1
Q
Contract
A
A contract is meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.
2
Q
Ways to terminate contract
A
- Termination by stipulation of parties
- Termination, by stipulation, at option of one party
- Termination by one party with conformity of the other
- Suspension of contract by government agency
3
Q
Termination v. rescindment of contract
A
Rescind - to declare a contract void in its inception and to put an end to it as though it never were
Termination - there is still enforcement of its terms prior to the declaration of cancellation
4
Q
Characteristics of contracts
A
- Freedom or autonomy of contracts
- parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided, they are not contrary to law, morals, good customs, public order, and public policy. - Obligatoriness of contracts (obligatory force)
- obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith - Mutuality of contracts
- contracts must bind both and not one of the contracting parties - Consensuality of contracts**
- contracts are perfected, as a general rule, by mere consent, and from that moment the parties are bound not only by the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law - Relativity of contracts
- contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law
5
Q
Classifications of contract
A
- According to name or designation
a. nominate
b. innominate - According to perfection
a. consensual - that which is perfected by mere consent
b. real - that which is perfected, in addition to the above, by the delivery of the thing subject matter of the contract
c. solemn - that which requires compliance with certain formalities prescribed by law such prescribed form being thereby an essential element thereof - According to cause
a. onerous
b. remuneratory or remunerative
c. gratuitous - According to form
a. informal or common
b. formal, solemn, simple, or special - According to obligatory force
a. valid
b. rescissible
c. voidable
d. unenforceable
e. void or inexistent - According to person obliged; according to their nature of the vinculum which they produce
a. unilateral
b. bilateral - According to dependence to another contract
a. preparatory - when it is entered into as a means to an end
b. accessory - when it is dependent upon another contracts it secures or guarantees for its existence and validity
c. principal - when it does not depend for its existence and validity upon another contract but is an indispensable condition for the existence of an accessory contract - According to status
a. executory
b. executed - According to dependence of part of contract to other parts
a. indivisible - when each part is dependent upon the other parts for satisfactory performance
b. divisible - According to risks
a. commutative - when the undertaking of one party is considered the equivalent of that of the other
b. aleatory - when it depends upon an uncertain event or contingency both as to benefit or loss - According to liability
a. unilateral
b. bilateral - According to their purpose
a. transfer of ownership
b. conveyance of use
c. rendition of service - According to their subject matter
a. things
b. services
6
Q
Limitations on contractual stipulations
A
- Law
2. Police power
7
Q
Law
A
a rule of conduct, just, obligatory, promulgated by legitimate authority, and of common observance and benefit
8
Q
Morals
A
norms of good and right conduct evolved in a community
9
Q
Customs
A
habits and practices which through long usage have been followed and enforced by society or some part of it as binding rules of conduct
10
Q
Public order
A
public safety or public weal
11
Q
Public policy
A
principle under which no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good which may be termed the “policy of the law” or “public policy in relation to the administration of the law.”
or
principle under which freedom of contract or private dealing is restricted for the good of the community
12
Q
Kinds of innominate contract
A
- do ut des (I give that you may give)
- do ut facias (I give that you may do)
- facio ut des (I do that you may give)
- facio ut facias (I do that you may do)
13
Q
Rules governing innominate contracts
A
- the agreement of the parties
- the provisions of the Civil Code on obligations and contracts
- the rules governing the most analogous contracts
- the customs of the place
14
Q
Principle of relativity of contracts
A
As a general rule, contracts can only bind the parties (then assigns and heirs) who entered into it and cannot favor or prejudice a third party even if he is aware of such contract and has acted with knowledge.
15
Q
Cases wherein a third person may be affected by a contract
A
a. In contracts containing a stipulation in favor of a third person
b. In contracts creating real rights
c. In contracts entered into to defraud creditors
d. In contracts which have been violated at the inducement of the third person
e. In contracts creating ‘status’ (ex: marriage - strangers must respect the contract in force)
f. In the quasi-contract or negotiorum gestio, the owner is bound in a proper case, by contracts entered into by the “gestor” or unauthorized manager
g. In “collective contracts” where the majority rules over the minority
h. Where the situation contemplated in Art. 1729 obtains
16
Q
Stipulation pour autrui
A
a stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its fulfillment, provided he communicates his acceptance to the obligor before its revocation by the obligee or the original parties
17
Q
Requisites of stipulation pour autrui
A
- The contracting parties by their stipulation must have clearly and deliberately conferred (not merely incidental) a favor upon a third person
- The stipulation in favor of the third person should be a part and not the whole of the contract or the contract himself
- The third person must have communicated his acceptance to the obligor before its revocation by the obligee or the original parties
- The favorable stipulation should not be conditioned or compensated by any kind of obligation whatsoever
- Neither of the contracting parties bears the legal representation or authorization of the third party for otherwise the rules on agency will apply
18
Q
Nature and form of acceptance of stipulation pour autrui
A
- The acceptance must be unconditional
2. Acceptance does not have to be in any particular form
19
Q
Stages in the life of a contract
A
- Preparation or negotiation or generation - interest
- Perfection or birth - consent
- Consummation or termination or death - fulfillment
20
Q
Effect of perfection of the contract
A
They are bound not only
- to the fulfillment of what has been express;y stipulated but also
- to all the consequences which according to their nature, may be in keeping with good faith, usage, and law
21
Q
Cure for unauthorized contracts
A
Ratification
22
Q
In order that a person may be bound by the contract of another, there are 2 requisites
A
- The person entering into the contract must be duly authorized, expressly or impliedly, by the person in whose name he contracts or he must have, by law, a right to represent him
- He must act within his power
23
Q
Requisites of a contract
A
- Consent of the contracting parties
- Object certain which is the subject matter of the contract
- Cause of the obligation which is established
24
Q
Consent
A
conformity of wills or the agreement of the will of one contracting party with that of another or others, upon the object and cause of the contract
25
Offer
proposal made by one party to another to enter into a contract
26
Acceptance
manifestation by the offeree of his assent to the terms of the offer
27
Form of acceptance of offer
1. Acceptance by promise
2. Acceptance by act
3. Acceptance by silence or inaction
28
Grounds for ineffectivity of offer
Art. 1323
a. death
b. civil interdiction
c. insanity
d. insolvency
* not exclusive
29
Who are not allowed to give consent to a contract?
1. unemancipated minors
2. insane or demented persons, and deaf-mutes who do not know how to write
* not exclusive. other examples:
a. persons suffering the accessory penalty of civil interdiction
b. hospitalized lepers
c. prodigals
d. deaf and dumb who are unable to read and write
e. those who are of unsound mind even though they have lucid intervals
f. those who, by reason of age, disease, weak mind and other similar causes. cannot without outside aid, take care of themselves and manage their property, becoming thereby an easy prey for deceit and exploitation
g. insolvents until discharged
h. married women in cases specified by law
i. husband and wife with respect to sale of property of each other or donation of property to each other
j. other persons disqualified by law
* may exceptions
1. When necessaries such as food, are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor.
2. A minor may contract for life, health and accident insurance, provided the insurance is taken on his life and the beneficiary appointed is the minor's estate or the minor's father, mother, spouse, brother, or sister.
3. A contract is valid if entered into through a guardian or legal representative
4. A contract is valid where the minor who was near majority age misrepresented his actual age and convincingly led the other party to believe in his legal capacity
5. A contract is valid where a minor between 18 and 21 years of age voluntarily pays a sum of money or delivers a fungible thing in fulfillment of his obligation thereunder and the obligee has spent or consumed it in good faith
6. Emancipation of a minor for any cause
30
Lucid interval
temporary period of sanity
31
Is weakness of mind a ground for avoiding a contract?
Only when there is "great weakness of mind in a person executing a conveyance of land arising from age, sickness or any other cause"
32
Characteristics of consent
1. intelligent
2. free and voluntary
3. conscious or spontaneous
33
Causes that vitiate consent
1. error or mistake
2. violence or force
3. intimidation or threat or duress
4. undue influence
5. fraud or deceit
34
Mistake or error
false notion of a thing or a fact material to the contract
35
In order that mistake may vitiate consent, it must refer to...
1. the substance of the thing which is the object of the contract
2. those conditions which have principally moved one or both parties to enter into the contract
3. the identity or qualifications of one of the parties, provided, the same was the principal cause of the contract
36
Mistake of law
arises from an ignorance of some provisions of law, or from an erroneous interpretation of its meaning, or from an erroneous conclusion as to the legal effect of an agreement, on the part of one of the parties
37
Requisites for the application of Art. 1334
"Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent."
