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ARTICLE 1313- 1327
Art. 1313. Creditors are
protected in cases of contracts
intended to defraud them.
Right of Defrauded Creditors
The creditor although he is not party to the contract, is
given the right to impugn the contracts of his debtor
intended to defraud him, such as contracts undertaken by
a debtor in fraud of his creditor without the knowledge of
the latter. He can sue to rescind the contract to prevent
fraud upon him.
1.3 MILLION
Josh Ken
Alicia
Donate his
Property only
Art. 1314. Any third person who
induces another to violate his
contract shall be liable for damages
to the other contracting party.
- In article 1314 recognizes an instance when a
stranger to a contract can be sued for damages for
of his warranted interference with the contract.
- It presupposes that a contract interfered is which
is valid and the third person has knowledge to the
existence of the contract or must have known of it
after a reasonable injury.
- Whoever is injured may properly sue for damages
1 YEAR CONTRACT
Julia
Gabbi
Gilchrist v. Cuddy (29 Phil. 542),
Facts:
Cuddy owned a cinematograph film called "Zigomar.“ Cuddy entered into a contract with Gilchrist to rent the film
to him for exhibition in his theater in Iloilo for the week beginning May 26, 1913, for a fee of P125.
Before May 26, Cuddy agreed to rent the film to Espejo and his partner for P350 for the same period, violating his
contract with Gilchrist. Espejo knew that Cuddy owned the film and was aware of the contractual arrangement
between Cuddy and Gilchrist. Despite warnings from Cuddy's agents in Manila that they could not obtain the film
for several weeks, Espejo offered to rent it from Cuddy for a higher price, which Cuddy accepted.
Gilchrist sought legal action against Cuddy and Espejo for interfering with his contract with Cuddy and causing
damages to his theater's profits. The trial court granted a mandatory injunction against Cuddy to deliver the film
to Gilchrist and a preliminary injunction against Espejo and his partner, restraining them from exhibiting the film
until further orders of the court. Espejo and his partner appealed the decision.
Issue: Whether Espejo and his partner are liable for interfering with the contract between Cuddy and Gilchrist,
and whether the injunctions issued against them were justified.
Ruling: The court affirmed the judgment against Espejo and his partner, holding them liable for interfering with
the contract between Cuddy and Gilchrist. The court found that Espejo knowingly induced Cuddy to violate his
contract with Gilchrist, causing damages to Gilchrist's theater profits. The court also ruled that the injunctions
issued against Espejo and his partner were justified to prevent further harm to Gilchrist's business. Therefore, the
appellants were held liable for damages and the injunctions were upheld.
Art. 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 in keeping with good
faith, usage, and law.
How Contracts Are Perfected?
Consensual Contracts- contracts are perfected by the mere consent
of the parties. This means that once there is an agreement on the
essential elements of the contract (such as the subject matter and
consideration), the contract is considered formed.
Classification of contracts according to perfection
a. consensual contracts — by mere consent( Examples: sale, lease
b. real contracts — perfected by delivery (Examples: deposit and pledge
c. formal or solemn contracts — here a special form is required for
perfection.( Examples: Donation of real property
Example: A simple donation inter vivos of real property, to be valid and
perfected, must be in a public instrument.
NOTE: To be a written contract, all its terms must be in writing, so that a
contract partly in writing and partly oral is, in legal effect, an oral
contract.
Lirag Textile Mills, Inc. v. Reparations Commission
The case involves Associated Development Corporation (ADC) appealing a decision regarding the payment terms for reparation
goods it had applied for from the Reparations Commission. Initially, ADC was granted contracts for iron works equipment at a
conversion rate of P2.00 to $1.00. However, a directive from the President mandated payment at the free market rate instead.
ADC contested this directive, arguing it was unconstitutional, and brought the matter to court. The court's decision, which ADC
appealed, ordered the Reparations Commission to accept payment at the conversion rate of P2.00 to $1.00, with provisions for
potential adjustment pending a definitive ruling on the conversion rate issue.
Ultimately, the Supreme Court ruled in favor of the Reparations Commission, upholding the use of the free market rate for
determining payment. The court deemed the initial contracts between ADC and the Commission as preliminary agreements
lacking specific terms, including the exchange rate. As a result, the Commission was not bound by the conversion rate of P2.00
to $1.00. Instead, the court determined that the date of the contracts with Japanese suppliers should be the basis for the
conversion rate. Any amount previously paid by ADC was to be credited accordingly.
In summary, the case clarified the legal obligations regarding the payment terms for reparation goods, affirming the
Reparations Commission's authority to use the free market rate and providing guidance on determining the appropriate
conversion rate.
The main point of this case is to clarify the legal obligations regarding the payment terms for
reparation goods and to determine the appropriate conversion rate to be used for such
payments. The case highlights the authority of the Reparations Commission to use the free
market rate for determining payment and provides guidance on how to establish the
conversion rate, emphasizing the importance of specific terms in contracts and agreements. It
underscores the need for parties involved to adhere to the terms and conditions laid out in
their agreements and contracts, as well as the role of the courts in interpreting and enforcing
such agreements.
Consequences of Perfection
a. The parties are bound to the fulfillment of what has been EXPRESSLY
STIPULATED and compliance thereof must be in GOOD FAITH.
NOTE: If the true intention is not expressed in a written agreement, in
case one has been made, the proper remedy is REFORMATION.
b. The parties are ALSO bound to all the CONSEQUENCES which,
according to their nature, may be in keeping with GOOD FAITH, USAGE,
and LAW
Art. 1316. Real contracts, such as
deposit, pledge and commodatum, are
not perfected until the delivery of the
object of the obligation.
Perfection of Real Contracts
Real contracts require consent, subject matter, cause or consideration, and
DELIVERY.
-Real contracts involve agreements where the physical transfer of an object is
crucial for the contract to be fully formed. Delivery is a Requisite.
The Real Contracts Referred to
The real contracts referred to in Art. 1316 are:
a. DEPOSIT- Entrusting an item to someone else for safekeeping.
b. PLEDGE - Using an item as collateral for a debt or obligation.
c. COMMODATUM- a loan where the identical object must be returned
Example: Loan of a car
Mark Justin
June 1 PHP 10,000
Promise to give diamond ring
as security for the loan on
June 15
Future Real Contracts as Consensual Contracts
A contract “to make a deposit, to make a pledge, or to make a commodatum” is a
consensual contract. After delivery, the contract becomes a real contract.
Explanation:
A consensual contract is formed through mutual agreement or consent without further
formalities, becoming legally binding once agreed upon. Examples include agreements to
buy or sell goods, lease agreements, and employment contracts.
In contrast, a real contract necessitates the delivery of a specific object for completion. The
parties' obligations hinge not just on agreement but also on delivering the subject matter.
Examples include contracts of deposit, pledge, and commodatum.
Example of a contract to make a deposit:
You agree to deposit $1,000 into a bank account. Initially, this agreement is a
consensual contract because it is formed through mutual consent between you
(the depositor) and the bank. Once you deliver the $1,000 to the bank and it is
accepted, the contract becomes a real contract. In this case, the delivery of the
money (the subject matter of the contract) is necessary for the contract to be fully
executed and enforceable.
Example of a contract to make a pledge:
Suppose you agree to pledge your valuable watch as collateral for a loan. Initially,
this agreement is a consensual contract because both you (the pledgor) and the
lender agree to the terms of the pledge. However, the contract becomes a real
contract once you physically deliver the watch to the lender as collateral. The
delivery of the pledged item is essential for the contract to be fully enforceable.
The Contract of Carriage
a. The contract “to carry” (at some future time) is consensual and is
perfected by mere consent.
b. The contract of “carriage” is a real contract, for not until the carrier is
actually used can we consider the contract perfected, that is, ‘til the
moment of actual use, the carrier cannot be said to have already assumed
the obligation of a carrier.
NOTE: The real contract of carriage is perfected even if the passenger has
not yet paid, in fact, even if he has no money for his fare.
It does not even matter that he has not boarded the vehicle completely.
The all-important fact is that he has, with the express or implied consent of
the carrier, placed a part of his body, or a portion of the goods on any part
of the jeepney, taxi or bus, such as the stepping platform or the running
board.
Art. 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 party.
Requisite for a Person to Contract in the Name of Another If a
person wants to contract in the name of another.
a. he must be duly authorized (expressly or impliedly)
b. OR he must have by law a right to represent him (like
the guardian, or the administrator)
c. OR the contract must be subsequently RATIFIED
(expressly or impliedly, by word or by deed)
Example of an UNAUTHORIZED (a Form of UNENFORCEABLE
CONTRACT) CONTRACT.
Lindsay
Owner of the Owner
Alicia
Sold Lindsay’s car
without being
authorized
Alyana
Implied ratification
Occurs when someone accepts or benefits from an unauthorized action or
contract, thereby giving it validity retroactively.
Effect of Ratification
Cleanses the contract from all its defects from the moment
the contract was entered into. Hence, there is a retroactive
effect.
Once ratified, these defects are disregarded, and the
contract is treated as if it were always legally binding and
enforceable.
NOTE:
There can be no more ratification if the contract has
previously been REVOKED by the other contracting party
Effect When an Unauthorized Person Does Not Really Need
the Authority
If someone, like a lawyer, enters a contract without their client's
authority but it merely reflects legal provisions rather than
negotiated terms (like a compromise), the contract can still bind the
client because of those legal provisions.
Example: In a court case, if a lawyer signs a contract without the
client's permission, but the contract simply restates legal rights and
obligations, it's binding because of the law, not the unauthorized
action of the lawyer.
Art. 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.
1. Consent of the contracting parties:
This means that all parties involved in the contract
must agree to its terms willingly and without coercion.
Consent implies a mutual understanding and
acceptance of what is being agreed upon.
2. Object certain which is the subject matter of the
contract
The contract must have a clear and specific subject
matter or object. This means that the purpose or what
is being exchanged as part of the agreement must be
identifiable and definite. For example, if you're buying a
car, the contract should specify the make, model, price,
and any other relevant details.
3. Cause of the obligation which is established
The term "cause" here refers to the reason or purpose
behind the obligation created by the contract. In other
words, there must be a valid reason for the contract to exist
and for the parties to undertake their respective
obligations. This cause could be anything from a monetary
exchange to the fulfillment of a promise or the provision of
a service.
Real Contracts
Real contracts require a fourth requisite — DELIVERY.
Solemn or Formal Contracts
Solemn or formal contracts require a fourth requisite.
COMPLIANCE WITH THE FORMALITIES REQUIRED BY LAW.
What Consent Presupposes?
For consent to be valid, two things are necessary:
The person giving consent must have
1. legal capacity, meaning they're legally able to make
decisions.
2. Any attached conditions must be fulfilled.
Effect of Non-Consent
a. If there's absolutely no agreement or consent, such as in a joke,
there's no valid contract. The agreement is considered nonexistent
or void.
b. If there's a problem with the consent, like if it was given under
error, fraud, or undue influence, the contract isn't automatically
void.
It's considered voidable, meaning it can be canceled by the affected
party.
Transportation Ticket as a Contract:
Refers to the fact that buying a ticket for transportation (like
a bus or train ticket) constitutes a contract between you and
the transportation company.
By purchasing the ticket, you agree to the terms and
conditions set by the company for using their service.
Lack of Consent Is Separate and Distinct From Lack of Consideration.
1. Lack of consent refers to situations where one party does not agree to the
terms or actions involved in a contract or agreement. It typically involves
issues such as coercion, fraud, or incapacity to consent.
