Section 1. Consent

• Consent is the conformity of wills and with respect to contracts. It is the agreement of the will of one contracting party with that of another or others, upon the object and terms of the contract.

• Offer is a proposal made by one party (offerer) to another to enter into a contract.

• For a contract to be valid, the offer must be explicit, unambiguous, and clear. For example, “Will you buy this car for P1,250,000?”

• Acceptance is the manifestation by the offeree of his assent to the terms of the offer. Without acceptance, there can be no meeting of the minds between the parties. A mere offer produces no obligation.

• To create a contract, the acceptance of an offer must be absolute and without any conditions or alterations. It must precisely mirror the terms of the original offer to establish the necessary consent between the parties.

a.       When an acceptance is qualified with conditions or modifies the original offer's terms, it becomes a counter-offer.

b.      If the parties cannot agree on the specific details of the property to be sold, accepting the offer is insufficient to establish consent.

c.       The owner's advance payment was not considered an unqualified acceptance of the initial contract proposal because a completely new proposal was later submitted by the contractor.

• An acceptance of an offer can include requests for changes in the terms, yet it can still be a binding acceptance. As long as it's evident that the acceptance unambiguously intends to accept the offer, whether or not the requested changes are accepted, a contract is established.

•  Acceptance of complex offers

a.   Two or more contracts — There may be a single offer involving two or more contracts, and it will depend upon the connection which may exist between the different contracts or the intent of the person making the offer whether partial acceptance will create a contract.

b.  The formation of a contract when there's only partial acceptance depends on the relationship between the items in the offer and the intent of the offeror. Generally, if the items are interrelated, partial acceptance won't create a contract. However, it can create a contract if there's no inherent connection between the items, unless the offeror intended otherwise.

• Acceptance made by letter or telegram - With regard to contracts between absent persons, the acceptance may be transmitted by any means which the offeror has authorized the offeree to use.

a.   Knowledge of the acceptance — In contracts involving absent parties, the acceptance is valid when the offeror becomes aware of it, even if it was sent by authorized means like a letter or telegram.

b.  Revocation of offer and revocation of acceptance - The offeror can revoke the offer before knowing of the acceptance, and the acceptant can revoke their acceptance if the offeror is unaware of it. Contract formation hinges on the offeror's knowledge of acceptance, and both offer and acceptance can be revoked before this point.

Case Sample:

Facts: Ms. Bungalso, on her behalf and co-owners, initially sent a letter to Ms. Bustamante, offering the option to lease their building to Ms.Bustamante. After some negotiations, no clear agreement was reached. Subsequently, Ms. Bustamante sent a letter to Ms. Bungalso, accepting all the amended and supplemented terms. Ms. Bungalso received the letter at 3:31 P.M on September 5, 2023. However, earlier on the same day, at 1:20 P.M., Ms. Bungalso had sent a letter to Ms. Bustamante, revoking the offer to lease the building. 

Issue: Based on the given circumstances, was a binding contract established between Ms. Bungalso and Ms. Bustamante?

Held: No. Before Ms. Bungalso received notice of the acceptance, she was not legally obligated, and she had the right to withdraw the offer. This lack of mutual agreement through offer and acceptance, which is essential for a contract, meant there was no binding contract. Although there was an offer and an acceptance, they did not align to create a valid contract.

Forms of acceptance of offer

1. Acceptance by Promise - An offer involving a promise or an action can be accepted by providing a promise in return. 

For example, if Ms. Castro offers to deliver her pet named ChuChu in exchange for Php.5,000, Ms. Bacuel, the other party, can accept by promising to make the payment according to the offer's conditions. This promise doesn't have to be verbal; it can be implied from the parties' actions, indicating a mutual understanding.

2. Acceptance by Act - Acceptance can also occur through actions, such as when an offer states that the offerer will perform a task if the offeree completes a particular action. In such cases, the act of completing the action finalizes the agreement, creating a binding promise.

For example, Mr. Bonete, the petitioner, didn't sign a document regarding a concessionaire agreement with Mr. Gatila, the dependent, but still performed the tasks outlined in the agreement for three years without objections. This behavior was seen as an implied acceptance of the agreement.

3. Acceptance by Silence or Inaction - Typically, silence is not regarded as acceptance; acceptance should be explicit and demonstrated through words or actions communicated to the offeror. However, there are exceptions:

• When the parties agree that silence amounts to acceptance.

• When specific legal provisions dictate that silence signifies acceptance.

• When silence creates estoppel under the circumstances.

• An offeror has the authority to specify the timing, location, and method of acceptance, which must be followed for the offer to remain valid. Any departure from these specifications by the offeree constitutes a counter-offer, effectively canceling the original offer. A counter-offer represents a new proposal, giving the original offeror the choice to accept or reject it.

• When the offeror doesn't specify a timeframe for acceptance, and the offer is presented to someone in person, the acceptance should be immediate. In such cases, the offeree cannot claim insufficient time to respond.

• Importantly, an individual who receives an offer to modify an existing contract is not obligated to respond. These legal principles, found in Articles 1321 to 1326, are adopted from American law, as indicated in the Code Commission's report.

• To establish a contract, the acceptance must be communicated to the offeror. Legally, an agent is regarded as an extension of their principal's identity. When properly authorized, the actions of the agent are legally considered as the actions of the principal.

• Article 1322 comes into play when the offer is presented through the agent, and the acceptance is conveyed through the same agent. In such cases, there is a mutual understanding. However, if the principal directly makes the offer, and the acceptance is communicated to the agent, a meeting of the minds is not achieved, unless, of course, the agent is authorized to accept on behalf of the principal

• An offer can be revoked before it's accepted, and once accepted, the contract is considered finalized.

• According to Article 1323, even if the offer hasn't been revoked, the acceptance won't result in a mutual agreement if the offer becomes void due to the death, legal incapacity, mental illness, or insolvency of either party before the acceptance is communicated to the offeror.

• Communication of electronic data messages or electronic document

a.    Formation and validity or enforceability of electronic contracts - Unless agreed otherwise, electronic contracts are legally valid and enforceable. 

b.    Acknowledgment of Electronic Messages or Documents - Between the sender and receiver of electronic data messages or documents, a declaration of intent or any statement cannot be deemed invalid, unenforceable, or lacking legal effect solely because it is in electronic form.

c.    Attribution of Electronic Messages - An electronic data message or document is considered the sender's if sent by the sender personally. It is also attributed to the sender if sent by someone authorized by the sender or by an automated system created or authorized by the sender.

d.    Error in Electronic Messages - The recipient can assume that the received electronic data message or document represents the sender's intended message and act accordingly, unless they knew or should have known about an error in transmission or if the message was sent to an unintended system.

e.    Time of Receipt of Electronic Messages - Unless otherwise agreed, the time of receipt depends on whether the recipient has a designated system. 

f.      Place of Dispatch and Receipt of Electronic Messages - Unless agreed otherwise, electronic messages are considered dispatched from the sender's place of business and received at the recipient's place of business, regardless of the device used.  

•  Addressee refers to the intended recipient of the electronic message.

•  Originator refers to the person responsible for creating or sending the electronic document.

• Electronic data messages encompass information transmitted electronically.

• Electronic documents include electronically recorded information establishing rights or obligations.

•  Information and communications systems covers systems for processing electronic data messages or documents, including the devices and procedures used for recording or storing them.

Meaning of contract of option; option period; option money.

• Option contract is one giving a person for a consideration a certain period within which to accept the offer of the offerer. It is separate and distinct from the contract which will be perfected upon the acceptance of the offer. Option may also refer to the privilege itself given to the offeree to accept an offer within a certain period.

• Option period is the period given within which the offeree must accept the offer.

• Option money is the money paid or promised to be paid in consideration for the option. It is not to be confused with earnest money which is actually a partial payment of the purchase price and is considered as proof of the perfection of the contract. (see Art. 1482.)

Withdrawal of offer where period stipulated for acceptance.

When the offerer gives to the offeree a certain period within which to accept the offer, the general rule is that the offer may be withdrawn as a matter of right at any time before acceptance. The exception is when the option is founded upon a consideration, as something paid or promised.

Illustration of Article 1324:

Let's say John is interested in purchasing a piece of valuable artwork from Sarah. Sarah, the seller, is willing to sell the artwork but wants to give John some time to decide if he wants to buy it. They decide to create an option contract based on Article 1324:

1. Option Contract: Sarah and John enter into an option contract. In this contract, Sarah agrees not to sell the artwork to anyone else for a specific period, let's say 30 days. John, in exchange for this exclusive right, agrees to pay Sarah $500 as option money. This payment of $500 represents the consideration for the option.

2. Option Period: The "option period" in this case is the 30 days during which John has the exclusive privilege to decide whether he wants to buy the artwork. During this time, Sarah cannot sell the artwork to anyone else.

3. Option Money: John pays Sarah the $500 as option money. This payment is not the purchase price of the artwork; it is solely for the privilege of having the exclusive option to buy it during the 30-day period.

Now, during this 30-day option period:

- If John decides not to purchase the artwork, Sarah keeps the $500 as compensation for granting him the option.

- If John chooses to buy the artwork within the 30 days, the option contract is exercised, and the actual sale contract is formed. At this point, the purchase price and any additional terms and conditions are negotiated and agreed upon. The $500 paid as option money is typically credited towards the purchase price, reducing the amount John needs to pay for the artwork.

Importantly, Article 1324 allows Sarah to withdraw her offer to sell the artwork to John before he accepts it by communicating such withdrawal. However, because the option contract is founded upon consideration (the $500 option money), John has a legal right to enforce the contract during the specified option period.

To sum it up, in the context of the illustration, the withdrawal of the offer follows the general rule that the offerer (Sarah) can typically withdraw the offer before acceptance. However, the exception outlined in Article 1324 comes into play because the option contract is founded upon consideration (the $500 option money). Due to this consideration, Sarah cannot withdraw the offer during the option period, and John has a protected right to purchase the artwork within the specified timeframe.

Business advertisements generally not definite offers.

Business advertisements of things for sale are not definite offers acceptance of which will perfect a contract but are merely invitations to the reader to make an offer. However, if the advertisement is complete in all the particulars necessary in a contract, it may amount to a definite offer which, if accepted, will produce a perfected contract.

Illustration of Article 1325:

Let's imagine a scenario involving a business advertisement to illustrate the concept outlined in Article 1325:

Company BMT, a car dealership, publishes an advertisement in a local newspaper and on their website stating, "Brand New 2023 Model X Sedan for $25,000! Limited stock available. Hurry in today!" The advertisement includes details about the car's features, price, and contact information for the dealership.

In this case:

According to Article 1325, business advertisements like the one from Company BMT are generally considered invitations to make an offer, rather than definite offers. The purpose of the advertisement is to attract potential buyers and generate interest in the product.

A person who sees the advertisement, such as a potential car buyer named Bhea, is not obligated to purchase the car at the advertised price just by seeing the ad. Instead, the advertisement invites Bhea and others to express their interest in buying the car by contacting the dealership or visiting the showroom.

However, if the advertisement provided all the necessary particulars required for a contract (e.g., specifying the car model, price, terms of payment, and any other essential terms), it could potentially be considered a definite offer. For example, if the ad stated, "I offer to sell one Brand New 2023 Model X Sedan for $25,000 to the first buyer who comes to our showroom and pays in cash," it might be seen as a definite offer.

Let’s say, Bhea sees the initial advertisement and decides to visit Company BMT’s showroom. While there, she expresses her interest in buying the 2023 Model X Sedan for $25,000. Bhea’s expression of interest constitutes an offer on her part.

Company BMT, after checking the availability and confirming that Bhea meets the specified conditions in the advertisement, accepts Bhea’s offer. At this point, a contract is formed, and both parties are bound by the terms of the offer and acceptance.

In summary, Article 1325 emphasizes that business advertisements are typically seen as invitations to make an offer rather than definite offers themselves. However, if the advertisement contains all the necessary contract particulars, it may be treated as a definite offer. The formation of a contract occurs when someone responds to the advertisement and their offer is accepted by the party who placed the ad.

Advertisements for bidders generally not definite offers.

In an advertisement for bidders, the advertiser is not the one making the offer. In reality, the bidder is the one making the offer which the advertiser is free to accept or reject. Acceptance by the advertiser of a given bid is necessary for a contract to exist between the advertiser and the bidder, regardless of the terms and conditions of his bid. (Surigao Mineral Reservation Board vs. Cloribel, 24 SCRA 898.)

As a general rule, the advertiser is not bound to accept the highest bidder (as when the offer is to buy) or the lowest bidder (as when the offer is to construct a building) unless the contrary appears. In judicial sales (ie., sales ordered by a court), however, the sheriff or auctioneer is bound to accept the highest bid. (see Sec. 19, Rule 39, Rules of Court.)

In essence, Article 1326 clarifies that advertisements for bidders serve as invitations for proposals, and the acceptance of a specific bid by the advertiser is required to create a valid contract. The advertiser usually has discretion in accepting bids, except in specific cases like judicial sales.

Capacity to give consent presumed.

The Civil Code does not define who have capacity or legal ability to give consent to a contract. It defines on the contrary who have no capacity, by which it can be inferred that capacity is the general rule, which exists in those, of whom the law has not denied it. (8 Manresa 658; see the Standard Oil Co. vs. Arenas, 19 Phil. 363.)

The burden of proof is on the party who asserts incapacity.

Persons who cannot give consent.

A contract entered into where one of the parties is incapable of giving consent to a contract is voidable. A voidable contract is valid and binding until it is annulled by a proper action in court. It is susceptible of ratification. (Art. 1390.)

Those who are incapacitated to give consent under Article 1327 are the following:

(1) Unemancipated minors. - They refer to those persons who have not yet reached the age of majority (18 years) and are still subject to parental authority. A minor can be emancipated by attainment of the age of majority, by marriage, or by the concession recorded in the Civil Register, of the father or of the mother who exercises parental authority (see Art. 254, Family Code.);

(2) Insane or demented persons. The insanity must exist at the time of contracting. Unless proved otherwise, a person is presumed sane; and

(3) Deaf-mutes. They are persons who are deaf and dumb. However, if the deaf-mute knows how to write, the contract is valid for then he is capable of giving intelligent consent. A person who does not know how to write, does not know how to read; and one who knows how to read necessarily knows how to write. A contract entered into by a deaf-mute who knows how to read is, therefore, valid, although he cannot write because of some physical reasons.

Reason for disqualification.

The reason behind Article 1327 is that those persons mentioned can easily be the victims of fraud as they are not capable of understanding or knowing the nature or import of their actions. They can enter into a contract only through a parent or guardian.

Illustration:

Let's consider an example to illustrate Article 1327:

Suppose there is a 16-year-old unemancipated minor named Sarah who wants to buy a car from a dealership. In this scenario:

Sarah, being a minor, falls into the category of unemancipated minors as defined in Article 1327. She does not have the legal capacity to enter into a contract to purchase the car.

If Sarah attempts to sign a contract to buy the car, the contract would be voidable. This means it is initially valid and binding but can be annulled by her or her legal guardian upon realizing the contract's implications.

The dealership, knowing Sarah's age and incapacity, cannot enforce the contract against her. Sarah or her legal guardian can choose to void the contract, rendering it null and void.

However, suppose the dealership enters into a contract with a 20-year-old individual named Mark, who is not mentally incapacitated and has the capacity to understand and consent to the contract. In that case, the contract is valid and legally binding.

In summary, Article 1327 serves to protect individuals who may not have the capacity to fully understand the nature and consequences of their contractual actions. Such individuals, including unemancipated minors, mentally incapacitated persons, and deaf-mutes who cannot write, are generally considered incapable of giving consent to a contract, and any contract they enter into is voidable and can be annulled.

Contracts entered into during a lucid interval.

Lucid interval is a temporary period of sanity. A contract. entered into by an insane or demented person during a lucid interval is valid. It must be shown, however, that there is a full return of the mind to sanity as to enable him to understand the contract he is entering into.

Effect of drunkenness and hypnotic spell.

Drunkenness and hypnotic spell impair the capacity of a person to give intelligent consent. (8 Manresa 660-661.)

These conditions are equivalent to temporary insanity. Hence, the law considers a contract entered into in a state of drunkenness, or during a hypnotic spell voidable and it is not required that such state was procured by the circumvention of the other party.

For us to be able to understand this article very clearly, let's consider an example to illustrate Article 1328:

John, who has a history of mental illness, experiences a lucid interval during which he fully understands his actions and their consequences. During this lucid interval, he signs a contract to sell his car to Sarah. The contract is valid because John was of sound mind during the time he entered into it.

In another scenario, Sarah meets with her friend Tom at a party, and both consume a significant amount of alcohol. In their drunken state, they enter into a contract to jointly invest in a business venture. The following day, when they are sober, Sarah and Tom both realize that their judgment was impaired by alcohol when they made the agreement. In this case, the contract they entered into is voidable. Either Sarah or Tom can choose to void the contract since it was made during a state of temporary insanity (drunkenness).

These examples demonstrate the legal principles outlined in Article 1328: contracts entered into during lucid intervals are valid, while contracts made under the influence of drunkenness or during a hypnotic spell are voidable due to the temporary impairment of the capacity to give informed consent.

Incapacity declared in Article 1327 subject to modifications.

In general, the contracts entered into by the persons enumerated in Article 1327 are voidable. (Art. 1390.) However, in certain cases, their incapacity may be modified by law, that is, they can also give valid consent. Thus:

• When necessaries such as food, are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. (Arts. 1489, 290.)

• A minor 18 years old or above may contract for life, health and accident insurance, provided the insurance is taken on his life and the beneficiary appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother, of sister. (Insurance Code of 1978 [Pres. Decree No. 1460), Sec. 3, par. 3.)

• A contract is valid if entered into through a guardian or legal representative. (see Art. 1381[1, 2].)

• A contract is valid where the minor misrepresented his age and convincingly led the other party to believe in his legal capacity. (Mercado vs. Espiritu, 37 Phil. 215.)

• A contract is valid where a minor between 18 and 21 years of age voluntarily pays a sum of money or delivers a fungible thing in fulfillment of his obligation thereunder and the obligee has spent or consumed it in good faith. (Art. 1427.)

Other special disqualifications may be provided by law.

In addition to the incapacity declared in Article 1327, other special disqualifications may be provided by law.

• • Under the Rules of Court, the following are considered incompetents and may be placed under guardianship:

  • persons suffering the accessory penalty civil interdiction (see Art. 34, Revised Penal Code.);

  • hospitalized lepers;

  • prodigals (spendthrifts);

  • deaf and dumb who are unable to read and write;

  • those who are of unsound mind even though they have lucid intervals; and

  • those who, by reason of age, disease, weak mind and other similar causes, cannot without outside aid, take care of themselves and manage their property, becoming thereby an easy prey for deceit and exploitation. (Sec. 2, Rule 92, Rules of Court.)

A contract entered into by any of the above is valid except where it is voidable by reason of incapacity under Articles 1327 and 1328 or of causes which vitiate consent (Art. 1330.), or where the incompetent has been placed under guardianship. Thus, a prodigal is presumed to have capacity to enter into a contract.

• insolvents until discharged (Insolvency Law [Act No. 1956, as amended.], Sec. 1.);

• married women in cases specified by law (Art. 39.);

• husband and wife with respect to sale of property to each other (Art. 1490.); and

• other persons especially disqualified by law. (see Arts. 1491, 1789.)

Article 1327 lists specific categories of individuals who are incapable of giving consent to a contract. These include unemancipated minors, insane or demented persons, and deaf-mutes who do not know how to write.

Article 1329 clarifies that the incapacity declared in Article 1327 can be subject to modifications determined by other laws. In other words, certain legal provisions or specific circumstances may allow individuals falling under the categories of Article 1327 to give valid consent in certain situations.

Additionally, Article 1329 emphasizes that this incapacity to contract is without prejudice to special disqualifications established by other laws. These special disqualifications can further restrict certain individuals from entering into contracts in specific cases.

Let's lay out an illustration to explain how Article 1329 works in practice

Suppose there is a 17-year-old minor named Emily who wishes to buy essential items like food. Under Article 1327, unemancipated minors are generally incapable of giving consent to contracts. However, Article 1329, in conjunction with other legal provisions, allows for exceptions:

Article 1329 recognizes that the incapacity of unemancipated minors can be modified by law. In this case, when necessaries like food are sold and delivered to a minor, the minor must pay a reasonable price for them (Article 1489). This means that even though Emily is a minor, she can still enter into a valid contract to purchase essential items like food.

Emily's case is an example of a modification by law. However, Article 1329 also points out that special disqualifications established by other laws can apply. For instance, if Emily attempted to enter into a contract for something not considered a "necessary," she might still be incapable of giving consent under Article 1327 unless another law provides for an exception.

This illustration demonstrates how Article 1329 clarifies that the incapacity outlined in Article 1327 can be subject to modifications by law and that other laws may establish special disqualifications in addition to the general incapacity to contract.

This legal article, is explaining when a contract can be canceled or made void. Here are the key points in simple terms:

If you agree to something because of a mistake, being forced (violence or intimidation), someone pressuring you a lot (undue influence), or someone tricking you (fraud), then that contract can be canceled.

Now, when we talk about agreeing to something, there are three important conditions:

Requisites:

• You should understand clearly what you're agreeing to (intelligent consent).

• You should be agreeing without anyone forcing or scaring you (free consent).

• You should be agreeing because you genuinely want to, not because someone fooled you (spontaneous consent).

If any of these conditions are messed up:

• If you don't fully understand what you're agreeing to because of a mistake, it can affect your consent.

• If someone is threatening or forcing you to agree, that's not free consent.

• If someone is using a lot of influence or persuasion to make you agree, that's not spontaneous consent.

So, if any of these things happen, it can make the contract invalid or voidable, meaning you might be able to cancel it.

This legal article, is explaining when a mistake can make a contract invalid or affect it. Here are the key points in simple terms:

1.  Mistakes that can cancel a contract:

• If the mistake is about the main thing you're agreeing to (the substance of the contract) or the main reasons why you're making the agreement, it can cancel the contract.

• If the mistake is about who someone is or their qualifications, and this is the main reason you're making the deal, it can cancel the contract.

2. A simple mistake in calculations can be fixed without canceling the entire contract.

3. Ignorance and error are different. Ignorance means not knowing something at all, while error means having the wrong idea about something.

4. You can cancel a contract because of an error if it's reasonable to believe that without that error, you wouldn't have agreed to it.

5. If the mistake is about the person you're dealing with and that's the main reason for the contract, it can cancel the contract.

6. If the mistake is about the qualifications of the person and that's the main reason for the contract, it can also cancel the contract.

7. If the mistake is about why someone is doing something (their motive), generally, it doesn't affect the contract. But if that motive was clearly stated as a condition for the agreement, then the contract can be canceled because it becomes an important part of the deal.

In a nutshell, this article explains the different types of mistakes and how they can impact a contract, either by canceling it or making changes to it.

This legal article, is talking about situations where one person in a contract can't read or doesn't understand the language the contract is written in, and there's a claim of mistake or fraud. Here's what it means in simpler terms:

If one person in a contract can't read (maybe they're illiterate) or if the contract is in a language they don't understand, and there's a problem like a mistake or fraud in the contract, the person who wants to enforce the contract (make it valid) has to prove that they explained all the terms of the contract very clearly to the person who couldn't read or understand.

In other words, if someone who can't read or understand the language of the contract is involved and there's a dispute about what's in the contract, the person who wrote the contract must show that they made sure the other person knew what they were getting into by explaining everything in a way that the person could understand. This is to make sure that the person who couldn't read or understand the contract isn't taken advantage of through mistakes or fraud.

This legal article, Art. 1333, deals with the concept of mistakes in contracts and when they can be considered valid. Here's a simplified explanation:

1. If the person claiming there was a mistake in a contract already knew about the uncertainty or risk related to what they were agreeing to, then that's not considered a valid mistake.

2. To make a mistake count as a reason to cancel a contract, it has to be a reasonable and genuine mistake. It can't be something that the person should have known or prevented. The mistake has to come from information or facts that they didn't know about.

3. If a mistake happens because someone was really careless or negligent, it usually can't be used to cancel a contract. In other words, if you mess up because you weren't paying attention, that's not a good enough reason to break the contract.

So, this article is saying that not all mistakes in contracts can be used as a valid reason to cancel them. The mistake has to be reasonable, genuine, and not something you could have avoided by being more careful or informed.

This legal article, talks about when a mutual mistake regarding the legal consequences of an agreement can make the agreement invalid. Here's a simplified explanation:

If both parties in a contract make a mistake about what the law says will happen because of their agreement, and this mistake frustrates or ruins the real purpose of their agreement, then their consent to the contract might be considered invalid.

Now, there are three important things to note about this article (Requisites):

• The mistake should be about the legal effects of the agreement. This means it's not just a simple misunderstanding between the parties but a mistake about what the law says will happen because of the contract.

• Both parties must share this mistake, meaning they both have the same misunderstanding about the legal consequences of their agreement.

• The mistake should be so significant that it completely messes up the main goal or purpose they had in mind when making the contract.

In simpler terms, if both parties make a big mistake about what the law says will happen due to their contract, and this mistake ruins what they intended to achieve with the contract, then their agreement might be considered void. This mainly applies when the mistake is about what the law requires from the contract, not just what the parties personally thought.

This legal article, discusses the concepts of violence and intimidation in the context of contracts. Let's break it down in simple terms:

1. Violence: Violence happens when someone uses serious and unstoppable physical force to make another person agree to something. In other words, they physically force the person to say yes. This can make the agreement invalid.

2. Intimidation: Intimidation is when one person feels forced to agree to something because they're really scared of a significant harm that could happen to them, their family, or their property. It's not about physical force but about creating a strong fear that makes the person say yes.

To understand how bad the intimidation is, we consider the age, sex, and condition of the person being intimidated. For example, if a small child is threatened, it might be more intimidating than if the same threat were made to a strong adult.

Now, there are some conditions for both violence and intimidation:

For Violence:

1. The physical force used must be so strong that the person has no choice but to agree.

2. This force has to be the main reason the person said yes to the contract.

For Intimidation:

1. The fear created by the threat must be the main reason the person agreed.

2. The threat itself should be unjust or illegal (not something reasonable or legal).

3. The fear has to be real and serious, considering the person making the threat has the means to carry it out.

Finally, if someone threatens to enforce a legitimate claim through the proper authorities (like going to court for a valid reason), that usually doesn't count as intimidation because it's not unjust or unlawful.

In simple terms, this article is all about making sure that contracts are made freely and without any kind of force or fear. If someone is forced or scared into a contract, that contract can be considered invalid.

Case Illustration: The Unscrupulous Debt Collector

Lani, a single mother of two young children, had borrowed some money from a local lender named Mr. Smite. Lani had fallen on hard times and was struggling to make ends meet. She borrowed the money to cover her rent and buy groceries for her family.

However, Lani found herself in a difficult situation as she couldn't repay the loan on time due to unforeseen medical expenses for one of her children. Mr. Smith, who was known for his aggressive tactics as a debt collector, decided to collect the debt from Jane.

Mr. Smith, in an attempt to get Lani to repay the loan immediately, showed up at her doorstep one evening. He threatened Jane with physical harm and began banging on her door loudly. Frightened for the safety of her children and herself, Jane agreed to sign an agreement to repay the loan with extremely high-interest rates, which she wouldn't have agreed to otherwise.

Facts:

• Lani, a single mother, borrowed money from Mr. Smith, a local lender.

• Lani was facing financial difficulties and borrowed money for rent and groceries.

• She couldn't repay the loan on time due to unexpected medical expenses for her child.

• Mr. Smith, known for aggressive debt collection tactics, sought to collect the debt.

• Mr. Smith physically threatened Lani when he visited her home and pressured her into signing an agreement with high-interest rates.

• Mr. Smith made repeated threatening phone calls to Lani, claiming he could harm her family's well-being and report her to authorities.

Issue:

• The primary issue is whether the agreement between Lani and Mr. Smith is legally valid, considering the circumstances.

• Specifically, the issue revolves around whether the use of threats, physical intimidation, and fear by Mr. Smith in obtaining Lani's consent renders the agreement void under applicable legal principles.

Held:

The agreement between Lani and Mr. Smith may be deemed invalid due to the use of threats, intimidation, and fear by Mr. Smith to obtain Lani's consent.

The facts suggest that Mr. Smith's actions fall under the category of violence (physical threats) and intimidation (fear of harm to her family and herself), which could potentially invalidate the contract.

The case underscores the importance of ensuring that contracts are entered into voluntarily, without the use of force or fear.

A court may likely rule in favor of Lani, considering the circumstances and the violation of legal principles related to the consent required for a valid contract.

In this case, both violence (physical threats) and intimidation (fear of harm to her family and herself) were used by Mr. Smith to secure an agreement. Jane's consent to the agreement was not freely given, as it was influenced by these tactics, making the contract potentially invalid under Art. 1335. This illustrates the importance of ensuring that contracts are entered into voluntarily, without the use of force or fear.

• Violence or intimidation 

  • It may be employed by a third person who did not take part in the contract. 

How to make the contract voidable or annullable?

• The violence or intimidation must meet the requisites outlined in Article 1335.

Example:

Jayson called on Joe to frighten Vince into signing the Deed of Sale of his property, and Joe told Vince, "Sign this or I'll beat you up!". Joe weighs 85 pounds, whilst Vince competes in sumo wrestling. Given the circumstances, Vince is not legitimately intimidated by Joe in a way that would cause him to be afraid of experiencing an impending or significant evil on his person. Therefore, the Deed of Sale is not voidable.

• Undue influence

  • The influence must be of a kind that so overpowers and subjugates the mind of a party as to destroy his free agency and make him express the will of another, rather than his own.

Elements of undue influence

• Three conditions must be met in order for undue influence to be proven and an instrument to be canceled:

  1. a person who can be influenced; 

  2. the fact that improper influence was exerted; and 

  3. submission to the overwhelming effect of such unlawful conduct.

How to avoid a contract?

• The influence must be unlawful or improper (Art. 1337).

Note: 

• The existence of undue influence depends upon the circumstances of each case and not on bare academic rules.

• It must be supported by clear and compelling evidence.

• If enough intelligence is still there, age, illness, or physical infirmity should not be used as a sole indicator of undue influence.

• The influence won't invalidate consent if it was obtained through kindness and affection or reasoning and persuasion.

Due influence

• Influence gained through persuasion, argument, or requests to a person's heart is not forbidden by law or morality, and it is not even offensive in equity courts. 

• Fully respecting the freedom that belongs to every rightful owner to submit to the demands of his or her kin and, unless prevented by personal incapacity or specific laws, to dispose of his or her property as they see fit.

Undue influence

• Influence obtained through a superiority of will, mind, or character under conditions that destroy another's sense of free agency or force him to do something against his will that he is powerless to resist is the kind of influence that the law regards as being undue.

ILLUSTRATIVE CASE:

After a member of the legislative body intervened, the contract to sell was given to another individual.

Facts: Swift's Homesite and Housing Corp. (SHHC), a government agency, granted Taylor ownership of a lot in accordance with a conditional contract to sell. Taylor granted Harry his right with the permission of SHHC. Kendall objected to the transfer to Harry and the sale to Taylor, claiming that Taylor had a preferential right to purchase the lot and that Harry had no rights to the lot as a result of Taylor's failure to comply with the (resolutory) condition of the contract. Kendall also claimed that the approval of the transfer was only possible through the intervention of Senator MBB, who had written to the SHHC Board of Directors to ask for approval of the transfer.

Issue: Is it possible to infer from the facts that undue influence tainted the decision to approve the transfer?

Held: No. As the permission was deemed "extremely meritorious" by the Head Executive Assistant and the Homesite Sales Supervisor of the SHHC, the transfer could not have been allowed only on the basis of this letter. The letter could not have interfered with the SHHC Board of Directors' independent decision-making process or destroyed their freedom of action. (Bañez vs. Court of Appeals, supra.)

Circumstances to be considered

• To ascertain if undue influence has been used, the following examples of circumstances need to be considered:  

  1. confidential, family, spiritual and other relations between the parties

  2. mental weakness

  3. ignorance, or 

  4. financial distress of the person alleged to have been unduly influenced.

Note: 

• A party to a contract who is put at a disadvantage because of his ignorance, mental impairment, or other handicap is entitled to protection under Article 24 of the Civil Code.

Example: 

A photographer named Justin is residing in Selena's apartment. Since Justin hasn't paid his rent in about two months, Selena, his landlady, is attempting to evict him. Justin needs 20,000 to be able to pay Selena's rent, but he hasn't had any clients in approximately two months, therefore he doesn't have enough money to do so. Hailey is approached by Justin in an attempt to borrow money. Hailey suggests a different course of action, suggesting he sell his DSLR camera for 20,000. Justin is unable to ask anyone for assistance. The sale might be voidable owing to undue influence if Justin doesn't want to sell the DSLR camera but is forced to do so due to his financial situation.

• Causal fraud or dolo causante 

1. it is the fraud employed by one party prior to or simultaneous with the creation of the contract to secure the consent of the other. 

2. It is the fraud used by a party to induce the other to enter into a contract without which the latter would not have agreed to, considering the circumstances of the case.

How causal fraud was committed?

3. Causal fraud may be committed through:

3. • insidious words or machinations (Art. 1338.) or;

   • by concealment. (Art. 1339.)

Insidious words or machinations 

• “include false promises, exaggerated expectations or benefits, abuse of confidence, fictitious names, qualities, or power; in fi ne, the thousand forms of fraud, which can deceive a contracting party, producing a vitiated consent” (8 Manresa 677.), and;

• it is not necessary that they constitute estafa or partake of any other criminal act subject to the penal law. 

