General Provisions

CONTRACTS
GENERAL PROVISIONS
Article 1305. A contract is a
meeting of minds
between two persons
whereby one binds
himself, with respect to
the other, to give
something or to render
some service.
Article 1308. The
contract must bind
both contracting
parties; its validity or
compliance cannot be
left to the will of one of
them. (1256a)
Article 1306. The contracting
parties may establish such
stipulations, clauses, terms
and conditions as they may
deem convenient, provided
they are not contrary to law,
morals, good customs, public
order, or public policy. (1255a)
Article 1315. Contracts are
perfected by mere consent, and
from that moment the parties are
bound not only to the fulfillment of
what has been expressly
stipulated but also to all the
consequences which, according to
their nature, may be in keeping with
good faith, usage and law. (1258)
WHAT IS A CONTRACT
A contract is a meeting of
minds between two persons
whereby one binds himself,
with respect to the other, to
give something or to render
some service.( Article 1305
NCC.)
EXAMPLE
A advertise his house and lot for sale near his gate
with telephone number. B who wanted to buy a
house and lot called A and inquired about the
House and lot. After several meetings, A
agreed to sell the house and lot to B. B also agreed
to pay the selling price of the house and lot. There
exists a valid contract of sale when A decided to
sell the house and B agreed to pay the amount for
the house.
DIFFERENCE BETWEEN
CONTRACT AND OBLIGATION
Contract is a source of obligation
whereas obligation exists after a
contract has been executed between the
parties.
There is no contract if there is no
obligation but an obligation can exist
without a contract such as obligation to
give support and obligation to pay taxes.
Contract must bind both
parties so it can be
enforced between them.
Neither party can
renounce or violate the
contract without the
consent of the other.
PRINCIPLE OF MUTUALITY OF CONTRACT
It means that the contracts

are binding between the
parties; its validity or
compliance cannot be left to the
will of one of them. (Art. 1308,
NCC)
EXAMPLE
A offered his car for sale for
P500,000.00. B accepted the offer.
There was a valid contract of sale.
This is binding between A and B. So
If A delivered his car to B, B needs
to pay the amount of the car as per
their agreement.
CONSTITUTIONA GUARANTEE
L OF FREEDOM CONTRACT
TO
The right to enter into a contract is
guaranteed by the 1987 Constitution. The 1987
constitution is against impairment of
contracts as a protection for valid
contracts entered into by and between the
parties.
Article III Section 10, 1987 Constitution-
“Section 10. No law impairing the
obligation of contracts shall be passed.”
LIMITATION ON FREEDOM
TO CONTRACT
1. Law
Law is a rule of conduct, just,
obligatory, promulgated by legitimate
authority for common observance and
benefit.
Contracts must not be against the law

because a contract cannot be given
effect if it is against the law.
TO CONTRACT
2. Police power
Contractual obligations are
subject to the possible
exercise of the police power of
the state as an implied
reservation
TO CONTRACT
Requisites
a. Interference by the state is justified
(interest of the public as distinguish from those ofa
particular class should justify the
interference of the state);
b. the means employed are reasonably
necessary for the accomplishment of the
purpose and not unduly oppressive upon
individuals. (Bautista vs. Juinio, 127 SCRA 329)
TO CONTRACT
Contractual obligations are subject to
the possible exercise of the police powerof
the state as an implied
reservation. Government interfere with
private contracts is justified under the
police power of the state as long as it may
affect public interest and the exercise
thereof met the requirement of lawful
subject and lawful method.
TO CONTRACT
In National Development Company vs.
Philippine Veterans Bank (G.R Nos. 84132-33,
December 10, 1990), the Supreme Court
clarified that police power trumps the non-
impairment clause only “where the contract is
so related to the public welfare that it will
be considered congenitally susceptible to
change by the legislature in the interest of the
greater number.”
ILLUSTRATION
Mr. Y had a bar situated at the university
belt. He entered into an agreement with
several schools providing for 30%
discount on entrance, food and drinks for
students. The state can interfere with the
agreement as public interest, particularly the
student population in the university belt,
will be greatly affected.
TO CONTRACT
3. Morals
Contracts must not be contrary to
morals. Morals is about norms of
conduct. It is about a person's
standards of behavior or beliefs
concerning what is and is not
acceptable for them to do. (Oxford
dictionary)
EXAMPLE
MORALS
A contract between former
married couple allowing each
other to enter into a
relationship with other person in
consideration that no one will
file a case against the other
is a contract against morals.
TO CONTRACT
4. Good customs
Good Customs consist of habits and
practices which by long practice had
been followed and enforced by society
as a rule of conduct.
It is a practice so long established it has
the force of law. (dictionary.com)
EXAMPLE
GOOD CUSTOMS
X is in need of money and for 10K a
month he entered into a contract with the
common law wife of his brother
whereby he obliged himself to disobey his
father.
This contract is not valid because it is
against our good customs of giving
respect our parents.
TO CONTRACT
5. Public Order
Public Order implies the
orderly State of Society and
Community in which citizens
can peacefully pursue their
normal activities of life.
(legalcrystal.com)
EXAMPLE
PUBLIC ORDER
A contract whereby one will shout
“there is a bomb” in a crowded street for
20K.
This is not only against the law but
against public order as such words will
cause chaos and stampede
endangering the safety of the people in the
vicinity.
TO CONTRACT
6. Public Policy
Public policy is the means by
which a government maintains
order or addresses the needs of its
citizens through actions
defined by its constitution
(study.com) All for the common
good of society.
EXAMPLE
PUBLIC POLICY
X, a policeman entered into a contract with
Y, a drug pusher, whereby X will not
prosecute Y for 50K.
This contract is against public policy as
crimes and crimnals should be
punished. Drug Pusher is a menace to
society and thus should be prosecuted and
not allowed to freely do their business.
CLASSIFICATION OF CONTRACTS
ACCORDING TO PERFECTION
1.Consensual 2.Real
contracts 3.Solemn
contracts
1. Consensual-
perfected by mere
consent.
Contracts come into
existence upon perfection by
mere consent.
EXAMPLE
PERFECTED BY MERE CONSENT
X offered to provide Y with their
daily supply of rice for a year for
2,000,000 at 5% discount. If Y
accepts the proposal, a contract is
perfected. There is consent
between the parties to enter into an
agreement for the delivery of rice for
2,000,000 at 5% discount.
2. Real Contracts -it is
perfected by the delivery of the
thing which is the
subject matter of the
contract.
Delivery can be actual or
constructive.
EXAMPLE
REAL CONTRACT
Y ask X if she can borrow
P10,000. X told Y that she will
have to pledge his Iphone to
secure the debt. Upon delivery of
the Iphone a contract
between Y and X will be
perfected.
3. Solemn Contract- it is a contract
that requirecompliance with
formalities prescribed by law
which is an essential elements
thereof.
It is perfected if it conforms with the
form required by law.
EXAMPLE
SOLEMN CONTRACT
A mortgage on real
property must be
annotated in the registry of
deeds to bind third
persons.
STAGES IN THE LIFE OF THE
CONTRACT
CONTRACT
1.Preparation, conception or
generation
2.Perfection or birth
3. Consummation or termination
CONTRACT
1. Preparation and
negotiation.
This refers to the period of
negotiation and bargaining
where the parties discussed
about their needs, terms and
other matters.
STAGES IN THE LIFE OF THE t
CONTRACT
CONTRACT
2. Perfection or birth
It refers to the time there
was meetingof minds
between the parties about the
terms, condition and
stipulations which will govern
their agreement.
CONTRACT
Perfection or birth of the

