CONTRACTS NOTES

CHAPTER 1
General Provision
ARTICLES 1305-1314
Contacts – Meeting of minds between two persons whereby one binds himself with respect to the other
to give something or to render some service.
– General rule: there must be two (bilateral contract) or more parties (multi-lateral
contract)
– Exception: Auto contract, S authorized A - S’s agent - to sell the car. A buys the car.
– Generally speaking obligation can exist with only one party example is quasi-
contract. However, CONTRACTS CANNOT.
Contracts vs. Obligations
– They are not the same. Contract is just one of the sources of obligation. Obviously
OBLIGATION is BROADER than CONTRACT.
– All Contracts have obligation BUT NOT all obligation have contracts because
obligation can arise from other sources than contract like law, quasi contract, delict
and quasi delict.
– Contact is the CAUSE.
– Obligation is the EFFECT.
Contract vs. Agreement
– They are not the same. An agreement may be legal or illegal but a contract must
always to be legal. Therefore obviously, Agreement is broader than contract.
Contract vs. Stipulation
– They are not the same.
– Stipulation is the dispositive portion of the contract or the part in the contract
where the parties certainly agree.
Contract vs. Pact
– They are not the same
– The incidental part of the contract

5 BASIC PRINCIPLES/ CHARACTERISTICS OF CONTRACTS

1. M - Mutuality (Art. 1308)
2. A – Autonomy (Art. 1306 )
3. R – Relativity (Art. 1311)
4. C – Consensual / Consensuality (Art. 1315)
5. O – Obligatory force (Art. 1159) – Mandatory where the parties have to comply or less they
will be liable for damages.
KINDS OF CONTRACT
Consensual vs. Real
- Consensual contract only need 1 thing: “consent”
- Real contract need 2 things: “consent” and “delivery of the thing”
Commutative vs. Aleatory
- Commutative is when “equivalent consideration” must be given
- Aleatory is when the consideration is not the same (example: Lotto ticket)
Executory vs. Executed
- Executory means the parties will be complying with the obligation. NONE OF THE
PARTIES ALREADY PERFORMED THEIR ODLIGATION.
- Executed means one or both of the parties complied or performed their obligation.
- STATUTE OF FRAUD ONLY COVERS EXECUTORY CONTRACTS
Art 1306 – Autonomy/ Liberty/ Freedom to contract
General rule: The parties can agree to anything provided that it is not contrary to:
1. LAW – ex. Agreement to buy a drugs is VOID CONTRACT
2. MORALS – ex. Hiring a prostitute is VOID CONTRACT
3. GOOD CUSTOM- ex. To slap the face of his parent in exchange for 5,000 is a VOID
CONTRACT
4. PUBLIC ORDER- ex. force eviction of the tenant if not able to pay the rent on time is
VOID CONTRACT.
5. PUBLIC POLICY – ex. Hiring a person and paying him or her below minimum wage is
a VOID CONTRACT
Exception: If contrary, then the contract is VOID

Art. 1307 – Innominate contracts means no name

Nominate vs Innominate
- Nominate contract means a contract with name (ex. Sale, lease, commodatum,
agency)
- Innominate contracts are those without names
Kinds of innominate contracts
1. Do ut des
2. Do ut facias
3. Facio ut des
4. Facio ut facias
NOTE: Facio means “DO’. Do means “GIVE”
 Rules governing innominate contract (IN ORDER)
1. A – Agreement of parties
2. C – Civil code
3. A – Analogous contract (similar)
4. C – Custom of place
Art. 1308 – Mutuality – both parties must agree/ consent on both sides of the party
Art 1309 – General Rule: Third person cannot decide.
Exception: Art. 1309 – The third person can decide as long as the latter is authorized by both
parties. Its effect is that the decision will be valid to both parties.
Exception to the exception: Art 1310 – If the decision is INEQUITABLE it is NOT VALID. The
effect therefore is that the COURT SHALL DECIDE.
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ARTICLE 1311 – 1315
Art. 1311 – Relativity of contract
- This means that the contract takes effect only between the parties, their assigns and
heirs.
- Art. 1178: Obligations are NOT TRANSMISSIBLE. Rights ARE TRANSMISSIBLE.
- If you are not part of the contract you are a THIRD PERSON.
- General rule: Third person is NOT PART, BOUND, and LIABLE to the contract
- Exceptions:
1. Stipulation pour altrui (art. 1311) (2) – stipulation in favor of the third
person
REQUISITES: a. Contracting parties have clearly and deliberately
conferred a favor upon a third person.
b. The 3rd person must communicate his acceptance before
its revocation. (Ex. D owes C P9,000 with interest of 2%. D and C agreed
to give the 2% interest in favor of W. W must communicate his
acceptance to D and C to make the Stipulation pour altrui valid.)
c. Favor to the 3rd person must be part, not whole, of the
contract
d. Must not be conditioned and compensated by any kind
of obligation.
e. Neither of the contracting parties bears the legal
representation r authorization of the 3rd party

2. Contracts creating real rights (art. 1312)

3. Contracts to defraud creditors (art. 1313)
4. Interference in contractual relations (art. 1314)
Effect: the third person/ party is now part, bound and liable to the contract.
Art. 1312 – Contracts creating Real Right
- (Art 1164.) There are two kind of right: Personal right- demandable to specific
person. Real right – demandable against the whole world.
- The real right here is created by REGISTRATION. (name = NSO or civil registry; car =
LTO; land = registry of deeds)
- People REGISTER to CREATE A REAL RIGHT. TO INFORM THE WHOLE WORKD THAT
IT IS YOUR NAME CAR, and LAND
- When your property is registered it is binding to the whole world. Therefore, it is
NECESSARY TO REGISTER.
- Example: (1) A sells the land to B in writing otherwise it is UNENFORCEABLE. The
contract is valid to both parties but to make it valid to the third person it must be
registered to the registry of deeds to inform the whole world that the new owner of
the land is B.
(2) Suppose A owes B P100,000 with the mortgage of land. The mortgage
must be registered or else the mortgage will not create a real right.
Art. 1313 – Contracts to defraud creditors
- (Art. 1177) Accion Pauliana or Recission
- Example: see de leon page. 321
Art. 1314 – Interference in contractual relations
- Example: (1) Film star
(2) Contractor of a building
Art 1315 – Consensual - mere consent
General rule: Contracts are created by mere consent. (Consensual contract)
Exception: 1. Real contract (Art 1316) – need consent and delivery of the thing
2. Formal/ Solemn Contract (Art. 1356) – you need a particular form for it to
be valid and created.
Art. 1316 – 3 Kind of real contracts
1. Pledge – ex. D borrows to C P10,000 – the loan can be oral. Both parties agreed to use the
phone as a collateral. However the pledge is not yet created because there is a need for D to
deliver the phone to C first. The mere fact that D promised is called consensual contract to
create pledge (law 3).
2. Depositum - ex. A asked B to safe keep the marker. B agreed. Is the depositum created? No,
because the consent is not sufficient to make the depositum effective. There is a need to
deliver the marker to B.
3. Loan – “has no form”
a. Mutuum (to be discussed in LAW 3) – simple loan/ borrows consumable thing. (ex.
Borrow money)
b. Commodatum (to be discussed in LAW 3)
Stages of the contract
1. Preparation/ Negotiation/ Conception – the parties are bargaining. No contract.
2. Perfection/ Creation/ Birth – there is already a meeting of the minds. Contract is created.
3. Termination/ Consummation – Performance of the obligation.

Notes: (1) When do we need ownership: (law 3) Ans. Termination

(2) Is it possible for a person to sell a thing which does not belong to him at the rim of
preparation but belonged to him at the time of termination? YES
(3) Delivery in CONSENTUAL CONTRACT is in STAGE 3 but in REAL CONTRACT it is in
Stage 2
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ARTICE 1315 – 1319
Art. 1315 - Consensual
- Effect of perfection of contract: Both parties have to perform their obligation. (ex.
Contract of sale. The seller has to deliver and the buyer has to pay)
Art. 1317 – Unauthorized contract/ Unenforceable
General rule: A personal is not bound of which he has no knowledge in to which he did
not have gave his consent
Exception: Authorization given to the third person.
2 requisites to be bound by the Third person
1. Authorized
2. Act within the scope of authority (ex. A authorized B to sell his phone for
P10,000. If B sells it below the amount given it is unenforceable. However if B sell it more than P10,000 it
is valid because it is more advantageous – one of the principles in agency. The excess will go to the
PRINCIPAL or A)
Note: If one is missing it is UNENFORCEABLE
Remedy: RATIFICATION – is when you give your consent after the contract was created
Effect of ratification: Cleanses the contract from all its defect. (Valid but unenforceable)

CHAPTER 2
Essential Requisites of Contract
Art. 1318 – Classes of elements of contract
1. Essential – without this the contract is VOID or if the parties did not agree to it the contract is
VOID
a. Common ( Consent, Object, Cause)
b. Special ( Form or Delivery)
 c. Extraordinary (Price in sale)
2. Natural – presumed to exist in certain contracts (automatic)
– If the parties did not agree to it the contract is still VALID
– Ex. Warranty against eviction and warranty against hidden defect in sale
3. Accidental – specific terms, condition and stipulation (art 1321)
– It may or may not be present.
– If the parties did not agree to it the contract is still VALID
Three (3) Essential Elements of Contracts
C – Consent
O – Object
C – Cause / Condition
Note: If one of them is missing, the contract is VOID

Art. 1319 - Consent = Offer + Acceptance

Scenario 1:
Offer – must be certain and definite
Acceptance – must be clear and absolute
Ex. If A offer to sell the car for P100,000 to B (offer). Then be accepts to buy the car for
P100,000 (acceptance). Therefore, there is consent.

Scenario 2:
Counter-effect/ Qualified Acceptance
Ex. A offers to sell the car for P100,000 to B (offer) . B agrees to buy the car for P80,000
(counter –offer) A agrees to sell the car for P80,000 ( meeting of minds/consent)
Note: is it possible for you to make an offer and at the end make an acceptance? YES

Scenario 3:
Policitacion – imperfect promise/ only one party made an offer while the other party did not
reply.