CONTRACTS

I. General Provisions

Definition :
Art. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something, or to render some service.

Stages of Contract:
a. Negotiation – this covers the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is concluded or
perfected.

b. Perfection – this takes place upon the concurrence of the essential elements of the
contract.

c. Consummation – this begins when the parties perform their respective undertakings
under the contract culminating in the extinguishment of the same contract.

II. Essential Requisites

There is no contract unless the following requisites concur:
a. Consent of the contracting parties
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must
be certain, and the acceptance is absolute. A qualified acceptance constitutes a
counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the
time it came to his knowledge. The contract, in such case, is presumed to have
been entered into in the place where the offer was made.

Cognition Theory: When acceptance is effective.

The rule is that acceptance takes effect from the time the offeror learns about the
acceptance. This is known as the cognition theory.

1. If the acceptance is made by letter or telegram, the same is binding on the

offeror from the time it (letter or telegram) came to his knowledge.

2. If the offer is made through the agent, the acceptance is effective when the
principal or his agent learns about the acceptance.

Capacity to give consent:

 The age of majority is now 18 years of age. Thus, minors are person below 18
years of age. When a person is 18 years old, he is qualified and responsible
for all acts of civil life.

- If one party is a minor and the other is not, the contract is voidable.
- If both parties are minors, the contract is unenforceable.

 If one of the parties is insane at the time the contract was entered into, the
contract is voidable. Exception: if the insane entered into the contract
during a lucid interval, the contract is valid.
  If one of the party is a deaf-mute who does not know how to write, the
contract is voidable. If the deaf- mute knows how to write, the contract is
valid.

 A contract entered into while in a state of drunkenness or under hypnotic

spell is voidable.

 Person of advanced age or those suffering from physical incapacity are not
incapacitated to enter into contracts. Only when such age or infirmity impair
his mental faculties to such extent as to prevent him from properly,
intelligently, and fairly protecting his property rights, is he considered
incapacitated.

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

Art. 1347. All things which are not outside the commerce of men, including future
things, may be the object of a contract. All rights which are not intransmissible may
also be the object of the contracts.

No contract may be entered into upon future inheritance except in cases expressly
authorized by law.

All services which are not contrary to law, morals, good customs, public order or
public policy, may likewise be the object of the contract.

Requisites:
1. The thing or service must be within the commerce of man;
2. The thing or service must not be contrary to law, morals, good custom, public
policy, or public order;
3. The thing or service must be possible; and
4. The thing or service must be determinate or at least determinable.

c. Cause of the obligation which is established

Art. 1350. In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the other; in
remuneratory contract, the service or benefit which is renumerated; and in
contracts of pure beneficiaries, the mere liberality of the benefactor.

Types of Contracts and their Causes:

1. Onerous Contract – the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other.

Ex. Sale where the consideration for the seller is the promise to pay the price
while the consideration for the buyer is the delivery of the thing.

2. Remuneratory Contract – the cause is the service or benefit which is

remunerated. Remuneratory contract is one where a party gives something to
another because of some service rendered or benefit given by one party to the
other where such service or benefit was not due as legal obligation.
 Ex. Mr. A took care of Mr. B when the latter was sick. Lare, Mr. B delivered an
amount of P50,000.00 to Mr. A in consideration of the service. The consideration
is the act of taking care of Mr. B.

3. Gratuitous Contract or contracts of pure beneficence – the mere liberality of the

benefactor is the cause.

Ex. Donation where the mere liberality of the donor is the cause.

CAUSE VS. MOTIVE

Cause is the essential reason of the contract while motive is the private reason of
the contracting party in entering into the contract. The distinctions are as follows:

CAUSE MOTIVE
The legal reason that impels one to The private, personal or psychological
enter into the obligation. inducement of the party to enter into
the contract.

The cause is the same for certain types Even if the same contract is involved,
of contract. the motive may be different.
(ex. Sale, lease, etc.) (ex. A buys a lot for business purpose
while B buys a lot for residential
purpose)

Both parties are aware of the cause The motive of one party need not be
known to the other.

Cause is an essential element of the Motive is not an essential element of

contract. the contract.

Example of an effective contract:

Mr. A. offered to sell his book to Mr. B for P500.00 on December 2, 2024 and while they were
having dinner in a restaurant Mr. B verbally informed Mr. A on the same date and time that
he agrees to buy the book. The acceptance effective and the contract is perfected because
there is a meeting of the minds of the parties as to the object and its consideration.

