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FORM OF CONTRACTS
Dauden-Hernaez vs. De los Angeles (1969)
This is a petition for a writ of certiorari to set aside certain
orders of the CFI of Quezon City dismissing a complaint for
breach of contract and damage, etc.
Facts:
• Marlene Dauden-Hernaez is a motion picture actress
who has filed a complaint against private resp
Hollywood Far East Productions Inc and its President
Ramon Valuenzela to recover P14, 700 representing a
balance due to said actress for her services as leading
actress in two motion pictures produced by the
company and to recover damages.
• Her petition was dismissed by the lower court
because “it was defective because not evidenced by
any written document, either public or private
considering that the claim is more than P500 ”
thereby violating Article 1356 and 1358 of the Civil
Code.
Issue:
WON the court below abused its discretion in ruling that a
contract for personal services involving more than P500 was
either invalid or unenforceable under the last par of 1358 of
the CC.
Held:
Yes. The court below abused its discretion. There was a
misunderstanding of the role of the written form in contracts,
as ordained in the present CC.
• The contractual system of our CC still follows that of
the Spanish Code of 1889 and of the “Ordenamiento
de Alcala” (ah so Leghis) of upholding the spirit and
intent of the parties over formalities, hence, in
general, contracts are valid and binding from their
perfection regardless of the form, whether they be
oral of written as provided by Art 1315 (Contracts are
perfected by mere consent xxx) and by 1356
( Contracts shall be obligatory in whatever form they
may have been entered into xxx).
• The essential requisites are present in the contract-
C-O-C.
• However 1356 also provides two exceptions:
a. Contracts for which the law itself requires that they
be in some particular form (writing) in order to make
them valid and enforceable (the so-called solemn
contracts).
Ex.
1. donation of immovable property (in public ins) (Art.
749)
2. donation of movables worth more than P5,000 (Art.
748)
3. contracts to pay interest in loans (mutuum) (Art.
1956).
4. agreements contemplated in:
4.1. Art 1744: Stipulation bet the common carrier and the
shipper or the owner limiting the liability of the
former for the loss destruction or deterioration of the
goods to a degree less than extraordinary diligence
xxx
4.2. Art 1773: A contract of partnership is void, whenever
immovable property is contributed thereto, if an
inventory of said property is not made, signed by the
parties, and attached to the public instrument.
4.3. Art. 1874: When a sale of a piece of land or any
interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall
be void.
4.4. Art. 2134: The amount of the principal and of the
interest shall be specified in writing; otherwise the
contract of antichresis shall be void.
Note: Antichresis: a contract whereby the creditor
acquires the right to receive the fruits of an immovable of
his debtor, with the obligation to apply them to the
payment of the interest, if owing and thereafter to the
principal of his credit (Art. 2132).
b. Contracts that the law requires to be proved by some
writing (memorandum) of its terms as in those
covered by the old Statute of Frauds, now Art.
1403(2) of the CC. (This is needed for enforceability
of the contract by an action in court).
• The basis error in the court’s decision lies in
overlooking that in our contractual system it is not
enough that the law should require that the contract
be in writing, as it does in Art. 1358. The law MUST
further PRESCRIBE that without the writing the
contract is not valid or enforceable by action.
Order set aside and case remanded to court of origin for
further proceedings.
Alano et al vs. Babasa (1908)
Facts:
• Juana Cantos assisted by her husband Jose Alano filed
a complaint against the defendant Jose Babasa
alleging that the complainant Cantos has the right to
repurchase the land which her father pledged to
guarantee a debt of P1300 in favor of Fulgencio
Babasa and Maria Cantos, the parents of the
defendant (relative siguro ng complainant yung
defendant, pinsan siguro).
• The contract entered into on July 18, 1883 stipulated
a condition that the creditors should enjoy the
usufruct of said land from the date of contract and
that for seven years to take possession of the land as
if their own and that after 7 years, the debtor is
entitled to redeem the land by paying the debt.
• Petitioner claims that they talked to defendant and
that in the beginning engaged to permit its
redemption later on offered to definitely purchase
said land at an increase price but plaintiff did not
agree.
• Defendant made a general denial and alleged that the
land described had been sold with right of repurchase

