CASES-----

(1) SNOW MOUNTAIN DAIRY CORP. VS. GMA VETERANS

FORCE, INC.

Actual damages are not presumed. The claimant must prove the actual
amount of loss with a reasonable degree of certainty premised upon
competent proof and on the best evidence obtainable.

G.R. No. 192446, 19 November 2014

Complainant GMA Veterans Force, Inc. filed a Complaint for Damages against
defendant Snow Mountain Dairy Corporation. Previously, complainant and
defendant entered into a security service agreement whereby. Just after a
month, defendant informed complainant that all of the latters security
personnel would be replaced and all monies due in the contract will be
settled. Complainant responded reminding defendant that the contract is
good for a year which could only be terminated for a just cause and a 30-day
prior notice. Further, even if complainant waived the requirements for pre-
termination, defendant would be liable to pay the remaining period of 8 1/2
months equivalent to P952,833.00.

HELD: Complainant was awarded P200,000.00 for temperate damages in

lieu of actual damages. It is a well settled rule that actual or compensatory
damages are those awarded in satisfaction of, or in recompense for, loss or
injury sustained. They proceed from a sense of natural justice and are
designed to repair the wrong that has been done, to compensate for the
injury inflicted and not to impose a penalty. The burden is to establish ones
case by a preponderance of evidence which means that the evidence, as a
whole, adduced by one side, is superior to that of the other. Actual damages
are not presumed. The claimant must prove the actual amount of loss with a
reasonable degree of certainty premised upon competent proof and on the
best evidence obtainable. Specific facts that could afford a basis for
measuring whatever compensatory or actual damages are borne must be
pointed out. The award of actual damages cannot be simply based on the
mere allegation of a witness without any tangible claim, such as receipts or
other documentary proofs to support such claim.

The lower courts awarded P952,833.50 actual or compensatory damages

representing the remaining or unserved portion of the contract. The
computation was based on the P16,014,00 per guard per month multiplied
by 7 security guards and multiplied by the unserved portion. However, the
contracted amount of P16,014,00 per guard would not totally pertain to
[complainant] as the same would cover the wage of the security guard and
only the remaining portion of the contracted amount, i.e., after deducting the
guards salary, would go to [complainant]. In this case, [complainant] had
not shown that the security guards were not assigned to another employer,
and that it was compelled to pay the guards despite the pre-termination of
the security agreement to be entitled to the amount of P16,014.00 per
month. Indeed, no evidence was presented by [complainant] establishing the
actual amount of loss suffered by reason of the pre-termination. It is
elementary that to recover damages, there must be pleading and proof of
actual damages suffered.

Notwithstanding, it is undeniable that complainant suffered pecuniary loss

because of the pre-termination of its services without valid cause. As there
was no proof, temperate or moderate damages would be proper. Temperate
damages may be allowed in cases where from the nature of the case,
definite proof of pecuniary loss cannot be adduced, although the court is
convinced that the aggrieved party suffered some pecuniary loss. We also
take into consideration that [complainant] certainly spent for the security
guards training, firearms with ammunitions, uniforms and other necessary
things before their deployment to [defendant].

(2) OWEN PROSPER A. MACKAY VS. SPS. DANA CASWELL

If the work of a contractor has defects which destroy or lessen its value or
fitness for its ordinary or stipulated use, he may be required to remove the
defect or execute another work. If he fails to do so, he shall be liable for the
expenses by the employer for the correction of the work.

G.R. No. 183872, 17 November 2014

Complainant Owen Prosper A. Mackay initiated a Complaint for Collection of

Sum of Money with Damages against defendants Sps. Dana Caswell and
Cerelina Caswell. Previously, defendants engaged the services of
complainant and his group who obligated themselves to provide electrical
installation service for P250,000.00 in the new home of the spouses. Nearing
completion, defendants had already paid P227,000.00 to complainant.
However, when the local distributor of electricity conducted its inspection of
the installation work, it refused to provide electricity as there were several
defects.

As a result, defendants searched for complainant to remedy the problems. As

complainant was nowhere to be found, defendants were constrained to
contract the services of the local distributor. Thereafter, defendants filed a
case against complainant and his group for estafa but which case was
dismissed to reasonable doubt. In response, complainant initiated this case
to recover the remaining P23,000.00 from defendants.

