ART 1305 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.

Comes from the Latin “contractus” and from the French “contract” is “a
juridical convention manisfested in legal form, by virtue of which , one or
more persons (or parties) bind themselves in favor of another or others, or
reciprocally, to the fullfillment of a prestation to give, to do or not to do” (4
Sanchez Roman 148-149)

Elements of Contract:

1. Essential elements -those elements without which there can be no valid

contract. This element are consent, object or subject matter and cause or
consideration

2. Natural elements – those elements which are found in a contract by its

nature and presumed by law to exist, such as Warranty of hidden defects or
eviction in contract of sale.

3. Accidental elements – those which exist by virtue of an agreement for the

purpose of expanding, limiting, or modifying a contract. Such accidental
elements are condition, clauses, terms, modes of payment, or penalties.

Stages of A Contract:

1. Preparatory or conception — process of formation such as bargaining,

negotiation to arrive at a define contract.

2. Perfection or birth – there is now a meeting of minds to arrive at a definite

agreement as to the subject matter, cause or consideration, terms and
conditions of contract.

3. Consumption or death – which is the fulfilment or performance of the

terms and conditions agreed upon in the contract may be said to have been
fully accomplished or executed.

Characteristics of Contracts:

Se 1. Freedom to contract -they may establish terms and conditions as they

may deem convenient.
2. Relativity — it is binding only upon the parties and their successors.

3. Obligatory force – it constitutes the law as between the parties.

4. Mutuality – its validity and performance cannot be left to the will of only
one of the parties.

Classification of Contract

1. As to perfection

a. Consensual — one which is perfected by mere consent

b. Real Contract – perfected by mere consent and by the delivery of the

objector subject matter. Ex. Deposit, pledge, or commodatum.

2. As to dependence to other contract.

A. Principal — one which can stand alone. Ex. A contract of sale, lease.

B. Accessory — those which are dependent upon another contract.

Ex. Contract of mortgage, pledge of guaranty.

C. Preparatory = those which is created in order that a future transaction or

contract may be entered into by te parties. Ex. Contract of partnership or
agency.

3. According to name or designation

a. Nominate – one which has particular name or designation such as sale,

agency, etc.
b. Innominate – those without particular name.

4. According to the nature of obligation

a. Unilateral — where only one ha an obligation to perform. Ex. Contract

of donation, commodation.
b. Bilateral – where both parties have reciprocal obligation to perform. Ex.
Sale.

5. According to risk involved

a. Commutative – where there is an exchange of values, such as lease.

b. Aleatory – one which the fulfillment of the obligation depends upon
chance. Ex. Contract of insurance.
6. According to cause

a. Onerous — one which imposes valuable consideration such as sale,

mortgage.
b. Gratuitous — one which one of the parties does not receive any
valuable consideration, such as commodatum.

7. According to form a. Oral – by word of mouth of the parties

c. Written — the agreement which is reduced in writing which may be

public or private or private document

ART. 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy. (1255a)

Art. 1307. Innominate contracts shall be regulated by the stipulations of the

parties, by the provisions of Titles | and II of this Book, by the rules governing
the most analogous nominate contracts, and by the customs of the place.

4 KINDS OF INNOMINATE CONTRACTS

1.D0UT DES (I GIVE THAT YOU MAY GIVE)

2.DOUTFACIAS (| GIVE THAT YOU MAY DO)

3. FACIO ET DES (|DO THAT YOU MAY GIVE)

4. FACIO UT FACIAS (| DO THAT YOU MAY DO)

Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.It stresses the mutuality
of contracts, that is both parties are bound.

- A party cannot revoke or renounce a contract without the

consent of the other, nor it can have it set aside on the ground
that he had made a bad bargain

Determination of Performance by Third Person

As rule, compliance with a contract cannot be left to the will of one of the
contracting parties. However, the determination of its performance may be
left to a third person after it has been made known to both contracting
parties. Provided, further, the parties are not bound by the determination if It
is evidently inequitable or unjust when the third person acted in bad faith or
by mistake, the courts shall decide what is equitable under the
circumstances. Example, Gaya sold her parcel of land to Laura. It was agreed
that Maya, a real estate appraiser would be the one to determine the
reasonable price of the land. Maya, then, f ked the price after considering the
factors affecting the value of the land, and informing both contracting party
that the decision is just and suitable. If the decision made by Maya is
manifestly inequitable, the court may be called upon to decide what is
equitable.

ART. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation, or by
provision of law. The heir is not liable beyond the value of he property he
perceived from the decedent.

A If a contract should contain some stipulation in favor of third person, he

may demand its fulfillment provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit or interest of a person
is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person. (1257a)

Cases Where Third person May Be Affected By A Contract

2. In contracts containing a stipulation in favor of a third person (Art. 1311).

3.In contracts creating real rights (Art. 1312).(1313) In contracts entered

into to defraud creditor (Art.

