Article 1305: Contract: meeting of the minds

 Between two persons whereby one binds himself

 To gives something
 To render some service.
 When an offer by one party is accepted by the other.
 Fulfillment of a prestation to give, to do, or not to do.

Essential Elements:
1. Consent
2. Subject matter
3. Cause
Natural Element:
1. Law
Accidental Elements:
1. Stipulations of the parties

Contract implied in fact:

Number of parties
 Two persons/parties
 Single person: represents distinct interests/acts in a representative capacity.

Termination of pre-existing contract [avoid unjust enrichment]

1. by stipulation of the parties: principle of mutuality of contracts

o Compromise agreement: based on real claims and to be actually agreed upon in
good faith. (Manila International Airport Authority vs. ALA Industries Corp.,
422 SCRA 604 [2004].
2. by stipulation, at option of one party: a contract may provide that it shall come to an end
at the option of one, or either of the parties
o if not contrary to equity and good conscience.
o Subject to a written notice of 30 days.
o Purposely to injure or prejudice the other: liable for damages: unjust enrichment
(Article 19 CC)
Note: It is the unilateral act, without any legal basis or justification, of one party in terminating
a contract which will make him liable for damages.

3. by one party with conformity of the other: the parties enter into another contract for the
dissolution of the previous one or cancellation of the original agreement necessarily
involves restoration of the parties to the status quo ante prevailing immediately prior to
the execution of the agreement. (Floro Enterprises, Inc, vs. Court of Appeals, G.R. No.
105644, October 18, 1995)

TERMINATION vs. RESCISSION

 Rescission: declare a contract void in its inception and to put an end to it as though it
never were.
Termination: an action for unlawful detainer; the termination or cancellation of a
contract would necessarily entail enforcement of its terms prior to the declaration of its
cancellation in the same way that before a lessee is ejected under a lease contract, his ejectment.
: need not to undergo judicial intervention.

CONTRACT vs. OBLIGATION: no contract-no obligation; obligation may exist without a

contract.
Contract: one of the sources of obligations.
- Contract serves as the juridical means of effecting in a practical manner
the effectiveness and development of the economic principle of the
division of labor.
Obligation: legal tie or relation itself that exists after a contract has been entered
into.

CONTRACT vs. AGREEMENT: no agreement/consent- no contract; all contracts are

agreements but not all agreements are contracts

Contract: agreements enforceable through legal proceedings.

Note: Moral/Social Agreements: agreements which cannot be enforced by action in the courts
of justice ARE NOT contracts.
Note: It is settled that not only laws existing at the time of the execution of the contract are
applicable thereto and not later statutes, unless the latter are specifically intended to have a
retroactive effect.

CHARACTERISTICS:
1. Freedom/autonomy of contracts: (Article 1306): parties may establish such
stipulations, provided, they are not contrary to law, morals, good customs, public order,
and public policy.
2. Obligatoriness of contracts: (Article 1315): have the force of law between the
contracting parties.
3. Mutuality of contracts: (Article 1308): must bind both parties; their validity or
compliance CANNOT be left to the will of one of them.
4. Consensuality of contracts: (Article 1315): contracts are perfected by MERE
CONSENT.
5. Relativity of contracts: (Article 1311): take effect only between the parties, their
assigns and heirs, except in cases where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation, or by provision of law.

Article 1306: The contracting parties may establish such stipulations, clauses, terms &
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. – Principle of Autonomy of Contracts
 Note: The right to enter into contracts is one of the liberties guaranteed to the individual by
the Constitution.
 It also signifies or implies the right to choose with whom one desires to contract.
 The Constitution prohibits the passage of any law impairing the obligation contracts.
(Article III, Sex. 10 thereof) – refers only to legally valid contracts. (San Diego vs.
Mun of Naujan).
 An individual does not have an absolute right to enter into any kind of contract.
(Lozano vs. Martinez, 1986)
 LEGAL PRESUMPTION: ALWAYS ON THE VALIDITY OF CONTRACTS.

Limitations on contractual stipulations:

1. Law: fundamental requirement that the contract entered into must be in accordance with,
and not repugnant to, an applicable statute.
a. an existing law enters and forms part of a valid contract, it thus sets limits.
(Maritime Co. of the Phils. vs. Repa
b. Counter-balancing the principle of autonomy of contracting parties in Article
1306.
c. The parties to a contract are charged with knowledge of the existing law at the
time they enter into the contract and at the time it is to become operative, and a
person is presumed to be more knowledgeable about the law of his country than
an alien.
d. Law is superior contract. (xpn: acts executed against the provisions of mandatory
or prohibitory laws are void, except when the law itself authorizes their validity –
Art.5)
Cases:
1. Contract restrictions on the use of the property are contrary to a municipal resolution
passed in the exercise of police power.
a. Non-impairment: not absolute; must yield to the police power of the State.
Example: Stipulations contained in a contract contrary to law, morals, good customs, public
orde or public policy – The insurer cannot be compelled to pay the proceeds of a fire
insurance to a person who has no insurable interest in the property insured. (Chua vs.
Court of Appeals, 1997)

2. A contract intended to circumvent and violate the law is void ab initio.

3. A waiver by a party of his right to bring an action for future fraud or negligence is
void as being against the law and also public policy. (Arts. 1171, 1172, 1409)

a. A stipulation which excludes one or more partners from any share in the
profits or losses is void. (Art. 1799)

b. Every stipulation exempting the agent from the obligation to render an

account to the principal shall be void. (Art. 1891)
 c. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. (Art. 2088)

d. A stipulation forbidding the owner from alienating the immovable mortgage

shall be void. (Art. 2130)

4. Morals are good customs are often embodied in the law. (Art. 873, 1183).
a. Art. 1306 – must refer to those not expressed in legal provisions.

Example:
 A contract, whereby X promised to live as a common-law wife of B without the
benefit of marriage in consideration of P50,000.00, is IMMORAL and, therefore
VOID.
 An agreement whereby X is to render service as a servant to Y without
compensation as long as X has not paid his debt is reprehensible and censurable. It is
also contrary to law. (Art. 1689). De los Reyes vs. Alojado, 16 Phil. 499.

Note: It is not immoral or against public order for a homeowner to recover P10,000.00 when his
house was burned, because he invested only about P100.00 for the insurance policy. And when
the holder of a sweepstake ticket who paid only P4.00 luckily obtained the first prize of
P100,00.00 or over, the whole business is not immoral or against public order.

5. Contract must not be contrary to good customs.

CUSTOMS: consist of habits and practices which through long usage have been followed and
enforced by society or some part of it as binding rules of conduct.
; it has the force of law when recognized and enforced by law.
; must be proved as a fact, according to the rules of evidence. (Art. 12 & 1376)

Example: Husband and wife entered into an agreement to separate mutually and voluntarily
(legal separation) – INVALID – Because they are contrary to law, morals, and good customs
and tend to subvert the vital foundation of the legitimate family. (Biton vs. Momongon, 1935).

6. Contract must not be contrary to public order. – public safety – public weal
Example: Contract legalizes the commission of adultery or concubinage. (private crimes) –
contraru to law, and public order, NOT JUDICIALLY RECOGNIZABLE.
One condition of the liquidation was that either spouse (as the case may be) would
withdraw the complaint for adultery or concubinage which each had filed against each other and
that they waived their “right to prosecute each for whatever acts of infidelity” wither would
commit against the other. – INVALID – It contravenes the ff. provisions of the Civil Code – Art.
221.

