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Contracts: I. General Provisions
Contracts: I. General Provisions
1. Autonomy Exceptions:
2. Obligatory force of contracts
3. Mutuality 1. Beneficial Stipulation/Stipulation pour autrui
4. Relativity (stipulaton in favour of a third person)
5. Consensuality
Requisites:
Autonomy (Art. 1306) a. The contracting parties by their
stipulation must have clearly and
The contracting parties may establish such deliberately conferred a favour upon a
stipulations, clauses, terms and conditions as they third person;
may deem convenient. b. The third person must have
communicated his acceptance to the
Note: The right to enter into a contract is one of the obligor before its revocation by the oblige
liberties guaranteed by the Constitution to every or the original parties;
individual. BUT, in appropriate cases, it cannot be c. The stipulation in favour of the third
invoked as against the right of the state to exercise its person should be a part, not the whole, of
police power. the contract;
d. The favourable stipulation should not be
Limitation to the principle of autonomy: Stipulation conditioned or compensated by any kind
should not be contrary to law, morals, good customs, of obligation whatever; and
public order, or public policy. e. Neither of the contracting parties bears
legal representation or authorization of
Obligatory force of contracts the third party for otherwise, the rules on
agency will apply.
This principle is expressly recognized in Articles
1153, 1308, 1315, and 1356. 2. Where the third person comes into
possession of the object of a contract creating
It is a rule that once the contract is perfected, it shall real rights (Art. 1312, CC)
be of obligatory force upon both the contracting
parties. 3. Where the contract is entered into in order to
defraud a creditor (Art. 1313, CC)
Mutuality (Art. 1308, CC) Here, the creditor may ask for rescission.
The contract must bind both parties. 4. Where the third person induces a contracting
party to violate his contract. (Art. 1314)
Note: The validity or fulfillment of a contract cannot be
left to the will of one of the contracting parties. Such third person can be held liable for
damages.
Validity or fulfillment may be left to (1) the will of a
third person, whose decision shall not be binding until Requisites:
made known to both contracting parties (Art. 1309, a. The existence of a valid contract
CC); or (2) chance. b. Knowledge on the part of the third person
of the existence of the contract; and
Art. 1310. The determination shall not be obligatory if c. Interference by third person without legal
it is evidently inequitable. In such case, the courts shall justification or excuse
decide what is equitable under the circumstances.
Consensuality of Contracts (Art. 1315)
Relativity (Art. 1311, CC) General Rule: Contracts are perfected by mere
consent, and from that moment the parties are bound
General Rule: Contracts take effect only between the not only to the fulfillment of what has been expressly
parties, their assigns and heirs. stipulated but also to all the consequences which,
according to their nature, may be in keeping with
Exception: with respect to assignees or heirs, the good faith, usage and law. (Art. 1315, CC)
general rule under Art. 1131 is not applicable if the
rights and obligations arising from the contract are Exception: Real contracts (examples: deposit, pledge,
not transmissible or are purely personal: (a) by their commodatum) are not perfected until the delivery of
nature; (b)by stipulation; or (c) by provision of law. the object of the obligation.
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(1) Consent of the contracting parties;
STAGES OF CONTRACTS
(2) Object certain which is the subject matter of
1. Generation: comprehends the preliminary or the contract;
preparation or conception. It is the period of
negotiation and bargaining. (3) Cause of the obligation which is established.
2. Perfection: the moment when the parties
come to agree on the terms of the contract ESSENTIAL REQUISITES/ELEMENTS OF A
3. Consummation: the fulfillment or CONTRACT
performance of the terms agreed upon in the
contract. 1. Consent
2. Object or subject matter
Art. 1317. No one may contract in the name of 3. Cause or consideration.
another without being authorized by the latter, or
unless he has by law a right to represent him. CONSENT
A contract entered into in the name of another by Consent is the conformity of the parties to the
one who has no authority or legal representation, terms of the contract; the acceptance by the
or who has acted beyond his powers, shall be offeree of the offer made by the other.
unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has Requisites:
been executed, before it is revoked by the other
contracting party. 1. Must be manifested by the concurrence of the
offer and acceptance (Arts. 1318-1326, CC);
Q: What is the effect if a person contract in the 2. Parties must possess the necessary legal
name of another person without being authorized capacity (Arts. 1327-1329, CC);
by the latter? 3. Must be intelligent, free, spontaneous, and
real (Arts. 1330-1346, CC)
A:
General Rule: The contract shall be unenforceable. Note: Intelligence in consent is vitiated by error;
(Rationale: A contract involves the free will of the freedom by violence, intimidation or undue
parties and only he who enters into the contract can influence; and spontaneity by fraud.
be bound thereby.
