G.R. No. 1068 : August 5, 1903
LUISA ASIS, plaintiff-appellant, vs. JORGE PARDO, defendant-appellee.

FACTS:
On August 26, 1898, Luisa Asis and Jorge Pardo entered into a contract whereby Asis received a loan of 2,300 pesos from Pardo without interest. As security, Asis mortgaged seven parcels of real estate. The contract stipulated that Asis would repay the loan within five years, applying the annual rents and profits from the mortgaged property toward the debt. Pardo was granted the management and enjoyment of the property until full repayment. The mortgage included a distillery and all apparatus for producing nipa alcohol. Subsequently, Asis borrowed an additional 470 pesos. The original arrangement was later modified, with Asis assuming management of the nipa lands while Pardo continued operating the distillery. The tenants delivered tuba to the distillery, and Asis received credit from Pardo for these deliveries. The parties executed settlements on June 12, 1900, and January 1, 1902, which accounted for the products of the nipa lands and distillery but did not credit Asis for the use of the distillery itself. Asis filed a complaint on February 22, 1902, seeking an accounting from Pardo for his management and the application of all profits from the property, including the distillery, toward the loan.

ISSUE:
Whether the revenues derived from the distillery operated by Pardo should be applied to extinguish the debt, or whether Pardo rightfully retains the usufruct of the distillery.

RULING:
The Supreme Court affirmed the lower court’s decision, holding that Asis was not entitled to credit for the distillery’s revenues for the years prior to 1902. The Court ruled that the original contract of August 26, 1898, was subsequently modified by the parties’ conduct. The settlements of 1900 and 1902, which made no provision for crediting Asis for the use of the distillery and to which she raised no objection at the time, constituted a practical construction of the contract. Applying Article 1282 of the Civil Code (on the interpretation of contracts based on the parties’ conduct), the Court found this practical interpretation by the parties themselves to be conclusive evidence that Asis had no right to the distillery’s profits for the settled periods. The Court declined to rule on Asis’s rights for the year 1902 and subsequent years, as the time for settlement for that year had not yet arrived when the action was commenced. Costs were assessed against the appellant.