TITLE: PALANCA vs FRED WILSON & CO.

REFERENCE: 37 PHIL 506 (1918)

FACTS:

X corp entered into a contract with Y corp for the purchase of a distilling apparatus. After the machine
was installed, X corp examined the same and it was found out that such machine was not capable of
producing 6,000 liters of alcohol as stipulated, only 480 liters. Y corp contended that the agreement
was for the treatment of 6,000 liters and not for the production thereof. The court ruled in favor of Y
corp, taking into consideration the conduct of the parties and surrounding circumstances, in which Y
corp was to furnish X a distilling apparatus as described in the maker’s catalogue, capable of receiving
or treating 6,000 liters every 24 hours of work and of producing alcohol of a grade 96-97 Gay Lussac.

QUESTION:

Is the ruling of the court correct?

ANSWER:

YES.

It is a well-settled rule that a written agreement shall be presumed to contain all the terms,
nevertheless, “does not exclude other evidence of the circumstances under which the agreement was
made, or to which it relates, or to explain an intrinsic ambiguity.”

In this case, Y corp in their offer to X corp, while mentioning capacity, only did so in express
connection with the name and description of the machine as illustrated in the maker’s catalogue. Due
to an instrinsic ambiguity with the terms used in the contract, since it was stipulated that the machine
must be capable of producing 6,000 liters of alcohol every 24 hours of work, the court interpreted the
same in connection with the conduct of the parties and the surrounding circumstances.

Hence, the court is correct.