week 8-9 Flashcards
(205 cards)
1
Q
Contract vs Obligation
A
Contract is one of the sources of obligations. (NCC 1157)
On the other hand, obligation is the legal tie or relation itself that exists after a contract has been entered into. Hence, there can be no contract if there is no obligation. But an obligation may exist without a contract.
2
Q
Contract vs Agreement
A
There can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. Contracts are agreements enforceable through legal proceedings.
Those agreements which cannot be enforced by action in the courts of justice (like an agreement to go to a dance party) are not contracts but merely moral or social agreements.
An agreement is broader than contract because the former may not have all the elements of a contract. (NCC 1318)
So, all contracts are agreements but not all agreements are contracts.
3
Q
Perfected promise
A
merely tends to insure and pave the way for the celebration of a future contract.
4
Q
Imperfect promise
A
mere unaccepted offer.
5
Q
Pact
A
an incidental part of a contract which can be separated from the principal agreement.
6
Q
Stipulation
A
an essential and dispositive part which cannot be separated from such principal agreement.
7
Q
PARTIES TO A CONTRACT
A
There must be at least two persons or parties because it is impossible for one to contract with himself.
8
Q
Auto-contract
A
A single person may create a contract by himself where he represents distinct interests subject to specific prohibitions of law against the presence of adverse or conflicting interests.
his own and that of another for whom he acts as agent, or
of two principals for both of whom he acts in a representative capacity
9
Q
ELEMENTS OF A CONTRACT (COMMON)
A
consent of the contracting parties;
object certain which is the subject of the contract;
cause of the obligation which is established.
10
Q
NATURAL
A
They are presumed by the law, although they can be excluded by the contracting parties if they so desire.
Derived from the nature of the contract and ordinarily accompany the same.
Warranty against eviction is implied in a contract of sale, although the contracting parties may increase, diminish, or even suppress it.
11
Q
ACCIDENTAL
A
Exist only when the parties expressly provide for them for the purpose of limiting or modifying the normal effects of the contract.
Conditions, terms and modes.
12
Q
CLASSIFICATION OF CONTRACTS
A
- ACCORDING TO SUBJECT MATTER
- ACCORDING TO NAME
- ACCORDING TO PERFECTION: BY MERE CONSENT
- ACCORDING TO ITS RELATION TO OTHER CONTRACTS
- ACCORDING TO FORM
- ACCORDING TO PURPOSE
- ACCORDING TO NATURE OF LEGAL TIE CREATED
- ACCORDING TO CAUSE
- ACCORDING TO RISK
13
Q
- ACCORDING TO SUBJECT MATTER
A
Contracts involving things
like sale
Contracts involving rights or credits
provided these are transmissible
like a contract of usufruct or assignment of credits
Contracts involving services
like agency, lease of services, a contract of common carriage, a contract of carriage (simple carriage)
14
Q
- ACCORDING TO NAME
A
Nominate (special contracts)
Innominate (contratos innominados) (NCC 1307)
15
Q
Nominate (special contracts)
A
Those which have their own individuality, particular, or special name, and are regulated by special provisions of law.
16
Q
Innominate (contratos innominados) (NCC 1307)
A
Those which lack individuality, are not given any special names, and are governed by the general laws on contracts.
The impossibility of anticipating all forms of agreement on one hand, and the progress of man’s sociological and economic relationships on the other, justify this provision.
Innominate contracts are based on the well-known principle that “no one shall unjustly enrich himself at the expense of another.”
17
Q
Kinds OF Innominate
A
do ut des (I give that you may give)
no longer an innominate contract - barter or exchange.
do ut facias (I give that you may do)
facio ut des (I do that you may give)
facio ut facias (I do that you may do)
18
Q
ACCORDING TO PERFECTION: BY MERE CONSENT
A
Consensual (NCC 1315)
Real (NCC 1316)
Formal or solemn
19
Q
Consensual (NCC 1315)
A
Those which are perfected by the mere agreement of the parties.
like sale, lease
20
Q
Real (NCC 1316)
A
Those which require not only the consent of the parties for their perfection, but also the delivery of the object by one party to the other.
like commodatum, deposit, pledge.
21
Q
Formal or solemn
A
Those where special formalities are essential before the contract may be perfected.
like donation inter vivos of real property
22
Q
ACCORDING TO ITS RELATION TO OTHER CONTRACTS
A
Principal
Accessory
Preparatory
23
Q
Principal
A
Where the contract may stand alone by itself.
sale, lease, loan
24
Q
Accessory
A
Depends for its existence upon another contract.
a real estate mortgage as an accessory contract to a loan
25
Preparatory
Where the parties do not consider the contract as an end by itself, but as a means through which future transaction or contracts may be made.
agency, partnership
26
5. ACCORDING TO FORM
Common or informal
Special or formal
27
Common or informal
Those which require no particular form.
Example — loan
28
Special or formal
Those which require some particular form
Examples — donations, chattel mortgage.
29
6. ACCORDING TO PURPOSE
Transfer of ownership
Example — sale
Conveyance of use
Example — commodatum
Rendition of services
Example — agency
30
7. ACCORDING TO NATURE OF LEGAL TIE CREATED
Unilateral
Bilateral
31
Unilateral
When it creates an obligation on the part of only one of the parties.
Even here, the giving of consent must be mutual or bilateral.
commodatum (like the borrowing of a bicycle), gratuitous deposi
32
Bilateral
When it gives rise to reciprocal obligations for both parties.
sale, lease
33
8. ACCORDING TO CAUSE
Onerous
Gratuitous or lucrative
Remunerative
34
Onerous
Where there is an interchange of equivalent valuable consideration.
