RFBT - CONTRACTS

Question 1

What is a contract?

Answer 1

A contract is a meeting of minds between two persons, whereby one binds himself with respect to the other, to give something or to render some service.

Question 2

What are the elements of a contract? Explain each.

Answer 2

ESSENTIAL ELEMENTS
1.) Consent - manifestation of the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.

2. ) Object - thing certain which is the subject matter of the contract.
3. ) Cause - It is the essential reason why a party enters into a contract.

NATURAL ELEMENTS - Those found in certain contracts unless set aside or suppressed by the parties. (Warranty against eviction and hidden defects)

ACCIDENTAL ELEMENTS - Those that refer to particular stipulations of the parties

Question 3

What are the stages of a contract? Explain each.

Answer 3

1. ) Preparation/Conception - involves preliminary negotiations/bargaining. No definite agreement yet. Parties are still manifesting their interest in the contract.
2. ) Perfection or birth - there is a meeting of the minds between the parties on a definite subject matter and valid cause.
3. ) Consummation/death/termination - occurs when the parties fulfill the terms agreed upon in the contract, culminating in the extinguishment thereof.

Question 4

What is a consensual contract?

Answer 4

One that is perfected by mere consent. COC

Question 5

What is a real contract?

Answer 5

Those that are perfected by delivery of the object of the contract such as pledge, deposit or commodatum.
COC + delivery

Question 6

What is a formal/solemn contract?

Answer 6

One that must be in the form provided by law for their perfection., such as those involving immovable. COC + Form required

Question 7

What is an onerous contract?

Answer 7

Those where there is an exchange of valuable considerations.

Question 8

What is a gratuitous/lucrative contract?

Answer 8

One where one party receives no equivalent consideration such as donation, the cause of which is the liberality of the benefactor.

Question 9

What is a remuneratory contract?

Answer 9

Those where the cause is the service or benefit remunerated.

Question 10

What is a principal contract?

Answer 10

One that can stand by itself.

Question 11

What is an accessory contract?

Answer 11

One whose existence depends upon another contract, such as pledge or mortgage.

Question 12

What is a preparatory contract?

Answer 12

One which serves as a means by which other contracts may be entered into, such as partnership and agency.

Question 13

What is a nominate contract?

Answer 13

A contract which has a name under the law.

Question 14

What is an innominate contract?

Answer 14

A contract without any name under the law, which includes the following:

a. ) Do ut des - I give that you may give (barter)
b. ) Do ut facias - I give that you may do
c. ) Facio ut des - I do that you may give
d. ) Facio ut facias - I do that you may do

Question 15

What are the rules that govern innominate contracts?

Answer 15

1. ) Stipulation of the parties
2. ) The provisions of Obligations and Contracts
3. ) The rules governing the most analogous nominate contracts
4. ) The customs of the place.

Question 16

What is a commutative contract?

Answer 16

Those where the parties give equivalent values.

Question 17

What is an aleatory contract?

Answer 17

Those whose fulfillment depends upon chance.

Question 18

What is a unilateral contract?

Answer 18

Those where only one of the parties is obligated to do/give something.

Question 19

What is a bilateral contract?

Answer 19

Those where both parties are obligated to do something.

Question 20

What are auto-contracts?

Answer 20

Contracts where only one person represents the two opposing parties to the contract, such as when an agent lends money to his principal whom he represents as borrower.

Question 21

What are contracts of adhesion?

Answer 21

Contracts where only one party drafted the contract, and the other merely affixes his signature, such as insurance contracts.

Question 22

What are the basic principles of contract?

Answer 22

1. ) Autonomy or Liberty of contract or freedom to stipulate, provided they are not contrary to law, morals, good customs, public order or policy.
2. ) Mutuality of contracts - contract must bind both parties, its validity/compliance cannot be left to the will of one of them.
3. ) Relativity or Privity of contracts - contracts take effect only between the parties, their assigns, and heirs, except where those rights and obligations are intransmissible by:
   a. ) law
   b. ) stipulation
   c. ) nature
4. ) Consensuality of contracts - contracts are generally perfected by mere consent (except for some contracts which requires delivery (Real contracts) or to be in a certain form (Formal/Solemn contracts).
5. ) Obligatory force of contract and compliance in good faith - Obligations arising from contracts shall have the force of law between the contracting parties and should be complied with in good faith. The parties are bound to fulfill what has been expressly stipulated and all the consequences which according to their nature, may be keeping with good faith, usage, and law.

