CONTRACTS 2.

Accessory – an accessory contract is one which can

exist only as a consequence of, or in relation with,
CHAPTER 1: ARTICLE 1305-1317 another prior contract (i.e. pledge, mortgage)
3. Preparatory – a preparatory contract is one which has
Article. 1305. A contract is a meeting of minds between two
for its object the establishment of a condition in law
persons whereby one binds himself, with respect to the other, to
which is necessary as a preliminary step towards the
give something or to render some service.
celebration of another subsequent contract (i.e.
*It takes place when an offer by one part is accepted by the partnership, agency)
other.
According to Parties Obligated:
Distinguish from Obligation
1. Unilateral – a unilateral contract is one which gives rise
➢ Contract is one of the sources of obligations to an obligation for 1 of the parties (i.e. commodatum,
➢ Obligations is the legal tie or relation itself that exists gratuitous deposit)
after a contract has been entered into. 2. Bilateral – a bilateral contract is one which gives rise to
➢ Hence, there can be no contract there is no obligation. reciprocal obligations for both parties (i.e. sale, lease)
But an obligation may exist without a contract
According to Name or Designation:
Distinguish form Agreement
1. Nominate – a nominate contract is one which has a
name and is regulated by special provisions of law (i.e.
➢ All contracts are agreements, but NOT all agreements
sale, deposit, agency, lease)
are contracts
2. Innominate – no specific name or designation in law
Stages in the life of Contracts
According to Subject Matter:
1. Preparation, conception, or generation – period of
1. Involving Things (i.e. sale, deposit, pledge)
negotiation and bargaining, ending now of agreements
2. Involving Rights or Credits (i.e. usufruct, assignment
of the parties
of credits)
2. Perfection or birth of the contract – the moment when
3. Involving Services (i.e. agency, lease of services)
the parties come to agree on the terms of the contract.
3. Consummation or death – the fulfillment or According to Number of Person who participated in the
performance of the terms agreed upon in any contract. drafting of contracts:
According to Perfection or Formation: 1. Ordinary (i.e. sale)
2. Contract of adhesion (i.e. insurance contract) -
1. Consensual – perfected by mere agreement of the
Provisions are drafted by only one party and the only
parties (i.e. sale, lease)
participation pf the other party is to sign his name, his
2. Real - Requires not only the consent of the parties for
signature or his adhesion to the contract.
their perfection, but also the delivery of the object by 1
party to the other (i.e. commodatum, deposit, pledge) According to risks:
3. Formal – requires some form (i.e. donation, chattel,
mortgage) 1. Commutative (e.g., sale, lease) - when the undertaking
of one party is considered the equivalent of that of the
According to Cause or equivalent value of Presentation: other; and
2. Aleatory (e.g., insurance, sale of hope) - when it is
1. Onerous – each of the parties aspires to procure for
depends upon an uncertain event or contingency both
himself a benefit through the giving of an equivalent or
as to benefit or loss.
compensation (i.e. sale)
2. Gratuitous – one of the parties proposes to give to the Article. 1306. The contracting parties may establish such
other a benefit without any equivalent or compensation stipulations, clauses, terms and conditions as they may deem
(i.e. commodatum) convenient, provided they are not contrary to law, morals, good
3. Remunerative – for service previously rendered. customs, public order, or public policy.
According to Degree of dependency: This article embodies the principle of autonomy of contracts
1. Principal – a principal contract is one which can submit Meaning of valid contracts – Valid contracts are those that meet
independently from other contracts and where purpose all the legal requirements
can be fulfilled by themselves (i.e. sales, lease)
*Note: It is possible to have an agreement that meets all the 2. Innominate contract or that which has no specific
criteria of a valid contract but is unenforceable in a court of law name or designation in law.
for failure to comply with the Statutes of Frauds.
Kinds of innominate contract.
Freedom to contract guaranteed – any person has the liberty to
1. do ut des (I give that you may give);
enter into a contract so long as they are not contrary to law,
2. do ut facias (I give that you may do);
morals, good customs, public order or public policy
3. facto ut des (I do that you may give);
Limitations on contractual stipulations 4. facto ut facias (I do that you may do).

