Law on Contracts

Atty. Paul Verlin D. Casaje <3 (Oppattorney/Hottorney)

• Contracts
• Consent
• Object
• Cause
• Rescissible
• Voidable
• Unenforceable
• Void
• Contracts which must be in a public instrument
• Natural Obligations
• Interpretation of Contracts
• Reformation of Contracts
Contract
• Meeting of minds between two person / parties, whereby one binds
himself, with respect to another; to give something or to render some
service.
• In a contract a person binds himself with respect to another, or
reciprocally, to give, to do or not to do.
• Does not state that contract is a written agreement, mere consent to
a particular prestation constitutes contract.
Provisions in a contract
• Art 1306 provides that any stipulation may be entered into by the
parties, however such stipulation must not transgress the following:
• Constitution
• Laws
• Morals
• Good customs
• Public Order
• Public Policy
Binding nature of contract
• Contract shall be binding or obligatory to all contracting parties, its
validity cannot be left to the will of one of them.
• Our contract shall be binding if I say so.
• I will comply to my obligations if I want to.

• HOWEVER, its validity may be left to the will of a third person, whose
decision shall be binding to the parties, if made known to them.
• An appraiser of a real property may determine the price thereof, however to
be binding to all the parties, he must make known his findings to them.
Contract and Third Person (Strangers)
• As a general rule: Contracts shall only be obligatory only to the:
Parties, their Assigns, or heirs.
• Exception: If the contract states that the same shall not be transmissible.
• Or if by nature of the obligation, it cannot be transmitted.
• Or by law, the same cannot be transmitted.
• The heir on the other hand shall not be liable, beyond the property
he received from the decedent.
POSSIBLE Question
• ABS CBN Contracted Regine to sing on one of its shows. However
Regine died.
• ABS CBN cannot enforce the obligation to sing to Cacai, Regine’s sister, since
the subject of Regine’s obligation is her singing voice.
• ABS CBN lent Regine 1M, however she died, leaving properties to her
only sister Cacai, worth P900,000.00
• Cacai is liable to pay ABS CBN, since she is an heir of Regine, however, her
liability shall not be more than what she received from her sister Regine. She
is liable for P900,000.00
Exception: Stipulation Pour Atrui
• If a contract contains stipulation that would benefit a third person, he
may demand its fulfillment, provided that he communicated his
acceptance to the obligor, before the same has been revoked.
• Contracting parties must clearly conferred a favor to a third person
• The third person communicated his acceptance before revocation.
Exception: Real rights
• In contracts creating real right, a third person who come into
possession thereof, shall be bound thereby, subject to the Mortgage
Law or Land Registration Laws.
• A real right is a right which attaches to a property against the whole
world.
POSSIBLE Question
• Rikimaru owes Bane, to secure this loan, Rikimaru mortgages his
property to Bane, later own, Rikimaru sells his property to
Nevermore.
• In this case, the act of mortgaging the property gives Bane a “real
right” over the property, that whoever owns it later shall not be a
hindrance in enforcing his claim thereto.
• If Rikimaru fails to pay, Bane can foreclose the mortgage, the property
may be sold at an auction EVEN IF NEVERMORE OWNS IT IN THE
PRESENT.
Exception: Rights of the Creditor
• A creditor may impugn (rescind, cancel) any contracts entered into by
the debtor to defraud them. (Accion Pauliana)
• Coronel owes Darrel P50M, in order to escape her liability, she sells all
of her property to Cunag.
• In this case, Darrel may impugn the sale made by Coronel to Cunag,
since the same is made to defraud him, that is to evade her liability to
him.
Exception: Inducing Third Person
• A third person who induces a party in a contract to violate his
obligation thereto, shall be liable to the other contracting party.
• Cenon agreed to sell her car to Laquindanum, however she sold it to
Ching by the inducement of Bobby.
• Laquindanum may hold Bobby liable for damages since his
inducement lead Cenon breach her obligation.
CLASSIFICATION OF CONTRACTS ACCORDING
TO ITS PERFECTION
• Consensual – perfected by mere consent.
• Real – perfected by delivery of subject (depositum(deposit pero hindi
deposit sa banko), pledge(prenda ng personal na gamit),
commodatum(pahiram ng gamit na hindi nacoconsume.))
• Solemn – perfected by complying with the requisites of the law to be
valid.
SAMPLE
• Consensual
• A: Tol bilhin ko na yang yosi mo bukas, 5 pesos.
• B: K.
• There is a perfected contract of sale. A can demand B to buy his yosi, and B can demand A to
sell his yosi. By consenting on the subject and purchase price, there is now a binding contract
between them
• Real
• A: Tol pautang ako 5k bukas.
• B: K. Pero iprenda mo sakin singsing mo bukas.
• A: K.
• There is a perfected contract of loan between them, since both of them agreed to the subject
and amount thereof. HOWEVER there is no perfected contract of PLEDGE, since A has not yet
delivered his ring to B. A may demand B to lend his money, but B cannot require A to deliver
his ring sinc there is no real contract of pledge yet.
Unauthorized contracts are unenforceable
• No person shall enter into a contract for a person, without being
authorized by the latter, or unless he has a right to represent him.
• Such contract shall not be enforceable against the principal. Except it
is ratified, impliedly or expressly.
• Ivan borrowed money from Loren in behalf of Mendoza. However,
Mendoza has not authorized Ivan to borrow from Loren.
• In this case, Mendoza shall not be liable to Loren, since Ivan’s act is not
authorized.
• If however, Mendoza has ratified this act, then his ratification shall cleanse
the defect, and he shall now be liable to Loren.
ESSENTIAL REQUISITES OF CONTRACT
• COC
• Consent of contracting parties
• Object certain which is the subject matter of the contract
• Cause of the obligation.
CONSENT
• Consent is manifested by meeting of offer and acceptance upon the
thing and the cause which are to constitute the contract.
• Offer must be certain. Acceptance must be absolute.

