1 - General Provisions of Contracts

CONTRACTS
TITLE II:
CONTRACTS
(Arts. 1305-1422, Civil Code)
General Provisions
Essential Elements of Contracts
Form of Contracts
Reformation of Contracts
Interpretation of Contracts
Defective Contracts
What is a contract?
•A contract is the 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)
How do you distinguish
contract from obligation?
What are the elements of a
contract?
• 1. Essential elements
those without which there will be no
contract.
1. Consent of the contracting parties.
2. Object certain which is the subject
matter of the contract.
3. Cause of the obligation which must be
established. (At. 1318)
• 2. Natural elements
those found in certain contracts unless
set aside by the parties.
• 3. Accidental elements
those that refer to stipulations agreed
upon by the parties
What are the classification of
contracts?
•1. According to perfection or
formation
a. Consensual
those that are perfected by mere
consent (Ex. sale, lease and
agency) (Article 1315)
b. Real
those that are perfected by the delivery
of the object of the contract (Ex. deposit,
pledge, commodatum) (Article 1316)
c. Formal or solemn
those which must be in the form
provided by law for their perfection (Ex.
donation of an immovable which must be
in a public instrument together with the
acceptance of donee to be valid.)
• 2. According to cause
a. Onerous
where there is an exchange of
valuable considerations (Ex. sale
and barter). For each contracting
party, the cause is the prestation or
the promise of a thing or service by
the other. (Art. 1350)
b. Gratuitous or lucrative
where one party receives no
equivalent consideration (Ex. donation,
commodatum).
These contracts are referred to as
contracts of pure beneficence, the
cause of which is the liberality of the
benefactor. (Art. 1350)
c. Remuneratory
the cause here is the service or
benefit remunerated (Art. 1350)
3. According to importance or
dependence of one upon the other.
a. Principal
one that can stand by itself (Ex. sale,
loan).
b. Accessory
one whose existence depends upon
another contract (Ex. pledge or mortgage
which is dependent upon the contract of
loan).
4. According to name or designation
a. Nominate
those which have a name under
the law (Ex. sale, loan).
b. Innominate
those without a name under the
law. The following are innominate
contracts:
• Do ut des (I give that you may give)
• Do ut facias (I give that you may do)
• Facio ut des (I do that you may give)
• Facio ut facias (I do that you may do)
5. According to risk of fulfillment
a. Commutative
those were the parties give
equivalent values (such as sale or
barter).
b. Aleatory
those whose fulfillment depends
upon chance (Ex. insurance contract)
6. According to the parties obligated
a. Unilateral
those where only one of the parties
is obligated to give or do something
(Ex. commodatum and gratuitous
deposit)
b. Bilateral
those were the parties are required
to perform reciprocal obligations (Ex.
sale and barter).
What are the stages of a contract?
1. Preparation or conception or
negotiation
involves preliminary negotiations
and bargaining, discussion of terms
and conditions, with no arrival yet
of a definite agreement.
2. Perfection or birth
the point when there is a meeting of
minds between the parties on a
definite subject matter and valid
cause and the terms and conditions.
3. Consummation or death or
termination
when the terms of the contract have
been fulfilled resulting in its
accomplishment.
Basic Principles of Contract
a. Liberty of contract or freedom to
stipulate (Principle of Autonomy)
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)
May the validity or compliance of
a contract be left to the will of the
contracting parties?
b. 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)
Thus, a contract with a suspensive
condition is void if the fulfillment of the
obligation depends upon the sole will
of the debtor. (Art. 1182)
May the determination of the
performance of the contract be
left to a third person?
Example:
Joshua wants to sell his mansion to
Rayland. However, the parties cannot agree
as to the price, so they agreed and asked
Charles ,a real estate appraiser ,to
determine the reasonable price of the
mansion. Upon considering all the
circumstances, Charles informed the parties
that the value of the mansion is 10 million.
Is the determination by Charles of the value
of the mansion valid?
The determination of the performance
may be left to a third person, whose
decision shall not be binding until it has
been made known to both contracting
parties. (Art. 1309)
Who are the persons affected
by a contract?
c. Relativity of contracts
• Contracts take effect only between
the parties, their assigns and heirs.
(Art. 1311)
• This only means that the parties, their
assigns and heirs can have rights and
obligations under the contract.
Example:
Kevin, the spouse of Marinel is indebted

to Richard, the father of May and Kit, in
the amount of P100 million. Who are the
parties to the contract?
Answer:
Kevin and Richard
Example:
If Richard dies, to whom must Kevin
pay?
Answer:
To May and Kit, the surviving heirs of
Richard.
Example:
What if Richard assigns his credit to
Edrain, to whom should Kevin pay?
Answer:
To Edrain
Example:
What if Kevin dies, who will pay his
obligation of P100 million?
Answer:
His wife, Marinel will assume the
obligation.
Exemptions to the rule on relativity
of contracts:
a. Where the rights and obligations