2. Lack of consideration, on the other hand, pertains to contracts where there is
a failure to exchange something of value between parties. Consideration is
essential for a contract to be legally enforceable, and its absence renders the
agreement void or unenforceable
Art. 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.
Consent as an Essential Requisite
This Article emphasizes CONSENT, which is the first essential
requisite of every contract.
Consent is when both parties agree on the terms and subject
matter of the contract. If one party withdraws an offer before
the other party agrees, there's no contract.
Example:
A offered to sell B a particular car for
P2,000,000. Before B could consent, A withdrew
the offer. Was A allowed to do so?
ANS.: Yes, because there was NO meeting of the
minds yet, hence no contract had been perfected.
Requisites of Consent:
a. There must be at least two parties involved.
b. Both parties must be legally capable of entering into the contract. If one party is
mentally incapable, the contract may be voidable.
c. Consent must not be obtained through fraud or intimidation, or else the contract
may be voidable.
d. There should be no conflict between what's stated in the contract and what the
parties truly intended. Otherwise, the contract may need to be reformed or
considered void.
e. The intent to enter into the contract must be properly declared, following any
necessary legal formalities.
Requisites for the Meeting of the Minds
a.The offer must be clear and definite.
b. The acceptance must be unqualified and absolute. If
the acceptance includes any conditions, it's considered a
counter-offer.
What is a counter-offer?
A counter-offer is a response to an initial offer made during
negotiations. When one party makes an offer to another, the recipient
may choose to reject the offer outright, accept it, or make a counter-
offer.
Essentially functions as a rejection of the original offer, while
simultaneously proposing new terms that the recipient finds more
favorable. It keeps the negotiation process open while allowing both
parties to continue discussing terms until they reach a mutually
agreeable agreement.
An Offer That Is Certain
An offer must be clear and not misleading. Vague or
ambiguous statements don't count as valid offers. If an
offer is withdrawn before it's accepted, there's no
agreement.
An Acceptance That Is Unqualified and Absolute
Acceptance must be straightforward and without conditions. If
there's no clear acceptance or if the offer is explicitly rejected,
there's no agreement. Any qualified acceptance results in a
counter-offer, not a valid contract.
Example:
A went to a store and offered to buy a certain watch
for P100,000. The seller said he was willing to give it
for P120,000. Whereupon, A turned to go away
because he did not want to pay that price. The seller
called him back and said he was willing to sell the
watch for P100,000. Is A allowed not to buy said
watch?
ANS: Yes. A’s offer was P100,000. This was not accepted. Or
granting that the proposal of P120,000 was a sort of
acceptance, the statement that the buyer could have it for
P120,000 was not absolute. It was a qualified acceptance and
hence, under the law, constitutes a counter-offer. Hence,
when the seller said P120,000, he was not really accepting the
offer to buy. Now, when he was going to give it for P100,000,
he was not really accepting the offer of A, but was making
another offer, a counter-offer since the offer made by A
previously had been rejected by him (the seller).
NOTE: A counter-offer as a matter of fact
extinguishes the offer. Moreover, it may or may not
be accepted by the original offeror.
Acceptance Thru Correspondence
Rule: “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.”
Rule If Letter of Acceptance Is Withdrawn or Revoked
A letter of acceptance can be withdrawn or revoked under various
circumstances, including misrepresentation, failure to meet
conditions, changes in circumstances, policy violations, legal reasons,
non-performance, or administrative errors. This action is taken with
careful consideration and can have significant consequences for the
recipient, requiring adherence to appropriate procedures and clear
communication.
Art. 1320. An acceptance may be
express or implied.
Forms of Acceptance
a. Express Acceptance- Clearly and directly stated acceptance.
b. Implied Acceptance- Acceptance inferred from conduct or
circumstances, including acceptance of unsolicited services.
c. Presumed Acceptance- Acceptance assumed by law in certain
situations, such as failure to repudiate hereditary rights within the
legally prescribed period or through silence when silence would
mislead the other party and result in estoppel.
Implied Rejection:
Refusing an offer can be inferred from someone's actions or circumstances. For
instance, if someone doesn't respond to a compromise offer before a court makes
a final decision, it's considered rejection.
Art. 1321. The person making
the offer may fix the time, place,
and manner of acceptance, all of
which must be complied with.
Things that May Be Fixed by the Offerer
1. The time
2. The place
3. The manner of acceptance
Any act contrary to the prescribed terms really
constitutes a counter-offer or counter-proposal.
Mang Jose Dina
Acceptance of this offer
must be made in writing
Article 1321 basically the importance of mutual
agreement between parties, the freedom to set
contractual terms within legal bounds, and the
recognition of different types of contracts, including
fixed-term contracts.
Art. 1322. An offer made
through an agent is accepted
from the time acceptance is
communicated to him
Acceptance of an Offer Made Thru an Agent
The Article applies when BOTH the offer and the
acceptance are made thru an AGENT (who is
an extension of the personality of the principal.
Offeror Offeree Agent
Rick Stacey Rhea
Art. 1323. An offer becomes
ineffective upon the death, civil
interdiction, insanity, or insolvency of
either party before acceptance is
conveyed.
Four Instances When Offer Becomes Ineffective:
1. Death
2. Civil interdiction
3. Insanity
4. Insolvency of either party before acceptance is
conveyed.
Roger
Offer
Angelina
On Jan 1
Died on
Jan 4
makes known his
acceptance in a letter
received at the house of
Angelina on Jan. 5.
RESULT:
The offer is ineffective because
there was no meeting of the
minds.
NOTE: If one of the parties at the time of making the
offer OR the acceptance was already insane, it may be said
that there is a meeting of the minds, in a sense, because the
contract is not void, but merely VOIDABLE, that is, it is valid
until annulled.
