CONTRACTS

CONTRACT – meeting of minds between 2 persons to give something or to render service.

Characteristics/Priciples: (MACRO)

M – Mutuality: bind both contracting parties. Validity: can’t be left with will of one of them

A – Autonomy: liberty/freedom to stipulate

C – Consensual: Contracts are perfected by mere consent

Exceptions:
a. REAL CONTRACTS – perfected by delivery
b. FORMAL/SOLEMN CONTRACTS – special form required for its perfection

R – Relativity of Contracts: Contracts take effect only between the parties, their assigns & heirs except
when there are rights & obligations not transmissible:
a. by their nature
b. by stipulation (stipulation por autri)
c. by provision of law

O – Obligatoriness and compliance in good faith: The contract, once perfected, has the force of law
between parties which bound to comply in good faith

Cases:

D is indebted to C in the amount of Php. 100,000.00. D and C are the parties of the contract. If C dies, D
must pay the heirs of C. If C assigns his credit to X, then D is liable to pay to X. If D dies and H is the heir,
then H assumes the obligation of D to C. H is bound by the contract entered into by D, his predecessor in
interest between him and D. However, H is not liable beyond the value of the property he inherits from
D, the decedent.

D owes C Php. 100, 000.00 payable after one year at 12% interest. It was agreed that the interest of
Php.1, 200.00 would be given to T to whom C is indebted for the same amount. In this case, T must
communicate his acceptance to D before the revocation of the stipulation by the parties in order that
the same will be effective. From the moment communication of acceptance is duly made, T becomes a
party to the contract. The promise (C) in a contract containing a stipulation pour autrui is entitled to
bring an action for its enforcement or to prevent its breach in the same manner as the beneficiary (T)
thereof.

X entered into a written contract with Y for the sale of his car at the price of Php.210,000.00.
Subsequently, F told X that the purchase price is very low as it can command a price of at least
Php.250,000.00. X wanted to increase the purchase price of his car to Php.250,000.00. This cannot be
done by X because of the principle of mutuality of contract.
3 ELEMENTS OF CONTRACT (ENA)
1. ESSENTIAL –(COC) w/o them, contract cannot exist
a. CONSENT of contracting parties
b. OBJECT CERTAIN – subject matter
c. CAUSE/CONSIDERATION
In some contracts, ff are also essential:
d. FORM
e. DELIVERY
2. NATURAL – found in certain contract, presumed to exist unless stipulated
3. ACCIDENTAL – various particular stipulations that may be agreed upon by contracting parties

(7) CLASSIFICATION OF CONTRACTS

According to:
1. PERFECTION/FORMATION
a. CONSENSUAL – perfected by mere consent
b. REAL – perfected by delivery
c. FORMAL/SOLEMN – special formalities are essential before perfection of contract

2. PARTIES OBLIGATED
a. UNILATERAL – only 1 has obligation
b. BILATERAL – both parties require to render reciprocal prestations

3. CAUSE
a. ONEROUS – exchange of considerations
b. GRATUITOUS – no consideration received in exchange of what is given
c. REMUNERATORY – something is given for benefit/service that had been rendered previously

4. RISK OF FULFILLMENT
a. COMMUTATIVE – equivalent values are given by both parties
b. ALEATORY – fulfillment of contract depends on chance (eg. insurance)

5. IMPORTANCE
a. PRINCIPAL – contract may stand alone (eg. sale, partnership)
b. ACCESSORY – existence depends on another contract (pledge, guarantee)
c. PREPARATORY – contract not an end by itself but a means thru w/c other contracts may be made
(eg. agency)

6. NAME
a. NOMINATE – contract given a particular/special name (eg. partnership)
b. INNOMINATE – not given special name (eg. I give that you may give)

7. SUBJECT MATTER
 a. Contracts involving things
b. Contracts involving rights/credits
c. Contracts involving services

3 STAGES OF CONTRACT
1. PREPARATION/CONCEPTION – preparatory steps to perfect contract
2. PERFECTION/BIRTH – meeting of minds between 2 contracting parties
3. CONSUMMATION/TERMINATION – terms of contract are performed, & contract is fully executed

4 KINDS OF INNOMINATE CONTRACTS

1. do ut des - I give that you may give
2. do ut facias - I give that you may do
3.facto ut des - I do that you may give
4. facto ut facias - I do that you may do

4 RULES FOR INNOMINATE CONTRACTS

1. Agreement of parties
2. Law on Obligations & Contracts
3. Rules on most analogous nominate contract
4. Customs of place
STIPULATION POR AUTRI
- stipulation in favor of 3rd person

5 REQUISITES OF STIPULATION POR AUTRI

1. Stipulation in favor of 3rd person
2. 3rd person must accept & say it to debtor before its revocation/cancellation
3. Stipulation is only PART, not the whole of the contract.
4. The favorable stipulation should not be conditioned or compensated by any kind of obligation
5. Neither of both parties be the legal representation/authorization of 3rd person

ESSENTIAL REQUISITES OF CONTRACTS – COC

1. Consent
2. Object Certain or Subject
3. Consideration

CONSENT

Consent – is the manifestation of the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract.

REQUIREMENTS:
1. Plurality of subject
2. Capacity
3. Intelligence and free will
4. Manifestation of intent of parties
5. Cognition by the other party
6. Conformity of manifestation and cognition

AUTO CONTRACTS - Made by a person acting in another’s name in one capacity

COLLECTIVE CONTRACTS – will of majority binds a minority to an agreement notwithstanding the

opposition of the latter

CONTRACTS OF ADHESION –one party has already a prepared form of a contract, containing the
stipulations he desires, and he simply ask the other party to agree to them if he wants to
enter into the contract.
Note: We follow the theory of cognition and not on the theory of manifestation. Under our Civil law, the
offer and acceptance concur only when the offeror comes to know, and not when the
offeree merely manifests his acceptance.

RULES ON OFFER
1. The offer must be certain
Rules on advertisements as offers
 BUSINESS ADVERTISEMENTS – not definite offer, but mere invitation to make an
offer, unless it appears otherwise
 ADVERTISEMENTS FOR BIDDERS – only invitation to make proposals and advertiser
is not bound to accept the highest or lowest bidder, unless appears otherwise.
2. An offer becomes ineffective upon death, civil interdiction, insanity or insolvency of either party
before acceptance is conveyed
3. 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 – may be withdrawn anytime before acceptance is communicated but not when supported by a
consideration other than purchase price: option money

ELEMENTS OF VALID OFFER / ELEMENTS OF VALID ACCEPTANCE

1. Definite – unequivocal
2. Complete – unconditional
3. Intentional

WHEN OFFER BECOMES INEFFCTIVE:

1. Death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed
2. Express or implied revocation of the offer by the offeree
3. Subject matter becomes illegal or impossible before acceptance is communicated

RULES ON ACCEPTANCE:
1. The acceptance must be absolute.
a. If the acceptance is qualified, it constitutes a counter-offer; and has the effect of rejecting the
offer.
 b. If the other fixes the time, place and manner of acceptance, all must be complied with.
Otherwise, there will be no meeting of minds.
2. 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 the place
where the offer was made.
3. Acceptance may be express or implied
4. An offer made through an agent is accepted from the time it is communicated to him.

PERIOD FOR ACCEPTANCE

1. Stated fixed in the offer
2. No stated fixed period
a. Offer is made to a person present – acceptance must be made immediately
b. Offer is made to a person absent – acceptance may be made within such time that, under
normal circumstances, an answer can be received from him
*Acceptance may be revoked before it comes to the knowledge of the offeror

RULES ON CONSENT
1. The parties must have the capacity to enter into a contract.
The following cannot give consent:
a. Unemancipated minors
b. Insane or demented persons
c. Deaf-mute who do not know how to write
2. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable
3. A contract whereby consent is given through the following are voidable
Vices of consent: (VIMFU) Violence, Intimidation, Mistake, Fraud, and Undue Influence

SIMULATED CONTRACTS
- A contract that does not intend to have any legal effect on or a change in the juridical
situation of the parties.
1. Absolutely Simulated Contracts – the parties do not intend to be bound at all. Being fictitious, it is
void.
2. Relatively Simulated Contract – where the parties conceal their true agreement

Cases:

X offers to construct the house of Y for a very reasonable price of Php. 1,000,000.00 giving the latter 10
days within which to make up his mind. X may withdraw the offer even before the lapse of 10 days
unless Y has already accepted the offer. After acceptance, withdrawal is not possible as there is no more
offer to withdraw. Even before the acceptance, X may not withdraw the offer if the option is covered by
a consideration as when Y paid or promised to pay a sum of money to X for giving him the 10-day
period. There is here an option contract. After the 10 day period, in the absence of acceptance, the offer
becomes ineffective.

For sale: 200 square meters lot at Green Plains Village, Quezon City for Php. 1,000,000.00 –Tel No. 844-
1284. This is not a definite offer.
For sale: 200 square meters lot at Green Plains Village, Quezon City located at the corner of Geronimo
and Magallanes Street for Php.1,000,000.00 cash - Tel No. 844-1284. This is a definite offer.

S offers to sell his car for Php.100,000.00 to B. B accepts the offer but is willing to pay the price of
Php.95,000.00 only. The acceptance made by B is a qualified acceptance which constitutes a counter-
offer. Accordingly, no contract is perfected. However, if S accepts the counter-offer, then there will be a
perfected contract at the price of Php.95,000.00

S sold his car to B for Php.100,000.00 cash because he needed the money to settle a debt. The deed of
sale signed by him showed, however, that the price would be paid in 4 equal instalments. S can have the
sale annulled because of a mistake as to the condition of the contract.

If a church minister improperly takes advantage of his power over a member of his congregation who
regularly confides in him by persistently telling the member to sell his property to him, the contract if
entered into will be voidable at the instance of the member on the ground of undue influence

S induced B to buy a ring which S claimed was made of pure gold. However, S knew all along that the
ring was only gold-plated. B can have the contract annulled on the ground of fraud.

B is interested in buying the lot of S. S tells B to show his capacity to buy the lot by asking B to present
his bank records. B, however, does not have any bank account. So he ask XYZ Bank through the manager
who is his friend

OBJECTS OF CONTRACTS

1. All things which are not outside the commerce of men, including future things. (Art. 1347)
2. All rights which are not intransmissible (Art. 1347)
3. All services which are not contrary to law, morals, good customs, public order or public policy. (Art.
1347)
4. It must not be impossible
5. It must be determinate as to its kind or if its quantity is not determinate, it must be possible to
determine the same without the need of a new contract between the contracting parties.

CAUSE OF CONTRACTS
- The essential reason why a party enters into a contract.

1. Onerous Contracts – the prestation of promise of a thing or service by the other

2. Remuneratory Contract – the service or benefit remunerated
3. Pure Beneficence – mere liberality of the donor or benefactor
4. Accessory – identical with cause of principal contract, the loan which it derived its life and existence
(ex. Mortgage or pledge)

Requisites of cause
*it must exist, must be lawful, and must be true.

LESION
 - The inadequacy of cause, as a general rule, lesion shall not invalidate a contract except in
the following:
1. When there was fraud, mistake and undue influence.
2. In cases provided by law, such as ward/absentee suffer lesion of more than ¼ of the
value of the object of the contract.

FORM OF CONTRACTS

FORM - in some kind of contracts only as contracts are generally consensual; form is a manner in
which a contract is executed or manifested.

WHEN FORM IS IMPORTANT:

1. For Validity – if the contract is not in the form provided by law for its validity, the contract is void
The ff. are certain contracts that must be in a certain form to be valid:
1. Contract of donation of an immovable which must be in a public document together
with the acceptance of the donee.
2. Contract of donation of personal property whose value exceeds Php.5,000.00 must be in
writing together with the acceptance of the donee.
3. The authority of the agent to sell a piece of land must be in writing; otherwise, the sale is
void
4. Contract of partnership where immovable property is contributed must be in public
instrument to which shall be attached a signed inventory of the immovable property.
2. For enforceability (statute of frauds)
3. For convernience

General Rule: contract is valid and binding in whatever form provided that 3 essential requisites concur
Exceptions:
a. Law requires contract to be in some form for validity – donation and acceptance of real
property
b. Law requires contract to be in some form to be enforceable – Statute of Frauds; contract
is valid but right to enforce cannot be exercised; need ratification to be enforceable
c. Law requires contract to be in some from for convenience – contract is valid and
enforceable, needed only to bind 3rd parties
Ex: public documents needed for the ff:
i. Contracts w/c object is creation, transmission or reformation of real rights over
immovables.
ii. Cession, repudiation, renunciation of hereditary rights/CPG
iii. Power to administer property for another
iv. Cession of action of rights proceeding from an act appearing in a public
instrument
v. All other documents where amount involved is in excess of 500 (must be written
even in private documents

REFORMATION OF INSTRUMENTS

REFORMATION – is a remedy in equity by means of which a written instrument is made or

construed so as to express or conform to the real intention of the parties when
some error or mistake has been committed.
Requisites of Reformation:
1. There must be a meeting of minds of the parties to the contract.
2. The true intention of the parties is not expressed in the instrument.
3. The reason therefor is due to mistake, fraud, inequitable conduct or accident.

CAUSES/GROUNDS:
1. Mutual – instrument includes something which should not be there or omit what should be there
a. mutual
b. mistake of fact
c. clear and convincing proof
d. causes failure of instrument to express true intention
2. Unilateral
a. one party was mistaken
b. other either acted fraudulently or inequitably or knew but concealed
c. party in good faith may ask for reformation
3. Mistake by 3rd persons – due to ignorance, lack of skill, negligence, bad faith of drafter, clerk typist
4. Others specified by law – to avoid frustration of true intent
Requisites:
a. There is a written instrument
b. There is meeting of minds
c. True intention not expressed in instrument
d. Clear and convincing proof
e. Facts put in issue in pleadings
*prescribes in 10 years from the date of execution of instrument

WHEN REFORMATION NOT AVAILABLE

1. Simple donation inter vivos
2. Wills
3. When real agreement is void
4. Estoppel when party has brought suit to enforce it.