Contract occurs when
they agree upon the
essential elements
thereof.
CONTRACT
3. Consummation or
termination
In this stage the parties have
performed their respective
obligations which resulted to the
extinguishment of the obligation
and eventual termination of the
contractual relations.
CONTRACT
Consummation, the last stage,
occurs when the parties "fulfill or
perform the terms agreed upon in
the contract, culminating in the
extinguishment thereof."
(Swedish Match, AB vs. C.A.,
G.R. 128120, October 20, 2004)
A. Formation: 1.
Consensual:
consent is enough; e.g. sale 2.
Real:
consent and delivery is required; e.g.
deposit, pledge
3. Solemn or formal: special
formalities are
required for perfection e.g. donation of
realty
Relation to other contracts: 1.
Principal:
may exist alone; e.g. lease 2.
Accessory:
depends on another contract for its
existence; e.g. guaranty
3. Preparatory:
a preliminary step towards
the celebration of a subsequent
contract; e.g. agency
Nature of vinculum 1.
Unilateral:
only one party is bound by the
prestation;
e.g. commodatum
2. Bilateral (synallagmatic):
where both parties are bound by
reciprocal prestations; e.g. sale.
Vinculum-obligation
Synallagmatic is a contract in
which each party to the contract is
bound to provide something to the
other party. (Wikipedia)
Fulfillment of prestations 1.
Commutative:
fulfillment is determined in
advance
2. Aleatory:
fulfillment is determined by
chance
1. Gratuitous:
no corresponding prestation is
received by a party
2. Onerous:
there is an exchange of
correlative prestations
3. Remuneratory:
the prestation is based on
services or benefits already
received
Time of fulfillment
1. Executed:
obligation is fulfilled at the time
contract is entered into
2. Executory:
fulfillment does not take
place at the time the
contract is made
Purpose
1. Transfer of ownership.
such as sale
2. Conveyance of Use.
such as Commodatum 3.
Rendition of Service.
such as agency
Subject matter 1.
Things.
as in sale, deposit of
things.
2. Services.
rendered by agency
Designation
1. Nominate: the law gives the contract a
special designation or particular name e.g.
deposit
2. Innominate: the contract has no special
name
Classes of Innominate Contracts
1. Do ut des: I give so that you may give 2. Do
ut facias: I give so that you may do 3. Facio ut
facias: I do so that you may do 4. Facio ut des:
I do so that you may give
ELEMENTS OF A CONTRACT
A.Essential Requisites
B.Natural C.Accidental
A. Essential Requisites
They are those, without which the Contract will
not exist, they are:
a. Consent or meeting of the minds - the
agreed stipulation between parties with
respect to the thing (object) and price
(cause).
b. Object or subject matter - the thing to be
sold or services rendered.
c. Cause or consideration - the price
certain in money or its equivalent.
B. Natural
Those which are part of the
contract even if the parties do not
provide (stipulate) them and
are presumed by law to exists,
such as product
warranty.
C. Accidental
Those that exist, if
stipulated by the
contracting parties, such
as penalties or acceleration
clauses.
CHARACTERISTICS OF CONTRACTS
A. Mutuality
B. Autonomy
C. Relativity
D. Consensuality
A. Mutuality
The contract must bind both
contracting parties its validity or
compliance cannot be left to the
will of one of them
(Art.1308).
B. Autonomy
The contracting parties may establis h
such stipulations, clauses, terms and
conditions as they may agree, provided
they are not contrary to law, morals,
good customs, public order, or public
policy, (Art. 1306)
C. Relativity
Contracts take effect only between parties, their
assigns and heirs unless, the obligation arising
from the contract are not transmissible by their
nature, stipulation or provisions of law. The heir is
not liable beyond the property he received from the
decedent.
Exception:
Strangers may enforce the contract in their favor
in the ff. cases:
RELATIVITY EXCEPTION
1. Stipulations Pour Autrui 2.

Third Person In
Possession 3.
Fraud
4. Tortuous Interference
1.Stipulations Pour Autrui

It refers to a stipulation in the
contract conferring a favor upon a
third person who has the right to
demand its fulfilment upon
notice of acceptance to obligor
before its revocation.
A mere incidental benefit or inter est

of a person is not sufficient. T he
contracting parties must have clearly
and deliberately
conferred a favor upon a third
person.
Requisites: (Stipulation Pour Atrui)

a. There must be a stipulation in favor of a third person b. The
stipulation must be part, not the whole of the
contract
c. The contracting parties must have
clearly and deliberately conferred a favor upon a third
person, not a mere incidental benefit or interest.
d. The third person must have
communicated his acceptance to the obligor before its
revocation
e. No relation of agency exists between any of the
parties and the third person favored.
EXAMPLE
X lease the property of Y for Php 10,000 a

month. Y owe Z Php 120,000. X and Y
agreed that the rent of the house for a year
will be given to Z as payment for the debt of
Y. Z communicate his acceptance to X the
stipulation become effective and Z will
become a party to the initial contract
between X and Y.
2. Third Person In Possession

When, the third person comes into
possession of the object
of a contract creating real rights.
(Art. 1312)
EXAMPLE
X obtains a loan from his employer to purchase a
car. The loan was approved on condition that the
car will be mortgaged in favor of the company
as security for the loan. Anyone who bought the
car is bound by the contract between X and
the company even though he is not a party to the
contract. The mortgage is a notice to the whole
world that the car is encumbered or is part of
some sort of loan or financing option.
3. Fraud
Where the contract is
entered into in order to
defraud a person (Art.
1313)
EXAMPLE
X owes Y Php 5M.Y sued X for non-payment of

debt. The case was decided in favor of Y. X
immediately sold his remaining property to Z for
Php 6M so that Y cannot attached the
property to enforce the judgment. Y can run
after Z and X even if he is not a party to the sale. He
can file an action to have the sale rescinded as it was
made to defraud a creditor in order to escape
payment of liability.
4. Tortuous Interference
There is tortuous interference when a
third person induces a contracting party to violate his
contract. (Art. 1314)
Requisites:
a. Existence of a valid contract
b. Knowledge of the third person of the existence of the
contract; and
c. Interference by third person without legal
justification or excuse
EXAMPLE
Y obliged himself to deliver 200

cavans of rice at Php 1,000 per
cavan to X due on August 10, 2020. Z,
a friend of Y, urges Y to sell the rice
to others as the price of the rice increase
from Php 1,000 to Php 1,500. X
can sue Z for damages because of his
interference.
D. Consensuality
Contracts are perfected by mere
consent and from that moment, the
parties are bound not only
to the fulfillment of what has been expressly
stipulated but also to all the consequences
which, according to their nature, may be in
keeping with good faith, usage and law,
(Art.1315)
EXCEPTION CONSENSUALITY
Exception:
1. Real contracts, such as deposit, pledge and
commodatum because they are perfected until the
delivery of the object of the obligation
(Tolentino)
2. Solemn contract which is perfected by

