TITLE II CONRACTS

CHAPTER 1 GENERAL PROVISIONS

Concepts of Contracts
A contract is a meeting of minds between two(2) persons whereby one bind himself, with
respect to the other, to give something or to render some service.

Distinguished from other terms. Distinguished from:

a. Contract of marriage:
i.in contract no necessary opposite sex,
ii.in contract they are primarily governed by the agreement of the parties
iii.the result of the contract is a contract while in a marriage is the status
iv.contract may be dissolved by mere agreement of the parties
v.In case of breach of contract the remedy is institute an action for damages

b) Obligations:
i) One is the cause while other is the effect

c) Imperfect promise:
i) an imperfect promise is an unaccepted offer.

d) a pact:
i) a pact is an incidental part of a contract which can be separated from the principal agreement

e) stipulation:
i) a stipulation is an essential and dispositive part of a contract which cannot be separated from the principal
agreement

The basic duties of persons, when entering into contracts

All men are presumed to be sane and normal and subject to be moved by substantially the same motives.

The duty of the courts in interpreting contracts

Interpretation of the contract without supplying material stipulations or read into the contract
words which it does not contain

Element of contracts

1. Essential: those without which there can be no contract

1. Common: present in all contract (i.e. consent)
2. Special: present only in certain contracts (i.e. delivery in real contracts)
3. Peculiar: specific to a specific contract such as price in a contract of sale

2. Natural: those which are derived from the nature of the contract and ordinarily accompany the same

3. Accidental: those which exist only when the parties expressly provide.

Parties of contracts

Existence of two parties is essential element.

EXCEPTION: auto-contract of juridical relations. ? ? ?

Characteristics of contracts

1. Obligatory force or character of contracts

2. Autonomy of contracts
3. Mutuality of contracts
4. Relativity of contracts

Life of contracts

1. Generation: preliminary or preparatory process

2. Perfection: birth of contract
 3. Consummation: fulfillment of the purpose

Classification of contracts

a. According to their relation to other contracts:

i.Preparatory
ii.Principal
iii.Accessory

b. According to their perfection:

i.Consensual
ii.Real

c. According to their form:

i.Common or informal
ii.Special or formal

d. According to their purpose:

i.Transfer of ownership
ii.Conveyance of use
iii.REndition of services

e. According to their subject matter:

i.Things
ii.Services

f. According to the nature of the vinculum which they produce:

i.Unilateral
ii.Bilateral
iii.Onerous
iv.Gratuitous

g. According to the risk involved:

i.Commutative
ii.Aleatory

h. According to their names or norms regulating them:

i.Nominate
ii.Innominate

Right to contract

Parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided
not contrary to law.

Compromise, compromise agreements:

Compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or
put an end to one already commenced. Agreement to prevent or put an end to a law suit, adjust difficulties.

Effects

Res judicata with respect to the matter.

It replaces and terminate controverted claims and it becomes the source of the rights and obligations of the
parties

Nominate contracts

Contract which have their own distinctive individuality and are regulated by special provisions of law. Ex: sales,
barter or exchange, lease, partnership, deposit..

Innominate contracts

Not regulated by special provision of the law,

Do ut des – I give that you give

Do ut facias – I give that you do
Facio ut des – I do that you give
Facio ut facias – I do that you do

Regulated by stipulations of the parties and general provision of the law

Mutuality of contracts

The contract must bind both parties and its validity cannot be left to the will of only one of them.

The determination of performance may be left to a third person

The determination shall not be obligatory if it is evidently inequitable

Relativity of contracts

Contract can neither favour nor prejudice a thir person.

Persons bound by contract

The parties, their assigns and heirs.

Exceptions

Not applicable if the rights and obligations arising are not transmissible:

1. By their nature, as when the special or personal qualification of the obligor constitutes one of the
principal motives for the establishment of the contract
2. By stipulation of the parties as when the contract expressly provides that the obligor shall perform an act
by himself and not through another
3. By provision of law, as in the case of those arising from contract of partnership or of agency

Effect of contract on third persons

Not binding a third person except:

1. Where the contract contains stipulation in favour of a third person

2. Where the third person comes into possession of the object of a contract creating a real right
3. Where the contract is entered into in order to defraud a third person
4. Where the third person induces a contracting party to violate his contract

Kinds

Beneficial stipulation in favour of a third person:

1. Those where stipulation is intended for the sole benefit of the third person
2. An obligation is due from the promise to the third person which the former seeks to discharge by means
of such stipulation

Requisites

1. There must be a stipulation in favor of a third person

2. The stipulation must be a part not the whole of the contract
3. Contracting parties must have clearly and deliberately conferred a favour upon a third person and not a
mere incidental benefit or interest
4. The third person must have communicated his acceptance to the obligor before its revocation
5. Neither of the contracting parties bears the legal representative or authorization of the third party

Test of beneficial stipulation

Contracts creating real rights

Real right is a right belonging to a person over a specific thing without a passive subject.

