CONTRACTS
CHAP 2: ESSENTIAL REQUISITES OF A CONTRACT
Art. 1318.
There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
The essential elements are those without which there can be no contract;
The natural elements are those which are derived from the very nature of the contract, and as a
consequence, ordinarily accompany the same, although they can be excluded by the contracting parties
if they so desire;
The accidental elements are those which exist only when the contracting parties expressly provide
for them for the purpose of limiting or modifying the normal effects of the contract.
The law imposes the essential elements, presumes the natural and authorizes the accidental; conversely,
the will of the contracting parties conforms to the first, accepts or repudiates the second and establishes
the third.
CONSENT
Art. 1319.
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offeror 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.
Consent defined as the concurrence of the wills of the contracting parties with respect to the object and
the cause which shall constitute the contract.
Requisites of consent:
(1) Consent must be manifested by the concurrence of the offer and the acceptance (Arts. 1319-
1326)
(2) Contracting parties must possess the necessary legal capacity (Arts. 1327-1327); and
(3) Consent must be intelligent, free, spontaneous, and real (Arts. 1330-1346).
General Rule: Contracts are perfected from the moment that there is a manifestation of the concurrence
between the offer and the acceptance with respect to the object and the cause which shall constitute the
contract. (Art. 1319, par. 1, New Civil Code.)
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Chapters 2-5
Exception: If the acceptance is made by letter or telegram, the contract is perfected from the moment
that the offeror has knowledge of such acceptance.
Exception to the exception: Art. 54 of the Code of Commerce, the contract is perfected from the moment
an answer is made accepting the offer. Code of Commerce can now be applied only to purely
commercial contracts, such as joint accounts, maritime contracts, etc.
Jurisprudence
De Lim vs Sun life Assurance Co.
“It is of course a primary rule that a contract of insurance, like other contracts, must be assented to by
both parties either in person or by their agents. So long as an application for insurance has not been
either accepted or rejected, it is merely an offer or proposal to make a contract.”
Character of offer and acceptance
Offer
▪ An offer may be defined as a proposal to make a contract; and
▪ Must be certain and definite.
Acceptance
▪ Must be certain and definite
▪ Must be absolute in character
▪ Must be plain and unconditional; and
▪ Unequivocal and without variance of any sort from the proposal.
Acceptance of complex offers
General rule: Acceptance of one of the offers creates a contract.
Exceptions:
• If the one offer is dependent to the other offer; and
• Prospective contracts which are comprised in a single offer may be so interrelated in such a
way that the acceptance of one would not at all result in a perfected contract.
Acceptance by letter or telegram. Four theories:
(1) The manifestation theory (manifestación) — According to this theory, the contract is perfected from
the moment the acceptance is declared or made. This is the theory which is followed by the Code of
Commerce.
(2) The expedition theory (expedición) — According to this theory, the contract is perfected from the
moment the offeree transmits the notification of acceptance to the offeror, as when the letter is
placed in the mailbox. This is the theory which is followed by the majority of American courts.
 CONTRACTS Chapters 2-5

(3) The reception theory (recepción) — According to this theory, the contract is perfected from the
moment that the notification of acceptance is in the hand of the offeror in such a manner that he
can, under ordinary conditions, procure the knowledge of its contents, even if he is not able actually
to acquire such knowledge by reason of absence, sickness or some other cause. This is the theory
which is followed by the German Civil Code.
(4) The cognition theory (cognición) — According to this theory, the contract is perfected from the
moment the acceptance comes to the knowledge of the offeror. This is the theory which is followed
by the Spanish Civil Code.
Note: Philippines adopts the Spanish Civil Code theory (Cognition Theory).
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.
Option defined
‘An agreement in writing to give a person the ‘option’ to purchase lands within a given time at a named
price is neither a sale nor an agreement to sell. It is simply a contract by which the owner of property
agrees with another person that he shall have the right to buy his property at a fixed price within a
certain time.

