Contracts (Chapter 1-3)

Generally, Form Is Not Required In general, form does not matter for the validity of a contract. It is enough that there be consent, subject matter, and cause. This rule applies, however, to CONSENSUAL CONTRACTS.

[NOTE: (a) FORMAL CONTRACTS (SOLEMN CONTRACTS) require a certain specified form, in addition to consent, subject matter, and cause. (Example: A donation of real property must be in a public instrument in order to be valid, even as between the parties.) (b) REAL CONTRACTS require DELIVERY to be valid as a real contract even as between the parties, in addition to consent, subject matter, and cause.]

What are the Effects/ Consequences of Mutuality? (pg. 561)

1. A party cannot revoke or renounce a contract without the consent of the other, nor can it have it set aside on the ground that he had made a bad bargain (Fernandez v. MRR); 2. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation is void (Art. 1182) if the condition is SUSPENSIVE. If RESOLUTORY, the obligation is valid. Hence, it is all right for the contract to expressly give to one party the right to CANCEL the same. This is because, when the contract is thus cancelled, the agreement is really being FULFILLED. (Taylor v. Uy Tieng Piao and Tan Liuan).

What are the Kinds of Simulated Contracts? Give their Legal Effects. (Art. 1346) (pg. 652)

1. Absolutely simulated (simulados) or fictitious contracts: a) Here, the parties do not intend to be bound. b) Effect: The contract is VOID. 2. Relatively simulated (disimulados) disguised contracts: a) Here, the parties conceal their true agreement. b) Effect: The parties are bound to the real or true agreement except — i) if the contract should prejudice a third person; or ii) if the purpose is contrary to law, morals, good customs, public order, or public policy.

What may be the Object of Contracts? (Art. 1347) (pg. 654)

1. All things which are not outside the commerce of men; 2. Future things; 3 All rights, which are not intransmissible; and 4. All services which are not contrary to law, morals, good customs, public order or public policy.

What are the Basic Principles or Characteristics of a Contract? (pg. 542)

1. Freedom (or liberty) to Stipulate (provided not contrary to law, morals, good customs, public order, or public policy). (Art. 1306, Civil Code); 2. Obligatory Force and Compliance In Good Faith. (Arts. 1159 and 1315); 3. Perfection by Mere Consent (Consensuality) as a rule (Art. 1315); 4. Both Parties are Mutually Bound (Art. 1308); 5. Relatively (Generally, it is binding only between the parties, their assigns, and heirs). (Art. 1311).

PROBLEM: Is an oral sale of land valid as between the parties? (pg. 678)

1. If the land had been delivered or the money has been paid, the sale is VALID. (NOTE: Although the Statute of Frauds requires this contract to be in writing, still said statute does not apply to executed or partially executed contracts.) 2 If the land has NOT yet been delivered and the price has not yet been paid, the sale is UNENFORCEABLE, that is, neither party may be compelled by court action to perform unless the defense of the Statute of Frauds is waived.

Rule if Letter of Acceptance Is Withdrawn or Revoked (A letter of acceptance may in turn be withdrawn or revoked) PROBLEM: A offered on Jan. 1. B accepted on Jan. 8. The letter of acceptance was received by A on Jan. 15. But on Jan. 12, B had already written a letter revoking the acceptance. Was there a meeting of the minds? What is the Rule if the Letter of Acceptance is Withdrawn or Revoked? (pg. 609)

1. If the letter revoking the acceptance was received by A BEFORE Jan. 15 (receipt of the letter of acceptance), there is no question that there was no meeting of the minds. 2. But if the letter revoking the acceptance, although made previously, was nevertheless received by A only AFTER Jan. 15 (receipt of the letter of acceptance), it is believed that there was already a meeting of the minds.

What are the Limitations on the Nature of the Stipulations? (pg. 546)

1. Law; 2. Morals; 3. Good customs; 4. Public order; 5. Public policy.

Who are those Persons who Cannot (Incapacitated to) Give Consent to a Contract? (Art. 1327) (pg. 621)

1. Minors; 2. Insane or demented persons (except during lucid intervals); and 3. Deaf-mutes who do not know how to write.