Contracts in Fraud of creditors

Thir person may ask for annulment of a contract if it can be established that the contract was entered into with
the intention of defrauding him

Interference with contractual relations

Contracts’ parties are entitled to protection and to seek compensation by an action in tor for any interference
therewith.

Requisites

1. Existence of a valid contract

2. Knowledge on the part of the third person of the existence of the contract
3. Interference by the third person without legal justification or excuse

Perfection of contracts

Concurrence of the wills of the contracting parties with respect to the object and the cause of the contract.

Contract in name another

CHAPTER 2: ESSENTIAL REQUISITE OF CONTRACTS

General provisions
Requisite of contracts in general

Section 1: Consent
Concept of consent
Concurrence of the wills of the contracting parties with respect to the object and the cause which shall
constitute the contract. It signifies the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract

When contracts are perfected

Manifestation of the concurrence between the offer and acceptance.

EXCEPTION: If acceptance made by letter, if commercial contract perfected from the moment an
answer is made accepting the offer, if other from the moment that the offeror has knowledge of such acceptance.

Manifestation of consent

Consent must be manifested by the concurrence of the offer and the acceptance
Cnce there is such a manifestation of the concurrence of the wills of the contracting parties, the period or stage of
negotiation is terminated.

Character of offer and acceptance

Offer – proposal to make contract – must be certain or definite

Acceptance – must also be certain and definite – must also be absolute

Counter-offer – qualified acceptance; involves a new proposal; rejection of the original offer

Amplified acceptance – there is a perfected contract with regard the original offer; but with regard to the
additional, the offeree is now making a counter-offer.

Complex offers – rule depends whether the offers are interrelated or not.

Acceptance of complex offer

Acceptance by letter or telegram

Effect of constructive knowledge

Withdrawal of offer

Offeror withdraws offer:

***offeror may still withdraw the offer so long as he still has no knowledge of the acceptance by the offeree.
(Case: Laudico vs Arias)
– effect of withdrawal is immediate

Withdrawal of acceptance

Offeree withdraws acceptance:

***the acceptance may be revoked before it comes to the knowledge of the offeror, because in such case there is
still no meeting of the minds, since the revocation has canceled or nullified the acceptance which thereby ceased
to have any legal effect. (Tolentino)

Forms of acceptance

Form of acceptance:
• express
• implied
Presumptive consent is the basis of quasi contracts
(Perez vs Pomar)

***the form prescribed by law should be followed, otherwise, there will be no valid and binding acceptance
(Art. 1321-1323)

The person who makes the offer has the right to specify the manner, time and place of acceptance Art. 1322 is
not applied when what is referred to is a mere messenger and not an agent who has the capacity to negotiate
and represent the principal.

Effect of death, civil interdiction, insanity or insolvency

An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed.
Conveyed – moment when the offeror has knowledge of the acceptance by the offeree.
Reasons for Art. 1323:
– death extinguishes personality and juridical capacity
– civil interdiction (accessory penalty for RT) person is deprived of parental authority, guardian, and also deprived
of the right to manage or dispose of his property, he cannot execute acts inter vivos.
– Insanity – insane person cannot give a valid consent to a contract. He loses the capacity to do acts with legal
effects
insolvency – modifies or limits capacity to act.

Period for acceptance: Options

if the option is without consideration, the offeror may withdraw his offer by communicating such
withdrawal to the offeree at any time before acceptance.

Legal Capacity of Contracting Parties

The following cannot give consent to a contract:

1. Unemancipated minors
2. Insane or demented persons and deaf-mutes who do not know how to write

Incapacitated persons

Effects:
Defective contract – effect of incapacitated persons entering into a contract not through a parent or agent.
Voidable contracts – only one of the contracting parties is incapacitated to give consent.
Unenforceable contracts – when both parties are incapacitated to give consent..

Unemancipated minors

Exception where a contract may have all of the effects of a valid contract even entered by an unemancipated
minor:
1. When it is entered into by a minor who misrepresented his age
2. When it involves the sale and delivery of necessaries to the minor
3. When it involves a natural obligation and such obligation is fulfilled voluntarily by the minor provided that
such minor is between 18 and 21
4. When it is a marriage settlement or donation propter nuptias
 5. When it is a life, health or accident insurance provided that the minor is 18 years old or more and the
beneficiary appointed is the minor’s estate or the minor’s father, mother, spouse, brother or sister or
child

Effect of misrepresentation

Insane or demented persons

contracting parties are unable to understand the nature and consequences of the contract at the time of its
execution by reason of any cause affecting his intellectual or sensitive faculties. (includes drunkenness, or under
hypnotic spell)
◦ contracts entered into during lucid interval is valid.
◦ A question of cat which must be decided by the court

Deaf-mutes

there is no way that the stipulations in the contract be explained to them to insure that they understand what they
are entering into.

