LESSON 6

CONTRACTS
This lesson aims to:

a. Discuss what are contracts;

b. Explain its general provision;
c. Identify the essential requisites of a contract; and
c. Enumerate the components of a contract.

Introduction
In this lesson, you will be learning what a contract and its characteristics. This
will also discuss the provisions of a contract, the essential requisites, and the basic
components of a contract.

Content
Contracts

General Provisions of Contracts

Article 1305

A contract 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. (125a)

Ang kontrata ay pagpupulong ng kaisipan sa pagitan ng dalawang tao na

kung saan ang isa ay binibigkis ang kanyang sarili sa isa na magbigay o
maggawad ng serbisyo.

Discussion:

Dean Ernesto Pineda, in his book, suggested a definition of a contract:

It is a meeting of the minds between two or more parties, whereby one party
binds himself with respect to the other, or where both parties bind themselves
reciprocally, in favor of one another, to fulfill a prestation to give, to do or not to
do.

Three stages in making a contract:

1. Conception or Generation – This is the stage where the parties begin their
initial negotiation, bargaining for the formation of the contract and ending at
the moment of agreement. It is also called the preparatory stage.
 2. Perfection or Birth – This is the stage where the contract is said to have been
born, where the parties had a meeting of minds as to the object, cause or
consideration and other terms and conditions of the contract. It has passed the
preparatory state, thus giving birth to the contract.

3. Consummation or Fulfillment – This is the last stage which consists the

performance or fulfillment by the parties of their obligations under the terms of
the perfected contract. Consummation means the accomplishment, death or
termination of the contract where the parties cease to be contractually related
to one another.

Classifications of contracts

1. By name
a. Nominate – those which have been given particular names (i.e.
sale, barter, mortgage, lease, carriage, agency, etc.)

b. Innominate – those which have not been given a particular name

and not regulated by special provision of law. Roman law has
classified them as follows: Do ut des (I give that you may give);
Do ut facias (I give that you may do); Facio ut facias (I do that you
may do); Facio ut des (I do that you may give).

2. By subject matter
a. Contracts covering things (i.e. contract of sale, deposit, pledge)
b. Contracts covering services (i.e. contract of carriage)
c. Contracts covering transmissible rights or credits (i.e. contract
of usufruct, assignment of credits.)

3. By formation or perfection
a. Consensual – perfected by mere consent (i.e. sale)

b. Real – cannot be perfected without delivery (i.e. commodatum,

depositum, pledge, loan)

c. Formal or Solemn- cannot be perfected without compliance with

the special formalities or solemnities required by law, otherwise
they are void (i.e. donations, mortgages of real property)
4. By Cause
a. Onerous – contracts that provide for exchange of valuable
considerations (i.e. sale where the seller delivers the object of the
contract and the buyer pays the purchase price)

b. Gratuitous – contracts where one of the parties gives something

or renders service to the other without receiving any equivalent or
compensation (i.e. pure donation, commodatum). It is also called
the lucrative contract because it provides gain to the other party
for free.

c. Remunerative – contracts where one party gives something or

renders service to another in consideration of a previous or past
deeds of the other.

5. By vinculum produced or according to the party or parties obligated

a. Unilateral – contracts where only one of the parties is bound to
fulfill and obligation (i.e. commodatum, promissory note)

b. Bilateral – contracts where both parties have reciprocally bound

themselves to fulfill their obligations in favor of the other (i.e. sale)
Also known as synalagmatic contracts.

6. By certainty or fulfillment
a. Commutative – contracts where the contracting parties
contemplate the assured fulfillment of the terms and conditions of
their agreement, and there is no risk to anticipate (i.e. contracts of
mortgage and pledge)

b. Aleatory – contracts where the fulfillment is dependent on chance

or event which may not happen within the period stipulated, and
the loss contemplated may not happen. (i.e. insurance contract)

7. By completion or performance
a. Executed – contracts which are already completed when formally
entered into (i.e. sale of a thing)

b. Executory – contracts where the prestation promised by the

parties have yet to be fulfilled at some future date (i.e. a unilateral
 promise to sell which has been accepted, but the sale is not yet
executed)
8. By dependence of one contract on the other
a. Principal – contracts which can exist by themselves alone without
depending on another (i.e. sale, lease, deposit, commodatum)

b. Accessory – contracts which cannot exist alone but must depend

on another contract (i.e. mortgage – depends on the contract of
loan)

c. Preparatory – contracts entered into for the creation of another

contract (i.e. agency, the principal gives authority to the agent
through a Special Power of Attorney)

