FORM OF CONTRACTS

ART. 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

The form of a contract refers to the manner in which a contract is executed or manifested.

(1) The contract may be (a) parol or oral, or (b) in writing, or (c) partly oral and partly in writing. If in writing, it may be in a public or a private
instrument.

(2) A contract need not be contained in a single writing. It may be collected from different writings which do not confl ict with each other and
which when connected, show the parties, subject matter, terms and consideration, as in contracts entered into by correspondence

importance

(1) In a case, “only the price and the terms of payment were in writing,’’ but the most important matter in the controversy, the alleged transfer of
title was never “reduced to any written document.’’ It was held that the contract should not be considered as a written but an oral one, not a sale
but a promise to sell; and that “the absence of a formal deed of conveyance’’ was a strong indication “that the parties did not intend immediate
transfer of title but only a transfer after full payment of the price.’

2 aspects

(1) Intent or will. — This is internal and as long as a contract exists merely as a psychological fact, it produces no legal effect, because the law
cannot take cognizance of its existence; and

(2) Expression of such intent or will. — It is necessary, in order that the will may produce legal effect, that it be expressed. This expression or
declaration of the will is its form. On this basis, contracts are divided into formal and informal.

Classifi cation of contracts according to form.

(1) Informal or common contract or that which may be entered into in whatever form, provided, all the essential requisites for their validity are
present. (Art. 1356.) This refers only to consensual contracts (Art. 1356.), such as the contract of sale. An informal contract may be oral or
written; and

(2) Formal or solemn contract or that which is required by law for its effi cacy to be in a certain specifi ed form

(1) General rule. — Contracts are binding and, therefore, enforceable reciprocally by the contracting parties, whatever may be the form in which
the contract has been entered into provided all the three essential requisites

(2) Exceptions. — The form, however, is required in the following cases:

(a) when the law requires that a contract be in some form to be valid;

(b) when the law requires that a contract be in some form to be enforceable or proved in a certain way;

(c) when the law requires that a contract be in some form for the convenience of the parties or for the purpose of affecting third persons.

There are rare cases when the law requires that a contract be in a certain form for the validity of the contract such as those mentioned
below

(1) Donation of real property. — It must be in a public instrument.

(2) Donation of personal property the value of which exceeds P5,000.00.

(3) Sale of land through an agent. — The authority of the agent must be in writing; otherwise, the sale is void.

(4) Contract of antichresis. — The amount of the principal and of the interest must be specifi ed in writing. ( a transfer of possession of the
pledged real property from the debtor to the creditor, including the the fruits or rent income therefrom, )

(5) Stipulation to pay interest. — It must be in writing; otherwise, no interest is due.

(6) Contract of partnership. — If immovables are contributed, it must be in a public instrument to which shall be attached a signed inventory of
the immovable property contributed.

(7) Transfer or sale of large cattle. — It must be registered (so it must be in a public instrument) and a certifi cate of transfer secured

(8) Negotiable instruments. — They must be in writing

In the cases of contracts covered by the Statute of Frauds, the law requires that they be in writing subscribed by the party charged or by his agent.
(Art. 1403[2].) If the contract is not in writing, the contract is valid (assuming all the essential elements are present) but, upon the objection of a
party, it cannot be proved and, therefore, it cannot be enforced unless it is ratifi ed
Statute of Frauds defined (Article 1403, paragraph 2) requires that certain contracts be in writing, and that they be signed by all parties to be
bound by the contract. Although there can be significant variation between jurisdictions, the most common types of contracts to which a statute of
fraud applies is:
o Contracts in consideration of marriage.
o Contracts which cannot be performed within one year.
o Contracts for the sale of an interest in land.
o Contracts by the executor of a will to pay a debt of the estate with his own money.
o Contracts for the sale of goods above a certain value.
o Contracts in which one party becomes a surety (acts as guarantor) for another party’s debt or other obligation.
Law students often remember these circumstances by the mnemonic “MYLEGS” (marriage, year, land, executor, goods, surety).

