GENERAL OVERVIEW OF THE LAW ON CONTRACTS

Title II, Book IV of Republic Act No. 386, New Civil Code of the Philippines
LEGAL BASIS
(Arts. 1305-1422)

A contract is a meeting of minds between two persons whereby one binds

DEFINITION himself, with respect to the other, to give something or to render some
service. (1305)

1. Freedom/Liberty to Stipulate / Autonomy of Contracts (1306)

2. Obligatory force and compliance in good faith (1159, 1315)
CHARACTERISTICS 3. Consensuality of contracts (1315)
4. Mutuality of contracts (1308)
5. Relativity of contracts (1311)

1. Consent (Chapter 2, Sec. 1)

ELEMENTS 2. Object (Chapter 2, Sec. 2)
3. Cause/Consideration (Chapter 2, Sec. 3)

Refers to the “meeting of the minds” between the parties of a contract. It is

the manifestation of the meeting of the offer and the acceptance of the
offer, upon the object and the cause of the contract (1319).The offer must
be fixed, certain and definite (1325, 1326). And the acceptance of the offer
must be absolute.

As a general rule, a contract is perfected by mere consent. Once a contract

is perfected, it will give rise to obligations binding upon the parties. There is
now juridical necessity. Determining when a contract is perfected is
CONSENT
important.​ (How is the contract perfected?)

Requisites:
1. Must be given by (two or more) parties; mutual (1308)
2. Parties are capacitated to enter into the contract (​Who are capacitated
and incapacitated to enter into a contract?​)
3. Consent must be intelligently or freely given
4. Express manifestation of the will of the contracting parties (​How is
consent manifested?​)

Refers to the “what” in the contract; answers the question, ​what is the
obligation of the party in the contract?

The object of the contract is the same as the object/prestation in the

obligation, which can either be: an obligation to give (real), to do (personal
positive) and not to do (negative personal).

The object as well as the cause/consideration will depend on the party of

OBJECT
the contract.

Requisites:
1. The thing must be within the commerce of men. (1347)
2. It must be transmissible.
3. It must be legal/licit (1347)
4. It must be possible (1348)
5. It must be determinate or at least determinable (1349)

The “why” in the contract; the essential reason which impels the contracting
CAUSE/ parties to enter into the contract; answers the question, ​why did the party
CONSIDERATION agree to the contract or agreement?

Notes in Business Law ​ . Atty. Ida Marie V. Escolano-Canton 1

 Requisites:
1. It must exist.
2. It must be real.
3. It must be lawful.

The cause/consideration as well as the object will depend on the party of

the contract.

(Chapter 3) As a general rule, contracts shall be obligatory, in whatever

form they may have been entered into, provided all the essential requisites
for the validity are present (1356). Contracts are perfected by mere consent
(1315), following the principle of consensuality of contracts→ Consensual
contracts.

FORMALITIES Except, when the law requires that a contract be in some form: (1356) →
Formal/Solemn Contracts
1. For its validity
2. For its enforceability
3. For convenience

It answers the question,​ is a form required for this kind of contract?

DEBTOR CREDITOR
Obligor/Passive Subject Obligee/Active Subject
PARTIES
‘Who has the duty or obligation’ ‘Who has the right to the fulfillment of
the obligation’’

Contract is one of the sources of obligation. It binds the parties together in

an obligation (juridical tie/legal tie).

The obligations of the debtor and the rights of the creditor will depend of the
kind of prestation which can either be:
1. an obligation to give (real):
a. specific/determinate thing
b. generic/indeterminate thing,
2. obligation to do (personal positive)
3. obligation not to do (negative personal)

OBLIGATIONS This is discussed in Chapter 2 of Law on Obligations. See ​Table

Comparison of Duties and Rights by Kind of Prestation​.

1. To deliver the specific thing

2. To take care of the specific thing
with proper diligence of a good
father of a family (1163)
3. To deliver the fruits (1164)
4. To deliver all accessions and
accessories (1166)
5. To pay for damages in cases of
breach (1170)

1. To demand specific performance or

fulfillment of the obligation (1165,
1st sentence) - ACTION FOR
SPECIFIC PERFORMANCE
RIGHTS
2. To demand rescission or
cancellation of the obligation -
ACTION FOR RESCISSION
3. To demand payment of damages

Notes in Business Law ​ . Atty. Ida Marie V. Escolano-Canton 2

 (1170) - ACTION FOR DAMAGES
Note: 1st and 2nd remedy are
alternative remedies. 1st or 2nd
remedy can be filed together with 3rd
remedy, cumulative remedy.

1. Payment/Performance 9. Fulfillment of a Resolutory

2. Loss Condition
3. Condonation/Remission 10. Prescription
4. Confusion/Merger 11. Death a party in case the
MODES OF 5. Compensation/Set-off obligation is personal
EXTINGUISHMENT 6. Novation (1231) 12. Mutual Desistance
13. Compromise
Other Modes 14. Impossibility of fulfillment of the
7. Annulment obligation
8. Rescission 15. Happening of fortuitous event

There are special contracts discussed in other parts of the New Civil Code
or other special laws. But the core provisions and principles are still the
same, discussed in the Law on Contracts.

The following are special contracts:

1. Trusts
2. SALES
3. Barter or Exchange
4. Lease
OTHER PERTINENT
5. Work and Labor (now in Labor Code)
FACTS
6. Common Carriage
7. PARTNERSHIP
8. Agency
9. Loan
10. Deposit
11. Insurance (now in Insurance Code)
12. Guaranty and Surety
13. Pledge, Mortgage, and Antichresis
14. Marriage (now in Family Code)

Notes in Business Law ​ . Atty. Ida Marie V. Escolano-Canton 3