1.

A contract is a voluntary arrangement between two or more parties that is

enforceable by law as a binding legal agreement. Contract is a branch of the law
of obligations in jurisdictions of the civil law tradition. Contract law concerns the
rights and duties that arise from agreements.[1]
A contract arises when the parties agree that there is an agreement. Formation of a
contract generally requires an offer, acceptance, consideration, and a mutual intent to
be bound. Each party to a contract must have capacity to enter the agreement. Minors,
intoxicated persons, and those under a mental affliction may have insufficient capacity
to enter a contract. Some types of contracts may require formalities, such as a
memorialization in writing.

Elements of a Contract. The requisite elements that must be established to

demonstrate the formation of a legally binding contract are (1) offer; (2) acceptance;
(3) consideration; (4) mutuality of obligation; (5) competency and capacity; and, in
certain circumstances, (6) a written instrument.

MUST BE VOLUNTARY
Contracts not entered into voluntarily are void able For example, a company might tell a
supplier that it was considering ending their business relationship if, within the next ten
minutes, the supplier didn't sign a contract to provide materials at a certain cost. If the
supplier signed the agreement, it might be able to convince the courts that it did so under
undue influence, and therefore was not bound by the contract's terms. In general,
contracts created under duress, undue influences, fraud, and misrepresentation are void
able by the injured party.
MUST BE LEGAL
Contracts are also void if they involve a promise that is illegal or violates public policy. For
instance, a contract regarding the sale of illegal drugs is unenforceable. Similarly, contracts
that are legal but are not in the public interest may be worthless. For instance, a contract in
which a company requires a customer to pay a very high rate of interest on lent funds could
be considered invalid by the courts. Or, suppose a company contracts with a customer to sell
supplies to him that he uses to grow marijuana. If the company also tells him how to grow
the illegal substance, the contract would become unenforceable because the agreement
promoted the violation of a statute.

ORAL CONTRACTS
Contracts do not have to be written to be enforceable in court. In fact, most oral contracts are
legally enforceable. However, they are obviously much more difficult to prove. Furthermore,
most states have adopted "statutes of frauds," which specify certain types of contracts that must
be in writing. Examples of contracts that typically fall under the statues of frauds include
agreements related to the sale of real estate, contracts for the sale of goods above $500, and
contracts in which one person agrees to perform the duty of another person. Yet even those
contracts do not have to exist in usual manner. In fact, a simple memo or receipt may be
sufficient. There are several exceptions to the statutes of frauds. For instance, when one party
would suffer serious losses as a result of reliance on an oral agreement, the statute of frauds may
be waived.

MENTAL STATE AND PROPER AUTHORITY

Even if a contract is voluntary, legal, and written, it is void if the person that makes the
agreement does not have the mental and legal capacity to do so; hence, a mentally
retarded individual or a child could not be bound by an agreement. But a person without
the authority to make an agreement may also void a contract. For instance, suppose that a
very keen salesman representing a ball bearing company signed an agreement with a
buyer to supply one billion ball bearings to be delivered in 24 hours. The contract could
be worthless if the salesman was acting outside of his authority to commit the company
to that agreement.
OFFER
In addition to being voluntary, legal, written, and made by persons with proper capacity,
contracts usually must possess three basic mechanisms: an offer, an acceptance, and
consideration. An offer is a promise to perform an act conditioned on a return promise of
performance by another party. It is recognized by a specific proposal communicated to
another party. Once a legal offer has been made, the offeror is bound to its terms if the
other party accepts. Therefore, the offeror must clearly indicate whether the proposal is a
bid or some other statement, such as an invitation to negotiate. The offeror may specify
certain terms of receiving, such as time limits, and even withdraw the offer before the
other party accepts.
ACCEPTANCE
Acceptance, the second basic requirement, is legally defined as "a manifestation of assent
to the terms made by the offeror in the manner invited or required by the offer." As with
offers and offerors, the courts look for intent to contract on the part of the acceptor. The
difference is that the offeror may stipulate terms of acceptance with which the other party
must comply. If the offeree attempts to change the terms of the offer in any way, a
rejection is implied and the response is considered a counteroffer, which the original
offeror may reject or counter. As with most rules regarding contracts, exceptions exist.

1. Offer and acceptance:

In a contract there must be at least two parties one of them making the offer and the
other accepting it. There must thus be an offer by one party and its acceptance by the
other. The offer when accepted becomes agreement.

