Can there be a contract when there is only ONE party? NO. There must be at least 2.

What about an AUTOCONTRACT? There is more than one party but represented one person only.

Differentiate: ESSENTIAL, NATURAL, and ACCIDENTAL elementsEssential – elements which must be present, otherwise there is no contract

***Distinguish Extraordinary from Special: Special – example: Price is only required in the Contract of Sale and not in any

other contractNatural - present in the contract unless the parties excludedAccidental – present only because the parties stipulated

What are the Stages?1) Generation2) Perfection3) Consummation

Is MARRIAGE a contract? Yes, but it is a more than a mere contract. It is an inviolable social institution.

CONTRACTS have certain characteristics:- Autonomy : Parties may agree to anything under the sun as long as they are

contrary to law, morals, good customs, public order, public policy- Relativity- Mutuality : equality of contracting parties (remember: Rule on POTESTATIVE

conditions)- Obligatory Force

***Some Civilists add “Consensuality” but not all Contracts are perfected by Mere Consent. Some require DELIVERY.

When is a contract considered contrary to MORALS?

What is CUSTOMS? Rule of conduct of a particular community established through continued practice over a long period of time (it has developed to be the correct way of things). Only customs not contrary to law can be recognized.

When is a contract contrary to public order?

When is it contrary to public policy? Has something to do with the common good. If a contract injures the common good, then it is considered as public policy.

BARRETO case (Shipment of Silk) – If that kind of stipulation is allowed (regardless of the cost of loss), nobody will consent to ship anymore. Commerce will grind to a halt. The whole country will suffer. Common good is injured.*Undue restriction on the rights of ownership. Property must be allowed to circulate freely.

Are restrictions on trade allowed? YES, as long as there is a limitation on time and place. (ex. You cannot work in Philippines for five years: NOT ALLOWED. You will have to work abroad.)

Del Castillo vs. Richmond – Valid. There was a limitation (only four miles).Avon Cosmetics – Party was employed by a cosmetics company. There was a limitation as to time and place, therefore the court said it was a valid restriction under these circumstances.Tiu Case – Restriction was reasonable under the circumstances because employee was privy to business trade secrets.

Ortigas & Co. : property was bought by Ortigas. There was a restriction on the title that the property should be used only for residential purposes. Exclusively. Later on the LGU enacted an ordinance reclassifying the area from residential to commercial. At that point, the owner of the property used it to construct a commercial building. The developer opposed (because of the restriction). The Court said when the LGU reclassified, it was exercising its POLICE POWER. And since that area is now classified a commercial area pursuance to the police power, then that PREVAILS. The moment there is an exercise of POLICE POWER, CONTRACTS MUST ALWAYS YIELD. In all contracts, there is always an implied reservation of the State for its exercise of its police power.

Diaz vs. Araneta: There was a restriction in the title that the property cannot be used for construction of factories (in an annotation). The Court said this is a VALID restriction.

In contrast:ORTIGAS: Police Power was exercised.Diaz: Contractual restriction was upheld because there was no police power involved.

***Parties are allowed to agree on anything as long as what they agree on is not contrary to LAW, MORALS, GOOD CUSTOMS, PUBLIC ORDER, PUBLIC POLICY.Take note: SC has held that the mere tendency of a contract to injure the common good is enough for that contract to be contrary to LMGPP. Actual injury is not required.

IMPORT CONTROLS: dollar applications. There is a tendency to cause damage to common good.

What are INOMINATE CONTRACTS? Contracts not covered by specific provisions of law.

What are the four innominate contracts? Do ut des, Do ut Facias, Facio ut des, Facio ut Facias

What law governs innominate contracts? - Agreement- Title I and II of CC- Rules on analogous contracts- Customs

Perez Case : Perez rendered interpreter services. (Facio ut des)

MUTUALITY OF CONTRACTS : contract must bound both contracting parties

*Tenant in a lease: violates principle of mutuality if everything depends on the tenant (he can stay for as long as pays) Invalid

Rustan Paper Mills: potestative conditions are violative of the principle of mutuality of contracts

***In Contract of Loans where there is a provision in the determination of the rate of interest: Not a valid provision if the bank will impose fix rate of interest (violates Mutuality) ; Can the parties legally agree on an ESCALATION CLAUSE: YES, as long as there is also a de-escalation clause. Like, if the prevailing interest will go down, then the interest rate will also go down. There must be agreement between the parties.

