TITLE II - ESSENTIAL REQUISITES OF CONTRACTS – Chapter 2

General Provisions
Article 1318

There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Classes of elements of a contract

I. Essential Elements – those without which no contract can validly exist regardless of the
intentions of the parties, simply put, a valid contract is one that manifests all the essential
elements of a contract. They are also known as requisites of a contract. They may be
subdivided into:
• Common – those present in all contracts: consent, object, and cause.
• Special – those not common to all contracts or those which must be present only
in certain specified contracts, and such peculiarity may be:
i. As regards to form, for example:
a. Public instrument in donation of immovable property [Article
749]
b. Delivery in real contracts [Article 1316]
c. Registration in real estate mortgage [Article 2125]
d. Chattel mortgage [Article 2140]
ii. As regards to the subject matter, for example:
a. Real property in antichresis [Article 2132]
b. Personal property in pledge [Article 2094]
iii. As regards to the consideration or cause, for example:
a. Price in sale [Article 1458]
b. Price in lease [Article 1643, 1644]
c. Liberality in commodatum [Article 1935]
II. Natural Elements – those that are presumed to exist in certain contracts unless the
contrary is expressly stipulated by the parties, like warranty against eviction [Article
1548], or warranty against hidden defects in sale. [Article 1561]
III. Accidental elements – the particular stipulations, clauses, terms, or conditions
established by the parties in their contract [Article 1306], like conditions, period, interest,
penalty, etc., and therefore, they exist only when they are expressly provided by the
parties.
 Section 1 [Article 1319 – 1345]
Article 1319

Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it
came to his knowledge. The contract, in such a case, is presumed to have been entered
into the place where the offer was made.
Meaning of consent

• Consent – the conformity or concurrence of wills (offer and acceptance) and with
respect to contracts, it is the agreement of the will of one contracting party with
that of another or others, upon the object and terms of the contract.
• It is the meeting of minds or mutual assent between the parties on the subject
matter and the cause which are to constitute the contract even if neither has been
delivered. Mutual assent or agreement takes place when there is an offer and
acceptance of the offer.

Meaning of offer

• Offer – a proposal made by one party [offerer] to another [offeree], indicating a

willingness to enter into a contract. It is more than an expression of desire or hope.
It is really a promise to act or to refrain from acting on condition that the terms
thereof are accepted by the person to whom it is made.

Offer mush be certain and seriously intended.

I. The offer must be certain or definite so that the liability (or the rights) of the
parties may be exactly fixed because it is necessary that the acceptance be
identical with the offer to create a contract without any further act on the part of
the offeror.
a. “Will you buy this watch for P10,000?”
i. This is an offer.
b. “I am willing to consider the sale of my land to you for P500,000.”
i. The offer here is uncertain. Its acceptance will not create a
contract.
c. “I am willing to buy your car.”
i. There is also no offer because it is incomplete, no price is given.
d. “I am willing to sell my car for P220,000 cash or 12 monthly installments
of P20,000.”
 i. The offer is certain, the determination of the manner of payment
is left to the offeree.
II. An offer made in jest or in anger, or while emotionally upset or in any other ways
indicating that the same was not seriously intended is not a valid offer. But lack of
serious intent to enter into a contract where such a condition was not apparent to
the offeree who honestly believed that the offer was seriously intended, does not
invalidate the offer.
a. S, intending to play a joke, offered his expensive watch worth P50,000 to
B who knew the value of the watch, for P500. There is no valid offer. But
if S offered his watch for P30,000 to B who did not realize that S was joking
and accepted the seemingly serious offer, there is a true meeting of the
minds resulting in the existence of a binding contract of sale.

Meaning of acceptance

• Acceptance – the manifestation by the offeree of his assent to all the terms of the
offer. Without acceptance, there can be no meeting of the minds between the
parties. [Article 1305]

Acceptance of offer must be clear and absolute.

I. Basically, a contract consists of an offer and an acceptance of that offer. The

acceptance of an offer must not only be clear; it must be absolute, unconditional,
or unqualified, that is, it must be identical in all respects with that of the offer so
as to produce consent or meeting of the minds.

If the acceptance is qualified, as when it is subject to a condition, it merely

constitutes a counter-offer which, in law, is considered a rejection of the original
offer and an attempt by the parties to enter into a contract on a different basis.

A qualified acceptance must be accepted absolutely in order that there will be a

contract.

a. S asked B this question: “Will you buy my (specific_ car for P200,000?” If B
answers “yes, I accept your offer,” or “yes I agree,” or just “yes,” the
acceptance of B is absolute or unconditional.

But if B proposes to pay only P160,000 for the car or to buy instead
another car or a land of S for P200,000, his acceptance is qualified and
becomes a counter-offer. In this case, B is now the new offerer, who was
the original offerer, is the new offeree.
Article 1320

An acceptance may be express or implied.

Form of acceptance of offer

• An express acceptance may be oral or written.

• An implied acceptance is one that is inferred from act or conduct.

Article 1321

The person making the offer may the time, place, and the manner of acceptance, all of
which must be complied with.

