LESSON 9-10

CONTRACTS

ESSENTIAL REQUISITES OF CONTRACTS

 ELEMENTS OF A CONTRACT
1. Natural Elements – Those which are derived from the very nature of the contract, and as aconsequence,
ordinarily accompany the same.
2. Essential Elements – Those without which there can be no contract.
3. Accidental Elements – Those which exist only when the contracting parties expressly providefor them (De Leon,
2010).

CONSENT, OBJECT and CAUSE

 ESSENTIAL REQUISITES OF A CONTRACT

The following are the essential requisites of contracts
(COC):
1. Consent of the contracting parties;
2. Object or subject matter; and
3. Cause or consideration (NCC, Art 1318, Cathay Pacific v. Vasquez,
NOTE: These three requisites are, therefore, the essential elements of acontracts, however, in addition to the above, the
delivery of the object of the contract is required as afurther requisite.

CONSENT
- It is the concurrence of the wills of the contracting parties with respect to the object and cause, which shall
constitute the contract (De Leon, 2010).

NOTE: Consent is essential to the existence of a contract; and where it is wanting, the contract is non-existent.

 CONSENT
‘Consent’ Defined
a. It is the meeting of the minds between the parties on the subject matter and the cause of the contract, even if
neither one has been delivered.
b. It is the manifestation of the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute of the contract. (ARTICLE 1319, 1ST PART).
EXAMPLE:
A offered to sell B a particular car for 200,000 PESOS. Before B could consent, A withdrew the offer. Was A
allowed to do so?
Ans: Yes, because there was no meeting of the minds yet, hence no contract has been perfected yet.

 Requisites of Consent:
a. There must be two or more parties [NOTE: one person may represent two or more parties, unless there are
contradictory or prejudicial interests involved. (see. Article 1490, Civil Code; Garchitorena v Sotelo, 74 Phil. 25)]
b. The parties must be capable or capacitated (hence, if one party be insane, the contract is merely voidable)
c. there must be no vitiation of consent. (Example: there must be no fraud or intimidation, otherwise the contract
is voidable)
 d. there must be no conflict between what was expressly declared and what was really intended. Otherwise, the
remedy may be reformation, as when the parties really intended to be bound, or else the contract is VOID as
when the contract is fictitious or absolutely simulated.
e. The intent must be declared properly (that is whatever legal formalities are required must be complied with).

NOTE: A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram only binds the offer or
from the time such acceptance is known to him. In such case, it is presumed that the contract has been entered into in
the place where the offer was made. (NCC, ARTICLE 1319).

NOTE: We follow the cognitive theoryand NOT the mailbox theory. Under our Civil Law, the offer and acceptance concur
only when the acceptance has reached the knowledge of the offer or (actual knowledge), and not at the time of sending
the acceptance.

 Requisites for the Meeting of the Minds

a. An offer must be CERTAIN
b. And an acceptance must be UNQUALIFIED and ABSOLUTE

 Persons incapacitated to give consent

1. Unemancipated minors
- Emancipation only takes place upon attainment of the age of majority, that is, reaching the age of eighteen
(18) as provided under Article 234 of the Family Code of the Philippine .
2. Insane or demented persons (unless they acted during the lucid interval), drunks, and those hypnotized. (ART.
1328, Civil Code).
3. Deaf – mutes who do not know how to read and write (if they know how to read but don’t know how to write, it
is submitted that the contract is valid, for then they are capable of understanding, and therefore capacitated to
give consent).

 Rules on advertisements as offers

1. Business advertisements – Not a definite offer, but mere invitation to make an offer, unless it appears
otherwise (NCC, ART. 1325).
2. Advertisement for bidders – Simply invitation to make proposals and advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears (NCC, ART. 1326).

 Mirror Image Rule in law on contracts

- This is a common law concept which states that in order for there to be an acceptance, the offeree must accept the
terms as stated in the offer. Our courts also adhere to the “mirror-image rule”. Thus, it has been ruled that
acceptance must be identical in all respects with that of the offer so as to produce consent of meeting of the minds.

 Persons incapacitated to give consent

1. Deaf-mutes who do not knowhow to read and write (illiterates);
2. Insane or demented persons, unless the contract was entered into during a lucid interval;
3. Minors (NCC, ART. 1327) except:
a. Contracts for necessaries (NCC, Art. 1489)
b. Contracts by guardians or legal representatives and the court having jurisdiction hadapproved the same;
c. When there is active misrepresentation on the part of the minor (minor is
 NOTE: It is now well settled that misrepresentation by unemancipated minors withregard to their age when entering
into a contract shall bind them in the sense that theyare estopped subsequently from impugning the validity of the
contract on the ground ofminority. It is, however, necessary that the misrepresentation must be active, not
merelyconstructive.

d. Contracts of deposit with the Postal Savings Bank provided that the minor is over sevenyears of age; or

e. Upon reaching age of majority – they ratify the same

NOTE: Because the law incapacitates them to give their consent to a contract, the onlyway by which any one of
those enumerated above can enter into a contract is to actthrough a parent or guardian. If this requirement is not
complied with, the result is adefective contract. If only one of the contracting parties is incapacitated to give
hisconsent, the contract is voidable. If both of them are incapacitated to give their consent,the contract is
unenforceable.