Florenda vs. CA? – applied for a loan with a bank. Employee resigned from the bank. (Bank should have included a provision stating that “if you will resign, you will have to pay a higher interest. But since there was none, and the bank cannot unilaterally change the terms of the contract.)

Sometimes there are agreements which render mutuality as illusory (VALID contract). Two types of agreement: where the contract provides that the one of the parties will give the other an amount, the exact amount to be determined by one of the parties (ex. Company will give you a bonus at the end of the year, amount to be determined by the board of directors. If you’re not happy with the amount, you cannot allege that it is a violation of MC). The other type: negative form of rescission.

Philab Laboratories : under the circumstances, there was a contract implied in fact.

RELATIVITY OF CONTRACTSWhat is the principle of relativity of contracts? Only the parties to the contract are bound. Unless the rights are transmissible.

Are the rights under the lease contract transmissible? YES. There is nothing highly personal in the rights and obligations involved in a contract of lease.

Uy vs. CA: These two agents were representing the NHA in the sale of the 8 lots. But after assessment, they decided to just buy 5. NHA talked directly to the owner. When the agents learned this, they complained (because they will not get higher commission – for 8 lots). Court said the agents have no right based on that contract because they are not one of the contracting parties.

The general rule: Contracts are binding only to the contracting parties, their assigns, and heirs. EXCEPTIONS:

1) contracts made in favor of third persons (stipulation pour autrui – Art. 1311 par. 2)***whether it is gratuitous or in payment of a debt***as long as it is EXPRESSLY conferred; merely incidental benefit is not sufficient

(the mere fact that third persons were MENTIONED does not mean that they are third person beneficiaries)

Insurance (Taxi Company) for all its drivers and passengers. Can you sue the insurance company directly? YES. There is a stipulation pour atrui. You are covered by that insurance, because there is a clear intent to confer it upon you as their passenger.

2) if the third person induces a contracting party to violate his contract-EXCEPTION: Supposing A has a contract with a multinational company to work in a country which is the most dangerous place on earth. B advises her not to work there for her own safety. Can B held liable? NO. Because there is enough justification for giving that advice.

3) Where the 3rd person comes in possession of the object of a contract creating a real right

Ex. A borrowed money from a bank and mortgaged his land to the bank. Later on, A sold that land to B. B cannot say that he is not bound by that mortgage because he is not a party to it. B is bound because he is a third person who has come into the possession of the object of a contract creating a real right. Whoever gets that land will be bound by the real estate mortgage (because REM – properly registered and annotated – has created a real right).

4) contracts which are intended to defraud creditors 5) contracts creating status (ex. Contract of marriage)6) group contracts (ex. Collective Bargaining Agreement)

ARTICLE 1317 : Status of the contract: UNENFORCEABLEHOWEVER: In some cases, the SC that a contract is not necessary unenforceable but actually inexistent. For instance, A entered into a contract in the name of B. The contract, insofar as B is concerned, is not merely unenforceable but rather INEXISTENT/VOID BECAUSE OF THE TOTAL ABSENCE OF B’S CONSENT.

ESCUETA VS. LIM / GOZUN VS. MERCADO: In these recent cases, the contracts are actually UNENFORCEABLE for no other reason than that these rulings are more in harmony with the provisions of the law. And therefore, we must follow.

CONSENT: The moment there is a meeting of the offer and acceptance, you have a PERFECTED CONTRACT.

There must be a meeting of the offer and acceptance upon the thing and the cause which will constitute the contract.

Instances where, apart from meeting of offer and acceptance, there must be a meeting on all relevant points (Depends upon the parties).

TAN Case: The rule in Art. 1319 does not apply in a situation where one or both parties where consider that certain matters/details in addition to the cause/thing should be agreed upon. As long as they agreed that there should be agreement in other matters (in addition to the thing/cause), it must be met. Otherwise, no perfection.

For there to be a meeting of an offer/acceptance to produce CONSENT, the meeting must be in such degree/manner that the acceptance ACTUALLY MIRRORS the terms of the offer. The

acceptance must be IDENTICAL to the offer. If there is variance in the acceptance, you don’t have a perfected contract.

***If I am offering to sell to you a parcel of land with TCT # 123 for 5M cash, you send me a letter saying “Agreed. I will be buying the parcel of land for 5M. Fifty percent to be paid upon signing of the contract, the balance to be paid after 6 months. I received the letter. Is there a perfected contract? NONE. Because your acceptance has varied the terms of the offer. What we have here is a COUNTER-OFFER.

I received your letter, I replied. “Agreed. 2.5M will be paid upon signing, and the balance to be paid after six months. But the balance must be secured by a mortgage.” You received my letter. Still no perfected contract. You wrote back: Agreed. 2.5 upon signing. 2.5 after 6 months, balance to be secured by mortgage.

I received your letter. Is there a perfected contract? YES. Because finally, the acceptance mirrors the offer.***

oOo

I sent you a letter: I offer to buy your house and lot located at <address> for 5M cash. You replied: Sorry, I cannot sell my property for anything less than 7M cash. Is there perfected contract? NONE.

I wrote again: What about 6M?

You: No.

Me: Okay.

But later, you wrote me asking if I would like to buy it for 5M.

***The original offer was no longer the standing offer. When you finally decided to sell the land, you are not making an acceptance. You are making a NEW OFFER. Therefore, there is no perfected contract.

If one of the contracting parties is a corporation, it must be made in the proper form. Otherwise there is no perfected contract.

oOo

Can an offer be withdrawn? YES.

Up to when? As long as there is no perfected contract.

A wrote a letter to B offering to sell his house and lot for 5M cash. B read the letter and decided to accept (received the letter January 2, same day he wrote his response). Letter was received in A’s residence in January 3 but he was out of the country. He was only able to

read the letter on January 4. Upon reading the letter, was there a perfected contract? YES. (Cognitive Theory – from the time the acceptance comes to the knowledge of the offeror).

Anytime before the perfection of the contract, offeror may revoke the offer.

In the same example, while A was out of the country – he mailed his letter of withdrawal of the offer. B received the letter of withdrawal on January 6th. In the meantime, A was able to read the acceptance letter on January 4th. Was there a perfected contract? NONE.

It doesn’t matter that B read the withdrawal only after A has already received the acceptance. What matters is that when A sent his withdrawal, he was not aware of the acceptance.

A withdrawal, once made, is immediately effective. (Laudico case)

Can the offeree withdraw his acceptance?1) Manresa : NO. Because between the two parties, the offeree is the first one to be

aware that there is a meeting of the minds. So you are already BOUND. (but following this would mean there are two moments of perfection of contract)

2) Tolentino: the only decisive moment to the consider is the moment when the offeror has knowledge of the acceptance made by offerree

A makes an offer to B, deadline for acceptance is February 14. B sent his letter through C, but C met an accident and was only able to deliver the acceptance the next day. A receives the acceptance on February 15. Was there a perfected contract (delay was caused by CASO FORTUITO? NO. The person making the offer is given the right to fix the time, place, and manner of acceptance. All of which must be complied with, otherwise there is no perfected contract.

What is the rule regarding AMPLIFIED ACCEPTANCE?A is offering B red wine at P300 per bottle for 100 bottles? B was so happy about that offer that he replied and said he accepts the offer and is buying 300 bottles of that red wine. Is there a perfected contract? YES, with respect to the 100 bottles. You have an OFFER with respect to the additional 200 bottles WHICH A MUST ACCEPT, otherwise no perfected contract with respect to additional 200 bottles.

