Contracts 2019

CONTRACTS
DENT 162
Contract
¨  Meeting of the minds
¨  Between two or more persons
¨  One binds himself with respect to another
¨  To give something or to render some service

SOME Classifications of Contracts
In Relation to Other Contracts
¨  Preparatory Contract

  Preliminary step
¨  Principal Contract

  Can subsist independently of others
¨  Accessory Contract

  Exists only as a consequence of or in relation to another
According to Manner of
PERFECTION
¨  CONSENSUAL – perfected by mere consent

  Sale
¨  REAL – perfected by consent AND delivery

  Pledge; Commodatum
Essential Requisites of Contracts
Consent
• 
•  Object or Subject Matter
•  Cause or Consideration
Consent
¨  Manifested by the concurrence of the offer and the

acceptance of such offer
¨  Parties must possess the necessary legal capacity
¨  Consent must be intelligent, free, spontaneous and

real
Consent
Persons incapacitated to give consent (Art. 1327, CC):
¨  Unemancipated minors
¨  Insane or demented persons
¨  Deaf-mutes who do not know how to write

Vices of Consent
•  Violence
•  Intimidation
•  Mistake
•  Fraud
•  Undue Influence
Violence
¨  Serious or irresistible force

Intimidation
¨  Well-grounded fear of an imminent and grave evil

upon one’s person or property
¨  MAY INVOLVE: spouse, descendants & ascendants

Mistake
Must be:
¨  With respect to the legal effect of the agreement
¨  Mistake must be mutual
¨  Parties’ real purpose is frustrated

Fraud
Two types:
¨  Fraud in the PERFECTION of the contract

  Effect: Contract is VOIDABLE
¨  Fraud in the PERFORMANCE of the contract

  Effect: Party is liable for DAMAGES
Undue Influence
¨  Taking improper advantage of one’s power over the

will of another
¨  One is deprived of a reasonable freedom to make

a choice
Contracts of Adhesion
¨  One party imposes a ready-made form on the other
¨  The other may accept or reject the contract, but

cannot modify any of the terms of such contract
•  Consent
Object/Subject Matter
¨  Within the commerce of man

¨  Real or possible
¨  Licit
¨  Determinate or possible of determination
General Rule: All things or services may be the object

of contracts.
•  Consent
Cause/Consideration
¨  Immediate, direct or most proximate reason which

explains the creation of the obligation
  Lawful
  True
Stages in Contract Formation
¨  Preparation/Negotiation
¨  Perfection
¨  Consummation/Performance
Types of Defective Contracts
Rescissible
Voidable
Unenforceable
Void
¨  Rescissible
  Defect:Economic injury (called “lesion”) to one of the
parties or a third person
  Valid until rescinded
¨  Voidable
  Defect: Vice of consent of ONE of the parties
  Valid until annulled by a competent court

¨  Unenforceable
  Defect:
Lack of proper form; Lack of authority or
capacity of BOTH parties
  Cannot be enforced by a proper action
¨  Void
  Defect: Lack of essential elements; Ilegality
  Generally, does not produce any legal effect

1. RESCISSIBLE CONTRACTS
ARTICLE 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things
which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into
by the defendant without the knowledge and approval of the litigants or of
competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
(1291a)
2. VOIDABLE CONTRACTS
ARTICLE 1390. The following contracts are voidable
¨ 
or annullable, even though there may have been no
damage to the contracting parties:
(1) Those where one of the parties is incapable of
giving consent to a contract;
(2) Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are
annulled by a proper action in court. They are
susceptible of ratification.
3. UNENFORCEABLE CONTRACTS
ARTICLE 1403. The following contracts are
¨ 
unenforceable, unless they are ratified:
(1) Those entered into in the name of another person
by one who has been given no authority or legal
representation, or who has acted beyond his
powers;
¨  (2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some
note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be
received without the writing, or a secondary
evidence of its contents:
¨  (a) An agreement that by its terms is not to be
performed within a year from the making thereof;
¨  (b) A special promise to answer for the debt,
default, or miscarriage of another;
¨  (c) An agreement made in consideration of
marriage, other than a mutual promise to marry;

¨  (d) An agreement for the sale of goods, chattels or
things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of
such goods and chattels, or the evidences, or some
of them, of such things in action, or pay at the time
some part of the purchase money; but when a sale
is made by auction and entry is made by the
auctioneer in his sales book, at the time of the sale,
of the amount and kind of property sold, terms of
sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient
¨ (e) An agreement for the leasing for a longer
period than one year, or for the sale of real
property or of an interest therein;
¨  (f) A representation as to the credit of a third
person.
(3) Those where both parties are incapable of giving

consent to a contract.
4.VOID or INEXISTENT CONTRACTS
ARTICLE 1409. The following contracts are inexistent
¨ 
and void from the beginning:
(1) Those whose cause, object or purpose is contrary
to law, morals, good customs, public order or public
policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the
time of the transaction;
(4) Those whose object is outside the commerce of
men;
4.VOID or INEXISTENT CONTRACTS
¨  (5) Those which contemplate an impossible service;
¨  (6) Those where the intention of the parties
relative to the principal object of the contract

cannot be ascertained;
¨  (7) Those expressly prohibited or declared void by
law.
¨  These contracts cannot be ratified. Neither can the
right to set up the defense of illegality be waived.

