Rfbt - Contracts

RFBT – Law on Contracts
(Reference: The RFBT Reviewer by Soriano, Manuel & Laco – Oct 2022 CPALE Syllabus)
GENERAL PROVISIONS
CONTRACTS, definition: It is the meeting of the minds between two contracting persons whereby one binds
himself, with respect to the other, to give something or to render some service.
Classification of Contracts
a. According to their 1. Preparatory Those which have for their object the establishment of a
relation to other condition in law which is necessary as a preliminary step
contracts towards the celebration of another subsequent contract.
(e.g., partnership, agency)
2. Principal Those which can subsist independently from other
contracts and whose purpose can be fulfilled by
themselves. (e.g., sales, lease)
3. Accessory Those which can exist only as a consequence of, or in
relation with another prior contract. (pledge, mortgage)
b. According to their 1. Consensual Those which are perfected by mere consent\agreement of
perfection the contracting parties
2. Real Those which require not only the consent of the parties for
their perfection, but also the delivery of the object by one
party to the other. (e.g. commodatum, deposit, pledge)
3. Formal Those which require a certain form for its validity
c. According to the 1. Unilateral Those which give rise to an obligation for only one of the
nature of their parties (e.g., commodatum, gratuitous contract)
vinculum
2. Bilateral Those which give rise to reciprocal obligations for both
parties (e.g. lease, sale)
d. According to their 1. Onerous Those in which each of the parties aspires to procure for
cause himself a benefit through giving of an equivalent or
compensation
2. Gratuitous Those in which one of the parties proposes to give to the
other a benefit without any equivalent or compensation
3. Remuneratory Those which one prestation is given for a benefit or service
that had been rendered previously
e. According to risks 1. Commutative Those where each of the parties acquires an equivalent of
involved or his prestation and such equivalent is pecuniarily
equivalence of appreciable and already determined from the moment of
prestation the celebration of the contract (e.g., lease)
2. Aleatory Those where each of the parties has to his account the
acquisition of an equivalent of his prestation, but such
equivalent, although pecunialiry appreciable is not yet
determined, at the moment of the celebration of the
contract, since it depends upon the happening of an
uncertain event thus charging the parties with the risk of
loss or gain. (e.g., insurance)
f. According to their 1. Nominate Those which have their own individuality and are regulated
names or norms by special provisions of law (sale, lease)
regulating them
2. Innominate Those which lack individuality and are not regulated by
special provisions of law
1. Do ut des – I give that u give
merely typed and compiled (obviously not written) by: jaemsyvan ≽^•⩊•^≼
2. Do ut facias – I give that u do
3. Facio ut des – I do that u give
4. Facio ut facias – I do that you do
The contracts are regulated by the agreement of the
contracting parties, by the general provisions or principles
of obligations and contracts, ny the rules sgoverning the
most analogous nominate contracts, and by the custom of
the place
g. According to 1. Executory Those which have not yet been performed. (Certain
degree of execution executory contracts are covered by Statute of Fraud and
required to be in writing to be enforceable.)
2. Executed Those which have been performed.
ORDER OF PRIORITY ON RULES that shall govern innominate contracts (MNEMONICS: SPRC)
1. The stipulation of the parties

2. The provisions of the Obligations and Contracts
3. The rules governing the most analogous contracts
4. The customs of the place
STAGES OF A CONTRACT
1. Negotiation (Preparation, Conception, or Generacion)

This involves preliminary negotiations and bargaining, discussion of terms and conditions, with no arrival
yet of a definite agreement. Here is where the parties provide for their offers and bargain with each
other.
2. Perfection (Birth)
This is when the parties have already come to a definite agreement on a definite subject matter and
valid cause and all the essential elements are present (which may include form or delivery in some).
3. Consummation (Death or Termination)
This is when the terms of the contract have already been performed or that the contract has been
fulfilled resulting in its accomplishment.
ESSENTIAL CHARACTERISTICS OF A CONTRACT (MNEMONICS: AMOR-C)
1. OBLIGATORY FORCE (OBLIGATORIEDAD DEL CONTRATO)
Once the contract is perfected, it shall be of obligatory force upon both of the contracting parties
Breach of Contract - It is the failure, without legal reason, to comply with the terms of the contract.
2. AUTONOMY OF CONTRACTS (Freedom or Liberty to Contract)
The parties are free to enter into a contract and to establish such stipulations, clauses, terms and
conditions as may deemed convenient which must not be contrary to law, morals, good customs, public order,
and public policy.
Contrary to law: The law is deemed part of every contract and must thus be not contrary to the same.
a. Waiver for future fraud

b. In Partnership: Pactum Leonina – a stipulation which excludes one or more partners from
any share in the profits or losses
c. In Mortgage/Pledge: Pactum Commissorium – a stipulation where the creditor appropriates
the things given by way of pledge or mortgage, or dispose of them
d. Real Estate Mortgage: Pactum de non aliendo – a stipulation forbidding the owner from
alienating the immovable mortgaged.
Contrary to public policy:
a. Refund of tuition fees during the time a student is covered by a scholarship if such student
transfers schools. Scholarships are granted not to attract and to keep brilliant students in
school for their propaganda but to reward merit or help gifted students in whom society has
an established interest or a first lien. (Cui vs Arrelano)
b. Prohibiting a losing candidate in a convention to run as an independent candidate is contrary
to constitutionality protected right to be elected in public office and the right of the electorate
to choose. (Saura vs Sindico)
Contrary to morals:
a. In a contract of loan, where the interest rate is 50% may be declared void or reduced for
being contrary to morals, the same being unconscionable, confiscatory, exorbitant, excessive
or inequitable, not because of it is usurious.
Contract entered into by an unauthorized person: It is unenforceable since the rule is that no one may
contract in the name of another without being authorized by the latter, such as an agent, or unless he as by
law a right to represent him, such as a guardian.
The same is true if the person, while authorized or has legal representation, acted beyond his powers.
Unless in both cases, the contract is ratified, expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting party.
3. MUTUALITY OF CONTRACTS
It refers to the position of essential equality which must be occupied by both of the contracting parties
in relation to the contract to the extent that the validity or compliance of the contract cannot be left at the will of
only one of the contracting parties.
a. The contract must bind both parties;