and that the parents of the plaintiff had lived years
after the expiration of the 7-year period provided and
that they never exercised the right to repurchase.
Issue:
WON the plaintiff can repurchase the said land taking into
consideration that the Civil Code was enacted in Dec. 1889
which provides a different prescriptive period.
Held:
No. Her action has already prescribed.
• The contract was entered into on July 18, 1883 and
the 7 year expiration has commenced on June 19,
1890 and at that time the CC became effective
already thus the provisions of the Code can be applied
on the case.
• Art. 1939 shall be the applicable to the case which
states that: Prescription, which began to run before
the publication of this code, shall be governed by the
prior laws; but if, after this code became operative,
all the time required in the same for prescription has
elapsed, it shall be effectual, even if according to
said prior laws a longer period of time may be
required.
• Excerpt from the contract: “it has been agreed to
between us that we shall convey to him the said land
from this day, and that he will cause the same to be
worked from this date as if it were his own property
for a period of seven years; that we shall have the
right to redeem it for the said sum of P1,000 at the
expiration of seven years in such a manner that said
land shall be under his care as long as we do not pay
the redemption money”.
• In the absence of an express agreement, the right to
redeem the thing sold shall only last and may only be
exercised within 4 years counted from the date of the
contract (in this case, it shall be counted from 1889
when the said code went into effect). It has already
expired when the action was brought in 1907.
• Relevance of case under the title: It is a contract of
sale with right to repurchase and it is valid, perfect
and efficient because the three requisites are present
and is also binding notwithstanding the fact that it
has been drawn up as a private document, and the
legalization of a contract by means of a public writing
and its entry in the register are not essential
solemnities or requisites for its validity and efficacy
as between the contracting parties, but just
conditions of form which the law imposes in order
that it may be effective and recorded agreement may
be respected by the latter.
Judgment affirmed.
REFORMATION OF INSTRUMENTS
Atilano vs. Atilano (1969)
Facts:
• In 1916, Eulogio Atilano I acquired by purchase from
Villanueva lot no. 535 in Zamboanga, obtained the
transfer certificate of title in his name and in 1920
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divided the said lot into 5 parts identified as lots Nos.
535-A, 535-B, 535-C, 535-D, 535-D, 535-E.
• On May 18, after the subdivision of the said lot, he
executed a deed of sale cover lot E in favor of his
brother Eulogio Atiliano II, who obtained lot E, and
the three other lots were sold to other persons.
Atilano I retained for himself only the remaining
portion of the land presumably Lot A.
• In 1952, Atilano II died, thus his widow and children
obtained the transfer certificate over E in their names
as co-owners but in 1959 they decided to subdivide
the lot and they then discovered upon the results of
the survey that the land they were actually occupying
was lot A and not E.
• Because of this, they demanded that Lot E be
surrendered to them and offered to surrender Lot A to
the descendants of Atilano I but they refused. It is
understandable that they wanted Lot E because it has
an area of 2612 sqm as compared to 1808 sqm of lot
A.
• Defendants (Atilano II descendants) answered that it
was just an involuntary error and that the intention of
the parties was to convey the lot correctly identified
as A. Atilano I had been possessing and had his house
on the portion designated as E and in fact increased
the area by purchasing the adjacent lot from its
owner Carpio.
• RTC rendered judgment for the plaintiff on the sole
ground that since the property was registered under
the Land Registration Act, the defendants could not
acquire it through prescription.
Issue:
WON the lower court was correct in rendering the judgment
for the plaintiff.
Held:
No. One sells or buys the property as he sees it, in its actual
setting and by its physical metes and bounds, and not by the
mere lot number assigned to it in the certificate or title.
• The portion correctly referred to as lot A was already
in the possession of Atilano II who had constructed his
residence therein even before the sale in his favor.
• The sale was a simple mistake in the drafting of the
