TITLE I CONTRACTS (Arts. 1305-1422, Civil Code.) Chapter 4 GENERAL PROVISIONS ‘Meaning of contract. The above article gives the definition of a contract. It Jays emphasis on the meeting of minds between two (2) contracting parties which takes place when an offer by one (1) party is accepted by the other. (Art. 1319.) in a contract, ‘one (1) or more persons bind himself or themselves with respectto another or others, or reciprocally, tothe fulfillment to give, fo do, or render service or to refrain from doing, some particular thing (see Art 1156.) Ina contract, there must be at least two (2) persons ‘or parties, because itis impossible for one to contract with imselt Contract and obligation distinguished. Contract is one of the sources of obligations. (Act. 1157.) On the other hand, obligation is the legal tie or relation itself that exists after a contract has been entered into. Hence, there can be no contract if there is no obligation accepted in returh for some benefit to be enjoyed. But fan obligation may exist without a contract such as the ‘obligation imposed by law to pay taxes. Contract and agreement distinguished. Contracts are binding agreements enforceable through legal proceedings in case the other party does not comply with his obligation under the agreement. To be valid and enforceable, a contract must be lawful (See Art, 1306.) and all the requisites for its validity must be present, (sée Art. 1318) Those agreements which cannot be enforced by action {in the courts of justice (like an agreement to go to a dance party) are not contracts but merely moral or socal agreements ‘An agreementjs broader than a contract because the former ‘may not have/ll the elements of a contract (Art. 1318.) that create legally enforceable obligations. So, all contracts are agreements but not all agreements are contracts Classifications of contract. Contracts may be categorized in various ways depend- {ng on the characteristic in them which is emphasized. ‘The following may be mentioned! (1) According to name or designation: (a) Nominate; and (@) Innominate, (see Art. 1307:) 2) According to perfection: (@) Consensual; and (6) Real. (see Arts. 1315, 1316.)“THELAW ON OBLIGATIONS AND nee 18 ©) According to cause: (@) Onerous: (©) Remuneratory of remunerative; and (© Gratuitous. (see Art 1350) 4) According fo form: (@) Informal, common or simple; and (©) Formal or solemn. (see Art. 1356.) ©) According to obligatory force: (@) Valid (see Art. 1306,; (©). Rescissible (Chap. 6.) (©. Voidable (Chap. 7); (@)_ Unenforceable (Chap. 8); and (©) Void or inexistent (Chap. 9.). (©) According to person oblige: (@) Unilateral and (©) Bilateral (6ee Art. 1191) ) According to risks: (2) Commutative (eg. sale, lease), when the un- dertaking of one party is considered the equivalent of that of the other; and () Aleatory e. insurance, sale of hope), when it depends upon an uncertain event or contingency both as to benefit or loss. (8) According to ibility: (a) Unilateral (eg, commodatum, gratuitous epost), when it creates an obligation on the part of only one ofthe partes; and (©) Bilateral (eg, sale, lease), when it gives rise to reciprocal obligations for both parties ane ‘GENERAL PROVISIONS a» (9) According to status (a) Execulory,when thasnotyetbeen completely performed by both parties; and (&) Executed, when it hasbeen fully and satisfac- torily carried out by both parties, (see Art. 1403.) (10) According to dependence to another contract: (a): Preparatory (eg. agency, partnership), when itis entered into as a means to an end: () Accessory (eg, mortgage, guaranty), when it is dependent upon another contract it secures ot ‘guarantees for its existence and validity; and (©) Principal (eg, sale, lease), when it does not depend for its existence and validity upon another contract but is an indispensable condition for the existence of an accessory contract. (11) According to dependence of part of contract to other parts. (a) Indvisibe (or entre) eg. sale of @ dining room table and 8 matching chaifs), when each patt of the contract is dependent upon the other parts for satisfactory performance, and ©) Divisbe (eg, sale of rocking chair and a pair of shoes), when One part ofthe contract may be satisiactory performed independently of the other parts (See Arts. 1223-1225.) ‘The kind of contract entered into is not determined, however, by the name or ttle given to it by the parties but, by its nature or character as determined by principles of law, principally the intention of the contracting parties. (see Art 1371) ART. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient,0 {THBLAWON OBLIGATIONS AND an 16 CONTRACTS provided they are not contrary to law, morals, ‘good customs, public order, or public. policy. (1255a) Meaning of valid contracts Valid contracts are those that meet all the legal require- ments (see Art, 1318. and limitations (Art. 1306) for the type of agreement involved and are, therefore, legally bind- ing and enforceable, ‘Note: It is possible to have an agreement that meets all the criteria ofa valid contract but is unenforceable in a court of law for failure to comply with the Statutes of Frauds, (see Art. 1408) Freedom to contract guaranteed. Theright to enter into contract is one of the liberties guaranteed to the individual by the Constitution, (Article IIL Sec. 10 thereof.) However, the constitutional prohibition ‘against the impairment of contractual obligations refers only to legally valid contracts. (San Diego vs. Mun. of Naujan, 107 Phil. 118. In appropriate cases, it cannot be invoked as against the right ofthe state to exercise its police power. (infra) In other words, an individual does not have ‘an absolute right to enter into any kind of contract However, because the freedom of contractis bothacon- slitutional and statutory right, to uphold the right courts are tenjoined to move with the necessary caution and prudence jn holding contracts void, (Gabriel vs. Mateo, 71 Phil. 497.) Limitations on contractual stipulations. ‘There are limitations to the freedom to contract. (1) Lae, — Its a fundamental requirement that the contract entered into must be in accordance with, and not ‘repugnant to, an applicable statute, Its terms are embodied anim6 (GENERAL PROVISIONS a Inevery contact, The law thus sets limit, (Maritime Co. of the Phil vs. Repazations Commission, 40 SCRA 70,) (2) Police power» — When there is no law in existence ‘or when the la is silent the will of the paris prevails tnless their contract coatravenes the limitation of morals, good customs, public order, or public policy, In short, Ail contractual obligations are subject — os an implied reservation therein’ — t© the possible exercise of the police power of the state. Far from being an impairment SF contractual obligations, the exercise of such power Constitutes, a mere enforment of one of the conditions ‘deemed imposed in ll contacts. (Central Bank ofthe Phil. ‘vs Closbel, 4 SCRA 207.) Contract must not be contrary to law. In its specific sense, law has been defined as “a rule of conduct, just, obligatory, promulgated by legitimate ‘authority, and of common observance and benefit” (1 Sanchez Roman 3.) ‘Acontract cannot be given effect fits contrary to law because law is superior (© a contract. (Art. 1409{1],) Acts ‘executed against the provisions of mandatory or prohibitory laws are void, except when the law itself authorizes theit validity. (Art. 5.) The contracting parties must respect the Taw which is deemed to be an integral part of every contract. (Gee Article 1315.) Contract must not be contrary to morals. ‘Morals deal with norms of good and right conduct ‘evolved in a community. These norms may differ at different times and places and with each group of people. Tips en are sth pes f hes tn oe cx giresetnts pena perry 2 ay eno pee OUT EERETAN halter eaginny pcteh ihrimees hd plenary pomesin he ne whi erable ppl hing ral 0 SESE Ly tne Ss: ve fowmea be Pe)m2 "THELAW ON OBLIGANONS AND ans EXAMPLES: (1) A contract whereby X promised to live as the ‘common-Jaw wife of ¥ without the benefit of marriage in ‘onsideration of P100,000 i immoral and, therefore, void (Gee Batara vs. Marcos, 7 Phil 156) @) An agreement whereby X is to render service as a servant to Y without compensation as long ae X has not paid his debt is reprehensible and censurable, (see De los ‘Reyes vs. Alojado, 16 Phil. 499) Its also contrary to law. (Art 1689) Contract must not be contrary to good customs. Customs consist of habits and practices which through Jong usage have been followed and enforced by society or some part of it as binding rules of conduct. It has the force flaw when recognized and enforced by law. “Good customs are expressly mentioned, although ‘morals are already specified. The spheres of moralsand good ‘customs may frequentiy overlap each other but sometimes they do not” (Report of the Code Commission, p. 134) EXAMPLE: X entered into a contract whereby X binds himself to slap his father. This contract is void because is aginst the 0d custom of showing respec to our parents, Contract must not be-contrary to public order. Public order refers principally to public safety although. thas been considered to mean also the public weal EXAMPLE: ‘A stipulation ina contract oflease whereby the landlord ‘an use force to ject the tenant in case of failure of the latter to pay the rent agreed upan i void as being against public order, Contract must not be contrary ‘to public policy. Publi policy is broader than public order, as the former ‘may refer notonly to public safety butalso to considerations ‘which are moved by the common good. (Ibid; see Art, 1416.) ‘Accontract which has a tendency to be injurious to the public or s against the public good is contrary to public policy. Actual injury need not be shown. (Sy Suan vs. Regala, 105 Phil 1024.) EXAMPLE: X:stole the ea of Y Later, they entered into a contract whereby Y would mot prosecute X in consideration of 50,000. It's to the interest of society that crimes be punished, “The agreement between X and Y is, therefore, contrary to public policy because it seeks 10 prevent or stifle the ‘prosecutjon of X for theft. To permit X to escape the penalties prescribed by law by the purchase of immunity from Y, a paiva individual, would result in a manifest perversion of Justice. (Arroyo vs. Berwin, 36 Phi. 386; Velez vs. Ramas, 40 Phil. 787.) ART. 1307: Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles | and Il of this Book, by the rules governing the most analogous nominate contracts and by the customs of the place. (n) : Classification of contracts according to its name or designation ‘They are: (1) Nominate contract or that which has a specific name or designation inlaw (eg, commedatum, lease, agency, sale, etc) andou "THELAWON OBLIGATTONS AND anise CONTRACTS (2) osominate contact oF that which has no specific ‘name or designation inlaw. Kinds of innominate contract. They are (1) dowt des (give that you may give); (2) out fais (give that you may do} (8) facto ut des (do that you may give); (4) facto ut fais (do that you may do). Dout desis, however, no longer an innominate contract. thas already been given a name of its own, ie, barter or exchange. (Art. 1698.) Reasons for innominate contracts. ‘Theimpossibility of anticipating all forms ofagreement ‘on one hand, and the progress of man’s sociological and ‘economic relationships on the other, justify this provision (8 Manresa 623-625,) A contract will not, therefore, be con- sidered invalid for failure to conform strictly to the standard contracts outlined in the Civil Code. It is sufficient that it has all the elements of a valid contract. (Att 1318, 1356.) Rules governing innominate contracts. Innominate contracts shall be governed by: (1) the agreement ofthe parties: (2)_ the provisions of the Civil Code on obligations and contracts; (@) the rules governing the most analogous contracts; (4) the customs of the place. ART, 1308. The contract must bind both ‘contracting parties, its validity or compliance cannot be left to the will of one of them. (1256a) Contract binds both contracting parties. Acontractis an agroement which gives rise to obliga- tions. It must bind both parties in order that it can be enforced against either. Without this equality between the ‘parties, it cannot be said that the contract has the force of Jaw between them. (Att. 1159.) It is a fundamental rule that no party can renounce or violate the lav of the contract without the consent of the other. Hence, “its validity or compliance cannot be left to the will of one of them.” (Art. 1308; see Art. 1182.) EXAMPLE S agred to el his cao B for P1000. The contact ‘sbining upon bth contacting partes ender of hm Sonat contac against te ther 'A sliplation in the contract t the effect dat the const abe considered inva is dae by ot thats comply wats cligaton ithe wants (at 1182) tvtoat te same prloge bg given fo Bi wok ec The contrat dows not ind both hem Nor ean 9 sone Alri the pce of tear which pce bing upon tthetherbe copes itor ask ‘Aconrac sa mteting ofthe minds and, therfore, Shere nt bal cose Ars 50,35) Buti the prc fed by acpi by the sae pesiesed. (00 rt 173) 17S or B alleges aud he mat idnce stfcry evidence ART, 1309, The determination of the per- formance may be left toa third person, whose decision shall not be binding until it has been ‘made known to both contracting parties. (n) Determination of performance bya third person. Under the preceding article, compliance witha contract cannot be left to the will of one of the contracting parties.However, under the above provision the determination ofits performance may be lef toa third person (ee Arts. 2042-2046) In such case, the obligation does not depend ‘upon. potestative condition. (see Art. 1182) ‘The decision, however shall bind the parties only after {thas been made known to both of them. EXAMPLE: S sold his parcel of land to B. It was agreed that'C, ‘areal estate appraiser, would be the one to determine the reasonable price ofthe land. (ee Art. 1469) G, then, fied the price ater considering all the circumstances and factors alfecting the value ofthe land. In this ease, C must make known his decision to $ and 'B who will be bound by the ame. ART. 1310. The determination shall not bo obligatory if itis evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. (n) Effect where determination inequitable. This article is a qualification to Article 1909. A. contracting party is not bound by the determination if tis evidently inequitable or unjust as when the third person acted in bad faith or by mistake. In such ease, the courts shall decide what is equitable under the circumstances ART. 1311, Contracts take effect only be- ‘tween the parties, their assigns and heirs, ex- cept in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provi slon of law. The heir is not liable beyond the value of the property he received from the de- cedent. Aa (GENERAL PROVISIONS o7 Wa contract should contain some stipula- tion in favor of a third person, he may demand its fulfilment provided he communicated ‘acceptance to the obligor before its revoca- tion. A mere incidental benefit or interest of a person is not sufficient. The contracting par- ties must have clearly and deliberately con- ferred a favor upon a third person. (12572) Persons affected by a contract. (1) General rule. — As a general rule, a party's rights, and obligations derived from a contract are transmissible to the successors. (see Art. 1178.) Under Article 1311 (pat. 1), contracts take effect only between the parties, their assigns (Ge, transferees), and heirs. Thismeans that only the parties, their assigns and heirs can have rights and obligations ‘under the contract. ‘Asarule the act, declaration, or omission of a person. ‘cannot affect-or prejudice another (see Sec. 28, Rule 130, Flutes of Cour} without the Tater's aatorzalion of ratification. : EXAMPLE: ip indebted to Cin the amount of P1000. D and © are the partis tothe contrac. IC dies, D must pay the heirs of C. IFC assigns his credit to X then D is ible to pay X If D dies and His the heir, then H assumes the obligation of D to. (ee Aris, 776, 78.) His bound by the Contract entered into by D, his predecessor in interest, in ‘iew of the privity of interest between him and D. Howeve isnot liable beyond the value ofthe property he inherits from D, the decedent. (Art. 1311, pat. 1.) (2) Exceptions, — The cases when a contract are effective only between the partes are, when the rights and obligations arising from the contract are not transmissible:(@)_ by their nature (like a contract involving personal qualifications, as painting, singing, etc); or (©) by stipulation (in accordance with the prin- ciple of freedom to contract); or (©)_ by provision oflaw (asinagency, partnership, ‘and commodatumt, when death extinguishes the legal relationships) (Art. 1178.) Cases when strangers or third persons affected by a contract. |A third person is one who has not taken part in a contract and is, therefore, a stranger to the contract. AS a general rule, a third person has no rights and obligations tunder a contract to which heiisa stranger. (Art. 1311 pat. 1.) Hie has no standing in law to demand the enforcement of a contract or question its validity. ‘There are cases, however, when third persons may be affected by a contract. Among such cases are the following: (1)_ In contracts containing a stipulation in favor cof. third person (stipulation pour utr) (Ast. 1311, par. 2h (2) Incontracts creating real rights (Art, 1312.) (3) _Incontracts entered into to defraud creditors (Ast. 1313);and (@ In contracts which have been violated at the inducement ofa third person. (Art. 1314) Meaning of stipulation pour autrut Stipulation pour autrui is a stipulation in a contract early and deliberately conferring a favor upon a third person who has a right to demand its fulfillment provided he communicates hig acceptance to the obligor Before its revocation by the obligee or the original parties. ans (GENERAL PROVISIONS 29 Classes of stipulations pour autrui, Stipulations in favor of a third person may be divided into two (2) classes, namely: (1) Those where the stipulation is intended for the sole benefit of such person. This stipulation, in effect, confers a gift it being necessary in such case to apply the rules relating to donations insofar as the form of acceptance isconcerned; and (2). Those wherean obligation is due from the promise to the third person which the former seeks to discharge by ‘means of such stipulation, as, for instance, where a transfer cof property is coupled with the purchaser's promise to pay a debt owing from the seller to a third person. (Uy Tam and Uy Yet ws. Leonard, 30 Phil. 471.) In the first case, the third party is said to be a done ‘beneficiary while inthe second, he is called creditor benefi- cay, Roquisites of stipulation pour aut They ae the following: (The contacting parties by thete stipulation must have dearly and deliberately conferred a favor upon a third Person: (2) The third person must havé communicated his acceptance othe obligor before itsrevocation bythe obigee ‘rth original parties (@)_Thestipulationinfavorof the hid person should bea part not the whole ofthe contract (‘The favorable stipulation should not be con tioned or compensated by any kind of obligation whateve and (©) Neither of the contracting parties bears the legal representation or authorization ofthe tied party for= THELAWONOSLIGATIONSAND—* Ani otherwise, the rules on agency will apply. (see Florentino vs. Encarnacion, 79 SCRA 193) BCAMPLES () Dowss€ P1000 payable alter oe year 25 creat war ogre tat he rt of Fa would be Even toT townsite fr sae sat In this cae, Tmt commaniate hb weeplnce D bere the evan th sbputon by be Pres Order tat heme wilt efeive Pom he more com ‘anc of scepane daly mae T becomes ry Ith oer The promi © ina conto conan’ ‘peliton pour aa ened fo bing an son fo tedecemen oro prevent reach nth sme art teenager ) Xana wit forte eecton of bllding whic wt enfanee tha value of 25 ang proper ‘The act Ut ay indent derive stne Cee es the cnc gies mr righ osu fer beso oe conc (ab & Marin Bans ap) ART. 1312.Incontracts creatingrealrights, third persons who come Into possession of the object of the contract are bound thereby, Subject to the provisions of the Mortgage Law land the Land Registration laws. (n) ‘Third persons are bound by contracts; ‘eating real rights. This article is an exception to the general rule that a contract binds only the parties. ‘Third persons who come into possession of the object fof a contract over which there is a seal right, are bound "ies Dace No 82a dct then of psn under he Spa rus Law adi of Span enn peo ea ips docrtncnra read Pes Dee ye Pepe ‘stration Decree, which superseded the former Land Registration Ac. a thereby even if they were not parties to the contract, A real right is binding against the whole world and attaches to the property over which it is exercised wherever it goes. (sce ‘Art, 1164.) Thus, a contract subjecting certain real properties to the payment of certain debts, registered in accordance ‘with the Property Registration Decree, constitutes 2 real right, which is produced not by the contract but by the publicity given by the Registry, such publicity prejudicing the right of thied persons. ‘However, if the real right is not registered, third pe sons who acted in good faith are protected under the provi sions of the Property Registration Decree. EXAMPLE: D morgage his parcel of land in favor of C as security for hs det. The mortgage i aly regltred in the Registy of Property Lateron sold the se land In this case, bought the land subject to the mortgage consid thereon. To otber words, Ti Bound by the Contact between D and C although hei a stranger to sid Contract because the right af othe mortgage, being areal ‘ght follows the propery wherever it goes (ee Art 161) ART. 1313. Creditors are protected in cas- 8 of