HELD: The complaint was dismissed. Complainant was ordered to pay the
liabilities incurred by the spouses in rectifying his work. Suffice it to say that
Owens job was not only to finish the electrical installation work. It was
likewise his obligation to do quality work and to provide quality materials to
ensure that electricity would flow in the Caswell home. For the Caswells to
avail of this utility, it is definitely expected that the electrical materials used
should meet the technical requirements for a service entrance as imposed by
the only distributor of the electricity in the area, Zameco II, so that the latter
can supply residential electric service efficiently and safely to the Caswells.
However, as shown above, Owen failed to execute his work in such a manner
that it has no defects which destroy or lessen its value or fitness for its
ordinary or stipulated use.

The law specifically provides the liability of a contractor in such a case as

this. Under Article 1715 of the Civil Code, if the work of a contractor has
defects which destroy or lessen its value or fitness for its ordinary or
stipulated use, he may be required to remove the defect or execute another
work. If he fails to do so, he shall be liable for the expenses by the employer
for the correction of the work. The demand required of the employer under
the subject provision need not be in a particular form. In the case at bar, we
agree with the CA that Owen was given the opportunity to rectify his work.
Subsequent to Zameco IIs disapproval to supply the Caswells electricity for
several reasons, the Court gives credence to the latters claim that they
looked for Owen to demand a rectification of the work, but Owen and his
group were nowhere to be found. Had Owen really been readily available to
the Caswells to correct any deficiency in the work, the latter would not have
entertained the thought that they were deceived and would not have been
constrained to undergo the rigors of filing a criminal complaint and testifying
therein. Without doubt, the Caswells exercised due diligence when they
demanded from Owen the proper rectification of his work. As correctly held
by the CA, the Caswells substantially complied with the requirement of
Article 1715 of the Civil Code

As to the filing of a complaint for specific performance, to require the

Caswells to file an action for specific performance, as opined by the RTC, not
only deprives them of hiring someone else to rectify the work, but also
defeats the very purpose of the contracted work, i.e., to immediately have
electricity in their home. In this situation, time is of the essence.

Due to the substandard work, the Caswells necessarily incurred expenses

by purchasing materials to finally get a supply of electricity in their home.

It is a well established rule that one is entitled to adequate compensation

only for such pecuniary loss suffered by him as he has duly proved. To
justify an award of actual damages, there must be competent proof of the
actual amount of loss, credence can be given only to claims which are duly
supported by receipts. The claimant must prove the actual amount of loss
with a reasonable degree of certainty premised upon competent proof and
on the best evidence obtainable. In the case at bar, we give credence to the
documents relied upon by the CA and the MTC in arriving at the rectification
cost, i.e., a) Engr. Pulangcos handwritten receipt of P15,400.00, to which he
had testified before the court that he had indeed received such amount and
b) the Sales Invoice No. 2029 issued by Peter A. Eduria Enterprises reflecting
the total cost of P53,805.00.00.

As for the Sales Invoice which failed to indicate the unit prices, such failure
does not defeat the claim of the Caswells for reimbursement. In most cases
in the ordinary course of business, sellers issue handwritten receipts that are
perfunctorily filled out without completely stating all the details of the
purchase. This flaw should not be taken against the Caswells. Besides, if the
unit price per item is an issue, a perusal of Danas separate list will show the
unit prices of the items in the sales invoice.

As for the alleged non-existence of Peter A. Eduria Enterprises, the negative

certifications presented however only highlight the probable liability of the
store with the government for non-compliance with business registration.
Regardless of whether the latter had registered itself as a business entity
with the proper authorities, the documents Owen relies upon fail to
overcome the point of the receipt: that a sale of electrical items for
installation had transpired between the Caswells and the seller. With the
relevant facts established that Zameco II rejected the quality of Owens work
and that rectifications were made by installing the necessary materials to
meet the electric distributors specifications, the said invoice cannot be
considered as bereft of evidentiary value.

Lastly, legal compensation was proper as to the Owens claim for P23,000.00
unpaid fees. Here, Cerelina herself admitted that the contract price agreed
upon was the lump sum of P250,000.00, and that she only paid Owen
P227,000.00, while the dispositive portion of the MTC Decision stated that
Owens claims are dismissed, the lower court implies that the P23,000.00
unpaid compensation he sought to recover from the Caswells shall not be
given directly to him, offsetting the said amount from the rectification cost
that the Caswells had prayed for. In effect, under the circumstances, we
deem this fair and just to measure the actual damages due the Caswells by
reducing the cost they shouldered to repair the defects with the unpaid
amount of the contract price due Owen.

