Contracts

[Definition – Stages1]
[Follow the Outline]

Part One
Modified True or False. Consider the statement true only when it is absolutely true.
Explain ALL your answers.

1. A contract is a meeting of minds

between two persons.

2. Contracts take effect between the

parties, their assigns and heirs.

3. Contracts are perfected by mere

consent.

4. An offer becomes ineffective upon

the insolvency of either party before
acceptance is conveyed.

5. The contracting parties may establish

such stipulations, clauses, terms and
conditions as they may deem convenient.

6. Real contracts are not perfected until

the delivery of the object of the obligation.

7. The contracts must bind both

contracting parties; its validity or termination
cannot be left to the will of one of them.

8. Real contracts, such as deposit,

pledge and guaranty, are not perfected until
the delivery of the object of the obligation.

9. In onerous contracts the object is

understood to be, for each contracting party,
the prestation or promise of a thing or service
by the other.

10. A contract of loan is a real contract.

11. A contract of adhesion is a principal
contract.

12. A contract of sale is an essentially

onerous contract.

13. A contract of lease is a bilateral

contract,

14. An option agreement is a contract.

15. A contract of sale is a formal

contract.

Part Two
Multiple Choice. Choose the best answer.
1. On February 1, 2020, Perfecto offered to sell his house and lot to Reynaldo for
P1,500,000.00. Perfecto told Reynaldo that he was giving Reynaldo up to February
28, 2020 to decide whether to buy or not the house and lot. Reynaldo accepted the
option but did not give anything to Perfecto to support the option given to him. On
February 20, 2020, Perfecto found another buyer who was ready to buy the house and
lot for P2,000,000.00. Perfecto wants to ask you whether he can still withdraw the
offer he made to Reynaldo. Decide.
a. Yes, Perfecto may withdraw the offer because he stands to gain an added profit
of P500,000.00 and this will be more than enough to pay any damages to
Reynaldo.
b. Yes, Perfecto may withdraw the offer by just informing Reynaldo of such fact.
c. No, Perfecto may not withdraw the offer because the option was accepted by
Reynaldo although Reynaldo did not given anything in support thereof.
d. No, Perfecto may not withdraw his offer until the lapse of the period given to
Reynaldo to exercise his option.

2. A contract whose cause is the promise of a thing or service by the other is:
a. a remuneratory contract. c. a lucrative contract.
b. a gratuitous contract. d. an onerous contract.

3. 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. This is known as:
 a. Liberty of contract c. Relativity of contract
b. Mutuality of contract d. Obligatory force of contract

4. One of the following is not a real contract:

a. Pledge c. Deposit
b. Commodatum d. Sale

5. It is the manifestation of the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract.

a. Consideration c. Consent
b. Contract d. Cause
6. On May 1, 2019, S offered to sell a specific car to B for P500,000.00. B sent his
letter of acceptance to S on May 8, 2019. On May 10, 2019, however, S died in a
vehicular accident and his secretary received the letter of acceptance on May 12, 2019
unaware that S had already died.
a. The contract was perfected on May 8, 2019 when B sent his letter of
acceptance.
b. The contract was perfected on May 12, 2019 when the secretary of S received
the letter of acceptance.
c. The contract was not perfected because the offer of S became ineffective when
he died.
d. The contract was perfected on May 1, 2019 because the acceptance made by B
on May 8, 2002 retroacts to the date of the offer.

7. It is a principle which holds that parties are bound not only by what has been
expressly provided for in the contract but also to the natural consequences that flow
out of such agreement.
a) Obligatory force of contracts
b) Mutuality of contracts
c) Autonomy of contracts
d) Relativity of contracts
8. Contracts take effect only between the parties or their assigns and heirs, except where
the rights and obligations arising from the contract are not transmissible by their
nature, by stipulation, or by provision of law. In the latter case, the assigns or the heirs
are not bound by the contracts. This is known as the principle of
A. Relativity of contracts.
B. Freedom to stipulate.
C. Mutuality of contracts.
D. Obligatory force of contracts.

9. Which phrase most accurately completes the statement – Any third person who
induces another to violate his contract:
a) shall be liable for damages only if he is a party to the same contract.
b) shall be liable for damages to the other contracting party.
c) shall not be liable for damages to the other contracting party.
d) shall not be liable for damages if the parties are in pari delicto.
10. The following are solemn contracts (Contracts which must appear in writing), except:
a) Donations of real estate or of movables if the value exceeds P 5,000.00.
b) Stipulation to pay interest in loans.
c) Sale of land through an agent (authority must be in writing).
d) Construction contract of a building.

11. Which of the following statements is correct?

a) All contracts are perfected by mere consent.
b) All contracts are perfected by delivery of the object.
c) All contracts are required to be in writing.
d) All contracts are required to have a valid consideration.

