Republic of the Philippines

PARTIDO STATE UNIVERSITY

Camarines Sur

PSU Template
College of Business and Management
Module on
Law on Obligations and Contracts
(Contracts)

Name of Student: __________________________ Week Number: 13

Course Code: Name of Faculty: Ivan Ruzzel C.
Pesino
Course Title: Law on Obligations and Contracts

OBJECTIVES
 Discuss the concept reformation and interpretation of the contract
 Enumerate the requisites for reformation of the contract
 Discuss the different ways of interpretation of contract

Lesson:
C. Reformation of Instruments

Art. 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.

Art. 1360. The principles of the general law on the reformation of

instruments are hereby adopted insofar as they are not in conflict with the
provisions of this Code.

Art. 1361. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be reformed.

Art. 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.

Art. 1363. When one party was mistaken and the other knew or believed that
the instrument did not state their real agreement, but concealed that fact from the
former, the instrument may be reformed.
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

Art. 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.

Art. 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.

Art. 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.

Art. 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its 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.

Art. 1369. The procedure for the reformation of instrument shall be

governed by rules of court to be promulgated by the Supreme Court.

 Once the minds of the contracting parties meet, a valid contract exists, whether the
agreement is reduced to writing or not. There are instances however, where in
reducing their agreements to writing, the true intention of the contracting parties are
not correctly expressed in the document, either by reason of mistake, fraud,
inequitable conduct or accident. It is in such cases that reformation of instruments is
proper. The action for such relief rests on the theory that the parties came to an
understanding, but in reducing it to writing, through mutual mistake, fraud or some
other reason, some provision was omitted or mistakenly inserted, and the action to
change the instrument so as to make it conform to the contract agreed upon.
 Reformation Distinguished from Annulment
 The action for reformation of instruments presupposes that there is a valid
existing contract between the parties, and only the document or instrument which
was drawn up and signed by them does not correctly express the terms of their
agreement. On the other hand, if the minds of the parties did not meet, or if the
consent of either one was vitiated by violence or intimidation or mistake or fraud,
so that no real and valid contract was made, the action is for annulment.
 Annulment involves a complete nullification of the contract while reformation
gives life to it upon certain corrections.
 Operation and Effect of Reformation
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

 Upon reformation of an instrument, the general rule is that it relates back to, and
takes effect from the time of its original execution, especially as between the
parties.
 Requisites of Reformation
1. There must have been a meeting of the minds upon the contract
2. The instrument or document evidencing the contract does not express the true
agreement between the parties
3. The failure of the instrument to express the agreement must be due to mistake,
fraud, inequitable conduct or accident
 Requisites of Mistake
a. That the mistake is one of fact
 Whenever an instrument is drawn with the intention of carrying an
agreement previously made, but which, due to mistake or inadvertence
of the draftsman or clerk, does not carry out the intention of the
parties, but violates it, there is a ground to correct the mistake by
reforming the instrument.
b. That it was common to both parties
 A written instrument may be reformed where there is a mistake on 1
side and fraud or inequitable conduct on the other, as where 1 party to
an instrument has made a mistake and the other knows it and conceals
the truth from him.
 The mistake of 1 party must refer to the contents of the instrument and
not the subject mater or the principal conditions of the agreement. In
the latter case, an action for annulment is the proper remedy.
 If 2 parties agree upon the mortgage or pledge of real property or
personal property, but the instrument states that the property is sold
absolutely or with a right of repurchase, reformation is proper.
c. The proof of mutual mistake must be clear and convincing
 Limitations of Reformation
1. Reformation is not proper in the following cases:
a. Simple donations inter vivos wherein no condition is imposed
b. Wills
c. When the real agreement is void
2. Who may ask for reformation
a. If the mistake is mutual
 Reformation may be ordered at the instance of either party or his
successors in interest
b. If the mistake is not mutual
 Reformation may be ordered upon petition of the injured party or his heirs
and assigns
3. Effect of enforcing an action
 When one of the parties has brought an action to enforce the instrument, he cannot
subsequently ask for its reformation.
 D. Interpretation of Contracts
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

 Where the parties have reduced their contract into writing, the contents of the writing
constitutes the sole repository of the terms of the agreement between the parties.
Whatever is not found in the writing must be understood as waived and abandoned.
Generally, therefore, there can be no evidence of the terms of the contract other than
the contents of the writing, unless it is alleged and proved that the intention of the
parties is otherwise.

Art. 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.

 When the terms of the agreement are so clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the contract.
 When the true intent and agreement of the parties is established, it must be given
effect and prevail over the bare words of the written agreement.

Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.

Art. 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.

Art. 1373. If some stipulation of any contract should admit of several

meanings, it shall be understood as bearing that import which is most adequate to
render it effectual.

Art. 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.

 Where the instrument is susceptible of 2 interpretations, 1 which will make it invalid

and illegal, and another which will make it valid and legal, the latter interpretation
should be adopted.
 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.

Art. 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.
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

Art. 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.

 When there is doubt as to the meaning of any particular language, it should be

determined by a consideration of the general scope and purpose of the instrument in
which it occurs.
 An instrument may be construed according to usage in order to determine its true
character.

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

 The party who draws up a contract in which obscure terms or clauses appear, is the
one responsible for the obscurity or ambiguity; they must therefore be construed
against him.

Art. 1378. When it is absolutely impossible to settle doubts by the rules

established in the preceding articles, and the doubts refer to incidental
circumstances of 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.

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

Rule 130, Rules of Court

Sec. 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.

Sec. 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.

Sec. 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


Now, Rule 130, §§10-19.
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

latter is paramount to the former. So a particular intent will control a general one
that is inconsistent with it.

 When a general and a particular provision are inconsistent, the particular provision
will control.

Sec. 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 whose language he is to
interpret.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 18. Construction in favor of natural right. — When an instrument is

equally susceptible of two interpretations, one is favor of natural right and the other
against it, the former is to be adopted.

Sec. 19. Interpretation according to usage. — An instrument may be

construed according to usage, in order to determine its true character.


Activities:
Problem 1:
Mang Kanor is suffering a financial difficulties during the pandemic, he intend to mortgage his parcel of
land to Mang Kulas. The contract states that the contract entered by Mang Kanor and Mang Kulas is a
contract of sale instead of contract of mortgage. The contract was in public instrument. What is the
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

remedy of Mang Kanor in case he wants to pay the Mortgage price, but Mang Kulas refused to accept the
payment.
Answer:
The proper remedy of Mang Kanor is the reformation of Contract, because the Contract does not state the
true intention of the parties during the signing of contract, what they have been agreed upon is mortgage
however, contract of sale was mentioned in writing. The true intention of the parties will prevail
regardless of what is in the documents.
Problem 2:
S sold a 500 sqm parcel of land to B, with the carelessness of the contract encoder the area of the land
was mistakenly encoded for 5000 sqm. Will B pay the price of 5000 sqm or just 500 sqm?
Answer:
B will only pay the amount for 500 Sqm, and will only get 500 sqm. The contract should be reformed to
express the true intention of the parties.

Assessment:
1. Servando and Bernardo entered into a contract where they made it appear that Servando was
mortgaging his lot and building to Bernardo to secure a contract of loan. The truth however was
that Servando was selling his lot and building to Bernardo. which of the following statements is
true?
a. The parties are bound by the contract of sale
b. The parties are bound by the contract of loan and mortgage
c. The parties are not bound at all
d. The parties are bound by the contract of sale if a third persons is affected
2. Servando and Bernardo made it appear that Servando sold a Car to Bernardo. However, the car is
still in possession of Servando, and Bernardo did not release any valuable consideration in favor
of Servando. Is the Contract of Sale valid?
a. Yes, it is valid because it is the intention of the parties.
b. No, the contract is absolutely simulated, therefore void.
c. Yes, if Bernardo pays the contract price
d. No, they are bound by contract of mortgage
3. Servando and Bernardo enters into a contract of sale of Car, for the consideration of P1 million
pesos. Servando Deliver the car to Bernardo, and Bernardo pays the price of the car. Servando
will be bound to Bernardo under contract of _______?
a. Sale
b. Mortgage
c. Mutuum
d. Commudatum

Suggested References
 De Leon and De Leon, The Law on Obligations and Contracts(2015),REX Book Store. Manila
 De Leon, comprehensive Review of Business Law( 2017), REX Book Store. Manila
 Chan, J. G., & Chan Robles & Associates. (n.d.). BOOK IV (FULL TEXT) : CIVIL CODE OF THE
PHILIPPINES : CHAN ROBLES VIRTUAL LAW LIBRARY. Retrieved from
http://www.chanrobles.com/civilcodeofthephilippinesbook4.htm
 Soriano F. R., Obligations and Contracts (Law and Application) For Business and Law Students (2016),
GIC Enterprises & Co., Inc. Manila
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur