CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS

STUDY GUIDE : (FT SESSIONS 2 TO 5)

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)

1. How is consent in a contract manifested? (Art. 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 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)

103
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

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the offer be withdrawn even before the expiration of the period?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; and
(b) There is no “option contract” between the parties.

NOTE: 1. Know the distinction between option money and

earnest money.
2. Distinguish Article 1324 from Article 1479.

 READ THIS CASE IN ITS ORIGINAL TEXT:

 Sanchez vs. Rigos,

G.R. No. L-25494, June 14, 1972.

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) Advertisements 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)

104
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

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)

NOTE: The law presumes that every person is fully competent to enter into a
contract until satisfactory proof to the contrary is presented. The burden of proof
is on the individual asserting a lack of capacity to contract, and this burden has
been characterized as requiring for its satisfaction clear and convincing
evidence.

 READ THIS CASE IN ITS ORIGINAL TEXT:

 Yason vs. Arciaga,

G.R. No. 145017, Jan. 28, 2005.

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

105
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

(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 well-grounded 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)

 READ THIS CASE IN ITS ORIGINAL TEXT:

 Spouses Binua vs. Ong,

106
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

G.R. No. 207176, June 18, 2014.

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)

 Example: Lolo Tomas, an 85 year-old wheelchair-bound

convalescent, lived alone with his trusted helper Inocencia. Inocencia managed
to prepare a deed of donation in her favor covering a house and lot owned by
Lolo Tomas. Everyday, she convinced Lolo Tomas to sign the deed. Since she
would not leave Lolo Tomas in peace, the latter ultimately signed the deed of
donation transmitting his ownership over his land to Inocencia. There is here
undue influence employed by Inocencia which vitiated the consent of Lolo
Tomas.

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.

 READ THIS CASE IN ITS ORIGINAL TEXT:

107
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

 ECE Realty and Development Inc. vs. Mandap,

G.R. No. 196182, September 1, 2014.

(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 practiced 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 former’s
special knowledge. (Art. 1341).

(e) It must have induced the consent of the other contracting party.

2. What is meant by simulation of a contract?

108
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

 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 (Arts. 1345 & 1346).

(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 (Arts. 1345 &
1346).

 READ THIS CASE IN ITS ORIGINAL TEXT:

 Intac vs. Court of Appeals, G.R. No. 173211, October
11, 2012.

APPLICATION/PROBLEMS :
(1) S offered to sell B 80 copies of Dr. Seuss’s 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 P20,000.00. 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 B’s contention?  Art. 1319

(2) On September 1, 2016, S offered for sale to B a BMW Z4 with plate

no. ZLR-603 for P2.1M. On September 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 September 6. S, however, later came to know that, on the night of September
4, B’s 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

109
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

BMW, and demands from S delivery of the car sold. May S be compelled to
make delivery?  Art. 1323

(3) On September 1, 2015, 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
September 2, 2015 within which to accept the offer. As consideration for the
option, B paid S the amount of P10,000.00. On September 10, 2016, 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 (B’s) favour. Decide on the rights and obligations
of the parties.  Art. 1324

(4) On September 1, 2016, Tara offered for sale to Bong her BMW car for
P8M. Since Bong was undecided, Tara gave Bong 15 days or until September
16 within which to decide whether he would accept the offer. On September 15,
Dodgie offered to buy Tara’s BMW car for P10M. Since Bong had not as yet
communicated with her, Tara decided to accept the offer and sold her BMW car
to Dodgie for P10 million. She made delivery on the same day. Early morning of
September 16, Bong went to see Tara and signified his acceptance to the offer,
at the same time tendering payment of the P8M purchase price for the car. Tara
informed him, however, that she had already sold the car to Dodgie. If you are
Bong’s lawyer, what legal action will be take against Tara?  Art. 1324

(5) An advertisement in the classified ads of the Manila Bulletin reads:

“For Sale: One 150 square-meter residential house on a 500 square-meter lot at
P10 M to P11 M located at No. 29 Maasim Street, Las Piñas, M.M.” Call tel. no.
888-1234.” After reading the advertisement, Cris called the number, talked to the
owner Sheena, and signified his acceptance to the offer and willingness to buy
the property at P11M. Is there now a perfected contract of sale between Cris
and Sheena?  Art. 1325

(6) Masipag Corporation caused the publication of an advertisement in the

Philippine Daily Inquirer inviting bids for the construction of a twelve-story
commercial building in Manila. The advertisement also included the
specifications of the building to be constructed. Three construction companies
submitted their bid proposals as follows: Mabilis Construction Company
(MCC), P50M; Maayos Construction, Inc. (MCI), P55M; and Laos

110
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

Developers, Inc. (LDI), P60M. Masipag Corporation accepted the bid of MCI.
MCC now filed a complaint against Masipag Corporation questioning the award
of the contract to MCI which submitted a higher bid. Will the complaint filed by
MCC prosper?  Art. 1326

(7) Rita, 16 years old, sold her BMW car to Henry, an insane. Is this
contract valid? Is this contract enforceable?  Art. 1327 (Study in coordination
with Art. 1390, No. 1, and Art. 1403, No. 3)

(8) While Ron was a deaf-mute, he rose above his disability, and
eventually passed the Bar Exams. One month after he took his oath as a lawyer,
he figured in a car accident. He had to undergo an operation thereafter. He
recovered, but lost both his arms and his right leg. One month after the accident,
he was forced to sell his car to Julie, to cover for his medical expenses. Is this
contract of sale between Ron and Julie valid? Is it enforceable?  Art. 1327

(9) Psychiatrist Dr. Merced put Claire into a hypnotic spell, and asked her
to sign a deed of sale which transferred the ownership of a 1000 square-meter
house and lot to Dr. Merced for a consideration of P20 M. Is this contract valid?
 Art. 1328

(10) Zsazsa wanted to buy a pig to be slaughtered for the upcoming town
fiesta. She then talked to Aling Iska, who offered to sell to Zsazsa a female pig
for P5,000.00. Aling Iska also represented that her pig was very fertile and gave
birth to 6 six pigs every time. Two days after Zsazsa bought the pig, her sister-
veterinarian informed her that the pig was already barren, and could no longer
become pregnant. Can Zsazsa file an action to annul this sale on the ground of
mistake?  Art. 1331

(11) David had a high regard for doctors because both his deceased
parents were doctors. On September 12, 2016, David sold a lot to Krissa, who
represented to David that she was a doctor. Krissa paid him P5M as
consideration. Three days after the sale, David came to know from a neighbor
that Krissa, who was always wearing a white suit to work, was a facial therapist
at Flawless. Can the contract of sale here be annulled on the ground of
mistake?  Art. 1331

111
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

FOOD FOR THOUGHT

“Self-discipline is often disguised as short-term pain, which

often leads to long-term gains. The mistake many of us
make is the need and want for short-term gains (immediate
gratification), which often leads to long-term pain.”
Charles F. Glassman

(12) Casimiro, an illiterate farmer, is the owner of a one-hectare farm lot in

Laguna. When his daughter graduated from college, and expressed her desire
to go to medical school, Casimiro was forced to offer his farm lot for sale for the
the price of P5M. Atty. Enriquez, who was into organic farming bought the lot.
Later, the sister of Casimiro learned of the sale. She informed her brother that
he could have sold the lot for P8M, and incited his brother to file an action for
annulment of the contract of sale on the ground that the lawyer had taken
advantage of his lack of education, especially that the deed of sale signed by
Casimiro was prepared by the lawyer and drafted in English. Casimiro then filed
an action to annul the contract on the ground of fraud. Will it be legally tenable to
aver that, under the facts, Casimiro is burdened in this action for annulment to
present sufficient evidence to prove the fact of fraud on the part of Atty.
Enriquez?  Art. 1332

(13) Selma signed a “Deed of Sale” transferring ownership of his land to

Bobot. Later, Selma sought to have the deed of sale annulled on the ground that
she was forced to sign the deed of sale against his will by Bobot who threatened
to report her to the BIR authorities in connection with tax evasion activities. Will