b. Its validity or compliance cannot be left to the will of one of them.
c. The determination of the performance may be left to a third person:
i. Whose decision shall not be binding until it has been made known to both contracting
parties
ii. Determination shall not be obligatory if it is evidently inequitable. In such case, the
courts shall decide what is equitable under the circumstances.
Escalation Clause: where one increases/decreases compensation of one of the parties.
When void: when the increase is solely dependent upon the will of one of the parties
The unilateral determination and imposition of increased interest rates by the bank is obviously violative of
the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.
4. RELATIVITY OF CONTRACTS (or Privity of Contracts)
It refers to the principle of the civil law that a contract can only bind the parties who had entered into it
or their successors who have assumed their personality or in their juridical position, and that as a
consequence, such contract can neither prejudice nor favor a third person.
Rules concerning heirs and assigns:
A. The heirs are liable to the debts of decedent but only up to the extend of the property they inherited.
It is only the natural obligation of the heirs to pay the unpaid debts of their predecessors beyond the
value of the properties they inherited.
B. As a general rule, rights and obligations arising from contracts are transmissible. However, the
following are the exceptional rights and obligations arising from contracts which are intransmissible:
a. Those which are purely personal (e.g., right to vote)
b. Those which are provided by law to be intransmissible
c. Those which are stipulated by the party to be intransmissible.
General Rule: Third persons do not have a cause of action to enforce, annul, or rescind a
contract nor are they bound by the terms thereof.
XPN:
a. Third persons may be benefited by a contract – paragraph 2 of Article 1311, otherwise

known as stipulation pour autrui.
STIPULATION POUR AUTRUI
A stipulation in a contract clearly and deliberately conferred by the contracting parties as

a favor upon third person, who must communicate his acceptance of the favor or benefit
to the obligor before it could be revoked.
Requisites of Stipulation Pour Autrui:
1. There must be a stipulation in favor of a third person.

2. The stipulation should be a part, not the whole, of the contract.
3. The contracting parties must have clearly and deliberately conferred a favor upon
a third person and not a mere incidental benefit or interest.
4. The favorable situation should not be conditioned or compensated by any kind of
obligation whatever.
5. The third person must have communicated his acceptance to the obligor before
its revocation.
6. One of the contracting parties does not bear legal representation or authorization
of the third party.
Rules:
1. A stipulation in favor of third person has no binding effect in itself before its
acceptance by the party favored.
2. Before acceptance by the third person, the contracting parties, by mutual
agreement, may modify the contract or revoke it.
3. A mere incidental interest or benefit is not within the doctrine of stipulation pour
autrui.
4. The stipulation pour autrui does not exist if the contract is considered null and
void.
b. Third person may be bound by the contract:
1. In contracts creating real rights.
The registration in the Registry of Property/Deeds is constructive notice to the
whole world. Any person who will acquire such property will be bound by the
annotated lien.
Example: D is indebted to C. To secure the performance of the obligation, D

mortgaged his land in favor of C, and the Deed of Mortgage was registered in
the Registry of Deeds. If D sells his property to X, X is bound by the mortgage
because it is registered even if he is not a party thereto.
This is because real rights attach to the property. As such, under Article
1342, any person who comes into the possession of said real property shall
be bound by the encumbrance therein, i.e. the mortgage.
The exception to the above example, is when the mortgage is not registered.
Accordingly, the buyer, X, will not be bound by it.
2. Collective Contracts – An example of this is a Collective Bargaining Agreement.

Employees who did not participate in the negotiations relative thereto are still bound
by its terms.
3. Contracts that create a status – A marriage contract is also a contract where the
parties are only husband and wife, but the whole world is bound by such status that
they cannot legally marry either of such parties to the marriage contract.
c. A creditor may initiate an action against the contracting parties

Creditors are protected in cases of contracts intended to defraud them. The following
actions are allowed for creditors, effectively interfering in contracts to which they are not
parties to.
1. Accion Pauliana – is the action creditor to rescind the contract entered into by the
debtor to defraud him.
Illustration: D is indebted to C for P1,000,000. Out of cash, he sold his last
remaining property to X to avoid paying C with it. In this instance, C can sue for
the rescission of the contract of sale even if he is not a party thereto.
2. Accion Directa – is the action of a creditor to sue on a contract entered into by his
debtor, whenever authorized by law, such as:
a. Those who put labor upon or furnish materials for a piece of work undertaken
by a contractor have an action against the owner up to the amount owing
from the latter to the contractor at the time the claim is made.
b. The sublessee is subsidiary liable to the lessor for any rent due from the
lessee. However, the sublessee shall not be responsible beyond the amount
of rent due him, in accordance with the terms of the sublease, at the time of
the extrajudicial demand by the lessor.
Illustration: Eros entered into a contract of lease, as lessor, with Peter, as lessee
concerning the former’s house. Peter sublet the house to Nylyn, the sublessee.
In this instance, Eros is not privy to the sublease contract between Peter and
Nylyn. But he can, as creditor of Peter, sue Nylyn for any rent due from Peter.
However, note that the liability of Nylyn, as sublessee, is limited by the amount of
rent due from him.
As such, if the unpaid rent of Peter to Eros amounted to P100,000, but Nylyn’s
liability to Peter amounted only to P50,000, Nylyn can only be made liable for
such P50,000.
Contracts that may not be assailed by third persons:
1. Perfectly valid contract

2. Voidable contract
3. Unenforceable contract
d. Third persons may be liable under a contract wherein there is malicious interference by third
persons
A third person who induces another to violate his contract shall be liable for damages to the
other contracting party. As the name implies, there should be malice or a malicious
inducement by the third person as a result of which, the debtor does not comply with the
obligation under the contract, which necessarily implies that such third person has
knowledge of the existence of the contract (Article 1314)
Illustration: Jianna, a citizen and resident of New Jersey, USA, was hired by ABC
Corporation of Manila to serve for two years as the chief accountant. But after
serving for only four months, he resigned to join XYZ Corporation, which enticed
him by offering more advantageous terms.
Here, there is malicious interference by XYZ Corporation to the contract of

employment of Jianna with ABC Corporation. Accordingly, even if XYZ
Corporation is not a party to such contract, he can be made liable for its breach,
together with Jianna.
e. Void contract that directly affects a third person – A third person affected by a void contract
may file an action for declaration of nullity of contract
5. CONSENSUALITY OF CONTRACTS
It refers to the meeting of the minds of the parties or state of being consensual. This is because a
contract is perfected by meeting of the minds, save for some cases where delivery or form is required for its
perfection. Remember that consent is an essential element; not even the government can force someone to
enter into a contract.
Requisites of a valid consent:
1. It should be intelligent (not subject of a mistake or fraud)

2. It should be free or voluntary (not subject of undue influence, intimidation, or violence)
3. It should be spontaneous
4. In general, it should not be vitiated
Offer and Acceptance
1. The offer must be certain.

