Article 1305

It is a meeting of the minds between two or more parties, whereby one party binds himself with respect
to the other, or where both parties bind themselves reciprocally, in favor of one another, to fulfill a
prestation to give, to do or not to do.

We have Three stages in making a contract:

The first is Conception or Generation – This is the stage where the parties begin their initial negotiation,
bargaining for the formation of the contract and ending at the moment of agreement. It is also called the
preparatory stage. The second one is Perfection or Birth – This is the stage where the contract is said to
have been born,  where the parties had a meeting of minds as to the object, cause or consideration and
other terms and conditions of the contract. It has passed the preparatory state, thus giving birth to  the
contract. And lastly Consummation or Fulfillment – This is the last stage which consists of the performance
or fulfillment by the parties of their obligations under the terms of the perfected contract.  Consummation
means the accomplishment, death, or termination of the contract where the parties cease to be
contractually related to one another.

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.
This article provides the limitations to which contracting parties may establish in the stipulations
of the contract.

These limitations are:

Limitations by law- Stipulations in a contract must not be in violation of mandatory and
prohibitory laws unless the law itself authorizes the validity of such acts. As a rule, an existing
law enters and into and forms part of a valid contract without the need for the parties expressly
making reference to it.
Limitations by Morals- Morals refer to norms  of conduct universally accepted as rules not based
on law but on principles of morality. Morality in turn is based on man’s faculty of knowing how
to distinguish between what is right from what is wrong.
Limitations by Good Customs- Good customs refer to the generally accepted principles of
morality which have received some social and practical recognition in the community for a long
period of time. Thus, contracts which have immoral aims are contrary to good customs.
Limitations by Public Order- Public order refers to public safety of the people which includes the
maintenance of peace and order both in the entire country and in a particular community.
Limitations by Public Policy- Public policy is the express will of the State. A contract is contrary
to public policy if it has a tendency to injure the public, is against the public good ,or contravene
some established interest of society, or tends clearly to undermine the security of the
individuals.
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.

CLASSIFICATION OF CONTRACTS

They are Nominate contract or that which has a specific name or designation in law and Innominate
contract or that which has no specific name or designation in law.

The impossibility of anticipating all forms of agreement on one hand, and the progress of man’s
sociological and economic relationships on the other, justify this provision. A contract will not, therefore,
be considered invalid for failure to conform strictly to the standard contracts outlined in the Civil Code
provided it has all the elements of a valid contract. 

Innominate contracts are based on the well-known principle that “no one shall unjustly enrich himself at
the expense of another.

4 KINDS OF INNOMINATE CONTRACTS

(a) do ut des (I give that you may give) is an agreement   in which A will give one thing to B, so that   B will
give another thing to A.

(b) do ut facias (I give that you may do) is a contract under which A will give something to B, in order that
B may do something for A.

(c) facio ut des (I do that you may give) is an agreement in which A binds himself to do something for  B,
so that B will give something to A.

(d) facio ut facias (I do that you may do) is a convention whereby A is to do something for B, so that B will
render some other  service to A.

Article 1308

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

Mutuality of contracts. It is but natural and logical that the contract shall bind both contracting parties.
This is the principle of mutuality contract. It is based on the essential quality of the parties. It is
incongruous to bind one party and let free the other party from responsibility.

Obligations arising from contract have the force of law between the parties and should be complied with
in good faith.

The binding effect of a contract on both parties is based on the principle that the obligations arising from
contract have the force of law between the contracting parties, and there must be mutuality between
them based essentially on their quality under which it is repugnant to have one party bound by the
contract while leaving the other free therefrom.
Validity or Compliance. Cannot be left to the will of the one of the contracting parties.

What is meant here is that the contract cannot have any stipulation authorizing one of the contracting
parties: To determine whether or not the contract shall be valid, or To determine whether or not the
contract shall be fulfilled However, a third person may be authorized to determine the performance or
fulfillment of the contract but not to determine its validity. He must not however make the determination
of the fulfillment evidently equitable.

Stipulations allowing a party to cancel or rescind do not militate against mutuality of contracts.

No judicial action for rescission is necessary where the revocation of the contract is authorized for the
violations of its terms and conditions.

Mutual cancellation. The general rule is that a party cannot revoke or renounce a contract without the
consent of the other. They may however mutually cancel their contract under such terms and conditions
as they deem wise.

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. 

The decision binds the parties only after it is made known to both.

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.

Based on Article 1310, the Court will only be the one to decide on the based on justice and equity. Justice
means giving each what is due but equity is a process by which court relax the sanctions of the law for
humanitarian consideration.

Article 1311

Contracts take effect only in 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 heirs 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
deliberately conferred a favor upon a third person.
It is a stipulation in a contract clearly and deliberately conferring favor upon a third person who has a
right to demand its fulfillment provided he communicates his acceptance to the obligor before its
revocation.

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 provision of the mortgage law and the land registration laws.

Whoever comes into possession of such property must respect that real right.

Article 1313

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

 This Article represents another instance when an outsider can in a sense interfere with another’s contract.

This action is an exception to the principle of relativity which covers contracts that are binding only
between parties, their assigns and heirs.

When a debtor intends to defraud his creditor and alienates his property without leaving enough for
them, his creditor may file for rescission of the said contracts.  This action of rescission of contract is also
known as accion pauliana.

Article 1314

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

Interference with Contractual Relations- This article is known in the law of torts as interference with
contractual relations. The liability incurred by the intermeddler cannot be more than the liability incurred
by the party in whose behalf he intermeddled. Otherwise, it will result to injustice.

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 in keeping with good faith, usage, and law.

CLASSIFICATIONS OF CONTRACTS ACCORDING TO PERFECTION

(1) Consensual contract or that which is perfected by mere consent of the parties.

