CONTRACTS

• 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
• Meaning of contract emphasizes the meeting of minds between two contracting parties when an offer by one party is accepted by the other
• In a contract, one or more persons bind himself or themselves with respect to another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do
• Not all agreements are contracts
• Stages in the life of contracts:

  • Preparation or conception
  • Perfection
  • Consummation
• Contracts vs agreements:

  • Contract: enforceable
  • Agreement: cannot be enforced
• According to Name or Designation:

  • Nominate contracts: have specific names and rules outlined in the law (e.g., sale, lease, donation)
  • Innominate contracts: don't have specific names or regulations, but still follow general contract principles
• According to Perfection:

  • Consensual contracts: formed by mere agreement (e.g., oral contracts)
  • Real contracts: require delivery of something (e.g., giving a loan)
• According to Cause:

  • Onerous contracts: both parties benefit (e.g., buying a phone)
  • Remuneratory contracts: one party benefits the other who pays in return (e.g., working for a salary)
  • Gratuitous contracts: benefits only one party (e.g., a gift)
• According to Form:

  • Informal or Common contracts: no specific form required (e.g., verbal agreements)
  • Formal or Solemn contracts: require a specific format (e.g., written contracts with witnesses)
• According to Obligatory Force:

  • Valid contracts: legally enforceable (meets all requirements)
  • Rescissible contracts: can be cancelled under specific conditions (e.g., fraud)
  • Voidable contracts: can be nullified by one party under specific conditions (e.g., mistake)
  • Unenforceable contracts: cannot be enforced in court due to technical reasons (e.g., missing signature)
  • Void or Inexistent contracts: no legal effect from the start (e.g., illegal agreement)
• According to Person Obliged:

  • Unilateral contracts: only one party has obligations (e.g., a promise)
  • Bilateral contracts: both parties have obligations (e.g., a contract to buy and sell)
• According to Risks:

  • Commutative contracts: both parties have a clear idea of what they're getting and the risks involved (e.g., buying a house)
  • Aleatory contracts: the outcome depends on uncertain events (e.g., gambling, insurance), so the risks and gains aren't fully known beforehand
• According to Liability:

  • Unilateral contracts: only one party has responsibilities (e.g., borrowing a book)
  • Bilateral contracts: both parties have responsibilities (e.g., renting an apartment)
• According to Status:

  • Executory contracts: not yet fully completed by either party (e.g., building a house)
  • Executed contracts: fully completed by both parties (e.g., paying for a meal)
• According to Dependence to Another Contract:

  • Preparatory contracts: lead to another contract (e.g., forming a partnership before opening a business)
  • Accessory contracts: exist to support another contract (e.g., a mortgage securing a loan)
  • Principal contracts: stand alone and don't rely on another (e.g., buying a car)
• According to Dependence of Parts:

  • Indivisible contracts: all parts must be fulfilled (e.g., buying a matched furniture set)
  • Divisible contracts: each part can be fulfilled independently (e.g., buying groceries)
• The contracting parties may establish 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
• Freedom to Contract:

  • Individuals have the constitutional and statutory right to enter into contracts with whomever they choose
  • This right also means choosing the terms and conditions of the contract as long as they comply with the law and general principles
• Limitations to Freedom:

  • Contracts cannot violate laws, ethical norms, public order, or public policy
  • The freedom to contract is not absolute; the state can use its police power to restrict it in certain cases
• Legal Presumption and Enforcement:

  • Contracts are presumed to be valid unless proven otherwise in court
  • Courts prioritize upholding the binding force of contracts whenever possible
• 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
• Innominate Contract Types:

  • do ut des (I give that you may give)
  • do ut facias (I give that you may do)
  • facio ut des (I do that you may give)
  • facio ut facias (I do that you may do)
• Reasons and Basis for Innominate Contracts:

  • Variety in Agreements: allows for creative solutions to new situations
  • Evolving Relationships: adapts to changes in society and business
• Rules Governing Innominate Contracts:

  • Clearly define what each party gives or does
  • Ensure compliance with general contract principles
  • Consider rules from similar contracts for inspiration
  • Respect established practices relevant to the agreement if applicable
• The contracts must bind both contracting parties; its validity or compliance cannot be left to the will of one of them
• 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
• The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances
• 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
• A stipulation pour autrui is a clause in a contract that deliberately gives a benefit to someone outside the contract (third person)
• 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
• When you sign a contract with a bank to use your house as collateral for a loan, it creates a "real right," giving the bank a claim on your house. If you sell your house, the new owner is usually bound by that real right even if they weren't part of the original contract
• This only applies if the real right is properly registered, acting as a public notice of the claim on the house
• If the new owner didn't check the registration and bought the house in good faith, they might be protected
• This is an exception to the usual rule that contracts only bind the people who signed them
• Creditors are protected in cases of contracts intended to defraud them
• Creditors can challenge suspicious contracts, such as when debtors sell assets at suspiciously low prices
• This rule stops debtors from secretly transferring assets to avoid repaying debts
• The key is proving the debtor intentionally made the contract to deceive the creditor
• Unauthorized contracts are generally unenforceable against the person who did not authorize them