Art.

1342 - Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual

Fraud by a third person (third person has no connection with a contract)

- A party should not be made to suffer for the imprudence of another in believing the fraud of
a third person.
- The presumption is that both contracting parties are acting in good faith.

Fraud must be committed by one party on the other.

They are both but one single contracting party in contractual relation with, or against, their
creditor.

ART. 1343 - Misrepresentation made in good faith is not fraudulent but may constitute
error.
Misrepresentation (not intentional but made Fraud
in good faith)
(the person making the false statement more serious than mistake, hence, the party
believed it to be true), it is guilty of fraud is subject to greater
considered a mere mistake or error. liability.

ART. 1344 - In order that fraud may make a contract voidable, it should be serious and should
not have been employed by both contracting parties.

- Incidental fraud only obliges the person employing it to pay damages.

Two kinds of fraud in the making of a contract.

Causal fraud Incidental fraud,

Employed to secure the consent of the Employed to secure the
other party, which is a ground for the consent of the other party but which only
annulment of a contract renders the party who
employs it liable for damages.

4 Requisites of causal fraud.

1.) It should be The requirement that fraud should be serious excludes from the effects
serious of fraud slight and usual deviations from the truth, almost inseparable,
unfortunately, from transactions, especially those taking place in fairs
and markets.
2.) It should not When fraud is employed by both parties, neither may ask for annulment
have been as the fraud of one neutralizes that of the other.
employed by
both contracting
parties
3.) It should not Neither may a contract be set aside on the ground of fraud if the party
have been known who was defrauded knew at the time of execution of the contract all the
by the other facts upon which his claim of fraud is based
contracting
party.
4.) It should be Strangers to a contract cannot sue either or both contracting parties
invoked by the to set aside the same except when he is prejudiced in his rights with
proper party. respect to one of the contracting parties

Effect of incidental fraud - In order that fraud may vitiate consent, it must be the causal (dolo
causante) not merely the incidental (dolo incidente) inducement to the making of the contract.

ART. 1345 – Simulation of a contract may be absolute or relative. The former takes place when
the parties do not intend to be bound at all; the latter, when the parties conceal their true
agreement.
ART. 1346 - An absolutely simulated or fictitious contract is void. A relative simulation, when it
does not prejudice a third person and is not intended for any purpose contrary to law, morals,
good customs, public order, or public policy binds the parties to their real agreement.

Simulation of a contract - The act of deliberately deceiving others, by feigning or pretending

by agreement, the appearance of a contract ,which is either non-existent or concealed (=or is
different from that which was really executed.

Basic characteristic, purpose, and requisites of simulation.

(1) The apparent contract is not really desired or intended to produce legal effects or in any
way alter the juridical situation of the parties.
(2) The nullity of a simulated contract is based on the absence of true consent of the parties
which is essential to a valid and enforceable contract.
(3) Requisites for simulation:
(a) an outward declaration of will different from the will of
the parties;
(b) the false appearance must have been intended by mutual
agreement; and
(c) the purpose is to deceive third persons.

Absolute Simulation vs Fraudulent alienation

Absolute Simulation Fraudulent alienation

Implies that there is no existing contract, there is a true and existing transfer or
no real act executed contract.

Kinds of simulation.
Absolute simulation
1.) when the contract does not really exist
and the parties do not intend to be bound at
all.
2.) Absolutely simulated are inexistent and
void and are not susceptible of ratification.
Relative simulation
1.) when the contract entered into by the
parties is different from their true
agreement21 or the parties state a
false cause in the contract to conceal their
real agreement.
2.) The parties are bound by their real
agreement, provided, it does not prejudice a
third person and is not intended for a purpose
contrary to law, morals, good customs, public
order, or public
policy.

Section 2 Object of Contracts

ART. 1347 - All things which are not outside the commerce nof men, including future things,
may be the object of a contract. All rights which are not intransmissible may also be the object
of contracts.

No contract may be entered into upon future inheritance except in cases expressly authorized
by law.

