TITLE II.

— CONTRACTS

CHAPTER 1 GENERAL PROVISIONS

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 some service.

Concept of Contracts. —

 Definition –
 may be defined as a juridical convention manifested in legal form, by virtue
of which one or more persons bind themselves in favor of another or others,
or reciprocally, to the fulfillment of a prestation to give, to do or not to do.
 Fundamental Characteristics (1305) —
1) the obligatory force or character of contracts
2) the autonomy of contracts
3) the mutuality of contracts, or what amounts to the same thing, the essential
equality of the contracting parties; and
4) the relativity of contracts

o Obligatory force - explicitly recognized in Arts. 1159, 1308, 1315 and 1356 CC

 once the contract is perfected, it shall be of obligatory force upon both of the
contracting parties.
 bound, not only to the fulfillment of what has been expressly stipulated, but
also to all of the consequences thereof
o Mutuality – deduced the nature of contracts and Art. 1308

 refers to the position of essential equality that is occupied by both contracting

parties in relation to the contract
 must be binding upon both of the parties  validity or compliance cannot be
left to the will of one of them.
o Autonomy - expressly declared in Art. 1306

 contracting parties may establish such agreements as they may deem

convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.
  principle is guaranteed by Sec. 1, Art. 3 of the Philippine Constitution
o Relativity - expressly declared Art. 1311 par. 1.

 take effect only between the parties, their assigns and heirs
 cannot, as a general rule, produce any effect upon third persons

Breach of Contract defined. — the failure, without legal reason, to comply with the
terms of the contract; also, as the failure, without legal excuse, to perform any
promise which forms the whole or part of the contract ( Sps. Edgar and Dinah
Omengan vs. Philippine National Bank. et. al., G.R. No. 161319, January 23, 2007).
 Elements —
(1) Essential -- those without which there can be no contract
a) common – present in all contracts such as
i. consent of the contracting parties;
ii. object certain which is the subject of the contract; and
iii. cause of the obligation which is established
b) special – present only in certain contracts such as
i. delivery in real contracts or
ii. form in solemn ones
c) extraordinary – peculiar to a specific contract, such as price in a contract of
sale
(2) Natural -- derived from nature of the contract and ordinarily accompany the
same
 presumed by the law, although they can be excluded by the contracting
parties if they so desire
Example - warranty against eviction is implied in a contract of sale, although
the contracting parties may increase, diminish or even suppress it
(3) Accidental -- exist only when the parties expressly provide for them for the
purpose of limiting or modifying the normal effects of the contract

Examples – conditions, terms and modes

 Parties to a contract. —
  existence of two parties is also another essential element common to all contracts
= a person cannot enter into a contract with himself BUT
 auto-contract - juridical relation, may be created wherein, apparently, there is
only one party involved, but in reality, said party merely acts in the name and for
the account of two distinct contracting parties. This may take place when a
person
1) in his capacity as representative of another, contracts with himself, or
2) as a representative of two different persons, he brings about a contract
between his principals by contracting with himself, unless there is a conflict of
interests or when the law expressly prohibits it in specific cases

 Life of Contracts. — The life of a contract has three phases or stages —

1) Generation - preliminary or preparation, conception or generation, which is the
period of negotiation and bargaining, ending at the moment of agreement of the
parties
2) Perfection - comprehends the perfection or birth of the contract, which is the
moment when the parties come to agree on the terms of the contract; and
3) Consummation - comprehends the consummation or death, which is the
fulfillment or performance of the terms agreed upon in the contract. ( ABS-CBN
Broadcasting Corporation vs. Court of Appeals, G.R. No. 128690, January 21,
1999.)

