Obligations and Contracts:

Modules 6 and 7
Atty. Alyssa Carmelli P. Castillo
25-29 October 2021
 Outline

Topic Time
Attendance 15 mins.
Activity 15 mins.
Module 6 Contracts: Concept, General Principles, Elements 30 mins.
Module 7 Contracts: Form, Reformation, Interpretation 30 mins.
Reminders 10 mins.
Attendance

For today’s attendance, please chat “present” in the meeting

chat.

Those who chat “present” between 5:16 to 7:00 PM according to

my MS Teams (Instructor’s screen) will be marked late.

Those who are unable to chat “present” by 7:00 PM (also per

Instructor’s screen) will be marked absent.
Activity

1. Restate at least three points (each in complete sentence) that

you remember from last week’s lecture. This will count
towards class participation points.
2. State briefly (not more than three sentences) how the lessons
on Obligations relate to today’s lesson based on what you
have read from this module and its recommended readings.
This will count towards class participation points.
Module 6

Contracts: Concept, General Principles, Stages, Elements

 Learning Outcomes

1. Define the elements and requisites of a valid contract.

2. Distinguish a valid contract from a defective contract and be able to
determine the reason for invalidity.
 Concept

Article 1305. 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. (1254a)

Note:
1. Meeting of the minds
2. Between two persons
3. Binding
4. To:
a. Give something, or
b. Render some service
 Concept

What if there are more than two parties in a scenario?

Example 1:
 Concept

What if there are more than two parties in a scenario?

Example 2:
 General principles

(1) Autonomy

Article 1306. 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. (1255a)
 General principles

(2) Mutuality

Article 1308. The contract must bind both contracting

parties; its validity or compliance cannot be left to the
will of one of them. (1256a)
 General principles

(3) Relativity

Article 1311. 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.
 General principles

(4) Obligatoriness

Article 1159. Obligations arising from contracts have the

force of law between the contracting parties and should be
complied with in good faith. (1091a)

Article 1308. The contract must bind both contracting

parties; its validity or compliance cannot be left to the will of
one of them. (1256a)
 Stages of a contract

(1) Preparation – generation or negotiation

 Stages of a contract

(2) Perfection – birth of a contract; concurrence of

essential elements
 Stages of a contract

(3) Consummation – fulfillment of the terms of the

agreement
 Break Time
5-10 minutes, as announced.
Turn off mic and camera.
Be back on time.
 Elements of a contract

What is the rule?

All these elements must be present for there to be a valid

contract.

Why are elements relevant?

Their presence is what makes a contract valid.

 Elements of a contract

What if not all the elements are present? What if one, two,
or all three are absent?

Contract is void if any essential element is absolutely absent.

Are all defective contracts void?

No. We will learn more in Module 8.

 Elements of a contract

1. Consent – see Articles 1319 to 1346

2. Object – see Articles 1347 to 1349
3. Cause – see Articles 1350 to 1355

Reminder: As per your Course Outline, under Course

Requirements, “students are required to…read the
modules and relevant laws, prepare for class
participation”.
 Elements of a contract – (1) Consent

Article 1319. 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. (1262a)
 Elements of a contract – (1) Consent

Requisites for a valid consent:

1. There must be concurrence of the offer and
acceptance.
2. The contracting parties must possess the necessary
legal capacity.
3. It must be intelligent, free, spontaneous, and real
(not vitiated).
Elements of a contract – (1) Consent; req. 1

Acceptance
 Elements of a contract – (1) Consent; req. 1

Offer:
1. Must be certain (Art. 1319)
2. Becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party
before acceptance is conveyed. (Art. 1323)
3. Period to accept vs. with consideration (Art. 1324)
4. Business advertisements (Art. 1325)
5. Advertisements for bidders (Art. 1326)
 Elements of a contract – (1) Consent; req. 1

Acceptance:
1. Must be absolute (Art. 1319)
2. Offeror may fix time, place, and manner of acceptance (Art.
1321)
3. Acceptance made by letter or telegram does not bind the
offeror except from the time it came to his knowledge. (Art.
1319)
4. May be express or implied (Art. 1320)
5. Offer through an agent is accepted upon communication to
principal or his agent (Art. 1322)
 Elements of a contract – (1) Consent; req. 2

Legal Capacity

Article 1327. The following cannot give consent to a contract:

(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
(1263a)

Article 1328. Contracts entered into during a lucid interval are valid. Contracts agreed
to in a state of drunkenness or during a hypnotic spell are voidable. (n)

Article 1329. The incapacity declared in article 1327 is subject to the modifications
determined by law, and is understood to be without prejudice to special
disqualifications established in the laws. (1264)
 Elements of a contract – (1) Consent; req. 3

Not vitiated

Article 1330. A contract where consent is given through mistake, violence, intimidation,
undue influence, or fraud is voidable. (1265a)

What vitiate consent? What happens when these are present?

1. Mistake

Voidable
2. Violence
3. Intimidation
4. Undue influence
5. Fraud
 Elements of a contract – (1) Consent; req. 3

Mistake
1. Must be on substance of the thing or principal conditions (Art.
1331)
2. Language not understood (Art. 1332)
3. No mistake if party is aware of doubt, contingency, or risk affecting
object of contract (Art. 1333)
4. Mutual error as to legal effect (Art. 1334)
5. Mutual misrepresentation creating substantial mistake (Art. 1342)
6. Misrepresentation made in good faith (Art. 1343)
 Elements of a contract – (1) Consent; req. 3

Provision Violence Intimidation

Art. 1333 Use of serious or irresistible force 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.

Consider: age, sex, condition

A threat to enforce one's claim through

competent authority, if the claim is just
or legal, does not vitiate consent.
Art. 1334 May annul obligation even if done by third person
 Elements of a contract – (1) Consent; req. 3

Undue influence

Article 1337. 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. The following circumstances shall be
considered: the confidential, family, spiritual and other relations
between the parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress. (n)
 Elements of a contract – (1) Consent; req. 3

Fraud
1. 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 (Art. 1338)
2. Failure to disclose facts when there is duty to reveal them (Art. 1339)
3. NOT usual exaggerations in trade (Art. 1340)
4. NOT mere expression of opinion, except if expert + reliance (Art. 1341)
5. To make contract voidable, should be serious and should not have
been employed by both contracting parties. (Art. 1344)
 Elements of a contract – (1) Consent; req. 3

Simulation of contract

Article 1345. Simulation of a contract may be absolute or relative. The

former takes place when the parties do not intend to be bound at all; the
latter, when the parties conceal their true agreement. (n)

Article 1346. An absolutely simulated or fictitious contract is void. A

relative simulation, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement. (n)
 Elements of a contract – (1) Consent; req. 3

Simulation of contract

Article 1345. Simulation of a contract may be absolute or relative. The

former takes place when the parties do not intend to be bound at all; the
latter, when the parties conceal their true agreement. (n)

Article 1346. An absolutely simulated or fictitious contract is void. A

relative simulation, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement. (n)
 Elements of a contract – (2) Object

Article 1347. All things which are not outside the commerce of men, including future
things, may be the object of a contract. All rights which are not intransmissible may
also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly
authorized by law.
All services which are not contrary to law, morals, good customs, public order or public
policy may likewise be the object of a contract. (1271a)
Article 1348. Impossible things or services cannot be the object of contracts. (1272)
Article 1349. The object of every contract must be determinate as to its kind. The fact
that the quantity is not determinate shall not be an obstacle to the existence of the
contract, provided it is possible to determine the same, without the need of a new
contract between the parties. (1273)
 Elements of a contract – (2) Object

Requisites:
1. Within the commerce of men
2. Not legally or physically impossible
3. In existence or capable of coming into existence
4. Determinate or determinable, without the need of a new
contract between the parties.
 Elements of a contract – (3) Cause

Article 1350. In onerous contracts the cause is understood to be, for

each contracting party, the prestation or promise of a thing or service
by the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere liberality
of the benefactor. (1274)
Article 1351. The particular motives of the parties in entering into a
contract are different from the cause thereof. (n)
Article 1352. Contracts without cause, or with unlawful cause, produce
no effect whatever. The cause is unlawful if it is contrary to law, morals,
good customs, public order or public policy. (1275a)
 Elements of a contract – (3) Cause

Article 1353. The statement of a false cause in contracts shall

render them void, if it should not be proved that they were
founded upon another cause which is true and lawful. (1276)
Article 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. (1277)
Article 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influence. (n)
 Elements of a contract – (3) Cause

Requisites:
1. Exists at the time the contract is entered into
2. Lawful
3. True or real
 Activity

A entered into a contract with B for the delivery of a laptop.

1. Consent: A entered into a contract with B

2. Object: Laptop
3. Cause: To give
 Activity

Girlie bought a laptop from Boyet for PHP 50,000 because

Girlie’s laptop was smashed by her brother, Gab.

1. Consent:
2. Object:
3. Cause:
 Activity

Girlie bought a laptop from Boyet for PHP 50,000 because

Girlie’s laptop was smashed by her brother, Gab.

1. Consent: Girlie bought from Boyet

2. Object: Laptop
3. Cause: To give (the prestation)
 Break Time
5-10 minutes, as announced.
Turn off mic and camera.
Be back on time.
Module 7

Contracts: Form, Reformation, Interpretation

 Learning Outcomes

1. Understand the different forms of contracts and their

corresponding formal requirements, if any.
2. Be able to provide a proper interpretation of a contractual
provision.
 Form of contracts

General rule
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. In such cases, the right of the parties stated in the
following article cannot be exercised. (1278a)

Meaning: No formality or solemnity is required for a contract.

 Form of contracts

Exceptions (Types of Formalities):

1. Formalities that are necessary for the validity of the contract

2. Formalities to make the contract binding on third persons
3. Formalities to allow proof of the existence or enforceability of a
contract
 Form of contracts

Exceptions (Types of Formalities):

1. Formalities that are necessary for the validity of the contract

• This includes contracts that are known as formal or solemn contracts.
• They are not valid unless the forms prescribed by law are complied with.
• Remedy: Article 1357. If the law requires a document or other special form,
as in the acts and contracts enumerated in the following article, the
contracting parties may compel each other to observe that form, once the
contract has been perfected. This right may be exercised simultaneously with
the action upon the contract. (1279a)*
 Form of contracts

1. Formalities that are necessary for the validity of the contract:

Some Examples of Special Form Required by Law
Formal or Solemn Contract

Donation of Immovables Must be in a public instrument, specifying

therein the property donated and the value
of the charges which the donee must satisfy.
(Art. 749)
Donation of movables when the value of the Must be in writing; otherwise, the donation is
personal property donated exceeds P5,000 void. (Art. 748)
Partnerships where immovable property is An inventory of said property must be made,
contributed signed by the parties and attached to the
public instrument. Otherwise, the contract of
partnership is void. (Art. 1773)
 Form of contracts

Exceptions (Types of Formalities):

2. Formalities to make contract binding on third persons.

• Article 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 are governed by articles 1403,
No. 2, and 1405;
(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. (1280a)
• Remedy: Article 1357.
 Form of contracts

Exceptions (Types of Formalities):

3. Formalities to to allow proof of the existence or enforceability of a contract

• Contracts that are covered by the Statutes of Fraud provided for in Article 1403.
• Article 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in 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 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 debt, default, or miscarriage of another;
 Form of contracts

Exceptions (Types of Formalities):

(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 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;
(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 the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
 Form of contracts

Exceptions (Types of Formalities):

(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 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;
(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 the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
 Reformation of instruments

Article 1359. When, there having been a meeting of the minds of the parties
to a contract, their true intention is not expressed in the instrument
purporting to embody the agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true intention may be
expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting
of the minds of the parties, the proper remedy is not reformation of the
instrument but annulment of the contract.

Purpose: To express the true intention of the contracting parties.

 Reformation of instruments

Requisites
1. There must have been a meeting of minds of the parties to the
contract;
2. The instrument does not express the true intention of the parties;
and
3. The failure of the instrument to express the true intention of the
parties is due to mistake, fraud, inequitable conduct or accident.

Prescriptive period: 10 years from execution of contract.

 Reformation of instruments

NO reformation:

Article 1366. There shall be no reformation in the following cases:

(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
 Interpretation of contracts

Correction on page 5 of Module 7: The sub-topic “3. Elements” should

read “3. Interpretation of Contracts”.

Primary rule: The literal meaning governs (Article 1370, par.1).

 Interpretation of contracts

Rules of interpretation:

1. If language is contrary to intent, intent over literal interpretation—

Article 1370. xxx
If the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former. (1281)
Article 1371. In order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally
considered. (1282)
 Interpretation of contracts

Rules of interpretation:

2. In case of distinct and different cases—

Article 1372. However general the terms of a contract may be, they
shall not be understood to comprehend things that are distinct and
cases that are different from those upon which the parties intended to
agree. (1283)
 Interpretation of contracts

Rules of interpretation:

3. Import most adequate to render it effectual—

Article 1373. If some stipulation of any contract should admit of several

meanings, it shall be understood as bearing that import which is most
adequate to render it effectual. (1284)
 Interpretation of contracts

Rules of interpretation:

4. Stipulations to be interpreted together—

Article 1374. The various stipulations of a contract shall be interpreted

together, attributing to the doubtful ones that sense which may result
from all of them taken jointly. (1285)
 Interpretation of contracts

Rules of interpretation:
5. Interpretation in case of ambiguity or doubts—
Article 1375. Words which may have different significations shall be understood in that which is most in
keeping with the nature and object of the contract. (1286)
Article 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.
(1287)
Article 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding
articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission
of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract in such a way that it cannot be known
what may have been the intention or will of the parties, the contract shall be null and void. (1289)
 Interpretation of contracts

Rules of interpretation:

6. Interpretation against party causing obscurity—

Article 1377. The interpretation of obscure words or stipulations in a

contract shall not favor the party who caused the obscurity. (1288)
Key Takeaways

Any volunteers? Restate at least three points (each in complete

sentence) that you remember from the lecture today.
Key Takeaways

1. 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. (Article 1305)
2. A valid contract requires consent, object, and cause.
3. Consent is the meeting of the offer and acceptance.
4. As a general rule, contracts are valid in whatever form
they may be.
5. As a general rule, a contract must be interpreted literally.
Reminders

1. Quiz No.5 (graded) on Module 5 will be on asynchronous schedule:

a. MAR 101 – Thursday (28 October 2021), 1:00-2:00 PM
b. MAR 102 – Monday (1 November 2021), 3:00-4:00 PM?
2. Remember the Post-Midterm Schedule, as discussed.
3. Module 8 has been uploaded on 26 October 2021.
4. Lecture slides will be uploaded in PDF format in the Class Materials folder after this
class and no later than the next synchronous session.
5. Please regularly check the Class Materials folder before asking the Instructor
questions. Modules are provided in advance, while PPT of lectures are provided after
synchronous sessions.
6. Optional activity no. 2 is still open. Check deadline in the announcement.
 Final Exam Schedule

Section Schedule Coverage Reminders

MAR102 11 November Modules 4-8 • Class Records with final grade will be
uploaded before NUIS posting.
(Thu)
• General final grade discussion: 18
5:00-7:00 PM November 2021 (Thursday), 5:00-7:00
MAR101 15 November Modules 4-8 PM for both MAR101 and MAR102.
• Attendance is optional, but if you do not
(Mon)
attend, I would assume you have no
5:00-7:00 PM questions on your grades.
• Individual grade consultations shall be
by appointment (see Course Outline),
between 5:00-7:00 PM from 12 to 19
November 2021 (except on the 18th). 15
minutes at most per student.
 Post-Midterm Schedule

Module Topic(s) Course Revised Estimated Date Revised Estimated Date

No. Outline for MAR101 (Now) for MAR102 (Now)
(Before)
5 Extinguishment of Weeks 8-9 18 October 2021 21 October 2021
Obligations
6 Concept of Contracts Week 10 25 October 2021 28 October 2021
General Principles
Stages
Elements
7 Form of Contracts Week 11 25 October 2021 28 October 2021
Reformation of Instruments
Interpretation of Contracts
8 Defective Contracts Week 12 8 November 2021 4 November 2021
CPT FINAL EXAMINATION Week 13 15 November 2021 11 November 2021
Questions?

Please raise your hand and wait to be acknowledged.