(3) S.V. MORE PHARMA CORP. VS. DRUGMAKERS

LABORATORIES, INC.

The amount of loss warranting the grant of actual or compensatory damages

must be proved with a reasonable degree of certainty, based on competent
proof and the best evidence obtainable by the injured party.

G.R. Nos. 200408 and 200416, 12 November 2014

Eliezer, Evangeline C. Del Mundo, and Atty. Quirico T. Carag (Atty. Carag)
(Del Mundo Group) are the registered owners of fifty percent (50%) (i.e.,
250,000 shares of stock) of E.A. Northam Pharma Corporation (E.A.
Northam), a domestic corporation which exclusively distributes and markets
28 various pharmaceutical products that are exclusively manufactured by
Drugmakers, a domestic corporation under the control of Eliezer. The
remaining fifty percent (50%) in E.A. Northam are owned by Alberto and Nilo
S. Valente (Santillana Group). In an Agreement dated May 31, 1993, the Del
Mundo Group agreed to cede all their rights and interests in E.A. Northam in
favor of the Santillana Group for a consideration of 4,200,000.00. However, it
was agreed therein that: (a) the said pharmaceutical products shall remain
jointly owned by Eliezer/Drugmakers and Alberto; (b) the products shall be
exclusively manufactured by Drugmakers as long as Eliezer maintains
majority ownership and control of the said company; and (c) the products will
be sold, conveyed, and transferred to S.V. More, provided that Alberto
remains its chief executive officer with majority ownership and control
thereof.

On even date, E.A. Northam entered into a Deed of Sale/Assignment with

S.V. More, whereby E.A. Northam agreed to convey, transfer, and assign all
its rights over 28 pharmaceutical products in favor of S.V. More which shall
then have the right to have them sold, distributed, and marketed in the
latters name, subject to the condition that such pharmaceutical products will
be exclusively manufactured by Drugmakers based on their existing Contract
Manufacturing Agreement (CMA) set to expire in October 1993.

In September 1993, or a month prior to the expiration of the CMA,

Drugmakers proposed a new manufacturing agreement which S.V. More
found unacceptable. In a letter dated October 20, 1993, S.V. More, for the
purpose of renewing its License to Operate with the Bureau of Food and Drug
(BFAD), requested a copy of the existing CMA from Drugmakers, but to no
avail.16 Hence, on October 23, 1993, S.V. More entered into a Contract to
Manufacture Pharmaceutical Products (CMPP) with Hizon Laboratories, Inc.
(Hizon Laboratories), and, thereafter, caused the latter to manufacture some
of the pharmaceutical products covered by the Deed of Sale/Assignment.19
Meanwhile, the BFAD issued the corresponding Certificates of Product
Registration (CPR) therefor, with S.V. More as distributor, and Hizon
Laboratories as manufacturer. On February 23, 1995, and after their protest
on the new registration went unheeded, Drugmakers and Eliezer
(respondents) filed a Complaint for Breach of Contract, Damages, and
Injunction with Prayer for the Issuance of a Writ of Preliminary Injunction
and/or Temporary Restraining Order against S.V. More and Alberto
(petitioners), and Hizon Laboratories, and its President, Rafael H. Hizon, Jr.
(Rafael)

HELD: Defendants were held liable. The existence of contractual breach in

this case revolves around the exclusive status of Drugmakers as the
manufacturer of the subject pharmaceutical products which was stipulated
and, hence, recognized under the following contracts: (a) the CMA dated
October 30, 1992 between Drugmakers, as manufacturer, and S.V. More, as
the holder of the CPR covering the pharmaceutical products; (b) the
Agreement dated May 31, 1993 covering the change in ownership in E.A.
Northam, or the distributor of the pharmaceutical products manufactured by
Drugmakers and covered by S.V. Mores CPR; and (c) the Deed of
Sale/Assignment of even date between E.A. Northam and S.V. More, whereby
the formers distributorship rights were transferred to the latter.

