Contracts - meeting of the minds between two persons whereby one binds himself, with

respect to other, to give something or to render some service

A contract undergoes stages;
1. negotiation (preparation) - covers the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is concluded(perfected)
2. Perfection(birth) - the perfection of the contract takes place upon the concurrence of
the essential elements.
Concurrence – agreement or union in action that happens simultaneously
3. Consummation or termination - where parties have fulfilled or performed their
respective obligations and undertakings under the contract.
How contracts are perfected.
Consensual contract – agreement between two or more people that creates obligations
that can be enforced by law. It can be a written document or just verbal agreement.
When people make a contract, they promise to do something and if they do not do it,
the law can help the other person.
Commodatum - it is where someone lends something to another person for free but
expects to be returned undamaged. The borrower is responsible for taking good care of
the item, but not accountable for accidents beyond their control. (real contract)
Solemn contract - when two people agree to a contract and follow the necessary rules,
the contract is legally binding and can be enforced by the law. Both parties must agree
to the terms and conditions of the contract and follow any formalities required by the
law.
Article 1306. The contracting parties may establish such stipulations, clauses, terms
and conditions as they deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.
Termination -
Characteristics of Contract
1. They are:
(1) Freedom or autonomy of contracts. — The parties may establish such stipulations,
clauses, terms, and conditions as they may deem convenient, provided, they are not
contrary to law, morals, good customs, public order, and public policy
(3) Mutuality of contracts. — Contracts must bind both and not one of the contracting
parties; their validity or compliance cannot be left to the will of one of them
(4) Consensuality of contracts. — Contracts are perfected, as a general rule, by mere
consent, and from that moment the parties are bound not only by 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.
5) Relativity of contracts. — Contracts 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.
Contact must not be contrary to morals - deal with the norms of good and right conduct
evolved in a community.
Contract must not be contrary to good 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.
Public order refers principally to public safety although it has been considered to mean
also the public weal.
Public policy is broader than public order, as the former may refer not only to public
safety but also to
considerations which are moved by the common good.
Art. 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.
Unauthorized contracts are unenforceable.
● As a general rule, 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. A contract
involves the free will of the parties and only he who enters into the contract
can be bound thereby.

Unauthorized contracts can be cured only by ratification.

Essential Requisites of contracts

1) Consent of the contracting parties - agreement of the will of one contracting party
with that of another, upon the object and terms of the contract.
Offer - proposal made by one party(offerer) to another to enter into a contract.
Acceptance - when the person receiving an offer agrees to the terms of that offer. So,
for the deal to be complete, both parties need to accept the terms.
Forms of acceptance of offer
1. acceptance by promise - giving promise where a person offers to deliver to
another certain thing
2. acceptance by act -
3. acceptance by silence or inaction
Contract of agency - when a person employs another person to do any act for himself or
to represent him in dealing with third persons.
1)Option contract - a preparatory contract giving a person for a consideration a certain
period and under specified conditions within which to accept the offer of the offerer.
Option may also refer to the privilege itself given to the offeree to accept an offer within
a certain period.
2) Option period is the period given within which the offeree must decide whether or not
to enter into the principal contract.
(3) Option money is the money paid or promised to be paid as a distinct consideration
for an option contract.
earnest money - a show of good faith that you intend to buy the home you’ve made an
offer on.
As a general rule, an offer is made to a particular person.
ART. 1327. The following cannot give consent to a contract:
1) Unemancipated minors. — They refer to those persons who have not yet reached the
age of majority (18 years) and are still subject to parental authority.
2) Insane or demented persons. — The insanity must exist at the time of contracting.
Unless proved otherwise, a person is presumed to be of sound mind at any particular
time and the condition is presumed to continue to exist.
Lucid interval is a temporary period of sanity. A contract entered into by an insane or
demented person during a lucid interval is valid.
Drunkenness and hypnotic spell impair the capacity of a person to give intelligent
consent.

