TITLE II.

- CONTRACTS

CHAPTER 1
GENERAL PROVISIONS

 Art. 1305. 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. (1254a)

CONTRACTVSOBLIGATION

contract

obligation

Oneofthesourcesof
obligations

Thelegaltieorrelation
itselfthatexistsaftera
contracthasbeen
enteredinto

Nocontractifthereisno
obligation

Obligationmayexist
withoutacontract

CONTRACTVSAGREEMENT

Contractsareagreementsenforceablethrough
legalproceedings.
Agreementswhichcannotbeenforcedbyaction
inthecourtsofjusticearenotcontractsbut
merelymoralorsocialagreements
Allcontractsareagreementsbutnotall
agreementsarecontracts.

ELEMENTSOFACONTRACT

I.EssentialElements
--withoutthemacontractcannotexist
A.Consent
B.Subjectmatter
C.Causeorconsideration
Note:Insomecontracts,formisalsoessential;
deliveryinothersislikewiseessential

 II.Naturalelements
--thosefoundincertaincontracts,and
presumedtoexist,unlessthecontraryhasbeen
stipulated.
Example:warrantyagainsthiddendefectsand
againstevictioninthecontractofsale

 III.AccidentalElements
--thesearethevariousparticularstipulationsthat
maybeagreeduponbythecontractingpartiesina
contract.
Theymaybepresentorabsent,dependingupon
whetherornotthepartieshaveagreeduponthem
Example:thestipulationtopayinterest;
designationoftheplaceofpayment

CLASSIFICATIONOFCONTRACTS

A.Accordingtoperfectionorformation
1.Consensualperfectedbymereconsenti.e.
contractofsale
2.Realperfectedbydeliveryi.e.commodatum;
pledge,depositum
3.FormalorSolemnspecialformalitiesare
requiredi.e.donationintervivosinpublic
instrument

 B.Accordingtocauseorequivalenceofthe
valueofprestations
1.onerous
2.gratuitous
3.remunerative

 C.Accordingtoimportanceordependenceof
oneuponanother
1.principali.e.sales,lease
2.accessoryi.e.pledge,mortgage
3.preparatoryi.e.agency,partnership

 D.Accordingtopartiesobligated
1.unilateralonlyoneofthepartieshasan
obligationi.e.commodatum
2.bilateral--sale

 E.Accordingtotheirnameordesignation
1.Nominate
2.Innominate

 F.Accordingtotheriskoffulfillment
1.commutativeequivalentvaluesaregiven
i.e.sales,lease
2.aleatoryfulfillmentdependsuponchance
i.e.insurancecontract

 G.Accordingtothetimeofperformanceor
fulfillment
1.Executed---onecompletedatthetimethe
contractisenteredintoi.e.saleofproperty
alreadydeliveredandalreadypaid
2.Executoryonewheretheprestationsareto
becompliedwithatsomefuturetimei.e.saleof
propertynotyetdeliveredandnotyetpaid.

STAGESOFACONTRACT

A.Preparation/ConceptionorGeneracion
Thepartiesareprogressingwiththeir
negotiations;theyhavenotyetarrivedatany
definiteagreement,althoughtheremayhave
beenapreliminaryofferandbargaining

 B.Perfection/Birth
Thepartieshaveatlonglastcametoadefinite
agreement,theelementsofdefinitesubject
matterandvalidcausehavebeenacceptedby
mutualconsent

 C.Consummation(Deathortermination)
Thetermsofthecontractareperformed,and
thecontractmaybesaidtohavebeenfully
executed

CHARACTERISTICSOFACONTRACT

1.Freedomtostipulate
2.Obligatoryforceandcomplianceingoodfaith
3.Perfectionbymereconsent(consensuality)
4.Bothpartiesaremutuallybound
5.Relativity(bindingonlybetweentheparties,
theirassignsandheirs)

 Art. 1306. 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. (1255a)

 FreedomtoStipulate

LIMITATIONSONTHENATUREOFSTIPULATION

A.Moralsdealwithrightandwrongandwith
humanconscience
examples:
1. adebtoragreedtoworkasaservantforhis
creditorwithoutpayuntilthedebtorcouldpay.
2. Apromiseofmarriagebasedonacarnal
consideration

 B.Goodcustoms
Thosethathavereceivedforaperiodoftime
practicalandsocialconfirmation

