Republic of the Philippines

MODULE III IN
North Eastern Mindanao State University
Formerly Surigao del Sur State University
Tagbina Campus

LAW ON OBLIGATIONS
Tagbina, Surigao del Sur
Email Address: sdssutc2010@yahoo.com
Website: www.sdssu.edu.ph

AND CONTRACTS
(BAC 2)

NAME:
COURSE, YEAR, AND SECTION:
INSTRUCTOR: THERESE DIOVE GLEA M. RUBI
SEMESTER: 2ND SEMESTER
ACADEMIC YEAR: 2021-2022

COMPILED BY:

BENCH CARLO L. FAJA, CPA

EMAIL: theresedioveglea.rubi@gmail.com
BAC 2: BUSINESS LAW (OBLIGATIONS AND CONTRACTS)

MODULE 3
PROVISIONS AND REQUISITES OF CONTRACTS

INTRODUCTION

The next phase of the subject is about contracts. Contracts are essentially obligations but have been agreed upon by the
parties with additional requirements. The module will deal about the general provisions concerning contracts; how they are created,
what are their requirements, and how will they take effect. The module also contains on the provisions on each of the essential
requisites of the contracts.

LESSONS:

Lesson 1: General Provisions on Contracts

 Articles 1305 – 1317

Lesson 2: Requisites and Forms of Contracts

 General Provisions
o Article 1318
 Consent
o Articles 1319 – 1346
 Object of Contracts
o Articles 1347 – 1349
 Cause of Contracts
o Articles 1350 – 1355
 Form of Contracts
o Articles 1356 - 1358

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LESSON 1: GENERAL PROVISION ON CONTRACTS

I. Lesson Objectives
After the lesson, you are expected to:
1. Define contracts and the different concepts that are related to it.
2. Enumerate the classifications of contracts.
3. Articulate the rights and obligations of the parties involved in contracts.

II. Provisions Covered: Arts. 1305 – 1317 of the Civil Code of the Philippines

III. Discussion
1. Contract, Concept
 A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give
something or render some service. (Art. 1305)
 For a contract to exist, there must be conformity of wills between the parties and must create obligations that are
demandable. An agreement produces obligations that are not enforceable in the courts of justice is not a contract.
 If the contract is in writing, the writing is not the contract itself. It only serves as written evidence of it. There can be a
contract without a writing evidencing it.

2. Parties in a Contract
 The term “persons” refers to the parties of a contract. The number of parties in a contract can be two or more persons.
Each party of the contract may be composed of more than one person.
 A person may be natural person or human being, or an artificial person such as partnership or corporation. Thus, a contract
can be between the following:
o Two natural persons (such as a contract of sale between two persons or a contract to render service)
o Two artificial persons (such as a joint venture contract between two corporations or two partnerships)
o A natural person and an artificial person. (such as a contract between a person and a partnership)

Two types of person:

1. Natural person
2. Artificial person

3. Elements of a Contract
 Essential elements – there will be no contract if any of these is not present.
o Consent of the contracting parties
o Object that is certain which is the subject matter of the contract.
o Cause of the obligation which must be established.
o For real contracts, there must be DELIVERY of the object.
o For formal or solemn contracts, the contract must follow the form provided by the law.

 Natural elements – those that are found in certain contracts and which are presumed to exist, unless set aside or
suppressed by the parties.
 Accidental elements – refer to particular stipulations that may be agreed upon the parties (ex. terms of payment, interest
rate and place of payment). They may be present or absent depending on whether the parties have agreed or not.

4. Classification of Contracts
 According to perfection or formation
o Consensual – contracts that are perfected by mere consent of the parties. Examples: sales, barter and lease
o Real – contracts that are perfected by the delivery of the object of the contract. Examples: depositum, pledge,
commodatum
o Formal or solemn – those that must follow a form provided by the law so they may be perfected. Examples: donation
of an immovable object which must be in a public instrument
 According to cause
o Onerous – when there is an exchange of valuable considerations. For each contracting party, the cause is the prestation
or the promise of the thing or service of the other. Examples: sales, lease and barter
o Gratuitous or lucrative – when one party receives no equivalent consideration. These are called contracts of pure
beneficence where the cause is the liberality of the benefactor. Examples: donation and commodatum
o Renumerative or renumeratory – those where one prestation is given for a benefit or service previously rendered. The
cause of these contracts is the service or benefit renumerated. (Art. 1350)

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 According to importance or dependence

o Principal – one that can stand independently by itself. Examples: sale, barter, lease and loan
o Accessory – one whose existence depends upon another contract. Examples: pledge and mortgage
o Preparatory – one which serves as a means by which other contracts may be entered into. Examples: agency and
partnership
 According to name or designation
o Nominate – those that have a name under the law. Examples: sale, lease, barter, and partnership
o Innominate – those that do not have a name under the law.
 According to risk or fulfillment
o Commutative – where the parties give equal or almost equal values. Hence, there is real fulfillment. Examples: sales
and barter
o Aleatory – fulfillment depends upon chance. The values given by the parties vary depending on the risks involved.
Example: insurance
 According to the parties obligated
o Unilateral – where only one of the parties is obligated to give or do something. Example: commodatum
o Bilateral or synalagmatic – where both parties are required to give or do something. They can be reciprocal or non-
reciprocal. Example: sale or barter.
 According to subject matter
o Contracts involving things. Examples: sales and barter
o Contracts involving rights. Examples: usufruct and assignment of credit
o Contracts involving services. Examples: agency and lease of service
 According to the time of fulfillment
o Executed – one that is already performed
o Executory – one that has not yet been performed
 According to number of persons physically entering into the contract
o Ordinary – where the parties are represented by different persons. Examples: sales and barter
o Auto-contracts – where only one person represents both parties to the contract. Example: when an agent lends his
money to the principal whom he represents as borrowers.
 According to number of persons who drafted and prepared the contract
o Ordinary – when both parties participated in the preparation of the contract. Example: deed of sale prepared by both
parties
o Contract of adhesion – only one party prepares the contract. The terms are prepared by one party, while the other
party affixes his signature signifying his consent thereto. One party imposes a ready-made form which the other can
accept or reject, but not modify. Example: insurance contract

5. Stages of Contracts
 Preparation or conception
o Involves the preliminary negotiations, bargaining, and discussion of terms and conditions
 Perfection or birth
o When there is a meeting of minds between parties on a definite subject matter and valid cause.
 Consummation or death or termination
o When the parties fulfill or perform the terms agreed upon the contract, resulting in the extinguishment of the contract
itself.

