Contract meeting of minds between 2 contracting parties which takes place when an offer is accepted by the other Contract

t one of the sources of obligations Obligations legal tie **No contract if there is no obligation. Contract agreements enforceable through legal proceedings Agreements cannot be enforced by action in the courts of justice are not contracts but merely moral or social agreements **all contracts are agreements but not all agreements are contracts Freedom to contract guaranteed. An individual does not have an absolute right to enter into any kind of contract Freedom of contract is both a constitutional and statutory right, to uphold the right courts are enjoined to move with necessary caution and prudence in holding contracts void

iii. Rules governing the analogous contracts iv. Customs of the place Contract binds both contracting parties

most

It must bind both parties in order that it can be enforced against either. Without this quality between the parties, it cannot be said that the contract has the force of law between them. No party can renounce or violate the law of the contract without the consent of the other. Determination of performance by a third person. Determination of its performance may be left to a third person. The obligation does not depend upon a potestative condition. The decision shall bind the parties only after it has been made known t both of them. Effect where determination inequitable. A contracting party is not bound by the determination if it is evidently inequitable or unjust as when the third person acted in bad faith or by mistake. Courts shall decide what is equitable under the circumstances. Persons affected by a contract. General rule contracts can take only between the parties, heirs, assigns. The act, declaration, or omission of a person cannot affect or prejudice another without the latters authorization The heir is not liable beyond the value of the property received Exceptions obligations arising from the contract are not transmissible By nature involving personal qualification Stipulation in accordance with the principle of freedom to contract Law

Limitations on contractual obligations 1. Law 2. Police power all contractual obligations are subject as an implied reservation therein to the possible exercise of police power of the state; exercise of such power constitutes a mere enforcement of one of the conditions deemed imposed in all contracts Contracts must not be contrary to: Law law is superior to a contract Morals deal with norms of good and right conduct Customs consists of habits and practices Public order public safety, public weal Public policy not only to public safety but also to considerations which are moved by the common good

Cases when strangers or third persons affected by a contract A third person is one who has not taken part in a contract and is, therefore, a stranger to the contract. Third person has no rights and obligations under a contract to which he is a stranger. Cases when third persons may be affected by a contract: 1. Contracts containing a stipulation in favor of a third person (stipulation pour autrui) 2. Contracts creating real rights 3. Contracts entered into to defraud creditors 4. Contracts which have been violated at the inducement of a third person Stipulation pour autrui stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its fulfillment provided he communicates his acceptance to the obligor before its revocation A. CLASSES a. Donee beneficiary intended for the sole benefit of such person; confers a gift b. Creditor beneficiary obligation is due from the promise to the third person which the former seeks to discharge B. REQUISITES

Classification of contracts accdg to its name or designation 1. Nominate contract has specific name or designation in law 2. Innominate contract has no specific name or designation in law a. KINDS: i. Do ut des (I give that you may give) ii. Do ut facias (I give that you may do) iii. Facto ut des (I do that you may give) iv. Facto ut facias (I do that you may do) b. REASONS i. Impossibility of anticipating all forms of agreement ii. Progress of mans sociological and economic relationships c. RULES i. Agreement of the parties ii. Provisions of the NCC 1

a. Stipulation must be clearly and deliberately conferred b. Third person must have communicated his acceptance to the obligor c. Stipulation in favor of the third person should be a part, not the whole d. Favorable stipulation should not be conditioned or compensated by any kind of obligation e. Neither of the contracting parties bears legal representation of the third party Third persons are bound by contracts creating real rights. Third persons who come into possession of the object of a contract over which there is a real right, are bound even if they were not parties to the contract. A real right is binding against the whole world and attaches the property over which it is exercised wherever it goes. However, if the real right is not registered, third persons who acted in good faith are protected under the provisions of the Property Registration Decree. Right of the creditor to impugn contracts intended to defraud them. The creditor is given the right to impugn the contracts of his debtor to defraud him. Liability of third person responsible for breach of contract. Art 1314 recognizes an instance when a stranger to a contract can be sued for damages for his unwarranted interference with the contract. It presupposes that the contract interfered with is valid and the third person has knowledge of the existence of the contract Classification of contracts according to perfection 1. Consensual contract perfected by mere consent 2. Real contract by the delivery of the thing subject matter of the contract 3. Solemn contract compliance with certain formalities prescribed by law Stages in the life of a contract 1. Preparation or negotiation not yet arrived at any definite agreement 2. Perfection or birth come to a definite agreement or meeting of the minds regarding the subject matter and cause of the contract 3. Consummation or termination parties have performed their respective obligations Effect of perfection of the contract 1. Fulfillment of what has been expressly stipulated 2. All consequences w/c accdg to their nature Unauthorized contracts are unenforceable Person is not bound by the contract of another of which he has no knowledge or to which he has not given his consent. A contract entered into in the name of another by one who has no authority is unenforceable against the former unless it is ratified by him before it is revoked by the other contracting party. An unauthorized contract is not to be confused with a contract for the benefit of a third person who may demand its fulfillment. Unauthorized contracts can be cured only by ratification The mere lapse of time cannot give efficacy to such a contract. Cannot be cured except by subsequent 2