Other incapacitated persons

married woman in cases specified by law incompetent (Sec. 2 of Rule 92 of the New Rules
of Court) includes:
• persons suffering from civil interdiction
• hospitalized lepers
• prodigals
• deaf and dumb who are unable to read
• who are of unsound mind
• those who by reason of age, weak mind or other similar cases, cannot, without aid from other, take care of
themselves and manage their property becoming thereby easy prey fro deceit and exploitation.
these incapacitated persons can enter into a contract only through a parent or guardian.

Disqualifications to contract

Distinguished from incapacity to contract

Vices consent

vices which may vitiate consent:

vices of the will (vicios de la formacion de la voluntad)
• mistake
• violence
• intimidation
• undue influence
• fraud
vices of declaration (vicios de la declaracion)
• simulation of contracts

Mistake

mistake – wrong conception of a thing and the lack of knowledge with respect to a thing.
2 kinds:
• mistake of fact – when one or both of the contracting parties believe that a fact exist when in fact it does not

◦ mistake as to object
▪ identity of the thing (error in corpore)

▪ substance of the thing (error in substantia)

▪ conditions of the thing (provided such condition principally moved one or both of the parties to enter
into the contract)
▪ quantity of the thing (error in quantitate)

◦ mistake as to person
▪ name of a person.
 ▪ Identity of a person – effect is voidable contract
▪ qualification of a person requisites:
• the mistake must be either with regard to the identity or with regard to the qualification of the person
• such identity or qualification must have been the principal consideration for the celebration of the
contract
*Usually, these mistakes occur in obligations to do.

• mistake of law – when one or both of the contracting parties arrive at an erroneous conclusion regarding the
interpretation of a question of law or the legal effects of a certain act or transaction.

General rule: only mistake of fact which will vitiate consent renders the contract voidable. A mistake of
law does not render the contract voidable (ignorantia legis non excusat)

General rule: mistake of law will not vitiate consent.

Exception: mutual error
requisites:
• mistake must be with respect to the legal effect of the agreement
• mistake must be mutual the real purpose of the parties must have been frustrated.

Violence and intimidation

violence – use of irresistible force

requisites:
• force employed to wrest consent must be serious or irresistible
• it must be the determining cause for the party upon whom it is employed in entering into the contract.

intimidation – compelling by reasonable and well grounded fear of an imminent or grave evil upon
his person, property, or upon the person or property of his spouse, descendants, or ascendants
violence and intimidation are sometimes called duress.

Requisites:
• one of the contracting parties is compelled to give consent by a reasonable and well
grounded fear of an evil
• the evil must be imminent and grave
• the evil must be unjust
• the evil must be the determining cause for the party upon whom it is employed in entering into the contract.

Character of intimidation:
• actual
• serious
• possible of realization
• and that the actor can and still carry out his threat

determination of the degree of intimidation:

• age
• sex
• condition of the person

Distinguished from reluctant consent

Effect of just or legal threat

-it does not vitiate consent

the contract would still be perfectly valid and not voidable.

Undue influence
undue influence – taking improper advantage of one's power over the will of another, depriving the latter of a
reasonable freedom of choice.
Test: WON the the influence exerted has overpowered or subjugated the mind of a contracting party as to
destroy his free agency, making him express the will of another rather than his own.

Thing to be considered:
• confidential, spiritual, family, and other relations between parties

Fraud

insidious words or machinations employed by one of the contracting parties in order to induce the other to enter
into a contract, which, without them, he would not have agreed to.

Dolo causante – causal fraud; deceptions or misrepresentation of a serious character employed

by one party and without it, the other party would not have entered into the agreement (Art. 1338)

dolo incidente – incidental fraud; deceptions or misrepresentation NOT of a serious character

employed by one party and without it, the other party would still have entered into the agreement

Requisites:
• insidious words
• insidious words must be serious
• insidious words must have induced the other party to enter into the contract – such
fraud must be the principal or causal inducement or consideration for the consent of the other party.
• fraud should not have been employed by the contracting parties or by third persons
test: there must be proof of concrete facts constituting the fraud or insidious words or
machinations employed by one of the contracting parties

Effect of failure to disclose facts

Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by
confidential relations, constitutes fraud.

Effect of exagerations in trade

The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in
themselves fraudulent.

Effect of expression of opinion

A mere expression of an opinion does not signify fraud, unless made by an expert and the other
party has relied on the former's special knowledge.

Effect of misrepresentation by third persons

Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual.

Magniture of fraud

serious character of fraud – refers to the magnitude and importance of the fraud in securing
the consent of the other party.

Relaion between fraud and consent

Simulation of contracts
Effects
Contracts of adhesion

SECTION 2: OBJECT OF CONTRACTS

Concept of objects
What may be the object of contracts
Appropriability and transmissibility
Existence of object
Things which have perished
Future things
Rule with respect to future inheritance
Exceptions
Impossible things or services
Licitiness of object
Determinability of object