6. Principle of Liberty or Freedom to Stipulate

 The right to enter into a contract freely is one of the liberties granted to the people. However, this freedom is not absolute,
as it is subject to the limitations such as the terms and conditions must not contradict the law, morals, good customs, public
order, or public policy. (Art. 1306)

7. Limitations on the Freedom to Contract

 Law
o Terms and conditions of contracts must not contradict the law in order to promote order and maintain harmony. If the
law is discretionary or silent, then there is no need to comply it. Contracts must respect the law because the law is
deemed to be incorporated in the contract.
o Example:
 A contract where Julian is tasked by Amado Corp. to dump its wastes in the sea is VOID since it is contrary to the
environmental laws, thus making it an unlawful act.
 Morals

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o Morals relate to the generally accepted standard of rightness of human conduct. Example is a contract where one
person works as a servant without pay is void as this is contrary to morals. Likewise, when a man and woman live
together without the benefit of marriage is considered void.
o Example:
 A contract whereby Tina will become a servant to Lila without compensation as long as Tina has not paid her debt
is considered to be immoral and reprehensible, thus making the contract VOID.
 Good customs
o Customs refer to a rule of conduct formed by repetition of acts, uniformly observed as social rule, legally binding and
obligatory.
 Example:
 An agreement that a child will not greet his parents when they come home is contrary to good customs and
therefore void.
 Public order and public policy
o Public order signifies public will. Public policy refers not only to public policy but also to considerations which are
moved for the public good. A contract is contrary to public policy if it is injurious to the public or against public good.
o Example:
 An agreement to hide an evidence of a crime or to commit fraud.

8. Innominate Contract and Kinds of Innominate Contract

 One that has no particular name under the law. It is a contract that does not follow a prescribed class but is recognized by
the law. (Art. 1307)
 Kinds of innominate contract:
o Do ut des (I give and you give)
o Do ut facias (I give and you do)
o Facio ut des (I do and you give)
o Facio ut facias (I do and you do)

9. Rules Governing Innominate Contracts

 The following are the basis for the rules governing innominate contracts: ( Art. 1307)
o Stipulations and agreements of the parties
o Titles I and II of Book IV – Obligations and Contracts
o Rules governing the most analogous nominate contracts
o Customs of the place

10. Principle of Mutuality of Contracts

 Since contracts are results of an agreement, the contract must bind both contracting parties. After the party has voluntarily
entered into a contract, he cannot revoke or renounce it without the consent of the other. A party cannot unilaterally
disregard the contract as it is formed by both parties based on the principle that obligations arising from contracts have a
force of law between them. There must be mutuality based on the equality of the parties and both of the parties must be
affected by the contract that they made. No party in a contract shall have an uncontrolled will. (Art. 1308)
 Example:
o Sally agreed to give Charlie ₱50,000 if Sally withdraws all her money from the bank. Here, the agreement is VOID as the
fulfillment of the condition depends solely on the debtor’s (Sally) performance of a suspensive condition. The
stipulation violates the mutuality of contracts.

11. Determination of Performance by a Third Person

 An agreement whereby the performance of a contract depends on a third person is VALID. The decision of the third person
shall be binding upon the parties after it has been made known to both of them, EXCEPT, in cases where it is evidently
inequitable to one of the parties. In such case, the court will decided what is equitable under the circumstances. ( Arts. 1309
– 1310)
 Example:
o Francis sold a parcel of land to Boyet. The parties agreed that Ray, a realtor and surveyor, would fix the price of the
land. The land fixed by Ray shall bind Francis and Boyet after it has been communicated to them.
o If, for example, the market value of land is ₱90,000, but Ray fixed the price at ₱15,000 in favor of Boyet, Francis will not
be bound by the determination made by Ray as it is unconscionable and inequitable. Thus, Francis may ask the court to
fix the price which will be reasonable under the circumstances.

12. Principle of Relativity of Contracts

 A contract is generally effective only between the parties, their assigns and their heirs. (Sec. 1311 – 1314)

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 Only the parties can maintain an action to enforce the rights and obligations arising from the contract. Simply stated, a
contract cannot be enforced by a person who is NOT a party of the contract.
 As for the heirs, they are only liable only to the value of the property that they inherited or received from the decedent.
 Examples:
o Jovannie borrowed ₱500,000 from Joy with Jovannie executing a promissory note to evidence the debt. Joy dies before
she was able to collect from Jovannie. She named her daughter Talia as her heir. In this case, Talia has the right to
collect from Jovannie. This is because the right to collect the debt is transferred to Joy.
o Same example, but this time, Joy did not die. Rather, she assigned her right to Connor. In this case, Connor, being the
assignee, has the right to collect.
o Same example, but this time, it is Jovannie who died before he has paid his debt. His son, Rowan, is the heir of his
property worth ₱300,000. In this case, Rowan will be liable for Jovannie’s debt but only up to ₱300,000, which is the
amount that he received. Joy cannot compel Rowan to do full payment since he is not the principal debtor in the
contract.

13. When a Contract Does Not Take Effect among the Assigns and Heirs (Art. 1311 – 1314)
 When the rights and obligations arising from contract are not transmissible by their nature.
o Example:
 Ramon was granted a scholarship grant to pursue his two-year degree in MBA by his employer, Asia Corp. After
one year, Ramon died leaving Jomar, his son and heir. In this case, the right of Ramon to the scholarship is not
transmittable or transferrable to Jomar since it is personal in nature.
 When the parties stipulated or agreed against the transmission.
o Example:
 Lou obtained a loan of ₱100,000 from Jerry. The parties stipulated that if either of them die before the payment is
paid, Lou’s heirs will not be liable for the debt, and Jerry’s heirs cannot have the right to collect the credit.
 When the law prohibits the transmission of rights and obligations
o Example:
 In a contract of partnership, the rights of a general partner are not transmitted to his heir upon his death as
provided by law.
 Another example is the contract of agency between principal and agent where if one of them is dead, it
extinguishes the contract of agency. The rights will not be passed to their heirs.
 When a contract may be enforced by or against a third person
o If the contract should contain a stipulation which is clearly and deliberately conferring a favor upon a third person
(stipulation pour autrui). A mere incidental benefit is not sufficient. It should be expressly stated in the contract.
o In order for the third person to demand the fulfillment of the stipulation, he must communicate his acceptance to the
obligor before its revocation. Acceptance may be in the form of demand.
o Example:
 Dante obtained an interest-bearing loan of ₱100,000 from Trish. The parties agreed that the loan shall be paid at
the end of one year, subject to interest of 1% every month. They agreed that 1% interest will be given to Lady, who
was a creditor of Trish. If Lady communicates her acceptance of the stipulation in her favor to Dante, then Trish
can demand its fulfillment.
o In contracts creating real rights, third persons who come into the possession of the object are bound thereby, subject
to the provisions of the Mortgage Law and the Land Registration Law.
o Examples:
 Daniela obtained a loan of ₱100,000 from Romina. Daniela mortgaged her house and lot to secure the debt. The
mortgage is registered with the Registry of Property. Here, the mortgage created a real right in favor of Romina on
the land. This means that Romina can hold the land as a security to guarantee that Daniela will pay the debt.
 For example, if Daniela sold the same house and lot to Cassie, the effect is Cassie will be bound to the contract
although she is not one of the original parties of the contract. Thus, if Daniela cannot pay the debt and Romina
forecloses the property, Cassie must give the property to Romina so that she can auction the property and apply
the earnings as payment of the debt.
 If the mortgage was not registered and Cassie bought it in good faith (without the knowledge of the existence of
contract and the mortgage), then Cassie will not be bound by the contract.
o In contracts that are intended to defraud the creditors
o Example:
 Baron owes Earl ₱100,000. To defraud Earl, Baron sold his only lot to Duke who knew the fraudulent intention of
Baron. In this case, Earl may ask the court for the rescission of the sale although he was not a party in the contract
of sale. Once the sale is rescinded, he can now proceed to acquire the property of Baron.
o If the contract has been violated by a party by reason of the inducement of a third person.
 Here, the third person who convinced that party to violate the contract will be liable to the other contracting party
although the third person is not one of the parties of the contract. The basis of his liability comes from his