Jurisprudence Jurisprudence
Enriquez vs Sun life assurance co. Beaumont vs Prieto
Francisco Vs GSIS
General rule: Actual knowledge of the acceptance. Consequently, mere receipt of the letter or telegram Art. 1325.
is not sufficient. Once it is established that the offeror has received the letter or telegram, there arises Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere
a presumption that he has read the contents thereof. invitations to make an offer.

Exception: Constructive knowledge. Art. 1326.

Withdrawal of offer 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.
The rule is that he may still withdraw his offer or proposal so long as he still has no knowledge of the
acceptance by the offeree. Art. 1327.
The following cannot give consent to a contract:
Jurisprudence (1) Unemancipated minors
Laudico Vs Arias (2) Insane or demented persons, and deaf-mutes who do not know how to write.
“Under Article 1262, paragraph 2 (now Art. 1319, par. 2) of the Civil Code, an acceptance by the
latter does not have any effect until it comes to the knowledge of the offeror. Therefore, before he
learns of the acceptance, the latter is not yet bound by it and can still withdraw the offer.” Legal capacity of the contracting parties
The capacity of the contracting parties is, in effect, an essential element of a contract, or to be more
Art. 1320. exact, it is an indispensable requisite of consent.
An acceptance may be express or implied.
Incapacitated persons
Art. 1321. (1) Unemancipated minors
The person making the offer may fix the time, place, and manner of acceptance, all of which must be (2) insane or demented persons
complied with. (3) deaf-mutes who do not know how to write.

Art. 1322. Because the law incapacitates them to give their consent to a contract, the only way by which any one
An offer made through an agent is accepted from the time acceptance is communicated to him. of those enumerated above can enter into a contract is to act through a parent or guardian.
Effect on the contract
Art. 1323. • If only one of the contracting parties is incapacitated to give his consent, the contract is
An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party voidable.
before acceptance is conveyed.
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 CONTRACTS
• If both of them are incapacitated to give their consent, the contract is unenforceable.
Unemancipated Minor
Nevertheless, there are five exceptional cases where a contract entered into by an unemancipated
minor may have all of the effects of a valid contract. They are:
• When it is entered into by a minor who misrepresents his age
o Based on principle of estoppel
o The misrepresentation must be active
• When it involves the sale and delivery of necessaries to the minor
• When it involves a natural obligation and such obligation is fulfilled voluntarily by the minor,
provided that such minor is between eighteen and twenty-one years of age
• When it is a marriage settlement or donation propter nuptias, provided that the minor is between
twenty and twenty-one years of age, if male, or between 18 and 21 years of age, if female;
and
• When it is a life, health or accident insurance taken on the life of the minor, provided that the
minor is 18 years old or more and the beneficiary appointed is the minor’s estate, or the minor’s
father, mother, husband wife, child, brother, or sister
Jurisprudence
Braganza vs Villa Abrille
Insane or demented
Include any person, who, at the time of the celebration of the contract, cannot understand the nature
and consequences of the act or transaction by reason of any cause affecting his intellectual or sensitive
faculties, whether permanent or temporary. Art. 1328, however, provides that a contract entered into
during a lucid interval is valid.
There is a presumption that every person of legal age possesses the necessary capacity to execute a
contract, but the presumption is prima facie and may be rebutted by proper evidence. He who asserts
incapacity shall have the burden of proof.
Deaf Mutes
If he can write it is valid, if not it is voidable or unenforceable.
Other Incapacitated persons
• Married women of age in cases specified by law;
• Persons suffering from civil interdiction; and
• incompetents who are under guardianship.
Under Sec. 2 of Rule 92 of the New Rules of Court, the word “incompetent’’ includes:
(1) Persons suffering from civil interdiction;
(2) Hospitalized lepers;
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(3) Prodigals;
(4) Deaf and dumb who are unable to read and write;
(5) Those who are of unsound mind, even though they have lucid intervals; and
(6) Those who by reason of age, weak mind, and other similar causes, cannot, without outside aid,
take care of themselves and manage their property becoming thereby an easy prey for deceit
and exploitation.
Art. 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.
Art. 1329.
The incapacity declared in Article 1327 is subject to the modification determined by law, and is
understood to be without prejudice to special disqualifications established in the laws.
It is apparent that the persons specially disqualified mentioned in Art. 1329 refer to those who are
prohibited from entering into a contract with certain persons with regard to certain property under
certain circumstances and not to those who are incapacitated to give their consent to a contract.
Incapacity vs Disqualification
(1) Incapacity restrains the exercise of the right to contract, while prohibition to contract
restrains the very right itself; in other words, a person who is incapacitated can still enter
into a contract, but he must do so through his parent or guardian, while one who is prohibited
from entering into a particular contract is absolutely disqualified from entering into that
contract;
(2) Incapacity is based upon subjective circumstances of certain persons which compel the law
to suspend for a definite or indefinite period their right to contract, while prohibition to
contract, which has been improperly called special incapacity by certain authors, is based
upon public policy and morality; and
(3) A contract entered into by an incapacitated person is merely voidable in accordance with
Art. 1390 of the Civil Code, while that entered into by one against whom a prohibition is
directed is void in accordance with Arts. 5 and 1409, No. 7, of the Civil Code.
Art. 1330.
A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is
voidable.
Vices of consent
Vices of consent may be divided into two distinct groups:
• Vices of the will (vicios de la formacion de la voluntad)
 CONTRACTS Chapters 2-5

