Memory Aid for Obligations & Contracts (Pre-Finals)

ARTICLE 1305 DEFINITION of a CONTRACT Contract A meeting of minds between two persons whereby one binds himself, with respect to the other to give something or to render some service. d.
a. Essential Element

1.

Principal The contract may stand alone by itself 2. Accessory This depends for its existence upon another contract 3. Preparatory The parties do not consider the contract as an end by itself, but as a means thru which the future transaction or contracts may be made. As to Parties Obligated

ELEMENTS OF A CONTRACT 1. Without which a contract cannot exists 1. Consent 2. Subject Matter 3. Cause or Consideration 4. Form donations inter vivos 5. Delivery real contracts Found in certain contracts and presumed to exist unless the contrary is stipulated. 1. Warranty against eviction 2. Hidden defects These are various particular stipulations that may be agreed upon by the contracting parties in a contract which may be present or absent, depending upon whether or not the parties have agreed upon them. 1. The stipulation to pay credit 2. The stipulation to pay interests 3. The designation of the particular place for delivery or payment. Unilateral Where only one of the parties has an obligation 2. Bilateral or Synalagmatic Both parties are required to render reciprocal prestations e. As to their Name or Designation

1.
b. Natural Elements

Nominate The contract is given a particular or special name 2. Innominate or Contratos Innominados Those not given any special name f. As to Risk of Fulfillment

1.
c. Accidental Elements

Commutative The parties contemplate a real fulfillment where equivalent values are given 2. Aleatory The fulfillment is dependent upon chance thus the values vary because of the risk or chance g. As to the Time of performance or fulfillment

1.

2. CLASSIFICATION OF CONTRACTS
a. As to Perfection or Formation:

Executed - One completed at the time contract is entered into Executory - One where the prestations are to be complied with at some future time

1. 2. 3.

Consensual perfected by mere consent Real perfected by delivery Formal or Solemn Where special formalities are essential before the contact may be perfected.

h.

As to Subject Matter

1. 2. 3. i.

Contracts involve things Contracts involving rights or credits Contracts involving services

As to Obligations imposed and regarded by the law

b.

As to Cause or Equivalence of the value of the prestations

1. Onerous Where there is an interchange or equivalent valuable consideration. 2. Gratuitous or Lucrative This is FREE, where one party receives no equivalent prestations except a feeling that one has been generous or liberal. 3. Remunerative One prestation is given for a benefit or service that had been rendered previously.
c. As to Importance or Dependence of one upon another. 1

Ordinary the law considers this as an ordinary contract 2. Institutional The contract of marriage since the law considers marriage as an inviolable social institution. 1. j.
As to Evidence require for its proof

1. 2.
k.

Those requiring merely oral or parol evidence. Those requiring written proof

As to the number of persons actually and physically entering into the contracts. 1. Ordinary where two parties are represented by different persons 2. Auto-contracts - where only one person represents two opposite parties, but in different capacities.

l.

As to the number of persons who participated in the drafting of the contract.

1. 2.

Ordinary Adhesion the provisions of the contract is drafted only by one party, usually by a corporation and the only participation by the other party is to sign his adhesion.

ARTICLE 1306 THE PRINCIPLE of FREEDOM The free entrance into contracts generally without restraint is one of the liberties guaranteed to the people. LIMITATIONS on the NATURE of the STIPULATIONS 1. Law 2. Morals 3. Good customs 4. Public order 5. Public policy
The freedom of contract under the present system is not absolute. The same is understood to be subject to reasonable legislative regulations aimed at the promotion of public health, morals, safety and welfare. In other words, the constitutional guaranty of non-impairment of obligations is limited by the exercise of the police power of the State.

m. As to nature of the contract 1. Personal 2. Impersonal STAGES of a CONTRACT

a. Preparation or Conception or Generacion

This is the part wherein the parties are progressing with their negotiations although they have not yet arrive at any definite agreement; there are already preliminary offer and bargaining.
b. Perfection or Birth

a. The parties have at long last come to a definite agreement and the elements of definite subject matter and valid cause have been accepted by mutual consent. b.
c. Consummation or Death or Termination

Limitations Imposed by the Law

Contracts must respect the law, for the law forms part of the contract, indeed it is understood that provisions of all laws are incorporated in the contract.

Limitations imposed by Morals

The terms of the contract are performed and the contract is fully executed. c. -

Deals with right and wrong and with human conscience.

Limitations imposed by Good Customs

BASIC PRINCIPLES of a CONTRACT a. Freedom to stipulate b. Obligatory force and compliance in good faith c. Perfection by mere consent d. Both parties are mutually bound e. Relatively PARTIES to a CONTRACT General Rule: A contract takes effect between the parties who made it and also their assigns and heirs. Exception: Where the rights and obligations from the contract are not transmissible by their nature, by stipulation or by provision of law.
Real party-in-interest-plaintiff One who has a legal right Real party-in-interest-defendant One who has a correlative legal obligation whose

Those that have received for a period of time practical and social confirmation.

d.

