1.

General Provisions
2.Essential Requisites
3.Reformation of Instruments
4.Interpretation of Contracts
5.Rescissible Contracts
6.Voidable Contracts
7.Unenforceable Contracts
8.Void or Inexistent Contracts
Essential Requisites of Contract
Stages in the Life of A Contract
Fundamental Characteristics / Principles of Contracts

1. Consensuality of
Contracts
 Fundamental Characteristics / Principles of Contracts

2. Autonomy of
Contracts

Contrary to Law
Contrary to Public Policy Contrary to Morals
a. Waiver of future fraud;
b. Pactum Leonina – stipulation which
a. Refund of tuition fees a. In a contract of loan
excludes one or more partners from
during the time a where interest rate is
any share in the profits or losses
student is covered by 50% may be declared
c. Pactum Commissorium – a stipulation
a scholarship if such void or may be
where the creditor appropriates the
students transfer reduced for being
thing given by way of pledge or
schools. contrary to morals
mortgage, or dispose them
and the same being
d. Pactum de Non Alliendo – a stipulation
unconscionable.
forbidding the owner from alienating
immovable mortgaged property
Fundamental Characteristics / Principles of Contracts

3. MUTUALITY

Note: The determination of the performance may be left to the third person:

1. Whose decision shall no be binding until it has been made known to both contracting parties;
2. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall
decide what is equitable under the circumstances

ILLUSTRATION: In a contract of sale, the fixing of the price and the delivery date can be left
to a third person. The decision of the third party will be binding after it is made known to
the seller and buyer.
Fundamental Characteristics / Principles of Contracts

4. OBLIGATORY
FORCE OF
CONTRACTS
Fundamental Characteristics / Principles of Contracts

5. RELATIVITY OF
CONTRACTS

Exceptions:
 Exceptions:

ILLUSTRATION: D purchased C’s land for P10M. It was also

agreed that only P8M would be given to C and the balance
would be given to X, creditor of C.
Exceptions:

EXAMPLE: D is indebted to C, to secure the

performance of the obligation, D mortgaged his land in
favor of C, and the Deed of Mortgage was registered in
the Registry of Deeds. If D sells his property to X, X is
bound by the mortgage because it is registered even if
he is not a party thereto.

ILLUSTRATION: D is indebted to C for P1M. Out of cash,

D sold his last remaining property to X to avoid paying C
Accion Pauliana – the action of the creditor
with it.
to rescind the contract entered into by the
debtor to defraud him
In this instance, C can sue for the rescission of the sale
even of he is not a party thereto.
Exceptions:

ILLUSTRATION: Francis Albert, a citizen and a resident

of New Jersey, USA, was hired by ABC Corporation of
Manila to serve for two years as its chief computer
programmer. But after serving for only four months, he
resigned to join XYZ Corporation, which enticed him by
offering more advantageous terms.

Here, there is malicious interference by XYZ

Corporation to the contract of employment of Francis
Albert with ABC Corporation. Accordingly, even if XYZ
Corporation is not a party to such contract, it can be
made liable for its breach, together with Francis
Albert.
 Classification of Contracts
1. ACCORDING TO a. CONSENSUAL – are those perfected by mere consent, e.g. sale, lease,
PERFECTION partnership, agency, real estate mortgage.
b. REAL – are those perfected only upon delivery of the thing subject of a
contract, e.g. deposit, pledge, commodatum; mutuum.
c. FORMAL – those require certain form for its validity.

2. ACCORDING TO DEGREE a. PRINCIPAL – a contract which can stand on its own, such as a contract of
OF DEPENDENCE sale, barter, lease, loan.
b. ACCESSORY – those which cannot stand on its own and are dependent
upon other contracts for its validity. E.g. guaranty, suretyship, mortgage,
antichresis.
c. PREPARATORY – a contract is a means to achieving an end, such as an
option contract, a contract of partnership, and that of agency.
Classification of Contracts
a. BILATERAL – where both parties are reciprocally obligated, e.g. lease
3. ACCORDING TO PARTIES (where the lessor is obliged to allow to use of the thing and the lessee is
OBLIGED obliged to pay rent) and sale (where the buyer is obliged to pay the price
and the seller obliged to deliver the thing.)
b. UNILATERAL – only one person is obliged. e.g. guaranty and pledge.

