CONTRACTS Prepared by: Raymond Andes Sources: The New Civil Code of the Philippines; commentaries by Paras, Suarez, a ndTolentino;

reviewer published by Soriano; reviewers prepared by UP Law Bar-Ops Commission and Karichi Santos of UP Law B2012; and some personal inferences. Definition according to the Civil Code of the Philippines: a contract is a meeti ng of mindsbetween two persons whereby one binds himself, with respect to the ot her, to givesomething or to render some service. We can infer from the very definition of Contract that obligations would always naturallyexist upon the perfection of a contract. In short, when there is a cont ract, there will alwaysbe an obligation but when there is obligation, there isn t always a contract. Elements of a Contract 1. Essential Elements without these elements, there is no contract. A defect in any ofthese elements causes a defect in the contract. a. Consent of the parties most important of all elements. This is themeeting of min ds between parties on the object and cause of the contract b. Object the subject matter of the contract c. Cause the essential and impelling reason why a party assumes anobligation. 2. Accidental Elements those that which exist only upon stipulations in the contrac t (such as terms of payment, place of payment, conditions, etc.) 3. Natural Elements those that even without stipulations, they exist (such as warra ntyagainst hidden defects and warranty against eviction). However, parties can s tipulatewaiver of such elements. Classifications of Contracts 1. According to perfection or formation a. Consensual those perfected upon mere consent (such as sales) b. Real those perfected upon delivery of the object (such as depositum, pledge, and commodatum) c. Formal or Solemn those that can only be valid through compliance withthe formali ties of law (such as donation of a real property) 2. According to cause a. Onerous where there is exchange of valuable considerations b. Gratuitous where one party receives no equivalent consideration c. Remuneratory the cause is the service remunerated 3. According to dependence upon another contract a.

Principal one that stand by itself b. Accessory one whose existence depends another contract known as theprincipal con tract (such as mortgage and pledge) c. Preparatory one which serves as a means in which other contracts may beentered ( such as agency and partnership) 4. According to parties obligated a. Unilateral those where only one of the parties are required to accomplishthe det erminative conduct b. Bilateral or synalagmatic those where both parties are required toaccomplish the ir own determinative conducts 5. According to time or fulfillment a. Executed one which has already been performed b. Executory one that has not yet been performed

Consensuality of contracts contracts are usually perfected by mere consent of th e parties except if the contracts are real and formal/solemn. What happens if . Consent has two parts: Offer and Acceptance. According to the number of persons physically entering into the contract a. 2. public pol icy. 4. 5. except where the rights and obligations are not trans missible. goodcustoms. 3. theirassigns and heirs. 3. Auto-contract where the two parties are represented by only one person(such as i n agency where the agent lends money to his principal who herepresents as the bo rrower) Stages of a Contract 1. Ordinary where the two parties are represented by two different persons b. this is subject to limitations as follows: law. However. The validity o rcompliance of the contract cannot be left to the will of one of them. public order and morals. the contract is usually perfected. In plain language.6. This is one of the liberties guaranteed by the laws of the land t o thepeople. ESSENTIAL REQUISITES OF CONTRACTS (expounded) CONSENT Consent is manifested by the meeting of the offer and the acceptance upon the ob ject and the cause which are to constitute the contract. Mutuality of contracts the parties are both bound to one another. 2. Consummation or Death or Termination the point at which the terms of the contrac thave been fulfilled resulting in its accomplishment Basic Principles of a Contract 1. Preparation or Conception involves preliminary negotiations. Upon communication of acceptance of oneof the parties towards the other. Liberty of contract or freedom to stipulate the parties have the liberty to cont ract and stipulate. discussion of terms and conditions wherein agreement has not yet occurred. Obligatory force of contract and compliance in good faith all contracts have the force of law between the contracting parties and should be complied with in good faith. it is the mee ting of minds of both parties. Relativity of contracts contracts take effect only within the contracting partie s. Perfection or Birth the point at which there is finally a meeting of minds betwe enparties as to the object and the valid cause.