OFFER: Unilateral proposition which one party
Exception: If ratified by that person under whose makes to the other for the celebration of a contract.
name the contract was entered into or by his duly
authorized agent BEFORE it is revoked by the other Q: May an offer be withdrawn?
contracting party (Article 1311, par. 2). Such
ratification must be clear and express so as not to A: Yes, the offer/proposal may be withdrawn so long
admit of any doubt or vagueness. as the offeror has no knowledge of acceptance by
offeree.
Q: What are the requisites in order that a person
may be bound by the contract of another? Q: What is the rule on complex offers?
A: A:
1. The person entering into the contract must be 1. If offers are interrelated, the contract is
duly authorized, expressly or impliedly, by perfected if all the offers are accepted.
the person in whose name he contracts or he 2. If offers are not interrelated, single
must have, by law, a right to represent him; acceptance of each offer results in a perfected
and contract unless the offeror has made it clear
2. He must act within his power. that one is dependent upon the other and
acceptance of both is necessary.
Note: A contract entered into by an agent in
excess of his authority is unenforceable ACCEPTANCE: Must be certain or definite and
against the principal, but the agent is absolute in character. A qualified acceptance
personally liable to the party with whom he constitutes a counter-offer (Art 1319, CC)
contracted where such party was not given
sufficient notice of the limits of the powers It may be express or implied (Art 1320, CC).
granted by the principal.
Requisites of acceptance:
II. ESSENTIAL REQUISITES OF CONTRACTS
1. Absolute
Art. 1318. There is no contract unless the 2. Directed to the offeror
following requisites concur: 3. Made with the intention to be bound
4. Made within the proper time
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5. Communicated to the offeror and learned by the offer of the offerer. It is a separate and distinct
him unless the offeror knows of the from the contract which will be perfected upon the
acceptance. acceptance of the offer.
Q: What is the rule on amplified acceptance? Option period: period within which the offeree must
accept the offer.
A: Under certain circumstances, a mere amplification
on the offer must be understood as an acceptance of Option money: the money paid or promised to be
the original offer, plus a new offer which is contained paid in consideration for the option (as opposed to
in the amplification earnest money, which is actually a partial payment of
the purchase price and is considered as proof of the
RULE ON WITHDRAWAL OF ACCEPTANCE perfection of the contract).
FIRST VIEW: Although the offeror is not bound until BUSINESS ADVERTISEMENTS (Art. 1325, CC)
he learns of the acceptance, the same thing cannot be
said of the offeree who, from the moment he accepts, Unless it appears otherwise, business advertisements
loses the power to retract such acceptance since the of things for sale are not definite offers, but mere
right to withdraw between the time of the acceptance invitations to make an offer.
and its communication is a right which is expressly
limited by law to the offeror. Since the offeree is the ADVERTISEMENTS FOR BIDDERS (Art. 1326, CC)
first person who knows of the concurrence of the
wills of the parties, as a consequence, the obligation, Advertisements for bidders are simply invitations to
as far as he is concerned, must also commence make proposals, and the advertiser is not bound to
earlier. accept the highest or lowest bidder, unless the
contrary appears.
SECOND VIEW: Acceptance may be revoked before it
comes to the knowledge of the offeror because in PERSONS INCAPACITATED TO GIVE CONSENT
such case there is still no meeting of the minds, since (Art. 1327, CC)
the revocation has cancelled or nullified the
acceptance which thereby ceased to have any legal 1. Minors
effect. Exceptions:
Note: The offerer may fix the time, place, and manner a. When minor misrepresents his age.
of acceptance, all of which must be complied with. (Art. -the circumstances of the minor (i.e. he
1321, CC) appears to be of legal age) must be of such
nature that it could have been relied upon by
Art. 1322. An offer made through an agent is the other party. Otherwise, the contract
accepted from the time acceptance is remains voidable.
communicated to him.
b. Contracts involving sale and delivery of
Art. 1323. An offer becomes ineffective upon necessaries to minors (Art. 1489, CC)
the death, civil interdiction, insanity, or
insolvency of either party before acceptance is c. Contracts entered into by guardians/legal
conveyed. representatives
Other grounds which render the offer 2. Insane/demented persons, UNLESS the
ineffective: (a) failure to comply with the contract was entered into during a lucid
condition of the offer as to the time, place, and interval (Art. 1328, CC)
the manner of payment; (b) expiration of the
period fixed in the offer for the acceptance; (c) Note: Insanity/mental incapacity must be
destruction of the thing due before acceptance; existing at the celebration of the contract
(d) rejection of the offer.
3. Deaf-mutes who do not know how to read
Art. 1324. When the offerer has allowed the and write.
offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by Note: If both parties are incapable of giving consent,
communicating such withdrawal, except when the contract is unenforceable. (Art. 1403, CC)
the option is founded upon a consideration, as
something paid or promised.
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INCAPACITY TO GIVE CONSENT (Art. 1327) VS.
DISCQUALIFICATION TO CONTRACT (Art. 1329) Note:
Art. 1327 Art. 1329 Art. 1334. Mutual error as to the legal effect of an
Restrains the exercise of Restrains the very right agreement when the real purpose of the parties is
right to contract itself frustrated, may vitiate consent.
Based upon subjective Based upon public policy
circumstances of certain and morality Requisites for applicability:
persons a. The error must be mutual
Voidable Void b. It must be as to the legal effect of an
agreement
VICES OF CONSENT (Art. 1330, CC) c. It must frustrate the real purpose of the parties
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A: No. Under Article 1333 of the Civil Code, there is
no mistake if the party alleging it knew the doubt, Examples of Circumstances which shall be
contingency or risk affecting the object of the considered to determine whether undue
contract. influence has been exercised:
Note: If a party knew beforehand the doubt, 1. Confidential, family, spiritual, and other
contingency, or risk affecting the object of the contract, relations between the parties;
it is to be assumed that he was willing to take chance 2. Mental weakness
and cannot, therefore, claim mistake. (Martinez vs. 3. Ignorance
Court of Appeals, 56 SCRA 647) 4. Financial distress of the person alleged to
have been unduly influenced. (Art. 1337, CC)
Q: What should be the nature of violence/force in There is fraud when, through insidious words or
order that it may vitiate consent? machinations of one of the contracting parties, the
other is induced to enter into a contract which,
A: Violence requires the employment of physical without them, he would not have agreed to. (Art.
force. To make the consent defective, the force 1338, CC)
employed must be either serious or irresistible.
Requisites:
1. There must be misrepresentation or
INTIMIDATION concealment;
2. It must be serious
Q: What are the requisites of intimidation as a 3. It must have been employed by only one of
vice of consent? the contracting parties. [Note: Fraud
committed by a third person does not vitiate
A: consent unless it was practiced in connivance
1. It must produce a reasonable and well- with, or at least with the knowledge of, the
grounded fear of an evil; favoured contracting party.(Art. 1342, CC)]
2. The evil must be imminent and grave;
3. The evil must be upon the person of the party Exceptional Cases
to the contract or his property, or the person
of his spouse, descendants, or ascendants; 1. Usual exaggerations in trade, when the other
and party had an opportunity to know the facts,
4. It is the reason why he enters into a contract. are not in themselves fraudulent. (Art. 1340)
Note: Whether or not the fear is reasonable and well- *Caveat Emptor – dealer’s talk, buyer Beware
grounded or the evil imminent and grave depends
upon the circumstances including the age, sex, and 2. Opinions: A mere expression of an opinion
condition of the person. does not signify fraud, unless made by an
expert and the other party has relied on the
The threat of a court action as a means to enforce a former's special knowledge. (Art. 1341)
just claim is justified and does not vitiate consent.
Requisites:
a. It must be made by an expert;\The
Art. 1336. Violence or intimidation shall annul other contracting party has relied on
the obligation, although it may have been the expert’s opinion;
employed by a third person who did not take part b. The opinion turned out to be false or
in the contract. erroneous.
Note: To make the contract voidable/annullable, it is 3. Misrepresentation by a third person does not
necessary that the violence or intimidation must be of vitiate consent, unless such
the character required in Article 1335. misrepresentation has created substantial
mistake and the same is mutual. (Art. 1342)
UNDUE INFLUENCE
4. Misrepresentation made in good faith is not
There is undue influence when a person takes fraudulent but may constitute error. (Art.
improper advantage of his power over the will of 1343)
another, depriving the latter of a reasonable freedom
of choice. (Coso vs Fernandez Deza, 42 Phil. 595)
Note: When there is a duty to reveal facts, as when the
Mere general or reasonable influence is not sufficient. parties are bound by confidential relations, constitutes
If gained by kindness and affection or argument or fraud. (Art. 1339)
persuasion, the influence will not vitiate consent.
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Art. 1344. In order that fraud may make a know, and not when the offeree merely manifests his
contract voidable, it should be serious and should acceptance.
not have been employed by both contracting
parties. Auto Contract: A contract made by a person acting in
another’s name in one capacity and his own name or
Kinds of Fraud that of another in another capacity.
1. Dolo Causante (Art. 1338) – renders the Collective Contract: A contract where the law
contract voidable authorizes that the will of the majority binds a
minority to an agreement, notwithstanding the
Requisites: opposition of the latter.
a. It should be serious
b. It should not have been employed by both Contract of Adhesion: A contract where one party has
contracting parties; already a prepared form of a contract, containing the
c. It should not have been known by the stipulations he desires, and he simply asks the other
other contracting party party to agree to them if he wants to enter into the
contract.