4. ACCORDING TO a. COMMUTATIVE – the prestation of one party is the presumed equivalent

EQUIVALENCE OF of the value of the other. E.g. sale, lease, barter.
PRESTATION b. ALEATORY – the entitlement of the other party to a prestation is
dependent upon chance, e.g. insurance and sale of hope.
Classification of Contracts
a. ONEROUS – such as contract of sale, barter, lease, simple loan.
5. ACCORDING TO CAUSE b. GRATUITOUS – such as donation and commodatum.
c. REMUNERATORY – where one prestation is given for a benefit or service
that had been rendered previously.

a. EXECUTORY – is a contract that has not yet been performed. Certain

6. ACCORDING TO DEGREE executory contracts are covered by the Statue of Fraud and required to be
OF EXECUTION in writing in order for them to be enforceable.
b. EXECUTED – a contract which has been performed. It is a contract not
covered by the Statue of Fraud.
Classification of Contracts
a. NOMINATE – those contracts for which a particular name has been designated and
4. ACCORDING TO NAME
rules particular to the are applicable such as sales, commodatum, partnership,
deposit, etc.
b. INNOMINATE – those which do not have a particular designation, such as:
a. Do ut des – I give that you may give
b. Do ut facias – I give that you may do
c. Facio ut des- I do that you may give
d. Facio ut facias – I do that you may do

Order of Priority on Rules that shall govern innominate

contract:
1. The stipulation of the parties;
2. The provisions of Obligations and Contracts;
3. The rules governing the most analogous contracts;
4. The customs of the place.
ELEMENTS OF CONTRACTS
1. ESSENTIAL– those without which the contracts cannot exist. They are necessary for validity of
contract and may not be waived by the parties. Absence of any of the essential elements will make
the contract void, the remedy of which of injured party is declaration of nullity.

Consensual contracts: Consent, Object, and Cause or Consideration.

Formal contracts: Consent, object, and cause + the solemnity or required form.

Real contracts: Consent, object, and cause + delivery.

2. NATURAL – those which exist as part of the contract even if the parties do not stipulate it because the
law is deemed written therein. Example: warranty against eviction in a contract of sale or the warranty
against hidden defects.

3. ACCIDENTAL – refer to those that do not normally exist in a contract unless stipulated or
provided by the parties. Example: stipulation for interest
Essential Requisites of a Contract
CONSENT OF
CONTRACTING PARTIES
Requisites or characteristics of a valid
consent
1. It should be intelligent, which
means that that is presence of
capacity to act; not subject of a
mistake or fraud
2. It should be free and voluntary,
meaning there is no vitiation of
consent by reason of violence or
intimidation or undue influence;
3. It should be spontaneous.
CONSENT: the meeting of
the offer and the acceptance
upon the thing and the cause
which are to constitute a
contract. (Art 1319 CC)
Offer and acceptance:
1. The offer must be certain; (Art 1319 CC)
2. The acceptance must be absolute; (Art
1319 CC)
3. A qualified acceptance constitute a
counter-offer;
4. An acceptance may be express or implied
(Article 1320 CC)
5. The person making the offer may fix the
time, place and manner of acceptance,
all of which must be complied with.
(Article 1321 CC)
Acceptance through Letter / Telegram: COGNITION THEORY vs MANIFESTATION THEORY

1. Cognition Theory – follows the acceptance takes effect from the offerer knew (or has
knowledge) of the acceptance of the offeree.
2. Manifestation Theory – follows that the acceptance will take effect once it is manifested
by the offeree.

In the Philippines, we abide by the Cognition Theory.