5. In contracts which have been violated at the inducement of the third

person (Art. 314).

Example, Gaya mortgaged her parcel of land in favor of Laura as collateral

for her debt. The mortgage is duly registered. Later on, Gaya sold the same
land to Tito. In this case, Tito bought the land subject to the mortgage
constituted thereon. Tito, although a stranger in the mortgage, being a real
right follows the property on the right of Laura to the mortgage.

Art 1311 Par 2 If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental interest or
benefit of a person is not sufficient. The contracting parties must have
clearly and deliberately conferred favor upon third person

Test of beneficial stipulation – A mere incidental interest of a 3 rd person is not

within the doctrine; it must be the purpose and Intent of the stipulating
parties to benefit the third person ¢ ReQuisites Of stipulaciOn pOur autrul a)
Stipulation in favor Of third person is a part, not the whole of the contract b)
Favorable stipulation not conditioned or compensated by any kind of
obligation whatever c) Neither of the contracting parties bear the legal
representation or authorization of the third party 4d) Benefit to the 3 rd person
was clearly and deliberately conferred to by parties e) Third person
communicated his acceptance to the obligor before the latter revokes the
same

2. Possession Of the Object Of contract by third persons L] only for real rights

Art 1312 In contracts creating real rights, third persons who come into
possession of the object of the contract are bound thereby, subject to the
provisions of the Mortgage Law and the Land Registration laws.

3. Creditors Of the contracting parties

Art 1313 Creditors are protected in cases of contracts intended to defraud

them.

 Art TY – in rescissible contracts, presumption of fraudulent

alienation when debtor does leave sufficient property to cover his
obligations
 Creditor may ask for rescission – Art TV/ (accion subrogatoria)
and Art 1381 (accion pauliana)

4. Interference by third persons

E Art 1314 Any third person who induces another to violate his contract shall
be liable for damages to the other contracting party.
  Liability for damages: third person’s liability cannot be more than
the party he induced (Daywalt v Recoletos)

 Requisites of Interference With Contractual Relation by Third

Person a. Existence of a valid contract

c. Knowledge by a third person of the existence of a contract

d. Interference by the third person in the contractual relation without

legal justification

Cases:

 Daywalt v La Corporacio de los Padres Agustinos Recoletos * So

Ping Bunv CA

18

Chapter II. Essential Requisites of Contracts

CONSENT

Art 1319. 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 absolute. A Qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from
the time it came to his knowledge. The contract, in such a case, is
PRESUMED to have been entered into in the place where the offer was made.

REQUISITES OF CONSENT

1. Plurality of subjects

2. Capacity

3. Intelligent and free will

4. Express or tacit manifestation of will

5. Conformity of the internal will and its manifestation

=» Must be MANIFESTED b the concurrence of the offer and acce: tance with
respect to object and cause

A Cases: Rosenstock v Burke Malbarosa v CA

20

OFFER — unilateral proposition which one party makes to the other for the
celebration of the contract. It must be:
 A. Must be certain (Art 1319)

 DEFINITE – so that upon acceptance an agreement can be

reached on the whole contract; not definite if object is not
determinate

 COMPLETE – indicating with sufficient clearness the kind of

contract intended and definitely stating the essential conditions
of the proposed contract, as well as the nonessential ones
desired by the offeror

 INTENTIONAL — should be serious and not made for fun or in jest

21

c. What may be fixed by the offeror – time, place and manner of

acceptance

S Art 1321 The person making the offer may fix the time, place and manner
of acceptance, all of which must be complied with.

 Acceptance not made in the manner provided by the offeror is

ineffective.

d. When made through the agent – accepted from the time acceptance
communicated to the agent

A Art 1322 An offer made through an agent is accepted from the time
acceptance is communicated to him.
 e. Circumstances when offer becomes defective – death, civil interdiction,
insanity or insolvency

A Art 1323 An offer becomes ineffective upon the death, civil interdiction,
insanity Or insolvency of either party before

Acceptance is conveyed.

f. Business advertisements of things for sale – not definite

Offers

# Art 1325 Unless it appears otherwise, business advertisements of things

for sale are not definite Offers, but

Mere invitation to make an Offer.

g. Advertisement for bidders

S Art 1326 Advertisements for bidders are simply invitations to make

proposals, and the advertiser is not bound to accept the highest of lowest
bidder, UNLESS the contrary

Appears. O Not applicable to judicial sale wherein the highest bid must
necessarily be accepted

Case: * Jardine Davies v CA

ACCEPTANCE -an unaccepted offer does not give rise to

Consent * Contract is perfect when the offeror or counter-offeror learns about

The acceptance!

a. Must be absolute (Art 1319)

b. Kinds of acceptance

EXPRESS (Art 1320) IMPLIED (Art 1320) arise from acts or facts which reveal
the intent to

Accept such as the consumption of things sent to the offeree, or the fact of
immediately carrying out the contract offered

QUALIFIED (Art 1319) not an acceptance but constitutes a counteroffer

c. If made by letter or telegram Art 1319 Par 2 Acceptance made by

letter or telegram does not bind the offerer except from the time
it came to his knowledge.

ACCEPTANCE — an unaccepted offer does not give rise to

Consent * Contract is perfect when the offeror or counter-offeror learns about

The acceptance!
 a. Must be absolute (Art 1319)

b. Kinds of acceptance

EXPRESS (Art 1320) IMPLIED (Art 1320) arise from acts or facts which reveal
the intent to accept such as the consumption of things sent to the offeree, or
the

Fact of immediately carrying out the contract offered QUALIFIED (Art 1319)
not an acceptance but constitutes a counteroffer

c. If made by letter or telegram Art 1319 Par 2 Acceptance made by letter

or telegram does not bind the offerer except from the time it came to
his knowledge.

25

Four theories on when the contract is perfected 1. Manifestation theory –

counter offeree manifest his acceptance 2. Expedition Theory — sending of
the letter, mailing if by letter 3. Reception Theory — receipt of the message
of acceptance 4. Cognition Theory – knowledge of offeror of the acceptance
Art 1319 Par 2“… except from the time of his knowledge”

D. Period of acceptance Art 1324 “When the offerer has allowed the offeree a
certain period to accept…” * Offeree may accept any time until such period
expires. ¢ Acceptance beyond the time fixed is not legally an acceptance but

Constitutes a new offer. * Acceptance not made in the manner provided by

the offeror is
Ineffective. * If offeror has not fixed the period, the offeree must accept

Immediately within a reasonable tacit period. 26

 Offer implies an obligation on the part of the offeror to maintain

it for such a length of time as to permit the offeree to decide
whether

To accept it or not. ¢ Extinguishment or annulment of offer

O Withdrawal by the offeror

O Lapse of the time for option period o Legally incapacitated to act

O Offeree makes counter-offer o Contract becomes illegal

Case:

= Sanchez v Rigos

e. Contract of option

Art 1324 “… the offer may be withdrawn at any time before acceptance by

Communicating such withdrawal, EXCEPT when the option is founded upon a

consideration, as something paid or promised.”
° Preparatory contract in which one party grants to the other, for a

Fixed period and under specified conditions, the power to decide whether or
not to enter into a principal contract

Must be supported by an independent consideration and the grant must be

exclusive

Tf the option is not supported by an independent consideration,

Offeror can withdraw the privilege at any time by communicating the

withdrawal to the other party, even if the “option” had already been
accepted.

Option — the contract

Option period — pernod within which to accept the offer Option money —
consideration paid for the option.

Earnest money — is the money given as part of the purchase price. Case:

° Adelfa Properties v CA

2. Necessary LEGAL CAPACITIES of the parties Who cannot give consent

Art 1327 The following cannot give consent to a contract: 1. Unemancipated

minors

2. Insane or demented persons

3. Deaf-mutes who do not know how to write

When offer and/or acceptance is made LJ Dumng a lucid interval = VALID

{_lin a state of drunkenness = VOIDABLE utter want of understanding (1)

During a hypnotic spell = VOIDABLE utter want of understanding

3. The consent must be INTELLIGENT, FREE, SPONTANEOUS and REAL

Art 1330 A contract where consent is given through mistake,

Violence, intimidation, undue influence, or fraud is VOIDABLE.

Mistake and violence — spontaneous and intelligence Effect of Defects of

Will: Contract is VOIDABLE (Art 1330)

VICES OF CONSENT

a. Mistake or Error — a wrong or false notion about such matter, a belief

In the existence of some circumstance, fact or event which in reality does not
exist.

Art 1331 In order that MISTAKE may invalidate consent, it should refer to the
substance Of the thing which is the Object of the contract, or to those
conditions which have
Principally moved one or both parties to enter into the contract.

EXCEPTION: Mutual error of law

Art 1334 Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vitiate consent.

 Requisites for mutual error of law

a. Error must be as to the legal effect Of an agreement!_] includes rights

and obligations of the parties, not as stipulated in the contract but as
provided by law

b. Must be mutual c. Real purpose of the parties is frustrated

When one of the parties is unable to read and fraud is alleged – burden of
proof on party enforcing the contract

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
explained to the former.