ratification of the person whose name the contract was entered into or by duly authorized agent and not by any other person not so empowered. Ratification must be clear and express. When a person is bound by the contract of another 1. Person entering the contract is duly authorized by the person in whose name he contracts 2. Must act within his power ** contract entered by an agent in excess of his authority is unenforceable against the principal, but the agent is personally liable to the party with whom he contracted where such party was not given sufficient notice of the limits of the powers granted by the principal. Classes of elements of contracts 1. Essential elements w/o which contract cannot validly exist a. Common present in all contracts b. Special not common to all contracts i. Form ii. Subject matter iii. Cause 2. Natural elements presumed to exist 3. Accidental elements particular conditions established by the parties in their contract Consent conformity or concurrence of wills Offer proposal made by one party to another Offer must be certain so that liability of the parties may be exactly fixed because it is necessary that the acceptance be identical with the offer to create a contract Acceptance manifestation of the offeree of his assent to the terms of the offer. 1. Form of acceptance of offer a. Express acceptance oral or written b. Implied acceptance inferred from act or conduct Acceptance of offer must be absolute must be identical in all respects with that of the offer Counter-offer rejection of the original offer and attempt by the parties to enter into a contract on a different basis Matters that may be fixed by the offerer. The person making the offer may prescribe the time, place, and manner of acceptance, all of which must be complied with. An acceptance departing from the terms of the offer constitutes a counter-offer. Communication of acceptance to agent Agent extension of the personality of his principal. Act of agent = act of the principal When offer becomes ineffective. An offer may be withdrawn before it is accepted. After acceptance, the contract is already perfected. Offer becomes ineffective upon death, civil interdiction, insanity or insolvency. Other grounds which render offer ineffective. Failure to comply with the condition of the offer as to the time and the manner of payment, the expiration of the

period fixed in the offer for acceptance the destruction of the thing due before acceptance, rejection of the offer Option contract one giving a person for the consideration a certain period within which to accept the offer. Option privilege given to the offeree to accept an offer within a certain period. Option period period given within which the offeree must accept the offer Option money money paid or promised to be paid in consideration for the option Earnest money partial payment of the purchase price, considered as proof of the perfection of the contract. Withdrawal of offer where period stipulated for acceptance Offer may be withdrawn as a matter of right at any time before acceptance Business advertisements generally not definite offers. Merely invitations to the reader to make an offer. However, if the advertisement is complete in all the particulars necessary in a contract, it may amount to a definite offer which, if accepted, will produce a perfected contract Advertisements for bidders generally not definite offers. The bidder is the one making the offer which the advertiser is free to accept or reject. The advertiser is not bound to accept the highest bidder or the lowest bidder unless the contrary appears. In judicial sales, the sheriff or auctioneer is bound to accept the highest bid. Capacity to give consent presumed. The burden of proof is on the party who asserts incapacity Persons who cannot give consent Incapable of giving consent to a contract is voidable. A voidable contract is valid and binging until annulled. 1. Unemancipated minors not yet reached the age of majority 2. Insane or demented persons 3. Deaf-mutes deaf and dumb. However if the deaf-mute knows how to write, the contract is valid, capable of giving intelligent consent Reason for disqualification Persons mentioned can be easily be the victims of fraud as they are not capable of understanding or knowing the nature or import of their actions Contracts entered into during a lucid interval Valid, it must be shown however that there is a full return of the mind to sanity Lucid interval temporary period of sanity Effect of drunkenness and hypnotic spell impair the capacity of a person to give intelligent consent, equivalent to temporary insanity, voidable Incapacity declared in modifications voidable 3 Art 1327 subject to

