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TITLE II
CHAPTER II
ESSENTIAL REQUISITES OF CONTRACTS
SECTION 1. - CONSENT
(Articles 1318-1346)
1.
3.
4.
(a) When the offeror withdraws his offer before its acceptance by the offeree,
the offer becomes ineffective. (Art. 1319)
(b) When the offeree makes a qualified acceptance of the offer as discussed
above. (Art. 1319)
(c) Upon the death, civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed. (Art. 1323)
Example: If any one of the parties die after an offer is made but before
the offeree could convey his acceptance, the offer becomes ineffective and
no contract is perfected. On January 15, 2011, Sonia sent Bart a letter offering
to sell her car to Bart for P3M. On January 17, 2011, Bart received the letter. On
January 18, Bart mailed his letter of acceptance of the offer to Sonia. On
January 19, Bart died in a bus bombing incident in Makati. On January 20, Sonia
received the letter of acceptance.
Question: Was there a perfected contract of sale? If Bart left a son as sole
heir, can his son demand from Sonia the delivery of the car?
Answer: NO. In this case, it cannot be denied that Bart received the letter
of Sonia regarding the offer, and was able to signify and mail his letter of
acceptance to the offer on January 18 before he died. However, before Sonia
could receive the letter of acceptance, Bart had already died in the bombing
accident. Article 1323 requires that both parties must be alive at the time the
offer is made as well as at the time the acceptance to the offer is conveyed
(made known) to the offeror. Therefore, since Bart was already dead at the time
Sonia received his letter of acceptance (i.e., before the acceptance was
conveyed), no acceptance is deemed to have been made, and no contract is
perfected. Barts son, as heir to one of the contracting parties (under the
principle of relativity) cannot then compel Sonia to deliver the car.
Remember again : If no contract is perfected, no rights and
obligations will arise. Before you determine the rights and liabilities of the
parties to a contract, you have to make sure first that a contract was indeed
perfected. If Bart had died on January 21, the contract would have been
perfected, and Barts son as heir (under the principle of relativity of contracts)
would have had the right to enforce the contract after payment of the P3M
purchase price which was the obligation of Bart under the contract of sale.
(d) Upon expiration of the period fixed in the offer for acceptance.
Article 1324 states that :
ART. 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. (emphasis
supplied)
Example: The general rule is that an offer may be withdrawn by the offeror
at any time before acceptance is conveyed by the offeree. On February 1,
2011, Mario promised to sell his Harley Davidson big bike to Shiela for the
contract price of P5M. Since Shiela couldnt make up her mind, Mario gave her
15 days (until February 16) within which to decide whether she will buy the bike.
On February 15, James went to Mario and offered to buy the big bike for P6.5M.
Because the price offer was higher, Mario sold the big bike to James and
informed Shiela about it. Shiela, however, informed Mario that she was about to
see him and she already had the P5M ready. She states that Mario cannot offer
the bike to another buyer because the 15-day period given to her within which to
decide had not yet lapsed or expired.
Question No. 1: Was there a perfected contract of sale between Mario and
Shiela? Can Shiela demand for the delivery of the bike?
Answer: Article 1324 states that before acceptance is conveyed, the offeror
may withdraw his offer by notifying the offeree even if the period to accept given
to the offeree had not yet elapsed. We then follow the general rule that the offer
may be withdrawn at any time before its acceptance. Hence, Shiela cannot
demand for the delivery of the bike because Mario withdrew the offer before she
could convey her acceptance to it.
Question No. 2: Let us assume that in the above example Shiela paid Mario a
consideration of P5,000 for giving her the 15-day period within which to decide
whether or not to buy the bike. Will your answer to Question No. 1 be the
same?
Answer: NO. This time, Shiela can demand that Mario honor the 15-day period
he had given her within which to decide. Under Article 1324, since Shiela gave a
consideration for the option (the P5,000), Mario will be bound by the 15-day
period. It is only after the lapse of the 15-day period (or starting February 17,
2011) that Mario will be free to offer the bike to other buyers. Note, however, that
even if Shiela has given Mario P5,000 as consideration for the exercise of the
option, no contract of sale is as yet perfected because Shiela had not as yet
accepted the offer. It is only when Shiela exercises her option (within the 15-day
period) and informs Mario that she has decided to buy the bike that a contract of
sale is perfected because this is the only time that she conveys her acceptance
to the offer.
The basis for Marios obligation arises from another contract perfected
between the parties. The perfected contract is known as a contract of option
which has the following essential requisites :
5.
Who are are the persons who are incapacitated (do not have legal
capacity) to give valid consent to contracts?
A. Minors [Art. 1327(1)]
A minor refers to a person who has not yet reached the age of majority (18
years old). A minor is incapacitated to validly enter into a contract.
B. Insane or demented persons [Art. 1327(2)]
Although insane or demented persons cannot validly enter into a contract, the
contract is valid if entered into by the insane person during a lucid interval.
(Art. 1328)
A lucid interval is a temporary period of sanity.
Contracts entered into by persons who are incapacitated are NOT VOID.
They are merely VOIDABLE (Article 1390). If a contract is merely voidable,
its provisions can be legally enforced by the contracting parties thereto if the
incapacitated party does not choose to annul the contract. On the other hand,
if a contract is void, it can never be enforced even if the parties thereto agree
to its enforcement.
7.
The reason behind Article 1327 and Article 1328 is that those persons
mentioned can easily be the victims of fraud as they are not capable of
understanding or knowing the nature and consequences of their actions. They
can, however, enter into a contract if they are assisted by a parent or a legal
guardian.
Remember: The incapacity of a person to enter into a contract is determined
at the stage of perfection or birth of a contract. In other words, if one of the
contracting parties was incapacitated at the time of conception, but attained
capacity already at the stage of the perfection of the contract, the contract is not
defective. In the same manner, if the contracting party became incapacitated only
at the stage of the consummation of the contract, the contract is also not defective.
If one of the contracting parties became incapacitated only at the stage of
consummation of the contract, the contract is not defective. D is an insane
person who leaves home only during regular check-ups with the psychiatrist. A
number of times, however, he still experiences lucid intervals when he is in his
right senses. In one of his lucid intervals on February 4, 2011, D promised to sell
his 100 square-meter lot in Malolos, Bulacan to C (his best friend) for P1M. It
was agreed that delivery of the lot and payment of the purchase price was to be
made on February 10, 2011. On February 10, however, D was insane again.
Hence, C could not demand delivery of the lot from D.
Question: Was there a perfected contract of sale between D and C? Can C
demand for the delivery of the lot as agreed upon?
Answer: YES. While D was insane at the time of the consummation of the
contract when delivery was already being demanded, D was in a lucid interval
when he agreed to sell his lot to C. Under Article 1328, contracts entered into
during a lucid interval are valid. Therefore, C can demand for the delivery of the
lot. If D cannot deliver, C may ask the parent or legal guardian of D to effect the
delivery.
Remember: From the facts above, you can assume that the parents, children or
guardian of D may file an action for annulment of the contract claiming that the
contract is voidable and should be annulled because D was insane at the time
the contract was entered into. If C wants to enforce the contract of sale, C must
prove before the court that D was in a lucid interval at the time the sale was
perfected. If C successfully proves this fact, the contract will be enforced. But if
C fails to prove Ds capacity at the time of the sale, the contract will be annulled
or set aside by the court for being defective due to the incapacity of D.
Aside from incapacity, the following are the causes that vitiate consent or
make the consent defective :
A.
B.
C.
D.
E.
9.
Mistake or error is the false belief of a thing or a fact which is material to the
contract. In other words, an erroneous belief of a thing or fact is what convinces a
party to enter into a contract. In such a case, after the mistake is discovered, the
injured party can go to court and ask the court for annulment of the contract.
To be sufficient to vitiate consent, the mistake must refer either to :
(a) the substance of the thing which is the object of the contract;
(Article 1333, par. 1)
Example A: B wanted to buy a female pig for breeding in his piggery
business. All his female pigs were already old and barren. S agreed to sell
to B his female pig which was known to give birth to at least 8 piglets
everytime. After S delivered the pig and B paid the purchase price for it, B
brought the pig to the veterinarian for check-up. The veterinarian, however,
informed B that the pig was already barren. At the time of the sale, S did not
know that the pig was already barren as it had just given birth to 9 healthy
piglets 3 months ago.
Question: May B file an action for annulment of the contract of sale
because of mistake?
Answer: YES. In this case, S was of the mistaken belief that her female
pig was still fertile. On the other hand, B, who wanted a breeding pig bought
the pig because S advised B that the pig was still fertile. There is here a
mistake as to the substance of the thing which is the object of the contract.
Hence, B can file an action for annulment of the contract of sale because he
will have no use for a barren pig in his piggery business.
(b) those conditions which have principally moved one or both parties to enter
into the contract; (Article 1333, par. 1)
Example B: T was looking for a place to rent which was near an olympic
size pool where his son can train everyday in preparation for the Olympics.
O offered to rent out his townhouse to T for a monthly rental of P15,000. O
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told T that there was an olympic size pool just 200 meters away from his
townhouse. Because of this, T agreed to rent the townhouse and gave O
two months advance rentals. However, before T and his family could move
in to the townhouse, they discovered that the olympic size pool had been
sold by the previous owner and the new owner would not allow public use of
the pool as before. O was not aware of this fact.
Question: May T file an action for annulment of the contract of lease
because of mistake.
Answer: YES. In this case, O was of the mistaken belief that the olympic
size pool near her townhouse was still open for swimming to the public. On
the basis of this belief, O told T that his son could train in the pool everyday.
This is the reason why T rented the house of O. Since it turns out that the
reason why T is renting the place is not true, then T can have the contract of
lease annulled in court on the ground of mistake or error.
(c) the identity or qualifications of one of the parties provided the same was
the principal cause of the contract; (Article 1333, par. 2)
Example C: When mistake as to the identity or qualifications of a party
does not vitiate consent (does not make the consent defective) - S sold
his car to B, who he thought was a lawyer, for P3M. After the contract of
sale was perfected between the parties, S found out that B was a doctor.
Question: Can S file an action for annulment of the contract of sale
because of mistake as to the identity of B?
Answer: NO. The mistaken belief of S here with respect to the identity of B
is not material so as to vitiate his consent. This is because the real reason
why S entered into the contract (which is the CAUSE for the contract) is not
really the identity of B but the purchase price of P3M which B will pay for the
car.
Example D: When mistake as to the identity or qualifications of a party
will vitiate consent (will make the consent defective) - Dennis hired a
private detective to look for a half-sister whom he has not seen since he was
born. The private detectives search finally proved successful, and Dennis
was introduced to Karen, the daughter of his father from another woman.
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Dennis was so happy that he donated his car to Karen on the very same day
that they were introduced. After the DNA results, however, were released, it
was found that Karen was the wrong woman.
Question: Can Dennis file an action for annulment of the contract of
donation because of mistake as to the identity of Karen?
Answer: YES. This time, the mistaken belief of Dennis with respect to the
identity of Karen is very material to the contract. The real reason why
Dennis donated the property to Karen is because he really thought that
Karen was his half-sister. If he knew otherwise, he would not have donated
his car to Karen. Since it turned out that she was not, the contract of
donation may be annulled due to mistake or error.
(d) an excusable mistake (i.e., a mistake not caused by the negligence of the
party). Under Article 1333, there is no mistake if the party alleging it
knew the doubt, contingency or risk affecting the object of the contract.
Example E: Tiny lives in a house and lot in Makati which she inherited from
her father. On February 4, 2011, Tinys Uncle Dagul (brother of his father)
filed an action in court for recovery of the ownership of the house and lot.
Dagul states that the house and lot was sold to him by his brother when he
was still alive. Tiny did not want to believe her uncle. She had the support
of her best friend Meding who even offered to buy the house and lot for
P5M. Tiny agreed to sell the house and lot and Meding eventually occupied
the property. Later on, the court hearing the case rendered judgment
declaring Dagul the rightful owner of the house and lot.
Question: Can Meding file an action for annulment of the contract of sale
on the ground of mistake?
Answer: Meding here honestly believed that her best friend Tiny was the
real owner of the lot having inherited it from her father. Meding also honestly
believed that Dagul had no right to the property. However, Meding was also
aware that a case for recovery of the ownership of the land was pending
between Tiny and Dagul. Since the court ruled in favour of Dagul, it appears
that Meding has no right over the property because the seller Tiny had no
right to sell it. Medings remedy is not to file an action for annulment of the
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contract of sale but to enforce the contract by filing an action for damages
against Tiny.
10.
The general rule is, he who alleges fraud or mistake must prove the same.
When a person signs a document, it is presumed that he signed the document
with full knowledge of its contents. That is why, if he should later on file an action
for annulment of the contract claiming that there was mistake or fraud, he will have
the duty to prove the facts which amount to mistake and fraud, and which made
his consent to the contract defective.
Article 1332, however, cites the exception to the general rule:
ART. 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.
Example: The burden of proof is on the party alleging mistake or
fraud. I want you to refer to Example A in No. 9 above. In that case, B filed an
action for annulment of the contract of sale on the ground of mistake because the
pig that he bought was already barren and not fertile as what the seller S stated.
In court, B will be the one to prove the female pig is no longer fertile. It will not
be the duty of S to prove that the pig is still fertile. If B does not prove the fact of
mistake, even if S does not prove anything, the action for annulment will be
denied and B will be bound by his contract of sale with S.
Example: The burden of proof is not on the party alleging mistake or
fraud but on the party enforcing the contract when one of the parties is
illiterate, or is in a language not understood by him. S is the owner of a 2hectare farmland planted with 1,000 lanzones tress. The farmland makes a P2M
annual income on its harvest. S was unschooled and did not know how to read
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11.
To prevent confusion, let us refer to two (2) kinds of parties when we discuss the
different vices of consent:
THE INJURED PARTY The party upon whom violence, intimidation, undue
influence and fraud is employed.
THE GUILTY PARTY The party who uses violence, intimidation, undue
influence or fraud to compel or convince the other party to enter into a particular
contract
Violence makes the consent of a party defective when : (Article 1335, par. 1)
(a) The consent of the injured party is obtained by the guilty party by the
employment of serious or irresistible force.
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(b) The violence employed is the reason why the injured party gave his
consent and perfected a contract with the guilty party.
Example: B is interested in buying the 2-hectare rice land of S. S,
however, refuses to sell his land. One evening, B, who was with two armed
men, went to the house of S. B forced S to sign a Deed of Sale
transferring ownership of the rice land to B. Since S refused to sign, he is
hit by the butt of the armed mens guns. As blood was already flowing from
his head, S was forced to sign the Deed of Sale and B handed him the
purchase price for the rice land.
Question: Can S later on file an action for annulment of the contract of sale
so he can take back his ownership over the property?
Answer: YES. S did not really give his consent to the contract of sale. The
only reason why S affixed his signature to the Deed of Sale was because S
was so frightened that the two armed companions of B might eventually kill
him if he did not sign the Deed of Sale. Hence, S can later on file an
action for the annulment of the contract of sale on the ground of violence.
From the above example, we can see that violence requires the employment of
physical force.
12.
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threat or intimidation. Still, S can later on file an action for annulment of the
contract but this time on the ground of intimidation.
Example: Intimidation exerted upon the property of the injured partys
descendant. B threatened to burn down the house of the son of S if S will
not sign the contract of sale transferring ownership of a parcel of land to B.
S then signs the Deed of Sale against his will for fear that B might burn
down the house of his son. Under Article 1335, par. 2, even if it is not the
person or property of the injured party himself that is being threatened, the
intimidation employed by the guilty party will be enough to make the consent
of the injured party defective.
From comparison of the above examples in Nos. 11 & 12, although no physical
force is exerted on the injured party in intimidation, in both violence and
intimidation, the injured party can file an action for annulment of the contract. The
reason is because in both vices of consent, he is not able to give his free and
voluntary consent to the contract. The consent is merely a product of compulsion
from the guilty party.
Remember, however, that the intimidation or threat must be of an unjust act,
an actionable wrong. Therefore, a threat to enforce a just or legal claim does not
vitiate consent. (Article 1335, par. 4)
Example: The intimidation employed constitutes a just or legal claim
which is not sufficient to invalidate a contract. B was very much interested in
buying a house and lot owned by S which was located in the heart of Makati. B
wanted to convert the property into a restaurant which had the motif of the 60s.
B knew very well that S was a crooked businessman. Hence, B threatened S
that if S will not sell the house and lot to him, B will report him to the BIR
authorities. For fear that he will be prosecuted for tax evasion and ordered to
pay millions of back taxes, S sold the land to B.
Question: Can S later on file an action for annulment of the contract of sale
against B on the ground that he was merely threatened and intimidated to sell his
house and lot to B?
16
Answer: NO. Under Article 1335, par. 4, for intimidation to vitiate the consent
of the injured party and to cause the consequent annulment of the contract
where a defective consent is given, it is required that the intimidation or threat
must consist of an unjust act or an actionable wrong. Here, the threat of B to
report S to the BIR authorities is not an unjust act or an actionable wrong. It is
the duty of every citizen to report any illegal activity that he is personally aware
of. Hence, an action for annulment filed by S to invalidate the contract of sale
will not prosper or become successful.
13.
14.
17
15.
18
19
16.
20
21
(C) It must have been employed by ONLY ONE of the contracting parties
(Art. 1344).
If fraud is employed by both parties, neither may ask for annulment as the
fraud of one contracting party offsets the fraud of the other. This rule is in
accordance with the principle that he who comes to court, must come with clean
hands.
