Notes on Contracts (Arts. 1305-1422) PDF

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TITLE II: CONTRACTSARTS. 1305 - 1422 , CIVIL CODECHAPTER 1 : GENERAL PROVISIONContract ( 1305 ) A meeting of minds between two parties whereby one binds himself, with respect to the other, to give something or to render some service, or to refrain from doing some particular thing.Distinction of con...

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TITLE II: CONTRACTS

5. According to obligat obligatory ory force

ART ARTS. S. 1305-1422, CIVIL CODE

a. Valid

CHAPTER 1: GENERAL PROVISION

b. Rescissible

Contract ((1305) 1305)

c. Voidable

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A meeting of minds between two parties whereby one binds himself, with respect to the other, to give something or to render some service, or to refrain from doing some particular thing.

d. Unenforceable e. Void or inexistent 6. According to person ob obliged liged

Distinction of contr contract act vs. obligation (1305) 1. Contract is one of the sources of obligation; obligation is the legal tie or relation itself that exists after a contract has been entered into.

a. Unilateral b. Bilateral 7. According to risks

2. There can be no contract if there is no obligation accepted in return for some benefit to be enjoyed; but an obligation may exist without a contract. Distinction of contr contract act vs. agreement (1305)

a. Commutative b. Aleatory 8. According to liab liability ility

1. Contracts are binding agreements through legal proceedings in case the other party does not comply with his obligation under the agreement. 2. Those agreements which cannot be enforced by action in the courts of justice are not contracts but merely moral or social agreement. -

a. Unilateral b. Bilateral 9. According to statu statuss a. Executory b. Executed

Agreements to stroll at mall; agreement to go to a birthday party.

10. According to dep dependence endence to another contr contract act

“All contracts are agreements but not all agreements are contracts”

a. Preparatory

Classification of contr contract act (1305)

b. Accessory

1. According to name or designat designation ion

c. Principal

a. Nominate

11. According to dep dependence endence of part of contract to other parts a. Indivisible

b. Innominate

b. Divisible

2. According to perf perfection ection a. Consensual b. Real

Valid Contract (1 (1306) 306) 

3. According to cause a. Onerous b. Remuneratory or remunerative c. Gratuitous 4. According to fform orm

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Those that meet all legal requirements and limitations for the type of agreement involved and are, therefore, legally binding and enforceable. The contracting parties may establish stipulations, clauses, terms and conditions as they deemed convenient, provided they are not: o Contrary to law o Contrary to moral o Contrary to good customs o Contrary to public order o Contrary to public policy

a. Informal, common or simple b. Formal or solemn

Classification of contr contracts acts according to iits ts name or designation

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Nominate Contr Contract act (1307) 

Has a specific name or designation in law.

Innominate Contr Contra a ct (1307) 

1. do ut facias (I give that you may do) 2. facto ut des (I do that you may give) 3. facto ut ffacias acias (I do that you may do) Rules Governi Governin ng Innominate Cont Contract ract (1307) 1. The agreement of the parties 2. The provision of the civil code on obligations and contracts 3. The rules governing the most analogous contracts 4. Customs of the place Both parties must be bound (1308)

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A contract must bind both parties in order that it can be enforced against either. Its validity and compliance cannot be left to the will of one of them. It is a meeting of the minds, and, therefore must be mutual consent.

Determination of P Performance erformance by a Third P Pers ers erson on (1309) “J sold his vintage car to K. The parties agreed that L, an independent assessor, would be the one to establish the selling price of the vintage car.” -

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Has no specific name or designation under the law.

Kinds of Innominate Contr Contract act

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“J is indebted to K for P10,000. L is the heirs of J. If J dies, is L liable to pay K?”

Once the price has been determined by L, it must be made known to J and K who will be bound by the same.

The determination shall not be obligatory if it iiss evidently inequitable. In such case, the court courtss shall decide what is equitable under the circumstances. ((1310) 1310) Per Persons sons Affected by a Cont Contract ract (131 (1311) 1)

Yes, L should pay K. What is the limit of the liabilit liability y of L? Not more than the value of L’s inheritance.

Exceptions: - When the rights and obligations arising from the contract are not transmissible: a. By their nature (contracts involving personal qualifications painting, singing) b. By stipulation (in accordance with the principle of freedom to contract) c. By provision of law (as in agency, partnership, and commadatum, when death extinguishes the legal relationships) Case when Str Strangers angers or 3rd Pe Persons rsons Affected by a Contract (1311) 1. In contracts containing a stipulation in favor of a third person (stipulation pour autrui) 2. In contracts creating real rights 3. In contracts entered into defraud creditors 4. In contracts which have been violated at the inducement of a third person. Stipulation P Pour our Autrui (1311) 

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 communicated his acceptance to the obligor before its revocation by the oblige or the original parties.

“It was agreed that J will build a condominium unit for K. The condo will boost the value of the adjoining properties. In anticipation of the benefit, L purchased more lots near the place where the condo is to be built. L plants to re-sell the lots at profitable prices when the condo is completed. J was not able to fulfill his obligation. Consequently, L’s expectations will not materialize.”

- Can L sue J for bre brea a ch of contr contract? act? No, the fact As a general rul rule e , a party’s rights and obligation are that L incidentally derive some benefit from the transmissible to the successors. contracts give him no right to sue J for breach of  Contracts take effect only between the parties, their contract. assigns and heirs, meaning, only the parties, their assigns and heirs can have rights and obligations under “J is obliged to pay K P10,000 after one year at 10% interest. the contract. Their agreement provides that the interest of P1,000 will be paid by J to L who is indebted to K for the same amount. L “J is indebted to K for P10,000” communicated his acceptance to J before any revocation of the stipulation is made.” - If K dies, who should J pay? J should pay the heirs of K. - L is not a party to the contract at the beginn beginning, ing, is - If K assigns his credit to L, then J should pay L. L can sue K? Yes, from the moment communication 

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of acceptance is duly made, L becomes the party of the contract. Third persons are bound b by y contracts creat creating ing Real Rig Right ht (1312) Real Right is binding against the whole world and attaches to the property over which it is exercised wherever it goes. 

Real rights include ownership, use, pledge, mortgage and predial servitude. o Usufruct gives a right to enjoy the property of another with the obligation of preserving its form and substance, unless the title constituting it or the law otherwise provides o Predial Servitude- a charge they invested for the use and utility of another.

“A land owner by K was mortgaged to L. The mortgage was duly registered. K sold the same land to M. Is M bound by the mortgage contract between K and L?” -

Yes, because the right of L to the mortgage is a real right. A real right follows the property wherever it goes.

Right of a Creditor to Dispute Contr Contracts acts Intended to Defraud Them (1313) “K owes L P3,000,000. In order that L may not attached his house and lot in payment of his obligation, K sold it to M. K has no other property. What right does L has in order that he may be paid the P3,000,000?” -

1. Prepar Prepara a tion or negotiation - includes all the steps taken by the parties leading to the perfection of the contract. 

Parties have not yet arrived at any definite agreement

2. P Perfection erfection or birth - when the parties have come to a definite agreement or meeting of the minds regarding the subject matter and cause of the contract. 3. Consummation or terminat termination ion - parties have performed their respective obligations and the contract may be said to have been fully accomplished or executed, resulting in the extinguishment or termination thereof. 

Be terminated after its perfection, not by performance, but by mutual agreement.

Effect of perfe perfection ction of the contr contract act 1. To the fulfillment of what has been expressly stipulated 2. to all the consequences which according to their nature, may be in keeping with good faith, usage and law. Unauthorized contr contracts acts are u unenforceable nenforceable ((1317) 1317) 

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As a gener general al rule rule, a person is not bound by the contract of another which he has no knowledge or to which he has not given his consent. Free will of the parties and only he who enters into the contract can be bound thereby. 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 hi,, before it is revoked by the other contracting party.

