CONTRACTS 1. What are the four most essential characteristics of Contracts?

a. Obligatory Force of Contract (Art. 1315). Once a contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. b. Autonomy of Contract (Art. 1306). The contracting parties are free to enter into a contract and to establish such stipulations, clause, terms and conditions as they may deem convenient, provided they are not contrary to laws, morals, good customs, public order or public policy.

Example: Cui vs. Arellano The waiver signed by Cui, wherein he was to refund the scholarship grant by Arellano University in case he transferred to another school, is contrary to public policy. Scholarships are awarded in recognition of merit and not to attract and keep brilliant students in schools for their propaganda value. To look at such grants as a business scheme to increase the business potential of an educational institution is not only inconsistent with sound public policy but also good morals.
c. Mutuality of Contract (Art. 1308). Essential equality of contracting parties whereby the contract must bind both of them; its validity or compliance cannot be left to the will of one of them.

Example: A leased a certain building to B and C. In the contract, it was stated that B and C can continue occupying the building indefinitely so long as they should faithfully fulfill their obligation of paying the rentals. Here, the contract violates Art. 1308. The continuance and fulfillment of the contract would then depend solely and exclusively upon the uncontrolled choice of B and C between continuing paying rentals or not, completely depriving the owner of all say on the matter,
d. Relativity of Contract (Art. 1311). Contract takes effect only between the parties, their assigns and heirs.

Exception: 1. Stipulation pour autrui (Art. 1311, par. 2). Where the contract contains a beneficial stipulation in favor of a third person; provided that such third person has communicated his acceptance to the obligor before it is revoked. 2. Art, 1312. Where a third person comes into the possession of the object of a contract creating a real right. 3. Art. 1313, Where the contract is entered into in order to defraud a third person 4. Art. 1314. Where the third person induces a contracting party to violate his contract.

2. Consent It signifies 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 must be absolute. Thus, in an offer to sell, parties failed to agree on the size of the land to be sold, there is NO MEETING OF THE MINDS of the parties that would perfect the contract. The acceptance must not QUALIFY the terms of the OFFER.
3. Art 1319, par. 2. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. In relation to Art. 1323, the offer becomes ineffective upon the death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed.

Thus, if X applied for life annuity of P 6,000 at an insurance company in Manila with head office in Canada, and the notice of acceptance was received at the residence of X one day AFTER HIS DEATH, the legal heirs can still recover the P 6,000.00 fee because the contract is not yet perfected, as the offeror was already dead when the notice of acceptance was received. Sample Problem: On March 05, 1956, A wrote a letter to B offering to him the lease of a building. On March 06, 1956 at 1:00 PM, B sent a letter of acceptance which was received by A at 4:00 PM that day. But at 2:00 PM, A had already sent B a letter of withdrawal of the offer which was received by B at 5:00 PM. Was the contract perfected? Here, the contract has not been perfected. The decisive moment to consider in this case is the time when the offeror A had knowledge of the acceptance made by the offeree B. According to law, the contract is perfected only from the moment the offeror has knowledge of the acceptance by the offeree. Consequently, although there was acceptance by B, there was no longer any offer. The contract was not perfected because there was no concurrence between the offer and the acceptance.
4. Art. 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.

Suppose X, the owner of a house and lot in Quezon City, gave an option to A purchase said property for P 100,000 within 90 days from May 1, 1979. A gave X one peso as option money. Before the expiration of the 90-day period, A went to X to exercise his option and to pay the purchase price but C refused because somebody wanted to buy his property for P 150,000.00 and because there was no sufficient consideration for the option. A sued X to compel him to accept payment and execute a Deed of sale in his favor. Here, X should be compelled to accept the purchase price of P 100,000.00. The reason is that there is already a perfected contract. Since there is a consideration for the option, P 1.00, X is now bound by his promise to sell the property to A as the latter exercised his option to buy within 90 days. True, X shall suffer lesion or damage if he is

compelled to execute the contract of sale. True also, the option money of P 1.00 is grossly inadequate. But the law is clear. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. Such circumstance is wanting in this case.
5. Simulation of Contracts (Arts. 1345)

a. Absolute simulation. When the 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 attachments by creditors. b. Relative simulation. When the contracting parties conceal their true agreement, as when a person conceals a donation by simulating a sale of the property to eh beneficiary for a certain consideration.
6. Requisites for a valid OBJECT of a contract. (Object, the thing, right or service which is the subject matter of the obligations which is created or established)

a. b. c. d.

The object should be within the commerce of men The object should be real or possible The object should be licit The object should be determinate, or at least possible of determination, as to its kind.

