LAW ON CONTRACTS

Chapter 1 to 5

CONTRACT – meeting of minds between 2 persons to give something or to render service.

ELEMENTS OF CONTRACT
1. ESSENTIAL – w/o them, contract cannot exist
a. CONSENT of contracting parties
b. OBJECT CERTAIN – subject matter
c. CAUSE/CONSIDERATION
In some contracts, ff are also essential:
d. FORM
e. DELIVERY

2. NATURAL – found in certain contract, presumed to exist unless stipulated

3. ACCIDENTAL – various particular stipulations that may be agreed upon by contracting parties

CLASSIFICATION OF CONTRACTS
According to:
1. PERFECTION/FORMATION
a. CONSENSUAL – perfected by mere consent
b. REAL – perfected by delivery
c. FORMAL/SOLEMN – special formalities are essential before perfection of contract

2. PARTIES OBLIGATED
a. UNILATERAL – only 1 has obligation
b. BILATERAL – both parties require to render reciprocal prestations

3. CAUSE
a. ONEROUS – exchange of considerations
b. GRATUITOUS – no consideration received in exchange of what is given
c. REMUNERATORY – something is given for benefit/service that had been rendered previously

4. RISK OF FULFILLMENT
a. COMMUTATIVE – equivalent values are given by both parties
b. ALEATORY – fulfillment of contract depends on chance (eg. insurance)

5. IMPORTANCE
a. PRINCIPAL – contract may stand alone (eg. sale, partnership)
b. ACCESSORY – existence depends on another contract (pledge, guarantee)
c. PREPARATORY – contract not an end by itself but a means thru w/c other contracts may be
made (eg. agency)

6. NAME
a. NOMINATE – contract given a particular/special name (eg. partnership)
b. INNOMINATE – not given special name (eg. I give that you may give)

7. SUBJECT MATTER
a. Contracts involving things
b. Contracts involving rights/credits
c. Contracts involving services

STAGES OF CONTRACT
1. PREPARATION/CONCEPTION – preparatory steps to perfect contract
2. PERFECTION/BIRTH – meeting of minds between 2 contracting parties
3. CONSUMMATION/TERMINATION – terms of contract are performed, & contract is fully executed

BASIC PRINCIPLES/CHARACTERISTICS OF A CONTRACT

1. PRINCIPLE OF AUTONOMY (liberty to contract)
Provided they are not contrary to:

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 a. Law
b. Morals
c. Good customs
d. Public order
e. Public policy

2. MUTUALITY OF CONTRACTS
- the contract must bind both parties; its validity/compliance cannot be left to the will of one of
them

3. RELATIVITY OF CONTRACTS
- Contracts take effect only between the parties, their assigns & heirs except when there are rights
& obligations not transmissible:
a. stipulation pour autrui
b. contracts creating real rights (ex. Mortgage)
c. contracts that defraud creditor (ex. Accion pauliana)
d. tort interference – any person who induces another to violate his contract

4. CONSENSUALITY OF CONTRACTS
- Contracts are perfected by mere consent
Exceptions:
a. REAL CONTRACTS – perfected by delivery
b. FORMAL/SOLEMN CONTRACTS – special form required for its perfection

5. OBLIGATORINESS OF CONTRACTS
- The contract, once perfected, has the force of law between parties which bound to comply in good
faith

KINDS OF INNOMINATE CONTRACTS

1. I give that you may give
2. I do that you may do
3. I give that you may do
4. I do that you may give

RULES FOR INNOMINATE CONTRACTS

1. Agreement of parties
2. Law on Obligations & Contracts
3. Rules on most analogous nominate contract
4. Customs of place

STIPULATION POR AUTRIU

- stipulation in favor of 3rd person

REQUISITES OF STIPULATION POR AUTRI

1. Stipulation in favor of 3rd person
2. Stipulation is only PART, not the whole of the contract.
3. Both parties must conferred upon a favor of 3rd person
4. 3rd person must accept & say it to debtor before its revocation/cancellation
5. Neither of both parties be the legal representation/autho-rization of 3rd person

