OBLIGATIONS AND CONTRACTS

STUDY GUIDE
October 31 & Nov. 3, 2023

CONTRACTS

a. Essential elements of a contract

(1) Essential elements or those without which no contract can validly exist. They
are also known as requisites of a contract. They may be subdivided into:
(a) common or those present in all contracts, namely, consent, object,
and cause (Art. 1318.); and
(b) special or those not common to all contracts or those which must be
present only in or peculiar to certain specified contracts, and such
peculiarity may be:
1) as regards to form, as for example, public instrument in
donation of immovable property (Art. 749.), delivery in real
contracts (Art. 1316.), registration in real estate mortgage1 (Art.
2125.) and chattel mortgage (Art. 2140.), etc.; or

2) as regards the subject-matter, as for example, real property in

antichresis (Art. 2132.), personal property in pledge (Art. 2094.),
etc.; or 3) as regards the consideration or cause, as for example,
price in sale (Art. 1458.) and in lease (Arts. 1643, 1644.), liberality
in commodatum (Art. 1935.), etc. (see G. Florendo, The Law of
Obligations and Contracts [1936], p. 561.);

(2) Natural elements or those that are presumed to exist in certain contracts
unless the contrary is expressly stipulated by the parties, like warranty against
eviction (Art. 1548.) or warranty against hidden defects in sale (Art. 1561.); and

(3) Accidental elements or the particular stipulations, clauses, terms, or

conditions established by the parties in their contract (Art. 1306.), for the purpose
of clarifying, restricting, or modifying its legal effects, like conditions, period,
interest, penalty, etc., and, therefore, they exist only when they are expressly
provided by the parties.

The good faith of a party in entering into a contract is immaterial in determining

whether it is valid or not — good faith not being an essential element of contract,
has no bearing on its validity. (Ballesteros vs. Abios, 482 SCRA 23 [2006].)

Two bases of contracts.

The above classifi cation is better understood by keeping in mind the distinction
of the infl uence of two bases of contracts, viz., the law and the will. In
descending order, the law imposes the essential elements upon the parties;
 presumes the natural; and authorizes the accidental. And conversely, the will of
the contracting parties yields or conforms to, or respects, the essential; accepts,
unless it rejects, the natural; and creates or establishes the accidental. The law is
decisive in the first, supplementary in the second, and permissive in the third.
(see G. Florendo, op. cit., p. 561, citing 4 Sanchez Roman 183-187; 8 Manresa
664, 665; 3 Giorgi 47, 48.) Absent one of the essential requisites, no contract can
arise.

The non-observance of the natural or accidental elements may affect the

effectivity but not the validity of the contract. (see Heirs of P. Escanlar vs. Court
of Appeals, 281 SCRA 176 [1997].)

b. Differentiate the different vices of consent

Consent is the conformity of wills and with respect to contracts, it is the agreement of the
will of one contracting party with that of another or others, upon the object and terms of
the contract. (4 Sanchez Roman 191; 8 Manresa 648.)

Vices of consent.
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 (Art. 1331.);
(2) violence or force (Art. 1335.);
(3) intimidation or threat or duress (Ibid.);
(4) undue infl uence (Art. 1337.); and
(5) fraud or deceit. (Art. 1338.)

These vices are defects of the will, the existence of which impairs the intelligence
(1), freedom (2, 3, 4) and spontaneity (5) of the party in giving consent to the
contract. Courts are given wide latitude in weighing the facts and circumstances
in a given case, considering the age, physical infi rmity, intelligence, relationship,
and the conduct of the parties at the time of making the contract and subsequent
thereto, irrespective of whether the contract is in a public or private writing.
(Leonardo vs. Court of Appeals, 438 SCRA 201 [2004]; Lim, Jr. vs. San, 438
SCRA 102 [2004]; Vda. De Ape vs. Court of Appeals, 456 SCRA 193 [2005].)

Causes vitiating consent and causes of incapacity distinguished.

(1) The former are temporary, while the latter are more or less permanent; and
(2) The fi rst refer to the contract itself, while the second, to the person entering
into the contract.

Both make a contract voidable or annullable only (see Art. 1390[2].), not void.

c. Classification of contracts
The following may be mentioned:
(1) According to name or designation:
(a) Nominate; and
(b) Innominate. (see Art. 1307.)

(2) According to perfection:

(a) Consensual; and
(b) Real. (see Arts. 1315, 1316.)

