RFBT-02 (Contracts)

• 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
• Elements of contracts


  • Essential
  • Natural
  • Accidental
• Stages in the life of a contract

  • Negotiation
  • Perfection
  • Consummation
• Consent


  The meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract
• Offer and acceptance


  • The offer must be certain
  • The acceptance must be absolute
  • A qualified acceptance constitutes a counter-offer
  • 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
• Cognition theory


  The acceptance takes effect from the time the offeror knew (or has knowledge) of the acceptance of the offeree
• Manifestation theory


  The acceptance will take effect once it is manifested by the offeree
• In the Philippines, we abide by the Cognition Theory
• Advertisements


  Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears
• Situations concerning consent of the parties

  • Both parties gave consent as to the essential elements of the contract - the contract is valid
  • Simulation: when one or both the parties did not intend to be bound by the contract (absolute simulation), the same is void. Otherwise, if the parties merely conceal their true agreement (relative simulation), they shall be bound by their real agreement
  • Incapacity of one of the parties
  • Both are incapacitated: the contract is unenforceable
  • Both parties gave their consent, but such consent was vitiated
• Kinds of capacity


  • Juridical capacity
  • Capacity to act (or legal capacity)
• Absolute incapacity


  • Unemancipated minors
  • Insane or demented persons (except if consent is given during lucid interval)
  • Deaf-mutes who do not know how to write
  • Drunks or hypnotized
• Those who are "incompetent" under the Rules of Court who may be placed under guardianship


  • Those suffering civil interdiction
  • Hospitalized lepers
  • Prodigals
  • Deaf and dumb who are unable to read and write
  • Those of unsound mind even though they have lucid intervals
  • 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
• Relative incapacity


  A person may be prohibited from entering specific contracts or that in a contract, he may be prohibited in a certain capacity, e.g., prohibited to be the buyer, or to specific things, or to specific persons
• Vices of consent


  • Mistake
  • Violence
  • Intimidation
  • Undue influence
  • Fraud
• Object (subject matter) of the contract

  The thing, right or service must be within the commerce of man; transmissible; not contrary to law, morals, good customs, public order or public policy; not impossible; and determinate as to its kind or determinable without the need of a new contract or agreement
• Cause


  • Onerous
  • Gratuitous
  • Remuneratory
• Real contracts


  Contracts which are perfected by delivery, thus, delivery is an essential element to its perfection
• Formal contracts


  Contracts where the execution of the required formality is also an essential element for perfection
• Formalities required for validity

  • Donations of real property which requires a public instrument
  • Donations of personal property which exceeds P5,000 which requires that the donation be written
  • Stipulation to pay interests on loans or for the use of money, which must be in writing
  • Sale or transfer of large cattle which requires that it be in a public instrument, registered and that there should be a certificate of transfer
  • Contribution of real property in a partnership, which requires that there be an inventory attached to a public instrument
• Formalities required for enforceability (Statute of Frauds)


  • An agreement that by its terms is not to be performed within a year from the making thereof
  • A special promise to answer for the debt, default, or miscarriage of another
  • An agreement made in consideration of marriage, other than a mutual promise to marry
  • An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money
  • An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein
  • A representation as to the credit of a third person
• Formalities required for convenience


  • Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property
  • The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains
  • The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person
  • The cession of actions or rights proceeding from an act appearing in a public document
• Reformation


  The remedy by means of which a written instrument is made or construed so as to express or conform to the true intention of the parties when some error or mistake has been committed
• When may reformation be had

  • Mutual mistake of the parties
  • When one party was mistaken and the other knew or believed that the instrument did not state their real intention
• Requisites for reformation


  • There is a meeting of the minds
  • There is a written instrument
  • The written instrument does not reflect the true intention of the parties
• When reformation may be had

  • Mutual mistake of the parties
  • When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former
  • Ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist
• Who can ask for reformation


  • If the mistake was mutual, reformation may be ordered at the instance of either party or his successor in interest
  • Otherwise, the injured party, or his heirs and assigns
• When no reformation is allowed


  • Simple donations inter vivos wherein no condition is imposed
  • Wills
  • When the real agreement is void
  • When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation
• Consensuality of contracts


  Perfection of a contract is generally by the meeting of the minds or consensual, save for some cases where delivery or form is required for its perfection
• Contract entered into by an unauthorized person

  Is unenforceable unless ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party
• Contract of adhesion


  One where there is already a prepared form containing the stipulations desired by one party whereby the latter only asks the other party to agree to them if he wants to enter into a contract
• Autonomy of contracts (freedom or liberty to contract)


  The contracting 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, or public policy
• Contrary to law

  • Pactum Leonina - a stipulation which excludes one or more partners from any share in the profits or losses
  • Pactum Commissorium - a stipulation where the creditor appropriates the things given by way of pledge or mortgage, or dispose of them
  • Pactumdenonaliendo - a stipulation forbidding the owner from alienating the immovable mortgaged
• Contrary to public policy


  • Refund of tuition fees during the time a student is covered by a scholarship if such student transfers schools
  • Prohibiting a losing candidate in a convention to run as an independent candidate
• Contrary to morals


  In a contract of loan, where the interest rate is 50%, is void (and reduced) for being contrary to morals, the same being unconscionable, confiscatory, exorbitant, excessive or inequitable, not because of it is usurious
• Mutuality


  The contract must bind both contracting parties and its validity or compliance cannot be left to the will of one of them
• Consequences of mutuality


  • One party cannot revoke or renounce a contract without the consent of the other, nor have it said aside on the ground that he had made a bad bargain
  • The determination of the performance may be left to a third person whose decision shall not be binding until it has been made known both contracting parties and the determination shall not be obligatory if it is evidently inequitable
• Escalation clause


  Where one increases/decreases compensation of one of the parties
• When escalation clause is void/valid


  • Void - when the increase is dependent solely upon the will of one of the parties
  • Valid - when the increase/decrease is dependent on valid and reasonable standards, independent of the parties' will
• Obligatory force of contracts

  Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith