OBLIGATIONS AND

CONTRACTS
LECTURE 11
By: Atty. Wilfred Francis B. Martinez
Contracts
Contracts
 A contract is a meeting of the minds between two or more
persons whereby one binds himself, with respect to the
other, to give something or to render some service.
 Requisites of a Contract:
1. Consent;
2. Object; and
3. Cause / Consideration;
 Note:
 Certain special contracts have special requisites.
 Example: Marriage Contract requires that one party is male and the
other party is female.
Contracts
 Principles of Contracts:
1. Principle of Obligatory Force
 Once the contract is formed and perfected, the agreements made by the
parties will have obligatory force upon both of them. Consequently, both
parties are not only bound by the fulfillment of their obligations, but
also of all the consequences thereof.
2. Principle of Mutuality of Contracts
 This principle states that both parties must be on equal footing with
each other. The validity or compliance cannot be left to the will of only
one of the parties.
3. Principle of Autonomy of Contracts
 The parties to the contract can agree to any stipulation or agreement
they want provided that it is not against the law, morals, good customs,
public order, or public policy.
4. Principle of Relativity of Contracts
 Contracts takes effect only between the parties, their assigns and heirs.
Contracts
 Breach of Contract:
 The failure of one or both of the parties, without legal reason, to
comply with the terms of the contract, in whole, or in part.
 Life of a Contract / Stages of a Contract:
1. Generation;
 This involves the preliminary steps taken by the parties to form a
contract. This includes preparation, negotiations, bargaining, and
discussions with one another until they find common ground.
2. Perfection;
 Once the parties find common ground and both parties give their
agreement, the contract is “perfected”. A contract is born.
3. Consummation.
 This is the stage whereby the parties has successfully performed
their obligations to each other. The contract comes to an end.
Contracts (Class Participation)
 Divide the situation below into the different stages of a
contract. (2 points each)
1. John sent a letter to Nate offering to sell his car for the price of
P200,000.00. The next day, both men met. After Nate sees the
condition of the car, he asks John if he can lower the price to only
P150,000.00. John agrees and both men signed a contract of sale.
John gave the keys to the car to Nate on the same day while Nate
paid the full price.
2. Sebastian offered to build a boat for Carlo for only P100,000.00.
Sebastian obligated himself to build the boat within 1 month.
Carlo countered by saying he will pay P200,000.00 if Sebastian
can do it within 15 days. Sebastian agreed and both men shook
hands. On the 14th day of the contract, Sebastian delivered the
boat and Carlo paid the P200,000.00 amount.
Requisites of a Contract
Consent
 Consent is the concurrence of the wills of the contracting
parties with respect to the object and the cause which
forms the contract.
 Consent is the most important element of a contract.
 Requisites of Consent:
1. There must be concurrence of the offer and acceptance;
2. The parties must have legal capacity to enter into contracts; and
3. The consent must be intelligent, free, spontaneous, and real.
Consent
 How do you manifest consent?
 When the minds of both parties meet on common ground regarding
the object and cause of the contract.
 The meeting of the minds of the parties can be seen through a
mere statement of “yes” to the terms and conditions by both
parties is sufficient. (Express Consent)
 The “yes” of the parties can be seen through various actions. It
could be the literal statement of “yes”, or it could be done
through the shaking of hands, or it could be done through the
signature in a written document which evidences the contract.
(Implied Consent)
 Note that it is not limited to the actions above. ANY action by the
parties that signifies that a meeting of the minds took place can be
seen as giving of consent. (Ramon Magsaysay Award Foundation vs
Court of Appeals)
Consent
 Any qualifying words is not consent:
 A “yes” followed by the words “but”, “if” or “however” is not
consent. It is a counter offer.
 Example: “Yes, I accept the terms however the price should be
reduced to only half of what you stated.”
 Example: “Yes, I will buy the car, but can you include the spare tires
to the contract price?”
 As a general rule, one party will offer terms and conditions to a
contract, and the other party will have the choice of accepting
the offer or rejecting it.
 If the party does not accept the offer, the rejecting party may send a
counter-offer. This is the “Generation” or negotiation stage of the
contract.
 Only when both parties accept each other’s offers and counter-offers
will the contract be deemed perfected.
Consent (Offer and Acceptance)
 As a general rule, one party will offer terms and
conditions to a contract, and the other party will have the
choice of accepting the offer or rejecting it.
 If the party does not accept the offer, the rejecting party may
send a counter-offer. This is the “Generation” or negotiation stage
of the contract.
 Only when both parties accept each other’s offers and counter-
offers will the contract be deemed perfected.
Consent (Offer and Acceptance)
 As a general rule, one party will offer terms and conditions to a
contract, and the other party will have the choice of accepting the
offer or rejecting it.
 If the party does not accept the offer, the rejecting party may send a counter-
offer. This is the “Generation” or negotiation stage of the contract.
 Only when both parties accept each other’s offers and counter-offers will the
contract be deemed perfected.
 The offer and acceptance must be certain and definite.
