Contracts:

According to law, 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. However, it was criticized for its
restrictive limits thus a more complete definition of it is, a juridical convention manifested in legal form,
by virtue of which one or more person bind themselves in favor of another, or others, or reciprocally, to
the fulfillment of a prestation to give, to do, or not to do.

Meeting of minds of the contracting parties- this is to speak the intent of the parties in entering into the
contract respecting the subject matter and the consideration thereof.

As a general rule there can be no contract in the absence of the element of agreement or mutual assent
of the parties, for consent is the essence of the contract.

Q: Can a same person enter into a contract?

Yes, what is actually meant by two person in the provision of Article 1305 is two parties. Hence, a
contract may be entered into involving a single person so as long as he is representing two different
parties, for he may act in his own right and as representative of another. Generally, it is allowed except
in cases wherein it is expressly prohibited due to conflict of interest.

In law, the agent himself is allow to be the lender if he has been empowered by his principal to borrow
money provided that he lends at the current interest rate. In such case, the law allows the agent to
contract with himself because he is representing two parties: 1. As a lender in his personal capacity and
the agent of the borrower. The possible conflict of interest is avoided for he can only lend at the current
rate of interest but if in case that he has been authorized to lend money at interest the law likewise
prohibit it except if he is allowed or with consent of the principal for the same purpose.

Characteristics of contracts

1. Obligatory force of contracts- it means that obligation arising from contracts have the force
of law between parties and should be complied with in good faith.
2. Autonomy of contracts- contracting parties may establish such stipulations, clauses, or
terms and conditions as they may deem convenient, provided that they are not contrary to
law, morals, good customs, public order, or public policy.
3. Mutuality of contracts- contract must bind both contracting parties and the validity or
compliance cannot be left to the will of one of them.
4. Relativity of contracts- contracts takes effect only between parties, their assign heirs, except
in case where the rights and obligations arising from contract are not transmissible by their
nature, or by stipulation or by provision of law.

Classification of Contracts

1. According to the degree of dependence

 a. Preparatory- it means that it is not end by itself but only means for the execution of another
contract.
b. Principal – it exist independently of other contracts because it has its own purpose which
does not depend upon any other contact.
c. Accessory- it cannot exists as an independent contract since its consideration is the same as
that of the principal contract.
2. According to perfection
a. Consensual- which is perfected by mere consent or upon mere meeting of the minds. Once,
there is concurrence between the offer and the acceptance upon the subject matter and the
consideration, a contract is produced.
b. Real- which is perfected only upon the delivery of the object of the contract
3. According to the nature of the obligation
a. Unilateral- which creates obligation only on one side or on the part of only one of the
contracting parties.
b. Bilateral- which creates obligations on both sides or on both parties. They are mutually
creditors and debtors of one another.
4. According to name
a. Nominate- which has individuality on its own and is distinguished by a particular or
special name in the civil code.
b. Innominate- which is without any individuality of its own and not especially named or
classified in the Civil code although recognized it.
5. According to cause
a. Onerous- where the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other.
b. Remuneratory- where the cause is the service or benefit for which the remuneration is
given.
c. Gratuitous- where the cause is the mere liberality of the benefactor.
6. According to risk involved
a. Commutative- which each of the contracting parties gives and receives an equivalent or
there is a mutual exchange of relative values.
b. Aleatory- which each of the parties or both reciprocally bind themselves to give or to do
something in consideration of what the other shall give or do upon the happening of an
event which is uncertain, or which is to occur at an indeterminate time.
7. According to requirement of form or solemnity
a. Common- does not require any form. As a rule, contracts are obligatory in whatever
form they may have been entered into, provided all the essential elements of a contract
are present.
b. Special or solemn- which requires certain formalities either for its validity or
enforceability.
Art. 1306 Autonomy of contracts

As a rule, contracts should not be tampered with by subsequent laws that would change or modify the
rights and obligations of the parties. However, the constitutional prohibition on the impairment of the
obligation of contract does not prohibit every change in existing laws, and fall within the prohibition, the
change must not only impair the obligation of the existing contract, but the impairment must be
substantial. Substantial impairment happens when a law which changes the terms of a legal contract
between parties, either in the time or mode of performance, or imposes new conditions, or dispenses
with those expressed, or authorizes for its satisfaction something different from that provided in its
terms, is law which impairs the obligation of a contract and is therefore null and void. It is anything that
diminishes the efficacy of the contract.