All services which are not contrary to law, morals, good customs, public order or public policy
may likewise be the object of a contract.

ART. 1348 - Impossible things or services cannot be the object of contracts.

Concept of object of a contract

The object of a contract is its subject matter.
The object of every contract is the obligation created.
It may be said that the thing, service, or right which is the object of the obligation is also the
object of the contract.

Object of contract.

Object certain is the second essential element of a valid contract. (Ibid.) The object may be
things (as in sale of property), rights (as in assignment of credit), or services (as in agency).
Requisites of things as object of contract.
(1) The thing must be within the commerce of men, that is, it can
legally be the subject of commercial transaction.
(2) It must not be impossible, legally or physically.
(3) It must be in existence or capable of coming into existence.
(4) It must be determinate or determinable without the need of a new contract between the
parties.

Requisites of services as object

(1) The service must be within the commerce of men.
(2) It must not be impossible, physically or legally.
(3) It must be determinate or capable of being made determinate.

Rights as object of contract.

General Rule: all rights may be the object of a contract. The exceptions are when they are
intransmissible by their nature, or by stipulation, or by provision of law.

Examples:

(1) Outside the commerce
of men
(2) Impossible, physically
or legally
(3) Determinable things.
(4) Future things or rights
(5) Intransmissible rights
Things of public ownership such as sidewalks, public places,
bridges, streets, etc.; things that are common to everybody
such as air, sunlight, rain, etc.
Prohibited drugs and all illicit objects; to kill a person, etc.
All the cavans of rice in a warehouse; all the eggs in a basket;
my land with the smallest area; the land at the corner of a
particular street; etc.
Things to be manufactured, raised, or acquired after the
perfection of the contract
Political rights such as the right to vote; family, marital, and
parental rights; right to public office, or to run for public office,
etc.

Future inheritance - Any property or right, not in existence or capable of determination at the
time of the contract, that a person may inherit in the future.

Requisites of inheritance to be considered future.

(1) The succession has not yet been opened at the time of the Contract.
(2) The object of the contract forms part of the inheritance.
(3) The promissor has, with respect to the object, an expectancy of a right which is purely
hereditary in nature

Validity of contracts upon future inheritance - in cases expressly authorized by law, a

contract concerning future inheritance is void and consequently, cannot be the source of any
right nor the creator of any obligation between the
parties.

The law permits contracts on future inheritance when

1.) such donations (by reason of marriage) of future property shall take effect only in the event
of death, to the extent laid down by law in testamentary succession.

2.) Partition of property representing future inheritance cannot be made effective during the
lifetime of the owner. (Future inheritance cannot be renounced)

Inheritance ceases to be future upon death of decedent - Upon the death of the deceased
who is the source of the property, however, future inheritance ceases to be future and
consequently, may be the object of a contract.
Kinds of impossibility

1.) Physical. when the thing or service in the very nature of

things cannot exist (e.g., a monkey that talks) or be performed. With
particular reference to services (see Arts. 1266, 1267.), the impossibility
may be:

a) Absolute. — when the act cannot be done in any case so that nobody
can perform it
Example: to fly like a bird, etc.
(b) Relative. — when it arises from the special circumstances of the case
Example: to make payment to a dead person, to drive a car on flooded
highways, etc.

2. Legal. when the thing or service is contrary to law, morals, good customs, public
order, or public policy.
Example: to make a valid donation of real property without a public
instrument to make a valid will, where the testator is under 18 years of
Age.

Effect of physical impossibility on validity of contract.

(1) The absolute impossibility nullifi es the contract.

(2) The relative impossibility, if temporary, does not nullify the contract, such as when a
partner agrees to contribute to the partnership an amount more than is permissible by his
means; if permanent, it annuls the contract, such as blindness in contracts which require the
use of eyesight.

ART. 1349. The object of every contract must be determinate as to its kind. The fact that
the quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new contract
between the parties.

1.) The object must be determinate or determinable (without need of a new agreement)
2.) If the object is not determinate or determinable, the contract is void (absence of object)
3.) If A promised to give B this (blank), it is clear that there can be no obligation here.
4.) But if A sold to B the future harvest in A’s field for a definite price, the contract is valid for
there is no need of a new agreement.

SECTION 3 - Cause of Contracts

ART. 1350 - In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the service or
benefi t which is remunerated; and in contracts of pure beneficence, the mere liberality of the
benefactor.

Cause (causa) - is the essential or more proximate purpose or reason which the contracting
parties have in view at the time of entering into the contract.

Classification of contracts according to cause.

As to cause
1.) Onerous - the parties are reciprocally obligated to each other.
Example: contract of sale
 2.) Remuneratory - the past service or benefit which by itself is recoverable debt.

NOTE: In a remuneratory donation, the past service or debt is not by itself a

recoverable debt.

3.) Gratuitous (or contracts of pure beneficence) - here, the cause is the mere
liberality of the benefactor.

Example: pure donation

ART. 1351. The particular motives of the parties in entering into a contract are different from the
cause thereof.

Motive - is the purely personal or private reason which a party has in entering into a contract. It
is different from the cause of the contract

Causes vs Motive

Causes Motive
Immediate or direct reason Remote or indirect reason
Always known to the other contracting party Motive may be unknown
Cause is an essential element of a contract It is not essential element of a contract
The illegality of the cause affects the validity The illegality of one’s motive does not render
of a contract the contract void

When motive regarded as cause?

General Principle: The motive or particular purpose of a party in entering into a contract does
not affect the validity nor existence of the contract.
 
ART. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever.
The cause is unlawful if it is contrary to law, morals, good customs, public order or
public policy.

Requisites of cause
(1) It must exist at the time the contract is entered into
(2) It must be lawful
(3) It must be true or real.
Effect of absence of cause.
Absence or want of cause means that there is a total lack of any valid consideration for the
contract.

1.) Statement in contract of a non-existent cause. — Contracts without cause confer no right
and produce no legal effect
2.) Grant of right of first refusal. — It is not correct to say that there
is no consideration for the grant of the right of first refusal if such grant is embodied in the same
contract of lease.

Existing
Cause If there is no cause whatsoever, the contract is VOID. Thus, a fictitious sale is
VOID.
NOTE that the cause must exist at the time of the perfection of the contract; it
need not exist later.
 

True Cause If the cause is false, the contract is not valid unless some other cause
which is lawful really exists. 
Lawful If the cause is unlawful, the transaction is null and void.
Cause
Effect if the 1. If one party is innocent he cannot be compelled to perform his
 Cause is obligation, and he may recover what he has already given.
Illegal 2. If both parties are guilty, in general, neither can sue the other, the
law leaving them as they are. But certain exceptions exist.

Effect of 1. The failure to pay the stipulated price after the execution of a contract
failure of of sale does not convert the contract into one without cause or
cause consideration.
2. Where a lending bank took over the management of the borrowing
corporation, as one of the conditions for the granting of the loan, and
the corporation was led to bankruptcy thru mismanagement and
misappropriation of funds.
3. Where the records do not show the total costs of the condominium
units in question and the payment schemes therefor, and the figures
referred to by the buyers as prices are mere estimates given to them
by the seller of the rights to said units.

ART. 1353 - The statement of a false cause in contracts shall render them void, if it should not
be proved that they were founded upon another cause which is true and lawful.

Falsity of cause - is meant that the contract states a valid consideration but such statement is
not true.

NOTE: If the cause is false, the contract is rendered void because the same actually does not
exist.

Just because the cause stated is FALSE does not necessarily mean that the contract is
void.

Reason: The parties are given a chance to show that a cause really exist, and that said cause
is true and lawful.

ART. 1354. Although the cause is not stated in the contract, it is presumed that it exists
and is lawful, unless the debtor proves the contrary.

Cause presumed to exist and lawful - It is not necessary that the cause be expressly stated in
the contract. The presumption is that the cause exists and is lawful unless the debtor
proves the contrary.

ART. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence.

Lesion - is any damage caused by the fact that the price is unjust or inadequate, It is the injury
suffered in consequence of inequality of situation, by one party who does not receive the full
equivalent for what he gives in a commutative contract.

Effect of lesion or inadequacy of cause.

General Rule: a party to a contract will not be relieved from his obligation under it by the mere
fact that the contract may turn out to be financially disadvantageous to him.

Exceptions. — Lesion will invalidate a contract when

(a) there has been fraud, mistake, or undue influence.
(b) in cases specified by law.

Chapter 3 – FORMS OF CONTRACTS

Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. However, when the law
requires that a contract be in some form in order that it may be valid or enforceable or
that a contract be proved in a certain way, that requirement is absolute and
indispensable. In such cases, the right of the parties stated in the following article cannot
be exercised.

Form of contracts - refers to the manner in which a contract is executed or manifested.

(1) The contract may be:

(a) parol or oral
(b) in writing
(c) partly oral and partly in writing
d.) If in writing, it may be in a public or a private instrument.

(2) A contract need not be contained in a single writing. (It may be collected from different
writings).

(3) A contract may be encompassed in several instruments even though every instrument is not
signed by the parties.

(4) A written agreement of which there are two copies

Two aspects of contracts.

Intent or will. Expression of such intent or will.
Contract exists merely as a psychological Expression or declaration of the will is its
fact, it produces no legal effect, because the form. On this basis, contracts are divided
Law cannot take cognizance of its existence into formal and informal.

Classification of contracts according to form

Informal or common contract Formal or solemn contract
Entered into in whatever form, provided, all Required by law for
the essential requisites for their validity its efficacy to be in a certain specified form.
are present.

Rules regarding form of contracts.

General Rule: Contracts are binding and, therefore, enforceable reciprocally by the contracting
parties, whatever may be the form in which the contract has been entered into provided all the
three essential requisites (consent, object, and cause), for their validity are present.

Exceptions:
(a) when the law requires that a contract be in some form to be valid.
b) when the law requires that a contract be in some form to be enforceable or proved in a
certain way.
(c) when the law requires that a contract be in some form for the convenience of the parties or
for the purpose of affecting third persons.

Form for validity of contract.

1.) Donation of real property It must be in a public instrument

2.) Donation of personal property the value of
which exceeds P5,000.00.
3.) Sale of land through an agent
4.) Contract of antichresis
5.) Stipulation to pay interest
6.) Contract of partnership
7.) Transfer or sale of large cattle.
8.) Negotiable instruments
The donation and acceptance must be in
writing.
The authority of the agent must
be in writing; otherwise, the sale is void.
The amount of the principal and of
the interest must be specified in writing.
It must be in writing; otherwise,
no interest is due.
If immovables are contributed, it
must be in a public instrument
It must be registered (so it must
be in a public instrument) and a certificate of
transfer secured.
They must be in writing
Form for enforceability of contract
the law requires that they be in writing subscribed by the party charged or by his agent.
IF the contract is not in writing: the contract is valid (assuming all the essential elements are
present) but, upon the objection of a party, it cannot be proved.

ART. 1357. If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel each
other to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract.

NOTE:

1.) A party, who desires to have his contract reduced in the particular form required
by law, can file an action to compel the other party to comply with such form

2.) If the requirement of law is directory only and has no bearing on the validity or
enforceability of the contract, the parties can enforce the contract and, at the
same time, demand that it be reduced in the form required by law

ART. 1358. The following must appear in a public document:

1.) Acts and contracts which have for their object, the creation, transmission,
modification or extinguishment of real rights over immovable property, sales of real
property or of an interest therein are governed by articles 1403, No. 2 and 1405
2.) The cession, repudiation, or renunciation of hereditary rights or those of the
conjugal partnership of gains
3.) The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document or should prejudice a third
person
4.) The cession of actions or rights proceeding from an act appearing in a public
document.
.
*** All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one. But sales of goods, chattels or things in action are
governed by articles 1403, No.2 and 1405.

Legal recognition of electronic data messages and electronic documents.

R.A. No. 8792, otherwise known as the “Electronic Commerce Act5 gives legal recognition to
any kind of electronic data message and electronic document used in the context of commercial
and non-commercial activities to include domestic and international dealings, transactions,
arrangements, agreements, contracts and exchanges and storage of information

(1) Electronic data Information shall not be denied validity or enforceability solely on
message the ground that it is in the form of an electronic data message.
2) Electronic documents Electronic documents shall have the legal effect, validity or
enforceability as any other document or legal writing.
(3) Variation by As between parties involved in generating, sending, receiving,
agreement storing or otherwise processing electronic data message or
electronic document.

Chapter 4 – REFORMATION OF INSTRUMENTS

ART. 1359 -When, there having been a meeting of the minds of the parties to a contract,
their intention is not expressed in the instrument purporting to embody the agreement,
by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask
for the reformation of the instrument to the end that such true intention may be
expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds
of the parties, the proper remedy is not reformation of the instrument but annulment of
the contract.
 
Reformation of contracts

1. Remedy by means of which a written instrument is amended or rectified as to

express or conform to the real agreement or intention of the parties when by reason
of mistake, fraud, inequitable conduct, or accident, the instrument fails to express
such agreement or intention
2. It would be unjust and inequitable to allow the enforcement of a written
instrument which does not reflect or disclose the real meeting of minds of the parties

Requisites of reformation.

1. Meeting of the minds of the parties to the contract;

2. The written instrument does not express the true agreement or intention of
the parties;
3. The failure to express the true intention is due to mistake, fraud, inequitable conduct,
or accident;
4. The facts upon which relief by way of reformation of the instrument is sought are put
in issue by the pleadings; and
5. There is a clear and convincing evidence of the mistake, fraud, inequitable conduct,
or accident.

Inequitable conduct – has been held to consist in doing acts, or omitting to do acts, which the
court finds to be unconscionable.

Example:
(1) Taking advantage by one party of the other party’s illiteracy
(2) abusing confidence
(3) concealing what of right should have been disclosed
(4) drafting or having drafted an instrument contrary to the previous understanding of the parties
and making the other party to believe the instrument other than it actually is.
(5) in taking advantage of a mistake of the other party.

Reformation vs Annulment

Presupposes a valid contract in which there

has already been a meeting of the mind Based on a defective contract in which there
has been no meeting of the minds because
the consent of one or both of the contracting
parties has been vitiated.

Not a remedy when there has been fraud,

mistake, inequitable conduct or accident. Remedy when there has been no meeting of
the minds because of mistake, fraud,
inequitable conduct, or accident

ART. 1360. The principles of the general law on the reformation of instruments are hereby
adopted insofar as they are not in conflict with the provisions of this Code.

Principles of the general law on reformation.

1.) The provisions of the New Civil Code prevails over the principles of the general law on
reformation.
2.) The latter will only have suppletory effect.

ART. 1361. When a mutual mistake of the parties causes the failure of the instrument to
disclose their real agreement, said instrument may be reformed.

Mutual mistake as basis for reformation.

(1) The mistake must be of fact for if it is one of law, the remedy is annulment
 (2) Such mistake must be proved by clear and convincing evidence
(3) The mistake must be mutual, that is, common to both parties
to the instrument
(4) The mistake must cause the failure of the instrument to express their true intention.

ART. 1362 - If one party was mistaken and the other acted fraudulently or inequitably in such a
way that the instrument does not show their true intention, the former may ask for the
reformation of the instrument.

Mistake on one side, fraud or inequitable conduct on the other.

- The right to ask for reformation is granted only to the party who was mistaken in good faith.
Here, the mistake is not mutual.

ART. 1363 - When one party was mistaken and the other knew or believed that the instrument
did not state their real agreement, but concealed that fact from the former, the instrument
may be reformed.

Concealment of mistake by other party

1.) The remedy of reformation may be availed of the party who acted in good faith.
2.) The concealment of mistake by the other party constitutes fraud

ART. 1364 - When through the ignorance, lack of skill, negligence or bad faith on the part of the
person drafting the instrument or of the clerk or typist, the instrument does not express the true
intention of the parties, the courts may order that the instrument be reformed.

Note: neither party is responsible for the mistake. Hence, either party may ask for reformation.

ART. 1365 - If two parties agree upon the mortgage or pledge of real or personal property, but
the instrument states that the property is sold absolutely or with a right of repurchase,
reformation
of the instrument is proper.

Note:

1.) Such true intention must prevail for the contract must be complied with good faith

2.) The reformation of the instrument is proper, otherwise, the true intention of the parties would
be frustrated

Article 1366 -There shall be no reformation in the following cases:

(1) Simple donations inter vivos wherein no condition is

imposed
(2) Wills
(3) When the real agreement is void

ART. 1367 - When one of the parties has brought an action to enforce the instrument, he cannot
subsequently ask for its reformation.

Cases when reformation not allowed.

(1) Simple donations inter vivos where no
condition is imposed
(2) Wills.
(3) Where the real agreement is void.
(4) Where one party has brought an action to
enforce the instrument
Donation is an act of liberality whereby a
person disposes gratuitously of a thing
The making of a will is a strictly personal and
a free act
If the real agreement is void, there is nothing
to reform
When a party brings an action to enforce the
contract, head admits its validity and that it
expresses the true intention of the parties.
ART. 1368 - Reformation may be ordered at the instance of either party or his successors in
interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and
assigns.

Party entitled to reformation.

1. Either of the parties if the mistake is mutual

2. In all other case, the injured party
3. The heirs and successors in interest, in lieu of the entitled part

*** The effect of reformation is retroactive from the time of the execution of the original contract.

ART. 1369. The procedure for the reformation of instruments shall be governed by rules
of court to be promulgated by the Supreme Court.

1.) The Rules of court governs procedure. The Supreme Court has not yet promulgated the
procedure for the reformation of instruments

2..) Parties imposes a ready-made form of contract, which the other party may accept or reject,
but which the latter cannot modify:

a.) As binding as a mutually executed transaction (Ayala Corp. v. Ray Burton Dev't.
Corp.)
b.) The one who adheres to the contract is in reality free to reject it entirely, if he
adheres, he gives his consent. (Ong Yiu v. CA)
c.) Its enforceability will have to be determined by the peculiar circumstances
obtaining in each case and the situation of the parties concerned
d.) In case of conflict, the contract will be interpreted against the one who drafted the
contract.

Two steps needed to follow (contracts of credit cards) to absolve a card holder from
liability for unauthorized purchase made through lost or stolen card:

1. The card holder must give a written notice to the credit card company
2. Credit company must give notice to all its member establishments of such lost or
theft.

Chapter 5 - INTERPRETATION OF CONTRACTS

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
the act of making intelligible that was not
before understood, ambiguous, or not
obvious
It is a method by which the
meaning of language is ascertained.
Reformation
Remedy in equity by means
of which a written instrument is made or
construed so as to express
or conform to the real intention of the parties.
Conforming and perpetuating the “real
contract’’ between them which under the
technical rules of law, could not be
enforced but for such reformation.

Laws, in general, as aid to interpretation of contracts.

(1) Modification by parties of rules of The parties are free to accept these rules as
interpretation a whole, or to modify.
(2) Acceptance by parties of the rules These legal models must be presumed to
have been accepted if nothing is said to the

(3) Natural and accidental elements of
contract
(4) Intent of the law
(5) Retroactivity of the law
(6) Law of place where contract entered into
contrary and, therefore, the contract must be
deemed complete.
The acceptance of the natural elements of
contract is implied.
The law should never be interpreted in such a
way as to cause injustice.
Well-settled is the rule that statutes have no
retroactive effect unless otherwise provided
therein.
The law of the place where a contract is
made or entered into governs with respect to
its
nature, validity, obligation, and interpretation.

