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II.

CONTRACTS
A. DEFINITION
a. A juridical convention manifested in legal form, by virtue of
which, one or more persons (or parties) bind themselves in favor
of another or others, or reciprocally, to the fulfilment of a
prestation to give, to do or not to do.
b. It 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.
c. It is the agreement of two or more persons (or parties) for the
purpose of creating, modifying, or extinguishing a juridical
relation between them.
B. ELEMENTS
a. ESSENTIAL ELEMENTS without them a contract cannot exist
i. Consent of the contracting parties
ii. Object certain which is the subject matter of the contract
iii. Cause of the obligation which is established
b. NATURAL ELEMENTS found in certain contracts and presumed
to exist, unless the contrary has been stipulated
i. Warranty against eviction
ii. Hidden defects in the contract of sale
c. ACCIDENTAL ELEMENTS various particular stipulations that may
be agreed upon by the contracting parties in a contract. They
maybe present or absent, depending upon whether or not the
parties have agreed upon them.
i. Stipulation to pay credit
ii. Stipulation to pay interest
iii. Designation of the particular place for the delivery or
payment
C. CHARACTERISTICS
a. OBLIGATORY FORCE there is a juridical necessity to give, to do
or not to do.
b. MUTUALITY both parties are bound and they are essentially and
equally binded with one another.
i. Consequences of Mutuality (1308)
1. A party cannot revoke or renounce a contract without
the consent of the other, nor can it have it set aside
on the ground that he had made a bad bargain.
2. When the fulfilment of the condition depends upon
the sole will of the debtor, the conditional obligation
is void if the condition is suspensive unless of course
if the obligation is resolutory.
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ii. Determination by third person (1309)


1. Determination of the performance may be left to a
third person.
2. The decision binds the parties only after it is made
known to both.
iii. Evidently inequitable determination is not binding (1310)
1. What is equitable is a question of fact, to be
ascertained from the attendant circumstances.
2. The court is called upon to decide what is equitable.
iv. Fixing of the price
1. The fixing of the price can never be left to the
discretion of one of the contracting parties.
2. If the price fixed by one of the parties is accepted by
the other, the sale is perfected.
c. RELATIVITY
i. Principle of relativity contracts are generally effective
only between the parties, their assigns and their heirs.
(1311)
ii. Exceptions to the principle of relativity (1311)
1. Where the obligations arising from the contract are
not transmissible by their nature, by stipulation, or
by provision of law.
a. Examples: a contract of partnership, or
contract of agency
2. Where there is a stipulation in favour of a third party.
a. If a contract should contain some stipulation in
favour of a third party, he may demand its
fulfilment provided he communicated his
acceptance to the obligor before its revocation.
b. Requisites:
i. There must be a stipulation on favour of
a third person.
ii. The contracting parties must have clearly
and deliberately conferred a favour upon
a third person.
iii. A mere incidental benefit or interest of a
person is not sufficient.
iv. The stipulation must be part of the
contract.
v. The third person communicated his
acceptance to the obligor before its
revocation.
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vi. There must be no relation of agency


between either of the parties and the
third person.
3. Where a third person induces another to violate his
contract.
4. Where, in some cases, third persons may be
adversely affected by a contract where they did not
participate.
a. Collective contracts where the majority
naturally rules over the minority
5. Where the law authorizes the creditor to sue on a
contract entered into by his debtor.
iii. Discussion of the general rule (1311)
1. The act, declaration, or omission of another, cannot
affect another, except as otherwise provided by law
of agreement.
2. Strangers therefore cannot generally demand the
enforcement of a contract; nor can they demand its
annulment; nor are they bound by the same.
iv. Person to contract in the name of another (1317)
1. Requisites:
a. He must be duly authorized (expressly or
impliedly)
b. Or he must have by law a right to represent
him (like the guardian, or the administrator)
c. Or the contract must be subsequently ratified
D. PARTIES
a. AUTO-CONTRACTS where two parties are represented by
different persons
b. FREEDOM TO CONTRACT free entrance into contracts generally
without restraint is one of the liberties guaranteed to the people.
i. Special disqualification
1. Prohibition of donation during the marriage
donation between husband and wife is prohibited
during the marriage. This is because of the fear of
undue influence. (art. 87 of the Family Code)
2. Husband and wife cannot sell property to each other,
except (art. 1490):
a. When a separation of property was agreed
upon in the marriage settlements; or
b. When there has been a judicial separation or
property under Article 191
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3. Persons that cannot acquire by purchase, even at a


