CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1355)

CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS

GENERAL PROVISIONS

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.

Section 1 – CONSENT
(Arts. 1319-1346)

STUDY GUIDE :

1. How is consent in a contract manifested? (Art. 1319)

¤ Consent is manifested by the meeting of the offer and acceptance upon the thing and the cause which are to
constitute the contract.
¤ The OFFER must be certain and the ACCEPTANCE must be absolute and unqualified. After acceptance, the
contract is already perfected.

2. What are the causes which render an offer ineffective?

(a) Withdrawal of the offer before acceptance. (Art. 1319)
(b) Qualified acceptance of the offer. (Art. 1319)
(c) Death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. (Art. 1323)
(d) Expiration of the period fixed in the offer for acceptance. (Art. 1324)

3. Suppose the offeror has allowed the offeree a certain period to accept, may the offer be withdrawn even before the
expiration of the period? (Art. 1324)
¤ YES, provided that :
(a) The offer has NOT as yet been accepted; or
(b) There is no “option contract” between the parties.

4. Do advertisements for business and bidders constitute definite offers?

(a) Business advertisements are generally mere invitations to make an offer; hence, their acceptance will not create a
contract. (Art. 1325)
(b) Advertisement calling for bidders are mere invitations to make proposals and the advertiser is not bound to accept the
highest or lowest bidder. (Art. 1326)
5. What are the characteristics of consent?
(a) It is INTELLIGENT. – There must be capacity to act. (Arts. 1327-1329)
(b) It is FREE and VOLUNTARY. – There is no vitiation of consent by reason of violence or intimidation. (Arts. 1330 &
1335)
(c) It is CONSCIOUS and SPONTANEOUS. – There is no vitiation of consent by reason of mistake, undue influence, or
fraud. (Arts. 1330, 1337, 1338& 1339)
NOTE: Contracts entered into by persons who are incapacitated or whose consent is vitiated are NOT VOID but merely
VOIDABLE. (Art. 1330 & 1390)

6. Who are incapacitated to give valid consent to contracts?

(a) Minors [Art. 1327(1)]
(b) Insane or demented persons [Art. 1327(2)]

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- The contract is valid if entered into during a lucid interval. (Art. 1328)
(c) Deaf-mutes who do not know how to write. [Art. 1327(3)]
(d) Persons in a state of drunkenness or under a hypnotic spell. (Art. 1328)

7. When does mistake vitiate consent in a contract? (Art. 1331)

¤ The mistake must be a “substantial mistake of fact”. It must refer either to :
(a) the substance of the thing which is the object of the contract (par. 1); or
(b) those conditions which have principally moved one or both parties to enter into the contract (par. 1); or
(c) the identity or qualifications of one of the parties, provided the same was the principal cause of the contract (par. 2).
(d) an excusable mistake, i.e., one not caused by negligence. Thus, there is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the contract. (Art. 1333)

8. Who has the burden of proof in case of mistake or fraud?

¤ General rule: the party who alleges mistake or fraud.
¤ Exception: When one of the parties is unable to read, or if the contract is in a language not understood by him, it
is the party enforcing the contract who is duty-bound to show that there has been no fraud or mistake, and that the terms of the
contract have been fully explained to the former. (Art. 1332)

9. When is there violence as a vice of consent?

(a) When consent is obtained by the employment of serious and irresistible force (Art. 1335, par. 1); and
(b) It is the reason why the other party gave his consent.
10. What constitutes intimidation as a vice of consent?
¤ There is intimidation when a person is compelled to give his consent because of (a) a reasonable and well-
grounded fear (b) of an imminent and grave evil (c) upon his person or property, or, upon the person or property of his
spouse, descendants, or ascendants. (Art. 1335, par. 2)
¤ The intimidation or threat must be of an unjust act, an actionable wrong. Hence, a threat to enforce a just or legal
claim does not vitiate consent. (Art. 1335, par. 4)

11. When is there undue influence as a vice of consent?

¤ There is undue influence when a person takes improper advantage of his power over the will of another, depriving
the latter of a reasonable freedom of choice. (Art. 1337)

12. When is there fraud as a vice of consent?

¤ There is fraud when, through insidious words or machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would not have agreed to. (Art. 1338)
¤ Kinds of fraud (dolo) :
(a) Fraud in the celebration of the contract.
(1) Incidental fraud (dolo incidente) – The contract is valid, but there can be an action for damages. (Art. 1344,
par. 2)
(2) Causal fraud (dolo causante) – Here, were it not for the fraud, the other party would not have consented.
(Art. 1338) The contract is voidable.
(b) Fraud in the performance of the obligations stipulated in the contract. – This kind of fraud presupposes the existence
of an already perfected contract. (Art. 1170)

13. What are the essential requisites for fraud to vitiate consent?
(a) There must be misrepresentation (Art. 1338) or concealment (Art. 1339).

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(b) It must be serious (Art. 1344).
(c) It must have been employed by only one of the contracting parties (Art. 1344).
- Hence, fraud committed by a third person does not vitiate consent unless it was practiced with the knowledge
of the favored contracting party (Art. 1342).
(d) It must be made with intent to deceive. Hence,
(1) Misrepresentation made in good faith is not fraudulent but may constitute error or mistake (Art. 1343).
(2) The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in
themselves fraudulent (Art. 1340).
(3) The mere expression of an opinion does not signify fraud, unless made by an expert, and the other party has
relied on the former’s special knowledge. (Art. 1341).
(e) It must have induced the consent of the other contracting party.

2. What is meant by simulation of a contract?

¤ Simulation of a contract is the act of deliberately deceiving others by pretending by agreement the appearance of
a contract which is either non-existent or concealed.
¤ Hence, simulation may either be : (Art. 1345)
(a) Absolute – when the contract does not really exist and the parties do not intend to be bound at all. The contract is void
(Art. 1345).
(b) Relative – when the contract entered into by the parties is different from their true agreement. The parties are bound
by their real agreement provided it does not prejudice a third person and is lawful (Art. 1345).

PLEASE MEMORIZE :
J Articles 1319 (par. 1), 1327 and 1330.
J Articles 1381, 1390, 1403 and 1409. à start memorizing in advance.

APPLICATION/PROBLEMS :

(1) S offered to sell B 80 copies of Dr. Seuss’s Beginner Books for children for the price of P250.00 each. The
books were available for immediate delivery upon acceptance of the offer. B agreed to buy the specified books if S could
deliver 120 copies the following day. The following day, S delivered to B the 80 copies of the books promised and sought to
collect from B the total price therefor in the amount of P20,000. B, however, contends that he is not bound to accept the
delivery as no contract was perfected between him (B) and S. Do you agree with B’s contention? à Art. 1319

(2) On January 1, 2012, S offered for sale to B a BMW Z4 with plate no. ZLR-603 for P2.1M. On January 4, B accepted
the offer and informed S in a letter mailed on the same date. The letter of acceptance was received by S on January 6. S,
however, later came to know that, on the night of January 4, B’s car figured in an accident resulting in the instantaneous death
of B. The wife of B, who knew how his husband wanted the BMW car so much, now informs S that she already has in her
possession the P2.1M payment for the BMW, and demands from S delivery of the car sold. May S be compelled to make
delivery? à Art. 1323

(3) On May 1, 2012, S offered to sell his 250 square-meter house and lot in Manila for P8M to B, who was interested in
buying the same. In his letter to B, S stated that he was giving B a period of 15 days beginning May 2, 2012 within which to
accept the offer. As consideration for the option, B paid S the amount of P10,000. On May 10, 2012, B went to S to exercise
his option and to pay the purchase price in the amount of P8M. S, however, refused to sell the house and lot to B because
somebody wanted to buy the property for P10M. B sued S to compel him to accept the payment, and execute a deed of sale
in his (B’s) favour. Decide on the rights and obligations of the parties. à Art. 1324

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(4) S signed a “Deed of Sale” transferring ownership of his land to B. Later, S sought to have the deed of sale annulled
on the ground that S was forced to sign the deed of sale against his will by B who threatened to report him (S) to the BIR
authorities in connection with tax evasion activities. May the contract be annulled on the ground of intimidation? à Art. 1335

Section 2 – OBJECT OF CONTRACTS

(Arts. 1347-1349)

STUDY GUIDE :

1. What may be the object (or subject matter) of a contract? (Art. 1347)
(a) things; (b) rights; or (c) services.

2. What are the preconditions in order that things may be the object of a contract?
(a) It must be within the commerce of men – that is, it can legally be the subject of commercial transactions. (Art. 1347,
par. 1)
It must not be physically or legally impossible. (Art. 1348)
(b)
It must be in existence or capable of coming into existence.
(c)
NOTE, however, that future inheritance (not hereditary rights) cannot be the object of a contract except in cases
expressly authorized by law. (Art. 1347, par. 2)
(d) It must be determinate, or determinable, without the necessity of a new contract between the parties.

