Contents: According to Cause:

A. Definition of Contracts: 1. Onerous – exchange of valuable considerations.

- Auto contracts 2. Gratuitous or Lucrative – (free) such as donation and
- Stages of Contracts commudatom.
B. Fundamental Characteristics/ principles of contracts 3. Remuneratory – one prestation that is given for a
1. Consensuality of Contract benefit of service that had been rendered previously.
o Contract of Adhesion
According to Degree of Dependence
2. Autonomy of Contract
3. Mutuality of Contract A. Principal – contract that could stand on its own.
4. Obligatory Force of Contract
5. Relativity of Contract B. Accessory – cannot stand on its own.
C. Classification of Contract C. Preparatory – achieving an end.
According to:
a. Perfection According to Name:
b. Degree of Dependence A. Nominate – those contracts for which a particular
c. Parties obligated name has been designated and rules particular to
d. Equivalence of Prestation them are applicable such as sales, commodatum,
e. Cause partnership, agency, deposits, etc.
f. Risk B. Innominate – those which do not have particular
g. Degree of Execution designation such as:
h. Name  Do ut des (I give that you may give.)
D. Elements of Contracts  Do ut facias (I give that you may do.)
1. Essential
 Facio ut des (I do that you may give.)
2. Natural
 Facio ut facias (I do that you may do.)
3. Accidental
E. Essential Elements of a Contract Innominate Contracts
A. Consent of contracting parties
B. Object Certain which is the subject matter. Kay innominate contracts siya wala siya pangalan under the
C. Cause or Consideration civil code. Pero ang civil code nag provide rule para mag
F. Forms of Contract govern sa innominate.
- Validity Shall be governed by:
- Enforceability (Statute of Fraud)
- Convenience 1. Agreement of the parties
G. Reformation of Instruments 2. The provisions of the Civil code on obligation and
H. Interpretation of Contracts contracts.
I. Defective Contracts 3. The rules governing the most analogous contracts.
- Rescissible Contracts (ano ang pinaka malapit nga rules)
- Voidable Contracts 4. The customs of the place
- Unenforceable Contracts
According To Parties Obliged
- Void Contracts
a. Bilateral – where both parties are reciprocally
Contracts
obligated,
A contract is a meeting of minds between two parties whereby b. Unilateral – only one party is obligated.
one binds himself, with respect to the other, to give something
Importance of Classification:
or to render some service. (Art.1305)
 As to fruits
Stages of a Contract
 As to rescission as a remedy
1. Negotiation (Preparation, Conception, or generation)  As to delay
 Involves preliminary negotiations and
bargaining. Fundamental Characteristics
2. Perfection (birth) – when parties have come to an  Autonomy of contract – Liberty of contracts or Freedom to
agreement or meeting of minds. stipulate.
3. Consummation (death) – the fulfillment of  Mutuality of Contracts
performance or term.
 Obligatory force of Contracts and Compliance in Good
According to Perfection: Faith
 Relativity of Contracts
1. Consensual – perfected by mere consent.  Consensuality of Contracts
Ex. Sale, lease, partnership, agency, real estate mortgage, Autonomy of Contracts
common carriage.
The contracting parties may establish such stipulations,
2. Real - perfected only upon delivery of the thing. clauses, terms and conditions as they may deem convenient,
Ex. Deposit, pledge, commodatum, and mutuum. provided they are not contrary to law, morals, good customs,
public order, public policy. LMGPP (Art. 1306)
3. Formal – required a certain form of validity.
 Ignorance to the Law excuses no one, from
Ex. Donation – you need to comply to the forms required by compliance there will. (Under Civil code)
law.
 Some examples of stipulation that are void:
Contrary to Law:
 Waiver for future fraud
 Pactum leonina – (Partnership) – excluding one of the
partners to share profits in the partnership. Hindi pwede
contrary to law.
 Pactum commissorium – (Mortgage/Pledge) if hindi maka
bayad ng principal amount sang loan si debtor, automatic
ang gin sangla mapupunta kay creditor. Contrary to law
 Pactum de non-aliendo – (Real Estate Mortgage)
forbidding the owner from alienating the immovable
mortgage. Gin bawalan ka eh benta property mo without
consent of the creditor.
 Restraint of trade (non-involvement/compete clause)
Example: Against Public Policy
Maecy worked for XYZ Plans as SVP under a 5-year
employment contract containing a clause which reads:
"In case of separation from the Company, Maecy shall not, for
the next two years thereafter, engaged in or be involved in the
same business or belonging to the same pre-need industry as
the Company."
After 2 years from her employment with XYZ Plans, Maecy
stopped reporting for work and assumed the position of VP-
Sales of FHJ Plans, a similar pre-need Company.
Example: Against Public Policy & Morals
Ysabel was a student in LDM School of Accountancy and
enjoyed a scholarship with a stipulation that in case she
