CONTRACTS

CHAPTER 1- GENERAL PROVISIONS (b) Bilateral- when it gives rise to

reciprocal obligations.
ART. 1305

CONTRACT- is a meeting of minds between two (9) According to status:

persons whereby one binds, himself, with (a) Executory- when it has not yet been
respect to the other, to give something, or to completely performed by both
render some service. parties.
(b) Executed- when it has been fully
CLASSIFICATIONS and satisfactorily carried out by
(1) According to name or designation both parties.
(a) Nominate (10) According to dependence to
(b) Innominate another contract
(2) According to perfection (a) Preparatory- when it is entered into
(a) Consensual as a means to an end.
(b) Real (b) Accessory- when it is dependent
(3) according to form upon another contract it secures or
(a) Onerous guarantees for its existence and
(b) Remuneratory or remunerative validity.
(c) Gratuitous (c) Principal- does not depend for its
(4) According to Form existence and validity upon another
(a) Informal, common or simple contract.
(b) Formal or solemn (11) According to dependence of
(5) According to obligatory force: part of contract to other parts
(a) Valid (a) Indivisible- each part is dependent
(b) Rescissible upon the other parts for satisfactory
(c) Voidable performance.
(d) Unenforceable (b) Divisible- when one part of the
(e) Void or inexistent contract may be satisfactorily
(6) According to person obliged: performed independently.
(a) Unilateral ART. 1306
(b) Bilateral
(7) According to Risk Valid Contracts
(a) Commutative- the undertaking of
Contracts that meet all the legal
one party is considered the
requirements and limitations for the
equivalent of that of the other.
type of agreement involved and are,
(b) Aleatory- depends upon an
therefore, legally binding and
uncertain event or contingency both
enforceable.
as to benefit or loss.
(8) According to liability NOTE: the are agreements that meets
(a) Unilateral- when it creates an all the criteria of a valid contracts but is
obligation on the part of only one of UNEFORCEABLE in a court of law for
the parties. failure to comply with the Statutes of
Fraud.
GN: The right to enter contract is one of the also to consideration which are moved by the
liberties guaranteed to the INDIVIDUAL by the common good.
Constitution.
ART. 1307
PROVISIONS:
GN: Innominate contracts shall be regulated by:
 the constitutional prohibition against
 The agreement of the parties.
the impairment of the contractual
 The provisions of the Civil Code on
obligations refers only to legally valid
obligations and contracts.
contracts.
 The rules governing the most analogous
 It cannot be invoke as against the right
contracts.
of the state to exercise its police power.
 The customs of the place.
 An individual does not have an
absolute right to enter any kind of Nominate Contract- which has a specific name
contract. or designation in law. (e.g., commodatum, lease,
agency, sale, etc.)
XPN: the freedom of contract is both a
constitutional and statutory right, to Innominate Contract- or that which has no
uphold the right courts are enjoined to specific name or designation in law.
move with the necessary caution and
prudence in holding contracts void. (1) do ut des (I give that you may give)
(2) do ut facias (I give that you may do)
LIMITATIONS (3) facto ut des (I do that you may give)
(4) facto ut facias (I do that you may do)
 Must be in accordance with law
and not repugnant to, an applicable ART. 1308.
statute.
 When no law is existence or when GN: The contract must bind both contracting
the law is silent, the will of the parties in order that it can be enforced against
parties shall prevail unless their either.
contract contravenes the limitation Fundamental rule that no party can renounce or
of morals, good customs, public violate the law of the contract without the
order or public policy. consent of the other. “Its validity or compliance
Morals- deals with norms of good and right with cannot be left to the will of one of them”.
conduct evolved in a community. ART. 1309.
Customs- consist of habits and practices which The determination of the performance may be
through long usage have been followed and left to a third person, whose decision shall not
enforced by the society or some part of it as be binding until it has been made known to
binding rules of conduct. both contracting parties.
Public order- refers principally to public safety ART. 1310.
although it has been considered to mean also to
public weal. XPN to ART. 1309: a contracting party is not
bound by the determination if it is evidently
Public policy- broader than public order, as the inequitable or unjust as when the third person
former may refer not only to public safety but acted in bad faith or by mistake. The court shall
decide what is equitable under the Stipulation pour autrui- a stipulation in contract
circumstances. clearly and deliberately conferring a favor upon
a third person who has a right to demand its
ART. 1311.
fulfillment provided he communicates his
GN: a party’s rights and obligations derived acceptance to the obligor before its revocation
from a contract are transmissible to the by the oblige or the original parties.
successors.
(1) The stipulation is for the benefit of such
Only the parties, their assigns and heirs can person.
have rights and obligations under the contract. (2) Those where an obligation is due from
the promise to the third person which
The act, declaration, or omission of a person former seeks to discharge by means of
cannot affect or prejudice another without the such stipulation.
latter’s authorization or ratification.
REQUISITES
XPN: when a contract are effective only
between the parties are when the rights and (1) The contracting parties by their
obligations arising from the contract are not stipulation must have clearly and
transmissible. deliberately conferred a favor upon a
third person.
(a) By nature (contract involving personal (2) The third person must have
qualifications) communicated is acceptance to the
(b) By stipulation (in accordance with the obligor before its revocation by the
principle of freedom to contract) oblige or the original parties.
(c) By the provision of law (when death (3) The stipulation in favor of the person
extinguishes the legal relationships) should be a part, not the whole, of the
Cases when strangers or third persons affected contract.
by a contract (4) The favorable stipulation should not be
conditioned or compensated by any
Third person- is one who has not taken part in a kind of obligation.
contract and is, therefore, a stranger to the (5) Neither of the contacting parties bears
contract. the legal representation or
GN: a third person has no rights and obligations authorization of the third party for
under a contract to which he is a stranger. otherwise the rules on agency will
apply.
Exceptions:
ART. 1312.
(1) Contracts containing stipulations in
favor of a third person (stipulation pour XPN: to the general rule that a contract binds
autrui) only the parties.
(2) Contracts creating real rights. Third person who come into possession of the
(3) In contracts entered into defraud object of a contract over where there is a real
creditors. right, are bound thereby even if they were not
(4) In contracts which have been violated at parties to the contract.
the inducement of a third person.
If real right is not registered, third persons who right, yet it gives rise to obligations
acted in good faith are protected under the binding upon both parties.
provisions of the Property Resignation Decree. 2. Real contracts- the exceptions are called
real contracts which are perfected not
ART. 1313. Creditors are protected in cases of
merely by consent but by the delivery,
contracts intended to defraud them.
actual, or constructive, of the object of
ART. 1314. Any third person who induces the obligation.
another to violate his contract shall be liable for
From the moment the parties come to an
damages to the other contracting party.
agreement on the definite subject matter
ART. 1315. Contracts are perfected by mere and valid consideration they are bout not
consent, and form that moment the parties are only---
bound not only to the fulfillment of what has
1. To the fulfillment of what has been
been expressly stipulated but also to all the
expressly stipulated, but also;
consequences which, according to their nature,
2. To all the consequences which
may be keeping with good faith, usage and law.
according to their nature, may be in
ART. 1316. Real contracts, such as deposit, keeping with good faith, usage and law.
pledge and coomodatum, are not perfected
ART. 1317
until the delivery of the object of the obligation.
GN: a person is not bound by the contract of
Consensual contract- perfected by mere
another of which he has no knowledge or to
consent.
which he has not given his consent.
Real contract- perfected by the delivery of the
A contract entered into in the name of another
thing subject matter of the contract.
by one who has no authority is unenforceable
Solemn contract- requires compliance with against the former unless it is ratified by him
certain formalities prescribed by law, such before it is revoked by the other contracting
prescribed form being thereby an essential party.
element thereof.
Unauthorized contracts can be cured only by
Stages in the life of a contract ratification if the person in whose name the
contract was entered into or by his duly
1. Preparation or negotiation authorized agent and not by any other person
2. Perfection or birth not so empowered.
3. Consummation or termination
Requisites that a person may be bound by the
How contracts are perfected contract.
1. Consensual contracts- as a general rule (1) The person entering must be dully
contracts are perfected by mere authorized, expressly, impliedly by the
consent of the parties regarding the person whose name he contracts or he
subject matter and the cause of the must have by law, a right to represent
contract. Almost all contracts are him.
consensual. (2) He must act within his power.
In the absence of delivery, perfection
does not transfer title or create real
CHAPTER 2
Offer- is a proposal made by one party to
ESSENTIAL REQUISITES another (offeree) including the willingness to
enter the contract.
OF CONTRACTS
1. The offer must be certain or definite so
ART. 1318. There is no contract unless; that the liability of the parties may be
exactly fixed.
(1) Consent of the contracting parties 2. An offer made in jest or in anger, or
(2) Object certain which is the subject while emotionally upset or in other
matter of the contract. ways indicating that the same was not
(3) Cause of the obligation which is seriously intended- NOT VALID
established.
1. Essential elements- those without Acceptance- is the manifestation by the
which no contract can validly exist. offeree of his assent to all the terms of the
Requisites of a contract. offer. Without acceptance there is no
(a) Common- present in all contracts. meeting of the minds.
(b) Special- not common to all
GN: the acceptance of an offer must not only be
contracts.
clear; it must be absolute, unconditional, or
2. Natural Elements- those who are
unqualified, that is, it must be identical in all
presumed to exist in certain contracts.
respects with that of the offer so as to produce
3. Accidental elements- the particular
consent or meeting of minds.
stipulations clauses, terms, or
conditions established by the parties in ART.1320. An acceptance may be express or
their contracts. implied.

