CONTRACTS

What is a contract? A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. A contract is a juridical convention manifested in legal form, by virtue of which, one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.

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.

Stages in the Life of a Contract

1. Preparation or conception bargaining point. 2. Perfection or birth the meeting of minds regarding the subject matter and the cause of the contract. 3. Consummation or death parties have performed their respective obligations and the contract is put to an end.

Kinds of Innominate Contracts

1. do ut des

(I give that you may give)

2. do ut facias (I give that you may do) 3. facio ut facias (I do that you may do) 4. facio ut des (I do that you may give)

What are the principal characteristics of a contract?

AMOR = love 1. Autonomy 2. Mutuality 3. Obligatory Force and Consensuality 4. Relativity

What is autonomy of contracts?

GR: The parties are free to stipulate anything they may deem convenient. XPN:

As long as the stipulation are not contrary to: 1. Law 2. Morals 3. Good Customs 4. Public Order 5. Public Policy (Art. 1306)

What is relativity of contracts?

GR: A contract is binding not only between parties but extends to the heirs, successors in interest, and assignees of the parties, provided that the contract involves transmissible rights by their nature, or by stipulation or by provision of law XPN: 1.Stipulation pour autrui (stipulation in favor of a 3rd person) benefits deliberately conferred by parties to a contract upon 3rd persons; 2.When a 3rd person induces a party to violate the contract; 3.3rd persons coming into possession of the object of the contract creating real rights; 4.Contracts entered into in fraud of CRs.

REQUISITES OF STIPULATION POUR ATRUI:

1. The stipulation must be part, not whole of the contract 2. Contracting parties must have clearly & deliberately conferred a favor upon 3rd person 3. 3rd person must have communicated his acceptance 4. Neither of the contracting parties bears the legal representation of the 3rd person

Distinguish consensual from real contracts and name at least four (4) kinds of real contracts under the present law.
SUGGESTED ANSWER:

CONSENSUAL CONTRACTS are those which are perfected by mere consent (Art. 1315. Civil Code). CONTRACTS are those which are perfected by the delivery of the object of the obligation. (Art. 1316, Civil Code) Examples of real contracts are deposit, pledge, commodatum and simple loan (mutuum).

Essential Requisites of a Contract (Always COCa-Cola) 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.

I. CONSENT 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 counteroffer. (1319)

REQUISITES OF CONSENT: 1. Plurality of subject 2. Capacity 3. Intelligence and free will 4. Manifestation of intent of parties 5. Cognition by the other party 6. Conformity of manifestation and cognition

Theories on Consent

We follow the theory of cognition and not the theory of manifestation. Under our civil law, the offer and acceptance concur only when the offeror comes to know, and not when the offeree merely manifests his acceptance.

Certain offer = Absolute acceptance; If qualified, counter-offer.

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. (1319)

Offer & Acceptance

Mode of acceptance as stipulation. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. (1321) Agent as offerer An offer made through an agent is accepted from the time acceptance is communicated to him. (1322)

Offer & Acceptance

Withdrawal of Offer (1324) General Rule: An offer or proposal may be withdrawn as long as the offeror has no knowledge that the offeree has already accepted the offer. Exception: When the option is founded upon a consideration, as something paid or promised, the offer cannot be withdrawn.

When does the offer become ineffective? 1. Death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed; 2. Express or implied revocation of the offer by the offeree; 3. Qualified or conditional acceptance of the offer; 4. Subject matter becomes illegal or impossible before acceptance is communicated.

Rule on Complex Offers

1. When offers are interrelated the contracted can only be perfected if all the offers are accepted. 2. When offers are not interrelated the single acceptance of each offer results in a perfected contract unless the offeror has made it clear that one is dependent upon the other and acceptance of both is necessary.

Rule on Complex Offers

*An Offer inter praesentes must be accepted immediately. If the parties intended that there should be an express acceptance, the contract will be perfected only upon knowledge by the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in the manner prescribed by the offeror is not effective, but it takes the form of a counter-offer which the offeror may accept or reject. (Malbarosa vs. CA, G.R. No. 12576, 2003)

Advertisements as Offers
Business advertisements of things for sale are not definite offers, but mere invitations to make an offer, unless it appears otherwise.(1325) Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (1326)

ACCEPTANCE The manifestation by the offeree of his assent to the terms of the offer. Elements of Valid Acceptance 1. Unequivocal 2. Unconditional *If qualified, it constitutes a counteroffer.

