LAW ON CONTRACTS

Chapter 1 to 5

CONTRACT – meeting of minds between 2 persons to give something or to

render service.

3 ELEMENTS OF CONTRACT
1. ESSENTIAL – w/o them, contract cannot exist
a. CONSENT of contracting parties
b. OBJECT CERTAIN – subject matter
c. CAUSE/CONSIDERATION
In some contracts, ff are also essential:
d. FORM
e. DELIVERY

2. NATURAL – found in certain contract, presumed to exist unless stipulated

3. ACCIDENTAL – various particular stipulations that may be agreed upon by

contracting parties

(7) CLASSIFICATION OF CONTRACTS

According to:
1. PERFECTION/FORMATION
a. CONSENSUAL – perfected by mere consent
b. REAL – perfected by delivery
c. FORMAL/SOLEMN – special formalities are essential before perfection of
contract

2. PARTIES OBLIGATED
a. UNILATERAL – only 1 has obligation
b. BILATERAL – both parties require to render reciprocal prestations

3. CAUSE
a. ONEROUS – exchange of considerations
b. GRATUITOUS – no consideration received in exchange of what is given
c. REMUNERATORY – something is given for benefit/service that had been
rendered previously

4. RISK OF FULFILLMENT
a. COMMUTATIVE – equivalent values are given by both parties
b. ALEATORY – fulfillment of contract depends on chance (eg. insurance)

5. IMPORTANCE
a. PRINCIPAL – contract may stand alone (eg. sale, partnership)
b. ACCESSORY – existence depends on another contract (pledge, guarantee)
c. PREPARATORY – contract not an end by itself but a means thru w/c other
contracts may be made (eg. agency)

6. NAME
a. NOMINATE – contract given a particular/special name (eg. partnership)
b. INNOMINATE – not given special name (eg. I give that you may give)

Notes in ObliCon by Atty JGPA Page 1

7. SUBJECT MATTER
a. Contracts involving things
b. Contracts involving rights/credits
c. Contracts involving services

3 STAGES OF CONTRACT
1. PREPARATION/CONCEPTION – preparatory steps to perfect contract
2. PERFECTION/BIRTH – meeting of minds between 2 contracting parties
3. CONSUMMATION/TERMINATION – terms of contract are performed, &
contract is fully executed

5 BASIC PRINCIPLES/CHARACTERISTICS OF A CONTRACT

1. PRINCIPLE OF AUTONOMY (liberty to contract)
Provided they are not contrary to:
a. Law
b. Morals
c. Good customs
d. Public order
e. Public policy

2. MUTUALITY OF CONTRACTS
- the contract must bind both parties; its validity/compliance cannot be left to
the will of one of them

3. RELATIVITY OF CONTRACTS
- Contracts take effect only between the parties, their assigns & heirs except
when there are rights & obligations not transmissible:
a. by their nature
b. by stipulation (stipulation por autri)
c. by provision of law

4. CONSENSUALITY OF CONTRACTS
- Contracts are perfected by mere consent
Exceptions:
a. REAL CONTRACTS – perfected by delivery
b. FORMAL/SOLEMN CONTRACTS – special form required for its perfection

5. OBLIGATORINESS OF CONTRACTS
- The contract, once perfected, has the force of law between parties which
bound to comply in good faith

4 KINDS OF INNOMINATE CONTRACTS

1. I give that you may give
2. I do that you may do
3. I give that you may do
4. I do that you may give

4 RULES FOR INNOMINATE CONTRACTS

1. Agreement of parties
2. Law on Obligations & Contracts
3. Rules on most analogous nominate contract
4. Customs of place

Notes in ObliCon by Atty JGPA Page 2

STIPULATION POR AUTRI
- stipulation in favor of 3rd person

5 REQUISITES OF STIPULATION POR AUTRI

1. Stipulation in favor of 3rd person
2. Stipulation is only PART, not the whole of the contract.
3. Both parties must conferred upon a favor of 3rd person
4. 3rd person must accept & say it to debtor before its revocation/cancellation
5. Neither of both parties be the legal representation/autho-rization of 3rd
person

