Form of Contracts (art 1356-1358) Q: what is the form of a contract in order that it will be of obligatory force GR: Art

1356: whatever may be the form in w/c a contract may have been entered into is that it shall be obligatory provided all the essential requisites for its validity are present Legal system: the form in w/c a contract is executed has no effect upon its obligatory force provided all the essential requisites for its validity are present Note: art 1356 speaks of contracts as being obligatory regardless of the form in w/c they may have been entered into, it does not include those contracts for w/c the law prescribes a certain form either for validity or enforceability EXPNS:

c) those w/c are necessary for the enforcement of the contract (statute of fraud) Q: what are the formalities w/care merely for the convention of the parties A: The ff must appear in a public document:

1) Acts and contracts w/c 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 art 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 w/c has for its object an act appearing or w/c should appear in a public document or should prejudice a third person 4) The cession of actions or rights proceeding from act appearing in a public document Note: all other contracts were the amount involved exceeds 500.00 must appear in writing even a private one. But sales of goods, chattels or things in action are governed by art 1403 no.2 and 1405 Formalities necessary for the validity of contracts: Contracts w/c must appear in writing are as follows: 1) Donations of personal property whose value exceeds 5k. Accdg to art 748 the donation and the acceptance shall be made in writing otherwise it shall be void 2) Sale of piece of land or any interest therein by an agent. Accdg to art 1874 if the authority of the agent is not in writing the sale is void

a) When the law requires that the contract must be in a

certain form in order to be valid b) When the law requires that the contract must be in a certain form in order to be enforceable Different kinds of formalities w/c are prescribed by law for certain contracts: -The formalities required by law for the execution of certain contracts are the ff: a) those w/c are for convenience of for the purpose of binding third persons (art 1356-1358) b) those w/c are necessary for the validity of the contract (scattered provisions of the NCC and the special laws)

3) Accdg to art 2134 in contracts of antichresis the amount of the prin and of the interest shall be specified in writing otherwise the contract shall be void 4) Agreements regarding payment of interest in contracts of loan. Art 1956 provides that no interest shall be due unless it has been expressly stipulated in writing. The validity of the contract of loan however is not affected Contracts w/c must appear in a public document: 1) Donations of immovable property. Art 749 provides that donation must be made in a public document. The acceptance may be made in the same deed of donation or in a separate public document. If the acceptance is made in a separate public document, the donor shall be notified thereof in an authentic form and this step shall be noted in both instruments. Non compliance shall render the contract void

C or a third person the contract is a pledge and not a chattel mortgage 2) Sale or transfer of large cattle Accdg to the cattle registration act no sale or transfer of large cattle shall be valid unless it is duly registered and a certificate of transfer is secured REFORMATION OF INSTRUMENTS Q: what is the doctrine of RI under the NCC? Requisites in order that instrument may be reformed? Reformation of instruments vs Annulment of Contracts A: Doctrine of RI When the true intention of the parties to a perfected and valid contract are not expressed in the instrument purporting to embody their agreement, by reason of mistake, fraud, inequitable conduct or accident one of the parties may ask for the reformation of the instrument so that such true intention may be expressed (art 1359)

2) Partnerships where immovable property or real rights

are contributed to the common fund. In a contract of partnership where immovable property or real rights are contributed to the common fund, it is necessary that the contract must appear in a public instrument that there must be an inventory of an immovable property or real rights signed by the partners and attach to the public instrument, otherwise the contract is void Contracts w/c must be registered 1) Chattel mortgages Art 2140: by a chattel mortgage, personal property is recorded in the chattel mortgage register as a security for the performance of a n obligation. If the movable instead of being recorded, is delivered to the

Requisites 1) There must be meeting of the minds of the parties 2) The true intention is not expressed in the instrument 3) Such failure to express their intention is due to mistake, fraud, inequitable conduct or accident RI vs Annulment of the Contract If the first req is lacking the proper remedy is not the RI but the AC