Limitations imposed by Public Order

Deals with the public weal and includes public safety.

e.

Limitations imposed by Public Policy

Is the public social and legal interest in private law. It manifests the will of the State.

DESIGNATION of the NAME of a CONTRACT The parties generally may agree on any contract but the name they give it should not be controlling, for a contract is what the parties intended it to be, not what they call it. ARTICLE 1307 INNOMINATE CONTRACTS KINDS OF INNOMINATE CONTRACTS a. Du ut des I give so you may give b. Du ut facias I give so you may do c. Facias ut des I do so you may give d. Facias ut facias I do so you may do ARTICLE 1308: MUTUALITY OF CONTRACTS The Principle of Mutuality of Contracts Both parties are bound

act or omission violated the legal right of the former.

The general rule of the common law is that every action must be brought in the name of the infringed. For the immediate wrong and damage, the person injured is the only one who can maintain the action. The person who sustains an injury is the person to bring an action for the injury against the wrongdoer.

LEGAL EFFECTS of a CONTRACT The intent of the parties, as shown by clear language used, prevails over post facto explanations that find no support from the words employed by parties and their subsequent acts showing their understanding of such contracts.

CONSEQUENCE OF MUTUALITY a. A party cannot revoke or renounce a contract without the consent of the other, nor can it have it set aside on the ground that he had made a bad bargain. b. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation is void. ARTICLE 1309: DETERMINATION by THIRD PERSON 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.

GENERAL RULE: Strangers cannot demand the enforcement of a contract, nor can they demand its annulment nor are they bound by the same. EXCEPTION:
a. When the obligation arising from the contract are not transmissible by their nature, by stipulation or by provisions of law. Where there is a STIPULATION POUR AUTRUI

b.

ARTICLE 1310: INEQUITABLE DETERMINATION IS NOT BINDING The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances.

If a contract should contain some stipulation in favor of a third party, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation The stipulation is binding on said third person, although he may not be a signatory to the contract.

What is inequitable determination? a. b. What is equitable is a question of fact, to be ascertained from the attendant circumstances. The court is called upon to decide what is equitable. ARTICLE 1311: PRINCIPLE OF RELATIVITY PRINCIPLE OF RELATIVITY Contracts are generally effective only between the parties, their assigns and their heirs.

REQUISITES: 1. There must be a stipulation in favor of a third person. 2. The stipulation must be a part, not the whole of the contract. 3. The contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest. 4. The third person must have communicated his acceptance to the obligor before its revocation. 5. Neither of the contracting parties bears the legal representation or authorization of the third party.

However, a person who takes advantage of a contract although he is NOT a signatory thereto can properly be bound by the terms thereof. He cannot take advantage of a contract when it suits him to do so and reject its provisions when he thinks otherwise.

Res inter alios aliis neque nocet prodest The act, declaration or omission of another, cannot affect another, except as otherwise provided by law or agreement. In respect to PRIVITY OF INTEREST entered by the predecessor If the predecessor was duty-bound to do something to another, and at his death he was not able to fulfill the obligation, the heirs can be compelled to execute the fulfill of the contract in behalf of the predecessor.

The FAIR TEST in determining whether the third persons interest in a contract is a stipulation pour autrui To examine the intention of the parties as disclosed by their contract.
c. Where a third person induces another to violate his contract. Where in some cases, third person may be adversely affected by a contract where they did not participate. Where the law authorizes the creditor to sue on a contract entered into by his creditor.

d.

e.

ARTICLE 1312 CONTRACTS CREATING REAL RIGHTS *Another exception to the general rule that a contract binds only the parties. In contracts creating real rights, the third person who come into possession of the object of the contract are subjected to the provisions of the Mortgage Law and the Land Registration Laws. ARTICLE 1313 RIGHT OF DEFRAUDED CREDITORS *Another exception to the general rule that a contract binds only the parties.
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COMPULSORY or FORCED HEIR Those persons whom the testator or donor cannot deprive of the portion of his estate for they are reserved by the law for them Those persons who can only question the validity of contracts entered into by his predecessor or bring an action to annul the same.

May compulsory heirs question the deceaseds transactions? Yes, if they were voidable No, if they were illicit or illegal however they can file an action to rescind the contract.

Example: When A gratuitously gives B a parcel of land, and A has no other properties or cash left to satisfy hi creditors, said creditors may ask for the rescission of the contract, to the extent that they have been prejudiced. ARTICLE 1314: THE INDUCEMENT OF THIRD PERSON *Another exception to the general rule that a contract binds only the parties. Any third person who induces another person to violate his contract shall be liable for damages to other contracting party.

