LAW ON CONTRACTS

Ryan Jeremiah D. Quan, J.D.

Commercial Law Department

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Principal Characteristics
Autonomy of wills parties may stipulate anything as long as not illegal, immoral, etc. Mutuality performance or validity binds both parties; not left to will of one of parties Obligatory Force parties are bound from perfection of contract:
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Principal Characteristics
Fulfill what has been expressly stipulated All consequences w/c may be in keeping with good faith, usage and law Relativity binding only between the parties, their assigns, heirs; strangers cannot demand enforcement
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Kinds of Contracts
As to perfection or formation Consensual perfected by agreement of parties Real perfected by delivery (commodatum, pledge, deposit) Formal/solemn perfected by conformity to essential formalities (donation )

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Kinds of Contracts
As to cause Onerous with valuable consideration Gratuitous founded on liberality Remunerative prestation is given for service previously rendered not as obligation

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Kinds of Contracts
As to importance or dependence of one upon another Principal contract may stand alone Accessory depends on another contract for its existence; may not exist on its own Preparatory not an end by itself; a means through which future contracts may be made

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Kinds of Contracts
As to parties obliged Unilateral only one of the parties has an obligations Bilateral both parties are required to render reciprocal prestations

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Kinds of Contracts
As to name or designation Nominate Innominate
Do ut des I give that you may give Do ut facias I give that you may do Facio ut des I do that you may give Facio ut facias I do that you may do
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Stages of a Contract
Preparation - negotiation Perfection/birth Consummation performance

Essential Elements
Consent Subject Matter Consideration
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1. CONSENT
meeting of minds between parties on subject matter and cause of contract; concurrence of offer and acceptance Requirements:
Plurality of subject Capacity Intelligence and free will Manifestation of intent of parties Cognition by the other party Conformity of manifestation and cognition

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Contracts of Adhesion
one party has already a prepared form of a contract, containing the stipulations he desires, and he simply asks the other party to agree to them if he wants to enter into the contract NOTE: We follow the theory of cognition and not the theory of manifestation. Under our Civil Law, the offer and acceptance concur only when the offeror comes to know, and not when the offeree merely Page 11 manifests his acceptance

Elements: Valid Offer / Acceptance

Definite unequivocal Complete unconditional Intentional

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When Offer Becomes Ineffective

Death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed Express or implied revocation of the offer by the offeree Qualified or conditional acceptance of the offer, which becomes a counter-offer Subject matter becomes illegal or impossible before acceptance is communicated Page 13

Period for Acceptance

Stated fixed period in the offer No stated fixed period
Offer is made to a person present acceptance must be made immediately Offer is made to a person absent acceptance may be made within such time that, under normal circumstances, an answer can be received from him
NOTE: Acceptance may be revoked before it comes to the knowledge of Page 14 the offerror.

Rules on Complex Offers

Offers are interrelated contract is perfected if all the offers are accepted Offers are not interrelated single acceptance of each offer results in a perfected contract unless the offeror has made it clear that one is dependent upon the other and acceptance of both is necessary
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Rules on Complex Offers

Offer inter praesentes must be accepted IMMEDIATELY. If the parties intended that there should be an express acceptance, the contract will be perfected only upon knowledge by the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in the manner prescribe by the offeror is NOT EFFECTIVE, BUT A COUNTEROFFER which the offeror may accept or reject. (Malbarosa v. CA, 2003)
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Rules on Advertisements as Offers

Business advertisements Not a definite offer, but mere invitation to make an offer, unless it appears otherwise Advertisement for Bidders only invitation to make proposals and advertiser is not bound to accept the highest or lowest bidder, unless appears otherwise
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Option
option may be withdrawn anytime before acceptance is communicated but not when supported by a consideration other than purchase price: option money

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Option
Ang Yu v. CA (1994) states that a unilateral promise to buy or sell, if not supported by a distinct consideration, may be withdrawn but may not be done whimsically or arbitrarily; the right of the grantee here is damages and not specific performance; Equatorial v. Mayfair(264 SCRA 483) held that an option clause in order to be valid and enforceable must indicate the definite price at which the person granting the option is willing to sell, contract can be enforced and not only damages; Paranaque Kings v. CA (1997) states that right of first refusal may be enforced by specific performance.
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Persons who cannot give consent