The rule is not absolute, for as long as the contract affects the public welfare one way or another so as
to require the interference of the state, then must the police power prevail over the impairment clause.

Laws, which by the terms of a contract must not contravene are those;

1. Which expressly declare their obligatory character

2. which are prohibitive

3. which express fundamental principles of justice which cannot be overlooked by the contracting
parties.

4. which impose essential requisites without which the contract cannot exist.

Article 1307

Innominate contracts- shall be regulated by the parties, by the general provisions or principles of
obligations and contracts, and by the custom of the people.

Note: despite if the absence of an express contract a person can claim for the payment of services
rendered against another. Even if the service is solicited or offered.

Because there was a tacit and mutual consent as to the rendition of the services. This gives rose to the
obligation upon the person benefited by the services to make compensation therefor, since bilateral
obligation to render service is incurred. Except if it appears to be a gratuitously given.

Article 1308 (mutuality of contracts) - Article 1310

It will render void if the contract containing condition is dependent on the sole will of one of the
contracting parties.
As a general rule, if the contracts grant the creditor an unbridled right to adjust the interest
independently and upwardly thus, completely depriving the debtor of the right to assent to an
important modification in the agreement is void because it violates the mutuality of contracts.

The contract must be consented by both contracting parties. Sending memos in which the other parties
did not reply is not per se a valid response that they consented on the modification.

This mutuality of contract is not violative in terms of lease agreement, resolutory condition.

Contract adhesion- as one in which one of the parties imposes ready-made contract, which the other
party may accept or reject, but which the latter cannot modify. The other party merely affixes his
signature on the contract. This contract are not void per se as a general rule it is binding just like an
ordinary contracts for the reason that party who adheres to the contract is free to reject it entirely
except when the weaker party is imposed upon in dealing with the dominant bargaining party and is
reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on
equal footing. However, the complainant must show that he is not knowledgeable enough to have
understood the terms and conditions of the contract if in case that he is expected to be more prudent
and cautious with respect to his transactions, thus he cannot claim the same.

Determination of performance by third person

As a rule the validity of a contract cannot be left to the will of one of the contracting parties however it
can be left to the determination of a third person and it will be binding provided that it will be made
known to the contracting parties and the same shall not be inequitable. The court shall decide if it is
inequitable under the circumstances.

Article 1311- 1314

Relativity of contracts

Statement of Principle

Based on the principle of relativity if contracts, the same can only bind the parties who entered into it,
and cannot favor or prejudice a third person, regardless if the latter is aware or has acted with
knowledge thereof. Unless , it was expressly made by the contracting parties. As a consequence of the
this principle, where there is no privity of contract, there is likewise no obligation or liability to speak
about.

Heirs are also bound by contracts

General rule : the heirs are bound by the contracts entered into by their predecessor-in-
interest. Hence, the same can be compel to fulfill the stipulated obligation wherein there is a valid
agreement entered into by their predecessor in interest, except when the rights and obligations are not
transmissible. (in case of death)
In the case of contract of lease, as a general rule, the same is transmissible to the heirs of the lessor or
lessee because the contract is not essentially personal in character.

(in case of renew the lease) as a general rule, conevants renew a lease are not personal but will run with
the land. The heirs of the lessee are entitled to the benefits, while the lessor are burdened with the
duties and obligations, in which said contract conferred and imposed on the original parties.

The same goes to contract of lease with option to buy and the right of first refusal

When prior to his death the predecessor in interest had already sold the parcels of land the heirs are
bound by the contract of sale executed by the former. Thus, making the said land not formed part of thr
estate which the heirs could inherit.

