CONTRACTS

CHAPTERS 3 to 5

Art. 1356 provides:

“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 a contract be proved 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.”

1. What form should a contract be to be obligatory or enforceable or

binding?

In whatever form, it can be

 Oral
 In writing
 Partly oral and partly in writing

2. What are requisites in order that a contract will be obligatory,

enforceable or binding?

Contract must have object, consent, and cause

3. What are the classifications of a contracts according to form?

 Informal or common or simple contract – that which may be

entered into in whatever form provided all the essential
requisites for their validity are present. (Ex. contract of sale)

 Formal or solemn contract – that which is required by law for

its efficacy to be in a certain specified form

4. When is a contract required to be in a specified form?

 When the law requires that a contract be in some form to

be valid
 When the law requires that a contract be in some form to
be enforceable or prove in a certain way
 When the law requires that a contract be in some form for
the convenience of the parties or for the purpose of
affecting third person

Art. 1357 provides:

“If the law requires a document or other special form, as in the acts
and contract 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.
 Once a contract has been perfected the contracting parties may be
compelled to observe the form required of a contract. And the action to
compel and action upon a contract may be exercised simultaneously.

5. Give an example of the application of Art. 1357.

Ex. A orally offered to sell his land to B for P500,000, and B

accepted the offer. In order that disposition of a land to be
enforceable, the contract should be in a public instrument. Thus,
B may compel A to execute a notarized deed of sale to sell his
land to B.

Art. 1358 provides:

“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 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 involve 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.”

6. What contracts must appear in a public document?

 Creation, transmission, modification or extinguishment of

real property or of an interest therein
 Cession, repudiation, or renunciation of hereditary rights or
of the conjugal partnership of gains
 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
 Cession or action or rights proceeding from an act
appearing in a public document
7. Is the enumeration Art. 1358 exclusive and no other contract are
required to appear in a public document? No, the enumeration in Art.
1358 is not exclusive, some contracts that are not mentioned
under Art. 1358 should appear in a public document

8. Give an example of Creation, transmission, modification or

extinguishment of real property or of an interest therein

As a security for his debt D mortgaged his land to C. The contract

of mortgage must appear in a public document.

Extinguishment of a the mortgage must appear in a public

document

Sale of land must appear in a public document

9. Give an example of Cession, repudiation, or renunciation of hereditary

rights or of the conjugal partnership of gains

A is an heir of Z, A renounces his in the inheritance. The

renunciation must appear in a public instrument

10. Give an example of 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

Z appoints A to be his agent to manage the property of Z. The

appointment must appear in a public instrument

11. Give an example of Cession or action or rights proceeding from an act

appearing in a public document

A mortgaged his refrigerator to Z which appears in a public

instrument. The cancellation of mortgage must also appear in a
public instrument.

12. Suppose A bought a car from B for P200,000. Should the contract of
sale appear in a public instrument? No, it should only be in writing.

Art. 1359 provides:

“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 accidents has prevented a

meeting of the minds of the parties, the proper remedy is not reformation
of the instrument but annulment of the contract.”
13. What is the meaning of reformation?

Reformation is that remedy allowed by law by means of which a

written instrument is amended or rectified so as to express or conform
to the real agreement or intention of the parties when by reason of
mistake, fraud, inequitable conduct, or accident, the instrument fails to
express such agreement or intention

14. What are the requisites in order that reformation of the instrument may
be availed?

(1) There is a meeting of the minds of the parties

(2) The written instrument does not express the true agreement or
intention of the parties
(3) The failure to express the true intention is due to mistake,
fraud, inequitable conduct or accident

15. Is reformation available in an oral contract? No, reformation applies

only for written contract

16. Give an example of a contract, wherein reformation may be availed.

Ex. A and B entered into a contract wherein A sold to B one of A’s

horse for P100,000. A and B both agreed that the horse subject of
the contract is Silver, however, the contract that A and B signed,
indicated that the horse subject of the contract was Black Beauty.
The parties may reform the written agreement

17. Suppose A and B entered into a contract wherein A sold to B a horse

named Silver for P100,000. Before the parties entered into a contract
of sale, A showed to B a horse named Silver, which is not owned by
A.B agreed to buy the horse named Silver, that was shown by A to B.

A owns a horse also named Silver, which A did not show to B, but
which is inferior to the horse that A showed to B.

A and B signed a contract of sale for the horse Silver owned by A.

May B avail of reformation?