Minors Insane or demented persons Illiterates/ deaf-mutes who do not know how to write Intoxicated and under hypnotic spell Art 1331 - person under mistake; mistake may deprive intelligence Art 1338 - person induced by fraud (dolo causante) NOTE: Dolus bonus (usual exaggerations in trade) are not in themselves fraudulent
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Rules on Contracts Entered into by Minors

GENERAL RULE: VOIDABLE EXCEPTIONS:
Upon reaching age of majority they ratify the same They were entered unto by a guardian and the court having jurisdiction had approved the same They were contracts for necessities such as food, but here the persons who are bound to give them support should pay therefor Minor is estopped for having misrepresented his age and misled the other party (when age is close to age of majority as in the Mercado v. Espiritu and Sia Suan v. Alcantara cases. Page 21

Disqualified to Enter into Contracts

Those under civil interdiction Hospitalized lepers Prodigals Deaf and dumb who are unable to read and write Those who by reason of age, disease, weak mind and other similar causes, cannot without outside aid, take care of themselves and manage their property, becoming an easy prey for deceit and exploitation
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Incapacity vs. Disqualification

Incapacity Restrains the exercise of the right to contract May still enter into contract through parent, guardian or legal representative Disqualification Restrains the very right itself Absolutely disqualified

Based upon subjective Based upon public circumstance of certain policy and morality person Contracts entered into are merely voidable Contracts entered into are void
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Causes which Vitiate Consent

Violence
REQUISITES Irresistible physical force Such force is the determining cause for giving consent

Intimidation
REQUISITES: Determining cause for the contract Threatened act is unjust and unlawful Real and serious Produces a well grounded fear that the person making it will carry it over
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Undue influence

Simulated Contracts
Absolute no intention to be bound at all, fictitious only
void from beginning

Relative there is intention to be bound but concealed; concealed contract binds:

No prejudice to 3rd persons Not contrary to law, morals, etc.

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2. SUBJECT MATTER
Requisites: Within the commerce of man either existing or in potency Licit or not contrary to law, good customs Possible Determinate as to its kind or determinable w/o need to enter into a new contract Transmissible
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Things which cannot be the subject of contracts

things which are outside the commerce of men intransmissible rights future inheritance, except in cases expressly authorized by law services which are contrary to law, morals, good customs, public order or public policy impossible things or services objects which are not possible of determination as to their kind
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3. CONSIDERATION
immediate, direct and most proximate reason why parties enter into contract REQUISITES: It must exist It must be true It must be licit

Motive purely private reason; illegality does not invalidate contract except when it predetermines purpose of contract; when merged into one
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vs. Motive
Consideration Motive Direct and most Indirect or remote proximate reason of a reasons contract Objective and juridical Psychological or reason of contract purely personal reason

Cause us always same for each contracting party

The motive differs for each contracting party

NOTE: Legality or illegality of cause affects the existence of validity of the contract; Legality or illegality of motive does not affect the existence or validity of contract

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Consideration in Some Contracts

Onerous contracts the prestation of promise of a thing or service by the other Remuneratory contracts the service or benefit remunerated Pure Beneficence mere liberality of the donor or benefactor Accessory identical with cause of principal contract, the loan which it derived its life and existence (ex: mortgage or pledge)
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Consideration
Absence of Consideration Void - produces no legal effect Illegality of Consideration Void - produces no legal effect Falsity of Consideration Voidable party must prove that cause is untruthful; presumption of validity but rebuttable
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Consideration
Consideration not stated in Contract Presumed to exist - burden of proof is on the person assailing its existence Inadequacy of Consideration Does not invalidate contract per se Exceptions: fraud mistake undue influence cases specified by law contracts entered when ward suffers Page 32 lesion of more than 25%

MARAMING SALAMAT!

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