CONTRACTS

Prepared by: Raymond Andes

Sources: The New Civil Code of the Philippines; commentaries by Paras, Suare, and
Tolentino; reviewer published by Soriano; reviewers prepared by !P "aw #ar$%ps
Commission and &arichi Santos of !P "aw #'()'; and some personal inferences*
Definition according to the Civil Code of the Philippines: a 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.
We can infer from the very definition of Contract that obligations would always naturally
exist upon the perfection of a contract. In short, when there is a contract, there will always
be an obligation but when there is obligation, there isnt always a contract.
Elements of a Contract
!. "ssential "lements # without these elements, there is no contract. $ defect in any of
these elements causes a defect in the contract.
a. Consent of the parties # most important of all elements. %his is the
meeting of minds between parties on the ob&ect and cause of the contract
b. Object # the sub&ect matter of the contract
c. Cause # the essential and impelling reason why a party assumes an
obligation.
'. $ccidental "lements # those that which exist only upon stipulations in the contract
(such as terms of payment, place of payment, conditions, etc.)
*. +atural "lements # those that even without stipulations, they exist (such as warranty
against hidden defects and warranty against eviction). ,owever, parties can stipulate
waiver of such elements.
Classifications of Contracts
!. $ccording to perfection or formation
a. Consensual # those perfected upon mere consent (such as sales)
b. Real # those perfected upon delivery of the ob&ect (such as depositum,
pledge, and commodatum)
c. Formal or Solemn # those that can only be valid through compliance with
the formalities of law (such as donation of a real property)
'. $ccording to cause
a. -nerous # where there is exchange of valuable considerations
b. .ratuitous # where one party receives no e/uivalent consideration
c. 0emuneratory # the cause is the service remunerated
*. $ccording to dependence upon another contract
a. Principal # one that stand by itself
b. $ccessory # one whose existence depends another contract 1nown as the
principal contract (such as mortgage and pledge)
c. Preparatory # one which serves as a means in which other contracts may be
entered (such as agency and partnership)
2. $ccording to parties obligated
a. 3nilateral # those where only one of the parties are re/uired to accomplish
the determinative conduct
b. 4ilateral or synalagmatic # those where both parties are re/uired to
accomplish their own determinative conducts
5. $ccording to time or fulfillment
a. "xecuted # one which has already been performed
b. "xecutory # one that has not yet been performed
6. $ccording to the number of persons physically entering into the contract
a. -rdinary # where the two parties are represented by two different persons
b. $uto7contract # where the two parties are represented by only one person
(such as in agency where the agent lends money to his principal who he
represents as the borrower)
Stages of a Contract
!. Preparation or Conception # involves preliminary negotiations, discussion of terms
and conditions wherein agreement has not yet occurred.
'. Perfection or 4irth # the point at which there is finally a meeting of minds between
parties as to the ob&ect and the valid cause.
*. Consummation or Death or %ermination # the point at which the terms of the contract
have been fulfilled resulting in its accomplishment
Basic Principles of a Contract
!. 8iberty of contract or freedom to stipulate # the parties have the liberty to contract
and stipulate. %his is one of the liberties guaranteed by the laws of the land to the
people. ,owever, this is sub&ect to limitations as follows: law, public policy, good
customs, public order and morals.
'. 9utuality of contracts # the parties are both bound to one another. %he validity or
compliance of the contract cannot be left to the will of one of them.
*. 0elativity of contracts # contracts ta1e effect only within the contracting parties, their
assigns and heirs, except where the rights and obligations are not transmissible.
2. Consensuality of contracts # contracts are usually perfected by mere consent of the
parties e+cept if the contracts are real and formal,solemn.
5. -bligatory force of contract and compliance in good faith # all contracts have the
force of la between the contracting parties and should be complied with in good
faith.
ESSENT!A" RE#$!S!TES OF CONTRACTS %e&pounded'
CONSENT
Consent is manifested by the meeting of the offer and the acceptance upon the ob&ect and
the cause which are to constitute the contract. In plain language, it is the meeting of
minds of both parties.
