Rule when the contract is so ambiguous or obscure

Citation: 739 SCRA 735 at 755-756

Ambiguities or obscurities must be strictly interpreted against the party that caused them. This rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared ‘agreements’ that the weaker party may not change one whit, his participation in the ‘agreement’ being reduced to the alternative to ‘take it or leave it.’ (Fieldmen’s Insurance Co. Inc. v. Vda. de Songco, 25 SCRA 70 [1968])

Where the written contract is so ambiguous or obscure in terms that the contractual intention of the parties cannot be understood from a mere reading of the instrument, extrinsic evidence of the subject matter of the contract, of the relations of the parties to each other and of the facts and circumstances surrounding them when they entered into the contract may be received, to enable the court to make a proper interpretation of the instrument. (Heirs of Amparo del Rosario v. Santos, 108 SCRA 43 [1981])

In case of ambiguity in contract language, that interpretation which establishes a less onerous transmission of rights or imposition of lesser burdens which permits greater reciprocity between the parties is to be adopted. (Castelo v. Court of Appeals, 244 SCRA 180 [1995])

Thus, a contract should be construed as a mortgage or a loan instead of a pacto de retro sale when its terms are ambiguous or the circumstances surrounding its execution or its performance are incompatible or inconsistent with a sale. In such case, parol evidence then becomes competent and admissible to prove that the instrument is in truth and in fact given merely s a security for the repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the agreement or understanding in consonance with the true intent of the parties at the time of the execution of the contract (Lapat v. Rosario, 312 SCRA 539 [1999])

Likewise, parol evidence is admissible to show that a written document though legal in form, was a device to cover usury. (Investors Finance Corporation v. Autoworld Sales Corporation, 340 SCRA 735 [2000])