1.

Essential elements of CONTRACT and define each (1318)

*Essential elements or those without which no contract can validly exist

regardless of the intentions of the parties. They are also known as REQUISITES of
a contract. (a). COMMON or those present in all contracts, namely, consent, object
and cause; (b). SPECIAL or those not common to all contracts or those which
must be present only in, or peculiar to, certain specified contracts, and such
peculiarity may be: 1.with regard to form, e.g., public instrument in donation of
immovable property (ART. 749), delivery in real contracts (ART. 1316), registration
in real estate mortgage (ART. 2125), chattel mortgage (ART. 2140), etc. 2. with
regards to the subject matter, e.g., real property in antichresis (ART. 2132),
personal property pledge (ART. 2094), etc. 3. with regard the consideration or
cause, e.g., price in sale (ART 1458) and in lease (ART. 1643, 1644), liberty in
commodatum (ART. 1935), etc. A valid contract is one that manifests all the
essential elements of a contract.

*Natural elements or those that are presumed to exist in certain contracts unless
the contrary is expressly stipulated by the parties, like warranty against eviction
(ART. 1548), or warranty against hidden defects in sales (ART. 1561), and;

*Accidental elements or the particular stipulations, clauses, terms, or conditions

established by the parties in their contracts (ART. 1306), like conditions, period,
interests, penalty, etc., and , therefore, they exist only when they are expressly
provided by the parties.

2. What is meant by a - Autonomy of Contract (1306); b- Obligatory Character of

Contract (1159, 1315, & 1356); c - Mutuality of Contract (1308); d - Relativity of
Contract (1311)

A. Autonomy of Contract- 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.

The principle of autonomy is at the heart of every contractual relation. Such individual
autonomy is expressed through knowledge about the obligation that someone is
going to carry out and the benefit she or he is going to get or lose and consent to
such obligation or benefit; i.e. an individual can determine his own fate (freedom of
contract). The libertarian considers the individual as the best judge of his or her own
interest and consider that what was freely agreed is by definition, fair (Cserne, 2008).
Valid Contracts are those that meet all the legal requirements and limitations for
the type of agreement involved and are, therefore, legally binding and enforceable.

Freedom to contract guaranteed- the right to enter into contract is one of the
liberties guaranteed to the individual by the Constitution,

B. Obligatory Character of Contract:

ARTICLE 1159- Obligations arising from contracts have the force of law
between the contracting parties and should be complied with good faith. (1).
Binding force- obligations arising from contracts have the force of law between the
contracting parties, e.I., they have same binding effect of obligations imposed by
laws. (2). Requirement of a valid contract- A contract is valid if it is not contrary to
law, morals good customs, public order and public policy. (3). Breach of contract-
A contract may be breached or violated by a party in whole or in part.

ARTICLE 1315- 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 keeping with good faith, usage and law.

ARTICLE 1356- Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity are
present. However, when the law 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, that requirement is absolute and indispensable.

C. Mutuality of Contracts- The contract must bind both contracting parties, its
validity or compliance cannot be left to the will of one of them. A contract is an
agreement which gives rise to obligation. It must bind both parties in order that it
can be enforced against either. Without this equality between the parties, it cannot
be said that the contract has the force of law between them. It is a fundamental rule
that no party can renounce or violate the law of the contract without the consent of
the other. Hence, “its validity or compliance cannot be left to the will of one of them.
D. Relativity of Contracts- 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. The heir is not liable beyond the value of the property he received from the
decedent. If a contract should contain some stipulation in favor of a third person, he
may demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon the third person.

General rule: As a general rule, a party’s rights and obligation derived from a
contract are transmissible to the successors. Under article 1311 contracts take
effect only between the parties, their assigns (I.e., transferees), and heirs. This
means that only the parties, their assigns and heirs can have rights and obligations
under contract. As a rule, the act, declaration, or ommission of a person cannot
affect or prejudice another without the latter’s authorization or ratification.

3. Define VOIDABLE CONTRACTS and why is it a Defective Contracts? (1330)

Voidable contracts or annullable contracts are those which possess all the essential
requisites of a valid contract but one of the parties is incapable of giving consent, or
consent is vitiated where permission is given through error, hostility, intimidation,
undue influence, or fraud is voidable.In the event where one party has made a false
statement that had induced the other party to enter into the contract, this will
be voidable on the basis of misrepresentation. A contract is voidable if it was entered
into when one party was a minor. It is a defective contract/s when whose cause,
object or purpose is contrary to law, morals, good customs, public order or public
policy;those which are absolutely simulated or fictitious;those whose cause or object
did not exist at the time of the transaction.

Kinds of Voidable contracts

(1) Legal incapacity to give consent, where one of the parties is incapable of
giving consent to the contract; or
(2) Violation of consent, where the vitiation is done by mistake, violence,
intimidation, undue influence, or fraud.

4. Define UNENFORCEABLE CONTRACTS and enumerate them (1317, 1403 #2)

ARTICLE 1317- No one may contract in the name of another without being
authorized by the latter,or unless he has by law a right to represent him. 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 parties.

Unenforceable contracts are those that cannot be enforced or given effect in a

court of law or sued upon by reason of certain defects provided by law until and
unless they are ratified according to law.

Unauthorized contracts are unenforceable- As a general rule, a person is not

bound by the contract of another of which he has no knowledge or to which he has
not given his consent. A contract involves the free will of the parties and only he
who enters into the contract can be bound thereby.

Unauthorized contracts can be cured only by ratification- The mere lapse of

time cannot give efficacy to such a contract. The defect is such that it cannot be
cured except by the subsequent ratification of a person in whose name the contract
was entered into or by his duly authorized agent and not by any other person not so
empowered.

When a person is bound by the contract of another:

1. The person entering into the contract must be duly authorized, expressly or
impliedly, by the person in whose name he contracts or he must have, by law, a
right to represent him
2. He must act within his power. A contract entered into by an agent in excess of
his authority is unenforceable against the principal, but the agent is personally
liable to the party with whom he contracted where such party was not given
sufficient notice of the limits of the powers granted by the principal.

ARTICLE 1403- The following contracts are unenforceable, unless they are
ratified:
(1) Those entered into the name of an other 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 writing, or a
secondary evidence of its contents: (a) An agreement that by its terms is not
to be performed within a year from the making thereof; (b) A special promise
to answer for the, 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 made by 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
persons on whose account the sale is made, it is sufficient memorandum; (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; (f) A representation as to credit of a
third person.
(3) Those where both parties are incapable of giving consent to a contract.

5. Define RESCISSIBLE CONTRACTS and enumerate them (1381)

Rescissible Contracts are those validly agreed upon because all the essential
elements exist and, therefore, legally effective, but in the cases establised by law,
the remedy of rescission is granted in the interest of equity.

Binding force of rescissible contracts.

They are valid and enforceable although subject to rescission by the court when
there is economic damage or prejudice to one of the parties or to a third person. In
a rescissible contract, there is no defect at all but by reason of some external facts,
its enforcement would cause injustice.

Requisites of rescission

(1) The contract must be validly agreed upon;

(2) There must be lesion or pecuniary prejudice to one of the parties or to a
third person;
(3) The rescission must be based upon a case especially provided by law;
(4) There must be no other legal remedy to obtain reparation for the damage;
(5) The party asking for rescission must be able to return what he is obliged
to restore by reason of the contract;
(6) The object of the contract must not legally be in the possession of third
persons who did not act in bad faith;
(7) The period for filing the action for rescission must not have prescribed.

6. Define VOID CONTRACTS and enumerate them (1409)

Void Contracts are those which, because of certain defects, generally produce no
effect at all. They are considered as inexistent from its inception or from the very
beginning. The expression “void contracts” is therefore, a contradiction in terms.
However, the expression is often loosely used to refer to an agreement tainted
with illegality.

ARTICLE 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 contemplate an impossible service;
(6) Those where the intention of the parties relative to principal object of the contract
cannot be ascertained;
(7) Those expressly prohibited or declared void by law.

(a) Contracts upon future inheritance except in cases expressly authorized by law.
(b) Sale of property between husband and wife except when there is a separation of
property.
(c) Purchase of property by persons who are specially disqualified by law because of
their position or relation with the person or property under their care.
(d) “Every donation between the spouses during the marriage shall be void except
moderate gifts which the spouses may give each other on the occassion of any
family rejoicing”
(e) “A testamentary provision in favor of a disqualified person, even though made
under the guise of an onerous contract, or made through an intermediary, shall be
void”
(f) Any stipulation that household service is without compensation shall be void.”
(g) Under the Constitution Sec 14, Art. VI thereof), members of Congress are
prohibited from being financially interested, directly or indireclty in any contract with
the governement or any subdivision or instrumentally thereof.

