SUPPLEMENTARY LECTURE: Chapter 3 – Form of Contracts (Articles 1356-1358)

 LECTURE 

CHAPTER 3
FORM OF CONTRACTS
(Articles 1356-1358)

1. Meaning of “form of contracts”. - The form of a contract refers

to the manner in which a contract is executed or manifested.

2. What are the different forms in which a contract may be executed:

 A contract may be executed orally, or in writing.

 If in writing, the contract may either be made in a :
(a) Private instrument – where the parties put down in writing all
the terms and conditions of their contract, and sign it; or
(b)Public instrument – A private instrument becomes a public
instrument if it is notarized by a lawyer.

3. What are the two (2) classifications of contracts according to

form?

(A) INFORMAL or COMMON CONTRACTS

 Informal or common contracts are contracts which do not need a

specific form in order to be valid.

 The first sentence of Article 1356 states that, “Contracts

shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.” This
means that as long as there is consent, object, and cause, a contract is

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SUPPLEMENTARY LECTURE: Chapter 3 – Form of Contracts (Articles 1356-1358)

perfected, and becomes binding on both parties to the contract. This,

however, refers only to consensual contracts which are perfected by mere
consent.

EXAMPLE : S orally sold to B a Parker pen for P450.00. Is

the sale valid even if not in writing?
DISCUSSION: A contract of sale is a consensual contract,
and is perfected by mere consent. Therefore, even if orally made, the
contract of sale between S and B is valid and enforceable.

 Consensual contracts are, therefore, informal contracts and

do not need any specific form for their validity.

 We have also previously studied real contracts, which are not

perfected by mere consent, but need delivery (in addition to consent,
object, and cause) for the perfection of the contract. Real contracts are
also classified as informal or common contracts because, just like
consensual contracts, they do not need any specific form for their validity.

EXAMPLE: D borrowed P200,000.00 from C due on

September 30, 2016. Since C required security for the loan, D
delivered to C his Rolex watch valued at P300,000.00. On maturity
date, D failed to pay his obligation. Hence, C caused the sale of the
Rolex watch at public auction so that C may recover the P200,000.00
obligation of D from the proceeds of the auction sale. Is there here a
perfected contract of pledge even if it was not made in writing?

DISCUSSION: There are two (2) separate contracts between

D and C in this case.
1. the principal contract of loan where D is obliged to pay the
P200,000.00 to C on September 30, 2016; and
2. the accessory contract of pledge under which C has the
right to sell the thing pledged (the Rolex watch) at public auction IF
there is failure on the part of D to pay his obligation on September 30,
2016.

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SUPPLEMENTARY LECTURE: Chapter 3 – Form of Contracts (Articles 1356-1358)

The contract of loan is a consensual contract, and the contract of

pledge is a real contract. Therefore, both the contract of loan (perfected
by mere consent) and the contract of pledge (perfected by the delivery
of the object of the contract) between D and F are valid even if they
were not executed in writing because both are informal or common
contracts.

(B) FORMAL or SOLEMN CONTRACTS

 Formal or solemn contracts are required by law to be in a

specified form to be valid and enforceable.

 The second sentence of Article 1356 states that,

“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.”

 The second sentence of Article 1356 states the

exception to the general rule stated in the first sentence of Article 1356,
that contracts become valid and binding even if not made in writing. This
is because the second sentence emphasizes that when the law requires a
specific form, that form should be strictly followed. If the required form is
not followed, the contract becomes either void or unenforceable.

Example of a contract when form is required

for validity. - Dondi verbally donated his house and lot to Donna.
Donna accepted the donation. Is the donation valid?
DISCUSSION: NO. A contract of donation is a formal or
solemn contract. Under Article 749 of the Civil Code, it is required that
donations of real property be made in a public instrument. In this case,
since the contract was verbally made, the donation is void.

