Chapter 3: Forms of Contracts

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Chapter 4: Forms of Instrument

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
rights of the parties stated in the following article cannot be exercised. (1278a)

Article 1356 of the Civil Code of the Philippines establishes that contracts are legally
binding as long as they contain all the necessary elements for their validity,
regardless of the form in which they were entered into. This means that contracts
can be enforceable whether they are oral, written, or even implied, as long as they
fulfill the essential requirements for their legal effectiveness.

Meaning of form of contracts:

● The form of a contract refers to the manner in which a contract is executed
or manifested.
VECTORES:
The contract may be:
A. contracts in writing.
A. partly oral and partly in written.
A. contracts in a public or a private instrument.

When Form is Essential:

1. When the law requires a form for the validity of the contract.
2. When the law requires certain agreements to be in writing to be enforceable,
or that contract must be proven in a certain way.
3. when the law requires that a contract be in some form for the convenience of
the parties or for the purpose of affecting third persons.

Example:
John and Jane had an agreement with their new positions at XYZ Company they
both signed a written contract outlining their roles, responsibilities, and
compensation terms in order for them to acknowledge the responsibilities
associated to it.
The ABS CBN manager Nathy called Mika by phone accepting the contract offered
by her. The next day, the famous actress signed a showbiz contract with a renowned
production company, delineating her role in an upcoming blockbuster film, her
compensation package, including base salary, bonuses, and a percentage of the
movie's profits.
The written and the oral acceptance constitute a legally enforceable contact and
both Nathy and Mika are fully bound.
Two aspects of contracts:
1. Intent or Will
This is internal and as long as a contract exists merely as a psychological fact, it
produces no legal effect, because the law cannot take cognizance of its existence.
2. Expression of such intent or will

It is necessary, in order that the will may produce legal effect, that it be expressed.
This expression or declaration of the will is its form.

Classification of contract according to form:

3. Informal or Common Contract

This refers only to consensual contracts (Art. 1356.), such as the contract of sale. An
informal contract may be oral or written.

4. Formal or Solemn Contract

This is required by law for its efficacy to be in a certain specified form.

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)

In summary, Article 1357 gives parties the right to require the proper legal form for a
contract even after the initial agreement has been made, provided that the contract
has been perfected. This right can be exercised alongside any legal action related to
the contract, such as a lawsuit for specific performance or damages.

Form for the convenience of the parties.

In certain cases, a certain form (e.g., public instrument) is required for the
convenience of the parties in order that the contract may be registered in the
proper registry to make effective, as against third persons, the right acquired under
such contract. Non-compliance with the required form would not adversely affect
the validity nor enforceability of the contract between the parties themselves.
Inasmuch as the contract is both valid and enforceable, the execution of a public
instrument becomes a mere matter of form and convenience.
Example:
There are two individuals, John (the "Seller") and Maria (the "Buyer"), who decide to
enter into a significant business transaction involving the sale of a valuable piece of
artwork. The value of the artwork is well above the threshold that requires a written
contract under Article 1358. In this scenario, the law mandates that the contract be
in writing and notarized to be legally valid.

John and Maria negotiate the terms of the sale and come to a verbal agreement.
They discuss the price, payment terms, and delivery schedule. However, they do not
immediately create a written contract as required by law.

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

(1) Acts and contracts which have for their object the
creation, transmission, modify cation 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 1358 of the Civil Code outlines the types of acts and contracts that must be
recorded in a public document. These include transactions involving real rights over
immovable property, hereditary rights or conjugal partnership rights, certain powers
related to property administration, and cession of actions from a public document.
Contracts exceeding five hundred pesos require written documentation, while sales
of movable property are governed by specific provisions.

Example:
Let's say that two siblings, Alex and Beth, inherit a piece of land from their deceased
parents. They decide to divide the property between themselves. Alex wants to
transfer his share to Beth in exchange for a sum of money. Since this transaction
involves the transmission of real rights over immovable property, it falls under the
scope of Article 1358 and must appear in a public document.
In this case, Alex and Beth would need to execute a deed of sale, clearly outlining
the terms and conditions of the transaction, the amount involved, and their
agreement regarding the transfer of ownership. This deed of sale should be
notarized and recorded to ensure its validity and enforceability.

Article 1359. A remedy whereby a written instrument to the contract is

amended to conform to the true intentions of the parties.

Requisites for the action for Reformation

▪ There is a meeting of the minds of the parties to the contract.
▪ The true intention or agreement of the parties is not expressed in the written
instruments.
▪ The failure to express the true intention is due to mistake, fraud, inequitable
conduct, or accident.
▪ The facts upon which relief by way of reformation of the instrument is sought
are put in issue by the pleadings.
▪ There is clear and convincing evidence (which is more than mere
preponderance of evidence) of the mistake, fraud, inequitable conduct, or
accident.

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.

GENERAL PRINCIPLE: In case of conflict between the provisions of the new Civil Code and
the principles of the general law on reformation, the former prevails. The latter will have
only a suppletory effect.
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.
Example:
Two parties intend to sell a piece of land with a building on it. However, due to a
typographical error in the contract, the building's value is significantly understated.
Both parties agree that the contract does not accurately reflect their intention, and
they seek to have the contract reformed to correct the mistake.
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.
● Unilateral mistake as basis for reformation.

Reformation is granted when the mistake is mutual. Clearly, a unilateral mistake in

the making of an agreement, of which the other party is entirely ignorant and to
which he in no way contributes, will not affect the agreement, or afford ground for
its reformation.

● Mistake on one side, fraud, or inequitable conduct on the other.

Under Article 1362, the right to ask for reformation is

granted only to the party who was mistaken in good faith.
Here, the mistake is not mutual.

