, dahil sa mga hindi tiyak sa diwa na maaaring
magresulta mula sa lahat ng mga ito na kinuha magkasama.

INTERPRETATIONS OF VARIOUS STIPULATIONS OF A CONTRACT

A contract must be interpreted as a whole and the intention of the parties is to be

gathered from the entire instrument and not from particular words, phrases, or clauses.
All provisions should, if possible, be so interpreted as to harmonize with each other. 

CASE

THE BANK OF THE PHILIPPINE ISLANDS vs TY CAMCO SOBRINO, ET

AL.

G.R. No. L-36524. February 6, 1933.

HULL, J.

Facts

Ty Camco Sobrino is the registered owner of two parcels of land situated in the
municipality of Rosario, Province of Pangasinan, described in Transfer Certificates of
Title Nos. 1803 and 1804.

On April 12, 1924 Ty Camco Sobrino executed a deed of first mortgage on these
parcels of land in favor of the Philippine National Bank, and the mortgage was noted
on the back of the transfer certificates of title.
On February 21, 1930, Ty Camco Sobrino executed a deed of second mortgage on the
same properties in favor of Cu Yeg Keng and Simon A. Chan Bona, without having
secured the written consent of the Philippine National Bank. The mortgagor obtained
the certificates of title from this bank. The register of deeds for Pangasinan registered
and noted on the Transfer Certificate of Title Nos. 1803 ad 1804 the second mortgage.

On April 14, 1931, the Philippine National Bank filed in the Court of First Instance of
Pangasinan, a petition praying that the annotation or inscription of the second
mortgage be declared null and void, and ordered cancelled.

Issue

Whether or not that the 2nd mortgage is valid in favor of the appellees.

Ruling

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 in keeping with the nature and object of the
contract. 

Ang mga salitang may ibat-ibang pakahulugan ay uunawain sa paraan na kung

saan pinakamalapit sa pinagmulat at bagay ng kontrata.

Comment:

Words used in a contract which are susceptible to two or more meanings shall be
understood to follow that meaning which is most in keeping with the nature and object
of the agreement.
Illustration:

Romeo leased to Elena a roof for the purpose of erecting and advertising sign. The
contract provides for the termination of the lease by Elena if a building should be
constructed on an adjoining property of such height ans to obscure the view of Elena’s
sign. There was erected on the roof of an adjoining building a sign which obstructed
the view of Elena’s sign. In this case, the term building as the term used in the
contract may be interpreted as to include the obstructing sign having in mind the
nature and object of the contract.

Article 1376. The usage or custom 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. 

         Ang dating kinasanayan o kinaugalian ng lugar ay maaaring gamitin sa

pagbibigay kahulugan sa mga hindi malinaw sa kontrata, at papalitan nito ang
mga naalis sa kasunduan na napagkasunduan.

COMMENT:

1) Effect of Usage or Custom of the Place

Examples: 

a) Rona made a contract with Ferdy 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. 

b) 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. (Arroyo versus Azur)
2) Pleading and Proof of Customs and Usages

         Should customs and usages be pleaded (alleged in the pleading)?

Answer: Distinguish:

          If the customs and usages are general, they need not be pleaded. Hence, even
without previously being alleged, they may be proved in court.

Article 1377. The interpretation of obscure words or stipulations in a contract

shall not favor the party who caused the
obscurity. 

Ang interpretasyon ng mga malabong salita o nakasaad sa kontrata ay hindi

papaburan ang partido na responsable sa kalabuan nito.

IT IS JUST FAIR NOT TO FAVOR THE PARTY WHO CAUSES ANY TROUBLE
ARISING FROM THE CONTRACT.

CONTRA PROFERENTEM-BE INTERRETED STRICTLY AGAINST THE

PARTY WHO HAS DRAWN IT, OR BE GIVEN AN INTERPRETATION WHICH
WILL BE FAVORABLE TO THE OTHER WHO, UPON FAITH OF WHICH, HAS
INCURRED AN OBLIGATION.

CONTRACTS OF ADHESION-ALL THEIR PROVISIONS HAVE BEEN

DRAFTED BY ONE PARTY, AND THE ONLY PARTICIPATION OF THE
OTHER IS SIGNING OF HIS SIGNATURE OR HIS “ADHESION” THERETO ON
THE “TAKE IT OR LEAVE IT” BASIS, WITHOUT THE RIGHT TO MODIFY IT.

