Law On Obligations and Contracts

1. The Law on obligations
and
contracts
Hector S. De Leon
1999 Revised Edition

2. 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.

3. CHAPTER 5
INTERPRETATION OF
CONTRACTS

4. 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.

5. 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.

6. 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.

7. Article 1371
• In order to judge the intention of the
contracting parties, their
contemporaneous and subsequent acts
shall be principally considered.

8. 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.

9. 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

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. Article 1377
• The interpretation of obscure
words of stipulations in a contract
shall not favor the party who
caused the obscurity.

20. 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.

21. 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.

22. 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.

23. (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.

24. (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.

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

26. 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)

27. 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.

28. Article 1380
• Contracts validly agreed upon
may be rescinded in the cases
established by law. (1290)