Wesleyan University- Philippines

John Wesley School of Law and Governance

Cabanatuan City

In Partial Fulfillment
of the Requirements in the Subject
Obligations and Contracts

Report on Interpretation and Reformation of Contracts and

Different Defective Contracts under the Civil Code

Submitted by:
Dano, Febelyn
De Jesus, Fhrizz
De Venecia, Jerome
Duque, Synar Marie
Garcia, Bon Charlo
Ignacio, Patrick Kyle
Lao, Ranilo
Lu, Geenex Aries
JURIS DOCTOR STUDENTS- Group 2

Submitted to:
Judge Cynthia Martinez Florendo
Professor
Report on Interpretation and
Reformation of Contracts
 INTERPRETATION OF CONTRACTS

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)

Interpretation of a contract is the determination of the meaning of the terms or words used by the
parties in their contract.

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation
shall control. The Court must not read into any other intention of the contracting parties
contradictory to the plain meaning.

Example:
A contract was executed between Synar and Bon. The contract delivers that it is a sale of parcel of
land belonging to Synar for Php200,000.00. In the contract Synar described as the vendor and Bon,
the vendee. The terms of the contract are clear and it does not appear from the circumstances that
the intention of the parties is contrary to the literal meaning of said terms.

Sample Case/ Jurisprudence

ENRIQUE C. ABAD, et al. vs. GOLDLOOP PROPERTIES, INC.
G.R. No. 168108 13 April 2007.
FACTS: Petitioners were the owners of 13 parcels of land covering a total of 53,562sq.m.
Respondent Goldloop Properties Inc. entered into a Deed of Conditional Sale with petitioners for
the entire land area. The agreement are as follows: o Earnest money of P1M was given to the
sellers o P6M+ was given as first payment o In case of the deal will not push through Par. 8 will
be followed (In the event that the BUYER cannot fulfill his obligation: he shall forward a formal
request for extension one week before Dec. 31, 1997, extension is only for 30 days, and this
extension can only be used once otherwise the P1M will be forfeited to the SELLER and the first
payment will be given back to the SELLER with no additional costs. The sale did not push through
because of an economic downturn. Respondents were asking for the first payment of P6M but the
petitioners said that it was already forfeited to them. Respondent then filed a Complaint for
Collection with Prayer for Writ of Attachment. Petitioners insisted that a close reading of the
provision revealed that respondent as buyer had to comply with three conditions precedent before
the first payment could be returned to it. RTC ruled in favor of respondent. CA affirmed the
decision.
ISSUE: Whether the first payment P6M was forfeited to the petitioners per their contract.
RULING: NO. Where the written terms of the contract are not ambiguous and can only be read
one way, the court will interpret the contract as a matter of law. The cardinal rule in the
interpretation of contracts is embodied in the first paragraph of Article 1370 of the Civil Code:
“[i]f 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.” This provision is akin to the “plain
meaning rule” applied by Pennsylvania courts, which assumes that the intent of the parties to an
instrument is “embodied in the writing itself, and when the words are clear and unambiguous the
intent is to be discovered only from the express language of the agreement.” It also resembles the
“four corners” rule, a principle which allows courts in some cases to search beneath the semantic
surface for clues to meaning. A court’s purpose in examining a contract is to interpret the intent of
the contracting parties, as objectively manifested by them. The process of interpreting a contract
requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous.
A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations.
Where the written terms of the contract are not ambiguous and can only be read one way, the court
will interpret the contract as a matter of law. If the contract is determined to be ambiguous, then
the interpretation of the contract is left to the court, to resolve the ambiguity in the light of the
intrinsic evidence.
Article 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.

Interpretation of a contract is the determination of the meaning of the terms or words used by the
parties in their contract.

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation
shall control. The Court must not read into any other intention of the contracting parties
contradictory to the plain meaning.

How to judge intention. — In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. This is, of course, without
prejudice to the consideration of other factors as fixed or determined by the other rules of
interpretation mentioned in the Civil Code and in the Rules of Courts. Hence, as a general rule,
documents are interpreted in the precise terms in which they are expressed, but the courts, in the
exercise of their sound discretion, are called upon to admit direct and simultaneous circumstantial
evidence necessary for their interpretation with the purpose of making the true intention of the
parties prevail (Aves vs. Orillenedo , 70 Phil. 262, citing). One pattern is to ascertain the
contemporaneous and subsequent acts of the contracting parties in relation to the transaction under
consideration. Thus, where there is evidence regarding the intention of the parties to extend the
contract equivalent to the period of suspension caused by the war and the parties understood the
suspension to mean extension, it was held that the suspension of the agreement means the extension
of the same for a period equivalent to the suspension (Nielsen & Co. vs. Lepanto Consolidated
Mining Co., 18 SCRA 1040)

Example:

Febe and Ranilo entered into a contract entitled Contract of Lease. Although the contract refers to
Rene as lessor and to Ranilo as Lessee, it states that possession and ownership of the land are
transferred to Ranilo. The title to the land was given by Febe to Ranilo who registered the land in
his name. Before the date of the contract, Ranilo wrote a letter to Febe offering to buy the land.
By their acts, the party clearly indicate that their evident intention is to make Ranilo the owner of
the land. Hence, the contract should be interpreted as one of sale.

Sample Case/ Jurisprudence

SPOUSES SALVADOR ABELLA AND ALMA ABELLA, Petitioners,

vs. SPOUSES ROMEO ABELLA AND ANNIE ABELLA, Respondents.
G.R. No. 195166, July 08, 2015

FACTS: The assailed September 30, 2010 Decision of the Court of Appeals reversed and set aside
the December 28, 2005 Decision of the Regional Trial Court, Branch 8, Kalibo, Aklan in Civil
Case No. 6627. It directed petitioners to pay respondents P148,500.00 (plus interest), which was
the amount respondents supposedly overpaid. The assailed January 4, 2011 Resolution of the Court
of Appeals denied petitioners’ Motion for Reconsideration.

The Regional Trial Court’s December 28, 2005 Decision ordered respondents to pay petitioners
the supposedly unpaid loan balance of P300,000.00 plus the allegedly stipulated interest rate of
30% per annum, as well as litigation expenses and attorney’s fees.

On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of
money and damages with prayer for preliminary attachment against respondents Spouses Romeo
and Annie Abella before the Regional Trial Court, Branch 8, Kalibo, Aklan. The case was docketed
as Civil Case No. 6627.

ISSUE: Whether or not the Court of Appeals erred in completely striking off interest despite the
parties’ written agreement stipulating it, as well as in ordering them to reimburse and pay interest
to respondents.

RULING: Yes. As noted by the Court of Appeals and the Regional Trial Court, respondents
entered into a simple loan or mutuum, rather than a joint venture, with petitioners.
Respondents’ claims, as articulated in their testimonies before the trial court, cannot prevail over
the clear terms of the document attesting to the relation of the parties. “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.”

Articles 1933 and 1953 of the Civil Code provide the guideposts that determine if a contractual
relation is one of simple loan or mutuum:

Art. 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case the
contract is called a commodatum; or money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid, in which case the contract is simply called
a loan or mutuum.
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.