compliance with formalities which is an
essential element of the contract.
Article 1309. The
determination of the
performance may be left to a
third person, whose
decision shall not be
binding until it has been
made known to both
contracting parties. (n)
Article 1310. The
determination shall not be
obligatory if it is evidently
inequitable. In such case, the
courts shall decide what
is equitable under the
circumstances. (n)
Article 1309allowed
determination of the
performance to a third
person. However, the
decision of the third person
binds the parties only after it
was communicated to
them.
Where such determination is
unfair or unjust or the
third person acted in bad
faith or by mistake, the
parties is not bound by such
determination. The court
shall determine what is
unfair and unjust.
EXAMPLE
X obliged himself to sell to Y his
24K gold necklace. They both
agreed to refer the valuation of the
necklace to W, a jeweler.
In this situation the decision of W
binds X and Y upon notice to them of
the value of the necklace.
EXAMPLE
if W was compelled by X to give a
high valuation for the necklace
promising to give 10% of the
proceeds thereof and Y had doubts
about the determination of W, he
can file an action in court to
question the valuation so the court can
rule whether the price valuation is
unjust and unfair.
Contractstake effect only
between the parties, their assigns and
heirs, except in case where the
rights and obligations arising from
the contract are not
transmissible by their nature, or by
stipulation or by provision of law.
The heir is not liable beyond the
value of the property he received
from the decedent.
(Article 1311)
If a contract should contain some
stipulation in favor of a third person, he
may demand its fulfillment
provided he communicated his
acceptance to the obligor before its
revocation. A mere incidental benefit or
interest of a person is not
sufficient. The contracting parties
must have clearly and deliberately
conferred a favor upon a third
person. (Article 1311)
GENERAL RULE
The parties rights and obligation under the
contract are transmissible to their
successors.
EXCEPTION
1. by their nature (only the other party can
perform the obligation)
Example
Contract to Regine for a concert at
MOA.
EXCEPTION
2. by stipulation – as agreed
upon by the parties.
3. by provision of law such as
partnership where death of one
of the partner
extinguish the partnership.
In general, contract is binding only
between the parties. A third
person has no rights and
obligation under the contract
EXCEPT
1. In contract where there is a
stipulation in favor of third person.
(stipulation pour autrui)
2. In contracts containing real
rights. (Art. 1312)
3. In contracts entered into to
defraud a creditor. (Art. 1313)
4. In a contracts which have
been violated at the
inducement of a third person.
(Art. 1314)
STIPULATION POUR AUTRUI
It is a stipulation in the
contract conferring a favor to
a third person who has the
right to demand
fulfillment provided he
communicate the
acceptance.
EXAMPLE
X lease a property to Y for 20K a
month. Both parties agreed that the
monthly rent will be deposited to X
son W.
W must communicate his
acceptance to X and Y to be
effective.
Article 1312. In contracts
creating real rights, third
persons who come into
possession of the object of the
contract are bound
thereby, subject to the
provisions of the Mortgage
Law and the Land
Registration Laws. (n)
A real right is binding against
the whole world. The right
attaches to the property. The
property must be registered
with the registry of deeds.
If the right is not registered ,
third person who acted in
good faith are protected
under the law.
Article 1316. Real such
contracts, as pledge
deposit, and
commodatum, are not
perfected until the
delivery of the object of
the obligation. (n)
EXAMPLE
X borrowed Y 2M. Y, agreed provided
that X Tagaytay property will be
mortgaged to secure the loan. Upon
execution of the mortgage, the
contract is perfected.
If the mortgage is registered, the
right of any person who bought the
land is subject to the mortgage
constituted thereon.
Article 1313. Creditors are
protected in cases of contracts
intended to defraud them. (n)
Article 1314. Any third person who

induces another to violate his
contract shall be liable for
damages to the other contracting
party. (n)
Article 1317. No one may contract in the
name of another without being
authorized by the latter, or unless he has
by law a right to represent him.
A contract entered into in the name of
another by one who has no authority or
legal representation, or who has acted
beyond his powers, shall be
unenforceable, unless it is ratified,
expressly or impliedly, by the person on
whose behalf it has been executed, before
it is revoked by the other contracting
party. (1259a)
Only persons who enter into a
contract are bound to comply with the
terms thereof. A person who enters into a
contract without authorization will affect
the contract, however, this
contract can be cured by the
subsequent ratification of the person in
whose name the contract was entered into.
The ratification must be given freely to
avoid doubt or any question.
EXAMPLE
X informs Y that W wants to borrow
100K from him. Believing it to be true Y
give X the amount.
If W did not give authorization to X to
borrow money from Y, the contract
cannot be enforced by Y against W.
If later on W subsequently ratified the act
of X, then the contract becomes effective
and Y can enforce the
contract against W.
ESSENTIAL REQUISITES
OF CONTRACT
ESSENTIAL REQUISITES OF A
CONTRACT
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.
(Art. 1318 NCC)
Article 1319. Consent is manifested by the
meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the
contract. The offer must be certain and the
acceptance absolute. A qualified acceptance
constitutes a counter-offer.
Acceptance made by letter or telegram does not
bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the
offer was made. (1262a)
Article 1320. An acceptance may be express or
implied. (n)
The essential requisites of a contract under Article 1318
of the New Civil Code are (1) consent of the contracting
parties; (2) object certain which is the subject matter of
the Contract; and (3) cause of the obligation which is
established. Thus, contracts, other than real contracts, are
perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the Contract. Once
perfected, they bind other contracting parties, and the
obligations arising therefrom have the force of law between
the parties and should be complied with in good faith. The
parties are bound not only to the fulfillment of what has
been expressly stipulated but also to the consequences
which, according to their nature, may be in keeping with
good faith, usage and law. Province of Cebu v. Heirs of
Morales. G. R. No. 170115, February 19, 2008.
In Valentina S. Clemente v. C.Aet al. G.R. No.
175483, October 14, 2015, the Court further
ruled, “All these elements must be present to
constitute a valid contract; the absence of one
renders the contract void. As one of the
essential elements, consent when wanting makes
the Contract non-existent. Consent is manifested
by the meeting of the offer and the acceptance of
the thing and the cause, which are to constitute the
Contract. (Heirs of Intac v. Court of Appeals, G.R.
No. 173211, October 11, 2012, 684 SCRA 88, 98) A
contract of sale is perfected at the moment there is
a meeting of the minds upon the thing that is the
object of the contract and upon the price.
CONSENT
Contracts are generally perfected by
mere consent. It’s a meeting of the
minds between the parties: there’s
a definite offer by one person
and there’s an absolute acceptance
by another. The offer must be
certain and acceptance absolute.
EXAMPLE OF CONSENT
X tells Y that he is selling his dog for
P1,000. Y answers X that he wants
to buy the dog for P1,000. The offer
of X to sell the dog is definite and
the acceptance of Y to buy the
dog is absolute. Hence, a contract
is created by the meeting of minds
between A and B.
SITUATION 1
X told Y that he is thinking of selling
his Iphone for P20,000. Y replied
that he will buy his Iphone for
P20,000.
Question:
Is there a valid contract between X and
Y?
ANALYSIS SITUATION 1
There is no contract created
between X and Y because the
offer of X is not certain. The
absolute acceptance of Y will not
create a contract. X is merely
considering to sell his Iphone and
not definite in selling it.
CONSENT
There is consent when the

parties conform to the terms of
the contract. It represents the
acceptance by one of the offer
made by the other.
(Manresa)
REQUISITE OF CONSENT
Requisites:
1. It must be manifested by the concurrence of the
offer and acceptance.
(Arts. 1319-1326)
2. The contracting parties must possess the
necessary legal capacity.
(Arts. 1327-1329)
3. It must be intelligent, free, spontaneous, and real
(not vitiated)
(Arts. 1330-1346)
A party who adheres to a contract of adhesions is said to
have given consent. As held in the case of Norton
Resources and Development Corporation v. All Asia Bank
Corporation, G.R. No. 162523, November 25, 2009, “A
contract of adhesion is defined as one in which one of the
parties imposes a ready-made form of Contract, which the
other party may accept or reject, but which the latter cannot
modify. One party prepares the stipulation in the contract,
while the other party merely affixes his signature or his
"adhesion" thereto, giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal
footing. (Radio Communications of the Philippines, Inc. v.
Verchez, G.R. No. 164349, January 31, 2006, 481 SCRA 384,
401, citing Philippine Commercial International Bank v.
Court of Appeals, 325 Phil. 588, 597, (1996).
It must be borne in mind, however, that
contracts of adhesion are not invalid per se.
Contracts of adhesion, where one party
imposes a ready-made form of Contract
on the other, are not entirely prohibited.
The one who adheres to the Contract is, in
reality, free to reject it entirely; if he
adheres, he gives his consent. Premiere
Development Bank v. Central Surety &
Insurance Company, Inc., G.R. No.
176246, February 13, 2009”.
OFFER
Negotiation is formally initiated by an offer. An
unaccepted offer, either expressly or impliedly (Civil
Code art. 1320), precludes the existence of consent,
which is one of the essential elements of a contract.
Consent, under Article 1319 of the Civil Code, is
manifested by the meeting of the offer and acceptance
upon the thing which are to constitute a contract. To
produce a contract, the offer must be certain and the
acceptance absolute. (Rockland Construction Company,
Inc vs. Mid-Pasig land development Corporation
G.R. No. 164587,
February 4, 2008)
OFFER
An offer is a proposal made by one
party (offerer) to the other (Offeree)
which indicate a willingness to enter into
a contract. It is a promise to act or to
refrain from acting on condition that the
terms are accepted by the person to
whom the offer is being made.
OFFER
The offer must be certain or
definite in order to determine
whether the parties can be
bound thereby. In the same
way acceptance must be
certain and definite to create a
contract.
EXAMPLE
OFFER
1. Valid Offer
X told Y “will you buy this puppy for 5K? 2.
Not valid offer
a. I am considering selling my house for
600K
Invalid offer because the offer is uncertain. Its
acceptance will not create a contract. b. I am
willing to buy your Iphone.
Offer to buy is incomplete as it lacks price. Its
acceptance will not create a contract
CONCURRENCE OF THE OFFER
It is a unilateral proposition which one

party makes to the other for the
celebration of the contract. (Tolentino)
Requisites:
a. Definite
b. Intentional
c. Complete
CONCURRENCE OF THE OFFER
Product advertisement and

advertisement for bidder should not be
considered as definite offers.
They are simply invitations to make

proposals, and the advertiser is
not bound to accept lowest or highest bid
unless the contrary appears. (Art. 1326)
TERMINATION OF OFFER
The offer terminates upon:

a.Rejection by the offeree.
b. insanity of the offeror or offeree
c.Counter-offer
d.Lapse of time without acceptance
e.Revocation of the offer before
acceptance
f. Supervening illegality before
acceptance
EXAMPLE
1. Rejection of the offer

X offered his car to Y for Php 200,000. Y
rejected the offer.
2. Incapacity of the offeror or offeree

Example
X offered his car to Y for P200,000. Y told X to
give him a week to make a decision. If Y
becomes insane prior to acceptance, the offer made
by X is terminated. X can offer the car to others.
EXAMPLE
Counter-offer
X offered his car to Y for
P200,000. Y made a counter-
offer to buy the car at
P150,000. The counter offer
terminates the initial offer
made by X.
EXAMPLE
Lapse of time stated in

the offer without acceptance being
made.
Example:
X offered his car to Y for P200,000 for
a week. Y must decide within a week.
If after a week, Y did not convey
any acceptance the offer made by X is
terminated.
EXAMPLE
Revocation of the offer before learning of

acceptance
X offered his car to Y for P200,000 for a

week. On due date, Y accepts the offer via
email. X thinking that the offer was
rejected offered the same car to Z. The offer
made to Z terminates the initial offer to Y.
EXAMPLE
Supervening illegality before accept ance

(J.B.L. Reyes)
X authorize Y to sell his car for

P200,000. Y offer the car to Z for
P250,000. Before acceptance
X revokes the
authorization to Y. The offer made by
Y to Z terminates due to lack of
authority to sell the car.
WITHDRAWAL OF OFFER AND ACCEPTANCE
The offeror may still withdraw the offer so long as

he still has no knowledge of the acceptance by the
offeree. (Laudico vs Arias. G.R. 16530. March 31,
1922) The effect of withdrawal is
immediate. In the same way, the acceptance by the
offeree may be revoked before it comes to the
knowledge of the offeror, because in such case there
is still no meeting of the minds, since the revocation
has canceled or nullified the acceptance which
thereby ceased to have any legal effect. (Tolentino)
ACCEPTANCE
It is a manifestation by the offeree of
his express approval to all the terms
of the offer.
The acceptance must be clear and
absolute.
Without the other parties
acceptance no contract can exist
because it lacks meeting of
minds between the parties.
ELEMENTS OF A VALID ACEPTANCE
a. The acceptance must be

unequivocal (no
doubt)
b. The acceptance must be
unconditional
If the acceptance of the
offer was not absolute,
such acceptance is
insufficient to generate
consent that would perfect a
contract. (Palattao v.
Court of Appeals, G.R. No.
131726, May 7, 2002)
The acceptance must be identical in all
respects with that of the offer so as to produce
consent or meeting of the minds (Manila Metal
Container Corporation v. Philippine National
Bank, G.R. No. 166862, December 20, 2006).
Where a party sets a different purchase price than
the amount of the offer, such acceptance was
qualified which can be at most considered as a
counter-offer; a perfected contract would have
arisen only if the other party had accepted this
counter-offer. (Heirs of Fausto C. Ignacio vs. Home
Bankers Savings and Trust Company et. al. G.R. No.
177783, January 23, 2013)
EXAMPLE
ACCEPTANCE
1. acceptance is clear and
absolute
X asks Y if he is interested to
buy his car for 600K. If Y
answered “yes, I am willing to
buy your car for 600K. The
acceptance is clear and
absolute.
An offer becomes
ineffective before
acceptance.
An offer made by an agent
become effective from the
time acceptance is
communicated to him.
(through the agent also)
AGENT
An agent is considered as an
extension of the personality of the
principal.
If the agent is authorized any act of
the agent acting within the
bounds of his authorization is
considered as the act of the
principal.
The case of Escueta v. Lim G.R. No.
137162: January 4, 2007, 512 SCRA 411,
where the Court refused to nullify
the sale entered into by the sub-agent
appointed by the daughter who was
given a special power of attorney by
her father to sell the property when it
held, “the daughter, "merely acted within
the limits of the authority given by her
father."
EXAMPLE
X authorized Y as his agent to sell his property for
10M.
Y offered the property to W who express
desire to buy the house.
If W communicated the acceptance to X there will
be no valid contract as acceptance of the offer was
not made to the offeree, Y (the agent)
If W accept the offer and communicated his
acceptance to Y, a valid contract exist
because Y is authorized by X to sell his
property.
ACCEPTANCE
The acceptance of the offer made by
letter or telegram is effective and
binding from the time it came to the
knowledge of the offerer. (Art. 1309 par.
2) Actual knowledge is required, that is,
the contents of the letter accepting
the offer must be read by the offeror.
Mere receipt of the letter or telegram is
not sufficient.
ACCEPTANCE
Requisites:
a. Unqualified and Unconditional, i.e. it
must conform to all the terms of the offer,
otherwise it is a counter-offer (Art.1319)
b. Communicated to the offeror and
learned by him (Arts. 1319, 1322). If made
through an agent, the offer is accepted from the
time the acceptance is communicated to such
agent.
c. Express/Implied, but is not presumed
THEORIES OF ACCEPTANCE
a. Manifestation theory b.
Expedition theory
c. Reception theory d.
Cognition theory
Theories of acceptance
a. Manifestation theory-the acceptance is
declared or made
b. Expedition theory- the offeree
transmits/sents the notification of
acceptance to the offeror.
(c) Reception theory – the notification is in the
hand of the offeror or delivered to the offeror, in
such a manner that he can procure the
knowledge of its content.
(d) Cognition theory -the acceptance

comes to the knowledge of the
offeror. This will not apply if the
offerer refused to read the letter or
telegram.
Ruther, Raymond (2017) Obligations and
Contracts Jurado Reviewer. Available at
https://kupdf.net. Retrieved August 18, 2020]
OPTION
OPTION
Option may refer to

privilege given to
the offeree to accept an
offer within a
certain period.
OPTION PERIOD
It refers to a
period given
within which the
offeree must
accept the offer.
OPTION MONEY
Option money refers to

the money paid or
promised to be paid in
consideration of the
option.
EARNEST MONEY
It is actually a partial
payment of the purchase
price and is considered as
proof of the perfection of
the contract.
GENERAL RULE
GENERAL RULE
As a matter of right, an offer may be
withdrawn anytime before acceptance by
communicating such withdrawal.
EXCEPTION
when the option is founded upon a
consideration such as something paid or
promised.
OPTION CONTRACT
It is a preparatory contract
where one party grants to the
other, for a fixed period, the
option to resolve whether or not
to enter into a principal
contract. (Art. 1324)
In Polytechnic University of the Philippines vs. Golden
Horizon Realty Corporation, G. R. No. 183612, March 15,
2010; National Development Company vs. Golden Horizon
Realty Corporation, G. R. No. 184260, March 15, 2010, “An
option is a contract by which the owner of the property agrees
with another person that the latter shall have the right to
buy the formers property at a fixed price within a certain
time. It is a condition
offered or Contract by which the owner stipulates with
another that the latter shall have the right to buy the
property at a fixed price within a certain time, or under, or in
compliance with certain terms and conditions; or which gives
to the owner of the property the right to sell or demand a sale
(Eulogio v. Apeles, G.R. No. 167884, January 20, 2009,
576 SCRA 561, citingTayag v. Lacson, G.R. No. 134971,
March 25, 2004)
It binds the party, who has given the
option, not to enter into the principal
Contract with any other person during the
period designated, and, within that period,
to enter into such contract with the one to
whom the option was granted, if the latter
should decide to use the option. (Carceller
v. Court of Appeals, G.R. No. 124791,
February 10, 1999, 302 SCRA 718, 724,
citing Tolentino, Commentaries
and Jurisprudence on the Civil Code of the
Philippines (Vol. IV), 1991 ed., pp. 466-467)
OPTION CONTRACT
In an option contract with
consideration, the offeror cannot
unilaterally withdraw his offer
while in an option without
consideration, the offer may be
withdrawn by communicating
withdrawal to the offeree before
acceptance.
EXAMPLE
X offers Y his house and lot for 2M. X
gave Y 10days within which to decide.
X may withdraw the offer anytime