Illustration: Mark sells one of his cars to Haley. It is uncertain which car he offers. In such an
offer, there can be no way for Haley to accept since there is no specific offer. It can be any of
his cars. For the consent to be properly given, the offer must be certain. Mark must specify
which of his cars he offers to sell to Haley.
2. The acceptance must be absolute. A qualified acceptance constitutes a counteroffer
Illustration: Mark sells his Kia Pride 1992 Sedan to Haley for P100,000. Haley offers to pay
P90,000 instead. There is no acceptance in this case; there is a counteroffer. Haley’s offer to
pay P90,000 shows that there is no meeting of minds. This is not absolute acceptance.
However, if Haley agreed to pay P100,000 for Mark’s Kia Pride 1992 Sedan, there is absolute
acceptance.
3. An acceptance may be express or implied
4. The person making the offer may fix the time, place, and manner of acceptance, all of which
must be complied with.
Acceptance through Telegram/Letter
1. Cognition Theory – This theory follows that the acceptance takes effect from the time the
offeror knew (or has knowledge) of the acceptance of the offeree.
2. Manifestation Theory – On the other hand, this follows that the acceptance will take effect
once it is manifested by the offeree.
In the PH, we abide by the Cognition Theory, considering that Article 1319 provides that:
“Acceptance made by letter or telegram does not bind the offeror except from the time it
came to his knowledge. The contract, in such a case, is presumed to have been entered into
in the place where the offer was made.”
Illustration:
• January 1 – Offeror sent the letter- offer

• January 5 – Offeree received the offer
• January 8 – Offeree sent an acceptance letter
• January 15 – Offeror received the acceptance letter
When was there consent or meeting of the minds? January 15. The time the offeror knew (or has
knowledge) of the acceptance of the offeree.
Intervening events: An offer becomes ineffective upon the death, civil interdiction, insanity, or
insolvency of either party before acceptance is conveyed.
Definition of Civil Interdiction: It is an accessory penalty that deprives the offender during the time of his
sentence of the rights of parental authority, or guardianship, either as to the person or property of any
ward, of marital authority, of the right to manage his property and of the right to dispose of such
property by any act or any donation intervivos. Note that donation mortis causa is allowed; he can
make a will since this involves transfer of property that shall take effect after death.
Illustration: Following our earlier illustration, if the offeror died on January 10, there is no
perfection since acceptance will not take effect without his knowledge thereof, or stated otherwise,
death intervened prior to him having knowledge of the acceptance.
Illustration: Following still the earlier illustration, what if on January 12 (after the acceptance letter
was sent, but before receipt), the offeror backed out or withdrew his offer through a letter also,
which was received by the offeree only on January 16 (after acceptance letter was sent). Is there a
perfected contract?
Answer: None. Since the offer is already ineffective when acceptance thereof was known to the
offeror regardless of the fact that the offeree has not yet received the withdrawal.
Option Agreement
An option agreement exists when the offeror has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when
the option is founded upon a consideration, as something paid or promised (called option money)
Advertisements
Unless it appears otherwise, business advertisements or things for sale are not definite offers, but mere
invitations to make an offer. 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.
Illustration:
Jaem posted in his lot “For sale, 1,000 sqm. Lot, P1,000,000.” In this case, the advertisement is a
definite offer and Jaem cannot back-out once somebody accepts such offer.
Had it read “For sale, 1,000 sqm. Lot, P1,000,000 to P1,200,000.” Here, it is merely an invitation to
make an offer.
SITUATIONS CONCERNING CONSENT OF THE PARTIES
1. Both parties gave consent as to the essential elements of the contract – the contract is valid.
2. Simulation: which can either be
a. Absolute simulation – when one or both the parties did not intend to be bound by the contract –
the same is void.
Example: Yvan and Ivan “jokingly” entered a contract of sale. Here, the contract is void since the
parties never intended to be bound by it. It is absolutely simulated.
b. Relative simulation – if the parties merely conceal their true agreement, they shall be bound by
their real agreement.
Example: Yvan and Ivan entered into a Deed of Sale indicating P1 as the purchase price – they
are bound by the real agreement of donation.
3. Incapacity of one of the parties:
Kinds of Capacity
1. Juridical capacity – is the fitness to be the subject of legal relations which is inherent in
every natural person and is lost only through death. If the incapacity pertains to juridical
capacity, the contract is void.
2. Capacity to act (or legal capacity) – is the power to do acts with legal effect which is
acquired and may be lost.
If the incapacity pertains to capacity to act or legal capacity, it can be:
1. Absolute incapacity – the party cannot give consent in any contract, with anyone, in
whatever capacity, over anything.
The following cannot give consent to a contract:

1. Unemancipated minors or persons below 18 years of age;
2. Insane persons (except if consent is given during lucid interval);
3. Demented persons;
4. Deaf-mutes who do not know how to write; and
5. Drunks or hypnotized
Note: The contract would be voidable as to the party who is incapacitated
Those who are “incompetent” under the Rules of Court who may be placed
under guardianship.
1. Those suffering civil interdiction