o Comprehends mistake, violence, intimidation, undue influence, and fraud;

• Vices of declaration (vicios de la declaracion) Classes of Mistake of facts
o The second comprehends all forms of simulated contracts.
Requisites of a consent (1) Mistake as to object (error in re): This is the mistake which is referred to in the first paragraph
• Must be intelligent; of Art. 1331 of the Code. It may be subdivided into the following:
o Vitiated by mistake or error a. Mistake as to the identity of the thing (error in corpore), as when the thing
o Voidable which constitutes the object of the contract is confused with another thing;
• Must be free; and b. Mistake as to the substance of the thing (error in substantia)
o Vitiated by violence, intimidation and undue influence. c. Mistake as to the conditions of the thing, provided such conditions have
o Voidable principally moved one or both parties to enter into the contract; and
d. Mistake as to the quantity of the thing (error in quantitate), provided that the
• Must be spontaneous.
extent or dimension of the thing was one of the principal reasons of one or
o Fraud.
both of the parties for entering into the contract.
o Voidable
• Must be real. (2) Mistake as to person (error in persona): This kind of mistake or error may refer either to the
o Vitiated by simulation of contracts. name or to the identity or to the qualification of a person.
o Void ab initio.
Requisites:
Art. 1331.
• Mistake must be either with regard to the identity or with regard to the qualification of one of
In order that mistake may invalidate consent, it should refer to the substance of the thing which is the
the contracting parties; and
object of the contract, or to those conditions which have principally moved one or both parties to enter
into the contract. • Such identity or qualification must have been the principal consideration for the celebration of
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. Jurisprudence
Asiain vs Jalandoni
A simple mistake of account shall give rise to its correction.
Art. 1332.
Mistake When one of the parties is unable to read, or if the contract is in a language not understood by him,
Defined not only as the wrong conception of a thing, but also as the lack of knowledge with respect to and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have
a thing. been fully explained to the former.

Mistake which vitiates consent Voidable

• Mistake of Fact Art. 1333.

o When one or both of the contracting parties believe that a fact exists when in There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of
reality it does not, or that such fact does not exist when in reality it does. the contract.
• Mistake of Law.
o When one or both of the contracting parties arrive at an erroneous conclusion Art. 1334.
regarding the interpretation of a question of law or the legal effects of a certain act Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated,
or transaction. may vitiate consent.