2. Legal relationship:
Parties to a contract must intend to constitute legal relationship. It arises when the
parties know that if any one of them fails to fulfil his part of the promise, he would be
liable for the failure of the contract.
If there is no intention to create legal relationship, there is no contract between parties.
Agreements of a social or domestic nature which do not contemplate a legal relationship
are not contracts.

3. Consensus-ad-idem:
The parties to an agreement must have the mutual consent i.e. they must agree upon
the same thing and in the same sense. This means that there must be consensus ad
idem (i.e. meeting of minds).

4. Competency of parties:
The parties to an agreement must be competent to contract. In other words, they must
be capable of entering into a contract.

According to Sec 11 of the Act, “Every person is competent to contract who is of the age
of majority according to the law to which he is subject to and who is of sound mind and
is not disqualified from contracting by any law to which he is subject.”

Thus, according to Section 11, every person with the exception of the following is
competent to enter into a contract:-

(i) A minor,

(ii) A person of unsound mind, and

(iii) A person expressly declared disqualified to enter into a contract under any Law.

5. Free consent:
Another essential of a valid contract is the consent of parties, which should be free.
Under Sec. 13, “Two or more parties are said to consent, when they agree upon the
same thing in the same sense.” Under Sec. 14, the consent is said to be free, when it is
not induced by any of the following:- (i) coercion, (ii) misrepresentation, (iii) fraud, (iv)
undue influence, or (v) mistake.

6. Lawful consideration:
Consideration is known as ‘something in return’. It is also essential for the validity of a
contract. A promise to do something or to give something without anything in return
would not be enforceable at law and, therefore, would not be valid.
Consideration need not be in cash or in kind. A contract without consideration is a
‘wagering contract’ or ‘betting’. Besides, the consideration must also be lawful.

7. Lawful objects:
According to Sec. 10, an agreement may become a valid-contract only, if it is for a
lawful consideration and lawful object. According to Sec. 23, the following
considerations and objects are not lawful:-

(i) If it is forbidden by law;

(ii) If it is against the provisions of any other law;

(iii) If it is fraudulent;

(iv) If it damages somebody’s person or property; or

(v) If it is in the opinion of court, immoral or against the public policy.

Thus, any agreement, if it is illegal, immoral, or against the public policy, cannot become
a valid contract.

8. Agreement not expressly declared void:

An agreement to become a contract should not be an agreement which has been
expressly declared void by any law in the country, as it would not be enforceable at law.

Under different sections of the Contract Act, 1872, the following agreements have been
said to be expressly void, viz :-

(i) Agreements made with the parties having no contractual capacity, e.g. minor and
person of unsound mind (Sec. 11).

(ii) Agreements made under a mutual mistake of fact (Sec. 20).

(iii) Agreements with unlawful consideration or object (Sec. 23).

(iv) Agreements, whose consideration or object is unlawful in part (Sec. 24).

(v) Agreements having no consideration (Sec 25).

(vi) Agreements in restraint of marriage (Sec. 26).

(vii) Agreements in restraint of trade (Sec. 27).

(viii) Agreements in restraint of legal proceedings (Sec. 28).

(ix) Agreements, the meaning of which is uncertain (Sec. 29).

(x) Agreements by way of wager (Sec. 30). and

(xi) Agreements to do impossible acts (Sec. 56).

9. Certainty and possibility of performance:

Agreements to form valid contracts must be certain, possible and they should not be
uncertain, vague or impossible. An agreement to do something impossible is void under
Sec. 56.

10. Legal formalities:

The agreement may be oral or in writing. When the agreement is in writing it must
comply with all legal formalities as to attestation, registration. If the agreement does not
comply with the necessary legal formalities, it cannot be enforced by law.

2.

3. Art. 1914. Nominate and innominate contracts. Nominate contracts are those
given a special designation such as sale, lease, loan, or insurance. Innominate
contracts are those with no special designation. In civil law jurisdictions, a
nominate contract is a standardized contractual relationship that has a special
designation attached to it (e.g., purchase and sale, lease, loan, insurance), as
opposed to innominate contracts (which are not standardized and therefore have
no set name).[1] The obligor and obligee have rights and obligations specially
prescribed by law. Nominate contracts are usually statutorily required to include
certain express terms (essentialia)—depending on their kind—and are construed
to include terms implied in law.
 A consensual contract is a contract that arises from the mere consensus of the
parties. It does not require the performance of any formal or symbolic acts to fix
the obligation. Although the consensual contract was known to the common law,
it originated in Roman law. In Roman law, this embraced four kinds of contracts
in which informal consent alone was sufficient: (1) an agency agreement (2) a
partnership agreement, (3) a sale, or (4) a letting or hiring. Consensual contracts
require no formalities to create them out of the Pact. Consent of the parties is
more emphatically given in a consensual contract. When the assent of parties is
given, at once there forms a contract.

