CONTRACTS

Stages in the life of a contract:

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

2.
3.

Characteristics of Contracts: (ROMA)

1.
2.
3.
4.

The following may not acquire by purchase,

even by public or judicial auction, in person
of though the mediation of another:

Relativity (Art. 1311)

Obligatoriness & Consensuality (Art. 1315)
Mutuality (Art. 1308)
Autonomy (Art. 1306)

1. the guardian, with respect to the property of his

Stipulation pour Autrui - stipulation in favor of a

3rd party.

ward;

2. agents, with respect to the property whose

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.

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.

Theories applied to perfection of contracts:

1. Manifestation theory - the contract is perfected

2.
3.
4.

from the moment the acceptance is declared or

made;
Expedition theory - the contract is perfected
from 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.

Persons incapacitated to give consent:

3.
4.

5.
6.

administration or sale may have been entrusted

to them, unless the consent of the principal has
been given;
executor or administrator, the property of the
estate under administration;
public officers and employees, with respect to
the properties of the government, its political
subdivisions, GOCCs, that are entrusted to
them;
judges, justices, prosecuting atty.s, clerks of
courts, etc., the property in custogia legis; and
any other person specially disqualified by law.

Simulation of a contract
Kinds of simulation:

1. Absolute - no real transaction is intended;

Effect: simulated contract is

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.

Effect of:
Absence of cause

Failure of cause

Falsity of cause
or

inexistent.

2. Relative - the real transaction is hidden;

Illegality of cause

1. Unemancipated minors;
Except:
Contracts for necessaries;
Contracts
by
guardians
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.
Insane or demented persons unless the contract
was entered into during a lucid interval;
Deaf-mutes who do not know how to write.

legal

Lesion

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
when the parties
intended a
donation or
some other
contract.

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.

Reformation of instruments:
Requisites:

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

VOIDABLE
1. defect is caused by
vice of consent
2. cured by prescription

2. not cured by
prescription
3. cannot be ratified

RESCISSIBLE

UNENFORCE-ABLE

1. defect is caused by
injury/ damage
either to one of the
parties of to a 3rd
person

1. defect is caused by
lack of form,
authority, or capacity
of both parties

3. can be ratified
4. binding until annulled

2. cured by
prescription

2. not cured by
prescription
3. can be ratified

4. not binding

3. need not be ratified

4. binding unless
rescinded

4. binding unless the

defect is raised
against
enforcement.

RESCISSIBLE CONTRACTS
Contracts which may be rescinded:

1. those entered into by guardians where the ward suffers lesion of more than of the value of the things which
are objects thereof;

2. 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.
5.
6.

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;

Circumstances denominated as badges of fraud:

1.
2.
3.
4.

consideration of the conveyance is inadequate 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:

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

VOIDABLE CONTRACTS
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.

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.

Agreements within the scope of the Statute of Frauds:

1.
2.
3.
4.
5.
6.
7.

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

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.

VOID OR INEXISTENT CONTRACTS

The following contracts are void:

1.
2.
3.
4.
5.

Those whose cause, object or purpose is contrary to law, morals good customs, public order or public policy;
Those whose object is outside the commerce of men;
Those which contemplate an impossible service;
Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
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.