TITLE II - CONTRACTS

Concept of Contract

a juridical convention manifested in legal form, by virtue of which, one or more persons binds
themselves in favor of another or others, or reciprocally, to fulfillment of a prestation to give, to
do or not to do.

Elements

1. Essential Elements - without them a contract cannot exist because these are indispensable
requirements.
- object
- consent
- cause
2. Natural Elements - these are found in certain contracts and presumed to exist, unless
excluded by stipulation or the parties
3. Accidental Elements - not considered agreed by the parties unless stipulated.

Life of a Contract

1. Preparation or Conception - preparatory step taken by parties. Known as the bargaining

point
2. Perfection or Birth - meeting of the minds regarding the subject matter and the cause of the
contract.
3. Consummation or Death or Termination - the point in time when the parties have
performed their respective obligations and the contract is put to an end.

Example :
Today S. offered for sale a specific car to B for P 1,000,000.00. Tomorrow, B countered the
offer by telling S that he will buy the car if S will give it for P 800,000.00. S consented to the
counter offer of B. Two days thereafter, S delivered the car and B paid the price of P
800,000.00.

Today is the preparation of the contract because this is the bargaining point, that is the negotiations in progress. Tomorrow is
the perfection, that is, when their minds met as to the offer and the cause of the contract. Two days after is the consummation, that
is, when S delivered the the object and B paid the price.

Basic Principles or Characteristics of Contract

1. Freedom (or liberty) to stipulate.

The contracting parties may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs, public
order, or public policy.
This is otherwise known as "Autonomy of Will"

2. Obligatory force and compliance in good faith.

Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.

3. Perfection by mere consent.

Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and
law.

1. If Consensual - by mere consent.

Consensual contracts are perfected from the moment there is an agreement or from the
moment the consent of the parties are manifested with respect to the subject matter and the
cause or consideration. Parties are bound to the fulfillment of what has been expressly
stipulated and this compliance must be in good faith.
2. If real - by delivery
Real contracts, such as deposit, pledge and commodatum, are not perfected until the
delivery of the object of the obligation.
If the contract is real, the perfection is the same as if the contract is consensual and
delivery of the object is required, if the object of the contract is not delivered, the contract is not
perfected.

Deposit - is constituted from the moment a person receives a thing belonging to

another, with the obligation of safely keeping it and of returning the same
Pledge - is the delivery of a personal property by a debtor to a creditor as security for a
debt.
Commodatum - is a contract whereby one of the parties delivers to another something
not consummable so that the latter may use for a certain time and with an obligation to return it.
If the contract is consummable, it is a contract of Mutuum.

4. Both parties are mutually bound - in a contract both parties are bound and this is
based on the equality of the parties.

5. Relatively binding between the parties only, their assigns and heirs.

Principle of relativity - contracts take effect only between the parties only, their assigns
and heirs, except in cases where the rights and obligations are not transmissible by their nature,
or by stipulation of the or by provision of law.

Exceptions to the rule of relativity

1. Obligations arising from contract which are not transmissible by their nature, or by
stipulation of the or by provision of law.
2. Stipulation Pour Autrui
it is a stipulation in favor of a third person made by the contracting parties with the clear
and deliberate intention of conferring a favor upon such third person and whose fulfillment the
latter may demand upon communicating his acceptance to the obligor before its revocation.
3. When a third person induces another to violate his contract.
4. The right of the creditor to sue on a contract entered into by his debtor. Creditors are
protected in cases of contracts to defraud them.
Different Kinds of Contracts

1. According to perfection
a. Consensual - perfected by mere consent.
b. Real - perfected by the delivery of the object of the contract such as pledge, loan and
deposit.

2. According to the degree of importance

a. Principal - can stand alone such as sale, deposit or loan.
b. Accessory - its existence and validity is dependent upon another contract
c. Preparatory - contract is not an end to itself, but a means thru which other contracts may
be made.

3. According to subject matter

a. Contracts involving things, such as sale, barter.
b. Contracts involving rights or credits, such as usufruct, assignment of credit.
c. Contracts involving services, such as agency, lease of services and contract of carriage.

4. According to name
a. Nominate - are those which have an individuality of their own and are governed by special
rules of law
b. Innominate - are those without any individuality of their own and are not governed by
special rules bu by general rules of contract

kinds of innominate contracts

a. DO UT DES - I give that you may give
b. DO UT FACIAS - I give that you may do
c. FACIO UT DES - I do that you nay give
d. FACIO UT FACIAS - I do that you may do

Laws governing innominate contracts

1. Stipulation
2. Titles I and II of Book IV - Obligations and Contracts
3. Rules on most Analogous nominate contracts
4. Customs of the Place

5. According to Cause
a. Onerous Contracts - there is an exchange of considerations
b. Gratuitous or Lucrative - there is no consideration received in exchange for what has
been given, such as donation, remission and commodatum
c.Remuneratory - something is given for a benefit or service performed without any legal
obligation to do so.