Article 1372 include the following:

Special intent over general intent

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.

Example:
Fhrizz is building a house on a 350 sqm. lot with an existing structure that was less than 350 sqm.
in area.Patrick protested alleging that Fhrizz could occupy ONLY the space where the existing
structure lies.Fhrizz, however, argued that according to their agreement, he could occupy the lot.
Partick’s interpretation is erroneous because if that was the intention, they could have used the
words “portion” or “part” and not the word “lot”.

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.

Interpretation of stipulation with several meanings.

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.

Example:
Romer owns two lands, one he owns exclusively and one he co-owns with Rom-Rom. Without
specifying, Romer sells “his parcel of land” to Bey Lu. Rom-Rom did not give his consent to the
sale.

In this case, the sale should refer to the land owned by Romer alone as this would make the
contract effectual.
Sample Case/ Jurisprudence

THE WELLEX GROUP, INC., Petitioner, vs. U-LAND AIRLINES, CO., LTD.,
Respondent.
G.R. No. 167519, January 14, 2015
Leonen, J.

FACTS: Wellex and U-Land agreed to develop a long-term business relationship through the
creation of joint interest in airline operations and property development projects in the Philippines.
The agreement includes: I. Acquisition of APIC and PEC shares; II. Operation and management
of APic/PEC/APC; III. Entering into and funding a joint development agreement; and IV. The
option to acquire from Wellex shares of stock of EXPRESS SAVINGS BANK ("ESB") up to 40%
of the outstanding capital stock of ESB of ULand.

Wellex's misrepresentation that APIC was a majority shareholder of APC that compelled it to
enter into the agreement. On appeal, the Court of Appeals affirmed the ruling of the Regional
Trial Court. Petitioners invokes Suria v. Intermediate Appellate Court, which held that an action
for rescission is not a principal action that is retaliatory in character under Article 1191 of the
Civil Code.

ISSUE: Whether or not respondent U-Land correctly sought the principal relief of rescission or
resolution under Article 1191.

RULING: Yes. The Court of Appeals did not err in affirming the rescission granted by the trial
court. Respondent U-Land correctly sought the principal relief of rescission or resolution under
Article 1191. This case does not involve prejudicial transactions affecting guardians, absentees, or
fraud of creditors. The actions of the parties involving the terms of the First Memorandum of
Agreement do not fall under any of the contracts that may be subject to rescission. Justice J.B.
Reyes' concurring opinion in the landmark case of Universal Food Corporation v. Court of
Appeals184 gave a definitive explanation on the principal character of resolution under Article
1191.

The rescission on account of breach of stipulations is not predicated on injury to economic interests
of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity
between the parties. This rescission is a principal action retaliatory in character, it being unjust that
a party be held bound to fulfill his promises when the other violates his.

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.

INTERPRETATIONS OF VARIOUS STIPULATIONS OF A CONTRACT

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.
Sample Case/ Jurisprudence

THE BANK OF THE PHILIPPINE ISLANDS vs TY CAMCO SOBRINO, ET AL.

G.R. No. L-36524. February 6, 1933.
HULL, J.

FACTS:Ty Camco Sobrino is the registered owner of two parcels of land situated in the
municipality of Rosario, Province of Pangasinan, described in Transfer Certificates of Title Nos.
1803 and 1804.

On April 12, 1924 Ty Camco Sobrino executed a deed of first mortgage on these parcels of land
in favor of the Philippine National Bank, and the mortgage was noted on the back of the transfer
certificates of title.

On February 21, 1930, Ty Camco Sobrino executed a deed of second mortgage on the same
properties in favor of Cu Yeg Keng and Simon A. Chan Bona, without having secured the written
consent of the Philippine National Bank. The mortgagor obtained the certificates of title from this
bank. The register of deeds for Pangasinan registered and noted on the Transfer Certificate of Title
Nos. 1803 ad 1804 the second mortgage.

On April 14, 1931, the Philippine National Bank filed in the Court of First Instance of Pangasinan,
a petition praying that the annotation or inscription of the second mortgage be declared null and
void, and ordered cancelled.

ISSUE: Whether or not that the 2nd mortgage is valid in favor of the appellees.

RULING: The mortgage contract should be read in its entirely. If so read, it is at once seen that
while the making of the 2nd mortgage except with the written consent of the mortgage is prohibited
, the contract continues and states the penalty for such violation namely, it gives to the mortgage
the right immediately foreclose mortgage. It does not give the mortgages the right to treat the
second mortgage as null and void.

CONCLUSION: The orders of CFI of Pangasinan are affirmed with cost against the appellant.

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.

Words used in a contract which are susceptible to two or more meanings shall be understood to
follow that meaning which is most in keeping with the nature and object of the agreement.

Example:
RomRom leased to Febe a roof for the purpose of erecting and advertising sign. The contract
provides for the termination of the lease by Febe if a building should be constructed on an adjoining
property of such height and to obscure the view of Febe’s sign. There was erected on the roof of
an adjoining building a sign which obstructed the view of Febe’s sign. In this case, the term
building as the term used in the contract may be interpreted as to include the obstructing sign
having in mind the nature and object of the contract.

Sample Case/ Jurisprudence

THE BANK OF THE PHILIPPINE ISLANDS vs TY CAMCO SOBRINO, ET AL.

G.R. No. L-36524. February 6, 1933.
HULL, J.

FACTS: Ty Camco Sobrino is the registered owner of two parcels of land situated in the
municipality of Rosario, Province of Pangasinan, described in Transfer Certificates of Title Nos.
1803 and 1804.

On April 12, 1924 Ty Camco Sobrino executed a deed of first mortgage on these parcels of land
in favor of the Philippine National Bank, and the mortgage was noted on the back of the transfer
certificates of title.

On February 21, 1930, Ty Camco Sobrino executed a deed of second mortgage on the same
properties in favor of Cu Yeg Keng and Simon A. Chan Bona, without having secured the written
consent of the Philippine National Bank. The mortgagor obtained the certificates of title from this
bank. The register of deeds for Pangasinan registered and noted on the Transfer Certificate of Title
Nos. 1803 ad 1804 the second mortgage.

On April 14, 1931, the Philippine National Bank filed in the Court of First Instance of Pangasinan,
a petition praying that the annotation or inscription of the second mortgage be declared null and
void, and ordered cancelled.

ISSUE: Whether or not that the 2nd mortgage is valid in favor of the appellees.

RULING: The mortgage contract should be read in its entirely. If so read, it is at once seen that
while the making of the 2nd mortgage except with the written consent of the mortgage is prohibited
, the contract continues and states the penalty for such violation namely, it gives to the mortgage
the right immediately foreclose mortgage. It does not give the mortgages the right to treat the
second mortgage as null and void.

The orders of CFI of Pangasinan are affirmed with cost against the appellant.

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.

1) Effect of Usage or Custom of the Place

Examples:

1. Febe made a contract with Fhrizz regarding “pesetas”. In the place where the contract was
made, Mexican pesetas were more commonly used than Spanish pesetas. The Supreme Court
held that the term “pesetas” should be construed to mean Mexican pesetas.