The mistake is unilateral, but the other party acted fraudulently or

inequitably. The right to ask for reformation is granted only to the party who was
mistaken in good faith. In this Article, the mistake is not mutual.

Example:

John agreed with Hypertrophy that the former would loan 500,000 to the latter. In the
contract signed by Atrophy and Hypertrophy, it was stated that Atrophy was selling his
house to Hypertrophy for the said amount. Atrophy signed the contract in the belief that it
was really a contract of loan.

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.
The mistake is unilateral, but the other party is guilty of concealment. Remedy of
reformation may be availed only by the party who acted in good faith. The
concealment of the mistake by the other party constitutes fraud.
Example:
Mrs. Dy owed 5M to Mrs. Gong and made a promissory note that she will pay Mrs.
Gong her land title in Cavite which is equivalent to the amount that she owed. 6
months after their contract was made Mrs. Dy delivered her land title to Mrs. Gong
as her payment for her debt to the latter. Mrs. Gong accepted the land title, but she
noticed that it was the land title of Mrs. Dy in Ilocos Norte which is 3x more than the
amount that Mrs. Dy owed but she concealed it to Mrs. Dy.
● Concealment of mistake by other party.

The remedy of reformation may be availed of only by the party who acted in good
faith. The concealment of the mistake by the other party constitutes fraud.

Article 1364. When through the ignorance, lack of skill, negligence, or bad faith
on the part of the person drafting the instrument or the clerk or typist, the
instrument does not express the true intention of the parties, the courts may
order that the instrument be reformed.

● Ignorance, etc. on the part of third person.

Under the above article, neither party is responsible for the mistake. Hence, either
party may ask for reformation.

Example: Contract Error

Imagine two business partners intending to enter into a joint venture agreement to
share profits and losses equally. However, due to a typographical error by their
lawyer, the agreement states that one partner will get 60% of the profits while the
other gets 40%.

Upon discovering the mistake, they can seek reformation of the contract under
Article 1364 to accurately reflect their original intention.

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.

● Mortgage or pledge stated as a sale.

The reformation of the instrument is proper, otherwise, the true intention of the
parties would be frustrated. Such true intention must prevail for the contract must
be complied with in good faith. (Art. 1159.)

Example: House Mortgage Misrepresentation

A homeowner wants to secure a loan using their house as collateral -mortgage. They
approach a lender and agree to the terms, intending to mortgage the property.

However, when the loan agreement is drafted, it incorrectly states that the house is being
sold to the lender with a right of repurchase.

In this scenario, the homeowner can seek reformation of the agreement to reflect the true
intention, which was a mortgage.

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.

“Inter Vivos”

● refers to contracts or transactions that take place during the lifetime of the
parties involved.
● Contracts that are typically those in which one party makes a promise or
commitment to another party, and both parties are alive and capable of
fulfilling their obligations under the contract.

Example:

1. Simple donations inter vivos wherein no condition is imposed.

“Ms. Eso gifted her child a valuable piece of jewelry on her birthday without
any conditions, and right after the birthday of her child Ms. Eso regretted her
decisions.”

If a parent gifts their child a valuable piece of jewelry without any conditions
made, and later regrets the decision, they cannot seek reformation to take
back the gift. Once a simple donation is made without any conditions, it's
generally irrevocable.

2. Wills
 “When Ms. Eso died, she forgot to include her child’s name and can’t have any
of her valuable asset. So, for this mistake, her child wants to reform the will
but sadly the intention will not be change at all because her mother is dead.”

If a person's will mistakenly excludes a family member or contains an error in

the distribution of assets, it cannot be reformed after their death. The court
may only intervene in cases of fraud, forgery, or undue influence regarding the
will.

3. Void Agreements

Two parties enter a contract that is illegal, such as a contract to engage in an

illegal activity. Since the contract itself is void and unenforceable, there is no
basis for reformation.

If the agreement is void, there's nothing to reform because it lacks legal

effect. The parties would need to pursue other legal remedies or defenses.

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

Cases when reformation are not allowed:

1) Simple donations inter vivos where no condition is imposed.

-Donation is an act of liberality whereby a person disposes gratuitously of a thing or

right in favor of another, who accepts it.

2) Wills.

- A will is an act whereby a person is permitted with the formalities prescribed by

law to control to a certain degree the disposition of his estate, to take effect after
his death.

(3) Where the real agreement is void.

- If the real agreement is void, there is nothing to reform. Reformation would be

useless because the real agreement being void, it is unenforceable.

(4) Where one party has brought an action to enforce the instrument.

-When a party brings an action to enforce the contract, he admits its validity and
that it expresses the true intention of the parties. The bringing of the action is thus
inconsistent with reformation. There is no prohibition against joining in one action
the reformation of instrument and its enforcement as reformed.

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.

Party entitled to reformation.

● (1) Either of the parties, if the mistake is mutual under Articles 1361, 1364, and
1365;
● (2) In all other cases, the injured party, under Articles 1362, 1363, 1364, and
1365; and

● (3) The heirs or successors in interest, in lieu of the party entitled. (Art. 1368.)

The effect of reformation is retroactive from the time of the execution of the original
instrument.

Article 1369. The procedure for the reformation of instruments shall be

governed by rules of court to be promulgated by the Supreme Court.

As a general rule, all persons interested in the subject matter of litigation, whether
they have a legal or equitable interest, should be made parties in suits to reform
written instruments, so that the court can settle all of their rights at once, avoiding
the need for multiple suits. Thus, in an action to reform a deed of sale, any parties
claiming an interest in the property or any portion thereof supposedly conveyed by
the instrument sought to be reformed and whose interests will be affected by the
instrument's reformation are required parties to the action.