ART.1321. The person making the offer may fix

the time, place, and the manner of acceptance,
SECTION 1: all of which must be complied with.
CONSENT
The offer must be communicated and received
ART. 1319. Consent is manifested by the by the offeree. It may be by letter, telephone, e-
meeting of the offer and the acceptance upon mail or the like.
the thing and the cause which are to constitute
ART. 1322. An offer made through an agent is
the contact. The offer must be certain and the
accepted from the time acceptance is
acceptance absolute. A qualified acceptance
communicated to him.
constitutes a counter-offer.
To offerer- the acceptance of the offer must be
Acceptance made by letter or telegram does
absolute.
not bind the offerer except from the time it
came to his knowledge. The contract, in such a To agent- by legal fiction, an agent is considered
case, is presumed to have been entered into in an extension of the personality of his principal.
the place where the offer was made. Of duly authorized, the act of the agent is, in
law, the act of the principal.
Consent- the conformity or concurrence of wills
and with respect to contracts. It is the ART. 1323.
agreement of the will of one.
GN: An offer becomes ineffective upon the 3. Deaf-mutes- person who are deaf and
death, civil interdiction, insanity, or insolvency dumb. Exceptions if the deaf-mute
of either party before acceptance is conveyed. knows how to write the contract is
VALID.
ART. 1324.
ART. 1328.
GN: when the offerer gives to the offeree a
certain period within which to accept the offer, GN: contracts entered into during lucid
the offerer may be withdrawn as matter of right interval- VALID.
at any time before acceptance.
Contracts agreed to in a state of
XPN: when the option is founded upon a drunkenness or during a hypnotic spell are
consideration, as something paid or promised. voidable.

ART. 1325. Lucid interval- temporary period of sanity.

GN: business advertisement of things for sale ART. 1329. The incapacity declared in article
are not definite offers acceptance of which will 1327 is subject to the modifications
perfect a contract but a merely invitations to the determined by law, and is understood to be
reader to make an offer. without prejudice to special disqualifications
established in the laws.
XPN: if the advertisement is complete in all the
particulars necessary in a contract, it may In certain cases their incapacity may be
amount to a definite offer which, if accepted, modified by law, that is, they can also give a
will produce a perfected contract. valid consent;