contracts Intended to defraud them. (n) Right of creditor to impugn contracts, intended to defraud them, Atticle 1313 is another qualification to the rule that ‘contracts take effect only between the parties, The creditor is given the right to impugn the contracts of his debtor to defraud him. (Art. 1177.) EXAMPLE: Dis indebted to Cin the amount of P10,000.D sells a parcel of and to in oeder that C may not attach the land in payment of his debt and D has no other propery.sn THE LAW ON O8UGATIONS AND Anca G who isa stranger to the contact between D and Tis given y law the ight to ask forthe rescission o cancellation, bf the sale in order that he may be paid his claim. (ese Arts 1381(3) 1387) ART. 1314, Any third person who induces ‘another to violate his contract shall be lable {for damages to the other contracting party. (n) Liability of third person responsible for breach of contract. ‘This is rule of American law. It is also proper undee the general principles ofthe Philippine lav, because acon tractual sight is property. (Report ofthe Code Commission, p.135) Article 1314 reéognizes an instance when a stranger to a contract can be sued for damages for his unwarranted interference with the contract. It presupposes that the contract interfered with is valid and the third person has Jnowledge of the existence ofthe contract. EXAMPLE: $ agreed to sell his parcel of land 0 for PI,000000.5. sells the land toC instead because ofthe inducement of D. In this case, B can sue D for damages. However, the ability ofD for damages cannat be moze than that of § for the laiter’s violation of his contrac. To hold D liable for damages in excess of those that can be recovered against SS "would lead to a result at once grotesque and unjust.” (aywalt vs. Corporacion de PP-Agustinos Recoletos, 39 Phil 587, Atmos, D would be solidarily liable with. ‘What would be the source ofthe obligation of D? His Liability willbe based on the theory of quas-delic. (see Art 115715; see People’s Bank & Trust Co. vs. Dahican Lumber Co, 208CRA 384.) Ae 5:6 (GENERAL PROVISIONS = ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to thelr nature, may be keeping with good faith, usage and law. (1258) ‘ART, 1316. Real contracts, such as d posit, pledge and commodatum, are not per- fected until the delivery of the object of the obligation. (n) Classification of contracts according to perfection. They are: (1). Consensual contact of that which i perfect by mere consent (sale leave, agency) (Art. 1315); (2)_ Ret coniact or that which s perfected by the de- livery ofthe thing subject mater ofthe contract (eg deposi- fiom pledge, commodatum) (Art. 1316; se Arts, 1934, 1963, 2093.); and {@). Solemn contactor that which requires compliance with certain fcmalities prescribed bylaw, sich presribed Form being thereby an essential element thereof Gg. dona- tion ofreal property which mus be in public nsteament). (eee Art 1356) Stages inthe life of a contract. ‘They are: (0), Preparation or negotiation. ~ This includes al the steps taken by the partes leading tothe perfection of the Contract, At this stage, the parties have not yet arived at any definite agreement; (@) Perfection or birth. — This is when the parties have come to definite agreement or meeting ofthe mindson CTHELAWONOMLGATIONSAND Are 1384316 regarding the subject matter and caus ofthe contract (At TBs), ses upon concurrence of the essen elements thereof and (3) Consummation or termination. — This is when ie partis have performed the rexpective obligations 3 The contract nay be said to ave Been flly accomplished or executed, resulting in the extinguishment or teraination Thowot A contract may also be terminated after its pretion, not by pefonance, but by mutual agreement tthe partes EXAMPLES: (0) Soffers to sllhis cart fo F500 000. B asks Sto show him the car Later S brings the car and showsit 0B. 8 ‘ers to pay 400,00 forthe cx. ere, the partis are taking all he step that may lead to the perfection ofthe contrac. (2). Now, if agrees to sll the car for P4000, the contacts perfected because there is ameetng ofthe minds tipon the subject mater and Ue catise ofthe contract (@) Thecontract willbe consummated aterS delivers thecartoB and® paye PANN 000. B becomes the owner ofthe far and & the owner ofthe moaey paid by B. The contract {Beompletely oxeuted. It cence t bean active or exiting bereetontanditis valuable only incase later dispute should aise between and B about the agrosment. 5 end B may terminate their contact by muiual agreement thereby releasing them from their seopective ‘bligation os seller and buyer. How contracts are perfected. (1) Consensual contracts, — Asa general rule, contracts are perfected by mere consent ofthe parties regarding the ‘subject matter and the cause of the contract. (Arts, 1315, 1319.) They are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. (Art. 1356.) Almost all contracts are consensual as to its perfection. They come into existence ‘upon their perfection by mutual consent, even if the subject ‘matter or the consideration has not been delivered, In the absence of delivery, perfection does not transfer tile or create real right, yet it gives rise to obligations bind Jing upon both parties. (Arts. 1305, 1308.) EXAMPLE: ‘Today $ and B enter into a contract whereby S binds Jimself to sell his ear to B fr P200,000. “The contrat is deemed perfected although there is as yet no delivery ofthe car and payment of the price. Both ‘Parton acquire the right to demand from the other the Fulfilment of his obligation: to deliver the car on the pat of $8, and to pay the amount of 200,000 on the part of B. (2). Reafconracts. — The exceptions are the so-called real contracts which are perfected not merely by consent but by the delivery, actual or constructive, ofthe object of the obligation. (Art, 1316) These contracts have for thee purpose restitution because they contemplate the return by 2 party of what hes been received from another EXAMPLE: D borrowed from € P5000 As security forthe debt, D promised to pledge his diamond ring tC. Before the delivery ofthe ring to C, the contract of pledge isnot yet perfected. IED later on refuses to pledge the ring, C can demand the payment ofthe obligation although itis with a period. (Art 1198(2]) But C cannot requir D to deliver the ring 2s secutity because there sno el contract of pledge yet. Tete ‘is merely a consensual contrat to constitute a pledge. What ‘exists fs a personal right the right of action onthe part of C to demand the constitution ofthe pledge. (se Art 2082)me ‘THE LAW ONOBLIGATIONS AND ano (@)_ Solemn contracts. — Wher the law requires that 2 contract be in some form to be valid (Art. 1356.) this special form is necessary for its perfection. Thus, a donation of real ‘property cannot be perfected until itis embodied in a public instrument. (Art. 749.) Effect of perfection of the contract. From the moment the parties come to an agreement on ‘a definite subject matter and valid consideration, they are ‘bound not only — () to the fulfilment of what has been expressly stipulated but also; (@) to all the consequences which according to their nature, may be in keeping with good faith, usage, and law. (art 1315.) EXAMPLES: (1) Ssold a hore to B for P15,000. The details ofthis contract as regards the place of delivery ofthe horse and ‘payment ofthe price the time of delivery and payment, ec, [bre not included, These details are furnished by law and have been taken up in the various provisions ofthe Code. 2) S agroed to sell his horse to. It was stipulated that Sshould deliver the horse toB the nextday. Ithiscase, Shas the obligation to deliver thehorse the next day as expressly stipulated in the contract. S has also the obligation fo take cae of the horse pending delivery and to warrant that he has the right to sell the horse although rothing i sald about the obligation in the contract a this is in keeping wilh good faith, usage, and lav. ART, 1317, No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. ‘A contract entered Into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it Is ratiffed, expressly or impliedly, by the person ‘on whose behalf it has been executed, before it Is revoked by the other contracting party. (1259a) ‘Unauthorized contracts are unenforceab! ‘Asa general ul, personis not bound bythe contract of another of which he has no knowledge or to which he hhas not given his consent. A contract involves the fee will ofthe parties and only he who enters int the contract can bebound thereby. Gee Art. 1311, pa. 1.) Thus under Article 1517, contrac entered into in the name of another by one who has no authority Js unenforceable against the former Lunes it is raed by him befor itis revoked by the other contracting party (se Art. 140311}) An unauthorized contract i nt tobe confused with a contact forthe benefit of a thi person who may demand. its fulfilment provided the requisites mentioned (supra) ze present. (see Art 131, par 2) Unauthorized contracts can be cured ‘only by ratification. ‘The mere lapse of time cannot give efficacy to such a contract. The defect is such that it cannot be cured except by the subsequent ratification (Art. 1405. of the person in whose name the contract was entered into or by his duly authorized agent and not by any other person not so ‘empowered. (Tipton vs, Velasco, 6 Phil. 67.) ‘The ratification must be clear and express £0 as not to admit of any doubt or vagueness. (Asia Integrated Corp. vs. Alikpala, 72SCRA 285.)EXAMPLE: borrowed P10,000from Cin whose favarhe executed «promissory note. Inthe note its stated that D is ating as the agent of Pand that the money is intended for P.Pnever authorized D to borrow money from C. In this cas, the contract of is not enforceable against P. However, P can subsequently approve or sanction the contract unless it has already been revoked by C, the other contracting party. Ratifiation cleanses the contract from all its defects from the moment the contract was entered int, (Art. 1396) Ifthe contract his already been ratified by Bit «can no longer be revoked by C- (see Art. 1901.) ‘When a person is bound by the contract ‘of another. Inorder that a person may be bound by the contract of another, there are two (2) requisites: (1) The person entering into the contract must be duly authorized, expressly or impliedly, by the person in whose name he contracts or he must have, by law, aright to represent him (like a guardian or an administrator); and (2) He must act within his power, A-contract entered into by an agent in excess of his au thority is unenforceable against the principal, bt the agent is personally liable to the party with whom he contracted where such party was not given sutficient notice ofthe lim- its of the powers granted by the principal (ee Art. 1897.) EXAMPLE: P (principal) authorized A (agent to sell his car for 200,00 cash A sold the er to Cfor 200,000 payable in 10 ‘monthly installments In this case; P cannot be compelled by C to accept the ‘monthly installments and to deliver the carbecause A acted u (GENERAL PROVISIONS = beyond his powers unless there hs been ratification by PA is personally lable to C for damages, 000 STUDY GUIDE Definitions Define or give the meaning of the following: 1. contract 2 stipulation pour autrui 3. real contract 4. perfection of contract Discussions 1. “May a third person acquire rights under a contract to which he is a stranger or be bound thereby? Explain. 