MC MONTANO

BSA 1-11 9. Status

LAW ON OBLICON a. Executory – fulfillment does not take place at the time the contract is made
b. Executed – obligation is fulfilled at the time contract is entered into
TITLE II. CONTRACTS 10. Dependence to another contract
CHAPTER 1. GENERAL PROVISIONS a. Preparatory (agency, partnership) – means to an end
b. Accessory (mortgage) – dependent upon another contract
Article 1305. A contract is a meeting of minds between two persons whereby one binds c. Principal (lease) – may exist alone
himself, with respect to the other, to give something or to render some service. 11. Dependence of part of contract to other parts
a. Indivisible – each part of contract is dependent upon the other parts
Contract – meeting of minds between two persons whereby one binds himself, with respect to b. Divisible – may be performed independently
the other, to give something or to render some service; there must be at least two persons or
parties. AUTONOMY
*all contracts are obligation but not all obligation are contracts. Article 1306. The contracting parties may establish such stipulations, clauses, terms and
*all contracts are agreements but not all agreements are contracts. conditions as the may deem convenient, provided they are not contrary to law, morals,
KINDS OF PROMISES good customs, public order or public policy.
Perfect Promise – ensures celebration of final contract
Imperfect Promise (policitacion) – unaccepted offer Valid contracts – those that meet all the legal requirements and limitations
STAGES OF CONTRACT Autonomy of wills – parties may stipulate anything as long as it is not illegal
1. Preparation, Generation, or Policitacion – negotiating bargaining, ending at agreement of LIMITATIONS ON CONTRACTUAL STIPULATIONS
the parties 1. Law – contract entered must be in accordance with and not repugnant to, an applicable statute.
2. Perfection of contract – parties agree to the terms of the contract 2. Police Power – all contractual obligations ae subject to police power of state
3. Consummation or death – fulfillment of contract
CLASSIFICATION OF CONTRACT (According to): Morals – deals with norms of good and right conduct evolved in a community
1. Name or designation Good customs – habit and practices which through long usage have been enforced by society
a. Nominate as binding rules of conduct
b. Innominate Public order – public safety; also means public weal
2. Perfection Public policy – broader public order; also refers to considerations which are moved by the
a. Consensual – perfected by agreement of parties common good
b. Real – perfected by delivery
3. Cause Article 1307. Innominate contracts shall be regulated by the stipulations of the parties, by
a. Onerous – with valuable consideration the provisions of Titles I and II of this Book, by the rules governing the most analogous
b. Remuneratory or remunerative – prestation is given for service previously rendered not as nominate contracts and by the customs of the place.
obligation
c. Gratuitous - founded on liberality Nominate contract – has a specific name or designation in law ( e.g commodatum, lease, sale,
4. Form etc.)
a. Informal, Common, or simple Innominate contract – lack individuality and are not regulated by special provisions of law
b. Formal or solemn
5. Obligatory force KINDS OF INNOMINATE CONTRACT
a. Valid Do ut des (I give that you may give)
b. Rescissible Do ut facias (I give that you may do)
c. Voidable Facto ut des (I do that you may give)
d. Unenforceable Facto ut facias (I do that you may do)
e. Void or inexistent *do ut des is no longer innominate because it has become barter or exchange.*
6. Person obliged
a. Unilateral MUTUALITY; OBLIGATORY FORCE
b. Bilateral Article 1308. The contract must bind both contracting parties, it validity or compliance
7. Risks cannot be left to will of one of them
a. Commutative (sale or lease) – undertaking of one party is considered the equivalent of that
of the other - The contract must bind both contracting parties; its validity or compliance cannot be left to the
b. Aleatory (insurance) – when it depends upon certain event will of one of them
8. Liability - It must bind both parties in order that it can be enforced against either.
a. Unilateral – (commodatum, gratuitous deposit) – creates obligation on part of only one party - No party can renounce or violate the law of the contract without the consent of the other
b. Bilateral (sale or lease) – reciprocal obligations Mutuality – performance or validity binds both parties; not left to will of one of the parties
 REQUISITES OF STIPULATION POUR AUTRUI
Article 1309. The determination of the performance may be left to a third person, whose 1. Parties must have clearly and deliberately conferred a favor upon a third person
decision shall not be binding until it has been made known to both contracting parties. 2. Stipulation of the third person must be a part of, not of the whole contract
3. Favorable stipulation should not be conditioned or compensated by any kind of obligation
- The decision shall bind the parties only AFTER it has been made known to both of them. whatsoever
4. Neither of the contracting parties bears legal representation of the 3rd party
Article 1310. The determination shall not be obligatory if it is evidently inequitable. In such 5. Third person must have communicated his acceptance to the obligation
case, the courts shall decide what is equitable under the circumstances.
Art 1312. In contracts creating real rights, third persons who come into possession of the
RELATIVITY object of the contract are bound thereby, subject to the provisions of the Mortgage Law
Article 1311. Contracts take effect only between parties, their assigns and heirs, except in and the Land Registration laws.
case where the rights and obligations arising from the contract are not transmissible by
their nature, or by stipulations, or by provision of law. REQUISITES
The heir is not liable beyond the value of the property he received from the decedent. If a 1. Existence of valid contract
2. Knowledge of the contract of 3rd person
contract should contain some stipulation in favor of a third person, he may demand its
3. Interference by 3rd person
fulfillment provided he communicated his acceptance to the obligor before its evocation.
A mere incidental benefit or interest of a person is not sufficient. The contracting parties Art 1313. Creditors are protected in cases of contracts intended to defraud them.
must have clearly and deliberately conferred a favor upon a third person. - The creditor is given the right to impugn the contracts of his debtor to defraud him.

