Civil Law Review Ii CONTRACTS - Atty. Crisostomo Uribe Provisions

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CIVIL LAW REVIEW II

CONTRACTS | Atty. Crisostomo Uribe
Provisions
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A. IN GENERAL
1. Definition (Art. 1305)

Auto-contract (Arts. 1491, 1646, 1890)
Art. 1305
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.
Auto-contract
 Where only one person represents the 2 opposite parties to the contract.
 Eg. When an agent lends money to his principal whom he represents as borrower.
Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or
through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his guardianship;
(2) Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal
has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or
controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply
to judges and government experts who, in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees
connected with the administration of justice, the property and rights in litigation or levied upon an execution before the
court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of
acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their profession;
(6) Any others specially disqualified by law.
Article 1646. The persons disqualified to buy referred to in articles 1490 and 1491, are also disqualified to become lessees of
the things mentioned therein.
Article 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.
2. Elements of Contracts
a. Essential
b. Natural
c. Accidental
Batchelder v. CB
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B. FUNDAMENTAL CHARACTERISTICS/PRINCIPLES
1. Consensuality of Contracts (Arts. 1305, 1371)
Contract of Adhesion
Art. 1305
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.
Art. 1371
In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally
considered.
Republic v. PLDT
Corpus v. CA
Ejercito, et., al. v. Oriental Assurance Corp.
2. Autonomy of Contracts (Arts. 1306, 1799, 2088, 2130)
LAW EFFECT IN CASE OF VIOLATION

Stipulations, clauses, terms and conditions should
Article 1306 not be contrary to law, morals, good customs,
public order, or public policy.
Article 1799 Stipulation should not exclude one or more VOID
partners from any share in the profits or losses.
Article 2088 CR cannot appropriate the things given by way of NULL AND VOID
pledge or mortgage, or dispose of them.
Article 2130 Stipulations should not forbid the owner from VOID
alienating the immovable mortgaged.
Daisy Tiu v. Platinum Plans

Cui v. Arellano University
Saura v. Sindico
Leal v. IAC
3. Mutuality of Contracts (Arts. 1308-1310, 1182)
Acceleration Clause
Escalation Clause
Article 1308.
 The contract must bind both contracting parties.
 Contract’s validity or compliance cannot be left to the will of one of the parties.
Determination of the Performance

 May be left to a 3rd person, BUT such decision shall not be binding until it has been made known to both contracting
parties. (1309)
 Shall not be obligatory if evidently inequitable.
o In such case, the courts shall decide what is equitable under the circumstances. (1310)
Fulfillment of the Condition in a Conditional Obligation (Art. 1182)

LAW EFFECT IN CASE OF VIOLATION
Depends on the sole will of the DR VOID
Depends upon chance Obligation shall take effect in conformity with the
law
Depends upon the will of a 3rd person Obligation shall take effect in conformity with the
law
4. Obligatory Force of Contracts (Arts. 1159, 1315-1316, 749)
 Have he force of law between the contracting parties (1159)

 Should be complied with in good faith (1159)
 Perfected by mere consent (1315)
o Except:
1. In real contracts (eg. deposit, pledge and commodatum)
a. Perfected upon delivery of the object of the obligation (1316)
2. Donation of an immovable
a. In a public document
b. Acceptance must be in the same deed or in a separate public doc
i. If made in a separate instrument, the donor shall notified in an authentic form and
this step shall be noted in both instruments.
c. Shall not take effect unless it is done during the lifetime of the donor (749)
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 From the moment of perfection, parties are bound:

o Not only to the fulfillment of what has been expressly stipulated
o But also to all the consequences which, according to their nature, may be in keeping with good faith, usage and
law. (1315)
New World v. AMA CLC
5. Relativity of Contracts (Arts. 1311-1314, 1177-1178, 1381[3])

Privity of Contracts
Article 1311:
RULE LIMITATION EXCEPTION
Contracts take effect only between: Where the rights and obligations
1. the parties The heir is not liable beyond the value arising from the contract are not
2. their assigns and of the property he received from the transmissible by their nature, or by
3. heirs. decedent. stipulation or by provision of law.
If a contract should contain some stipulation A mere incidental benefit or interest of
in favor of a 3rd person, he may demand its a person is not sufficient.
fulfillment provided he communicated his
acceptance to the obligor before its Parties must have clearly & deliberately
revocation. conferred a favor upon a 3rd person.
SUBJECT RULE EXCEPTION EFFECT IN CASE OF

VIOLATION
Contracts Creating Real Such 3rd persons are bound
Rights, 3rd person come into thereby, subject to the provisions
possession of the object of the of the Mortgage Law and the Land
contract Registration Laws. (1312)
Contracts Intended to Defraud CRs are protected. (1313)
CRs
Any third person who induces Such 3rd person is liable for
another to violate his contract damages to the other
contracting party. (1314)
Such CRs may:
CRs, after having pursued the 1. Exercise all the rights Save those which are
property in possession of the 2. Bring all the actions inherent in DR’s person.
DR to satisfy their claims 3. Impugn the acts which (1177)
the DR may have done to
defraud them
All rights acquired in virtue of Transmissible. If there has been no
an obligation stipulation to the
contrary. (1178)
Contracts in fraud of CRs
when the latter cannot in any Rescissible Rescissible.
other manner collect the
claims due them
Saludo v. Security Bank

Metrobank v. Reynaldo and Andrandea
Prudential Bank v. Abasolo
Asian Cathay Finance v. Sps. Cesario
Gravador and Norma de Vera et. al
Velasco v. CA
Kauffman v. PNB
Bonifacio Bros. v. Mora
Florentino v. Encarnacion
Bank of America v. IAC
Marimperio v. CA
Daywalt v. Corp de PP Agustinos
Gilchrist v. Cuddy
Estate of KH Hemady v. Luzon Surety
Sp Ping Bun v. CA
Sanico and Castro v. Colipano
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C. CLASSIFICATION OF CONTRACTS
1. Accdg. To Degree of Dependence

a. Preparatory (Arts. 1479, 1767, 1868)
b. Principal (Arts. 1458, 1638, 1642, 1933, 1962)
c. Accessory (Arts. 2047, 2085)
PREPARATORY
Promise to buy & sell
Determinate thing Reciprocally demandable. (1479)
For a price certain
Accepted unilateral promise to buy/sell
Determinate thing Binding upon the promisor if the promise is supported by a consideration distinct
For a price certain from the price. (1479)
Contract of Partnership A person binds himself to render some service or to do something in representation
or on behalf of another, with the consent or authority of the latter. (1767)
Contract of Agency A person binds himself to render some service or to do something in representation
PRINCIPAL
One of the contracting parties obligates himself to transfer the ownership and to
Contract of Sale deliver a determinate thing, and the other to pay therefor a price certain in money or
its equivalent. It may be absolute or conditional. (1458)
Contract of Barter or Exchange One of the parties binds himself to give one thing in consideration of the other's
promise to give another thing. (1638)
One of the parties delivers to another, either something not consumable so that the
latter may use the same for a certain time and return it, in which case the contract is
Contract of Loan called a commodatum; or money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum. (1933)
Constituted from the moment a person receives a thing belonging to another, with
the obligation of safely keeping it and of returning the same.
Deposit
If the safekeeping of the thing delivered is not the principal purpose of the contract,
there is no deposit but some other contract.
ACCESSORY
Guaranty A a person, called the guarantor, binds himself to the creditor to fulfill the obligation
of the principal debtor in case the latter should fail to do so. (2047)
Suretyship If a person binds himself solidarily with the principal debtor.
The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
Pledge and Mortgage (2) That the pledgor or mortgagor be the absolute owner of the thing pledged
or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal
of their property, and in the absence thereof, that they be legally authorized
for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property. (2085)
2. Accdg. To Perfection
a. Consensual (Arts. 1315, 1475)
b. Real (Arts. 1316, 1934)
c. Formal (Art. 1356)
CONSENSUAL
Perfected by mere consent.
Contracts From that moment the parties are bound:

(1) Not only to the fulfillment of what has been expressly stipulated
(2) but also to all the consequences which, according to their nature, may be
in keeping with good faith, usage and law. (1315)
Perfected at the moment there is a meeting of minds:
Contract of Sale (1) upon the thing which is the object of the contract AND
(2) upon the price.
REAL
Real Contracts Not perfected until the delivery of the object of the obligation.
(eg. deposit, pledge and commodatum)
Accepted promise to deliver something by Binding upon parties
way of commodatum or simple loan BUT the commodatum or simple loan itself shall not be perfected until the delivery of
the object of the contract.
FORMAL
Obligatory, in whatever form they may have been entered into, provided all the
Contracts essential requisites for their validity are present.
However, when the law requires that a contract be in some form in order that it may
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be valid or enforceable, or that a contract be proved in a certain way, that

requirement is absolute and indispensable.
In such cases, the right of the parties stated in the following article cannot be
exercised.
3. Accdg. To Solemnity or Form (Art. 1356)

a. Any form
b. Special form
CONSENSUAL
Obligatory, in whatever form they may have been entered into, provided all the
Any Form essential requisites for their validity are present.
However, when the law requires that a contract be in some form in order that it may
be valid or enforceable, or that a contract be proved in a certain way, that
Special Form requirement is absolute and indispensable.
In such cases, the right of the parties stated in the following article cannot be
exercised.
4. Accdg. To Purpose
a. Transfer of Ownership (Arts. 725, 1458, 1638)
b. Conveyance of Use (Arts. 562, 1642, 1933)
c. Rendition of Service (Arts. 1642, 1868)
TRANSFER OF OWNERSHIP
Donation An act of liberality whereby a person disposes gratuitously of a thing or right in favor
of another, who accepts it. (725)
its equivalent. A contract of sale may be absolute or conditional. (1458)
CONVEYANCE OF USE
Gives a right to enjoy the property of another with the obligation of preserving its
Usufruct form and substance, unless the title constituting it or the law otherwise provides.
(1642)
Lease of things: one of the parties binds himself to give to another the enjoyment or
use of a thing for a price certain, and for a period which may be definite or indefinite.
Contract of Lease However, no lease for more than ninety-nine years shall be valid.
Lease of work or service: one of the parties binds himself to execute a piece of work
or to render to the other some service for a price certain, but the relation of principal
and agent does not exist between them.
Consumable goods: cannot be the subject matter of a contract of lease, except when
they are merely to be exhibited or when they are accessory to an industrial
establishment. (1642 and 1463)
RENDITION OF SERVICE
Contract of Agency A person binds himself to render some service or to do something in representation
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5. Accdg. To Nature of Obligation Produced

a. Bilateral (Arts. 1642, 1458)
b. Unilateral (Arts. 2047, 2093)
BILATERAL
UNILATERAL
Guaranty A person, called the guarantor, binds himself to the creditor to fulfill the obligation of
the principal debtor in case the latter should fail to do so. (2047)
Pledge The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged
or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property. (2085)
In addition to the requisites prescribed in article 2085, it is necessary, in order to

constitute the contract of pledge, that the thing pledged be placed in the possession
of the creditor, or of a third person by common agreement. (2093)
6. Accdg. To Cause (1350)

a. Onerous (Arts. 1458, 1638, 1642)
b. Gratuitous or Lucrative (Arts. 725, 1933)
c. Remuneratory – where the cause is the service or benefit remunerated.
Art. 1350
Onerous - the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other.
Remuneratory - the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the
benefactor.
ONEROUS
Contract of Lease It may be of things, or of work and service. (1642)
GRATUITOUS OR LUCRATIVE
Donation An act of liberality whereby a person disposes gratuitously of a thing or right in favor
of another, who accepts it. (725)
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7. Accdg. To Risk
a. Commutative – where the parties give equivalent values; (eg. sale and barter) hence, there is real fulfillment
b. Aleatory (Art. 2010) - one of the parties or both reciprocally bind themselves to give or to do something in consideration
of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an
indeterminate time.
8. Accdg. To Name
a. Nominate – those which have a name under the law
b. Innominate (Art. 1307) - 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.
6. Accdg. To Subject Matter

a. Thing
b. Right
c. Service
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D. STAGES OF CONTRACTS
1. Negotiation
2. Perfection
3. Performance
4. Consummation
Negotiation
Contract of Option
Article 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.
Article 1479.
A promise to buy and sell a determinate thing for a price certain
 Reciprocally demandable.
Article 1482.
Whenever earnest money is given in a contract of sale
 Shall be considered as part of the price and
 as proof of the perfection of the contract.
SANCHEZ v. RIGOS: plaintiff Nicolas Sanchez and defendant Severina Rigos executed an instrument entitled "Option to Purchase,"
whereby Mrs. Rigos "agreed, promised and committed ... to sell" to Sanchez for the sum of P1,510.00, a parcel of land within (2)
years from said date with the understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail to
exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of payment of the sum of
Pl,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos,. The former deposited said amount with the CFI and
commenced against the latter the present action, for specific performance and damages. Defendant raised the special defense,
that the contract between the parties "is a unilateral promise to sell, and the same being unsupported by any valuable
consideration, by force of the New Civil Code, is null and void".
 SC: The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract
to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by the
caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant "agreed,
promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in
the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration
"distinct from the price" stipulated for the sale of the land.
 Relying upon Article 1354, the lower court presumed the existence of said consideration, and this would seem to be the
main factor that influenced its decision in plaintiff's favor. It should be noted, however, that:
o (1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in
particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article
1479 is controlling in the case at bar.
o (2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the
concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price."
Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former
establishes the existence of said distinct consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even allegedthe existence thereof in his complaint.chan
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E. ESSENTIAL ELEMENTS OF CONTRACTS
Article 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.
1. Consent
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.
An acceptance may be express or implied.
The person making the offer may fix the time, place, and manner of acceptance,
 all of which must be complied with.
An offer made through an agent

 accepted from the time acceptance is communicated to him.
Offer becomes ineffective upon the:

1. death
2. civil interdiction
3. insanity, or
4. insolvency of either party before acceptance is conveyed.
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. (n)
Business advertisements of things for sale

 Not definite offers
 Mere invitations to make an offer
Advertisements for bidders

 Simply invitations to make proposals
 Advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears.
Persons who cannot give consent to a contract:

(1) Unemancipated minors;
(2) Insane or demented persons, and
(3) deaf-mutes who do not know how to write.
Contracts entered into during a lucid interval

 Valid
Contracts agreed to in a state of drunkenness or during a hypnotic spell

 Voidable.
The incapacity declared in article 1327 (minors and insane) is subject to the modifications determined by law, and is understood to
be without prejudice to special disqualifications established in the laws.
Consent given through mistake, violence, intimidation, undue influence, or fraud

 Voidable.
 To invalidate consent given by mistake – if should refer to:
o substance of the thing which is the object of the contract
o conditions which have principally moved one or both parties to enter into the contract
Mistake as to the identity or qualifications of one of the parties

 Vitiate consent only when such identity or qualifications have been the principal cause of the contract
Simple mistake of account

 Shall give rise to its correct
One of the parties is unable to read, or the contract is in a language not understood by him + mistake/fraud is alleged
 Person enforcing the contract must show that the terms thereof have been fully explained to the former
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NO MISTAKE
 If the party alleging it knew the doubt, contingency or risk affecting the object of the contract
Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated
 May vitiate consent
Violence - when in order to wrest consent, serious or irresistible force is employed
Intimidation - when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave
evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent.
 To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind.
Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in
the contract.
Threat to enforce one's claim through competent authority + if the claim is just or legal
 Does not vitiate consent.
Undue Influence - when a person takes improper advantage of his power over the will of another, depriving the latter of a
reasonable freedom of choice.
 The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties,
or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant
or in financial distress.
Fraud
 when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to.
 Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations,
constitutes fraud.
 The usual exaggerations in trade, when the other party had an opportunity to know the facts , are not in themselves
fraudulent.
 A mere expression of an opinion does not signify fraud
o unless made by an expert and the other party has relied on the former's special knowledge.
 In order that fraud may make a contract voidable
o it should be serious and should not have been employed by both contracting parties.
 Incidental fraud only obliges the person employing it to pay damages.
Misrepresentation by a third person

 does not vitiate consent,
 unless such misrepresentation has created substantial mistake and the same is mutual.
Misrepresentation made in good faith

 not fraudulent but may constitute error.
Simulation of a contract
 may be absolute or relative.
o Absolute - takes place when the parties do not intend to be bound at all
 An absolutely simulated or fictitious contract is void.
o Relative - when the parties conceal their true agreement.
 A relative simulation, when it does not prejudice a third person and is not intended for any purpose
contrary to law, morals, good customs, public order or public policy binds the parties to their real
agreement.
Cognition Theory
Manifestation Theory
2. Object which is the subject matter of the contract
Things
 Things not outside the commerce of men, including future things, may be the object of a contract.
Right
 All rights which are not intransmissible may also be the object of contracts.
 No contract may be entered into upon future inheritance except in cases expressly authorized by law.
Service
 All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object
of a contract.
Impossible things or services

 cannot be the object of contracts.
The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract
between the parties. (1273)

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KKMD | 1

CIVIL LAW REVIEW II

1. Definition (Art. 1305)

1. Consensuality of Contracts (Arts. 1305, 1371)

2. Autonomy of Contracts (Arts. 1306, 1799, 2088, 2130)

LAW EFFECT IN CASE OF VIOLATION

Daisy Tiu v. Platinum Plans

3. Mutuality of Contracts (Arts. 1308-1310, 1182)

Determination of the Performance

Fulfillment of the Condition in a Conditional Obligation (Art. 1182)

4. Obligatory Force of Contracts (Arts. 1159, 1315-1316, 749)

 Have he force of law between the contracting parties (1159)

 From the moment of perfection, parties are bound:

New World v. AMA CLC

5. Relativity of Contracts (Arts. 1311-1314, 1177-1178, 1381[3])

SUBJECT RULE EXCEPTION EFFECT IN CASE OF

Saludo v. Security Bank

1. Accdg. To Degree of Dependence

Contracts From that moment the parties are bound:

be valid or enforceable, or that a contract be proved in a certain way, that

3. Accdg. To Solemnity or Form (Art. 1356)

5. Accdg. To Nature of Obligation Produced

In addition to the requisites prescribed in article 2085, it is necessary, in order to

6. Accdg. To Cause (1350)

6. Accdg. To Subject Matter

E. ESSENTIAL ELEMENTS OF CONTRACTS

A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram

An acceptance may be express or implied.

An offer made through an agent

Offer becomes ineffective upon the:

Business advertisements of things for sale

Advertisements for bidders

Persons who cannot give consent to a contract:

Contracts entered into during a lucid interval

Contracts agreed to in a state of drunkenness or during a hypnotic spell

Consent given through mistake, violence, intimidation, undue influence, or fraud

Mistake as to the identity or qualifications of one of the parties

Simple mistake of account

Violence - when in order to wrest consent, serious or irresistible force is employed

Misrepresentation by a third person

Misrepresentation made in good faith

2. Object which is the subject matter of the contract

Impossible things or services

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