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FORM OF CONTRACT 3.

A document containing two or more


separate contracts
the manner in which a contract is executed or
a. Sufficient that not every
manifested. instrument is signed as long as it
clearly identifies to the signed
Art. 1356. Contracts shall be obligatory, in
instrument
whatever form they may have been entered into,
b. A written agreement of 2 copies,
provided all the essential requisites for their
one signed by each of the parties
validity are present. However, when the law
is binding on both copies
requires that a contract be in some form in order
that it may be valid or enforceable, or that a
Two Aspects of Contracts: There is no such things
contract be proved in a certain way, that
as an implied contract.
requirement is absolute and indispensable. In such
1. Intent or will: merely a psychological fact;
cases, the right of the parties stated in the
no legal effect
following articles cannot be exercised.
2. Expression of such intent or will: the form
Forms of Contracts:
Classification of Contracts:
1.
1. Informal or Common: any form as long as
a. Parol or Oral
the essential requisites for validity are
b. In Writing: all of its terms are in
present
writing
2. Formal or solemn: that required by law
i. Public Instrument
for its efficacy
ii. Private
c. Partly Oral and Partly in Writing:
GENERAL RULE: Contracts are binding and
in legal effect, an oral contract
enforceable reciprocally by the contracting parties
2. May be collected from different writings
in whatever form provided all 3 essential
(do not conflict each other, all showing
requisites are present.
the parties, subject matter, terms and
considerations reflecting one contract)
instrument with an attached signed
Exceptions: inventory
1. When the law requires it to be valid 7. Transfer or sale of large cattle: registered
2. When the law requires for it to be in a public instrument and a certificate of
enforceable transfer
3. When the law requires it for the 8. Negotiable instruments: in writing
convenience of the parties or for the
purpose of affecting third persons 2nd Exception: Form for Enforceability of
-Reason: oral contracts frequently lead to fraud in Contract
fulfillment of obligations or to false testimony Contracts covered by the Statute of
Frauds (Art. 1403)
1st Exception: Form of Validity of Contract If its not in writing, the contract
1. Donation of real property: must be in a is valid, but upon the objection
public instrument of a party, it cannot be proved,
2. Donation of personal property the value and therefore, it cannot be
of which exceeds P5,000: donation and enforced unless it is ratified (Art.
acceptance must be in writing 1405)
3. Sale of land through an agent: authority Art. 1357. If the law requires a document or other
of the agent must be in writing special form, as in the acts and contracts
4. Contract of antichresis (mortgage): enumerated in the following article, the
amount of the principal and of the contracting parties may compel each other to
interest must be specified in writing observe that form, once the contract has been
5. Stipulation to pay interest:in writing perfected. This right may be exercised
otherwise no interest is due simultaneously with the action upon the contract.
6. Contract of partnership:immovables
contributed must be in a public

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Non-compliance with the required form an official record and is certified by a
would not adversely affect the validity nor public officer duly authorized by law
enforceability of the contract between
the parties themselves. Probative Value of Public Documents
It is essential before a party may be Notarization of a Private Document to
compelled to execute the required form, Public: renders it admissible in evidence
that the contract be both valid and in court without necessity of preliminary
enforceable. proof as to its authenticity and due
execution
Art. 1358. The following must appear in a public Entitled to full faith and credit upon their
document: face.
(1) Acts and contracts which have for their Enjoy presumption of regularity which
object the creation, transmission, can only be overturned by clear and
modification or extinguishment of real convincing evidence that their execution
rights over immovable property; sales of was tainted by defects or irregularities
real property or of an interest therein are that would warrant a declaration of
governed by Articles 1403, No. 2, and nullity
1405. (ex. Inheritance, donation) Considered prima facie evidence of the
(2) The cession, repudiation or renunciation facts therein stated. However, the
of hereditary rights or of those of the presumption is not absolute, and may be
conjugal partnership of gains; rebutted by clear and convincing
(3) The power to administer property, or any evidence to the contrary.
other power which has for its object an Irregularities in its notarization
act appearing or which should appear in a may be established by oral
public document, or should prejudice a evidence of persons present in
third person; (ex. Guardian, ward) the proceeding.
(4) The cession of actions of rights proceeding Notarization per se is not a guarantee of
from an act appearing in a public the validity of the contents of a
document. document. However, the irregularity of
All other contracts where the amount involved such or the lack, does not necessarily
exceeds five hundred pesos must appear in writing, affect the validity of the contract.
even a private one. But sales of goods, chattels or
things in action are governed by Articles 1403, No. Action to compel execution of contract in public
2 and 1405. instrument.
Parties may compel each other to have
Such contracts are valid and enforceable though the contract reduced in proper form and
not embodied in a public instrument. the action may be filed simultaneously
Required only for the convenience and with the suit to enforce the contract. The
greater protection of the parties, and latter action may be brought without the
registration is needed only to make the bringing of the former.
contract effective against third persons. Reduction to writing is simply a coercive
Formal requirements are for the benefit power granted to the contracting parties
of third parties for the purpose of by which they can reciprocally compel the
informing as well as binding them. observance of formal requisites
Notarized documents- a classification of Contract may be enforced even if not in
public documents, acknowledged before writing.
a notary public or any official authorized Before a contract can be reduced in
to administer oath, by the person who proper form or enforced, its existence
executed the same. must be proved.
Formal declaration that the
instrument is of free act and Legal Recognition of Electronic Data Messages
deed and Electronic Documents under RA No. 8792
Private Documents- acquire the character (Electronic Commerce Act of June 14, 2000)
of a public one when it becomes part of Gives legal recognition to any kind of
electronic data message and electronic

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document used in the context of can be authenticated to be
commercial and noncommercial activities, usable for subsequent reference
including that-
Domestic and international It remains complete and
dealings, unaltered, apart from the
Transactions, addition of any endorsement and
Arrangements, any authorized change, or any
Agreements, change arising in the normal
Contracts and exchanges, and course of communication,
Storage of Information storage and display; and
They are given the legal effect, validity It is reliable in the light of the
and enforceability as any other document purpose for which it was
or legal writing generated and in light of all
A document required by law to relevant circumstances
be in writing, met by an Any provision of the Act may be varied by
electronic document maintains agreement between and among the
its integrity and reliability and contracting parties

LAO SOK vs. LYDIA SABAYSABAY, AMPARO MANGULAT, ROSITA SALVIEJO, NENITA RUINATA, VILMA
CAPILLO, VIRGINIA SANORJO and THE NATIONAL LABOR RELATIONS COMMISSION.
G.R. No. L-61898, August 9, 1985

FACTS:
Lao Sok owned and operated the Shelton Department Store located at Carriedo Street, Quiapo,
Manila. Lydia Sabaysabay, Amparo Mangulat, Rosita Salviejo, Nenita Ruinata, Vilma Capillo and Virginia
Sanorjo all worked as salesladies of the department store with a daily wage of P14.00 each. On October 12,
1980, the petitioners department store was destroyed by fire. Lao Sok did not report the loss of jobs of the
salesladies which resulted from the burning of his department store to the Regional Office of the Ministry of
Labor. He, however, promised the private respondents that he would transfer them to his other department
stores and that he would give them their separation pay and other benefits due them as soon as he collected
the insurance proceeds arising from his burned store. This offer was accepted by the private respondents. Lao
Sok later was able to collect the proceeds of his insurance but failed to give the respondents their separation
pay and to transfer them to his other department stores. The private respondents filed a complaint with the
Ministry of Labor and Employment charging the petitioner with illegal dismissal and non-payment of their
separation pay, allowance and incentive leave pay. The Labor Arbiter rendered a decision in favor of the
respondents ordering the payment of the separation pay. The NLRC affirmed the decision of the Labor Arbiter.

ISSUE: Whether or not petitioner Lao Sok is obligated to pay the private respondents' separation pay.

HELD: YES.
Lao Sok's obligation to pay severance compensation is not based on his failure to make a report or to
ask for a prior clearance as reiterated in Sections 10 and 11 (c), Rule XIV, Book V of the Labor Code. This
obligation should be based on Article 284 of the Labor Code which provides for separation pay whenever there
is a reduction of personnel caused by the closure of an establishment which is not intended to circumvent the
provisions of the law.
Lao Sok promised to give his employees their separation pay, as soon as he receives the insurance
proceeds for his burned building was not rebutted. The Solicitor General further explained that in was in
reality not a mere promise as petitioner terms it but a contract, because all the essential requisites of a valid
contract are present, to wit: (1) consent was freely given by the parties, (2) there was a subject matter, which
is the payment of the separation pay of private respondents, and (3) a cause, which is the loss of job of private
respondents. Lao Sok made an offer which was duly accepted by the private respondents. There was,
therefore, a meeting of the minds between two parties (Article 1305 of the Civil Code). The requirement of
writing for the offer made by Lao Sok is only for convenience and not enforceability. Lao Sok voluntarily agreed

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to compensate private respondents for the loss of their jobs. The validity of that agreement must,
consequently, be sustained.
Deloso v. Sandiganbayan
DOCTRINE: Art. 1356 Contracts may be made in any form so as long as the essential requisites are present
(C-O-C)
FACTS: Deloso v. Sandiganbayan is a case regarding a petition for review of the decision of Sandiganbayan.
Prior to being elected Governor, petitioner was the Mayor of Botolan, Zambales. He was charged with violating
Section 3(e) of the Anti-Graft and Corrupt Practices Act for ...willfully, unlawfully and feloniously giving
unwarranted benefits to five private individuals by issuing to each a tractor purchased by the Municipality
through a loan financed by the Land Bank of the Philippines (LBP) for lease to local farmers without any
agreement as to the payment of rentals for the use of said tractor...
The Sangguniang Bayan of Botolan authorized and caused the obtention by the Municipality through
Deloso of a loan from LBP for the explicit purpose of purchasing five farm tractors from Araneta Machines Inc.,
to aid the farmers in the area in tilling their land for full production. After acquisition of the tractors and public
announcements of its availability, not one farmer opted to make use thereof. To make best of the bad
situation, the Sangguniang Bayan planned and leased them to affluent landowners to be selected by the
municipality, who would be responsible for the maintenance, repairs, and payments of annual rentals
equivalent to 1/5 of the annual amortization payments payable by the municipality to the LBP. The award of
the tractors to beneficiaries was not made through canvas or public bidding.
The tractors were turned over to the selected lessees without any written contract, and the
resolution of the Sangguniang Bayan setting out the conditions for use was only adopted after the tractors
were delivered. After a year, the tractors were returned and sold as junk because of its deterioration. After
applying the proceeds of the sale and other amounts paid as rentals to liquidation of the loan obligation owing
to LBP, the Municipality was still left with Php 300K.
Deloso filed demurrers to impugn the sufficiency of evidence by the prosecution in all five criminal
cases which. Only two were granted, wherein the Sandiganbayan and Deloso agreed that the prosecution
failed to establish evidence against petitioner. On 1991, the Sandiganbayan found Deloso guilty beyond
reasonable doubt of the violation and to suffer the penalties of imprisonment of 6 years and perpetual
disqualification from public office. The Sandiganbayan found that there was no agreement entered into
between the municipality and the beneficiaries as to (1) nature of transaction, (2) payment of consideration,
(3) maintenance and repair, and (4) period of use. Respondent also concluded that the tractors were
irresponsibly delivered without evidence of delivery, no bond having been issued to secure performance and,
ultimately, beneficiaries not having paid for the use of the tractors until the agents of the NBI had started the
investigation. Hence, the current petition.
Petitioners, in this petition, contended that the evidence was highly speculative and that there was no
proof that the Municipality violated an unspecified COA Circular allegedly fixing the rental rates. Petitioners
also state that respondent erred in concluding that through the disputed lease contracts, petitioner caused
injury to the Municipality and gave unwarranted benefits to the lessees in bad faith.
ISSUE: Whether or not a contract was executed between petitioners and beneficiaries for the use of
the tractors.
HELD: YES. The Court GRANTED the petition; REVERSING the decision of the Sandiganbayan and
ACQUITTING petition from the charges and penalties.
RULING: All three of the beneficiaries in the demurrers (Ferrer, Encarnacion, and Lim) positively declared that
they received the tractors from the Municipality upon the explicit understanding that they would pay therefor,
and keep them in good repair. Also, the incumbent Municipal Treasurer of the Municipality of Botolan Mrs.
Sison, testified that the she addressed letters to the lessees of the farm tractors in 1978-79 requiring payment
of the rentals for the tractors, and that beneficiaries made payments in connection of such receipts. Deloso
also testified, stating that terms of the parol agreements respecting the lease of the tractors were put into
writing when the loan documents were transmitted by the LBP to his office.
The fact that the lease agreements were not initially made into writing certainly does not make the
transactions felonious, nor preclude the generation of the contractual relation of lessor and lessee between
the Municipality and the farmers. Contracts may be entered into in any form, orally or in writing, or parol in
part and written in part, it being needful merely that the essential requisites for their validity be present. It is
evident that the lease of the tractors in this case is not one of those contemplated to require any other
particular form in order to be valid. Furthermore, evidence was not sufficient to merit a finding of inducement

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in contracting between beneficiaries and petitioner. There was complete accord with the Sanggunian and
petitioner regarding the acquisition and disposition of the tractors in question. The contract in the case merits
no specific form to be valid.

PNB v. IAC September 18, 1990


Petitioner: Philippine National Bank
Respondents: Intermediate Appellate Court and Romeo Alcedo

FACTS:
Leticia de la Vina-Sepe executed a real estate mortgage in favor of PNB over a lot registered in her
name to secure the payment of a sugar crop loan of P3,400. Later, Sepe, acting as attorney-in-fact for her
brother-in-law, private respondent Romeo Alcedo, executed an amended real estate mortgage to include his
(Alcedo's) Lot as additional collateral for Sepe's increased loan of P16,500.
Leticia Sepe and private respondent Alcedo verbally agreed to split fifty-fifty (50-50) the proceeds of
the loan but failing to receive his one-half share from her, Alcedo wrote a letter on May 12, 1970 to the PNB,
San Carlos Branch, revoking the Special Power of Attorney which he had given to Leticia Sepe to mortgage his
Lot.
PNB Branch Manager, Jose T. Gellegani advised Alcedo that his land had already been included as
collateral for Sepe's 1970-71 sugar crop loan, which the latter had already availed. Sepe was still able to obtain
an additional loan from PNB with the total amount P56,638.69 on the security of Alcedo's property as
collateral.
Thereafter, Alcedo received 2 letters from PNB that Sepe failed to pay her loan and that 6 days shall
be given to settle their obligation otherwise forclosure shall commence. Alcedo requested Sepe to pay her
accounts to forestall foreclosure proceedings against his property, but to no avail. Alcedo filed a complaint
against Sepe and PNB while the latter filed a case for extrajudicial foreclosure.
Alcedo filed and amended complaint withdrawing his action to collect his one-half share out of the
proceeds of the sugar crop loans obtained by Sepe. PNB alleged that it had no knowledge of the agreement
between Mrs. Sepe and Alcedo to split the crop loan proceeds between them. It required Sepe to put up other
collaterals when it granted her an additional loan because Alcedo informed the Bank that he was revoking the
Special Power of Attorney he gave Sepe; that the revocation was not formalized in accordance with law.

ISSUE: W/N PNB validly foreclosed the real estate mortgage on Alcedo's property despite notice of Alcedo's
revocation of the Special Power of Attorney authorizing Leticia Sepe to mortgage his property as security for
her sugar crop loans.

HELD:
PNB had promised to exclude Alcedo's property as collateral for Sepe's 1971-72 sugar crop loan, it
should have released the property to Alcedo. The mortgage which Sepe gave to the bank on Alcedo's lot as
collateral for her 1971-72 sugar crop loan was null and void for having been already unauthorized by Alcedo.
Since Alcedo's property secured only P13,100.00 of Sepe's 1970-71 sugar crop loan of P16,500.00 (because
P3,400 was secured by Sepe's own property), Alcedo's property may be held to answer for only the unpaid
balance, if any, of Sepe's 1970-71 loan, but not the 1971-72 crop loan.
While Article 1358 of the New Civil Code requires that the revocation of Alcedo's Special Power of
Attorney to mortgage his property should appear in a public instrument. Art. 1358. The following must appear
in a public document:
(1) Acts or contracts which have for their object the creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real property or of an interest therein are governed by Articles
1403, No. 2 and 1405.nevertheless, a revocation embodied in a private writing is valid and binding between
the parties (Doliendo v. Depino, 12 Phil. 758; Hawaiian-Philippines Co. vs. Hernaez, 45 Phil. 746) for
The legalization by a public writing and the recording of the same in the registry are not essential
requisites of a contract entered into, as between the parties, but mere conditions of form or solemnities which
the law imposes in order that such contract may be valid as against third persons, and to insure that a publicly
executed and recorded agreement shall be respected by the latter. (Alano, et al. vs. Babasa, 10 Phil. 511.)

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The PNB acted with bad faith in proceeding against Alcedo's property to satisfy Sepe's unpaid 1971-72
sugar crop loan. The extrajudicial foreclosure being null and void ab initio, the certificate of sale which the
Sheriff delivered to PNB as the highest bidder at the sale is also null and void.
TAPEC vs. CA|G.R. No. 111952|October 26, 1994
FACTS:
On 4 December 1994, the petitioners, filed a complaint for recovery of ownership with the RTC against David
Cabuyadao and herein private respondent Loreto Raguirag. The petitioners alleged in their complaint that they
are the owners of a parcel of land with an area of 11,850 square meters, located at Barangay No. 26,
Oaiag-Upay, Paoay, Ilocos Norte.
They further averred that during the cadastral survey of Paoay, Ilocos Norte, unknown to them and
without their consent, the above-described property was surveyed and subdivided into Lot Nos. 7452, 7444,
and 7450, and that under baseless claims of ownership, David Cabuyadao and Loreto Raguirag threatened to
enter Lot No. 7452 and Lot No. 7444, respectively. The petitioners then prayed that they be declared the
owners of Lot Nos. 7452 and 7444 and that a writ of preliminary injunction be issued ordering the defendants
and their agents and representatives to desist from entering the lots.
David Cabuyadao was declared in default for failure to file his answer.
In private respondent Loreto Raguirags counterclaim, he denied having knowledge of the property
claimed by the petitioners but by way of special defense asserted that he is the absolute owner of the parcel of
land.
The petitioners' claim of ownership is based on two deeds of absolute sale, one executed on 2
January 1950 by Trinidad Gonzales in favor of petitioner Julio Tapec, and the other executed on 28 May 1949
by Rosario Gonzales in favor of the petitioners, both acknowledged before the same notary public and duly
registered with the Office of the Register of Deeds under Act No. 3344 on 8 March 1950 and 29 July 1949,
respectively.
Respondent Loreto Raguirag, on the other hand, anchored his defense on a document, dated 15 May
1931 and handwritten in Ilocano, wherein the brothers Victoriano, Gregorio, Matias, and Alejandro, all
surnamed Gonzales, sold to the spouses Manuel Raguirag and Clara Tapec, grandparents of respondent
Raguirag, for a consideration of P150.00 a pasture situated in Dumalaoing, Paoay, Ilocos Norte, with an area of
3,450 sq. meters and bounded.
Witnesses to the said handwritten document were Manuel Raguirag, Cornelio Cabuyao, and Miguel
Gonzales.
At the trial, petitioner Julio Tapec identified the deeds of sale executed by Trinidad and Rosario
Gonzales and the sketch plan of Lot Nos. 7444, 7450, and 7452 of the Paoay Cadastre and declared that the
area sold by Trinidad corresponds to Lot Nos. 7450 and 7452 while the parcel sold by Rosario corresponds to
Lot No. 7444. He further alleged that he has been in possession of the lots since he purchased them and had
them declared for taxation purposes in his name in 1950 and that before he bought the property of Trinidad
Gonzales, he had to first redeem it from Ireneo Raguirag to whom it was mortgaged by Trinidad for P100.00 on
10 November 1947 and who (Trinidad) was in possession thereof.
On the other hand, private respondent Raguirag presented the 1931 private writing which, according
to him, was shown to him when he was a boy by his grandfather, Manuel Raguirag, who said, "all of these are
our properties of which I bought from Alejandro Gonzales." He claimed that his grandfather was in possession
of the property until his death during the Japanese occupation. Then his father, Ireneo Raguirag, continued
such possession until he died in 1967. Ireneo had the property declared for taxation purposes in 1962. After his
father's death, Loreto took over the possession of the property and during the cadastral survey of Paoay, it
was claimed by Leoncia Raguirag, a sister of Ireneo. The private respondent is merely possessing it as
tenant-administrator.

ISSUE: Is the sale made in private instrument in this case valid?

