LAW 1: MODULE 2

Republic of the Philippines

University of Rizal System
Province of Rizal
www.urs.edu..ph
Email Address: ursmain@urs.edu.ph

Business and Industry

Law 1: Business Law
First Semester, Schoolyear 2020-2021

 MODULE 9: Formalities, Interpretation and Reformation of Contracts

Introduction

As previously discussed , contract is a meeting of minds between two persons

whereby one binds himself, with respect to the other, to something or to render some
service. A contract which is required to be in writing by law is subject to the laws pertaining
to forms, reformation and interpretation.

Module Objectives

A. To identify the different forms of contracts;

B. To analyze the rules on reformation of contracts; and
C. To nderstand the laws on interpretation of contracts.

Discussion

 FORM OF CONTRACTS

According to Article 1356, “Contract shall be obligatory, in whatever form they may
have been entered into, provided all the essential requisites for their validity are present.
However, when the law requires a contract be in some form in order that it may be valid
or enforceable, or that a contract be proved in a certain way, that requirement is absolute
and indispensable. In such cases, the rights of the parties stated in the following article
cannot be exercised”.

The form of a contract refers to the manner in which a contract is executed or

manifested.

The contract may be;

1. oral,
2. in writing,
3. partly oral and partly in writing

It may be express when the parties expressly set forth their intentions, or implied when
their intensions may be inferred from their actions or conduct. If in writing it may be in a
public or a private instrument.

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When do you consider a contract is in writing and oral?

A contract is in writing when all its terms are written. So, a contract partly in writing
and partly oral is, in legal effect, an oral.

Classification of Contracts According to Form

According to the form or method used in creating the contract, they are:
1. Informal or common or simple contract or that which may be entered into whatever
form provided all the essential requisites (consent, object, cause) for their validity
is present. (Art. 1356). This refers to the consensual contracts (Art 1356), such as
the contract of sale. An informal contract may be oral or written and, in fact, may
even be implied from the conduct of the parties; and
2. Formal or Solemn contract or that which is required by law for its efficacy to be in
a certain specified form.

Rules Regarding Form of Contracts

1. As a general rule, contracts are binding and, therefore, enforceable reciprocally

by the contracting parties, whatever may be the form in which the contract has
been entered into, provided all the three (3) essential requisites (consent,
object, cause) for their validity are present. So, a contract may be oral or written.
A written contract may consist of a letter, memorandum, note or other
instrument, without following any particular form or language, it being sufficient
that the parties clearly express their intentions.

EXAMPLE:
Juan (Buyer) left a note in the store of Maria (Seller) offering P2,000
for a chair Maria is selling. The following day Maria called Juan by phone
accepting the offer of Juan who promised to pay the next day.
The note and the oral acceptance constitute a legally enforceable
contract and both Juan and Maria are fully bound.

2. Exceptions. The form, however, is required in the following cases:

a. When the law requires that a contract be in some form to be valid;
b. When the law requires that a contract be in some form to be enforceable
or proved in a certain way; or
c. When the law requires that a contract be in some form for the
convenience of the parties or for the purpose of affecting third persons.
(Art. 1356)

Form for Validity of Contract

There are rare cases when the law requires that a contract be in a certain from for
the validity of the contract.

EXAMPLES:
(1) Donation of real property. – it must be in public instrument. (Art. 749.)
(2) Donation of personal property the value of which exceeds P5,000. –the donation and
acceptance must be in writing. (art. 748)

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(3) Sale of land through an agent. – the authority of the agent must be in writing;
otherwise, the sale is void. (Art. 1874.)
(4) Stipulation to pay interest. – it must be in writing; otherwise, no interest is due. (Art.
1956)
(5) Contract of partnership. – if immovables are contributed, it must be ina public
instrument to which shall be attached a signed inventory of the immovable property
contributed. (Arts. 1771, 1773.)

Form for Enforceability of Contract

In the cases of contracts covered by the Statue of Frauds, the law requires
that they be in writing subscribed by the party charged or by his agent. (Art.
1403[1403].) If the contract is not in writing, the contract is valid (assuming all the
essential elements are present) but it cannot be proved and, therefore, it cannot
be enforced by either party if the other refused to perform the contract unless it is
ratified by the letter. (Art. 1405.) unenforceable contracts are discussed under Art.
1403.