 Classification of Contracts. —
(1) According to their relation to other contracts:
(a) Preparatory —those which have for their object the establishment of a
condition in law which is necessary as a preliminary step towards the
celebration of another subsequent contract.
Examples — partnership, agency
(b) Principal — those which can subsist independently from other contracts and
whose purpose can be fulfilled by themselves
Examples — sale, lease
(c) Accessory — those which can exist only as a consequence of, or in relation
with, another prior contract
 Examples — pledge, mortgage.
(2) According to their perfection:
(a) Consensual — perfected by the mere agreement of the parties
Examples — sale, lease.
(b) Real — require not only the consent of the parties for their perfection, but
also the delivery of the object by one party to the other
Examples — commodatum, deposit, pledge.
(3) According to their form:
(a) Common or informal — require no particular form
Example — loan
(b) Special or formal — require some particular form
Examples — donations, chattel mortgage
(4) According to their purpose:
(a) Transfer of ownership, Example — sale.
(b) Conveyance of use, Example — commodatum
(c) Rendition of services, Example — agency.
(5) According to their subject matter:
(a) Things. Examples — sale, deposit, pledge.
(b) Services. Examples — agency, lease of services.
(6) According to the nature of the vinculum which they produce:
(a) Unilateral — give rise to an obligation for only one of the parties
Examples — commodatum, gratuitous deposit.
(b) Bilateral — or those which give rise to reciprocal obligations for both parties
Examples — sale, lease.
(7) According to their cause:
(a) Onerous — each of the parties aspires to procure for himself a benefit
through the giving of an equivalent or compensation
Example — sale
 (b) Gratuitous — one of the parties proposes to give to the other a benefit
without any equivalent or compensation
Example — commodatum
(8) According to the risks involved:
(a) Commutative – each of the parties acquires an equivalent of his prestation
which is pecuniarily appreciable and determined from the moment of the
celebration of the contract; Example — lease.
(b) Aleatory – each of the parties has to his account the acquisition of an
equivalent of his prestation, but such equivalent, although pecuniarily
appreciable, is not yet determined at the moment of the celebration of the
contract, since it depends upon the happening of an uncertain event, thus
charging the parties with the risk of loss or gain; Example — insurance.
(9) According to their names or norms regulating them:
(a) Nominate – have their own individuality and are regulated by special
provisions of law. Examples — sale, lease.
(b) Innominate – lack individuality and are not regulated by special provisions of
law

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.

 Right to contract - one of the most fundamental principles of the law on contracts;
guaranteed in the Constitution
 the freedom to contract is both a constitutional and a statutory right;
 to uphold this right, courts should move with all the necessary caution and
prudence in holding contracts void. (Gabriel vs. Monte de Piedad, 71 Phil. 497)
 Limitations — Art. 1306 - the stipulation, clause, term or condition established by
the contracting parties must not be contrary to
(1) Law - laws referred to are:
a) those which are mandatory or prohibitive in character
 b) those which, without being mandatory or prohibitive, nevertheless, are
expressive of fundamental principles of justice, and, therefore, cannot be
overlooked by the contracting parties; and
c) those which impose essential requisites without which the contract cannot
exist
 where the parties stipulated in their contract that all judicial and extrajudicial
acts necessary under the terms thereof should take place in a certain
municipality, it is clear that such a stipulation is contrary to law since right to
fix the jurisdiction of courts can only be exercised by the legislative branch of
the government and not by private individuals.
 where the parties stipulated that in case the debtor cannot pay his obligation
at maturity, the creditor may appropriate for himself the thing which is given
as security, such stipulation is null and void since it is contrary to the
provision of Art. 2088 of the Civil Code, which prohibits pactum
commissorium.
2) Morals - those principles which are incontrovertible and are universally admitted
and which have received social and practical recognition

 where the parties stipulated in their contract that the defendant shall be
obliged to render services to the plaintiff as a domestic servant without any
remuneration whatsoever because of a certain loan obtained by the former
from the latter, it is evident that such agreement is void on the ground that it
is contrary to morals, unless it be admitted that slavery may be established in
this country through a covenant entered into between the interested parties
 where the debtors executed a promissory note in favor of the plaintiff for
P465, promising to pay a penalty of P5.00 a day in case of non-payment of
the debt at maturity, it is clear that such a promise is immoral and, therefore,
cannot be enforced

