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II.-law On Contracts
II.-law On Contracts
Law on Contracts
1. 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. It is one of the five sources of civil obligations.
a. Obligations arising from contracts have the force of law between contracting parties.
b. Obligations arising from contracts should be complied with in good faith.
2. Stages of a contract
3. Characteristics of contracts
a. Obligatory force of contract means that the contractual agreement constitutes the law as between
the parties.
i. Obligations arising from contracts have the force of law between contracting parties.
ii. Obligations arising from contracts should be complied with in good faith.
b. Mutuality of contract means that the validity and performance cannot be left to the will of only one
of the parties.
c. Relativity of contract means that contract is binding only upon the parties and their successors
such as heirs and assignees.
a. The heirs are liable to the debts of decedent but only up to the extent of
the property they inherited. It is only the natural obligation of the heirs to
pay the unpaid debts of their predecessors beyond the value of the
properties they inherited.
e. Void contract that directly affects a third person – A third person affected
by a void contract may file an action for declaration of nullity of a contract.
d. Liberality of Contract or Freedom to Contract or Autonomy of Contract means that the parties
may establish such stipulations, clauses, terms, and conditions as they may deem convenient
provided they are not contrary to any of the following:
i. Law
ii. Morals
iii. Good customs
iv. Public order
v. Public policy
e. Consensuality of contract means that contracts are perfected by mere consent except in real
contracts and formal or solemn contracts which require additional requirements.
a. Essential elements refer to those which are required in order for a contract to exist. They are
necessary for validity of contract and may not be waived by the parties. Absence of any of the
essential elements will make the contract void the remedy of which of injured party is declaration of
nullity.
i. Consensual Contract
1. Consent of the contracting parties
2. Object certain which is the subject matter of the contract
3. Cause of the obligation which is established
b. Natural elements refer to those which already exist in certain contract unless set aside or
suppressed by the parties. They may be waived by the parties as long as the waiver is made in good
faith.
i. Warranty against eviction in a contract of sale.
ii. Warranty against hidden defects in a contract of sale.
iii. Warranty for merchantability in a contract of sale.
iv. Warranty against hidden and unregistered encumbrance in a contract of sale.
c. Accidental elements refer to those that do not normally exist in a contract unless stipulated or
provided by the parties.
i. Terms of payment in a contract of sale.
ii. Conventional interest in a contract of loan.
5. Types of Contracts
a. As to Perfection of Contract
ii. Real contract is a contract perfected by the delivery of the object of the contract.
1. Contract of deposit
2. Contract of pledge
3. Contract of loan or mutuum
4. Contract of commodatum
iii. Solemn or Formal contract is a contract perfected by the execution of the formality
required by law.
ii. Gratuitous contract is a contract whereby one party receives no equivalent consideration.
These contracts are referred to as contracts of pure beneficence, the cause of which is the
liberality or generosity of the benefactor.
1. Contract of donation
2. Contract of commodatum
iii. Remuneratory contract is a contract whereby the cause here is the service or benefit
remunerated.
1. Contract of service or employment
c. Other Contracts
ii. Accessory contract is a contract whose existence depends upon another contract known
as principal contract.
1. Contract of pledge,
2. Contract of chattel mortgage
3. Contract of antichresis
4. Contract of real estate mortgage
5. Contract of guarantee
iii. Preparatory contract is a contract which serves as a means by which other contracts may
be entered into.
1. Contract of agency
2. Contract of partnership.
v. Innominate contract is a contract without any name under the Civil Code or special law.
1. Do ut des (I give that you may give.)
2. Do ut facias (I give that you may do.)
3. Facio ut des (I do that you may give.)
4. Facio ut facias (I do that you may do.)
vi. Commutative contract is a contract whereby the parties give almost equivalent values;
hence, there is real fulfillment.
1. Contract of sale
2. Contract of lease
3. Contract of barter
viii. Unilateral contract is a contract whereby only one of the parties is obligated to give or to do
something.
1. Contract of commodatum (bailee)
2. Contract of gratuitous deposit (depositary)
ix. Bilateral contract is a contract whereby both parties are required to give or to do something.
1. Contract of sale
2. Contract of lease
x. Reciprocal contract is a contract whereby the cause on the other party is the object on the
other party.
1. Contract of sale
2. Contract of barter
xii. Contract of adhesion is a contract wherein one party has already prepared the form of the
contract, containing the stipulations he desires, and he simply asks the other party to agree
to them if he wants to enter into the contract. In case of ambiguity or doubt, it shall be
construed strictly against the preparer of the document of the contract.
1. Contract of insurance
2. Contract of enrollment
xiii. Executory contract is a contract that has not yet been performed. Certain executory
contracts are covered by Statute of Fraud and required to be in writing in order for them to be
enforceable.
xiv. Executed contract is a contract which has been performed. It is a contract not covered by
Statute of Fraud.
8. Nature of contract
a. Contract is determined by the principles of law.