2. If a contract for a lease of services does not state how much compensation should be given, the
custom of the place where the services were rendered should determine the amount. (Arroyo
versus Azur)

2) Pleading and Proof of Customs and Usages

Should customs and usages be pleaded (alleged in the pleading)?

Answer: Distinguish:

If the customs and usages are general, they need not be pleaded. Hence, even without previously
being alleged, they may be proved in court.

Sample Case/ Jurisprudence

WERR CORPORATION INTERNATIONAL vs. HIGHLANDS PRIME INC.

G.R. No. 187543, February 08, 2017
JARDELEZA, J.:

FACTS: Highlands Prime, Inc. (HPI) and Werr Corporation International (Werr) are domestic
corporations engaged in property development and construction, respectively. For the construction
of 54 residential units contained in three clusters of five-storey condominium structures, known as
“The Horizon-Westridge Project,” in Tagaytay. The project was not completed on the last
extension given. Thus, HPI terminated its contract with Werr.

ISSUE: Whether or not the industry practice of computing liquidated damages only up to
substantial completion of the project applies in the computation of liquidated damages.
Consequently, whether delay should be computed until termination of the contract or until
substantial completion of the project.

RULING: Reject this claim of Werr and find that while this industry practice may supplement
the Agreement, Werr cannot benefit from it.

At the outset, we do not agree with the CA that industry practice be rejected because liquidated
damages are provided in the Agreement, autonomy of contracts prevails, and industry practice is
completely set aside. Contracting parties are free to stipulate as to the terms and conditions of the
contract for as long as they are not contrary to law, morals, good customs, public order or public
policy. Corollary to this rule is that laws are deemed written in every contract.
Deemed incorporated into every contract are the general provisions on obligations and
interpretation of contracts found in the Civil Code.

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

It is just fair not to favor the party who causes any trouble arising from the contract.
Contra proferentem-be interpreted strictly against the party who has drawn it, or be given an
interpretation which will be favorable to the other who, upon faith of which, has incurred an
obligation.

Contracts of adhesion-all their provisions have been drafted by one party, and the only
participation of the other is signing of his signature or his “adhesion” thereto on the “take it or
leave it” basis, without the right to modify it.

Sample Case/ Jurisprudence

LANDICHO VS. GSIS, 44 SCRA 7

G.R. NO. L-28866 MARCH 17, 1972
CONCEPCION, CJ

FACTS: A provision in the application for insurance with the GSIS states this condition: “That
any policy shall be made effective on the first day of the month next following the month the first
premium is paid.” Another provision states: “That failure to deduct from my salary the monthly
premiums shall not make that policy lapse,” and that, “the premium account shall be considered
as indebtedness which I bind myself to pay the System.”

Elsa, an employee of the Bureau of Public Works died in an airplane crash. It appears, however,
that the Bureau had not remitted to GSIS even a single premium.

ISSUE: Whether the insurance taken effect?

RULING: Yes. The ambiguity created by the operation of the conditions stated in the
application should be interpreted adversely against the GSIS.

CONCLUSION: Wherefore, the decision appealed from should be, it is hereby affirmed, with
costs against the defendant-appellant, Government Service Insurance System.

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.

Doubts in contract refer only to incidental circumstances but cannot be settled in accordance
with previous provisions.

If doubts refer to incidental circumstances of a gratuitous contract, such interpretation should

be made which would result in the least transmission of rights and interests.

Example:
Synar gave her car to Bon. It is not clear in the contract whether it is commodatum or a pure
donation.

The Contract should be presumed as a mere commodatum because it would transmit lesser rights
than a donation since Ana retains ownership of her car.

If the contract in question is onerous, the doubt should be settled in favor of the greatest
reciprocity of interests.

Example:
Synar borrowed from Bon P 5,000.00 at 12% interest. It cannot be determined from the terms of
contract whether the loan is payable in six months or in one year.

It must be assumed that the period agreed upon is one year which results in a greater reciprocity
of interests since Synar can use the money for one year, and Bon, on the other hand, can earn
interest due for one year instead of only six months.

If the doubt refers to the principal object of the contract and such doubt cannot be resolved
thereby leaving the intention of the parties unknown, the contract shall be null and void.

Example:
Synar sold her land to Bon. Ana has many lands. It cannot be determined which land was intended
by the parties to be the subject of the sale. Therefore, the contract shall be null and void and it is
as if the parties have not entered into any contract at all.

Sample Case/Jurisprudence

GAITE vs. FONACIER

G.R. No. L-11827, July 31, 1961
REYES, J.B.L., J.:

FACTS: A document was executed wherein Plaintiff transferred to Defendant, for the
consideration of P20,000.00, plus 10% of the royalties that Defendant would receive from the
mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside
said claims. Plaintiff filed the present complaint against them in the Court of First Instance of
Manila (Civil Case No. 29310) for the payment of the balance of the price of the iron ore,
consequential damages, and attorney's fees.

ISSUE: Whether the obligation of defendants and his sureties to pay Plaintiff become due and
demandable when the former failed to renew the surety bond?

RULING:Yes, the obligation becomes demandable. The provision in the contract was not a
condition but a only a suspensive period or term to the payment of the balance of P65,000.00.
What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as
distinguished from its demandability) is subordinated to the happening of a future and uncertain
event; so that if the suspensive condition does not take place, the parties would stand as if the
conditional obligation had never existed. That the parties to the contract did not intend any such
state of things to prevail. There is no uncertainty that the payment will have to be made sooner or
later; what is undetermined is merely the exact date at which it will be made. By the very terms of
the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or
demandability is deferred. The defendant loses the right of the period when it failed to renew the
surety according to ART. 1198 of the Civil Code.

CONCLUSION: WHEREFORE, finding no error in the decision appealed from, we hereby

affirm the same, with costs against appellants.

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

Article 1379 NCC | contains the following:

Interpretation of Documents under Rule 130
Section 10. Interpretation of a writing according to its legal meaning. — The language of a
writing is to be interpreted according to the legal meaning it bears in the place of its execution,
unless the parties intended otherwise.
Section 11. Instrument construed so as to give effect to all provisions. — In the construction of an
instrument, where there are several provisions or particulars, such a construction is, if possible, to
be adopted as will give effect to all.
Section 12. Interpretation according to intention; general and particular provisions. — In the
construction of an instrument, the intention of the parties is to be pursued; and when a general and
a particular provision are inconsistent, the latter is paramount to the former. So a particular intent
will control a general one that is inconsistent with it.
Section 13. Interpretation according to circumstances. — For the proper construction of an
instrument, the circumstances under which it was made, including the situation of the subject
thereof and of the parties to it, may be shown, so that the judge may be placed in the position of
those who language he is to interpret.
Section 14. Peculiar signification of terms. — The terms of a writing are presumed to have been
used in their primary and general acceptation, but evidence is admissible to show that they have a
local, technical, or otherwise peculiar signification, and were so used and understood in the
particular instance, in which case the agreement must be construed accordingly.
Section 15. Written words control printed. — When an instrument consists partly of written words
and partly of a printed form, and the two are inconsistent, the former controls the latter.
Section 16. Experts and interpreters to be used in explaining certain writings. — When the
characters in which an instrument is written are difficult to be deciphered, or the language is not
understood by the court, the evidence of persons skilled in deciphering the characters, or who
understand the language, is admissible to declare the characters or the meaning of the language.
Section 17. Of two constructions, which preferred. — When the terms of an agreement have been
intended in a different sense by the different parties to it, that sense is to prevail against either party
in which he supposed the other understood it, and when different constructions of a provision are
otherwise equally proper, that is to be taken which is the most favorable to the party in whose favor
the provision was made.
Section 18. Construction in favor of natural right. — When an instrument is equally susceptible
of two interpretations, one in favor of natural right and the other against it, the former is to be
adopted.
Section 19. Interpretation according to usage. — An instrument may be construed according to
usage, in order to determine its true character.