112
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

the action for annulment of the contract on the ground of intimidation filed by
Selma prosper?  Art. 1335

(14) Pancho inherited from his great grandfather a 1000 square-meter

house and lot in Makati currently assessed at P50M. Evelyn, an entrepreneur in
the food industry, is offering to buy the property from Pancho for P85M because
she wants to convert the old house into an exotic restaurant, which she thinks
will earn her millions. Pancho, however, refuses to sell the house for sentimental
reasons. Inggo is the owner of the 1,200 square-meter lot (currently assessed at
P20,000.00 per square meter) just adjacent to Pancho’s property. From Inggo’s
projection, if Pancho sells his property to business tycoon Evelyn, Inggo’s
property’s assessed valuation will increase by not less than 35%. When Inggo
learned that Pancho did not want to accept Evelyn’s offer to buy the property, he
employed Tim, an ex-convict, to give Pancho a visit one night. Inggo drafted a
deed of sale in favor of Evelyn, and asked Tim to compel Pancho to sign the
document. Tim then went to Pancho and presented the deed of sale to him for
signature. Since Pancho refused, Tim held Pancho’s arm and twisted it with the
intention of breaking it. Since Pancho could not endure the pain, he was forced
to sign the deed of sale. The following day, Inggo presented the deed of sale to
Evelyn who was very happy that Pancho had agreed to selling his property, and
immediately deposited to Pancho’s account the full purchase price. If Pancho
subsequently files an action for annulment of the contract of sale on the ground
of intimidation, can the action prosper considering that Evelyn, the buyer who
benefited from the sale, had nothing to do with the intimidation employed on the
person of Pancho?  Art. 1336

FOOD FOR THOUGHT

“When you stop chasing the wrong things

You give the right things a chance to catch you.”
Unknown

113
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

“It’s easier to keep up than to catch up.”

Unknown

(15) Techie bought a Class “A” replica of a Louis Vuitton bag in Greenhills
for P8,000.00. Representing that it was an original, Techie sold it to Nilo, who
bought it for P45,000.00 as a gift for his wife. After Nilo handed the gift to his
wife, the latter who was an LV aficionado informed him that the bag was a fake.
Can Nilo recover the P45,000.00 he paid to Techie and hold her liable for
damages?  Art. 1338

(16) Armin advertised his farm lot in Cavite for sale at P6.5M. Henry
offered to buy the farm lot. At the time they were negotiating the sale, Henry
represented to Armin that Henry’s sister was helping him buy the property to help
him engage in organic farming as he was in dire need of finances for his five
children’s college tuition. Because of this, Armin accepted Henry’s offer to buy
the property at P5M. Later, Armin came to know that Henry was not an organic
agriculturist but was a rich businessman who wanted to convert Armin’s farm lot
into a memorial garden, with columbarium. Under the facts, can Armin file an
action for annulment of their contract of sale on the ground of fraud?
 Art. 1338

(17) Celso and Cely were real estate partners. Celso came to know that
an Australian corporation was interested in buying a parcel of land in Makati
belonging to their firm. The offer to buy, if pursued will earn Celso and Cely not
less than P50million. In the meantime, Cely who was hard up on finances
because of her sick husband, offered to sell to Celso her share in the
partnership. After the buy-out was consummated, Celso then closed the sale
over the Makati property with the Australian corporation and he accumulated net
profits amounting to P53 million. Later, Cely came to know from another
business associate about the circumstances surrounding the sale. Cely then
filed an action for annulment of the contract of sale wherein she sold her share of
the partnership to Celso. Will Cely’s action prosper? Can she consequently
demand from Celso her share of the profits from the sale of the Makati property
to the Australian Corporation, plus damages?  Art. 1339

(18) Cecille, a housewife, saw a television advertisement which states,

“Buy now!!!! Savon Hugashi, the antibacterial liquid soap that can wash and

114
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

sanitize 5,000 plates per 200mL preparation! 50% off…limited offer!” Relying on
the advertisement, Cecille bought 1 box of 48 200mL-bottles of the liquid soap,
and paid P3,000.00 for the goods. After trying the first bottle, Cecille finished
washing only 800 plates. She was furious, and realized that she had been
scammed. Hence, she filed an action for annulment of the contract of sale on
the ground of fraud. Will her action prosper?  Art. 1340