Concealing or omitting to state material facts

• when there is a special duty to disclose the same, with intent to deceive, by reason of which concealment or omission, the other party was induced to give a consent which he would not otherwise have given. 

Requisites of causal fraud

The following conditions must be met for fraud to invalidate consent and lead to the annulment of a contract:

• There must be misrepresentation or concealment by a party prior to or simultaneous to the consent or creation of the contract (Caram, Jr. vs. Laureta, supra.); 

• It must be serious; 

• It must have been employed by only one of the contracting parties. (Ibid.) Fraud committed by a third person does not vitiate consent unless it was practiced in connivance with or at least with the knowledge of the favored contracting party;

• It must be made in bad faith or with intent to deceive the other contracting party who had no knowledge of the fraud; 

• It must have induced the consent of the other contracting party; and

• It must be alleged and proved by clear and convincing evidence, and not merely by a preponderance thereof. 

Example:

1. Zayn made an offer to sell Gigi a necklace, saying the stone was a diamond. Zayn is aware that it is just regular glass and not a diamond. If Gigi purchases the necklace on the assumption that Zayn is telling the truth, the sale may be void due to fraud. 

2. Taki agreed on the basis of Jisoo's assurance that the land lot she was selling to her was undoubtedly free of all debts and encumbrances." When the sale was registered, it was discovered that the land's title had a lis pendens notice marked on it. As a result, the sale should not have taken place, and Taki is entitled to damages because the deception in this case constituted fraud. 

ILLUSTRATIVE CASES:

1. The representation was just a declaration of the expectation or belief.

Facts: Glenda convinced Rosmar to contribute money to the Shinee-shimmer magazine by telling her that the company they were buying, Dim Press, could publish magazines. Glenda assured Rosmar that the magazine would turn profitable after the first issue, but it did not. She then declared that it would make money in the succeeding issues when it failed once more.

Issue: Was Glenda's assurance that the company will succeed fraudulent?

Held: No. It is unlikely that Glenda committed fraud or acted in bad faith in light of this failure, which could have been caused by mistakes in judgment. In any civic or commercial endeavor any time, any place, and for any class of individuals, regardless of how knowledgeable they are in the undertaking, there is no such thing as an exemplary route that leads to profits.

2. Beneficiary was not paid by the insurer because of fraud, although she was later exonerated in a criminal case for estafa based on the fraud.

Facts: In collusion with one of Julliana's agents, the insurance company's doctor evaluated a different guy instead of the applicant who was insured. The insured then passed away. Kaye, the beneficiary, asked Julliana for payment, but she declined on the grounds of fraud. Kaye and the agent were accused of estafa while Kaye's lawsuit against Julliana was pending, but they were found not guilty.

Issue: Has Kaye's acquittal rendered the claim that the insurance contract was obtained fraudulently invalid?

Held: No. In the current civil case, the issue is not whether Kaye and her co-accused participated in acts that were of the nature of the estafa crime, but rather, whether there was civil fraud in the manner and under the circumstances specified by the Civil Code when taking out the insurance on the life of the deceased.

Fraud by concealment

• A neglect or failure to communicate that which a party to a contract knows and ought to communicate constitutes concealment. In this case, concealment is equivalent to misrepresentation. 

• Silence or concealment by itself does not constitute fraud. 

• The concealment contemplated in Article 1339 presupposes a purpose or design to hide facts which the other party ought to know.

Note: 

• The injured party is entitled to cancel or annul a contract whether the failure to disclose the material facts is intentional or unintentional as long as there is a duty to reveal or disclose them or according to good faith such disclosure should be made and the other party is misled or deceived in entering into the contract. 

  • If the failure is unintentional, the basis of the action for annulment is not fraud but mistake or error (Art. 1343.); 

  • if unintentional and there is no duty to make the disclosure, the parties are bound by their contract

When misrepresentation as to age constitutes fraud:

• The failure of a minor to disclose his minority when making a contract does not per se, constitute a fraud which can be made the basis of an action of deceit. 

• In order to hold the minor liable, the fraud must be actual and not constructive. 

• His mere failure to disclose his age is not sufficient. 

Example: 

Kyro and Mar are business partners that work in the trucking industry. In this case, there are confidential contacts between the parties. Kyro discovered that Joey was considering purchasing a specific truck that belonged to the partnership, however at an expensive cost. Mar's portion in the partnership was forced to be sold to Kyro by Mar without Mar's knowledge. The truck was later sold by Kyro for a considerable profit. In this case, Kyro is guilty of fraudulent concealment because he owed Mar a disclosure of information that affected the value of his partnership interests but that Mar was not aware of. Mar's mistake or error would be the reason for the annulment if the transaction was initiated by Mar and Kyro accidentally forgot to let Mar know about Joey's offer.

Usual exaggerations in trade.

• It is the natural tendency for merchants and traders to resort to exaggerations in their attempt to make a sale at the highest price possible. When the person dealing with them had an opportunity to know the facts, the usual exaggerations in trade are not in themselves fraudulent. 

Note:

• The law allows considerable latitude to seller’s statements or dealer’s talk and experience teaches that it is exceedingly risky to accept it at its face value. 

• Customers are expected to know how to take care of their concerns and to rely on their own independent judgment. 

• Any person who relies on said exaggerations does so at his own peril. 

• In effect, the law does not consider such exaggerations, even if known as false by the party making them, as amounting to fraud that will affect the validity of a contract. 

• For where the means of knowledge are at hand and equally available to both parties, one will not be heard to say that he has been deceived. 

Dealer’s talk or trader’s talk 

• are representations which do not appear on the face of the contract and these do not bind either party. 