• Acceptance not accepted by the offerer is not binding to the latter.

Offer
• Offer is a proposal, and the offer must be certain as to the subject
and as to the cause.
• Do you want to buy my iPhone 11 Pro Max for P50,000?
• Here, the offer is certain since the subject and the cause is clearly spelled out.

• I am thinking of selling you my house for P50M

• The offer is not certain since the offerer is not sure whether to sell it or not.
Acceptance
• Acceptance is manifestation by the offeree of his assent to the terms of the
offer.
• Like the Offer, the Acceptance must be certain, if it is qualified, or subject
to a condition, it is merely a counter-offer, and is an attempt by the offeree
to change the original offer.

• A:Would you like to buy my phone for P10,000.00?

• B:K.
• There is a contract between them since there is a meeting of mind
between the subject and the cause. There being an unqualified offer and
an unqualified acceptance.
Acceptance
• The person making an offer may fix the time, place, manner of
acceptance, all of which must be complied with.
• An offer become ineffective upon the death, civil inderdiction,
insanity, or insolvency of either party before acceptance is conveyed.
• A: Will you buy my car on October 10 for 10k?
• B: Yes (Sent on email on October 8). However B died on October 9.
• Here, there is seems no to be acceptance by B since he died before the
acceptance was received by A.
Option Contract – Art. 1324
• The offer may be withdrawn by the offerer anytime before
acceptance has been reached by the offerer. Except if there is an
option contract.
• On Option contract separate contract from the main contract wherein
a person is given a period to acceptance the offer of the offeror.
• It is usually coupled with the Option Money, which is the
consideration for the Option Contract.
• The period in which the offeree must accept the offer.
Option Contract - Sample
• Cunag: Mars, bilhin mo na Montero ko 1M.
• Ching: Mars, pinagiisipan kong bilhin yang Montero mo pero di pa ko
makadecide, baka pagalitan ako ni Boyfie. Eto 10k pag isipan ko munang
bilhin, bigyan mo ko hanggang Oct 10.
• This is an option contract. Without the Option Contract, Cunag can
withdraw her offer, before acceptance is communicated to her by Ching.
• Because of the Option Contract however, she cannot withdraw her offer,
up until the Oct. 10.
• The Option Money is 10k, normally if the sale did not push through, Cunag
now owns that 10k.
Who cannot give Consent?
• Unemancipated minors (mga di awat).
• Insane.
• Deaf-mutes who do not know how to write.
• Because they can be victims of fraud. Uwu

• Contracts entered into during lucid interval are valid however.

