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TITLE II
CONTRACTS
(Arts. 1305-1422.)
Chapter 1
GENERAL PROVISIONS
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.
Characteristics of contracts.
They are:
(1) Freedom or autonomy of contracts. — The
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, and public policy

(2) Obligatoriness of contracts. — Obligations arising

from contracts have the force of law between the
contracting parties and should be complied with in
good faith (Arts. 1159, 1315.);
(3) Mutuality of contracts. — Contracts must bind
both and not one of the contracting parties; their
validity or compliance cannot be left to the will of one
of them (Art. 1308.);
(4) Consensuality of contracts. — Contracts are
perfected, as a general rule, by mere consent,1 and
from that moment the parties are bound not only by
the fulfi llment of what has been expressly stipulated
but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage
and law (Art. 1315.); and
(5) Relativity of contracts. — Contracts take effect
only between the parties, their assigns and
heirs, except in cases where the rights and
obligations arising from the contract are not
transmissible by their nature, or by stipulation, or by
provision of law. (Art. 1311.)
Classifications of contract.
The following may be mentioned:
1 This is true in the case only of consensual contracts. (see Art. 1316.)
 GENERAL PROVISIONS 2
(1) According to name or designation:
(a) Nominate; and
(b) Innominate. (see Art. 1307.)
(2) According to perfection:
(a) Consensual; and
(b) Real. (see Arts. 1315, 1316.)
(3) According to cause:
(a) Onerous;
(b) Remuneratory or remunerative; and
(c) Gratuitous. (see Art. 1350.)
(4) According to form:
(a) Informal or common; and
(b) (b) Formal or solemn. (see Art. 1356.)
(5) According to obligatory force:
(a) Valid (see Art. 1306.);
(b) Rescissible (Chapter 6.);
(c) Voidable (Chapter 7.);
(d) Unenforceable (Chapter 8.); and
(e) Void or inexistent. (Chapter 9.)
(6) According to person obliged:
(a) Unilateral; and
(b) Bilateral. (see Art. 1191.)
 GENERAL PROVISIONS 3
(7) According to dependence to another
contract:
(a) Preparatory (e.g., agency, partnership),
when it is entered into as a means to an end;
(b) Accessory (e.g., mortgage, guaranty),
when it is dependent upon another contract it
secures or guarantees for its existence and
validity; and
(c) Principal (e.g., sale, lease), when it does
not depend for its existence and validity upon
another contract but is an indispensable
condition for the existence of an accessory
contract.
(8) According to risks:
(a) Commutative (e.g., sale, lease), when the
undertaking of one party is considered the
equivalent of that of the other; and
(b) Aleatory (e.g., insurance, sale of a hope 2),
when it depends upon an uncertain event or
contingency both as to benefi t or loss. 3
(9) According to liability:
(a) Unilateral (e.g., commodatum, gratuitous
deposit), when it creates an obligation on the
part of only one of the parties; and
(b) Bilateral (e.g., sale, lease), when it gives
rise to reciprocal obligations for both parties.
The kind of contract entered into is not determined,
however, by the name or title given to it by the parties
but by its nature or character as determined by
principles of law. (see Art. 1371.)
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. (1255a)

2 Such as sale of sweepstakes tickets. (see Art. 1461.)

3 Art. 2010. By an aleatory contract, one of the parties or both reciprocally bind
themselves to give or to do something in consideration of what the other shall give or do upon
the happening of an event which is uncertain, or which is to occur at an indeterminate time.
(1790)
 GENERAL PROVISIONS 4
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. (n)
Classification of contracts
according to its name or
designation.
They are:
(1) Nominate contract or that which has a specific
name or designation in law (e.g., commodatum, lease,
agency, sale, etc.); and
(2) Innominate contract or that which has no specifi
c name or designation in law.
Kinds of innominate contract.
They are:
(1) do ut des (I give that you may give);
(2) do ut facias (I give that you may do);
(3) facio ut des (I do that you may give); and
(4) facio ut facias (I do that you may do).
Do ut des is, however, no longer an innominate
contract. It has already been given a name of its own,
i.e., barter or exchange. (Art. 1638.)
ART. 1308. The contracts must bind both
contracting parties; its validity or compliance
cannot be left to the will of one of them. (1256a)
A contract is an agreement which gives rise to
obligations. It must bind both parties in order that it can
be enforced against either.