What are the Vices of Consent? (pg. 627)

1. Mistake (or error); 2. Fraud (or deceit); 3. Violence; 4. Intimidation; and 5. Undue influence.

According to their Name or Designation (NI) (pg. 531)

1. Nominate - here, the contract is given a particular or special name (Ex: commodatum, partnership, sale, agency, deposit); 2. Innominate (or CONTRATOS INNOMINADOS) - those not given any special name (Ex: "do ut des," meaning "I give that you may give").

What are the Classification of Contracts as to Cause? (pg. 662)

1. Onerous - here the cause is, for each contracting party, the prestation or promise of a thing or service by the other (Ex: contract of sale); 2. Remuneratory - the past service or benefit which by itself is a recoverable debt; 3. Gratuitous (or contracts of pure beneficence) - here, the cause is the mere liability of the benefactor (Ex: pure donation).

According to Cause or Equivalence of the Value of Prestations (OGRe) (pg. 530)

1. Onerous - where there is an interchange of equivalent valuable consideration; 2. Gratuitous - this is FREE, thus one party receives no equivalent prestation except a feeling that one has been generous or liberal; 3. Remunerative - one where one prestation is given for a benefit or service that had been rendered PREVIOUSLY.

According to the Number of Persons Who Participated in the Drafting of the Contract (OC) (pg. 534)

1. Ordinary - like an ordinary sale 2. Contract of adhesion - like one prepared by a real estate company for the sale of real estate; or one prepared by an insurance company) (Here, the buyer, or the person interested in being insured, signifies his consent by signing the contract. If he does not desire to enter into the contract, it is his privilege to refuse.)

According to Obligations Imposed and Regarded by the Law (OI) (pg. 533)

1. Ordinary - like sale; the law considers this as an ordinary contract; 2. Institutional - like the contract of marriage; the law considers marriage also as an "inviolable social institution." (Art. 52, Civil Code).

According to the Number of Persons Actually and Physically Entering into the Contracts (OA) (pg. 534)

1. Ordinary - where two parties are represented by different persons (Ex: sale) 2. Auto-contracts - where only one person represents two opposite parties, but in different capacities (Ex: an agent representing his principal sells a specific car to himself, as a buyer)

According to the Nature of the Contract (PI) (pg. 540)

1. Personal; 2. Impersonal.

Stages of a Contract (pg. 540)

1. Preparation (or Conception or "Generacion") - here, the parties are progressing with their negotiations; they have not yet arrived at any definite agreement, although there may have been a preliminary offer and bargaining; 2. Perfection (or birth) - here, the parties have at long last came to a definite agreement, the elements of definite subject matter and valid cause have been accepted by mutual consent; 3. Consummation (or death or termination) - here, the terms of the contract are performed, and the contract may be said to have been fully executed.

According to Importance or Dependence of One Upon Another (PAP) (pg. 530-531)

1. Principal - here, the contract may stand alone by itself (Ex: sales, lease) 2. Accessory - this depends for its existence upon another contract. Here, the principal contract is one of LOAN (Ex: mortgage) 3. Preparatory - here, the parties do not consider the contract as an end by itself, but as a means thru which future transaction or contracts may be made (Ex: agency, partnership).

According to the Parties Obligated (UB) (pg. 531)

1. Unilateral - where only one of the parties has an obligation (Ex: commodatum, like the borrowing of a bicycle) (NOTE: Even here, the giving of consent must be mutual or bilateral) 2. Bilateral (or SYNALAGMATIC) - here, both parties are required to render reciprocal prestations (Ex: sale)

What are Other Instances When the Offer No Longer Becomes Effective? (pg. 614) (Laudico v. Arias)

1. When the offeree expressly or impliedly rejects the offer; 2. When the offer is accepted with a qualifi cation or condition (for here, there would merely arise a counter-offer); 3. When before acceptance is communicated, the subject matter has become illegal or impossible; 4. When the period of time given to the offeree within which he must signify his acceptance has already lapsed; 5. When the offer is revoked in due time (that is, before the offeror has learned of its acceptance by the offeree).