Art. 1357. If the law requires a document or other special form, as in the acts
and contracts enumerated in the following article, the contracting parties may
compel each other to observe that form, once the contract has been perfected.
This right may be exercised simultaneously with the action upon the contact.
(1279a.)

Form for the Convenience of the Parties

In certain cases, a certain form (e.g, public instrument) is required for the
convenience of the parties in order that the contract may be registered in the proper
registry to make effective, as against third persons, the right acquired under such
contract. Non- compliance with the

Required form would not adversely affect the validity nor the enforceability of the
contract between the parties themselves.

As between the parties, the form is not indispensable since they are allowed by
the law to compel the other to observe the proper form and this right may be exercised
simultaneously with the action to enforce the contract. It is essential, however, before a
party may be compelled the execute the required form, that the contract be both valid and
enforceable. (see Dauden-Hernaez vs. De Los Angeles, 27SCRA1276.)

EXAMPLES:

(1) R donated real property to E in a private instrument. The donation is void because
a donation of real property is required to be in a public instrument to be valid. Hence,
Article 1357 does not apply.

(2) Suppose the contract is a sale of real property but it is entered into orally. The
contract is valid but it is unenforceable because the law requires that be in writing
to be enforceable. (Art. 1403[2,e.]) Hence, Article 1357 will not also apply.

If the price has been paid or the property has been delivered be the contract is valid
and enforceable because the Statute of Fraud (ibid.) applies only to executor contracts.

An exchange of land is valid although not in writing.

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(3) If the contract of sale is in private writing, then it is valid and binding, although it is
still executory, but only as between the parties and not as against third persons
without notice until the sale is registered in the Registry of Property.

If E the vendee has right to compel R to put the contract in a public instrument so
that it can be registered to affect third persons, even in the absence of express agreement
between them t the effect. Inasmuch as the contract is both valid and enforceable, the
execution of a public instrument becomes a mere matter of form and convenience.

Art. 1358. The following must appear in a public document.

(1) Acts and contracts which have for their object, the creation,
transmission, modification or
extinguishment of real rights over immovable property; sales of real
property or of an interest therein and governed by articles 1403,No. 2,
1405;
(2) The cession, repudiation or renunciation of hereditary rights or those of
the conjugal
partnership of gains;
(3) The power to administer property, or any power which has for its object
an act appearing or
which should appear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an act appearing in a
public document.

All other contracts where the amount involved exceeds Five Hundred pesos
must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by articles 1403, NO. 2 and 1405. (1280a)

Contracts which must appear in a Public Document

The contracts covered by this article are valid and enforceable though not
contained in a public document is required only for the convenience and greater protection
of the parties and to make contract binding as against third persons.

In other words, the law does not require accomplishment of certain acts or
contracts in a public instrument in order to validate the act or contract but only to insure
its efficacy so that after existence of the act or contract has been admitted, the party bound
may be ordered by the court in which the action or suit filed to execute the documentary.

EXAMPLE:
(1) Creation, etc., of real rights over immoral property. ---- As security for his debt, D
mortgaged his land to C. This mortgaged must appear in a public document. The
extinguished of the mortgaged, upon payment of the debt by D, must likewise
appear in a public document. Sales of real property or an interest therein are
governed by the Statute of Fraud. (Art. 1403[2.])
(2) Cession or renunciation of hereditary rights or those of conjugal partnership of
gains. --- X and Y are the heirs of Z, their deceased father. X, being financially
stable, renounces his share in the inheritance. This renunciation must appear in
a public instrument.

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(3) Power the administer property. --- P is leaving for the United States to study for
two years. He appoints A, agent, to manage his property. In this case, the
authority of A to administer the property of P must appear in a public document.
(4) Cession of actions or rights. --- D mortgaged his land to C to secure the payment
of debt. This mortgaged appears in a public document. The decision by C of his
right, as mortgagee, to T must also be in a public document.

 REFORMATION OF INSTRUMENTS

Reformation is that remedy allowed by law by means of which a written instrument

is amended or rectified so as to express or conform to the real agreement or intention of
the parties when by reason of mistake, fraud, inequitable, conduct, or accident of the
instrument fails to express such agreement or intention.