Characteristics of a void or inexistent contract

(1) Generally, it produces no force and effect whatsoever;

(2) It cannot be ratified.
(3) The right to set up the defense of illegality cannot be waived;
(4) The action or defense for the declaration of its inexistence does not prescribed.
(5) The defense of illegality is not available to third persons whose interests are not
directly affected;
(6) It cannot give rise to a void contract

7. What is an OPTION CONTRACT (1324)

ARTICLE 1324 When the offerer has allowed the offeree a certin period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawn, except when the option is founded upomm

a consideration, as something paid or promised.

Option Contract- is one giving a person for a consideration a certain period within
which to accept the offer of the offerer. It is separate and distinct from the contract
which will be perfected upon the acceptance of the offer. Option may also refer to
the privilege itself given to the offeree to accept an offer within a certain period.

Option period is the period given within which the offeree must accept the offer.

Option money is the money paid or promised to be paid in consideration for the
option. It is not to be confused with earnest money which is actually a partial
payment of the purchase price and is considered as proof of the perfection of the
contract.

8. What is the principle in PARI DELICTO (1411)

ARTICLE 1411- When the nullity proceeds from the illegality of the cause
object of the contract, and the act constitutes a criminal offense, both parties
being in Pari delicto, they shall have no action against each other, and both
shall be prosecuted. Moreover, the provisions of the Penal Code relative to
the disposal of effects or instruments of a crime shall be applicable to the
things or the price of the contract.

Rule where contract is illegal and the act constitutes a criminal offense.

(1) Where both parties are in Pari Delicto- The following are the effects of a
contract whose cause object constitutes a criminal offense and both pparties are in
pari delicto, that is, equally guilty.

(a) The parties shall have no action agains each other;

(b) Both shall be prosecuted; and
(c) The things or the price of the contract, as the effects or instruments of the crime,
shall be confiscated in favor of the government (par. 1; Art. 48, Revised Penal
Code).
Example: S sold B contraband articles for 10,000. B paid only 1,000 and S did not
deliver all the articles agreed upon. In this case, neither party has a right of action
against each other. The law will leave them where it finds them.

Both shall be prosecuted and the price and the articles shall be confiscated.

(2) Where only one party is guilty. If only one party is guilty or both parties are not
equally guilty (in delicto but not pari delicto), the rule in paragraph 1 of Article 1411,
applies only to the guilty party or the more guilty party. The innocent one or the less
guilty may claim what he has given and shall not be bound to comply with his
promise.

Example: In the preceding example, if B was in good faith, he can claim the return
of the price of P1,000; or he has not yet paid S, he shall not be bound to comply
with his promise. The law will render relief to the more innocent party. S shall be
prosecuted and the contraband articles sold by him shall be confiscated.

9. Define, CAVEAT EMPTOR

[Latin, Let the buyer beware.] A warning that notifies a buyer that the goods he or 
she is buying are "as is," or subject to all defects.
Caveat emptor is a Latin phrase that is translated as “let the buyer beware.” The
phrase describes the concept in contract law that places the burden of due
diligence on the buyer of a good or service. Caveat emptor is a fundamental principle
in commerce and contractual relationships between a buyer and a seller.
When a sale is subject to this warning the purchaser assumes the risk that the produ
ct might be either defective or unsuitable to his or her needs.This rule is not designed 
to shield sellers who engage in Fraud or bad faith dealing by making false or misleadi
ng representations about the quality or condition of a particular product. It merely su
mmarizes the concept that a purchaser must examine, judge, and test a product cons
idered for purchase himself or herself.
The modern trend in laws protecting consumers, however, has minimized the importa
nce of this rule. Although the buyer is still required to make a reasonable inspection o
f goods upon purchase, increased responsibilities have been placed upon the seller, 
and the doctrine of caveat venditor (Latin for "let the seller beware") has become mor
e prevalent. Generally, there is a legal presumption that a seller makes certain warra
nties unless the buyer and the seller agree otherwise. One such Warranty is the Impli
ed
Warranty of merchantability. If a person buys soap, for example, there is an implied w
arranty that it will clean; if a person buys skis, there is an implied warranty that they w
ill be safe to use on the slopes.
A seller who is in the business of regularly selling a particular type of goods has still g
reater responsibilities in dealing with an average customer. A person purchasing anti
ques from an antique dealer, or jewelry from a jeweler, is justified in his or her relianc
e on the expertise of the seller.
If both the buyer and the seller are negotiating from equal bargaining positions, howe
ver, the doctrine of caveat emptor would apply.

10. What is STATUTE OF FRAUD? Does it requires that all contracts must be in
writing? (1403 #2)

Statute of Frauds

(1) History- In 1677, the English Parliament enacted a statute to counter the evil
practice of giving false testimony in actions founded on certain kinds of contracts. It
attempted to deal with the prevalence of successful perjury by making specified
contracts unenforceable unless evidenced in a prescribed manner- in general, by a
written memorandum signed by the party against whom liability under the contract
was sought to be enforced. (Babb & Martin, Business Law, op.cit., P.27.)

Since then, the statute has been called Statute of Frauds. It has been adopted, in
more or less modified form in the Philippines.

(2) Purpose.- The Statute of Frauds has been enacted not only to prevent fraud but
also to guard against the mistakes of honest men by requiring that certain
agreements specified (Art. 1403, No. 2 [a-f].) that are susceptible to fraud must be
in writing; otherwise, they are unenforceable by action in court. Unless they be in
writing,, there may be no palpable evidence of the intention of the contracting
parties and the court must perforce rely upon no other evidence than mere
recollection or memory of witnesses, which is many times faulty and unreliable.
(3) Writing under the Statute.-The statute does not require that the contract be
contained in a formal written document. The writing may be embodied in a slip of
paper, a letter, a note or memorandum by means of pen, a pencil, or any
mechanical device as long as it is intelligible and records the intent of the parties.
(4) Application.- Some fundamental principles relative to the Statute of Frauds are
given hereunder.
(a) The Statute of Frauds is not applicable inactions which are neither for damages
because of a violation of a contract, not for the specific performance thereof.
(Factoran vs. Sabanal, 81 Phil. 513; Lim vs.Lim, 10 Phil. 635) Thus, the purchases
of a parcel of land may prove the oral contract of sale in a subsequent action for
ejectment against a third person who is in possession of the property.
(b) It is applicable only to completely executoty contracts (where no performance
has a yet been made by both parties) and not to contracts which are totally
executed (consumnated) or partly executory (where the contract is partially
performed). The reason is that partial performance, like writing , furnishes reliable
evidence of the intention of the parties or the existence of the contract.

A contrary rule would result in injustice or unfairness to the party who has
performed his obligation, for it would enable the other to keep the benefits already
derived by him from the transaction, and at the same time evade the obligations
assumed or contracted by him thereby. Futhermore, these contracts cannot be
categorized as unenforceable where the parties themselves have enforced them
with partial execution or by accepting benefits thereunder.

(c) It is not applicable where the contract is admitted expressly, or impliedly by the
failure to deny specificaly its existence, no further evidence thereof being required
in such case.
(d) It is applicable only to the agreements enumerated therein. Thus, an agreement
creating an easement of right of way is not covered by the Statute since it is not a
sale of real property or of an interest therein.
(e) It is not applicable where a writing does not express the true agreement of the
parties. This is so because the Statute cannot be used as a shield for fraud or as
means for the perpetration of it.
(f) If does not declare that contains infringing it are void but merely unenforceable.
(g) The defense of the Statute of Frauds may be waived.
(h) The defense of the Statute of Frauds is personal to the parties and cannot be
interposed by strangers to the contract.

Agreements within the scope of the Statute of Frauds.

To be enforceable, a contract does not have to be in writing. In fact, most contracts

made orally are legally enforceable. However, there are agreements which fall
within the scope of the Statute of Frauds enumerated below, which are not legally
enforceable in court although valid, unless the same be in writing. In other words, if
either party refused to comply with their agreement, the same could not be
enforced.

(1) Agreement not to be performed within one year from the making thereof.
(2) Promise to answer for the debt, default, or miscarriage of another.
(3) Agreement in consideration of marriage other than mutual promise to marry
(4) Agreement for sale of goods, etc. at price not less than P500
(5) Agreement for leasing for a longer period than one year
(6) Agreement for the sale of real property or of an interest therein.
(7) Representation as to the credit of a third person.