What are the 4 Kinds of Innominate Contracts? (pg. 559)

1. do ut des (I give that you may give); 2. do ut facias (I give that you may do); 3. facio ut des (I do that you may give); 4. facio ut facias (I do that you may do).

What are the Rules on Lesion? (pg. 672) General Rule: Lesion or inadequacy of price does NOT invalidate a contract. Exceptions: 1. When, together with lesion, there has been: a) Fraud; b) Mistake; or c) Undue influence.

2. In cases expressly provided by law (the ff contracts may be rescinded): a) Those entered by guardians whenever the wards they represent suffer lesion by more than 1/4 of the value of the things which are the objects thereof (Art. 1381, par. 1); b) Those agreed upon in representation of absentees, if the latter suffer the lesion (Art. 1381, par. 2); 3. Partition among co-heirs, when anyone of them received things with a value less by at least 1/4 than the share to which he is entitled (Art. 1098).

What are those that Must Appear in a Public Document? (Art. 1358) (pg. 684) Art 1358. The following must appear in a public document: 1. Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein; 2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

3. 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; 4. The cession of actions or rights proceeding from an act appearing in a public document. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles 1403, No. 2 and 1405.

Future Real Contracts as Consensual Contracts (pg. 590)

A contract "to make a deposit, to make a pledge, or to make a commodatum" is a consensual contract. After delivery, the contract becomes a real contract.

What is a Contract? (Art. 1305) (pg. 528)

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

What is the Effect of a Contract Whose Consent is Vitiated? (Art. 1330) (pg. 627)

A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is VOIDABLE. (Art 1330)

PROBLEM: Real property was donated in a public instrument but acceptance was made in a private instrument. Is the donation valid?

ANS.: No, because both the giving and the accepting must be in a public instrument. (See Abellara v. Balanag, 37 Phil. 865). NOTE: Registration in the Registry of Property of donations of real property is important only for effectivity as against third persons; as between the parties, a public instrument is sufficient.)

Presumption That Cause Exists (a) It is necessary that the cause must exist, BUT it is not necessary to STATE the cause in the contract. Reason: It is presumed that the cause EXISTS and is LAWFUL, unless the debtor proves the contrary. (See Radio Corp. v. Roa, 62 Phil. 211). (b) Under the Statute of Frauds, certain agreements have to be in writing. Now then, in these agreements, is it essential to put down the consideration in writing?

ANS.: No, because of the presumption under this Article that the cause exists. (Behn, Meyer, & Co. v. Davis, 37 Phil. 431). (c) A made a promissory note in B's favor. A, however, alleged that the cause was his gambling losses in a prohibited game. Who has the burden of proving that the game was indeed a prohibited one? ANS.: A because under the law, the presumption is that the cause is lawful. (See Rodriguez v. Martinez, 6 Phil. 594).

PROBLEM: A donated real property to B in a private instrument. B accepted the donation. Is the donation valid?

ANS.: No, because the donation was not made in a public instrument. (Camagay v. Lagera, 7 Phil. 397).

What are the 4 Instances When Offer No Longer Becomes Effective? (Art. 1323) (pg. 613)

An offer becomes ineffective upon the (1) Death, (2)Civil interdiction, (3)Insanity, or (4)Insolvency of either party before acceptance is conveyed. (Art 1323)

When is Acceptance of an Offer Made Thru an Agent Deemed Accepted? (Art. 1322) (pg. 612)

An offer made thru an agent is accepted from the time acceptance is communicated to him [agent]. (Art 1322)

When are Consensual Contracts Perfected? (p588)

Consensual contracts are perfected from the moment there is agreement (consent) on the subject matter, and the cause or consideration.