In particular, the CMA states that Drugmakers, being the exclusive

manufacturer of the subject pharmaceutical products, had to first give its
written consent before S.V. More could contract the services of another
manufacturer In the May 31, 1993 Agreement, the new ownership of E.A.
Northam, or the initial distributor of the same pharmaceutical products,
equally recognized Drugmakerss status as exclusive manufacturer The
same was echoed in the Deed of Sale/Assignment, wherein S.V. More, being
the transferee of E.A. Northams distributorship rights.

These provisions notwithstanding, records disclose that petitioner S.V More,

through the CMPP and absent the prior written consent of respondent
Drugmakers, as represented by its President, respondent Eliezer, contracted
the services of Hizon Laboratories to manufacture some of the
pharmaceutical products covered by the said contracts. Thus, since the CMPP
with Hizon Laboratories was executed on October 23, 1993,54 or seven (7)
days prior to the expiration of the CMA on October 30, 1993, it is clear that
S.V. More, as well as its President, petitioner Alberto, who authorized the
foregoing, breached the obligation to recognize Drugmakers as exclusive
manufacturer, thereby causing prejudice to the latter.

Nonetheless, the appellate courts award of P6,000,000,000.00 based on

supposed loss of profits was erroneous. Records reveal that in their attempt
to prove their claim for loss of profits corresponding to the aforesaid amount,
respondents based their computation thereof on a Sales Projection Form for
the period November 1993 to February 1995. However, it is readily
observable that the breach occurred only for a period of seven (7) days, or
from October 23, 1993 until October 30, 1993 that is, the date when the
CMA expired. Notably, the CMA from which stems S.V. Mores obligation to
recognize Drugmakerss status as the exclusive manufacturer of the subject
pharmaceutical products and which was only carried over in the other two (2)
above-discussed contracts was never renewed by the parties, nor
contained an automatic renewal clause, rendering the breach and its
concomitant effect, i.e., loss of profits on the part of Drugmakers, only extant
for the limited period of, as mentioned, seven (7) days. Further, it is also
evident that only six (6) of the 28 pharmaceutical products were caused by
petitioners to be manufactured by Hizon Laboratories.

As required by law, the amount of loss warranting the grant of actual or

compensatory damages must be proved with a reasonable degree of
certainty, based on competent proof and the best evidence obtainable by the
injured party.

Nevertheless, considering that respondents palpably suffered some form of

pecuniary loss resulting from petitioners breach of contract, the Court
deems it proper to, instead, award in their favor the sum of 100,000.00 in
the form of temperate damages. This course of action is hinged on Article
2224 of the Civil Code which states that temperate or moderate damages,
which are more than nominal but less than compensatory damages, may be
recovered when the court finds that some pecuniary loss has been suffered
but its amount cannot, from the nature of the case, be proved with
certainty, as in this case.

(4) METRO MANILA SHOPPING MECCA CORP. VS. MS. LIBERTY

M. TOLEDO

In an ongoing case, parties may enter into a compromise agreement which

when approved by the court becomes a determination of a controversy and
has the force and effect of a judgment.

G.R. No. 190818, 10 November 2014

Petitioners Metro Manila Shopping Mecca Corp., Shoemart, Inc., SM Prime

Holdings, Inc., Star Appliances Center, Super Value, Inc., Ace Hardware
Philippines, Inc., Health and Beauty, Inc., Jollimart Phils. Corp., and Surplus
Marketing Corporation, sought the approval of the terms and conditions of
the parties Universal Compromise Agreement dated 1 June 2012 (the UCA)
in lieu of the Courts Decision dated 05 June 2013 denying the petitioners
claim for tax refund/credit of their local business taxes paid to respondent
City of Manila.
On the other hand, respondent City of Manila and Liberty Toledo, in her
capacity as Treasurer of the City of Manila (respondents), confirmed the
authenticity and due execution of the UCA. They, however, submitted that
the UCA had no effect on the subject Decision since the taxes paid subject of
the instant case was not included in the agreement.

HELD: The Universal Compromise Agreement was approved and adopted. A

compromise agreement is a contract whereby the parties, by making
reciprocal concessions, avoid a litigation or put an end to one already
commenced. It contemplates mutual concessions and mutual gains to avoid
the expenses of litigation; or when litigation has already begun, to end it
because of the uncertainty of the result. Its validity is dependent upon the
fulfillment of the requisites and principles of contracts dictated by law; and
its terms and conditions must not be contrary to law, morals, good customs,
public policy, and public order. When given judicial approval, a compromise
agreement becomes more than a contract binding upon the parties. Having
been sanctioned by the court, it is entered as a determination of a
controversy and has the force and effect of a judgment. It is immediately
executory and not appealable, except for vices of consent or forgery. The
nonfulfillment of its terms and conditions justifies the issuance of a writ of
execution; in such an instance, execution becomes a ministerial duty of the
court.

A review of the whereas clauses of the UCA reveals the various court cases
filed by petitioners, including this case, for the refund and/or issuance of tax
credit covering the local business taxes payments they paid to respondent
City of Manila pursuant to Section 21 of the latters Revenue Code. Thus,
contrary to the submission of respondents, the local business taxes subject
of the instant case is clearly covered by the UCA since they were also paid in
accordance with the same provision of the Revenue Code of Manila.

In this relation, it is observed that the present case would have been
rendered moot and academic had the parties informed the Court of the
UCAs supervening execution. Be that as it may, and considering that: (a) the
UCA appears to have been executed in accordance with the requirements of
a valid compromise agreement; (b) the UCA was executed more than a year
prior to the promulgation of the subject Decision; and (c) the result of both
the UCA and the subject Decision are practically identical, i.e., that
petitioners are not entitled to any tax refund/credit, the Court herein resolves
to approve and adopt the pertinent terms and conditions of the UCA insofar
as they govern the settlement of the present dispute.

(5) MCMP CONSTRUCTION VS. MONARK EQUIPMENT CORP.

Excessive and unconscionable interests are void for being contrary to

morals, if not against the law.

G.R. No. 201001, 10 November 2014

Plaintiff Monark Equipment Corp. initiated a Complaint for a Sum of Money

against Defendant MCMP Construction Corp. after the latter failed to pay
rental fees for the use of five (5) pieces of heavy equipment as stated in their
Rental Equipment Contract. In the agreement, interest and penalties were
stated as follows:

Credit sales are payable within 30 days from the date of invoice. Customer
agrees to pay interest at 24% p.a. on all amounts. In addition, customer
agrees to pay a collection fee of 1% compounded monthly and 2% per month
penalty charge for late payment on amounts overdue. Customer agrees to
pay a sum equal to 25% of any amount due as attorneys fees in case of suit,
and expressly submit to the jurisdiction of the courts of Quezon City, Makati,
Pasig or Manila, Metro Manila, for any legal action arising from, this
transactions.

The trial court ruled in favor of plaintiff.

HELD: The trial courts decision was affirmed with modifications as to the
granting of the 24% per annum interest on the rental fees as well as a
collection fee of 1% per month compounded monthly and a 2% per month
penalty charge. In all then, the effective interest rate foisted upon MCMP is
60% per annum.

Citing Macalinao v. Bank of the Philippine Islands, a 36% interest imposed by

a bank was reduced for being excessive and unconscionable. That being the
case, the interest is void for being contrary to morals, if not against the law.
Since the stipulation on the interest rate is void, it is as if there was no
express contract thereon. Hence, courts may reduce the interest rate as
reason and equity demand.
In Chuam v. Timam, it was held [w]hile C.B. Circular No. 905-82, which took
effect on January 1, 1983, effectively removed the ceiling on interest rates
for both secured and unsecured loans, regardless of maturity, nothing in the
said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their
borrowers or lead to a hemorrhaging of their assets.

For penalties, the Macalinao case also struck down the 3% penalty charge
per month imposed by a bank in the Terms and Conditions Governing the
Issuance and Use of the BPI Credit Card. As stated in Article 1229 of the Civil
Code, [t]he judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.

In view thereof, the interest and penalty charges imposed upon MCMP must
also be considered as iniquitous, unconscionable and, therefore, void. As
such, the rates may validly be reduced. Thus, the interest rate of 24% per
annum is hereby reduced to 12% per annum. Moreover, the interest shall
start to accrue thirty (30) days after receipt of the second set of invoices on
January 21, 2001, or March 1, 2001 in accordance with the provisions in the
invoices themselves. Likewise, the penalty and collection charge of 3% per
month, or 36% per annum, is also reduced to 6% per annum. And the
amount of attorneys fees is reduced from 25% of the total amount due to
5%.

STATUS OF CONTRACTS

Depending on their status, there are five types of contracts, namely: (a) valid
contracts, (b) rescissible contracts, (c) void contracts, (D) voidable contracts,
and (e) unenforceable contracts.

Valid Contract A valid contract is one that complies with the requisites for
a perfected contract required by law. As contracts are generally consensual,
most agreements are valid so long as there is consent, object, and
consideration. Further, if a certain contract is required by law to be in writing
(e.g. sale of real property) and it is followed, then such an agreement is
valid. A valid contract is enforceable as it grants rights and creates
obligations on the parties.

Rescissible Contract A rescissible contract is one wherein a party is

allowed to rescind or terminate the contract due to the other partys failure
to comply with the obligations set forth in their agreement.

To be clear, a rescissible contract is a valid contract. However, due to a

partys failure to comply with the contractual obligations, the injured party is
entitled to terminate the contract. Thus, while a contract is valid, it may be
rescinded in cases provided for by law. If not terminated, a rescissible
contract remains valid and enforceable.

Voidable Contract A voidable contract is one where consent was given

through mistake, violence, intimidation, undue influence, or fraud. Similar to
a rescissible contract, a voidable contract remains valid and binding. Unlike a
rescissible contract, a voidable contract may only be annulled by a proper
action in court.

Unenforceable Contract An unenforceable contract is one where there is

an absence of authority on the part of one or both of the contracting parties,
including those falling in the Statute of Frauds.

Void Contract A void contract is one where an essential requisite to

constitute an agreement is lacking. In general, these are the requisites of a
contract: consent, object, and consideration. By way of added requisite, a
written agreement is required by law for formal contracts. Should any of the
requisites be missing, the contract is void producing no legal effect. As a void
contract did not produce rights and obligations, it cannot be enforced.

10 Rules of Contract Interpretation

These are the 10 rules of contract interpretation:

1. A clearly written contract does not need interpretation. Hence, if the terms
are clear and does not leave any doubt as to the intention of the contract
parties, the literal meaning of the stipulations prevails and controls.

2. If there is a conflict with the words and the evident intention of the parties,
it is the latter that will prevail. The intention of the parties is principally
determined and considered based on their contemporaneous and
subsequent acts. That is to say, the actions of the parties at the time of
preparing the contract and their subsequent acts will determine their true
intentions.

Best Legal Practices:

Use simple words or phrases in drafting a contract When simple words or

phrases are used, a contract can easily be understood as it will not call for
any interpretation. Conflict in interpretation can be readily avoided.

Document negotiations, contemporaneous and subsequent acts For

reference later on as to the true intentions of the parties, negotiation and
subsequent acts should be documented. Preferably, correspondences should
be made to put in writing the agreements of the parties. This can be done
through snail mail or e-mail.

3. The various stipulations of a contract are to be interpreted together. The

doubtful ones will be interpreted in such a way as to attribute to them that
sense which may result from all of them taken jointly. Otherwise stated, the
uncertain provisions will be read in harmony with all other provisions.

4. Regardless of how general the terms and stipulations of a contract may

be, they cannot be understood to comprehend things that are distinct and
cases that are different from those upon which the parties intended to agree.
The party drafting the contract may use general terms so as to include a
wide selection or all relevant matters. Despite the use of such all-
encompassing words, they cannot mean to include those that are very
different from what the parties agreed on.

Example: In a sale transaction of real property, the written contract may

require the seller to deliver the original copy of the owners duplicate,
receipts of real property tax payments, and all other relevant documents. If
not intended by the parties, the buyer cannot demand for lease documents
covering the property being sold. As the parties entered into a contract of
sale, all other relevant documents would refer only to those required for
the transaction.

5. If there are several meanings to some stipulations, they will be understood

as bearing that import which is most adequate to render it effectual. On the
other hand, if the words have different significations, they are to be
understood in such a way that is most in keeping with the nature and object
of the contract.

6. If there are ambiguities, the usage or custom of the place where the
contract was executed are to be considered in the interpretation thereof.
These are also to fill in the omission of stipulations that are ordinarily
established.

Best Legal Practices:

Stipulation against usage or custom of place where executed If it is the

intention of the parties that the usage or custom of the place where the
contract was executed should not govern, the same should be expressly
stipulated to avoid any unforeseen and undesirable consequences in the
interpretation of the agreement.