Question 23

What is pactum commissorium?

Answer 23

The stipulation that the creditor automatically becomes the owner of the property pledged or mortgaged should the debtor fail to discharge his obligation or fail to make payment. THIS STIPULATION IS VOID.

Question 24

What is stipulation pour atrui? What are the requisites of a valid stipulation pur autrui?

Answer 24

A stipulation in a contract that clearly and deliberately confers a favor upon a third person, who may demand its fulfillment provided he has communicated his acceptance to the obligor before its revocation. The 3rd person can sue on the contract even though he is not a party thereto.

The requisites for it to be valid are:

a. There must be a stipulation in favor of a 3rd person
b. The stipulation should be a part, not the whole of the contract
c. The contracting parties must have clearly and deliberately conferred favor upon a 3rd person and not a mere incidental benefit of interest
d. The favorable stipulation should not be conditioned or compensated by any kind of obligation whatsoever
e. The 3rd person must have communicated his acceptance to the obligor before its revocation
f. One of the contracting parties does not bear the legal representation or authorization of the 3rd party.

Question 25

What is the rule on offers in contracts?

Answer 25

The offer MUST BE CERTAIN, because there could be no meeting of the minds if it is vague or not definite.

Question 26

What is an option?

Answer 26

An option is a contract whereby the offeror gives the offeree a certain period within which to buy or not to buy a certain object for a fixed price.

Question 27

What are the rules on acceptance?

Answer 27

1. ) The acceptance must be absolute. If the acceptance varies the offer, there is no contract since there is no meeting of the minds.
2. ) Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge.
3. ) Acceptance may be express or implied.
4. ) An offer made through an agent is accepted from the moment the time it is communicated to him.

Question 28

What are the rules on consent?

Answer 28

1. ) The parties must have the capacity to enter into a contract.
2. ) Contracts agreed to in a state of drunkenness or during hypnotic spell are VOIDALBE.
3. ) A contract where consent is given through MISTAKE, VIOLENCE, INTIMIDATION, UNDUE INFLUENCE, or FRAUD(these 5 are referred to as the VICES OF CONSENT) is VOIDABLE.

Question 29

Who cannot give consent to a contract? What is the status of a contract if they enter into contracts?

Answer 29

1. ) Unemancipated minors - those below 18 years old.
2. ) Insane or demented persons
3. ) Deaf-mutes who do not know HOW TO WRITE (Art 1327).

If the above enter into a contract, it becomes VOIDABLE, and if amongst themselves, it becomes UNENFORCEABLE.

Question 30

When will mistake invalidate consent?

Answer 30

1. ) If the mistake refers to the substance of the thing which is the object of the contract. (B bought land believing it to be industrial but turns out to be residential.
2. ) Mistake refers to those conditions which moved either parties to enter into a contract. (S sold his car to B for 100000 because he badly needed the money but the deed of sale signed by him shows that payment made to him is in installments)
3. ) If mistake refers to the identity or qualification of one of the parties. (X donated to Y land, believing Y to be his illegitimate son, and then it turns out Y is not. X can have the donation annulled.
4. ) If mistake refers to the legal effect of an agreement when the real purpose of the parties is frustrated and the same is mutual. (S and B entered into a contract of sale believing it is the same as a contract of loan and mortgage.)

Question 31

When will mistake not invalidate consent?

Answer 31

1. ) When mistake refers to a simple mistake of account. which shall only be corrected.
2. ) If the party alleging mistake knew the doubt, contingency or risk affecting the object of the contract. (Abdul bought a Rolls Royce from Jamal for only 200,000 pesos. This should have alerted Abdul that the car is stolen/from an illegal source.

Question 32

What is violence?

Answer 32

Violence involves serious/irresistible force in wresting consent.

Question 33

What is intimidation?

Answer 33

Intimidation involves using well-grounded fear of an imminent and grave evil upon a party’s person, property, spouse, ascendants/descendants to obtain consent.

Question 34

What are the factors to be considered in determining the degree of intimidation?

Answer 34

1. ) Age
2. ) Sex
3. ) Condition of the person

Question 35

Is there intimidation when one threatens to enforce a claim through competent authority?

Answer 35

No, as long as the claim is just or legal.

Question 36

What is undue influence?

Answer 36

Undue influence involves taking improper advantage over the will of another, depriving the latter of a reasonable freedom of choice.

Question 37

What are the factors to be considered in determining the existence of undue influence?

Answer 37

1. )Confidential, family, spiritual, and other relations of parties.
2. ) Mental weakness
3. ) Ignorance
4. ) Financial distress of person alleged to have been unduly influenced.

Question 38

What kind of fraud renders a contract voidable?

Answer 38

Dolo Causante or Causal Fraud
a.) When through insidious words or machinations of one of the parties, the other is induced to enter into a contract which, without them he would not have agreed to. This is ACTIVE FRAUD.

b.) When there is a failure to disclose facts when there is a duty to reveal them, as when parties are bound by confidential relations. This is PASSIVE FRAUD.

Question 39

What are the requisites to make a contract voidable by reason of fraud?

Answer 39

1. ) The fraud should be SERIOUS.

2. ) The fraud should NOT have been employed by both parties.

Question 40

Fraud does not exist in contracts when?

Answer 40

1. ) Usual exaggerations in trade.
2. ) In case of mere expression of opinion, UNLESS GIVEN BY AN EXPERT and other party has relied on expert’s opinion.
3. ) In case of misrepresentation by a 3rd person, unless such misrepresentation has created substantial mistake and the same is mutual.
4. ) If the misrepresentation was made in good faith or simply an error.

Question 41

What is a simulated contract?

Answer 41

A contract that does not intend to have any legal effect on or change in the juridical situation of the parties.

Question 42

Differentiate absolutely simulated and relatively simulated contracts.

Answer 42

Absolutely simulated contract - one where the parties do not intend to be bound at all. This is VOID,

Relatively simulated contract - one where the parties only conceal their true agreement.

Question 43

What may be the object of contracts?

Answer 43

1. ) All things which are not outside the commerce of men, including future things.
2. ) All rights which are not intransmissible.
3. ) All services which are not contrary to law, morals, good customs, public order or policy.

Question 44

Contracts that has future inheritance as its object is usually?

Answer 44

As a general rule, VOID

Question 45

What are the requisites that make a contract involving future inheritances void?

Answer 45

1. ) The succession has not been opened.
2. ) The object of the contract forms part of the inheritance.
3. ) The promissor has, with respect to the object, an expectancy or right which is purely hereditary in nature.

Question 46

What are the requisites of cause?

Answer 46

1. ) It must exist. (CONTRACTS WITH NO CAUSE PRODUCE NO EFFECT WHATSOEVER)
2. ) It must be lawful
3. ) It must be true

Question 47

What is lesion?

Answer 47

Lesion is the inadequacy of cause. It is the damage or injury to the party asking for rescission which represents the difference between the price and actual value of the property. It must be more than 1/4th of the value.

Question 48

What is the general rule on lesion?

Answer 48

GR: Lesion shall not invalidate a contract.
Exceptions:
1.) When there was fraud, mistake, undue influence.
2.) In cases provided by law, such as when the ward or absentee suffers lesion by more than 1/4th of the value of the object of the contract.

Question 49

List down the classification of defective contracts according to the gravity of their defect starting with the least defective contract.

Answer 49

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

Question 50

What is a rescissible contract?

Answer 50

Rescissible contract - one which has all the essential requisites of a contract but which may be set aside by reason of equity on account of damage to one of the parties or upon a third person.

Question 51

What are specific examples of rescissible contracts?

Answer 51

1. ) Those entered into by guardians whenever the ward whom they represent suffer lesion by more than 1/4th of the value of the things which are the object thereof.
2. ) Those agreed to in representation of absentees, if the latter suffered lesion by more than 1/4th of the value of the things which are the object thereof.
3. ) Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them. (ACCION PAULIANA)
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.

Question 52

What are the requisites of a rescissible payment?

Answer 52

1. ) The debtor is insolvent
2. ) The obligation is not yet due
3. ) The debtor makes the payment

Question 53

What is rescission?

Answer 53

Rescission is the remedy allowed by law to the contracting parties and even to 3rd parties, to secure reparation of damages caused to them by a contract by means of the restoration of things to their condition at the moment prior to the celebration of said contract.

IT IS A REMEDY to make ineffective a contract, validly entered into and therefore obligatory under normal conditions by reason of external causes result in a pecuniary prejudice to one of the contracting parties or their creditors.

Question 54

What are the requisites of rescission?

Answer 54

1. ) The party suffering damage must have no other legal means to obtain reparation for the same.
2. ) The party demanding rescission must be able to return whatever he may be obliged to restore.
3. ) The thing object of the contract must not be legally in the possession of a 3rd person who acted in good faith.

4.) The action for rescission must be brought within the period allowed by law, which is 4 years for those under guardianship and absentees, otherwise it would prescribe and any action on it will prescribe.
a.) Guardianship - 4 years from termination of
incapacity.
b.) Absentees - 4 years from the time absentee’s
domicile is known.

Question 55

What is the extent of rescission?

Answer 55

Rescission shall only be to the extent necessary to cover the damage caused.

Question 56

What are voidable contracts?

Answer 56

Voidable contracts are those that are defective by reason of the incapacity or vitiated consent of one of the parties. It is binding unless ANNULLED by a proper action in court. It is susceptible of RATIFICATION for correction.

Question 57

What are specific instances wherein a contract is annullable?

Answer 57

1. ) Those where one of the parties is incapable of giving consent. (Unemancipated, insane/demented/ deaf-mute who do not know HOW TO WRITE.
2. ) Those where the consent is vitiated by the vices of consent.
3. ) Those where consent is given in a STATE OF DRUNKENNESS.
4. ) Those where consent is given during a HYPNOTIC SPELL.

Question 58

What is Annulment?

Answer 58

Annulment is the action brought to set aside a voidable contract.

Question 59

What is Ratification?

Answer 59

Ratification is the adoption or affirmation of a contract which is defective because of a party’s vitiated consent.

Question 60

What are the effects of ratification?

Answer 60

1. ) It extinguishes the action to annul a voidable contract.
2. ) It cleanses the contract from all its defects from the moment it was constituted.

Question 61

What are unenforceable contracts?

Answer 61

An unenforceable contract is one that cannot be enforced unless ratified.

Question 62

What are specific instances of unenforceable contracts?

Answer 62

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.
3. ) Those where both parties are incapable of giving consent to a contract.

Question 63

What is Statute of Frauds?

Answer 63

Statute of Frauds is a statute designed to prevent the commission of fraud by requiring certain contracts to be in writing and be subscribed by the party charged. IT APPLIES ONLY TO WHOLLY EXECUTORY CONTRACTS.

Question 64

What are the contracts that MUST BE IN WRITING, otherwise they are unenforceable as mentioned in the Statute of Frauds?

Answer 64

1. ) Agreement that by its terms is not to be performed within a year from making thereof.
2. ) A special promise to answer for the debt, default, or miscarriage of another. (Aka GUARANTY)
3. ) An agreement in consideration of marriage, other than mutual promise to marry.
4. ) Sale of goods, chattel, or things in action at a price not less than P500.00. (Does not apply if there is down-payment)
5. ) An agreement for the leasing of a real property or of an interest therein for more than one year.
6. ) Sales of real properties.
7. ) A representation as to the credit of a third person.

Question 65

What is a void contract?

Answer 65

A void contract is one that has no force and effect from the very beginning. It is as if it had never been entered into and cannot be validated either by time or ratification.

Question 66

What are other contracts expressly prohibited by law?

Answer 66

1. ) Donation between spouses during marriage, except moderate gifts during occasions)
2. ) Contract of sale between spouses, except if there is separation of property.

Question 67

What is pari delicto?

Answer 67

Pari delicto is a universal doctrine which holds that no Action arises in equity or law from an illegal contract. It applies only when there is equal guilt.

S sold to B 10 stick of marijuana and initially delivered 5 for 150 each. B cannot compel S to deliver the remaining 5 since it is illegal.

Question 68

Abdul hired Rashid to kill Christian for a consideration of 100. Abdul later changed his mind and told Rashid not to kill Christian anymore. Can Abdul recover the 100 he paid Rashid?

Answer 68

Yes, the court may allow Abdul to recover, since public interest is subserved.

Question 69

What are specific instances wherein contracts need to be in writing for convenience of parties?

Answer 69

1. ) Public Documents
   a. ) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property. (Deed of real estate mortgage and its cancellation must be in a public instrument.)

b. ) The cession, repudiation or renunciation of hereditary rights or of those conjugal partnership of gains.
c. ) The power to administer property or any other power which has for its object an act appearing or which should appear in a public document.
d. ) The cession of actions or rights proceeding from an act appearing in a public document.
2. ) Other contracts where the amount involved exceeds 500, except for sale of goods chattels and other things for 500, since this is for enforceability.

Question 70

S sold his land to B, the sale in a private instrument. Is the sale valid?

Answer 70

Yes, it is valid and enforceable because it was in writing, however B may compel S to execute the sale in a public instrument to be able to register it with the Registry of Deeds. (Convenience)

Question 71

What is reformation of instruments?

Answer 71

Reformation is a remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when some error mistake has been committed.

Question 72

What are the requisites of reformation?

Answer 72

1. ) There must be a meeting of minds of the parties to the contract.
2. ) The true intention of the parties is not expressed in the instrument.
3. ) The reason therefore is due to mistake, fraud, inequitable conduct or accident.

Question 73

Differentiate commutative from bilateral contracts.

Answer 73

Commutative - equal values are given

Bilateral - Both parties give something to the other.

Question 74

D borrowed 500,000 from C. D died. He left his son X properties worth 400,000. How much is X liable to C?

Answer 74

X is liable to C for 400,000 only, since WITH RESPECT TO HEIRS, HE SHALL NOT BE MADE LIABLE BEYOND THE VALUE OF THE PROPERTY HE RECEIVED FROM THE DECEDENT.

Question 75

What is a contract of option?

Answer 75

A contract by virtue of the terms of which the parties thereto promise and obligate themselves to enter into another contract at a future time, upon the happening of certain events, or the fulfillment of certain conditions.

Question 76

S sold his car to B for 50k. What is the cause of S and B in entering into the contract of sale?

Answer 76

Cause is the reason why a party enters into a contract.

The cause of S is the payment of 50k, while that of B is the delivery of the car.

Question 77

What are the rules on annulment of voidable contracts?

Answer 77

1. When action must be brought (prescriptive period)
   a. Intimidation, violence or undue influence - 4 years from the TIME OF THE DEFECT IN CONSENT
   b. Mistake - 4 years from the time of discovery of the same
   c. In case of minority/incapacity - from the time guardianship ceases.
2. As to who may bring action for annulment
   a. guardian of the incapacitated person during latter’s incapacity
   b. incapacitated person after attaining capacity
   c. The party whose consent was vitiated by MVIUF.
3. Effects of annulment
   a. obligations created by annulment
   aa. in obligations to give, the contracting parties restore to each other the subject matter plus fruits and interest
   ab. In obligations to render service, the value thereof shall be the basis for damages
   ac. The incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him
   ad. When the thing is lost through the fault of the party obliged by decree of annulment to return it, he shall return the fruits, interest and value of the thing lost.
   ae. Mutual restitution
4. Effect of loss of thing while in the possession of the party who has the right to bring the action for annulment
   a. If lost through his fault, the action for annulment is extinguished
   b. If lost without his fault and such party is incapacitated, he can bring an action for annulment but he must return the value of the thing plus fruits

Question 78

T or F

The right to defense of unenforceability is available to both contracting parties and 3rd persons.