ARTICLE 1316: PERFECTION OF REAL CONTRACTS Real Contracts requires consent, subject matter, cause or consideration and DELIVERY in order for it to be perfect and binding. REAL CONTRACTS: a. Deposit b. Pledge c. Commodatum a loan wherein an identical object must be returned. Note:
Any contract to deposit, pledge or commodatum is a consensual contract. After delivery the contract transforms into a real contract. Can an aggrieved party sue for damages in a contract to pledge for example if the pledged item is never delivered? Yes, because of the consensual contract to make a pledge is already perfected and thus it is already binding. A consensual agreement to a constitute a pledge is binding, but the pledge itself or the real contract of pledge is not perfected and will not be binding until the delivery of such pledge.

Note: This is an instance when a stranger to a contract can be sued in view of his unwarranted interference. Whoever is injured may properly sue for damages. ARTICLE 1315: CONSENSUALITY OF CONTRACTS PERFECTION of CONSENSUAL CONTRACTS Perfected from the moment there is agreement or consent on the subject matter, and the cause or consideration WHEN A CONTRACT IS PERFECTED a. From the time an acceptance to the offer is made known to the one who made the offer. If the parties, intended that there should be an express acceptance, the contract will be perfected only upon the knowledge by the offeror of the express acceptance of the offeree. An offer which is modified by the offeree and subsequently accepted is not effective until the offeror constitutes an acceptance or rejection. The contract is not perfected if the offeror revokes or withdraws its offer and is the first to reach the offeree. The acceptance by the offeree of the offer after knowledge of the revocation or withdrawal of the offer is inefficacious.

ARTICLE 1317: REQUISITE for a PERSON to CONTRACT in the NAME of ANOTHER REQUISITES (Any of which will do): a. b. c. He must be duly authorized either expressly or impliedly. He must have by law a right to represent him. The contract must be subsequently ratified (expressly or impliedly, by word or by deed).
The death of the principal does not render the act of an agent unenforceable, where the agent had no knowledge of such extinguishment of the agency.

b.

c.

RATIFICATION It is the voluntary choice, knowingly made, which amounts to the conversion of what was then unauthorized to become an authorized act the principal party. ARTICLE 1318: ESSENTIAL REQUISITES of a CONSENSUAL CONTRACT
REQUISITES: a. Consent of both contracting parties b. Object certain which is the subject matter c. Cause of the obligation wherein it is established
Real Contracts requires an added requisite of DELIVERY

d.

e.

CONSEQUENCES of a PERFECTED CONTRACT a. The parties are bound to the fulfillment of what has been expressly stipulated and compliance thereof must be of good faith. The parties are also bound to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.

Solemn or Formal Contract requires an added requisite of COMPLIANCE WITH THE FORMALITIES REQUIRED BY LAW

EFFECT OF NON-CONSENT a. b. No Consent = VOID Vitiated Consent = VOIDABLE

b.

ARTICLE 1319: CONSENT CONSENT The meeting of the minds of both parties on the subject matter and the cause of the contract, even without delivery.

ARTICLE 1322: ACCEPTANCE OF AN OFFER THRU AN AGENT GENERAL RULE: There would be no meeting of the minds yet if the acceptance was made through an ordinary agent not authorized to receive acceptance until the acceptance is communicated to the principal himself. EXCEPTION: If the agent was expressly authorized to receive the acceptance or if the offeree had been instructed by the principal that an acceptance could be made directly to the agent, then there can be meeting of the minds and a perfection of the contract. ARTICLE 1323: OFFERS BECOMES INEFFECTIVE INSTANCES WHEN AN OFFER IS INEFFECTIVE: (Of either party before acceptance is conveyed) 1. Death 2. Insanity 3. Insolvency
Other instances when an offer is ineffective: 1. 2. 3. 4. 5. The offer is expressly or impliedly rejected The offer is accepted with a qualification or condition When before the acceptance is communicated the subject matter becomes illegal or impossible When the period of time given to the offeree within which he must signify his acceptance has already lapsed When the offer is revoked in due time

REQUISITE OF CONSENT a. There must be two or more parties b. The parties must be capable or capacitated c. There must be no vitiation of consent d. There must be no conflict between what was expressly declared and what was really intended. e. The intent must be declared properly and whatever legal formalities are required must be complied. REQUISITES for MEETING of the MINDS a. b. An offer that is already certain An acceptance that must be unqualified and absolute
What is An Offer that is Certain? An offer that is not vague, misleading or made as a joke and must have already a price. What constitute an unqualified and absolute acceptance? Both parties must come into an agreement of all the things to be considered to perfect the contract. Note: A counter-offer extinguishes the original offer and it may or may not be accepted by the original offeror. If a person offers a thing to another for a price certain and the person being offered agreed on the price but gives a counteroffer to buy more for the same price then there is only perfection of the original offer and another offer for the added items the offeree wanted.

