Interpretation of a contract refers to the determination of the meaning of the terms or words used by the parties in their contract

Art. 1370 If the terms of the contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulation shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.

Illustrative Example: Facts: A guarantor guaranteed the payment of rentals already due at the time the promise was made. Issue: Is he also responsible for subsequent debts?

Held: Under the facts, it is clear that he never had the obligation to pay the subsequent rents.

Illustrative Example: Facts: In a deed of sale, a certain Lot No. 1357 was mentioned as the parcel sold, but both parties meant Lot No. 1155, and in fact buyer took possession of the latter with the knowledge of the seller.

Held: Since the parties really meant Lot No. 1155, this should be considered the object of the contract.

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

Illustrative Example: A and B entered into a contract entitled Contract of Lease. Although the contract refers to A as a lessor and to E as lessee, it states that the possession and ownership of the land are transferred to E. The title to the land was given by A to B who registered the land in his name. Before the date of the contract, B wrote a letter to A offering to buy the land. The contract should be interpreted as one 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.

Illustrative Example: Facts: X mortgaged his land to Z to secure or guarantee Ys debt. Y could not pay so the mortgage was foreclosed, but there was a deficiency. Issue: Is X responsible personally for the deficiency? Held: No, because it was only his land that was offered as security.

Illustrative Example: L sold his house including all the furniture therein. The term all should not be understood to include Ls refrigerator which is distinct and different from 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

Illustrative Example: S sold his parcel of land to B. S has two lands, one owned by him absolutely and another land of which he is a co-owner with C. C did not give his consent to the sale. The sale should refer to the land owned by S alone as this would make the contract effectual.

GENERAL RULE

If the terms of the contract are clear and leave no doubt as to 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.

The real nature of a contract may be determined from the contemporaneous and subsequent acts of the contracting parties

A special intent prevails over a general intent

If one interpretation makes a contract valid, the other illegal, the former interpretation must prevail

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

Art. 1375 Words which may have different significations shall be understood in that which is most keeping with the nature and object of the contract.

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

Art. 1377 The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity

Art. 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 interest shall prevail. If the contract is onerous, the doubt shall be settled in favor of 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.

Art. 1379 The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts.

THANK YOU!