2. Hospitalized lepers
3. Prodigals
4. Deaf and dumb who are unable to read and write
5. Those of unsound mind even though they have lucid intervals
6. Those who by reason of age, disease, weak mind, and other similar causes,
cannot without outside aid, take care of themselves and manage their
property, becoming thereby an easy prey for deceit and exploitation.
Note: These people (save for those suffering the penalty of civil interdiction) can
still enter into contracts if not placed under guardianship. However, it can still be
proven that intelligent consent was not given and thus, may still render the
contract voidable.
2. Relative Incapacity – a person may be prohibited from entering specific contracts or that
in a contract, he may be prohibited in a certain capacity, i.e., prohibited to be the buyer,
or to specific things, or to specific persons.
Examples:
1. An alien is prohibited under the Constitution from acquiring private lands.
XPN: (1) when acquired through succession; or (2) sale of residential land to
a former natural born Filipino citizen
2. Husbands and wives cannot enter into a contract of sale unless they agreed
to a Separation of Property marital property regime, or they have been legally
separated.
4. Both are incapacitated to give consent: the contract is unenforceable e.g., a contract between a
minor and a demented person.
5. Both parties give their consent, but such consent was vitiated:
Vices of consent: would render the contract voidable such as:
1. Mistake
a. It pertains to the object – e.g., gold-plated watch
b. It pertains to the principal conditions – e.g., area of the land when there is already a plan for
the intended area
c. Identity or qualifications of the parties – e.g., when they are principal causes – e.g., reviewers
in a review school.
d. Legal effect that frustrates the agreement of the parties and the same is mutual – e.g., S
delivered his card to B, B gave money to S.
i. S thinks it is a contract of loan secured by a pledge.
ii. B thinks it is a pacto de retro sale.
Errors or mistake that do not vitiate consent:
1. Error as to the solvency of the other party

2. Error as to the motive of the party
3. Error as to the estimates
2. 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
considered. Another consideration is that a threat to enforce one’s claim through competent
authority, if the claim is just or legal, does not vitiate consent.
Question: A full grown man, tall and lean, was made to sign a contract by a nine-year old, 4’11 tall
kid. Does this count as intimidation? No.
3. Violence – when in order to wrest consent, serious or irresistible force is employed.\
Question: What if the violence pertains to that which is inflicted upon the person or property of the
spouse, descendants or ascendants of the party, will it vitiate consent? Yes, because even though it
was not specified unlike in intimidation, the giving of consent will still affect voluntariness or freedom
in giving consent, and thus vitiates it.
4. 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.
The following circumstances shall be considered: the confidential, family, spiritual, and other
relations between the parties, or the fact that the person alleged to have been unduly influenced
was suffering from mental weakness or was ignorant or in financial distress.
5. Fraud – when, 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:
There is NO FRAUD in the following cases:
1. Failure to disclose facts, when there is NO duty to reveal them.

2. The usual exaggerations in trade, when the other party had an opportunity to know the
facts.
3. A mere expression of an opinion does not signify fraud, UNLESS made by an expert and
the other party has relied on the former’s special knowledge.
4. Misrepresentation by a third person does not vitiate consent unless such
misrepresentation has created substantial mistake and the same is mutual.
5. Misrepresentation made in good faith is not fraudulent but may constitute error.
Kinds of Fraud
1. Causal Fraud (Dolo causante) – affects consent and may thus render the contract voidable.
REQUISITES:
a. It must have been employed by one of the contracting parties only.
b. It must have induced the other party to enter into the contract.
c. It must have been serious.
d. It may or may not result to damage or inquiry to the contracting parties. Presence of
injury on the complainant is not necessary for annulment of voidable contract to
prosper.
2. Incidental fraud (Dolo incidente) – only obliges the person employing it to pay damages
and does not vitiate consent.
OBJECT CERTAIN WHICH IS THE SUBJECT MATTER
Object (Subject Matter) of the Contract: is really to create or to end obligations, which, in turn, may involve
things, rights or services.
Requisites:
1. The thing, right or service must be within the commerce of man;

2. It must be transmissible;
3. It must not be contrary to law, morals, good customs, public order or public policy;
4. It must not be impossible;
5. It must be determinate as to its kind or determinable without the need of a new contract or agreement
Note: Future inheritance cannot be the subject matter of a valid contract. This is not to be confused with future
things which are allowed to be objects of a contract.
CAUSE OR CONSIDERATION
Cause is the essential or impelling reason why a party assumes an obligation.
1. Onerous – for each contracting party, the prestation or promise of a thing or service by the other;
2. Gratuitous – mere liberality of the benefactor
3. Remuneratory – service or benefit already rendered
Note: For accessory contracts: generally, the cause or consideration is that of the principal contract.
Rules on Cause:
1. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful
if it is contrary to law, morals, good customs, public order or public policy.
2. The statement of a false cause in contracts shall render them void, if it should not be proved that
they were founded upon another cause which is true and unlawful.
3. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary.
4. As a rule, inadequacy of the price will not affect the contract. Except:
a. When expressly provided by law, e.g., rescissible contracts;
b. When there has been fraud, mistake, or undue influence
Illustration: Anton sold his land to Wonbin for P1M, where the fair market value thereof was P2M.
Here, there is inadequacy of the price, which as a rule will not affect the validity of the contract.
If, however, Anton sold it for such a price because of fraud or mistake, then it is a voidable contract.
Illustration: Yuta’s land was sold by his guardian Johnny to Jake for P1M where the fair market
value was P2M. In this instance, the contract is rescissible since it resulted in a lesion or economic
damage to Yuta more than ¼ of the value of the thing.
5. The particular motives of the parties in entering into a contract is different from the cause thereof.
Illustration: A bought a gun to kill B and he was able to do so. Was the sale valid?
Answer: Yes. Here, the cause as to A is the gun, as to B, the purchase price. As a rule, motive does
not affect the validity of a contract since the motive is different from cause and the illegality of
motive does not affect the validity of the contract.
XPN: If it predominates the purpose of the party to enter into a contract e.g., sale to defraud creditors
OTHER ESSENTIAL ELEMENTS
In some cases, delivery is required for the perfection of the contract; in other, there are formal requirements.
Real contracts are those which are perfected by delivery; thus, delivery is an essential element to its perfection.
Real contracts include:
1. Deposit
2. Pledge
3. Commodatum
4. Simple Loan or Mutuum
FORMS OF CONTRACT
General Rule: no form is required for the validity or perfection of a contract.
The following are EXCEPTIONS:
Formalities required for validity

