Title II.

- CONTRACTS the former may not have all the elements of a

CHAPTER 1: GENERAL PROVISIONS
Art. 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)
MEANING OF CONTRACT
Sanchez Roman- 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.
contract and create legally enforceable
obligations.
S, all contracts are agreements but not all
agreements are contracts.
CONTRACT DISTINGUISHED FROM OTHER
CONVENTIONS
Although a contract is a convention, or agreement of
wills, not every convention is a contract.
A contract is limited to agreements which produce
patrimonial liabilities. Contracts, therefore, are
distinguished from other acts based on the consent of 2 or
more persons such as marriage, donation, adoption, and
succession, in the following ways:

The definition lays emphasis on the meeting of minds 1. A contract creates obligations which are more
between 2 contracting parties which takes place when an particular, concrete and transitory, because it establishes
offer by 1 party is accepted by the other. a relation which is more limited by reason of persons,
effects and importance.
In a contract, there must be at least 2 persons or parties,
because it is impossible for one to contract with himself. 2. In contract, the freedom to stipulate predominates over
necessity of the act; in other words, the intentions of the
As a consensual relation, a contract must be shown to parties is the determining factor in contracts, while the
exist as a fact, clearly and convincingly. meeting of the minds is merely secondary in the other
CONTRACT AND OBLIGATION acts.
DISTINGUISHED 3. The law is the principal source of rights and obligations
Contract is one of the sources of obligation while in the other acts mentioned but in contracts the law has a
obligation is the legal tie or relation itself that suppletory effect.
exists after a contract has been entered into. OTHER TERMS
Hence, there can be no contract if there is no
obligation accepted in return for some benefit to CONTRACT PERFECT IMPERFECT
be enjoyed. But an obligation may exist without PROMISE PROMISE
a contract such as the obligation imposed by law The latter Tends only to Also designated
to pay taxes. establishes and assure and pave as policitacion,
determines the the way for the constitutes a
CONTRACT AND AGREEMENT obligations celebration of a mere
DISTINGUISHED arising contract in the unaccepted
therefrom. future; until the offer.
Contracts are binding agreements enforceable contract is
through legal proceedings in case the other party actually made,
does not comply with his obligation under the the rights and
agreement. To be valid and enforceable, a obligations are
contract must be lawful and all the requisites for not yet
its validity must be present. determined.
Those agreements which cannot be enforced by
action in the courts of justice (like an agreement PACT STIPUATION
to go to a dance party) are not contracts but A special part of the Similar to a pact. When
merely moral or social agreements. An contract, sometimes the contract is an
agreement is broader than the contract because merely incidental and instrument, stipulation
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 separable from the refers to the essential and STAGES OF CONTRACTS
principal agreement. dispositive part, as
distinguished from the 1. Preparation- conception, or generation, which is the
exposition of the facts and period of negotiation and bargaining, ending at the
antecedents upon which it moment of agreement of the parties.
is based.
2, Perfection- or birth of the contract, which is the
moment when the parties come to agree on the terms of
NUMBER OF PARTIES the contract.

The Code requires two persons for the existence of a 3. consummation- or death, which is the fulfillment or
contract; obviously, what is meant by the law is two performance of the terms agreed upon in the contract.
parties. For a contract to exist, thus, there must be 2
CLASSFICATIONS OF CONTRACT
parties to it.
1. According to name or designation:
AUTO-CONTRACTS
a. Nominate
The existence of a contract is not determined by the
number of parties thereto; not by the number of individual b. Innominate
wills, but by the number of declarations of will. The
effective element is not the formation of the will but in its 2. According to perfection:
declaration. In the auto-contract, there are two a. Consensual
declarations, although made by the same person.
b. Real
CONTRACTS OF ADHESION
3. According to cause:
There are cases in which one party has already prepared
form of a contract, containing the stipulations he desires, a. Onerous
and he simply asks the other party to agree to them if he
b. Remuneratory or remunerative
wants to enter into the contract.
c. Gratuitous
CHARACTERISTICS OF CONTRACTS
4. According to form:
1. Obligatory Force- it constitutes the law between the
parties a. Informal, common or simple
2. Mutuality- its validity and performance cannot be left b. Formal or solemn
to the will of only one of the parties.