ARTICLE 1324: GENERAL RULE ON OPTIONS GENERAL RULE: If the offerer has allowed the offeree a certain period to accept the offer, the offerer may withdraw his offer at any time before acceptance by the offeree provided that the offerer upon withdrawal of his offer, communicated it to the offeree. EXCEPTION: When the option is founded upon a consideration of something paid or promised and the contract of option is already perfected. ARTICLE 1325: BUSINESS ADVERTISEMENTS GENERAL RULE: Business advertisements of the things for sale are not definite offers, but mere invitation to make an offer. CONSIDERATIONS: a. If it appears that the advertisement contains all the specific particulars needed in a contract, then it is really a definite offer. If important details are left out, the advertisement is not a definite offer, but a mere invitation to make an offer.

ACCEPTANCE THRU LETTER OR TELEGRAMS a. Acceptance made by letter or telegram does not bind the offeror except from the time it came to his knowledge.
A Letter of withdrawal already sent by the offeror prior to receiving the letter of acceptance made by the offeree There is no perfection of the contract base on the letter of acceptance since the offer has already been withdrawn. It does not matter that the letter of withdrawal may have been received later by the offeree than the receipt of the acceptance letter by the offeror. What is importance is that the letter of withdrawal was made prior to the knowledge of acceptance.

ARTICLE 1320: FORMS OF ACCEPTANCE a. b. Express Implied from conduct or acceptance of unsolicited services c. Presumed by Law ARTICLE 1321: THINGS THAT MAY BE FIXED BY THE OFFERER a. The time b. The place c. The manner of acceptance
Note: There is no perfection of the contract if the acceptance made contrary to what is required by the offeror. Any act contrary to the prescribed terms constitutes a counter-offer or counter-proposal.

b.

ARTICLE 1326: ADVERTISEMENT for BIDDERS GENERAL RULE: The advertiser is not bound to accept the highest or lowest bidder in an auction EXCEPTION: Unless there is a stipulation in the contrary.
The acceptance of the proposal of the bidder must be communicated back to the bidder for the contract to be perfected. Anybody participating in the bidding at a public auction is understood to have submitted himself to all the conditions set forth at such sale.

ARTICLE 1329: MODIFICATIONS RE INCAPACITY INCOMPETENTS UNDER THE RULES OF COURT 1. 2. 3. 4. 5. 6. Under civil interdiction Hospitalized lepers Prodigals (spendthrifts) Deaf and dumb who are unable to read and write Those unsound of mind even though they have lucid intervals Those who by reason of age, disease, weak and another similar causes, cannot without outside aid, take care of themselves and manage their property, becoming easy prey for deceit and exploitation

ARTICLE 1327: VOIDABLE CONTRACT TWO CLASSES OF VOIDABLE CONTRACTS a. Those where on party is incapacitated to give consent b. Those where the consent of the either party has been vitiated. (Fraud, error, violence, intimidation or undue influence) PERSONS INCAPACITATED TO CONSENT 1. Unemancipated minors Minors not emancipated by either marriage, attainment of age of majority or by parental or judicial authority. Insane or demented persons Deaf-mutes who do not know to read and write
is submitted that the contract is valid, for they are capable of understanding and therefore capacitated to give consent.

Can a hospitalized leper or very old man who has not been placed into guardianship enter into a binding contract?

Yes, because he would still be presumed capacitated to enter into a contract. However, if it can be shown that intelligent consent is absent then the contract can be considered VOIDABLE.

ARTICLE 1330: VITIATED CONSENT CAUSES of VITIATED CONSENT a. Mistake b. Fraud c. Violence d. Intimidation e. Undue Influence Mistake and fraud Defects the intelligence Violence, intimidation and undue influence Affects the will
Voidable Contract Is binding and valid, unless annulled by a proper action in court.

2. 3.

Deaf-mutes who know how to read, but do not know how to write, it

PERSONS SPECIALLY DISQUALIFIED 1. 2. 3. 4. Husband and wife cannot sell or donate to each other. Insolvent people cannot make payments before they are discharged b the court. Persons disqualified because of fiduciary relationship. Contracts entered into by non-Christians when entered into within the territory covered by the former department of Mindanao and Sulu.

There must be a clear and convincing evidence of the presence of

vitiated consent. Mere preponderance of evidence on this matter is not sufficient.

ARTICLE 1331 MISTAKE or ERROR MISTAKE - is the false belief about something REQUISITES for MISTAKE to VITIATE CONSENT 1. The error must be substantial regarding:
a. The object of the contract

ARTICLE 1328: VOIDABLE CONTRACTS by REASON of INCAPACITY a. b. Insane or demented persons Those in the state of drunkenness Which results in complete loss of understanding and may therefore result in temporary insanity Those entered into during a hypnotic spell induced deliberately by drugs or by deliberate or unintentional hypnotism

Ex: a person signed a contract of sale thinking it was only a contract of loan.
b. The conditions which principally moved or induced one of the parties

c.

Ex: error in knowledge about the true boundaries of a parcel of land offered for sale.
c. Error Personae

This vitiates consent only when such identity or qualifications have been the principal cause of the contract.
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2. 3.

The error must be excusable (not caused by negligence) The error must be a mistake of fact and not of law
because of it without knowing it is a mistake.

REQUISITE for INTIMIDATION to VITIATE CONSENT a. b. c. d. e. Reasonable and well-grounded fear Of an imminent and grave evil Upon his person, property or upon the person or property of his spouse, descendants or ascendants It must have been the reason why the contract was entered into The threat must be of an unjust act, an actionable wrong
claim is just or legal, then it does not vitiate consent.

The error is substantial in the sense that the party gave his consent
ERROR in QUALITY Error lies in the quality of the prestation of the contract ERROR in QUANTITY The error lies in the quantity that was originally agreed upon. EXCUSABLE ERROR The error does not vitiate consent if the party in error was negligent, or if having had an opportunity to ascertain the truth, he did not do so. There is also no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract.

A threat to enforce ones claim through competent authority or if the i.Reasonable and well-grounded fear a. Reasonable and well-grounded fear depends upon the age, condition and sex of the person concerned. The mere knowledge of severe penalties that might be imposed is not enough. The intimidation must be more than the general feeling of fear. Those who threaten have power and when then maltreatment was accompanied the threat.
without the presence of intimidation, it is clear that the contract should be considered valid, for consent is certainly cannot be considered vitiated.

ARTICLE 1332: RULES in CASE of INABILITY to READ or UNDERSTAND When the aggrieved party is unable to read or if the contract is in a
language not understood by him and the aggrieved party is alleging fraud; the other party enforcing the contract must show that the terms thereof have been fully explained to the former.

b.

c.

NATURAL PRESUMPTION: A person always acts with due care and signs with full knowledge of all the contents of a document. This is true even if the mind of the party was confused at the time of signing, as long as he knew what he is doing. He, thus, cannot repudiate the transaction PRESUMPTION CANNOT APPLY a. When one of the party is unable to read b. If the contract is in a language not understood by one of the parties. ARTICLE 1333 KNOWLEDGE of DOUBT or RISK DOES NOT VITIATE CONSENT It is assumed here that the party was willing to take the risk. This is particularly true in contracts which are evidently aleatory in nature. ARTICLE 1334 REQUISITES for MUTUAL ERROR to VITIATE CONSENT a. b. c. Existence of mutual error The error must refer to the legal effect of the agreement or it must be a mistake of Law. The real purpose of the parties is frustrated.

If the person concerned would have entered into the contract even

REVERENTIAL FEAR The fear of displeasing a person to whom obedience and respect are due. The contract is still valid, for by itself reverential fear is not wrong ARTICLE 1336 VIOLENCE or INTIMIDATATION CAUSE by THIRD PERSON Even if a third person exercises the violence or intimidation, the contract may still be annulled since the consent is still vitiated. ARTICLE 1337 UNDUE INFLUENCE UNDUE INFLUENCE Is the act when a person takes improper advantage of his power over the will of another, depriving another persons freedom of choice. REQUISITE for UNDUE INFLUENCE to VITIATE CONSENT a. b. c. Improper advantage Power over the will of another Deprivation of the another persons freedom of choice

There is no meeting of the minds, and the remedy is annulment. ARTICLE 1335 VIOLENCE & INTIMIDATION VIOLENCE refers to physical coercion INTIMIDATION moral coercion REQUISITES for VIOLENCE to VITIATE CONSENT a. Employment of serious or irresistible force b. It must have been the reason why the contract was entered into.
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CIRCUMSTANCES to be CONSIDERED a. b. c. d. Confidential, family, spiritual and other relations between parties Mental weakness Ignorance Financial distress

 If the influence is DUE or ALLOWABLE, as when caused by

solicitation, importunity, argument and persuasion, same is not prohibited by law, morals or equity.

ARTICLE 1338 KINDS OF FRAUD FRAUD in CELEBRATION: Fraud Proper a. Dolo Causante or Causal Fraud The fraud is the cause why the other party give his consent Effect: the contract is voidable Dolo Incidente or Incidental Fraud Even without the fraud the parties would have agreed just the same, the fraud is only incidental in causing the consent Effect: the contract is valid however the aggrieved party can file an action for damages

normal and subject to be moved by substantially the same motives. When of age and sane, they must take care of themselves. In their relations with other in the business of life, wits, sense, intelligence, training, ability and judgment meet and clash and contest, sometimes with gain an advantage to all, sometimes to a few only, with loss and injury to others In these contests, men must depend upon themselves, upon their own abilities. One man cannot complain because another is more able, or better trained or has better sense of judgment than he has. The law furnishes no protection to the inferior simply because he is inferior. Courts cannot follow every step of ones life and extricate him from bad bargains, protect him unwise investments, relieve him from one-sided contracts or annul the effects of foolish acts. Courts operate not because on person has been defeated or overcome illegally. (Vales vs Villa, 35 Phil. 769)

b.