 Vices of consent
1. Mistake;
2. Intimidation Violence;
3. Undue influence;
4. Fraud.
NOTE: A threat to enforce a just or legal claim through a competent authority does not amountto intimidation nor
vitiate consent (NCC, ART. 1335).

 Mistake
GR: Mistake as a vice of consent refers tovoidable (Jurado, 2010).

XPN: When mistake of law involves mutual error as to the legal effect of an agreement when the realpurpose of the
parties is frustrate (NCC, Art. 1334).

Requisites:
1. Mistake must be with respect to the effect of the agreement
2. It must be mutual; and
3. Real purpose of the parties must have been frustrated.

 Kinds of mistakes of fact which vitiate consent

1. Error in re (mistake as to object)[NCC, Art. 1313 (1)];
a. Error in corpore (mistake as to the identity of the thing);
b. Error in substantia (mistake as to the substance of the thing);
c. Error in quantitae (mistake as to the quantity of the thing)
Mistake as to the conditions of the thing, provided such conditions haveprincipally moved one or both parties to
enter into the contract.

2. Error in Persona (mistake as to person)

- Mistake as to the identity or qualifications of one of the parties will vitiate consent only when suchidentity or
qualifications have been the principal cause of the contract. For mistake (as to thequalification of one of the parties)
to vitiate consent, two requisites must concur:

a. The mistake must be either with regard to the identity or with regard to the qualificationof one of the
contracting parties; and
 b. The identity or qualification must have been the principal consideration for thecelebration of the contract.

 Intimidation
- There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon the person orproperty of his spouse, descendants or
ascendants, to give his consent (NCC, ART. 1335 (2))

 Requisites of intimidation (CICU)

1. One of the parties is compelled to give his Consent by a reasonable and well-grounded fear of an evil;
2. The evil must be Imminent and
3. It must be Unjust; and
4. The evil must be the determining Cause for the party upon whom it is employed inentering into the contract
(NCC, Art. 1335).

NOTE: To determine the degree of the intimidation, the age, sex and condition of the person shall beborne in mind
(NCC, Art. 1335).

 Validity of a contract if consent is reluctant

- A contract is valid even though one of the parties entered into it against his wishes and desires or evenagainst his
better judgment. Contracts are also valid even though they are entered into by one of the parties without hope of
advantage or profit.

 Violence
- There is violence when in order to wrest consent, serious or irresistible force is employed.

 Requisites of violence
1. Physical force employed must be serious or irresistible; and
2. The determining cause for the party upon whom it is employed in entering into the contract.

NOTE: Violence or intimidation shall annul the obligation, although it may have been employed by athird person who did
not take part in the contract (NCC, ART. 1336).

 Undue influence
- There is undue influence when a person takes improper advantage of his power over the will ofanother, depriving
the latter of a reasonable freedom of choice (NCC, ART. 1337).

 Circumstances to be considered for the existence of undue influence

1. Confidential, family, spiritual and other relations between the parties;
2. Mental weakness;
3. Ignorance; and
4. Financial distress (NCC, Art. 1337).

NOTE: The enumeration is NOT exclusive. Moral dependence, indigence, mental weakness, tenderage or other handicap
are some of the circumstances to consider undue influence.

 Determination of undue influence

The test to determine whether or not there is undue influence which will invalidate a contract is todetermine whether
or not the influence exerted has so overpowered and subjugated the mind of the contracting party as to destroy his free
agency, making him express the will of another rather than his
own (Jurado, 2011).

 Fraud
- There is fraud when through the insidious words or machinations of one of the contracting parties the other is
induce to enter into a contract which, without them, he would not have agreed to (NCC, ART. 1338).

NOTE: Insidious words refers to a deceitful scheme or plot with an evil design, or a fraudulentpurpose (Pineda, 2000).

Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound byconfidential relations,
constitutes fraud (NCC, ART 1339).

 Requisites of Fraud to vitiate consent

1. Serious fraud; and
2. Parties must not be in pari delicto. Otherwise neither party may ask for annulment (Para, 2008).

 Kinds of Fraud
1. Fraud in the perfection of the contract
a. Casual Fraud (dolocausante)
b. Incidental Fraud (doloincidente)
2. Fraud in the performance of an obligation (NCC ART. 1170)
Requisites:
a. Fraud, insidious words or machinations must have been employed by one of the contracting parties;
b. It must have been material and serious;
c. It included the other party to enter into a contract;
d. It must be a deliberate intent to deceive or and induce;
e. Should not have been employed by both contracting parties or by third persons; and
f. The victim suffered damage or injury.

