LAW ON CONTRACT
CONTRACT - legally binding agreement or, in the words of
Sir Frederick Pollock: “A promise or set of promises which
the law will enforce.”
- The agreement will create rights and obligations that may
be enforced in the courts. The normal method of
enforcement is an action for damages for breach of contract,
though in some cases the court may order performance by
the party in default.
CLASSIFICATION (As to broad classes)
* Contracts by Deeds - a formal documents signed,
witnessed and delivered to effect a conveyance or transfer
of property or to create a legal obligation or contract.
* Simple Contracts – contracts which are not deeds are
known as simple contracts. They are informal contracts
and may be made in any way – in writing, orally or they may
be implied from conduct.
(According to whether:)
* Bilateral Contracts - is one where a promise by one
party is exchanged for a promise by the other the exchange
of promises is enough to render them both enforceable.
Thus, in a contract for the sale of goods, the buyer
promises to pay the price and the seller promises to deliver
the goods.
* Unilateral Contracts - is one party promises to do
something in return for an act of the other party, as
opposed to a promise. (Where X promises a reward to
anyone who will find his lost wallet. The essence of the
unilateral contract is that only one party, X is bound to do
anything. No one is bound to search for the lost wallet, but if
Y, having seen the offer, recovers the wallet and returns it,
he/she is entitled to the rewards.
ESSENTIAL ELEMENTS OF A CONTRACT
1. Agreement - agreement is formed when one party
accepts the offer of another and involves “meeting of the
minds”
2. Consideration - both parties must have provided
consideration. Each side must promise to give or do
something for the other
3. Intention to Create Legal Relations - the parties must
have intended their agreement to have legal consequences.
The law will not concern itself with purely domestic or social
agreements.
4. Form – in some cases, certain formalities (that is, writing)
must be observed.
5. Capacity – the parties must be legally capable of
entering into a contract.
6. Consent – the agreement must have been entered into
freely. Consent may be vitiated by duress or undue
influence.
7. Legality - the purpose of the agreement must not be
illegal or contrary to public policy
(A contract which possesses all these requirements is said
to be valid. The absence of an essential elements will
render the contract either void, voidable, or enforceable.)
Enforceability
* Void Contracts - is one where whole transaction is
regarded as a nullity. It means that at no time has there
been a contract between the parties. Any goods or money
obtained under the agreement must be returned where
items have been resold to a third party. They may be
recovered by the original owner.
* Voidable Contracts - operates in every respect as a valid
contract unless and until one of the parties take steps to
avoid it. Anything obtained under the contract must be
returned, insofar as this is possible. If goods have been
resold before the contract was avoided, the original owner
will not be reclaim them.
* Unenforceable Contracts – is a valid contract but it
cannot be enforced in the courts if one of the parties
refuses to carry out its terms. Items received under the
contract cannot generally be reclaimed.
LAW ON SALES
(Arts. 1458-1637, Civil Code)
Nature and Form of the Contract
Art. 1458. By the contract of sale one of the contracting
parties (seller or vendor) obligates himself to transfer the
ownership and to deliver a determinate thing, and the other
(buyer or vendee) to pay a price certain in money or its
equivalent.
A contract of sale may be absolute or conditional.
* Contract of Sale (Absolute)
- real obligation > Obligation to give
- remedies available
a) specific performance
b) rescission
c) damages
* Contract to Sell (Conditional)
- personal obligation > Obligation to do
- remedies available:
a) resolution
b) damages
Essential Elements of a Contract of Sale
* Consent – manifested by the meeting of the offer and the
acceptance upon the thing and the cause.
* Object – must be determinate as to its kind. (Art. 1460)
* Price – the fixing of the P can never be left to the decision
of one party. But a P fixed by one of the CP, if accepted by
the other gives rise to a perfected sale.
Characteristics of the Contract of Sale
* Consensual – because the contract is perfected by mere
consent.
* Bilateral reciprocal – because both parties are bound by
obligation dependent upon each other.
* Onerous – because to acquire the rights valuable
considerations must be given.
* Commutative – as a rule, because the values exchanged
are almost equivalent to each other.
(Note: By way of exception, some contracts of sale are
aleatory, that is, what one receives may in time greater or
smaller than what he has given. Example: The sale of
genuine sweepstakes ticket)
* Principal – because because for the contract of sale to be
validly exist, there is no necessity for it to depend upon the
existence of another valid contract.
* Nominate – because the Code refers to it by special
designation or name, that is the contract of sale.
Natural and Accidental Elements
Natural Elements - those which are deemed to exist in
certain contracts, in the absence of any contrary
stipulations
Ex. Warranty against eviction (Art. 1548)
Warranty against hidden defect (Art. 1561)
Accidental Elements - those may be present or absent
depending on the stipulations of the parties
Ex. conditions, interest. Time and place of payment
Stages of a Contract of Sales
* Negotiation – the period from the time the prospective
contracting parties indicate interest in the contract to the
time the contract is perfected.
* Perfection – takes place upon the concurrence of the
essential elements, (the meeting of the minds of the parties
as to the object of the contract and upon the price)
* Consummation – begins when the parties perform their
respective undertakings under the contract of sale,
culminating in the extinguishment thereof.
Sale is a title
Perfection vs. Consummation
- Sale is not a mode, but merely a title.
- Sale by itself does not transfer or affect ownership, the
most that sale does is to create the obligation to transfer
ownership.
- It is tradition or delivery, as a consequence of sale, that
actually transfers ownership.
Parties to a Contract of Sale
General Rule: All parties with capacity to contract can enter
into a valid contract of sale.
* Natural
* Judicial corporation/partnership/associations/cooperatives
- Status of contract > valid
- Remedies available therefore are:
a) specific performance
b) recession
c) damages
Exception to Gen. Rule:
* Minors - status of contract > voidable only, therefore
ratifiable
- remedy is action for annulment (with partial
restitution in so far as the minor is benefited)
* Sale by & Between Spouses
a) Contract with 3rd parties (status of contract : valid) b)
Sale between parties
- status not provided for by law but VOID according
to case law
> avoid situation where dominant spouse take advantage of
other
> avoid circumvention on prohibition of donation between
spouses.
PRODUCTION OF GOODS VERSUS PROVIDING
SERVICES
• Production of goods results in a tangible output
• Delivery of service, on the other hand, generally implies
an act. Manufacturing and service are often different in
terms of what is done but quite similar in terms of how it is
done.
• Degree of customer contact. Many services involve a
high degree of customer contact, although services such as
Internet providers, utilities, and mail service do not. When
there is a high degree of contact, the interaction between
server and customer becomes a “moment of truth” that will
be judged by the customer every time the service occurs.
• Labor content of jobs. Services often have a higher
degree of labor content than manufacturing jobs do,
although automated services are an exception.
• Uniformity of inputs. Service operations are often
subject to a higher degree of variability of inputs. Each
client, patient, customer, repair job, and so on presents a
somewhat unique
situation that requires assessment and flexibility.
Conversely, manufacturing operations often have a greater
ability to control the variability of inputs, which leads to
more-uniform job
requirements. Measurement of productivity.
• Measurement of productivity can be more difficult for
service jobs due largely to the high variations of inputs.
Thus, one doctor might have a higher level of routine cases
to deal with, while another might have more difficult cases.
Unless a careful analysis is conducted, it may appear that
the doctor with the difficult cases has a much lower
productivity than the one with the routine cases.
• Quality assurance. Quality assurance is usually more
challenging for services due to the higher variation in input,
and because delivery and consumption occur at the same
time. Unlike manufacturing, which typically occurs away
from the customer and allows mistakes that are identified to
be corrected, services have less opportunity to avoid
exposing the customer to mistakes.