03 Evidence - Rule 130 From Interpretation of Documents

EVIDENCE TAKE-HOME LECTURE ON INTERPRETATION OF DOCUMENTS ATTY. JESS ZACHAEL B. ESPEJO Section 10. Interpretation of a writing according to its legal meaning. - 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. (8) INTERPRETATION ACCORDING TO LEGAL MEANING By way of review, it bears to recall the basic principles “LEX LOCI CELEBRATIONIS” in the law on marriage and “LEX LOCI CONTRACTUS”, the Latin term for "law of the place where the contract is made". When the contract is entered into in one place, to be executed in another, there are two loci contractus; the locus celebrate contractus, and the locus solutionis; the former governs in everything which relates to the mode of construing the contract, the meaning to be attached to the expressions, and the nature and validity of the engagement; but the latter governs the performance of the agreement. An example is a “non-compete clause”. It is a term used in contract law under which one party (usually an employee) agrees to not pursue a similar profession or trade in competition against another party (usually the employer). This is used to protect so-called “trade secrets” from leaking to rival companies. As far back as 1415, English common law had already been "old and settled" that restraints on trade were unenforceable. That ban remained unchanged until 1621, when a restriction that was limited to a specific geographic location was found to be an enforceable exception to the previously-absolute rule. In the United States, a “non-compete clause” is varied in its applicability per state. In Virginia, “non-compete clauses” are deemed valid if proven to be necessary to protect legitimate business interests. Conversely, in California, “non-compete clauses” are automatically void as a matter of law, being against public policy, subject tot very limited exceptions. In the Philippines, the rule is still couched in general terms to wit: Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Section 11. Instrument construed so as to give effect to all provisions. - In the construction of an instrument, where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all. (9) HARMONY IS THE ULTIMATE GOAL According to Section 11, one has to harmonize provisions in a contract with each other. ILLUSTRATIVE CASES MULTINATIONAL VILLAGE HOMEOWNERS ASSOCIATION, INC., ET AL. vs. ARA SECURITY AND SURVEILLANCE AGENCY, INC. G.R. No. 154852, October 21, 2004 Two Provisions: 5. MODE OF PAYMENT: ‘Billing shall be every fifteen (15) days. After three (3) months of satisfactory performance, the parties may negotiate for the extension of this contract and other matters that might be advantageous to both parties."

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12. TERM OF CONTRACT: "This Contract shall take effect on May 25, 1994 and shall be for a period of One (1) Year from said date. Thereafter, it shall be deemed renewed for the same period unless either party notifies the other in writing not later than one (1) month before the expiry of its intent not to renew. One party, after one year, rescinded the contract. Petitioners objected to the rescission citing paragraphs 5 and 12 of their agreement. Petitioners contend that the court a quo did not comply with Section 11 of Rule 130 of the Rules of Court, because it failed to give effect to paragraph 5. They further invoke Section 12 of the same Rule, arguing that relative to the provision of the Contract on the duration of its effectivity, which is one year, paragraph 5 is a particular provision. They conclude that since the two provisions are inconsistent, paragraph 5 -- being the particular provision -- should prevail. Petitioners contend that according to paragraph 5, there is no right to rescind but an obligation to renegotiate. HELD: Section 11 of Rule 130 of the Rules of Court states that "[i]n the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all." Contrary to petitioners’ contention, paragraph 5 is not inconsistent with paragraph 12. More important, the former does not in any way deal with the termination of the Contract. Neither does it provide for a right to rescind. At this point, we stress that the right to rescind is implied in reciprocal obligations, as provided for in Article 1191 of the Civil Code, which states: "ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. XXX” Therefore, absent any provision providing for a right to rescind, the parties may nevertheless rescind the contract should the other obligor fail to comply with its obligations. ABELARDO B. LICAROS vs. ANTONIO P. GATMAITAN G.R. No. 142838, August 9, 2001 Petitioner next argues that the consent or conformity of Anglo-Asean Bank is not necessary to the validity of the Memorandum of Agreement as the evidence on record allegedly shows that it was never the intention of the parties thereto to treat the same as one of conventional subrogation. He claims that the preambulatory clause requiring the express conformity of third parties, which admittedly was Anglo-Asean Bank, is a mere surplusage which is not necessary to the validity of the agreement. As previously discussed, the intention of the parties to treat the Memorandum of Agreement as embodying a conventional subrogation is shown not only by the "whereas clause" but also by the signature space captioned "WITH OUR CONFORME" reserved for the signature of a representative of Anglo-Asean Bank. These provisions in the aforementioned Memorandum of Agreement may not simply be disregarded or dismissed as superfluous. It is a basic rule in the interpretation of contracts that "(t)he 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." Moreover, under our Rules of Court, it is mandated that "(I)n the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all."Further, jurisprudence has laid down the rule that contracts should be so construed as to harmonize and give effect to the different provisions thereof. In the case at bench, the Memorandum of Agreement embodies certain provisions that are consistent with either a conventional subrogation or assignment of credit. It has not been shown that any clause or provision in the Memorandum of Agreement is inconsistent or incompatible with a conventional subrogation. On the other hand, the two cited provisions requiring consent of the debtor to the memorandum is inconsistent with a contract of assignment of credit. Thus, if we were to interpret the same as one of assignment of credit, then the aforementioned stipulations regarding the consent of Anglo-Asean Bank would be rendered

