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CONTRACTS

Stages in the life of a contract:

2. Expedition theory - the contract is perfected from 3. 4.


the moment the offeree transmits the notification of acceptance to the offerror; Reception theory - the contract is perfected from the moment that the notification of acceptance is in the hands of the offerror; Cognition theory - the contract is perfected from the moment the acceptance comes to the knowledge of the offerror. This is the theory adopted in the Philippines.

4. public officers and employees, with respect to the


properties of the government, its political subdivisions, GOCCs, that are entrusted to them; 5. judges, justices, prosecuting atty.s, clerks of courts, etc., the property in custogia legis; and 6. any other person specially disqualified by law.

1. Preparation/Generation 2. Perfection/Birth 3. Consummation/Death


Characteristics of Contracts: (ROMA)
1. 2. 3. 4. Relativity (Art. 1311) Obligatoriness & Consensuality (Art. 1315) Mutuality (Art. 1308) Autonomy (Art. 1306)

Simulation of a contract Kinds of simulation:

Persons incapacitated to give consent:

1. Unemancipated minors;
Except: Contracts for necessaries; Contracts by guardians or legal representatives; Contracts where the minor is estopped to urge minority through his own misrepresentation; Contracts of deposit with the Postal Savings Bank provided that the minor is over 7 years of age. 2. Insane or demented persons unless the contract was entered into during a lucid interval; 3. Deaf-mutes who do not know how to write.

1. Absolute - no real transaction is intended;


Effect: simulated contract is inexistent.

2. Relative - the real transaction is hidden;


Effect: the apparent contract is void, but the hidden contract is valid if it is lawful and has the necessary requisites. : as to third persons without notice - the apparent contract is valid on the principle of estoppel.

Stipulation pour Autrui - stipulation in favor of a 3 rd


party.

Requisites:
1. The stipulation must be part, not whole of the contract; 2. the contracting parties must have clearly and deliberately conferred a favor upon a 3rd person; 3. the 3rd person must have communicate his acceptance; 4. neither of the contracting parties bears the legal representation of the 3rd party.

Effect of:
Absence of cause the contract confers no right and produces no legal effect does not render the contract void the contract is null and void the contract is void unless the parties can show that there is another cause which is true and lawful does not invalidate the contract unless: there is fraud, mistake or undue influence

Failure of cause Illegality of cause Falsity of cause

General Rule: Contracts (except real contracts)


are perfected from the moment there is a manifestation of concurrence between the offer and the acceptance regarding the object and the cause. Except: Acceptance by letter or telegram which does not bind the offerror except from the time it came to his knowledge.

The following may not acquire by purchase, even by public or judicial auction, in person of though the mediation of another: 1. the guardian, with respect to the property of his
ward;

2. agents, with respect to the property whose


administration or sale may have been entrusted to them, unless the consent of the principal has been given; 3. executor or administrator, the property of the estate under administration; Lesion

Theories applied to perfection of contracts:

1. Manifestation theory - the contract is perfected from


the moment the acceptance is declared or made;

when the parties intended a donation or some other contract.

Reformation of instruments:
Requisites:

Form of Contracts Rules:


1. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. 2. Contracts must be in a certain form when the law requires that a contract be in some form to be: valid; enforceable; for the convenience of the parties. 3. The parties may compel each other to reduce the verbal agreements to writing except: Solemn contracts such as the following: a. Donations of real estate or of movables if exceeding Ps 5,000; b. Transfer of large cattle c. Stipulation to pay interest in loans d. Sale of land through an agent (authority must be in writing) e. Partnership to which immovables are contributed f. Stipulation limiting carriers liability to less than extra-ordinary diligence g. Contracts of antichresis h. Sale of vessels Note: in such case, if the contract is not in writing it is VOID Real contracts that require delivery for perfection. In contracts under the Statute of Frauds where the party sued makes a timely objection to the absence of a written memorandum.

1. Meeting of the minds to the contract; 2. The true intention is not expressed in the 3.
instrument by reason of mistake, accident, relative simulation, fraud, inequitable conduct (MARFI). Clear and convincing proof of MARFI.

Cases when there can be no reformation: 1. Simple, unconditional donations inter vivos; 2. Wills; 3. When the agreement is void. Classes of Defective Contracts: (RUVI) 1. Rescissible 2. Unenforceable 3. Voidable 4. Void or Inexistent

COMPARATIVE TABLE OF DEFECTIVE CONTRACTS: VOID


1. defect is caused by lack of essential elements or illegality 2. not cured by prescription 3. cannot be ratified 4. not binding

VOIDABLE
1. defect is caused by vice of consent 1.

RESCISSIBLE
defect is caused by injury/ damage either to one of the parties of to a 3rd person 2. cured by prescription 3. need not be ratified 4. binding unless rescinded

UNENFORCEABLE
1. defect is caused by lack of form, authority, or capacity of both parties 2. not cured by prescription 3. can be ratified 4. binding unless the defect is raised against enforcement.

2. cured by prescription 3. can be ratified 4. binding until annulled

RESCISSIBLE CONTRACTS Contracts which may be rescinded:

Causes of extinction of action to annul:

1. Prescription
the action must be commenced within 4 years from: the time the incapacity ends; the time the violence, intimidation or undue influence ends; the time the mistake or fraud is discovered. 2. Ratification Requisites: a. there must be knowledge of the reason which renders the contract voidable; b. such reason must have ceased; c. the injured party must have executed an act which expressly or impliedly conveys an intention to waive his right. 3. By loss of the thing which is the object of the contract through fraud or fault of the person who is entitled to annul the contract.

1. those entered into by guardians where the ward 2.


suffers lesion of more than of the value of the things which are objects thereof; those agreed upon in representation of absentees, if the latter suffer lesion by more than of the value of the things which are subject thereof;

3. those undertaken in fraud of creditors when 4.


the latter cannot in any manner claim what are due them; those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants and the court; all other contracts especially declared by law to be subject to rescission; payments made in a state of insolvency on account of obligations not yet enforceable;

5. 6.

Circumstances denominated as badges of fraud:

UNENFORCEABLE CONTRACTS Kinds of unenforceable contracts:


1. those entered into in the name of another by one without or acting in excess of authority; 2. those where both parties are incapable of giving consent; 3. those which do not comply with the Statute of Frauds.

1. consideration of the conveyance is inadequate 2. 3. 4.


or fictitious; transfer was made by a debtor after a suit has been begun and while it is pending against him; sale upon credit by an insolvent debtor; transfer of all his property by a debtor when he is financially embarrassed or insolvent;

5. transfer is made between father and son, where there are present some or any of the above circumstances; 6. failure of the vendee to take exclusive possession of the property; Distinctions:

Agreements within the scope of the Statute of Frauds:


1. Agreements not to be performed within one year from the making thereof; 2. Promise to answer for the debt, default or miscarriage of another; 3. Agreement in consideration of marriage other than a mutual promise to marry; 4. Agreement for the sale of goods, etc. at a price not less than Ps500.00 5. Contracts of lease for a period longer than one year; 6. Agreements for the sale of real property or interest therein; 7. Representation as to the credit of a 3rd person.

RESCISSION 1. Action by the


contracting parties even by a 3rd party; 2. based on lesion/fraud of creditors; 3. courts cannot grant periods for compliance

RESOLUTION (Art. 1191) 1. Action only by


the injured party;

2. based on nonfulfillment of the obligation; 3. courts may grant periods

Modes of Ratification:
1. For contracts infringing the Statute of Frauds: expressly impliedly - by failure to object to the presentation of oral evidence to prove the contract, or by the acceptance of benefits under the contract. 2. If both parties are incapacitated, ratification by their parents or guardians shall validate the contract retroactively. 5

VOIDABLE CONTRACTS

VOID OR INEXISTENT CONTRACTS


The following contracts are void: 1. Those whose cause, object or purpose is contrary to law, morals good customs, public order or public policy; 2. Those whose object is outside the commerce of men; 3. Those which contemplate an impossible service; 4. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; 5. Those expressly prohibited or declared void by law; The following contracts are inexistent: 1. Those which are absolutely simulated or fictitious; 2. Those whose cause or object did not exist at the time of the transaction.