Week 15-16 :

INTERPRETATION OF CONTRACTS
Atty. Maria Almira L. Fandialan - Saniano
 CARDINAL RULE IN THE INTERPRETATION
OF CONTRACTS

 The cardinal rule in the interpretation of contracts

is embodied in Article 1370 of the Civil Code: “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.“

 This provision is akin to the "PLAIN MEANING

RULE" which assumes that the intent of the
parties to an instrument is "embodied in the
writing itself, and when the words are clear and
unambiguous the intent is to be discovered only
from the express language of the agreement."
 CARDINAL RULE IN THE INTERPRETATION
OF CONTRACTS

 Evident intention of parties prevails over

terms of the contract.

 Art. 1371, NCC: In order to judge the

intention of the contracting parties, their
contemporaneous and subsequent acts shall
be principally considered.
 COMPLEMENTARY-CONTRACTS-
CONSTRUED-TOGETHER DOCTRINE

 An accessory contract must be read in its

entirety and together with the principal
agreement.

 Ex. A Promissory Note and Deed of Chattel

Mortgage must be construed together. The
surety contract (mortgage) is merely an
accessory contract and must be interpreted
with its principal contract (loan agreement).
OTHER RULES IN INTERPRETATION OF CONTRACTS

1. CONTRACT OF ADHESION

 One of the parties imposes a ready-made form of contract,

which the other party may accept or reject, but which the
latter cannot modify.

 One party prepares the stipulation in the contract, while the

other party merely affixes his signature or his "adhesion"
thereto, giving no room for negotiation and depriving the
latter of the opportunity to bargain on equal footing.
OTHER RULES IN INTERPRETATION OF CONTRACTS

1. CONTRACT OF ADHESION

 Contracts of adhesion are not invalid per se and not entirely

prohibited;

 The one who adheres to the contract is, in reality, free to

reject it entirely; if he adheres, he gives his consent.

 Only a contract of adhesion in which one of the parties is

shown to be the weaker as to have been imposed upon may
be invalidated and set aside. (i.e. cannot read, low
educational attainment, sick)
OTHER RULES IN INTERPRETATION OF CONTRACTS

2. USAGE OR CUSTOM

 Art. 1376, NCC: 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.

 Usage or custom of the place where the contract

was entered into may explain what is doubtful in
a contract on the theory that the parties entered
into their contract with reference to such usage or
custom.
OTHER RULES IN INTERPRETATION OF CONTRACTS

3. OBSCURITY

 Ambiguity; Uncertainty; Difficult to

understand.

 Art. 1377, NCC: The interpretation of obscure

words or stipulations in a contract shall not
favor the party who caused the obscurity.
 Art. 1378, NCC: 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.