Contracts

Definition
+ It is a meeting of minds between 2 persons
whereby 1 binds himself, with respect to the
other, to give something or to render some
service

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Binding Effects of Contract
+ Obligations arising from the contract have the
force of law between the contracting parties

+ There must be mutuality between the parties

based on their essential equality, tow which is
repugnant to have 1 party bound by the
contract leaving the other free therefrom

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Essential Elements of a Contract (COC)
Consent Object Cause

+ Meeting of minds + Prestation + reason why parties

between parties on enter into contract
subject matter &
causes of contract;
concurrence of offer &
acceptance

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Natural Elements of a Contract
+ It exist as part of the contract even if the
parties do not provide for them, because the
law, as suppletory to the contract, creates
them.
+ Ex.: warranty of hidden defects or eviction in
the contract of purchase and sale

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Accidental Elements of a Contract
+ It is agreed upon the parties and which cannot
exist without being stipulated.

+ Example: Mortgage, Guaranty, Bond

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Principal Characteristics
Autonomy of wills
Parties may stipuate anything
as long as not illegal, immoral,
not contrary to public policy,
customs and public order
Relativity
Binding only between the
parties, their assigns, heirs,
strangers cannot demand
enforcement
Mutuality
Performance or validity binds
both parties; not left to will of
one of parties
Consensuality
Perfection of the contract
Obligatory Force
Parties are bound from
perfection of the contract:
a. Fulfill what has been
expressly stipulated
b. All consequences w/c may
be in keeping with good
faith, usage & law
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Exception to Relativity
+ Where the obligations arising from the contract are not
transmissible by their nature, by stipulation, or by provision
of law
+ Where there is stipulation pour autrui
+ Where a 3rd person induces another to violate his contract
+ Where, in some cases, 3rd person may be adversely affected
by a contract where they did not participate
+ Where the law authorizes the creditor to sue on a contract
entered into by his debtor (accion directa)

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Concept in a contract
+ Contract of Adhesion
+ A contract in which 1 party
has already prepared a form
of a contract containing
stipulations desired by him
and he simply asks the other
to agree to them if he wants
to enter into the contract.
+ Stipulation pour autrui
+ Stipulation in favor of a third
person conferring a clear
and deliberate favor upon
him, and which stipulation is
merely part of a contract
entered into by the parties,
neither of whom acted as
agent of the 3rd person.
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Requisites of Stipulation Pour Autrui
+ Parties must have a clear and deliberately conferred a favor
upon a 3rd person
+ The stipulation must be part, not the whole, of the contract
+ That the favorable stipulation should not be conditioned or
compensated by any kind of obligation whatsoever
+ Neither of the contracting parties bears the legal
representation or authorization of the 3rd party
+ The 3rd party communicates his acceptance before
revocation by the original parties

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Classification of Contracts
+ According to Perfection or Formation
1. Consensual - perfected by mere consent
2. Real – perfected by delivery
3. Formal or solemn – those where special
formalities are essential before the
contract may be perfected

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Classification of Contracts
+ According to Cause or Equivalence of the value of
the Prestation
1. Onerous – where there is an interchange of
equivalent valuable consideration
2. Gratuitous or lucrative – free; no equivalent
3. Remunerative – one where one prestation is
given for a benefit or service that had been
rendered previously

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Classification of Contracts
+ According to Importance or Dependence of one
upon another
1. Principal – contract may stand alone by itself
2. Accessory – depends for its existence upon
another contract
3. Preparatory – parties do not consider the
contract as an end by itself, but as a means
thru which future transaction or contracts may
be made

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Classification of Contracts
+ According to Parties Obligated
1. Unilateral – where only 1 of the parties has
an obligation
2. Bilateral – both parties are required to
render reciprocal prestations

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Classification of Contracts
+ According to Name or Designation
1. Nominate – contract is given a particular name
2. Innominate – not given any special name
Ex. Do ut des - I give, you give
Do ut facias – I give, you do
Facio ut facias – I do, you do
Facio ut des – I do, you give

