Title II – Contracts

Chapter I- General Provisions 1305-1317

Art. 1305 defines contract which definition is unilateral in character.
The definition also excludes formal contract.
Contract is defined by Sanchez Roman as a juridical convention
manifested in legal form by virtue of which two or more persons bind
themselves in favour of another, or others or reciprocally to the fulfilment of
the prestation to give, to do or not to do.
Contract should be distinguished from an imperfect promise or
policitacion which is an offer that has not yet been accepted.
Contract also differs from pact and stipulation for a pact is a special
part of the contract which is merely incidental and separable from the
principal agreement. Stipulation refers to the essential and dispositive part.
Note that the use of the words “two persons “in the definition under
the law is not accurate. It is more appropriate to state “two parties”. Same
person may represent two parties. Take for instance auto contracts where a
person acts in his own right and as representative of another.
Stages in the life of a contract
1. Preparation, conception or generation – period from the start of
negotiation till the moment just before the agreement of the parties;
2. Perfection or birth of the contract – precise moment when the parties
come into an agreement on the terms of the contract;
In the case of ABS CBN vs. C.A. 301 SCRA 592, ABS CBN through
Charo Santos-Concio requested Viva Production to allow at least 14
films produced by Viva. A meeting was held between Eugenio Lopez
and Vic Del Rosario. The latter proposed 104 films for Php60M written
in a napkin. Santos-Concio counter proposed 53 films including 14
films for Php35M. Del Rosario presented it to the Board which rejected
the offer of ABS. Subsequently, Viva made an agreement with RBS or
GMA7 giving GMA7 the right to air 104 films including the 14 films.
ABS filed a complaint for specific performance against Viva stating that
the agreement placed in a napkin constitutes a contract.
Is there a perfected contract here? No. There was no meeting of minds
for Del Rosario’s offer was of 104 films which was not accepted. The
counter offer was also not accepted. Note further that even if Del
Rosario accepted the offer it will not result to a contract because it will
not bind Viva for no approval of the Board was secured.
 3. Consummation or death – date when the contract is fully executed,
fulfilled or performed.
Elements of a contract
1. Essential elements – those without which there can be no contract
And they are: consent, subject matter and cause;
2. Natural elements – those which usually accompany a contract and
are derived from its nature and are presumed by law. But which
can be waived by the other contracting parties such as warranty in
sales;
3. Accidental elements – those which can exist when the parties so
provide such as condition or period.
Characteristics of contracts
1. Autonomy of the will of the parties in contracts – that 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. (Art. 1306);
2. Obligatory force of contracts – the parties being bound not only to
the fulfilment 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 (Art. 1315);
3. Mutuality of contracts – contract must bind both the contracting
parties and the validity and compliance cannot be left to the will of
one of them (Art. 1308);
4. Relativity of contracts – contracts take effect only between the
parties, assigns and heirs except those which are not transmissible
by their nature or by stipulation or by provision of law (Art. 1311);
5. Consensuality – contracts are perfected by mere consent and from
the moment the parties are bound (Art. 1315)
Classification of contracts – Castan’s classification
1. According to the nature of the tie that they produce:
a. Unilateral – those that produce an obligation for only one of the
contracting parties
b. Bilateral (synallagmatic) – those which produce reciprocal
obligations between both parties
2. According to title:
 a. Gratuitous – those where one of the contracting parties gives to
the other an advantage without receiving any equivalent. These
are subdivided into:
i. Those which diminish the patrimony of the giver typified
by donation inter vivos which results to the
impoverishment of the donor and consequent enrichment
of the done
ii. Those which do not diminish the patrimony of the giver
such as commodatum, loan without interest, guaranty,
gratuitous deposit which are motivated by the spirit of
liberality but there is no diminution in the patrimony of
the giver
b. Onerous - those where one of the parties desires to get an
advantage through an equivalent or a compensation. These are
subdivided into:
i. Commutative – those where each of the parties take into
consideration the acquisition of an equivalent of his
prestation which is pecuniarily valuable and definite
from the moment of the celebration of the contract.
ii. Aleatory – those in which each of the parties also takes
into consideration the acquisition of an equivalent of his
prestation which is pecuniarily valuable but not
determined or definite at the moment of the celebration
of the contract but dependent on the happening of an
uncertain event and with the parties running the risk of
profit or loss.
3. According to the incorporation or non-incorporation of the clause:
a. Causal – those which contain not only the naked promise of a
prestation but also an agreement embodying the juridical
intention which is the cause of the giving and receipt of the
promise.
b. Abstract – are those which exclude from the manifestation of the
will of the parties any reference to causal relations.
4. According to the form:
a. Consensual – those perfected by the mere consent of the parties.
b. Real – those which, in addition to the consent, require the
delivery of a thing by one of the parties to the other.
c. Solemn – those which require a special form for its celebration
or strictly those which require a notarial form.

