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CONTRACTSArticle 1305. DEFINITIONContract 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 obligatio...

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CONTRACTS Article 1305. DEFINITION

* Classification of contracts according to perfection

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

1. consensual – like sale, lease, agency

- there must be at least two persons or parties

- those that are deposit (safe keeping), pledge (sanla), commodatum (pahiram).

DISTINGUISHED FROM OBLIGATION.

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

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.

Art. 1316 *2. Real – perfected by DELIVERY of the thing

- 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

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

4. Obligatoriness (Art. 1315) – contract is complied with good faith (Art. 1157) - parties are also bound to all the consequences

STAGES

5. Relativity (Art. 1311) –

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

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

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

EXCEPTIONS: *STIPULATION POUR AUTRUI

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

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 EXAMPLE: 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.

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 CONTRACTS – instance when the contract is entered into the name of another who is not the authorized person or representative – Unenforceable in nature – but can be cured by ratification

Art. 1313 – creditors are protected in cases of contracts intended to defraud them

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

1. Lessor vs. sub lessors – Arts. 1651, 1652

1. CONSENT (Art. 1319) - conformity of the wills of both parties

Art. 1651 example:

– manifested by meeting of the offer and the acceptance

ACCION DIRECTA

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

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

Example: 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 and go after S. 3. Negotorium gestio – Arts. 2150, 2151 example: 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 laibility.

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

4. Article 1314

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

*example ni Sir, A is the exclusive distributor

– 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.

or risk affecting the object of the contact, it is presumed that he was willing to take a chance (ARTICLE 1333).

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

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

1. unemancipated minors;

– EFFECT: does not invalidate consent

2. insane or demented persons;

– APPLICATION:

3. deaf-mutes/illiterates

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 1328. – contracts entered into during lucid interval is VALID – during drunkenness or hypnotic spell is VOIDABLE

ARTICLE 1335. VIOLENCE & INTIMIDATION TO VITIATE CONSENT Violence – requires physical force

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

Intimidation – there is a reasonable and wellgrounded 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.

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) Art. 1170 – refers to incidental fraud (dolo incidente) - 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.

* misrepresentation by a third person does not vitiate consent , unless it creates substantial mistake and the same is mutual.

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

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

SIMULATION OF A CONTRACT (Art. 1345)

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

- the act of deliberately deceiving other, by feigning or pretending by agreement, the appearance of a contract which is neither inexistent or concealed.

3. it must have been employed by only one of the contracting parties (Art. 1342)

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

KINDS: 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. Absolute – when the contract does ot 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 lng pag nagbayad si debtor) OBJECT OF A CONTRACT (Art. 1347) - the subject matter - the object of every contract is the obligation created

- unless expressly stipulated by law, contract concerning future inheritance is VOID. - inheritance ceases to be in future upon death of the decendant IMPOSSIBLE THINGS cannot be OBJECT of a contract (1348) 1. Physical – when the thing or service in the very nature of things cannot exist

KINDS OF OBJECT IN A CONTRACT: 1. Things (like sale) 2. Rights (like assignment or credit)

a. Absolute – when the act cannot be done in any case (ex.flying)

3. Services (like agency)

b. Relative – when it arises from the special circumstance of the case (ex. To make payment to a dead person)

Requisites of THINGS as Object of a contract

2. Legal – when the thing or service is contrary to public morals, law, good customs, public order or policy (ex. Selling prohibited drugs)

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)

EFFECT: Absolute – nullifies the contract

Requisites of SERVICES as Object

Relative – if temporary, does not nullify the contract; if permanent, it annuls the contract

1. must be within the commerce of men 2. must not be impossible 3. must be determinate

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

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 (1347, par. 2) - any property or right, not in existence at the time of the contract, that a person may inherit in the future.

Art. 1352. Requisites of Cause CAUSE OF CONTRACTS (1350) 1. It must exist (no cause, no effect) Causa – the essential or more proximate purpose which contracting parties have in view at the time of entering into a contract CLASSIFICATION OF ACCORDING TO CAUSE

CONTRACT

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 Psychological and contract purely personal reason Direct reason

Indirect reason

Always known to the May be unknown other contracting party Essential element of a Not an contract element

essential

Affects the contract's Does not render the validity contract void

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

FORM OF CONTRACTS

Various incidents of causal incidents in a contract:

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

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

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

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

- if in writing, it may be in a public or private instrument - all its terms must be in writing

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

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

4. Inadequate cause (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

**EXCEPTIONS to the Gen. Rule:

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

WHEN IS FORM NECESSARY?

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 instrumeny 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 2. unilateral mistake (1362) 3. concealment (1363) - when one party was mistaken and the other knew that the instrument did not state their real agreement but concealed it to the former. 4. mistake by a third party (1364) - when thru ignorance, lack of skill, negligence or bad faith on the part of the third person drafting the instrument and the latter does not express the true agreement ex. stenographer had a mistake in typing the records of the trial 5. mortgage or pledge as a sale (1365) - when two parties agreed upon the mortgage or pledge of real property but the instrument states that the property is sold with right of repurchase.

WHEN IS ALLOWED? (Art. 1366)

REFORMATION

NOT

In cases of: 1. simple donations 2. wills 3. when the real agreement is void INTERPRETATION OF CONTRACTS - determination of the meaning of the terms used by the parties in their contract - involves a question of law - if the language is clear, the contract is interpreted in its literal meaning (Art. 1370) - Evident intention of parties prevail over the terms of contract - in judging the intention of the contracting parties, their contemporaneous and subsequent acts should be principally considered (1371) - sp...