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inutile and useless considering that, as previously discussed, the consent of the debtor is not necessary in an assignment of credit. HOME DEVELOPMENT MUTUAL FUND, ET AL. vs. COURT OF APPEALS, ET AL. G.R. No. 118972, April 3, 1998 Our pivot of inquiry is the correct construction or interpretation of subject Consultancy Agreement, particularly its provision: That this agreement takes effect on January 1, 1985 to December 31, 1985; Provided, however, that either party who desires to terminate the contract may serve the other party a written notice at least thirty (30) days in advance. The first clause of the aforecited stipulation, which is the bone of petitioners' stance, basically deals with the term of the contract; while the proviso, which is the core of private respondents' action, prescribes the manner the service contract in question could be terminated. It is petitioners' submission that the first clause referred to is independent, distinct and separate from the said proviso, such that upon the expiration of the period stated in the first clause, the Consultancy Agreement ceased to have any binding effect between the contracting parties even though they (petitioners) did not give any written notice of termination at least thirty (30) days in advance. We cannot fathom how contracting parties, who are sui juris, and knowledgeable of the purposes for which they solemnly put their Agreement into writing, could be so careless as to include inconsistent conditions in such a short and simple provision in their contract sued upon. Time-honored is the rule that "In the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all." Article 1374 of the New Civil Code, on the other hand, requires that "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." Conformably, to ascertain the true meaning or import of the controverted provision of subject Consultancy Agreement, its entirety must be considered; not merely the first clause. Consequently, petitioners' interpretation solely based on the first clause, and which completely ignored the second clause under scrutiny, cannot be upheld. BPI-FAMILY SAVINGS BANK, INC. vs. SPS. ZENAIDA DOMINGO G.R. No. 158676 November 27, 2006 Provision: Assignment and Sublease – The lessee has the right to sublease the premises or any portion thereof to a third party. The lessee may not, however, assign or transfer its right or interest under this lease without the written consent of the lessor. On surface, the foregoing stipulation seemingly insulates Cruz from any liability in this case. However, basic is the rule that in the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all (Rule 130, Section 11). The trial court was quick to point out, and rightly so, that the first sentence of the aforequoted covenant speaks of what the lessee can do, while the second sentence refers to what it cannot do without the consent of the lessor. This is evident from the phrase "may not however" found in the second sentence, which means that the act of subleasing in the first sentence may be done by the lessee without the consent of the lessor but the act of assignment or transfer of rights in the second sentence cannot be done by the lessee without the consent of the lessor. Clearly, the parties intended a distinction between a sublease and an assignment of rights. Under the aforequoted contractual stipulation, BPI-FSB, as lessee, is possessed of the authority to sublease the subject premises. No mention is made of obtaining any written consent of the lessor (Cruz) as a condition sine qua non for the validity of a sublease agreement. What necessitates the prior written consent of lessor Cruz is the assignment or transfer by BPI-FSB as lessee of its right or interest under the lease agreement.

