Relativity of Contracts

Article 1311 of the Civil Code By: Daniel Junior Domingo

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General Rule: contracts take effect only between the immediate parties Illus. case: Integrated Packaging Corp. v. CA 333scra170

It is not a contract pour autrui. Aforesaid contracts could not affect third persons like private respondents because of the basic civil law principle of relativity of contracts which provides that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof.

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Exception: the basic principle of relativity of contracts extends to the principal parties assigns and heirs.
A. By law (even without agreement of the parties) Example: by transfer of an interest in land, by marriage, death Illus. case: DKH Holdings Corp. v. CA 329scra666 Contract of Lease The sole heir must honor the contract because in inheriting the property, he acquired all the rights and obligations of the deceased lessor with respect to the property. He only succeeds to what rights his mother had and what is valid and binding against her is also valid and binding against him.

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# B. By agreement of the parties Example: a stipulation in the contract that replaces the contractor if the latter fails to finish the project on time

NOTE: If the transferee is the heir of the decedent, he shall not be held liable beyond the value of the property he received from the decedent.

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Exception to the exception (extension to the assigns and heirs):
A. When the nature of the contract does not allow transmission.
Example: Where acts stipulated in a contract require the exercise of special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity.

The contract terminates on the death of the party who is required to render such service.

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B. When the parties stipulate that no transmission of rights shall be allowed.
Example: when a contract of lease provides that the property cannot be subleased and the unauthorized sublease shall allow the lessor to terminate the contract of lease C. When the law provides non transmission Example: Article 1649 of the Civil Code. the lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary.

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Art. 1311 Par. 2 is a restatement of a stipulation pour autrui Stipulation pour autrui It is a stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its fulfillment provided he communicates his acceptance to the obligor before its revocation.

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Requisites of stipulation pour autrui.
1. there must be a stipulation in favor of a third person 2. the stipulation must be a part, not the whole of the contract; 3. the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest; 4. Neither of the contracting parties bears the legal representation or authorization of the third party; 5. The favored party must have communicated his acceptance of the stipulation to the obligor before its revocation.

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It is unnecessary that such third person be always named in the contract. It is not necessary as a general rule for the third party to make a formal acceptance prior to bringing of the suit. The assent of the beneficiary will be PRESUMED. The commencement of an action to enforce a promise is sufficient as an acceptance.

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Illus. case: Mandarin Villa, Inc. v. CA 257scra538
The MERCHANT shall honor validly issued PCCCI credit cards presented by their corresponding holders in the purchase of goods and/or services supplied by it provided that the card expiration date has not elapsed and the card number does not appear on the latest cancellation bulletin of lost, suspended and canceled PCCCI credit cards and, no signs of tampering, alterations or irregularities appear on the face of the credit card.

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While private respondent may not be a party to the said agreement, the above quoted stipulation conferred a favor upon the private respondent, a holder of credit card validly issued by BANKARD. This stipulation is a stipulation pour autrui and under Art. 1311 of the Civil Code private respondent may demand its fulfillment provided he communicated his acceptance to the petitioner before its revocation. In this case, private respondents offer to pay by means of his BANKARD credit card constitutes only an acceptance of the said stipulation but also an explicit communication of his acceptance to the obligor.