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Title II.

- CONTRACTS the former may not have all the elements of a


contract and create legally enforceable
CHAPTER 1 obligations.
GENERAL PROVISIONS  S, all contracts are agreements but not all
agreements are contracts.

Art. 1305. A contract is a meeting of minds between CONTRACT DISTINGUISHED FROM OTHER
two persons whereby one binds himself, with respect CONVENTIONS
to the other, to give something or to render some
Although a contract is a convention, or agreement of
service. (1254a)
wills, not every convention is a contract.
A contract is limited to agreements which produce
MEANING OF CONTRACT patrimonial liabilities. Contracts, therefore, are
distinguished from other acts based on the consent of 2 or
Sanchez Roman- a juridical convention manifested in more persons such as marriage, donation, adoption, and
legal form, by virtue of which one or more persons bind succession, in the following ways:
themselves in favor of another or others, or reciprocally,
to the fulfillment of a prestation to give, to do or not to do. 1. A contract creates obligations which are more
particular, concrete and transitory, because it establishes
The definition lays emphasis on the meeting of minds a relation which is more limited by reason of persons,
between 2 contracting parties which takes place when an effects and importance.
offer by 1 party is accepted by the other.
2. In contract, the freedom to stipulate predominates over
In a contract, there must be at least 2 persons or parties, necessity of the act; in other words, the intentions of the
because it is impossible for one to contract with himself. parties is the determining factor in contracts, while the
As a consensual relation, a contract must be shown to meeting of the minds is merely secondary in the other
exist as a fact, clearly and convincingly. acts.

CONTRACT AND OBLIGATION 3. The law is the principal source of rights and obligations
DISTINGUISHED in the other acts mentioned but in contracts the law has a
suppletory effect.
 Contract is one of the sources of obligation while
obligation is the legal tie or relation itself that OTHER TERMS
exists after a contract has been entered into. CONTRACT PERFECT IMPERFECT
 Hence, there can be no contract if there is no PROMISE PROMISE
obligation accepted in return for some benefit to The latter Tends only to Also designated
be enjoyed. But an obligation may exist without establishes and assure and pave as policitacion,
a contract such as the obligation imposed by law determines the the way for the constitutes a
to pay taxes. obligations celebration of a mere
arising contract in the unaccepted
CONTRACT AND AGREEMENT therefrom. future; until the offer.
DISTINGUISHED contract is
actually made,
 Contracts are binding agreements enforceable the rights and
through legal proceedings in case the other party obligations are
does not comply with his obligation under the not yet
agreement. To be valid and enforceable, a determined.
contract must be lawful and all the requisites for
its validity must be present.
 Those agreements which cannot be enforced by PACT STIPUATION
A special part of the Similar to a pact. When
action in the courts of justice (like an agreement
contract, sometimes the contract is an
to go to a dance party) are not contracts but
merely incidental and instrument, stipulation
merely moral or social agreements. An separable from the refers to the essential and
agreement is broader than the contract because principal agreement. dispositive part, as
distinguished from the STAGES OF CONTRACTS
exposition of the facts and
antecedents upon which it 1. Preparation- conception, or generation, which is the
is based. period of negotiation and bargaining, ending at the
moment of agreement of the parties.

NUMBER OF PARTIES 2, Perfection- or birth of the contract, which is the


moment when the parties come to agree on the terms of
The Code requires “two persons” for the existence of a the contract.
contract; obviously, what is meant by the law is “two
parties”. For a contract to exist, therefore, there must be 2 3. consummation- or death, which is the fulfillment or
parties to it. performance of the terms agreed upon in the contract.

AUTO-CONTRACTS CLASSFICATIONS OF CONTRACT

The existence of a contract is not determined by the 1. According to name or designation:


number of parties thereto; not by the number of individual a. Nominate
wills, but by the number of declarations of will. The
effective element is not the formation of the will but in its b. Innominate
declaration. In the auto-contract, there are two
2. According to perfection:
declarations, although made by the same person.
a. Consensual
CONTRACTS OF ADHESION
b. Real
There are cases in which one party has already prepared
form of a contract, containing the stipulations he desires, 3. According to cause:
and he simply asks the other party to agree to them if he
wants to enter into the contract. a. Onerous

CHARACTERISTICS OF CONTRACTS b. Remuneratory or remunerative

1. Obligatory Force- it constitutes the law a between the c. Gratuitous


parties 4. According to form:
2. Mutuality- its validity and performance cannot be left a. Informal, common or simple
to the will of only one of the parties.
b. Formal or solemn
3. Relativity- it is binding only upon the parties and their
successors. 5. According to Obligatory force:

ELEMENTS OF CONTRACTS a. Valid

1. Essential elements- those without which there can be b. Rescissible


no contract; these are consent, subject matter and cause.
c. Voidable
2. Natural elements- those which exist as part of the
d. Unenforceable
contract even if the parties do not provide for them,
because the law, as suppletory to the contract, creates e. Void or inexistent
them; the warranty against eviction in a contract of
purchase and sale is an example. 6. According to person obliged:

3. Accidental element- those which are agreed upon by a. Unilateral


the parties and which cannot exist without being b. Bilateral
stipulated.
7. According to risks:
a. Commutative (eg. sale, lease), when the
undertaking of one party is considered the
equivalent of that of the other.
b. Aleatory (eg. insurance, sale of hope), when it Art. 1306. The contracting parties may establish such
depends upon an uncertain event or contingency stipulations, clauses, terms and conditions as they may
both as to benefit or loss. deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public
8. According to liability
policy. (1255a)
a. Unilateral (eg. commodatum, gratuitious,
deposit), when it creates an obligation on the part
of only one of the parties. FREEDOM TO COMTRACT GUARANTEED
b. Bilateral (eg. sale, lease), when it gives rise to The right to enter into lawful contracts constitutes one of
reciprocal obligations for both parties. the liberties of the people of the state. It is embodied in
our Constitution. However, the constitutional prohibition
9. According to status:
against the impairment of contractual obligation refers
a. Executory, when it has not yet been completely only to legally valid contracts. It cannot be invoked as
performed by both parties. against the right of the state to exercise its police power.
In other words, an individual does not have an absolute
b. Executed, when it has been fully and right to enter into any kind of contract.
satisfactorily carried out by both parties.
VALIDITY OF STIPULATIONS
10. According to dependence to another contract:
Valid Contracts- are those that meet all the legal
a. Preparatory (eg. agency, partnership), when it requirements and limitations for the type of agreement
is entered into as a means to an end. involved and are, therefore, legally binding and
b. Accessory (eg. mortgage, guaranty), when it is enforceable.
dependent upon another contract it secures or The contract is the law between the contracting parties.
guarantees for its existence and validity. And where there is nothing in the contract which is
c. Principal (eg. sale, lease), when it does not contrary to law, morals, good customs, public policy, or
depend for its existence and validity upon another public order, the validity of the contract must be
contract but is an indispensable condition for the sustained.
existence of an accessory contract. Note: it is possible to have an agreement that meets all the
11. According to dependence of part of contract to criteria of a valid contract but is unenforceable in a court
other parts: of law for failure to comply with the statute of frauds.