. Thus. if all details needed are conveyed to the public. advertisement becomes an offer. Advertisements are mere invitations to make an offer. is civilly Answer There wouldn t be meeting of minds. At this point. The offer becomes ineffective. offer does not exist yet. However.the offer is vague? Will there still be acontract? a seller advertised his products to thepublic? Is there already an offer? one of the parties dies. therefore contract will not exist.

mahal yan. The former is entitled to compel the latter not to withdraw the offer until the prescription of the period of time. after the offerer has given the offeree acertain period of time to accept. pwede 10. dalhin ko na. Because. She replies: Sige. in effect. It is as if there is no such option contract. May 31. Yes. 10:45 pm Kent texts Karen: Hoy Bakla. Di basta-bas May 31. can the offererwi thdraw the offer? there is no contract. bilhin mo naman make-up ko from Avon. what kind of contract as to perfection is an option contract?) Major Rule on Consent There is no consent until there has been agreement between two parties. can the offerer withdraw the offer? No.interdicted. Gaganda ka lalo Hay naku gurl. 10:46 pm Karen receives Kent s text message. 10:48 pm Kent receives text message. Karen receives text message at this late.000 pesos lang. He shakes his head then sends back a message: ta yan. He takes his calculator and tried to compute his pro fit. go! Pero. thelat ter gives the former an option money. Contract is perfected upon the point at which acceptance is communicated to the offerer. However. She makes a . the offeree has bought the time period given by the offerer. 15. the offeror has the liberty to withdraw the offer. Bukas. (Q: Using inference. if the offeree failed to give the option money. 11:37 pm Due to problems in signal.000 pesos na lang? May 31. as long as he communicates such withdrawal before the acceptance has been communicated. Example May 31. insane or incapacitatedbefore acceptance is conveyed? Whathappens t o the offer? an offerer gives the offeree a certainperiod of time to accept. maganda na mur a pa.

then makes a reply: Alala mo ba kahapon kung ano itsura ko? May 31. 11:51 pm . He remembers something. 11:50 pm Kent thought for awhile.reply: Pano ba ako nakakasigurong totoo yang sinasabi mo eh lalake ka? May 31.

kamuka ko na rin si Piolo! May 31. 12:01 am Kent receives Karen s last text message and replies: Okay. Reason: To protectincapacitated persons from damages that may be caused by the other par ty. 12:01 am.Karen: Absent ka kahapon so pano ko malalaman? May 31. 12:03 am Karen receives Kent s last text message and finally rests her head on the bed and starts sleeping. June 1. Question: At what time was there a meeting of minds? At what time was thereperfe ction of the contract? Answer June 1. . Willing ako! June 1. 11:58 pm Kent: Ano pa ba sa tingin mo? May 31. kamuka k o si Diether at pagtingin mo sa kabila. 11:53 pm Kent: Akala mo lang yun! Present ako no ako yung naka-blue with stripes of white kahapon May 31. Meeting of minds occurs at the moment the offeror receives the offeree s acceptance. 11:56 pm Kent: That s the point! Linagay ko make-up from avon kaya on my left side. go! Bilhin ko na. Capacity Parties entering into a contract must have the legal capacity to do so. 11:55 pm Karen: Huh? Di mo naman kamukha si Piolo Pascual at di mo rin kamukha si Diether Ocampo! May 31. 11:57 pm Karen: May magic ang make-up mo???!!! May 31. 11:59 pm Karen: Sige. Contracts entered into by incapacitated persons are VOIDABLE if only one of the contractingpersons is incapacitated and UNENFORCEABLE if both parties are incapa citated.

if the other party knows such mi srepresentation. 2.Who are the incapacitated persons? 1. or upon the person or property of his spouse. 2. Vices of Consent 1. Mistake inadvertent and inexcusable disregard of a circumstance material to t hecontract (JBL Reyes). (Reyes) Kinds of Simulated Contracts 1. Absolutely Simulated Contract contract which provides for a transaction thatdoes not exist. unless they contract during lucid interval. unless guided by another pe rson. Violence irresistible force used to extort consent (JBL Reyes) 4. Deaf-mutes who do not know how to read and write. Query: Is there Fraud in the following circumstances? 1. Insane or demented persons. to givehis consent (Art. Usual exaggerations in trade made by the seller and the other party had an op portunity toknow the facts. 1335). 5. Intimidation happens when one of the contracting parties is compelled by area sonable and well-grounded fear of an imminent and grave evil upon his person orp roperty. without the m. 3. depriving the latter of a reasonable freedom of choice ( Art. Undue Influence happens when a person takes improper advantage of his power o verthe will of another. Exceptions: (1) if the contract is ente red into forthe purpose of acquiring necessaries. the other is induced to enter into a contract which. or (2) when the minor misrepre sents his age (thereason for this is to protect the other party from harm that m ay be caused by suchmisrepresentation. Seller expresses an opinion and the buyer believes such opinion. This contract is void. it should refer to thesubstance of the thing which is the object of the contract. In order that mistake may invalidate consent. A) the expert was hired by the seller. . or to th ose conditions which have principally moved one or both parties to enter into the contract. Expert expresses an opinion. 1338). contractremains voidable). or which is different from the one that actuall y arose. Simulation of Contracts: Declaration of a non-existent will producing the appear ance of a transaction that does not exist. 3. 3. However. he would not haveagreed to (Art. descendants or ascendants . Minors those aged below 18 (RA 6805). 4. B) the ex pert washired by the buyer. Offeror failed to disclose certain important facts to the offeree and the for mer has theduty to reveal them. Fraud happens when through insidious words or machinations of one of the cont ractingparties. 2. 1337).