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RULING: The plaintiffs-appellee raise for the first time, on appeal, the question of the genuineness of the Deed
of Sale offered as documentary evidence by the defendants-appellants. It has been decided by the Supreme
Court that objection to the admission of evidence must be made seasonably, at the time it is introduced or
offered, otherwise they are deemed waived and will not be entertained for the first time on appeal. The rule is
that evidence not objected to is deemed admitted and may be validly considered by the court in arriving at its
judgment. This is true even if by its nature the evidence is inadmissible and would have surely been rejected if
it had been challenged at the proper time.
Aside from that, a private document may be exempted from proof of due execution and authenticity
under the "ancient document rule."
Article 1358 of the New Civil Code enumerates certain contracts that must appear in public or private
documents. This provision does not require such form to validate the act or contract but to insure its efficacy.
Contracts enumerated by this article are, therefore, valid as between the contracting parties, even when they
have not been reduced to public or private writings. Therefore, the Deed of Sale in favor of the
predecessor-in-interest of the defendants-appellants is considered valid and enforceable, even if it was only
embodied in a private writing.
While we uphold the ruling of the Court of Appeals that the 15 May 1931 sale in favor of the private
respondent's grandparents was valid and enforceable, we cannot, however, accept its findings that:
In upholding the validity of the 1931 sale of the subject pastureland, We can only conclude that when
the land was sold to the plaintiffs-appellees [petitioners herein] in 1950, the vendor had no right to
sell the subject property since at the time her family no longer owned the land and thus no legal right
was transferred by the vendor to the plaintiffs-appellees.
Firstly, it should be remembered that per the testimony of petitioner Julio Tapec, the sale in 1950 was
that executed on 2 January 1950 by Trinidad Gonzales and the property subject thereof corresponds to Lot
Nos. 7450 and 7452, while the sale executed on 28 May 1949 by Rosario Gonzales corresponds to Lot No.
7444. It is the latter lot which is claimed by the private respondent. The original owner of the property sold by
Trinidad and Rosario was their father, Miguel Gonzales, and as indicated in the deeds of sale they executed,
the portion each sold was declared for taxation purposes in the name of their father. 33 With respect to the
1931 sale, Miguel Gonzales was not a vendor therein but a mere witness thereto. The vendors were
Victoriano, Matias, Alejandro, and Gregorio, all surnamed Gonzales. Obviously, the Court of Appeals erred in
finding that Trinidad had no more right to sell the property.
Secondly, while the petitioners sufficiently established the identity of the property claimed by them,
the private respondent failed to prove the identity of the property covered by Exhibit "1." Since he specified in
his special defenses the property he claimed and asked the court in his prayer that he be declared "the lawful
owner and possessor" thereof, the burden was on him to prove its identity.
Thirdly, it was established that Trinidad Gonzales had mortgaged her property to the private
respondent's father, Ireneo Raguirag, on 10 November 1947. The mortgage was redeemed only shortly before
its sale to the petitioners in 1950. If Ireneo were its owner as heir of Manuel Raguirag, there was no reason for
Ireneo to have accepted the mortgage thereof.
Finally, the private respondent categorically admitted that he is only a tenant-administrator of Lot No.
7444. This admission belies any claim of ownership. It was his aunt, Leoncia Raguirag, who claimed ownership
over it during the cadastral survey.

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Clarin v. Rulona
FACTS:
May 31, 1959, petitioner executed two documents, one of which grants authority to survey petitioners
land and one of which is receipt from respondents of P800 as initial payment for same land, Lot No. 20, 10
hectares, situated in Carmen Bohol. Total value of land is P2,500.
Respondent filed complaint for specific performance and recovery of improvements, stating petitioner
and wife violated terms of agreement of sale by returning P1,100 covering P1,000 down payment and first
installment of P100
Petitioner replies that while he did indeed project contract of sale of portion of land with respondent, it
was subject to following conditions: 1) contract realized after consent from other heirs gotten and 2) should
co-heirs refuse, no contract to speak of. Petitioner says respondent knew well of and agreed to conditions,
P1,000 delivered as earnest money and returned when co-heirs refused to give consent to the sale.
RTC found for respondents, contract of sale is pure sale of portion of Lot. 20 containing 10 hectares for
sum of P2,500, sale not subject to any condition nor vitiated by any flaw, hence binding on parties under Art.
1356 and 1458 of Civil Code
On appeal, CA sustained RTC findings, stating that although petitioner sustains one of the documents
merely an authority to survey, a contract to be binding upon the contracting parties need not be notarized.
Neither should it specify the manner of payment of the consideration nor should it specify the manner of
payment of the consideration nor should it contain the proper heading.

ISSUES:
1. CA erred in saying there was a perfected contract of sale, and even if indeed there was it is subject to a
condition precedent (approval of other co-heirs) that was not complied with
2. CA erred in saying two documents effectively conveyed title to the land, seeing as they were not public
documents

SC RULING: Petition without merit.


1. WHILE TWO DOCUMENTS ARE IN THEMSELVES NOT CONTRACTS OF SALE, THEY ARE CLEAR EVIDENCE THAT
CONTRACT OF SALE PERFECTED BETWEEN PETITIONER AND RESPONDENT. ART. 1357 FIND APPLICATION. A
contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price. (Article 1475, Civil Code; Phil. Virginia Tobacco Administration v. De los
Angeles, 87 SCRA 210). Such contract is binding in whatever form it may have been entered into. (Lopez v.
Auditor General, 20 SCRA 655). Construing Exhibits A and B together, it can be seen that the petitioner agreed
to sell and the respondent agreed to buy a definite object, that is, ten hectares of land which is part and parcel
of Lot 20 PLD No. 4, owned in common by the petitioner and his sisters although the boundaries of the ten
hectares would be delineated at a later date. The parties also agreed on a definite price which is P2,500.00.
Exhibit B further shows that the petitioner has received from the respondent as initial payment, the amount of
P800.00. Hence, it cannot be denied that there was a perfected contract of sale between the parties and that
such contract was already partially executed when the petitioner received the initial payment of P800.00. The
latters acceptance of the payment clearly showed his consent to the contract thereby precluding him from
rejecting its binding effect.
Therefore, with the contract being valid and enforceable, the petitioner cannot avoid his obligation by
interposing that Exhibit A is not a public document. On the contrary, under Article 1357 of the Civil Code, the
petitioner can even be compelled by the respondent to execute a public document to embody their valid and
enforceable contract.
2. ANOTHER REASON STRESSED BY PETITIONER IN A LETTER AS TO WHY HE CANNOT AGREE TO SALE, AND NOT
THE CONSENT OF HIS SISTERS. IT WAS BECAUSE HIS DAUGHTER WOULD NOT PERMIT IT. ALSO, EVEN IF AS
CO-OWNER HE CANNOT DISPOSE OF SPECIFIC PORTION OF LAND, HIS SHARE IS BOUND BY EFFECT OF THE
SALE. The reasons given by the petitioner cannot operate against the validity of the contract in question. A
contract is valid even though one of the parties entered into it against his better judgment. (See Lagunzad v.
Vda. de Gonzales, 92 SCRA 476; citing Martinez v. Hongkong and Shanghai Bank, 15 Phil. 252).

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Finally, we agree with the lower courts holding that although as a co-owner, the petitioner cannot
dispose of a specific portion of the land, his share shall be bound by the effect of the sale. This is anchored in
Article 493 of the Civil Code which provides: Art. 493. Each co-owner shall have the full ownership of his part
and the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even
substitute another person in its enjoyment, except when personal rights are involved. But the effect of the
alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be alloted
to him in the division upon the termination of the co-ownership.

Hechanova v. Adil
DOCTRINE: Art. 1356 -- Mere private document confers no actionable right nor legal standing to question
validity of Deed of Sale.

FACTS: Hechanova v. Adil is a case regarding a petition seeking the annulment of various orders of the
respondent Judge. The case under review is for the annulment of a deed of sale executed by defendants
Servando and his co-defendant, petitioner Hechanova covering three parcels of land. These parcels of land in
Iloilo were mortgaged to plaintiff Pio Servando by his cousin (vendor) to secure a loan of php 20K. Plaintiff
impugned the validity of the sale as being fraudulent, and prayed that it be declared void and the TCTs to
vendees be cancelled; or alternatively, vendor Servando to pay Php 20K for damages plus interest.
Defendants moved to dismiss the complaint, assailing that plaintiff did not state a cause of action, the
alleged mortgage being invalid and unenforceable since it was a mere private document and was not recorded
in the Registry of Deeds; and that plaintiff was not a real party in interest. The motion was denied by
respondent judge on the ground that this action is for collection.
On June 1978, defendant Servando died. Defendants then moved for dismissal of the complaint,
pointing out that the action was for recovery of money based on an actionable document to which only
deceased defendant was a party. The motion dismiss was also denied. On August 1978, plaintiff filed a motion
to declare defendants in default, after which respondent judge granted the motion and set the hearing.
Hechanova and Masa filed their answers denying the allegations of the complaint and repeating the grounds
stated in their motions to dismiss. Judgement by default was rendered against defendants, annulling the deed
of sale and ordering the Register of Deeds of Iloilo to cancel the titles issued to Hechanova and to revive the
title issued to plaintiff Servando. On appeal, the decision was likewise in favor of plaintiff due to the failure of
defendants to comply with its order to eliminate the answer. Hence the current petition.

ISSUE: Whether or not the plaintiff Servando has a cause of action to question the validity of the deed of sale.

HELD: NO. The Court SET ASIDE the order of February 1979, and DISMISSED the complaint filed by petitioner.
RULING: Plaintiff has no cause of action nor standing to question the validity of the deed of sale executed by
deceased defendant Servando in favor of his co-defendants Hechanova. No valid mortgage has been
constituted in plaintiffs favor, the alleged deed of mortgage being a mere private document and not
registered. It also contains a stipulation pacto comisorio which is null and void under Article 2088 of the CC.
The legal remedy plaintiff had was to foreclose the mortgage, not seek annulment of sale.