The ambiguity is in the application for insurance. 

Facts: A provision in the application for insurance with the GSIS states this condition:
“That any policy shall be made effective on the first day of the month next following
the month the first premium is paid.” Another provision states: “That failure to deduct
from my salary the monthly premiums shall not make that policy lapse,” and that, “the
premium account shall be considered as indebtedness which I bind myself to pay the
System.”

Elsa, an employee of the Bureau of Public Works died in an airplane crash. It appears,
however, that the Bureau had not remitted to GSIS even a single premium.

Issue: Has the insurance taken effect?

Held: Yes. The ambiguity created by the operation of the conditions stated in the
application should be interpreted adversely against the GSIS. (Landicho vs. GSIS, 44
SCRA 7 [1972].)

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.

Kung talagang imposibleng pagkasunduan ang pagdududa gamit ang mga

probisyon sa nakaraang artikulo, at ang pagdududa ay napapatungkol sa mga
incidental na pangyayari sa gratuitous na kontrata, ang may pinakakukonti ang
paglilipat ng karapatan at interes ang masusunod. Kung ang kontrata ay onerous,
ang pagdududa ay isasaayos na ang pabor ay sa dalawang may interes.

Kung may pagdududa sa mga principal na dahilan ng kontrata sa pamamaraan na

hindi na maaring malaman kung ano ang intensyon at lakas ng loob ng mga
partido, ang kontrata ay magiging labag sa batas.

Doubts in contract refer only to incidental circumstances but cannot be settled in

accordance with previous provisions.
 If doubts refer to incidental circumstances of a gratuitous contract, such
interpretation should be made which would result in the least transmission of rights
and interests. 

Example:

 Ana gave her car to Ben. It is not clear in the contract whether it is commodatum or a
pure donation.

The Contract should be presumed as a mere commodatum because it would transmit

lesser rights than a donation since Ana retains ownership of her car.

 If the contract in question is onerous, the doubt should be settled in favor of the
greatest reciprocity of interests.

 Example:

Ana borrowed from Ben P 5,000.00 at 12% interest. It cannot be determined from the
terms of contract whether the loan is payable in six months or in one year.

It must be assumed that the period agreed upon is one year which results in a greater
reciprocity of interests since Ana can use the money for one year, and Ben, on the
other hand, can earn interest due for one year instead of only six months.

 If the doubt refers to the principal object of the contract and such doubt cannot be
resolved thereby leaving the intention of the parties unknown, the contract shall be
null and void.

Example:

 Ana sold her land to Ben. Ana has many lands. It cannot be determined which land
was intended by the parties to be the subject of the sale.

 Therefore, the contract shall be null and void and it is as if the parties have not
entered into any contract at all.

 G.R. No. L-11827             July 31, 1961

 FERNANDO A. GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES &
SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE,
PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants.

Alejo Mabanag for plaintiff-appellee.

Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.

REYES, J.B.L., J.:

This appeal comes to us directly from the Court of First Instance because the claims
involved aggregate more than P200,000.00.

Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself
or in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan
Group, situated in the municipality of Jose Panganiban, province of Camarines Norte.

By a “Deed of Assignment” dated September 29, 1952(Exhibit “3”), Fonacier

constituted and appointed plaintiff-appellee Fernando A. Gaite as his true and lawful
attorney-in-fact to enter into a contract with any individual or juridical person for the
exploration and development of the mining claims aforementioned on a royalty basis
of not less than P0.50 per ton of ore that might be extracted therefrom. On March 19,
1954, Gaite in turn executed a general assignment (Record on Appeal, pp. 17-19)
conveying the development and exploitation of said mining claims into the Larap Iron
Mines, a single proprietorship owned solely by and belonging to him, on the same
royalty basis provided for in Exhibit “3”. Thereafter, Gaite embarked upon the
development and exploitation of the mining claims in question, opening and paving
roads within and outside their boundaries, making other improvements and installing
facilities therein for use in the development of the mines, and in time extracted
therefrom what he claims and estimated to be approximately 24,000 metric tons of
iron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted
by him to Gaite to exploit and develop the mining claims in question, and Gaite
assented thereto subject to certain conditions. As a result, a document entitled
“Revocation of Power of Attorney and Contract” was executed on December 8, 1954
(Exhibit “A”),wherein Gaite transferred to Fonacier, for the consideration of
P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining
claims, all his rights and interests on all the roads, improvements, and facilities in or
outside said claims, the right to use the business name “Larap Iron Mines” and its
goodwill, and all the records and documents relative to the mines. In the same
document, Gaite transferred to Fonacier all his rights and interests over the “24,000
tons of iron ore, more or less” that the former had already extracted from the mineral
claims, in consideration of the sum of P75,000.00, P10,000.00 of which was paid
upon the signing of the agreement, and

1. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid

from and out of the first letter of credit covering the first shipment of iron ores
and of the first amount derived from the local sale of iron ore made by the
Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in
interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to

execute in favor of Gaite a surety bond, and pursuant to the promise, Fonacier
delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as
principal and the Larap Mines and Smelting Co. and its stockholders George
Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as
sureties (Exhibit “A-1”). Gaite testified, however, that when this bond was presented
to him by Fonacier together with the “Revocation of Power of Attorney and
Contract”, Exhibit “A”, on December 8, 1954, he refused to sign said Exhibit “A”
unless another bond under written by a bonding company was put up by defendants to
secure the payment of the P65,000.00 balance of their price of the iron ore in the
stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954
(Exhibit “B”),was executed by the same parties to the first bond Exhibit “A-1”, with
the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the
liability of the surety company would attach only when there had been an actual sale
of iron ore by the Larap Mines & Smelting Co. for an amount of not less then
P65,000.00, and that, furthermore, the liability of said surety company would
automatically expire on December 8, 1955. Both bonds were attached to the
“Revocation of Power of Attorney and Contract”, Exhibit “A”, and made integral
parts thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and the
two executed and signed the “Revocation of Power of Attorney and Contract”, Exhibit
“A”, Fonacier entered into a “Contract of Mining Operation”, ceding, transferring,
and conveying unto the Larap Mines and Smelting Co., Inc. the right to develop,
exploit, and explore the mining claims in question, together with the improvements
therein and the use of the name “Larap Iron Mines” and its good will, in consideration
of certain royalties. Fonacier likewise transferred, in the same document, the complete
title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the
Larap & Smelting Co., in consideration for the signing by the company and its
stockholders of the surety bonds delivered by Fonacier to Gaite (Record on Appeal,
pp. 82-94).

Up to December 8, 1955, when the bond Exhibit “B” expired with respect to the Far
Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of
iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the
P65,000.00 balance of the price of said ore been paid to Gaite by Fonacier and his
sureties payment of said amount, on the theory that they had lost right to make use of
the period given them when their bond, Exhibit “B” automatically expired (Exhibits
“C” to “C-24”). And when Fonacier and his sureties failed to pay as demanded by
Gaite, the latter filed the present complaint against them in the Court of First Instance
of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the
price of the ore, consequential damages, and attorney’s fees.

All the defendants except Francisco Dante set up the uniform defense that the
obligation sued upon by Gaite was subject to a condition that the amount of
P65,000.00 would be payable out of the first letter of credit covering the first
shipment of iron ore and/or the first amount derived from the local sale of the iron ore
by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the
complaint, no sale of the iron ore had been made, hence the condition had not yet been
fulfilled; and that consequently, the obligation was not yet due and demandable.
Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons
of iron ore sold to him by Gaite was actually delivered, and counterclaimed for more
than P200,000.00 damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two
issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00
become due and demandable when the defendants failed to renew the surety bond
underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit “B”), which
expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant
Fonacier were actually in existence in the mining claims when these parties executed
the “Revocation of Power of Attorney and Contract”, Exhibit “A.”

On the first question, the lower court held that the obligation of the defendants to pay
plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron
ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore
by defendants, such sale to be effected within one year or before December 8, 1955;
that the giving of security was a condition precedent to Gait’s giving of credit to
defendants; and that as the latter failed to put up a good and sufficient security in lieu
of the Far Eastern Surety bond (Exhibit “B”) which expired on December 8, 1955, the
obligation became due and demandable under Article 1198 of the New Civil Code.

As to the second question, the lower court found that plaintiff Gaite did have
approximately 24,000 tons of iron ore at the mining claims in question at the time of
the execution of the contract Exhibit “A.”

Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to

pay him, jointly and severally, P65,000.00 with interest at 6% per annum from
December 9, 1955 until payment, plus costs. From this judgment, defendants jointly
appealed to this Court.

During the pendency of this appeal, several incidental motions were presented for
resolution: a motion to declare the appellants Larap Mines & Smelting Co., Inc. and
George Krakower in contempt, filed by appellant Fonacier, and two motions to
dismiss the appeal as having become academic and a motion for new trial and/or to
take judicial notice of certain documents, filed by appellee Gaite. The motion for
contempt is unmeritorious because the main allegation therein that the appellants
Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in
question, which allegedly is “property in litigation”, has not been substantiated; and
even if true, does not make these appellants guilty of contempt, because what is under
litigation in this appeal is appellee Gaite’s right to the payment of the balance of the
price of the ore, and not the iron ore itself. As for the several motions presented by
appellee Gaite, it is unnecessary to resolve these motions in view of the results that we
have reached in this case, which we shall hereafter discuss.

The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to
pay appellee Gaite the P65,000.00 (balance of the price of the iron ore in question)is
one with a period or term and not one with a suspensive condition, and that the term
expired on December 8, 1955; and

(2) that the lower court erred in not holding that there were only 10,954.5 tons in the
stockpiles of iron ore sold by appellee Gaite to appellant Fonacier.
The first issue involves an interpretation of the following provision in the contract
Exhibit “A”:

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F.

Fonacier all his rights and interests over the 24,000 tons of iron ore, more or
less, above-referred to together with all his rights and interests to operate the
mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS
(P75,000.00) which the latter binds to pay as follows:
8. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this
agreement.
9. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid
from and out of the first letter of credit covering the first shipment of iron ore
made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or
successors in interest.

We find the court below to be legally correct in holding that the shipment or local sale
of the iron ore is not a condition precedent (or suspensive) to the payment of the
balance of P65,000.00, but was only a suspensive period or term. What characterizes a
conditional obligation is the fact that its efficacy or obligatory force (as distinguished
from its demandability) is subordinated to the happening of a future and uncertain
event; so that if the suspensive condition does not take place, the parties would stand
as if the conditional obligation had never existed. That the parties to the contract
Exhibit “A” did not intend any such state of things to prevail is supported by several
circumstances:

1) The words of the contract express no contingency in the buyer’s obligation to pay:
“The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first
letter of credit covering the first shipment of iron ores . . .” etc. There is no uncertainty
that the payment will have to be made sooner or later; what is undetermined is merely
the exact date at which it will be made. By the very terms of the contract, therefore,
the existence of the obligation to pay is recognized; only
its maturity or demandability is deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of
the parties assume a correlative obligation (the seller to deliver and transfer ownership
of the thing sold and the buyer to pay the price),but each party anticipates
performance by the other from the very start. While in a sale the obligation of one
party can be lawfully subordinated to an uncertain event, so that the other understands
that he assumes the risk of receiving nothing for what he gives (as in the case of a sale
of hopes or expectations, emptio spei), it is not in the usual course of business to do
so; hence, the contingent character of the obligation must clearly appear. Nothing is
found in the record to evidence that Gaite desired or assumed to run the risk of losing
his right over the ore without getting paid for it, or that Fonacier understood that Gaite
assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to
guarantee payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap
Mines & Smelting Co., and the company’s stockholders, but also on one by a surety
company; and the fact that appellants did put up such bonds indicates that they
admitted the definite existence of their obligation to pay the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or

shipment of the ore as a condition precedent, would be tantamount to leaving the
payment at the discretion of the debtor, for the sale or shipment could not be made
unless the appellants took steps to sell the ore. Appellants would thus be able to
postpone payment indefinitely. The desireability of avoiding such a construction of
the contract Exhibit “A” needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the
parties indented a suspensive condition or a suspensive period (dies ad quem) for the
payment of the P65,000.00, the rules of interpretation would incline the scales in favor
of “the greater reciprocity of interests”, since sale is essentially onerous. The Civil
Code of the Philippines, Article 1378, paragraph 1, in fine, provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity
of interests.

and there can be no question that greater reciprocity obtains if the buyer’ obligation is
deemed to be actually existing, with only its maturity (due date) postponed or
deferred, that if such obligation were viewed as non-existent or not binding until the
ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a
sale on credit, and not an aleatory contract where the transferor, Gaite, would assume
the risk of not being paid at all; and that the previous sale or shipment of the ore was
not a suspensive condition for the payment of the balance of the agreed price, but was
intended merely to fix the future date of the payment.

