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Chapter 5  Where the written terms of the

contract are not ambiguous and can
INTERPRETATION OF CONTRACTS only be read one way, the court will
interpret the contract as a matter of
law.
Art. 1370. If the terms of contracts are  If the contract is determined to be
clear and leave no doubt upon the ambiguous, then the interpretation of
intention of the contracting parties, the the contract if left to the court, to
literal meaning of the stipulations shall resolve the ambiguity in the light of
control. the intrinsic evidence, if possible.
If the words appear to be contrary
to the evident intention of the parties,
the latter shall prevail over the former. Art. 1371. In order to judge the intention
of the contracting parties, their
contemporaneous and subsequent acts
shall be principally considered.
Rules In Interpretation of Contracts:
Cardinal Rule “Intention Prevails”
 The intention of the parties prevails When Extrinsic Evidence Allowed
over the words of the contract. This
rule is embodied in Article 1370 (2)  One of the exceptions to the parol
which states that “if the words evidence is when there is a “failure
appear to be contrary to the evident of the written agreement to express
intention of the parties, the latter the true intent and agreement of the
shall prevail over the former.” parties thereto.”
 The cardinal rule in the interpretation  This exception obtains, however,
of contracts is to effect that the only where the written contract is so
intention of the contracting parties ambiguous or obscure in terms that
should always prevail because their the contractual intention of the
will has the force of law. parties cannot be understood from a
 In the interpretation of a contract. mere reading of the instrument. In
The court ascertains the intent of the such a case, extrinsic evidence of
parties based on the meaning the subject matter of the contract, of
attached to the words written or the relations of the parties to each
spoken which make the contract. other, and of the facts and
 The process of interpreting a circumstances surrounding them
contract requires the court to make a when they entered into the contract
preliminary inquiry as to whether the may be received to enable the court
contract before it is ambiguous. A to make a proper, interpretation of
contract provision is ambiguous if it the contract.
is susceptible of two reasonable  The use of extrinsic evidence for the
alternative interpretations. purpose of resolving an ambiguity is
authorized by Article 1371 which
states that “in order to judge the
When Terms of Contracts Are Clear intention of the contracting parties,
their contemporaneous and
 If the terms of a contract are clear
subsequent acts shall be principally
and leave no doubt upon the
considered.”
intention of the contracting parties,
 In contract interpretation, analysis is
the literal meaning of its stipulation
not to be limited to the words used in
shall control.
the contract, as they mot accurately
 Therefore, where the language of a
reflect the parties true intent.
contract is plain and unambiguous,
its meaning should be determined
without reference to extrinsic facts or
aids.

When Considered Ambiguous

 A contract provision is ambiguous if
it is susceptible of two reasonable
alternative interpretations.

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Art. 1372. However general the terms of Contract Interpreted As A Whole

a contract may be, they shall not be
understood to comprehend things that  In interpreting a contract, its
are distinct and cases that are different provisions should be read not in
from those upon which the parties isolation but in relation to each other
intended to agree. and in their entirety so as to render
them effective, having in mind the
intention of the parties and the
purpose to be achieved.
Ejusdem Generis (Limit Generalities to  Thus, Article 1374 provides that
Things of Same Genre) “The various stipulations of contract
 According to Article 1372, “however shall be interpreted together,
general the terms of a contract may attributing to the doubtful ones that
be, they shall not be understood to sense which may result from all of
comprehend things that are distinct them taken jointly.”
and cases that are different from  The stipulation in a contract and
those upon which the parties other contract documents should be
intended to agree.” This rule follows interpreted together with the end in
the rule of construction known as view of giving effect to all.
ejusdem generis.
 Under this rule, where general words
follow the enumeration of particular Doctrine of Complementary-Contracts-
classes of persons or things, the Construed-Together
general words will be construed as
applicable only to persons or things  Under the “complementary contracts
of the same general nature or class construed together” doctrine, an
as those enumerated. accessory contract must be read in
its entirety and together with the
principal agreement.
 This principle is used in construing
Art. 1373. If some stipulation of any contractual stipulations in order to
contract should admit of several arrive at their true meaning; certain
meanings, it shall be understood as stipulations cannot be segregated
bearing that import which is most and then made to control.
adequate to render it effectual.  This no-segregation principle is
based on Article 1374.

Principle of Effectiveness
 The principle of effectiveness is Art. 1375. Words which may have
basic in contract interpretation: different signification shall be
where two interpretations of the understood in that which is most in
same contract language are keeping with the nature and object of the
possible, one interpretation having contract.
the effect of rendering the contract
meaningless, while the other
interpretation would give effect to the In Keeping With Nature and Object of
contract as a whole, the latter Contract
interpretation must be adopted.
 The principle is embodied in Article  According to Article 1375, “words
1373 which reads, “If some which may have different
stipulation of any contract should signification shall be understood in
admit of several meanings, it shall that which is most in keeping with
be understood as bearing that the nature and object of the
import which is most adequate to contract.”
render it effectual.”  As such, it is the duty of the courts to
place a practical and realistic
construction upon it, giving due
consideration to the context in which
Art. 1374. The various stipulations of it is negotiated and the purpose
contract shall be interpreted together, which it is intended to serve.
attributing to the doubtful ones that
sense which may result from all of them
taken jointly.

