LAW ON CONTRACTS

Part II

Governing Law: Civil Code of the Philippines

Definition of Contract

A Contract is a meeting of minds between two persons whereby one bind himself, with respect to
the other, to give something or to render some service.

It lays emphasis on the meeting of minds between two contracting parties which takes place
when an offer by one party is accepted by another. In a contract, one or more persons bind himself or
themselves with respect to another or others, or reciprocally, to the fulfillment of a prestation to give, to
do, or not to do.

In a contract, there must be at least two person or parties, because it is impossible for one to
contract with himself.

Contracts in General

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.

Freedom to contract guaranteed

The right to enter into contract is one of the liberties guaranteed to the individual by the constitution.
However, this protection is limited to legally valid contracts, or in other words an individual does not
have an absolute right to enter into any kind of contract.

Limitations on Contractual Stipulations

1. Contract must not be contrary to law – contract cannot be given effect if it is contrary to law, because
law is superior to a contract. Acts executed against the provisions of mandatory or prohibitory laws
are void, except when the law itself authorizes their validity.

2. Contract must not be contrary to morals – it deals with norms of good and right conduct evolved in a
community.

Example: 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 and therefore void.

3. Contract must not be contrary to good 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.

Example: X entered into a contract whereby X binds himself to slap his father. This contract is void
because it is against the good custom of showing to our parents.

4. Contract must not be contrary to public order – refers principally to public safety although it has been
considered to mean also the public weal.
 Example: A stipulation in a contract of lease whereby the land-lord can use force to eject the tenant in
case of failure of the latter to pay rent agreed upon is void as being against public order.

5. Contract must not be contrary to public policy – it is broader than public order, as the former not only
to public safety but also to consideration which are moved by the common good.

Example: X stole the car of Y. Later, they entered into a contract whereby Y would not prosecute X
in consideration of P50, 000.

It is to the interest of society that crimes be punished.

Kinds of Contract

1. According to form:
a. Informal contract - in any form as long as all the requisites or essential elements for its validity are
present.
b. Formal contract - in a form required by the law.

2. According to the involvement of the parties:

a. Unilateral contract - one party is bound to fulfill an obligation for an act by another party.
b. Bilateral contract - both parties are bound to fulfill their mutual promises or respective obligation
to each other reciprocally.

3. According to name or designation:

a. Nominate contract - has specific name or designation in law; such as commodatum, lease,
agency, and sale.

b. Innominate contract - has no specific name or designation in law; shall be regulated by the
stipulations of the parties, by the Civil Code, by the rules governing the most analogous nominate
contracts, and by the customs of the place.
 do ut facias (I give that you may do)
 facia ut des (I do that you may give)
 facio ut facias (I do that you may do)

4. According to perfection:
a. Consensual contract - perfected by mere consent; such as the contract of sale, lease and
agency.
b. Real contract - perfected by mere consent and the delivery of the object; such as deposit, pledge
and commodatum.
c. Solemn contract - perfected through compliance with the form required by law; identical with
formal contract.

5. According to cause or purpose:

a. Onerous contract - the purpose is the performance of an obligation by one party as the other
party performs or has performed its own obligation.

b. Remuneratory contract - the purpose is the remuneration or payment by one party for a service or
benefit previously rendered by the other party.

c. Gratuitous contract - the purpose is the mere liberality or the feeling by one party that the other
party (which is the benefactor/giver) has been generous; such as in free, pure donation.
6. According to the obligatory force:
a. Valid contract - with such stipulations, clauses, terms and conditions that are not contrary to law,
morals, good customs, public order, or public policy.

b. Rescissible contract - with legal validity, but may be rescinded or revoked in the cases
established by law.

c. Voidable/Annullable contract - with legal validity but may be invalidated by a court action on the
grounds of mistake, violence, intimidation, undue influence, fraud, or incapacity of one of the
parties to give consent.

d. Unenforceable contract - with legal validity but cannot be enforce through court action by reason
of defects, unless it is ratified according to law.

e. Void contract - with no validity at all because of certain defects, such as illegality; considered
inexistent from the very beginning and cannot be ratified according to law.