This issue settled, the next point of inquiry is whether appellants, Fonacier and his
sureties, still have the right to insist that Gaite should wait for the sale or shipment of
the ore before receiving payment; or, in other words, whether or not they are entitled
to take full advantage of the period granted them for making the payment.
We agree with the court below that the appellant have forfeited the right court below
that the appellants have forfeited the right to compel Gaite to wait for the sale of the
ore before receiving payment of the balance of P65,000.00, because of their failure to
renew the bond of the Far Eastern Surety Company or else replace it with an
equivalent guarantee. The expiration of the bonding company’s undertaking on
December 8, 1955 substantially reduced the security of the vendor’s rights as creditor
for the unpaid P65,000.00, a security that Gaite considered essential and upon which
he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit
“A”). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil
Code of the Philippines:

“ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .

(2) When he does not furnish to the creditor the guaranties or securities which he has
promised.

(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory.

Appellants’ failure to renew or extend the surety company’s bond upon its expiration
plainly impaired the securities given to the creditor (appellee Gaite), unless
immediately renewed or replaced.

There is no merit in appellants’ argument that Gaite’s acceptance of the surety

company’s bond with full knowledge that on its face it would automatically expire
within one year was a waiver of its renewal after the expiration date. No such waiver
could have been intended, for Gaite stood to lose and had nothing to gain barely; and
if there was any, it could be rationally explained only if the appellants had agreed to
sell the ore and pay Gaite before the surety company’s bond expired on December 8,
1955. But in the latter case the defendants-appellants’ obligation to pay became
absolute after one year from the transfer of the ore to Fonacier by virtue of the deed
Exhibit “A.”.

All the alternatives, therefore, lead to the same result: that Gaite acted within his
rights in demanding payment and instituting this action one year from and after the
contract (Exhibit “A”) was executed, either because the appellant debtors had
impaired the securities originally given and thereby forfeited any further time within
which to pay; or because the term of payment was originally of no more than one
year, and the balance of P65,000.00 became due and payable thereafter.

Coming now to the second issue in this appeal, which is whether there were really
24,000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier,
and whether, if there had been a short-delivery as claimed by appellants, they are
entitled to the payment of damages, we must, at the outset, stress two things: first, that
this is a case of a sale of a specific mass of fungible goods for a single price or a lump
sum, the quantity of “24,000 tons of iron ore, more or less,” stated in the contract
Exhibit “A,” being a mere estimate by the parties of the total tonnage weight of the
mass; and second, that the evidence shows that neither of the parties had actually
measured of weighed the mass, so that they both tried to arrive at the total quantity by
making an estimate of the volume thereof in cubic meters and then multiplying it by
the estimated weight per ton of each cubic meter.

The sale between the parties is a sale of a specific mass or iron ore because no
provision was made in their contract for the measuring or weighing of the ore sold in
order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by
the parties based upon any such measurement.(see Art. 1480, second par., New Civil
Code). The subject matter of the sale is, therefore, a determinate object, the mass, and
not the actual number of units or tons contained therein, so that all that was required
of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the
mass, notwithstanding that the quantity delivered is less than the amount estimated by
them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171
So. 872, applying art. 2459 of the Louisiana Civil Code). There is no charge in this
case that Gaite did not deliver to appellants all the ore found in the stockpiles in the
mining claims in questions; Gaite had, therefore, complied with his promise to
deliver, and appellants in turn are bound to pay the lump price.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy,
not a definite mass, but approximately 24,000 tons of ore, so that any substantial
difference in this quantity delivered would entitle the buyers to recover damages for
the short-delivery, was there really a short-delivery in this case?