Characteristics of consent.
1) It is intelligent. — There is legal capacity to act.
2)It is free and voluntary. — There is no vitiation of consent by reason of violence or
intimidation
Vices of consent.
1) error or mistake - false notion of a thing or a fact material to the contract. arise
from ignorance or lack of knowledge
2) violence or force - use of physical force to make consent.
3) intimidation or threat or duress (Ibid.) -
4) undue influence
5) fraud or deceit. - It is the fraud used by a party to induce the other to enter into a
contract without which the latter would not have agreed to
Mistake of law is that which arises from an ignorance of some provisions of law
Simulation of a contract is the act of deliberately deceiving others, by feigning or
pretending by agreement, the appearance of a contract which is either non-existent or
concealed
2) Object of Contracts - its subject matter. the obligation created. second essential
element of a valid contract.The object may be things (as in sale of property), rights (as
in assignment of credit), or services (as in agency).
Requisites of things as object of contract.
1) The thing must be within the commerce of men, that is, it can legally be the subject of
commercial transaction. (some properties cannot be subject to any contract.)
commerce of men - something to be considered as part of trade or business, it must be
something that can be bought or sold by people
2) It must not be impossible, legally or physically
3) it must be determinate or capable of being made determinate - something must
already exist or have the potential to exist. ex. if we are talking about a new plant, it
must either already be growing somewhere or have the potential to be grown in the
future.
Rights as object of contract.
As a general rule, all rights may be the object of a contract. The exceptions are when
they are intransmissible by their nature, or by stipulation, or by provision of law.
1) Outside the commerce of men. — Things of public ownership such as sidewalks,
public places, bridges, streets
2) Impossible, physically or legally. — Prohibited drugs and all illicit objects; to kill a
person,
3) Determinable things. — All the cavans of rice in a warehouse; all the eggs in a
basket;
4) Future things or rights. — Things to be manufactured, raised, or acquired after the
perfection of the contract such as wine
5) Intransmissible rights. — Political rights such as the right to vote; family, marital, and
parental rights;
Future inheritance is any property or right, not in existence or ca- pable of determination
at the time of the contract, that a person may inherit in the future.
Kinds of impossibility.
1) Physical. — when the thing or service in the very nature of things cannot exist (e.g., a
monkey that talks) or be performed.
a) Absolute. — when the act cannot be done in any case so that nobody can perform it
(e.g., to fly like a bird,
b) Relative. — when it arises from the special circumstances of the case (e.g., to make
payment to a dead person
2) Legal. — when the thing or service is contrary to law, morals, good customs, public
order, or public policy.

SECTION 3. — Cause of Contracts - main purpose or most immediate reason why

people decide to make a contract. it is basically the main goal or intention that both
parties have in mind when they agree to the terms of the contract.
Classification of contracts according to cause.
They are:
(1) Onerous or one the cause of which, for each contracting party, is the prestation or
promise of a thing or service by the other.
2) Remuneratory or remunerative or one the cause of which is the service or benefit
which is remunerated.
3) Gratuitous or one the cause of which is the mere liberality of the benefactor or giver,
such as commodatum; pure donation
Meaning of motive.
Motive is the purely personal or private reason which a party has in entering into a
contract.
Requisites of cause.
1) It must exist at the time the contract is entered into
2) It must be lawful (Ibid.)
3) It must be true or real.
Illegality of cause - The cause is unlawful if it is contrary to law, morals, good customs,
public order, or public policy.
falsity of cause is meant that the contract states a valid consideration but such
statement is not true. (fabricated)
Lesion is any damage caused by the fact that the price is unjust or inadequate.