5. According to its nature:

 a. Preparatory – those which have for their object the creation of a
juridical state as a necessary preliminary to the celebration of a
posterior contract such as partnership, agency.
b. Principal – are those which have in themselves their own
proper and subsisting contractual end or purpose without
depending on any other contract such as purchase and sale,
lease.
c. Accessory – are those which can only exist by reason of or in
relation to a prior contract such as guaranty, pledge, mortgage.
6. According to name:
a. Nominate – are those which have an individuality of their own
and are governed by special rules of law.
b. Innominate – are those without any individuality of their own
special rules and are governed by the special rules of contracts.
There are 4 kinds:
i. Do ut des, I give that you give;
ii. Do ut facias, I give that you do;
iii. Facio ut des, I do that you give; and
iv. Facio ut facias, I do that you do
1306 - Autonomy of Contracts – freedom to stipulate subject to limitations,
law, morals, public order, and public policy.
- The state intervenes in cases where contracts are affected by public
policy such as in labor contracts and contracts of insurance.
- There are recent types of contracts, a contract of adhesion for
instance, which have the effect of weakening the consensual nature
of contracts by giving undue advantage to one of the contracting
parties thereby requiring state intervention in order to prevent
injustice.
1307 – Innominate Contracts – without individuality of their own special
rules and are governed by the general rule of contracts.
- In the case of Corpus vs C.A. 98 SCRA 424, David accepted the
case of Corpus though there was no express agreement regarding
payment of attorney’s fees. Corpus gave a check to David which
check was returned by the latter to Corpus with the intention of
being paid. David fought for Corpus’ case until the latter got a
favorable decision. Corpus refused to pay David contending that
the latter refused the check he issued and that such is construed as
gratuitous service of David to him. The issue posed here in
connection with innominate contacts is if David is entitled to
 attorney’s fees justifiable under innominate contracts. This is
answered in the affirmative the contract being facio ut des “I do
that you give” based on the principle that no one shall be unjustly
enriched at the expense of another. The facts of the case support
the position of respondent David that there was at least an implied
agreement for the payment of attorney’s fees.
1308 – Mutuality – for purposes of maintaining the enforceability of contracts
for otherwise the same would be illusory.
- In the case of Allied Banking Corp. vs C.A. 284 SCRA 357, Allied
leased a property owned by spouses Tanqueco on April 1, 1978,
the term being 14 years which may be renewed at the option of the
lessee. In 1988 Tanqueco donated the property in favor of their 4
children. Allied manifested that it was exercising its option to
renew the lease. Petitioner, children, opposed. In 1992 the heirs
demanded Allied to vacate the premises as the renewal of the
contract violates mutuality of contract. The Supreme Court held
that the contract was mutually agreed upon. The right of renewal
is considered as part of the lessee’s interest in the land and forms a
substantial and integral part of the agreement.
- What is prohibited under Art. 1308 is that the effectivity of the
fulfilment of the contract will be left to the will of one of the
parties. However, the termination of the contract may be left to the
will of one of the parties in the negative form of rescission if that is
so expressly stated in the contract
Art. 1311 Principle of Relativity or Principle of Limited Effectivity – binding
effect of the contact between the parties, their heirs and assigns except in cases
where the rights and obligations arising from the contract are not
transmissible in nature, or by stipulation or by provision of law. Eg. contract
of agency based on confidence by the principal.
- This should be read in contrast to res inter alios acta which states
that the rights of a party cannot be prejudiced by the act,
declaration or omission by another, and proceedings against one
cannot affect another except as expressly provided by law.
- In the case of Everett Steamship Corp. vs C.A. 297 SCRA 496, here
the private respondent, a consignee who is not a signatory to the
bill of lading, imported 3 crates of bus spare parts from Maruman
Trading. Crates were shipped from Nagoya to Manila on board
ADELFAEVERETTE vessel owned by petitioner’s principal. The
crate marked MARCO 14 was missing. Private respondent
 claimed from the petitioner the value of the lost cargo. Petitioner
offered to pay only 100,000.00 Yen which was the maximum
stipulated under the bill of lading which limits the liability of the
petitioner. Private respondent rejected the offer and instituted suit.
The trial court rendered a decision favouring the private
respondent which was affirmed by the C.A. The issue here is
whether or not the private respondent, as consignee, who is not a
signatory to the bill of lading is bound by the stipulations thereof.
The Supreme Court ruled here that the private respondent is
bound by the bill of lading, it having accepted the provision of the
contract.

- The 2nd paragraph of Art. 1311 speaks about stipulation in favor of

third persons or stipulation pour autrui which has the ff.
requisites:

1. Parties must have clearly and deliberately conferred a favour

upon the third person;
2. There should be no compensation for the stipulation in favour of
a third person;
3. The stipulation in favor of a third person should not be the
entire contract but merely a part thereof;
4. Neither of the contracting parties bear the legal representation
or authorization of a third person, that is, there is no agency;
5. The third person communicated his acceptance to the obligor
(promisor) before its revocation by the original parties (both
contracting parties)

The parties in a stipulation pour autrui are:

Promisor – party obliged to perform the prestation in favour of a

third person
Promisee - party who accepts the promise
Third person or beneficiary – the party who acquires the right to
demand the prestation from the promisor.

- Art. 1313 refers to actio pauliana which is an exception to the rule

on relativity of contracts since the creditor, though not a party to
the contract, may interfere in the same through a rescissory action
in case the contract was intended to defraud the creditor.
- Art. 1314 speaks about the liability for damages of a third person
who induces another to violate a contract. Note, however, that
there must be: an existence of a valid contract; knowledge by the
third person of the existence of a valid contract and interference by
third person in contractual relation without legal justification. The
third person and the person induced are not joint tort feasor.
Neither is there any solidary liability. Why? The liability of the
third person is quasi-delict whereas the guilty party’s liability is
based on culpa-contractual.
- Art. 1315 – Consensuality of contracts – this is not applicable to all
kinds of contracts ergo has no reference to formal and real
contracts
- Art. 1316 – Real Contracts – those which requires the delivery of
the object of the obligation before such contract is considered real.
- Art. 1317 speaks about contracts entered into by another person
who has no authority or legal representation - unenforceable