before the 10 days period. The option is
without consideration so the offer can be
withdrawn before acceptance with notice
to Y.
EXAMPLE
However, if Y gave 10K for X to give him
time to think within 10 days period,
X cannot withdraw the offer before the 10

days period. There is here an option
contract which gives Y a certain period to
accept the offer.
After the 10 days period and Y did not

communicate his acceptance, X offer
becomes ineffective.
CAPACITY
1. Incapacitated to Give Consent
CAPACITY
CAPACITY
1. Incapacitated to Give Consent
It restrains the exercise of the right to contract.
Contract entered into is voidable.
a. Minors, UNLESS, the minor’s consent is
operative in contracts such as for necessaries. Minor
misrepresents his age (estoppel)
b. Insane or demented persons,
UNLESS, they contract during a lucid interval
c. Deaf-mutes who do not know how to read and
write.
DISQUALIFIED TO CONTRACT
2. Disqualified to Contract (Art. 1329)
It restrains the right to contract itself. Contract is
void.
a.
Those under Civil interdiction for transactions inter
vivos (RPC Art. 34)
b. Undischarged insolvents (Insolvency Law,
Sec.24)
c. Husband and wife: cannot donate
to each other, nor sell if the marriage is under
Absolute Community of Property (Art.1490)
DISQUALIFIED TO CONTRACT
d. The ff. cannot purchase (Art. 1491): 1. The

guardian for his ward’s property 2. The
agent for the principal’s property
3. Executors and administrators for
property under administration
4. Public officers-state property
under their administration
Justices, judges, prosecutors, clerks
of court, lawyers for property attached in
litigation
UNEMANCIPATED MINOR
It refers to “a minor who is

subject to the control,
authority, and
supervision of his or her
parents or guardians.
UNEMANCIPATED MINORS
Unemancipated minors are person
below 18 years of age and not yet
released from parental authority.
They cannot enter into a valid
contract and those already entered
cannot be made binding upon them
unless they reach the age of majority and
after which, they ratify the same. The
contract entered by the
unemancipated minor can be set
aside.
SITUATION 2
X, 21 years old, told Y, 12
years old, that he is selling his
Ipad for P10,000. Y told X
that he will buy the Ipad for
P10,000.00. Can the
contract entered into by Y be
set aside?
SITUATION 2 ANALYSIS
Yes, the contract can be set aside
because Y lacks the capacity to enter into
a contract as he is still an
unemancipated minor.
The law specifically mentioned

that unemancipated minor is
incapacitated to enter into a contract, give
consent and lacks discernment.
INSANE PERSON
Insanity is a mental illness of such a
severe nature that a person cannot
distinguished fantasy from reality,
cannot conduct his affairs due to
psychosis , or is subject to
uncontrollable impulsive behavior.
The free dictionary by FARLEX

In general, insane person cannot give
consent EXCEPT during lucid interval
(Lucid interval refers to a period of
time where proper reasoning,
judgment and mental capacity is
restored)
As for the deaf-mute, in general, they can

give consent EXCEPT those who beside
being deaf-mute does not know how
to write.
A contract entered into by the
insane person can be set aside
because the law recognized
insane person does not have
legal capacity to act. However, if the
contract is entered into by the insane
person during a lucid interval
then the contract is
enforceable and binding.
Persons who cannot give
consent to a contract can be
victims of fraud because they
cannot understand the nature
and effect of their actions.
However, they can enter
into a contract only through
their parent or guardian.
SITUATION 3
X entered into a ten year
contract of lease with Y
on March 10, 2017. On
April 25, 2017 X become
insane. Can the contract be
enforced?
ANALYSIS SITUATION NO 3
Yes, the contract can be

enforced because at the
time the contract was made, X
was not yet insane. It was only
on April 25, 2017, that X
became insane
VICES OF CONSENT
(Art. 1330 CC)
VICES OF CONSENT
1. Mistake
2. Inimidation
3. Violence
4. Undue Influence 5.
Fraud
VICES OF CONSENT
(Art. 1330 CC)
In Roberto G. Famanila vs. C.A., G. R. No. 150429,
August 29, 2006, it was held, "A vitiated consent does not
make a contract void and unenforceable. A vitiated consent
only gives rise to a voidable agreement. Under the Civil
Code, the vices of consent are mistake, violence,
intimidation, undue influence or fraud. (Art. 1330 Civil
Code) If consent is given through any of the aforementioned
vices of consent, the Contract is voidable (Jurado,
Comments and Jurisprudence on Obligations and
Contracts, 1993 Ed., p. 571, citing 8 Manresa, 5th Ed., Bk.
2, p. 426) A voidable contract is binding unless annulled by
a proper action in Court. (Art. 1390 Civil Code)
VICES OF CONSENT (ART. 1330 CC)
1. Mistake
Mistakerefers to an incorrect
understanding by one or more parties to a
contract and may be used as grounds to
invalidate the agreement
(Lawteacher.net)
Inadvertent and excusable disregard of a
circumstance material to the contract.
(J.B.L. Reyes)
In order that mistake may invalid ate

consent, it should refer to the
substance of the thing which is the
object of the contract, or to those
conditions which have
principally moved one or both
parties to enter into the contract.
(Art. 1331)
MISTAKE OF FACT AND
MISTAKE OF LAW
There is mistake of fact

when one or both
contracting parties
believe that a fact exists when in
reality it does not, or vice versa.
MISTAKE OF FACT AND
MISTAKE OF LAW
Mistake of law exists when

one or both parties
arrive at an erroneous
conclusion on the
interpretation of a question of law
or the legal effects.
EXAMPLE
MISTAKE OF FACT
X entered into an agreement with Mr. Y
for the urgent delivery of 200
cavans of Jasmine rice. Personnel of Mr.
X hurriedly loaded sacks of rice without
asking the kind of rice. X is not guilty
of violation of the contract as he
believed his personnel loaded the correct
quality of rice.
EXAMPLE
MISTAKE OF LAW
Mr. Y, a new businessman

remit VAT to the
government annually.
There is mistake of law
because Mr. Y believed that he
can pay VAT annually
instead of quarterly.
Mistake pertaining to the
identity or qualifications of
one of the parties will affect
consent only when such
identity or qualifications is
the main cause of the
Contract.
2. Intimidation
When one of the contracting parties is
compelled by a reasonable and well-grounded
fear of an imminent and grave evil upon his
person or property, or upon the person or
property of his spouse, descendants or
ascendants, to give his consent (Art. 1335)
3. Violence Irresistible
force was used to extort
consen t (J.B.L. Reyes)
4. Undue influence
There is undue influence when a
person takes improper
advantage of his power over the will
of another, depriving the latter of
a reasonable freedom of choice (Art.
1337).
UNDUE INFLUENCE
Circumstances:
a. Relationship of the parties (fa mily,
spiritual, confidential etc.) b. That
the person unduly
influenced was
suffering from infirmity (mental
weakness, ignorance, financial
distress) (Art.1337)
5. Fraud
When through insidious words or
machinations of one of the contra
cting parties, the other is
induced to enter into a contract
which, without them, he would
not have agreed to (Art. 1338)
FRAUD
Causal fraud refers to