Acceptance made by letter or telegram does not bind the offerer except from the
time it came to his knowledge. The contract, in such a case, is presumed to have
been entered into in the place where the offer was made. (Art 1319, par 2 CC)

ILLUSTRATION: Q: When was there consent or

• January 1 – Offeror sent the offer-letter meeting of the minds?
• January 5 – Offeree received the offer A: On January 15. The time the
• January 8 – Offeree sent an acceptance letter offeror knew ( or has knowledge)
• January 15 – Offeror received the acceptance letter of the acceptance by the offeree
Intervening Events
Art. 1323. An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed.

Q: What if the offeror died on

ILLUSTRATION:
• January 1 – Offeror sent the offer-letter
• January 5 – Offeree received the offer
• January 8 – Offeree sent an acceptance letter
• January 15 – Offeror received the acceptance letter
January 10, is there a perfected
contract?
A: None. Acceptance will not take
effect without the knowledge of the
offeror. Death intervened prior to him
having knowledge of the acceptance

Q: What if on January 12 (after the acceptance

A: None. Since the offer is already
letter was sent, but before receipt), the offeror
ineffective when acceptance thereof
backed-out or withdraw his offer, also through a
is made known to the offeror
letter, which was received by the offeree on
regardless of the fact that the offeree
January 16 (After acceptance letter was received
has not yet received the withdrawal.
by the offeror), Is there a perfected contract?
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon a consideration, as something paid
or promised.
Advertisements

Art. 1325. Unless it appears otherwise, business advertisements of things for

sale are not definite offers, but mere invitations to make an offer.

Art. 1326. Advertisements for bidders are simply invitations to make

proposals, and the advertiser is not bound to accept the highest or lowest
bidder, unless the contrary appears.

Is the advertisement a definite offer or invitation to make offer?

ILLUSTRATION:
Definite offer (X cannot back out
X posted in his lot “For Sale, 1000 sqm
once somebody accepts the offer
lot P1,000,000”.

ILLUSTRATION: Invitation to make

X posted in his lot “For Sale, 1000 sqm offer (for bidders)
lot P1,000,000 to P1,500,000”.
Situations Concerning Consent of the Parties
1. Both parties gave their consent as to the essential elements of the contract –
The Contract is Valid.
2. Simulated Contract – is a contract that, by mutual agreement, does not express the true intention
of the parties.

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place
when the parties do not intend to be bound at all; the latter, when the parties conceal
their true agreement.

a. Absolute simulation - when the parties

EXAMPLE: A and B “jokingly” entered into a
do not intend to be bound at all – the
contract is void. contract of sale. Here the contract is void since
the parties never intended to be bound by it.

b. Relative simulation - when the
parties when the parties
conceal their true agreement –
parties shall be bound by their
real agreement.
EXAMPLE: A and B entered into a Deed of Sale
of land indicating Php1 as the purchase price –
They are bound by the real agreement of
donation
3. Incapacity of one of the parties
Kinds of Capacity:

Juridical Capacity Capacity to Act (Legal Capacity)

- is the fitness to be the subject of - Is the power to do acts with legal

legal relations which is inherent in effect which is acquired and may be
every natural person and is lost lost.
through death
If incapacity pertains to capacity to act
If incapacity pertains to juridical or legal capacity , it can be:
capacity the contract is void
1. Absolute incapacity;
2. Relative incapacity
Absolute Incapacity – the party cannot give consent in any contract, with anyone, in whatever
capacity, over everything.
Article 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)

Article 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in
a state of drunkenness or during a hypnotic spell are voidable. (n)

The following cannot give consent to a contract:

1. Minors;
2. Insane person (except if consent is given during lucid interval)
3. Demented person;
4. Deaf-mute who do not know how to write; and
5. Drunks or hypnotized

The contract would be voidable as to the party who is incapacitated.

