CONTRACTS
Art. 1305. 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.
Contract – is a juridical convention manifested in legal form,
by virtue of which, one or more persons (or parties) bind
themselves in favor of another or others, or reciprocally, to
the fulfillment of a prestation to give, to do or not to do.
Elements of a Contract
a) Essential elements – without them a contract
cannot exist.
a. Consent
b. Subject matter
c. Cause or consideration
b) Natural elements – those found in certain contracts,
and presumed to exist, unless the contrary has been
stipulated
a. Warranty against eviction and against
hidden defects in the contract of sale.
c) Accidental elements – these are the various
particular stipulations that may be agreed upon by
the contracting parties in a contract. They may be
present or absent, depending upon whether or not
the parties have agreed upon them.
Classification of Contracts
a) According to perfection or formation:
a. Consensual – perfected by mere consent
b. Real – perfected by delivery
c. Formal or solemn – special formalities are
essential before the contract may be
perfected.
b) According to cause or equivalence of the value of
prestation:
a. Onerous – where the is an interchange of
equivalent valuable consideration
b. Gratuitous or lucrative – free, one party
receives no equivalent prestation except a
feeling that one has been generous or
liberal
c. Remunerative – one prestation is given for
a benefit or service that had been rendered
previously
c) According to importance:
a. Principal – the contract may stand alone
itself
b. Accessory – depends for its existence upon
another contract; ex. Mortgage(a) – loan(p)
c. Preparatory – as a means thru w/c future
transaction or contracts may be made. Ex.
Agency or partnership.
d) According to the parties obligated:
a. Unilateral – where only one of the parties
has an obligation; ex. Commodatum
i. Even here, the giving of consent
must be mutual or bilateral.
b. Bilateral or synalagmatic – both parties are
required to render reciprocal prestations
e) According to their name and designation:
a. Nominate – the contract is given a
particular or special name
b. Innominate or contratos innominados –
those not given special name; ex. Do ut des
f) According to the risk of fulfillment:
a. Commutative – the parties contemplate a
real fulfillment; equivalent values are given
b. Aleatory –the fulfillment is dependent upon
chance; the values varies because of the
risk or chance; ex. Insurance contract
g) According to the time of performance:
a. Executed – the obligation are complied with
at this time; ex. Sale of property has already
been deliver and which has already been
paid for.
i. In the case of personal property,
this results in tangible property
itself, a “chose in possession”
b. Executory – the prestations are to be
complied with at some future time; ex. A
perfected sale, where the property has not
yet been delivered and the price has not yet
been given;
i. for the meantime there is only a
“chose in action”
h) According to subject matter:
a. Contracts involving things – ex. sale
b. Contracts involving rights and credits –
transmissible; ex. Contract of usufruct or
assignment of credits
c. Contracts involving services – ex. Agency,
lease of service, a contract of carriage
i) According to obligations imposed and regarded by
the law:
a. Ordinary – ex. Sale
b. Institutional – ex. Contract of marriage
j) According to the evidence required for its proof:
a. Those requiring merely oral or parol
evidence
b. Those requiring written proof – contracts
enumerated under the Statute of Frauds
k) According to the number of persons actually or
physically entering into the contracts:
a. Ordinary – 2 parties are represented by
different persons; ex. Sale
b. Auto-contracts – only one person
represents 2 opposite parties, but in
different capacities; ex. Agent representing
his principal sells a car to himself as a buyer.
l) According to the number of persons who
participated in the drafting of the contract:
a. Ordinary
b. Contract of adhesion – its provisions are
drafted by only one party and the only
participation of the other party is to sign
m) According to the nature of the contract:
a. Personal; & b. Impersonal
Stages of a Contract
a) Preparation (or Conception or “Generacion”)
- The parties have not yet arrived at any definite
agreement, although there may have been a preliminary
offer and bargaining
b) Perfection (or birth)
- The parties have at long last came to a definite
agreement, the elements of definite subject matter and
valid cause have been accepted by mutual consent.
c) Consummation (or death or termination)
- The terms of the contract are performed, and the
contract may be said to have been fully executed.
Parties to a Contract
Meeting of the minds refers to two parties. If at the time of
supposed perfection, one of the parties had already
previously died. There can be no meeting of minds; hence,
no contract.
While a promissory note is unilateral (in that only one party
has signed it and is bound thereby), still such a contract
includes two parties (the debtor and the creditor). Thus, the
signer is not the only party, nor the only one who can sue on
such contract. There can be no obligor without an obligee.
The meeting of minds may arise because of an express or
implied accord. (Such as when services as an interpreter and
guide, whether solicited or not, were accepted and duly
rendered; here, an obligation to pay for such services exists)
Basic Principles or Characteristics of a Contract
a) Freedom to Stipulate
b) Obligatory Force and Compliance in good faith
c) Perfection by mere consent
d) Both Parties are Mutually Bound
e) Relativity or Relatively
Co-existence of a Contract with a Quasi Delict
The existence of a contract between the parties does not
constitute a bar to the commission of a tort by one against
the other, and the consequent recovery of damages.
Legal Effects of a Contract – How Determined
The legal effects of a contract are determined by extracting
the intention of the parties from the language they used
and from their contemporaneous and subsequent acts.
Delivery of the Thing
Although the supplier did not actually hand the contraband
to the buyer, he placed it on top of the vault where the latter
could have easily gotten it after paying him. There was, thus,
a constructive delivery of the drug.
What is material is proof that the transaction actually took
place with the presentation in court of the corpus delicti or
the substantial fact that a crime has been committed.
Art. 1306. 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.
Principle of Freedom
The free entrance into contracts generally without
restraint is one of the liberties guaranteed to the people.
However, the constitutional prohibition against the
impairment of contractual obligations refers only to
contracts which are legal, not to void or inexistent ones.
Limitations on the Nature of the Stipulations
a) The law – the contract must respect the law, for the law
forms part of the contract.
b) morals – deal with right and wrong and with human
conscience.
c) good customs – those that have received for a period of
time practical and social confirmation.
d) public order – deals with the public weal and includes
public safety.
e) public policy – which varies according to the culture of a
particular country, is the public, social and legal interest in
legal law.
- a contract is contrary to public policy if it has a
tendency to injure the public, is against the public good, or
contravenes some established interest of society or is
inconsistent with sound policy and good moral or tends
clearly to undermine the security of individual’s rights.
Art. 1307. Innominate contracts shall be regulated by the
stipulations of the parties, by the provisions of Titles I and
II of this Book, by the rules governing the most analogous
nominate contracts and by the customs of the place.
Governing Rules for Innominate Contracts
a) stipulations
b) Titles I and II of Book IV – Obligations and Contracts
c) rules on the most ANALOGOUS nominate contracts
d) customs of the place
The 4 Kinds of Innominate Contracts
a) do ut des (I give that you may give)
b) do ut facias (I give that you may do)
c) facio ut des (I do that you may give)
d) facio ut facias (I do that you may do)
Art. 1308. The contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one
of them.
Mutuality of Contracts
Both parties are bound. This principle is based on
the essential equality of the parties. It is repugnant to bind
one party, and yet leave the other free.
Consequence of MUTUALITY
A party cannot revoke or renounce a contract
without the consent of the other or can it have it set aside
on the ground that he had made a bad bargain.
Exception to Inviolability of Contractual Obligations
The free exercise of religious beliefs is superior to
contractual rights. An example is the belief of a religious sect
that its members should not join a labor organization or
participate in a collective bargaining agreement.
Art. 1309. The determination may be left to a third person,
whose decision shall not be binding until it has been made
known to contracting parties.
Determination by Third Person
In a contract of sale, the fixing of the price and the
delivery date can be left to a third person.
and at his death the reconveyance had not yet been made,
the heirs can be compelled to execute the proper deed for
reconveyance.
The heirs however are not liable beyond the value of the
property they received from the decedent.
In order to question the validity of contracts entered into by
his predecessor, or bring an action to annul the same, he
must be a COMPULSORY HEIR. For the simple reason that
the deceased could do with the property whatever he
desired as long as he respects the rights of his compulsory
or forced heirs.

