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Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. From the book of Jurado, contract was derived from the word cum traho which means an agreement or convention. However, do not be misled that contract is synonymous with convention because the latter is broad enough to include any kind of agreement which may create, extinguish or modify patrimonial and even family relations while contract is limited to only those which create patrimonial obligations. Class Notes: The definition of contract provided in the above article seems to be incomplete. This is so because: 1. It only covers consensual contracts 2. It does not deal with the concept of formal contracts 3. It only refers to unilateral contracts 4. It refers to contracts that only create obligations and not those that extinguish Sanchez Roman, on the other hand, defined contract as a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, reciprocally, to the fulfilment of a prestation to give, to do, or not to do. Note: Not all agreements constitute contracts. But all contracts constitute an agreement. In order to further understand the concept of contract, Jurado distinguished an ordinary contract from a marriage contract: ORDINARY CONTRACT Parties may be two or more persons of the same or different sexes. The nature, consequences and incidents of the contract are primarily governed by the agreement of the parties. Once executed, the result is a contract. It can be terminated or dissolved by mere agreement of the parties. CONTRACT OF MARRIAGE Necessary that the parties must be one man and one woman. Nature, consequences and incidents are governed by law Once executed the result is a status. It cannot be terminated by mere agreement.

In case of breach, the remedy available is to institute an action against the other party for damages.

The usual remedy is a civil action for legal separation or a criminal action for adultery or concubinage

Both Jurado and Tolentino explained the difference between a contract and a perfected and an imperfect promises. Perfected promise merely tends to insure and pave the way for the celebration of a future contract while an imperfect promise is a mere unaccepted offer. Auto-Contract It is a kind of contract in which only one person acted in behalf of the other party and himself or another person in another capacity to establish a contract. Tolentino said that in order that a contract be existing, it requires two parties and not two persons, two declaration of wills and not two wills. Ex. Art. 18901 in Agency Elements of contract: a. Essential are those without which there can be no contract Common the consent of the contracting parties, object or the subject of the contract and cause of the obligation Special this is only present in certain contracts such as delivery in real contracts or form in solemn ones. Extraordinary peculiar to a specific contract, such as the price in a contract of sale. b. Natural those which are derived from the nature of the contract and ordinarily accompany the same. It is presumed by law, but it also be excluded by the contracting parties if they so desire. Accidental are those which only exist when the parties expressly provide for them for the purpose of limiting or modifying the normal effects of the contract. (ex. Conditions, terms or modes)

c.

Art. 1890: If the agent has been empowered to borrow money, he may himself be the lender at the current rate of interest. If he has been authorized to lend money at interest, he cannot borrow it without the consent of the principal.

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CHARACTERISTICS OF A CONTRACT 1. Obligatory force / character of contracts (Arts. 1159, 1308, 1315 and 1356) It refers to the rule that once the contract is perfected, it shall be of obligatory force upon both parties. They are bound not only to the fulfilment of obligations but also to all the consequences. 2. Mutuality of contracts (Art. 1308 and the nature of contract) It refers to the position of essential equality that is occupied by both contracting parties. The contract must be binding upon both parties and its validity or compliance cannot be left to the will of only one party.2 Autonomy of contracts (Art. 1306) The contracting parties may establish agreements provided it is not contrary to law, public order, morals, good customs or public policy.3 Relativity of contracts (First paragraph of Art. 1311) Contracts take effect only between parties, their assigns and heirs. Exception: a. In case where the rights and obligations arising from the contract are not transmissible by their nature or by stipulation or by provision of law.

b. c.

necessary as a preliminary step towards the celebration of another subsequent contract Principal those which can subsist independently from the other contracts and whose purpose can be fulfilled by themselves. Accessory those which can exist only as a consequence of, o in relation with, another prior contract.