Consent has two parts: Offer and Acceptance. 3pon communication of acceptance of one
of the parties towards the other, the contract is usually perfected.
What happens if Anser
:the offer is vague; Will there still be a
contract;
%here wouldnt be meeting of minds,
therefore contract will not exist.
:a seller advertised his products to the
public; Is there already an offer;
$t this point, offer does not exist yet.
$dvertisements are mere invitations to
ma1e an offer. ,owever, if all details
needed are conveyed to the public,
advertisement becomes an offer.
:one of the parties dies, is civilly %he offer becomes ineffective. %hus,
interdicted, insane or incapacitated
before acceptance is conveyed; What
happens to the offer;
there is no contract.
:an offerer gives the offeree a certain
period of time to accept, can the offerer
withdraw the offer;
<es, as long as he communicates such
withdrawal before the acceptance has
been communicated.
:after the offerer has given the offeree a
certain period of time to accept, the
latter gives the former an option money,
can the offerer withdraw the offer;
+o. 4ecause, in effect, the offeree has
bought the time period given by the
offerer. %he former is entitled to compel
the latter not to withdraw the offer until
the prescription of the period of time.
,owever, if the offeree failed to give the
option money, the offeror has the liberty
to withdraw the offer. It is as if there is no
such option contract. (Q: Using
inference, what kind of contract as
to perfection is an option contract?)

Major Rule on onsent
%here is no consent until there has been agreement between two parties. Contract is
perfected upon the point at which acceptance is communicated to the offerer.
"xample
9ay *!, !=:25 pm
>ent texts >aren: ?,oy 4a1la, bilhin mo naman ma1e7up 1o from $von, maganda na mura
pa. !5,=== pesos lang. 4u1as, dalhin 1o na.@
9ay *!, !=:26 pm
>aren receives >ents text message. Ahe replies: ?Aige, goB Pero, pwede !=,=== pesos na
lang;@
9ay *!, !=:2C pm
>ent receives text message. ,e ta1es his calculator and tried to compute his profit. ,e
sha1es his head then sends bac1 a message: ?,ay na1u gurl, mahal yan. Di basta7basta yan.
.aganda 1a lalo:@
9ay *!, !!:*D pm
Due to problems in signal, >aren receives text message at this late. Ahe ma1es a reply:
?Pano ba a1o na1a1asigurong totoo yang sinasabi mo eh lala1e 1a;@
9ay *!, !!:5= pm
>ent thought for awhile. ,e remembers something, then ma1es a reply: ?$lala mo ba
1ahapon 1ung ano itsura 1o;@
9ay *!, !!:5! pm
>aren: ?$bsent 1a 1ahapon so pano 1o malalaman;@
9ay *!, !!:5* pm
>ent: ?$1ala mo lang yunB Present a1o no: a1o yung na1a7blue with stripes of white
1ahapon:@
9ay *!, !!:55 pm
>aren: ?,uh; Di mo naman 1amu1ha si Piolo Pascual at di mo rin 1amu1ha si Diether
-campoB@
9ay *!, !!:56 pm
>ent: ?%hats the pointB 8inagay 1o ma1e7up from avon 1aya on my left side, 1amu1a 1o si
Diether at pagtingin mo sa 1abila, 1amu1a 1o na rin si PioloB@
9ay *!, !!:5D pm
>aren: ?9ay magic ang ma1e7up mo;;;BBB@
9ay *!, !!:5C pm
>ent: ?$no pa ba sa tingin mo;@
9ay *!, !!:5E pm
>aren: ?Aige, goB 4ilhin 1o na. Willing a1oB@
Fune !, !':=! am
>ent receives >arens last text message and replies: ?-1ay.@
Fune !, !':=* am
>aren receives >ents last text message and finally rests her head on the bed and starts
sleeping.
Question: !t what ti"e was there a "eeting of "inds? !t what ti"e was there
perfection of the contract?
$nswer
Fune !, !':=! am. 9eeting of minds occurs at the moment the offeror receives the offerees
acceptance.
