B.

Contracts (a) ​Preparatory — or those which have for their object the
establishment of a condition in law which is necessary as a
Meaning - it is the meeting mind between two persons whereby one preliminary step towards the celebration of another subsequent
binds himself, with respect to the other to give something or to render contract. Examples — partnership, agency.
some service. (Article 1305, New Civil Code) (b) ​Principal — or those which can subsist independently from
other contracts and whose purpose can be fulfilled by themselves.
Concept -​ is an agreement on declaration of a common will. A juridical Examples — sale, lease.
convention manifested in legal form, by virtue, of which one or more (c) ​Accessory — or those which can exist only as a
persons bind themselves in favor of another or others, or reciprocally, consequence of, or in relation with, another prior contract. Examples
to the fulfillment of a prestation to give, to do, or not to do. (Sanchez — pledge, mortgage.
Roman)
(2) According to their perfection:
Number of parties -​ There must at least two persons or parties (a) Consensual — or those which are perfected by the mere
because it is impossible for one to contract with himself. However, a agreement of the parties. Examples — sale, lease.
single person may create a contract by himself where he represent
distinct interest. (b​) Real ​— or those which require not only the consent of the
parties for their perfection, but also the delivery of the object by one
A. Elements of a Contract party to the other. Examples — commodatum, deposit, pledge.
a. Essential Elements -​ are those without which there can be no
contract. (Examples: consent, subject matter, cause or (3) According to their form:
consideration) (a) ​Common or informal ​— or those which require no particular
b. Natural — those found in certain contracts, and presumed to form. Example — loan.
exist, unless the contrary has been stipulated.( Example:
warranty against eviction and against hidden defects in the (b) ​Special or formal — or those which require some particular
contract of sale) form. Examples — donations, chattel mortgage.
c. Accidental — they may be present or absent, depending upon
whether or not the parties have agreed upon them. (Examples: (4) According to their purpose:
the stipulation to pay credit; the stipulation to pay interest; the (a) Transfer of ownership. Example — sale.
designation of the particular place for delivery or payment.)
(Paras , Civil Code of the Phils., 2016ed., pp. 529) (b) Conveyance of use. Example — commodatum.

B. Classification of Contract according to its name or (c) Rendition of services. Example — agency.
designation
(5) According to their subject matter:
(1) According to their relation to other contracts: (a) ​Things​. Examples — sale, deposit, pledge.

1
 (b)​ Services​. Examples — agency, lease of services. (9) According to their names or norms regulating them:

(6) According to the nature of the vinculum which they produce: (a) Nominate ​— or those which have their own individuality
(a) ​Unilateral — or those which give rise to an obligation for and are regulated by special provisions of law. Examples — sale,
only one of the parties. Examples — commodatum, gratuitous lease.
deposit. (b) Innominate — or those which lack individuality and are not
regulated by special provisions of law. (Jurado, Comments and
(b) ​Bilateral — or those which give rise to reciprocal Jurisprudence on Obligations and Contracts, 2010 pp. 361)
obligations for both parties. Examples — sale, lease.
C. Objects, Causes and Forms of Contracts
(7) According to their cause: Object or prestation must be a) possible, b) determinate and c)
(a) Onerous — or those in which each of the parties aspires to have an equivalent value in money.
procure for himself a benefit through the giving of an equivalent or
compensation. Example — sale. Consent is the conformity of the parties on the terms of the
contract. It presupposes the following requisites;
(b) ​Gratuitous ​— or those in which one of the parties proposes 1. Plurality of subjects
to give to the other a benefit without any equivalent or compensation. 2. Capacity
Example — commodatum. 3. Intelligent and free will
4. Express or tacit manifestation of the will
(8) According to the risks involved: 5. Conformity of the internal will and manifestation.
(Tolentino, Civil Code of the Philippines, Vol. IV, 2001,
(a) Commutative — where each of the parties acquires an pp.447)
equivalent of his prestation and such equivalent is pecuniarily
appreciable and already determined from the moment of the In general, form does not matter for the validity of a contract. It
celebration of the contract. Example — lease. is enough that there be consent, subject matter, and cause. This rule
applies, however, to CONSENSUAL CONTRACTS
(b) Aleatory — where each of the parties has to his account
the acquisition of an equivalent of his prestation, but such equivalent, (a) FORMAL CONTRACTS (SOLEMN CONTRACTS) require
although pecuniarily appreciable, is not yet determined at the moment a certain specified form, in addition to consent, subject matter, and
of the celebration of the contract, since it depends upon the cause.
happening of an uncertain event, thus charging the parties with the (b) REAL CONTRACTS require DELIVERY to be valid as a
risk of loss or gain. Example — insurance. real contract even as between the parties, in addition to consent,
subject matter, and cause.(Paras , Civil Code of the Phils., 2016ed.,
pp. 675)

