CHAPTER 2: ESSENTIAL REQUISITES OF CONTRACTS

Essential elements or those without which no contract can validly exist regardless of the
intentions of the parties. They are also known as requisites of a contract.

There is no contract unless the following requisites concur:

1. Consent of the contracting parties;
2. Object certain which is the subject matter of the contract;
3. Cause of the obligation which is established. (Art. 1318)

SECTION 1: CONSENT

Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came
to his knowledge. The contract, in such a case, is presumed to have been entered into in the
place where the offer was made. (Art. 1319)

Consent is the conformity or concurrence of wills (offer and acceptance) and with respect to
contracts, it is the agreement of the will of one (1) contracting party with that of another or
others, upon the object and terms of the contract.

It is the meeting of minds or mutual assent between the parties on the subject matter and the
cause which are to constitute the contract even if neither has been delivered. Mutual assent or
agreement takes place when there is an offer and acceptance of the offer.

Requisites:
1. Legal capacity of the contracting parties
2. Manifestation of the conformity of the contracting parties
3. The parties’ conformity to the object, cause, the terms and conditions of the contract
must be intelligent, spontaneous and free from all vices of consent
4. The said conformity must be real and not simulated or fictitious
Characteristics of consent
1. It is intelligent –There is capacity to act.
2. It is free and voluntary –There is no vitiation of consent by reason of violence or
intimidation
3. It is conscious or of consent spontaneous -There is no vitiation by reason of mistake,
undue influence, or fraud.

Meaning of offer

Offer is a proposal made by one (1) party (offerer) to another (offeree), indicating a
willingness to enter into a contract. It is more than an expression of desire or hope. It is
really a promise to act or to refrain from acting on condition that the terms thereof are
accepted by the person to whom it is made.

Offer must be certain and seriously intended

The offer must be certain or definite so that the liability (or the rights) of the parties
may be exactly fixed because it is necessary that the acceptance be identical with the
offer to create a contract without any further act on the part of the offeror.

Matters that may be fixed by the offerer

The person making the offer may fix the time, place, and manner of acceptance, all of
which must be complied with. (Art. 1321.)

The person making the offer has the right to prescribe the time, the place, and the
manner of acceptance, at of which must be complied with. An acceptance depart from
the terms of the offer constitutes a counter-offer.

The counter offer has the effect of extinguishing the offer. It, in effect, constitutes a
new offer which the original offerer may accept or reject.

Communication of the offer

The offer must be communicated and received by the offeree. It may be by letter,
telephone, e-mail, or the like. It may be express or implied by the language or acts of
the offeror understood as such by the other party.

When offer becomes ineffective

 An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed.( Art. 1323)

Acceptance will not produce a meeting of the minds in case the offer has already
become ineffective because of the death, civil interdiction, insanity, or insolvency of
either party before the conveyance of the acceptance of the offer.

It must be observed that the law refers to "either party." This means that at the time
the acceptance is communicated, both parties, offerer and offeree, must be living and
capacitated.

Meaning of acceptance

Acceptance is the manifestation by the offeree of his assent to all the terms of the offer.
Without acceptance, there can be no meeting of the minds between the parties.

Acceptance of offer must be clear and absolute

The acceptance of an offer must not only be clear; it must be absolute, unconditional,
or unqualified, that is, it must be identical in all respects with that of the offer so as to
produce consent or meeting of the minds.

If the acceptance is qualified, as when it is subject to a condition, it merely constitutes

a counter-offer which, in law, is considered a rejection of the original offer and an
attempt by the parties to enter into a contract on a different basis.

Form of acceptance of offer

An acceptance may be express or implied (Art. 1320.)

1. An express acceptance in the form of a promise to pay a certain amount or to

do something may be oral or written.
2. An implied acceptance is one that is inferred from act or conduct.

Communication of acceptance
 1. To offerer- The acceptance of the offer must be absolute. The other requisite is
that the acceptance must be communicated to the offerer. The acceptance may
De either express or implied (Art. 1320.) subject to the terms of the offer.

2. To agent - By legal fiction, an agent is considered an extension of the

personality of his principal.

An offer made through an agent is accepted from the time acceptance is

communicated to him. (Art. 1322.)

Option contract, Option period; Option money.

When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or promised.( Art. 1324)

Meaning of contract of option; option period; option money.

1. Option contract is one giving a person for a consideration a certain period within
which to accept the offer of the offerer. It is separate and distinct from the contract
which will be perfected upon the acceptance of the offer. Option may also refer to
the privilege itself given to the offeree to accept an offer within a certain period.
2. Option period is the period given within which the offeree must accept the offer.
3. Option money is the money paid or promised to be paid in consideration for the
option. It is not to be confused with earnest money which is actually a partial
payment of the purchase price and is considered as proof of the perfection of the
contract.

Withdrawal of offer where period stipulated for acceptance

When the offerer gives to the offeree a certain period within which to accept the offer,
the general rule is that the offer may be withdrawn as a matter of right at any time
before acceptance. The exception is when the option is founded upon a consideration,
as something paid or promised.

