MODULE 4 EPISODE 1

LAW ON CONTRACTS

 Article 1305. A contract is meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to
render some service.

Note: Meeting of minds pertains to agreement of two persons to enter a contract in which one promises to give something of render some service. A
common contract that all of us have entered is a contract of sale wherein we purchase something. There is a meeting of minds between the seller and
buyer wherein they agreed in the same price to exchange goods and cash.

Note: There are different kinds of contract. According to name/designation, it may be nominate or innominate. Nominate are contracts with name like
contract of sale or contract of loan; whereas, innominate are contracts without names. According to perfection, there is consensual which can be done
orally or real contracts that needed delivery. According to cause, there is onerous, remuneratory, or gratuitous contracts. According to form, it may be
formal or informal. According to obligatory force, it can be valid, rescissible, voidable, unenforceable or void. According to person obliged, it may be
unilateral or bilateral. According to dependence to contract, it can be preparatory, accessory or principal. According to risk, it may be commutative
wherein they will receive equal value and aleatory wherein there is no assurance that both parties will receive equal value.

 Article 1306. A 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, and public order, or public policy.

Note: Other parties cannot intervene in the contract as long as it is not against the law. An example contrary to law is, “I will give you 1 million pesos if
you will kill my enemy.” Putting that kind of provision in the contract is prohibited because it is against the law to kill a person. An example contrary to
moral is, “I will give you 30k monthly if you will be my mistress.” That kind of contract is not allowed because it is adultery which is against the law and
morality. An example against good customs is, “I will give you 10k if you punch your grandfather.” That is also not allowed because in our culture we are
ought to respect the elders by doing pagmamano which is an honoring gesture. We cannot also enter a contract that will ruin public order or bring chaos
in public. In short, we can add many provisions in the contract as long as it does not violate any of the 6 items mentioned above.

 Article 1307. Innominate contracts shall be regulated by stipulations of the parties, by the provisions of Titles I and II of these books, by the rules
governing the most analogous nominate contracts, and by the customs of the place.

Note: Although they do not have a name, there are Latin words attached to them like facto (facio) ut des, facto ut facias, do ut des and do ut facias. Do
ut des meaning I give that you may give. Do – give and Facias – do. Facto ut facias meaning I do that you may do.

 Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

Note: Both should follow the contract and not only one person. Both should also agree and decide whenever they make a decision like to cancel a
contract. It is not allowed that only one person is going to take action. Both should also decide on the validity of the contract based on the evidence.

 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.

Note: Both parties may appoint a third party if they feel that they need another person which is right for the role. For example, in a contract of sale, you
cannot determine the fair value of the car. Thus, you need a third person who knows the fair value. The price that he will set will only be binding once he
relied the information.

 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.

Note: The information is evidently inequitable if the third person has favoritism like setting a price in favor to the seller and unfair to the other parties. In
that case, the determination or decision shall not be obligatory and the other party may bring it to the court to invalidate the determination.

 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.

Note: Contracts take effect only between parties. For example, A has a liability to C. C can only demand payment from A. But when the debtor dies, the
liability is somehow transferred to his heirs. For example, your grandfather dies so you inherited his assets amounting to 1 million pesos but he has a
liability of 20,000 so the amount you will inherit will be deducted by the liability. The creditor may demand payment from you as hid heir. However, a
creditor may only demand within the amount you received, he cannot demand beyond the amount you received. For example, the liability of your
grandfather is 2 million but you only inherited 1 million. You can only give 1 million pesos to him. It cannot result to a negative amount but it is possible
that you will get a zero amount of inheritance

But if the debtor does not have kids, if he dies then the liability is extinguished. In accounting, the liability is called bad debts which is written off because
there is no chance that it will be paid since he has no heirs. But if he has heirs and there is enough inheritance that the heirs will get, the creditor may
demand payment from the heirs of the decedent. Before he will inherit the money, the liability of his decedent is deducted first.

 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.

Note: Real rights involving property, land and other real estate. For example, a debtor who owns a land sold his land to a creditor so he can borrow a
money. Title of the land that was sold is annotated or sealed to show that its is sold/pawned/held as security. The effect of holding the land as a security
does not give rise to the transfer of ownership. In short, it is still owned by the debtor and the ownership is not transferred to the creditor. The debtor
may still sell it to another person even if it is held for sale because he is the owner. As a third party, a person should be careful in purchasing land that is
held for security/sale and the title of the land is annotated. Because even if you paid the original selling price of the land, but the owner of the land who
has an obligation to pay to the creditor is not fully paid. The ownership of land is not easily transferred to you as a third party because under the law the
first agreement should be respected and recognized. Thus, the money that debtor-owner received from the buyer should immediately be paid to the
creditor so that the debtor is fully paid and the annotation in the title of the land and loan is removed. In that way, the ownership of the land can be
transferred to the buyer. It is better to wait for the debtor to finish first his obligation before buying a land that is annotated.

 Article 1313. Creditors are protected in cases of contract intended to defraud them

Note: This article is called accion pauliana wherein the creditor is given the right to impugn contracts entered into to defraud him. One of the remedies
the creditor may do if the debtor is still unpaid is the process of attachment wherein the creditor may request in the court to pull certain properties of the
debtor. However, there are deceiving debtors who enters a fictitious sale/fake sale (gawa-gawa lang ng debtor) when they feel that the court will pull
their properties. For example, the debtor pretends to sell his properties to his friend so that creditor cannot pull his properties since the ownership is
transferred to his friend. However, if the creditor discovered his scheme and proved that the contract of sale is absolutely stimulated or fake. The creditor
may request in the court to invalidate the contract of sale. When that happens, the ownership will be back to the debtor and the creditor may apply the
process of the attachment wherein he can pull the properties of the debtor and own them.

 Article 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.

Note: This article states that if a third person knows that there is a contract between parties, he cannot intervene and convince one party to violate his
contract. If that happens, the third person will be liable for damages to the other contracting party. For example, an actress has a 3-year contract with a
manager. However, another manager from different entertainment wanted to recruit the actress. Thus, the other manager bribes the actress to join his
team. If the actress transferred to another manager without finishing her contract with the main manager that violates the contract. In that case, the
manager may file a case against the actress. And if the manager discovers that it was the other manager that induces the actress to violate the contract.
He can also file a case to the other manager who bribes the actress.

 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.

Note: This article states that not all contracts are only made when there is a written document. It is a misconception that there is a contract only when
there is a written document. It is said that contracts are perfected by mere consent meaning there can be a contract even if it is made orally. For
example, in a contract of sale, when we were young, when we buy candies, we do not sign any contract to do the transaction, we just say it orally. A
contract of sale is a consensual contract which can be perfected by mere consent.

 Article 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation.

Note: Real contracts are perfected by the delivery of the thing. Real coming from the Latin word “res” meaning object. There will be only a contract when
it is delivered. For example, in contract of deposit, you should deposit the diamond so that a contract will be made. In contract of pledge, in pawnshop
when you will borrow you should leave your valuable things first so that you can receive the money. It is not yet held as pledge when your valuable
things are not yet delivered to the creditor. Commodatum - a gratuitous loan of movable property to be used and returned by the borrower
(pagpapahiram). For example, there is only a contract of commodatum you deliver the phone that the debtor will borrow.

 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.

Note: Another way of how contracts are perfected are solemn contracts which require formalities like written in a form. There are stages of contract. First
is the preparation stage, perfection stage, or consummation stage. In preparation/negation stage, this is where parties negotiate. In perfection stage, this
is where two parties have come to agreement in price if it is a contract of sale and this is where the birth of the contract occur. There is only a contract
once the details of the contract have been threshed out. On consummation/termination stage, this is where the parties have performed their obligation
like a seller delivered the object and the buyer paid for it.

Note: This article states that a person cannot bind another person in a contract if he is not authorized to do so. For example, a maid in your house
cannot easily sell your car unless she is authorized to sell your car. Thus, if she sells it, that contract of sale is invalid because she is not authorized by
the owner to sell the car. An unenforceable contract is valid but when a party is not willing to comply, another party cannot bring the other party in the
court to file against him. For example, your maid heard that you are planning to sell your car. Thus, the maid put your car on sale in an online website for
100,000 pesos. When the maid told you about what happened and there is a buyer willing to purchase your car for 100,000 pesos even if the car is
worth 1 million pesos. You not required to comply and agree with transaction because it is done without your consent and the maid was not authorized
to do so. That contract is unenforceable. It is valid but there is no risk that the owner will be demanded because it was the maid who was transacting
with the buyer and is not authorized by the owner. Thus, the court may revoke the contract of sale. The buyer should request a special power of attorney
to know if the maid is authorized.

In void contracts, from the very beginning it is invalid like a contract hiring to kill a person. In unenforceable contract, for example the maid who was not
authorized to sell your car was able to sell it for 1.5 million pesos. Even if you did not authorize her to sell your car, you accept and proceed with the
transaction that your maid did. In short, since it is a valid contract, you can recognize the act or accept it if the transaction is advantageous for you but
you also have a choice not to comply with it especially if it is disadvantageous and still not be demanded since the person who made the contract was
not authorized by you.

MODULE 4 EPISODE 2

ESSENTIAL REQUITES OF CONTRACTS

 Article 1318. 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

Note: There is also natural elements in a contract are elements that are deemed included in the contract even without stipulation. Example, warranty
against eviction and warranty against hidden defects. Accidental elements are specifically not added in the contract thus they are deemed not included.
Example, the meeting place and time which was not discussed by both parties.

 Article 1319. Consent is manifested by the meeting of the officer 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 offerer 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.

Note: First essential element is the consent

 Article 1320. An acceptance may be express or implied.