15. Instances which if happened to either party before acceptance make the offer ineffective
a. Civil interdiction
b. Insanity
c. Death
d. Insolvency
19. Difference between contract wherein consent is wanting and contract wherein consent is vitiated
a. The contract is void if the consent is wanting requiring declaration of nullity of contract.
b. The contract is voidable if the consent is vitiated requiring annulment of contract.
I. There is violence when in order to wrest consent, serious or irresistible force is employed.
a. Requisites of violence to vitiate consent
i. There must be physical force.
ii. The physical force must be irresistible.
iii. The force must be the determining cause in giving the consent to the contract.
II. 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.
a. Requisites of intimidation to vitiate consent
i. The intimidation must be the determining cause of the consent.
ii. The threatened act must be unjust or unlawful.
iii. The threat must be real and serious.
iv. It must produce a reasonable and well-grounded fear.
III. 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.
IV. There is causal 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.
a. Requisites of fraud to vitiate consent
i. It must have been employed by one of the contracting parties only.
ii. It must have induced the other party to enter into the contract.
iii. It must have been serious.
iv. It may or may not result to damage or injury to the contracting parties.
22. Difference between causal fraud (Dolo causante) and incidental fraud (Dolo incidente)
a. In causal fraud, the contract is voidable requiring annulment of contract.
b. In incidental fraud, the contract is perfectly valid but action for damages is the proper remedy.
26. Object or Prestation is one of the essential elements of contract. It refers to the promise or conduct to be
performed in the performance of the contractual, and may consist of giving, doing or not doing a thing.
29. Cause of contract is one of the essential elements of contract. It refers to the immediate and proximate
purpose of the contract or the essential reason which impels the contracting parties to enter into it and which
explains and justifies the creation of the obligation through such contract.
33. Reformation of instrument is the legal remedy available to the injured party in a contract when the instrument
or document that serves as tangible evidence of the contract does not express the true intention of the contracting
parties.
35. Documents or Instrument which cannot be reformed or reformation of instrument is not allowed
a. Simple donation inter vivos wherein no condition is imposed or unconditional donation inter vivos
b. Last will and testament whether holographic will or notarial will
c. When the real agreement is void
37. Action for reformation of instrument and Action for exact fulfillment or specific performance are
inconsistent remedies and the complainant cannot have both.
40. Rescissible contract is a contract that has caused a particular damage to one of the parties or to a third
person, and which for equitable reasons may be set aside even if it is valid. The proper legal remedy is action for
rescission of rescissible contract.
A. Those contracts wherein the ward or absentee suffered by more than ¼ the value of the things on
the contracts entered into by their guardian or representative.
a. Those which are entered into by guardians whenever the wards they represent suffer lesion by more
than ¼ the value of the things which are the object thereof.
b. Those agreed upon in representation of absentees, if the latter suffer more than ¼ the value of the
things which are the object thereof.
43. Rescission of contract is a remedy granted by law to the contracting parties and even to third persons, to
secure the reparation of damages caused to them by a contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior to the celebration of said contract.
46. Rules to be observed in counting the 4-year period for prescription of an action for rescission
a. For incapacitated persons or under guardianship, 4 years shall be counted from the termination of
the ward’s incapacity.
b. For absentee, 4 years shall be counted from the date the domicile of absentee is known.
c. For contracts intended to defraud creditor, 4 years shall be counted from the knowledge of the
contract.
d. For contracts intended to defraud creditor but involving immovable, 4 years shall be counted from
the registration of the sale.
47. Voidable or annullable contract is a contract in which the consent of one party is defective, either because of
want of capacity or because it is vitiated, but which contract is valid until set aside by a competent court. The proper
legal remedy is action for annulment of voidable contract.
50. Rules to be observed in counting the 4-year period for prescription of an action for annulment.
a. In cases of intimidation, violence or undue influence, 4 years shall begin from the time the defect of
the consent ceases.
b. In cases of fraud or mistake, 4 years shall begin from the time of the discovery of the fraud or
mistake.
c. In cases of contracts entered into by wards or incapacitated persons, 4 years shall begin from the
time the guardianship or incapacity ceases.
54. Unenforceable contract is a contract that for some reason cannot be enforced, unless it is ratified in the
manner provided by law. There is no legal remedy required but to leave the contract as it is.
57. Executory Contracts which shall be in writing to be enforceable under Statute of Fraud
a. An agreement that by its terms is not to be performed within a year from the making thereof.
b. A special promise to answer for the debt, default or miscarriage of another.
c. An agreement made in consideration of marriage, other than a mutual promise to marry.
d. An agreement for the sale of goods, chattels or things in action at a price not less than P500 pesos.
e. An agreement for the leasing of real property for a longer period than one year regardless of rent.
f. An agreement for the sale of real property or of an interest therein regardless of price.
g. A representation to the credit of a third person.
59. Void or inexistent contract is an absolute nullity and produces no effect, as if had never been executed or
entered into and cannot be ratified. The proper legal remedy is action for declaration of nullity of void contract.