TITLE II – CONTRACTS parties, neither of whom acted as agent of the 3 rd person

(Art. 1311, par. 2)

Contract – a meeting of minds between two persons
whereby one binds himself, with respect to the other, to Requisites of Stipulation pour autrui:
give something or to render some service (Art. 1305)
1. There must be a stipulation in favor of a 3rd person
- Parties may establish such stipulations, terms, 2. Con. Parties must have clearly and deliberately
conditions, etc. provided not contrary to limitations [see conferred a favor upon a 3rd person
below] (Art. 1306) – principle of freedom 3. A mere incidental benefit of a person is NOT sufficient
- Catch-all: Innominate contracts – contracts that have no 4. The stipulation must be PART of the contract
name (Art. 1307) 5. The 3rd person communicated his acceptance to the
- Mutuality of contracts – contract must bind both obligor before its revocation
contracting parties; validity/compliance can’t be left to 6. There must be no relation of agency between either of
one of them (Art. 1308) the parties and the 3rd person
- Determination of performance may be left to 3rd persons
provided his decision is binding when it be known to Four kinds of innominate contracts:
both contracting parties (Art. 1309) 1. Do ut des – I give that you may give
- Determination is not obligatory if it is inequitable (Art. 2. Do ut facias – I give that you may do
1310) 3. Facio ut des – I do that you may give
- In order to judge intention of parties, their 4. Facio ut facias – I do that you may do
contemporaneous (during same period) and
Stages of a contract
subsequent (after) acts shall be principally considered.
(Art. 1371) = implied 1. Preparation – parties are progressing with negotiations;
- However general the contracts’ terms, they shall be not yet arrived at any definite agreement
understood to comprehend distinct things & cases that 2. Perfection – parties have at long last came to a definite
are different from those which the parties intended to agreement, elements of definite subject matter & valid
agree (Art. 1372) cause have been accepted by mutual consent
- General rule: No one may contract in the name of 3. Consummation – terms of the contract are performed, &
another without being authorized by the latter (Art. contract is said to have been fully executed
1317, par. 1)
o Exception: duly authorized or he has by law a right to Limitations on the nature of the stipulations (Art. 1306):
represent him (Art. 1317, par. 1) 1. The law
- General rule: A contract entered into by one who has no 2. Morals
authority shall be unenforceable (Art. 1317, par. 2) 3. Good customs
o Exception: unless it is ratified by the person on whose 4. Public order
behalf it has been executed before it is revoked by 5. Public policy
the other party (Art. 1317, par. 2)
- General rule (Art. 1311, par. 1): Contracts take effect Characteristics of a contract (ROMA)
only between the parties, assigns and heirs; heir is not
1. Relativity (Art. 1311) – takes effect only between parties,
liable beyond the value of the property he received
heirs and assigns
from decedent
2. Obligatoriness and consensuality (Art. 1315) – once
o Exception: in cases where the rights & obligations
perfected, shall be of obligatory force upon both parties
arising from the contract are not transmissible by their
3. Mutuality (Art. 1308) – contract must bind both of them;
nature or stipulation or law (Art. 1311, par. 1)
validity or compliance cannot be left to the will of one of
Elements of a contract: them
4. Autonomy (Art. 1306) – free to enter into a contract
1. Essential – those w/o w/c there can be no contract;
subdivided into: Exceptions for relativity
a. Common – present in all contracts (consent, object
1. Contract contains beneficial stipulation in favor of a 3 rd
certain, cause)
person, provided such 3rd person has communicated
b. Special – present only in certain contracts (delivery =
acceptance (Art. 1311, par. 2)
real; form = solemn)
2. 3rd person comes into the possession of the object,
c. Extraordinary or peculiar – those w/c are peculiar to a
creating a real right (Art. 1312)
specific contract (price in a contract of sale)
3. Contract is entered into in order to defraud a 3 rd person
2. Natural – those w/c are derived from the nature of the
(Art. 1313)
contract and ordinarily accompany the same;
4. 3rd person induces a contracting party to violate his
presumed by law although they can be excluded by the
contract (Art. 1314)
parties if they want
3. Accidental – those w/c exist only when the parties Requisites for a person to contract in the name of
expressly provide for them for the purpose pf another:
limiting/modifying the normal effects of the contract
1. Must be duly authorized (expressly or impliedly) or
2. Must have by law a right to represent him or
3. The contract must be subsequently ratified
Stipulation pour autrui – stipulation in favor of a 3rd person
conferring a clear & deliberate favor upon him, and which Essential Requisites of a consensual contract [COC]
stipulation is merely part of a contract entered by the (Art. 1318):
1. Consent of the contracting parties Elements of a valid offer and acceptance:
2. object certain which is the subject matter
3. cause of the obligation which is established 1. Definite – unequivocal
5. form 2. Intentional
3. Complete – unconditional
SECTION 1 – CONSENT
Who cannot give consent to a contract (Art. 1327):
Consent – meeting of the minds between the parties on
1. Unemancipated minors
the subject matter and the cause of the contract, even if
2. Insane or demented persons and
neither one has been delivered
3. deaf-mutes who do not know how to write
- the offer must be certain and the acceptance absolute; a
Note: subject to the modifications determined by law & is
qualified acceptance constitutes a counter-offer (Art.
understood to be w/o prejudice to special
1319, par. 1)
disqualifications (Art. 1329)
- acceptance made by letter does not bind the offeror
except from the time it came to his knowledge (Art. Exceptions to rule that contracts entered by emancipated
1319, par. 2) minors w/o parents consent is voidable:
- acceptance may be express of implied (Art. 1320)
- person making the offer may fix the time, place, and 1. minor misrepresents his age
manner of acceptance all of which must be complied 2. contract involves sale & delivery of necessaries to the
with (Art. 1321) minor
o any act contrary to the prescribed terms really 3. involves a natural oblig & such oblig. Is voluntarily
constitutes a counter-offer or counter-proposal fulfilled by the minor, provided he is 18-21
- an offer made through an agent is accepted from the
Incidental fraud – those w/c are not serious in character
time acceptance is communicated to him (Art. 1322)
and w/o w/c the other party would still have entered into
- offer becomes ineffective upon death, civil interdiction,
the contract
insanity or insolvency of either party before acceptance
is conveyed (Art. 1323) Requisites of Dolo Causante (Art. 1338)
- Contracts entered during a lucid interval are VALID.
Those agreed in a state of drunkenness or hypnotic 1. fraud must be material and serious – it really induced the
spell are VOIDABLE (Art. 1328) consent (Art. 1344)
- Consent given through mistake, violence, intimidation, 2. fraud must have been employed by only one of the
undue influence, or fraud is VOIDABLE (Art. 1330) = contracting parties, because if both committed, the
vices of consent contract would remain valid (Art. 1344)
- Fraud = when through insidious words one of the 3. there must be a deliberate intent to deceive/induce (Art.
contracting parties, the other is induced to enter into a 1343)
contract which he would not have agreed to. (Art. 4. the other party must have relied on the untrue statement
1338) & must himself not be guilty of negligence
- Misrepresentation in good faith is not fraud but may Simulation of a contract – process of intentionally
constitute error (Art. 1343) deceiving others by producing the appearance of a
- To be voidable, fraud should be serious & should not contract that really does not exist (absolute) or w/c is
have been employed by both parties; incidental fraud different from the true agreement [relative] (Art. 1345)
obliges person to pay damages (Art. 1344)
- General rule: when offerer has allowed certain period to - absolutely simulated contract – void; relatively simulated
accept, the offer may be withdrawn at any time before contract – not prejudice 3rd person & not intended for
acceptance by communicating it (Art. 1324) any purpose contrary to law, morals, etc. – binds
o Exception: when the option is founded upon a parties to their real agreement (Art. 1346)
consideration, as something paid or promised (Art.
Requisites for simulation
1324)
1. an outward declaration of will different from the will of the
Option – a contract granting a person the privilege to buy
parties
or not to buy certain objects at any time within the
2. the false appearance must have been intended by
agreed period at a fixed price
mutual agreement
Elements of consent: 3. the purpose is to deceive third persons

