After studying this lesson, you should:
1. Know the definition of contract
2. Learn the different classifications of contracts;
3. Know the elements of contracts; and
4. That contracts take effect only between parties and its exceptions.
The classifications of contracts summarizes those types of contracts that may be freely agreed upon as long as they are not contrary to law, morals, good customs, public order or public policy.
ART. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render service. (1254a)
The above article defines the term ...view middle of the document...
Characteristics of Contracts:
1. Freedom to contract – they may establish terms and conditions as they may deem convenient.
2. Relativity – it is binding only upon the parties and their successors.
3. Obligatory force – it constitutes the law as between the parties.
4. Mutuality – its validity and performance cannot be left to the will of only one of the parties.
Contract Binds by Both Parties
ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (1256a)
Contracts entered by and between the parties mush bind both parties in order that it can be enforced against each other. This is also known as “mutuality of contract”. Hence, its validity or compliance cannot be left to the will of one of them. This principle is based on the essential equality of the parties. It is elementary rule that no party can renounce or violate the law of the contract without the consent of the other. (11 Manresa 380)
Example, Gaya and Laura entered into a contract to sell whereby Gaya binds herself to sell her only parcel of land to Laura if Gaya decides to leave for States. The contract is void because the fulfilment of the condition depends on the will of Gaya.
ART. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties.
ART. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances.
Determination of Performance by Third Person
As a rule, compliance with a contract cannot be left to the will of one of the contracting parties.
However, the determination of its performance may be left to a third person after it has been made known to both contracting parties.
Provided, further, the parties are not bound by the determination if it is evidently inequitable or unjust when the third person acted in bad faith or by mistake, the courts shall decide what is equitable under the circumstances.
Example, Gaya sold her parcel of land to Laura. It was agreed that Maya, a real estate appraiser would be the one to determine the reasonable price of the land. Maya, then, fixed the price after considering the factors affecting the value of the land, and informing both contracting party that the decision is just and suitable. If the decision made by Maya is manifestly inequitable, the court may be called upon to decide what is equitable.
ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. The heir is not liable beyond the value of the property he perceived from the decedent.
If a contact should contain some stipulation in favor of third person, he...