CHAPTER 1 - GENERAL PROVISIONS (ART 1305 - 1317)

Question 1

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

Answer 1

Contract

Question 2

Is it necessary that contract must be in writing?

Answer 2

No

Question 3

Three stages of contract

Answer 3

1. Preparation or conception
2. Perfection or birth
3. Consummation or death or termination

Question 4

This involves preliminary negotiations and bargaining, discussion of terms and conditions, with no arrival yet of a definite agreement. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement.

Answer 4

Preparation or conception

Question 5

This is the point when there is a meeting of minds between the parties on a definite subject matter and valid a cause.

Answer 5

Perfection or birth

Question 6

This occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.

Answer 6

Consummation or death or termination

Question 7

What are the three elements of a contract?

Answer 7

1. Essential elements
2. Natural elements
3. Accidental elements

Question 8

Those without which there will be no contract

Answer 8

Essential elements/requisites of a contract
a. Consent of the contracting parties.
b. Object certain which is the subject matter of the contract.
C. Cause of the obligation which must be established.

Question 9

Those found in certain contracts unless set aside or suppressed by the parties (such as warranty against eviction and warranty against hidden defects in a contract of sale)

Answer 9

Natural elements

Question 10

Those that refer to particular stipulations of the parties (such as terms of payment, interest rate, place of payment).

Answer 10

Accidental elements

Question 11

Classification of contracts
1. According to perfection or formation

Those that are perfected by mere consent

Answer 11

Consensual

Question 12

Classification of contracts
1. According to perfection or formation

Those that are perfected by the delivery of the object of the contract (such as depositum, pledge, and commodatum).

Answer 12

Real

Question 13

Classification of contracts
1. According to perfection or formation

Those which must be in the form provided by the law for their perfection (such as the donation of an immovable which, together with the acceptance by the donee, must be in a public instrument to be valid).

Answer 13

Formal or solemn

Question 14

Classification of contracts
2. According to cause

Those where there is an exchange of valuable considerations (such as sale and barter). For each contracting party, the cause is the prestation or the promise of a thing or service by the other

Answer 14

Onerous

Question 15

Classification of contracts
2. According to cause

Those where one party receives no equivalent consideration (such as donation and commodatum). These contracts are referred to as contracts of pure the cause of which is the liberality of the benefactor.

Answer 15

Gratuitous

Question 16

Classification of contracts
2. According to cause

Those where the cause is the service or benefit remunerated.

Answer 16

Remuneratory

Question 17

Classification of contracts
3. According to form

One in which the terms are fully and explicitly stated in words, whether oral or written,

Answer 17

Express

Question 18

Classification of contracts
3. According to form

One that can be inferred from the conduct of the parties.

Answer 18

Implied

Question 19

Classification of contracts
4. According to importance or dependence of one upon another

One that can stand by itself (such as sale, loan).

Answer 19

Principal

Question 20

Classification of contracts
4. According to importance or dependence of one upon another

One whose existence depends upon another contract (such as pledge or mortgage which is dependent upon a principal contract such as loan).

Answer 20

Accessory

Question 21

Classification of contracts
4. According to importance or dependence of one upon another

One which serves as a means by which other contracts may be entered into (such as agency and partnership).

Answer 21

Preparatory

Question 22

Classification of contracts
5. According to name or designation

Those which have a name under the law (such as sale, loan and barter).

Answer 22

Nominate

Question 23

Classification of contracts
5. According to name or designation

Those without any name under the law.

Answer 23

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)

Question 24

Classification of contracts
6. According to risk or fulfillment

Those where the parties give equivalent values (such as sale and barter); hence, there is real fulfillment.

Answer 24

Commutative

Question 25

Classification of contracts
6. According to risk or fulfillment

Those whose fulfillment depends upon chance (such as an insurance contract).

Answer 25

Aleatory

Question 26

Classification of contracts
7. According to the parties obligated

Those where only one of the parties is obligated to give or do something (such as commodatum and gratuitous deposit).

Answer 26

Unilateral

Question 27

Classification of contracts
7. According to the parties obligated

Those where both parties are required to give or do something (such as sale and barter or buyer and seller) They may be reciprocal or non-reciprocal.

Answer 27

Bilateral (or synalagmatic)

Question 28

Classification of contracts

What are the contracts according to subject matter?

Answer 28

a. Contracts involving things (such as sale or barter).
b. Contracts involving rights or credits (such as usufruct or assignment of credits).
c. Contracts involving services (such as agency or lease of service).

Question 29

Classification of contracts
9. According to the time of fulfillment

One which has been performed

Answer 29

Executed

Question 30

Classification of contracts
9. According to the time of fulfillment

One that has not yet been performed.

Answer 30

Executory

Question 31

Classification of contracts
10. Other classifications

Where only one person represents the two opposite parties to the contract (such as when an agent lends money to his principal whom he represents as borrower).

Answer 31

Auto-contract

Question 32

Classification of contracts
10. Other classifications

Where only one party drafted the contract (such as insurance). (take it or leave it contract)

Answer 32

Contract of adhesion

It is so-called because its terms are prepared by only one party, while the other party merely affixes his signature signifying his adhesion thereto.

Question 33

General rule is that parties are free to stipulate anything.

True or False?

Answer 33

True, not unless they are illegal

Question 34

What are the four basic principles of contract?

Answer 34

1. Liberty of contract or freedom to stipulate (autonomy of contracts)
2. Mutuality of contract
3. Relativity of contracts
4. Consensuality of contracts

Question 35

Under this principle, 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.

Answer 35

Liberty of contract or freedom to stipulate (autonomy of contracts)

Question 36

What are the following stipulations that have been held to be void?

Answer 36

a. The stipulation that the creditor automatically becomes the owner of the property pledged or mortgaged if the debtor defaults in his payment.

b. A stipulation in a mortgage contract providing for a specified price (known as “tipo” or upset price) below which the mortgaged property is not supposed to be sold at the foreclosure sale is void for being contrary to law.

c. An agreement to pay an unconscionable (unfair) rate of interest is void for being contrary to morals.

d. An agreement by the debtor to work without pay until he could find money to pay the debt is void for being contrary to morals as this amounts to involuntary servitude.

e. An agreement to hide a crime, to suppress evidence and to stifle the prosecution of the offender is void for being contrary to public policy.

Question 37

Innominate contracts shall be governed by what following rules?

Answer 37

1) The stipulations of the parties;
2) The provisions of Obligations and Contracts;
3) The rules governing the most analogous (similar) nominate contracts; and
4) The customs of the place

Question 38

Under this principle, the contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

Answer 38

Mutuality of contract

Question 39

In a loan of contract, when only one party has a sole discretion/unilateral right to adjust the interest anytime as he want. What principle does this case violated?

Answer 39

Mutuality of contracts

Question 40

P agree to sell his car to G and G agree to pay 1,000,000. However, when P alone determine the price of the car without G’s agreement. What principle does this case violated?

Answer 40

P violated the principle of mutuality of contract

Question 41

What is the exception to the principle of Mutuality of Contracts?

Answer 41

Determination of performance by a third person

Question 42

P offer to sell his land to G. P and G agree that B, a real estate appraiser will determine the price of the land. Is the contract violated the mutuality of contracts?

Answer 42

No, because both parties agreed

Question 43

In the exception in the principle of mutuality of contracts, the decision of the third person is not valid if it is unjust or third person act in bad faith
In this case, the court can now decide if third person is void.

True or False?

Answer 43

True

Question 44

Under this principle, 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.

Answer 44

Relativity of contracts

Question 45

General rule in relativity of contracts

Answer 45

Contracts shall take effect only between the parties, their assigns and heirs.

Question 46

P owes G 1M. If G dies, what will happen to the payment?

Answer 46

The payment of P will be accepted by G’s heirs.

Question 47

Exceptions in the general rule of relativity of contracts

Answer 47

Where the rights and obligations are not transmissible:
a. by law,
b. by stipulation, or
c. by nature. (Art. 1311)

Question 48

P owes G 1M. If G dies, the payment of P will be accepted by G’s heirs. If P dies, what will happen to the payment?

Answer 48

The obligation of P to pay will pass on his heirs. However, if there are still some left property of P, it can be use as payment

[Note: With respect to the heir, he shall not be liable beyond the value of the property he received from the decedent.]

Question 49

G sold her car to P with an agreement not to sold it to others until full payment. However, P sold the car to B in violation of the agreement. Can G cancel the contract entered into by P and B?

Answer 49

No, but G can claim damages against P for breach of contract

Question 50

P leased his property to G which prohibits sub-leased. Later on, G subleased property to B. In violation of the contract, P now goes to the court to rescind the leased contract. Can B opposed?

Answer 50

No, P is not bound by the subleased contract of G and B. And B is not part of the contract between P and G. B’s remedy is to proceed against G

Question 51

What are the exceptions on the Principle of Relativity of Contracts?

Answer 51

When a contract may be enforced by or against a third person (Art. 1311, 2nd par)

Third persons is bound by contracts creating real rights (Art. 1312)

Right of defrauded creditors (Art. 1313)

Contract is violated through inducement by third person (Art. 1314)

Question 52

Where there is a stipulation in the contract that clearly and deliberately confers a favor upon a third person (stipulation pour autrui). Such third person may demand its fulfillment provided he has communicated his acceptance to the obligor before its revocation. (Art. 1311) A mere incidental benefit or interest of a person is not sufficient.

T or F?

Answer 52

True

Question 53

What are the requisites of stipulation pour autrui?

Answer 53

1. There must be a stipulation in favor of a third person
2. The contracting parties must have clearly and deliberately confers a favor upon a third person
3. The stipulation should be a part and not the whole of the contract or the contract itself
4. The third person must have communicated his acceptance to the obligor before its revocation by the obligee or the original parties.
5. Neither of the contracting parties bears the legal representation or authorization of the third party for otherwise the rules on agency will apply

Question 54

P owes G 10,000 with 12% interest payable on Dec 25. In the contract, the 12% interest will be given to B. What will happen to the contract?

Answer 54

B must communicate his acceptance to P and G otherwise she will not be entitled by the benefit of the contract

Question 55

D obtained a loan from C amounting to 100,000. The parties agreed that the loan shall bear an interest of 1% per month to be paid by D to X until the principal is paid in full. The stipulation for the payment of interest to X who is not a party to the contract is a stipulation pour autrui. If X did not receive the payment of interest, can he sue D?

Answer 55

Yes, X can sue on the contract although he is not party if he does not receive the interest.

Question 56

D owes several creditors, one of whom is C. X promises to supply D with money which the latter needs to pay his debts. When C could not collect from D. he sued X claiming that there was a stipulation in the promise of X granting him (C) the right to proceed against X for the payment of his claim against D. Does C have the right to proceed against X?

Answer 56

No, C does not have such right because he was a mere incidental beneficiary of the promise made by X to D. There was no stipulation in the promise made by X clearly and deliberately conferring a favor upon him.

Question 57

Where a third person induces another to violate his contract, in which case, such third person may be held liable for damages by the other contracting party.

T or F?

Answer 57

True

Question 58

P mortgage a land to G as a security to his debt. However, P’s payment is still not enough to pay his debt, therefore he sold the same land to B. What will happen to the contract?

Answer 58

Here, B should respect the rights of G to the land

Question 59

D has a contract for 5 years with XYZ Broadcasting Company. During the second year of the contract, RST Radio Company, with knowledge of the existing contract between D and XYZ, induced D to sign a contract as radio talent of RST. What will happen to the contract?

Answer 59

XYZ may sue RST (and also D) for damages under the contract between D and XYZ although RST is not a party thereto.

Question 60

In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby.

T or F?

Answer 60

T

Question 61

P owes G 1M. Because he cannot pay G, P knows that G can proceeds on his property that’s why to defraud G, P donates his only property to B. What will happen to the obligation?

Answer 61

Here, G has the right to rescind the contract between P and B

Question 62

D obtained a loan of 200,000 from C. The loan is secured by a mortgage of D’s lot, which C recorded with the Register of Deeds. Later, D sold the lot to X who was not aware of the mortgage. When D could not pay the loan on due date, C foreclosed the mortgage on the lot. What will happen to the contract?

Answer 62

Here, X would be bound by the mortgage although he was not a party thereto because the mortgage created a real right in favor of C. This is true even if X was not aware of it since the registration of the mortgage operates as a notice to the whole world of the existence thereof.

Question 63

In contracts intended to defraud creditors, the law gives them protection if the third person acted in bad faith.

True or False?

Answer 63

True

Question 64

G, a known movie actress has a 1 year contract with 123 Studio. B, a friend of G induces G to break her contract without justifiable cause. What will happen to the contract?

Answer 64

Here, 123 Studio can sue B for damages

Question 65

D owed C 100,000. To defraud C, D sold his only lot to X who knew of D’s fraudulent intent, i.e., in bad faith. What will happen to the contract?

Answer 65

Here, C may sue for the rescission of the sale between D and X although he was not a party to it.

Question 66

Under this principle, 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.

Answer 66

Consensuality of contracts

Question 67

What are the exceptions of consensuality of contracts?

Answer 67

Real and Formal Contracts

a. In real contracts such as deposit, pledge and commodatum, which are perfected upon the delivery of the object of the obligation. (Art. 1316)

b. In formal or solemn contracts, which are required to be in the form provided by law, to be perfected, such as the donation of an immovable which must be in a public instrument together with the acceptance thereof (Art. 749); otherwise, the contract is void.

Question 68

On June 1, P borrowed money from G worth 10,000 with a promise to give diamond ring as security for the loan on June 15. When G already gave the 10,000 without P giving the ring, there is only a contract of loan. However when P then gave the diamond ring, what will happen to the contract?

Answer 68

Then there is a contract of pledge.

Question 69

Obligations arising from contracts shall have the force of law between the contracting parties and should be complied with in good faith.

True or False?

Answer 69

True

Question 70

Upon the perfection of the contract, the parties are bound to what following?

Answer 70

a. The fulfillment of what has been expressly stipulated.

b. All the consequences which, according to their nature, may be in keeping with good faith, usage and law. (Art. 1315)

Question 71

On June 1, S and B entered into a contract of sale involving the horse of S for 10,000. The terms of the contract provide that S must deliver the horse on June 30, while B must pay the price on June 25. In the place of S and B, it is the usage that when one sells a horse, he must place a horseshoe on its hooves. However, this is not stated in the contract. To what consequences are the parties bound?

Answer 71

S must deliver the horse on June 30 as stipulated. Before delivery, he must take care of the horse, with the diligence of a good father of a family although it was not stipulated because this is provided by law and in keeping with good faith. He must place a horseshoe on the hooves of the horse although this was not also stipulated because the same is required by the usage of the place where they reside.

On the other hand, D must pay the price on June 25 also as stipulated. He must pay the whole amount because of the requirement of the law that payment must be complete.

Question 72

G owes a car. Later on, P sold the car to B in the name of G without being unauthorized. What will happen to the contract?

Answer 72

Sale being unauthorized is unenforceable

Question 73

G owes a car. Later on, P sold the car to B in the name of G without being unauthorized. Here, the contract is unenforceable. However, If there is a situation that G collects the payment to B, what will happen to the contract?

Answer 73

The contract is now enforceable since there is an implied ratification when P sold the car without her consent. (there is a retroactive effect)

Question 74

What are the requisites for a person to contract in the name of another?

Answer 74

1. He must be authorized (expressly or impliedly)
2. He must have by law, a right to represent him
3. The contract must be subsequently ratified (express or implied) Ratified – giving formal consent
4. He must act within his power