1

I DEFINITION: CONTRACT a meeting of minds between two persons whereby one bind himself with respect to the other, to give something or to render some service. STAGES IN LIFE OF CONTRACT 1. Preparation parties are negotiating Meeting of minds 2. Perfection birth of contract 3. Consummation or termination A. How are contracted perfected? 1. Consensual contracts (Gen. Rule) by mere consent, that is meeting of mind of the parties regarding the subject matter and cause of the contract. Example contract of sale 2. Real Contracts perfected by consent plus delivery, actual or constructive, of the object of contract Example Contract of pledge 3. Formal Contracts a certain form is required for perfection or validity. Example Donation of real property -must be in a public instrument B. What is the effect of perfection? The parties are bound: 1. To the fulfillment of what has been agreed upon 2. To all the consequences which according to their nature are in keeping with good faith, usage and law. Two(2) persons not necessarily two physical persons, but two(2) legal Personalities/entities: obligor and oblige; one with right, the other, with obligation Obligation: to give something(real obligation) or to render some service(personal obligation)

II FREEDOM TO CONTRACT Parties can established any stipulations, clauses, terms and conditions they both agreed to EXCEPT: those that are contrary to LAW, MORALS, GOOD CUSTOMS, PUBLIC ORDER, & PUBLIC POLICY.

2
III MUTUALITY OF CONTRACT Binding on both contract parties, validity or compliance cannot be left to the will of one of them EXAMPLE: EXCEPTION: Determination of performance can be given to a third person and decision of said 3rd person is binding of both parties after it has bee made known to them. WHEN DETERMINATION IS NOT BINDING ON PARTIES? - If determination is INEQUITABLE the court will resolve INEQUITABLE means grossly unfair/unjust; UNCONSCIONABLE IV RELATIVITY OF CONTRACT Contract takes effect only between the parties, their assigns and heirs. WHEN CONTRACT binds the contracting parties only? -if rights and obligations arising therefrom are not transmissible by: a. their nature, or - example: contract of marriage b. by stipulation, - agreement of parties c. by provision of law example: contract of partnership COMPATIBLE WITH THE LAW ON OBLIGATIONS, that obligations are generally transmissible Extent of liability of HEIRS Not liable beyond the value of property received from decedent.

Cases where strangers or 3rd persons are affected by a contract 1. Contracts with stipulation pour autrui. stipulation (a part only) in favor of a 3rd person who must accept it before its revocation. -the favorable stipulation must not be conditioned or compensated by any kind of obligation whatever. 2. Contracts creating real rights whereby 3rd person came into possession of the object of contract. Ex. contract of mortgage. 3. Contracts entered into to defraud creditors.

3
Remedy: Creditors can impugn the contracts, that is, they can seek the rescission or cancellation of the contract 4. Contracts which have been violated at the inducement of 3rd person. 3rd person liable for damages. V INNOMINATE CONTRACTS without name in law Nominate contracts with name in law. Ex. sale, mortgage, depositum KINDS: 1. I give that you may give (no longer innominate) barter or exchange 2. I give that you may do (do ut facias) 3. I do that you may do (facio ut facia) 4. I do that you may give (facio ut des) GOVERNING RULES: 1. Agreement of parties 2. Law on obligations and contracts (New Civil Code) 3. Rules governing most analogous contracts (NCC) 4. Customs of the place

VI UNAUTHORIZED CONTRACTS unenforceable unless ratified before revocation. Contract entered into in the name of another by one who has no authority or legal representation or has acted beyond his powers.

VII - ESSENTIAL REQUISITES OF CONTRACTS 1. Consent of the contracting parties 2. Object certain subject matter of contract 3. Cause (or consideration) of the obligation which is established.

1 CONSENT How manifested meeting of offer and acceptance upon the object and cause. OFFER certain or definite proposal ACCEPTANCE absolute assent to the terms of the offer, expressly or impliedly made;

4
effective if conveyed before death, civil interdiction, insanity or insolvency of either party.

Offerer can fix the time, place and manner of acceptance all must be complied. Qualified or modified acceptance constitutes COUNTER-OFFER

If offer is made through agent, acceptance should be communicated to the agent. Otherwise, there is no meeting of minds. EXCEPTION: Offer is made by principal, agent is authorize to receive the acceptance.

