Contracts FINALS EXAM REVIEWER (OBLICON) PDF

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CONTRACTSArticle 1305. DEFINITIONContract (Article 1305) is a meeting of the minds between two persons whereby one binds himself to give something or render some service. there must be at least two persons or parties DISTINGUISHED FROM OBLIGATIONContract is one of the sources of obligation (1157),wh...

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CONTRACTS

Article 1305. DEFINITION

Contract (Article 1305) - is a meeting of the minds between two persons whereby one binds himself to give something or render some service.

- there must be at least two persons or parties

DISTINGUISHED FROM OBLIGATION

Contract is one of the sources of obligation (1157),while obligation is a legal tie that exists after a contract is entered into.

NO CONTRACT = NO OBLIGATION. But an Obligation may exist without a Contract.

DISTINGUISHED FROM AGREEMENT

Contract are enforceable agreements through legal proceedings. All contracts are agreement but not vice versa.

STAGES

1. Preparation – all the steps taken by the parties leading to the perfection of the contract. Parties have not yet arrived to an agreement.

2. Perfection – when parties have come to an agreement or meeting of the minds

3. Consummation – when the parties have performed their respective obligations

CHARACTERISTICS OF CONTRACT

1. Autonomy (Art. 1306) – where there is a sense of freedom; contracting parties may establish contract as long as it is not contrary to law, public policy, morals.

Limitations: 1. Law – contract entered into must conform to an applicable statute

2. Police power – contract shall not contravene morals, good customs, public order or policy.

2. Consensuality (Art. 1315, sent.1) – perfected by mere consent

* Classification of contracts according to perfection

1. Consensual – like sale, lease, agency

Art. 1316 2. Real – perfected by DELIVERY of the thing - those that are deposit (safe keeping), pledge (sanla), commodatum (pahiram).

3. Mutuality (Art. 1308) – that contract is binding to both parties

- a contract which its fulfillment or extinguishment is dependent upon the will of ONLY ONE of the parties is VOID.

- no party can renounce or violate the law of the contract without the consent of the other

4. Obligatoriness (Art. 1315) – contract is complied with good faith (Art. 1157)

- parties are also bound to all the consequences

5. Relativity (Art. 1311) –

GENERAL RULE: Contracts take effect only between the PARTIES, their ASSIGNS and HEIRS

EXCEPTIONS:

STIPULATION POUR AUTRUI

Requisites of stipulation pour autrui: 1. If the contract has STIPULATION 2. re IN FAVOR of a THIRD person 3. the contracting parties has CLEAR AND DELIBERATE CONFERMENT OF SUCH FAVOR upon the third person 4. Third person COMMUNICATED his acceptance to such stipulation

Stipulation pour autrui is a stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its fulfillment provided he communicates his acceptance to such.

Classes of stipulations pour autrui:

1. those intended for the sole benefit of a person

(ex. A leases a house and told C that ¼ of its rentals will be given to him (c) )

2. those where an obligation is due from the promise to the third person which former seeks to discharge

Ex. A owes P10,000.00 to B with a monthly interest of 14%. it was agreed upon that the P1,400 will be given to S to whom B is indebted of the same amount.

ACCION DIRECTA

Article 1313 – creditors are protected in cases of contracts intended to defraud them 1. Lessor vs. sub lessors – Arts. 1651, 1652

Art. 1651 example:

A (lessor) leased B (lessee) a room. B find it too large for him, hence, he subsequently leased it to C (sub lessee; making B a sub-lessor). Hence, C will be liable for all the acts agreed upon originally by A and B with regards to the use and preservation of the thing leased.

2. Laborers/materialmen vs. Owner – Art. 1729

Ex. S (owner) hired X (contractor) who hired A and B (laborers) for the construction of S's building. If X do not pay A and B their compensation, A and B can go after S.

3. Negotorium gestio – Arts. 2150, 2151 (Management of a property without authority)

Ex. A and B are two land owners. A was out of town. There came a raging storm. B, a generous neighbor, takes care of A's land while the latter's away. So B can reimburse to A to whatever liability.

4. Article 1314 *example ni Sir, A is the exclusive distributor ng Nike Shoes; while X, induces the contractor of A to also allow him sell Nike shoes in a lower price, without the knowledge/consent of A.

ARTICLE 1317 – UNAUTHORIZED/ DEFECTIVE CONTRACTS

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Instance when the contract is entered into the name of another who is not the authorized person or representative

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Unenforceable in nature

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But can be cured by ratification

Article 1318 ESSENTIAL REQUISITES OF CONTRACTS - no contract unless the following elements are present:

CONSENT (Article 1319)

- conformity of the wills of both parties – manifested by meeting of the offer and the acceptance

Offer – a proposal made by one party to another to enter into a contract.

Acceptance – manifestation by the offeree of his assent to the terms of the title offer. Without it, no meeting of the minds.

Article 1320. Acceptance may be express or implied

Article 1321. the person making the offer may fix the time, place and the manner of acceptance, all must be complied with.

Article 1322. If offer is made thru an agent, the offer is accepted from the time the same is communicated.

Article 1323. When does an offer becomes ineffective?

1. death 2. civil interdiction 3. insanity 4. insolvency OF EITHER PARTY

Article 1324. CONTRACT OF OPTION; OPTION PERIOD; OPTION MONEY

– when the period of the offer's acceptance is certain, it is withdrawable until it is not yet accepted

Article 1325 and Article 1326. BUSINESS ADVERTISEMENTS NOT DEFINITE OFFERS, ONLY MERE INVITATION.

Who cannot give consent to a contract? (Article 1327).

1. unemancipated minors;

2. insane or demented persons;

3. deaf-mutes/illiterates

Article 1328.

– contracts entered into during lucid interval is VALID

– during drunkenness or hypnotic spell is VOIDABLE

ARTICLE 1330. Consent given thru MISTAKE (1331), VIOLENCE (1335 p.1), INTIMIDATION (1335, p.2/1336), UNDUE INFLUENCE (1337) OR FAUD (1338) is VOIDABLE!

ARTILE 1331. MISTAKE OR ERROR

– the false notion of thing or a fact material to the contract

Mistake of fact to which law refers:

1. substance of the thing which is the object of the contract;

2. conditions which have principally moved one or both parties to enter into contract;

3. the identity of one of the parties provided in the same was the principal cause of the contract

ARTICLE 1332. BURDEN OF PROOF IN CASE OF MISTAKE OR FRAUD

– THE PARTY ENFORCING THE CONTRACT has the duty to show that there is no mistake or fraud on the terms of the contract

– if a party knew about the doubt, contingency or risk affecting the object of the contact, it is presumed that he was willing to take a chance (ARTICLE 1333).

ARTICLE 1334. MISTAKE OF LAW - arises from an ignorance of some provision of law, or from an erroneous interpretation of its meaning

– EFFECT: does not invalidate consent

– APPLICATION: 1. when the error is mutual 2. it must be as to the legal effect of an agreement 3. it must frustrate the real purpose of the parties

ARTICLE 1335. VIOLENCE & INTIMIDATION TO VITIATE CONSENT

Violence – requires physical force

Intimidation – there is a reasonable and well-grounded fear of an evil that is imminent and grave upon a person or property so a person will enter into a contract

ARTICLE 1337. UNDUE INFLUENCE - when a person takes improper advantage of his power over the will of another

ARTICLE 1338. FRAUD

Causal fraud (dolo causante) - employed prior to or simultaneous to the consent or creation of the contract.

REQUISITES: 1. There must be MISREPRESENTATION (Art. 1338 – thru insidious words or machinations) or CONCEALMENT (Art. 1339 – failure to disclose facts).

2. It must be serious (Art. 1344) - in order that fraud may make a contract VOIDABLE, it must be serious.

3. it must have been employed by only one of the contracting parties (Art. 1342) * misrepresentation by a third person does not vitiate consent, unless it creates substantial mistake and the same is mutual.

4. it must be made in bad faith or with intent to deceive (Art. 1343)

5. it must have induced the consent of the other contracting party (Art. 1338)

6. it must be alleged and proved by clear and convincing evidence

FRAUD BY CONCEALMENT (Art. 1339) - a neglect or failure to communicate that which a party to a contract knows and ought to communicate constitute concealment.

