TITLE 2 CONTRACTS: CHAPTER 1

CONTRACTS

What is a contract under Article 1305?

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

What is emphasized in the definition of a contract?

The meeting of minds between the contracting parties.

When does a meeting of minds take place?

When an offer by one party is accepted by the other party.

What may parties bind themselves to do in a contract?

They may bind themselves to:

• Give something

• Do or render a service

• Refrain from doing something

How many persons or parties are generally required to form a contract?

At least two persons or parties.

Why are at least two parties generally required in a contract?

Because a person generally cannot contract with himself.

Can one person create a contract involving distinct interests?

Yes. A person may do so when representing different interests, such as his own interest and another person's interest as an agent.

Give an example of one person representing distinct interests in a contract.

If A is authorized by P to borrow money, A may personally act as the lender at the current rate of interest.

What is the relationship between a contract and an obligation?

A contract is a source of obligations, while an obligation is the legal tie or relationship created after entering into a contract.

What comes from a contract?

An obligation or legal duty may arise from a contract.

Can an obligation exist without a contract?

Yes. An obligation may arise from other sources, such as law.

Give an example of an obligation that exists without a contract.

The obligation to pay taxes, which is imposed by law.

What is the difference between a contract and an agreement?

A contract is a legally enforceable agreement, while an agreement may not necessarily be legally enforceable.

What makes a contract legally enforceable?

It must be lawful and possess all the essential requisites for validity.

Are all agreements contracts?

No. Some agreements are merely moral or social and cannot be enforced in court.

Are all contracts agreements?

Yes.

Complete the statement: All contracts are ______, but not all agreements are ______.

All contracts are agreements, but not all agreements are contracts.

Contract vs. Obligation?

• Contract = Source of the obligation

• Obligation = Legal tie or duty created

Contract vs. Agreement?

• Contract = Legally enforceable agreement

• Agreement = Broader; may or may not be legally enforceable

11 CLASSIFICATIONS OF CONTRACTS

According to:

• Name or Designation

• Perfection

• Cause

• Form

• Obligatory Force

• Person Obliged

• Risks

• Liability

• Status

• Dependence on Another Contract

• Dependence of Parts on Other Parts

Contracts according to Name or Designation

• Nominate

• Innominate

Contracts according to Perfection

• Consensual

• Real

Contracts according to Cause

• Onerous

• Remuneratory or remunerative

• Gratuitous

Contracts according to Form

• Informal, common, or simple

• Formal or solemn

Contracts according to Obligatory Force

• Valid

• Rescissible

• Voidable

• Unenforceable

• Void or inexistent

Contracts according to Person Obliged

• Unilateral

• Bilateral

Contracts according to Risks

• Commutative

• Aleatory

Contracts according to Liability

• Unilateral

• Bilateral

Contracts according to Status

• Executory

• Executed

Contracts according to Dependence on Another Contract

• Preparatory

• Accessory

• Principal

Contracts according to Dependence of Parts on Other Parts

• Indivisible

• Divisible

What is a nominate contract?

A contract with a specific name and governed by special provisions of law, such as sale, lease, or agency.

What is an innominate contract?

A contract without a specific name or special designation under the law.

What is a consensual contract?

A contract perfected by mere consent or meeting of minds.

What is a real contract?

A contract perfected not only by consent but also by the delivery of the object.

What is an onerous contract?

A contract where each party gives something or provides an equivalent benefit in exchange.

What is a remuneratory contract?

A contract made to reward a person for a service or benefit previously given.

What is a gratuitous contract?

A contract where one party gives a benefit without receiving an equivalent in return.

Example: Donation.

What is an informal, common, or simple contract?

A contract that does not require a particular form to be valid.

What is a formal or solemn contract?

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

What is a valid contract?

A contract that complies with all legal requirements and is binding on the parties.

What is a rescissible contract?

A valid contract that may be rescinded because it causes damage or prejudice under circumstances provided by law.

What is a voidable contract?

A contract that is valid and binding unless annulled due to defects such as incapacity or vitiated consent.

What is an unenforceable contract?

A contract that cannot be enforced in court unless properly ratified.

What is a void or inexistent contract?

A contract that has no legal effect because it lacks essential requirements or is illegal.

What is a unilateral contract according to the person obliged?

A contract where only one party is obliged to perform.

What is a bilateral contract according to the person obliged?

A contract where both parties are obliged to perform reciprocal obligations.

What is a commutative contract?

A contract where the undertaking of one party is considered equivalent to that of the other.

Examples: Sale and lease.

What is an aleatory contract?

A contract where the benefit or loss depends on an uncertain event or contingency.

Examples: Insurance and sale of hope.

What is a unilateral contract according to liability?

A contract that creates an obligation on the part of only one party.

Examples: Commodatum and gratuitous deposit.

What is a bilateral contract according to liability?

A contract that creates reciprocal obligations for both parties.

Examples: Sale and lease.

What is an executory contract?

A contract that has not yet been completely performed by both parties.

What is an executed contract?

A contract that has already been fully and satisfactorily performed by both parties.

What is a preparatory contract?

A contract entered into as a means to an end or to prepare for another transaction.

Examples: Agency and partnership.

What is an accessory contract?

A contract dependent on another contract for its existence and validity.

