Law on Contracts
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Transcript of Law on Contracts
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Law on Contracts
(Arts. 1305- 1422, Civil Code)
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Outline• General Provisions (Arts. 1305 – 1317)• Essential Requisites of Contracts (Art. 1318- 1355)• Forms of Contracts (Arts. 1356- 1358)• Reformation of Instruments ( Arts. 1359- 1369)• Interpretation of Contracts (Arts. 1370- 1379)• Defective Contracts (Arts. 1380- 1422)
- Rescissible/ Voidable/ Unenforceable/ Void
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Contracts (definition)
• A meeting of the minds (acceptance of offer)
• Between two or more persons
• Whereby one binds himself, with respect to the other
• To give something or to render some service
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Contract vs. obligation
Can there be a contract without an obligation?
Can there be an obligation without a contract?
• Source of obligation
• Legal tie or relation
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Phases/Stages in the Life of Contracts
• Preparation – Preliminary to formation
• Perfection – birth of the contract
• Consummation/termination- fulfillment
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Essential Characteristics of Contracts
• 1. Obligatory – must be complied with in good faith
• 2. Autonomy/Freedom – parties are free to enter such stipulations, clauses, terms and conditions (Art. 1306)
• 3. Mutuality – contract must bind both parties (Art. 1308)
• 4. Relativity – takes effect only between parties, their assigns and heirs (Art. 1311)
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Freedom: Clauses and Conditions of Contracts (Art. 1306)
• Law (rule of conduct)
• Morals (good and right conduct)
• Good customs (habits and practices)
• Public order (public safety)
• Public policy (broader in scope: safety and common good; police power)
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Classes of ContractsAccording
to:Kinds
perfection Consensual – Perfected by mere agreement of the parties Real - Requires not only consent, but also the delivery of the object Solemn- compliance with certain formalities prescribed by law
form Common – Do not require particular form Formal – Those which require particular form, like donation, mortgage
nature of vinculum
Unilateral – Obligation of one party only Bilateral – Reciprocal obligations for both parties
cause Onerous – Giving of an equivalent or compensation Gratuitous – Given without compensation, just pure liberality
risks involved
Commutative – Prestation is pecuniarily appreciable and determined at the moment of celebration of contract Aleatory – Pecuniarily appreciable but not yet determined at the moment of celebration, since it depends upon the happening of an uncertain event. Ex. Insurance
name Nominate – with specific names or designation in law Innominate – no specific name
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Nominate contracts • Deed of Absolute Sale (Real Estate Property)• Contract to Sell (Real Estate Property)• Chattel Mortgage (Motor Vehicle)• Contract of Lease / Rent• Deed of Sale (Motor Vehicle)• Earnest Money Receipt Agreement• General Power of Attorney• Special Power of Attorney• Deed of Assignment & Transfer of Rights (Real Estate)• Deed of Donation• Authority to Sell / Lease (Real Estate Property)• Offer to Purchase (Real Estate Property)• Last Will and Testament
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Innominate Contracts (Art. 1307)
• Regulated by (1) stipulation of the parties (2) Civil Code provisions on Obligations and Contracts (3) analogous nominate contracts (4) customs of the place
• Kinds:
1. do ut des (barter)
2. do ut facias
3. facto ut des
4. facto ut facias
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Samples of innominate contracts
• Memorandum of Agreement
• Rent-to-Own Contract (Real Estate Property)
• Contract of Renovation/Construction of a House or Building
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Mutuality (Arts. 1308-1310)
• General rule: cannot be left to the will of one of the contracting parties
• Exception: Determination can be left to third party, whose decision shall be binding only when communicated to both parties, unless such determination be evidently inequitable
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Relativity (Art.1311)Rule: parties, assigns, heirs
Exceptions:• Stipulation pour autrui accepted by third party • Where third persons comes into possession of the
object of contract creating real rights (Art. 1312) • Where contract is to defraud a third person (Art.
1313)• Where third person induces a contracting party to
violate his contracts (Art. 1314)
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Stipulation pour autrui• Parties clearly and deliberately agreed• The 3rd person must have communicated his
acceptance• Stipulation in favor of the 3rd person part not whole
of the contract • Favorable stipulation not conditioned nor
compensated by any other kind of obligation• No authorization or legal representation of the 3rd
party
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Unauthorized Contracts (Art. 1317)
• not enforceable
• Cured only by ratification
• A person is bound by the contract of another:
1. duly authorized (express or implied)
2. act within his/her power
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Essential requisites of contracts (Art. 1318)
Common:• Consent of the contracting parties • Object certain subject matter of the contract • Cause of the obligation which is established
Special:
- form- Subject matter
- Consideration or cause
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Other elements
• Natural elements– presumed to exist (like warranty against eviction or hidden defects)
• Accidental elements – conditions, clauses, terms, penalty etc.
