ME 57 CONTRACTS and Obligation

ME 57 - OBLIGATION AND CONTRACTS
CHAPTER I: CONCEPT OF CONTRACTS
CONTRACT
A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render or to render service.
 The above article defines the term Contract. In a contract,

one or more persons bind themselves with respect to
another or reciprocally, to the fulfillment of a presentation to
give, to do or not to do.
CHAPER I: CONCEPT OF CONTRACTS
ELEMENTS OF A CONTRACT
1. Essential elements – those elements without which
there can be no valid contract. This element are consent,
object or subject matter and cause or consideration.
2. Natural elements – those elements which are found in
a contract by its nature and presumed by law to exist, such as
Warranty of hidden defects or eviction in contract of sale.
3. Accidental elements - those which exist by virtue of an
agreement for the purpose of expanding, limiting, or modifying
a contract. Such accidental elements are condition, clauses,
terms, modes of payment, or penalties.
CHARACTERISTICS OF A CONTRACT
1. Obligatory force – it constitutes the law as between the

parties.
2. Mutuality – its validity and performance cannot be left to
the will of only one of the parties.
3. Relativity – it is binding only upon the parties and their
successors.
4. Consensuality – the act of willfully and freely giving
consent or permission.
5. Freedom to contract – they may establish terms and
conditions as they may deem convenient.
PARTIES IN A CONTRACT
1. Auto-contracts – necessary for the existence of a
contract that two persons enter into it.
2. Freedom to contract – the contracting 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. What they may not stipulate – a contract is to be judge
by its character, court will look into the substance and not to
the mere form of the transactions
PARTIES IN A CONTRACT
What they may not stipulate

a. contrary to law
b. contrary to morals
c. contrary to good customs
d. contrary to public order
e. contrary to public policy
CLASSIFICATION OF CONTRACTS
1. According to subject matter

a. things
b. services
2. According to name
a. nominate – have their own individuality and are
regulated by specials provisions of law
b. innominate – without particular names
3. According to perfection
a. by mere consent – e.g. purchase and sales
b. by delivery of the object – (*)gratuitous loan of a
movable property which is to be returned undamaged to the
lender
4. According to its relations to other contracts
a. preparatory – e.g. agency
b. principal – e.g. lease or sale
c. accessory – e.g. pledge, mortgage or suretyship
5. According to form
a. common or informal – e.g. loan
b. special or formal – e.g. donations and mortgages of
immovable property
6. According to purpose
a. transfer of ownership – e.g. sale or barter
b. conveyance of use – e.g. commodatum (*)
c. rendition of services – e.g. agency
7. According to the nature of vinculum produced

a. unilateral – e.g. commodatum or deposit
b. bilateral – e.g. purchase and sale
c. reciprocal – vice versa
8. According to cause
a. onerous – involving heavy obligations
b. gratuitous (for free) or lucrative (profitable)
9. According to risk
a. commutative – involving substitution or exchange
b. aleatory – uncertain event
STAGES OF CONTRACTS
1. Preparatory or conception – process of formation such as

bargaining, negotiation to arrive at a define contract.
2. Perfection or birth – there is now a meeting of minds to
arrive at a definite agreement as to the subject matter, cause
or consideration, terms and conditions of contract.
3. Consumption or death – which is the fulfillment or
performance of the terms and conditions agreed upon in the
contract may be said to have been fully accomplished or
executed
AS DISTINGUISHED FROM A PERFECTED PROMISE AND

AN IMPERFECT PROMISE
WITH RESPECT TO THIRD PERSON
1. Stipulations in Favor of Third Persons

May demand its fulfillment provided the acceptance is
made prior to revocation.
2. Possession of the object of contract by third persons

Only for real rights. 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 Registrations law.
WITH RESPECT TO THIRD PERSON
3. Creditors of the Contracting Parties

Creditors are protected in cases of contracts intended to
defraud them.
4. Interference by Third Party

Any third person who induces another to violate his
contract shall be liable for damages to the other contracting
party
CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS
CONSENT - 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.
Requisites of Consent
1. Plurality of subjects
2. Capacity
3. Intelligent and free will
4. Express or tacit manifestation of will
5. Conformity of the internal will and its
manifestation
CONSENT
1. Must be manifested by the concurrence of the offer and
acceptance, with respect to object and cause.
OFFER – unilateral proposition which one party makes to the