CONSENT
- meeting of offer (certain) & acceptance (absolute) upon a thing

REQUISITES OF CONSENT
1. Must be given by 2 or more parties
2. Parties are capacitate to enter in contract
3. No vitiation of consent
4. No conflict between declared & intended
5. Legal formalities must be complied

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RULES ON OFFER/ACEPTANCE
1. An offer must be certain.
2. Business advertisements for sale are NOT offers but ONLY invitations to make an offer.
3. Advertisements for bidders are ONLY invitations.
4. An acceptance made by letter/telegram does NOT bind offeror EXCEPT from the TIME it came to
his knowledge.
5. An offer made through an agent is accepted from the TIME the acceptance is done through an
agent.
6. An offer is ineffective upon death, insanity, insolvency, of EITHER party BEFORE acceptance is
made.
7. When offeror allowed offeree a certain period to accept, offer MAY be withdrawn AT ANYTIME
unless there is something PAID/PROMISED.

Persons who CANNOT GIVE CONSENT to a contract (if entered into, contract is voidable)
1. UNEMANCIPATED MINORS
2. INSANE/DEMENTED PERSONS (unless they acted DURING LUCID INTERVAL)
3. DEAF-MUTES who DO NOT know how to write

DEMENTED PERSON – NOT exactly insane; difficult to distin-guish right from wrong

LUCID INTERVAL – period when an INSANE has acquired SANITY temporarily, therefore,
capacitated to enter into a valid contract

RULES on persons WHO CANNOT GIVE CONSENT to a contract

1. Age of majority is 18 yrs old
2. A contract entered into by UNEMANCIPATED MINOR w/o parents/guardian’s consent is
voidable, except:
a. Minor MISREPRESENTS his age (estoppel)
b. Contract involves sale & delivery of necessities to minor

VICES OF CONSENT
- NOTE: When there is a DEFECTIVE CONSENT of EITHER of parties, contract is voidable; Remedy:
annulment of contract.
1. MISTAKE/ERROR
2. FRAUD/DECEIT
3. VIOLENECE
4. INTIMIDATION
5. UNDUE INFLUENCE

1. MISTAKE/ERROR
- wrong conception & lack of knowledge upon a thing

- MISTAKES W/C VITIATES CONSENT

It should refer to:
1. substance of thing that is the OBJECT of contract
2. conditions w/c MOVED either/both parties to enter into contract

- RULES ON MISTAKE
1. Mistake to identity/qualifications of either of parties will vitiate consent ONLY when IT is the
principal cause of contract.
2. Simple mistake of account must be corrected.
3. No mistake if parties knew the risk/doubt affecting OBJECT of contract.
4. When one of parties is unable to read or the contract is in language not understood by him, &
mistake/fraud is alleged, the person enforcing the contract must FULLY explained the terms to him.

2. FRAUD/DOLO
- when through insidious words/machinations of one of the parties, INDUCED the other to enter into
a contract, & w/o them, he will not agree.

RULES OF FRAUD
1. Failure to disclose facts when this needs to be revealed is a fraud.

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2. Fraud should be SERIOUS (dolo causante) & SHOULD NOT be done by BOTH parties to make
contract voidable.
3. Incidental fraud (dolo incidente) ONLY obliges person to PAY DAMAGES.
4. Usual exaggerations in trade, when other party know the “real” facts, is NOT FRAUD.
5. A mere expression of opinion is NOT FRAUD UNLESS made by an expert & the other party relies on
his special knowledge.
6. Misrepresentation made in good faith is NOT FRAUD but may constitute an error.
7. Misrepresentation by 3rd person DOES NOT vitiate consent UNLESS it created substantial mistake.

3. VIOLENCE
- serious/irresistible force is employed.

RULES ON VIOLENCE
1. Serious/irresistible force is employed w/c constitutes the reason why one entered into a contract.
2. Violence ANNULS obligation although it is DONE by 3rd person not part of contract.