2. According to their perfection: a. Consensual those which are perfected by the mere agreement of the parties. b. Real those which are require not only the consent of the parties for their perfection, but also the delivery of the object by one party to the other. 3. According to their form: a. Common those which require no particular form b. Special those which require some particular form 4. According to their purpose: a. Transfer of ownership b. Conveyance of use c. Rendition of services 5. According to their subject matter: a. Things b. Services 6. According to the nature of the vinculum which they produce: a. Unilateral those which give rise to an obligation for only one party b. Bilateral those which give rise to reciprocal obligations for both parties

3.

4. -

STAGES OF CONTRACTS 1. Generation it comprehends the preliminary or preparation or conception. It is the period of negotiation and bargaining. 2. Perfection it is the moment when parties come to agree on the terms of the contract 3. Consummation it is the fulfilment or performance of the terms agreed upon in the contract. CLASSIFICATION OF CONTRACTS 1. According to their relation to other contracts: a. Preparatory those which have for their object the establishment of a condition in law which is
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7. According to their cause: a a Onerous those in which each of the parties aspires to procure for himself a benefit through the giving of an equivalent or compensation a a Gratuitous those in which one of the parties proposes to give to the other a benefit without any equivalent or compensation. 8. According to the risk involved: a. Commutative those where each of the parties acquires an equivalent of his prestation and such equivalent is pecuniarily appreciable and already determined from the moment of the

Art. 1308: The contracts must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. 3 Art. 1306: The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

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b.

celebration of contract. Aleatory those where each of the parties has to his account the acquisition of an equivalent of his prestation, but such equivalent is not yet determined at the moment of celebrationj of contract. It depends upon the happening of an uncertain event.

good customs. d. Public Order public weal, peace, safety, and health of the community. e. Public Policy broader in scope than public order; it is defined as a principle of law which holds that no person can lawfully do that which has a tendency to be injurious to the public or against the public good; all those considerations which are moved by the common good. 2. In cases of social legislation in relation to pursuance of social justice E.g. in labor contracts; that which is more favoured to those who are needy are more favoured in the pursuit of social justice 3. Contract of adhesion: where only one of the parties prepared the contract and would favour the other party who did not prepare In case of doubts in the interpretation of the provisions, that which is more favourable to the party who may not have the position to impose agreement is more appreciated

9.

According to their names or norms regulating them: a. Nominate those which have their own individuality and are regulated by special provisions of law. b. Innominate those which lack individuality and not regulated by special provisions of law.

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Autonomy characteristic of contracts the right of the contracting parties to establish any stipulation, clause, term or condition as they deem convenient. Limitations: 1. Stipulations must not be contrary to law, morals, good customs, public order, public policy a. Law those which are mandatory or prohibitive in character those which impose essential requisites without which the contract cannot exist. those, without being mandatory, are expressive of fundamental principles of justice only serve as suppletory to the stipulations or the will of the parties. b. Morals Tolentino said that it means those generally accepted principles of morality which have received some kind of social and practical confirmation; synonymous to good customs. c. Good customs Jurado acknowledged the possible overlapping of the concept of good customs and good morals. But he gave a distinction, he said that if a moral precept or custom is not recognized universally but is sanctioned by the practice of a certain community, then it shall be included within the scope of

Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place. Kinds of innominate contracts: a. Do ut des I give and you give. (Illustration A will give one thing to B, so that B will give another thing to A) b. Do ut facias I give and you do (Illustration A will give something to B, in order that B may do something for A) c. Facio ut des I do and you give (A binds himself to do something for B, so that B will give something to A) d. Facio ut facias I do and you do (A will do something for B, so that B will do something for A) What rules govern innominate contracts? 1. stipulation of the parties 2. provisions of Title I (Obligations) and II (Contracts) of Obligations and Contracts 3. rules governing the most analogous nominate contracts 4. customs of the place

