Contracts

[Essential Elements – Status1]

[Follow the Outline]

Part One
Modified True or False. Consider the statement true only when it is absolutely true.
Explain ALL your answers.

1. Mistake as to the qualifications of one of the parties vitiates consent.

FALSE. Mistake will only vitiate consent when the identity or qualifications of the
parties have been the principal cause of the contract. (Article 1331)

2. A mere expression of an opinion does not signify fraud.

FALSE. A mere expression of an opinion will only signify fraud if it is made by an
expert and the other party has relied on the expert’s special knowledge.

3. In contracts of pure beneficence, the cause is the liberality of the benefactor.

TRUE. Article 1350

4. There is violence when in order to wrest consent, serious or irresistible force is employed.
TRUE. Article 1335

5. A contract where consent is given through fraud is voidable.

TRUE. Article 1330. Vices of consent: mistake, violence, intimidation, undue
influence, or fraud.

6. Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.
FALSE. It is not always the case. When the law requires that a contract be in some
form in order that it may be valid or enforceable or that a contract be proved in a
certain way, that requirement is absolute and indispensable. (Article 1356)

7. The contract is void if the cause is not stated in the contract.

FALSE. There is a presumption that the cause exists and is lawful even if the cause is
not stated in the contract unless the debtor proves the contrary. (Article 1354)

8. The particular motives of the parties in entering into a contract are different from the
cause thereof.
TRUE. Article 1351.

9. A contract may be voidable even though there may have been no damage to the
contracting parties.
TRUE. Article 1390.
10. The action or defense for the declaration of the inexistence of a contract prescribes in 10
years.
FALSE. It is imprescriptible. (Article 1410)

Part Two
Multiple Choice. Choose the best answer.

1. The elements of a contract without which a contract would not exist are known as:

a. Accidental elements
b. Natural elements
c. Civil elements
d. Essential elements

2. Mistake in three of the following will make a contract voidable. Which one will not?

a. Mistake as to the substance of the thing which is the object of the contract
b. Mistake as to the principal conditions which principally moved one or both parties
to enter into the contract
c. Mistake as to the identity or qualifications of one of the parties, which identity or
qualifications have been the principal cause of the contract.
d. Simple mistake of account – correction only (Article 1331)

3. It is present 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, and ascendants to give his consent:

a. Violence c. Intimidation (Article 1335)

b. Physical coercion d. Mistake

4. Elements that accompany certain contracts unless set aside or suppressed by the parties are
known as:

a. Natural elements
b. Accidental elements
c. Essential elements
d. Original elements

5. One of the following is not an accidental element of contract:

a. Terms of payment
b. Rate of interest
c. Place of delivery
d. Warranty against eviction
6. One of the following is not incapacitated to give his consent.

a. Insane persons
b. Deaf-mutes who do not know how to write
c. Deaf-mutes who know how to read (Article 1327)
d. Unemancipated minors

7. A contract entered into by an incapacitated person is:

a. Void c. Rescissible
b. Voidable d. Unenforceable

8. The following are the vices of consent, except:

a. Violence c. Mistake
b. Intimidation d. Due influence (Article 1330)

9. Mistake in three of the following will make a contract voidable. Which one will not?

a. Mistake as to the substance of the thing which is the object of the contract
b. Mistake as to the principal conditions which principally moved one or both parties to
enter into the contract
c. Mistake as to the identity or qualifications of one of the parties, which identity or
qualifications have been the principal cause of the contract.
d. Simple mistake of account.

10. It involves the employment of serious or irresistible force to obtain consent.

a. Intimidation c. Violence (Article 1335)

b. Threat d. Moral coercion

11. The following are rescissible contracts, except:

a) Entered into by guardian whenever ward suffers damage more than ¼ of value of
property.
b) Agreed upon in representation of absentees, if absentee suffers lesion by more than ¼
of value of property.
c) Contracts where fraud is committed on creditor (accion pauliana).
d) Contracts entered into by minors.

12. The following are the requisites before a contract entered into in fraud of creditors may
be rescinded, except:
a) There must be credit existing prior to the celebration of the contract.
b) There must be fraud, or at least, the intent to commit fraud to the prejudice of the
creditor seeking rescission.
 c) The creditor cannot in any legal manner collect his credit (subsidiary character of
rescission)
d) The object of the contract must be legally in the possession of a 3rd person in good
faith.