Example:
Ranilo and Bey Lu are both Chinese immigrants who acquired Filipino citizenship. Ranilo wants
to buy the parcel of land of Bey Lu for the construction of his commercial building.Being both
ethnically and culturally Chinese, they wrote their document of sale in Cantonese.If ever there will
be a litigation between the two parties with regards to this contract, experts and interpreters may
be asked to declare the characters or the meaning of the language used as it is NOT understood by
the court (Sec 10, Rule 130).
 REFORMATION OF INSTRUMENTS

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.

Meaning of 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.

Reason for reformation.

“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 reflect or disclose the real meeting of the minds of the parties. The rigor of the legalistic
rule that the written instrument should be the final and inflexible criterion and measure of the
rights and obligations of the contracting parties is thus tempered, to forestall the effects of mistake,
fraud, inequitable conduct, or accident.”

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;(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.

Reformation and annulment distinguished.

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.
Reformation and annulment are thus inconsistent with each other. While the first gives life to a
contract upon certain conditions, the second involves a complete nullification of it.

Example:
Romer sold his mansion to Bey Lu. It was agreed that the sale will include all the furniture and
appliances inside the mansion. However, the contract as signed by the parties, states that the
mansion is being sold is excluding the furniture pieces and appliances. In this case, the remedy is
reformation because there has been a meeting of the minds.

If Romer was willing to sell the mansion excluding the furniture and appliances, while B was
willing to buy the mansion including the furniture and appliances, there has been no meeting of
the minds and therefore the remedy is annulment.

Sample Case/ Jurisprudence

Dizon vs. Gaborro, 83 SCRA 688-691

Pontente: GUERRERO, J

FACTS: Petitioner, Jose P. Dizon, was the owner of the three parcels of land, situated in Mabalacat,
Pampanga. He constituted a first mortgage to DBP to secure a loan of P38,000.00 and a second mortgage
to PNB amounting P93,831.91.
Petitioner defaulted in the payment of his debt, therefore, the Development Bank of the Philippines
foreclosed the mortgage extrajudicially. Gaborro became interested in the lands of Dizon. But since the
property was already foreclosed by the DPB. They then entered into a contract captioned as “Deed of sale
with assumption of mortgage” and the second contract executed the same day, is called “Option to Purchase
Real Estate” After the execution of said contracts, Alfredo G. Gaborro took possession of the three parcels
of land.
After the execution of the contract and its conditions to him, Gaborro made several payments to the DBP
and PNB. He improved, cultivated the kinds raised sugarcane and other crops produce.
Jose P. Dizon through his lawyer, wrote a letter to Gaborro informing him that he is formally offering
reimburse Gaborro of what he paid to the banks. Gaborro did not agreed to the demands of the petitioner,
hence, Jose P. Dizon instituted a complaint in the Court of First Instance of Pampanga, alleging that the
documents Deed of Sale With Assumption of Mortgage and the Option to Purchase Real Estate did not
express the true intention and agreement between the parties. Petitioner, contended that the two deeds
constitute in fact a single transaction that their real agreement was not an absolute sale of the land but
merely an equitable mortgage or conveyance by way of security for the reimbursement or refund by Dizon
to Gaborro of any and all sums which the latter may have paid on account of the mortgage debts in favor
of the DBP and the PNB.
ISSUE: Whether or not the contract showed the true agreement between the parties.
RULING: No. The court held that the true agreement between the plaintiff and defendant is that the
defendant would assume and pay the indebtedness of the plaintiff to DBP and PNB, and in consideration
therefore, the defendant was given the possession and enjoyment of the properties in question until the
plaintiff shall have reimbursed to defendant fully the amount of P131,831.91 plus 8% interest per
annum from October 6, 1959 until full payment, said right to be exercised within one year from the date
the judgment becomes final, if he fails to do so within the said period, then he is deemed to have lost his
right over the lands forever. Article 1359 provides that 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.

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.

PRINCIPLES OF THE GENERAL LAW ON REFORMATION

In case of conflict between the provisions of the new Civil Code and the principles of the general
law on reformation, the former prevail. The latter will have only suppletory effect.

REQUISITES OF REFORMATION

• There must have been a meeting of minds upon the contract

• Instrument or document evidencing the contract does not express the true agreement
between the parties
• Failure of the instrument to express the agreement must be due to mistake, fraud,
inequitable conduct, or accident.

The Chapter on Reformation of Instruments is based on American Law. The prevailing

jurisprudence in America will be persuasive but not necessarily binding, provided the same does
not contradict with the provisions of the code and other Philippine laws.

The governing law is Article 17.

The forms and solemnities of contracts, wills, and other public instruments shall be governed by
the laws of the country in which they are executed.

When the acts referred to are executed before the diplomatic or consular officials of the Republic
of the Philippines in a foreign country, the solemnities established by Philippine laws shall be
observed in their execution.

Prohibitive laws concerning persons, their acts or property, and those which have for their object
public order, public policy and good customs shall not be rendered ineffective by laws or
judgments promulgated, or by determinations or conventions agreed upon in a foreign country.

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.
Reformation is a remedy in equity by means of which a written instrument is made or construed
so as to express or confirm the real intention of the parties when some error or mistake is
committed.

This article applies when the mistake is mutual that is both parties committed the same mistake
which caused the failure of the instrument to express their true agreement.

Example:
Synar sold to Bon lot no. 5 which was erroneously designated as lot number 10 in the deed of
sale. Subsequently, Synar sold to Febe lot number 5 in the deed of sale. In this case reformation
is proper because there is a simple mistake in drafting the documents of sale. There being
meeting of the minds of the parties to their contracts.