5. According to Obligatory force:
3. Relativity- it is binding only upon the parties and their
successors. a. Valid

ELEMENTS OF CONTRACTS b. Rescissible

1. Essential elements- those without which there can be c. Voidable

no contract; these are consent, subject matter and cause. d. Unenforceable
2. Natural elements- those which exist as part of the e. Void or inexistent
contract even if the parties do not provide for them,
because the law, as suppletory to the contract, creates 6. According to person obliged:
them; the warranty against eviction in a contract of a. Unilateral
purchase and sale is an example.
b. Bilateral
3. Accidental element- those which are agreed upon by
the parties and which cannot exist without being 7. According to risks:
stipulated.

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 a. Commutative (eg. sale, lease), when the
undertaking of one party is considered the
equivalent of that of the other.
b. Aleatory (eg. insurance, sale of hope), when it
depends upon an uncertain event or contingency
both as to benefit or loss.
8. According to liability
a. Unilateral (eg. commodatum, gratuitious,
deposit), when it creates an obligation on the part
of only one of the parties.
b. Bilateral (eg. sale, lease), when it gives rise to
reciprocal obligations for both parties.
9. According to status:
a. Executory, when it has not yet been completely
performed by both parties.
b. Executed, when it has been fully and
satisfactorily carried out by both parties.
10. According to dependence to another contract:
a. Preparatory (eg. agency, partnership), when it
is entered into as a means to an end.
b. Accessory (eg. mortgage, guaranty), when it is
dependent upon another contract it secures or
guarantees for its existence and validity.
c. Principal (eg. sale, lease), when it does not
depend for its existence and validity upon another
contract but is an indispensable condition for the
existence of an accessory contract.
11. According to dependence of part of contract to
other parts:
a. Indivisible (or entire) (eg. sale of a dining room
table and 8 matching chairs), when each part of
the contract is dependent upon the other parts for
satisfactory performance.
b. Divisible (eg. sale of rocking chair and a pair
of shoes), when one part of the contract may be
satisfactorily performed independently of the
other parts.
NOTE: The kind of contract entered into is not
determined, however, by the name or title given to it by
the parties but, by its nature or character as determined by
the principles of law, principally the intention of the
contracting parties.
Art. 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)
FREEDOM TO COMTRACT GUARANTEED
The right to enter into lawful contracts constitutes one of
the liberties of the people of the state. It is embodied in
our Constitution. However, the constitutional prohibition
against the impairment of contractual obligation refers
only to legally valid contracts. 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.
VALIDITY OF STIPULATIONS
Valid Contracts- are those that meet all the legal
requirements and limitations for the type of agreement
involved and are, therefore, legally binding and
enforceable.
The contract is the law between the contracting parties.
And where there is nothing in the contract which is
contrary to law, morals, good customs, public policy, or
public order, the validity of the contract must be
sustained.
Note: it is possible to have an agreement that meets all the
criteria of a valid contract but is unenforceable in a court
of law for failure to comply with the statute of frauds.
COMPROMISES
The whole essence of a compromise is that by making
reciprocal concessions, the parties avoid litigation or put
an end to one already commenced. Such agreements must
not be contrary to law, good morals, public policy or
public interest. The court may not impose upon the parties
a judgment different from their compromise agreement.
Once approved by the court, the parties are enjoined to
comply strictly and in good faith with agreement.
QUALIFICATION OF CONTRACT
The law, not the parties, determines the juridical situation
created by the parties through their contract and the rights
and obligations arising therefrom. A contract is to be
judged by its character, and courts will look to the
substance and not to the mere form of the transaction.
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LIMITATIONS ON CONTRACTUAL
STIPULATIONS
There are limitations to the freedom to contract:
1. LAW- 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.
2. POLICE POWER- 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. In short, all
contractual obligations are subject- as an implied
reservation therein- to the possible exercise of the police
power of the state.