9. By the actual number of person/s participating in the contract

a. Ordinary – contracts where two (or more) parties are represented

by different persons (i.e. sale – there is a seller and a buyer)

b. Auto-contracts – contracts where the two parties are represented

by the one and the same person, who represents and acts in
different capacities (i.e. agent representing his principal who
authorized him to borrow money)

10. By the dignity accorded by law

a. Institutional – contracts which are given special dignity by law
(i.e. contract of marriage which is considered a “social inviolable
institution)
b. Ordinary – contracts which are not institutional (i.e. sale, lease,
deposit, etc)

11. By freedom of bargain

a. Ordinary – contracts where both parties are place on equal footing
in the negotiation and perfection stages.

b. Contracts of adhesion – contracts where one of the parties had

drafted the contract for the other party to accept or not to accept
(i.e. insurance contract which is already printed)

12. By the evidence needed to prove their existence

 a. Contracts covered by the Statute of Frauds – requires written
evidence, note or memorandum to prove their existence
b. Contracts which be proven by oral or parol evidence (i.e. lease
contract for one year)

13. By the personality of the parties

a. Personal – contracts where the person of the party is essential to
the existence of the contract (i.e. contract for life insurance where
the contract shall cease to exist upon the death of the insured)

b. Impersonal – contracts where the person/s of a part or parties are

not essential to the continuity of the contract (i.e. contract of lease
– the heirs may continue the contract)
14. By manner the consent is given
a. Express – contracts where the consent of the parties is given
expressly in writing or verbally
b. Implied – contracts where the consent of the parties is not given
expressly but is deducible from the conduct or acts of the parties
(i.e. implied agency when the principal fails to repudiate the acts
of the person on his behalf)
c. Presumed – contracts where the consent was not given by the
parties but is presumed or provided by the law itself, to prevent
unjust enrichment on the part of one party to the prejudice of the
other, such as quasi-contracts

Article 1306

The 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, public order, or public policy.

Ang mga partido sa kontrata ay maaring gumawa ng mga stipulasyon,

sugnay, termino at kundisyon na para sa kanila ay nararapat, ngunit dapat ito
ay hindi sumasalungat sa batas, moral, mabuting kaugalian, pampublikong
kaayusan at polisiyang pampubliko.

Discussion:

This article provides the limitations to which contracting parties may establish in the
stipulations of the contract. These limitations are:

1. Limitations by law- Stipulations in a contract must not be in violation of

mandatory and prohibitory laws, unless the law itself authorizes the validity of
such acts. As a rule, an existing law enters into and forms part of a valid
contract without the need for the parties expressly making reference to it.
 2. Limitations by Morals- Morals refer to norms of conduct universally accepted
as rules not based on law but on principles of morality. Morality in turn is
based on man’s faculty of knowing how to distinguish between what is right
from what is wrong.
3. Limitations by Good Customs- Good customs refer to the generally accepted
principles of morality which have received some social and practical recognition
in the community for a long period of time. Thus, contracts which have immoral
aims are contrary to good customs.
4. Limitations by Public Order- Public order refers to public safety of the people
which includes the maintenance of peace and order both in the entire country
and in a particular community.
5. Limitations by Public Policy- Public policy is the express will of the State. A
contract is contrary to public policy if it has a tendency to injure the public, is
against the public good, or contravene some established interest of society, or
tends clearly to undermine the security of the individuals (Gabriel vs Monte de
Piedad 71 Phil 500).

Article 1307

Innominate contract shall be regulated by the stipulations of the parties, by the

provisions of the Titles I and II of this Book, by the rules governing the most analogous
nominate contracts, and by the customs of the place.

Ang innominate contract ay dapat maregulate ng stipulasyon ng mga

partido, ayon sa probisyon ng pamagat ng una (obligasyon) at ng ikalawang
bahagi (kontrata) ng librong ito, ayon sa panuntunan na nakakasakop sa
pinakamalapit na nominate contracts, at sa nakaugalian sa kanilang lugar.

Innominate Contracts – those which are not given any names or designations.

1. Do ut des (I give that you may give)

2. Do ut facio (ii 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)

Innominate Contracts shall be governed by the following:

1. Stipulations of the parties;

2. Provision of Title I (Obligations) and Title II (Contracts) of this Code;
3. Rules governing the most analogous nominate contracts; and
4. Customs of the place.