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unwarranted interference with the contract. However, he is liable only to the amount of damages of the party who
violated the contract. They will become the solidary debtors.
 Example:
 Daryl is a talent of AAA TV Company which he has a five-year contract. With 2 years still remaining, ZZZ TV
Company, convinced Daryl to sever his contract with AAA TV Company by offering him a more lucrative
contract. Here, AAA TV company can sue ZZZ TV Company for damages.
 Contracts are perfected by mere consent. This happens when there is a meeting of minds with respect to the subject matter
and the cause of the contract.
o Example:
 On March 1, Levi sold his radio to Eren for ₱400. The parties agreed that the delivery of the radio and the payment
of the price will be on the following day. In this case, the contract of sale was perfected on March 1 when Levi and
Eren agreed on the subject matter (radio) and the cause (the price of ₱400), although the delivery and the
payment will happen by March 2.

14. Contracts that were Perfected Other than Consent (Art. 1315 – 1316)
 Real contract – perfected by the delivery of the object.
o Deposit – contract constituted from the moment a person receives a thing belonging to another, with the obligation of
the safekeeping of the object.
o Example:
 Dick and Donna agreed that Dick will deposit his goods with Donna as soon as the goods will arrive from Japan.
Although there is consent by the parties, the deposit is not yet perfected. Only when Dick delivers the goods that
the contract of deposit will be perfected.
o Pledge – contract where a person delivers a movable property as security for the payment of a principal obligation.
o Example:
 Jonas obtained a loan of P 10,000 from Charlie. To secure the debt, they agreed that Jonas will pledge his wedding
ring. Although the parties have already an agreement, the contract of pledge will not be perfected until Jonas
delivers the wedding ring to Charlie or to a third person by common agreement.
o Commodatum – one party delivers to another something that is not consumable so that the latter may use the same
for a certain time and return it afterwards.
o Example:
 Dominic, the owner of a motorbike, and Han agreed that Dominic will lend his motorbike to Han for one week.
Although there is an agreement between the two parties, the contract cannot be perfected unless Dominic delivers
the motorbike to Han.
 Formal or solemn contracts – contracts that must follow the prescribed or required form provided by the law for their
perfection.
o Example:
 In a sale of a real property such as house and lot, the sale must be in writing or else, it will be considered void.
 In a donation of movable property whose value exceeds P 5,000, the donation must be in writing, together with
the donee’s acceptance.

15. Principle of Obligatory Force of Contracts in Good Faith, Effects of Perfection

 In relation to the principle of consensuality is the principle of obligatory force of contracts and their compliance in good
faith. (Arts. 1315 – 1316)
 Under this principle, obligations arising from contracts shall have the force of law and should be complied in good faith.
 Upon the perfection of the contract, the parties are bound by the following:
o The fulfillment of what has been agreed.
o The consequences which, according to their nature, may be in keeping with good faith, usage and law.
 Example:
o On Feb. 1, Jam sold his car to Boom for ₱200,000. The deed of sale was signed by Jam and Boom which stated that Jam
will deliver the car on Feb. 20 and Boom will pay the price on Mar. 1. In this case, Jam is required to deliver the car as
agreed. Before the delivery of the car, Jam is required to take care of the car with the diligence of a good father of a
family, which is required by the law. Boom, on the other hand, is required to pay the price on Mar. 1 as agreed. He
must pay the complete amount although this matter was not stipulated in keeping with law, usage, and good faith.

16. Contracts Entered into the Name of Another

 General rule: no person may enter a contract in the name of another. (Art. 1317)
 Exceptions:
o When he is authorized by the party in whose name was entered into, such as in the contract of agency.
o When he has by law a right to represent the person whose name the contract was entered into, such as a guardian.
 Example:

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o Natasha sells the house and lot of Tanya when the latter was in abroad. In this case, if there is no pre-existing contract
between Tanya and Natasha as to the representation of Tanya in the sale, the sale will be considered void.
o However, Tanya and Natasha has an existing contract of agency before the sale of property, then Tanya is required to
follow the contract that Natasha has entered in her name.

17. Effect if the Contract is Unauthorized

 A contract entered in the name of another person when there is no authority or legal representation, or when the
representative has acted beyond his power, the contract shall be unenforceable, unless it is ratified. Ratification may be
done impliedly or expressly. (Art. 1317)
 Examples:
o Ted is the owner of a delivery truck. Without any authority from Ted, Carter sold the delivery truck in the name of Ted
to Brandon. In this case, Brandon cannot enforce the sale of the delivery truck against Ted, UNLESS, Ted ratifies the
contract.
o Mino is the owner of Toyota Altis car and Honda Civic car. He authorized Lee to sell his Toyota car, but Lee sold the
Honda car instead to Rino, the buyer. In this case, Lee has acted beyond his powers when he sold the Honda car as the
agreement was to sell the Toyota car. Thus, Rino cannot enforce the sale of the Honda car against Mino UNLESS Mino
ratifies the contract.

18. Ratification
 Refers to the adoption or acceptance by a person of an action performed by another.
 Ratification cures the contract from all of its defects from the moment the contract was entered into. As a result, there is a
retroactive effect. This means that the contract will take effect as if during the day it was perfected.
 Examples:
o Suppose in the example of Ted and Carter. If Ted accepts the payment of Brandon without any protest or opposition,
then the contract is considered perfect and valid. This is because the acceptance of the payment by Ted signifies that
he accepts the contract of sale entered by Carter in his name.
o In the second example of Mino and Lee, if Mino accepts the payment of Rino without any protest or opposition, it will
be deemed as if Mino authorized Lee to sell his Honda car. As such, the contract is considered perfected.

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LESSON 2: REQUISITES AND FORMS OF CONTRACTS

I. Lesson Objectives
After the lesson, you are expected to:
1. Enumerate the essential requisites of a valid contract.
2. Explain how a contract can be voided or cancelled.
3. Describe the forms of contracts and the requisites for each form.

II. Provisions Covered: Articles 1318 – 1358 of the Civil code of the Philippines

III. Discussion
1. Essential Requisites of a Contract
 Essential requisites are those requisites that a contract will not exist if at least one of them is missing: (Mnemonics: COC)
(Art. 1318)
o Consent of the contracting parties
o Object certain which is the subject matter of the contract
o Cause of the obligation which should be established.

2. Additional Essential Elements for Specific Contracts

 In some types of contracts, an additional element may be required in order for the contract to be perfected.
o For real contracts – the object of the contract must be delivered. (Art. 1315)
o For formal contracts – the object must be in the form provided or required by the law, such as an official document
that is notarized and registered.