fraud to secure consent
committed by one party
before or at the time of
the celebration.
SOME OF THE INSTANCES WHERE CAUSAL
FRAUD EXISTS
(1) when the seller, who had no intention to part with her
property, was "tricked into believing" that what she signed were
papers pertinent to her application for the
reconstitution of her burned certificate of title, not a deed of sale;
(Archipelago Management and Marketing Corp. v. CA, 359 Phil.
363 1998)
(2) when the signature of the authorized corporate officer was
forged; (Sanchez v. Mapalad, G.R. No. 148516, December
27, 2007, 541 SCRA 397) or
(3) when the seller was seriously ill and died a week after signing
the deed of sale raising doubts on whether the seller could have
read, or fully understood, the contents of the documents he
signed or of the consequences of his act. (Paragas v. Heirs of
Balacano, G.R. No. 168220, August 31, 2005, 468 SCRA 717)
REQUISITES OF FRAUD
1. There must be
misrepresentation or
concealment of a material fact
with knowledge of its falsity. (Art.
1338, 1339)
2. It must be serious (Art. 1344) 3. It
must have been employed by one of
the contracting parties
REQUISITES OF FRAUD
Requisites:
4. It must be made in bad faith or with
intent to deceived (Art. 1343) the other
contracting party who had no knowledge of
the fraud.
5. It must have induced the consent of the
other contracting party. (Art. 1338)
6. It must be alleged and proved by clear and
convincing evidence.
FRAUD BY CONCEALMENT
Article 1339. Failure to disclose facts,

when there is a duty to reveal them, as
when the parties are bound by
confidential relations, constitutes fraud. (n)
This refer to fraud by concealment. There is
concealment when there is neglect or failure
to communicate or disclose that which a
party to a contract knows and should
communicate.
EXAMPLE
X and Y are partners in stock trading. In one of the

business meeting attended by Y, he came to know that
Company B will merged with one of the biggest
company in the Philippines this will result in the
increase in the price of stock of Company B. Y
personally purchase the stock of Company B from
the partnership at a minimal price and
subsequently sells this after the merger earning
big profits. There was fraud committed by Y
when he failed to disclose the merger to his partner.
Fraud is never presumed. It is by
clear and convincing evidence. A
mere preponderance of evidence not
sufficient. Contentions must be
proved by proper evidence, and
reliance must be had on the power
of the party's evidence and not
upon the frailty of the other's
defense.
There are two types of fraud
contemplated in the performance of
contracts: dolo incidente or incidental
fraud and dolo causante or fraud serious
enough to render a contract voidable. In
Geraldez v. Court of Appeals, G.R. No.
108253, February 23, 1994, 230 SCRA 320,
the Court held that: This fraud or dolo
which is present or employed at the time of
birth or Perfection of a contract may either
be dolo causante or dolo incidente.
The first, or causal fraud referred to in Article 1338, are those
deceptions or misrepresentations of a serious character
employed by one party and without which the other party
would not have entered into the Contract. Dolo incidente, or
incidental fraud, which is referred to in Article 1344, are those
which are not serious in character and without which the other
party would still have entered into the Contract. Dolo causante
determines or is the essential cause of the consent, while dolo
incidente refers only to some particular or accident of the
obligation. The effects of dolo causante are the nullity of the
Contract and the indemnification of damages, and dolo incidente
also obliges the person employing it to pay damages. A.M.
Tolentino, commentaries and jurisprudence on the Civil Code of
the Philippines 509 (Vol. IV, 1986) and Jurado Comments and
Jurisprudence on Obligations and Contracts, 438 (1987 ed)
CIVIL CODE ARTICLES WHICH PROVIDE
LEGAL EXAMPLES AND ILLUSTRATIONS OF
FRAUD
Article 1340. The usual
exaggerations in trade, when the
other party had an opportunity to
know the facts, are not in themselves
fraudulent. (n)
Article 1341. 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. (n)
Article 1342. Misrepresentation by a
third person does notvitiate
consent, unless such
misrepresentation has created
substantial mistake and the same is
mutual. (n)
Article 1343. Misrepresentation
made in good faith is not fraudulent but
may constitute error. (n)
SIMULATION OF CONTRACTS
(1345-1346)
It is the act of deliberately
deceiving others, by
feigning or pretending by
agreement, the
appearance of a contract
which is either non-existent or
concealed (1 castan 504)
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.
If the parties state a false cause in the
Contract to conceal their real agreement, the
Contract is only relatively simulated, and the
parties are still bound by their real
agreement. Hence, where the essential
requisites of a contract are present, and the
simulation refers only to the content or
terms of the contract, the agreement is
absolutely binding and enforceable between the
parties and their successors in interest. (Spouses
Villaceran v. De Guzman, G.R. No. 169055,
February 22, 2012)
In absolute simulation, there is a colorable
contract, but it has no substance as the parties have
no intention to be bound by it. "The main
characteristic of an absolute simulation is that the
apparent contract is not really desired or intended
to produce legal effect or in any way alter the
juridical situation of the parties." (Loyola v.
Court of Appeals, G.R. No. 115734, February 23,
2000)" As a result, an absolutely simulated or
fictitious contract is void, and the parties may
recover from each other what they may have given
under the contract."
ABSOLUTE SIMULATION
In absolute simulation of contract there is no

intended real contract. It is a fictitious
contract, hence, void. In relative
simulation of contract, the real
transaction is hidden. It is a disguised
contract and parties are bound by the
hidden agreement so long as it does not
prejudiced a third person and is not
contrary to law, morals, good customs,
public order and public policy.
EXAMPLE
ABSOLUTE SIMULATION
X is applying for tourist in Canada. To
meet the requirement of financial
capacity he ask his mother to make him a
board of director and sell one property to him
so he can show the embassy he has property
and business interest in the Philippines.
No actual contract of sale as there was no
consideration was given for the sale of the
property.
EXAMPLE
RELATIVE SIMULATION
X purchase on loan a company car from
company B on condition that the car will be
mortgage as surety for the loan. The
mortgage was specified in the loan
agreement but, upon the parties
agreement, not annotated in the
certificate of registration. As against
third person, X and the company cannot
later on claim that the car is subject to
mortgage.
OBJECT OF CONTRACT
(Art. 1347 – 1349)
OBJECT
It refers to the things,

right, or service, which is
the subject matter of the
obligation arising
from the Contract.
REQUISITES
a. Lawful: Not contrary to law,
morals, good customs, public order or
public policy.
b. Actual or possible
c. Transmissible: Within the
commerce of man
d. Determinate or determinable
OBJECT
All things or services may be the object of
contracts, EXCEPT:
a. Things which are outside
the commerce of men.
b. Intransmissible rights.
c. Future inheritance except in cases
authorized by law.
d. Impossible things or services.
e. Objects which are indeterminable as to their
kind, the genus should be expressed.
In Muyot vs. de la Fuente, G.R.
No. L-653448 O.R. 4860, it
was held that the City of
Manila could not lease a
portion of a public sidewalk on
Plaza Sta. Cruz, being
likewise beyond the
commerce of man.
In Espiritu vs. Municipal Council of
Pozorrubio, 102 Phil. 869-870, the Supreme
Court declared, “There is absolutely no
question that the town plaza cannot be used for the
construction of market stalls, specially of
residences, and that such structures constitute a
nuisance subject to abatement according to law.
Town plazas are properties of public dominion,
to be devoted to public use and to be made available
to the public, in general. They are outside the
common of man and cannot be disposed of or even
leased by the municipality to private parties.
OBJECT
In order that a thing, right or

service may be the object of a
contract, it should be in
existence at the moment of the
celebration of the contract, or at
least, it can exist subsequently or in
the future.
The phrase "did not exist" should be
interpreted as "could not come into
existence" because the object may legally be a
future thing. (Spouses May S. Villaluz and
Johnny Villaluz Jr. v. Land Bank of the
Philippines and Register of Deeds Davao City,
G.R. No. 192602, January 18, 2017, citing the
Lawyers Journal, Vol. XVI, January 31,
1951, p. 50, as cited by Tolentino,
Commentaries and
Jurisprudence on the Civil Code of the
Philippines, Vol. IV, 1991, p. 629; and
Paras, Civil Code of the Philippines
Annotated, Vol. IV, 2012, p. 818.
Article 1347 provides that all things
which are not outside the commerce of
men, including future things,
maybe the object of a contract.
Under Articles 1461 and 1462, things
having a potential existence and
"future goods," those that are yet to be
manufactured, raised, or
acquired, may be the objects of
contracts of sale.
OBJECT
A FUTURE
THING may be the object of a
contract, such
contract may be interpreted as
a. conditional contract where
its efficacy should depend upon the
future existence of the thing
OBJECT
b. Aleatory contract:
where one of the contracting
parties assumes the risk that the
thing will never come
into existence. such as insurance
where the risk may or may not
happen.
An example is an insurance
where the risk may or may not
happen.
The insurer does not have to pay the