4) Good Customs - spheres of morals and good customs frequently overlap each
other but sometimes they do not
 if a moral precept or custom is not recognized universally, but is sanctioned
by the practice of a certain community, then it shall be included within the
scope or sphere of good customs.
5) Public Order - can only refer to the safety, as well as to the peace and order, of
the country or of any particular community, not as broad as
6) Public Policy - principle of law which holds that no person can lawfully do that
which has a tendency to be injurious to the public or against the public good
 where the owner of stolen goods and the person responsible for the theft
entered into an agreement by which the former agreed to stifle the criminal
prosecution of the latter for a pecuniary consideration, it is clear that such an
agreement is manifestly contrary to public policy and the due administration
of justice; consequently, it is void. (Arroyo vs. Berwin, 36 Phil. 386; Velez vs.
Ramas, 40 Phil. 787; Monterey vs. Gomez, 104 Phil. 1059)
 an agreement where a carrier is exempted from any liability for loss or
damage caused by its own negligence, (Heacock vs. Macondray & Co., 42
Phil. 205) or
 where an applicant for dollar allocations shall pay ten or fifteen or twenty per
cent of the amount to be approved by the Central Bank as fee for the services
of the “influence peddler” or “ten percenter” in securing the approval of the
foreign exchange application.(Tee vs. Tacloban Electric and Ice Plant Co. , 105
Phil. 168)

 where an employee, after the termination of his employment, shall neither

engage or interest himself in any business enterprise similar to or in
competition with that operated by the employer, nor enter into the
employment of any enterprise in the Philippines, except by obtaining the
written permission of such employer, (Ferrazzini vs. Gsell, 34 Phil. 697)
 With regard to contracts which tend to restrain business trade, the rule is
now well established that a contract in restraint of trade is valid provided
that there is a limitation upon either time or place.
 it is also required that the restraint must be reasonably necessary for the
protection of the contracting parties
 Ferrazzini vs. Gsell 34 Phil. 697 – Facts: In the contract entered into
between plaintiff and defendant the former agreed to pay P10,000 to the
latter as liquidated damages for each and every breach of a clause of the
contract which provides that during the period of employment and for a
period of five years after the termination thereof for any cause or reason
whatsoever, the plaintiff should neither engage or interest himself in any
 business enterprise similar to or in competition with those operated by the
defendant, nor enter into the employment of any enterprise in the
Philippines except after obtaining the written permission of the defendant.

Issue: Whether the stipulation above set forth is valid and binding

Held: “The contract under consideration is clearly one in undue or

unreasonable restraint of trade and therefore against public policy. It is
limited as to time and space but not as to trade. It is not necessary for the
protection of the defendant, as this is provided for in another part of the
clause. It would force the plaintiff to leave the Philippine Islands in order to
obtain a livelihood in case the defendant declined to give him the written
permission to work elsewhere in this country.”

 Del Castillo vs. Richmond 45 Phil. 679 -Facts: The records show that in the
contract entered into between plaintiff and defendant, the former agreed
that he shall not open or own, nor have any interest directly or indirectly in
any other drugstore either in his own name or in the name of another; nor
have any connection with or be employed by any other drugstore either as
pharmacist or in any capacity in any drugstore within a radius of four miles
from the municipality of Legaspi, province of Albay, so long as the
defendant or his heirs may own or have an interest in a drugstore in the
said municipality.

Held: xxx the rule is now well established … that a contract in restraint of
trade is valid provided there is a limitation upon either time or place. A
contract, however, which restrains a man from entering into a business or
trade without either a limitation as to time or place, will be held invalid.
Xxx The general tendency, we believe, of modern authority, is to make the
test whether the restraint is reasonably necessary for the protection of the
contracting parties. If the contract is reasonably necessary to protect the
interest of the parties, it will be upheld. In all cases like the present, the
question is whether, under the particular circumstances of the case and the
nature of the particular contract involved in it, the contract is reasonable.
Of course, in establishing whether the contract is reasonable or
unreasonable, the nature of the business must also be considered.