ART. 1326. (1) When necessaries such as food, are sold

and delivered to a minor or other
Advertisement for bidders, the advertiser is not
person without the capacity to act, he
the one making the offer. In reality, the bidder is
must pay a reasonable price.
the one making the offer, which the advertiser is
(2) A minor 18 years old or above may
free to accept or reject.
contract for life, health, and accident
GN: the advertiser is not bound to accept the insurance, provided the insurance is
highest bidder or the lowest bidder unless taken on his life and the beneficiary
contrary appears. appointed is the minor’s estate or the
minor’s father, mother husband, wife,
ART.1327 child, brother or sister.
Person who cannot give consent; (3) A contract is valid if entered into
through a guardian or legal
1. Unemancipated minors- person who representative.
have not reach the age of majority (18 (4) A contract is valid where the minor
years old) and are still subject to misinterpreted his age and convincingly
parental authority. led the other party to believe in his legal
2. Insane or demented persons- the capacity.
insanity must exist at the time of (5) A contract is valid where a minor
contracting. Unless proved the person is between 18 and 21 yearss of age
presumed sane. voluntarily pays sum of money or
 delivers fungible thing in fulfillment of GN: a contract where consent is given through
his obligation, and the obligee has spent mistake, violence, intimidation, undue
or consume it in good faith. influence, or fraud is voidable.

OTHER SPPECIAL DISQUALIFICATION No valid contracts unless:

1. According to law considered as 1. it is intelligent- there is capacity to act.

incompetent when; 2. It is free and voluntary- there is nor
a. Person suffering the accessory vitiation of consent by reason of
penalty civil interdiction. violation or intimidation.
b. Hospitalized lepers 3. It is conscious or spontaneous- there is
c. Prodigals vitiation of consent by reason of
d. Deaf and dumb who are unable to mistake, undue influence, or fraud.
read and write.
Vices of consent
e. Those who are of unsound mind
even though they have lucid 1. Error or mistake
intervals. 2. Violence or force
f. Those who, by reason of age, 3. Intimidation or threat or duress
disease, weak mind and other 4. Undue influence
similar causes, cannot without 5. Fraud or deceit.
outside aid, take care of themselves
and manage their property ART.1331. In order that mistake may invalidate
becoming an easy prey for deceit consent, it should refer to the substance of the
and exploitation. thing which is the object of the contract, or to
those conditions which have principally moved
A contract entered into by any of the above is one or both parties to enter into the contract.
valid except where it is voidable by reason of
incapacity under articles 1327 and 1328 or of Mistake as to the identity or qualifications of
causes which vitiate consent or where one of the parties will vitiate consent only
incompetent has been placed under when such identity or qualifications have been
guardianship. the principal cause of the contract.

Prodigal is presumed to have capacity to enter A simple mistake of account shall give rise to it
into contracts. correction.

a. Insolvents until discharged Mistake or error- the false notion of a thing or a

b. Married women in cases specified by fact material to the contract.
law. NATURE OF MISTAKE
c. Husband and wife with respect to sale
of property of each other. 1. Mistake of fact
d. Other person especially disqualified by 2. Substantial mistake of fact
law. 3. Unilateral mistake or bilateral mistake.

ART. 1330 ART. 1332. When one of the parties is unable

to read, or if the contract is in a language not
understood by him, and mistake or fraud is
alleged, the person enforcing the contract must
show that the terms thereof have been fully Contract signed merely out of reverential fear-
explained to the former. VALID.

ART.1333. there is no mistake if the party ART. 1336. Violence or intimidation shall annul
alleging it knew the doubt, contingency or risk the obligation, although it may been employed
affecting the object of the contract. by a third person who did not take part in the
contract.
It is assumed that he was willing to take chances
and cannot therefore claim mistake. ART. 1337. There is undue influence when a
person takes improper advantage of hos power
ART. 1334. Mutual error as to the legal effect of
over the will of another, depriving the latter of
an agreement when the real purpose of the
a reasonable freedom of choice. The following
parties is frustrated may vitiate consent.
circumstances shall be considered: the
Mistake of law- which arises from an ignorance confidential, family, spiritual, and other
some provision of law. relations between the parties, or the fact that
the person alleged to have been unduly
GN: mistake of law does not invalidate consent. influenced was suffering from mental
XPN: when there is a mistake on a doubtful weakness or was ignorant or in financial
question of law, or on the construction or distress.
application of law, this is analogous to a mistake Undue influence- influence of a kind that so
of a fact. overpowers the mind of a party to prevent him
REQUISITES from acting understandingly and voluntarily to
do what he would have done if he had been left
1. Error must be mutual. to exercise freely his own judgement and
2. It must be as to the legal effect of an discretion.
agreement.
3. It must frustrate the real purpose of the The influence must be undue or improper to
parties. avoid a contract.