Cases: * Dumasug v Modelo * Hemedesv CA * Katipunan v Katipunan

Inexcusable mistake – knew the doubt, contingency or risk

Art 1333 There is no mistake if the party alleging it knew the doubt,
contingency Or risk affecting the object of the contract.
  Party cannot alleged error which refers to a fact known to him or which
he should have known by ordinary diligent examination of the facts

 Courts consider not only the objective aspect of the case but also the
subjective e.g. intellectual capacity of the person who made the
mistake

 E.g. Caused by manifest negligence

c. Violence and Intimidation

Art 1335 There is VIOLENCE when in order to wrest consent, serious or

irresistible force is employed.

There is INTIMIDATION when one of the contracting parties is compelled by a

reasonable and well-grounded 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.

To determine the degree of intimidation, the age, sex and condition of the
person shall be borne in mind.

A threat to enforce one’s claim through competent authority, if the claim is

just or legal, does NOT vitiate consent.

37
(_] DURESS: degree of constraint or danger either actually inflicted (violence)
or threatened and impending (intimidation) sufficient to overcome the mind
and will of a person of ordinary firmness

(J Seriousness of the evil or wrong measured both Objectively (degree of

harm that the evil in itself is likely to produce) and subjectively (determining
the effect of the threat upon the mind of the victim in view of his personal
circumstances and his relation to the author of the intimidation)

VIOLENCE * Physical force or compulsion ¢ External and generally serve to

prevent an act from being done * Requisites Of Violence

1. Physical force employed must be irresistible Or Of such a degree

That the victim has no Other course, under the circumstances, but to submit

2. That such force is the determining cause in giving the consent to the
38 ~—s contract

INTIMIDATION * Moral force or compulsion

 Internal operating upon the will and induces the performance of an act

 Influences the mind to choose between two evils, between the contract
and the imminent injury

 Requisites Of Intimidation
 1. Intimidation must be the determining cause Of the contract, Or must
have caused the consent to be given

2. That the threatened act be unjust Or unlawful

3. That the threat be real and serious, there being an evident

disproportion between the evil and the resistance which all men can
Offer, leading to the choice Of the contract as the lesser evil

4. That it produces a reasonable and well-grounded fear from the fact

that the person from whom it come has the necessary means Or ability
to inflict the threatened injury

39

Effect of Violence and Intimidation

Art 1336 Violence or intimidation shall ANNUL the obligation, although it may
have been employed by a third person who did not take part in the contract.

Case: * Martinez v HSBC

d. Undue Infiuence — any means employed upon a party which, under

the circumstances, he could not well resist, and which controlled his
volition and induced him to give his consent to the contract which
otherwise he would not have entered into.

b. Undue Influence — any means employed upon a party which, under

the circumstances, he could not well resist, and which controlled his
 volition and induced him to give his consent to the contract which
otherwise he would not have entered into.

Art 1337 There is UNDUE INFLUENCE when a person takes improper

advantage Of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and Other relations between the
parties, or the fact that the person alleged to have been unduly influenced
was suffering from mental weakness, or was ignorant or in financial distress.

L]In some measure destroy the free agency of a party and interfere with the
exercise of that independent discretion which is necessary for determining
the advantages and disadvantages of a contract.

L] Distinguished from intimidation

UN®UE INFLUENCE | ITIP @ ATION There need net be in un ust ef unayfua t

fawue vo atstwub ba rt ere who dy a.te. ecuentte sce. 7 Metal ee t on

(_| By analogy, undue influence by a third person may also

Vitiate consent (Art 1336)

c. Fraud or Dolo — every kind of deception whether in the form

Of insidious machination, manipulations concealments, misrepresentation,

for the purpose of leading a party into error and thus execute a particular
act.

L1) Must have a determining influence on the consent of the

Victim

L) Compared with error

ERROR FRAUD Vitiate the consent only when it refers to the Mistake induced
by fraud will ahvays vitate consent Matters mentioned in Art 1331 when
fraud has a deasive influence on such consert 43 L] Requisites Of Fraud

1.

Must have been employed by one contracting party upon the Other (Art 1342
and Art 1344)

If both party, they cannot have action against each other, fraud is
compensated

2. Induced the other party to enter into a contract (Art 1338)

Wo

Must have been serious (Art 1344)

4, Must have resulted in damage or injury to the party seeking

Annulment

1338 There is FRAUD 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.

44

“Insidious words and machinations” constituting deceit

Includes false promises, exaggeration of hopes or benefits, abuse of

confidence, fictitious names, Qualifications or authority, all the thousand and
one forms of deception which may influence the consent of a contracting
party, without necessarily constituting estafa or some offense

Under the penal laws.

Cases:

Hill v Veloso

 Woodhouse v Halili supra

Geraldez v CA supra