chapter 1 GENERAL PROVISIONS

Essential Elements of a Contract

1. CONSENT of the contracting parties

2. OBJECT CERTAIN which is the subject matter of the contract

3. CAUSE of the obligation which is established

Definition of a Contract (Art. 1305)

a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

Classification of Contracts - according to the relation to other contracts

a. preparatory

b. principal

c. accessory

preparatory

Contracts whose object is to establish a legal condition required before entering into another contract.

principal

Contracts that can exist and achieve their purpose independently of other contracts.

accessory

Contracts that exist only as a result of or in connection with a prior contract.

Classification of Contracts - according to their perfection

a. consensual

b. real

consensual

Those which are perfected by the mere agreement of the parties.

real

Contracts that need both the parties’ consent and the delivery of the object to be perfected.

Classification of Contracts - according to their form

a. common or informal

b. special or formal

common or informal

Those which do not require some particular form.

special or formal

Those which require some particular form.

Classification of Contracts - according to their purpose

a. transfer of ownership

b. conveyance of use

c. rendition of services

Classification of Contracts - according to their subject matter

a. things

b. services

Classification of Contracts - according to the vinculum which they produce

a. unilateral

b. bilateral

Classification of Contracts - according to their cause

a. onerous

b. gratuitous

onerous

Contracts where each party seeks a benefit by giving something of equivalent value.

gratuitous

Contracts in which one party gives a benefit to the other without expecting anything in return.

Classification of Contracts - according to risks involved

a. commutative

b. Aleatory

commutative

Contracts where each party receives a clearly defined and money-valued equivalent at the time the contract is made.

aleatory

Contracts where each party is to receive a money-valued equivalent that is not yet determined and depends on an uncertain event, involving risk of loss or gain.

Classification of Contracts - according to their names or norms regulating them

a. nominate

b. innominate

nominate

Those which have their own individuality and are regulated by special provisions of law.

innominate

Those which lack individuality and are not regulated by special provisions of law.

Contract of Adhesion

A contract mostly drafted by one party, where the other party only agrees by signing, and any unclear terms are interpreted against the drafter.

Freedom of Contract (Art. 1306)

Parties can set their own terms in a contract as long as they do not violate laws, morals, good customs, public order, or public policy.

Autonomy of Contracts or Freedom of Contract

The freedom of parties to agree on any terms as long as they do not violate law morals good customs public order or public policy

Public Policy

Principles and standards that protect the welfare and interests of society

Regulation of Innominate Contracts (Art. 1307)

Innominate contracts are governed by the parties’ agreement, general contract rules, similar nominate contracts, and local customs.

Kinds of Innominate Contracts

1. do ut des

2. do ut facias

3. facio ut des

4. facio ut facias

do ut des

i give that you give

do ut facias

i give that you do

facio ut des

i do that you give

facio ut facias

i do that you do

Rules on Innominate Contracts

SCAC → “Some Contracts Are Clueless”

S - Stipulations of the parties

C - Civil Code provisions on obligations and contracts

A - Analogous nominate contracts

C - Customs of the place

Principle of Mutuality of Contracts (Art. 1308)

A contract must obligate both parties, and its validity cannot depend on just one party’s will.

Purpose of Mutuality Principle

The mutuality principle prevents a contract from depending entirely on the unchecked will of one party.

Determination of the Performance by a Third Person (Art. 1309)

A contract can let a third person decide how performance is done, but their decision only binds the parties once both are informed.

Equitable Determination (Art. 1310)

A third-party decision is not binding if clearly unfair, and the courts will decide what is fair instead.

Effect of Contracts on Parties and Third Persons (Art. 1311)

Contracts affect only the parties, their heirs, or assigns, unless rights cannot be transferred.

Heirs are liable only up to the value they inherit.

A third person can enforce a benefit only if it was clearly intended for them and they accepted it before revocation.

