CONTRACTS 1. Stipulation Pour Autrui (Art.

1311 2nd paragraph)

Define Contracts. 2. Contracts creating Real Rights ( Art. 1312)

- It is a meeting of minds between two (2) persons whereby one binds 3. Contracts entered to defraud creditors (Art. 1313 in relation to Art. 1381 par
himself, with respect to the other, to give something or render some service. 3)
(Art.1305)
4. Contracts which have been violated by the inducement of a third person
Difference between contract and obligation (Art. 1314)

Contract is considered as the cause and obligation as an effect. There are however
five (5) sources of an obligations and the most important among them is contracts.
Consequently, there can be an obligation without a contract, but there can be no
contract without a resulting obligation.
Under Article 1318, the COMMON ESSENTIAL ELEMENTS OF CONTRACTS
ARE AS FOLLOWS:
5. Consensuality of Contracts – Generally, all contracts are perfected by consent. One of
the essential elements of the contract is consent. Thus, even if some contracts require
other requisites, all contracts however must satisfy the element of consent. (Art. 1315)
Classification of Contracts
A. According to perfection or formation

1. Consent 1. Consensual – Perfected by mere consent

2. Object 2. Real – perfected by delivery

3. Cause or Consideration 3. Formal or Solemn – must be in proper form provided by law

PRINCIPLES OF CONTRACT B. According to cause

1. Obligatory In Force and Compliance in Good Faith – Article 1159
Though not a law, it has the same force of law. Parties are bound to observe the
terms of the contract with honesty and sincerity.
2. Autonomy of Contracts – principle that the contracting parties are free to enter into a
contract and to establish such stipulations, clauses, terms and conditions as they may
deem convenient save those that are contrary to law, public policy, morals, good
customs and public order. (Art.1306)
3. Mutuality of Contracts – an essential quality of the contacting parties whereby the
contract must bind both of them validity or compliance of the contracts should not be
left to the will of one of them. (Art.1308)
1. Onerous – that there is an exchange of valuable considerations ( such as sale, lease
and barter) For each contracting party, the cause is the prestation or the promise of a
thing or service by the other (Art. 1350)
2. Gratuitous or lucrative – Those where one party receives no equivalent
consideration (such as donation and commodatum). Contracts of pure beneficence
and the cause of which is the liberality of the benefactor. (See Article 1350)
3. Remunerative or remuneratory – Those where one prestation is given for a benefit
or service previously rendered. The cause of these contracts is the service or benefit
remunerated. (Art. 1350)
C. According to importance or dependence of one upon another

4. Relativity of Contracts – contracts take effect only between the parties, their assigns 1. Principal – one that can stand independently by itself ( such as sale, barter,
and heirs. (Art.1311) lease and loan.

Exceptions:
 2. Accessory – One whose existence depends upon another contract ( such as
pledge and mortgage which are dependent upon a principal contract such as
loan)
3. Preparatory – one which serves as a means which other contracts may be
entered into such as PARTNERSHIP AND AGENCY
D. According to name or designation
1. Nominate – those that have name under law ( such as sale, lease, barter etc)
2. Innominate – those without names (Art. 13007)
E. According to risk or fulfillment
1. Commutative – Those where the parties give equal or almost equal values
(such as sale and barter), hence, there is real fulfillment.
2. Aleatory – Those whose fulfillment depends upon chance; thus the values
given by the parties vary because of the risk involved. ( example is contract
of insurance or contract of sale of sweepstakes
F. According to parties obligated
1. Unilateral – Those where only of the party is obligated to give or do
something ( such as commodatum or donation)
2. Bilateral or synalagmatic – those where both parties are required to give or
do something (Sale or Barter). It may be reciprocal or non-reciprocal
G. According to object or subject matter
1. Contract involving things ( sale, barter)
2. Contract involving rights (assignment of credit, rights or actions or
usufructuary)
3. Contract involving services ( agency or lease of services)
H. According time of fulfillment
1. Executed – one that has been performed
2. Executory – One that has not yet been performed or still to be performed.
I. According to the number of persons physically entering the contract
1. Ordinary – those where the parties are represented by different persons
(such as sale and barter)
2. Auto-contracts – Those where only one person represents the two opposite
parties to the contract ( such as an agent lends his money to the principal
whom he represents as borrower)
J. According to the number of persons who participated in the drafting and
preparation of the contract.
1. Ordinary – where both parties participated in the preparation of the contract
2. Contract of adhesion – one where only one party prepared the contract (
such as insurance contract)
It is so-called in such term because the terms of the contract are prepare by only one
party, while the other party merely affixes his signature signifying his adhesion
thereto. ( Uy vs. People, G.R. No. 174899, Sept. 11, 2008)
Article 1306 –
Autonomy of Contracts – principle that the contracting parties are free to enter into a
contract and to establish such stipulations, clauses, terms and conditions as they may
deem convenient save those that are contrary to law, public policy, morals, good
customs and public order. (Art.1306)
Note: Also known as Freedom to Contract or Freedom to Stipulate.
The right to enter into a contract is one of the liberties granted to the people. Said
right is a constitutional right as laid down under Section 10, Article III of the 1987
Philippine Constitution.
Exercise of police power of the State may limit also said right.
Limitation to our right to contractual stipulation:
NOT CONTRARY TO
1. LAW – stipulations in a contract must not contravene should be one that is
mandatory or prohibitive.
Examples:
In pledge and mortgage, a stipulation that the creditor can automatically appropriate An agreement exempting common carrier from liability for gross negligence,
the thing pledged or mortgaged upon failure of the debtor or pledgor to pay ( pactum
commissorium) is void being contrary to law. Article 2088 Article 1307 – INNOMINATE CONTRACTS

In agency, a stipulation exempting the agent from the obligation to render an account Nominate contracts – contracts defined, identified and governed by the Civil Code.
is void. (Art. 1891 2nd par.)
Examples:
2. MORALS
Sale Guaranty Donation
relate to the generally accepted standard of rightness of human conduct.
Agency Real Mortgage Commodatum
Thus an agreement by the debtor to work as servant without pay until he could find
Lease Chattel Mortgage Simple Loan
money to pay the debt is void being contrary to morals as it amounts to involuntary
servitude. Deposit Pledge

An agreement between a man and a woman to live together as husband and wife
without the benefit of marriage being contrary to morals is likewise void.
3. GOOD CUSTOMS – refers to a rule of conduct formed by repetition of acts,
uniformly observed and practiced which as a social rule, legally binding and
obligatory.
An agreement of slapping his father for a promotion or a son not greeting the father
when the latter comes home is contrary to good customs and therefore void.
INNOMINATE CONTRACTS - Contracts which cannot be found in the Civil Code
but are considered existing and binding because all the essential elements of the
contract found in Article 1318 are present.
Different kinds of Innominate Contracts and how they are regulated:
• Do ut des – I give that you give;
• Do ut facias – I give that you do;

4. PUBLIC ORDER – signifies the public weal and includes public safety • Facio ut des – I do that you give

Hence a stipulation allowing another party to forcibly eject the lessee should he • Facio ut facias – I do that you do
refuse to vacate the premises is contrary to public order and therefore void.
These contracts shall be regulated by the
5. PUBLIC POLICY – broader than public order as it does not refer only to public
safety but to consideration which are moved by public good. Hence a contract is 1. stipulation of the parties
contrary to public policy if it has a tendency to be injurious to the public or against
2. by the general provisions or principles of obligations and contracts,
the public good.

3. by the rules governing the most analogous nominate contracts, and

Examples:

4. by the custom of the place.(Art. 1307)

An agreement to conceal a crime to suppress evidence and to stifle the prosecution of
the offender is vid because the public has interest in the prosecution and punishment
Do ut des is now considered nominate contract as it is now defined as “barter” and
of criminals.
governed by Article 1638.
An agreement to retract from earlier testimony or statement in a criminal case for a
consideration is contrary to public policy and shall be void.

An agreement that encourages the commission of fraud.

ART 1308 Mutuality of Contracts – an essential quality of the contacting parties
whereby the contract must bind both of them validity or compliance of the contracts
should not be left to the will of one of them. (Art.1308)
Note: The determination of performance may be left to a third person whose decision
shall be binding when communicated to the contracting parties. (Art. 1309)
Such obligation shall not be obligatory if it is evidently inequitable. In such case
the court shall decide what is equitable under the circumstances. (Art. 1310)
Since contract is a result of an agreement, it must bind both contracting parties. After
a party voluntarily entered into a contract, he cannot revoke or renounce it without
the consent of the other. The mere fact that the had made a poor bargain is not a
ground to set aside the contract. A party cannot unilaterally disregard the contract
because its validity and compliance cannot be left to the will of one of them.
In fact if the fulfillment of the suspensive condition of an obligation depends upon
the sole will of the debtor, the obligation and the condition are void since compliance
is dependent upon him alone.
PRINCIPLE OF RELATIVITY
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.
This is related to the principle of transmissibility of rights under Article 1178
which provides that subject to the laws, all rights in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary.”
STRANGERS AS A RULE ARE UNAFFECTED OF CONTRACTS ENTERED BY
CONTRACTING PARTIES BECAUSE OF
PRIVITY OF INTEREST RULE.
• EXCEPTIONS TO THE PRINCIPLE OF RELATIVITY
Stipulation pour Autrui - where contract may either favor or prejudice a third
person. ( Art. 1311 par.2)
Requisites for Stipulation Pour Autrui:
• The contracting parties by their stipulation must
have clearly and deliberately conferred favor
upon a third person;
• The third person must have communicated his
acceptance to the obligor before its revocation by
the by the obligee or the original parties.
• The stipulation in favor of the third person
should be a part, not the whole, of the contract;
• The favorable stipulation should not be
conditioned or compensated by any kind of
obligation whatever; and
• Neither of the contracting parties bears the legal
representation or authorization of the third party
for otherwise, the rule on agency will apply.
Example
D purchased C’s land for Php 900,000. It was also agreed that only Php 800,000
would be given to C because the P 200,000 shall be given to X, a creditor of C. If X
communicates his acceptance od the stipulation to D, X can demand its fulfillment.
Another example – Insurance taken by a taxi company infavor of its passenger.
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 La
• In contracts creating real rights (Art. 1312) A real right is binding
against the whole world and attaches to the property over which it
is exercised wherever it goes. Registration to the Registry of
Property (Registry of Deeds) constitutes real right.
Example: If A should purchase an apartment house from the owner but there is a
lease thereon, A must respect the lease, if the same is registered in the Registry of
Property; or if A has actual knowledge of the existence and duration of the lease.
Similarly the purchaser of land must respect a mortgage constituted thereon if the
said mortgage is registered in the Registry of Property.
Art. 1313. Creditors are protected in cases of contracts intended to defraud them.
In contracts entered into to defraud creditors (Art. 1313)*
• Note: Remedy of the creditor is asked for rescission of the contract if
contract is valid but it is entered to defraud the creditor. (See Article 1381
paragraph 3 of the Civil Code. But if contract is absolute simulated contracts
made to defraud the creditor, the contract is void. Remedy of the creditor is
to ask for the declaration of the nullity of contract considering it is null and
void and has NO EFFECT AT ALL.
Art. 1314. Any third person who induces another to violate his contract shall be
liable for damages to the other contracting party.
In contracts which have been violated at the inducement of a third person (Art. 1314)
This provision gives an instance when a stranger to a contract can be sued in
view of his unwarranted interference. Whoever is injured may properly sue for
damages.
Example:
S, a movie star has a one year contract with XYZ studios. If F, a friend of S induces
her, without any justifiable cause, to break the contract, the XYZ studios can sue F for
damages.
PRINCIPLE OF CONSENSUALITY
• Art. 1315. Contracts are perfected by mere consent, and from that moment
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. (1258)
• Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are
not perfected until the delivery of the object of the obligation.
Consensually of Contracts – Generally, all contracts are perfected by consent. One of
the essential elements of the contract is consent. Thus, even if some contracts require
other requisites, all contracts however must satisfy the element of consent.
• Consequence of Perfection:
• a) The parties are bound to the fulfillment of what has been
expressly stipulated (Art.1315) and compliance thereof must be in good faith
(Art.1159)
• b) The parties are also bound to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
How contracts are perfected:
• Consensual contract – by mere consent. (This is
the general rule) Art. 1315
• Real contracts – perfected by delivery like
deposit, pledge and commodatum (Art.1316)*
• Formal or solemn contracts – here a special form
is required for perfection. Examples a simple
donation intervivos of real property, to be valid it
must be in public instrument: Art. 749
Real contracts are perfected by actual delivery of the object. While there may be
meeting of the minds as to the object and consideration, the contract is not deemed
perfected until such time as the object is actually delivered.
Real contracts require consent, subject matter, cause or consideration and DELIVERY.
What are the different classes of contracts?
According to their relation to other contracts:
• Preparatory – those that have for their object the establishment of a
condition In law which is necessary as a preliminary step towards
the celebration of another subsequent contract. Examples –
partnership, agency
• Principal – those which can subsist independently from other
contracts and whose purpose can be fulfilled by themselves.
Examples – sale, lease
• Accessory – those that can exist only as a consequence of, or in
relation with, another prior contract. Example – pledge, mortgage.
Different Phases or stages in the Lie or Biology of a Contract:
1. Preparatory or Preliminary – first stage of the contract where negotiation transpires
2. Perfection – birth of the contract
3. Consummation – fulfillment of the purpose for which the contract was constituted

The real contract referred to are:

1. Deposit

2. Pledge

3. Commodatum, a loan where the identical object must be returned.

Art. 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.

Under the principles of Agency, no person can enter into and bind another person in
a contract unless

a) He is duly authorized by the person in whose behalf he is acting; or

b) He acts within the scope of his authority

c) He discloses his principal

The contract entered by a person who is unauthorized by the principal or if

authorized by exceeded his authority is UNENFORCEABLE. (See Article 1403
paragraph 1 of the Civil Code unless duly ratified by the party he is representing.

Example:

In Jose’s name, but without Jose’s authorization, Maria sold Jose’s car to Marilyn, the
sale is unauthorized. Hence it is unenforceable to JOSE.

In the example given mere lapse of time cannot cure the defect; this is not the
ratification required.