INTERPRETATIION OF CONTRACTS

Interpreting is a method by which the meaning of a language is ascertained.

Art. 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)
Literal meaning controls when language is clear.
The words used therein (in the contract) should be given their natural and ordinary
meaning unless a technical meaning was intended.

Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous (existing or occurring in the same period of time) and subsequent
(succeeding) acts shall be principally considered. (1282)
Note: This article only applies when the terms of the contract are ambiguous.
In determining the intention, it is the duty of the judge to give consideration to the
relations existing between the parties, the tenor, the purpose, and the circumstances
of the whole contract.

Example: A and B entered into a contract involving a parcel of land. After the
execution of the contract, A began to construct a house, cultivate the land, kept on
paying the real estate tax of the land, all with the knowledge of B. It is evident in
their subsequent acts that the parties entered into a contract of sale.

Art. 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)
Example: A sold to B his house including “all furniture therein”. Included inside
the house are: A book shelf that belongs to C, a 42-inch TV, and a sofa bed.
In here, only the sofa bed is included in the sold house, the book shelf and the and
the 42-inch tv is not included because, the book shelf is not owned by B, and the
42-inch tv is an appliance not a furniture.

Art. 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)
If one interpretation makes a contract valid and other makes it illegal, then the
former interpretation must be followed. It shall be understood that the validity of
the contract is given preference over the interpretation.

Art. 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)
A mortgage his property to B, they agreed to prohibit second mortgage if there is
no written consent of B. The contact also states that the violation will cause the
foreclosure (the action of taking possession of a mortgaged property) of the
mortgage to C. Later, A mortgaged the same property to C without B’s consent.
In here, the only right of B is to foreclose the mortgaged property but not to declare
the second mortgage as void.

Art. 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)
A appointed B as agent, it was stated in the contact of agency that B may extract
payment by legal means. B therefore hired a lawyer to collect money from the
debtors. In here, the act of B of hiring a lawyer is within the scope of his authority
because of the contract of the agency.
Art. 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)
X contracted Y to build a house and shall be paid on a daily basis until finished.
There is no rate of payment in the stipulation, suppose that the agreement took
place in the province, then the prevailing rate of the province are to be observed,
but if it took place in Manila, the prevailing rate of Manila is to be observed.

Art. 1377. The interpretation of obscure words or stipulations in a contract shall

not favor the party who caused the obscurity. (1288)
A insured his life to B insurer. The contact of insurance stated that upon death, the
beneficiary may collect 1 million OR 2 million pesos. Therefore, if A died, the
beneficiary may collect the 2 million instead of 1 million from the insurer because
it is the insurer who caused the obscurity, or the unclear policy.