CONTRACTS

ATTY. CZARINA MARTA A.J. VERGARA-HUERTA, LPT.

GENERAL PROVISIONS
 DEFINITION OF CONTRACT
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.
EXCEPTIONS:

A single person may create contract by himself where he represents

distinct interest.

Ex. Art. 1890 – An agent who was authorized to borrow money, may
himself be the lender at the current rate of interest.
 STAGES IN THE LIFE OF A
CONTRACT:

PREPARATION / This includes all the steps taken by the parties leading to
NEGOTIATION the perfection of the contract. At this stage, the parties
have yet to arrive at any definite agreement.

PERFECTION / This is when the parties have come to a definite agreement

BIRTH or meeting of the minds regarding the subject matter and the
cause of the contract.

CONSUMMATION / This is when the parties have performed their respective

TERMINATION obligations and the contract may be said to have been fully
accomplished or executed resulting in the extinguishment or
termination of the contract.
 CLASSIFICATION OF
CONTRACTS

ACCDG. TO PERFECTION: ACCDG. TO NAME:

CONSENSUAL NOMINATE
Perfected by mere consent of the parties Contracts which has a specific name or
REAL designation in law (agency, sale, lease)
Perfected by the delivery of the thing INNOMINATE
subject matter of the contract. Contracts which has NO specific name or
FORMAL OR SOLEMN designation in law.
That which requires compliance with
certain formalities prescribed by law.
Form is an essential element.
ACCDG. TO CAUSE OR EQUIVALENT VALUE OF
PRESTATION :

ONEROUS Each of the parties aspires to procure for himself a benefit

through the giving of an equivalent or compensation (i.e.,
sale)

GRATUITOUS One of the parties proposes to give to the other a benefit

without any equivalent or compensation (i.e. commodatum)

REMUNERATIVE For service previously rendered.

 ACCDG. TO THE NUMBER OF PERSON WHO UNILATERAL
PARTICIPATED IN THE DRAFTING OF
CONTRACTS BILATERAL

CONTRACT OF ADHESION: Is defined as one in which one of the parties

imposes a ready-made form of contract,
which the other party may accept or reject,
but which the latter cannot modify.

One party prepares the stipulation in the contract, while the other party merely
affixes his signature or his "adhesion" thereto, giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal footing. (Norton Resources
and Development Corporation vs. All Asia Bank; G.R. No. 162523; November 25, 2009)
REMEMBER: Contracts of adhesion are not invalid per se. They are not
entirely prohibited. The one who adheres to the contract is, in reality, free to
reject it entirely; if he adheres, he gives his consent. (Norton Resources and
Development Corporation vs. All Asia Bank; G.R. No. 162523; November 25,
2009)

Ambiguities in contracts of adhesion must be interpreted against the party

that prepared these contracts. (Geraldez vs. Court of Appeals 230 SCRA 320;
1994)
 CHARACTERISTICS OF
CONTRACTS:

AUTONOMY OF CONTRACTS

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.
 EXAMPLE OF VOID STIPULATIONS

The reason alleged by the plaintiff as a basis for the loan is untenable, to wit, that the
defendant was obliged to render service in his house as a servant without remuneration
whatever and to remain therein so long as she had not paid he debt, inasmuch as this
condition is contrary to law and morality. Domestic services are always to be
remunerated, and no agreement may subsist in law in which it is stipulated that any
domestic service shall be absolutely gratuitous, unless it be admitted that slavery may
be established in this country through a covenant entered into between the interested
parties.(De los Reyes v. Alojado 16 Phil. 499)
 EXAMPLE OF VOID STIPULATIONS

CONDITION NO. 14: “It is hereby agreed and understood that any and all actions arising
out of the conditions and provisions of this ticket, irrespective of where it is issued, shall
be filed in the competent courts in the City of Cebu.”

