Contract Chapter 2 - Essential Requisites of Contracts PDF

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Article 1318: Contract Requisites There is no contract unless the following requisites concur: 1. Consent of the contracting parties; 2. Object certain which is the subject matter of the contract; 3.Cause of the obligation which is established. Elements of a Contract 2. Natural elements 3.Accidental Elements

1. Essential Elements

Essential Elements are those without which there can be no contract. subdivided into: a.Common-those which are present in all contracts b.Special-are present only in certain contracts c. Extraordinary or peculiar - are those which are peculiar to a specific contract Natural Elements are those which are derived from the nature of the contract and ordinarily accompany the same. -are presumed by the law, although they can be excluded by the contracting parties if they so desire Accidental Elements are those which exist only when the parties expressly provide for them for the purpose of limiting or modifying the normal effects of the contract Article 1319: Consent Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes as counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. Article 1320 An acceptance may be express or implied. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract Offer is a unilateral proposition made by one party to another for the celebration of contract. -is a proposal made by 1 party -offerer, to another, indicating a willingness to enter into a contract. It is more than an expression of desire or hope. It is really a promise to act or to refrain from acting on condition that the terms thereof are accepted by the person -must be definite, complete, and intentional Policitacion an imperfect promise is merely an offer. -could not be considered a binding commitment Counter-offer refers to qualified acceptance

Acceptance by letter or telegram knowledge.

does not bind the offerer except from the time it came to his

Consent of Corporation All corporate powers shall be exercised and all corporate business shall be conducted by the board of directors. While corporation is a juridical person, it cannot act except through its board of directors as collective body, which is vested with the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation, subject to the articles of incorporation, by laws, or relevant provisions of law. Article 1321 The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. Article 1322 An offer made through an agent is accepted from the time acceptance is communicated to him. Contract of Agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. Basis of Contract of Agency representation, that is the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal. Article 1323 An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. Rationale Article 1323 The contract is not perfected except by the concurrence of two wills, which exist and continue until the moment they occur. The contract is not yet perfected at any time before acceptance is conveyed, hence, the disappearance of either party or his loss of capacity before perfection prevents the contractual time to be formed. Article 1324 When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. option is a contract granting a privilege to buy or sell at a determined price within an agreed time. -is a preparatory contract in which one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal agreement. Rules :where a period is given to the offeree within which to accept the offer 1. if the period is not itself founded upon or supported by a consideration, the offeror is still free and has the

right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communication that withdrawal to the offeree. 2. If the period has a separate consideration, a contract of option is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. Article 1325 Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. General Rule related to Article 1325 Business advertisements of things for sale are not definite offers, but mere invitations to make an offer. Exception: If the business advertisements of things for sale appears to be a definite offer. Article 1326. Advertisements for bidders are simply invitations to make proposal, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. Rules related to Article 1326 Advertisements for bidders are simple invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. Article 1327 The following cannot give consent to a contract: 1. minors 2. insane or demented persons, and deaf-mutes who do not know how to write Persons incapacitated to give consent1. minors 2. insane persons 3.demented persons 4.deaf mutes who do not know how to write Article 1328 Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. Lucid interval a brief period during which an insane person regains sanity sufficient to have the legal capacity to contract and act on his or her own behalf. Article 1329 The incapacity declared in Article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. Article 1330 A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. Vices of consent 2. Violence 3. Intimidation 4. Undue influence

1.Mistake

5. Fraud Characteristics of Consent 1. It should be intelligent. Intelligence in consent is vitiated by error. 2. It should be free. Freedom is vitiated by violence, intimidation, or undue influence. 3. It should be spontaneous. Spontaneity is vitiated by fraud. Concept of Voidable Contracts are existent, valid, and binding, although they can be annulled because of want of capacity or vitiated consent of the one of the parties, but before annulment, they are effective and obligatory between parties. It is valid until it is set aside and its validity may be assailed only in an action for that purpose.It can be confirmed or ratified. Vice of consent in a compromise agreement approved by the court if one of the parties claims that his consent was obtained through fraud, mistake, or duress, he must file a motion with the trial court that approved the compromise agreement to reconsider the judgment and nullify or set aside said contract on any of the said grounds for annulment of contract. Article 1331 In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. A simple mistake of account shall give rise to its correction. Mistake a misunderstanding of the meaning or implication of something or a wrong action or statement proceeding from a faulty judgment. Mistake must be substantial 1. Mistake should refer to the substance of the thing which is the object of the contract 2. Mistake should refer to those conditions which have principally moved one or both parties to enter into the contract 3. Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been principal cause of the contract. How to invalidate a consent the error must be real and not one that could have been avoided by the party alleging it. The error must arise from facts unknown to him. Effect of simple mistake of account a simple mistake of account shall give rise to its correction. Mistake of fact vs Mistake of Law Mistake of fact: There is mistake of fact 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 exists when in reality it does. Mistake of Law:

There is mistake of law 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. Mistake of fact vs Mistake of Law Mistake of Fact: As a general rule, it is only a mistake of fact which will vitiate consent, thus rendering the contract voidable. Mistake of Law A 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. Article 1332 When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. Meaning of Article 1332 It was intended to protect a party to a contract disadvantaged by illiteracy, ignorance, mental weakness or some other handicap. This article contemplates a situation wherein contract has been entered into, but the consent of one of the parties is vitiated by mistake or fraud committed by the other contracting party In order that mistake may invalidate a consent it should refer to the substance of the thing which is the object of the contract, or those conditions which have principally moved one or both parties to enter into the contract. Fraud may invalidate a consent fraud is present when, through the insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. Article 1333 There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. Article 1334 Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent Requisites to Article 1334 1.The mistake must be with respect to the legal effect of an agreement. 2. The mistake must be mutual 3. The real purpose of the parties must be frustrated Article 1335 There is violence when in order to wrest consent, serious or irresistible force is employed. There is intimidation when one of the contracting parties is compelled by reasonable and well grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent.

To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind. A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. Requisites of violence 1. The force employed to wrest consent must be serious or irresistible 2. It must be the determining cause for the party upon whom it is employed in entering into the contract Intimidation There is intimidation when one of the contracting parties is compelled by reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent. Requisites of intimidation In order that intimidation may vitiate consent and render the contract valid, the following requisites must concur: 1. that the intimidation must be the determining cause of the contract or must have caused the consent to be given 2. that the threatened act be unjust or unlawful 3. that the threat be real and serious; there being an evident disproportion between the evil and the resistance which all men can offer, leading to the choice of the contract as the lesser evil, 4. that it produces a reasonable and well grounded fear from the fact that the person from whom it comes has the necessary means or ability to inflict the threatened injury. Elements to consider in determining the degree of intimidation 2. sex of the person 3. condition of the person

1. age of the person

Threat to enforce one's just or legal claim a threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. Article 1336 Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract. Article 1337 There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. Undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. Circumstances to be considered between the parties or,

1. the confidential, family, spiritual and other relations

2.the fact that the person alleged to have been unduly influenced was suffering from mental weakness or 3. the fact that the person alleged to have been unduly influenced was ignorant or 4. the fact that the person alleged to have been unduly influenced was in financial distress. Article 1338-Causal Fraud There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. Dolo causante or causal fraud is basically a deception used by one party prior to or simultaneous with the contract, in order to secure the consent of the other. The deceit employed must be serious. Dolo incidente or incidental fraud In contradistinction, only some particular or accident of the obligation is referred to by incidental fraud or dolo incidente, or that which is not serious in character and without which the party would have entered into the contract anyway. Dolo causante or causal fraud vs incidental fraud Dolo causante or Causal Fraud: referred to in Article 1338: are those deceptions or misrepresentations of a serious character employed by one party and without which the other party would not have entered into the contract. Incidental Fraud: referred to in Article 1344: are those which are not serious in character and without which the other party would still have entered into the contract. Dolo causante or causal fraud vs incidental fraud determines or is the essential cause of the consent

Causal Fraud or Dolo causante:

Incidental Fraud: refers only to some particular or accident of the obligations Dolo causante or causal fraud vs incidental fraud Causal Fraud or Dolo causante: Effects of dolo causante are the nullity of the contract and the indemnification of damages Dolo Incidente or Incidental Fraud obliges the person employing it to pay damages. Requisites to Causal Fraud 1. it must have been employed by one contracting party upon the other 2. it must have induced the other party to enter into the contract 3. it must have been serious 4. it must have resulted in damage and injury to the party seeking annulment. Article 1339:Principle of concealment Failure to disclose facts, when there is a duty to reveal them as when the parties are bound by confidential relations, constitutes fraud.

Insidious words or machinations constituting deceit are those that ensnare, entrap, trick or mislead the other party who was induced to give consent which he or she would not otherwise have given. Article 1340 The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. Article 1341 A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. Meaning of Article 1341 General rule: Misrepresentation by a third person does not vitiate consent. Exception: Expression of an opinion signify fraud, if made by an expert and the other party has relied on the former's special knowledge. Article 1342 Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. Article 1343 Misrepresentation made in good faith is not fraudulent but may constitute an error. Article 1344 In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. Fraud refers to all kinds of deception-whether through insidious machination, manipulation, concealment or misrepresentation-that would lead an ordinarily prudent person into error after taking the circumstances into account. Fraud vs Bad Faith Fraud must be established by clear and convincing evidence; mere preponderance of evidence is not adequate. Bad Faith imports a dishonest purpose or some moral obliquity (deviation from moral rectitude) and conscious doing of a wrong, not simply bad judgment or negligence. It is synonymous with fraud, in that it involves a design to mislead or deceive another. Article 1345 Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. Article 1346 An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.

Absolute simulation there is colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract. Relative simulation If the parties state a false cause in the contract to conceal their real agreement, the contract is relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest. Two juridical acts involved in relative simulation 1. ostensible act - is the contract that the parties pretend to have executed 2. hidden act-is the true agreement between the parties Article 1347. Object of Contracts All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which a...