CONTRACTS

ART. 1305.

Contract- It lays emphasis on the meeting of minds between two (2) contracting parties which takes place when an offer
by one (1) party is accepted by the other.

CLASSIFICATIONS OF CONTRACT

(1) ACCORDING TO NAME OR DESIGNATION:

(a) Nominate; and
(b) Innominate
(2) ACCORDING TO PERFECTION:
(a) Consensual; and
(b) Real
(3) ACCORDING TO CAUSE:
(a) Onerous;
(b) Remuneratory or remunerative; and
(c) Gratuitous
(4) ACCORDING TO FORM:
(a) Informal, common or simple; and
(b) Formal or solemn
(5) ACCORDING TO OBLIGATORY FORCE:
(a) Valid
(b) Rescissible
(c) Voidable
(d) Unenforceable
(e) Void or inexistent
(6) ACCORDING TO PERSON OBLIGED:
(a) Unilateral; and
(b) Bilateral
(7) ACCORDING TO RISKS:
(a) Commutative
- When the undertaking of one party is considered the equivalent of that of the other; and
(b) Aleatory
- When it depends upon an uncertain event or contingency both as to benefit or loss.
(8) ACCORDING TO LIABILITY:
(a) Unilateral (e.g., commodatum, gratuitous deposit),
- When it creates an obligation on the part of only one of the parties; and
(b) Bilateral (e.g., sale, lease)
- When it gives rise to reciprocal obligations for both parties.
(9) ACCORDING TO STATUS:
(a) Executory
- When it has not yet been completely performed by both parties; and
(b) Executed
- When it has been fully and satisfacto ried out by both parties
(10) ACCORDING TO DEPENDENCE TO ANOTHER CONTRACT:
(a) Preparatory (e.g., agency, partnership)
- When it is entered into as a means to an end;
(b) Accessory (e.g., mortgage, guaranty)
 - When it is dependent upon another contract it secures or guarantees for its existence and
validity; and
(c) Principal (e.g., sale, lease)
- When it does not depend for its existence and validity upon another contract but is an
indispensable condition for the existence of an accessory contract.
(11) ACCORDING TO DEPENDENCE OF PART OF CONTRACT TO OTHER PARTS:
(a) Indivisible (or entire) (e.g., sale of a dining room table and 8 matching chairs)
- When each part of the contract is dependent upon the other parts for satisfactory performance;
and
(b) Divisible (e.g., sale of rocking chair and a pair of shoes)
- When one part of the contract may be satisfactorily performed independently of the other
parts.

ART. 1306

Valid contracts- are those that meet all the legal requirements and limitations for the type of agreement involved and
are, therefore, legally binding and enforceable.

LIMITATIONS ON CONTRACTUAL STIPULATIONS

(1) Law
- It is a fundamental requirement that the contract entered into must be in accordance with, and
not repugnant to, an applicable statute.
(2) Police power
- When there is no law in existence or when the law is silent, the will of the parties prevails unless
their contract contravenes the limitation of morals, good customs, public order, or public policy.

Contract must not be contrary to law.

Contract must not be contrary to morals.

MORALS deal with norms of good and right conduct evolved in a community. These norms may differ at different times
and places and with each group of people.

Contract must not be contrary to good customs.

CUSTOMS consist of habits and practices which through long usage have been followed and enforced by society or some
part of it as binding rules of conduct. It has the force of law when recognized and enforced by law.

Contract must not be contrary to public order.

PUBLIC ORDER refers principally to public safety although it has been considered to mean also the public weal.

Contract must not be contrary to public policy.

PUBLIC POLICY is broader than public order, as the former may refer not only to public safety but also to considerations
which are moved by the common good.

ART. 1307

CLASSIFICATION OF CONTRACTS ACCORDING TO ITS NAME OR DESIGNATION

(1) Nominate contract

- Or that which has a specific name or designation in law.
(2) Innominate contract
- Or that which has no specific name or designation in law.
KINDS OF INNOMINATE CONTRACT

(1) do ut des (I give that you may gave)

(2) do ut facias (I give that you may do)
(3) facto ut des (I do that you may give)
(4) facto ut facias (I do that you may do)

RULES GOVERNING INNOMINATE CONTRACTS

Innominate contracts shall be governed by:

(1) the agreement of the parties;

(2) the provisions of the Civil Code on obligations and contracts;
(3) the rules governing the most analogous contracts;
(4) the customs of the place.

