Contracts 3: Form & Interpretation of Contracts

Forms and Validity of Contracts

Contracts can take various forms and are valid as long as they meet essential elements like consent, object, and course. Specific contracts have additional legal requirements for validity, including written form and registration.

Types of Contracts

Contracts can be oral, written, express, implied, informal, formal, or a combination of these forms.

Essential Elements for Validity

For a contract to be valid, it must have consent, object, and course. The form of the contract is secondary to these essential elements.

Legal Requirements for Specific Contracts

Certain contracts, such as donations of personal property over five thousand pesos, sale of land through an agent, and contracts of antichresis, must be in writing to be valid.

Registration and Notarization

Contracts like chattel mortgage and sale of large cattle must be registered. Notarization turns a private document into a public one, enforceable against third parties.

Enforceability and Evidence of Contracts

The enforceability of contracts often depends on their form, with some needing to be in writing or public documents to be provable in court or enforceable against third parties.

Statute of Frauds

Some contracts must be in writing to be enforceable, as per the statute of frauds. Partial performance can serve as proof of a contract's existence.

Public Documents and Third Parties

Article 1358 of the Civil Code requires certain contracts to be in public documents to bind third parties, not for validity but for enforceability.

Reformation of Contracts

Reformation is a legal remedy to correct written contracts that do not reflect the true agreement due to errors or fraud. It has specific requisites and limitations.

Purpose and Grounds for Reformation

Reformation corrects written instruments that fail to reflect the true agreement due to mistake, fraud, or accident. It does not create a new contract but amends the existing one.

Requisites for Reformation

Reformation requires a meeting of the minds, a written instrument not expressing the true agreement, and proof of mistake, fraud, or inequitable conduct.

Limitations of Reformation

Reformation is not allowed for simple donations inter vivos, wills, or void agreements. It also cannot be sought if a party has already asked for enforcement of the contract.

Interpretation of Contracts

Contract interpretation follows specific rules, with clear terms interpreted literally and ambiguous terms governed by the parties' evident intention. Contracts of adhesion are strictly interpreted against the drafter.

Literal Interpretation

When contract terms are clear, they are interpreted literally, as it is presumed that the parties entered into the contract knowingly and voluntarily.

Rules for Ambiguous Terms

If terms are ambiguous, the evident intention of the parties governs. Special provisions prevail over general ones, and all stipulations are interpreted together.

Contracts of Adhesion

These pre-printed contracts are valid and presumed to be accepted knowingly. Ambiguities are interpreted against the drafter and in favor of the signing party.

Default Rules and Ambiguities

Default rules apply to ambiguous contracts, with gratuitous contracts interpreted to minimize rights transmission and onerous contracts to maximize mutual benefits. Unclear terms can void a contract or be resolved by common practices.

Gratuitous Contracts

Ambiguities in gratuitous contracts are resolved in favor of the least transmission of rights.

Onerous Contracts

For onerous contracts, interpretation favors the greatest reciprocity of interests, benefiting both parties.

Unclear Terms and Prices

If the principal object or price is unclear, the contract may be void or the price determined by common rates or customs.