2. How are contracts perfected? 3. When will a person be bound by a contract entered into by another? 4. Give the effect ofthe perfection of a contract. Problems Explain or state briefly the rule or reason for your 1, AandBentered intoacontractnotspécifically provided in the Civil Code. Is the contract valid and binding. 2S (seller) and B (buyer) entered into a contract ‘of sale. Itwas agreed that the price shall be determined"THIELAW ON OBLIGATIONS AND COnTRACTS by T,a third person. Can $ or B refuse to be bound by ‘Ts determination ofthe price ifhe does not agree with the amount thereof? 3, DowesCP20,000. Both are house painters. It ‘was agreed that D instead of paying C, will paint the house of E to which E expressed his conformity to C whose service as painter was previously contracted by EE Has B the right to enforce the stipulation between C and D? 4. X made an office desk for ¥. X told Y that the later may pay whatever amount he would like to pay fort. When the desk was finished Y offered to pay 2000 but X instead demanded P3,000, its fir value. Is X entitled to P3,0002 —e00— Chapter 2 ESSENTIAL REQUISITES OF CONTRACTS GENERAL PROVISIONS ART. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject ‘matter of the contract; ) (3) “Cause of the obligation which is established. (1261) Classes of elements of a contract. They are: (1) Essential clements or those without which no contract can validly exist regardless of the intentions ofthe parties. They are also known as requisites ofa contract. They ‘may be subdivided into: (2) common or those present in all contracts, namely, consent, object, and cause (Art, 1318,);and (©) special or those not common to all contracts ‘or those which must be present only in, or peculiar to, certain speed contracts and such peulrty may= “THELAWON OBLIGATIONS AND anisis CONTRACTS 1) _asregardstoform, as for example, public instrument in donation of immovable property (Art. 749), delivery in real contracts (Art. 1316.), registration in real estate mortgage’ (Art 2125.) chattel mortgage (Art.2140,), ete: or 2) as regards the subject mati, as for ‘example, real property in antichresis (Art. 2132.) personal property in pledge (Art. 2094), ete; or 3) _ as regards the consideration or cause, a for example, price in sale (Art. 1458, and in lease (Arts, 1643, 1644.), liberality in commodetum (Art 1935.) et. ‘A valid contract is one that manifests all the essential clements of a contract. (2) Natural elements or those that are presumed to ist in certain contracts unless the contrary is expressly stipalated by the parties, like warranty against eviction (Ait. 1548.),or warranty against hidden defect in sale (Art. 1561)-and (@)_ Accidental elements or the particular stipulations, clauses, terms, or conditions established by the parties in theie contract (Ast. 1306), like conditions, period, interest, penalty etc, and, therefore, they exit only when they are ‘expressly provided by the partes. —000— Telerantn which renee mortage pps ist code in he Ropar of Pape ie nevesesindng seen pars Ce 2125) SECTION 1.— Consent ART. 1319. Consent is manifested by the meoting of the offer and the acceptance upon acceptance absolute. A qualified acceptance ‘constitutes a counter-offe Acceptance made by letter or telegram does not bind the offerer except from the time itcame to his knowledge. The contract, in such ase, is presumed to have beon entered into in the place whore the offer was made. (1262a) 4 Meaning of consent. Consent is the conformity or concurrence of wills (offer and acceptance) and with respect to contracts, it is the agreement of the will of one (1) contracting party with that of another or others, upon the object and terms of the contract (4 Sanchez Roman 191;8 Manresa 688,) It's the meeting of minds or mutual assent between the parties on the subject matter and the cause which are to constitute the contract (Arts. 1305, 1319.) even if neither hhas been delivered, Mutual assent or agreement takes place ‘when there i an offer and acceptance ofthe offer. Meaning of offer. Offer is a proposal made by one (1) party (offerer) to another (offeree), indicating a willingness to enter into acontract. Ibis more than an expression of desire or hope. Itis really a promise to act orto refrain from acting on condition thatthe terms thereof are accepted by the person to whom itis made. Offer must be certain and seriously intended. (1) The offer must be certain or definite so that the liability (or the rights) of the parties may be exacly fixed. because itis necessary that the acceptance be identical with, the offer to create a contract without any further act on the part ofthe offeror. EXAMPLES: (1) "Will you buy this watch for P10,000%" This is an off. ©) _“Tam willing 10 consider the sale of my land to you for P500,000." Te offer heres uncertain. Ts acceptance twill notereatea contract. @)_ “Lam willing t0 buy your eax” There is also no offer because it is incomplete. No prices given. (“Lam wiling to sell my car for P220,000 cash or for 12 monthly installments of P2000." The offers certain. Here, the determination ofthe manner of payment i left to the offre. (2) An offer made in jest or in anger, or while emo- tionally upset or in other ways indicating that the same was not seriously intended is nota valid offer. But lack of serious intent to enter into a contract where such a condition was not apparent to the offeree who honestly believed that the offer was seriously intended, does not invalidate the offer. EXAMPLE: Sintending to play ajoke, offered his expensive watch ‘worth 750,000 to B who know the value ofthe watch, for S00. There is no valid offer But if $ offered his watch for Aw ISI9_-SENTIALREQUEITESOF CONTRACTS = 30,000 to B who did not realize that $ was joking and accepted the seemingly serious offer there sa true meeting ‘ofthe minds resulting in the existence ofa binding contract of sale. 9 of acceptance. Acceptance is the manifestation by the offeree of his assent toa the terms ofthe offer Without acceptance, there ‘can be no meeting of the minds between the parties. (At. 13085.) ‘Acceptance of offer must be clear ‘and absolute. Basically, a contract consists ofan offer and an accep- tance ofthat offer, The acceptance ofan offer must not only be dear; it must be absolute, unconditional or unqualified, thats it mast be identical in all respects with that of the of fersoas to produce consent or menting of the minds If the accfptance is qualified, as when itis subject to 4 condition, it merely constitutes a counteroffer which, in law, is considered a rejection ofthe original offer and’ an attempt by the partes to enter into a contract on a different basis. A qualified acceptance must, in turn, be accepted absolutely in order that there willbe a contract. EXAMPLE: 5 asked B this question: “Will you buy my (specific) cat for P200,0007" IF B answers “yes, accept your offer” or “yes, T agro,” or just "yes," the sceptance of B is absolute or unconditional. But ifB proposes to pay only P160000 forthe car or to buy instead another car ora land of $ for P200,00, bis acceptance is qualified and becomes a counteroffer In this ‘ase, Bis now the new offerer and 8, who was the original offre, the new ofere.eo THELAWON OBLIGATIONS AND Ars. 13884521 CoNTRACIS ART. 1320. An acceptance may be express. cor Implied. (n) Form of acceptance of offer. An express acceptance in the form of a promise to pay ‘certain amount or todo something, may be oral or written, ‘An implied acceptance is one that is inferred from act or conduct. EXAMPLE: X promises to pay YP, 000forreparinghiserigerator ‘and making tran again. Here, only X(ofterer) has promised todo something, BY doing the requested act, Y accepts the ofier FY accepts the off? by promising to do the requested acta bilateral contract results There are promises on both sides hasbeen held that where a person accepts the services ‘of another, whether solicited or not, he has the obligation to pay the weasonable value ofthe services thus rendered upon the implied contract of lease of service unles itis shown thatthe service was rendered gratuitously (Perez vs, Pom, 2 Phil 682) or without any expeciation that he would pay for the same. (Aldaba vs. Court of Appeals, 27 SCRA 263) ART, 1321. The person making the offer may fix the time, place, and the manner of acceptance, all of which must be complied with. (n) Mattors that may be fixed by the offerer. The person making the offer has the right to prescribe the time, the place, and the manner of acceptance, all of which must be complied with. An acceptance departing from the terms of the offer constitutes a counteroffer. Take note that a counteroffer has the effect of extinguishing the ‘ae1S22 ESSENTIAL REQUISITES OF CONTRACTS @ offer, It in effect, constitutes a new offer which the original offerer may accept or reject. Articles 1321 to 1326 have been adopted from the American law. (Report ofthe Code Commission, p. 135.) EXAMPLE: Ras oferer, may tll, the offere, thatthe latter must accept the offer personally on January 1, before 5:00 lock PM inthe ollie of all of which must be complied with by Eto create contact ‘Communication of the offer ‘The offer must be communicated and received by the offeree, It may be by letter, telephone, e-mail or the ike. It ‘may be express or implied by the language or acts ofthe offeror understood as such by the other party EXAMPLE: Batfended an auction sale. When the auctioneer asked. forabidatcertainpriceofanantiquefurniture Baoddedafter ‘getting the auctioneer’ attention. The nod by B constitutes {an implied offer It was a suficient communication to the ‘auctioneer of B's intention to make a valid offer, ART. 1322. An offer made through an agent is accepted from the time acceptance is. ‘communicated to him. (n) ‘Communication of acceptance (1). oferer. — The acceptance of the offer must be absolute. (supra) The other requisite is that the acceptance ‘must be communicated to the offerer. The acceptance may be either express or implied (Art, 1320.) subject to the terms of the offer. (Art. 1321) 2) Toagent— By legal fiction, an agents considered (of the personality of his principal. (Art. 1910,se THELAW ON omLIGATIONS AND onreacts ante par 1.) If duly authorized, the act of the agent is, in law, the act of the principal. Article 1322 applies only if the offer is made through the agent and the acceptance is ‘communicated through him. Hence, there would be no ‘meeting ofthe minds ifthe principal himself made the offer and the