LAW ON OBLIGATIONS AND CONTRACTS
CONTRACTS 5. Public Policy – [tendency to be injurious to
CHAPTER 1: GENERAL PROVISIONS
Article 1305. A contract is a meeting of minds
between two person whereby one binds himself,
with respect to the other, to give something or to
render some service.
Contracts
- There must be at least two (2)
persons/parties. [hindi pwedeng makipag-
contract sa sarili.]
- One of the sources of obligations.
- Binding agreements enforceable through
legal proceedings in case the other party
does not comply with his obligation under
the agreement.
Obligations
- Legal tie or relation itself that exists after a
contract has been entered into. [not all
obligations are from contract.]
Agreement
- Broader than a contract because it may not
have all the all the elements of a contract
that create legally enforceable obligations.
[Hindi pwedeng kasuhan]
Article 1306. The contracting parties may establish
such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not
contrary to law, morals, good customs, public
order, or public policy.
Limitations
- Valid contracts are those that meet all the
legal requisites for the type of agreement
involved and the limitations on contractual
stipulation and are therefore, legally
binding and enforceable.
Must not be contrary to:
1. Law – [if against sa law=void]
2. Morals – [deals with norms and good conduct]
3. Good Customs – [practices of society]
4. Public Order – [public safety]
public[
Article 1307. Innominate contracts shall be
regulated by the stipulations of the parties, by the
provisions of Titles I and II of this Book, by the
rules governing the most analogous nominate
contracts, and by the customs of the place.
Nominate Contracts
- has specific name
Innominate Contract
- No specific name or designation in law.
a. Do ut des – I give that you may give
b. Do ut facias – I give that you may do.
c. Facto ut des – I do what you may give.
d. Facto ut facias – I do that you may do
Contract binds both contracting parties
Article 1308. The contract must bind both
contracting parties; its validity or compliance
cannot be left to the will of one of them.
Determination of Performance by a Third
Person
Article 1309. The determination of the
performance may be left to a third person, whose
decision shall not be binding until it has been
made known to both contracting parties.
Inequitable Determination
Article 1310. The determination shall not be
obligatory if it is evidently inequitable. In such
case, the courts shall decide what is equitable
under the circumstances.
Persons Affected by a Contract
Article 1311. Contracts take effect only between
the parties, their assigns and heirs, except in case
where the rights and obligations arising from the
contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not
liable beyond the value of the property he received
from the decedent.
If a contract should contain some stipulation in
favor of a third person, he may demand its
fulfillment provided he communicated his
 LAW ON OBLIGATIONS AND CONTRACTS
acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person
is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a
third person.
GR: Contracts take effect only between parties,
their assigns and heirs.
Expn:
Art. 1311 (2) – In contracts containing stipulation in
favor of a third person. {stipulation pour autrui)
Art. 1312 – In contracts creating real rights
Art. 1313 – In contracts entered into to defraud
creditors
Art. 1314 – In contracts which have been violated
at the inducement of a third person
Persons Affected by a Contract
Stipulation pour autrui
- Clearly and deliberately conferring a favor
upon a third person who has a right to
demand its fulfillment provided he
communicates his acceptance to the
obligor before its revocation by the obligee
or the original parties.
Requisites:
1. Stipulation in favor of a third person.
2. Stipulation is just part and not the whole
obligations of the contract.
3. arising from the contract are not transmissible
by their nature, or by stipulation or by provision of
law.
4. Beyond the value of the property he received
from the decedent.
5. Should contain some stipulation in favor of a
third person, he may demand its fulfillment
provided.
Article 1312. In contracts creating real rights, third
persons who come into possession of the object of
the contract are bound thereby, subject to the
provisions of the Mortgage Law and the
Land Registration Laws.
Article 1313. Creditors are protected in cases of
contracts intended to defraud them.
Article 1314. Any third person who induces
another to violate his contract shall be liable for
damages to the other contracting party.
