Republic of the Philippines

PARTIDO STATE UNIVERSITY

Camarines Sur

PSU Template
College of Business and Management
Module on
Law on Obligations and Contracts
(Contracts)

Name of Student: __________________________ Week Number: 11

Course Code: Name of Faculty: Ivan Ruzzel C.
Pesino
Course Title: Law on Obligations and Contracts

OBJECTIVES
 Discuss the concept of consent in formation of contracts
 Enumerate the requisites of consent
 Analyze the different expression of consent
 Discuss the concept of object
 Enumerate the requisites for object to be valid

Lesson:
1. Elements of a Contract
a. Essential Elements

Art. 1318. There is no contract unless the following requisites concur:

(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.

 The essential elements are those without which there can be no contract.
These elements are, in turn, subdivided into common (communes), special
(especiales), and extraordinary (especialisimos). The common elements are
those which are present in all contracts, such as consent, object certain, and
cause. The special elements are present only in certain contracts, such as
delivery in real contracts or form in solemn ones. The extraordinary elements
are those which are peculiar to a specific contract (i.e. price in sales).
i. Consent
1. Consent in General
 Definition of Consent

Art. 1319, 1st sentence. Consent is manifested by the

meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract.

 Elements of Consent
a. Plurality of subjects
b. Capacity
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

c. Intelligent and free will

d. Express or tacit manifestation of the will
e. Conformity of the internal will and its manifestation
2. Offer
 An offer is a unilateral proposition which 1 party makes to the
other for the celebration of a contract.
Art. 1321. The person making the offer may fix the
time, place, and manner of acceptance, all of which must be
complied with.
 Requisites of Offer
a. Definite
 The offer must be definite, so that upon acceptance, an
agreement can be reached on the whole contract.
b. Complete
 The offer must be complete, indicating with sufficient
clearness the kind of contract intended and definitely
stating the essential conditions of the proposed contract as
well as the non-essential ones desired by the offeror.
c. Intentional
 An offer without seriousness, made in such manner that the
other party would not fail to notice such lack of
seriousness, is absolutely without juridical effects and
cannot give rise to a contract (i.e. must not be made in jest,
or a prank).
3. Acceptance
a. Requisites of Acceptance
i. Unequivocal
ii. Unconditional
 If the acceptance is qualified, then that is a counter-offer
(Article 1319, 3rd sentence).
 An amplified acceptance may or may not be an acceptance
of the original offer. It depends on the circumstances.
Example: A offers to sell 1000 kilos of cement. B says he
wants to buy 2000 kilos of cement. Is the 1000 kilos
accepted? It depends. If buyer wants a block sale, that is,
only 2000 kilos and nothing less, then it is a counter-offer.
b. Manifestation of Acceptance
Art. 1320. An acceptance may be express or implied.
 Silence is ambiguous. Silence in itself is neither acceptance
nor rejection. Can it mean acceptance? One must look at the
circumstances.
Examples: A and B are own stalls which sell rice. C delivers
1000 kilos of rice to A every Sunday. If A is not there, C just
leaves it with A’s assistant. C tries to do business with B. B is
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PARTIDO STATE UNIVERSITY
Camarines Sur

not there though. C leaves rice with B’s assistant. B does not
call C. Both A and B are silent. A accepted the rice because of
the arrangement. If A did not want to accept the rice, then A
should have called. B’s silence is not acceptance.
c. Cognition Theory
Article 1319, 2nd ¶. Acceptance made by letter of
telegram does not bind the offerer except from the time it came
to his knowledge.
 This is known as the Cognition Theory. Commercial law uses
the Theory of Manifestation.
 Offer and acceptance takes effect only from the time
knowledge is acquired by the person to whom it is directed. If
during intervening time, the offer or acceptance is extinguished
by death/insanity, such offer or acceptance has no more effect.
Example: Offeror gave offer on March 1. The offer reached
the offeree on March 5. From the point of view of the offeror,
offer is counted from March 5. He can still countermand
before March 5.
 If the parties are face to face, then there is no problem since
there is no time gap.
 The problem arises when there is a time gap. Under Article
1319, there is perfection of the contract when there is
knowledge of the other party’s acceptance. This has serious
consequences.
Example 1. The offer was made in Davao on February 1. The
offer was sent through mail which is received in Manila on
February 5. On the same day, the offer is accepted. Mail is
sent to Davao on February 5 signifying acceptance. On
February 8, the party in Manila becomes insane. On February
13, the mail reaches Davao. According to Professor Balane,
under Article 1323, there is no contract since there was no
contractual capacity.
Example 2. The offer was made in Bacolod on March 1. It
was received in Quezon City on March 3. On March 4, the
offeree sends his acceptance. On March 5, the offeror
countermands offer. Now, both acceptance and countermand
of offer are in the mail. Whichever reaches the destination first
will be counted.
d. Offers Through Agents
Art. 1322. An offer made through an agent is accepted
from the time acceptance is communicated to him.
e. Effect of Death, Insanity
Art. 1323. An offer becomes ineffective upon the death,
civil interdiction, insanity or insolvency of either party before
acceptance is conveyed.
f. Withdrawal of the Offer
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PARTIDO STATE UNIVERSITY
Camarines Sur