7. In contract interpretation, the principle adhesion provides that the

agreement will be construed against the one who caused the obscurity by
way of penalty. Thus, the party who prepared the contract should ensure that
the written agreement should be free from ambiguous provisions. Otherwise,
the contract will be construed against the party who drafted it.

8. If it is absolutely impossible to settle doubts using the foregoing rules, and

the doubts refer to incidental circumstances of a gratuitous contract, the
least transmission of rights and interests is to be observed. On the other
hand, if the contract is onerous, the doubt is to be settled in favor of the
greatest reciprocity of interests.
9. The contract is void if the doubts are cast upon the principal object of the
contract in such a way that it cannot be known what may have been the
intention or will of the parties.

10. The principles of interpretation found in the Rules of Court will be

observed in the interpretation of contracts. Although a contract is law
between the parties, the provisions of positive law which regulate such
contracts are deemed included and shall limit and govern the relations
between the parties.

Best Legal Practices:

Duty to amicably resolve controversy To avoid costly and expensive

costs of litigation, the parties may stipulate on a mutual obligation to meet
and convene promptly and expeditiously in good faith for the purpose of
amicably settling a dispute or controversy. They may agree that such a duty
is a condition precedent prior to initiating any legal action or proceeding. To
be effective, this stipulation must clearly specify the procedure to be taken,
the timelines to be observed, and all documentary evidence needed for the
meeting.

Jurisdiction The parties may agree as to which courts will have jurisdiction
in case of a dispute or controversy in the contract. They may even stipulate
to a sole and exclusive jurisdiction of a particular court to the exclusion of all
others.

Arbitration For the speedier resolution of issues and leseser costs on the
parties, they may agree to arbitration. They must specify what arbitral
tribunal, who will be the arbitrators, and what rules will be followed in the
arbitration.

Governing Law For international transactions where one party is a

foreigner or where the contract is executed outside the Philippines, the
parties should state therein that the contract will be interpreted, governed,
and enforced in accordance with the laws of the Republic of the Philippines
should that be their intention.

Release, waiver, and quitclaim The parties may provide for a clause on
release, waiver, and quitclaim whereby the injured party will absolve the
erring party from any and all liability.

Free and harmless A free and harmless clause is an undertaking of a

party to hold the other free and harmless from any liability arising out of or
in connection with what the former may do in order to perform his
contractual obligations.

Standard of care The parties may agree to a higher standard of care than
the default one which is the due diligence of a good father of a family.

Force majeure The parties may agree to non-liability in case of a force

majeure, as well as increase its coverage, including but not limited to,
strikes, lockouts, boycotts, industrial/labor disputes, acts/orders/rulings of
the Government, whether national or local. Conversely, the parties may
agree to liability despite a force majeure.

Representations The parties may make representations that the

signatories thereto are duly authorized to enter into the contract, as well as
warrant that all necessary corporate approval have been duly obtained and
the legal documents evidencing such are existing. The parties may
undertake to execute any and all documents, well as perform all necessary
steps, to accomplish the purpose of the contract.

Relationship of the parties The parties may clearly specify their

relationship to each other, whether they are partners, principal, agent,
contractor, sub-contractor, etc. Conversely, they may stipulate that no such
relationship exists by and between the parties.

Non-waiver The parties may agree that the failure to insist on the other
the strict performance of any contractual obligation does not result in the
waiver of any cause of action arising therefrom. They may agree that a
waiver requires to be in writing and signed by the party making the waiver.

Non-disclosure The parties may stipulate on a non-disclosure agreement

to protect the confidential or sensitive information.

Assignment The parties may agree that their contractual rights or

obligations may be assigned or transferred. Conversely, they may agree that
such is non-transferrable.

Tax consequences The parties may agree as to who of them will shoulder
any tax consequence that may arise from the contract. They may also agree
to a proportional sharing.

Penalties The parties may stipule on liquidated damages that will serve as
penalty for non-performance or failure to comply with the obligations.

Separability A separability clause ensures that the remaining terms and

conditions, which are not void or have not been annulled, are valid and
binding.

Termination The parties may agree that the contract may be for a certain
duration or project only.
Effectivity The parties may stipulate as to when the contract will be
effective, in order to create the rights and obligations therein.

Entirety The parties may agree that the written contract reflects the
entire terms and conditions that they have agreed upon on the subject
matter superseding all other prior agreements or arrangements. The parties
may agree that any revision on the new contract requires that the same be
in writing and signed by both parties.