“Considering the nature of the business in which the defendant is

engaged, in relation with the limitation placed upon the plaintiff both as to
 time and place, we are of the opinion, and so decide, that such limitation is
legal and reasonable and not contrary to public policy.”

Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by
the provisions of Titles I and II of this Book, by the rules governing the most analogous
nominate contracts, and by the customs of the place.

 Innominate Contracts – those which lack individuality and are not regulated by
special provisions of law. Four kinds of innominate contracts (Roman law
classification):

(a) Do ut des — I give that you give.

(b) Do ut facias — I give that you do.

(c) Facio ut des — I do that you give.

(d) Facio ut facias — I do that you do.

 What law governs innominate contracts? Art. 1307m  such contracts shall be
regulated by
1) the stipulations of the parties,
2) the general provisions or principles of obligations and contracts,
3) the rules governing the most analogous nominate contracts, and

4) the customs of the place

 Perez vs. Pomar (2 Phil. 682)

Facts: The evidence shows that the plaintiff rendered services to the defendant
as interpreter during a certain period. Although it is proven that such services
were accepted by the said defendant, it does not appear that any express
contract, written or verbal, was ever entered into.

Issue: The question now is whether there is a binding contract which will justify
a court of law in fixing a just compensation for the plaintiff.

Held: “Whether the service was solicited or offered, the fact remains that Perez
rendered to Pomar services as interpreter. As it does not appear that he did
this gratuitously the duty is imposed upon the defendant, he having accepted
the benefit of the services, to pay a just compensation, by virtue of the
innominate contract of facio ut des implicitly established. “The obligations
arising from this contract are reciprocal, and, apart from the general provisions
 with respect to contracts and obligations, the special provisions concerning
contracts for lease of service are applicable by analogy. “In this special
contract, as determined by Article 1544 (now Art. 1644) of the Civil Code, one
of the parties undertakes to render to the other services for a period certain.
The tacit agreement and consent of both parties with respect to the services
rendered by the plaintiff and the reciprocal benefits accruing to each are the
best evidence of the fact that there was an implied contract sufficient to create
a legal bond, from which arose enforceable rights and obligations of a bilateral
character. “In contracts, the will of the contracting parties is law. If it is a fact
sufficiently proven that the defendant Pomar, on various occasions, consented
to accept an interpreter’s services, rendered in his behalf and not gratuitously,
it is but just that he should pay a reasonable remuneration therefore, because
it is a well-known principle of law that no one should be permitted to enrich
himself to the damage of another.”

Art. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.

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.

 Mutuality of Contracts. — essential equality of the contracting parties; the law

expressly or impliedly recognizes the following consequences:
(1) The validity or fulfillment of a contract cannot be left to the will of one of the
contracting parties; expressly declared by Art. 1308. What is prohibited by the
law from being delegated to one of the contracting parties are:
a) the power to determine whether or not the contract shall be valid; and

b) the power to determine whether or not the contract shall be fulfilled.

(2) The validity or fulfillment may be left to the will of a third person (Art. 1309).
 indispensable requisite that the determination made by the third person
should not be evidently inequitable. If it is evidently inequitable, it shall not
have any obligatory effect upon the contracting parties. (Art. 1310)
  Encarnacion vs. Baldemar, 77 Phil. 470 - Thus, where it is expressly stipulated in
a contract of lease that the defendants can continue occupying the house which
is the object of the contract indefinitely so long as they should faithfully fulfill
their obligation to pay the rentals, it is clear that the continuance and fulfillment
of the contract would then depend solely and exclusively upon their
uncontrolled choice between continuing paying the rentals or not, completely
depriving the owner of all say on the matter. Consequently, such a stipulation
cannot be set up by the defendants as a defense in an action for ejectment
instituted by the plaintiff. If this defense is allowed, so long as defendants
elected to continue the lease by continuing the payment of the rentals, the
owner would never be able to discontinue it; conversely, although the owner
should desire the lease to continue the lessees could effectively thwart his
purpose if they should prefer to terminate the contract by the simple expedient
of stopping payment of the rentals. This, of course, is prohibited by Art. 1308 of
the Civil Code.

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 received from the decedent.

If a contract should contain some stipulation in favor of a third person, he may

demand its fulfillment provided he communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person.

Relativity of Contracts. —
 General principle - a contract can only bind the parties who had entered into it or
their successors who have assumed their personality or their juridical position
 such contract can neither favor nor prejudice a third person (in conformity
with the axiom res inter alios acta aliis neque nocet prodest).
 doctrine of the relative and personal character of contracts (1 st par., Art. 1311)
 Persons bound by contract. —
 General rule = contracts can take effect only between the parties, their assigns
and heirs
  Exception - the rule does not apply if the rights and obligations arising from the
contract are not transmissible:

(1) By their nature, as when the special or personal qualification of the obligor
constitutes one of the principal motives for the establishment of the
contract;

(2) By stipulation of the parties, as when the contract expressly provides that
the obligor shall perform an act by himself and not through another;

(3) By provision of law, as in the case of those arising from a contract of

partnership or of agency.

Effect of contract on third persons. —

 General rule – contracts cannot produce any effect as far as third persons are
concerned
 Exceptions - where a contract may produce effect either directly or indirectly on
third persons:

(1) Where the contract contains a stipulation in favor of a third person

(2) Where the third person comes into possession of the object of a contract
creating a real right;

(3) Where the contract is entered into in order to defraud a third person; and

(4) Where the third person induces a contracting party to violate his contract.

o Stipulations in favor of third persons. — (2nd par., Art. 1311)

 if a contract should contain some stipulation in favor of a third person, he may

demand its fulfillment provided he communicated his acceptance to the
obligor before its revocation.
 In Florentino vs. Encarnacion (79 SCRA 192) ), it was defined as a stipulation
in favor of a third person conferring a clear and deliberate favor upon him,
and which stipulation is merely a part of a contract entered into by the
parties, neither of whom acted as agent of the third person, and such third
person may demand its fulfillment provided that he communicates his
acceptance to the obligor before it could be revoked.
Kinds —
 1) those where the stipulation is intended for the sole benefit of the third
person;
2) those where an obligation is due from the promisee to the third person which
the former seeks to discharge by means of such stipulation

Requisites. — Before such stipulation can be enforced, however, it is essential:

(1) that there must be a stipulation in favor of a third person;
(2) the stipulation must be a part, not the whole of the contract;
(3) the contracting parties must have clearly and deliberately conferred a favor
upon a third person, not a mere incidental benefit or interest;
(4) the third person must have communicated his acceptance to the obligor
before its revocation; and
(5) neither of the contracting parties bears the legal representative or
authorization of the third party.
 The acceptance by the third person or beneficiary does not have to be done in
any particular form, may be express or implied. (Florentino vs. Encarnacion,
supra; see also Cristobal vs. Gomez, 50 Phil. 810; 4 Tolentino Civil Code, p. 410.)
The following hypothetical problem is illustrative:

Test of beneficial stipulation. — The fairest test whereby we can determine whether
the interest of a third person in a contract is a stipulation pour autrui or merely an
incidental interest, is to rely upon the intention of the parties as disclosed by their
contract.

 Did they deliberately insert terms in their agreement with the avowed purpose of
conferring a favor upon such third person? In resolving this question, of course,
the ordinary rules of construction and interpretation of writings must be
observed.
 Kauffman vs. Phil. National Bank 42 Phil. 182

Facts: The defendant bank, for a valuable consideration paid by the

Philippine Fiber and Produce Co., agreed to cause a certain sum of
money to be paid to the plaintiff in New York City. Subsequently,
however, the bank cabled its representative in New York to withhold
payment of the amount to the plaintiff. Because of this development,
plaintiff filed this action to recover the amount.
Issue: The question now is whether or not the lack of privity with the
contract on the part of the plaintiff is fatal to the maintenance of this
action.

