Obligation and Contracts - Title II. - CONTRACTS Chapter 1 GENERAL PROVISIONS PDF

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Obligation & Contracts ReviewerTitle II. - CONTRACTS CHAPTER 1: GENERAL PROVISIONSART. 1305 CONTRACT 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.QUESTION : Is it necessary that contract...

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Obligation & Contracts Reviewer Title II. - CONTRACTS CHAPTER 1: GENERAL PROVISIONS ART. 1305 CONTRACT

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. QUESTION: Is it necessary that contract must be in writing? ANSWER: No Distinguish from OBLIGATION

 Contract is one of the sources of obligations  Obligation is the lega tie or relation itself that exists after a contract has been entered into  Hence, there can be no contract if there is no obligation. But an obligation may exist without a contract Distinguish from AGREEMENTS

 All contracts are agreements  NOT all agreements are contracts (ex. When you agree to meet up with your friends) THREE STAGES IN MAKING A CONTRACT:  Preparation or Conception or Generation – Preparatory stage, bargaining point, and negotiation stage.  Perfection or Birth – This is the stage where the contract is said to have been born, where 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 state, thus giving birth to the contract.  Consummation or Fulfillment – Parties performed their respective obligations and so the contract is put to an end. EXAMPLE:

On December 3, 2021, A offer to sell car for 1M to B. On December 4, 2021, B counteroffer to buy the car for P800,000 and A agreed upon. On December 5, 2021, A deliver the car to B and B pay A P800,000. The stages of life:

The preparation stage is when On December 3, 2021, A offer to sell car for 1M to B. The perfection stage is when n December 4, 2021, B counteroffer to buy the car for P800,000 and A agreed upon. The consummation stage is when On December 5, 2021, A deliver the car to B and B pay A P800,000.

CLASSIFICATIONS OF CONTRACTS By name or designation 1. Nominate – those which have been given particular names (i.e. sale, barter, mortgage, lease, carriage, 2.

agency, etc.) Innominate – those which have not been given a particular name and not regulated by special provision of law. Roman law has classified them as follows: Do ut des (I give that you may give); Do ut facias (I give that you may do); Facio ut facias (I do that you may do); Facio ut des (I do that you may give).

By subject matter 3. Contracts covering things (i.e. contract of sale, deposit, pledge) 4. Contracts covering services (i.e. contract of carriage) 5. Contracts covering tranmissible rights or credits (i.e. contract of usufruct, assignment of credits.)

By formation or perfection 6. Consensual – perfected by mere consent (i.e. When you sell your car -sale, lease) 7. Real – cannot be perfected without delivery (i.e. commodatum, depositum, pledge, loan) 8. Formal or Solemn- cannot be perfected without compliance with the special formalities or solemnities

required by law, otherwise they are void (i.e. donations, mortgages of real property) By Cause or equivalent of prestation 9. Onerous – contracts that provide for exchange of valuable considerations (i.e. sale where the seller delivers

the object of the contract and the buyer pays the purchase price) 10. Gratuitous – contracts where one of the parties gives something or renders service to the other without

receiving any equivalent or compensation (i.e. pure donation, commodatum-a loan that let a borrower returned what is being borrowed). It is also called the lucrative contract because it provides gain to the other party for free. 11. Remunerative – contracts where one party gives something or renders service to another in consideration of a previous or past deeds of the other. By vinculum produced or according to the party or parties obligated 12. a. Unilateral – contracts where only one of the parties is bound to fulfill and obligation. Consent must be

bilateral but only require one obligation.(i.e. commodatum, promissory note) 13. b. Bilateral – contracts where both parties have reciprocally bound themselves to fulfill their obligations in

favor of the other (i.e. sale) Also known as synalagmatic contracts. By certainty or fulfillment 14. Commutative – contracts where the contracting parties contemplate the assured fulfillment of the terms

and conditions of their agreement, and there is no risk to anticipate (i.e. contracts of mortgage and pledge) 15. Aleatory – contracts where the fulfillment is dependent on chance or event which may not happen within

the period stipulated, and the loss contempated may not happen. (i.e. insurance contract) By dependence of one contract on the other 16. Principal – contracts which can exist by themselves alone without depending on another (i.e. sale, lease,

deposit, commodatum) 17. Accessory – contracts which cannot exist alone but must depend on another contract (i.e. mortgage –

depends on the contract of loan) 18. Preparatory – contracts entered into for the creation of another contract (i.e. agency, the principal gives

authority to the agent through a Special Power of Attorney) By the actual number of person/s participating in the contract 19. Ordinary – contracts where two (or more) parties are represented by different persons (i.e. sale – there is a

seller and a buyer) 20. Auto-contracts– contracts where the two parties are represented by the one and the same person, who

represents and acts in different capacities (i.e. agent representing his principal who authorized him to borrow money) 21. Contract of adhesion - provisions are drafted by only one party and the only participation of the other party is to sign his name, his siganture or his adhesion to the contract.(insurance contract)

CHARACTERISTICS/PRINCIPLES OF CONTRACTS

Art. 1306 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. - free to stipulate any matter not contrary to law, morals, good customs, public order, or public policy. EXAMPLE OF CONTRARY TO MORALS AND LAW

- vote buying ( it is contrary to law and public policy) - pay for a passing grades (contrary to morals)

Art. 1307 INNOMINATE CONTRACTS

Analogous similar or comparable to

Innominate contract shall be regulated by the stipulations of the parties, by the provisions of the Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place. KINDS OF INNOMINATE CONTRACT

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) 4. Facio ut facias (I do that you may do) Art. 1308 Principle of MUTUALITY of contracts

The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. Fundamental Rule:

No party can renounce or violate the law of the contract without the consent of the other. EXAMPLE:

Bad Bargain This does not necessarily violates Mutuality of contracts.

A agree to sell his car to B. B agree to pay P1,000,000. (The contract is binding). The stipulations stating that A alone will determine/ adjust the price of the car and B has no right to negate A’s decision (this violates the mutuality of contracts). A deliver sell his car and B pay P1,000,000. (A party to a contract has made a bad bargain.) EXCEPTION to the Principle of MUTUALITY of Contracts 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. EXAMPLE: A sell his land to B. The stipulations of the contract states that C a real estate appraiser will be the one to determine the reasonable price of the land. (This contract will only be binding after C inform both contracting parties about the stipulations).

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.

Ang pagtitiyak ng isang obligasyon ay hindi na kinakailangan kung kapansinpansin ang hindi pagkapantay ng mga ito. Ang korte ang siya magpapasiya upang ito ay maging pantay

Art. 1311 Principle of RELATIVITY of Contracts

Principle of RELATIVITY Under this principle, sila lang ang may rights andd obligaations under their contract. Sa kanila lang effective yung contracts. Hindi kasama ang mga strangers to the contract.

Contracts take effect only in 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. The heirs is not liable beyond the value of the property he received from the decedent. EXAMPLE:

If A i indebted to B for P1,000,000 (A and B are the contracting parties. The contract will take effect between them). On December 2, 2021, B died from an accident (Thus, A will give his payment to C which is the sole heir of B). NOTE: In case where the debtor died or not able to pay the creditor, the heir of debtor will be the one to exercise the obligation of the original debtor. The heir of the debtor can pay the creditor through any remaining property of the debtor equal to the debt of the debtor. EXCEPTIONS EXAMPLE Not transmissible by their nature: A is bind to paint a picture of B. After a week, A had an accident causes him to die. (By nature, the obligation of A is not transmissible to his heir). EXAMPLE: Not transmissible by stipulations: A and B binds themselves in a contract wherein they both agreed that their obligation is not transmissible to their heirs. EXAMPLE: Not transmissible by provision of law: Partnership A and B are partnership. B died from accident. (The partnership of A and B are distinguished because based on the pprovision of law, partnership can’t be inherited by the heirs of the partners in a partnerships) EXAMPLE: On December 2, 2018, B sold her car to A on installment basis for two years with an agreement not to sold it to others until full payment. On November 5, 2019, A sold the car to C, in violation to the agreement. Can B cancel the contract entered into by A and C? (No, because C is not a party to the agreement between B and A. In the same way, B is not a party to the agreement between B and C. The remedy of B is taht she can claim damages against A for breach of contract).

EXAMPLE: Supposedly A leased his property to B and the stipulation is that it prohibits sub-lease. But B subleased the property to C. A goes to court to rescind the lease contract. Can C opposed? (No, because C is not a party between the agreement of A and B. The remedy of C is to proceed against B) EXCEPTIONS to the Principle of RELATIVITY of Contracts 2nd Paragraph (Art. 1311 2nd par., -1314)

Art. 1311

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly deliberately conferred a favor upon a third person. Stipulation Pour Autrui Requisites: (in order to tha a stipulation is to be valid) 1. There must be a stipulation in favor of a third person; 2. The contracting parties must have clearly and deliberately conferred a favor to the third person; 3. The stipulation should be a part and not the whole of the contract or the contract itself. 4. The third person must have communicated his acceptance to the obligor before its revocation by the obligee or the original parties; 5. Neither of the contracting parties bears the legal representation or authorization of the third party for otherwisw the rules on agency will apply. EXAMPLE: A is indebted of P10,000 plus a 12% interest payable on December 25, 2020. The contract stated that the 12% must be given to C. (In order to make the stipulation valid, C must communicate his acceptance of the contract to A and B. Otherwise, C cannot be entitled to the benefit of the contract. From the moment C communicated his acceptance of the stipulation, C becomes part of the contractual parties). Art. 1312 Third persons is bound by contracts creating real rights

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 Mortgage Law and the Land Registration law. EXAMPLE: Supposed A mortgage his land to B as a security to his death. The mortgage is actually registered in the registry of the property. Since A is still the owner of the land after he mortgaged it to B, A sold the same land to C. (Even if C is not a contractual party between the mortgage of the land, C is still bound by contracts. C still needs to respect the rights of B because A and B has a pre-existing contract which have been registered to the registry) Art. 13013 Right of defrauded creditors

Creditors are protected in cases of contracts intended to defraud them. EXAMPLE: A is indebted to B for P1,000,000 due on December 31, 2020. A has a property named after him. On December 25, 2020, A donated his property to C (A donate his property to C in order that his property will not be attached to his debt to B and that B can no longer get any property form A---this action of A is an example of defrauding) Since B is the defrauded creditor, B has the right to impugn the contracts between A and C although she is not a party to that contract. C is given by law the right to ask for the recession or cancellation of that donation. In order that she may be paid). Art. 1314 Contract is violated through inducement by third person Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. EXAMPLE:

B is a movie actress who has a 1 year contract with SM entertainment. C is an actor who induces B to break her contract without any justifiable cause. (The remedy of the SM entertainment is that it can sue C for damages. Even if there is no contract between SM entnt. and C but because of Art. 1314, SM entnt. can file a case against C. Because C has actually induces A to violate the contract) NOTE: A third party is not liable where sufficient justification for interference or

inducement can be shown. Art. 1315 Principle of CONSENSALITY of Contracts

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. Real Contracts Contracts that needs the delivery of the thing Formal contracts Contracts that requires sspecific thing.

How Contracts are Perfected? General rule: Principle Consensuality of contracts Exceptions: Real contracts and Formal contracts EXCEPTIONS to the Principle of CONSENSALITY of Contracts Art. 1316

Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the obligation. EXAMPLE:

On June 1, 2020, A borrowed money from B worth P10,000. A promises to give diamond ring to B as a security for the loan on June 15, 2020. Before June 15, 2020, A paid the P10,000 to B. Is the contract of pledge and loan have already been perfected? (No, because in the contract of pledge the perfection is only upon the delivery of the object pledge which is the diamond ring. But the contract of loan is already been perfected since A had paid the P10,000 worth of loan to B). Art. 1317 Unenforceable Contracts

No one may contract in the name of another without being authorized by the latter, or unless he has by law a 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. EXAMPLE:

B own a Ferrari car. A who is B’s cousin sold the car to C without B’s consent or without being authorized. (Thus the sale being unauthorized is an unenforceable or it is not valid) Requisites for a person to contract in the name of another

1. He must be authorized (expressly--written or impliedly) 2. He must have by law, a right to repreent him (legal guardian) 3. The contract must be subsequently RATIFIED (expressly or implied) Example:

B own a Ferrari car. A who is B’s cousin sold the car to C without B’s consent or without being authorized. But B was the one who collected the payment from C.( this is an ex. of an implied ratification because ratification cleanses the contract from its effect so there is a retroactive effect from the moment the contract was entered into. 4. He must act within his power. Example:

If you are only authorized to only lease the property then you should not sell it because your authority is to lease only. Thus if you sold the property then you acted beyond your power making the contract unenforceable....