KRISTEL AN TECSON LAMORENA BS MANAGEMENT ACCOUNTING II

AEC 117 BSMA2 TTH 4PM-5:30PM Assignment 1 Finals - Nov. 4, 2021

General Provisions of Contracts

I. Definitions

a. Contract – according to Art. 1305, a contract is a meeting of the minds between two
persons whereby one binds himself, with respect to the other, to give something or to
render some service.
b. 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 fulfilment provided he
communicates his acceptance to the obligor before its revocation by the obligee or the
original parties.
c. Real contract – are contracts perfected not merely by consent but by the delivery, actual
or constructive, of the object of the obligation (Art. 1316). They are purposely made for
restitution because they contemplate the return of what has been received from another.
d. Perfection of a contract – this is when the parties involved have come to a definite
agreement or meeting of the minds regarding the subject matter and cause of the contract
upon the concurrence of the essential elements thereof.

II. Discussions

1. May a third person acquire rights under a contract to which he is a stranger or be

bound thereby? Explain.

As a general rule, a third person has no rights and obligations under a

contract to which he is a stranger. This is due to the privity of contracts under
which he has no standing in law to demand the enforcement of a contract nor may
he question its validity. However, there are cases in which a third person can be
included in the contract such as (1) Contracts containing a stipulation in favour of
a third person or stipulation pour autrui; (2) Contracts creating real rights; (3)
Contracts entered into to defraud creditors; and (4) Contracts which have been
violated at the inducement of a third person.

2. How are contracts perfected?

As a general rule, contracts are perfected by the mere consent of the

parties regarding the subject matter and the cause of the contract (Articles 1315
and 1319). They are obligatory in whatever form they may have been entered into
(consensual, real, and solemn), provided all the essential requisites for their
validity are present.

3. When will a person be bound by a contract entered into by another?

A person will be bound by a contract entered into by another if (1) the

person entering into the contract is duly authorized by the person in whose name
he contracts, by law, a right to represent him (guardian or administrator); and (2)
is must only act within his power. However, a contract entered into by an agent in
excess of his authority cannot be enforced although the agent will still be
personally liable to the party with whom he contracted with where the party was
not given notice of the limits of the powers granted by the principal.
 4. Give the effect of the perfection of a contract.

The parties who came to an agreement on the subject matter with valid
consideration are bound to the fulfilment of what has been expressly stipulated
and to all the possible consequences which according to their nature, may be in
the keeping with good faith, usage and law.

III. Problems
Explain or state briefly the rule or reason for your answer.

1. A and B entered into a contract not specifically provided in the civil code. Is the
contract valid and binding?

The contract is invalid because in the general provisions of the Civil Code
of the Philippines, a contract is only deemed valid if it possesses the three key
elements which is consent, object and the cause. Since the contract is not
specifically provided in the Civil Code of the Philippines, it is assumed that the
contract entered into by A and B is contradictory to the law and is therefore
invalid and unbinding. It may be safe but there could be differences in the
contract entered into by A and B.

2. S (seller) and B (Buyer) entered into a contract of sale. It was agreed that the
price shall be determined by T, a third person. Can S or B refuse to be bound by
T’s determination of the price if he does not agree with the amount thereof?

Yes, S and B can refuse to be bound by the determination of price made

by T if he doesn’t agree with the amount because it may depend on their
agreement.