3. Other Elements of Contract

 Natural elements – these are presumed to exist in certain contracts unless the contrary is stipulated by the parties, like
warranty against eviction (Art. 1548) or warranty against hidden defects (Art. 1561).
 Accidental elements – the particular stipulations, clauses, terms, or conditions established by the parties in their contract
(Art. 1306) like conditions, period, interest, penalty, etc., and therefore, they exist only when they are expressly provided by
the parties.

Section 1: Consent

4. Consent, Concept
 It is the manifestation of the meeting the offer upon the thing and the cause which are to constitute the contract. (Art.
1319)
 It is the conformity of the will of one contracting party with that of another or others, upon the object and ter partiesms of
the contract.

5. Characteristics of Consent
 The consent must be given by two or more parties of the contract.
 It must be intelligently given.
o This means that the parties must be capable or capacitated to give their consent. Thus, if one of the is insane or a
minor, the contract is VOIDABLE they are not considered to be capable of making their own decision.
 It must be given freely, voluntarily, and consciously.
o The parties must be free from any influence in giving their consent. Thus, when a party gives his consent because he is
forced or there is fraud involved, the contract will be VOIDABLE.
 The person giving his consent should not be suffering from any legal disability, as this will render the contract void. For
example, husband and wife are prohibited from selling property to each other in order to protect the creditors of their
existing debts.

6. Requisites for Meeting of Minds

 The offer must be certain.
o Offer refers to a proposal to enter into a contract. It signifies the willingness of one person to enter into a contract with
another on the terms specified in the offer. A mere statement of willingness is not an offer.
o The offer must be definite, complete and intentional. It must be specific so that the liabilities of the parties may be
fixed. If it is indefinite, the acceptance will not give rise to a contract.
o Examples:
 A statement “I will sell my car to you” is an offer that is incomplete since the price is not stated.

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 Likewise, an offer “I might buy your land for ₱100,000” is an offer that is indefinite because there is uncertainty
whether he will really buy the land or not.
 A statement “I will buy your cellphone for ₱10,000” is an offer that is certain and will give rise to a contract if it is
accepted.

 The acceptance must be absolute.

o Acceptance is an act of agreeing the offer of another so that a contract is concluded and the parties become legally
bound.
o It can be done expressly or impliedly based on the conduct of the party who accepts the offer.
o Acceptance must be absolute. It must meet and correspond with the terms and conditions of the offer.
o If an acceptance changes any term or condition, it becomes a qualified acceptance. In this case, there is no agreement
of the minds. Rather, this is a counter-offer. Essentially, it rejects the offer made by the party.
o Example:
 Suki offered to sell her car to Anton for a price of ₱120,000 cash. Antonio accepted the offer but he would give a
downpayment of ₱50,000 and pay the balance of ₱70,000 after 1 month. Here, the acceptance by Anton is not
absolute as it varies from the terms of payment of the price. It is a qualified acceptance which serves as a counter-
offer. His counter-offer does not give rise to a contract. However, if Suki accepts Anton’s counter-offer, it will give
rise to the contract which follows Anton’s terms and conditions.

7. Effect of Revocation of Offer or Acceptance

 If the offer was revoked BEFORE the offeror came to know of the acceptance, no contract is perfected because at the time
of the alleged meeting of minds, the parties were no longer of one mind.
o Example:
 On March 1, Fred wrote a letter to Dovie offering a lease of his lot. On March 5, Dovie wrote a letter of acceptance
to Fred. The letter was received by Fred on March 10. However, it appeared that Fred sent a letter cancelling his
offer to Dovie on March 7, which was received by Dovie on March 11. Is there a perfected contract?
 Answer:
 No, because the revocation of Fred happened before the acceptance of Dovie.
 If the acceptance was given but it is revoked by the offeree BEFORE the acceptance came to the knowledge of the offeror,
no contract is perfected because at the time of alleged meeting of the minds, the parties were no longer of one mind.
o Example:
 On Feb. 2, Sam wrote a letter to Bono offering the sale of his guitar for ₱25,000 cash. On Feb. 6, Bono wrote a
letter of complete acceptance which was received by Sam on Feb. 11. However, on Feb. 8, Bono had written
another letter indicating the cancellation of his earlier acceptance. The 2 nd letter was received by Bono on Feb. 12.
Is there a perfect contract?
 Answer:
 No, because the revocation of Bono on his acceptance was made before Sam has the knowledge on Bono’s
acceptance. On Feb. 11, it was considered that there is no meeting of the minds between contracting parties.

8. Forms of Acceptance (Art. 1320)

 Express – this may be done verbally or in writing.
 Implied – inferred from the conduct of the offeree showing his intention to accept.
 Example:
o In a mall where Albert operates a fruit juice stand, he offers a glass of carrot juice for ₱70 to Faye. Without saying
anything, Faye gets the glass and drinks the juice. This is an example of an implied acceptance of the offer by Albert.

9. Time, Place and Manner of Acceptance

 The person making the offer may fix the time, place and manner of acceptance, which must be complied with. If the
acceptance is not in conformity with what the offeror wants, the acceptance becomes a counter-offer or counter-proposal.
(Art. 1321)
 Example
o On Feb. 1, Andre wrote a letter to Dana offering the sale of 5 units of Epson typewriter for P 25,000 cash. In his letter,
Andre indicated that the Dana should reply through a letter if she accepts the offer and Andre must accept the letter
himself not later than Feb. 10.
 Question
 If on Feb. 8, Dana sent a reply through text indicating she accepts the offer, which was received immediately by
Andre. Is there a perfected contract?

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 Answer
 No, because Dana did not follow the manner of acceptance which was through a letter.
o Same example, but this time, Dana sent a letter indicating her acceptance. However, Andre received the letter on Feb.
11. Is there a perfected contract?
 Answer:
 No, because the time of acceptance, which is supposed to be on Feb. 10, was not followed.

10. Offer Made Through an Agent

 Art. 1322 applies when both the offer and the acceptance are made through an agent.

 If the agent is authorized by the principal to receive the acceptance, then the knowledge of the agent is considered as the
knowledge of the principal. This is because the agent serves as an extension of the person of the principal. In this case, the
contract is perfected upon the knowledge of the agent.
 If the agent is not authorized by the principal to receive the acceptance, then the knowledge of the agent is not considered
as the knowledge of the principal. Here, the contract is not perfected UNLESS the agent communicates his knowledge to the
principal.
 Examples:
o Thelma, principal, appoints Anne as her agent to sell her car for P 200,000 cash. On March 1, Anne offered to sell the
car to Kaye for P 200,000 cash. On March 5, Kaye accepted the offer by sending her letter of acceptance. Anne received
the letter on March 7 and sent a notification to Thelma on March 9. When was the contract perfected?
 If Anne is authorized by Thelma to receive the acceptance, the contract is perfected on March 7, when Anne
received the letter of acceptance.
 If Anne is not authorized by Thelma to receive the acceptance, the contract is perfected on March 9, when Anne
communicated her knowledge to Thelma.