How to determine whether a contract is entered into in fraud of creditors?

1. There must be an intention to defraud creditors.

2. There must be a pre-existing obligation at the time it was entered into.

Note: Even if the contract was entered into before the obligation arose, it is still in
fraud of creditors when the purpose is really to defraud creditors.

3. The existence of fraud or bad faith on the part of the debtor which can either be presumed
or proven; and

4. The creditors cannot recover their credits in any other manner.

13. Which of the following expresses a correct principle of law? Choose the best answer.
a) Failure to disclose facts when there is a duty to reveal them, does not constitute fraud.
b) Violence or intimidation does not render a contract annullable if employed not by a
contracting party but by a third person.
c) A threat to enforce one’s claim through competent authority, if the claim is legal or
just, does not vitiate consent.
d) Absolute simulation of a contract always results in a void contract. (Article 1346)

14. Aligada orally offered to sell his two-hectare rice land to Balane for P 10Million. The
offer was orally accepted. By agreement, the land was to be delivered (through execution
of a notarized Deed of Sale) and the price was to be paid exactly one-month from their
oral agreement. Which statement is most accurate?

a) If Aligada refuses to deliver the land on the agreed date despite payment by Balane,
the latter may not successfully sue Aligada because the contract is oral.
b) If Aligada refused to deliver the land, Balane may successfully sue for fulfillment of
the obligation even if he has not tendered payment of the purchase price.
c) The contract between the parties is rescissible.
d) The contract between the parties is subject to ratification by the parties -
unenforceable

15. Which of the following contracts is void?

a) An oral sale of a parcel of land.
b) A sale of land by an agent in a public instrument where his authority from the
principal is oral. (Article 1874)
c) A donation of a wrist watch worth P 4,500.00.
d) A relatively simulated contract.
 Article 1409. The following contracts are inexistent and (4) Those whose object is outside the commerce
void from the beginning: of men;
(1) Those whose cause, object or purpose is (5) Those which contemplate an impossible
contrary to law, morals, good customs, public service;
order or public policy; (6) Those where the intention of the parties
(2) Those which are absolutely simulated or relative to the principal object of the contract
fictitious; cannot be ascertained;
(3) Those whose cause or object did not exist at (7) Those expressly prohibited or declared void by
the time of the transaction; law.
These contracts cannot be ratified. Neither can the right
Part Three to set up the defense of illegality be waived.
Instruction : State the status of the contract, as a rule, under the following circumstances:

1. Those undertaken in fraud of creditors when the latter cannot in Article 1381. The following
any other manner collect the claims due them. contracts are rescissible:
***(3) Those undertaken in
RESCISSIBLE fraud of creditors when the
2. The purchaser of a private agricultural land is a former Filipino latter cannot in any other
manner collect the
citizen. The constitution prohibits acquisition of public agricultural land
claims due them;
VALID Ifresidential
former Filipino citizen and the purpose of acquisition for
purpose ARTICLE XII (CONSTI)
3. Contracts with a false cause. NATIONAL ECONOMY AND
PATRIMONY
VOID Article 1409 - (1)
4. Contract where the consideration is in Chinese Yuan. Section 7. Save in cases of hereditary
VALID succession, no private lands shall be
transferred or conveyed except to
5. Oral sale of an immovable for P450.00. individuals, corporations, or associations
UNENFORCEABLE Art. 1403 Statute of Frauds (d) qualified to acquire or hold lands of the
public domain.
6. Sale of large cattles in a private instrument.
VOID Section 8. Notwithstanding the provisions
Article of Section 7 of this Article, a natural-born
1381. The 7. The guardian sold the property of his ward valued at P100t to citizen of the Philippines who has lost his
following another person for the price of P70t. Philippine citizenship may be a transferee
contracts of private lands, subject to limitations
are RESCISSIBLE Art. 1381 - (1) 1/4 of 100T is 25T. provided by law.
rescissible: 8. A Deed of Absolute Sale which does not contain a provision as to
(1) Those
which are the price. Art. 1403. The following contracts are
entered VALID unenforceable,
into by
guardians 9. Oral sale of a bag where it was agreed that the bag will he **The Statute of Frauds (SoF) is just a
whenever delivered after 18 months and payment will be upon delivery. rule which requires
the wards
whom they UNENFORCEABLE Art. 1403 Statute of Frauds (a) certain contracts to be in writing. Take
note, only in
represent 10. Lease involving a car for three years. writing.**
suffer
lesion by VALID Sale of immovable, price is irrelevant
more than under statute of fraud
one-fourth
of the
value of the Part Four
things
which are
Give direct and concise but complete answers.
the object Cite authorities, if any.
thereof;