1. the error must be mutual
2. it must be so as to the legal effect of an agreement
3. it must frustrate the real purpose of the parties
38
Nature of violence or force to vitiate consent
Requires the employment of physical force
39
Nature of intimidation or threat to vitiate consent
1. it must produce a reasonable and well-grounded fear of an evil
2. the evil must be imminent and grave
3. the evil must be upon his person or property, or that of his spouse, descendants, or ascendants
4. it is the reason why he enters into the contract
40
Requisites of rescission
1. the contract must be validly agreed upon
2. there must be lesion or pecuniary prejudice or damage to one of the parties or to a third person
3. the rescission must be based upon a case especially provided by law
4. there must be no other legal remedy to obtain reparation for the damage
5. the party asking for rescission must be able to return what he is obliged to restore by reason of the contract
6. the object of the contract must not legally be in the possession of third persons who did not act in bad faith
7. the period for filing the action for rescission must not have prescribed
41
Effects of rescission
1. creates the obligation of mutual restitution of benefits received
2. unmaking of the contract
3. the right to restore
42
Persons entitled to bring the action for rescission
1. the injured party or the defrauded creditor
2. his heirs, assigns, or successors in interest
3. the creditors of the above entitled to subrogation
43
Voidable contracts
1. Those where one of the parties is incapable of giving consent to a contract
2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud
44
Annulment
remedy for the declaration of inefficacy of contract based on defect or vice in the consent of one of the contracting parties
45
Prescription for annulment
4 years
intimidation, violence, undue influence - from the time of defect of consent ceases
mistake or fraud - from the time of the discovery of the same
minors or incapacitated persons - when from the time guardianship ceases
46
The following are unenforceable contracts unless ratified
1. Those entered into the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers
2. Those that do not comply with the Statute of Frauds as set forth in this number.
3. Those where both parties are incapable of giving consent to a contract.
47
Modes of ratification
1. failure to object
| 2. acceptance of benefits
48
Void or inexistent contracts
1. Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy.
2. Those which are absolutely simulated or fictitious
3. Those whose cause or object did not exist at the time of the transaction
4. Those whose object is outside the commerce of men
5. Those which contemplate an impossible service
6. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained
7. Those expressly prohibited or declared void by law
* cannot be ratified
* no effect
* inexistent from its inception
* inexistent contracts -- lack one or some or all of the elements (COC)
49
Characteristics of a void or inexistent contract
1. produces no force and effect whatsoever
2. cannot be cured or validated either by prescription or ratification
3. the right to set up the defense of illegality, inexistence or absolute nullity cannot be waived
4. the action or defense for the declaration of its illegality, inexistence or absolute nullity does not prescribe
5. the defense of illegality, inexistence, or absolute nullity is not available to 3rd persons whose interests are not directly affected
6. it cannot give rise to a valid contract
7. its invalidity can be questioned by anyone affected by it
50
Kinds of defective contracts
1. Rescissible
2. Voidable
3. Unenforceable
4. Void or inexistent
51
Ordinary Contract v. Contract of Marriage
(1) Parties
OC - 2 or more persons of same or different sexes
CoM - 1 man and 1 woman
(2) Nature, Consequences, and Incidents
OC - governed primarily by parties
CoM - governed by law
(3) Result
OC - contract
CoM - status
(4) Termination
OC - by mere agreement
CoM - only in case of breach
(5) Remedy
OC - damages
CoM - civil action or criminal action
52
Contract restrictions on the use of property are contrary to a municipal resolution passed in the exercise of police power. T or F.
True.
53
Reasons and basis for innominate contracts
1. The impossibility of anticipating all forms of agreement on one hand
2. "No one shall unjustly enrich himself at the expense of another."
54
Rules governing innominate contracts
1. Agreement of the parties
2. The provisions of the Civil Code on obligations and contracts
3. The rules governing analogous contracts
4. Customs of the place
55
Contract of adhesion
One of the parties prepares the stipulations in the form of a ready-made contract, which the other party must accept or reject, but not modify, by affixing his signature or his "adhesion" thereto; leaving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.
- valid unless "take it or leave it"
56
The determination of the performance of a contract may be left to a third person and can bind the parties. T or F.
False. Not always true. The decision can only be binding until it has been made known to both contracting parties.
57
Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation. T or F.
True. Exception to the general rule that contracts are perfect upon consent (principle of consensuality).
58
Real contracts
Those which require for their perfection both the consent of the parties and the delivery of the object by one party to the other.
59
How can unauthorized contracts be cured?
By ratification.
60
Requisites for a person to be bound by the contract of another.
1. The person entering into the contract must be duly authorized, expressly or impliedly, by the person in whose name he contracts or he must have, by law, a right to represent him (like a guardian or an administrator)
2. He must act within his power.
61
A contract entered into by an agent in excess of his authority is unenforceable against the principal, but the agent is personally liable to the party with whom he contracted where such party was not given sufficient notice of the limits of the powers granted by the principal. T or F.
True.
62
Requisites of consent
1. There must be 2 or more parties
2. The parties must be capable or capacitated
3. There must be no vitiation of consent
4. There must be no conflict between what was expressly declared and what was really intended
5. Intent must be declared properly
63
Requisites of a valid offer/acceptance
1. Certain or definite
| 2. Unqualified and absolute
64
Forms of acceptance
1. Express
2. Implied
3. Presumed
65
Things that may be fixed by the offeror
1. time
2. place
3. manner of acceptance
66
When an offer becomes ineffective
1. Death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed
2. Express or implied revocation of the offer by the offeree
3. Qualified or conditional acceptance of the offer, which becomes counter-offer
4. Subject matter becomes illegal or impossible before acceptance is communicated
5. Period given to the offeree to signify his acceptance has already lapsed
67
3 principles of public bidding
1. offer is public
2. an opportunity for competition
3. basis for exact comparison of bids
*a contract granted without the competitive bidding required by law is void
68
Mistake of fact
- The substance of the thing which is the object of the contract
- Conditions which have principally moved one or both parties to enter into the contract
- The identity or qualifications of one of the parties, provided, the same was the principal cause of the contract
69
Mistake of fact which does not vitiate consent
1. Error as regards the incidents of a thing or accidental qualities
2. Mistake as to quantity or amount
3. Error as regards the motives
4. Mistake as regards the identity or qualifications of party
5. Error which could have been avoided
70
Requisites of violence
1. must be serious or irresistible
2. must be the determining cause for the party upon whom it is employed in entering in the contract
3. it is not justified
4. it is sufficient
71
Requisites of intimidation
1. one party is compelled to give his consent by a reasonable and well-grounded fear of an evil
2. the evil must be imminent and grave
3. the evil must be upon his person or property, spouse, descendants or ascendants
4. it is the reason why he enters the contract
5. evil must be unjust
72
Undue influence
A form of influence that must be of a kind that overpowers and subjugates the mind of a party as to destroy his free agency and make him express the will of another, rather than his own.
73
3 elements of undue influence
1. A person who can be influenced
2. The fact that undue or improper influence was exerted
3. Submission to the overwhelming effect of such unlawful conduct
74
How is casual fraud committed?
through 1) insidious words or 2) machinations or 3) by concealment
75
Requisites of a casual fraud
1. There must be presentation or nondisclosure by a prior party to or simultaneous to the consent or creation of the contract
2. It must be serious in character
3. It must have been employed by only one of the contracting parties, not by a third person
4. It must be made in faith or with intent to deceive the other contracting party who had no knowledge of the fraud
5. It must have induced the consent of the other contracting party
6. Alleged and proved by clear and convincing evidence
76
Dolo causante v. dolo incidente
(1) Definition
DC: those misrepresentations of a serious character employed by one party and without which the other party would not have entered into the contract
DI: those which are not serious in character and without which the party would still have entered into contract
(2) Effects
DC: nullity of the contract and the indemnification of damages
DI: obliges the person employing it to pay damages
77
Requisites of a valid contractual object
1. Must be within the commerce of men
2. Must be licit
3. Must be real or possible
4. Must be determinate or susceptible to determination
78
2 kinds of impossibility of contracts
1. Physical impossibility
- when the thing or service is in the nature of things that are not capable of existence or to be performed
a. Absolute - when the act cannot be done in any case so that nobody can perform it
b. Relative - arises from the special circumstances of the case
2. Legal impossibility
- when the thing or service is contrary to law, morals, good customs, public order or public policy
79
Classification of contracts according to cause
1. Onerous - the aggregate cost required to fulfill the agreement is higher than the economic benefit to be obtained from it; promise
2. Remuneratory - where a party gives something to another because of some service or benefit given or rendered by the latter to the former (not due to legal obligations)
3. Gratuitous - promise made by one party in accordance with the forms required by law
80
Form of a contract
refers to the manner in which a contract is executed or manifested
a. parol or oral
b. writing
c. party oral and partly in writing
81
Reformation
remedy in equity allowed by law by means of which a written instrument already executed is amended so as to express the real intention of the parties
Only allowed in certain cases:
a. mistake
b. fraud
c. inequitable conduct
d. accident
e. the instrument fails to express such agreement or intention
82
Cases wherein reformation cannot be applied
1. Simple donations inter vivos where no condition is imposed
2. Wills
3. Where the agreement is void
83
Rules in interpretation of contracts
1. However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree.
2. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual.
3. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.
4. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract.
5. The usage or custom of the 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.
6. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.
84
Rescission
a process designated to render inefficacious a contract validly entered into and normally binding, by reason of external conditions, causing an economic prejudice to a party or his creditors.
85
Requisites for rescission
(a) There must be at the beginning either a valid or a voidable contract.
(b) But there is an economic or financial prejudice to someone.
(c) Requires mutual restitution.
86
Resolution
the proper term for “rescission” which is a remedy under Art. 1911 in reciprocal obligations. Unlike the proper rescission for rescissible contracts, resolution is a primary remedy which can be availed of by the parties and does not require lesion as a ground therefor but will require non-performance or non-fulfillment of the obligation or when there is substantial breach
87
Resolution v. Rescission
(1) Nature
resolution: principal action; retaliatory in character
rescission: subsidiary remedy
(2) Grounds
resolution: non-performance of obligation (only ground)
rescission: 5 grounds under Art. 1381
(3) Applicability
resolution: only to reciprocal obligations
rescission: applies to both unilateral and reciprocal obligations
(4) Prescriptive Period
resolution: 10 years from accrual of right of action for written contracts; 6 years for verbal contracts
rescission: 4 years
(5) Person who can initiate the action
resolution: only the injured party to the contract
rescission: even third persons prejudiced by the contract
(6) fixing of period by the court
resolution: court may fix a period or grant extension of time for the fulfillment of the obligation when there is sufficient reason to justify such extension
rescission: court cannot grant extension of time
(7) Purpose
resolution: cancellation of the contract
rescission: reparation for damage or injury, allowing partial rescission of contract
88
Rescissible contracts
1. Those which are entered into by the guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof (in behalf of wards)
2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number (in representation of absentees)
3. Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them (those undertaken in fraud of creditors, when the latter cannot in any other manner collect claims due them) - accion pauliana
4. Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority (things in litigation)
5. All other contracts specially declared by law to be subject to rescission (other instances)
89
Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. T or F.
True.
90
Requisites before the action for rescission can be brought
a) Generally, the plaintiff must be able to RETURN what has been received by virtue of the rescissible contract
b) The thing object of the contract is not in the legal possession of third persons in good faith
c) There must be no other legal remedy
d) The action must be brought within the proper prescriptive period
91
What should be returned in rescinding a contract?
1) The object of the contract, with its fruits, must be returned
2) The price, with its interest, must be returned
92
Annulment v. rescission
(1)
A: based on vitiation of consent
R: based on lesion to one of the parties or to a third person
(2)
A: may be brought only by a party to the contract
R: may be brought also by a third person who suffered damage by reason of contract
(3)
A: a principal action
R: merely subsidiary
(4)
A: presupposes that the contract is legally defective
R: presupposes that the contract was validly entered into
(5)
A: imposition of sanction by law on the guilty party for reason of public interest
R: remedy allowed by law on ground of equity
(6)
A: allowed even if the plaintiff has been indemnified
R: barred by indemnification
93
Period for filing action for annulment
In case of :
1. Intimidation, violence, or undue influence
- from the time the intimidation, etc. ceases
2. Mistake or fraud
- from the time of discovery
- discovery of fraud must be reckoned to have taken place from the execution of the contract if there is an allegation that it did not reflect the true intention of the parties
3. Minors or other incapacitated persons
- from the time the guardianship ceases
94
Ratification
one under no disability voluntarily adopts and gives sanction to some defective or unauthorized contract, act, or proceeding which, without his subsequent sanction or consent would not be binding on him
95
Rescission v. Nullity
(1)
R: Based on prejudice, damage, or injury either to one of the contracting parties or to third persons
N: Based on a vice or defect of one or some of the essential elements of a valid contract
(2)
R: Affects private interest
N: Affects public interest
(3)
R: Reparation of damages
N: Imposition of sanctions
(4)
R: Contract is considered valid and enforceable until rescinded in an appropriate proceeding
N: Contract has no legal effect at all
(5)
R: Subsidiary
N: Principal action
(6)
R: Can be brought by a third person who is prejudiced by the contract
N: Party whose interest is directly affected
(7)
R: May only be assailed directly
N: May be assailed directly or collectively
(8)
R: May be assailed directly or collectively
N: Contract cannot be ratified
(9)
R: Action may prescribe
N: Action or defense for the declaration of the nullity of the contract does not prescribe
96
Void contracts cannot be novated. T or F.
True.
97
Requisites of a valid novation
(1) A previous valid obligation;
(2) The agreement of all the parties to the new contract;
(3) The extinguishment of the old contract;
(4) Validity of a new one.
98
Novation
the act of – replacing an obligation to perform with another obligation; or adding an obligation to perform; or replacing a party to an agreement with a new party.
Obligation and Contracts
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