[0:00]Hi guys and welcome to version two on the general principles on the law of contracts. If you like my videos and you want to see more, please hit the subscribe button. Please remember that this is for educational purposes only and is not a substitute for proper legal advice or for studying and understanding the law. Okay? Shout out to Luis Tan and JP Lapitan and the whole batch 2002 of La Salle Green Hills. Thank you guys for all your support. Now let's begin. What's a contract? According to the law, a contract is a meeting of the minds between two persons whereby one binds himself with respect to the other to give something or to render some service. Okay. So what's the difference between a contract and an obligation? If you will remember, an obligation is a juridical necessity to give, to do or not to do. Obligations may arise from different sources, from law, contracts, quasi-contracts, delicts, quasi-delicts. So contracts are merely a source of obligations. Okay? Contracts have three stages in their life. Okay? If the parties are negotiating as to the terms and conditions of the contract, this is what is known as the preparatory or negotiation stage. In case the parties agree, this brings us to the second stage which is perfection or birth. In case of consensual contracts, these are perfected from mere consent and real contracts are perfected by delivery of the thing subject of the obligation. Okay? And if the parties comply with their obligations in case of a bilateral arrangement or in case of a unilateral arrangement, the debtor complies with his obligation, then the third stage of consummation or termination is now reached. Okay? So those are the three stages. Uh, preparation, perfection and consummation. Okay? Let's go to the essential requisites of contracts. First, we have the characteristic of autonomy or freedom to contract. This simply means that the parties are free to establish whatever stipulations, clauses, terms or conditions that they may so desire and put them into the contract provided that it is not contrary to law, morals, good customs, public order or public policy. In case the contract violates any of those five, then the contract will be void. Okay? Next characteristic, we have mutuality. In other words, the contract must bind both parties. That is to say, the validity, whether a contract is valid or not or compliance, meaning the fulfillment of the obligation, cannot be left to the will of one of the contracting parties. How do we explain this? Let's say X owns an apartment and Y is the tenant. Y is allowed to stay as long as he faithfully continues to pay rentals. Is this arrangement valid? No. Why? Because the compliance or the fulfillment of the contract is dependent on the sole will of Y, on his choice of whether to continue or to stop paying rentals, and deprives X of the freedom to terminate or modify the contract. Okay?
[3:40]So that is the principle of mutuality. However, please take note that while validity and compliance cannot be left to the will of the contracting parties, the determination of the performance may be left to a third person. Okay? What does this mean? Best example is what you will take up or what you may have taken up in the law on sales where the price of the good to be sold is left to the determination of a third party. Okay? This is a valid arrangement and it will only be binding upon the contracting parties upon the moment that the choice of the third person is made known to the parties.
[4:26]Okay? Now, is the choice of the third person always valid? Are the parties always bound? It depends. Okay? As a general rule, yes, but if the choice of the third person is so inequitable that the parties cannot perform the obligation, then such choice of the third person will not be obligatory upon the parties. So how will we know if the choice of the third person is inequitable? The losses that the courts will decide. Okay? Okay. So now we go to the next essential characteristic of contracts, the characteristic of relativity. Okay? This simply says that contracts take effects between the parties or their heirs or assigns. Okay? This follows the general rule in obligations that rights and obligations are transmissible except when they arise from the nature of the obligation, such is in personal rights, no, like the right to vote.
[5:35]That cannot be transmitted, the right to vote cannot be transmitted. Okay? Or when the parties so stipulate that the right or obligation cannot be transmitted. An example is a gym membership, no? It's a common stipulation in the contract that the gym membership cannot simply be transferred to anyone else. And finally, the rights or obligations may not be transmitted if the law so prohibits. Okay? The general rule is that an act, declaration or omission cannot affect or prejudice another without his authority or his ratification. This simply means to say that the part the only parties who will be bound by the contract are the parties themselves and their heirs and assigns. The contract will not bind third persons or the whole world. Okay? However, this is subject to exceptions. First, we have what is called a stipulation for altrui. Okay? Second exception, when a contract creates real rights. Okay? Third exception is when a contract is entered into to defraud a creditor. And finally, when a contract is violated due to the inducement of a third person. Now, let's discuss these one by one. When we talk about a stipulation for altrui, this is a stipulation which clearly and deliberately confers a favor upon a third person. Okay? And this third person has a right to demand the fulfillment of that stipulation provided he has given his acceptance before it is revoked by the parties. Okay? Now there are two kinds of uh stipulation for altrui. The first is one that is made for the sole benefit of the debtor and that is easy enough to understand. The party simply wanted to confer a benefit on on that third person. In which case, he will be known as the done beneficiary. Okay? But the second kind is where there is a previous obligation, which is intended by the parties to be extinguished through the stipulation. One example is when the seller of a property wants to extinguish his previous obligation with a different creditor through a contract with a new person. Okay? Let's give a more concrete example. Let's say X and Y have a an obligation of loan, wherein Y owes a certain amount of money to X and now Y lends money to Z. Okay? If Y and Z create a stipulation stating that interests earned by Y shall be paid or applied to his debt to X, then that is a stipulation for altru because it confers a favor or benefit upon a third person. Provided that X accepts it, then that shall be valid. Now, let's talk about the requisites of a stipulation for altrui. Okay? First, the parties must have clearly and deliberately intended to confer a favor upon the third person. Okay? Second, the third person must have communicated his acceptance before the stipulation or the offer is revoked by the parties. Third, the stipulation for altrui must be a part, okay, simply a part of a contract and not the whole contract itself. If it's the whole contract itself, it is a different contract altogether. Okay? Next, it must not be conditioned or compensated. And finally, none of the contracting parties is the legal representative or is legally authorized by the third person.