Examples:

Expressions or advertisements like:

• “The absolute best of its class’’

• “The cigarette that will give you utmost smoking pleasure” 

• “Superior in quality”

Expression of opinion

• To constitute fraud, the misrepresentation must refer to facts, not opinions. 

• Ordinarily, a mere expression of an opinion does not signify fraud. 

In order that it may amount to fraud, the following requisites must be present: 

1. It must be made by an expert; 

2. The other contracting party has relied on the expert’s opinion; and 

3. The opinion turned out to be false or erroneous.

Example:

Cherrie, a photojournalist, found a necklace. She has no knowledge of magnificent stones. She tells Francene that the necklace is a diamond necklace and sells it to her in good faith.

• Even if it came out that the necklace is not a diamond, there has been no fraud in this instance because the woman's assertion is only an opinion.

• If the third party commits fraud, he is only liable for damages meaning the contract is not subject for annulment or cancellation. 

• The remedy of the injured party is only for damages. 

• The misrepresentation will vitiate consent if it has resulted in substantial mistake and the same is mutual. 

• The contract will only be subject to annulment or cancellation if one can prove the connivance. 

Example: 

X buys land for 1,000 per square meter from Y. C makes Y believe that the market price of the land is only good for 1,000 per sqm. But the real reasonable price of the land in the same vicinity is 2,000 per sqm. (the contract cannot be annulled because the fraud was committed by a third party then the example does not suit the exception of the article)

Y is an owner of a parcel of land in his province. X a foreign businessman is looking for land to buy to build his factory. V, who is a Congressman of the province, told Y and X that the land of Y is a residential zone. (the contract can be annulled because there was a mutual substantial mistake, Y and X were mislead by V)

• Effect of misrepresentation that is made in good faith.

• Mistake and error - vitiated consent. 

• If a mistake is made in good faith it only results in an error meaning less liability. 

• Voidable contract on the ground of mistake or error not on the ground of fraud. 

EXAMPLE: 

A is the owner of a car worth P600,000.

A sold it to B for P500,000 because C misrepresented to Al that his car is worth P500,000 only. A  cannot annul the contract on the ground of misrepresentation committed by C, unless it is shown that C connived with B in misrepresenting the value of the car.

X wants to buy a parcel of land on which to build a house. Y owns land on which he wants to construct a commercial building. Z tells X and Y that the area where the land is located is a residential zone. X and Y then enter into a contract of sale. It turns out that the area is a commercial zone. Under the facts, the sale may be annulled because of a substantial mistake which is mutual.

Fraud describes all kinds of deception, manipulation, concealment or misrepresentation that results in an error. 

1. Causal fraud - there is vitiated consent because fraud is actually the cause why a certain party enters into a contract, this is ground for annulment. 

Should be serious, should not have been employed by both contracting parties, not in pari delicto (equal in fault) 

2. Incidental fraud - the guilty party is liable to pay for damages, this is not ground for annulment. 

• There should be clear and convincing evidence needed to prove the existence of fraud. 

• Mere allegations will not suffice to sustain the existence of fraud. 

Fraud - established by clear and convincing evidence; mere preponderance of evidence is not adequate. Conscious and intentional design to evade the normal fulfilment of existing obligations, is not compatible with good faith.

Bad faith - imports dishonesty purpose, not simply a bad judgement or negligence. 

EXAMPLE: 

A sold B a parcel of land. A told B there were 2,000 coconut trees on the land although he knew that there were only 1,000. B bought the land relying on the statement of S. If the fraud is serious B can ask for the annulment of contract.

• Simulation of contract is a mutual agreement by parties which does not express the true intent of the parties. 

• It may be absolute when the parties are not bound at all, with no intention to enter into a contract. 

• It may be relative when parties conceal their true agreement, no expression of the true intent in the agreement. 

Illustrative case: 

Maria Taklesa, owner of Sarap-ler Restaurant, is indebted to Jessica Sogo. Upon learning that Jessica Sogo is going to enforce his credit, Maria Taklesa pretends to sell her restaurant to Jobee Lopez, her father-in-law. Maria Taklesa did not receive a single centavo for the deed of sale she executed and she continued in possession of the restaurant as the contract was merely simulated or fictitious. There is no contract of sale in this case as the parties do not intend to be bound at all. The sale is but a sham.

But Maria Taklesa and Jessica Sogo entered into a contract of mortgage for the restaurant. But wanting to hide the mortgage, it was made to appear in the form of

a deed of sale. Here, there are two acts involved: the ostensible act (contract of sale) and the hidden act (contract of mortgage).

As between Maria Taklesa and Jessica Sogo, their contract is a contract of mortgage. But to third persons, The contract is a contract of sale. If Jessica Sogo

eventually sells the restaurant to another party, that party will acquire ownership as both Maria Taklesa and Jessica Sogo are in estoppel.

• Absolute simulation is when an apparent contract is not really desired or intended to produce legal effect. 

• Absolute simulation is void and parties may recover from each other what they may have given under the contract.

• Relative simulation is when the essential requisites of a contract are present and the simulation refers only to the content or terms of contract. 

• In relative simulation, the agreement is absolutely binding and enforceable between the parties and their successors in the interest.

EXAMPLE: 

1. A and B enter into a contract of marriage for just a joke

2. A and B executed a contract of sale for purposes of deceiving other people without any intention to be bound by the contract.

3. D is indebted to C. Upon learning that C is going to enforce his credit, D pretends to sell his land to E, his father-in-law. D did not receive a single centavo for the deed of sale he executed and he continued in possession of the land as the contract was merely simulated or fictitious. There is no contract of sale in this case.

4. A donor is donating a property to a donee. Instead of executing a deed of donation, the donor instead executed a deed of sale to conceal the donation intended.

Juridical acts involved in relative simulation: 

• Ostensible Act - contract that the parties pretend to have executed. 

• Hidden Act - true agreement between the parties.