1. With the intention of raising money to buy a gun which he would use in killing X, his
mortal enemy, S sold his only car for P100,000.00 cash to B who knew nothing of the
intention of S in selling the car. After the sale, S was able to buy a gun complete with all
the papers required by law. B, on the other hand, was able to register the car in his name
at the Land Transportation Office. What is the status of the sale?

The sale is valid. The law provides that motive and cause are different things. The
illegality of the motive does not necessarily affect the validity of a contract. However, if
the motive is illegal or unlawful because it is contrary to law, morals, public policy, it
Article 1351. The particular motives of the parties in entering into a contract are different from the cause thereof. (n)
 may only affect the validity of the contract if the motive predominates the purpose of
the party in entering into the contract. (Article 1351)
2. On March 13, 2008, Ariel entered into a Deed of Absolute Sale (DAS) with Noel where
the former sold his titled lot in Quezon City with an area of three hundred (300) square
meters to the latter for the price of P300,000.00. The prevailing market value of the lot
was P3,000.00 per square meter. On March 20, 2008, they executed another “Agreement
to Buy Back/Redeem Property” where Ariel was given an option to repurchase the
property on or before March 20, 210 for the same price. Ariel, however, remained in
actual possession of the lot. Since Noel did not pay the taxes, Ariel paid the real property
taxes to avoid a delinquency sale.

On March 21, 2010, Ariel sent a letter to Noel, attaching thereto a manager’s check for
P300,000.00 manifesting that he is redeeming the property. Noel rejected the redemption
claiming that the DAS was a true and valid sale representing the true intent of the parties.
Ariel filed a suit for the nullification of the DAS or the reformation of said agreement to
that of a Loan with Real Estate Mortgage. He claims the DAS and the redemption
agreement constitute an equitable mortgage. Noel however claims it is a valid sale with
pacto de retro and Ariel clearly failed to redeem the property.

As the RTC judge, decide the case with reasons.

I will decide in favor of Ariel and allow the reformation of the agreement. The DAS
and the redemption agreement constitute an equitable mortgage and Ariel may ask for the
reformation of the agreement to that of a Loan with Real Estate Mortgage as allowed by
Article 1605. The circumstances clearly show that the agreement is an equitable mortgage,
such as the:
a. Price of the lot was inadequate since it was only sold at P300,000 when the prevailing
market value of such was P900,000;
b. The vendor, Ariel, remained in actual possession of the property after the purported
sale; and
c. Ariel was the one who paid the real property taxes.

Under the circumstances, a presumption arises under Article 1602 that what was really
executed was an equitable mortgage. Moreover, Article 1603 provides that in case of doubt, a
contract purporting to be a sale with right to repurchase shall be construed as an equitable
mortgage.

2. Lino entered into a contract to sell with Ramon, undertaking to convey to the latter one of
the five lots he owns, without specifying which lot it was, for the price of P1 million.
Later, the parties could not agree which of five lots he owned Lino undertook to sell to
Ramon. What is the standing of the contract?
The contract is void. Under Article 1409(6), those where the intention of the parties
relative to the principal object of the contract cannot be ascertained are inexistent and
void from the beginning.

Ariel’s contention is with merit. The contract in the case is an equitable mortgage.
Jurisprudence provides that there are several badges of equitable mortgage in the contract such
as: 1. the price of a sale with right to repurchase is unusually inadequate; 2. The vendor
remains in possession of the property; and 3. The vendor binds himself to pay the taxes on the
property sold. From the facts of case at bar, it can be deduced that the real intention of the
parties is for the transaction to secure the payment of a debt or the performance of any other
obligation. Therefore, Ariel has the right to redeem the mortgaged property upon full payment of
the debt.
4. X was the owner of a 10,000 square meter property. X married Y and out of their union,
A, B and C were born. After the death of Y, X married Z and they begot as children, D,
E and F. After the death of X, the children of the first and second marriages executed an
extrajudicial partition of the aforestated property on May 1, 1970. D, E and F were given
a one thousand square meter portion of the property. They were minors at the time of the
execution of the document. D was 17 year old, E was 14 and F was 12; and they were
made to believe by A, B and C that unless they sign the document they will not get any
share. Z was not present then. In January 1974, D, E and F filed an action in court to
nullify the suit alleging they discovered the fraud only in 1973.
a) Can the minority of D, E and F be a basis to nullify the partition? Explain your
answer.
Yes, minority can be a basis to nullify the partition because D, E, and F were
not properly represented by their parents or guardians at the time they
contracted the extrajudicial partition. (Article 1327; Article 1391)

