University of Cordilleras

BACC 104 (Law on Obligations and Contracts)

XPN: Real contracts, such as deposit, pledge and

CONTRACTS commodatum, are not perfected until the delivery of the
object of the obligation.
Contract; Concepts, Classification and
Limitations Principle of Autonomy of Contracts

1. Definition and concepts of a contract Any person has the liberty to enter into a contract so
long as they are not contrary to law, morals, good
customs, public order or public policy (Art. 1306, NCC)
A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to
Promise to Marry - A mere breach of a promise to marry
give something or to render some service (Art. 1305,
is not an actionable wrong, as long as it is not of such
NCC)
extent as would palpably and unjustifiably contradict
good custom.
Essential Elements
“Litigation to the sorrows caused by a broken
Consensual heart and a broken promise must be
a. Consent discouraged.
manifested by the meeting of the offer and the -Justice MVL
acceptance upon the thing and the cause which are
to constitute the contract. The offer must be certain G.R. No. 214016, Guevarra, et al. v. Banach,
and the acceptance absolute November 24, 2021
b. Object “These acts suffice to justify the wedding’s cancellation.
Subject matter of the obligation Finding out that one’s betrothed is still married to
c. Cause or Consideration another person, and that they are not who they say they
are, are reasons enough to conclude bad faith…Since
Solemn respondent himself did not act in good faith, he cannot
d. Formality claim damages under the New Civil Code. The unjust
enrichment principle under Article 22 only applies if the
Real property is acquired without legal grounds.
d. Delivery of the thing
The Court explained that Banach gave the money as a
Note: gift to help Guevarra and her parents with their possible
 Mere Promise - tends only to assure and pave the eviction from their home. It added that the money being
way for the celebration of a contract in the future a gift, petitioner Guevarra is correct to say that she
 Acceptance made by letter or telegram does not bind cannot be compelled to return the same.
the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed Morals and Good Customs.
to have been entered into in the place where the offer Morals have particular reference to standard of justice
was made. (right and wrong) and decency acknowledged by society.

Meeting of Minds Public Order

Public order specifically considers the public welfare,
Principle of Consensuality peace, safety and health of the community.
GR: Contracts are perfected by mere consent, and from
that moment the parties are bound not only to the  Common carrier cannot stipulate for exemption
fulfillment of what has been expressly stipulated but also for liability unless such exemption is justifiable
to all the consequences which, according to their nature, and reasonable and the contract is freely and
may be in keeping with good faith, usage and law. fairly made.

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University of Cordilleras
BACC 104 (Law on Obligations and Contracts)

 Contract of scholarship stipulating that the GR: Valid

student must remain in the same school and that XPN: Void if the dominant party takes advantage of
he waives his right to transfer to another school the weakness of the other party, completely
without refunding the school depriving the latter of the opportunity to bargain on
equal footing. (Ermitaño v. CA, 1999)
 Credit Card - petitioner could have theoretically
done everything in his power to give respondent Note: Sales Invoices are contracts of adhesion.
the required written notice. But if respondent Considering that X Corp. is not a small-time
took a "reasonable" time (which could be construction company X Corp is presumed to have full
indefinite) to include the card in its cancellation knowledge and to have acted with due care or, at the very
bulletin, it could still hold the cardholder liable least, to have been aware of the T&C of the contract. X
for whatever unauthorized charges were Corp. was also free to contract the services of another
incurred within that span of time. This would supplier if X Corp. terms were not acceptable.
have been truly iniquitous, considering the
amount respondent wanted to hold petitioner Note: Unilateral Increase in the Interest Rate in a Loan
liable for. Agreement. Even if the borrower was given a license to
increase the interest rate at will during the term of the
 Article 1306 of the Civil Code prohibits loan, that license would have been null and void for
contracting parties from establishing being violative of the principle of mutuality essential in
stipulations contrary to public policy. The contracts. The participation of the weaker party being
assailed provision was just such a stipulation. It reduced to the alternative “to take it or leave it”. (PNB v.
is without any hesitation therefore that we strike CA, 1991). Contract changes must be made with the
it down. consent of the contracting parties. There must be
meeting of minds re the modification.
 Loan agreement with usurious interest.
Note: Basketball coach placed third; if the coach, in the
Effect of Violation of Principle sole opinion of the corporation, fails to exhibit sufficient
Any agreement or contract made in violation of this rule skill or competitive ability to coach the team, the
is not binding and will not be enforced. (Phil. corporation may terminate the contract
Commercial and International Bank v. CA, 255 SCRA
299, 307) Note: Escalation clauses “If subject promissory note is
extended, the interest for subsequent extensions shall be
at such rate as shall be determined by the bank”
Principle of Mutuality of Contracts