7. Contract must not be contrary to public policy – public policy is broader than public
order – refers to considerations which are moved by the common good.
 Has the thing to injure the public, is against the public good, or contravenes
some interests of society, or is inconsistent with sound policy and good
 morals, or tends clearly to undermine the security of individual rights,
whether of personal liability or of private property.
 No subject or citizen can lawfully do that which has tendency to be injurious to
the public or against the public good which may be termed the “policy of the
law”, or “public policy in relation to the administration of the law.” Rivera vs.
Solidbank Corporation.
Example: X stole the car of Y. Later, they entered into a contract whereby Y would not
prosecute X in consideration of P 1,000.00 – VOID – crimes must be punished.
 The charter party between the petitioner and private respondent stipulated that the
“owners shall not be responsible for the loss, split, short landing, breakages and
any kind of damages to the cargo.” The stipulation, in effect, exempts the owner,
a private carrier, from liability even for the negligence of its agents. – VALID –
Article 1745 and other Civil Code provisions on common carriers may not be
applied unless expressly stipulated by the parties in their charter party.
Unless, if the petitioner were a common carrier, the stipulation is void as it would
be contrary to public policy.
 Prompt notice by the cardholder to the credit card company of the loss or theft of
his card should be enough to relieve the former of any liability occasioned by the
unauthorized use of his stolen or stolen card. To require a cardholder to still
pay for unauthorized purchases would simply be unfair and unjust and
clearly run against public policy. (Ermitano vs. Court of Appeals)
CASES:
- Contract to not engage, within a certain period, in a business
competitive with that of the employer. – VALID – Intrinsic
reasonableness of the restriction in each case rather than by any fixed rule,
and that such restriction may be upheld when not contrary to the public
welfare and not greater than is necessary to afford a fair and reasonable
protection to the party in whose favor is imposed.
- Contract not to engage, within a certain district, in a business during
the time while the employer is engaged in the same business within
said district. – VALID - A contract in restraint of trade is valid if the
restraint is limited to “a certain time” or within “a certain place.” A
contract, however, which restrains a man from entering into a trade or
business without either limitation as to time or place, is invalid.
- Contract not to engage, within a certain period in any business or
occupation whatever in the Philippines. – VOID – because it restraints a
man from entering into a trade or business.
- Warrants of attorney to confess judgment – VOID – enlarges the field
for fraud, because under these instruments the promissor bargains away
his right to a day in court.
- Students waives his right to transfer to another school unless he
refunds scholarship grants – VOID – To look at scholarship awards as a
business scheme designed to increase the business potential of an
educational institution is not only inconsistent with sound public policy
but also good morals.
 - Stipulation in contract of sale of subdivision lots prohibits the
establishment of factories in the district where such lots are located –
VALID – Article 688 provides for the easements which he may dee
suitable provided he does not contravene the law, public policy or
public order.
- Parties operated an arrangement, commonly known as the kabit
system – VOID – inexistent under Art. 1409.
Note: The question whether a contract is against public policy depends upon its purpose
and tendency, and not upon the fact that no harm results from it. In other words, all agreements
the purpose of which is to create a situation which tends to operate to the detriment of the public
interest is against public policy, and therefore, VOID, whether the purpose of the agreement is or
is not effectuated.
Note: For a particular undertaking to be against public policy, actual injury need not to be
shown; it is enough that potentialities for harm are present.
ARTICLE 1307` - Innominate contracts shall be regulated by the stipulations of the
parties.

1. Nominate contract – which has a specific name or designation in law. (commodatum,

lease, agency, sale, etc.)
 Do ut des (I give that you may give); BARTER / EXCHANGE. (Art. 1368)
 Do ut facias (I give that you may do);
 Facio ut des (I do that you may give); and
 Facio ut facias (I do that you may do)

2. Innominate contract – no specific name or designation in law. – A contract will not,

therefore, be considered invalid for failure to conform strictly to the standard
contracts outlined in the Civil Code provided that it has all the elements of a valid
contract.
 “no one shall unjustly enrich himself at the expense of another”
Requisites:
a. agreement of the parties;
b. provisions of the Civil Code on obligations and contacts;
c. rules governing the most analogous contracts; and
d. customs of the place.
Cases:
1. Services were rendered and accepted without any contract – VALID – It was with
the EXPRESS or TACIT consent that rendered him services as interpreter – FACIO
UT DES – the special provisions concerning contracts for lease of services. Article 1689-
1731)
2. Agreement whereby a person would pay the indebtedness of the mortgagor in
consideration of the use of the mortgaged property until reimbursement of the
amounts paid – INNOMNATE CONTRACT – to give and to do certain rights and
obligations respecting the lands and the mortgage debts of R which would be acceptable
to the bank, but partaking of the nature of antichresis insofar as the principal parties are
concerned.
Note: When a person does not expect to be paid for his services there cannot be a contract
implied in fact to make compensation for said services;
When the person rendering services has renounced his fees, the services are not
demandable obligations.
Where a person fails to render the services paid for, he is under obligation to return
the amount paid.

Note: Attorney-client: can be created by implied agreement.

ARTICLE 1308 – The contracts must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. – Principle of mutuality of contract –
nullify a contract containing a condition which makes it fulfillment or pre-termination dependent
exclusively upon the uncontrolled will of one of the contracting parties. – BREACH OF
CONTRACT

BoC: failure without legal reason to comply with the terms of the contract; failure without legal
excuse to perform any promise which forms the whole or part of the contract.

 A contract can be renewed, revived, extended, abandoned, renounced, or terminated only

by mutual consent of the parties.
 Repugnant: to have one party bound by a contract while leaving the other free from
complying therewith.
 Elementary rule: no party can renounce or violate the law of the contract unilaterally or
without the consent of the other.

Fulfillment or extinguishment of contract: dependent exclusively upon the uncontrolled will

of one of the contracting parties – VOID.
- a contract of lease which stipulates that the lessor can terminate the lease
unilaterally anytime for any cause, or that the lease shall continue for as
long as the lessee needs the premises and can pay the rent – VOID
- a loan contract which gives unbridled right to the creditor to unilaterally
upward adjust the interest on the debtor’s loan – VOID
- pre-termination condition – VOID.
Renunciation or violation of contract: nobody can be forced to enter into a contract, no one
may be permitted to change his mind or disavow and go back upon his own acts, or to proceed
contrary thereto, to the prejudice of the other party. (Metro Manila Dev. Corp. vs. Jancom
Environmental Corp)

Proof of alleged defect in contract: MUST BE CONCLUSIVELY PROVE – it is the duty of

every contracting party to learn and know the contents of a document before he signs and
delivers it. (Olbes vs China Banking Corporation)

Release of obligor from compliance: Article 1355 – BAD BARGAIN may not be ground for
setting aside the agreement. Cc. Article 1266 & 1267)

Cases:
 1. Stipulation where option to cancel contract of employment by employer is made
subject to a suspensive condition – VALID – having agreed that the option shall exist,
the exercise of the option is as much in the fulfillment of the contract as any other fact
which may have been the subject of the agreement.
2. Stipulation gives vendor power to cancel contract in case of breach by vendee –
VALID – this power could not be arbitrarily exercised without the vendee committing
the breach of contract for non-payment of the installments agreed upon.

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.

Note: COMPLIANCE with a contract – CANNOT be left to the will of one of the contracting
parties.
DETERMINATION OF ITS PERFORMANCE – CAN be left to A THIRD
PERSON (Arbitrators) – NOT A POTESTATIVE CONDITION. (Art. 1182) (Arbitrations –
Art. 2042-2046)

Note: The decision of the third person shall bind the parties only after it has been made known to
both of them.

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.

ARTICLE 1311 – Principle of relativity of contracts – Contract take 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.
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. (pour autrui)

EXCEPTIONS: CONTRACTS THAT ARE NOT TRANSMISSIBLE

1. By their nature: personal qualifications such as painting, singing, etc.
2. By stipulation: principle of freedom to contract; - must be expressly established
3. By provision of law: agency, partnership, and commodatum, when death
extinguishes the legal relationships.

Note: Where the service or act is of such a character that it may as well be performed by
another, or where the contract by its terms, shows that performance by others was
contemplated, death does not terminate the contract or excuse non-performance.
Ex: Contract of Lease; rights and obligations thereunder pass to the personal representatives of
the deceased; backwages earned from the former employer cannot be filed against the new owner
of an enterprise.
Note: No privity (relation between the two parties) = no obligation or liability (Josefa vs.
Zhandong Trading Corp.)

 Real parties interest: in action upon the contract, the REAL PARTIES IN INTEREST,
MUST BE PARTIES TO SAID CONTRACT.
 A party who has not taken part in it and for whose benefit it was not expressly made,
cannot sue or be sued for performance or for cancellation thereof.
 Real interest: present substantial interest

Example:
D is indebted to C in the amount of 10K. If C assigns his credit to X, then D is liable to
pay X.
Note: The death of a party does not excuse non-performance of a contract – The right and
obligation thereunder pass to the personal representatives(s) of the deceased.

Cases:
1. Binding effect on heirs of contract for attorney’s between deceased and his lawyer. –
Is the contract for attorney’ fees between C and D binding upon the minors? – NO. He
should proceed against the estate of D.
2. Binding effect on a creditor of agreement between debtor and a third party. – D
received a loan from C which he promised to pay within 3 years. D transferred to his
parents the business in which he had invested the money received from C. – Is the
agreement between D and his parents or between D and his co-heirs binding upon C. –
NO – One who receives a loan of money acquires the ownership thereof and is the
one bound to return to the creditor an equal amount. (At. 1953)
Note: On the principle that the force of law of contracts cannot be extended to parties who do
not intervene therein.

Cases when strangers or third persons affected by a contract:

1. Pour autrui: contracts containing a stipulation in favor of a third person – stipulation in
a contract clearly and deliberately conferring a favor upon a third person who has a right
to demand its fulfillment, provided, he communicates his acceptance to the obligor before
its revocation by the oblige or the original parties.
a. Intended for the sole benefit of such person – juridical concept of a gift – donation
– done-beneficiary
b. Promise to the third person – pay a debt owing from the seller to a third person –
creditor-beneficiary.
REQUISITES:
1. Clearly and deliberately conferred a favor upon a third person;
2. Third person must have communicated his acceptance to the obligor before its
revocation;
3. Stipulation in favor of the third person should be a part and not the whole of the contract
or the contract itself;
4. Should not be conditioned or compensated by any kind of obligation whatever;
 5. Neither of the contracting parties bears the legal representation or authorization of the
third party – RULES ON AGENCY WILL APPLY.
Note: To constitute a valid stipulation pour autrui, it must be the purpose and intent of the
stipulating parties to benefit the third person, and it is not sufficient that the third person
may be incidentally benefited by the stipulation. – RELY UPON THE INTENTION OF
THE PARTIES AS DISCLOSED BY THEIR CONTRACTS.
- It must be clearly expressed.
- When a third person accepts the benefits of a contract to which he is not a
party, he is also bound to accept the concomitant obligations
corresponding thereto.

 Stipulation whereby purchaser of mortgaged property assumes the indebtedness of

mortgagor to mortgage (third person) – VOID
 Stipulation in a motor vehicle accident policy that the insurer will indemnify the
authorized of the insured or the driver’s personal representatives – VALID
 Stipulation in a contract to sell binds buyer to hold the seller free from all claims of
a third person who had previously offered to buy the same property. – VOID

Nature and form acceptance of stipulation

1. The acceptance must be unconditional (consent)
2. The acceptance does not have to be in any particular form, even when the stipulation is
for the third person an act of liberality or generosity on the part of the promissor or
promise. – IT MAY BE IMPLIED.
3. May be accepted any time before it is revoked, unless a definite period for acceptance has
been fixed.

2. Contracts creating REAL RIGHTS; (1312)

3. Contracts entered into to DEFRAUD CREDITOS (1313)
4. Contracts which have been VIOLATED AT THE INDUCEMENT OF THE THIRD
PERSON (1314)
5. Contracts creating STATUS – marriage
6. NEGOTIORUM GESTIO – the owner is bound in a proper case, by contracts entered
into by the “gestor”
7. COLLECTIVE CONTRACTS – creditors are bound by the contracts of the majority
8. Article 1729 – protect the laborers and the materialmen from being taken advantage of
by unscrupulous contractors and possible connivance between owners and contractors.

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. – exception to the general rule that a contract binds only
the parties. – constitutes a real right, which is produced not by the contract but by the publicity
given by the Registry, such publicity prejudicing the right of third persons.
Real right: binding against the whole world and attaches to the property over which it is
exercised wherever it goes.

ARTICLE 1313 – Creditors are protected in case of contracts intended to DEFRAUD

them.

 The creditor, although he is not a party to the contract, is given the right to impugn the
contracts of his debtor intended to defraud him.
 He can sue to rescind the contract to prevent fraud upon him.
 The law gives a right of action to a creditor to enforce a contract entered into by his
debtor with a third person.

ARTICLE 1314 – Any third person who induces (by persuasion or intimidation) another to
violate his contract shall be liable for damages to the other contracting party – when a
stranger to a contract can be sued for damages for his unwarranted interference with the contract.

Interference with contractual relations: Tort or wrongful conduct

Injunction: appropriate remedy to prevent a wrongful interference with contracts by strangers
Malice: not necessary
Not liable: where sufficient justification for interference or inducement can be shown.

Cases:
1. Interference with a contract of lease was motivated by interferer’s own financial or
economic interest, rather than by wrongful and malicious motives. – GUILTY
DAMAGE: loss, hurt, or harm which results from injury, and damages are the recompense or
compensation awarded for the damage suffered. – essential element of tort interference

ELEMENTS OF TORT INTERFERENCE:

1. Existence of a valid contract
2. Knowledge on the part of the third person of the existence of contract
3. Interference of the third person is without legal justification or excuse.

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. – takes up the question of the scope and limit of the contractual obligation in
regard to its prestation.
ARTICLE 1316 – Real contracts, such as deposit, pledge and commodatum, are not
perfected until the delivery of the object of the obligation.

Classification of contracts according to perfection:

1. CONSENSUAL CONTRACT – perfected by mere consent (sale, lease, agency)
2. REAL CONTRACT – by the delivery of the thing subject matter of the contract (pledge,
depositum); these contracts have for their purpose restitution, because they contemplate
the return by a party of what has been received from another or its equivalent.
 3. SOLEMN CONTRACT – requires compliance with certain formalities prescribed by law
(donation of real property) – when the law requires that a contract be in some form to be
valid (Art. 1356) – the prescribed form being thereby an essential requisite of the
contract.

Stages in the life of the contract:

1. Preparation or negotiation: undergoing the preliminary steps towards the formation of a
valid contract.
2. Perfection or birth: parties have come to a definite agreement or meeting of the minds re
the terms
3. Consummation or termination: fulfillment of their respective obligations or
undertakings

CASES:
1. The document with respect to sale of motor vehicle contains provision for down
payment without mentioning the full purchase price and the manner the
installments were to be paid. – VOID – Definite agreement on the manner of payment
of the price is an essential element in the formation of a binding an enforceable contract
of sale. – VSP was mere PROPOSAL – NO DEMANDABLE RIGHT.
2. A party seeks to avoid a perfected contract by reason of mistake to which the other
in no way contributed. – VALID – The contract was perfected from the time the AFP
received M’s acceptance offer. – the absence of a writing does not preclude the
binding effect of the contract duly perfected by a meeting of the minds – NOR MAY
CONTRACTS DELIBERATELY ENTERED INTO BE OVERTURNED BY
REASON OF MISTAKE OF ONE OF THE PARTIES TO WHICH THE OTHER
IN NO WAY CONTRIBUTED.
3. Parties agreed on the price and terms of payment but buyer did not sign the
contract to sell because it covered seven lots while their agreement was only for six
lots.

Note: Contract to sell involves performance of an obligation:

Note: Until the contract is perfected, it cannot, as an independent source of obligation,
serve as binding juridical relation.
- Signing is not, generally, a legal requirement in entering into a contract
where there is a meeting of minds.
Example: Even if the consignee is not a signatory to the contract of a carriage between the
shipper and the carrier, the consignee can be bound by the contract.

Dacion en pago – delivering an asset to settle a debt.

Pendente lite – during litigation

Guide for performance of contract: The ordinary meaning of execution of a contract is not
limited to the signing or concluding of the contract but includes as well the performance or
implementation or accomplishment of all terms and conditions of such contract. Good faith and
regularity are aways presumed in the execution of contracts. The burden of proving otherwise
falls on the party claiming it.
A distinction exists between a condition imposed on the perfection of a contract (failure to
comply results in the failure of a contract) and a condition imposed merely for the
performance of an obligation (failure to comply gives the other party options or remedies to
protect his interests)

Adjustment of rights has been held to be particularly applicable when there has been a
depreciation of the currency.

Courts have no power to amend or modify the stipulations of the parties.

Note: THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT ARE

NOT DETERMINED SOLELY BY THE TERMS THEREOF. ANY AGREEMENT OR
CONTRACT TO BE ENFORCEABLE IN THIS JURISDICTION IS UNDERSTOOD TO
INCORPORATE THEREIN THE PERTINENT PROVISION OR PROVISIONS OF LAW
SPECIFYING THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER SUCH
CONTRACT.
- An existing law enters into and forms part of a valid contract without the
need for the parties expressly making reference to it.

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 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.

UNAUTHORIZED CONTRACTS ARE UNENFORCEABLE – A person is not bound by

the contract of another of which he has no knowledge or to which he has not given his consent.
UNAUTHORIZED CONTRACTS CAN BE CURED ONLY BY RATIFICATION – the
defect is such that it cannot be cured except by the subsequent ratification (Article 1405) of the
person in whose name the contract was entered into or by his duly authorized agent and not by
any other person not so empowered. – Its effects retroact to the moment of the celebration of
the contract.

WHEN A PERSON BOUND BY THE CONTRACT OF ANOTHER

1. The person entering into the contract must be duly authorized, expressly or impliedly, by
the person in whose name he contracts or he must have, by law, a right to represent him
(like a guardian or an administrator); and
2. He must act within his power.
 ESSENTIAL REQUISITES OF CONTRACTS
ARTICLE 1318 – There is no contract unless;
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.

Essential elements: those without which no contract can validly exist – REQUISITES of a
contract. – common & special – law is decisive
Natural elements: those that are presumed to exist in certain contracts unless the contrary is
expressly stipulated by the parties. – law is supplementary
Accidental elements: stipulations, clauses, terms, or conditions established by the parties in
their contract. – law is permissive

Note: The good faith of a party in entering into a contract is immaterial in determining whether it
is valid or not – good faith not being an essential element of contract, has no bearing on its
validity.
 Absent one of the essential requisites, no contracts can arise.
 Intrinsic validity – lex contractus – proper law of the contract. – This is the law
VOLUNTARILY AGREED UPON BY THE PARTIES.

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. – The area
of agreement must have extend to all the points that the parties deem material, or there is no
consent at all.
Acceptance made by letter or telegram does not bind the offerer except from the
time it came to his knowledge. The contract, in such case, is presumed to have been entered
into in the place where the offer was made.

Consent: conformity of wills and with respect to contracts, it is the agreement of the will of one
contracting party that of another or others, upon the object and terms of the contract.
Offer: proposal made by one party to another to enter into a contract. It is really a promise to act
or to refrain from acting on condition that the terms thereof are accepted by the person to whom
it is made. – must be CERTAIN/DEFINITE AND CLEAR – it is necessary that the
acceptance be identical with the offer to create a contract without any further act on the
part of the offeror.
Acceptance: manifestation by the offeree of his assent to the terms of the offer. Without
acceptance, there can be no meeting of the minds between the parties. – must be ABSOLUTE,
UNCONDITIONAL, OR UNQUALIFIED
Qualified Acceptance: must be accepted absolutely in order that there will be a contract.
A MERE OFFER PRODUCES NO OBLIGATION.

Pro forma: for the sake of form

“willing to entertain the purchase” – does not mean the resolution to perform said act, but
simply a position to deliberate for deciding to perform or not to perform said act.
“willing to accept” – disposed to accept or was agreeable to the proposition or offer in principle,
but that the other considerations still remained before a contract of barter was perfected.
“I am very much interested to buy and acquire this Hacienda of yours in the same price,
manner, conditions and considerations other buyers will offer” – NO ACCEPTANCE –
indication that he would await the offer of any prospective buyer.

Note: In Navarra vs. Planters Development Bank, a letter-offer that merely stated that the
“purchase price will be based on the redemption value plus accrued interest at the prevailing rate
up to the date of the contract – was held ambiguous and indefinite because it failed to specify
a definite amount of the purchase price, and furthermore, a stipulated period within which
the repurchase price shall be paid.

Note: An acceptance of an offer may request certain changes in the terms of the offer and
yet may be a binding acceptance. So long as it is clear that the meaning of the acceptance is
positively and equivocally to accept the offer, whether such request is granted or not, a contract
is formed.
Example: a vendor’s change in phrase of the offer to purchase, which does not essentially
change the terms of the offer, does not amount to a rejection of the offer and the tender of a
counter-offer.

Counter-offer: when any of the elements of the contract is modified upon acceptance, such
alteration amounts to a counter-offer.

ACCEPTANCE OF COMPLEX OFFERS

1. Two or more contracts – there may be a single offer involving two or more contracts,
and it will depend upon the connection which may exist between the different contracts
or the intent of the person making the offer whether partial acceptance will create a
contract.
a. Where the contracts are related to one another, such as contract of loan and a
mortgage which will secure it, the acceptance of the loan only will not give rise to
a perfected contract.
2. Single contract covering various things – as a rule, partial acceptance will not give rise
to the perfection of the contract where the things are inter-related in themselves; but it
will give rise to a perfected contract where that relation between the things does not exist,
except where, in either case, the intent of the offeror is otherwise.

ACCEPTANCE MADE BY LETTER OR TELEGRAM

- With regard to contracts between absent persons, the acceptance may be
transmitted by any means which the offerer has authorized the offeree to
use.
KNOWLEDGE OF THE ACCEPTANCE – perfected not from the time of the letter or
telegram but the time of the offerer’s knowledge, actual or constructive, of the acceptance.
REVOCATION OF OFFER – before the acceptance is known, the offer can be revoked, it not
being necessary, in order for the revocation to have the effect of preventing the perfection of the
contract, that it be known by the acceptant.
REVOCATION OF ACCEPTANCE – may be revoked before the contract is perfected which
takes place from the time the acceptance comes to the offerer’s knowledge.
Case – Offer was withdrawn after letter containing the acceptance was sent but before it
was received by the offerer – VALID.

ARTICLE 1320 – An acceptance may be express or implied. – oral or written (express);

inferred from act or conduct (implied).
a. By promise
b. By act
i. it has been held that where a person accepts the services of another,
whether solicited or not, he has the obligation to pay the reasonable value
of the services thus rendered upon the implied contract of lease of service
unless it is shown that th e service was rendered gratuitously or
without any expectation that he would pay for the same.
c. By silence or inaction: silence cannot be construed as acceptance –
EXCEPTIONS:
i. Where the parties agree expressly or impliedly, that it shall amount to
acceptance;
ii. Where specific provisions of law so declare;
iii. Where under the circumstances such silence constitutes estoppel. (Art.
1431)
Note: One receiving a proposal to change a contract to which he is a party, is not obliged to
answer the proposal, and his silence per se cannot be construed as an acceptance.

ARTICLE 1321 – The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with. – matters that may be fixed by the offerer.

Counter-offer: acceptance departing from the terms of the offer constitutes a counter-offer; has
the effect of extinguishing the offer; constitutes a new offer which the original offerer may
accept or reject

ARTICLE 1322 – An offer made through an agent is accepted from the time acceptance is
communicated to him.
Agent – extension of the personality of the principal – if duly authorized, the act of the agent is,
in law, the act of the principal.
For a contract to arise, the acceptance must be made known to the offeror.

ARTICLE 1323 – An offer becomes ineffective upon the death, civil interdiction, insanity,
or insolvency of either party before acceptance is conveyed. – even if the offer is not
withdrawn, its acceptance will not produce a meeting of the minds in case the offer has
already become ineffective.

Note: An offer may be withdrawn before it is accepted. After the acceptance, the contract is
already perfected.
- The death of either party or his loss of capacity before perfection
precludes the formation of a contract.
Note: no contract shall be denied validity or enforceability on the sole ground that it is in
the form of an electronic data message or electronic document, or that any or all of the
elements required under existing laws for the formation of the contract is expressed
demonstrated and proved by means of electronic data messages or electronic documents.

ARTICLE 1324 – When the offerer has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before the acceptance by communicating such
withdrawal, except when the option is founded upon a consideration, as something paid or
promised. – lays down the rule regarding offer and acceptance. (Cc. Article 1479 – promise to
buy or sell.

Option contract – preparatory contract giving a person for a consideration a certain period and
under specified conditions within which to accept the offer of the offerer.
- It is separate and distinct from the projected main agreement or principal
contract itself which the parties may enter into upon the consummation of
the option or which will be perfected upon the acceptance of the offer.
- Unaccepted offer
- States the terms and conditions in which the owner is willing to sell his
property, of the holder elects to accept them within the time limited. If the
holder does so elect, he must give notice to the other party, and the
accepted offer thereupon comes a valid and binding contract. If an
acceptance is not made within the time fixed, the owner is no longer
bound by his offer, and the option is at an end.
- No obligation rests on the party to make any payment except such as
may be agreed on between the parties as consideration to support the
option until he has made up his mind within the time specified.
- Secures the privilege to buy
- Sale of the right to purchase.
Contract of sale: fixes definitely the relative rights and obligations of both parties at the time of
its execution – the obligation of the purchaser to pay the purchase price is specific, definite
and certain and consequently, binding and enforceable.
Option money – money paid or promised to be paid as a distinct consideration for an option
contract.
- Not required to buy
- Given by the buyer to the seller to bin the bargain.
- Applies to a sale not yet perfected.
Earnest money – actually a partial payment of the purchase price and is considered
as proof the perfection of the contract. – advance payment and must, therefore, be
deducted from the total price. – part of the purchase price – given only when there is already a
sale
Option – privilege given itself given to the offeree to accept an offer within a certain period.
- Binds the offerer not to enter into the principal contract with any other
person during the period fixed, and, within the period, to enter into such
contract with the offeree, if the latter should decide to use the option.
Option period – period given within which the offeree must decide whether or not to enter into
the principal contract.
G.R.: the offer may be withdrawn as a matter of right at any time before the acceptance
EXCEPT when the option is founded upon a separate consideration, as something paid or
promised.
Note: In any case, the offerer my not withdraw his offer after it has been accepted.

Contract grants right of first refusal: the deed of option or the option clause in a contract, in
order to be valid and enforceable, must, among other things, indicate the definite price at which
the person granting the option, is willing to sell. – integral part of the contract of lease. – the
lessee shall be given the right to match the offered purchase price and buy the property. –
basis must be the current offer to sell of the seller or offer of the purchaser to buy.

Contract of sale: the title passes to the vendee upon the delivery of the thing sold;
- The vendor has lost and cannot recover ownership until and unless the
contract is resolved or rescinded
Contract to sell: by agreement the ownership is reserved in the vendor and is not to pass
until the full payment of the price.
- Title is retained by the vendor until the full payment of the price.

ARTICLE 1325 – Unless it appears otherwise, business advertisements of things for sale
are not definite offers, but mere invitations to make an offer. UNLESS, all the particulars
necessary in a contract, it may amount to a definite offer which, if accepted, will produce a
perfected contract.

Example: For sale: 1,000 square meters lot at Green Plains Village, Quezon City for
P5,000,00.00 – Tel. No. 817-12-84 – NOT A DEFINITE OFFER.
For sale: 1,000 square meters lot at Green Plains Village, Quezon City located at the
corner of Geronimo and Magallanes Streets for P5,000,00.00 – Tel. No. 817-12-84 – DEFINITE
OFFER.

ACCEPTANCE OF GENERAL OR PUBLIC OFFERS

G.R.: an offer is made to a particular person – only such person, and no other, can accept the
offer. This is because “a party has a right to select and determine with whom he will contract,
and cannot have another person thrust upon him without his consent.”
EXP: GENERAL OFFER: as soon as there is an acceptance by a person falling within the class
to whom the offer is made, there is a binding contract.

Note: Where a party publishes an offer to the world, and before it is withdrawn another
acts upon it, the party making the offer is bound to perform his promise.

ARTICLE 1326 – Advertisements for bidders are simply invitations to make proposals,
and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary
appears.
Bidding: making an offer or an invitation to prospective contractors whereby the
government manifests its intention to make proposals for the purchase of supplies,
materials and equipment for official business or public use, or for public works or repair.
Public bidding – lowest bidder – imports a sale to the highest bidder wit absolute freedom for
competitive bidding.
Disposition of government assets – biggest bidder
The bidder is the one making the offer which the advertiser is free to accept or reject.
Acceptance by the advertiser- necessary for a contract to exist between the advertiser and the
bidder, regardless of the terms and conditions of his bid.
Notice of Acceptance: binds the formal contract, in absence of such notice, there is no meeting
of the minds.

Note: The owner of the property which is advertised for sale, either at public or private
auction, has the right to prescribe the manner, conditions and terms of the sale and
anybody participating in such sale is bound by all the conditions, whether he knew them or
not.
- A reservation in the advertisement for bids of the right of the government
to reject any bid, generally vests in the authorities a wide discretion as to
who is the best and most advantageous bidder.
NOTE: A CONTRACT GRANTED WITHOUT THE COMPETITIVE BIDDING
REQUIRED BY LAW IS VOID.
3 Principles of Bidding
1. Offer to the public
2. An opportunity for competition
3. A basis for exact comparison of bids

ARTICLE 1327 – The following cannot give consent to a contract:

1. Unemancipated minors;
a. Who have not yet reached the age of majority (18 years) and are still subject to
parental authority.
b. Emancipated – age of majority, by marriage, or by the recording in the Civil
register of an agreement in a public document executed by the parent exercising
parental authority and the minor at least 18 years of age.
2. Insane or demented persons, and deaf-mutes who do not know how to write.
Can easily be the victims of fraud as they are not capable of understanding or knowing the
nature or import of their actions. They can enter into a contract only through a parent or
guardian.

Note: To form a valid and legal agreement, it is necessary that there be a party capable of
contracting and a party capable of being contracted with.

CAPACITY OF PERSONS:
1. NATURAL: natural persons; must also have the legal capacity – based on nature or real
absence of aptitude to consent, as in the case of an insane. – absence of natural capacity
results in natural incapacity.
 2. LEGAL: refers not only to natural persons, but also to artificial as well – based on
positive provisions of law, and exist in opposition to, or as limitations of, natural
capacity, as in the case of persons under civil interdiction.
a. On the existence of superior rights of third persons, like the incapacity of the
insolvent;
b. on the ground of public policy
Note: A person is not incapacitated to contract merely because of advanced years or by
reason of physical infirmities, unless such age and infirmities impair his mental faculties to the
extent that he is unable to properly intelligently and fairly understand the provisions of the
contract.

A contract entered into where one of the parties is incapable of giving consent to a contract
– VOIDABLE – valid and binding until it is annulled by a proper action in court.

Note: The supreme Court has held that the sale of real estate, effected by minors who have
already passed the age of puberty and adolescence and are near the adult age when they
pretended to have already reached their majority, when in fact they have not; IS VALID; and
cannot be permitted afterwards to excuse themselves from compliance with obligations
assumed by them or to seek their annulment. – the other party had good reason to believe and did
in fact believe the minor capable of contracting.
NOT APPLICABLE – where the vendor, a minor, did not pretend to be of age, and his
minority was known to the purchaser
Note: A misrepresentation made by a minor as to his age does not estop him from denying that
he was of age at the time he entered into a contract on the reasoning that a minor who cannot
bind himself by a contract should not be bound by misrepresentation he may have made in
connection therewith.

Estop: to prevent a party from asserting a claim, right, or argument. –

Insane or demented persons: MUST EXIST AT THE TIME OF CONTRACTING.

- The mere fact that the vendor was judicially declared incapacitated nine
days after the execution of the deed of sale does not prove conclusively
that he was incapacitated when the contract was executed, and in the
absence of sufficient proof that he was suffering from mental alienation at
the specified time, the declaration does not warrant the annulment of said
contract.

ARTICLE 1328 – Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are voidable. – impair the
capacity of a person to give intelligent consent. – temporary insanity

Lucid Interval: temporary period of sanity. – a contract entered into is VALID. – it must be
shown, however, that there is full return of the mind to sanity as to enable him to
understand the contract he is entering into.
ARTICLE 1329 – The incapacity declared in Art. 1327 is subject to the modifications
determined by law, and is understood to be without prejudice to special disqualifications
established in the laws.

Note: WEAKNESS OF MIND ALONE, not caused by insanity, is not a ground for
avoiding a contract.
Exception: When such age or infirmities have impaired the mental faculties as to prevent
the person from properly, intelligently and firmly protecting his property rights, then he is
undeniably incapacitated.

1. When necessaries such as food, are sold and delivered to a minor or other person
without capacity to act, he must pay a reasonable price therefor.
2. A minor, 18 years old or above may contract for life, health and accident insurance,
provided, the insurance is taken on his life and the beneficiary appointed is the minor’s
estate or the minor’s father, mother, spouse, brother, or sister.
3. Through a guardian or legal representative.
4. Contract is valid - where the minor who was near majority age mispresented his actual
age and convincingly led the other party to believe in his capacity.
5. A contract is valid where a minor between 18 & 21 years of age voluntarily pays a
sum of money or delivers a fungible thing in fulfillment of his obligation thereunder and
the oblige has spent or consumed it in good faith.

Case:
1. A debtor invokes the minority of his co-debtor as a defense to release him from
liability; liability of minors for loans contracted by them.
Note: In order to hold a minor liable, the fraud must be actual and not constructive.

Other special disqualifications under Rules of Court – INCOMPETENTS AND MAY BE

PLACED UNDER GUARDANSHIP – CONTRACTS ARE VALID EXCEPT WHERE IT
IS VOIDABLE BY REASON OF INCAPACITY.
1. Persons suffering the accessory penalty of civil interdiction;
2. Hospitalized lepers;
3. Prodigals (spendthrifts);
4. Deaf and dumb who are unable to read and write;
5. Those who are of unsound mind even though they have lucid intervals;
6. Those of, by reason of age, disease, weak mind and other similar causes, cannot without
outside aid, take care of themselves and manage their property, becoming thereby an easy
prey for deceit and exploitation.
CANNOT GIVE VALID CONSENT: see Article 39.
1. Insolvents until discharged
2. Married women in cases specified by law
3. Husband and wife with respect to sale of property to each other – any community of
conjugal partnership.
4. Other persons especially disqualified by law.
ARTICLE 1330 – A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.

VALID CONSENT:
1. It is intelligent – legal capacity to act.
2. It is free and voluntary – no violence.
3. It is conscious or spontaneous – no mistake, undue influence, or fraud.

VICES OF CONSENT - VITIATE CONSET/RENDER IT DEFECTIVE:

1. Error/mistake – 1331 – impairs intelligence
2. Violence or force – 1335 – impairs freedom
3. Intimidation or threat or duress– impairs freedom
4. Undue influence – 1337– impairs freedom
5. Fraud or deceit – 1338 – impairs spontaneity

Note: It is clear that one acts as voluntarily and independently in the eyes of the law when he
acts reluctantly and with hesitation as when he acts spontaneously and joyously.

 Reparation made by reason of a threatened civil or criminal action – BINDING

AND ENFORCEABLE.
 Contracts signed to avoid unfavorable publicity and court action – VALID – A
contract is valid even though one of the parties entered into it against his own wishes and
desires or even against his better judgment.
o In legal effect, there is no difference between a contract wherein one of the
contracting parties exchange one condition for another because he looks for
greater profit or gain by reason of such exchange, and an agreement wherein
one of the contracting parties agrees to accept the lesser of two
disadvantages.
 CONTRACTS OF ADHESION – VALID – almost all the provisions of the contract
have been drafted by only one party and the only participation of the other party is the
affixing of his signature or his adhesion. – deprives the latter of the opportunity to
bargain on equal footing – not necessarily void – BE CONSTRUED STRICTLY
AGAINST THE ONE WHO DRAFTED THE SAME.

ARTICLE 1331 – MISTAKE OR ERROR- In order that mistake may invalidate 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.
Mistakes as to the identity or qualifications of one of the parties will vitiate consent
only when such identity or qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction. – Mistake of Fact

Mistake of fact to which law refers:

a. The substance of the thing which is the object of the contract;
b. Those conditions which have principally moved one or both parties to enter into the
contract;
 c. The identity or qualifications of the parties, provided, the same was the principal
cause of the contract.

Mistake or error: false notion of a thing or a fact material to the contract.

Nature of mistake:
a. Mistake may be of FACT or of LAW. – ignorance or lack of knowledge.
b. Mistake contemplated by law is SUBSTANTIAL MISTAKE OF FACT – the
party would not have given his consent had he known of the mistake.

Mistake of fact which DOES NOT VITIATE CONSENT

1. Error as regards the incidents of a thing or accidental qualities thereof – maximum
speed of a car. UNLESS CAUSED BY FRAUD
2. Mistake as to quantity or amount – ONLY CORRECTION, UNLESS ESSENCE OF
THE CONTRACT.
3. Error as regards the motives of the contract – UNLESS CONSTITUTE A CONDITION
OR CAUSE OF CONTRACT.
4. Mistakes as regards the identity or qualifications of a party – UNLESS PRINCIPAL
CAUSE OF THE CONTRACT.
5. Error which could have been avoided by the party alleging it, or which refers to a fact
known to him

Note: Contracts solemnly and deliberately entered into may not be overturned by
inconclusive proof or by reason of mistakes of one of the parties to which the other in no
way has contributed.

Note: Mutual mistake of contracting parties is a ground for relief and rescission.
More or less: reasonable excess or deficiency – may relieve exactness but not from gross
deficiency.

Mortgagor allegedly committee a mistake in entering into a contract for himself and not in
the name of another – ACTION WILL NOT PROSPER. – It is a general principle of law that
no one may be permitted to disavow and go back upon his acts, or to proceed contrary thereto.

Effect of simple mistake of account – does not avoid a contract because it does not affect its
essential requisites. – the defect is merely in the computation of the account or amount
which can be corrected.

ARTICLE 1332 – When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully explained to the former.
EXCEPTION TO THE RULE that the presumption in signing a document is that he does
so with full knowledge of its contents and consequences.
: This rule is especially necessary in the Philippines where unfortunately there is still a fairly
large number of illiterates, and where documents are usually drawn up in English or Spanish.
: State policy of promoting social justice.
: supplements Article 24 of the CC which calls on the courts to be vigilant in the protection of
the rights of those who are disadvantaged in life.
: Court must be vigilant to their protection

PROPER APPLICATION:
 It has first to be established convincingly that the illiterate or the party at a disadvantage
due to his;
o MEENTAL WEAKNESS
o IGNORANCE
o OTHER HANDICAP
o COULD NOT READ
o CONTRACT WAS WRITTEN IN A LANGUAGE NOT UNDERSTOOD BY
HIM.

ARTICLE 1333 – There is no mistake if the party alleging it knew the doubt, contingency
or risk affecting the object of the contract. – it is to be assumed that he was willing to take
chances and cannot, therefore, claim mistake.

ARTICLE 1334 – Mutual error as to the legal effect of an agreement when the real purpose
of the parties is frustrated, may vitiate consent. – Mistake of law – ignorance of some
provisions of law, or form an erroneous interpretation of its meaning.
: ignorance of the law excuses no one from compliance therewith – should have no proper
application.

REQUISITES:
1. Error must be mutual
2. Must be as to the legal effect of an agreement; and
3. Must frustrate the real purpose of the parties.

 Does not show their true intention – REFORMATION

 By fraud, mistake, etc. – ANNULMENT OF CONTRACT – no meeting of the
minds.

ARTICLE 1335 – There is violence when in order to wrest consent, serious or irresistible
force is employed. – requires the employment of PHYSICAL FORCE – either SERIOUS OR
IRRESISTIBLE – CONSENT IS NOT FREE. – DETERMINING THE CAUSE OR REASON
FOR GIVING CONSENT.
There is 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. – it must be IMMINENT AND GRAVE – REASON WHY HE ENTERS INTO
THE CONTRACT – nned not resort to physical force.
To determine the degree of the intimidation, the age, sex and condition of the person
shall be borne in mind.
A threat to enforce one’s claim through competent authority, if the claim is just or
legal, does not vitiate consent.
REQUISITES:
1. Intimidation must be the determining cause of the contract, or must have caused the
consent to be given;
2. The threatened act must be unjust or unlawful
3. Threat must be real and serious, leading to the choice of the contract as the lesser
evil;
4. Produce a reasonable and well-grounded fear from the fact that the person from whom
it comes has the necessary means or ability to inflict the threatened injury.

Note: A threat to refuse to comply with the terms of contract without an additional consideration
is not, of itself, intimidation.

Reverential fear – fear of displeasing a person to whom respect and obedience are due –
CONTRACT IS VALID – it does not annul consent in the absence of the actual threat,
UNLESS, the fear so deprives one of a reasonable freedom of choice as to justify the reasonable
inference has been exercised. (Art. 1337).

General or collective feeling of fear – was not sufficient to cause the nullification of acts
executed during the enemy occupation.

ARTICLE 1336 – Violence or intimidation shall annul the obligation, although it may have
been employed by a third person who did not take part in the contract. – must be of the
character required in Article 1335.

ARTICLE 1337 – 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. The
following circumstances shall be considered: the confidential, family, spiritual and other
relations between the parties, or the fact that the person alleged to have been unduly
influence was suffering from mental weakness, or was ignorant or in financial distress. – Cc
Art 24

Undue influence: influence must be of a kind that so overpowers and subjugates the mind of
a party as to destroy his free agency and make him express the will of another, rather than his
own.
ELEMENTS:
a. A person who can be influenced;
b. The fact that improper influence was exerted; and
c. Submission to the overwhelming effect of such unlawful contract.

Note: If gained by KINDNESS AND AFFECTION OR ARGUMENT AND PERSUASION,

THE INFLUENCE WILL NOT VITIATE CONSENT.

DUE INFLUENCE: solicitation, importunity, argument and persuasion - Influence obtained by

persuasion or argument or by appeals to the affection is not prohibited either in law or morals
and is not obnoxious even in courts of equity.
UNDUE INFLUENCE: influence attained by superiority of will, mind, or character which
give dominion over the will of another to such an extent as to destroy free agency

Note: If T does not want to sell the piano but he is compelled to sell it because of his
financial condition, the sale may be avoided on the ground of undue influence.

ARTICLE 1338 – There is fraud when, through insidious words or machinations of one of
the contracting parties, the other is induced to enter into a contract which, without them,
he would not have agreed to. – false promises, exaggerated expectations or benefits, abuse of
confidence, fictitious names, qualities, or power
: not necessary that they constitute ESTAFA or partake of any other criminal act.
Insidious machinations: deceitful scheme or plot with an evil design
Fraud: embraces all multifarious means which human ingenuity can device and which are
resorted to by one individual to secure an unfair advantage by which another is cheated. – state
of mind and need not be proved by direct evidence.
Deceit: false represnetaion of a matter of fact.

CAUSAL FRAUD (Dolo Causante): employed by one party prior to or simultaneous with the
creation of the contract to secure the consent of the other. – involving the use of DECEIT OR
DECEPTION. – committed through insidious words or by machinations. Or by concealment
(1339). – concealing or omitting to state material facts.
 Fraud must be that determines or is the essential cause of the contract. – QUESTION
OF FACT.

REQUISITES:
a. There must be misrepresentation or concealment by a party prior to or simultaneous to
the consent or creation of the contract.
b. It must be serious.
c. Must have been employed by only one of the contracting parties
Note: fraud committed by a third person DOES NOT VITIATE CONSENT
unless it was PRACTICE IN CONNIVANCE WITH OR AT LEAST WITH
THE KNOWLEDGE OF THE FAVORED contracting party.
d. It must be made in bad faith or with intent to deceive.
e. Induced the consent of the other contracting party.
f. Must be alleged and proved by clear and convincing evidence, and not merely by
preponderance thereof.

CASES:
1. Representation made was merely a statement of belief or expectation – NOT
FRAUDULENT. – result of errors of judgment
2. Beneficiary acquitted in a criminal case for estafa based on the fraud – the judgment
of acquittal rendered in the criminal case did not produce the effect of res judicata - has
necessarily acquired the right to collect the value of the insurance.
ARTICLE 1339 – Failure to disclose facts, when there is a duty to reveal them, as when the
parties are bound by confidential relations, CONSITUTES FRAUD. – FRAUD BY
CONCEALMENT – misrepresentation. – whether intentional or unintentional (mistake or
error) as long as there is a duty to reveal or disclose them.

G.R.: Silence or concealment – does not constitute fraud – CONCEALMENT

CONTEMPLATED – PURPOSE OR DESIGN TO HIDE FACTS which the OTHER PARTY
OUGHT TO KNOW.

Cases:
Vendee of shares concealed his identity as purchaser, being the managing director and
majority stockholder of the corporation, and his knowledge of a negotiation with the
government which if successful would enhance the price of the stock. – GUILTY –
INSIDOUS MACHINATIONS (Art. 1338)

Note: The failure of a minor to disclose his minority when making a contract does not per se,
constitute a fraud which can be made the basis of an action of deceit. – FRAUD MUST BE
ACTUAL AND NOT CONSTRUCTIVE – mere failure to disclose his age is not sufficient.

ARTICLE 1340 – The usual exaggeration in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.

Note: It is the natural tendency for merchants and traders to resort to exaggeration in their
attempt to make a sale at the highest price possible.
Customers are expected to know how to take care of their concerns and to rely on their own
independent judgment. Any person who relies on said exaggerations does so at his own peril.
(Songco vs. Sellner)

Dealer’s talk/trader’s talk – do not bind either party.

ARTICLE 1341 – A mere expression of an opinion does not signify fraud, unless made by
an expert and the other party has elide on the former’s special knowledge. UNLESS –
a. Made by an expert
b. Other contracting party has relied in the expert’s opinion
c. Opinion turned out to be false or erroneous

EXPRESS OF OPINION: misrepresentation MUST REFER TO FACTS.

ARTICLE 1342 – Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. – CONTRACT
MAY BE ANNULLED but principally on the ground of MISTAKE, even if the deceit was
without the complicity with one of the parties.

FRAUD MUST BE COMMITTED BY ONE PARTY ON THE OTHER – ACTIVE AN

THE PASSIVE SUBJECTS OF THE OBLIGATION.
Co-debtor/Co-creditor – third person. – cannot be raised as a defense to an action by the
creditor against the deceived co-debtor.
ARTICLE 1343 – Misrepresentation made in good faith is not fraudulent but may
constitute error. – NOT INTENTIONAL

ARTICLE 1344 – In order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.

TWO KINDS OF FRAUD:

CAUSAL: fraud employed to secure the consent of the other party – ground for ANNULMENT
OF A CONTRACT – vitiate consent
Pari delicto – equal fault

Requisites:
a. SERIOUS (dolo causante – essential cause of the contract)
b. NOT PARI DELICTO
c. NOT HAVE BEEN KNOWN BY THE OTHER CONTRACTING PARTY
d. INVOKED BY THE PROPER PARTY

INCIDENTAL: - dolo incidente - fraud employed to secure the consent of the other party –
ONLY RENDERS THE PARTY WHO EMPLOYS IT LIABLE FOR DAMAGES. – DO NOT
VITIATE CONSENT.

 In a case where the plaintiff misrepresented that he had an exclusive franchise and
promised to transfer it to the defendant to get from the latter a big slice in the net
profits, it was held that the false representation did not vitiate defendant’s consent
because it was used to get his consent to a big share in the profits, an incidental
matter in the partnership agreement. – VALID – WAS ONLY DECEIVED TO
THE TERMS OF THE CONTRACT.

ARTICLE 1345 – Simulation of a contract may be absolute or relative. The former

(ABSOLUTE) takes place when the parties do not intend to be bound at all; the latter
(RELATIVE) when the parties conceal their true agreement.

ARTICLE 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.

SIMULATION OF A CONTRACT: act of deliberately deceiving others, by feigning or

pretending by agreement, the appearance of a contract which is either non-existent or
concealed.

REQUISITES:
a. Outward declaration of will different from the will of the parties;
b. False appearance must have been intended by mutual agreement;
c. Purpose is to deceive third persons.
DETERMINING THE TRUE NATURE OF A CONTRACT – INTENTION – EXPRESS
TERMS OF THE AGREEMENT

Note: THE APPARENT CONTRACT IS NOT REALLY DESIRED OR INTENDED TO

PRODUCE LEGAL EFFECTS.
 Absence of TRUE CONSENT
 Purpose: hide the parties’ true intent, deceive or defraud third persons.

SIMULATED CONTRACTS – fictitious contracts – hide the violation of law. –

 NO EXISTING CONTRACT, NO REAL ACT EXECUTED
 Can be attacked by any creditor
 DOES NOT PRESCRIBE
 Insolvency of the debtor – not prerequisite to the nullity of the contract
KINDS:
1. ABSOLUTE – when the contract does not really exist and the
parties do not intend to be bound at all.
a. Inexistent and void
b. Not susceptible of ratification
c. Parties may recover from each other what they may have
given.
d. Pretended
Cases:
Contract was entered into a circumvent the law but parties intended to be bound – NOT
SIMULATED/FICTITIOUS – real and effective -

2. RELATIVE SIMULATION – when the contract entered into by

the parties is different from their true agreement
a. false cause in the contract to conceal their real agreement.
b. Does not prejudice a third person and is not intended for a
purpose contrary to law, etc.
c. NOT PARI DELICTO
d. SIMULATION – only on the content or terms.
e. When the parties intended. To be bound by the contract
except that it did not reflect the actual purchase of the
property. – VALID BUT SUBJECT TO
REFORMATION.
Cases:
C & D entered into a contract of mortgage. But wanting to hide the mortgage, it was made
to appear in the form of a deed of sale.
Two acts:
1. Ostensible act (Contract of Sale)
2. Hidden act (contract of mortgage)
Note: Under Article 1346, the parties shall be bound the real agreement. The pari delicto
rule does not apply as both the object and cause are licit. If the concealed contract is lawful,
it is absolutely enforceable where the essential requisites are present and the simulation is
only on the contents or terms thereof.

Third person questioning a contract for being simulated failed to show prejudice to his
right. – VOID – no damage even assuming that it was fraudulently executed and no proof
presented.

FRAUDULENT CONTRACTS – serious, real and intended for the attainment of a prohibited
result. – THERE IS A TRUE AND EXISTING TRANSFER OR CONTRACT.
 Accion pauliana / accion to rescind – requires that the creditor cannot recover in
any other manner what is due him.
 Can be assailed only by the creditors before the alienation.
 Prescribes in FOUR YEARS

OBJECT OF CONTRACTS – SUBJECT MATTER – OBLIGATION IS CREATED

ARTICLE 1347 – All things which are not outside the commerce of men, including future
things, may be the object of a contract. All rights which are not intransmissible may also be
the object of contracts.
No contracts may be entered into upon future inheritance except in cases expressly
authorized by law.
All services which are not contrary to law, morals, good customs, public order or
public policy may likewise be the object of a contract.

ARTICLE 1348 – Impossible things or services cannot be the object of contracts.

G.R.: All rights may be the object of a contract.

Exp, intransmissible by their nature, by stipulation, or by provision of law.

Object of contract – the thing, service, or right which is the object of the obligation

KINDS OF OBJECT – Object certain – second element of a valid contract.

1. Things (sale of property)
2. Rights (assignment of credit)
3. Services (in agency)

REQUISITES: - THINGS – Object of the contract

1. Within the commerce of men – legally be the subject of commercial transaction (1348)
2. Must not be impossible, legally or physically (1348)
3. Must be in existence or capable of coming into existence
4. Must be determinate or determinable without the need of a new contract between the
parties.

REQUISITES: - SERVICES – Object of the Contract

1. Service must be within the commerce of men
 2. Must not be impossible, physically or legally
3. Must be determinate or determinable

Outside the Commerce of Men:

 Public ownership (sidewalks, public places bridges, streets, etc)
Impossible, physically or legally:
 Prohibited drugs and all illicit objects
 To kill a person
 To get soil from planet Jupiter
 To construct a building in one day
Determinable things: (specifics)
 All the cavans of rice in a warehouse
 All the eggs in a basket
Future things or rights: things to be manufactured, raised, or acquired after the perfection
of the contract
 Wine that a vineyard is expected to produce
 Rice to be harvested next harvesting season
 Eggs that hens may lay
 Young animals not yet in existence
Intransmissible rights: political rights: such rights may not be bargained away or
surrendered for a consideration by the citizen
 Right to vote
 Family
 Marital
 Parental rights

Future Inheritance:
 any property or right, not in existence or capable of determination at the time of
the contract.
 Cannot be renounced
Requisites to be considered FUTURE:
 Succession has not yet been opened at the time of the contract
 The object of the contract forms part of the inheritance;
 Promissor has an expectancy of a right which is purely hereditary in nature.
VALIDITY – G.R: a contract concerning future inheritance is VOID, & CANNOT BE THE
SOURCE OF ANY RIGHT nor the creator of any obligation between the parties. EXCEPT:
1. In the case of future spouses who agree in their marriage settlements upon a regime
other than the absolute community of property – they may donate to each other as much
as one-fifth of their present property; future property such donations shall be governed by
the provisions on testamentary succession and the formalities of wills.
2. In the case of partition of property to take upon his death.
 a. Partition of property representing future inheritance cannot be made effective
during the lifetime of the owner.

IMPOSSIBILITY:
1. Physical: when the things or service in the very nature of the things cannot exist or be
performed.
a. ABSOLUTE: cannot be done in any case; nobody can perform it – NULLIFIES
THE CONTRACT

b. RELATIVE: arises from the special circumstances of the case; special condition
or qualifications of the obligor – TEMPORARY (DOES NOT NULLIFY THE
CONTRACT) – PERMANENT (ANNULS THE CONTRACT such as
blindness in contracts which require the use of eyesight.

c. LEGAL: contrary to law, morals, good customs, public order, or public policy;
rule of law makes it impossible to be done; to make a valid will, where the
testator is under 18 years old; forbidden by penal law.

ARTICLE 1349 – The object of every contract must be determinate as to its kind. The fact
that the quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new contract between
the parties.

Note: Quantity of object of contract need not be determinate.

Example:
1. S Sold to B all the chickens in his poultry. Here, the object itself (chickens) is
determinate but the quantity though not yet determined can be ascertained without the
necessity of entering into a new contract.
2. If the subject matter of the agreement is a parcel of agricultural land owned by S and S
happens to own many agricultural lands, the contract is void, if the particular land sold
cannot be determined without a new or further agreement between the parties.

Pro indiviso: equality sharing

Note: Executory Contract of Sell: the promise is to deliver a generic thing which is
determinable. THE MOMENT IT IS DELIVERED, it becomes determinate.

Case:
The parties failed to draw a parcelary plan of the portions of the hacienda to be leased as
provided in the contract – VALID - despite the lack, there was an ascertainable object because
the leased premises were sufficiently identified and delineated – A person cannot contradict
his written and oral admissions.
 CAUSE OF CONTRACTS:

ARTICLE 1350 – In onerous contracts the cause is understood to be, for each contracting
party, the prestation or promise of a thing or service by the other;
In remuneratory ones, the service or benefit which is remunerated;
And in contracts of pure beneficence, the mere liberality of benefactor.

CAUSE: (Causa): “Why of the contract, the essential reason which moves the contracting
parties to enter into a contract.
 Cause vs. object - in bilateral or reciprocal contract like PURCHASE & SALE –
cause for one – subject matter or object for the other.

Example:
 S sells a watch to B for P2,000. As far as S (vendor) is concerned, the subject
matter or the object is the watch and the cause is the price.
 As regards B (vendee), the subject matter or the object is the price and the
cause is the watch.

CLASSIFICATIONS:
1. ONEROUS: the parties are RECIPROCALLY OBLIGATED TO EACH OTHER.
a. A valuable consideration, however, small or nominal, if given or stipulated in
good faith, in the absence of fraud, sufficient.
b. A purely moral obligation cannot constitute a sufficient cause to support an
onerous contract.
c. A natural obligation is a sufficient cause to sustain such contract.
2. REMUNERATORY/REMUNERATIVE: cause of which is the SERVICE OR
BENEFIT.
a. Reward the service that had been previously rendered by the party renumerated.
3. GRATUITOUS: mere liberality of the benefactor or giver; pure donation.

Cases:
1. Contract is that plaintiff would receive property after being allowed to live with
defendant – VALID – donation con causa onerosa – it is governed by the provisions of
the Civil Code relating to contracts.
2. Promise to make reimbursement was prompted by feeling of moral responsibility –
purely moral, and, as such, is not demandable in law but only in conscience over which
human judges have no jurisdiction.
 3. Moral obligation – sufficient consideration to create and make effective and demandable
the obligation which he had voluntarily contracted.

Liberality as cause in contracts of beneficence - contracts designed solely and exclusively to

procure the welfare of the beneficiary, without any intent of producing any satisfaction for the
donor.
Note: BONUSES granted to employees – DO NOT CONSTITUTE DONATION HAVING
LIBERALITY FOR A CONSIDERATION.

ARTICLE 1351 – The particular motives of the parties in entering into a contract are
different from the cause thereof.

Motive: purely personal or private reason which a party has in entering into a contract. It is
different from the cause of the contract.
 Remote or indirect reason
 May be unknown
 Not element of a contract
 Illegality does not render the contract void.
Note: Cause is the essential reason which moves the contracting parties to enter into it and
justifies the creation of an obligation through their will and an essential reason for the contract.
Motive is the particular reason of a contracting party which does not affect the other party.

Note: The motive may be regarded as the cause when it predetermines the cause of the
contract.
Example:
Wife died. To preclude her heirs from inheriting and to avoid payment of estate taxes, H
(spouse) sold the conjugal property to B. The sale cannot prejudice the inheritance right of the
heirs to their share of the conjugal property. Here, the illegal motive of H predetermined the
purpose of the contract of sale rendering it null and void.

ARTICLE 1352 – Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order
or public policy.

Requisites:
1. It must exist at the time the contract is entered into.
2. It must be lawful; and
3. It must be true or real.

Note: Absence or want of cause means that there is a total lack of any valid consideration for the
contract.

Grant of right of first refusal: should the lessor sell the leased property, then, the lessee shall
be given the right to match the offered price and to buy the property at that price. The rent paid
by the lessee constitutes sufficient consideration for the grant of a right of first refusal.
Equitable mortgage:
Inadequacy of cause: not a ground for relief.
Failure of cause: does not render a contract void.

Note: A contract of sale is NULL and VOID for being without cause.
 Failure to pay the consideration is different from lack of consideration. The
former results in a right to demand the fulfilment or cancellation of the
obligation under an existing valid contract while the latter prevents the
existence of a valid contract.
Cases:
1. Effect of a bilateral promise to sell and buy. – A promise made by one party, if made
in accordance with the forms required by law, may be a good consideration for a promise
made by another. – One cannot enforce compliance with the contract and require the
other party to pay until the other party has complied with his part of the contract.
2. A simple failure of title to property conveyed gives rise to an action for breach of
warranty of title under Articles 1495(6) and 1547(1) of the CC and does not make a case
of want of cause under Article 1352.

ILLEGALITY OF CAUSE: there is cause but the same is unlawful or illegal.