Obligatory Force of Contracts
Article 1315. Contracts are perfected by mere
consent, and from that moment the parties are
bound not only to the fulfillment of what has been
expressly stipulated but also to all the
consequences which, according to their nature,
may be in keeping with good faith, usage and law.
Requisites:
1. It is perfected
2. It is valid
3. It is enforceable
Article 1316. Real contracts, such as deposit,
pledge and commodatum, are not perfected until
the delivery of the object of the obligation.
1. Consensual Contracts
- perfected by mere consent
2. Real Contracts
- Perfected by delivery of the thing subject
matter of the contract.
3. Solemn Contract
- Requires compliance with certain
formalities prescribed by law, such
prescribe from being thereby an essential
element thereof.
Stages in the Life of a Contract
1. Preparation or negotiation
2. Perfection or birth
3. Consummation or termination
Unauthorized Contracts are Unenforceable
Article 1317. No one may contract in the name of
another without being authorized by the latter, or
unless he has by law a right to represent him.
 LAW ON OBLIGATIONS AND CONTRACTS
A contract entered into in the name of another by
one who has no authority or legal representation,
or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other
contracting party.
EXPN:
1. Ratification by the person in whose name the
contract was entered into or by his duly authorized
agent.
2. The ratification may be express or implied, but it
must be clear so as not to admit of any doubt or
vagueness.
3. The effects of ratification retroact to the moment
of celebration of the contract.
When a Person is Bound by the Contract of
Another
1. When he is duly authorized by contract or by
law.
2. He must act within his power.
Chapter 2 – Essential Requisites of Contracts
Article 1318. 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.
Additional:
1. Delivery in real contracts
2. Compliance with the formalities required by law
in formal contracts.
Classes of Elements of a Contract
1. Essential Elements – those without which no
contract can validly exist regardless of the
intentions of the parties.
- Common – those present in all contracts,
namely, consent, object, and cause.
- Special – present only in, or peculiar to,
certain specified contracts.
2. Natural Elements – presumed to exist in certain
contracts unless the contrary is expressly
stipulated by the parties.
3. Accidental Elements – exist only when the
contracting parties expressly provided for them.
Section 1 – Consent
The concurrence of the wills of the contacting
parties with respect to the object and cause, which
shall constitute the contract.
Article 1319. 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.
Offer
- Proposal made by one party (offerer) to
another (offeree), indicating a willingness
to enter into a contract
Requisites of Consent
1. Legal capacity of the contracting parties.
2. Manifestation of the conformity of the
contracting parties.
3. Parties’ conformity to the object, cause, terms
and condition of the contract must be intelligent,
spontaneous and free from all vices of consent
5. The conformity must be real.
 LAW ON OBLIGATIONS AND CONTRACTS
Elements of a Valid Offer and Acceptance
Definite – unequivocal
Intentional
Complete - unconditional
Offer
- Expression of willingness to contract on
certain terms, made with the intention that
it shall become binding as soon as it is
accepted by the person to whom it is
addressed.
Article 1321. The person making the offer may fix
the time, place, and manner of acceptance, all of
which must be complied with.
Article 1320. An acceptance may be express or
implied.
Article 1323. An offer becomes ineffective upon
the death, civil interdiction, insanity, or insolvency
of either party before acceptance is conveyed.
Elements of an Effective Offer
1. Definite – unequivocal
2. Intentional
3. Complete – unconditional
Acceptance
- Manifestation by the offeree of his assent
to all the terms of the offer.
An acceptance departing from the terms of the
offer constitutes counter-offer.
Offer must be communicated and received by the
offeree
Article 1322. An offer made through an agent is
accepted from the time acceptance is
communicated to him.
Article 1324. 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.
Option Contract
1. One giving a person for a consideration a
certain period within which to accept the offer of
the offerer.
2. Separate and distinct from the contract which
will be perfected upon acceptance of the offer.
Article 1325. Unless it appears otherwise,
business advertisements of things for sale are not
definite offers, but mere invitations to make an
offer.
Article 1326. Advertisements for bidders are
simply invitations to make proposals, and the
advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears.