Article 1359 States that, “When there have been a meeting of the minds of the
parties to a contract, their true intention is not expressed in the instrument purporting to
embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one
of the parties may ask for the reformation of the instrument to the end that such tru
intention may be expressed”

If the mistake, fraud, inequitable conduct, or accident has prevented a meeting of

the minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract.

Reasons for Reformation

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

The courts do not attempt to make another contract for the parties. The rationale of
the doctrine is that it would be unjust and inequitable to allow the enforcement of a written
instrument which does not reflect or disclose the real meeting of the minds of the parties.”

Requisites of Reformation

In order reformation may be availed of as remedy, the following requites must be

present:

(1) Meeting of the minds of the parties to the contract;

(2) Written instrument does not express the true agreement or intention of the
parties.
(3) The failure to express the true intention is due to mistake, fraud, inequitable
conduct (i.e., any act or omission which is unjust or unfair), or accident;
(4) The facts upon which relief by way of reformation of the instrument is sought
are put in issue by the pleadings; and
(5) There is clear and convincing evidence (which is more than mere
preponderance of evidence) of the mistake, fraud, inequitable conduct, or
accident.

Reforming is thus not available as remedy where no writing, or even where a witting
exists, there is no showing of any defect of consent therein. Note that in reformation of
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contracts, what is reformed is not the contract itself, but the written instrument embodying
the contract.

Reformation Distinguished from Annulment

In reformation, there has been a meeting of minds, but does not express the true
intention of the parties by reason of mistake, fraud, inequitable conduct, or accident.
In annulment, there is no meeting of the minds. The consent is vitiated by mistake.

EXAMPLE:
S sold his land to B. it was agreed that the sale will include all the
improvements. However, the contract as signed by the parties, states that the land
is being sold excluding the improvements thereon. In this case, the remedy is
reformation because there has been a meeting of the minds.

If S was selling his land “excluding” the improvements and B was buying his
land “including” the improvements, then, there has been no meeting of the minds
and the remedy, therefore, is annulment. Reformation cannot be the remedy,
because, either way, it would not make the instrument express the real intention of
both parties.

Art. 1360. The principle of the general law on the reformation of instrument are
hereby adopted insofar as they are not in conflict with the provisions of this
Code.

Principle of the General Law on Reformation

In case of conflict between the provisions of the New Civil Code and the principles
of the general law on reformation the Civil Code prevails. The general law will have only
suppletory effect.

Art. 1361. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be
reformed.

Mutual Mistake as Basis of Reformation

Mutual mistake is mistake of fact that is common to both parties of the instrument
which causes the failure of the instrument to express their true intention.

To justify reformation under this article, the following requisites must concur:

(1) The mistake must be of fact (see Art. 1331.);

(2) Such mistake must be proved by clear and convincing evidence;
(3) The mistake must be mutual, that is, common to both parties to the instrument;
and
(4) The mistake must cause the failure of the instrument to express their true
intention; and

If the mutual mistake Is of law, the remedy is annulment. (see Art. 1334.)

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EXAMPLE:
S and B entered into a contract whereby S sold to B his horse named “Silver.” By
mistake, the contract as written and signed by the parties states that the horse sold is
“Golden.”

Here, the instrument may be reformed on the ground of mutual mistake.

Art. 1362. If only party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show their true intention,
the former may ask for the reformation of the instrument.

Concealment of Mistake by the Other Party

Under Article 1362, the right to ask for reformation is granted only to the party who
was mistaken in good faith. Here, the mistake is not mutual.

Art. 1363. When one party was mistaken and the other knew or believed that
the instrument did not state their real agreement, but concealed that fact from
the former, the instrument may be reformed.

Ignorance, etc. on the Part of Third Person

The remedy of reformation may be availed of the party who acted in good faith. The
concealment mistake by the other party constitutes fraud.

Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on
the part of the person drafting the instrument or of the clerk typist, the
instrument does not express the true intention of the parties, the courts may
order that the instrument be reformed.

Mortgage or Pledge Stated as a Sale

Under the above article, neither party is responsible for the mistake. Hence, either
party may ask for reformation.

Art. 1365. If two parties agree upon the mortgage or pledge of real or personal
property, but instrument states that the property is sold absolutely or with a
right of repurchase, reformation of the instrument is proper.