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REFORMATION OF INSTRUMENTS 3. Burden of proof-- it is upon the party who
insists that the instrument should be
That remedy allowed by law by means of
reformed because of its failure to express
which a written instrument is amended or the true intention of the parties.
rectified so as to express or conform to the a. Cannot be made simply because
real agreement or intention of the parties a party finds itself at the shorter
when by reason of mistake, fraud, inequitable end of an unwise bargain
conduct, or accident, the instrument fails to b. Only when an agreement is
express such agreement of intention. shown to be grossly unjust as to
be unduly oppressive
Art. 1359. When there having been a meeting of
the minds of the parties to a contract, their true Admissibility of parol evidence to show true
intention is not expressed in the instrument intent:
purporting to embody the agreement, by reason of 1. General rule: The court may not allow the
mistake, fraud, inequitable conduct or accident, introduction to show the real agreement
one of the parties may ask for the reformation of of the parties
the instrument to the end that such true intention Exceptions as per Rules of Court: a party
may be expressed. may present evidence to modify, explain,
If mistake, fraud, inequitable conduct, or or add to the terms of the written
accident has prevented a meeting of the minds of agreement if he puts in issue in his
the parties, the proper remedy is not reformation pleading:
of the instrument but annulment of the contract. a. An intrinsic ambiguity, mistake,
or imperfection in the written
The courts do not attempt to make another agreement;
contract for the parties. It merely orders for the b. The failure of the written
true intention be expressed such that the contract agreement to express the true
to be enforceable, and not unjust and inequitable. intent and agreement of the
parties thereto;
Requisites of Reformation: c. The validity of the written
1. Meeting of the minds of the parties; agreement; or
2. Written instrument does not express the d. The existence of other terms
true agreement or intention; agreed to by the parties or their
a. Reformation is not available successors in interest after the
where no writing exists execution of the written
3. Failure to express due to mistake, fraud, agreement (including wills)
inequitable conduct, or accident; 2. Exclusion of Oral Evidence: forbidden are
4. The facts upon which relief by any addition to or contradiction of the
reformation is sought are put in issue by terms of a written instrument by
the pleadings; and testimony purporting to show that, at or
5. Clear and convincing evidence of the before the signing thereof, other or
mistake, fraud, inequitable conduct, or different terms were agreed upon by the
accident. parties.
3. Rule where right of reformation invoked:
Facts to be alleged and proved in action for courts as the agencies authorized by law
Reformation to exercise the power to reform an
1. Failure of instrument to express true agreement must necessarily exercise that
agreement-- complaint must allege the power sparingly and with great caution
true agreement or intention of the parties a. Ground that written agreement
and that the instrument to be reformed fails to express true intent and
does not express such agreement or agreement can only invoked
intention where the contract is so
2. Reformation of instrument-- what is ambiguous or obscure that
reformed is not the contract itself, but the intention cannot be understood
instrument embodying the contract. from a mere reading of the
instrument

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the instrument be reformed. (Ignorance, etc. on
the part of a 3rd person)

Inequitable conduct: consists in doing acts, or - Neither party is responsible for the
omitting to do acts, which the court finds to be mistake. Either party may ask for
unconscionable. Such as reformation
Taking advantage of one partys illiteracy
Abusing confidence Art. 1365. If two parties agree upon the mortgage
Concealing what of right should have or pledge of real or personal property, but the
been disclosed instrument states that the property is sold
absolutely or with a right of repurchase,
Art. 1360. The principles of the general law on the reformation of the instrument is proper.
reformation of instruments are hereby adopted
insofar as they are not in conflict with the Art. 1366. There shall be no reformation in the
provisions of this Code. following cases:
-such prevails 1. SImple donations inter vivos wherein no
condition is imposed;
Art. 1361. When a mutual mistake of the parties 2. Wills;
causes the failure of the instrument to disclose 3. When the real agreement is void.
their real agreement, said instrument may be
reformed. Art. 1367. When one of the parties has brought an
action to enforce the instrument, he cannot
Requisites must concur: subsequently ask for its reformation.
Mistake must be of fact
Proved by clear and convincing evidence Cases where Reformation is Not Allowed:
Mistake mutual, common to both parties 1. Simple donations inter vivos where no
Causing the failure of the instrument to condition is imposed
express their true intention - Donation is an act of liberality, essentially
gratuitous, and the donee has therefore
Art. 1362. If one party was mistaken and the other no just cause for complaint. A defect in
acted fraudulently or inequitably in such a way the deed is a mere failure in abounty
that the instrument does not show their true which, as the donor was not bound to
intention, the former may ask for the reformation make, he is not bound to correct.
of the instrument. (Unilateral mistake) 2. Wills
- An act whereby a person is permitted
- Right to ask reformation is granted only with the formalities prescribed by law to
to the party who was mistaken in good control to a certain degree the disposition
faith. of his estate, to take effect after his
death.
Art. 1363. When one party was mistaken and the - The making of such is strictly personal and
other knew or believed that the instrument did not a free act which cannot be left to the
state their real agreement, but concealed that fact discretion of a 3rd person
from the former, the instrument may be reformed. 3. Where the real agreement is void
- There is nothing to reform
- Remedy may be availed of only by the 4. Where one party has brought an action to
party acting in good faith enforce the instrument
- Concealment of the mistake by the other - Based on estoppel
party = fraud
Art. 1368. Reformation may be ordered at the
Art. 1364. When through the ignorance, lack of instance of either party or his successors in
skill, negligence or bad faith on the part of the interest, if the mistake was mutual; otherwise,
person drafting the instrument or of the clerk or upon petition of the injured party, or his heirs and
typist, the instrument does not express the true assigns.
intention of the parties, the court may order that
Persons Entitled to Reformation:

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1. Either of the parties in mutual mistake
(Art. 1361, 1364 and 1365); - GEN. RULE: all persons interested in the
2. In all other cases, the injured party subject matter of litigation, whether it is a
3. The heirs or successors in interest (Art. legal or an equitable interest should be
1368) made parties in suits to reform written
The effect of reformation is retroactive from the instruments, so that the court may settle
time of the execution of the original instrument. all of their rights at once and thus,
prevent the necessity of multiplicity of
Art. 1369. The procedure for the reformation of suits
instruments shall be governed by rules of court to
be promulgated by the Supreme Court.

HUIBONHUA vs CA
FACTS:
June 8, 1983, Huibonhua entered into Memorandum of Agreement (MOA) with siblings Rufina Lim,
Severino Gojocco, and Loreta Gojocco Chua, private respondents in case
Petitioner would lease from them 3 adjacent commercial lots at Binondo, Manila
June 30, 1983, pursuant to MOA, parties inked contract of lease of same 3 lots for period of 15 years
commencing July 1, 1983, renewable upon agreement of parties
Contract was to enable lessee-petitioner to construct 4-storey building, and parties agreed petitioner
could sublease building/spaces to interested parties under lessees terms
Lessee also undertook to construct building within 8 months from execution of lease
Other stipulations in contract are:
1. Lessee to pay each lessor P300K each, or P900K in total, as goodwill money
2. Monthly rental at P45K, P15K each lessor, to be paid within first 5 days of month
3. During period of construction, no monthly rental shall be collected from lessee
4. Monthly rental shall be adjusted/increased on corresponding increase in rental of sub-lessee/s,
percentage increase of lessee patterned after sub-lessee/s
Parties also agreed that on termination of lease, ownership and title of building would automatically
transfer to lessor without any implementing document therefor
Real estate taxes on building to be paid by lessee, on land by the lessor. Lessee allowed to advance
money needed to meet lessors obligations (i.e. payment of real estate taxes) and lessors would
deduct these from lessees monthly rental due
Gojoccos executed power of attorney granting Huibonhua authority to obtain credit facilities so that 3
lots could be mortgaged for a limited 1-year period from July 1983
Petitioner obtained credit facilities from China Bank not exceeding P1,000,000
After 15 days, petitioner signed contract amending real estate mortgage in favor of China Bank and
credit facilities increased to principal sum of P3,000,000
During buildings construction (known as Poulex Merchandise Center), former Senator Benigno
Aquino, Jr. was assassinated affected political and economic stability of country
Hoarding of construction materials and increase in interest rates allegedly adversely affected
construction of building such that petitioner failed to complete construction within 8 months
Construction completed only on Sept. 1984, or 7 months after original projected date
Under contract, petitioner supposed to pay rental starting March 1984, but she failed to do so,
Gojoccos made several verbal demands for payment of back rentals and to vacate premises
Dec. 19, 1984, lessors sent final demand letter, mentioned intention to terminate lease
Huibonhua brought action for reformation of contract before RTC
Complaint alleged that although meeting of minds present, their true intention as to when monthly
rentals would accrue was not expressed due to mistake or accident and petitioner alleged Gojoccos
erroneously considered Mar. 1984 as starting point for accrual of rent when intention was during
entire period of actual construction of the building no rents would accrue
11 days later, Gojoccos filed case for lease cancellation, ejectment, and collection with MTC, saying
that despite expiration of 8-month period Huibonhua failed to pay rents that had accrued since
Mar. 1, 1984, verbal demands notwithstanding.

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Also alleged petitioner refused to pay rentals in bad faith as she had already sublet stalls, bodegas,
offices to numerous tenants even prior to buildings completion
Also, petitioner finished building without using own capital and relied on mortgages of
respondents land worth P3.7million and that because mortgage indebtedness with China Bank
remained unpaid they revoked power of attorney in her favor
On Jan. 31, 1985, Rufina Gojocco Lim entered into agreement with Huibonhua where the former
agreed to extend term of lease by 3 more years or for 18 years from July 1, 1983 so that case filed by
Huibonhua would be put to an end
Agreement expressly provided no rents to be collected until completion of construction work and that
during construction no monthly rental should be collected.
Also provided that should some unforeseen event dramatically increase cost of building, monthly rent
to be reduced equitably, bearing in mind actual cost of building. Agreement recognized Aquino
assassination resulted in hoarding of construction materials and resulted in increase of cost of
construction from P6million to between P11 and P12million.
No record in case that Rufina Gojocco Lim dropped as defendant in case, but only Loretta Gojocco
Chua and Sps Severino/Priscilla Gojocco filed memorandum in case
RTC rendered decision against Huibonhua, no clear case for reformation
Contention misplaced, that Aquino assassination accident within purview of Art. 1359, and Rufinas
agreement with Huibonhua that reformed lease contract not binding on others as they were
separate and independent owners of lots subject to lease.
As to 2nd case with MTC, court granted Huibonhoas prayer that the case be excluded from the
operation of the Rule on Summary Procedure for the reason that the unpaid rents sued upon
amounted to P495,000.00 but motion to dismiss of petitioner denied by court and required her to
pay P30K monthly rental starting Mar. 1984
On July 21, 1986, Severino Gojocco and Huibonhoa entered into an agreement that altered certain
terms of the lease contract in the same way that the agreement between Huibonhoa and Rufina G.
Lim novated the contract
MTC denied petitioners MR, and eventually came out with decision in favor of respondents
Severino Gojocco and Loreta Gojocco Chua, ordered petitioner to vacate lots and pay each of
respondents P5K attorneys and P1K appearance fees
Appealed to RTC, which reversed MTC and ordered dismissal of respondents complaint versus
petitioner based on finding that suit intrinsically action for cancellation or rescission of contract not
one for ejectment as rights of parties to still existing contracts have yet to be determined and
resolved
Elevated to CA, affirmed as to dismissing Huibonhuas complaint but modified by ordering that
amount of P270,825 paid by petitioner be deducted from total amount of unpaid rentals due the
said spouses, no summary action can prosper as ejecting lessee would deprive her of income and
other beneficial fruits of building of which she is the owner until end of term of lease.
ISSUES:
1. CA in error in finding agreement between petitioner and Severino as worthless and useless although it
recognized payments which respondent received from petitioner which actually constituted an act of
ratification
2. CA failed to consider Ninoys assassination as fortuitous event justifying adjustment of terms of contract
of lease

SC Ruling: Petition not meritorious. We affirm CA and RTC.


