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ELEMENTS OF CONTRACT
ESSENTIAL – w/o them, contract cannot exist
a. CONSENT of contracting parties
b. OBJECT CERTAIN – subject matter
c. CAUSE/CONSIDERATION
In some contracts, following are also necessary:
d. FORM- in formal contracts
e. DELIVERY- in real contracts
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 do)
7. SUBJECT MATTER
a. Contracts involving things
b. Contracts involving rights/credits
c. Contracts involving services
STAGES OF CONTRACT
1. PREPARATION/NEGOTIATION – preparatory steps to perfect contract (Offer, counter-
offer)
A. Offer-must be serious and certain (Offer made in jest or while angry is not a valid
offer)
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B. Death, Insanity, Civil Interdiction, Insolvency of either parties before acceptance
shall be ineffective.
C. Failure to comply with the condition of the offer as to time, place, and manner of
payment-offer shall become ineffective.
D. Expiration of the period fixed in the offer for acceptance-shall also render the
offer ineffective.
2. PERFECTION/BIRTH – meeting of minds between two contracting parties (Unqualified
acceptance of offer)
-Qualified Acceptance shall be considered counter-offer
General Rule: when the offerer has allowed the offeree a certain period to accept, the offer
may be withdrawn anytime before acceptance by communicating such withdrawal.
-Option money a distinct and separate consideration from the purchase price.
-The contract of sale (main contract) is not yet perfected. Only option contract is perfected.
PRINCIPLES/CHARACTERISTICS OF A CONTRACT
MUTUALITY OF CONTRACTS
- the contract must bind both parties; its validity/compliance cannot be left to the will of one
of them
RELATIVITY OF CONTRACTS
- Contracts take effect only between the parties, their assigns & heirs except when there are
rights & obligations not transmissible:
Exceptions:
-stipulation pour autrui
-contracts creating real rignts
-contracts entered to defraud creditors
-contracts which have been violated at the inducement of a third person
OBLIGATORINESS OF CONTRACTS
- The contract, once perfected, has the force of law between parties which bound to comply
in good faith
CONSENSUALITY OF CONTRACTS
- Contracts are perfected by mere consent
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Exceptions:
a. REAL CONTRACTS – perfected by delivery
b. FORMAL/SOLEMN CONTRACTS – special form required for its perfection
CONSENT
- meeting of offer (serious and certain) & acceptance (absolute/unconditional) upon a thing
CHARACTERISTIC OF CONSENT
Must be:
1. Intelligent
2. Free and Voluntary
3. Conscious and Spontaneous
RULES ON OFFER/ACEPTANCE
1. An offer must be serious and certain.
2. Business advertisements for sale are NOT offers but ONLY invitations to make an offer.
3. Advertisements for bidders are ONLY invitations.
4. An acceptance made by letter/telegram/electronic messages does NOT
bind offeror EXCEPT from the TIME it came to his knowledge.
5. An offer made through an agent is accepted from the TIME the acceptance is done
through an agent.
6. An offer is ineffective upon death, insanity, insolvency, of EITHER party BEFORE
acceptance is made.
7. When offeror allowed offeree a certain period to accept, offer MAY be withdrawn AT
ANYTIME unless there is something PAID/PROMISED.
Persons who CANNOT GIVE a valid CONSENT to a contract (if entered into, contract
is voidable)
1. MINORS
2. INSANE/DEMENTED PERSONS (unless they acted DURING LUCID INTERVAL)
3. DEAF-MUTES who DO NOT know how to write
DEMENTED PERSON – NOT exactly insane; difficult to distinguish right from wrong
(morons)
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LUCID INTERVAL – period when an INSANE has acquired SANITY temporarily, therefore,
capacitated to enter into a valid contract
VICES OF CONSENT
- NOTE: When there is a DEFECTIVE CONSENT of EITHER of parties, contract is voidable;
Remedy: annulment of contract.
1. MISTAKE/ERROR
2. FRAUD/DECEIT
3. VIOLENCE
4. INTIMIDATION/THREAT
5. UNDUE INFLUENCE
1. MISTAKE/ERROR
- wrong conception & lack of knowledge upon a thing
RULES ON MISTAKE
1. Mistake to identity/qualifications of either of parties will vitiate consent ONLY when IT is
the principal cause of contract.
2. Simple mistake of account must be corrected.
3. No mistake if parties knew the risk/doubt affecting OBJECT of contract.
4. When one of parties is unable to read or the contract is in language not understood by
him, & mistake/fraud is alleged, the person enforcing the contract must FULLY explained the
terms to him.
The mistake contemplated w/c make the contract voidable refers to SERIOUS and
SUBSTANTIAL mistake of fact. Mistake of law, as a general rule, does not vitiate consent
because “ignorance of the law excuses no one from compliance therewith” (ignoratia legis
neminem excusat). However, in case of doubtful application of law, or difficult question of
law, this shall be considered mistake of fact under 1334, provided, the following shall
concur:
2. FRAUD/DOLO
- when through insidious words/machinations of one of the parties, INDUCED the other to
enter into a contract, & w/o them, he will not agree.