acceptance is communicated to the agent unless, of course; the latter is authorized to receive the acceptance, ART. 1323. An offer become tupon the death, civil interdiction, insanity, or insolvency of either party before acceptance. ‘conveyed, (n) When offer becomes ineffective. ‘An offer may be revoked or withdrawn at any time before it i accepted merely ‘by communicating, ack intentions to the other party. Afer acceptance tie ialeady perfected (Are 19) Under Article 1323, even if the offer is not withdrawn, its acceptance will nt produce « mowing of te mings ik case the offer as aieady become naeric ben an dest, vl interdiction insanity, or nslvensy a ete, Paty bor the conveyance of the aceptance athe oer Inust be observed tha the la refers “ltr ps Ts means thatatthetime the ecrepancescommuriatod Both patie, offerer and offre, mast be living and capackaner (see Art. 1327.) Other grounds which render offer ineffective, ‘The above grounds are not exclusive. Thus, failure to comply with the condition ofthe offer as to the time, place, and the manner of payment (Art, 1321), the expiration of the period fixed in the offer for acceptance (Art. 1324), the struction of the thing due before acceptance (Art. 1262), ection ofthe offer, etc, will also render the offer ineffective and prevent the creation of a contract. SEAL EQUTES OF CONTRACTS = ART. 1324. When the offerer has allowed the offeree a certain period to accopt, the offer may be withdrawn at any time before accep- tance by communicating such withdrawal, ex- ‘cept when the option is founded upon a con- ‘sideration, as something paid or promised. (n) aime Meaning of contact of option: option period ‘pton money {Opin cnc i one giving penn for & cmsldratona cra prod win which wo aap he Str‘ the ofr Io sepente tnd distinct fr the contact which wb preted pon theaceptane othe ote: Option ay also ero peg al given the ieee cept anor win cota ped 2) Opin prot isthe period gven within which the ofc ace oe Opin mony the money pdr promised tobe aid nconiderton the pton es ot obe cnt Whats mony wich ia paral payren ofthe Furchnve pie aes cridered wo rot ote perttion of the contract. (see Art. 1482.) Withdrawal of offer where period stipulated for acceptance When the offrer gives to the ofre a certain period within which to accep the ofthe general ule thal the oifermay be withdratm as mater of ight a anytime be- fore acceptance, Te exception s when the option fxn tc upon a consideration as something paid br promised. EXAMPLE: Xooffersto construct the house of fora very reasonable pice of P000,000 giving te latter 10 days within which to ‘ake up hi mind30 “THELAW ON OBLIGATIONS AND anise Under Article 1324, X may withdraw the offer even ‘before the lapse of 10 dayo unless Y has already accepted the offer After acceptance, withdrawal isnot posible as there is ‘no more ofer to withdraw, Even before acceptance, X may not withdraw the offer AF the option is covered by a consideration 3s when Y paid or promised to pay a sum of money to X forgiving him the 10-day period. There is here an option contract. ter the 10- day period, inthe absence of acceptance, the ofer Becomes inetfectve Articles 1324 and 1479 compared. Asticle 1324 lays down the general rule regarding offer and acceptance. It has been interpreted as modified by the provision of Article 1479' of the Civil Code which applies Specifically to “a promise to buy or sell” ‘A unilateral promise to buy or sella determinate thing not supported by any consideration distinct from the price for which that thing was intended to be sold by of to the ‘promisee(offeree) does not bind the promisor (offerer), even ‘faccepted, and may be withdrawn atany time. (see Southern Sugar & Molasses Co, vs. Atlantic Gulf Pacific & Company, 97 Phil. 249; Cronico vs. JM. Tuazon & Co, Inc, 78 SCRA 331.) EXAMPLE: ‘Thus, in the preceding example, suppose the offer of Xs to huy the house of ¥, giving the Inter 10 days within ‘which to accept the offer, Inthiscase,X may withdraw his offer at any time, even ‘after acceptance by YY has not paid or promised to pay 2 consideration to X for giving him (Y) the 10-day period ‘within which to make up his mind, temsiprocly dean meer "An neti ter promi buy wal «determine thing for pr estin dng upon he fri if the pote upped by 8 ‘Rican dtc a pce ast) ‘Ans 5251515 _ BSSENTIALREQUITES OF CONTRACTS a ART. 1825. Unless it appears otherwise, rtisements of things. for sale offers, but mere invitations to make an offer. (n) Business advertisements generally not definite offers. Business advertisements of things for sale are not defi- nite offers acceptance of which will perfect a contract but are merely invitations to the reader to make an offer. How- ever, ifthe advertisement is complete in all the particulars necessary in a contract, it may amount. to a definite offer ‘which, if accepted, will produce a perfected contract. EXAMPLES: (1) “For sale: 200 square meters lot at Green Pains ‘Village, Quezon City for Pi,000,000 — Tel No, 844-1284" ‘This nota definite offer (2) 4 “For sale: 200 square meters lot at Green Plains ‘Village, Quezon City located at the comer of Geronimo and ‘Magallanes Street for P1,000000 cash, — Tel, No, 84-1284." ‘This ea definite offer. ART, 1326. Advortisoments for bidders aro simply invitations to make proposals, and the advertiser is not bound to accept the highest ‘or lowest bidder, unless the contrary appears. () Advertisements for bidders generally ‘not definite offers. In an advertisement for bidders, the advertiser is not the one making the offer In reality, the bidder is the one making the offer which the advertiser is free to accept or reject. Acceptance by the advertiser of a given bid is necessary for a contract to exist between the advertiser and the bidder, regardless ofthe terms and conditions of his bid.{Sarno Mineral Rsration Board vs Chel 2 SCRA 98, ‘Asa general rule, the advertisers not bound to accept {he highest bidder (as when the offer sto buy) or the lowest bidder (es when the offer isto construct a building) unless the contrary appear. In judicial sales (., eles ordered by a court however, the sheif or auctioneer is bound to accept the highest bid, (se Rules of Court, Rule 39, Sec: 19,) ART, 1327: The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deat-mutes who do not know how to write (12632) Capacity o lve consent prosumed. ‘The Civil Code doesnot dene who have capacity or legal ality to give consent to a contrat I defings on the contrary whe have no capacity by which tan be inerted that eapoiy isthe general rule, whit existe in those, of thom the lave as not denied (8 Manresa 65; sce the Standard Oi Co vs Arenay 19 Pil 363) The burden of proof ison the party wo asserts incapacity Persons whe cannot give consent. ‘A contract entered into where one of the parties is incapable of giving consent to a contract is voidable. A voidable contract is valid and binding until i is annulied ‘by a proper action in court. It is susceptible of ratification. (Art 1390) ‘Those who are incapacitated to give consent under Article 1327 are the following: (1) Unemancipated minors. — They refer to those persons who have not yet reached the age of majority (18 ‘Ai.1908 ESSENTIAL REQUISITES OF CONTRACTS 0 ‘conser, ‘years) and are still subject to parental authority. A minor ‘can be emancipated by attainment of the age of majority, bby marriage, or by the concession recorded in the Civil Register, of the father or of the mother who exercises parental authority (see Art. 254, Family Code.) (@)_ Insane or demented persons. — The insanity must exist atthe time of contracting. Unless proved otherwise, a person is presumed sane; and. (2). Deaf-mutes. — They are persons who are deaf and dumb. However, if the deaf-mute knows how to write, the ‘contract is valid for then he is capable of giving intelligent ‘consent, A person who does not know how to write, does | rot know how to read; and one who knows how to read. necessarily knows how to write. A contract entered into by 1 deaf-muite who knows how to read is, therefore, valid, although he cannot write because of some physical reasons. Reason for digqualification. The reason behind Article 1927 is that those persons ‘mentioned can easily be the victims of fraud as they are not capable of understanding or knowing the nature or import of their actions. They can enter into a contract only through ‘a parent or guardian. ART. 1328. Contracts entered into during 2 lucid interval are valid. Contracts agreed to Ina state of drunkenness or during a hypnotic. spell are voidable. (n) Contracts entered into during a lucid interval. Lucid interval isa temporary period of sanity. A contract-entered into by an insane or demented person during a lucid interval is valid. It must be shown, however, that there is a full return of the mind to sanity as to enable Jhim to understand the contract he is entering into.Effect of drunkenness and hypnotic spelt. runkenness and hypnotic spell impair the capacity of person to give intelligent consent. (8 Manresa 660-661) ‘These conditions are equivalent to temporary insanity. Hence, the law considers a contact entered ino in & siate of drunkenness, or during a hypnotic spell voidable and itis not required thet such state was procured by the ‘ircumvention of the other party ‘ART, 1329. The incapacity declared in article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications. ‘established in the laws. (1264) Incapacity declared in Article 1327 ‘subject to modifications. Tn general, the contracts entered into by the persons enumerated in Article 1327 are voidable. (Art 1390) However, in certain cases, their incapacity may be modified by law, that is, they ean also give valid consent. Thus: (1) When necessaries such as food, are sold and delivered toa minor or other person withost capacity toact, ‘he must pay a reasonable price therefor. (Arts, 1489, 290.) @) A minor 18 years old or above may contract for life, health and accident insurance, provided the insurance is taken on his life and the beneficiary appointed is the tinor’s estate or the minor's father, mother, husband, wife, child, brother, or sister. (insurance Code of 1978 (Pres. Decree No. 1460], Sec 3, par.3.) ©) A contract is valid if entered into through a sguandian or legal representative. (see Art. 1381[1,2}) @) Acontractis valid where the minormisrepresented. his age and convincingly ed the other party to beove in his, legal capacity. (Mercado vs. Espicty, 37 Pil. 215,) ‘ae.1529_ESSENTIALREQUISIES OF CONTRACTS os (©) contracts valid where a minér between 18'and 21 years of age voluntarily pays a sun of money or delivers @ fangible thing in fulfliment of his obligation thereunder anu the obliges has spent or consumed itn good faith. (AE a7) Other special disqualifications ‘may be provided by law. In addition to the incapacity declared in Article 1327, other special disqualifications may be provided by law. (1) Under the Rules of Court, the following are con- sidered incompetents and may be placed under guardian- ship: 5 (a) persons suffering the accessory penalty civil interdiction (see Art. 4, Revised Penal Code.); (@)_ hospitalized lepers; (0 prodigals (spendthrits); (@_deafand dumb who are unable to read and site; (©) those who are of unsound mind even though they have lucid intervals; and (8. those who, by reason of age, disease, weak mind and other similar causes, cannot without outside aid, take care of themselves and manage their property, becoming thereby an easy prey for deceit and exploitation. (ec. 2, Rule 92, Rules of Court) A contract entered into by any of the above is valid except where it is voidable by reason of incapacity under Articles 1327 and 1328 or of causes which vitiate consent (Ast. 1330), or where the incompetent has been placed "Dror Arie 234 of he Fay Code af amended by RA. No. 809, aslo le provid may nmmenenst ope tT esoo "LAW ON OBUCATIONS AND nts ‘under guardianship. Thus, a prodigal is presumed to have capacity to enter into a contract. (@) insolvents until discharged (Insolvency Law [Act No. 1956, a amended |, Sec. 1.) (©) married women in cases specified by law (art. 39); (©) husband and wife with respect to sale of property to each other (Art 190) and (4) other persons especially disqualified by law. (cee Arts, 1491, 1789.) ART. 1330. A contract where consent is given through mistake, violence, intimidation, lundue influence, or fraud is voidable. (1265) Characteristics of consent. In order that concent may be valid for purposes of contrac is equced, not nly that tens but that must te given wth enact understanding over te thing consented to lnother words, te contractmustbebasedon te genine scent ofboth partes othe contract and the terms threo, ‘There sno valid consent unless: there is capacity to act (See Arts. (1)_neisinttigent, 1327-1329.) @) It i fre and voluntary, — there is no vitiation of consent by reason of violence or intimidation (see Art. 1330,}-and (8) tisconscious or spontaneous. — there is no vitiation of consent by reason of mistake, undue influence, or fraud, ‘Thus, Article 1330 enumerates in a negative manner the different requisites of consent. The contracting parties ‘must possess the necessary legal capacity to give consent to contract. (Arts. 1327-1329.) ‘Atl SENTIAL REQUSITESOF CONTRACTS ea Vices of consent. ‘Aside from incepacity and simulation of contract, the following are the causes that vitiate consent or render it defective 0 as to make the contract voidable: (2) error or mistake (Art. 1331), 2) violence ot force (Art: 1335.) (@) intimidation or threat or duress (Tid); (@) undue influence (Art. 1337), and (6) fraud or deceit. (Art, 1338.) Causes vitiating consent and causes ‘of incapacity distinguished. (1) The former are temporary, while the latter are more or less permanent; and Q) The irst refers to the contract itself, while the ‘second, to the person entering into the contract. ‘Both make a contract “voidable” only (see Art. 1390), not void ART. 1331. In order that mistake may in- validate consent, it should refer to the sub- stance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter Into the contract. Mistake as to the identity or qualifications of one of the parties will vitiate consent only ‘when such identity or qualifications have been the principal cause of the contract. A simple mistake of account shall give rise to its correction. (1266a)oe THELAWON OBLIGATIONS AND Anas conreaces Meaning of mistake or error. Mistake or error isthe false notion of a thing or a fact ‘material tothe contract. Nature of mistake, (2) Mistake may be of fact or of law. In general (see ‘Ast. 1334), the mistake to which Article 1381 refers i mistake offct. It may arise from ignorance or lack of knowledge. @) The mistake contemplated by law is substantial mistake of fact, that is, the party would not have given his consent had he known of the mistake. Hence, not every mistake will viiate consent and make a contract voidable. @) The mistake may be unilateral (eg, 2nd par), when only one party is mistaken about a material fact, or bilateral (or mutual) when both parties arein error. Generally, f person who makes mistake cannot avoid liability to the innocent party unless he shows that he was free of fault or negligence. ‘Mistake of fact to which law refers. In onder that mistake may vitiate consent, it must refer to: (1). the substance of the thing which isthe object of the contract; or (2) those conditions which have principally moved ‘one or both parties to enter into the contract or (@)_ the identity or qualifications of one of the parties provided the same was the principal cause ofthe contract. No. 1 above includes mistake regarding the nature of. ‘the contract, as when the contracting partes believe that the other is selling, when in truth and in fact, both are buying, (sce Madrigal & Co. ve, Stevenson & Co, 15 Phil. 38) ‘An.181 ESSENTIAL REQUESTES OF CONTRACTS Mistake of fact which doos not viiate concent (1) Error as regards the incidents of thing. oF accidental quaides thereof. accessibility ofa residential Rouse to means of transportation; maximum speed of a far) not taken asthe prinepal consideration of the contrat does not vite consent (At 1331, pat 1) unless the eror is caused by fraud ofthe other pai eee Art. 1338) @) Mistake as to quantity or amount does not also vitae consent but only gives rst its corecton (Bi, paz 3 unless i goes to the essence ofthe contact. (@)_Ecor as regards the motives ofthe contact (ee [At 1351) doesnot also vite consent lees the motives constitute a condition or case of the contract. (@). Mistake a regard the ientty or qualiftions ofa party doesnot vitae conuent forthe reason that contrac are Entered into more in consideration ofthe things or services ‘which form i subject matter rather than of persons. The ception s when such identity or quaifeations have been the principal cause of the contract (At. 1331, pat 2), 08 in contracts, which have for dei object obligations to do, requiring personal qualifications ofthe debtor or involving trast and confidence, such as contracts of partnership, agency conmodatu, guaranty, deposit ee. (©) Error which could have been avoided by the party alleging itor hich refers fo a fact known to him, oF which heshouldhave known by the exercise of ordinary diligence, for which is 60 patent and obvious that nobody could have made i, will not invalidate consent EXAMPLES: (2) Mistake regarding abject, — Ais buying from B a breeding cow but Bis selling a barren cow. (2) Mistake regording condition ofthe contract. — Ais ‘selling his parcel of land for P200,000 cash but B is buying the land thinking thatthe prices payable in installments.(9) Mista renting entity or aici, — (a) sold is cartoB. A thought that, whol altewyer was a doco Themistoke erst mate sto avid te contact (8) Adonatsthiscarto B.A thought that B was hishalpbother tamed ot that Beat rated fo ‘AvThe mistake as to the identity of Bint cso ‘ater! beats his deny was he pina eso Or eorideraton forthe donation (@) | Misa whichcoud hve en eo, was wil ing to sll hin share of tno ©) parcels of and povided, that is coanmere would sv el the seapectie ohare of thes Sega te sevice yer Lio owing that L wo sso 'epresentng B the prospective bayer lconfimedto5 tht alls coowners we amenable toscl heirshres. After signed the deo ofa crated by 1 he leamed that the other coonmer did not agiee tos ther haces over the subject propery 5 cannot invoke mistake inorder to annul the sale because cou have avoid the alleged rte had she cere efforts to verity fom hin cowumer if hey relly onsented to el ir espectve share (Aen Couto ‘Appa, 257SCRA 419 (254)) Effect of mistake of account. (1) Where mistake simple. ~ A simple mistake of ac- count or calculation does not avoid a contract because it does not affect its essential requisites. The defect is merely in the computation of the account or amount which can be corrected. (2). Where mistake gross. ~ Where the mistake was $0 ‘gross that it was clearly apparent to one party and, therefore, ‘would be impossible to escape his notice, said party cannot avoid lability on the ground of mistake in computation EXAMPLES: () Sola to B a parcel of land with an area of 567 square meters at PAIS per square meter. in the document of A182 ESSENTIAL REQUISITES OF CONTRACTS ey sale, the purchase price stated is P285,305 when it should be F238 305. Temistake will not make the contract voidable- Iwill only give rise tots correction by putting the true amount. @) Inthe same example ifthe purchase price agreed ‘upon is for a hump sum of F235,05 forthe pazcel of land stated as having an arva of 567 square meters but with an factual area of only 467 square meters, B has the right to ask {or the recssion or cancellation ofthe contact. ART. 1332. When one of the parties is un- able to read, or ifthe contract is in a language ‘not understood by him, and mistake or fraud is alleged, the person enforcing the contract, must show that the terms thereof have been fully explained to the former. (n) Burden of pyoot incase of mistake orfraud. ‘When a person signs a document, he presumption that he does so with fll knowiedge and understanding of the contents ofthe same. He tector, bound by all is terms Shouldhelater on allege aud or mistake is incum tent upon him to prove his allegation, presumption isa fact that i crept a true until proved olerwise. Article 1332 i an exception to the above cule. When cone ofthe partis i unable fo ead orf the contracts @ language not understood by him, its the party enforcing thecontrac whois duty-bond to show that there hasbeen to feud or mistake and that the tre ofthe contract ave been fly explained to the former “This ue is epecally eosary in the Philippines where unfrtunately there i Silla fitylrge number ofilitertes and where documen's tre usualy drawn up in aglsh or Spanish” (Report ofthe Code Commission p. 136 se Tang vs. Court of Appeals, 90 SCRA 226.)covmacts ART. 1333. Thore is no mistake Ifthe party alleging it knew the doubt, contingency or risk affecting the object of the contract. (n) Effect of knowledge of risk. Ifa party knew beforehand the doubt, contingency, or risk affecting the object ofthe contract, itis to be assumed that he was Willing to take chances and cannot, therefore, claim mistake. (sce Martinez vs. Court of Appeals, 56 SCRA. 647.) This is especially true where the contract is aleatory in nature. EXAMPLE: B bought a pare! of lan from S who informed him ‘before the contract was perfected thatthe land was involved inalligation in which Cs the daimant Tn case the land is recovered later on by CB cannot allege mistake in his contract because he knew the sk that theland might later on be revered by C. ART. 1334, Mutual error as to the legal offact of an agreement when the real purpose of the parties is frustrated, may vitiate consent. « Meaning of mistake of law. Mistake of aw is that which arises from an ignorance of ‘some provision of law, or