Contracts

Concept
A contract is a meeting of minds between two persons whereby one binds himself, with respect
to the other, to give something or to render some service.
Classification
Consensual contract
Real contract
Solemn contract
real
onerous
preparatory
commutative
aleatory

perfected by mere consent of the parties

Those that are perfected by the delivery of the object of the contract deposit,
pledge and commodatum
This contract requires compliance with certain formalities prescribed by the law
as an essential element necessary for its perfection, e.g., donation of real
property which must be in a public instrument.
subject matter refers to immovable properties
those where there is an exchange of valuable consideration such as sale or
barter
one which serves as a means by which other contracts may be entered into such
as agency and partnership
where equivalent values are given by both parties, such as sale, barter and
lease.
where fulfillment of the contract is dependent upon chance, such as insurance.

Stages in the life of a contract

a. Preparation or negotiation b. Perfection or birth c Consummation or termination
Elements
Essential Elements

Natural Elements
Accidental Elements

without them a contract cannot exist

because these are indispensable
requirements

Common - refer to those present in all

contracts namely consent, object and
cause.
Special - refer to those which are
required by the other kind of contracts
to be present in them.

these are found in certain contracts

and presumed to exist, unless
excluded by stipulation of the parties.
not considered agreed by the parties
unless stipulated.

Principles or characteristics of contract MARCO

Autonomy

Mutuality

Relativity

Consensuality

Obligatoriness

The contracting
parties may
establish such
stipulations,
clauses, terms
and conditions
as they may
deem
convenient,
provided they are
not contrary to
the law, morals,
good customs,
public order or
public policy.

The contract
must bind both
the contracting
parties, its
validity or
compliance
cannot be left to
the will of one of
them.
After a party has
entered into a
contract he will
not be permitted
to renounce it
unilaterally.

Contracts take effect

only between the
parties, their assigns
and heirs, except
obligations are not
transmissible by law,
by stipulation or by
nature.

Contracts are
perfected by mere
giving of consent

Contracting
parties must
comply with the
terms and
conditions of the
contract

Contracts may be
enforced by or against
a third person
1.stipulation pour autrui
or where there is a
stipulation that clearly
confers a favor upon a
third person.
2.where a third person
induces another to
violate his contract in
which case such third
person may be held
liable for damages by
the other contracting
party

Exceptions
real such as
deposit, pledge
and commodatum
such as deposit,
pledge and
commodatum
solemn

3.in contracts intended

to defraud creditors the
law gives them
protection. This is true if
the third person acted in
bad faith.
4.In contracts creating
real rights, third persons
who come into
possession of the object
of the contract are
bound thereby, subject
to the provisions of the
Mortgage Law and the
Law Registration laws.

Consent
It is the meeting of minds between the parties on the subject matter and the cause
Requisites
It is intelligent, i.e., there is capacity to act.
It is free and voluntary where there is no vitiation of consent by reason of violence or intimidation.
It is conscious or spontaneous where there is no vitiation of consent by
reason of mistake, undue influence, or fraud.
Elements of consent
Offer
proposal made by one party to another to enter
into a contract.

Acceptance
the manifestation by the offeree of his consent to the
terms of the offer to
create the meeting of minds.

Requisites
a.definite and certain statement upon which
the party making the offer agrees to be
boundb.made by the offeror with interest to be
bound if the offer is accepted by the offeree
c.it must be complete
d.it must be addressed to a definite offeree or
to the world at large
e. the offerer may fix the time,place and
manner of acceptance all of which must be
complied with
Option contract one whereby the offeror gives
the offeree a certain period within which to buy
or not to buy a certain object for a fixed price. It
may or may not be for a valuable consideration
Option Money
Option money refers to the money paid or
promised to be paid in
consideration for the giving of the option.

Requisites:
a.unqualified and unconditional
b.it must be identical in all respects with the offer
c.it must be communicated to the offeror and learned
by him

Acceptance made by letter or telegram does not bind

the offeror except from the time it comes to his
knowledge.
In cognition theory, the contract is perfected contract
until it has come to the knowledge of the offeror

Vices of consent
consists in circumstances affecting adversely the determination or decision of a party to enter into a
contract subject to annulment
It refers to the causes that vitiate consent or render it defective so as to make the contract voidable.