Example of a contract when form is required

for enforceability. - S verbally agreed to sell his land to B for
P2M. Delivery date and payment was set by the parties on September
15, 2016. On September 15, 2016, B demands for the delivery of the
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lot but S refuses to comply. May S be held by B liable for damages

under their contract of sale?
DISCUSSION: NO. The contract of sale between S and B in
this case is unenforceable and cannot be enforced by the party who
claims a right under the contract (the active subject) because it was not
made in writing. Under Article 1403, No. 2(e), when the object of
a contract of sale is real property, the law requires that it be made in
writing (at least in a private instrument) in order that it will be
enforceable even only between the contracting parties. If not made in
writing, it cannot be enforced if the party obliged (the passive subject)
denies the existence of the contract.
It is important to note, however, that while a contract of sale of
real property is not enforceable if not in writing, it is a valid
contract. Since it is a valid contract, it can still be enforced later on
should the party obliged (the passive subject) admit the existence of the
contract (ratify the contract) even if it was only orally made.

4. From the above discussion, we recognize that FORM may be

required by law for any one of three (3) important purposes :

(a) Form may be required for the VALIDITY of a contract. If

the specified form is not complied with, the contract is VOID.

(b)Form may be required for the ENFORCEABILITY of a

contract. If the specified form is not complied with, the
contract is VALID, but it CANNOT BE ENFORCED by the
active subject if the passive subject denies the existence of
the contract.

(c) Form may be required for the CONVENIENCE of the

parties ONLY. If the form is not complied with, the
contract is valid and enforceable as between the parties BUT
is unenforceable (cannot be enforced) as against third
persons to the contract.

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SUPPLEMENTARY LECTURE: Chapter 3 – Form of Contracts (Articles 1356-1358)

5. WHEN FORM IS REQUIRED FOR VALIDITY. -

What are some of the most common contracts where form is required for
the validity of the contract?

 A contract of donation of real property is a

formal contract and is required to be executed in a
public instrument to be valid and enforceable. -
Dondi and Donna signed a “Deed of Donation” where Dondi donated to
Donna a house and lot, and Donna accepted the donation. If Dondi
dies, can Donna tell the heirs of Dondi that she is now the owner of the
property by virtue of the donation made by Dondi?
DISCUSSION: NO. A contract of donation is a formal or
solemn contract. Under Article 749 of the Civil Code, it is required that if
real property is donated, both the giving and the accepting must be in a
public instrument. In this case, while Dondi and Donna executed the
donation in writing, the document was not notarized by a lawyer.
Hence, the parties merely executed a private instrument of donation
which does not meet the requirement of the law in order that the
contract will be valid. The heirs of Dondi then are still the rightful
owners of the house and lot.

 A stipulation to pay interest on loans

(interest for the use of the money) must be in
writing to be valid. - D borrowed P200,000.00 from C payable
on October 1, 2016 plus 10% interest in the amount of P20,000.00. The
agreement was made verbally. On maturity date, how much can C
collect from D?

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DISCUSSION: The contract of loan, being a consensual

contract, is valid and enforceable even if orally made. Hence, C can
collect the principal amount of P200,000.00 on October 1, 2016.
However, the verbal agreement or stipulation as to the payment of
interest on the loan is void and cannot be given effect. Under Article
1956 of the Civil Code, “A stipulation to pay interest must be in writing;
otherwise, no interest is due”.

 In the sale of a land through an agent, the

authority of the agent must be in writing;
otherwise, the sale is null and void. - S is the owner of a
parcel of land. S verbally authorized A to look for a buyer, and sell the
land at P5M. A was able to sell the land to B for P5M. A “Deed of Sale
of a Parcel of Land” was then executed between A (representing S) and
B. Later, the son of S, as heir, wanted to recover the land from B. Is
the contract of sale between S and B valid?
DISCUSSION: NO. Under Article 1874 of the Civil Code,
an owner who sells his land through an agent must give the agent
written authority to sell the land. If the authority is merely verbal, like
the authority given by S in this case to A, any subsequent sale made by
the agent to an interested buyer is null and void and cannot be given
effect. This is true even if the contract of sale between the agent (who
represents the seller of the land) and the buyer is in writing.