LIMITATIONS ON STIPULATIONS
1. Contract must not be contrary to law.
Law- a rule of conduct, just, obligatory, promulgated by
legitimate authority, and of common observance and
benefit.
A contract cannot be given effect if it is contrary to law
because law is superior to contract.
Freedom to contract is restricted by law for the good of
the public.
Statutes generally have no retroactive effect and only the
laws existing at the time of the execution of the contract
are applicable to the transaction.
2. Contract must not be contrary to morals.
Morals- deal with norms of good and right conduct
evolved in a community; those generally accepted
principles of morality which have received some kind of
social and practical confirmation.
These norms may differ at different times and places and
with each group of people.
3. Contract must not be contrary to public order
Public order- refers to public safety although it has been
considered to mean also the public weal.
4. 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.
A contract which has a tendency to be injurious to the
public or is against the public good is contrary to public
policy. Actual injury need not be shown.
Art. 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. (n)
KINDS OF INNOMINATE CONTRACT
1. DO UT DES (I give and you give)- is an agreement in
which A will give one thing to B, so that B will give
another thing to A.
2. DO UT FACIAS (I give and you do)- is a contract
under which A will give something to B, in order that B
may do something for A.
3. FACIO UT DES (I do and you give)-is an agreement
in which A binds himself to do something for B, so that B
will give something to A.
4. FACIO UT FACIO (I do and you do)-is a convention
whereby A is to do something for B, so that B will render
some other service for A.
NOTE: Do ut Des is no longer an innominate contract. It
has already been given a name of its own, ie., barter or
exchange.
REASON FOR INNOMINATE CONTRACT
The impossibility of anticipating all forms of agreement
on one hand, and the progress of mans sociological and
economic relationships on the other, justify this provision.
A contract will not be considered valid for failure to
conform strictly to the standard contracts outlined in the
Civil Code. It is sufficient that it has all the elements of a
valid contract.
RULES GOVERNING INNOMINATE
CONTRACTS
1. the agreement of the parties
2. the provisions of the Civil Code on Obligations and
contracts
3. the rules governing the most analogous contracts
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4. the customs of the place
Art. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the
will of one of them. (1256a)
MUTUALITY OF CONTRACT
The binding effect of the contract on both parties is based
on the principles:
1. That obligations arising from contracts have the force
of law between the contracting parties; and
2. That there must be mutuality between the parties based
on their essential equality, to which is repugnant to have
one party bound by the contract leaving the other free
therefrom.
insertion in a contract for personal services permitting the
cancellation of the contract by one of the parties.
Art. 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. (n)
DETERMINATION OF PERFORMANCE BY A
THIRD PERSON
Under the preceding article, compliance with a contract
cannot be left to the will of one of the contracting parties.
However, under the above provision, the determination of
its performance may be left to a third person. In such case,
the obligation does not depend upon a potestative
condition.

The ultimate purpose is to render void contract containing The decision, however, shall bind the parties only after it
condition which makes its fulfillment dependent has been made known to both of them.
exclusively upon the uncontrolled will of one of the
contracting parties.
Art. 1310. The determination shall not be obligatory if
UNILATERAL CANCELLATION
it is evidently inequitable. In such case, the courts shall
Once a contract is entered into, no party can renounce it decide what is equitable under the circumstances. (n)
unilaterally or without the consent of the other. It is a
EFFECT WHERE DETERMINATION
general principle of law that no one may be permitted to
INEQUITABLE
change his mind or disavow and go back upon his own
acts, or to proceed contrary thereto, to the prejudice of the This article is a qualification to Article 1309. A
other party. contracting party is not bound by the determination if it is
evidently inequitable or unjust as when the third person
The unilateral act of one party in terminating the contract
acted in bad faith or by mistake. In such case, the courts
without legal justification makes it liable for damages.
shall decide what is equitable under the circumstances.
XPN: When it is stipulated. An agreement of the parties
that either one of them may terminate the contract upon a
reasonable period of notice, is valid.
Judicial action for the rescission of a contract is not
necessary where the contract provides that it may be
revoked and cancelled for the violation of any of its terms
and conditions. The right of rescission may be waived.