How is Consent Manifested? (Art. 1319) (pg. 609)

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. 1319)

When is there Consensuality of Contracts? (Art. 1315) (pg. 587)

Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage, and law. (Art 1315)

What are the Effects of Contracts Entered During a Lucid Interval or those Agreed to in a State of Drunkeness or Hypnotic Spell? (Art. 1328) (pg. 624)

Contracts entered into during a lucid interval are VALID. Contracts agreed to in a state of drunkenness or during a hypnotic spell are VOIDABLE.

What is the Effect of Contracts Without Cause or those with Unlawful Cause? (Art. 1352) (pg. 666)

Contracts without cause, or with unlawful cause, produce no effect whatsoever.

Lucid Intervals (Dumaguin v. Reynolds, et al., 92 Phil. 66)

Even if a person has already been judicially declared insane, and is actually now under guardianship, he may still enter into a valid contract, provided that it can be shown that at the time of contracting, he was in a lucid interval. Of course here, he is already presumed insane, and therefore the sanity must be proved.

What is the Principle of Relativity? (Art. 1311) (pg. 565) General Rule: Contracts are generally effective only between the parties, their assigns and heirs.

Exceptions: 1. Where the obligations arising from the contract are not transmissible by their NATURE, by STIPULATION, or by PROVISION OF LAW (Art. 1311); 2. Where there is a STIPULATION POUR AUTRUI (a stipulation in favor of a third party) (Art. 1311); 3. Where a third person INDUCES another to violate his contract (Art. 1314); 4. Where, in some cases, third persons may be adversely affected by a contract where they did not participate (Arts. 1312, 2150, 2151, Civil Code; Act 1956, the Insolvency Law; and RA 875); 5. Where the law AUTHORIZES the creditor to sue on a contract entered into by his debtor ("Accion Directa").

When Form is Important? (pg 677)

Form may be important: (a) For VALIDITY (This is true in formal or solemn contracts.) (b) For ENFORCEABILITY [This is true for the agreements enumerated under the Statute of Frauds, but of course this requirement may be waived by acceptance of benefits (partial) or by failure to object to the presentation of oral (parol) evidence. (See Art. 1403, Civil Code).] (c) For CONVENIENCE (This is true for the contracts enumerated for example under Art. 1385, Civil Code).

What is the Nature of a Voidable Contract? (pg. 627)

General Rule: A voidable contract is BINDING and VALID. Exception: Unless ANNULLED by a proper action in court. It is, however, susceptible of RATIFICATION before annulment (Art. 1390).

What is the Form of Contracts? (Art. 1356) (pg. 675)

General Rule: Contracts shall be obligatory, regardless of form, provided all the essential requisites for their validity are present. Exception: When the law expressly requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way.

May Contracts be Entered into upon Future Inheritance? (Art. 1347, par. 2) (pg. 656)

General Rule: Future inheritance cannot be the subject of a contract. Exception: 1. In the case of marriage settlements (Art. 130); 2. In the case of partitions of property inter vivos by the deceased (Art. 1080).

May a Person Contract in the Name of Another? (Art. 1317) (pg. 592)

General Rule: No one may contract in the name of another. Exception: 1. When authorized by the latter; or 2. When he has a right to legally represent him.

What is the Rule on Options? (Art. 1324) (pg. 614)

General Rule: When the offerer has allowed the offeree certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal. Exception: When the option is founded upon a consideration, as something paid or promised.

CASE: Liguez vs CA Facts: Salvador Lopez, a married man, gave Conchita Liguez, a 15-year-old girl, a donation of land so that she would have sexual relations with him and so that her parents would allow them to live together. After Lopez's death, Conchita sought to get the land from his heirs, but said heirs refused on the ground that the cause or consideration of the donation was illegal, and that therefore the donation should be considered null and void. Conchita contended that while the motive might have been immoral, still the cause — "liberality" — was proper, and that therefore the donation should be considered valid. Is the donation valid? (pg. 668-669)

Held: NO. The donation was null and void. While it is true that motive differs from cause, still a contract that is conditioned upon the attainment of an immoral motive should be considered void, for here motive may be regarded as cause when it predetermines the purposes of the contract. Here, Lopez would not have conveyed the property in question had he known that Liguez would not cohabit with him; it follows that the cohabitation was an implied condition to the donation, and being unlawful, the donation itself must be considered unlawful (Liguez vs. CA).

