OUTLINE
CONTRACTS:
I.
Five General Principles of Contracts
II.
Perfection
III.
Elements/Requisites of a Contract
a. Consent
b. Object
i. Future Object and Future Hope
c. Cause/Consideration
IV.
Formalities
V.
Four Kinds of Defective Contracts
Red = Give Priority
I.
FIVE GENERAL PRINCIPLES OF CONTRACTS
1) RELATIVITY OF CONTRACTS
 Privity of the parties
 Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract
are not transmissible by their nature, or by stipulation or by provision of
law.
 A contract entered into in the name of another by one who has no authority
or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other
contracting party.
2) MUTUALITY OF CONTRACTS
 Contracts are agreed upon by mutual consent. Therefore, their compliance
or validity must also be mutual and cannot be left to the will of one of them.
3) OBLIGATORY FORCE
 Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
4) CONSENSUALITY OF CONTRACTS
 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.
5) AUTONOMY OF CONTRACTS
 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.
II.
PERFECTION
 Contracts are perfected by mere consent
pg. 1
III.
ELEMENTS/REQUISITES OF A CONTRACT
1) CONSENT
 Meeting of the Minds
- Concurrence of the offer and the acceptance
o A contract is perfected by mere consent. From the moment of
a meeting of the offer and the acceptance upon the
object and the cause that would constitute the
contract, consent arises. However, “the offer must be
certain” and “the acceptance seasonable and
absolute; if qualified, the acceptance would merely
constitute a counteroffer.
2) OBJECT
 (The subject matter) The thing, right or service which is the subject matter
of the obligation arising from the contract.

Requisites:
1. Within the commerce of man (CIVIL CODE, art. 1347) – either existing
or in potency
2. Licit or not contrary to law, morals, good customs, public order or public
policy (CIVIL CODE, art. 1347)
3. Possible, legally or physically (CIVIL CODE, art. 1348).
4. Determinate as to its kind or determinable without need to enter into a
new contract (CIVIL CODE, art. 1349)
5. Transmissible (CIVIL CODE, art. 1347) – As to Right

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.

FUTURE OBJECT AND FUTURE HOPE
- A future thing may be the object of a contract.
Such contract may be interpreted as:
a. Conditional contract, where its efficacy should depend
upon the future existence of the thing.
b. b. Aleatory contract, where one of the contracting parties
assumes the risk that the thing will never come into existence,
e.g., insurance.
Except [Art. 1347-1349, CC]
a. Things which are outside the commerce of men
b. Intransmissible rights
c. Future inheritance except in cases authorized by law
pg. 2
EXCEPTIONS TO THE EXCEPTION
a. In case of marriage settlements under Art. 130, CC
b. In case of partition of properties inter vivos by the deceased
under Art. 1080, NCC
3) CAUSE/CONSIDERATION
 Definition Refers to the immediate, direct and most proximate reason
which justifies the creation of an obligation through the will of the
contracting parties and is the essential reason for the contract.
IV.
FORMALITIES
 General Rule:
o No form necessary for contracts provided that all the essential
requisites for their validity are present

V.
Exception:
o When the law requires that a contract be in some form in order that it
may be valid [par. 2, Art. 1356, CC]
o When the law requires that a contract be proved in a certain way to be
enforceable (Statute of Frauds) [par. 2, Art. 1356, CC]
o When the law requires a contract to be in some form for convenience,
or to be effective against third parties [Arts. 1357 and 1358, CC]
FOUR KINDS OF DEFECTIVE CONTRACTS
1) RESCISSIBLE CONTRACTS
 They are valid because all the essential requisites of a contract exist but by
reason of injury or damage to one of the parties or to third persons, such
as creditors, the contract may be rescinded.
 Basis: Lesion – Damage to one of the parties or third party.
 ART. 1383. The action for rescission is subsidiary; it cannot be instituted
except when the party suffering damage has no other legal means to obtain
reparation for the same.
Kinds of Rescissible Contracts:
ART. 1381. The following contracts are rescissible:
1. Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one fourth of the
value of the things which are the object thereof.
o Contracts entered into on behalf of wards.
o EXAMPLE: G is the guardian of W (ward). G sells the property
of W worth P20,000.00 for only P15,000.00. The contract of
sale cannot be rescinded because the lesion4 is not more than
one-fourth. However, if the property is sold for less than
P15,000.00, W can rescind the sale by proper action in court
upon reaching the age of majority.
2. Those agreed upon in representation of absentees, if the latter suffer
the lesion by more than one fourth of the value of the things which
are the object thereof.
o Contracts agreed upon in representation of absentees.
pg. 3
3. Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them
o Contracts undertaken in fraud of creditors.
o The action to rescind in fraud of creditors is known as accion
pauliana. Here, as in No. (4), the remedy of rescission may be
availed of by a third person. Such contracts are usually made
without the knowledge of the creditors.
o In order that fraud of creditors may be a valid ground for
rescission, the following requisites must also be present:
(a) There must be an existing credit prior to the contract to
be rescinded, although it is not yet due or demandable later;
(b) The subsequent contract made by the debtor conveys a
patrimonial benefit to a third person;
(c) There must be fraud on the part of the debtor which may
be presumed or proved (see Art. 1387.);
(d) The creditor has no other legal remedy to satisfy his claim
(see Art. 1383.), that is, he cannot recover his credit in any
other manner, it not being required that the debtor be
insolvent. (See Art. 1177.)
4. Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval
of the litigants or of competent judicial authority.
o Contracts which refer to things under litigation.
o EXAMPLE: S sues B for the recovery of a parcel of land. In this
case, the land is a “thing under litigation.” If, during the
pendency of the case, B sells the land to C without the
approval of S or of the court, the sale is rescissible at the
instance of S in case he wins in his suit for the recovery of
said land unless C is in legal possession of the land in good
faith. (Art. 1385, par. 2.) S, however, may protect his right by
filing a notice of lis pendens. (Sec. 14, Rule 13, Rules of
Court.) If the action involves personal property, S may petition
the court for the issuance of an order of attachment (Secs. 1,
2, Rule 57, Ibid.) or the appointment of a receiver (Sec. 1,
Rule 59, Ibid.) to place the property in custodia legis
5. All other contracts specially declared by law to be subject to
rescission.
o Other instances.
i. “Art. 1098. A partition, judicial or extrajudicial, may
also be rescinded on account of lesion, when any one
of the co-heirs’ received things, whose value is less, by
at least one-fourth, than the share to which he is
entitled, considering the value of the things at the time
they were adjudicated.”
ii. “Art. 1470. Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect in
pg. 4
iii.
iv.
v.
vi.
the consent, or that the parties really intended a
donation or some other act or contract.’’ (n)
“Art. 1659. If the lessor or the lessee should not comply
with the obligations set forth in Articles 1654 [referring
to obligations of the lessor] and 1657 [referring to
obligations of the lessee], the aggrieved party may ask
for the rescission of the contract and indemnification
for damages, or only the latter, allowing the contract
to remain in force.
“Under Article 1539, the vendee may exercise the
remedy of rescission, when the lack in the area of the
real estate sold be not less than one-tenth of that
stated or when the inferior value of the thing sold
exceeds one tenth of the price agreed upon. (see also
Arts. 1526, 1534, 1539, 1542, 1556, 1560, 1567.)
Under Article 1599, where there is a breach of warranty
by the seller, the buyer may, at his election, rescind
the contract of sale and refuse to receive the goods or
if the goods have already been received, return them
or offer to return them to the seller and recover the
price or any part thereof which has been paid. The
refusal of the buyer to pay the remaining balance of
the agreed consideration on the alleged ground of vice
or defect in the goods sold, while at the same time
possessing and enjoying the same, is untenable both
on the grounds of law and equity.
ART. 1382. Payments made in a state of insolvency for
obligations to whose fulfillment the debtor could not be
compelled at the time they were affected, are also
rescissible.
2) VOIDABLE CONTRACTS
 They are also valid until annulled unless there has been a ratification. In a
voidable contract, the defect is caused by vice of consent.
Kind of Voidable Contracts
ART. 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in
court. They are susceptible to ratification. (n)
Prescription:
ART. 1391. The action for annulment shall be brought within four years.
This period shall begin: In cases of intimidation, violence or undue influence,
from the time the defect of the consent ceases.
pg. 5
In case of mistake or fraud, from the time of the discovery of the same. And
when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.
3) UNENFORCEABLE CONTRACTS
 They cannot be sued upon or enforced unless they are ratified. As regards
the degree of defectiveness, voidable contracts are further away from
absolute nullity than unenforceable contracts. In other words, an
unenforceable contract occupies an intermediate ground between a
voidable and a void contract.
Kinds of Unenforceable Contracts
ART. 1403. The following contracts are unenforceable, unless they are ratified:
1. Those entered into the name of another person by one who has been
given no authority or legal representation, or who has acted beyond his
powers;
2. Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or secondary evidence of its contents:
a. An agreement that by its terms is not to be performed within a
year from the making thereof;
 parties intended when they made the contract that it
should not be performed within a year.
 EXAMPLE: On December 1, 2003, X entered into an oral
contract with Y for the construction of Y’s house to begin
on December 10, 2004. The contract must be in writing
to be enforceable.
b. A special promise to answer for the debt, default, or miscarriage
of another;
 In Cases of Guarantee
 EXAMPLE: D owes C P1,000.00 with G as guarantor.
Here, G has a special promise to answer for the debt of
D in case D fails to pay the same. This promise is
unenforceable unless it is in writing signed by G. If the
promise of G is to pay C what D owes him (C), G’s
promise, even if verbally made, is enforceable as it is not
a collateral “promise to answer for the debt, default, or
miscarriage of another.”
c. An agreement made in consideration of marriage, other than a
mutual promise to marry;
d. An agreement for the sale of goods, chattels, or things in action,
at a price not less than Five hundred pesos, unless the buyer
accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action, or pay at
the time some part of the purchase money; but when a sale is
pg. 6
made by auction and entry is made by the auctioneer in his sales
book, at the time of the sale, of the amount and kind of property
sold, terms of sale, price, names of the purchasers and person
on whose account the sale is made, it is a sufficient
memorandum;
 EXAMPLES: (1) X and Y mutually promised to buy and
sell a piano at a price of P4,000.00. This contract must
be in writing to be enforceable against either party
unless there is delivery or partial or full payment, in
which case, it is taken out of the operation of the Statute
of Frauds and the contract may be enforced even if it
was made orally. (2) If Y denies a contract of sale of
goods worth P500.00 but X claims the price is only
P450.00 (which is less than P500.00), oral evidence of
the sale is admissible inasmuch as the true agreement
claimed is not covered by the Statute.
e. An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein;
 EXAMPLE: R agreed to lease his house to E for two (2)
years. Again, this agreement must appear in writing to
be enforceable unless it is partially executed.
f. A representation as to the credit of a third person.
3. Those where both parties are incapable of giving consent to a contract.
4) VOID OR INEXISTENT CONTRACTS.
 They are absolutely null and void. They have no legal effect at all and
cannot be ratified.
Kinds of Void or Inexistent Contracts:
ART. 1409. The following contracts are inexistent and void from the beginning:
1. Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the time of the transaction;
4. Those whose object is outside the commerce of men;
5. Those which contemplate an impossible service;
6. Those were the intention of the parties relative to the principal object of
the contract cannot be ascertained;
7. Those expressly prohibited or declared void by law. These contracts
cannot be ratified. Neither can the right to set up the defense of illegality
be waived.
RULE ON PARI DELICTO.

General Rule:
o Parties to a void agreement cannot expect the aid of the law; the
courts leave them as they are, because they are deemed in pari
delicto, or “in equal fault.’’
pg. 7
o In pari delicto is “a universal doctrine which holds that no action
arises, in equity or at law, from an illegal contract; no suit can be
maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or money agreed to be
paid, or damages for its violation; and where the parties are in
pari delicto, no affirmative relief of any kind will be given to one
against the other.’’

Exception:
o Violation of the Labor Code as to Working hours
o Violation of the Labor Code as to Minimum Wage
o Violation of the Price Control Law
o Sale under of property under Free Patent
 Reason: Public Policy
FINAL EXAM QUESTIONS LAST YEAR:
1. What are the five (5) Principles of Contracts? Define Each
2. In a Contract of Lease, it was specifically provided that the “Contract may be renewed at
the option of the Lessee by giving notice to the Lessor.” Is the stipulation valid?
3. In a Contract of Sale, the consideration stated was Php. 1.00 although the actual
consideration was Php. 100, 000.00. The Contract of Sale was assailed by the Heirs of
the Vendor, claiming that the Sale was VOID on the ground of Bad Faith and Inadequacy
of Consideration. Is the Sale Void? Explain.
4. X requested his friend Y to be a Guarantor in a loan he is obtaining form Z. Y consented
and even called by Phone Z that he is assuming the obligation of a guarantor. For Failure
to pay, Z sued X and Y for the recovery of the loan. Y raised the defense that the contract
is UNENFORCEABLE against him. Is Y Liable as a Guarantor?
5. A, acting as guardian of minor B, sold the minor’s property worth Php. 100,000.00 for the
sum of Php. 80, 000.00. Is the Contract of Sale Rescissible? Explain.
6. D was the owner of a property covered by a Free Patent Title. Within the FIVE-YEAR
PERIOD, D sold the property to M. Thereafter, D filed an action to recover the property
on the ground that the Sale was VOID because the sale was made during the FIVE-YEAR
PROHIBITION period. M invoked as his defense PARI DELICTO, Claiming that both of
them are at fault in violating the law, hence, the law leaves them where they are and no
one can maintain an action against each other. Is the defense tenable? Explain.
pg. 8