General Rule: Only mistake of fact vitiates consent; rendering the contract voidable.
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 CONTRACTS Chapters 2-5

Mistake of law
Requisites to vitiate consent
• Mistake must be with respect to the legal effect of an agreement;
• Mistake must be mutual; and
• Real purpose of the parties must have been frustrated.
Art. 1335
There is violence when in order to wrest consent, serious or irresistible force is employed.
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 the 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.
Art. 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.
Violence vs Intimidation
• Violence is external, intimidation is internal;
• Violence prevents the expression of the will substituting it with a material act dictated by
another, Intimidation influences the operation of the will, inhibiting it in such a way that the
expression thereof is apparently that of a person who has freely given his consent.
• Violence is physical compulsion, while intimidation is moral compulsion.
Note: Just and legal threat does not vitiate consent.
Art. 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.
Test of Undue Influence
The test, therefore, in order to determine whether or not there is undue influence which will invalidate a
contract is to determine whether or not the influence exerted has so overpowered or subjugated the
mind of a contracting party as to destroy his free agency, making him express the will of another rather
than his own.
Art. 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.
Kinds of Fraud
• Fraud in perfection of contract
o Dolo causante (1338)
▪ Refers to those deceptions or misrepresentations of a serious character
employed by one party and without which the other party would not have
entered into the contract.
o Dolo incidente (1344)
▪ Refers to those deceptions or mispresentations which are not serious in
character and without which the other party would still have entered into the
contract.
• Fraud in performance of an obligation.

Requisites of violence Causante vs Incidente

• One of the contracting parties is compelled to give his consent by a reasonable and well- (1) The first refers to a fraud which is serious in character, while the second is not serious.
grounded fear of an evil; (2) The first is the cause which induces the party upon whom it is employed in entering into the
• The Evil must be imminent and grave; contract, while the second is not the cause.
• The evil must be unjust; and (3) The effect of the first is to render the contract voidable, while the effect of the second is to
• The evil must be the determining cause for the party upon whom it is employed in entering render the party who employed it liable for damages.
into the contract.
Requisites
Character of intimidation (1) Fraud or insidious words or machinations must have been employed by one of the
That the threat or intimidation must be actual, serious and possible of realization, and that the actor can contracting parties;
and still will carry out his threat. (2) The fraud or insidious words or machinations must have been serious;

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 CONTRACTS Chapters 2-5

(3) The fraud or insidious words or machinations must have induced the other party to enter into Art. 1344.
the contract; and In order that fraud may make a contract voidable, it should be serious and should not have been
(4) The fraud should not have been employed by both of the contracting parties or by third employed by both contracting parties. Incidental fraud only obliges the person employing it to pay
persons. damages.

Before a contract can be invalidated because of fraud, it is, however, essential that there must be proof
of concrete facts constituting the fraud or insidious words or machinations employed by one of the
contracting parties by virtue of which the other party was induced to enter into the contract, which,
without them, he would not have agreed to.
Furthermore, it is also essential that such insidious words or machinations must be prior to or
contemporaneous with the birth or perfection of the contract.
Jurisprudence
Eguaras vs Great Eastern Life Assurance Co.
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.
Art. 1346.
An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary to law, morals, good customs, public order or
public policy binds the parties to their real agreement.
Simulation of Contracts (Vices of Declaration)

Art. 1339. Absolute

Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by
confidential relations, constitutes fraud.
Art. 1340.
The usual exaggerations in trade, when theother party had an opportunity to know the facts, are not in
themselves fraudulent.
When the exaggerations were validated by the party, he cannot raise the defense of fraud.
When there is colorable contract but it has no substance as the contracting parties do not intend to be
bound by the contract at all, as when a debtor simulates the sale of his properties to a friend in order
to prevent their possible attachment by creditors.
The basic characteristic of this type of simulation of contract is the fact that the apparent contract is not
really desired or intended to produce legal effects or in any way alter the juridical situation of the
parties.

