CONTRACTS

Chapter 2 ESSENTIAL REQUISITES OF CONTRACTS

Essential Elements
1. Consent
What is consent?
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.
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. (Art. 1319)

Requisites for the Meetings of the Minds:

(a) An offer must be certain;
(b) And the acceptance that must be unqualified and absolute.

IF THERE IS AN OFFER AND THERE IS AN ACCEPTANCE WITH CONDITIONS, IS THERE A

PERFECTED CONTRACT?
• ANSWER:
• None, because an offer must be clear and definite while an acceptance must be unconditional and unfounded
in order that their concurrence can give rise to a perfected contract.

Offer becomes ineffective:

1. Upon death, civil interdiction, insanity or insolvency of either party. (Art. 1323);
2. When the offeree expressly or impliedly rejects the offer;
3. When the offeree accepted with a qualification or condition;
4. When before the acceptance is communicated, the subject matter has become illegal or impossible;
5. When the period of time given to the offeree within which he must signify his acceptance has already
lapsed;
6. When the offer is revoked in due time.

WHAT IS A CONTRACT OF OPTION?

ANSWER:
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. The contract of option is separate and distinct contract from the
contract which the parties may enter into upon the consummation of the contract. Therefore, an option
must have its own cause or consideration. Therefore, an option must have its own cause distinct from the
selling price itself.

WHAT IS AN EARNEST MONEY?

ANSWER:
Also called “arras” is something of value to show that the buyer was really in earnest, and given to the
seller to bind the bargain.

Distinguish an Option Money from and Earnest Money.

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Consent: CHARACTERISTICS
A. The consent must be given by two or more parties
B. It must be intelligently given
C. It must be freely, voluntarily and consciously given;
D. The person giving his consent should not be suffering from any legal disability, as this would render the
contract void (such as between husband and wife who are generally prohibited by law from selling property
from each other.

ESSENTIAL REQUISITES OF CONTRACTS

Requisites of valid Consent:
1. There must be two or more parties;
2. The parties must be capable or capacitated;
3. There must be no vitiation of consent;
4. There must be no conflict between what was expressly declared and what
was really intended;
5. The intent must be declared properly.

1. Two or more parties

Who are considered Parties?

• Natural persons
• Juridical persons

• Who are considered Juridical Persons?

Art. 44 of the New Civil Code:
The following are juridical persons:
1. The State and its political subdivisions;
2. Other corporations, institutions and entities fro public interest or purpose, created by law;their personality
begins as soon as they have been constituted according to law;
3. Corporations, partnerships and associations for private or public purpose to which the law grants a
juridical personality, separate and distinct from that of each shareholder, partner or member.

2. Capacitated/Capable
Who are persons capacitated to give consent?

Persons Incapacitated to Give Consent.

1. Minors ( is a person under 18 years of age)
2. Insane or demented persons (unless they acted during lucid interval,)
Insane or demented person – is one who is not possessed of mind and reason equal to

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a full and clear understanding of his act.
Deaf-mutes who do not know how to write & read
3. ( If they know how to read but do not know how to write the contract is
valid.);

Incapacity: effect on the contract

• A. If only one of the parties is incapacitated, the contract is voidable;
• B. If both parties are incapacitated, the contract is unenforceable.

Article 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness
or during a hypnotic spell are voidable.

1. Contracts during a lucid interval

- Lucid interval – refers to the period of temporary sanity of a person known to be insane.
The contract entered into by a person known to be insane during such period is valid. It is the insanity at
the time of execution of the contract that renders the contract voidable. The sanity at the time the contract was
entered into of a person presumed to be insane must be proved.
2. Contracts agreed into a state of drunkenness or during a hypnotic spell
- Contracts entered into during a state of drunkenness or during a hypnotic spell are voidable by reason of a
complete loss of understanding on the part of one giving consent. Such persons are incapable of giving intelligent
consent.

3. No vitiation of consent?
Vices of Consent:
(1) Error or mistake – false belief about something.
Ex. A person signed a contract of sale thinking it was only a contract of loan.

(2) Violence & intimidation– refers to physical coercion, intimidation to moral coercion.
 
(3) Undue influence – Requisites: (a) Improper advantage; (b) power over the will of another; (c) deprivation
of the latter’s will undue influence of a reasonable freedom of choice.
 
(4) Fraud – use of 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.

