CHAPTER 1

GENERAL
PROVISIONS
ART. 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.
Meaning of contract.
The above article gives the definition of a contract. It lays
emphasis on the meeting of minds between two contracting
parties which takes place when an offer by one party is
accepted by the other.1 (Art. 1319.) In a contract, one or more
persons bind himself or themselves with respect to another or
others, or reciprocally, to the fulfillment of a prestation to
give, to do, or not to do
NUMBER OF PARTIES TO A
CONTRACT.
In a contract, there must be at least two persons or parties,
because it is impossible for one to contract with himself. A
single person may create a contract by himself where he
represents distinct interests (e.g., his own and that of another
for whom he acts as agent, or of 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.
TERMINATION OR
CANCELLATION OF PRE-
EXISTING CONTRACT.
Article 1305 fully covers the case where two persons agree to terminate
or cancel a pre-existing contract. To terminate a contract, there must be
some consideration, either in the delivery of money or something else,
or in rendering some act or forbearance (Memorandum of the Code
Commission, March 8, 1951, pp. 15-16.), subject to stipulation of the
parties.
(1) Termination, by stipulation, at option of one party
(2) Termination by stipulation of the parties.
(3) Termination by one party with conformity of the other.
ART. 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.
Freedom to contract guaranteed.
The freedom to contract is both a constitutional and statutory
right.
The right to enter into contracts is one of the liberties
guaranteed to the individual by the Constitution. It also
signifies or implies the right to choose with whom one desires
to contract. The Constitution prohibits the passage of any law
impairing the obligation contracts.
Contract must not be contrary to law.
In its specific sense, law has been defined as “a rule of conduct, just, obligatory, promulgated by
legitimate authority, and of common observance and benefit.” (1 Sanchez Roman 3.)
Contract must not be contrary to morals.
Morals deal with norms of good and right conduct evolved in a community. These norms may
differ at different times and places and with each group of people.
Contract 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. It has the force of law when
recognized and enforced by law. A custom must be proved as a fact, according to the rules of
evidence. (Art. 12; see Art. 1376.)
Contract must not be contrary to public order.
Public order refers principally to public safety although it has been considered to mean also the
public weal.
Contract must not be contrary to public policy.
Public policy is broader than public order, as the former may refer not only to public safety but
also to considerations which are moved by common good.
ART. 1307. INNOMINATE CONTRACTS SHALL BE REGULATED BY
THE STIPULATIONS OF THE PARTIES, BY THE PROVISIONS OF
TITLES I AND II OF THIS BOOK, BY THE RULES GOVERNING THE
MOST ANALOGOUS NOMINATE CONTRACTS, AND BY THE
CUSTOMS OF THE PLACE.

Classification of contracts according to its name or designation.

They are:
(1) Nominate contract or that which has a specific name or designation
in law (e.g., commodatum, lease, agency, sale, etc.); and
(2) Innominate contract or that which has no specific name or
designation in law.
Kinds of innominate contract.

They are:
(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); and
(4) 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.
(Art. 1638.)
ART. 1308. THE CONTRACTS MUST BIND
BOTH CONTRACTING PARTIES; ITS
VALIDITY OR COMPLIANCE CANNOT BE
LEFT TO THE WILL OF ONE OF THEM.
Contract binds both contracting parties.
(1) Principle of mutuality of contract. — Article 1308 expresses this principle. 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.
(2) Fulfillment or extinguishment of contract. — A contract containing a condition which makes its fulfillment or
extinguishment dependent exclusively upon the uncontrolled will of one of the contracting parties is void.
(3) Renunciation or violation of contract. — It is an elementary rule that no party can renounce or violate the law of
the contract unilaterally or without the consent of the other. (Fernandez vs. MRR, 14 Phil. 274 [1909]; 11 Manresa
380-382.) Hence, “its validity or compliance cannot be left to the will of one of them.” (Art. 1308; see Art. 1182.)
Just as nobody can be forced to enter into a contract, no one may be permitted to change his mind or disavow and
go back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party.
(4) 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 fulfi llment of contracts cannot be left to the will of one of the contracting parties.
(Joaquin vs. Mitsumine, 34 Phil. 858 [1916]; Hemedes vs. Court of Appeals, 316 SCRA 347 [1999].) It is the duty
of every contracting party to learn and know the contents of a document before he signs and delivers it.
(5) Release of obligor from compliance. — The mere fact that a party to a contract has made a bad bargain, may not
be a ground for setting aside the agreement. (see Art. 1355.) Where, however, the performance of the contract has
become so diffi cult as to be manifestly beyond the contemplation of the parties, the obligor may be released
therefrom, in whole or in part. (Art. 1267.) The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of the obligor. (Art. 1266.)
ART. 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.
Determination of performance by a third person.

Under the preceding article, compliance with a contract cannot be left to the will of
one of the contracting parties. However, under the above provision, the determination
of its performance may be left to a third person. (see Arts. 2042-2046.) In such case,
the obligation does not depend upon a potestative condition. (see Art. 1182.)
The decision, however, of the third person shall bind the parties only after it has been
made known to both of them.
ART. 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.

