CONTRACTS

Prepared by: Raymond Andes

Sources: The New Civil Code of the Philippines; commentaries by Paras, Suarez, a
ndTolentino; reviewer published by Soriano; reviewers prepared by UP Law Bar-Ops
Commission and Karichi Santos of UP Law B2012; and some personal inferences.
Definition according to the Civil Code of the Philippines: a contract is a meeti
ng of mindsbetween two persons whereby one binds himself, with respect to the ot
her, to givesomething or to render some service.
We can infer from the very definition of Contract that obligations would always
naturallyexist upon the perfection of a contract. In short, when there is a cont
ract, there will alwaysbe an obligation but when there is obligation, there isn t
always a contract.
Elements of a Contract
1.
Essential Elements without these elements, there is no contract. A defect in any
ofthese elements causes a defect in the contract.
a.
Consent of the parties most important of all elements. This is themeeting of min
ds between parties on the object and cause of the contract
b.
Object the subject matter of the contract
c.
Cause the essential and impelling reason why a party assumes anobligation.
2.
Accidental Elements those that which exist only upon stipulations in the contrac
t
(such as terms of payment, place of payment, conditions, etc.)
3.
Natural Elements those that even without stipulations, they exist (such as warra
ntyagainst hidden defects and warranty against eviction). However, parties can s
tipulatewaiver of such elements.
Classifications of Contracts
1.
According to perfection or formation
a.
Consensual those perfected upon mere consent (such as sales)
b.
Real those perfected upon delivery of the object (such as depositum,
pledge, and commodatum)
c.
Formal or Solemn those that can only be valid through compliance withthe formali
ties of law (such as donation of a real property)
2.
According to cause
a.
Onerous where there is exchange of valuable considerations
b.
Gratuitous where one party receives no equivalent consideration
c.
Remuneratory the cause is the service remunerated
3.
According to dependence upon another contract
a.
Principal one that stand by itself
b.
Accessory one whose existence depends another contract known as theprincipal con
tract (such as mortgage and pledge)
c.
Preparatory one which serves as a means in which other contracts may beentered (
such as agency and partnership)
4.
According to parties obligated
a.
Unilateral those where only one of the parties are required to accomplishthe det
erminative conduct
b.
Bilateral or synalagmatic those where both parties are required toaccomplish the
ir own determinative conducts
5.
According to time or fulfillment
a.
Executed one which has already been performed
b.
Executory one that has not yet been performed
6.
According to the number of persons physically entering into the contract
a.
Ordinary where the two parties are represented by two different persons
b.
Auto-contract where the two parties are represented by only one person(such as i
n agency where the agent lends money to his principal who herepresents as the bo
rrower)
Stages of a Contract
1.
Preparation or Conception involves preliminary negotiations, discussion of terms
and conditions wherein agreement has not yet occurred.
2.
Perfection or Birth the point at which there is finally a meeting of minds betwe
enparties as to the object and the valid cause.
3.
Consummation or Death or Termination the point at which the terms of the contrac
thave been fulfilled resulting in its accomplishment
Basic Principles of a Contract
1.
Liberty of contract or freedom to stipulate the parties have the liberty to cont
ract
and stipulate. This is one of the liberties guaranteed by the laws of the land t
o thepeople. However, this is subject to limitations as follows: law, public pol
icy, goodcustoms, public order and morals.
2.
Mutuality of contracts the parties are both bound to one another. The validity o
rcompliance of the contract cannot be left to the will of one of them.
3.
Relativity of contracts contracts take effect only within the contracting partie
s, theirassigns and heirs, except where the rights and obligations are not trans
missible.
4.
Consensuality of contracts contracts are usually perfected by mere consent of th
e
parties except if the contracts are real and formal/solemn.
5.
Obligatory force of contract and compliance in good faith all contracts have the
force of law between the contracting parties and should be complied with in good
faith.
ESSENTIAL REQUISITES OF CONTRACTS (expounded)
CONSENT
Consent is manifested by the meeting of the offer and the acceptance upon the ob
ject and
the cause which are to constitute the contract. In plain language, it is the mee
ting of
minds of both parties.
Consent has two parts: Offer and Acceptance. Upon communication of acceptance of
oneof the parties towards the other, the contract is usually perfected.
What happens if
the offer is vague? Will there still be acontract?
a seller advertised his products to thepublic? Is there already an offer?
one of the parties dies, is civilly
Answer
There wouldn t be meeting of minds,
therefore contract will not exist.
At this point, offer does not exist yet.
Advertisements are mere invitations to
make an offer. However, if all details
needed are conveyed to the public,
advertisement becomes an offer.
The offer becomes ineffective. Thus,
interdicted, insane or incapacitatedbefore acceptance is conveyed? Whathappens t
o the offer?
an offerer gives the offeree a certainperiod of time to accept, can the offererwi
thdraw the offer?
there is no contract.
Yes, as long as he communicates such
withdrawal before the acceptance has
been communicated.
after the offerer has given the offeree acertain period of time to accept, thelat
ter gives the former an option money,
can the offerer withdraw the offer?
No. Because, in effect, the offeree has
bought the time period given by the
offerer. The former is entitled to compel
the latter not to withdraw the offer until
the prescription of the period of time.
However, 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 Consent
There 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.
Example