[10:07]Okay? So this uh it talks about agency, no? The agent is uh duly authorized and must act within the scope of his power to bind his principal. Okay? So, uh, if a person acts without the authority of the principal, then that contract will be unenforceable. However, as we will learn in a different video, unenforceable contracts may be ratified, okay? They may become valid and enforceable later on. Now, let's talk about breach. What is breach, no? Breach is the failure without any legal reason to comply with the terms of the contract. Okay? If there is breach, then the parties will have remedies in case of such breach. Okay? Now, finally, let's just quickly go over the different kinds of contracts, okay? We have nominate and innominate contracts. Nominate contracts are those given a special name by the law, such as sale, agency, partnership, et cetera. Innominate contracts are the following, no, they have no special name. And uh these are examples of innominate contracts. We have do this or I give that you may give. We have do ot fashas or I give that you may do. We have fasho ot this, I do that you may give, and we have fasho ot fashas, I do so that you may do. So how do we treat this? If the contract entered into by the parties does not have a name, it is an innominate contract, what will, what rules will we follow? First, we follow the rules as contained in the agreement of the parties. In the absence of the rules in the agreement of the parties, we follow the general provisions of the Civil Code on obligations and contracts. And uh in the absence of that, we will follow the rules governing the most analogous contracts, no, the most similar kinds. Okay? And finally, in the absence of that, we follow the customs of the place. Okay? Now, other kinds of contracts, we discussed the consensual and real contracts repeatedly earlier, no? So let's go to onerous contracts, no? Onerous contracts are those that impose a burden on one or both of the parties. Remuneratory contracts are those that require a remuneration for service, no? And a gratuitous contract is one whose cause is the pure beneficence or liberality of one of the parties to the obligation. Now, we have an informal versus a formal contract, okay? Simply put, when the uh contract is a formal contract, certain formalities of the law must be complied with. In other words, the contract must be in a certain form. And as we will learn later on or as you may have already learned, when the law requires a certain form for a contract, it may neither be for validity, greater efficacy or public convenience. And when the law requires a certain form for the validity of the contract, then that requirement is absolute. In which case, if it fails to follow the form, then the contract will be void. Okay? Next, we have the valid contracts and the defective contracts. Defective contracts, I will uh make a series of videos on that, but we have the void, voidable, recible and unenforceable contracts. I will discuss those more in uh the coming videos, so please just wait for those. Okay? We have the commutative contract. In a commutative contract, the obligation of one of the parties is the equivalent of uh the obligation of the other. Okay? Compared to an alitory contract, it depends on a uncertain event. Okay? This is common in insurance contracts where they are subject to risk of uh unknown peril, such as uh earthquakes or other for two hits events or whatever else that may be insured against. Okay? Next, we have unilateral contracts, which impose an obligation on only one of the parties as compared to a bilateral contract where both parties have to perform respective obligations. Okay? We have an executory contract or one that is yet to be performed as contrasted with an executed contract, which is already performed. Okay? What is a preparatory contract? It is a contract that leads to the creation of another contract, such as an example in agency, no? An agency is entered into in order for the agent to enter into a different contract on behalf of the principal. Okay? We have accessory contracts and these are uh contracts which can only exist if there is a principal obligation, which likewise exists. Okay? The principal obligation is the main obligation. Okay? Next, we have the indivisible versus divisible contracts, and uh divisible simply means that these are contracts which are capable of partial performance, whereas indivisible ones are those which are incapable of partial performance. So that's it for the general principles on the law on contracts. I hope you have picked up a thing or two, and please wait for my next video on the essential elements of contracts. Thank you and bye.
