JULY 24, 2019

CONTRACTS
CHRISTIAN EDLI P. CAZEÑAS
 WHAT IS A CONTRACT?

A contract is a meeting of minds between two

persons whereby one binds himself, with respect to
the other, to give something or to render some
service.

ART. 1305
 ELEMENTS OF A CONTRACT
ESSENTIAL ELEMENTS
Those without which there
will be no contract (Consent,
Object, Cause).
CONTRACTS | 2019
NATURAL ELEMENTS
Presumed to exist in certain
contacts unless the contrary
is expressly stipulated by the
parties. (Ex. Warranty against
hidden defects in sale)
ACCIDENTAL ELEMENTS
Particular stipulations, clauses,
terms or conditions established
by the parties in their contract.
(Ex. conditions, period, interest,
penalty)
STAGES OF
A CONTRACT PREPARATION PERFECTION CONSUMMATION
Preliminary negotiations, Point where there is a When parties perform the
bargaining, discussion of meeting of the minds terms agreed upon the
terms and conditions between parties on a contract
definite subject matter and
a valid cause
CLASSIFICATIONS OF CONTRACTS

ACCORDING TO PERFECTION

CONSENSUAL REAL FORMAL/SOLEMN

Those perfected by Those perfected by Those which must be in a
mere consent (ex. delivery (ex. form provided by law for
sale, lease) commodatum, pledge) perfection (ex. donation
of real property)
CLASSIFICATIONS OF CONTRACTS

ACCORDING TO CAUSE

ONEROUS GRATUITUOS REMUNERATORY

Those where there is Those where one party Those where the cause is
an exchange of receives no equivalent the service of benefit
valuable consideration. (ex. remunerated.
considerations (ex. donation)
sale or barter)
CLASSIFICATIONS OF CONTRACTS

ACCORDING TO DEPENDENCE OF ONE UPON ANOTHER

PRINCIPAL ACCESSORY PREPARATORY

One that can stand by One whose existence One which serves as
itself. (ex. sale, loan) depends upon another means by which other
contract. (ex. contract of contracts may be entered
mortgage is dependent into (ex. contract of
upon its principal agency, partnership)
contract of loan)
CLASSIFICATIONS OF CONTRACTS

ACCORDING TO SUBJECT MATTER

THINGS RIGHTS SERVICES

ex. sale or barter ex. usufruct ex. agency or lease of
service
CLASSIFICATIONS OF CONTRACTS

ACCORDING TO NAME

NOMINATE INNOMINATE
Those which have a Those without any name
name under the law under the law.
(ex. sale, loan, barter)
CLASSIFICATIONS OF CONTRACTS

ACCORDING TO PARTIES OBLIGATED

UNILATERAL BILATERAL
Only one of the Both parties are required
parties is obligated to to give or do
give or to do
BASIC PRINCIPLES OF CONTRACT

1. LIBERTY OF CONTRACT/ FREEDOM TO STIPULATE

Contracting parties are free to stipulate as long as it is not contrary to law, morals, good
customs, public order or public policy.

Creditor automatically becomes the owner of a property pledged or

mortgaged if the debtor defaults his payment. (contrary to law)
Stipulations that
Agreement to pay unconscionable rate of interest. (contrary to
are held VOID morals)
Agreement by the debtor to work without pay until he could find money to
pay the debt. (contrary to morals and considered as involuntary servitude)
BASIC PRINCIPLES OF CONTRACT

2. MUTUALITY OF CONTRACTS

The contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them.

Determination of perfomance by a third person

Third person's decision is not binding until it has been made known to both the
contracting parties.
If such determination is inequitable, it is not obligatory.
BASIC PRINCIPLES OF CONTRACT

3. RELATIVITY OF CONTRACTS

Contract take effect only between the parties, their assigns and heirs, except where
the rights and obligations are not transmissible by law, stipulation or nature.

With respect to the heir, he shall not be liable beyond the value of the property
received from the decedent.
BASIC PRINCIPLES OF CONTRACT

3. RELATIVITY OF CONTRACTS
When a contract may be enforced by or against a third person

A.) Stipulation Pour Autrui

When there is a stipulation that clearly and deliberately confer a favor upon a third person. Such third
person may demand fulfillment provided he has communicated his acceptance to the obligor before its
revocation.

Example. D obtained a loan from C amounting to P100,000. The parties agreed that
the loan shall bear an interest of 1% per month to be paid by D to X until the
principal is pain in full. The stipulation for the payment of interest to X who is not a
party to the contract is a stipulation pour autrui. X can sue on the contract although
he is not a party if he does not receive the interest.
BASIC PRINCIPLES OF CONTRACT

3. RELATIVITY OF CONTRACTS
When a contract may be enforced by or against a third person

B.) Inducement by third person

Where a third person induces another to violate his contract, in which case such third
person may be held liable for damages by the other contracting party.

Example. D has a contract for 5 years with XYZ Broadcasting Company. During the
second year of the contract, RST Radio Company, with knowledge of the existing
contract between D and XYZ, induced D to sign a contract as radio talent under
RST. XYZ may sue RST (and also D) for damages under the contract between D and
XYZ although RST is not a party thereto.
BASIC PRINCIPLES OF CONTRACT

3. RELATIVITY OF CONTRACTS
When a contract may be enforced by or against a third person

B.) In contracts creating real rights

Third person who come into possession of the object of the contract are bound thereby,
subject to provisions of the Mortgage Law and the Land Registration Laws.
BASIC PRINCIPLES OF CONTRACT

3. RELATIVITY OF CONTRACTS
When a contract may be enforced by or against a third person

B.) In contracts intended to defraud creditors

The law gives them protection. This is true if the third person acted in bad faith.

Example. D owed C P100,000. To defraud C, D sold his only lot to X who knew of D's
fraudulent intent. Here, C may sue for the rescission of the sale between D and X
although he was not a party to it.
BASIC PRINCIPLES OF CONTRACT

4. CONSENSUALITY OF CONTRACT

Contract are perfected by mere consent except:

Real contracts: perfected by delivery of the object
Formal contracts- perfected upon compliance in form required by law
BASIC PRINCIPLES OF CONTRACT

4. OBLIGATORY FORCE OF CONTRACT AND COMPLIANCE IN GOOD FAITH

Obligations arising from contracts shall have the force of law between the contracting
parties and should be complied with in good faith. Upon perfection, the parties are
bound to the following:
The fulfillment of what has been expressly stipulated
All the consequences which, according to their nature, may be in keeping with good
faith, usage and law.
ESSENTIAL ELEMENTS OF CONTRACT
CONSENT OBJECT CAUSE
 CONSENT
Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
ART. 1319
RULES ON OFFER

1. OFFER MUST BE CERTAIN; MUST BE DEFINITE, COMPLETE AND INTENTIONAL

Example. If S, who has several lots, offers to sell his lot to B without designating which of the lots he
is selling, the offer is not certain.

NATURE OF ADVERTISMENTS
Business advertisements of things for sale are not definite offers but mere invitations to make an
offer unless it appears otherwise.
Examples.
(1) An advertisement reads: "For sale: residential house on a 200 sq. meter lot at Green Billage for
P3M. Call 123-456: This is not an offer but a mere invitation to make an offer.

(2) "For sale, 3 bedroom bungalow on a 200 sq. meter lot located at No. 123 Molave Str. Bgy
Mayamot, Antipolo City for P2M cash." This is a definite offer because it contains all the matters
required of a contract
RULES ON OFFER

2. OFFER BECOMES INEFFECTIVE 

An offer becomes ineffective upon the death, civil interdiction, insanity, insolvency of either party
before acceptance is conveyed.

3. OFFER FOR A PERIOD

When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such withdrawal, except when the option is founded
upon a consideration, as something paid or promised.
RULES ON ACCEPTANCE

1. ACCEPTANCE MUST BE ABSOLUTE

If the acceptance varies the offer, there is no contract
If the acceptance is qualified, it constitutes a counter-offer and has the effect of rejecting the
offer.
Example. S offers to sell his car for P100,00 to B. B accepts the offer but is willing to pay the price of P95,00
only. The acceptance made by B is a qualified acceptance which constitutes a counter-offer. Accordingly, no
contract is perfected. However, if S accepts the counter-offer, then there will be a perfected contract at the
price of P95,000.

2. ACCEPTANCE BY LETTER OR TELEGRAM

Does not bind the offerer EXCEPT from the time it came to his knowledge
RULES ON ACCEPTANCE

3. ACCEPTANCE MAY BE EXPRESS OR IMPLIED

Express if made orally or in writing. Implied if it can be inferred from the conduct of the parties.
Example. If S  offers to sell a kilo of his mangoes to B for P20 and B without saying anything to S, takes the
mangoes and begins to eat one and offers the rest to others, then B is deemed to have impliedly accepted the
offer of S.

4. OFFER MADE THROUGH AGENT IS ACCEPTED FROM THE TIME IT IS

COMMUNICATED TO HIM
An agent is a mere extension of the personality of the principal. Therefore, accpetance by agent is
deemed acceptance by principal.
RULES ON CONSENT

1. PARTIES MUST HAVE CAPACITY TO GIVE CONSENT

The following cannot give consent to a contract and renders the
contract VOIDABLE (valid until annulled):

1. Unemancipated minors
emancipated when minor reaches 18 years of age
2. Insane or demented persons
If contract entered during lucid interval (period of temporary sanity), it
is valid
3. Deaf-mutes who do not know how to write
RULES ON CONSENT

2. CONTRACTS AGREED TO IN A STATE OF DRUNKENNESS OR DURING HYPNOTIC

SPELL IS VOIDABLE
WHY? Because consent given in such state is not freely and intelligently given
RULES ON CONSENT

3. WHEN CONSENT IS VITIATED, CONTRACT IS VOIDABLE

Causes that vitiate consent includes:
1. Mistake
2. Violence
3. Intimidation
4. Undue Influence
5. Fraud
OBJECTS OF CONTRACTS
REQUISITES:
1. Within the commerce of man
2. Transmissible
3. Not contrary to law, morals, good customs, public order and pubic policy
4. Not impossible
5. Must be determinate as to its kind. The fact that the quantity is not
determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new
contract between the parties.
CAUSE OF CONTRACTS

ONEROUS GRATUITUOS REMUNERATORY

Those where there is Those where one party Those where the cause is
an exchange of receives no equivalent the service of benefit
valuable consideration. (ex. remunerated.
considerations (ex. donation)
sale or barter)