TITLE II - CONTRACTS

(Articles 1305-1422, New Civil Code)

CHAPTER 1 GENERAL PROVISIONS

(Arts. 1305-1317)
STUDY GUIDE :
What is a contract? (Art. 1305)
A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service.
1.

2. Contracts distinguished from obligations and agreements.

There can be no contract if there is no obligation. But an obligation may exist without a contract.
All contracts are agreements but not all agreements are contracts.
3. What are the basic principles governing contracts?
(a) Autonomy or Liberty of Contracts 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. (Art. 1306)
(b) Mutuality of Contracts The contract must bind both contracting parties, its validity or compliance cannot be left to the will of
one of them. (Art. 1308)

(b.1) The determination of the performance of a contract may be left to a third person whose decision, however, must be equitable
and made known to both parties. (Arts. 1309-1310)
(c) Consensuality of Contracts As a general rule, contracts are perfected by mere consent. (Art. 1315)
(d) Relativity of Contracts As a general rule, contracts take effect only between the parties, their assigns and heirs. (Art. 1311)
The following are the EXCEPTIONS :

(d.1) Where the obligations arising from the contract are not transmissible by their nature, by stipulation or by provision of law.
(Art. 1311, par. 1)
(d.2) In contracts containing a stipulation pour autrui (Art. 1311, par. 2).
- Communication of acceptance before revocation is imperative.
(d.3) In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby. (Art.
1312)
(d.4) In contracts entered into to defraud creditors. (Art. 1313)
(d.5) In contracts which have been violated at the inducement of a third person.
(Art. 1313)
(e) Obligatory Force of Contracts Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith. (Art. 1159) From the moment a contract is perfected, the parties are bound not only to the fulfilment
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. (Art. 1315)

4. What are the different stages in the life of a contract?

(c) Conception (preparation or negotation) It includes all the negotiations or steps taken by the parties leading to the
perfection of the contract. At this stage, the parties have not yet arrived at any definite agreement.
(d) Perfection or birth This is when the parties have come to a definite agreement or meeting of the minds regarding the subject
matter and cause of the contract (Art. 1319). At this stage, there is already a concurrence of all the essential elements or requisites of a
contract.
(e) Consummation or termination This is when the parties have performed their respective obligations and the contract may be
said to have been fully accomplished or executed, resulting in the extinguishment or termination thereof.

5. What are the kinds of contracts according to perfection or formation?

(a) Consensual perfected by mere consent. (Art. 1315)
(b) Real perfected by the delivery of the thing object of the contract. (Art. 1316)
(c) Solemn perfected after compliance with certain legal formalities. (Art. 1356)

6. The general rule is that a person cannot be bound by the contract of another. A person (principal), however, may be bound
by the contract entered into in his name by another (agent) when the following requisites concur :
(a) When the person entering into the contract (agent) is duly authorized by, or has the legal right to represent, the person in
whose behalf he is acting (principal); and
(b) He acts within the authority given. (Art. 1317)

PLEASE MEMORIZE :

Articles 1305, 1306, 1308 and 1315.

APPLICATION/PROBLEMS :
1. D owes C 100,000. On maturity date, since D did not have the money to pay C, D obliged himself to work as Cs
servant, without pay, until D could find the money with which to pay her debt. Later, D left the house of C without paying her
debt. So C filed an action against D to compel her to pay and/or work as a servant without pay until the debt could finally be
paid. D, however, refused to fulfil his obligation and instead asked payment for services already rendered to C. Decide on the
parties claims.
2. On new years eve, George witnessed Allan indiscriminately fire his gun. In the course thereof, a four-year old boy who
was in the surrounding area was hit by a stray bullet and died instantaneously. As a result of the incident, a case for homicide
was filed by the parents of the boy against Allan. George was summoned as a witness in the case. Shortly before the scheduled
hearing, Allan went to the house of George and offered George the amount of P300,000 as long as George would not testify in
the case against Allan. George agreed not to testify and accepted the P300,000 offered by Allan. On the hearing date, however,
George testified. Allan was convicted on the basis of the testimony. Allan, now, seeks to recover from George the P300,000 on
the ground that George did not comply in good faith with his obligations under their contract. Is the contract of Allan and George
valid?
3. On January 15, 2009, Edna sold her car to Elvie for P1.5M. Payment for and delivery of the car was set on February
15, 2009. On January 30, 2009, Edna called Elvie and pleaded if it was alright to cancel the sale considering that Ednas son
passed the entrance test to the Ateneo Law School and would be needing the car. Elvie, however, refused and demanded for
the delivery of the car on the agreed date. May Edna be compelled to deliver despite her sons urgent transport needs?
4. On August 15, 2008, Jowell sold his land to Carlito for P4M. Later on the title to the land was transferred to Carlito. It
appears, however, that Carlito still owed Jowell a portion of the purchase price in the amount of P500,000. As of December 15,
2008, Carlito, despite repeated demands from Jowell, failed to pay the remaining P500,000 balance. As it now stands, Jowell
gave up all hope on his claim. When his best friend Ricky learned about the non-payment and Jowells inability to collect the
P500,000, Ricky was annoyed. To vindicate his friend, Ricky filed an action against Carlito demanding that Carlito pay Jowell the
remaining balance of the land purchased. Does Rickys action have legal basis?

CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
GENERAL PROVISIONS
Art. 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.

Section 1 CONSENT
(Arts. 1319-1346)
STUDY GUIDE :
1. How is consent in a contract manifested? (Art. 1319)
Consent is manifested by the meeting of the offer and acceptance upon the thing and the cause which are to
constitute the contract.
The OFFER must be certain and the ACCEPTANCE must be absolute and unqualified. After acceptance, the
contract is already perfected.
2. What are the causes which render an offer ineffective?
(a) Withdrawal of the offer before acceptance. (Art. 1319)
(b) Qualified acceptance of the offer. (Art. 1319)
(c) Death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. (Art. 1323)
(d) Expiration of the period fixed in the offer for acceptance. (Art. 1324)
3. Suppose the offeror has allowed the offeree a certain period to accept, may the offer be withdrawn even before the
expiration of the period? (Art. 1324)
YES, provided that :
(a) The offer has NOT as yet been accepted; or
(b) There is no option contract between the parties.

4. Do advertisements for business and bidders constitute definite offers?

(a) Business advertisements are generally mere invitations to make an offer; hence, their acceptance will not create a
contract. (Art. 1325)
(b) Advertisement calling for bidders are mere invitations to make proposals and the advertiser is not bound to accept the
highest or lowest bidder. (Art. 1326)
5. What are the characteristics of consent?
(a) It is INTELLIGENT. There must be capacity to act. (Arts. 1327-1329)
(b) It is FREE and VOLUNTARY. There is no vitiation of consent by reason of violence or intimidation. (Arts. 1330 &

1335)
(c) It is CONSCIOUS and SPONTANEOUS. There is no vitiation of consent by reason of mistake, undue influence, or

fraud. (Arts. 1330, 1337, 1338& 1339)

NOTE: Contracts entered into by persons who are incapacitated or whose consent is vitiated are NOT VOID but merely VOIDABLE. (Art.
1330 & 1390)
6. Who are incapacitated to give valid consent to contracts?
(a) Minors [Art. 1327(1)]
(b) Insane or demented persons [Art. 1327(2)]
- the contract is valid if entered into during a lucid interval. (Art. 1328)
(c) Deaf-mutes who do not know how to write. [Art. 1327(3)]
(d) Persons in a state of drunkenness or under a hypnotic spell. (Art. 1328)
7. When does mistake vitiate consent in a contract? (Art. 1331)
The mistake must be a substantial mistake of fact. It must refer either to :
(a) the substance of the thing which is the object of the contract (par. 1); or
(b) those conditions which have principally moved one or both parties to enter into the contract (par. 1); or
(c) the identity or qualifications of one of the parties provided the same was the principal cause of the contract (par. 2).
(d) an excusable mistake, i.e., one not caused by negligence. Thus, there is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract. (Art. 1333)

8. Who has the burden of proof in case of mistake or fraud?

General rule: the party who alleges mistake or fraud.
Exception: When one of the parties is unable to read or if the contract is in a language not understood by him, it is the party
enforcing the contract who is duty-bound to show that there has been no fraud or mistake and that the terms of the contract have been fully
explained to the former. (Art. 1332)

9. When is there violence as a vice of consent?

(a) When consent is obtained by the employment of serious and irresistible force (Art. 1335, par. 1); and
(b) It is the reason why the other party gave his consent.