Under this article, the reformation of the instrument is proper; otherwise, the true
intention of the parties would be frustrated. Such true intention must prevail for the contract
must be complied with in good faith. (Art. 1159.)

Art. 1366. There shall be no reformation in the following cases:

(1) Simple donations inter vivos wherein no condition is imposed;

(2) Wills;
(3) When the real agreement is void.

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

Cases Where Reformation not Allowed

(1) Simple donations inter vivos where no condition s imposed. --- Donation is an act
of liberty whereby a person disposes gratuitously of a thing or right in favor of
another, who accepts it. (Art. 725.) when the donor intends that the donation shall
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take effect during his lifetime, it is a donation inter vivos. It is distinguished from
donation mortis causa in that this kind of donation takes effect after the donor’s
death.
(a) In donation, the act is essentially gratuitous and the done has, therefore, no just
cause for complaint. The donor is not bound to correct a mistake or defects in the
deed of donation which
In the first place he was not bound to make. Of course, the donor may ask for the
reformation of a deed of donation.
(b) If the donation is conditional or onerous in character, the deed may be reformed
so that the true conditions imposed by the donor or the real intention of the parties
might be expressed. (see Phil. National Railways vs. CFI or Albay, 83 SCRA 569,
supra.)

(2) Wills. A will is an act whereby a person is permitted with the formalities prescribed
by law to control to a certain degree the disposition of his estate, to take effect after
his death. (Art. 783)

Like a donation the making of a will is a strictly personal and a free act (Arts. 784,
839.); hence upon the death of the testator, the right to reformation is lost.
Furthermore, a will may be revoked by the testator any time before his death. (Art.
820)

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

(4) When on party has brought an action to enforce the instrument. ---- Article 1367
is based on estoppel (Art.1431.) or ratification. (see Arts. 1392, 1396.) When a
party brings an action to enforce the contract, he admits its validity and that it
expresses the true intention of the parties. The bringing of the action is thus
inconsistent with reformation.

Art. 1368. Reformation may be ordered at the instance of either party or his
successors in interests, if the mistake was mutual; otherwise, upon petition of
the injured party, or his heirs and assigns.

Party Entitled to Reformation

The above article enumerates the persons who can bring an action to reform an
instrument:

(1) Either of the parties, if the mistake is mutual under Articles 1361, 1364, and 1365;
(2) In all other cases, the injure party, under Articles 1362, 1363, 1364 and 1365; and
(3) The heirs or successors in interest, in lieu of the party entitled. (Art 1368.)

The burden of proof is upon the party who insist that the contact should be reformed
because of its failure to express the true intention of the parties. The presumption is the
effect of reformation is retroactive from the time of the execution of the original contract.

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

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Procedure for Reformation

The Rule of Court governs procedure. However, the Supreme Court has not as yet
promulgated procedure for the reformation of instruments. (see Sec. 7, Rule 130, Rules
Court.)

 INTERPETATION OF CONTRACTS

Art. 1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall
control.

If the words appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former. (1281)

Meaning of the Interpretation of Contracts

Interpretation of a contract is the determination of the meaning of the terms or
words used by the parties in their written contract. It is the process of ascertaining the
intention of the parties from the written words contained in the contract.

EXAMPLE:
(1) A contact was executed between S and B. the contract recites that it is a sale
of parcel of land belonging to S for P100,000. In the contract, S is described as
the vendor and B, the vendee. The terms of the contract are clear and it does
not appear from the circumstances that the intention of the parties contrary to
the literal meaning of said terms.

Therefore, the contact should be considered a contract of sale. No

interpretation should be given which would alter or change the plain meaning
wording thereof, if not being lawful to make a new contract between the parties.

(2) One of the conditions specified in a fire insurance policy is that the “insured
must give notice of the existence of other policies against fire upon he property
insured; otherwise, the policy shall be null and avoid.” The insured violated this
condition and the property was destroyed by fire.

Though the contract may be rather onerous, the insured cannot recover. As
its terms are clear and unambiguous, they must be taken in their plain and
ordinary sense. Obligations arising from contracts have the force of law between
the contracting parties.

Evident Intention of the Parties Prevails over Terms of Contract

Where the words and clauses of a written contract are in conflict with the manifest
intention of the parties, the latter shall prevail over the former. It is a cardinal rule in the
interpretation of contracts that the intention of the contracting parties should always prevail
because their will has the force of law between them. (Art. 1159; see Borromeo vc. Curt
of Appeals, 47 SCRS 65.)