Answer 78

False, only contracting parties have the right to defense of unenforceability. Unenforceable contracts cannot be assailed by 3rd persons.

Question 79

What are the contracts that must be in a certain form for it to be valid?

Answer 79

1. Contract of donation of an immovable which must be in A PUBLIC DOCUMENT together with donee’s acceptance.
2. Contract of donation of personal property whose value exceeds 5000 must be IN WRITING together with the acceptance of the donee
3. The authority of the agent to sell a piece of land must be inwriting, otherwise the sale is void
4. Contract of partnerships involving immovable properties must be in a PUBLIC INSTRUMENT.

Question 80

When may an instrument be reformed?

Answer 80

1. When a mutual mistake of the parties causes the failure of the instrument to disclose their agreement
2. When one party was mistaken and the other acted fraudulently or inequitable in such a way that the instrument does not show their intentions
3. When a party was mistaken and the other knew or believed that the instrument did not state their real agreement
4. When through the ignorance, lack of skill, negligence, or bad faith on the part of the person drafting the instrument or of the typist, the instrument does not express the intention of the parties
5. If two parties agree upon the mortgage or pledge of real or personal properties but the instrument states the property is sold absolutely or with the right of repurchase.

Question 81

When is reformation not available?

Answer 81

1. Simple donation inter vivos where no condition is imposed
2. Wills
3. When the real agreement is void
4. When one of the parties has brought an action for enforcement, he cannot subsequently ask for its reformation.

Question 82

What are the rules on the interpretation of contracts?

Answer 82

1. If the terms of a contract are clear and have no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control
2. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former, and in order to judge their intentions, their contemporaneous and subsequent acts shall be principally considered
3. However, the general terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree.
   (If S sells “all the grains” in his warehouse to B, such term shall not include the grains that do not belong to B)
4. If the 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. (S has 2 cars, one he absolutely owns and the other in dispute. He sells a car to B without indicating which. The sale shall be deemed to be on the 1st car)
5. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.
6. Words which may have different significations shall be understood in that which is most keeping with the nature and object of the contract.
7. The usage or customs of the place shall be borne in mind in the interpretation of the contract and shall fill the omission of stipulations which are ordinarily established
8. The interpretation of obscure words or stipulations in a contract shall not favor a party who caused the obscurity

Rules when it is absolutely impossible to settle doubts under the preceding rules

1. When the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interest shall prevail (C gave his bike to D, but it cannot be inferred whether it was donation or mere commodatum. It shall be interpreted as commodatum since it transmits the least rights)
2. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests ( D obtained from C a loan of 500k which bears interest of 1% monthly. It cannot be determined from the instrument whether it is payable in 2 or 3 years. It shall be deemed as 3 years since both parties will have more benefit
3. If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention of the parties, the contract shall be null and void. (S has several cars. He sold one car to B but it cannot be determined which one. The sale is void.)

Question 83

Differentiate Active vs Passive fraud.

Answer 83

Active fraud occurs when a person acts with deception in obtaining another party’s consent (Causal Fraud) or when he performs an act but does so with the intent to injure the other party (Dolo Incidente)

Passive fraud occurs usually in cases where there is a fiduciary relationship and when one party remains silent when there is a duty to disclose certain facts, such as in the case of partnerships.

Question 84

A and B entered into a contract of loan. A subsequently increased the interest rate, with B disagreeing vehemently. What basic principle of contracts is violated, consensuality or mutuality of contracts?

Answer 84

Mutuality of contracts.

Mutuality of contracts states that the contract must be binding on both parties and ITS VALIDITY AND COMPLIANCE CANNOT BE LEFT TO ONE OF THEM.

Consensuality of contracts state that contracts are generally perfected by mere consent.

Question 85

T or F
The determination of the performance of a contract may be left to a 3rd person, whose decision shall not be binding until it has been made known to both contracting parties. The determination shall not be obligatory if it is evidently inequitable, and in such case the courts shall decide what is equitable under the circumstances.