Part Three
Give direct and concise but complete answers.
Cite authorities, if any.
Batchelder v. CB

1. Newlyweds Sam and Sienna had contracted with Sangria Hotel for their wedding
reception. The couple was so unhappy with the service, claiming, among other
things, that there was an unreasonable delay in the service of dinner and that certain
items promised were unavailable. The hotel claims that, while there was a delay in
the service of the meals, the same was occasioned by the sudden increase of guests to
450 from the guaranteed expected number of 350, as stated in the Banquet and
Meeting Services Contract. In the action for damages for breach of contract instituted
by the couple, they claimed that the Banquet and Meeting Services Contract was a
contract of adhesion since they only provided the number of guests and chose the
menu. On the other hand, the hotel’s defense was that the proximate cause of the
complainant’s injury was the unexpected increase in their guests, and this was what
set the chain of events that resulted in the alleged inconveniences.

(b) Was the Banquet and Meeting Services Contract a contract of adhesion? If
yes, is the contract void?

2. On July 1, 1998, Brian leased an office space in a building for a period of five
years at a rental rate of P1,000.00 a month. The contract of lease contained
the proviso that “in case of inflation or devaluation of the Philippine peso, the
monthly rental will automatically be increased or decreased depending on the
devaluation or inflation of the peso to the dollar.” Starting March 1, 2001, the
 lessor increased the rental to P2,000.00 a month, on the ground of inflation
proven by the fact that the exchange rate of the Philippine peso to the dollar
had increased from P25.00=$1.00 to P50.00=$1.00. Brian refused to pay the
increased rate and an action for unlawful detainer was filed against him. Will
the action prosper? Why?

Daisy Tiu v. Platinum Plans

Cui v. Arellano University, 2 SCRA 205

Saura v. Sindico, 107 Phil 336

Sanico and Castro v. Colipano

3. Francis Albert, a citizen and resident of New Jersey U.S.A., under whose law he was
still a minor, being only 20 years of age, was hired by ABC Corporation of Manila to
 serve for two years as its chief computer programmer. But after serving for only four
months, he resigned to join XYZ Corporation, which enticed him by offering more
advantageous terms. His first employer sues him in Manila for damages arising from
the breach of his contract of employment. He sets up his minority as a defense and
asks for annulment of the contract on that ground. The plaintiff disputes this by
alleging that since the contract was executed in the Philippines under whose law the
age of majority is 18 years, he was no longer a minor at the time of perfection of the
contract.
Suppose XYZ Corporation is impleaded as co-defendant, what would be the basis of
its liability, if any?

Metropolitan Bank and Trust Company vs. Reynado and Adrandea,

Kauffman v. PNB, 42 Phil 182

Bonifacio Bros. v. Mora,

4. Distinguish consensual from real contracts and name at least four (4) kinds of real
contracts under the present law.
5. Merle offered to sell her automobile to Violy for P60,000.00. After inspecting the
automobile, Violy offered to buy it for P50,000.00. This offer was accepted by Merle.
The next day, Merle offered to deliver the automobile, but Violy being short of funds,
secured postponement of the delivery, promising to pay the price “upon arrival of the
steamer, Helena”. The steamer however never arrived because it was wrecked by a
typhoon and sank somewhere off the Coast of Samar.
Is there a perfected contract in this case? Why?

6. Mr. and Mrs. X migrated to the US with all their children. As they had no intention of
coming back, they offered their house and lot for sale to their neighbors, Mr. and Mrs.
A (the buyers) who agreed to buy the property for ₱8 Million. Because Mr. and Mrs.
A needed to obtain a loan from a bank first, and since the sellers were in a hurry to
migrate, the latter told the buyers that they could already occupy the house, renovate it
as it was already in a state of disrepair, and pay only when their loan is approved and
released. While waiting for the loan approval, the buyers spent ₱1 Million in
repairing the house. A month later, a person carrying an authenticated special power
of attorney from the sellers demanding that the buyers either immediately pay for the
property in full now or vacate it and pay damages for having made improvements on
the property without a sale having been perfected.

b.) Can the buyers be made to immediately vacate on the ground that the sale was not
perfected? Explain briefly.

7. Bert offers to buy Simeon’s property under the following terms and conditions: P1
million purchase price, 10% option money, the balance payable in cash upon the
clearance of the property of all illegal occupants. The option money is promptly paid
and Simeon clears the property of all illegal occupants in no time at all. However,
when Bert tenders payment of the balance and asks Simeon for the deed of absolute
 sale, Simeon suddenly has a change of heart, claiming that the deal is disadvantageous
to him as he has found out the property can fetch three times the agreed purchase
price. Bert seeks specific performance but Simeon contends that he has merely given
Bert an option to buy and nothing more, and offers to return the option money which
Bert refuses to accept.
A. Explain the nature of an option contract.

B. Will Bert’s action for specific performance prosper? Explain.

8. Marvin offered to construct the house of Carlos for a very reasonable price of
P900,000.00, giving the latter 10 days within which to accept or reject the offer. On
the fifth day, before Carlos could make up his mind, Marvin withdrew his offer.
(a) What is the effect of the withdrawal of Marvin’s offer?
 (b) Will your answer be the same if Carlos paid Marvin P10,000.00 as consideration
for that option? Explain.

(c)Supposing that Carlos accepted the offer before Marvin could communicate his
withdrawal thereof? Discuss the legal consequences.

Sanchez v. Rigos