Sample Case/ Jurisprudence

Globe Asiatique Realty Holdings Corp. v. Union Bank of the Philippines

G.R. No. 229339, July 29, 2019

FACTS: This is a Petition for Review on Certiorari under Rule 45 which seeks to reverse and set
aside the Decision and the Resolution of the Court of Appeals. Globe Asiatique, through its
President and/or Vice-President, executed 10 Deeds of Assignments (DAs) and 11 copies of
Special Powers of Attorney (SPAs) in favor of Union Bank covering 10 condominium units
located at GA Tower 1, Condominium Project situated along EDSA, Mandaluyong City. A
common provision of the DAs provides that Globe Asiatique absolutely transferred, assigned, and
conveyed to Union Bank, its successors and assigns, all its rights, title, interests and participation
"on that parcel of land, and subsequent improvements thereon" located at the specific subject units
of GA Tower 1. Globe Asiatique sent Union Bank a letter requesting the reformation of the DAs
and the SPAs alleging that some of their provisions do not conform to their real agreement.
However, Globe Asiatique's request remained unheeded. Thus it filed a Complaint for reformation
of the DAs and SPAs. Globe Asiatique claimed that the parties only intended the sale or assignment
of rights, title, and interests over the receivables, and not the parcels of land themselves. It asserted
that the DAs are the result of a mutual mistake. Hence, it prayed that the DAs and SPAs be
reformed for failing to express the parties' real intent and agreement. Globe Asiatique insists that
it is entitled to a summary judgment as a matter of law. It asserts that Union Bank, in its Answer
and during the Pre-Trial Conference, admitted all the material allegations in the complaint for
reformation. Union Bank denied that the subject DAs failed to express the true intent or agreement
between the parties or that they were the result of mutual mistake.
ISSUE: Is Motion for Summary Judgement proper in this case?
RULING: NO. A summary judgment is permitted only if there is no genuine issue as to any
material fact and a moving party is entitled to a judgment as a matter of law. In relation to this, a
"genuine issue" means an issue of fact which calls for the presentation of evidence, as distinguished
from an issue which is fictitious or contrived, an issue that does not constitute a genuine issue for
trial. "The court can determine this on the basis of the pleadings, admissions, documents, affidavits,
and/or counter-affidavits submitted by the parties to the court. Where the facts pleaded by the
parties are disputed or contested, proceedings for a summary judgment cannot take the place of a
trial." For summary judgment to proceed in lieu of a full-blown trial, the party who moves for
summary judgment has the burden of demonstrating clearly the absence of genuine issues of fact,
or that the issue posed is patently insubstantial as to constitute a genuine issue.

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.

In this Article, the mistake is unilateral but the other party acted fraudulently or inequitably.

Example:

Bey agreed with Ranilo that Synar would be loaned P5, 000, 000.00 by Ranilo. In the contract
signed by Bey and Ranilo, it was stated that Bey was selling her house to Ranilo for said amount.
Bey signed the contract in the belief that it was really a contract of loan. Who may ask for the
reformation of the instrument if Ranilo had acted fraudulently?

Answer: Bey may ask for the reformation of the instrument because after the meeting of the minds,
one party (Ranilo) acted fraudulently or inequitably in such a way that the contract does not show
their real intention. In such a case, the law provides that the person who acted by mistake 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.

On this article 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.

Examples:
Mrs. Lu owed 5M to Mrs. Dano and made a promissory note that she will pay Mrs. Dano her land
title in Cavite which is equivalent to the amount that she owed. Six months after their contract was
made Mrs. Lu delivered her land title to Mrs. Dano as her payment for her debt to the latter. Mrs.
Dano accepted the land title but she noticed that it was the land title of Mrs. Lu in Ilocos Norte
which is 3x more than the amount that Mrs. Lu owed but she concealed it to Mrs. Lu. Therefore
Mrs. Lu is entitled for the reformation of instrument that they used in their contract.
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.

Sample Case/ Jurisprudence

Makati Tuscany Condominium Corporation vs. Multi-Realty Development Corporation

G.R. No. 185530 | April 18, 2018

FACTS: In 1974, Multi-Realty built Makati Tuscany, a 26-storey condominium building located
in Makati City. In 1975, Multi-Realty, through its president Henry Sy, Sr., executed and signed
Makati Tuscany’s Master Deed and Declaration of Restrictions (Master Deed), which was
registered with the Register of Deeds of Makati in 1977.

Pursuant to RA No. 4726 or the Condominium Act, Multi-Realty created and incorporated Makati
Tuscany Condominium Corporation (MATUSCO) sometime in 1977 to hold title over and manage
Makati Tuscany’s common areas. That same year, Multi-Realty executed a Deed of Transfer of
ownership of Makati Tuscany’s common areas to MATUSCO.

In 1990, Multi-Realty filed a complaint for damages and/or reformation of instrument with prayer
for temporary restraining order and/or preliminary injunction against MATUSCO before the
Makati RTC.

Multi-Realty alleged in its complaint that of the 106 parking slots designated in the Master Deed
as part of the common areas, only eight (8) slots were actually intended to be guest parking slots;
thus, it retained ownership of the remaining 98 parking slots. Multi-Realty claimed that its
ownership over the 98 parking slots was mistakenly not reflected in the Master Deed.

RTC dismissed Multi-Realty’s complaint, noting that Multi-Realty itself prepared the Master Deed
and Deed of Transfer. It also emphasized that Multi-Realty’s prayer for the reformation of the
Master Deed could not be granted absent proof that MATUSCO acted fraudulently or inequitably
towards Multi-Realty. Finally, it ruled that Multi-Realty was guilty of estoppel by deed.
Both parties appealed to the CA.

In dismissing Multi-Realty’s appeal, the CA held that an action for reformation of an instrument
must be brought within 10 years from the execution of the contract. As to the dismissal of
MATUSCO’s appeal, CA ruled that its claim was based on a personal right to collect a sum of
money, which had a prescriptive period of four (4) years, and not based on a real right, with a
prescriptive period of 30 years.
Multi-Realty moved for reconsideration, but its motion was denied. It then filed a petition for
review before the Supreme Court. The Supreme Court granted Multi-Realty’s petition, set aside
the assailed CA’s Decision, and directed the latter to resolve Multi-Realty’s appeal.

Thereafter, the CA initially denied both appeals. On Multi-Realty’s motion for reconsideration,
however, CA reversed its Decision and directed the reformation of the Master Deed and Deed of
Transfer.

MATUSCO moved for the reconsideration of the Amended Decision, but its motion was denied.
Hence, MATUSCO filed its Petition for Review on Certiorari before this Court.

ISSUES: Whether there is a need to reform the Master Deed and the Deed of Transfer.

RULING: Yes. An action for reformation of an instrument finds its basis in Article 1359 of the
Civil Code. The National Irrigation Administration v. Gamit stated that there must be a
concurrence of the following requisites for an action for reformation of instrument to prosper:
1. there must have been a meeting of the minds of the parties to the contract;
2. the instrument does not express the true intention of the parties; and
3. the failure of the instrument to express the true intention of the parties is due to mistake,
fraud, inequitable conduct or accident.

The burden of proof then rests upon the party asking for the reformation of the instrument to
overturn the presumption that a written instrument already sets out the true intentions of the
contracting parties.

A plain and literal reading of Section 7(d) in relation to Section 5 shows that all parking areas
which are not assigned to units come under petitioner’s authority because they are part of the
common areas.

Respondent argues that what was written in the Master Deed and Deed of Transfer failed to fully
capture what was actually intended by the parties. However, intentions involve a state of mind,
making them difficult to decipher; therefore, the subsequent and contemporaneous acts of the
parties must be presented into evidence to reflect the parties’ intentions.