RI presupposes a perfectly valid contract in w/c there has already been a meeting of the minds of the CP AC is based on a defective contract in w/c there has been no meeting of the minds because the consent of one of the CP has been vitiated

The party who can bring the action is either party or successors in interest

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 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) 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

Q: what is the basis and nature of the remedy of RI A: The remedy of RI is based on the principle of equity where to express the true intention of the CP, an instrument already executed is allowed by law to be reformed The ryt of reformation is necessarily an invasion or limitation of the parol evidence rule, since when a writing is reformed the result is that an oral agreement is by court decree made legally effective A suit for reformation of an instrument must be brought within the period prescribed by law, otherwise it will be barred by the mere lapse of time Reformation is that remedy in equity by means of which the instrument is amended to conform to the real right intention of the parties

5) If 2 parties agree upon the mortgage or pledge or real

or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase No. 2,3,4,5 the party who can bring the action is the injured party or his heirs or assigns

Q: Instruments w/c cannot be reformed A: 1) Simple donations inter vivos wherein no condition is imposed 2) Wills 3) Those were the real agreement is void Q: what is a contract of adhesion A: A contract of adhesion is so called because its terms is prepared only by only one party while the other party merely affixes his signature signifying his adhesion thereto

Five examples of instruments w/c may be reformed

1) When a mutual mistake of the parties causes the

failure of the instrument to disclose their real agreement

Q: Are contracts of adhesion is void or prohibited A: A contract of adhesion is just as binding as ordinary contract -such contract as void when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing - contracts of adhesion is not invalid per se they are not entirely prohibitedthe one who adheres to the contract is in reality free to reject it entirely if he adheres he gives his consent Q: What is the cardinal rule applicable in a case where the terms of a contract are clear and leave no doubt upon the intention of the CP A: it is a cardinal rule that if the terms of a contract are clear and leave no doubt as to the intention of the CP, the literal meaning of its stipulation shall control. Q: If the words appear to be contrary to the evident intention of the parties w/c shall prevail A: the latter shall prevail over the former Q: How are the intentions of the parties judged A: In order to judge the intention of the CP their contemporaneous and subsequent acts are principally considered GR: documents are interpreted in the precise terms in w/c they are expressed, but the courts in the exercise of their sound discretion are called upon to admit direct and simultaneous circumstantial evidence necessary for their interpretation w/ the purpose of making the true intention of the parties prevail

DEFECTIVE CONTRACTS Different classes of defective contracts 1) Rescissible contracts 2) Voidable contracts 3) Unenforceable contracts 4) Void and inexistent contracts

Q: Where shall the action for reformation of instrument be instituted A: The action for reformation of instrument shall be instituted in a special civil action for declaratory relief Essential Features or characteristics of defective contracts Rescissible Contracts 1) Their defect consist in injury or damage either to one of the CP or to third persons 2) Before rescission, they are valid and therefore legally effective 3) They are susceptible of convalidation only by prescription and not by ratification 4) They can be attacked directly only and not collaterally 5) They can be attacked either by a CP who suffers injury or by a third person who is defrauded Voidable Contracts

1) Their defect consist in the vitiation of consent or in the

legal incapacity of one of the CP

2) They are binding until they are annulled by a competent court 3) They are susceptible of convalidation either by ratification or prescription 4) They cannot be attacked or assailed by third person Unenforceable Contracts\ 1) Their defect consists either in the fact that they were entered into in excess or w/out any authority or they do not comply with the statute of frauds or both CP are legally incapacitated 2) They cannot be enforced by a proper action in court 3) They are susceptible of convalidation by ratification 4) They cannot be attacked or assailed by third persons Void and inexistent Contracts 1) Their defect consists in the fact that they lack absolutely either in fact or in law one or some of the elements of a valid contract

