CIVIL LAW

V. OBLIGATIONS AND CONTRACTS

B. Contracts

1. General Provisions

In the Philippine legal system, the Law on Contracts is primarily governed by the Civil Code of the Philippines (Republic Act No. 386), particularly under Title II, Chapter 1, Articles 1305 to 1317. A contract is defined as a meeting of minds between two or more persons whereby one binds himself, with respect to the other, to give something or render some service. This area of law is deeply rooted in principles of autonomy of will, mutual consent, and good faith, emphasizing the voluntary nature of agreements and their binding effect.

Here is a comprehensive breakdown of general provisions on contracts under Philippine Civil Law:

1. Definition and Nature of Contracts

Article 1305 defines a contract as a meeting of the minds between two or more persons, by virtue of which one party binds himself with respect to the other to give something or render some service. This definition emphasizes the bilateral nature of contracts—there is an agreement, and obligations are reciprocally created.

Mutual Consent: This means that both parties must freely agree to the terms, as no valid contract can arise from coercion, undue influence, or fraud.
Object Certain: Contracts must have a definite object or subject matter that is lawful and possible.
Cause or Consideration: The cause of a contract refers to the reason why a party binds himself; for onerous contracts, it is typically the consideration agreed upon.

2. Elements of a Valid Contract

The essential requisites for a contract to be valid and enforceable under Article 1318 are:

Consent: Consent must be given freely and consciously by the contracting parties.
Object: The object of the contract must be determinate and lawful.
Cause: The contract must have a lawful cause or consideration, meaning the reason or motive for entering into the contract.

3. Classifications of Contracts

Contracts can be classified into several types, each governed by specific rules:

According to Subject Matter:
- Real Contracts: Perfected by the delivery of the object (e.g., deposit, pledge).
- Consensual Contracts: Perfected by mere consent without delivery (e.g., sale, lease).
According to Cause:
- Onerous Contracts: Where each party gives something (e.g., sale, barter).
- Gratuitous Contracts: Where one party gives without receiving any equivalent in return (e.g., donation).
- Remunerative Contracts: Where a party receives something as a form of compensation for a past service.
According to Form:
- Formal Contracts: Require a specific form or formalities for validity (e.g., donation of real property).
- Informal Contracts: Do not require any special form as long as they meet essential requisites.

4. Stages of a Contract

Preparation/Conception/Generation: The preliminary negotiations where parties outline the terms of the agreement.
Perfection/Conclusion: The stage where mutual consent is given and the contract becomes binding.
Consummation/Termination: The stage where the obligations under the contract are fulfilled or extinguished.

5. Freedom to Contract

Under Article 1306, the principle of freedom to contract allows parties to establish their terms, as long as these are not contrary to law, morals, good customs, public order, or public policy. This right is balanced by restrictions that safeguard social interest, ensuring that private agreements respect the collective values and standards of the community.

6. Obligatory Force and Compliance in Good Faith

Article 1159 of the Civil Code establishes that obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith. This entails that contracts are binding unless lawfully rescinded or terminated under conditions provided by law.

Compliance in Good Faith: Parties must act honestly, avoiding fraudulent or deceitful practices. Breach of this duty can lead to damages, penalties, or rescission.

7. Defects in Consent

Contracts are voidable if consent is given under circumstances such as:

Mistake: A mistake may vitiate consent if it affects the substance of the object or identity of the person.
Violence or Intimidation: When a person is forced into a contract by threat or actual harm.
Undue Influence: Exploiting a position of power or trust to secure consent.
Fraud: Deceiving another to obtain consent under false pretenses.

Articles 1330 to 1344 outline these conditions and provide remedies for contracts entered into under defective consent, including annulment or rescission.

8. Void and Inexistent Contracts

Contracts may be void or inexistent if they do not meet the essential requisites, contain an unlawful cause or object, or violate public policy. The effect of such contracts is as if they never existed, and they cannot be ratified.

Examples:
- Contracts with an unlawful or impossible object (e.g., contracts to commit illegal acts).
- Contracts entered into by incapacitated parties without proper authority.

9. Statute of Frauds

The Statute of Frauds (Article 1403) mandates that certain contracts must be in writing to be enforceable. This includes contracts related to:

Agreements not to be performed within a year.
Agreements involving sales of goods valued at ₱500 or more.
Sales of land or leases for more than one year.

The Statute aims to prevent fraud and perjury by requiring a written record for significant contracts.

10. Rescissible and Voidable Contracts

Rescissible Contracts (Articles 1380-1389): These are valid contracts but may be rescinded due to economic injury or breach of trust (e.g., contracts entered into by guardians without court approval).
Voidable Contracts (Articles 1390-1402): Valid until annulled by a court. Grounds include lack of capacity or defects in consent.

Rescission and annulment serve to restore the parties to their original status.

11. Interpretation of Contracts

Articles 1370 to 1379 provide rules on interpreting contracts when terms are ambiguous. Interpretation seeks the intention of the parties over literal words if there's doubt about meaning.

Summary

The General Provisions on Contracts in Philippine Civil Law establish a comprehensive framework to ensure fairness, consent, and legal enforceability of agreements. Key principles include the autonomy of will, the necessity of mutual consent, and the obligations of good faith and fair dealing.