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Section 12. Interpretation according to intention; general and particular provisions. - In the construction of an instrument, the intention of the parties is to be pursued; and when a general and a particular provision are inconsistent, the latter is paramount to the former. So a particular intent will control a general one that is inconsistent with it. (10) INTENTION IS PARAMOUNT Intention is always the first rule of interpretation. In Sales, we distinguished a contract of sale from a contract of barter. One of the rules we learned is: Art. 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. CASE: ROLANDO R. LIGON vs. COURT OF APPEALS G.R. No. 84644, August 29,1989 At the outset, it should be stated that, as a rule, in the construction and interpretation of a document the intention of the parties must be sought (Rule 130, Section 10, Rules of Court). This is the basic rule in the interpretation of contracts because all other rules are but ancillary to the ascertainment of the meaning intended by the parties. And once this intention has been ascertained it becomes an integral part of the contract as though it has been originally expressed therein in unequivocal terms. (Shoreline Oil Corp. vs. Guy, App. 189, So., 348, cited in 17A C.J.S., p. 47) GENERAL versus SPECIAL PROVISIONS In the second part of Section 12, we are actually told to apply the principle "GENERALIA SPECIALIBUS NON DEROGANT", which means that where an act deals specifically with a subject a general provision in that act does not override the specific provision. If a matter falls under a specific provision and a general provision, it shall be governed by the specific provision. EMPIRE INSURANCE COMP. vs. REMEDIOS S. RUFINO G.R. No. L-38268 May 31, 1979 Section 10, Rule 130 of the Rules of Court provides as follows: Interpretation according to intention; general and particular provisions — In the construction of an instrument, the intention of the parties is to be pursued; and when a general and a particular provision are inconsistent, the latter is paramount to the former. So a particular intent will control a general one that is inconsistent with it. Likewise, Article 1372 of the Civil Code stipulates that 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. " Similarly, Article 1374 of the same Code provides that "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." SECURITY BANK CORP. VS. HON. COURT OF APPEALS, ET AL. G.R. No. 141733, February 8, 2007 While it cannot be gainsaid that the terms and conditions in the Contract of Security Services (CSS) were incorporated to the PRA (sic) as integral parts thereof, nevertheless, We conform to the finding of the court of origin that the 2nd contract (PRA) precisely and particularly dealt with the mode of resolving PISA’s liability resulting, if any, from [the] March 12, 1992 robbery. (Order dated July 12, 1993, p.1; Records, p.113). It distinctively provides a clear cut manner by which the right of action against PISA may be exercised by [SBC] pertaining to a specific robbery incident—a matter visibly non-existent in the CSS. Indeed, this special provision controls and prevails over the general terms and conditions extant on the CSS. (Yatco v. El Hogar Filipino, 67 Phil. 610) When a general and a particular provision are inconsistent, the latter is paramount to the former. Ergo, a particular intent, as in this case reflected in letter e, paragraph 5 of the PRA will control a general intent embodied in paragraph 9 of the Contract of

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Security Services. (Section 12, Rule 130, Revised Rules of Court) Thus, the PRA is paramount to and prevails over the terms and stipulations in the first contract (CSS) on matters relevant and material to PISA’s liability relating to the robbery. See also:

GUILLERMO CORTES vs. INTERMEDIATE APPELLATE COURT, ET AL. G.R. No. 73678 July 21, 1989 EDGAR LEDONIO vs. CAPITOL DEVELOPMENT CORPORATION G.R. No. 149040, July 4, 2007 EQUITABLE PCI BANKING CORPORATION, ET AL. vs. RCBC CAPITAL CORPORATION G.R. No. 182248, December 18, 2008

Section 13. Interpretation according to circumstances. - For the proper construction of an instrument, the circumstances under which it was made, including the situation of the subject thereof and of 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. (11) INTERPRETATION ACCORDING TO CIRCUMSTANCES Here, one who is tasked to consider the evidence presented is implored to place himself in the shoes of the parties to the document and envision the circumstances under which the provisions of an instrument were created. This rule is useful in interpreting contracts such as equitable mortgages or lease with option to buy. Section 14. Peculiar signification of terms. - The terms of a writing are presumed to have been used in their primary and general acceptation, but evidence is admissible to show that they have a local, technical, or otherwise peculiar signification, and were so used and understood in the particular instance, in which case the agreement must be construed accordingly. (12) ORDINARY MEANING IS PREFERRED Section 14 provides that when interpreting a term used in a contract or instrument, its general meaning or ordinary signification is to be applied. This is an instance when a mere “layman’s understanding” is preferred for verily there are contracts that do not require or was not attended by the intervention of a lawyer. However, evidence may be introduced that the term used has a local, technical or otherwise peculiar signification. An example of this is the term “PAKIAO”. Under the Omnibus Rules to implement the Labor Code, Workers who are paid by results, including those who are paid on piece-work, "takay," "pakiao" or task basis are not entitled to certain labor standards benefits. However, the term PAKIAO may not be understood by laymen in the same manner as it is used under the Omnibus Rules. CASES SECURITY BANK CORP. VS. HON. COURT OF APPEALS, ET AL. G.R. No. 141733, February 8, 2007 Paragraph 5 of the PRA specifically states that PISA’s payment was subject to express terms and conditions, one of which was the following: (e) The parties hereto further agree that this agreement and/or payment of the whole amount of P3,027,728.01, shall not affect or prejudice, directly or indirectly, whatever cause of action SBC may have against PISA and whatever claim or defense the latter may have against SBC, if the maximum recoverable proceeds of the insurance covering the loss suffered by SBC could not be recovered from the insurer. Further, it is agreed that should Security Guards Wilson Taca and Ernesto Mariano be absolved from the charge of robbery in band and/or are found by the proper court not to have been involved at all in the alleged conspiracy, and that it is duly established through legal action before the competent court that their failure to prevent the robbery was not due to their, or their PISA co-guards’ negligence and/or willful act, whatever installments may

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have been paid by PISA under this Agreement shall be reimbursed with legal interest to be computed from the time of actual payment, the same to be amortized in eighteen (18) equally monthly installments, with the interest thereto being based on the diminishing balance. We hold that reading the clause as requiring a final judgment is a strained interpretation and contrary to settled rules of interpretation of contracts. Paragraph 5(e) only requires that the proceeds "could not be recovered from the insurer," and does not state that it should be so declared by a court, or even with finality. In determining the signification of terms, words are presumed to have been used in their primary and general acceptance, and there was no evidence presented to show that the words used signified a judicial adjudication. Indeed, if the parties had intended the non-recovery to be through a judicial and final adjudication, they should have stated so. In its primary and general meaning, paragraph 5(e) would cover LIC’s extrajudicial denial of SBC’s claim. JOSE R. MORENO, JR. vs. PRIVATE MANAGEMENT OFFICE G.R. No. 159373, November 16, 2006 Petitioner further argues that the "suggested indicative price" of P21,000,000.00 is not a proposed price, but the selling price indicative of the value at which respondent was willing to sell. Petitioner posits that under Section 14, Rule 130 of the Revised Rules of Court, the term should be taken in its ordinary and usual acceptation and should be taken to mean as a price which is "indicated" or "specified" which, if accepted, gives rise to a meeting of minds. This was the same construction adopted by the trial court, viz.: Going to defendant’s main defense that P21 Million was a "suggested indicative price" – we have to find out exactly what "indicative" means. Webster Comprehensive Dictionary, International Edition, gives us a graphic meaning that everybody can understand, when it says that "to indicate" is [t]o point out; direct attention[;] to indicate the correct page[.] "Indicative" is merely the adjective of the verb to indicate. x x x when the price of P21 [M]illion was indicated – then it becomes the "indicative" price – the correct price, no ifs[,] no buts. We do not agree. Under the same section and rule invoked by petitioner, the terms of a writing are presumed to have been used in their primary and general acceptation, but evidence is admissible to show that they have a local, technical, or otherwise peculiar signification, and were so used and understood in the particular instance, in which case the agreement must be construed accordingly. The reliance of the trial court in the Webster definition of the term "indicative," as also adopted by petitioner, is misplaced. The transaction at bar involves the sale of an asset under a privatization scheme which attaches a peculiar meaning or signification to the term "indicative price." Under No. 6.1 of the General Bidding Procedures and Rules of respondent, "an indicative price is a ball-park figure and [respondent] supplies such a figure purely to define the ball-park." The plain contention of petitioner that the transaction involves an "ordinary armslength sale of property" is unsubstantiated and leaves much to be desired. This case sprung from a case of specific performance initiated by petitioner who has the burden to prove that the case should be spared from the application of the technical terms in the sale and disposition of assets under privatization. Petitioner failed to discharge the burden. It appears in the case at bar that petitioner’s construction of the letter of February 22, 1993 – that his assent to the "suggested indicative price" of P21,000,000.00 converted it as the price certain, thus giving rise to a perfected contract of sale – is petitioner’s own subjective understanding. As such, it is not shared by respondent. Under American jurisprudence, mutual assent is judged by an objective standard, looking to the express words the parties used in the contract. Under the objective theory of contract, understandings and beliefs are effective only if shared. Based on the objective manifestations of the parties in the case at bar, there was no meeting of the minds. That the letter constituted a definite, complete and certain offer is the subjective belief of petitioner alone. The letter in question is a mere evidence of a memorialization of inconclusive negotiations, or a mere agreement to agree, in which material term is left for future negotiations. It is a mere evidence of the parties’ preliminary transactions which did not crystallize into a perfected contract. Preliminary negotiations or an agreement still involving future negotiations is not the functional equivalent of a valid, subsisting agreement. For a valid contract to have been created, the parties must have progressed beyond this stage of imperfect negotiation. But as the records would show, the parties are yet undergoing the preliminary steps towards the formation of a valid contract. Having thus established that there is no perfected contract of sale in the case at bar, the issue on estoppel is now moot and academic.

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Section 15. Written words control printed. - When an instrument consists partly of written words and partly of a printed form, and the two are inconsistent, the former controls the latter. (13) ANICETO G. SALUDO, JR. ET AL. vs. COURT OF APPEALS, ET AL. G.R. No. 95536, March 23, 1992 Indubitably, that private respondent can use substitute aircraft even without notice and without the assumption of any obligation whatsoever to carry the goods on any specified aircraft is clearly sanctioned by the contract of carriage as specifically provided for under the conditions thereof. Petitioners' invocation of the interpretative rule in the Rules of Court that written words control printed words in documents, to bolster their assertion that the typewritten provisions regarding the routing and flight schedule prevail over the printed conditions, is tenuous. Said rule may be considered only when there is inconsistency between the written and printed words of the contract. As previously stated, we find no ambiguity in the contract subject of this case that would call for the application of said rule. In any event, the contract has provided for such a situation by explicitly stating that the above condition remains effective "notwithstanding that the same (fixed time for completion of carriage, specified aircraft, or any particular route or schedule) may be stated on the face hereof." Section 16. Experts and interpreters to be used in explaining certain writings. When the characters in which an instrument is written are difficult to be deciphered, or the language is not understood by the court, 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. (14) Although English is the official language of the Philippine Judiciary, it cannot be denied that our country is a hodge-podge of cultures and ethnicities with their own dialects or languages and sometimes contracts are written in such native dialects or languages. In such cases, the law allows the introduction of evidence, generally testimonial, to translate the language with which the tribunal is not familiar. If a party is not satisfied or doubts the veracity of the translation, he may raise the same during trial, on cross-examination or even present his own expert or interpreter to rebut the same. Section 17. Of two constructions, which preferred. - When the terms of an agreement have been intended in a different sense by the different parties to it, that sense is to prevail against either party in which he supposed the other understood it, and when different constructions of a provision are otherwise equally proper, that is to be taken which is the most favorable to the party in whose favor the provision was made. (15) This covers a situation where there are different interpretations given by as many parties to one single document. The prevailing interpretation will be determined according to the following rules: 1. The interpretation which the other party believed and used will prevail; 2. When both constructions are equally proper, that interpretation which is most favorable to the party for whose benefit the provision was made in the first place will prevail. Section 18. Construction in favor of natural right. - When an instrument is equally susceptible of two interpretations, one in favor of natural right and the other against it, the former is to be adopted. (16) A natural right is one that exists by virtue of natural law. This rule is usually applicable to waivers and renunciations. Section 19. Interpretation according to usage. - An instrument may be construed according to usage, in order to determine its true character. (17)

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Dean Inigo’s example relates to a bill of lading. A bill of lading operates both as a receipt and as a contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment, describes the goods as to quantity, weight, dimensions, identification marks and condition, quality, and value. As a contract, it names the contracting parties, which include the consignee, fixes the route, destination, and freight rate or charges, and stipulates the rights and obligations assumed by the parties (PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, G.R. No. L-24033, February 22, 1968). Thus, a bill of lading should be interpreted according to these usages.

. PROVISIONS OF THE CIVIL CODE ON THE INTERPRETATION OF CONTRACTS 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. (1281) Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (1282) 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. (1283) 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. (1284) 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. (1285) Art. 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. (1286) 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. (1287) Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. (1288) 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 interests 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. (1289) Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts. (n)

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