Capacit(
Parties entering into a contract must have the legal capacity to do so. 0eason: %o protect
incapacitated persons from damages that may be caused by the other party.
Contracts entered into by incapacitated persons are G-ID$48" if only one of the contracting
persons is incapacitated and 3+"+H-0C"$48" if both parties are incapacitated.
Who are the incapacitated persons?
!. 9inors # those aged below !C (0$ 6C=5). "xceptions: (!) if the contract is entered into for
the purpose of ac/uiring necessariesI or (') when the minor misrepresents his age (the
reason for this is to protect the other party from harm that may be caused by such
misrepresentation. ,owever, if the other party 1nows such misrepresentation, contract
remains voidable).
'. Insane or demented persons, unless they contract during lucid interval.
*. Deaf7mutes who do not 1now how to read and write, unless guided by another person.
)ices of Consent
*+ ,ista-e # inadvertent and inexcusable disregard of a circumstance material to the
contract (F48 0eyes). In order that mista1e may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions hich
ha.e principall( mo.ed one or both parties to enter into the contract.
/+ !ntimidation # happens when one of the contracting parties is compelled by a
reasonable and well7grounded fear of an imminent and grave evil upon his person or
property, or upon the person or property of his spouse, descendants or ascendants, to give
his consent ($rt. !**5).
0+ )iolence # irresistible force used to extort consent (F48 0eyes)
1+ $ndue !nfluence # happens when a person ta1es improper advantage of his power over
the will of another, depriving the latter of a reasonable freedom of choice ($rt. !**D).
2+ Fraud # happens when through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not have
agreed to ($rt. !**C).
Quer#: $s there %raud in the following circu"stances?
!. -fferor failed to disclose certain important facts to the offeree and the former has the
duty to reveal them.
'. 3sual exaggerations in trade made by the seller and the other party had an opportunity to
1now the facts.
*. Aeller expresses an opinion and the buyer believes such opinion.
2. "xpert expresses an opinion. $) the expert was hired by the sellerI 4) the expert was
hired by the buyer.
Simulation of Contracts3 Declaration of a non7existent will producing the appearance of a
transaction that does not exist, or which is different from the one that actually arose.
(0eyes)
4inds of Simulated Contracts
!. Absolutely Aimulated Contract # contract which provides for a transaction that
does not exist. %his contract is .oid.
'. Relati.ely Aimulated Contract # contract which provides for a transaction that
differs from the one that actually arose. %rue agreement is concealed for some
reasons. %he validity and effects of this contract will be governed by the rules
applicable to the ?intended@ contract, and not by those applicable to the
?appearing@ contract. ,owever, if a *
rd
person is benefited by the ?appearing@
contract, it will be binding. %his is, however, dependent on wJn the *
rd
person is in
good faith.
Absolute Relati.e
+o real transaction intended 0eal transaction is hidden
Hictitious contract Disguised contract
Goid 4ound as to hidden agreement, so long
as it does not pre&udice a *
rd
person and
is not contrary to law, morals, public
policy, customs or public order

OB5ECT
-b&ect is the thing, right or service which is the subject matter of the obligation arising
from the contract.
Re&uisites:
!. 8awful: +ot contrary to law, morals, good customs, public order or public policy.
'. $ctual or possible
*. %ransmissible: within the commerce of man. %hings that are outside the commerce
of man are those things that are not susceptible of appropriation or of private
ownership, and which are not transmissible. -+amples: property that pertain to
public dominion such as roads and plaKasI common things li1e the air and the sea.
2. $t least determinate as to its 1ind. If the ob&ect is merely ?something@ or ?an
animal,@ the species is not determined, the contract would be void.
In order that a thing, right or service may be the ob&ect of a contract, it should be in
existence at the moment of the celebration of the contract, or at least, it can exist
subse/uently or in the future.
$ future thing may be the ob&ect of a contract, such contract may be interpreted as a:
Conditional Contract: where its efficacy should depend upon the future existence of the
thing.
$leatory Contract: where one of the parties assumes the ris1 that the thing will never
come into existence, e.g. insurance.
Q: an future inheritance 'e the o'ject of a contract? .t depends* .f the ob/ect is a
specific property you are e+pectin0 to inherit from an ascendant, the sale is void* #ut if the
ob/ect is merely the future hereditary ri0hts without specification of the properties, the sale
is valid because this is permitted by law 1Art* )23(4*
CA$SE
Cause is the impelling reason for which a party assumes an obligation
0e/uisites: (!) "xistingI (') 8icitJ8awfulI (*) %rueL.
Quer#: What is the cause and what is the o'ject in a sale of land? Answer: .t
depends on which perspective*
Party Cause Object
.endOR Cash (wants to profit) 8and
.endEE 8and (wants to ac/uire land) 8and
$ccording to %olentino, the ob&ect in onerous contracts is the thing, service or act which
forms the basis of the entire contract, the starting point of the agreement, without which
the negotiations or bargaining between the parties would never even have begun.
Cause and Object in Other T(pes of Contract
Remunerator( 6ratuitous
7efinition It is a contract where a party gives
something to another because of
some service or benefit given or
rendered by the latter to the
former, where such service or
benefit was not due as a legal
obligation. (%olentino)L
$greements to give something or to
lend something.
Cause %he service or benefit which is
remunerated
9ere liberality of the benefactor or
giver
Object %hing given in exchange for the
service or benefit
%hing given (for donation) or thing
lent (commodatum)
What is Moti(e? .t is the psycholo0ical, individual and personal reason which induces a
party to enter into a contract*
)*a"ple: Ferelyn bought a piece of land from Daila because she wants that piece of land
used for constructing a vacation house (the land is located in Caramoan). %he cause is the
piece of land she wants to own while the motive is Ferelyns desire to have a place for
relaxation.
Circumstance 7efined Effect
"ac- of
Cause
$bsence or total lac1 of cause Contract is null and void
!llegalit( of
Cause
Contrary to law, morals, good
customs, public policy and public
order
+ull and void
Falsit( of
Cause
Cause is stated but is untrue Goid if it should +-% be proved that it
was founded upon another cause
which was true and lawful.
"esion or
!nade8uac(
Cause is not proportionate to
ob&ect.
Ahall not invalidate the contract
except when there is fraud,
of Cause mista1e, or undue influence
9ay rescind the contract under some
instances(see rescissible contracts)
FOR,S OF CONTRACTS
6ENERA" R$"E3 Contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential re/uisites for their validity are present.
E9CEPT!ONS
!. When the law re/uires that a contract be in some form to be valid. Auch contract is
a formal contract.
a. 9ust be in public instrument to be valid:
i.donation of real propert(
ii.Contribution of immo.able propert( by a partner in a partnership
b. 9ust be in writing:
i.7onation of personal propert( exceeding P2:;;;
ii.Authorit( of an agent in sale of land
'. When the law re/uires that contract be in some form to be enforceable. (Atatute of
Hrauds) Hailure to abide by this provision does not render the contract void, it
merely renders the contract unenforceable.
a. 9ust be in writing to be enforceable:
ii.$greement that by its terms is not to be performed within a year from
the ma1ing thereof
iii.Apecial promise to answer for the debt, default, or miscarriage of
another
iv.$greement made in consideration of marriage, other than mutual
promise to marry
v.Aale of goods, chattels, or things in action, at a price not less than
P5==.
vi.8easing for a period more than one year.
vii.Sale of real propert( or of an interest therein
viii.0epresentation to the credit of a *
rd
person
7EFECT!)E CONTRACTS
%he following are defective contracts:
!. Rescissible Contracts # valid until rescinded. %hey are valid because there is no
defect in any of the essential re/uisites 43% the law allows a party to rescind (or
cancel) the contract because of the damage received by such party. %his is based
on the "M3I%$48" 0"$A-+A.
'. )oidable Contracts # valid until annulled. %hey are valid because the party
in&ured can ratify the contract but the law gives such party the right to annul the
same. %hese contracts are voidable because of a defect in the consent.
*. $nenforceable Contracts # valid but cannot be enforced unless ratified.