What are the Requisites for a Person to Contract in the Name of Another? (pg. 592)

If a person wants to contract in the name of another: 1. He must be duly authorized (expressly or impliedly); or 2. He must have by law a right to represent him (like the guardian, or the administrator); or 3. The contract must be subsequently RATIFIED (expressly or impliedly, by word or by deed). (Gutierrez Hermanos v. Orense).

When is there Mistake? (Art. 1331) (pg. 628)

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.

Option Money (pg. 616)

It is a contract granting a person the privilege to buy or not to buy certain objects at any time within the agreed period at a fixed price. The contract of option is a separate and distinct contract from the contract which the parties may enter into upon the consummation of the contract. Therefore, an option must have its own cause or consideration, a cause distinct from the selling price itself. Of course, the consideration may be pure liberality.

What is a Stipulation Pour Autrui? (pg. 577)

It is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, and which stipulation is merely part of a contract entered into by the parties, neither of whom acted as agent of the third person. Note: Such a stipulation is binding on said third person, although he may not be a signatory to the contract. (Northern Motors, Inc. vs. Prince Line).

What is Lesion? (pg. 672)

It is inadequacy of cause, like an insufficient price for a thing sold.

Is it Necessary to State the Cause in Contracts? (Art. 1354) (pg. 671)

It is necessary that the cause must exist, but it is NOT necessary to state the cause in the contract. Reason: It is PRESUMED that it EXISTS and is LAWFUL, unless the debtor proves the contrary (Art. 1354).

What is Cause? (Art. 1350) (pg. 660)

It is the essential and impelling reason why a party assumes an obligation. Strictly speaking, there is no cause of a contract, but there is a cause for an obligation. (Art 1350)

PROBLEM: While his father was still alive, A sold to B the property he (A) expected to receive from his father. Is the contract valid? (pg. 657)

NO, because the object of the contract here is really future inheritance, and the particular contract in this case is not one of those authorized by law regarding inheritance (Tordilla v. Tordilla).

Are the Motives of Parties for Entering a Contract the Same from its Cause? (Art. 1351) (pg. 665)

NO. The particular motives of the parties in entering into a contract are different from the cause thereof.

Problem: A loan was contracted orally. If the amount is P800, may the lender recover the sum lent? ANS.: Yes, because although the law says that contracts involving more than P500 must appear in writing, even a private one, still this requirement is only for convenience, not for validity.

NOTE: All the lender has to do here is to avail himself of Art. 1357, the right to compel the execution of the needed instrument. Moreover, "this right may be exercised simultaneously with the action upon the contract." (Art. 1357). NOTE: A stipulation, however, to pay interest on loans must be in writing. If not, Art. 1357 cannot be availed of. If not in writing, the stipulation as to interest is VOID, but the loan itself is VALID. (See Art. 1956).

What is the Effect of Ratification? (pg. 594)

Ratification cleanses the contract from all its defects from the moment the contract was entered into (Art. 1396). Hence, there is a RETROACTIVE effect (Tacalinar v. Corro). NOTE: There can be no more ratification if the contract has previously been REVOKED by the other contracting party (Art. 1317, par. 2).

When are Real Contracts Perfected? (Art. 1316) (pg. 590)

Real contracts, such as deposit, pledge and commodatum, are perfected upon delivery of the object of the obligation. (Art 1316)

'Mistake' or 'Error' It is a false belief about something.

Requisites for Mistake to Vitiate Consent (a) The error must be substantial regarding: 1) the object of the contract 2) the conditions which principally moved or induced one of the parties (error in quality or in quantity — error in qualitate or in quantitate). 3) identity or qualifications (error in personae), but only if such was the principal cause of the contract. (b) The error must be excusable (not caused by negligence). (c) The error must be a mistake of fact, and not of law.

When is a Cause Considered Unlawful? (Art. 1352) (pg. 666)

The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.

