2- CONTRACTS

Integrated RFBT
3rd Term AY 2021-2022

DEFINITION
A meeting of the minds between two persons (two identities or characters) whereby one binds himself,
with respect to the other, to give something or to render some service. (Article 1305 )

CHARACTERISTICS
1. Autonomy of the Will – i.e., the freedom of individuals to enter into or to desist from entering
into a contract. ( Article 1305 and 1306)
2. Consensuality – A contract is perfected by mere consent, (Article 1315 ) except the real contract
(Article 1316) (there must also be delivery), the formal contract, (Article 1356) (form is essential
to validity) and the contract covered by the Statute of Frauds, (Article 1403(2)) (there must be
some writing or memorandum).
3. Obligatory Force – The obligation has the force of law between the parties. (Article 1159)
4. Mutuality – A contract binds all contracting parties. (Article 1308)
5. Relativity – A contract takes effect only between the parties, their assigns and heirs. Exceptions:
Contracts with a stipulation pour autrui (Article 1311) and contracts creating real rights. (Article
1312)

STAGE OF CONTRACT
A preparatory process where the terms and
conditions of a contract are negotiated; it begins
Negotiation from the moment the prospective contracting
parties manifest their interest in entering into a
contract.
The meeting of the minds, i.e., the moment when
the prospective contracting parties arrive at a
Perfection definite agreement as to the object,
consideration, and other essential details of the
contract.
The performance of the obligations of the parties
Consummation to the contract, resulting in the extinguishment
thereof. (Article 1232)

INNOMINATE CONTRACTS
These are contracts which are unnamed by law, and which are regulated by the stipulations of the
parties, the provisions of the Civil Code, the rules governing the most analogous nominate contracts,
and by the customs of the place. These are:
a. Do ut des – a contract where one party delivers a thing to another, and in turn, that other party
delivers a thing to the former.
b. Do ut facias – a contract where one party delivers a thing to another, and in turn, that other
party renders service to the former.
c. Facio ut des – a contract where one party renders service to another, and in turn, that other
party delivers a thing to the former.
 d. Facio ut facias – a contract where one party renders service to another, and in turn, the other
party renders service to the former.

ESSENTIAL ELEMENTS OF A COSNTRACT

1. Consent to the Contract – It is the concurrence of the offer and the acceptance. A party who
gives consent to a contract must possess capacity to act. Thus, the following cannot give consent
to a contract, (Article 1327) except through their guardians or legal representatives: 1) minors,
2) insane or demented person, 3) illiterate, deaf-mutes, and 4) persons under special
disqualification established by law. ( Article 1329 in relation to Article 38 and 39)

The Offer
Requisites of a valid offer
A firm offer, or that which is more than just
Definite an intention or willingness to enter into a
contract.
There is nothing more to negotiate if the
offeree accepts the same; the offeror may fix
Complete the time, place, and manner of acceptance,
all of which must be accepted by the offeree.
(Article 1321)
An offer which is meant to be seriously
Intentional
considered by the offeree.

WHAT IS THE DURATION OF THE VALIDITY OF AN OFFER?

1. An offer is effective from the moment it is made until it is withdrawn by the offeror.
2. An offeror may withdraw the offer at any time before its acceptance by the offeree, even
before the lapse of the period granted by the offeror, (Article 1324) because prior to
acceptance, there is no perfected contract, ( Sanchez vs Rigos, GR L-25494 14 June 1972).
However, the right to unilaterally withdraw an offer should not be done whimsically or
arbitrarily in such a manner as to cause damage to offeree, less Articles 19-21 would be
breached. (id). To protect the offer period, the offeree may propose an option contract and
pay a separate consideration to make the offeror contractually bound to honor the offer
period. (Article 1324)
3. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of
either party before the offeree’s acceptance is conveyed to the offeror. (Article 1323)

The Acceptance
REQUISITES of a valid Acceptance
Offeree must accept the offer in all material
respects, including the time, place, and
manner of acceptance, (Article 1321). A
Absolute or Unqualified
qualified acceptance is deemed as a counter-
offer of the offeree to the offeror. (Article
1319)
It must be expressly given, or, if impliedly
Unequivocal
given, it must be clear and unambiguous.
 (Article 1320, Talampas vs Moldex, GR
170134, 17 June 2015)
Acceptance may be made between persons
present, or by other means of
Communicated to the Offeror
communication, (Article 1319, par.2), either
to the offeror or to his agent. (Article 1322)

As far as the perfection of a contract is concerned, the Civil Code adopted the Cognition Theory
of perfection.