Capacity to give consent

The Civil Code does not define who have capacity or legal ability to give consent to a contract.
It defines on the contrary who have no capacity, by which it can be inferred that capacity is the
general rule, which exists in those, of whom the law has not denied it.

Persons who cannot give consent

1. Minors
Exceptions:

a. Contracts where the minor is estopped to raise minority as a defense

through his own misrepresentation

Effect of Misrepresentation of Age by the Minor

Misrepresentation by minors with regard to their age when entering

into a contract shall bind them in the sense that they are estopped
subsequently from impugning the validity of the contract on the
ground of minority.

b. Contracts for necessaries

c. Contracts by guardians or legal representatives
d. Contracts of life, health or accident insurance taken on the life of the
minor

2. Insane or demented persons, unless the contract was entered into during a lucid
interval

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

Lucid interval is a temporary period of sanity. A contract-entered into by an

insane or demented person during a lucid interval is valid. It must be shown,
however, that there is a full return of the mind to sanity as to enable him to
understand the contract he is entering into.

3. Deaf-mutes who do not know how to read and write

4. Other special disqualifications may be provided by law.

Under the Rules of Court, the following are considered incompetents and
may be placed under guardianship:

i. persons suffering the accessory penalty civil interdiction

 ii. hospitalized lepers;
iii. prodigals (spendthrifts);
iv. those who are of unsound mind even though they have lucid
intervals; and
v. those who, by reason of age, disease, weak mind and other
similar causes, cannot outside aid, take care of themselves and
manage their property, becoming thereby an easy prey for
deceit and exploitation.

Vices of consent

A contract where consent is given through mistake, violence, intimidation, undue influence, or
fraud is voidable. (Art. 1330)

Aside from incapacity and simulation of contract, the following are the causes that vitiate
consent or render it defective so as to make the contract voidable:
1. Error or mistake
2. Violence or force
3. Intimidation or threat or duress (Ibid.);
4. Undue influence
5. Fraud or deceit

1. Error or mistake (Art. 1331.)

In order that mistake may invalidate consent, it should refer to the substance of the
thing which is the object of the contract, or to those conditions which have principally
moved one or both parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only
when such identity or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction. (Art. 1331)

Meaning of mistake or error

Mistake or error is the false notion of a thing or a fact material to the contract. Should
refer to the substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into the contact.
 In order that mistake may vitiate consent, it must rater to:
1. The substance of the thing which is the object of the contract; or
2. Those conditions which have principally moved one or both parties to enter into
the contract; or
3. The identity or qualifications of one of the parties provided the same was the
principal cause of the contract

2. Violence or force (Art. 1335.)

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

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 or property of his spouse, descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and condition of the person shall be
borne in mind.

A threat to enforce one's claim through competent authority, if the claim is just or legal, does
not vitiate consent. (Art. 1335)

Violence requires the employment of physical force. Under Article 1335, to make consent
defective, the force employed must be either serious or irresistible. In either case, consent is
not free.

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

Example
X signs a document because every time he refuses he is hit by the butt of a gun which
causes blood to flow from his head, there is violence because serious or irresistible force
is employed to wrest consent.

3. Intimidation or threat or duress

Intimidation - when 1 of the contracting parties is compelled by a reasonable & well-
grounded fear of an imminent & grave evil upon his person or property, or upon the person
or property of his spouse, descendants or ascendants, to give his consent.

Example
X signs the document because a gun is pointed at him by Y who threatens to kill him and
he has no reason to believe that Y will not carry out his threat, the intimidation would
vitiate consent.

4. Undue influence (Art. 1337.);

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)

Undue influence is influence of a kind that so overpowers the mind of a party as to prevent
him from acting understandingly and voluntarily to do what he would have done if he had
been left to exercise freely his own judgment and discretion.

When a person takes improper advantage of his power over the will of another, depriving
the latter of a reasonable freedom of choice.

Circumstances to be considered
The following are examples of circumstances which shall be considered to
determine whether undue influence has been exercised:
1. confidential, family, spiritual and other relations between the parties,
2. mental weakness,
3. ignorance, or
4. financial distress of the person alleged to have been unduly influenced.
Example
X, a tenant, is in need of P10,000 to pay his landlord who is seeking to eject him for
failure to pay the rents. X to borrow from Y but the latter instead tries tells him to sell
his piano for P10,000. X has nobody to turn to for assistance.
 If X does not want to sell the piano but he is compelled to sell it because of his financial
condition, the sale may be avoided on the ground of undue influence.

5. Fraud or deceit.

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. (Art. 1338.)

Causal fraud is the fraud committed by one (1) party before or at the time of the
celebration of the contract to secure the consent of the other. It is the fraud used by a
party to induce the other to enter into a contract without which the latter would not
have agreed to.