6. WHEN FORM IS REQUIRED FOR

ENFORCEABILITY. - For a better understanding of this area under
discussion, it would be beneficial to take a sneak preview of the chapter
on Unenforceable Contracts, particularly Article 1403. The law, under
Article 1403, No. 2, enumerates the agreements or contracts under
the Statute of Frauds which are required to be in writing to be enforceable.

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SUPPLEMENTARY LECTURE: Chapter 3 – Form of Contracts (Articles 1356-1358)

Let us discuss some of these contracts which might be useful for a better
understanding of the present chapter.

 An agreement for the sale of personal

property where the consideration is P500 or more,
unless there has been partial delivery or payment.
See Article 1403, No. 2(d)

EXAMPLE: On September 15, 2016, S verbally agreed to sell

his Parker pen worth P500.00 to B. Delivery and payment was set by
the parties on September 20, 2016. On September 20, if S refuses to
deliver the pen, can B file an action to compel S to comply with his
obligation?
DISCUSSION: NO. The contract of sale between S and B
may be valid because it is a consensual contract. However, if S denies
the existence of their agreement and refuses to comply with his
obligation, B cannot compel S by court action to perform his obligation.
This is because when the object of a contract of sale consist of
personal property (like the Parker pen in this case), and the
consideration for the sale is P500.00 or more, the sale should be in
writing in order that the contract will be enforceable.
REMEMBER: If S delivers the pen on September 20, 2016, B
cannot refuse to pay the price by claiming that the contract of sale
cannot be enforced because it was merely verbal. The contracts
enumerated under Article 1403, No. 2 which are required to be in
writing are unenforceable only if they have not yet been executed or
consummated. The delivery by S amounts already to partial
consummation of the contract. And when B accepts the pen, B in effect
recognizes the existence of the contract of sale and he can no longer
refuse payment by claiming that the contract of sale was verbal and
unenforceable.

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An agreement for the lease of real property

where the term is more than one year. See Article
1403, No. 2(e)

EXAMPLE: On March 15, 2016, Letty agreed to rent out to

Lisa an apartment in Manila. It was agreed that Lisa will pay a monthly
rental of P15,000.00, and the period of the lease would be for one (1)
year and six (6) months from April 1, 2016 to September 30, 2016. The
agreement of the parties was made verbally. Is the contract of lease
valid? Is the contract of lease enforceable?

DISCUSSION: The contract of lease is valid. Being a

consensual contract, it was perfected on March 15, 2016 by mere
consent of the parties to the contract. However, since the object of the
lease contract is real property and the period is more than one year, the
contract is unenforceable because it was not executed in writing. This
means that if Letty denies the existence of their agreement, and refuses
to honor their contract, Lisa cannot compel Letty, even by court action,
to deliver to her possession of the apartment.

 An agreement for the sale of real property or

of an interest in real property. See Article 1403,
No. 2(e)

EXAMPLE: On September 10, 2016, S agreed to sell his land

to B for P2M. Delivery date and payment of the purchase price was set
on September 30, 2016. The agreement of the parties was made
verbally. Is the contract of sale valid? Is the contract of sale
enforceable?

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SUPPLEMENTARY LECTURE: Chapter 3 – Form of Contracts (Articles 1356-1358)

DISCUSSION: The contract of sale is valid. Being a

consensual contract, it was perfected on September 10, 2016 by mere
consent of the parties to the contract. However, Under Article 1403,
No. 2(e), the sale of real property is required to be in writing to be
enforceable. Therefore, the contract of sale between S and B is
unenforceable for having been orally made. On September 30, 2016, B
cannot compel S to deliver the land if S will deny the existence of their
agreement.

7. WHEN FORM IS REQUIRED FOR THE

CONVENIENCE OF THE PARTIES ONLY. - It will be noted
that the contracts enumerated under Article 1358 are required to
appear in a public instrument. The purpose, however, of this requirement
under Article 1358 is only for the convenience of the parties. This
means that if any of the contracts enumerated under Article 1358 is
entered into orally or made in a private instrument, it is still valid and
enforceable. The only effect for non-compliance with the requirement is
that it cannot be binding or made to take effect as against third persons.

