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OBLIGATIONS AND
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Laguna State Polytechnic University – Juris Doctor, Class
of 2019
 CHAPTER 5.
INTERPRETATION
OF CONTRACTS
Posted on 3 Apr 2019

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)

By: Algy Riguer

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.

By: Rose Ann Villanueva

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. 

By: Jayson Calventas

 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. 

By: Johannes Aquino

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.

By: Kristia Capio

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. 

by: Bryan Glenn Fabiaña

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. 

By: Janine Gumangol

         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. 

By: Algy Riguer

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.

By: Rose Ann Villanueva

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. 

By: Jayson Calventas

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).

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CHAPTER 4. SECTION 1. PURE CHAPTER 1.

REFORMATION AND GENERAL
OF CONDITIONAL PROVISIONS
INSTRUMENTS OBLIGATIONS 3 Apr 2019
3 Apr 2019 21 Feb 2019
 Author:
Laguna State Polytechnic
University
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