RESCISSIBLE CONTRACTS A contract w/c is valid because it contains all of the essential requisites prescribed by law, but w/c is defective because of injury or damage to either of the CP or to third persons as a consequence of w/c it may be rescinded by means of a proper action for rescission

RESCISSION A remedy granted by law to the CP and even to the third persons, to secure the reparation of damages caused to them by a contract, even if the same should be valid by means of the restoration of things to their condition prior to the celebration of the contract

RESCISSION OF CONTRACTS vs RESCISSION OR RESOLUTION of RO As to party who may institute action RESC: action may be instituted not only by a party to the contract but even by third persons RESO: the action may be instituted only be a party to the contract As to causes RESC: several causes or grounds such as, lesion, fraud, and others expressly stipulated by law RESO: the only ground is failure of one of the parties to comply with what is incumbent upon him As to power of the courts

2) As a GR they produce no legal effects in accordance

w/ the principle quod nullum est nullum producil effectum 3) They are not susceptible of convalidation either by ratification or by prescription 4) The right to set up the defense of absolute nullity or inexistence cannot be renounced 5) They can be attacked or assailed either by a CP or by a third person whose interest is directly affected

RESC: there is no power of the contract to grant an extension of time for performance of the obligation so long as there is a ground for rescission RESO: the law expressly declares that courts shall have the discretionary power to grant an extension for performance provided that there is a just cause As to contracts w/c may be rescinded or resolved RESC: any contract whether unilateral or reciprocal may be rescinded RESO: only reciprocal contracts may be resolved Q: what contracts are rescissible A: 1) Those w/c are entered into by guardians whenever the wards whom they represent suffer lesion by more than of the value of the things w/c are the object thereof

6) Payments made in a state of insolvency for obligations to whose fulfilment the D could not be compelled at the time they were effected are also rescissible Q: State the nature of an action for rescission A: The action for rescission is subsidiary. It cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. It must be availed of as the last resort, availed only after all legal remedies have been exhausted and proven futile

Q: when should it be filed A: the action for rescission must commence within four years. For person under guardianship and for absentees the period of 4 years shall not begin until the termination of the formers incapacity or until the domicile of the latter is known. It is the legal possibility o bringing the action w/c determines the starting point for the computation of the 4 year prescriptive period as provided by law Requisites w/c must concur before a contract may be rescinded on the ground of lesion 1) The contract must be entered into by the guardian in behalf of his ward or by the legal representative in behalf of an absentee

2) Those agreed upon in representation of absentees, if

the latter suffer from lesion stated in the preceding number 3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them 4) Those w/c refer to things under litigation if they have entered into by the defendant w/out the knowledge and approval of the litigants or of competent judicial authority

2) The ward or absentee suffered lesion of more than

of the value of the property w/c is the object of the contract 3) The contract must be entered into w/out judicial approval 4) There must be no other legal means for obtaining reparation for the lesion

5) All other contracts specially declared by law to be

subject to rescission

5) The person bringing the action must be able to return whatever he may be obliged to restore 6) The object of the contract must not be legally in the possession of a third person who did not act in bad faith Requisites that must concur before a contract entered into in fraud of C can be rescinded 1) There must be a credit existing prior to the celebration of the contract 2) There must be a fraud or atleast the intent to commit fraud to the prejudice of the C seeking the rescission 3) The C cannot in any other legal manner collect his credit 4) The object of the contract must not be legally in the possession of a third person who did not act in BF Q: Can a contract of sale entered into in violation of a third partys right of first refusal be rescinded so that such third party can exercise said right A: A contract of sale entered into in violation of a third partys right of first refusal can be rescinded Such contract is not voidable but rescissible Art 1380-1381(3): a valid contract may nonetheless be subsequently rescinded by reason of injury to third persons like Csthe parties could be validly accorded the status of Cs Contract of Lease: The parties could validly be accorded the status of Cs for they had substantial interests that were prejudiced by the sale of the

subject property to another w/out recognizing their right of first priority

Q: who are the persons who may institute an action for the rescission of a rescissible contract A:

1) The person who is prejudiced such as the person

suffering the lesion in rescissory actions based on lesion, the C who is defrauded on rescissory actions based on fraud and other persons authorized to exercise the same in other rescissory actions 2) Their representative 3) Their heirs 4) Their Cs by virtue of subrogatory action (art 1177)

Q: Under our NCC an heir may institute an action for rescission of a rescissible contract in his capacity as a representative or successor in interest of a person who suffers from lesion or of the C who is defrauded. Suppose however that it can be established that the decedent during his lifetime, entered into a contract w/ another in order to defraud him of his legitime can he institute an action for the rescission of such contract after the death of the decedent A: Art: 1381: yes Manresa: reason: right of a compulsory heir to his legitime is similar to the right of the creditor w/ respect to his credit

Q: In rescissory actions based on fraud, it is essential that the fraud or intent to defraud must be proved. How can this be done A: Such fraud or the intent to defraud may be either presumed in accordance w/ Art 1387 of the NCC or duly proved in accordance w/ the ordinary rules of evidence The law presumes that there is fraud in the ff cases: 1) Alienations of property by gratuitous title if the D has not reserved sufficient property to pay all of his debts before such alienation

4) Evidence of large indebtedness or complete insolvency 5) The transfer of all or nearly an of his property by a D especially when he is insolvent or greatly embarrassed financially 6) The fact that the transfer is made between father and son when there are present others of the above circumstances 7) The failure of the vendee to take exclusive possession of all the property

2) Alienations of property by onerous title if made by a D

against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The descision or attachment need not refer to the property alienated and need not have been obtained by the party seeking the rescission Note: the above presumptions are disputable Q: What are the badges of fraud? A: fraud or intent to defraud may also be proved in accordance w/the rules of evidence, by proving the existence of any of the ff circumstances w/c have been denominated by the courts badges of fraud 1) The fact that the cause or consideration of the conveyance is inadequate 2) A transfer made by the D after suit has been begun and while it is pending against him 3) A sale on credit by an insolvent D

Q: what is the period of prescription for an action to claim rescission A: GR: the action to claim rescission must be commenced within 4 years If it is based on lesion the period must be counted from the time of the termination of the incapacity of the ward or from the time the domicile of the absentee is known If it is based on fraud the period must be counted from the time of the discovery of the fraud

EXPN: in certain contracts of sale w/c are specially declared by law to be rescissible the period is 6 months or even 40 days counted from the day of delivery VOIDABLE CONTRACTS Those in w/c all of the essential elements for validity are present but the element of consent is vitiated either by lack of legal capacity of one of the CP, by mistake, violence, intimidation, undue influence or fraud

Voidable contracts vs Rescissible Contracts VC: defect is intrinsic because it consists of a vice w/c vitiates consent RC: the defect is external because it consists of damage or prejudice either to one of the CP or to a third person VC: contract is voidable even if there is no damage or prejudice RC: the contract is not rescissible if there is no damage or prejudice VC: annulability of the contract is based on law; public interest predominates here, causes of annulment is different annulment is a sanction RC: the rescissibility of the contract is based on equity; private interest predominates here, from causes of rescission rescission is mere remedy VC: susceptible of ratification RC: not VC: annulment may be invoked by the CP RC: may be invoked by either the CP or by a third person who is prejudiced

Q:: How may a voidable contract be convalidated A:3 ways or modes of convalidating a VC 1) By prescription of the action for annulment 2) By ratification or confirmation 3) By the loss of the thing w/c is the object of the contract through the fraud or fault of the person who is entitled to institute the action for the annulment of the contract Q: what is the period of prescription for an action for an annulment of a VC A: the action for annulment of a VC must be commenced within a period of 4 years If the action refers to contracts entered into by incapacitated persons, the period shall be counted from the time the guardianship ceases If it refers to those where consent is vitiated by V, I, or UI the period shall be counted from the time such V, I, or UI ceases or disappears If it refers to those where consent is vitiated through mistake or fraud the period shall be counted from the time of the discovery of such mistake or fraud

