1. What is the basic rule in the interpretation of contracts?

If the terms of the contract is 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.

2. If the intention of the parties in a contract is not clear, how is the intention usually judged?

In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be considered. Acts of the parties before and after the execution of the
contract are leads necessary to prove the intention of the parties.

3. What significance does usage and custom of a place play in the interpretation of a contract?
Explain.

The usage or customs of the place shall be borne in mind in the interpretation of the
ambiguities of the contract, and shall fill the omission of stipulations which are not ordinarily
established. Example: If several individuals are hired to thresh palay in a locality, and the
compensation is not fixed, the custom of the place regarding the fixation of compensation share
at twenty-five or thirty percent of the harvest will be used to supply the omission in the
contract.

4. How are the general terms of contract construed?

General terms of a contract shall not be understood to comprehend things that are
distinct and cases that are different from those upon which the parties intended to agree.

5. If a contract contains obscure words creating doubts, against whom may the doubt be resolved?
Why?

The interpretation of obscure words of stipulations in a contract shall not favor the
party who caused the obscurity. A written agreement should, in case of doubt, be interpreted
against the party who has drawn it. Because it must be given an interpretation which will be
favorable to the other who, upon the faith of which, has suffered in obligation in order for the
party who has caused obscurity to compensate for his mistake and pay the favor to the ones
who had been incurred.

6. If there is no way of resolving the doubt regarding the object of the contract, what happens to
the contract?

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 or void.

7. The dispositive portion of a contract reads: “For and in consideration of the sum of P
100,000.00, I hereby transfer and convey by way of absolute sale my said piece of land to B.
SGD. X”. Will there be a need for the court to interpret the contract other than sale? Why?
 There will be no need for the court to interpret the contract other than sale, because
the terms are clear and no doubt as it can be seen in the presence of the phrase “convey by way
of absolute sale”.

8. X who is financially distressed, entered into a contract letting his house to Y for five years in
consideration of the sum of P120,000.00 paid in cash. Because of refusal of Y to surrender the
possession of the house after five years, X filed an action to recover the possession of the house.
Y claims that the house had been sold to him for P120,000.00. The appraised value of the house
is P250,000.00. How may the instrument be construed?

In this case, since the doubt refers to incidental circumstances of an onerous contract,
the transaction shall be deemed a contract lease or an equitable mortgage because it involves
the greatest reciprocity of interests.