7. CAUSE of Contract. The why of the contract, or the essential reason which moves the contracting parties to enter into the contract. a. In onerous contracts, the cause is the prestation or promise of a thing or service by the other b. In remuneratory contracts, the cause is the service or benefit which is remunerated c. In contract of pure beneficence, the liberality of the benefactor 8. Exception to the rule that the particular motives of the parties in entering into a contract are different from the cause of the contract? When the contract is conditioned upon the attainment of the motive of either contracting party. In other words, the motive may be regarded as causa when it predetermines the purpose of the contract. (Liguez vs. Court of Appeals) 9. As a general rule, what is the form of a contract in order that it will be of obligatory force? As a general rule, the form in which a contract is executed has no effect upon its obligatory force, provided all of the essential requisites for its validity are present. Exceptions: 1. When the law requires that the contract must be in a certain form in order to be valid; 2. When the law requires that the contract must be in a certain form in order to be enforceable;

Sample Case: (Dauden-Hernaez vs. delos Angeles) Marlene Dauden, a movie star, filed a complaint against X Co. to recover P 14,700 representing the balance of her compensation as leading actress in 2 motion pictures produced by the company. Upon motion of defendant, the lower court dismissed the complaint because the claim of plaintiff was not evidenced by any written document, either public or private in violation of Art. 1358 of the NCC. Is the order of dismissal in accordance with law? Ruling: It is not in accordance with law. In the matter of formalities, in general, contracts are valid and binding from their perfection regardless of forms, whether they be oral or written, so long as the 3 elements exist. To this rule, the Code admits of exceptions, and the case at bar evidently does not fall within any of the purview of such exceptions.

10.What is the doctrine of reformation of instruments? What requisites must concur in order that an instrument may be reformed? When the true intention of the parties are not expressed in the instrument purporting to embody their agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument so that such true intention may be expressed. The following are the requisites of reformation: a. There must be meeting of the minds of the parties b. Their true intention is not expressed in the instrument c. Such failure to express their true intention is due to mistake, fraud, inequitable conduct or accident. 11.What are the different classes of defective contracts a. b. c. d. Rescissible contracts Voidable contracts Unenforceable contracts Void contracts

12. What is a Rescissible contract? Give samples.

A Rescissible contract is a valid contract because it contains all of the essential requisites prescribed by law, but which is defective because of injury or damage to either of the contracting parties or to third persons. Rescissible contracts are found in Arts. 1381 and 1382. 13.What requisites must concur before a contract may be rescinded on the ground of lesion?
a. The contract must be entered into by the guardian in behalf of his ward or by the legal representative in behalf of an absentee; b. The ward or absentee suffered lesion of more than one fourth of the value of the thing which are object thereof; c. The contract must be entered into without judicial approval

d. There must be no other legal means for obtaining reparation for the lesion; e. The person bringing the action must be able to return whatever he may be obliged to restore f. The object of the contract must not be legally in the possession of a third person who did not act in bad faith 14.What requisites must concur before a contract entered into in fraud of creditors can be rescinded? a. There must be a credit existing BEFORE the celebration of contract; b. There must be a fraud, or at least the intent to commit fraud, to the prejudice of the creditor c. The creditor cannot in any other legal manner collect his credit; d. The object of the contract must not be legally in the possession of a third person who did not act in bad faith 15.What are the presumptions of fraud of creditors? a. Alienations of property by GRATUITOUS TITLE if the debtor has not reserved sufficient property to pay all of his debts before such alienation; b. Alienations of property by ONEROUS TITLE if made by a debtor against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need NOT refer to the PROPERTY ALIENATED, and need NOT have been obtained by the party seeking the rescission. 16.Define voidable contracts. Voidable contract are those in which all of the essential elements for validity are present, but the element of consent is vitiated either by lack of capacity of one of the contracting parties, or by mistake, violence, intimidation, undue influence or fraud. 17.What contracts are voidable? a. Those where one of the parties is incapable of giving the consent to a contract; b. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud 18.What is the period of prescription for an action to claim rescission and annulment of a voidable contract? The action must be commenced within 4 years: in case of incapacitated person, from the time guardianship ceases; if the consent is vitiated by violence, intimidation or undue influence, from the time such violence etc disappears; if through fraud or mistake, from the time such fraud or mistake is discovered. 19.X, of age, entered into a contract with Y, a minor. X knew and the contract specifically stated the age of Y. May X successfully demand annulment of the contract. Reasons.

X cannot successfully demand annulment of the contract. The law requires that in case of contracts voidable by reason of incapacity of one of the contracting parties, the party who has capacity cannot allege the incapacity with whom he contracted. Thus, it is clear, that Y, and not X, can institute the action for annulment.
20. Define unenforceable contracts.

Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified, because they are entered into without or in excess of authority or they do not comply with the Statute of Frauds or both of the contracting parties do not possess the required legal capacity. 21.B purchased from A a parcel of land, paying a part of the agreed price, with the understanding that he will pay the balance upon the execution of the deed of conveyance. Subsequently, A sold the same to C, who knew of the first sale. As a result, B brought this action against both A and C to enforce the contract. Defendants contend that the contract is unenforceable under the Statute of Frauds as enunciated in No. 2 of Art. 1403, Decide the case. It is well settled that the Statute of Frauds is applicable only to executory contracts, not to contracts that are totally or partially performed. There is already a ratification of the contract by acceptance of benefits. Here, A already received the initial payment for the land. The case is therefore withdrawn from the coverage of the Statute of Frauds.
22. Define void or inexistent contracts.

It may defined as those which absolutely lack one or some or all of those elements which are essential for its validity, or that the cause or object is contrary to law, morals, good customs, public order or public policy.