LAW ON CONTRACTS

Ryan Jeremiah D. Quan, J.D.

Page 1
 Principal
Characteristics
• Autonomy of wills – parties
may stipulate anything as long
as not illegal, immoral, etc.
• Mutuality – performance or
validity binds both parties; not
left to will of one of parties
• Obligatory Force – parties are
bound from perfection of
contract:

Page 2
 Principal
Characteristics
• Fulfill what has been expressly
stipulated
• All consequences w/c may be
in keeping with good faith,
usage and law
• Relativity – binding only
between the parties, their
assigns, heirs; strangers cannot
demand enforcement

Page 3
 Exceptions to the
Principle of Relativity
• Accion pauliana
• Accion directa
• Stipulation pour autrui

Page 4
 Requisites:
Stipulation Pour Autrui
• Parties must have clearly and
deliberately conferred a favor
upon a 3rd person
• The stipulation in favor of a 3rd
person should be a part of, not
the whole contract
• That the favorable stipulation
should not be conditioned or
compensated by any kind of
obligation whatsoever
Page 5
 Requisites:
Stipulation Pour Autrui
• Neither of the contracting
parties bears the legal
representation or authorization
of 3rd party
• The third person communicates
his acceptance before
revocation by the original
parties
• Art 1312; Art 1314

Page 6
 Requisites:
Article 1312
• Existence of a valid
contract
• Knowledge of the contract
by a 3rd person
• Interference by the 3rd
person

Page 7
Kinds of Contracts

As to perfection or formation
• Consensual – perfected by
agreement of parties
• Real – perfected by delivery
(commodatum, pledge, deposit)
• Formal/solemn – perfected by
conformity to essential
formalities (donation )

Page 8
Kinds of Contracts

As to cause
• Onerous – with valuable
consideration
• Gratuitous – founded on
liberality
• Remunerative – prestation is
given for service previously
rendered not as obligation

Page 9
Kinds of Contracts
As to importance or dependence
of one upon another
• Principal – contract may stand
alone
• Accessory – depends on
another contract for its existence;
may not exist on its own
• Preparatory – not an end by
itself; a means through which
future contracts may be made

Page 10
Kinds of Contracts

As to parties obliged
• Unilateral – only one of the
parties has an obligations
• Bilateral – both parties are
required to render reciprocal
prestations

Page 11
Kinds of Contracts
As to name or designation
• Nominate
• Innominate
– Do ut des – I give that you may give
– Do ut facias – I give that you may
do
– Facio ut des – I do that you may
give
– Facio ut facias – I do that you may
do

Page 12
Stages of a Contract
• Preparation - negotiation
• Perfection/birth
• Consummation – performance

Essential Elements
• Consent
• Subject Matter
• Consideration

Page 13
 1. CONSENT
meeting of minds between parties on subject matter and cause of contract;
concurrence of offer and acceptance
Requirements:
• Plurality of subject
• Capacity
• Intelligence and free will
• Manifestation of intent of parties
• Cognition by the other party
• Conformity of manifestation and cognition

Page 14
Contracts of
Adhesion
– one party has already a prepared
form of a contract, containing the
stipulations he desires, and he simply
asks the other party to agree to them
if he wants to enter into the contract 

• NOTE: We follow the theory of cognition

and not the theory of manifestation.
Under our Civil Law, the offer and
acceptance concur only when the offeror
comes to know, and not when the
offeree merely manifests his acceptance

Page 15
Elements: Valid Offer /
Acceptance
• Definite — unequivocal
• Complete — unconditional
• Intentional

Page 16
When Offer Becomes
Ineffective
• Death, civil interdiction, insanity or
insolvency of either party before
acceptance is conveyed
• Express or implied revocation of the
offer by the offeree
• Qualified or conditional acceptance of
the offer, which becomes a counter-
offer
• Subject matter becomes illegal or
impossible before acceptance is
communicated
Page 17
Period for Acceptance
• Stated fixed period in the offer
• No stated fixed period
– Offer is made to a person present –
acceptance must be made immediately
– Offer is made to a person absent –
acceptance may be made within such
time that, under normal circumstances,
an answer can be received from him

NOTE: Acceptance may be revoked before

it comes to the knowledge of the offerror.

Page 18
Amplified Acceptance
• under certain circumstances, a
mere amplification on the offer
must be understood as an
acceptance of the original offer,
plus a new offer which is
contained in the amplification

Page 19
 Rules on
Complex Offers
• Offers are interrelated –
contract is perfected if all the
offers are accepted
• Offers are not interrelated –
single acceptance of each offer
results in a perfected contract
unless the offeror has made it
clear that one is dependent upon
the other and acceptance of both
is necessary
Page 20
 Rules on
Complex Offers
Offer inter praesentes must be accepted
IMMEDIATELY. If the parties intended
that there should be an express
acceptance, the contract will be
perfected only upon knowledge by the
offeror of the express acceptance by
the offeree of the offer. An acceptance
which is not made in the manner
prescribe by the offeror is NOT
EFFECTIVE, BUT A COUNTER-
OFFER which the offeror may accept
or reject. (Malbarosa v. CA, 2003)
Page 21
 Rules on
Advertisements as
Offers
• Business advertisements – Not
a definite offer, but mere
invitation to make an offer, unless
it appears otherwise
• Advertisement for Bidders –
only invitation to make proposals
and advertiser is not bound to
accept the highest or lowest
bidder, unless appears otherwise
Page 22
 Option