4. Principle of Mutuality means – “No one can earn profit out of transaction
with himself”.

(1) Conditions for recognition of mutuality: In CIT v. Bankipur Club Ltd. [1997] SC, it
was held that the law recognises ‘principle of mutuality’ in case following conditions are
satisfied:-

(a) There is complete identity between the contributors and beneficiaries.

(b) The association is formed with the objective of mutual benefit.

(c) Any surplus resulting from the activities should either be expended for mutual benefit
or should be returned to contributories.

(d) The arrangement between the members and association is of non-trading character.

(2) Form of Organisation – Not relevant in deciding mutuality: It is immaterial what

particular form the association takes. Even companies may be governed by the principle
of mutuality, in which case their income will not be liable to tax.

(3) Services provided only to specified members – Mutuality is not affected: Where
the activity is mutual, the fact that, as regards certain activities only certain members of
the association take advantage of the facility it offers, does not affect the mutuality of
the enterprise.

(4) Exceptions to the Principle: The following incomes, though arising out of mutual
activities, are taxable-

(a) Section 2(24): Profits and gains of any insurance business carried on by a mutual
insurance company or by a co-operative society (even if it is a mutual concern).

(b) Section 28(iii): Income of a trade, professional or similar association from specific
services performed for its members.
(c) Section 2(24): The profits and gains of banking (including providing credit facilities
on by a co-operative society with its members.

The principle of mutuality is based on the proposition that an organisation cannot derive
income from itself, meaning that an organisation’s income consists only of funds
derived from external sources. Therefore, where a number of persons (for example,
members of a club, association or organisation) contribute to a common fund which is
created and controlled by those persons for a common purpose, any surplus arising
from the use of that fund, for the common purpose, will not be deemed to be income.

5. The basic principle of relativity of contracts is that contracts can only bind the parties who
entered into it, and cannot favor or prejudice a third person, even if he is aware of such
contract and has acted with knowledge thereof “Where there is no privity of contract, there is
likewise no obligation or liability to speak about.”

6. Essential Requisites to Perfect a Contract

7. In general, a contract is perfected only when all of the following requisites are present: (1)
consent of the contracting parties; (2) object certain which is the subject matter of the
contract; and (3) cause of the obligation which is established.

Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the acceptance must be absolute.
If a party offers a qualified acceptance, the same is considered a counter-offer.
An acceptance of an offer may either be express or implied. In case an acceptance is made via a
letter or telegram by a party, the contract is only perfected once the offeror learns of the acceptance.
In this case, there arises a presumption that the contract has been entered into in the place where
the offer was made.

The party making an offer may fix the time, place, and manner of acceptance, all of which are
required to be complied. If the offer was coursed through an agent, the other party may manifest his
acceptance to the agent binding the principal. The offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is conveyed.

If the offer carries with it a certain period to accept, the party making an offer may still withdraw at
any time before acceptance of the other by informing the latter. This right to withdraw is not available
when the option is founded upon a consideration, as something paid or promised.
The following cannot give consent to a contract: (a) minors; (b) insane or demented persons; and (c)
deaf-mutes who do not know how to write. Even if a party is insane or demented, he may still validly
enter into a contract during a lucid interval. Contracts agreed into in a state of drunkenness or during
a hypnotic spell are voidable.
For goods, an object of a contract includes all things which are not outside the commerce of men,
including future things and transmissible rights. For services, an object of a contract includes all
services which are not contrary to law, morals, good customs, public order, or public policy may
likewise be the object of a contract.
The object of a contract is required to be determinate as to its kind. If it involves an indeterminate
quantity, the contract remains valid so long as it is possible to determine the same, without the need
of a new contract between the parties. Future inheritance cannot be an object of a contract, unless
otherwise expressly authorized by law. However, impossible things or services cannot be the object
of contracts.

In onerous contracts, the cause is the prestation or promise of a thing or service by the other. For
remuneratory ones, the cause is the service or benefit which is remunerated. In gratuitous contracts,
the cause is the mere liberality of the benefactor.

the 3 elements or requisites of a contract. There can be no contract unless the following requisites
are present:

(1) consent of the contracting parties;

(2) object certain which is the subject matter of the contract; and
(3) cause of the obligation which is established.