Article 1322

An offer made through an agent is accepted from the time acceptance is communicated
to him.
Communication of acceptance

• To offerer – the acceptance of the offer must be absolute, and the acceptance
must be communicated to the offerer. The acceptance may be expressed or
implied and subject to the terms of the offer.
• To agent – an agent is considered an extension of the personality of his
principal; if duly authorized, the act of the agent is the act of the principal.
Article 1322 applies when the offer is made through the agent and the
acceptance is communicated to him.

Article 1323

An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed.
When offer becomes ineffective.

• An offer may be revoked or withdrawn at any time before it is accepted

merely by communicating such intentions to the other party.
• After acceptance, the contract is already perfected.
Article 1324

When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except
when the option is founded upon a consideration, as something paid or promised.
Meaning of contract of option; option period; option money.

• Option – refers to the privilege itself given to the offeree to accept an offer
within a certain period.
• Option contract – one giving a person for consideration to a certain period
within which to accept the offer. It is separate and distinct from the contract
which will be perfected upon the acceptance of the Offer.
• Option period – the period given within which the offeree must accept the
offer.
• Option money – the money paid or promised to be paid in consideration for
the option. It is not to be confused with earnest money which is actually a
partial payment of the purchase price and is considered as proof of the
perfection of the contract.

Article 1325

Unless it appears otherwise, business advertisements of things for sale are not definite
offers, but mere invitations to make an offer.

Article 1326

Advertisements for bidders are simply invitations to make proposals, and the advertiser
is not bound to accept the highest or lowest bidder, unless the contrary appears.

Article 1327

The following cannot give consent to a contract:

(1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not know how to write.
Article 1328

Contracts entered during a lucid interval are valid. Contracts agreed to in a state of
drunkenness or during a hypnotic spell are voidable.
• Lucid Interval – a temporary period of sanity. A contract entered into by an insane or
demented person during a lucid interval is valid.
• Drunkenness and hypnotic spell impair the capacity of a person to give intelligent consent.

Article 1329

The incapacity declared in Article 1327 is subject to the modifications determined by law
and is understood to be without prejudice to special disqualifications established in the
laws.
• Contracts entered into by the persons enumerated in Article 1327 are voidable.
• When necessaries such as food, are sold and delivered to a minor or other person without
capacity to act, he must pay a reasonable price thereof.
• A minor 18 years old or above may contract for life, health and accident insurance,
provided the insurance is taken on his life and the beneficiary appointed is the minor’s
estate or the minor’s father, mother, husband, wife, child, brother, or sister.
• A contract is valid if entered into through a guardian or legal representative.
• A contract is valid where the minor is misrepresented his age and convincingly led the
other party to believe his legal capacity.
• A contract is valid where a minor between 18 and 21 years of age voluntarily pays a sum
of money or delivers a fungible thing in fulfillment of his obligation thereunder and the
oblige has spent or consumed it in good faith.

Article 1330

A contract where consent is given through mistake, violence, intimidation, undue

influence, or fraud is voidable.

Article 1331

In order that mistake may invalidate consent, it should refer to the substance of the thing,
which is the object of the contract, or to those conditions which have principally moved
one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only
when such identity or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction.

• Mistake or error – the false notion of a thing or a fact material to the contract.
o Mistake may be of fact or of law; and what Article 1331 refers to is mistake of
fact, which may arise from ignorance or lack of knowledge.
o The mistake contemplated by law is substantial mistake of fact if the party would
not have given his consent if he had known of the mistake. Hence, not every
mistake will vitiate consent and make a contract viable.
o A mistake may be:
▪ Unilateral – only one party is mistaken about a material fact, or
▪ Bilateral – both parties are in error.
o A person who makes the mistake cannot avoid liability to the innocent party
unless he shows that he was free of fault or negligence.

• In order that mistake may vitiate consent, it must refer to:

o The substance of the thing which is the object of the contract;
o Those conditions which have principally moved one or both parties to enter into
the contract;
o The identity or qualifications of one of the parties provided the same was the
principal cause of the contract.

• A mistake may not vitiate consent when:

o Errors as regards to the incidents of a thing or accidental qualities not taken as
the principal consideration of the contract unless the error is caused by fraud of
the other party.
o Mistake as to quantity or amount does not also vitiate consent but only gives rise
to its correction unless it goes to the essence of the contract.
o Error as regards to the motives of the contract unless the motives constitute a
condition or cause of the contract.
o Mistake as regards to the identity or qualification of a party because contracts are
entered into consideration of the subject matter of the contract and not the
parties unless the subject matter is the identity of the party. (e.g., a doctor)
o Error which could have been avoided by the party alleging it, or which refers to a
fact known to him, or which he should have known by the exercise of ordinary
diligence, or which is so obvious that nobody could have made it.

• Effects of the mistake of account:

o Where mistake simple – a simple mistake of account or calculation does not avoid
a contract because it does not affect its essential requisites.
o Where mistake gross – A mistake was so gross that it was clearly apparent to one
party, and therefore, would be impossible to escape his notice, said party cannot
avoid liability on the ground of mistake in computation.
Article 1332

When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explain by the former.
• When a person signs a document, the presumption is that he does so with full knowledge
and understanding of the contents of the same and is therefore bound by all the
document’s terms.
• If he should allege mistake or fraud, it is on him to prove the allegation.
• Article 1332 is an exception to this rule, and the party enforcing the contract is duty-
bound to prove that there is no fraud or mistake and the terms have been fully explained
to the former.