2. Dolo Incidente (Art. 1339) – holds the guilty
party liable for damages Dragnet Clause: One which is specifically phrased to
subsume all debts of past or future origins. Mortgages
Art. 1345. Simulation of a contract may be of this character enable the parties to provide
absolute or relative. The former takes place when continuous dealings, the nature or extent of which may
the parties do not intend to be bound at all; the not be known or anticipated at the time, and they
latter, when the parties conceal their true avoid the expense and inconvenience of executing a
agreement. new security on each new transaction.
Art. 1346. An absolutely simulated or fictitious Quantum Meruit: Under the principle of quantum
contract is void. A relative simulation, when it meruit, a contractor is allowed to recover the
does not prejudice a third person and is not reasonable value of the thing or services rendered
intended for any purpose contrary to law, morals, despite the lack of a written contract, in order to avoid
good customs, public order or public policy binds unjust enrichment. Quantum meruit means that in an
the parties to their real agreement. action for work and labor, payment shall be made in
such amount as the plaintiff reasonably deserves. (for
SIMULATION example: To deny payment for a building almost
completed and already occupied would be to permit
Simulation of a contract is the act of deliberately unjust enrichment at the expense of the contractor.)
deceing others, by feigning or pretending by
agreement, the appearance of a contract which is
either non-existent or concealed. OBJECT
Q: What are the kinds of simulated contracts? The object of a contract is its subject matter.
2. Relative – There is an intention by the Q: What are the kinds of object of a contract?
parties to be bound but they conceal their
true agreement A:
1. Things
Note: Relative simulated contracts are binding when: 2. Rights
1. They do not prejudice 3rd persons 3. Services
2. They are not contrary to law, morals, good
customs, public order or public policy.
Q: What are the requisites of things as an object?
Exceptions: A:
1. Things outside the commerce of men; 1. Cause of onerous contracts – the prestation or
2. Intransmissible rights; promise of a thing or service by the other
3. Future inheritance, except in cases expressly 2. Cause of remuneratory contracts– the service or
authorized by law benefit remunerated
3. Cause of gratuitous contracts – the mere
Note: The law permists contracts on future liberality of the donor or benefactor
inheritance: 4. Accessory – identical with cause of principal
a. In the case of donations by reason contract, the loan which it derived its life and
marriage between future spouses with existence (e.g.: mortgage or pledge)
respect to their future property to take
effect, only in the event of death, to the Q: What is the effect of the error of cause on
extent laid down by law in testamentary contracts?
succession (see Art. 84, FC)
b. In the case of partition of property by act A:
inter vivos by a person to take effect uon 1. Absence of cause (want of cause; there is
his death (Art. 1080, CC) total lack or absence of cause) – Confers
no right and produces no legal effect
4. Services which are contrary to law, morals, 2. Failure of cause ‐ Does not render the
good customs, public order or public policy; contract void
5. Impossible things or services; 3. Illegality of cause (the cause is contrary to
law, morals, good customs, public order and
Note: Impossibility may be public policy)–Contract is null and void
a. Physical: when the thing or service in the 4. Falsity of cause (the cause is stated but the
very nature of things cannot exist or be cause is not true)–Contract is void, unless the
performed. With particular reference to parties show that there is another cause
services, impossibility may be: which is true and lawful
i. Absolute: when the act cannot be 5. Lesion or inadequacy of cause –Does not
done in any case so that nobody invalidate the contract, unless:
can perform it; or a. there is fraud, mistake, or undue
ii. Relative: when it arises from influence;
special circumstances of the case b. when the parties intended a donation
or the special conditions or or some other contract; or
qualifications of the obligor) c. in cases specified by law (e.g.contracts
b. Legal: when the thing or service is entered when ward suffers lesion of more
contrary to law, morals, good customs, than 25%)
public order, public policy
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Q: What are rules on the form of contracts? A: It is a remedy to conform to the real intention of
the parties due to mistake, fraud, inequitable
A: conduct, accident. (Art. 1359)
General Rule: Contracts shall be obligatory, in
whatever form they may have been entered into, Note: Reformation is based on justice and equity.
provided all essential requisites for their validity are
present. Q: What are the requisites in reformation of
instruments?
Exceptions: Contracts must be in a certain form
when the law requires that a contract be in some A:
form to be: 1. Meeting of the minds to the contract
a. valid 2. True intention is not expressed
b. enforceable (Statute of Frauds); or in the instrument by reason of (MARFI)
c. for the convenience of the parties or for a. Mistake,
the purpose of affecting third persons. b. Accident,
c. Relative simulation,
***The parties may compel each other to reduce the d. Fraud, or
verbal agreement into writing. e. Inequitable conduct
3. Clear and convincing proof of MARFI
Q: What are the acts which must appear in a Note: When there is no meeting of the minds, the
public document? proper remedy is annulment and not reformation.
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