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

Elements of a Contract

a. essential elements (without them a contract cannot exist) (Examples: consent, subject matter, cause or consideration)

(NOTE: In some contracts, form is also essential; still in others, delivery is

likewise essential.)

(b) natural elements (those found in certain contracts, and presumed to exist, unless the contrary has been stipulated) (Example: warranty against eviction

and against hiddendefects in the contract of sale)

(c) accidental elements (These are the various particular stipulations that may be agreed upon by the contracting parties in a contract. They are called

accidental, because they may be present or absent, depending upon whether

or not the parties have agreed upon them.) (Examples: the stipulation to pay

credit; the stipulation to pay interest; the designation of the particular place for

delivery or payment.)

Basic Principles or Characteristics of a Contract

(a) Freedom (or liberty) to Stipulate(provided not contrary to law, morals, good

customs, public order, or public policy). (Art. 1306, Civil Code).It cited Article

1306 of the New Civil Code, under which 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.

(b) Obligatory Force and Compliance In Good Faith. (Arts. 1159 and 1315, id.).

(c) Perfection by Mere Consent (Consensuality) as a rule. (Art.1315, id.).

(d) Both Parties are Mutually Bound. (Art. 1308, id.).

(e) Relatively (Generally, it is binding only between the parties, their assigns,

and heirs). (Art. 1311, id.).

Stages of a Contract

1.Preparation (or Conception or Generacion) Here the parties are progressing with their negotiations; they have not yet arrived at any definite

agreement, although there may have been a preliminary offer and bargaining.

2. Perfection (or birth) Here the parties have at long last came to a definite agreement, the elements of definite subject matter and valid cause have

been accepted by mutual consent.

3. Consummation (or death or termination) Here the terms of the contract are performed, and the contract may be said to have been fully executed.

Examples of agreements which are contrary to public policy

1. those denying access to the courts

2. those which tend to stifle the prosecution of a person charged with a crime,

for a pecuniary or other valuable consideration.

3. those exempting a carrier from liability for gross negligence.

4. those which encourage fraud

5. those which authorize any attorney selected by the creditor to state before

the court, should suit for collection be brought, that the debtor recognizes the

existence and validity of the debt.

6. those which constitute an undue or unreasonable restraint of trade, such as

a prohibition to engage in any enterprise (whether similar or not with the

enterpriseof the employer) within a period of five years after leaving the service

of the employer.

7. A stipulation allowing an agent or middleman 10% of a quota allocation in

foreign exchange from the Central Bank

8. A stipulation bargaining away or surrendering for a consideration the right to

vote and to run for public office.

Art. 1308. The contract must bind both contracting parties; its validity or

compliance cannot be left to the will of one of them.

Principle of Mutuality of Contracts - that is,both parties are bound. The principle

is based on the essentialequality of the parties. It is repugnant to bind one

party, andyet leave the other free.

Consequences of MUTUALITY

1. 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.

2. When the fulfillment of the condition depends upon the sole will of the

debtor, the conditional obligation is void(Art. 1182, Civil Code) if the condition is

SUSPENSIVE If RESOLUTORY, the obligation is valid. Hence, it is all right for the

contract to expressly give to one party the right to CANCEL the same. This is

because, when the contract is thus cancelled, the agreement is really being

FULFILLED.

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 anddeliberately conferred a favor upon a

third person.

Principle of Relativity

This Article stresses the principle of RELATIVITY that is, contracts are generally effective only between the PARTIES, their ASSIGNS, and their HEIRS.

Exceptions to the Principle of Relativity

1.Where the obligations arising from the contract are not transmissible by their

NATURE, by STIPULATION, or by PROVISION OF LAW.

2. Where there is a STIPULATION POUR AUTRUI (a stipulation in favor of a third

party).

3. Where a third person induces another to violate his contract.

4. Where, in some cases, third persons may be adversely affected by a

contract where they did not participate.

5. Where the law authorizes the creditor to sue on a contract entered into by

his debtor.

Discussion of the General Rule

Contracts take effect only between the parties, their assigns, and heirs (Art. 1311, Civil Code), and, therefore, generally, its terms cannot determine the

rights of third persons.

The revocation, for example, of a deed of sale is not conclusive on those

individuals who are not parties thereto.

However, a person who takes advantage of a contract, although he is NOT a

signatory thereto, can properly be bound by the terms thereof. He cannot take

advantage of a contract when it suits him to do so, and reject its provision

when he thinks otherwise.

Reasons for the rule:

Res inter aliosactaaliisnequenocetprodest. (The act, declaration, or omission of another, cannot affect another, except as otherwise provided by law or

agreement.)

Strangers, therefore, cannot generally demand the enforcement of a contract;

nor can they demand its annulment; nor are they bound by the same.

He who has no right in a contract is not entitled to prosecute an action for

nullity. The person who is not a party to a contract or has no cause of action or

representation from those who intervened therein has no right of action and

personality so as to enable him to assail the validity of the contract

S sold and delivered his property to B on credit. It was agreed that B

should not sell the property to another, til after the price had been paid in full to S. Subsequently, B sold the property to X although B has not yet paid fully the

price. May the sale of X be cancelled on this ground?

ANS.: No, because X was not a party to the agreement between S and B.

S may, however, sue B for damages.

Heirs are bound to respect the contracts entered into by their

predecessors in interest (Art. 1311, Civil Code) in view of their PRIVITY OF

INTEREST with such predecessor. Therefore, if the predecessor was duty-bound

to reconvey land to another, and at his death the reconveyance had not yet

been made, the heirs can be compelled to execute the proper deed for

reconveyance. The heirs, however, are not liable beyond the value of the

property they received from the decedent.

In order that an heir can question the validity of contracts entered into by his

predecessor, or bring an action to annul the same, he must be a compulsory or

forced heir, for the simple reason that the deceased could do with the property

whatever he desired, as long as he respects the rights of his compulsory or

forced heirs.

Question: May compulsory heirs question the deceaseds transactions?

ANS.:

1) if they were voidable YES. (Velarde v. Paez, supra).

2) if they were illicit or illegal NO, because eventhe deceased had no right to question them herself,and had no right to recover the properties illicitly

conveyed. HOWEVER, an action to RESCINDthecontract can prosper, insofar as

the legitimes of the compulsory heirs are prejudiced, under Art. 1381(3) ofthe

Civil Code (which refers to the right of creditors to rescind contracts in fraud of

their rights), because the right to the legitime is similar to a credit of a creditor,

insofar as the right to the legitimemay be defeatedby such transaction.

Rights of the predecessor may be transmitted to the heirs provided they are not

intransmissible.

1) The heirs of the beneficiary of a trust may enforce the trust as against

the trustee. (Cristobal v. Gomez, 50Phil. 810