Chapter 2: Essential Requisites of Contracts

Article 1318
There is no contract unless the following requisites concur:

1) Consent of the contracting parties- meeting of the minds of the two parties;
2) Object certain which is the subject matter of the contract- must be definite
and certain (ex. Land, or house etc); and
3) Cause of the obligation which is established- compelling reason in the
performance of the contract or why a party assumes an obligation.

Sa pagkakaroon ng isang kasunduan kinakailangan na ito ay

naglalaman ng mga sumusunod:

1) and dalawang partido ay lubos na nagkakaintindihan;

2) na ang pinagkakasunduan ay tiyak at tukoy;
3) kinakailangan na ang sanhi ng obligasyon ay malinaw na nabuo para sa
kinakailangang pagtalima sa kasunduan ng dalawang partido.

If the above requisites are not within the contract then the contract may not be
valid as clearly stated on Article 1318.

Article 1319

Consent is manifested by the meeting of the offer 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. (1262a)

Ang pagsang-ayon ay maihahayag kapag nagkasundo ang bawat partido at

tinanggap na ang mga bagay na magiging paksa ng kasunduan. Ang pag-aalok
ay dapat na tiyak at naaayon sa kontrata. Ang pag-aalok na may bisa ay dapat
may unawaan sa bawat isa.
Ang pag-aalok na ginawa sa pamamagitan ng liham o telegrama ay hindi
magtatali sa nag-alok maliban kung ito ay dumating sa kanyang kaalaman. Ang
kontrata sa mga ganitong kaso ay ipinagpapalagay na tinanggap kung saang
lugar ito nagawa.

Discussion:

Consent in contracts is giving of one’s conformity to the terms of the contract

freely and voluntarily. It is the concurrence of the minds of the parties on the cause
and subject matter which will constitute the contract, as well as on the other
 conditions and terms thereof to which they voluntarily binds themselves to comply.
Consent may be expressly or implied.

Character of the Offer- 1)certain, 2)definite and 3)concrete and

Acceptance 1)Absolute and 2)Not conditional

The acceptance made the party to an offer was made, binds the offeror only
from the time the offeror came to know of the acceptance. The law pressumes that
the contract was perfected at the pace where the offer was made , the place of
origin of the conception of the contract.

Article 1320

An acceptance may be express or implied.

Ang pagtanggap ay maaaring kung ito sa sa pamamagitan ng sulat o

pamamagitan ng salita or sa pamamagitan ng pagbabayad.

Forms of Acceptance
Acceptance may be:
1. Express (art.1320)
2. Implied (art. 1320) from conduct, or acceptance of unsolicited services.
3. Presumed ( by law) as when there is failure to repudiate hereditary rights
within the period fixed by law ( See Art. 1057, Civil Code); or when there is
SILENCE in certain specific cases as would tend to mislead the other party,
and thus place the silent person in estoppel.
4. Examples of Implied Acceptance.
5. An offer by the Army to reward persons giving information that would lead to
the apprehension of certain Huks may be considered implicitly accepted
when the act referred to it is performed by members of the public.
6. In the same way, participation in a contest, with full compliance of its rules,
is implied acceptance of the offer. Thus, on one occasion, the Supreme Court
has said that “due to the fact that the bank started, and advertised the
contest offering prizes, under certain conditions and the plaintiff prepared,
by labor and expense, and took part in said contest, the bank is bound to
comply with its promise made in the rules and conditions prepared and
advertised by it.”

Article 1321

The person making the offer may fix the time, place, and manner of acceptance, all of
which must be complied with.
 Ang taong nagsusulong ng kontrata ang siyang maaaring magtalaga ng
oras, lugar at paraan ng pagtanggap, at lahat ay kinakailangang sundin.

Discussion:

The acceptance must be made known to the offeror before the lapse of the fixed
period. If the acceptance was made after the fixed period, it is not a legal acceptance
anymore. What happens then is that it becomes an offer (made by the previous
offeree) which may or may not be accepted by the original offeror (which becomes the
offeree).

In terms of the manner of acceptance, the offeror may require that the
acceptance be done by letter, personal communication, or through a representative.

Acceptance which was not made in the manner fixed by the offeror constitutes a
counter-proposal which extinguishes the offer and may not be accepted by the original
offeror.

Section 2: Object of Contracts

Article 1347
All things which are not outside the commerce of men, including future things,
may be the object of a contract.

All rights which are not intransmissible may also be the object of contracts. No
contract may be entered into upon future inheritance except in cases expressly
authorized by law.

