Contracts 3

7/29/2019 Contracts 3

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CONTRACTS

Art 1305

ELEMENTSOF A CONTRACT

a. Essential Elements

1.Consent2.Subject Matter3.Cause or Consideration

b. Natural Elements- presumed toexist, unless the contrary isstipulated

Ex. Warrants against eviction andagainst hidden defects

c. Accidental Elements existence ofsuch is dependent on theagreement of the parties.

Classification of Contractsa. According to perfection or

formation1. Consensual2. Real-perfected by delivery3. Formal or Solemn

b. According to cause of equivalenceof the value of prestations:

1. Onerous2. Gratuitous or Lucrative3. Remunerative

c. According to Importance ordependence of one upon another

1. Principal can stand alone2. Accessory depends upon

the existence of another

contract

3. Preparatory here, theparties do not consider thecontract as an end by itself,but as a means thru whichfuture transaction orcontracts may be madeEx. Agency, partnership

d. According to the parties obligated1. Unilateral2. Bilateral

e. According to their Name orDesignation

1. Nominate2. Innominate

f. According to the risk of fulfillment

1. Commutative2. Alienatory

g. According to the time of performance or fulfillment

1. Executed- one completed atthe time the contract isentered into

2. Executory one where theprestations are to becomplied with at some

future time

h. According to subject matter1. Contracts involving things2. Contracts involving rights or

credit3. Contracts involving services

i. According to obligations imposedand required by law

1. Ordinary

2. Institutional-like contract ofmarriage

j. According to the evidencerequired for its proof

1. Those requiring merely oralor parol evidence

2. Those requiring writtenproof

k. According to the number ofpersons actually and physicallyentering into the contracts

1. Ordinary two parties arerepresented by differentpersons

2. Auto Contracts where onlyone person represents twoopposite parties, but indifferent capacities

l. According to the number of persons who participated in thedrafting of the contract

1. Ordinary2. Contract of Adherence

m. According to the nature of thecontract

1. Personal2. Impersonal

STAGES OF A CONTRACTa. Preparationb. Perfectionc. Consummation (or death or

termination)

Basic Principles or Characteristics of aContract

a. Freedom to stipulateb. Obligatory force and compliance in

good faithc. Perfection by mere consent


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d. Both parties are mutually bounde. Relativity

Art 1306 Freedom or autonomy ofcontract

Art 1307

Four Kinds of Innominate Contractsa. Du ut des (I give that you maygive)

b. Do ut facias (I give that you maydo)

c. Facio ut des (I do that you maygive)

d. Facio ut facias (I do that you maydo)

Art 1308-1310

MUTUALITY OF CONTRACTS

The validity or fulfillment of acontract cannot be left to the willof one of the contracting parties.

The validity or fulfillment may beleft to the will of a third person.

The validity or fulfillment may beleft to chance.

Art 1311

This principle stresses the Principle ofRelativity.

Contracts are generally effectiveonly between the parties, their assignsand their heirs.

Exceptions:a. Where the obligation arising from

the contract are not transmissibleby their nature, by stipulation, or

by provision of law.

b. Where there is stipulation pouratrui (a stipulation in favor of athird party)

c. Where a third person inducesanother to violate his contract

d. Where, in some cases, thirdpersons may be adversely affectedby a contract where they did notparticipate.

e. Where the law authorizes thecreditor to sue on a contractentered into by his debtor.

Art 1312

A real right binds the propertyover which it is exercised.Exception to the general rule thata contract binds only the parties.

Art 1313

Right of defrauded creditor.

Art 1314

Requisites before a third person in thisarticle can be held for damages

a. Existence of a valid contractb. Knowledge on the part of the third

person of the existence of thecontract

c. Interference by the third personwithout legal justification orexcuse

Art 1315-1316

Perfection of contracts

Art 1317

Requisites for a Person to Contractin the Name of Another

a. He must be duly authorized(expressly or impliedly)

b. Or he must have by law a right torepresent him

c. Or the contract must besubsequently ratified

Art 1318

Requisites of Contracts

a. Consent (Art 1319-46)b. Object (Art 1347-1349)c. Cause (Art 1350-55)

Art 1319

Definition of Consent-Art 1319,first paragraph

Requisite of Consenta. There must be two or more partiesb. The parties must be capable or

incapacitatedc. There must be no vitiation of

consentd. There must be no conflict between

what was expressly declared andwhat was really intended

e. The intent must be declaredproperly

Requisites for the meeting of mindsa. An offer that must be certain

b. And an acceptance must beunqualified and absolute

Concurrence of offer andacceptance (Art 1319-26)

Legal capacity of contractingparties (Art 1327-29)

Characteristics of Consent (Art1330-46)

