“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.”
• At least two person or parties
• Contract- is one of the sources of obligations.
Ex. loan agreement between buyers and sellers of
a car.
• Obligation- legal tie or relation itself that
exists after a contract has been entered into.
Ex. A student to turn in his homework on time every
day.
Note: there can be no contract if there is no
obligation. But an obligation may exist without a
contract.
• Contracts- agreement enforceable through
legal proceedings.
• Agreement- broader than contract.
• Ex. Decision between two people to share the rent
in an apartment.
Note: all contracts are agreement but not all
agreements are contracts.
1. Termination by stipulation of the parties
2. Termination, by stipulation, at option of
one party
3. Termination by one party with conformity
of the other
1. Freedom or autonomy of contracts- the parties may
establish such stipulations, clause, terms and conditions as
they may deem convenient, provided, they are not
contrary to law, morals, good customs, public order and
public policy.
2. Obligatoriness of contracts- obligation arising from
contracts have the force of law between the contracting
parties and should be complied with in good faith.
3. Mutuality of contracts- contracts must bind both and
not one of the contracting parties; their validity or
compliance cannot be left to the will of one of them.
4. Consensuality of contracts- contracts are perfected,
as a general rule, by mere consent, and from that
moment the parties are bound not only by 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.
5. Relativity of contracts- contracts take effect only
between the parties, their assigns and heirs, except in
cases where the rights and obligations arising from the
contract are not transmissible by their nature, or by
stipulation, or by provision of law.
a. Nominate – those which have been given
particular names (i.e. sale, barter, mortgage,
lease, carriage, agency, etc.)
b. Innominate – those which have not been given
a particular name and not regulated by special
provision of law. Roman law has classified them
as follows: Do ut des (I give that you may
give); Do ut facias (I give that you may do); Facio
ut facias (I do that you may do); Facio ut des (I do
that you may give).
2. By subject matter
a. Contracts covering things (i.e. contract of
sale, deposit, pledge)
b. Contracts covering services (i.e. contract
of carriage)
c. Contracts covering transmissible rights or
credits (i.e. contract of usufruct, assignment
of credits.)
3. By formation or perfection
a. Consensual – perfected by mere consent (i.e.
sale)
b. Real – cannot be perfected without delivery
(i.e. commodatum, depositum, pledge, loan)
c. Formal or Solemn- cannot be perfected
without compliance with the special formalities or
solemnities required by law, otherwise they are
void (i.e. donations, mortgages of real
property)
4. By Cause
a. Onerous – contracts that provide for exchange of
valuable considerations (i.e. sale where the seller
delivers the object of the contract and the buyer
pays the purchase price)
b. Gratuitous – contracts where one of the parties gives
something or renders service to the other without
receiving any equivalent or compensation (i.e. pure
donation, commodatum). It is also called the lucrative
contract because it provides gain to the other party for
free.
c. Remunerative – contracts where one party gives
something or renders service to another in consideration
of a previous or past deeds of the other.
5. By vinculum produced or according to the
party or parties obligated
a. Unilateral – contracts where only one
of the parties is bound to fulfill and
obligation (i.e. commodatum, promissory
note)
b. Bilateral – contracts where both
parties have reciprocally bound
themselves to fulfill their obligations in
favor of the other (i.e. sale) Also known
as synalagmatic contracts.
 6. By certainty or fulfillment
a. Commutative – contracts where the
contracting parties contemplate the assured
fulfillment of the terms and conditions of their
agreement, and there is no risk to anticipate (i.e.
contracts of mortgage and pledge)
b. Aleatory – contracts where the fulfillment is
dependent on chance or event which may not
happen within the period stipulated, and the loss
contempated may not happen. (i.e. insurance
contract)
• 7. By completion or performance
• a. Exceuted – contracts which are already completed when
formally entered into (i.e. sale of a thing)
• b. Executory – contracts where the prestation promised by the
parties have yet to be fulfilled at some future date (i.e. a
unilateral promise to sell which has been accepted, but the sale
is not yet executed)
8. By dependence of one contract on the
other
a. Principal – contracts which can exist by
themselves alone without depending on another
(i.e. sale, lease, deposit, commodatum)
b. Accessory – contracts which cannot exist
alone but not depend on another contract (i.e.
mortgage – depends on the contract of loan)
c. Preparatory – contracts entered into for the
creation of another contract (i.e. agency, the
principal gives authority to the agent through a
Special Power of Attorney)
 9. By the actual number of person/s
participating in the contract
a. Ordinary – contracts where two (or more)
parties are represented by different persons (i.e.
sale – there is a seller and a buyer)
b. Auto-contracts – contracts where the two
parties are represented by the one and the same
person, who represents and acts in different
capacities (i.e. agent representing his principal
who authorized him to borrow money)
10. By the dignity accorded by law
a. Institutional – contracts which are
given special dignity by law (i.e.
contract of marriage which is
considered a “social inviolable
institution)
b. Ordinary – contracts which are not
institutional (i.e. sale, lease, deposit, etc)
11. By freedom of bargain
a. Ordinary – contracts where both
parties are place on equal footing in
the negotiation and perfection stages.
b. Contracts of adhesion – contracts
where one of the parties had drafted
the contract for the other party to
accept or not to accept (i.e. insurance
contract which is already printed)
 12. By the evidence needed to prove
their existence
a. Contracts covered by the Statute of
Frauds – requires written evidence, note or
memorandum to prove their existence
b. Contracts which be proven by oral or
parol evidence (i.e. lease contract for one
year)
13. By the personality of the parties
a. Personal – contracts where the person of the
party is essential to the existence of the contract
(i.e. contract for life insurance where the contract
shall cease to exist upon the death of the insured)
b. Impersonal – contracts where the person/s
of a part or parties are not essential to the
continuity of the contract (i.e. contract of lease –
the heirs may continue the contract)
14. By manner the consent is given
a. Express – contracts where the consent of the parties
is given expressly in writing or verbally
b. Implied – contracts where the consent of the
parties is not given expressly but is deducible from the
conduct or acts of the parties (i.e. implied agency when
the principal fails to repudiate the acts of the person on
his behalf)
c. Presumed – contracts where the consent was not
given by the parties but is presumed or provided by the
law itself, to prevent unjust enrichment on the part of one
party to the prejudice of the other, such as quasi-
contracts
“ 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.”
• This Article stresses the freedom to
contract. The right of the people or
the freedom to enter into a lawful
contract as to their own convenience
and advantage as long as the
contract are not prohibited or
contrary to law, morals, good customs,
public order or public policy.
It is understood that the contract is the law
between the contracting parties and if
there is nothing in the contract which is
contrary to law, morals, good customs,
public order or public policy the contract
must be uphold or continue.
It is understood that if the contract or the
contractual stipulations is contrary to law, it is
not effectual because law is superior to a
contract. The contracting parties must not
overlooked the fundamental principles of justice
as stated in Article 5. Acts executed against the
provision of mandatory or prohibitory laws
shall be void, except when the law authorizes its
validity.
Morals deal with right and wrong, it
deals with norms of good and right
conduct evolved in a community and
morals is also considered as good
customs, and any contract which has
an immoral purpose is contrary to
good customs.
Customs consist of habits and practices which
through long usage have been followed.

Ex. An agreement whereby A is to render service

as a servant to B without compensation as long as
A has not paid his debt.
“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.”
They are:
(1) Nominate contract or that which has a
specific name or designation in law (e.g.,
commodatum, lease, agency, sale, etc.); and
(2) Innominate contract or that which has
no specific name or designation in law.
• Innominate contracts are based on the
well-known principle that “no one shall
unjustly enrich himself at the expense
of another.”
(a) do ut des (I give that you may give) is an
agreement in which A will give one thing to B, so that B
will give another thing to A.
(b) do ut facias (I give that you may do) is a contract
under which A will give something to B, in order that B may
do something for A.
(c) facio ut des (I do that you may give) is an agreement
in which A binds himself to do something for B, so that B
will give something to A.
(d) facio ut facias (I do that you may do) is a convention
whereby A is to do something for B, so that B will render
some other service to A.
“The contracts must bind both
contracting parties; its validity or
compliance cannot be left to the
will of one of them.”
“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.”
• The determination of its performance may
be left to a third party person. In such case
the obligation does not depend upon a
potestative condition.
Potestative condition is a contract is under
complete control and power of only one of
the parties, where the other party does not
have say in the matter.
Ex. I engage to pay my neighbor a sum
of money provided he will cut down a tree on
his land which obstructs my view.
• Jonelyn sold his parcel of land to Rixel. it
was agreed that Xena, a real estate
appraiser, would be the one to determine
the reasonable price of the land. Xena,
then, fixed the price after considering
circumstances and factors affecting the
value of the land.
• In this case Xena must make known his
decision to Jonelyn and Rixel who would
be bound by the same
“The determination shall not be
obligatory if it is evidently inequitable.
In such case, the courts shall decide
what is equitable under the
circumstances.”
A a tenant of a rice farm of Mrs B was not able to give
the lease due to Mrs B for two consecutive rice
season. Who will decide on the case? How do you think
it will be decided? Justice or Equity?

Base on Article 1310, the Court will only be the one to

decide on the based on justice and equity. Justice means
giving each what is due but equity is a process by which
court relax the sanctions of the law for humanitarian
consideration.
“Contracts take effect only in 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 heirs 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 deliberately conferred a favor upon a third
person.”
• A is indebted to B in the amount of P10,000.00. A
and B are the parties to the contract.
• If B dies, A must pay the heirs of B. If B assigns his
credit to C, then A is liable to pay C.
• If A dies and D is the heir, then D assumes the
obligation of A and B. D is bound by the contract
entered into by A, his predecessor in interest, in view
of the privity of interest between him and A.
However, D is not liable beyond the value of the
property he inherits from A, the decedent.
“In contracts creating real rights, third
persons who come into possession of the
object of the contract are bound thereby,
subject to the provision of the mortgage law
and the land registration laws.”
• Real right is the right or interest of a
person over a specific thing (like
ownership, possession, mortgage) without
a definite passive subject against whom
the right may be personally enforced.
• Who ever comes into possession of
such property must respect that real
right.
“Creditors are protected in cases of
contracts intended to defraud them.”
• This action is article is an exception to the
principle of relativity which covers contracts that
are binding only between parties, their assigns
and heirs.
• When a debtor intends to defraud his creditor
and alienates his property without leaving
enough for them, his creditor may file for
rescission of the said contracts. This action of
rescission of contract is also known as accion
pauliana.
• ACCION PAULIANA – an action where
the creditor files an action in court for the
rescission of acts or contracts entered into
by the debtor designed to defraud the
former
Fraudulent Insolvency is a serious crime
under the Revised Penal Code with the
following essential elements:
• That the offender is a debtor; that is, he
has obligations which are due and
payable;
• That he absconds with his property;
• That there be prejudice to his creditors.
“Any third person who induces another to
violate his contract shall be liable for
damages to the other contracting party.”
• Interference with Contractual Relations-
This article is known in the law of torts as
interference with contractual relations. The
liability incurred by the intermeddler
cannot be more than the liability incurred
by the party in whose behalf he
intermeddled. Otherwise, it will result to
injustice.
• Existence of a valid contract
• Knowledge on the part of the third person of
the existence of the contract
• Interference of the third person without legal
justification or excuse (the third person acted
with malice, or was driven by purely impious
reasons)
“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.”
“Real contracts, such as deposit,
pledge and Commodatum, are not
perfected until the delivery of the
object of the obligation.”
(1) Consensual contract or that which is
perfected by mere consent of the parties.
• When Anne (an employer) hires Bryan (an employee),
as soon as both have agreed on the terms of
employment, a contract commences.
(2) Real contract or that which is perfected,
in addition to the above, by the delivery of
the thing subject matter of the contract.
• Xian borrowed from Yanee Php 5,000. As Xian’s security for
the debt, Xian promised to pledge his diamond ring to Yanee.
• Before the delivery of the ring to Yanee, the contract of pledge
is not yet perfected. If Xian later on refuses to pledge the ring,
Yanee can demand the payment of the obligation although it is
with a period. But Yanee cannot require Xian to deliver the ring
as security because there is no real contract of pledge yet.
There is merely a consensual contract to constitute a pledge.
What exists, is a personal right, the right of action on the part
of Yanee to demand the constitution of the pledge.
THANK YOU

• Example;
• A mortgage his parcel of land in favor of C as a security for his debt. The
mortgage is duly registered to the registry of property. Later on, A sold the
land to B. In this case, C bought the land subject to the mortgage constituted
thereon. In other words, B is bound by the contract between A and C
although he is stranger to said contract because the right of C to the
mortgage , being real right, follows the property whenever it goes.
• Question
• The general rule is that, contracts binds only the parties. What is the
exception of this rule?
• Answer
• Under article 1312 Contracts creating real rights, third person 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.
• Article 1314
• March 25, 2016
• Any third person who induces another to violate his contract
shall be liable for damages to the other contracting party.
• Kung sinumang hindi partido sa kontrata ang manghihikayat na
labagin ng partido sa kontrata ang laman ng kontrata, siya ay
mananagot sa danyos sa naperhuwisyong tao na partido sa
kontrata.