M, who is a stranger to the contract between K and L, is given by law the right to ask for rescission Unauthorized contr contracts acts can be cure cured d only by rratification atification (1317) or cancellation of the sale in order that he may paid by his claim.  It cannot be cured except by the subsequent ratification of the person in whose name the contract rd Liability of 3 P Person erson Responsible for Breach of Cont Contract ract (1314) was entered into or by his duly authorized agent and not by any other person not so empowered. “K and L have a contract that K would sell his sports car to L. M  Ratification must be clear and express not to admit of convinced K to sell the sports car to N. Can L sue K for breach any doubt or vagueness. of contract? Can L sue M for damages?” -

Yes, L can sue K for breach of contract. Yes, L can sue M for damages for he is the one who convinced.

Classification of contr contracts acts according to perfe perfection ction (1315) 1. Consensual contr contra a ct - perfected by mere consent.

When a person is bound by the contract of a another nother (1317) 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) 2. He must act within his power

2. Real Contract - perfected by the delivery of the thing subject matter of the contract. 3. Solemn Contr Contra a ct - requires compliance with certain formalities prescribed by law, such prescribed form being thereby an essential element thereof. Ex. Donation of real property which must be in a public instrument.

CHAPTER 2: ESSENTI ESSENTIAL AL REQUISITES OF CONTRACTS GENERAL PROVISIONS Requi Requiss ite of Contr Contrac ac acts ts (1318)

Stage in the life of a cont contract ract

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1. Consent of the contracting parties

2. Option P Period eriod - The period given within which the offeree must accept the offer.

2. Object certain which is the subject matter of the obligation 3. Cause of the obligation which is established 4. Not contrary to law, morals, good customs, public order or public policy

3. Option Money - the money paid or promised to be paid in consideration for the option. 

SECTION 1 - Consent Consent (1319) 

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The meeting of minds, or mutual assent between the parties on the subject matter and the cause which are to constitute the contract even if neither has been delivered. Mutual assent (or consent or agreement) takes place when there is offer of acceptance.

Offer (1319)

It is not to be confused with earnest money which is actually a partial payment of the purchase price is considered as proof of perfection of the contract.

“J made an offer to sell his diamond ring to K for a special price of P50,000. J gave K 15 days to make up his mind.” -

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Should J want to ca cancel ncel the offer on the 1 10 0t h day day,, can he still withdra withdraw? w? Yes, J can as long as the offer has not been accepted. Suppose K paid an amount in co consideration nsideration o off the 15day period. Can J withdr withdraw aw the offer on the 10th day when K had not accepted the of offer? fer? No, the option is covered by consideration.

Advertisements (1 (1325/1326) 325/1326) A proposal made by one party (offerer) to another (offeree), indicating a willingness to enter into a  Business advertisements of thi things ngs for sale are not contract. definite offers, but are merely invitations to the reader  It is more than an expression of desire or hope. to make an offer.  It is really a promise to act or to refrain from acting, on  Advertisements ffor or bidders are simply invitations to condition that the terms thereof are accepted by the make proposals, wherein the advertiser is not bound to person to whom it is made. accept highest or lowest bidder, unless the contrary  The offer must be certain or definite so that the liability appears. or the rights of the parties be exactly fixed.  It is necessary that the acceptance be identical with Pe ople Who Cannot Giv Give e Consent (1327) the offer to create a contract without any further act 1. Unemancipated Minors on the part of the offeror.  An offer made in jest or in anger, or while emotionally 2. Insane or demented persons upset or in other ways indicating that the some was not seriously intended is not a valid offer. 3. Deaf-mute who do not know how to write Acceptance (1319-1323)  A person, who does not know how to write, does not know how to read.  The manifestation by the offeree of his assent to all the terms of the offer. Lucid Interv Intervals als and State of Drunkenness or Hypnotic Spell  Acceptance must be clear, absolute, unconditional or (1328) unqualified.  Acceptance may be express or implied. Lucid Interv Interval al - a temporary period of sanity, during which, a  The offerer may fix the time, place and the manner of contract entered into by an insane or demented person is valid. acceptance, all of which must be complied with.  An offer made through an agent is accepted from the Drunkenne Drunkenness ss and Hypnotic Spell - these conditions are time acceptance is communicated to him. equivalent to temporary insanity, hence, the law considers a  An offer may be revoked or withdrawn at anytime contract entered during these conditions voidable. before it is accepted by merely communicating the intention. Voidable Contr Contract act (1330)  At the time acceptance is communicated, both parties,  A contract that has legal effect and force when it is offerer and offeree, must be living and capacitated. made, but is liable to be subsequently annulled or set aside by the courts through the process of rescission.  A contract where consent is given through mistake, violence intimidation, undue influence, or fraud is voidable. Options (1324) Mistake (1331) 1. Option Contr Contra a ct - giving a person for a consideration a certain period within which to accept the offer to the offerer. 

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It is the false notion of a thing or a fact material to the contract. An erroneous belief, at contracting, that certain facts are true. It can be argued as a defense, and if raised successfully can lead to the agreement in question being found void.

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Effect of Kno Knowledge wledge of Risk (1333) 

Mistakes Which Do Not Vi Vitiate tiate Consent (1331) 1. Error as regards the incident of a thing or accidental qualities thereof. e.g. accessibility of a residential house to means of transportation, if not taken as the principal consideration. 2. Mistakes as to quality or amount unless it goes to the essence of the contract. 3. Error as regards the motives of the contract unless the motives constitute a condition or cause of contract. “K sells his car for P500,000 to L. For K, the cause or consideration is the P500,000 But K’s motive or private reason is to use the money to buy another car. The motives are not always the cause of the contract.” 4. Mistakes as regards the identity or qualifications of a party, except when such identity have the principal cause of the contract. e.g. Obligations to do requiring personal qualifications 5. Error which could have been avoided by the party alleging it. “J is selling his old car to K provided that L will sell him his new car. J heard from M that L is willing to sell him his new car. After the date of sale was executed between J and K, J knew that L is not selling his new car. Can J invoke mistake in order to annul the sale?” -

No, J cannot, he should have avoid the mistake by being diligent.

Burden of Proof in Case of Mi Mistake stake or Fr Fra a ud (1332) General Ru Rule: le: 

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When a person signs a document, it is presumed that he does so with full knowledge and understanding of the same. He is bound by all its items. If he alleges fraud or mistake, the burden of proof is upon him.

Exception: 

When one of the parties is unable to read or if the contract is in a language not understood by him.

It is the party enforcing the contract who is duty-bound to prove that there has been no fraud or mistake and the terms of the contract have been fully explained.

If party knew beforehand the doubt, contingency or risk affecting the object of the contract, it is to be assumed that he has willing to take chances and cannot claim mistake.

“M sold his farm to N. Before the contract of sale was finalized, N was informed that the farm is drawn-in a litigation where O is the petitioner. If O recover the farm later, can N claim mistake in his contract?” -

No, because he knew the risk that the farm might be recover later by O.

When Mistake of Law Vitiates Consent (1334) Mistake of Law - arises from an ignorance of some provision of law, or from an erroneous interpretation of its meaning, or from an erroneous conclusion as to the legal effect of an agreement, on the part of one of the parties. Effect of Mi Mistake stake of Law - As a gener genera a l rule, mistake does not invalidate consent because “ignorance of the law excuses no one from compliance therewith”. Mistakes Which Do Not V Vitiate itiate Consent (1331) 1. Error as regards the incidents of a thing or accidental qualities thereof. 2. Mistakes as to quality or amount unless it goes to the essence of the contract. 3. Error as regards the motives of the contract unless the motives constitute a condition or cause of contract. 4. Mistakes as regards the identity or qualifications of a party, except when such identity have the principal cause of contract. 5. Error which could have been avoided by the party alleging it. Violence and Intim Intimidation idation (1335) Violence or F Force orce - The employment of serious or irresistible physical force. “M signed a contract because each time he refuses; his head is submerged in drum full of water until he loses breath. This is done every time he declines. In this case, M must not given consent. He signed but his feelings obviously different.” Intimidation...