other for the celebration of the contract. It must be:
A. It must be certain
a. definite
b. complete
c. intentional
CONSENT
OFFER
B. What may be fixed by the offeror; time, place and
manner of acceptance.
 Acceptance not made in the manner provided by the
offeror is ineffective
CONSENT
OFFER
C. When made through the agent; accepted from the
time acceptance communicated to the agent.
 An offer made through an agent is accepted from the
time acceptance is communicated to him
CONSENT
OFFER
D. Circumstances when offer becomes defective; death,
civil interdiction, insanity or insolvency.
 An offer becomes ineffective upon the death, civil
interdiction, insanity or insolvency of either party
before acceptance is conveyed.
CONSENT
OFFER
E. Business advertisements of thing for sale; not definite
offers.
 Unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere
invitation to make an offer.
CONSENT
OFFER
F. Advertisements for bidders.
 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. (not acceptable to judicial sale wherein the
highest bid must necessarily be accepted.
CONSENT
ACCEPTANCE – An unaccepted offer does not give rise to

consent.
• Contract is perfect when the offeror or counter-offeror
learns about the acceptance
CONSENT
ACCEPTANCE
A. Must be absolute – Must be absolute of all terms in
the offer. If there is any variation, even on an important point,
between the terms of the offer and the terms of the acceptance
there is no contract
CONSENT
ACCEPTANCE
B. Kinds of Acceptance
a. Express – written or oral expression indicating the
drawee has seen the instrument and does not dispute
its sufficiency.
b. Implied – arise from acts or facts which reveal the
intent to accept.
c. Qualified – not an acceptance but constitutes a
counter-offer
CONSENT
ACCEPTANCE
C. If made by letter or telegram – Acceptance made by
letter or telegram does not bind the offerer except from the
time it came to his knowledge.
CONSENT
ACCEPTANCE
C. If made by letter or telegram
Four theories on when the contract is perfected

1. Manifestation – counter-offeree manifest his acceptance
2. Expedition – sending of the letter, by mailing
3. Reception – receipt of the message of acceptance
4. Cognition – knowledge of offeror of the acceptance
CONSENT
ACCEPTANCE
D. Period of acceptance – “When the offerer has allowed
the offeree a certain period to accept”
E. Contract of option – “The offer may be withdrawn at
anytime before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as
something paid or promised.”
CONSENT
2. Necessary LEGAL CAPACITIES of the Parties
Who cannot give Consent?

The following cannot give consent to a contract:
1. Unemancipated minors
2. Insane or demented persons
3. Deaf-mutes who do not know to write
CONSENT
2. Necessary LEGAL CAPACITIES of the Parties
When offer and/or acceptance is made?

The following cannot give consent to a contract:
1. During a lucid interval - VALID
2. In a state of drunkenness – VOIDABLE
(utter want of understanding)
3. During a hypnotic spell – VOIDABLE
(utter want of understanding)
CONSENT
3. The Consent must be INTELLEGENT, FREE,
SPONTANEOUS, and REAL
A contract where consent is given through mistake,

violence, intimidation, undue influence, or fraud is VOIDABLE.
 Mistake – spontaneous
 Violence - intelligence
CONSENT
Vices of Consent
A. Mistake or Error – a wrong or false notion about such
matter, a belief in the existence of some circumstance, fact or
event which in reality does not exist
CONSENT
Vices of Consent
A. Mistake or Error
Kinds of Mistake
1. mistake of fact – generally not a ground for annulment of contracts
2. error of law – mistake as to the existence of a legal provision
General Rule: Ignorance of the law excuses no one from compliance therewith
CONSENT
Vices of Consent
B. Violence and Intimidation
Violence – There is violence when in order to wrest
consent, serious or irresistible force is employed.
Intimidation – 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 of his spouse, descendants or ascendants to give his
consent.
CONSENT
Vices of Consent
C. Undue Influence – any means employed upon a party
which, under the circumstances, he could not well resist, and
which controlled his violation and induced him to give his
consent to the contract which otherwise he would not have
entered to.
CONSENT
Vices of Consent
D. Fraud or Dolo –every kind of deception whether in
the form of insidious machination, manipulations,
concealments, misrepresentation, for the purpose of leading a
party into error and thus execute a particular act.
CONSENT
Vices of Consent
D. Fraud or Dolo
Requisites of Fraud
1. must have been employed by one contracting party
upon the other
2. induced the other party to enter into a contract
3. must have been serious
4. must have resulted in damage or injury to the party
seeking annulment
CONSENT
Vices of Consent
D. Fraud or Dolo
Kinds of Fraud
1. Dolo causante – determines or the essential cause of the
consent, ground for annulment of contract
2. Dolo incidente – does not have such a decisive influence
and by itself cannot cause the giving of consent, but only
refers to some particular or accident of the obligation
CONSENT
Vices of Consent
D. Fraud or Dolo
Effects of Fraud
1. nullity of the contract
2. Indemnification of damages
CONSENT
Vices of Consent
E. Misrepresentation
1. By a third party – misrepresentation by a third
person does not vitiate consent, unless such misrepresentation
has created substantial mistake and the same is mutual.
2. Made in good faith – not fraudulent but may
constitute error.
3. Active/passive – applicable to legal capacity
especially age.
CONSENT
Vices of Consent
F. Simulation of Contracts – Dedaration of a fictitious
will, deliberately made by agreement of the parties in order to
produce, for the purpose of deception the appearance of a
juridical act which does not exist or is different from that which
was really executed.
CONSENT
Vices of Consent
F. Simulation of Contracts
Kinds of Simulated Contracts
1. Absolute - when the parties do not intend to be
bound at all.
2. Relative – when the parties conceal their true
agreement.
OBJECT OF CONTRACT
• Thing, right or service which is the subject-matter of