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.

Interpretation of a contract

1.) The determination of the meaning of the terms or words used by the parties in their contract

2.) Contracts should be fulfilled according to the literal sense of their stipulations, if the terms
of the contract are clear and unequivocal

3.) A cardinal rule is that interpretation of the contacting parties should always prevail because
their will has the force of law between them.

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

1.) Intention of the contracting parties always prevail because their will has the force of law
between them.

2.) Literal sense of the stipulations shall be followed.

3.) Once the intention has been ascertained, it becomes an integral part of the contract as
though it had been originally expressed therein in unequivocal terms.

4.) The character of the transaction between the parties is not determined by the language used
in the document but by their intention. (ManilaBanking Corp. vsTeodoro, Jr.)

5.) Contemporaneous and subsequent acts of the parties must be considered in order to judge
the intention of the contracting parties. (Case: Tanguilig v. CA)

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.

Special intent prevails over a general intent.: there are general and special provisions
covering the same subject matter are inconsistent, the latter shall be paramount to and control
over the former when the two cannot stand together.

Latin Maxims:
 
1.) Noscitur a sociis—general and unlimited terms are restrained and limited by particular
terms that follow

2.) Ejusdem generis—a general term joined with a specific one will be deemed to include only
things that are like, of the same genus as, the specific one

A.) However broad may be the terms of a contract, it extends only to those things
concerning which it appears the parties intended to contract
B.) The terms employed are servants, and not masters, of an intent
C.) They are interpreted so as to subserve, and not to subvert, such intent

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.

Interpretation of stipulation
1.) When an agreement is susceptible of several meanings, one of which would render
it effectual, it should be given that interpretation. (if one interpretation makes it illegal, and
the other makes it valid, the latter is warranted)

2.) When it contains various stipulations, some of which are doubtful 

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.

Interpretation of various stipulations/ Separate writings of a contract

(1) Conflicting provisions of The provisions of a contract should not be read in

contract. isolation from the rest of the instrument
(2) Contract contained in several Where the contract is contained in several documents
documents. or in two or more separate writings.
(3) Business forms Business forms, e.g., order slip, delivery charge invoice
and the like, which are issued by the seller in the
ordinary course of business.
(4) Titles/separability clause in Titles given to sections of a contract may be resorted to
contract for the purpose of determining the scope of the
provisions and their relation to other portions.

ART. 1375 -Words which may have different signifi cations shall be understood in that which is
most in keeping with the nature and object of the contract.

Interpretation of words with different significations

- If a word is susceptible of 2 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.
- When it contains ambiguities and omissions of stipulations 

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 fi ll the omission of stipulations which are ordinarily
established.
 
Resort to usage or custom as aid in interpretation.
- 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)
 
- The usage or custom of the place may explain what is doubtful or ambiguous. It is however,
necessary to prove the existence and this burden is upon the party alleging it.
 

- With respect to the party who caused the obscurity (Article 137

Article 1377 -The interpretation of obscure words or stipulations in a contract shall not favor the
party who cause the obscurity (1288)

 
A written agreement should, in case of doubt, be interpreted against the party who has drawn
it. Generally, the party who causes the obscurity acts with ulterior motives.
 

6. When it is absolutely impossible to settle doubts by the rules above (Article 1378,
para. 1);

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

7. When the doubts are cast upon the principal objects so that the intention cannot be
known (Article 1378, para. 2):

 
Article 1378, paragraph 2. 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)
 
Rules in case doubts impossible to settle

1. Gratuitous contract - interpretation should be made which would result in the

least transmission of rights and interests
2. Onerous contracts - the doubts shall be settled in favour of the greatest reciprocity
of interests
3. Principal object of the contract - the contract shall be null and void.

Article 1379 - The principles of Interpretation stated in Rule 123 of the Rules of Court shall
likewise be observed in the constitution of contracts.