Contracts

1. What are the different phases in the life of a contract? Explain

The life of a contract has three phases or stages:
a. Generation comprehends the preliminary of preparation, conception or
generation, which is the period of negotiation and bargaining, ending at
the moment of agreement of the parties;
b. Perfection or birth of the contract, which is the moment when the parties
come to agree on the terms of the contract;
c. Consummation comprehends the consummation or death, which is the
fulfilment or performance of the terms agreed upon in the contract.
2. What are the four most essential characteristics of a contract? Explain
a. Obligatory force or character of contracts (obligatoriedad del contrato)
Refers to the rule so fundamental in all contracts, that once the contract is
perfected, it shall be of obligatory force upon both of the contracting
parties. Consequently, such contracting parties are bound, not only to the
fulfilment of what has been expressly stipulated, but also to all of the
consequences thereof. (Art. 1159, 1308, 1315, 1356)
b. Autonomy of contracts
The contracting parties may establish such agreements as they may deem
convenient, provided they are not contrary to law, morals, food customs,
public order, or public policy. Guaranteed by the Bill of Rights (Art. 1306)
c. Mutuality of contracts, or what amounts to the same thing
This principle refers to the position of essential equality that is occupied
by both contracting parties in relation to the contract. The contract must
be binding upon both of the parties. Consequently, its validity or
compliance cannot be left to the will of one of them. (Art. 1308
d. Relativity of contracts (relatividad del contrato)
Contracts take effect only between the parties, their assigns and heirs.
Consequently, they cannot, as a general rule, produce any effect upon
third persons, in conformity with the principle of res inter alios acta aliis
negue nocet prodest.
3. What are the limitations upon the right of the contracting parties to establish
such stipulation, clauses, terms and conditions as they may deem
convenient?
Art. 1306 The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy

4. What are the different kinds of innominate contract and how are they
regulated?
Innominate contracts are those which lack individuality and are not
regulated by special provisions of law. Four kinds:
a. Do ut des I give that you give
b. Do ut facias I give that you do
c. Facio ut des I do that you give
d. Facio ut facias I do that you do
5. What is meant by mutuality of contracts?
One of the most fundamental characteristics of contracts is the essential
equality of the contracting parties or what is sometimes called the mutuality
of contracts. The law expressly or impliedly recognizes the following
consequences:
a. The validity or fulfilment of a contract cannot be left to the will of one
of the contracting parties.
b. The validity or fulfilment may be left to the will of a third person
c. The validity or fulfilment can be left to chance.
Art. 1308 The contracts must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them
Art. 1309 The determination of the performance may be left to a third
person, whose decision shall not be binding until it has been made known to
both contracting parties.
6. What is meant by the relativity of contracts?
It is a general principle of the civil law that a contract can only bind the
parties who had entered into it or their successors who have assumed their
personality or their juridical positions, and that, as a consequence, such
contract can neither favour nor prejudice a third person.
Art. 1311 Contracts take effect only between the parties, their assigns and
hers, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
If a contract should contain some stipulation in favour of a third
person, he may demand its fulfilment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit or
interest of a person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favour upon a third person.
7. What are the different exceptional where a contract may produce effect
either directly or indirectly on third person?

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

b. Where the third person comes into possession of the object of a contract
creating a real right;
c. Where the contract is entered into in order to defraud a third person; and
d. Where the third person induces a contracting party to violate his contract.
8. What is meant by stipulation pour atrui?
a. Beneficial stipulation; can be defined as a stipulation in a contract, clearly
and deliberately conferred by the contracting parties as a favour upon a
third person, who must have accepted it before it revoked.
b. A stipulation in favour of a third person conferring a clear and deliberate
favour upon him, and which stipulation is merely a part of a contract
entered into by the parties, neither of whom acted as agent of the third
person, and such third person may demand its fulfilment provided that he
communicates his acceptance to the obligor before it could be revoked.
9. What requisites may concur for such stipulation to be enforced?
a. That there must be a stipulation in favour of a third person;
b. The stipulation must be a part, not the whole of the contract;
c. The contracting parties must have clearly and deliberately conferred a
favour upon a third person, not a mere incidental benefit or interest;
d. The third person must have communicated his acceptance to the obligor
before its revocation; and
e. Neither of the contracting parties bears the legal representative or
authorization of the third party.
10.How are contracts perfected?
Art. 1315 Contracts are perfected by mere consent, and from that moment
the parties 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.

The perfection of a contract refers to that moment in the life of a

contract when there is finally a concurrence of the wills of the
contracting parties with respect to the object and the cause of the
contract.
In the words of Manresa: It signifies the birth or appearance of the
contract as an obligatory tie, resulting from the concurrence of the
wills of the contracting parties.

11.Distinguish an ordinary contract from:

a. Contract of marriage
In an ordinary contract, the parties may be two or more persons of
the same or of different sexes, while in a marriage contract, it is
necessary that the parties must be one man and one woman.

b.
c.
d.
e.

In ordinary contract, the nature, consequences and incidents of the

contract are governed primarily by the agreement of the parties,
while in marriage, the nature, consequences and incidents are
governed by law.
Ordinary contracts can be terminated or dissolved by the mere
agreement of the parties, while marriage cannot.
In ordinary contract, in case of breach, the usual remedy is for the
injured party to institute an action against the other party for
damages, while in marriage, in case of breach, the usual remedy is
for the injured party to institute a civil action or criminal action
against the other party.
An obligation
An imperfect promise
A pact
A stipulation

12.What is meant by relativity of contracts?

It is a general principle of the civil law that a contract can only bind the
parties who had entered into it or their successors who have assumed their
personality or their juridical positions, and that, as a consequence, such
contract can neither favour nor prejudice a third person.
Art. 1311 Contracts take effect only between the parties, their assigns and
hers, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
If a contract should contain some stipulation in favour of a third
person, he may demand its fulfilment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit or
interest of a person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favour upon a third person.
13.What is meant by consent and what are its requisites?
Art. 1319 Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Requisites:
a. The consent must be manifested by the concurrence of the offer and the
acceptance (Art. 1319 1326)
b. The contracting parties must possess the necessary legal capacity (Art.
1327)

c. The consent must be intelligent, free, spontaneous, and real (Art. 1330
1346)
14.When are contracts perfected?
In general, contracts are perfected from the moment that there is a
manifestation of the concurrence between the offer and the acceptance with
respect to the object and the cause which shall constitute the contract (Art.
1319, par. 1)
15.What is a compromise agreement?
16.What is its effect upon the parties?
17.When does a compromise agreement become binding between the parties?
18.What is a contract of adhesion?
A contract of adhesion is defined as one in which one of the parties imposes a
readymade form of contract, which the other party may accept or reject, but
which the latter cannot modify.
19.Are contracts of adhesion void or prohibited? Explain
Contracts of adhesion are not invalid per se; they are not entirely prohibited.
The one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent.
20.Who are prohibited from entering into a contract?
Art. 1327 The following cannot give consent to a contract:
a. Unemancipated minors;
b. Insane or demented persons, and deaf-mutes who do not know how to
write.
21.What are the vices of consent?
Art. 1330 A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.
According to Castan, the vices of consent may be divided into two
distinct groups:
a. Vices of the will (vicios de la formacion de la voluntad)
- Comprehends mistake, violence, intimidation, undue
influence, and fraud
b. Vices of declaration (vicios de la declaracion)
- Comprehends all forms of simulated contracts
22.Differentiate mistake of fact from mistake of law
a. Mistake of fact when one or both of the contracting parties believe that a
fact exists when in reality it does not, or that such fact does not exist
when in reality it does.