document. The mistake did not vitiate the consent of
the parties or affect the validity and binding effect of
the contract between them.
• The new CC provides a remedy for such a situation by
means of reformation of the instrument. This remedy
is available 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
(1359).
• In this case, the deed of sale executed in 1920 need
no longer be reformed. The parties have retained
possession of their respective properties conformably
to the real intention of the parties to that sale, and
all they should do is to execute mutual deeds of
conveyance.
Investors Finance Corporation vs. CA (1991)
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No. According to the Court, their action for annulment of the
Facts: simulated lease agreement was seasonably filed in 1979,
within 10 years from the date of its execution in 1974 (1144
• Before April 30, 1974 resp Richmann Tractors Inc, with CC). However the trial court and the CA should have treated it
as an action for reformation of contract.
Pajarillaga as president were the owners of certain
• For when the true intention of the parties to a
construction equipment and being in need of
financing (for operation of their construction and contract is not expressed in the instrument purporting
logging business) went to Investor’s Finance to embody their agreement by reason of mistake,
Corporation (or FNCB Finance) with their equipment fraud, inequitable conduct or accident, the remedy of
as collateral. In the documents which were executed, the aggrieved party is to ask for the reformation, not
it was made to appear that FNCB was the owner of annulment, of the instrument to the end that their
the equipments and that private resp were merely true agreement may be expressed therein.
leasing them. As a consideration for the lease, private • If the true transaction between FNCB and Pajarillaga
resp were to pay monthly amortizations over a period or Richman Tractors—an loan with chattel mortgage—
of 36 mos). had been reflected in the documents, instead of a
• On April 30, 1974, petitioner FNCB Finance and simulated financial leasing, the creditor-mortgagee
respondent Richmann Tractors executed a Lease (FNCB), upon the mortgagor’s default in paying the
Agreement covering various properties described in debt, would have been entitled to seize the
the Lease Schedules attached to the Lease mortgaged machinery and equipment from Pajarillaga
Agreement. As security for the payment of resp for the purpose of foreclosing the chattel mortgage
Richmann’s obligations under the Lease Agreement, therein. The mortgagors would have had no cause of
resp Pajarillaga’s executed a Continuing Guaranty action for actual, moral and exemplary damages
dated April 30, 1974. arising from the replevin of their mortgaged
machinery and equipment by the creditor, FNCB.
• Richmann also applied for and was granted credit
financing facilities by petitioner in the amount of
almost 1M payable in installments.
• Private respondents defaulted in their respective
obligations. FNCB demanded for the obligations to be
fulfilled and thereafter filed a complaint for seizure.
• A writ of replevin was issued for the seizure of the
heavy equipment and machineries subject of the
lease agreement and when served upon the
Pajarillaga’s, they panicked and proceeded to the
office of the FNCB and its counself and thereafter
signed a Compromise agreement which states among
others that the Pajarillaga’s acknowledge that
plaintiff is the owner of all the properties and that
they have been allowed to temporarily operated the
properties under the direct control and supervision of
plaintiff and/or its representatives with the express
understanding that defendants acknowledge and
recognize plaintiff’s ownership and right to repossess
and take custody of said properties.
• This agreement was approved by Branch XXI of this
Court and a decision was rendered enjoining the
parties thereto to faithfully comply with the terms
and conditions. But the Pajarillaga’s still did not
comply with the compromise agreement thus the
sheriff levied on 27 pieces of heavy equipment.
• The Pajarillaga’s claim that there was fraud because
they signed the Compromise agreement without the
help of their counsel and that it was just one-sided in
favor of FNCB, thus, filed for an annulment of the
compromise agreement and the simulated lease
agreement. (RTC and CA ruled in favor of the
Pajarilla’s)

Issue:

WON annulment should be the proper remedy for the

Pajarillaga spouses.

Held: