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CONTRACTSArt. 1305 A contract is a meeting of mind between two persons whereby one binds himself, with respect to the other, to give something or to render some service.Contract – agreement of 2 or more persons for the purpose of creating, modifying, or extinguishing a juridical relation between the...

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CONTRACTS Art. 1305 A contract is a meeting of mind between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Contract – agreement of 2 or more persons for the purpose of creating, modifying, or extinguishing a juridical relation between them. Enforceable through legal proceedings in case other party does not comply. NOTE: CONTRACTS CONSTITUTE THE LAW BETWEEN THE PARTIES. NOTE: all contracts agreements but not agreements are contracts.

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ELEMENTS

OF

Consent (of all parties) Object (subject matter) Cause or Consideration

Natural Elements – found in certain contracts, presumed to exist.

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CLASSIFICATIONS According to name/designation:  

Nominate – specific name Innominate – not given any special name

According to perfection:   

are all

NOTE: a contract necessarily gives rise to an obligation but an obligation does not always need to have a contract. ESSENTIAL CONTACTS:

Accidental Elements – various particular stipulations that may be agreed upon by the parties. May be present or absent.

Consensual – perfected by mere consent Real – perfected by delivery Formal or solemn – certain formalities are required for the perfection

According to Cause/Equivalence:   

Onerous - reciprocal Gratuitous – free (only one) Remunerative – one party receives a prestation for a service rendered previously.

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Principal – does not depend for its existence & validity upon another contract

Unilateral – only one party has an obligation Bilateral – reciprocal obligations

According to risk of fulfillment: 

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Commutative – undertaking of one party is equivalent to that of the other. (equal sa isa’t isa) Aleatory – depends upon uncertain event or chance.

According to fulfillment: 

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the

time

of

Executed – when it has been fully & satisfactorily carried out by both parties. Executory – when it has not yet been completely performed by both parties.

According to dependence: 

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upon the other parts for satisfactory performance. Divisible – one part is performed independently than that of the other.

According to obligatory force:

According to parties:

According to importance: 

Accessory – depends another contract it secures Preparatory – entered into as a means to an end.

Indivisible – each part of the contract is dependent

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Valid Rescissible Voidable Unenforceable Void or inexistent

According to subject matter:   

Involving things Involving rights or credits Involving services

STAGES OF CONTRACT: 1. Preparation (conception) 2. Perfection (or birth) 3. Consummation BASIC PRINCIPLES CHARACTERISTICS OF CONTRACT:

OR A

A) Freedom to stipulate B) Obligatory force and compliance in good faith C) Perfection by mere consent D) Both parties are mutually bound E) Relatively (binding only between the parties, their assigns, and heirs.

PRINCIPLE OF FREEDOM 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. GENERAL RULE: when there is no law or when the law is silent, the will of the parties prevails. EXCEPTIONS: when their contract contravenes the limitations of morals, good customs, public order, or public policy. Examples: Morals – A contract whereby X promised to live as the common law wife of Y without the benefit of marriage in consideration of P100,000 is immoral. Customs – X entered into a contract whereby X binds himself to slap his father. Public Order – A stipulation in a contract of lease whereby the landlord can use force to eject the tenant in case of failure of the latter to pay the rent agreed upon. Public Policy – X stole the car of Y. Later, they entered into a contract

whereby Y would not prosecute X in consideration of P50,000. INNOMINATE CONTRACTS 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. Innominate Contracts – has no specific name or designation. Governing Rules:   

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Agreement of the parties Provisions of the Civil Code in ObliCon Rules on the most analogous nominate contracts Customs of the place.

FOUR KINDS OF INNOMINATE CONTRACTS: Do ut des (I give that you may give) Do ut facias (I give that you may do) Facio ut des (I do that you may give) Facio ut facias (I do that you may do)

MUTUALITY OF CONTRACTS

PRINCIPLE OF RELATIVITY

Art. 1308 The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

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 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.

Note: no party can renounce or violate the law of the contract without the consent of the others. (Another limitation – Art. 1182) DETERMINATION BY 3 RD PERSON 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. Note: the decision is binding only after it is made known to both. Example: X sold his parcel of land to Y. It was agreed that Z, a real estate appraiser, would be the one to determine the reasonable price of the land. Z, then, fixed the price. Z must make known his decision to X and Y who will be bound. 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.

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 and deliberately conferred a favor upon a third person. GENERAL RULE: A party’s rights and obligations derived from a contract are transmissible to the successors. EXCEPTIONS: 

When the obligations arising from the contract are not transmissible by their nature, by stipulation, or provision of law.

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Where there is a stipulation pour autrui (in favor of a 3rd party) Where a third person induces another to violate his contract Where, in some cases, third persons may be adversely affected by a contract where they did not participate. Where the law authorizes the creditor to sue on a contract entered into by his debtor.

GENERAL RULE: A third person has no rights and obligations under a contract to which he is a stranger. EXCEPTIONS:    

Stipulation pour autrui (1311) Contracts creating real rights (1312) Contracts entered into to defraud creditors (1313) Contracts which have been violated at the inducement of a 3rd person (1314)

Stipulation pour autrui – stipulation in a contract clearly and deliberately conferring a favor upon a 3rd person who has a right to demand its fulfillment provided he communicates his acceptance to the obligor before its revocation by the obligee or the original parties.

Requisites:  

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There must be a stipulation if favor of 3rd person The contracting parties must have clearly and deliberately conferred a favor upon a 3 rd person Neither of the contracting parties bears the legal representation or authorization of the 3 rd party; The 3rd person must have communicated his acceptance to the obligor before it revocation by the obligee or the original parties

NOTE: The stipulation must be part of the contract . A mere incidental benefit or interest of a person is not sufficient Fairest test – in determining whether the 3rd person’s interest in a contract is a stipulation pour autrui or merely an incidental interest. Examine the intention of the parties as disclosed by their contract. NOTE: it need not be in any particular form. Examples: X is indebted to Y in the amount of P1000. X and Y are the parties to the contract.

If Y died, X must pay the heirs of Y. If Y assigns his credit to Z, then X is liable to Z. If X dies and A is the heir, then A assumes the obligations of X to Y. A is bound by the contract entered into by X, his predecessor in interest, in view of the privity of interest between him and X. However, A is not liable beyond the value of the property he inherits from X, the decedent. 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 Mortgage Law and the Land Registrations laws. GENERAL RULE: contract binds only the parties. EXCEPTION: 3rd persons who come into possession of the object of a contract over which there is a real right, are bound thereby even if they were not parties to the contract. NOTE: real right is binding against the whole world. A real right binds the property over which it is exercised wherever it goes. If real right is not registered. 3rd persons who acted in good faith are protected under the law.

Example: X mortgaged his parcel of land in favor of Y as a security for his debt. The mortgage is duly registered in the Registry of Property. Later on, X sold the same land to Z. Z bought the land subject to the mortgage constituted thereon. Z is bound by the contract between X and Y although he is a stranger to said contract because the right of Y to the mortgage, being real right, follows the property wherever it goes. Art. 1313 Creditors are protected in cases of contracts intended to defraud them. Example: X is indebted to Y in the amount of P1M. X sells a parcel of land to Z in order that Y may not attach the land in payment of his debt and X has no other property. Y, who is a stranger to the contract between X and Z, is given by law the right to ask for rescission or cancellation of the sale in order that he may be paid in his claim.

INDUCEMENT BY 3RD PERSON Art. 1314 Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. Example: X, a movie actress, has one-year contract with YZA Studio. If B, a friend of X induces her, without any justifiable cause, to break the contract, then YZA Studio can sue B for damages. NOTE: 3rd person cannot be held liable for greater damages because it will lead to a result at once grotesque and unjust. CONSENSUALITY OF CONTRACTS

NOTE: contract is perfected only from the time an acceptance of an offer is made known to the offeror

ring to Y. Before the delivery of the ring to Y, the contract of pledge is not yet perfected.

Consensual contracts are perfected from the moment there is agreement (consent) on the subject matter (object), and the cause or consideration.

UNENFORCEABLE CONTRACT

Consequences of perfection:

Art. 1317 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.

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The parties are bound to the fulfillment of what has been expressly stipulated and compliance thereof must be in good faith, The parties are also bound to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.

How are contracts perfected?

REAL CONTRACTS

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.

Art. 1316 Real contracts, such as deposit, ledge and commodatum, are not perfected until the delivery of the object of the obligation.

