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Contracts Lecture

The document outlines the law on contracts, defining a contract as a meeting of minds between two parties with essential elements including consent, object, and cause. It emphasizes the principles of autonomy, mutuality, and the obligatory force of contracts, stating that obligations must be fulfilled in good faith. Additionally, it discusses the concept of relativity in contracts, highlighting exceptions where third parties may be affected.

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8 views

Contracts Lecture

The document outlines the law on contracts, defining a contract as a meeting of minds between two parties with essential elements including consent, object, and cause. It emphasizes the principles of autonomy, mutuality, and the obligatory force of contracts, stating that obligations must be fulfilled in good faith. Additionally, it discusses the concept of relativity in contracts, highlighting exceptions where third parties may be affected.

Uploaded by

LBitz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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LAW ON CONTRACTS

1. General Provisions
a. Definition of a 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. (Art. 1305,
NCC)

b. Elements of a Contract
i. Essential Elements

1. CONSENT OR MEETING OF THE MINDS AS TO THE SUBJECT


MATTER;

Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes
a counter-offer. (Art. 1319, NCC)

Requisites of Consent
1. Legal capacity of the contracting parties;

NOTE: The parties must have full civil capacity. Hence, if any
one party to a supposed contract was already dead at the time
of its execution, such contract is undoubtedly simulated and
false and, therefore, null and void by reason of its having been
made after the death of the party who appears as one of the
contracting parties therein. The death of a person terminates
contractual capacity. Vda. De Cabalu. v. Sps. Tabu, G.R. No.
188417, 24 Sept. 2012)

2. Manifestation of the conformity of the contracting parties;


NOTE: Manifestation may be in writing bearing the signature or
marks of the parties, or it may be implied from the conduct of
the parties like the acceptance of payment.

3. Parties’ Conformity to the object, cause, terms and condition


of the contract must be intelligent, spontaneous and free from
all vices of consent; and
NOTE: Intelligence in consent is vitiated by error; freedom by
violence, intimidation or undue influence; and spontaneity by
fraud.

4. The conformity must be Real, not simulated or fictitious.


Offer
An offer is defined as an expression of willingness to contract on certain
terms, made with the intention that it shall become binding as soon as it is
accepted by the person to whom it is addressed. (Rabuya, 2017)

Acceptance is the manifestation by the offeree of his assent to the terms


of the offer (DE LEON, Obligations and Contracts, supra at 545).

2. OBJECT/DETERMINATE SUBJECT MATTER; AND


It is the subject matter of the contract. It can be a thing, right or service
arising from a contract.

NOTE: Only rights which are not intransmissible can be the object of the
contract. (Art. 1347, NCC)

Requisites of an Object
1. Determinate as to kind (even if not determinate, provided it is
possible to determine the same without the need of a new
contract);

NOTE: To qualify as an object for purposes of a contract to exist:

2. The object must at least be Generic.


3. Existing or has the potential to exist subsequent to the contract;
4. Must be Licit;
5. Within the Commerce of man; and
6. Transmissible.

3. CAUSE/PRICE CERTAIN IN MONEY OR ITS EQUIVALENT.


Cause is the essential or more proximate purpose reason which moves the
contracting parties to enter into the contract. It is the immediate and direct
which justifies the creation of an obligation through the will of the
contracting parties. (SM Land, Inc. v. BCDA, G.R. No. 203655, 18 March
2015)

Requisites of a Cause:
It must:
1. Exist;
2. Be True; and
3. Be Licit.

NOTE: 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. 1354, NCC)
2. Basic Principles of Contracts
a. Autonomy; (Art. 1306, NCC)
b. Mutuality; (Art. 1308, NCC)
c. Obligatoriness; (Art. 1315, NCC)
d. Relativity; and (Art. 1311, NCC)
e. Consensuality (Art. 1315, NCC)

a. Obligatory Force of a Contract


Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. (Art. 1159, NCC)

The contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them. (Art. 1308, NCC)

b. Freedom to Stipulate (Autonomy of the Will) and its Limitations


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. (Art. 1306, NCC)

If the stipulation which violates the limitations set forth in the foregoing provision
constitute the cause, object, or purpose of the contract, such contract is denied
legal existence, and thus, shall be deemed void from the beginning. (Casis, 2016)

c. Relativity
i. Concept
General Rule: Contracts take effect only between the parties or their
assigns and heirs.

Res inter alios acta aliis neque nocit prodest (a thing done between others
does not harm or benefit others) – a contract can only obligate the parties
who entered into it, or their successors who assumed their personalities,
and that, concomitantly, a contract can neither favor nor prejudice third
persons. (Vitug, 2006)

ii. Exceptions to the Rule on Privity of Contracts

1. Stipulations Pour Autrui (Art. 1311(2), NCC) – Stipulation in favor of


a third person. Benefits clearly and deliberately conferred by parties
to a contract upon third persons and which stipulation is merely part
of a contract entered into by the parties, neither of whom acted as
agents of the third person and which favor can be demanded by the
third person if duly accepted by him before it could be revoked.

2. Accion directa –The creditor is authorized by the statute to sue on


his debtor’s contract.
Examples:
a) Lessor against Sublessee; and (Arts. 1651, 1652, NCC)
b) Laborers of Contractor against Owner of the work (Art. 1729,
NCC)

3. Third Person in Possession of Object of Contract. (Art. 1312, NCC)


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.

4. Fraud of Creditors by Contracting Parties. (Accion Pauliana) (Art.


1313, NCC)

Creditors are protected in cases of contracts intended to defraud


them. Creditors of the contracting parties may rescind contracts
intended to defraud them although they did not intervene therein.
(Reyes and Puno, 1964)

5. Tortious Interference. (Art. 1314, NCC)

6. Any third person who induces another to violate his contract shall
be liable for damages to the other contracting party (even though
the third person is not bound by the stipulations).

7. NOTE: This tort or wrongful conduct is known as “interference with


contractual relations.”

8. The word "induce" refers to situations where a person causes


another to choose one course of conduct by persuasion or
intimidation.

d. Consensuality of Contracts
i. Concept and Coverage
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 consequences which according to their nature
may be keeping in good faith, usage, and law. (Art. 1315, NCC)

Consensual contracts are perfected from the moment there is agreement


(consent) on the subject matter, and the cause or consideration. (Paras,
2021)

ii. Exceptions
Real contracts, such as deposit, pledge, commodatum, and simple loan
or mutuum are not perfected until the delivery of the object of the
obligation (CIVIL CODE, Art. 1316). Solemn contracts require compliance
with certain formalities prescribed by law, such prescribed form being
essential element thereof (DE LEON, Obligations and Contracts, supra
at 527-528).

e. Mutuality of Contracts
The contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them. (Art. 1308, NCC)

The principle of mutuality is the essential equality of the parties. It is repugnant to


bind one party, and yet leave the other free (Garcia v. Rita Legarda, Inc., L-20175,
30 Oct 1967)

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