Just 5 things to keep in mind re contracts law


The law on contracts has 117 provisions. However, it is an open secret that there are only five basic things to keep in mind when studying contracts. All other provisions (Articles 1305 to 1422) are either explanations or exceptions to these five things.

First, what are these five things we are talking about? They are: (1) obligatory force of obligations arising from contracts; (2) relativity of contracts; (3) consensuality of contracts; (4) autonomy of contracts; and (5) mutuality of contracts. These are the five general principles governing contracts.

Below is a short discussion of each principle. Also shown below are provisions under the law on contracts under the Civil Code of the Philippines arranged in such a way that it shows under which of these five general principles each provision falls.

IMPORTANT NOTE: At the end of this post, there is a two-hour video explaining contracts law. We believe said video is useful and we highly recommend that you take time watching. <3

[1] OBLIGATORY FORCE

Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. This one is actually under the law on obligations.

Obligations either arise from law or contracts and they are juridical necessities. In other words, they have to be complied with. It follows that, under the law, obligations arising from contracts and those arising from law are viewed as having the same binding effect. They are necessities the compliance with which may be enforced in court and noncompliance with the same has legal consequences.

Under this principle of obligatory force, it can also be said that contracts are the law and, as a result, courts must enforce them between the contracting parties. Also, courts cannot make a contract or a stipulation if there is none.

[2] RELATIVITY OF CONTRACTS

Not all people can be harmed or benefited by a contract. As a rule, only the parties are affected. Of course, when rights under a contract are assignable and assigned as such, the assignee may be harmed or affected. The same goes for heirs of a contracting party who has died.

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.

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. (n)

Article 1313. Creditors are protected in cases of contracts intended to defraud them.

Article 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.

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.

[3] CONSENSUALITY OF CONTRACTS

Contracts, as a general rule, are perfected by the meeting of the minds of the contracting parties. They are obligatory in any form (oral or written) as long as parties have agreed to undertake their obligations under the contract. The clue is "meeting of the minds."

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.

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.

Article 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation.

[4] AUTONOMY OF CONTRACTS

Contracting parties are the kings and queens of their own kingdom which is the contract. They are allowed to stipulate anything as long as not contrary to certain limitations.

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.

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.

[5] MUTUALITY OF CONTRACTS

The terms to remember here are "mutual" and "unilateral." Contracts are agreed upon by mutual consent. Therefore, their compliance or validity must also be mutual. There are also instances when extinguishment of an obligation arising from contract can be terminated as long as such termination is mutual (not unilateral). In fact, a party cannot unilaterally give up or modify what is incumbent upon him under the contract.

Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

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.

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.

To read to more about the rules governing contracts, go to: https://www.projectjurisprudence.com/2019/01/more-rules-under-contract-law.html.

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