6. According to nature of obligations produced or number of parties obligated

1. Unilateral where only one of the parties is obliged to give or to do something, such as
commodatum, gratuitous deposit and gratuitous mutuum.

Commodatum - contract of loan whereby one of the parties delivers to another , either
something not consumable so that the latter may use the same for a certain time and return it.
 Mutuum - contract of loan whereby one of the parties delivers money or other consumable
thing, upon the condition that the same amount of the same kind and quality shall be paid.

2. Bilateral or sinalagmatico - where both parties are obliged to give or to do something.

6. According to Risk
a. Commutative - where the equivalent values are given by both of parties
b. Aleatory - where fulfillment of the contract is dependent upon chance.

7. According to fulfillment
a. Executed - fulfilled at this time
b. Executory - to be fulfilled at some other time.

OBJECTS OF THE CONTRACT

1. CONSENT

Consent – is the manifestation of the meeting of the offer and the acceptance upon the thing
and the cause of the contract.

Requisites:

1. Must be given by two or more parties.

2. Parties are capacitated to contract
3. Consent must be intelligently or freely given
4. Express manifestation of the will of the contracting parties.
Offer – is the proposition or proposal made by one party to another to enter to a contract. It is
an expression or willingness to bargain something you desire. The offer must be certain,
definite, or specific so that the liabilities of the parties can be determined.

Acceptance – it must be absolute. Acceptance could be:

1. Expressly – written or oral words are used in accepting the offer.
2. Impliedly – when from the acts of the offeree, it can be inferred that he is accepting
the offer.

Theories applied to consent

1. Expedition Theory – contract is perfected from the moment the acceptance is

declared or made even if not made known to the offeror.
2. Cognition Theory – contract is perfected from the moment the acceptance comes to
the knowledge of the offeror.

The person making the offer may fix the time, place and manner of acceptance, all must be
complied with before the contract is made effective.
 *Acceptance made by letter or telegram does not bind the offeror except from the time it came to his knowledge.
Acceptance by the offeree may be revoked, the contract is not perfected if the notice of revocation reaches the offeror before the
letter of acceptance is made.

If the offer is made thru an agent, the contract is perfected from the time the acceptance
of the offeree is communicated to the agent even before it is conveyed to the principal under the
principle in agency that the personality of the agent is an extension of that of the principal.

The offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed. Other instances that the offer becomes ineffective
are:
1. Rejection of the offer by the offeree.
2. The offeree accepted the qualification or condition – this will constitute a counter-offer.
3. Before acceptance, the object becomes illegal or unlawful.
4. When the period of the offer had lapsed.

The offer can be accepted at any time until such period expires. Our law grants the
offeror to withdraw the offer at any time before the acceptance, even before the period for
acceptance has expired.
Option contract – one giving a person a certain period within which to accept the offer of
the offeree.
Option money – money paid or promised to be paid in consideration of the option.

IF no express acceptance is required, tacit or implied acceptance will perfect the

contract. If it is intended that there will be an express acceptance, the contract will be perfected
if the acceptance is the first to reach the offeror.

Persons incapable of giving consent

a. Unemancipated minors
Exceptions:
1. Where the contract entered into by the minor who misrepresents his
age, applying the doctrine of estoppels.
2. Where the contract involves the sale and delivery of necessities to a
minor.
b. Insane or demented persons
Lucid interval – is a temporary period of insanity. This is the period of
suspension of insanity to sanity, then back again to insanity. Be it noted that the
contract entered into during lucid interval, the contract is binding between the
parties because voidable contracts are valid until annulled by a proper action in
the court.
c. Deaf-mutes WHO do not know how to read and write
d. Drunkards, persons under hypnotic spells and those induced by drugs or state of
somnambulism (sleepwalking)
e. Hospitalized lepers
f. Persons suffering accessory penalty of civil interdiction.
g. Prodigals
h. Those by reason of age, disease, weak mind, and other similar causes, cannot
without outside aid, take care of themselves and manage their property, becoming thereby an
easy prey for deceit and exploitation.
Five Causes of Vitiating Consent
1. Error or mistake
a. It must be substantial regarding:
 Object of Contract
 Conditions which principally moved one or both parties to enter to a
contract
 Identity or qualifications of the persons.
b. Error must be excusable, not caused by negligence.
c. The error must be mistake of fact and not of law.
2. Violence or force
3. Intimidation or threat
4. Undue influence
5. Fraud or deceit