1. Legal capacity of the contracting parties

2. Manifestation of the conformity of the contracting parties
3. Parties’ conformity to the object, cause, terms, SECTION 2 – OBJECT OF CONTRACTS
conditions must be intelligent, spontaneous, and free
Object – the thing, right or service which is the subject
from all vices of consent
matter of the obligation which is created
4. Conformity must be real
Requisites of an object (Art. 1347)
Requisites of consent:
1. the thing or service must be within the commerce of man
1. Must be two or more parties
2. must be transmissible
2. Must be capable or capacitated
3. must not be contrary to law, morals, good customs,
3. No vitiation of consent
public order, or public policy
4. No conflict between what was expressly declared and
4. must not be impossible (Art. 1348)
what was really intended
5. must be determinate as to its kind of determinable - falsity of cause (cause is stated but is not true) – contract
without the need of a new contract or agreement (Art. is void, unless parties show that there is another cause
1349) w/c is true & lawful (Art. 1353)
- lesion or inadequacy of cause (Art. 1355) – does not
invalidate the contract unless:
o there is fraud, mistake or undue influence
SECTION 3 – CAUSE OF CONTRACTS
o when the parties intended a donation or some other
Cause – the essential & impelling reason why a party contract
assumes an obligation o in cases specified by law

 cause is presumed to exist and is lawful unless debtor lesion – inadequacy of cause, like an insufficient price for
proves the contrary (Art. 1354) a thing sold