2
When Form Is Important the contract and the evident intention of the parties, ​the intention
a. For Validity; must prevail. ​ (Paras , Civil Code of the Phils., 2016ed., pp. 700)
b. Enforceability;
c. Convenience. (Paras , Civil Code of the Phils., 2016ed., pp. Determining intention, t​ he court considers​:
677) 1. The situation of the subject and of the parties;
2. The relation existing between the parties;
D. Reformation of Instruments 3. The respective situations;
Doctrine of Reformation of Instruments. — When the true 4. The surrounding circumstances; and
intention of the parties to a perfected and valid contract are not 5. The purpose and tenor of the whole contract. (Tolentino, Civil
expressed in the instrument purporting to embody their agreement by Code of the Philippines, Vol. IV, 2001, pp.563)
reason of mistake, fraud, inequitable conduct or accident, one of the
parties may ask for the reformation of the instrument so that such true F. Defective Contracts
intention may be expressed. (Jurado, Comments and Jurisprudence Four classes of defective contracts They are: first, rescissible
on Obligations and Contracts, 2010 pp. 487) contracts; second, voidable contracts; third, unenforceable contracts;
and fourth, void or inexistent contracts. (Jurado, Comments and
Requisites for the Action for Reformation: Jurisprudence on Obligations and Contracts, 2010 pp. 500)
a There must be a meeting of the minds.
b The true intention is not expressed in the instrument. (1) Rescissible contract - they are the least infirm or defective
c. There must be clear and convincing proof thereof. because all the essential requisites of a contract exist but by
D. It must be brought within the proper prescriptive period. reason of injury or damage to one of the parties or to third
e. The document must not refer to a simple unconditional persons, such as creditors, the contract may be rescinded.
donation inter vivos (Art. 1366), or to wills (Art. 1366), or to a contract (De Leon, Comments and Cases on Obligation and Contracts,
where the real agreement is void. (Paras , Civil Code of the Phils., 2014, pp 777)
2016ed., pp. 678-679)
Rescission is a remedy granted by law to the contracting
When Reformation May Be Asked Because of Mutual Mistake: parties both to contracting parties and to third persons in order to
1. That the mistake is one of fact; secure reparation of damages caused them by a contract, even if the
2. That it was common to both parties, and; contract be valid, by means of the restoration of things to their
3. The proof of mutual mistake must be clear and convincing. condition prior to the celebration of said contract. (Paras , Civil Code
(Tolentino, Civil Code of the Philippines, Vol. IV, 2001, pp.551) of the Phils., 2016ed., pp. 734)

E. Interpretation of Contracts Requisites for Rescission:

3
 (c) Requires mutual restitution. (Paras , Civil Code of the
7.Plaintiff may be a party or a Plaintiff must be a party to the
Phils., 2016ed., pp. 735) third person. contract (whether bound
principally or subsidiarily).

Prescription of action for Rescission: 8.There must be damage to the Damage to the plaintiff is
plaintiff. immaterial.
The action to claim rescission must be commenced within four years.
9.If plaintiff is indemnified, Indemnity here is no bar to the
For persons under guardianship and for absentees, the period of four rescission cannot prosper. prosecution of the action.
years shall not begin until the termination of the former’s incapacity, or
until the domicile of the latter is known. Article 1389, New Civil Code) 10.Compatible with the perfect Here, a defect is presupposed.
validity of the contract.
(2) ​Voidable Contracts ​- They are valid until annulled unless
11.To prevent rescission, To prevent annulment,
there has been a ratification. The defect is caused by vice of consent.
ratification is not required ratification is required.
(De Leon, Comments and Cases on Obligation and Contracts, 2014,
pp 777) (Paras , Civil Code of the Phils., 2016ed., pp. 763)
Grounds for annulment
a. Incapacity to consent The ​action for annulment shall be brought within four years. This
b. Vitiated consent period shall begin:
(a) in cases of intimidation, violence or undue influence, ​from the
Distinctions Between a Rescissible and a Voidable time the defect of the consent ceases.
Contract (b) In case of mistake or fraud, ​from the time of the discovery
of the same.
Rescission Annulment (c) And when the action refers to contracts entered into by minors
1.The basis here is lesion The basis here is vitiated or other incapacitated persons, ​from the time the
consent or incapacity to consent. guardianship ceases. ​ (Art 1391, New Civil Code)

