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