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Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. Mutuality characteristic of contracts The binding effect of the contract on both parties is based on the principle that obligations arising from contracts have the force of law between the contracting parties and that there must be mutuality between the parties based on their essential equality. Rationale: to maintain the enforceability of contracts Purpose: To render void a contract containing a condition which makes its fulfilment dependent exclusively upon the uncontrolled will of one of the contracting parties. General Rule on Unilateral Cancellation: No one may be permitted to change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party. * The termination of the contract may be left to the will of one of the parties in the negative form of rescission is that is so expressly stated in the contract. Reason: Since the termination is in the contract, then it would not be a violation but it would be in the fulfilment of the agreement of the parties to the contract. Art. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties. Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contracts are not transmissible by their nature, or by stipulation or by provision of law. Their heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfilment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. General Rule: The contract is only binding between the contracting parties, their assigns and heirs. (relativity

characteristic of contracts) Exceptions: 1. According to the first paragraph, the rule is not applicable if the rights and obligations arising from the contract are not transmissible: By their nature By stipulation By provision of the law Examples: Agency, which is based on the confidence reposed by the principal on the agent, is not transmissible to the heirs of the agent. When a person by agreement is required to do something personally Cases when contract may affect third persons: a. when the parties transfer to third persons the rights they acquired under the contracts b. when the contract contains a stipulation in favor of a third person c. when third persons exercise the subrogatory action or rescissory action d. in suspension of payments and compositions under the Insolvency Law e. In labor contracts of collective bargaining under RA No.875 f. In contracts creating real right Stipulation pour autrui it is a stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its fulfilment provided he communicates his acceptance to the obligor prior to its revocation. Kinds: 1. 2. Those where the stipulation is intended for the sole benefit of a third person Those where an obligation is due from the promise to the third person which the former seeks to discharge by means of such stipulation.

Requisites: There must be a stipulation in favor of third persons That the stipulation in favor of a third person should be a part of the contract and not the entire contract That the contracting parties must have clearly and deliberately conferred a favor upon a third person The favourable stipulation should not be

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conditioned or compensated by any kind of obligation That the person must have communicated his acceptance to the obligor prior its revocation. Neither of the contracting parties bears a legal representation or authorization of the third party.

intended to defraud them. is considered an exception to the relativity of contracts creditors, who are not parties to the contract, may interfere in the same through a rescissory action when such contract should prejudice their rights. Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting parties. Interference in Contracts by third persons - an injured party may recover damages for unlawful interference with the contract by a third party who has induced one of the parties of the contract to violate the terms thereof. Requisites: 1. Existence of a valid contract 2. Knowledge on the part of the third person of the existence of the contract 3. Interference by the third person without legal justification or excuse Liability of the contracting party & third person joint and solidary Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfilment 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. Consensual contracts Consensual contracts perfected by mere consent and that from that moment on the juridical ties between the parties arises. Art. 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation. Real contracts Perfection of contract - refers to that moment in the life of a contract when there is finally a concurrence of the wills of the contracting parties with respect to the object and the cause of the contract. Real contracts, when perfected by the delivery of the

Test of Beneficial Stipulation To constitute a valid stipulation pour autrui, it must be the purpose and intent of the stipulating parties to benefit the third person, and it is not sufficient that the third person be incidentally benefited by the stipulation. So in order to determine whether or not such stipulation exists, one needs to rely upon the intention of the parties as disclosed by their contract. Rights of the parties *The third person after acceptance has the rights of a party to the contract, and therefore may sue either for specific performance or resolution, with indemnity for damages. Art. 1312. In contracts creating real rights, third person who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws. Contracts creating real rights the right created directly affects the object of the contract and it follows the same who ever comes into the possession of such property Example: a mortgage to the property follows the property wherever it goes, and whether the party is aware of the mortgage or not. *Although the contract may create a real right, it may not affect a third person who comes into possession of the property if the land and affected by such real right is registered under the Mortgage Law or the Land Registration Laws, and the real right in question is not recorded in the Registry of Property. Real contracts those which are perfected by the delivery of the property in question. Real right a right belonging to a person over a specific thing, without a passive subject individually determined, against whom such right may be personally enforced.

Art. 1313. Creditors are protected in cases of contracts

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thing or object of the obligation Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the persons in whose behalf has been executed, before it is revoked by the other contracting party. Rule: No person may enter into a contract in the name of another unless he has been duly authorized by the person represented or he has by law a right to represent him. Effect if the contract entered into in the name of another is without the authority of the latter either given by law or by the person involved = contract is NOT ENFORCEABLE = exception: unless it is ratified, expressly or impliedly, by the person in whose behalf it has been executed before it is revoked by the other contracting party Unenforceable contracts cannot be sued upon before ratification; the defects therein are permanent in nature and will exist as long as it has not been ratified. Effects of Ratification Once ratified, the contract can be sued upon. Effects retroact to the time of its celebration. Act is validated from the moment of the celebration of the contract and not merely from the time of its ratification. *The unauthorized contract produces a state of suspense; its effectivity depends upon its ratification. If the contract is not ratified by the person represented, the representative becomes liable in damages to the other party, if he did not give notice of the absence or deficiency of his power. This liability is based on the fact that having represented himself as having authority to act for another, he is responsible for the truth of such affirmation.

CHAPTER 2 ESSENTIAL REQUISITES OF CONTRACTS General Provisions

Art. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. Consent Object Cause

essential common elements

essential common elements those elements which are found in all contracts, otherwise there can be NO contract. Essential elements of a contract: 1. Essential common those which are found in all contracts 2. Essential special or essential proper those which exist only in certain classes or groups of classes E.g. delivery in real contracts; form in formal contracts 3. Essential very special those which are necessary for a particular contract E.g. price in contracts of sale

Section 1. Consent
Art. 1319. Consent is manifested by 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 absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. Consent from the Latin word cum sentire meaning to feel together or the convergence of two wills over the same point

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essence: conformity of the parties to the terms of the contract definition: the concurrence of the offer and the acceptance over the thing and the cause which constitute the contract. Requisites:4(Castan as cited by Caguioa) (1) Plurality of subjects (2) Capacity of the contracting parties (3) Intention of the parties (4) Manifestation of the intention of the parties (5) Concurrence between the intention of the parties and its manifestation Plurality of subjects - There must be at least two parties (not two persons) and two declarations of will (not two wills)5 Capacity of the contracting parties - Refers to the legal capacity (i.e. age, mental disposition) of the contracting parties to contract - A valid consent presupposes legal capacity. Intention of the parties - Must be formed and manifested in a manner that is rational and conscious and should not be vitiated by any vice which may destroy its character. - 4 traditional vices of consent: o Error o Fraud o Violence o Intimidation Manifestation of the intention of the parties - May be express, tacit, or may be presumed. Express consent exists when the same is manifested by words or by writing; the normal way of manifesting consent. Implied consent exists when certain acts are performed which do not directly manifest the consent but where the consent can be inferred from the conduct of the person. Presumed consent is a fiction which produces
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determinate effects by virtue of a certain situation; basis of quasi-contracts; e.g. lapse of time given to repudiate an inheritance Concurrence between the intention of the parties and its manifestation - an absolute concurrence between what is intended and what is expressed. *Divergence of intention when there is NO concurrence 2 types: o conscious when there is jovandi causa or mental reservation or when there is a simulation o unconscious when there is an error in the declaration or error substantibo 2 elements of consent: (1) Offer (2) Acceptance * Manifestation of consent the meeting of the offer and the acceptance General Rule: There must be a concurrence of the offer and acceptance with respect to the object and the cause of the contract. Exception: Not applicable to cases where other matters beside the thing and the cause are considered material by the parties, in which case, the area of agreement must include those other things which are considered material by the parties. (Magsaysay v. Cebu Portland Cement Co. as cited in Caguioa) Offer a unilateral proposition which one party makes to the other for the celebration of a contract; or simply put, a proposal to make a contract. - requisites: 1. definite 2. complete 3. made with the intention to be bound 4. directed to person or persons with whom the offeror intends to enter into a contract a. it must be definite offer is definite when an acceptance thereof will create a valid and subsisting contract. not affected where the determination thereof is left to the will of the other party. e.g. I am in a position and willing to entertain the purchase of a yacht. >>> not an offer but a mere

According to Clarin vs. Rulona, as cited in Tolentino, the following are the requisites of consent: (1) plurality of subjects; (2) capacity; (3) intelligent and free will; (4) express or tacit manifestation of the will; (5) conformity of the internal will and its manifestation. Jurado, on the other hand, enumerates the following as requisites of consent: (1) consent must be manifested by the concurrence of the offer and the acceptance; (2) contracting parties must possess the necessary legal capacity; and (3) consent must be intelligent, free, spontaneous and real 5 This thus gives way to the validity of auto-contracts

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invitation to make an offer.6 Note: Definiteness is not affected where the determination thereof is left to the will of the other party. Example: An offer to sell as many sacks of rice as the buyer is willing to purchase but not exceeding 500 sacks at P50 per sack is a valid offer. b. it must be complete when it indicates with sufficient clearness the kind of contract intended and definitely stating the essential conditions of the proposed contract, as well as the nonessential ones desired by the offeror example: in a contract of sale, offer must specify the object, price and terms c. it must be made with the intention to be bound the offer must be made seriously examples of offers with NO intention to be bound: Those made for fun or jest Those made jocandi causa or as an expression of courtesy General Rule: Offers not seriously made and accepted by the other party, aware of the non-seriousness of the offer, is null and void and cannot give rise to a contract. *If the offeree is induced to take it seriously or he was not aware that offer was not intentional, act is VOID; hence there is NO CONTRACT; but he may recover for damages which he has suffered by reason of his belief that the offer was seriously made. Exception: *In cases of mental reservations (when a party makes a declaration but secretly and without informing the other party does not intend to be bound by such declaration; exists when the manifestation of the will is made by one party for the purpose of inducing the other to believe that the former intends to be bound, when in fact he does not) act is VALID; and hence may give birth to a contract. This is in line with the principle of estoppel (Caguioa and Tolentino). Exception to the exception: But when the other party is aware of such mental reservation, it will not bind the offeror. d. it must be directed to the person or persons with whom the offeror intends to enter into a contract General rule: The offer must be directed to a particular
6

person or persons with whom the offeror wishes to enter into a contract. Exception: definite offers which are not directed to a particular person but to the public in general (examples: promises of reward, public auction) In order for unilateral promises publicly made be enforced, there must be an acceptance that shall convert it into a contract. The performance of the act for which a reward or prize is promised can be considered as an acceptance.7 Acceptance the unconditional and unqualified agreement to the offer. - requisites: (ADICT) 1. absolute 2. directed to the offeror 3. made with the intention to be bound 4. made within the proper time 5. communicated to the offeror and learned by him a. it must be absolute - there is no variation whatsoever between the terms of the offer and the acceptance. It is necessary that the acceptance be unequivocal and unconditional, and the acceptance and the proposition shall be without any variation whatsoever; and any modification or variation from the terms of the offer annuls the latter and frees the offeror. means that the offeree should NOT desire anything exactly than the proposed offer; his acceptance must be for the totality of the offer, nothing more, nothing less. Should the acceptance be qualified (for example when a pure obligation is accepted with a condition, or when a term is established or changed, or when a simple obligation is converted into an alternative one), the acceptance constitutes a counter-offer and a counter-offer has the effect of extinguishing the offer. b. it must be directed to the offeror c. it must be made with the intention to be bound d. it must be made within the proper time, i.e. within the period expressly or tacitly given e. it must be communicated to the offeror and learned by him Unless the offeror knows of the acceptance, there is no meeting of the minds of the parties, no real
7

Rosentoch v. Burke as cited in Caguioa, Tolentino & Jurado

Tolentino, 2002, p. 459.

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concurrence of offer and acceptance.8 Withdrawal of offer Rule: Both the offer and the acceptance can be revoked before the contract is perfected. Offeror may withdraw his offer at any time before he learns of the acceptance, even if such acceptance has already been made, but not made known to him. 9 Lapse of Time An offer without a period must be considered as becoming ineffective after the lapse of more than the time necessary for its acceptance, taking into account the circumstances and social conditions. Media by which the acceptance has been made known to the offeror: 1. acceptance through intermediaries10 If the intermediary is a true agent who has the power of binding the offeror, Acceptance by the offeree made known to the agent is binding on the offeror. If the intermediary has no power to bind either the offeror or the offeree, Acceptance is not binding on the offeror until the intermediary actually informs him of the same. 2. acceptance by correspondence 4 different theories in pinpointing the exact moment of perfection: a. Manifestation theory contract is perfected from the moment the acceptance is declared or made. (theory followed by the Code of Commerce)11 b. Expedition theory contract is perfected from the moment the offeree transmits the notification of acceptance to the offeror, as when the latter is placed in the mailbox c. Reception theory contract is perfected from the moment that the notification of acceptance is in the hand of the offeror in such a manner that he can, under ordinary conditions, procure the knowledge of its
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contents, even if he is not able actually to acquire such knowledge by reason of absence, sickness or some other cause. d. Cognition theory contract is perfected from the moment the acceptance comes to the knowledge of the offeror; theory followed by the Spanish Code and have been retained by our Civil Code Presumption: Contract has been entered into the place where the offer was made. If the offeror delays in bad faith (by not reading or opening the letter of acceptance although he can do so), contract must be deemed perfected. [ Reason: It cannot have been the intention of the law to leave the perfection of the contract to the caprice of the offeror.] Exception: Art.54 of the Code of Commerce can be applied only to purely commercial contracts which are still governed by the Code of Commerce such as joint accounts and maritime contracts.12 3. acceptance by telephone or telegram is deemed to have been made by two persons present and is considered to have been entered at the place where the offer was made. acceptance by silence Rule: Whether or not silence can be considered as an expression of the will depends upon the circumstances for silence is in itself ambiguous. When circumstances imply a duty to speak on the part of the person for whom an obligation is proposed, his silence can be construed as consent. Requisites: a. that there is a duty on the part of the offeree to express his refusal b. that the silence on the part of the offeree cannot be interpreted in any other way c. that there is a concurrence between the effect of silence and the undisclosed will of the offeree Art. 1870-1873 on agency; cases when acceptance of the agency may be implied from silence of the agent under certain circumstances

4.

Art. 1319, par.2: Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. (This rule should also apply in case of acceptance by cable or telephone according to Tolentino.) 9 Art. 1324 10 Art. 1322: An offer made through an agent is accepted from the time acceptance is communicated to him. 11 Art. 54: Contracts entered into by correspondence shall be perfected from the moment an answer is made accepting the offer or the condition by which the latter may be modified.

12

Jurado, 2002, p.399

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Applicable Doctrines13 a. As between persons present - If the silence is entirely unconnected with any fact, there can be no contract. b. As between persons absent If there has been no antecedent relation between the parties, silence will not give rise to a contract.