Vices of consent
Cognition IFE
incapacity
error
fraud

Volition VDU
duress or intimidation,
violence
undue influence

incapacity
Unemancipated minors
1. without the consent of his parents
or guardian is voidable.
2.Where the contract is entered into by a
minor who misrepresents his age is valid ,
applying the doctrine of estoppel.
3.Where the contract involves the sale and
delivery of necessities to the minor is valid
4.A minor may contract for life, health and
accident insurance, provided the insurance is
taken on his life and the beneficiary appointed
are the minors parents, spouse, child or
siblings.
5.A contract is valid where a minor voluntarily
pays a sum of money or delivers a fungible
thing in fulfillment of his obligation thereunder
and the obligee has spent or consumed it in
good faith.

duress or intimidation,
threat should be serious or irresistible so as to compel
a party to give consent

Insane during a lucid interval are valid.

Deaf-mutes who do not know to write.

Drunkenness and Hypnotic Spell and drugs

Error
mistake of law is that which arises from an
ignorance of some provisions of the law
As a rule, mistake of law does not invalidate
consent because "ignorance of the law
excuses no one from compliance therewith."
Cases when a mistake of law vitiates
consent
The error must be mutual.
It must be to the legal effect of the
agreement.
It must frustrate the real purpose of the
parties.
Causal fraud
Consists of insidious words or machinations
on the part of one of the contracting parties
whereby the other is induced to execute a
contract without which he would not have

1.create a reasonable and well grounded fear

2.evil must be imminent and grave
3.evil must be upon the person or property or that of
his spouse, descendants or ascendants
4.it is the reason why the party enters into a contract.
A threat to enforce one's claim thru competent
authority, if the claim is just and legal does not vitiate
consent

Reverential fear
the fear of displeasing a person to whom respect and
obedience are due is not considered as volition of
consent unless because of the fear so deprives one of
reasonable freedom.
Violence
There is violence when in order to wrest consent,
serious or irresistible force is employed.
violence requires the employment of physical force
which is serious or irresistible.
refers to the influence of a kind that so overpowers the
mind of the party as to destroy his free will and make
him express the will of another
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.
Error
mistake of fact is false notion of a thing or a fact
material to the contract or one or both parties believe
that a fact exists when in reality it does not.
Kinds of mistake of fact
mistake as to object
mistake as to identity
mistake as to condition and quality
Mistake of Fact Which does not Vitiate Consent
Error as regards the incidents of a thing or accidental
qualities
Mistake as to quantity or amount
Error as regards to the motives of the contract
Mistake as regards the identity or qualifications of a
party
The exception is that if these have been the principal
cause of the contract.
Fraud by Concealment
A neglect or failure to communicate that which a party
to a contract knows and ought to communicate
constitutes concealment. In this case, concealment is
equivalent to misinterpretation.

agreed. Also known dolo Causante it is

committed before perfection or at the time of
perfection It gives the party the right is to ask
for annulment of contract.
1.there must be misrepresentation or
concealment
2.it must be serious
3.it must be employed by only one of the
contracting parties
4.it must be made in bad faith or with
deliberate intent to deceive.
5.it must have induced the consent of the
other contracting party
6.it must be alleged and proved by clear and
convincing evidence.
7.the party must not be in pari-delicto or that
it should not have been employed by both
contracting parties.
8. the other party relied on this untrue
statement

Dealers talk
The usual exaggerations in trade, when the other party
had an opportunity to know the facts, are not in
themselves fraudulent.
Expression of Opinion
A mere expression of opinion does not signify fraud,
unless made by an expert and the other party has
relied on the former's special knowledge.

Object of a Contract
The object is the
subject matter of the
contract

Things
Licit
It must not be
impossible, legally or
physically.
It must be in
existence or
capable of coming
into existence.
It must be
determinate or
determinable without
the need of a new
contract between the
parties.
Transmissible
sale of future things
(emptio rei
speratae) is allowed
provided it comes
into existence
otherwise it will not
be effective
In sale of Hope
itself, the hope or
expectancy already
exists. This is called
sale of hope (emptio
spei). However,
sale of vain hope or
expectancy is void.

Services
The service must be within
the commerce of men.
It must not be impossible,
physically or legally.
It must be determinate or
capable of being made
determinate.

Rights
As a general rule, all
rights may be the object
of a contract. The
exceptions are when
they are transmissible by
their nature, or by
stipulation, or by
provision of law.

Cause of contract
the essential
reason which
impels the
contracting
parties to enter
into the contract.

