Concept of Relativity of Contracts in Civil Law

The principle of relativity of contracts is a fundamental doctrine in civil law, encapsulated in Article 1311 of the Civil Code of the Philippines. This principle states that contracts are generally binding only between the parties who enter into them, their assigns, and heirs, except when the rights and obligations arising from the contract are not transmissible by their nature, by stipulation, or by provision of law. This principle is anchored on the idea that a contract is essentially a private agreement that cannot bind third parties who are strangers to its terms and obligations.

Key Points on Relativity of Contracts

Binding Effect on the Parties:
- The parties who enter into a contract are bound to its terms and are legally required to fulfill their obligations as stipulated. Contracts create a "law" between the parties, which must be adhered to as long as the contract is valid.
- The binding effect is limited to the contracting parties and does not, as a general rule, extend to third persons who are not parties to the agreement.
Binding Effect on Assigns and Heirs:
- Assigns (those to whom rights under the contract have been transferred) and heirs (the legal successors of the contracting parties) are bound by the contract, provided the rights and obligations are transmissible.
- However, the transmissibility of contractual obligations is subject to limitations:
  - By Nature: Some contracts, such as those based on personal qualities or skills, are inherently non-transferable (e.g., contracts for personal services).
  - By Stipulation: Parties can explicitly agree that certain obligations are not transmissible to assigns or heirs.
  - By Law: Legal provisions may restrict the transferability of certain contractual rights and obligations.
Principle of Privity of Contract:
- This principle means that only those who are parties to a contract have the right to enforce or be bound by it. Third parties cannot claim rights or be imposed obligations arising from a contract to which they are not privy.
- An exception exists when a third party, although not a party to the contract, has an interest that the law or contract intends to protect or benefit. This exception is recognized under the concept of stipulation pour autrui.
Stipulation Pour Autrui (Stipulation for the Benefit of a Third Person):
- Stipulation pour autrui refers to a stipulation within a contract made for the benefit of a third person who is not a party to the contract. For a stipulation pour autrui to be valid, the following requisites must be present:
  1. The stipulation must be part of a contract between two contracting parties.
  2. The third person must be clearly and deliberately intended to benefit from the stipulation.
  3. The benefit must be a positive and direct obligation that the parties intend to give to the third party.
  4. The third party must have accepted the benefit.
- Once the third party accepts the stipulation, they acquire the right to enforce it directly against the obligor in the contract. However, the original parties can still modify or revoke the stipulation unless the third party has already signified acceptance.
Effects of Relativity on Third Parties in Specific Situations:
- Third-Party Contracts: If a third party interferes with or benefits from a contract without explicit inclusion in the agreement, they have no claim over the contract’s provisions unless they qualify under the stipulation pour autrui exception.
- Contracts that Result in Injury to Third Parties: While third parties cannot interfere with or enforce a contract directly, they may still seek remedy if the contract causes them harm, typically through the tort of quasi-delict.
- Contracts Interfered with by Third Parties: In cases where a third party interferes with the performance of contractual obligations, the injured contracting party may seek damages against the interfering party.
Third Parties and Incidental Effects:
- Although third parties generally have no right or obligation under the contract, they may be incidentally affected by it. These incidental effects do not confer any right of action on third parties but may have indirect consequences on them.
- For instance, in creditor-debtor relationships, creditors may be indirectly affected by contracts entered into by their debtor with third parties. However, such effects do not grant creditors any right to interfere with the contract unless expressly permitted by law.

Case Law Illustrations

Case Law Supporting the Principle of Relativity:
- The Supreme Court of the Philippines has consistently upheld the principle of relativity in multiple rulings, reiterating that contracts are binding only between parties and cannot impose obligations on or grant rights to third parties who are not privy to the agreement.
Cases of Recognized Exceptions:
- Case law also illustrates situations where the principle of stipulation pour autrui applies. For example, where a life insurance policy provides benefits to a designated beneficiary, such a third party (the beneficiary) can directly enforce the contract despite not being a party to it.

Conclusion

The principle of relativity of contracts ensures that contracts are binding only between the parties who enter into them, safeguarding their privacy and limiting obligations to those who have expressly consented to them. However, the law allows exceptions to ensure fairness, protect certain third-party interests, and recognize situations where third-party benefits are intentional and integral to the contractual arrangement. Through stipulation pour autrui and other narrowly defined exceptions, the law balances the need for private enforcement with protections for designated beneficiaries.