- when this arises, the injured party has the right to rescind or annul the contract

Art. 1341 - Expression of opinion - a mere expression of opinion does not signify consent, unless made by an expert and the other party has relied on the former's special knowledge

TWO KINDS OF FRAUD IN MAKING OF A CONTRACT (Art. 1344)

1. causal fraud – which may be a ground for annulment of a contract, but also gives rise for action for damages 2. incidental fraud – renders only the party who employs it liable for damages (Art. 1344, par. 2) Article 1170 – refers to incidental fraud (dolo incidente)

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Committed in the performance of an obligation (at the stage of consummation) Ex. When you were shown a pendant and it looked real so you entered into buying it but the seller gave you a fake pendant instead.

It is comparable to causal fraud (dolo causante, Art. 1338)

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means a fraud employed in the execution of contract which vitiates consent and makes the contract voidable the other party is induced by word to enter into the contract (happens at the stage of perfection)

SIMULATION OF A CONTRACT (Art. 1345) - the act of deliberately deceiving other, by feigning or pretending by agreement, the appearance of a contract which is neither inexistent or concealed.

KINDS OF SIMULATED CONTRACTS

1. Absolute – when the contract does not really exist and the parties do not intend to be bound at all.

Ex. D is indebted to C. Upon learning that C is going to enforce his credit, D pretended to sell his land to F. D did not receive any single centavo for the transaction and he continued in possession of the land as the contract was merely simulated or fictitious.

2. Relative – when the contract entered into by the parties is different from their true agreement

Ex. C and D entered into a contract of mortgage. But wanting to hide the mortgage, it was made to appear in the form of deed of sale. (Example ni Sir about sa kotse na kukunin din ng creditor, ibabalik lang pag nagbayad si debtor)

OBJECT OF A CONTRACT (Article 1347)

- the subject matter - the object of every contract is the obligation created

KINDS OF OBJECT IN A CONTRACT:

1. Things (like sale)

2. Rights (like assignment or credit)

3. Services (like agency)

Requisites of THINGS as Object 1. must be within the commerce of men 2. must not be impossible 3. must be in existence or capable of 4. must be determinate (not generic)

Requisites of SERVICES as Object 1. must be within the commerce of men 2. must not be impossible 3. must be determinate

Requisites of RIGHTS as Object Gen Rule: All rights may be the object of a contract.

EXCEPTION: When they are transmissible by their nature, stipulation or provision of law (1311). Ex. 1. things outside of commerce of men – like things of public ownership (sidewalks, bridges, streets)

FUTURE INHERITANCE (Art. 1347, par. 2)

- any property or right, not in existence at the time of the contract, that a person may inherit in the future.

- unless expressly stipulated by law, contract concerning future inheritance is VOID.

- inheritance ceases to be in future upon death of the descendant.

IMPOSSIBLE THINGS cannot be OBJECT of a contract (1348)

1. Physical – when the thing or service in the very nature of things cannot exist

a. Absolute – when the act cannot be done in any case (ex.flying) b. Relative – when it arises from the special circumstance of the case (ex. To make payment to a dead person) 2. Legal – when the thing or service is contrary to public morals, law, good customs, public order or policy (ex. Selling prohibited drugs)

EFFECT: Absolute – nullifies the contract Relative – if temporary, does not nullify the contract; if permanent, it annuls the contract

Art. 1349 The object of a contract must be determinate as to its KIND but the quantity need not be determinate.

CAUSE OF CONTRACTS (1350)

Causa – the essential or more proximate purpose which contracting parties have in view at the time of entering into a contract

CLASSIFICATION OF CONTRACT ACCORDING TO CAUSE

1. Onerous - one the cause of which, for each contracting party, is the prestation or promise of a thing or service by the other.

- in this contract, both parties are obligated to each other

Ex. B & E signed a document which in effect stated that if T was allowed to live with them, and T should marry or leave them, she would receive ½ of their property.

Should the contract be given effect? YES. Because the contract is more of a donation con cause onerosa which means it is governed by the provisions of the Civil Code relating to contracts.

2. Renumenatory – one the cause of which is the service or benefit which is renumerated. The purpose is to give reward the service that had been previously rendered by the party renumerated.

3. Gratuitous – one the cause of which is the mere liberality of the benefactor or giver such as commodatum, pure donation and the like.

Art. 1351 – MOTIVE - purely personal or private reason which a party has in entering into a contract

CAUSE

MOTIVE

Juridical reason of a contract

Psychological and purely personal reason

Direct reason

Indirect reason

Always known to the other contracting party

May be unknown

Essential element of a contract

Not an essential element

Affects the contract's validity

Does not render the contract void

Art. 1352. REQUISITES OF CAUSE

1. It must exist (no cause, no effect)

2. It must be lawful – not contrary to law, moral, xxx (Art. 1354)

3. It must be true (Art. 1353)

Effect of absence of cause - contracts without cause confers no right and produce no legal effect

Effect of inadequacy of cause/failure of cause - does not render a contract void Ex. failure to pay the full amount stipulated in a contract does not nullify the contract immediately.

Effect of Illegality of cause - makes the contract null and void Ex. A promise of marriage based upon carnal connection

Effect of falsity of cause (Art. 1353) - “statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful”.

- the contract is void because the same actually does not exist

Ex. X promised to give Y P1,000.00 as payment for the past services allegedly rendered by Y which in truth have not been rendered. Here, the cause of X, which is the renumeration, is erroneous as it is based upon facts believed to be existing but really inexistent.

Is it necessary for the cause to be expressly stated?

- No. In such instance, the presumption is that the cause exists and is lawful, unless the debtor proves the contrary (Art. 1354)

LESION (Art. 1355) - any damage caused by the fact that the price is unjust or inadequate

Gen. Rule – does not invalidate the contract Exp. - when there has been fraud, mistake or undue influence / or in cases specified by law. NOTE: Lumalabas sa exam

Various incidents of causal incidents in a contract:

1. Non-existent cause - VOID (1352, 1st part)

2. False cause in an ABSOLUTELY simulated contract - VOID (1346, 1353)

3. False cause in a RELATIVELY simulated contract - parties are bound to their real agreement (1346, 1353) - Remedy: REFORMATION (1359)

4. Inadequate cause (Art. 1355) ex. Nagbenta ka ng lupa worth 1M, binenta mo ng 100k or 1/10 of its value - shall not invalidate contract unless there's fraud, mistake or undue influence - Remedy: REFORMATION (1470) - legal basis para maghabol ang creditor – Art. 1381

5. Failure of cause - if the seller failed to realize the price or does not deliver the thing to buyer = BREACH -Remedy: RESCISSION

FORM OF CONTRACTS Form of a contract – the manner in which a contract is executed.

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maybe in oral, writing or partly oral and partly in writing.

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if in writing, it may be in a public or private instrument

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all its terms must be in writing

GENERAL RULE: Contracts may be in any form as long as the three essential elements are present

WHEN IS FORM NECESSARY? **EXCEPTIONS to the Gen. Rule:

1. When the law requires a certain form for it to be valid.

Ex. Donation of real property – public instrument Donation of personal property – in writing Sale of land thru an agent – in writing Contract of antichresis – in writing Stipulation to pay interest – in writing, otherwise, no interest due Contract of partnership – in a public instrument Transfer of sale of large cattle – registered; in a public instrument Negotiable instruments – in writing

2. when the law requires form for it to be enforceable (Art. 1403, p.2) - if the contract is not in writing, it is valid but it cannot be proved and cannot be enforced unless ratified.

3. when form is required for it to be convenient to the parties or for the third party (Art. 1357). - an action that can be used by parties to compel each other to follow a certain form of their contract for their own conveniences

Art. 1358 – Documents that must appear in a public document

REFORMATION OF INSTRUMENTS (Art. 1359)

Reformation – remedy by means of which a written instrument is amended or rectified so as to express the real agreement when by reason of fraud, mistake or undue influence fails to express such true intention

REQUISITES: - for reformation to be availed of as remedy, the following should be present:

1. there is meeting of the minds of the parties; 2.written instrument that does not express the true agreement; 3. failure to express true intention due to fraud, mistake, inequitable conduct or accident; 4. the relief are put in issue by the pleadings; and, 5. there is a clear and convincing evidence of mistake, fraud, xxx.

INSTANCES when reformation is the remedy:

1. mutual mistake (1361) - when both parties causes the failure of the instrument to disclose their real agreement...