CE LAW, ETHICS, AND

CONTRACTS
CE 14

AJDM
CONTRACTS
Article 1305

• A contr ct is meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service.
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 CONTRACTS
Article 1305

• Distinction between contr ct nd oblig tion

• Contr ct is one of the sources of oblig tions.

• Oblig tion is the leg l tie or rel tion itself th t exists fter contr ct h s been entered into.

• Hence, there c n be no contr ct if there is no oblig tion. But n oblig tion m y exist without
contr ct.
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 CONTRACTS
Article 1305

• Distinction between contr ct nd greement

• Contr cts re greements enforce ble through leg l proceedings.

• Those greements which c nnot be enforced by ction in the courts of justice (like n
greement to go to d nce p rty) re not contr cts but merely mor l or soci l greements.

• An greement is bro der th n contr ct bec use the former m y not h ve ll the elements of
contr ct. (see Art. 1318.)

• So, ll contr cts re greements but not ll greements re contr cts.

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 CONTRACTS
Article 1305

• Ch r cteristics of contr cts

• 1. Freedom or utonomy of contr cts

• The p rties m y est blish such stipul tions, cl uses, terms, nd conditions s they m y
deem convenient, provided, they re not contr ry to l w, mor ls, good customs, public
order, nd public policy (Art. 1306.);

• 2. Oblig toriness of contr cts

• Oblig tions rising from contr cts h ve the force of l w between the contr cting p rties
nd should be complied with in good f ith (Arts. 1159, 1315.);
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 CONTRACTS
Article 1305

• Ch r cteristics of contr cts

• 3. Mutu lity of contr cts

• Contr cts must bind both nd not one of the contr cting p rties; their v lidity or
compli nce c nnot be left to the will of one of them (Art. 1308.);

• 4. Consensu lity of contr cts

• Contr cts re perfected, s gener l rule, by mere consent, nd from th t moment the
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p rties re bound not only by the ful illment of wh t h s been expressly stipul ted but lso
to ll the consequences which, ccording to their n ture, m y be in keeping with good
f ith, us ge nd l w (Art. 1315.); nd
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 CONTRACTS
Article 1305

• Ch r cteristics of contr cts

• 5. Rel tivity of contr cts

• Contr cts t ke e ect only between the p rties, their ssigns nd heirs, except in c ses
where the rights nd oblig tions rising from the contr ct re not tr nsmissible by their
n ture, or by stipul tion, or by provision of l w. (Art. 1311.)
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CONTRACTS
Article 1306

• The contr cting p rties m y est blish such stipul tions, cl uses, terms nd
conditions s they m y deem convenient, provided they re not contr ry to l w,
mor ls, good customs, public order, or public policy.
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 CONTRACTS
Article 1306

• Freedom to contr ct gu r nteed.

• Limit tions to contr ctu l stipul tions

• 1. L w

• 2. Police power

• Public welf re is superior to priv te rights. When there is no l w in existence or when the
l w is silent, the will of the p rties prev ils unless their contr ct contr venes the
limit tion of mor ls, good customs, public order, or public policy.
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 CONTRACTS
Article 1306

• Contr ct must not be contr ry to l w.

• l w h s been de ined s “ rule of conduct, just, oblig tory, promulg ted by legitim te
uthority, nd of common observ nce nd bene it.” (1 S nchez Rom n 3.)

• A contr ct c nnot be given e ect if it is contr ry to l w bec use l w is superior to

contr ct. (Art. 1409[1].)

• Acts executed g inst the provisions of m nd tory or prohibitory l ws re void, except

when the l w itself uthorizes their v lidity. (Art. 5.)

• Although contr ct is the l w between the p rties (Art. 1159.), the contr cting p rties must
respect the l w which is deemed to be n integr l p rt of every contr ct. (see Art. 1315.)
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 CONTRACTS
Article 1306

• Contr ct must not be contr ry to mor ls.

• Mor ls de l with norms of good nd right conduct evolved in community. These norms m y di er t
di erent times nd pl ces nd with e ch group of people.

• Ex mples:

• 1. A contr ct, whereby X promised to live s the common-l w wife of B without the bene it of m rri ge
in consider tion of P50,000.00, is immor l nd, therefore, void. (see B t rr vs. M rcos, 7 Phil. 156
[1906].)

• 2. An greement whereby X is to render service s serv nt to Y without compens tion s long s X

h s not p id his debt is reprehensible nd censur ble. (see De los Reyes vs. Aloj do, 16 Phil. 499
[1910].) It is lso contr ry to l w. (Art. 1689.)
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 CONTRACTS
Article 1306

• Contr ct must not be contr ry to good customs.

• Customs consist of h bits nd pr ctices which through long us ge h ve been followed

nd enforced by society or some p rt of it s binding rules of conduct.

• Ex mple:

• Husb nd nd wife entered into n greement to sep r te mutu lly nd volunt rily. This is
not v lid. They “ re contr ry to l w, mor ls, nd good customs nd tend to subvert the
vit l found tion of the legitim te f mily.” (Biton vs. Momongon, 62 Phil. 7 [1935], cited in
Selenov vs. Mendoz , infr .)
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 CONTRACTS
Article 1306

• Contr ct must not be contr ry to public order.

• Public order refers princip lly to public s fety lthough it h s been considered to me n
lso the public we l.

• Ex mple:

• Contr ct leg lizes the commission of dultery or concubin ge. This greement is not
v lid. While dultery nd concubin ge re priv te crimes, they still rem in crimes, nd
contr ct leg lizing their commission is contr ry to l w, mor ls, nd public order nd s
consequence, not judici lly recogniz ble. (Sel nov vs. Mendoz , Adm. M tter No. 804-
C.J., 64 SCRA 69 [1975].)
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 CONTRACTS
Article 1306

• Contr ct must not be contr ry to public policy.

• Public policy is bro der th n public order, s the former m y refer not only to public s fety
but lso to consider tions which re moved by the common good. (Report of Code
10

Commission, p. 134.)

• Ex mple:

• X stole the c r of Y. L ter, they entered into contr ct whereby Y would not prosecute X in
consider tion of P1,000.00. It is to the interest of society th t crimes be punished. The
greement between X nd Y is, therefore, contr ry to public policy bec use it seeks to
prevent or sti le the prosecution of X for theft. (Arroyo vs. Berwin, 36 Phil. 386 [1917])
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CONTRACTS
Article 1307

• Innomin te contr cts sh ll be regul ted by the stipul tions of the p rties, by the
provisions of Titles I nd II of this Book, by the rules governing the most n logous
nomin te contr cts, nd by the customs of the pl ce.
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 CONTRACTS
Article 1307

• Cl ssi ic tion of contr cts ccording to its n me or design tion.

• 1) Nomin te contr ct or th t which h s speci ic n me or design tion in l w (e.g.,

commod tum, le se, gency, s le, etc.); nd

• 2) Innomin te contr ct or th t which h s no speci ic n me or design tion in l w.

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CONTRACTS
Article 1307

• Kinds of innomin te contr ct.

• 1) do ut des (I give th t you m y give);

• 2) do ut f ci s (I give th t you m y do);

• 3) f cio ut des (I do th t you m y give); nd

• 4) f cio ut f ci s (I do th t you m y do).

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CONTRACTS
Article 1307

• Innomin te contr cts re b sed on the well-known principle th t “no one sh ll unjustly
enrich himself t the expense of nother.”
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CONTRACTS
Article 1308

• The contr cts must bind both contr cting p rties; its v lidity or compli nce c nnot be
left to the will of one of them.
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 CONTRACTS
Article 1308

• The ultim te purpose of the principle is to nullify contr ct cont ining condition which
m kes its ful illment or pre-termin tion dependent exclusively upon the uncontrolled will of
one of the contr cting p rties.

• Bre ch of contr ct is de ined s the “f ilure without leg l re son to comply with the terms of
the contr ct’’ or the “f ilure without leg l excuse to perform ny promise which forms the
whole or p rt of the contr ct.
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CONTRACTS
Article 1308

• A contr ct cont ining condition which m kes its ful illment or extinguishment dependent
exclusively upon the uncontrolled will of one of the contr cting p rties is void.

• No p rty c n renounce or viol te the l w of the contr ct unil ter lly or without the consent
of the other.

• Hence, “its v lidity or compli nce c nnot be left to the will of one of them.” (Art. 1308; see
Art. 1182.)
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 CONTRACTS
Article 1308

• If fter perfect nd binding contr ct h s been executed between the p rties it occurs to
one of them to llege defect s re son for nnulling it, the lleged defect must be
conclusively proved since the v lidity nd ful illment of contr cts c nnot be left to the will of
one of the contr cting p rties.

• It is the duty of every contr cting p rty to le rn nd know the contents of document
before he signs nd delivers it.
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CONTRACTS
Article 1308

• The mere f ct th t p rty to contr ct h s m de b d b rg in, m y not be ground for

setting side the greement. (see Art. 1355.)

• Where, however, the perform nce of the contr ct h s become so di icult s to be m nifestly
beyond the contempl tion of the p rties, the obligor m y be rele sed therefrom, in whole or
in p rt. (Art. 1267.)

• The debtor in oblig tions to do sh ll lso be rele sed when the prest tion becomes leg lly
or physic lly impossible without the f ult of the obligor. (Art. 1266.)
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CONTRACTS
Article 1309

• The determin tion of the perform nce m y be left to third person, whose decision
sh ll not be binding until it h s been m de known to both contr cting p rties.
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CONTRACTS
Article 1309

• Under the preceding rticle, compli nce with contr ct c nnot be left to the will of one of
the contr cting p rties. However, under the this provision (Article 1309), the determin tion of
its perform nce m y be left to third person. (see Arts. 2042-2046.)

• The decision, however, of the third person sh ll bind the p rties only fter it h s been m de
known to both of them.
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CONTRACTS
Article 1309

• Ex mple:

• S sold his p rcel of l nd to B. It w s greed th t X, re l est te ppr iser, would be the one
to determine the re son ble price of the l nd. (see Art. 1469.) X, then, ixed the price fter
considering ll the circumst nces nd f ctors ecting the v lue of the l nd.

• In this c se, X must m ke known his decision to S nd B who will be bound by the s me.
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CONTRACTS
Article 1310

• The determin tion sh ll not be oblig tory if it is evidently inequit ble. In such c se,
the courts sh ll decide wh t is equit ble under the circumst nces.
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 CONTRACTS
Article 1311

• Contr cts t ke e ect only between the p rties, their ssigns nd heirs, except in c se
where the rights nd oblig tions rising from the contr ct re not tr nsmissible by
their n ture, or by stipul tion or by provision of l w. The heir is not li ble beyond the
v lue of the property he received from the decedent.

• If contr ct should cont in some stipul tion in f vor of third person, he m y

dem nd its ful i llment provided he com- munic ted his ccept nce to the obligor
before its revoc tion. A mere incident l bene i t or interest of person is not su i
cient. The contr cting p rties must h ve cle rly nd deliber tely con- ferred f vor
upon third person.
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 CONTRACTS
Article 1311

• A contr ct c n bind only the p rties (their heirs or ssigns) who h d entered into it nd
c nnot f vor or prejudice third person, even if he is w re of such contr ct nd h s cted
with knowledge thereof.

• When there is no privity of contr ct, there is no oblig tion or li bility to spe k bout nd thus,
no c use of ction rrests.
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CONTRACTS
Article 1311
• Ex mple:

• D is indebted to C in the mount of P10,000.00. D nd C re the p rties to the contr ct.

• If C dies, D must p y the heirs of C. If C ssigns his credit to X, then D is li ble to p y X.

• If D dies nd Y is the heir, then Y ssumes the oblig tion of D to C. (see Arts. 776, 781.) Y is
bound by the contr ct entered into by D, his predecessor-in-interest, in view of the privity of
interest between him nd D. The de th of p rty does not excuse non-perform nce of
contr ct which involves property right or interest in the subject m tter of the contr ct. The
right nd the oblig tion thereunder p ss to the person l represent tive(s) of the dece sed.

• However, Y is not li ble beyond the v lue of the property he inherits from D, the
decedent. (Art. 1311, p r. 1.)
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 CONTRACTS
Article 1311

• The c ses when contr ct re e ective only between the p rties re when the rights nd
oblig tions rising from the contr ct re not tr nsmissible:

• ) by their n ture (like contr ct requiring or involving person l qu li ic tions, s p inting,

singing, etc.); or

• b) by stipul tion (in ccord nce with the principle of freedom to contr ct); or

• c) by provision of l w ( s in gency, p rtnership, nd commod tum, when de th

extinguishes the leg l rel tionships). (Art. 1178.)
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 CONTRACTS
Article 1311

• C ses when str ngers or third persons ected by contr ct.

• A third person is one who h s not t ken p rt in contr ct nd is, therefore, str nger to the
contr ct.

• As gener l rule, third person h s no rights nd oblig tions un- der contr ct to which he
is str nger. (Art. 1311, p r. 1.) He h s no leg l st nding or c p city to dem nd the
enforcement of contr ct or ss il its v lidity
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CONTRACTS
Article 1311

• There re c ses, however, when third persons m y be ected by contr ct.

• 1) In contr cts cont ining stipul tion in f vor of third person (stipul tion pour utrui) (Art.
1311, p r. 2.);

• 2) In contr cts cre ting re l rights (Art. 1312.);

• 3) In contr cts entered into to defr ud creditors (Art. 1313.); nd

• 4) In contr cts which h ve been viol ted t the inducement of the third person (Art. 1314.).
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 CONTRACTS
Article 1311

• Me ning of stipul tion pour utrui.

• Stipul tion pour utrui is stipul tion in contr ct cle rly nd deliber tely conferring
f vor upon third person who h s right to dem nd its ful illment, provided, he
communic tes his ccept nce to the obligor before its revoc tion by the obligee or the
origin l p rties.
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CONTRACTS
Article 1311

• Ex mple:

• D owes C P10,000.00 p y ble fter one (1) ye r t 14% interest. It w s greed th t the
interest of P1,400.00 would be given to T to whom C is indebted for the s me mount.

• In this c se, T must communic te his ccept nce to D before the revoc tion of the
stipul tion by the p rties in order th t the s me will be e ective. From the moment
communic tion of ccept nce is duly m de, T becomes p rty to the contr ct. The
promisee (C) in contr ct cont ining stipul tion pour utrui is entitled to bring n ction
for its enforcement or to prevent its bre ch in the s me m nner s the bene ici ry (T)
thereof.
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Thank you.