Petitioner claims that it was confusion and not bad faith that caused its belated assertion of
ownership over the parking slots. Whether or not it acted in bad faith was never in issue.

Further, it is difficult to impute confusion and bad faith, which are states of mind appropriate for
a natural individual person, to an entire corporation. To grant the argument that a corporation, like
a natural person, was confused or not in bad faith is to extend to it too much analogy and to endow
it more of the human characteristics beyond its legal fiction. The Court is not endowed with such
god-like qualities of a creator or should allow illicit extensions of legal fiction to cause injustice.
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 1365 NCC | includes the following:

Mortgage or pledge stated as sale

When any of the circumstances enumerated in the law exists, an instrument purporting to be a
sale with right of repurchase shall be presumed to be an equitable mortgage.
The true intention of the parties must prevail.

Article 1365 NCC | example:

Fhrizz purchased a parcel of land from Ranilo. By the terms of the document, the contract is one
of sale. Later on, Partrick bought the subject land from the heirs of Fhrizz. The heirs of Ranilo
sued Partick contending that the contract between Fhrizz and Ranilo is a mortgage. Patrick argued
that it is a sale with the right of repurchase . HOWEVER, in one of the clauses in the document, it
appears that Ranilo did NOT reserve the right to repurchase the property, but bound himself to
return the principal interest.This contract is a mortgage.

Sample Case/ Jurisprudence

Jayme, et al. Vs Alampay, et al 62 SCRA 131

G.R. No. L-39592. January 28, 1975

FACTS: Spouses Antonio Jayme and Ana Solidarios entered into a contract of mortgage with
Benito Ong, but they signed a deed of sale. The spouses filed an action for reformation.

A motion to dismiss was interposed on the ground that the property was already mortgage to a
third party.

ISSUE :Whether the action for reformation still prosper when a third party is already involve?

RULING: Yes, it will prosper. It is obvious that the mortgage rights over the property are
recognized but that would in no way defeat petitioners’ action for reformation and recovery of title
of the property, subject to the mortgage thereon in favor of Del Castillo or as prayed for by them,
respondents maybe duly sentenced “to deliver title to the plaintiffs free from any incumbrances
including the mortgage of the defendant del Castillo” which merely means that respondent would
in such be obliged and sentence to discharge del Castillo’s mortgage credit .

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.
Cases 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. (see 45
Am. Jur. 599.) Of course, 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 (see 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.

(4) Art. 1367

Example:
Bey Lu donated the trademark for his fried chicken to Romer without conditions. In this case, the
act is essentially gratuitous and Romer has no just cause for complaint.

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.

Example:
Synar who is need of money negotiated a contract of chattel mortgage with Bon using Synar’s Car
for security. Through machination perpetrated by Bon, Synar signed a document of sale believing
that it was a chattel mortgage. Later Synar filed a case against Bon for delivery of the car based on
the deed of sale. The action failed. Bon can no longer seek the reformation of the instrument to
consider it a chattel mortgage. He is estopped for the law has deemed him to have waived the
action for 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.

Reformation of an instrument cannot be just be done according to the whims and caprice of one
or even both parties but it is done only upon order of the court.

If by mutual mistake there in non meeting of the minds of the parties, either parties or their
successor in interest or their heir may petition the court for the reformation of the instrument.
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 ten(10) years.

Example:
Fhrizz entered a contract to Febe for the construction of a building. The parties agreed that the
payment be made in dollars. However what was typewritten in the contract occasioned by mistake
was the peso sign. Either party or the successor in interest of Fhrizz or Febe may petition the court
for reformation of the instrument within ten years.

