Summary - Lecture 1 (Topics 1 )

Contracts - meeting of minds between two person whereby one binds himself, with
respect to the other, to give something or to render some service. (Art 1305)

Criticisms to the Definition:

1. To give something or to render some service”

- Obligation not to do is not covered”

Example: In a lease contract, Y lease his property to Z for a period of 6 years and
renewable for another 6 years.

2. Whereby one binds himself

- Most contracts are reciprocal or bilateral legal transactions”

Example: K provided a loan to G in the sum of 50,000, G in return is promises to

pay the sum he received from K.

3. Between two persons

- There must be atleast two persons or parties, since it is impossible for one to contract
with himself.

Example: A loan agreement between buyers and sellers of a furniture.

Auto Contracts - is a situation where one person is responsible for the perfection of the
contract but this person is acting into capacities on in behalf of himself, one in behalf of
another.

Rule: Generally valid, the number of parties is not determinative of the existence of
contracts of the existence of contracts.

1. Valid Auto-contracts

Example: An agent is empowered to borrow money however he may himself be the

lender at the current rate of interest.

2. Void Auto - Contracts

Example: The sale of land under guardianship where the buyer is the guardian.
Stages of Contracts:

1. Negotiation - This involves preliminary negotiations and bargaining, discussion of

terms and conditions with no arrival yet of a definite agreement.

Example: L sells TV sets which cost 30,000.00 each to J. J liked the TV sets and
offered to pay L an amount of 57,000.00 for two TV sets. (The parties have taken all the
steps that leads to the perfection of the contract but are still negotiating and have not yet
arrived at any definite agreement)

2. Perfection - There’s already a definite subject matter and a valid cause and all the
essential elements are present.

Example: L agreed with J’s offer to sell the 2 TV sets for 57,000.00. (The parties
have arrived at a definite agreement)

3. Consummation - The terms of the contract have already been performed.

Example: L delivered the TV sets to J, and upon arrival of the object J paid the
amount payable to L. (The contract have been executed since both parties have fulfilled
their respective obligation)
 Summary - Lecture 1 (Topics 2 )

Principles of Contracts:

1. Consensuality of Contracts - there must be consent from the parties. The rule is that
no one make contract in the name of the another without being authorized by that person
whom he purport to represent.

Example: Y is the owner of a land whom he pledged to the bank for the purpose of
paying his loan. However, Y leased the land to R without the knowledge of the bank.
(This scenario contradicts Consensuality of contracts)

Contract of Adhesion - there is already a prepared form containing the stipulations

desired by one party whereby the latter only asks the party to agree to them if he wants to
enter into contract.

Example: C is a student leader who seek organizers and wardrobe provider for the
pageantry event. C remembered that he has a friend who does what she seek and so he
contacted his friend and asked if he is willing to enter into contract with him. Afterwards,
they met and his friend agreed with the offer. C give the hard copy of contracts and was
signed by his friend.

2. Autonomy of Contracts - contracting parties have the freedom to stipulate any

provision, stipulation, terms and conditions as may deemed convenient as long as these
are not contrary to law, public policy, and morals. (Art.1306)

 LAW - a rule of conduct just obligatory promulgated by legitimate authority and of

common observance and benefit. A contract cannot be given effect if it is contrary to
law since law is superior to a contract.

Example: Two parties enter into a contract to hire one of them as a blackjack dealer,
but gambling is illegal in their state, then the contract will be void.

 MORALS - deals with norms of good and right conduct evolved in a community
which may differ at different times and places and with each group of people.

Example: H contracted M to kill Mr. K in exchange of house and lot. (This contract
is void since killing is a crime against humanity and is considered unethical.)

 GOOD 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.

Example: P entered into contract with V wherein P must leave her groom during the
wedding in exchange for a trip and work abroad. (The contract is void since it is against
the good custom of wedding.)
 PUBLIC ORDER - refers principally to public safety although it has been
considered the mean also the public weal.

Example: F commanded Q to deliver the drugs to someone in the corner and

promised to give Q a share after the delivery. (This contract is void for the reason that
it is a crime against public order.)

 PUBLIC POLICY - refers to considerations which are moved by the common good
of a contract which has a tendency to be injurious to the public.

Example: An employer forcing an employee to sign a contract forbidding medical

leave. ( This contract is void as it is against public policy which can result to breach
of law)

3. Mutuality - both parties should be bound to abide by it and validity and compliance
cannot be left to one of them but determination of performance may be left to a third
party.

Example: The seller of goods agreed to lower it’s price as the buyer agreed to fulfill
her condition.( There is mutuality and the contracts binds them both.)

Escalation Clause - refers to a clause in contracts that provides the compensation of one
of the parties is increase or decrease. However, it is void when the increase is dependent
upon the will of the parties.

4. Obligatory of Contracts - obligations arising from contracts have the force of law.
(Art 1159).

Example: One party is obligated to transfer ownership of the automobile, while the
other is obliged to pay for it.

5. Relativity of Contracts - the contracts takes effect or is binding only between parties,
their heirs and assigns (privies).

Rules: The heirs are liable to the debts of decedent only up to the extent of the property
inherited. It is the only the natural obligation of the heirs to pay the unpaid debts of their
predecessor.

Example: N received cash amounting to 150,000 as inheritance from her deceased

father. Little did he knows, his father have left an upaid debt amounting to 500,000. (In
this scenario, N is only liable up to 150,000 since it only the amount he inherited.
Furthermore, he is not liable for the entire obligation because the rule states that the
heirs are only liable only up to extend of the property inherited.)