Revocation of Acceptance The acceptance may be revoked before it comes to the knowledge of the offeror. New Contract Before Acceptance Pending the acceptance of an offer, the offeror can perfect a contract over the same thing with another person. If the first offer is not revoked by him before it is accepted, he becomes liable for damages to the first offeree for culpable impossibility of performance. As between the two offerees, the one whose acceptance perfected a contract first is given priority; the other party has only an action for damages. Art. 1320. An acceptance may be express or implied. Manner of acceptance Express consent exists when the same is manifested by words or by writing; the normal way of manifesting consent. Implied consent exists when certain acts are performed which do not directly manifest the consent but where the consent can be inferred from the conduct of the person. Presumed consent is a fiction which produces determinate effects by virtue of a certain situation; basis of quasi-contracts; e.g. failure on the part of the heir to reject the inheritance within 30 days from notice of the order of the court distributing the estate Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. Contents of the offer offeror must make the offer complete and definite in order that acceptance of the same may constitute a binding agreement
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If the offeror fixes a period within which the acceptance must be made in order to become effective, >>> acceptance must be made known to the offeror before the period lapses; one made after the lapse of the period is NOT considered an acceptance of the offer. Any variation whatsoever between the manner of acceptance prescribed by the offeror and that offered by the offeree constitutes a counter-offer = invalidates the offer = NO CONTRACT Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to him. - See acceptance through intermediaries Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed. General Rule: Offer is extinguished upon the death, civil interdiction, insanity or insolvency (CIDI) of either party before acceptance is conveyed. Cases where offer is extinguished: 1. upon the death, civil interdiction, insanity or insolvency of either party (Art. 1323) 2. upon the rejection of the offeree (Batangan v. Cojuangco) 3. upon the lapse of the period stated in the offer without acceptance being conveyed 4. upon qualified or conditional acceptance, i.e. counteroffer (Logan v. Phil. Acetylene Co.) 5. upon revocation of the offer before knowledge of acceptance (Art. 1324) 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. Rule: The offeror may always withdraw the offer before acceptance In cases of arbitrary revocation, i.e. revoking the offer without just cause, offeror may be held liable for damages.14 But still, there will be NO
14

Above principles have been developed in French jurisprudence and have been recognized as acceptable doctrines according to Tolentino (Tolentino, 2002, p.456)

Based on the principle of abuse of right; Art. 19, NCC:

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BINDING agreement between parties as there was NO LEGAL OFFER upon withdrawal. Option Contracts an agreement whereby one party concedes to the other, for a determinate period, and under fixed conditions, the power, which is left to his sole will, to decide whether a principal contract will be celebrated. Where the offeror grants to the other party a period within which to accept the offer or not Requisites: a. concession by one party in favour of the other of the power to decide whether a contract will be celebrated or not, without any obligation on the part of the latter b. concession is exclusive c. concession is for a fixed period d. there is no other condition but the sole will of the other General Rule: Offeror still have the right to withdraw offer before knowledge of acceptance. If acceptance has been communicated and learned by the offeror, then there is meeting of the minds and therefore offer CANNOT be withdrawn. Exception: In case of option contracts where the same are not supported by an independent consideration distinct from the price. Illustration: Art. 147915 (Even though the unilateral promise to buy or to sell has already been accepted, it can still be withdrawn by the offeror if the accepted unilateral promise (option contract) is not supported by any consideration distinct form the price.) Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. Art. 1327. The following cannot give consent to a contract:
Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. 15 Art. 1479: A promise to buy or to sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

(1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write. Legal Effects of entering into contracts by parties without legal capacity: If both parties cannot give consent = CONTRACT IS UNENFORCEABLE16 If only one of the parties is incapable of giving consent = CONTRACT IS VOIDABLE17

Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. Characteristics of consent: Intelligent Free and voluntary Spontaneous Real Vices of consent: Mistake - should refer to mistake of fact and not of law. - must refer to the very substance of the thing (if error refers to the nature of the contract, contract is VOID) - must refer to the essential or substantial conditions of the contract in order to vitiate consent - requisites: 1. it must be of a past or present fact 2. mistake must have induced the consent 3. mistake must not be imputable to the party mistaken, i.e. mistake is not inadvertent and excusable 4. mistake must be of fact and not of law Violence - refers to physical force or compulsion - there is violence when in order to wrest consent, serious or irresistible force is employed - requisites: 1. force employed is serious or irresistible 2. it is the determining cause of consent 3. it is not justified 4. it is sufficient Intimidation - when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and
16 17