Effect where determination inequitable.

This article is a qualification to Article 1309.
A contracting party is not bound by the determination if it is evidently
inequitable or unjust as when the third person acted in bad faith or by
mistake. In such case, the courts shall decide what is equitable under the
circumstances.
ART. 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
Persons affected by a contract
1. General rule
2. Real Parties in Interest
3. Exception
Cases when strangers or third persons affected by a contract.
A third person is one who has not taken part in a contract and is, therefore, a stranger to
the contract.
Meaning of stipulation pour autrui.
Stipulation pour autrui is a stipulation in a contract clearly and deliberately conferring a
favor upon a third person who has a right to demand its fulfillment, provided, he
communicates his acceptance to the obligor before its revocation by the obligee or the
original parties.
Acceptance of stipulation includes its concurrent obligations.
When a third person accepts the benefits of a contract to which he is not a party, he is
also bound to accept the concomitant obligations corresponding thereto. He should not
take advantage of the contract when it suits him to do so, and rejects its provisions
when he thinks they are prejudicial or onerous to him. (Bernabe and Co., Inc. vs.
Delgado Bros., Inc., 107 Phil. 287 [1960]; Northern Motors, Inc. vs. Prince Line, 107
Phil. 253 [1960].)
ART. 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.
Third persons bound by contracts creating real rights.
This article is an exception to the general rule that a contract binds only the parties.

Third persons who come into possession of the object of a contract over which there is
a real right, such as a real estate mortgage, are bound thereby even if they were not
parties to the contract. A real right is binding against the whole world and attaches to
the property over which it is exercised wherever it goes. Thus, a contract subjecting
certain real properties to the payment of certain debts, registered in accordance with
the Property Registration Decree, constitutes a real right, which is produced not by the
contract but by the publicity given by the Registry, such publicity prejudicing the right
of third persons.
If the real right is not registered, third persons who
acted in good faith are protected under the provisions
of the Property Registration Decree.
It is well-known in our jurisdiction that persons
dealing with registered land have the legal right to
rely on the face of the Torrens Certificate of Title
(TCT) and to dispense with the need to inquire
further, except when the party concerned has actual
knowledge of facts and circumstances that would
impel a reasonably cautious man to make such
inquiry.
ART. 1313. CREDITORS ARE
PROTECTED IN CASES OF
CONTRACTS INTENDED TO
DEFRAUD THEM.
Right of creditor to impugn contracts intended to defraud them.

Article 1313 is another qualification to the rule that contracts take effect
only between the parties.
The creditor, although he is not a party to the contract, is given the right
to impugn the contracts of his debtor intended to defraud him (Art.
1177.), such as contracts undertaken by a debtor in fraud of his creditor
without the knowledge of the latter. (see Art. 1381[3].) He can sue to
rescind the contract to prevent fraud upon him.
Right of creditor to enforce contracts of debtor with a third person.
In some cases, the law gives a right of action to a creditor to enforce a
contract entered into by his debtor with a third person. Thus:
(1) Those who put their labor upon or furnish materials for a piece of
work undertaken by the contractor have an action against the owner
up to the amount owing from the latter to the contractor at the time
the claim is made. (Art. 1729.)
(2) The lessor may recover rent due from a sub lessee since the sub
lessee is subsidiarity liable to the lessor for any rent due from the
lessee. (Art. 1652).
ARTICLE 1314- ANY THIRD PERSON
WHO INDUCES ANOTHER TO VIOLATE
HIS CONTRACT SHALL BE LIABLE
FOR DAMAGES TO THE OTHER
CONTRACTING PARTY.
The word “induce’’ in the provision refers to situations where
a person causes another to choose one course of conduct by
persuasion or intimidation. The interference or inducement
gives rise to liabilities for damages because it violates the
property rights of a party in a contract to reap the benefits that
should result therefrom.
Elements (in torts):
• Existence of a valid contract
• Knowledge on the part of the third person of the existence of the contract
• Interference of the third person without legal justification or excuse (the third person
acted with malice, or was driven by purely impious reasons)
Nature: 
• The liability of the intermeddler and the person for whom he intermeddled is solidary.
This is because the act is a quasi-delict and in quasi-delict, the responsibility is solidary.
• Malice is essential to make the intermeddler liable.
Requisites (in interference in contractual relations)
• There must be an existing valid contract between two or more persons
• The third person is aware of the existence of the contract
• The third person interferes by inducing a party to violate the contract and the contract
thus was violated
• The interference is without legal justification or valid excuse
ART. 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.
Perfection of a contract
• The moment from which it exists; the juridical tie between the parties arises from that
time.
• The mere consent which is the meeting of the minds of the parties upon the terms of
the contract
Consensual Contracts
• A contract founded upon and completed by the mere consent of the contracting
parties, without any external formality or symbolic act to fix the obligation.
Example: marriage, partnership agreement
Binding Effect of Contract
• The binding force of such contracts are not limited to what is expressly stipulated,
but extends to all consequences which are the natural effect of the contract,
considering its true purpose, the stipulations it contains, and the object involved.
ARTICLE 1316. REAL CONTRACTS, SUCH AS DEPOSIT, PLEDGE AND COMMODATUM, ARE NOT PERFECTED UNTIL THE DELIVERY OF THE OBJECT OF THE OBLIGATION

Classification of contracts according to perfection.