All services which are not contrary to law, morals, good customs, public order or
public policy may likewise be the object of a contract.

The Object of the Contract is its subject matter and it can be a;

1. thing
2. right
3. service which arising from the contract

These are the exceptions to the rule that future inheritance cannot be the
subject of a contract:
1. In case of marriage settlements, future inheritance may be the object of
donation.
 2. In case of partition of property inter vivos made by the deceased himself as
long as no legitime is impaired.

Article 1349

The object of every contract must be determinate as to its kind. The fact that the
quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new contract
between the parties.

Section 3: Cause of Contracts

Article 1350

In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the
service or benefit which is remunerated; and in contracts of pure beneficence, the
mere liberality of the benefactor. (1274)

Article 1351

The particular motives of the parties in entering into a contract are

different from the cause thereof.

Discussion:

Motive and Causes, Difference

The cause of a contract is the objective and juridical reason for the
establishment of a contract and is always the same. while motive is the
psychological or personal purpose of a party in getting the object and differs with
each person. Each party may have his own personal reasons or motives in
entering into a contract. Motive or even with illegal motives does not affect the
validity of the contract.

Exception: If the motive predetermines the purpose of the contract, motive

may be regarded as cause.

Article 1352
 Contracts without cause, or with unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals, good customs, public order or public
policy.

Kontrata ng walang kadahilan, o hindi naayon sa batas na dahilan, maaaring

magbigay ng walang epekto na kahit ano pa. Ang sanhi ay maaaring hindi
naaayos sa batas kung ito sa sumasalungat sa batas, moral, kaugalian, sa ayos ng
publiko o sa polisiya ng publiko.

Practice Exercises

CASE STUDY
Directions: Read the case carefully and analyze the situation. Draw your conclusion
and recommendation.

Silverio Q. Cornejo vs. Manuel B. Calupitan, D.B. Castaneda, and Eustacio

Barrera

G.R. No. L-2342 October 27, 1950

Silverio Q. Cornejo – Plaintiff-Appellant vs.

Manuel B. Calupitan, D.B. Castaneda, and Eustacio Barrera – Defendant-Appellees

FACTS

On January 1945- owner of a parcel of land in the barrio of Mayatobo,

Candelaria, Tayabas, an area of 110.9125 hectares authorized his co-defendants
Castaneda, Eustacio Barrera, real estate broker operating in manila to sell the said
parcel.;January 4, 1945, defendant Calupitan accepted the offer made by the plaintiff
Cornejo, at the price of P650,000 in Japanese military notes; January 6, 1945,
Cornejo delivered only P65,000 to defendant broker Castaneda & Barrera to deliver for
Calupitan and the balance to paid on January 25, 1945. Calupitan wrote out a letter
receipt of acceptance specifying the terms of payment of the balance approving the
stipulated date on or before January 25, 1945. January 22, 1945, After supposedly
failing to deliver the balance of P585,000, Cornejo deposited the sum with the clerk of
court, securing corresponding receipt and filed the corresponding complain against
Calupitan and the two real estate brokers for specific performance and for payment of
damages.
 The trial court absolves the defendant-appelle and held that Cornejo repudiated
the original agreement by proposing money be reduced from P70,000 to P65,000 and
the balance adjusted from 19th of January to 25, 1945.

ISSUE

Whether or not that the condition being offered to the plaintiff by the appellant
is Justifiable in terms of the status of the situation or the en-viewed coming events of
war.

HELD

Yes, its up to the prospective purchaser to accept or reject it, but he should
return the value of the said amount P65,000 Japanese notes at the time to the
plaintiff. Exhibit B between Cornejo and Calupitan had been abandoned and rendered
void by Cornejo himself, and that as to new proposition made by Cornejo, there was no
meeting of minds of the parties for it was not accepted entirely by Calupitan,
consequently the contract of sale of the land in question was not perfected and so
Calupitan may not be compelled to convey said land to plaintiff-appllant. Calupitan is
ordered to return to the plaintiff the value of the P65,000 Japanese war notes he
received, which value is to be ascertained according to the ballantyne schedule as of
January 6, 1945 in Manila. Said value is hereby fixed at P541.66 with legal interest
from January 6, 1945 until paid.

The decision of the trial court was affirmed.

Conclusion:

_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________

Recommendation:

_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________

Learning Task 1, 2, and 3

CASE STUDY
Directions: Read the case carefully and analyze the situation. Draw your conclusion
and recommendation.
 Blas vs. Santos

Case Digest

G.R. No. L-14070 March 29, 1961

MARIA GERVACIO BLAS, MANUEL GERVACIO BLAS, LEONCIO GERVACIO BLAS and
LOIDA GERVACIO BLAS, Plaintiffs-Appellants,

vs.

