Law on Contracts

Law on obligations and contracts (Don Honorio Ventura Technological State

University)

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Tittle II: Contracts Number of Parties: The Code states “two persons”;
what is meant actually is “two parties”. For a contract
to exist, there must be two parties. A party can be one
Article 1305. A contract is a meeting of minds
or more persons.
between two persons whereby one binds himself,
with respect to the other to give something or to • Husband & Wife: Husbands and wives cannot sell
render some service. to each other as a protection of the conjugal
partnership. They can however enter into a
➢ relate to Art. 1159 of
contract of agency.
➢ it takes place when an offer by one party
• Auto-contracts: It means one person contracts
is accepted by other.
himself. As a general rule, it is accepted in our law.
➢ Its NOT necessary that contract must be in
The existence of a contract does not depend on the
writing, except from contracts that required
number of persons but on the number of parties.
by the law that were written
There is no general prohibition against auto-
contracts; hence, it should be held valid.
• Obligation is the legal tie or relation itself • Contracts of Adhesion: Contracts prepared by one
that exists after a contract has been entered. party, containing provisions that he desires, and
• There can be no contract if there’s no asks the other party to agree to them if he wants to
obligation. But obligation may exist without enter into a contract.
a contract. (e.g it could be by law, quiasi
(e.g transportation tickets. It is valid contract according
contarcts, quasi delicts)
to Tolentino because the other party can reject it
entirely)
• Contract is one of the sources of obligations.
• a juridical convention manifested in legal
form, by virtue of which one or more persons CHARACTERISTICS OF CONTRACTS: 3
bind themselves in favor of another or others, ELEMENTS:
or reciprocally, to the fulfillment of a 1. Essential elements – without which there is no
prestation to give, to do or not to do. contract; they are: a) consent b) subject matter; and
c) cause
• All contracts are agreements. Because 2. Natural elements – exist as part of the contract
contracts is enforceable through a legal even if the parties do not provide for them, because
proceedings. the law, as suppletory to the contract, creates them
• NOT all agreements are contracts. Because 3. Accidental elements – those which are agreed by
there are agreements w/c cannot be enforced the parties and which cannot exist without stipulated
by action in courts. (e.g has agreements to
meet up with friends)
3 Stages of a Contract:
Other Terms: 1. Preparation or Conception – preparatory
step, bargaining point (hindi pa
Perfect promise – distinguished from a contract, in that
nagkakasundo), negation
the latter establishes and determines the obligations
arising therefrom; while the former tends only to - period of negotiation and bargaining, ending
assure and pave the way for the celebration of a at the moment of agreement of the parties
contract in the future. 2. Perfection or Birth of the contract – the
Imperfect Promise – mere unaccepted offer moment when the parties come to agree on
the terms of the contract.
Pact – a special part of the contract, sometimes
incidental and separable for the principal agreement 3. Consummation or Death – the fulfillment or
performance of the terms agreed upon in
Stipulation – similar to a pact; when the contract is an
any contract
instrument, it refers to the essential and dispositive
part, as distinguished from the exposition of the facts (e.g On Dec 1, P offer his car to G for 1m, G is
and antecedents upon which it is based. still thinking (PREPARATION).
On Dec 2, G made and offer to buy for 800,00, P
agreed (PERFECTION).

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 Dec 3, P deliver his car to G, G pay 800,000.
(CONSUMMATION)) END OF CONTARCT E. ACCORDING TO NAME OR DESIGNATION
1. Nominate- which has a name and is regulated
A. ACCORDING TO FORMATION: by special provision of law (e.g. sale, deposit,
1. Consensual- perfected by mere agreement of agency, lease)
the parties. (e.g. sales, lease) - May particular name or designation na binigay
2. Real- requires not only the consent of the ang batas like contract of partnership, sales,
parties for their perfection, but also the agency. May mga rules and regulations na
delivery naggogovern
of the object by 1 party to the other. (e.g.
commodatum, deposit,pledge). 2. Innominate- no specific name or designation in
3. Formal- requires some particular form (e.g. law
donation, chattel, mortagage) - Mga contracts na di pa nabigyan ng special
name
B. ACCORDING TO CAUSE OR EQUIVALENT VALE
OF PRESTATION: F. ACCORDING TO SUBJECT MATTER
1. Onerous- each of the parties aspires to produce 1. Involving Things (e.g. sale, deposit, pledge)
for himself a benefit through the giving of an 2. Involving rights or credit (e.g.
equivalent or compensation (e.g. sale) usufruct, assignment of credits)
- Dapat merong interchange 3. Involving service (e.g. agency, lease of service)
2. Gratiutous- one of the parties proposes to give
the other a benefit without any equivalent or G. ACCORDING TO NUMBER OF PERSON WHO
compensation (Commodatum) PARTICIPATED IN THE DRAFTING OF
- The other party will not receive any prestation. CONTRACTS
3. Remunerative- for service previously rendered. 1. Ordinary contract (e.g sale) – may say pareho
- The prestation was given for a benefit or service 2. Contract of adhesion (e.g. insurance contract)
that was rendered previously - Contract prepared by one party, containing
provisions that he desires, and asks the other
C. ACCORDING TO DEGREE OF DEPENDENCE: party to agree to them if he wants to enter
into
1. Principal- which can be subsist independently a contract, the only participation of the other
from other contracts and whose purpose can party is to sign his name and signature.
be
fulfilled by themselves (e.g. sales, lease)
- The contract stands alone H. ACCORDING TO FORM
2. Accessory- which can exist only as a 1. Informal, common or simple
consequence of, or in relation with, another 2. Formal or solenn
prior contract (e.g. pledge, mortgage)
- Kailangan may principal obligation which is I. ACCORDING TO OBLIGATORY FORCE
loan and attach doon si mortgage (accessory)

3. Preparatory- which has for its object the 1. Unilateral- one has an obligation
establishment of a condition in law which is 2. Bilateral- both parties has an obligation
necessary as a preliminary step towards
the celebration of another subsequent
contract. (e.g. agency or partnership
- Parties didn’t consider the contract as an end,
but a way for a future transactions or
contacts.

D. ACCORDING TO PARTIES OBLIGATED

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1306. The contracting parties may establish such
stipulations, clauses, terms & conditions as they may
deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public
policy.

• This article embodies the Principle of

Autonomy of Contracts
• Genaral Rule: Parties are free to stipulate
into anything, they can establish stipulation,
clauses, terms and conditions as they may
deem

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 convenient. HOWEVER, contract should means the public weal or public policy. It
be LEGAL. represents
• Freedom to contract: Any person has the
liberty to enter into a contract so long as they
are not contrary to law, morals, good customs,
public order or public policy. The legislature,
under the constitution, is prohibited from
enacting laws to prescribe the terms of a legal
contract.
• Validity of Stipulations: Any and all
stipulations not contrary to law, morals, good
customs, public order or public policy is valid
• Contrary to law: Freedom of contract is
restricted by law for the good of the public. It
is fundamental postulate that however broad
the freedom of the contracting parties may be,
it does not go so far as to countenance
disrespect for or failure to observe a legal
prescription. The Statute takes precedence.

Examples: A promissory note which represents

a gambling debt is unenforceable in the hands
of the assignee. Stipulations to pay usurious
interests are void.
A contract between to public service
companies to divide the territory is void
because it impairs the control of the Public
Service Commission.
Agreement to declare valid a law or ordinance
is void.

• Contrary to Morals: Morals mean those

generally accepted principles of morality
which have received some kind of social and
practical confirmation.

Examples: A promise to marry or nor to

marry, to secure legal separation, or to adopt
a child A promise to change citizenship,
profession, religion or domicile
A promise not to hold public office or which
limits the performance of official duties
A promise to enter a particular political party
or separate from it
contracts which limit in an excessive manner
the personal or economic freedom of a person
to make an act dependent on money or some
pecuniary value, when it is of such a nature that
it should not depend thereon; payment to kill
another.

• Contrary to Public Order: Public order

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 the public, social, and legal interest in
private law that which is permanent and
essential in institutions, which, even if
favoring some individual to whom the right
pertains, cannot be left to his own will. A
contract is said to be against public order if
the court finds that the contract as to the
consideration or the thing to be done,
contravenes some established interest of
society, or is inconsistent with sound policy
and good morals, or tends clearly to
undermine the security of individual rights.

Examples: Common carrier cannot stipulate

for exemption for liability unless such
exemption is justifiable and reasonable and
the contract is freely and fairly made.
Payment to intermediaries in securing
import licenses or quota allocations.
Contract of scholarship stipulating that the
student must remain in the same school
and that he waives his right to transfer to
another school without refunding the
school

Art. 1307. Innominate contracts shall be regulated by

⟶ May mga contracts na may specific name the stipulations of the parties, by the provisions of
or designation in law, SALE, PLEDGE, LOAN Titles I & II of this Book, by the rules governing the
⟶ Ang LAW ng SALE yon ang maggo-govern most analogous nominate contracts, and by the
sa CONTRACT OF SALE customs of the place.
⟶ LAW ON PLEDGE maggo-govern sa
CONTRACT OF SALE
INNOMINATE CONTRACTS these are contracts
which do not have specific name.
⟶ Ang mago-govern sa mga innominate
contracts ay

THE AGREEMENT GOVERNING

INNOMINATE CONTRACTS
1. The STIPULATION OF THE PARTIES --- pag
uusapan nila na ang agreement nila “this
agreement will be govern by getting on
the law on sales or something… contracts
are the law between the parties
2. TITLES I & II OF THIS BOOK (refers to
Law on Obligation and Contracts)- sa
mga innominate contracs, maggovern ang
Law on obligation and contracts

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 3. THE MOST ANALOGOUS NOMINATE contracting
CONTRACTS – kung ano ang batas (most
similar, most identical, kung ani ang closest or
congruent) na klasi ng contract, halimbawa
similar sa law of sale, yon ang iaapply or will
govern the contract.
4. THE CUSTOMS OF THE PLACE- unique
contracts which are specific to that place

4 KINDS OF INNOMINATE CONTRACT

1. do ut des (I give that you may give) – An
agreement in which A will give one thing to
B, so that B will give another thing to A.
2. do ut facias (I give that you may do) – An
agreement under which A will give something
to B, so that B may do something for A.
3. facio ut des (I do that you may give) – An
agreement under which A does something for
B, so that B may give something to A.
4. facio ut facias (I do that you may do) – An
agreement under which A does something for
B, so that B may render some other service for
A.

Analogous contracts: Innominate contracts,

in the absence of stipulations and specific
provisions of law on the matter, are to be
governed by rules applicable to the most
analogous contracts.

Art. 1308. The contract must bind both contracting

parties; its validity or compliance cannot be left to
the will of one of them.

⟶ Both parties are bind in order that it can

be enforced against each either
⟶ Contract should not be depend on the soul will
of one of the parties only, it should be both
⟶ Without equality bet. The parties, it cannot be
said that the contract has the force of law
between them.
⟶ Fundamental rule that no party can renounce
or violate the law of the contract without the
consent of the other.
❖ In a loan contract, pag yung isang party has
the SOLE DISCRETION/ UNITLATERAL RIGHT,
to
adjust interest anytime as he want. DAPAT NAG
AGREE ANG BOTH PARTY.
❖ S agreed to sell his car to B for P100,000.
The contract is binding upon both
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 parties and either of them can enforce the
contract against the other.
A stipulation in the contract to the effect that
the contract shall be considered invalid if so decalred
by S or that S can comply with his obligation if he
wants (ART1182) without the same privilege being
given to B is void because the contract does not bind
both of them. Nor can S alone determine the price of
the car which price is binding upon B whether he
accepts it or not.
➢ There must be mutual consent
➢ When one party has no right to
negotiate in the decision, it
VIOLATES MUTUALITY OF
CONTRACT.
But if the price fixed by S is accepted by B, the sale
is perfected. (ART1472) if S or B alleges fraud, he
must adduce satisfactory evidence.

