Law on Contracts - Essential Elements

The Law on Contracts - Elements

• Essential elements for validity: Consent, object, consideration (consensual contracts). Examples include sales (except sales by agents of land requiring written authority), guarantees, agencies, partnerships (unless immovable property is contributed), real estate mortgages, and employment contracts.
• Delivery requirements (real contracts): Loans (mutuum and commodatum), pledges, deposits, and carriage contracts. Note that registration is required for pledges to affect third parties.
• Formalities (formal contracts): Chattel mortgages must be registered, antichresis contracts require written form, agreements for interest payments must be in writing, partnership contributions of immovable property require a public instrument and registration, and sales of land by an agent must be written. Donations of personal property over Php 5,000 and real property require a public instrument.
• Natural elements: Exist in some contracts by presumption (e.g., warranties in sales).
• Accidental elements: Stipulations agreed upon by parties.

The Law on Contracts - Stages

• Preparation/Conception: Negotiation.
• Perfection/Birth: Meeting of the minds. Delivery is essential for real contracts; formality is essential for formal contracts.
• Performance/Death: Execution, termination, consummation.

The Law on Contracts - Principles & Characteristics

• Autonomy/liberty to contract: Contracts should not violate law, morals, good customs, or public order/policy. Examples include pactum commissorium, pactum non aliendo, and the fixing of upset prices in public auctions.
• Mutuality of contract: Both parties are bound by the terms of the agreement.

The Law on Contracts - Other

• Obligatory/with force of law: Contracts are legally binding between parties.
• Relativity of contracts: As a general rule, contracts only affect the parties to the agreement. Exceptions exist, such as for personal obligations or those not transmissible by law.
• Consent: Parties must have freely agreed Elements. Stipulation, Clear intent to benefit a third party, Acceptance before revocation. Not sufficient for incidental benefits.
• Classification of contracts (by formation): Consensual, real, and formal.
• Classification of contracts (by dependence): Preparatory, principal, accessory.
• Classification of contracts (by parties): Unilateral, bilateral.
• Classification of contracts (by cause): Onerous, gratuitous, remunerative.
• Classification of contracts (by risk involved): Commutative, aleatory (or fortuitous).
• Classification of Contracts (by name/designation): Nominate, innominate.
• Time of performance: Executory, executed, partially executed.
• Number of persons: Ordinary (two parties), auto-contracts (one party representing two opposite capacities).
• Persons participating in drafting: Ordinary, adhesion contracts (e.g., insurance, bills of lading, installment sales, bank loans).
• Vices of consent: Mistake, fraud, violence, intimidation, undue influence.
• Object of contract: Must exist, be lawful, be within commerce of men and be determinate.
• Cause of contract: Must be distinct from motive, and should be lawful.
• Form of contracts: General rule: Contracts are valid regardless of form. Exception: Requires special form for validity or enforceability: Examples include contracts that violate regulations, or are subject to the Statute of Frauds.
• Interpretation of Contracts: Terms and conditions should be followed.
• Rescissible Contracts: Special contracts that may be set aside. Examples include contracts made by guardians when the ward suffers excessive damage, contracts entered into by an absentee without court authorization, engagements that are fraudulent to creditors, and payments made by an insolvent debtor.