Consensual – perfected by mere consent

Real Contract – requires COC and delivery. Commodatum – a loan where the identical object must be return. Example: X borrowed from Y P1000. As security for the debt, X promised to pledge his diamond

Q: May a person enter into a contract for another? A: GENERAL RULE (Art. 1317)

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. EXCEPTIONS: 1. when he is authorized by the other party; 2. when he has, by law, a right to represent him. Unenforceable Contracts – those that cannot be enforced or given effect in a court of law or sued upon by reason of certain defects

provided by law until and unless they are ratified according to law. NOTE: valid but unenforceable in courts unless they are cured or ratified. Once ratified, these contracts may then be enforceable. (see Art. 1403) Unauthorized Contracts – those entered into in the name of another person by one who has been given no authority or legal representation or who acted beyond his powers. Requisite of a person to contract in the name of another:  

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He must be duly authorized (expressly or impliedly); or He must have by law a right to represent him (guardian/administrator); or Contract must be subsequently RATIFIED expressly or impliedly (by word or by deed)

NOTE: mere lapse of time cannot cure the defect; it is not ratification required by law. Effect of Ratification – it cleanses the contract from all its defects from the moment the contract was entered into. Hence, there is retroactive effect.

NOTE: ratification must be clear and express so as not to admit any doubt or vagueness. Example: X borrowed P1000 from Y in whose favor he executed a promissory note. In the note it is stated that X is acting as the agent of Z and that the money is intended for Z. Z never authorized X to borrow money from Z. The contract of X is not enforceable against Z. However, Z can ratify the contract unless it has already been revoked by Y. ESSENTIAL REQUISITES: Art. 1318 There is no contract unless the following requisites concur: 1. Consent of the contracting parties; 2. Object certain which is the subject matter of the contract; 3. Cause of the obligation which is established. Valid Contract – manifests all the essential elements of a contract. Natural Elements – those that are presumed to exist in certain contracts unless contrary is

expressly parties.

stipulated

by

the

Accidental Elements – particular stipulations, conditions, terms. Consent – presupposes legal capacity and the fulfillment of conditions, should any be attached. NOTE if there is absolutely no consent, there is no contract. Hence, the agreement should be considered void. NOTE: If there is a vice of consent such error, fraud, or undue influence, the contract is not void; it is merely voidable.

contract, in such a case, is presumed to have been entered into in the place where the offer was made. Consent – conformity or concurrence of wills (offer and acceptance). Meeting of minds. Requisites of consent: There must be 2 or more parties; The parties must be capable or capacitated; There must be no vitiation of consent; There must be no conflict between what was expressly declared and what was really intended. The intent must be declared properly.

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CONSENT Q: How is contract manifested? Ans: Art. 1319 Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counteroffer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The

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Requisites for the meeting of minds:  

An offer must be CERTAIN An acceptance must be unqualified and absolute.

Offer – proposal made by 1 party (offerer) to another (offeree), indicating willingness to enter into a contract. Acceptance – manifestation by the offeree of his assent to all the terms of the offer.

Art. 1320 An acceptance may be express or implied. Art. 1321 The person making an offer may fix the time, place, and manner of acceptance, all of which must be complied with. Art. 1322 An offer made through an agent is accepted from the time acceptance is communicated to him. OFFER BECOMES INEFFECTIVE Q: What is the effect of death/incapacity of the parties as to the offer? Ans: Art. 1323 An offer becomes ineffective upon death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. Example: A makes an offer to B on Jan. 1. B makes known his acceptance in a letter received at the house of A on Jan. 5. However, on Jan. 4, A had died. Here, the offer is ineffective because there was no meeting of the minds. Other instances: expressly/impliedly rejects the offer, in due time, counter-offer, lapse of time.

OPTION CONTRACT Q: What is an option contract? Ans: Art. 1324 When the offeror has allowed the offerree certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. Option – contract granting a person the privilege, to buy or not to buy, certain objects at any time within the agreed period, at a fixed price. Option Contract – An option is preparatory contract in which one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal contract. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by a consideration distinct from the price. GENERAL RULE: If the offerer has allowed the offeree a certain

period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal. EXCEPTION: When the option if found upon a consideration as something paid or promised. EXAMPLE: B is interested in buying a particular car from S. S said the price is P2000. B, however, could not make up his mind whether to buy or not. S gave 1 week to B. Before the week is over, S withdraw the offer. If B gave P500 to S in consideration for the option, S cannot withdraw the offer to sell until after the expiration of the 1-week period. Perfected Contract of Option – it is not perfected unless there is a meeting of minds on the option. Thus, an offer to grant an option, even if founded on a discreet cause or consideration, may itself be withdrawn before the acceptance of the offer of an option. EXAMPLE: if S had offered TO GRANT B a week’s time if B would give S P500, S can still withdraw the offer of option before B signifies his acceptance to the offer option.

Art. 1325 Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advert...