Article 1327. The following cannot give consent to
a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes
who do not know how to write.
1. Unemancipated Minor - Those persons who
have not reached the age of majority (18 years)
and are still subject to parental authority.
2. Insane or demented persons – condition must
exist at the time of contracting. Must be proven.
3. Deaf-mutes who do not know how to read and
write – persons who are deaf and dumb.
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. Lucid Interval – temporary period of sanity.
Article 1329. The incapacity declared in article
1327 is subject to the modifications determined by
 LAW ON OBLIGATIONS AND CONTRACTS
law, and is understood to be without prejudice to
special disqualifications established in the laws.
Article 1330. A contract where consent is given
through mistake, violence, intimidation, undue
influence, or fraud is voidable.
Characteristics of Consent
1. It is intelligent
2. It is free and voluntary
3. It is conscious or spontaneous
Mistake or Error
1. False notion of a thing or a fact material to the
contract.
2. Must be Mistake of Fact, and substantial.
Mistake of Fact
1. The substance of the thing which is the object of
the contract.
2. Conditions which have principally moved one or
both parties to enter into contract.
3. The identity or qualifications of one of the
parties provided the same was the principal cause
of the contract.
Vices of Consent
1. Error or mistake (Art. 1331)
2. Violence or force (Art. 1335)
3. Intimidation or threat or duress
4. Undue influence (Art. 1337)
5. Fraud or deceit (Art. 1338)
Article 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.
Mistake or Fraud
GR: when a person signs a document, the
presumption is that so he does it with full
knowledge and understanding of the contents of
the same.
EXPN:
Article 1332. 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, the person enforcing the contract must
show that the terms thereof have been fully
explained to the former.
Effect of Knowledge of Risk
Article 1333. There is no mistake if the party
alleging it knew the doubt, contingency or risk
affecting the object of the contract.
Mistake of Law
Article 1334. Mutual error as to the legal effect of
an agreement when the real purpose of the parties
is frustrated, may vitiate consent.
GR: Ignorance of the law excuses no one from
compliance therewith.
EXPN: mistake on a doubtful question of law, or
on the construction or application of law.
Requisites:
1. The error must be mutual
2. It must be as to the legal effect of an agreement
3. It must frustrate the real purpose of the parties.
Violence or Intimidation
Article 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-
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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.
Nature of Violence
1. Requires the employment of force
2. Must be serious or irresistible
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.
Causal Fraud
Fraud committed by one party before or at the time
of the celebration of the contract to secure the
consent of the other.
Article 1338. 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.

Nature of Intimidation or Threat Article 1339. Failure to disclose facts, when there
1. It must produce a reasonable and well- is a duty to reveal them, as when the parties are
grounded fear of an evil bound by confidential relations, constitutes fraud.
2. The evil must be imminent and grave
3. The evil must be upon his person or property, or Article 1344. In order that fraud may make a
that of his spouse, descendants or ascendants contract voidable, it should be serious and should
4. It is the reason why he enters into contract not have been employed by both contracting
parties.
Article 1336. Violence or intimidation shall annul
the obligation, although it may have been Incidental fraud only obliges the person employing
employed by a third person who did not take part it to pay damages.
in the contract.
Causal Fraud vs. Incidental Fraud
Undue Influence
- Influence of a kind that so overpowers the Basis Causal Fraud Incidental Fraud
mind of a party as to prevent him from Gravity of Serious in Not serious
acting understandingly and voluntarily to Fraud character
what he would have done if he had been Efficient Efficient cause Not the efficient
Cause which induce cause
left to exercise freely his own judgment and
the party to
discretion. enter into
Article 1337. There is undue influence when a contract
person takes improper advantage of his power Effect on the Renders the Does not affect
over the will of another, depriving the latter of a Status of contract the validity of the
reasonable freedom of choice. The following the Contract voidable contract
circumstances shall be considered: Remedies Annulment Contract remains
with damages valid. Remedy is
to claim
for damages.
