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CONTRACTS- SORIANO MADE QUICKER

Contracts
Meeting of minds between two persons whereby one binds himself, with respect to the
other to give something or render some service.
Obligation is the legal tie or relation itself that exist after a contract has been entered
into
All contracts are agreements but not all agreements are contracts
ELEMENTS OF A CONTRACT
1.Essential elements – those w/o consent of the contracting parties, there will be no
contract
/consent
/subject matter
/consideration/cause
2. Natural elements – those found in certain contracts unless set aside by the parties
- inate unless stipulated to remove
3. Accidental elements.- those that refer to particular stipulations of the parties
-none unless stipulated to have.
Ex. Terms of payment, interest rate, place of payment

Classification of contracts
1. According to perfection or formation
A. Consensual perfected by mere consent Ex. Sale, Lease, agency
B. Real – perfected by the delivery of the object of the contract ex. Deposit, pledge and
commadatum
C. Formal or solemn – those which must be in the form provided by law for their
perfection.
Ex. Donation of real property which must be in a public instrument
2. According to cause
A. Onerous – those where there is an exchange of valuable consideration ex. Sale or
barter
B. Gratuitous / Lucrative – those where one party receives no equivalent
consideration Ex. donation
C. Remuneratory – those where the cause is the service or benefit remunerated to pay
someone for work that has been done- reward

2. According to importance or dependence to one another.


A Principal one that can stand by itself, does not depend for its existence and validity to
other Ex. Sale or loan
B accessory – whose existence is depend upon another contract Ex. Pledge or
Mortgagee, Guaranty - which is dependent upon a principal contract
C preparatory – which serves as a means by which other contracts may be entered
into or steps taken by the parties leading to the perfection of the contract. Ex. Agency
and Partnership

4. With name or designation


A nominate – those which have a name under the law Ex. Sale, Loan and barter
B. Innominate – whose without any name under the law Ex. I give that you may give, I
give that you may do. I do what you may give, I do what you may do
Shall be governed by:
- Agreement of the parties
- Provisions of the civil code on Oblicon
- Rules governing the most analogous contracts
- Customs of the place

5. According to risk of fullfillment


A. Commutative – those where the parties give equivalent values or there is real
fulfillment Ex. Sale
B. Aleatory – whose fulfillment depends upon chance Ex. Insurance Contract

6. According to parties obligated


A. unilateral – where only one of the parties is obligated to give or do something ex.
Donation
B bilateral – those where both parties are required to give or do something Ex. Sale
and barter

7. According to subject matter


A. Contract involving things
B. Contract involving rights or credit
C. Contract involving service.

8 According to time of fullfillment.


A executed – one which has been performed
B executory – one that has not yet been perform by both parties

9. Others
A Auto contract
B. Contract of adhesion

Note: it is possible to have an agreement that meets all the criteria of a valid contract
but is unenforceable in a court of law for failure to comply with Statutes of Frauds.
LIMITATIONS ON CONTRACTUAL STIPULATIONS to the freedom to contract
- Law
- Police power – no law in existence or when law is silent

Note: Laws are superior to contracts therefore contracts cannot violate the law
- Stipulations pour autrui. A stipulation in a contract clearly and deliberately
conferring a favour upon a third person who has a right to demand its fulfillment
provided he communicates his acceptance to the obligor before it’s revocation by
the obliged or the original parties.
Stages of contract
1. Preparation or conception - involves negotiation with no arrival yet of a definite
agreement
-starts when parties manifest the intention to have the contract
2. Perfection or birth -meeting of minds between the parties
3. Consummation or death or termination. - the parties have fulfilled to perform the
terms agreed upon in the contract

Basic principle
1. Liberty of contract or freedom to stipulate
-parties can stipulate terms of contract but the following are void.
A pactum commisoirium
B. Tipo or upset price.
C. To high interest
D. Debtor to work with out pay until he find money
E. Hide a crime.

2. Mutuality of contracts
The contract must bind both contracring parties , its validity or compliance cannot be left
to the will of one of them.

3. Relativity of contracts
Contracts tke effect only between the parties , their assigns and their heir except if
rights and obligation are not transmissible by law , stipulation or by nature.
The obligation transmissible to heir must not be beyond the value of property received
from decendent.

4. Consensuality of contract
-Contract are perfected by mere consent except Real contracts which requires delivery
of things
Formal contracts require in form provided by law.

5. Obligatory force Of contract and compliance in good faith


Obligations arising from contracts shall have force of law between the contracting
parties and should be complied in good faith. Upon perfection parties are bound

A. The fullfillment of what been expressly stipulated.


B. All consequence which according to their nature mabe keeing in good faith usage
and law
Essential requisites of contracts -
Consent of contracting parties, Object – subject matter of the contract, Cause of
the obligation
Consent is the manifestation of meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract.
It is the conformity or concurrence of will (Offer and acceptance)
Rules on offer
1. Must be certain, it must be definite, complete and intentional
-nature of avertisement
Advertisement are not definite offer but merely invitation to make offer unless appears
avertisemen
Advertisements for bidders are merly invitation to make proposals and adviters is not
bound to accept the highest or lowest bidder unless the contrary appears.