May 31, 10:45 pm

Kent texts Karen: Hoy Bakla, bilhin mo naman make-up ko from Avon, maganda na mur
a
pa. 15,000 pesos lang. Bukas, dalhin ko na.

May 31, 10:46 pm

Karen receives Kent s text message. She replies: Sige, go! Pero, pwede 10,000 pesos
na
lang?
May 31, 10:48 pm
Kent receives text message. He takes his calculator and tried to compute his pro
fit. He

shakes his head then sends back a message: Hay naku gurl, mahal yan. Di basta-bas
ta yan.
Gaganda ka lalo

May 31, 11:37 pm

Due to problems in signal, Karen receives text message at this late. She makes a
reply:
Pano ba ako nakakasigurong totoo yang sinasabi mo eh lalake ka?

May 31, 11:50 pm

Kent thought for awhile. He remembers something, then makes a reply: Alala mo ba
kahapon kung ano itsura ko?
May 31, 11:51 pm
Karen: Absent ka kahapon so pano ko malalaman?
May 31, 11:53 pm
Kent: Akala mo lang yun! Present ako no ako yung naka-blue with stripes of white
kahapon
May 31, 11:55 pm
Karen: Huh? Di mo naman kamukha si Piolo Pascual at di mo rin kamukha si Diether
Ocampo!
May 31, 11:56 pm
Kent: That s the point! Linagay ko make-up from avon kaya on my left side, kamuka k
o si
Diether at pagtingin mo sa kabila, kamuka ko na rin si Piolo!
May 31, 11:57 pm
Karen: May magic ang make-up mo???!!!
May 31, 11:58 pm
Kent: Ano pa ba sa tingin mo?
May 31, 11:59 pm
Karen: Sige, go! Bilhin ko na. Willing ako!
June 1, 12:01 am
Kent receives Karen s last text message and replies: Okay.
June 1, 12:03 am
Karen receives Kent s last text message and finally rests her head on the bed and
starts
sleeping.
Question: At what time was there a meeting of minds? At what time was thereperfe
ction of the contract?
Answer
June 1, 12:01 am. Meeting of minds occurs at the moment the offeror receives the
offeree s
acceptance.
Capacity
Parties entering into a contract must have the legal capacity to do so. Reason:
To protectincapacitated persons from damages that may be caused by the other par
ty.
Contracts entered into by incapacitated persons are VOIDABLE if only one of the
contractingpersons is incapacitated and UNENFORCEABLE if both parties are incapa
citated.
Who are the incapacitated persons?
1. Minors those aged below 18 (RA 6805). Exceptions: (1) if the contract is ente
red into forthe purpose of acquiring necessaries; or (2) when the minor misrepre
sents his age (thereason for this is to protect the other party from harm that m
ay be caused by suchmisrepresentation. However, if the other party knows such mi
srepresentation, contractremains voidable).
2. Insane or demented persons, unless they contract during lucid interval.
3. Deaf-mutes who do not know how to read and write, unless guided by another pe
rson.
Vices of Consent
1. Mistake inadvertent and inexcusable disregard of a circumstance material to t
hecontract (JBL Reyes). In order that mistake may invalidate consent, it should
refer to thesubstance of the thing which is the object of the contract, or to th
ose conditions which
have principally moved one or both parties to enter into the contract.
2. Intimidation happens when one of the contracting parties is compelled by area
sonable and well-grounded fear of an imminent and grave evil upon his person orp
roperty, or upon the person or property of his spouse, descendants or ascendants
, to givehis consent (Art. 1335).
3. Violence irresistible force used to extort consent (JBL Reyes)
4. Undue Influence happens when a person takes improper advantage of his power o
verthe will of another, depriving the latter of a reasonable freedom of choice (
Art. 1337).
5. Fraud happens when through insidious words or machinations of one of the cont
ractingparties, the other is induced to enter into a contract which, without the
m, he would not haveagreed to (Art. 1338).
Query: Is there Fraud in the following circumstances?
1. Offeror failed to disclose certain important facts to the offeree and the for
mer has theduty to reveal them.
2. Usual exaggerations in trade made by the seller and the other party had an op
portunity toknow the facts.
3. Seller expresses an opinion and the buyer believes such opinion.
4. Expert expresses an opinion. A) the expert was hired by the seller; B) the ex
pert washired by the buyer.
Simulation of Contracts: Declaration of a non-existent will producing the appear
ance of a
transaction that does not exist, or which is different from the one that actuall
y arose.
(Reyes)
Kinds of Simulated Contracts
1.
Absolutely Simulated Contract contract which provides for a transaction thatdoes
not exist. This contract is void.
2.
Relatively Simulated Contract contract which provides for a transaction that
differs from the one that actually arose. True agreement is concealed for somere
asons. The validity and effects of this contract will be governed by the rulesap
plicable to the intended contract, and not by those applicable to the appearing contr
act. However, if a 3rd person is benefited by the appearing
contract, it will be binding. This is, however, dependent on w/n the 3rd person
is in
good faith.
Absolute
No real transaction intended
Fictitious contract
Void

