RFBT – CONTRACTS
GENERAL PROVISIONS
Article 1305
3. Contract
It 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.
4. Number of Parties to a Contract in General
In a contract, there must be at least two
persons or parties.
5. Autocontract
It is a contract where only one person
represents two opposite parties (creation of
contract by single person), but in different
capacities or interests (e.g., an agent representing
his principal sells a specific car to himself as buyer;
or contract between two principals for both of
whom he acts in a representative capacity) subject
to specific prohibitions of law against the presence
of adverse or conflicting interests.
5. Persons Prohibited from Creating an
Autocontract
In each of the following, the former cannot
acquire by purchase the property of the latter:
a. Guardians; Ward
b. Executors or administrators; Estate
under the former’s administration
c. Agents; Principal (unless the latter’s
consent has been given)
6. Modes of Termination of a Contract
a. Termination by stipulation of the parties
– general rule
b. Termination, by stipulation, at option of
one party
c. Termination by one party with
conformity of the other
7. Termination
It entails the enforcement of the terms of
the contract prior to the declaration of the latter’s
cancellation in the same way that before a lessee is
ejected under a lease contract, he has to fulfill his
obligations thereunder that had accrued prior to his
ejectment.
8. Rescission
It means to declare a contract void in its
inception and to put an end to it as though it never
existed. It is not merely to terminate it and release
the parties from further obligations to each other
but to abrogate it from the beginning and restore
the parties to their relative positions which they
would have occupied had no contract has ever
been made.
9. Contract and Obligation Distinguished
Contract is one of the sources of
obligations. On the other hand, obligation is the
legal tie or relation itself that exists after a contract
has been entered into. Hence, there can be no
contract if there is no obligation. But an obligation
may exist without a contract.
10. Contract and Agreement Distinguished
There can be no contract in the true sense
in the absence of the element of agreement, or
mutual assent of the parties. Contracts are
agreements enforceable through legal proceedings.
Those agreements which cannot be enforced by
action in the courts of justice are not contracts. An
agreement is broader than contract because the
former may not have all the elements of a contract.
So, all contracts are agreements but not all
agreements are contracts.
11. Importance of a Contract
The reason for it is in the necessity of
completing the limitations of man, contract being
the most adequate instrument for which the
realization of individual and social ends and by
which man acquires the means required — for
common life and social cooperation.
Characteristics of Contracts
Acronym: MACRO
13. Mutuality of Contracts
Contracts must bind both and not only one
of the contracting parties; their validity or
compliance cannot be left to the will of one them.
14. Autonomy or Freedom of contracts
The parties may establish such stipulations,
clauses, terms, and conditions as they may deem
convenient, provided, they are not contrary to law,
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morals, good customs, public order, and public
policy.
15. Consensuality of Contracts
Contracts are perfected, as a general rule,
by mere consent, and from that moment the parties
are bound not only by the fulfillment of what has
been expressly stipulated but also to all the
consequences which, according their nature, may
be in keeping with good faith, usage and law.
16. Relativity of Contracts
Contracts take effect only between the
parties, their assigns and heirs, except in cases
where the rights and obligations arising from the
contract are not transmissible by their nature, or by
stipulation, or by provision of law.
17. Obligatoriness of contracts
Obligations arising from contracts have the
force of law between the contracting parties and
should be complied with in good faith.
Article 1306
Limitations to the Freedom to Contract
20. Law
It is a fundamental requirement that the
contract entered into must be In accordance with,
and not repugnant to, an applicable statute. Without
need for the parties expressly making reference to
it, an existing law enters and forms part of a valid
contract; it thus sets limits, counterbalancing the
principle of autonomy of contracting parties.
21. Police Power
Public welfare is superior to private rights.
When there is no law in existence or when the law
is silent, the will of the parties prevails unless their
contract contravenes the limitation of morals, good
customs, public order, or public policy.
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22. Contracts Must not Be Contrary to Morals
Morals deal with norms of good and right
conduct evolved in a community.