1. Consensual contractor that which is perfected by mere consent
(e.g., sale, lease, agency)
2. Real contractor that which is perfected by the delivery of the thing
subject matter of the contract (e.g., deposit, pledge, commodatum,
etc.)
3. Solemn contractor that which requires compliance with certain
formalities prescribed bylaw, such prescribed form being thereby an
essential element thereof (e.g., donation of real property )
Stages in the life of a contract.
A contract undergoes three (3) distinct stages. They are:
(1) Preparation or negotiation. — This includes all the steps taken by the prospective parties
from the time they manifest interest in entering into a contract, leading to the perfection of
the contract. At this stage, the parties have not yet arrived at any definite agreement. They
are yet undergoing the preliminary steps towards the formation of a valid contract. Either
party may stop the negotiation or withdraw an offer made;
(2) Perfection or birth. — This takes place when the parties have come to a definite agreement
or meeting of the minds regarding the terms, that is, the subject matter and cause of the
(consensual) contract (Art. 1319.), i.e., upon concurrence of the essential elements of the
contract; and
(3) Consummation or termination. — This takes place when the parties have fulfilled or
performed their respective obligations or undertakings under the contract and the contract
may be said to have been fully accomplished or executed, resulting in the extinguishment
thereof. Once a contract is shown to have been consummated or fully performed by the
parties thereto, its existence and binding effect can no longer be dispute.

Effect of perfection of the contract.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation. Unaccepted offers and proposals remain as such and cannot be
considered as binding commitments; hence, not demandable.
Guide for performance of contract.
The ordinary meaning of execution of a contract is not limited to the signing or concluding of the contract but includes
as well the performance or implementation or accomplishment of all terms and conditions of such contract. Good faith
and regularity are always presumed in the execution of contracts. The burden of proving otherwise falls on the party
claiming it.
(1) Scope and limit of contractual obligation. — Article 1315 takes up the question of the scope and limit of the
contractual obligation in regard to its prestation. It is obvious that the parties rarely, if ever, stipulate each and
every detail of the performance or non-performance desired by them. Often, only the bare skeleton of the contract
is stipulated, leaving so much of the details to be furnished in its performance by the good faith of the parties
(2) Observance of terms and conditions thereof. — A judicial or quasi-judicial body cannot impose upon the parties
a judgment different from their real agreement or against the terms and conditions thereof without running the risk
of contravening the principle established in Article 1159 that a contract is the law between the parties.
(3) Condition imposed on perfection of contract/performance of obligation. — A distinction exists between a
condition imposed on the perfection of a contract and a condition imposed merely for the performance of an
obligation. While failure to comply with the first condition results in the failure of a contract, failure to comply
with the second merely gives the other party options and/or remedies to protect his interests.
(4) Adjustment of rights of parties by court. — In the exercise of its equity jurisdiction, the court may adjust the
rights of parties in accordance with the circumstances obtaining at the time of rendition of judgment, when these
are significantly different from those existing at the time of generation of those rights. Adjustment of rights has
been held to be particularly applicable when there has been a depreciation of the currency.
Pertinent provisions of law deemed incorporated in contracts.
The rights and obligations of the parties to an agreement are not determined solely by the terms thereof. Any
agreement or contract to be enforceable in this jurisdiction is understood to incorporate therein the pertinent provision
or provisions of law specifying the rights and obligations of the parties under such contract.
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.
Unauthorized contracts are unenforceable.
As a general rule, a person is not bound by the contract of another of which he has no knowledge or to which
he has not given his consent. A contract involves the free will of the parties and only he who enters into the
contract can be bound thereby(see Art. 1311, par. 1.) Thus, a contract entered into in the name of another by
one who has no authority is unenforceable against the former unless it is ratified by him before it is revoked by
the other contracting party. An unauthorized contract is not to be confused with a contract for the benefit of a
third person.
Unauthorized contracts can be cured only by ratification.
The mere lapse of time cannot give efficacy to such a contract. The defect is such that it cannot be cured except
by the subsequent ratification (Art. 1405.) of the person in whose name the contract was entered into or by his
duly authorized agent and not by any other person not so empowered. (Tipton vs. Velasco, 6 Phil. 67 [1906].)
The ratification (see Art. 1392.) must be clear and express so as not to admit of any doubt or vagueness.
When a person bound by the contract of another.
In order that a person may be bound by the contract of another, there are two requisites: (
1. The person entering into the contract must be duly authorized, expressly or impliedly, by the person in
whose name he contracts or he must have, by law, a right to represent him (like a guardian or an
administrator); and
2. He must act within his power.
A contract entered into by an agent in excess of his authority is unenforceable against the principal, but
the agent is personally liable to the party with whom he contracted where such party was not given sufficient
notice of the limits of the powers granted by the principal. (see Art. 1897.)
 Jessa Delfin April Joy Patricio Christine Laurente

Mary Chris Plaga Christine Lavado Roslyn Villar