Held: “The only express provision of law that has been cited as bearing
directly on this question is the second paragraph of Article 1257 (now Art.
1311) of the Civil Code; and unless the present action can be maintained
under that provision, the plaintiff admittedly has no case.

In the case of Uy Tam vs. Leonard (30 Phil. 471), Justice Trent,
speaking for the Court, sums up its conclusions in the following words:

“So, we believe the fairest test in this jurisdiction whereby to

determine whether the interest of a third person in a contract is a
stipulation pour autrui or merely an incidental interest, is to rely
upon the intention of the parties as disclosed by their contract.

“If a third person claims an enforcible interest in the contract,

that question must be settled by determining whether the
contracting parties desired to tender him such an interest. Did
they deliberately insert terms in their agreement with the avowed
purpose of conferring a favor upon such third person? In
resolving this question, of course, the ordinary rules of
construction and interpretation of writings must be observed.’

“Further on in the same opinion he adds: ‘In applying this test

to a stipulation pour autrui, it matters not whether the stipulation
is in the nature of a gift or whether there is an obligation owing
from the promisee to the third person. That no such obligation
exists may in some degree assist in determining whether the
parties intended to benefit a third person.’

“In the light of the conclusions thus stated, the right of the
plaintiff to maintain the present action is clear enough, for it is
undeniable that the bank’s promise to cause a definite sum of
money to be paid to the plaintiff in New York City is a stipulation
in his favor within the meaning of the paragraph above quoted;
and the circumstances under which the promise was given
disclose an evident intention on the part of the contracting
parties that the plaintiff should have that money upon demand in
 New York City. The recognition of this unqualified right in the
plaintiff to receive the money implies in our opinion the right in
him to maintain an action to recover it; and indeed if the
provision in question were not applicable to the facts now before
us, it would be difficult to conceive of a case under it.

“It will be noted that under the paragraph cited a third

person seeking to enforce compliance with a stipulation in his
favor must signify his acceptance to the bank by demanding
payment; and although the Philippine National Bank has already
directed its New York agency to withhold payment when this
demand was made, the right of the plaintiff cannot be considered
to have been prejudiced by that fact. The ‘revoked,’ as there used,
must be understood to imply revocation by the mutual consent
of the contracting parties, or at least by direction of the party
purchasing the exchange.”

 Coquia vs. Fieldmen’s Insurance Co. 26 SCRA 178

Facts: On Dec. 1, 1961, the Fieldmen’s Insurance Co. issued in favor of the
Manila Yellow Taxicab Co. a common carrier accident insurance policy,
covering the period from Dec. 1, 1961 to Dec. 1, 1962. It was stipulated in
said policy that “the Company will indemnify the Insured in the event of
accident against all sums which the Insured will become legally liable to pay
for death or bodily injury to any fare-paying passenger including the driver,
conductor and/or inspector who is riding in the motor vehicle insured at the
time of accident or injury.” On Feb. 10, 1962, as a result of a vehicular
accident, Carlito Coquia, driver of one of the vehicles covered by said policy,
was killed. Because of the failure of the Company and the Insured to agree
with respect to the amount to be paid to the heirs of the driver, the Insured
and the parents of Carlito, the Coquias, finally brought this action against the
Company to collect the proceeds of the aforementioned policy. The latter
now contends, among others, that the Coquias have no cause of action
because they have no contractual relation with the Company.

Held: “Although in general, only parties to a contract may bring an action

based thereon, this rule is subject to exceptions, one of which is found in the
 second paragraph of Art. 1311 of the Civil Code of the Philippines. This is but
a restatement of a well-known principle concerning contracts pour autrui, the
enforcement of which may be demanded by a third party for whose benefit it
was made, although not a party to the contract, before the stipulation in his
favor has been revoked by the contracting parties. Does the policy in
question belong to such class of contracts pour autrui?

“The policy provides, inter alia, that the Company ‘will indemnify any
authorized driver who is driving the motor vehicle’ of the Insured and, in the
event of death of said driver, the Company shall, likewise, ‘indemnify his
personal representatives.’