Article 1333

There is no mistake if the party alleging it knew the doubt, contingency or risk affecting
the object of the contract.

Article 1334

Mutual error as to the legal effect of an agreement when the real purpose of the parties
is frustrated, may vitiate consent.
• Mistake of law – arises from an 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.
o Mistake of law does not invalidate consent as “ignorance of the law excuses no
one from compliance therewith.” [Article 3]
o When there is a mistake on a doubtful question of law, or on the construction or
application of law, this is analogous to a mistake of fact.
• For this article to apply, the following requisites must be present:
o The error must be mutual;
o It must be as to the legal effect of an agreement;
o It must frustrate the real purpose of the parties. (error is on the nature of the
contract)
Article 1335

There is violence when in order to wrest consent, serious or irresistible force is employed.

There is intimidation when one of the contracting parties is compelled by a 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, descendants, or ascendants, to give his
consent.

To determine the degree of the intimidation, the age, sex, and condition of the person
shall be borne in mind.

A threat to enforce one’s claim through competent authority, if the claim is just or legal,
does not vitiate consent.
• Violence requires the employment of physical force. Under Article 1335, the force
employed must either be serious or irresistible, in either case, the consent is not free.
• Intimidation does not need to resort to physical force. Intimidation is internal while
violence is external.

Article 1336

Violence or intimidation shall annul the obligation, although it may have been employed
by a third person who did not take part in the contract.

Article 1337

There is undue influence when a person takes improper advantage of his power over the
will of another, depriving the latter of a reasonable freedom of choice. The following
circumstances shall be considered: the confidential, family, spiritual and other relations
between the parties, or the fact that the person alleged to have been unduly influenced
was suffering from mental weakness, or was ignorant or in financial distress.
• Undue influence – is influence of a kind that so overpowers the mind of a party as to
prevent him from acting understandingly and voluntarily to do what he would have done
if he had been left to exercise freely his own judgement and discretion.
Article 1338

There is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not
have agreed to.
• Causal fraud – the fraud committed by one party before or at the time of the celebration
of the contract to secure the consent of the other. Causal fraud may be committed
through insidious words or machinations, which include any misrepresentation in words
or actions done with a fraudulent purpose.
• The requisites of causal fraud are:
o There must be misrepresentation or concealment of a material fact with
knowledge of its falsity;
o It must be serious;
o It must have been employed by only one of the contracting parties. Fraud
committed by a third person does not vitiate consent unless it was practiced in
cooperation with the favored party;
o It must be made in bad faith or with intent to deceive the other contracting party
who had no knowledge of the fraud;
o It must have induced the consent of the other contracting party.
o It must be alleged and proved by clear and convincing evidence.

Article 1339

Failure to disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud.
• Concealment – failure to communicate or disclose facts that which the other party of
contract should know and ought to communicate.

Article 1340

The usual exaggerations in trade, when the other party had an opportunity to know the
facts, are not in themselves fraudulent.
• It is natural for merchants and traders to resort to exaggerations in their attempt to
make a sale at the highest possible.
• Dealer’s talk / trader’s talk – representations which do not appear on the face of the
contract and these do not bind either party.
Article 1341

A mere expression of an opinion does not signify fraud, unless made by an expert and the
other party has relied on the former’s special knowledge.
• To constitute fraud, the misrepresentation must refer to facts, not opinions. A mere
expression of an opinion does not signify fraud.
• The following requisites must be present in order that an opinion may amount to fraud:
o It must be made by an expert;
o The other contracting party has relied on the expert’s opinion;
o The opinion turned out to be false or erroneous.

Article 1342

Misrepresentation by a third person does not vitiate consent, unless such

misrepresentation has created substantial mistake and the same is mutual.

Article 1343

Misrepresentation made in good faith is not fraudulent but may constitute error.

Article 1344

In order that fraud may make a contract voidable, it should be serious and should not
have been employed by both contracting parties.

Incidental fraud only obliges the person employing it to pay damages.

• Article 1344 distinguishes two kinds of (civil) fraud in the making of a contract:
o Causal fraud – a ground for the annulment of a contract, although it may also give
rise to an action for damages.
o Incidental fraud – renders the party who employs it liable for damages because
the fraud was not the principal inducement that led the other to give his consent.

Article 1345
Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true
agreement.
Article 1346

An absolutely simulated or fictitious contract is void. A relative simulation, when it does

not prejudice a third person and is not intended for any purpose contrary to law, morals,
good customs, public order, or public policy binds the parties to their agreement.
• Simulation of a contract – the act of deliberately deceiving others, by feigning or
pretending by agreement, the appearance of a contract which is either non-existent or
concealed.
• The kinds of simulation are:
o Absolute simulation – when the contract does not really exist, and the parties do
not intend to be bound at all.
o Relative simulation – when the contract entered into by the parties is different
from their true agreement.