2. Object of the Contract – the object of a contract is the thing (in the prestation to give) or the
service (in the prestation to do or not to do). The requisites are:
The law does not define what “within the
commerce of men” is. The test is whether a
Within the commerce of men
thing is tradable or alienable without legal or
contractual restriction.
Impossible things or services cannot be the
Possible
object of a contracts. ( Article 1348 )
In a prestation to give, the thing to be delivered
Determinate or Determinable must be determinate (specific thing), or
determinable (generic thing).

3. Cause of the Contract – In onerous contract, the cause for each contracting party is the
prestation or promise of a thing or service by the other; in remuneratory contracts, the service
or benefit sought to be remunerated; the gratuitous contract, the liberality of the benefactor
(Article 1350). The cause of a contract is different from the motives of the parties in entering
into the contract (Article 1351). Thus:

CLASSIFICATION OF CAUSE (Article 1350)

As to one of the parties, it is the prestation or
promise of a thing or service by the other,
Onerous
i.e., that which a contracting party has to give
up in order to get what he wants.
It is the service or benefit which is
Remuneratory
remunerated.
Gratuitous It is the liberality of the benefactor.

FORM OF CONTRACT
Pursuant to the principle of consensuality, form is not an essential element of a contract. (Hernaez vs
De los Angeles, GR L-27010, 30 April 1969 ). However, the law requires that certain contracts be in
some specific form for any of the following purposes. (Article 1356 ).

Purposes of the Form ( Cenido vs Spouses Apacionado, GR 132474, 19 Nov 1999)

Non-observance renders the contract void and no
For Validity
effect
Non-observance will not permit the contract to
For Enforceability
be proved or enforced by action, upon the
 objection of a party, although the contract is
otherwise valid. ( Article 1403(2)) A party has the
right to compel the counterparty to observe the
form. ( Article 1357 )
Non-observance will not affect the validity or
enforceability of the contract between the
For Efficacy, convenience, or to bind third
contracting parties. ( Article 1358 ). A party has
persons
the right to compel the counterparty to observe
the form. ( Article 1357 )

INTERPRETATION OF CONTRACTS
The cardinal rule in interpreting a contract is: if the terms of a contract are clear and leave no doubt upon
the intention of the parties, the literal meaning of the stipulations shall control. ( Article 1370, par.1). The
Parole Evidence Rule forbids any addition to, or contradiction of, the terms of a written agreement by oral
testimony or other evidence purporting to show that different terms were agreed upon by the parties.

REFORMATION OF CONTRACTS
Concept – The reformation of an instrument is not indicative of a defective contract; it is indicative of a
defective document.

Effects – The reformation of an instrument does not create a new agreement between the parties; it
merely rectifies the instruments in order to reflect the true agreement them.

Requisites – In order for an action for the reformation of an instrument to be in order, the following
requisites must concur:
1. Existence of a valid contract.
2. Execution of a written agreement – Without a written agreement, there would be nothing to
reform;
3. The document did not express the true agreement between the parties;
4. The same was due to mistake, fraud, inequitable conduct, or accident;
5. The action is filed within the prescriptive period – ten (10) years. ( Bentir and Spouses Pormida
vs Leanda, GR 128991, 12 April 2000 )

GROUNDS FOR REFORMATION – The following constitute grounds for the reformation of an instrument:

Article 1361 Both contracting parties are in mutual mistake of a fact.

One party acted fraudulently or inequitably, while the other was
Article 1362 mistaken such that the instrument does not reflect their true
agreement.
One party knew or believe that the instrument does not state the
Article 1363
real agreement, but he concealed such fact to the other.
Through the ignorance, lack of skill, negligence or bad faith of the
Article 1364 drafter, clerk, or typist, the instrument did not reflect the true
agreement of the parties.
Two parties entered into a contract of loan secured by a pledge or
Article 1365
mortgage, but the document reflected a pacto de retro sale.
DEFECTIVE CONTRACTS
1. All the provisions from Articles 1305 to 1358 point to a valid contract. Thus, if parties comply
with those provisions, the end result is a valid contract.
2. A failure to comply with the aforementioned provisions, especially with respect to the essential
requisites of a valid contract, as well as in appropriate cases, the additional requisites like
delivery and form, renders the contract defective.
3. The are four defective contracts presented in the code based on the degree of defect (i.e.,
rescissible contract being the least defective, to the void contract which, because of the absence
of an essential requisites, is deemed non-existent).

SEE FILE 2- DEFECTIVE CONTRACTS

QUASI-CONTRACTS
1. Negotiorum Gestio – also called officious management, is the taking over the management of a
property or enterprise by a manager who is not authorized by the owner. ( Article 2144 )
2. Solutio Indebiti – A quasi-contract that arises when payment is made by mistake. ( Article 2154 )
3. Quasi-Contracts are not limited to the statutory enumeration. As long as the act fails under
Article 2142, despite being unlisted, it is not excluded. ( Article 2154 )

END OF LESSON ON CONTRACTS