Contracts

General provisions

A. Definition

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 some service (Art. 1305, NCC).

B. Elements of a Contract

1) Essential elements (COC)

a) Consent of the contracting parties;

i. Requisites for valid consent (Five-OAL)

- It must be free, intelligent, voluntary and excellent.

- It must be manifested by the concurrence of the offer and acceptance.

- The contracting parties must possess the necessary legal capacity.

ii. Requisites/Elements of valid offer (DIC)

- Definite or certain
- Intentional - Complete

iii. Requisites of valid acceptance (U2)

- Unequivocal (leaves no
doubt) - Unconditional /
Absolute

iv. Persons who can’t give consent (U-DID)

- Unemancipated minors
- In a state of drunkenness, under a hypnotic spell, or cases of somnambulism

- Insane or demented person

- Deaf mutes who do not know how to write.

v. Vices of consent (FIVE U)

- Fraud or deceit
Through insidious words or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without them, he would not have
agreed to. (Incidental and Causal fraud)
Ex: A offers B a Rolex watch. A made B believe it’s genuine though he it is fake.

- 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.
 Ex: A asks B to lease B’s land or else he will sets B’s house on fire.

- Violence or force
When in orders to wrest consent, serious, or irresistible force is employed.
Ex: A asks B to buy his laptop for P15K. However, B refused. A then punches B in
the face until he agreed to buy it.

- Error or mistake
It is the false notion of a thing or a fact material to the contract.
Ex: A and B entered into a contract of sale for a piece of land worth P5M. The
clerk who made the deed sale mistakenly typed P50K.

- 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.
Ex: A, a tenant needs P10K for the rental payment. A try to borrow money from B
but the latter instead tells him to sell his piano for 10K. A has nobody to turn to
for assistance. If A does not want to sell the piano but he is compelled to sell it
because of his financial condition, the sale may be avoided on the ground of
undue influence,

b) Object certain which is the subject matter of the contract

i. Requisites (CNED)

The object must be:

- Within the commerce of men

- Not legally or physically impossible

- In existence or capable of coming into existence

- Determinate or determinable, without the need for a new contract between the
parties.

c) Cause of the contracts is the immediate and most proximate purpose of the contract.

i. Requisites (ELT)

The cause should be:

- Exists at the time the contract is entered into.

- Lawful

- True or real (Arts. 1352, 1353, and 1409. Nos. 1, 2, and 3, NCC).

2) Natural elements - those derived from the nature of the contract and ordinarily accompany the
same such as right to resolve and warranties in sales contracts, among others. They are presumed
by law, although they can be excluded by the contracting parties if they so desire. (3 Castan, 7th
Ed., p. 324)
C. Characteristics of Contracts (MARCO)

1) Mutuality
The contract must bind both contracting parties; its validity or compliance cannot be left to the will
of one of them. (Art. 1308)
 2) Autonomy of Will
Freedom to Stipulate and its Limitations.

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, or
public policy. (Art. 1306, NCC)

3) Relativity
Contracts take effect only between the parties and thus only the parties to the contract may sue to
enforce it or to set it aside.

4) Consensuality
Mutual consent as to the object and cause is sufficient for perfection.

5) Obligatory Force
Obligations arising from contracts have the force of law between the contracting parties and should
be complied with in good faith. (Art. 1159, NCC)

D. Stages in the life of a Contract (PPC)

1) Preparation
Negotiation between the parties that leading to the perfection of the contract.

2) Perfection
Parties here come to a definite agreement or meeting of the minds regarding the contract.

3) Consummation
The performing and fulfilling of their respective obligations.

E. Forms of Contracts

GR: There is no need for a specific form, provided all the three essential requisites for their validity are
present.

Ex: A left note in the store of B offering P1k for a table B is selling. The following day B called A by
phone accepting the offer of B who promised to pay the next day. The note and the oral acceptance
constitute a legally enforceable contract and both A and B are fully bound.

XPN:

1) When the law requires that the contract must be in a certain form in order to be valid; and

2) When the law requires that the contract must be in a certain form in order to be enforceable.

Ex’s: Donation of real property must be in a public instrument (Art. 749); Donation of personal
property the value of which exceeds P5K must be in writing (Art. 748); Stipulation to pay interest
must be in writing, otherwise no interest is due (Art. 1956); and Contract of Partnership if
immovables are contributed, it must be in a public instrument.

