GENERAL PROVISIONS OF

CONTRACT
By: Atty.
 PARTS OF THE TOPIC
• I – GENERAL PROVISIONS
• II – ESSENTIAL REQUISITES OF CONTRACTS
• III – FORM OF CONTRACTS
• IV – REFORMATION OF INSTRUMENTS
• V – INTERPRETATION OF CONTRACTS
• VI – RESCISSIBLE CONTRACTS
• VII – VOIDABLE CONTRACTS
• VIII – UNENFORCEABLE CONTRACTS
• IX – VOID AND INEXISTENT CONTRACTS
 GENERAL PROVISIONS
• ART. 1305 A contract is a meeting of minds between two persons
whereby one binds himself, with respect to other, to give something
or to render some service
• SUGGESTED DEFINITION
It is a meeting of the minds between two or more parties, whereby one
party binds himself with respect to the other, or where both parties
bind themselves reciprocally , in favor of one another, to fulfill a
prestation to give, to do or not to do.
 GENERAL PROVISIONS
• THREE STAGES IN THE MAKING OF A CONTRACT
1. Conception or Generation – This is the first stage where the parties begin
their initial negotiation and bargaining for the formation of the contract
ending at the moment of agreement of the parties. It is also called the
preparatory stage.
2. Perfection or Birth – This is the second stage where the contract is said to
have been born. Here, the parties had a meeting of minds as to the
object, cause or consideration and other terms and conditions of the
contract. It has passed the preparatory stage. This is the birth of the
contract.
3. Consummation or Fulfillment – This is the last stage which consists in the
performance or fulfillment by the parties of their obligations under the
of the perfected contract. Consummation is accomplishment, death, or
termination of the contract. The parties ceased to be contractually
related to one another.
 GENERAL PROVISIONS
• CLASSIFICATIONS OF CONTRACTS
1. According to their names:
(a) Nominate – those which have been given particular names or
denominations by law.
Examples:
Sale – parties: seller/vendor – buyer/vendee
Barter – trade governs by the contract of sale
Mortgage – Real Estate Mortgage and Chattel Mortgage
parties: mortgagor- mortgagee
 GENERAL PROVISIONS

Lease – rent parties: lessor – lessee

Carriage – transportation
Parties to the contract:
1. Carrier – the party which agrees to transport
2. Shipper – the party whose goods are transported
3. Passenger – the person object of the transportation
4. Consignee – the person to whom the goods are sent
 GENERAL PROVISIONS

Agency – authority to certain act

Parties: Principal (Mandante) – Agent (Mandatario)
Partnership - *Art. 1767 – By the contract of partnership two or more
persons bind themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits among
themselves. Two or more persons may also form a partnership for the
exercise of a profession
Art. 1768 – The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to
comply with the requirements of Article 1772, first paragraph
 GENERAL PROVISIONS
Commodatum – gratuitous loan of a non-consumable thing
Parties: bailor - bailee
Deposit – delivery of the thing for safekeeping
Parties: depositor – depositary
Insurance – one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent
event
Parties: Insurer – every person, partnership, association or corporation
duly authorized by the Insurance Commission to transact insurance
business may be an insurer
Insured – anyone except a public enemy may be insured
 GENERAL PROVISIONS
Antichresis – the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to payment of
the interest, if owing, and thereafter to the principal of his credit
Parties: debtor – creditor
(b) Innominate – those which have not been given any particular name and
not regulated by special provision of law. Roman law has classified them as
follows:
(aa) Do ut des (I give that you may give)
(bb) Do ut facias (I give that you may do)
(cc) Facio ut facias (I do that you may do)
(dd) Facio ut des (I do that you may give)
 GENERAL PROVISIONS

• 2. According to their subject matter:

(a) Contracts covering things – such a contract of sale, deposit, pledge
(b) Contracts covering services – such as contract of carriage whether
common or simple: agency, deposit.
(c) Contract covering transmissible rights or credits – such as a contract
of usufruct, assignment of credits
• 3. According to formation or perfection:
(a) Consensual – those perfected by mere consent such as sale
(b) Real – those which cannot be perfected without delivery such as
commodatum, depositum, pledge
 GENERAL PROVISIONS
(c) Formal – those which cannot be perfected without compliance with the
special formalities required by law such as donations and mortgages of real
property. They are also called solemn contracts because they have to comply
with the formalities or solemnities required by law, otherwise, they are void.
• 4. According to cause:
(a) Onerous – those contract providing for exchange of valuable
considerations such as sale where the seller delivers the object of the
contract and the buyer pays the purchase price thereof.
(b) Gratuitous – those contracts where one of the parties give something or
renders service to the other without receiving any equivalent or
compensation such as pure donation and commodatum. This is also
called a lucrative contract because it provides a gain to the other party
for free.
 GENERAL PROVISIONS
(c) Remunerative – those contracts where one party gives something or
renders service to another in consideration of a previous or past deeds of the
other.
• 5. According to the vinculum produced or according to the party or parties
obligated:
(a) Unilateral – those where only one of the parties is bound to fulfill an
obligation such as: (a) commodatum where the borrower must preserve
the property and return it to the lender at the appointed time; and (b) a
promissory note where only the promisor had signed it.
(b) Bilateral – those where both parties have reciprocally bound themselves
to fulfill their obligations in favor of the other such as sale. These are also
known as synalagmatic contracts
 GENERAL PROVISIONS

• 6. According to the certainty of fulfillment:

(a) Commutative – those contract where the contracting parties
contemplate the assured fulfillment of the terms and conditions of
their agreement such as contracts of mortgage and pledge. Here,
generally, there is no risk to anticipate
(b) Aleatory – those contracts where the fulfillment is dependent upon
chance or event which may not happen within the period stipulated
such as an insurance contract. Here, the loss contemplated may or
may not happen. If it happens, the insurance company shall pay.
 GENERAL PROVISIONS
• 7. According to completion of performance:
(a) Executed – those contracts which are already completed when formally
entered into such as a sale of a thing which has already been delivered and
paid for. There can be a partially executed contract when there was already
partial payment.
(b) Executory – those contracts where the prestation promised by the parties
have yet to be fulfilled at some future date such as unilateral promise to sell
which has been accepted. The sale is not yet executed.
• 8. According to the dependence of one contract upon the other:
(a) Principal – those contracts which can exist by themselves alone without
depending upon another such as sale, lease, deposit, commodatum
 GENERAL PROVISIONS
(b) Accessory – those contracts which cannot exist alone but must
depend upon another contract such as mortgage, which depends upon
the existence of a contract of loan. The principal contract is the loan
while the mortgage is the accessory contract.
(c) Preparatory – those contracts entered into for the creation of
another contract such as an agency. In agency, the principal gives
authority to the agent to do a particular act. Equipped with a Special
Power of Attorney to sell, the agent, for instance, sells a property
belonging to the principal. Here, the agency was established in
preparation for the contract of sale.
A partnership is also an example of preparatory contract
 GENERAL PROVISIONS

• 9. According to the number of person/s actually participating in the

contract:
(a) Ordinary – those contracts where two (or more) parties are represented
by different persons such as in sale. There is seller and a buyer.
(b) Auto-Contracts – those contracts where two opposite parties are
represented by the one and the same person, who represents and acts in
different capacities – such as an agent representing his principal who
authorized him to borrow money, may himself lend the money but not
the other way around. The agent, if authorized to lend money, cannot be
the borrower without the consent of the principal (Art. 1890). Auto-
contracts are allowed, unless there is a specific law prohibiting them.
 GENERAL PROVISIONS

• 10. According to the dignity accorded by law:

(a) Institutional – those contracts which are given special dignity by law
such as a contract of marriage which is considered a “social
inviolable institution” and as such is considered as the foundation
of the family by the Constitution (Art.XV, Section 2), and the Family
Code (Art.1,FC).
(b) Ordinary – those which are not institutional such as sale, lease,
deposit, etc.
 GENERAL PROVISIONS
• 11. According to the Freedom of bargain:
(a) Ordinary – those where both parties are placed on equal footing in the
negotiation and perfection of the contract.
(b) Contract of adhesion – those where one of the parties had drafted the
contract for the other party to accept or not to accept such as an
insurance contract which is already printed. The adherent has no
freedom of bargain because he cannot modify the ready made covenant
( See Polotan, Sr. vs. CA, 296 SCRA 247). His freedom is only to choose
one of two options: either he takes or leaves it. If he takes it, he is giving
his consent, hence, he is bound thereby (Ong Yiu vs. CA, 91 SCRA 223
[1979]).
They are binding as ordinary contracts where the party adhering thereto is free to
reject it in its entirety (Ridjo Tape & Chemical Corporations v. Ca, 286 SCRA 544 [1998]).
 GENERAL PROVISIONS
However, these contracts are strictly interpreted against the party who
drafted them (Angeles vs. Calasanz, 135 SCRA323). They are accorded
inordinate vigilance and scrutiny by the courts in order to shield the
unwary from deceptive schemes contained in ready made covenants
(Ayala Corp. vs. Ray Burton Dev. Corp., 294 SCRA 48).
The validity and enforceability of a contract of adhesion will be
determined by the peculiar circumstances obtaining in each case and
the situation of the parties concerned.
It is not in itself an invalid agreement (Ayala Corporation vs. Ray Burton
Development Corporation, supra)
 GENERAL PROVISIONS
• 12. According to the evidence needed to prove their existence:
(a) Contracts covered by the Statute of Frauds – those contracts which require a
written evidence, note or memorandum to prove their existence (Art. 1403,
par.2).
(b) Contracts which cannot be proved by oral or parol evidence such a lease
contract for a period of less than one year; a contract of sale where there was
already full or partial payment
• 13. According to the personality of the parties:
(a) Personal – those contracts where the person of the party is essential to the
existence of the contract such as a contract for life insurance where the
contract shall cease to exist upon the death of the insured.
(b) Impersonal – those contract where the person/s of a part or parties are not
essential to the continuity of the contract such as contract of lease. The death
of the lessor or the lessee will not necessarily terminate the contract. The heirs
may continue the contract.
 GENERAL PROVISIONS
• 13. According to the manner the consent is given.
(a) Express – those contracts where the consent of the parties is given
expressly in writing or verbally.
(b) Implied – those contracts where the consent of the parties is not
given expressly but is deducible from the conduct or acts of the
parties such as an implied agency when the principal fails to
repudiate the acts of the person acting in his behalf, knowing such a
situation (Art. 1869).
(c) Presumed – those contract where the consent was not given by the
parties but is presumed or provided by the law itself, to prevent
unjust enrichment on the part of one party to the prejudice of the
other, such as quasi-contracts (Art.2142; 2144).
 GENERAL PROVISIONS

• BASIC LEGAL PRINCIPLES GOVERNING CONTRACTS – The basic legal

principles governing contracts, which some authors refer to the
“characteristics of contract” are the following:
1. Freedom to stipulate – the parties are free to create or establish
stipulation, clauses, terms and conditions as they may deem
convenient provided these are not contrary to law, morals, good
customs, public order, or public policy (Art. 1306)
2. Obligatory force of contracts – Obligations arising from contracts
have the force of law between the contracting parties and should
be complied with in good faith.
 GENERAL PROVISIONS
3. Mutuality of Contracts – A contract binds both contracting parties
and its validity or the compliance therewith cannot be left to the will of
only one party (Art. 1308).
4. Relativity of Contracts – Contracts take effect only between the
parties, their assigns and heirs except where the rights and obligations
arising from the contract are not transmissible by their nature, by
stipulation or by provision of law (Art. 1311) in which case the assigns
or heirs are not affected anymore.
5. Perfection by mere consent of consensual contracts – Consensual
contracts are perfected by mere consent.