EXPRESS AGREEMENT; Under this article, it is
perfectly licit to leave the fulfillment of the contract to the
will of either of the parties in the negative form of
rescission, a case which is frequent in certain contracts,
for in such case, neither is the article violated, nor is there
any lack of equality between the persons contracting,
since they remain with the same faculties in respect to
fulfillment. Thus, this article creates no impediment to the

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Art. 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.
PERSONS AFFECTED BY A CONTRACT
Contracts produce effect as between the parties who
execute them.
GEN RULE a partys rights and obligations derived
from a contract are transmissible to the successors.
Meaning, only the parties, their assigns and heirs can have
rights and obligations under the contract.
XPN the cases when a contract are effective only
between the parties are when the rights and obligations
arising from the contract are not transmissible: (1)By their
nature, (2) By stipulation, and (3) By provision of law
CASES WHEN STRANGERS OR THIRD PERSONS
AFFECTED BY A CONTRACT
A third person is one who has not taken part in a
contract and is, thus, a stranger to the contract.
GEN RULE: third person is not bound. He has no
rights and obligations under a contract to which he is
a stranger. The act, declaration, or omission of a
person cannot affect or prejudice another without the
latters authorization or ratification. A contract cannot
be binding upon and cannot be enforced against one
who is not a party to it, even if he is aware of such
contract and has acted with knowledge thereof.
XPNS: among such cases when third persons may be
affected by a contract are:
1. In contracts containing a stipulation in favor of a third
person (stipulation pour autrui) (art.1311, par 2)
2. In contracts creating real rights which affect third
persons who may have some right over the thing
(art.1312)
3. In contracts entered into to defraud creditors
(art.1313). A contract may reduce the properties of a
debtor thus diminish the available security for the
claims of creditors.
4. In contracts which have been violated at the
inducement of a third person (art.1314)
5. In some cases, as in composition in insolvency and in
suspension of payments, certain agreements are made
binding by law on creditors who may not have agreed
thereto.
Thus, one who is not a party to a contract cannot sued
or sue for the performance or cancellation thereof, unless
he has a real interest affected thereby.
ENFORCEMENT OF CONTRACT: Only a party to
the contract can maintain an action to enforce the
obligations arising under said contract
ANNULMENT OF CONTRACT: Since a contract is
binding only upon the parties thereto, a third person
cannot ask for its annulment, although of course, he
may ask for its rescission if it is in fraud of his rights.
Even if the contract may be voidable, its nullity can
be asserted only by one who is a party thereto.
o It was however held that a person who is not a
party obliged principally or subsidiarily in a
contract may exercise an action for nullity of
the contract if he is prejudiced in his rights
with respect to one of the contracting parties, and
can show the detriment which would positively
result to him from the contract in which he had no
intervention.
HEIRS: are not third parties, because there is privity
of interest between them and their predecessors.
INTRANSMISSIBLE CONTRACTS: examples of
these are those which are purely personal, either by
the provision of law (e.g. partnership and agency), or
by their very nature of the obligation arising
therefrom (e.g those requiring personal qualifications
of the obligor). It may also be stated that contracts for
the payment of money debts are not transmitted to the
heirs of a party, but constitute a charge against his
estate.
SECOND PARAGRAPH OF ARTICLE 1311
STIPULATION POUR AUTRUI 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. Stipulation for 3rd parties.
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Second paragraph of this article creates an apparent XPN
to the first paragraph.
Under the FIRST PARA, the cardinal rule of
contract is laid down that only parties thereto and
their privies acquire rights and assume
obligations thereunder
While the SECOND PARA, permits a third
person to avail himself of a benefit extended to
him by its terms
CLASSES OF STIPULATIONS POUR AUTRUI
1. Those where the stipulation is intended for the sole
benefit of such person. (DONEE* BENEFICIARY)
- this stipulation, in effect, confers a gift, it being
necessary in such case to apply the rules relating
to donations insofar as the form of acceptance is
concerned
2. Those where an obligation is due from the promise to
the third person which the former seeks to discharge
by means of such stipulation. (CREDITOR
BENEFICIARY.
