Recit-3-title-ii-chapters-3-6.docx

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Chapter 3- Form of Contracts 1356-1358 Chapter 4- Reformation of Contracts 1359-1369 Chapter 5- Interpretation of Contracts 1370-1379 Chapter 6- Rescissible Contracts 1380-1390 Chapter 3- Form of Contracts 1356-1358 a. 1356- Form Of Contracts i. General Rule: Form does not mater for the validity of a contract; it is enough that there be consent, subject matter, and cause. ii. Exceptions: 1. For Validity – Solemn or Formal Contracts requires the compliance with the formalities required by law 2. For Enforceability – Statute of Frauds 3. For Convenience b. 1357- Right Of One Party To Compel The Other To Execute The Necessary Form i. Applies only to contracts for convenience ii. In order to be applied, the contract must be: 1. Perfected (Valid) and 2. Enforceable under the Statute of Frauds c. 1358- Form Of Convenience i. The following must appear in a public document: 1. Acts and contracts which have for their object the creation, transmission, modification, 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 propert, 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; and ii. The following must appear in writing, even private ones: 1. All other contracts where the amount involved exceeds 500 pesos. But sales of good, chattels or things in action are governed by Articles 1403 No. and 1405. iii. Registration of the instrument only adversely affects third parties; it benefits them. Chapter 4- Reformation of Contracts 1359-1369 a. 1359- Reformation By Reason Of FAMI (fraud, accident, mistake, or inequitable conduct) i. Reformation- is a 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 when some error or mistake has been committed ii. Reformation v. Annulment 1. Reformation is used when there has been a meeting of the minds of the parties to a contract but the true intention was not expressed in the agreement by reason of FAMI whereas

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annulment is used when there has been no meeting of the minds, because of vitiated consent. 2. Reformation does not invalidate a contract unlike annulment. iii. Requisites of Reformation: 1. There must be a meeting of the minds 2. The true intention is not expressed in the instrument 3. There must be clear and convincing proof thereof 4. It must be brought within the proper prescriptive period 5. The document must not refer to the following: a. A simple unconditional donation inter vivos b. Wills c. A contract where the real agreement is void iv. No new contract is made when reformation is used. The courts merely inquire into the intention of the parties and having found it, reform the instrument, and not the contents. 1360- Rule In Case Of Conflict i. The Civil Code prevails over the Principles of the General Law on Reformation 1361- Reformation Because Of Mutual Mistake i. Requisites: 1. The mistake must be mutual 2. The mistake must be of fact 1362- Reformation Because Of Unilateral Mistake (Fraudulent/Inequitable) i. Requisites: 1. The mistake is unilateral 2. The other party acted fraudulently or inequitably 1363- Reformation Because Of Unilateral Mistake Also (Concealment) i. Requisites: 1. The mistake is unilateral 2. The other party is guilty of concealment ii. Only the party in good faith can ask for reformation 1364- Reformation Because Of Failure To Convey The True Intent By The Drafter i. This happens when the instrument does not convey the true intention of the parties because of the: 1. Ignorance; 2. Lack of Skill; 3. Negligence; or 4. Bad Faith of the a. Drafter of the Instrument; or b. Clerk; or c. Typist 1365- Reformation Of An Intent To Have A Mortgage Or Pledge i. 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 to repurchase, reformation of the instrument is proper. 1366- When Reformation Is Not Allowed i. There shall be no reformation in the following cases: 1. Simple donations inter vivos wherein no condition is imposed a. Because this is an act of pure liberality 2

