Definition: Contract, A1305, Civil Code
1. Concepts
Article 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. (1254a)
Related provision:
Article 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
1) Article 1305 of the New Civil Code defines a contract 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 is 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 fulfilment of a prestation to give, to do, or not to do.” (SM Land, Inc. v. BCDA, G.R. No. 203655, March 18, 2015, Per Velasco, Jr., J.)
Clemente v. CA, G.R. No. 175483, October 14, 2015, Per Jardeleza, J.:
• The Civil Code defines a contract 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. Article 1318 provides that there is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established.
• All these elements must be present to constitute a valid contract; the absence of one renders the contract void. As one of the essential elements, consent when wanting makes the contract non-existent. Consent is manifested by the meeting of the offer and the acceptance of the thing and the cause, which are to constitute the contract. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing that is the object of the contract, and upon the price.
• Here, there was no valid contract of sale between petitioner and Adela because their consent was absent. The contract of sale was a mere simulation.
San Miguel Foods, Inc. (SMFI) v. Magtuto, G.R. No. 225007, July 24, 2019, Per Carpio, J.:
• Petitioner SMFI contends that there was never any written broiler chicken contract growing agreement between SMFI and Magtuto. SMFI asserts that it had no participation in and knowledge of the agreement made to Magtuto by Vinoya, who had no authority to enter into a contract growing agreement with any person in behalf of SMFI. SMFI asserts that Vinoya only accommodated Magtuto on the condition that excess chicks would be available since the company’s priority would be their official contract growers. Thus, the continuity of the accommodation and the supply of the day-old chicks were contingent upon the availability of excess chicks from SMFI’s hatchery. SMFI also submits that Vinoya and Magtuto did not even fix a duration on how long the arrangement would be. SMFI insists that the lower and appellate courts, in awarding actual or compensatory damages, erroneously relied on the self-serving testimony of Magtuto, absent any clear and convincing proof that Magtuto is entitled to such damages.
• Under the Civil Code, a contract is a meeting of the minds, with respect to the other, to give something or to render some service. Article 1318 of the Civil Code provides:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established.
• Accordingly, for a contract to be valid, it must have the following essential elements: (1) consent of the contracting parties; (2) object certain, which is the subject matter of the contract; and (3) cause of the obligation which is established. Consent is manifested by the meeting of the offer and the acceptance of the thing and the cause, which are to constitute the contract. The contract is perfected at the moment there is a meeting of the minds upon the thing that is the object of the contract and the price.
• In the present case, all the essential elements – consent, object and cause – are present. Magtuto entered into an agreement with Vinoya for the growing of broiler chicks. They agreed that SMFI would provide the day-old chicks, feeds, medicines, materials and technical support, while Magtuto would be given a certain period to grow the chicks and keep them healthy. Afterwards, SMFI would harvest the chicks and Magtuto would be paid a grower’s fee depending on the number of chicks harvested. The chicks delivered by SMFI and grown by Magtuto constitutes the object or subject matter of the contract and the grower’s fee is the consideration.
• Thus, a contract, once perfected, is generally binding in whatever form, whether written or oral, it may have been entered into, provided the essential requisites for its validity are present.
2. Stages of a Contract
Stages:
1) Preparation / Negotiation
2) Perfection
3) Consummation
1) A contract has three distinct stages: preparation, perfection, and consummation. Preparation or negotiation begins when the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement. Perfection or birth of the contract occurs when they agree upon the essential elements thereof. Consummation, the last stage, occurs when the parties “fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof”. (Rockland Construction Company, Inc. v. Mid-Pasig Land Development Corporation, G.R. No. 164587, 04 February 2008, Per Quisumbing, J.)
a. Preparation or negotiation
1) Preparation or negotiation begins when the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement. (Ibid.)
2) Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. (XYST Corporation v. DMC Urban Properties Development Inc., G.R. No. 171968, July 31, 2009, Per Quisumbing, J.)
3) Negotiation is formally initiated by an offer. Accordingly, an offer that is not accepted, either expressly or impliedly, precludes the existence of consent, which is one of the essential elements of a contract. (Rockland Construction Company, Inc. v. Mid-Pasig Land Development Corporation, supra.)
4) Once there is concurrence of the offer and acceptance of the object and cause, the stage of negotiation is finished. (Moreno, Jr. v. Private Management Office, G.R. No. 159373, November 16, 2006, Per Puno, J.)
b. Perfection
1) Perfection or birth of the contract occurs when they agree upon the essential elements thereof. (Rockland Construction Company, Inc. v. Mid-Pasig Land Development Corporation, supra.)