Relativity of Contracts

Contracts bind only the parties who made them, and cannot create rights or obligations for a third person, even if the third person knows about it or acts on it.

Relativity of Contracts - General Rule

Contracts take effect only between the parties, their assigns and heirs.

Relativity of Contracts - Exceptions

1. contracts are not transmissible by their NATURE

2. by STIPULATION

3. by PROVISION OF LAW

Nature of Intransmissible Rights

Intransmissible rights are those arising from contracts that are purely personal by law or by nature, requiring special personal qualifications of the obligor, and cannot be enforced against heirs, except as a claim against the estate for money debts.

Four Exceptional Cases to the Principle of Relativity of Contracts

APCD → “All People Can Demand”

A - Acceptance by third person before revocation

P - Possession of real rights binds third persons

C - Creditors protected from fraud

D - Damages for inducing breach

requisites of Stipulation Pour Autrui

SPCAN → “Some People Clearly Accept Now”

S - Stipulation in favor of a third person

P - Part of the contract, not the whole

C - Clearly and deliberately conferred favor, not incidental

A - Acceptance communicated by the third person

N - No legal representation or authorization by third party

Third Persons Bound in Real Rights Contracts (Art. 1312)

In contracts that create real rights, anyone who takes possession of the object becomes bound by the contract, except as limited by the Mortgage Law or Land Registration Laws.

creditors are protected from fraud (Art. 1313)

Creditors are protected in cases of contracts intended to defraud them.

Liability for Inducing Breach (Art. 1314)

If a third person causes someone to violate a contract, they must pay damages to the injured contracting party.

Tort Interference

When a third person intentionally causes a party to violate or break an existing contract

Elements of Tort Interference

CKU → “Contracts Know Unjustly”

C - Existence of a valid Contract

K - Knowledge by the third person of the contract

U - Unjustified Interference by the third person

Perfection of Contracts by Consent (Art. 1315)

A contract is complete once the parties agree, and they are bound to fulfill both the agreed terms and all legal or customary consequences consistent with good faith.

Perfection of Real Contracts (Art. 1316)

Real contracts, like deposit, pledge, and commodatum, are NOT complete until the OBJECT IS DELIVERED.

Stages in the Life of a Contract

1. preparation / negotiation

2. perfection

3. consummation

preparation or negotiation

The negotiation stage starts when parties show interest in a contract and ends when they reach agreement.

An offer begins negotiation, and if it’s not accepted, there is no consent, so no contract.

Perfection or birth of the contract

Takes place when the parties agree upon the essential elements of the contract.

Consummation of the contract

The parties fulfill or perform the terms agreed upon in the contract culminating in its extinguishment.

Effect of Judicial Approval of a Contract

A court-approved compromise becomes like a judgment, immediately enforceable, and non-appealable except for consent defects or forgery.

Classification of Contracts According to Their Perfection

a. Consensual contract

b. real contract

c. Formal Contract or Solemn Contract

Consensual Contract

A contract perfected by the mere consent of the parties

Real Contract

A contract perfected only when the object of the contract is delivered

Commodatum

A contract where a non consumable thing is loaned for use and must be returned after use

Deposit

A contract where a thing is delivered for safekeeping and must be returned

Pledge

A contract where personal property is delivered to secure the payment of a debt

Formal Contract or Solemn Contract

A contract that requires a specific form prescribed by law for its validity

Effects of Perfection of the Contract

Once a contract is perfected, parties must fulfill agreed terms and all consequences consistent with good faith, law, and custom.

Contracts by Representation (Art. 1317)

No one can make a contract for another without authorization or legal right.

If someone acts without authority, the contract is unenforceable unless the person ratifies it before revocation.

EXCEPTIONS to Unauthorized Representation

A person may contract for another if they are AUTHORIZED by that person or have a LEGAL RIGHT to represent them.

Effect of an Unauthorized Contract

A contract made by a person without authority is UNENFORCEABLE UNLESS RATIFIED by the person represented