Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Absence of any one of these requisites creates an inexistent contract, where the rule on pari delicto cannot apply. An inexistent contract, being void, should be distinguished from a void, ostensible contract where the requisites may be present but violative of the law, and where pari delicto applies.
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.
Art. 1320. An acceptance may be express or implied.
FIRST REQUISITE: CONSENT
Concurrence of the wills of the offeror and the acceptor as to the thing and cause which constitutes the contract. Consent has two essential elements:
a. Offer
- A manifestation of willingness to enter into a bargain, with the intention of making the other party understand that his or her assent to the bargain is invited, and will conclude such bargain
- Formally initiates a negotiation. An example is an imperfect promise (policitacion) which is merely an offer
- The withdrawal of an offer is effective by constructive notice, such as by its mailing and not necessarily when the offeree
b. Acceptance
- Perfects a contract through a concurrence of will on the part of both of the parties
- Except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, the acceptance may be made in an informal manner
- Must be unconditional and identical to the terms of the offer. If it is not, it is merely a counter-offer. A condition imposed on a perfection of a contract results to a failure of the contract, while conditions merely imposed on the performance of the obligation merely gives the other party options or remedies to protect interests.
Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with.
Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to him.
Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed.
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised.
Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer.
Art. 1326. 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.
EFFECTIVE OFFER INEFFECTIVE / NOT AN OFFER
An offer which complies with the time, place, and manner of acceptance made by the offerer.
However such offer which fails to comply may still be ratified by the offeree
Offer communicated to an agent who acts with the consent or authority of the principal
Business advertisements of an object certain, with concrete terms and conditions
An offer accepted before either party has died, become insane, insolvent, or subjected to civil interdiction. “Accepted” means that the offer has come to the actual knowledge of the offeror
Business advertisements with incomplete terms
Advertisements to bidders
OFFERS AS OPTION CONTRACTS: WHEN IS A WITHDRAWAL VALID?
OPTION—a contract granting a privilege to buy or sell at a determined price within an agreed time. It exists as a privilege only on the part of the buyer. The consideration in an option contract may be anything of value, such as transmissible rights.
- The option money in an option contract is different from earnest money which is considered as part of the price in a contract of sale and can be proof of the perfection of the contract
Rules:
1. If the period is not founded upon a consideration, the offeror can still withdraw the offer before it is accepted, or if acceptance has been made, before such acceptance is made known to the offeree 2. If the period is founded upon a consideration, it would be a breach of contract to withdraw the
offer during the agreed period, and the offeror would be liable for damages
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable.
Art. 1329. The incapacity declared in Article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws.
Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable.
Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.
Mistake as to the 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.
A simple mistake of account shall give rise to its correction.
Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.
Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract.
Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent.
Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent.
Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract.
Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of
choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress.
Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud.
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent.
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge.
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.
NATURE OF CONTRACTS ACCORDING TO DEFECTIVE CONSENT DEFECTIVE CONSENT / VOID & INEXISTENT CONTRACTS
1. Consent given through undue influence which is contrary to public policy
Illustrative case is Marubeni Corporation v. Lirag where an agreement obtained through the influence of executive public officials was deemed as a null and void contract.
2. Absolute simulated
contracts An absolute simulated contract “exists” when the parties do not intend to be bound at all, and the contract is not intended to either produce legal effects or in any way alter the juridical position of the parties
DEFECTIVE CONSENT/ VOIDABLE CONTRACTS
Any contract entered by a minor below 21 is annullable but only at
1. Consent given by
the instance of the minor. When such contract has been annulled by the minor when he/she comes of age, the other capacitated party can be restituted, however, to the extent the then-minor was benefited.
Similarly , any contract with the consent of an insane person is annullable also at the instance of the insane party. It is essential to prove the insanity of the party at the time of contract perfection.
Such insanity must have a direct bearing on the agreement.
Any contract entered during a lucid interval of the sane person is character as to perpetuate an undue advantage over the drunken person:
a. When it appears the drunkenness has been brought about by the opposite party
b. When a fraudulent advantage has been taken of it
c. The drunkenness was so complete to deprive the other person of his reason of an agreeing in mind
3. Consent given through a) mistake, b) violence, c) intimidation, d) undue influence, or e) fraud.
a. The mistake must refer to the following:
- The substance of the thing which is the object of the contract
- Conditions which have principally moved one or both of the parties to enter into the contract
- Mistakes of identity only when the identity is the principal cause of the contract
- A mutual error which refers to the legal effect of an agreement where the real purpose of the parties is frustrated
There is no mistake if the party alleging it harboured doubts about the object but still risked consenting to the contract
When a person 1) is unable to read or consents to a contract in a language he/she does not understand, and 2) alleges fraud or mistake on the other party, the other party must prove that the contract was explained according to the true intentions of the parties
b. Violence refers to serious or irrestible force employed.
c. Intimidation refers to a reasonable or well-grounded fear of an imminent and grave evil on the person or property of the party or his/her spouse, ascendants, or descendants. Requisites:
- Intimidation must be the determining cause of the contract or must have caused the consent to be given - Threatened act is unjust or unlawful
- Threat is real, tangible, direct, serious—there is a disproportion between the evil and the resistance people can offer
- The intimidation produces a well-grounded (i.e., not a general or imaginary) fear from the fact that the person from whom it comes from has the necessary means or
ability to inflict the injury
Mere threat to bring a good faith or lawful action does not amount to duress.
Third parties who may use violence or intimidation can also bring forth a case for annulment of the contract.
d. Undue influence occurs when a person takes improper advantage of his power over the will of the other. It can be determined by looking at the confidential, spiritual, or familial relations between the parties, or one of the parties’ mental weakness, ignorance, or financial distress.
- Solicitation, importunity, argument, and persuasion are due influence and do not vitiate consent
e. Fraud is committed through insidious words or machinations designed to make a false representation of a material fact in order to induce another to act thereon to his or her injury. It must be serious and should not have been contracted by both of the parties.
Fraud exists when:
- A party who has a duty to disclose facts fails to reveal them to the other contracting party, with whom he has confidential relations
- When the expression of opinion of an expert has been relied on by one of the parties
- A misrepresentation by a third person has created substantial mistake and the same is mutual between the two parties.
4. Relative simulation of contract
A relative simulation of contract may exist to conceal the parties’
true agreement. It binds the parties to their real agreement only when the simulation does not prejudice a third person and when it is not intended for any purpose contrary to law, morals, good custom, public policy, and public order.
Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract.
Art. 1348. Impossible things or services cannot be the object of contracts.
Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties.
SECOND REQUISITE: OBJECT OF CONTRACTS
Atty. Mel said that the minimum requirement for an object is that it be determinable and generic
CAN BE AN OBJECT CANNOT BE AN OBJECT
Things that are included in the commerce of humans, including future things
- E.g., in a contract of sale, things of potential existence may be the object, provided that that the expectancy is deemed subject to the condition that such thing will come to existence
Transmissible rights
Services which are not contrary to law, morals, good customs, public order or public policy
Determinate objects whose quantity can be determined without the need of a new contract
Future inheritance (except in cases expressly provided by law)
- Future inheritance is any property or right not in existence or incapable of determination at the time of the contract, that a person may in the future acquire by succession
Impossible things or services
Indeterminable things or services as to their kind
Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.
THIRD REQUISITE: CAUSE OF CONTRACTS
The cause of a contract is the essential or more proximate purpose which the contracting parties have in view at the time of entering the contract. It may or may not be tangible, and can take different forms—a prestation, a giving of a sum of money, an expectation or profits.
KINDS OF CONTRACTS ACCORDING TO CAUSE
1. Onerous contract: for each contracting party, the cause is a prestation or promise of a thing or service by the other. In reciprocal contracts the obligation or promise of each party is the consideration for that of the other
2. Renumeratory contract: the cause is the service or benefit which is renumerated (paid for with money)
3. Contracts of pure beneficence: mere liberality of the donor is the cause of the contract. It does not involve any material thing, but involves only the generosity of the benefactor.
Art. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof.
CAUSE VERSUS MOTIVE
Cause is the essential reason for a contract. Motive is the particular reason for a contracting party which does not affect the other party and which does not preclude the existence of a different consideration.
General rule: the motivation of the parties is independent from the cause of the contract. The motive of a party does not affect the validity of the party. Exception: When the realization of such motive has been made a condition (often an implied condition) upon which the contract is made to depend; when the motive predetermines the purpose of the contract.
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.
Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful.
Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence.
NATURE OF CONTRACTS ACCORDING TO DEFECTIVE CAUSE
VOID Proviso to render VALID
1. Contracts without cause, or with unlawful cause—contrary to law, morals, good customs, public order, or public policy
- Although a cause is not stated in the contracts, the presumption is that it exists and is lawful, unless the debtor proves the contrary
None
2. Statement of a false cause If it should be proved that the false cause is founded upon another cause which is true and lawful; if it is a relatively simulated contract 3. A lesion or inadequacy of cause that is a)
specified in law or b) concurs with fraud, mistake, or undue influence
Mere inadequacy of cause shall not invalidate
Mere inadequacy of cause shall not invalidate