(19) After Kyra was diagnosed for kidney failure, she was forced to stop
working as a domestic helper in Singapore. She spent all her savings on her
treatments. She sold everything she owned, and now the only thing she had left
that was of value was a diamond ring which her grandmother gave her as a gift
on her 18th birthday. She then offered the ring for sale to Sally, who bought the
ring for P100,000.00 based on Kyra’s representation that the ring was adorned
with pure diamond. Later, however, after Sally brought the ring to an appraiser,
she was informed that the stone on the ring was merely Russian diamond which
is worth P5,000.00. Under the factual circumstances obtaining in this case, will
Sally have any cause of action for annulling her contract of sale with Kyra?
 Arts. 1341 & 1343

(20) Kitoy is offering his 800 square-meter land for the price of P8,000.00
per square meter. Buboy, an interested buyer, consults regarding the valuation
of the offered property with his friend Leviña, who works at the city hall of
Quezon City where the property is located. Leviña tells Buboy that the
P8,000.00 square meter price is reasonable, since the property is worth
P10,000.00 per square meter as per the city’s zonal valuation. Relying on the
information given to him by Leviña, Buboy bought the property from Kitoy. Later,
however, Buboy came to know that the information given to him was not true,
because Leviña purposely did it to mislead him because she still held grudges
against him dating back to high school. He also found out upon further inquiry
that the property’s worth was only P5,000.00 per square meter as per the city’s
zonal valuation. If Buboy files an action to annul the contract of sale on the
ground of fraud, will his action prosper?  Art. 1342

(21) Efren offered to buy the agricultural lot of Lorie because he wanted to
cultivate seedless grapes thereon. However, since neither Efren nor Lorie knew
whether it was viable to raise seedless grapes on the lot, they asked Menchie, an
expert on soil analysis, to examine the soil. Menchie then informed Efren and
Lorie that the soil on the lot was suitable for raising seedless grapes. Relying on
the statement of Menchie, Efren and Lorie signed a Deed of Sale. The

115
CHAPTER 2 – Essential Requisites of Contracts (Articles 1318-1346)

representation of Menchie, however, turned out to be false. Since Efren couldn’t

use the land for which it was intended, can he file an action for annulment of the
contract of sale on the ground of fraud?  Art. 1342

(22) While walking in Luneta, Enteng found a diamond ring, the same kind
he saw in the television advertisement which was worth P55,000.00. Since he
needed the money, he sold the ring to Trinidad for P50,000.00, and represented
to her that the stone on the ring was pure diamond. Trinidad later learned that
the ring was only worth P4,000.00 because its stone was simply Swarovski
crystal. Thereafter, Trinidad filed an action for annulment of the contract. Can
this contract of sale be annulled on the ground of fraud?  Art. 1343

(23) Romy owes Leah P5M. To secure the obligation, they agreed that
Romy will mortgage to Leah his lot in Makati worth P8M. Not wanting to let his
friends know that his property was subject to a mortgage, Romy and Leah
agreed to execute a Deed of Sale of the lot. They agreed that if Romy fails to
pay his obligation, Leah will become the owner of the lot by the sale. But if Romy
pays his obligation on due date, then Leah will be obliged to execute a Deed of
Sale conveying back ownership of the lot to Romy. Later, before maturity date of
the obligation, Leah, as the new purported owner of the lot managed to sell the
lot to Brigitte, who paid P10M for the lot. Romy now seeks to recover the lot from
Brigitte alleging that the sale was merely simulated, and the real agreement
between him and Leah was only a contract of mortgage; hence, Leah had no
right to alienate the lot. Will Romy be able to recover the lot from Brigitte?
 Arts. 1345 & 1346

FOOD FOR THOUGHT

“The 3 C’s of Life: choices, chances,
changes
You must make a Choice to take a Chance
or your life will never Change.”
Unknown

116