1. Food are sold and delivered to a minor, he must pay a reasonable price 2. A minor may contract for insurance, provided that insurance is taken for his life and the beneficiary appointed is the minors estate. 3. Contract is valid if entered through a guardian or legal representative 4. Contract is valid if the minor misrepresented his age 5. Contract is valid where a minor between 18 and 21 voluntarily pays a sum of money Other special disqualifications may be provided by law. 1. Incompetent and may be placed under guardianship a. Persons suffering the accessory penalty civil interdiction b. Hospitalized lepers c. Prodigals d. Deaf and dumb unable to read and write e. Who are of unsound mind even though they have lucid interval f. By age of reason, disease, weak mind and other similar causes, cannot without outside aid take care of themselves Contract entered into by any of the above is valid except where it is voidable by reason of incapacity. Prodigal is presumed to have capacity to enter into a contract. a. Insolvent until discharged b. Married women c. Husband and wife sale of property to each other d. Other persons especially disqualified by law Characteristics of consent 1. Intelligent there is capacity to act 2. Free and voluntary there is no vitiation of consent by reason of violence or intimidation 3. Conscious or spontaneous no vitiation of consent by reason of mistake, undue influence or fraud Vices of consent 1. 2. 3. 4. 5. Error or mistake Violence or force Intimidation or threat or duress Undue influence Fraud or deceit

Causes vitiating consent and causes of incapacity distinguished. 1. Causes vitiating consent: temporary; refers to the contract itself 2. causes of incapacity: permanent, person entering into the contract Mistake or error: false notion of a thing Nature of mistake 1. fact or of law. It may arise from ignorance or lack of knowledge 2. contemplated by law is substantial mistake of fact Mistake of fact to which law refers

1. substance of the thing which is the object of the contract regarding the nature of the contract 2. conditions which have principally moved one or both parties to enter into the contract 3. identity or qualifications of one of the parties Mistake of fact which does not vitiate consent 1. as regards the incidents of a thing or accidental qualities 2. as to quantity or amount give rise to its correction 3. motives: constitute a condition or cause of the contract 4. identity or qualifications: consideration of the things or services w/c form their subject matter rather than of persons Effect of simple mistake of account. does not avoid contract because it does not affect its essential requisites Burden of proof in case of mistake or fraud When a person signs a document, the presumption is that he does so with full knowledge of the contents. When one of the parties is unable o read or if the contract is in a language not understand by him, it is the party enforcing the contract who is duty-bound to show that there has been no fraud or mistake and that the terms of the contract have been fully explained to the former. Effect of knowledge of risk cannot claim mistake Mistake of law arises from an ignorance of some provision of the law or from an erroneous interpretation of its meaning A. effect does not invalidate consent B. when mistake of law vitiates consent does not generally vitiate consent C. requisites error must be mutual legal effect of an agreement frustrate the real purpose Violence employment of physical force. Intimidation need not to resrt to physical force. Intimidation: internal Violence: external must produce a reasonable and well-grounded fear of an evil evil must be imminent evil must be upon his person or property reason why he enters the contract

Violence or intimidation by a third person annul the obligation Undue influence overpowers the mind of a party as to destroy his free will and make him express the will of another, rather than his own A. circumstances a. confidential, family, spiritual & other relations b. mental weakness c. ignorance d. financial distress Causal fraud committed by oe party before or at the time of the celebration of the contract to secure the consent of the other 1. How causal fraud committed a. Insidious words or machinations b. Concealment ** give rise to an action for damages 2. Requisites a. misrepresentation or concealment b. Serious c. Employed by only one o the contracting parties. Fraud committee by a third person does not vitiate consent unless it was practices in connivance d. Made in bad faith or with intent to deceive e. Induced the consent of the other contracting party f. Alleged and proved by clear and convincing evidence Fraud by concealment Neglect or failure to communicate that w/c a party to a contract knows and ought to communicate Equivalent to misrepresentation Injured party: entitled to rescind or annul the contract If failure is unintentional, the basis of the action for annulment is not fraud but mistake or error

Usual exaggerations in trade Attempt to make a sale at the highest price possible Dealers talk or traders talk representations which do not appear on the face of the contract

Expression of opinion Fraud = misrepresentation to facts, not opinions

Factors to determine degree of intimidation Imminent and grave depends upon the circumstances, including age, sex and the condition of the person. Reverential fear: fear of dipleasing a person to whom respect and obedience are due, the contract is valid because reverential fear by itself does not annul consent in the absence of actual threat Threat to enforce just or legal claim Threat of court action as a means to enforce a just or legal claim is justified and does not vitiate consent. Threat is proper within the realm of the law as a means to enforce collection. 4 1. Made by an expert 2. Other contracting party has relied on the experts opinion 3. Opinion turned out to be false or erroneous Fraud by third person Does not vitiate consent Party should not be made to suffer for the imprudence of another in believing the fraud of a third person