1. Art. 1359 clear on instances when reformation may be asked by one of the parties, one of this is that
instrument failed to express true intention of parties, which was not present in case now. Clear from import
of provisions that obligation to pay rental shall start within 8 months from contract execution. There is no
statement in such testimony that categorically points to the fact that the contract of lease has failed to express
the true intention of the parties. While it is true that paragraph 4 of the Memorandum of Agreement states
that the P15,000 monthly rental due each of the three lessors shall be collected in advance within the first five
(5) days of each month upon completion of the building, the same memorandum of agreement also provides
as follows: 8. This Memorandum of Agreement shall bind the SECOND PARTY only after the signing of the
Contract of Lease by both parties which shall not be later than June 30, 1983, provided, however, that should

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the SECOND PARTY decide not to proceed with the signing on the deadline aforestated, the FIRST PARTY shall
not hold her liable therefor. Paragraph 5 of the lease contract states that the LESSEEs obligation to pay the
rental shall start only upon the completion of the building, but if it is not completed within eight (8) months
from date hereof as provided for in par. 5 (sic) above, the monthly rental shall already accrue and shall be paid
by LESSEE to LESSOR.
On account of her failure to prove what costly mistake allegedly suppressed the true intention of the
parties, Huibonhoa honestly admitted that there was an oversight in the drafting of the contract by her own
counsel. Unable to substantiate her stance that the true intention of the parties is not expressed in the lease
contract in question, Huibonhoa nonetheless contends that paragraph 5 thereof should be interpreted in such
a way that she should only begin paying monthly rent in October 1984 and not in March 1984. Such contention
betrays Huibonhoas confusion on the distinction between interpretation and reformation of contracts. By
bringing an action for the reformation of subject lease contract, Huibonhoa chose to reform the instrument
and not the contract itself. She is thus precluded from inserting stipulations that are not extant in the lease
contract itself lest the very agreement embodied in the instrument is altered.

2. Ninoy assassination not fortuitous event that justified modification of term of lease contract. From the
facts of the case, it is clear that what Huibonhoa aimed for in filing the action for reformation of the lease
contract, is to absolve herself from her delay in the payment of monthly rentals and to extend the term of the
lease, which under the original lease contract, expired in 1988. The ostensible reasons behind the institution of
the case she alleged were the unfavorable repercussions resulting from the economic and political upheaval
on the heels of the Aquino assassination. However, a contract duly executed is the law between the parties
who are obliged to comply with its terms. Events occurring subsequent to the signing of an agreement may
suffice to alter its terms only if, upon failure of the parties to arrive at a valid compromise, the court deems the
same to be sufficient reasons in law for altering terms of the contract.

WHEREFORE, judgment is hereby rendered as follows:

a.) In G.R. No. 95897, the decision of the Court of Appeals in CA-G.R. CV No. 16575, dismissing petitioners
complaint for reformation of contract, is AFFIRMED with the modifications that:
1] Private respondent Loreta Gojocco Chua is adjudged entitled to legal interest of 6% per annum from March,
1984, the time the rents became due;
2] Private respondent Severino Gojocco shall receive 6% legal interest only from the time Florencia T.
Huibonhoa defaulted in the payment of her monthly rents; and
3] Legal interest of 12% per annum shall accrue from the finality of this decision until the amount due is fully
paid.

b.)In G.R. No. 102604, the decision of the Court of Appeals in CA-G.R. SP No. 24654, affirming the decision of
the Regional Trial Court of origin which dismissed the ejectment case instituted by the petitioners against
the private respondent is SET ASIDE; the order of ejectment issued by the Metropolitan Trial Court a quo on
July 30, 1980 is UPHELD; and the private respondent and all persons claiming authority under her are
ordered to vacate the land and portion of the building corresponding to Lot No. 26-B covered by TCT No.
80728 of petitioner Severino Gojocco, and the portion
corresponding to Lot No. 26-C covered by TCT No. 155450 of petitioner Loreta Chua. No pronouncement as
to costs. SO ORDERED.

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National Irrigation Administration (NIA) v. Gamit: GR No. 85869, November 6, 1992
Petitioners: National Irrigation Administration (NIA), represented by the Project Manager, Magat River
Multi-Purpose Project
Respondents: Estanislao Gamit, and CA
FACTS: NIA is in charge of the implementation of the Irrigation Program of the national government to
increase food production nationwide. In pursuance of the policy, the Magat River Multi-Purpose Project
(MRMP) was undertaken to provide irrigation in the Cagayan Valley region, particularly in Isabela, funded by a
multi-billion loan from the world bank. Massive infrastructure improvements such as buildings and the like
were constructed to house the different offices monitoring the actual implementation of the project.
Gamit and NIA, through its Officer-in-Charge, MRMP then with business office at San Mateo, Isabela,
after some negotiations, entered into a CONTRACT OF LEASE over Gamits urban parcel of land, an undivided
portion of 25,000 sqm more or less, for a consideration of P0.10 per sqm., per year for 10 years, from the date
of execution of the instrument, for the use of NIA to construct the Administrative Building and other facilities
for Division III, MRMP at San Manuel, Isabela, and other purposes deemed necessary for the operation and
maintenance of the system when completed. A certified xerox copy of the title was attached.
Paragraphs 4, 8, 9 of the contract of lease provides that for Gamit to continue utilized the portion of
25,000 sqm. beyond the 10 year period that the contract is in force, Gamit may purchase the property and all
rentals paid to lessor shall be considered part of the purchase price which shall not exceed P25,000.(par. 4)
That 6 months before the expiration of the 10 year period, NIA shall request Gamit in writing about the latters
final intention on the property leased; likewise, Gamit shall inform NIA in writing about Gamits definite
intention on the area. Failure of parties to make bilateral communication shall be deemed that the contract is
in force and effect even after the 10 years, as if NIA, its successors, or assigns allowed continued use of the
property by Gamit without any additional compensation. (par. 8) Lastly, upon payment of P25,000, the
landowner, Gamit, shall be deemed to have ceded and conveyed all his rights and interests on the subject
property free from all liens and encumbrances in favor of NIA.
Prior to the signing of the contract of lease as stated in the immediately preceding paragraph, serious
negotiations were made, first when the Municipal mayor and Chief of Police of the Municipality of San
Manuel, Isabela approached Gamit in behalf of NIA thru its project manager to enter into and occupy 3
hectares or 30,000 sqm. of his land to establish the Office of Division III of NIA, and Gamit and his wife signed a
written permit granting pending the perfection of documents pertinent to a formal lease contract with the
right to purchase to be executed by and between Gamit and NIA. A document denominated as AGREEMENT
was prepared by NIA for the signature of Gamit which he and his wife signed with one Engr. Antonio A Ramos,
then the Chief of Division III signing as an instrumental witness. The Asst. Project Manager did not sign the
AGREEMENT, for which reason, the contract of lease was not perfected.
Subsequently after, the whole rental of the leased premises was offered to be paid by the NIA, and
Gamit being in need of cash as he was then in financial distress, accepted the offer, and finally received the
whole amount. In a letter later on sent by the Asst. Project Manager to Gamit, NIA notified the former of the
election to purchase the leased premises, allegedly in accordance with paragraph 8. The contract of lease
entered into, by and between herein plaintiff and defendant does not express the real agreement or intention
of the parties, as there was error or mistake of fact on the part of Gamit, aggravated by his state of financial
distress at the time the contract was signed, and herein NIA acted fraudulently or inequitably, exercising
undue influence over plaintiff on account of the latter's financial distress, in such a way that their real
agreement was not reflected or expressed in the contract of lease signed by the parties.
It was NOT the real agreement of at least Gamit to have the rentals paid as forming part of the
purchase price later to be negotiated or agreed upon, much less was it their intention that the price shall not
exceed P25,000, otherwise there would be a gross inadequacy of the purchase price, enough to shock the
conscience of man and that of the court. It was also not the intention that in case the lease contract is not
renewed after the lapse of the 10 year period, for failure of the parties to make bilateral communication, the
lessor or his successors or assigns are deemed to have allowed continued use of the land in suit without any
additional compensation whatsoever. Neither was it the true intention that upon the payment of the rental
amount of P25,000, Gamit would be deemed to have conveyed and ceded all his rights and interest on the
subject property in favor of NIA.

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NIA acted fraudulently and inequitably taking advantage of the financial distress of Gamit when it
caused the unlawful insertion of the stipulations of paragraph 4,8, and 9 are all contrary to law and void ab
initio because the fixing of a price of land can never be left to the will or discretion of one of the contracting
parties. The contract is thus a contract of adhesion. The fair and reasonable price for the land is no less than
P50.00 per sqm.
Also after the lease contract was executed and registered, NIA fenced the leased area, but in the
process stealthily expanded its occupation to include the remaining 5,000sqm. more supposedly free from lien
and encumbrance, evidenced by a relocation survey conducted. That area which was irrigated could produce
an average of no less than 100 cavans of palay at 46 kilos per cavan, for 3 croppings a year, with a selling price
of P3.50 per kilo. Gamit failed to realize the expected income due to the unlawful occupation by NIA, and
despite repeated demands, NIA refused to deliver the possession of the land.
Gamit filed for demand at the CA for the contract of lease to be reformed to reflect the true intention
of the parties, or in alternative, if NIA were to buy the law, the price be agreed at the rate of P50.00 per sqm.
Also, that he be paid the unrealized income or profit over the unlawfully occupied 5,000 sqm, and lastly for
P30,000 by way of nominal or temperate damages, and P60,000 by way of moral and exemplary damages plus
attorneys fees on a contingent bases of 30%, and appearance fee of P3,000 when the case is called for hearing
or for any other purpose.
The trial court held that the issue in this case was a question of law and not a question of fact because
it involved the interpretation of the contract between the parties only. There was no genuine issue of material
fact to be determined by the court in a trial on the merits and the case may be decided by way of summary
judgment under Sec. 3, Rule 20 of the Rules of Court. The court was of the opinion that the parties intended to
execute a contract of lease not sale; that otherwise, they should have executed a deed of sale; and, they
cannot claim ignorance because NIA was represented by a battery of corporate counsel. It held that there was
no need to reform the agreement, because it had already expired, and that it was clearly only a contract of
lease with option or right to purchase.