the obligation arising from the contract
• Object of the contract and object of the obligation
created thereby are identical
OBJECT OF CONTRACT
What may be the object of contract

1. All things not outside the commerce of man
2. All rights not intransmissible
3. All services not contrary to law, morals, good
customs, public order or public policy
OBJECT OF CONTRACT
Requisite of Object of Contracts

1. Within the commerce of men
2. Licit, not contrary to law, morals, good custom
3. Possible
4. Determinate as to its kind
OBJECT OF CONTRACT
What may NOT be the Objects of Contracts

1. Contrary to law, morals, good customs
2. Indeterminate as to their kind
3. Out side the commerce of man
4. Intransmissible rights
5. Future inheritance, except when authorized by law
6. Impossible things or services
CAUSE OF CONTRACT
The immediate and most proximate purpose of the
contract, the essential reason which impels the contracting
parties to enter into it and which explains and justifies the
creation of the obligation through such contracts.
Requisites of Cause
1. Exist
2. True
3. Licit
CAUSE OF CONTRACT
As Distinguished From Motive

The particular motives of the parties in entering into a
contract are different from the cause thereof.
General Rule: motive does not affect the validity of the contract
CAUSE OF CONTRACT
Defective Causes and their Effects

1. Absence of cause and unlawful cause
Effect: produces no effect whatever
2. Statement of false cause in the contract
Effect: VOID if there is no other true and lawful cause
3. Lesion or inadequacy of cause
Effect: VALID unless fraud, mistake or undue influence
is present
CHAPTER III: FORM OF CONTRACTS
General Rule:
Contracts shall be obligatory, in whatever form they may
have been entered into, provided all essential requisites
for their validity are present.
Exception:
When the law requires that a contract be in some form in
order that it may be VALID or ENFORCEABLE
CHAPTER III: FORM OF CONTRACTS
Kinds of Formalities Required by Law
1. Those required for the validity of contracts

2. Those required, not for the validity, but to make the
contract effective as against third persons
3. Those required for the purpose of proving the existence of
the contract
CHAPTER IV: REFORMATION OF INSTRUMENTS
Reasons for Reformation of Instruments

1. Equity dictates the reformation of instrument in
order that the true intention of the contracting
parties may be expressed
2. Court do not attempt to make a new contract for the
parties, but only to make the instrument express
their real agreement
3. Statute of Frauds is no impediment to the
reformation of an instrument
4. Distinguished from Annulment
CHAPTER IV: REFORMATION OF INSTRUMENTS
Requisites for Reformation of Instrument
1. Meeting of the minds upon the contract

2. The true intention of the parties is not expressed in
the instrument
3. The failure of the instrument to express the true
agreement is due to mistake, fraud, inequitable
conduct or accident
CHAPTER V: INTERPRETATION OF CONTRACTS
Primacy of intention
o words ought to be subservient to the intent, not the
intent to the word
o look for the contractual intent
 If the terms of the contract are clear and leave no

doubt upon the intention of the contracting parties,
the literal meaning of its stipulation shall control.
How to Interpret Contracts

1. When it contains stipulations that admit of several meanings
2. When it contains various stipulations, some of which are
doubtful
3. When it contains words that have different significations
4. When it contains ambiguities and omission of stipulations
5. With respect to the party who caused the obscurity
6. When it is absolutely impossible to settle doubts by the rules
above
7. When the doubts are cast upon the principal objects so that the
intention cannot be known
DEFECTIVE CONTRACTS
1. RESCISSIBLE – contract that has caused particular damage
to one of the parties or to a third person and which for
equitable reasons may be set aside even if valid
2. VOIDABLE or ANNULLABLE – contract in which consent
of one of the parties is defective either because of want of
capacity or because it is vitiated
3. UNENFORCEABLE – contract that for some reason cannot
be enforced, unless ratified in a manner provided by law
4. VOID and NON-EXISTENT – contract which is an absolute
nullity and produces no effect, as if it had never been
executed or entered into
CHAPTER VI: RESCISSBLE CONTRACTS
Kinds of Rescissible Contracts

1. Entered into by guardians whenever the wards suffer lesion
by more that ¼ of things object
2. Agreed upon in representation of absentee, suffer lesion by
more than ¼ of the value of things object
3. In fraud of creditors who cannot collect claims due to them
4. Things under litigation, without knowledge and approval
litigant or of competent judicial authority
5. Specially declared by law to be subject of rescission
Rescission – contracts validly agreed upon may be

rescinded in the cases established by law
Requisites for Rescission

1. The contract is rescissible
2. The party asking for rescission has no other legal
means to obtain reparation
3. He is able to return whatever he may be obliged to
restore if rescission is granted
4. The object of the contract has not passed legally to
the possession of a third person acting in good faith
5. The action for rescission is brought within the
perceptive period of four (4) years
Who may Bring Action for Rescission
1. Creditor injured
2. Heirs of creditor injured
3. Creditors of creditor injured
(by virtue of accion subrogatoria)
CHAPTER VII: VOIDABLE AND ANNULLABLE CONTRACTS
Kinds of Voidable/Annullable Contracts – (no damage to the contracting parties)

1. Want of Capacity
2. Vitiated Consent
Characteristics of Voidable/Annullable Contracts

1. Their defect consists in the vitiation of consent of one of
the contracting parties
2. They are binding until they are annulled by a competent
court
3. They are susceptible of convalidation by ratification or
by prescription
CHAPTER VII: VOIDABLE AND ANNULLABLE CONTRACTS
Annulment distinguished from Rescission

CHAPTER VIII: UNENFORCEABLE CONTRACTS
Characteristics of Unenforceable Contracts
1. They cannot be enforced by a proper action in court

2. They are susceptible of ratification
3. They cannot be assailed by third persons
CHAPTER VIII: UNENFORCEABLE CONTRACTS
Kinds of Unenforceable Contracts
1. Entered into in the name of another person by one who has

no authority or no legal representation or acted beyond his
power
2. Do not comply with Statute of Frauds, which are
agreements unenforceable unless in written memorandum
and subscribed by the party charged
3. Both parties are incapable of giving consent to contract
CHAPTER IX: VOID OR INEXISTENT CONTRACTS
Characteristics of Void/Inexistent Contracts
1. Void from the beginning

2. Produces no effect whatsoever
3. Cannot be confirmed nor validated, neither can the right to
set up the defense of illegality be waived
CHAPTER IX: VOID OR INEXISTENT CONTRACTS
Void/Inexistent Contracts Distinguished from other Defective

Contracts
END

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ME 57 - OBLIGATION AND CONTRACTS

CHAPTER I: CONCEPT OF CONTRACTS

 The above article defines the term Contract. In a contract,

CHAPER I: CONCEPT OF CONTRACTS

CHAPTER I: CONCEPT OF CONTRACTS

1. Obligatory force – it constitutes the law as between the

CHAPTER I: CONCEPT OF CONTRACTS

CHAPTER I: CONCEPT OF CONTRACTS

What they may not stipulate

CHAPTER I: CONCEPT OF CONTRACTS

1. According to subject matter

CHAPTER I: CONCEPT OF CONTRACTS

CHAPTER I: CONCEPT OF CONTRACTS

CHAPTER I: CONCEPT OF CONTRACTS

7. According to the nature of vinculum produced

CHAPTER I: CONCEPT OF CONTRACTS

CHAPTER I: CONCEPT OF CONTRACTS

1. Preparatory or conception – process of formation such as

CHAPTER I: CONCEPT OF CONTRACTS

AS DISTINGUISHED FROM A PERFECTED PROMISE AND

CHAPTER I: CONCEPT OF CONTRACTS

WITH RESPECT TO THIRD PERSON

1. Stipulations in Favor of Third Persons

2. Possession of the object of contract by third persons

CHAPTER I: CONCEPT OF CONTRACTS

WITH RESPECT TO THIRD PERSON

3. Creditors of the Contracting Parties

4. Interference by Third Party

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CONSENT - Consent is manifested by the MEETING of the

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

OFFER – unilateral proposition which one party makes to the

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

ACCEPTANCE – An unaccepted offer does not give rise to

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

Four theories on when the contract is perfected

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

Who cannot give Consent?

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

When offer and/or acceptance is made?

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

A contract where consent is given through mistake,

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS

CHAPTER II: ESSENTIALS REQUISITES OF CONTRACTS