468029228 Chapter 5 Interpretation of Contracts 1370 1379 PDF

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CONTRACTSCHAPTER 5 Interpretation of ContractsArticle 1370. If the terms of a contract are clearand leave no doubt upon the intention of thecontracting parties, the literal meaning of itsstipulations shall control.If the words appear to be contrary to the evidentintention of the parties, the latter ...

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(b) The contract of the parties may result in estoppel.

CONTRACTS 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) --------------------------------------------------------INTERPRETATION OF CONTRACTS

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(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.

RULES IN CASE OF CONFLICT

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If the words appear to be contrary to the evident intention of the parties terms of the contract evident intention of the contracting

RULE: In case of conflict between the and the

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) --------------------------------------------------------INTERPRETATION OF CONTRACTS HOW TO JUDGE THE INTENT OF THE PARTIES

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].)

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. EXCEPTION RULE

(Arts. 1431-1439, Civil Code).

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].)

--------------------------------------------------------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) --------------------------------------------------------INTERPRETATION OF CONTRACTS EFFECT OF USE OF GENERAL TERMS

(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]

EXAMPLE: A sold B his house including “all the furniture therein.” -

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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,

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still it should “not be understood to

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comprehend things that are distinct and cases that are different from those upon which the parties intended to agree”

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RULE: Just as a special provision controls a general provision, a special intent prevails over a general intent. (Hibberd v. Estate of McElroy, 25 Phil. 164).

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--------------------------------------------------------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. (1284)

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--------------------------------------------------------INTERPRETATION OF CONTRACTS STIPULATION ADMITTING SEVERAL MEANINGS RULE: If one interpretation makes a contract valid and illegal, the former interpretation must prevail. (Luna v. Linatoc, 74 Phil. 15). which is most adequate to render it

effectual RULE: A wife exchanged “her house” for a diamond ring. Now the wife had a house which was her paraphernal -

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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.

--------------------------------------------------------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) ---------------------------------------------------------

Said the Supreme Court: “The mortgage contract should be read in its entirety. If so read, it is at once seen that while the making of the second mortgage - except with the written consent of the mortgagee is prohibited, the contract continues and states the penalty for such a violation, namely, it gives the mortgagee (B) the right to immediately foreclose the mortgage. It does not give the mortgagee the right to treat the second mortgage as null and void.”

--------------------------------------------------------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. (1286) --------------------------------------------------------INTERPRETATION OF CONTRACTS WORDS ADMITTING SEVERAL SIGNIFICATIONS RULE: If a word is susceptible of two or more meanings, what meaning should be used? ANS.:

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).

INTERPRETATION OF CONTRACTS STIPULATIONS TO BE READ TOGETHER RULE: various stipulations of a contract shall be interpreted together attributing to the doubtful ones sense which may result from all of them taken jointly

REQUISITE: different significations shall be understood in that which is most in keeping with the nature and object of the contract. (Art. 1375, Civil Code).

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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.

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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,

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47 Phil. 795).]

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) --------------------------------------------------------INTERPRETATION OF CONTRACTS

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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) --------------------------------------------------------INTERPRETATION OF CONTRACTS

usage or custom of the place RULE: IT shall

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be borne in mind in the interpretation of the ambiguities of a contract

INTERPRETATION AGAINST WHO CAUSED THE

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).

RULE: The interpretation of obscure words or stipulations

RULE: IT shall fill the omission of stipulations which 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.

OBSCURITY

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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. -

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, -

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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

THAT IS: shall not favor the party who caused the obscurity

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.

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The lessor is now blaming the lessee for having demolished the old wall, claiming that the

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lessee -

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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 -

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.

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: Doubts as to the Incidental Circumstances RULE: If gratuitous,

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.

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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, -

INTERPRETATION OF CONTRACTS Doubts as to Principal Object or Incidental Circumstances

apply the rule of the

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) ---------------------------------------------------------

apply the rule of least transmission of rights and interests shall prevail

[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)

RULE: Doubt as to the Principal Object

the contract shall be null and void RULE: DOUBT

--------------------------------------------------------Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall

in such a way that it cannot be known

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likewise be observed in the construction of contracts. (n) --------------------------------------------------------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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