No, because there was no meeting of the mind. The remedy is

annulment, as provided in the 2nd par. of Art. 1359

Art. 1360 provides:

“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.”
Art. 1361 provides:

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

18. What are the requisites in order that reformation of the instrument may
be availed in case of mutual mistake by the parties?

(1) The mistake must be a mistake of fact

(2) The mistake must be mutual to the parties
(3) The mistake must cause the failure of the instrument to
express the true intention of the parties

19. Give an example of the application of Art. 1361.

Ex. A and B entered into a contract wherein A sold to B one of A’s

horse for P100,000. A and B both agreed that the horse subject of
the contract is Silver, however, the contract that A and B signed,
indicated that the horse subject of the contract was Black Beauty.
The parties may reform the written agreement

Art. 1362 provides:

“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 reformation of the instrument”

20. Give an example of the application of Art. 1362.

A agreed to sell his land to B for P 500,000 and it was agreed that
B shall pay all the expense relative to the transfer of ownership of
the property. B prepared the instrument and it was indicated in
the contract that A will shoulder or pay for all the expense relative
to the transfer of ownership.

A may ask for reformation.

Art. 1363 provides:

“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”

21. Give an example of the application of Art. 1363.

A agreed to sell his land to B for P 500,000 and it was agreed that
B shall pay all the expense relative to the transfer of ownership of
the property. A prepared the instrument and it was indicated in
the contract that A will shoulder or pay for all the expense relative
 to the transfer of ownership. B knew about the mistake but
concealed it from A.

A may ask for reformation.

Art. 1364 provides:

“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.”

In Art. 1364 neither of the parties is responsible for the mistake

22. Give an example of the application of Art. 1364.

A agreed to sell his land to B for P 500,000 and it was agreed that
B shall pay all the expense relative to the transfer of ownership of
the property. A asked a lawyer to prepare the instrument and the
instrument indicated that A will shoulder or pay for all the
expense relative to the transfer of ownership. A and B did not
know of the mistake.

Both A and B may ask for reformation.

Art. 1365 provides:

“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”

In Art. 1365 the parties agreed to a mortgage or pledge, but the

instrument states a contract of sale, in such a case, the instrument
may be reformed

Art. 1366 provides:

“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.

Reformation is not proper in case of mistake in simple donation inter

vivos, because it is purely an act of liberality on the part of the
donor, hence, the done cannot compel the donor to correct the
mistake

The will takes effect upon the death of the testator, hence,
reformation is not proper

Likewise, when the real agreement is void, there is nothing to reform

Art. 1367 provides:

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

23. Give an example of the application of Art. 1367.

A and B entered into a contract wherein A sold to B one of A’s

horse for P100,000. A and B both agreed that the horse subject of
the contract is Silver, however, the contract that A and B signed,
indicated that the horse subject of the contract was Black Beauty.

B brought an action to compel A to sell to him the horse name

Black Beauty, B cannot ask for reformation anymore, because B
already claims that the subject of the contract of sale is Black
Beauty.

Art. 1368 provides:

“Reformation may be ordered at the instance of either party or his

successors in interest, if mistake was mutual; otherwise, upon petition of
the injured party, or his heirs and assigns”

24. Who may ask for reformation?

 If mistake is mutual both contracting parties may ask for

reformation, or their successors in interest

 If mistake was made by only one of the contracting parties,

the party injured may ask for reformation

Art. 1369 provides:

“The procedure for the reformation of instruments shall be governed by

rules of court to be promulgated by the Supreme Court”
Art. 1370 provides:

“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”

25. What is the meaning of interpretation of a contract?

Interpretation of a contract is the determination of the meaning of

the terms or words used by the parties in their written contract. It is the
process of ascertaining the intention of the parties from the written
words contained in the contract

26. How should a contract be interpreted?

If the terms of the contract are clear and leave no doubt upon the
intentions of the contracting parties, the literal meaning of the
stipulation will control

If there is a conflict between the words of the contract, and the

intentions of the parties. The intention of the parties will prevail.

27. Give an example where the terms of the contract are clear and leaves
no doubt as to the intention of the parties.

A contract of sale was executed between A and B. The contract

states that A sells his land to B for P 100,000. In the contract A is
described as the seller and B as the buyer.

The contract is clear and leaves no doubt as to the intention of

the parties

28. Give an example where the intention of the parties and the words in
the contract are contradictory or in conflict.

A sold to B a parcel of land. The reasonable value of the land is P

1,000,000. The contract stated that the purchase price is P
100,000.

In this case, the purchase price of P 100,000 as indicated in the

contract appears to be contrary to the intention of the parties
Art. 1371 provides:

“In order to judge the intention of the contracting parties, their

contemporaneous and subsequent acts shall be principally considered”

29. What should be considered in determining the intention of the

contracting parties?

The contemporaneous and subsequent acts of the parties

30. What does contemporaneous mean?

Happening or occurring at the same time

31. Give an example of the application of Art. 1371

A and B entered into a contract entitled “Contract of Lease”. The

parties are referred to as Lessor and Lessee. It is stated in the
contract that the possession and ownership of the property will
be transferred to the Lessee, and the title to the property was
given to the Lessee.

Based on the acts of the parties, the intention of the parties is for
A and B to enter into a contract of sale

Art. 1372 provides:

“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”

When a contract has general and specific terms, the general term
shall not include those things which are different to the specific
terms.

Specific terms prevail over general terms

be interpreted to be

32. Give an example of the application of Art. 1372.

A sold his house to be, “including all the furniture therein”. The
term “all the furniture” should not include the appliances

Art. 1373 provides:

“If some stipulations of any contract should admit of several meaning, it

shall be understood as bearing that import which is most adequate to
render it effectual”
33. Give an example of the application of Art. 1373.

A sold a parcel of land he owns to B. A has 2 parcels of land of

the same size and adjacent to each other. One of the lot was
absolutely owned by A, while the other lot was co-owned by A
and Z.

The sale should refer to the lot absolutely owned by A.

Art. 1374 provides:

“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”

Art. 1374 means that a contract should be interpreted as a whole,

and doubtful terms should be interpreted in relation with other
terms, which would harmonize the doubtful terms

34. Give an example of the application of Art. 1374.

A leased his house to B. In the contract it was stated that B should

not sublease the house without the written consent of A.

Another stipulation stated that B should pay A P 1,000, additional

rent, should B violate the condition.

B subleased the house.

A cannot eject B for subletting the house, as the stipulation against

subletting should be read in relation to the penalty of additional rent

Art. 1375 provides:

“Words which may have different significations shall be understood in that

which is most in keeping with the nature and object of the contract”

35. How should words in a contract be interpreted?

Word should be interpreted in such a way that is most in keeping

with the nature and object of the contract

36. Give an example of the application of Art. 1375.

A leased to B a roof for the purpose of erecting an advertising sign.

The contract provides that the B may terminate the lease, if a
“building” is constructed adjacent to the roof, at such a height that it
would obstruct the sign.
A monument was erected adjacent to the roof leased by A to b, in
such a way that the view of the sign put up by B was obstructed.

The term “building” also includes the monument erected

Art. 1376 provides:

“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”

The usage and customs of the place will be considered in

interpreting the terms of a contract, in case of ambiguities

37. Give an example of the application of Art. 1376

A rendered service to B, but the contract did not provide for he

amount of compensation to be paid to B.

In this case the customary rate in the place shall be taken into
consideration in determining the compensation to be paid to B

Art. 1377 provides:

“The interpretation of obscure words or stipulation in a contract shall not

favor the party who caused the obscurity”

In case the obscurity or ambiguities in the words was caused by one

of the contracting parties, the interpretation of the words or
stipulation, shall not be in favor of the party that caused the
obscurity or ambiguity

38. Give an example of the application of Art. 1377

Art. 1378 provides:

“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 interest shall
prevail. If the contract is onerous, the doubt shall be settled in favour of
the greatest reciprocity of interest.

If the doubt 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.”

39. What is the rule in case it is impossible to settle the doubts in the
contracts?

Gratuitous contracts – if it refers to incidental circumstances, the

interpretation should be made which would result in the least
transmission of rights and interest

Onerous contracts – the doubt should be settled in favour of the

greatest reciprocity

Doubt is in the principal object of the contract – the contract is null

and void

40. Give an example of impossibility to resolve/settle doubts in a gratuitous

contract.

A gave his car to B. It is not clear whether the contract is

commodatum or donation

It should be interpreted as commodatum

41. Give an example of impossibility to resolve/settle doubts in an onerous

contract.

A borrowed P 10,000 from B with 12% interest per annum. It was

not clear as to when A should pay the whole loan.

In determining the term of the loan, the reciprocal benefits to both

A and B should be considered

42. Give an example of impossibility to resolve/settle doubts when the

doubt is the principal object of the contract.

A sold to B a race horse for P 100,000. However, A has hundreds

of race horses

The contract is null and void

Art. 1379 provides:

“The principle of interpretation stated in Rule 123 of the Rules of Court

shall likewise be observed in the construction of the contract”