“Thus, the policy is typical of contracts pour autrui, this character being
made more manifest by the fact that the deceased driver, paid fifty percent of
the premiums, which were deducted from his weekly commissions. Under
these conditions, the Coquias — who, admittedly are the sole heirs of the
deceased — have a direct cause of action against the Company, and, since
they could have maintained this action by themselves, without the assistance
of the Insured, it goes without saying that they could and did properly join
the latter in fi ling the complaint hereon.”

Art. 1312. In contracts creating real rights, third persons who come into possession of the
object of the contract are bound thereby, subject to the provisions of the Mortgage Law
and the Land Registration laws.

Contracts Creating Real Rights. —

 A real right is a right belonging to a person over a specific thing, without a passive
subject individually determined, against whom such right may be personally
enforced.
 enforceable against the whole world
 a third person who might come into the possession of the object of a contract
creating a real right is bound by such right, subject, of course, to the provisions of
the Mortgage Law and the Land Registration laws.
Examples
 Mortgage Law - If A mortgages his house and lot to the PNB in order to
secure an obligation of P20,000, and such mortgage is registered in the
Registry of Property, the effect of such registration is to create a real right
 which will be binding against the whole world. Hence, if the property is
subsequently sold to B, the contract of mortgage between A and the PNB will
be binding upon him.
 Land Registration Law - if a third person comes into possession by whatever
title of a certain property which had been leased by the previous owner to
another person, and such lease was recorded in the Registry of Property, such
third person shall be bound thereby.

Art. 1313. Creditors are protected in cases of contracts intended to defraud them.

Contracts In Fraud of Creditors. —

 Generally, a third person cannot ask for the annulment of a contract BUT if a
creditor of one of the contracting parties establishes that a contract was entered
into with the intention of defrauding him, he may ask for its rescission
 This rule must be read always in relation to the provisions of Arts. 1380, et seq., of
the Civil Code, as well as Art. 1177.
Art. 1314. Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party.

Interferences with Contractual Relations. —

 The theory of this doctrine is that the right to perform a contract and to reap the
profits resulting from such performance, and also the right to performance by the
other party, are property rights which entitle each party to protection, and to seek
compensation by an action in tort for any interference therewith.

Requisites. — Before the third person can be held liable for damages:
(1) the existence of a valid contract;
(2) knowledge on the part of the third person of the existence of the contract; and
(3) interference by the third person without legal justification or excuse
Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage
and law.

Art. 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected
until the delivery of the object of the obligation.
Perfection of Contracts. —
 refers to that moment in the life of a contract when there is finally a concurrence of
the wills of the contracting parties with respect to the object and the cause of the
contract
 General rule - produced by mere consent BUT
 Art. 1316 – Real contracts (e.g. deposit, pledge and commodatum) = perfected
upon delivery of the object by one contracting party to the other.
Art. 1317. No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person in whose behalf it has been executed, before
it is revoked by the other contracting party.

Contracts in Name of Another. —

 Art. 1317 logical corollary to the principles of the obligatory force and the relativity
of contracts. It is also the basis of the contract of agency (Arts. 1868-1932).
 To represent another in a contract must 1) be duly authorized by the other person;
or 2) he has by law a right to represent him.
 Otherwise, contract is unenforceable
 Authorized BUT acted beyond scope of authority = contract is also
unenforceable
 What is meant by an unenforceable contract?  cannot be sued upon or
enforced, unless ratified (may be express or implied); occupies an
intermediate ground between a voidable and void contract.
 distinguished from ‘voidable’ which are binding, unless annulled by proper
action in court; farther away from absolute nullity than unenforceable
contracts
#######

Cases:

 Sps Pascual vs Ramos, G.R. No. 144712, July 4, 2002

 Cuizon vs CA, 260 SCRA 645
 Ferrazini vs. Gsell, 34 Phil. 697
 Del Castillo vs Richmond, 45 Phil. 697
 Cui vs Arellano University, 112 Phil 135
 Sy Suan vs. Regala, 105 Phil 1024
 Constantino vs Espiritu, 39 SCRA 206