Republic of the Philippines
COMMISSION ON HIGHER EDUCATION
Higher Education Regional Office VI (HERO VI)
City Government of Bago
BAGO CITY COLLEGE
Rafael Salas Drive, Brgy. Balingasag, Bago City, Negros Occidental 6101
Tel: [034] 4611-363 | Fax: [034] 4610-546 | E-mail: bagocitycollege@yahoo.com.ph
BUSINESS LAW
(CSOA 109)
AB DEPARTMENT
AY: 2020-2021
Name: _________________________________________________________________
Course/Year/Section: ______________________________________________________
Contact no: ______________________________________________________________
Email address: ___________________________________________________________
Instructor: ______________________________________________________________
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MODULE 1
LAW ON CONTRACTS: DIFFERENT CHARACTERISTICS, ELEMENTS, AND STAGES OF
CONTRACTS
Prepared by: AL HENRY B. REGALADO, J.D.
I. INTRODUCTION
Welcome to the legal environment of business practice. It is my fervent hope
that this Module will help make your learning path easier to navigate. This Module is
for you. I welcome your comments and feedback in hopes of making this a stronger
learning tool.
II. OBJECTIVES
The purpose of this module is to provide you with an overview of laws and the
Philippine legal system in the business’ eye view, particularly those governing the
transactions necessary for the conduct of an enterprise. The study of the laws would
be complemented with court case studies, to gain an interpretation and
understanding of the nature of these transactions.
III. LEARNING OUTCOMES
At the end of the semester, the students must have:
1. Prepared different kinds of contracts through the application of
essential elements learned and research.
2. Drafted and written contracts that are necessary in closing deals
and making agreements.
3. Determined essential element of a contract based on a given
scenario.
4. Made a case digest regarding Commercial Law cases that have
been decided by the Supreme Court and analyzed, interpreted,
and discussed the same on a recorded video clip.
IV. ABSTRACTION
For this module, we shall be making ourselves equip with the necessary knowledge
about Contracts. It is elementary that before delving further and deeper about
contracts, we have to know first what it is, it’s purpose and impact on the our lives.
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Transactions are being made anywhere in the world and apparently contracts
have been a big help in laying down the agreements of both parties, as well as
protecting the rights of those who have been unjustly enriched by others.
Now get ready for our take off! We shall be flying high soon, aiming for a lot of
knowledge. Open yourselves to knowing what Business Law could give us so we
would have enough fuel and drive.
What is a “Contract”?
A contract is a legally enforceable promise or an exchange of promises. To be
enforceable, the contract must meet certain elements. There must be an offer,
acceptance of that offer, and then an intended exchange of value between the
parties.
These elements demonstrate a “meeting of the minds” between the parties. That is,
the parties have a common understanding of the material terms of the agreement.
A contract does not have to be a formal, written document. It can be a verbal
agreement or it can arise through the conduct of the parties. Those who make a
contract do not have to use the word contract or even recognize that they have
made a legally enforceable promise. Plainly stated, it helps make buyer and seller
willing to do business together.
• Example: One individual offers to purchase a widget from another person for
P100.00. The other person agrees. This is n contract, as there is an offer and
acceptance of that offer, a planned exchange of value, and a meeting of the
minds as to these primary terms of the agreement.
• Note: As you can see, a contract does not necessarily have to be formal or in
writing. A simple conversation or even actions of two or more individuals can be a
contact.
What are the different elements of Contract?

Consent - a meeting of the minds between parties with respect to the object
and cause; there is a certain offer by one party and there is an absolute
acceptance by another party.

Object - the thing, right, or service to be provided or performed under the
contract.

Cause (causa) - the essential purpose or reason for the contract:

for onerous contracts, the promise of a thing or service by the other.

for remuneratory contracts, the service or benefit which is being
remunerated.

for contracts of pure beneficence, the mere liberality of the
benefactor.
What are “unilateral contracts” and “bilateral contracts”?
Contracts are divided into unilateral and bilateral agreements based upon the duty
of performance and how an offer to contract is accepted.
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• Bilateral Contract - A bilateral contract consists of two promises between
individuals that form a contract.
Specifically, one party makes a promise to another party that she will do something
(or forgo doing something) in exchange for the other party’s promise to do
something (or promise to forgo doing something).
⁃ Example: Eric promises to wash Julia’s car if she promises to pay him P100.00. The
both activities will occur at some point in the future, so you have two promises of
future performance.
• Unilateral Contract - A Unilateral contract is an agreement with only one promise.
That is, one party promises a future action if the other party performs whatever is
requested of her. The promising party does not want a return promise. As such, a
contract is formed or comes into exists once the other party begins to perform the
requested services.
⁃ Example: Suppose Eric tells Julia that he will pay her P100.00 if she washes his car.
Eric does not want a promise to wash the car. Julia can accept Eric’s offer by
beginning to wash his car. Julia is not obligated to wash the car unless or until she
begins doing so. Further Eric is not obligated to pay Julia until she begins washing
the car.
• Note: The common characteristic between unilateral and bilateral contracts is
that it entails a promise of performance and a demand from the offered. This is
critical to the requirement that a contract contain an offer, acceptance, and
exchange of value.
What are “express contracts”, “implied-in-fact contracts”, and “implied-in-law
contracts”?
• Express Contract - An express contract arises from interactions in which parties
actually discuss the agreement and the promised terms. The contract does not
have to be formal or in writing, but it requires that the parties express their intentions
in an agreement.
⁃ Example: One person expressly offers to sell a widget to another person. The other
person accepts the offer by saying the she will buy it. The parties have an expressed
contract because they have stated an offer, stated an acceptance, and identified
consideration. These expressions can be verbal, as in this situation, or written.
• Implied-in-Fact Contract - An implied-in-fact contract arises from the conduct of
the parties, rather than from words. That is, the parties interact in a manner that
constitutes a legally enforceable contract. This means that all of the elements of an
enforceable contract can be inferred from the actions of the parties.
⁃ Example: Ellen asks Albert, an attorney, for professional advice. Ellen knows that
Albert is an attorney and charges for his advice. Asking Albert for his professional
advice implies a promise from Ellen to pay the going rate for that advice. This is true
even though Ellen and Albert did not make an express promise to pay for it.
• Implied-in-Law or Quasi-Contracts - An implied-in-law contract is a contractual
relationship ordered by the court. It lacks the mutual asset element of a contract,
but the court deems the interactions between parties to be a contract under the
law. This court action is generally taken to avoid an unjust result, such as when one
party is unjustly enriched at the expense of another. The court will hold that the law
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implies a duty on the first party to pay the second, even though the elements to find
a legally enforceable contract between the two parties are absent.
⁃ Example: Bell routinely rakes leave in the neighborhood for extra money. She rakes
leaves for lots of houses and sometimes forgets which houses have requested her
services. She begins raking James’s yard, having forgotten that she never worked
out an agreement to do so. James often pays individuals to rake his yard and has
plenty of money to do so. At the end of the job, Bell asks James for P50.00 for her
effort. If James refuses to pay the court may hold that it would be unfair for James
to receive this value and not pay something for it. As such, the court could hold that
an implied-in-law contract to pay for Bell’s services.
What are “valid contracts”, “enforceable contracts”, “void contracts”, and
“voidable contracts”?
There are several common characteristics of contracts that dictate whether a
contract actually exists and whether it is enforceable in a court of law. The following
vocabulary is important for characterizing these aspects of a contract.
• Valid and Invalid - A contract is valid when all of the elements essential to forming
a legal contract are present.
Conversely, a contract is invalid (or rather, there is no contract) if any of the
essential elements of a contract are missing. The elements to forming a valid
contract (offer, acceptance, consideration, and a meeting of the minds) are
discussed further below.
⁃ Example: One person announces that she will sell her cell phone for a reasonable
price. Another person quickly says, “I will buy it”. In this case there is not a valid
contract because there is not enough specificity in the consideration. As such, a
critical piece of the contract is missing. While the parties might think they have a
contract, if a challenge to the contract arises, a court is likely to hold it to be invalid.
• Enforceable and Unenforceable Contract - An enforceable contract is one that
can be enforced in court of law. That is, the law allows for enforcement of the
contract. An enforceable contract must always be valid. A valid contract may,
however, be unenforceable. That is, even though all of the essential elements of a
contract are present, a court will not enforce the contract.
⁃ Example: An oral contract may be valid, but the court will not enforce it because
that specific type of contract is required to be in writing under the state’s law.
Contracts that are required to be in writing are discussed further below.
• Void and Voidable Contracts - An otherwise valid contract may be void pursuant
to the law. That is, state law identifies certain types of contracts that are deemed
void from the outset. These include contracts that violate public policy or have an
illegal purpose. A voidable contract is an agreement where either one or both
parties has the right to make the contract void. That is, the contract is valid and
enforceable until one party elects to void it.
⁃ Example: A contract to purchase illegal drugs is void. A party to a contract who is
below the legal age of mental capacity may void the contract at any point before
she reaches the age of mental capacity. Various situations where contracts are
deemed valid, enforceable, void, or voidable are discussed further below.
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V. ACTIVITY #1 - This activity will determine how well you know a particular contract
Do a research and submit on a long size bond paper a computerized format of the
following:
1.
2.
3.
4.
5.
Contract of Lease
Contract of Services
Memorandum of Agreement
Undertaking
Contract of Sale
Make sure that each contract as mentioned above has complete elements for it to
be enforceable, otherwise it will be rendered void. Submit on time to avoid
deductions. Remember that in our modular set-up, the complete and on time
modules and outputs get high points.
VI. ANALYSIS
Test yourself.
1. As in the case of Laudico vs. Arias (43 Phil 270):
On February 5, 1919, Arias wrote Laudico a letter, offering a lease contract. On
March 6, 1919, Laudico wrote a letter of complete acceptance, which was
received by Arias that same afternoon. But that same morning Arias had already
written Laudico a letter withdrawing the offer.
Question: Was there a contract here?
_________________________________________________________________________________
_________________________________________________________________________________
________________________________________________________________________________.
2. In Datoc vs. Mendoza, et al (C.A. 47 O.G. 2427):
Would-be buyers, knowing fully well that they could not pay the required P2,000.00
asked from them at once and totally, nevertheless answered Yes, keeping this
mental reservation to themselves.
Question: Was there meeting of minds?
_________________________________________________________________________________
_________________________________________________________________________________
________________________________________________________________________________.
VII. APPLICATION
TASK I. This activity will get your hands dirty since you will have to draft the contract
yourself. Note that the previous activity was a research type but this one is doing it
on your own. This will test not only your capability of identifying a particular contract
but also in drafting simple ones that could possibly have a legal implication and
could be admissible in a court of law.
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Using a format you’ll see on books or online, draft the following legal documents:
1. Simple contract
2. Promissory note
3. Non-Competition Agreement
The study of Business Law is very broad and covers a lot of different branches of
commercial studies. This may not be that complete but significant topics have been
chosen to help you have a good grasp of the basic concepts of Business Law, in
general. Even on your activities, you are required to do some things for you to be
tested if in case you have indeed learned something.
Say in the case of video clip, the same is a big alternative to check how well you do
in class recitation. You must have known that a face to face set-up is totally
different from what we do now and so we would definitely still want to have your
participation which would indicate not only your willingness to learn but how good
your knowledge and learning is, given that the module provides you the necessary
things that you need to know.
TASK II. Since you have already gotten your hands dirty, let’s rather continue with
the job. This time around, you are required to make a case digest regarding
Commercial Law cases that have been decided by the Supreme Court and be
able to analyze, interpret, and discuss the same on a recorded video clip.
Tip: Look for at least two (2) Supreme Court cases, then make a digest of each and
then record one video clip for the first case and submit a hard copy file for the
second case. That means you will have to submit 1 video clip, and one hard copy
report for this given task. Note that video clip shall be for a minimum of 4 minutes to
a maximum of 5 minutes. Make sure to capture a clear video and audio/sound
bite.
VIII. ASSESSMENT
Briefly explain the following:
1. How can a study of Business Law help you as an Office Administration
student?
___________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________.
RUBRICS
Worth of Ideas/relevance;
Organization and presentation of
thoughts;
Grammar, Coherence, Usage and
Mechanics
TOTAL: 10 Points
5
4
3
2
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2. What is the importance of a Contract?
___________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________.
RUBRICS
Depth of technical knowledge;
Cited an example
Grammar, Coherence, Usage and
Mechanics
TOTAL: 10 Points
5
4
3
2
1
3. Is a minor allowed to enter into an agreement or contract? What is the effect
of a contract entered by him?
_________________________________________________________________________________
_________________________________________________________________________________
________________________________________________________________________________.
RUBRICS
Depth of technical knowledge;
Cited an example
Grammar, Coherence, Usage and
Mechanics
TOTAL: 10 Points
5
4
3
2
1
END of MODULE 1.
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