2. Essential Requisites

B. Contracts

Civil Code, art. 1318 - 1355

CHAPTER 2

Essential Requisites of Contracts

General Provisions

Article 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established. (1261)

SECTION 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)

Article 1320. An acceptance may be express or implied. (n)

Article 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. (n)

Article 1322. An offer made through an agent is accepted from the time acceptance is communicated to him. (n)

Article 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. (n)

Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. (n)

Article 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. (n)

Article 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (n)

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)

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

Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction. (1266a)

Article 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. (n)

Article 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. (n)

Article 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. (n)

Article 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.

There is intimidation when one of the contracting parties is compelled by a 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.

To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind.

A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. (1267a)

Article 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract. (1268)

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)

Article 1338. There is fraud 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. (1269)

Article 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. (n)

Article 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (n)

Article 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. (n)

Article 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. (n)

Article 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)

Article 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties.

Incidental fraud only obliges the person employing it to pay damages. (1270)

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)

SECTION 2

Object of Contracts

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)

SECTION 3

Cause of Contracts

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)

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)

COMPROMISE

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. [Art. 2028, CC]

As a contract, a valid compromise agreement must possess the following requisites:

• The consent of the parties to the compromise
• An object certain that is the subject matter of the compromise, and
• The cause of the obligation that is established. [Magbanua v. Uy, G.R. No. 161003 (2005)]

Effect of absence of any of the essential elements

Absent proof of the concurrence of all the essential elements of a contract of sale, no contract of sale was perfected. The giving of earnest money alone cannot establish the existence of a perfected contract of sale. (Manila Metal Container Corp. v. PNB, G.R. No. 166862, December 20, 2006)

Valid sale against the will of the owner of the property

• When the property is subjected to expropriation (NCC, Arts. 435 and 1488);
• In case of ordinary execution sale conducted under Section 15, Rule 39 of the Revised Rules of Civil Procedure;
• In case of a judicial foreclosure sale under Rule 68; and
• In case of an extra-judicial foreclosure sale under Act 3135, as amended.

Meeting of the minds

Speaks of the intention of the parties in entering into the contract respecting the subject matter and the consideration thereof. As a rule therefore, a contract is perfected by mere consent. It does not require any special form, as a rule, and is binding from the moment that the essential requisites are present. Thus, the meeting of the minds between the parties rise to the binding contract although they have not affixed their signature to its written form.

Requisites:

• Must be manifested by the Concurrence of the offer and acceptance upon the thing and cause;
• The parties must have legal capacity for their consent to be fully effective; a contract entered into by a person incapable of giving consent is generally voidable, not automatically nonexistent (Civil Code, Arts. 1327–1329 and 1390(1))
• Consent must be intelligent, free, spontaneous, and real (ERNESTO L. PINEDA, OBLIGATIONS AND CONTRACTS 415 (2009))

Elements of a valid offer:

• Definite
• Complete
• Intentional (Palattao v. CA, G.R. No. 131726)

Requisites of services as a Subject Matter

• Services must not be contrary to law, morals, good customs, public order or public policy (CIVIL CODE, art. 1347)
• Possible, physically or legally (CIVIL CODE, art. 1348)
• Determinate or capable of being made determinate (CIVIL CODE, arts. 1318[2] & 1349)

Things that cannot be the subject matter of a contract

• Things which are Outside the commerce of men (CIVIL CODE, art. 1347)
• Intransmissible rights (CIVIL CODE, art. 1347)
• Future inheritance, except in cases expressly authorized by law (CIVIL CODE, art. 1347)
• Services Contrary to law, morals, good customs, public order or public policy (CIVIL CODE, art. 1347)
• Impossible things or services (CIVIL CODE, art. 1348).
• Objects which are not possible of Determination as to their kind (CIVIL CODE, art. 1349)

NOTE: Contracts upon future inheritance are void when:

• The succession has not yet been opened;
• The object of the contract forms part of the inheritance; and
• The promissor has, with respect to the object, an expectancy of a right, which is purely hereditary in nature. (Vda. de Cabalu v. Tabu, G.R. No. 188417)

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. (Uy v. CA, G.R. No. 120465)