BOOK

IV, TITLE II:CONTRACTS o Contract entered into by one

CHAPTER 1: GENERAL PROVISIONS person representing two parties
o Recognized by the NCC
Article 1890. If the agent has been empowered to
INTRODUCTION borrow money, he may himself be the lender at the
• Obligations are always expressed; cannot be current rate of interest. If he has been authorized to
implied or presumed. lend money at interest, he cannot borrow it without
the consent of the principal. (n)
• However,obligations arising from contracts,
o Agent may be authorized to get a
MAY BE PRESUMED
loan for a principal; same agent
*1997 Bar Question: comment on the definition of
may provide that loan; the agent
contracts in Art. 1305
Article 1305. A contract is a meeting of minds between two persons will sign as a borrow for the
whereby one binds himself, with respect to the other, to give agent and as a lender
something or to render some service. (1254a)
COMMENT: STAGES/LIFE OF A CONTRACT:
1. IT IS INCOMPLETE It is very important because you have to determine
Ø the concept in Art. 1305 is limited to: when the juridical tie is established; only from that
1. Consensual contracts (those with C- moment when parties be bound by the agreement;
O-C) complied with in good faith
- not include formal and real contracts 1. CONCEPTUALIZATION STAGE
- some contracts do not comply with • Offer is made and acceptance not yet
C-O-C expressed
a. Formal Contracts : need a • Negotiation stage
specific form • Juridical tie does not exist yet
b. Real contracts – to be • NO CAUSE OF ACTION
executor, need a delivery 2. EXECUTORY STAGE
(Art. 1316) – Eg: contract of
• Juridical Ties IS MADE
deposit [commodatum] – ask
• Binding upon the parties
a depositor to keep the
• THERE IS A CAUSE OF ACTION
property that belongs to you,
• There is a concurrence of offer and
even if he agrees to deposit,
unless the thing is delivered, acceptance
the contract of deposit is not • Contract is executor
executor. 3. EXECUTED STAGE
2. Unilateral Contracts • Extinguished juridical tie
- those contracts that are reciprocal; • No cause of action anymore
the definition does not cover it • They do their obligation and they use
3. Contracts that create obligations their rights
- because contracts entered into • no more contract
maybe for an extinguishment of an • no longer actionable
obligation – mutual dissent CASE:
2. IT IS DEFECTIVE Sps. Llenado v. Llenado [GR NO. 145736, March 4,
Ø makes it appear that it needs TWO 2009]
PERSON – when in fact it should be two - the lessees were given an option to
parties. renew the contract for another term
Ø one person can enter into a VALID upon the expiration
CONTRACT – - SC: must be exercised when the
Ø AUTO CONTRACT contract is in its executory stage
o One person but two parties - It was done in the executed stage.

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 - Lessee did not inform the lessor the -
PAL case: female flight attendant got
willingness to execute option when married and got fired by PAL because
the term was still valid it was stipulated in their contract
- Lessor: existing option prior to that they are not allowed to get
expiration is deemed executed married; SC: stipulation is void
- Sc: lessee has no valid cause of because contrary to constitutional
action because the contract had provision on supporting and
been deemed executed already promoting family
- Minimum wage Law : labor
Contracts are agreements; but not all agreements standards
are contracts because if an agreement is not a - Adhesion contracts “ take it or leave
contract, there will be no cause of action. it” – only one of the contracting
*Review BF/GF example parties gives a proposal and the
other will accept or reject it
But how does one determine if it is a contract or an - If protests, there is a counter-offer
agreement? Know the characteristics of a contract. - Construed always in favor of those
at a disadvantage.
CHARACTERISTICS OF A CONTRACT
1. AUTONOMY 2. MUTUALITY
Article 1308. The contract must bind both contracting
Article 1306. The contracting parties may establish such parties; its validity or compliance cannot be left to the will
stipulations, clauses, terms and conditions as they may of one of them. (1256a)
deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
(1255a) • Agreed to by parties and decision cannot
be left to just one or few;
• This is in relation to the non-impairment • Must be agreed to by all parties
clause in Art. III, Sec. 10 of the • Mutual consent
Constitution A. VALIDITY OF CONTRACT
• Emphasizes a person’s right to contract - power to determine whether or not
• The state cannot interfere or change the content is valid and cannot be left
tenor of the obligation with one party
• There is a certain independence B. COMPLIANCE OF THE CONTRACT
• May enter stipulations, clauses, -power to determine whether or not the
covenants – binding with you and the contract will be fulfilled
other party - power to terminate, however, is not
• Independent of third forces included
EXCEPTIONS / LIMITATIONS : Case: Encarnacion v. Baldomar [ GR No. L-
a. Stipulations should not be contrary to 264, Oct. 4, 1946 ]
law, morals, good customs, public order and - lease where a provision giving the
public policy lessee the right to decide whether or
- if it contrary to such, the Courts not to continue with lease by
may interfere. They may be ceased in requiring to continuously pay rent
lieu of polic power and allowing the lessee the right to
b. PARENS PATRIAE determine when to end by simply
- contracts where one of the parties is discontinuining
at an undue advantage insofar as the - sc: VOID AGREEMENT: against
other is concerned mutuality. This is different in the
- gave rise to social legislation option to extend.

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 LLENADO CASE ENCARNACION & the property he received from the decedent.
If a contract should contain some stipulation in favor of a
CABANCALAN CASE third person, he may demand its fulfillment provided he
Not violative of Violative of mutuality communicated his acceptance to the obligor before its
mutuality revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have
Option to renew is in No period fixed;; lease clearly and deliberately conferred a favor upon a third
fact an option to did not cary nay fixed person. (1257a)
Article 1312. In contracts creating real rights, third persons
terminate ; allowed; not term for the validity of
who come into possession of the object of the contract are
to decide on his; there is the contract – deemed bound thereby, subject to the provisions of the Mortgage
a term fixed; executed; It was open- Law and the Land Registration Laws. (n)
Article 1313. Creditors are protected in cases of contracts
ended
intended to defraud them. (n) Article 1314. Any third
person who induces another to violate his contract shall be
CASE: Phil. Savings Bank v. Sps. Castillo [ GR No. liable for damages to the other contracting party.
(n)
193178, May 30, 2011] Article 1315. Contracts are perfected by mere consent, and
- unilateral determination and from that moment the parties are bound not only to the
imposition of increased sales of fulfillment of what has been expressly stipulated but also to
all the consequences which, according to their nature, may
interest of loan is violative of be in keeping with good faith, usage and law. (1258)
mutuality; because when the Article 1316. Real contracts, such as deposit, pledge and
currency increases, the interest also commodatum, are not perfected until the delivery of the
object of the obligation. (n)
increases but if not, no decrease. Article 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has by
TEST FOR VIOLATION: Whether or not one of the law a right to represent him.
A contract entered into in the name of another by one who
parties may be prejudiced or damaged by the sole has no authority or legal representation, or who has acted
decision of the other beyond his powers, shall be unenforceable, unless it is
Reason: purely potestative obligations – art. ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the
1182 – if condition is solely dependent of the will of other contracting party. (1259a)
debtor- it is void
• Relation; relatives; binding efficacy
EXCEPTION: If the determination of the validity is
• Obligatory effect
delegated to a 3rd party.
Article 1309. The determination of the performance may be left to a
RULE: binding only between the parties, heirs, and
third person, whose decision shall not be binding until it has been assignees.
made known to both contracting parties. (n)
Article 1310. The determination shall not be obligatory if it is
evidently inequitable. In such case, the courts shall decide what is
LIMITATIONS ON RULE OF RELATIVITY:
equitable under the circumstances. (n) Article 1178. Subject to the laws, all rights acquired in virtue of an
obligation are transmissible, if there has been no stipulation to the
contrary. (1112)
3. OBLIGATORY 1. Rights of the obligation arising from
Article 1159. Obligations arising from contracts have the
force of law between the contracting parties and should be
contracts ARE NOT TRANSMISSIBLE
complied with in good faith. (1091a) a. Agreement of parties
• Binding between parties b. Law does not allow transmission
• Stipulation and conditions have the force of c. Nature of the obligation of the rights
law between the parties and must be are not transmissible
complied with in good faith. 2. Heirs and extent of the liability for the
obligation arising from contracts by
4. RELATIVITY inheritance—limited only to the amount of
Article 1311. Contracts take effect only between the successional rights
parties, their assigns and heirs, except in case where the ART. 1311(2): The heir is not liable beyond the value of the
rights and obligations arising from the contract are not property he received from the decedent.
transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of
EXCEPTIONS TO THE RULE OF RELATIVITY:
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 1. When the party transfers to a 3rd person the o The 3rd person should respect that
rights they acquire in a contract real right; he does not have a better
o 3rd person happens to be an assignee right to the object of the obligation
also 5. In suspension of payments and
o In general, the assignee are those third compositions under Insolvency Law
parties who by LAW accepts the rights of 6. Labor Contracts of CBA – with union
a creditor thru legal subrogation or o Non-union members are NOT parties
reimbursement; by the operation of law to a contract in the CBA; in the Labor
o In this type of assignment, assignee is Code, non-union members will also
effected by the agreement of the parties enjoy the rights of the CBA if they
o Legal subrogation – when a 3rd party pay the union dues.
consents to it 7. Negotiorum Gestio (For finals)
2. Contracts with a stipulation in favor of a 3rd Article 2150. Although the officious management may not
have been expressly ratified, the owner of the property or
person – POUR AURTRUI – BENEFICIAL business who enjoys the advantages of the same shall be
STIPULATION liable for obligations incurred in his interest, and shall
o Accessory contract; also an reimburse the officious manager for the necessary and
useful expenses and for the damages which the latter may
exception in cases of novation have suffered in the performance of his duties.
o Definition: parties clearly and The same obligation shall be incumbent upon him when
deliberately stipulated a third person the management had for its purpose the prevention of an
imminent and manifest loss, although no benefit may have
to benefit from the contract and been derived. (1893)
such beneficiary accepts it before it Article 2151. Even though the owner did not derive any
was revoked benefit and there has been no imminent and manifest
danger to the property or business, the owner is liable as
o The debtor extended the benefit to under the first paragraph of the preceding article,
the third person provided:
o Promimssor, promissee, beneficiary (1) The officious manager has acted in good faith, and
(2) The property or business is intact, ready to be returned
– should give his consent to the owner. (n)
3. Art. 1313 Creditors are protected in cases of 8. TORTIOUS INTERFERENCE
contracts intended to defraud them.(n) Article 1314. Any third person who induces another to violate his
o This is one of the remedies; related contract shall be liable for damages to the other contracting party.
to Art. 177 o When a party interferes, and induces
Remedies: (in this order) another to not push thru with the
1. Specific Performance contract.
2. Payment by Cession Requisites:
3. If still not enough, accion pauliana, 1. EXISTENCE of a valid contract – must be in
rescissible action executory stage
4. Subrogatory action – accion subrogatoria 2. KNOWLEDGE of a 3rd party of a contract
3. INTERFERENCE without any justification
4. Article 1312. In contracts creating real rights, CASE: Jose Lagon v. CA [GR NO.119107, March 18,
third persons who come into possession of the 2005]
object of the contract are bound thereby, subject to - justification for interfering with
the provisions of the Mortgage Law and the Land business of another exists when
Registration Laws. (n) motive is to benefit himself; not
o This is also an exception because guilty of tortious interference
such 3rd person is not an heir, - if for the business, it is valid.
assignee, or the party However, there may be claim for
o Such 3rd person is bound because of damages – only as to the contracting
the real right created that is party, not the 3rd party.
enforceable against the whole world Issue: you will have a cause of action, two
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 debtors—seller & 3rd party ; is it joint or
solidary?
Two views:
• Caguiao – joint; source of obligation for
seller and 3rd party is different—quasi-delict
and contract – not solidary
• CODE OF COMMERCE – joint
Ergo, need to determine if the contract involved is
COMMERCIAL or CIVIL
COMMERCIAL CIVIL CONTRACT
CONTRACT
One or both parties are Only one instance and
in the activity for profit not regularly; once in a
regularly lifetime
SOLIDARY liability JOINT liability

9. Article 1336. Violence or intimidation shall annul the obligation,
although it may have been employed by a third person who did not
take part in the contract. (1268)
10. Article 1652. The sublessee is subsidiarily liable to the lessor for
any rent due from the lessee. However, the sublessee shall not be
responsible beyond the amount of rent due from him, in accordance
with the terms of the sublease, at the time of the extra-judicial
demand by the lessor.
Payments of rent in advance by the sublessee shall be deemed not to
have been made, so far as the lessor's claim is concerned, unless said
payments were effected in virtue of the custom of the place. (1552a)
11. Article 1729. Those who put their labor upon or furnish
materials for a piece of work undertaken by the contractor have an
action against the owner up to the amount owing from the latter to
the contractor at the time the claim is made. However, the following
shall not prejudice the laborers, employees and furnishers of
materials:
(1) Payments made by the owner to the contractor before they are
due;
(2) Renunciation by the contractor of any amount due him from the
owner. This article is subject to the provisions of special laws. (1597a)
12. Article 1893. In the cases mentioned in Nos. 1 and 2 of the
preceding article, the principal may furthermore bring an action
against the substitute with respect to the obligations which the latter
has contracted under the substitution. (1722a)

13. Article 1608. The vendor may bring his action against every
possessor whose right is derived from the vendee, even if in the
second contract no mention should have been made of the right to
repurchase, without prejudice to the provisions of the Mortgage Law
and the Land Registration Law with respect to third persons. (1510)







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