The requirement that certain contracts be in certain forms to be valid or enforceable is calculated to avoid litigation. Oral contracts frequently lead
to fraud in the fulfi llment of obligations or to false testimony

ART. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the
contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised
simultaneously with the action upon the contract

In certain cases, a certain form (e.g., public instrument) is required for the convenience of the parties in order that the contract may be registered
in the proper registry to make effective, as against third persons, the right acquired under such contract. Non-compliance with the required form
would not adversely affect the validity nor enforceability of the contract between the parties themselves.

As between the parties, the form is not indispensable since they are allowed by law to compel the other to observe the proper form and this right
may be exercised simultaneously with the action to enforce the contract. It is essential, however, before a party may be compelled to execute the
required form, that the contract be both valid and enforceable.

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

(1) Acts and contracts which have for their object the creation, transmission, modifi cation or extinguishment of real rights over
immovable property; sales of real property or of an interest therein are governed by Articles 1403, No. 2, and 1405;

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

(3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public
document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds fi ve 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

The contracts covered by this article are valid and enforceable though not embodied in a public document or instrument or in writing. The public
document is required only for the convenience and greater protection of the parties and registration is needed only to make the contract effective
as against third persons

In other words, the law does not require accomplishment of certain acts or contracts in a public instrument in order to validate the act or contract
but only to insure its effi cacy so that after the existence of the act or contract has been admitted or established, the party bound may be compelled
to execute the document.

Formal requirements are, therefore, for the benefi t of third parties for the purpose of informing as well as binding them. Non-compliance
therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder

Incidentally, a public document or instrument is one which is acknowledged before a notary public or any offi cial authorized to administer oath,
by the person who executed the same.2 The party making the acknowledgment formally declares that the instrument is his free act and deed while
the offi cer taking the same attests and certifi es that such party is known to him and that he is the same person who executed the instrument and
acknowledged that the instrument is his free act and deed.3 Any other instrument is private.

A private document, however, acquires the character of a public document when it becomes part of an offi cial record and is certifi ed by a public
offi cer duly authorized by law.

Probative value of public documents.

(1) The effect of the notarization of a private document is to convert the said document into a public one and render it admissible in evidence in
court without further proof of its authenticity and due execution

(2) Public documents are entitled to full faith and credit on their face in the absence of any clear and convincing evidence, more than merely
preponderant, that their execution was tainted by defects or irregularities that would warrant a declaration of nullity.

(3) They enjoy the presumption of validity and regularity. It is not, however, the intention nor the function of the notary public to validate and
make binding an instrument never, in the fi rst place, intended to have any binding legal effect upon the parties thereto. The presumption is not
absolute and, as stated above, may be rebutted by clear and convincing, not merely preponderant, evidence to the contrary. Furthermore,
notarization per se is not a guarantee of the validity of the contents of a document.

Action to compel execution of contract in public instrument.

Under Article 1357, the parties may compel each other to have the contract reduced in proper form and the action may be fi led simultaneously
with the suit to enforce the contract. But the latter action may be brought without the bringing of the former.

The reduction to writing in a public or private document, required by the law with respect to certain contracts, is not an essential requisite of their
existence, but is simply a coercive power granted to the contracting parties by which they can reciprocally compel the observance of these formal
requisites.

The contract can be enforced even if it may not be in writing.

But before the contract can be reduced in proper form or enforced, it may be necessary to prove its existence

Legal recognition of electronic data messages and electronic documents.

R.A. No. 8792, otherwise known as the “Electronic Commerce Act

Sec6,7,38

REFORMATION OF INSTRUMENTS

ART. 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 is that remedy by means of which a written instrument is amended or rectifi ed 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. It is to be distinguished from interpretation.

“Equity orders the reformation of an instrument in order that the intention of the contracting parties may be expressed

The courts do not attempt to make another contract for the parties. The rationale of the doctrine is that it would be unjust and inequitable to allow
the enforcement of a written instrument which does not refl ect or disclose the real meeting of the minds of the parties

Requisites of reformation

(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;

(4) The facts upon which relief by way of reformation of the instrument is sought are put in issue by the pleadings; and

(5) There is clear and convincing evidence1 (which is more than mere preponderance of evidence) of the mistake, fraud, inequitable conduct, or
accident

Both parties must have executed a writing that does not refl ect their actual agreement. Reformation is thus not available where no writing exists,
or a writing exists, but the parties do not intend it to express their fi nal agreement, or no attempt is made to show any vice of consent therein.

Ultimate facts to be alleged and proved in action for reformation.

(1) In an action for the reformation2 of an instrument, the complaint must allege the true agreement or intention of the parties and that the
instrument to be reformed does not express such agreement or intention. In the absence of such allegation, there is no cause of action stated. It is
not the function of the remedy to make a new agreement, but to establish and perpetuate the true existing contract between the parties which,
under the technical rules of law, could not be enforced but for such reformation.

(2) The onus probandi is upon the party who insists that the contract should be reformed because of its failure to express the true intention of the
parties because the presumption is that an instrument sets out the true agreement of the parties. A contract may not be reformed simply because a
party later fi nds itself at the shorter end of an unwise bargain. It is only when the agreement is shown to be so grossly unjust as to be unduly
oppressive that the strong arm of equity may intervene to grant relief to the aggrieved party.

What constitutes inequitable conduct. Inequitable conduct, to warrant relief by way of reformation, has been held to consist in doing acts, or
omitting to do acts, which the court fi nds to be unconscionable. Examples are:

(1) Taking advantage by one party of the other party’s illiteracy; (2) abusing confi dence; (3) concealing what of right should have been
disclosed; (4) drafting or having drafted an instrument contrary to the previous understanding of the parties and making the other party to believe
the instrument other than it actually is; or (5) in taking advantage of a mistake of the other party, known or suspected at the time of the execution
of the instrument.

Diff between annulment

In reformation, there has been a meeting of the minds of the parties (Art. 1359, par. 1.); hence, a contract exists but the written instrument
purporting to embody the contract does not express the true intention of the parties by reason of mistake, fraud, inequitable conduct, or accident.
Under the technical rules of law, the real contract cannot be enforced until it is reformed.

In annulment, there has been no meeting of the minds, the consent of one of the parties being vitiated by mistake, etc. (Ibid., par. 2; see Art.
1390.) Reformation and annulment are thus inconsistent with each other. While the fi rst gives life to a contract upon certain conditions, the
second involves a complete nullifi cation of it.

ART. 1360. The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in confl ict
with the provisions of this Code.

ART. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument
may be reformed.

(1) The mistake must be of fact (see Art. 1331.), for if it is one of law, the remedy is annulment (see Art. 1334.); (2) Such mistake must be proved
by clear and convincing evidence; (3) The mistake must be mutual, that is, common to both parties to the instrument; and (4) The mistake must
cause the failure of the instrument to express their true intention.

ART. 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

ART. 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.

ART. 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

ART. 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.

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

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

ART. 1369. The procedure for the reformation of instruments shall be governed by rules of court to be promulgated by the Supreme
Court.

INTERPRETATION OF CONTRACTS

Int v reform

Interpretation is the act of making intelligible that was not before understood, ambiguous, or not obvious. It is a method by which the meaning of
language is ascertained. On the other hand, reformation is that remedy in equity by means of which a written instrument is made or construed so
as to express or conform to the real intention of the parties.

Article 1370. 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. (1281)

Evident intention of parties prevails over terms of contract.

It is a cardinal rule in the interpretation of contracts that the intention of the contracting parties should always prevail because their will has the
force of law between them
Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.
(1282)

Article 1372. 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. (1283)

As a rule, where in a contract there are general and special provisions covering the same subject matter are inconsistent, the latter shall be
paramount to and control over the former 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. (1284)

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. (1285)

(1) Confl icting provisions of contract. — As in statutes, the provisions of a contract should not be read in isolation from the rest of the instrument
but, on the contrary, interpreted in the light of other related provisions.

Article 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of
the contract. (1286)

Article 1376. 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. (1287)

Article 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. (1288)

Article 1378. 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 interests shall prevail. If the contract is onerous, the doubt shall be
settled in favor of the greatest reciprocity of interests.

If the doubts 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. (1289)

Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts.
(n)