Art. 1324. When the offeror has allowed the offeree a

certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal,
except when the option is founded upon consideration,
something paid or promised.
 Article 1324 is related to Article 1479, ¶2. They actually say the same thing.
 S offers to sell a car to B for P300,000. B needs to think about
it, and so B asks for 30 days and pays S P5,000. The payment
of P5,000 is a distinct consideration from the price of the car.
This distinct consideration of P5,000 is payment for the 30
days. B is paying for time. The option contract is separate
from the contract of sale. S cannot sell the car to anybody else
within that 30-day period. If S sells the car to someone else
within the 30-day period, he is guilty of contractual breach.
But B can buy the car before the end of the 30-day period and
such will be a valid sale.
 S offers to sell a car to B for P300,000. B needs to think about
it, and so B asks for 30 days. B does not pay S for time, but S
promises to give B 30 days. In this case there is no option
contract. However, in Sanchez vs. Rigos, the Supreme Court
said that even if there was no option contract, S must still
communicate the withdrawal of the offer to B. If S does not
communicate his withdrawal, that is tantamount to a continuing
offer. Professor Balane does not agree with this. According to
him, if there is no valid option contract, there should be no
continuing offer. According to Professor Balane, the Supreme
Court should have explained that.
 S offers to sell a car to B for P300,000. B needs to think about
it, and so B asks for 30 days and pays P5,000 to S. B decides
to buy the car within 30 days. The car is not sold to anybody
else. S does not want to sell the car to B. B can sue S for
specific performance – compel S to sell him the car.
 S offers to sell a car to B for P300,000. B needs to think about
it, and so B asks for 30 days and pays P5,000 to S. B decides
to buy the car within 30 days. Before B is able to buy the car,
S sells the car to X. B can sue S for damages. B cannot sue for
specific performance since the car has been sold to an innocent
purchaser.
 A right of first refusal is different from an option contract. A
right of first refusal is the right to have first opportunity to
purchase or the right to meet any other offer. On the other
hand, an option contact limits the promissor’s power to revoke
an offer. The right of first refusal is not covered by the Civil
Code.
 A right of first refusal is a statement by a person to another that
if the former decides to sell the object, the latter will have the
first offer. Here, the object is determinable. But the exercise
of the right to buy is conditioned on the seller’s decision to sell
on terms which are not yet certain.

Art. 1479, ¶2. An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a consideration distinct from the
price.
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