(3) According to cause:

(a) Onerous; Onerous or one the cause of which, for each contracting party, is the
prestation or promise of a thing or service by the other. In other words, in this contract,
the parties are reciprocally obligated to each other.
(a) The cause as to one party need not be adequate or of equivalent value with
that of the other except where the marked disparity in value may, in combination
with other circumstances, indicate fraud, mistake, or undue infl uence. (see Art.
1355.) A valuable consideration, however, small or nominal, if given or stipulated
in good faith is, in the absence of fraud, suffi cient. (Penaco vs. Ruaya, 110
SCRA 46 [1981].)
(b) A purely moral obligation cannot constitute a suffi cient cause to support an
onerous contract (Fischer vs. Robb, 69 Phil. 101 [1939].) but a natural obligation
is a suffi cient cause to sustain such contract. (see Villareal vs. Estrada, 71 Phil.
140 [1940].)
(c) In an accessory contract (like mortgage), the cause is the very cause of the
principal contract from which it receives its life and without which it cannot exist
as an independent contract. (China Banking Corp. vs. Lichauco, 46 Phil. 460
[1924].)
(d) In a case, the petitioners would contribute property to the partnership in the
form of land which was to be developed into a subdivision, while respondent
would give, in addition to his industry, the amount needed for general expenses
and costs, and the income from the said project would be divided according to
the stipulated percentage. Here, the cause of the contract of sale in favor of the
respondent by the petitioners who did not actually receive payment consisted not
in the stated peso value of the land but in the expectation of profi ts from the
subdivision project for which the land was intended to be used (Torres vs. Court
of Appeals, 320 SCRA 428 [1999].);

(b) Remuneratory or remunerative; Remuneratory or remunerative or one the

cause of which is the service or benefi t which is remunerated. The purpose of
the contract is to reward the service that had been previously rendered by the
party renumerated; and

(c) Gratuitous. (see Art. 1350.) Gratuitous or one the cause of which is the mere
liberality of the benefactor or giver, such as commodatum; pure donation;
guaranty or suretyship unless there is a stipulation to the contrary (Art. 2048.),
 mortgage given by a third person to secure an obligation of a debtor (see Art.
2085, last par.) unless a consideration is paid for such mortgage.

(4) According to form:

(a) Informal or common; and
(b) Formal or solemn. (see Art. 1356.)

(5) According to obligatory force:

(a) Valid (see Art. 1306.);
(b) Rescissible (Chapter 6.);
(c) Voidable (Chapter 7.);
(d) Unenforceable (Chapter 8.); and
(e) Void or inexistent. (Chapter 9.)

(6) According to person obliged:

(a) Unilateral; and
(b) Bilateral. (see Art. 1191.)

(7) According to dependence to another contract:

(a) Preparatory (e.g., agency, partnership), when it is entered into as a means to
an end;
(b) Accessory (e.g., mortgage, guaranty), when it is dependent upon another
contract it secures or guarantees for its existence and validity; and
(c) Principal (e.g., sale, lease), when it does not depend for its existence and
validity upon another contract but is an indispensable condition for the existence
of an accessory contract.

(8) According to risks:

(a) Commutative (e.g., sale, lease), when the undertaking of one party is
considered the equivalent of that of the other; and
(b) Aleatory (e.g., insurance, sale of a hope), when it depends upon an uncertain
event or contingency both as to benefit or loss.

(9) According to liability:

(a) Unilateral (e.g., commodatum, gratuitous deposit), when it creates an
obligation on the part of only one of the parties; and
(b) Bilateral (e.g., sale, lease), when it gives rise to reciprocal obligations for both
parties.

d. Characteristics of contracts
e. Contract of Adhesion
f. Effect of perfection of a contract
g. Stipulations Pour Autrui
h. Tortious interference
 i. Distinguish between object and cause of contracts
j. Requisites of valid consent
k. Requisites of acceptance
l. Theories that determine the exact moment of perfection when acceptance is made by
letter
m. Option Contract
n. Legal Capacity to Consent
o. Cause vs. motive
p. Identify the different forms of contract
q. Kinds of simulation of contracts and their effects
r. Gross inadequacy of price

REFORMATION OF INSTRUMENTS

a. Definition and requisites of reformation

b. Principles of law on reformation
c. Causes/ grounds for reformation
d. Party entitled to reformation
e. Procedure for reformation
f. Identify the cases when reformation is not allowed

INTERPRETATION OF CONTRACTS

Cases for Digest:

1. Starbright Sales Enterprises vs Phil Realty Corporation

GR No. 177939, January 18, 2012

2. Sps. Ermitano vs CA,

GR No. 127246, April 21, 1999

3. San Miguel Foods, Inc. vs Ernesto Magtuto

GR No. 225007, July 24, 2019

4. Sps Beltran vs. Sps. Cangayda

GR No. 225033, August 15, 2018