Consent. Contracts are generally perfected by mere consent, which is the reason why there’s such
a thing as oral contracts. It’s a meeting of the minds between the parties: there’s a definite offer by
one person and there’s an absolute acceptance by another.

Subject Matter. A thing, right or service may be the object or subject matter of a contract. All things
that are outside the commerce of man (e.g., the moon) may not be the object of a contract. Rights
that are transmissible (e.g., the right to possess a real property) may be the subject of a contract.
Services, on the other hand, must not be contrary to law, morals, good customs, public order of
public policy (e.g., services of an assassin or a prostitute).

Cause. The cause varies according to the type of contracts: (a) for onerous contracts, the cause is
the promise of a thing or service by the other; (b) for remunatory contracts, the cause is the service
or benefit which is being remunerated; and (c) for contracts of pure beneficence, the cause is the
mere liberality of the benefactor. These concepts may appear alien, but since this is merely a brief
discussion, suffice it to state that a “cause” is technically different from a contract’s object (or subject
matter, as discussed above) or motive.

8. Stipulation Pour Autrui

[French, stipulation for other persons]

in the civil law of Louisiana
: a contract or provision in a contract that confers a benefit on a third-party
beneficiary NOTE: A stipulation pour autrui gives the third-party beneficiary a
cause of action against the promisor for specific performance. In order for a third
party to be a third-party beneficiary of a stipulation pour autrui there usually has
to be a legal or factual relationship between the stipulator and the beneficiary.

9. A counteroffer is a proposal that is made as a result of an undesirable offer. A

counteroffer revises the initial offer and makes it more desirable for the person making
the new offer. This type of offer permits a person to decline a previous offer and allows
offer negotiations to continue. As noted previously, an offer, a revocation of the offer,
 and a rejection of the offer are not effective until received. The same rule does not
always apply to the acceptance.

When the offeror withdraws his offer before its acceptance by the offeree,the offer
becomes ineffective"
(Art. 1319)
(b)
When the offeree makes a 9 alified acceptance of the offer as disc ssedabove"
(Art. 1319)
(c)
3pon the death, civil interdiction, insanity, or insolvency of either partybefore
acceptance is conveyed"
(Art. 1323)
Example: !f an" one of the parties die after an offer is made but beforethe offeree
could conve" his acceptance, the offer becomes ineffective andno contract is
perfected.

10. PERSONS WHO CANNOT GIVE CONSENT TO A CONTRACT:

1.Minors
2.Insane or demented persons
3.Illiterates/ deaf-mutes who do not know how to write
4.Intoxicated and under hypnotic spell
5.Art 1331 - person under mistake; mistake may deprive intelligence
6.Art 1338 - person induced by fraud (dolo causante)Note: Dolus bonus (usual
exaggerations in trade) are not in themselves fraudulent.
RULE ON CONTRACTS ENTERED INTO BY MINORS
General Rule:VOIDABLE

11.

12. Invalid Contract

There are several situations where a contract becomes invalid or unenforceable. Invalid
Contractsthose that do not contain any one of the three elements, do not satisfy the
terms or are illegal.

Contracts may become invalid under the following circumstances:

 If the contract is against public policy

  If the contract is illegal
 If the offer/acceptance/consideration calls for action that violates the law – such
as gambling, robbery, etc.
 If the purpose of the contract is illegal

Contracts may be deemed unenforceable due to a variety of reasons. Sometimes, the

contract is not legal but against public policy. For example, a clause in an employment
contract to not compete in the organization is against public policy. Employers may do
this to ensure that employees due not leave the organization. However, this restricts the
right of free employment for an individual.

Breach of contract cannot be charged if the contract, itself, is invalid. In such cases, the
suing party is not awarded any damages as the contract is considered unenforceable.
13. CIVIL CODE
SECTION 1595-1599

1595. The object of a contract is the thing which it is agreed, on

the part of the party receiving the consideration, to do or not to
do.
1596. The object of a contract must be lawful when the contract is
made, and possible and ascertainable by the time the contract is to
be performed.
1597. Everything is deemed possible except that which is impossible
in the nature of things.
1598. Where a contract has but a single object, and such object is
unlawful, whether in whole or in part, or wholly impossible of
performance, or so vaguely expressed as to be wholly unascertainable,
the entire contract is void.
1599. Where a contract has several distinct objects, of which one
at least is lawful, and one at least is unlawful, in whole or in
part, the contract is void as to the latter and valid as to the rest.

14.

