 ARTICLE 1305

Contracts is the meeting of minds between two persons whereby one binds himself, with
respect to another or others, to the fulfillment to give something, to do or render something or
refrain from doing some particular things.

Contract is one of the sources of obligations. On the other hand, obligation is the legal tie that
exists after a contract has been entered into.

Classifications of Contracts

1. Nominate – contracts with specific names or designation in law

2. Innominate – contracts with no specific names or designation in law
3. Unilateral – when it creates an obligations on the part of only one of the parties
4. Bilateral – when it give rise to reciprocal obligations for both parties
5. Accessory – when it is dependent upon another contract it secures or guarantees for its
existence and validity
6. Principal when it does not depend for its existence and validity upon another contract but is
an indispensable condition for existence of an accessory contract
7. Indivisible – when each part of the contract is dependent upon the other parts for
satisfactory performance
8. Divisible – when one part of the contracts may be satisfactory performed independently of
the other parts

 ARTICLE 1306

Valid Contracts are those that meet all the legal requirement and limitations for the type of
agreement involved and are therefore legally binding and enforceable. The right to enter into a
contract is one of the liberties guaranteed to the individual by the constitution.

The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided that they are not:
1. Contrary to law – acts executed against the provisions of mandatory or prohibitory laws are
void. The contracting parties must respect the law which is deemed to be an integral part of
every contract.
2. Morals – it deals with norms of good and right conduct
3. Customs – consists of habits and practices which through long usage have been followed
and enforced by society
4. Public Order – it refers to the public safety although it has been considered to mean also the
public weal
5. Public Policy – it is broader than public order, that it may refer to considerations which are
moved by the common good
 ARTICLE 1308
A contract is an agreement which gives rise to obligations. It must bind both parties in order that
it can be enforced against either. There must be mutual consent.

 ARTICLE 1309

The compliance with a contract cannot be left to the will of one of the contracting parties.
However, the determination of its performance may be left to a third person. The decision shall
bind the parties only after it has been made known to both of them.

 ARTICLE 1310

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 1311

A party’s rights and obligation derived from a contract are transmissible to the successors. Only
the parties, their assigns and heirs can have the rights and obligation under the contract. The
act, declaration, or omission of a person cannot affect or prejudice another without the latter’s
authorization or ratification. Except, when the rights and obligations arising from the contract
are not transmissible by their nature, by stipulation or by provision of law.

A third person is one who has not taken part in a contract and is a stranger to the contract. A
third person has no rights and obligations under a contract to which he is a stranger. Except,
there are cases when the third person is affected by a contract: 1) in contracts containing a
stipulation in favor of a third person 2) in contracts creating real rights 3) in contracts entered
into to defraud creditors, and 3) in contracts which have been violated at the inducement of a
third person.

 ARTICLE 1312

Contracts binds only the parties. Except, third persons who come into possession of the object
of a contract over which there is a real right, are bound thereby even if they were not parties to
the contract.

 ARTICLE 1313
 The creditor is given the right to impugn the contracts of his debtor to defraud him.
 ARTICLE 1314

A stranger to a contract can be sued for damages for his unwarranted interference with the
contract. It is presume that the contract interfered with is valid and the third person has
knowledge of the existence of contract.

 ARTICLE 1315

Classifications of contracts according to perfection

a. Consensual Contract – which is perfected by mere consent.
b. Real Contract – which is perfected by the delivery of the thing subject matter of the
contract.
c. Solemn Contract – which requires compliance with certain formalities prescribed by law.

Stages of the Life of a Contract

1. Preparation or Negotiation – steps taken by the parties leading to the perfection of the
contracts.
2. Perfection or Birth – when parties have come to definite agreement or meeting of minds
regarding the subject matter and cause of the contract.
3. Consummation or Termination – when the parties have performed their respective
obligations and the contract may be said to have been fully accomplished resulting in the
extinguishment or termination.

 ARTICLE 1317

A person is not bound by the contract of another of which he has no knowledge. A contract
entered into in the name of another by ones who has no authority is unenforceable against the
former unless it is ratified by him before it is revoked by the other contracting party.