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Article-1305- Contracts

Accountancy (Divine Word College of Legazpi)

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Article 1305 CONTRACTS PERFECTION PF CONTRACTS

Contracts is the meeting of minds between two persons whereby Contracts are perfected by mere consent, and from that
one binds himself, with respect to the other, to give something or moment the parties are bound not only to the fulfillment of what
render something. has been expressly stipulated but also to all the consequences which,
according to their nature, may be keeping with good faith, usage and
CLASSIFICATIONS OF CONTRACTS law.
1. NOMINATE- contracts with specific names or designation
in law CLASSIFICATIOONS OF PERFECTION OF CONTRACTS 1. Consensual
Contracts- contracts that are perfected by mere consent of the
2. INNOMINATES- contracts with no specific names or
parties regarding the subject matter and the cause of the contracts.
designation in law
e.g sales, lease, agency
3. UNILATERAL- when it creates an obligations on the part of
2. Real Contracts – perfected by the delivery of subject
only one of the parties
matter of the contract. e.g depositum, pledge, commodatum.
4. BILATERAL- when it give rise to reciprocal obligations for
3. Solemn Contracts- which requires compliance with certain
both parties
formalities prescribed by law, such prescribed from being thereby an
5. ACCESSORY- when it is dependent upon another contract essential elements thereof. e.g donation of real property w/c must
it secures or guarantees for its existence and validity me in public instruments
6. PRINCIPAL- when it does not depend for its existence and
validity upon another contract but is an indispensable condition for STAGES OF THE LIFE OF A CONTRACT
existence of an accessory contract.
1. Preparation or negotiation- steps taken by the parties
7. INDIVISIBLE- when each part of the contract is dependent leading to the perfection of the contracts.
upon the others parts for satisfactory performance
2. Perfection or birth- when parties have come to definite
8. DIVISIBLE- when one part of the contracts may be agreement or meeting of minds regarding the subject matter and
satisfactory performed independently of the other parts. cause of the contract
3. Consummation or termination
LIMITATIONS OF CONTRACTS
Article 1306- The contracting parties may establish such stipulations,
ARTICLE 1317. No one may contract in the name of another without
clauses, terms and conditions as they may deem convenient,
being authorized by the latter, or unless he has by law a right to
provided they are not: CONTRARY TO LAW - the fundamental
represent him.
requirements
A contracts entered into in the name of another by one
MORALS- deal with norms of good and right conduct
who has no authority or legal representation, or who has acted
GOOD CUSTOMS
beyond his powers, shall be unenforceable, unless it is ratified,
PUBLIC ORDER- refers principally to public safety although it has
expressly or impliedly, by the person on whose behalf it has been
been considered to mean also the public weal.
executed, before it is revoked by the other contracting party.
PUBLIC POLICY- is broader than public order, as the former may refer
not only to public safety but also to considerations which are moved
*UNAUTHORIZED CONTRACTS ARE UNFORCEABLE.
by the common good.

*UNAUTHORIZED CONTRACTS CAN BE CURED ONLY BY

RATIFICATION
Valid Contracts- are those that meet all the legal requirement and
limitations for the type of agreement involved and are, therefore
3 ESSENTIAL ELEMENTS OF A CONTRACTS (1318)
legally binding and enforceable.
1. CONSENT of contracting parties 2. OBJECT certain w/c is the
subject matter of a contracts 3. CAUSE OF OBLIGATION which is
KINDS OF INNOMINATES CONTRACTS established
1. do ut des- I gave that you may give
2. do ut facias- I gave that you may do CLASSES OF ELEMENTS OF THE CONTRACT 1. ESSENTIAL ELEMENTS
3. facto ut des- I do that you may give OR THE REQUISITES OF CONTRACTS
4. facto ut facias- I do that you may do a. Common or those present in all contracts,
namely, consent, object, and cause.
ARTICLE 1308. The contract must bind both contracting parties, its b. Special or those not common to all contracts or
validity or compliance cannot be left to the will of one of them. those may be present only in, or peculiar, certain specified contracts,
and such peculiarity may be: form, subject matter, considerations.
Article 1311 Contracts shall take effect only between the contracting
parties, their assigns and heirs except in any case where the right 2. NATURAL ELEMENTS-presumed exist in a contracts 3. ACCIDENTAL
and obligations arising from a contract are not transmissible by their ELEMENTS- particular stipulations, clauses, terms and etc.
nature, by the stipulation or by the provision of law. The heir is not
liable beyond the value of the property he received from the HOW CONSENT IS MANIFESTED?
descent. Consent is manifested by the meeting of the offer and
If the contract should contain some stipulation in favor of a third acceptance upon the thing and the cause which are to constitute the
person, he may demanded its fulfillment provided that he contract. The offer must be certain and the acceptance is absolute.
communicate its acceptance to the obligor before the revocation. A
mere incidental benefits or interest of a person is not sufficient. The CONSENT- is the conformity or concurrence of wills (offer and
contract must be clearly and deliberately conferred in favor upon a acceptance) and with respect to contracts, it is the agreement of the
third person. will of one contracting parties with that another upon the object and
terms of the contract.
ARTICLE 1313. Creditors are protected in case of contracts intended
to defraud them. OFFER-is a proposal made by one party to another, indicating a
willingness to enter into a contracts. OFFER MUST BE CERTAIN AND
ARTICLE 1314. Any person who induces another to violate his SERIOUSLY INTENDED
contract shall be liable for the damages to the other contracting
parties. (never ever induced another to violate a contract.)

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ACCEPATANCE- is the manifestation by the offeree by his assent to all such identity or qualification have been the principal cause of a
terms of the offer. ACCEPATANCE OF OFFER MUST BE CLEAR AND contracts.
ABSOLUTE.
Mistake or error- is the false notion of a thing or a fact material to
ARTICLE 1320. An acceptance may be express or implied. the contracts.

Article 1321. The person making the offer may fix the time, place, MISTAKES OF FACTS WHICH DOES NOT VITIATE A CONTRACT.
and the manner of acceptance, all of which must be complies with. 1. Error as regard the incidents of a thing or accidentalqualities.
2. Mistakes as to quantity or amount
Article 1322. An offer made through an agent is accepted from the
time acceptance is communicated to him.
3. Error as regards to the motives of the contract4. Mistake as
regard the identity or qualifications of a party
GROUNDS (Article 1323)
5. Error which could have been avoided
An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before
acceptance is conveyed. ARTICLE 1332. When one of the contracting parties is unable to read,
or if the contracts is in language not understood by him, and mistake
or fraud is alleged, the person enforcing the contract must show that
Option contract- is one giving a person for a consideration a certain
the terms thereof have been fully explained to the former. (Read and
period to the offer of the offerer. Option period- period given within
understand the contract.)
which the offeree to accept an offer.
Option money- is the money paid or promised to be paid in
consideration for the option. MISTAKES OF LAW is that which arises from the ignorance of some
provision of law, or from an erroneous interpretation of its meaning
or from the erroneous conclusion as to the legal effect of an
Article 1325. Unless it appears otherwise, business advertisement of
agreement, on the part of the parties.
things for sale are not definite offers, but mere invitations to make
an offers.
EFFECT OF MISTAKES OF LAW- “ignorance of the law excuses no one
from compliance therewith”.
Business advertisement generally not definite offers

ARTICLE 1335
PERSONS WHO CANNOT GIVE CONSENT (1327)
There is violence when in order to wrest consent, serious
1. Unemancipated minors- they refer to those persons who or irresistible force is employed.
have not reached the age of majority (18 years old) and are There is intimidation when one of the contracting parties
subjected still to parental consent. is compelled by a reason able and well-grounded fear an imminent
2. Insane or demented persons- (Epso jure) insanity must and grave evil upon his person or property, or upon the person or
exist at the time of contracting unless proved otherwise, a person is property of his spouse, descendants or ascendants, to give his
presumed sane. 3. Deaf-mutes- persons who are deaf and dumb. consent.
To determine the degree of the intimidation, the age, sex
HOWEVER deaf-mutes who can able to write can give consent. and condition of the person shall be borne in mind.

Parents is an EPSO JURE- the guardian of their children. “Violence and intimidation will vitiate the contract”

Article 1328. Contracts entered into during a lucid intervals are valid. “Violence and intimidation shall annul the obligation, although it
Contracts agreed to in a state of drunkenness or during a hypnotic may have been employed by a third person who did not take part
spell are voidable. in the contract.”

LUCID INTERVAL- a temporary period of sanity. UNDUE INFLUENCE or the grounds to vitiate a contracts- is the
influence of a kind that so overpowers the min of a party as to
ARTICLE 1330. A contract where consent is given through mistake, prevent him from acting understandingly and voluntarily to do what
violence, intimidation, undue influence, or fraud is voidable. he would have done of he had been left to exercise freely his own
judgment and discretion. (Article 1337)
Characteristics of consent
1. It is intelligent ARTICLE 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced
2. It is free and voluntary to enter into a contract which, without them, he would not have
3. It is conscious or spontaneous agreed to. (form of daya through insidious words that cause a
person to
GROUNDS OF ANNULLMENT OF VOIDABLE CONTRACTS/ VICES OF believe into it.)
CONSENT
1. Error or mistake CAUSAL FRAUD- is the fraud committed by one party before or the
2. Violence or force time of the celebration of the contract to secure the consent of the
other. It may be committed through insidious words or machinations
3. Intimidation or threat or duress or by concealment.
4. Undue influence
5. Fraud or deceit ARTICLE 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 1331 In order that mistake may invalidate consent, it should
refer to the substance of the thing which is the object of the CONCEALMENT- false representation.
contract, or to those conditions which have principally moved one or
both parties to enter into the contract. Mistakes as to the identity of ARTICLE 1340. The usual exaggerations in trade, when the other
qualifications of one of the parties will vitiate consent only when party had an opportunity to know the facts, are not in themselves
fraudulent.

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ARTCILE 1341. A mere expression of an opinion not signify fraud * Absolute- when the act cannot be
unless made by an expert and other party has relied on the former’s done in any case so that nobody can perform it.
special knowledge. * Relative- when it arises from the
special circumstances of case or other special conditions or
ARTICLE 1342. Misrepresentation by a third person does not vitiate qualifications of the obligor.
consent, unless such misrepresentation has created substantial
mistakes and the same is mutual.
2. LEGAL- when the thing or services is contrary to law,
morals, good customs, public order, or public policy.
ARTICLE 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error.
SECTION 3 CAUSE OF CONTRACTS
CAUSE (causa) - is the essential reason or purpose which the
ARTICLE 1345. In order that fraud may make a contract voidable, it
contracting parties have in view at the time of entering into the
should be serious and should not have been employed by both
contracts.
contracting parties. Incidental fraud only obliges the person
employing it to pay damages
CLASSIFICATIONS OF CONTRACTS ACCORDING TO CAUSE
TWO KINDS OF FRAUD IN MAKING OF CONTRACT 1. CAUSAL 1. ONEROUS- or one the cause of which, for each contracting
FRAUD- which is ground for the annulment of a contract, although it party is the prestations or promise of a thing or a service by the
may also give rise to an action for damages. REQUISITES OF CAUSAL other. In other words, the parties are reciprocally obligated to each
FRAUD other. Example: Sales, lease of thing; partnership
*It should be serious
* It should not have been employed by both contracting parties. 2. REMUNERATORY OR REMUNERATIVE- or one the cause
*It should not have been known by the other which is the service or benefit which is remunerated. The purpose of
contracting parties the contract is to reward the service that had been previously
2. INCIDENTAL FRAUD- which only renders the party who employs it rendered by the party remunerated. Example paying defense
liable for damages because the fraud was not the principal counsel for the agreed money
inducement that led the other to give his consent.
3. GRATITIOUS- or one the cause of which is the liberality of
the benefactor or giver. Examples pure donation
SIMULATION OF A CONTRACT is the act of deliberately deceiving
others, by feigning or pretending by agreement, the appearance of a MOTIVES- is the purely personal or private reason which a party has
contract which is either non-existent or concealed. entering into a contract.

KINDS OF SIMULATION ARTICLE 1351. The particular motives of the parties in entering into a
1. ABSOLUTE SIMULATION- when the contracts does not contract are different from the cause thereof.
really exist and the parties do not intend to be bound at all.
2. RELATIVE SIMULATION- when the contract entered into by ARTICLE 1352. Contracts without cause, or with unlawful cause,
the parties is different from their true agreement. The parties are produce no effect whatever. The cause is unlawful if it is contrary to
bound by their real agreement. In other words there is a law, morals, good customs, public order or public policy.
concealment of the real amounts.
ARTICLE 1353. The statement of a false cause in contracts shall
SECTION 2 OBJECTS OF CONTRACTS ARTICLE 1347 render them void, if it should not be proved that they were founded
All things which are not outside the commerce of men, upon another cause which is true and lawful.
including future things, may be the object of a contract. All rights
which are not intransmissible may also be the object of contracts. No Absence is want of cause means there is total lack of any valid
contracts may be entered into upon future inheritance except in consideration for the contract. It should be distinguished from
cases expressly authorize by law. All services which are not contrary inadequacy of cause which, as a general rule, is not ground for
to law, morals, good customs, public order, or public policy may relief and from failure of cause which does not render a contract
likewise be the object of a contract. void. ILLEGALITY OF CAUSE implies that there is cause but te same is
unlawful or illegal.
“OBJECT OF THE CONTRACT is its subject matter.” But since a FALSITY OF CAUSE is meant that the contract states a valid
contract cannot exist without an obligation, it may be said that the consideration but such statements is not true. LESION is any damage
things, service or right which is the object of the obligation is also caused by the fact that the price is unjust or inadequate.
the object of contract
FORM OF CONTRACTS
CAN A FUTURE THING BE VALID? ARTICLE 1356. Contract shall be obligatory in whatever form they
FUTURE THINGS may be valid contract provided they have may have been entered into, provided all the essential requisites
a potentiality to happen in the future. from their validity are present. However, when the law requires that
a contract in some from in order that it may be valid or enforceable,
or that a contract be prove in a certain way, that requirement is
ARTICLE 1348- Impossible things or services cannot be the object of
ABSOLUTE and indispensable. In such case, the right of the parties
contracts.
stated in the following article cannot be exercised.
FUTURE INHERITANCE- is any property or right, nit in existence or
capable of determination at the time of the contract, that a person
may inherit in the future. Inheritance ceases to be future upon the THE FORM OF CONTRACTS REFERS TO THE MANNER IN WHICH A
death of the decedent or deceased. CONTRACT IS EXECUTED OR MANIFESTED.

INCHOATE RIGHTS- a right of expectancy CLASSIFICATION ACCORDING TO FORM

1. INFORMAL OR COMMON SIMPLE CONTRACT or that which may
be entered into in whatever from provided all the essential requisites
KINDS OF IMPOSSIBILITY
for their validity are present. 2. FORMAL OR SOLEMN CONTRACT or
1. PHYSICAL- when the things or service in the very nature of that which is
things cannot exist or be performed. required by law for its efficacy to be in certain specified form.

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RULES FOR INTERPRETATION OF A CONTRACT ARTICLE 1370.

If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be contrary to the
evident intention of the parties, the latter shall prevail over the
former.

INTERPRETATIONS OF A CONTRACT is the determination of the

meaning of the terms or words used by the parties in their written
contract.

Literal meaning controls when language clear

Evident intention of parties prevails over terms of a contract

Contemporaneous and subsequent acts relevant in the

determination of intention. 1371

Special intent prevails over a general intent. 1372

Interpretations of stipulation with several meanings one of which

would render it effectual, it should be given that obligation. 1373
Various interpretation of contracts shall be interpreted together,
attributing to the doubtful ones that sense which may result from
all of them taken jointly. 1374

Words which may have different significations shall be understood

in that which is most in keeping with the nature and object of
contract. 1375

KINDS OF DEFECTIVE CONTRACTS

1. Rescissible Contracts- are those validly agreed upon
because all the essential elements exist, and therefore, legally
effective, but in the cases established by law, the remedy of
rescission is granted in the interest of equity.
2. Voidable Contracts- are those which possess all the
essential requisite of a valid contract but one of the parties are
incapable of giving consent, or consent is vitiated by mistakes,
violence, fraud and etc.
3. Unenforceable Contracts- cannot be sue upon or enforced
unless they are ratified.
4. Void or inexistent contracts- they are absolutely void or
null.

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