CHAPTER I – General Provisions (Articles 1305-1317)

TITLE II - CONTRACTS
(Articles 1305-1422, New Civil Code)

CHAPTER 1 – GENERAL PROVISIONS

(Arts. 1305-1317)

STUDY GUIDE : (WEEKS 10 & 11 –

11 & 14 September 2015)

1. What is a contract? (Art. 1305)

 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.

2. Contracts distinguished from obligations and agreements.

 There can be no contract if there is no obligation. But an
obligation may exist without a contract.
 All contracts are agreements but not all agreements are
contracts.

3. What are the basic principles governing contracts?

(a) Autonomy or Liberty of Contracts – “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)

 READ THESE CASES IN THEIR ORIGINAL TEXT:

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 William Golangco Construction Corporation

(WGCC) vs. PCIB, G.R. No. 142830, March 24,
2006.
 Sesbreño vs. Court of Appeals, G.R. No. 117438,
June 8, 1995.

(b) Mutuality of Contracts – “The contract must bind both

contracting parties, its validity or compliance cannot be left to the will of
one of them.” (Art. 1308)
(b.1) The determination of the performance of a contract may be
left to a third person whose decision, however, must be equitable or
fair, and made known to both parties. (Arts. 1309-1310)

(c) Consensuality of Contracts – As a general rule,

contracts are perfected by mere consent. (Art. 1315)

(d) Relativity of Contracts – As a general rule, contracts

take effect only between the parties, their assigns and heirs. (Art. 1311)
The following are the EXCEPTIONS :

(d.1) Where the obligations arising from the contract are not
transmissible by their very nature, by stipulation or by provision of law.
(Art. 1311, par. 1)

(d.2) In contracts containing a stipulation pour autrui

(Art. 1311, par. 2) .
 It is very important that the third person communicate his
acceptance of the favor to the obligor before its revocation.

(d.3) In contracts creating real rights, third persons who come

into possession of the object of the contract are bound thereby.
(Art. 1312)

(d.4) In contracts entered into to defraud creditors. (Art. 1313)

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(d.5) In contracts which have been violated at the inducement of

a third person. (Art. 1313)
 READ THESE CASES IN THEIR ORIGINAL TEXT:

 Naawan Community Rural Bank, Inc. vs. Court of

Appeals, G.R. No. 128573, January 13, 2003.

 Ace Foods, Inc. vs. Micro Pacific Technologies Co.,

Ltd., G.R. No. 200602, December 11, 2013.

(e) Obligatory Force of Contracts – “Obligations arising

from contracts have the force of law between the contracting parties and
should be complied with in good faith.” (Art. 1159) From the moment a
contract is perfected, “the parties are 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)

4. What are the different stages in the life of a contract?

(a) Conception (preparation or negotiation) – It

includes all the negotiations or steps taken by the parties leading to the
perfection of the contract. At this stage, the parties have not yet arrived at
any definite agreement.

(b) Perfection or birth – This is when the parties have

come to a definite agreement or meeting of the minds regarding the
subject matter and cause of the contract (Art. 1319). At this stage, there
is already a concurrence of all the essential elements or requisites of a
contract.

(c) Consummation or termination – This is when the

parties have performed their respective obligations and the contract may

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be said to have been fully accomplished or executed, resulting in the

extinguishment or termination thereof.

5. What are the kinds of contracts according to perfection or formation?

(a) Consensual – perfected by mere consent.
(Art. 1315)

(b) Real – perfected by the delivery of the thing object of

the contract. (Art. 1316)

(c) Solemn – perfected after compliance with certain

legal formalities. (Art. 1356)

6. The general rule is that a person cannot be bound by the contract of

another. A person (principal), however, may be bound by the contract
entered into in his name by another (agent) when the following requisites
concur :

(a) When the person entering into the contract (agent) is duly
authorized by, or has the legal right to represent, the
person in whose behalf he is acting (principal); and
(b) He acts within the authority given. (Art. 1317)

 READ THIS CASE IN ITS ORIGINAL TEXT:

 Frias vs. Esquivel, G.R. No. L-24679, October 30, 1975.

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APPLICATION/PROBLEMS :

1. D owes C 100,000.00. On maturity date, since D did not have

the money to pay C, D obliged himself to work as C’s servant, without
pay, until such time that D could find the money with which to pay her
debt. Later, D left the house of C without paying her debt, so C filed an
action against D to compel her to pay and/or work as a servant without
pay until D had the means to pay his debt. D, however, refused to fulfil
his obligation, and instead asked payment for services already rendered
to C. Decide on the parties’ claims.

2. On New Year’s Eve, George witnessed Allan indiscriminately fire

his gun. In the course thereof, a four-year old boy who was in the
surrounding area was hit by a stray bullet and died instantaneously. As a
result of the incident, a case for homicide was filed by the parents of the
boy against Allan. George was summoned as a witness in the case.
Shortly before the scheduled hearing, Allan went to the house of George,
and offered George the amount of P300,000.00 as long as George would
not testify in the case against Allan. George agreed not to testify, and
accepted the P300,000.00 offered by Allan. On the hearing date,
however, George testified. Allan was subsequently convicted on the basis
of the testimony of George. Allan, now, seeks to recover from George the
P300,000.00 on the ground that George did not comply in good faith with
his obligations under their contract. Can Allan recover the P300,000.00
from George?

3. On July 15, 2016, Edna sold her car to Elvie for P1.5M. Payment
for and delivery of the car was set on August 15, 2016. On July 30, 2016,
Edna called Elvie and pleaded if it was alright to cancel the sale
considering that Edna’s son passed the entrance test to the Ateneo Law
School, and needed the car. Elvie, however, refused, and demanded for

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the delivery of the car on the agreed date. May Edna be compelled to
deliver despite her son’s urgent transport needs?

4. On July 15, 2016, Jowell sold his land to Carlito for P4M. Later
on, the title to the land was transferred to Carlito. It appears, however,
that Carlito still owed Jowell a portion of the purchase price in the amount
of P500,000.00. As of September 5, 2016, Carlito, despite repeated
demands from Jowell, failed to pay the remaining P500,000.00 balance.
As it now stands, Jowell gave up all hope on his claim. When his best
friend Ricky learned about the non-payment, and Jowell’s inability to
collect the P500,000.00, Ricky was annoyed. To vindicate his friend,
Ricky filed an action against Carlito demanding that Carlito pay Jowell the
remaining balance on the land purchased. Does Ricky’s action have legal
basis?

5. Ambert owes Gina P500,000.00 due on September 15, 2016, plus

10% interest in the amount of P50,000.00. It was agreed by the parties
that Ambert will pay Gina the principal amount of P500,000.00. The
interest payment in the amount of P50,000.00 will, however, be paid to
Charlie, who is a creditor of Gina. Charlie was informed of the aforesaid
stipulation in his favor. On August 30, 2016, Gina called Ambert and
requested him to deliver to her on maturity date of the obligation both the
principal amount and the interest as she was in dire need of money for her
son’s operation. Ambert agreed. On September 15, 2016, can Charlie
demand from Ambert payment of the P50,000.00 pursuant to the
stipulation of which he was earlier informed?

6. Pia owes Dindo P5M due on August 30, 2016. To secure the
obligation, Pia mortgaged her house and lot worth P8M to Dindo. The
Deed of Mortgage was notarized and registered with the Register of
Deeds. On July 28, 2016, Pia was able to sell her house and lot to Roger
for P10M. After Roger paid the purchase price, he immediately took
possession of the premises. On August 30, 2016, Pia failed to pay her
obligation to Dindo despite repeated demands. Hence, Dindo filed an
action to foreclose the mortgage on Pia’s house and lot. Under the factual

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circumstances obtaining, can Dindo still succeed in causing the sale of the
mortgaged property at public auction to pay for Pia’s obligation?

7. Kerwin owes Thea P3M due on September 15, 2016. On due

date, Kerwin was insolvent and did not have any property with which to
settle his obligation. Thea, however, came to know that on August 13,
2016, Kerwin sold his only remaining property, a 200 square-meter lot in
Makati, to Jordan for P4.5M, but Kerwin squandered all the proceeds in a
span of 1 week while playing in the casino. Thea also found out that
Jordan bought the property despite knowing that Kerwin was already
insolvent, and still owed Thea P3M. Under the circumstances, can Thea,
who is a stranger in the contract of sale between Kerwin and Jordan, file
an action to set aside the sale?

8. Lea signed as an exclusive recording artist for two years with ABC
Productions for a contract price of P10 million. It was stipulated that
should Lea breach her contract, she will be liable for penalty amounting to
P2 million. Three months after the signing, Lea met her high school
classmate Rona, who was working with DEF Productions. Rona told Lea
that if she signed the recording contract with DEF, the company was
willing to give her P20 million for the same two-year period. Because of
the offer, Lea signed another exclusive recording contract with DEF
Productions. Because of the breach, ABC Productions suffered damages
amounting to P10 million. Can Rona, who is not a party to their contract,
be made liable by ABC Productions for damages? If so, how much?

9. On June 15, 2016, Art agreed to sell his BMW car to Tina for P8
million. The parties agreed that delivery of the car and payment of the
purchase price will be made on September 15, 2016. Can we say here
that as of June 15, 2016, there was already a perfected contract of sale
between Art and Tina?

10. On July 5, 2016, Rene borrowed from Risa P600,000.00 due for
payment on August 30, 2016. To secure the obligation, Rene promised to
deliver to Risa his Rolex watch worth P750,000.00. On August 30, 2016,
Rene failed to pay his obligation despite repeated demands from Risa.

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Hence, Risa filed an action for collection and asked the court to compel
Rene to deliver the Rolex watch as he had promised, so that she may
cause its sale at public auction to cover the indebtedness. Will Risa’s
instant prayer prosper?

*** END ***

FOOD FOR THOUGHT

“Don’t wish it were easier. Wish you were better.”

Jim Rohn

“A good idea is about ten percent, and implementation and hard work, and luck is 90%.”
Guy Kawasaki

“I’m a greater believer in luck and I find the harder I work the more I have of it.”
Thomas Jefferson

“All growth depends upon activity.

There is no development physically or intellectually without effort,
and effort means work.”
Calvin Coolidge

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