The case is an appeal taken by the defendant Pure Cane Molasses Co. from the decision of the CFI of Iloilo in holding that the contract under exhibit A cannot be cancelled and that the sum of 6,000 is but a guarantee or bond, payment of which does not entitle the defendant to cancel the contract.

FACTS: Plaintiff and defendant entered into a contract of sale of 200,000-400,000 gallons of molasses for a period of 5 consecutive milling seasons beginning with the milling season 1929-1930.

Plaintiff Asturias brought an action to amend the contract of sale in the sense that only 50% of Asturias’ total output of molasses would be considered sold. However, Pure Cane filed a supplemental answer alleging that Asturias had given it the option to cancel the molasses contract upon payment of the sum of P6,000 which was the bond required by Asturias as shown by admitted exhibits A, 3, 4, 5, 6 and 7 which were letters that were exchanged between Manuel Garcia, treasurer and acting manager of Asturias and T. Nielsen, the predecessor-in-interest of Pure Cane.

During the negotiations as shown by the exhibits, it is undisputed that T. Nielsen agreed and put up the bond having Hongkong & Shanghai Banking Corporation as it’s guarantor.

Pure Cane now prays that the contract be cancelled and for Asturias to be compelled by the court to accept the amount of P6,000.

ISSUE: Whether or not Pure Cane is entitled to the rescission or cancellation of the contract upon payment of P6,000.

HELD: In Exhibit 4, Manuel Garcia communicated to Nielsen the following: “we require a bond of P6,000 to answer for your failure to comply with the terms thereof; in other words, in case you may later wish to have said contract cancelled. This bond may be in cash, or on the undertaking of a solvent firm.”

In Exhibit 7, Garcia also used the following words: “We should like to insert in the contract that if you should wish to cancel it before the expiration of the five year period, you would have to pay us P6,000 which is the bond we require, and that this bond must be in force for five years”.

And finally, Exhibit 9 which should have been considered by the trial court instead of rejecting it outright being material and competent and states the following: “The bond which we require is not for the payment for the molasses to be delivered to Mr. Nielsen; it is for the purpose of securing his compliance for five years with the terms of the contract with this Central, so that in case of his failure to comply therewith we could take said sum of P6,000 by way of indemnity for damages.”

In view of the foregoing quotations from letters written by the manager of the appellee, there can be no doubt that the appellant was given the option to cancel the contract upon payment of P6,000, which is the amount fixed for the bond to guarantee the fulfillment of the contract. The intention of the parties was to consider this stipulation as an integral part of the contract of sale, and we have no doubt in so holding.

“SEC. 293. Where intention of different parties to instrument not the same. — When the terms of an agreement have been intended in a different sense by the different parties to it, that sense is to prevail against either party in which he supposed the other understood it, and when different constructions of a provision are otherwise equally proper, that is to be taken which is the most favorable to the party in whose favor the provision was made.” (Code of Civil Procedure.)

 “ART. 1288. Obscure terms of a contract shall not be so construed as to favor the party who occasioned the obscurity.” (Civil Code.)

According to these provisions any obscurity in the contract regarding the point in question, where the terms are susceptible of different interpretations, they should be interpreted in favor of the herein appellant both because the right to cancel was established for its benefit, and because it was the appellee, through its manager, that gave rise to the ambiguity in considering the bond sometimes as a guarantee, and at other times as indemnity for liquidated damages, and lastly as compensation in case of rescission.

SC: Pure Cane is entitled to the cancellation of the contract. Judgement appealed from is reversed and the contract of sale is declared cancelled and it is ordered that the sum of P6,000 be delivered the Asturias.

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