insured until an event, such as a
flood, earthquake, or fire that
results in property loss.
CHAPTER III: CAUSE OF CONTRACTS
(ART. 1350-1355)
CAUSE
It is the impelling reason
for which a party
assumes an
obligation under
a contract.
a. Existing
REQUISISTES
CAUSE OR CONSIDERATION IN
THE FOLLOWING CONTRACTS:
1. Onerous Contracts
In onerous contracts, the cause in
onerous contracts between the contracting
parties is the undertaking or the promise of the thing
or service by the other party.
Renumeratory contracts
In renumeratory contract, the cause is the thing or
services to be renumerated.
2. Remuneratory contracts-
In remuneratory contracts,
the purpose is the service or
benefit for which the
payment is given, and
3. Contract of pure beneficence-In
contracts of pure beneficence the
consideration is the liberality of the
benefactors. (A.O. Fisher vs. John c.
Robb, G.R. No. 46274, November 2,
1939)
Failure to pay the consideration is
different from lack of consideration. The
former results in a right to demand the
fulfillment or cancellation of the
obligation under an existing valid
contract (San Miguel Properties
Philippines., Inc. v. Huang, 336 SCRA 737
(2000), citing Ang Yu Asuncion v. Court of
Appeals, 238 SCRA 602 (1994) while the
latter prevents the existence of a valid
contract.
Where the deed of sale states that
the purchase price has been
paid but in fact has never
been paid, the deed of
sale is null and void ab
initio for lack of
consideration. (Mapalo vs.
Mapalo, G.R. No. L-21489 and L-
21628 May 19, 1966)
A contract of purchase and sale is null
and void and produces no effect
whatsoever where the same is
without cause or consideration in that
the purchase price which
appears thereon as paid has in fact
never been paid by the purchaser to the
vendor. (Ocejo Perez & Co. vs. Flores,
G.R. No. 14630, March 16, 1920)
FORMS OF CONTRACTS
(Article 1356 to 1358)
FORMS OF CONTRACT
Rules
Contracts shall be obligatory, in
whatever form they may have
been entered into,
provided all the essential
requisites for their validity are
present. (Art. 1356)
In the case of Spouses Antonio Beltran and
Felissa Beltran v. Spouses Apolonio
Cangayda, Jr and Loreta Cangayda, G.R. No.
225033, August 15, 2018, the Court did not
nullify an oral sale of property because all the
essential requisites of a contract are present
when it held, “It bears emphasizing that a
formal document is not necessary for the sale
transaction to acquire binding effect.
(Subject to the provisions of the Statute of
Frauds, a formal document is not necessary
for the sale transaction to acquire
binding effect.
For as long as the essential elements of a contract of sale
are proved to exist in a given transaction, the Contract
is deemed perfected regardless of the absence of a
formal deed evidencing the same." citing Province of
Cebu v. Heirs of Morales 569 Phil. 641, 650, (2008).
Hence, the subsequent execution of a formal deed of
sale does not negate the Perfection of the parties' oral
Contract of sale, which had already taken place upon the
meeting of the parties' minds as to the subject
of the transaction and its purchase price. In a contract
of sale, ownership of a thing sold shall pass to the
buyer upon actual or constructive delivery thereof
in the absence of any stipulation to the contrary.
Dignos v. Court of Appeals, 242 Phil. 114, 121
(1988)”
FORMS OF CONTRACT
Exceptions:
a. When the law requires that
a contract be in some form for
validity (Arts. 1357-1358)
b. When the law
requires that contract be in some
form to be enforceable
(Statute of Frauds - must be in
writing)
KINDS OF FORMALITIES
A. Contracts Which Must Appear in

Writing:
1. Donation of personal property who se
value exceeds five hundred
pesos (Art748)
2. Sale of a piece of land or any
interest therein through an agent
(Art 1874)
KINDS OF FORMALITIES
3. Antichresis (Art 2134)

In a contract of antichresis the creditor
acquires the right to receive the fruits of an
immovable of his debtor, with the
obligation to apply them to the payment of
the interest, if owing, and thereafter to the
principal of his credit. (2132)
4. Agreements regarding payment of inte rests
in contracts of loans (Art. 2314)
CONTRACT WHICH MUST APPEAR IN A
PUBLIC DOCUMENT
Contracts Which Must Appear in a Public

Document
1. The following must appear in a public
document (Art. 1358):
a. Acts and contracts which have for their
object the creation, transmission, modification or
extinguishment of real rights over immovable
property such as sales of real property or of an
interest therein (Art. 1403(2) and 1405)
PUBLIC DOCUMENT
b.the cession, repudiation or renunciation of he

reditary rights or of those of the conjugal
partnership of gains;
c. The power to administer property,

or any other power which has for its object an act
appearing or which should appear in a public
document, or should prejudice a third person;
PUBLIC DOCUMENT
d. The cession of actions or rights proceeding

from an act appearing in a public
document.
e. All other contracts where the
amount involved exceeds five hundred
pesos must appear in
writing, even a private one. But sales of
goods, chattels or things in action are
governed by Art 1403(2) and 1405.
PUBLIC DOCUMENT
2. Donation of immovable
properties (Art.749)
3. Partnership where immovable
property
or real rights are contributed to t he
common fund (Arts.1771 and 1773)
REFORMATION OF INSTRUMENT
(Art. 1359 to 1369)
REFORMATION OF THE INSTRUMENT
Reformation:
A remedy in equity by means of
which a written instrument is made or
construed so as to express
or conform to the real intention of the
parties when some error or
mistake has been committed.
(J.B.L. Reyes)
REFORMATION OF CONTRACTS
It is a remedy to satisfy
the real intention of
parties due to mistake,
fraud, inequitable
conduct, accident.
Requisites (Art 1359)

1. There must be a meeting of the minds of the
contracting parties;
2. Their true intention is not expressed in the
instrument;
3. Such failure to express their true intention is due
to mistake, fraud, inequitable conduct, or accident;
and
4. There is clear and convincing proof of mistak e,
fraud, inequitable conduct, or accident.
Parties entitled to Reformation

(Art. 1368):
1. Either party or his successors in
interest, if the mistake
was mutual; otherwise,
2. Upon petition of the injured
party, or his heirs and assigns.
CAUSES OR GROUNDS FOR REFORMATION
1. Mutual
2. Unilateral
3. Mistake by 3rd
persons
4. Others specified by
law
e

