BM2304

INTERPRETATION OF CONTRACTS
Literal Interpretation
Article 1370 - Contracts should be fulfilled according to the literal sense of their stipulations if the terms of a
contract are clear and unequivocal. When the contract is clear, what exists in the parties' minds does not
matter. Rather, the intention expressed in the language should be the primordial question.

Definition of Interpretation
Interpretation of a contract is the determination of the meaning of the terms or words used by the parties in
their contract.

Interpretation vs. Reformation

Interpretation is the determination of the meaning attached to the words written or spoken which make the
contract. On the other hand, "reformation" is that remedy in equity through which a written instrument is
made or construed to express or conform to the real intention of the parties.

Interpretation Based on Subsequent Acts (Article 1371)

Article 1371 - The parties’ contemporaneous and/or subsequent acts to the perfection of the contract are
significant in determining the parties' intention.

If the words appear contrary to the parties' evident intention, the parties' intention shall prevail over the terms
stated in the contract. To judge the intention of the contracting pastries, their contemporaneous and
subsequent acts shall be principally considered.

Specific vs General Intent (Article 1372)

Article 1372 – This states that when there are general and specific provisions in the contract covering the same
subject matter, the specific provision controls the general provision.

Specific
Even if the terms used in the contract/agreement may be general, the interpretation should NOT ever be far
from the parties' intention; that intention will be determined according to circumstances.

General
In a contract, inconsistent general and special provisions cover the same subject matter. Special provisions
prevail over general provisions when the two (2) CANNOT stand together.

Interpretation of Various Stipulations of a Contract (Article 1373)

● The stipulation is subject to different meanings, and it does not, and should not, affect the contract's
validity, which should be the primary consideration in choosing which of the different meanings should
be upheld.

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● When the contract contains incompatible provisions, the contract must be interpreted as a whole, and
the parties' intention must be determined from the entire instrument and not merely from particular
provisions. In other words, all of the provisions must be taken together to harmonize with each other.

Interpretation of several terms of a contract (Article 1374)

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.

Interpretation of words in the contract, which may have different significations (Article 1375)
Article 1375 - Words that may have different significations shall be understood in that which is most in keeping
with the nature and object of the contract.

Usage or Custom as Aid in Interpretation (Article 1376)

Article 1376 - The usage or custom of the place shall be considered in interpreting the ambiguities of a contract
and shall fill the omission of ordinarily established stipulations.

Interpretation of Obscure/Vague words (Article 1377)

Article 1377 - The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.
● The contract should be interpreted against the party who has drawn it and in favor of the party who,
upon the faith of which, has incurred an obligation. This proceeds from the rationale that the party
who drafts the contract could have prevented the obscurity in meaning. Generally, the party causing
such obscurity does so with ulterior motives.
● This instance usually occurs in contracts of adhesion or those contracts, most of the terms of which do
not result from mutual negotiation between the parties as they are usually prescribed in printed forms
prepared by one party to which the other may adhere if he chooses but which he cannot change.

Rules in Case Doubts are Impossible to settle (Article 1378)

1. If the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights
shall prevail.
2. If the contract is onerous, the doubts shall be settled in favor of the greatest reciprocity of interests.
3. If the doubt refers to the principal object of the contract that it cannot be known what may have been
the intention or will of the parties, the contract shall be null and void.

Additional Rules on Interpretation of Documents

1. 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.

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● The legal meaning of an instrument must be interpreted according to the legal meaning that
the place of its execution confers to the contract. In short, the law of the place where the
contract is executed shall govern the contract unless the parties specify the laws of a specific
place to be the law that shall govern the contract. This rule usually applies to contracts
between parties from different countries.
2. For the proper construction of an instrument, the circumstances under which it was 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 whose language he is to interpret.
● Evidence of the circumstances existing at the time of the execution of the contract may be
presented to help the court properly interpret the contract.
3. The terms of writing are presumed to have been used in their primary and general acceptance. Still,
evidence is admissible to show they have a local, technical, or otherwise peculiar signification. They
were used and understood in the particular instance where the agreement must be construed
accordingly.
● The general rule in interpreting the terms used in the contract is to interpret them based on
how they are generally used unless the terms have a local, technical, or peculiar meaning that
must be proven.
4. When an instrument consists partly of written words and partly of a printed form, and the two (2) are
inconsistent, the former controls the latter.
● The discrepancy between written words and printed form shall be resolved in favor of the
written form.
5. When the characters in which an instrument is written are difficult to decipher, or the court does not
understand the language, 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.
● Since contracts can be entered into in whatever form, some contracts are written in
incomprehensible form, i.e., bad penmanship. In such cases, expert witnesses may be
presented to decipher the writings.

References
De Leon, H. S. & De Leon Jr., H. M. (2014). The law on obligations and contracts. Rex Book Store.
Paras, E. (2016). Civil Code of the Philippines annotated prescription (Volume IV) obligations and contracts. Rex
Book Store.
Cagurangan, T. (2022). Essentials in Law on Obligations and Contracts. Mindshapers.

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