Contract Required form
Donations of real property Public instrument
Donations of personal property which exceeds Written donation
P5,000
Stipulation to pay interests on loans or for the use of Stipulation to be in writing
money
Sale or transfer of large cattle Public instrument, registered, and a certificate of
transfer
Contribution of real property in a partnership Inventory attached to a public instrument
Negotiable instruments Form provided by the Negotiable Instruments Law
Contract of marriage All solemnities required by Family Code such as
marriage license, capacity of contracting parties,
authority of solemnizing officer and personal
appearance of contracting parties
Principal and interest of a secured contract of loan Written contract
Contract of chattel mortgage Registration with Chattel Mortgage Registry
Sale of a piece of land by the agent in the name of The authority of the agent to sell the piece of land
the principal must be in writing
Sale of community or conjugal property by one of the Authority given by the other spouse to the selling
spouses spouse
Formalities required for Enforceability (Statute of Frauds)

An agreement that by its terms is not to be These contracts are unenforceable, unless they are
performed within a year from the making thereof in writing, or some note or memorandum and
A special promise to answer for the debt, default, or subscribed by the party charged, or by his agent
miscarriage of another
An agreement made in consideration of marriage,
other than a mutual promise to marry
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 money; 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
An agreement of the leasing for a longer period than
one year, or for the sale of real property or of an
interest therein
A representation as to the credit of a third person
Formalities required for Convenience

Acts and contracts which have for their object the To bind third persons, these are required to appear in
creation, transmission, modification, or a public instrument
extinguishment of real rights over immovable
property, sales of real property or of an interest
therein a governed by the Statute of Frauds
The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal
partnership of gains
The power to administer property, or any other
power which has for its object an act appearing or
which should appear in a public document, or should
prejudice a third person
The cession of actions or rights proceeding from an
act appearing in a public document
Remedy to require a specific form
If the law requires a document or other special form if the contract is VALID and ENFORCEABLE, as in the acts
and contracts required to appear in a public instrument for convenience (where the requirement that they must
be in writing for validity, if applicable, is met) the contracting parties may compel each other to observe that
form, once the contract has been perfected, e.g., a contract of sale of land in a private instrument is valid and
enforceable, and the parties may compel that it appear in a public instrument.
Illustration:
1. Jaemin donated his land to Jeno in writing, can Jeno compel Jaemin to execute a public instrument?
No. Because the donation is void for being not in a public instrument.
2. Jaemin sold his land to Jeno orally, can Jeno compel Jaemin to execute a written instrument? No.
Because the sale is unenforceable.
3. Jaemin sold his land to Jeno in a public instrument. Can Jeno compel Jaemin to execute a public
instrument? Yes. Because the contract of sale is both valid and enforceable.
Contract of Adhesion: one where there is already a prepared form containing the stipulations desired by
one party whereby the latter only asks the other party to agree to them if he wants to enter into a contract.
Generally valid: because a party who does not consent to the terms and conditions in the contract can opt
not to.
Illustrative Case: In a case where a passenger of PAL lost his luggage who sued for damages, and PAL
contended that its liability should not exceed P100 based on the contract, the Supreme Court held that the
provision is valid even if it was contained in a contract of adhesion since the passenger could have not
consented thereto if he did not agree on the same.
REFORMATION OF INSTRUMENTS
Reformation is the remedy by means of which a written instrument is made or construed as to express or
conform to the true intention of the parties when some error or mistake has been committed.
Requisites:
1. There is a meeting of the minds;
2. There is a written instrument; and
3. The written instrument does not reflect the true intention of the parties.
In short, sa written instrument may mistake. Don’t take the misconception na reformation happens because
there was a mistake in the agreement. There was a mistake in the WRITTEN INSTRUMENT. The contract is
valid because there is a meeting of the minds.
When may reformation be had:

1. Mutual mistake of the parties.
2. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the
instrument does not show their true intention, the former may ask for the reformation of the instrument
3. When one party was mistaken and the other knew or believed that the instrument did not state their
real agreement but concealed that fact from the former.
4. Ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of
the clerk or typist.
5. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument
states that the property is sold absolutely or with a right of repurchase.
Who can ask for reformation:

1. If the mistake was mutual, reformation may be ordered at the instance of either party or his successor
in interest;
2. Otherwise, the injured party, or his heirs and assigns.
Action to enforce the contract: Likewise, when one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
INTERPRETATION OF CONTRACTS
No ambiguity; no interpretation necessary: If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control. (Art. 1370)
Primary Consideration: is the intention of the parties. Such that even if the terms of the contract are clear, but
does not reflect the intention of the parties is the intention which would prevail. (Art. 1370)
Contemporaneous and Subsequent Acts: In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Art.1371)
In a case where a Deed of Assignment was issued as payment for the obligation of the debtor in an
indemnity agreement by way of dacion en pago, the debtor thereafter made subsequent installment
payments and executed a mortgage, the SC held that clearly the subsequent acts of the debtor do not
reflect his claim that the deed of assignment was by dacion en pago. The deed of assignment was a form
of security for the indemnity agreement.
Specific rules in interpretation of contracts:

1. However general the terms of a contract may be, they shall not be understood to comprehend things
that are distinct and cases that are different from those upon which the parties intended to agree.
Illustration: S sold his house and lot to B and the contract indicated that “all furniture” inside the
house is included in the sale. However, the TV set was borrowed from X, is this included in the
contract of sale?
Answer: No. Even if the contract said “all” which is a generic termit should be understood to
contemplate only those belonging to 5which he has the right to sell.
2. If some stipulation of any contract should admit of several meanings shall be understood as bearing
that import which is most adequate render it effectual.
Illustration: W(wife of H) sold “her house" to B. It turns out that W has an exclusive house
inherited from her mother, and a conjugal house which is the family home. In this case, “her
house” would be interpreted to mean the exclusive property of W so as to render the contract
effectual. Because she cannot validly sell their family home, which is conjugal property, without
the consent of her husband.
3. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly.
4. Words which may have different significations shall be understood in that which is most in keeping with
the nature and object of the contract.
5. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a
contract and shall fill the omission of stipulations which are ordinarily established.
6. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity
When none of the above rules will apply: When it is absolutely impossible to settle doubts by the rules
established in the preceding articles, and the doubts refer to incidental circumstances of:
1. a gratuitous contract - the least transmission of rights and interests shall prevail.
2. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interest.
If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may
have been the intention or will of the parties, the contract shall be null and void. (Art. 1378)
Illustration: Juan entered into a contract to sell with Pedro to convey one of the five lots he owns without
specifying which lot. Later on, the parties cannot agree which of the five lots is the subject of the
contract.
What is the status of the contract? Void. Where the intention of the parties relative to the principal object
of the contract cannot be ascertained, the contract shall be void.
DEFECTIVE CONTRACTS
(in the order of least to most defective)
RESCISSIBLE CONTRACTS
(Art.1381)
Rescissible contracts are defective contracts that remain to be valid and binding until rescinded
by the court. They are contracts that have caused particular damage to one of the parties or to a third
person, and which for equitable reasons may be set aside even if it is valid. The proper legal remedy is
action for rescission of rescissible contract. They include:
a. Those which are entered into by guardians whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of things which are the object thereof;
b. Those agreed upon in representation of absentees, if the latter suffer lesion stated in the
preceding number;
Lesion-is the damage or injury to the party asking for rescission which represents the
difference between the price and the actual value of the property.
Lesion, as a ground for rescission must be MORE THAN ONE FOURTH of the value.
c. Those undertaken in fraud of creditors when the latter cannot in any other manner collect
the claims due them;
In fraud of creditors: where the remedy of the creditor is properly called accion pauliana,
through which the creditor can interfere and have the contract entered into by the debtor
rescinded.
This presupposes that the creditor cannot in any other manner collect the claims due.
Thus, if the debtor entered into a contract of sale with a third person in order to have enough
money to pay the creditor, the latter cannot rescind such contract of sale since the sale was
precisely entered into to pay him his due.
Presumption of Fraud:
1. Alienations by gratuitous title: presumed to have been entered into in fraud of
creditors, when the donor did not reserve sufficient property to pay all debts
contracted before the donation.
2. Alienations by onerous title: presumed fraudulent when made by persons against
whom some judgment has been issued. The decision or attachment need not
refer to the property alienated and need not have been obtained by the party
seeking the rescission.
d. Those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;
Things under litigation: a contract having a thing under litigation as its subject matter is
rescissible whenever entered into without the knowledge and approval of:
i. The litigants; or
ii. Competent judicial authority (such as the court under which the thing is subject to
litigation).
e. All other contracts specially declared by law to be subject to rescission
Other contract subject to rescission under the law:

1. Rights of an unpaid seller;
2. In obligations to deliver a specific thing, where the same deteriorates with the fault of the
debtor before the suspensive condition is fulfilled (or suspensive term arrives);
3. Lesion of at least one-fourth in partition.
4. In sale of real estate for a certain price per unit of measure and the real estate delivered
is deficient by more than 1/10 or when the buyer would not have entered into the
contract knowing the actual area of the real estate.
5. Payments made in a state of insolvency for obligations whose fulfillment the debtor could
not be compelled at the time they were effected.
Rescission is a process designated to render inefficacious a contra validly entered into and normally binding,
by reason of external conditions, causing an economic prejudice to a party or his creditors.
Resolution: Rescission of a rescissible contract is not to be mistaken with "resolution” under Art. 1911 in
reciprocal obligations. Unlike the rescission for rescissible contracts, resolution is a primary remedy which can
be availed of by the parties and does not require lesion as a ground therefor but will require non-performance
or non-fulfillment of the obligation or when there is substantial breach.
Rescission as a remedy:
a. The action for rescission is subsidiary; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same.
b. Rescission shall be only to the extent necessary to cover the damage caused.
c. Restitution- rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest.
d. It can be carried out only when he who demands rescission can return whatever he may be
obliged to restore
e. Rescission shall not take place when the things which are the object of the contract are legally
in the possession of third persons who did not act in bad faith. In which case, indemnity for
damages may be demanded from the person causing the loss.
f. If the sale of the property of the guardian or the absentee is approved by courts, rescission is
not an available remedy.
Prescriptive Period: the action to claim rescission must be commenced within 4 years, counted from:
a. For persons under guardianship - termination of the ward's incapacity
b. Absentees - when the absentee's domicile is known.
c. Fraud - from knowledge or discovery of the contract.
Sale of land, 4 years is counted from the time of registration: When a transaction involves registered land, the
four-year period fixed in Article 1391 within which to bring an action for annulment of the deed, shall be
computed from the registration of the conveyance. The registration of the document is constructive notice of
the conveyance to the whole world (HSBC vs. Pauli)
VOIDABLE CONTRACTS
Voidable Contracts: are those which are valid until they have been annulled by proper action in court. However,
they are likewise subject to ratification to cure the defect, in which case, no annulment can be had anymore.
They are contracts in which the consent of one party is defective, either because of want of capacity or
because it is vitiated, but which contract is valid until set aside by a competent court. The proper legal remedy
is action for annulment of voidable contract, unless earlier ratified.
The following are voidable contracts:
a. Those where one of the parties is incapable of giving consent;
b. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
Ratification: extinguishes the action to annul a voidable contract.

a. Ratification may be effected by the guardian of the incapacitated person
b. It does not require the conformity of the contract party who has no right to bring the action for
annulment.
c. It cleanses the contract from all the defects from the moment it was constituted.
d. It may be done:
i. Expressly-either oral or written; or
ii. Tacitly (impliedly) - when the reason which renders the contract voidable has ceased, the
person who has a right to invoke annulment should execute an act which necessarily implies an
intention to waive such right.
Illustration: X, a minor, leased his land to L. In this case, the contract is voidable. However, if after reaching the
age of majority, X continued to receive rental payments, he is deemed to have ratified the voidable
contract.
Annulment: renders the contract non-existing, as if it was never entered into.

a. Only the injured party (the victim, whether principal or subsidiary party) may ask for annulment.
b. Creditors of the injured party cannot ask for the annulment of the contract for they are not parties
thereto.
c. In case of minority, and the minor misrepresents his age, and the other party was led to believe the
same, there can be no annulment, for here, the minor would be estopped.
d. Those who are capacitated cannot allege the incapacity of those with whom they contracted with nor
those who exerted intimidation, violence or undue influence, or employed fraud, or caused mistake.
e. Effects of loss of the thing:
i. The action for annulment of contracts shall be extinguished when the thing which is the object
thereof is lost through the fraud or fault of the person who has the right to institute the
proceedings.
ii. If the right of action is based upon incapacity, the loss of the thing shall not be an obstacle to
the success of the action, unless said loss took place through the fraud or fault of the
incapacitated person
Illustration: A, a minor, bought a house from B.

