Title 2: CONTRACTS

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.
This
contracts

states

the

statutory

definition

of

Contracta source of obligation and it can be

defined also as a legally enforceable agreement
o
A juridical convention manifested in legal
form, by virtue of which one or more persons bind
themselves in favor of another or others, or
reciprocally, to the fulfillment of a prestation to give,
to do or not to do.
o
An agreement whereby at least one of the
parties acquires a right, either in rem or in personam,
in relation to some person, thing, act or forbearance
Agreements falling under the Statute of
Frauds are useless contracts for they cannot be
implemented which, in effect, negates the existence
of a contract
Negotiationcovers the period from the time
the prospective contracting parties indicate interest in
the contract to the time the contract is concluded
(perfected)
Perfectiontakes place upon the concurrence
of the essential elements of the contract
A contract which is consensual as to
perfection is so established upon a mere meeting of
the minds i.e. the concurrence of offer and
acceptance, on the object and on the cause thereof
Real contracta contract which requires, in
addition to the above, the delivery of the object of the
agreement, as in a pledge or commodatum
Solemn contractcompliance with certain
formalities prescribed by law is essential in order to
make the act valid, the prescribed form being thereby
an essential element thereof
Stage of consummationbegins when the
parties perform their respective undertakings under
the contract culminating in the extinguishment
thereof
Other Terms (Contract):
a.
Perfect promise distinguished from a
contract, in that the latter establishes and determines
the obligations arising therefrom; while
the former tends only to assure and pave the way for
the celebration of a contract in the future.
b.
Imperfect Promise mere unaccepted offer
c.
Pact a special part of the contract,
sometimes incidental and separable for the principal
agreement

d.
Stipulation similar to a pact; when the
contract is an instrument, it refers to the essential
and dispositive part, as distinguished from the
exposition of the facts and antecedents upon which it
is based.
Number of Parties:
The Code states two persons; what is
meant actually is two parties. For a contract to
exist, there must be two parties. A party
can be one or more persons.
o
Husband & Wife: Husbands and wives cannot
sell to each other as a protection of the conjugal
partnership. They can however enter into a contract
of agency.
Auto-contractsIt
means
one
person
contracts himself. As a general rule, it is accepted in
our law. The existence of a contract does not depend
on the number of persons but on the number of
parties. There is no general prohibition against autocontracts; hence, it should be held valid.
Contracts of AdhesionContracts prepared by
another, containing provisions that he desires, and
asks the other party to agree to them if he wants to
enter into a contract.
o
Example: transportation tickets. It is valid
contract according to Tolentino because the other
party can reject it entirely.
Characteristics of Contracts: (3 elements)
1.
Essential elements without which there is no
contract; they are:
a.
consent
b.
c.

subject matter; and

cause

2.
Natural elements exist as part of the
contract even if the parties do not provide for them,
because the law, as suppletory to the contract,
creates them
3.
Accidental elements those which are agreed
by the parties and which cannot exist without
stipulated
Stages of a Contract: (3 stages)
1.
Preparation, Generation or Policitacion
period of negotiation and bargaining, ending at the
moment of agreement of the parties
2.
Perfection or Birth of the contract the
moment when the parties come to agree on the terms
of the contract
3.
Consummation or Death the fulfillment or
performance of the terms agreed upon in any
contract
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.
This
contracts

states

the

autonomous

nature

of

Freedom to stipulate terms and conditions

essence of the contractual system provided such
stipulations are not contrary to law, morals, good
customs, public order, or public policy
o
This also prohibits a party from coercing or
intimidating or unduly influencing another to enter
into a contract
Contractual
stipulations
contravening
provisions of law designed to protect laborers and
employees were not valid

o
Freedom of contract is restricted by law for
the good of the public. It is fundamental postulate
that however broad the freedom of the contracting
parties may be, it does not go so far as to
countenance disrespect for or failure to observe a
legal prescription. The Statute takes precedence.
o

Examples:

a.
A promissory note which represents a
gambling debt is unenforceable in the hands of the
assignee.
b.
Stipulations to pay usurious interests are void.
c.
A contract between to public service
companies to divide the territory is void because it
impairs the control of the Public
d.

