TITLE 2 CH.1 CONTRACTS- GENERAL PROVISIONS

Question 1

Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit.

Answer 1

Art. 1305. 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.

Question 2

When does the meeting of minds between two contracting parties occur?

Answer 2

The meeting of minds between two (2) contracting parties occur when an offer made by one (1) party is accepted by the other.

Question 3

What is the rule regarding the number of parties in a contract?

Answer 3

“In a contract, there must be at least two (2) persons or parties, because it is impossible for one to contract with himself.

A single person may create a contract by himself where he represents distinct interests, (e.g., his own and that of another for whom he acts as agent. “

Question 4

What is the difference between a contract and an obligation?

Answer 4

“A contract is one of the sources of obligation (Art. 1157) while an obligation is the legal tie or relation itself that exists after a contract has been entered into.

There can be no contract without an obligation, but an obligation may exist even if there is no contract.”

Question 5

Art. 1306. The contracting parties may establish […], provided they are […].

Answer 5

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.

Question 6

What is the criteria for a valid contract?

Answer 6

A valid contract (1) meets all the legal requisites for the type of agreement involved (Art. 1318); and (2) within the limitation on contractual stipulations provided in Art. 1306.

Question 7

What are the limitations in contractual stipulations?

Answer 7

The limitations on the freedom to contract are: (1) Law; and (2) Police power.

Question 8

Art. 1307. Innominate contracts shall be regulated by […], by the […], by the […] and by the […].

Answer 8

Art. 1307. Innominate contracts shall be regulated by 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.

Question 9

What is the difference between a Nominate contract and an Innominate contract?

Answer 9

A nominate contract is that which has a specified name or designation in law while an innominate contract or that which has no specific name or designation in law.

Question 10

What shall govern innominate contracts?

Answer 10

“Innominate contracts shall be governed by:

(1) agreement of the parties;
(2) provisions of the Civil Code on obligations and contracts;
(3) rules governing the most analogous contracts; and
(4) customs of the place.”

Question 11

Art. 1308. The contracts must bind […]; its validity or compliance […].

Answer 11

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

Question 12

Art. 1309. The determination of the performance may be left to a […], whose decision shall not be binding until […].

Answer 12

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.

Question 13

Art. 1310. The determination shall not be obligatory if […]. In such case the courts shall […].

Answer 13

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

Question 14

“Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising […] by their nature, or by stipulation or by provision of law. The heir is not liable beyond […].

If a contracts should contain some stipulation in favor of a third person, he may […] provided he […] before its […]. A […] of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. “

Answer 14

“Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contracts 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 contracts 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. “

Question 15

When will rights and obligations derived from a contract be deemed not transmissible?

Answer 15

“Rights and obligations shall not be transmissible in the following circumstances:

(1) By the nature of the contracat (e.g. contract involving personal qualifications like singing or painting);
(2) By stipulation of the contract (in accordance with the principle of freedom to contract);
(3) By provision of law (as in agency, partnership, and commodatum, when death extinguishes the legal relationships). (Art. 1178)

Recall: Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. “

Question 16

What is a stipulation pour autrui?

Answer 16

A stipulation pour autrui is a stipulation in a contract which clearly and deliberately conferres a favor upon a third person. As a general rule, a third person is a stranger to a contract and therefore has no right to demand the fulfillment of the obligation. However, a third person can demand when there is a stipulation pour autrui.

Question 17

When there is a stipulation pour autrui in a contract, what is the rule which the third person must observe in order to make a valid demand the fulfillment of the obligation?

Answer 17

In case of a stipulation pour autrui, the third person may demand the fulfillment of the contract provided that (1) he communicated his acceptance to the obligor (2) before the revocation of the contract. Furthermore, the stipulation pour autrui must clearly and deliberately confer the favor upon a third person in order for him to make a demand. (Art. 1311 par.2)

Question 18

What are the two kinds of stipulation pour autrui?

Answer 18

“The two kinds of stipulation pour autrui are:

(1) When the third person is a donee-beneficiary; the stipulation is intended for the sole benefit of a third person;
(2) When the third person is a creditor-beneficiary; the stipulation creates an obligation that is due from the promisee to the third person which the former seeksk to discharge by means of such stipulation.”

Question 19

What are the requisites of a stipulation pour autrui?

Answer 19

“The requisites of a stipulation pour autrui are:

(1) The stipulation must have clearly and deliberately conferred a favor upon a third person;
(2) The third person must have communicated his acceptance to the obligor before its revocation by the obligee or the original parties;
(3) The stipulation in favor of the third person should be a part, not the whole, of the contract;
(4) The favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; and
(5) Neither of the contracting parties bears the legal represenation or authorization of the third party.”

Question 20

What is the general rule regarding third persons right to demand in a contract, and what is/are the exception/s?

Answer 20

“As a general rule, third persons do not have a right to demand from the contract because they are strangers to a contract (Art. 1311 par.1). However, exceptions are admitted in the following cases:

(1) There is a stipulation pour autrui (Art. 1311);
(2) In contracts creating real rights (Art. 1312);
(3) In contracts entered into to defraud creditors (Art. 1313); and
(4) In contracts which have been violated at the inducement of a third person (Art. 1314)”

Question 21

Art. 1312. In contracts creating […], third persons who come into possession of the object of the contract are […], subject to the provisions of the Mortgage Law and the Land Registration laws.

Answer 21

Art. 1312. In contracts creating real rights, third persons 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.

Question 22

Why is a contract creating a real right binding upon third persons who come into possession of the object of the contract?

Answer 22

A contract creating real rights binds third persons when they have come into possession of the object of the contract because a real right is a right binding against the wole world (everybody) and attaches to the property over which it is exercised wherever it goes.

Question 23

Art. 1313. Creditors are protected in cases of contracts intended […].

Answer 23

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

Question 24

Art. 1314. Any third person who induces […] shall be liable for damages to the other contracting party.

Answer 24

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

Question 25

Art. 1315. Contracts are perfected by […], and from that moment the parties are […] but also to […] which, according to their nature, may be in keeping with […], […] and […].

Answer 25

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.

Question 26

Art. 1316. Real contracts, such as […], […] and […], are not perfected until […].

Answer 26

Art. 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation.

Question 27

What are the classifications of contracts as to perfection?

Answer 27

“The classification of contracts as to perfection are:

(1) consensual contracts - when they are perfected by mere consent (Art. 1315);
(2) real contract - when they areperfected by the delivery of the prestation (Art. 1316); and
(3) solemn contracts - when their perfection requires certain formalities; e.g. donation of real property which needs to be notarized. (Art. 1356)”

Question 28

What is the general rule as to the perfection of a contract, and what are the exceptions?

Answer 28

As a general rule, contracts are perfected by mere consent (Art. 1315). However, exceptions are (1) real contracts (Art. 1316); and (2) solemn contracts.

Question 29

What are the stages in the life of a contract?

Answer 29

“The stages in the life of a contract are:

(1) preparation or negotiation - all steps leading to the perfection; parties have not yet arrived at a definite agreement;
(2) perfection or birth - parties have come to a definite agreement or meeting of minds;
(3) consummation or termination - parties have performed respective obligations and the contract has been fully accomplished.

*A contract may also be terminated after its perfection, not by performance, but by mutual agreement of the parties. “

Question 30

What are the legal effects of the perfection of a contract?

Answer 30

“The legal effects of the perfection of a contract are:

(1) The parties are bound to the fulfillment of what has been expressly stipulated but also;
(2) All the consequences which according to their nature, may be in keeping with good faith, usage and law.”

Question 31

“Art. 1317. No one may contract […] without […], or unless he has by […].

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be […], unless it is […], […], by […], before it is […]. “

Answer 31

“Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. “

Question 32

What is the effect of an unauthorized contract, and how is it remedied?

Answer 32

The legal effect of an unauthorized contract is that it shall be unenforceable unless the principal has ratified the contract prior to the revocation of the contract by the other party. (Art. 1317)