 Example 1: X wrote a letter to Z saying that he is “interested” or “is
entertaining the possibility” of selling his house to Z. In this case, there is no
contract because the letter to Z is not an offer.
 Example 2: Pedro wrote a letter to Maria stating that he is selling his car to
Maria for only P500,000.00. Maria wrote back stating that she is “willing to
enter into a contract of sale for the car” with Pedro. In this case, there is also
no contract because Maria’s letter is not an acceptance. The words “willing to
enter into a contract” is not definitive.
 The offer and acceptance must be absolute.
Consent (Class Participation)
 Determine whether or not the offers and acceptances in
the following scenarios are valid or invalid.
1. Mike sent an email to Mark expressing his interest in buying
Mark’s laptop for P50,000.00.
2. Jaime approaches Andrew and says the following: “are you
willing to purchase my house in Binondo?”
3. Jerome (seller) and Ricky (buyer) are currently engaged in
negotiations for the sale of a car. After a few days of discussions,
Ricky called via cellphone stating that he accepts Jerome’s offer.
4. Juanito sent a text to Joshua saying: “Hi Joshua, I’m selling my
cellphone for only P30,000.00. It is an iPhone 6s plus, barely
used. The condition is good and I will include all accessories. I
have the photos to your email. Let me know if you want to buy
it.”
Consent (Offer and Acceptance)
 Offer and Acceptance must be communicated to the other
party.
 Under Philippine law and jurisprudence, a contract is
perfected the moment the acceptance comes to the
knowledge of the offeror.
 Can an offeror withdraw his offer?
 It depends.
 As a general rule YES.
 If the contract is an option contract without consideration. Yes.
 If the contract is an option contract with consideration. No.
Consent (Offer and Acceptance)
 Important Note:
 Actual knowledge is necessary. Mere receipt of a letter of
acceptance is not sufficient.
 Example:
 Juan to Maria a letter whereby Juan is proposing to sell his TV to
Maria for P10,000.00. Maria sent her acceptance letter to Juan. This
letter arrived at Juan’s house while he was in Japan for a business
trip. While in Japan however, Juan decided to no longer sell his TV
and thus sent a letter to Maria withdrawing his original offer.
 In the above example, there was not contract of sale between Juan
and Maria because, although Juan technically received Maria’s
acceptance letter, Juan had no actual knowledge of the acceptance
because Juan has not read the letter.
 Of course, the situation would be different if the acceptance of Maria
was communicated to Juan in some other form.
Consent (Offer and Acceptance)
 An offer made through an agent can be accepted by
communicating acceptance to the agent.
 Advertisements for bidders are simply invitations to make
proposals.
 Minors who misrepresented themselves as persons of legal
age to enter into contracts, cannot later on, use the same
to escape their obligations from their contracts once they
reach the age of majority. (Doctrine of Estoppel)
 Deaf-Mutes who can write can enter into contracts,
however, Deaf-Mutes who cannot write cannot.
 Judicially declared insane individuals can enter into
contracts during lucid intervals.
Consent (Offer and Acceptance)
 Contracts entered into during a state of drunkenness or during a
hypnotic spell are voidable. The courts will have to determine
if that person had enough mental capacity to freely give
consent.
 When entering into contracts with persons who cannot read, or
if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract
must show that the terms and conditions of the contract have
been fully explained to the other party.
 Example:
 Juan entered into a contract of sale of a house with Pedro, an illiterate.
The contract reads that the house was 3 stories tall. After some time,
Pedro files a case against Juan saying that Juan defrauded Pedro.
According to Pedro, the house was supposed to be 4 stories tall. In this
case, it is up to Juan to prove to the court that Juan has carefully
explained to Pedro that the house was only 3 stories tall.
Contracts
 A contract entered into through mistake, violence,
intimidation, undue influence, or fraud is voidable.
 With regards to mistake, only mistake of fact can invalidate
consent. Mistake of law does not invalidate consent (ignorance of
the law does not excuse anyone).
 Violence can only invalidate consent if serious or irresistible force
is employed.
 Intimidation can only invalidate consent if there is reasonable and
well-grounded fear of a grave and imminent evil. Just or legal
threats are valid however.
 Undue influence exist when a person takes improper advantage of
his power over the will of another person. It deprives the other
person of reasonable freedom of choice.
 Fraud: (Refer to Week 3 Slide 16)
Contracts
 Failure to disclose facts, where there is a duty to reveal them, as
when the parties are bound by confidential relations, constitute
fraud.
 The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
 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.
 Misrepresentation by a third person does not vitiate consent, unless
such misrepresentation has created substantial mistake and the same
is mutual.
 Misrepresentation made in good faith is not fraudulent, but may
constitute an error.
 In order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties.
Contracts (Simulated Contracts)
 Types of Simulated Contracts:
1. Absolutely Simulated:
 The contracting parties do not intend to be bound by the contract at all, thus the
contract is void.
 Example:
 X is about to have his 10 hectare land taken away to pay for his many debts. To
avoid this. X and his son enters into a contract of sale wherein X is selling the
land to his son. Under the contract, the son is paying P5 Million pesos for the
land. In truth however, the son paid nothing, the land is still in the X’s name.