• Contracts entered in a state of drunkenness or during a hypnotic spell
are voidable. (Valid, but may be voided)
Effects of Consent made by those who cannot
give them
• Art 1329 states, that the incapacity under 1327, may be modified by
law. Which means that the incapacity may not be entirely true.
Sample
• Contracts entered into by a minor for necessaries, food, insurance,
through a parent or a guardian, or he if lied as to his age, may be
considered as valid.
VICES OF CONSENT
• Consent may be said not be freely given under the following
conditions:
• Error or mistake
• Violence or force
• Intimidation or threat or duress
• Undue influence
• Fraud or deceit
MISTAKE
• To invalidate consent, the mistake should refer to any of the
following:
• Substance of the thing which is the object of the contract
• Conditions which have principally moved one or both to enter into contract.
• Identity or qualifications of the parities if such is the principal cause of the
contract.

• Substance of the thing which is the object of the contract

• A is buying a breeding cow, but B is selling a barren cow.
MISTAKE
• Conditions which have principally moved one or both to enter into contract.
• Lia signed a contract of sale of a condo, believing that the same is to be paid
by installments.

• Identity or qualifications of the parities if such is the principal cause of the

contract.
• Lia donated a parcel of land to Charles, believing the latter to be his father.
Burden of proof
• If one of the party is:
• Unable to read
• Contract is in a language not understood
• And mistake and fraud is being alleged

• The person who is enforcing the contract has the burden of proof to show
that there is no mistake, nor fraud, and that the terms thereof have been fully
explained to him
Mutual error vis a vis consent / Mistake of law
• Generally, mistake of law does not invalidate consent, since ignorance
thereof excuses no one from compliance therewith. But if the law is
ambiguous, then mistake of law may invalidate consent.
• Mutual error as to the legal effect of an agreement, when the real
purpose is frustrated may vitiate consent.

• To apply mutual error, the following must be complied with:

• Error is mutual
• As to the legal effect of an agreement
• It must frustrate the real properties of the parties
VIOLENCE, THREAT or INTIMIDATION
• Violence means that there is serious or irresistible force, that would
compel one person to enter into contract against his will.
• Threat or Intimidation is present when there is a reasonable and well-
grounded belief of fear against his person (katawan), property, or
person or property of his spouse, ascendant or descendant.
• However, threat to enforce a right, through just or legal means, does not
connote threat or intimidation in the above context.
UNDUE INFLUENCE
• There is undue influence when a person abuses his authority over the
other person, that the latter is deprived of freedom of choice.
FRAUD and CONCEALMENT
• Causal Fraud – There is causal fraud when through insidious words or
machinations, a person is induced to enter into contract, that without
such, the latter would not have entered thereto.
• Concealment – There is Fraud by Concealment when there is neglect
or failure to communicate that which a party has a knowledge thereof
and is ought to communicate
INCIDENTAL FRAUD
• Incidental fraud – There is incidental fraud
Object of a contract
• The object of a contract is its subject matter, or that which is the
obligation to give, to do, or not to do by a contracting party in his
point of view.
• It must be:
• Within commerce of man (not property of State, or those which ownership is
common to everybody)
• It must not be physically or legally impossible.
• In existence, or capable of coming in existence.
• Determinate or determinable
Cause of contracts
• Cause is in its layman’s term, cause why you are entering into
contracts, that is the moving force.
• Isabel sells her property to Rhia for 1M.
• As to Isabel
• The object (which is her obligation to deliver) is the house.
• The cause (why she is entering into contract) is to receive the 1M.

