Documente Academic
Documente Profesional
Documente Cultură
CONTRACTS
What is a CONTRACT?
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 (Article 1305).
2. Natural – those derived from the nature of the contract and ordinarily
accompany the same.
3. Accidental – those which exist only when the parties expressly provide for them
for the purpose of limiting or modifying the normal effects of the contract.
-General Rule: Contracts take effect only between parties, their assigns and heirs. The
term relative means that contracts take effect only between those parties (because they
are related by virtue of the contract) and the parties’ heirs and assigns (because they are
related under law)
-Exceptions:
1. Stipulation pour atrui - stipulation in favor of a third person. French for
“Stipulation for other persons”
a) Requisites:
i. the stipulation must be a part, not the whole of the contract;
ii. the contracting parties must have clearly and deliberately conferred a
favor upon a third person, not a mere incidental benefit or interest;
iii. the third person must have communicated his acceptance to the obligor
(debtor) before its revocation;
iv. the favorable stipulation should not be conditioned or compensated by any
kind of obligation whatever; and
v. neither of the contracting parties bears the legal representative or
authorization of the third person.
b) Test of Beneficial Stipulation – the fairest test to determine whether the interest
of a third person in a contract is a stipulation pour atrui or merely an incidental
interest is to rely upon the intention of the parties as disclosed by their contract.
c) Example: D (debtor) owes C (creditor) Php10,000 payable after one year at
12% interest. It was agreed that the interest of P1,200 would be given to T
(third person) 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 that T
communicated his acceptance, T will become a party to the contract.
3. Third persons who come into possession of the object of the contract creating
real rights
4. Contracts entered into in fraud of creditors
What is Consent?
-Consent is the concurrence of both the offer (first party) and acceptance (second party)
upon the thing, and the cause which are to constitute the contract. In short, OFFER +
ACCEPTANCE = CONSENT
What is an Offer?
An Offer is a proposal made by one party to another to enter into a contract. An offer
must be certain or definite, complete and intentional.
What is an Acceptance?
An Acceptance is the manifestation by the offeree of his assent to the terms of the offer.
It must me absolute. A qualified acceptance constitutes counter-offer.
NOTE: Acceptance may be revoked before it comes to the knowledge of the offeror.
NOTES:
-Consensual contracts are perfected from the moment there is a manifestation of
concurrence between the offer and the acceptance regarding the object and the cause.
-Real contracts like deposit, pledge and commodatum requires delivery of object for
perfection (Commodatum refers to a gratuitous loan of a movable property.
Commodatum comes from the latin word “commodore” which means “to lend”.
-Solemn contracts are those which requires compliance with certain formalities
prescribed by law, such prescribed form being an essential element (i.e., donation of
real property-must in writing and notarized).
-An offer made inter praesentes (face to face) must be accepted IMMEDIATELY. If
the parties intended that there should be an express acceptance, the contract will be
perfected only upon knowledge by the offeror of the express acceptance by the offeree
of the offer. An acceptance which is not made in the manner prescribed by the offeror
is NOT EFFECTIVE BUT A COUNTER-OFFER which the offeror may accept or
reject. (Malbarosa vs. CA, et al., G.R. # 125761, April 30, 2003)
What if Y threatens to kill X but at that moment, Y has no deadly weapon with him. In
this instance, there is no intimidation since the fear is not reasonable and well grounded
since Y is in no position to carry out his threat)
3. Mistake - 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 contact.
a) Must be mistake of fact and not of law, except under Article 1334.
b) General Law: Mistake of fact may vitiate consent. Mistake must refer to:
i. The substance of the thing which is the object of the contract. (Ex. A is
buying from B a breeding cow but B is selling a barren cow)
ii. These conditions which have principally moved one or both parties to
enter into a contract, (Ex. A is selling his parcel of land for P200k cash,
but B is buying the land thinking the price is payable in installments) or
iii. The identity or qualifications of one of the parties provided the same was
the principal cause of the contract. (Ex. A donated his car to B thinking
that B is his half-brother. It turns out that B is not related to A. The mistake
as to the identity of B is material because his identity was the principal
reason or consideration for the donation.)
c) General Rule: Mistake of Law does not vitiate consent. Why? There is a
presumption that everyone knows that law. In fact, Article 3 of the Civil code
expressly states that “Ignorance of the law excuses no one from compliance
therewith”
d) Exception: Mistake of Law under Article1334 may be considered as vitiated
consent and may be a basis for rendering the contract void.
e) Article 1334: “Mutual Error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate consent”
f) Requisites under Article 1334 :
i. Mistake must be with respect to the legal effect of an agreement
ii. Mistake must be mutual
iii. Real purpose of the parties must have been frustrated.
Example: D borrows P10,000 from C. As security for the debt, it was agreed
that D should mortgage his parcel of land in favor of C. However, the
document as written is one of antichresis, the parties erroneously believing that
it has the effect of mortgage.
-(What is antichresis? It is a contract where the creditor acquires the right
to receive the fruits of an immovable of his debtor, with obligation to apply
them to the payment of interest, and thereafter the principal. Article 2132 of
the Civil Code)
4. 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.
a) Remember, Causal Fraud(dolo causante) vs Incidental Fraud (dolo incidente).
b) This provision refers to causal fraud.
c) Incidental fraud again refers to fraud which is incident to the performance of
an obligation. There is fraud in the fulfillment of an obligation. (Ex. Delivery
of black label whiskey, but instead of actual whiskey what was delivered was
iced tea.)
d) Causal fraud refers to when fraud is used to induce a person to agree to enter
into a contract. (Ex. S offered to sell to B a ring, claiming that the stone on the
ring is diamond. S knows that it is not diamond but ordinary glass. If B buys
the ring, relying on the truth of the representation of S, the sale may be annulled
on the ground of fraud.)
5. 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.
What if a party gave his consent reluctantly? Is the contract still valid?
Reluctant Consent- A contract is valid even though one of the parties entered into it
against his wishes and desires or even against his better judgment. In tagalog, this
means napilitan lang siyang umenter sa contract. Contracts are also valid even though
they are entered into by one of the parties without hope of advantage or profit. (Martinez
vs. Hongkong and Shanghai Bank, 15 Phil. 252)
Simulation of Contracts
Simulated means pretended or feigned. In tagalog, pineke. Contracts are considered
simulated if the parties made it appear that they entered into a contract but in reality,
they did not.
Rules:
1. In onerous contracts, the cause is understood to be, for each contracting party,
the prestation of promise of a thing or service by the other. Here, parties are reciprocally
obligated to each other. (ex. Sales, lease, partnership)
2. In remuneratory contracts, the service or benefit w/c is remunerated. The
purpose of the contract is to reward the service that had been previously rendered by
the party remunerated)
3. In contracts of pure beneficence (gratuitous contract), the mere liberality of the
donor or benefactor. (ex. Donation)
4. In accessory contracts (mortgage or pledge), the cause is identical with the cause
of the principal contract, that is, the loan from which it derives its life and existence.
NOTE:
1. Absence of cause the contract = Contract is VOID.
2. Failure of cause = does not render the contract void
3. Illegality of cause = contract is VOID
4. Falsity of cause = contract is VOID, unless the parties show that there is another
cause which is true and lawful
5. Lesion does not invalidate the contract. In civil law, lesion refers to loss from
another's failure to perform contract. It is the injury suffered by one who did not receive
the equivalent value of what was bargained for.
a) Unless:
i. there is fraud, mistake or undue influence; or
ii. when the parties intended a donation or some other contract
Motive is different from cause. Motive is the purely personal or private reason which
a party has in entering into a contract. (Ex. S sells his land to B for P100,000. For S, the
cause or consideration is the P100,000. But his motive or private reason is really to use
the money to invest it in a business venture.)
FORM OF CONTRACTS
General Rule: Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.
Exceptions:
1. When the law requires that a contract be in some form in order that it may be
valid. These are called solemn contracts.
i. Donation of real property- must be in a public instrument (Article 749)
ii. Donation of personal property the value of which exceeds P5,000. the
donation and acceptance must be in writing. (Article 748)
iii. Sale of land through an agent- the authority of the agent must be in writing;
otherwise the sale is void. (Article 1874)
iv. Stipulation to pay interest- must be in writing, otherwise no interest is due.
(Article 1956)
v. Contract of Partnership involving immovables- must be in a public
instrument. (Article 1771, 1773)
2. When the law requires that a contract be in some form in order that it may be
enforceable
NOTES:
Parties may compel each other to comply with the form required once the contract has
been perfected. (Article 1357)
RA 8792 (E- COMMERCE ACT) provides that the formal requirements to make
contracts effective as against third persons and to establish the existence of a contract
are deemed complied with provided that the electronic document is unaltered and can
be authenticated as to be usable for future reference.
REFORMATION OF INSTRUMENTS
Reformation is a remedy allowed by law by means of which a written instrument is
amended or rectified so as to express or conform to the real agreement or intention of
the parties.
Requisites:
a. meeting of the minds to the contract
b. true intention is not expressed in the instrument by reason of mistake, accident,
relative simulation, fraud, or inequitable conduct
c. clear and convincing proof of mistake, accident, relative simulation, fraud, or
inequitable conduct
VOIDABLE CONTRACTS are those in which all of the essential elements for validity
are present, although the element of consent is vitiated either by lack of capacity of one
of the contracting parties or by VIMFU.
NOTE: Discovery of fraud must be reckoned to have taken place from the time the
document was registered in the office of the register of deeds. Registration
constitutes constructive notice to the whole world. (Carantes vs. CA, 76 SCRA
514)
NOTE:
If the object is lost through fortuitous event, the contract can still be annulled, but the
person obliged to return the same can be held liable only for the value of the thing at
the time of the loss, but without interest thereon.
NOTES:
The contracts/agreements under the Statute of Frauds require that the same be
evidenced by some note, memorandum or writing, subscribed by the party charged or
by his agent, otherwise, the said contracts shall be unenforceable.
The statute of frauds applies only to executory contracts, not to those that are partially
or completely fulfilled.
VOID CONTRACTS
What are Void Contracts?
Those where all of the requisites of a contract are present but the cause, object or
purpose is contrary to law, morals, good customs, public order or public policy, or
contract itself is prohibited or declared void by law.
NATURAL OBLIGATIONS
What are Natural Obligations?
They are real obligations to which the law denies an action, but which the debtor
may perform voluntarily. It is patrimonial, and presupposes a prestation. The binding
tie of these obligations is in the conscience of man, for under the law, they do not have
the necessary efficacy to give rise to an action.
ESTOPPEL
What is Estoppel?
A condition or state by virtue of which an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as against the
person relying thereon.