CHARACTERISTICS OF CONTRACT

1. Mutuality of Contract - it binds both parties and its compliance cannot be left to the will of just one of them

2. Obligatory Nature of Contract - it has the force and effect of a law between the contracting parties

3. Relativity of Contract - it takes effect only between the parties, their assigns and heirs except if not transmissible by its nature, or by stipulation, or by provision of law

4. Autonomy of Contract - the parties may establish such stipulations, clauses, terms and conditions as they may deem convenient subject to limitations

5. Consensuality of Contract - as a general rule, contracts are perfected by mere consent, and, from that time, the parties are bound not only by the fulfillment of what has been stipulated

ESSENTIAL ELEMENTS OF CONTRACT

1. Consent - when there is a certain offer by one party and there is an absolute acceptance by the other of the said offer

Q5 - Is the offer certain or acceptance absolute in the following statements?

"I am thinking of selling my only Samsung phone for Php40,000."

"I am selling my only Samsung phone for Php40,000."

"I might buy that Samsung phone for Php40,000."

"I am buying that Samsung phone for Php40,000."

2. Object - it is the thing, right or service that is to be provided or performed under the agreement

3. Cause/Consideration - it is the essential purpose or reason of the parties in entering into a contract

OTHER ELEMENTS OF CONTRACTNatural Elements - those which are presumed to be included in the contract even if not stipulated by the parties

Accidental Elements - those which are established in the contract by the parties, which consist of stipulations, terms and conditions

STAGES OF CONTRACT

1. Preparatory/Conception

2. Perfection/Birth

3. Consummation/Death

Q6. Identify the stages of contract in the following statements

1. X offers to sell mangoes to Y at Php150 per kilo.

2. Y offers to buy 50 kilos of mangoes from Y for Php130 per kilo

3. X offers to sell mangoes at P140 per kilo for a minimum of 100 kilos.

4. Y informs that he will buy 100 kilos of mangoes at P140 per kilo provided that Y will deliver the mangoes for free

5. X agrees to sell 100 kilos of mangoes at P140 per kilo with free delivery.

6. X delivers 100 mangoes to the house of Y.

7. Y pays Php14,000 to X.

CLASSIFICATIONS OF CONTRACT

1. Nominate - with a specific name given to the contract, i.e. contract of sale

Innominate - no specific name is given to the contract (See Article 1307)

Kinds of Innominate Contract

a. Do ut des - "I give that you may give."

b. Do ut facias - "I give that you may do."

c. Facio ut des - "I do that you may give."

d. Facio ut facias - "I do that you may do."

2. Consensual - it is perfected by mere consent, i.e. contract of sale (Art. 1315)

Real - it is perfected by consent plus delivery, (See Articles 1316)

3. Unilateral - it creates an obligation on only one party, i.e. commodatum

Bilateral - it creates an obligation on both parties, i.e. contract of sale

(See Article 1191)

4. Onerous - in fulfilling the contract, the cost is higher than the benefit

Remunerative - where one party give something or renders service to another in consideration of a previous deeds of the other

Gratuitous - only for the benefit of one party and the other receives nothing as consideration, i.e. contract of donation

5. Preparatory - when the contract is entered into as a means to an end, i.e. contract of partnership

Principal - when the contract does not depend for its existence and validity upon another contract but its presence is required for the existence of the accessory contract, i.e. contract of loan

Accessory - when in its dependent upon another contract it secures for its existence and validity, i.e. contract of mortgage

CLASSIFICATIONS OF CONTRACT

6. Informal (Common) - no requirement of a specific form for the contract to be valid or enforceable, i.e. contract of sale of personal property

Formal (Solemn) - it is required to be in a specific form to be valid or enforceable, i.e. contract of sale of real property (See Article 1356)

7. Onerous - in fulfilling the contract, the cost is higher than the benefit, i.e. contract of lease of stall for a business during covid 19 pandemic

Remunerative - where a party gives something or renders service to another in consideration of a previous deeds of the other

Gratuitous - only for the benefit of one party and the other receives nothing as consideration, i.e. contract of donation

8. Valid v Rescissible v Voidable v Unenforceable v Void

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.

In contrast and as defined, an obligation is a juridical necessity to give, to do or not to do. (Article 1156)

Q1 - What is the difference between contract and obligation?

Q2 - What is meant by "meeting of minds"?

Q3 - Per definition, does it mean that there can only be two persons in a contract?

Q4 - What are the characteristics of contracts?

A4 - (a) Mutuality (b) Obligatory (c) Relativity (d) Autonomy and

(e) Consensuality

ARTICLE 1311

Contracts take effect only between the parties, their assigns and heirs, except in cases 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.

Note - The above-cited provision speaks of the (1) principle of relativity, and (2) stipulation pour autrui.

PRINCIPLE OF RELATIVITY OF CONTRACT

Q7. Who may be affected by the contract or who can have rights and responsibilities under a contract?

A1 - The parties, their assigns, and their heirs may be affected by the contract.

Example -

X borrows Php5 Million from Y. Here, X must pay Php5 Million to Y. But if Y assigns his credit to Z, X must pay Php5 Million to Z. Or if Y dies without assigning his credit to anyone, X must pay the heirs

Q8 . If in the above example, it is X who dies, is his obligation to pay Php5 Million to Y already extinguished?

Q9. In Q2, can the spouse of X be held liable for the obligation to pay Php5 Million to Y under the following circumstances:

a. X leaves Php10 Million savings deposit?

b. X leaves Php2 Million savings deposit?

c. X leaves behind no asset or property to Y?

Q10 - What are the exceptions to the principle of relativity?

A10. Where the rights and obligations arising from the contract are:

a. not transmissible by their nature, (i.e. contracts requiring personal

qualifications)

b. by stipulation of the parties, (in line with autonomy of contract)

c. by provision of law (i.e. contract of agency)

STIPULATION POUR AUTRUI

General Rule - a third person has no rights and obligations under a contract to which he is a stranger, except when the contract contains a stipulation in favor of a third person (stipulation pour autrui).

Q11 - What is the meaning of stipulation pour autrui?

A11 - It is a stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its fulfillment, provided he communicates his acceptance to the obligor before its revocation by the oblige or the original parties.

Example -

X owes Php2 Million to Y, with a monthly interest of Php10,000, payable on 31 December 2021. X and Y agree that the monthly interest of Php10,000 will be given to Z to whom Y owes Php120,000.

ESSENTIAL ELEMENTS/REQUISITES OF CONTRACT

Article 1318 - There is no contract unless the following requisites concur (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established.

Article 1319 (first par) - Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

Q12. Define offer and acceptance.

A12. Offer is a proposal made by one party to another to enter into a contract, while acceptance is the manifestation by the offeree of his assent to the terms of the offer.

Q13. X offers to sell his used I-Phone 10 for Php50,000 to Y. Y offers to buy it at the said price payable in five (5) equal monthly installments, which counter offer is accepted by X. This shows consent by both parties. What are the object and the cause here?

A13. Consider two (2) schools of thought in this case.

Article 1319 (second par) - Acceptance made by a letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.

Q14. In a letter dated 23 November, X offered to sell a specific house and lot for Php2 Million to Y. Y, in a letter dated 30 November, accepted the offer of X. On 07 December, X wrote a letter of withdrawal of his offer to Y, which was mailed at 2:00 PM. At 4:00 PM of 07 December, X received the letter of acceptance of Y. Was there a meeting of minds?

Article 1323 - An offer becomes ineffective upon the death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed.

Q15. In a letter dated 23 November, X offered to sell his specific house and lot to Y for Php2 Million. Then, in a letter dated 30 November, Y accepted the offer of X. This letter was received by the wife of X on 07 December at 4:00 PM but X died in a hospital at 8:00 AM that day. Was the offer effective?

Q16. In a letter dated 23 November, X offered to sell his specific house and lot to Y for Php2 Million. Then, in a letter dated 30 November, Y accepted the offer of X. This letter was received by X on 07 December at 4:00 PM but Y died in a hospital at 8:00 AM that day. Was the offer effective?

Article 1324 - When the offerer has allowed the offeree certain period of time to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised.

Q17. X offered to sell his specific house and lot to Y for Php2 Million. Y could not make up his mind whether to buy the property or not. So, X gave Y a period of one (1) week to decide whether to accept the offer or not. After three (3) days, Z offered to buy the same property for Php2.5 Million, and so X informed Y that X is withdrawing his offer to Y. Is X not liable to Y? Explain.

Q18. Assuming that Y gave X the amount of Php50,000 in consideration of the option to buy the property for a period of one (1) week, can X sell the same property to Z for Php2.5 Million without being liable to Y?

Meaning of Option Contract - It is a contract granting a person the privilege to buy or not to buy certain objects at any time within the agreed period at a fixed price. The cause (money paid) is known as option money.

Q19 - In Q9, if Y informs X before the expiration of one (1) week grace period that Y has decided to buy the specific house and lot for Php2 Million, will the amount of Php50,000 option money be deducted from the selling price of Php2 Million?

Q20- What if, within the grace period of one (1) week, Y informs X that he has finally decided NOT to buy the house and lot offered by Y for sale, can Y ask X for the return of the Php50,000?

Q21 - Differentiate option money from earnest money.