The Law on obligations and

contracts

1999 Revised Edition Hector S. De Leon

Article 1369

The procedure for the reformation of instruments shall be governed by rules of court to be promulgated by the Supreme Court.

Procedure for reformation

The Rules of Court governs procedure. However, the Supreme Court has not as yet promulgated the procedure for the reformation of instruments.

CHAPTER 5

INTERPRETATION OF CONTRACTS

Article 1370

•In 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.

Literal meaning controls when language clear.

•Contracts, which are the private laws of the contracting parties, should be fulfilled according to the literal sense of their stipulations, if the terms of a contract are clear and unequivocal. The parties are bound by such terms.

Evident intention of parties prevails over terms of contract

•Where the words and clauses of a written contract are in conflict with the manifest intention of the parties, the latter shall prevail over the former.

Article 1371

•In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.

Contemporaneous and Subsequent acts reveal in the determination of intention.

•Where the parties to contract have place an interpretation to the term thereof by their contemporaneous and/or subsequent conduct, as by acts in partial performance, such interpretation may be considered by the court in determining its meaning and ascertaining the intention of parties when such intension cannot clearly ascertained from the words use in their contract.

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

Special intent prevails over a general intent

•As a rule, where in a contract there are general and special provisions covering the same subject matter, the latter control over the former when the two cannot stand together.

Article 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.

Interpretation of stipulation with several meanings

•When an agreement is susceptible of several meanings, one of which would render if effectual, it should be given that interpretation. Thus, if one interpretation makes a contract valid and other makes it illegal, the former interpretation is one which is warranted by the rules started in Article 1373.

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 theme taken Jointly.

Interpretation of various stipulations of a contracts

•A contract must be interpreted as a whole and the intention of the parties is to be gathered from the entire instrument and not from particular words, phrases, or clauses.

Article 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.

Interpretation of words with different significations

•If a word is susceptible of two or more meanings, it is to be understood in that sense which is most in keeping with the nature and object of the contract in line with the cardinal rule that the intention of the parties must prevail.

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.

Resort to usage or custom as aid in interpretation

•The usage or custom of the place where the contract was entered into may be receive to explain what is doubtful or ambiguous in a contract on the theory that the parties entered into their contract with reference to such usage or custom.

Article 1377

•The interpretation of obscure words of stipulations in a contract shall not favor the party who caused the obscurity.

Interpretation of obscure words

•A written agreement should, in case of doubt, be interpreted against the party who has drawn it, or be given an interpretation which will be favorable to the other who, upon the faith of which, has incurred in obligation.

Article 1378

•When it is absolutely impossible to settle doubts by the rules established in the in the preceding articles, and the doubts refers to incidental circumstances of a gratuitous contract, the least transmission of rights and interest shall prevail. If the contract is onerous, the doubt shall be settled in favor of greatest reciprocity of interest.

Rules in case doubts impossible to settle

•When, despite the application of the preceding rules, certain doubts still exist, such doubts shall be resolved in accordance with the supplementary rules stated in the present article.

(1) Gratuitous contract

•If the doubts refers to incidental circumstances of a gratuitous contract, such interpretation should be made which would result in the least transmission of rights and interests.

(2) Principal object of the contract

•If the doubts refers to the principal object of the contract and such doubt cannot be resolve thereby leaving the intention of the parties unknown, the contract shall be null and void.

(3) Onerous contract

•If the contract is question is a onerous, the doubts should be settled in favor of greatest reciprocity in interest.

Article 1379

•The principles of interpretation stated in Rule 123 of the rules of Court shall likewise be observed in the construction of contracts.(n)

Principles of interpretation in Rules of court applicable.

•The rules in the Rules of Court on the interpretation of documents are now contained in Rule 130, Sections 8 to 17 thereof.

Article 1380

•Contracts validly agreed upon may be rescinded in the cases established by law. (1290)