CHAPTER 5 - CONTRACTS ELEMENTS OF A CONTRACT

1. Essential – without these, there can be no

Art. 1305. A contract is a meeting of minds between contract
two persons whereby one binds himself, with respect to (CONSENT, OBJECT, CAUSE)
the other, to give something or to render some service. a. Common – present in all contracts
(consent, object certain, cause)
Contract b. Special – present only in certain contracts
- Meeting of minds between 2 persons (parties) (real: delivery; solemn: form)
- One binds himself to give / service c. Extraordinary/Peculiar (unusual) –
• Impossible for one to contract WITH himself peculiar to a specific contract
• Person may create contract BY himself – (contract of sale: price)
represent interest (his own, as agent, as
representative) 2. Natural
- Initially present in certain contracts pero
 subject to prohibitions against presence
pwede alisin
of adverse or conflicting interests
- derived from nature of contract
Eg. 1. Guardians, executors, administrators: cant - Ordinarily accompany the same
acquire/purchase - Presumed by law
- Can be excluded by parties if they desire
 property of persons under their
Contract of sale: warranty against eviction ,
guardianship
hidden defects (parties may increase, diminish,
 property of estate under their admin
or suppress)
 sale has been entrusted to them

2. agent: if authorized to lend money, he cannot borrow

it 3. Accidental
- Hindi initially existing, pero pwedeng ilagay
✓ EXCEPT: if w/ consent - Exist only when parties expressly provide for
ORDINARY CONTRACT VS CONTRACT OF MARRIAGE them
- for the purpose: limiting or modifying normal
Ordinary Contract Contract of effects of contracts
Marriage Conditions, terms, modes: interest in loan
parties 2 or more persons = One man and one
different sexes woman
Nature, Governed by Governed by law
consequences, agreement of parties CLASSES OF CONTRACTS
incidents 1. According to their relation to other contracts
Once executed: Result is contract Result is status
Termination / Mere agreement of Not easily a. Preparatory – have for their object the
dissolution parties
establishment of a condition in law:
Case of breach: Remedy: action for Remedy: civil
necessary as preliminary steps towards
damages action for legal
celebration of another subsequent contract
separation or
criminal action for - Needed for formation of subsequent contracts
adultery - Also a principal contract – exist independently
- Partnership, agency
- Yung contract ng partnership, after non
CONTRACT VS OBLIGATION makakapag-join na yung partnership ng iba
Contract Obligation pang contract
The cause The effect - Entered into as a means to an end
One of the 5 sources Has 5 sources
THE SOURCE THE LEGAL TIE b. Principal – subsist independently from
other contracts | purpose can be fulfilled by
themselves
✓ NOT ALL OBLIGATIONS HAVE CONTRACTS - Do not depend upon another contract
✓ ALL CONTRACTS HAVE OBLIGATIONS - Lease, sale
✓ There can be an obligation without contract,
there can be no contract if there is no obligation c. Accessory – exist only as consequence of, in
CONTRACT VS AGREEMENT relation with, another prior contract |
depends upon principal
Agreement – broader than contract | doesn’t have all Pledge, mortgage, guaranty (securities of loan)
elements of contract

✓ All contracts are agreements but not all

agreements are contracts
2. According to perfection 8. According to risks involve

a. Consensual – perfected by mere a. Commulative

agreement/consent (consent, object, cause) - parties acquire an equivalent of his prestation
Sale, lease - such equivalent is pecuniarily appreciable and
already determined from moment of
b. Real – require the COC + delivery of the celebration of contract – lease
Object - Undertaking of one is considered equivalent of
- Perfected upon delivery other
- Delivery: actual or constructive
Commodatum, deposit, pledge b. Aleatory
- each of parties has to his account the
c. Solemn – require the COC + form acquisition of an equivalent of his prestation
- Perfected upon compliance w/ certain - but equivalent although pecuniarly appreciable
formalities prescribed by law is not determined at the moment of the
celebration of contract
- Depend upon happening of an uncertain event /
3. According to form contingency charging parties with risk of loss or
gain – insurance, sale of hope (lotto)
a. Common/informal – don’t require
particular form
Loan, lease Art. 1307. Innominate contracts shall be regulated by
the stipulations of the parties, by the provisions of Titles
b. Special/formal/Solemn– require particular I and II of this Book, by the rules governing the most
form analogous nominate contracts, and by the customs of
Donation, chattel, mortgage the place. (n)