2. Unilateral
a. one party was mistaken.
b. others either acted
fraudulently or inequitably or
knew but concealed.
c. party in good faith may ask
for reformation
3. Mistake by 3rd persons –

due to ignorance, lack of
skill, negligence, bad faith of
drafter, clerk, typist
4. Others specified by law– to avoid the

frustration of true intent
Requisites:
a. There is a written instrument. b.
There is a meeting of minds.
c. The true intention is not expressed in the
instrument.
d. Clear and convincing proof.
e. Facts put in issue in pleadings.
Reformation
prescribes in 10
years from the
date of execution of
the instrument.
Reformation of an instrument is that remedy in equity by
means of which a written instrument is made or
construed so as to express or conform to the real
intention of the parties when some error or mistake has been
committed. It is predicated on the equitable maxim that
equity treats as done that which ought to be done. The
rationale of the doctrine is that it would be unjust and
inequitable to allow the enforcement of a written
instrument which does not reflect or disclose the real
meeting of the minds of the parties. However, an action for
reformation must be brought within the period prescribed
by law, otherwise, it will be barred by the mere lapse of time.
(Yolanda Rosello-Bentir et al. vs. Hon. Mateo M. Leanda, G.
R. No. 128991, April 12, 2000)
The remedy of reformation of an instrument is
grounded on the principle of equity, where, in order to
express the true intention of the contracting parties, an
instrument already executed is allowed by law to be
reformed. The right of reformation is necessarily an
invasion or limitation of the parol evidence rule since, when
a writing is reformed, the result is that an oral agreement
is by court decree made legally effective. Consequently, the
courts, as the agencies authorized by law to exercise the
power to reform an instrument, must necessarily exercise
that power sparingly and with great caution and zealous
care. Moreover, the remedy, being an extraordinary one,
must be subject to limitations as may be provided by law.
Our law and jurisprudence set such limitations, among
which is laches.
A suit for reformation of an instrument may be
barred by lapse of time. The prescriptive period for
actions based upon a written contract and for
reformation of an instrument is ten (10) years
under Article 1144 of the Civil
Code. (Ramos vs. Court of Appeals, 180 SCRA 635
(1989); Spouses Jayme and Solidarios vs. Alampay,
62 SCRA 131 (1975); Conde vs. Cuenca, 99
Phil, 1056 (1956). Prescription is intended to
suppress stale and fraudulent claims arising
from transactions which facts had become so
obscure from the lapse of time or defective memory
(Ochagabia vs. Court of Appeals, 304 SCRA 587
(1999); Peñaflor vs. IAC, 145 SCRA 223 (1986)
No reformation under the

following: (Art. 1366):
1. Simple donations inter vivos w
herein no condition is imposed; 2.
Wills;
3. When the real agreement is
void.
Implied Ratification (Art.

1367):
The action to enforce
the instrument
bars subsequent action to
reform.
INTERPRETATION OF CONTRACTS
(Article 1370 to 1379
The rule is thoroughly discussed by the Court in
Bautista v. Court of Appeals, when it held, "The rule
is that where the language of a contract is plain and
unambiguous, its meaning should be determined
without reference to extrinsic facts or aids. The
intention of the parties must be gathered from
that language, and from that language alone.
Stated differently, where the language of a
written contract is clear and unambiguous, the
contract must be taken to mean that which, on
its face, it purports to mean, unless some good
reason can be assigned to show that the words
should be understood in a different sense.
Courts cannot make for the parties better or
more equitable agreements than they
themselves have been satisfied to make, or
rewrite contracts because they operate harshly or
inequitably as to one of the parties, or alter them
for the benefit of one party and to the detriment
of the other, or by construction, relieve one of
the parties from the terms which he voluntarily
consented to, or impose on him those which he
did not". (Norton Resources and Development
Corporation v. All Asia Bank Corporation, G.R.
No. 162523, November 25, 2009)
RULES IN CASE OF DOUBTS
(Art. 1370-1379)
Rules in case of doubts (Art.
1378)
a. If it involves a Principal
Objects
Doubts where it cannot be
known what may have been the
intention or will of the parties, the
contract shall be null and void.
(Art. 1370-1379)
b. Gratuitous Contract Absolutely
impossible to settle doubts by the
rules and only refer to
incidental circumstances
the least transmission of rights and
interests shall prevail.
(Art. 1370-1379)
c. Onerous Contract
Absolutely impossible to
settle doubts by the rules and
only refer to incidental
circumstances the doubt shall be
settled
in favor of the greatest
reciprocity of interests.
The process of interpreting a contract requires the Court
to make a preliminary inquiry as to whether the contract
before it is ambiguous. A contract provision is ambiguous if
it is susceptible of two reasonable alternative
interpretations. Where the written terms of the contract are
not ambiguous and can only be read one way, the Court
will interpret the contract as a matter of law. If the
contract is determined to be ambiguous, then the
interpretation of the contract is left to the Court to resolve
the ambiguity in the light of the intrinsic
evidence. (Norton Resources and Development
corporation vs. All Asia bank Corporation,
G.R. No. 162523, November 25, 2009)
When there is no ambiguity in the language of a
contract, there is no room for construction, only
compliance. (Insular Life Assurance Company, Ltd., v. Asset
Builders Corporation, G.R. No. 147410, February 5, 2004,
422 SCRA 148, 165, citing Leaño v. Court of Appeals, G.R.
No. 129018, November 15, 2001, 369 SCRA 36.) As the
Court held in Bautista v. Court of Appeals: G.R. No.
123655, January 19, 2000, 322 SCRA 365, “The rule is that
where the language of a contract is plain and
unambiguous, its meaning should be determined without
reference to extrinsic facts or aids. The intention of the parties
must be gathered from that language, and from
that language alone. Stated differently,
where the language of a written contract is clear and
unambiguous, the contract must be taken to mean that
which, on its face, it purports to mean, unless some good
reason can be assigned to show that
the words used should be understood in a different
Courts cannot make for the parties better or
more equitable agreements than they
themselves have been satisfied to make, or
rewrite contracts because they
operate harshly or inequitably as to one of
the parties, or alter them for the benefit
of one party and to the detriment of the
other, or by construction, relieve one of the
parties from terms which he voluntarily
consented to, or impose on him those which
he did not. (Bautista v. Court of Appeals)
EVIDENCE OF WRITTEN AGREEMENTS
When the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon, and there can be,
between the parties and their successors-in-interest, no evidence of such
terms other than the contents of the written agreement. Under this
rule, when the parties have reduced their agreement into writing, they
are deemed to have intended the written agreement to be the sole
repository and memorial of everything that they have agreed upon.
All their prior and contemporaneous agreements are deemed to be
merged in the written document so that, as between them and their
successors-in-interest, such writing becomes exclusive evidence of its
terms, and any verbal agreement which tends to vary, alter or modify it is
not admissible. (Allied Banking Corporation v. Cheng Yong, G.R. Nos.
151040 & 154109, October 5, 2005, 472 SCRA 101, 111.) Whatever is
not found in writing is understood to have been waived and abandoned.
(Edrada v. Ramos, G.R. No. 154413, August 31, 2005, 468 SCRA 597,
604)

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CONTRACTS

It means that the contracts

Contracts must not be against the law

Perfection or birth of the

1. Stipulations Pour Autrui 2.

1.Stipulations Pour Autrui

A mere incidental benefit or inter est

Requisites: (Stipulation Pour Atrui)

X lease the property of Y for Php 10,000 a

2. Third Person In Possession

X owes Y Php 5M.Y sued X for non-payment of

Y obliged himself to deliver 200

2. Solemn contract which is perfected by

Article 1314. Any third person who

(1) Consent of the contracting parties; (2)

There is consent when the

It is a unilateral proposition which one

Product advertisement and

They are simply invitations to make

The offer terminates upon:

1. Rejection of the offer

2. Incapacity of the offeror or offeree

Lapse of time stated in

Revocation of the offer before learning of

X offered his car to Y for P200,000 for a

Supervening illegality before accept ance

X authorize Y to sell his car for

The offeror may still withdraw the offer so long as

a. The acceptance must be

(d) Cognition theory -the acceptance

Option may refer to

Option money refers to

X may withdraw the offer anytime

X cannot withdraw the offer before the 10

After the 10 days period and Y did not

d. The ff. cannot purchase (Art. 1491): 1. The

It refers to “a minor who is

The law specifically mentioned

The free dictionary by FARLEX

As for the deaf-mute, in general, they can

Yes, the contract can be

In order that mistake may invalid ate

There is mistake of fact

Mistake of law exists when

Mr. Y, a new businessman

Causal fraud refers to

Article 1339. Failure to disclose facts,

X and Y are partners in stock trading. In one of the

In absolute simulation of contract there is no

It refers to the things,

In order that a thing, right or

The insurer does not have to pay the

A. Contracts Which Must Appear in

3. Antichresis (Art 2134)

Contracts Which Must Appear in a Public

b.the cession, repudiation or renunciation of he

c. The power to administer property,

d. The cession of actions or rights proceeding

Requisites (Art 1359)

Parties entitled to Reformation

CAUSES OR GROUNDS FOR REFORMATION

3. Mistake by 3rd persons –

4. Others specified by law– to avoid the