TITLE II – CONTRACTS – Chapter 1

General Provisions
Article 1305

A contract 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.
Contract

• The meeting of minds between two contracting parties which takes place when an
offer by one party is accepted by the other.
• One party binds himself or themselves with respect to another party, to the
fulfillment to give, to do, or render service or to refrain from doing a particular thing.
• Contracts are sources of obligations, while obligations are the legal ties or relation
itself that exists after a contract has been entered. However, no there can be no
contract if there is no obligation accepted in return of a benefit.
• Contracts are binding agreements enforceable through legal proceedings in case the
other party does not comply with his obligation under the agreement.
• To be a valid and enforceable contract, it must be lawful and all the requisites for its
validity must be present.
• Agreements such as accepting a dance party are merely moral or social agreements,
hence they are not enforceable by action in the courts of justice.

Classifications of Contracts

• According to Name or Designation

a) Nominate – a contract that has a specific name or designation in law.
b) Innominate – a contract that which has no specific name or designation in
law.
• According to Perfection
a) Consensual – a contract that is perfected by mere consent.
b) Real – a contract that is perfected by the delivery of the thing subject matter
of the contract.
• According to cause
a) Onerous
b) Remuneratory or remunerative
c) Gratuitous
• According to form
a) Informal, common or simple
b) Formal or solemn – a contract that requires compliance with certain
formalities prescribed by law.
• According to obligatory force
a) Valid – contracts that meet all the legal requirements and limitations for the
type of agreement involved and are, therefore, legally binding and
enforceable.
b) Recissible
c) Voidable
d) Unenforceable
e) Void or inexistent
• According to person obliged
a) Unilateral
b) Bilateral
• According to risks
a) Commutative – when the undertaking of one party is considered the
equivalent of that of the other (e.g., sales, lease)
b) Aleatory – when it depends upon an uncertain event or contingency both as
to benefit or loss (e.g., insurance, sale of hope)
• According to liability
a) Unilateral – when it creates an obligation on the part of only one of the
parties (e.g., commodatum, gratuitous deposit)
b) Bilateral – when it gives rise to reciprocal obligations for both parties (e.g.,
sale, lease)
• According to status
a) Executory – when it has not yet been completely performed by both parties.
b) Executed – when it has been fully and satisfactorily carried out by both
parties.
• According to dependence to another contract
a) Preparatory – when it is entered into to an end (e.g., partnership)
b) Accessory – when it is dependent upon another contract it secures or
guarantees for its existence and validity (e.g., mortgage, guaranty)
c) Principal – 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 (e.g., sale, lease)
• According to dependence of part of contract to other parts
a) Indivisible – when each part of the contract is dependent upon the other
parts for satisfactory performance (e.g., sale of a dining room table and
matching chairs
b) Divisible – when one part of the contract may be satisfactorily performed
independently of the other parts (e.g., sale of a rocking chair and a pair of
shoes)
Article 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.
Limitations on contractual stipulations

• It required that the contract must be in accordance with law.

• A contract cannot be given effect if it is contrary to law because law is superior to a
contract.
• If there is no law in existence or the law is silent, the will of the parties are to be
followed unless the contract contravenes with the public order, public policy, good
customs, and morals.
a) Morals deal with norms of good and right conduct evolved in a community.
b) 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.
c) Public order refers principally to public safety although it has been considered
to also mean the public weal.
d) Public policy is broader than public order, as it may refer not only to public
safety but also to considerations which are moved by the common good.
Article 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.

• There are innominate contracts because there is an impossibility to anticipate all

forms of agreements or contracts.

Article 1308

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

Article 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.
• Compliance with a contract cannot be left to the will of one of the contracting parties,
but the determination of its performance (or fulfillment of the contract) may be left
to a third person.)

Article 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.
• The provision merely states that a contracting party is not bound by the decision of
the third person if they acted in bad faith or by mistake, causing an unjust
determination; in this case, the courts shall decide what is equitable for the parties
involved.
Article 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.

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.
Persons affected by a contract

• Generally, a party’s rights and obligations derived from a contract are transferrable
to the successors. Only the parties, their assigns, and heirs can have rights and
obligations under the contract.
• There are cases when a contract is effective only between the parties are when the
rights and obligations are not transferrable:
a) By their nature, like a contract involving personal qualifications such as
singing or painting.
b) By stipulation in accordance with the principle of freedom to contract
c) By provision of law as in agency, partnership and commodatum, when death
extinguishes the legal relationships.

Stipulation pour autrui

• 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 oblige or the original parties.
• Stipulations in favor of a third person may be divided into two classes, namely:
a) Those where the stipulation is intended for the sole benefit of such person,
this confers a gift in such case applies the rules relating to donations insofar
as the form of acceptance is concerned.
b) Those where an obligation is due from the promise to the third person which
the former seeks to discharge by means of such stipulation.

Requisites of stipulation pour autrui

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

Article 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 Registration laws.
• This provision is an exception to the general rule that a contract binds only the parties.

Article 1313

Creditors are protected in cases of contracts intended to defraud them.

• This provision gives the creditor the right to challenge the contracts of his debtor to
defraud him/her.

Article 1314

Any third person who induces another to violate his contract shall be liable for damages
to the other contracting party.

Article 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 keeping with good faith, usage,
and law.
Article 1316

Real contracts, such as deposit, pledge, and commodatum, are not perfected until the
delivery of the object of the obligation.
Stages in the life of a contract

1. Preparation or negotiation – This includes all the steps taken by the parties leading to
the perfection of the contract, 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.
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 or fulfillment, but by
mutual agreement of the parties.

Article 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.

A contract entered into 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.
• A person is not bound by the contract of another of which he has no knowledge or to
which he has not given his consent.