When is there Undue Influence? (Art. 1337) (pg. 640)

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.

When is there Violence? (Art. 1335, par. 1) (pg. 634)

There is violence when in order to wrest consent, SERIOUS or IRRESISTIBLE FORCE is employed.

What are the Requisites of a Stipulation Pour Autrui? Rebecca C. Young et al vs CA et al GR 79518, Jan 13, 1989 (pg. 577)

1. There must be a STIPULATION in favor of a third; 2. The stipulation must be a PART of the contract; 3. The contracting parties must have clearly and deliberately CONFERRED a favor upon a third person, not a mere incidental benefit or interest; 4. The third person must have COMMUNICATED his acceptance to the obligor before its revocation; 5. Neither of the contracting parties bears the legal representation or AUTHORIZATION of the third party (Young vs. Court of Appeals).

What are the Elements of a Contract? (pg. 529) (ENA)

1. Essential elements - without them a contract cannot exist (Ex: consent, subject matter, cause or consideration); 2. Natural elements - those found in certain contracts, and presumed to exist, unless the contrary has been stipulated (Ex: warranty against eviction and against hidden defects in the contract of sale); 3. Accidental elements - these are the various particular stipulations that may be agreed upon by the contracting parties in a contract. They are called accidental, because they may be present or absent, depending upon whether or not the parties have agreed upon them (Ex: the stipulation to pay credit; the stipulation to pay interest; the designation of the particular place for delivery or payment).

According to the Time of Performance or Fulfillment (Exd-Exy) (pg. 532)

1. Executed - one completed at the time the contract is entered into, that is, the obligations are complied with at this time (Ex: a sale of property which has already been delivered, and which has already been paid for) 2. Executory - one where the prestations are to be complied with at some future time (Ex: a perfected sale, where the property has not yet been delivered, and where the price has not yet been given) (In the meantime, there is only a "chose in action.") Note: If the whole or a part of the property or the price has been delivered, the contract may be said to be "partially executed."

According to the Evidence Required for its Proof (OW) (pg. 533)

1. Those requiring merely Oral or parol evidence; 2. Those requiring Written proof (Ex: contracts enumerated under the Statute of Frauds).

Requisites for Violence to Vitiate Consent

(a) Employment of serious or irresistible force; (b) It must have been the reason why the contract was entered into.

Not Contrary to Law, Morals, etc.

(a) Future things may be the object of a contract; thus, the future harvest of sugarcane in a specific field may be sold; but by express provision of law, said future property may not be donated. (b) Future inheritance (one where the source of property is still alive) cannot be the subject of a contract except: 1) in the case of marriage settlements. (See Art. 130, Civil Code); 2) in the case of partitions of property inter vivos by the deceased. (See Art. 1080, Civil Code). [NOTE: Future inheritance is any property or right not in existence or capable of determination, at the time of the contract, that a person may in the Art. 1347 future acquire by succession. (Maria Gervacio Blas, et al. v. Rosalinda Santos, et al., L-14070, Mar. 29, 1961).]

Some Voidable Contracts by Reason of Incapacity

(a) Insane or demented persons (unless they acted during a lucid interval); (b) Those in the state of drunkenness (which temporarily results in complete loss of understanding, and may therefore be equivalent to temporary insanity). (c) Those entered into during a hypnotic spell (induced by drugs, or by deliberate or unintentional hypnotism) or while a person walks during his sleep, somnambulism, for in these cases, a person is incapable of intelligent consent.

Parties to a Contract

(a) The law speaks of a meeting of minds between two "persons." The meeting of the minds really refers to two "parties." If at the time of supposed perfection, one of the parties had already previously died, there can be no meeting of the minds; hence, no contract. (Coronel v. Ona, 33 Phil. 456) (b) While a promissory note is unilateral (in that only one party has signed it and is bound thereby), still such a contract includes two parties (the debtor and the creditor). Thus, the signer is not the only party, nor the only one who can sue on such a contract. There can be no obligor without an obligee. (Dilag v. Heirs of Fortunato Resurreccion, 76 Phil. 650). (c) The meeting of the minds may arise because of an express or implied accord (such as when services as an interpreter and guide, whether solicited or not, were accepted and duly rendered; here, an obligation to pay for such services exists). (See Perez v. Pomar, 2 Phil. 682).