b. Mistake of law when one or both of the contracting parties arrive at an

erroneous conclusion regarding the interpretation of a question of law or
the legal effects of a certain act or transaction.
It is only a mistake of fact which will vitiate consent thus
rendering the contract voidable; a mistake of law, on the
other hand, does not render the contract voidable because
of the well-known principle that ignorance of the law
excuses no one from compliance therewith.
23.What mistakes of fact will render a contract voidable?
a. Mistake as to object (error in re)
This is the mistake which is referred to in the first par. Of Art. 1331, it may
be subdivided into the following:
Mistake as to the identity of the thing (error in corpore)
Mistake as to the substance of the thing (error in substantia)
Mistake as to the conditions of the thing
Mistake as to the quatity of the thing (error in quantitate)
b. Mistake as to person (error in persona):
This kind of mistake or error may refer either to the name or to the
identity or to the qualification of a person.
Requisites:
The mistake must be either with regard to the identity or with
regard to the qualification of one of the contracting parties; and
Such identity or qualification must have been the principal
consideration for the celebration of the contract. (ex. Arising from
remuneratory contracts, partnership, agency, deposit,
commodatum, and lease of services)
24.When does mistake of law vitiate consent?
A mistake of law does not render the contract voidable because of the wellknown principle that ignorance of the law excuses no one from compliance
therewith.
25.What is meant by violence and intimidation?
Art. 1335 There is violence when in order to wrest consent, serious or
irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and grave evil upon his
person or property, or upon to the person or property of his spouse,
descendants or ascendants, to give his consent.
26.What are the requisites of violence which will render a contract voidable?
a. The force employed to wrest consent must be serious or irresistible;

b. It must be the determining cause or the party upon whom it is employed

in entering into the contract.
27.What are the requisites of intimidation which will render a contract voidable?
a. One of the contracting parties is compelled to give his consent by a
reasonable and well-grounded fear of an evil;
b. The evil must be imminent and grave;
c. The evil must be unjust; and
d. The evil must be the determining cause for the party upon whom it is
employed in entering into the contract.
28.Distinguish between violence and intimidation.
While violence is external, intimidation is internal; while the first prevents the
expression of the will substituting it with a material act dictated by another,
the second influences the operation of the will, inhibiting it in such a way that
the expression thereof is apparently that of a person who has freely given his
consent. Violence is physical compulsion, while intimidation is a moral
compulsion
29.What is meant by undue influence?
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.
30.What is meant by fraud as vice of consent?
Art. 1338 There is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to.
31.What are the requirements of fraud to vitiate consent?
a. Fraud or insidious words or machinations must have been employed by
one of the contracting parties;
b. The fraud or insidious words or machinations must have been serious;
c. The fraud or insidious words or machinations must have induced the other
party to enter into the contract; and
d. The fraud should not have been employed by both of the contracting
parties or by third persons.
32.What is meant by object of contract?
GENERAL RULE: all things or services may be the object of contracts.
Art. 1347, par. 1 All things which are not outside the commerce of men,
including future things, may be the object of a contract. All rights which are
not intransmissible may also be the object of contracts.
33.What requisites must concur in order that a thing, right, or service maybe the
object of contract?
a. The object should be within the commerce of men
b. The object should be real and possible

c. The object should be licit

d. The object should be determinate
34.What things, rights or services cannot be the object of contract?
a. Those things which are such by their very nature, such as common things
like the air or the sea, sacred things, res nullius, and property belonging to
the public domain;
b. Those which are made such by special prohibitions established by law
c. Those rights which are intransmissible
35.What are the exceptions to the rule that no person can enter into a contract
with regard to future inheritance?
Art. 1347, par. 2 No contract may be entered into upon future inheritance
except authorized by law.
The prohibition enunciated in the 2nd paragraph of Art. 1347, however, is not
absolute in character. There are two exceptions. They are:
a. Art. 130, which allows the future spouses to give or donate to each other
in their marriage settlement their future property to take effect upon the
death of the donor and to the extend laid down by the provisions of the
Civil Code relating to testamentary succession; and
b. Art. 1080, which allows a person to make a partition of his estate by an
act inter vivos, provided that the legitimate of compulsory heirs is not
prejudiced.
36.Does failure to disclose facts to the other party constitute fraud? what is its
effect?
Art. 1339 Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud.
**Note: However, the innocent nondisclosure of a fact, when there is no duty
to reveal it, does not constitute fraud; consequently, such nondisclosure does
not affect the formation of the contract or operate to discharge the parties
from their agreement.
37.What is the effect of an exaggeration in trade to a contract?
Art. 1340 The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
38.What is the effect to a contract of an expression of an opinion? Explain.
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 formers special
knowledge.
39.What is meant by simulation of contracts and what are its effects?

Art. 1345 Simulation of a contract may be absolute or relative. The former

takes place when the parties do not intend to be bound at all; the latter,
when the parties conceal their true agreement.
Art. 1346 An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for
any purpose contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement.
EFFECT: an absolutely simulated contract is void, while a relatively simulated
contract binds the parties and the parties may recover from each other what
they may have given under the contract, while a relatively simulated contract
is binding and enforceable between the parties and their successors in
interest to their real agreement, when it does not prejudice a third person
and is not intended for any purpose contrary to law, morals, food customs,
public order or public policy.
40.What is meant by cause of contracts?
Art. 1350 In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the other;
in remuneratory ones, the service or benefit which is remunerated; and in
contracts of pure beneficence, the mere liberality of the benefactor.

Cause is the essential reason which moves the contracting parties to

enter into the contract. It is the immediate, direct or most proximate
reason which explains and justifies the creation of an obligation
through the will of the contracting parties.

41.Distinguish cause from consideration.

Cause is merely the civil law term and consideration is the common law term.
The former, civil law jurisdictions is broader in scope than consideration in
Anglo American jurisdictions.
42.What are the instances when motive may be regarded as cause?
The motive may be regarded as cause when the contract is conditioned upon
the attainment of the motive of either contracting party. Motive becomes
cause when it predetermines the purpose of the contract.
43.What requisites must concur in order that there will be a sufficient cause
upon which a contract may be founded?
a. The cause should be in existence at the time of the celebration of the
contract;
b. The cause should be licit and lawful; and
c. The cause should be true.
44.What is the effect of lack of cause in a contract?

Art. 1352 Contracts without cause, or with unlawful cause, produce no

effect whatever. The cause is unlawful if it is contrary to law, morals, good
customs, public order or public policy.
This precept is confirmed by Art. 1409 which declared as inexistent
those contracts which are absolutely simulated or fictitious as well as
those whose cause did not exist at the time of the transaction.
45.What is the effect of unlawful cause?
According to Art. 1352, the cause is unlawful when it is contrary to law,
morals, good customs, public orders or public policy. According to the same
article, if a contract has an unlawful cause, it shall not produce any effect
whatsoever, thus, it is void from the very beginning.
46.What is the effect of false cause?
Art. 1353 The statement of a false cause in contracts shall render them
void, I it should not be proved that they were founded upon another cause
which is true and lawful.
47.In general what should be the form of contract in order that it will be of
obligatory force?
Art. 1356 Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity are
present.
**NOTE: Requsites of contract:
a. Consent of the contracting parties
b. Object certain which is the subject matter of the contract
c. Cause of the obligation which is established
48.What are the exceptions?
Art. 1356 When the law requires that a contract be in some form in order
that it may be valid or enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable.
49.What are the different formalities required by law for certain contracts?
50.What are the formalities which are merely for the convenience of the parties?
51.What are the formalities which are necessary for the validity of contracts?
52.What is the doctrine of reformation of instruments under the Civil Code?
Art.1359 When, there having been a meeting of the minds of the parties to
a contract, their true intention is not expressed in the instrument purporting
to embody the agreement, by reason of mistake, fraud, inequitable conduct
or accident, one of the parties may ask for the reformation o the instrument
to the end that such true intention may be expressed.

Rationale: the doctrine of reformation of instruments is based on justice and

equity. The equity orders the reformation of an instrument in order that the
true intention of the contracting parties may be expressed.

53.What requisites must concur in order that an instrument maybe reformed?

a. There must be a meeting of the minds of the contracting parties;
b. Their true intention is not expressed in the instrument; and
c. Such failure to express their true intention is due to mistake, fraud,
inequitable conduct or accident.
54.What are the instruments which can be reformed?
Art. 1361 When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be
reformed.
Art. 1362 If one party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show their true
intention, the former may ask for the reformation of the instrument.
Art. 1363 When one party was mistaken and the other knew or believed
that the instrument did not state their real agreement, but concealed that
fact from the former, the instrument may be reformed.
Art. 1364 When through the ignorance, lack of skill, negligence or bad faith
on the part of the person drafting the instrument or of the clerk or typist, the
instrument does not express the true intention of the parties, the courts may
order that the instrument be reformed.
Art. 1365 If two parties agree upon the mortgage or pledge or real or
personal property, but the instrument states that the property is sold
absolutely or with a right of repurchase, reformation of the instrument is
proper.
55.What are the instruments which cannot be reformed?
Art. 1366 There shall be no reformation in the following cases:
a. Simple donations inter vivos wherein no condition is imposed;
b. Wills;
c. When the real agreement is void.
56.What is the cardinal rule in the interpretation of contracts?
Art. 1370 If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall
control.

