Chapter 1: Law on Contracts

What is a contract? o Preparatory

• Meeting of minds between two o Accessory
persons. o Principal
8. According to status
Parties in a contract o Executory
• Contracting parties may establish o Executed
such stipulations, clauses, terms and 9. According to dependence of part of
conditions. contract to other parts
o Indivisible
Number of Parties o Divisible
• At least 2 persons or parties 10. According to risks
o Commutative
Contract and Obligation distinguished o Aleatory
• Contract is one of the sources of 11. According to liability
obligation o Unilateral
• Obligation is the legal tie or relation o Bilateral
itself that exist after a contract has
been entered into. Validity of contracts
• The legal presumption is always on
Contract and Agreement distinguished the validity of contracts.
• Contracts are agreements
enforceable through legal Limitation on contractual stipulation
proceedings. • Law
• Police power
Characteristics of a Contract
1. Freedom or autonomy of contracts Contract must not be:
2. Obligatoriness of contracts • Contrary to law
3. Mutuality of contracts • Contrary to morals
4. Consensuality of contracts • Contrary to good customs
5. Relativity of contracts • Contrary to public order
• Contrary to public policy
Classification of contracts
1. According to name or designation Nominate and Innominate contracts
o Nominate • Nominate contracts are those given
o Innominate a special designation such as sale,
2. According to perfection lease, loan, or insurance.
o Consensual • Innominate contracts are those with
o Real no special designation.
o Solemn
3. According to cause Kinds of innominate contract
o Onerous 1. Do ut des (I give that you may give)
o Remuneratory or 2. Do ut facias (I give that you may do)
remunerative 3. Facio ut des (I do that you may give)
o Gratuitous 4. Facio ut facias (I do that you may do)
4. According to form Note: Do ut des is no longer an innominate
o Informal or common contract. It is nor barter or exchange.
o Formal, solemn, or simple
5. According to obligatory force Rules governing innominate contracts
o Valid 1. The agreement of the parties
o Rescissible 2. Provisions on the civil code
o Voidable 3. Rules governing the most analogous
o Unenforceable contract
o Void or inexistent 4. Customs of the place
6. According to person obliged
o Unilateral Contract binds both contracting parties
o Bilateral 1. Principle of mutuality of contract
7. According to dependence to another 2. Fulfillment or extinguishment of
contract contract
 Chapter 1: Law on Contracts
3. Renunciation or violation of contract
4. Proof of alleged defect in contract
5. Release of obligor from compliance
Persons affected by a contract
• General rule
- As a general rule, a party’s
rights and obligations from a
contract are transmissible to
their successors.
• Real parties in interest
- In an action upon the
contract, the real parties in
interest, either as plaintiff or
defendant, must be parties
to said contract.
Rights and obligation of third persons
under a contract
• General rule
- Third person has no rights
and obligations under a
contract to which he is a
stranger to.
• Exceptions
- Contracts containing a
stipulation in favor of a third
person
- Contracts creating real rights
- Contracts entered into to
defraud creditors
- Contracts which have been
violated at the inducement
of the third person
- Contracts creating status
- Quasi-contract of
negotiorum gestio
- Collective contracts
Stipulation Pour Autrui
• A contract or provision in a contract
that confers a benefit on a third-
party beneficiary.
Requisites of stipulation pour autrui
1. there must be a stipulation in favor
of a third person,
2. the stipulation must be a part, not
the whole, of the contract,
3. the contracting parties must have
clearly and deliberately conferred a
favor upon a third person, not a
mere incidental benefit or interest,
4. the third person must have
communicated his acceptance to the
obligor before its revocation, and
5. neither of the contracting parties
bears the legal representation or
authorization of the third party.
Nature and form of acceptance of
stipulation
1. Acceptance must be
unconditional
2. Acceptance does not have to be
in any particular form, even
when the stipulation is for the
third person an act of liberality
or generosity on the part of the
promisor or promise.
Third person bound by contracts creating
real rights
1. Real right registered
2. Real right not registered
Stages in the life of a contract
• Preparation or negotiation
• Perfection or birth
• Consummation termination
How contracts are perfected
• By mere consent of the parties
regarding the subject matter and the
cause of the contract.
Execution of contract
• Signing is not generally, a legal
requirement in entering into a
contract where there is a meeting of
the minds.
• Consent may be either express or
implied, unless the law specifically
requires a particular manner or form
of expressing such consent.
• Good faith and regularity are always
presumed in the execution of
contracts.
Guide in the performance of contract
• Scope and limit of contractual
obligation
• Observance of terms and conditions
thereof
• Condition imposed on perfection of
contract/performance of obligation
• Adjustment of rights of parties by
court
• Courts without power to amend or
modify stipulation of parties
Unauthorized contract are unenforceable
• As a general rule, a person is not
bound by the contract of another of
 Chapter 1: Law on Contracts

which he has no knowledge or to

which he has not given his consent.
CHAPTER 1: LAW ON CONTRACTS
MIND MAP