 Acts and contracts which have for their object

the creation, transmission, modification, or
extinguishment of real rights over immovable
property. See Article 1358, No. 1

 A “Deed of mortgage” is an example of a contract which creates

a real right over an immovable (real) property. It must be made in a public
instrument to be registrable and to bind third persons.
 When the obligation is paid and the mortgage is cancelled, the
parties may enter into an agreement called “Release of Mortgage” which

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must likewise be in a public instrument to be registrable and to affect third

persons. This is an example of a contract which extinguishes a real right
over real property.

EXAMPLE: On October 1, 2015, D borrowed P2M from C due

on October 1, 2016. To secure the loan, D mortgaged his parcel of
land to C. The agreement of the parties is verbal. On maturity date, D
failed to pay his obligation despite repeated demands from C. Is the
contract of mortgage between the parties valid? Can C foreclose on the
mortgage?

DISCUSSION: YES. Under Article 1358, No. 1, a

contract of mortgage is required to be executed in a public instrument.
This required form, however, is not essential for the validity or
enforceability of the contract. In other words, even if the contract of
mortgage between D and C was merely oral, the same is valid, binding
and enforceable as between D and C. Hence, on maturity date, since
D failed to pay his obligation, C can foreclose on the mortgage, have
the land of D sold at public auction, and recover his claim from the
proceeds of the auction sale.

LET’S ADD FACTS TO OUR EXAMPLE:

Assume that on August 1, 2016, D sold the land to E for P3M.
On October 1, 2016, if D fails to pay his obligation, can C still
forclose on their verbal contract of mortgage considering that E
is now the owner of the property?
DISCUSSION: We said that the contract of
mortgage is valid and enforceable between the parties.
However, in this case, the land was sold to E who is a stranger
to the contract of mortgage. We also said that in order for the
contract of mortgage between D and C to bind E (a third
person), the contract should be executed in a public
instrument. Since the contract was only verbally made, it
cannot bind or take effect as against E who is now the new
owner of the property. E is a buyer in good faith who bought
the property without knowledge of the existence of the
mortgage which was not made in a public instrument and
registered with the Registry of Deeds. Therefore, if the

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property is transferred to a buyer in good faith and the

mortgage attached to it is not in a public instrument, it will not
bind the new owner. C will now be in the same position as a
creditor with an unsecured credit (a credit with no security or
collateral).

The cession, repudiation or renunciation

of hereditary rights or of those of the conjugal
partnership of gains. See Article 1358, No. 2

EXAMPLE: On May 1, 2015, Jenny promised her brother James

that she will give James whatever share she has in the inheritance from
their father. This agreement involves the cession by Jenny of her
hereditary rights to her brother James. The agreement was, however,
made orally. On September 21, 2016, their father died leaving Jenny
inheritance amounting to P2M. Can James enforce the verbal
agreement and compel Jenny to give him her P2M share?

DISCUSSION: YES. Under Article 1358, No. 2,

the cession of hereditary rights is required to be executed in a
public document only for the convenience of the parties or to
bind third persons. Hence, even if orally made, it is perfectly
valid and binding between Jenny and James.

 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.
See Article 1358, No. 3

EXAMPLE: P is leaving for the U.S. to study there for

two years. Before he left, he verbally authorized A to collect

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the rentals from his 3-door apartment in Manila. This authority

given to A involves the power to administer the property of P
while he is in the U.S. The tenants, however, refused to give
their payments to A because the authority given was merely
verbal. Can A compel the tenants to give him their rental
payments?
DISCUSSION: NO. Under Article 1358, No. 3,
the power given by P to S to administer his property is
required to be in a public instrument to bind third persons.
Since the authority was only orally made, third persons to the
contract, such as the tenants in this case, are not bound by the
authority given. The tenants then have the right to insist that
payment be made only to P, the owner of the leased property,
to prevent the risk of making a wrongful payment.