9. According to names or norms regulating them

4. According to purpose
a. Nominate
a. Transfer of ownership – sale
- have their own individuality and regulated by
b. Conveyance of use – commodatum
special provisions of law – sale, lease, agency
c. Rendition of services – agency
- Has specific name / designation in law

5. According to subject matter

b. Innominate – lack of individuality and not
a. Things – sale, deposit, pledge
regulated by special laws | no specific
b. Service – agency, lease of services
name/DIL
i. I give that you may give
6. According to nature of the vinculum which they
ii. I give that you may do
produce / liability / parties obliged
iii. I do that you may give
iv. I do that you may do
a. Unilateral – give rise to obligation for only
one of the parties – commodatum,
gratuitous deposit, donation
✓ REASONS FOR INNOMINATE CONTRACTS
- The impossibility of anticipating all forms of
b. Bilateral – reciprocal obligations for both
agreement
parties – sale, lease
- Progress of man’s sociological and economic
relationships
- Contract won’t be considered invalid for failure
7. According to cause
to conform strictly to standard contracts in CC
provided it has all elements of valid contract
a. Onerous
- BASIS: “no one shall unjustly enrich himself at
- each of parties aspires to procure for himself a
the expense of another”
benefit thru giving the equivalent or
compensation – sale
✓ WHEN DEALING WITH INNOMINATE: shall be
- valuable consideration
governed by:
1. Stipulations/agreement
b. Gratuitous – one of parties proses to give a
2. Rules/provisions of CC governing law on
benefit to other w/out equivalent
oblicon
- Purely generosity – commodatum
3. Rules governing most analogous
contracts
c. Remuneratory / remunerative
4. Customs of the place
- Based on services or benefits already received -
employment contract Eg. #48, p217
 10. According to obligatory force • Constitution: prohibits passage of any law
a. Valid impairing the obligation contracts
b. Rescissible • Constitutional prohibition: refers only to legally
c. Voidable valid contracts
d. Unenforceable • In appropriate cases: cannot be invoked as
e. Void/ inexistent against the right of the state to exercise its
police power
PHASES/ STAGES IN LIFE OF CONTRACT LIMITATIONS: freedom of contract
1. Generation / Preparation / Conception / a. Law
Negotiation - Requirement: contracts must be accordance,
- prelim/ preparatory process for the formation not repugnant to: applicable statue
of contract - Law sets limit, counterbalancing principle of
- all steps taken by prospective parties from the autonomy
time they manifest interest in entering into b. Police power
contract - Public welfare > private rights
- parties have not yet arrived at agreement - IF (silent or no law): will of parties prevail unless
contract contravenes MGCPOPP
2. Perfection / Birth / Formation - Protection against impairment: presupposes the
- birth of contract maintenance of a government to retain
- parties have come to definite agreement authority to secure peace and order
regarding terms • ALL CONTRACTUAL OBLI: subject to implied
- upon concurrence of essential elements of reservation of possible exercise of police power
contract • Otherwise, important and valuable reforms may
be precluded by the simple device of entering
3. Consummation / Death / Extinguishment into contracts for the purpose of doing that
- fulfillment of purpose for which contract was which otherwise may be prohibited.
constituted
- Parties have performed their respective Eg. #37, p. 214
obligations c. Morals
- Fully accomplished or executed resulting in - Norms of good and right conduct
extinguishment - May differ at different times & places w/ each
group of people
- Embodied in law but the ones referred in
ESSENTIAL CHARACTERISTICS OF CONTRACTS (MARCO) ART1306 must refer to those not expressed in
legal provisions
1. Obligatory force / character of contract
d. Good customs
- Once contract is perfected: it is obligatory
- Consist of good habits and practices w/ thru
force of law between contracting parties
long usage: followed and enforced by society or
- Batas within those involved: in good faith
some part of it is as binding rules of conduct
- Has force of law when recognized and enforced
Art. 1306. The contracting parties may establish such by law
stipulations, clauses, terms and conditions as they may - Must be proved as a fact according to rules of
deem convenient, provided they are not contrary to evidence
law, morals, good customs, public order, or public e. Public order
policy. (1255a) - Refers principally to public safety
- Considered to also mean public welfare
2. Autonomy / Liberty of contracts f. Public policy
- Parties may establish: stipulations, clauses, - Broader than public order
T&C: as they deem convenient - Refer not only to public safety, but also to
- Provided: not contrary to LMGCPOPP considerations w/c are moved by common good
Freedom to Contract
✓ Parties are charged w/ knowledge of existing
- Right to enter into contract: one of liberties law
guaranteed to individual by Constitution - at time they enter into the contract
- Implies right to choose: w/ whom one desires to - at time it become operative
contract - PRESUMED: person is more knowledgeable
✓ NOT AN ABSOLUTE RIGHT about law of his country > alien
✓ Both constitutional and statutory right: to
uphold the right, courts are enjoined to move ✓ EFFECT: repeal/ amendment of law
w/ necessary caution and prudence in holding - If contract is based on a law “then” obtaining:
contracts void - Changes of said law won’t affect nor impair
- LEGAL PRESUMPTION: always on validity of terms of contract and rights of parties
contracts
 Art. 1308. The contracts must bind both contracting b. Stipulation (scholarship) – in accordance w/
parties; its validity or compliance cannot be left to principle of freedom to contract
the will of one of them. (1256a) c. Nature (marriage) – personal qualifications

