law on contracts (obligations and contracts)

law on contracts (obligations and contracts)

1. Contract

2. What is CONTRACT?
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.

3. BASIC PRINCIPLES OF
A CONTRACT

4. Basic Principles of a Contract
1.
2.
3.
4.
5.
Freedom (or liberty) to Stipulate
Mutuality of Contract
Relativity of Contract
Consensuality of Contract
Obligatory Force and Compliance in
Good Faith

5. I. Freedom to STIPULATE
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.

6. I. Freedom to STIPULATE
1.
2.
3.
4.
5.
LIMITATIONS ON THE NATURE OF
THE STIPULATION:
Law
Morals
Good customs
Public order
Public policy

7. II. MUTUALITY of Contract
Art. 1308. The contract
must bind both contracting
parties; its validity or
compliance cannot be left
to the will of one of them.

8. II. MUTUALITY of Contract



Reciprocity
Binding to both parties

A party cannot revoke or
renounce a contract without the
consent of the other, nor can it
have it set aside on the ground
that he had made a bad bargain.

9. III. RELATIVITY of Contract
Art. 1311. 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.

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 and deliberately
conferred a favor upon a third person.

10. III. RELATIVITY of Contract

GENERAL RULE: Contracts take effect
only between the parties, their
assigns and their heirs.

A contract can only bind the parties who
had entered into it or their successors
who assumed their personalities or their
juridical positions, and that, as a
consequence, such contract can neither
favor nor prejudice a third person.

11. III. RELATIVITY of Contract
1.
2.
3.
Exception: (when strangers
can be bound to the contract):

STIPULATION POUR AUTRUI
CONTRACTS INTENDED TO
DEFRAUD CREDITORS
INSTIGATION BY A 3RD PERSON

12. III. RELATIVITY of Contract
1.
2.
3.
Exception: (when strangers
can be bound to the contract):

STIPULATION POUR AUTRUI
CONTRACTS INTENDED TO
DEFRAUD CREDITORS
INSTIGATION BY A 3RD PERSON

13. III. RELATIVITY of Contract
1.


STIPULATION POUR AUTRUI
“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.”
(Par.2 Art. 1311)
Stipulation in favor of a third person

14. III. RELATIVITY of Contract
1.

1.
2.
STIPULATION POUR AUTRUI
Example:
D purchased C’s land for Php10,000,000.00.
It was also agreed that only
Php8,000,000.00 would be given to C,
because the remaining Php2,000,000
would be given by D to X, a creditor of C. If
X communicates his acceptance of the
stipulation to D, X can demand its
fulfillment.
Insurance taken by a PUV company in favor
of its passengers.

15. III. RELATIVITY of Contract
1.

1.
2.
3.
4.
5.
STIPULATION POUR AUTRUI
Requisites:
There must be a stipulation in favor of a third
person.
The stipulation must be a part, not the whole of
the contract.
The contracting parties must have clearly and
deliberately conferred a favor upon a third person,
not a mere incidental benefit or interest.
The third person must have communicated his
acceptance to the obligor before its revocation.
Neither of the contracting parties bears the legal
representation or authorization of the third party.

16. III. RELATIVITY of Contract
2.

CONTRACTS INTENDED TO
DEFRAUD CREDITORS
“Art. 1313. Creditors are
protected in cases of contracts
intended to defraud them.”

17. III. RELATIVITY of Contract
2.

CONTRACTS INTENDED TO
DEFRAUD CREDITORS
Example:
If A gratuitously gives B a parcel of
land, and A has no other property or
cash left to satisfy his creditors, said
creditors may ask for the rescission
of the contract, to the extent that
they have been prejudiced.

18. III. RELATIVITY of Contract
3.INSTIGATION BY A THIRD
PERSON
“Art. 1314. Any third person who
induces another to violate his
contract shall be liable for
damages to the other
contracting party.”

19. III. RELATIVITY of Contract
3.

INSTIGATION BY A THIRD
PERSON
This is an instance when a
stranger to a contract can be
sued in view of unwarranted
interference. Whoever is injured
may properly sue for damages.

20. III. RELATIVITY of Contract
3.

INSTIGATION BY A THIRD
PERSON
Example:
S, a movie actress, has a one-year
contract with XYZ Studio. If F, a
friend of S induces her, without
justifiable cause, to break the
contract, then XYZ Studio can sue F
for damages.

21. IV.CONSENSUALITY of Contract
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.

22. IV.CONSENSUALITY of Contract
1.


2.


3.


How contracts are PERFECTED?
CONSENSUAL CONTRACTS
By mere consent
Ex. Contract of Sale
REAL CONTRACTS
Perfected by delivery
Ex. Contract of pledge
FORMAL/SOLEMN CONTRACTS
Perfected only upon compliance of the
special form required
Ex. Donation of a real property.

23. IV.CONSENSUALITY of Contract
1.


1.


2.


How contracts are PERFECTED?

CONSENSUAL CONTRACTS
By mere consent
Ex. Contract of Sale
REAL CONTRACTS (Art. 1316.)
Perfected by delivery
Ex. Contract of pledge
FORMAL/SOLEMN CONTRACTS
Perfected only upon compliance of the special
form required
Ex. Donation of a real property.

24. V. Obligatory Force and
Compliance in Good Faith
Art. 1159. Obligations arising
from contracts have the force
of law between the contracting
parties and should be
complied with in good faith.