 LAW ON OBLIGATIONS AND CONTRACTS
Acts Considered not Fraudulent
Dealer’s Talk – does not appear in the face of the
contract
Article 1340. The usual exaggerations in trade,
when the other party had an opportunity to know
the facts, are not in themselves fraudulent.
Expression of Opinion – misrepresentation must
refer to facts, not opinion.
Article 1341. A mere expression of an opinion
does not signify fraud, unless made by an expert
and the other party has relied on the former's
special knowledge.
Fraud by a Third Person – misrepresentation must
refer to facts, not opinion.
Article 1342. Misrepresentation by a third person
does not vitiate consent, unless such
misrepresentation has created substantial mistake
and the same is mutual.
Misrepresentation Made in Good Faith – The
person making the false statement believed it to
be true.
Article 1343. Misrepresentation made in good faith
is not fraudulent but may constitute error.
Simulation of Contract
Article 1345. 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.
Article 1346. 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.
Section 2. – Objects of Contracts
The subject matter of the contract. It can be a
thing, right or service arising from a contract.
Article 1347. 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.
Article 1348. Impossible things or services cannot
be the object of contracts.
Requisites:
1. Determinate as to kind (even if not determinate,
provided it is possible to determine the same
without the need of a new contract).
2. Existing or the potentiality to exist subsequent to
the contract.
3. Must be licit/lawful.
4. Within the commerce of man.
5. Transmissible
Article 1349. The object of every contract must be
determinate as to its kind. The fact that the
quantity is not determinate shall not be an obstacle
to the existence of the contract, provided it is
possible to determine the same, without the need
of a new contract between the parties.
Section 3. – Cause of Contracts
- The essential reason or purpose which the
contracting parties have in view at the time
of entering into the contract.
- Every contract is presumed to have a
cause and such cause is lawful.
Article 1350. In onerous contracts the cause is
understood to be, for each contracting party, the
prestation or promise of a thing or service by the
 LAW ON OBLIGATIONS AND CONTRACTS

other; in remuneratory ones, the service or benefit 4. Falsity of cause – contract is void; unless the
which is remunerated; and in contracts of pure parties shows that there is another cause which is
beneficence, the mere liberality of the benefactor. true and lawful.
5. Lesion or inadequacy of cause – does not
Kinds of Cause: invalidate the contract, uness:
1. Onerous contracts – the prestation or promise - There is fraud, mistake or undue influence
of a thing or service by the other. - When the parties intended a donation or some
2. Remuneratory contracts – the service or benefit other contracts
remunerated. - In cases specified by law
3. Gratuitous contracts – mere liberality of the
donor or benefactor. Motive vs. Cause
Purely personal or private reason which a party
Requisites, it must: has in entering into a contract.
1. Exist
2. Be true Article 1351. The particular motives of the parties
3. Licit/legal in entering into a contract are different from the
cause thereof.
Article 1352. Contracts without cause, or with Basis Cause Motive
unlawful cause, produce no effect whatever. The As to proximate reason Direct and most Indirect or remote
in a contract proximate reason of a reason to a contract
cause is unlawful if it is contrary to law, morals, contract
good customs, public order or public policy. As to the kind of Objective and juridical Psychological or
reason reason of purely personal
in the contract contract reason
Article 1353. The statement of a false cause in As to the legal effect to Legality or illegality of does not affect the
contracts shall render them void, if it should not be the contract cause affects the existence or validity
proved that they were founded upon another existence or validity of
of the contract the contract
cause which is true and lawful. As to the parties Cause is always the Motive differs for
same for each each contracting
contracting party party
Article 1354. Although the cause is not stated in
the contract, it is presumed that it exists and is
lawful, unless the debtor proves the contrary.

Article 1355. Except in cases specified by law,

lesion or inadequacy of cause shall not invalidate
a contract, unless there has been fraud, mistake or
undue influence.

Rules relating to cause on contracts:

1. Absence of cause – confers no right and
produces no legal effects.
2. Failure of cause – does not render the contract
void.
3. Illegality of cause – contract is null and void.