Definition of a Contract | General Provisions | Contracts | OBLIGATIONS AND CONTRACTS

CIVIL LAW > V. OBLIGATIONS AND CONTRACTS > B. Contracts > 1. General Provisions > a. Definition of a Contract

I. Definition of a Contract under Philippine Law

A contract is defined under Article 1305 of the Civil Code of the Philippines as “a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.” It signifies a legally enforceable agreement where parties consent to undertake certain duties and obligations.

II. Essential Characteristics of a Contract

Contracts in Philippine law are built upon several fundamental characteristics:

1. Autonomy of Contracts (Freedom to Contract): Parties are generally free to establish the terms and stipulations of a contract as long as they are not contrary to law, morals, good customs, public order, or public policy (Art. 1306, Civil Code). This is rooted in the principle of autonomy, recognizing the right of individuals to contract freely.

2. Mutuality: A contract must be based on mutual consent, where both parties willingly agree to the terms without coercion. Mutuality also means that contract terms cannot be left to the will of only one of the parties (Art. 1308). Therefore, unilateral amendments or annulments are not typically allowed.

3. Obligatory Force: A contract is binding in nature and has the force of law between the parties (Art. 1159). Contracts have obligatory force, which means once executed, parties are bound to perform their obligations.

4. Relativity: Contracts are generally binding only between the contracting parties, their assigns, and heirs (Art. 1311). This principle emphasizes that contracts do not bind or benefit third parties unless specifically stipulated otherwise.

5. Consent: Consent is a critical element for the validity of a contract. It must be freely given by parties who have the legal capacity to give consent. Consent is flawed if obtained by mistake, violence, intimidation, undue influence, or fraud, potentially rendering the contract voidable.

III. Elements of a Contract

To be valid and enforceable, a contract must contain these essential elements:

1. Consent of the Contracting Parties: This is the agreement or meeting of minds concerning the object and cause. Consent must be genuine and free from vitiating factors such as fraud, mistake, or duress.

2. Object: The subject matter of the contract. It must be within the commerce of man, licit, determinate, or at least determinable (Art. 1349). The object must be lawful and cannot contravene any provision of law.

3. Cause: Refers to the reason or underlying purpose for entering the contract, which must be lawful. Cause can vary depending on the type of contract, such as remuneration in contracts of lease or payment in sales.

IV. Classification of Contracts

The Civil Code of the Philippines also classifies contracts as follows:

1. According to Perfection:

   • Consensual Contracts: Perfected by mere consent, such as sales.
   • Real Contracts: Perfected only by the delivery of the object, such as deposits or loans.
   • Formal/Solemn Contracts: Require special formality for validity, such as donations of real property requiring a public instrument.

2. According to Obligation:

   • Bilateral Contracts: Both parties are mutually obligated, such as in sales.
   • Unilateral Contracts: Only one party bears an obligation, like in a commodatum.

3. According to Cause:

   • Onerous: With consideration or benefit received, like in sales.
   • Gratuitous: Benefit given freely, as in donations.

V. Stages in the Life of a Contract

Contracts in Philippine law have three distinct stages:

1. Negotiation: Preliminary discussions where the terms are negotiated.
2. Perfection: Agreement or meeting of the minds, creating a binding contract.
3. Consummation: Fulfillment of terms by performing obligations.

VI. Form of Contracts

As per Article 1356, contracts are generally valid regardless of form. However, some contracts are required by law to follow a specific form for enforceability, such as:

• Donations of real property, requiring a public instrument.
• Sales of real property for over PHP 500, requiring a written contract.
• Contracts requiring notarization, ensuring public record and enforceability.

VII. Interpretation and Resolution of Ambiguities in Contracts

The interpretation of contracts must consider the intent of the parties (Art. 1370). Philippine law mandates the following rules:

1. Plain Language: Words are taken in their literal meaning if clear.
2. Intention of Parties: Courts seek to understand the true intent of the contracting parties, taking precedence over the literal wording.
3. Practical Construction: Past actions or practices between the parties may aid in interpreting intent.

In cases of ambiguity, provisions must be construed against the drafter (Art. 1378), aligning with the principle of interpreting contracts to promote equity and fairness.

VIII. Rescission and Annulment of Contracts

Contracts may be rescinded or annulled under certain conditions:

• Rescission (Art. 1380-1389): Available as a remedy for contracts causing injury or damage. Rescission may occur under specific conditions such as fraud, lesion, or undue influence.
• Annulment (Art. 1390): For contracts voidable due to vitiated consent (e.g., fraud, intimidation).

IX. Void and Voidable Contracts

• Void Contracts (Art. 1409): Have no legal effect and cannot be ratified. Examples include contracts against public policy, where consent is lacking, or involving illegal acts.
• Voidable Contracts (Art. 1390): Valid until annulled, usually arising from vitiated consent.

X. Compliance and Breach of Contract

Breach of contract occurs when a party fails to perform an obligation. Remedies include:

1. Specific Performance: Compelling the performance of the obligation.
2. Rescission: Canceling the contract, returning parties to their original position.
3. Damages: Compensation for the injured party. Damages may cover actual loss, moral damages, or exemplary damages, as applicable.

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The above comprehensive framework delineates Philippine law’s approach to contracts, from the formation of binding agreements to the remedies available for breaches, ensuring all contracts are approached with precision, mutual respect, and legal integrity.