Chapter 3: Form of Contracts

Art. 1356. Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.
However, when the law requires that a contract be in some form in order that it may
be valid or enforceable, or that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such cases, the right of the parties
stated in the following article cannot be exercised. (1278a)

GENERAL RULE: Form does not matter for the validity of a contract as long as all
essential requirements for its validity are present. . (Consensual)

EXEMPTION: When the law requires a contract to be in some form in order for it
to be valid or enforceable, or for the parties' convenience. . (Formal
Contracts)

Formalities which 1. Donation of personal property – 5,000+

are required for 2. Sale of real property by an agent
validity of 3. Antichresis
contracts: IN 4. Interest of loan of money
WRITING:
PUBLIC 1. Donation and acceptance of real property;
INSTRUMENT 2. Partnership where immovable property was contributed.

Art. 1357. If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel
each other to observe that form, once the contract has been perfected. This right
may be exercised simultaneously with the action upon the contract. (1279a)

NOTE: This article applies only when form is needed only for convenience, not
for validity or enforceability.

Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the
conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object an
act appearing or which should appear in a public document, or should prejudice a
third person;

(4) The cession of actions or rights proceeding from an act appearing in a public
document.
All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one. But sales of goods, chattels or things in action
are governed by Articles, 1403, No. 2 and 1405. (1280a)
 NOTE: The requirement for a public document in the contracts listed here is only for
convenience, not for validity or enforceability.

Chapter 4: Reformation of Instruments (n)

Art. 1359. When, there having been a meeting of the minds of the parties to a
contract, their true intention is not expressed in the instrument purporting to
embody the agreement, by reason of mistake, fraud, inequitable conduct or accident,
one of the parties may ask for the reformation of the instrument to the end that such
true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the

minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract.

REFORMATION an equitable remedy in which a written instrument is made or

construed to express or conform to the true intention of the
parties when an error or mistake has been committed.

The remedy is if there is a meeting of minds but there is a mistake, fraud,

REFORMATION inequitable conduct or accident in the contract written.
Reformation does not invalidate the contract.

The remedy is When there has been no meeting of minds, because of

ANNULMENT vitiated consent. It invalidates the contract.

Requisites for the 1. There must be a meeting of minds.

action of reformation: 2. The true intention is not expressed in the instrument.
3. There must be clear convincing proof thereof.
4. It must be brought within the proper prescriptive period.
5. The document must not refer to a simple unconditional
donation inter vivos or to wills, or to a contract where the real
agreement is void.
 NOTE: No new contract is made.

Art. 1360. The principles of the general law on the reformation of instruments are
hereby adopted insofar as they are not in conflict with the provisions of this Code.

NOTE: In the event of a conflict between the Civil Code and the
principles of general law on reformation, the former takes
precedence. The latter will only have a supplementary effect.

Reformation is proper: 1. Mutual mistake of the parties. (Art. 1361)

2. One acted with mistake; other acted fraudulently. (Art.
1362)
3. Mistake by one, concealment by another. (Art. 1363)
4. Ignorance, lack of skill, negligence, or bad faith on the
part of the one drafting the instrument. (Art. 1364)
5. Mortgage/pledge but instrument states absolute sale or
with right of repurchase. (Art. 1365)

NO REFORMATION: 1. Simple donation intervivos when no condition is imposed

(Art. 1366) 2. Wills.
3. Real agreement is void.

Art. 1361. When a mutual mistake of the parties causes the failure of the instrument
to disclose their real agreement, said instrument may be reformed.

Requisites: 1. There must be a mistake of fact.

2. Such mistake must be proved by clear and convincing
evidence.
3. The mistake of fact must be mutual, that is, common to
both parties to the instrument.
4. The mistake must cause the failure of both parties to
express their true intention.

Art. 1362. If one party was mistaken and the
other acted fraudulently or inequitably in
such a way that the instrument does not
show their true intention, the former may ask
for the reformation of the instrument.
NOTE: The right to request
reformation is only provided to the
party that was incorrect in good faith.
Mistake is not mutual.
 Art. 1363. When one party was mistaken and NOTE: only the party in good faith
the other knew or believed that the can ask for reformation.
instrument did not state their real agreement,
but concealed that fact from the former, the
instrument may be reformed.