11. When Offer becomes Ineffective

 If the offeror has made an offer, the offer becomes ineffective upon the any of the following circumstances:
o When the offeror or the offeree died
o When there is civil interdiction of one of the parties
o Insanity of one of the parties
o Insolvency of one of the parties
 Take note that the offer becomes ineffective if the said situations happen BEFORE the offeror has the knowledge of such
acceptance.

12. Option Contract, Concept

 An option is a contract whereby the offeror grants the offeree the privilege to accept the offer within a certain period of
time.
 The period granted to the offeree which he can accept the offer is called the OPTION PERIOD.
 The money paid or promised to be paid by the offeree as consideration for the option is known as OPTION MONEY. This is
separate and distinct from the purchase price.
 The cause or consideration for the option may be the liberality of the offeror.

13. Option Money Distinguished from Earnest Money

 Earnest money is given as part of purchase price and proof of perfection of a contract of sale.
 Option money is not part of the purchase price. It is paid to bind the offeror in the contract of option. It does not give rise to
a contract of sale as the offeree may accept the offer or not.
 Example of Earnest Money:
o Holland is interested in buying the car of Scott for ₱200,000. To show that he is in earnest, he gives Scott an earnest
money of ₱10,000 which Scott accepts. As a result of acceptance by Scott, a contract of sale is made and Holland will
only pay ₱190,000.

14. Persons Incapable of Giving Consent

 Unemancipated minors

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o Refers to a person under 18 years of age. Emancipation takes place when a person has reach the age of majority (in the
Philippines, it is 18 years old). Emancipation shall terminate parental authority over such person and the property of
the child. The person will now be qualified and responsible for all acts of civil life except in special cases established by
existing laws.
 Insane or demented person
o A person who is not of sound mind and reason. He/She cannot have a full and clear understanding of his/her own
actions. As long as it is proven that a person is insane during the time he/she entered into contract, there is no need to
require previous declarations of his/her insanity.
 Deaf-mutes who do not know how to write

15. Effect of Incapacity on the Contract (Art. 1327)

 If only one of the parties is incapacitated, the contract is VOIDABLE.
o Example:
 Flor, 17 y/o, sold her cellphone for ₱5,000 to Gabbi, 23 y/o. The contract of sale is voidable.
 If both parties are incapacitated, the contract is UNENFORCEABLE.
o Example:
 Sonya, 17 y/o, sold her calculator to Jona, who is an insane person, for ₱1,000.

16. Contracts Entered during a Lucid Interval

 Lucid interval refers to the period of temporary sanity of a person known to be insane. A contract entered by him during
such period is VALID. (Art. 1328)
 However, the sanity must be proven in order for the contract to be valid.

17. Modifications as to Incapacity

 Incapacity stated in Art. 1327 is NOT ABSOLUTE. It is subject to changes as determined by the law which makes the
incapacitated person to validly enter into a contract.
 Thus, when necessaries are sold to a minor or other person without the capacity to act, the sale is valid and he must pay a
reasonable price. Necessaries are items that are indispensable for sustenance, housing, clothing, medical attendance,
education, and transportation. (Art. 1329)

18. Concept and Causes of Vitiated Consent

 Vitiated consent is when the consent given was impaired due to certain factors.
 Causes of vitiated consent:
o Mistake or error o Undue influence
o Violence or physical coercion o Fraud (dolo)
o Intimidation or moral coercion

19. Effect when Consent is Vitiated

 Contract is VOIDABLE if consent was given by reason of mistake, violence, intimidation, undue influence or fraud. (Art.
1330)

20. Mistake, Concept

 Mistake vitiates consent when it involves the absence of knowledge with respect to the thing or a wrong conception about
the said thing.

21. When Mistake Vitiates Consent

 If the mistake refers to the substance of the thing which is the object of the contract. (Art. 1331)
o Examples:
 When a person bought a necklace believing it as made of pure gold, when in fact it is bronze.
 When a person signed a document which he thought it was a promise to pay, but in fact it is a contract of sale.
 If the mistake refers to the conditions which have principally both moved one or both parties to enter into a contract.
o Example:
 Guido sold his lot for ₱100,000 cash because he needed money to pay his debt of the same amount IMMEDIATELY.
However, the deed of sale that he signed stated that the price would be PAYABLE IN 5 MONTHLY INSTALLMENTS.

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 If the mistake refers to the identity or qualifications of one of the parties when the same have been the principal cause of
the contract.
o Examples:
 Filemon donated a parcel of land to Phil believing that Phil is his illegitimate son. It turns out that Phil was not his
son but that of his brother. This is a mistake as to identity.
 Don, the president of a school, hired Joy to teach accounting believing that she is a CPA which is a qualification for
the required position. It turns out that Joy has not yet passed the CPA Licensure examination. This is a mistake as
to qualification.
 If the mistake refers to the legal effect of an agreement when the real purpose of the parties is frustrated and the same is
mutual. (Art. 1334)
o This refers mistake of law which does not vitiate consent. However, the contract is VOIDABLE because a mistake on a
doubtful question of law is similar to a mistake of a fact. As stated in the Code Commission, if even the highest courts
and half of the lawyers are divided upon difficult legal questions, then a simple person cannot be held accountable for
his honest mistake on the doubtful issue.
 Example:
 Dane obtained a loan of ₱100,000 from Rain. The parties agreed that Dane will mortgage his lot to secure the
payment of the loan. However, the document signed by the parties stated that Dane sold the lot to Rain with
the right to repurchase it. The parties signed the agreement believing it has the same legal effect as a real
mortgage. Thus, the parties are vitiated in their consent as to the legal effect of their agreement.

22. When Mistake Does Not Vitiate or Invalidate Consent

 When the mistake refers to a simple mistake of account
o An example for this is an error in computation or a mathematical error. Such mistake does not vitiate or invalidate
consent but it will only be corrected. However, the materiality of the discrepancy will vary from person to person.
 Example:
 Leon sold 10 pieces of calculator to Jill at a price of ₱719 each. However, upon issuing receipt, he wrote in the
total ₱7,910 instead of ₱7,190. In this case, the error does not invalidate the consent given by the parties.
Rather the error will just be corrected.
 If the party claiming the mistake knew the doubt, contingency, or risk affecting the object of the contract. (Art. 1333)
o Here, there is no mistake because the party entered into the contract knowingly the risk involved.
 Example:
 Brent bought imported machinery from Sean who told him that the duties and taxes are not yet paid. Later,
the government took possession of the machinery and sold it and applied the proceeds to pay the duties and
taxes. Brent cannot claim mistake to cancel his contract with Sean because he already knew the risks involved
when he bought the machinery.

23. When a Party is Unable to Read or Cannot Understand Language of Contract

 General rule: the party who alleges the mistake or fraud has the burden of proving such mistake or fraud. (Art. 1332)
 Exception: when one of the parties is unable to read or cannot understand the language of the contract and he alleges
mistake or fraud, the other party enforcing the contract must show that the terms have been fully explained to the former.