OBJECT
Relative
Real transaction is hidden
Disguised contract
Bound as to hidden agreement, so long
as it does not prejudice a 3rd person and
is not contrary to law, morals, public
policy, customs or public order
Object is the thing, right or service which is the subject matter of the obligat
ion arising
from the contract.
Requisites:
1.
Lawful: Not contrary to law, morals, good customs, public order or public policy
.
2.
Actual or possible
3.
Transmissible: within the commerce of man. Things that are outside the commerceo
f man are those things that are not susceptible of appropriation or of private
ownership, and which are not transmissible. Examples: property that pertain topu
blic dominion such as roads and plazas; common things like the air and the sea.
4.
At least determinate as to its kind. If the object is merely something or ananimal,
the species is not determined, the contract would be void.
In order that a thing, right or service may be the object of a contract, it shou
ld be inexistence at the moment of the celebration of the contract, or at least,
it can exist
subsequently or in the future.
A future thing may be the object of a contract, such contract may be interpreted
as a:

Conditional Contract: where its efficacy should depend upon the future existence
of thething.
Aleatory Contract: where one of the parties assumes the risk that the thing will
nevercome into existence, e.g. insurance.
Q: Can future inheritance be the object of a contract? It depends. If the object
is a
specific property you are expecting to inherit from an ascendant, the sale is vo
id. But if the
object is merely the future hereditary rights without specification of the prope
rties, the sale
is valid because this is permitted by law (Art. 1630).
CAUSE
Cause is the impelling reason for which a party assumes an obligation
Requisites: (1) Existing; (2) Licit/Lawful; (3) True*.
Query: What is the cause and what is the object in a sale of land? Answer: It
depends on which perspective.
Party Cause Object
vendOR Cash (wants to profit) Land
vendEE Land (wants to acquire land) Land
According to Tolentino, the object in onerous contracts is the thing, service or
act which
forms the basis of the entire contract, the starting point of the agreement, wit
hout whichthe negotiations or bargaining between the parties would never even ha
ve begun.
Cause and Object in Other Types of Contract
Definition
Cause
Object
Remuneratory
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. (Tolentino)*
The service or benefit which is
remunerated

Thing given in exchange for the

service or benefit

Gratuitous
Agreements to give something or to
lend something.
Mere liberality of the benefactor or
giver
Thing given (for donation) or thing
lent (commodatum)
What is Motive? It is the psychological, individual and personal reason which in
duces a
party to enter into a contract.
Example: Jerelyn bought a piece of land from Daila because she wants that piece
of landused for constructing a vacation house (the land is located in Caramoan).
The cause is thepiece of land she wants to own while the motive is Jerelyn s desi
re to have a place forrelaxation.
Circumstance Defined
Lack of Absence or total lack of cause
Cause
Illegality ofCause
Contrary to law, morals, goodcustoms, public policy and publicorder
Falsity ofCause
Cause is stated but is untrue
Effect
Contract is null and void
Null and void
Void if it should NOT be proved that it
was founded upon another cause
which was true and lawful.
Lesion or Cause is not proportionate to· Shall not invalidate the contract
Inadequacy object. except when there is fraud,
of Cause mistake, or undue influence
May rescind the contract under some
instances(see rescissible contracts)
FORMS OF CONTRACTS
GENERAL RULE: Contracts shall be obligatory in whatever form they may have beene
ntered into, provided all the essential requisites for their validity are presen
t.
EXCEPTIONS
1.
When the law requires that a contract be in some form to be valid. Such contract
is
a formal contract.
a.
Must be in public instrument to be valid:
i.donation of real property
ii.Contribution of immovable property by a partner in a partnership
b.
Must be in writing:
i.Donation of personal property exceeding P5,000
ii.Authority of an agent in sale of land
2.
When the law requires that contract be in some form to be enforceable. (Statute
ofFrauds) Failure to abide by this provision does not render the contract void,
itmerely renders the contract unenforceable.
a.
Must be in writing to be enforceable:
ii.Agreement that by its terms is not to be performed within a year fromthe maki
ng thereofiii.Special promise to answer for the debt, default, or miscarriage of
another
iv.Agreement made in consideration of marriage, other than mutualpromise to marr
yv.Sale of goods, chattels, or things in action, at a price not less than
P500.
vi.Leasing for a period more than one year.
vii.Sale of real property or of an interest therein
viii.Representation to the credit of a 3rd person
DEFECTIVE CONTRACTS
The following are defective contracts:
1.
Rescissible Contracts valid until rescinded. They are valid because there is nod
efect in any of the essential requisites BUT the law allows a party to rescind (
orcancel) the contract because of the damage received by such party. This is bas
edon the EQUITABLE REASONS.
2.
Voidable Contracts valid until annulled. They are valid because the partyinjured
can ratify the contract but the law gives such party the right to annul thesame
. These contracts are voidable because of a defect in the consent.
3.
Unenforceable Contracts valid but cannot be enforced unless ratified.
4.
Void Contracts void from the beginning.
RESCISSIBLE CONTRACTS
Rescissible contracts are entirely valid as to essential elements (consent, obje
ct and cause).
However, harm or damage is caused or being caused against a party (be it one of
thecontracting parties or any 3rd party). For equitable reasons, the law gives t
he injured partythe right to rescind (cancel) the contract. In effect, the valid
ity of this contract is set aside
for justifiable reasons of equity.
Kinds of Rescissible Contracts
1.
Entered into by guardians whenever the wards suffer lesion by more than ¼ of
value of things
· Guardian: authorized only to manage ward s property, no power to disposewithout prio
r approval of court. Only includes those which are ordinary course ofmanagement of
estate of the ward, because if sale, mortgage and otherencumbrance AND not appr
oved by court, it becomes unenforceable.
2.
Agreed upon in representation of absentee, suffer lesion by more than ¼ of the
value of things
· Absentee is a person who was lost for an indefinite period of time due to somefr
eak accident, natural calamities, wars, or any other reason that have caused him
to be absent for a period of time.
· This type of contract is usually entered into by a person other than the absente
ewho has the right of representation but entered into such contract that causedd
amage of more than ¼ of the value of the things. Example: Jerelyn was abducted
by aliens. She was absent for several years. Her wife (assume that gay marriage
is
already legal) later gained the right of representation and then sold Jerelyn s be
ach
resort for 75% below its appraised value. The sale of beach resort can be rescin
ded
by Jerelyn.
3. In fraud of creditors who cannot collect claims due them (Accion Pauliana)
· Requisites of Accion Pauliana
1. Plaintiff asking for rescission (subsidiary action) has a credit prior to the
alienation
2. Debtor has made subsequent contract, giving advantage to a 3rd person
3. Creditor has no other remedy but to rescind the debtor s contract to the 3rdper
son (last resort)
4. Act being impugned is fraudulent
5. 3rd person who received the property is an accomplice in the fraud
Contracts entered byContracts in Contracts entered
GUARDIANS representation of into to DEFRAUD
ABSENTEES
existing creditors
Who can In general, by the injured
rescind? party. But can be donealso by guardian ad tem(new guardian) of wardduri
ng incapacity of wardin an action against theoriginal guardian.
By absentee By creditor(s)
When? W/in 4 years from(re)gaining capacity
W/in 4 years fromknowledge of
domicile* of
absentee
W/in 4 years from
knowledge of
fraudulent contract
How to cure
defect?
Ratification by injuredparty w/in 4 years fromgaining capacity
Ratification byabsentee w/in 4years fromknowledge ofdomicile* of
Ratification by
defrauded creditor w/in
4 years from knowledge
of fraudulent contract
absentee or
knowledge offraudulent contract
VOIDABLE CONTRACTS
Voidable contracts are existent, valid, and binding, although they can be annull
ed becauseof want of capacity or vitiated consent of one of the parties; but bef
ore the annulment, theyare effective and obligatory between the parties. Hence,
it is valid until it is set aside and itsvalidity may be assailed only in an act
ion for that purpose (Llacer v Munoz, 12 Phil. 328).
Kinds of Voidable/Annullable Contracts (Although no damage to contracting partie
s):
1. Want of capacity
2. Vitiated consent (Violence, Intimidation, Fraud, Mistake or Undue
Characteristics of Voidable/Annullable Contracts:
1. Their defect consists in the vitiation of consent of one of the contracting p
arties
2. They are binding until they are annulled by a competent court
3. They are susceptible of convalidation by ratification or by prescription
NULLITY (Voidable)
RESCISSION (Rescissible)
Declares inefficiency which contract alreadyMerely produces inefficiency, which
did notcarries exist
in itself (intrinsic defect) essentially in the contract (external defect
i.e.
pecuniary damages or prejudice to one of
the
contracting parties or 3rd persons)
Requires act of ratification to be cured Needs no ratification to be effective
Based on a vice of the contract which Compatible with the perfect validity of th
e
invalidates it contract
Annulment is a sanction based on law Rescission is a remedy based on equity
Demanded only by the parties to the
Demanded even by third parties affected by
contract it
Prescription of Action for Annulment after prescription, contract can no longer
be
annulled
Art 1391 - Within 4 years
Period shall begin:
1. Intimidation, violence or undue influence: from the time consensual defect ce
ases
2. Mistake or fraud: from the time of discovery of the same
3. Incapacity: from the time guardianship ceases
* Applies to the parties of to the contract, but NOT to third persons
Effects of Annulment:
1.
Mutual restitution of the things delivered, along with fruits and price paid wit
h
interest.
2.
Damages to be paid by the party who caused defect of the contract.
UNENFORCEABLE CONTRACTS
Unenforceable contract is one which cannot be enforced unless it is first ratifi
ed in the
manner provided by law. It is distinguished from the rescissible and the annulla
ble contractsin that the latter two contracts produce legal effects unless they
are set aside by acompetent court, while the unenforceable contract does not pro
duce any effect unless it isratified.
Kinds of Unenforceable Contracts
1. Entered into in the name of another person by one who has no authority or no
legal
representation OR acted beyond his powers
2. Do not comply with Statute of Frauds, which are agreements unenforceable unle
ss in
written
memorandum and subscribed by the party charged:
i.Agreement that by its terms is not to be performed within a year from the maki
ng
thereof
ii.Special promise to answer for the debt, default, or miscarriage of another
iii.Agreement made in consideration of marriage, other than mutual promise to ma
rry
iv.Sale of goods, chattels, or things in action, at a price not less than P500.
v.Leasing for a period more than one year.
vi.Sale of real property or of an interest therein
vii.Representation to the credit of a 3rd person

If the contract has been executed, even partly, the contract s status as unenforce
ableceases as execution is considered by law as a form of ratification.
3. Both parties are incapable of giving consent to contract
Ratification can be done by either parties or their guardians.
Ratification by one party (or its guardian) makes the contract voidable.
Ratification made by both parties (or their guardians) makes the contract perfec
tly valid.
VOID CONTRACTS
A void contract is one which has no force and effect from the very beginning, as
if it hadnever been entered into, and which cannot be validated either by time
or by ratification. Themaxim is no contract at all.
Characteristics of Void/Inexistent Contracts
1. Void from the beginning
2. Produces no effect whatsoever nullity exist ipso jure, judgment of nullity is
merely
declaratory
3. Cannot be confirmed or validated (by prescription OR ratification), neither c
an the right to
set upthe defense of illegality be waived Art 1409
Action to Declare Nullity
necessary because nobody can take the law into his own hands
DISTINCTIONS
VOID
RESCISSIBLE
Defect is inherent in the contract itself Defect is in their effects, either to
one of the
parties or to a 3rd party
Matter of law and public interest Based on equity and more a matter of
private interest
No legal effects even if no action is taken toNo action, remains valid and produ
ces all its
set it aside effects
Action to declare nullity of void contracts Action to rescind prescribes in 4 ye
ars
never
prescribes

VOID
VOIDABLE
One of those essential requisites is wanting,Essential requisites for validity i
s present,
either in fact or in law or is declared void by BUT consent is vitiated
statute
Not susceptible of ratification May be rendered perfectly valid by
ratification
Action to declare nullity of void contracts May be rendered perfectly valid by
never ratification
prescribes

VOID
UNENFORCEABLE
Both are ineffective at its birth
Can never be ratified and become Can be ratified and thereafter enforced
enforceable
There is no contract at all There is a contract which, however, cannot
be enforced unless properly ratified
Examples of Void Contracts

One whose cause, object or purpose is against law, morals, public policy, public
order or
good customs.
· One whose cause is totally absent.
· One whose object is impossible or cannot be done.
· Absolutely-simulated contracts