There are limitations to the freedom to contract Do ut des is, however, no longer an innominate contract. It has
already been given a name of its own, i.e., barter or exchange.
1. Law – it is fundamental requirement that the contract
entered into must be in accordance with, and not Reasons for innominate contracts.
repugnant to, an applicable statue.
The impossibility of anticipating all forms of agreement on one
2. Police power - when there is no law in existence or
hand, and the progress of man’s sociological and economic
when the law is silent, the will of the parties prevails
relationships on the other, justify these provisions.
unless their contract contravenes the limitation of
morals, good customs, public order or public policy. Rules governing innominate contracts.
Contract must not be contrary to law. (1) The agreement of the parties;
(2) The provisions of the Civil Code on obligations and
Law has been defined as “a rule of conduct, just, obligatory,
contracts;
promulgated by legitimate authority, and of common observance
(3) The rules governing the most analogous contracts;
and benefit.”
(4) The customs of the place
A contract cannot be given effect if it is contrary to law because
Analogous contract: Innominate contracts, in the absence of
law is superior to a contract.
stipulations and specific provisions of law on the matter, are to
Contract must not be contrary to morals. be governed by rules applicable to the most analogous
contracts.
Morals deal with norms of good and right conduct evolved in a
community. These norms may differ at different times and places Article. 1308. The contract must bind both contracting parties;
and with each group of people. its validity or compliance cannot be left to the will of one of them.

Contrary must not be contrary to good customs. *Principle of Mutuality of Contract:

Customs consist of habits and practices which through long The binding effect of contract on both parties is based on the
usage have been followed and enforced by society or some part principles;
of it as binding rules of conduct. It has the force of law when
recognized and enforced by law. • That obligation arising from contracts have the force of
law between the contracting parties
Contrary must not be contrary to public order. • That there must be mutuality between the parties based
1. Public order refers principally to public safety although on their essential equality, to which is repugnant to
it has been considered to mean also the public weal. have one party bound by the contract leaving the other
2. Public policy is broader than public order, as the free therefrom.
former may refer not only to public safety but also to Article.1309. The determination of the performance may be left
considerations which are moved by the common good. to a third person, whose decision shall not be binding until it has
Article. 1307. Innominate contracts shall be regulated by the been made known to both contracting parties.
stipulations of the parties, by the provisions of Titles I and II of
this Book, by the rules governing the most analogous nominate
• Exception to Art. 1308 (Mutuality of Contract)
contracts and by the customs of the place. • A third person may be called upon to decide whether or
not performance has been done for the fulfillment of
Classification of contracts according to its name or the contract. Such decision becomes binding when the
designation. contracting parties have been informed of it.
1. Nominate contract or that which has a specific name Article. 1310. The determination shall be obligatory if it is
or designation in law (e.g., commodatum, lease, evidently inequitable. In such case, the courts shall decide what
agency, sale, etc.,); and is equitable under the circumstances.
 • Exception to Art. 1308 (Mutuality of Contract) Meaning of stipulation pour autrui – is a stipulation in a
contract clearly and deliberately conferring a favor upon a third
• However, when the decision cannot be arrived due to
person who has the right to demand its fulfillment provided he
inequity, the courts shall decide what is equitable for
communicates his acceptance to the obligor before its
the parties involved.
revocation by the obligee or the original parties.
Article. 1311. Contracts take effect only between the parties,
Classes of stipulations pour autrui
their assigns and heirs, except in case where the rights and
obligations arising from the contracts are not transmissible by Stipulations in favor of a third person may be divided into two (2)
their nature, or by stipulation or by provision of law. The heir is classes, namely:
not liable beyond the value of the property he received from the
decedent. If a contract should contain some stipulation in favor (1) Those where the stipulations is intended for the sole
of a third person, he may demand its fulfillment provided he benefit of such person
communicated his acceptance to the obligor before its (2) Those where an obligation is due from the promise to
revocation. A mere incidental benefit or interest of a person is the third person which the former seeks to discharge by
not sufficient. The contracting parties must have clearly and means of such stipulation, as, for instance, where a
deliberately conferred a favor upon a third person. transfer of property is coupled with the purchaser’s
promise to pay a debt owing from the seller to a third
Persons affected by a contract. person.