 According to Equatorial vs. Mayfair, the requirement of

separate consideration is not applicable in a right of first
refusal. According to Professor Balane, this is peculiar since
an option contract is more firm and yet it requires the payment
of separate consideration but a right of first refusal does not.
However, in Litonjua vs. CA, the Supreme Court said that in a
right of first refusal, the consideration for the loan or mortgage
is already a part of the consideration for the right of first
refusal.
 In Ang Yu vs. CA, the SC said that an action for specific
performance will not lie against the promissor. However, a
complaint under Article 19 for damages may be filed if the
actions of the promissor are whimsical. In Equatorial vs.
Mayfair the right of first refusal was violated when the vendor
sold the object to another person. The SC in Equatorial vs.
Mayfair said that an action for specific performance may be
filed. Equatorial vs. Mayfair is totally inconsistent with Ang
Yu vs. CA.
 The Supreme Court has held (Equatorial vs. Mayfair,
Parañaque Kings vs. CA, Litonjua vs. CA, PUP vs. CA) that the
right of first refusal is enforceable by an action for specific
performance. And that the actual vendee may be required to
sell the property to the holder of the right of first refusal at the
price which he bought it.
 However, in a recent case, Rosencorr vs. CA (March 8, 2001),
the Supreme Court has held that the right of first refusal need
not be written to be unenforceable since it is not included in the
Statute of Frauds. Also, if the vendee is in good faith, he may
not be compelled by specific performance since he relied on a
title which is clean. The remedy is to go after the vendor.
 In a right of first refusal, there is no definite offer since the
vendor has to option of deciding not to sell the object. Also, in
a right of first refusal, there is no need for a separate
consideration. In an option contract, there is a definite offer.
According to Professor Balane, the right of first refusal is
inferior to an option contract since there is no definite offer.
Professor Balane does not understand why an action for
specific performance is allowed in violations of rights of first
refusal but not in the case of option contracts when the object is
sold to another person. Why is the SC giving greater legal
effect to a right of first refusal which is more tentative? Also,
where the SC get these rules since the right of first refusal is
not covered by the Civil Code.
g. Advertisements
Art. 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite offers, but
mere invitations to make an offer.
Art. 1326. Advertisements for bidders are simply
invitations to make proposals, and the advertiser is not bound
to accept the highest or lowest bidder, unless the contrary
appears.
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PARTIDO STATE UNIVERSITY
Camarines Sur

 Most advertisements are simply invitations to make an offer

and are not offers in themselves since not all the necessary
terms can fit in the advertisement.
 Even if the ad had all the necessary terms, it’s still an invitation
to make offer since there is no definite person to whom the
offer is being made (public offer).
h. Simulated Contracts
Art. 1345. Simulation of a contract may be absolute or
relative. The former takes place when the parties do not intend
to be bound at all; the latter, when the parties conceal their
true agreement.
Art. 1346. An absolutely simulated or fictitious contract
is void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary to
law, morals, good customs, public order or public policy binds
the parties to their real agreement.
i. Absolutely Simulated (contrato simulado)
 Absolute simulation of a contract takes place when the
parties do not intent to be bound at all (Article 1345).
 For example, X pretends to sell his car to avoid tax
liability. However X has no real intention to sell the car.
 An absolutely simulated or fictitious contract is void
(Article 1346)
ii. Relatively Simulated (contrato disimulado)
 Relative simulation of a contract takes place when the
parties conceal their true agreement (Article 1345).
 In a relatively simulated contract, the parties enter into a
contract but disguise it as another.
 For example, X has many creditors, and they are going
after X’s car. X cannot donate his car to Y since the
creditors will just resort to accion pauliana. So, X
antedates a contract of sale, selling his car to Y, except that
X’s intention is to donate his car to Y.
 A relatively simulated contract, when it does not prejudice
a 3rd person and is not intended for any purpose contrary to
law, morals, good customs, public order or public policy
binds the parties to their real agreement (Article 1346).
 The law will apply the rules of the true contract and not the
ostensible contract.
ii. Object

Art. 1347. All things which are not outside the commerce of
men, including future things, may be the object of a contract. All
rights which are not intransmissible may also be the object of
contracts.
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PARTIDO STATE UNIVERSITY
Camarines Sur

No contract may be entered into upon future inheritance

except in cases expressly authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be the object of a
contract.

Art. 1348. Impossible things or services cannot be the object of

contracts.

Art. 1349. The object of every contract must be determinate as

to its kind. 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 the need of a new contract between the
parties.

 The object of the contract is the prestation. Thus, it is always the

conduct which is to be observed. It is not a concrete object like a car.
In a contract of sale, the object is the delivery of the object and not the
object itself.
 The provisions on object however blur the distinction between the
object of the contract, the prestation, and the object of the prestation.
According to Professor Balane, these provisions are not fatal though.
 Requisites of Object
1. The object must be within the commerce of man, either already
existing or in potency (Article 1347)
 Within the commerce of man means that the object is capable
of appropriation and transmission.
 The term “in potency” means that the object will come into
existence in the future.
 Generally in reciprocal contracts particularly sales, the sale of
future things is allowed. For example, it is possible to sell the
future harvest of a farm.
 The coming into being of the future thing is a suspensive
condition.
 Emptio rei speratae is a conditional sale. There is a suspensive
condition. If the future thing does not come into existence,
then there is no contract of sale.
 Emptio spei is the sale of a hope. Even if the future thing does
not materialize, the buyer must pay since the buyer is taking a
chance. (i.e. sale of lotto ticket). Hope is a present thing.
 Some future things are not allowed to be objects of the
prestation. The law does not allow contracts on future
inheritance.
2. The object must licit, or not be contrary to law, morals, good
customs, public policy or public order (Article 1347)
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PARTIDO STATE UNIVERSITY
Camarines Sur