• As to Rhia
• The object (which is her obligation to deliver) is the 1M.
• The cause (why she is entering into contract) is to receive the house.
Cause of contracts
• In renumeratory contracts. The cause, is the service performed by the
employee or professional.
• In contracts of pure beneficence. The cause is the mere liberality of
the benefactor
DEFECTIVE CONTRACTS
• Rescissible Contracts
• Voidable Contracts
• Unenforceable Contracts
• Void / inexistent Contracts
RESCISSIBLE CONTRACTS
• Rescissible Contracts are valid contracts, because they complied with
the C.O.C., however, they may be rescinded because there is an
economic damage to one of the parties, or third parties.
• The person who is asking for rescission must return what he has
received.
• Rescission should be availed within four years.
• Guardianship, absentees – 4 years after capacity, and return
Art. 1381
• Those are.
1. Entered into by guardians, with respect to the property of their
ward, when the latter suffered a lesion of more than ¼.
2. Entered into upon representation of an absentee, when the latter
suffered a lesion of more than ¼.
3. Undertaken to defraud creditors
4. Property under litigation, when sold without permission of the
court, or litigants.
5. Payment made in a state of insolvency, when the debtor cannot be
compelled at the time effected.
Rescission as a subsidiary right. Third Person
Right
• Rescission is only a subsidiary right, if there are any actions that can
be taken, then rescission should not take place, such as if the damage
has been repaired.
• Rescission shall also not take place, when the property is in the
possession of a third party who acted in good faith.
Presumptions of fraud, as evidence of
rescission
• When the debtor alienated all of his property by donation
(gratuitous), and he did not reserve properties to covers his debt,
contracted before donation.
• Alienation by sale (onerous) made by a person against whom
judgment has been rendered, or an attachment has been made.
Liability of purchaser in bad faith
• The person who acquired the properties in fraud of creditor, shall
indemnify the latter if it should be impossible for the former to return
the property.
VOIDABLE CONTRACTS
• A voidable contract, is a valid contract, however it may be annulled on the
account of one party is incapable of giving consent, or where the consent is
vitiated by fraud, mistake, violence, intimidation or threat, or undue
influence.
• This type of contract is binding, up until annulled by a proper court, or has
been ratified by the parties.
• The period to file is within 4 years:
• In case of intimidation, violence, undue influence, from the time of the defect of
consent ceases;
• In case of mistake or fraud, from the discovery thereof.
• If entered by a minor or incapacitated person, from the time the guardianship ceases
Ratification of a voidable contract
• As discussed, ratification extinguishes the action to annul a voidable
contract.
• It may be expressly or tacitly ratification, such as silence, approval,
acceptance and retention, or getting benefit therefrom.
• In case of a contract involving an incapacitated person, the guardian
of the latter may effect the ratification.
• Only the consent of the injured party is required in ratification.
Who can bring the action for annulment /
Restoration / Incapacitated person restoration.
• Only the person who has an interest in the contract can bring the
action for annulment, and subsidiary person who has the right to the
property sold.
• Once the contract is annulled, then parties must restore to the other
what may have been given. In case of service, the value of the service
rendered must be restored.
• In case however that one of the parties is an incapacitated person, he
is required only to restore what has benefitted him
Loss of the thing in restitution
• If the erring party cannot restore what he has received on account of
loss without fault, there is no more obligation to return the thing, it is
only logical that the other party will not be required to restore what
he has received.
• If however, the same has been lost through his fault, then he shall pay
damages consisting of the value at the time of its loss.
UNENFORCEABLE CONTRACTS <3
• Unenforceable Contracts are those in which cannot be enforced, or be sued in
courts. Those are the following:
• Entered into by another on account of another person, without authorization
from the latter.
• Agreements not in writing:
• Agreement not to be performed in a year
• Promise to answer for the debt, default of another
• Agreement in consideration of marriage, other than mutual promise to marry each other
• Sale of personal property not less than 500 pesos, unless buyer accepted some part of the
purchase price
• Lease of more than 1 year
• Sale of real property
• Representation of credit of another
• Where both parties are incapable of giving consent
Sample
• Sarah made an oral promise to Ching, that the former will construct
the latter’s house 3 years from her promise.
• In this case, Ching cannot sue Sarah for specific performance, since under the
law, agreements not to be performed in a year, not in writing is not
enforceable.
• Ching is indebted to Darell in the amount of 1M with Cenon as a
guarantor, however the contract of guaranty is not in writing.
• In this case, Cenon cannot be made to pay Darell, since under the law, a
promise to pay for the default of another, not in writing is unenforceable.
• However, if the same is in the form of Novation, Cenon can be made
liable, since she has now a principal liability to Darell.
Sample
• Agreement in consideration of marriage, other than mutual promise to marry
each other.
