CAUSE / CONSIDERATION

- Definition: It is the essential reason which moves the parties to enter into the contract. It is the

immediate, direct and proximate reason which justifies the creation of an obligation through the will of the contracting parties.

- Requisites: 1. It must exist 2. It must be true 3. It must be licit - Kinds: 1. Onerous 2. Remuneratory 3. Gratuitous

Onerous vs. Remuneratory vs. Gratuitous

- Art. 1350: In onerous contracts the cause is understood to be, for each contracting party, the prestation

or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.

Onerous Contracts:

- The cause is the prestation that is reciprocally demandable between the parties.

- The cause need not be adequate or an exact equivalent in point of actual value, especially in dealing with objects which have a rapidly fluctuating price.

- Natural obligation: When the cause is a natural obligation, or one of conscience, there is a sufficient

cause to sustain an onerous contract; and the cause will not be one of mere liberality.

- Moral obligation: But a moral obligation arising wholly from ethical considerations not constituting a

natural obligation, is not a sufficient cause for onerous contracts. - In unilateral, the cause is the PRESTATION that should be rendered. - In gratuitous, the cause is LIBERALITY

Remuneratory Contracts:

- One where a party gives something to another because of some service or benefit given or rendered by the latter to the former, where such service or benefit was not due as a legal obligation.

- Example: Where Pedro agrees to give to Juan a piece of land in consideration of the service rendered by

Juan in saving Pedro from drowning on some previous occasion, the contract is remuneratory. The cause of the contract is the service previously rendered as a voluntary act by Juan.

Gratuitous Contracts

- These are essentially agreements to give donations.

- Cause: The generosity or liberality of the benefactor is the cause in such contracts.

- Voluntary conveyance valid: A voluntary conveyance, without any valuable consideration whatever, is

OBLIGATIONS AND CONTRACTS

2011

Absence of Cause vs. Failure / Inadequacy of Cause

- Art. 1352: Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is

unlawful if it is contrary to law, morals, good customs, public order or public policy.

- Art. 1353: The statement of a false cause in contracts shall render them void, if it should not be proved

that they were founded upon another cause which is true and lawful.

- Art. 1354: Although the cause is not stated in the contract, it is presumed that it exists and is lawful,

unless the debtor proves the contrary.

- Art. 1355: Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract,

unless there has been fraud, mistake or undue influence.

- Want of cause: A simulated contract of sale is without any cause or consideration, and is therefore null

and void.

- No action necessary when want of cause: In such case, no independent action to rescind or annul the

contract is necessary, and it may be treated as non-existent for all purposes. - Illegality of cause: Such agreement is void ab initio.

- Statement of false cause: Where the cause stated in the contract is false, the latter may nevertheless be

sustained by proof of another licit cause.

- Presumption of lawful cause: Unless the contrary is proved, a contract is presumed to have a good and

sufficient consideration. The presumption applies when no cause is stated in the contract. But if a cause is stated in the contract, and it is shown to be false, the burden of proving the legality of the cause is upon the party enforcing the contract.

- Inadequacy of Cause: It does not impair contract unless it is brought by fraud at the time of the consent,

thus HARD BARGAINING is valid.

Cause vs. Motive:

- Fundamental distinction: Cause is the objective, intrinsic and juridical reason for the existence of the

contract itself while motive is psychological, individual or persona purpose of a party to the contract. - Other distinctions:

a. The cause is the objective of a party in entering into the contract, while the motive is a person’s reason for wanting to get such objective.

b. The cause in each kind of contract is always the same; the motive differs with each person - Illustration:

a. In a contract of sale, the objective of every seller is to receive the price; but one seller may want it in order to pay his debts, while a different seller may want it for buying other property.

b. On the other hand, the objective of every buyer is to get the thing; but he may want it because some of some particular use he intends for it, or because a particular quality thereof which appeals to him. c. In a contract of loan, the cause for the borrower is the acquisition of money, and for the lender, the

right to require its payment. - Effect of Motive:

a. General rule: The motive of a party does not affect the validity or existence of a contract.

b. The motives of a contracting party cannot be the basis for the annulment of the contract, unless the

realization of such motives has been made a condition upon which the contract is to depend.

c. Motives cannot cure want of cause: The mere presence of motives cannot cure the absence of

consideration.

- When motives may affect juridical act:

1. When the motive of a debtor in alienating property is to defraud his creditors, the alienation is rescissible.

2. When the motive of a person in giving his consent is to avoid a threatened injury, as in case of intimidation, the contract is voidable.

3. When the motive of a person induced him to act on the basis of fraud or misrepresentation by the other party, the contract is voidable.

- Motive regarded as cause: When motive predetermines the purpose of the contract. FORMS OF CONTRACTS

1. Form for Validity, as an essential element of a contract 2. Form for Enforceability, statute of frauds

3. Form for Convenience

Form for Validity:

- Those which are required for the validity of the contract - General rule: Contracts are binding parties regardless of form

- Exceptions: Some contracts forms are essential for it to be valid

a. Donation of immovable or right of immovable, written b. Donation of movable with value more than P5000, written

c. Sale of land through an agent, the agency shall be in form of Special Power of Attorney; If no SPA, the sale is void and the principal cannot ratify the same

d. In penal clause, any promise to pay interest shall be in writing

e. In partnership, when one party contributes a real estate or property, written

Form for Enforceability

- Those required for the purpose of proving the existence of the contract such as in Statute of Frauds - Contract is valid because it complied with the essential elements, but neither party can demand the

prestation because nothing is written. - Statute of Frauds: Art. 1403.[2]

- (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:

- (a) An agreement that by its terms is not to be performed within a year from the making thereof; - (b) A special promise to answer for the debt, default, or miscarriage of another;

- (c) An agreement made in consideration of marriage, other than a mutual promise to marry;

- (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum;

- (e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; (if not in writing the contract is only for the period of one year)

- (f) A representation as to the credit of a third person. (such as credit reference required by banks in granting loans, the same shall be made in writing by the reference)

Form for Convenience

- Those required to make the contract effective as against third parties (Arts. 1357 and 1358) - The contract must be NOTARIZED to create real right

- Art. 1358. The following must appear in a public document:

- (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by Articles 1403, No. 2, and 1405; (because land can only be registered to ROD if it is notarized;

OBLIGATIONS AND CONTRACTS

2011

in execution of REM, the instrument must be notarized; also in Discharge of Real Estate Mortgage, a public document is needed to remove the property under REM)

- (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

- (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person;

- (4) The cession of actions or rights proceeding from an act appearing in a public document.

- All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one.