Republic of the Philippines

DON HONORIO VENTURA STATE UNIVERSITY

Villa de Bacolor, Pampanga
Mexico Extension Campus

Lesson 1
Review on LAW ON CONTRACTS
CONTRACT – the meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.

ESSENTIAL ELEMENTS
1. Consent
2. Object
3. Cause
4. Delivery (in real contracts)
5. Formalities required by law (in solemn contracts)
6. Price certain (in a contract of sale)

Stages in the life of a contract:

1. Preparation/Generation (negotiation are in progress)

2. Perfection/Birth (meeting of the minds/meeting of offer and acceptance)
3. Performance/Death (execution/consummation/termination)

Characteristics of Contracts

1. Autonomy (Liberty or Freedom to stipulate)

- As long as not contrary to law, morals, good customs, public order or public policy.
2. Mutuality
- Both parties must be bound
- Parties cannot revoke or renounce a contract without the consent of the other.
3. Obligatoriness
- Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith
4. Relativity
General Rule: a contract is binding only between the parties, their assigns and heirs.
Exceptions:
a. Obligations arising from contracts are not transmissible by nature, stipulation o by
provision of law.
b. Stipulation pour autrui (in favor of a third person)
c. Third person induces another to violate his contract, the third person will be liable
for damages.
d. In some other case, the third persons may be adversely affected by a contract where
they did not participate.
e. Law authorizes creditor to sue on a contract entered into by his debtor.

Classification of Contracts

1. According to perfection or formation

a. Consensual
b. Real
c. Formal or solemn

2. According to degree of dependence

a. Preparatory
b. Principal
c. Accessory

3. According to the parties obligated

a. Unilateral
b. Bilateral or reciprocal
 Republic of the Philippines
DON HONORIO VENTURA STATE UNIVERSITY
Villa de Bacolor, Pampanga
Mexico Extension Campus

4. According to cause or equivalence of value of prestation

a. Onerous
b. Gratuitous
c. Remunerative or remuneratory

5. According to risk involved

a. Commutative
b. Aleatory

6. According to name or designation

a. Nominate
b. Innominate

7. According to time of performance

a. Executory
b. Executed
c. Partially executed

STIPULATION POUR AUTRUI (stipulation in favor of a third party)

Requisites:
1. The stipulation must be part, not whole of the contract
2. The contracting parties must have clearly and deliberately conferred a favor upon a third
person
3. The third person must have communicated his acceptance
4. Neither of the contracting parties bears the legal representation of the third party.

CONSENT – meeting of minds between parties on the subject matter and the cause of the contract,
even if neither one has been delivered.

General Rule: Contracts (except real contracts) are perfected from the moment there is a
manifestation of concurrence between the offer and the acceptance regarding the object and the
cause.
Except: Acceptance by letter or telegram which does not bind the offeror except from the time it
came to his knowledge (Cognition Theory)

Persons incapacitated to give consent:

1. Unemancipated Minors
Except:
a. Contracts for necessaries
b. Contracts by guardians or legal representatives
c. Contracts here the minor is estopped to urge minority through his own
misrepresentation
d. Contracts of deposit with the postal Savings Bank provided that the minor is over
seven years of age
2. Insane or demented person unless the contract was entered into during internal interval
3. Deaf-mutes who do not know how to read and write.

Rule: If the offeror has allowed the offeree a certain period to accept, offer may be withdrawn at
any time before acceptance of the thing offered by communicating such withdrawal.
Exception: when option is founded upon a consideration as something is paid or promised.

VICES OF CONSENT:
1. Mistake or error
2. Violence or force
3. Intimidation or threat or duress
4. Undue influence
5. Fraud or deceit
 Republic of the Philippines
DON HONORIO VENTURA STATE UNIVERSITY
Villa de Bacolor, Pampanga
Mexico Extension Campus

SIMULATION OF CONTRACTS
1. Absolute – no real transaction is intended
Effect: simulated contracts is inexistent

2. Relative – the real transaction is hidden

Effect: the apparent contract is void, but the hidden contract is valid if it is lawful has the
necessary requisites.
As to third persons without notice – the apparent contract is valid on the principle
of estoppel

OBJECTS OF CONTRACTS
Requisites:
a. Within the commerce of men
b. Transmissible
c. Not contrary to law, morals, good customs, public order or public policy
d. Not impossible thing or service
e. Determinate as to its kind or determinate without the need of a contract.

CAUSE OF CONTRACTS
- Must be present at the time the contract was entered into, otherwise the contract is
void.
- Must be true and lawful.

Note: Cause is always presumed to exist in a contract

Effect of:
Absence of Cause The contract confers no right and produces no
legal effect
Failure of Cause Does not render the contract void
Illegality of Cause The contract is null and void
Falsify of Cause The contract is void unless the parties can
show that there is another cause which is true
and lawful
Lesion Does not invalidate the contract unless:
• There is fraud, mistake or undue
influence
• When the parties intended a donation
or some other contract.

FORM OF CONTRACTS
1. Contracts shall be obligatory, in whatever form they may have been entered into, provided
all the requisites for their validity are present.

2. Contracts must be in a certain form when the law requires that a contact be in some form
to be
a. Valid
b. Enforceable
c. For the convenience of the parties.

3. The parties may compel each other to reduce the verbal agreements to writings.
Except: The following contracts shall be VOID if orally constituted
1. Solemn contracts such as the following
a. Donations of real estate or of movables if exceeding P5,000 (PI)
b. Transfer of large cattle (Clearances/WI)
c. Stipulation to pay interest in loans (WI)
d. Sale of land through an agent (authority must be in writing)
e. Partnership to which immovable are contributed (WI)
 Republic of the Philippines
DON HONORIO VENTURA STATE UNIVERSITY
Villa de Bacolor, Pampanga
Mexico Extension Campus

f. Stipulation limiting carrier’s liability to less than extra-ordinary diligence (WI

= applies only in THINGS)
g. Contracts of Anti-chresis
h. Sale of vessels (Public Instrument)
i. Chattel Mortgage (PI + registration)
2. Real contracts that require delivery for perfection
3. In contracts under the Statue of Frauds where the party sued makes a timely objection
to the absences of a written memorandum

REFORMATION OF INSTRUMENTS
Requisites:
1. Meeting of minds to the contract
2. The true intention is not expressed in the instrument by reason of mistake, accident, relative
simulation, fraud and inequitable conduct
3. Clear and convincing proof of mistake, accident, relative simulation, fraud, and inequitable
contract.
Cases when there can be no reformation
1. Simple, unconditional donations inter-vivos
2. Wills.
3. When the agreement is void.

INTERPRETATION OF CONTRACTS
a. Terms/wording of the contracts must be followed
b. In case of conflict between the wordings and the intent of a contract, the latter shall
prevail.
c. If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual
d. Stipulations shall be read together.
e. Interpretation must be in keeping with the object and nature of the contracts
f. Usage or custom shall be borne in mind

CLASSES OF DEFECTIVE CONTRACTS

1. Rescissible
2. Voidable
3. Unenforceable
4. Void

RESCISSIBLE CONTRACTS
1. Those entered into by guardians where the wards suffer lesion of more than ¼ of the value
of the things which are object thereof
2. Those agreed upon in representation of absentees, if the latter suffer lesion by more than ¼
of the value of the things which are subject thereof.
3. Those undertaken in fraud or creditors when the latter cannot in any manner claim what
are due to them
4. Those which refer to thing under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants and the court.
5. All other contracts especially declared by law to be subject to rescission.

VOIDABLE CONTRACTS
1. Those where one of the contracting parties is incapable of giving consent
2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.
Note: Contracts entered into during sate of drunkenness or hypnotic spell are voidable.
Causes of extinction of action to annul:
1. Prescription
o the action must be commenced within four years from:
▪ the time the incapacity ends.
▪ The time the violence, intimidation or undue influence ends;
▪ The time of the mistake or fraud was discovered
 Republic of the Philippines
DON HONORIO VENTURA STATE UNIVERSITY
Villa de Bacolor, Pampanga
Mexico Extension Campus

2. Ratification
Requisites:
a. Voidable
b. Such reason there must be knowledge of the reason which renders the contract must
have ceased
c. The injured party must have executed an act which expressly or impliedly conveys
as intention to waive his right.

3. By loss of the thing which is the object of the contract through fraud or fault of the person
who is entitled to annul the contract

UNENFORCEABLE CONTRACTS
1. Those entered into in the name of another by one without or acting in excess of authority.
2. Those were both parties are incapable of giving consent
3. Those which do not comply with the Statute of Frauds.

Agreement within the scope of the Statute of Frauds.

a. Agreement not to be performed within one year from the making thereof.
b. Promise to answer of the debt, default or miscarriage of another.
c. Agreement in consideration of marriage other than a mutual promise to marry
d. Contracts of lease for a period longer than one year.
e. Agreements for the sale of real property o interest therein.
f. Representation as to the credit of a third person.

Mode of Ratification:
1. For contracts infringing the Statute of Frauds
• Expressly
• Impliedly – by failure to object to the presentation of oral evidence to prove the
contract, or by the acceptance of benefits under the contract.
2. If both parties are incapacitated, ratification by their parents or guardian shall validate the
contract retroactively.

VOID OR INEXISTENT CONTRACTS

1. Those whose cause, object or purpose is contrary to law, morals, good customs, public
policy or public order.
2. Those whose object is outside the commerce of men
3. Those which contemplate an impossible service.
4. Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained.
5. Those expressly prohibited or declared void by law.

The following contracts are INEXISTENT:

1. Those which are absolutely simulated or fictitious
2. Those whose cause or object did not exist at the time of the transaction

PREPARED BY:

ELDUZ KIM S. CAPULI

Instructor 1