2) To reach that moment of perfection, the parties must agree on the same thing in the same sense, so that their minds meet as to all the terms.16 They must have a distinct intention common to both and without doubt or difference; until all understand alike, there can be no assent, and therefore no contract. The minds of parties must meet at every point; nothing can be left open for further arrangement. So long as there is any uncertainty or indefiniteness, or future negotiations or considerations to be had between the parties, there is not a completed contract, and in fact, there is no contract at all. (Moreno, Jr. v. Private Management Office, supra.)
Rockland Construction Company, Inc. v. Mid-Pasig Land Development Corporation, G.R. No. 164587, 04 February 2008, Per Quisumbing, J.:
• Rockland Construction Company, Inc. (Rockland), in a letter dated March 1, 2000, offered to lease from Mid-Pasig Land Development Corporation (Mid-Pasig) the latter’s 3.1-hectare property in Pasig City. This property is covered by Transfer Certificate of Title Nos. 469702 and 337158 under the control of the Presidential Commission on Good Government (PCGG). Upon instruction of Mid-Pasig to address the offer to the PCGG, Rockland wrote the PCGG on April 15, 2000. The letter, addressed to PCGG Chairman Magdangal Elma, included Rockland’s proposed terms and conditions for the lease. This letter was also received by Mid-Pasig on April 18, 2000, but Mid-Pasig made no response.
• Again, in another letter6 dated June 8, 2000 addressed to the Chairman of Mid-Pasig, Mr. Ronaldo Salonga, Rockland sent a Metropolitan Bank and Trust Company Check No. 29300501687 for P1 million as a sign of its good faith and readiness to enter into the lease agreement under the certain terms and conditions stipulated in the letter. Mid-Pasig received this letter on July 28, 2000.
• In a subsequent follow-up letter8 dated February 2, 2001, Rockland then said that it presumed that Mid-Pasig had accepted its offer because the P1 million check it issued had been credited to Mid-Pasig’s account on December 5, 2000.
• Mid-Pasig, however, denied it accepted Rockland’s offer and claimed that no check was attached to the said letter. It also vehemently denied receiving the P1 million check, much less depositing it in its account.
• In its letter10 dated February 6, 2001, Mid-Pasig replied to Rockland that it was only upon receipt of the latter’s February 2 letter that the former came to know where the check came from and what it was for. Nevertheless, it categorically informed Rockland that it could not entertain the latter’s lease application. Mid-Pasig reiterated its refusal of Rockland’s offer in a letter11 dated February 13, 2001.
• Rockland then filed an action for specific performance…
• A close review of the events in this case, in the light of the parties’ evidence, shows that there was no perfected contract of lease between the parties. Mid-Pasig was not aware that Rockland deposited the P1 million check in its account. It only learned of Rockland’s check when it received Rockland’s February 2, 2001 letter. Mid-Pasig, upon investigation, also learned that the check was deposited at the Philippine National Bank (PNB) San Juan Branch, instead of PNB Ortigas Branch where Mid-Pasig maintains its account. Immediately, Mid-Pasig wrote Rockland on February 6, 2001 rejecting the offer, and proposed that Rockland apply the P1 million to its other existing lease instead. These circumstances clearly show that there was no concurrence of Rockland’s offer and Mid-Pasig’s acceptance.
c. Consummation
1) Consummation, the last stage, occurs when the parties “fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.” (Ibid.)
Central Cement Corporation v. Mines Adjudication Board, G.R. No. 173562, January 22, 2008, Per Reyes, R.T., J.:
• Petitioner [CCC] confuses the concept of “perfection” of contract with the “consummation” of contract. A contract undergoes three distinct stages: (1) preparation or negotiation; (2) perfection; and (3) consummation. x x x
• The delivery of pertinent data and the execution of the Deeds of Assignment are not part of the “perfection” stage. They are part of the “consummation” stage of the MOU. This is clear from the MOU itself. A reading of the MOU shows that the manifest intention of the parties was the consolidation of rights to certain mining areas to be vested in a single party. To this end, petitioner and private respondent agreed to swap mining rights for certain parcels of land. This was the essence of the compromise agreement.
• Petitioner confuses the concept of “perfection” of contract with the “consummation” of contract. A contract undergoes three distinct stages: (1) preparation or negotiation; (2) perfection; and (3) consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in its extinguishment.53
• The delivery of pertinent data and the execution of the Deeds of Assignment are not part of the “perfection” stage. They are part of the “consummation” stage of the MOU. This is clear from the MOU itself. A reading of the MOU shows that the manifest intention of the parties was the consolidation of rights to certain mining areas to be vested in a single party. To this end, petitioner and private respondent agreed to swap mining rights for certain parcels of land. This was the essence of the compromise agreement.