Example — sale
35
Gratuitous or lucrative
This is free, thus one party receives no equivalent prestation except a feeling that one has been generous or liberal.
Example — commodatum.
36
Remunerative
One where one prestation is given for a benefit or service that had been rendered previously.
37
9. ACCORDING TO RISK
Commutative
Aleatory
38
Commutative
Those where each of the parties acquires an equivalent of his prestation and such equivalent is pecuniarily appreciable and already determined from the moment of the celebration of the contract.
Example — lease
39
Aleatory
Those where each of the parties has to his account the acquisition of an equivalent of his prestation, but such equivalent, although pecuniarily appreciable, is not yet determined at the moment of the celebration of the contract, since it depends upon the happening of an uncertain event, thus charging the parties with the risk of loss or gain.
Fulfillment is dependent upon chance; thus the values vary because of the risk.
Example — insurance.
40
CHARACTERISTICS OF A CONTRACT
Obligatory force or character
Autonomy of contracts
Mutuality of contracts
Relativity of contracts
41
OBLIGATORY FORCE OR CHARACTER
Once the contract is perfected, it shall be of obligatory force upon both of the contracting parties.
Consequently, such contracting parties are bound, not only to the fulfillment of what has been expressly stipulated, but also to all of the consequences thereof.
Just as nobody can be forced to enter into a contract, in the same manner once a contract is entered into, no party can renounce it unilaterally without the consent of the other, otherwise he is liable for damages.
A contract is an agreement which gives rise to an obligation. It must bind both parties in order that it can be enforced against either. Without this equality between parties, it cannot be said that the contract has the force of law between them.
42
AUTONOMY OF CONTRACTS
The contracting parties may establish such agreements as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
Hence, the freedom to contract is both a constitutional and a statutory right; therefore, to uphold this right, courts should move with all the necessary caution and prudence in holding contracts void.
Tolentino - The right to enter into lawful contracts constitutes one of the liberties of the people of the state. If that right be struck down or arbitrarily interfered with, there is a substantial impairment of the liberty of the people under the Constitution. The legislature, under the Constitution, is not permitted to prescribe the terms of a legal contract and thereby deprive the citizens of the state from entering freely into such contracts according to their own convenience and advantage, so long as the contracts entered into are not prohibited by law, public policy or morals. To enter into contracts freely and without restraints, is one of the liberties guaranteed to the people of the state.
All contractual obligations are subject — as an implied reservation therein — to the possible exercise of the police power of the state.
43
Compromise Agreement
An agreement between two or more persons, who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone of them prefers in the hope of gaining, balanced by the danger of losing
44
Compromise Agreement, general rule?
The general rule is that a compromise has upon the parties the effect and authority of res judicata, with respect to the matter definitely stated therein, or which by implication from its terms should be deemed to have been included therein. This holds true even if the agreement has not been judicially approved.
From the time a compromise is validly entered into, it becomes the source of the rights and obligations of the parties thereto. The purpose of the compromise is precisely to replace and terminate controverted claims.
45
AUTONOMY OF CONTRACTS
B. EXCEPTIONS
WHEN IT IS INEQUITABLE (NCC 1310)
II. SPECIAL DISQUALIFICATIONS
III. WHAT MAY NOT BE STIPULATED
46
WHEN IT IS INEQUITABLE (NCC 1310)
A contracting party is not bound by the determination if it is evidently inequitable or unjust as when the third person acted in bad faith or by mistake.
This qualifies NCC 1309 as to the determination by third parties.
In such case, the courts shall decide what is equitable under the circumstances.
What is equitable is a question of fact, to be ascertained from the attendant circumstances.
47
II. SPECIAL DISQUALIFICATIONS 1310
Donation or grant of gratuitous advantage, direct or indirect, between the spouses during the marriage. (FC 87)
The husband and the wife cannot sell property to each other, except:
When a separation of property was agreed upon in the marriage settlements; or temuim
When there has been a judicial separation of property under article 191. (NCC 1490)
Persons who cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: (NCC 1491)
The guardian, the property of the person or persons who may be under his guardianship;
Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal has been given;
Executors and administrators, the property of the estate under administration;
Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;
Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession;
Any others specially disqualified by law.
Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. (NCC 1782)
Donations between
Those made between persons who were guilty of adultery or concubinage at the time of the donation;
Those made between persons found guilty of the same criminal offense, in consideration thereof;
Those made to a public officer or his wife, descendants and ascendants, by reason of his office. (NCC 739)
48
III. WHAT MAY NOT BE STIPULATED
The stipulation, clause, term or condition established by the contracting parties must not be contrary to
law,
morals,
good customs,
public order, or
public policy.
49
Can a contract be given effect if it is contrary to law?
no, because law is superior to a contract.
Those which are mandatory or prohibitive in character - except when the law itself authorizes their validity.
Those which, without being mandatory or prohibitive, nevertheless, are expressive of fundamental principles of justice, and, therefore, cannot be overlooked by the contracting parties; and
Those which impose essential requisites without which the contract cannot exist.
50
must the contract of the parties conform with the law in force at the time the contract was executed?
yes, statutes generally have no retroactive effect and only the laws existing at the time of the execution of the contract are applicable to the transaction.
Contracts must respect the law, for the law forms part of the contract. Indeed, the provisions of all laws are understood to be incorporated in the contract.
The parties to a contract are charged with knowledge of the existing law at the time they enter into the contract and at the time it is to become operative, and a person is presumed to be more knowledgeable about the law of his country than an alien.
51
Non-impairment clause
Where a contract is entered into by the parties on the basis of the law then obtaining, the repeal or amendment of said law will not affect the terms of the contract, nor impair the rights of the parties hereunder. This rule applies even if one of the contracting parties is the government.
52
“upset price”
An upset price is a specified price below which the mortgaged property is not supposed to be sold at the execution sale.
An “upset price” is not allowed in a mortgage contract
53
1. pactum commissorium (NCC 2088)
A clause providing that the mortgagee will automatically own the property mortgaged if the debt is not paid at maturity.
The mortgage itself, however, remains valid.
54
Elements of pactum commissorium:
There should be a property mortgaged by way of security for the payment of the principal obligation, and
There should be a stipulation on automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.
55
2. pactum leonina (NCC 1799)
A stipulation which excludes one or more partners from any share in the profits or losses is void.
goes against the essence of contracts is partnerships where resources are pooled for a sharing of profits
56
3. pactum de non alienando (NCC 2130)
A stipulation forbidding the owner from alienating the immovable mortgaged shall be void.
undue restriction on the right of ownership
banks' stipulations not covered - prior approval needed but no absolute prohibition
musually
57
must a custom be proved as a fact?
yes
58
3. MUTUALITY OF CONTRACTS (NCC 1308)
A contract containing a condition which makes its fulfillment or extinguishment dependent exclusively upon the uncontrolled will of one of the contracting parties is void.
59
ultimate purpose of the MUTUALITY OF CONTRACTS ?
to nullify a contract containing a condition which makes its fulfillment or pre-termination dependent exclusively upon the uncontrolled will of one of the contracting parties.
60
When the fulfillment of the condition depends upon the sole will of the debtor (potestative)
If the conditional obligation is suspensive
void (NCC 1182)
61
When the fulfillment of the condition depends upon the sole will of the debtor (potestative)
If the conditional obligation is resolutory
valid
62
Contract of adhesion
contract in which one party has already prepared a form of a contract containing stipulations desired by him and he simply asks the other party to agree to them if he wants to enter into the contract.
63
Breach of contract
The failure, without legal reason, to comply with the terms of the contract.
64
Termination of contract
1. Termination by stipulation of the parties
2. Termination, by stipulation, at option of one party
3. Termination by one party with conformity of the other
65
Termination by stipulation of the parties
As a rule, the method of terminating a contract is primarily determined by the stipulation of the parties. The unilateral termination of a contract by a party is violative of the principle of mutuality of contracts ordained in Article 1308. A contract may be superseded by a compromise agreement (NCC 2028) provided it is not contrary to law, morals, good customs, public order or public policy (NCC 1306.) To be valid, a compromise agreement is merely required by law to be based on real claims and to be actually agreed upon in good faith.
66
Termination, by stipulation, at option of one party
A contract may provide, however, that it shall come to an end at the option of one, or either of the parties and such stipulation, when fairly entered into, will be enforced if not contrary to equity and good conscience.
67
Termination by one party with conformity of the other
Where one party opts to cancel an existing agreement and the other party expresses its conformity thereto, in legal effect, the parties enter into another contract for the dissolution of the previous one, and they are bound by their contract.
68
Termination of contract General Rule
The mere fact that a party to a contract has made a bad bargain, may not be a ground for setting aside the agreement. (NCC 1355)
69
Doctrine of unforeseen events -
Where, however, the performance of the contract has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may be released therefrom, in whole or in part. (NCC 1267)
70
Impossibility of prestation without fault of the debtor
The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. (NCC 1266)
71
RELATIVITY OF CONTRACTS
A. Contracts take effect only between the parties, their assigns, and heirs.
B. No one may contract in the name of another (NCC 1317)
C. Stipulations in favor of third persons (stipulation pour autrui) (NCC 1311, par. 2)
72
can, RELATIVITY OF CONTRACTS, as a general rule, produce any effect upon third persons?
no. in conformity with the principle of res inter alios acta aliis neque nocet prodest.
a thing done between others does not harm or benefit others.
73
“real interest’’
defined as a present substantial interest, as distinguished from a mere expectancy or a future, contingent, subordinate or consequential interest.
74
who must be considered as the continuation of the decedent’s personality.
the estate, rather than the heir,
75
Exceptions to heirs
The cases when a contract is effective only between the parties are when the rights and obligations arising from the contract are not transmissible:
by their nature (like a contract requiring or involving personal qualifications, as painting, singing, etc.)
by stipulation (in accordance with the principle of freedom to contract)
by provision of law (as in agency, partnership, and commodatum, when death extinguishes the legal relationships)
76
does death of a party excuse non-performance?
no, death of a party does not excuse non-performance of a contract which involves a property right. (e.g., contract of lease), and the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract.
77
General Rule on transmissibility
Parties can assign their rights or receivables even without stipulation since contracts are under property rights.
78
B. No one may contract in the name of another (NCC 1317)
A contract entered into in the name of another by one who has no authority is unenforceable against the former.
Unless it is ratified by the principal before it is revoked by the other contracting party.
79
Implied Ratification
can be implied from acts, such as when the owner of a hacienda which was sold to strangers without his authority, collected the amount in a promissory note given as purchase price (Tacalinar v. Corro)
80
what does Ratification do?
cleanses the contract from all its defects from the moment the contract was entered into. (NCC 1396) Hence, there is a retroactive effect.