it shou ld be inexistence at the moment of the celebration of the contract. 4. so long as it does not prejudice a 3rd person and is not contrary to law. such contract may be interpreted as a: Conditional Contract: where its efficacy should depend upon the future existence . Examples: property that pertain topu blic dominion such as roads and plazas. the contract would be void. True agreement is concealed for somere asons. it will be binding. and which are not transmissible. customs or public order Object is the thing. 2. morals. right or service which is the subject matter of the obligat ion arising from the contract. Actual or possible 3. However. right or service may be the object of a contract. Lawful: Not contrary to law. and not by those applicable to the appearing act. public policy. common things like the air and the sea. public order or public policy . At least determinate as to its kind. This is. The validity and effects of this contract will be governed by the rulesap plicable to the intended contract.2. Relatively Simulated Contract contract which provides for a transaction that differs from the one that actually arose. it can exist subsequently or in the future. or at least. good customs. If the object is merely something or ananimal. In order that a thing. the species is not determined. Requisites: contr 1. Absolute No real transaction intended Fictitious contract Void OBJECT Relative Real transaction is hidden Disguised contract Bound as to hidden agreement. Things that are outside the commerceo f man are those things that are not susceptible of appropriation or of private ownership. if a 3rd person is benefited by the appearing contract. A future thing may be the object of a contract. morals. Transmissible: within the commerce of man. dependent on w/n the 3rd person is in good faith. however.

e. Aleatory Contract: where one of the parties assumes the risk that the thing will nevercome into existence. But if the object is merely the future hereditary rights without specification of the prope rties. CAUSE Cause is the impelling reason for which a party assumes an obligation . 1630). insurance. the sale is valid because this is permitted by law (Art. Q: Can future inheritance be the object of a contract? It depends. If the object is a specific property you are expecting to inherit from an ascendant.of thething.g. the sale is vo id.

. service or act which forms the basis of the entire contract. wit hout whichthe negotiations or bargaining between the parties would never even ha ve begun. The cause is thepiece of land she wants to own while the motive is Jerelyn s desi re to have a place forrelaxation. the object in onerous contracts is the thing. (3) True*. Party Cause Object vendOR Cash (wants to profit) Land vendEE Land (wants to acquire land) Land According to Tolentino. the starting point of the agreement. where such service or benefit was not due as a legal obligation. Mere liberality of the benefactor or giver Thing given (for donation) or thing lent (commodatum) What is Motive? It is the psychological. Cause and Object in Other Types of Contract Definition Cause Object Remuneratory It is a contract where a party gives something to another because of some service or benefit given or rendered by the latter to the former. Query: What is the cause and what is the object in a sale of land? Answer: It depends on which perspective. Example: Jerelyn bought a piece of land from Daila because she wants that piece of landused for constructing a vacation house (the land is located in Caramoan). individual and personal reason which in duces a party to enter into a contract. (2) Licit/Lawful. (Tolentino)* The service or benefit which is remunerated Thing given in exchange for the service or benefit Gratuitous Agreements to give something or to lend something.Requisites: (1) Existing.

except when there is fraud.Circumstance Defined Lack of Absence or total lack of cause Cause Illegality ofCause Contrary to law. Lesion or Cause is not proportionate to· Shall not invalidate the contract Inadequacy object. goodcustoms. morals. . public policy and publicorder Falsity ofCause Cause is stated but is untrue Effect Contract is null and void Null and void Void if it should NOT be proved that it was founded upon another cause which was true and lawful.