Q: Contracts that are voidable A: 1) Those where one of the parties is incapable of giving his consent to a contract 2) Those where the consent is vitiated by M, V, I, UI, F

Q: what is meant by ratification of voidable contracts, what are its requisites? A: Ratification or confirmation is defined as the act or means by virtue of w/c efficacy is given to a contract w/c suffers from a vice of curable nullity *Requires the concurrence of the following requsites

1) The contract should be tainted w/ a vice w/c is susceptible of being cured 2) The confirmation should be effected by the person who is entitled to do so under the law 3) It should be effected w/ knowledge of the reason w/c renders the contract voidable 4) The reason w/c renders the contract voidable should have already disappeared Q: What are the forms of ratification of voidable contracts, what are the effects of ratification A:The ratification of a voidable contract may be effected either expressly or tacitly -There is an express ratification if , w/ knowledge of the reason w/c renders the contract voidable and such reason having ceased the person who has right to invoke should expressly declare his renunciation of his right to annul the contract -There is a tacit ratification if w/ knowledge of the reason w/c renders the contract voidable and such reason having ceased the person who has a right to invoke should execute an act w/c necessarily implies an intention to waive his right Note: 2 distinct effects of ratification or confirmation 1) Extinguishes the action to annul the contract 2) Cleanses the contract of its defects from the moment it was constituted Q: Who has the right to institute an action for the annulment of the VC A: 2 different requisites are necessary in order that a person may institute the action for the annulment of a VC

1)the plaintiff must have an interest in the contract in the sense that he is obliged thereby either principally or subsidiarily 2)the victim and not the party responsible for the vice or defect must be the one who must assert the same Q: If a person is not obliged P or S under a contract would it be possible for him to institute an action for the annulment of the contract A: as a rule a contract cannot be assailed by one who is not a party thereto SC: in several cases held that a person who is not a party obliged P or S under a contract may bring an action for annulment of the contract if he is prejudiced in his rights w/ respect to one of the CP and can show detriment w/c would positively result to him from the contract in w/c he has no intervention Q: Effect of annulment of a VC A: -if the contract has not yet been consummated it is evident although the NCC does not expressly say so that the CP shall be released from the obl arising therefrom -if the contract has already been consummated the rules provided for under art 1398-1402 shall govern Note: -upon the annulment of the contract, if the prestation thereof consist in OTG the parties shall restore to each other the things w/c have been the subject matter of the contract w/ their fruits and the price with its interests except in cases provided by law

-if prestation consist in OTD or NTD there will have to be an apportionment of damages based on the value of such prestation w/ corresponding interestsupon annulment the CP should be restored to their original position by mutual restitution Principle of mutual restitution

UC cannot be assailed by third persons whereas DC may be assailed by third persons who are prejudiced 2) From Voidable Contracts

When the defect of one the contract consist in the incapacity of one of the CP the incapacitated person is obliged to make any restitution except insofar as he has been benefited by the thing or price received by him This rule is applicable only and exclusively to those cases where the nullity arises from the incapacity of one of the CP If the nullity should arise from other causes the GR enunciated in Art 1398 would govern

UNENFORCEABLE CONTRACT Those w/c cannot be enforced by a proper action in court unless they are ratified because either they are entered into w/out or in excess of authority or they do not comply with the statute of frauds or both of the CP do not possess the required legal capacity

UNENFORCEABLE CONTRACTS vs DEFECTIVE CONTRACTS 1) From Rescissible contracts UC: cannot be enforced by a proper action in court whereas rescissible contracts are valid and enforceable unless they are rescinded UC is susceptible of ratification whereas RC are not