Art 1305.

A contract is a meeting of the minds between two persons whereby one binds himself, with
respect to the other, to give something or to render service.

Contract - the agreement between two or more persons for the purpose of creating, modifying, or
extinguishing a juridical relation between them

Elements

a. essential elements - consent, subject matter, cause or consideration

b. natural - those found in certain contracts, and presumed to exist, unless the contrary has been
stipulated. ex: warranty against eviction and hidden defects
c. accidental elements - particular stipulations that may be agreed upon by the contracting parties in a
contract. Accidental because they may be present or absent depending upon whether or not the parties
have agreed upon them

Classification

a. consensual - perfected by mere consent

b. real - perfected by delivery
c. formal - special formalities are essential before the contract may be perfected

d. onerous - there is an interchange of equivalent valuable consideration

e. gratuitous/lucrative - free thus one party receives no equivalent prestation except a feeling that one
has been generous or liberal
f. remunerative - one prestation is given for a benefit or service that had been rendered previously

g. principal - contract may stand alone by itself

h. accessory - depends for its existence upon another contract. ex: mortgage, principal contract is the
loan
i. preparatory - the parties do not consider the contract as an end by itself, but as means through which
future transaction or contracts may be made ex: agency, partnership

j. unilateral - only one of the parties has an obligation

k. bilateral - both parties are required to render reciprocal prestations

l. nominate - contract is given a particular name

m. innominate - not given any special name

n. commutative - the parties contemplate a real fulfillment

o. aleatory - fulfillment is dependent upon chance

p. executed - one completed at the time the contract is entered into, that is the obligation are complied
with at this time
q. executory - the prestations are to be complied with at some future time

r. contracts involving thigns

s. contracts involving rights or credits
t. contracts involving services
u. ordinary -
v. institutional
w. those requiring merely oral or parol evidence
x. those requiring written proof

y. ordinary - two parties are represented by different persons

z. auto-contracts - where only one person represents two opposite parties, but in different capacities

aa. ordinary - ordinary sale

bb. contract of adhesion - prepared by one party

Stages
a. Preparation - the parties are progressing with their negotiations; they have not arrived at any definite
agreement
b. Perfection - parties have come to an agreement and the elements of subject matter and valid cause
have been accepted by mutual consent
c. Consummation - the terms of the contract are performed and has been fully executed

Parties - meeting of minds between two persons

Basic Principles or Characteristics

1. Freedom
2. Obligatory Force and Compliance
3. Perfection by mere consent
4. Both parties are mutually bound
5. Relatively - binding only between the parties, their assigns, and heirs

The existence of a contract between the parties does not constitute a bar to the commission of a tort by
one against the other, and the consequent recovery of damages.

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.

Principle of Freedom - the free entrance into contracts generally without restraint is one of the liberties
guaranteed to the people

The parties generally may agree on any contract, but the name that they give to it should not be
controlling, for a contract is what parties intended it to be, not what they call it. This is because a contract
must be judged by its character, its nature, and its legal qualifications. The court will look not so much at
the form of the transaction as at its substance.

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.

Kinds
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
Art 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the
will of one of them.

Mutuality of Contracts - both parties are bound

Consequences of Mutuality
• a party cannot revoke or renounce a contract without the consent of the other
• the conditional obligation is void if it depends solely on the will of the debtor

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.

Art 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts
shall decide what it is equitable under the circumstances.

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.

Principle of Relativity - contracts are generally effective only between the parties, their assigns and heirs

Exceptions
1. the obligations arising from the contract are not transmissible by their nature, by stipulation, or by
provision of law
2. where there is a stipulation pour autrui (a stipulation in favor of a third person; neither of the parties
acted as an agent)
a. there must be a stipulation in favor of a third person
b. the contracting parties must have clearly and deliberately conferred a favor upon a third
person
c. a mere incidental benefit or interest of a person is not sufficient
d. the stipulation must be part of the contract
e. the third person communicated his acceptance to the obligor before its revocation; acceptance
may be in a form of demand
f. there must be no relation of agency between either of the parties and the third person
3. a third person induces another to violate his contract (ex. collective contracts)
4. third persons may be adversely affected by a contract where they did not participate
5. where the law authorizes the creditor to sue on a contract entered into by his debtor
Art 1312. In contracts creating real rights, third persons who come into possession of the object of the
contracts are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration
Laws.

Art 1313. Creditors are protected in cases of contracts intended to defraud them.

Art 1314. Any third person who induces another to violate his contract shall be liable for damages to the
other contracting party.
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.

How are contracts perfected

• consensual - by mere consent; from the moment there is agreement on the subject matter, cause and
consideration

Consequences
• parties are bound to perform what is expressly stipulated in the contract
• parties are also bound to all the consequences

• real - by delivery;
• formal or solemn - special form is required

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