Sweet Lines, Inc. vs. Bernardo Teves (G.R. No. L-37750. May 19, 1978)
RULING: Condition No. 14 is subversive of public policy on transfers of venue of
actions. For, although venue may be changed or transferred from one province to another
by agreement of the parties in writing, such an agreement will not be held valid where it
practically negates the action of the claimants, such as the private respondents herein.
The philosophy underlying the provisions on transfer of venue of actions is the convenience of the
plaintiffs as well as his witnesses and to promote the ends of justice. Considering the expense and
trouble a passenger residing outside of Cebu City would incur to prosecute a claim in the City of
Cebu, he would most probably decide not to file the action at all. The condition will thus defeat,
instead of enhance, the ends of justice.
 CHARACTERISTICS OF CONTRACTS:

OBLIGATORY FORCE AND Contracts have the force of law

COMPLIANCE IN GOOD FAITH between the parties and must be
complied with in good faith.
RCPI v. Verchez, et al., G.R. No. 164349, January 31, 2006

In culpa contractual x x x the mere proof of the existence of the contract and the failure
of its compliance justify, prima facie, a corresponding right of relief. The law,
recognizing the obligatory force of contracts, will not permit a party to be set free
from liability for any kind of misperformance of the contractual undertaking or a
contravention of the tenor thereof. A breach upon the contract confers upon the
injured party a valid cause for recovering that which may have been lost or
suffered. xxx”
 CHARACTERISTICS OF CONTRACTS:

MUTUALITY OF CONTRACTS

The contract must bind both contracting parties, its validity or

compliance cannot be left to the will of one of them.
Security Bank vs. Spouses Mercardo; G.R. No. 192934, June 27, 2018

“…any stipulation regarding the validity or compliance of the contract that is potestative or is
left solely to the will of one of the parties is invalid. This holds true not only as to the original
terms of the contract but also to its modifications. Consequently, any change in a contract
must be made with the consent of the contracting parties, and must be mutually agreed
upon. Otherwise, it has no binding effect.”
 EXCEPTION:

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.
 CHARACTERISTICS OF CONTRACTS:
RELATIVITY OF CONTRACTS

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 or by provision of
law.

GR: Contracts take effect only between the parties, their assigns (i.e.
transferees) and heirs.

This means that only the parties, their assigns and heirs can have rights
and obligations under the contract.
 EXAMPLE:

A owed B the amount of One Million Pesos. On 1 January 2022, B died.

What are the relations and obligations of the parties, their heirs or assigns?

 A must pay the heirs of B.

 If B assigns his credits to X, then A must pay X.

What if it was A who died? What are the relations and obligations of the
parties, their heirs or assigns?

 If A died and A1 is the heir of A, then A1 assumes the obligation

of A to B. However, A is not liable beyond the value of the
property he inherits/inherited from A.
 EXCEPTIONS:

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 or by
provision of law.
By nature – e.g. employment contract or contracts involving personal
qualifications
By stipulation – i.e., when it was expressly stipulated by the
contracting parties that it is not transmissible.
By law – e.g. contract of partnership / agency
EXCEPTION:

In contracts containing a stipulation in favor of a third person

(stipulation pour autrui)
In contracts creating real rights.

In contracts entered into to defraud the creditors.

In contracts which have been violated at the inducement of a third

person.
 EXCEPTION:

In contracts containing a stipulation in favor of a third person

(stipulation pour autrui)

STIPULATIONS POUR ATRUI

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 by the oblige.

The stipulation should only be a part, not the whole, of the contract.

Neither of the contracting parties bears the legal representation or

authorization.
EXAMPLE:

P10,000.00 +12% 12%

EXCEPTION:

In contracts creating real rights. Ex. Mortgage

In contracts entered into to defraud the creditors. Ex. labor case

In contracts which have been violated at the inducement of a third

person (tort interference). Inducement must be without legal
justification or excuse.
Ex. Sale of
car
CHARACTERISTICS OF CONTRACTS:
CONSENSUALITY OF Contracts are perfected by mere consent, and from
CONTRACTS 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.

EXCEPTION: Real contracts

Formal contracts
THE END. 