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make contract voidable contract is valid; liable for
damages
RULES OF FRAUD
1. Failure to disclose facts when these facts need to be revealed is a fraud (Concealment).
2. Fraud should be SERIOUS (dolo causante) & SHOULD NOT be done by BOTH parties to
make contract voidable (pari delicto rule)
3. Incidental fraud (dolo incidente) ONLY obliges person to PAY DAMAGES.
4. Usual exaggerations in trade, when other party know the “real” facts, is NOT FRAUD.
5. A mere expression of opinion is NOT FRAUD UNLESS made by an expert & the other party
relies on his special knowledge.
6. Misrepresentation made in good faith is NOT FRAUD but may constitute an error.
7. Misrepresentation by 3rd person DOES NOT vitiate consent UNLESS it created substantial
mistake.
3. VIOLENCE
- serious/irresistible force is employed.
RULES ON VIOLENCE
1. Serious/irresistible force is employed against his person, property, honor, his spouse,
ascendants, descendants, brothers or sisters w/c constitutes the reason why one entered
into a contract.
2. Violence ANNULS obligation although it is DONE by 3 rd person not part of contract.
4. INTIMIDATION
- One of the parties is compelled by a reasonable & well-grounded fear of an imminent &
grave evil upon his person/property to give his consent.
RULES ON INTIMIDATION
1. Age, sex, & condition of person must be considered to determine the degree of
intimidation.
2. Intimidation ANNULS obligation although it is DONE by 3 rd person not part of contract.
3. A threat to enforce one’s claim (claim must be just & legal), DOES NOT vitiate consent.
VIOLENCE INTIMIDATION
External Internal
Physical contact/coercion NO physical coercion; ONLY
MENTAL/MORAL coercion
5. UNDUE INFLUENCE
- a person takes improper advantage of his power over other’s will, depriving the other to his
reasonable freedom of choice.
SIMULATION OF CONTRACT
- process of INTENTIONALLY deceiving others by producing a contract not really
exist (absolute simulation), or w/c is different from true agreement (relative simulation).
REQUISITES OF CAUSE
1. It is just & equitable.
2. It exists.
3. It is lawful.
4. It is true.
-Requisite of cause and object applies to each other because depending on the
perspective in case of reciprocal obligation, the object is the cause of the other and vice
versa.
LESION
- inadequacy of price
RULES ON LESION
- Lesion DOES NOT invalidate contract, except there is:
a. Fraud
b. Mistake
c. Undue influence
-will make the contract voidable
d. In cases of situations specified under rescissible contracts
-will make the contract rescissible
FORMS OF CONTRACTS
1. Contracts in writing
2. Contracts in a public instrument
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REFORMATION OF INSTRUMENTS
- REMEDY in equity in w/c a written instrument is made/construed to the REAL intention of
parties when there is an error/mistake.
INTERPRETATION OF CONTRACTS
-is the determination of the meaning of the terms/words used by the parties in their written
contracts.
Rules:
-When the language is clear and unambiguous, literal meaning of the words controls.
-Intention of the parties prevails over terms of contract, thus, the instrument may be
reformed.
-Previous, contemporaneous, and subsequent acts relevant to determine the intention of the
parties.
-Special intent prevails over general intent
-Interpretation should be the one that will make the contract effectual/valid over the
interpretation that it would make the contract void.
-Usage/Custom/Tradition
-In case of Contract of Adhesion, should be interpreted strictly against the party who caused
the obscurity/the party who drafted the contract liberally in favor of the party who merely
sign the contract.
-In case of gratuitous contract, least transmission of rights/interest shall prevail
-In case of onerous contract, greatest reciprocity of interest
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RESCISSIBLE CONTRACTS
Those entered by guardians & suffered LESION by more than ¼ of value of the value that is
the OBJECT.
Those agreed upon in representation of absentees, if the absentees suffered LESION.
Those undertaken in FRAUD of creditors when the creditors cannot further claim.
If entered into contract w/o knowledge/approval of litigants under litigation.
Contracts subjected to rescission declared by law.
- May be ratified
- Injured party may bring action within four years
- Subsidiary action and only up to the extent of injury/damage
VOIDABLE CONTRACTS
One of the parties INCAPABLE of giving consent to a contract.
Those where consent vitiates by vices of consent. (MFVIU)
Those agreed in the state of drunkenness/hypnotic spell.
- May be ratified
- Injured party may bring action within four years
UNENFORCEABLE CONTRACTS
Those entered in name of other person, or who acted BEYOND his powers. (without or excess
of authority)
Those who do not comply w/ the Statute of Frauds. (Those that should be in writing for its
enforceability, not for validity because they are essentially valid contracts but cannot be
enforced by court action)
-Agreement not to be performed in within one year
-Promise to answer for the debt, default, or miscarriage of another
-Agreement in consideration of marriage other than mutual promise to marry
-Agreement of sales of goods at a price not less than 500.00
-Agreement for leasing for a longer period than one year
-Agreement for sale of real property or an interest therein
-Representation as to the credit of a third person
7 VOID/INEXISTENT CONTRACTS
1. Those w/c are ABSOLUTELY simulated/fictitious.
2. Those w/c contemplate an impossible service.
3. Those whose OBJECT is outside the commerce of man.
4. Those whose CAUSE/OBJECT did not exist at time of transaction.
5. Those whose CAUSE/OBJECT/PURPOSE is contrary to law, morals, good customs, public
order, or public policy.
6. Those where INTENTION of parties to principal object CANNOT be ascertained.
7. Those expressly prohibited/declared VOID by law.
-Cannot be ratified
-Imprescriptible (The party may set up the defense of the nullity of the contract without any
time limit)