Notes on Law on Contracts

Flashcards covering key concepts and definitions in contract law as discussed in the lecture notes.

Contract

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

Requisites of a Contractual Obligation

Must contain essential requisites of a contract and must not be contrary to law, morals, good customs, public order, and public policy.

Stages in Life of a Contract

Includes Preparation, Perfection, and Consummation or Death of the contract.

Relativity of Contracts

Contracts take effect only between the parties or their assigns and heirs.

Stipulation pour atrui

Refers to benefits conferred by parties to a contract upon third persons which may be demanded by the third person if accepted.

Obligatory Force of Contracts

Contracts are obligatory provided all essential requisites for validity are present.

Mutuality of Contracts

A contract must bind both parties and cannot be left to the will of one of them.

Contract of Adhesion

A contract where one party prepares the stipulations and the other must accept or reject without modification.

Autonomy of Contracts

Freedom of the parties to stipulate, as long as not contrary to law, morals, good customs, public order or public policy.

Consent

Concurrence of the wills of the parties regarding the object and cause of the contract.

Elements of Offer and Acceptance

Offer must be certain and acceptance must be absolute.

Vices of Consent

Includes mistake, intimidation, violence, undue influence, and fraud.

Rescissible Contracts

Valid contracts that may be set aside due to economic damage or lesión.

Voidable Contracts

Contracts where consent is vitiated but are binding unless annulled by court action.

Unenforceable Contracts

Contracts that cannot be enforced unless ratified by one of the parties.

Void and Inexistent Contracts

Contracts that lack essential elements for validity; void contracts cannot be ratified.

Principle of In Pari Delicto

When both parties are at fault in a void contract, the law leaves them where they are.

Reformation

A remedy to conform to the real intention of the parties due to mistake, fraud, or inequitable conduct.

Scenario: A and B entered into a contract for the construction of a building. They included a provision that B would pay a specific debt owed by A to C, a third party. If C communicates his acceptance to B, can A and B later cancel that specific provision without C's consent?

Answer: No. Once C (the third-person beneficiary) communicates his acceptance to the obligor (B) before its revocation, it becomes a binding stipulation pour autrui that cannot be unilaterally revoked.

Scenario: A contract of lease contains a clause stating: "The Landlord has the sole right to increase the monthly rent by $10\%$ to $50\%$ at any time he deems necessary, without needing the tenant's approval." Is this valid?

Answer: No. This violates the principle of Mutuality of Contracts. The validity or fulfillment of a contract cannot be left to the sole will of one of the parties.

Scenario: Mark wants to buy John's land. John refuses. Mark then points a gun at John and threatens to shoot if John does not sign the Deed of Sale. John signs the document. What is the status of the contract?

Answer: The contract is voidable. Consent was obtained through violence and/or intimidation, which are vices of consent. The contract is valid until annulled by a court.

Scenario: An agent sells a piece of land on behalf of a principal, but the agent's authority was not in writing. Simultaneously, a guardian sells a ward's property worth $P1,000,000$ for only $P500,000$. Distinguish the status.

Answer: The sale by the agent is unenforceable (or void under specific land laws requiring written authority). The sale by the guardian is rescissible because of lesión (economic damage) exceeding one-fourth of the value.

Scenario: Party X and Party Y enter into a contract to smuggle illegal drugs into the country. Party X pays the money, but Party Y fails to deliver the drugs. Can Party X sue Party Y in court to get his money back?

Answer: No. Under the principle of In Pari Delicto, when both parties are at fault in an illegal contract, the law leaves them where they are and denies any remedy to either party.

Scenario: Liza signs a standard insurance policy where all terms were pre-printed by the insurance company. She later discovers a hidden clause that limits her recovery. Does the fact that she didn't negotiate the terms make the contract void?

Answer: No. This is a Contract of Adhesion. These are generally valid. However, if there is ambiguity, the terms will be interpreted strictly against the party who drafted it (the insurance company).

Scenario: Maria and Jose agreed that Maria would sell her car to Jose for $P300,000$. However, due to a typographical error by the typist, the written contract stated the price was $P30,000$. What is the proper legal remedy?

Answer: The remedy is Reformation. Since there was a meeting of minds but the true intention was not expressed in the instrument due to a mistake, the contract can be reformed to reflect the real agreement.