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Classification of Contracts
+ According to Risk of Fulfillment
1. Commutative – parties contemplate a real
fulfillment, therefore, equivalent value are
given
2. Aleatory – fulfillment is dependent upon
chance, thus, the values vary because of
the risk or chance

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Classification of Contracts
+ According to Time of Performance or
Fulfillment
1. Executed – one competed at the time the
contract is entered into, that is obligations
are complied with at this time
2. Executory – one where prestations are to
be complied with at some future time

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Classification of Contracts
+ According to Subject + According to Evidence
Matter Required for its Proof

1. Things 1. Requiring merely oral

2. Rights or credits or parol evidence
3. Services
2. Requiring written proof

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Classification of Contracts
+ According to Imposed + According to Number of
Persons actually and
and Regulated by the physically entering into
law contracts
1. Ordinary
2. Institutional 1. Ordinary – 2 parties are
represented by different
persons
2. Auto-contracts – only 1
person represents 2
opposite parties but in
different capacity

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Classification of Contracts
+ According to Number of + According to Nature of
Persons who the Contract
participated in the
drafting of the contract
1. Personal
1. Ordinary 2. Impersonal
2. Contract of
Adhesion

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Stages of Contracts

Preparation Perfection Consummation

Period of negotiation Parties agree on Fulfillment or the
and bargaining the terms of the performance of the
contract terms

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Contract with Respect to Third Persons
1. Stipulation pour autrui – stipulation in favor of
third person
- 3rd person may demand fulfillment
provided that he communicated his acceptance
to the obligor before its revocation.

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Contract with Respect to Third Persons
2. In contracts creating real rights, 3rd person who come
into possession of the object of the contract are bound
thereby, subject to the provision of the Mortgage Law
and Land Registration Laws.
3. Creditors are protected in cases of contracts intended
to defraud them
4. Any 3rd person who induces another to violate the
contract shall be liable for damages to other
contracting party.

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Contract with Respect to Third Persons
+ Requisites of Interference with Contractual Relation by
Third Person

1. Existence of a valid contract

2. Knowledge by a 3rd person of the existence of a contract
3. Interference by the 3rd person in the contractual
relation without legal justification

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Essential Requisites
of Contracts
Consent Object Cause

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Consent

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Definition
+ It is the meeting of minds between the parties
on the subject matter and the cause of the
contract, even if neither one has been
delivered.
+ It is the manifestation of the meeting of the
offer and the acceptance upon the thing and
the cause which are to constitute the contract.

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Requisites of Consent
+ There must be two or more parties
+ The parties must be capable or capacitated
+ There must be no vitiation of consent
+ There must be no conflict
+ The intent must be declared properly

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Requisites of Meeting of the Mind
+ An offer that must be CERTAIN ( it is not vague,
misleading or made as a joke)

+ An acceptance that must be UNQUALIFIED and

ABSOLUTE (If the acceptance is Qualified = counter-
offer)
+ Acceptance may be: EXPRESS; IMPLIED; or
PRESUMED

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Consent:
+ Must be manifested by the concurrence of the
offer and acceptance with respect to object
and cause

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OFFER:
+ Offer is a unilateral proposition which one party
makes to the other for the celebration of the
contract.

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Offer must be Certain
+ Definite + Complete + Intentional

+ Indicating with
+ So that upon sufficient clearness + Should be serious
the kind of contract
acceptance an intended and and not made for
agreement can definitely stating fun or in jest
be reached on the essential
conditions of the
the whole proposed contract,
contract as well as the non-
essential ones
desired by the
offeror

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What may be Fixed by the Offeror
+ Time, place and manner of acceptance
+ Acceptance not made in the manner provided
by the offeror is ineffective

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When an Offer is made through the Agent
+ Accepted from the time acceptance
communicated to the agent

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When an Offer becomes Defective
+ Death + Other Instances

+ Civil Interdiction 1. When the offeree expressly or

impliedly rejects the offer
+ Insanity 2. When the offer is accepted with
qualification or condition
+ Insolvency 3. When before the acceptance is
communicated, the subject matter
has become illegal or impossible
4. When the period of time given to the
+ Before acceptance is offeree within which he must signify
his acceptance has already lapsed
conveyed 5. When the offer is revoked in due
time

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Business Advertisements
+ Not a definite offer but mere invitation to make
an offer

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Advertisement for Bidders
+ Simply invitations to make proposals, and the
advertiser is not bound to accept the highest
or lowest bidder unless the contrary appears

- Not applicable to judicial sale (auction)

wherein the highest bid must necessarily be
accepted.

