Civil Law > V. Obligations and Contracts > B. Contracts

Contracts form an essential aspect of obligations and contracts in civil law, providing the framework within which private law deals with the formation, interpretation, and enforcement of binding agreements. Under the Philippine Civil Code, obligations and contracts are extensively discussed in Book IV, particularly in Title II (Obligations) and Title III (Contracts). Below is a comprehensive outline on the principles of contracts in Philippine law.

1. Definition of Contracts (Art. 1305)

A contract is a meeting of minds between two or more persons, whereby one party binds itself, with respect to the other, to give something or to render some service. This implies the elements of mutual agreement, consideration, and legal intent.

2. Essential Requisites of Contracts (Art. 1318)

Contracts require the following essential elements for validity:

Consent: Voluntary agreement by the parties.
Object: Definite, lawful, and possible subject matter.
Cause: The consideration or reason why a party enters into the contract.

If any of these requisites is lacking, the contract may be void, voidable, or unenforceable.

3. Classification of Contracts

Contracts are classified based on different criteria:

According to Perfection:
- Consensual Contracts: Perfected by mere consent (e.g., sale, lease).
- Real Contracts: Perfected by delivery (e.g., deposit, commodatum).
- Formal Contracts: Require compliance with formalities (e.g., donation of immovable property).
According to Cause:
- Onerous Contracts: Parties exchange valuable consideration.
- Gratuitous Contracts: One party receives benefit without any valuable consideration (e.g., donation).
- Remuneratory Contracts: One party gives something in compensation for past services rendered.
According to Risk:
- Commutative Contracts: Consideration is certain and fixed.
- Aleatory Contracts: Performance depends on chance or uncertain events (e.g., insurance).
According to Form:
- Formal Contracts: Require a specific formality to be valid (e.g., notarization).
- Informal Contracts: Valid regardless of form, provided essential elements exist.

4. Stages of Contracts

Contracts pass through three stages:

Preparation or Negotiation: Initial discussion where no rights or obligations are yet established.
Perfection: Meeting of minds where the contract becomes binding.
Consummation: Fulfillment or performance of the contractual obligations.

5. Consent (Arts. 1319-1335)

Consent is the meeting of the offer and acceptance upon the thing and the cause, which constitute the contract. For consent to be valid:

Parties must be capacitated.
Consent must be given freely, without mistake, violence, intimidation, undue influence, or fraud.
Defective consent (voidable) allows the injured party to annul the contract.

Vices of Consent:

Mistake: Error regarding the subject, the identity, or a substantial factor.
Violence and Intimidation: Force or threat that coerces consent.
Undue Influence: Abuse of power or position to control another’s will.
Fraud: Deceptive act to induce the other party’s consent.

6. Object of Contracts (Arts. 1347-1349)

The object of the contract must:

Be within the commerce of man.
Be real, determinate, or at least determinable.
Be lawful; unlawful or impossible objects render contracts void.

7. Cause of Contracts (Arts. 1350-1355)

The cause is the immediate, direct reason for the obligation. In an onerous contract, it is the prestation or promise of prestation by the other party. The cause must be lawful; otherwise, the contract is void.

8. Form of Contracts (Arts. 1356-1369)

As a general rule, contracts are valid regardless of form as long as the essential requisites are present. However, certain contracts require specific formalities for validity, enforceability, or proof.

Statute of Frauds: Contracts must be in writing to be enforceable, e.g., sale of land, lease agreements over one year, guaranty agreements.

9. Interpretation of Contracts (Arts. 1370-1379)

Contracts are interpreted according to the literal meaning of their stipulations if the terms are clear. In case of ambiguity, the intention of the parties prevails over the literal meaning of the terms. Interpretation guidelines include:

Words are understood in their general and ordinary meaning.
Contracts are interpreted in favor of the party assuming the least benefit.

10. Reformation of Contracts (Arts. 1359-1369)

Reformation allows the courts to modify the form of the contract when, due to mistake, fraud, inequitable conduct, or accident, the instrument does not express the true intent of the parties. Reformation is available if the contract is otherwise valid.

11. Defective Contracts

Contracts may be classified as void, voidable, unenforceable, or rescissible:

Void Contracts (Arts. 1409-1422): No legal effect from inception due to illegality or lack of essential requisites.
Voidable Contracts (Arts. 1390-1402): Valid until annulled; usually involves defect in consent.
Unenforceable Contracts (Arts. 1403-1408): Cannot be enforced in court due to lack of authority or formality.
Rescissible Contracts (Arts. 1380-1389): Valid, but may be rescinded due to damage or injury to one party.

12. Effects of Contracts (Arts. 1311-1324)

Contracts bind the parties and their heirs, unless rights are purely personal. Contracts cannot generally bind third parties except in cases involving stipulations in favor of third persons (stipulation pour autrui).

13. Extinguishment of Contracts (Arts. 1231-1252)

Contracts are extinguished by:

Performance or Fulfillment: Satisfactory completion of obligations.
Loss of Object: When the object of the contract is destroyed or lost without fault.
Condonation or Remission: Gratuitous waiver of debt by the creditor.
Confusion or Merger: When the qualities of creditor and debtor are merged in one person.
Compensation: Reciprocal extinguishment of obligations when parties are debtors and creditors of each other.
Novation: Substitution of a new contract, debtor, or obligation.

14. Void and Inexistent Contracts (Art. 1409)

Contracts that are prohibited by law, contrary to morals, good customs, public order, or public policy are considered void and inexistent. These contracts produce no effect and cannot be ratified or enforced.

Conclusion

Contracts in Philippine civil law emphasize autonomy, fairness, and mutual responsibility. Compliance with legal standards and clarity in intentions are paramount for contracts to be binding and enforceable, and these principles guide their formation, interpretation, and termination.