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Art. 1376. The usage or custom of the parties, the contract shall be null and
place shall borne in mind in the void.
interpretation of ambiguities of a
contract, and shall fill the omission of
stipulations which are ordinarily In Case of Impossibility to Settle Doubts
established. By Other Rules
 When it is absolutely impossible to
Usage or Customs settle doubts by the rules
established in the preceding articles,
 Under Article 1376, “the usage or the following rules shall be
custom of the place shall borne in observed:
mind in the interpretation of 1. If the doubts refer to
ambiguities of a contract, and shall incidental circumstances of
fill the omission of stipulations which gratuitous contract, the least
are ordinarily established.” transmission of rights and
 For example, where a contract of interest shall prevail;
lease of services did not prove for 2. If the contract is onerous, the
the amount of the compensation to doubt shall be settled in favor
be paid, this was determined by the of the greatest reciprocity of
rate customarily paid in the place interests.
where the services were rendered. 3. If the doubts are cast upon
the principal object of the
contract in such a way that it
Art. 1377. The interpretation of obscure cannot be known what may
words or stipulations in a contract shall have been the intention or
not favor the party who caused the will of the parties, the
obscurity. contract shall be null and
void.

Contra Proferentem (Construe Against

Drafting Party) Art. 1379. The principles of interpretation
stated in Rule 123 of the Rules of Court
 According to Article 1377, “the shall likewise be observed in the
interpretation of obscure words or construction of contracts.
stipulations in a contract shall not
favor the party who caused the
obscurity.” Rules of Interpretation of Documents
 Settled is the rule that ambiguities in Under Rules of Court
a contract are interpreted against the
party that caused the ambiguity.  According to Article 1379, “the
 Any ambiguity in a contract whose principles of interpretation stated in
terms are susceptible of different Rule 123 (now Rule 130) of the
interpretations must be read against Rules of Court shall likewise be
the party who drafted it. observed in the construction of
contracts.” Sections 10 up to Section
19 of Rule 130 of the Rules of Court
Art. 1378. When it is absolutely provide for the following rules of
impossible to settle doubts by the rules interpretation of documents:
established in the preceding articles,
and the doubts refer to incidental Sec. 10. Interpretation of a writing
circumstances of gratuitous contract, according to its legal meaning. – The
the least transmission of rights and language of the writing is to be interpreted
interest shall prevail. If the contract is according to the legal meaning it bears in
onerous, the doubt shall be settled in the place of its execution, unless the parties
favor of the greatest reciprocity of intended otherwise.
interests.
Sec. 11. Instrument construed so as
If the doubts are cast upon the to give effect to all provisions. – In the
principal object of the contract in such a construction of an instrument, where there
way that it cannot be known what may are several provisions or particulars, such a
have been the intention or will of the

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construction is, if possible, to be adopted as equally susceptible of two interpretations,

will give effect to all. one in favor of natural right and the other
against it, the former is to be adopted.
Sec. 12. Interpretation according to
intention; general and particular provisions. Sec. 19. Interpretation according to
– In the construction of an instrument, the usage. – An instrument may be construed
intention of parties is to be pursued; and according to usage, in order to determine its
when a general and a particular provision true character.
are inconsistent, the latter is paramount to
the former. So a particular intent will control
a general one that is inconsistent with it.

Sec. 13. Interpretation according to

circumstances. – For the proper
construction of an instrument, the
circumstances under which it is made,
including the situation of the subject thereof
and the parties to it, may be shown, so that
the judge may be placed in the position of
those who language he is to interpret.

Sec. 14. Peculiar signification of

terms. – 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 local, technical, or otherwise peculiar
signification, and were used and understood
in the peculiar instance, in which the case
the agreement must be construed
accordingly.

Sec. 15. Written words control

printed. – 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. 16. Experts and interpreters to

be used in explaining certain writings. –
When the characters in which an instrument
is written are difficult to be deciphered, or
the language is not understood by the court,
the evidence of persons skilled in
deciphering the characters, or who
understand the language, is admissible to
declare the characters or the meaning of the
language.

Sec. 17. Of Two constructions,

which preferred. – When the terms of an
agreement have been in a different sense
by the different parties to it, that sense is to
prevail against either party in which he
supposed the other understood it, and when
different constructions of a provision are
otherwise equally proper, that is to be taken
which is the most favorable to the party in
whose favor the provision was made.

Sec. 18. Construction in favor of

natural right. – When an instrument is

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YRSC – Obligations and Contracts Reviewer, 2019-2020