Art. 1341. Relative

A mere expression of an opinion does not signify fraud, unless made by an expert and the other party When the contracting parties state a false cause in the contract to conceal their true agreement, as when
has relied on the former’s special knowledge. a person conceals a donation by simulating a sale of the property to the beneficiary for a fictitious
consideration.
Jurisprudence
Songco vs Sellner Note: Absolute simulation is void. Relatively simulated contract binds the parties and the parties may
“It is of course elementary that a misrepresentation upon a mere matter of opinion is not an actionable recover from each other what they may have given under the contract.
deceit, nor is it a sufficient ground for avoiding a contract as fraudulent.”
Contracts of Adhesion
Art. 1342. Only one party prepares the contract and the other only affix his signature signifying his adhesion
Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created thereto.
substantial mistake and the same is mutual. OBJECT

Art. 1343. Object of a contract may be defined as the thing, right or service which is the subject matter of the
Misrepresentation made in good faith is not fraudulent but may constitute error. obligation which is created or established.

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Art. 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 in transmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except 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.
Art. 1348.
Impossible things or services cannot be the object of contracts.
Art. 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.
General Rule: All things or services may be the object of contracts.
Requisites
• The object should be within the commerce of men; in other words, it should be susceptible of
appropriation and transmissible from one person to another.
• The object should be real or possible; in other words, it should exist at the moment of the
celebration of the contract, or at least, it can exist subsequently or in the future.
• The object should be licit; in other words, it should not be contrary to law, morals, good
customs, public order or public policy.
• The object should be determinate, or at least, possible of determination, as to its kind.
Appropriability and transmissibility.
Requisites to be inside the commerce of men
• The thing, right or service should be susceptible of appropriation; and
• It should be transmissible from one person to another.
Properties outside the commerce of men
(1) those things which are such by their very nature, such as common things like the air or the sea,
sacred things, res nullius, and property belonging to the public domain.
(2) those which are made such by special prohibitions established by law, such as poisonous
substances, drugs, arms, explosives, and contrabands; and
(3) those rights which are intransmissible because either they are purely personal in character,
such as those arising from the relationship of husband and wife, like jus consortium, or from the
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relationship of paternity and filiation, like patria potestas, or they are honorary or political in
character, such as the right to hold a public office and the right of suffrage.
Existence of Object. Object of a contract is that it should be in existence at the moment of the celebration
of the contract, or at least, it can exist subsequently or in the future.
Things which have perished cannot be an object of a contract.
Future things may be the object of a contract: Conditional or aleatory. In case of doubt conditional.
Future inheritance cannot be the subject of contract except when there is a well defined properties
existing at the time of the agreement.
Exceptions:
(1) Under Art. 130 of the Code, which allows the future spouses to give or donate to each
other in their marriage settlement their future property to take effect upon the death
of the donor and to the extent laid down by the provisions of the Civil Code relating
to testamentary succession; and
(2) Under Art. 1080 of the Code, which allows a person to make a partition of his estate
by an act inter vivos, provided that the legitime of compulsory heirs is not prejudiced.
Impposible Things and service
Absolute (void)
Relative
Determinability of object. — It is also an indispensable requisite that the object is determinable, or at
least, determinable, as to its kinds.
CAUSE
Art. 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.
Art. 1351.
The particular motives of the parties in entering into a contract are different from the cause thereof.
Concept of cause
Cause is the why of the contract or the essential reason which moves the contracting parties to enter into
the contract.
• 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 contracts, it is the service or benefit which is remunerated; and
• In contracts of pure beneficence, it is the liberality of the benefactor.
Distinguished from consideration, cause (causa) broader than consideration from Anglo-american Law.
 CONTRACTS Chapters 2-5

Cause vs Motive CHAP 3: FORMS OF CONTRACTS

(1) While the cause is the direct or most proximate reason of a contract, the motives are the
indirect or remote reasons;
(2) While the cause is the objective or juridical reason of a contract, the motives are the
psychological or purely personal reasons;
(3) While the cause is always the same, the motives differ for each contracting party; and
(4) While the legality or illegality of the cause will affect the existence or validity of the contract,
the legality or illegality of the motives will not affect the existence of the contract.
Note: Motive becomes causa when it predetermines the purpose of the contract.
Jurisprudence
Liguez vs Court of Appeals
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.
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 contracts must be proven in a certain way.
(3) When the law requires a special form.