REQUISITES for the application of 2nd para:
1. There must be a stipulation in favor of 3rd person
2. The contracting parties by their stipulation must have
clearly and deliberately conferred a favor upon a 3rd
person, not a mere incidental benefit or interest
3. The stipulation in favor of 3rd person should be a part,
not the whole, of the contract.
4. the favorable stipulation should not be conditioned or
compensated by any kind of obligation whatsoever
5. The third person must have communicated his
acceptance to the obligor before its revocation by the
obligee or the original parties
6. Neither of the contracting parties bears the legal
representation or authorization of the third party,
otherwise, the rules on agency will apply.
Art. 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
THIRD PERSONS ARE BOUND BY CONTRACTS;
CREATING REAL RIGHTS
This article is an XPN to the general rule that a
contract binds only the parties.
REAL RIGHTS IN PROPERTY: a real right directly
affects property subject to it, hence, whoever comes
into possession of such property must respect the real
right. Third persons who come into possession of the
object of a contract over which there is a real right,
are bound thereby even if they were not parties to the
contract.
o Real right: binding against the whole world and
attaches to the property over which it is exercised
wherever it goes.
Art. 1313. Creditors are protected in cases of contracts
intended to defraud them.
RIGHT OF CREDITOR TO IMPUGN CONTRACTS
INTENDED TO DEFRAUD THEM
This article is another XPN to the rule that contracts
take effect only between the parties
When a debtor enters into a contract in fraud of his
creditors, such as when he alienates property
gratuitously without leaving enough for his creditors,
the latter, although not parties to such contract of
alienation, may ask for its rescission.
Art. 1314. Any third person who induces another to
violate his contract shall be liable for damages to the
other contracting party.
LIABILITY OF THIRD PERSON RESPONSIBLE FOR
BREACH OF CONTRACT
This is an instance when a stranger to a contract can
be sued for damages for his unwarranted
interference with the contract. It presupposes that the
contract interfered with is valid and the third person
has knowledge of the existence of the contract.
o Under this article, a third person may be held
liable for damages because he has induced a party
to the contract to violate the terms thereof.
MALICE in some form is generally supposed to be an
essential ingredient in cases of interference with
contract relations. But, as held in some cases that it is
enough if the wrongdoer, having knowledge of the
existence of the contract relation, in bad faith sets
about to break it up. Whether his motive is to benefit
himself or gratify his spite by working mischief to the
other party to the contract, is immaterial. Malice in
the sense of ill-will or spite is not essential.
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REQUISITES of the action under this article:
1. The existence of a valid contract
2. Knowledge of the third person of the existence of the
contract
3. Interference by the third person in the contractual
relation without legal justification
EXTENT OF LIABILITY: whatever may be the
character of the liability which a stranger to a contract
may incur by advising or assisting one of the parties to
evade performance, such stranger cannot become more
extensively liable in damages for non-performance of the
contract than the party in whose behalf he intermeddles.
- To hold stranger liable for the damages in excess
of those that could be recovered against the
immediate party to the contract would lead to
results at once grotesque and unjust.
- Their liability should be solidary, because in so
far as third person is concerned, he commits a
tortuous act or a quasi-delict, for which solidary
responsibility arises.
Art. 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.
CLASSIFICATION OF CONTRACTS ACCORDING
TO PERFECTION
1. Consensual contract which is perfected by mere
consent which is the meeting of the minds of the
parties upon the terms of the contract. The consent
need not be made expressly
2. Real contract which is perfected by the delivery of
the thing subject matter of the contract
3. Solemn contract which requires compliance with
certain formalities prescribed by law, such prescribed
form being thereby an essential element thereof
4. Formal contract traditionally understood to mean
those in which compliance with special external
formalities is necessary for the validity of the
contract, are no longer recognized under our law, as
distinct from the consensual contracts
(TOLENTINO, dont know the difference between
formal and solemn, or kung isa lang ba sila)
HOW CONTRACTS ARE PERFECTED
1. CONSENSUAL CONTRACTS as a gen rule,
contracts are perfected by mere consent of the parties
regarding the subject matter and the cause of the
contract.