3. Mutuality of contract – bind both parties; Eg. #57-58, pp. 220

validity/compliance cant be left to will of one
- Di valid kung di mutual consent ganon
- Kung di mutual, pwedeng i-determine ng third ✓ THIRD PERSON: not taken part (stranger) in a
person (binding pa lang after i-communicate at contract
i-accept ng parties)
- Bind both parties that it can be enforced against
GENERAL RULE: 3rd person has no rights and obli | no
each other
legal standing or capacity to demand enforcement of
- Without mutuality and equality, cannot be said
contract / assail its validity even if proven defective
that contract has force of law
- Repugnant: one party bound while leaving the Except:
other free from complying
1. Contracts containing stipulation in favor of 3rd
Eg. #50-51, pp. 217-218 (Stipulation Pour Autrui)
2. 3rd in possession of property creating real rights
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 may be left to a

3rd person 3. Contract is entered to defraud creditor
✓ Decision of 3rd shall bind ONLY AFTER it has
been communicated (and agreed) by parties

Eg. #53, p.218

Art. 1310. The determination shall not be obligatory if it

4. Third induced a party to a contract to violate
is evidently inequitable. In such case, the courts shall
- Contracts violated at inducement of 3rd
decide what is equitable under the circumstances. (n)

✓ Contracting party: not bound by determination

of 3rd if it’s evidently inequitable or unjust as
when 3rd acted in bad faith
- In that case: Courts shall decide what is
equitable
5. In contracts creating “status” (resulting
Art. 1311. Contracts take effect only between the marriage status must be respected even by
parties, their assigns and heirs, except in case where the strangers while contract is in force)
rights and obligations arising from the contract are not 6. quasi-contract of negotiorum gestio, the owner
transmissible by their nature, or by stipulation or by is bound in a proper case, by contracts entered
provision of law. The heir is not liable beyond the value into by the “gestor” (unauthorized manager)
of the property he received from the decedent. (Article 2150);
7. In “collective contracts” where the majority
If a contract should contain some stipulation in favour rules over the minority (e.g., collective
of a third person, he may demand its fulfilment bargaining contract which affect even non-
provided he communicated his acceptance to the union members; “suspension of payments” and
obligor before its revocation. A mere incidental benefit “compositions” under the Insolvency Law,
or interest of a person is not sufficient. The contracting where creditors are bound by the contracts of
parties must have clearly and deliberately conferred a the majority); and
favour upon a third person. (1257a) 8. Where the situation contemplated in Article
17292 obtains.

4. Relativity of contract
Article 1729. Those who put their labor upon or furnish
GENERAL RULE: contract takes effect only between materials for a piece of work undertaken by the
parties (benefits, consequences, rights, obligations), contractor have an action against the owner up to the
assigns and heirs EXCEPT when not transmissible amount owing from the latter to the contractor at the
time the claim is made. However, the following shall not
PRESUME: contracts are transmissible
prejudice the laborers, employees and furnishers of
Except: materials:
a. Provision of law (partnership; death dissolves (1) Payments made by the owner to the contractor
orig ownership) before they are due;
(2) Renunciation by the contractor of any amount due • No such obligation exists in some degree: assist
him from the owner. in determining whether parties intended to
benefit the 3rd (4th requisite)
This article is subject to the provisions of special laws.
Eg. #68-71, pp.224-225

✓ INTENTION of art1729
- Protect laborers and materialmen from being NATURE: acceptance of stipulation
taken advantage by unscrupulous contractors &
- Must be unconditional and made any time
possible connivance bet owners and contractors
before stipulation is revoked
- Constructive vinculum / contractual privity –
- Unless definite period for acceptance is fixed
exception to principle underlying art1311
FORM OF ACCEPTANCE:

- No particular form even when it is an act of

Stipulation Pour Autrui – 1st exception
liberality or generosity
- Stipulation clearly and deliberately conferring a - May be implied from the demand for
favor upon 3rd person performance
- Has right to demand fulfillment, provided he - Need not be made expressly and formally
communicates his acceptance to obligor before - Notification of acceptance, other than such as
its revocation by oblige/orig parties in involved in making of demand: unnecessary
CLASSES OF SPA
✓ When 3rd accepts benefits of a contract, he is
1. Stipulations = intended for the sole benefit of also bound to accept the concomitant
such person obligations corresponding
- Corresponds almost always to juridicial REASON: shouldn’t take advantage of contract
conception of a gift when it suits him and rejects its provisions
- Necessary to apply rules relating to donations when he thinks they are prejudicial to him
(so far that form of acceptance is concerned)
- 3RD PARTY: DONEE-BENEFICIARY
Art. 1312. In contracts creating real rights, third persons
who come into possession of the object of the contract
are bound thereby, subject to the provisions of the
2. Obligation – due from the promise to the 3rd
Mortgage Law3 and the Land Registration laws.4 (n)
which former seeks to discharge by means of
the stipulation - 2nd exception
- i.e. transfer of property is coupled w/ ✓ 3rd persons: come into possession of object of a
purchaser’s promise to pay a debt owing from contract over w/c there is REAL RIGHT (real
the seller to 3rd estate mortgage)
- 3RD PARTY: CREDITOR-BENEFICIARY - Bound even if they were not parties

Real right – binding against the whole world and

attaches to the property over which it is exercised
REQUISITES OF SPA wherever it goes
1. Contracting parties, stipulation: must clearly
• Contract subjecting real properties to payment
and deliberately conferred a favor upon 3rd
of certain debts, registered in accordance w/
2. 3rd person must’ve communicated his
the Property Registration Decree, constitutes
acceptance to the obligor before its revocation
real rights
by obligee/original parties
- Produced not by contract, but by the publicity
3. The stipulation in favor of 3rd should be A PART,
given by Registry = publicity prejudicing the
not the whole contract or the contract itself
right of 3rd
4. The favorable stipulation shouldn’t be
conditioned or compensated by any kind of obli ((PARANG GETS KO PERO NEED EXAMPLES))
5. Neither of contracting parties bears legal
representation or authorization of the 3rd for
otherwise the rules on agency will apply • REAL RIGHT: NOT REGISTERED
- 3rd persons who acted in good faith are
Eg. #66, p.223
protected under provisions of PRD
TEST: nature of interest of 3rd in SPA

• MUST: purpose and intent of parties is to

benefit the 3rd | not sufficient that 3rd is
incidentally benefited
• TEST: Rely upon intention of parties
• Does not matter which class of SPA.
Art. 1313. Creditors are protected in cases of contracts - by law, must have right to represent (guardian,
intended to defraud them. (n) = 3rd exception administrator)

✓ Creditor may impugn contracts intended to

2. He must act within his power.
defraud him
✓ Law gives right of action to creditor to enforce a
contract entered into by his debtor w/ a 3rd

Eg. #81, p.227

Art. 1314. Any third person who induces another to

violate his contract shall be liable for damages to the
other contracting party. = 4th exception

✓ Stranger (3rd) can be sued for damages for his

unwarranted interference w/ the contract
(breached)
- PRESUPPOSE: contract is valid and the 3rd has
knowledge of its existence
- MALICE: not necessary. Enough that wrongdoer
has knowledge of existence and sets about to
break it up
- = Whether to benefit himself or gratify his spite

Art. 1315. Contracts are perfected by mere consent,

and from that moment the parties are bound not only
to the fulfillment 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. (1258)

9. Consensuality of contracts
- once perfected by mere consent:
- Parties are bound not only by fulfillment BUT
ALSO the consequences

Art. 1316. Real contracts, such as deposit, pledge and

commodatum, are not perfected until the delivery of
the object of the obligation. (n)

Art. 1317. No one may contract in the name of another

without being authorized by the latter, or unless he has
by law or right to represent him.

A contract entered into in the name of another by one

who has no authority or legal representation, or who
has acted beyond his powers, shall be 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. (1259a)

REMEDY: unauthorized contracts

- Can be cured only by ratification of the person

whose name the contract was entered into
- or by his authorized agent
- not by any other unempowered person

REQUISITES: authorized contracts (a person may be

bound by contract of another)

1. person entering must be duly authorized

(implied or expressed) by person in whose
name he contracts OR