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Perfection of contracts moment in the life Art. 1316. Real contracts, such as deposit,
of the contract where the parties come to an pledge and commodatum, are not perfected
until the delivery of the object of the obligation
agreement with respect to the object or
cause of the contract.
signifies the birth of the contract as b) Real perfected with the consent of the
obligatory tie, resulting from the parties and the delivery of the object by
concurrence of the wills of the contracting one party to the other;
parties
- purpose is restitution because Effect of perfection of contract:
contemplate the return by a party of what From moment come to an agreement on
has been received from another definite subject matter and valid
1) Commodatum consideration bound
Bailor transfer non-consumable a) Fulfillment of what has been expressly
property to Bailee gratuitously; Bailee stipulated
obligation to return the property; no b) All consequences which according to
considerations (if there is lease) their nature must be in keeping w/ good
Ex. Borrowing books in lib/ faith, usage and law
notes
2) Pledge collateral, transfer of 2. ACCORDING TO IMPORTANCE:
possession a) Principal can exist by itself (ex.
simple loan)
Ex. Pawnshop
b) Accessory existence is dependent
3) Deposit safekeeping upon a principal contract (ex.
Ex. Baggage counter in malls mortgage)
- The contract is the law between the Public policy includes public
contracting parties. And where there is safety and common good; has
nothing in the contract which is contrary tendency to be injurious to public
to law, morals, good customs, public (ex. exempting common carrier from
policy, or public order, the validity of the liability for gross negligence)
contract must be sustained
Note: This principle is NOT applicable in
LIMITATIONS ON STIPULATION a contract of marriage except during an
anti-nuptial agreement and only with
respect to their property relations
Art. 5. Acts executed against the provisions
of mandatory or prohibitory laws shall be Article 1 FC. Marriage is a special contract of
void, except when the law itself authorizes permanent union between a man and a woman
their validity. entered into in accordance with law for the
establishment of conjugal and family life. It is the
1. Law contract entered into must be in
foundation of the family and an inviolable social
accordance with and not repugnant to
institution whose nature, consequences, and
applicable statute
incidents are governed by law and not subject
- Freedom to contract is restricted by
to stipulation, except that marriage
law for the good of the public
settlements may fix the property relations
- Statutes generally have no
during the marriage within the limits provided by
retroactive effect and only the laws this Code.
2. CONSENSUALITY OF CONTRACTS PURPOSE: to render void contract
perfected by mere consent except real and containing a condition which makes its
formal contracts fulfillment dependent exclusively upon
the uncontrolled will of one of the
Art. 1308. The contract must bind both contracting parties
contracting parties; its validity or compliance 1. Power to determine the validity of
cannot be left to the will of one of them. the contract
2. Power to determine WON the
Art. 1309. The determination of the contract shall be fulfilled
performance may be left to a third person,
whose decision shall not be binding until it has GR: Unilateral cancellation VOID
been made known to both contracting parties. No party can renounce it unilaterally or
Art. 1310. The determination shall not be without the consent of the other.
obligatory if it is evidently inequitable. In such No one may be permitted to change his mind
case, the courts shall decide what is equitable or disavow and go back upon his own acts,
under the circumstances. or to proceed contrary thereto, to the
prejudice of the other party
3. MUTUALITY must bind both parties and
The unilateral act of one party in terminating
its validity and compliance cannot be left to
the contract without legal justification makes
the will of one of the parties it liable for damages
Consequences:
1. Cannot revoke/ renounce w/o consent of XPN: When stipulated VALID
the other
2. When fulfillment depends upon sole will of
one of parties conditional obligation void a) An agreement of the parties that either
if suspensive; valid if resolutory one of them may terminate the contract
upon a reasonable period of notice, is
- What cannot be left to the will of valid.