They are obligatory in whatever form they may have
been entered into, provided all the essential requisites for
their validity are present.
Almost all contracts are consensual as to its
perfection. They come into existence upon their
perfection by mutual consent, even if the subject matter
or the consideration has not been delivered.
In the absence of delivery, perfection does not
transfer title or create real right, yet, it gives rise to
obligations binding upon both parties.
Thus, the perfection is the moment from which it
exists; the juridical ties between the parties arises from
that time.
BINDING EFFECT OF CONTRACTS
Binding force is not limited to the fulfillment of what
has been expressly stipulated, but extends to all
consequences which are the natural effect of the
contract, considering its true purpose, the stipulations
it contains, and the object involved.
o This extension is not determined by the name
which the contracting parties may have given to
the contract, for the exact qualification of a
contract is one of the limitations which are
imposed on the liberty of the parties.
Contracts are not what the parties choose to call them,
but what they are really are as determined by the
principles of laws. The validity of the stipulations is
one thing, and the juridical qualification of the
contract resulting therefrom is very distinctly another
Art. 1316. Real contracts, such as deposit, pledge and
Commodatum, are not perfected until the delivery of
the object of the obligation
PERFECTION OF REAL CONTRACT: perfected not
merely by consent but by the delivery, actual or
constructive, of the object of the obligation. These
contracts have for their purpose the restitution because
they contemplate the return by a party of what has been
received from another.
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The requirement of the delivery of the object, in addition
to the consent, is neither arbitrary not formalistic, but is
demanded by the very nature of real contracts and their
purpose. It is the delivery of the object which forms the
basic obligations under the contract.
Art. 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.
UNAUTHORIZED CONTRACTS ARE
UNENFORCEABLE
As a general rule, a person is not bound by the
contract of another of which he has no knowledge or
to which he has not given his consent.
Thus, under this article, a contract entered into in the
name of another by one who has no authority is
unenforceable against the former unless it is ratified
by him before it is revoked by the other contracting
party.
An unauthorized contract is not to be confused with a
contract for the benefit of 3rd person who may demand its
fulfillment provided the requisites mentioned are present
(art.1311 para 2)
UNAUTHORIZED CONTRACTS CAN BE CURED
ONLY BY RATIFICATION
The mere lapse of time cannot give efficacy to such a
contract.
The defect is such that it cannot be cured except by
subsequent ratification of the person in whose name
the contract was entered into or by his duly authorized
agent and not by any other person not so empowered.
RATIFICATION
o Tolentino: may be express or implied
o De Leon citing a jurisprudence (Asis Integrated
Corp vs Alikpala): it must be clear and express so
as not to admit of any doubt or vagueness
EFFECT OF RATIFICATION IS RETROACTIVE:
the ratification validates the act from the moment
of its celebration, and not merely from the time of its
ratification, for the ratification operates upon or
applies to the act already performed.
BEFORE RATIFICATION: the unauthorized
contract produces a state of suspense. Its efficacy
depends upon its ratification. But before such
ratification by the person in whose name it was
executed, the other party, as in cases of suspensive
condition, may not do anything which would frustrate
the rights of the former which may arise in the event
of ratification. However, he may resolve the contract
before the ratification, by means of revocation
communicated to the principal or to the agent.
WHEN A PERSON IS BOUND BY THE CONTRACT
OF ANOTHER:
The requisites are:
1. The person entering into the contract must be duly
authorized, expressly or impliedly, by the person in
whose name he contracts or he must have, by law, a
right to represent him
2. He must act within his power
A contract entered into by an agent in excess of his
authority is unenforceable against the principal, but
the agent is personally liable to the party with whom
he contracted where such party was not given
sufficient notice of the limits of the powers granted
by the principal.
LIABILITY OF REPRESENTATIVE: if the contract
is not ratified by the person represented, the
representative becomes liable in damages to the other
party, if he did not give notice of the absence or
deficiency of his power.
o Third party however is not entitled to damages if
he knew or should have known that the authority
does not exist