Principle of Relativity of Contracts

Concept/Definition
GR: The contracts must bind both contracting parties;
its validity or compliance cannot be left to the will of one Concept
of them (Art. 1308, NCC) The contracts can only bind the parties who entered into
XPN: The determination of the performance may be left it, and it cannot favor or prejudice a third person even if
to a third person, whose decision shall not be binding he is aware of such contract and has acted with
until it has been made known to both contracting parties. knowledge thereof. (Integrated Packaging Corp. v. CA,
2000)
Contracts of Adhesion
Contracts prepared by another, containing provisions Heirs
that he desires, and asks the other party to agree to them GR: Contracts are binding upon heirs
if he wants to enter into a contract (e.g., transportation XPN: When the contracts are not transmissible by
tickets) a. their nature
b. stipulation
Principle c. provision of law (Art. 1311, par 1, NCC)
Construed against the party who drafted it

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University of Cordilleras
BACC 104 (Law on Obligations and Contracts)

Note: If the predecessor was duty-bound to reconvey According to cause

land to another, and at his death, the reconveyance had
not been made, the heirs can be compelled to execute the 1. Onerous – Those in which each of the parties
proper deed of reconveyance. aspired to procure for himself a benefit through the
giving of an equivalent or compensation (e.g., sale)
Note: Contract of Lease is generally transmissible. 2. Gratuitous – Those in which one of the parties
Hence, the death of a party does not excuse non- proposes to give to the other a benefit without any
performance of the contract. Also, it applies to the option equivalent or compensation (e.g., commodatum)
to renew the lease.
According to risk involved
Note: Monetary debts. The heirs are not liable for the
debts he may leave at the time of his death. However,
1. Commutative – Those where each of the parties
such debts are chargeable against the property or assets
acquires an equivalent of his prestation and such
left by the deceased. (Art. 1311, NCC)
equivalent is pecuniarily appreciable and already
determined from the moment of the celebration of
Note: Tort Interference. Any person who induces
the contract (e.g., lease)
another to violate his contract shall be liable for damages
2. Aleatory – Those where each of the parties has to
to the other contracting party. Identity of the injured
account the acquisition of an equivalent of his
party not required. E.g. nang-agaw ng supplier.
prestation, but such equivalent, although pecuniarily
appreciable, is not yet determined, at the moment of
2. Classification/Types of contracts the celebration of the contract, since it depends upon
the happening of an uncertain event, thus charging
According to degree of dependence the parties with the risk of loss or gain. (e.g.,
insurance)
1. Principal - where the contract may exist alone; e.g.
lease According to requirement of form or solemnity
2. Accessory – where the contract depends upon
some other contract for its existence e.g., pledge 1. Common or Informal – which do not require
3. Prepatory – where the contract looks forward to some particular form (e.g., loan, lease)
other future transactions e.g. agency 2. Special or Formal – those which require some
particular form (e.g., donation, chattel mortgage)
According to manner of perfection
According to purpose
1. Consensual – Those which are perfected by the
mere agreement of the parties (e.g., sale, lease) 1. Transfer of ownership (e.g., sale)
2. Real – Those which require not only the consent of 2. Conveyance of use (e.g., commodatum)
the parties for their perfection, but also the delivery 3. Rendition of services (e.g., agency)
of the object by any one party to the other. (e.g.,
commodatum, deposit, pledge) According to their subject matter

According to their name 1. Things (e.g., sale, deposit, pledge)

