GENERAL PROVISIONS
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. (1254a)
The above article defines the term Contract. In a contract, one or more persons bind themselves with respect to another or reciprocally, to the fulfillment of a presentation to give, to do or not to do.
Elements of a contract:
1. Essential elements – those elements without which there can be no valid contract.
This element are consent, object or subject matter and cause or consideration
2. Natural elements – those elements which are found in a contract by its nature and presumed by law to exist, such as Warranty of hidden defects or eviction in contract of sale.
3. Accidental elements - those which exist by virtue of an agreement for the purpose of expanding, limiting, or modifying a contract. Such accidental elements are condition, clauses, terms, modes of payment, or penalties.
Stages of a contract:
1. Preparatory or conception – process of formation such as bargaining, negotiation to arrive at a define contract.
2. Perfection or birth – there is now a meeting of minds to arrive at a definite agreement as to the subject matter, cause or consideration, terms and conditions of contract.
3. Consumption or death – which is the fulfillment or performance of the terms and conditions agreed upon in the contract may be said to have been fully accomplished or executed.
Characteristics of a contract:
1. Freedom to contract – they may establish terms and conditions as they may deem convenient.
2. Relativity – it is binding only upon the parties and their successors.
3. Obligatory force – it constitutes the law as between the parties.
4. Mutuality – its validity and performance cannot be left to the wil of only one of the parties.
Classifications of a contract:
1. As to perfection
a. Consensual – one which is perfected by mere consent (Art. 1315
b. Real Contract – perfected by mere consent and by the delivery of the object or subject matter. Ex. Deposit, pledge, or commodatum.
2. As to dependence to other contract.
a. Principal – one which can stand alone. Ex. A contract of sale, lease.
b. Accessory – those which are dependent upon another contract. Ex. Contract of mortgage, pledge of guaranty.
c. Preparatory – those which is created in order that a future transaction or contract may
3. According to name or designation
a. Nominate – one which has particular name or designation such as sale, agency, etc.
b. Innominate – those without particular name.
4. According to the nature of obligation
a. Unilateral – where only one has an obligation to perform. Ex. Contract of donation, commodation.
b. Bilateral – where both parties have reciprocal obligation to perform. Ex. Sale.
5. According to risk involved
a. Commutative - where there is an exchange of values, such as lease.
b. Aleatory - one which the fulfillment of the obligation depends upon chance. Ex.
Contract of insurance.
6. According to cause
a. Onerous – one which imposes valuable consideration such as sale, mortgage.
b. Gratuitous – one which one of the parties does not receive any valuable consideration, such as commodatum.
7. According to form
a. Oral – by word of mouth of the parties
b. Written – the agreement which is reduced in writing which may be public or private or private document
Art. 1306. 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. (1255a)
Limitations on the Nature of Stipulations:
a.) the law b.) morals
c.) good customs d.) public order e.) public policy
Example: Dan lost in gambling and as payment, executed a promissory note in favor of the winner Carl. Carl then assigned the note to Art. May Art successfully recover from Dan? No, because the promissory note is void. Just as the winner cannot recover, so also cannot the assignee.
Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place. (n)
Governing rules for innominate contracts a.) stipulations
b.) Titles I & II of Book IV – Obligations & Contracts c.) Rules on the most ANALOGOUS nominate contracts d.) Customs of the place
4 Kinds of Innominate Contracts a.) do ut des ( I give that you may give) b.) do ut facias (I give that you may do) c.) Facio ut des (I do that you may give) d.) Facio ut facias (I do that you may do)
Example: In a contract, the provisions of which were very similar to a lease contract, both parties agreed that the same should not be regarded as a lease. I the stipulation valid? Yes because, there is no legal provision prohibiting such a stipulation. Generally, whatever is agreed upon is binding, particularly in a consensual contract such as lease.)
Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (1256a)
Contracts entered by and between the parties mush bind both parties in order that it can be enforced against each other. This is also known as “mutuality of contract”. Hence, its validity or compliance cannot be left to the will of one of them. This principle is based on the essential equality of the parties. It is elementary rule that no party can renounce or violate the law of the contract without the consent of the other. (11 Manresa 380)
Example: Lleina and Ria entered into a contract to sell whereby Lleina binds herself to sell her only parcel of land to Ria if Lleina decides to leave for States. The contract is void because the fulfillment of the condition depends on the will of Lleina.
Art. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties.
(n)
Example: In a contract of sale, the fixing of the price and the delivery date can be left to a third person. The decision binds the parties only after it is made known to both.
Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. (n)
As a rule, compliance with a contract cannot be left to the will of one of the contracting parties. However, the determination of its performance may be left to a third person after it has been made known to both contracting parties. Provided, further, the parties are not bound by the determination if it is evidently inequitable or unjust when the third person acted in bad faith or by mistake, the courts shall decide what is equitable under the circumstances.
Example, Ria sold her parcel of land to Lleina. It was agreed that May, a real estate appraiser would be the one to determine the reasonable price of the land. May, then, fixed the price after considering the factors affecting the value of the land, and informing both contracting party that the decision is just and suitable. If the decision made by May is manifestly inequitable, the court may be called upon to decide what is equitable.
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (1257a)
Cases Where Third person May Be Affected By a Contract 1. In determining the performance of both parties (Art. 1309).
2. In contracts containing a stipulation in favor of a third person (Art. 1311).
3. In contracts creating real rights (Art. 1312).
4. In contracts entered into to defraud creditor (Art. 1313).
5. In contracts which have been violated at the inducement of the third person (Art. 314).
Example: Ria mortgaged her parcel of land in favor of Lleina as collateral for her debt. The mortgage is duly registered. Later on, Ria sold the same land to Tonix. In this case, Tonix bought the land subject to the mortgage constituted thereon. Tonix, although a stranger in the mortgage, being a real right follows the property on the right of Lleina to the mortgage.
Art. 1312. In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws. (n)
This article constitutes one of the exceptions to the general rule that a contract binds only the parties.
Example: If Art should purchase an apartment house from the owner but there is a lease thereon, Art must respect the lease, if the same is registered in the Registry of Property, or if Art has actual knowledge of the existence and duration of the lease. Similarly, the purchaser of land must respect a mortgage constituted thereon, under the same circumstances given hereinabove.
Art. 1313. Creditors are protected in cases of contracts intended to defraud them. (n) This Article represents another instance when an outsider can in a sense interfere with another’s contract.
Example: If Lleina gratuitously gives Jack a parcel of land, and Lleina has no other property or cash left to satisfy his creditors, sad creditors may ask for the recission of the contract, to the extent that they have been prejudiced
Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. (n)
Example: Steff, a move actress, has a one-year contract with XY studio. If Franco, a friend of Steff induces her, without any justifiable cause, to break the contract, then XY can sue Franco for damages.
Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment 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. (1258)
This article stresses the consensuality of contracts (perfection of contract by mere consent).
Salvador P. Malbarosa v. CA and S.E.A Development Corp, GR # 125761
Fact: From March 16, 1990 to April 3, 1990, petitioner had more than two weeks to accept the offer of respondent. Although petitioner avers that he had accepted the offer
of respondent on March 28, 1990, however, he failed to transmit to respondent the copy of the March 14, 1990 letter-offer bearing his conformity thereto.
Held: Unless and until the respondent received said copy of the letter-offer, it cannot be argued that a contract had already been perfected between petitioner and respondent.
Article 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party.
REQUISITE for a Person to Contract in the Name of Another If a person wants to contract in the name of another:
1. He must be duly authorized (expressly or impliedly); OR
2. He must have by law a right to represent him (like the guardian, or the administrator);
OR
3. The contract must be subsequently RATIFIED (expressly or impliedly, by word or by deed).
RATIFICATION means that one under no disability voluntarily adopts and gives sanction to some unauthorized act or defective proceeding, which without his sanction would not be binding on him.
Effect of RATIFICATION:
Ratification cleanses the contract from all its defects from the moment the contract was entered into. Hence there is retroactive effect.
NOTE: There can be no more ratification if the contract has previously been revoked by the other contracting party.
NOTE: An UNAUTHORIZED CONTRACT is a form of an UNENFORCEABLE CONTRACT.
ESSENTIAL REQUISITES OF CONTRACTS
Article 1318. There is no contract unless the following requisites concur:
(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.
ESSENTIAL REQUISITES OF CONSENSUAL CONTRACTS
The THREE essential requisites for consensual contracts are enumerated in this Article.
NOTE: Under the OLD Civil Code, “consideration” was the word used instead of “cause of the obligation.”
REAL CONTRACTS
Real contracts require a FOURTH REQUISITE – DELIVERY.
SOLEMN OR FORMAL CONTRACTS
This requires a FOURTH REQUISITE - Compliance with the formalities required by law.
Example: A simple donation inter vivos of land requires a public instrument for its perfection.
What CONSENT Presupposes
CONSENT presupposes LEGAL CAPACITY and the FULFILMENT of CONDITIONS, should any be attached.
EFFECT OF NON-CONSENT
If there is ABSOLUTELY NO CONSENT, there is NO CONTRACT. The agreement may be considered inexistent or non-existent or void. The same rule applies as in the case of
ABSOLUTELY SIMULATED CONTRACT, one where the parties never intended to be bound.
If there is a VICE OF CONSENT (vitiated consent), such as error, fraud, or undue influence, the contract is not void; it merely VOIDABLE.
Lack of Consent VERSUS Lack of Consideration
One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus, preventing the existence of a valid contract for LACK of CONSENT. This lack of consent is different from LACK OF CONSIDERATION where the contract states that the price has been paid when in fact, it has never been paid.
CONSENT
Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. (CONSENT) The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a COUNTER-OFFER.
ACCEPTANCE MADE BY LETTER OR TELEGRAM does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. (ACCEPTANCE THRU CORRESPONDENCE)
CONSENT as an ESSENTIAL REQUISITE
This Article emphasizes CONSNET, which is the first essential requisite of every contract. CONSENT is the meeting of the minds between the parties on the subject matter, and the cause of the contract, even if neither one has been delivered.
It is the manifestation of the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. (Article 1319, 1st Paragraph)
REQUISITES OF CONSENT (5) 1. There must be two or more parties.
2. One person may represent two or more parties, UNLESS there are uncontradictory or prejudicial interests involved.
3. The parties must be capable or capacitated.
4. There must be NO vitiation of consent.
5. There must be NO CONFLICT between what was expressly declared and what was really intended.
6. Otherwise the remedy may be reformation, as when the parties really intended to be bound, or else the contract is void, as when the contract is fictitious or absolutely simulated.
7. The INTENT must de declared properly (that is, whatever legal formalities are required must be complied with).
REQUISITES OF THE MEETING OF THE MINDS (2) 1. An OFFER must be CERTAIN.
In order than on offer may be considered certain, it must not be vague, misleading, or made as a joke.
If the offer is withdrawn before it is accepted, there is no meeting of the minds
NOTE: If two contracts are offered, but they are independent of each other, acceptance of one does not imply acceptance of the other. BUT if one contract depends upon another, like a contract of loan provided it is secured by a contract of mortgage, it is essential that there be an agreement on both transactions. Otherwise, there can be as yet no meeting of the minds.
2. And an ACCPETANCE that must be UNQUALIFIED and ABSOLUTE.
NOTE: If the acceptance is qualified, let us say by a condition, this merely constitutes a COUNTER-OFFER.
If there is COMPLETELY NO ACCEPTANCE, or if the OFFER IS EXPRESSLY REJECTED, there is NO MEETING OF THE MINDS.
If the acceptance is QUALIFIED or not absolute, there is no concurrence of minds. This merely constitutes a COUNTER-OFFER.
A COUNTER-OFFER as a matter of fact extinguishes the offer. Moreover, it may or may not be accepted by the original offeror.
QUERY:
A offered 20 fountain pens to B for P1,000 each. B answered by letter that he was willing to purchase 30 fountain pens at said price at P1,000 each. Is the contract perfected?
ANSWER:
It depends.
If B wanted 30 pens and would not be satisfied with less, the acceptance can be considered as qualified, so there has been no perfection yet.
If B was contented with 20 pens, but desired, if possible to get 10 more, there is perfected sale regarding the original 20, and an offer with respect to the extra ten.
Unless accepted in turn, there would be no contract yet with respect to the additional 10 fountain pens.
NOTE: If an offeror offers several distinct and separate items, and the offeree accepts one of them, the contract is perfected as to the item accepted.
ACCEPTANCE THRU CORRESPONDENCE
RULE: Acceptance made by letter or telegram DOES NOT BIND the offeror, EXCEPT from the time it came to his knowledge.
The knowledge may be actual or constructive (as when the letter of acceptance has been received in the house of the offeror by a person possessed of reasonable discernment). If actual knowledge be required, proof of this would almost impossible, for even when the letter containing the answer has been opened and read, the offeror can always claim, in some cases truthfully, that while he was reading the same, his mind was elsewhere, and he did not actually know the contents of the letter.
The contract in such a case is presumed to have been offered into in the place where the offer was made.
CASE:
On February 5, 1919, Arias wrote Laudico a letter, offering a lease contract. On March 6, 1919, Laudico wrote a letter of complete acceptance, which was received by Arias that same afternoon.
But that same morning Arias had already written Laudico a letter withdrawing the offer.
ISSUE: Was there a contract here?
ANSWER: No, because prior to receipt of the letter of acceptance, the offer had already been withdrawn. In other words, it does not matter that the letter of withdrawal may have been received later by the offeree than receipt of the letter of acceptance by the offeror.
ANSWER: No, because prior to receipt of the letter of acceptance, the offer had already been withdrawn. In other words, it does not matter that the letter of withdrawal may have been received later by the offeree than receipt of the letter of acceptance by the offeror.