decided to transfer to another school, she will refund all the
expenses under the scholarship.
After 3 ½ semesters, she transferred to another school. When
she requested documents and transcript of records, she was
asked to reimburse first the scholarship funds as provided in
her scholarship.
 Reason page 85 – Scholarship are granted not to
attract and to keep brilliant students in school for their
propaganda but as reward merit or help gifted to
students.
Mutuality of Contracts
The contracts must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. (Art. 1308)
 A party cannot revoke or renounce a contract without
the consent of the other.
Relativity of Contracts: Parties, Assigns & Heirs
Contracts 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. (Art.1311.)
GR: Contracts take effect only between the parties their
assigns and heirs.
Except:
 Rights and Obligations arising from the contract are
not transmissible – by nature, stipulation or by law.
Relativity of Contracts – Third person
A third person may be bound or may have a right under a
conduct:
1. Contracts creating real rights (Art. 1312)
2. Contracts in fraud of creditors (Art. 1313)
3. Interference by a third person in a contract. (Art.
1314)
4. Stipulation Pour Autrui – stipulation in favor of the
third person.
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. (Art. 1311,
2nd par.)
Stipulation Pour Autrui
In favor of the third person conferring a clear and deliberate
favor upon him, and which stipulation is merely part of a
contract entered into by the parties, neither of whom acted as
agent of the third person.
Consensuality of Contracts
GR: Contracts are perfected by mere consent.
Except:
1. Real Contracts
2. Formal or Solemn Contracts
However, FUTUR REAL CONTRACTS are consensual.
Contracts of Adhesion
Contracts were one party merely signs carefully prepared
contracts (adhesion contracts). The contract is already
prepared and the only thing left to do is to sign it. No
negotiations evolve, it is a VALID CONTRACT.
Obligatory Force of Contract
Obligations arising from contracts shall have the force of law
between the contracting parties and should be complied with in
good faith. (Art. 1159)
Upon perfection of the contract, the parties are bound to the
following:
1. The fulfillment of what has been expressly stipulated.
2. The consequences which, according to their nature, may be
in keeping with good faith, usage and law (Art. 1315)
- To summarize ang obligatory force of contract means kung
nag enter ka sa contract siguraduhin mo susundin mo ang
contracta mo. Bakit? Kay ang contract shall have the force of
law between contracting parties. If gin labag mo na, nag labag
kaman sa batas which makes you liable.
Elements of A Contract
1. Essential Elements – without them, a contract cannot
exist. COC
a. Consent
b. Object
c. Cause and Consideration
2. Natural Elements – those that are deemed included in
the contract unless set aside by the parties.
3. Accidental Elements - those that are included only if
stipulated by the parties.
ESSENTIAL ELEMENTS OF CONTRACT
Essential Requirements of a Contract
Needed to perfect a contract:
 Consensual Real Solemn/Formal  an offer made through an agent is accepted from the
Consent Consent Consent time the acceptance is communicated to him.
Object Object Object  Business advertisements generally not definite offers.
Cause Cause Cause  Advertisements for bidders are simply invitations to
Delivery Form make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the
contrary appears.
Consent
When An Offer Becomes Ineffective:
A consent is the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contracts. i. Death, Civil interdiction, insanity or insolvency of
either party before acceptance is conveyed.
Requisites of VALID CONSENT:
(Art.1323)
1. It should be intelligent (not subject of a mistake or fraud) ii. When the offeree expressly or impliedly rejects the
offer.
2. It should be free or voluntary (not subject of undue influence iii. When the offer is accepted with qualification or
intimidation or violence) condition (counteroffer)
3. It should be spontaneous. iv. when the offer is revoked in due time
v. when before acceptance is communicated, the
4. In general, should not be vitiated (spoiled or impaired). subject matter has become illegal or impossible.
Offer and Acceptance: Article 1324
1. The offer must be certain When the offeror has allowed the offeree a certain period to
2. The acceptance must be absolute. accept, the offer may be withdrawn at any time before
3. A qualified acceptance constitutes a counteroffer. acceptance by communicating such withdrawal, except when
4. An acceptance may be express or implied. the option is founded upon a consideration, as something paid
5. The person making the offer may fix the time, place, or promised.
and manner acceptance, all of which must be
complied with. Option Contract – a contract giving a person, for consideration,
a certain period within which to accept the offer of the offeror.

