CONTRACTS

Chapter 1
GENERAL PROVISIONS

Meaning of Contracts
A meeting of minds between two persons whereby one binds himself, with respect
to the other, to give something or to render some service.
There must be at least two persons or parties.

Contract distinguished from obligation

CONTRACT OBLIGATION
One of the sources of obligations The legal tie or relation that exists after a
contract has been entered into
No contract if there is no obligation An obligation may exist without a contract

Contract distinguish from agreement

CONTRACT AGREEMENT
Binding agreements enforceable Broader than contract and not all are
through legal proceedings enforceable through legal proceedings
( i.e. moral or social agreements)
All contracts are agreements Not all agreements are contracts

Classifications of contract
According to:
1. Name or a) Nominate- with specific names or designation in law
designation b) Innominate- no specific name

Kinds of innominate contracts:

1. do ut des (I give that you may give)
 2. do ut facias (I do that you may do)
3. facto ut des (I give that you may do)
4. facto ut facias (I do that you may give)

Rules for innominate contracts

1. Agreement of parties
2. Law on Obligations & Contracts
3. Rules on most analogous nominate contract
4. Customs of place
2. Perfection a) Consensual- perfected by consent

b) Real- perfected by delivery

3. Cause a) Onerous interchange of equivalent valuable
considerations
b) Remunerative- one prestation is given for the benefit or
service that had been rendered previously
c) Gratuitous- free, one party receives no equivalent
prestation

4. Form a) Informal, common or simple may be entered into in

whatever form provided all the requisites for their validity
are present.
b) Formal or solemn required by law for its efficacy.
5. Obligatory a) Valid those that meet all the legal requirements and
force limitations for the type of agreement involved and legally
binding and enforceable.
b) Rescissible
c) Voidable
d) Unenforceable
e) Void or inexistent
6. Person a) Unilateral- one party is obliged to comply with a prestation.
obliged b) Bilateral both parties are mutually bound to each other.
7. Risks a) Commutative-parties contemplated a real fulfillment;
equivalent value are given.
b) Aleatory- fulfillment is dependent upon chance; values
vary.
8. Liability a) Unilateral- one party has obligation.
 a) Bilateral- both parties are obliged to give or render
reciprocal prestations.
9. Status a) Executory- prestations are to be complied with at some
future time.
b) Executed- one contemplated at time the contract is entered
into, that is, obligations are complied with at this time.
10. Dependence a) Preparatory contract is not the end but as means through
to another which future transactions or contracts may be made.
contract b) Accessory depends for its existence upon another
contract.
c) Principal contract stands alone by itself.
11. Dependence a) Indivisible (entire) each part of the contract is dependent
of part of upon the other parts for satisfactory performance.
contract to b) Divisible one part of the contract may be satisfactorily
other parts performed independently of the other parts.

Basic Principles/Characteristics of Contract

1. PRINCIPLE OF AUTONOMY (freedom to stipulate)

- One of the liberties guaranteed to the individual by the Constitution.
- Provided they are not contrary to:
i. Law
A rule of conduct, just, obligatory, promulgated by legitimate
authority, and of common observance and benefit..
ii. Morals
Are norms of good and right conduct.
iii. Good Customs
Are habits and practices followed and enforced by society.
iv. Public Order
Refers to public safety
v. Public Policy
Refer not only to public safety but also to considerations which
are moved by the common good

2. MUTUALITY OF CONTRACTS
 The contract must bind both parties; its validity/compliance cannot be left to the
will of one of them.
Exception:
The determination of performance may be left to a third person after such decision
has been made known to the contracting parties.

Effect where determination is inequitable

-The courts shall decide what is equitable under the circumstances.

3. RELATIVITY OF CONTRACTS
Contracts take effect only between the parties, their assigns & heirs except when
there are rights & obligations not transmissible:
a) by their nature
b) by stipulation (stipulation por autri- stipulation in favor of 3rd person)
c) by provision of law
Requisites of stipulation por autri:
a) Stipulation in favor of 3rd person
b) Stipulation is only part, not the whole of the contract.
c) Both parties must conferred upon a favor of 3rd person
d) 3rd person must accept & say it to debtor before its revocation/cancellation
e) Neither of both parties be the legal representation/authorization of 3rd person

Third persons are bound by contracts creating real rights

- Are bound thereby even if they were not parties to the contract.