one of the parties is its validity and - Judicial action for the rescission of a
NOT EXTINGUISHMENT because contract is not necessary where the
they may validly stipulate on such
contract provides that it may be
term and this will not violate because
It is not the birth of the revoked and cancelled for the
contract or validity or violation of any of its terms and
fulfillment of the contract but conditions. The right of rescission
simply extinguishment may be waived
b) Under a resolutory facultative
The binding effect of the contract on both condition
parties is based on the principles:
c) Negative form of rescission for in such
1) obligations arising from contracts
have the force of law between the case, neither is the article violated, nor is
contracting parties; there any lack of equality between the
persons contracting, since they remain
2) there must be mutuality between with the same faculties in respect to
the parties based on their fulfillment.
essential equality,
to which is repugnant to have one VALIDITY OR FULFILLMENT MAY BE
party bound by the contract A. left to the will of a 3rd person
leaving the other free therefrom. B. can be left to chance
However, his decision shall not be binding GR: The contract takes effect only between
until it has been known to both the 1. parties,
contracting parties 2. their assigns and
3. heirs (not liable beyond value of
Moreover, the determination made shall not property he received)
be obligatory if it is evidently inequitable.
In such case, the courts shall decide what XPN:
is equitable under the circumstances A. Effective only between parties when
rights and obligations arising from
4. OBLIGATORY FORCE OF CONTRACTS contract is not transmissible.
obligations arising from contract have the 1. by their nature (contract involving
force of law between the contracting parties personal qualifications)
(1159). Thus, in case of amendment, both 2. by stipulation (in accordance with
parties must agree. principle of freedom to contract)
- if one does not perform his obligation, 3. by provision of law (ex. money debts
the other can go to court and ask for not directly charge to heir but to
specific performance estate; death of partner heir does
not step into partners shoes)
Contracts shall be obligatory, in whatever
form they may have been entered into, - Every contract is binding to all
provided all the essential requisites for contracting parties. The effects of the
validity are present (Art. 1356, NCC). contract may extend to heirs,
successors-in interest, assignees but
The parties are bound from the moment the the transmission of the effects of
contracts are perfected by mere consent not the contract beyond the parties is
only from the fulfillment of what has been possible only if the rights created
expressly stipulated but also to all the by the contract is transmissible
consequences which, according to their
nature, may be in keeping with good faith, A thing done between others does not harm
usage and law (Art. 1315, NCC). or benefit others a contract can only
obligate the parties who entered into it, or
5. RELATIVITY OF CONTRACTS their successors who assumed their
personalities, and that, concomitantly, a
Art. 1311. Contracts take effect only between the contract can neither favor nor prejudice third
parties, their assigns and heirs, except in case persons
where the rights and obligations arising from the
contract are not transmissible by their nature, Third persons affected although contracts do
or by stipulation or by provision of law. The not bind third persons, juridical situations
heir is not liable beyond the value of the property may be created affecting them.
he received from the decedent.
INCAPACITY VS DISQUALIFICATION
Incapacity
1. Restrains exercise of right to contract
2. May still enter into contract thru
parent, guardian or legal
representative
VICES OF CONSENT 5. That either party was physically
(Grounds for annulment of contract) incapable of consummating the
circumstances that affect adversely marriage with the other, and such
decision of party in entering contract incapacity continues and appears to
be incurable; or
1. Affecting cognition (intellectual faculty) 6. That either party was afflicted with
(I-E-F) Conscious/ spontaneous a sexually-transmissible disease
a. Incapacity (e.g., 37, 38) found to be serious and appears to be
b. Error or mistake 1331 incurable.
c. Fraud 1338
Art. 1331. In order that mistake may invalidate
consent, it should refer to the substance of the
2. Affecting volition (faculty of the will) thing which is the object of the contract, or to
(V-I-U) Free and voluntary those conditions which have principally moved
a. Violence 1335 one or both parties to enter into the contract.
b. Intimidation 1335
c. Undue influence 1337 Mistake as to the identity or qualifications of one of
the parties will vitiate consent only when such
IN RELATION TO MARRIAGE: identity or qualifications have been the principal
Art. 45 FC. A marriage may be annulled for cause of the contract.
any of the following causes, existing at the A simple mistake of account shall give rise to its
correction.
time of the marriage:
A. ERROR OR MISTAKE inadvertent (not
1. Party in whose behalf it is sought to intended) and excusable disregard of a
have the marriage annulled was 18 circumstance material to the contract
years of age or over but below 21, False notion of a thing or fact
and the marriage was solemnized There is consent but if aware of
w/o the consent of the parents, effort would not have given consent
guardian or person having substitute
parental authority over the party, in GR: Must be unilateral mistake
that order, unless after attaining the XPN: When mistake of law involves mutual
age of 21, such party freely cohabited error as to the legal effect of an agreement
with the other and both lived together when the real purpose of the parties is
as husband and wife; frustrated (Art. 1334, NCC).
2. That either party was of unsound - Mistake on a doubtful question of
mind, unless such party after coming law, or on the construction or
to reason, freely cohabited with the application thereof, may vitiate
other as husband and wife; consent.
3. That the consent of either party NO MISTAKE if one alleging it knew
was obtained by fraud, unless such of the doubt, contingency, or risk
party afterwards, with full knowledge involved in the object of the contract.
of the facts constituting the fraud, IF from beginning knew already and
freely cohabited with the other as still proceeded in entering contract
husband and wife; cannot ask for annulment by invoking
4. That the consent of either party mistake
was obtained by force, Requisites of Mistake involving Mutual Error:
intimidation or undue influence, 1. Mistake must be with respect to the legal
unless the same having disappeared effect of the agreement;
or ceased, such party thereafter 2. It must be mutual; and
freely cohabited with the other as 3. Real purpose of the parties must have
husband and wife; been frustrated.
or qualifications have been the principal
Mistake of fact, not mistake of law cause of the contract.
Mistake of fact when one or both of the *Usually, these mistakes occur in obligations
contracting parties believe that a fact exist to do.
when in fact it does not
Good faith is a defense between the 2 REQUISITES of error in persona:
contracting parties 1. The mistake must be either with
Mistake of law when one or both of the regard to the identity or to the
contracting parties arrive at an erroneous qualification of one of the
conclusion regarding the interpretation of a contracting parties;
question of law or the legal effects of a 2. The identity or qualification must
certain act or transaction. have been the principal
Ignorance of the law excuses no one consideration for the celebration
from compliance therewith of the contract
Not only mistake of fact but must refer to Ex. Family Code Mistake of Fact
substance of the object or to principal Sacristan misrepresented himself as priest
condition that moves the parties parties believed in good faith save validity
of marriage
To what should mistake refer to in Mistake of Law Court administrators such
order to vitiate consent? as Justices has no authority to solemnize
A: Substance of the thing which is marriage parties believed in good faith that
the object/ conditions which any justice has authority to solemnize
principally moved parties to enter the marriage but in fact no authority good faith
contract. not valid
Effect if mistake was not
substantial Art. 1338. There is fraud when, through insidious words or
A: If committed by both parties machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would not
either one may ask for reformation have agreed to.
If unilateral it means threat
Art. 1339. Failure to disclose facts, when there is a duty to
2 KINDS OF MISTAKE OF FACT: reveal them, as when the parties are bound by confidential
relations, constitutes fraud.
1. Error in Re (MISTAKE AS TO OBJECT) Art. 1340. The usual exaggerations in trade, when the other
a) Error in Corpore (mistake as to the party had an opportunity to know the facts, are not in themselves
identity of the thing) fraudulent.
b) Error in Substantia (mistake as to the
Art. 1341. A mere expression of an opinion does not signify
substance of the thing) fraud, unless made by an expert and the other party has relied
c) Error in Quantitae (mistake as to the on the former's special knowledge.
quantity of the thing)
d) Mistake as to the conditions of the Art. 1342. Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created substantial
thing, provided such conditions have
mistake and the same is mutual.
principally moved one or both parties
to enter into the contract Art. 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error.
