(b) The contract of the parties may result in estoppel.
CONTRACTS - (Arts. 1431-1439, Civil Code).
CHAPTER 5 Interpretation of Contracts
Article 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. (1281)
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INTERPRETATION OF CONTRACTS
RULES IN CASE OF CONFLICT
GENERAL RULE: when the terms of a contract are clear and
unambiguous about the intention of the contracting parties,
the literal meaning of its stipulations shall control.
If the words appear to be contrary
EXCEPTION RULE
to the evident intention of the parties
terms of the contract
RULE: In case of conflict between the
and the evident intention of the contracting
parties, which one must prevail?
- The intention must/shall prevail.
- Let us interpret not by the letter that killeth
but by the spirit that giveth life.”
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Article 1371. In order to judge the intention of the
contracting parties, their contemporaneous and
subsequent acts shall be principally considered.
(1282)
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INTERPRETATION OF CONTRACTS
HOW TO JUDGE THE INTENT OF THE PARTIES
(a) If the parties
- have themselves placed an interpretation
- to the terms of their contract,
- such interpretation must in general be followed.
(Valdez v. Sibal, 46 Phil. 930).
- Such interpretation of the parties should be
the interpretation by the court, because
“the courts are NOT at liberty to adopt a
construction opposed to that which the
parties have placed on their contract.”
[Manila Electric Co. v. Commissioners 30
Phil. 387]
(c) The courts may consider
- the relations existing between the parties
- and
- the purpose of the contract,
- particularly when it was made in good faith
between mutual friends. (Kidwell v. Cartes, 43 Phil.
953).
(4) The real nature of a contract may be determined not only
from the express terms of the written agreement but also by
all the surrounding circumstances [contemporaneous
and subsequent acts] to prove the intention of the
parties thereto.
- Acts done by the parties to a contract in the course
of its performance are admissible in evidence upon
the question of meaning as being their own
contemporaneous interpretation of its terms.
- While intentions involve a state of mind which may
sometimes be diffi cult to decipher, the acts of the
parties as well as the evidentiary facts as proved
and admitted can be refl ective of one’s intention.
(Sarming vs. Dy, 383 SCRA 131 [2002].)
RULE: THE courts, in the exercise of their sound discretion, are
called upon to admit direct and simultaneous circumstantial
evidence necessary for their interpretation with the purpose
of making the true intention of the parties prevail.
(5) The courts are not bound to rely upon the name or title
given the contract by the parties. (infra.) The essence of the
contract determines what law should apply between the
contracting parties. (American Rubber Co. vs. Collector of
Internal Revenue, 64 SCRA 569 [1975]; Adelfa Properties, Inc.
vs. Court of Appeals, 240 SCRA 565 [1995]; Ching Sen Ben vs.
Court of Appeals, 314 SCRA 762 [1999].)
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Article 1372. However general the terms of a
contract may be, they shall not be understood to
comprehend things that are distinct and cases
that are different from those upon which the
parties intended to agree. (1283)
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INTERPRETATION OF CONTRACTS
EFFECT OF 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 - Said the Supreme Court:

distinct - “The mortgage contract should be read in its entirety.
- If so read, it is at once seen that while
- and cases that are different from
- the making of the second mortgage
those upon which the - except with the written consent of the
parties intended to agree” mortgagee
- is prohibited,
RULE: Just as a special provision controls a general provision, a - the contract continues and states the penalty for such
special intent prevails over a general intent. (Hibberd v. Estate of a violation, namely, it gives the mortgagee (B) the right
McElroy, 25 Phil. 164). to immediately foreclose the mortgage.
--------------------------------------------------------- - It does not give the mortgagee the right to treat the
second mortgage as null and void.”
Article 1373. If some stipulation of any contract
---------------------------------------------------------
should admit of several meanings, it shall be
Article 1375. Words which may have different
understood as bearing that import which is most
significations shall be understood in that which is
adequate to render it effectual. (1284)
most in keeping with the nature and object of the
---------------------------------------------------------
contract. (1286)
INTERPRETATION OF CONTRACTS
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INTERPRETATION OF CONTRACTS
STIPULATION ADMITTING SEVERAL MEANINGS

RULE: If one interpretation makes a contract valid and illegal, the

WORDS ADMITTING SEVERAL SIGNIFICATIONS
former interpretation must prevail. (Luna v. Linatoc, 74 Phil. 15).
RULE: If a word is susceptible of two or more meanings, what
- which is most adequate to render it
meaning should be used?
effectual - ANS.:

RULE: 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.
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Article 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. (1285)
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INTERPRETATION OF CONTRACTS
GENERAL RULE: “terms of a writing are presumed to have
been used in their primary and general acceptation.” (Sec.
12, Rule 130, Revised Rules of Court)
- Section 12. Interpretation according to intention;
general and particular provisions. — In the
construction of an instrument, the intention of the
parties is to be pursued; and when a general and a
particular provision are inconsistent, the latter is
paramount to the former. So a particular intent will
control a general one that is inconsistent with it. (10)
EXCEPTION RULE: Use of Other Meanings / Signifiation
- when a general and a particular provision are
inconsistent
“Evidence is admissible to show that they have a local,
technical or otherwise peculiar signification, and were so
used and understood in the particular instance, in which case
the agreement must be construed accordingly.” (Sec. 12,
Rule 130, Revised Rules of Court).

REQUISITE:different significations shall be

STIPULATIONS TO BE READ TOGETHER
understood in that which is most in keeping
with the nature and object of the contract. (Art.
RULE: various stipulations of a contract shall be 1375, Civil Code).
interpreted together
- attributing to the doubtful ones ---------------------------------------------------------
- sense which may result from all of
them taken jointly

RULE: No, B has no right to consider the second mortgage null

and void. His only right is to foreclose the first mortgage right
now.

2
• __
.
Article 1376. The usage or custom of the place
shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the
omission of stipulations which are ordinarily
established. (1287)
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INTERPRETATION OF CONTRACTS
usage or custom of the place
RULE: IT shall be borne in mind
- in the interpretation of the ambiguities of a
contract
- 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).
shall fill the omission of stipulations which
RULE: IT
are ordinarily established.
- EXAMPLE: 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).
RULE: “An instrument may be construed according to usage, in
order to determine its true character.” (Sec. 17, Rule 130,
Revised Rules of Court)
Should customs and usages be pleaded (alleged
in the pleading)?
RULE: If the customs and usages are general,
- they need not be pleaded.
- Hence, even without previously being alleged, they
may be proved in court.
RULE: “If a custom be general in character, and therefore
presumed to be known by the parties, the rule is that such
custom may be proved without being specifically pleaded.
- This is particularly true when a general custom is
offered in evidence to throw light upon a contract,
the terms of which are obscure, and which is
dependent upon evidence of such general custom
to make it plain.
RULE: If the customs and the usages are merely local,
- then they have to be
- both alleged (pleaded) and proved.
RULE: a local custom or usage applying to a special or
particular kind of business (like the custom of “discounting
notes”) may not be proved to explain even the ambiguous
terms of a contract, unless the existence of such custom or
usage is pleaded.” (Andreas v. Bank of the Philippine Islands,
47 Phil. 795).]
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Article 1377. The interpretation of obscure words
or stipulations in a contract shall not favor the
party who caused the obscurity. (1288)
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INTERPRETATION OF CONTRACTS
INTERPRETATION AGAINST WHO CAUSED THE
OBSCURITY
RULE: The interpretation of obscure words or
stipulations
- When different interpretations of a provision are
otherwise equally proper,
- that construction is to be taken which is the most
favorable to the party in whose favor the provision was
made,
- and did not cause the ambiguity.
- shall not favor the party who
THAT IS:
caused the obscurity
RULE: 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).
RULE: The drafter of the terms of the contract should, therefore,
be careful.
EXAMPLE: Enriquez v. A.S. Watson and Co. 22 Phil. 623
- FACTS: In a contract of lease,
- it was provided that the lessee could make
“obras” (improvements) on the property of
the lessor
- without the necessity of asking the lessor’s
permission every time an improvement is to
be made.
- The lessee demolished an old wall and
erected one of reinforced concrete in its
place.
- The lessor is now blaming the lessee for having
demolished the old wall, claiming that the
3
• __
lessee was allowed to make only
improvements, not demolitions.
- Issue: Did the demolition of the old one and its
substitution by a new one constitute “improvements” or
“obras”?
- HELD: The term “obras” or “improvements” is
susceptible of different interpretations,
- and since the ambiguity here was caused by
the lessor,
- the term should not be interpreted in his favor.
- Hence, it was all right for the lessee to do
what he did.
RULE: Art. 1337 of the Civil Code applies with even greater force
in contracts of adhesion where the contract is already prepared
by a big concern, and the other party merely adheres to it, like
insurance or transportation contracts, or bills of lading. (See 6
R.C.L. 854; See also Qua Chee Gan v. La Union & Rock, Co., Inc.
Co., Ltd., 98 Phil. 85).
- Example: Obscure terms in an insurance policy are
construed strictly against the insurer, and liberally in
favor of the insured.
- RULE: 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).
---------------------------------------------------------
Article 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.
(1289)
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INTERPRETATION OF CONTRACTS
Doubts as to
Principal Object
or
Incidental Circumstances
RULE: Doubt as to the Principal Object
the contract shall be null and void
RULE: DOUBT in such a way that it cannot be known
what may have been the intention or will of the
parties
Example: X promised to give Y this (___________).
- Since the object is unknown,
- it is clear that there could not have been any
meeting of the minds.
RULE: Doubts as to the Incidental Circumstances
RULE: If gratuitous,
- least transmission of rights
apply the rule of
and interests shall prevail
-
Example: If A needs a fountain pen and B gives it to him freely
(gratuitously),
- is this a mere donation or a commodatum?
- ANS.: A mere commodatum (loan)
- for this would transmit lesser rights than a
donation.
Another example: If a pacto de retro contract
- is not clear as to exactly when redemption has to be
made,
- we should interpret the period as an indefinite one
(hence, the maximum period is 10 years, rather than
4 years).
- This is important to effectuate the least transmission
of rights. (Tumaneng v. Abad, 92 Phil. 18).
RULE: If onerous,
- apply the rule of the the greatest reciprocity
of interests.
- [debtor assuming lesser obligation?]
EXAMPLE: Said the Supreme Court: “Even if there were a
doubt as to whether the contract entered into by Vicente
Perez was one of mortgage or one of sale,
- on the hypothesis that he could dispose of the
property,
- while it is not possible to decide the question by the
language of the document,
- in justice, it must be assumed that the debtor
assumed a lesser obligation,
- and that in accord with the creditor he bound
himself to execute a mortgage
- which has a greater reciprocity of interests than a
contract of sale under pacto de retro,
- in spite of the fact that both the latter and that of
mortgage involve a valuable consideration in
accordance with the provisions of Art. 1289 of the
Civil Code” (now Art. 1378 of the new Civil Code).
(Perez v. Cortez, 15 Phil. 211)
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Article 1379. The principles of interpretation
stated in Rule 123 of the Rules of Court shall
4
• __

