Contracts (Arts. 1305 – 1422, Civil Code) 3.

R – Relativity (1311)
4. C – Consensual (1315)
DEFINITION AND REQUISITES OF A CONTRACT
5. O – Obligatory (1159)
(1305)
o Obligations arising from contracts are legally
“A contract is a meeting of minds between two persons binding and is valid and enforceable.
whereby one binds himself with respect to the other, to o Should be complied with in good faith
give something or to render some service.” - Example: A asks B to sell a car; B buys
 Requisites the car. A cannot refuse to deliver where
B also cannot also refuse to pay. Parties
 There must be meeting of minds
have to comply – mandatory
o General Rule: Must be at least 2 parties
involved. (Bilateral, Multilateral)
 Kinds of Contracts
- Can exceed but can’t be less than 2.
 Types and their opposites.
o Exception: Auto Contracts – the seller and
the buyer are one person
- Scenario: A authorized B to sell his car. B Consensual Real
himself buys the car that he was Consent and delivery
Consent
authorized to sell. of the thing

 Comparisons
Commutative Aleatory
 Contract v. Obligation
Equivalent
o Not the same Considerations
consideration must be
- Contract is just one of the sources of varies/not the same
given
obligation. Selling/Buying of lotto
o Obligation is broader than a contract. Ex. Selling/Buying of
ticket (amount/price of
- All contracts have obligation, but not all car (amount/price of
ticket ≠ lotto
obligations are contracts. car = payment)
winnings)
 Contract v. Agreement
o Not the same
Executory Executed
o Agreement is broader than contract.
One or both of the
- Agreements may be legal or illegal, but Parties are complying
parties have already
contracts should always be legal. to an obligation
complied
 Contract v. Stipulation
Ex. The seller already
o Not the same
Ex. The seller hasn’t delivered but the
- Stipulation is the dispositive portion of a delivered, nor the buyer hasn’t paid yet
contract. buyer has already vice versa, or both
 Contract v. Pact paid. have already
o Not the same complied.
- A pact is an incidental part of a contract Covered by statute of Not covered by the
fraud. statute of fraud.
 5 Basic Principles/Characteristics of a Contract
1. M – Mutuality (1308)
2. A – Autonomy (1306)

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Reference: De Leon, H.; De Leon H. Jr.
Lecturer: Villegas, A. – Far Eastern University
AUTONOMY/LIBERTY/ FREEDOM OF A CONTRACT DETERMINATION OF PERFORMANCE BY A THIRD
(1306) PERSON [TP] (1309)

 Autonomy defined.  General Rule: A third person cannot decide because

 General Rule: Parties can agree on anything
provided that it is not contrary to law, morals,
good customs, public order, or public policy.
o Exception: Contrary to the five (5) aspects.
- Effect: Contract is void but can be valid
to be an agreement.
the contracting parties are the ones who should
decide regarding any agreement in relation to their
contract. Mutuality of a contract (1308).
 Exception: TP is/was authorized by both parties.
(1309)
o Effect: Decision of TP is valid to both parties
o Exception to the exception: Article 1310

INNOMINATE CONTRACTS (1307)

 Innominate contracts defined.
 No specific name
 Opposite: Nominate
 Kinds of Innominate Contracts
1. Do ut des – I give that you may give.
2. Do ut facias – I give that you may do.
3. Facio ut des – I do that you may give
4. Facio ut facias – I do that you may do
EXCEPTION TO 1309 (1310)
 The decision made by the TP is evidently inequitable.
 May be unfair to one of the parties.
 Effects:
o Decision of the TP is not valid.
o Court shall decide what is equitable under
the circumstances.

 Rules governing innominate contracts (in order):

1. A – agreement of parties
2. C – civil code provisions
3. A – analogous contract
4. C – customs of place

MUTUALITY OF CONTRACTS (1308)

 Definition of mutuality
 General Rule: Both parties must agree
 Example: A forces B to buy his car even though B
expresses his refusal. This invalidates a
contract’s mutuality.
 Case: PNB v. Padilla
o There was no stipulation in the contracts of
the parties that PNB can increase the rate of
interest on Padilla’s case. Invalidating the
rule of mutuality.

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Reference: De Leon, H.; De Leon H. Jr.
Lecturer: Villegas, A. – Far Eastern University
RELATIVITY OF A CONTRACT (1311)
 1311a: Persons affected by the contract.
 General Rule: “Contracts take effect only
between the parties, their assigns and heirs…”
 Who are parts of/bound by a contract?
o The parties (A and B)
o Heirs (A1 and A2, B1 and B2)
o Assignee (C)
 Someone who is not part of the contract is called
a Third Person.
 Side note: In 1178, obligations are not transmissible,
but rights are transmissible.
o Example: A1 and A2 are heirs of A who has a
contract with B who have B1 and B2 as heirs.
If A dies, A1 and A2 are not obligated to pay B
for their successor’s debt. But B1 and B2
have the rights to collect from A.
o The parties should neither bear the legal
representation or authorization of the TP.
EXCEPTION 2: CONTRACTS CREATING REAL RIGHT
(1312)
 Importance of registration:
 To create a real right – informing the whole world
that it is yours.
 Registration makes it binding to the world.
 Deepening of 1312: Exception 2
 TP who come into possession of the object of a
contract that involves a real right (land, property,
etc.) becomes bound by the contract even if they
are not parties of the contract.
EXCEPTION 3: CONTRACTS TO DEFRAUD CEDITORS
(1313)

 If a debtor tries to deceive their creditor (TP) by

selling or transferring their property to someone else
 1311b: Exception 1 – Stipulation pour atrui
and doesn't leave enough assets to pay off the debt,
 Wherein TP are liable/bound/affected by the the creditor can take legal action to cancel those
contract. transactions. This legal action is called "accion
 “Stipulation in favor of a TP.” pauliana (1177)."
 Requisites:  Essentially, it allows the creditor to undo
o There is a stipulation in favor of a TP clearly fraudulent transactions to protect their rights and
and deliberately conferred. ensure they can still collect the debt owed to
o Communication of acceptance of the TP them.
before its revocation
- Ex. A owes B 9k (principal) with 2%
interest (accessory/stipulation in favor of
TP). A and B agreed to give the interest
to Pedro (TP) making Pedro a part of the
contract after he communicates to A and
B before the revocation of the contract.
- If the contract got revoked before Pedro
communicates with A and B, Pedro never
became a part of the contract.
o It should be part, not the whole, of the
contract.
o There should be no condition or is not
compensated by any kind of obligation.

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Reference: De Leon, H.; De Leon H. Jr.
Lecturer: Villegas, A. – Far Eastern University