If the words appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former.
57.Where shall an action of instruments be filed? What kind of action must be
filed?
58.What are the four defective contracts?
a. Rescissible contracts;
b. Voidable contracts;
c. Unenforceable contracts; and
d. Void or inexistent contracts.
59.Prepare a table for the special features or characteristics of the defective
contracts.
60.What is a natural obligation? Explain its concept
61.Distinguish natural obligation from:
a. Civil obligation
b. Moral obligation
62.What are the reasons for regulation of natural obligation?
63.What is estoppel?
Art. 1431 Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon.

A condition or state by virtue of which an admission or representation

is rendered conclusive upon the person making it and cannot be
denied or disproved as against the person relying thereon.

64.Define estoppel:
a. In pais
Estoppel in pais or by conduct is that which arises when one by his acts,
representations, or admissions, or by his silence when he ought to speak
out intentionally or through culpable negligence, induces another to
believe certain facts to exist and such other rightfully relies and acts on
such belief, as a consequence of which he would be prejudiced if the
former is permitted to deny the existence of such facts.
b. By silence
Estoppel by silence or inaction refers to a type of estoppel in pais which
arises when a party, who has a right and opportunity to speak or act as
well as a duty to do so under the circumstances, intentionally or through
culpable negligence, induces another to believe certain facts to exist and
such other relies and acts on such belief, as a consequence of which he
would be prejudiced if the former is permitted to deny the existence of
such facts.

c. By acceptance of benefits
d. By deed or by record
Strictly speaking, estoppel by deed and estoppel by record are two distinct
types of technical estoppel. Thus, estoppel by deed is defined as a type of
technical estoppel by virtue of which a party to a deed and his privies are
precluded from asserting as against the other party and his privies any
right or title in derogation of the deed, or from denying any material fact
asserted therin. On the other hand, estoppel by record is defined as a type
or technical estoppel by virtue of which a party and his privies are
precluded from denying the truth of matters set forth in a record whether
judicial or legislative.
e. By judgment
Estoppel by judgment refers to a type of estoppel by virtue of which the
party to a case is precluded from denying the facts adjudicated by a court
of competent jurisdiction. Actually, estoppel by judgment is a type of
estoppel by record. It may be defined as the preclusion of a party to a
case from denying the facts adjudicated by a court of competent
jurisdiction.
f.

By laches
Laches, in a general sense, is failure or neglect, for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence,
could or should have been done earlier; it is negligence or omission to
assert a right within a reasonable time, warranting a presumption that the
party entitled to assert it. It is therefore a type of equitable estoppel which
arises when a party, knowing his rights as against another, takes no step
or delays in enforcing them until the condition of the latter, who has no
knowledge or notice that the former would assert such rights, has become
so changed that he cannot without injury or prejudice, be restored to his
former state.

65.What are the essential elements of estoppel by laches?

a. Conduct on the part of the defendant, or of one under whom he claims,
giving rise to the situation of which complaint is made and for which the
complaint seeks a remedy;
b. Delay in asserting the complainants rights, the complaint having had
knowledge or notice, of the defendants conduct and having been afforded
an opportunity to institute a suit;
c. Lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit; and
d. Injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held to be barred.

66.Distinguish laches from prescription.

a. Laches is concerned with the effect of delay; prescription is concerned
with the fact of delay
b. Laches is principally a question of inequity of permitting a claim to be
enforced, this inequity being founded on some changes in the condition of
the property or the relation of the parties; prescription is a question or
matter of time;
c. Laches is not statutory, whereas prescription is statutory.
d. Laches applies equity, whereas prescription applies at law.
e. Laches is not based on fixed time, whereas prescription is based on fixed
time.