EXAMPLE:

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1. S sold to B a parcel of agricultural land. It is not disputed that the reasonable
that the value of the land is P50,000. However, the contract of sale states
that the purchase price is P500,000.

In this case, as the amount of P500,000 appears to be contrary to the

evident intention of the parties, the latter shall prevail.

2. R entered into a contract called “contract of lease” with E whereby R leased

his car to E. it is stipulated that E shall pay P100,00 upon the signing of the
contract, and P5,000 by way “rental” on the before the 5th day of every month;
and that at the end of one year, E would become the absolute owner of the
car. The contract fixed the value of the car to be P160,000.

There can hardly be any question that the contract is not lease of the car
but sale on installments. The so-called rent must necessarily be regarded as
payment of the price in instalments inasmuch as the due payment of the
agreed amount results, by the terms of the bargain, in the transfer of title E,
the alleged lessee.

Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principality considered.

EXAMPLE:
R and E entered into a contract entitled “Contract of Lease.” Although the
contract refers to R as lessor and to E as lessee, it states that the possession and
ownership of the land are transferred to E. the title to the land was given by R to E who
registered the land in his name. Before the date of the contract, E wrote a letter to R
offering to buy the land.

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

Art. 1372. However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are
difference from those upon which the parties intended to agree. (1283)

Special Intent Prevails over a General Intent

As a rule, where in a contract there are general and special provisions covering
the same subject matter, the latter control over the former when two (2) cannot stand
together. (Hibberd vs. Estate of McElroy, 25 Phil. 164.)

The reason for this rule is that when the parties express themselves in
reference to a particular matter, the attention is directed to that, and it must be assumed
that it expresses their intent; whereas, a reference to some general matter, within which
the particular matter may be included, does not necessarily indicate that the parties had
that particular matter in mind. (12 Am. Jur. 779)

EXAMPLE:
(1) S sold his house “including all the furniture therein.” The term “all” should not
be understood to include S’s refrigerator which is distinct and different from
“furniture.”

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Neither should it be interpreted to include chairs borrowed by S from C
for the reason that they do not belong to S.

(2) S sold parcels of land to B. in the deed of sale, the description stated a
greater extension that the actual area of the lands sold thereby including a
piece of land belonging to C.

This piece of land cannot be among the subject matter of the sale simply
because it was included in the description.

(3) R mortgaged his land to secure the debt of D to C, without expressly

assuming personal liability for the debt. In case there is a deficiency remaining
after the mortgage is foreclosed, R cannot be compelled to pay the same.

Art. 1373. If someone stipulation of any contract should admit of several

meanings, it shall be understood as bearing that import which is most adequate
to render it effectual. (1284)

Interpretation of Stipulation with Several Meanings

When an agreement is susceptible of several meanings, one of which would
render it effectual, it should be given that interpretation. Thus, if one interpretation makes
a contract valid and the other makes illegal, the former interpretation is one which is
warranted by the rule stated in Article 1373.

EXAMPLE:
S sold “his parcel of land” to B. now S has two lands, one owned by him
absolutely and another land of which he is a co-owner with C. C did not give his
consent to the sale.

The sale should refer to the land owned by him alone as this would make the
contract effectual.

Art. 1374. The various stipulations of a contract shall be interpreted together,

attributing to the doubtful ones that sense which may result from all of them
taken jointly. (1285)

Interpretation of Various Stipulations of a Contract

A contract must be interpreted as a whole and the intention of the parties is to be
gathered from the entire instrument and not from particular words, phrases, or clauses. All
provisions should, if possible, be so interpreted as to harmonize with each other.

EXAMPLE:
R lease his house to E. in the contract, it was stated that E should not sublease
the house without the written consent of R. Another stipulation therein contained
stated that E should pay P1,000 as additional rent a month should he violate this
condition. E subleased the house without the consent of R.

Has R the right to eject E? No, in the light of the clause stating the penalty for
the violation of the condition.

Art. 1375. Words which may have different signification shall be understood n that which
is most in keeping with the nature and object of the contract. (1286)

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Interpretation of Words with Different Significance

If a word is susceptible of two or more meanings, it is to be understood in that sense
which is most in keeping with the nature and object of the contract in line with the cardinal
rule that the intention of the parties must prevail. (Art. 1370.)