Vices of consent

• MISTAKE
- The mistake that vitiate consent is that which involves the absence of knowledge with respect to a thing
or a wrong conception about said thing.
- When mistake invalidates consent?
- If the mistake refers to the substance of the thing which is the object of the contract
- If the mistake refers to the conditions which have principally moved one or both parties to enter into the
contract;
- If the mistake refers to the identity or qualifications of one of the parties when the same have been the
principal cause of the contract.
- If the mistake refers to the legal effect of an agreement when the real purpose of the parties is frustrated
and the same is mutual.

• When mistake does not invalidate consent?

a. When the mistake refers to a simple mistake of account -
b. if the party alleging the mistake knew the doubt entered into the contract with knowledge

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of the risks involved.

2. VIOLENCE AND INTIMIDATIONS

DEFINITION: Violence refers to physical coercion; intimidation to moral coercion.
• Requisites of VIOLENCE to Vitiate Consent:
• (a) Employment of serious and irresistible force;
• (b) It must have been the reason why the contract was entered into.

INTIMIDATION
Requisites of Intimidation to Vitiate Consent:
• (a) Reasonable and well-grounded fear;
• (b) of an imminent and grave evil;
• (c) Upon his person, property, or upon the person, or property of his spouse, descendants or ascendants;
• (d) It must have been the reason why the contract was entered into;
• (e) The threat must be of an unjust act and actionable wrong.

3. UNDUE INFLUENCE
• 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. The following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or in financial distress. (Art.1337)
Requisites of Undue Influence to Vitiate Consent:
• (a) Improper advantage;
• (b) Power over the will of another;
• (c) Deprivation of the latter’s will of a reasonable freedom of choice.

• To vitiate consent, the influence must be UNDUE. If the influence is DUE or ALLOWABLE, as when caused by
solicitation, importunity, argument and persuasion, same is not prohibited by law, morals or equity.

4. FRAUD
• 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.
• Requisites for FRAUD to Vitiate Consent:
• (a) The fraud must be serious;
• (b) the parties must not be in pari delicto otherwise, neither party may ask for annulment. The contract
would therefore be considered valid.

What is a Simulation of Contract?

• It is the process of intentionally deceiving others by producing the appearance of a contract that really does not
exist (absolute simulation) or which is different from the true agreement (relative simulation)

Requisites of simulation:
(a) An outward declaration of will different from the will of the parties;
(b) The false appearance must have been intended by mutual agreement;
(c) The purpose is to deceive third persons.

Kinds of SIMULATED CONTRACT:

(a) Absolutely Simulated (simulados) fictitious contracts:
1) Here, the parties do not intend to be bound;
2) Effect: Contract is VOID.
(b) Relatively Simulated (disimulados) disguised contracts:
1) Here, the parties conceal their true agreement;

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2) Effect: The parties are bound to the real or true agreement except –
2.1. If the contract should prejudice a third person;
2.2. or if the purpose is contrary to law, morals, good customs, public order, or public policy.

Kinds of Fraud:

Dolo Causante – without the fraud the other party would not have consented (Contract is voidable).
Requisites:
1. The fraud must be material and serious, that is, it really induced the consent;
2. The fraud must have been employed by only one of the contracting parties because if both
committed fraud, the contract would remain valid;
3. There must be deliberate intent to deceive or to induce, therefore, misrepresentation in Good
Faith is not fraud;
4. The other party must have relied on the untrue statement and must himself not be guilty of
negligence in ascertaining the truth.

Dolo Insidente – without the fraud the parties would have agreed just the same, hence, the fraud was only incidental
in causing the consent. The contract is valid but there can be an action for damages.

2. Object/subject matter
The object of a contract is really to create or to end obligations which in turn may involve things or
services.

Requisites: (valid Object)

1) The thing or service must be within the commerce of man;
2) Must be transmissible;
3) Must not be contrary to law, morals, good customs, public order, or public
policy;
4) Must not be impossible;
5) Must be determinate as to its kind or determinable without the need of a new
contract or agreement.

3. Cause/Consideration
It is essential and

reason why a party assumes, an obligation.

Requisites:
a. It must be present at the time the contract was entered into;
b. It must be true;
c. It must be lawful.
d. No cause the contract is VOID.

In onerous contracts, the cause is understood to be, for each contracting party, the prestation or promise of a thing
or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure
beneficence, the mere liberality of the benefactor. (Art. 1350)

What is LESION?
ANSWER:
• It is inadequacy of cause, like an insufficient price for a thing sold.

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• Rules on Lesion – Lesion or inadequacy of price does not invalidate the contract. Exceptions: If there is Fraud,
mistake or undue influence

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