Art 1320

Forms of Acceptance


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Art 1322

Acceptance of an Offer made thruan agent

Art 1323

Other instances when the offerbecomes ineffective

a. When the offeree expressly orimpliedly rejects the offer

b. When the offer is accepted withqualification or condition

c. When before acceptance iscommunicated, the subjectmatter becomes illegal orimpossible

d. When the period of time given tothe offeree within which he mustsignify his acceptance has

already lapsede. When the offer is rejected in due

tome

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Art 1324

Option Contract preparatory contractgiving a personfor a consideration

a certain period &under specified conditionsw/in w/c to acceptd offer of offerer

Option- privilege itself given to offereeto accept an offerw/in a certain period

Withdrawal of Offer wer period foracceptance is Stipulated

GR: OFFER MAY BE WITHDRAWN anytimebefore acceptance

XPT: option is founded upon aseparate

consideration (as smethingpaid/promised)

Perfection of OptionWhen there is a meeting of minds

on the option

Art 1325-1326Acceptance of General/Public Offers

GR: offer made to particularperson,

Only such person (NO other)May accept offer

XPN: GENERAL OFFERMade to the public /To particular class of

personsMay be accepted by anyonew/in description of the class

If the advertisement contains allthe specific particular needed in acontract, it is a definite offer.

If important details are left out,the advertisement is not a definite offer,but a mere invitation to make an offer.

Art 1327 in relation to Art 1329Who cannot give consent.

Art 1328Voidable contracts by reason of

incapacity

Art 1330This article enumerates causes or

vices of consent.

Art 1331 in relation to Art 1333Mistake

It is a false belief about something.

Requisites for mistake to vitiate consenta. Object of the contractb. The condition which principally

proved or induced one of theparties

c. Identify or qualifications, but onlyif such was the principal cause ofthe contract.

d. The error must be excusablee. The error must be a mistake of

fact

Kinds of Mistakea. Mistake as to the object

1. Mistake as the identity ofthe thing

2. Mistake as to the substanceof the thing3. Mistake as to the conditions

of the thing4. Mistake as to the quantity of

the thing

b. Mistake as to person1. Mistake must be either with

regards to the identify orwith regard to the

qualification of one of thecontracting parties2. Such identity or qualification

must have been theprincipal consideration forthe celebration of thecontract

Art 1332Burden of proof in case of mistake

Art 1333Effect of knowledge of risk


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Art 1334

Mistake of LawIs that which arises from an

ignorance of some provision of law, orfrom an erroneous interpretation of itsmeaning, or from an erroneousconclusion as to the legal effect of theagreement, on the part of one of theparties.

Requisites:a. There must be mutual errorb. The error must refer to the legal

effect of the agreementc. The real purpose of the parties is

frustrated

Art 1335-1336Violation refer to physical coercionIntimidation refers to moral

coercion

Requisites for violence to vitiate consenta. Employment of serious or

irresistible forceb. It must have been the reason why

the contract was entered into

Requisites for intimidation to vitiateconsent

a. Reasonable and well-groundedfear

b. Of an imminent and grave evilc. Upon his person, property, or upon

the person of property of hisspouse, descendents orascendants

d. It must have been the reason why

the contract was entered into

e. The threat must be an unjust act,an actionable wrong

Art 1337Requisites for undue influence to vitiateconsent

a. Improper advantageb. Power over the will of anotherc. Deprivation of the latters will of a

reasonable freedom of choice

Art 1338-1341Kinds of Fraud

a. Fraud in the celebration of thecontract

1. Dolo Causante orcausal fraud (Art1338)

2. Dolo Incidente of incidental fraud

b. Fraud in the performance of theobligations stipulated in thecontract

Requisites of Dolo Causantea. The fraud must be material

and seriousb. The fraud must have been

employed by one of thecontracting parties, becauseif both committed fraud, thecontract would remain valid

c. There must be a deliberateintent to deceive to induce

d. The other party must haverelied on the untruestatement, and musthimself not be guilty ofnegligence in ascertaining

the truth

Art 1342-1344Speaks about misrepresentation

Art 1345-1346Simulation

Simulation of a Contract definedIt is the process of intentionallydeceiving others by producing theappearance of a contract thatreally does not exist (absolutesimulation)Or which is different from the trueagreement relative simulation.

