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Civil Law

Explanation of Article 104

Explanation of Article 104

The article includes three legal rules that the judge must adhere to when interpreting the contract, and the scope of application of each rule varies according to the following:

First case: The contract's wording is clear: The first paragraph outlines the legal rule for this case. If the contract's wording is clear, it is not permissible to deviate from its meaning under the pretext of interpreting it to search for the contracting parties' intent. In this case, the judge does not need to justify his ruling beyond stating that this is the clear meaning that expresses the contracting parties' intent. The clarity of the wording refers to the clarity of its indication of their intent, not the clarity of its terms. If the judge finds that their shared intent contradicts the meaning of the wording they used, because the contracting parties did not choose the wording that expresses their intent, or if their clear wording is surrounded by circumstances that suggest a different meaning, the judge should adopt the shared meaning. In this case, the reasons for abandoning the apparent meaning of the wording must be stated.

Second case: The contract's wording is unclear and can be interpreted: The second paragraph outlines the legal rule for this case. If the contract's wording is ambiguous and there is room for interpretation, it must be interpreted by searching for the contracting parties' shared intent without relying solely on the literal meaning of the terms. Ambiguity may exist even if some of the contract's terms are clear if they conflict with other terms, making the contracting parties' intent unclear. Thus, ambiguity differs from adhering to a meaning that contradicts the apparent wording as previously mentioned. The paragraph outlines several means—not exhaustively—that the judge can use to interpret the contract to reach their true intent. These means are divided into two sections:

First section: Internal means, i.e., from the contract itself, mentioned in the paragraph: A- The nature of the transaction, whether it is a sale, lease, loan, speculation, or otherwise, helps the judge determine the contracting parties' intent from the potential wording. It is reasonable that when the contracting parties did not explicitly state their intent, they intended to leave the contract governed by its nature. B- The circumstances of the contract, including prior or concurrent understandings and agreements related to the contract's subject, as well as the honesty and trust that should prevail between the contracting parties. Honesty is obligatory for the contracting party, and trust is their right. If there is ambiguity or confusion in the expression and it can be discerned or could have been discerned, honesty requires not exploiting this ambiguity or confusion, and trust requires that the person relies on the expression directed to them according to its apparent meaning and that the apparent meaning is what the offeror intended. Thus, the contract's terms are based on honesty and trust between them. The judge also uses general rules in interpretation; if the contract's wording can have more than one meaning and one of these meanings produces a legal effect, the wording is interpreted in this way, applying the rule: "It is better to give effect to words than to disregard them." If it is impossible to give effect to the words in any way, they are disregarded and considered void, applying the rule: "If it is impossible to give effect to words, they are disregarded." The term is interpreted according to its original meaning; a distant figurative meaning is not adopted unless there is something that takes the term out of its reality, applying the rule: "The original meaning of words is their reality." Contract terms must be interpreted in relation to each other; a single term cannot be isolated from the rest, as there may be an unrestricted term that is restricted by a preceding or subsequent term, applying the general rule: "The unrestricted is treated as unrestricted unless there is evidence of restriction by text or indication."

Second section: External means, mentioned in the paragraph: A- Custom, meaning the contract is applied according to the prevailing custom in dealings, as it is assumed that the contracting parties are aware of the established custom in dealings, and their intent is interpreted according to the custom unless they explicitly state otherwise. If the contract's wording is vague, custom is used to interpret it. The conditions for considering custom are outlined in the explanation of Article (720). B- The usual dealings between the contracting parties and their circumstances, which are more specific than custom, as they may be limited to the contracting parties and not a settled custom in the market, thus interpreting the contracting parties' ambiguous intent. For example, if they agree that the price is at the market rate without specifying which market, but their usual dealings consider a specific market, that market is considered. The end of the paragraph states that in interpreting the contract, the contract's terms should be interpreted in relation to each other, giving each term a meaning that does not conflict with other terms, as the contract's terms complement each other, and each term's interpretation must consider the other terms that clarify or restrict it.

Third case: Doubt in the meaning of the wording: The third paragraph outlines the case of doubt in identifying the contracting parties' shared intent, where the wording can be interpreted in multiple ways without a preference for any. In this case, the doubt is interpreted in favor of the party bearing the burden of the obligation or condition. Accordingly: A- Doubt in an obligation is interpreted in favor of the debtor of this obligation; for example, if the contract's wording suggests the obligation to fulfill something of high or medium quality without preference, it is interpreted as medium quality. B- Doubt in a condition is interpreted in favor of the party bearing the burden of that condition, whether they are the creditor or debtor. This includes doubt in conditions modifying contractual liability, such as if the contracting parties agree in a sales contract to increase the seller's liability for warranty or defect, ensuring the value of the sold item upon warranty even if it exceeds the price or ensuring any defect even if it does not reduce the value or benefit of the sold item. The condition is interpreted in favor of the seller in case of doubt, as they bear the burden of this condition. If the contracting parties agree in a sales contract to exempt the seller from warranty or defect liability by waiver or reduction, such as the seller stipulating that only the price is refunded upon warranty without other compensations or stipulating their release from hidden defects, the condition is interpreted in favor of the buyer in case of doubt, as they bear the burden of this condition. The justification for adopting the less binding meaning for the party bearing the burden of the obligation or condition is that the original state is the clearance of their liability from the amount of the obligation or condition in doubt, applying the general rule: "Certainty is not removed by doubt." The party for whom the obligation or condition is beneficial bears the burden of proving the doubtful amount, and if they fail to prove it, only the amount supported by evidence is considered. The application of this rule considers that its scope is in cases of doubt, i.e., equal probabilities. If one probability is favored, it is adopted. The paragraph exempts the application of this rule if the contract is a contract of adhesion, interpreting doubt in favor of the adhering party, as the other party drafted the contract and set its terms. If some of its terms are ambiguous and doubtful, the error is theirs, and they bear their shortcoming, while the adhering party—the weaker party, whether creditor or debtor—has no hand in this ambiguity, as their acceptance is merely submitting to the terms set by the other party. It is important to note in applying this article's ruling to distinguish between the case of contract ambiguity or doubt with the possibility of interpretation and the case where it is impossible for the judge to interpret the contract regardless of the doubt, where it becomes clear that there is no shared intent between the contracting parties, as each intended something different from the other, indicating that the contract was not concluded.

Related To

Article 104

  1. If a statement in a contract is unambiguous, the meaning thereof may not be altered on grounds of interpretation to meet the intent of the contracting parties.

  2. If a contract is subject to interpretation, the mutual intent of the contracting parties must be met rather than relying solely on the literal meaning of the text; the interpretation shall take into consideration custom, the circumstances of the contract, the nature of the dealing, the nature of previous dealings between the contracting parties, and the status of the contracting parties and the expected level of trust between them. All of the contract terms must be consistent and must not contradict each other.

  3. In case of doubt in interpretation, the doubt shall be interpreted in favor of the party bearing the burden of the obligation or stipulation; in adhesion contracts, the doubt shall be interpreted in favor of the adhering party.