Art. 1403: Art. 1407

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grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants to give his consent - requisites: 1. it must produce a reasonable and well-grounded fear when the person issuing the threat appears able to inflict the harm threatened in order to determine this, it is required that the age, sex and condition of the persons be borne in mind. 2. fear must produce the consent the fear produced by the same must be the direct and the determining cause which compelled the consent to be given. 3. fear is of imminent and grave evil upon person and property evil threatened must be serious or grave and imminent. 4. threat must be unjust if the means threatened to be used to inflict the evil or harm is unlawful or illegal or there is no right to inflict the injury feared Undue Influence - when a person takes advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice - to determine whether the influence exerted is unreasonable, the following circumstances shall be considered: 1. confidential relations 2. family relations 3. spiritual relations 4. other relations between the parties Fraud - when through insidious words or machinations of one of the contracting parties, the other is induced to enter in to a contract which, without them, he would not have agree to. - refers to deceit or fraud in the celebration of contract - any kind of deception and includes words, machinations, false promises, exaggerations of hope and benefits, abuse of confidence, fictitious names, qualifications or authority. - 2 kinds of deceit: a. dolo causante (substantial fraud) that which affects the substance of the agreement so that without it the party would not have consented b. dolo incidente (incidental fraud) that which affects, not the substance but the incidentals of the agreement, so that without it the party would have consented but under different terms. - requisites: 1. there must be a misrepresentation or concealment of a fact

2. it must be serious 3. it must be employed by one of the contracting parties and not by a third person 4. it must not be employed by both contracting parties 5. it must have induced the consent of the other party 6. it must be made in bad faith, i.e. with knowledge of its falsity Non-fraudulent cases: Not every silence or concealment will constitute fraud. If the concealment does not refer to material facts, i.e. those that induce consent, it will not be fraudulent. (Art.1339) The usual exaggerations in trade (are said to be lawful misrepresentations known as dolus bonus), when the other party had an opportunity to know the facts, are not in themselves fraudulent. (Art. 1340) A mere expression of opinion does not signify fraud, unless made by an expert and the other party has relied on the formers knowledge. (Art. 1341) Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. SIMULATION is the declaration of a fictitious intent manifested deliberately and in accordance with the agreement of the parties in order to produce for the purpose of deceiving others the appearance of a transation which does not exist or which is different from their true agreement. requisites: 1. A deliberate declration contrary to the will of the parties 2. Agreement of the parties to the apparently valid act 3. The purpose is to deceive or to hide from third persons although it is not necessary that the purpose be illicit or for purposes of fraud 2 types: a. absolute when the parties do not intend to be bound at all b. relative when the parties conceal their true agreement Effects of Simulation If simulation is absolute = NO CONTRACT If simulation is relative = VALID CONTRACT unless it prejudices a third person or has an illicit purpose

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Section 2 Object of Contracts

Object of a contract the subject matter; the prestation which is the subject matter of the obligation arising from the contract requisites: a. object must be real or possible (it exists at the moment of the celebration of the contract, or at least capable of existing thereafter) b. it is licit (it is not contrary to law, morals, good customs, public order, public policy) c. it must be determinate or susceptible of determination (the kind and quantity may be determined without the aid of a new contract between the parties)

Section 3 Cause of Contracts

Cause the essential or more proximate purpose which the contracting parties have in view at the time of entering into the contract (Manresa); the fact which explains and justifies the creation of an obligation by the will of the parties (Castan); the reason, end or purpose of the obligation requisites: 1. it must exist 2. it must be real 3. it must be lawful Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. Presumption: Even if the contract does not state a cause, the law presumes that one exists and that the same is lawful and hence it is incumbent on the party impugning the contract to prove the contrary. Art. 1355. 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. Lesion any damage caused by the fact that the price is unjust or inadequate. General Rule: The mere fact the cause is unjust or inadequate does not invalidate the contract. Exception: Unless there is fraud, mistake or undue influence.

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CHAPTER 3 FORM OF CONTRACTS