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

An action for the reformation of instruments happens to “quiet title to real property or remove
clouds therefrom.” This action for reformation of instruments falls under the jurisdiction of the
Regional Trial Court.
Different Defective Contracts under
the Civil Code
TABLE OF DEFECTIVE CONTRACTS
RESCISSIBLEE VOIDABLE UNENFORCEABLE VOID OR INEXISTENT
Valid and enforceable Valid and binding between the Valid but enforceable in court Absolutely null and void.
unless rescinded. parties unless annulled by a unless they are cured or ratified.
proper action in court. Article 1409 The following contracts
Art. 1380 Contracts validly Art. 1403 The following contracts are inexistent and void from the
agreed upon may be Art. 1390 The following contracts are unenforceable, unless they are beginning:
rescinded in the cases are voidable or annullable, even ratified: (1) Those whose cause, object or
established by law. though there may have been no (1) Those entered into in the name of purpose is contrary to law, morals,
Art. 1381 The following damage to the contracting parties: another person by one who has been good customs, public order or public
contracts are rescissible: (1) Those where one of the parties given no authority or legal policy;
(1) Those which are entered is incapable of giving consent to a representation, or who has acted
into by guardians whenever contract; beyond his powers; (2) Those which are absolutely
the wards whom they (2) Those where the consent is (2) Those that do not comply with the simulated or fictitious;
represent suffer lesion by vitiated by mistake, violence, Statute of Frauds as set forth in this
more than one-fourth of the intimidation, undue influence or number. In the following cases an (3) Those whose cause or object did not
value of the things which are fraud. These contracts are binding, agreement hereafter made shall be exist at the time of the transaction;
the object thereof; unless they are annulled by unenforceable by action, unless the
(2) Those agreed upon in a proper action in court. They are same, or some note or memorandum, (4) Those whose object is outside the
representation of absentees, susceptible of ratification. thereof, be in writing, and subscribed commerce of men;
if the latter suffer the lesion by the party charged, or by his agent;
stated in the preceding Civil Code Provisions: Art. 1390 evidence, therefore, of the agreement (5) Those which contemplate an
number; to Art. 1402 cannot be received without the impossible service;
(3) Those undertaken in writing, or a secondary evidence of
fraud of creditors when the Effect of Failure to Make its contents: (6) Those where the intention of the
latter cannot in any other Restitution (a) An agreement that by its terms is parties relative to the principal object of
manner collect the claims not to be performed within a year the contract cannot be ascertained;
due them; The action for annulment is from the making thereof;
(4) Those which refer to commenced after the lapse of (b) A special promise to answer for (7) Those expressly prohibited or
things under litigation if they several years from the time of the the debt, default, or miscarriage of declared void by law.
have been entered into by the consummation of the contract. another;
defendant without the
knowledge and approval of
the litigants or of competent REMEDY: Annulment; (c) An agreement made in These contracts cannot be ratified.
judicial authority; Ratification consideration of marriage, other than Neither can the right to set up the
(5) All other contracts a mutual promise to marry; defense of illegality be waived.
specially declared by law to If the contract has not yet been (d) An agreement for the sale of
be subject to rescission. consummated, it is evident, goods, chattels or things in action, at Civil Code Provisions: Art. 1409 to
(1291a) although the Code does not a price not less than five hundred Art. 1422
expressly say so, that the pesos, unless the buyer accept and
Civil Code Provisions: Art. contracting parties shall be receive part of such goods and REMEDY: Declaration of Absolute
1380 to Art. 1389 released from the obligations chattels, or the evidences, or some of Nullity of Inexistence
arising therefrom. However, if the them, of such things in action or pay
Grounds: contract has already been at the time some part of the purchase PRESCRIPTION: Art. 1410 provides
a. Contracts in behalf consummated, the rules provided money; but when a sale is made by that, the action or defense for the
of ward for in Arts. 1398 to 1402 of the auction and entry is made by the declaration of the inexistence of a
Contracts entered into Code shall govern. auctioneer in his sales book, at the contract does not prescribe. (The defect
by guardians time of the sale, of the amount and is of such a nature
whenever the wards PRESCRIPTION: According to kind of property sold, terms of sale, that it cannot be cured by prescription.)
whom they represent Art. 1391, the action for price, names of the purchasers and
suffer lesion or annulment shall be brought within person on whose account the sale is Parties to Instigate Action:
damage by more than four years. made, it is a sufficient memorandum; • The contracting parties
¼ of the value of the (e) An agreement of the leasing for a • The aggrieved party
things which are the This period shall begin: longer period than one year, or for the
object thereof, are 1. In cases of intimidation, sale of real property or of an interest In Tongoy vs. Court of Appeals,
rescissible. violence or undue therein; 123 SCRA 99 (1983), the Court said
Contracts in behalf influence, from the time (f) A representation as to the credit of that the following are the most
of absentees the defect of the consent a third person. fundamental characteristics of void or
Contracts entered into ceases. (3) Those where both parties are inexistent contracts:
by those in behalf of 2. In case of mistake or fraud,incapable of giving consent to a (1) As a general rule, they produce no
absentees, if the latter from the time of the contract. legal effects whatsoever
shall suffer lesion or discovery of the same. in accordance with the principle “quod
damage stated in the 3. When the action refers to Civil Code Provisions: Art. 1403 to nullum est nullum producit
preceding paragraph contracts entered into by Art. 1408 effectum.’’
are also rescissble. minors or other (2) They are not susceptible of ratifi
incapacitated persons, from cation
b. Contracts referring the time the guardianship The case of Badillo vs. Ferrer, 152 (3) The right to set up the defense of
to things under ceases. SCRA 407 inexistence or absolute
litigation Article 1390 renders a contract nullity cannot be waived or renounced.
Contracts which refer Parties to Instigate Action: voidable if one of the parties is (4) The action or defense for the
to things under • The contracting parties incapable of giving consent to the declaration of their inexistence or
litigation if they have contract or if the contracting party’s absolute nullity is imprescriptible.
been entered into by In Francisco vs. Herrera, 392 consent is vitated by mistake, (5) The inexistence or absolute nullity
the defendant into by SCRA 317, G.R. No. 139982 voilence, intimidation, undue of a contract cannot be
the defendant without November 21, 2002, there are two influence or fraud. invoked by a person whose interests are
knowledge and types of void contracts—(1) those Surviving widow has no authority or not directly affected.
approval of the where one of the essential has acted beyond her powers in
litigants or of requisites of a valid contract as conveying to the vendees the In the case of Guiang vs. Court of
competent judicial provided for by Article 1318 of the undivided share of her minor children Appeals (June 26, 1998, 291 SCRA
authority are Civil Code is totally wanting, and in the property, as her powers as the 372), the
rescissble. (2) those declared to be so under natural guardian covers only matters Supreme Court ruled that the trial court
c. Contracts by Article 1409 of the Civil Code; A of administration and cannot include correctly held: “By the specific
insolvent voidable or annullable contract is the power of disposition, and she provision of the law (Art. 1390, Civil
Art. 1382 Payments one in which the essential should have first secured court Code) therefore, the Deed of Transfer
made in a state of requisites for validity under approval before alienation of the of Rights cannot be ratified, even by an
insolvency for Article 1318 are present, but property. ‘amicable settlement.’ The participation
obligations to whose vitiated by want of capacity, error, Since the minors never ratified the by some barangay authorities in the
fulfillment the debtor violence, intimidation, undue deed, and in fact questioned its ‘amicable settlement’ cannot otherwise
could not be influence, or deceit. Where a validity, the contract remained validate an invalid act.
compelled at the time party’s capacity to consent to a unenforceable or unauthorized, and
they were effected, contract was vitiated by senile restitution by the minors as to the
are also rescissible. dementia, the contract is not void portion of the purchase price which
d. Other rescissible or inexistent per se but is valid and pertains to their share is not legally
contracts binding unless annulled through a sanctioned.
Rescissible contracts proper action filed in court Statute of Frauds defined (Article
which are declared by seasonably. 1403, paragraph 2) requires that
law (ex. Arts. 1098, An annullable contract may be certain contracts be in writing, and
1189, 1526, 1534, rendered perfectly valid by that they be signed by all parties to be
1539, 1542, 1556, ratification, which can be express bound by the contract. Although there
 1560, 1567 and 1659 or implied, such as by accepting can be significant variation between
of the civil code) and retaining the benefits of a jurisdictions, the most common types
contract; One cannot negotiate for of contracts to which a statute of
REMEDY: Rescission an increase in the price in one fraud applies is:
breath and in the same breath
Parties to instigate action: contend that the contract of sale is o Contracts in consideration of
A. The parties void
Prejudiced marriage.
B. Their representatives
o Contracts which cannot be
C. Their heirs
D. Their creditors performed within one year.
Extent of Rescission o Contracts for the sale of an
Art. 1384 Rescission shall be
only to the extent necessary interest in land.
to cover the damages caused.
o Contracts by the executor of a
Effect of Rescission
Art. 1385 Rescission creates will to pay a debt of the estate
the obligation to return the with his own money.
things which were the object
of the contract, together with o Contracts for the sale of goods
their fruits, and the price with
its interest; consequently, it above a certain value.
can be carried out only when
he who demands rescission o Contracts in which one party
can return whatever he may
be obliged to restore. becomes a surety (acts as

guarantor) for another party’s

Neither shall rescission take
place when the things which debt or other obligation.
are the object of the contract
are legally in the possession
of third persons who did not Art. 1404. Unauthorized contracts are
act in bad faith. governed by Article 1317 and the
principles of agency in Title X of this
In this case, indemnity for Book.
damages may be demanded
from the person causing the ARTICLE 1404
loss. (1295) Governing Principles
Article 1317
Jurisprudence: No one may contract in the name of
Goldenrod,inc. vs. CA (299 another without being authorized by
SCRA 141) “The vendor is the latter, or unless by law or right
therefore obliged to return to represent him.
the purchase price paid to A contract entered into in the name of
him by the buyer if the latter another by one who has no authority
rescinds the sale, or when the or legal representation, or who has
transaction was called off acted beyond his powers, shall be
and the subject property had unenforceable, unless it is ratified,
already been sold to a third expressly or impliedly, by the person
person, as what obtained in on whose behalf it has been executed,
this case. Therefore, by before it is revoked by the other
virtue of the extrajudicial contracting party (1259a)
rescission of the contract to Title X (Funerals Articles 305-310)
sell by petitioner without The sale of property made by a
opposition from private person without the authority of the
respondents who, in turn, owner is null and void from the
sold the property to other beginning but afterwards becomes
persons, private respondent perfectly valid and is cured of the
BARRETTO REALTY, as the defects by ratification made by the
vendor, had the obligation to owner under oath that he had
return the earnest money of consented the former on making the
P1,000,000.00 plus legal said sale.
interest”
Sikutana vs. Guevara (45 Ratification means confirmation or
Phil 371) effect of rescission adoption of an act that has already
on third parties “it may even been performed.
be directed against a third G.R. No. L-9188 December 4, 1914
person, who in bad faith, had GUTIERREZ
previously acquired the thing HERMANOS, plaintiff-appellee,
and subsequently had it vs.
alienated to an innocent ENGRACIO ORENSE, defendant-
purchaser for value” appellant.