We think not. As already stated, neither of the parties had actually measured or
weighed the whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties
predicate their respective claims only upon an estimated number of cubic meters of
ore multiplied by the average tonnage factor per cubic meter.
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the
stockpiles of ore that he sold to Fonacier, while appellants contend that by actual
measurement, their witness Cirpriano Manlañgit found the total volume of ore in the
stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic
meter, the parties are again in disagreement, with appellants claiming the correct
tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that the
correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the
tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of
the Mines and Metallurgical Division of the Bureau of Mines, a government
pensionado to the States and a mining engineering graduate of the Universities of
Nevada and California, with almost 22 years of experience in the Bureau of Mines.
This witness placed the tonnage factor of every cubic meter of iron ore at between 3
metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely
corresponds to the average tonnage factor of 3.3 adopted in his corrected report
(Exhibits “FF” and FF-1″) by engineer Nemesio Gamatero, who was sent by the
Bureau of Mines to the mining claims involved at the request of appellant Krakower,
precisely to make an official estimate of the amount of iron ore in Gaite’s stockpiles
after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles
made by appellant’s witness Cipriano Manlañgit is correct, if we multiply it by the
average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons,
which is not very far from the estimate of 24,000 tons made by appellee Gaite,
considering that actual weighing of each unit of the mass was practically impossible,
so that a reasonable percentage of error should be allowed anyone making an estimate
of the exact quantity in tons found in the mass. It must not be forgotten that the
contract Exhibit “A” expressly stated the amount to be 24,000 tons, more or less. (ch.
Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

There was, consequently, no short-delivery in this case as would entitle appellants to

the payment of damages, nor could Gaite have been guilty of any fraud in making any
misrepresentation to appellants as to the total quantity of ore in the stockpiles of the
mining claims in question, as charged by appellants, since Gaite’s estimate appears to
be substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the
same, with costs against appellants.
Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Dizon, De Leon
and Natividad, JJ., concur.

Article 1379. The principles of interpretation stated in Rule 123 of the Rules of
Court shall likewise be observed in the construction of
contracts. 

Ang mga prinsipyo ng interpretasyon na nakasaad sa Rule 123 ng Rules of Court

ay dapat ding sundin sa paggawa ng mga kasunduan.

Article 1379 NCC | speaks of…

Interpretation of Documents under Rule 130

 Section 10. Interpretation of a writing according to its legal meaning. — The

language of a writing is to be interpreted according to the legal meaning it bears
in the place of its execution, unless the parties intended otherwise.
 Section 11. Instrument construed so as to give effect to all provisions. — 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.
 Section 12. Interpretation according to intention; general and particular
provisions. — In the construction of an instrument, the intention of the parties
is to be pursued; and when a general and a particular provision are inconsistent,
the latter is paramount to the former. So a particular intent will control a
general one that is inconsistent with it.
 Section 13. Interpretation according to circumstances. — For the proper
construction of an instrument, the circumstances under which it was made,
including the situation of the subject thereof and of the parties to it, may be
shown, so that the judge may be placed in the position of those who language
he is to interpret.
 Section 14. Peculiar signification of terms. — The terms of a writing are
presumed to have been used in their primary and general acceptation, but
evidence is admissible to show that they have a local, technical, or otherwise
peculiar signification, and were so used and understood in the particular
instance, in which case the agreement must be construed accordingly.
  Section 15. Written words control printed. — When an instrument consists
partly of written words and partly of a printed form, and the two are
inconsistent, the former controls the latter.
 Section 16. Experts and interpreters to be used in explaining certain
writings. — When the characters in which an instrument is written are difficult
to be deciphered, or the language is not understood by the court, the evidence
of persons skilled in deciphering the characters, or who understand the
language, is admissible to declare the characters or the meaning of the
language.
 Section 17. Of two constructions, which preferred. — When the terms of an
agreement have been intended in a different sense by the different parties to it,
that sense is to prevail against either party in which he supposed the other
understood it, and when different constructions of a provision are otherwise
equally proper, that is to be taken which is the most favorable to the party in
whose favor the provision was made.
 Section 18. Construction in favor of natural right. — When an instrument is
equally susceptible of two interpretations, one in favor of natural right and the
other against it, the former is to be adopted.
 Section 19. Interpretation according to usage. — An instrument may be
construed according to usage, in order to determine its true character.

Article 1379 NCC | example:

 Genjo and Deshi are both Chinese immigrants who acquired Filipino
citizenship.
 Genjo wants to buy the parcel of land of Deshi for the construction of his
commercial building.
 Being both ethnically and culturally Chinese, they wrote their document of sale
in Cantonese.
 If ever there will be a litigation between the two parties with regards to this
contract, experts and interpreters may be asked to declare the characters or the
meaning of the language used as it is NOT understood by the court (Sec 10,
Rule 130).