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(General principles and Essential elements of a contract)

1. Contract

Contract is the meeting of the minds between two persons whereby one binds himself with
respect to the other to give something or to render some service.

2. Stages in the life of contract

1. Preparation or conception - bargaining point

2. Perfection or birth meeting of the minds regarding the subject matter and the cause
of the contract
3. Consummation or termination when the parties have performed their respective

3. Characteristics of contracts

1. Autonomy or liberty of contracts;

2. Obligatory force of contracts;
3. Mutuality of contracts;
4. Consensually of contracts;
5. Relativity of contracts

a. Parties bound by the contract (Principle of relativity)

Contracts take effect only between the parties, their assigns and heirs except in
cases where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law.

If the contract should contain some stipulation in favor of a third person, he may
demand its fulfillment 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
favor upon a third person. (Stipulation pours autrul)

b. Exceptions to the rule of relativity

1. Obligations arising from contract which are not transmissible by their nature,
stipulation or provision of law.
2. Stipulation pour autrui
3. When a third person induces another to violate his contract.
4. Right of a creditor to sue on a contract entered into by his debtor.

4. How contracts are perfected

1. If consensual by mere consent (contract of sale)
2. If real by delivery (contract of pledge)
3. If formal special form is required for its perfection (donation of real property)

Consent is manifested by the meeting of the offer and acceptance upon the thing and the
cause which are to constitute a contract.

Requisites of a valid offer:

1. Certain or definite;
2. Made with intent to be bound of the same is accepted.

Requisites of valid acceptance:

1. Must be absolute and unqualified;

2. Must be known to the offeror.

Acceptance thru correspondence acceptance binds the offeror from the time it came to
his knowledge.

Offer and acceptance thru agent the principal is bound from the time the acceptance is
communicated to the agent.

Causes that render the offer ineffective

1. Death, civil interdiction, insanity, or insolvency of either party before acceptance is

2. Revocation, rejection or withdrawal of the offer before acceptance is communicated
3. Qualified acceptance of the offer as the acceptance is really a counter-offer;
4. Expiration of the period of time given to the offerree within which he must signify
his acceptance.

Cognition theory Contract is perfected from the moment the acceptance comes to the
knowledge of the offeror.

Expedition theory Contract is perfected from the moment the acceptance is declared or
made even if not made known to the offeror.

5. Essential elements of contracts

1. Consent
2. Object
3. Cause

6. Persons incapable of giving consent

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

7. Five causes of vitiating consent

1. Error or mistake
2. Violence or force
3. Intimidation or threat
4. Undue influence
5. Fraud or deceit

Simulation of contract is the act of deliberately deceiving others, by pretending by

agreement the appearance of a contract which is either non-existent or concealed.

Kinds of simulation:

1. Absolute when the parties do not intend to be bound, void from the beginning
2. Relative parties conceal their true agreement

8. Object of a contract (things, rights or services)

1. Must be within the commerce of men
2. Transmissible
3. Licit
4. Possible
5. Determinate

9. Rules in contract of sale as to future things

1. Under the contract of sale, things having potential existence may be the object of the
contract of sale.
2. There may be a sale of expected things but subject to the condition that it will come
to existence. (emptio rei speratae)
3. There may be sale of hope, the hope or expectancy already exists. (emptio spei)

10. Cause is the essential or principal purpose or reason which the contracting parties have in
view at the time of entering into the contract. (why of the contract)

11. Lesion is the insufficiency or inadequacy of the cause of a contract.

The contract (with lesion) is valid except when there is fraud mistake or undue influence.

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(Defective Contracts)

1. Defective contracts
1. Rescissible contract valid until rescinded;
2. Voidable contract valid until annulled;
3. Unenforceable contract cannot be sued upon or enforced unless
4. Void contract no effect at all cannot be ratified or validated

2. Rescission
Rescission is the remedy granted by law to the contracting parties and
sometimes even to third persons in order to recover indemnity for damages
caused them by a contract, even if such contract be valid, by means of
restoration of things to their condition prior to the celebration of contract.

3. Requisites for the rescission of contract

1. The party seeking rescission can return what he received by virtue of
the contract.
2. The object of the contract is not in the legal possession of a third
person who acted in good faith.
3. There must be no other legal remedy.
4. The action must be brought within the proper prescriptive period.

4. Prescriptive period for rescission

Action for rescission must be commenced within 4 years from the date it was
entered into. (Guardianship from the time guardianship ceases; Absentees
from the time the domicile is known)

5. Rescissible contracts
1. Those made by guardians when their wards suffer lesion by more than
of the value of the things which are the object thereof;
2. Those agreed upon in behalf of absentees if the latter suffer the lesion
stated above;
3. Those made in fraud of creditors provided the following requisites are
i. There must be credit prior to the contract to be rescinded;
ii. Fraud on the part of the debtor;
iii. Creditor cannot recover his credit in any other manner.
4. Those which refer to things under litigation made by defendants
without the knowledge and approval of the litigants or a competent
judicial authority;
5. All other contracts especially declared by law to be subject to

6. Voidable contract
It is a contract which possesses all the essential requisites of a valid contract
but one of the parties is incapable of giving consent, or consent is vitiated by
mistake, violence, intimidation, undue influence or fraud.

Prescriptive period

The action for annulment must commence within 4 years (intimidation,

violence or undue influence from the time the defect of the consent ceases;
mistake or fraud from the time of the discovery of the same).

Requisites of ratification

1. Contract must be voidable

2. Person ratifying knew the reason why the contract is voidable
3. Ratification must have been made expressly of impliedly
4. Ratification is made by injured party

Effects of annulment of voidable contract

a. If the contract is executor the parties are not bound to comply with
their prestation.
b. If the contract is already executed, the parties shall restore to each
other the object of the contract
c. The guilty party is liable to answer for damages.

7. Unenforceable contract
It is a contract that cannot be enforced in court or sued upon by reason of
defects provided by law until they are ratified according to law.

Kinds of unenforceable contracts

1. Those executed by one in the name of another without any authority or
in excess of such authority.
2. Those that do not comply with the Statute of Frauds;
3. Those where both parties are incapable of giving consent.
Statute of Frauds

The Statute of Frauds found in Art. 1403, No. 2 Civil Code is the rule which
requires that certain agreements or some note or memo thereof shall be in
writing and subscribed by the party charged or by his agent; otherwise, such
agreement shall be unenforceable by action because evidence of the same
cannot be received without the writing on a secondary evidence of the same
cannot be received without the writing or a secondary evidence of its

Agreements that must appear in writing to be enforceable

1. Agreement that by its terms is not to be performed within a year from

making thereof;
2. Special promise to answer for the debt, default or miscarriage of another;
3. Agreement made in consideration of marriage other (mutual promise to
marry than 500, unless there has been partial delivery or payment
4. Agreement for the leasing for more than 1 year, or for the sale of real
property or of an interest therein, unless it has been partially executed;
5. Representation as the credit of a third person

8. Void contract

It is contract which has absolutely no force and effect and is inexistent from
the beginning.

Classes of void contracts

1. Inexistent contracts or those where a requisite or some of the essential

requisites of a contract are lacking or where the formalities prescribed by
law for validity are not complied with.
2. Illegal or illicit contracts or those where the essential requisites of a
contract are present but the cause, object or purpose is contrary to law,
morals, etc.

In legal effect, there is no distinction between a void and an inexistent


Examples of void contracts

1. Those whose cause, object, or purpose is contrary to law, morals, good

customs, public order or public policy;
2. Those which are absolutely stimulated or fictitious;
3. Those whose cause of object did not exist at the time of the transaction
(but future things may legally be the object of a contract).
4. Those whose object is outside the commerce of men;
5. Those which contemplate an impossible service;
6. Those where the intention of the parties relative to the principal object of
the contract cannot be ascertained;
7. Those expressly prohibited by law.

Characteristics of void contract

1. It produces no effect
2. It cannot be ratified
3. It cannot give rise to valid contract
4. The right to set up the defense of illegality cannot be waived
5. The defense of illegality is available to the third persons only when their
interests are directly affected.
6. The action does not prescribe

(Forms, Reformation and Interpretation)

1. Form of contracts
A contract shall be obligatory or binding in whatever form it may have been entered into
provided all the essential requisites (consent, object and cause; and in certain specified
contracts, delivery of form) for its validity are present
In the following cases, the form of the contract is essential:

a. When the law requires that the contract be in some form to be valid (for validity);
b. When the law requires that a contract be in some form to be enforceable or proved in
a certain way (for enforceability);
c. When the law requires that a contract be in certain form for the convenience of the
parties (for convenience).

2. Contracts that must appear in public instrument

1. Acts and contracts which have for their object the creation, transmission,
modification or extinguishments of real rights over immovable property.
2. Assignment, repudiation or renunciation of heredity rights or rights in the conjugal
partnership of gains or in the community of property between husband and wife.
3. Powers of attorney to administer property or to perform an act requiring a public
instrument, or to perform an act which is to affect third persons.

The requirement above is only directory. If the acts or contracts do not appear in a public
instrument, they are still valid, and the parties may compel each other by filing an action
in court to observe the necessary form.

3. Reformation
Reformation is that remedy in equity by means of which a written instrument is made or
construed so as to express or conform to the real intention of the parties when some error
or mistake has been committed.

Requisites of reformation
1. Meeting of the minds between the parties.
2. Instrument does not express the true intention of the parties.
3. The failure of intention is due to mistake, fraud, inequitable conduct or accident.
4. There must be clear and convincing proof.

The following instruments are not subject to reformation:

a. Simple donations inter vivo wherein no condition is imposed
b. Wills
c. The real agreement is void
4. Interpretation of contracts

Interpretation of contracts is the determination of the meaning of the terms or words used
by the parties in the contract.

Basic rules in the interpretation of contracts:

1. If the terms of the contracts are clear, the literal meaning of its stipulations shall
2. The evident intention of the parties shall prevail over the words of the contract.
3. The contemporaneous and subsequent acts of the parties shall be principally
considered in order to ascertain their intention.
4. Obscure words or stipulations in a contract shall not favor the party who caused the
5. Doubts in gratuitous contracts shall be settled in such a way that the least
transmission of rights and interests shall prevail.
6. Doubts in onerous contracts shall be settled in favor of the greatest reciprocity of

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