(1) General rule – as a general rule, a party’s rights and In the first case, the third party is said to be a done beneficiary
obligations derived from a contract are transmissible to while in the second, he is called creditor beneficiary.
the successors. Under Article 1311 contracts take
effect only between the parties, their assigns and heirs. Requisites of stipulation pour autrui.
This means only the parties, their assigns and heirs can (1) The contracting parties by their stipulation must have
have the rights and obligations under the contract. clearly and deliberately conferred a favor upon a third
As a rule, the act, declaration, or omission of a person person;
cannot affect or prejudice another. (2) The third person must have communicated his
(2) Exceptions – the cases when a contract are effective acceptance to the obligor before its revocation by the
only between the parties are when the rights and obligee or the original parties;
obligations arising from the contract are not (3) The stipulation in favor of the third person should be a
transmissible: part, not the whole, of the contract;
(a) By their nature (like a contract involving personal (4) The favorable stipulation should not be conditioned or
qualifications, as painting, singing, etc.); or compensated by any kind of obligation whatever; and
(b) By stipulation (in accordance with the principle of (5) Neither of the contracting parties bears the legal
freedom to contract); or representation or authorization of the third party for
(c) By provisions of law (as in agency, partnership, and otherwise, the rules on agency will apply.
commodatum, when death extinguishes the legal
relationships). Article. 1312. In contracts creating real rights, third persons who
came into possession of the object of the contract are bound
Cases when strangers or third persons affected by a contract. thereby, subject to the provisions of the Mortgage Law and the
A third person is one who has not taken part in a contract and is, Land Registration laws.
therefore, a stranger to the contract. As a general rule, a third *Real rights in Property
person has no rights and obligations under a contract to which
he is a stranger. He has no standing in law to demand the • A real right directly affects property subject to it; hence,
enforcement of a contract or question its validity. whoever is in possession of such property must respect
that real right.
These are cases, however, when third persons may be affected
by a contract. Among such cases are the following: Article. 1313. Creditors are protected in cases of contracts
intended to defraud them.
(1) In contracts containing a stipulation in favor of a third
person (stipulation pour autrui) (Art. 1311) *Contracts in Fraud of Creditors
(2) In contracts creating real rights (Art. 1312)
(3) In contracts entered into defraud creditors (Art.1313); When a debtor enters into a contract in fraud of his creditors,
and such as when he alienated property gratuitously without leaving
(4) In contracts which have been violated at the enough for his creditors (Art 1387), the creditor may ask for its
inducement of a third person. (Art.1314) rescission.
Article. 1314. Any third person who induces another to violate (2) Real contract that which is perfected by the delivery of
his contract shall be liable for damages to the other contracting the thing subject matter of the contract (e.g.,
party. depositum, pledge, commodatum) (Art. 1316; see Arts.
1934, 1963, 2093); and
* see Arts. 1177 and 1380
(3) Solemn contract or that which requires compliance
* Interference of Third Persons: with certain formalities prescribed by law, such
prescribed form being thereby an essential element
If a third person induced a party to violate his side of the thereof.
contract, the other party may sue the third person for damages.
Stages in the life of a contract.
• Requisites:
(1) Preparation or negotiation
• the existence of a valid contract (2) Perfection or birth
• knowledge by the third person of the existence of a (3) Consummation or termination
contract
Effects of perfection of the contract.
• interference by the third person in the contractual
relation without legal justification (1) To the fulfillment of what has been expressly stipulated
but also;
* Extent of Liability: (2) To all the consequences which according to their
nature, may be in keeping with good faith, usage, and
• The extent of liability of a third person interfering is
law. (Art. 1315)
limited to the damage that the other party incurred.