ISSUE: W/N the trial court is correct in saying the contract showed the true intentions of the parties,
disqualifying it from reformation

HELD: NO.
In order for an action for reformation under Art. 1359 may prosper, the following requisites must
concur: (1) a meeting of the minds of the parties to the contract; (2) the instrument does not express the true
intention of the parties; and (3) the failure of the instrument to express such is due to mistake, fraud,
inequitable conduct, or accident.
The complaint at bar alleged that by the mistake of inserting paragraphs 4,8,9 there is no expression
of the true intention and agreement of the parties. As a general rule, parol evidence is no admissible for the
purpose of varying the terms of a contract. However, when the isse that a contract does not express the
intention of the parties and the proper foundation is laid therefor as in the present case, the court should hear
the evidence for the purpose of ascertaining the true intention of the parties.
The trial court erred in holding that the issue is a question of law because it merely involves the
interpretation of the parties. The lower court erred in not conducting a trial for the purpose of determining the
true intention of the parties. It failed to appreciate the distinction between interpretation and reformation of
contracts. Interpretation would be the method by which the meaning of language is ascertained, while
reformation is the remedy in equity in which a written instrument is made to express the true intention of the
parties.

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Naga Telephone v. CA: GR No. 107112, February 24, 1994
Petitioners: Naga Telephone Co, Inc. (NATELCO), and Luciano M. Maggay
Respondents: Court of Appeals, and Camarines Sur II Electric Cooperative, Inc. (CASURECO II)
FACTS:
Petitioner is a telephone company rendering local and long distance telephone service in Naga City while
private respondent CASURECO II is a private corporation established for the purpose of operating an electric
power service in the same city.
The parties entered into a contract for the use by petitioners in the operation of its telephone service
the electric light posts of private respondent in Naga City. Petitioners agreed to install, free of charge, 10
telephone connections for the use by private respondent. The term of the contract was to be as long as the
party of the first part has ned for the electric light posts, it being understood that the contract shall terminate
when for any reason whatsoever, the party of the second part is forced to stop, abandon its operation as a
public service and it becomes necessary to remove the electric light post.
(First Cause of Action) After the contract had been enforced for over 10 years, private respondent filed for
reformation of the contract with damages on the ground that:
1. It is too one-sided in favor of the petitioners;
a. It is not in conformity with the guidelines of the National Electrification Administration (NEA)
which direct that the reasonable compensation for the use of the posts is P10 per post per
month;
b. After 11 years of petitioners use of the posts, the telephone cables strung by them have
become much heavier with the increase in the volume of their subscribers, worsened by the
fact that their linemen bore holes through the posts at which point those posts were broken
during typhoons;
c. A post now costs as much as P2,630;
d. Justice and equity demand that the contract be reformed to abolish the inequities thereon.
2. Second Cause of Action: Petitioners have also used 319 posts all outside Naga CIty without having any
contract with it, when petitioners should pay private respondent for the use of a total amount of
P267,960 which they refused to pay despite demands;
3. Third Cause of Action: Poor servicing of the 10 telephone units which have caused great
inconvenience and damages of not less than P100,000.
The trial court found that while the contract appeared to be fair to both parties when it was entered
into by them during the first year, it had become disadvantageous and unfair to private respondent because of
subsequent events and conditions. In an action for reformation of contract, it cannot make another contract
for the parties, but for reasons of justice and equity, can order that the contract be reformed to abolish the
inequities. The CA affirmed this decision saying that (1) Art. 1267 is applicable, and (2) that the contract was
subject to a potestative condition which rendered said condition void.
On the second cause of action, trial court found that the contract does not mention anything about
the use by petitioners of private respondents posts outside Naga City. For reason of equity, the contract
should be reformed by including a provision for that for the use of private respondents posts outside Naga
City, petitioners should pay a monthly rental of P10.00 per post, the payment to start on the date the case was
filed, and private respondent should also pay petitioners the monthly dues on its telephone connections
located outside Naga City from the same time the case was filed.
On the third cause of action, the trial court found the claim not sufficiently proved.
The RTC then ordered the reformation of the agreement, ordering that CASURECO be paid for the
electric poles in Naga City and in the towns where NATELCO used CASURECOs electric poles, the sum of
P10.00 per pole, per month, and ordering also CASURECO to pay NATELCO the monthly dues of all its
telephones including those installed at the residences of its officers. Claims for attorneys fees, expenses of
litigation, and NATELCOs counterclaim was dismissed.
Petitioners appealed to the CA, who affirmed the RTC on the grounds that: (1) Art. 1267 is applicable;
and (2) the contract was subject to potestative condition which rendered said condition void.

ISSUE:

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1. W/N invoking Art 1267 is applicable for the trial court to make a contract for the parties;
2. W/N CA in ruling that prescription of the action for reformation of the contract in this case
commenced from the time it became disadvantageous to private respondent;
3. W/N CA erred in ruling that the contract was subject to potestative condition.

HELD:
1. Petitioners assert that Art. 1267 is not applicable because the contract does not involve the rendition
of service or a personal prestation and it is not for future service with future unusual change.
Respondent court rationalized that in order for an action for reformation of contract to
prosper, there must be sufficient allegations as well as proof that the contract in question failed to
express the true intention of the parties due to error or mistake, accident, or fraud. Art. 1359, 1361,
1362, 1363, and 1364 provide in essence that where through mistake or accident on the part of either
or both of the parties or mistake or fraud on the part of the clerk or typist who prepared the
instrument, the true intention of the parties is not expressed therein, then the instrument may be
reformed at the instance of either party if there was mutual mistake on their part, or by the injured
party if only he was mistaken. Because there was no allegations nor evidence to prove a mistake or
mutual mistake from any of the parties when they entered into their agreement, such mistake failing
to express their true intention The contract had become inequitous to CASURECO with the expansion
of the business of NATELCO and the increase in the volume of its subscribers in Naga City and
environs through the years, necessitating the stringing of more and bigger telephone cable wires by
CASURECO to NATELCO free of charge. This gave CASURECO a cause of action for reformation of their
contract with NATELCO. However, CASURECO is not without a remedy as its allegations and evidence
presents a sufficient cause of action under Art. 1267.
CA is correct in applying 1267 as service means the "performance" of the obligation. In the
present case, the obligation of private respondent consists in allowing petitioners to use its posts in
Naga City, which is the service contemplated in said article. The parties are released from their
correlative obligations under the contract, but considering the consequences thereof (removing of the
telephone posts, disruption of service to the public), they are required to follow the trial courts ruling
regarding payments.
2. In reformation, what is reformed is not the contract itself but the instrument embodying the contract.
It follows that whether the contract is disadvantageous or not is irrelevant to reformation and
therefore, cannot be an element in the determination of the period for prescription of the action to
reform.
Art. 1144 provides that an action upon a written contract must be brought within 10 years
from the time the right of action accrues. Clearly, the 10 year period is to be reckoned from the time
the right of action accrues which is not necessarily the fate of execution of the contract. CASURECOs
cause of action to ask for reformation arose at the time the complaint was filed. 10 years had not yet
elapsed.
3. YES and NO. A potestative condition is a condition, the fulfillment of which depends upon the sole will
of the debtor, in which case, the conditional obligation is void. The CAs finding that the provision: (a)
That the term or period of this contract shall be as long as the party of the first part (petitioner) has
need for the electric light posts of the party of the second part (private respondent). is a potestative
condition, is correct. However the other conditions in the same provision: . . . it being understood
that this contract shall terminate when for any reason whatsoever, the party of the second part
(private respondent) is forced to stop, abandoned (sic) its operation as a public service and it becomes
necessary to remove the electric light post (sic) are causal conditions, depending on chance, hazard,
or the will of a third person. The contract is subject to mixed conditions, depending partly on the will
of the debtor and partly on chance, hazard, or will of a third person.

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Valid and enforceable contracts shall be
fulfilled according to the literal sense of
their stipulations
Words should be given their natural and
ordinary meaning unless a technical
meaning was intended.
INTERPRETATION OF CONTRACTS No amount of extrinsic facts or aids are
The act of making intelligible that was not required and no further extraneous
before understood, ambiguous, or not sources are necessary in order to
obvious. It is a method by which the meaning ascertain the parties intent.
of language is ascertained.
Law as aid to Interpretation: there is a body of Weight of evidence to justify disregard of
rules which regulates each contract, or all contracts
contracts in general Terms presumed to embody will of
1. Modification by parties of rules of parties
interpretation: parties are free to accept Clear and convincing evidence required to
these rules as a whole, or to modify in impugn a contract
cases not essential or obligatory; or to
complete to the extent which is legal or in Application and interpretation of terms of
conformity with their nature contracts by courts
2. Acceptance by parties of the rules: these First duty of court
legal modes must be presumed to have The first and fundamental duty of the
been accepted if nothing is said to the court is the application of the contract
contrary and, therefore, the contract according to its express terms,
must be deemed complete interpretation being called only when
3. Natural and accidental elements of such literal application is impossible
contract: acceptance of the natural It is an error on the part of the court to
elements is implied, when nothing is said make room for interpretation or
by the parties to the contrary, and construction of the provisions of a
exclusion of the accidental elements, if contract when the case plainly calls for
none has been stipulated by them application thereof.
4. Intent of the Law: in seeking the meaning o It is only when the terms of the

of the law, the first concern should be the contract are ambiguous, equivocal, or
intent of the lawmaker uncertain such that the parties
5. Retroactivity of the Law: statutes have no themselves disagree upon the meaning of
retroactive effect unless otherwise particular provisions, the court will
provided therein. Only laws existing at the intervene
time of the execution of the contract are
applicable to said transaction Limit to interpretation
6. Law of place where contract entered into: Courts are not permitted to make a new
lex loci contractus; the law of the place contract for the parties in ascertaining
where a contract is made or entered into their intention or ignore those already
governs with respect to its nature, made by them simply to avoid seeming
validity, obligation, and interpretation. hardships.