ART. 1309. 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. (n)
Determination of
performance by a third
person.
 GENERAL PROVISIONS 5
Under the preceding article, compliance with a contract
cannot be left to the will of one of the contracting
parties. However, under the above provision, the
determination of its performance may be left to a third
person. (see Arts. 2042-2046.) In such case, the
obligation does not depend upon a potestative
condition. (see Art. 1182.)
The decision, however, of the third person shall bind
the parties only after it has been made known to both
of them.

EXAMPLE:
S sold his parcel of land to B. It was agreed that X, a
real estate appraiser, would be the one to determine
the reasonable price of the land. (see Art. 1469.) X,
then, fi xed the price after considering all the
circumstances and factors affecting the value of the
land.
In this case, X 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.

Effect were determination

inequitable.
This article is a qualification to Article 1309.
A contracting party is not bound by the determination
if it is evidently inequitable or unjust as when the third
person acted in bad faith or by mistake. In such case,
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
 GENERAL PROVISIONS 6
not transmissible by their nature, or by
stipulation or by provision of law. The heir
is not liable beyond the value of the
property he received from the decedent.
If a contract should contain some
stipulation in favor of a third person, he
may demand its fulfi llment provided he
communicated his acceptance to the
obligor before its revocation. A mere
incidental benefi t or interest of a person is
not suffi cient. The contracting parties must
have clearly and deliberately conferred a
favor upon a third person. (1257a)

Persons affected by a contract.

(1) General rule. — Contracts take effect only
between the parties, their assigns and heirs. This
means that only the parties, their assigns and heirs can
have rights and obligations under a contract.
When there is no privity of contract, there is no
obligation or liability to speak about and thus, no
 GENERAL PROVISIONS 7

cause of action arrests. (Josefa vs. Zhandong Trading Corp., 417 SCRA 269 [2003].)

EXAMPLE:
D is indebted to C in the amount of P10,000.00. D and C are the parties to the
contract.
If C dies, D must pay the heirs of C. If C assigns his credit to X, then D is
liable to pay X.
If D dies and Y is the heir, then Y assumes the obligation of D to C. (see Arts.
776, 781.) Y is bound by the contract entered into by D, his predecessor-in-
interest, in view of the privity of interest between him and D. The death of a
party does not excuse non-performance of a contract which involves a property
right or interest in the subject matter of the contract. The right and the
obligation thereunder pass to the personal representative(s) of the deceased.
However, Y is not liable beyond the value of the property he inherits from D, the
decedent.4 (Art. 1311, par. 1.)

4 Sec. 5. Claims which must be fi led under the notice. If not fi led, barred; exceptions. — All claims for money against the decedent,
arising from contract, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the
last sickness of the decedent, and judgment for money against the decedent, must be fi led within the time limited in the notice; otherwise they
are barred forever, except that they may be set forth as counterclaims in any action that the executor or administrator may bring against the
claimants. Where an executor or administrator commences an action, or prosecutes an action already commenced by the deceased in his lifetime,
the debtor may set forth by answer the claims he has against the decedent, instead of presenting them independently to the court as herein
provided, and mutual claims may be set off against each other in such action; and if fi nal judgment is rendered in favor of the defendant, the
amount so determined shall be considered the true balance against the estate, as though the claim had been presented directly before the court in
the administration proceedings. Claims not yet due, or contingent, may be approved at their present value. (Rule 86, Rules of Court.)