a. Indivisible (or entire) (eg. sale of a dining room COMPROMISES


table and 8 matching chairs), when each part of The whole essence of a compromise is that by making
the contract is dependent upon the other parts for reciprocal concessions, the parties avoid litigation or put
satisfactory performance. an end to one already commenced. Such agreements must
b. Divisible (eg. sale of rocking chair and a pair not be contrary to law, good morals, public policy or
of shoes), when one part of the contract may be public interest. The court may not impose upon the parties
satisfactorily performed independently of the a judgment different from their compromise agreement.
other parts. Once approved by the court, the parties are enjoined to
comply strictly and in good faith with agreement.
NOTE: The kind of contract entered into is not
determined, however, by the name or title given to it by QUALIFICATION OF CONTRACT
the parties but, by its nature or character as determined by The law, not the parties, determines the juridical situation
the principles of law, principally the intention of the created by the parties through their contract and the rights
contracting parties. and obligations arising therefrom. A contract is to be
judged by its character, and courts will look to the
substance and not to the mere form of the transaction.
LIMITATIONS ON CONTRACTUAL A contract which has a tendency to be injurious to the
STIPULATIONS public or is against the public good is contrary to public
policy. Actual injury need not be shown.
There are limitations to the freedom to contract:
Art. 1307. Innominate contracts shall be regulated by
1. LAW- it is a fundamental requirement that the contract
the stipulations of the parties, by the provisions of
entered into must be in accordance with, and not
Titles I and II of this Book, by the rules governing the
repugnant to, an applicable statute. Its terms are embodied
most analogous nominate contracts, and by the
in every contract.
customs of the place. (n)
2. POLICE POWER- when there is no law in existence
or when the law is silent, the will of the parties prevails
unless their contract contravenes the limitation of morals, KINDS OF INNOMINATE CONTRACT
good customs, public order, or public policy. In short, all
1. DO UT DES (I give and you give)- is an agreement in
contractual obligations are subject- as an implied
which A will give one thing to B, so that B will give
reservation therein- to the possible exercise of the police
another thing to A.
power of the state.
2. DO UT FACIAS (I give and you do)- is a contract
LIMITATIONS ON STIPULATIONS
under which A will give something to B, in order that B
1. Contract must not be contrary to law. may do something for A.
Law- a rule of conduct, just, obligatory, promulgated by 3. FACIO UT DES (I do and you give)-is an agreement
legitimate authority, and of common observance and in which A binds himself to do something for B, so that B
benefit. will give something to A.
A contract cannot be given effect if it is contrary to law 4. FACIO UT FACIO (I do and you do)-is a convention
because law is superior to contract. whereby A is to do something for B, so that B will render
some other service for A.
Freedom to contract is restricted by law for the good of
the public. NOTE: Do ut Des is no longer an innominate contract. It
has already been given a name of its own, ie., barter or
Statutes generally have no retroactive effect and only the
exchange.
laws existing at the time of the execution of the contract
are applicable to the transaction. REASON FOR INNOMINATE CONTRACT
2. Contract must not be contrary to morals. The impossibility of anticipating all forms of agreement
on one hand, and the progress of man’s sociological and
Morals- deal with norms of good and right conduct
economic relationships on the other, justify this provision.
evolved in a community; those generally accepted
principles of morality which have received some kind of A contract will not be considered valid for failure to
social and practical confirmation. conform strictly to the standard contracts outlined in the
Civil Code. It is sufficient that it has all the elements of a
These norms may differ at different times and places and
valid contract.
with each group of people.
RULES GOVERNING INNOMINATE
3. Contract must not be contrary to public order
CONTRACTS
Public order- refers to public safety although it has been
1. the agreement of the parties
considered to mean also the public weal.
2. the provisions of the Civil Code on Obligations and
4. Contract must not be contrary to public policy contracts
Public policy- is broader than public order, as the former
3. the rules governing the most analogous contracts
may refer not only to public safety but also to
considerations which are moved by the common good. 4. the customs of the place
Art. 1308. The contract must bind both contracting Art. 1309. The determination of the performance may
parties; its validity or compliance cannot be left to the be left to a third person, whose decision shall not be
will of one of them. (1256a) binding until it has been made known to both
contracting parties. (n)

MUTUALITY OF CONTRACT
DETERMINATION OF PERFORMANCE BY A
The binding effect of the contract on both parties is based
THIRD PERSON
on the principles:
Under the preceding article, compliance with a contract
1. That obligations arising from contracts have the force
cannot be left to the will of one of the contracting parties.
of law between the contracting parties; and
However, under the above provision, the determination of
2. That there must be mutuality between the parties based its performance may be left to a third person. In such case,
on their essential equality, to which is repugnant to have the obligation does not depend upon a potestative
one party bound by the contract leaving the other free condition.
therefrom.
The decision, however, shall bind the parties only after it
The ultimate purpose is to render void contract containing has been made known to both of them.
condition which makes its fulfillment dependent
Art. 1310. The determination shall not be obligatory if
exclusively upon the uncontrolled will of one of the
it is evidently inequitable. In such case, the courts shall
contracting parties.
decide what is equitable under the circumstances. (n)
UNILATERAL CANCELLATION
Once a contract is entered into, no party can renounce it
EFFECT WHERE DETERMINATION
unilaterally or without the consent of the other. It is a
INEQUITABLE
general principle of law that no one may be permitted to
change his mind or disavow and go back upon his own This article is a qualification to Article 1309. A
acts, or to proceed contrary thereto, to the prejudice of the contracting party is not bound by the determination if it is
other party. evidently inequitable or unjust as when the third person
acted in bad faith or by mistake. In such case, the courts
The unilateral act of one party in terminating the contract
shall decide what is equitable under the circumstances.
without legal justification makes it liable for damages.
XPN: When it is stipulated. An agreement of the parties
that either one of them may terminate the contract upon a
reasonable period of notice, is valid.
Judicial action for the rescission of a contract is not
necessary where the contract provides that it may be
revoked and cancelled for the violation of any of its terms
and conditions. The right of rescission may be waived.
EXPRESS AGREEMENT; Under this article, it is
perfectly licit to leave the fulfillment of the contract to the
will of either of the parties in the negative form of
rescission, a case which is frequent in certain contracts,
for in such case, neither is the article violated, nor is there
any lack of equality between the persons contracting,
since they remain with the same faculties in respect to
fulfillment. Thus, this article creates no impediment to the
insertion in a contract for personal services permitting the
cancellation of the contract by one of the parties.

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