10. What constitutes intimidation as a vice of consent?

There is intimidation when a person is compelled to give his consent because of (a) a reasonable and wellgrounded fear (b) of an imminent and grave evil (c) upon his person or property, or, upon the person or property of his
spouse, descendants, or ascendants. (Art. 1335, par. 2)
The intimidation or threat must be of an unjust act, an actionable wrong. Hence, a threat to enforce a just or legal claim
does not vitiate consent. (Art. 1335, par. 4)
11. When is there undue influence as a vice of consent?
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. (Art. 1337)
12. When is there fraud as a vice of consent?
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)
Kinds of fraud (dolo) :
(a) Fraud in the celebration of the contract.
(1) Incidental fraud (dolo incidente) The contract is valid, but there can be an action for damages. (Art. 1344,

par. 2)
(2) Causal fraud (dolo causante) Here, were it not for the fraud, the other party would not have consented.
(Art. 1338) The contract is voidable.
(b) Fraud in the performance of the obligations stipulated in the contract. This kind of fraud presupposes the existence
of an already perfected contract. (Art. 1170)

13. What are the essential requisites for fraud to vitiate consent?
(a) There must be misrepresentation (Art. 1338) or concealment (Art. 1339).
(b) It must be serious (Art. 1344).
(c) It must have been employed by only one of the contracting parties (Art. 1344).
- Hence, fraud committed by a third person does not vitiate consent unless it was practised with the knowledge of the
favored contracting party (Art. 1342).
(d) It must be made with intent to deceive. Hence,
(1) Misrepresentation made in good faith is not fraudulent but may constitute error or mistake (Art. 1343).
(2) The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves
fraudulent (Art. 1340).
(3) The mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the
formers special knowledge. (Art. 1341).
(e) It must have induced the consent of the other contracting party.

14. What is meant by simulation of a contract?

Simulation of a contract is the act of deliberately deceiving others by pretending by agreement the appearance of a
contract which is either non-existent or concealed.
Hence, simulation may either be : (Art. 1345)
(a) Absolute when the contract does not really exist and the parties do not intend to be bound at all. The contract is void (Art.

1345).
(b) Relative when the contract entered into by the parties is different from their true agreement. The parties are bound by their real
agreement provided it does not prejudice a third person and is lawful (Art. 1345).

PLEASE MEMORIZE :

Articles 1319 (par. 1), 1327 and 1330.

Articles 1381, 1390, 1403 and 1409. start memorizing in advance.
APPLICATION/PROBLEMS :
(1) S offered to sell B 80 copies of Dr. Seusss Beginner Books for children for the price of P250.00 each. The books
were available for immediate delivery upon acceptance of the offer. B agreed to buy the specified books if S could deliver 120
copies the following day. The following day, S delivered to B the 80 copies of the books promised and sought to collect from B
the total price therefor in the amount of P20,000. B, however, contends that he is not bound to accept the delivery as no contract
was perfected between him (B) and S. Do you agree with Bs contention? Art. 1319
(2) On January 1, 2009, S offered for sale to B a BMW Z4 with plate no. ZLR-603 for P2.1M. On January 4, B accepted
the offer and informed S in a letter mailed on the same date. The letter of acceptance was received by S on January 6. S,
however, later came to know that, on the night of January 4, Bs car figured in an accident resulting in the instantaneous death of
B. The wife of B, who knew how his husband wanted the BMW car so much, now informs S that she already has in her
possession the P2.1M payment for the BMW and demands from S delivery of the car sold. May S be compelled to make
delivery? Art. 1323
(3) On May 1, 2008, S offered to sell his 250 square-meter house and lot in Manila for P8M to B, who was interested in
buying the same. In his letter to B, S stated that he was giving B a period of 15 days beginning May 2, 2008 within which to
accept the offer. As consideration for the option, B paid S the amount of P10,000. On May 10, 2008, B went to S to exercise his
option and to pay the purchase price in the amount of P8M. S, however, refused to sell the house and lot to B because
somebody wanted to buy the property for P10M. B sued S to compel him to accept the payment and execute a deed of sale in
his (Bs) favour. Decide on the rights and obligations of the parties. Art. 1324

(4) S signed a Deed of Sale transferring ownership of his land to B. Later, S sought to have the deed of sale annulled
on the ground that S was forced to sign the deed of sale against his will by B who threatened to report him (S) to the BIR
authorities in connection with tax evasion activities. May the contract be annulled on the ground of intimidation? Art. 1335

Section 2 OBJECT OF CONTRACTS

(Arts. 1347-1349)
STUDY GUIDE :
1. What may be the object (or subject matter) of a contract? (Art. 1347)
(a) things;
(b) rights; or
(c) services.
2. What are the preconditions in order that things may be the object of a contract?
(a) It must be within the commerce of men that is, it can legally be the subject of commercial transactions. (Art. 1347,
par. 1)
(b) It must not be physically or legally impossible. (Art. 1348)
(c) It must be in existence or capable of coming into existence.
NOTE, however, that future inheritance (not hereditary rights) cannot be the object of a contract except in cases expressly
authorized by law. (Art. 1347, par. 2)
(d) It must be determinate or determinable without the necessity of a new contract between the parties.

