COLEGIO DE SAN ANTONIO DE PADUA

Supervised by the Lasallian Schools Supervision Office

Ramon M. Durano Foundation Compound,
Guinsay, Danao City, Cebu
Tel. No. (032) 344-4709

COLLEGE OF ACCOUNTING AND INFORMATION SYSTEMS

(BSAIS)

MODULE 1
IN
REGULATORY FRAMEWORK AND
LEGAL ISSUES IN BUSINESS

WELCOME TO CSAP! THE GATEWAY TO BETTER LIVES!

Prepared by:
ATTY. CHERRY C. ROBLE

Name: __________________________________________________________

Course & Section: _________________________________________________

FIRST SEMESTER
S.Y. 2025-2026

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LAW ON CONTRACTS
➢ 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.

▪ Elements.
a. Essential—those without which there can be no contract.
1. Consent
2. Object or Subject Matter
3. Cause or Consideration
b. Natural—those derived from the nature of the contract and ordinarily
accompany the same.
c. Accidental—those which exist only when the parties expressly provide
for them for the purpose of limiting or modifying the normal effects of
the contract.

▪ Different kinds of contracts.

a. According to perfection
1. Consensual—perfected by mere consent.
2. Real—perfected by the delivery of the object of the contract, such
as pledge, loan and deposit.
b. According to degree of importance
1. Principal—can stand alone, such as sale, barter, deposit or loan.
2. Accessory—its existence and validity is dependent upon another
contract, such as pledge, mortgage and guaranty.
3. Preparatory—contract is not an end by itself, but a means thru
which other contracts may be made.
c. According to subject matter
1. Contracts involving things, such as sale, barter.
2. Contracts involving rights or credits, such as usufruct or assignment
of credit.
3. Contracts involving services, such as agency, lease of service and
contract of carriage.
d. According to name
1. Nominate—Those which have their own distinctive individuality and
are regulated by special provisions of law.
2. Innominate--Those which lack individuality and are not regulated
by special provisions of law but regulated by stipulations of the
parties, by general provisions of the Civil Code on obligations and
contracts, by rules governing the most analogous nominate
contracts and by customs of the place.
▪ Kinds:
1) Do ut des—I give that you give;
2) Do ut facias—I give that you do;
3) Facio ut des—I do that you give;
4) Facio ut facias—I do that you do.

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 e. According to cause
1. Onerous—there is an exchange of consideration such as sale, barter
and lease.
2. Gratuitous—there is no consideration received in exchange for what
has been given, such as donation, remission and condonation.
3. Remuneratory—something is given for a benefit or service
performed without any legal obligation to do so.
f. According to nature of obligation produced or number of parties
obligated
1. Unilateral—where only one of the parties is obliged to give or to do
something, such as commodatum, gratuitous deposit, and
gratuitous mutuum.
2. Bilateral—where both parties are obliged to give or to do
something, such as sale, barter and lease.
g. According to risk
1. Commutative—where equivalent values are given by both parties
such as sale, barter or lease.
2. Aleatory—where fulfilment of the contract is dependent upon
chance, such as insurance.

• Stages of a Contract
1) Preparation or Conception- This involves preliminary negotiations and
bargaining discussion of terms and conditions, with no arrival yet of a
definite agreement. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at
the moment of their agreement.
2) Perfection or birth- This is the point when there is a meeting of minds
between the parties on a definite subject matter and valid cause.
3) Consummation or death or termination- This occurs when the parties
fulfill or perform the terms agreed upon in the contract culminating in
the extinguishment thereof.

• Characteristics of Contracts.
a) Principle of autonomy of contracts (liberty to contract)
➢ The contracting parties may establish such stipulations, clauses,
terms, and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public
policy.

b) Principle of Relativity
➢ General rule: Contracts take effect only between parties, their assigns
and heirs
Exceptions:
1. Stipulations pour atrui—stipulations in favor of a third person;
2. When a third person induces a party to violate contract;

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 3. Third persons who come in possession of the object of the contract
creating real rights;
4. Contracts entered into in fraud of creditors.

c) Principle of Consensuality
➢ Contracts are perfected by mere consent except in the following
contracts which need to comply with additional requirements.
i. In real contracts such as deposit, pledge, and commodatum,
which are perfected upon the delivery of the object of the
obligation.
ii. In formal or solemn contracts, which are required to be in the
form provided by law, to be perfected, such as the donation of
an immovable which must be in a public instrument together
with the acceptance thereof, otherwise, the contract is void.

d) Principle of Mutuality
➢ The contract must bind both parties; its validity or compliance cannot
be left to the will of one of them.
➢ The contract cannot have any stipulation authorizing one of the
contracting parties (a) to determine whether or not the contract shall
be valid, or (b) to determine whether or not the contract shall be
fulfilled.

e) Principle of Obligatory Force and compliance in good faith.

➢ Obligations arising from contracts shall have the force of law between
the contracting parties and should be complied with in good faith.
➢ The parties are bound not only to the fulfilment of what has been
expressly stipulated but also to all consequences which, according to
their nature may be in keeping with good faith, usage and law.

A. Consent.
➢ Consent is manifested by the concurrence of the offer and acceptance upon
the thing and the cause which are to constitute the contract.
▪ Requisites:
1. Legal Capacity of the contracting parties;
2. Manifestation of the conformity of the contracting parties;
3. The parties’ conformity to the object, cause, the terms and conditions
of the contract must be intelligent, spontaneous and free from all vices
of consent;
4. The said conformity must be real and not simulated or fictitious.

▪ Offer
➢ A proposal made by one party to another to enter into a contract.
➢ It must be certain or definite, complete and intentional.
➢ Offer/proposal may be withdrawn so long as the offeror has no
knowledge of acceptance by offeree.

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 ▪ Rule in case of an offer to sell.
➢ 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.
➢ Option contract—one giving a person a certain period within which to
accept the offer of the offerer.
➢ Option money—money paid or promised to be paid in consideration
for the option.

▪ Acceptance.
➢ Manifestation by the offeree of his assent to the terms of the offer.
▪ Rules on acceptance:
1. It must be absolute.
2. Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract in
such a case is presumed to have been entered into the place
where the offer was made.
3. Acceptance may be express or implied.
4. An offer made through an agent is accepted from the time it is
communicated to him.
➢ Acceptance may be revoked before it comes to the knowledge of the
offeror.

▪ Rules on Consent
1. The parties must have the capacity to enter into a contract.
▪ The following are incapacitated to give consent.
a) Minors
Exceptions:
1. Contracts where the minor is estopped to raise minority as a
defense through his own misrepresentation;
2. Contracts for necessaries;
3. Contracts by guardians or legal representatives;
4. Contracts of life, health or accident insurance taken on the life of
the minor.
b) Insane or demented persons, unless the contract was entered into
during lucid interval;
c) Deaf mutes who do not know how to read and write.

2. Contracts agreed to in a state of drunkenness or during a hypnotic spell

are voidable. This is so because consent given in such states is not freely
and intelligently given.
3. A contract where consent is given through mistake, violence,
intimidation, undue influence or fraud is voidable.

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 ▪ Vices of Consent.
1) Violence—when in order to wrest consent, serious or irresistible
force is employed.
2) Intimidation—when one of the contracting parties is compelled
by a reasonable and well-grounded fear of an imminent and
grave evil upon his person or property, or upon the person or
property of his spouse, descendants or ascendants, to give his
consent.
3) Mistake—it must be substantial regarding: (a) object of the
contract; (b) conditions which principally moved one or both
parties to enter into the contract; (c) identity or qualification of
persons; error must be excusable, and not caused by negligence;
and the error must be a mistake of fact, and not of law.
4) Fraud—when through insidious words or machinations of one of
the contracting parties, the other is induced to enter into a
contract, without which, he would not have agreed.
5) Undue Influence- there is undue influence when a person takes
improper advantage of his power over the will of another,
depriving the latter of reasonable freedom of choice.

▪ Caveat emptor (“let buyers beware”).

➢ The transaction is not fraudulent because this is considered tolerable
fraud.
➢ Exaggerations in trade, when the other party had an opportunity to know
the facts, are not in themselves fraudulent. This is otherwise known as
“dealer’s talk.”
Exception: If the opinion is made by an expert and the other party has
relied on such statement.

▪ Statement of Opinion.
➢ The mere expression of opinion, even if false, does not vitiate consent
that will render the contract voidable unless such opinion is given by an
expert and the other party relied on such opinion.

▪ Simulation of Contracts
➢ It refers to the declaration of a fictitious intent manifested deliberately
and by agreement by the parties in order to produce, for the purposes of
deceiving others, the appearance of a transaction which does not exist or
which is different from their true agreement.
➢ Kinds:
1. Absolute—when the contracting parties do not intend to be bound by
the contract at all. Thus, an absolutely simulated contract is VOID.
2. Relative—when the contracting parties conceal their true agreement.
A relatively simulated contract binds the parties to their real
agreement, when it does not prejudice 3rd persons and is not

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 intended for any purpose contrary to law, morals, good customs,
public order or public policy.

B. Object of the Contract

➢ The thing, right or service which is the subject matter of the obligation
arising from the contract.

▪ Requisites:
1. It must be within the commerce of man;
2. It must be transmissible;
3. It must be licit or not contrary to law, morals, good customs, public
order or public policy;
4. It must be possible;
5. It must be determinate as to its kind.

▪ Things which cannot be object of contracts.

1. Things which are outside the commerce of men;
2. Intransmissible rights;
3. Services which are contrary to law, morals, good customs, public order
or public policy;
4. Impossible things or services;
5. Objects which are not possible of determination as to their kind.

C. Cause of the Contract

➢ The immediate, direct and most proximate reason which explains and
justifies the creation of obligation.

▪ Requisites:
1. Cause should be in existence at the time of the celebration of the
contract;
2. Cause should be licit and lawful;
3. Cause should be true.