FRAUD AS RESCISSIBLE Article 1405

CONTRACT Contracts infringing the Statute of
Art. 1387 All contracts by Frauds, referred to in No. 2 of
virtue of which the debtor article 1403, are ratified by the
alienates property by failure to object to the presentation
gratuitous title are presumed of oral evidence to prove the same,
to have been entered into in or by the acceptance of benefit
fraud of creditors, when the under them.
donor did not reserve Uneforceable contracts (paragraph
sufficient property to pay all 2, Article 1403: Statute of Frauds)
debts contracted before the may be ratified in two ways:
donation. 1. Failure to object to the
presentation of oral evidence.
Alienations by onerous title This is tantamount to a
are also presumed fraudulent waiver. Contracts that are
when made by persons infringed in the Statute of
against whom some Frauds are ratified by the
judgment has been issued. failure to object to the
The decision or attachment presentation of parol evidence
need not refer to the property and are enforceable
alienated, and need not have 2. Acceptance of Benefits under
been obtained by the party these contacts is equivalent to
seeking the rescission. waiver or estoppel; only
 applies to executor contracts.
In addition to these If the oral contract was
presumptions, the design to reduced into writing by the
defraud creditors may be party charged, this exercise is
proved in any other manner called recognition. It is the
recognized by the law of express ratification of the
evidence. (1297a) contract.
*** If the party in whose favor the
Jurisprudence: TEOFILO statute may be invoked, cross
ORSAL vs AURELIO examined the witness who is
ALISBO G.R. No. L-13310 testifying on the oral contract, the
November 28, 1959 former is deemed to have waived the
The following are some of right to object to the admission of the
the circumstances attending testimonial evidence.
sales which have been The party should promptly object to
denominated by the courts the presentation of the witness once it
badges of fraud: becomes apparent that no evidence in
writing could be presented to prove
1. The fact that the the contract. The objection must be
consideration of the invoked during the “offer of the
conveyances is fictitious or is testimony” of the witness. OR a
inadequate. motion to dismiss may be filed before
answer to the complaint is filed
2. A transfer made by a ART. 1406. When a contract is
debtor after suit has been enforceable under the Statute of
begun and while it is pending Frauds, and a public document is
against him. necessary for its registration in the
Registry of Deeds, the parties may
3. A sale upon credit by an avail themselves of the right under
insolvent debtor. Article 1357.Right of a party where
contract enforceableFor the
application of this provision, there
must be a validagreement and the
4. Evidence of large agreement must not infringe the
indebtedness or complete Statute of Frauds.(1) Accordingly, a
insolvency. party to an oral sale of real
propertycannot compel the other to
5. The transfer of all or put the contract in a public document
nearly all of his property by a forpurposes of registration because it
debtor, especially when he is is unenforceable (Art. 1403[2,
insolvent or greatly e].)unless, of course, it has been
embarrassed financially. ratified. (Art. 14

6. The fact that the transfer is Article 1407

made between father and son, In a contract where both parties
where there are present other are incapable of giving consent,
of the above circumstances. express or implied ratification by
the parent, or guardian, as the case
7. The failure of the vendee may be, of one of the contracting
to take exclusive possession parties shall give the contract the
of all the property. same effect as if only one of them
were incapacitated.
EFFECT OF FRAUD If ratification is made by the
parents or guardians, as the case
Fraud is only one of the ,ay be, of both contracting parties,
requisites for the accion the contract shall be validated from
pauliana. The existence of the inception.
fraud does not make the Discussion:
alienation rescissible whether The contract is unenforceable when
the fraud is presumed or both parties to purported contract are
proven. If the transferee not incapacitated to give consent and
acquired the thing in good cannot be enforced in court. It may
faith and for valuable be ratified if:
consideration even if the (1)If ratification is only of one side of
debtor who made the the contracting parties. That is, by the
alienation act fraudulently, parent or guardian, the contract is
rescission will not be transformed into a voidable contract
allowed. on the part of the party wo did not
Jurisprudence: Isidora ratify, meaning, it is now valid and
Cabaliw and Soledad binding unless annulled by the court.
Sadorra vs. Sotero Sadorra, (2)If ratification is made by both
Et.Al. G.R. No. L-25650 sides by the parents or guardians, the
June 11, 1975 contract is validated from its
inception. The validation is
Remedy: Accion pauliana retroactive.
If the parties ground for incapacity
Requisites: like minority attained majority age, or
For this action to prosper, the if the capacity is due to insanity and
following requisites must be regained their insanity, they can ratify
present: (1) the plaintiff their previous acts. There is no need
asking for rescission has a for the law to include this expressly
credit prior to the alienation, because it is deemed understood.
although demandable later; ART. 1408. Unenforceable contracts
(2) the debtor has made a cannot be assailed by third persons.
subsequent contract Right of third persons to assail an
conveying a patrimonial unenforceable contract Strangers to a
benefit to a third person; (3) voidable contract cannot bring an
the creditor has no other legal action to annul the same (see Art.
remedy to satisfy his claim; 1397.); neither can they assail a
(4) the act being impugned is contract because of its
fraudulent; (5) the third unenforceability. The benefit of the
person who received the Statute can only be claimed or
property conveyed, if it is by waived by one who is a party or privy
onerous title, has been an to the oral contract ,not by a stranger.
accomplice in the fraud. An action for rescission may be
Jurisprudence: Siguan vs. brought by a third party.
Lim G.R. NO. 134685 Nov. EXAMPLES:(1) S sells a parcel of
19, 1999 land to B. The contract is oral. C
bindshimself in writing for the
PRESCRIPTION OF performance by B of his obligation.
RESCISSIBLE In an action by S to recover the
CONTRACTS purchase price, C cannot assail that
Art. 1389 The action to the contract between S and B for
claim rescission must be being unenforceable under the Statute
commenced within four of Frauds. C is a stranger to the
years. contract.(2) Under a verbal contract,
S sells a parcel of land to B. In an
For persons under action for ejectment by B against C,
guardianship and for the person in possession, the latter
absentees, the period of cannot set up the defense of the
four years shall not begin Statute of Frauds. (3) In the
until the termination of the preceding example, suppose C
former’s incapacity, or maliciously induces S not to sell the
until the domicile of the land to B so that S sells the land to
latter is known. another. In an
action by B against C for damages
(see Art. 1314.), the latter cannot also
plead the Statute of Frauds