from an erroneous interpretation (fits meaning, or from an erroneous conclusion as to the legal effect of an agreement, on the part of one ofthe partes. “Aa 2010-By an aletory ona on fhe pars o oth ep nde opie cr todo omen ncriderton whe ers [Geesrsouponths happening ofaneventwhichs ween rw tO ‘Rin indearminate ne 07308) ‘AeciSt _ BBENTIAL REQUSITES CONTRACTS 1 Effect of mistake of law. ‘As a rule, mistake of law dogs not invalidate consent ‘because “ignorance of the aww excuses no one from compli ance therewith.” (Art. 3,) This doctrine is based on public policy, dictated by expediency and necessity. (see Luna vs. Linatoc, 74 Phil. 15.) When mistake of law vitiates consont. “Mistake of aw does not generally viiate consent, But ‘when there isa mistake on a doubtful question of lave, or on the construction or application of law, this is analogous to a mistake of fact, and the maxim of gnorauia eis neminem faxcusat (ignorance ofthe law excuses no one) should have ‘no proper application. ‘When even the highest courts are sometimes divided ‘upon dificult legal questions and when one-half (1/2) ‘ofthe laeyery in all controversies on a legal question are wrong, why should a layman be held accountable for his hhonest mistake on a doubtful legal issue?” (Report of the Code Commission, p. 130; see Art. 1331.) Requisites for the application of Article 1334. For the article to apply, the following requisites must be present: (2). The error must be mutual; (2) It must be as to the legal effect of an agreement; and (8) Temust frustrate the real purpose of the parties. EXAMPLES: (1) D borrows P10,000 from C. As security for the debt, it was agreed thet D should mortgage his parce! of Tand in favor of C. However, the document 2s written is oneET {THBLAW ON OBLIGATIONS AND. ans CONTRACTS of antichresi the parties eroneously belioving that thas the same effet as a mortgage In this case, the contract voidable Because there is. no meeting oftheminds, (Ar 159, paz 2) (©) Inthe same example ifthe parties realy agreed ‘nasal but the documenta written discloses a mortgage, there fs a meeting of he minds but the document does not show their tueintenton. In this case, the remedy is reformation (See At 1352) (0) C delivers asa deposit a mivable property to D who receives its lan commu) ee AR. 1316) ere, the muta errr is nt on te legal effect but on the nature of the contact entered int. D must return the property a there laneltber a depositnora loan. ART, 1335. There Is violonce when in or- der to wrest consent, serious or irresistible force is employed. ‘There is intimidation when one of the contracting parties Is compelled by a reason- able and well-grounded fear of an imminent ‘and grave evil upon his person or property, or upon the person or property of his spouse, de- ‘scendants or ascondants, to give his consent. To determine the degree of the intimida- ton, the age, sex and condition of the person ‘shall be borne in mind. A threat to enforce one’s claim through competent authority, if the claim is just or legal, does not vitiate consent. (1267a) TA Fe Byte conta fe the con aga the htt ecient nino he eae wh eign t aly hem ‘Bepuyinent ofteneestiowing and thereat te pind sce ei ‘Acct ESENTIALREQUETESOF CONTRACTS 3 Nature of violence or force. Violence requires the employment of physical force. Under Article 1335, to make consent defective, the force em- ployed must be either serious or iresistible. In either case, consent isnot free. (Report of the Code Comission, p.136.) EXAMPLE: UX signs a document because everytime he refuses he is hit by the butt of a gun which causes blood to flow from Fis head, there fs violence because serous of irresistible force is employed to wrest concent. In this case, Xi “mere automation and acts mechani- cally only. While his hand signs the will which moves iis fancther’; While a contract is made, thas in reality and in Taw, only one party tot and, there being only one party, the ‘one using the force or intimidation, iti unenforceable for lack ofa second party” (Vales vs Vila, 35 Phil. 769.) [Nature of intimidation or threat. Under the above article, for intimidation to vitiate the consent of a party to a contract, the following requisites :must be present (1)_ Te must produce a reasonable and well-grounded fear of anevil; @) The evil must be imminent and grave; ()_ The evil must be upon his persom or property, or that of his spouse, descendants, or ascendants; and (4) Itis the reason why he enters into the contract. Intimidation need not resort to physical force, Intimi- dation is internal while violence is external EXAMPLE: In the preceding example, if X signs the document ‘because a gun is pointed at him by Y who threatens to Kill, fim and he has no reason tobelieve that Y will not carry out Fis threat, the intimidation would vitiate consent,Pod THELAWON OBLIGATIONS AND anim onTRACTS ‘But ifX was merely intimidated that he vould be shot by Yand the latterhad no gun atthe time of the threat, there {sno intimidation as contemplated in Article 1335 because the fear isnot reasonable and well-grounded since Y isin 0 position to carry out his throat. Suppose X signs the contract because of a throat to his thet) honor oto the life of his (her) brother or sister, ‘would there be intimidation just the same considering the enumeration in the law? (pa. 2) I the coneent of X is vitiated just the same, itis belived thatthe threat amounts to intimidation, Factors to determine degree of intimidation. Whether or not the fear is reasonable and well-ground- ‘ed or the evil imminent and grave depends upon the ci- cumstances, including the age, sex, and condition of the person, Ifa contracts signed merely out of reverential for or the fear of displeasing a person to whom respect and obedience are due, the contract is valid because reverential fear by itself does not annul consent in the absence of actual threat (Sabalvaro vs, Erlanger and Galinger, 64 Phil. 588,), unless the fear so deprives one of reasonable inference that undue Influence has been exercised. (see Art. 1337.) ‘Threat to enforce just or legal claim, ‘The threat of a court action as a means to enforce a just ‘or legal claim is justified and does not viiate consent. It is a practice followed by creditors to demand payment of their accounts withthe threat that upon failure todoso, an action would be instituted in court, Such threat is proper within the realm ofthe law as a means to enforce collection. Such threat cannot constitute duress even if the claim proves unfounded so long as the creditor believes that ‘twas his right to do so. (E. Berg vs. NCBNY, 102 Phil. 09.) ‘Ate X67 ESSENTIAL REQUISITES OFCONTRACTS = EXAMPLES: () Dowes C P5000. IFD fails to pay is obligation, a threat by C that he would enforce collection through ‘court action doesnot vitiate consent. ‘But fC knows that Dis not obligated to him and D pays CP5,000 ora larger amount because of the threat, there fs Intimidation sufficient ta vitate consent, (2) X committed a violation of law. Y thresténs to report X to the police unless the latter gives him P5000. ‘The threat of Y amounts to intimidation because his claim isnot “jst or legal” ART, 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract. (1268) Violence of intimidation by a third person. Violence or intimidation may be employed by a third person who did not take part in the contract. However, to make the contract voidable or annullable, it is necessary that the violence or intimidation must be of the character required in Article 1336. ART. 1337, There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other re- lations between the parties, or the fact that the person alleged to have been unduly influ- fenced was suffering from mental weakness, (or was ignorant or in financial distress. (n)CONTRACTS (Meaning of undue influence. Undue influenceisinfluence of akind that so overpowers the mind of a party as to prevent him from acting ‘understandingly and voluntarily to do what he would have done if he had been left to exercise freely his own judgment ‘and discretion. ‘Theingluence must be undue orimproper (Art.1397.)to avoid a contract. Mere general or reasonable influence is not sufficient. If gained by kindness and affection or argument ‘and persuasion, the influence will not vtiate consent. (Tid; ‘Martinez vs. Hongkong and Shanghai Bank, 15 Phil. 252.) Circumstances to be considered. The following are examples of circumstances witich shall be considered to determine whether undue influence has been exercised (2) confidential, family, spiritual and other relations between the parties, @) mental weakness, @) ignorance, or (@) financial distress of the person alleged to have been unduly influenced. (Art. 1337; see Art. 1382.) EXAMPLE: X, a tenant, is in need of PI0,000 to pay his landlord ‘whois seeking to eect him for failure to pay the rents. Xtries to borrow from Y but the latter instead tells him to sel his ‘Pano for 10,000. X has nobody to turn to for assistance. EX does not want to sell he plano but he s compelled to sell it because of his Enancial condition, the sale may be avoided on the ground of undue influence, “Agreements between lender and borrower are closely farms length” (3 sats RSENTIALREQUESTES OF CONTRACTS = ART. 1338, There is fraud when, through Insidious words or machinations of one of the contracting parties, the other is induced to center into a contract which, without them, he would not have agreed to. (1269) ‘Meaning of causal fraud. Causal fraud is the fraud committed by one (1) party before or at the time of the celebration of the contract to secure the consent of the other. Itis the fraud used by a party to induce the other to enter into a contract without ‘which the latter would not have agreed to, ‘The fraud contemplated in this article is causal fraud and must be distinguished from the fraud dealt with in Article 1170. How causal fraud committe Causal fraud may be committed through insidious ‘words or machinations (Art, 1338.) or by concealment. (Art 139) “Insidious words or machinations” include any mis- representation in words or actions done with a fraudulent purpose: If the fraud did not have the effect of causal fraud, that is it did not by itself alone cause the other contracting, party to give his consent, it gives rise only to an action for damages. soe Art. 1344, par. 2.) Requisites of causal fraud. In order that fraud may annul consent, the following requisites must be present (1). There must be misrepresentation or concealment of a material fact with knowledge of its falsity (Arts. 1338, 1339.) (2) Temust be serious (Art. 1344);()_ It must have been employed by only one of the contracting parties. (Ibid) Fraud committed by a third pperson does not vitiate consent unless it was practiced in connivance with, or at least with the knowledge of, the favored contracting party (see Art. 1342.); (4). Temust be made in bad faith or with intent to de- ‘ceive (see Art. 1343.) the other contracting