1) If A destroyed the house by fire, he can no longer ask for the annulment of the same since it
was destroyed through his fault.
2) If the house was destroyed by fortuitous events, A can still ask for annulment.
f. Effects of annulment:
i. Generally, the parties are obliged to restore to each other the thing which have been the
subject matter of the contract, with their fruits and the price with its interest.
In obligations to render service, the value thereof shall be the basis for damages.
Except: In case of incapacity, the person incapacitated is not obligated to make any
restitution except insofar as he has been benefited by the thing or price received by him.
ii. Whenever the person who is obliged to return the thing cannot dos because it has been lost
through his fault, he shall return:
1) the fruits received and
2) the value of the thing at the time of loss
3) with interest from the same date.
iii. When one party does not return what is due him by virtue of the annulment, he cannot
compel the other to comply what is incumbent upon him.
Prescriptive Period: to annul a voidable contract shall be four years.
Ground Counted from:

Intimidation, violence or undue influence The defect of the consent ceases
Mistake or fraud Discovery
Minority or incapacity Guardianship ceases
UNENFORCEABLE CONTRACTS
Unenforceable contracts - are those defective contracts that are valid although not binding until ratified. They
are contracts that for some reason cannot be enforced, unless ratified in the manner provided by law. There is
no legal remedy required but to leave the contract as it is.
Kinds of Unenforceable Contracts:
1. Unauthorized contracts - those entered into in the name of a person by one who has been given no
authority or legal representation, or who has acted beyond his powers.
Illustration: A, without the authority of his father, sold the latter's car to X. In this case, the contract is
unenforceable as to the father of A, who gave no authority to A to sell the car on his behalf.
Note, however, that the party in whose behalf the contract was entered into may ratify the unenforceable
contract.
2. Those that do not comply with the Statute of Frauds - these are agreements that are required to be
in writing in order to avoid fraud.
Statute of Frauds: in order to be enforceable, the following must be in writing,

or in some note or memorandum:
i. An agreement by its terms is not to be performed within a year from the making
thereof:
Illustration: A orally agreed to sell to B his ring worth P200 and B agreed to buy the
same 2 years from the date of agreement. Here, the contract is unenforceable and in
the event that A refused after two years to give the ring or B refused to pay the price,
they cannot be compelled to do so by an action based on oral evidence.
ii. A special promise to answer for the debt, default, or miscarriage of

This is applicable in contracts of guaranty where a person promises to pay in case
the debtor defaults.
iii. An agreement made in consideration of marriage, other than a mutual promise to

marry;
Illustration: Hand W promised to marry each other. X, the father of H, promised to

repair the house of A, W's father in consideration of such marriage. W backed out of
the marriage. Can H and X sue A and W for damages?
• It depends: H can sue for damages even if there is no agreement in
writing since the damages would be based on a mutual promise to marry
not covered by the Statute of Frauds. Except if the marriage is not to be
performed within a year from agreement.
• X cannot sue A and W only if the agreement in consideration of the
marriage is not in writing.
iv. 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 money; 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.
*This refers only to a contract of sale where the price of the thing is P500 or
more.
v. An agreement of the leasing for a longer period than one year, or for the sale of real
property or of an interest therein.
*The requirement here is that the contract must be in writing. However, in case of
sale of LAND made through an AGENT, the authority of the agent must be writing,
otherwise, the sale is void.
vi. A representation as to the credit of a third person.

QUESTION: X entered into a contract of lease with Y where Y would allow X to
use his car for a monthly rental of P10,000 for a period of 2 years. In this case, is
the contact unenforceable if not in writing?
ANSWER: No. The 4h paragraph of the Statute of Frauds applies only to a
contract of sale. While the 5th pertaining to a contract of lease for a period longer
than 1 year pertains to real property. Therefore, no provision of the Statute of
Frauds applies in this case. As such, it is enforceable even if not in writing.
Rules Applicable to Statute of Frauds:

i. It applies only to executory contracts, and not those which have
been partially or completely executed.
ii. The list is exclusive, that is, it applies only to the agreements or
contracts enumerated above.
iii. The Statute of Frauds is a personal defense, that is, an
agreement infringing it cannot be assailed by third persons.
iv. The contract, even if covered by the Statute of Frauds, becomes
enforceable, if:
1) The contract is no longer wholly executory, such as
when there has been part or complete performance, or the
other party has accepted some benefit in relation to the
contract;
2) When the defense of the statute of frauds is waived;
3) If oral evidence is presented to prove the agreement,
and the other does not object thereto (implied waiver).
Illustration: A told B “I will sell to you my land for P1,000,000” which the latter accepted.
In this case, the contract for the sale of real property NOT in writing is considered unenforceable. If B
has already paid the price, even partially, the same is taken out of the application of the Statute of
Frauds since there was already partial performance (and A already accepted the benefits of the
contract) and the contract is no longer executory. If the land was rented out to L, and B, the new
owner thereof wanted to collect the rental payments, L cannot raise the defense that the contract of
sale is unenforceable since the Statute of Frauds is a personal defense available only to A and B.
QUESTION: Sergio is the registered owner of a parcel of land. His friend Marcelo succeeded in convincing
him to sell such land to Marcelo. On June 2, 2012, they agreed on the price of P600,000 and a period until
June 30, 2012, within which Marcelo may raise the amount. Marcelo in a light tone, usual between them,said
that they should seal their agreement through a case of Jack Daniel’s Black and P5,000 pulutan, which they
did. On June 13, 2015, Sergio learned of a new buyer Roberto who is offering to buy the land for P800,000
cash. Sergio withdrew his offer to Marcelo. Marcelo objected claiming that there is an option to buy
supported by a valuable consideration. Does Marcelo have a cause of action against Sergio?
ANSWER: Yes. There is already a perfected contract of sale. From the facts, "succeeded in persuading
Sergio to sell it to him” and given the period “until June 30, 2012" is only for the performance. It is not
unenforceable since the case of Jack Daniel's and the P5,000 pulutan can be validly alleged and may
constitute part performance of the contract or that some benefit was already derived which takes the contract
out of the operation of the statute of frauds.
Motion to Dismiss: is a legal remedy granted by law to the defendant in an action for exact fulfillment or
specific performance filed by one of the parties in an unenforceable contract to ask for the dismissal of the
contract although valid because it is unenforceable or not binding unless ratified by the party or parties to the
contract. Once the unenforceable contract is ratified by the appropriate party, it becomes a valid and binding
contract that can be enforced by court action.
3. Those where both parties are incapable of giving consent.