81
Requisites for a Person to Contract in the Name of Another
1. The person entering into the contract must be duly authorized, expressly or impliedly, by the person in whose name he contracts or he must have, by law, a right to represent him (like a guardian or an administrator); and
2. He must act within his power. A contract entered into by an agent in excess of his authority is unenforceable against the principal, but the agent is personally liable to the party with whom he contracted where such party was not given sufficient notice of the limits of the powers granted by the principal
82
B. No one may contract in the name of another (NCC 1317) Exceptions to third parties
Stipulation pour autrui (NCC 1311)
In contracts creating real rights (NCC 1312)
In contracts entered into to defraud creditors (NCC 1313)
In contracts which have been violated at the inducement of the third person (NCC 1314)
In contracts creating “status” (e.g., the resulting status of marriage must be respected, even by strangers, while the contract is in force)
In the quasi-contract of negotiorum gestio, the owner is bound in a proper case, by contracts entered into by the “gestor’’ (unauthorized manager) (NCC 2150)
In “collective contracts” where the majority rules over the minority (e.g., collective bargaining contracts which affect even nonunion members; “suspension of payments” and “compositions” under the Insolvency Law or Act No. 1956, as amended, where creditors are bound by the contracts of the majority)
Where the law authorizes the creditor to sue on a contract entered into by his debtor (accion directa).
83
C. Stipulations in favor of third persons (stipulation pour autrui) (NCC 1311, par. 2)
A stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its fulfillment.
84
requisites stipulation pour autrui
1. he communicates his acceptance to the obligor before its revocation by the obligee or the original parties.
85
is it sufficient that the third person may be incidentally benefited by the stipulation?
no, It must be the purpose and intent of the stipulating parties to benefit the third person
85
does stipulation pour autrui need to be in a particular form?
no, a stipulation pour autrui need not be in any particular form, and may even be inferred from the fact that the beneficiary has enjoyed the same for a considerable period. (Florentino v. Encarnacion, Sr.)
86
does the right of the third person exist if the contract is void?
no, Since the right of the third person is based directly on the contract, it is also subject to all the defences available against the contract, such as those affecting the validity of the contract. Thus, the right of the third person does not exist if the contract is void, and it disappears if it is annulled or rescinded.
87
Donee-beneficiary
Those where the stipulation is intended for the sole benefit of such person. This corresponds almost always to the juridical conception of a gift, it being necessary in such case to apply the rules relating to donations in so far as the form of acceptance is concerned; and
88
Creditor-beneficiary
Those where an obligation is due from the promisee to the third person which the former seeks to discharge by means of such stipulation, as, for instance, where a transfer of property is coupled with the purchaser’s promise to pay a debt owing from the seller to a third person. (Uy Tam and Uy Yet vs. Leonard, 1915)
89
Requisites pour autrui
1. The contracting parties by their stipulation must have clearly and deliberately conferred a favor upon a third person;
2. The third person must have communicated his acceptance to the obligor before its revocation by the obligee or the original parties;
3. The stipulation in favor of the third person should be a part and not the whole of the contract or the contract itself;
4. The favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; and
5. Neither of the contracting parties bears the legal representation or authorization of the third party for otherwise the rules on agency will apply.
90
EFFECT OF CONTRACT AS TO THIRD PARTIES
may performance be determined by third parties (NCC 1309) ?
yes, The decision of the third person shall bind the parties only after it has been made known to both of them.
In such case, the obligation does not depend upon a potestative condition. (NCC 1182)
91
II. When possession of the object of the contract is with a third person (NCC 1312) , are they bound even if they were not parties to the contract?
A real right is binding against the whole world and attaches to the property over which it is exercised wherever it goes. Thus, a contract subjecting certain real properties to the payment of certain debts, registered in accordance with the Property Registration Decree, constitutes a real right, which is produced not by the contract but by the publicity given by the Registry, such publicity prejudicing the right of third persons.
If the real right is not registered, third persons who acted in good faith are protected under the provisions of the Property Registration Decree. It is well-known in our jurisdiction that persons dealing with registered land have the legal right to rely on the face of the Torrens Title and to dispense with the need to inquire further, except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry.
91
right of Creditors of contracting parties (NCC 1313, 1177, 1381)
Although he is not a party to the contract, he is given the right to impugn the contracts of his debtor intended to defraud him (NCC 1177)
92
“interference with contractual relations.’
Recognizes an instance when a stranger to a contract can be sued for damages for his unwarranted interference with the contract. The tort or wrongful conduct
93
can liability of third party be more than the liability of the parties involved?
no.
94
requisites of a contract
(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.
95
Consent is manifested by
the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.
96
can the offer be uncertain?
no, offer must be certain and the acceptance absolute
97
may acceptance be either express or implied?
yes
98
may the person making the offer fix the time, place, and manner of acceptance?
yes
99
when is an offer made through an agent accepted?
from the time acceptance is communicated to him
100
when does offer become ineffective?
upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed.
101
who cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
102
are business advertisements of things for sale definite offers?
Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer.
103
are advertisers bound to accept the highest or lowest bidder?
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.
104
Contracts agreed to in a state of drunkenness or during a hypnotic spell are what?
voidable.
105
contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is ?
voidable.
106
is there mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract?
no
107
Natural Elements
Those that are presumed to exist in certain contracts unless the contrary is expressly stipulated by the parties
like warranty against eviction (Art. 1548.)
warranty against hidden defects in sale (Art. 1561.);
108
Accidental elements (NCC 1306)
The particular stipulations, clauses, terms, or conditions established by the parties in their contract for the purpose of clarifying, restricting, or modifying its legal effects
like conditions, period, interest, penalty, etc.
they exist only when they are expressly provided by the parties.
109
Good faith of a party in entering into a contract
Immaterial in determining whether it is valid or not — good faith not being an essential element of contract, has no bearing on its validity.
110
consequence of Absence of an essential element
Will prevent perfection / no valid contract.
111
consequence of Absence of natural/accidental element
Will not affect validity but can affect effectivity.
112
Influence of the law
imposes the essential elements upon the parties;
presumes the natural; and
authorizes the accidental
113
Influence of the will of the parties
yields or conforms to, or respects, the essential;
accepts, unless it rejects, the natural;
and creates or establishes the accidental.
The law is decisive in the first, supplementary in the second, and permissive in the third.
114
REQUISITES CONSENT
consent must be manifested by the concurrence of the offer and the acceptance (NCC 1319-1326)
the contracting parties must possess the necessary legal capacity (NCC 1327-1327)
the consent must be intelligent, free, spontaneous, and real (NCC 1330-1346)
115
PERFECTION OF CONTRACT:
In general, contracts are perfected from the moment that there is a manifestation of the concurrence between the offer and the acceptance with respect to the object and the cause which shall constitute the contract.
116
How consent is achieved
1. There is an offer initiated and made by one of the parties which is certain, definite, complete and intentional.
2. There is an unconditional acceptance by the other party.
3. Knowledge of the acceptance by the offeror.
117
Requisites of a valid offer (NCC 1319)
1. certain or definite (Must not be vague, misleading, or made as a joke. )
2. complete (must specify the object and price.)
3. intentional
118
What may be fixed by the offeror (NCC 1321)
the time
the place
the manner of acceptance
119
When made through an agent (NCC 1322)
If duly authorized, the act of the agent is, in law, the act of the principal.
120
When made through an intermediary
An intermediary who has no power to bind either the offeror or the offer is not an agent, his situation is similar to that of a letter carrier.
121
Bid security
insurance that bidder will push through with the project; forfeited if winning bidder backs out.
122
three principles of a public bidding
1. offer to the public
2. an opportunity for competition
3. and a basis for exact comparison of bids.
123
When offer becomes ineffective (NCC 1323)
Even if the offer is not withdrawn, its acceptance will not produce a meeting of the minds.
When any of the following occurs against either party before acceptance is conveyed:
death
civil interdiction
insanity, or
insolvency
124
When offer becomes ineffective (NCC 1323)
Other instances:
1. When the offeree expressly or impliedly rejects the offer.
2. When the offer is accepted with a qualification or condition (for here, there would merely arise a counter-offer).
3. When before acceptance is communicated, the subject matter has become illegal or impossible.
4. When the period of time given to the offeree within which he must signify his acceptance has already lapsed (NCC 1324)
5. When the offer is revoked in due time (that is, before the offeror has learned of its acceptance by the offeree).
6. Failure to comply with the condition of the offer as to the time, place, and the manner of payment (NCC 1321)
7. The destruction of the thing due before acceptance (NCC 1262)
125
Four theories when contract is perfected
1. The manifestation theory (manifestación)
2. The expedition theory (expedición)
3. The reception theory (recepción)
4. The cognition theory (cognición)
126
The manifestation theory (manifestación)
Perfected from the moment the acceptance is declared or made. This is the theory which is followed by the Code of Commerce.
127
The expedition theory (expedición)
Perfected from the moment the offeree transmits the notification of acceptance to the offeror, as when the letter is placed in the mailbox. This is the theory which is followed by the majority of American courts.
128
The reception theory (recepción)
Perfected from the moment that the notification of acceptance is in the hand of the offeror in such a manner that he can, under ordinary conditions, procure the knowledge of its contents, even if he is not able actually to acquire such knowledge by reason of absence, sickness or some other cause. This is the theory which is followed by the German Civil Code.
129
The cognition theory (cognición)
Perfected from the moment the acceptance comes to the knowledge of the offeror. This is the theory which is followed by the Spanish Civil Code.
130
Acceptance by promise.
An offer of a promise or an act may be accepted by giving a promise, as where a person offers to deliver to another a certain thing if the latter will pay a certain amount, and the other accepts by promising to so pay according to the conditions of the offer. The promise need not be by words but may be inferred from the acts of the parties, as by one or both acting on it as though it were a completed agreement.
131
Acceptance by act
An acceptance of an offer may be by act, as where an offer is made that the offerer will do something else, if the offeree shall do a particular thing. In such a case, performance is the only thing needful to complete the agreement and to create a binding promise.
132
Acceptance by silence or inaction
As a rule, silence cannot be construed as acceptance. The acceptance must be affirmatively and clearly made and evidenced by words or some acts or conduct communicated to the offeror.
133
Acceptance by silence or inaction, The exceptions are:
where the parties agree expressly or impliedly, that it shall amount to acceptance;
where specific provisions of law so declare (NCC 1670, 1870-1873.);
where under the circumstances such silence constitutes estoppel.
134
KINDS OF ACCEPTANCE
1. Express (NCC 1320) - may be oral or written.
2. Implied (NCC 1320) - from conduct, or acceptance of unsolicited services.
3. Presumed - by law as when there is failure to repudiate hereditary rights within the period fixed by law
135
When the offeror has not fixed a period for the offeree to accept the offer, and the offer is made to a person present (contratación entre ausentes), when must the acceptance be made
Offer must be accepted immediately, otherwise, the offer becomes ineffective.
136
When the option is founded upon a consideration as something paid or promised.
A contract of option is deemed perfected, and the offer may not be withdrawn before the lapse of the option period.