Those who are “incompetent” under the Rules of Court who may be placed under guardianship:

1. Those suffering from civil interdiction;

2. Hospitalized lepers;
3. Prodigals;
4. Deaf and mute who are unable to read and write;
5. Those who by reason of age, disease, weak minds, and other similar causes, cannot without
outside aid, take care of themselves and manage their property becoming an easy prey for deceit
and exploitation.

Note that these people (save for those suffering the penalty of civil
interdiction) can still enter into contracts (if not placed under
guardianship. However, it can still be proven that intelligent consent
was not given and thus, may still render the contract voidable
Relative Incapacity – a person may be prohibited from entering specific contract or that in a
contract, he may be prohibited in a certain capacity, i.e.,prohibited to be the buyer, or to specific
things, or to specific persons.

EXAMPLES:
a. An alien is prohibited under the Constitution from acquiring private lands. EXCEPT, when
acquired through (1) succession, or (2) sale of residential land to a former natural born Filipino
citizen.
b. Husband and wife cannot enter into a contract of sale, unless they have agreed to a Separation
of Property marital property regime or they have been legally separated.
4. Both are incapacitated to give consent
the contract is unenforceable

e.g. a contract between a minor and a demented person.

5. Both parties gave their consent; but such consent was vitiated

Article 1330. A contract where consent is given through mistake, violence, intimidation,
undue influence, or fraud is voidable. (1265a)

Vices of Consent

1. Mistake
2. Violence
3. Intimidation
4. Undue Influence
5. Fraud
 MISTAKE
Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the
thing which is the object of the contract, or to those conditions which have principally moved one
or both parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such
identity or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction. (1266a)

Article 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former. (n)

Article 1334. Mutual error as to the legal effect of an agreement when the real purpose of the
parties is frustrated, may vitiate consent. (n)
MISTAKE
Mistake will make the contract voidable if:

1. It pertains to the object;

2. It pertains to the principal conditions;
3. Identity or qualification of the parties – when they are the principal cause of the contract;
4. Legal effect that frustrates the agreement of the parties and the same is mutual

Errors or mistake that do not vitiate consent:

1. Error as to the solvency of the other party;
2. Error as to the motive of the party;
3. Error as to estimates
 VIOLENCE
Article 1335. There is violence when in order to wrest consent, serious or irresistible force is
employed.

INTIMIDATION
Article 1335. (par 2) There is intimidation when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or
upon the person or property of his spouse, descendants or ascendants, to give his consent.

To determine the degree of intimidation, the age, sex and condition of the person shall be borne in
mind.

A threat to enforce one's claim through competent authority, if the claim is just or legal, does not
vitiate consent. (1267a)

Article 1336. Violence or intimidation shall annul the obligation, although it may have been employed
by a third person who did not take part in the contract. (1268)
UNDUE INFLUENCE
Article 1337. There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice.

The following circumstances shall be considered: the confidential, family, spiritual and other
relations between the parties, or the fact that the person alleged to have been unduly influenced
was suffering from mental weakness, or was ignorant or in financial distress. (n)

FRAUD
Article 1338. There is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not have agreed to.
(1269)

Article 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud. (n)
Article 1340. The usual exaggerations in trade, when the other party had an opportunity to know the
facts, are not in themselves fraudulent. (n)

Article 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and
the other party has relied on the former's special knowledge. (n)

Article 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. (n)

Article 1343. Misrepresentation made in good faith is not fraudulent but may constitute error.
(n)

Article 1344. In order that fraud may make a contract voidable, it should be serious and should
not have been employed by both contracting parties.