2.The defect here is external or The defect here is intrinsic (in Ratification - ​The confirmation or adoption of an act that has already
intrinsic. the meeting of the minds). been performed.
3.The action is subsidiary The action is principal.
Kinds of Ratification:
4.This is a remedy This is a sanction. 1. Express - manifested in words or in writing
2. Implied or tacit - may take diverse forms, such as by silence or
5.Private interest governs. Public interest governs. acquiescence, by acts showing adoption or approval of the
contract, or by acceptance and retention of benefits.
6.Equity predominates Law predominates

4
Ratification or confirmation requires the concurrence of the Comments and Cases on Obligation and Contracts,
following requisites: 2014, pp 842)
1. The ​contract should be tainted with a vice which is
susceptible of being cured. Unauthorized Contracts - These are “those entered into in the
2. The confirmation should be ​effected by the person who is name of another person by one who has been given no authority or
entitled ​to do so under the law. legal representation, or who has acted beyond his powers.( Art. 1403
3. It should be ​effected with knowledge of the vice or defect​ of (1) New Civil Code).
the contract.
4. The ​cause of the nullity or defect should have already The Statute of Frauds - Since memory is many times unreliable, oral
disappeared. ​(Jurado, Comments and Jurisprudence on Obligations agreements may sometimes result in injustice. To aid human memory,
and Contracts, 2010 pp. 548) to prevent the commission of injustices due to faulty memory, to
discourage intentional misrepresentations (Facturan v. Sabanal, 81
Ratification ​does not require the conformity of the contracting party Phil. 512).
who has no right to bring the action for annulment. (Art 1395, New
Civil Code) In the following cases, an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or
Ratification e​xtinguishes the action to annul a voidable contract.​ Art memorandum thereof, be in writing, and subscribed by the party
1392, New Civil Code) charged, or by his agent; evidence thereof, of the agreement cannot
be received without the writing, or a secondary evidence of its
(3) ​Unenforceable Contracts ​- they cannot be sued upon or contents;
enforced unless they are ratified according to law. As regards the
degree of defectiveness, voidable contracts are further away from (a) An agreement that by its terms is not to be performed within 1
absolute nullity than unenforceable contracts. In other words, an year from the making thereof;
unenforceable contract occupies and intermediate ground between
voidable and a void contract. (De Leon, Comments and Cases on (b) A special promise to answer for the debt​, default, or miscarriage of
Obligation and Contracts, 2014, pp 777) another;

Kinds of unenforceable contracts: (c) An agreement made in consideration of ​marriage​, other than a
1. Those entered into in the name of another by one mutual promise to marry;
without or acting in excess of authority. (Art 1403 par 1,
New Civil Code) (d) An agreement for the sale of ​goods​, chattels or things in action, at
2. Those that do not comply with the Statute of Frauds; a price not less than five hundred pesos, unless the buyer accept and
and. (Art 1403 par 2, New Civil Code) receive part of such goods and chattels, or the evidences, or some of
3. Those were both parties are incapable of giving them, of such things in action or pay at the time some part of the
consent. (Art 1403 par 3, New Civil Code) (De Leon, purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of
5
the amount and kind of property sold, terms of sale, price, names of Characteristics of Void Contracts:
the purchasers and person on whose account the sale is made, it is a 1. It does not produce any legal effect;
sufficient memorandum; 2. It is not susceptible of ratification;
3. The right to set up the defense of inexistence or absolute
(e) An agreement of the ​leasing ​for a longer period than one year, or nullity is imprescriptible;
for the sale of real property or of an interest therein; 4. The action or defense for the declaration of their inexistence or
nullity is imprescriptible;
(f) A representation as to the​ credit ​of a third person. 5. The existence or absolute nullity of a contract cannot be
invoked by a person whose interest are not directly affected.
Reason for the Statute of Frauds: ​to prevent fraud and perjury in
the enforcement of obligations. What contracts are void
1. Those whose cause, object or purpose is ​contrary​ to law, morals
Applicability: This only applies to executory contracts, not to those that good customs, public order or public policy;
are partially or completely fulfilled. It does not apply to actions which 2. Those whose object is ​outside the commerce of men​;
are neither for specific performance of the contract nor the violation 3. Those which contemplate an​ impossible service;
thereof. (Jurado, Comments and Jurisprudence on Obligations and 4. Those where the ​intention​ of the parties relative to the principal
Contracts, 2010 pp. 574) object of the contract cannot be ascertained; and
5. Those expressly prohibited or declared void by ​law​.
Ratification under contracts where Both Parties are
Incapacitated: INEXISTENT CONTRACTS
Such contracts may be ratified by: Those where one or some or all of the requisites essential for the
1. Failure to object to the presentation of oral evidence to prove validity of a contract are absolutely lacking.
such contracts; or
2. Acceptance of benefits under these contracts. What contracts are inexistent
1. Those which are absolutely simulated or fictitious; and
Principles under Contracts where both parties are incapacitated: 2. Those whose cause or object did not exist at the time of the
1. The contracts are unenforceable transaction.
2. If only on of the parties is incapacitated, the contract is
voidable. Principle of In Pari Delicto
General rule: ​When the defect of a void contract consists in the
(4) Void or Existent Contracts - Those where all of illegality of the cause or object of the contract and both of the parties
the requisites of a contract are present but the cause, object or are at fault or in pari delicto, the law refuses them every remedy and
purpose is contrary to law, morals, good customs, public order or leaves them where they are.
public policy, or contract itself is prohibited or declared void by law. 1. Payment of usurious interest
2. Payment of money or delivery of property for an illegal purpose,