• Usually these are what we call, pre-nuptial agreement, it is an agreement on what property
relation will govern the properties of the spouses.
• Sale of personal property not less than 500 pesos, unless buyer accepted some
part of the purchase price
• Kid and Con mutually promise to buy and sell a grand piano worth P600.00, their contract
however is not in writing. Either of them cannot enforce the sale since sale of personal
property worth more than 500 must be in writing. However if the buyer has accepted part of
the purchase price, then the same may be enforced.
Sample
• Representation of credit of another.
• Tulfo represents to Duterte that Cayetano can pay the latter to Tulfo, however
Cayetano failed to do so. The representation of Tulfo cannot be enforced
against him since it is not in writing.
Waiver of infringing of Statute of Frauds
• Under the law, the defects under the Statute of Frauds may be waived
under the following modes:
• Failure to object to the presentation of oral evidence to prove the agreement.
• By accepting the benefits under the agreement since it is already executory.
VOID CONTRACTS
• Void contracts are inexistent from the beginning, and thus, cannot
produce effect at all. They cannot be ratified. Unlike a voidable
contract, the action to declare a contract void does not prescribe.
VOID CONTRACTS
• Cause or object is contrary to law, morals, good customs, public order
or policy. - Obligation to kill, to steal.
• Absolutely simulated - Kunwari may sale, wala naman talaga.
• Object is outside the commerce of man. - Sale of sunlight, sea,
stars.
• Impossible service. - Jump higher than an airplane.
• Intention of the parties cannot be ascertained.
• Prohibited or declared by law. - Sale of prohibited drugs.
In pari delicto
• When the nullity proceeds from the illegality of cause or object, and
the act constitutes a criminal offense, both parties being in pari
delicto, they shall have no action against each other.
• However if only one party is guilty, then the innocent party shall have
a right to claim what he has delivered/paid, and not comply to what
he his promise.
Art. 1358 Contracts which must be in a public
document
• Certain documents must be in public document (notarized), for it to
be registered in the Property Registry.
• If the document is not notarized, the document is still valid between
the 2 parties, however, since they are not notarized, they cannot be
registered in some government agencies, and thus may not affect
third parties.
Art. 1358 Contracts which must be in a public
document
• Contract which creates, modifies, or extinguishes real right.
• Sale of a real property or interest therein
• Cession, repudiation of hereditary rights, or share in conjugal
partnership
• Administration of property
• Repudiation of any above-mentioned rights
• All other contracts where amount involved is more than P500.00
NATURAL OBLIGATIONS
• Civil obligations – those which give a right to a person to compel
performance – File a case of performance.
• Natural obligations – does not give a person right to compel the party
to compel with the other’s obligation, however, what the former has
received may retain.
• Why is it not enforceable?
• Because a natural obligation is based purely on equity, moral and nature.
NATURAL OBLIGATIONS
• When a right to sue expires (legal term, prescribed), and the other
party performs his obligation.
• A is indebted to B in the amount of P10k, to be paid on 2029. On 2029, the
right of B to sue A has already prescribed. If A paid on the said date, he
cannot recover what he has paid.
• When a third person pays a debt of another, after the same has
prescribed, and the obligor reimbursed the third person.
• A is indebted to B in the amount of P10k, to be paid on 2029. On 2029, the
right of B to sue A has already prescribed. If C paid the obligation of A on the
said date, and A reimbursed C, he cannot recover what he has paid.
NATURAL OBLIGATIONS
• When a minor 18-21 in a voidable contract returned, what has not
benefitted him after the same is annulled, he cannot demand the
return of the same.
• Ching a 13 year old sold his house for 10k. She kept the 6k and lost the 4k in a
pick pocket incident. She is only to return the 6k as it benefitted her, however,
it is her natural obligation to return the whole. If she returned the 4k, then
she has no right to be reimbursed thereto.
• When a minor enters into contract who pays sum of money, or
delivers a fungible (consumable thing), the minor cannot recover
what he has paid or delivered to the oblige who in good faith has
spent or consumed it.
NATURAL OBLIGATIONS
• When an obligor has been sued, however he in turn won the suit, and
has paid his obligation, he cannot recover what he has paid.

• An heir, who has paid the debt of a decedent, in which such debt
exceeds what he has received from the estate of such decedent is
valid and can.
INTERPRETATION OF CONTRACTS (How to
interpret?)
• If the contract is clear, and does not leave doubt as to the intention of
the parties, then it must be read in its literal sense.
• If however that the intention of the parties is different from what is
stated in the contract, then the intention should prevail, since it is the
subject of their consent.
• A and B entered into a “Contract of Lease” with B paying a monthly rental of
5k per month and after 3 years, B shall be the owner of the car. It is evident
that the contract between them is “Sale on Installment”, notwithstanding the
erroneous title of the contract.
• Pointers to Finals Exams
• Contracts and third parties
• Perfection of contract
• Effectivity of Acceptance
• Option Contract
• Vices of Consent
• AH BASTA LAHAT!