Elements:
Consent – there was an offer and the offer was accepted
Object – books
Cause – consideration of P500.00 (remuneratory)

III. Forms of Contracts

Art. 1356. Contracts shall be obligatory in whatever form they may have been entered
into provided all the essential requisites for their validity are present. However, when
the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute
and indispensable.

Art. 1358. The following must appear in a public document:

1. Act and contracts which have for their object the creation, transmission,
modification, or extinguishment of real rights over immovable property, sales of real
property or of an interest therein a governed by Art. 1403 No. 2 and 1405.
2. The cession, repudiation, or renunciation of hereditary rights or of those of the
conjugal partnership of gains.
3. 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 prekudice a third
person.
4. The cession of actions or rights proceeding from an act appearing in a public
document.
All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one.

Art. 1403. The following contracts are unenforceable unless they are ratified:
1. Those entered into in the name of another person by one who has been given no
authority or legal representation or who has acted beyond his powers;

2. Those that do not comply with Statute of Frauds. In the following cases an
agreement hereafter made shall be unenforceable by action, unless the same, or
some note, or memorandum, be in writing and subscribed by the party charged or
by his agent; evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
a. An agreement that by its terms is not to be performed within a year from the
making thereof;
b. A special promise to answer for the debt, default, or miscarriage of another;
c. An agreement made in consideration of marriage, other than a mutual promise
to marry;
d. 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 evidence, 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 in
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.
e. An agreement of the leasing for a longer period than one year, or for the sale of
real property or of an interest therein.
f. A representation as to the credit of a third person

3. Those where both parties are incapable of giving consent to a contract.

General Rule: contracts are obligatory in whatever form they may have been entered
into, provided all the essential requisites are present.
Exceptions: those transactions that require them to be in a special or writing form.
Art. 1356 provides that contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity are present.
 The law may, however, provide for formalities. Based on Art. 1356 and related
provisions, there are at least three (3) types of formalities:
a. Formalities that are necessary for the validity of a contract;
b. Formalities to make the contract binding on third person; and
c. Formalities to allow proof of the existence or enforceability of the contract.

IV. Kinds of Contract

a. Rescissible Contracts
Art. 1380. Contracts validly agreed upon may be rescinded in the cases
established by law.

Art. 1381. The following contracts are rescissible:

1. Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than ¼ of the value of the things which are the
object thereof;
2. Those agreed upon in representation if absentees, if the latter suffer the lesion
as stated in the previous number;
3. Those undertaken in fraud of the creditors when the latter cannot in any other
manner collect the claims due them;
4. 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; and,
5. All other contracts specifically declared by law to be subject to rescission.

b. Voidable Contracts
- Contracts are valid until annulled.

Art. 1390. The contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
1. Those were one of the parties incapable of giving consent to a contract.
2. Those where the consent is vitiated by mistake, violence, intimidation, fraud or
undue influence.
Those contracts are binding unless they are annulled by a proper court action in
court. They are susceptible of ratification.

VICES OF CONSENT: a contract is voidable if consent is vitiated by (1) mistake, (2)

violence, (3) intimidation, (4) undue influence, or (5) fraud.
These vices of consent are circumstances that affect the decision of the party to
enter into a contract. The vice may refer to the capacity of a party to understand
like minority, insanity, being deaf-mute who do not know how to write, and other
personal circumstances discussed above. Vice may involve the volition of the
person involved like in cases where violence, fraud, intimidation, and similar
circumstances adversely affect the decision to consent.
1. MISTAKE – may only invalidate consent only if it refers to the substance of the
thing which is the object of the contract, or to those conditions which have
principally moved one or both parties to enter into contract. Thus, mistakes may
 involve wrong conception of the thing and a belief in the existence of some
circumstances, fact or events which in reality do not exist.

However, mistake as to the identity or qualifications of one of the parties will

vitiate consent only when they are principal causes of contract.

2. VIOLENCE AND INTIMIDATION – these vices of consent may be exercised not only
by the parties to the contract but also by third persons.

Violence – it refers to a degree of physical constraint or danger actually inflicted

upon a person. Violence will vitiate consent if the following requisites are
present:
a. There must be physical force that is of such degree that the victim has no
other choice but to comply; and
b. The physical force caused the giving of consent.