Note: In accessory contracts the cause of the principal is the same with the accessory. Verbal extra judicial partition of property is VALID and BINDING among parties
EXCEPTIONS:
Art. 1352.
Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it It does not include those contracts for which the law prescribes a certain form either for validity or for
is contrary to law, morals, good customs, public order or public policy. enforceability.

Art. 1353. The statement of a false cause in contracts (1) When the law requires that the contract must be in a certain form in order to be valid;
shall render them void, if it should not be proved that they were founded upon another cause which is (2) When the law requires that the contract must be in a certain form n order to be enforceable.
true and lawful.
Formalities for validity
Art. 1354. (1) must appear in writing;
Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the (2) must appear in public document;
debtor proves the contrary. (3) must be registered.

Art. 1355. Forms required by the law for the execution of certain contracts may divided into:
Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless
(1) Those which are necessary for the convenience of the contracting parties of for the efficacy of
there has been fraud, mistake or undue influence.
contracts;
(2) Those which are necessary for the validity of the contract;
Essential Requisites of Cause
(3) Those which are necessary for the enforceability of the contract.
• The cause should be in existence at the time of the celebration of the contract.
• The cause should be licit or lawful; and Article 1357. If the law requires a document or other special form, as in the acts and contracts
• The cause should be true. 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
Note: If the contract has no cause, or even if it has, if the cause should be illicit or unlawful, the rule is upon the contract.
that it shall not produce any effect whatsoever, or what amounts to the same thing, it is inexistent or
void from the beginning. • The coercive power to the contracting parties by which they can reciprocally compel the
observance of the required form

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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 a 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.
Contracts which must appear in a public document
• The law does NOT require the accomplishment of certain acts OR contracts in a public
instrument in order to validate the act OR contract
BUT ONLY to insure its efficacy so that after the existence of the act OR contract has
been admitted/established, the party bound may be compelled to execute the document.
• Formal requirements are for the benefit of third parties
for the purpose of informing as well as binding them.
Non-compliance does NOT adversely affect the validity of the contract NOR the
contractual rights and obligations of the parties.
• Public document/instrument
one which is acknowledged before a notary public OR any official authorized to
administer oath, by the person who executed the same;
any other instrument is private, UNLESS it becomes part of an official record and is
certified by a public officer duly authorized by law
Provisions in NCC that must be in:
(1) WRITING
- Art. 748 - A donation of personal property whose value exceeds 5,000
pesos
- Art. 1874 - Sale of a piece of land or any interest therein through an agent
- Art. 1956 – Agreements regarding payment of interest in contract of loan
- Art. 2134 – Antichresis (The creditor acquire his right to receive the fruits of
an immovable of his debtor, with the obligation to apply them or the
payment of the interest if owing, and thereafter to the principal of his credit.)
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Chapters 2-5
(2) PUBLIC DOCUMENT/ INSTRUMENT
- Art. 749 – Donations of immovable property
- Art. 1771 and 1773 – Partnerships where immovable property or real rights
are contributed to the common fund.
(3) WRITING & PUBLIC DOCUMENT – REGISTERED
- Art. 2140 – Chattel Mortgages
- Art. 1358 – Sales or transfer of large cattle.
CHAP 4: REFORMATION OF INSTRUMENT
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.
Reformation
Reformation is that remedy 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.
Doctrine of Reformation of instruments
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 reformation of instruments so that true
intention may be expressed.
It is based on JUSTICE and EQUITY
Requisites of reformation.
In order that reformation may be availed of as a remedy, the following requisites must be present:
(1) There is a meeting of the minds of the parties to the contract;
(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;
 CONTRACTS
Reformation vs. Annulment
Reformation Annulment
Presupposes perfectly valid contract in which Based on a defective contract in which there has
there was a meeting of minds of the contracting been no meeting of the minds because the
parties. consent of one or both parties has been vitiated
Gives life to a contract, upon certain conditions Complete nullification
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.
• if the party is guilty of concealment and attended with bad faith therefore reformation is
authorized to avoid injustice and inequity while if the second party is not aware of the
imperfection and acted in good faith as the first party therefore the mistake becomes mutual
and reformation is authorized.
The remedy of formation may be availed of the party who acted in good faith. The
concealment mistake by the other party constitute Fraud.
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.
• Ignorance, lack of skill, negligence or bad faith must be on the part of a third person. Under
the above article, neither party is responsible for the mistake. Hence, either party may ask for
reformation.
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.
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When reformation 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.
(Art. 725.) When the donor intends that the donation shall take effect during his lifetime, it is
a donation inter vivos. It is distinguished from donation mortis causa in that this kind of donation
takes effect after the donor’s death.
(a) In donation, the act is essentially gratuitous and the donee has, therefore, no just
cause for complaint. If in the deed of donation, a mistake or defect has been
committed, it is a mere failure in a bounty which, as the donor was not bound to make,
he is not bound to correct. The donor may ask for the reformation of a deed of donation.
(b) If the donation is conditional or is onerous in character, the deed may be reformed
so that the true conditions imposed by the donor or the real intention of the parties might
be expressed.
(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. (Art.
783.) Like a donation, the making of a will is a strictly personal and a free act which cannot
be left to the discretion of a third person (Art. 784.), hence, upon the death of the testator,
the right to reformation is lost. Furthermore, a will may be revoked by the testator any time
before his death and this right is not subject to waiver or restriction. (see Art. 828.)
(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.
Article 1367. When one of the parties has brought an action to enforce the instrument, he cannot
subsequently ask for its reformation.
• Article 1367 is based on estoppel (Art. 1431.) or ratification. 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.
Art. 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.
• If mistake is not mutual, the reformation of the instrument may be petition by the injured party,
his heirs or assigns. An action for reformation of a contract prescribes after 10 years.
 CONTRACTS Chapters 2-5