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2. Will a. Because this is strictly a personal act; this may be revoked at any time 3. When the real agreement is void i. 1367- Effect Of An Action To Enforce The Instrument i. When one of the parties has brought an action to enforce the instrument he cannot subsequently ask for its reformation. j. 1368- Who May Ask For Reformation i. If the mistake is mutual: 1. Either party; or 2. His successors in interest ii. In all other cases: 1. The injured party; or 2. His Heirs; or 3. His Assigns iii. What must be alleged: 1. That the instrument to be reformed does not express the real agreement or intention of the parties 2. What the real agreement was iv. Prescriptive Period 1. 10 Years k. 1369- Procedural Rules i. It Shall be governed by the Rules of Court to be promulgated by the Supreme Court Chapter 5- Interpretation of Contracts 1370-1379 a. 1370- Interpretation Of Contracts i. If the terms are CLEAR and leave NO DOUBT for interpretation, the LITERAL meaning shall be applied. ii. If the words appear to be CONTRARY to the evident interpretation of the parties, the INTENTION shall prevail. b. 1371- How To Judge The Intention Of The Contracting Parties i. Principal Consideration: Their contemporaneous and subsequent acts. ii. If the parties have themselves placed an interpretation to the terms of their contract, such interpretation shall be generally followed. iii. The court may consider the relations existing between the parties and the purpose of the contract, particularly when it was made in good faith between mutual friends. c. 1372- Effect Of The Use Of General Terms i. It shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. ii. Special intent shall prevail over a general intent d. 1373- Stipulation Admitting Of Several Meanings i. It shall be understood as bearing that import which is most adequate to render it effectual. ii. Effect of an Interpretation Upholding the Validity of the Contract 1. If one interpretation makes a contract valid and illegal, the former interpretation shall prevail. e. 1374- Stipulations To Be Read Together

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i. 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. 1375- Words To Be Interpreted In Keeping With The Nature And Object Of The Contract i. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. ii. If this cannot be determined, then the “terms of a writing are presumed to have been used in their primary and general acceptation.” (Section 12, Rule 130, Revised Rules of Court) 1. Other meanings may be proved such as those with a local, technical, or otherwise peculiar signification. 1376- Effect Of Usage Or Customs Of The Place i. 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. ii. Pleading and Proof of Customs and Usage 1. If they are general, they need not be pleaded or alleged, just proved. 2. If they are local, they need to be both alleged (pleaded) and proved. 1377- Interpretation To Be Against Party Who Caused Obscurity i. The interpretation of obscure words or stipulations shall not favor the party who caused the obscurity. ii. When different interpretations of a provision are otherwise equally proper, the construction is to be taken which is the most favorable to the party in whose favor the provision was made and did not cause the obscurity. 1378- Doubts As To Principal Object Or Incidental Circumstances i. Doubt as to the Principal Object 1. Here, the contract is void. ii. Doubt as to the Incidental Circumstances 1. If gratuitous, apply the least transmission of rights and interests 2. If onerous, apply the rule of the greatest reciprocity of interests 1379- Suppletory Use Of The Principles Of Interpretation In The Rules Of Court i. Language in the place of execution 1. The language of a writing is to be interpreted according to the legal meaning it bears in the place of execution unless stated otherwise. ii. Meaning of words used 1. Presumption: Primary and general acceptation 2. Exceptions: Evidence is admissible to show a local, technical or peculiar meaning iii. Conflict between printed and written (not printed) words 1. If an instrument is partly of written words and partly of a printed form, and the two are inconsistent, the former controls the latter. iv. Use of experts and interpreters

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1. When the characters are difficult to be deciphered, or the language is not understood by the Court, evidence of experts may be admissible. v. Interpretation in favor of a natural right 1. When an instrument is equally susceptible of two interpretations, one in favor of a natural right and the other against it, the former is to be adopted. vi. Usage or customs Chapter 6- Rescissible Contracts 1380-1390 a. 1380- Rescission i. Rescission – is a remedy granted by law to both the contracting parties and to third persons in order to secure reparation of damages cause them by a contract, even if the contract be valid, by means of restoration of the things to their condition prior to the celebration of said contract. ii. It is valid until rescinded; there is a sort of extrinsic defect consisting of an economic damage or lesion. iii. Requisites: 1. There must be at the beginning either a valid or a voidable contract (not a void one) 2. There is an economic or financial prejudice to someone (either a party or a third person) 3. Requires mutual restitution iv. Rescission in general Article 1380 v. Rescission in Article 1191 or resolution 1. Rescission in general: a. It is based on lesion or fraud upon creditors b. Action is instituted by either of the contracting parties or by third persons c. The courts CANNOT grant a period or term within which to comply d. Non-performance by the other party is immaterial 2. Rescission under Article 1191: a. It is based on the non-performance or non-fulfillment of the obligation b. Action may only be instituted by the injure party c. In some cases, the court may grant a period or term d. Non-performance by the other party is important v. Fictitious Contracts cannot be Rescinded vi. Extrajudicial Rescission is allowed if there is a stipulation to that effect vii. Effect of Rescission: 1. Rescission abrogates the contract from its inception and restores the parties to their original positions as if no contract has been made viii. Rescission is Subsidiary in Nature b. 1381- Rescissible Contracts i. The following are rescissible contracts: 1. Those which are entered into by the guardians whenever the wards whome they represent suffer lesion by more than onefourth of the value of the things which are the object thereof; 5