6
where the party who paid or delivered repudiates the contract before b. Innocent party may demand for the return for the return of
the purpose has been accomplished, or before any damage has been what he has given.
caused to a third person.
3. Payment of money or delivery of property made by an incapacitated 2. Executory Contracts - Neither of the contracting parties can
person demand for the fulfillment of any obligation from the contract nor may
4. Agreement or contract which is not illegal per se & the prohibition is be compelled to comply with such obligation.
designed for the protection of the plaintiff
5. Payment of any amount in excess of the maximum price of any G. Natural Obligations
article or commodity fixed by law or regulation by competent authority. Natural Obligations - Those not being based on positive law but on
6. Contract whereby a laborer undertakes to work longer than the equity and natural law, do not grant a right of action to enforce their
maximum # of hours fixed by law. performance, but after voluntary fulfillment by the obligor, they
7. Contract whereby a laborer accepts a wage lower than the authorize the retention of what has been delivered or rendered by
minimum wage fixed by law. reason thereof. Some natural obligations are set forth in the following
8. One who lost in gambling because of fraudulent schemes practiced articles.
on him is allowed to recover his losses [(Art. 315, 3 (b), RPC] even if
gambling is a prohibited one. 1. They are real obligations to which the law denies an action,
but which the debtor may perform voluntarily.
REQUISITES OF ILLEGAL CONTRACTS: 2. It is patrimonial, and presupposes a prestation.
a. Contract is for an illegal purpose 3. The binding tie of these obligations is in the conscience of
b. Contract must be repudiated by any of the parties before purpose is man, for under the law, they do not have the necessary
accomplished or damage is caused to 3rd parties efficacy to give rise to an action.
c. Court believes that public interest will be served by allowing
recovery (discretionary upon the court ) – based on remorse; illegality EXAMPLES OF NATURAL OBLIGATIONS ENUMERATED UNDER
is accomplished when parties entered into contract; before it takes THE CIVIL CODE​:
effect – party w/c is remorseful prevents it. 1. Performance after the civil obligation has prescribed
2. reimbursement of a third person for a debt that has prescribed
MUTUAL RESTITUTION IN VOID CONTRACTS LACHES OR 3. restitution by minor after annulment of contract
STALE DEMANDS 4. Delivery by minor of money or fungible thing in fulfillment of
General rule​: parties should return to each other what they have given obligation
by virtue of the void contract in case 5. Performance after action to enforce civil obligation has failed
6. payment by heir of debt exceeding value of property inherited
Rules when only one of the parties is at fault: 7. payment of legacy after will have been declared void.
1. Executed Contracts:
a. Guilty party is barred from recovering what he has given to LACHES or “STALE DEMANDS”
the other party is barred from recovering what he has given to the Failure or neglect, for an unreasonable and unexplained length of
other party by reason of the contract. time, to do that which, by exercising due diligence, could or should
7
have been done earlier; it is negligence or omission to assert a right
within reasonable time, warranting a presumption that the party
entitled to assert it either has abandoned it or declined to assert it.

Elements:
a. Conduct on part of the defendant, or of one under whom he claims,
giving rise to the situation of which complaint is made and for which
the complaint seeks a remedy
b. Delay in asserting the complainant’s rights, the complainant having
knowledge or notice, of the defendant’s conduct and having been
afforded the opportunity to institute a suit
c. Lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit
d. Injury to the defendant in the event relief is accorded to the
complainant, or the suit in not held to be barred.

H. Estoppel

A condition or state by virtue of which an admission or representation

Kinds:
1. Estoppel in Pais (by conduct)
a. Estoppel by silence
b. Estoppel by acceptance of benefits
2. Technical Estoppel
a. Estoppel by deed
b. Estoppel by record
c. Estoppel by judgment
d. Estoppel by laches