15. A contract of sale is a legal contract. It is a contract for the exchange of goods, services
or property that are the subject of exchange from seller (or vendor) to buyer (or
purchaser) for an agreed upon value in money (or money equivalent) paid or the
promise to pay same. It is a specific type of legal contract.
 An obvious ancient practice of exchange, in many common-law jurisdictions it is now
governed by statutory law. See commercial law.
Contracts for sale involving goods are governed by Article 2 of the Uniform Commercial
Code in most United States and Canadian jurisdictions, however in Quebec such
contracts are governed by the Civil Code of Quebec as a nominate contract in the book
on the law of obligations. In Muslim countries it is governed by Islamic Law ( sharia )
A contract of sale lays out the terms of a transaction of goods or services, identifying the
goods sold, listing delivery instructions, inspection period, any warranties and details of
payment.
What is a contract of sale?

According to Art. 1458 of the New Civil Code, it is defined as:

Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or
its equivalent.

A contract of sale may be absolute or conditional.

*It is an agreement between two parties whereby one, who is the seller or vendor, obligates himself to
deliver something to the other party who is the buyer or vendee who is bound to pay a sum of money or
its equivalent.

16. Absolute Sale- one wherein there is no condition whatever and imposes upon the vendor the
obligation to deliver the real estate, subject matter of the agreement to the vendee who upon
the receipt of the property hands over and pays the purchase price that has been previously
agreed upon with the vendor.

Conditional Sale-This is an agreement to sell or buy real estate with certain conditions that must be
accomplished by either or both the parties so as to extinguish and or create ownership over the subject
property. This is merely an executory contract in contemplation of the law and the right of ownership is
withheld for the meantime. In other words, the certificate of title of the real property is not turned over
to the vendee until and after certain conditions have been accomplished by either or both the parties.
Then it becomes an executed contract.

17. 1. Existing Goods – owned/ possessed by seller at the time of perfection

2. Future Goods – goods to be manufactured, raised, acquired by seller after perfection of the
contract or whose acquisition by seller depends upon a contingency (Art. 1462)
Note: Sale of future goods is valid only as an executory contract to be fulfilled by the acquisition &
delivery of goods specified.
3. Sale of Undivided Interest or Share
a. Sole owner may sell an undivided interest. (Art. 1463) Ex. A fraction or percentage of such
property
 b. Sale of an undivided share in a specific mass of fungible goods makes the buyer a co-owner of
the entire mass in proportion to the amount he bought. (Art. 1464)
c. A co-‐owner cannot sell more than his share (Yturralde v. CA)
4. Sale of Things in Litigation
a. Sale of things under litigation is rescissible if entered into by the defendant , without the
approval of the litigants or the court (Art. 1381)
b. No rescission is allowed where the thing is legally in the possession of a 3rd person who did
not acted in bad faith.
5. Things subject to Resolutory Condition.
Ex. Things acquired under legal or conventional right of redemption, or subject to reserva troncal.
(Art. 1465)
6. Indeterminate Quantity of Subject Matter
The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract
provided it is possible to determine the same, without need of a new contract. (Art. 1349)

18. CONTRACT FOR A PIECE OF WORK

is a contract whereby the contractor binds himself to execute a piece of work in behalf of or for the
employer, in consideration of a certainprice or compensation

CONTRACT OF SALE CONTRACT FOR PIECE OF WORK

-general market -upon special order
-thing transferred is one which would have existed -not of existence until the order of the party
Desiring to acquire it
-risk of loss borne by seller (warranty) -risk of loss borne by the buyer (damages)

19. Barter- is a contract whereby one of the parties binds himself to give one thing in
consideration of another’s promise to give another thing.
CONTRACT OF SALE
-if thing consists partly in money and party in anotherthing, the manifest intention of the parties
paramountin determining whether it is sale or barter
BARTER
-if intention cannot be ascertained, then it shall beconsidered barter if the value of the thing given
aspart of consideration exceeds the amount ofmoney or its equivalent.

20. The price in a contract of sale may be fixed by the contract, may be left to be fixed in manner thereby
agreed or may be determined by the course of dealing between the parties. Where the price is not
determined in accordance with the foregoing provisions the buyer must pay a reasonable price and what is
a reasonable price is a question of fact dependent on the circumstances of each particular case.

21. While a Contract of Sale is perfected by mere consent, ownership of the thing sold is acquired only
upon its delivery to the buyer. Upon the perfection of the sale, the seller assumes the obligation to
transfer ownership and to deliver the thing sold, but the real right of ownership is transferred only "by
tradition" or delivery thereof to the buyer.