ART. 1335. Circumstances to be considered to determine

whether undue influence has been exercise:
Violence requires the employment of physical
force. 1. Confidential, family, spiritual and other
relations between the parties.
Nature or intimidation or threat (for 2. Mental weakness,
intimidation to vitiate the consent of a part to a 3. Ignorance,
contract, Requisites) 4. Financial distress of the person alleged
1. Must produce a reasonable and well- to have been unduly influenced.
grounded fear of an evil. ART. 1338. There is fraud when, through
2. The evil must be imminent and grave. insidious words or machinations of one of the
3. The evil must be upon his person or contracting parties, the other is induced to
property, or that of his spouse, enter into a contract which, without them, he
descendants, or ascendants. would not have agreed to.
4. It is the reason why he enters into the
contract.
Causal fraud- fraud committed by one party 2. The other contracting party has relied
before or at the time of the celebration of the on the expert’s opinion.
contract to secure the consent of the other. 3. The opinion turned out to be false or
erroneous.
REQUISITES
ART. 1342. Misrepresentation by a third person
1. There must be misrepresentation or
does not vitiate consent, unless such
concealment of a material fact with the
misrepresentation has created substantial
knowledge of its falsity.
mistake and the same is mutual.
2. Must be serious.
3. Must have been employed by only one ART.1343. Misinterpretation made in good
of the contracting parties. faith is not fraudulent but may constitute error.
4. Must be made in bad faith or intent to
ART.1344. in order that fraud may make a
deceive the other contracting party.
contract voidable, it should be serious and
5. Must have induced the consent of the
should not have been employed by both
other party.
contracting parties.
6. Must be alleged and proved by clear
and convincing evidence. Incidental fraud only obliges the person
employing it to pay damages.
ART.1339. Failure to disclose facts, when there
is a duty to reveal them, as when the parties Causal fraud- which isa ground for the
are bound by confidential relations constitutes annulment of a contract, although it may give
fraud. rise to an action for damages.
ART. 1340. The usual exaggerations in trade, Incidental fraud- which only renders the party
when the other party had an opportunity to who employs it liable for damages.
know the facts, are not in themselves
fraudulent. REQUISITES OF CAUSAL FRAUD

The law does not consider such exaggerations, 1. It should be serious.

even if known as false by the party making 2. It should not have been employed by
them, as amounting to fraud that will affect the the other contracting parties.
validity of the contract. 3. It should not have been known by the
other contracting parties.
Dealer’s talk or trader’s talk are representations
which do not appear on the face of the contract ART. 1345. Simulation of a contract may be
and these do not bind either party. absolute or relative. The former takes place
when the parties do not intend to be bound at
ART.1341. A mere expression of an opinion all; the latter, when the parties conceal their
does not signify fraud, unless made by an true agreement.
expert and the other party has relied on the
former’s special knowledge. ART. 1346. An absolutely simulated or fictitious
contra is VOID. A relative simulation, when it
GN: to constitute fraud the misrepresentation does not prejudice a third person and is not
must refer to facts, not opinions. intended for any purpose contrary to law,
morals, goods, customs, public order or public
1. Must be made by an expert.
policy binds the parties to their real
agreement.
Simulation of a contract- the act of deliberately
deceiving other, by feigning or pretending by
agreement the appearance of a contract which
is either non-existent or concealed.

KINDS OF SIMULATION

1. Absolute simulation- when the contract

does not really exist and the parties do
not intend to be bound at all.
2. Relative simulation- when the contract
enter into by the parties is different
from their true agreement.