EXAMPLE:
R leased to E a roof for the purpose of erecting an advertising sign. The
contract provides for the termination of the lease by E if a “building” should be
constructed on an adjoining property of such height as to obscure the view of E’s
sign. There was erected on the roof an adjoining building a sign which obstructed
the view of E’s sign.

In this case, the term “building” as the rem is used in the contract may be
interrupted to include the obstructing sign having in mind the nature and object of
the contract.

Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of the contract, and shall fill the omission of
stipulations which are ordinarily established. (1287)

Resort to Usage or Custom as Aid in Interpretation

The usage or custom of the place where the contract was entered into may be
received to explain what is doubtful or ambiguous in a contract on the theory that the
parties entered into their contract on the theory that the parties entered onto theirs contract
with reference to such usage or custom.

It is, however, necessary to prove the existence of usage or custom, the burden
of proof being upon the party alleging it. But usage or custom is not admissible to
supersede or vary the plain terms of contract.

EXAMPLE:
X rendered services to Y but the contract did not provide for the amount of
compensation to be paid.

In this case, the amount must be determined by the rate customarily paid in
the place where the services were rendered. (Arroyo vs. Azur, 76 Phil. 493)

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity. (1288)

The reason for the rule in Article 1377 is that the party who drafts the contract
(e.g., insurance contract the terms of which are prescribed by the insurance company in
printed form), more easily than the other, could have prevented mistakes, or ambiguity in
meaning by careful choice of words; and generally, the party who causes the obscurity
acts with ulterior motives.

The rule is generally applied to what are called contracts of adhesion, that is to say,
contracts most of the terms of which do not result from mutual negotiation between the
parties as they are usually prescribed in printed forms prepared by one party to which the
other may “adhere” if he chooses but which he cannot change. Aside from insurance
contracts, the rule also supplies to bill of ladings for goods, plane tickets, and contracts
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between lawyer and client, and to all other contracts where their provisions have been
drafted only by one party.

Rules in Case of Doubts Impossible to Settle

When, despite the applications of the application of the preceding rules (Arts. 1370-
1377.), certain doubts still exist, such doubts shall be resolved in accordance with the
supplementary rules stated in the present article.

(1) Gratuitous contract.- if the doubts refer to incidental circumstances of a

gratuitous contracts (see Art. 1350.), such interpretation should be made
which would result in the least transmission of rights and interests.

EXAMPLE:
R gave his car to E. it is not clear whether the contract is a donation or a
commodatum.

The contract should be presumed as a mere commodatum because it would

transmit lesser rights than a donation since R retains his ownership of the car.

(2) Onerous contract. -if the contract in question is onerous (see Art. 1350.), the
doubts should be settled in favor of the greatest reciprocity of interests.

EXAMPLE:
D borrowed from C P5,000 at 12% interest. It cannot be determined from the
terms of the contract whether the loan is payable in six months or in one year.

It must be assumed that the period agreed upon is one year which results in a
greater reciprocity of interests since D can use the money for one year instead, and
C, on the other hand, can earn interest due for one year instead of only six (6)
months.

A contract of sale is essentially onerous. Thus, whether the parties intended a

suspensive period (see Art. 1193.) for the payment of the agree prie, the doubt
shall be resolve in favor F the latter, that is, the buyer’s obligation is deemed to be
actually subsisting, with only its maturity postponed or deferred. (Gaite vs. Fonacier,
2 SCRA 830.)

(3) Principal object of the contract. -if the doubt refers to the principal object of
the contract and such doubt cannot be resolved hereby leaving the intention
of the parties unknown, the contract shall be null and void.

EXAMPLE:
S sold to B his land. S has many lands. It cannot be determined which land
was intended by the parties to be the subject of the sale.

Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of
Court shall likewise be observed in the construction of contracts. (n)

Principles of Interpretation in the Rules of Court

The rules in the Rules of Court on the interpretation of documents are now
contained in Rule 130, Sections, 8 to 17 thereof.

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 LAW 1: MODULE 2

Activity

For supplemental discussion of the topic, please check the link below:

https://www.youtube.com/watch?v=ZkOi9lOspOQ

Exercise

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