 The cession of actions or rights

proceeding from an act appearing in a public
document. See Article 1358, No. 4
EXAMPLE: D mortgaged his land to C to secure the payment of
a P2M debt. The parties’ “Deed of Mortgage” appears in a public
document. C also owes E P2M. Instead of paying E his debt, C and E
executed a “Deed of Assignment” whereby C transferred to E his right
to collect the P2M credit from D as well as the right to foreclose the
mortgage should D fail to pay his obligation on maturity date. Under the
“Deed of Assignment”, the transferee/assignee E will become the new
creditor of D. On maturity date, can E foreclose the mortgage instead of
C on the basis of the “Deed of Assignment”?
DISCUSSION: NO. There is here a cession of C’s rights to E
regarding the foreclosure of the mortgage executed in a public
instrument between D and C. It is required under Article 1358, No.
4 that the cession by C of his rights to E be also made in a public
document to bind third persons. Since the cession was only orally
made, it cannot bind D who is not a party to the “Deed of Assignment”.
The cession or assignment is valid only between the parties C and E
but cannot be enforced as against D.

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8. Should the parties execute any of the contracts enumerated

under Article 1358, the active subject is given the right, under Article
1357, to compel the passive subject to execute the needed form. This is
because all the contracts under Article 1358, even if not made in a
public instrument, are already valid and enforceable as between the
parties themselves. In other words, the form is required only for the
convenience of the parties. Therefore, the right stated under Article
1357 cannot be exercised unless the contract is already :
(a) Perfected (valid);
(b)Enforceable under the Statute of Frauds.

EXAMPLE 1: Dondi donated a land to Donna. The donation as

well as the acceptance was made in a private instrument. Does Donna
have the right, under Article 1357, to compel Dondi to execute the
necessary public instrument of donation?
DISCUSSION: NO. Article 1357 will not apply. The
contract of donation is a solemn contract which requires a specified
form for its validity. Since it was made in a private instrument only, the
donation of the land by Dondi in this case is void. Hence, Donna cannot
exercise her right to compel Dondi to execute the needed public
instrument because the contract of donation is void and unenforceable.

EXAMPLE 2: S verbally sold to B a parcel of land. Does B

have the right, under Article 1357, to compel S to execute the sale in
writing?
DISCUSSION: NO. Article 1357 will not likewise apply.
The contract of sale of real property is required to be in writing under
Article 1403, No. 2(e), for the enforceability of the contract of sale
and not merely for the convenience of the parties. Since it was made
orally only, the contract of sale is unenforceable. Hence, B cannot
exercise his right to compel S to execute a written instrument for their
contract of sale.

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EXAMPLE 3: D borrowed P2M from C. To secure the loan, D

mortgaged his land to C. Does C have the right, under Article 1357,
to compel D to execute a public instrument as evidence of the parties’
contract of mortgage?
DISCUSSION: YES. This time Article 1357 will apply. C
may compel D to execute the necessary public instrument as required
under Article 1358 because they already have a valid and
enforceable contract of mortgage. Remember that, as earlier
discussed, a prerequisite for the exercise of the right under Article
1357 (the right to require the passive subject to execute the necessary
public instrument) is that the parties’ contract must already be both valid
and enforceable. The contract of mortgage between D and C is a
consensual contract, and is valid even if only orally made. Hence, C
can avail of his right under Article 1357 to compel D to execute the
necessary public instrument.

FOOD FOR THOUGHT

“Your attitude determines your direction.”

Ralph
Marston

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SUPPLEMENTARY LECTURE: Chapter 3 – Form of Contracts (Articles 1356-1358)

“Excellence is not a skill, it’s an attitude.”

Ralph Marston

“Don’t lower your expectations to meet your performance.

Raise your level of performance to meet your expectations.”
Ralph Marston

Prepared by :

Atty. Harriet Reyes Linsangan

28 September 2016

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