Chapter 3
FORM OF CONTRACTS
The form of a contract refers to the manner in which a contract is executed or
manifested
Forms of contract.
(1) The contract may be (a) parol or oral, or (b) in writing, or (c) partly oral and partly in
writing. If in writing, it may be in a public or a private instrument.
public instrument - a document that is created and signed in the presence of notary
public or other authorized officials. (public inventories)
private instrument - a document that is created and signed by individuals without the
need for notary or other official witnesses.
(2) A contract need not be contained in a single writing.
3) a contract may be encompassed in several instruments
4) Similarly, a written agreement of which there are two copies, one signed by each of
the parties is binding on both
Two aspects of contracts.
1) Intent or will. — This is internal and as long as a contract exists merely as a
psychological fact, it produces no legal effect, because the law cannot take cognizance
of its existence
2) Expression of such intent or will. — It is necessary, in order that the will may produce
legal effect, that it be expressed.
Classification of contracts according to form.
1) Informal or common contract or that which may be entered into in whatever form,
provided, all the essential requisites for their validity are present.
2) Formal or solemn contract or that which is required by law for its efficacy to be in a
certain specified form.
Form for validity of contract.
1) Donation of real property. — It must be in a public instrument. (recognized by the
law)
2) Donation of personal property the value of which exceeds P5,000.00. — The
donation and acceptance must be in writing.
3) Sale of land through an agent. — The authority of the agent must be in writing
4) Contract of antichresis. — The amount of the principal and of the interest must be
specified in writing. (acquire the rights to receive)
5) Stipulation to pay interest. — It must be in writing; otherwise, no interest is due.
6) Contract of partnership. — If immovables are contributed, it must be in a public
instrument to which shall be attached a signed inventory of the immovable property
contributed.
7) Transfer or sale of large cattle. — It must be registered (so it must be in a public
instrument) and a certificate of transfer secured.
8) Negotiable instruments. — They must be in writing.

ART. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein are governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the
conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object an act
appearing or which should ap- pear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document.
All other contracts where the amount involved exceeds five hundred pesos must appear
in writing, even a private one. But sales of goods, chattels or things in action are
governed by Ar- ticles 1403, No. 2 and 1405. (1280a)

Chapter 4
REFORMATION OF INSTRUMENTS
Reformation (undo the contract) - a process of correcting mistakes so the document
accurately reflects what was actually agreed upon by both parties. ( if there is a
misunderstanding, unfair behavior, etc.
Requisites of reformation.
In order that reformation may be availed of as a remedy, the following requisites must
be present:
(1) There is a meeting of the minds of the parties to the contract;
(2) The written instrument does not express the true agreement or
intention of the parties;
(3) The failure to express the true intention is due to mistake, fraud, inequitable conduct,
or accident;
(4) The facts upon which relief by way of reformation of the instrument is sought are put
in issue by the pleadings; and
(5) There is clear and convincing evidence1 (which is more than mere preponderance of
evidence) of the mistake, fraud, inequitable conduct, or accident.

Chapter 5
INTERPRETATION OF CONTRACTS
Interpretation of a contract is the determination of the meaning of the terms or words
used by the parties in their contract.
Determining the intent of the parties is usually what courts say it is when they interpret a
contract’s language in particular cases.( understanding what the people who made the
contract were trying to say)

