This Supreme Court case clarifies how Philippine courts interpret contracts when disputes arise over the scope of work. The court affirmed that if a contract’s terms are clear, their literal meaning controls, and it’s not up to the court to rewrite or reinterpret. When a company hires a contractor for a job like painting buildings, the written agreement must clearly specify what’s included. If the contract is silent, a company can’t later claim the contractor was only supposed to do part of the job. Awarding a second contract for the same job to someone else is a breach and can lead to damages. This case shows it’s important to be precise when drafting agreements.

Scope Showdown: When Contract Ambiguity Costs Benguet Corporation

Benguet Corporation, a mining company, hired Cesar Cabildo to paint its Mill Buildings and Bunkhouses at the Balatoc mining site. The written contract simply stated that Cabildo was to paint these buildings, including necessary repairs. Problems arose when Benguet Corporation hired another contractor, Rolando Velasco, to paint the interior of the same Mill Buildings. Cabildo argued this was a breach of his contract, as he believed it covered both the exterior and interior. The central legal question was whether Cabildo’s contract only covered exterior painting or included both exterior and interior. This depended on how the court would interpret the contract’s scope.

The Regional Trial Court (RTC) sided with Cabildo, finding that Benguet Corporation breached their contract. The Court of Appeals (CA) affirmed this decision, excluding Velasco from liability. Benguet Corporation then appealed to the Supreme Court, arguing that the contract was only for exterior painting and that Cabildo knew this. The Supreme Court, however, upheld the CA’s decision, emphasizing that the contract’s terms were clear: Cabildo was to paint the Mill Buildings, with no distinction made between exterior and interior.

The Court relied heavily on Article 1370 of the Civil Code, which states that if the terms of a contract are clear and leave no doubt about the parties’ intentions, the literal meaning of its stipulations shall control. This is the “plain meaning rule”. In this case, the contract did not specify “exterior only,” so the Court interpreted it to include both. This meant Benguet Corporation was wrong to hire another contractor for the interior.

The Court also referenced Article 1377 of the Civil Code, noting that any obscurity in a contract should not favor the party that caused the obscurity. Since Benguet Corporation drafted the contract, any ambiguity worked against them. Building on this principle, the Court examined the parties’ actions. Cabildo painted both the exterior and interior under the supervision of Benguet Corporation employees. If the intention was only exterior painting, Benguet Corporation should have stopped him. Instead, they provided materials and monitored his work, suggesting they knew the agreement included the interior.

The petitioners insisted that the parties’ actual intentions differed from the wording of the contract, arguing Cabildo understood that only exterior painting was intended. However, the Supreme Court found no evidence to support this claim. Article 1371 of the Civil Code states that contemporaneous and subsequent acts should be considered when judging the intention of the contracting parties. Benguet Corporation’s actions—supervising and providing materials for interior work—contradicted their claim that only exterior painting was intended.

Benguet Corporation’s attempt to retroactively qualify the contract through a Liquidation Memo (stating payment was for “exterior painting”) was seen as an admission of their breach. The Supreme Court thus affirmed the lower courts’ finding that Benguet Corporation breached the Contract of Work by awarding Velasco a contract covering the same subject matter. Because Velasco offered a lower price, Cabildo was improperly prevented from fulfilling his obligations. This case underscores the importance of clear and precise language in contracts. When disputes arise, courts prioritize the written word, especially if one party drafted the contract.

FAQs

What was the key issue in this case?	The central issue was whether a painting contract covered both the interior and exterior of buildings, even if the contract didn’t explicitly state this. This depended on how the court interpreted the contract’s scope and the parties’ intentions.
What did the Supreme Court decide?	The Supreme Court ruled that the contract covered both the interior and exterior painting because the contract’s language was clear and did not limit the scope to just the exterior. Awarding a second contract for interior painting was a breach of the first contract.
What is the “plain meaning rule” in contract interpretation?	The “plain meaning rule,” as embodied in Article 1370 of the Civil Code, states that if a contract’s terms are clear and unambiguous, the literal meaning of its stipulations will control, barring any evidence of a contrary intention. Courts will interpret the contract as written if the language is clear.
What happens if a contract is ambiguous?	If a contract is ambiguous, Article 1377 of the Civil Code states that the interpretation should not favor the party that caused the obscurity. The ambiguity will be construed against the drafter of the contract.
What evidence can be used to interpret a contract beyond the written words?	Under Article 1371 of the Civil Code, to judge the intention of the contracting parties, courts consider their contemporaneous and subsequent acts. These acts provide context and can reveal what the parties understood the contract to mean.
What should a business do to avoid contract disputes like this one?	Businesses should ensure their contracts are clearly written and specify all details of the agreement. It’s important to avoid ambiguities that could lead to different interpretations and disputes and have legal counsel review the contracts.
What were the damages awarded in this case?	The RTC awarded damages, including actual damages (P27,332.60), indemnification for unrealized profit (P300,000.00), moral damages (P100,000.00), exemplary damages (P50,000.00), attorney’s fees (P30,000.00), and costs of suit.
Who was ultimately liable for the breach of contract?	Benguet Corporation, along with its officers involved in awarding the second contract, was found liable for the breach. Rolando Velasco, the second contractor, was excluded from liability.

This case offers valuable guidance for drafting contracts and resolving disputes over contract interpretation. It emphasizes the importance of clear, precise language and demonstrates how courts will analyze the wording and actions of the parties. A clearly defined contract helps avoid costly misunderstandings.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Benguet Corporation v. Cabildo, G.R. No. 151402, August 22, 2008