by: Bryan Glenn Fabiaña
This article gives the definition of a contract. It lay emphasis on the meeting of the minds between two contracting parties which takes place when an offer by one party is accepted by the other.
Contract distinguish from obligation-
Contract as ditinguish from obligation is that contract is one of the sources of oligations. on the other hand obligation is the legal tie or relation itself that exist after a contract has been entered into. Hence, there can be no contract if there is no obligation. But an obligation may exist without contract.
Contract is deemed perfected or given force by the law when the components of consent, object and consideration are present.
Illustration:
When Ben offers to sell his cake to Mona in the amount of five hundred pesos and Mona agrees to the cost, there is perfected contract of sale.
Stages of Making A Contract-
1st: Conception is the first stage where the parties begin their initial negotiation for the formation of the contract.
2nd: Perfection or Birth is the second stage. Here the parties had a meeting of minds or mutually agreed as to the object and consideration.
3rd: Consumation is the last stage which consist in the performance of the obligation. the parties ceased to be contractually related to one another.
By: Johannes Aquino
Ang magkabilang panig ay maaring gumawa ng kontrata na naayon lamang sa batas, moralidad, mabuting gawi, pampublikong kaayusan, at pampublikong polisiya.
Freedom to contract guaranteed.
The freedom to contract is both a constitutional and statutory right.
The right to enter into contracts is one of the liberties guaranteed to the individual by the Constitution. It also signifies or implies the right to choose with whom one desires to contract. The Constitution prohibits the passage of any law impairing the obligation contracts. (Art. III, Sec. 10 thereof.) However, the constitutional prohibition against the impairment of contractual obligations refers only to legally valid contracts. In appropriate cases, it cannot be invoked as against the right of the state to exercise its police power.
In other words, an individual does not have an absolute right to enter into any kind of contract. However, because the autonomy or freedom of contract is both a constitutional and statutory right, to uphold the right, courts are enjoined to move with the necessary caution and prudence in holding contracts void. The binding force of a contract must be recognized as far as it is legally possible to do so. The legal presumption is always on the validity of contracts.
Limitations on contractual stipulations.
There are limitations to the freedom to contract.
- — It is a fundamental requirement that the contract entered into must be in accordance with, and not repugnant to, an applicable statute. Its terms are embodied in every contract. Without need for the parties expressly making reference to it, an existing law enters and forms part of a valid contract.
- Police power. — Public welfare is superior to private rights. When there is no law in existence or when the law is silent, the will of the parties prevails unless their contract contravenes the limitation of morals, good customs, public order, or public policy. The policy of protecting contracts against impairment presupposes the maintenance of a government by virtue of which contractual relations are worthwhile — a government which retains adequate authority to secure the peace and good order of society.
Contract must not be contrary to law. A contract intended to circumvent and violate the law is void ab initio.
Contract must not be contrary to morals. Morals deal with norms of good and right conduct evolved in a community. These norms may differ at different times and places and with each group of people. Ex. A contract to live together without the benefit of marriage in consideration for a sum of money is immoral.
Contract must not be contrary to good customs. Customs consist of habits and practices which through long usage have been followed and enforced by society or some part of it as binding rules of conduct. It has the force of law when recognized and enforced by law. Ex. A notarized legal separation agreement between husband and wife is contrary to good customs.
Contract must not be contrary to public order. Public order refers principally to public safety although it has been considered to mean also the public weal (well-being). Ex. A contract legalizing adultery or concubinage.
Contract must not be contrary to public policy. Public policy is broader than public order, as the former may refer not only to public safety but also to considerations which are moved by the common good. Ex. A contract entered into by a prosecutor not to prosecute a carnapper in consideration for P1,000.00 is against the public policy to punish crimes.
Illustration
Facts: Charvet Singson bought two lots in Camel Homes subdivision covered by certificates of title on which are annotated certain restrictions on the use of the property, one of which was the lots are exclusively for residential purposes. Mekeni Villar, the subdivision owner, filed a suit to stop the construction of a commercial building by Charbet on the ground that it violated the restrictions on the title. Charbet bought the property two years after the area had been declared by a municipal council resolution as a commercial and industrial zone. Mekeni Villar invoked the principle of non-impairment of contracts, contending that the resolution cannot nullify the contractual obligations assumed by Charbet Singson referring to the restrictions incorporated in the deeds of sale and later in the corresponding Transfer Certificates of Title issued to him.
Issue: Is the contention of Mekeni Villar tenable?
Held: No. While non-impairment of contracts is constitutionally guaranteed, the rule is not absolute, since it has to be reconciled with the legitimate exercise of police power, i.e., “the power to prescribe regulations to promote the health, morals, peace, education, good order or safety and general welfare of the people.” The resolution in question was obviously passed by the Municipal Council in the exercise of police power.
By: Kristia Capio
Artikulo 1299. Kung ang orihinal na obligasyon ay sumasailalim sa isang suspensive o resolutory na kondisyon, ang bagong obligasyon ay dapat na sa ilalim ng parehong kondisyon, maliban kung ito ay nakasulat.
If the first obligation is subject to a suspensive or resolutory condition, the second obligation is deemed subject to the same condition unless the contrary is stipulated by the parties in their contract. The reason for the rule contained in Article 1299 is that the efficacy of the new obligation depends upon whether the condition which affects the old obligation is complied with or not. If the condition is suspensive, and it is not complied with, no obligation arises; and if it is resolutory and it is complied with, the old obligation is extinguished.
CASE DIGEST
THE UNITED STATES vs. FRANCISCO BAUTISTA
G.R. No. L-2189 November 3, 1906
CARSON, J.
Facts: In 1903 a junta was organized and a conspiracy entered into by a number of Filipinos in Hongkong, for the purpose of overthrowing the government of the United States in the Philippine Islands by force of arms and establishing a new government.
Francisco Bautista (1), a close friend of the chief of military forces (of the conspirators) took part of several meetings. Tomas Puzon (2) held several conferences whereat plans are made for the coming insurrection; he was appointed Brigadier-General of the Signal Corps of the revolutionary forces. Aniceto de Guzman (3) accepted some bonds from one of the conspirators.
The lower court convicted the three men of conspiracy. Bautista was sentenced to 4 years imprisonment and a P3,000 fine; Puzon and De Guzman to 3 years imprisonment and P1,000.
Issue: Whether or not the accused are guilty of conspiracy?
Ruling: Judgment for Bautista and Puzon CONFIRMED. Judgment for de Guzman REVERSED. Yes, Bautista and Puzon are guilty of conspiracy. Bautista was fully aware of the purposes of the meetings he participated in, and even gave an assurance to the chief of military forces that he is making the necessary preparations. Puzon voluntarily accepted his appointment and in doing so assumed all the obligations implied by such acceptance. This may be considered as an evidence of the criminal connection of the accused with the conspiracy.
However, de Guzman is not guilty of conspiracy. He might have been helping the conspirators by accepting bonds in the bundles, but he has not been aware of the contents nor does he was, in any occasion, assumed any obligation with respect to those bonds.
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
Janine Gumangol
COMMENT:
This Article stresses the mutuality of contracts–that is both, both parties are bound. The principle is based on the essential equality of the parties.
Melencio versus Dy Tiao
5 Phil. 99
FACTS: Two persons entered into a contract of lease of land. It was stipulated that at any time before the tenant constructed any building thereon, he could cancel the lease.
ISSUE: Is the stipulation valid?
HELD: Yes, when cancellation is made, this by itself is a fulfillment of the provisions of a contract.
Article 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.
By: Janine Gumangol
Example: In a contract of sale, the fixing of the price and the delivery date can be lleft to a third person.
Note: The decision binds the parties only after it is made known to both.
EFFECT WHERE DETERMINATION IS INEQUITABLE
A contracting party is not bound by the determination if it is evidently inequitable or unjust as when the third person acted in bad faith or by mistake.
Article 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.
By: Algy Riguer
Whatever be the determination made by the third person shall bind both parties, except when it is evidently iniquitous, in which case the court shall decide whatever is fair.
EXAMPLE:
Juan a tenant of a rice field of Mrs Dela Cruz was not able to give the lease due to Mrs Dela Cruz for two consecutive rice season. Who will decide on the case? How do you think it will be decided? Justice or Equity?
Base on Article 1310, the Court will only be the one to decide on the based on justice and equity. Justice means giving each what is due but equity is a process by which court relax the sanctions of the law for humanitarian consideration.
Article 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.
By: Rose Ann Villanueva
Ang kontrata ay magkakaroon lamang ng bisa sa pagitan ng partido, ang kanilang itinalaga, at ang taga-pagmana, maliban na lang kung ang karapatan at obligasyon ay magmumula sa kontrata, ito ay hindi maaaring mailipat dahil sa katangian, o ng mga istipulasyon o ang probisyon ng batas. Ang tagapagpamana ay mananagot lamang ng nauukol sa halaga ng ari-arian na kanyang tinanggap galing sa namatay.