Other Instances
There are other instances when the offer becomes
ineffective, namely:
a. When the offeree expressly or impliedly rejects the
offer.
b. When the offer is accepted with a qualification or
condition (for here, there would merely arise a counter-
offer).
c. When before acceptance is communicated, the subject
matter has become illegal or impossible.
d. When the period of time given to the offeree within
which he must signify his acceptance has already lapsed.
e. When the offer is revoked in due time (that is, before the
offeror has learned of its acceptance by the offeree).
Art. 1324. When the offeror has allowed the
offeree 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.
Carlo
Daniel
1 million through letter
Carlo gave Daniel 10 days to decide or to
accept the offer.
Daniel gave Carlo option money worth
100k then after 3 days Carlo withdraw the
offer.
General Rule on Options
If the offeror has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time
before acceptance (or the thing being offered) by
communicating such withdrawal.
‘Option’ Defined
It is a contract granting a person the privilege to buy or not to
buy certain objects at any time within the agreed period at a
fixed price. The contract of option is a separate and distinct
contract from the contract which the parties may enter into
upon the consummation of the contract.
Perfection of an Option
Since an option is by itself a contract, it is not
perfected unless there is a meeting of the minds on
the option. Thus, the offer to grant an option, even if
founded on a distinct cause or consideration, may
itself be withdrawn before the acceptance of the offer
of an option.
NOTE: There is therefore a difference between
acceptance of the offer of option (which results in the contract
of option), and acceptance of the object being offered for sale
or acceptance of the offer of sale (which results in the contract
of sale).
Art. 1325. Unless it appears
otherwise, business
advertisements of things for sale
are not definite offers, but mere
invitations to make an offer.
Business Advertisements of things for sale may or
may not constitute definite offer. They are merelv
invitations to the reader to make an offer or onlv
as proposals. However, if the advertisement is
complete in all the particulars necessary in a
contract it may amount to a definite offer or it is a
definite offer when the object is determinate.
How Can We Determine if a Business Advertisement is a Definite
Offer or Not?
Definite Offer Example:
“For Sale: 900 sq. meter lot with a brand new 1-1/2 storey house at
1445 Perdigon, Paco, Manila for P10 million cash.”
Indefinite Offer Example:
“For Sale: 1000 sq. meter lots at P100 million to P150 million a lot at
South Forbes Park Tel. 88-00-00.”
Art. 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
Advertisement for Bidders
Note that as a general rule, the advertiser is NOT
bound to accept the highest or lowest bidder.
Lisa sells in the public auction
auction a specific land
The starting bid is 1
million
Jiso placed 1.1 million
Rosie placed 1.2 million Jennie placed 1.3 million.
1. Right to Reject Bids: Even without a reservation in the advertisement, the
advertiser retains the right to reject any and all bids, as per the general rule.
2. Communication of Acceptance: Mere determination by officials to accept a bid
does not constitute a contract; the decision must be communicated to the bidder.
3. Bidder's Acceptance of Conditions: By participating in a public auction, a
bidder agrees to all conditions set forth, including the right of the seller to reject
bids.
4. Differentiating Terms: "Lowest bidder" refers to the lowest price, "lowest
responsible bidder" includes financial ability and skill, while "lowest and best
bidder" encompasses reputation, capacity, and other advantageous factors.
5. Execution Sales: In execution sales, the property is generally awarded to the
highest bidder. For extrajudicial family home sales, the lowest bid accepted must
exceed certain legal values, meaning the highest bid must be higher than these
values.
Art. 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.
Two Classes of Voidable Contracts
a. Those where one party is incapacitated to give consent.
Question:
What is the reason why this kind of person cannot give
consent to a contract?
The reason is that this kinds of persons mentioned can easily
be the victims of fraud as they are not capable of
understanding or knowing the nature of their actions.
b. Those where the consent of one party has been
vitiated (such as by error, fraud, violence, intimidation,
and undue influence).
NOTE: These contracts in general are valid until
annulled. However, annulment cannot prosper when
they have been ratified.
Persons Incapacitated to Consent
a. Unemancipated minors- persons who have not yet reached the age of
majority and are still subject to parental authority.
These are the minors who have not been
emancipated by marriage, attainment of the age of majority, or by parental or
judicial authority.
Note: If a minor gets married they will no longer be called minors.
Annie is 16 years old and kiko is 17 years
old decided to get married because they
feel they are meant for each other.
b. Insane or demented persons (unless they acted during a lucid interval),
drunks and those hypnotized.
c. Deaf-mutes who do not know how to write and read.
NOTE: If they know how to read, but do not know how to write, it is
submitted that the contract is valid, for then they are capable of
understanding, and therefore capacitated to give consent.
In general, the contracts which they enter into are
VOIDABLE unless:
1. Upon reaching the age of majority, they ratify the same
2. They were entered into thru a guardian, and the court
having jurisdiction had approved the same.
3. They were contracts of life insurance in favor of their
parents, spouse, children, brothers, sisters, and
provided, furthermore, that the minor is 18 years old or
above.
4. They were in the form of savings account in the Postal
Savings Bank, provided furthermore that the minor was
at least seven years old.
5. They were contracts for necessities such as food, but
here the people who are legally bound to give them
support should pay therefor.
Insane or Demented Persons (Unless They Acted During a
Lucid Interval)
Reason: People who contract must know what they are
entering into.
No proper declaration of insanity by the court is required,
as long as it is shown that at the time of contracting, the
person was really insane.
- Even if a person had already been declared insane, this does
not necessarily mean that at the time of contracting, said
person was still insane.
- Upon the other hand, if the contract was made before the
declaration of insanity, the presumption is that he was still
SANE at the time of contracting. He who alleged the insanity
of another at the time of contracting is duty-bound to prove
the same, otherwise, the latter’s capacity must be presumed.
Persons Specially Disqualified
There are people who are SPECIALLY DISQUALIFIED in
certain things. Here, the transaction is VOID because the right
itself is restricted, that is, the right is WITHHELD.
The transaction cannot proceed legally because the person
involved lacks the necessary entitlement to engage in it.
Example of Persons Specially Disqualified
As a general rule, the husband and wife cannot sell to each
other nor can they donate to each other. Violations are
considered VOID contracts, but only those prejudiced can
assail the validity of the transaction.

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Power Point Obligations and contracts Article 1313-1327

  • 2. Art. 1313. Creditors are protected in cases of contracts intended to defraud them.
  • 3. Right of Defrauded Creditors The creditor although he is not party to the contract, is given the right to impugn the contracts of his debtor intended to defraud him, such as contracts undertaken by a debtor in fraud of his creditor without the knowledge of the latter. He can sue to rescind the contract to prevent fraud upon him.
  • 5. Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.
  • 6. - In article 1314 recognizes an instance when a stranger to a contract can be sued for damages for of his warranted interference with the contract. - It presupposes that a contract interfered is which is valid and the third person has knowledge to the existence of the contract or must have known of it after a reasonable injury. - Whoever is injured may properly sue for damages
  • 8. Gilchrist v. Cuddy (29 Phil. 542), Facts: Cuddy owned a cinematograph film called "Zigomar.“ Cuddy entered into a contract with Gilchrist to rent the film to him for exhibition in his theater in Iloilo for the week beginning May 26, 1913, for a fee of P125. Before May 26, Cuddy agreed to rent the film to Espejo and his partner for P350 for the same period, violating his contract with Gilchrist. Espejo knew that Cuddy owned the film and was aware of the contractual arrangement between Cuddy and Gilchrist. Despite warnings from Cuddy's agents in Manila that they could not obtain the film for several weeks, Espejo offered to rent it from Cuddy for a higher price, which Cuddy accepted. Gilchrist sought legal action against Cuddy and Espejo for interfering with his contract with Cuddy and causing damages to his theater's profits. The trial court granted a mandatory injunction against Cuddy to deliver the film to Gilchrist and a preliminary injunction against Espejo and his partner, restraining them from exhibiting the film until further orders of the court. Espejo and his partner appealed the decision. Issue: Whether Espejo and his partner are liable for interfering with the contract between Cuddy and Gilchrist, and whether the injunctions issued against them were justified. Ruling: The court affirmed the judgment against Espejo and his partner, holding them liable for interfering with the contract between Cuddy and Gilchrist. The court found that Espejo knowingly induced Cuddy to violate his contract with Gilchrist, causing damages to Gilchrist's theater profits. The court also ruled that the injunctions issued against Espejo and his partner were justified to prevent further harm to Gilchrist's business. Therefore, the appellants were held liable for damages and the injunctions were upheld.
  • 9. Art. 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 in keeping with good faith, usage, and law.
  • 10. How Contracts Are Perfected? Consensual Contracts- contracts are perfected by the mere consent of the parties. This means that once there is an agreement on the essential elements of the contract (such as the subject matter and consideration), the contract is considered formed.
  • 11. Classification of contracts according to perfection a. consensual contracts — by mere consent( Examples: sale, lease b. real contracts — perfected by delivery (Examples: deposit and pledge c. formal or solemn contracts — here a special form is required for perfection.( Examples: Donation of real property Example: A simple donation inter vivos of real property, to be valid and perfected, must be in a public instrument. NOTE: To be a written contract, all its terms must be in writing, so that a contract partly in writing and partly oral is, in legal effect, an oral contract.
  • 12. Lirag Textile Mills, Inc. v. Reparations Commission The case involves Associated Development Corporation (ADC) appealing a decision regarding the payment terms for reparation goods it had applied for from the Reparations Commission. Initially, ADC was granted contracts for iron works equipment at a conversion rate of P2.00 to $1.00. However, a directive from the President mandated payment at the free market rate instead. ADC contested this directive, arguing it was unconstitutional, and brought the matter to court. The court's decision, which ADC appealed, ordered the Reparations Commission to accept payment at the conversion rate of P2.00 to $1.00, with provisions for potential adjustment pending a definitive ruling on the conversion rate issue. Ultimately, the Supreme Court ruled in favor of the Reparations Commission, upholding the use of the free market rate for determining payment. The court deemed the initial contracts between ADC and the Commission as preliminary agreements lacking specific terms, including the exchange rate. As a result, the Commission was not bound by the conversion rate of P2.00 to $1.00. Instead, the court determined that the date of the contracts with Japanese suppliers should be the basis for the conversion rate. Any amount previously paid by ADC was to be credited accordingly. In summary, the case clarified the legal obligations regarding the payment terms for reparation goods, affirming the Reparations Commission's authority to use the free market rate and providing guidance on determining the appropriate conversion rate.
  • 13. The main point of this case is to clarify the legal obligations regarding the payment terms for reparation goods and to determine the appropriate conversion rate to be used for such payments. The case highlights the authority of the Reparations Commission to use the free market rate for determining payment and provides guidance on how to establish the conversion rate, emphasizing the importance of specific terms in contracts and agreements. It underscores the need for parties involved to adhere to the terms and conditions laid out in their agreements and contracts, as well as the role of the courts in interpreting and enforcing such agreements.
  • 14. Consequences of Perfection a. The parties are bound to the fulfillment of what has been EXPRESSLY STIPULATED and compliance thereof must be in GOOD FAITH. NOTE: If the true intention is not expressed in a written agreement, in case one has been made, the proper remedy is REFORMATION. b. The parties are ALSO bound to all the CONSEQUENCES which, according to their nature, may be in keeping with GOOD FAITH, USAGE, and LAW
  • 15. Art. 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation.
  • 16. Perfection of Real Contracts Real contracts require consent, subject matter, cause or consideration, and DELIVERY. -Real contracts involve agreements where the physical transfer of an object is crucial for the contract to be fully formed. Delivery is a Requisite. The Real Contracts Referred to The real contracts referred to in Art. 1316 are: a. DEPOSIT- Entrusting an item to someone else for safekeeping. b. PLEDGE - Using an item as collateral for a debt or obligation. c. COMMODATUM- a loan where the identical object must be returned Example: Loan of a car
  • 17. Mark Justin June 1 PHP 10,000 Promise to give diamond ring as security for the loan on June 15
  • 18. Future Real Contracts as Consensual Contracts A contract “to make a deposit, to make a pledge, or to make a commodatum” is a consensual contract. After delivery, the contract becomes a real contract. Explanation: A consensual contract is formed through mutual agreement or consent without further formalities, becoming legally binding once agreed upon. Examples include agreements to buy or sell goods, lease agreements, and employment contracts. In contrast, a real contract necessitates the delivery of a specific object for completion. The parties' obligations hinge not just on agreement but also on delivering the subject matter. Examples include contracts of deposit, pledge, and commodatum.
  • 19. Example of a contract to make a deposit: You agree to deposit $1,000 into a bank account. Initially, this agreement is a consensual contract because it is formed through mutual consent between you (the depositor) and the bank. Once you deliver the $1,000 to the bank and it is accepted, the contract becomes a real contract. In this case, the delivery of the money (the subject matter of the contract) is necessary for the contract to be fully executed and enforceable. Example of a contract to make a pledge: Suppose you agree to pledge your valuable watch as collateral for a loan. Initially, this agreement is a consensual contract because both you (the pledgor) and the lender agree to the terms of the pledge. However, the contract becomes a real contract once you physically deliver the watch to the lender as collateral. The delivery of the pledged item is essential for the contract to be fully enforceable.
  • 20. The Contract of Carriage a. The contract “to carry” (at some future time) is consensual and is perfected by mere consent. b. The contract of “carriage” is a real contract, for not until the carrier is actually used can we consider the contract perfected, that is, ‘til the moment of actual use, the carrier cannot be said to have already assumed the obligation of a carrier. NOTE: The real contract of carriage is perfected even if the passenger has not yet paid, in fact, even if he has no money for his fare. It does not even matter that he has not boarded the vehicle completely. The all-important fact is that he has, with the express or implied consent of the carrier, placed a part of his body, or a portion of the goods on any part of the jeepney, taxi or bus, such as the stepping platform or the running board.
  • 21. Art. 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 party.
  • 22. Requisite for a Person to Contract in the Name of Another If a person wants to contract in the name of another. a. he must be duly authorized (expressly or impliedly) b. OR he must have by law a right to represent him (like the guardian, or the administrator) c. OR the contract must be subsequently RATIFIED (expressly or impliedly, by word or by deed)
  • 23. Example of an UNAUTHORIZED (a Form of UNENFORCEABLE CONTRACT) CONTRACT. Lindsay Owner of the Owner Alicia Sold Lindsay’s car without being authorized Alyana
  • 24. Implied ratification Occurs when someone accepts or benefits from an unauthorized action or contract, thereby giving it validity retroactively.
  • 25. Effect of Ratification Cleanses the contract from all its defects from the moment the contract was entered into. Hence, there is a retroactive effect. Once ratified, these defects are disregarded, and the contract is treated as if it were always legally binding and enforceable. NOTE: There can be no more ratification if the contract has previously been REVOKED by the other contracting party
  • 26. Effect When an Unauthorized Person Does Not Really Need the Authority If someone, like a lawyer, enters a contract without their client's authority but it merely reflects legal provisions rather than negotiated terms (like a compromise), the contract can still bind the client because of those legal provisions. Example: In a court case, if a lawyer signs a contract without the client's permission, but the contract simply restates legal rights and obligations, it's binding because of the law, not the unauthorized action of the lawyer.
  • 27. Art. 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.
  • 28. 1. Consent of the contracting parties: This means that all parties involved in the contract must agree to its terms willingly and without coercion. Consent implies a mutual understanding and acceptance of what is being agreed upon.
  • 29. 2. Object certain which is the subject matter of the contract The contract must have a clear and specific subject matter or object. This means that the purpose or what is being exchanged as part of the agreement must be identifiable and definite. For example, if you're buying a car, the contract should specify the make, model, price, and any other relevant details.
  • 30. 3. Cause of the obligation which is established The term "cause" here refers to the reason or purpose behind the obligation created by the contract. In other words, there must be a valid reason for the contract to exist and for the parties to undertake their respective obligations. This cause could be anything from a monetary exchange to the fulfillment of a promise or the provision of a service.
  • 31. Real Contracts Real contracts require a fourth requisite — DELIVERY. Solemn or Formal Contracts Solemn or formal contracts require a fourth requisite. COMPLIANCE WITH THE FORMALITIES REQUIRED BY LAW.
  • 32. What Consent Presupposes? For consent to be valid, two things are necessary: The person giving consent must have 1. legal capacity, meaning they're legally able to make decisions. 2. Any attached conditions must be fulfilled.
  • 33. Effect of Non-Consent a. If there's absolutely no agreement or consent, such as in a joke, there's no valid contract. The agreement is considered nonexistent or void. b. If there's a problem with the consent, like if it was given under error, fraud, or undue influence, the contract isn't automatically void. It's considered voidable, meaning it can be canceled by the affected party.
  • 34. Transportation Ticket as a Contract: Refers to the fact that buying a ticket for transportation (like a bus or train ticket) constitutes a contract between you and the transportation company. By purchasing the ticket, you agree to the terms and conditions set by the company for using their service.