Example: A contract, whereby X promised to
live as the common-law wife of B without the
benefit of marriage in consideration of P50,000.00,
is immoral and, therefore, void.
23. Contracts Must not Be Contrary to Good
Customs
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.
Example: A covenant for legal separation of
husband and wife is not valid because it is contrary
to law, morals, and good customs and tend to
subvert the vital foundation of the legitimate family.
24. Contracts Must not Be Contrary to Public Order
Public order refers principally to public
safety although it has been considered to mean
also the public veal (health).
Example: A contract that legalizes the
commission of adultery or concubinage is not valid
because it is contrary to public order.
25. Contracts Must not Be Contrary to Public
Policy
Public policy is broader than public order, as
the former may refer to not only to public safety but
also to considerations moved by the common
good. It protects the public from anything that
might injure the latter, against the public good,
contravenes some interests of the society, or tends
to clearly undermine the security of individual
rights.
Example: X stole the car of Y. Later, they
entered into a contract whereby Y would not
prosecute X in consideration of P1,000.00. Such
contract is not valid since its provisions are
contrary to public policy.
Article 1307
Classification of Contracts According to Name or
Designation
28. Nominate Contract
It is a contract which has a specific name or
designation in law (e.g., commodatum, lease,
agency, sale, etc.).
29. Innominate Contract
It is a contract which has no specific name
or designation in law.
30. Kinds of Innominate Contract
a. Do ut des (I give that you may give);
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b. Do ut facias (I give that you may do);
c. Facio ut des (I do that you may give);
and
d. Facio ut facias (I do that you may do).
Do ut des is, however, no longer an
innominate contract. It has already been given a
name of its own (i.e., barter or exchange).
Example: On various occasions, X rendered
services to Y as interpreter of English. No written
contract was entered into between the parties for
the employment of X as interpreter. There was no
evidence as to whether, X’s services were solicited
by Y or whether they were offered to Y, but there
was no question that X rendered and Y accepted
the benefits of the services. This case is
considered as a facio ut des where Y is under the
obligation to pay X just compensation for the
services.
31. Reasons and Basis for Innominate Contracts
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 the provision.
32. Rules Governing Innominate Contracts
a. The agreement of the parties;
b. The provisions of the Civil Code on
obligations and contracts;
c. The rules governing the most analogous
contracts; and
d. The customs of the place.
33. Principle of Mutuality
The ultimate purpose of the principle is to
nullify a contract containing a condition which
makes its fulfillment or pre-termination dependent
exclusively upon the uncontrolled will of one of the
contracting parties.
34. Breach of Contract
It is defined as the failure without legal
reason to comply with the terms of the contract or
the failure without legal excuse to perform any
promise which forms the whole or part of the
contract.
35. Invalid Provisions on the Fulfillment or
Extinguishment of Contract
A contract containing a condition which
makes its fulfillment or extinguishment dependent
upon the uncontrolled will of one of the contracting
parties is void.
` Example: A stipulation made where the
option to cancel contract of employment by
employer is valid since the condition has been
agreed upon by both parties beforehand.
36. Proof of Alleged Defect in Contract
If after a perfect and binding contract has
been executed between the parties it occurs to one
of them to allege defect as a reason for annulling it,
the alleged defect must be conclusively proved
since the validity and fulfillment of contracts
cannot be left to the will of one of the contracting
parties.
37. Determination of the Performance by a Third
Person
Compliance with a contract cannot be left to
the will of one of the contracting parties. However,
the determination of its performance may be left to
a third person. In such case the obligation does not
depend upon a potestative condition.
The decision, however, of the third person
shall bind the parties only after it has been made
known to both of them.
Example: S sold his parcel of land to B. It
was agreed that X, a real estate appraiser, would be
the one to determine the reasonable price of the
land. X, then, fixed the price after considering all the
circumstances and factors affecting the value of
the land.
In this case, X must make known his
decision to S and B who will be bound by the same.
Article 1310
38.