Article 1370. If the terms of a contract are clear Equity as a ground for relief against a bad
and leave no doubt upon the intention of the transaction
contracting parties, the literal meaning of its Equity is not an antidote against the
stipulations shall control. disadvantages of a bad transaction, and it
If the words appear to be contrary to the may not be invoked to allow a contract to
evident intention of the parties, the latter shall be interpreted in a manner different from
prevail over the former. that impelled by its terms

Literal meaning controls when language is clear Submission of disputes to arbitration

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Being an inexpensive, speedy, and
amicable method of settling disputes,
arbitration, mediation, conciliation, Article 1372. However general the terms of a
negotiation are encouraged by the contract may be, they shall not be understood to
supreme court comprehend things that are distinct and cases that
are different from those upon which the parties
Article 1371. In order to judge the intention of the intended to agree.
contracting parties, their contemporaneous and
subsequent acts shall be principally considered. Special intent prevails over a general intent
As a rule, where in a contract there are
Contemporaneous and subsequent actions to be general and special provisions covering
principally considered the same subject matter are inconsistent,
Acts of the parties as well as the the latter shall be paramount to and
evidentiary facts as proved and admitted control over the former when the two
can be reflective of ones intention. The cannot stand together
real nature of a contract may be
determined not only from the express Article 1373. If some stipulation of any contract
terms of the written agreement but also should admit of several meanings, it shall be
by all the surrounding circumstances to understood as bearing that import which is most
prove the intention of the parties thereto adequate to render it effectual.
If the parties to the contract have given a
practical construction to the terms by Interpretation of stipulation with several
their contemporaneous or subsequent meanings
conduct, such interpretation must be When an argument is susceptible of
considered by the court in determining its several meanings, one of which would
meaning and ascertaining the intention of render it effectual, it should be given that
the parties when such intention cannot interpretation.
clearly be ascertained from the words If one interpretation makes a contract
used in their contract valid or effective and the other makes it
The essence of the contract determines illegal or meaningless, the former
what law should apply between the interpretation is one which is warranted
contracting parties by Art. 1373

Antecedent circumstances relevant in Article 1374. The various stipulations of a contract


determination of intention shall be interpreted together, attributing to the
Antecedent circumstances under which it doubtful ones that sense which may result from all
was made may also be considered of them taken jointly.

Courts not bound by name given to contract by All The Stipulations Interpreted Jointly to Give
parties Effect to the Whole:
Name or title not conclusive of true When there are several provisions, the
nature of contract construction that should be adopted must
Documentary and parol evidence may be be the one which will give effect to all
submitted and admitted to prove the true provisions.
intention of the parties as shown by their Titles given to sections of a contract may
words, conduct and acts before, during, be used as guides in interpreting its
and immediately after the execution of scope.
the contract. Contents of the contract should not be
A contract is what the law defines it to be, interpreted piecemeal, but to be
considering its essential elements, and considered from an overall view of the
not what it is called by the contracting. It document itself.
is not the parties but the law that When there is a controversy because the
determines the juridical situation created name given to the contract is different
by them through their contract and the from what the parties are doing,
rights and obligations arising therefrom. performance prevails because it clearly

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indicates more intention than the name the vicinity, may be presumed to have
or title given to the contract. known of it and to have acted upon it as
they had occasion.
Article 1375. Words which may have different Local Customs those which prevail only
significations shall be understood in that which is in some particular district or locality, or in
most in keeping with the nature and object of the some city, county, or town.
contract. Particular Customs those which are
nearly the same, being such as affect only
Words Susceptible to Two or More Significations: the inhabitants of some particular district.
Words with two or more meanings shall
be understood to have that meaning No Judicial Notice of Customs, Exception:
which is most in keeping with the nature A custom must be proved as a fact
and object of the agreement. according to the rules of evidence.
If a custom and usages are general, they
Article 1376. The usage or custom of the place may be proved even if not specifically
shall be borne in mind in the interpretation of the pleaded. However if the custom or usage
ambiguities of a contract, and shall fill the is a local one, they must be pleaded,
omission of stipulations which are ordinarily otherwise, they may not be proved.
established. By way of exception, a court may take
judicial notice of a custom if there is
Usages and Customs of the Place of Execution of already a decision rendered by the same
the Contract: court recognizing the custom, specially if
In the interpretation of ambiguities, the the decision had already been affirmed
usage or custom of the place where the on appeal and the decision is already final
contract was executed shall be and executory.
considered. A custom must be proved as Judicial notice may also be taken of a
fact, according to the rules of evidence. custom which is of public knowledge.
Thus, where a contract of lease failed to
provide for the amount of compensation, Different Customs in the Same Place, Rule:
that which is customarily charged in the If the evidence presented is not sufficient
place is applied. to establish a custom, it is considered
Payment in pesetas was executed where non-existent.
Mexican pesetas were more commonly If it is proved, there is a presumption that
used than Spanish pesetas. It was held the person whose acts are the subject of
that the term pesetas should mean the controversy acted in accordance with
Mexican pesetas. the custom of the place where the acts
were performed and not in accordance
Custom and Usage Distinguished: with the customs of the place where the
Usage is a repetition of acts, and Custom court is located. This rule is applied when
is the law or general rule which arises there are different customs in the said
from such repetition. places.
There may be usage without custom, but
there cannot be custom without usage. Article 1377. The interpretation of obscure words
or stipulations in a contract shall not favor the
Kinds of Customs: party who caused the obscurity.
General Customs those which prevail
throughout a country and become the Interpretation of Obscure Words or Terms:
law. Their existence is to be determined It is not fair to allowed the opposite rule
by the court. As applied to usage of trade to prevail. It is but sensible and logical
and business, a general custom is one that the one who caused the ambiguity
that is followed in all cases by all persons should not benefit therefrom.
in the same business in the same This rule impliedly directs drafters to be
territory, and which has been so long extra careful in the choice of words or
established that persons sought to be terms. This is for the mutual benefit of all
charged thereby, and all others living in the parties.

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Rigid application of this rule has become whether a mortgage is onerous or
necessary because of current business gratuitous, it is interpreted as gratuitous.
practices, wherein companies nowadays If the contract is onerous, the doubt shall
impose cunningly prepared documents be construed in favor of the greatest
such as contracts of adhesion. This calls reciprocity of interests.
for greater strictness and vigilance on the Example: If there is doubt as to the nature
part of the courts of justice to prevent of a mortgage contract, it is presumed
unwary people from being trapped by that the debtor assumed liability which
such schemes. permits the greatest reciprocity of rights
and interests. The document should not
Article 1378. When it is absolutely impossible to be considered as a pacto de retro sale.
settle doubts by the rules established in the
preceding articles, and the doubts refer to Article 1379. The principles of interpretation stated
incidental circumstances of a gratuitous contract, in Rule 123 of the Rules of Court shall likewise be
the least transmission of rights and interests shall observed in the construction of contracts.
prevail. If the contract is onerous, the doubt shall
be settled in favor of the greatest reciprocity of Principles of interpretation in the Rules of Court
interests. applicable.
If the doubts are cast upon the principal 1. The language of a writing shall have the
object of the contract in such a way that it cannot legal meaning it bears in the place of
be known what may have been the intention or will execution, unless the parties intended
of the parties, the contract shall be null and void. otherwise.
2. An instrument with several provisions or
Applicability: particulars shall be construed so as to give
Applies only when the doubts or effect to all.
obscurities in a contract could not 3. In case of conflict between a general and
possibly be determined by the application a particular provision, the latter shall
of the rules provided in the preceding prevail; so a particular intent will control a
articles. general one that is inconsistent with it.
Thus, this article is invoked only as a last 4. The circumstances under which the
resort. instrument was made, including the
situation of the subject thereof and of the
Two Kinds of Doubts: parties to it, may be considered in its
1. Doubs on the incidental circumstances of interpretation.
the contract covered by the first 5. Terms are presumed to have been used in
paragraph. Thus, as to whether a contract their ordinary and generally accepted
is a sale or mortgage, this is considered an meaning unless intended to have been
incidental circumstance. used in a different sense.
2. Doubts on the principal object of the 6. In case of conflict, the written words
contract covered by the second prevail over the printed form.
paragraph. Thus, if the intention of the 7. Experts and interpreters may be asked to
parties cannot be determined, the declare the characters or the meaning of
contract shall be void. the language when such characters are
difficult to decipher or the language is not
Rules on Doubts on Incidental Circumstances: understood by the court.
If the contract is gratuitous, the least 8. Of two constructions, that sense is to
transmission of rights and interests shall prevail against the party in which he
prevail. understood it or which is most favorable
Example: If there is doubt whether the to the party in whose favor the provision
gratuitous delivery of a personal thing to was made.
someone constitutes a commodatum or 9. Of two constructions, one in favor and
donation, it shall be construed as the other against natural right, the former
commodatum because this will involve is to be adopted.
lesser transmission of rights. In a case

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10. Usage may be the basis to determine the
true character of an instrument.