Form of Contracts
General Rule:
No particular form
Exception:
Formal Requirements under the Law
Contracts which must be WRITTEN
¨  Donation of personal property (more than PhP5000)
¨  Sale of parcel of land through an agent
¨  Agreements regarding payment of interest

Contracts which must appear in a
PUBLIC DOCUMENT
¨  Donation of immovable properties
¨  Partnership involving immovable properties
¨  Contracts involving rights over immovable property
¨  Cession, repudiation or renunciation of hereditary

rights
Example: Donation of a Movable
¨  ART. 748. The donation of a movable may be
made orally or in writing.
An oral donation requires the simultaneous

delivery of the thing or of the document
representing the right donated.
If the value of the personal property donated

exceeds five thousand pesos, the donation and
the acceptance shall be made in writing.
Otherwise, the donation shall be void. (632a)
Example: Donation of an Immovable
¨  ART. 749. In order that the donation of an immovable may be
valid, it must be made in a public document, specifying
therein the property donated and the value of the charges
which the donee must satisfy.
The acceptance may be made in the same deed

of donation or in a separate public document, but it shall not
take effect unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor

shall be notified thereof in an authentic form, and this step
shall be noted in both instruments. (633)

Contracts 2019

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CONTRACTS

¨ One binds himself with respect to another

¨ To give something or to render some service

¨ Preparatory Contract

¨ Principal Contract

¨ Accessory Contract

¨ CONSENSUAL – perfected by mere consent

¨ REAL – perfected by consent AND delivery

• Object or Subject Matter

¨ Manifested by the concurrence of the offer and the

¨ Parties must possess the necessary legal capacity

¨ Consent must be intelligent, free, spontaneous and

Persons incapacitated to give consent (Art. 1327, CC):

¨ Unemancipated minors

¨ Insane or demented persons

¨ Deaf-mutes who do not know how to write

¨ Serious or irresistible force

¨ Well-grounded fear of an imminent and grave evil

¨ MAY INVOLVE: spouse, descendants & ascendants

¨ With respect to the legal effect of the agreement

¨ Mistake must be mutual

¨ Parties’ real purpose is frustrated

¨ Fraud in the PERFECTION of the contract

¨ Fraud in the PERFORMANCE of the contract

¨ Taking improper advantage of one’s power over the

¨ One is deprived of a reasonable freedom to make

¨ One party imposes a ready-made form on the other

¨ The other may accept or reject the contract, but

• Object or Subject Matter

¨ Within the commerce of man

¨ Determinate or possible of determination

General Rule: All things or services may be the object

• Object or Subject Matter

¨ Immediate, direct or most proximate reason which

 Valid until rescinded

 Valid until annulled by a competent court

 Cannot be enforced by a proper action

 Generally, does not produce any legal effect

marriage, other than a mutual promise to marry;

(3) Those where both parties are incapable of giving

relative to the principal object of the contract

right to set up the defense of illegality be waived.

¨ Donation of personal property (more than PhP5000)

¨ Sale of parcel of land through an agent

¨ Agreements regarding payment of interest

¨ Donation of immovable properties

¨ Partnership involving immovable properties

¨ Contracts involving rights over immovable property

¨ Cession, repudiation or renunciation of hereditary

An oral donation requires the simultaneous

If the value of the personal property donated

The acceptance may be made in the same deed

If the acceptance is made in a separate instrument, the donor

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¨  One binds himself with respect to another

¨  To give something or to render some service

¨  Preparatory Contract

¨  Principal Contract

¨  Accessory Contract

¨  CONSENSUAL – perfected by mere consent

¨  REAL – perfected by consent AND delivery

•  Object or Subject Matter

¨  Manifested by the concurrence of the offer and the

¨  Parties must possess the necessary legal capacity

¨  Consent must be intelligent, free, spontaneous and

¨  Unemancipated minors

¨  Insane or demented persons

¨  Deaf-mutes who do not know how to write

¨  Serious or irresistible force

¨  Well-grounded fear of an imminent and grave evil

¨  MAY INVOLVE: spouse, descendants & ascendants

¨  With respect to the legal effect of the agreement

¨  Mistake must be mutual

¨  Parties’ real purpose is frustrated

¨  Fraud in the PERFECTION of the contract

¨  Fraud in the PERFORMANCE of the contract

¨  Taking improper advantage of one’s power over the

¨  One is deprived of a reasonable freedom to make

¨  One party imposes a ready-made form on the other

¨  The other may accept or reject the contract, but

•  Object or Subject Matter

¨  Within the commerce of man

¨  Determinate or possible of determination

•  Object or Subject Matter

¨  Immediate, direct or most proximate reason which

  Valid until rescinded

  Valid until annulled by a competent court

  Cannot be enforced by a proper action

  Generally, does not produce any legal effect

¨  Donation of personal property (more than PhP5000)

¨  Sale of parcel of land through an agent

¨  Agreements regarding payment of interest

¨  Donation of immovable properties

¨  Partnership involving immovable properties

¨  Contracts involving rights over immovable property

¨  Cession, repudiation or renunciation of hereditary