24. Violence or Physical Coercion

 When it invalidates consent
o When serious or irresistible force is employed to acquire consent. The physical force is the reason the victim gives his
consent. This is true whether one of the contracting party or a third person has employed the violence. (Art. 1335)
 Examples:
o Allen prepared a deed of sale showing that Edna was selling her lot to him. When Allen presented the deed of sale to
Edna for signature, she refused to sign. So Allen held the arm of Edna and threaten to break her arm is she will not sign
the document. Since she could not endure the pain, she signed the document. The deed of the sale is considered
voidable by reason of violence.

25. Nature of Intimidation or Threat

 In order for the intimidation to vitiate the consent of a party to a contract, the following requisites must be present:
o It must produce a reasonable and well-grounded fear of an evil;
o The evil must be imminent and grave;
o The evil must be upon his person or property, or that of his spouse, descendants, or ascendants; and
o It should be the reason why he enters into the contract.
 Example:

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o Philip prepared a document showing that Andrew will give his lot to Philip. Philip then forced Andrew to sign by issuing
a threat to kill Andrew and pointing a gun at the latter. Fearing for his life, Andrew signed the document. In this case,
the intimidation would vitiate consent.
o However, if Philip issued a threat to kill Andrew but the latter had no gun at the time of the threat, there is no
intimidation because the fear is not reasonable and well-grounded.

26. Factors to Determine Degree of Intimidation

 To determine the degree of intimidation, the age, sex and condition shall be considered. In certain cases, an elderly person,
a woman, or a sickly person, are more likely to be intimidated because of their disadvantaged condition.
 Example:
o Tim prepared a deed of sale showing that Greg will sell his lot to him. When Tim presented the deed of sale to Greg for
signature, Greg refused. So Tim pointed his knife at Greg and threated to stab him unless he signed the deed of sale.
Afraid, Greg signed the document. The deed of sale is considered to be VOIDABLE by reason of intimidation. This is
applicable even if another person employed the threat or the intimidation is applied to the properties or family of Greg.
 If the contract is merely signed because of reverential fear (the fear of displeasing a person to whom respect and obedience
are due), the contract is VALID because reverential fear by itself does not annul the consent in the absence of actual threat.

27. Intimidation or Moral Coercion

 When it invalidates consent
o When there is 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. The threat must be serious and
unlawful and must produce a reasonable and well-grounded fear. The fear arises from the fact that the person making
the threat is capable of carrying it out. (Art. 1336)
o A mere fear of displeasing a person to whom respect and obedience are due will not vitiate consent, UNLESS the fear
deprives the person of reasonable inference that undue influence has been exercised.
 When intimidation does not exist
o There is no intimidation if the consent is given because of threat to enforce a competent authority a claim that is just or
legal. In other words, when a threat is to do a lawful act or to enforce a lawful right does not constituted intimidation.
 Example:
o Will, through his lawyer, wrote a letter to Justin threatening to file a complaint in court against him unless Justin paid
his debt of P200,000 which comes from a loan. Afraid, Justin signed a deed transferring his lot to Will by way of dation
in payment. In this case, no intimidation exists because Will’s claim is legal.

28. When Undue Influence Invalidates Consent

 When a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable
freedom of choice. To nullify the consent given, the influence must be such that it subdues and overwhelms the will of a
party as to destroy his free will and make him follow the express will of another. (Art. 1337)
 For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of the
contracting party, making him express the will of another rather than his own.

29. Factors to Consider in Determining Undue Influence

 Confidential, family, spiritual, and other relations between parties
o Examples: the relation between a doctor and his patient, lawyer and his client, pastor and member of his church, or
between an elderly member and younger member of a family, may be considered in determining undue influence in a
contract entered between them.
 Mental weakness
 Ignorance
 Financial distress of the party alleged to have been unduly influenced
 Example
o Don Alfonso, an 80-year old bound in a wheelchair, lived alone with Maria, his helper. Maria prepared a deed of
donation giving to herself a house and lot belonging to Don Alfonso. Everyday, she would ask Don Alfonso to sign the
deed. Eventually, Don Alfonso signed the deed because he wanted peace. Here, undue influence is employed by Maria
which vitiated the consent of Don Alfonso.

30. Fraud, Concept

 Fraud consists of some deceitful practice or willful device, resorted to with intent to deprive another of his right, or in some
manner to do him injury. It is always positive and intentional.

31. Kinds of Fraud

 Causal fraud or dolo causante (Art. 1344)

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o Causal fraud can be done by any of the following means:

 Active fraud - by use of insidious words or machinations such as false representation, trickery, plot or scheme
which may induce a party to give his consent.
 Example:
 Freya offered to sell her ring to Juno telling the latter that the ring was adorned with a real diamond. However,
Freya knew very well that the stone on the ring is not a diamond by a crystal glass. If Juno buys the ring
believing the representation of made by Freya, then fraud is committed.
 Passive fraud – by failure to disclose facts, when there is a duty to reveal them, as when parties are bound by
confidential relations. This is considered as fraud by concealment.
 Example:
 Cleo applied for a life insurance with A Insurance Company. When asked whether she had suffered from any
serious ailments, Cleo failed to mention that she is suffered from tuberculosis and omitted the hospital and
physician who treated her. Accordingly, A Insurance company issued her the policy. The contract of insurance
is VOIDABLE by reason of passive fraud.
 Incidental fraud or dolo incidente (Art. 1344)
o When incidental fraud is involved, the contract is still VALID but the party employing the fraud will be liable for
damages.
o Example:
 Jake sold a specific farm lot to Noah for ₱50,000 because Noah told him the latter is a poor farmer. In reality, Noah
is a rich businessman. If Jake had known that Noah is rich, he would have sold the farm lot for ₱60,000 or ₱70,000.
In this case, the fraud is an incidental fraud because Jake will still sell the farm lot to Noah no matter what the case.
The fraud will not affect the validity of the contract but Noah, who committed the fraud, will be liable for damages.

32. How Causal Fraud is Committed

 Causal fraud may be committed through insidious words or machinations (Art. 1338) or by concealment (Art. 1339).
Insidious words or machinations include any misrepresentation in words or actions done with fraudulent purpose.
 If the fraud did not have the effect of causal fraud, it gives rise only to an action for damages. (Art. 1344, par. 2)

33. Requisites of Causal Fraud

 There must be misrepresentation or concealment of facts.
 It must be serious.
 It must have been employed by only one of the contracting parties. Fraud committed by a third person does not vitiate
consent unless it was practiced in connivance with the favored contracting party.
 It must be made in bad faith or with intent to deceive (Art. 1343) the other contracting party who had no knowledge of the
fraud.
 It must have induced the consent of the other contracting party.
 It must be alleged and proved by clear and convincing evidence.
 Example:
o Jones offered to sell to Kayla a ring, claiming that the stone on the ring is diamond. Jones knows that the stone is not
diamond but ordinary glass.
 If Kayla buys the ring, relying on the truth of the representation of Jones, the sale may be annulled on the ground
of fraud.
o Jackie sold to Louise a house and lot, claiming that the place was accessible to means of transportation. The sale is
VOIDABLE on the ground of fraud if Louise was induced to give his consent because of the representation. If Louise
purchased the property without any inducement, her mistaken belief that it was accessible does not vitiate consent
because the error refers merely to an incidental quality or condition of the thing.