2. An offer will become in effective upon detach civil interdiction insanity or insolvency of
either party before acceptance is conveyed.
When the offerer has allowed the offeree a certain period to accept the offer may be
withdrawn ant any time before acceptance by communicating such withdrawal except if
the option is created because of consideration
Option is a contract whereby the offeror gives the offeree a certain period with in which
to buy or not to buy a certain object. For a fixed price. May or may not be for a valuable
consideration.

Rights of the offeror to withdraw the option


Without consideration the offeror can withdaw any time before acceptance
With consideration- the offeror cannot withdraw before lapse of time.
Rules on acceptance
1. The acceptance must be absolute. Must not varies to the offer.
- if acceptance is qualified, no meeting of mind.
- if the offer fixes the time place and manner of acceptance all must be complied with.
2. Acceptance made by letter or telegram will take effect only on the time that the
acceptance came to the knowledge of offeror.
3. Acceptance may be express or implied.
Express- made orally or in writing.
Implied - by implication of conduct.
4. An offer made through an agent is accepted from the time it is communicated to him
Rules on consent.
1. Parties must have the capacity to enter into a contract.
Following cannot give consent.
A unemancipated minor.
B. Insane of demented persons
C Deaf mute doesn’t know to write
If one of the parties cannot give consent the contract is voidable, if both unenforceable.
Sale of necessities to unemancipated minors is valid.
2. Contracts agreed in state of drunkness and hypnotic spell is voidable.
3. A contract given through mistake , violence, intimidation, undue influence or fraud is
voidable

VICES OF CONSENT
A. Mistake – false notion of a thing or a fact material to the contract
when will invalidate consent
/If the mistake refers to the substance of the thing which is the object of the contract.
/if the mistake refers to those conditions which principaly moved one or both parties to
enter into contract.
/ if mistake refer to identity of qualifications of one of the parties if such identity or
qualification have been the principal cause of contract.
/If the mistake refers to the legal effect of an agreement when the real purpose of the
parties is frustated and the same is mutual.
- when mistake does not vitiate consent
A. If the mistake refers to simple mistake of account which shall be only corrected.
B. If the party alleging it knew the doubt contingency or risk affecting the object of the
contract.
3. Rule when one party is unable to read or does not understand the language of the
contract.
If mistake or fraud is alleged the person enforcing the contract must show the terms
thereof have been fully explained to former
-Mistake of Fact may arise from ignorance or lack of knowledge
-Mistake of Law- substantial mistake of fact, ignorance of some provision of law or from
an erroneous interpretation of its meaning or from an erroneous conclusion as to the
legal effect of an agreement
B. Violence or physical coercion.
1. Wheb violence vitiates concents
- there is violence when in order to wrest consent , serious or irresistible force is
employed.
- even a third person initiates the violence.

C. Intimidation or moral coercion.


1. When intimidation vitiates consent.
- when one of the parties is compelled by 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 desentants or ascendants to give his concent
2. Factors to be considered in the determinating the degree of intimidation.
A. Age
B. Sex, and
C. Condition of the person.
3. When no intimidation exist.
No intimidation exist in case of threat to enforce once claim through competent authority
if claim is just and legal
D. Undue influence.
When undue influence vitiates concsents
-when a person takes improper advantage of his power over the will of another
depriving the other reasonable freedom of choice.
2. Factors to be considered in determining the existence of undue influence.
-) confidential, family , spiritual, and other relations of the parties.
-) mental weakness
-) ignorance
-) Financial distress of the of the person alleged to have been unduly influenced.

E. Fraud
1. When fraud exist
A. When through insidious words or machinations of the contradicting parties, the other
is induced to enter into a contract which with out them he would not have agreed to.
Active fraud
B when there is a failure to disclose facts when there is a duty to reveal them as when
the parties are bound by confidential relations. The fraud here is passive fraud.

2. Requisites to make a contract voidable by reason of fraud.


A. The fraud should be serious
B.the fraud should not be employed by both contradicting parties.

3. When no fraud exist.


A. In case of the usual exaggerations in trade , when the other party had the opportunity
to know the facts
B. In case of a mere expression of an opinion, unless made by expert and other party
has relied on the former special knowledge.
C. Incase of misrepresentation by a third person, unless such misteptesentation has
created substantiol mistake and thr same is mutual
D. If the misrepresentation was made in good faith. However the same may constitute
error.

4. Kinds of dolo or fraud


A. Fraud in obtaining the consent.
1. Causal fraud- fraud without which consent would not have been given. It renders the
contract voidable. Committed by one party before or at the time of the celebration of the
contract to secure the consent of the other
2. Incidental fraud. Fraud without which consent would have still been given but the
person giving it would have agreed on different terms. Contract is valid but the party
employing it shall be liable for damages
B. Fraud in performance.