public auction (art. 1491):
a. The guardian
b. Agents
c. Executors and administrators
d. Public officers and employees
e. Justices, judges, prosecuting attorneys, clerks
of superior and inferior courts, and other
officers and employees connected with the
administration of justice
f. Any others specially disqualified by law
4. Persons who are prohibited from giving each other
any donation or advantage cannot enter into
universal partnership. (Art. 1782)
c. What they may not stipulate
i. Limitations on the nature of the stipulation
1. Law
a. The contractual stipulations must not be
contrary to mandatory and prohibitive laws.
b. Contracts must respect the law, for the law
forms part of the contract.
2. Morals
3. Good customs
4. Public order
5. Public policy
E. CLASSIFICATION
a. ACCORDING TO SUBJECT MATTER
i. Contracts involving things (like sale)
ii. Contracts involving rights or credits
iii. Contracts involving services
b. ACCORDING TO NAME
i. Nominate contract is given a particular or special name
ii. Innominate those not given any special name
1. Governing rules for innominate contracts
a. Stipulations
b. Titles I and II of Book IV Obligations and
Contracts
c. Rules on the most analogous nominate
contracts
d. Customs of the place
2. 4 kinds of innominate contracts
a. Do ut des (I give that you may give)
b. Do ut facias (I give that you may do)
c. Facio ut des (I do that you may give)
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d. Facio ut facias (I do that you may do)


c. ACCORDING TO PERFECTION consensual contracts are
perfected from the moment there is agreement (consent) on the
subject matter, and the cause or consideration.
i. How contracts are perfected (1315)
1. Consensual contracts by mere consent (this is the
general rule)
2. Real contracts perfected by delivery
3. Formal or solemn contracts here a special form is
required for perfection
ii. Consequences of perfection (1315)
1. The parties are bound to the fulfilment of what has
been expressly stipulated and compliance thereof
must be in good faith.
2. The parties are also bound to all the consequences
which, according to their nature, may be in keeping
with good faith, usage and law.
iii. Perfection of real contracts (1316)
1. Real contracts require consent, subject matter, cause
or consideration, and delivery.
d. ACCORDING TO ITS RELATION TO OTHER CONTRACTS
e. ACCORDING TO FORM
i. Express
ii. Implied
f. ACCORDING TO PURPOSE
g. ACCORDING TO THE NATURE OF THE VINCULUM PRODUCED
i. Personal
ii. Impersonal
h. ACCORDING TO CAUSE
i. Onerous where there is an interchange of equivalent
valuable consideration
ii. Gratuitous or lucrative this is free, thus one party
receives no equivalent prestation except a feeling that one
has been generous or liberal
iii. Remunerative one where one prestation is given for a
benefit or service that had been rendered previously
i. ACCRODING TO RISK
i. Commutative here the parties contemplate a real
fulfilment; therefore, equivalent values are given
ii. Aleatory here the fulfilment is dependent upon chance;
thus the values vary because of the risk or chance
F. STAGES OF CONTRACTS

a. Preparation here the parties are progressing with their


negotiations; they have not yet arrived at any definite
agreement, although there may have been a preliminary offer
and bargaining.
b. Perfection here the parties have at long last came to a definite
agreement, the elements of definite subject matter and valid
cause have been accepted by mutual consent.
c. Consummation here the terms of the contract are performed,
and the contract may be said to have been fully executed.