Requisites of causal fraud

a. There must be misrepresentation or concealment of a material fact with
knowledge of its falsity.
b. It must be serious
c. It must have been employed by only one of the contracting parties.
d. It must be made in bad faith or with intent to deceive the other contracting party
who had no knowledge of the fraud.
e. It must have induced the consent of the other contracting party.
f. It must be alleged and proved by clear and convincing evidence.

Example
S offered to sell to B a ring, claiming that the stone on the ring is diamond. S knows
that it is not diamond but ordinary glass.

If B buys the ring, relying on the truth of the representation of S, the sale may be
annulled on the ground of fraud.

Fraud by concealment

Failure to disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud. (Art. 1339)
 A neglect or failure to communicate or disclose that which a party to a contract knows
and ought to communicate constitutes concealment. In this case, concealment is
equivalent to misrepresentation or false representation.

The injured party is entitled to rescind or annul the contract whether the failure to
disclose the material facts is intentional or unintentional as long as there is a duty to
reveal them and the party is misled or deceived in entering into the contract.

Example
X and Y are partners engaged in the real estate business. Here, the parties are bound
by confidential relations. X learned that C was interested in buying a certain parcel of
land owned by the partnership even tor a high price. Without informing Y X was able
to make Y sell to him (X) his (Y's) share in the partnership. Then, X sold the land at a
big profit.

In this case, X is guilty, of fraudulent concealment because he was under the duty to
make disclosure of facts having a bearing on the value of the interests of Y in the
partnership which were not known to Y.

If the sale was at the initiative of Y, and X unintentionally failed to inform Y of C's
offer, the cause for annulment is mistake or error on the part of Y.

Simulation of Contracts

Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true
agreement. (Art. 1345.)

An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good
customs, public order or public policy binds the parties to their real agreement. (Art. 1346)

Simulation of a contract is the act of deliberately deceiving others, by feigning or pretending by

agreement, the appearance of a contract which is either non-existent or concealed.

Kinds of simulation

1. Absolute – when the contracting parties do not intend to be bound by the contract at
all. Thus, an absolutely simulated contract is VOID.
 Example
D is indebted to C. Upon learning that C is going to enforce his credit, D pretended
to sell his land to B, his father in-law. D did not receive a single centavo for the
transaction and he continued in possession of the land as the contract was merely
simulated or fictitious.

2. Relative – when the contracting parties conceal their true agreement. A relatively
simulate contract binds the parties to their real agreement, when it does not prejudice a
3rd person and is not intended for any purpose contrary to law, morals, good customs,
public order or public policy.

Example
D and C entered into a contract of mortgage. But wanting to hide the mortgage, it
was made to appear in the form of a deed of sale.

Here, there are two (2) acts involved; the ostensible or apparent act (contract of
sale) and the concealed or hidden act (contract of mortgage.

As far as D and C are concerned, the contract entered into between them is a
contract of mortgage. As to third persons, the apparent contract, the contract of
sale, is the one entered into. Consequently, if C is the mortgagee but is made to
appear as the buyer and C sells the land to B, the latter will acquire ownership. D
and C are estopped or barred from claiming that the real agreement entered into by
them is a contract of mortgage.

SECTION 2: OBJECTS OF CONTRACT

All things which are not outside the commerce of men, including future things, may be the
object of a contract. All rights which are not intransmissible may also be the object of contracts.

No contract may be entered into upon future inheritance except in cases expressly authorized by
law.

All services which are not contrary to law, morals, good customs, public order or public policy
may likewise be the object of a contract. ( (Art. 1347)

Concept of object of a contract

The object of a contract is its subject matter. In reality, the object of every contract is the
obligation created. But since a contract cannot exist without an obligation, it may be said that
the thing, service, or right which is the object of the obligation is also the object of the Contract.

Requisites
a. It must be w/in the commerce of man
b. It must be licit or not contrary law, morals, good customs, public order or public policy
c. It must be possible
d. It must be determinate as to its kind

Definition of future inheritance

Future inheritance is any property or right, not in existence or capable of determination at the
time of the contract, that a person may inherit in the future, such person having only an
expectancy of a purely hereditary right.

A contract concerning future inheritance is void.

Exceptions
a. In case of donation by reason of marriage between future spouse with respect to
their future property.
b. In the case of partition of property by act inter vivos by a person to take effect upon
his death.

SECTION 3: CAUSE OF CONTRACT

Cause (causa) is the essential reason or purpose which the contracting parties have in view at
the time of entering into the contract. It is something bargained for or given by a party in
exchange for a legally enforceable promise of another.

The immediate, direct and most proximate reason which explains and justifies the creation of
obligation.

Requisites
a. Cause should be in existence at the time of the celebration of the contract
b. Cause should be licit or lawful
c. Cause should be true
Rules
1. In onerous contracts, the cause is understood to be, for each contracting party, the
prestation of promise of a thing or service by the other.
2. In remuneratory contracts, the service or benefit w/c is remunerated.
3. In contracts of pure beneficence, the mere liberality of the donor or benefactor.
4. In accessory contracts (mortgage or pledge), the cause is identical with the cause of the
principal contract, that is, the loan from which it derives its life and existence.