3. The object must be possible (Article 1348)

 If the object is impossible, then the contract is void for lack of
cause.
 Article 1348 does not talk of supervening impossibility which
is a mode of extinguishments.
 Impossibility under Article 1348 must be actual and
contemporaneous with the making of the contract.
4. The object must be determinate as to its kind and determinable as
to its quantity (Article 1349)
 The object need not be individualized. It must be determinate
as to its kind or species.
 The quantity of the object may be indeterminate, so long as the
right of the creditor is not rendered illusory.
5. The object must be transmissible
 This is actually a redundancy since this is already in the
requisite of being within the commerce of man.
Activities:
Problem 1:
S sold his house to B believing that B was C. can S legally withdraw from the contract on the ground of
mistake?
Answer:
S, can legally withdraw from the contract for the reason of mistake, when there is mistake, the consent
was not perfected, there will be no meeting of minds between the parties.
Problem 2:
S agreed to deliver to B 500 cavans of rice at P1000 per cavan. S delivered only 490 Cavans deliberately
misrepresenting that the delivery consisted of 500 cavans. Can B ask the court to annul the contract on the
ground of fraud?
Answer:
No, B cannot ask the court for annulment, the fraud has been employed after the meeting of minds of the
parties, the fraud applied in this problem is incidental fraud, the consent was acquired before commitment
of fraud, the remedy available to B is exact fulfillment of the contract plus damage, but not annulment of
the contract.
Problem 3:
S sold to B a commercial land for P1,000,000, S assured B that it is certain that in two years time, the
land would increase in market value by 50% or P1,500,000. It turned out that the market value of the land
even decreased to about P800,000. Is S liable to be for Misrepresentation?
Answer:
As a rule, S would not be liable to B, for the reason that S is not an expert in terms of valuation of Land,
however, if S has knowledge about the decline in value of the land and yet he told B that the price will
increase, S has employed fraud, and therefor be liable to the decline in the price.

Assessment:
1. The following are the requisites of violence to vitiate consent, except
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

a. There must be physical force.

b. The physical force must be irresistible.
c. It refers to moral force or compulsion.
d. The force must be the determining cause in giving the consent to the contract.
2. A and B entered into a contract of sale of a piece of land, not knowing that the said property has already
been the object of another sale under different terms and condition, by their duly representatives. What is
the status of the second contract?
a. Rescissible
b. Voidable
c. Unenforceable
d. Null and void
3. The following are the requisites of fraud to vitiate a consent, except
a. It must have been employed by one of the contracting parties only.
b. It must have induced the other party to enter into the contract.
c. It must have been serious.
d. It must not result to any damage or injury to the party seeking annulment.
4. Which of the following statements is incorrect?
a. Violence or intimidation shall annul the obligation, although it may have been employed by third
person who did not take part in the contract.
b. Failure to disclose facts, when there is duty to reveal them, as when the parties are bound by
confidential relations, constitutes fraud.
c. A mere expression of an opinion does not signify fraud, unless made by an expert and the other
party has relied on the former’s special knowledge.
d. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are in
themselves fraudulent.
5. The following objects may be considered an object of a contract, except
a. Future things
b. All rights which are not intransmissible
c. Future inheritance
d. All services not contrary to law, morals, good customs, public order or public policy.

Suggested References
 De Leon and De Leon, The Law on Obligations and Contracts(2015),REX Book Store. Manila
 De Leon, comprehensive Review of Business Law( 2017), REX Book Store. Manila
 Chan, J. G., & Chan Robles & Associates. (n.d.). BOOK IV (FULL TEXT) : CIVIL CODE OF THE
PHILIPPINES : CHAN ROBLES VIRTUAL LAW LIBRARY. Retrieved from
http://www.chanrobles.com/civilcodeofthephilippinesbook4.htm
 Soriano F. R., Obligations and Contracts (Law and Application) For Business and Law Students (2016),
GIC Enterprises & Co., Inc. Manila