  • 35. Lack of Consent Is Separate and Distinct From Lack of Consideration. 1. Lack of consent refers to situations where one party does not agree to the terms or actions involved in a contract or agreement. It typically involves issues such as coercion, fraud, or incapacity to consent. 2. Lack of consideration, on the other hand, pertains to contracts where there is a failure to exchange something of value between parties. Consideration is essential for a contract to be legally enforceable, and its absence renders the agreement void or unenforceable
  • 36. Art. 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.
  • 37. Consent as an Essential Requisite This Article emphasizes CONSENT, which is the first essential requisite of every contract. Consent is when both parties agree on the terms and subject matter of the contract. If one party withdraws an offer before the other party agrees, there's no contract.
  • 38. Example: A offered to sell B a particular car for P2,000,000. Before B could consent, A withdrew the offer. Was A allowed to do so? ANS.: Yes, because there was NO meeting of the minds yet, hence no contract had been perfected.
  • 39. Requisites of Consent: a. There must be at least two parties involved. b. Both parties must be legally capable of entering into the contract. If one party is mentally incapable, the contract may be voidable. c. Consent must not be obtained through fraud or intimidation, or else the contract may be voidable. d. There should be no conflict between what's stated in the contract and what the parties truly intended. Otherwise, the contract may need to be reformed or considered void. e. The intent to enter into the contract must be properly declared, following any necessary legal formalities.
  • 40. Requisites for the Meeting of the Minds a.The offer must be clear and definite. b. The acceptance must be unqualified and absolute. If the acceptance includes any conditions, it's considered a counter-offer.
  • 41. What is a counter-offer? A counter-offer is a response to an initial offer made during negotiations. When one party makes an offer to another, the recipient may choose to reject the offer outright, accept it, or make a counter- offer. Essentially functions as a rejection of the original offer, while simultaneously proposing new terms that the recipient finds more favorable. It keeps the negotiation process open while allowing both parties to continue discussing terms until they reach a mutually agreeable agreement.
  • 42. An Offer That Is Certain An offer must be clear and not misleading. Vague or ambiguous statements don't count as valid offers. If an offer is withdrawn before it's accepted, there's no agreement.
  • 43. An Acceptance That Is Unqualified and Absolute Acceptance must be straightforward and without conditions. If there's no clear acceptance or if the offer is explicitly rejected, there's no agreement. Any qualified acceptance results in a counter-offer, not a valid contract.
  • 44. Example: A went to a store and offered to buy a certain watch for P100,000. The seller said he was willing to give it for P120,000. Whereupon, A turned to go away because he did not want to pay that price. The seller called him back and said he was willing to sell the watch for P100,000. Is A allowed not to buy said watch?
  • 45. ANS: Yes. A’s offer was P100,000. This was not accepted. Or granting that the proposal of P120,000 was a sort of acceptance, the statement that the buyer could have it for P120,000 was not absolute. It was a qualified acceptance and hence, under the law, constitutes a counter-offer. Hence, when the seller said P120,000, he was not really accepting the offer to buy. Now, when he was going to give it for P100,000, he was not really accepting the offer of A, but was making another offer, a counter-offer since the offer made by A previously had been rejected by him (the seller).
  • 46. NOTE: A counter-offer as a matter of fact extinguishes the offer. Moreover, it may or may not be accepted by the original offeror.
  • 47. Acceptance Thru Correspondence Rule: “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.”
  • 48. Rule If Letter of Acceptance Is Withdrawn or Revoked A letter of acceptance can be withdrawn or revoked under various circumstances, including misrepresentation, failure to meet conditions, changes in circumstances, policy violations, legal reasons, non-performance, or administrative errors. This action is taken with careful consideration and can have significant consequences for the recipient, requiring adherence to appropriate procedures and clear communication.
  • 49. Art. 1320. An acceptance may be express or implied.
  • 50. Forms of Acceptance a. Express Acceptance- Clearly and directly stated acceptance. b. Implied Acceptance- Acceptance inferred from conduct or circumstances, including acceptance of unsolicited services. c. Presumed Acceptance- Acceptance assumed by law in certain situations, such as failure to repudiate hereditary rights within the legally prescribed period or through silence when silence would mislead the other party and result in estoppel.
  • 51. Implied Rejection: Refusing an offer can be inferred from someone's actions or circumstances. For instance, if someone doesn't respond to a compromise offer before a court makes a final decision, it's considered rejection.
  • 52. Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with.
  • 53. Things that May Be Fixed by the Offerer 1. The time 2. The place 3. The manner of acceptance Any act contrary to the prescribed terms really constitutes a counter-offer or counter-proposal.
  • 54. Mang Jose Dina Acceptance of this offer must be made in writing
  • 55. Article 1321 basically the importance of mutual agreement between parties, the freedom to set contractual terms within legal bounds, and the recognition of different types of contracts, including fixed-term contracts.
  • 56. Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to him
  • 57. Acceptance of an Offer Made Thru an Agent The Article applies when BOTH the offer and the acceptance are made thru an AGENT (who is an extension of the personality of the principal.
  • 59. Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed.
  • 60. Four Instances When Offer Becomes Ineffective: 1. Death 2. Civil interdiction 3. Insanity 4. Insolvency of either party before acceptance is conveyed.
  • 61. Roger Offer Angelina On Jan 1 Died on Jan 4 makes known his acceptance in a letter received at the house of Angelina on Jan. 5. RESULT: The offer is ineffective because there was no meeting of the minds.
  • 62. NOTE: If one of the parties at the time of making the offer OR the acceptance was already insane, it may be said that there is a meeting of the minds, in a sense, because the contract is not void, but merely VOIDABLE, that is, it is valid until annulled. Other Instances There are other instances when the offer becomes ineffective, namely: a. When the offeree expressly or impliedly rejects the offer.
  • 63. b. When the offer is accepted with a qualification or condition (for here, there would merely arise a counter- offer). c. When before acceptance is communicated, the subject matter has become illegal or impossible. d. When the period of time given to the offeree within which he must signify his acceptance has already lapsed. e. When the offer is revoked in due time (that is, before the offeror has learned of its acceptance by the offeree).
