Chapter 3 and 4: Form of Contracts and Reformation of Instruments

Form of Contracts (Art. 1356)

  • Definition: Manner in which a contract is executed or manifested.
  • Forms:
    • Parol or oral.
    • In writing (public or private instrument).
    • Partly oral, partly written.
  • A contract can be collected from different writings.
  • A contract may be included in several instruments even if unsigned.
  • Written contract: all terms must be in writing; partly written and partly oral is considered an oral contract.
  • Two Aspects of Contracts:
    • Intent or will (internal, no legal effect).
    • Expression of intent or will (form).
  • Classification According to Form:
    • Informal/common: Any form if essential requisites are present (consensual contracts).
    • Formal/solemn: Specific form required by law.
  • Rules Regarding Form:
    • General Rule: Binding and enforceable, whatever the form, if consent, object, and cause are present.
    • Exceptions:
      • Form required for validity.
      • Form required for enforceability or proof.
      • Form required for convenience or affecting third persons.

Form for Validity of Contract

  • Donation of real property: Public instrument (Art. 749).
  • Donation of personal property > P5,000: Writing (Art. 748).
  • Sale of land through an agent: Agent's authority in writing (Art. 1874).
  • Contract of antichresis: Principal and interest in writing (Art. 2134).
  • Stipulation to pay interest: In writing (Art. 1956).
  • Contract of partnership: Public instrument with signed inventory if immovables are contributed (Arts. 1771, 1773).
  • Transfer/sale of large cattle: Registered and certified (Act No. 1147, Sec. 22).
  • Negotiable instruments: In writing (Act No. 2031, Sec. 1).

Form for Enforceability of Contract

  • Contracts under the Statute of Frauds must be in writing and subscribed by the party charged or their agent (Art. 1403[2]).
  • Valid but unenforceable without writing unless ratified (Art. 1405).

Reasons for Exceptions

  • Avoid litigation and fraud.

Art. 1357

  • Parties can compel each other to observe the required form once the contract is perfected.

Form for the Convenience of the Parties

  • Required for registration to affect third persons.
  • Validity and enforceability between parties not affected by non-compliance.

Art. 1358

  • The following must appear in a public document:
    • Real rights over immovable property.
    • Cession/renunciation of hereditary rights or conjugal partnership gains.
    • Power to administer property.
    • Cession of actions/rights from a public document.
  • Contracts exceeding P500 must be in writing (private).

Contracts Which Must Appear In a Public Document

  • Valid and enforceable even if not in a public document.
  • Public document ensures efficacy and protection.
  • Formal requirements benefit third parties.
  • Public document: Acknowledged before a notary public.
  • Private document becomes public when part of an official record.

Probative Value of Public Documents

  • Converted from private document to public one.
  • Entitled to full faith and credit unless proven otherwise.
  • Presumption of validity and regularity.

Action to Compel Execution of Contract in Public Instrument

  • Under Article 1357, parties can compel each other to put the contract in proper form.
  • Action may be filed simultaneously with suit to enforce the contract.

Legal Recognition of Electronic Data Messages and Electronic Documents

  • Recognized under the Electronic Commerce Act (R.A. No. 8792).
    • Electronic data message: Information not denied validity for being in electronic form.
    • Electronic documents: Same legal effect as other documents if integrity and reliability are maintained.

Reformation of Instruments (n) (Art. 1359)

  • Definition: Remedy to amend a written instrument to reflect the real agreement or intention.
  • Reason: To ensure the true intention of contracting parties is expressed.
  • Requisites for Reformation:
    • Meeting of the minds.
    • Instrument doesn't express true agreement.
    • Failure due to mistake, fraud, inequitable conduct, or accident.
    • Facts put in issue by pleadings.
    • Clear and convincing evidence.

Ultimate Facts to Be Alleged and Proved in Action for Reformation

  • Complaint must allege true agreement and that the instrument doesn't express it.
  • Onus probandi is on the party seeking reformation.

Admissibility of Parol Evidence to Show True Intent

  • Generally, parol evidence is inadmissible to alter written agreements.
  • Exceptions: Evidence allowed if pleading addresses:
    • Ambiguity, mistake, or imperfection.
    • Failure to express true intent.
    • Validity of agreement.
    • Other agreed terms.
  • The right of reformation is an invasion or limitation of the parol evidence rule

What Constitutes Inequitable Conduct

  • Unconscionable acts or omissions.
    • Taking advantage of illiteracy.
    • Abusing confidence.
    • Concealing information.
    • Drafting instruments contrary to prior understanding.
    • Exploiting mistakes.

Reformation and Annulment Distinguished

  • Reformation: Corrects an instrument to reflect the true agreement; valid contract exists.
  • Annulment: Nullifies a contract due to lack of consent or vitiated consent; no meeting of the minds.

Art. 1360

  • Principles of general law on reformation apply if not conflicting with the Civil Code.

Art. 1361

  • Mutual mistake: Instrument may be reformed if it fails to disclose real agreement due to mutual mistake.
    • The mistake must be of fact
    • Must be proved by clear, and convincing evidence;
    • the mistake must be mutual
    • the mistake must cause the failure of the instrument to express their true intention

Art. 1362

  • Unilateral mistake: Reformation granted if one party was mistaken and the other acted fraudulently or inequitably.

Art. 1363

  • Concealment of mistake: Reformation available if one party knew the instrument didn't state the real agreement but concealed it.

Art. 1364

  • Ignorance, etc. on the part of third person: If through ignorance, lack of skill, negligence, or bad faith of the drafter, the instrument doesn't express the true intention, courts may order reformation.

Art. 1365

  • Mortgage or pledge stated as a sale: If parties agree on mortgage/pledge but the instrument states an absolute sale or sale with a right to repurchase, reformation is proper.

Art. 1366

  • No reformation allowed in:
    • Simple donations inter vivos without conditions.
    • Wills.
    • When the real agreement is void.

Art. 1367

  • A party cannot seek reformation after bringing an action to enforce the instrument.

Art. 1368

  • Reformation may be ordered at the instance of:
    • Either party if the mistake was mutual.
    • Injured party otherwise
    • The heirs or successor in interest
  • The effect of reformation is retroactive from the execution of the original instrument.

Art. 1369

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