They are valid because there is nod efect in any of the essential requisites BUT the law allows a party to rescind ( orcancel) the contract because of the damage received by such party.000 ii. a. .Agreement made in consideration of marriage. at a price not less than P500. or miscarriage of another iv. Must be in writing to be enforceable: ii.Leasing for a period more than one year. EXCEPTIONS 1. Such contract is a formal contract. They are valid because the partyinjured can ratify the contract but the law gives such party the right to annul thesame . When the law requires that contract be in some form to be enforceable. Must be in writing: i.Sale of goods.Representation to the credit of a 3rd person DEFECTIVE CONTRACTS The following are defective contracts: 1.of Cause mistake.Agreement that by its terms is not to be performed within a year fromthe maki ng thereofiii. Must be in public instrument to be valid: i. 3.Donation of personal property exceeding P5.Contribution of immovable property by a partner in a partnership b. When the law requires that a contract be in some form to be valid. or undue influence May rescind the contract under some instances(see rescissible contracts) FORMS OF CONTRACTS GENERAL RULE: Contracts shall be obligatory in whatever form they may have beene ntered into. This is bas edon the EQUITABLE REASONS.Authority of an agent in sale of land 2. or things in action. 2. vi. (Statute ofFrauds) Failure to abide by this provision does not render the contract void.Sale of real property or of an interest therein viii. Unenforceable Contracts valid but cannot be enforced unless ratified. Voidable Contracts valid until annulled. default. vii.Special promise to answer for the debt. other than mutualpromise to marr yv. chattels. a. These contracts are voidable because of a defect in the consent. Rescissible Contracts valid until rescinded. itmerely renders the contract unenforceable. provided all the essential requisites for their validity are presen t.donation of real property ii.

4. Void Contracts void from the beginning. .

no power to disposewithout prio r approval of court. For equitable reasons. 3. the law gives t he injured partythe right to rescind (cancel) the contract. Kinds of Rescissible Contracts 1. Plaintiff asking for rescission (subsidiary action) has a credit prior to the alienation 2. By absentee By creditor(s) . the valid ity of this contract is set aside for justifiable reasons of equity. 2. it becomes unenforceable. obje ct and cause). In fraud of creditors who cannot collect claims due them (Accion Pauliana) · Requisites of Accion Pauliana 1. The sale of beach resort can be rescin ded by Jerelyn. giving advantage to a 3rd person 3. by the injured rescind? party. In effect. Entered into by guardians whenever the wards suffer lesion by more than ¼ of value of things · Guardian: authorized only to manage ward s property. But can be donealso by guardian ad tem(new guardian) of wardduri ng incapacity of wardin an action against theoriginal guardian. harm or damage is caused or being caused against a party (be it one of thecontracting parties or any 3rd party). Only includes those which are ordinary course ofmanagement of estate of the ward. Debtor has made subsequent contract. wars. Example: Jerelyn was abducted by aliens. mortgage and otherencumbrance AND not appr oved by court. suffer lesion by more than ¼ of the value of things · Absentee is a person who was lost for an indefinite period of time due to somefr eak accident. Act being impugned is fraudulent 5. natural calamities. Agreed upon in representation of absentee. She was absent for several years. Her wife (assume that gay marriage is already legal) later gained the right of representation and then sold Jerelyn s be ach resort for 75% below its appraised value.RESCISSIBLE CONTRACTS Rescissible contracts are entirely valid as to essential elements (consent. because if sale. · This type of contract is usually entered into by a person other than the absente ewho has the right of representation but entered into such contract that causedd amage of more than ¼ of the value of the things. Creditor has no other remedy but to rescind the debtor s contract to the 3rdper son (last resort) 4. However. 3rd person who received the property is an accomplice in the fraud Contracts entered byContracts in Contracts entered GUARDIANS representation of into to DEFRAUD ABSENTEES existing creditors Who can In general. or any other reason that have caused him to be absent for a period of time.