Answer 85

True.

Question 86

What is an escalation clause?

Answer 86

It is a stipulation in a contract where one increases/decreases the compensation of one of the parties. It becomes void when the change is dependent solely upon the will of one of the parties.

Question 87

T or F
The heirs are liable only up to the extent of the property they inherited, and it is only the civil obligation of the heirs to pay the unpaid debts of their predecessors beyond the value of the properties they inherited.

Answer 87

False, The heirs are liable only up to the extent of the property they inherited, and it is only the NATURAL obligation of the heirs to pay the unpaid debts of their predecessors beyond the value of the properties they inherited.

Question 88

What are the instances wherein 3rd persons may be bound by a contract?

Answer 88

1. Stipulation pour autrui - 3rd party is benefited
2. Contracts creating real rights - 3rd persons are bound
3. Collective contracts
4. Contracts creating status (marriage)

Question 89

What is accion directa?

Answer 89

It is the action of a creditor to sue on a contract entered into by his debtor whenever authorized by law, such as:

a. Those who put labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing to the latter to the contractor at the time the claim is made
b. The sublessee is subsidiarity liable to the lessor for any rent due from the lessee, but he shall not be responsible beyond the amount of rent due him.`

Question 90

What is qualified acceptance?

Answer 90

Qualified acceptance is a mere counter offer. No meeting of the minds between the parties and therefore no perfection of a contract.

Question 91

What kinds of contract may and may not be assailed by 3rd persons?

Answer 91

CONTRACTS THAT MAY NOT BE ASSAILED BY 3RD PERSONS

1. PERFECTLY VALID CONTRACT
2. VOIDABLE CONTRACTS
3. UNENFORCEABLE CONTRACTS

CONTRACTS THAT MAY BE ASSAILED BY 3RD PERSONS AFFECTED BY IT

1. RESCISSIBLE CONTRACTS
2. VOID CONTRACTS

Question 92

Distinguish the validity of defective contracts.

Answer 92

1. Rescissible - valid and binding until rescinded
2. Voidable - valid and binding until annulled
3. Unenforceable - valid but unenforceable by court action
4. Void - Invalid

Question 93

Distinguish the legal remedies of injured parties in defective contracts.

Answer 93

1. Rescissible - Action for rescission
2. Voidable - action for annulment / ratification
3. Unenforceable - None
4. Void - Action for declation of nullity

Question 94

Give the prescriptive period of defective contracts.

Answer 94

Rescissible Contracts - 4 years

a. For persons under guardianship - 4 YEARS FROM TERMINATION OF WARD’S INCAPACITY
b. Absentees - 4 YEARS FROM WHEN THE ABSENTEE’S DOMICILE IS KNOWN
c. Fraud - 4 YEARS FROM KNOWLEDGE OR DISCOVERY OF THE CONTRACT.

Voidable Contracts - 4 years

a. Intimidation/violence/undue influence - when the defect of the consent ceases
b. Mistake/Fraud - Discovery
c. Minority/Incapacity - date guardianship ceases.

Unenforceable Contracts - N/A

Void Contracts - No prescriptive period

Question 95

Differentiate the Cognition and Manifestation theory.

Answer 95

Cognitive - follows that the acceptance takes effect from the time the offerer knew or has the knowledge of the acceptance of the offeree

Manifestation - Follows that the acceptance will take effect once it is manifested by the offeree

We abide by the COGNITION THEORY. Art 1319 states that “Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such case, is presumed to have been entered into in the place where the offer was made.

Question 96

A, who was in Palawan offered to B through X, A’s agent to buy A’s house for 400000 on Monday when X and B were in Davao. B told X that he will think about it. B went home to Digos on Tuesday and decided that he will buy the house by writing a letter to X. X, still in Davao, received the letter on Thursday, but it only on Friday due to his busy schedule. X communicated the acceptance of B to A, who was still in Palawan on Saturday. When and where was the contract perfected?

Answer 96

Art 1319 “Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such case, is presumed to have been entered into in the place where the offer was made.

