CONTRACTS

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. (A1305)

Contract as distinguished from obligation:

C - cause
O -effect

Elements of a contract
Essential Elements--COC
-consent
-object certain
-cause
*delivery in real contracts
*form in solemn contracts

Natural –derived from the nature of the contract (e.g.) warranty against eviction

Accidental- provided by the parties

CONSENT

Consent - signifies the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract -A1319

Elements of consent
-manifested by the concurrence of the offer and the acceptance (A1319-1326)
-contracting parties must possess the necessary legal capacity (A1327-1329)
-consent must be intelligent, free, spontaneous and real (A1330-1346)

STAGES (GenPerCon)
-generation —preliminary or preparatory process
-perfection —birth of the contract
-consummation—fulfillment of the purpose

Q: When is a contract perfected?

A: It is perfected from the moment that there is manifestation of the concurrence between the
offer and the acceptance with respect to the object and the cause which shall constitute the
contract. (A1319,1)

*If the acceptance is made by letter or telegram, we must distinguish.

-it is perfected from the moment that the offeror has knowledge of such acceptance.
(A1319,2)

“Option” (A1324)
 Option-a contract
-a contract granting a person the privilege to buy or not to buy certain
objects at any time within the agreed period at a fixed price.
- distinct from the purchase price
-option not founded on consideration—mere offer to sell-no perfected
contract
-option founded on consideration—

e.g.

1. On March 5, 2010, A wrote a letter to B offering to him the lease of a building.

On March 6, 2010, at 1:00 p.m. , B sent a letter of acceptance which was
received by A at 4:00 pm., that day. Earlier, at 2:00 pm., A had already sent a
letter of withdrawal of the offer which was received by B at 5:00 pm. Was the
contract perfected?

A: No, because there is no longer any offer to accept. The contract was not
perfected.

2. X, the owner of a house and lot in Lucban, Quezon, gave an option to A to

purchase said property for 1M within 90 days. A gave X 1 peso as option money.
Before the expiration of the 90-day period, A went to X to exercise his option
and to pay the purchase price but X refused because somebody wanted to buy
his property for 1.5M. Can X be compelled to accept payment from A and to
execute the deed of sale.

A: since there is consideration for the option, X is bound by his promise to

sell the property. (Inadequacy of cause shall not invalidate a contract unless
there has been fraud, mistake or undue influence.)

Effect of death, civil interdiction, insanity or insolvency of either the offeror or the offeree before
acceptance is conveyed—the offer becomes INEFFECTIVE (A1323)

Other instances when the offer becomes ineffective

-offeree expressly or impliedly rejects the offer
-conditional/qualified acceptance (amounts to counter offer)
-before acceptance is communicated, subject become illegal or impossible
-lapse of period to signify acceptance
-offer is revoked in due time

Who are incapacitated to give their consent to a contract? A1327

-unemancipated minors
-the minor misrepresented his age, applying the doctrine of estoppel
-the contract entered into involves the sale and delivery of necessaries to
the
minor (A1489,par. 2)
-the contract involves a natural obligation and such obligation is voluntarily
fulfilled by the minor 18-21 years of age (A1426, 1427)

-insane or demented persons

 -deaf-mutes who do not know how to read and write
-married women in cases specified by law
-persons suffering from civil interdiction
-incompetents under guardianship

Who are prohibited from entering into a contract?

1. Insolvents before they are discharged by the insolvency Court. Under the insolvency law,
they cannot encumber, alienate or otherwise dispose of their property
2. Husband and wife. Under the civil code they are prohibited from donating or selling
property to each other during the marriage. A133, 1490)
3. Persons who are prohibited from giving each other any donation or advantage. Under the
civil code they are prohibited from entering into a contract of universal partnership. (A1782)
4. Persons holding fiduciary relation with respect to certain properties. (A1491)

Vices of consent
Vices of the will—mistake of fact, violence, intimidation, undue influence and fraud
(dolo causante vs. dolo incidente)
Vices of declaration-simulated contracts

OBJECT (TRS)
-thing, right or service which is the subject matter of the obligation which is created or established

Requisites:
-within the commerce of men, i.e. susceptible of appropriation/transmissible
-real or possible- existing or can exist in the future
-licit
-determinate or at least possible of determination

What things, rights or services cannot be the object of contracts?