Service Commission.

In the absence of express legislation or

constitutional prohibition, a court, in order to declare
void as against public policy, must find that the
contract, as to the consideration or thing to be done,
has a tendency to injure the public, is against the
public good, or contravene some established interest
of society, or is inconsistent with sound policy and
good morals which tends to undermine the security of
individual rights, whether of personal liability or of
private property

e.
Agreement to declare valid a law or ordinance
is void.

It is a rule that only laws existing at the time

of the execution of a contract are applicable thereto
and that later statutes do not govern said contract
unless the latter is specifically intended to have a
retroactive effect

a.
a promise to marry or nor to marry, to secure
legal separation, or to adopt a child
b.
a promise to change citizenship, profession,
religion or domicile

Non-impairment of contracts or vested rights

clauses will have to yield to the superior and
legitimate exercise by the State of police power to
promote the health, morals, peace, education, good
order, safety and general welfare of the people
Statutes promulgated in exercise of a valid
police power must be read into every contract
This article embodies
Autonomy of Contracts

the

Principle

o
Morals mean those generally accepted
principles of morality which have received some kind
of social and practical confirmation.
o

Examples:

c.
a promise not to hold public office or which
limits the performance of official duties
d.
a promise to enter a particular political party
or separate from it
e.
contracts which limit in an excessive manner
the personal or economic freedom of a person to
make an act dependent on money or some pecuniary
value, when it is of such a nature that it should not
depend thereon; payment to kill another.

of

Freedom to contract:
o
Any person has the liberty to enter into a
contract so long as they are not contrary to law,
morals, good customs, public order or public policy.
The legislature, under the constitution, is prohibited
from enacting laws to prescribe the terms of a legal
contract.
Validity of Stipulations:
Page 44 of 90
o
Any and all stipulations not contrary to law,
morals, good customs, public order or public policy is
valid
Contrary to law:

Contrary to Morals:

Contrary to Public Order:

o
Public order means the public weal or public
policy. It represents the public, social, and legal
interest in private law that which is permanent and
essential in institutions, which, even if favoring some
individual to whom the right pertains, cannot be left
to his own will. A contract is said to be against public
order if the court finds that the contract as to the
consideration or the thing to be done, contravenes
some established interest of society, or is inconsistent
with sound policy and good morals, or tends clearly to
undermine the security of individual rights.
o
Examples:
a.
Common
carrier
cannot
stipulate
for
exemption for liability unless such exemption is
justifiable and reasonable and the contract is freely
and fairly made.

b.
Payment to intermediaries in securing import
licenses or quota allocations.
c.
Contract of scholarship stipulating that the
student must remain in the same school and that he
waives his right to transfer to another school without
refunding the school
1144. The following actions must be brought
within ten years from the time the right of
action accrues:
1. Upon a written contract
2. Upon an obligation created by law
3. Upon a judgment

o
The 10-year period in the case of a written
contract is to be reckoned from that time which is not
necessarily the date of execution of the contract
Written contracts:
o Action for annulment under Art. 1391 shall be
brough within 4 years o A P.N or a check or a ticket
issued for transportation is a written contract
o
Right to claim payment of deficiency after
foreclosure of real estate mortgage prescribes in 10
years
Obligations created by law:
o
Obligation of the possessor to reconvey to the
true owner real property arising from a constructive
or implied trust
o
Obligation of the winner in a gambling game
to refund the amount won to the loser
o
Obligation of the lessor to indemnify the
lessee in good faith for useful improvements on the
property leased
o
Obligation of husband and wife, parents and
children, and brothers and sisters to support each
other
Judgmentjudgment that is final and

A.
o
Under Rules of Court, judgment may
be executed on motion within 5 years from the date
of its entry or from the date it becomes final and
executory. After the lapse of such time, and before it
is barred by the statute of limitations, it may be
enforced by ordinary action within 10 years
1145.
The
following
actions
must
commenced within six years:
1.
Upon an oral contract
2.
Upon a quasi-contract

Recover local license fees illegally

collected upon a quasi-contract
1146. The following actions must be instituted
within four years:

1.
Upon an injury to the rights of
the plaintiff

The computation of the period should start

from the date the cause of action accrues or from the
day the right of the plaintiff is violated

A.
executory

Action upon an oral contract of

tenancy to compel the reinstatement of a tenant
comes under the provision

be

2.