CONSENT
- meeting of offer (certain) & acceptance (absolute) upon a thing

5 REQUISITES OF CONSENT
1. Must be given by 2 or more parties
2. Parties are capacitate to enter in contract
3. No vitiation of consent
4. No conflict between declared & intended
5. Legal formalities must be complied

7 RULES ON OFFER/ACEPTANCE
1. An offer must be certain.
2. Business advertisements for sale are NOT offers but ONLY invitations to
make an offer.
3. Advertisements for bidders are ONLY invitations.
4. An acceptance made by letter/telegram does NOT bind offeror EXCEPT from
the TIME it came to his knowledge.
5. An offer made through an agent is accepted from the TIME the acceptance is
done through an agent.
6. An offer is ineffective upon death, insanity, insolvency, of EITHER party
BEFORE acceptance is made.
7. When offeror allowed offeree a certain period to accept, offer MAY be
withdrawn AT ANYTIME unless there is something PAID/PROMISED.

3 persons who CANNOT GIVE CONSENT to a contract (if entered into,

contract is voidable)
1. UNEMANCIPATED MINORS
2. INSANE/DEMENTED PERSONS (unless they acted DURING LUCID INTERVAL)
3. DEAF-MUTES who DO NOT know how to write

DEMENTED PERSON – NOT exactly insane; difficult to distin-guish right from

wrong

LUCID INTERVAL – period when an INSANE has acquired SANITY temporarily,

therefore, capacitated to enter into a valid contract

2 RULES on persons WHO CANNOT GIVE CONSENT to a contract

1. Age of majority is 18 yrs old
2. A contract entered into by UNEMANCIPATED MINOR w/o parents/guardian’s
consent is voidable, except:

Notes in ObliCon by Atty JGPA Page 3

 a. Minor MISREPRESENTS his age (estoppel)
b. Contract involves sale & delivery of necessities to minor

5 VICES OF CONSENT
- NOTE: When there is a DEFECTIVE CONSENT of EITHER of parties, contract is
voidable; Remedy: annulment of contract.
1. MISTAKE/ERROR
2. FRAUD/DECEIT
3. VIOLENECE
4. INTIMIDATION
5. UNDUE INFLUENCE

1. MISTAKE/ERROR
- wrong conception & lack of knowledge upon a thing

(2) MISTAKES W/C VITIATES CONSENT

It should refer to:
1. substance of thing that is the OBJECT of contract
2. conditions w/c MOVED either/both parties to enter into contract

4 RULES ON MISTAKE
1. Mistake to identity/qualifications of either of parties will vitiate consent
ONLY when IT is the principal cause of contract.
2. Simple mistake of account must be corrected.
3. No mistake if parties knew the risk/doubt affecting OBJECT of contract.
4. When one of parties is unable to read or the contract is in language not
understood by him, & mistake/fraud is alleged, the person enforcing the
contract must FULLY explained the terms to him.

2. FRAUD/DOLO
- when through insidious words/machinations of one of the parties, INDUCED
the other to enter into a contract, & w/o them, he will not agree.

DOLO CAUSANTE DOLO INCIDENTE

- Serious - Not serious
- cause induces party -NOT the cause to enter into to
ENTER into contract contract
- make contract voidable - contract is valid;
liable for damages

7 RULES OF FRAUD
1. Failure to disclose facts when these needs to be revealed, is a fraud.
2. Fraud should be SERIOUS (dolo causante) & SHOULD NOT be done by BOTH
parties to make contract voidable.
3. Incidental fraud (dolo incidente) ONLY obliges person to PAY DAMAGES.
4. Usual exaggerations in trade, when other party know the “real” facts, is NOT
FRAUD.
5. A mere expression of opinion is NOT FRAUD UNLESS made by an expert & the
other party relies on his special knowledge.
6. Misrepresentation made in good faith is NOT FRAUD but may constitute an
error.

Notes in ObliCon by Atty JGPA Page 4

7. Misrepresentation by 3rd person DOES NOT vitiate consent UNLESS it created
substantial mistake.

3. VIOLENCE
- serious/irresistible force is employed.

2 RULES ON VIOLENCE
1. Serious/irresistible force is employed w/c constitutes the reason why one
entered into a contract.
2. Violence ANNULS obligation although it is DONE by 3rd person not part of
contract.