ART. 1309. The determination of the performance

may be left to a third person, whose decision is shall
not be binding until it has been made known to both
contracting parties.
⟶ This is the exception to the Principal of
Mutuality of Contracts ART 1308
• the decision shall be bind the parties only after it
has been made known to both of them.
❖ S sold his parcel of land to B. It was agreed that C,
a real estate appraiser, would be the oneto
determine the reasonable price of the land. (Art
1469). C, then fixed the price after considering all
the circumstances and factors affecting the value
of the land.
• C must make known his decision to S
and B who will be bound by the same.

ART. 1310. The determination shall not be obligatory

if it is evidently inequitable. In such case, the courts
shall decide what is equitable under the
circumstances.
⟶ Exception to ART 1308 Mutuality of Contracts
⟶ when the third person acted in bad faith or by
mistake it is not obligatory, the courts shall
decide what is equitable under the
circumstances.

ART. 1311. Contracts take effect only between the

parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract
are not transmissible by their nature, or by stipulation

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by provision of law. The heir is not liable beyond the In this case, T bought the land subject to the
value of the property he received from the decedent. mortgage constituted thereon. In other words, T is
If a contract should contain some stipulation bound by the contract between C and D although he
in favor of a third person, he may demand its is a stranger to a said contract because the right of
fulfillment provided he communicated his acceptance C to the mortgage, being a real right, follows the
to the obligor before its revocation. A mere incidental property where it goes. (ART 11634)
benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately ART. 1313. Creditors are protected in cases of
conferred a favor upon a third person contracts intended to defraud them.
⟶ Principle of RELATIVITY OF CONTRACT -- ⟶ Exception to the Principal RELATIVITY OF
Contracts are generally effective only between CONTRACT
the parties, or their assigns and heirs ⟶ Other qualification to the rule that contracts
(1.) General Rule: party’s rights and obligations take effect only between the parties.
derived from a contract transmittable to • Creditor is given the right to impugn the
the successors. (ART1178) contracts of debtor intended to defraud
As a rule the act, declaration, or omission of a him. (ART1177)
person cannot affect or prejudice another without • Although he is not part to the contract, he
the latter’s authorization or ratification. can sue to prevent the debtor from
committing fraud against him.
❖ D is indebted to C in the amount of P10,000. ❖ D is indebted to C in the amount of P100,000.
D and C are the parties in the contract. D sells a parcel of land to T with the
knowledge of C in order that C may not attach
If C dies, D must pay the heirs of C. If C
the land in payment of his debt and D has no
assigns his credit to X, then D is liable
other property.
to pay X.
T, who is a stranger to the contract
(2.) Exceptions- the cases when a contract are
between D and C, is given by law the right to
effective only between the parties are when
ask for rescission or cancellation of the sale in
the rights and obligations arising from the
order that he may not be paid his claim.
contract are not transmittable.
a. By their nature
❖ Contract involving personal qualifications, ART. 1314. Any third person who includes another
painting, singing to violate his contract shall be liable for damages to
the other contracting party.
b. By stipulation (in accordance with the
⟶ Exception to the Principal RELATIVITY OF
principle of freedom to contract
CONTRACT
c. By provision of law • The injured party has the right to claim
❖ As in agency, partnership and commodatum, for damages against the person who
when death extinguishes the legal induces.
relationships. • INDUCE- refers to situation where a person
causes another to choose one course of
ART 1312. In contracts creating real rights, third conduct by persuasion or intimidation
persons who come into possession of the object of the • When a stranger to a contract can be sued for
contract are bound thereby, subject to the provisions damages for his unwarranted interference
of the Mortgage Law and the Land Registration Laws. with the contract. It presupposed that the
⟶ Exception to the Principal RELATIVITY OF contract interfered with is valid and the third
CONTRACT person has knowledge of the existence of the
Third Persons are bound by contracts creating legal contract.
goals • It is not required when a third person to be
❖ D mortgage his parcel of land in favor of C as liable that he acted with malice or in personal
a security for his debt. The mortgage is duly gain as long as there is no sufficient
registered in the Registry of Property. Later justification in the interference or inducement.
on, D sold the same land to T. ❖ A is a superstar, has a 1 year contract to 123
Studio. B is a friend of A, induces A to break
her contract without justifiable cause to break
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the