Exception

1. Intransmissibility by nature of right and obligation, refers to a situation where the peculiar
individual qualities are contemplated as a principal inducement of the contract.
2. Intransmissibility by stipulation of the parties, being exceptional and contrary to the general
rule, should not be easily implied, but must expressly established, or at the very least, clearly
inferable from the provisions of the contract itself
3. Intransmissibility of obligations under the law. It is where the law expresses that the rights or
obligations are extinguished by death (legal support, parental authority, usufruct, contract for a
piece of work, partnership, and agency) except in guaranty or suretyship

Rule on monetary debts

as a general rule, whenthe deceased had left debts, the heirs are not personally liable for such debts of
the deceased however, it must be collected from the property left by the same and if it is not sufficient
to cover all of them, the heirs cannot be liable to the uncollectible balance.

The money debts of a deceased must be liquidated and paid from his estate before the residue is
distributed among said heirs.

Exception to the relativity of contracts

1. Contracts may confer benefits to a third person or what are otherwise also known as stipulation
pour autrui.
2. In contracts creating real rights, third persons who come into possession of the object of the
contract may be bound thereby under the provisions of mortgage laws and land registration
laws.
3. Creditors are protected in cases of contracts intended to defraud them, such that they can ask
for their rescission.
4. Any third person who induces another violate his contract can be made liable for damages to
the other contracting party
5. Accion directa is allowed by law in certain cases.
 Contracts may confer benefits to a third person or what are otherwise also known as stipulation
pour autrui. ( not party to the contract)

General rule, contracts take effect only between the parties thereto, except in some specific
circumstances provided by law where the contract contains some stipulation in favor of a third
person.

Under this doctrine, the third person is allowed to avail himself of a benefit granted to him by the
terms of the contract, provided that the contracting parties have clearly and deliberately conferred
a favor upon such person.

Parties

1. The promisor (the party obliged to perform the prestation in favor of the third person
2. The promisee ( the party of obtains and accept the promise
3. The third person or beneficiary ( the party who acquires the right to demand the prestation
from the promisor) who may be a determinate, indeterminate,

The third party may be either 1. Donee beneficiary, 2. Creditor beneficiary, 3. Incidental beneficiary

Donee beneficiary- if the stipulation is in the nature of a gift and for the sole benefit of a third person

Creditor beneficiary- where an obligation is due from the promise of a third person which the former
seeks to discharge by means of such stipulation (when a transfer of property is coupled with a
purchaser’s promise to pay a debt owing from the seller to a third person

Incidental beneficiary- absent or intent to benefit a third person

As a general rule, Incidental beneficiary has no right or obligation under the contract thus, it is not
considered stipulation pour atrui.

Classes:

Those where stipulation is intended for the sole benefit of such person’

Those where an obligation is due from the promise to the third person which the former seeks to
discharge by means of such stipulation

Requisite of stipulation pour atrui

1. There is a stipulation in favor of a third person

2. The stipulation is a part not the whole, of the contract
3. Contracting parties clearly and deliberately conferred a favor to the third person
4. The favor is unconditional and uncompensated
5. Third person communicated his or her acceptance of the favor before its revocation
6. The contracting parties do not represent or are not authorized by, the third party.
To constitute a valid stipulation pour atrui, it must be the purpose and intent of the stipulating
parties to benefit the third person and it is not sufficient that the third person may be incidentally
benefited by the stipulation.

The court ruled that while the plaintiff may not be a party to the said agreement, the above quoted
stipulation conferred in favor upon him, a holder of credit card validly issued by the bank. Such
stipulation, according to the court, is a stipulation pour atrui. Under Art. 1311 of the civil code the
plaintiff may demand its fulfillment provided he communicated his acceptance to the restaurant
before its revocation.

Requirement of acceptance

the law does not provide when the third person must make his acceptance.