ARTICLE 1339 FAILURE to DISCLOSE FACTS Concealment or failure to disclose facts when there is a duty to disclose them constitutes fraud. ARTICLE 1340 USUAL EXAGGERATION in TRADE The rule of Caveat Emptor: let the buyer beware A buyer must be on his guard. It is his duty to check the title of the seller, otherwise the buyer gets the subject at his own risk. Usual Exaggerations in Trade (Dealers Talk) Constitute tolerated fraud when the other party had an opportunity to know the facts. A man who relies upon an affirmation made by a person, whose interest might so readily prompt him to exaggerate the value of his property, does so at his own risk. He must therefore take the consequences of his own imprudence.

FRAUD IN PERFORMANCE of the obligations stipulated in the contract This kind of fraud presupposes the existence of an already perfected contract Dolo Causante or Causal Fraud The use of insidious words and machinations by one of the contracting parties to induce the other party to enter into a contract, which without them, he would not have agreed to. REQUISITES of DOLO CAUSANTE a. The fraud must be material and serious, it really induced the consent. The fraud must have been employed by only one of the contracting parties, because if both committed to fraud then the contract would remain valid. There must be a deliberate intent to deceive or to induce fraud; therefore, misrepresentation in good faith is not fraud. The other party must have relied on the untrue statement and must himself not be guilty of negligence in ascertaining the truth.
evidence thereof. If one party is able to read and understand, yet he still affixes his signature without reading, his negligence will prevent the annulment of the contract.

b.

What does not appear on the face of the written contract should be
regarded as Traders Talk or Dealers Talk

c.

ARTICLE 1341 MERE EXPRESSION of an OPINION A mere expression of an opinion does not signify fraud, unless made by an expert and the other party had relied on the formers special knowledge. X, desiring to buy a certain property, hired an expert to ascertain
its true value. But the experts opinion turned out wrong. May X ask for the annulment of the contract?

d.

The party who alleges the fraud must present full and convincing

If both parties had the opportunity to the exact nature of the

subject matter of the contract, will an action for annulment due to deceit prosper?
No, the action for annulment will not prosper since in this case, the means of knowledge are at hand and equally available to both parties. The action will not prosper inasmuch as the buyer had the opportunity to verify for himself the representations of the seller but opted not to do so. if a man enters into a ridiculous contract because of a wrong

No, because the one who made a mistake is the expert hired by X, therefore he is committed to the error made by his employee.

ARTICLE 1342 MISREPRESENTATION by a THIRD PERSON How does the participation of a third person in force and in fraud or misrepresentation differ? a. Force or intimidation by a third person makes the contract VOIDABLE

judgment although he is well in possession of his mental facilities, will the court grant a relief by annulling the contract?
No, for in this case, it was the mans own fault. The Supreme Court said: All men are presumed to be sane and

b. 1. 2.

Fraud by a third person does not make the contract voidable unless: The representation has created substantial mistake The mistake is mutual In this case the contract may be annulled not by the ground of fraud but in the ground of error or mistake. ARTICLE 1343: MISREPRESENTATION in GOOD FAITH

Distinction between illegal contract and simulated contract: According to the Supreme Court, in a simulated contract, the contract is not really intended to produce any illegal effect or in any way alter the juridical situation of either party, however for an illegal contract, it is made for the purpose of circumventing a prohibited act and the contract has a real and effective effect.

ARTICLE 1347 OBJECT of CONTRACTS Object or the Subject Matter of the Contract This is the prestation of the contract which will either create or end the obligation. This is what the party has or will give up REQUISITES Within the commerce of man either existing or in potency Licit or not contrary to law, morals, good customs, public order or public policy Possible and Future Things Determinate as to its kinds or determinable w/o the need to enter into a new contract Transmissible
Future Inheritance cannot be an object of a contract when the original owner of the property is still alive.

Misrepresentation in good faith is not fraudulent but may constitute error. In this case, the contract may be annulled but not on the ground of
fraud but on the ground of substantial error.

ARTICLE 1344 REQUISITES FOR FRAUD TO VITIATE CONSENT REQUIREMENT for FRAUD to VITIATE CONSENT a. b. The fraud must be serious The parties must not be in pari delicto (mutual guilt). Otherwise, the contract will be considered valid. ARTICLE 1345 SIMULATION OF CONTRACT SIMULATION of a CONTRACT It is the process of intentionally deceiving others by producing the appearance of a contract that does not really exist or is different from the true agreement REQUISITES for SIMULATION a. b. c. An outward declaration of will different from the will of the parties The false appearance must be intended by mutual agreement The purpose is to deceive the third person. ARTICLE 1346 KINDS OF SIMULATED CONTRACTS Absolute Simulation Producing the appearance of a contract that does not really exist The parties do not intend to be bound at all Effect: the contract is void Relative Simulation Producing a contract different from the true agreement. Effect: the parties are bound to the real or true agreement
Instances when a Relative Simulated Contract will not bind the parties to its true intentions: a. b. If the contract will prejudice a third person If the true purpose is contrary to law, morals, good customs, public order or public policy

ARTICLE 1348 IMPOSSIBLE THINGS or SERVICES Impossible things or services cannot be the object of the contracts a. b. c. Impossibility maybe because of the nature of the transaction or because of the law Absolute impossibility - no one can do it Relative or Subjective Impossibility it is impossible for the debtor to comply

Impossibility must be confused with mere difficulty. Showing inconvenience, unexpected impediments or increased expenses is not enough.