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 contract. Then 123 Studio can sue B for 3. Consummation or Death – the fulfillment or
damages performance of the terms agreed upon in
The liability of B does not arise ex contract for, any contract
actually there is no contract between B and (e.g On Dec 1, P offer his car to G for 1m, G is
123 Studio, BUT BECAUSE OF ART 1314, 123 still thinking (PREPARATION).
Studio On Dec 2, G made and offer to buy for 800,00, P
can claim for damages against beauty. Because agreed (PERFECTION).
B actually induces A to violate her contract
Dec 3, P deliver his car to G, G pay 800,000.
with 123 Studio.
(CONSUMMATION)) END OF CONTARCT

ART. 1315. Contracts are perfected by mere consent,

Consensual Contract
and from that moment the parties are bound not only
❖ Today S and B enter into a contract whereby
to the fulfillment of what has been expressly stipulated
S binds himself to sell his car to B for
but also to all the consequences which, according to
P500,000
their nature, may be in keeping with good faith, usage
and law. The contract is deemed perfected
⟶ Principle of CONSENSUALITY OF CONTRACTS. although there is no delivery yet of the car and
the payment.
COC- Consent to the Object and to the Cause of
the Contract. Both parties acquire the right to
demand from the fulfillment of his obligation;
to deliver the car on the part of S, to pay the
How Contracts are Perfected? amount on the part of B.
General Rule: Principle Consensually of Contract
Exceptions: Real Contract
Real Contract- required delivery ❖ Under the contract signed by A and B, B
Formal Contracts- Solemn contracts, nagrrequire agreed to loan P100,000 to A.
ng specific form of documents No contract of loan exists before B,s
delivery of P100,000 to A. under the Civil Code, a
contract of loan is a real contract; the delivery of
ART. 1316. Real contracts, such as deposit, pledge and the loan amount by B to A perfects the contract
commodatum, are not perfected until the delivery of (ART1394)
the object of the obligation Before the delivery of the loan amount, the
⟶ EXCEPTION to the Principle of contract between A and B is a mere contract of
CONSENSUALITY OF CONTRACTS loan (which is a consensual contract) Hence, A can
demand the delivery of the loan amount. The
Classification of contracts According to Perfection. contract of loan is perfected upon delivery by B of
Real Contract- perfected by the delivery of the thing the loan amount.
subject matter of the contract.
Consensual Contract- perfected by mere consent. EFFECT OF PERFECTION
Solemn Contract- requires compliance with certain They are bound not only to
formalities prescribed by law. 1. To the fulfillment of what has been
expressly stipulated
3 Stages of a Contract: 2. To all consequences which according to
their nature, may be in keeping with a good
1. Preparation or Conception – preparatory
faith, usage and law (ART. 1315)
step, bargaining point (hindi pa
nagkakasundo), negation
ART. 1317. No one may contract in the name of
- period of negotiation and bargaining, ending
another without being authorized by the latter, or
at the moment of agreement of the parties
unless he has by law a right to represent him.
2. Perfection or Birth of the contract – the
A contract entered into in the name of
moment when the parties come to agree on
another by one who has no authority or legal
the terms of the contract.
representation, or who has acted beyond his powers,
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unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting
party.
⟶ Unauthorized contracts are unenforceable
contracts = entered into without the authority
of the principal
⟶ Talks about a form of
UNENFORCEABLE CONTRACTS
❖ A owns a car, B sold A’ car without being
authorized to C. So the sale is being
unauthorized because it is not valid
General rule: a person is not bound by
the
contract of another of which he has no knowledge or
to which he has not given consent.
(1) A contract entered into by in the name of
another by one who has no authority is
unenforceable against the former unless it
is ratified by him before it is revoked by
the other contracting party.

Requisites for a person to a contract in the name of

another
1. He must be authorized (expressly or impliedly)
2. He must have by law, a right to represent him
3. The contract must be subsequently
ratified (express or implied)
❖ A owns a car, B sold A’ car without being
authorized to C. So the sale is being
unauthorized because it is not valid. LATER
ON, A collected the payment from C. that is
implied ratification sa pagbenta ni B ng
sasakyan ni A BECAUSE A COLLECTED THE
BENEFITS
• Ratification cleanses the contract from
its effect, meron siyang retroactive
effect

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