Incidental fraud only obliges the person employing it to pay damages. (1270
There is NO FRAUD in the following cases:
1. Failure to disclose facts, when there is NO duty to reveal them;
2. The usual exaggeration in trade, when the other party had an opportunity to know the facts;
3. A mere expression of an opinion does not signify fraud UNLESS made by an expert and the other party
has relied on the former’s special knowledge;
4. Misrepresentation by a third person does not vitiate consent unless such misrepresentation has
created substantial mistake and the same is mutual;
5. Misrepresentation made in good faith is not fraudulent but may constitute fraud.
KINDS OF FRAUD

1. Causal Fraud – affects consent and may thus render the contract voidable:
REQUISITES:
1. It must have been employed by one of the contracting parties only.
2. It must have induced the other party to enter into the contract.
3. It must have been serious.
4. It may or may not result to damage or injury to the contracting parties. Presence of injury
on the complainant is not necessary for the action for annulment of voidable contract to
prosper.

2. Incidental Fraud – only obliges the person employing it to pay damages and does not vitiate
consent.
 OBJECT CERTAIN WHICH IS THE SUBJECT MATTER

Article 1347. All things which are not outside the commerce of men, including future things, may be the object of a
contract. All rights which are not intransmissible may also be the object of contracts.

No contract may be entered into upon future inheritance except in cases expressly authorized by law.

All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object
of a contract. (1271a)

Article 1348. Impossible things or services cannot be the object of contracts. (1272)

Article 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not
determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same,
without the need of a new contract between the parties. (1273)
 OBJECT CERTAIN WHICH IS THE SUBJECT MATTER

Object or subject matter is really to create or to end obligations, which in turn may
involve things, rights or services

Requisites:
1. The thing, right, or service must be within the commerce of man;
2. It must be transmissible;
3. It must not be contrary to law, morals, good customs, public order or public policy;
4. It must not be impossible;
5. It must be determinate as to its kind or determinable without the need of a new
contract or agreement.

Future Inheritance cannot be the subject matter of a valid contract. This is not to be confused with
future things which are allowed to be the object of a contract.
 CAUSE OR CONSIDERATION
Article 1350. In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit
which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.
(1274)
Article 1351. The particular motives of the parties in entering into a contract are different from the
cause thereof. (n)

Article 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.
(1275a)

Article 1353. The statement of a false cause in contracts shall render them void, if it should not be proved
that they were founded upon another cause which is true and lawful. (1276

Article 1354. Although the cause is not stated in the contract, it is presumed that it exists and is
lawful, unless the debtor proves the contrary. (1277)
Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (n)
 CAUSE OR CONSIDERATION
Cause is the essential or impelling reason why a party assumes an obligation.

1. Onerous – for each contracting party, the prestation or promise of a thing or service by
the other;
2. Gratuitous – mere liberality of the benefactor;
3. Remuneratory – service or benefit already rendered.

Accessory contract: generally, the cause or consideration is that of the principal contract.
Rules on Cause
1. Contracts without cause or with unlawful cause produce no effect whatever. The cause is unlawful if
it is contrary to law, morals, good customs, public order or public policy.
2. The statement of a false cause in contracts shall render them void, if it should not be proved that
they were founded upon another cause, which is true and lawful.
3. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary;
4. As a rule, inadequacy of the price will not affect the contract. EXCEPT:
1. When expressly provided by law, e.g. rescissible contract;
2. When there has been fraud, mistake or undue influence.
ILLUSTRATION:
S sold his land to B for P1M. Where the fair market value is P2M.

Here there is inadequacy of the price which as a rule will not affect the validity of the contract.

If, however, S sold it for such a price because of fraud or mistake, then it is a voidable contract

ILLUSTRATION:
W’s land was sold by his guardian G to B for P1M where the fair market value is P2M.

In this instance, the contract is rescissible since it resulted in a lesion or economic damage to W
by more that ¼ of the value of the thing.

ILLUSTRATION:
A bought a gun to kill B and he was able to do so. Was the sale valid?

Answer: Yes, the sale was valid. Here the cause as to A is the gun, as to B is the purchase price. As
a rule, motive does not affect the validity of a contract since motive is different from cause and
the illegality of the motive does not affect the validity of the contract.
Other Essential Elements of a Contract
In some cases, delivery is required for the perfection of the contract; in others, there
are formal requirements.