Kindsa. Absolute; Effect; the contract is

void

b. Relative; Effect; the parties arebound to the real or trueagreement except-

a. If the contract shouldprejudice third persons

b. Or if the purpose iscontrary to law, morals,public order, policy orgood customs

Requisites

a. An outward declaration of willdifference from the will of theparties

b. The false appearance must havebeen intended by mutualagreement

c. The purpose is to deceive thirdpersons

Art 1347-1349Objects (Subject Matter) of a contract

-A thing or a service


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Requisitesa. The thing or service must be

within the commerce of manb. Must be transmissiblec. Must not be contrary to law,

morals, good customs, publicorder, or public policy

d. Must not be impossiblee. Must be determinate as to its kind

or determinate without the need ofa new contract or agreement

CAUSE OF CONTRACTSArt 1350Cause defined

-It is the essential and impellingreason why a party assumes anobligation

Art 1351Motive is the purely personal or privatereason which a party has in entering intoa contract

Motive vs. CauseMotive

a. May vary although he enters intothe same kind of contract

b. May be unknown to the other

c. The presence of motive

Causea. Always the sameb. Always knownc. Cannot cure the absence of cause

Art 1352-1355Requisites for cause

a. It must be presentb. It must be true

c. It must be lawful

CHAPTER 3

FORM OF CONTRACTS

Art 1356Meaning of form of contracts

-Refers to the manner in which acontract is executed or manifested

Rules regarding from of contracts (Art1356)Art 1357-1358Principles regarding formalities for theefficacy of a contract

a. Art 1357 and Art 1358 do notrequire the execution of a contracteither in a public or privateinstrument in order to validateenforce it but only to ensure its

efficacy, so after its existence hasbeen admitted, the party boundmay be compelled to execute thenecessary document

b. Even where the contract has notbeen reduced to the requiredform, it is still valid and binding asfar as the parties are concerned

c. From the moment one of thecontracting parties invokes theprovisions of Art 1357 and 1358by

means of a proper action, theeffect is to place the existence ofthe contract in issue, which mustbe resolved by the ordinary rulesof evidence

d. Art 1357 does not require that theaction to compel the execution ofthe necessary document mustprecede the action upon thecontract

e. However, although the provisions

of Art 1357 in connection with

those of Art 1358, do not operateagainst the validity of the contractnor the validity of the actsvoluntarily performed by theparties for the fulfillment thereof,yet from the moments when anyof the contracting parties invokessaid provisions, it is evident thatunder them the execution of therequired document must precedethe determination of the otherobligations derived from thecontract

CHAPTER 4REFORMATION OF INSTRUMENT

Reformation is that remedy by

means of which a written instrumentis amended or rectified so as toexpress or conform to the realagreement or intention of the partieswhen by reason of mistake, fraud, orinequitable contract, or accident theinstrument fails to express suchagreement or intention.

Requisites for reformationa. There is a meeting of minds of the

parties to the contractb. The written instrument does notexpress the true agreement orintention of the parties

c. The failure to express the trueintentions is due to mistake, fraud,inequitable conduct or accident

d. The facts upon which relief by wayof reformation of the instrument issought are put in issue by thepleadings


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e. There is clear and convincingevidence of the mistake, fraud,inequitable conduct, or accident

Reformation vs. AnnulmentIn reformation, there has been a

meeting of the minds of the parties,hence, a contract exists while inannulment, there has been none, theconsent of one of the parties beingvitiated by mistake, etc.

Art 1360-69

Art 1360Rule in case of conflict

Art 1366

Instances when reformation is notallowed

CHAPTER 5

INTERPRETATION OF A CONTRACT

Art 1370Definition of interpretation of contract

-Is the determination of themeaning of the terms or words used bythe parties in their contract

Art 1371-79 (provisions)

Kinds of defective contractsa. Rescissible (Art 1380-89)b. Voidable (Art 1390-1402)c. Unenforceable (Art 1403-1408)d. Void or Inexistent (Art 1409-1422)

Art 1381 in relation to Art 1382Meaning of rescissible contracts

-Those validly agreed uponbecause all the essential elements existsbut in some cases established by law,the remedy of rescission is granted in theinterest of equity

Requisites of rescissiona. The contracts must be validly

agreed uponb. There must be lesion or pecuniary

prejudice to one of the parties orto a third person

c. The rescission must be basedupon a case especially provided bylaw

d. There must be no other legalremedy to obtain reparation of thedamages

e. The party asking for rescissionmust be able to return what he isobliged to restore by reason of thecontract

f. The object of the contract mustnot legally

g. The object of the contract mustnot legally be in the possession ofthird persons who did not act inbad faith

h. The period for filing the action of

rescission must have notprescribed

Meaning of Rescission-Remedy granted by law to the

contracting parties and sometimes evento third persons in order to securereparation of damages caused by themby a valid contract, by means of therestoration of things to their condition in

which they were prior to the celebrationof the said contract.

