What are contracts?

What are contracts?

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.
Stages of a contract

Stages of a contract

a. ​Conception or preparation stage ​involves preliminary negotiations and bargaining, discussion

of terms and conditions, with no arrival yet of a definite agreement.

b. ​Perfection or birth stage​ is the point when there is meeting of minds between the parties on a
definite subject matter and valid cause.

c. ​Termination or consummation stage​ is the point when the contract has been fulfilled resulting
in its accomplishment.
Stages of a contract

Stages of a contract

a. ​Conception or preparation stage ​involves preliminary negotiations and bargaining, discussion

of terms and conditions, with no arrival yet of a definite agreement.

b. ​Perfection or birth stage​ is the point when there is meeting of minds between the parties on a
definite subject matter and valid cause.

c. ​Termination or consummation stage​ is the point when the contract has been fulfilled resulting
in its accomplishment.

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Characteristics of Contracts

Characteristics of contracts

a. ​Obligatory force of contract​ means that the contractual agreement constitutes the law as
between the parties. Obligations arising from contracts have the force of law between contracting
parties.

b. ​Mutuality of contract​ means that the validity and performance cannot be left to the will of only
one of the parties.
i.​ ​Determination of the performance of contract

1. The determination or validity or compliance of a contract cannot be left to the judgment of one
the parties only because it violates mutuality of contract.

2. The determination of the performance of contract may be left to a third person, whose decision
shall not be binding until it has been made known to both contracting parties.

3. If the determination of the performance of the contract of a third person is evidently

inequitable, the court shall decide what is equitable under the circumstances.

c. ​Relativity of contract ​which it is binding only upon the parties and their successors such as
heirs and assignees.

1.​ ​Exceptions to Relativity of Contract

a.​ ​The heirs are liable to the debts of decedent but only up to the extent of the property they
inherited.

i.​ ​Rights and obligations arising from contracts which are intransmissible

1. Those which are purely personal.

2. Those which are provided by law to be intransmissible.

3. Those which are stipulated by the party to be intransmissible.

b.​ ​Stipulation in favor of third person or stipulation pour autrui

i.​ ​Requisites of stipulation pour autrui or stipulation in favor of third person

a. There must be stipulation in favor of a third person.

b. The stipulation should be a part, not the whole, of the contract.

c. The contracting parties must have clearly and deliberately conferred a favor upon a third
person and not a mere incidental benefit or interest.

d. The favorable stipulation should not be conditioned or compensated by any kind of obligation
whatever.

e. The third person must have communicated his acceptance to the obligor before its revocation.

f. One of the contracting parties does not bear the legal representation or authorization of the
third party.

Concepts of Stipulation Pour Autrui

a. A stipulation in favor of third person has no binding effect in itself before its acceptance by the
party favored.

b. Before acceptance by the third person, the contracting parties; by mutual agreement, may
modify the contract or revoke it.

c. A mere incidental interest or benefit is not within the doctrine of stipulation pour autrui.

d. The stipulation pour autrui does not exist if the contract is considered null and void.

c.​ ​Contracts creating real rights which are registered

d.​ ​Contracts intended to defraud creditor

e.​ ​When third person induces a party to the contract to violate the contract

f.​ ​Void contract that directly affects a third person

d. ​Liberality of Contract or Freedom to Contract​ means that the parties may establish such
stipulations, clauses, terms, and conditions as they may deem convenient provided they are not
contrary to any of the following:

i. Law

ii. Morals

iii. Good customs

iv. Public order

v. Public policy

e. ​Consensuality of contract​ which means that contracts are perfected by mere consent except in
real contracts and formal or solemn contracts which require additional requirements.

f. ​Legality of contract​ which means that contracts should not be contrary to law.

Types of elements of a contract

Types of elements of a contract

a. ​Essential elements​ refer to those which are required in order for a contract to exist. They are
necessary for validity of contract and may not be waived by the parties. Absence of one of the
essential elements will make the contract and void.

i.​ ​Consensual Contract

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

ii.​ ​Real Contract

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

4. Delivery of the subject matter

iii.​ ​Solemn or Formal Contract

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

4. Formality required by law

b. ​Natural elements​ refer to those which already exist in certain contract unless set aside or
suppressed by the parties. They may be waived by the parties as long as the waiver is made in
good faith.

i. Warranty against eviction in a contract of sale.

ii. Warranty against hidden defects in a contract of sale.

iii. Warranty for merchantability in a contract of sale.

iv. Warranty against hidden and unregistered encumbrance in a contract of sale.

c. ​Accidental elements​ refer to those that do not normally exist in a contract unless stipulated or
provided by the parties.

i. Terms of payment in a contract of sale.

ii. Conventional interest in a contract of loan

Types of Contracts

Types of Contracts

a.​ ​As to Perfection of Contract

i. ​Consensual contract​ is a contract perfected by mere consent.

1. Contract of lease.

2. Contract of sale.
3. Contract of partnership.

4. Contract of agency.

5. Contract of real estate mortgage.

ii. ​Real contract​ is a contract perfected by the delivery of the object of the contract.

1. Contract of deposit

2. Contract of pledge

3. Contract of loan or mutuum

4. Contract of commodatum.

iii. ​Solemn or Formal contract​ is a contract perfected by the execution of the formality required by
law.

1. ​Negotiable instruments​ must be made strictly in the form provided by the Negotiable
Instruments Law to be valid in ordered to be considered negotiable.

2. ​Contract of donation of personal property in excess of P5,000​ must be made and accepted in
writing to be valid.

3. ​Contract of donation of real property​must be made and accepted in public instruments to be

valid.

4. ​Contract of antichresis​ requires that the agreement of antichresis including the principal and
interest of secured contract of loan a must be specified in writing to be valid.

5. ​Agreement or stipulation to pay interest in contract of loan​ must be in writing in order for such
agreement to be valid.

6. ​Contract of chattel mortgage​ requires it to be registered with Chattel Mortgage Registry to be

valid.

7. ​Contract of partnership​ to which real properties or real rights are contributed must be in a
public instrument, with an inventory of real property attached thereto, for the contract of
partnership to be valid.

8. ​Sale of a piece of land by the agent in the name of the principal​, the authority of the agent to
sell the land must be in writing for the contract sale of such land to be valid.

9. ​Sale of community or conjugal property by one of the spouses​, there must be authority given
by the other spouse to the selling spouse.

a.​ ​Remedy to compel the other party to observe the formality for mere convenience

b.​ ​Contracts required to be in Public Document merely for convenience but not for validity

i. Acts or contracts which have for their object the creation, transmission, modification or
extinguishment or real rights over immovable property.
ii. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
partnership of gains.

iii. The power to administer property, or any other power which has for its object an act appearing
or which should appear in a public document, or should prejudice a third person

iv. The cession of actions or rights proceeding from an act appearing in a public document

v. Contracts where the amount involved exceeds five hundred pesos. (Private written instrument
only)

b.​ ​As to Cause of the Contract

i. ​Onerous contract​ is a contract whereby there is an exchange of valuable consideration. For

each contracting party, the cause is the prestation or the promise of a thing or service by the
other.

1. Contract of sale

2. Contract of lease

3. Contract of barter

ii. ​Gratuitous contract​ is a contract whereby one party receives no equivalent consideration.
These contracts are referred to as contracts of pure beneficence, the cause of which is the
liberality or generosity of the benefactor.

1. Contract of donation

2. Contract of commodatum

iii. ​Remuneratory contract​ is a contract whereby the cause here is the service or benefit
remunerated.

1. Contract of service or employment

c.​ ​Other Contracts

i. ​Accessory contract​ is a contract whose existence depends upon another contract known as
principal contract.

1. Contract of pledge,

2. Contract of chattel mortgage

3. Contract of antichresis

4. Contract of real estate mortgage

5. Contract of guarantee

ii. ​Preparatory contract​ is a contract which serves as a means by which other contracts may be
entered into.

1. Contract of agency
2. Contract of partnership.

iii. ​Principal contract​ is a contract that can stand by itself.

1. Contract of sale

2. Contract of loan.

iv. ​Nominate contract​ is a contract which has a name under the Civil Code or special law.

1. Contract of sale

2. Contract of agency

3. Contract of partnership

4. Contract of insurance

5. Contract of marriage

v. ​Innominate contract​ is a contract without any name under the Civil Code or special law.

1. ​Do ut des​ (I give that you may give.)

2. ​Do ut facias​ (I give that you may do.)

3. ​Facio ut des​ (I do that you may give.)

4. ​Facio ut facias​ (I do that you may do.)

a. ​Rules that shall govern innominate contract

i. The stipulation of the parties

ii. The provisions of Obligations and Contracts

iii. The rules governing the most analogous contracts

iv. The customs of the place

vi. ​Commutative contract​ is a contract whereby the parties give almost equivalent values; hence,
there is real fulfillment.

1. Contract of sale

2. Contract of lease

3. Contract of barter

vii. ​Aleatory contract​ is a contract whose fulfillment depends upon chance.

1. Contract of insurance

viii. ​Unilateral contract​ is a contract whereby only one of the parties is obligated to give or to do
something.

1. Contract of commodatum (bailee)

2. Contract of gratuitous deposit (depositary)

ix. ​Bilateral contract​ is a contract whereby both parties are required to give or to do something.

1. Contract of sale

2. Contract of lease

x. ​Reciprocal contract​ is a contract whereby the cause on the other party is the object on the
other party.

1. Contract of sale

2. Contract of barter

xi. ​Auto-contract​ is a contract wherein one person contracts with himself.

xii. ​Contract of adhesion​ is a contract wherein one party has already prepared the form of the
contract, containing the stipulations he desires, and he simply asks the other party to agree to
them if he wants to enter into the contract.

1. Contract of insurance

2. Contract of enrollment

xiii. ​Executory contract​ is a contract that has not yet been performed. Certain executory contracts
are covered by Statute of Fraud and required to be in writing in order for them to be enforceable.

XIV. ​Executed contract​ is a contract which has been performed. It is a contract not covered by
Statute of Fraud.
Instances before acceptance make the offer ineffective

Instances which if happened to either party before acceptance make the offer ineffective

a. Civil interdiction

b. Insanity

c. Death

d. Insolvency

Moment of Perfection of contract

Moment of Perfection of contract

a. Upon consent of contracting parties in case of consensual contract

b. Upon delivery of the subject matter in case of real contract

C. Upon execution of formalities required by law in case of formal or solemn contract

Extent of binding effect of contract

Extent of binding effect of contract

The parties are bound not only to the fulfillment of what has been expressly stipulated in the
contract but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law.
Nature of contract

Nature of contract

Contract is determined by the principles of law.

Principles of Consent

Principles of Consent

a. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract.

b. The offer must be certain and the acceptance absolute.

c. A qualified acceptance constitutes a counter-offer.

d. Consent may be expressed or implied.

Binding effect of acceptance through telegram

Binding effect of acceptance through telegram

From the time the acceptance came to the knowledge of the offerer also known as Cognitive
Theory.

PS. No one uses Telegram these days.

Place of perfection of contract entered through letter or telephone

Place of perfection of contract entered through telegram, letter or telephone

In the place where the offer was made.

Requisites of an offer

Requisites of an offer

a. It must be definite.

b. It must be certain.

c. It must be complete.

d. It must be intentional.

Concepts concerning Acceptance

Concepts concerning Acceptance

a. An acceptance may be expressed or implied.

b. The person making the offer may fix the time, place and manner of acceptance, all of which
must be complied with.

c. An offer made through an agent is accepted from the time acceptance is communicated to the
agent not necessarily to the principal.

d. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, something paid or promised.
Principles of Acceptance

Principles of Acceptance

a. An option contract supported by consideration or option premium is valid and binding and may
not be withdrawn.

b. Business advertisements are mere invitations to make an offer.

c. Advertisements for bidders are simply invitations to make proposals