Requisites of
cause
It must exist. at
the time the
contract is
entered into.
It must be real,
that is, true.
It must be
lawful.

Motive

Effects

Effects

immediate or
direct reason
motive may be
unknown.
The illegality of
the cause
affects the
validity of a
contract while
the illegality of

Absence of
Cause
there is a total
lack of any valid
consideration for
the contract.
produce no
legal effect
whatever
Falsity of cause

Illegality of Cause
contracts with unlawful
cause are also null and
void. Inadequacy of
Cause
inadequacy of cause
shall not invalidate a
contract, unless there
has been fraud,
mistake or undue

one's motives
does not
render the
contract void.

Form of Contract
It is the manner in
which a contract is
executed or
manifested
It may be oral, or in
writing, or partly oral
and partly in writing.
If it in writing, it may
be in public or a
private instrument.

if it is fictitious or
simulated. it is
considered only
as a voidable
contract if it can
be proved that
there is another
cause which is
true and lawful,
the contract is
valid.

influence.

Form for validity

Form for Enforceability

of Contract

Form for convenience

donation of
personal property
the value of which
exceeds P5,000.00
the donation and
acceptance must be
in writing.
sale of land through
agent the authority of
the agent must be in
writing; otherwise, the
sale is void.
stipulation to pay
interest ; otherwise,
no interest is due.
contract of
partnership
immovable property
contributed.
Donation of real
property must be in
a public instrument,
otherwise, void.

In the cases of contracts

by the Statute of Frauds,
the law requires that they
be in writing subscribed by
the party charged or by his
agent. If the contract is not
in writing, the contract is
valid (assuming all the
essential elements are
present) but it cannot be
proved and, therefore, it
cannot be enforced unless
it is ratified.

if a certain form is
required for the
convenience of the
parties in order that the
contract may be
registered in the proper
registry to make effective
as against third persons
the contracting parties
may compel each other
to observe that form
once the contract has
been perfected.

Simulation of a contract
is the act of deliberately deceiving others, by feigning or pretending by agreement, the appearance of a
contract which is either non-existent or concealed.
Kinds of Simulation
Absolute simulation
Relative simulation
contract does not really exist and the parties do not
contract entered into by the parties is different from
intend to be bound at all, therefore, they are
their true agreement. The parties are bound by
inexistent and void.
their real agreement
Reformation
Concept
Reformation of that remedy by means of which a written instrument is amended or rectified so as to
express or conform to the real agreement or intention of the parties when by reason or mistake, fraud,
inequitable conduct, or accident, the instrument fails to express such agreement or intention.
Requisites of Reformation
In order that reformation may be availed of as a remedy, the following requisites must be
present:
There is meeting of the minds of the parties in the contract;
The written instrument does not express the true agreement or intention of the parties;
The failure to express the true intention is due to mistake, fraud, inequitable conduct or
accident;
The facts upon which relief by way of reformation of the instrument is sought are put in
issue by the pleadings; and
There is clear and convincing evidence (which is more that mere preponderance of
evidence) of the mistake, fraud, inequitable conduct, or accident.

If mistake, fraud, inequitable conduct or accident has prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but annulment of the contract.
Reformation Distinguished from Annulment
In reformation, there has been a meeting of the minds of the parties; hence, a contract exists but the
written instrument purporting to embody the contract does not express the true intention of the parties by
reason of mistake, fraud, inequitable conduct, or accident.
In annulment, there has been no meeting of the minds, the consent of one of the contracting parties being
vitiated by mistake, etc.
Cases When Reformation is Not Allowed
When an instrument may be reformed
Simple donation inter vivos wherein no condition is
imposed;
Wills
When the real agreement is void. When one of the
parties has brought an action to enforce the
instrument, he cannot subsequently ask for its
reformation.

1. when a mutual mistake of the parties causes the

failure of the instrument to disclose their
agreement
2. when one party was mistaken and the other
acted fraudulently or inequitably in such
a way that the instrument does not
show their true intention
3.when a party was mistaken and the other knew or
believed that the instrument did not
state their real intention
4.when through the ignorance ,lack of skill,
negligence or bad faith on the part of
the person drafting the instrument the
instrument does not express the
intention of the parties
5.if two parties agree upon the mortgage or pledge
of real or personal property but the instrument
states that the property is sold absolutely or with
right of repurchase