Requisites of a cause: - Art. 1470 (correlate w/ 1355) – gross inadequacy of price

does not affect contract of sale except as it may
1. be present indicate a defect in the consent, or parties really
2. be true intended a donation or some other act
3. be lawful
FORM OF CONTRACTS
Classification of contracts as to cause (Art. 1350):
GR: Contracts shall be obligatory, provided all the
1. onerous – cause is (for each party) the
essential requisites for their validity are present (Art.
prestation/promise of a service by the other
1356)
2. remuneratory – past service or benefit which by itself is a
recoverable debt XPN: However, when the law requires that a contract be
3. gratuitous – cause is the mere liability of the benefactor in some form (in order it may be valid or enforceable) or
that it be proved in a certain way, that requirement is
Cause vs. Motive (Art. 1351)
absolute and indispensable (Art. 1356)
Cause Motive
Note: In such cases ^, the rights of the parties stated in
Direct & most proximate Indirect and remote
the ff. article cannot be exercised (Art. 1356)
reason of a contract reasons
Legality/illegality affects Legality/illegality does not Consensual contracts – perfected by mere consent (only
the existence/validity of affect existence of the the general rule)
the contract contract
Always the same for each Differs for each party Real contracts – perfected by delivery
party
Always known May be unknown to the Formal contracts – require a special form for perfection
other
When is Form important:

a. For validity (true in formal contracts)

Cause vs. object
b. For enforceability
Kind of Cause Object c. For convenience (true for contracted enumerated in Art.
contract 1385)
Remuneratory Service or benefit Thing which is
which is given in Ff. must appear in a public document (Art. 1358)
remunerated remuneration 1. Acts & contracts w/c have for their object the creation,
Gratuitous Liberality of the Thing that is
transmission, modification or extinguishment of real
benefactor donated
rights over immovable property; sales of real property
Onerous For each party – Thing or service
prestation or itself or of an interest therein are governed by Arts. 1403 (2)
promise of a and 1405
thing/service by 2. The cession, repudiation or renunciation of hereditary
the other rights or of those of the CPG
Contract of Vendor – The thing that is 3. The power to administer property or any other power
sale acquisition of the sold because it which has for its object an act appearing or which
purchase price is the starting should appear in a public document or should prejudice
point of the a third person
Vendee – agreement 4. The cession of actions or rights proceeding from an act
acquisition of the appearing in a public document
thing sold
Note: All other contracts where the amount involved
exceeds 500php must appear in writing, even a private
Effect of the error of cause one. But sales of goods, chattels or other (Art. 1358)
- absence of cause – confers no right and produces no Note: Art. 1358 is only for convenience and registration
legal effect of the instrument only adversely affects third parties
- failure of cause – does not render the contract void
- illegality of cause – contract is null and void Must be in writing:

1. Donations of personal property whose value exceeds

P5K
2. Sale of a piece of and by an agent - In order to judge intention of parties, their
3. Contracts of antichresis – the amount of the principal contemporaneous (during same period) and
and of the interest shall be specified in writing subsequent (after) acts shall be principally considered.
otherwise void (Art. 1371) = implied
4. Agreements regarding payment of interest in contracts - However general the contracts’ terms, they shall be
understood to comprehend distinct things & cases that
Must appear in a public document: are different from those which the parties intended to
1. Donations of immovable property agree (Art. 1372)
2. Partnerships where immovable property or real rights are - Special intent prevails over a general intent (PH case)
contributed to the common fund - If the stipulation has several meanings, it shall be
understood as bearing that import w/c is most is most
Must be registered: adequate to render it effectual (Art. 1373)
- If there is controversy as to what the parties really
1. Chattel mortgages
intended, the way the parties performed their
2. Sales or transfers of large cattle
respective obligations shall prevail over the name given
REFORMATION OF INSTRUMENTS to the contract (PH case)

Reformation – remedy by means of which a written

instrument is made so as to express or conform to the
real intention of the parties when some error has been
committed; clarify intention of the parties (Art. 1359)

Requisites for reformation

1. There must be a meeting of the minds

2. True intention is not expressed in the instrument by
reason of (MARFI)
a. Mistake
b. Accident
c. Relative simulation
d. Fraud
e. Inequitable conduct
3. There must be clear and convincing proof thereof
4. Must be brought within the proper prescriptive period
5. Document must not refer to a simple unconditional
donation inter vivos or to wills or to a contract where
the real agreement is void

Note: when there is NO meeting of the minds, the proper

remedy is ANNULMENT (Art. 1359)

- Prescription period in reformation: 10 years from the

date of the execution of the instrument
- In case of conflict between NCC and principles of gen.
law of reformation, former prevails; latter will have only
suppletory effect
- When through ignorance, negligence, or bad faith on the
part of the person drafting the instrument, the
instrument does not express the true intention of the
parties, the courts may order that the instrument be
reformed (Art. 1364)

Cases where reformation is not allowed (Art. 1366):

1. Simple, unconditional donations inter vivos

2. Wills
3. When the agreement is void
4. When an action to enforce the instrument is filed
(estoppel) (Art. 1367)

Who may ask reformation (Art. 1368):

Ordered at the instance of:

- If mistake is mutual – either party or his successors in

interest
- Otherwise, upon petition of the injured party or his heirs
or assigns

INTERPRETATION OF CONTRACTS