• option may be withdrawn anytime

before acceptance is
communicated but not when
supported by a consideration
other than purchase price: option
money

Page 23
 Option
Ang Yu v. CA (1994) states that a unilateral
promise to buy or sell, if not supported by a
distinct consideration, may be withdrawn but
may not be done whimsically or arbitrarily; the
right of the grantee here is damages and not
specific performance; Equatorial v. Mayfair(264
SCRA 483) held that an option clause in order to
be valid and enforceable must indicate the
definite price at which the person granting the
option is willing to sell, contract can be enforced
and not only damages; Paranaque Kings v. CA
(1997) states that right of first refusal may be
enforced by specific performance.

Page 24
Persons who cannot
give consent
• Minors
• Insane or demented persons
• Illiterates/ deaf-mutes who do not know
how to write
• Intoxicated and under hypnotic spell
• Art 1331 - person under mistake; mistake
may deprive intelligence
• Art 1338 - person induced by fraud (dolo
causante)
NOTE: Dolus bonus (usual exaggerations
in trade) are not in themselves fraudulent

Page 25
 Rules on Contracts
Entered into by Minors
• GENERAL RULE: VOIDABLE
• EXCEPTIONS:
– Upon reaching age of majority – they ratify the
same
– They were entered unto by a guardian and the
court having jurisdiction had approved the
same
– They were contracts for necessities such as
food, but here the persons who are bound to
give them support should pay therefor
– Minor is estopped for having misrepresented
his age and misled the other party (when age is
close to age of majority as in the Mercado v.
Espiritu and Sia Suan v. Alcantara cases.

Page 26
Disqualified to Enter
into Contracts
• Those under civil interdiction
• Hospitalized lepers
• Prodigals
• Deaf and dumb who are unable to read
and write
• Those who by reason of age, disease,
weak mind and other similar causes,
cannot without outside aid, take care of
themselves and manage their property,
becoming an easy prey for deceit and
exploitation
Page 27
 Incapacity vs.
Disqualification
Incapacity Disqualification
Restrains the exercise Restrains the very right
of the right to contract itself
May still enter into Absolutely disqualified
contract through
parent, guardian or
legal representative
Based upon subjective Based upon public
circumstance of certain policy and morality
person
Contracts entered into Contracts entered into
are merely voidable are void

Page 28
Causes which Vitiate
Consent
Violence
– REQUISITES
– Irresistible physical force
– Such force is the determining cause for giving
consent
Intimidation
– REQUISITES:
– Determining cause for the contract
– Threatened act is unjust and unlawful
– Real and serious
– Produces a well grounded fear that the person
making it will carry it over
Undue influence
Page 29
Simulated Contracts
• Absolute – no intention to be bound at
all, fictitious only
– void from beginning

• Relative – there is intention to be

bound but concealed; concealed
contract binds:
– No prejudice to 3rd persons
– Not contrary to law, morals, etc.

Page 30
2. SUBJECT MATTER
Requisites:
• Within the commerce of man -
either existing or in potency
• Licit or not contrary to law, good
customs
• Possible
• Determinate as to its kind or
determinable w/o need to enter into
a new contract
• Transmissible
Page 31
Things which cannot be
the subject of contracts
• things which are outside the commerce
of men
• intransmissible rights
• future inheritance, except in cases
expressly authorized by law
• services which are contrary to law,
morals, good customs, public order or
public policy
• impossible things or services
• objects which are not possible of
determination as to their kind
Page 32
3. CONSIDERATION
immediate, direct and most proximate reason
why parties enter into contract

REQUISITES:
• It must exist
• It must be true
• It must be licit

Motive – purely private reason; illegality does

not invalidate contract except when it
predetermines purpose of contract; when
merged into one

Page 33
 vs. Motive
Consideration Motive
Direct and most Indirect or remote
proximate reason of a reasons
contract
Objective and juridical Psychological or
reason of contract purely personal
reason
Cause us always The motive differs for
same for each each contracting party
contracting party

NOTE: Legality or illegality of cause affects

the existence of validity of the contract;
Legality or illegality of motive does not
affect the existence or validity of contract Page 34
Consideration in Some
Contracts
• Onerous contracts – the prestation of
promise of a thing or service by the
other
• Remuneratory contracts – the service
or benefit remunerated
• Pure Beneficence – mere liberality of
the donor or benefactor
• Accessory – identical with cause of
principal contract, the loan which it
derived its life and existence (ex:
mortgage or pledge)
Page 35
 Consideration
• Absence of Consideration
– Void - produces no legal effect
• Illegality of Consideration
– Void - produces no legal effect
• Falsity of Consideration
– Voidable – party must prove
that cause is untruthful;
presumption of validity but
rebuttable

Page 36
 Consideration
• Consideration not stated in Contract
– Presumed to exist - burden of proof is on
the person assailing its existence
• Inadequacy of Consideration
– Does not invalidate contract per se
– Exceptions:
• fraud
• mistake
• undue influence
• cases specified by law
– contracts entered when ward suffers
lesion of more than 25%

Page 37
MARAMING SALAMAT! 

Page 38