4. INTIMIDATION
- 1 of the parties is compelled by a reasonable & well-grounded fear of an imminent & grave evil upon
his person/property to give his consent.

RULES ON INTIMIDATION
1. Age, sex, & condition of person must used to determine the degree of intimidation.
2. Intimidation ANNULS obligation although it is DONE by 3rd person not part of contract.
3. A threat to enforce one’s claim (claim must be just & legal), DOES NOT vitiate consent.

VIOLENCE INTIMIDATION
- External - Internal
- Physical contact/coercion - NO physical coercion;
- ONLY MENTAL/MORAL coercion
5. UNDUE INFLUENCE
- a person takes improper advantage of his power over other’s will, depriving the other to his
reasonable freedom of choice.

- RULES ON UNDUE INFLUENCE

1. There is a person who takes improper advantage of his power over other’s will, depriving the
other to his reasonable freedom of choice.
2. Undue influence ANNULS obligation although it is DONE by 3rd person not part of contract.
3. To constitute undue influence, ff circumstances must be considered: (1) confidential, family,
spiritual, & other relations of parties; or (2) the aggrieved party is suffering from mental weakness;
or (3) ignorant; or (4) in financial distress.

SIMULATION OF CONTRACT
- process of INTENTIONALLY deceiving others by producing a contract not really exist (absolute
simulation), or w/c is different from true agreement (relative simulation).

KINDS OF SIMULATED CONTRACT

1. ABSOLUTE SIMULATION (the parties DO NOT intend to be bound at all)
- completely fictitious/make-believe; VOID
2. RELATIVE SIMULATION (parties conceal their true/real agreement)
- parties are bound to real/true agreement, EXCEPT:
a. contract prejudice 3rd person
b. purpose is contrary to law, morals, good customs, public order, public policy

REQUISITES OF OBJECT OF CONTRACT

1. Specific & certain
2. Services not contrary to law, morals, good customs, public order, public policy
3. Services/things must NOT be legally/physically impossible
4. Services/things are w/in commerce of man including future things
5. Rights are NOT TRANSMISSIBLE.
6. Determinate (kind) or determinable ( w/o the need of new contract/agreement)

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7. NO contract be entered for future inheritance UNLESS law states

REQUISITES OF CAUSE
1. It is just & equitable.
2. It exists.
3. It is lawful.
4. It is true.

LESION
- inadequacy of cause (eg. insufficient price for thing sold)

RULES ON LESION
- Lesion DOES NOT invalidate contract, except there is:
a. Fraud
b. Mistake
c. Undue influence

FORM OF CONTRACTS
1. Contracts in writing
2. Contracts in a public instrument

1. Contracts w/c must be IN WRITING to be valid:

a. Donation of personal property exceeds P5000.
b. Agent’s authority in sale of land/any interest.
c. Contract of antichresis.
d Stipulation to pay interest on loans.
e. Stipulation to reduce common carrier’s extraordinary diligence & to limit its liability.

2. Contracts w/c must be IN A PUBLIC INSTRUMENT to be valid:

a. Donation of real property (both the donation & accep-tance).
b. Sale of real property.
c. Partnership where real property/rights is contributed; or when capital contribution exceeds
P3000.

REFORMATION OF INSTRUMENTS
- REMEDY in equity in w/c a written instrument is made/construed to the REAL intention of parties
when there is an error/mistake.

CASES REFORMATION OF INSTRUMENT IS AVAILABLE

1. Mutual mistake of parties.
2. One party was mistaken & the other acted fraud.
3. One party was mistaken & the other knew/believed that the instrument did not state their REAL
agreement.
4. Ignorance, lack of skill, negligence, or bad faith of person drafting the instrument DOES NOT state
the TRUE INTENTION of parties
5. Two parties agree on mortgage/pledge of personal/real property BUT the instrument states the
property is sold ABSOLUTELY, or w/ the right to repurchase.

NO REFORMATION OF INSTRUMENT WHEN:

1. Simple donation intervivos where NO CONDITION is imposed.
2. Will.
3. Real agreement is VOID.

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