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2. Those agreed upon in representation of absentees, if the later suffer the lesion stated in the preceding number; 3. Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; 4. Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; 5. All other contracts specially declared by law to be subject to rescission. 1382- Premature Payments Made In A State Of Insolvency i. Requisites: 1. The debtor-payor is insolvent 2. The debt is not yet due and demandable 1383- Rescission Is Subsidiary In Nature 1384- Partial Rescission i. Rescission shall be only to the extent necessary to cover the damages caused. ii. Only the creditor who has asked for rescission benefits from the rescission. 1385- Mutual Restitution i. Requisites before the action for rescission can be brought: 1. General Rule: Plaintiff must be able to return what he has received by virtue of the rescissible contracts a. The object is returned together with the fruits; the price together with the interest i. Fruits / interest can only be demanded if there was delivery / payment ii. If the thing is loss, indemnity for damages may be demanded. b. Exceptions: Prejudiced Creditors 2. The object of the contract is NOT in the LEGAL possession of third persons in GOOD FAITH. 3. There must be no other legal remedy. 4. The action must be brought within the prescriptive period. 1386- Effect If Contracts Are Judicially Approved i. Refers to Article 1381 (1) and (2) ii. Rescission cannot take place if judicially approved. iii. More Rules: 1. If an act of ownership: a. With court approval- Rescissible, if lesion is more than one-fourth b. Without court approval- it is Unenforceable whether or not there was lesion 2. If merely an act of administration: a. With court approval- Valid, regardless of lesion b. Without court approval- Rescissible, if lesion is more than one-fourth 1387- Presumptions Of Fraud i. Applies to gratuitous alienations and onerous alienations ii. Gratuitous Alienations: 6

1. Presumed Fraudulent- when the debtor did not reserve sufficient property to pay all debts concerned BEFORE the donation iii. Onerous Alienations: 1. Presumed Fraudulent- when made by persons: a. Against whom some judgement has been rendered in any instance (thus, even if not yet a final judgement) or b. Against whom some writ of attachment has been issued. iv. 1388- Effect Of Bad Faith 1. The acquirer must return the object or indemnify the latter for damages whenever due to any cause it should be impossible for him to return them. a. Due to any cause includes fortuitous events 2. If there are two or more alienations, the first acquirer shall be liable first, and so on successively. a. Illustration: i. If A is in bad faith, he has to return the object. ii. If A is in bad faith but cannot pay, if B is in bad faith, then B has to return the object. iii. If A is in bad faith but cannot pay, and B is in good faith, no need to return. iv. If A is in good faith, but B is in bad faith, no need to return. v. Essentially, those in bad faith (from first to last but only one is liable) are liable to return and in case the first cannot pay, the second one shall pay and so on. But if the person in bad faith cannot pay, and the next in line is in good faith, there is no duty to return by the latter anymore. 3. Rescission must be in a Direct Action a. Before rescission, the contract is valid and its validity cannot be attacked collaterally. v. 1389- Prescriptive Period for Rescission 1. General Rule: 4 years from the date the contract was entered into. 2. Exceptions: a. Persons under guardianship- 4 years from termination of incapacity b. Absentees- 4 years from the times the domicile is known 3. Who Can Bring the Action: a. The injured party or defrauded creditor b. His heir or successor in interest c. Creditors of (a) and (b) by virtue of Article 1177 of the Civil Code (Accion Subrogatoria)

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