Kung ang kontrata aymayroong ilang istipulasyon na pumapabor sa ibang tao, sya ay maaring maghabol sa kondisyon na kanyang ipinagbibigy-alam ang pagtanggap sa may obligasyon bago ang pagbawi. Ang kaugnay na benepisyo o ang interes ng isang tao ay hindi sapat. Ang dalawang partidong sumasang-ayon sa kontrata ay dapat mayroon na malinaw at sadyang pakikipag-ugnayan na pumapanig sa ibang tao.
Heirs and assigns are liable for a contract entered into by the decedent because generally the rights and obligations are transmissible to them.
What a person can receive by way of inheritance, and therefore as an heir, cannot be less than his legitime; neither can he be obliged to pay more on an inherited obligation than the estate that he inherited.
General rule:
Third person has no rights and obligations under a contract to which he is a stranger.
Instances where a third person may be affected by a contract:
- In contracts containing a stipulation in favor of a third person (stipulation pour trui)
- In contracts creating real rights
- In contracts entered into to defaud creditors
- In contracts which have been violated at the inducement of a third person
General Rule:
Creditors are not affected by the contracts of their debtors.
Rules:
- Contracts made in fraud of creditors may be rescinded (Art.1381)
- Contracts by which a debtor gratuitously disposes of his property, or alienations made even for a valuable consideration when a judgment has been rendered or an attachment has been levied are considered fraudulent
- Transfers or assignments made by an insolvent are deemed fraudulent and should be set aside.
Example:
Don Camello owes 50,000.00 to Don Facundo. If Don Camello dies, his daughter Carmenchu has the obligation to pay Don Facundo but not beyond the value of the property that she inherited from Don Camello.
Papito ordered a cake for his daughter Papita from Mrs. Baker. Papita as the daughter of Papito may demand the cake from Mrs. Baker.
Article 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.
By: Jayson Calventas
Sa mga kasunduan na lumilikha ng mga tunay na karapatan, ang ibang mga tao na nagmayhawak ng bagay ng kasunduan ay saklaw din niyon, sang-ayon sa mga probisyon ng Mortgage Law at ng Mga Batas sa Pagpaparehistro ng Lupa..
Article 1312 NCC | speaks of…
Third persons bound by contracts creating real rights
- GENERAL RULE | Third persons have nothing to do with contracts entered into by other persons.
- However, third persons are bound by contracts creating real rights when the third person comes into possession of the object of the contract.
- A real right is binding against the whole world and attaches to the property over which it is exercised wherever it goes.
Article 1312 NCC | example:
- Arturo leases his property to Ben.
- Ben registers such lease.
- Later, with the consent of Ben, Arturo sells the same property to Charlie.
- Charlie, who was an outsider to the lease contract bet. Arturo and Ben, has become the buyer of the object of the contract of lease. He must honor the lease contract between Arturo and Ben.
Article 1313. Creditors are protected in cases of contracts intended to defraud them.
By: Janine Gumangol
Right of Defrauded Creditors
This Article represents another instance when an outsider can in a sense interfere with another’s contract.
Example: If Leah gratuitously gives Piolo a parcel of land, said creditors may ask for the rescission of the contract, to the extent that they have been prejudiced.
Article 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.
By: Johannes Aquino
Sinumang magsulsol sa isa na labagin ang kanyang kontrata ay mananagot sa pinsala na naidulot sa kabilang partido.
Liability of third person responsible for breach of contract.
This is a rule of American law. It is also proper under the general principles of the Philippine law, because a contractual right is property. Article 1314 recognizes an instance when a stranger to a contract can be sued for damages for his unwarranted interference with the contract.
The tort or wrongful conduct is known as “interference with contractual relations.’’ It presupposes that the contract interfered with is valid and the third person has knowledge of the existence of the contract or must have known of it after a reasonable inquiry.
The word “induce’’ in the provision refers to situations where a person causes another to choose one course of conduct by persuasion or intimidation. The interference or inducement gives rise to liabilities for damages because it violates the property rights of a party in a contract to reap the benefits that should result therefrom.
Injunction is the appropriate remedy to prevent a wrongful interference with contracts by strangers to such contracts where the legal remedy is insufficient and the resulting injury is irreparable.
Illustration:
After agreeing to sell her parcel of land to Kokey, Princess Sarah sells the land to Cedie instead because of the inducement of Heidi. In this case, Kokey can sue Heidi for damages. However, the liability of Heidi for damages cannot be more than that of Princess Sarah for the latter’s violation of his contract. To hold Heidi liable for damages in excess of those that can be recovered against Princess Sarah “would lead to a result at once grotesque and unjust.’’ At most, Heidi would be solidarily liable with Princess Sarah. What would be the source of the obligation of Heidi? Her liability will be based on the theory of quasi-delict. The responsibility of two or more persons who are liable for a quasi-delict is solidary.
Article 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.
By: Kristia Capio
Artikulo 1315. Ang mga kontrata na naperpekto sa pamamagitan ng pahintulot, at mula sa panahon na ang mga patido ay obligado hindi lamang sa katuparan ng nabangit na stipulasyon kundi pati na rin sa mga kahihinatnan na kung saan, ayon sa kanilang likas, ay pag sunod ng buong pagtitiwala, pag gamit at batas.
CLASSIFICATIONS OF CONTRACTS ACCORDING TO PERFECTION
(1) Consensual contract or that which is perfected by mere consent of the parties.
ILLUSTRATION
When Anne (an employer) hires Bryan (an employee), as soon as both have agreed on the terms of employment, a contract commences.
(2) Real contract or that which is perfected, in addition to the above, by the delivery of the thing subject matter of the contract.
ILLUSTRATION
Xian borrowed from Yanee Php 5,000. As Xian’s security for the debt, Xian promised to pledge his diamond ring to Yanee.
Before the delivery of the ring to Yanee, the contract of pledge is not yet perfected. If Xian later on refuses to pledge the ring, Yanee can demand the payment of the obligation although it is with a period. But Yanee cannot require Xian to deliver the ring as security because there is no real contract of pledge yet. There is merely a consensual contract to constitute a pledge. What exists, is a personal right, the right of action on the part of Yanee to demand the constitution of the pledge.
EFFECT OF PERFECTION OF THE CONTRACT
From the moment the parties come to an agreement on a definite subject matter and valid consideration they are bound not only:
(1) to the fulfillment of what has been expressly stipulated
EXAMPLE
Anne sold a horse to Bryan for Php 15, 000. The details of this contract as regards the place of delivery of the horse and payment of the price, the time of delivery and payment, etc. are not included. These details are furnished by law and have been taken up in the various provision of the Code.
(2) to all the consequences which according to their nature, may be in keeping with good faith, usage, and law. (Art. 1315.)
EXAMPLE
Anne agreed to sell his horse to Bryan. It was stipulated that Anne should deliver the horse to Bryan the next day.
In this case, Anne has the obligation to deliver the horse the next day as expressly stipulated in the contract. Anne has also the obligation to take care of the horse pending delivery and to warrant that he has the right to sell the horse although nothing is said about the obligation in the contract as this is in keeping with good faith, usage, and law.
Article 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation.
By: Bryan Glenn Fabiana
Comment:
This article makes a distinction between a contract that is perfected by consent or consensual or ordinary contract. A real contract is those contracts that cannot be perfected without the delivery such as commodatum, pledge and loan.
Commodatum refers to a gratuitous loan of a movable property which is to be returned undamaged to the lender.
Pledge is a bailment that conveys possessory title to property owned by the debtor to a creditor to secure repayment of some debts.
Illustration:
When one enters into a contract of pledge, the contract is not perfected until the object pledged to the creditor.
Supposed Mr. Lhullier wants to convert his 24 carat ring to money because he is in dire financial constraints and he needs cash. Thereafter, he approached Mrs. Tambunting the cashier of ZYZ Pawnshop. In order to constitute a contract of pledge the ring must be placed in the possession of Mrs. Tambunting.
In real contracts delivery of the object is necessary because without the object the other party cannot exercise his duties under the contract.
Article 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.
By: Janine Gumangol
Requisites for a Person to Contract in the Name of Another
A) He must be duly authorized (expressly or impliedly); or
B) He must have by law a right to represent him (guardian or administrator); or
C) The contract must be subsequently RATIFIED (expressly or impliedly).
Example of Unauthorized (a Form of Unenforceable) Contract
In Marga’s name, but without her authorization, Cassie sold Marga’s car to Hector. The sale of the car is unauthorized.
Note: In the example given, mere lapse of time cannot cure the defect; this is not the ratification required by law (Tipton versus Velasco, 6 Phil. 67).
EFFECT: Contract is unenforceable when it is represented by a person who is not authorized or has no legal representation.
REMEDY: Ratification either express or implied by the person on whose behalf it has been executed.
EFFECT OF RATIFICATION: Ratification cleanses the contract from all its defects from the moment the contract was entered into.
Note: There can be no more ratification if the contract has previously been REVOKED by the other contracting party.
OBLIGATIONS AND CONTRACTS 