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Acceptance
+ An unaccepted offer does not give rise to
consent
+ Contract is perfect when the offeror or counter
– offeror learns about the acceptance
+ It must be absolute

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Kinds of Acceptance
+ Express
+ Implied – arise from acts or facts which reveal
the intent to accept
+ Qualified – not an acceptance but constitutes a
counter-offer

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Acceptance made by letter or telegram:
+ It does not bind the offerer except from the time it came to his
knowledge

+ 4 theories on when the contract is perfected

1. Manifestation theory – counter-offeree manifest his acceptance
2. Expedition theory – sending of the letter; mailing
3. Reception theory – receipt of the message of acceptance
4. Cognition theory – knowledge of offeror of the acceptance

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Period of Acceptance
+ Anytime until such period expires
+ Acceptance beyond the time fixed is not legally an
acceptance but constitutes a new offer
+ Acceptance not made in the manner provided by
the offeror is ineffective
+ If offeror has not fixed the period, the offeree must
accept immediately within a reasonable tacit
period

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Period of Acceptance
+ Offer implies an obligation on the part of the offeror to
maintain it for such a length of time as to permit the
offeree to decide whether to accept it or not

+ Extinguishment or annulment of offer

1. Withdrawal by the offeror
2. Lapse of the time for option period
3. Legally incapacitated to act
4. Offeree makes counter-offer
5. Contract becomes illegal

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Contract of Option
+ Option – it is a contract granting a person the
privilege to buy or not to buy certain objects at
anytime within the agreed period at a fixed
price.
+ It is separate and distinct from the contract
which the parties may enter into upon the
consummation of the contract.

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Contract of Option
+ It must be supported by an independent
consideration and the grant must be exclusive.
+ If the option is not supported by an independent
consideration, offeror can withdraw the privilege at
any time by communicating the withdrawal to the
other party, even if the option had already been
accepted.

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Legal Capacities of the Parties
+ Who cannot give consent
1. Unemancipated minors
2. Insane or demented persons
3. Deaf-mutes who do not know how to write

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When Offer and/or Acceptance is Made
+ During a lucid interval = VALID
+ In a state of drunkenness = VOIDABLE utter
want of understanding
+ During a hypnotic spell = VOIDABLE utter want
of understanding

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Consent:
+ Must be Intelligent, Free, Spontaneous and Real
+ Where consent is given through: Violence,
Intimidation, Mistake, Fraud and Undue
Influence (VIMFU) = VOIDABLE Contract

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Vices of Consent (VIMFU)
+ Mistakes or Error
+ Violence
+ Intimidation
+ Undue Influence
+ Fraud

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Mistake or Error

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Definition
+ It is a false belief about something
+ A wrong or false notion about such matter
+ A belief in the existence of some circumstance,
fact, or event which in reality does not exist

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Requisites for Mistake to Vitiate Consent
1. The error must be substantial regarding:
a. the object of the contract,
b. the condition which principally moved or induced
one of the parties, and
c. identity or qualifications but only if such was the
principal cause of the contract
2. The error must be excusable (not caused by negligence)
3. The error must be mistake of fact, and not of law

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Kinds of Mistake
+ Mistake of fact – generally not a ground for
annulment of contracts
+ Error of law – mistake as to the existence of a
legal provision or as to its interpretation or
application

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Mistakes that do not affect the validity of the
contract
+ Error with respect to accidental qualities of the
object of the contract
+ Error in the value of thing
+ Error which refers not to conditions of the thing,
but to accessory matters in the contract,
foreign to the determination of the object

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Mutual Error of Law
+ Gen Rule: Ignorance of the law excuses no one from
compliance therein.

