LAW ON CONTRACTS
GENERAL PROVISIONS
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Article 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. (1254a)
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DEFINITION OF CONTRACTS -
โ A meeting of the minds between two
persons โ both parties must agree.
โ One binds himself with respect to the
other โ the parties are legally bound to each
other.
โ To give something or to render some
service โ the parties have their obligations
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Article 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.
(1255a))
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PRINCIPLE OF AUTONOMY OF CONTRACTS
Also known as the freedom of contracts or liberty of
contracts.
Contracts have the force of law between the parties and
they are free to stipulate any matter.
However, regulatory laws are also deemed written
therein and shall limit and govern the relations between
the parties; the contract must not be executed contrary to
law morals could customs public order or public policy.
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Article 1307. Innominate contracts shall be regulated
by the stipulations of the parties, by the provisions of
Titles I and II of this Book, by the rules governing the most
analogous nominate contracts, and by the customs of the
place.
โ INNOMINATE CONTRACTS โ These are
contracts that are not specifically identified nor
regulated by special provisions of law.
โ NOMINATE CONTRACTS โ contracts that
have individuality and are specifically
regulated by the special provisions of law.
INNOMINATE CONTRACTS
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Article 1308. The contract must bind both
contracting parties; its validity or compliance cannot be
left to the will of one of them. (1256a)
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MUTUALITY OF CONTRACTS
This principle prevents contracts from stipulating a
condition whose fulfillment is reliant on the will of one of
the contracting parties.
โ 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; the determination
shall not be obligatory if it is evidently unfair.
(1309 & 1310)
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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. (1257a)
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RELATIVITY OF CONTRACTS
states that only bind the parties who had entered
into it or their successors assumed their
personalities or their juridical positions, and that as
consequence such contract can neither favor nor
prejudice a third person. There are exemptions to
the principle of relativity:
โ Stipulation pour autrui โ a third
person may demand a fulfillment of a
stipulation in favor of him as long as he as
communicated is acceptance to the
obligor before its revocation. (1311)
โ Any third person was come into
possession of the object of the contract
are bound thereby. (1312)
โ In cases of fraudulent contracts, creditors
are protected. (1313)
โ Principle of Tort Interference โ the
contracting parties may sue a third person
who has induced one of them to breach
the contract.
โ For there to be tort interference,
there must be an (1)
already-existing valid contract,
(2) knowledge on the part of the
third person of the existence of
such contract, and an
interference made by the third
person that is not legally
justifiable.