 It is a separate and distinct contract from the contract

Acceptance through Letter/Telegram:
 “Does not bind the offeror except from the time it
came to his knowledge” (Art.1319)
Cognition Theory – contract is perfected when the acceptance
takes effect from the time the offeror knew (or has knowledge)
of the acceptance of the offeree.
Manifestation Theory – follows that the acceptance will take
effect once it is manifested by the offeree.
Cognition theory Illustration:
On May 05, 2020, ABS wrote CBN a letter offering to sell a
house and lot for P2.5M.
On May 07, 2020, CBN received the letter and wrote ABS of
his complete acceptance.
ABS received that letter from CBN in the afternoon of May 07,
2020. However, in the morning of May 07, 2020, ABS had
already sent a letter to CBN withdrawing the offer.
Is there a perfected contract?
- No, because there is a withdrawal of
contract.
which parties may enter into upon the consummation of
the contract.
Illustration of Option Contract
Princess offered to sell her house and lot to Lovely for P10M
who was interested in buying the same. Princess gave Lovely
a period of 1 month within which to raise the amount, and that
as soon as Lovely is ready, they will sign the deed of sale.
One week before the expiration of the 1-month period,
Princess went to Lovely and told her that she is no longer
willing to sell the house and lot unless the price is increased to
P12M.
Can Lovely ask for the 10M price? No, princess can change
the contract. Unless the option is founded upon consideration.
Situations Concerning the Consent of the Parties
Simulation: which can either be:
a. Absolute simulation
- When one or both the parties did not intend
to be bound by the contract. The same is
void.
Ex. A & B jokingly entered into a contract of sale.
- This is void because there is no intention to
enter a contract of sale.
b. Relative Simulation – if the parties merely conceal
their true agreement relative simulation, they shall be
bound by their true agreement.
Incapacity of one of the parties:
Kinds of Capacity:

Offer a. Judicial Capacity

- Is the fitness to be the subject of legal
 The person making the offer may fix the time, place, relation which is inherent in every natural
and the manner of acceptance. person and lost only through death.
 -
If incapacity pertains to juridical capacity,
then the contract is VOID.
b. Capacity of act (or legal capacity)
- Is the power to do acts with legal effect
which is acquired and may be lost.
Absolute incapacity
The party cannot give consent to any contract, with anyone, in
whatever capacity, over anything.
Persons incapacitated to give consent:
1. Unemancipated minors or persons below 18yrs old
2. Insane or demented persons (except lucid interval)
3. Deaf mutes who do not know how to write.

 Lucid interval = valid (if insane person enter contract

in a “Lucid Interval’, temporary period of sanity.)
 State of drunkenness
 During a hypnotic spell voidable

Vices of Consent: Voidable Contracts

 Fraud or deceit (dolo) INTELLEC
 Mistake or Error T
 Violence or Force
 Intimidation WILL
 Undue Influence
Giving consent must also be in your free will.
Mistake or Error (Voidable)

 A false belief about something

 The error must be substantial. i.e., condition. Identity
 The Error must be excusable (not caused by
negligence)
 The error must be mistake of fact and not mistake of
law.
(Ignorance of the law excuses no one.)
Violence and Intimidation

VIOLENCE
 Physical Coercion
 Serious and Irresistible
force is employed.
Meaning:
INTIMIDATION
 Moral Coercion
 Compulsion due to
reasonable and well-
grounded fear of
imminent and grave
evil.

 Violence – when to wrest consent, serious or

irresistible force is employed.
 Intimidation – when one of the contracting parties is
compelled by reasonable and well-grounded fear of
an imminent.
Undue Influence
There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the
latter of a reasonable freedom of choice.
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
influenced was suffering from mental weakness or was
ignorant or in financial distress.