+ Exception: Mutual error of law

+ Requisites:
1. Error must be as to the legal effect of an
agreement
2. Must be mutual
3. Real purpose of the parties is frustrated

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Unable to read
+ When one of the parties is unable to read or if
the contract is in a language not understood by
him and mistake or fraud is alleged = burden of
proof of the party enforcing the contract

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Inexcusable Mistake
+ When the party alleging it knew the doubt,
contingency risk affecting the object of the
contract.
+ Party cannot alleged error which refers to a
fact known to him or which he should have
known by ordinary diligent examination of the
facts.

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Violence and
Intimidation

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Definition of Violence
+ It is a physical force or compulsion
+ External and generally serve to prevent an act from
being done
+ Requisites:
1. Physical force employed must be irresistible or of
such a degree that the victim has no other course,
under the circumstances, but to submit
2. That such force is the determining cause in giving
the consent to the contract.

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Definition of Intimidation
+ Moral force or compulsion
+ Internal operating upon the will and induces
the performance of an act
+ Influences the mind to choose between 2 evils,
between the contract and the imminent injury

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Requisites of Intimidation
1. Reasonable and well – grounded fear
2. Of an imminent and grave evil
3. Upon his person, property, or upon the person or
property of his spouse, descendants or ascendants
4. It must have been the reason why the contract
was entered into
5. The threat must be of an unjust act, an actionable
wrong

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Person in Intimidation:
+ Not limited to life and physical integrity also
includes liberty, and honor, covers all injuries
which are not patrimonial in nature.

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Effect of Violence and Intimidation
+ Shall annul the obligation, although it may have
been employed by a 3rd person who did not
take part in the contract

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Undue Influence
Definition
+ Any means employed upon a party which,
under the circumstances, he could not well
resist, and which controlled his volition and
induced him to give his consent to the contract
which otherwise he would not have entered
into

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Requisites of Undue Influence
+ Improper advantage
+ Power over the will of another
+ Deprivation of the latter’s will of a reasonable
freedom of choice

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Fraud or Dolo

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definition
+ Every kind of deception where in the form of
insidious machination, manipulations,
concealments, misrepresentation, for the
purpose of leading a party into error and thus
execute a particular act.

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Requisites of Fraud
1. Must have been employed by 1 contracting
party upon the other
2. Induced the other party to enter into a
contract
3. Must have been serious
4. Must have resulted in damage or injury to the
party seeking annulment

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Kinds of Fraud
+ Dolo Causante + Dolo Incidente

+ Here, even w/o fraud the

+ Here, were it not for the parties would have
fraud, the other party agreed just the same,
hence, fraud was only
would not have incidental in causing the
consented consent
+ Voidable + Valid

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Requisites of Dolo Causante
1. The fraud must be material and serious, that is, it really
induced the consent
2. The fraud must have been employed by only 1 of the
contracting parties
3. There must be a deliberate intent to deceive or to
induce
4. The other party must have relied on the untrue
statement, and must himself not guilty of negligence in
ascertaining the truth

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Failure to Disclose facts
+ When there is duty to reveal them = FRAUD
+ Gen. Rule = Silence or concealment does not
constitute a fraud
+ Exceptions:
+ There is a special duty to disclose certain facts
+ According to good faith and usages of
commerce of communication should have been
made

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Usual exaggeration in trade
+ When the party had an opportunity to know
the facts = NOT Fraud
+ “tolerated fraud” or lawful misrepresentation
as long as they do not go to the extent of
malice or bad faith
+ “Caveat emptor” = let the buyer beware
+ Do not give rise action for damages =
import of “opportunity to know facts”

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Mere Expression of Opinion
+ NOT Fraud unless made by an expert and relied
upon the plaintiff

