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INTERPRETATION 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.
COMMENT:
(1) Reason for Interpretation of Contracts
What is the use of interpreting a contract? Should we not just apply the terms of the contract? It is true we
must apply the terms of the contract, but only when they are so clear that there is no doubt regarding the intention of
the contracting parties. But in other cases, we should apply the rules of interpretation.
Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered.
COMMENT:
COMMENT:
(1) Effect of the Use of General Terms
Example:
A sold B his house including “all the furniture therein.” Suppose part of the furniture belonged to a
relative of A who had asked him (A) for permission to leave them there temporarily, should such furniture
be included?
ANS.: No, such furniture should not be included, because although the term “all” is general, still it
should “not be understood to comprehend things that are distinct and cases that are different from those
upon which the parties intended to agree.” (Art. 1372, Civil Code).
In one case, the Supreme Court said: “Considering that the land of the applicant was not the
subject of the contract, and that it could not be so for the reason that it did not belong to the vendor, it can
in no wise be understood as included in the instrument of sale which appears at folio 66, no matter what
may be the terms of the document.” (Reyes v. Limjap, 15 Phil. 420)
Art. 1373. If some 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.
COMMENT:
(1) Stipulation Admitting of Several Meanings
Example:
A wife exchanged “her house” for a diamond ring. Now the wife had a house which was her
paraphernal property, and another house, which, however, belonged to the conjugal partnership. The
contract entered into by the wife was against the consent of the husband. To which house should “her
house” refer?
ANS.: It should refer to her paraphernal house, because this would validate the contract. If the
other interpretation would be followed, the exchange would not be valid since the husband had not given
consent.
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.
Art. 1375. Words which may have different significations shall be understood in that which is most in keeping
with the nature and object of the contract.
COMMENT:
(1) Words to Be Interpreted in Keeping with the Nature and
Object of the Contract
Example:
If authority is given “to exact payment by legal means,” does this include authority to file
actions in court for the recovery of sums of money?
ANS.: Yes. The clause in question means “the power to exact payment of debts due the
concerned by means of the institution of suits for their recovery. If there could be any doubt as to
the meaning of this language taken by itself, it would be removed by a consideration of the general
scope and purpose of the instrument in which it concurs.” (German & Co. v. Donaldson, Sim &
Co., 1 Phil. 63).
ANS.:
(a) That in keeping with the nature and object of the contract. (Art. 1375, Civil Code).
(b) If this cannot be determined, then the “terms of a writing are presumed to have been used in
their primary and general acceptation.” (Sec. 12, Rule 130, Revised Rules of Court).
COMMENT:
(1) Effect of Usage or Custom of the Place
Examples:
(a) A made a contract with B regarding “pesetas.” In the place where the contract was made,
Mexican pesetas were more commonly used than Spanish pesetas. The Supreme Court held that the term
“pesetas” should be construed to mean Mexican pesetas. (Yañez de Barnuevo v. Fuster, 29 Phil.606).
(b) If a contract for a lease of services does not state how much compensation should be given, the
custom of the place where the services were rendered should determine the amount. (Arroyo v. 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.
COMMENT:
(1) Interpretation to Be Against Party Who Caused Obscurity
Reasons for the law: Since he caused the obscurity, the party who drew up the contract with ambiguous
terms should be responsible therefor; so the obscurity must be construed against him. (Gonzales v. La Provisora
Filipina, 74 Phil. 165). The drafter of the terms of the contract should, therefore, be careful.
Example: Obscure terms in an insurance policy are construed strictly against the insurer, and
liberally in favor of the insured. This is to effectuate the dominant purpose of insurance indemnification.
This indeed is particularly true in cases where forfeiture is involved. (Calanoc v. Court of Appeals, 98
Phil.79).
Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles,
and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and
interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity
of interests.
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, the contract shall be null and void.
COMMENT:
(1) Doubts as to Principal Object or Incidental Circumstances
There may be doubts as to:
(a) the principal object
(b) or the incidental circumstances (as to whether, for example, a sale or a mortgage is involved)
Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed
in the construction of contracts.
COMMENT:
(1) Suppletory Use of the Principles of Interpretation in the Rules of Court
Rule 123 as stated in the Article should be construed to refer to Rule 130 of the New Rules on Evidence.