BASIS DOLO DOLO

CAUSANTE INCIDENTE
(ART. 1338) (ART. 1344)
Gravity of Serious in Not serious
Fraud character
Efficient Cause Efficient cause Not the
which induces efficient cause
the party to
enter into a
contract
Effect on the Renders the Does not affect
Status of the contract validity of the
Contract voidable contract
Remedies Annulment Contract
with damages remains valid.
Remedy is
claim for
damages.
 Acts considered not fraudulent
1. The usual exaggerations in trade and the other party had an opportunity to know the facts arenot themselves
fraudulent (NCC, Art. 1340).
2. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party had relied
on the former’s special knowledge (NCC, ART. 1341);
3. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation hascreated
substantial mistake and the same is mutual (NCC, ART. 1342); and
4. Misrepresentation made in good faith is not fraudulent but may constitute error (NCC, ART. 1343).

 Simulation of contract
- It is the declaration of a fictitious will, deliberately made by agreement of the parties, in order toproduce, for the
purposes of deception, the appearance of a juridical act which does not exist or isdifferent from that which was
executed.

 Kinds of simulation of contract

1. Absolute (simulados) – The contracting parties do not intend to be bound by the contract at all,thus the
contract is void (NCC, Articles. 1345 – 1346). In absolute simulation, there is colorable contract but it has no
substance as the parties have no intention to be bound by it. The main characteristic of an absolute simulation is
that the apparent contract is not really desired orintended to produce legal effect or in any way alter the
juridical situation of the parties. As aresult, an absolutely simulated or fictitious contract is void, and the parties
may recover from each other what they may have given under the contract.

2. Relative (Disimulados)- The contracting parties conceal, their true agreement (NCC, ART. 1345); binds the
parties to their real agreement when it does not prejudice third persons or is not intended for any purpose
contrary to law, morals, good customs, public order or public policy(NCC, Art. 1346). If the concealed contract is
lawful, it isabsolutely enforceable, provided it hasall the essential requisites: consent, object, and cause (NCC,
ART. 1345-1346).

As to third persons without notice, the apparent contract is valid for purposes beneficial tothird persons with notice of
the simulation, they acquire no better right to the simulated contract thanthe original parties to the same.

The primary consideration in determining the true nature of a contract is the intention of the parties.Such intention is
determined from the express terms of their agreement as well as from theircontemporaneous and subsequent acts.

NOTE: If the parties state a false cause in the contract to conceal their real agreement, the contract is only relatively
simulated and the parties are still bound by the real agreement. Hence, where the essential requisites of a contract are
present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors.
in interest.

OBJECT

- It is the subject matter of the contract. It can be a thing, right or service arising from a contract.

 Requisites of an object
 1. Determinate as to kind (even if not determinate, provided it is possible to determine the samewithout the need
of a new contract);
2. Existing or the potentiality to exist subsequent to the contract;
3. Must be LIcit;
4. Within the Commerce of man; and
5. Transmissible.

NOTE: The most evident and fundamental requisite in order that a thing, right or service may be theobject of a contract,
is that it should be inexistence at the moment of the celebration of the contract, or at least, it can exist subsequently or
in the future (De Leon, 2010).

 Object of contracts
GR: All things or services may be the object of contracts.
XPNs:
1. Things outside the commerce of men (NCC, ART. 1347);
2. Intransmissible rights;
3. Future inheritance, except in cases expressly authorized by law
4. Services which are contrary to law, morals,good customs, public order or public policy;
5. Impossible things or services; and
6. Objects which are not possible of determination as to their kind.

CAUSE
- It is the essential and impelling reason why a party assumes an obligation.

 Requisites of a cause
It must:
1. Exist;
2. Be True; and
3. Be Licit.

NOTE: Every contract is presumed to have a cause and such cause is LAWFUL.

 Kinds of cause
1. Cause of onerous contracts – The prestation or promise of a thing or service by the other
e.g. Contract of Sale
2. Cause of remuneratory contract – The service or benefit remunerated.
e.g. Donation in consideration of a past service which does not constitute a demandable debt.
3. Cause of gratuitous contract - The mere liberality of the donor or benefactor.
4. Accessory – Identical with cause of principal contract, the loan which it derived its life and existence.
e.g. Mortgage or pledge.

 Complementary contracts construed together doctrine

- An accessory contract must be interpreted with its principal contract. The provisions must be construedtogether to
arrive at their true meaning. Certain stipulations cannot be segregated and then made tocontrol. This doctrine
closely adheres to the spirit of ART. 1374 of the Civil Code which states that the various stipulations of a contract
shall be interpreted together, attributing to the doubtful ones thatsense which may result from all of them taken
jointly.
 Rules relating to cause on contracts
1. Absence of cause – Confers no right and produces no legal effect.
2. Failure of cause – Does not render the contract void.
3. Illegality of cause – Contract is null and void.
4. Falsity of cause – Contract is void; unless the parties show that there is another cause which istrue and lawful.
5. Lesion or inadequacy of cause – Does not invalidate the contract, unless:
a. There is fraud, mistake, or undue influence;
b. When the parties intended a donation or some other contract; or
c. In cases specified by law
e.g.Contracts entered by guardian when ward suffers lesion of more than 25% and with courtapproval,
otherwise, if there is no approval, the contract is void regardless of the amount of lesion.