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Effect of Fraud
+ Nullity of contract
+ Fraud must be serious
+ Parties must not be in pari delicto (guilty)
+ Indemnification for damages

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Misrepresentation

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Misrepresentation by a 3rd person
+ Gen. Rule = Does NOT vitiate the contract
+ Exceptions:

+ If 3rd person is in collusion with 1 of the parties,

he is considered an accomplice to the fraud and
contract becomes VOIDABLE
+ If 3rd person not in connivance with any of the
parties but leads them both into error, the
consent is vitiated, contract is VOIDABLE

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+ Violence and Intimidation by 3rd person =
annulment of contract

+ Fraud by 3rd person = does NOT annul unless it

produces substantial mistake on the part of
both parties

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Misrepresentation made in Good Faith
+ Not fraudulent but may constitute error

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Simulated
Contracts

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Definition
+ It is the process of intentionally deceiving
others by producing appearance of a contract
that really does not exist or which is different
from the true agreement

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Requisites of Simulated Contracts
1. An outward declaration of will different from
the will of the parties
2. The false appearance must have been
intended by mutual agreement
3. The purpose is to deceive 3rd persons

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Kinds of Simulated Contracts
+ Absolute + Relative
+ Parties conceal their true
agreement
+ Parties do not intent to
be bound + Effect: The parties are bound to
the real or true agreement (VALID),
except:
1. 1. if the contract should prejudice
+ Effect: Contract = VOID a 3rd person
2. The purpose is contrary to law,
morals, good customs., public
policy and public order

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Object

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Object or Subject Matter of a Contract
+ Thing, right or services
+ All things not outside the commerce of man –
including future things do not belong to the
obligor at the time the contract is made
+ Outside the commerce of man – all kinds of
things and interest whose alienation or free
exchange is restricted by law or stipulation,
which parties cannot modify at will

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Object or Subject Matter of a Contract
+ All rights not intransmissible
+ All services not contrary to law, morals, good
customs, public order or public policy

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Requisites of Object of Contracts
1. Within the commerce of man
2. Must be transmissible
3. Must not be contrary to law, morals, good customs,
public order and public policy
4. Must not be impossible
5. Must be determinate in kind or determinate
without the need of a new contract or agreement

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CAUSE

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Definition
+ It is the essential and impelling reason why a
party assumes an obligation.

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Requisites of Cause of a Contract
+ Exist
+ True
+ Licit or lawful

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Classification of Contracts as to Cause
1. Onerous – prestation or promise of a thing or
service by the other
2. Remuneratory – one where a party gives
something to another because of some service or
benefit given or rendered by the latter to the
former where such service or benefit was not due
as a legal obligation
3. Gratuitous – cause is the mere liability of the
benefactor

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Cause vs. Motive
+ Cause + Motive

- objective, intrinsic and juridical - psychological, individual or

reason for the existence of the personal purpose of a party to the
contract
contract itself
- Essential reason of the
- Particular reason for a contracting
party, which does not affect the
contract other and which does not impede
- Objective of a party in entering the existence of the true distinct
cause
into the contract
- Always the same for both
- Person’s reason for wanting to get
such objective
parties
- Differs with each person

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+ Gen. Rule: Motives does not affect the validity of the
contract
+ Exceptions:
1. When the motive of a debtor is alienating
property is to defraud his creditors, alienation is
RECISSIBLE
2. When the motive of a person is giving his
consent is to avoid a threatened injury, in case
of intimidation the contract is VOIDABLE
3. When the motive of a person induced him to act
on the basis of fraud or misrepresentation by
the other party, the contract is VOIDABLE

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Defective Causes and their Effects
+ Absence of cause and unlawful cause
+ produces no effect whatever
+ E.g. Simulated contracts
+ Statement of a false cause in the contract
+ VOID if there is no other true and lawful
cause

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Defective Causes and their Effects
+ Lesion or adequacy of cause
+ VALID unless fraud, mistake or undue
influence is present
+ Presumption of the existence and lawfulness of
a cause = though it is not stated in the contract

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