2. Error in Persona (MISTAKE AS TO
Art. 1344. In order that fraud may make a contract voidable, it
PERSON) should be serious and should not have been employed by both
Mistake as to the identity or qualifications of contracting parties.
one of the parties - only when such identity
Incidental fraud only obliges the person employing it to pay
damages.
B. FRAUD insidious words or Efficient Cause
machinations of one of the contracting C - Efficient cause which induces the
parties, the other is induced to to enter party to enter into a contract
into a contract which, without them, he I - Not the efficient cause
would not have agreed to.
Effect on the Status of a Contract
A 3rd person only vitiates consent C - Renders the contract voidable
when he is in connivance with one of I - Does not affect the validity of the
the contracting parties because contract
status of consent cannot be made to Remedies
depend on act of 3rd person C - Annulment with damages
Even if employed by 3rd person w/o I - Contract remains valid. Remedy is
connivance, person who is being claim for damages.
defrauded still has time to reflect or
discern whether he should yield to 2. Fraud in the performance of an obligation
the fraud (Art. 1170, NCC)
Requisites of Fraud: (FIM-MS-I-I-not 2/3-D) Art. 1170. Those who in the performance of
their obligations are guilty of fraud,
a. Fraud, insidious words or negligence, or delay, and those who in any
machinations must have been employed manner contravene the tenor thereof, are
by one of the contracting parties; liable for damages
b. It must have been material and serious;
c. It induced the other party to enter into a
KINDS OF FRAUD WHICH DO NOT
contract;
VITIATE CONSENT
d. It must be a deliberate intent to deceive
1. Tolerated Fraud/ Dealers Talk
or and induce;
exaggerated qualities of a thing.
e. Should not have been employed by both
Fraud shall not vitiate consent as
contracting parties or by third persons;
long as the other party was given
f. The victim suffered damage or injury.
opportunity to know the facts
2. Rendition of Opinion mere
2 kinds of fraud
rendition of an opinion is not fraud
1. Fraud in the perfection of the contract
unless person giving it is an expert &
a) Causal Fraud (dolo causante)
other party relies on his expertise.
- Fraud in the celebration of the contract
3. Both parties commit fraud they
(ground for annulment)
compensate each other. Fraud must
- The party would not have given his consent
be actual and serious
have he been aware of the fraud
4. Fraud by 3rd party with no
- Affects validity of consent
connivance with other party
5. Misrepresentation does not vitiate
b) Incidental fraud (dolo incidente)
consent, unless such
- Fraud in the execution of the contract or of
misrepresentation has created
the obligation (ground for damages)
substantial mistake and the same is
- There is intention to enter contract
mutual
- Parties deceived would have agreed but
6. Misrepresentation made in good
under different terms/ condition
faith is not fraudulent but may
constitute error
CAUSAL VS INCIDENTAL FRAUD
Gravity of Fraud
C - Serious in character
I - Not serious
Is there fraud even if one has not done a C. VIOLENCE in order to wrest consent,
positive act? serious or irresistible force is employed
A: Yes. Failure to make disclosure where - Not limited to physical violence
there is an obligation to do so amounts to - (external force physical compulsion)
fraud. Not always necessary that it should be - Degree of constraint or danger actually
a positive act fraud through silence inflicted
- There is consent but not voluntarily
Example: given
1. Insurance Code- concealment = fraud
2. Family Code Art. 46 Requisites of violence (SI-DC)
WON the influence exerted has so There are two juridical acts involved in
overpowered and subjugated the mind of relative simulation:
the contracting party as to destroy his 1) The ostensible act, also called
free agency, making him express the will of apparent or fictitious, which is the
another rather than his own contract that the parties pretend
to have executed
Ex. Government official/ Employer not 2) The hidden act, also called real,
agree = fired which is the true agreement
between the parties