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OBLIGATIONS AND
CONTRACTS
Laguna State Polytechnic University – Juris Doctor, Class
of 2019
 CHAPTER 1.
GENERAL PROVISIO
NS
Posted on 3 Apr 2019

CHAPTER 1. GENERAL PROVISIONS

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.
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.

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.
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.

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.
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.

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CHAPTER 1. CHAPTER 2. CHAPTER 4.

GENERAL ESSENTIAL REFORMATION
PROVISIONS REQUISITES OF OF
20 Feb 2019 CONTRACTS INSTRUMENTS
3 Apr 2019 3 Apr 2019

Author:
Laguna State Polytechnic
University
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