  • 64. Art. 1324. When the offeror has allowed the offeree 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.
  • 65. Carlo Daniel 1 million through letter Carlo gave Daniel 10 days to decide or to accept the offer. Daniel gave Carlo option money worth 100k then after 3 days Carlo withdraw the offer.
  • 66. General Rule on Options If the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance (or the thing being offered) by communicating such withdrawal.
  • 67. ‘Option’ Defined It is a contract granting a person the privilege to buy or not to buy certain objects at any time within the agreed period at a fixed price. The contract of option is a separate and distinct contract from the contract which the parties may enter into upon the consummation of the contract.
  • 68. Perfection of an Option Since an option is by itself a contract, it is not perfected unless there is a meeting of the minds on the option. Thus, the offer to grant an option, even if founded on a distinct cause or consideration, may itself be withdrawn before the acceptance of the offer of an option.
  • 69. NOTE: There is therefore a difference between acceptance of the offer of option (which results in the contract of option), and acceptance of the object being offered for sale or acceptance of the offer of sale (which results in the contract of sale).
  • 70. Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer.
  • 71. Business Advertisements of things for sale may or may not constitute definite offer. They are merelv invitations to the reader to make an offer or onlv as proposals. However, if the advertisement is complete in all the particulars necessary in a contract it may amount to a definite offer or it is a definite offer when the object is determinate.
  • 72. How Can We Determine if a Business Advertisement is a Definite Offer or Not? Definite Offer Example: “For Sale: 900 sq. meter lot with a brand new 1-1/2 storey house at 1445 Perdigon, Paco, Manila for P10 million cash.” Indefinite Offer Example: “For Sale: 1000 sq. meter lots at P100 million to P150 million a lot at South Forbes Park Tel. 88-00-00.”
  • 73. Art. 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
  • 74. Advertisement for Bidders Note that as a general rule, the advertiser is NOT bound to accept the highest or lowest bidder.
  • 75. Lisa sells in the public auction auction a specific land The starting bid is 1 million Jiso placed 1.1 million Rosie placed 1.2 million Jennie placed 1.3 million.
  • 76. 1. Right to Reject Bids: Even without a reservation in the advertisement, the advertiser retains the right to reject any and all bids, as per the general rule. 2. Communication of Acceptance: Mere determination by officials to accept a bid does not constitute a contract; the decision must be communicated to the bidder. 3. Bidder's Acceptance of Conditions: By participating in a public auction, a bidder agrees to all conditions set forth, including the right of the seller to reject bids.
  • 77. 4. Differentiating Terms: "Lowest bidder" refers to the lowest price, "lowest responsible bidder" includes financial ability and skill, while "lowest and best bidder" encompasses reputation, capacity, and other advantageous factors. 5. Execution Sales: In execution sales, the property is generally awarded to the highest bidder. For extrajudicial family home sales, the lowest bid accepted must exceed certain legal values, meaning the highest bid must be higher than these values.
  • 78. Art. 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.
  • 79. Two Classes of Voidable Contracts a. Those where one party is incapacitated to give consent. Question: What is the reason why this kind of person cannot give consent to a contract? The reason is that this kinds of persons mentioned can easily be the victims of fraud as they are not capable of understanding or knowing the nature of their actions.
  • 80. b. Those where the consent of one party has been vitiated (such as by error, fraud, violence, intimidation, and undue influence). NOTE: These contracts in general are valid until annulled. However, annulment cannot prosper when they have been ratified.
  • 81. Persons Incapacitated to Consent a. Unemancipated minors- persons who have not yet reached the age of majority and are still subject to parental authority. These are the minors who have not been emancipated by marriage, attainment of the age of majority, or by parental or judicial authority. Note: If a minor gets married they will no longer be called minors.
  • 82. Annie is 16 years old and kiko is 17 years old decided to get married because they feel they are meant for each other.
  • 83. b. Insane or demented persons (unless they acted during a lucid interval), drunks and those hypnotized. c. Deaf-mutes who do not know how to write and read. NOTE: If they know how to read, but do not know how to write, it is submitted that the contract is valid, for then they are capable of understanding, and therefore capacitated to give consent.
  • 84. In general, the contracts which they enter into are VOIDABLE unless: 1. Upon reaching the age of majority, they ratify the same 2. They were entered into thru a guardian, and the court having jurisdiction had approved the same. 3. They were contracts of life insurance in favor of their parents, spouse, children, brothers, sisters, and provided, furthermore, that the minor is 18 years old or above.
  • 85. 4. They were in the form of savings account in the Postal Savings Bank, provided furthermore that the minor was at least seven years old. 5. They were contracts for necessities such as food, but here the people who are legally bound to give them support should pay therefor.
  • 86. Insane or Demented Persons (Unless They Acted During a Lucid Interval) Reason: People who contract must know what they are entering into. No proper declaration of insanity by the court is required, as long as it is shown that at the time of contracting, the person was really insane.
  • 87. - Even if a person had already been declared insane, this does not necessarily mean that at the time of contracting, said person was still insane. - Upon the other hand, if the contract was made before the declaration of insanity, the presumption is that he was still SANE at the time of contracting. He who alleged the insanity of another at the time of contracting is duty-bound to prove the same, otherwise, the latter’s capacity must be presumed.
  • 88. Persons Specially Disqualified There are people who are SPECIALLY DISQUALIFIED in certain things. Here, the transaction is VOID because the right itself is restricted, that is, the right is WITHHELD. The transaction cannot proceed legally because the person involved lacks the necessary entitlement to engage in it.
  • 89. Example of Persons Specially Disqualified As a general rule, the husband and wife cannot sell to each other nor can they donate to each other. Violations are considered VOID contracts, but only those prejudiced can assail the validity of the transaction.