ARTICLE 1350 CAUSE OF CONTRACTS Cause of the Obligation The impelling reason why a party assumes an obligation This is that either party receives Classification of the Contracts as to its Cause a. Onerous thing or service by the other party b. Remuneratory the past service or benefit which by itself is a recoverable debt c. Gratuitous the cause is the liability of the benefactor Requisites for Cause
a. It must be present or existing at the perfecting of the contract Effect if not present: VOID It must be true Effect if not present: Invalid It must be lawful Effect if not present: VOID

b. c.

Absence of Cause Illegal Cause False Cause

VOID no legal effect VOID no legal effect VOIDABLE the party alleging the
falsity of the cause has the burden of the proving the true cause of the contract and illegality if it is illegal.

c.

Cause not stated in the Contract

LESION or Inadequacy of Cause

PRESUMED TO EXIST and LAWFUL The burden of proof is on the person assailing its existence DOES NOT INVALIDATE A CONTRACT Except: 1. 2. 3. 4.

Fraud Mistake Undue Influence Cases specified by law

Law requires the contract to be in some form for convenience Public documents needed for the following: 1. Contracts w/c object is creation, transmission or reformation of real rights over immovable 2. Cession, repudiation, renunciation of hereditary rights or of those of the conjugal partnership of gains 3. Power to administer property for another 4. Cession of action of rights proceeding from an act appearing in a publicist. 5. All other documents where the amount is in excess of 500 must be in writing

ARTICLE 1351: MOTIVES Motive Purely private reason for entering into a contract Illegality of the motive does not invalidate the contract

Formal requirements for the execution of a public document are only for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract or the contractual rights and obligations of the parties thereunder.

Generally, oral contracts are valid and enforceable.

Example: A bought a gun from B because A wants to kill himself using the gun. Buyers Viewpoint: Cause the gun Object the money to pay for the gun Motive of the buyer to kill himself using the gun ARTICLE 1356 FORMS OF CONTRACTS Form It is the manner in which a contract is executed or manifested

ARTICLE 1357 RIGHT of ONE PARTY to COMPEL the OTHER to EXECUTE the NECESSARY FORM The contracting parties may compel one another to execute the contract in a certain form provided that the entire essential requisite are present or in other words already been perfected. And if a certain form is provided for in the law, then that form is absolute and if the form is not followed then the contract is invalidated and unenforceable in the eyes of the court, that is why a party cannot compel the other party to execute the needed document with the help of the court. Example: If a sale was made orally, may be the buyer to compel the seller to execute a needed public instrument?
a. If the contract is still in the process of completion

When Form is Important: 1. For Validity ( formal/solemn contracts) 2. For Enforceability ( statute of frauds) 3. For Convenience
b.

The buyer cannot compel the seller to execute the needed public instrument since the contract is not enforceable in the Statute of Frauds, which requires sales of real property to be in writing to enforceable by court action Then the buyer can now compel the seller to execute a public document because the contract is now considered both valid and enforceable

If the contract is already satisfied by payment and delivery

General Rule: Contracts are valid and binding in whatever form they are so long as the three essential requisites are present such as the
consent, object or subject matter and the cause.

REFORMATION OF INSTRUMENTS Reformation The remedy to conform a contract to the real intention of the parties when some error, mistake, fraud, inequitable conduct or accident has been committed. ARTICLE 1359 REFORMATION vs ANNULMENT
Reformation

Exception: a. Law requires a contract to be in some form for validity

1. 2. 3. 4. 5. Formal Contracts / Solemn Contracts for donations Real Contracts require delivery Stipulations to pay interest on loans Transfer of large cattle Authority of an agent to sell lands Contracts of Antichresis

6. b.

Law requires contract to be in some form to be enforceable Statute of fraud needs a contract to be valid to enforce fraud or ratification to be enforceable Except when even if the contract is not written, it is partially executed
Reason: Equality and Fairness 10

When there is meeting of the minds but due to mistake, fraud and the like, the true intentions of the parties are not expressed then, the remedy is reformation
Effect: Does not invalidate a contract

Annulment

When there is no meeting of the minds since consent was vitiated then the proper remedy is annulment
Effect: Invalidates a contract

What complaint must be allege? 1. 2. The instrument to be reformed does not express the parties real agreement or intention What the real intention or agreement was INTERPRETATION OF CONTRACTS THE USE for INTERPRETING CONTRACTS
It is true that we must apply the terms of the contract, but only when the terms are so clear that there is no doubt regarding the intention of the contracting parties. In other cases, we should apply the rules of interpretation.