3. What services may be the object of a contract?

¤ All services which are not contrary to law, morals, good customs, public order, or public policy may be the object of
a contract. (Art. 1347, par. 3)

4. What rights may be the object of a contract?

¤ All rights may be the object of a contract except those which are instransmissible. (Art. 1347, par. 3; See also
Art. 1311, par. 1)
APPLICATION/PROBLEMS :

1. Leon owns a 2-hectare farmland in Villareal, Samar, which was planted with mango trees. In one of their leisurely
walks, Leon promised his son, Lydio, that after he (Leon) is gone, Lydio will inherit the particular farmland. Two months
thereafter, Lydio executed a deed of sale covering the 2-hectare farmland in favour of Manuel. Two years after the sale, Lydio
died. Was the sale of the farmland to Manuel valid?

Section 3 – CAUSE OF CONTRACTS

(Arts. 1350-1355)

STUDY GUIDE :

1. What is the meaning of cause?

¤ The cause of a contract is the “why” of the contract, the essential reason which impels the contracting parties to
enter into the contract.

2. What is the cause of a contract? (Art. 1350)

(a) In onerous contracts – the prestation of the other party.
(b) In remuneratory contracts – the service or benefit remunerated.
(c) In gratuitous contracts – the mere liberality of the benefactor.

3. What is the distinction between cause and object?

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¤ The difference is only a matter of viewpoint. Thus, in reciprocal contracts, the object or subject matter for one is
the cause for the other, and vice versa.

4. What is the distinction between cause and motive?

CAUSE MOTIVE
1. The immediate or direct reason. 1. The remote or indirect reason.
2. It is always known to the other 2. May be unknown to the other
party. party.
3. It is an essential element of a 3. Not an essential element of a
contract. contract.
4. Its illegality affects the contract’s 4. Illegality does not void the
validity. contract.

5. What are the requisites for cause in a contract?

(a) It must be present (existing at the time of perfection of the contract). Hence, absence of cause (as distinguished from
inadequacy and failure of cause) voids a contract. (Art. 1352)
(b) It must be lawful. (Art. 1352)
(c) It must be true or real. If the cause stated is false, the contract is VOID, unless some other cause which is lawful
really exists. (Art. 1353)

6. Is the contract valid although the cause is not stated?

¤ Yes, because it is presumed that the cause exists and is lawful, unless the debtor proves the contrary. (Art.
1354)

7. What is the rule on lesion or inadequacy of cause in a contract? (Art. 1355)

(a) General Rule – Lesion per se does not invalidate a contract.
(b) Exceptions :
(a.1.) When the lesion is attended with fraud, mistake, or undue influence.
(a.2.) When specified by law. (e.g., Art. 1381, pars. 1 & 2.)

APPLICATION/PROBLEMS :

1. Tony wanted to kill Alvin and hired Billy, the hitman, to do the job. Billy demanded P100,000 in cash for his services.
Since Tony was out of cash, he sold his Nikon camera to Fred for P100,000 so that the planned execution will be carried out.
When the mother of Tony found out about the sale and the reason why Tony had sold his camera, Tony’s mother sought to
have the sale avoided on the ground of illegality of cause. Will the action of Tony’s mother prosper?

2. On January 15, 2012, Smith sold to Caloy his BMW big bike for P250,000. It was stipulated in their contract that
delivery and payment was to be simultaneously made on January 30, 2009. On the agreed date, Smith delivered the bike to
Caloy who promised to pay the P250,000 the following day as he was short of cash. Caloy, however, failed to make payments
despite demands from Smith. Hence, Smith filed an action to have the sale declared null and void by the court on the ground
of absence of cause since the consideration had not been paid. Is the remedy taken by Smith proper?

3. On December 15, 2011, Susie signed a promissory note in favor of Milcah. The promissory note is worded as follows:
“I promise to pay Milcah the amount of P50,000 on or before March 31, 2012. ” The promissory note, however, does not state
what Susie received from Milcah in exchange for the P50,000 promised to be paid. Is the promissory note valid even if it did
not state the cause received by Susie from Milcah?

4. On June 6, 2012, Mrs. Reyes offered to sell her beach resort in Batangas to Mr. Cayco for P4M. Considering the
prevailing price of similarly situated resorts in the area, Mr. Cayco felt he found himself a good deal. Hence, Mr. Cayco readily
accepted the offer and immediately bought the resort from Mrs. Reyes. Three weeks after the parties closed the sale, Mrs.
Reyes came to know from a friend that the resort she had sold to Mr. Cayco had a valuation of P6M. Mrs. Reyes then filed an

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action to have the contract of sale cancelled. May the contract of sale between Mrs. Reyes and Mr. Cayco be cancelled on the
ground of lesion or inadequacy of cause?

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