The only thing that changed was the name on the title.
2. Relative Simulation:
 The real transaction is hidden.
 The contracting parties concealed their true agreement.
 This type of simulation still binds the parties to their real agreement when it does
not prejudice third persons or is not intended for any purpose contrary to law,
morals, etc.
 Example:
 A deed of donation disguised as a contract of sale.
Contracts (Contracts of Adhesion)
 Contract of Adhesion
 It is a type of contract wherein the terms and conditions are
prepared by only one party while the other party simply affixes
their signature signifying their consent.
 This type of contract is valid.
 Although it may seem unfair at first, the current rule is that
contracts of adhesions are always reviewed by the courts against
the party that drafted it.
Object of a Contract
Object of a Contract
 An object of a contract is the thing, the right, or the
service which is the subject matter of the obligation
which is created or established.
 What may be the object of a contract?
1. Anything within the commerce of men.
 This includes all objects capable of appropriation and ownership,
and that it is transmissible from one person to another.
2. The object must be real or possible.
 This means that it must exist at the moment the contract is made,
or, at the very least, capable of existing in the future.
3. The object must be legal.
4. The object should be determinate, or at least, possible to
determination as to its kind.
Object of a Contract
 An object of a contract is the thing, the right, or the
service which is the subject matter of the obligation
which is created or established.
 What may be the object of a contract?
1. Anything within the commerce of men.
 This includes all objects capable of appropriation and ownership,
and that it is transmissible from one person to another.
2. The object must be real or possible.
 This means that it must exist at the moment the contract is made,
or, at the very least, capable of existing in the future.
3. The object must be legal.
4. The object should be determinate, or at least, possible to
determination as to its kind.
Object of a Contract
 Examples of what may not be objects of a contract:
1. Things which are outside the commerce of men;
2. Intransmissible rights;
3. Future inheritance, except in cases authorized by law;
 This rule is to prevent the parties from having an incentive arising from the death
of a person.
 Example: A contract wherein the children agreed to divide the estate upon the
death of their parent.
 Where contracts concerning future inheritance is valid: (1) Donation between
spouses that takes effect upon the death of the donor; and (2) The decedent
partitioned his own property prior to his death.
4. Those objects which are against the law, morals, good customs, public order
or public policy, impossible things or services;
5. Those impossible things or services;
6. Objects which are not possible of determination as to their kind;
7. Determinate things that has already perished or is lost.
Cause (causa) or Consideration of a
Contract
Cause or Consideration of a Contract
 Cause is the “why” of the contract. It is the essential reason
which motivates the parties to enter into the contract.
 In other words, it is the immediate direct or most proximate reason
which explains and justifies the creation of the contract.
 Types of Contract:
 Onerous contracts:
 The cause for such contracts is understood to be, for each party, the
prestation or promise of a thing for each other.
 Remuneratory contracts:
 The cause for these type of contracts is the service or benefit which is, in
turn, remunerated.
 Contracts of pure beneficence:
 The cause is pure liberality of the benefactor.
Cause or Consideration of a Contract
 The motive of the parties is not always the cause of the
contract.
 As an example, in a contract of sale, the primary cause on
why a vendor/seller is selling an item is his receipt of the
purchase price or money. On the other hand, the
vendee/buyer’s cause is the acquisition of the thing.
 In this example, even if the motive of the buyer is to acquire the
product because it reminded him of his childhood sweetheart is
irrelevant. His “cause”, as far as the law is concerned, is that he
wanted the product.
Cause or Consideration of a Contract
 The motive of the parties is not always the cause of the
contract.
 As an example, in a contract of sale, the primary cause on
why a vendor/seller is selling an item is his receipt of the
purchase price or money. On the other hand, the
vendee/buyer’s cause is the acquisition of the thing.
 In this example, even if the motive of the buyer is to acquire the
product because it reminded him of his childhood sweetheart is
irrelevant. His “cause”, as far as the law is concerned, is that he
wanted the product.
Cause or Consideration of a Contract
 Contracts without a cause, or if the cause is illegal,
produce no effect whatsoever.
 False statement of a cause in the contract shall render
them void, if the parties are unable to prove that the true
cause of the contract is valid or existing.
 Example: Rodriguez vs Rodriguez
 According to the law, donation between spouses during their lifetime
is prohibited (unless it is small gifts). Due to this, Maria “sold” her
land to her daughter Beth. Beth, in turn, resold the land to her step-
father Marcelo.
 In this example, the Supreme Court ruled that the cause of the
contract was illegal and is therefore void.
Cause or Consideration of a Contract
 What if the parties did not write or state the cause of
their contract?
 According to the law, the cause of all contracts are presumed to
valid and legal. Who ever alleges that it is illegal must prove it
through competent evidence.
 Lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue
influence.
Thank You.
 Reminders for next week:
 Final Exams next meeting (13 April 2019).
 Coverage: Everything
 Good luck and study well.