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Elements of Consent
1. Concurrence of the offer and the acceptance
– Definite offer that may be exactly fixed – Assent to the terms without qualifications or conditions – Conveyed before the death, civil interdiction, insanity, or
insolvency – Qualified acceptance is a counter offer – Perfected when acceptance comes to knowledge of offeror – Offer can be withdrawn anytime before acceptance, unless
option is founded on consideration – If offer made thru agent, accepted when communicated to the
agent
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Elements of Consent
2. By parties with legal capacity to contract – Not minors, insane or demented, deaf-mutes who
do not know how to write, incompetents under guardianship, civil interdiction
– Minor can be liable if he misrepresents his age – Prohibited by law from entering into contracts
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Offer
• Offer certain -fixed time, place, manner of acceptance (Art. 1321)
• Offer made by agents (1323)
• Effect of death, civil interdiction, insanity, insolvency, other grounds
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Business advertisements
• Sale: mere invitations (Art. 1325)
• Bidders: mere proposals (Art. 1326)
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Acceptance
• Acceptance absolute (express or implied)
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Option Contract (Art. 1324)
• Giving a person for a consideration a period within which to accept the offer
• Option period
• Option money vs. earnest money
• “promise to buy or sell”
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Incapacity to give consent
• Minors
• Insane or demented persons
- lucid interval
- state of drunkenness and hypnotic spells
• Deaf mutes
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Restrictions in giving consent:• Husband and wife to each other• Insolvents• Persons prohibited from giving donations(Adultery, concubinage; In consideration of criminal
offense;Made to public officer, spouse, by reason of office)
• Persons with fiduciary relations ( Guardian, for property under his guardianship; Agents, for
property entrusted to them Executor/administrator; Public officers, judges, for property under their jurisdiction)
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Modifications of incapacity
• Civil Code provisions
- guardianship
- minor misrepresented age
• Rules of Court
- civil interdiction;lepers;prodigals etc
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Elements of Consent
3. Intelligently, freely given, consciously
• vices of consent:
- mistake, violence, intimidation, undue influence, or fraud
• Causes of vitiating consent vs. causes of incapacity
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Mistake (Art. 1331-1334)• False notion of a thing or fact material to the contract • Mistake of fact which law refers:
1. substance of the thing which is the object of the contract/nature of the contract ;
2. conditions which have principally moved one or both parties to enter into the contract ;
3. identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract
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Mistake which does NOT vitiate consent
• Error as to incidents/ accidental qualities
• Mistake as to quantity or amount
• Error as to motives of the contract
• Identity or qualifications of a party (except when the same are the principal cause of the contract)
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simple mistake
• On account/calculation shall give rise to its correction
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Burden of proof• Rule: the one alleges fraud/mistake must
prove it• Exceptions:
1.One party is unable to read
2.contract is in a language not understood by him
- Party enforcing the contract must show that the terms thereof have been fully explained to the other
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Knowledge of risk
• No mistake – doubt, contingency, risk
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Mistake of law
• Rule: “ignorantia legis non excusat”
• Exception: -Mutual error as to the legal effect of an agreement
when the real purpose of the parties is frustrated
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Violence or force (Art. 1335- 1336)
• violence -order to wrest consent, serious or irresistible force is employed
• intimidation - one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil
• May be committed by a 3rd person(Art.1336)
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Violence?
• Factors to determine degree of intimidation vs. reverential fear
• Threat to enforce just/legal claim
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Undue influence (Art. 1337
• improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice
• Circumstances:
1. confidential, family, spiritual and other relations between the parties
2. mental weakness
3. ignorance
4. financial distress
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Fraud (Arts. 1338-1344)
• Causal fraud: induced to enter into a contract which, without them, he would not have agreed to
• By insidious words or machinations of one of the contracting parties or by concealment
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Elements of Causal Fraud annulling consent
1. There must be misrepresentation or concealment;
2. It must be serious;
3. It must have been employed by only 1 of the contracting parties;
4. It must be made in bad faith or with intent to deceive
5. It must have induced the consent of the other party;
6. It must be alleged and proved by clear and convincing evidence.
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Fraud by concealment (Art. 1339)
• Neglect or failure to communicate that which a party to contract knows and ought to communicate
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Related articles on fraud• Art. 1340 – usual exaggerations in trade• Art. 1341- expression of opinion unless
relying on an expert’s special knowledge• Art. 1342- fraud by a 3rd person unless it
created substantial mistake and the same is mutual
• Art. 1343- misrepresentation in good faith (constitute an error)
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Causal Fraud vs. Incidental Fraud
CAUSAL FRAUD INCIDENTAL FRAUD
- Ground for annulment of contract
(a)It should be serious;(b)It should not have been employed by both the contracting parties (pari delicto); and (c)It should not have been known by the other contracting party
- Only renders the party who employs it liable for damages
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Simulation of Contract (Art. 1345-1346)
• Deliberately deceiving others, by feigning/pretending by agreement, the appearance of a contract
• Absolute simulation vs. relative simulation
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Absolute simulation vs. relative simulation
ABSOLUTE SIMULATION RELATIVE SIMULATION
-When the contract does not really exist and the parties do not intend to be bound at all - inexistent or void
-parties conceal their true agreement - parties are bound in their real agreement provided it does not prejudice a 3rd person/not contrary to law, moral, good customs, public order or public policy
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Objects of Contracts (Arts. 1347-1349)
• The subject matter
(a)Things
(b)Rights
(c)Services
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Requisites of things
• Within the commerce of men
• Not impossible (legal or physical)
• In existence or capable of coming into existence
• Determinate or determinable without the need of a new contract
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Requirements of services
• Within the commerce of men
• Not impossible (legal or physical)
• Determinate or capable of being made
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Cannot be an Object
• Intransmissible by their nature
• Stipulation
• Provision of law
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Cause of Contracts (Arts. 1350-1355)
• Cause is the essential or more proximate purpose which the contracting parties have in view of the time