CHAP 5: INTERPRETATION OF CONTRACTS

Article 1375. Words which may have different significations shall be understood in that which is most in
Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the keeping with the nature and object of the contract.
contracting parties, the literal meaning of its stipulations shall control.
Article 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.
over the former. (1281)
Article 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party
• Interpretation of a contract is the determination of the meaning of the terms or words used who caused the obscurity.
by the parties in their contract.
Article 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding
• It is a cardinal rule in the interpretation of contracts that if the terms of a contract are articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission
clear and leave no doubt upon the intention of the contracting parties, the literal of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the
meaning of its stipulation shall control. The Court must not read into any other intention greatest reciprocity of interests.
of the contracting parties contradictory to the plain meaning.
If the doubts are cast upon the principal object of the contract in such a way that it cannot be known
Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and what may have been the intention or will of the parties, the contract shall be null and void.
subsequent acts shall be principally considered.
Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be
Article 1372. However general the terms of a contract may be, they shall not be understood to observed in the construction of contracts.
comprehend things that are distinct and cases that are different from those upon which the parties
intended to agree.
• Even if the terms used in the contract/agreement may be general, the interpretation
should NOT ever be far from the intention of the parties; that intention to be
determined according to circumstances.
• GENERAL RULE: Where in a contract there are general and special provisions
covering the same subject matter that are inconsistent,
• Special provisions prevail over general provisions when the two CANNOT stand
together.
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.
• When an agreement is susceptible of several meanings, one of which would
render it effectual, it should be given that interpretation. Thus, if one interpretation
makes a contract valid or effective and the other makes it illegal or meaningless, the
former interpretation is one which is warranted by the rule stated in Article 1373.

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.
• A contract must be interpreted as a whole and the intention of the parties is to be
gathered from the entire instrument and not from particular words, phrases, or
clauses. All provisions should, if possible, be so interpreted as to harmonize with each
other.
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