INTRODUCTION To Chapters 6, 7, 8 and 9

Chapter 6 RESCISSIBLE CONTRACTS
1) Rescissible contracts. — are contracts that are considered to be the least fault or
defective. This means that they are still valid contracts because all necessary
requirements(consent, object, cause) for a contract are met. However, these contracts
can be canceled or undone if one of the contracting parties involved, or even someone
else like the creditor in some way.
ex. let’s say you and a friend enter into a contract to sell a car. if it later comes to light
that the car was stolen and belongs to someone else, the contract could be rescinded
because it was based on false information.
ART. 1381. The following
1) Contracts entered into in behalf of wards. — A ward is a person under guardianship
by reason of some incapacity. contracts are rescissible: As a rule, the powers of the
guardian with respect to the property of the ward are limited to mere acts of
administration. The guardian is only allowed to make decisions about the ward’s
property that are necessary.
(2) Contracts agreed upon in representation of absentees. — An absentee is a person
who disappears from his domicile, his whereabouts being unknown, and without leaving
anyone to take care of their property. If an absentee has a contract made on their
behalf, a court can appoint someone to represent them. If the absentee’s property is
harmed by more than one-fourth of its value because of the contract, they can ask for
the contract to be canceled.
3) Contracts undertaken in fraud of creditors. — "accion pauliana," which is a way for
creditors to undo contracts that were made to cheat them. This means that if someone
owes money to a creditor and then makes a deal with someone else to avoid paying the
debt, the creditor can use accion pauliana to cancel that deal.
To use accion pauliana, a few things need to be true:
1. The creditor must have a valid claim that was owed before the questionable contract
was made.
2. The new contract must give some kind of financial benefit to a third party.
3. There must be evidence of fraud by the debtor, meaning they were trying to deceive
the creditor.
4. The creditor must not have any other way to get their money back.
4) Contracts which refer to things under litigation. — the goal is to help someone who is
involved in a lawsuit to claim ownership over something that is being fought over in
court, and that thing was part of a contract made by the other party with someone else.
The right to take legal action to cancel the contract comes into play when the defendant
(the person being sued) makes a new contract over the thing that is being fought over in
court without the knowledge or permission of the person bringing the lawsuit or the
court.
(5) Other instances. —
6) Violation of right of first refusal. — where a deed of sale is canceled because it did
not follow a right of first refusal. This means that if one party has the right to buy
something first, the terms and conditions offered to them should be the same as what is
offered to other potential buyers. If the deed of sale does not follow this rule, it can be
canceled.
1Payments made in a state of insolvency.
- about payments made by someone who is unable to pay all their debts. When a
person is insolvent, it means they don't have enough money or assets to cover
what they owe. This insolvency doesn't have to be officially declared by a court.

Chapter 7 VOIDABLE CONTRACTS

Voidable or annullable contracts are those which possess all the essential requisites of
a valid contract but one of the parties is legally incapable of giving consent, or consent
is vitiated by mistake, violence, intimidation, undue influence, or fraud.
2 types of voidable contracts
1. incapable of giving consent
2.
Binding force of voidable contracts.
They are existent, valid and obligatory unless annulled or set aside by a proper action in
court, i.e., an action instituted for that purpose.
proper action -
Annulment is a legal way to cancel a contract if one party did not fully agree to it
because of a mistake or problem. It's like saying the contract never happened in the first
place. This is done to make sure both parties are back to where they were before their
contract was made.
ex. you signed a contract to buy a car, but later found out that the seller lied about the
car’s condition. You could ask for an annulment of the contract to cancel the deal and
get your money back.
ART. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of the
consent ceases. In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by mi- nors or other incapacitated
persons, from the time the guardianship cases.
Period for filing action for annulment.
Direct court action - about the time frame in which someone can take legal action to
cancel a contract. If the contract is voidable( can be canceled) you have to go to court to
officially cancel it. Until the court cancels the contract you are still responsible for
following through with what the contract says.
Meaning and effect of ratification.
(1) Ratification - when someone agrees to and approves a contract, action, decision that
was originally not allowed or valid. (giving their consent to something that is not legally
binding.) (cured the ratification of your consent can be an absolute contract? haha
shuta)
ex. if someone signs a document that was not properly authorized, but then later agrees
to it after understanding the terms that would be considered ratification.
Kinds of ratification.
They are:
(1) Express. — when the ratification is manifested in words or in writing; or
(2) Implied or tacit. - It may take diverse forms, such as by silence or acquiescence; by
acts showing adoption or approval of the contract; or by acceptance and retention of
benefits flowing therefrom.