Real Contracts: are those perfected by delivery, thus, delivery is an essential element
to its perfection.

Real contracts include:

1. Deposit
2. Pledge
3. Commodatum
4. Simple loan or Mutuum
 FORMS OF CONTRACT
Article 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)
Article 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)

Article 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 are 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)
Article 1403. 2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the same, or
some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary
evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some
of them, of such things in action or pay at the time some part of the purchase money; but when a sale
is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of
an interest therein;
( f ) A representation as to the credit of a third person.

Article 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are
ratified by the failure to object to the presentation of oral evidence to prove the same, or by the
acceptance of benefit under them.
FORMS OF CONTRACT
GENERAL RULE: no form is required for the validity or perfection of a contract.

Formalities required for VALIDITY:

1. Donations of real property which requires a public instrument.

2. Donations of personal property whiche exceeds P5000 which requires that the
donation should be in writing.
3. Stipulation to pay interest on loans or for the use of money, which must be in
writing.
4. Sale or transfer of large cattle which requires that it be in public instrument,
registered and that there should be a certificate of transfer.
5. Contribution of real property in a partnership which requires that there be an
inventory attached to a public instrument.
6. Negotiable instrument must be made strictly in the form provided by the
Negotiable instruments Law in order to be considered negotiable.
7. Contract of marriage must have all the solemnities required by Family Code of the Philippines for it to
be valid such as marriage license, capacity of contracting parties, authority of solemnizing officer and
personal appearance of contracting parties.

8. Principal and interest of secured contract of loan must be specified in writing to be valid.

9. Agreement or stipulation to pay interest in a contract of loan must be in writing in order for such
agreement to be valid.

10. Contract of chattel mortgage requires it to be registered with Chattel mortgage Registry to be valid.

11. Contract of partnership to which real properties or real rights are contributed must be in a public
instrument, with an inventory of real property attached thereto, for the contract of partnership to be
valid.

12. Sales of piece of land by the agent in the name of the principal, the authority of the agent to sell the
land must be in writing for the contract of sale of such land to be valid.

13. Sale of community or conjugal property by one of the spouses, there must be authority given ny the
other spouse to the selling spouse.
Formalities required for ENFORCEABILITY (STATUTE OF FRAUD):

1. An agreement that by its terms is not to be performed within a year from the making thereof.
2. A special promise to answer for the debt, default, or miscarriage of another.
3. An agreement made in consideration of marriage, other than a mutual promise to marry.
4. An agreement for the sale of goods, chattels or things in action, at a price not less that five
hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made by the auctioneer in
his sales book, at the time of the sale, of the amount and kind of property sold, terms or sale,
price, names of the purchasers and person on whose account the sale is made, it is a sufficient
memorandum.
5. An agreement of leasing for a longer period than one year, or for the sale of real property or of
an interest therein.
6. A representation as to the credit of a third person.
Formalities requited for CONVENIENCE: to bind third persons, the following are required to appear in a public
instrument:

1. Acts and contracts which have for their object the creation, transmission, modification, or extinguishment
or real rights over immovable property; sale of real property or of an interest therein as governed by the
Statute of Frauds.
2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership or
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.
Remedy to require a specific form: if the law requires a document or other special form if the contract
is VALID and ENFORCEABLE, as in the acts and contracts required to appear in a public instrument for
convenience (where the requirement that they must be in writing for validity, if applicable, is met), the
contracting parties may compel each other to observe that form, once the contract has been
perfected, e.g., contract of sale of land in a private instrument is valid and enforceable, and the parties
may compel that it appear in a public instrument.

ILLUSTRATION:
1. A donated his land to B in writing, can B compel A to execute a public instrument? No. Because the
donation is void for being not in a public instrument.
2. A sold his land to B orally, can B compel A to execute a written instrument? No. Because the sale is
unenforceable.
3. A sold his land to B in a private instrument. Can B compel A to execute a public instrument? Yes. Because
the contract of sale is both valid and enforceable.
REFORMATION OF INSTRUMENTS
Article 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

Article 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.

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

Article 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.
Article 1363. When one party was mistaken and the other knew or believed that the instrument did not state their real
agreement, but concealed that fact from the former, the instrument may be reformed.

Article 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.

Article 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states
that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper.

Article 1366. There shall be no reformation in the following cases:

(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.

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

Article 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.

Article 1369. The procedure for the reformation of instrument shall be governed by rules of court to be
promulgated by the Supreme Court.
REFORMATION OF INSTRUMENTS
Reformation: is the remedy by means of which a written instrument is made or construed so as to express
or conform to the true intention of the parties when some error or mistake has been committed.

Requisites:
1. There is a meeting of the minds;
2. There is a written instrument; and
3. The written instrument does not reflect the true intention of the
parties.

When reformation be had:

1. Mutual mistake of the parties;
2. 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;
3. When one party was mistaken and the other knew or believed that the instrument did not state their
real agreement but concealed the fact from the former.
4. Ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or
of the clerk or typist.
5. If two parties agree upon mortgage or pledge of real or personal property, but the instrument states
that the property is sold absolutely or with the right of repurchase.
Who can ask for reformation:
1. If the mistake was mutual, reformation may be ordered at the instance of either party or his successor in
interest;
2. Otherwise, the injured party, or his heirs and assigns.

No reformation is allowed:
1. Simple donation intervivos wherein no condition is imposed;
2. Wills;
3. When the real agreement is void.

Action to enforce the contract: Likewise, when one of the parties has brought an action to enforce
the instrument, he cannot subsequently ask for its reformation.
 INTERPRETATION OF CONTRACTS
Article 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)

Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts
shall be principally considered. (1282)

Article 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)

Article 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)

Article 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)

Article 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)
 Article 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)

Article 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity. (1288)

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.

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)

Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be
observed in the construction of contracts. (n)
 INTERPRETATION OF CONTRACTS
No ambiguity; no interpretation necessary: 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. (Ar. 1370)

Primary consideration: is the intention of the parties. Such that even if the terms of the contract are
clear, but does not reflect the intention of the parties, it is the intention which would prevail. (Art. 1370)

Contemporaneous and subsequent acts: In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Art. 1371).

In a case where a Deed of Assignment was issued as payment for the obligation of the debtor in an
indemnity agreement by way of dacion en pago, the debtor there after made subsequent payments and
executed a mortgage, the SC held that clearly the subsequent acts of the debtor does not reflect his claim
that the deed of assignment was by dacion en pago. The deed of assignment was a form of security for the
indemnity agreement.
Specific rules in interpretation of Contracts:

1. 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 agreed upon which the parties intended to agree.

ILLUSTRATION: S sold his house and lot to B and the contract indicated that “all furniture” inside the house
are included in the sale. However, the TV set was borrowed from X. Is this included in the contract of sale?

ANSWER: No. Even if the contract said “all” which is a generic term, it should be understood to contemplate
only those belonging to S which he has the right to sell.
2. 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.

ILLUSTRATION: W (wife of H) sold “her house” to B. It turns out that W has an exclusive house inherited
from her mother, and a conjugal house which is the family home.

In this case, “her house” would be interpreted to mean the exclusive property of W so as to render the
contract effectual, because she cannot validly sell their family home which is a conjugal property
without the consent of her husband.
3. 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.

4. Words which may have different significations shall be understood in that which is most in keeping
with the nature and object of the contract.

5. 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 stipulation which are ordinarily established.

6. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused
the obscurity.
When none of the above rules will apply:

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.

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)

ILLUSTRATION: Juan entered into a contract to sell with Pedro to convey one of the five lots he owns without
specifying which lot. Later on, the parties cannot agree which of the five lots is the subject of the contract.

What is the status of the contract? VOID. When the intention of the parties relative to the principal object of
the contract cannot be ascertained, the contract shall be void.