Intimidation – it is the exertion of moral force or compulsion; the danger or

constraint is threatened or impending. There is intimidation when one of the
contracting parties is compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon the person or
property of his spouse, descendants or ascendants to give his consent.
Intimidation will vitiate consent if the following requisites are present:
a. The intimidation must be the determining cause of the contract or must have
caused the consent to be given;
b. The threatened act must be unjust or unlawful;
c. The threat must be real and serious, there being an evident disproportion
between the evil and the resistance which all men can offer, leading to the
choice of the contract as lesser evil; and
d. It produces a reasonable and well-grounded fear from the fact that the person
from whom it comes has the necessary means or ability to inflict the
threatened injury.

3. UNDUE INFLUENCE – any means employed upon a party which, under the
circumstances, he could well resist, and which controlled his volition and induced
him to give his consent to the contract, which otherwise he would not have
entered into.

Elements:
a. A person who can be influenced;
b. The fact that improper influence was exerted; and
c. Submission to the overwhelming effect of such unlawful conduct.

 Confidential relationship may give rise to undue influence. However, for such
confidential relationship to give rise to undue influence, the relationship must
reflect a dominant, overmastering influence which controls the dependent
person. Influence obtained by persuasion, argument, by appeal to affections
is not prohibited either in law or morals and is not obnoxious even in court of
equity.
 4. FRAUD – employment of insidious words or machinations of one of the
contracting parties to induce the other to enter into a contract which, without
them, he would not have agreed to. These include false promises, exaggerated
expectations or benefits, abuse of confidence, fictitious name, quality or power.

It involves the deliberate intention to cause damage or prejudice, the voluntary

execution or wrongful act, or a willful omission, knowing and intending the
effects which naturally arise from such act or omission.

Example:
Mr. X offered to sell a ring to Mr. Y representing that it is made of gold. Mr. Y
believed Mr. X so he purchased the ring although it turned out that the ring is
just plated gold.

Art.1391. the action for annulment shall be brought within four (4) years. The
period shall begin:
In case of intimidation, violence, or under influence, from the time the defect of the
consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.

Art. 1392. Ratification extinguishes the action to annul a voidable contract.

c. Unenforceable Contracts
- Valid but cannot be enforced.

(see Art. 1403)

d. Void and inexistent Contracts

Art. 1409. The following contracts are inexistent and void from the very beginning:
1. Those whose cause, object, or purpose is contrary to law, morals, good custom,
public policy or public order.
2. Those which are absolutely simulated or fictitious.
3. Those who cause or object did not exist at the time of the transaction.
4. Those whose object is outside the commerce of men.
5. Those which contemplate impossible service.
6. Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained.
7. Those expressly prohibited or declared void by law.

 SIMULATION – the declaration of a fictitious will, deliberately made by

agreement of the parties, in order to produce, for purposes of deception the
appearances of a juridical act which does not exist or is different from what that
which was really executed. Simulation takes place when the parties do not really
 want the contract, they executed to produce the legal effects produced by its
wordings.

In simulation, the apparent contract is not really desired or intended to produce

legal effects nor in any way alter the juridical situation of the parties. An
absolutely simulated contract is void while a relatively simulated contract is also
void but only if it prejudices third person and it is for any purpose that is
contrary to law, morals, good customs, public order or public policy.

Requisites of Simulation:
1. An outward declaration of will different from the will of the contracting
parties;
2. The false appearance must have been intended by mutual agreement; and
3. The purpose is to deceive third person.

Art.1410. Those actions or defense for the declaration of the inexistence of a

contract does not prescribe.

RESCISSIBLE VOIDABLE UNENFORCEABLE VOID

What is 1. Lesion 1. Incapacity 1. In excess or 1. Absence of
the 2. Transfer in 2. Consent is without requisites,
defect? fraud of vitiated by authority, or
creditors; or fraud, 2. Violation of 2. Illicit
3. Transfer by violence, Statute of nature
insolvent intimidatio Frauds, or
before due n, undue 3. Incapacity of
date. influence. both parties.

What is Binding and Valid and Cannot be enforced No effect is

the enforceable binding until unless ratified or produced.
effect? unless rescinded annulled. waived.

Can it be Cannot be Can be Can be ratified Cannot be

ratified? ratified ratified ratified.
Who can Contracting party Contracting Contracting parties Contracting
assail the an third person parties only only parties and
contract? who is prejudiced third person
whose
interest are
affected.

What is Four years Four years No prescriptive Action for

the period is provided declaration
prescripti for because the that the
ve period same is not contract is
for filing applicable. void is
of the Prescription cannot imprescriptibl
case? cure the defect. e.

How can Directly. Directly or Directly or Directly or

the collaterally. collaterally. collaterally.
contract
be
assailed,
directly
or
collaterall
y?