 C.PublicOrder
Dealswithpublicwealandincludespublicsafety
D.PublicPolicy
Ifithasatendencytoinjurethepublic;varies
accordingtothecultureofaparticularcountry;
themanifestwillofaState

 Art. 1307. Innominate contracts shall be

regulated by the stipulations of the parties,
by the provisions of Titles I and II of this
Book, by the rules governing the most
analogous nominate contracts, and by the
customs of the place. (n)

GOVERNINGRULESFORINNOMINATE
CONTRACTS

A.Stipulations
B.TitlesIandIIofBookIVObligationsand
contracts
C.Rulesonthemostanalogousnominate
contracts
D.Customsoftheplace

4KINDSOFINNOMINATECONTRACTS

Doutdes(Igivethatyoumaygive)
Doutfacias(Igivethatyoumaydo)
Facioutdes(Idothatyoumaygive)
Facioutfacias(Idothatyoumaydo)

 Art. 1308. The contract must bind both

contracting parties; its validity or compliance
cannot be left to the will of one of them.
(1256a)

 MutualityofContracts

CONSEQUENCESOFMUTUALITY

1.Apartycannotrevokeorrenounceacontract
withouttheconsentoftheother,norcanithave
itsetasideonthegroundthathehadmadea
badbargain
2.Whenthefulfillmentoftheconditiondepends
uponthesolewillofthedebtor,theconditional
obligationisVOID.(suspensivecondition)

 Art. 1309. The determination of the

performance may be left to a third person,
whose decision shall not be binding until it
has been made known to both contracting
parties. (n)

DETERMINATIONBYTHIRDPERSON

Inacontractofsale,thefixingofthepriceand
thedeliverydatecanbelefttoathirdperson.
Bindingtothepartiesonlyafteritismadeknown
toboth

 Art. 1310. The determination shall not be

obligatory if it is evidently inequitable. In
such case, the courts shall decide what is
equitable under the circumstances. (n)

 Whatisequitableisaquestionoffact,tobe
ascertainedfromtheattendantcircumstances.

 Art. 1311. Contracts take effect only between

the parties, their assigns and heirs, except in
case where the rights and obligations arising
from the contract are not transmissible by
their nature, or by stipulation or by provision
of law. The heir is not liable beyond the value
of the property he received from the
decedent.

 If a contract should contain some stipulation in

favor of a third person, he may demand its
fulfillment provided he communicated his
acceptance to the obligor before its revocation.
A mere incidental benefit or interest of a person
is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor
upon a third person. (1257a)

PRINCIPLEOFRELATIVITY

Contractsaregenerallyeffectiveonlybetween
theparties,theirassigns,andtheirheirs

EXCEPTIONS

1.Obligationsarisingfromcontractwhicharenot
transmissiblebytheirnature,stipulationor
provisionoflaw
2.Stipulationpouratrui
3.Whenthirdpersoninducesanothertoviolate
hiscontract
4.therightofacreditortosueonacontract
enteredintobyhisdebtor(AccionDirecta)
5.byprovisionoflawi.e.agency,partnership

ILLUSTRATIVECASE

PedroleasedhispropertytoJuan.Juan
subleasedpartofthepremisestoSylvia,in
violationoftheconditionofthecontractoflease
betweenPedroandJuan.Pedrogoestocourt
torescindthecontract.
CanSylviaobjecttotherescissiononthe
groundthatifthecontractisrescinded,the
subleasecontractwouldbeaffected?

ANSWER:

No,Pedroisnotboundbythesubleasebetween
JuanandSylviainasmuchashedidnot
participatetherein.

STIPULATIONPOURATRUIEXPLAINED

Itisastipulationinfavorofathirdpersonmade
bythecontractingpartieswiththeclearand
deliberateintentionofconferringafavorupon
suchthirdpersonandwhosefulfillmentthelatter
maydemandbycommunicatinghisacceptance
totheobligorbeforeitsrevocation.

REQUISITES(REBECCAC.YOUNG,ETAL.VSCA
,GR79518,JANUARY13,1989)
1. Stipulationisinfavorofathirdperson
2. Thepartiesclearlyanddeliberatelyconferredthefavorto
thethirdperson.
3. Thestipulationmustbeapart,notthewhole,ofthe
contract
4. Theacceptanceofthethirdpersonmustbecommunicated
tothepartiesofthecontractbeforeitsrevocation.
5. Neithercontractingpartiesbearthelegalrepresentationor
authorizationofthethirdparty.

