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Chapter 8 - Contract Law

Contracts - business agreements that people enter into voluntarily. Contracts create
For obligation to exist in law, there are three basic requirements:
1. There must be at least two parties who agree to do something for each other
2. There must be a prestation that is the object of the obligation
3. There must be a lawful reason for undertaking the obligation
- A payment or performance
- the rendering of a service
- doing or not doing something
Obligations: emerge in 2 ways
1. Emerge from contracts: agreements may be verbal or written.
- With the exception of some that must be in writing (According to law: marriage
contracts & hypothecs - mortgages)
2. Emerge from an act carried out by someone (i.e., causing damage to a person's
property, injuring someone accidentally/deliberately)
Legal vs. Natural Obligations
Legal obligation: one that is sanctioned by law and enforceable before the courts
(i.e., not making timely payment for rentals)
Natural obligation: one that binds you in conscience only (i.e., a promise to
donate to charity, not sued for debt owing: eventually lenders lose their legal rights to
Contract: an agreement between two or more persons which establishes legal
bilateral agreement since obligations operate in both directions and both
parties commit themselves to certain acts.
Different types of contracts identified by the Civil Code:

Contracts of Adhesion (Article 1379): Conditions drawn up by only one of the parties,
only choice available to other party is to accept or deny. (I.e., Airline tickets)
Contracts of mutual agreement (Article 1379): Both parties discuss and agree on all
conditions of the contract
Synallagmatic or bilateral contracts ( Article 1380): Both parties have agreed to
perform an obligation (e.g., 'A' pays $10 to 'B' and 'B' gives 'A' a book)
Unilateral contracts (Article 1380): Only one party intakes to perform an obligation
(i.e., a will or a pledge to donate to charity)
Onerous contracts (Article 1381): each party receives something in return for
undertaking an obligation to the other party (i.e., A receives a book and pays B $10)
Gratuitous contracts (Article 1381): one party undertakes an obligation that benefits
the other party, but other party does nothing for first person (agreement to donate,
voluntary babysit)
Commutative contracts (Article 1382): both parties know in detail how much each has
to pay, and what each will receive in return (Tech company buys 5,000 iPhones and
agrees to pay $300 per iPhone)
Aleatory contracts (Article 1382): Full extent of obligations is uncertain initially when
contract is entered into. Obligations established at a later date
Contracts of instantaneous performance (Article 1383): One time discharge of the
obligations undertaken (i.e., bicycle sold and delivered, price of $180 paid)
Contracts of successive performance (Article 1383): obligation is to continue doing
something on a regular basis for a specified period of time (i.e., employment contract)
Consumer contracts (Article 1384): A natural person (Not a business) acquires, for
personal use, some property or service from a business (Consumer Protection Act)
Typical agreement may be a blend of several types of contracts. One time donation of
money can be characterized as a contract of adhesion, unilateral, gratuitous,
commutative, and instantaneous performance.
Contracts - agreements that people enter into voluntarily
- If there's only an invitation to make an offer, merchant may accept or refuse
the offer
- Offer may be described as a clear, precise, firm proposition containing
genuine intention to enter into a binding contract
- One specific offer is made, acceptance will create a contract

A contract is formed when and where acceptance is received by the offeror (Contract is
formed wherever the Offeror is)
Conditions for the formation of Contracts
Exchange - express or tacit
- Express: there is clear indication on the part of a person, such as the statement
"Yes, I am prepared to buy this printing machine for the total of $47,500"
- Tacit: nothing is said, but carries out some action to indicate acceptance
Offer and Acceptance
- If the offeror states that offer will be open for specific period of time, it cannot be
revoked prior to that time. After time expires, offer lapses/becomes null
- Making a counter-offer does not mean acceptance.
- Silence cannot be interpreted as acceptance
- A promise to enter into a contract is not the same as an acceptance.
Consent to enter a contract - must be given freely and willingly
- no undue or illegal pressure put on a person to obtain
- Defects of consent:
1. Error: does not mean simple or inexcusable error, has to do with the
nature of the contract
2. Fraud: tricking another into making an error or provides untrue information,
or failing to divulge relevant information
3. Fear: coerce someone into consent = not a legally valid agreement, use of
a position of authority over another is not valid either
4. Lesion: Taking financial advantage of a person who is presumed not to
know better. (Ripping off minors), people who do not have full legal capacity
- Lesion can apply to contracts entered into by minors and persons
under protective supervision
Legal Capacity
- In order for a contract to be valid, parties must have legal capacity (authority or
right) to enter into contracts
- 12 year old having physical ability to sign contract does not mean he has