Upon a quasi-delict

Purpose of an action or suit and the

law to govern it, including the period of prescription,
are to be determined by the complaint itself, its
allegations and prayer for relief

the plaintiff:

Examples of injury to the rights of

o
A suit questioning the removal as
corporate secretary must be brought within 4 years
for the unjustified separation from employment or
illegal dismissal is an injury to the rights of the
plaintiff
o
Action for recovery of damages for taking or
retaining personal property, or incident to trespass
upon real estate prescribes within 4 years

Examples of quasi-delicts:
o
Prescriptive period is counted from
the day quasi-delict occurred or was committed
o
Action against the Central Bank for
tortuous inference, that is, in closing and
liquidating a bank
Other actions that prescribe in 4 years:
a.
To revoke or reduce a donation based
on the birth, appearance, or adoption of a child
b.
To revoke a donation based on noncompliance with a condition
c.
To rescind a contract
d.
To annul a contract
Chapter 1: Quasi-Contracts
2142. Certain lawful, voluntary and unilateral
acts give rise to the juridical relation of quasicontract to the end that no one shall be
unjustly enriched or benefited at the expense
of another.
A
contract

quasi-contract

is

not

an

implied

A juridical relation is created so that

nobody shall enrich himself at the expense of
another
2143. The provisions for quasi-contracts in this
Chapter do not exclude other quasi-contracts

which may come within the purview of the

preceding article.

owner of the
management.

Two obligations treated in the chapter

devoted to quasi-contracts:

The courts may, however, increase or moderate the

indemnity according to the circumstances of each
case.

1.
The obligation incident to the officious
management of the affairs of other persons (gestion
de negocios ajenos)
2.
The recovery of what has been
improperly paid (cobro de lo indebido)

However, the number of quasicontracts is not only confined in these two but may
be indefinite as may be the number of lawful acts, the
generation of the said obligation
Section 1: Negotiorum Gestio
2144. Whoever voluntarily takes charge of the
agency or management of the business or
property of another, without any power from
the latter, is obliged to continue the same until
the termination of the affair and its incidents,
or to require the person concerned to
substitute him, if the owner is in a position to
do so. This juridical relation does not arise in
either of these instances:
2.
1.
When the property or business is
not neglected or abandoned
3.
2.
If in fact the manager has been
tacitly authorized by the owner
In the first case, the provisions of Arts. 1317, 1403(1),
and 1404 regarding unauthorized contracts shall
govern.
In the second case, the rules on agency in Title X of
this Book shall be applicable.
2.
Negotiorum gestio is a quasi-contract
which should not be performed for profit

Circumstances under which one may

undertake to carry out a business matter for another
(gestion de negocios ajenos):
1.
They relate to determined things or
affairs, and that there be no administrator or
representative of the owner who is charged with the
management thereof
2.
That it be foreign to all idea of
express or tacit mandate on the part of the owner, for
it very often may happen even without his knowledge
3.
That the actor be inspired by the
beneficent idea of averting losses and damages to
the owner or to the interested party through
abandonment of the things that belong to him or of
the business in which he may be interested, that is,
the administration is not for profit
2145. The officious manager shall perform his
duties with all diligence of a good father of a
family, and pay the damages which through his
fault or negligence may be suffered by the

property

or

business

under

An officious manages is in a sense an intruder

in the business or the property of the owner
However, if his intrusion is with the objective of
preserving, managing and taking care of the property
without any intent to gain, a quasi-contract is created
2146. If the officious manager delegates to
another person all or some of his duties, he
shall be liable for the acts of the delegate,
without prejudice to the direct obligation of the
latter toward the owner of the business.
The responsibility of two or more officious managers
shall be solidary, unless the management was
assumed to save the thing or business from imminent
danger.
2147. The officious manager shall be liable for
any fortuitous event:
1.
If he undertakes risky operations
which the owner was not accustomed to
embark upon
2.
If he has preferred
interest to that of the owner

