Contract Law: Obligations and Requisites

• The defense of illegality of contract is not available to third persons whose interests are not directly affected.
• A contract which is the direct result of a previous illegal contract, is void.
• Civil obligations grant a right of action to compel performance
• Natural obligations are based on equity and natural law, not positive law.
• Creditors are protected in cases of contracts intended to defraud them.
• Real contracts, like deposit, pledge, and commodatum, are not perfected until delivery of the object of the obligation.
• A contract requires: consent of the contracting parties; object certain which is the subject matter of the contract; cause of the obligation which is established.
• Acceptance via letter/telegram binds the offerer when it reaches the offerer's knowledge; contract is presumed made where the offer was made
• Advertisements for bidders are invitations to make proposals, not binding on the advertiser to accept the highest/lowest bidder, unless the contrary appears.
• Contracts during a lucid interval are valid; contracts during drunkenness/hypnotic spell are voidable.
• Failure to disclose facts with confidential relations constitutes fraud.
• A mere opinion doesn't signify fraud unless made by an expert and relied upon.
• Impossible things/services cannot be the object of contracts.
• The object of every contract must be determinate as to its kind
• In onerous contracts, the cause is the prestation/promise of a thing/service; in remuneratory, the service/benefit remunerated; in pure beneficence, the mere liberality of the benefactor.
• Contracts without or with unlawful cause produce no effect. The cause is unlawful if it is contrary to law, morals, etc.
• When a mutual mistake causes failure to disclose real agreement, the instrument may be reformed.
• There shall be no reformation in simple "inter vivos" donations without conditions, wills, or when the real agreement is void.
• Once action brought to enforce, instrument cannot be subsequently reformed.
• Procedure for reformation of instrument governed by Rules of Court.
• Clear contract terms with no doubt on intention: literal meaning of stipulations controls
• Contract stipulation with several meanings: understood bearing effectual meaning
• Obscure words/stipulations in a contract interpreted against who caused obscurity (the party)
• Principles of interpretation in Rule 123 of Rules of Court observed in construction of contracts
• Contracts validly agreed upon can be rescinded in cases established by law.
• Rescissible contracts include those by guardians where wards suffer lesion by >1/4 of value, those agreed upon in representation of absentees if they suffer lesion, and fraud of creditors cases
• Action for rescission is subsidiary, instituted only when no other legal reparation.
• Action for annulment must be brought within four years.
• Ratification extinguishes action to annul avoidable contract.
• Ratification cleanses the contract from all defects from the moment it was constituted.
• Unenforceable contracts cannot be assailed by third persons.

Explore key aspects of contract law. This includes the defense of illegality, the impact of illegal contracts, civil vs. natural obligations, protection of creditors, and the requisites of a contract. Also covered are real contracts and acceptance rules.