• Liability is solidary, the offending party and the third Article. 1317. No one may contract in the name of another
person, because in so far as the third person is without being authorized by the latter, or unless he has by law a
concerned, he commits a tortious act or a quasi-delict, right to represent him.
for which solidary responsibility arises. A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his
Article. 1315. Contracts are perfected by mere consent, and
powers, shall be unenforceable, unless it is ratified, expressly or
from that moment the parties are bound not only to the
impliedly, by the person on whose behalf it has been executed,
fulfillment of what has been expressly stipulated but also to all
before it is revoked by the other contracting party.
the consequences which, according to their nature, may be in
* Ratification necessary:
keeping with good faith, usage and law.
• A contract entered into in behalf of another who has not
* embodies the Principle of Consensuality: authorized it is not valid or binding on him unless he
ratifies the transaction.
• Perfection of a contract, in general: the moment from
which it exists; the juridical tie between the parties
• When ratified, he is estopped to question the legality of
the transaction.
arises from that time.
• Perfection of Consensual Contracts: the mere
• Kinds of ratification:
1. Express
consent which is the meeting of the minds of the parties
2. Implied
upon the terms of the contract
1. consent may not be expressly given. * Binding Effect of
• The ratification has a retroactive effect from the
moment of its celebration, not from its ratification.
Consensual Contracts:
2. The binding force of such contracts are not limited to • Before ratification, the contract is in a state of
what is expressly stipulated, but extends to all suspense; its effectivity depends on its ratification. The
consequences which are the natural effect of the other party must not do anything prior to ratification
contract, considering its true purpose, the stipulations that shall prejudice the rights of the other party.
it contains, and the object involved. • When not ratified, the person who entered into a
contract in behalf of another without authority becomes
Article. 1316. Real contracts, such as deposit, pledge or liable to the other party, if he did not inform the latter
commodatum, are not perfected until the delivery of the object that he does not have any representation or authority.
of the obligation.
• When such deficiency or lack of authority has been
Classification of contracts according to perfection. relayed to the other, he cannot claim for damages
against he person without authority.
(1) Consensual contract or that which is perfected by When a person is bound by the contract of another.
mere consent (e.g., sale, lease, agency) (Art. 1315) (1) The person entering into the contract must be duly
authorized, expressly or impliedly, by the person in
 whose name he contracts or he must have, by law, a
right to represent him (like a guardian or an
administrator); and
(2) He must act within his power.
A contract entered into by an agent in excess of his
authority is unenforceable against the principal, but the
agent is personally liable to the party with whom he
contracted where such party was not given sufficient
notice of the limits of the power granted by the
principal.

CHAPTER 2: ESSENTIAL REQUISITES OF CONTRACTS

GENERAL PROVISIONS

Article. 1318. There is no contract unless the following requisites

concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
• There must be at least 2 parties to every contract. The
number of parties, however, should not be confused
with the number of persons.
• A single person can represent 2 parties, and one party
can be composed of 2 or more persons.
• Consent presupposes capacity. There is no effective
consent in law without the capacity to give such
consent.
• REQUISITES of CONTRACT IN GENERAL:
- may either be =
➢ ESSENTIAL= without which there would be no
contract;
➢ COMMON = present in all contracts = Consent,
object, and cause [COC]
➢ SPECIAL =present only in certain contracts (e.g.
delivery in real contracts or form in solemn ones)
➢ EXTRAORDINARY = peculiar to a specific contract
(e.g. price in a contract of sale)
• NATURAL = derived from the nature of the contract, and
as a consequence, ordinarily accompany the same,
although they can be excluded by the contracting
parties if they so desire
• ACCIDENTAL = those which exist only when the
contracting parties expressly provide for them for the
purpose of limiting or modifying the normal effects of
the contract.