ROSALINA SANTOS, in her capacity as Special Administratrix of the Estate of

the deceased MAXIMA SANTOS VDA. DE BLAS, in Sp. Proc. No. 2524, Court of First
Instance of Rizal, defendants-appellants. MARTA GERVACIO BLAS and DR. JOSE
CHIVI, Defendants-Appellants.

LABRADOR, J.:

FACTS:

This action was instituted by plaintiffs against the administration of the estate
of Maxima Santos, to secure a judicial declaration that one-half of the properties left
by Maxima Santos Vda. de Blas, the greater bulk of which are set forth and described
in the project of partition presented in the proceedings for the administration of the
estate of the deceased Simeon Blas, had been promised by the deceased Maxima
Santos to be delivered upon her death and in her will to the plaintiffs, and requesting
that the said properties so promised be adjudicated to the plaintiffs. The complaint
also prays for actual damages in the amount of P50,000. The alleged promise of the
deceased Maxima Santos is contained in a document executed by Maxima Santos on
December 26, 1936 attached to the complaint as Annex “H” and introduced at the trial
as Exhibit “A”.

The complaint also alleges that the plaintiffs are entitled to inherit certain
properties enumerated in paragraph 3 thereof, situated in Malabon, Rizal and Obando,
Bulacan, but which properties have already been included in the inventory of the
estate of the deceased Simeon Blas and evidently partitioned and conveyed to his heirs
in the proceedings for the administration of his estate. Spouses Simeon Blas and
Marta Cruz have three children they also have grandchildren. One year after Marta
Cruz died, Blas married Maxima Santos but they don’t have children and the
properties that he and his former wife acquired during the first marriage were not
liquidated.

Simeon Blas executed a will disposing half of his properties in favor of Maxima
the other half for payment of debts, Blas also named a few devisees and legatees
therein. In lieu of this, Maxima executed a document whereby she intimated that she
understands the will of her husband; that she promises that she’ll be giving, upon her
death, one-half of the properties she’ll be acquiring to the heirs and legatees named in
the will of his husband; that she can select or choose any of them depending upon the
respect, service, and treatment accorded to her by said heirs. On 1937 Simeon Blas
died while Maxima died on 1956 and Rosalina Santos became administrator of her
estate. In the same year, Maria Gervacio Blas, child of Simeon Blas in his first
marriage, together with three other grandchildren of Simeon Blas (heirs of Simeon
Blas), learned that Maxima did not fulfill her promise as it was learned that Maxima
only disposed not even one-tenth of the properties she acquired from Simeon Blas. The
heirs are now contending that they did not partition Simeon Blas’ property precisely
because Maxima promised that they’ll be receiving properties upon her death.

ISSUE:

Whether or not the heirs can acquire the properties that Maxima promised with
them.

HELD:

Yes, they can acquire the properties that Maxima promised with them because
it was stated in Art. 1347 that “No contract may be entered into upon future
inheritance except in cases expressly authorized by law.”. In this case the contract was
authorized by law because the promised made by Maxima to their heirs before she
died is a valid reason and it should be enforceable upon her death and her heirs can
now acquire the succession of the properties in issue.

Conclusion:

_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
__________________________________________

Recommendation:

_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
__________________________________________

Key Concepts
  A contract is a legally binding document that recognizes and governs the rights and duties of the
parties to the agreement.
 Consent- permission for something to happen or agreement to do something.
 Object- a person or thing to which a specified action or feeling is directed.
 Cause- a person or thing that gives rise to an action, phenomenon, or condition.

 Evaluation
Let us try to check how much you have understood the lesson.

1. What is a contract?

2. What are the essential requisites of a contract?

3. Enumerate the parts of a contract and explain each briefly.

 Enrichment Activities
Directions:

1. Using the Internet or reference books research, try to create a contract and
highlight the parts.

2. Do this in a word document file with the following format; font: 12, spacing: 1.5,
font style: bookman old style, margin: 1 in all sides.

3. Submit your papers on the date provided by the instructor.

 Bibliography

S., D. L. H., & Jr, D. L. H. M. (2014). The Law on obligations and contracts. Rex Book Store.

I. Obligations. Obligations and Contracts. (2017, December 18).

https://lspuoblicon2015.wordpress.com/category/i-obligations/.