Consequences of Perfection (p588)

(a) The parties are bound to the fulfillment of what has been EXPRESSLY STIPULATED (Art. 1315, Civil Code), and compliance thereof must be in GOOD FAITH. (Art. 1159, Civil Code). [NOTE: If the true intention is not expressed in a written agreement, in case one has been made, the proper remedy is REFORMATION. (Art. 1359, Civil Code).] (b) The parties are ALSO bound to all the CONSEQUENCES which, according to their nature, may be in keeping with GOOD FAITH, USAGE, and LAW.

Requisites for Undue Infl uence to Vitiate Consent

(a) improper advantage (b) power over the will of another (reflected for example in a superior bargaining power). (c) deprivation of the latter's will of a reasonable freedom of choice (The influence exerted must be of a kind that overpowers the mind as to destroy the party's free agency.)

Requisites for Intimidation to Vitiate Consent

(a) reasonable and well-grounded fear (b) of an imminent and grave evil (c) upon his person, property, or upon the person or property of his spouse, descendants, or ascendants (d) it must have been the reason why the contract was entered into (e) the threat must be of an unjust act, an actionable wrong

What is the Nature of a Contract of Carriage? (pg. 591)

1. The contract "to carry" (at some future time) is CONSENSUAL and is perfected by mere consent. 2. The contract of "carriage" is a REAL contract, for not until the carrier is actually used can we consider the contract perfected, that is, 'til the moment of actual use, the carrier cannot be said to have already assumed the obligation of a carrier.

According to the Risk of Fulfillment (CA) (pg. 531)

1. Commutative - here, the parties contemplate a real fulfillment; therefore, equivalent values are given (Ex: sale, lease); 2. Aleatory - here, the fulfillment is dependent upon chance; thus, the values vary because of the risk or chance (Ex: An insurance contract)

According to Perfection or Formation (CoReForm) (pg. 530)

1. Consensual - perfected by mere consent (Ex: sale); 2. Real - perfected by delivery (Ex: depositum, pledge, commodatum) (Art. 1316, Civil Code); 3. Formal or solemn - those where special formalities are essential before the contract may be perfected (Ex: A donation inter vivos of real property requires for its validity a public instrument.)

How Contracts are Perfected? (pg. 588)

1. Consensual contracts - by mere consent (this is the general rule) (Art. 1315) (Ex: contract of sale) 2. Real contracts - perfected by delivery (Ex: deposit and pledge) (Art. 1316) 3. Formal or solemn contracts - here, a special form is required for perfection (Ex: A simple donation inter vivos of real property, to be valid and perfected, must be in a public instrument) (Art. 749).

According to Subject Matter (ThRiSe) (pg. 532)

1. Contracts involving Things - like sale; 2. Contracts involving Rights or credits - provided these are transmissible, like a contract of usufruct, or assignment of credits; 3. Contracts involving Services - like agency, lease of services, a contract of common carriage, a contract of carriage.

What are the Real Contracts Referred to in Art. 1316? (pg. 590)

1. Deposit; 2. Pledge; and 3. Commodatum, a loan where the identical object must be returned (Ex: Loan of a car).

Article 1354

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.

Article 1355

Art. 1355. Except in cases specifi ed by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue infl uence.

QUERY: Suppose the principal himself made the offer, and acceptance is communicated to the agent, would the Article apply? In other words, would there already be a meeting of the minds? (p613)

As a general rule, there would as yet be no meeting of the minds, for the agent may be an ordinary one, not authorized to receive the acceptance for the PARTICULAR transaction. But if the agent was expressly authorized to receive the acceptance, or if the offeree had been told that acceptance could be made direct with the agent, there can be a meeting of the minds and a perfection of the contract.

CASE: A student who had finished 3 1/2 semesters in the College of Law of the Arellano University transferred to another law school for his last semester. For the 3 1/2 semesters he stayed at the Arellano University, he enjoyed a scholarship; hence, was not required to pay fees. When he sought transfer and his transcript of grades, he was asked to reimburse all the scholarship funds since, the agreement precisely provided for a refund in case of transfer. Is such a proviso valid? (pg. 550) (Cui vs. Arellano University)

The proviso is void, and contravenes both morals and public policy. Scholarships should not be propaganda matter; they are awards for merit. Hence, the student need not reimburse.

CASE: D lost in gambling and as payment, executed a promissory note in favor of the winner C. C then assigned the note to A. May A successfully recover from D? (pg. 549) (Palma vs. Canizares)

No, because the promissory note is void. Just as the winner cannot recover, so also cannot the assignee. NOTE: If the loser had borrowed money from a friend thru a promissory note, said money to be used to pay the winner, the promissory note is valid for it was not the result of gambling between the loser and the friend. Thus, while a winner in gambling cannot recover, a friend who lends the money can recover.

BAR: If a particular piano is sold for P500,000 what is the object and what is the cause? (pg. 662)

There are two schools of thought here: (a) According to Manresa, for the seller the object is the piano and the cause is the price; for the buyer the object is the price and the cause is the piano; b) According to others, for both the seller and the buyer, there is just one object, namely, the piano. The cause for the seller is the price; the cause for the buyer is the delivery of the piano.

When is there Fraud? (Art. 1338) (pg. 642)

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.

When is there Intimidation? (Art. 1335, par. 2) (pg. 635)

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.

May Human Blood be the Object of a Contract? (pg. 658)

The human blood, like other parts of the human body, cannot be considered object of contracts because they are outside the commerce of men.

What are the Essential Elements? (Art. 1318) (pg. 596)

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; and 3. Cause of the obligation which is established. *Real contracts require a 4th requisite - DELIVERY.(Constructive or Physical) *Solemn or formal contracts require a 4th requisites - COMPLIANCE WITH THE FORMALITIES REQUIRED BY LAW (Ex: A simple donation inter vivos of land requires a public instrument for its perfection).

What Does 'Mutuality of Contracts Mean? (Art. 1308) (pg. 560)

The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (Art 1308) This Article stresses the mutuality of contracts — that is, both parties are bound. The principle is based on the essential equality of the parties. It is repugnant to bind one party, and yet leave the other free.

What is the Principle of Freedom in Contracts? (Art. 1306) (pg. 545)

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. (Art 1306) The liberty or freedom or autonomy to stipulate contracts.

May Determination of the Performance be Left to a Third Person? What is the Effect of an Evidently Inequitable Determination? (Art. 1309-1310) (pg. 564)

The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties. (Art 1309) The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. (Art 1310)

PROBLEM: A agreed to lend B his (A's) car on Sept. 8. If on Sept. 8 A refuses to deliver the car, may B sue him for damages? (pg. 591)

YES, because of the consensual contract of "to make a commodatum." If A had delivered the car and B thru negligence damages the car, A can sue him because of the real contract of "commodatum."

CASE: If an attorney renders legal services for a close friend, may the former still charge attorney's fees even in the absence of any agreement? (pg. 560) (Corpus vs. Court of Appeals)

YES, the former can still charge attorney's fees even in the absence of any agreement thereon. This is because of the innominate contract of facio ut des (I do that you may give) which, in turn, is based on the principle that one cannot unjustly enrich himself at another's expense.

Is a Transportation Ticket a Contract? (Guerrero vs. Madrigal Shipping Co.).

YES. A transportation ticket is a complete written contract between the shipper and the passenger since it has ALL the elements of a complete contract: 1. The consent of the contracting parties manifested by the fact that the passenger boards the ship and the shipper consents or accepts him in the ship for transportation; 2. Cause or consideration, which is the fare paid by the passenger, as stated in the ticket; and 3. Object, which is the transportation of the passenger from the place of departure to the place of destination as stated in the ticket