ACCEPTANCE
a) offer is made to a person present acceptance must be made immediately b) offer is made to a person absent acceptance may be made within such time that, under normal circumstances, an answer can be received from him; *Acceptance may be revoked before the offeror finds out about it. *Amplified Acceptance - under certain circumstances, a mere amplification on the offer must be understood as an acceptance of the original offer, plus a new offer which is contained in the amplification.

WITHDRAWAL OF ACCEPTANCE
1. First View (Manresa): It is to be observed that although the offeror is not bound until he learns of the acceptance, the same thing can not be said of the offeree who, from the moment he accepts, loses the power to retract such acceptance since the right to withdraw between the time of the acceptance and its communication is a right which is expressly limited by law to the offeror; *To justify the inequality between the contracting parties, Manresa said that since the offeree is the first to know about the concurrence of will if the parties, as a consequence, the obligation, as far as he is concerned, must also commence earlier.

WITHDRAWAL OF ACCEPTANCE
2. Second View (Tolentino): Acceptance may be revoked before it comes to the knowledge of the offeror because in such a case, there is still no meeting of minds, since the revocation has cancelled or nullified the acceptance which thereby ceased to have any legal effect.

Acceptance by Letter or Telegram

When is it binding? Acceptance is binding only from the time the offerer had knowledge of it. Where is it binding? The contract is presumed to have been entered into in the place where the offer was made.

Revocation of Acceptance
The acceptance by the offeree may be revoked before reaching the knowledge of the offeror. If it is revoked, the contract is not perfected if the notice of revocation reaches the offeror before the letter of acceptance is received. *In unilateral promises, when offer is made to the public, specific acceptance is not required to bind the obligor.

WHAT IS AN OPTION?
It is a preparatory contract in which one party grants to the other, for a fixed period to decide whether or not to enter into a principal contract.

*An option may be withdrawn anytime before acceptance is communicated but not when supported by a consideration other than purchase price: option money

RULES ON OPTIONS
*A unilateral promise to buy or sell, if not supported by a distinct consideration, may be withdrawn but may not be done whimsically or arbitrarily; the right of the grantee here is damages and not specific performance. (Ang Yu v. CA, 1994) *An option clause in order to be valid and enforceable must indicate the definite price at which the person granting the option is willing to sell, contract can be enforced and not only damages. (Equatorial v. Mayfair, 24 SCRA 483) *The right of first refusal may be enforced by specific performance. (Paranaque Kings v. CA, 1997)

Persons Who Cannot Give Valid Consent

1. Unemancipated Minors 2. Insane or demented persons 3. Deaf-mutes or illiterates who do not know how to write 4. Intoxicated persons and hypnotized persons 5. A person under Mistake -- since a mistake may deprive one of intelligence. (1331) 6. A person induced by Fraud (dolo causante) (1338) Note:*Dolus bonus (usual exaggerations in trade) are not in themselves fraudulent

Rule on Contracts Entered into By Minors

General Rule: These contracts are considered voidable. Exceptions 1. Minor is Estopped for having misrepresented his age and misled the other party (when age is close to age of majority as in the Mercado v. Espiritu & Sia Suan v. Alcantara cases) 2. They were contracts for necessities such as food, but here the persons who are bound to give them support should pay therefor upon reaching age of majority they ratify the same; 3. They were entered unto by a guardian and the court having jurisdiction had approved the same right of first refusal may be enforced by specific performance; 4. Voluntary fulfillment of a natural obligation provided that the minor is between 18-21 years of age; 5. Contracts of Life, health or accident insurance taken on the life of the minor.

Rule on Contracts Entered into by Insane or Demented Persons or Those Who Were Intoxicated or Hypnotized

Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. (1328) 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. (1329)

Rule on Contracts Entered into under Mistake

In order that mistake may invalidate consent, it should refer to the substance 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. (1331) As to identity or qualifications: 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. Correction only if: A simple mistake of account shall give rise to its correction. (1331) - Error must be excusable, not caused by negligence - Error must be a mistake of fact, not of law

Rule on Contracts Entered into under Mistake

Exceptions on Mistake: 1. Illiterate party (1332) 2. Knowledge of doubt, contingency, risk affecting the object of the contract (1333) 3. Mutual error (1334)

Disqualified to Enter into Contracts Contracts consented into by the following are void: 1. those under civil interdiction 2. hospitalized lepers 3. prodigals 4. deaf and dumb who are unable to read and write 5. 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 an easy prey for deceit and exploitation.