137
If the option is without a consideration.
The offer can withdraw the privilege at any time by communicating the withdrawal to the other party, even if the option had already been accepted.
It is a mere offer to sell which is not binding until accepted (NCC 1479).
138
A preparatory contract
the offeror grants to the offeree, for a fixed period and under specified conditions, the power to decide whether or not to enter into a principal contract.
139
Option -
May also refer to the privilege itself given to the offeree to accept an offer within a certain period.
140
Option period
The period given within which the offeree must decide whether or not to enter into the principal contract.
141
Option money
The consideration of an option contract, while earnest money is considered part of the price in a contract of sale and can be a proof of the perfection of the contract of sale.
142
Option contract and right of first refusal distinguished.
In a right of first refusal, while the object might be made determinate, the exercise of the right would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up.
143
Option contract and contract of sale distinguished.
An option is an unaccepted offer. The test in determining whether a “contract is a contract of sale or purchase’’ or a mere “option’’ is whether or not the agreement could be specifically enforced. An agreement is only an “option’’ when no obligation rests on the party to make any payment except such as may be agreed on between the parties as consideration to support the option until he has made up his mind within the time specified.
144
indispensable requisite of consent.
The capacity of the contracting parties
145
who has the burden of proof of incapacity
on the party who asserts incapacity.
146
PERSONS INCAPACITATED TO CONSENT
Minors, insane or demented persons, and deaf-mutes who do not know how to write (NCC 1327)
147
If only one of the contracting parties is incapacitated
The contract is
voidable.
148
If both of them are incapacitated
The contract is
unenforceable.
149
A minor can be emancipated by
ttainment of the age of majority, by marriage, or by the recording in the Civil Register of an agreement in a public document executed by the parent exercising parental authority and the minor at least 18 years of age
150
Exceptions to voidable (UNEMANCIPATED MINORS)
1. Upon reaching the age of majority, they ratify the same.
2. They were entered into thru a guardian, and the court having jurisdiction had approved the same.
3. They were contracts where the minor misrepresented his age, and pretended to be one of major age and is, thus, in estoppel.
It is essential here that the other party must have been misled. (Bambalan v. Maramba)
Limited to cases wherein, on account of the minor’s representations as to his majority, and because of his near approach thereto, the other party had good reason to believe and did in fact believe the minor capable of contracting.
5. They were in the form of savings account in the Postal Savings Bank, provided furthermore that the minor was at least seven years old.
6. They were contracts for necessities such as food, but here the people who are legally bound to give them support should pay therefor. (Thus, the contract here is valid, NCC 1489)
Necessaries include everything that is indispensable for sustenance, dwelling, clothing, and medical attendance.
151
who are INSANE OR DEMENTED PERSONS
Any person, who, at the time of the celebration of the contract, cannot understand the nature and consequences of the act or transaction by reason of any cause affecting his intellectual or sensitive faculties, whether permanent or temporary.
152
ALCOHOL AND DRUG INTOXICATION
General Rule - The contract is voidable.
The Code considers as a demented person, or at least, places in the same category as a demented person anyone who is in a state of drunkenness or under a hypnotic spell (NCC 1328) - equivalent to temporary insanity.
The same is true of somnambulism (sleepwalking).
153
PRESUMPTION on a person contracting with another
A person is presumed to be of sound mind at any particular time and the condition is presumed to continue to exist.
The insanity must exist at the time of contracting.
The burden of proving such incapacity at the time of execution rests upon whoever alleges it.
154
Deaf-mute who knows how to write , valid?
valid for then he is capable of giving intelligent consent.
155
Deaf-mute who does not know how to write, valid?
voidable
156
Other incapacitated persons (NCC 1329)
The following are considered incompetents, and may be placed under guardianship:
those under civil interdiction
hospitalized lepers
prodigals (spendthrifts)
deaf and dumb who are unable to read and write
those of unsound mind even though they have lucid intervals
those who by reason of age, disease, weak mind, and other similar causes, cannot without outside aid, take care of themselves and manage their property, becoming thereby an easy prey for deceit and exploitation.
There is a difference between an “incompetent” under the Rules of Court, and a person “who cannot give consent to a contract” under the Civil Code
157
SPECIAL DISQUALIFICATIONS
1. Donation or grant of gratuitous advantage, direct or indirect, between the spouses during the marriage. (FC 87)
2. The husband and the wife cannot sell property to each other, except:
a. When a separation of property was agreed upon in the marriage settlements; or temuim
b.When there has been a judicial separation of property under article 191. (NCC 1490)
3. Persons who cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: (NCC 1492)
a. The guardian, the property of the person or persons who may be under his guardianship;
b. Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal has been given;
c. Executors and administrators, the property of the estate under administration;
d. Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;
e. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession;
f. Any others specially disqualified by law.
4. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. (NCC 1782)
5. Donations between
Those made between persons who were guilty of adultery or concubinage at the time of the donation;
a. Those made between persons found guilty of the same criminal offense, in consideration thereof;
b. Those made to a public officer or his wife, descendants and ascendants, by reason of his office. (NCC 739)
6. Insolvents before they are discharged cannot make payments.
158
CHARACTERISTICS OF CONSENT
Consent must be Intelligent, Free, Spontaneous and Real
159
Reparation made by reason of a threatened civil or criminal action. binding?
yes. He is confronted with a situation in which he finds the necessity either of making reparation or of taking the consequences, civil or criminal, of his unlawful acts. He makes the contract of reparation with extreme reluctance and only by the compelling force of the punishment threatened.
160
Contract of adhesion
While such contract is not necessarily void, it must nevertheless be construed strictly against the one who drafted the same.
There are certain contracts almost all the provisions of which have been drafted by only one party, usually a corporation (e.g., insurance company). Such contracts are called contracts of adhesion because the only participation of the party is the affixing of his signature or his “adhesion’’ thereto.
161
TWO CLASSES OF VOIDABLE CONTRACTS
1. Those where one party is incapacitated to give consent. (NCC 1327)
more or less permanent
2. Those where the consent of one party has been vitiated. (NCC 1330-1334)
temporary
162
VICES OF CONSENT
These vices are defects of the will, the existence of which impairs the intelligence (1), freedom (2, 3, 4) and spontaneity (5) of the party in giving consent to the contract.
163
The mistake contemplated by law
substantial mistake of fact, that is, the party would not have given his consent had he known of the mistake. Hence, not every mistake will vitiate consent and make a contract voidable.
164
Mistake of Fact
As a general rule, it is only a mistake of fact which will vitiate consent thus rendering the contract voidable.
When one or both of the contracting parties believe that a fact exists when in reality it does not, or that such fact does not exist when in reality it does.
165
Mistake of Law
Does not render the contract voidable because of the well-known principle that ignorance of the law does not excuse anyone from compliance therewith.
When one or both of the contracting parties arrive at an erroneous conclusion regarding the interpretation of a question of law or the legal effects of a certain act or transaction.
166
REQUISITES OF MISTAKE TO VITIATE CONSENT
The error is substantial if because of it, the party gave his consent.
If a party would still have entered into the contract even if he had known of the error, the error is not substantial.
1. The error must be substantial regarding
the object of the contract (includes mistake regarding the nature of the contract, as when the contracting parties believe that the other is selling, when in truth and in fact, both are buying.)
the conditions which principally moved or induced one of the parties (error in quality or in quantity — error in qualitate or in quantitate)
identity or qualifications (error in personae), but only if such was the principal cause of the contract.
2. The error must be excusable (not caused by negligence)
3. The error must be a mistake of fact, and not of law.
167
Mistake as to the identity of the thing (error in corpore)
As when the thing which constitutes the object of the contract is confused with another thing.
A person signed a contract of sale thinking it was only a contract of loan.
168
Mistake as to the substance of the thing (error in substantia)
Should refer not only to the material out of which the thing is made, but also to the nature which distinguishes it, generically or specifically, from all others
Such as when a person purchases a thing made of silver believing that it is made of gold.
If the mistake refers only to accidental or secondary qualities (error in qualitate), the contract is not rendered voidable.
169
II. As to principal conditions
Provided such conditions have principally moved one or both parties to enter into the contract.
Error as to personal motive does not vitiate consent.
S is selling his parcel of land for P100,000.00 cash but B is buying the land thinking that the price is payable in installments.
170
As to identity or qualifications of the parties
Mistakes with regard to the identity or the qualifications of one of the contracting parties.
Hence, mistake with regard to the name of one or both of the contracting parties will not invalidate the contract.
Generally, this kind of mistake occurs in obligations to do which require special qualifications of the parties or which are based on confidence.
Examples of these obligations are those arising from remuneratory contracts, partnership, agency, deposit, commodatum, and lease of services.
171
REQUISITES Mistakes with regard to the identity or the qualifications of one of the contracting parties.
1. The mistake must be either with regard to the identity or with regard to the qualification of one of the contracting parties
2. Such identity or qualification must have been the principal consideration for the celebration of the contract.
172
As to quantity (error in quantitate)
Provided that the extent or dimension of the thing was one of the principal reasons of one or both of the parties for entering into the contract.
A person desiring to buy land consisting of 100 hectares discovers that the land has only 60 hectares.
173
simple mistake of account
Would ordinarily give rise merely to correction, and not annulment of the contract.
174
Exception to MISTAKE OR ERROR OF LAW
General Rule: Ignorance of the law does not excuse anyone from compliance therewith. (NCC 3)
Mutual Error of Law (NCC 1334)
As to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. Contract can be annulled.
When even the highest courts are sometimes divided upon difficult legal questions and when one-half of the lawyers in all controversies on a legal question are wrong, why should a layman be held accountable for his honest mistake on a doubtful legal issue?
175
REQUISITES Mutual Error of Law (NCC 1334)
The error must be mutual
It must be as to the legal effect of an agreement; and
It must frustrate the real purpose of the parties.
176
Distinguished from the Remedy of Reformation
Under NCC 1361, the real agreement is not disclosed; in NCC 1334, the error is as to the legal effect of the agreement.
NCC 1361 “When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed.”
Example: A and B agreed on a sale, but as written, the document shows a mortgage. Here, there was a meeting of the minds, but the instrument does not show the real intention. Hence, the remedy is reformation. If on the other hand, both agreed on a sale, and as written, the document is one of sale, but both parties thought erroneously that it had the same effects as a mortgage, there is no meeting of the minds, and the remedy is annulment.
177
Violence
Refers to physical coercion
178
Intimidation
To moral coercion
If a person signs a contract only because a gun is pointed at him, this is intimidation because he is afraid he would be killed. But if he signs because his left hand is being twisted painfully, this is violence or force.
179
Requisites for Violence to Vitiate Consent
1. Employment of serious or irresistible force;
2. It must have been the reason why the contract was entered into.
180
Requisites for Intimidation to Vitiate Consent
1. reasonable and well-grounded fear
2. of an imminent and grave evil
3. upon his person, property, or upon the person or property of his spouse, descendants, or ascendants
4. It must have been the reason why the contract was entered into
5. the threat must be of an unjust act, an actionable wrong.