3. What services may be the object of a contract?

All services which are not contrary to law, morals, good customs, public order, or public policy may be the object of a
contract. (Art. 1347, par. 3)
4. What rights may be the object of a contract?
All rights may be the object of a contract except those which are instransmissible. (Art. 1347, par. 3; See also Art.
1311, par. 1)
APPLICATION/PROBLEMS :
1.
Leon owned a 2-hectare farmland in Villareal, Samar, which was planted with mango trees. In one of their leisurely
walks, Leon promised his son, Lydio, that after he (Leon) was gone, Lydio would inherit the particular farmland. Two months
thereafter, Lydio executed a deed of sale covering the 2-hectare farmland in favour of Manuel. Is the sale valid?

Section 3 CAUSE OF CONTRACTS

(Arts. 1350-1355)
STUDY GUIDE :
What is the meaning of cause?
The cause of a contract is the why of the contract, the essential reason which impels the contracting parties to
enter into the contract.
1.

2.

What is the cause of a contract? (Art. 1350)

(a) In onerous contracts the prestation of the other party.
(b) In remuneratory contracts the service or benefit remunerated.
(c) In gratuitous contracts the mere liberality of the benefactor.

What is the distinction between cause and object?

The difference is only a matter of viewpoint. Thus, in reciprocal contracts, the object or subject matter for one is the
cause for the other, and vice versa.
3.

4.

What is the distinction between cause and motive?

CAUSE
1.
2.
3.
4.

5.

The immediate or direct reason.

It is always known to the other party.
It is an essential element of a contract.
Its illegality affects the contracts validity.

1.
2.
3.
4.

MOTIVE

The remote or indirect reason.

May be unknown to the other party.
Not an essential element of a contract.
Illegality does not void the contract.

What are the requisites for cause in a contract?

(a) It must be present (existing at the time of perfection). Hence, absence of cause (as distinguished from inadequacy and failure
of cause) voids a contract. (Art. 1352)
(b) It must be lawful. (Art. 1352)
(c) It must be true or real. If the cause stated is false, the contract is VOID, unless some other cause which is lawful really exists.

(Art. 1353)
6.

Is the contract valid although the cause is not stated?

Yes, because it is presumed that the cause exists and is lawful, unless the debtor proves the contrary. (Art. 1354)

7.

What is the rule on lesion or inadequacy of cause in a contract? (Art. 1355)

(a) General Rule Lesion per se does not invalidate a contract.
(b) Exceptions :

(a.1.) When the lesion is attended with fraud, mistake, or undue influence.
(a.2.) When specified by law. (e.g., Art. 1381, pars. 1 & 2.)
APPLICATION/PROBLEMS :
1. Tony wanted to kill Alvin and hired Billy, the hitman, to do the job. Billy demanded P100,000 in cash for his services.
Since Tony was out of cash, he sold his Nikon camera to Fred for P100,000 so that the planned execution will be carried out.
When the mother of Tony found out about the sale and the reason why Tony had sold his camera, Tonys mother sought to have
the sale avoided on the ground of illegality of cause. Will the action of Tonys mother prosper?
2. On January 15, 2009, Smith sold to Caloy his BMW big bike for P250,000. It was stipulated in their contract that
delivery and payment was to be simultaneously made on January 30, 2009. On the agreed date, Smith delivered the bike to
Caloy who promised to pay the P250,000 the following day as he was short of cash. Caloy, however, failed to make payments
despite demands from Smith. Hence, Smith filed an action to have the sale declared null and void by the court on the ground of
absence of cause since the consideration had not been paid. Is the remedy taken by Smith proper?
3. On December 15, 2008, Susie signed a promissory note in favor of Milcah. The promissory note is worded as follows:
I promise to pay Milcah the amount of P50,000 on or before March 31, 2009. The promissory note, however, does not state
what Susie received from Milcah in exchange for the P50,000 promised to be paid. Is the promissory note valid even if it did not
state the cause received by Susie from Milcah?
4. On June 6, 2008, Mrs. Reyes offered to sell her beach resort in Batangas to Mr. Cayco for P4M. Considering the
prevailing price of similarly situated resorts in the area, Mr. Cayco felt he found himself a good deal. Hence, Mr. Cayco readily

accepted the offer and immediately bought the resort from Mrs. Reyes. Three weeks after the parties closed the sale, Mrs.
Reyes came to know from a friend that the resort she had sold to Mr. Cayco had a valuation of P6M. Mrs. Reyes then filed an
action to have the contract of sale cancelled. May the contract of sale between Mrs. Reyes and Mr. Cayco be cancelled on the
ground of lesion or inadequacy of cause?