Right of creditor to impugn contracts intended to defraud the

- The creditor is given the right to impugn the contracts of his debtor to defraud
him.
Liability of third person responsible for breach of contract
- Liable for damages to the other contracting party.
 4. CONSENSUALITY OF CONTRACTS
Contracts are perfected by mere consent
Exceptions:
a. Real contracts
b. Formal
c. Solemn contracts

Stages of contract
1. Preparation/conception preparatory steps to perfect contract.
2. Perfection/birth meeting of minds between 2 contracting parties.
3. Consummation/termination terms of contract are performed and contract is
fully executed.

Effect of perfection of the contract

1. To the fulfillment of what has been expressly stipulated.
2. To all the consequences which according to their nature, may be in keeping with
good faith, usage, and law.

Unauthorized contracts
- Are unenforceable
- Can be cured only by ratification (must be clear and express)

When a person is bound by the contract of another

Requisites:
1. Must be duly authorized
2. Must act within his power

5. OBLIGATORINESS OF CONTRACTS
The contract, once perfected, has the force of law between parties which bound to
comply in good faith.
 Chapter 2
ESSENTIAL REQUISITES
OF CONTRACTS

Requisites of Contracts:
1. Consent of the contracting parties
2. Object certain
3. Cause of the obligation

Classes of elements of a contract:

Essential Elements Natural Elements Accidental Elements

Those without which no Presumed to exist in certain The particular stipulations,
contract can validly exist contracts unless the clauses, terms or
regardless of the intentions contrary is expressly conditions established by
of the parties. stipulated by the parties the parties in their contract
a) Common present like conditions, period,
in all contracts interest, penalty, etc., and
(consent, object and therefore, they exist inly
cause). when they are expressly
b) Special Those provided by the parties
that are not common
to all contracts.

-As to form
-As to subject matter
-As to consideration
or cause
 SECTION 1. Consent

Meaning of consent
- meeting of offer (certain) & acceptance (absolute) upon a thing

Requisites of consent
1. Must be given by 2 or more parties
2. Parties are capacitate to enter in contract
3. No vitiation of consent
4. No conflict between declared & intended
5. Legal formalities must be complied

Rules on offer/acceptance
1. An offer must be certain.
2. Business advertisements for sale are not offers but only invitations to make an
offer.
3. Advertisements for bidders are only invitations.
4. An acceptance made by letter/telegram does not bind the offeror except from the
time it came to his knowledge.
5. An offer made through an agent is accepted from the time the acceptance is done
through an agent.
6. An offer is ineffective upon death, insanity, insolvency, of either party before
acceptance is made.
7. When offeror allowed offeree a certain period to accept, offer may be withdrawn at
any time unless there is something paid/promised
Meaning of contract of option; option period and option money

Contract of option Option period Option money

One giving a person for a Period given within which Money paid or promised
consideration a certain the offeree must accept the pain in consideration for the
period within which to offer. option.
accept the offer of the
offerer.

Withdrawal of offer where period stipulated for acceptance

General Rule:
- The offer may be withdrawn as a matter of right at any time before
acceptance unless the option is founded upon a consideration, as something
paid or promised.
-
Articles 1324 and 1479 compared
Article 1324 Article 1479
The price for which the thing intended to A promise to buy and sell a determinate
be sold by or to the offeree does not bind thing for a price certain is reciprocally
the offerer, even if accepted, and may be demandable.
withdrawn at any time.

Unless it appears otherwise, business advertisements of things for sale are not definite
offers, but mere invitations to make an offer.

- Sales advertisements: A business advertisement of things for sale may or

may not constitute a definite offer. It is not a definite offer when the object is not
determinate.

- When the advertisement does not have the necessary specification of essential
elements of the future contract, it cannot constitute of an offer.