Lim v. Court of Appeals


DOCTRINE: Articles 1370 & 1371Literal meaning of contract, couples with subsequent acts of both parties,
reveal that the contract was consummated AT THE TIME of the signing of the document.
Articles 1375 & 1377 Cash upon signing of this contract obscure; interpretation shall NOT favor private
respondent (party who caused the obscurity)

FACTS: Lim v. CA is a case regarding a Petition for Review on Certiorari regarding the decision of the CA;
reversing the decision of the CFI of Pangasinan which favored plaintiff-appellee (herein petitioner). Petitioner
Lim and private respondent Hind Sugar Company (HSC) have had business with each other, the company
selling sugar to petitioner and the latter supplying diesoline, gasoline, and other various materials ordered on
credit.
On November 12, 1970, private respondents Manager Abalos offered to sell sugar to petitioner at
Php 37 per picul. On November 13, 1970, the parties agreed to the purchase of 4,085 piculs of sugar at Php 35
per picul. Specified in its contract is Terms: Cash upon signing of this contract.
On the same day, four delivery orders (covering 4, 085 piculs) were issued to petition by Cashier
Garcia in compliance with the contract upon instructions of Abalos. Petitioner subsequently withdrew from the
company warehouse in the total amount of 3, 375 piculs, leaving a balance of 350 piculs. Parties then
questioned the payments made. Petitioner claimed that he had paid Php 142, 975 to Garcia and Abalos on
November 13 1970 and providing the contract as proof; specifically the portion which stated Cash upon
signing of this contract. Private respondent averred that no payment was made, showing the books of the
company made by its External Auditor which showed no payment made by petitioner.
On May 17, 1971, petitioner as plaintiff filed the complaint against the defendant HSC, stating as its
causes of action being: (1) HSC refused and failed to deliver 350 piculs of the sugar he bought with a value of
Php 12,250 although he has already paid full price, (2) HSC refused and failed to deliver another 1,000 piculs of
export sugar although he had deposited to the account of HSC Php 55K, (3) HSC refused, despite demands, to
release 160 piculs of Hind-3 sugar valued at Php 6K already paid, (4) HSC refused to settle its indebtedness
regarding its delivery of materials at the amount of Php 60K. Private respondent HSC answered that it refused
to deliver the remaining 350 after it alleged that petitioner had not paid the consideration under the contract,
which it also used to justify its refusal to deliver the subsequent piculs of sugar. As counter-claim, private
respondent prays for the unpaid cost of the 3,085 piculs contracted, as well as the value of the materials
deposited to its account off-set. Petitioner denied such claims of respondent.
Upon trial, the court stated the facts as such: (1) Defendant had not denied entering into a contract
with petitioner regarding the 4,085 piculs of sugar on November 13, 1970, (2) That defendant had issued four
delivery orders in favor of petitioner, (3) that petitioner issued a provisional receipt on January 27 1971 for Php
55K. The trial court ruled in favor of petitioner, ordering respondent to immediately deliver the 350 piculs of
H-2 sugar or to pay its value at Php 12K with interest, giving petitioner the option either to accept the delivery
of sugar or the payment. In addition, the trial court ordered respondent to deliver the remaining piculs of
sugar agreed upon in different dates, and to pay damages and interest.
Private respondent filed an appeal with the CA, whom ruled in their favor. The CA ordered Lim to pay
the sum of Php 1.1M which is the price of 3, 375 piculs of sugar at Php 35 per picul which were withdrawn and
received by plaintiff under the contract, and ordering the cancellation of the obligation of HSC to deliver the
remaining 350 piculs. The CA agreed with HSCs claim that petitioner had not yet paid their obligations. The
contract proves no more than the meeting of the minds of the parties. It had not consummated the contract.
The terms Cash upon signing of this contract were interpreted to mean that the payment of Php 142, 975 IS
TO FOLLOW or IS TO BE MADE, not that it was made, upon signing of the contract. The CA denied the claim of
petitioner that it had paid at 1:30 in the afternoon on the day of the signing of the contract (Nov. 13, 1971) to
Manager Abalos and Garcia in cash. It reasoned that since parties were businessmen, there was no reason for
them not to issue receipts nor deny the payment of the other party when both are friends.
After having their MR denied, petitioner files the current petition. Petitioner contends that the CA
erred in ruling that it had not yet paid, despite the contract stating otherwise through the provision Terms:
Cash upon signing of this contract.

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ISSUE: Whether or not petitioner has paid the sum of Php 142, 975 purchase price for 4, 085 piculs of sugar
covered by the contract of sale between the parties.

HELD: The Court REVERSED the decision, ordering respondents to deliver the remaining piculs of sugar and to
pay damages with interest.
RULING: Given that the stipulation Terms: Cash upon signing of this contract. was given conflicting
interpretations, the cardinal rule under Art. 1377 of the CC shall apply, stating that the interpretation shall not
favor the party who had caused the ambiguity. The court upheld the literal meaning of the terms in the
contract, upholding the intent of the parties to consider it consummated UPON SIGNING. It merely indicated
that the payment was in cash, and not in check. The stipulation is clear in its meaning, leaving no doubt in the
interpretation that the literal meaning of the stipulation shall control (Art. 1370). The word upon was
interpreted as meaning at the time of; that payment was made at the time of the signing. Under Article
1373, the meaning that would most render the contract effectual shall be applied. In addition,
contemporaneous and subsequent acts of the respondent were sufficient to show the intent (Article 1371) to
consider the contract consummated and the obligation of petitioner paid for. These were done through: (1)
issuance of four delivery orders covering the 4, 085 piculs of sugar sold, (2) the liquidation sheet dating
December 30 1970 prepared by the cashier of HSC does not mention indebtedness of petitioner in the amount
in the contract, (3) withdrawal of petitioner from warehouse of HSC 3,735 piculs of sugar under the contract
without the company demanding from petitioner of payment. Ultimately, the issuance of the delivery orders
were considered clear confirmation of the fact that petitioner had paid in cash the cost of the sugar at Php
142, 975 on the very day that the contract was signed which is also the day the delivery orders were given to
him by the cashier by order of the manager. Pursuant to Article 1497, the sugar sold is understood to be
delivered to the petitioner. Article 1636 states that the delivery orders included, in itself, a receipt for the
delivery as proof of its possession of the goods stipulated. The Court struck down the argument that the
findings of the CA were final, considering that it was in conflict with the findings in the trial court. They agreed
that the decision of the CA overlooked the various documents presented by petitioner, against the parol or
oral arguments by respondent. Written documents are manifestations of the intent of the parties. To give
more weight to parol arguments would endanger the well-settled rule that written documents shall embody
the intent of parties in the contract.

Republic v. Castelvi
FACTS:
In 1947, the Republic, through the Armed Forces of the Philippines (AFP), entered into a lease
agreement over a land in Pampanga with Castellvi on a year-to-year basis. When Castellvi gave notice to
terminate the lease in 1956, the AFP refused because of the permanent installations and other
facilities worth almost P500,000.00 that were erected and already established on the property. She
then instituted an ejectment proceeding against the AFP. In 1959, however, the republic commenced the
expropriation proceedings for the land in question.

ISSUE: Whether or not the compensation should be determined as of 1947 or 1959.

HELD: 1959.
The Republic's claim that it had the "right and privilege" to buy the property at the value that it had at the time
when it first occupied the property as lessee nowhere appears in the lease contract. What was agreed
expressly in paragraph No. 5 of the lease agreement was that, should the lessor require the lessee to return
the premises in the same condition as at the time the same was first occupied by the AFP, the lessee would
have the "right and privilege" (or option) of paying the lessor what it would fairly cost to put the premises in
the same condition as it was at the commencement of the lease, in lieu of the lessee's performance of the
undertaking to put the land in said condition. The "fair value" at the time of occupancy, mentioned in the lease
agreement, does not refer to the value of the property if bought by the lessee, but refers to the cost of
restoring the property in the same condition as of the time when the lessee took possession of the property.

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Such fair value cannot refer to the purchase price, for purchase was never intended by the parties to the lease
contract. It is a rule in the interpretation of contracts that "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" (Art. 1372, Civil Code).
The Supreme Court ruled that the taking should not be reckoned as of 1947, and that just
compensation should not be determined on the basis of the value of the property as of that year. The
requisites for taking are:
1. The expropriator must enter a private property;
2. The entry must be for more than a momentary period
3. It must be under warrant or color of authorities
4. The property must be devoted for public use or otherwise informally appropriated or injuriously
affected;
5. The utilization of the property for public use must be such a way as to oust the owner and deprive
him of beneficial enjoyment of the property.
Only requisites 1, 3, and 4 were present. It is clear, therefore, that the "taking" of Catellvi's property
for purposes of eminent domain cannot be considered to have taken place in 1947 when the Republic
commenced to occupy the property as lessee thereof. Under Sec. 4, Rule 67 of the Rules of Court, just
compensation is to be determined as of the date of the filing of the complaint. The Supreme Court has ruled
that when the taking of the property sought to be expropriated coincides with the commencement of the
expropriation proceedings, or takes place subsequent to the filing of the complaint for eminent domain, the
just compensation should be determined as of the date of the filing of the complaint. In the instant case, it is
undisputed that the Republic was placed in possession of the Castellvi property, by authority of court, on
August 10, 1959. The taking of the Castellvi property for the purposes of determining the just compensation
to be paid must, therefore, be reckoned as of June 26, 1959 when the complaint for eminent domain was filed.

Eastern Shipping Lines v. Margarine-Verkaufs-Union: G.R. No. L-31087, September 27, 1979
Petitioner: Eastern Shipping Lines
Respondents: Margarine-Verkaufs-Union

FACTS:
Respondent, a corporation not engaged in business in the Philippines, was the consignee of copra in bulk
shipped from Cebu on board petitioners vessel for discharge at Hamburg, Germany.
Petitioners bill of lading for the cargo provided that the contract shall be governed by the laws of the
Flag of the Ship carrying the goods. In case of average, same shall be adjusted according to York-Antwerp
Rules. While the vessel was off Gibraltar, a fire broke out aboard the and caused water damage to the copra
amounting to $591.38.
Eastern Shipping Lines rejected Margarine-Verkaufs-Unions claim for payment. The former
contended that the average did not exceed 5% of respondents interest in the cargo, therefore it was not liable
under Philippine Law for the damage according to Article 848 of the Commerce Code.
[Article 848. Claims for averages shall not be admitted if they do not exceed 5 per cent of the interest which the
claimant may have in the vessel or in the cargo if it be gross average, and I per cent of the goods damaged if
particular average, deducting in both cases the expenses of appraisal, unless there is an agreement to the
contrary.]
CFI of Manila rejected petitioners defense and ordered the same to pay the $591.38 plus $250 for
attorneys fees and litigation expenses.

ISSUE: W/N Article 848 of the Code of Commerce govern this case instead of petitioners bill of lading which
expressly contained for the application of the York-Antwerp Rules which provide for respondents recovery of
the damage loss?

HELD: No.

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SC held that the lower court correctly ruled the cited codal article to be not applicable in this particular case
for the reason that the bill of lading contains an agreement to the contrary. There is a clear and irreconcilable
inconsistency between the York-Antwerp Rules expressly adopted by the parties as their contract under the
bill of lading which sustains Easterns claim and the codal article cited by Margarine which would bar the same.
There is a clear and irreconcilable inconsistency between the York-Antwerp Rules expressly adopted
by the parties as their contract under the bill of lading which sustains respondent's claim and the codal article
cited by petitioner which would bar the same. Furthermore, as correctly contended by respondent, what is
here involved is a contract of adhesion as embodied in the printed bill of lading issued by petitioner for the
shipment to which respondent as the consignee merely adhered, having no choice in the matter, and
consequently, any ambiguity therein must be construed against petitioner as the author

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