ART. 1308

CONTRACT BINDS BOTH CONTRACTING PARTIES.

A contract is an agreement which gives rise to obligations. It must bind both parties in order that it can be enforced against
either. Without this equality between the parties, it cannot be said that the contract has the force of law between them.

It is a fundamental rule that no party can renounce or violate the law of the contract without the consent of the other.
Hence, “its validity or compliance cannot be left to the will of one of them. “

ART. 1309

DETERMINATION OF PERFORMANCE BY A THIRD PERSON.

The determination of its performance may be left to a third person. In such case, the obligation does not depend upon a
potestative condition. The decision, however, shall bind the parties only after it has been made known to both of them.

ART. 1310

EFFECT WHERE DETERMINATION INEQUITABLE.

A contracting party is not bound by the determination if it is evidently inequitable or unjust as when the third person acted
in bad faith or by mistake. In such case, the courts shall decide what is equitable under the circumstances.

ART. 1311

PERSONS AFFECTED BY A CONTRACT

(1) General rule

- a party's rights and obligations derived from a contract are transmissible to the successors.
(2) Exceptions
- The cases when a contract are effective only between the parties are when the rights and
obligations arising from the contract are not transmissible:
(a) By their nature
(b) By stipulation
(c) By provision of law

CASES WHEN STRANGERS OR THIRD PERSONS AFFECTED BY A CONTRACT

A third person is one who has not taken part in a contract and is, therefore, a stranger to the contract. A third person has
no rights and obligations under a contract to which he is a stranger.
Cases when third persons may be affected by a contract:

(1) In contracts containing a stipulation in favor of a third person (stipulation pour autrui)
(2) In contracts creating real rights
(3) In contracts entered into to defraud creditors; and
(4) In contracts which have been violated at the inducement of a third person.

Stipulation pour autrui

- 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 obligee or the original parties.

Classes of stipulations pour autrui

(1) Those where the stipulation is intended for the sole benefit of such person.
(2) Those where an obligation is due from the promise to the third person which the former seeks to discharge by
means of such stipulation, as, for instance, where a transfer of property is coupled with the purchaser's promise
to pay a debt owing from the seller to a third person.

Requisites of stipulation pour autrui

(1) The contacting parties by their stipulation must have clearly deliberately conferred a favor upon a third person;
(2) The third person must have communicated his acceptance to the obligor before its revocation by the obligee or
the original parties;
(3) The stipulation in favor of the third person should be a part, not the whole, of the contract;
(4) The favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; and
(5) Neither of the contracting parties bears the legal representation or authorization of the third party for otgerwise,
the rules on agency will apply.

ART. 1312

Third Persons are bound by contracts; creating real rights

This article is an exception to the general rule that a contract binds only the parties. Third 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…

ART. 1313

Right of creditor to impugn contracts intended to defraud them.

This article is another qualification to the rule that contracts the effect only between the parties. The creditor is given the
right to impugn the contracts of his debtor to defraud him.

ART. 1314

Liability of third person responsible for breach of contract.

This is a rule of American law. It is also proper under the general principles of the Philippine law, because a contractual
right is property.

This article recognizes an instance when a stranger to a contact can be sued for damages for his unwarranted interference
with the contract. It presupposes that the contract interfered with is valid and the third person has knowledge of the
existence of the contract.
ART. 1315

Classification of contracts according to perfection.

They are:

(1) Consensual contract

- It is perfected by mere consent.
(2) Real contract
- It is perfected by the delivery of the thing subject matter of the contract.
(3) Solemn contract
- It requires compliance with certain formalities prescribed by law, such prescribed form being
thereby an essential element thereof.

Stages in the life of a contract.

They are:

(1) Preparation or negotiation

- This includes all the steps taken by the parties leading to the perfection of the contract. At this
stage, the parties have not yet arrived at any definite agreement
(2) Perfection or birth
- This is when the parties have come to a definite agreement or meeting of the minds regarding
the subject matter and cause of the contract upon concurrence of the essential elements
(3) Consummation or termination
- This is when the parties have performed their respective obligations and the contract may be
said to have been fully accomplished or executed, resulting in the extinguishment or
termination thereof. A contract may also be terminated after its perfection, not by
performance, but by mutual agreement of the parties.

How contracts are perfected.

(1) Consensual contracts

- As a general rule, contracts are perfected by mere consent of the parties regarding the subject
matter and the cause of the contract.
(2) Real contracts
-