Requisite for the Action of Reformation 1. 2. 3. 4. 5. There is a written instrument There is meeting of the minds The true intentions were not expressed in the contract There must be a clear and convincing proof The facts must be put in issue in pleadings

Can an action for reformation still prosper despite the existence of the mortgage in favor of a third person? YES, the action for reformation may still prosper despite the mortgage in favor of the third person.

General Rule:
In case of conflict between the word of the contract and the evident intention of the parties, the intention must prevail since the contract is interpreted not base on the letter that killeth it but by the spirit that giveth life.

Grounds for Reformation a.

Mutual Mistake : the instrument includes something w/c should
not be there or there is an omission

b.

Both party made the mistake Mistake should be of fact Must be proven by clear and convincing evidence Causes failure of instrument to express true intention

Exception:
When the terms and provisions thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall control.

Unilateral Mistake but the other party acted in Fraudulently, Inequitably or guilty of concealment The party in good faith may ask for reformation Mistake by third person: only the following The drafter of the
instrument, the clerk or the typist

How to Judge the intent of the parties a. If the parties themselves made an interpretation on the terms of the contract, then such interpretation must be generally followed The contract of the parties may result in estoppel The courts may consider the relations existing between the parties and the purpose of the contract, when the contract was particularly made in good faith between mutual friends.

c.

d.

Ignorance Lack of skill Bad faith

b. c.

Intent to Have a Mortgage or Pledge However, the instrument states that the property is sold absolutely or with a right of repurchase The parties will be judge base on their contemporaneous and subsequent acts

THE USE OF GENERALIZED TERMS

In a contract, if there are stipulations that are generalized, like the use of the word all or entire; this should not be understood to include things that are distinct and cases that are different of situation from those upon which the parties intended to agree.

Instances when Reformation is not available 1. Simple donations inter vivos wherein no conditions are imposed 2. Will 3. When the real agreement is void 4. Estoppel: when one of the parties brought an action to enforce it then
he cannot subsequently ask for its reformation Reformation prescribes 10 years from the date of execution of the instrument

Note: Just as special provisions controls a general provision, a special intent also prevails over a general intent.

STIPULATION BEARING SEVERAL MEANINGS

If a stipulation of a contract bears several meanings, then the meaning that will prevail is the one that would render the adequate and effectual to the contract.

ARTICLE 1360 IN CASE of CONFLICT In case of conflict between the principles of the Civil Code and that of the general law, then the Civil Code prevails and the general law shall only have a suppletory effect. ARTICLE 1368 ACTION FOR REFORMATION Who can order for Reformation?
a. b. If the mistake is mutual

STIPULATIONS TO BE READ IN ITS ENTIRETY

The various stipulations of a contract shall be read interpreted together, to make sense of a doubtful interpretation if the stipulations are separately considered.

WORDS IN THE CONTRACT WITH DIFFERENT MEANINGS

Words which may have different significations or meanings shall be understood in the way which is best in line with the nature and object of the contract.

Either party or their successors in interest Only the injured party or his heirs and assigns
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In all other cases

Note: If a word is susceptible to two or more meanings, what meaning should be used? a. b. The one which is aligned to the contracts nature and object If this cannot be determined, then the terms of writing are presumed to have been used in their primary and general acceptation.

Usage or Customs An instrument may be construed according to usage in order to determine its true character You cannot come to court if your hands are not clean

USAGE OF A CUSTOM OF THE PLACE

The usage or custom of a place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.

~God Bless~

*Everything will be Alright*

INTERPRETATION OF OBSCURE WORDS

The interpretation of obscure or vague words stipulated in the contract shall be in favor of the party that did not cause it. Example: Case of Govt of the Philippines vs Derham Brothers, 36 Phil 960 Held: The contractor is correct since it was the government that caused the ambiguity, so the interpretation of its should not be in the governments favor and therefore it can be concluded that it was not intended by the contracting parties that the whole street would be metalled. When different interpretations of a provision are otherwise proper, that construction is to be taken which is the most favorable to the party in whose favor the provision was made and did not cause the ambiguity.

ARTICLE 1378: WHEN THERE IS DOUBT The existence of doubt: a. The principal object Effect: the contract is VOID b. The incidental circumstances Following rules will apply: 1. 2. If Gratuitous: rule of least transmission of rights and
interest

If Onerous: rule of greatest reciprocity of interest

Applicability of Rule 123, Rules of Court Language in the Place of Execution The language used in writing shall have a legal meaning of that where the place of execution of the contract, unless otherwise intended by the party Meaning of the Word Used The terms of writings are presumed to have been used in their primary and general acceptation, but evidence is admissible to show that they have a local, technical or unique meaning and signification Conflict between Printed and Written (Not Printed) Words When the instrument consists partly of written words and partly of a printed form and the two are inconsistent, the former controls the latter The Use of Experts and Interpreters The evidence of persons skilled in deciphering the characters or who understood the language is admissible to declare the characters or the meaning of the language
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