Art. 1364. When through the ignorance, lack
of skill, negligence or bad faith on the part of
the person drafting the instrument or of the
clerk or typist, the instrument does not
express the true intention of the parties, the
courts may order that the instrument be
reformed.
NOTE: A third party's ignorance, lack
of skill, negligence, or bad faith is
required. In this article, neither party is
to blame for the error. As a result,
either side may request reformation.

Art. 1365. If two parties agree upon the This article speaks of Mortgage or
mortgage or pledge of real or personal pledge stated as sale:
property, but the instrument states that the • When any of the aforementioned
property is sold absolutely or with a right of characteristics occur, an
repurchase, reformation of the instrument is instrument purporting to be a sale
proper. with right of repurchase is
presumed to be an equitable
mortgage.
• The true intention of the parties
must prevail.

Art. 1366. There shall be no reformation in NOTE: Donations are fundamentally

the following cases: gestures of generosity. However, if
(1) Simple donations inter vivos wherein no the donation is conditional,
condition is imposed; reformation may be necessary in
(2) Wills; order to bring out the donor's genuine
(3) When the real agreement is void. or intended conditions.

Art. 1367. When one of the parties has brought an action to enforce the instrument,
he cannot subsequently ask for its reformation.

NOTE: When a party brings an action to enforce the contract, he acknowledges its
legality and that it expresses the parties' real intention. As a result, bringing the action is
incompatible with reformation. There is no limitation on combining the reformation of an
instrument and its enforcement as reformed into a single action.

Art. 1368. Reformation may be ordered at the instance of either party or his
successors in interest, if the mistake was mutual; otherwise, upon petition of the
injured party, or his heirs and assigns.
 NOTE: Reformation of an instrument cannot be done solely on the whims and caprices
of one or both parties, but must be done on the order of the court.

If the parties' minds do not meet due to mutual mistake, either party or their successor
in interest or heir may apply the court for the reformation of the document.

If the mistake is not mutual, the damaged party, his heirs, or assigns may petition for the
instrument's reformation. After ten(10) years, an action for contract reformation is barred.

Art. 1369. The procedure for the reformation of instrument shall be governed by
rules of court to be promulgated by the Supreme Court.

Chapter 5: 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)

Interpretation of contract is the determination of the meaning of the terms or words used
by the parties in their written contract. The process of determining the parties' intentions
based on the written language in the contract.

Art. 1371. In order to judge the intention Note: This article only applies when the
of the contracting parties, their terms of the contract are ambiguous
contemporaneous and subsequent acts
shall be principally considered. (1282)

Art. 1372. However general the terms of For instance, A sold his house "with all of
a contract may be, they shall not be the furniture therein." The term "all" should
understood to comprehend things that
 are distinct and cases that are different not be interpreted to encompass A's
from those upon which the parties refrigerator, which is distinct from furniture.
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)
For instance, A sold "his parcel of land" to
B. Now, A has two properties: one that he
owns completely and another that he
shares with C. C did not provide his
approval to the deal. The sale should only
refer to the land owned by C, as this would
make the contract effectual.

Art. 1374. The various stipulations of a NOTE: Must be interpreted as a whole

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 NOTE: If there is any ambiguity about the
different significations shall be meaning of this wording on its own, it is
understood in that which is most in removed by considering the broad scope
keeping with the nature and object of and purpose of the document with which it
the contract. (1286) concurs.

Article 1376. The usage or customs of Allegation and proof of customs and
the place shall be borne in mind in the usages.
interpretation of the ambiguities of a (1) Where custom or usage general in
contract, and shall fill the omission of character
stipulations which are ordinarily (2) Where custom or usage local in
established. character.

Art. 1377. The interpretation of obscure words or stipulations in a contract shall

not favor the party who caused the obscurity. (1288)
Interpretation of obscure words.
A written agreement should, in case of doubt or ambiguity, be taken contra proferentum,
i.e., be interpreted strictly against the party who has drawn it, or be given an interpretation
which will be favorable to the other who, upon the faith of which, has incurred an
obligation.

Article 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.
Rules in case doubts are impossible to settle:
1)Gratuitous contract. -interpretation should be made which would
result in the least transmission of rights and
interest
2)Onerous contract
-doubts should be resolved in favor of the
greatest reciprocity of interests

(3) Principal object of contract. -if doubt cannot be resolved, the contract
shall be null and void.

Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court
shall likewise be observed in the construction of contracts.
Principles of interpretation in the Rules of Court applicable.
The rules in the Rules of Court on the interpretation of documents are now
contained in Rule 130, Sections 10 to 19.