181
may the contract be annulled Even if a third person exercised the violence or intimidation?
yes, consent is still vitiated.
182
C. UNDUE INFLUENCE (NCC 1337)
When a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice.
183
D. FRAUD OR DOLO (NCC 1338)
insidious words or machinations employed by one of the contracting parties in order to induce the other to enter into a contract, which, without them, he would not have agreed to.
184
1. Dolo causante (causal fraud) (NCC 1338)
Fraud employed by one party prior to or simultaneous with the creation of the contract to secure the consent of the other. Contract is voidable.
185
Requisites of Dolo Causante
1. The fraud must be material and serious, that is, it really induced the consent. (NCC 1344).
2. The fraud must have been employed by only one of the contracting parties, because if both committed fraud, the contract would remain valid. (NCC 1344).
3. There must be a deliberate intent to deceive or to induce; therefore, misrepresentation in good faith is not fraud. (NCC 1343)
4. The other party must have relied on the untrue statement, and must himself not be guilty of negligence in ascertaining the truth. (Songco v. Sellner).
5. It must be alleged and proved by clear and convincing evidence, and not merely by a preponderance thereof.
6. It should be invoked by the proper party. The party entitled to invoke fraud or bad faith as a ground for nullifying a contract is the victim — the one who was tricked in giving his consent thereto.
186
Dolo incidente (incidental fraud) (NCC 1344-2)
Even without the fraud, the parties would have agreed just the same. The contract is still valid, but there can be an action for damages.
Hence the fraud was only incidental in causing consent. Very likely though, different terms would have been agreed upon.
187
Dolo incidente (incidental fraud) (NCC 1344-2)
Even without the fraud, the parties would have agreed just the same. The contract is still valid, but there can be an action for damages.
Hence the fraud was only incidental in causing consent. Very likely though, different terms would have been agreed upon.
188
Two requisites for fraud as a ground for annulment are given in this Article:
1. the fraud must be serious;
2. the parties must not be in pari delicto (mutual guilt), otherwise, neither party may ask for annulment. The contract would, therefore, be considered valid.
189
. MISREPRESENTATION
BY A THIRD PERSON (NCC 1342)
Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual.
A third person has no connection with a contract. Consequently, a misrepresentation by him does not vitiate consent. A party should not be made to suffer for the imprudence of another in believing the fraud of a third person.
Distinguish this from the fact that force or intimidation by a third person already makes the contract voidable.
190
Fraud by a third person does not make the contract voidable unless
1. the representation has created substantial mistake, and
2. the mistake is mutual. (NCC 1342)
191
MISREPRESENTATION MADE IN GOOD FAITH (NCC 1343)
It is considered a mere mistake or error. If substantial, possible to annul the contract.
Fraud is definitely more serious than mistake; hence, the party guilty of fraud is subject to greater liability.
192
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 or is different from that which was really executed.
193
The requisites for simulation
1. an outward declaration of will different from the will of the parties;
2. the false appearance must have been intended by mutual agreement; and
3. the purpose is to deceive third persons.
194
The primary consideration in determining the true nature of a contract is
the intention of the parties. Such intention is determined from the express terms of the agreement as well as from their contemporaneous and subsequent acts.
195
Absolutely simulated (simulados) fictitious contracts
There is colorable contract but it has no substance as the contracting parties do not intend to be bound by the contract at all.
As when a debtor simulates the sale of his properties to a friend in order to prevent their possible attachment by creditors.
The apparent contract is not really desired or intended to produce legal effects or in any way alter the juridical situation of the parties.
196
Non-payment of purchase price
Does not automatically mean that the contract is absolutely simulated.
If there is a statement of purchase price - presumed that there is an intention for the price to be paid; non-payment of which can give rise to a right to demand for breach of contract.
Statement of purchase price is a sham - contract is absolutely simulated.
197
Gross inadequacy of consideration
Does not necessarily mean the contract is absolutely simulated
But can be an indication of fraud.
198
Absolutely Simulated Contract Distinguished from an Illegal Contract
An illegal contract is intended to be real and effective, and entered in such form as to circumvent a prohibited act.
They are serious, real, and intended for the attainment of a prohibited result.
Simulation is intended to hide the violation of law. But such contracts are even generally regarded as fraudulent if the purpose is to defraud third persons with intent of injuring them.
199
Absolutely Simulated
implies that there is no existing contract, no real act executed
can be attacked by any creditor, including one subsequent to the contract
the insolvency of the debtor making the simulated transfer is not a prerequisite to the nullity of the contract
the action to declare a contract absolutely simulated does not prescribe (NCC 1409 & 1410)
200
Illegal Contract
there is a true and existing transfer or contract.
can be assailed only by the creditors before the alienation
the action to rescind, or accion pauliana, requires that the creditor cannot recover in any other manner what is due him
the accion pauliana to rescind a fraudulent alienation prescribes in four years (Article 1389)
201
RELATIVE
The parties are bound by their real agreement, provided, it does not prejudice a third person and is not intended for a purpose contrary to law, morals, good customs, public order, or public policy.
202
Relatively simulated (disimulados) disguised contracts
When the contracting parties state a false cause in the contract to conceal their true agreement
203
EFFECTS of simulated contracts (NCC 1346)
An absolutely simulated contract is void, and the parties may recover from each other what they may have given. While a relatively simulated contract is binding and enforceable between the parties and their successors in interest to their real agreement