(2) Real contract or that which is perfected,

From the moment the parties come to an agreement on a definite subject matter and valid consideration
they are bound not only to the fulfillment of what has been expressly stipulated and to all the
consequences which according to their nature, may be in 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.

Perfection of real contracts. The article refers to real contracts which require delivery of the object for their
validity, in addition to the presence of the other essential elements of a contract: consent subject matter
and cause of consideration. Real contract are perfected from the moment of the delivery of the object of
the obligation. The real contracts mentioned in the law are: Deposit, Pledge, Commodatum. A contract of
carriage is also real contract as well as mutuum or loan.
A loan contract is not a consensual contract but a real contract, perfected only upon the delivery of the
object of the contract. Reason why delivery is required in real contracts. In real contracts, delivery of the
object is necessary because without the object, the other party cannot comply with his duties under the
contract. Agreement to enter into real contract distinguished from real contract itself. There can be a
contract “to make a deposit, pledge, etc.” This is consensual. It is perfected upon the meeting of the
minds of the parties. However, once the object has been delivered, the contract is converted into a real
contract.

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 in 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. 

There can be no more ratification if the contract has previously been REVOKED by the other contracting
party.

Article 1318

There is no contract unless the following requisites concur:

1.) Consent of the contracting parties- meeting of the minds of the two parties;

2) Object certain which is the subject matter of the contract- must be definite and certain (ex. Land, or
house etc);

3) Cause of the obligation which is established- compelling reason in the performance of the contract or
why a party assumes an obligation.

If the above requisites are not within the contract then the contract may not be valid as clearly stated on
Article 1318.
Article 1319

Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offeror except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where the
offer was made.

Consent in contracts is giving of one’s conformity to the terms of the contract freely and voluntarily. It is
the concurrence of the minds of the parties on the cause and subject matter which will constitute the
contract, as well as on the other conditions and terms thereof to which they voluntarily binds themselves
to comply. Consent may be expressly or implied.

Article 1320

An acceptance may be express or implied.

Express – when it is implicitly made in writing or verbally

Implied – when it can be deduced from the conduct of the party, from conduct, or acceptance of
unsolicited services.

Article 1321

The person making the offer may fix the time, place, and manner of acceptance, all of which must be
complied with.

The acceptance must be made known to the offeror before the lapse of the fixed period.  If the
acceptance was made after the fixed period, it is not a legal acceptance anymore.  What happens then is
that it becomes an offer (made by the previous offeree) which may or may not be accepted by the original
offeror (which becomes the offeree).

In terms of the manner of acceptance, the offeror may require that the acceptance be done by letter,
personal communication, or through a representative.

Acceptance which was not made in the manner fixed by the offeror constitutes a counterproposal which
extinguishes the offer and may not be accepted by the original offeror.

Article 1322

An offer made through an agent is accepted from the time acceptance is communicated to him.

This article means that when an offeror appoints a third person as his agent to represent him, the offer by
the agent, when accepted by the offeree, is deemed accepted not from the knowledge of the acceptance
by the offeror (principal) but from the moment the agent has received the communication of acceptance.
The meeting of the minds is thus established. The agent must be authorized by the offeror. An example of
an agent is an attorney-in-fact, authorized through a power of attorney. If the intermediary is not
authorized, the offer is not binding to the offeror. The offeree may also act through an authorized agent.
Article 1323

An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed.

Definition of Civil Interdiction, insanity and insolvency

Civil Interdiction – mandatory accessory penalty deemed imposed whenever the sentence rendered is
within the range of reclusion temporal to death. If the latter is not executed by reason of commutation or
pardon.

Insanity – legal term for mental disorder; disease or defect of the brain.

Insolvency – inability or the lack of means to pay one’s debt.

Article 1324

When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.

The article applies only to a situation where the offeror has allowed the offeree “a certain period of time
to accept”. This is giving the offeree the option to accept or not to accept within a fixed period of time.

The time of acceptance will depend on the circumstances: If a period is fixed by the offeror; If no period is
fixed by the offeror.

Option contract, concept. It is a contract between the offeror and the offeree whereby the former grants
the latter, for a valuable consideration, the privilege to buy or not to buy certain objects at anytime within
the specified period and for a fixed price.

The option contract or contract of option is separate and distinct from the principal contract which the
parties may enter into later if they finally conclude their main agreement. It is therefore a preparatory
contract to the principal contract should the parties, finally consummate their transaction which is under
negotiation. The matter is said to be still under negotiation because the offeror may or not take
advantage of the privilege granted him.

Option money and earnest money

Option money – is the consideration paid in an option contract. If the principal contract is not
consummated, the option money is not refunded

Earnest money is the payment made to the seller by the buyer to show his good faith. It will constitute as
part of the purchase price, if the sale is finally consummated. It is also a proof of the perfection of the
contract. If the sale is not concluded, the earnest money shall be returned to the would be buyer unless
there is a contrary agreement.

The option contract or contract of option is separate and distinct from the principal contract which the
parties may enter into later if they finally conclude their main agreement. It is therefore a preparatory
contract to the principal contract should the parties, finally consummate their transaction which is under
negotiation. The matter is said to be still under negotiation because the offeror may or not take the
advantage of the privilege granted him.

Article 1325

Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere
invitations to make an offer.

Business Advertisements of things for sale may or may not constitute definite offer. The matter depends
on the circumstances:

Business Advertisements of things for sale may or may not constitute definite offer. They are merely
invitations to the reader to make an offer or only as proposals. However , if the advertisement is
complete  in all the particulars necessary in a contract it may amount to a definite offer or it is a definite
offer when the object is determinate.

If advertisement contains all the necessary data needed in a contract, it is a definite offer for the sale of
the thing advertised.