2. )oid Contracts # void from the beginning.
RESC!SS!B"E CONTRACTS
0escissible contracts are entirely valid as to essential elements (consent, ob&ect and cause).
,owever, harm or damage is caused or being caused against a party (be it one of the
contracting parties or any 0
rd
part(). Hor e/uitable reasons, the law gives the in&ured party
the right to rescind (cancel) the contract. In effect, the validity of this contract is set aside
for &ustifiable reasons of e/uity.
4inds of Rescissible Contracts
!. "ntered into by guardians whenever the wards suffer lesion by more than N of
value of things
O .uardian: authoriKed only to ?manage@ wards property, no power to dispose
without prior approval of court. -nly includes those which are ?ordinary course@ of
management of estate of the ward, because if sale, mortgage and other
encumbrance $+D not approved by court, it becomes unenforceable.
'. $greed upon in representation of a'sentee, suffer lesion by more than N of the
value of things
O $bsentee is a person who was lost for an indefinite period of time due to some
frea1 accident, natural calamities, wars, or any other reason that have caused him
to be absent for a period of time.
O %his type of contract is usually entered into by a person other than the absentee
who has the right of representation but entered into such contract that caused
damage of more than N of the value of the things. -+ample: 5erelyn was abducted
by aliens* She was absent for several years* 6er wife 1assume that 0ay marria0e is
already le0al4 later 0ained the ri0ht of representation and then sold 5erelyn7s beach
resort for 89: below its appraised value* The sale of beach resort can be rescinded
by 5erelyn*
*. In fraud of creditors who cannot collect claims due them ($ccion Pauliana)
O Re;uisites of Accion Pauliana
!. Plaintiff as1ing for rescission (subsidiary action) has a credit prior to the
alienation
'. Debtor has made subse/uent contract, giving advantage to a *rd person
*. Creditor has no other remedy but to rescind the debtors contract to the *rd
person (last resort)
2. $ct being impugned is fraudulent
5. *rd person who received the property is an accomplice in the fraud
Contracts entered b(
6$AR7!ANS
Contracts in
representation of
ABSENTEES
Contracts entered
into to 7EFRA$7
e&isting creditors
<ho can
rescind=
In general, by the in&ured
party. 4ut can be done
also by guardian ad tem
(new guardian) of ward
during incapacity of ward
in an action against the
original guardian.
4y absentee 4y creditor(s)
<hen= WJin 2 years from
(re)gaining capacity
WJin 2 years from
-noledge of
domicileL of
absentee
WJin 2 years from
-noledge of
fraudulent contract
>o to cure
defect=
0atification by in&ured
party wJin 2 years from
gaining capacity
0atification by
absentee wJin 2
years from
1nowledge of
domicileL of
absentee or
1nowledge of
fraudulent contract
0atification by
defrauded creditor wJin
2 years from 1nowledge
of fraudulent contract
)O!7AB"E CONTRACTS
Goidable contracts are existent, valid, and binding, although they can be annulled because
of want of capacity or vitiated consent of one of the partiesI but before the annulment, they
are effective and obligatory between the parties. ,ence, it is valid until it is set aside and its
validity may be assailed only in an action for that purpose (8lacer v 9unoK, !' Phil. *'C).
4inds of )oidable?Annullable Contracts ($lthough no damage to contracting parties):
!. Want of capacity
'. Gitiated consent (Giolence, Intimidation, Hraud, 9ista1e or 3ndue
Characteristics of )oidable?Annullable Contracts3
!. %heir defect consists in the vitiation of consent of one of the contracting parties
'. %hey are bindin0 until they are annulled by a competent court
*. %hey are susceptible of convalidation by ratification or by prescription
N$""!T@ %)oidable' RESC!SS!ON %Rescissible'
Declares inefficiency which contract already
carries
in itself (intrinsic defect)
9erely produces inefficiency, which did not
exist
essentially in the contract (external defect
i.e.