Chapter 8
UNENFORCEABLE CONTRACTS
ART. 1403. The following contracts are unenforceable, un- less they are ratified:
(1) Those entered into the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agree- ment hereafter made shall be unenforceable by action,
qunless the same, or some note or memorandum thereof, be in writing, and subscribed
by the party charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writ- ing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be per- formed within a year from the
making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to
marry;
(d) An agreement for the sale of goods, chattels, or things in action, at a price not less
than Five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things in action, or pay at the time
some part of the purchase mon- ey; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of the amount and
kind of property sold, terms of sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient memorandum;
Unenforceable contracts are those that cannot be enforced in court or sued by reason
of defects provided by law until and unless they are ratified according to law.
(ratification)
Unauthorized contracts are 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.( cannot enforced)
ex. you acted beyond your authority term “
(batas) Statute of Frauds - statute of frauds’’ is descriptive of statutes which re- quire
certain classes of contracts to be in writing. (can be unenforceable contract)
A note or memorandum is not necessary for the enforceability of a contract of partition
as it is not one of the contracts mentioned in Article 1403 which enumerates the limited
instances when written proof of a contract is essential for enforceability.
Agreements within the scope of the Statute of Frauds.
(1) Agreement not to be performed within one year from the making thereof. — In order
for this provision to be applicable, it must appear that the parties intended when they
made the contract that it should not be performed within a year.
(2) Promise to answer for the debt, default, or miscarriage of another. — In a guarantee,
the promise is merely subsidiary or collateral to the promise of another (the original or
principal debtor). If the promise is an original or an independent one, that is, if the
promisor becomes thereby primarily liable for the payment of the debt, the promise is
not within the Statute and may be proved by oral evidence
3) Agreement in consideration of marriage other than a mutual promise to marry. —
Where the marriage is a mere incident, and not the end to be attained by the
agreement, it is not deemed to be the consideration. (should be in writing)
Where there is some other consideration sufficient to support the oral agreement, in
addition to marriage, such agreement is not covered by the Statute and oral evidence is
admissible to prove the same.
4) Agreement for sale of goods, etc. at a price not less than P500.00.
5) Agreement for leasing for a longer period than one year.
6) Agreement for the sale of real property or of an interest therein.
7) Representation as to the credit of a third person.
8) Express trusts concerning an immovable or any interest therein.

Chapter 9
VOID OR INEXISTENT CONTRACTS
ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of
the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those were the intention of the parties relative to the
principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.
Void contracts are those which, because of certain defects, generally produce no effect
at all. They are considered as inexistent from its inception or from the very beginning.
- cannot be ratified
-
The expression ‘‘void contract” is, therefore, a contradiction in terms. However, the
expression is often loosely used to refer to an agreement tainted with illegality.
inexistent contracts refer to agreements which lack one or some or all of the elements
(i.e., consent, object, and cause) or do not comply with the formalities which are
essential for the exis- tence of a contract.
Characteristics of a void or inexistent contract.
They are as follows:
(1) Generally, it produces no effect whatsoever, being void or inexistent from the
beginning;
(2) It cannot be cured or validated either by time or ratification1 (Art. 1409, par. 2.);
(3) The right to set up the defense of illegality, inexistence, or absolute nullity cannot be
waived (Ibid.);
(4) The action or defense for the declaration of its illegality, inexistence, or absolute
nullity does not prescribe (see Art. 1410.);
(5) The defense of illegality, inexistence, or absolute nullity is not available to third
persons whose interests are not directly affected (see Art. 1421.);
(6) It cannot give rise to a valid contract. (see Art. 1422.); and
(7) Its invalidity can be questioned by anyone affected by it.
ART. 1411. When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto,
they shall have no action against each other, and both shall be prosecut- ed. Moreover,
the provisions of the Penal Code relative to the disposal of effects or instruments of a
crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one
may claim what he has given, and shall not be bound to comply with his promise.
Rule on pari delicto - when two parties are both at fault in a contract that is illegal or void
, they cannot ask for help from the law or the courts.

TITLE III
NATURAL OBLIGATIONS