MODULE 11: Contracts – General Provisions - Contract - a meeting of minds between two persons one of the sources of obligation no contract = no obligation; an obligation may exist without a contract Agreements - - Contracts are binding agreements enforceable through legal proceedings Moral or social agreements are not contracts because they cannot be enforced by action in the courts of justice All contracts = all agreements; not all agreements are contracts CHARACTERISTICS OF A CONTRACT 1. Autonomy Parties are given the freedom to establish any stipulation, clauses, terms, and conditions that they desire to put in a contract 2. Consensual Elements Essential elements refer to the vital requisites of a contract that can take place even without the intention of the parties. - Accidental elements are terms, conditions, clauses, stipulations established by the parties themselves. Consent - All the parties are bound to comply with any stipulation, clauses, terms, and conditions under a contract. Law does not permit the validity or performance of a contract to be left to the will of one of the parties. - - Stages - 1st: preparation of a contract which happens before a contract is perfected. 2nd: perfection of a contract whereas the parties have already stipulated an agreement. proposition made by one party, the offerer, indicating his intention to enter a contract with the other party, the offeree. For offer to be valid, it must be certain. offer is not valid if it results from anger, jest or in other ways that has no intention to enter in the contract. Acceptance - 4. MODULE 12: Contracts – Essential Requisites of Contracts, Form, Reformation, and Interpretation meeting of offer and acceptance concerning a contract. no absolute consent, then perfection of a contract will not occur. If a party has no intention to be bound by the contract, as in the case of joke, then there is no consent. Offer 3. Mutuality Validity and compliance is mutual Common: consent, object, and cause Special: form, subject matter, and cause Natural elements are presumed to exist in specific contracts unless contrary to the stipulations of the parties. Contracts are perfected by consent Obligatory = both parties agree to terms and conditions 3rd: consummation or death where the parties have already fulfilled their respective obligations. - manifestation to receive by the offeree to the terms of the offer made by the offerer. must be absolute and clear that you cannot interpret it in other ways. unaccepted offer does not give rise to consent. Parties - - the right to fix the time, place and the matter of acceptance is given to the party who made the offer (offeror) . everything in the offer must be communicated and received by the offeree. - - If an offer is made through an agent, the acceptance is can be communicated through him. If the agent is given full and proper authorization by the principal himself, the act of the agent is considered the act of the principal. Effect of lack of capacity or authority and disqualification - contract is voidable individuals cannot give consent: unemancipated minors insane or demented person dead mutes who do not know how to read and write Fraud is when a person is induced to enter a contract through insidious words or machinations of a person. Art. 1338 refers to causal fraud which makes the contract voidable. Fraud by a third person does not vitiate consent. There is no reason for the fraud committed by the third party to make one of the parties suffer. Simulation of Contracts a contract may not exist and is only done to deceive anyone. - - Vices of Consent If consent is vitiated, the contract is valid until it is annulled. 1. Mistake A mistake of fact refers to a mistake due to a party's ignorance or lack of knowledge. (vitiate a consent) A mistake of law refers to a mistake due to ignorance of the existence of a legal provision or in the interpretation or application of the law. (does not vitiate consent unless the error is mutual) 2. Violence and Intimidation Violence through physical force, consent is vitiated. The physical force employed must be irresistible and the determining cause why consent was given. Intimidation does not need to resort to exertion of a physical force but there must be reasonable and well-grounded fear and evil for the party to feel threatened allowing consent to be given. The evil must also be imminent and grave while being on his person or property. 3. Undue Influence An individual takes improper advantage of his power to get the consent of the other party. A person can use their relations between the parties, their mental weakness, or when they are in financial distress to unduly influence the other. 4. Fraud Absolute simulation is when the contracting parties do not intend to be bound at all. An absolute simulated contract is void. Relative simulation is when the contracting parties conceal their true agreement under the guise of a different contract. A relative simulated contract is considered valid unless it prejudices a third party or has an illicit purpose. Object - a thing, right, or service which is the subject matter of the contract. Requisites 1) must be within the commerce of men 2) must not be physically or legally impossible. 3) in existence or capable of existing 4) must be determinate or determinable without the creation of another contract Matters which cannot be object of contract - outside the commerce of men, may not object is physically or legally impossible, contract that contains future inheritance is void except when authorized by law. Intransmissible rights Cause - essential reason or purpose which impels the parties to enter a contract why the contract was made, and it can be different for both parties. Must exist/present, true, and lawful Absence/unlawful cause Absence – contracts without a cause or with unlawful cause do not produce any effect on a contract Unlawful cause is any cause prohibited by law, morals, good customs, public order, and public policy. Statement of false cause A false cause is present when a contract states a valid consideration, but such consideration is not true. If the false cause is erroneous, the contract is void because the parties failed to show that there is a true, lawful, and underlying cause. If a false cause is simulated, the contract is still valid because the parties have been able to prove that a cause exist, and it is lawful and true. Inadequacy of cause The cause is unjust, and it damages the other party. The effect of inadequacy of cause does not serve as a ground to render the contract void because parties are given the right to enter or reject a contract. However, inadequacy of cause may affect the validity of a contract if it is attended by fraud, mistake, undue influence, or if specified by law. Form of Contracts - refers to the way a contract is executed or manifested. Art. 1356 of the Civil Code states that any contract is obligatory in whatever form it was executed provided that all the requisites such as consent, object, and cause are present. However, there are cases when the law requires a certain form for validity of the contract, enforceability of the contract and greater convenience of the parties. Reformation of Instruments - - a remedy allowed by law to amend or correct a written instrument that fails to reflect the real agreement or intention of the parties. fails to express such agreement and intention because of mistake, fraud, inequitable conduct, or accident. The following are the five requisites for reformation to be used as a remedy. Interpretation of Contracts - the terms or words in a contract are clear and can be easily understood then it should be interpreted in its most basic sense (literal interpretation). - - - - A stipulation with different meanings uses the interpretation which will make the stipulation effectual. Various stipulations must be understood together to give interpretation to the whole contract and to give meaning to those stipulations which are doubtful. Words with different significations are understood by keeping with the nature and object of the contract. A contract contains ambiguities and omission of stipulations, the usage or custom of the place is used as an aid of interpretation. In interpretation of obscure, the party who introduced them shall not gain anything from it. It can be said that the party who introduced such words was seeking an undue advantage over the other party.