1. Things that are outside the commerce of men (bridges, patios)
2. Intransmissible rights
3. Future inheritance except in cases expressly authorized by law
4. Impossible things or services
5. Services which are contrary to law morals good customs, public order or public
policy
6. Objects which are not determinable as to their kind

Cause
-essential reason which moves the contracting parties to enter into the contracts
In onerous contracts —the cause is the prestation or promise of a thing or service
by
the other
In Remuneratory contracts -the cause is the service or benefit which is remunerated
In gratuitous contracts -the cause is the liberality of the benefactor

Requisites of a sufficient cause

-cause should be in existence
-licit or lawful
 -true

Form:
General rule:
No prescribed form, as long as all the essential requisites for its validity are present

Why is form important?

1. For validity (true in formal and solemn contract)
2. For enforceability (See A1403-Statute of Frauds)
3. For convenience (see A1358)

In writing:
-donations of real property (A749)
-donations of personal property whose value exceeds P500.00 (A748)
-stipulation to pay interest on loans, interest for the use of the money
-transfer of large cattle
-sale of a piece of land by an agent (A1874)
-antichresis, the amount of the principal and the interest shall be in writing (A1773)

In public documents (see A1358, for convenience)

Must be registered
-chattel mortgages; sale or transfer of large cattle

Basic Principles or Characteristics of a contract

1. Freedom or liberty to stipulate (provided not contrary to law, morals, good customs, public
order or public policy) (A1306)
-free entrance into the contracts generally without restraint
-constitutional prohibition/ limitations on the nature of the stipulations
-must respect the law
-pactum commissorium
-jurisdiction because it is fixed by law
2. Obligatory Force and Compliance in Good Faith (11159 and 1315)
A1315-consequences of Perfection
1. Parties are bound to the fulfillment of what has been expressly stipulated
2. Parties are also bound to all the consequences

3. Perfection by mere consent (consensuality) as a rule (A1315)

4. Both parties are mutually bound (A1308)
-both parties are bound, based on the essential equality of the parties, repugnant to
bind one party and yet leave the other free
-consequences of mutuality
-revocation/ renunciation of the contract cannot be done without the
consent of the other

5. Relatively (generally, it is binding only between the parties, their assigns and heirs. (A1311)
Exceptions:
-money debts are not directly chargeable to the heirs.

“stipulation pour autrui”

 -it is a stipulation in favor of a third person conferring a clear and deliberate
favor upon him, and which stipulation is merely part of a contract entered into by
the parties, neither of whom acted as agent of a third person (-2 nd par. of A1311)

e.g. D purchased C’s land for P10,000.00. It was also agreed that only
P8,000.00 would be given to C, because the remaining 2,000.00 would be given to X,
a creditor of C. If X communicates his acceptance, he can demand fulfillment.

e.g. Insurance taken by a taxi company in favor of its passengers.

-A1314
-S a movie actress, has 1 year contract with XYZ Studio. If F, a friend of S
induces her, without justifiable cause, then XYZ can sue F for damages.

-where in some case, third persons may be adversely affected by a contract where
they did not participate
e.g. CBA

-where the law authorizes the creditor to sue on a contract entered into by his
debtor (accion directa)
e.g. lessor suing the sub-lessee

Reformation of Instrument

Reformation -is that 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 for the action for reformation:

1. Meeting of the minds
2. True intention is not expressed in the instrument
3. Clear and convincing proof
4. Must be brought within the proper prescriptive period
5. Document must not refer to a simple unconditional donation inter vivos or to a
contract where the real agreement is void (A1366)

*when there has been a meeting of the minds, but there is mistake, fraud, inequitable conduct or
accident in the contract as written, the remedy is REFORMATION.

*REFORMATION does not invalidate a contract.

*when there has been no meeting of the minds, because of vitiated consent, the proper remedy is
ANNULMENT.

*ANNULMENT invalidate a contract.

Interpretation of contracts (read A1370)

-in case of conflict between the words of the contract and the evident intention of the
parties, the latter will prevail.