2. Services (e.g., agency, lease of services)
1. Nominate – Those which have their own
individuality and are regulated by special provision 3. Stages in the making of a contract
of law (e.g., sale, lease)
2. Innominate – those which lack individuality and
a. Negotiation
are not regulated by special provisions of law (e.g.,
MOA, MOU which is not regulated by a special
Begins from the time the prospective contracting parties
provisions of law)
manifest their interest in the contract and ends at the
moment of agreement of the parties
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University of Cordilleras
BACC 104 (Law on Obligations and Contracts)

the object and terms of the contract. (4 Sanchez Roman

Negotiation is formally initiated by an offer. Accordingly, 191; 8 Manresa 648)
an offer is not accepted, either expressly or impliedly,
precludes the existence of consent, which is one of the The essence of consent is the acceptance by one of the
essential elements of a contract. offer made by the other. (Salonga v. Farrales, 1981)

b. Perfection Concept of Offer

Takes place when the parties agree upon the essential Offer
elements of the contract. Expression of willingness to contract on certain terms,
made with the intention that it shall become binding as
c. Consummation of the Contract soon as it is accepted by the person to whom it is
addressed. (G.H. Treitel, The Law of Contract, 10th Ed., p.
The parties fulfill or perform the terms agreed upon in 8.)
the contract, culminating in its extinguishment.
Requisites of Offer
Perfection of Contracts 1. The offeror must have a serious intention to become
bound by his offer.
Concept 2. The terms of the offer must be reasonably certain,
It is the stage of birth of the contract. Prior to perfection, (Art. 13913, par. 1, NCC) definite and complete so
no contract is created. Hence, until a contract is that the parties and the court can ascertain the terms
perfected, it cannot be an independent source of of the offer.
obligation. (Ang Yu Asuncion v. CA) 3. The offer must be communicated by the offeror to
 A contract of sale is consensual contract, which the offeree, resulting in the offeree’s knowledge of
means that the sale is perfected by mere consent. the offer.
 Real contract. It is perfected not be mere consent,
but by the delivery of the object of the contract. Cases which are NOT considered as offers
o Commodatum or Mutuum (loan) 1. Advertisements of things for sale
o Deposit  Business ads of things for sale are not offers but
o Pledge mere invitations to make an offer
2. Advertisements for bidders
4. Requisites of Contracts  Simply invitations make proposals.
 Hence, as a rule, the advertiser is not bound to
Essential Elements – Those that are necessary for the accept any bid, whether it may be the highest or
very existence of the contract itself. lowest, unless the ad contains language subject
to the interpretations that the intention is to let
Natural Elements – Not essential but they are the contract to the highest or lowest bidder.
presumed to exist in certain contracts unless there is an 3. Auction sale
express stipulation in the contrary. (e.g., warranty)  Simply invitations to make proposals
 The bid proposal submitted by the bidder is the
Accidental Elements – Only exists when the parties offer.
expressly provide for them. (e.g., clauses, terms, and  The sale is only perfected only when the
conditions) auctioneer announces its perfection by the fall of
the hammer, or in other customary manner.
Consent (Art. 1476(2), NCC)

Consent Acceptance of Offer

Consent is the conformity of wills, and with reference to The acceptance must be absolute. There must be no
contracts, it is the agreement of the will of one condition or qualification. Otherwise, when there is a
contracting party with that of another or others, upon
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University of Cordilleras
BACC 104 (Law on Obligations and Contracts)

qualified acceptance or one that involves a new proposal, principal penalty not lower than reclusion
it is considered as a counter-offer. temporal.
 Civil Interdiction deprives the offender during
Capacity to Give Consent the time of his sentence of the following: (1)
parental authority, or guardianship, either
The legal capacity of the parties is an essential element property or person of any ward; (2) marital
for the existence of the contract because it is an authority; (3) management of his property; and
indispensable condition for the existence of consent. (4) disposition of his property by any act or any
(Delos Reyes v. CA, 1999) conveyance inter vivos.
 Old Age and Physical Infirmity – A person is not
Presumption of Capacity incapacitated to contract merely because of
The law presumes that every person is fully competent to advanced years or by reason of physical
enter into a contract until satisfactory proof to the infirmities. Only when such age or infirmities
contrary is presented. impair his mental faculties to such extent as to
prevent him from properly, intelligently and
Persons incapable of giving consent fairly protecting his property rights that he is
1. Unemancipated minors considered incapacitated.
 Voidable – The law gives the minor the right to  Illiteracy – An illiterate is not incapable of giving
annul the contract entered into by him upon his consent to a contract. However, when an
attainment of the age of majority, but he must illiterate alleges mistake or fraud in the giving of
bring the action for annulment within 4 years. his consent, the burden is on the party interested
 He may also ratify the voidable contract upon in enforcing the contract to prove that the terms
reaching the age of majority. thereof are fully explained to the former.
 Effect of misrepresentation by the minor – 5. Incompetents under guardianship
Where they actually passed the age of puberty
and adolescence in such a way that they could Object
misrepresent and actually did misrepresent
them as adults, they cannot annul the contract What may be objects of contracts
based on the concept of estoppel 1. All things which are not outside the commerce of
2. Insane or demented persons men, including future things. Thus, the following are
 Insanity is a manifestation, in language or outside the commerce of men:
conduct, of disease or defect of the brain, or a. Sacred, common things like the air or the sea,
more or less permanently diseased or disordered and res nullius, as long as they have not been
condition of the mentality, functional or organic, appropriated
and characterized by perversion, inhibition, or b. Property while they pertain to the public
disordered function of the sensory or of the dominion, such as public or town plaza
intellective faculties, or by implied or disorder c. Rights which are purely personal, therefore
volition. intransmissible, such as patria potestas or
 GR: Voidable contract marital authority, the status and capacity of
XPN: Contract is entered into during a period of persons, and honorary titles, and distinctions
lucid interval, then it is valid d. Public offices, inherent attributes of the public
 Not all kind of insanity annul consent, only when authority, and political rights of individuals,
the insanity prevents a person from knowing the such as right of suffrage
character of the act that he is performing e. Services which imply an absolute submission by
3. Deaf-mutes who do now know how to write those who render them, sacrificing their liberty,
4. Persons suffering from civil interdiction, old age and their independence or beliefs, or disregarding in
illiteracy any manner the equality and dignity of persons,
 Civil Interdiction is an accessory penalty such a perpetual servitude or slavery.
imposed upon an accused who is sentenced to a 2. All rights which are not intransmissible
3. All services which are not contrary to law, morals,
good customs, public order or public policy
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University of Cordilleras
BACC 104 (Law on Obligations and Contracts)

5. Lease of real property for more than a year

Cause or Consideration (including renewal of lease)
6. Agreement of payment of interest
Concept
The consideration is “the why of the contracts, the Reformation and Interpretation
essential reasons which moves the contracting parties to
enter into the contract. Reformation
Remedy in equity by means of which a written
Kinds instrument is made or construed so as to express or
1. Onerous – The cause is the prestation or promise of conform to the real intention of the parties. (Huibonhoa
a thing or service by the other (e.g., contract of sale) v. CA, 1999)
2. Remuneratory – The cause is the service or benefit
for which the remuneration is give. (e.g., salary) Requisites
3. Gratuitous – The cause is the mere liberality of the 1. There must be a meeting of the minds of the parties
benefactor (e.g., commodatum) 2. The instrument does not express the true intention
of the parties
Forms of Contracts 3. The failure of the instrument to express the true
intention of the parties is due to mistake, fraud,
GR: Contracts are obligatory, in whatever form. inequitable conduct, or accident.
XPN:
1. Those which are required to be in some form in Effect of Mutual Mistake
order that they may be valid When a mutual mistake of the parties cause the failure of
2. Those which are required to be in some form in the instrument to disclose their real agreement, said
order that they may be enforceable or in order that instrument may be reformed.
they may be provide in a certain way.

Contracts which require form for validity

1. Donation of Personal Property where the value
exceeds P5000
2. Donation of Real Property
3. Donation Propter Nuptias.
 (1) Muse be made before the celebration; (2)
must be made in consideration of the marriage
(3) must be made in favor of one or both of the
future spouses.
4. Contract of Partnership, when a real property is
contributed as capital
5. Sale of a parcel of land or any interest therein by an
agent
6. Stipulation limiting common carrier’s liability for
loss, destruction or deterioration of goods
7. Contracts of antichresis
8. Sale or transfer of large cattle
9. Chattel mortgage contract

Contracts which require form for enforceability

1. Agreements not be performed within a year
2. Special promise to answer for debt of another
3. Agreements in consideration of marriage
4. Sales of goods more than P500

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