legal right
- Minors may be emancipated, given legal capacity to enter contracts alone,
either partially by judicial decision, or completely as a result of marriage
- If the reason for entering into a contract is an illegal one, it will not be considered
valid and will not be enforced by the courts (i.e., person purchases a printing machine to
operate printing business would be a valid reason, while using the machine to print
counterfeit money would not be)
- the law prohibits the contract if the object of the juridical operation is illegal or
contrary to public order
- Most contracts do not require any particular wording or form. Only contracts that
requires a specified form are marriage contracts, hypothecs (mortgages), notarial wills,
insurance policies, and collective labour agreements
Nature of Nullity
Absolute Nullity: A contract that contradicts or violates provisions of law deemed
of public order does not meet the conditions of formation and is therefore absolutely null.
- Any interested party or the court on its own initiative can invoke absolute
Relative Nullity: A contract that violates protections of private individual interests
- Only parties directly involved in the contract in question can invoke relative
Performance of Contracts
Each contractual party binding itself to an obligation must fulfill his undertakings.
Failure, without justification, gives the creditor under the Civil Code the right to:
- Force performance through an injunction, or having obligation performed at the
expense of the debtor
- Resolution: all prestations restored to the parties, contract is deemed to have
never existed
- Resiliation: contract ceases to exist for the future with no restoration of


- A creditor institutes an action seeking a court order instructing a debtor to
cease doing, not do, or to perform a particular act. A permanent injunction is granted as
part of the final trial judgement.
- Interlocutory Injunction: a temporary injunction may be granted for the
duration of the proceedings until a trial judgement is rendered, if the plaintiff can
1. Interest and seriousness of the issue
2. It is necessary to avoid irreparable injury before a final judgement
3. That on the balance of convenience he will suffer significantly more than
the defendant.
Possible only after an action has been instituted.
- Provisional Injunction: In case of urgency, the plaintiff can request that an
injunction be issued before the defendant has received notice of an interlocutory
hearing. (Can last no more than 10 days)
Default of Contracts
- Prior to taking action against debtor, Civil Code requires debtor be placed in
1. Debtor fails to perform obligation by stipulated deadline
2. Creditor sends debtor a letter requesting performance within a certain
period of time (extrajudicial demand)
3. Debtor fails to perform obligation within useful time or immediately in case
of urgency, also, if performance becomes impossible due to debtor's fault
If creditor files legal action without placing debtor in default first, debtor maintains right
to perform obligation within reasonable time.
1. Present damages: may claim damages foreseen or foreseeable upon entering
the contract
2. Future damages: are certain to take place later (i.e., employee seeking possible
future damages for unjustified dismissal, the owner of a trade secret loses potential

future profits)
3. Punitive damages: meant to teach debtor a lesson, amount awarded cannot
surpass this sole purpose
Four factors taken into consideration when calculating the amount:
1. gravity of fault committed by the debtor
2. patrimonial value of the debtor
3. the amount already awarded to the creditor for bodily, moral, or
material damages
4. if debtor is insured, to what extent will the damages be covered
4. Penal damages (penalty clause): allows creditor to claim amount in damages
stipulated in the contract if debtor fails to perform the obligations. Can be exercised
without having to demonstrate that any actual damages were suffered.