What is the Essence of a Contract?

Everybody knows what a contract is. At one point in your life, you have either seen or signed a contract. All of us who are working for a company have signed an employment contract, right? All of you who have businesses have prepared and signed different kinds of contracts, right? For those of you who are service providers, you have your own service contracts with your clients, right? I sure hope so. It’s for your own good.

But let me ask you this… Do you honestly know or understand all the things written in your contract? Yes? No? I am certainly sure most of you do NOT. Well, I won’t blame you. Majority of the contracts out there are written in a language that is not easily understood by a non-lawyer, usually in legalese and with high faluting words. Not to mention that most contracts are often long and tedious to read page by page. That is why there are lawyers (like me!) who assist you in this ordeal. For several years now, I have been eating contracts for breakfast. Hahaha! Seriously though, it is always an advantage that even if you are not a lawyer, you are aware of the basic elements of a contract.

I often get these statements:

“Attorney, nag-usap na naman kami ng client. Ok na daw. Malinaw na lahat.” (Attorney, the client and I have already talked. Everything is clear and settled.) Really? Do you think that a verbal agreement is enough? Well… this arrangement is ALWAYS okay if there is no problem in your transaction. If there is nothing unclear between the parties, so be it.

The real problem arises when there are some clarification, misinterpretation and misunderstanding between you and the other party. Imagine this without you having a signed contract. What will happen now? Both parties will be at a loss. It will bring more confusion and disagreements and will lead to bigger and more complicated problems. 

Without a signed contract, one can always say that there is no valid transaction or any obligation between the parties. There will be endless arguments and pointing fingers. Emphasis is on the word “SIGNED” contract because there are actual instances I encountered wherein there is actually a contract provided yet it remained unsigned until the dispute happened. In short, if the contract is not signed, even if a copy was provided, you still have NO CONTRACT.

Article 1305 of the New Civil Code of the Philippines defines a contract as “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.” In simple terms, a contract is a document that shows the things that the parties have agreed upon. Every contract must have these three elements to be valid:

1) consent;

2) subject matter;

3) cause.

Let us discuss them one by one.

CONSENT. If there is an offer and the other party accepts the offer, there is already a contract. That is why you often hear the term “oral or verbal agreement”. Generally, these agreements are acceptable but they sure come with a lot of risks.

SUBJECT MATTER. Anything can be the subject matter of a contract. Remember, though, that there are always limitations or exceptions to this. Those objects such as public roads, the sun, the moon, forest or those which we cannot truly possess, cannot be a valid subject matter of a contract. Services can also be the object of a contract except those services that are illegal or immoral (ex. services of an assassin or a prostitute). Bawal po yan!

CAUSE. All contracts must have a cause or a purpose. For instance, in service contracts (ex. internet service provider), the cause can be the promise of an internet connection by the service provider to the client. In case of a donation, the cause can be the generosity of the donor.

So next time you see a contract, try to identify the three elements above if present. It is easier to negotiate with the other party or enforce your right in court when you have the proper documents (contract!) to prove your claim, as opposed to verbal arguments.

GOOD TO KNOW INFORMATION!!!

Did you know that when the other party to a contract is a corporation, it is BEST PRACTICE to request the corporation to submit a Secretary Certificate or Sec Cert which states that the one signing the contract is in fact authorized to sign it?  

In case you didn’t know, a corporation can only act through its Board of Directors (“BOD”). The BOD can delegate some of its functions or powers to its officers or agents. I always advise my friends and loved ones who transact with corporations (big or small) to ask for a Sec Cert before they sign any contract. What we are trying to ensure is the authority of the person signing the contract. Imagine if the one who signed your contract turns out to be without power and authority to sign? You will have a more difficult problem to solve. So take note of my advice, okay? Better safe than sorry.

Remember also that the contract should be the last resort in case of disputes. Always aim to settle everything peacefully and amicably. If all else fails, then go ahead and enforce your right and file your case in court.

I hope that the above discussion helped you realize how important a contract is to everyone. If you have any questions or even suggestions for legal topics that you would like to be discussed, please comment below or you can send me an email at camille@attymommy.com.

Until next time. This is Attorney Mommy, at your service!