Contracts Discussion

Flow

General Principles

Introduction of basic concepts needed to

understand how contracts work

Five characteristics of contracts

Autonomy of the will

Parties, who have legal capacity, are

authorized to enter into contractual relations,
upon existence of the will, and to enter into
legal relations, as well as establish
contractual terms, thereby determining their
own ways, forms, and content

Mutuality

A contract binds both parties and hence its

validity or compliance cannot be left to the
will of one of them

It is contrary to law that one party is bound by

the contract and the other is not

If the performance of the contract is made to

depend on the uncontrolled will of one of the
parties, the contract is void

Obligatory force

When parties enter into a contract or

agreement, they agree to give it obligatory
force by an act of will, expressing the
individual adherence of each one of the
parties to the act thus prepared

Relativity

A contract can take effect only between or

among the contracting parties who have
consented thereto

Consensuality

General Rule: A meeting of the minds

perfects a contract – it gives birth to a
contract

After the meeting of the minds, the parties

are bound by:

What they have agreed upon

The fulfilment of everything they have

stipulated

The logical consequences of their transaction

which by their very nature are in keeping with
good faith, usage, and the law

Stages of A Contract

First stage: Negotiation

Begins from the time the prospective

contracting parties show their interest in
entering into a contract

Contracting parties also discuss the terms

and conditions of the proposed contract

Second stage: Perfection

A contract is perfected the moment when

both parties reach an agreement on the:

Essential elements (consent, object and

cause)

Terms and conditions of the contract

Third stage: Consummation

Both parties must fulfill their respective

obligations which would result in the
extinguishment of the contract

Common Essential Elements (COC)

Consent

Concurrence of the offer and acceptance

Offer certain

Absolute acceptance

Concurrence of the will of the parties

Legal capacity of the contracting parties

Consent must conform to the internal will of

the parties

Object

Must be within the commerce of man

Must be possible

Must be determinate

Cause or Consideration

Must exist

Must be true

Must be licit

Form

The presence of the common essential

elements stated above does not necessarily
mean that a contract is already valid

There are instances in which contracts need

a certain form in order to be valid and
binding

In these instances, form is essential for the

enforceability of a contract

Ex: Solemn contracts

Defective Contracts

A contract becomes defective due to the

absence or defect of an essential requisite
of a contract; or if the effects can cause
economic damage

Interpretation

Terms of the contract are clear and leave

no room for doubt with regard to the
intention of the parties = literal
interpretation of the contract prevails

Terms of an agreement appear to be

inconsistent with the clear intention of the
contracting parties = the intention of the
latter shall prevail over the terms of the
agreement

The primary consideration in determining

the true nature of the contract is the
intention of the parties

If the words of a contract appear to

contravene the evident intention of the
parties, the intention shall prevail

Intention is determined from:

Express terms of their agreement

Contemporaneous and subsequent acts of

the parties

Issue of interpretation arises when there is

an ambiguity in the content of a contract

This may happen probably because legal

texts are often uncertain even if the
commercial contract in writing is presumed
to be a “complete” and “precise” statement
of the terms agreed between the parties

Reformation

Remedy by which a contract is rectified to

express the true agreement or intention of
the contracting parties when by reason of
mistake, fraud, inequitable conduct, or,
accident, the written instrument fails to
express such agreement or intention

Only amends; does not destroy, terminate,

nor annul a contract

Court is not making a new contract for the

parties, it only establishes the true intention

Reformation can only be a remedy if the

contract was put into writing

A verbal agreement cannot be the subject of

reformation

Main goal: To establish the true agreement

of the parties in order to make the contract
effective