pecuniary damages or pre&udice to one of
the
contracting parties or *rd persons)
0e/uires act of ratification to be cured +eeds no ratification to be effective
4ased on a vice of the contract which
invalidates it
Compatible with the perfect validity of the
contract
$nnulment is a sanction based on law 0escission is a remedy based on e/uity
Demanded only by the parties to the
contract
Demanded even by third parties affected by
it
Prescription of Action for Annulment A after prescription, contract can no longer be
annulled
$rt !*E! 7 Within 2 years
Period shall begin:
!. Intimidation, violence or undue influence: from the time consensual defect ceases
'. 9ista1e or fraud: from the time of discovery of the same
*. Incapacity: from the time 0uardianship ceases
L $pplies to the parties of to the contract, but +-% to third persons
Effects of Annulment3
!. ,utual restitution of the things delivered, along with fruits and price paid with
interest.
'. Damages to be paid by the party who caused defect of the contract.
$NENFORCEAB"E CONTRACTS
3nenforceable contract is one which cannot be enforced unless it is first ratified in the
manner provided by law. It is distinguished from the rescissible and the annullable contracts
in that the latter two contracts produce legal effects unless they are set aside by a
competent court, while the unenforceable contract does not produce any effect unless it is
ratified.
4inds of $nenforceable Contracts
!. "ntered into in the name of another person by one who has no authorit( or no legal
representation -0 acted be(ond his poers
'. Do not comply with Statute of Frauds, which are agreements unenforceable unless in
written
memorandum and subscribed by the party charged:
i.$greement that by its terms is not to be performed within a year from the ma1ing
thereof
ii.Apecial promise to answer for the debt, default, or miscarriage of another
iii.$greement made in consideration of marriage, other than mutual promise to marry
iv.Aale of goods, chattels, or things in action, at a price not less than P5==.
v.8easing for a period more than one year.
vi.Sale of real propert( or of an interest therein
vii.0epresentation to the credit of a *
rd
person
If the contract has been executed, even partly, the contracts status as unenforceable
ceases as execution is considered by law as a form of ratification.
*. Both parties are incapable of giving consent to contract
0atification can be done by either parties or their guardians.
0atification by one party (or its guardian) ma1es the contract voidable.
0atification made by both parties (or their guardians) ma1es the contract perfectly valid.
)O!7 CONTRACTS
$ void contract is one which has no force and effect from the very beginning, as if it had
never been entered into, and which cannot be validated either by time or by ratification. %he
maxim is ?no contract at all.@
Characteristics of )oid?!ne&istent Contracts
!. Goid from the be0innin0
'. Produces no effect whatsoever nullity exist ipso &ure, &udgment of nullity is merely
declaratory
*. Cannot be confirmed or validated (by prescription -0 ratification), neither can the right to
set up
the defense of illegality be waived $rt !2=E
Action to 7eclare Nullit(
# necessary because nobody can ta1e the law into his own hands
7!ST!NCT!ONS
)O!7 RESC!SS!B"E
Defect is inherent in the contract itself Defect is in their effects, either to one of the
parties or to a *rd party
9atter of law and public interest 4ased on e/uity and more a matter of
private interest
+o legal effects even if no action is ta1en to
set it aside
+o action, remains valid and produces all its
effects
$ction to declare nullity of void contracts
never
prescribes
$ction to rescind prescribes in 2 years
)O!7 )O!7AB"E
-ne of those essential re/uisites is wanting,
either in fact or in law or is declared void by
statute
"ssential re/uisites for validity is present,
43% consent is vitiated
+ot susceptible of ratification 9ay be rendered perfectly valid by
ratification
$ction to declare nullity of void contracts
never
prescribes
9ay be rendered perfectly valid by
ratification
)O!7 $NENFORCEAB"E
4oth are ineffective at its birth
Can never be ratified and become
enforceable
Can be ratified and thereafter enforced
%here is no contract at all %here is a contract which, however, cannot
be enforced unless properly ratified
)*a"ples of +oid ontracts
-ne whose cause, ob&ect or purpose is against law, morals, public policy, public order or
good customs.
-ne whose cause is totally absent.
-ne whose ob&ect is impossible or cannot be done.
$bsolutely7simulated contracts