When fraud is employed by both parties: Karl offered for sale a Toyota
Fortuner car which was carnapped. He offered to sell the car to Keana who knew
that it was a carnapped vehicle. Karl told Keana that the car had a kilometer
reading of 8,000, i.e., slightly used. Because of the statement of Karl that the car
was slightly used, Keana immediately bought the car. After two weeks, Keana
found out that Karl altered the kilometer reading because the mechanic told her
that the Fortuner had already travelled 80,000 kilometers. As a result, Keana
filed an action for the annulment of the contract of sale on the ground of fraud.
Question: Will the action filed by Keana against Karl for annulment of the
contract of sale between them prosper?
Answer: NO. In this case, both Karl and Keana are guilty of fraud in entering
into the contract of sale. Hence, Keana cannot ask for any relief from the court.
On the other hand, both Karl and Keana may be put on trial for the crime of
carnapping.
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HOWEVER,
(i) Even if employed by a third person, fraud will vitiate consent and result
in the annulment of the parties contract if it was used with the knowledge of the
contracting party who is benefited by the fraud (Art. 1344).
When the third person connives with one of the contracting parties
in committing fraud, consent is vitiated. In the example above, if the
misrepresentation made by F with B relating to the valuation of the land was with
the participation of S, the consent of B is vitiated and an action for annulment
filed by B later on will prosper. In such a case, it is as if S was the one who
committed the fraud but acting through his agent F.
(ii) Even if employed by a third person, fraud will vitiate consent and
result in the annulment of the parties contract if the misrepresentation has created
substantial mistake and the same is mutual (i.e., affects both parties).
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(D) It must be made with intent to deceive (to trick or to cheat) the other
contracting party.
In the following instances, there is no intent to deceive, so there is no fraud.
(1) Misrepresentation made in good faith is not fraudulent but may
constitute error or mistake (Art. 1343).
Example: Nina inherited a ring from her mother. Nina did not know anything
about stones or other pieces of jewelry. She believed that she had inherited a
diamond ring. Later, when she was in dire need of money for her sick son, she
offered the ring for sale to Nicholas and told him that it was genuine diamond.
Nicholas bought the ring for P40,000 but found out later that the stone on the ring
was only Russian diamond worth P3,000.
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Discussion: In this case, there is no fraud under Article 1338. There was no
intent to deceive on the part of Nina. She honestly believed that the ring she
inherited was genuine diamond and that is what she told Nicholas. However,
Nicholas can still file an action for annulment but on the ground of mistake or
error under Article 1331. This is because Nicholas bought the ring on the
mistaken belief that it was a diamond ring. Had he known that it was only
Russian diamond, he would not have bought the ring or paid an enormous price
for it.
(2) The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent (Art. 1340).
Dealers talk or traders talk are usually exaggerated and not exactly true. If a
party gives his consent to a contract on the basis of these misrepresentations
made by merchants or traders, the contract cannot be invalidated on the ground of
fraud.
Example: I saw an advertisement in the department store which read :
Possess flawless skin in 7 days. Your husband will never take his eyes off you.
Because of the ad, I bought 3 bottles of the product and immediately used the
product. Two weeks had passed and my husband barely noticed me.
Discussion: In this case, I cannot file an action for annulment of the contract of
sale on the ground of the misrepresentations made in the ad which is the reason
why I bought the product from the department store.
(3) The mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the formers special
knowledge (Art. 1341).
Example: In the example in No. 1 above, Nina was merely expressing her
opinion regarding the worth of the ring. The misrepresentations made by Nina to
Nicholas on the basis of that opinion was made in good faith and, therefore, did
not amount to fraud. However, if Nina is a goldsmith or jeweller, and she
represents to Nicholas that the ring was genuine diamond, she will have been
making a misrepresentation in bad faith because of her expertise in stones and
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other pieces of jewelry. This time, Nicholas can have the contract annulled on
the ground of fraud.
(E) It must have induced the consent of the other contracting party.
The fraud employed by the guilty party is the main reason why the injured party
gave his consent to the contract.
17.
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the lot for P3M. D, however, did not receive a single centavo from F as purchase
price. Neither did F, as new owner, occupy the lot.
Discussion: D fraudulently entered into a contract of sale with F only for the
purpose of transferring title to the lot to F, so that C will not be able to attach the
lot anymore when C collects his claim. D and F never intended to be bound
under the contract as shown by the fact that no purchase price was paid and D
continued occupying the lot. The contract of sale is, therefore, void for being
absolutely simulated. Hence, on maturity date, if D is insolvent to pay his debt, C
can still attach the lot to secure the payment of the obligation.
Example: Relative Simulation:
Discussion: (TO BE CONTINUED)
18.
Prepared by :
Atty. Harriet Reyes Linsangan
February 5, 2011