likewise be observed in the construction of

contracts. (n)
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INTERPRETATION OF CONTRACTS

RULE: 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.

RULE: Language in the Place of Execution

- “The language of a writing is to be interpreted
- according to the legal meaning it bears
- in the place of its execution,
- unless the parties intended otherwise.” (Sec. 8, Rule
130, Revised Rules of Court).

RULE: Meaning of Words Used

- “The terms of a writing are presumed to have been
used in their primary and general acceptation, but
evidence is admissible to show that they have a local,
technical, or otherwise peculiar signifi cation, and were
so used and understood in the particular instance, in
which case, the agreement must be construed
accordingly.” (Sec. 12, Rule 130, Revised Rules of
Court).

RULE: Conflict Between Printed and Written (Not Printed) Words

- “When an instrument consists partly of written words
and partly of a printed form,
- and the two are inconsistent,
- the former controls the latter.” (Sec. 13, Rule
130, Revised Rules of Court). [WRITTEN?
- HELD: “It is a well-settled rule that in case repugnance
exists between written and printed portions of a policy,
the written portion prevails, and there can be no
question that as far as any inconsistency exists, the
above-mentioned typed ‘rider’ prevails over the
printed clause] [Jarque v. Smith, Bell and Co. 56 Phil.
758]

RULE: Interpretation in Favor of a Natural Right

- “When an instrument is equally susceptible of two
interpretations, one in favor of a natural right and the
other against it, the former is to be adopted.” (Sec. 14,
Rule 130, Revised Rules of Court).
- [NOTE: The right to redeem is a natural right.
(Tumaneng v. Abad, 92 Phil. 18).]

RULE: “An instrument may be construed according to usage, in

order to determine its true character.” (Sec. 17, Rule 130,
Revised Rules of Court).
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