In this case, ratification may be done by the guardians of both parties.
VOID OR INEXISTENT CONTRACTS
Void Contracts are those which are either inexistent, or illegal or illicit. They are defective contracts that are
invalid and therefore not binding and considered an absolute nullity and produces no effect, as if they had
never been executed or entered into and cannot be ratified. The proper legal remedy is action for declaration of
nullity of void contract.
The following contracts are inexistent and void from the beginning:
a. Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
b. Those which are absolutely simulated or fictitious;
c. Those whose cause or object did not exist at the time of the transaction;
d. Those whose object is outside the commerce of men;
e. Those which contemplate an impossible service;
f. Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;
g. 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. (Art.
1409)
Rules Applicable:
a. The action or defense for the declaration of the contract as inexistent does not prescribe.
b. The contract cannot be ratified.
c. It cannot give rise to valid subsequent contracts if the same are based on it.
d. Generally, produces no effect and no action to declare them void is needed.
e. When money is paid or property delivered for an illegal purpose, the contract may be repudiated by
one of the parties before the purpose has been accomplished, or before any damage has been
caused to a third person. In such case, the courts may, if the public interest will thus be subserved,
allow the party repudiating the contract to recover the money or property.
f. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the
interest of justice so demands allow recovery of money or property delivered by the incapacitated
person.
g. when the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is
designated for the protection of the plaintiff may, if public policy is thereby enhanced, recover what
he has paid or delivered.
Example: a beneficiary of a homestead sells the land within the prohibited period, the owner or
his heirs may still sue for the recovery of said land for it is the public policy of the law to grant
land to said owner or his heirs.
h. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter
may be enforced.
i. The defense of illegality of contract is not available to third persons whose interests are not directly
affected
Illegal Contracts: can either be that which involves a criminal offense or where there is no criminal offense.
a. When there is a criminal offense, it may be of two kinds:

i. Those where both parties are guilty (in pari delicto) - they shall have no action against each
other; they shall both be prosecuted; the effects of the crime shall be confiscated in favor of the
government. Example is when both parties entered into a contract to smuggle contraband.
ii. Those where only one is guilty and the other is innocent:
1) The guilty party will be prosecuted;
2) The instrument of the crime (or object of the contract) will be confiscated;
3) The innocent one may claim what he has given
Illustration: X, believing A (a government worker) had authority to sell a particular land, bought the same for
P1,000,000.
Here,
• A is the guilty party for his misrepresentation; X is the innocent party since he was in good faith.
• As such, A will be prosecuted for his crime (which may be under the Graft and Corrupt Practices Act)
b. When there is no criminal offense, which may be:
1. Where both are guilty - where neither can recover what he has given by virtue of the contract or
demand the performance of the other's undertaking.
2. Where only one is guilty or at fault -where the guilty party cannot recover what he has given by
reason of the contract or ask for the fulfillment of what had been promised him and the party not
at fault may demand the return of what he has given, without any obligation to comply with his
promise.

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RFBT – Law on Contracts

1. The stipulation of the parties

1. Negotiation (Preparation, Conception, or Generacion)

ESSENTIAL CHARACTERISTICS OF A CONTRACT (MNEMONICS: AMOR-C)

1. OBLIGATORY FORCE (OBLIGATORIEDAD DEL CONTRATO)

2. AUTONOMY OF CONTRACTS (Freedom or Liberty to Contract)

a. Waiver for future fraud

Contrary to public policy:

a. The contract must bind both parties;

Escalation Clause: where one increases/decreases compensation of one of the parties.

Rules concerning heirs and assigns:

a. Third persons may be benefited by a contract – paragraph 2 of Article 1311, otherwise

STIPULATION POUR AUTRUI

A stipulation in a contract clearly and deliberately conferred by the contracting parties as

Requisites of Stipulation Pour Autrui:

1. There must be a stipulation in favor of a third person.

Example: D is indebted to C. To secure the performance of the obligation, D

2. Collective Contracts – An example of this is a Collective Bargaining Agreement.

c. A creditor may initiate an action against the contracting parties

Contracts that may not be assailed by third persons:

1. Perfectly valid contract

Here, there is malicious interference by XYZ Corporation to the contract of

Requisites of a valid consent:

1. It should be intelligent (not subject of a mistake or fraud)

Offer and Acceptance

1. The offer must be certain.

Acceptance through Telegram/Letter

• January 1 – Offeror sent the letter- offer

SITUATIONS CONCERNING CONSENT OF THE PARTIES

If the incapacity pertains to capacity to act or legal capacity, it can be:

The following cannot give consent to a contract:

Note: The contract would be voidable as to the party who is incapacitated

1. Those suffering civil interdiction

Vices of consent: would render the contract voidable such as:

Errors or mistake that do not vitiate consent:

1. Error as to the solvency of the other party

3. Violence – when in order to wrest consent, serious or irresistible force is employed.\

There is NO FRAUD in the following cases:

1. Failure to disclose facts, when there is NO duty to reveal them.

OBJECT CERTAIN WHICH IS THE SUBJECT MATTER

1. The thing, right or service must be within the commerce of man;

Cause is the essential or impelling reason why a party assumes an obligation.

OTHER ESSENTIAL ELEMENTS

General Rule: no form is required for the validity or perfection of a contract.

The following are EXCEPTIONS:

Formalities required for validity

Formalities required for Enforceability (Statute of Frauds)

Formalities required for Convenience

Remedy to require a specific form

When may reformation be had:

Who can ask for reformation:

Specific rules in interpretation of contracts:

e. All other contracts specially declared by law to be subject to rescission

Other contract subject to rescission under the law:

Ratification: extinguishes the action to annul a voidable contract.

Annulment: renders the contract non-existing, as if it was never entered into.

Illustration: A, a minor, bought a house from B.

Prescriptive Period: to annul a voidable contract shall be four years.

Ground Counted from:

Kinds of Unenforceable Contracts: