.

/Contracts is a meeting of minds
between two (2) persons whereby one
binds himself, with respect to the other,
to give something or to render some
service. There must be at least two (2)
persons or parties.
Valid Contracts are those that meet all
the legal requirements (Art. 1318.) and
limitations. (Art. 1306.)
Limitations on contractual
stipulations.

The validity of the contract cannot be left (1) Law.

to the will of one of them, it must be both
of the parties.
The determination of performance may
be left to a third person as long as the
parties are aware and agreed to it.
Contract Obligation
One of the sources Legal tie or relation
of obligation itself that exists
after a contract
has been entered
into
There is no contract if there is no
obligation. However, an obligation may
still exist even without a contract
(Example: Payment of taxes imposed by
the government)
(2) Police power.
Law is superior to a contract.
Contract must not be contrary to.
(1) Morals – deal with norms of good
and right conduct evolved in a
community. (Already specified)
(2) (Good) customs – habits and
practices which through long
usage have been followed and
enforced by society. (Expressly
mentioned)
(3) Public order – refers principally
to public safety.
(4) Public policy – refers not only to
public safety but also to consider
the common good.

Contract Agreement Classification of contracts.

Binding Cannot be
agreements enforced by action According to name or designation:
enforceable though through legal
legal proceedings proceedings (1) Nominate – has a specific name
To be valid and Does not have all or designation in law (Ex: lease,
enforceable, it the elements of a agency, sale, etc.)
must be lawful and contract that create (2) Innominate – has no specific
has all the legally enforceable name or designation in law
requisites for obligations
validity present Kinds of innominate contract.

All contracts are agreements, but not all (1) Do ut facias (I give what you may
agreements are contracts. do);
(2) Facto ut des (I do what you may
give); and
 (3) Facto ut facis (I do what you may Motive is the purely personal or private
do). reason which a party has in entering into
a contract.
Do ut des has been given a name of its
own: barter or exchange. Cause Motive
Immediate or direct Remote or indirect
According to perfection/birth: reason reason
Other contracting Unknown to the
Parties have come to a definite party is aware of other contracting
agreement or meeting of the minds. party
An essential Not an essential
(1) Consensual – perfected by mere element of a element of a
consent. contract contract
(2) Real – perfected by the delivery Illegality of the Illegality of the
of the thing or subject matter cause affects the motive does not
of the object. validity (In effect, render the contract
(3) Solemn – compliance with becomes void) void
certain formalities prescribed by
law. According to form:
According to cause: The manner in which a contract is
executed or manifested.
The essential reason or purpose which
the contracting parties have in view at (1) Informal or common or simple –
the time of entering into contract. may be oral, written, and may
even be implied from the conduct
(1) Onerous – The parties are
of the parties.
reciprocally obligated to each
(2) Formal or solemn – required by
other.
law to be in a certain specific
(2) Remunerative – The purpose is
form.
to reward the service that had
been previously rendered by the According to obligatory force:
party remunerated.
(3) Gratuitous – The cause of which (1) Valid
is the liberality of the benefactor (2) Rescissible
or giver. (3) Voidable
(4) Unenforceable
Absence of cause means there is total (5) Void or inexistent
lack of any valid consideration for the
contract. The contract of sale is then According to person obliged:
void. Same for the falsity of cause, the
(1) Unilateral – only one party is
contract states a false valid
obliged to comply with the
consideration.
agreements
 (2) Bilateral – both are mutually
bound to each other; both parties
are debtors and creditors of each
other.
According to risks:
(1) Commutative – when the
undertaking of a party is
considered the equivalent of that
of the other.
(2) Aleatory – depends upon an
uncertain event both as to benefit
or loss.
According to liability:
(1) Unilateral – creates an obligation
on the part of only one of the
parties.
(2) Bilateral – gives rise to reciprocal
obligation for both parties.
According to status:
(1) Executory – has not yet
completely performed by both
parties.
(2) Executed – has been fully and
satisfactorily performed by both
parties.
(3) Preparatory – entered into as
means to an end.
(4) Accessory – dependent upon
another contract, it secures for its
existence and validity.
(5) Principal – does not depend for
its existence and validity upon
another contract.
According to dependence of part of
contract to other parts:
(1) Indivisible – each part is
dependent upon the other for
satisfactory performance. (dining
table and chairs)
(2) Divisible – parts of the contract
may be performed independently.
(shoes and chair)
Persons affected by a contract.
General rule: A party’s rights and
obligations derived from a contract are
transmissible to the successors. Only
the parties, their assigns and heirs can
have rights and obligations under the
contract.
Exception: A contractive is effective
only between the parties when the rights
and obligation are not transmissible:
(a) By their nature
(b) By stipulation
(c) By provision of law
Stipulation pour autrui is a stipulation
in a contract clearly and deliberately
conferring a favor upon a third person
who had as right to demand its
fulfillment provided, he communicates
his acceptance to the obligor before its
revocation by the obligee or the original
parties.
A real right is binding against the whole
world and attaches to the property over
which it is exercised wherever it goes.
Creditors are protected in cases of
contracts intended to defraud them.
A stranger to a contract can be sued for
damages for his unwarranted
interference with the contract.
Stages in the life of a contract.
(1) Preparation or negotiation
(2) Perfection or birth
(3) Consummation or termination
Unauthorized contracts are
unenforceable.
General rule: A person is not bound by
the contract of another of which he has
no knowledge or to which he has not
given consent.
Unauthorized contracts can be cured
only by ratification.
The ratification must be by the person in
whose name the contract was entered
into. The ratification must be clear and
expressed so as not to admit of any
doubt or vagueness.
Requisites of a contract.
(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.
Classes of elements of a contract.
A valid contract is one that manifests all
the essential elements of a contract.
(1) Essential elements – no contract
can validly exist regardless of the
intentions of the parties. (Read:
Requisites of a contract)
(a) Common
(b) Special (As regards to form,
subject matter, and
consideration or cause)
(2) Natural elements are presumed
to exist in certain contracts unless
the contrary is expressly
stipulated by the parties.
(3) Accidental elements refers to the
particular conditions or terms
established by the parties in their
contracts.
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.
Characteristics of consent.
(1) Intelligent. – there is a capacity to
act.
(2) Free and voluntary. – no vitiation
of consent by reason of violence
or intimidation.
(3) Conscious or spontaneous. – no
vitiation of consent by reson of
mistake, undue influence, or
fraud.
Vices of consent.
(1) Error or mistake.
The false notion of a thing or a fact
material to the contract.
Nature of mistake.
(1) may be of fact or of law
(arises from ignorance);
 (2) substantial mistake of fact
(would not have given the
consent had they known of
the mistake); and
(3) may be unilateral when only
one party is mistaken or
bilateral when both.
Mistakes which does not vitiate
a consent.
(1) The accidental qualities not
taken as the principal
consideration of the contract
unless caused by fraud of the
other party.
(2) Mistake as to quantity or
amount.
(3) Error as regard to motives of
the contract unless the
motives constitute a condition
or cause of the contract.
(4) Mistake as regards to the
identity or qualifications of a
party.
(5) Errors which could have been
avoided by the party alleging
it or a fact known to him.
Example: A sold to B a parcel of and
with an area of 567 square meters at
₱415/sqm. In the document of sale, the
purchase price stated is ₱285,305 when
it should be ₱235,305.
Facts: The mistake will not make the
contract voidable. It will only give rise to
its correction. However, if the lump sum
is ₱235,305 stated as having 567sqm
but with an actual area of 467sqm, the
contract is rescissible.
When one of the parties is illiterate, the
party enforcing the contract is bound to
show or explain that there are no fraud
or mistakes and that the terms have
been fully explained to the former.
Mistake of law arises from an
ignorance of or an erroneous
interpretation of law.
Ignorantia legis neminem excusat –
“Ignorance of the law excuses no one”
(2) Violence or fear:
It requires the employment of
physical force. Consent is vitiated.
If a contract is signed out of reverential
fear (fear of displeasing a person to
whom respect is due), the contract is
valid.
Threat of a court action to enforce a just
or legal claim is justified and does not
vitiate consent.
(3) Violence or intimidation:
Violence or intimidation may be
employed by a third person who did
not take part in the contract. If it is
enforced, the contract is voidable.
(4) Undue influence:
Undue influence is influence that
overpowers the mind of a party to
prevent him from acting understandingly
and voluntarily.
(5) Casual fraud:
Casual fraud is fraud committed by one
(1) party before or at the time of the
celebration of the contract to secure the
consent of the other.
This may be committed through
insidious words or machinations
(misrepresentation of words) or by
concealment.
Requisites.
(1) It should be serious;
(2) They should not be in pari delicto;
and
(3) It should not have been known by
the other contracting party.
When fraud is employed by both
parties, the contract is valid.
Fraud by concealment constitutes a
neglect or failure to disclose that which a
party to a contract knows. The injured
party is entitled to rescind.
Offer is a proposal made by one (1)
party (offerer) to another (offeree). It
must be:
(1) Certain or definite so that the
liability or the rights of the parties
may be exactly fixed.
(2) Seriously intended.
Acceptance is the manifestation by the
offeree of his assent to all the terms of
the offer. Without it, there can be no
meeting of the minds between the
parties.
Acceptance of offer must be:
(1) Clear;
(2) Absolute; and
(3) Identical in all respects that of the
offer so as to produce consent or
meeting of the minds.
Forms of acceptance of offer.
(1) Express. – oral or written.
(2) Implied. – inferred from an act or
conduct.
The person making the offer has the
right to prescribe the time, place, and
manner of acceptance – all of which
must be complied with.
Communication of acceptance.
(1) To offerer. – The acceptance
must be absolute and
communicated to the offerer (may
be expressed or implied).
(2) To agent. – An agent is
considered an extension of the
personality of his principal.
Offer may be revoked or withdrawn at:
(1) Any time before it is accepted
merely by communicating such
intentions to the other party;
(2) The death, civil interdiction,
insanity or insolvency of either
party before the acceptance of
the offer;
(3) Failure to comply with the
condition of the offer;
(4) The expiration of the period fixed
for acceptance of the offer;
(5) The destruction of the thing due
before acceptance; and
(6) Rejection of the offer.
Option contract is one giving a person
for a consideration a certain period
within which to accept the offer of the
offerer.
Option period is the period given which
the offeree must accept the offer.
Option money is the money paid or
promised to be paid in consideration for
the option.
Business advertisements of things for
sale are not definite offers acceptance
of which will perfect a contract but are
merely invitations to the reader to
make an offer.
In an advertisement for bidders, the
advertiser is not the one making the
offer. The bidder is the one making the
offer which the advertiser is free to
accept or reject.
Persons who cannot give consent.
(1) Unemancipated minors. –
persons who have not yet
reached the age of majority are
still subject to parental authority.
(2) Insane or demented persons. –
sanity must exist at the time of
contracting.
(3) Deaf-mutes.
Lucid interval is a temporary period of
sanity. It must be shown, however, that
there is a full return of the mind to sanity
as to enable insane or demented
persons to understand the contract they
are entering in.
Drunkenness and hypnotic spell are
equivalent to temporary insanity.
Simulation of a contract is the act of
deliberately deceiving others by
pretending the appearance of a contract
which is either non-existent or
concealed.
Kinds of simulation.
(1) Absolute simulation. – the
contract does not really exist and
the parties do not intend to be
bound at all.
(2) Relative simulation. – the contract
entered by the parties is different
from their true agreement.
Object of a contract is its subject
matter.
Kinds of object of contract.
(1) Things (As in sale);
(2) Rights (Assignment of credit); or
(3) Services (As in agency).
Rights as object of contract.
General rule: All rights may be the
object of the contract. The exceptions
are when they are intransmissible by
their nature, or by stipulation, or by
provision of law.
Future inheritance is any property or
right, not in existence or capable of
determination at the time of the contract,
that a person may inherit in the future.
Lesion any damage caused by the fact
that the price is unjust or inadequate.
(Kulang yung selling price.)
Reformation means 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 of mistake, fraud,
inequitable conduct, accident, the
instrument fails to express such
agreement or intention.

Reason.

The intention of the contracting parties

may be expressed.

Reformation Annulment
There has been a There has been no
meeting of the meeting of the
minds of the minds of the
parties parties
A contract exists The consent of one
but the written of the parties being
instrument does no vitiated by mistake,
express the true etc.
intention

Mutual mistake is mistake of fact that is

common to both parties of the
instrument which causes failure of the
instrument to express their true
intention.

There shall be no reformation in the

following cases:

(1) Simple donations;

(2) Wills; and
(3) When the real agreement is void.