b) How about fraud? Explain your answer.

In the case of fraud, when through insidious words or machinations of one
party, the other is induced to enter into the contract without which he would not
have agreed to, the action will prosper because under Article 1391, in case of
fraud, the action for annulment may be brought within four years from the
discovery of the fraud.

5. Eduardo borrowed P50,000.00 from Diego payable within 30 days. Eduardo failed to
pay the debt on the due date despite repeated demands from Diego. When the debt
remained unpaid for 6 months, Diego asked his counsel, Atty. Santos, to write a letter to
Eduardo informing him that unless Eduardo assigns his lot to Diego, Diego would be
compelled to file a civil complaint against Eduardo for the collection of Diego’s claim.
Eduardo, afraid of the threat of a court action against him, was forced to sign a deed of
assignment of his lot in favor of Diego. What is the status of the assignment?

Article 1335. There is violence when in order to wrest consent, serious or irresistible
force is employed.

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.

To determine the degree of intimidation, the age, sex and condition of the person shall
be borne in mind.
The assignment is valid. Article 1335 provides that a threat to enforce one’s claim through competent
authority, if the claim is just or legal, does not vitiate consent.

6. Michael Fermin, without the authority of Pascual Lacas, owner of a car, sold the same car
in the name of Mr. Lacas to Atty. Buko. What is the status of the contract between Atty.
Buko and Mr. Lacas?
 Unenforceable. Article 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers.
The contract is unenforceable. Under Article 1403, those entered into in the name of
another person by one who has been given no authority or legal representation, or who
has acted beyond his powers are unenforceable. Here, because Michael Fermin had no
authority but he sold the car in the name of Mr. Lacas, the owner, the contract is
unenforceable.

7. “X” came across an advertisement in the “Manila Daily Bulletin” about the rush sale of
three slightly used TOYOTA cars, Model 1989 for only P200,000 each. Finding the
price to be very cheap and in order to be sure that he gets one unit ahead of the others,
“X” immediately phoned the advertiser “Y” and placed an order for one car. “Y”
accepted the order and promised to deliver the ordered unit on July 15, 1989. On the said
date, however, “Y” did not deliver the unit. “X” brings an action to compel “Y” to
deliver the unit. Will such action prosper? Give your reasons.

This action will not prosper is there is a proper objection on the part of Y. But if oral evidence is
presented to prove the existence of the contract, and there is no proper objection on the part
of Y, then the action may prosper to prove the existence of the contract. As stated under the
facts, the contract is a sale of a movable property valued more than 500 pesos, hence covered
by the Statute of Frauds which require that the contract be in writing. In this case there is only a
verbal contract. Action will not prosper if there is a proper objection.oral sale of movable must be in
writing to be enforeceable

8. Sergio is the registered owner of a 500-square meter land. His friend, Marcelo, who has
long been interested in the property, succeeded in persuading Sergio to sell it to him. On
June 2, 2012, they agreed on the purchase price of P600,000 and that Sergio would give
Marcelo up to June 30, 2012 within which to raise the amount. Marcelo, in a light tone
usual between them, said that they should seal their agreement through a case of Jack
Daniels Black and P5,000 "pulutan" money which he immediately handed to Sergio and
which the latter accepted. The friends then sat down and drank the first bottle from the
case of bourbon.

On June 15, 2013, Sergio learned of another buyer, Roberto, who was offering P800,000
in ready cash for the land. When Roberto confirmed that he could pay in cash as soon as
Sergio could get the documentation ready, Sergio decided to withdraw his offer to
Marcelo, hoping to just explain matters to his friend. Marcelo, however, objected when
the withdrawal was communicated to him, taking the position that they have a firm and
binding agreement that Sergio cannot simply walk away from because he has an option
to buy that is duly supported by a duly ·accepted valuable consideration.

Can Sergio claim that whatever they might have agreed upon cannot be enforced because
any agreement relating to the sale of real property must be supported by evidence in
writing and they never reduced their agreement to writing?
No. Sergio’s claim has no legal basis. Article 1403 does not apply in Option Contract.
The Statute of Frauds covers an agreement for the sale of real property or of an interest
therein. Such agreement is unenforceable by action, unless the same, or some note or
memorandum, thereof, be in writing (Article 1403 [e]). Here, Marcelo and Sergio merely
A) Yes, Marcelo has a cause of action against Sergio. As a rule, an offer can be withdrawn at any
time before acceptance by communicating such withdrawal (Art. 1324) except when the option
is founded upon a consideration as something paid or promised. In this case, although there
was no separate consideration for the option, the offer had already been accepted and thus, it
resulted into a perfected contract of sale between Marcelo and Sergio. Sale being a consensual
contract is perfected by mere consent.
 B) No, Sergio cannot claim that the agreement cannot be enforced because it was not reduced into
writing. Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. (Art. 1356) In fact when the
law requires a document or other special form, as in the acts and enumerated by law, the
contracting parties may compel each other to observe that form, once the contract has been
perfected, and this right may be exercised simultaneously with the action upon the contract.
(Art. 1357) Even an oral sale of a parcel of land is valid between the parties (Campillo vs. CA 129 SCRA 513; Zaide v. CA 163 SCRA 71)
entered into an Option Contract, which refers to a unilateral promise to buy or sell, which
need not be in writing to be enforceable. (Sanchez vs Rigos)

9. In 1950, the Bureau of Lands issued a Homestead patent to A. Three years later, A sold
the homestead to B. A died in 1990, and his heirs filed an action to recover the
homestead from B on the ground that its sale by their father to the latter is void under
Section 118 of the Public Land Law. B contends, however, that the heirs of A cannot
recover the homestead from him anymore because their action has prescribed and that
furthermore, A was in pari delicto. Decide.
As to prescription, it is not a good defense because the sale made within 3 years
from the grant under the Public Land Law is a void sale. Any alienation of the land under
this law within the 5 year prohibitory period is a void alienation. A contract which is null
and void and an action to recover from such void contract does not prescribe. However,
into the second defense that the heirs cannot recover under the in pari delicto rule, as
provided in Art. 1416, that when a law declares a contract null and void but there is no
inherent illegality (not illegal per se) in the contract and the declaration of nullity by law
is intended or designed to protect one of the parties to that contract, that person in
whose favor the law would so provide its nullity may recover what he sold to the other
party. The prohibition under the Public Land Law is intended to protect the grantee and
his family because if he sell or alienate the property within that period he would have
nothing more to cultivate himself and his family. That is why he would still have the
right to recover the property as the contract is a void contract and the in pari delicto
rule is not applicable under the facts

10. Simon owned a townhouse that he rented out to Shannon, a flight attendant with Soleil
Philippine Airlines (SPA). They had no written contract but merely agreed on a three
(3)-year lease. Shannon had been using the townhouse as her base in Manila and had
been paying rentals for more than a year when she accepted a better job offer from Sing
Airlines. This meant that Singapore was going to be her new base and so she decided,
without informing Simon, to sublease the townhouse to Sylvia, an office clerk in SPA.
(a) Can Simon compel Shannon to reduce the lease agreement into writing?
Yes. Simon can compel Shannon. Article 1403. The following contracts are
unenforceable, unless they are ratified:
(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
Yes. Simon can compel Shannon. Article 1403. The following contracts are unenforceable,
unless they are ratified: (e) An agreement for the leasing (movable/immovable) for a longer
period than one year, or for the sale of real property or of an interest therein;
o Why unenforceable? = lease of an immovable regardless of period is not covered by the
statute of fraud à unenforceable
o ART. 1357: If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to observe
that form, once the contract has been perfected. This right may be exercised simultaneously
with the action upon contract.

9. Under public land law, sale made within 5 years, action or defenses void contract does not
prescribe.
Under 1316. If contract is void is the in pari delicto rule applicable. The rule applies if the
contract is illegal, becauscontrary to law etc.. but if contract is void as to form without consent,
recovery may be made 1416, but the are exceptions 1411, 1415