The contract was perfected in Davao on Friday when X read B’s letter. When the agent learns of the acceptance, the same is considered knowledge of the principal.

Question 97

T or F
Intervening events: An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed.

Answer 97

True.

Question 98

What are the kinds of capacity to enter into a contract?

Answer 98

1. Juridical Capacity - fitness to be the subject of legal relations which is inherent in every natural person and is lost only through death. A contract becomes void when a party is juridically incapacitated.
2. Capacity to act / Legal Capacity - Power to do acts with legal effect which is acquired and may be lost
   a. Absolute incapacity - party cannot give consent in any contract with anyone in whatever capacity over anything. A contract becomes VOIDABLE when a party is absolutely incapacitated.
   b. Relative incapacity - person may be prohibited from entering into specific contracts

Question 99

What are the kinds of real contracts?

Answer 99

1. Deposit
2. Pledge
3. Commodatum
4. Simple Loan or mutuum

Question 100

T or F
In voidable contracts, when one party cannot and does not return what is due him by virtue of the annulment, he cannot compel the other to comply what is incumbent upon him.

Answer 100

True.

Question 101

What are the contracts that must follow a certain form for it to be valid?

Answer 101

FORMALITIES REQUIRED FOR VALIDITY:

1. Donations of real property which require a PUBLIC INSTRUMENT.
2. Donations of personal property which exceeds 5000 which REQUIRES THAT THE DONATION BE WRITTEN
3. Stipulation to pay interest on loans or for the use of money WHICH MUST BE IN WRITING
4. Sale or transfer of large cattle which requires that it be in a public instrument, registered and that there should be a certificate of transfer
5. Contribution of real property in a partnership, which requires that there be an inventory attached to a public instrument
6. Negotiable instruments must be made strictly in the form provided for in the NIL in order to be considered negotiable
7. Contract of marriage must have all solemnities required by the Family Code
8. Principal and interest of secured contract of loan must be specified in writing
9. Agreement or stipulation to pay interest in contract of loan must be in writing in order for such agreement to be valid.
10. Contract of Chattel Mortgage requires it to be registered with Chattel Mortgage registry to be valid
11. Contract of partnership to which real properties or real rights are contributed must be in a public instrument, with an inventory of real property attached thereto, for the contract of partnership to be valid.
12. Sale of a piece of land by the agent in the name of the principal, the authority of the agent to sell the land must be in writing for the contract sale of such land to be valid
13. Sale of community or conjugal property by one of the spouse, there must be authority by the other spouse to the selling spouse.

Question 102

What are the contracts that must follow a certain form for it to be enforceable?

Answer 102

The following are unenforceable unless they are in writing or some note or memorandum and subscribed to by the party charged, or by his agent:

1. An agreement that by its terms, is not to be performed WITHIN A YEAR from the making thereof
2. A special promise to answer for the debt, default, or miscarriage of another
3. An agreement made in consideration of marriage, other than a mutual promise to marry
4. An agreement for the sale of goods, chattels or things in action, at a price NOT LESS THAN 500PESOS, unless the buyer accepts and receives 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 memorandum
5. An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein
6. A representation as to the credit of a 3rd person

Question 103

What are the contracts that must be followed for convenience of the parties?

Answer 103

The following contracts must follow formalities for convenience to bind 3rd persons and must be in A PUBLIC INSTRUMENT:

1. Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed Statute of Frauds
2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains
3. The power to administer property or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a 3rd person
4. The cession of actions or rights proceeding from an act appearing in a public document

Question 104

What are the requisites for the reformation of contracts?

Answer 104

1. There is a meeting of minds
2. There is a written instrument
3. The written instrument does not reflect the true intentions of the parties

Question 105

When may reformation be had?

Answer 105

1. Mutual mistake of parties
2. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask the reformation
3. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former
4. Ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist
5. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase.

Question 106

Different surety from guaranty.

Answer 106

A surety is distinguished from a guaranty in that a GUARANTOR IS THE INSURER OF THE INSOLVENCY of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the INSURER OF THE DEBT, and he obligates himself to pay if the principal does not pay.