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.
CONSENT
(a) The meeting of the minds between the parties on the subject matter and the cause of the contract. (b) The manifestation of the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the contract.
Requisites of Consent:
(1) It must be manifested by the concurrence of the offer and acceptance [Arts. 1319-1326].
(2) The contracting parties must possess the necessary legal capacity [Arts. 1327-1329].
(3) It must be intelligent, free, spontaneous, and real (not vitiated) [Arts. 1330-1346].
CONCURRENCE OF OFFER AND ACCEPTANCE
Offer: a unilateral proposition which one party makes to the other for the celebration of the contract [Tolentino].
Requisites: (a) Definite (b) Intentional (c) Complete
Invitation to make offers (advertisements)
(a) Business advertisements of things for sale are NOT definite offers, just invitations to make an offer, UNLESS the contrary appears (Art. 1325). (b) Advertisements for bidders are invitations to
make proposals, the advertiser is NOT bound to accept the lowest or highest bid; UNLESS the contrary appears. The bidder is the offeror (Art. 1326).
(c) Statements of intention: no contract results even if accepted.
Rosenstock v. Burke (1924):
FACTS: Elser, in a letter, informed Burke that he was “in a position and is willing to entertain” the purchase of the yacht under some terms.
HELD: “The word “entertain” applied to an act does not mean the resolution to perform said act, but simply a position to deliberate for deciding to perform or not to perform said act. It was merely a
position to deliberate whether or not he would purchase the yacht and invitation to a proposal being made to him, which might be accepted by him or not”
OFFER TERMINATES upon: (a) Rejection by the offeree
(b) Incapacity (death, civil interdiction, insanity, or insolvency) of the offeror or offeree before acceptance is conveyed
(c) Counter-offer
(d) Lapse of the time stated in the offer without acceptance being conveyed
(e) Revocation of the offer before learning of acceptance
(f) Supervening illegality before acceptance [J.B.L. Reyes]
ACCEPTANCE Requisites:
(a) Unqualified and unconditional, i.e. it must conform with all the terms of the offer, otherwise it is a counter-offer (Art. 1319)
(b) Communicated to the offeror and learned by him (Arts. 1319, 1322). If made through an agent, the offer is accepted from the time the acceptance is communicated to such agent.
(c) Express/implied, but is not presumed.
OPTION CONTRACT: A preparatory contract in which one party grants to the other, for a fixed period, the option to decide whether or not to enter into a principal contract [Art. 1324].
With consideration Without consideration
Offeror cannot
unilaterally withdraw his offer.
Offeror may withdraw by communicating
withdrawal to the offeree before acceptance. LEGAL CAPACITY
Persons Incapacitated to Give Consent
(a) Minors, UNLESS, the minor’s consent is operative in contracts:
(1) For necessaries [Art.1427]
(2) Where the minor actively misrepresents his age (estoppel)
Mercado v. Espiritu, 1917: Minors held in estoppel through active misrepresentation.
Bambalan v. Maramba, 1928: There is no estoppel if the minority was known by the other party.
(b) Insane or demented persons, UNLESS they contract during a lucid interval.
(c) Deaf-mutes who do not know how to read AND write.
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Disqualified to contract [art. 1329]:
(a) Those under civil interdiction for transactions inter vivos [RPC Art. 34].
(b) Undischarged insolvents [Insolvency Law, Sec. 24].
(c) Husband and wife cannot donate to each other [Art. 123, FC], nor sell if the marriage is under ACP [Art.1490].
(d) The ff. cannot purchase [Art. 1491]: (1) The guardian: his ward’s property (2) The agent: the principal’s property
(3) Executors and administrators: property under administration
(4) Public officers-state: property under their administration
(5) Justices, judges, prosecutors, clerks of court, lawyers: property attached in litigation. VICES OF CONSENT
(1) Mistake
Inadvertent and excusable disregard of a circumstance material to the contract [J.B.L. Reyes]. 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 [Art.1331].
Mistake which vitiates consent is an error of fact, and not an error of law. Ignorance of the law excuses no one from compliance therewith (Art. 3); but the modern tendency is to allow an excusable mistake of law to be invoked as vitiating consent (Tolentino).
Mistake of Fact Mistake of Law Mutual Mistake
When one or both contracting parties believe that a fact exists when in reality it does not, or vice versa. When one or both parties arrive at an erroneous conclusion on the interpretation of a question of law or its legal effects. (1) Must be as to the legal effect of an agreement (2) Must be mutual (3) Real purpose of the parties must have been frustrated (2) 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 [Art. 1335].
Martinez v. HSBC (1910):
The conveyance of several properties by the wife to her husband’s creditors, though reluctant, is still consent. She assented to the requirements of the defendants in order that the civil and criminal actions against them would be dropped. A contract is valid even though one of the parties entered into it against his wishes and desires, or even against his better judgment.
(3) Violence
Irresistible force used to extort consent (J.B.L. Reyes). (4) 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 [Art. 1337].
Circumstances:
(a) Relationship of the parties (family, spiritual, confidential etc.)
(b) That the person unduly influenced was suffering from infirmity (mental weakness, ignorance etc.) (Art.1337).
(5) 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. 1338].
ARTICLE 1339
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.
ARTICLE 1340
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent.
ARTICLE 1341
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, ARTICLE 1342
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless, such misrepresentation has created substantial mistake and the same is mutual.
ARTICLE 1343
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error.
SIMULATION OF CONTRACTS takes place when the parties do not really want the contract they have executed to produce the legal effects expressed by its wordings. It may be absolute or relative [Arts. 1345-1346].
Absolute Simulation Relative Simulation
No real transaction is
intended. Real transaction is hidden. Fictitious contract. Disguised contract.
Void. Bound as to hidden
agreement, so long as it does not prejudice a third person and is not contrary to law, morals, good customs, public order or public policy.
OBJECT
DEFINITION:
The subject matter; the thing, right or service which is the subject matter of the obligation arising from the contract [Tolentino].
REQUISITES:
(a) Must be within the commerce of men [Art. 1347]
(b) Must not be impossible, legally or physically [Art.1348]
(c) For things as object of contract, must be in existence or capable of coming into existence [See Arts. 1461, 1493, 1495]
(d) Must be determinate or determinable, without the need of a new contract between the parties [Arts. 1349, 1460, par.2]
All things or services may be the object of contracts, EXCEPT:
(a) Things which are outside the commerce of men (b) Intransmissible rights
(c) Future inheritance except in cases authorized by law
(d) Impossible things or services
(e) Objects which are indeterminable as to their kind, the genus should be expressed
In order that a thing, right, or service, may be the object of a contract, it should be in existence at the moment of the celebration of the contract, or at least, it can exist subsequently or in the future. A FUTURE THING may be the object of a contract, such contract may be interpreted as a:
(a) Conditional contract, where 3its efficacy should depend upon the future existence of the thing.
(b) Aleatory contract, where one of the contracting parties assumes the risk that the thing will never come into existence, e.g. insurance.
CAUSE
DEFINITION
The essential and impelling reason why a party assumes an obligation (Manresa). Motive, on the other hand, is the particular reason for a contracting party which does not affect the other.
REQUISITES:
1. Must exist at the time of the contract is entered into [Arts. 1352, 1409, par. 3].
2. Must be lawful (ibid).
3. Must be true or real [Art.1353]. CAUSE IN
Onerous
Contracts Renumeratory Contracts Beneficence Pure The undertaking or the promise of the thing or service by the other party The service or benefit which is remunerated Mere liberality of the benefactor In Villaroel v. Estrada (1940), where a moral obligation is based upon a previous civil obligation, which has already been barred by the statute of limitations at the time the contract is entered into, it constitutes a sufficient cause or consideration to support a contract (natural obligation).
BUT,
In Fisher v. Robb (1939), if the moral obligation arises wholly from ethical consideration, it cannot constitute a sufficient cause to support an onerous contract, as when the promise is made on the erroneous belief that one was morally responsible for the failure of an enterprise (moral obligation).
Cause Effect
Lack of Cause – absence or total lack of cause
If there is no cause whatsoever, contract is VOID; a fictitious sale is VOID. NOTE: Cause must exist at the time of the perfection of the contract; it need not exist later.
Contrary to law,
morals, good
customs, public policy
If cause is unlawful, transaction is VOID.
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Cause Effect
and public order If parts of a contract are illegal but the rest are supported by lawful cause, claimant of such has the burden of showing proof; otherwise, the whole contract is VOID.
Contract with illegal cause may still produce effect in certain cases where parties are not of equal guilt: (1) innocent party can’t be compelled to perform his obligation and he may recover what has already been given; (2) if both parties are guilty, neither can sue the other, the law leaving them as they are (in pari delicto). Falsity of cause –
cause is stated but is untrue
Contract with a false cause is merely revocable/voidable. Parties are given a chance to show that a cause really exists, and that said cause is true and lawful.
Lesion or inadequacy of cause – cause is not proportionate to object
Inadequacy of cause shall not invalidate the contract except when: (1) there is fraud, mistake, undue influence (2) when parties intended a donation
Liguez v. CA (1957):
In making the donation in question, Lopez was not moved exclusively by the desire to benefit Liguez, but also to secure her cohabiting with him, so that he could gratify his sexual impulses. The donation was an onerous transaction and clearly predicated upon an illicit causa.