It’s possible that the offeror may make an offer to an agent. Contract is perfected from the time acceptance is made to him. Ex.: A authorized B for the sale of his house and lot as an agent. The moment B conveys acceptance to a buyer, then there is perfected contract. (AGENT not messenger)

Lim Ket Kai case!

***An offer becomes ineffective upon the death, insanity, insolvency, etc. of either of the parties.

Because DEATH extinguishes Personality.

To a certain extent, Civil Interdiction restricts a person’s capacity to enter in a contract.

Insanity – No capacity.

For there be a perfected contract, acceptance must be conveyed before DEATH (or any of those instances).

A donated house and lot to B. B accepted but it took time for the acceptance to be delivered. When it was already delivered, B was already dead. THERE IS NO PERFECTED CONTRACT.

Acceptance must be made in the proper manner/form. (in Donations. Acceptance must be made in writing)

We follow the COGNITION theory.

RULE OF CONSTRUCTIVE KNOWLEDGE: A offered B by mail the sale of house and lot for 5M cash on January 1. B received offer on January 2 and sent her acceptance. Acceptance was received at A’s residence on January 3 (A was there when the letter was delivered by postman but he was having doubts). When A saw there was a letter, he did not open the envelope afraid of the acceptance. He called his messenger and hastily wrote a withdrawal and had it delivered to B. After messenger said it was already received by B, that was the only time A opened the letter. THERE IS A PERFECTED CONTRACT IN THIS CASE because there is already constructive knowledge of the acceptance on the part of A.

oOo

OBJECTThe only time there will be a contract involving future inheritance: Article 1018 of the Civil Code through donation inter vivos.

ALEATORY CONTRACT: considered as subject to the actual coming into existence of a future thing, for example the fruits from next agricultural year. In the absence of any stipulation, it is considered as conditional. ***Conditioned on the actual happening of the condition. The parties may agree that one of them may assume the risk of no fruits coming into existence.

The law prohibits contracts involving future inheritance: Santos vs. Cruz (Santos married twice. He left ½ of his properties to second wife. Some of the properties were conjugal properties of the first marriage which have not been liquidated. 2nd wife signed a document saying that she read the will of her husband and she promised to convey by will ½ to his children by his first marriage. Is this document valid? YES. This is not a contract of future inheritance. Because the children from first marriage already inherited these properties when their mother day, therefore not “future inheritance” from 2nd wife. This is a COMPROMISE agreement (because the children felt wronged that their mother was deprived of her share).

CAUSA

Onerous: Causa is the promise of thing or service. The promise is a sufficient causa/consideration.

Distinction between MOTIVE and CAUSA: Motive is personal. It differs from person to person and normally does not affect the validity of the contract.

The CAUSA is always the same. The MOTIVE differs depending on who the parties are. Ex. A sold a knife to B for 500 pesos. B bought it for kitchen use. A sold another knife to C, whose intent is to use it for murder. ALL cause (Php 500) is the same. MOTIVE is different. C’s motive will not affect the validity of the contract.

ALWAYS, the cause:Seller – acquisition of the purchase priceBuyer – acquisition of the thing that is being sold

***When the illegality will affect the validity of the contract: Motive becomes causa when it predetermines the purpose of the contract. Ex. Liguez vs CA: 16 yearold and DOM who donated parcels of land for the purpose that teenager will be his mistress. Family of DOM wanted to recover the properties. Court said: The fact remains that DOM will not have donated the properties if she did not agree to be his mistress. Therefore, the illicit motive here predetermines the cause of the contract. (No pari delicto because girl is minor).

Phil. Banking Corp. vs. Li She – when you look at the contracts individually, there is nothing wrong. But when you look at the contracts collectively—they reveal an insidious plot to circumvent what the constitution expressly prohibits (sale of property to aliens). The motive is clear: the motive is to circumvent the constitutional prohibition against aliens owning property.

***NO, we did not apply the pari delicto rule. What will be applied is the exception to PD. If the contract is not per se illegal, then the parties may be allowed to recover what is given under the void contract.

ACCESSORY CONTRACTS: A asked B to mortgage his land as security for A’s loan. A failed to pay the loan. Can be contend that the mortgage is void because there is no cause/consideration? NO. The cause/consideration for the mortgage is the same as the principal contract (contract of loan)

PURELY MORAL OBLIGATION – totally unrelated to any civil obligation is not a sufficient CAUSA. But if it is based on a civil obligation which has already expired and therefore become a natural obligation, then it is sufficient Causa. (sense of family honor, for example)

Absence of any of the ESSENTIAL ELEMENTS: VOID CONTRACT

There is a presumption that a contract is supported by a sufficient, valid consideration. Statement of false cause will render contract void unless proved that it is actually proved that it is founded on a real consideration.

Bercero Case: Contract between Capitol and Bercero is void because Capitol did not have the authority to lease (still has a valid contract with Nicolas)

What if the CAUSA is inadequate? Mere inadequacy will not render a contract void. It is ABSENCE which will render it void/inexistent. Unless there is fraud, mistake, undue influence---in which case, the contract may be voided (because of vitiated consent)

Case: Consideration was only one peso (in a deed of assignment). SC said there is no absence because there is still one peso.

If CAUSA is illicit (ex. Prostitution) = Contract is Void.

If it is made to appear that a party has received an amount that was promised to be paid but in fact there is none, then the contract is VOID for lack of CAUSA.

FORMGeneral Rule: Contracts are valid regardless of the form Except: When the law provides for specific form for the validity/enforceability of the contract

Example: Express Condonation must be made in the form of Donation; Donation of movable property with value more than 5k

RECIO Case: The agent must have a SPA, otherwise the sale is void.

No interest may be due unless it is specified in writing. But the loan is not affected, it may be in oral.

The amount of the principal as well as the amount of the interest must be specified, otherwise it is VOID.

Donation & Acceptance: Must be in writing.

There are some contracts that the law requires to be registered:- Sale of large cattle- Chattel Mortgage

Supposing you don’t comply with Art. 1380, will the contract be valid? YES. Because 1380 does not affect the validity or enforceability. It is more for convenience. IF you have a contract that does not comply with 1380, once the contract has been perfected, it is still valid. (ex. Contract of Loan but not in writing)REMEDY: REFORMATION

Case: Contract failed to describe the property. Failure of the document to accurately reflect the intent of the parties due to plain and simple oversight: Remedy is Reformation. But there is a perfected contract.

If there is a problem with respect to consent because of mistake, the contract can be annulled. Unless ratified.

Article 1366: reformation would be useless? Under these circumstances?

If there is a conflict between the words and the obvious intent of the parties: Intention of the parties will prevail. (Use the rules of Statutory Construction: words, actions, circumstances)

Tanguilid vs. CA: Subsequent acts of contracting parties must be considered.

Article 1377: If there is obscurity, it should never benefit the party that caused it. Contract should always be resolved against the party who caused it.

RESCISSION OF CONTRACTS: (Take note of the causes)

- Contracts entered into by guardians in behalf of wards, absentees when they have suffered lesion by more than ¼

- Fraud (if to defraud creditors and creditors have no other means to recover what is due them, remedy is rescission)

- Mere absence of authority involving alienation of property under litigation

Who can sue for rescission?Article 1181 : Only injured contracting partyBut even if third person (not party to contract) can ask for rescissionDefrauded creditors

Rescission of rescissible contract VS. Resolution of Reciprocal Obligations

SC has applied the provisions of 1385 on obligations of mutual restitution---once a contract has been rescinded (parties must return to each other)

Rules on mutual restitution under 1385 are also applicable to 1191. Because both use the term rescission.

WHAT are the rescissible contracts (these are VALID until rescinded and may only be attacked DIRECTLY)? Enumerated under Article 1381 & 1382