ILLUSTRATIVEEXAMPLE

JuanowesPedroP10,000with14%interest
payableonDecember15.The14%interest
mustbegiventoathirdperson,Pablo.
Inthiscase,Pablomustcommunicatehis
acceptancetoJuanandPedro,otherwise,he
willnotbeentitledtothebenefitofthecontract.

 Art. 1312. In contracts creating real rights,

third persons who come into possession of
the object of the contract are bound thereby,
subject to the provisions of the Mortgage
Law and the Land Registration Laws. (n)

CONTRACTSCREATINGREALRIGHTS

Oneoftheexceptionstothegeneralrulethata
contractbindsonlytheparties

EXAMPLE

IfJuanshouldpurchaseanapartmenthouse
fromtheownerbutthereisaleasethereon,
Juanmustrespectthelease,ifthesameis
registeredintheRegistryProperty,orifAhas
actualknowledgeoftheexistenceandduration
ofthelease.

 Art. 1313. Creditors are protected in cases of

contracts intended to defraud them. (n)

RIGHTOFDEFRAUDEDCREDITORS

Example:
IfJuangratuitouslygivesPedroaparcelofland,
andJuanhasnootherpropertyorcashleftto
satisfyhiscreditors,saidcreditorsmayaskfor
therescissionofthecontract,totheextentthat
theyhavebeenprejudiced.

 Art. 1314. Any third person who induces

another to violate his contract shall be liable
for damages to the other contracting party.
(n)

 Thisarticlegivesaninstancewhenastrangerto
acontractcanbesuedinviewofhis
unwarrantedinterference.Whoeverisinjured
mayproperlysuefordamages.

 RosannaRoces,amovieactress,hasaoneyearcontractwithSeikoFilms.IfLolitSolis,a
friendofRosannainducesher,withoutany
justifiablecause,tobreakthecontract,then
SeikoFilmscanSueLolitSolisfordamages.

 Art. 1315. Contracts are perfected by mere

consent, and from that moment the parties
are bound not only to the fulfillment of what
has been expressly stipulated but also to all
the consequences which, according to their
nature, may be in keeping with good faith,
usage and law. (1258)

CONSENSUALITYOFCONTRACTS

Perfectionbymereconsent

HOWCONTRACTSAREPERFECTED

1.Consensualbymereconsent(sale)
2.Realcontractbydelivery(depositand
pledge)
3.Formalorsolemnspecialformisrequired
(donationisbypublicinstrument)

 Art. 1316. Real contracts, such as deposit,

pledge and Commodatum, are not perfected
until the delivery of the object of the
obligation. (n)

PERFECTIONOFREALCONTRACTS

Realcontractsrequire
CONSENT
SUBJECTMATTER
CAUSEORCONSIDERATIONAND
DELIVERY

REALCONTRACTS

DEPOSIT
PLEDGE
COMMODATUM
Note:Acontracttomakeadeposit,tomakea
pledge,ortomakeacommodatumisa
consensualcontract.Afterdelivery,thecontract
becomesarealcontract.

ILLUSTRATIVEEXAMPLE

JuanagreedtolendPedrohis(Juans)caron
September18,2012.IfonSeptember18,Juan
refusestodeliverthecar,mayPedrosuehimfor
damages?

ANSWER:

Yes,becauseoftheconsensualcontractofto
makeacommodatum.
IfJuanhaddeliveredthecarandPedrothruhis
negligencedamagesthecar,Juancansuehim
becauseoftherealcontractofcommodatum.

 Art. 1317. No one may contract in the name

of another without being authorized by the
latter, or unless he has by law a right to
represent him.

 A contract entered into in the name of another

by one who has no authority or legal
representation, or who has acted beyond his
powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is
revoked by the other contracting party. (1259a)

REQUISITEFORAPERSONTOCONTRACTIN
THENAMEOFANOTHER

Hemustbedulyauthorized(expresslyor
impliedly)
Orhemusthavebylawarighttorepresenthim
(liketheguardianoradministrator)
Orthecontractmustbesubsequentlyratified
(expresslyorimpliedly,bywordorbydeed)

EXAMPLE

InJuansname,butwithoutJuansauthorization,
PedrosoldJuanscartoPablo.Thesaleofthe
carisunauthorized.
Note:thedeathoftheprincipaldoesnotrender
theactofanagentunenforceable,wherethe
agenthadnoknowledgeofsuchextinguishment
oftheagency.