OPTION CONTRACT contract giving person a certain period (OPTION PERIOD) within which to accept the offer of the offerer. Offer may be withdrawn anytime before acceptance. WHEN CAN NOT BE WITHDRAWN? If option is founded on a consideration, as something paid or promised (OPTION MONEY). EARNEST MONEY partial payment of purchase price; proof of perfection of contract. Business Advertisements not definite offers; mere invitation to make offer

Advertisement for bidders invitation to make proposals PERSONS WHO CANNOT GIVE CONSENT TO A CONTRACT 1. Minor below 18 2. Insane or demented persons 3. Deaf-mute who do not know how to write. They can enter into contracts through parents or guardians. LUCID INTERVAL temporary period of sanity. Contract entered during such state VALID STATE OF DRUNKENNES or HYPNOTIC SPELL VIODABLE SOME EXCEPTIONS TO INCAPACITY TO GIVE CONSENT 1. Contract involving necessaries (ie. food) 2. Contract involving fungible things delivered by the minor has spent or consumed it in good faith. CHARACTERISTICS OF CONSENT: 1. Intelligent capacity to act

5
2. Free and voluntary no vitiation because of violation or intimidation 3. Conscious or spontaneous no vitiation by reason of mistake, undue influence or fraud. VICES OF CONSENT ERROR or MISTAKE, VIOLENCE OR FORCE INTIMIDATION or THREAT or DURESS UNDUE INFLUENCE FRAUD or DECEIT

1. MISTAKE false notion as to: 1. Substance of the thing; 2. principal conditions which moved the parties to enter into the contract 3. Identity or qualifications of one of the parties which is the principal cause of the contract SOME MISTAKES WHICH DO NOT VIATE CONSENT 1. Error as to incidents of a thing (accidental qualities) 2. Mistake as to quantity or amount remedy: correction 3. Error as to motives 4. Mistake as to identity when contract is more on the things or services MISTAKE refers to MISTAKE OF FACTS -not mistake of law ignorance of some provisions of law or erroneous interpretation of its meaning. MISTAKE OF LAW vitiates consent if it is MUTUAL, refers to legal effect of an agreement; and the real purpose of the parties is frustrated. 2. VIOLENCE - employment of physical, serious or irresistible force. 3. INTIMIDATION or THREAT one party is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon his spouse, descendants or ascendants to give his consent. degree of intimidation is determined by age, sex, and condition of the person Threat to enforce ones claim through competent authorities of a just or legal claim DOES NOT VITIATE CONSENT. Violence or intimidation can be employed by a 3rd person not party to the contract.

6
4. UNDUE INFLUENCE - taking improper advantage of ones power over the will of the another, depriving the latter of a reasonable freedom of choice. CIRCUMSTANCES to be considered: confidential, family, spiritual and other relations between the parties; mental weakness; or financial distress of the person unduly influenced 5. FRAUD used on insidious words or machinations to induce another to enter into a contract, without which he would not have agreed to. Refers to CAUSAL FRAUD; must be serious, employed only by one party. INCIDENTAL FRAUD liable for damages. Concealment- failure to disclose facts Failure to disclose facts when there is duty to reveal them FRAUD Usual exaggerations in trade; dealers talk or traders talk not fraudulent if other party had the opportunity to know the facts. Expression of opinion, not FRAUD unless made by an expert and the other party has relied on the formers special knowledge. Misrepresentation by 3rd person does not vitiate consent - UNLESS it created substantial mistake and the same is mutual. Misrepresentation in good faith ERROR

SIMULATION OF CONTRACT feigning or pretending by agreement, the appearance of a contract which is either nonexistent or concealed. 1. ABSOLUTE void 2. RELATIVE true agreement is valid 2. OBJECT OF CONTRACTS the subject matter Kinds of object of contracts: things, rights or services Requisites of things as object: 1. Within the commerce of men 2. Not impossible 3. In existence or capable of coming into existence 4. Determinate or determinable without need of a new contract (as to its kind). Requisites of services as object: 1. Within the commerce of men 2. Not impossible 3. determinate or capable of being made determinate

7
Requisite of right as object: 1. Transmissible FUTURE INHERITANCE - can not be the object of contract because it is not existence or capable of determination at the time of the contract that a person may inherit in the future. EXCEPT: 1. Donation by reason of marriage between future spouse with respect to future property to take effect only in the event of death 2. In case of partition of property by act inter vivos by a person to take effect upon his death. 3. CAUSE OF CONTRACTS Cause (consideration in common law) is the essential or more proximate purpose which the contracting parties have in view at the time of entering into the contract. WHAT 1. 2. 3. IS THE CAUSE OF: Onerous contract the prestation or promise of a thing or service by the other Remuneratory - the service or benefit remunerated Gratuitous the mere liberality of the benefactor or giver

MOTIVE the purely personal or private reason which a party has in entering into a contract. REQUISITES OF CAUSE: 1. Must exist at the time the contract is entered into 2. Lawful 3. True or real ABSENCE or WANT OF CAUSE there is a total lack of any valid consideration for the contract. It produces no effect whatever. Illegality of cause there is a cause but the same is unlawful (contrary to law, morals, good customs, public order, or public policy) Inadequacy of cause not a ground for relief (Gen. Rule) unless there is fraud, mistake or undue influence. LESION any damage caused by the fact that the price is unjust or inadequate. Failure of cause does not render a contract void (ie. failure to pay the price). Falsity of cause contract states a valid consideration but such statement is untrue. Could be erroneous (contract is void) or simulated ( may be void or valid) Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.