34. Fraud by Concealment

 A neglect or failure to communicate that which a party to a contract knows and ought to communicate can be considered
as concealment. In this case, concealment is equivalent to misrepresentation or fraud. (Art. 1339)
 The injured party is entitled to rescind or annul the contract whether the failure to disclose the material facts is intentional
or not, as long there is a duty to reveal them and the party is misled or deceived in entering into the contract. If the failure
is unintentional, the basis of the action for annulment is not fraud but mistake or error (Art. 1343); even if intentional but
there is no duty to make the disclosure, the parties are bound by their contract.
 Example:
o Hani and Yumi are partners engaged in the real estate business. Here, the parties are bound by confidential relations.
Hani learned that Jolie is interested in buying a certain parcel of land owned by the partnership even for a high price.
Without informing Yumi, Hani was able to convince her to sell her (Yumi’s) share in the partnership. Afterwards, Hani
sold the land at a big profit.

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 In this case, Hani is guilty of fraudulent concealment because she was under the duty to make disclosure of facts
having a bearing on the value of the interests of Yumi in the partnership which were not known to Yumi.
 If the sale was at the initiative of Yumi, and Hani unintentionally failed to inform Yumi of Jolie’s offer, the cause for
annulment is mistake or error on the part of Hani.

35. Fraud by a Third Person

 Any misrepresentation made by a third person does not vitiate consent. However, if BOTH parties have suffered substantial
losses because of the misrepresentation, the contract may be annulled but not due to fraud but because of mistake. ( Art.
1342)
 Example:
o Amor bought land from Divine for ₱2,000 per square meter. The price is based on the recommendation made by
Brandon who deceived Divine regarding the market value. However, the actual market value of the land is ₱2,500 per
square meter, resulting in losses on the part of Divine.
 In this case, the contract cannot be annulled because only one party suffered losses in the contract. However, if
Amor is engaged in committing fraud in order to make the price go as low as ₱2,000, then the contract can be
annulled by Divine.
o Lois wants to buy a parcel of land on which she wants to build a house. Clark owns a land in which he wants to
construct a commercial building. Jonathan tells Lois and Clark that the land is classified as residential zone. Lois and
Clark then enter into a contract of sale. It turns out that the area sold is actually a commercial zone.
 In this case, the sale may be annulled by any of the parties because of a substantial mistake which is mutual on
both parties (Lois cannot build her house because the lot is a commercial lot and Clark cannot build his commercial
building because the lot is already sold to Lois).

36. Misrepresentation Made in Good Faith

 If the misrepresentation is not intentional but made in good faith (the person who made the claim believed it to be true), it
is considered to be a simple mistake or error. In this case, the contract is considered to be VOIDABLE on the ground of
mistake and not of fraud. (Art. 1343)
 Example
o Sora sold a ring to Hiro. Sora honestly believed that what she sold to Hiro was a diamond ring. It turned out that it was
not a diamond ring. The misrepresentation made by Sora is a simple mistake which makes the contract voidable.

37. Simulation of Contract, Concept

 This is an act where the parties entered or pretending to enter into a contract with the intention to deceive others.
 There are two kinds of simulation of contracts:
 Absolute simulation – The parties do not intend to be bound at all. The fictitious or false contract is considered VOID.
Here, there is a contract made but it has no substance as the parties do not intend to be bound by it. The parties may
recover from each other what they may have given under the contract. The simulation must be on the part of both
parties. Otherwise, if only one of the parties simulates the contract, there is fraud.
 Example
 Frank was applying for a visa at a foreign embassy. To show that he had a real property in the Philippines, he asked
Gustin to execute a deed of sale to him. In reality, they did not intend to make a sale. They just did it so that Frank
will get his visa. Thus, the contract is considered as absolutely simulated and void.
 Relative simulation - This takes place when the parties conceal or hide their true agreement. In effect, there are two
agreements made: the apparent agreement which they show to the public and the hidden agreement which is their
real agreement.
 They are still bound by the real agreement, except in the following cases:
o If the real agreement is prejudicial to a third person.
 The parties are estopped from asserting the real agreement against the third person.
o If the purpose of the real agreement is contrary to law, morals, good customs, public order, or public policy.
 Example
o Dan and Oleg executed a deed of absolute sale, where they made it appear that Dan sold his 10-wheeler truck
to Oleg for ₱500,000. In fact, Dan did not sell the truck but donated it to him. The deed of sale is the apparent
agreement whereas the donation is the real agreement. In this case, Dan and Oleg will be bound by the
contract of donation.
o However, if the donation resulted in the deprivation of the heirs of Dan their legitime, the contract to be
followed is the contract of sale since the donation is prejudicial to the interests of third person.
o Same example, but this time, Oleg is the city mayor and the truck was donated to him by reason of his office,
then the donation is void for the reason of being contrary to law. This is because the donation is considered
bribery. The contract to be followed will be the contract of sale.

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Section 2: Object of Contract

38. Object of Contract

 The object is the subject matter of the contract.
 The object serves as the creation or extinguishment of the obligation involving a thing, right or service.
 The object is the thing, right or service.

39. Requisites of Object of Contract

 It must be within the commerce of men. (Art. 1347)
o The object must be capable of being owned or appropriated. Thus, air and sunlight which cannot be appropriated and
river, roads, and parks which are of public dominion, cannot be an object of the contract of commercial transaction.
 It must be existing or capable of coming into existence.
o When a future thing is the object of a contract, the thing must come into existence. Examples are fruits from future
harvests, shoes and clothes from future production.
o Future inheritance cannot be considered as object of the contract, although it may be allowed only on extreme cases
expressly authorized by the law.
 It must be transmissible. (Art. 1347)
o This is a requirement when the object is a right. Generally, rights are untransmissible by their nature, or by stipulation,
or according to law. However, some rights, such as the right to use an owned property, can be transferred from one
person to another.
 It must not be impossible. (Art. 1348)
 It must be determinate as to its kind. (Art. 1349)

Section 3: Cause of Contracts

40. Cause of Contract

 The cause of contract is the immediate, direct, and proximate reason which justifies the creation of the obligation through
the will of the contracting parties. (Arts. 1350, 1352 – 1354)

41. Classification of Contracts According to Cause

 Onerous contracts
o Contracts where there is an EXCHANGE OF VALUABLE CONSIDERATIONS. For each party, the cause is the object or the
promise of a thing or service of the other party.
o Examples:
 Brianna and Sabel entered into a contract of sale where Brianna will sell her car to Sabel for ₱200,000. For Brianna,
the cause is the ₱200,000 payment while for Sabel, the cause is the delivery and transfer of ownership of the car.
 Gratuitous or lucrative contracts
o Those where ONE OF THE PARTIES DO NOT RECEIVE EQUIVALENT CONSIDERATION. These contracts are referred as
contracts of pure beneficence. The cause is the liberality of the benefactor.
o Example:
 Luna and Sol entered into a contract of commodatum where Luna will lend her bicycle to Sol for 1 week without
any pay to be made by Sol. The cause of the contract is the liberality of Luna, the lender, who did not receive any
consideration or renumeration from Sol, the borrower.
 Renumerative or renumenatory contracts
o Are those where ONE OBJECT IS GIVEN FOR A BENEFIT OR SERVICE PREVIOUSLY RENDERED. The cause of these
contracts is the service or benefit renumerated. The past service or benefit is by itself not a recoverable debt.
o Example
 Gringo, a lawyer, volunteered his legal services to defend Choi, who was accused of a crime. Choi was acquitted so
he rewarded Gringo with ₱10,000. The cause of the contract is the legal services rendered by Gringo which were
renumerated. Here, the service themselves are not a recoverable debt as they were given without any expectation
of compensation.