When Decision Is Binding May compulsory heirs question the deceased’s

The decision binds the parties only after it is made
known to both.
Effect of Stipulation Regarding Arbitration
If in a contract, there is a stipulation for arbitration
and one party, in case of dispute, refuses to submit the
matter to arbitration, the aggrieved party who goes to court
to request it to order the other party to submit the matter
to arbitration, should NOT anymore present to the court the
merits of the disputed matter. The decision on said merits
will be up to the arbitrator. The only function of the Court in
this case would be to decide whether or not the parties
should proceed to arbitration.
Art. 1310. The determination shall not be obligatory if it is
evidently inequitable. In such case, the court shall decide
what is equitable under the circumstances.
transactions?
If they were VOIDABLE – YES
If they were illicit or illegal – NO, because even the deceased
had no right to question them herself and had no right to
recover the properties illicitly conveyed. However, an action
to rescind the contract can prosper, insofar as the legitimes
of the compulsory heirs are prejudiced.
Rights of the predecessor may be transmitted to the heirs
provided they are not intransmissible.
1) The heirs of the beneficiary of a trust may
enforce the trust as against the trustee
2) The heirs may continue a lease contract entered
into by the deceased.

Art. 1311

Principle of Relativity
- That is, contracts are generally effective only
between the parties, their assigns, and their heirs.

Exceptions:
a) Where, the obligations arising from the contract are not
transmissible by their NATURE, by STIPULATION, or by
PROVISION OF LAW.
b) Where there is a STIPULATION POUR AUTRUI (a
stipulation in favor of a third party)
c) Where a third person induces another to violate this
contract.
d) Where, in some cases, third persons may be adversely
affected by a contract where they did not participate.
e) Where the law authorizes the creditor to sue on a
contract entered into by his debtor.

Reason for the rule:

Res inter alios acta aliis neque nocet prodest.
(The act, declaration or omission of another, cannot affect
another, except as otherwise provided by law)

Strangers cannot generally demand the enforcement of a

contract nor can they demand its annulment nor are they
bound by the same.

Heirs are bound to respect the contracts entered into by

their predecessors in interest in view of their PRIVITY OF
INTEREST with such predecessor. Therefore, if the
predecessor was duty-bound to reconvey land to another,