arising from the contract are not
transmissible by their nature, or by
stipulation or provision of law.
Example:
Kevin entered into a contract with Kim and
agreed to sing in her restaurant for a
consideration of P10K. What will happen
to the obligation of Kevin in case he dies
after they agreed on the contract?
Answer:
The obligation is extinguished and cannot
be assumed by his wife Marinel because
such obligation is not transmissible.
b. Where there is a stipulation clearly and
deliberately conferred by the parties in
favor of a third person (stipulation pour
autrui).
Such third person may demand its
fulfillment provided he communicated his
acceptance to the obligor before its
revocation. (Art. 1311)
What is a stipulation pour autrui?
● it is a stipulation in a contract clearly

and deliberately conferring a favor
upon a third person who has a right
to demand its fulfillment provided he
communicates his acceptance to the
obligor before its revocation.
Requisites of stipulation pour
autrui?
● The contracting parties by their

stipulation must have clearly and
deliberately conferred a favor upon a
third person;
● Third person must have
communicated his acceptance to the
obligor before its revocation by the
obligee or the original parties;
● The stipulation in favor of the third
person should be a part, not the
whole, of the contract;
● The favorable stipulation should not
be conditioned or compensated by
any kind of obligation whatever; and
● Neither of the contracting parties
bears the legal representation or
authorization of the third party for
otherwise, the rules on agency will
apply.
Example:
Michelle is indebted to Charlyn in the
amount of P10K payable after one year
at 10% interest. It was agreed that the
interest of P1K would be given to Irene
to whom Charlyn is indebted for the
same amount.
● In this case, Irene must communicate her
acceptance to Michelle before the revocation of
the stipulation by the parties in order that the
same will be effective.
● From the moment communication of
acceptance is duly made, Irene becomes a
party to the contract.
● The promisee (Charlyn) in a contract containing
a stipulation pour autrui is entitled to bring an
action for its enforcement or to prevent its
breach in the same manner as the beneficiary
(Irene) thereof.
c. In contracts creating real rights, third
person who comes into possession of
the object of the contract are bound
thereby, subject to the provisions of
the Mortgage Law and the Land
Registration laws. (Art. 1312)
Example:
Rea is indebted to Mary in the amount
of P1 million. As a security for the debt,
Rea mortgaged her 1 hectare of land.
The mortgaged was registered.
Thereafter, Rea sold the property to
Kelly.
In this case, Kelly is bound by the
contract between Rea and Mary.
d. In contracts intended to defraud
creditors, the law gives them
protection. (Art. 1313)
Example:
● Rea is indebted to Mary in the amount of

P10K. Rea sells a parcel of land to Kelly in
order that Mary may not attach the land in
payment of her debt and Rea has no other
property.
● Mary, who is a stranger to the contract
between Rea and Kelly, is given by law the
right to ask for the rescission or cancellation
of the sale in order that he may be paid his
claim.
d. Consensuality of contract
Contracts are perfected by mere
consent (Art. 1315) except in the
following contracts which need to
comply with additional requirements:
1. In real contracts such as deposit,
pledge, and commodatum, which are
perfected upon the delivery of the
object of the obligation. (Art. 1316)
2. In formal or solemn contracts,
which are required to be in the form
provided by law, to be perfected,
such as the donation of an
immovable which must be in a public
instrument together with the
acceptance thereof. (Art. 749);
otherwise, the contract is void.
e. Obligatory force of contract and
compliance in good faith
Obligations arising from contracts
shall have the force of law between
the contracting parties and should be
complied with in good faith. (Art. 1159)
Upon the perfection of the contract,
the parties are bound to the following:
1. The fulfillment of what has been
expressly stipulated.
2. All the consequences which,

according to their nature, may be in
keeping with good faith, usage and
law. (Art. 1315)
May a person enter into a
contract in the name of another
person?
Example:
● Dan borrowed P10K from Carlo in whose

favor he executed a promissory note. In the
note it is stated that Dan is acting as the
agent of Pat and that the money is intended
for Pat. Pat never authorized Dan to borrow
money from C.
What are the requisites in order
that a person may be bound by
the contract of another?
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; and
2. He must act within his power.
Example:
● Pam (principal) authorized Angel (agent) to

sell her car for P200K cash. Angel sold the
car to Cindy for P200k payable in ten (10)
monthly installments.
End of Discussion

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CONTRACTS

•A contract is the meeting of minds

Kevin, the spouse of Marinel is indebted

a. Where the rights and obligations

● it is a stipulation in a contract clearly

● The contracting parties by their

● Rea is indebted to Mary in the amount of

2. All the consequences which,

● Dan borrowed P10K from Carlo in whose

● Pam (principal) authorized Angel (agent) to

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