42. Requisites of Cause

 It must exist.
o It is presumed that the cause of contract exists even if it is not stated in the contract, unless the debtor proves the
contrary. Contracts without cause have no effect whatsoever, which makes the contract void.
o Example
 Molly and Christine entered into a contract where Molly sold her computer to Christine. However, the deed of sale
they signed did not indicate any amount paid to Molly. The cause for Molly, although not indicated in the contract,

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is presumed to exist. If Molly can prove that there was really no cause or no agreed payment at the time of sale,
then the sale is considered VOID.
 It must be lawful. (Arts. 1352 and 1354)
o Contracts will have no effect if the cause is unlawful. It is unlawful if it is contrary to the law, morals, good customs,
public order, or public policy. If no cause is expressly stated, it is presumed to be a lawful cause unless the debtor
proves otherwise.
o Example:
 Tonton delivered his ring to Bong in exchange for 5 grams of marijuana which Bong delivered to Tonton. The
contract is void because the cause for Tonton (delivery of marijuana) is void.
 It must be true. (Art. 1353)
o The cause is false if the contract states a consideration but the statement is not true. Statement of false consideration
shall render the contract void. However, the contract is valid if it is proved that there is another cause which is true and
lawful.
o Example:
 Rhea sold her car to Ging. The deed of sale signed by the parties indicated that Ging paid the price of ₱100,000 to
Rhea but the statement is false. In this case, the contract is void. But if Ging can prove that she gave Rhea a
diamond ring instead of ₱100,000, then the contract is valid although the cause stated in the contract is different.

43. Motive of Contract

 Motive is the private or secret reason or intention in entering into a contract. (Art. 1351)
 It is different from cause which is the essential reason that moves the contracting parties to enter into the contract.
 Example:
o Hyde sold his car to Jekyll for ₱500,000. The cause for Hyde to enter into the contract is to receive the payment, while
the cause for Jekyll is to get the car.
o If Hyde sold his car because he needed money to pay his loans, or if Jekyll bought the car because he wanted to use it
as a taxi, these are the motives of the parties and will not affect the status of the contract. Even if the motive of Hyde is
to use the car as a getaway vehicle in a robbery, the contract will still be valid.

44. Distinction between Cause and Motive

Cause Motive
The essential or apparent reason of a party to enter into a The personal, private or secret reason of a party to enter into a
contract. contract.
Illegality of cause makes the contract VOID. Illegality of motive DOES NOT AFFECT THE VALIDITY of the
contract.
The cause is always known to the contracting parties. The motive of one party may not be known by the other.
 Example:
o Victor bought a bottle of insecticide from Frank for ₱100. The cause of the contract for Victor is to own the bottle of
insecticide and for Frank is to receive the payment. However, the motive of Victor to buy the insecticide is to poison his
enemy. Here, the motive of Victor does not extinguish the contract of sale between Victor and Frank.

45. Lesion
 It refers to the insufficiency or inadequacy of cause. (Art. 1355)
 There is inadequacy of the cause when the consideration is not equal with the value of the thing, such as when the price is
insufficient for the thing sold.

46. Rule in Case of Inadequacy of Cause

 General rule, lesion or inadequacy of cause does not invalidate a contract. The following are the exceptions:
o When lesion was accompanied by fraud, mistake or undue influence.
 Example:
 Harry sold his 1,000 sqm lot which has a market value of ₱1 million to Barry for only ₱700,000. Harry is not
aware of the actual worth of his property. In this case, the contract is still valid. However, if Barry used any
means to convince Harry to enter into the contract when he knows the true value of the land, then the
contract will be voided by reason of fraud.
o In cases expressly specified by law.
o Thus, in partition among heirs, when any one of them received things whose value is less than one-fourth than the
share to which he is entitled, the contract may be invalidated on the ground of lesion.

47. Form of Contract, Meaning

 This refers to the manner in which a contract is executed or manifested.
 Contract may be in the following forms:

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o Oral
o In writing
 Private instrument
 Public instrument
o Partly oral and partly in writing
o Inferred from the conduct of the parties

48. Rule on What Form is Required

 General rule: form is not important since contracts are obligatory in whatever form they may have entered as long as all
requisites for their validity are present. (Art. 1356)
 Form is important is the following cases:
o For validity
 If form is required for the validity of the contract, that form is important. Examples are:
 Contract of donation of immovable property which must be in public document.
 Contract of donation of personal property exceeding ₱5,000 which must be in writing together with the
acceptance of donee.
o For enforceability
 Contracts stated under the Statute of Frauds are required to be in writing and signed by the parties sought to be
charged. Otherwise, they will be unenforceable.
o For convenience
 Contracts enumerated under Art. 1358 are required to be in a certain form for the convenience of the parties.

49. Form for the Convenience of the Parties

 In certain cases, a certain form (such as public instrument) is required for the convenience of the parties in order that the
contract may be registered in the proper registry to make the contract effective against third persons. Non-compliance of
the required form will not affect the validity of the contract between the parties.
 However, should one party wants to require the other to follow the proper form, the contract must be both valid and
enforceable. (Art. 1357)
 Example:
o Rino donated real property to Elmer in a private instrument. Here, the donation is void because a donation of real
property is required to be in a public instrument to be valid. Hence, Art. 1357 does not apply.
o Suppose the contract is a sale of real property but entered into orally. In this case, the contract is valid but
unenforceable because the law requires that it should be in writing in order to be enforceable. Thus, Art. 1357 is
not applicable.
o If the sale is in private writing, then it will be valid and binding, but only between the parties and not against the
third person unless there is notice and the sale is registered in the Registry of Property. In this case, Elmer can
compel Rino to put the contract into a public instrument so that it can be registered to affect third persons.

50. When Public Document is Required for Convenience (Art. 1358)

 The cession of actions or rights proceeding from an act appearing in a public document.
o Example:
 Sarah mortgaged her lot to secure her debt to Lavinia. Lavinia assigned her credit right together with the real
mortgage to Becky. Since the mortgage is required to be in a public document, its cession or assignment must also
be in a public document.
 All other contracts where the amount exceeds ₱500 must appear in writing, even if it is a private contract. However, for the
sales of goods, chattels or things in action at a price of at least ₱500 is governed by another article.
o Example:
 Anthony leased his delivery truck to Rick for ₱1,000 per month for 6 months. Normally, lease of movable property
is not required to be in a public instrument. However, since the amount involved is more than ₱500, the contract
must be in writing, for the convenience of the parties.

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