PERSONS AFFECTED BY A CONTRACT Art 1314. Any third person who induces another to violate his contract shall be liable for
General rule – a party’s rights and obligations derived from a contract are transmissible to the damages to the other contracting party.
successors. - Art 1314 recognizes an instance when a stranger to a contract can be sued for damages for his
unwarranted interference with the contract. It presupposes that the contract is valid and the third
Exceptions – contracts are effective only between parties are when the rights and obligations person has knowledge of the existence of the contract.
arising from the contract are not transmissible:
a. By their nature – personal qualifications CONSENSUALITY; OBLIGATORY FORCE
b. By stipulation – in accordance with the principle of freedom to contract Art 1315. Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
c. By provision of law – agency, partnership, commodatum, death
consequences which, according to their nature, may be in keeping with good faith, usage
d. and law.
CASES WHEN STRANGERS OR THIRD PERSONS AFFECTED BY A CONTRACT
a. In contracts containing a stipulation in favor of a third person (stipulation pour autrui) Art 1316. Real contracts, such as deposit, pledge or commodatum, are not perfected until
b. Contracts creating real rights the delivery of the object of the obligation.
c. Contracts entered into to defraud creditors
d. Contracts which have been violated at the inducement of a third person CLASSIFICATION OF CONTRACT ACCORDING TO PERFECTION
1. Consensual contract – perfected by mere consent
Relativity – binding only between parties, their assigns, heirs; strangers cannot demand 2. Real contract – perfected by delivery
enforcement 3. Solemn contract – requires compliance with certain formalities prescribed by law

EXCEPTION TO RELATIVITY STAGES IN LIFE OF A CONTRACT

1. Preparation – negotiation
1. Accion pauliana
2. Perfection – birth
2. Accion directa
3. Consummation – performance
3. Stipulation pour autrui
Art 1317. No one may contract in the name of another without being authorized by the
Stipulation pour autrui – If a contract should contain some stipulation in favor of a third person, latter, or unless he has by law a right to represent him.
he may demand its fulfilment provided he communicated his acceptance to the obligor before its A contract entered into in the name of another by one who has no authority or legal
revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting representation, or who has acted beyond his powers, shall be unenforceable, unless it is
parties must have clearly and deliberately conferred a favor upon a third person ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.
CLASSES OF STIPULATIONS POUR AUTRUI
1. Third party is said to be a done beneficiary - Those where the stipulation is intended for the sole - A person is not bound by the contract of another which he has no knowledge or to which he
benefit of such person; donations. has not given his consent. A contract entered into in the name of another by one who has no
2. Third party is called creditor beneficiary – those where an obligation is due from the promise to authority is unenforceable against the former unless it is ratified by him before it is revoked by
the third person. the other contracting party.
CHAPTER 2. ESSENTIAL REQUISITES OF A CONTRACT Amplified acceptance – a mere amplification on the offer must be understood as an
GENERAL PROVISIONS acceptance of the original offer, plus a new offer which is contained in the amplification.

Art. 1318. There is no contract unless the following requisites concur: Art. 1321. The person making the offer may fix the time, place, and manner of acceptance,
(1) Consent of the contracting parties; all of which must be complied with.
(2) Object certain which is the subject matter of the contract; - Communication of the offer may be expressed or implied by the language or acts of the offeror
(3) Cause of the obligation which is established. understood as such by the other party
RULE ON COMPLEX OFFERS
CLASSES OF ELEMENTS OF A CONTRACT 1. Offers are interrelated – contract is perfected of all the offers are accepted
1. Essential elements – without which no contract can validly exist regardless of the intentions 2. Offers are not interrelated – one is dependent upon the other and acceptance of both is
of the parties. Also known as requisites of a contract. necessary
a. Common – present in all contracts, namely: Consent Object, Cause
b. Special – present only in specified contracts Art. 1322. An offer made through an agent is accepted from the time acceptance is
> Form communicated to him.
> Subject matter - Communication of acceptance must be absolute and must be communicated to the offeror.
> Consideration or cause - To agent: by legal fiction, an agent is considered an extension of the personality of the principal
2. Natural elements – presumed to exist in certain contracts unless contrary is expressly
stipulated by the parties Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or
3. Accidental elements – particular stipulations, clauses, terms, or conditions established by insolvency of either party before acceptance is conveyed.
the parties in their contract (conditions, period interest, penalty) - even if the offer is not withdrawn, its acceptance will not produce a meeting of the minds in
case the offer has already become ineffective because of the death, civil interdiction, insanity or
SECTION 1. CONSENT insolvency of either party BEFORE the conveyance of the offer
ARTICLE 1319-1326 – CONCURRENCE OF THING OR CAUSE - at the time acceptance is communicated, both parties, must be living in and capacitated.
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 OTHER GROUNDS WHICH RENDER OFFER INEFFECTIVE
the acceptance absolute. A qualified acceptance constitutes a counter-offer. - Failure to comply with the condition of the offer as to the time, place, and the manner of
Acceptance made by letter or telegram does not bind the offerer except from the time it payment
came to his knowledge. The contract, in such a case, is presumed to have been entered - Expiration of the period fixed in the offer for acceptance
into in the place where the offer was made. - Destruction of the thing due before acceptance
- Rejection of the offer
Consent - concurrence of the wills of the contracting parties with respect to the object and the
cause which shall constitute the contract. Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer
Mutual assent or agreement - takes place when there is an offer and acceptance of the offer. may be withdrawn at any time before acceptance by communicating such withdrawal,
Offer – proposal made only by one party to another indicating willingness to enter into a except when the option is founded upon a consideration, as something paid or promised.
contract. It is a promise to act or to refrain from acting on condition that the term are accepted by Option contract – one giving a person for a consideration a certain period within which to
the person to whom it is made. accept the offer
*offer must be certain or definite so that the liability of the parties may be exactly fixed Option period – period given within which the offeree must accept the offer
*offer made in jest or anger or while emotionally upset is not a valid offer Option money – money paid or promised to be paid in consideration for the option
Acceptance – manifestation by the offeree of his assent to all the terms of the offer. *General rule is that the offer can be withdrawn as a matter of tight at any time before the
*acceptance of offer must not only be clear; it must be absolute, unconditional, and acceptance*
unqualified.
Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not
REQUISITES definite offers, but mere invitations to make an offer.
1. Consent must be manifested by the concurrence of the offer and the acceptance Business advertisement – not a definite offer; but more like an invitation to make an offer
2. Contracting parties must possess the necessary legal capacity
3. Consent must be intelligent, free, spontaneous and real Art. 1326. 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
Art. 1320. An acceptance may be express or implied. appears.
- an implied acceptance is one that is inferred from act or conduct Advertisement for bidders – only invitation to make proposals and advertiser is not bound to
accept the highest or lowest bidder
PERIOD FOR ACCEPTANCE
1. Stated fixed period in the offer ARTICLE 1327-1329 – LEGAL CAPACITY OF PARTNERS
2. No state fixed period Art. 1327. The following cannot give consent to a contract:
a. offer is made to a person present – acceptance must be made immediately (1) Unemancipated minors;
b. offer is made to a person absent – acceptance may be made within such time (2) Insane or demented persons, and deaf-mutes who do not know how to write.
that an answer can be received from him
*acceptance may be revoked before it comes to the knowledge of the offeror.* PERSONS WHO CANNOT GIVE CONSENT
1. Minors
2. Insane or demented persons b. threatened act is unjust or unlawful
3. Illiterates / deaf-mutes who do not know how to write c. real and serious
4. Intoxicated / under hypnotic spell d. produces a well-grounded fear
5. Person under mistake; mistake may deprive intelligence VICES OF CONSENT (Vices of will)
6. Person induced by fraud (dolo causante) 1. Violence
(Insane, Death, Civil interdiction, Insolvent) 2. Intimidation
3. Mistake
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a 4. Fraud
state of drunkenness or during a hypnotic spell are voidable. 5. Undue Influence
Lucid interval – temporary interval of insanity. A contract entered into by an insane or
demented person during a lucid interval is valid. It must be shown that there is a full return of the Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of
mind to sanity as to enable him to understand the contract he is entering into. the thing which is the object of the contract, or to those conditions which have principally
moved one or both parties to enter into the contract.
- People who are drunk or under hypnotic spell are considered in a state of insanity therefore, Mistake as to the identity or qualifications of one of the parties will vitiate consent only
contract entered into in this state is considered invalid. when such identity or qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction.
Art. 1329. The incapacity declared in Article 1327 is subject to the modifications
determined by law, and is understood to be without prejudice to special disqualifications Mistake or error – false notion of a thing or a fact material to the contract
established in the laws.
Art. 1332. When one of the parties is unable to read, or if the contract is in a language not
Incapacity – exercise of your right to enter a contract is prohibited understood by him, and mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to the former.
INCAPACITY DECLARED IN ART. 1327 SUBJECT TO MODIFICATIONS
1. When necessaries delivered to a minor or person without capacity, he must pay a reasonable - it is the party enforcing the contract who is duty-bound to show that there has been no fraud or
price thereof mistake and that the terms of the contract have been fully explained to the former
2. A minor may contract for life, health, and accident insurance, provided insurance is taken on
his life and beneficiary is of immediate family member Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk
3. As long as there a guardian or legal representative affecting the object of the contract.
4. Contract is valid when the minor misinterpreted his age and convincingly led the other party to - if the party knew beforehand the doubt, contingency, or risk affecting the object of the contract,
believe in his legal capacity it is to be assumed that he was willing to take chances and cannot, therefore, claim mistake.

OTHER SPECIAL DISQUALIFICATIONS Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the
1. Persons suffering the accessory penalty civil interdiction parties is frustrated, may vitiate consent.
2. Hospitalized lepers Mistake of law – arises from ignorance of some provision of law, or from erroneous
3. Prodigals interpretation of its meaning, or from an erroneous conclusion as to the legal effect of an
4. Deaf and dumb agreement; as a rule, mistake of law does not invalidate consent because “ignorance of law
5. Those who are in unsound mind even though they have lucid intervals excuses no one” (ignorantia legis neminem excusat)
6. Those who, by reason of age, disease, weak mind and other similar causes, cannot without
outside aid, take care of themselves. REQUISITES
1. Error must be mutual
ARTICLE 1330-1346 – CHARACTERISTICS OF CONSENT 2. Must be as to legal effect of an agreement
Art. 1330. A contract where consent is given through mistake, violence, intimidation, 3. Must frustrate the real purpose of the parties
undue influence, or fraud is voidable.
Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is
CHARACTERISTICS OF CONSENT employed.
1. Intelligent – capacity to act There is intimidation when one of the contracting parties is compelled by a reasonable
2. Free and Voluntary – no vitiation of consent by reason of violence and intimidation and well-grounded fear of an imminent and grave evil upon his person or property, or
3. Conscious or spontaneous – no vitiation of consent by reason of mistake, undue influence, upon the person or property of his spouse, descendants or ascendants, to give his
fraud consent.
To determine the degree of intimidation, the age, sex and condition of the person shall be
CAUSES WHICH VITIATES FREEDOM borne in mind.
1. Violence A threat to enforce one's claim through competent authority, if the claim is just or legal,
Requisites: does not vitiate consent.
a. irresistible physical force Violence – physical force or compulsion
b. such force is the determining cause for giving consent Intimidation – moral force or compulsion
2. Intimidation
Requisites Art. 1336. Violence or intimidation shall annul the obligation, although it may have been
a. determining cause for the contract employed by a third person who did not take part in the contract.
Art. 1337. There is undue influence when a person takes improper advantage of his power Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
over the will of another, depriving the latter of a reasonable freedom of choice. The misrepresentation has created substantial mistake and the same is mutual.
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 - A third person has no connection with a contract. However, if the misrepresentation has
influenced was suffering from mental weakness, or was ignorant or in financial distress. created a substantial mistake and the same is mutual, that is, it affects both parties, the contract
may be annulled but principally on the ground of mistake.
Undue influence – influence of a kind that so overpowers the mind of a party as to prevent him
from acting understandingly and voluntarily to do what he would have done if he had been left to Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error.
exercise freely his own judgement and discretion
Art. 1344. In order that fraud may make a contract voidable, it should be serious and
Art. 1338. There is fraud when, through insidious words or machinations of one of the should not have been employed by both contracting parties.
contracting parties, the other is induced to enter into a contract which, without them, he Incidental fraud only obliges the person employing it to pay damages.
would not have agreed to.
REQUISITES OF CAUSAL FRAUD
Causal fraud – committed by one party before at the time of the celebration of the contract to 1. Must be serious
secure the consent of the other. It is a fraud used by a party to induce the other to enter into a 2. Should not have been employed by both parties
contract without which the latter would not have agreed to. 3. Should not have been known by the other contracting party
Insidious words or machinations – false promises; exaggerations of hopes and benefits;
abuse of confidence; fictitious names qualifications, or authority - When fraud is employed by both parties, neither may ask for annulment as the fraud of one
neutralizes that of the other.
KINDS OF FRAUD
1. Dolo causante – determines or essential cause of the consent; fraud in the perfection of Art. 1345. Simulation of a contract may be absolute or relative. The former takes place
contract; can be ground for annulment when the parties do not intend to be bound at all; the latter, when the parties conceal
2. Dolo incidente – does not have such decisive influence and by itself cannot cause the giving their true agreement.
of consent, refers only to some particular or accident of the obligation; cannot be a ground for
annulment Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation,
when it does not prejudice a
REQUISITES FOR FRAUD third person and is not intended for any purpose contrary to law, morals, good customs,
1. Must have been employed by one contracting party upon the other public order or public policy binds the parties to their real agreement.
2. Must have induced the other party to enter the contract
3. Must have been serious Simulation of a contract – the act of deliberately deceiving others, by feigning or pretending by
4. Resulted in damage or injury to the party seeking annulment agreement, the appearance of a contract which is either non-existent or concealed.

Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the KINDS OF SIMULATION
parties are bound by confidential relations, constitutes fraud. 1. Absolute simulation – when the contract does not really exist and the parties do not intend
to be bound at all; these are inexistent and void
Fraud by concealment – a neglect or failure to communicate or disclose that which a party to a 2. Relative simulation – when the contract entered into by the parties is different from their
contract knows and ought to communicate constitutes concealment; false interpretation or agreement
misinterpretation.

Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent.

-It is natural tendency for merchants and traders to resort to exaggerations in their attempt to
make a sale at the highest price possible
Dealer’s talk or trader’s talk – representations which do not appear on the face of the contract
and these do not blind either party.

Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an
expert and the other party has relied on the former's special knowledge.

-To constitute to a fraud, the misinterpretation must refer to facts, not opinions. In order that
such opinion may amount to fraud it must be:
1. Made by and expert
2. The other contracting party has relied on the expert’s opinion
3. The opinion turned out to be false or erroneous.
SECTION 2. OBJECT OF CONTRACTS SECTION 3. CAUSE OF CONTRACTS

REQUISITES: [CILID] Art. 1350. In onerous contracts the cause is understood to be, for each contracting party,
1) [C] within the commerce of man; the prestation or promise of a thing or service by the other; in remuneratory ones, the
2) [I] not intransmissible service or benefit which is remunerated; and in contracts of pure beneficence, the mere
3) [L] must be licit, or not contrary to law, morals, good customs, public policy, or public order; liberality of the benefactor.
3) [I]not an impossible thing or service; and
4) [D] it must be determinate as to its kind. Cause – essential reason or purpose which the contracting parties have in view at the time of
entering into the contract.
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 intransmissible may also be the CLASSIFICATION OF CONTRACTS ACCORDING TO CAUSE
object of contracts. 1. Onerous – the cause of which, for each contracting party is the prestation or promise of a
No contract may be entered into upon future inheritance except in cases expressly thing or service by the other; parties are reciprocally obligated to each other
authorized by law. 2. Remuneratory or remunerative – purpose is to reward the service that had been previously
All services which are not contrary to law, morals, good customs, public order or public rendered by the party remunerated.
policy may likewise be the object of a contract. 3. Gratuitous – cause of which is the liberality of the benefactor or giver.

Art. 1348. Impossible things or services cannot be the object of contracts. Art. 1351. The particular motives of the parties in entering into a contract are different
from the cause thereof.
Object of contract – subject matter
Motive – purely personal or private reason which a party has in entering into a contract.
THINGS WHICH CANNOT BE THE OBJECT OF CONTRACT
1. Within the commerce of man
2. Must not be physically or legally impossible
3. Must be in existent or capable of coming into existent
4. Must be determinate or determinable
5. Intransmissible rights
6. Services contrary to law, morals, good customs, public policy
7. Future inheritance

Future inheritance – any property or right, not in existence or capable of determination at the
time of the contract, that a person may inherit in the future.
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever.
KINDS OF IMPOSSIBILITY The cause is unlawful if it is contrary to law, morals, good customs, public order or public
1. Physical – cannot exist policy.
a. Absolute – cannot be done
b. Relative – arises from the special circumstances of the case Art. 1353. The statement of a false cause in contracts shall render them void, if it should
2. Legal – contrary to law, good customs, morals, etc. not be proved that they were founded upon another cause which is true and lawful.

Art. 1349. The object of every contract must be determinate as to its kind. The fact that REQUISITES OF CAUSE
the quantity is not determinate shall not be an obstacle to the existence of the contract, 1. Must exist
provided it is possible to determine the same, without the need of a new contract between 2. Must be licit
the parties. 3. Must be real or true

- The object of a contract must be determinable to its kind or at least determinable without the Absence of cause – total lack of any valid consideration for the contract
necessity of a new further agreement between the parties. Illegality of cause – implies that there is a cause but the same is unlawful or illegal
Falsity of cause – meant that the contract states a valid consideration but such statement is not
true

Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists
and is lawful, unless the debtor proves the contrary.

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence.

Lesion – damages caused by the fact that the price is unjust or inadequate; does not invalidate
a contract; the law assumes that the parties themselves remain the best judges of how much
their bargain is worth; lesion will invalidate a contract when 1) there has been fraud, mistake, or
undue influence and 2) in cases specified by law.
CHAPTER 3. FORM OF CONTRACTS CHAPTER 4. REFORMATION OF INSTRUMENTS
OBLIGATORY FORCE
Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered Art. 1359. When, there having been a meeting of the minds of the parties to a contract,
into, provided all the essential requisites for their validity are present. However, when the their true intention is not expressed in the instrument purporting to embody the
law requires that a contract be in some form in order that it may be valid or enforceable, agreement, by reason or mistake, fraud, inequitable conduct or accident, one of the
or that a contract be proved in a certain way, that requirement is absolute and parties may ask for the reformation of the instrument to the end that such true intention
indispensable. In such cases, the right of the parties stated in the following article cannot may be expressed.
be exercise. If mistake, 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
Form of a contract – refers to the manner in which a contract is executed or manifested. annulment of the contract.

CLASSIFICATION OF CONTRACTS ACCORDING TO FORM - Reformation is thus not available as a remedy where no writing exist; what is reformed is not
1. Informal or common or simple contract – consensual contracts; may be entered in the contract itself, but the written instrument embodying the contract
whatever form provided all the essential requisites for the validity are present; may be oral, - In reformation, there has been a meeting of the minds of the parties. In annulment, there has
written, or implied. been no meeting of the minds, the consent of one of the parties being vitiated by mistake.
2. Formal or solemn contract – required by law to be in some certain specified form to be
effective Reformation – 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. The
FORM FOR VALIDITY OF CONTRACT rationale of the doctrine is that it would be unjust and inequitable to allow the enforcement of a
1. Donation of real property – must be in a public instrument written instrument which does not reflect or disclose the real meeting of the minds of the parties.
2. Donation of personal property of value which exceeds P5000 – donation and acceptance
must be in writing REQUISITES
3. Sale of land through an agent – authority of agent must be in writing 1. Meeting of minds between parties
4. Stipulation to pay interest – must be in writing 2. Written instrument does not express the true agreement or intention of the parties
5. Contract of partnership – if immovables are contributed, must be in public instrument 3. Failure to express true intention is due to mistake, fraud, inequitable conduct, or accident
4. Facts upon which relief by way of reformation of the instrument is sought are put in issue by
Art. 1357. If the law requires a document or other special form, as in the acts and the pleadings
contracts enumerated in the following article, the contracting parties may compel each 5. Clear and convincing evidence
other to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract. Art. 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.
Art. 1358. The following must appear in a public document:
Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to
1) Acts and contracts which have for their object, the creation, transmission, modification disclose their real agreement, said instrument may be reformed.
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 Mutual mistake – mistake of fact that is common to both parties of the instrument which causes
failure of the instrument to express their true intention.
2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
partnership gains REQUISITES
1. Mistake must be of fact
3) the power to administer property, or any other power which has for its object an act 2. Mistake must be proved by clear and convincing evidence
appearing or which should appear in a public document, or should prejudice a third 3. Mistake must be mutual
person 4. Mistake must cause the failure of the instrument to express their real intention

4) The cession of actions or rights proceeding from an act appearing in a public Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in
document such a way that the instrument does not show their true intention, the former may ask for
the reformation of the instrument.
All other contracts where the amount involved exceeds P5000 in writing in writing, even a
private one. But sales of goods, chattels or things in action are governed by articles 1403, - Right to ask for reformation is granted only to the party who was mistaken in good faith.
N0. 2, and 1405.
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 the fact from the former,
the instrument may be reformed.

- The remedy of reformation may be availed of the party who acted in good faith.
Art. 1364. When through the ignorance, lack of skill, negligence, or bad faith on the part CHAPTER 5. INTERPRETATION OF CONTRACTS
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 ma order that the instrument be Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
reformed. 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
- Neither party is responsible for the mistake. Either party may ask for reformation. prevail over the former.

Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, Interpretation of contract – determination of the meaning of the terms or words used by the
but the instrument states that the property is sold absolutely or with the right of parties in their written contract.
repurchase, reformation of the instrument is proper. - Where the words and clauses of a written contract are in conflict with the manifest intention of
the parties, the latter shall prevail over the former. The intention of the contracting parties should
- Under this article, reformation of the instrument is proper; otherwise, the true intention of the always prevail because their will has the force of law between them.
parties would be frustrated.
Art. 1371. In order to judge the intention of the contracting parties, their
Art. 1366. There shall be no reformation in the following cases: contemporaneous and subsequent acts shall be principally considered.
1. Simple donation inter vivos wherein no conditions is imposed
2. Wills Art. 1372. However general the terms of a contract may be, they shall not be understood
3. When the real agreement is void to comprehend things that are distinct and cases that are different from those upon
which the parties intend to agree.
Art. 1367. When one of the parties has brought an action to enforce the instrument, he
cannot subsequently ask for its reformation. Art. 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.
CASES WHEN REFORMATION IS NOT ALLOWED
1. Simple donations inter vivos where no condition is imposed (Donation) – act of liberality - When an agreement is susceptible of several meanings, one of which would render it effectual,
whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. it should be given that interpretation.
(Inter vivos = shall take effect in his lifetime; Mortis causa = take effect after the donor’s death)
2. Wills – prescribed by law to control to a certain degree the disposition of his estate, to take Art. 1374. The various stipulations of a contract shall be interpreted together, attributing
effect after his death to the doubtful ones that sense which may result from all of them taken jointly.
3. When the real agreement is void – if real agreement is void, there is nothing to reform.
4. When one party has brought an action to enforce the instrument – means he admits its - A contract must be interpreted as a whole. All provisions, if possible, be so interpreted as to
validity and that it express the true intention of the parties. harmonize each other.

Art. 1368. Reformation may be ordered at the instance of either party or his successors in Art. 1375. Words which may have different significations shall be understood in that
interest, if the mistake was mutual; otherwise, upon petition of the injured party, or is which is most keeping the nature and object of the contract.
heirs and assigns.
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of
PARTY ENTITLED TO REFORMATION the ambiguities of a contract, and shall fill the omission of stipulations which are
1. Either of the parties, if the mistake is mutual ordinarily established.
2. The injured party
3. Heirs and successors in interest Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity.
Art. 1369. The procedure for the reformation of instruments shall be governed by rules of
court to be promulgated by the Supreme Court. Art. 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 gratuitous
contract, the least transmission of rights and interest shall prevail. If the contract is
onerous, the doubt shall be settled in favor of the greatest reciprocity of interest.
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.

- A written agreement should, in case of doubt, be interpreted against the party who has drawn
it. The party who causes the obscurity acts with ulterior motives.

Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall
likewise be observed in the construction of the contracts.