GROUP 4

CONTRACTS

a. What are the requirements of a valid contract?

As a source of obligation, a contract must be valid and enforceable. (Art. 1403.)

A contract is valid (assuming all the essential elements are present, Art. 1318.) if it is not
contrary to law, morals, good customs, public order, and public policy. It is invalid or
void if it is contrary to law, morals, good customs, public order, or public policy. (Art.
1306) In the eyes of the law, a void contract does not exist. (Art. 1409.) Consequently,
no obligations will arise.

b. Why is it important complying in accordance with the stipulations or terms of the

contract agreement?

Compliance in good faith means compliance or performance in accordance with

the stipulations or terms of the contract or agreement. Good faith and fair dealing must
be observed to prevent one party from taking unfair advantage over the other. Evasion
by a party of legitimate obligations after receiving the benefits under the contract would
constitute unjust enrichment on his part.

c. Is there a liability for breach of contract?

Although the contract imposes no penalty for its violation, a party cannot
breach it with impunity. Our law on contracts recognizes the principle that actionable
injury inheres in every contractual breach. (Arts. 1170, 1191.) Interest may, in the
discretion of the court, on equitable grounds, be allowed upon damages awarded for
breach of contract. (Art. 2210.) The failure of either party to a contract to demand
performance of the obligation of the other for an unreasonable length of time may
render the contract ineffective where the contract does not provide for the period
within which the parties may demand the performance of their respective undertakings
but the parties did not contemplate that the same could be made indefinitely. The mere
failure of a party to respond to a demand letter in the absence of other circumstances
making an answer requisite or natural does not constitute an implied admission of
liability.