party who had no knowledge ofthe fraud; (6)_ It must have induced the consent of the other ‘contracting party (Art. 1338,);and (© Ie must be alleged and proved by clear and con- vincing evidence. The falsity of the representation is ordinarily proved from the representation itself and the circumstances under which it was made. EXAMPLES: (1). SofferedtoselltoBa ring, claiming that the stone ‘on the ring is diamond. $ knows that its net diamond but ‘ordinary glass. EB buys the ring relying on the truth of the represen- tation ofS, the sale may be annulled onthe ground of fraud. (2) Sold to Ba parcel of land representing thatthe same wae “absolutely fee of all ins and encumbrances” S {gave is consent onthe faith of B's representation. When the fale was repstered, i was found thet lis pendens notice was annotated on the tile of the land, ‘The concealment constitutes fraud such as justifies the avoidance of the sale, and enltlesB to damages. @)Ssold to Ba house and lot, misrepresenting that the place was easly accessible to means of public transpor- tation. The sale is voidable on the ground of fraud if B was Induced to give his consent because ofthe representation 1B purchased the property without any inducement from §, his mistaken belief that twas accesible does not vi- ‘Ae1899 ESSENTIAL REQUISITES OF CONTRACTS oa ‘inte consent because the error refers merely to an incidental quality or condition ofthe thing, (se Art 1331.) ART, 1339, Failure to disclose facts, when thore is a duty to roveal them, as whon the parties are bound by confidential relations, constitutes fraud. (n) Fraud by concealment. ‘A neplect of failure to communicate or disclose that which a party to a contrat knows and ought to commu- cate constitutes conceiment In tis case, concealment is equivalent to misrepresentaton or false representation. The injured party is entitled to rescind or annul the contract whether the failure to disclose the material facts {s intentional or unintentional as long as there isa duty to reveal them and the party is misled oF deceived in entering Jno the contract. If the failure i unintentional, the basis of the action for Annulment is not fraud but mistake or error (Art 1843) even if intentional but there is no duty to make the disclosure, the parties are bound by their contrat. EXAMPLES: (1) X-and ¥ are partners engaged in the realestate ‘business. Here, the parties are bound by confidential relations, X learned that C was interested in buying a certain parcel of land owned by the partnership even for a high price. Without informing Y,X was abl to make Y sell to him (60/his (1s) share inthe partnership. Then, X sold the land at abig prof. In this case, X is guilty of fraudulent concealment Decause he was under the duty to make disclosure of facts raving a bearing on the value of the interests of Y in the partnership which were not known to (see Art. 1806.) Ifthesalewasat theintiativeofY,andXunintentionally failed to inform Y of C's offer, the cause for annulment is mistake or error onthe past of ¥30 "THE LAW ON OBLIGATIONS AND ant conmacis 2) S sold toB stocks traded in the stock exchange at a certain price. § believed that te price of the stocks would igo down nd it did, The ale s Valid because $ was not ‘Bound to make diselooure of his reasons for his belie. ART. 1340, The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (n) Usual exaggerations in trade, It is the natural tendency for merchants and traders to resort to exaggerations in their attempt to make a sale ‘at the highest price possible. When the person. dealing. ‘vith them had an opportunity to know the facts, the usual exaggerations in trade aze not in themselves fraudulent ‘The law allows considerable latitude to seller’s statements or dealer's talk and experience teaches that itis exceedingly sky to accept itat its face value. Customers are expected te now how to take caze of their concerns and to rely on their own independent judgment. Any person who relies on said exaggerations does so at his own peril. (see Songeo vs. Sellnes, 37 Phil. 254.) Ineffect, the law does not consider such exaggerations, ‘even if known a5 false by the party making them, as amounting t0-fraud that will affect the validity of the Contract. To constitute fraud, the misrepresentation must be ff a fact, past or present, and not a mere expression of an ‘opinion. (infra). Dealer's alk or trader’s talk are representations which do rot appear on the face of the contract and these do not bind tither party. (Puyat vs. Arce Amusement Co,,72 Phil. 402.) EXAMPLES: [Expressions or advertisements like: ‘The cigaretc that will give you utmost smoking pleasure” “You ike, tikes you" ‘Asia _-BSSENTIALREQUISTESOF CONTRACTS 3s “The refreshment of friendship” “Do you want your child to get high grades? Then bu him fountain pen” ae * “Firt in quality” “The best inits lass? ART. 1341. 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. (n) Expression of opinion. ‘To constitute fraud, the misrepresentation must refer to facts, not opinions. Ordinarily, a mere expression of an opinion does not signify fraud. In order that it may amount to fraud, the following requisites must be present: ()_Temust be made by an expert; 2) The"other, contracting party has relied on the expert’ opinion; and @) The opinion tured out to be false or erroneous. EXAMPLE: X, a farmer, found a ring. He does not know anything about precious stones. He sells the ring to Y honestly, believing and telling ¥ that tis a diamond ring In this ease, there is no fraud even iit tumed out that the ring is not diamond because his statement is merely an expression ofan opinion. (ee Art. 1343) However, ifX is an expert on precious stones and he sells the ring to Y saying, “Tbelieve this is a diamond ving” and Y, knowing that X Is an expert, relies on his knowledge the contrat is voldable onthe ground of fraud. ‘Actually, X, eing an exper, s making a misrepresentaion ‘of fact and he cannot escape lability by expressing it in the form of an opinion.at THELAWON OBLIGATIONS AND anise ART. 1342. Misrepresentation by a third person does not vitite consent, unless such misrepresentation has created substantial mistake and the same is mutual, (n) Fraud by a third person. ‘A third person has no connection with a contrac. Consequently, misrepresentation by him does not vite consent. A party should not be made to suffer for the Jmprudence’of another in believing the fraud of a third person. The presumption is that both contacting parties reacting in good faith. However if the misrepresentation has created substantial mistake an the same is mutual, that, 4s it affects both parties, the contract may be annulled but pFincipally on the ground of mistake. If the misrepresentation has been employed by a third pesson in connivance with or atleast with knowledge of, the party benefited by the fraud, itis deemed to have been exercised by such party upon the other contracting party. (Gee Hill vs. Veloso, 31 Phil 60.) It should be remembered that force or intimidation employed by a thied person on one of the parties makes a contract voidable. (Art. 1336) The reason is because the consents vitiated jst the same. EXAMPLES: (1), B bought the land of $ for P2,000 per square meter. The reasonable price of lands in the same viinity {is P2500 per square meter bu $ sold it only for P2,000 per square meter Because C had deceived him regarding its ‘market value. In this case, the contact cannot be annulled unless it can be shown that Bwas a party tothe fraud. {@) _Bwants to buy a parcel ofland on which to build ‘house. § owns a land on which he wants to construct ‘commercial building. C tolls B and S that the ara where the Tad is located is a residential zone, B and S then enter into ‘Ava 10.184 ESSENTIAL REQUISITES OF CONTRACTS xs a contract of sale. It tens out thatthe area isa commercial ‘Under the facts, the sale may be annulled because of substantial mistake which is mutual, ART, 1343. Misropresentation made in {good faith is not fraudulent but may constitute error. (n) Effect of misrepresentation made in good faith. If the misrepresentatioh is not intentional but made in good faith (the person making the false statement believed ittobe true), itis considered a mere mistake or error. Fraud is definitely more serious than mistake; hence, the party ‘guilty of fraud is subject to greater liability EXAMPLE 5 sald a rng to B honestly belleved that what he sold to B wes dlsmond cing I tued out halt ws not Ssmond ing The mlrpreenatin of Bia mere mistake andthe contracts voidable on that ground and not on the ground of fraud, ART. 1344. In order that fraud may make @ contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing itto pay damages. (1270) ‘Two kinds of fraud in the making of contract. Article 1344 distinguishes two kirids of (civil fraud in the making of a contract:CONTRACTS (1) the amuse fru, which is a ground for the annul- ‘ment of a contract (par. 1), although it may also give rise to an action for damages; and (2) the incidental fraud, which only renders the party ‘who employs it liable for damages because the fraud was not the principal inducement that led the other to give his consent. (par. 2.) This kind of fraud must not be confused with the fraud in Articles 1170 and 1171 which refers to that occurring in the performance of a contract; without Affecting its validity: Both kinds of incidental fraud do not vitiate consent, Requisites of causal fraud. In order that causal fraud may vitiate consent under the above article, the following are the requisites: (1) Itshould be serious; @) It should not have been employed by both contracting parties, ie, they should not bein pari delcto (ee Atts. 1411, 1414); and @)_ It should not have been known by the other contracting party. ‘The seriousness of the fraud is a question of fact depending on the circumstances. It does not mean its influence on the other contracting party, butts importance. ‘The requirement that fraud should be serious excludes slight and usual deviations from the truth. Such deviations are frequently present, unfortunately, in transactions, especially those taking place in fairs and markets. (see 8 “Manesa 679; see Art, 1341.) When fraud is employed by both parties, nether may ask for annulment as the fraud of one neutralizes that of the ‘other. The contract is therefore, considered valid. The rule is in accordance with the principle that “he who comes to ‘court, must come with clean hands.” (see Valdez ws. Sibal, 46 Phil, 930,) ‘Are S161046 ESSENTIAL REQUISITES OF CONTRACTS 20 EXAMPLE S sold to B a parce of land. § told B thet there were 3,000 coconut teas on the land although he knew that there ‘were only 1,000. B bought the land relying on the statement ofS. ‘The fraud here is serious and B can ask fr the annul- ment of the contract. f there were only a difference of say, 50 coconut tres, the fraud may not be serious or important enough to make the contract voidable, But B has a ight to