F. Defective Contracts
Rescissible Voidable Contracts Unenforceable Void/Inexistent
Contracts Contracts Contracts
Definition Rescissible contracts Voidable contract is These are contracts Void contracts are
are contracts which a contract in which which cannot be absolute nullity
are considered valid, all of the essential enforced by a proper and produce no
binding, and effective elements for validity action in court, effect, as if it had
 until it is rescinded are present, but the unless they are never been
and contains all the element of consent ratified, because executed or
requisites of a valid is vitiated either by either they are entered into.
contract and are lack of legal entered into without
considered legally capacity of one of or in excess of
binding, but by the contracting authority or they do
reason of injury or parties or by not comply with the
damage (lesion) to mistake, violence, Statute of Frauds, or
either of the intimidation, undue both the contracting
contracting parties or influence, or fraud. parties do not
to third persons, such possess the required
as creditors, it is NOTE: One of the legal capacity.
susceptible to contracting parties
rescission at the is incapacitated.
instance of the party If both are
who may be incapacitated, then
prejudiced thereby. it is unenforceable
contract.
Examples a) Contracts If Marimar, an In a sale, Y claimed a) Illegal
entered into on insane person, that he was an Contracts –
behalf of wards entered into a agent of X, even if Those whose
contract with a not. The contract cause, object
Ex: Gina is the carpenter to repair cannot be enforced or purpose is
guardian of the roof of her against X. contrary to
Wendell (ward). house, this contract law, morals,
Gina sells the can be annulled as it Another example is good customs,
property of has been entered when the agent is public order, or
Wendell worth 20M into by a person authorized to lease public policy
for only 14M. The who is the property but the
contract of sale incapacitated. agent instead sells b) Those whose
can be rescinded However, Marimar is the property. The cause or object
because the lesion Senyora principal is not did not exist at
is Santibanez’s ward, bound. the time of the
more than one- Senyora Santibanez transaction
fourth. Wendell can make an A statute which
can rescind the express or tacit requires certain Examples are
sale by proper ratification of the types of contracts to contracts
action in court repair, especially if it involving a
be in writing in order
upon reaching the will redound to the future
to be enforceable.
age of majority. benefit of her inheritance
incapacitated ward. (which is
Both contracting merely an
b) Contracts agreed parties are
A signed a inchoate
upon in incapacitated.
contract at interest) or
representation contracts
of absentees. gunpoint.
involving
donation of
An absentee is a future
person who property.
disappears from
his domicile, his Contract expressly
whereabouts being prohibited or
unknown, and declared void by
without leaving an law:
agent to
administer his Sale of property
property. between husband
and wife except
Ex: Wendell, the when there is a
 owner of a resort in separation on
Laguna, left his property (Art.
property without 1490)
notice and without
leaving a Every donation
representative to between the
take care of his spouses shall be
property. void except
moderate gifts
Bea, a family
which the spouses
friend, volunteered may give each
in taking over other on the
Wendell’s business. occasion of any
Due to a storm, family rejoicing.
Wendell’s business
is greatly affected Those where the
due to the intention of the
destruction of parties relative to
some of the the principal
buildings of the object of the
resort and needs contract cannot be
additional funds to ascertained;
recover from such
Anna sold his land
distress. Bes
to Ben. Anna has
decided to sell one
many lands. It
property of Wendell
cannot be
worth 15M and sold
determined which
it for only 10M.
land was intended
When Wendell
by
returned, Wendell
can rescind the
Contract of Sale
contract of sale
of Land entered
made by Bea
into by the
because the lesion
Agent. In such a
is more than one-
case, the
fourth.
contract is Void.
Art. 1784 – in an
c) Contracts
agency to sell a
undertaken in
fraud or parcel of land, the
creditors authority of the
agent must be in
Ex: Gina made a writing. Otherwise,
donation of a any sale entered
parcel of land to into by the agent
Wendell. Before is void. [So, if
the date of the there is no
donation, Gina had authority, or even
contracted several if there is, but the
debts. With the authority is not in
donation to
writing, then the
Wendell, the
contract is void.]
remaining property
of Gina is not
sufficient to pay all
her debts. The
donation can be
rescinded because
the alienation is
 presumed in fraud
of creditors.

d) Contracts which
refer to things
under
litigation

Ex: Sandy sues

Ben for the
recovery of a
parcel of land. In
this case, the land
is a “thing under
litigation.”

If, during the

pendency of the
case, Ben sells the
land to Cathy
without the
approval of Sandy
or of the court, the
sale is rescissible
the parties to be
the subject of the
sale.

Prescriptibili Action for rescission Action for annulment The corresponding The action for
ty of action action for recovery, if declaration of
or defense there was total or nullity or
partial performance inexistence or the
of the unenforceable defense of nullity
contract under No. 1 or
or No. 3 of inexistence is
Art. 1403 imprescriptible.

Persons who A contracting party or Only a contracting Only a contracting A contracting party
may assail a third person who is party party or a third person
prejudiced or whose interest is
damaged directly affected.
by the contract