Simulated contracts
- a contract that does not intend to have any legal effect on or a change in the juridical
situation of the parties. It is an act of deliberately deceiving others by feigning or
pretending by agreement, the appearance of a contract which is either non existent or
concealed
 absolutely simulated. One parties do not intend to be bound at all/ does not exist
 Relatively simulated – one where the parties conceal their true agreement
Objects of contract. What may be object of contracts. It may be things, rights or
services.
1. All things which are not outside the commerce of man, including future things
2. All rights that are transmissible
3. it must be in existence
4. All services which are not contrary to law, morals, good customs public order or
policy.
Requisites of object of contract
1. Must be within the commerce of man
2. Must be transmissible
3. Must not be contrary to law morals goods customs public order or public policy
4. Not be impossible
5. Must be determinate as to its kind or if its quantity is not determinate, it must be
possible to determine with out need to enter new contract.

Human internal organs as object of a contract.


- human organ cannot be subject of commercial transaction, but can be donated
Cause of contract/Consideration
Cause concept - It is the essential reason why a party enters into a contract.
 Onerous contract - the cause for each contracting party is the prestation or the
promise of a thing or service by the other.
 Remuneratory- service or benefit is remunerated.
 Gratuitous- cause is the liberality of the donor.
Requisites of cause.
1. It must exist
2. It must be lawful
3. It must be true.

Cause and motive distinguished


Cause essential reason of the contract.
While motive is purely personal or private reason/why he entered in contract
If the cause in illegal the contract is void, while motive will not affect the validity of
contract
The cause of contract is always known to parties, while motive of one party may be
unknown
*Absence or want of cause means lack of any valid consideration for the contract
Lession concept.
Lession is the inadequacy of cause. Lession will not invalidate the contract. Unless
when there is fraud mistake or undue influence or provided by law. Any damage cause
by the fact that the price is unjust or inadequate.
PUBLIC DOCUMENT- required only for the convenience and greater protection of the
party.
- Acts and contracts
- The cession or renunciation of hereditary rights
- Power to administer property
- Cession of action or rights proceedings from an act appearing ex. Mortgage to
secure the payment of a debt

Note: amount exceed 500 must appear in writing

- REFORMATION – remedy allowed by law by means of which a written


instrument is amended or rectified so as to express or confrom to the real
agreement or intention of the parties when by reason of mistake, fraud, or
accident, the instrument fails to express such agreement or intention
- It may be availed of the party who acted in good faith, ignorance, lack ofskillss
- No reform: simple donations inter vivid wherein there is no condition is imposed,
wills, real agreement is VOID.
DEFECTIVE CONTRACTS
Classificication of defective contracts
Subject to rescission
(From least defective to most defective)
1. Rescissible contracts.
A rescissible contract is one has all essential requisites of a contract but which may set
aside by reason of equity on account of damage to one of the parties or upon a third
person.
Example
1. Those entered of the guardian on behalf of a emancipated minor with a lession of
morethan 1/4 of price.
Rescissible payment requisites
1. Debtor is insolvent
2. The obligation is not due.
3. The debtor makes the payment
Rescission is the remedy allowed by law to the contracting parties and even to third
person to secure the reparation of damages caused to them by contract.
Requisites
1. The party injured must no legal means to obtain reparation for the same.
2. The party demanding rescission must be ablr to return what ever he is obliged to
restore.
3. The thing of the contract is not in a possession of third person in good faith.
4. The action for rescision in brought before prescription
Extent of rescission.
- up to the extent necessary to cover the damages caused.
2. Voidable contract/ Annullable
-those which possess all the essential requisites of a valid contract but one
of the parties incapable of giving consent or it is vitiates by mistake ...
- defective by reason of incapacity or vitiated concent of one of the parties. Incapable of
giving consent to Minor, Insane or Deaf Mutes.
- valid until annulled
Examples
1. Those contract with one of the parties is incapable of giving consent.
2. Enter with consent that is vitiated by mistake violence intimidation or undue influence
and fraud.
3. Consent is in state of drunkness or hypnotic spell.
Annulment
Action brought to set aside a voidable contract.
Ratification is the adoptation or affirmation of contract which is defective because of
parties vitiated consent or incapacity. Approves some defective or unauthorised act or
contract which w/o his subsequent approval or consent, would not be binding on him. It
cleanses the contract from all its defect from the moment it’s constituted. It extinguishes
the right of action to annul. The effect of it is to make the contract valid

3. Unenforceable contracts
- cannot be enforced unless ratified
Right to defense of unenforcability
Available only to contracting parties

Sample of unenforceable contracts


1. One which is entered of person with no authority or beyond his power
2. Do not comply in statute of fraud

4. Void contracts
- which is one has no force and effect from the beginning.
Characteristics
1. Cannot be ratified
2. The right to set up the defense of illegality cannot be waived
3. The action or defense for the declaration of inexistense of a contract does no
prescribe
4. The defense of illegality of contracts is not availablr to third person whose interest are
not directly affected.
5. A contract is void and inexistent if it is the direct results of a previous illegal contract.

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