Examples: Mortgage and guaranty.

What is a principal contract?

A contract that exists independently and does not depend on another contract for its validity.

Examples: Sale and lease.

What is an indivisible or entire contract?

A contract where each part depends on the other parts for satisfactory performance.

Example: Sale of a dining table and eight matching chairs.

What is a divisible contract?

A contract where one part may be satisfactorily performed independently of the other parts.

Example: Sale of a rocking chair and a pair of shoes.

What does Article 1306 provide?

Contracting parties may establish any stipulations, clauses, terms, and conditions they consider convenient, provided these are not contrary to law, morals, good customs, public order, or public policy.

What is the principle behind Article 1306?

The principle of freedom to contract.

What is freedom to contract?

The freedom of parties to agree on the terms and conditions of their contract according to their own preferences, subject to legal limitations.

What is a valid contract?

A contract that meets all the legal requisites and limitations required by law and is therefore legally binding.

Is every valid contract automatically enforceable in court?

Not necessarily. A contract may meet the requirements of validity but still be unenforceable due to failure to comply with certain legal requirements, such as the Statute of Frauds.

Is the freedom to contract absolute?

No. Parties cannot make any agreement they want if it violates law, morals, good customs, public order, or public policy.

Why can the State limit freedom to contract?

Because contracts are subject to the police power of the State, which protects public welfare, safety, and the common good.

THE 5 LIMITATIONS UNDER ARTICLE 1306

• law

• morals

• good customs

• public order

• public policy

Can parties enter into a contract contrary to law?

No. A contract contrary to law is void because law is superior to a contract.

Why must contracts comply with the law?

Because the provisions of applicable laws are considered part of every contract.

What is the effect of acts contrary to mandatory or prohibitory laws?

They are generally void unless the law itself allows their validity.

What are morals?

Morals refer to society's norms of good and right conduct.

Can a contract contrary to morals be valid?

No. A contract contrary to morals is void.

Example of a contract contrary to morals?

An agreement requiring a person to render service without compensation as payment for a debt.

What are customs?

Customs are habits and practices that, through long usage, are followed by society as rules of conduct.

What are good customs?

Accepted practices and standards of proper behavior recognized by society.

Can a contract violate good customs?

No. A contract contrary to good customs is void.

Example of a contract contrary to good customs?

An agreement where a person promises to disrespect or harm a parent in exchange for money.

What is public order?

Public order mainly refers to public safety and public welfare.

Example of a contract contrary to public order?

A lease agreement allowing a landlord to use force to eject a tenant.

What is public policy?

Public policy refers to principles that promote the common good and public interest.

Is public policy broader than public order?

Yes. Public policy covers not only public safety but also broader considerations involving the common good.

Example of a contract contrary to public policy?

An agreement where a victim accepts money in exchange for preventing the prosecution of a crime.

What does Article 1307 provide?

Innominate contracts shall be regulated by:

1. The stipulations of the parties

2. The provisions of Titles I and II of the Civil Code Book

3. The rules governing the most analogous nominate contracts

4. The customs of the place

What are the two classifications of contracts according to name or designation?

• Nominate contract

• Innominate contract

What is a nominate contract?

A contract that has a specific name or designation in law.

Examples: Sale, lease, agency, mortgage, and commodatum.

What is an innominate contract?

A contract that has no specific name or designation in law.

What are the four kinds of innominate contracts?

• Do ut des – “I give that you may give.”

• Do ut facias – “I give that you may do.”

• Facio ut des – “I do that you may give.”

• Facio ut facias – “I do that you may do.”

What does do ut des mean?

“I give that you may give.”

Example: Giving something in exchange for another thing.

What does do ut facias mean?

“I give that you may do.”

Example: I give you something in exchange for you performing a service.

What does facio ut des mean?

“I do that you may give.”

Example: I perform a service in exchange for something given by you.

what does facio ut facias mean?

“I do that you may do.”

Example: I perform a service in exchange for you performing another service.

Why does the law recognize innominate contracts?

Because it is impossible for the law to anticipate and provide names for every possible agreement that people may create as society and economic relationships continue to evolve.

Does a contract need to have a specific name in the Civil Code to be valid?

No. It is sufficient that the contract possesses the elements of a valid contract.

What rules govern innominate contracts?

• The agreement of the parties

• The provisions of the Civil Code on obligations and contracts

• The rules governing the most analogous contracts

• The customs of the place

What does Article 1308 provide?

A contract must bind both contracting parties, and its validity or compliance cannot be left to the will of only one of them.

What principle is established under Article 1308?

The principle of mutuality of contracts.

What is the principle of mutuality of contracts?

A contract must be binding on both parties equally. One party cannot alone decide whether the contract is valid or whether they will comply with it.

Can one party alone renounce or violate a contract?

No. A party cannot unilaterally renounce or violate the contract without the consent of the other party.

Why must a contract bind both parties?

Because a contract has the force of law between the contracting parties.

S agrees to sell a car to B. Can S include a clause saying that the contract becomes invalid whenever S decides it is invalid?

No. Such a stipulation is void because it leaves the validity of the contract solely to the will of one party.

Can one party alone determine a contract price that automatically binds the other party?

No, unless the other party accepts the price. A contract requires mutual consent or a meeting of minds.