▪ Rules:
1. In onerous contracts, the cause is understood to be, for each
contracting party, the prestation of promise of a thing or service by
the other;
2. In renumenatory contracts, the service or benefit which is
renumerated;
3. In contracts of pure beneficence, the mere liberality of the donor or
benefactor;
4. In accessory contracts, the cause is identical with the cause of the
principal contract, that is, the loan from which it derives its life and
existence.

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▪ Form of Contracts
➢ General rule: Contracts shall be obligatory, in whatever form they may
have been entered into, provided all the essential requisites for their
validity are present.
Exceptions:
1. When the law requires that a contract be in some form in order that
it may be valid;
2. When the law requires that a contract be in some form in order that
it may be enforceable.
▪ Note:
i. Parties may compel each other to comply with the form required once
the contract has been perfected;
ii. Contracts which are required to be in some specific form is only for
the convenience of parties and does not affect validity and
enforceability as between them.

▪ Reformation of Instruments:
➢ Requisites:
1. Meeting of the minds to the contract;
2. True intentions is not expressed in the instrument by reason of
mistake, accident, relative simulation, fraud, inequitable conduct;
3. Clear and convincing proof of mistake, accident, relative simulation,
fraud or inequitable conduct.
▪ When reformation is not proper
1. Simple unconditional donations inter vivos;
2. Wills;
3. When the agreement is void.

• Rescissible Contracts
➢ Contracts validly agreed upon by the parties, by reason of lesion or
economic prejudice may be rescinded in cases established by law.
▪ What contracts are rescissible
1. Those entered into by guardians where the ward suffers lesion of
more than ¼ of the value of the things which are objects thereof;
2. Those agreed upon in representation of absentees, if the latter suffer
lesion by more than ¼ of the value of the things which are subject
thereof;
3. Those undertaken in fraud of creditors when the latter cannot in any
manner claim what are due them;
4. Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the
litigants and the court;
5. All other contracts especially declared by law to be subject to
rescission; and
6. Payments made in a state of insolvency on account of obligations not
yet enforceable;

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• Voidable Contracts
➢ Those in which all of the essential elements for validity are present,
although the element of consent is vitiated either by lack of capacity of
one of the contracting parties.

▪ What contracts are voidable

1. Those where one of the parties is incapable of giving consent to a
contract;
2. Those where the consent is vitiated by mistake, violence, intimidation,
undue influence, or fraud.

▪ When the right to annul a voidable contract is lost:

1. Prescription—the action must be commenced within 4 years arising
from:
a. The time the incapacity ends;
b. The time the violence, intimidation, or undue influence ends;
c. The time the mistake or fraud is discovered.
2. Ratification
▪ Requisites:
i. There must be knowledge of the reason which renders the
contract voidable;
ii. Such reason must have been ceased and
iii. The injured party must have executed an act which expressly or
impliedly conveys an intention to waive his right;
3. By loss of the thing which is the object of the contract through fraud
or fault of the person who is entitled to annul the contract.

• Unenforceable Contracts
➢ Those which cannot be enforced by proper action in court unless ratified.

▪ What contracts are unenforceable?

1. Those entered into in the name of another by one without authority
or acting in excess of authority;
2. Those where both parties are incapable of giving consent;
3. Those which do not comply with the Statute of Frauds.

▪ Contracts covered by Statutes of Fraud

1. Agreements not be performed within one year from the making
thereof;
2. Special promise to answer for the debt, default or miscarriage of
another;
3. Agreement in consideration of marriage other than a mutual promise
to marry;
4. Agreement for the sale of goods at the price of not less than P500.00;
5. Contracts of lease for a period longer than one year;

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 6. Agreements for the sale of real property or interest therein; and
7. Representation as to the credit of a third person.

▪ The contracts/agreements under the Statute of Frauds require that the

same be evidenced by some note, memorandum or writing, subscribed
by the party charged or by his agent, otherwise, said contracts shall be
unenforceable.

▪ Ratification of contracts in violation of Statutes of Fraud

1. Failure to object to the presentation of oral evidence to prove such
contracts;
2. Acceptance of benefits under these contracts.

• Void Contracts
➢ Those where all of the requisites of a contract are present but the cause,
object or purpose is contrary to law, morals, good customs, public order
or public policy, or contract itself is prohibited or declared void by law.

▪ What contracts are void?

1. Those whose cause, object or purpose is contrary to law, morals, good
customs, public law or public policy;
2. Those whose object is outside the commerce of men;
3. Those which contemplate an impossible service;
4. Those where the intention of the parties relative to the principal object
of the contract cannot be ascertained;
5. Those expressly prohibited or declared void by law.

• Inexistent Contracts
➢ Those where one or some or all of the requisites essential for the validity
of the contract are absolutely lacking.
▪ What contracts are inexistent
1. Those which are absolutely simulated or fictitious; and
2. Those whose cause or object did not exist at the time of the
transaction.

• Natural Obligations
➢ They are real obligations to which the law denies an action, but which the
debtor may perform voluntarily.
• Examples:
1. Performance after the civil obligation has prescribed;
2. Reimbursement of a third person for a debt that has prescribed;

• Estoppel
➢ A condition or state by virtue of which an admission or representation is
rendered conclusive upon the person making it and cannot be denied or
disproved as against a person relying thereon.

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