As a rule, there is no time limit; such third person has all the time until the stipulation is revoked.
The third person may accept the benefit in any form.

Revocation of stipulation Pour Atrui

Stipulation pour atrui can be revoked prior to its acceptance by the third person beneficiary. After
acceptance the stipulation may no longer be revoked for the beneficiary is already entitled to
demand for its fulfillment

Right of the parties

Contracts creating real rights

a registered mortgage lien is considered inseperable from the party inasmuch as it is a right in rem.
All subsequent purchasers thereof must respect the mortgage, whether the transfer to them be
with or without the consent of the mortgagee.

Contract in fraud of creditor

1. May pursue properties in the possession of the debtor

2. Exercise all the rights and bring all the actions of the debtor, except purely personal to such
debtor
3. Impugn the acts which the debtor may have done to defraud them

The creditor can ask for the rescission of the contract even if they are not parties thereto.

In order that an action afainst third person for contractual interference can be maintained the ff.
elements must concur;

1. Existence of a valid contract

2. Knowledge on the part of the third person of the existence of the contract (it is not necessary to
prove actual knowledge, he must only know the facts which, if followed by a reasonable inquiry ,
 will lead to a complete disclosure of the contractual realtions and rights of the parties in the
contract)
3. Interference of the third person without legal justification or excuse (no malice or bad faith
involved)

A third person can be held liable for turtous interfence with contractual relations even if he does not
know the identity of one of the contracting parties.

Article 1315- 1316

Perfection of contracts

Stages of contracts

1. Negotiation or preparation
2. Perfection’
3. Consummation

Negotiation or preparation- it begins when the prospective contracting parties manifest their interest in
the contract and ends at the moment of their agreement. It is initiated by an offer, which should be
certain with respect to both object and the cause or consideration of the envisioned contract. In order
to produce a contract there must be an acceptance, which may be express or implied, but it must not
qualify the terms of the offer. The acceptance of the offer must be unqualified and absolute to perfect
the contract so as to produce consent or meeting of minds consent or meeting of minds. Consent is the
meeting of the offer and acceptance upon the thing which are to constitute a contract. Once there is
concurrence of the offer and acceptance of the object or cause, the stage of communication is finished.

Perfection- it means the birth of contracts it occurs when they both agreed upon to the essential
elements thereof

Consummation- it is the last stage, occurs when the parties fulfill or perform the terms agreed upon in
the contract, culminating in the extinguishment thereof. If the offer is not accepted either impliedly or
expressly it precludes the existence of consent, which is one of the essential elements of contract.

Contract must be perfected in order to be an independent source of obligation and serve as a binding
juridical relation.

As a general rule, the negotiation stage does not grant of one of the parties the right to recover
damages from the other.

An imperfect promise is merely an offer.

As a general rule, until a contract is perfected, are not considered binding commitments. Thus, at any
time prior to the perfection of the contract, either negotiating party may stop the negotiation. Except,
when the parties entered into a contract of option, which is defined as a preparatory contract in which
the party grants to the other, in a fixed period and under specified conditions, the power to decide,
whether or not to enter into the principal contract.

When the contract of option is deemed perfected, it would be a breach of that contract to withdraw the
offer during the agreed period.

Not all forms of fraud can vitiate consent. In order that fraud may vitiate consent, it must be causal, not
merely incidental. Fraud must be the determining cause of the contract, or must have caused the
consent to be given. If the fraud is merely incidental, the person employing the fraud is only liable to
pay damages. When we say fraud merely incidental, those fraud who are not serious in character and
without which the other party would still have entered into the contract.

Instances were there is existence of causal fraud: 1. When the seller, who had no intention to part with
her property, was tricked into believing, that what he signed were papers pertinent to her application
for reconstitution of her burned certificate of title, not a deed of sale

2. when the signature of the authorized corporate officer was forged.

3. when the seller was seriously ill, and died a week after signing the deed of sale raising doubts on
whether the seller could have read or fully understood, the contents of the documents he signed or of
the consequences of his act.