They are binding until they are annulled by a competent court 3.When? W/in 4 years from(re)gaining capacity W/in 4 years fromknowledge of domicile* of absentee W/in 4 years from knowledge of fraudulent contract How to cure defect? Ratification by injuredparty w/in 4 years fromgaining capacity Ratification byabsentee w/in 4years fromknowledge ofdomicile* of Ratification by defrauded creditor w/in 4 years from knowledge of fraudulent contract absentee or knowledge offraudulent contract VOIDABLE CONTRACTS Voidable contracts are existent. and binding. but bef ore the annulment. it is valid until it is set aside and itsvalidity may be assailed only in an act ion for that purpose (Llacer v Munoz. 12 Phil.e. theyare effective and obligatory between the parties. Vitiated consent (Violence. which did notcarries exist in itself (intrinsic defect) essentially in the contract (external defect i. although they can be annull ed becauseof want of capacity or vitiated consent of one of the parties. 328). Their defect consists in the vitiation of consent of one of the contracting p arties 2. valid. Hence. Want of capacity 2. Kinds of Voidable/Annullable Contracts (Although no damage to contracting partie s): 1. pecuniary damages or prejudice to one of the contracting parties or 3rd persons) Requires act of ratification to be cured Needs no ratification to be effective Based on a vice of the contract which Compatible with the perfect validity of th e invalidates it contract Annulment is a sanction based on law Rescission is a remedy based on equity Demanded only by the parties to the Demanded even by third parties affected by contract it . Mistake or Undue Characteristics of Voidable/Annullable Contracts: 1. Fraud. They are susceptible of convalidation by ratification or by prescription NULLITY (Voidable) RESCISSION (Rescissible) Declares inefficiency which contract alreadyMerely produces inefficiency. Intimidation.

contract can no longer .Prescription of Action for Annulment be annulled Art 1391 .Within 4 years after prescription.

It is distinguished from the rescissible and the annulla ble contractsin that the latter two contracts produce legal effects unless they are set aside by acompetent court.Sale of real property or of an interest therein vii. along with fruits and price paid wit h interest.Period shall begin: 1. other than mutual promise to ma rry iv.Agreement that by its terms is not to be performed within a year from the maki ng thereof ii. Do not comply with Statute of Frauds. but NOT to third persons Effects of Annulment: 1. v. default.Leasing for a period more than one year.Special promise to answer for the debt. 2. the contract s status as unenforce ableceases as execution is considered by law as a form of ratification. which are agreements unenforceable unle ss in written memorandum and subscribed by the party charged: i. Kinds of Unenforceable Contracts 1. Entered into in the name of another person by one who has no authority or no legal representation OR acted beyond his powers 2. at a price not less than P500. 3. or things in action. Damages to be paid by the party who caused defect of the contract. Mistake or fraud: from the time of discovery of the same 3. violence or undue influence: from the time consensual defect ce ases 2. chattels. Incapacity: from the time guardianship ceases * Applies to the parties of to the contract. .Agreement made in consideration of marriage. even partly. UNENFORCEABLE CONTRACTS Unenforceable contract is one which cannot be enforced unless it is first ratifi ed in the manner provided by law. Intimidation.Sale of goods. vi.Representation to the credit of a 3rd person If the contract has been executed. while the unenforceable contract does not pro duce any effect unless it isratified. Ratification by one party (or its guardian) makes the contract voidable. Both parties are incapable of giving consent to contract Ratification can be done by either parties or their guardians. or miscarriage of another iii. Mutual restitution of the things delivered.

Ratification made by both parties (or their guardians) makes the contract perfec tly valid. as if it hadnever been entered into. . Themaxim is no contract at all. and which cannot be validated either by time or by ratification. VOID CONTRACTS A void contract is one which has no force and effect from the very beginning.

either in fact or in law or is declared void by BUT consent is vitiated statute Not susceptible of ratification May be rendered perfectly valid by ratification Action to declare nullity of void contracts May be rendered perfectly valid by never ratification prescribes VOID UNENFORCEABLE Both are ineffective at its birth Can never be ratified and become Can be ratified and thereafter enforced enforceable There is no contract at all There is a contract which. cannot . Void from the beginning 2. neither c an the right to set upthe defense of illegality be waived Art 1409 Action to Declare Nullity necessary because nobody can take the law into his own hands DISTINCTIONS VOID RESCISSIBLE Defect is inherent in the contract itself Defect is in their effects. Cannot be confirmed or validated (by prescription OR ratification). Produces no effect whatsoever nullity exist ipso jure. remains valid and produ ces all its set it aside effects Action to declare nullity of void contracts Action to rescind prescribes in 4 ye ars never prescribes VOID VOIDABLE One of those essential requisites is wanting. either to one of the parties or to a 3rd party Matter of law and public interest Based on equity and more a matter of private interest No legal effects even if no action is taken toNo action.Characteristics of Void/Inexistent Contracts 1. however.Essential requisites for validity i s present. judgment of nullity is merely declaratory 3.

public order or good customs. public policy. . morals. object or purpose is against enforced unless properly ratified Examples of Void Contracts One whose cause.

· One whose object is impossible or cannot be done.· One whose cause is totally absent. · Absolutely-simulated contracts .

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