Reviewer for Title II: Contracts (Arts.

o Nominate: Contracts with

1305–1422, Civil Code) specific legal names (e.g.,
lease, sale).
o Innominate: Contracts with no
Chapter 1: General Provisions specific designation.
2. By Perfection:
o Consensual: Requires consent
alone.
Definition of a Contract (Art. 1305)
o Real: Requires delivery of the
object.
A contract is a mutual agreement between two
3. By Cause:
or more parties, where one commits to deliver
o Onerous: With an exchange of
something or perform a service for the other.
consideration.
This requires a meeting of minds, signifying
o Gratuitous: Without
mutual consent between an offeror and an
consideration.
acceptor.
4. By Form:
o Formal: Requires specific
Key Elements:
forms for validity.
o Informal: No specific form
 Two or More Parties: At least two
required.
parties must be involved.
5. By Obligatory Force:
 Obligation: The contract creates a
o Valid: Meets all legal
binding obligation, either to perform
requirements.
an action or refrain from doing so.
o Void: Lacks validity or
 Enforceability: Contracts generate
enforceability.
legal obligations, unlike mere
o Voidable: Valid until annulled
agreements, which might only have
social or moral relevance. due to defects.
6. By Risk:
o Commutative: Risks and
obligations are equal.
Differences Between Key Concepts
o Aleatory: Dependent on
uncertain events.
1. Contract vs. Obligation: 7. By Status:
o A contract is a source of
o Executed: Fully performed.
obligation. o Executory: Obligations yet to
o Obligation refers to the
be fulfilled.
binding duty that arises after a 8. By Dependence on Another
valid contract is formed. Contract:
2. Contract vs. Agreement: o Principal: Stands alone.
o All contracts are agreements,
o Accessory: Depends on
but not all agreements are
another contract.
contracts.
o Contracts are enforceable by
law, while agreements lacking
legality are not. Freedom to Contract (Art. 1306)

Parties can establish terms as they see fit,

provided these do not contravene:
Classifications of Contracts
1. Law
Contracts can be categorized based on various
2. Morals
attributes:
3. Good Customs
4. Public Order
1. By Name or Designation: 5. Public Policy
Limitations: 4. Third-party interference leading to
contractual breach.
 Contracts must not promote unlawful
or immoral acts. Important: Third parties must clearly benefit
 The state's police power can impose from a stipulation to enforce it, and incidental
restrictions for the public good. benefits do not grant enforceable rights.

Meaning of Stipulation Pour Autrui

Innominate Contracts (Art. 1307)
A stipulation pour autrui is a contractual
Contracts without specific legal names are provision made by the parties (the promisor
governed by: and the promisee) that deliberately confers a
favor or benefit upon a third person
1. The parties' agreements. (beneficiary). The third person has the right to
2. Relevant Civil Code provisions. demand fulfillment of the stipulation from the
3. Analogous nominate contract rules. promisor, provided:
4. Local customs.
1. The benefit was clearly and
Types: deliberately intended for the third
person.
 Do ut des (I give that you may give) 2. The third person communicates
 Do ut facias (I give that you may do) acceptance to the promisor before the
 Facio ut des (I do that you may give) stipulation is revoked by the original
 Facio ut facias (I do that you may do) parties.

Binding Nature of Contracts (Art. 1308– Classes of Stipulations Pour Autrui

1311)
1. Donee-Beneficiary
1. Contracts are binding on both parties o The stipulation is solely for
and cannot depend on the unilateral the benefit of the third person,
will of one party. conferring a gratuitous
2. Performance may be determined by a benefit.
third person, but it must be fair and o It is similar to a gift and
communicated to both parties. follows rules regarding the
3. Courts intervene if the third party's form of acceptance.
determination is unjust. 2. Creditor-Beneficiary
o The stipulation is made to
discharge an obligation owed
Effects of Contracts on Third Parties (Art. by the promisee to the third
1311) person.
o Example: A contract where a
General Rule: Contracts affect only the debtor arranges for their debt
contracting parties, their assigns, and heirs. to a creditor to be paid by the
Exceptions: other party to the contract.

1. Stipulation pour autrui (favorable to a

third party). Requisites of Stipulation Pour Autrui
2. Contracts creating real rights (e.g.,
mortgage). 1. Clear Intent
3. Fraudulent contracts prejudicing o The contract must clearly and
creditors. deliberately confer a benefit
on the third person.
 2. Acceptance by the Third Person Third Party Inducement of Breach (Art.
o The third person must accept 1314):
the benefit before it is revoked
by the parties to the contract.  A third party who induces one of the
3. Part of the Contract contracting parties to breach their
o The stipulation for the third contract may be held liable for
party is part of, but not the damages.
entirety of, the contract.
4. Uncompensated Favor Perfection of Contracts (Arts. 1315–1316):
o The benefit conferred must
not be conditioned upon an  Contracts are perfected by mutual
obligation by the third party. consent unless the law requires
5. No Agency Relationship delivery or formality for validity (e.g.,
o The stipulation cannot arise real or solemn contracts).
from legal representation or
agency; otherwise, the rules
on agency will apply. Effect of Perfection

Upon perfection, parties are bound to:

Examples
1. Perform explicitly stipulated
1. Creditor-Beneficiary Example: obligations.
o D owes C ₱10,000 with 2. Fulfill consequences consistent with
₱1,200 interest. D contracts good faith, law, and usage.
with P to pay C’s interest as
part of a larger transaction. C
must accept this arrangement Perfection of Contracts: Summary
before it is revoked.
2. Incidental Benefit (Not Stipulation 1. Consensual Contracts
Pour Autrui): o Definition: Perfected by
o X contracts with Y to build a mere consent on the subject
structure that indirectly matter and consideration.
increases the value of Z’s o Example: A sale agreement
property. Z derives incidental where S agrees to sell a car
benefit but has no right to to B for ₱500,000, even
enforce X’s contract with Y.
before delivery or payment,
is already binding.
o Obligations: Each party
Important Related Provisions
can demand fulfillment of
the agreed terms.
Contracts with Real Rights (Art. 1312):
2. Real Contracts
o Definition: Perfected only
 Third parties in possession of property
subject to a contract are bound by real upon the delivery of the
rights attached to the property (e.g., object of the obligation.
mortgages). o Example: A loan
agreement is perfected
Protection Against Fraudulent Contracts when the lender (B)
(Art. 1313): delivers the money to the
borrower (A).
 Creditors can challenge contracts o Key Rule: Without
intended to defraud them, even if they delivery, the contract
are not parties to the contract.
 remains a promise or 1. Authority Required: The agent
preparatory agreement. must have express or implied
3. Solemn Contracts authority or a legal right to
o Definition: Require a represent the principal.
specific form for validity, 2. Acting Beyond Authority:
as prescribed by law. o The contract is
o Example: Donations of real unenforceable against the
property must be in a public principal.
instrument to be perfected. o The agent is personally
liable for damages unless
the principal ratifies the
agreement.
Effects of Perfection Example: If an agent sells a
principal's car on
Once perfected, contracts bind the parties installment terms when
to: only a cash sale was
authorized, the principal
1. Express stipulations: What is can reject the agreement,
explicitly agreed upon. and the agent may be liable.
2. Consequences from good faith,
usage, and law: Implied
obligations, such as taking care of
goods pending delivery.

Unauthorized Contracts

1. Unenforceability: A contract
entered into by someone without
authority is not binding unless
ratified by the principal before
revocation by the other party.
2. Ratification:
o Must be clear and can be
express or implied.
o Retroactive to the moment
of the original agreement.
o Cleanses the contract of its
defects.

Example: If D borrows money for

P without authorization, the
agreement is unenforceable until P
ratifies it.

Contracts by Agents