4. INTIMIDATION
- 1 of the parties is compelled by a reasonable & well-grounded fear of an
imminent & grave evil upon his person/property to give his consent.

3 RULES ON INTIMIDATION
1. Age, sex, & condition of person must used to determine the degree of
intimidation.
2. Intimidation ANNULS obligation although it is DONE by 3rd person not part of
contract.
3. A threat to enforce one’s claim (claim must be just & legal), DOES NOT
vitiate consent.

VIOLENCE INTIMIDATION
- External - Internal
- Physical contact/coercion - NO physical coercion;
- ONLY MENTAL/MORAL coercion

5. UNDUE INFLUENCE
- a person takes improper advantage of his power over other’s will, depriving
the other to his reasonable freedom of choice.

3 RULES ON UNDUE INFLUENCE

1. There is a person who takes improper advantage of his power over other’s
will, depriving the other to his reasonable freedom of choice.
2. Undue influence ANNULS obligation although it is DONE by 3rd person not part
of contract.
3. To constitute undue influence, ff circumstances must be considered: (1)
confidential, family, spiritual, & other relations of parties; or (2) the aggrieved
party is suffering from mental weakness; or (3) ignorant; or (4) in financial
distress.

SIMULATION OF CONTRACT
- process of INTENTIONALLY deceiving others by producing a contract not really
exist (absolute simulation), or w/c is different from true agreement (relative
simulation).

2 KINDS OF SIMULATED CONTRACT

1. ABSOLUTE SIMULATION (the parties DO NOT intend to be bound at all)
- completely fictitious/make-believe; VOID
2. RELATIVE SIMULATION (parties conceal their true/real agreement)
Notes in ObliCon by Atty JGPA Page 5
- parties are bound to real/true agreement, EXCEPT:
a. contract prejudice 3rd person
b. purpose is contrary to law, morals, good customs, public order, public
policy

7 REQUISITES OF OBJECT OF CONTRACT

1. Specific & certain
2. Services not contrary to law, morals, good customs, public order, public
policy
3. Services/things must NOT be legally/physically impossible
4. Services/things are w/in commerce of man including future things
5. Rights are NOT TRANSMISSIBLE.
6. Determinate (kind) or determinable ( w/o the need of new
contract/agreement)
7. NO contract be entered for future inheritance UNLESS law states

4 REQUISITES OF CAUSE
1. It is just & equitable.
2. It exists.
3. It is lawful.
4. It is true.

LESION
- inadequacy of cause (eg. insufficient price for thing sold)

RULES ON LESION
- Lesion DOES NOT invalidate contract, except there is:
a. Fraud
b. Mistake
c. Undue influence

2 FORM OF CONTRACTS
1. Contracts in writing
2. Contracts in a public instrument

1. Contracts w/c must be IN WRITING to be valid:

a. Donation of personal property exceeds P5000.
b. Agent’s authority in sale of land/any interest.
c. Contract of antichresis.
d Stipulation to pay interest on loans.
e. Stipulation to reduce common carrier’s extraordinary diligence & to limit
its liability.

2. Contracts w/c must be IN A PUBLIC INSTRUMENT to be valid:

a. Donation of real property (both the donation & accep-tance).
b. Sale of real property.
c. Partnership where real property/rights is contributed; or when capital
contribution exceeds P3000.

REFORMATION OF INSTRUMENTS
- REMEDY in equity in w/c a written instrument is made/construed to the REAL
intention of parties when there is an error/mistake.

Notes in ObliCon by Atty JGPA Page 6

(5) CASES REFORMATION OF INSTRUMENT IS AVAILABLE
1. Mutual mistake of parties.
2. One party was mistaken & the other acted fraud.
3. One party was mistaken & the other knew/believed that the instrument did
not state their REAL agreement.
4. Ignorance, lack of skill, negligence, or bad faith of person drafting the
instrument DOES NOT state the TRUE INTENTION of parties
5. Two parties agree on mortgage/pledge of personal/real property BUT the
instrument states the property is sold ABSOLUTELY, or w/ the right to
repurchase.

(3) NO REFORMATION OF INSTRUMENT WHEN:

1. Simple donation intervivos where NO CONDITION is imposed.
2. Will.
3. Real agreement is VOID.

Notes in ObliCon by Atty JGPA Page 7