his

own

3.
If he fails to return the property
or business after demand by the owner
4.
If he assumed the management in
bad faith
First case: the business is simply providing
a warehouse for dolls, the officious manager stored
highly inflammable materials
Second case: same business,
officious manager also stored some of his
the warehouse. During flood, he chose to
goods first before that of the owner, the
manager will be liable for the loss

but the
goods in
save his
officious

2148. Except when the management was

assumed to save the property or business from
imminent danger, the officious manager shall
be liable for fortuitous events:
1.
If he is manifestly unfit to carry on the
management
2.
If by his intervention, he prevented a
more
competent
person
taking
up
the
management
2149. The ratification of the management by
the owner of the business produces the effects
of an express agency, even if the business may
not have been successful.

Ratificationthe owner agrees to whatever

the officious manager has done

Section 2: Solutio Indebiti

2150. Although the officious management may

not have been expressly ratified, the owner of
the property or business who enjoys the
advantages of the same shall be liable for
obligations incurred in his interest, and shall
reimburse the officious manager for the
necessary and useful expenses for the damages
which the latter may have suffered in the
performance of his duties.

2154. If something is received when there is no

right to demand it, and it was unduly delivered
through mistake, the obligation to return it
arises.

The same obligation shall be incumbent upon him

when the management had for its purpose the
prevention of an imminent and manifest loss,
although no benefit may have been derived.
2151. Even though the owner did not derive any
benefit and there has been no imminent and
manifest danger to the property or business,
the owner is liable as under the first paragraph
of the preceding article, provided:
1.
The officious manager has acted in good
faith, and
2.
The property or business is intact, ready
to be returned to the owner
2152. The officious manager is personally liable
for contracts which he has entered into with
third persons, even though he acted in the
name of the owner and third persons. These
provisions shall not apply:
1.
If the owner has expressly or tacitly
ratified the management, or
2.
When the contract refers to
pertaining to the owner of the business

things

2152. The management is extinguished:

1.
When the owner repudiates it or puts an
end thereto
2.
When the officious manager withdraws
from
the
management,
subject
to
the
provisions of Art. 2144

Requisites:
1.
That he who paid was not under
obligation to do so
2.
That payment was made by reason of
an essential mistake of fact
Principles of equity cannot be applied if there is a
provision of law specifically applicable to a case
2155. Payment by reason of a mistake in the
construction or application of a doubtful or
difficult question of law may come within the
scope of the preceding article.

Genelal Rule: Solution indebiti involves only a

mistake of fact

Exception: a mistake of law is required if the

mistake is brought about by the construction or
application if a doubtful or difficult question of law

Voluntariness is incompatible with protest

and mistake
2156. If the payer was in doubt whether the
debt was due, he may recover if he proves that
it was not due.
2157. The responsibility of two or more payees,
when there has been payment of what is not
due, is solidary.
2158. When the property delivered or money
paid belongs to a third person, the payee shall
comply with the provisions of Art. 1984.
2159. Whoever in bad faith accepts an undue
payment, shall pay legal interest if a sum of
money is involved, or shall be liable for fruits
received or which should have been received if
the thing produces fruits.

3.
By the death, civil interdiction, insanity
or insolvency of the owner or the officious
manager

He shall furthermore be answerable for any loss or

impairment of the thing from any cause, and for
damages to the person who delivered the thing, until
it is recovered.

Art. 1984. The depositary cannot demand that the

depositor prove his ownership of the thing deposited.
Nevertheless, should he discover that the thing has
been stolen and who its true owner is, he must advise
the latter of the deposit. If the owner, in spite of such
information, does not claim it within the period of one
month, the depositary shall be relieved of all
responsibility by returning the thing deposited to the
depositor. If the depositary has reasonable grounds to
believe that the thing has not been lawfully acquired
by the depositor, the former may return the same.

If the creditor knows that payment is not yet

due, yet he accepted such without informing the
debtor that it is not yet due, he is therefore in bad
faith and shall be liable for interest from the time he
accepts payment up to the time he returns it upon
demand of the debtor
2160. He who in good faith accepts an undue
payment of a thing certain and determinate
shall only be responsible for the impairment or
loss of the same or its accessories and

accessions insofar as he has thereby been

benefited. If he has alienated it, he shall return
the price or assign the action to collect the
sum.

the deceased, said relatives shall reimburse the

third person, should the
latter claim reimbursement.

2161. As regards the reimbursement for

improvements and expenses incurred by him
who unduly received the thing, the provisions
of Title V of Book II shall govern.

The following are obliged to support each other: 1.

Spouses
2. Legitimate ascendants and descendants
3. Parents and their legitimate children, and the
legitimate and illegitimate children of the latter
4. Parents and their illegitimate children, and the
legitimate and illegitimate children of the latter
5.
Legitimate brothers and sisters, whether full or
half-blood
Whenever 2 or more persons are obliged to
give support, the liability shall devolve upon the
following persons in the following order:
1.
Spouses
2.
Descendants in the nearest degree
3.
Ascendants in the nearest degree
4.
Brothers and sisters

2162. He shall be exempt from the obligation to

restore who, believing in good faith that the
payment was being made of a legitimate and
subsisting claim, destroyed the document, or
allowed the action to prescribe, or gave up the
pledges, or cancelled the guaranties for his
right. He who paid unduly may proceed only
against the true debtor or the guarantors with
regard to whom the action is still effective.

2166. When the person obliged to support an

orphan, or an insane or other indigent person
unjustly refuses to give support to the latter,
any third person may furnish support to the
needy individual, with right of reimbursement
from the person obliged to give support. The
provisions of this article apply when the father
or mother of a child under eighteen years of
age unjustly refuses to support him.

2163. It is presumed that there was a mistake

in the payment if something which had never
been due or had already been paid was
delivered; but he from whom the return is
claimed may prove that the delivery was made
out of liberality or for any other just cause.

This has been adopted by Art. 207 of the Family Code

A is obliged to give B a house on Dec.

1. Believing it was due on July, A delivered the house.
B likewise did not know that the house is only due on
Dec. 1 and accepted it. On Sept., the house was
rented but the kitchen was accidentally burned. On
Nov., A discovered that the delivery was not yet due
and demanded for its return. B can return the house
and pay the amount of the kitchen which has been
impaired, because B has been benefited by the house
when it had been rented

The person to whom the payment has been made

can show that such payment is a gift or a donation by
showing the proper evidence like a valid deed of
donation
Section 3: Other Quasi-Contracts
2164. When, without the knowledge of the
person obliged to give support, it is given by a
stranger, the latter shall have a right to claim
the same from the former, unless it appears
that he gave it out of piety and without
intention of being repaid.
This is under Art. 206 of the Family Code:
o When, without the knowledge of the person obliged
to give support, it is given by a stranger, the latter
shall have a right to claim the same from the former,
unless it appears that he gave it without the intention
of being reimbursed
For one to recover under this, it must be alleged and
proved that
1. Support has been furnished a dependent of one
bound to give support but who fails to do so
2. The support was supplied by a stranger
3. The support was given without the knowledge of
the person charged with the duty
2165. When funeral expenses are borne by a
third person, without the knowledge of those
relatives who were obliged to give support to

o
When the person obliged to support
another unjustly refuses or fails to give support when
urgently needed by the latter, any third person may
furnish support to the needy individual with a right of
reimbursement from the person obliged to give
support. This article shall apply particularly when the
father or the mother of a child under the age of
majority unjustly refuses to support or fails to give
support to the child when urgently needed
2167. When through an accident or other cause
a person is injured or becomes seriously ill, and
he is treated or helped while he is not in a
condition to give consent to a contract, he shall
be liable to pay for the services of the physician
or other person aiding him, unless the service
has been rendered out of pure generosity.
2168. When during a fire, flood, storm, or other
calamity, property is saved from destruction by
another person without the knowledge of the
owner, the latter is bound to pay the former
just compensation.
2169. When the government, upon the failure
of any person to comply with health or safety
regulations concerning property, undertakes to
do the necessary work, even over his objection,
he shall be liable to pay the expenses.
2170. When by accident or other fortuitous
event, movables separately pertaining to two
or more persons are commingled or confused,
the rules on co-ownership shall be applicable.