Art 1385Effects of rescission

Art 1324

Prescription

VOIDABLECONTRACTS

Definition-Are those which possess all the

essential requisites of a valid contractbut one of the parties is incapable ofgiving consent, or consent is vitiated bymistake, violence, intimidation, undueinfluence, or fraud

Characteristics

a. Their defect consist in the vitiationof consent of one of thecontracting parties

b. They are binding until they areannulled by competent court

c. They are susceptible of convalidation by ratification or byprescription

Voidable vs. Rescissible Contracts

Voidablea. Defect is intrinsicb. Contract is voidable even if there

is no damage or prejudicec. Annulability of the contract is

based on lawd. Susceptible of ratificatione. The causes of annulment

The causes of rescission

Rescissiblea. Defect is extrinsic


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b. Contract is not rescissible id thereis no damage or prejudice

c. Rescissibility of the contract isbased on equity

d. Not susceptible of ratificatione. Are different form

Art 1390

Voidable contracts

Art 1391Prescription

Art 1392-96

Concept of Ratification-By virtue of which efficacy is

given to a contract which suffers from avice of curable nullity

Requisites for ratificationa. The contract should be tainted

with a vice which is susceptible ofbeing cured

b. The confirmation should beeffected by the person who isentitled to do so under the law

c. It should be effected with

knowledge of the vice or defect ofthe contract

d. The cause of the nullity or defectshould have already disappeared

Art 1397 in relation to Art 1391-Who and when may an action for

annulment of contract be instituted

Art 1398-99

Effects of annulment

Art 1400-02- Effect pf failure to make restitution-Where loss is due to fault of plaintiff-Where loss is due to fault of defendant-Where loss is due to fortuitous event

CHAPTER 8

UNENFORCEABLECONTRACTS

Meaning of unenforceable contracts-Those that san not be enforced in

court or sued upon by reason of defectsprovided by law until and unless they areratified according to law.

Kinds:a. Those entered into in the name of

another by one without or actingin excess of authority

b. Those that do not comply with thestatute of fraud

c. Those where both parties areincapacitated of giving consent

Unauthorized contracts-Those entered into in the name of

another person by one who has beengiven no authority or legalrepresentation on who has acted beyondhis powers.

Characteristics of UnenforceableContracts

a. They can not be enforced by aproper action in court

b. They are susceptible of ratificationc. They can not be assailed by third

persons

Unenforceable vs. Rescissiblea. An unenforceable contract cannot

be enforced by a proper action incourt, while a rescissible contractcan be enforced, unless it isrescinded

b. The causes for the unenforceablecharacter of the former aredifferent from the causes fro therescissible character of the latter

c. The former is susceptible ofratification, while the latter is not

d. The former cannot be assailed bythird persons, while the latter maybe assailed by third persons whoare prejudiced

Unenforceable vs. Voidablea. An unenforceable contract cannot

be enforced by a proper action incourt, while a voidable contractcan be enforced, unless it isannulled

b. The causes for the unenforceablecharacter of the former aredifferent from the causes for thevoidable character of the latter

STATUTE OF FRAUDS

Purpose-Not only to prevent fraud but alsoto guard against the mistakes of honestmen by requiring that certain agreementspecified must be in writing.

Applicationa. Not applicable in actions which are

neither for damages because of aviolation of a contract, nor for thespecific performance thereof

b. Applicable only to executorycontracts and not to contracts


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which are totally or partiallyperformed

c. Not applicable where the contractis admittedly expressly, orimpliedly by the failure to denyspecifically its existence, nofurther evidence thereof beingrequired in such case.

d. Applicable only to the agreementsenumerated therein

e. Not applicable where a writingdoes not express the trueagreement of the parties

f. It does not declare the contractsinfringing it are void but merelyunenforceable

g. The defense of the statute offrauds may be waived

h. The defense of the statute offrauds is personal to the partiesand cannot be enforced bystrangers to the contract

Effect of Non-Compliance-The contract or agreement is

unenforceable by action

Ratification of Unenforceable ContractsEither by: a. the failure of object to thepresentation of oral existence to provethe same

c. The acceptance of benefits underthem

Art 1404-1408 (provisions)

CHAPTER 9

VOID OR INEXISTENT CONTRACTS

Void Contracts

-Those, which of certain defectsgenerally produce no effect at all

Inexistent Contracts-Refer to agreements which lack

one or some or all the elements or do notcomply with the formalities which areessential for the existence of a contract

Characteristics of a Void or InexistentContracts

a. Generally, it produces no effectb. It cannot be ratifiedc. The right to set up the defense of

legality cannot be waivedd. The action or defense for the

declaration of its inexistence doesnot prescribe

e. The defense of illegality is notavailable to third persons whoseinterests are not directly affected

f. It cannot give rise to a validcontract

Art 1410-Imprescriptibility of void or

inexistent contract

Art 1411-1412

Where both parties are in pari delictoa. The parties shall have no actionagainst each other

b. Both shall be prosecutedc. The things or the price of the

contract, as the effects of thecrime shall be confiscated in favorof the government

Where only one party is guilty-The rule in paragraph 1 of Art

1411 applies only to the guilty party orthe more guilty party

Exceptions to the principle of pari delictoArt 1413-1419

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