CONTRACTS

Required reading material: New Civil Code

Suggested reading material: Obligations and Contracts, De Leon, Hector

Part 1

I. Introduction

A. Concept and Definition (Art. 1305)

B. Classification of Contracts
1. According to subject matter: things or services
2. According to name: nominate and innominate contracts (Art. 1307)
3. According to perfection: by mere consent (Art. 1315) or by delivery (Art. 1316)
4. According to its relation to other contracts: preparatory; principal; or accessory
5. According to form: informal or formal
6. According to purpose
7. According to nature of legal tie created: unilateral, bilateral or reciprocal
8. According to cause: onerous or gratuitous
9. According to risk: commutative or aleatory

C. Characteristics
1. Obligatory Force between the Parties (Art. 1308)
a. General Rule: Freedom to Contract (Art. 1306)
b. Exceptions:
i. When it is inequitable (Art. 1310)
ii. Special disqualifications (Art. 87, Family Code, Arts. 1490, 1491,
1782, Civil Code)
iii. What may not be stipulated
c. Effect of contract as to third parties (Art. 1309, 1312-1314, 1177, 1381)

2. Mutuality (Art. 1308 to 1310; 1473)

3. Relativity or Privity of Contracts (Art. 1311)

a. Contracts take effect only between the parties, their assigns and heirs
b. No one may contract in the name of another (Art. 1317)
c. Stipulations in favor of third persons (Art. 1311, par. 2)

II. Essential Requisites of Contracts

A. Consent: Requisites (Art. 1319)

1. Perfection of Contract: Offer and Acceptance
a. Offer
• Offer must be certain (Art. 1319)
• what may be fixed by the offeror (Art. 1321)
• when made through an agent (Art. 1322)
• when offer becomes ineffective (Art. 1323)
 • business advertisements of things for sale (Art. 1325)
• advertisements for bidders (Art. 1326)

b. Acceptance
• Acceptance must be absolute (Art. 1319)
• Kinds:
o express (Art. 1320)
o implied (Art. 1320)
o qualified (Art. 1319)
• period of acceptance (Art. 1324)
• option contract (Art. 1324)
Sanchez v. Rigos, 45 SCRA 368 (1972)

c. Termination of Offer

d. Perfection of Contract
• Four theories when contract is perfected:
o Manifestation theory
o Expedition theory
o Reception theory
o Cognition theory (Art. 1319 [2])

2. Legal Capacity of the Parties (Art. 1327-1328)

3. Vices of Consent: Consent must be Intelligent, Free, Spontaneous and Real

a. Mistake or Error
i. Mistake of Fact
• As to substance of the object
• As to principal conditions
• As to identity or qualifications of the parties
• As to quantity, as distinguished from simple mistake of account
Spouses Theis v. CA (1997)

ii. Mistake or Error of Law

• General Rule (Art. 3)
• Exception (Art. 1334)
iii. Mistake when one party is unable to read (Art. 1332)
iv. Inexcusable mistake (Art. 1333)

b. Violence or Intimidation (Art. 1335)

c. Undue Influence (Art. 1337)

d. Fraud or Dolo (Art. 1338)

i. Dolo causante (Art. 1338)
ii. Dolo incidente (Art. 1344 [2])
• Failure to Disclose Facts when there is a duty to reveal them
(Art. 1339)
 • Usual exaggerations in trade: opportunity to know the facts
(Art. 1340)
• Mere expression of opinion (Art. 1341); Effects (Art. 1344)
e. Misrepresentation (Art. 1342- 1343)

4. Simulation of Contracts
a. Kinds: Absolute and Relative (Art. 1345)
b. Effects (Art. 1346)

B. Object
1. Must be determinate as to its kind (Art. 1379)
2. What may NOT be objects of contracts (Art. 1347)

C. Cause
1.Meaning of Cause (Art. 1350)
a. in onerous contracts
b. in remuneratory contracts
c. in contracts of pure beneficence
2. Distinguished from Motive (Art. 1351)
3. Presumption: Existence and Lawfulness of Cause (Art. 1354)
4. Defective Causes and Effects:
a. Absence of Cause or Unlawful Cause (Art. 1352)
b. Statement of False Cause (Art. 1355)
c. Inadequacy of Cause or Lesion (Art. 1355)

III. Form of Contracts

A. General Rule (Art. 1356)
B. Exception (Art. 1356)
1. Kind of formalities required by law:
a. For validity (Arts. 748, 749, 1874, 2134, 1771, 1773)
b. To make it effective as to third parties (Arts. 1357 and 1358)
c. For purposes of proving existence of contract (Art. 1403)

IV. Interpretation of Contracts

A. Primacy of Intention (Arts. 1370, 1372)

B. Determining Intention (Art. 1371)
C. Rules of Contract Interpretation
1. When it contains stipulations which admit of several meanings (Art. 1373) 

2. When it contains various stipulations, some of which are doubtful (Art. 1374) 

3. When it contains words with different meanings (Art. 1375) 

4. When it contains ambiguities and omission of stipulations (Art. 1376) 

5. With respect to the party who caused the obscurity (Art. 1377) 

6. When it is impossible to settle doubts using the above‐cited rules (Art. 1378)
7. When doubts are cast upon the principal object so that the true intention cannot
be known (Art. 1378)