Obligation and Contracts

Assignment No. 3
1. Define Contract.

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. (125a).1 A contract, according to article 1159 and 1305, bind two
persons to perform an obligation that are incumbent upon them based on
their agreement having in them the force of law and should be complied in
good faith. The two persons are the active and passive subject while their
agreement and what they have agreed upon are the prestation and efficient
cause.

An example of this is a contract of loan, wherein the active subject is the

creditor; the passive subject is the debtor. The prestation is money to be
borrowed and the efficient cause is the contract.

Example: Romeo executed a contract of loan to borrow money from Juliet

whom he wishes to spend in courting Juliet. Juliet in turn agreed and lend
money to Romeo. The meeting of the minds of Romeo and Juliet created the
contract of loan and to enforce what they have agreed upon they put it in
writing (contract of loan) which is what the statute of fraud demand.

2. Discuss three stages of Contracts.

A contract undergoes three stages:

Preparatory or conception - process of formation through bargaining or
negotiation, which begins from the time the prospective contracting parties
manifest their interest in the contract that leads to the perfection of the
contract. Either party may stop the process or withdraw an offer made.
Pefection or birth - process of arriving at a definite agreement or meeting of
the minds as to the elements of the contract, particularly the essential ones
(object and cause).
Consumption or death - the fulfillment of the respective obligations of the
parties under the contract, resulting to its accomplishment and
extinguishment.

3. What are the different classes of contracts?

according to form:
Informal contract - in any form as long as all the requisites or essential
elements for its validity are present.
Formal contract - in a form required by the law.

1
Article 1305, Civil Code of the Philippines

1
according to the involvement of the parties:
Unilateral contract - one party is bound to fulfill an obligation for an act by
another party.
Bilateral contract - both parties are bound to fulfill their mutual promises or
respective obligation to each other reciprocally.

according to name or designation:

Nominate contract - has specific name or designation in law; such as
commodatum, lease, agency, and sale.
Innominate contract - has no specific name or designation in law; shall be
regulated by the stipulations of the parties, by the Civil Code, by the rules
governing the most analogous nominate contracts, and by the customs of the
place.
do ut facias (I give that you may do)
facia ut des (I do that you may give)
facio ut facias (I do that you may do)

according to perfection:
Consensual contract - perfected by mere consent; such as the contract of
sale, lease and agency.
Real contract - perfected by mere consent and the delivery of the object;
such as deposit, pledge and commodatum.
Solemn contract - perfected through compliance with the form required by
law; identical with formal contract.

according to cause or purpose:

Onerous contract - the purpose is the performance of an obligation by one
party as the other party performs or has performed its own obligation.
Remuneratory contract - the purpose is the remuneration or payment by one
party for a service or benefit previously rendered by the other party.
Gratuitous contract - the purpose is the mere liberality or the feeling by one
party that the other party (which is the benefactor/giver) has been generous;
such as in free, pure donation.

according to the obligatory force:

Valid contract - with such stipulations, clauses, terms and conditions that are
not contrary to law, morals, good customs, public order, or public policy.
Rescissible contract - with legal validity, but may be rescinded or revoked in
the cases established by law.
Voidable/Annullable contract - with legal validity but may be invalidated by a
court action on the grounds of mistake, violence, intimidation, undue
influence, fraud, or incapacity of one of the parties to give consent
Unenforceable contract - with legal validity but cannot be enforce through
court action by reason of defects, unless it is ratified according to law.
Void contract - with no validity at all because of certain defects, such as
illegality; considered inexistent from the very beginning and cannot be ratified
according to law.

2
4. Discuss basic characteristics of contracts.

The common characteristics of contracts are:

Obligatory - the force of law between the contracting parties compel them to
perform under the threat of civil action or lawsuit.
Autonomy - such stipulations, clauses, terms and conditions are established
by the contracting parties as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public policy.
Mutuality - the bind must involve both of the parties, so that the validity or
compliance of a contract cannot be left to the will of only one of them.
Relativity - the effectivity is 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.
Consensuality - the mere consent that perfected the contract should bound
the parties to the fulfillment of what has been expressly stipulated, and all
the consequences which, according to their nature, may be in keeping with
good faith, usage and law. However, real contracts, such as deposit, pledge
and commodatum, are not perfected until the delivery of the object of the
obligation.

5. What is meant by a stipulation pour autrui?

Stipulation pour autrui – it is a stipulation in a contract clearly and
deliberately conferring a favor upon a third person who has a right to
demand its fulfillment provided he communicates his acceptance to the
obligor before its revocation.
A. What requisites must concur in order that such a stipulation may be
enforced?
(1) The contracting parties by their stipulation must have clearly and
deliberately conferred a favor upon a third person;
(2) The third person must have communicated his acceptance to the
obligor before its revocation by the obligee or the original parties;
(3) The stipulation in favor of the third person should be a part
and not the whole of the contract or the contract itself;
(4) The favorable stipulation should not be conditioned or compensated
by any kind of obligation whatever; and
(5) Neither of the contracting parties bears the legal representation or
authorization of the third party for otherwise the rules on agency will
apply. (see Florentino vs. Encarnacion, 79 SCRA 193 [1977]; Young vs.
Court of Appeals, 169 SCRA 213 [1989]; Narvaez vs. Alciso, 594SCRA 60
[2009].)
B. What is the form of acceptance by the third person or beneficiary?
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.

3
4