Types of Contract Law in the Philippines: A Guide for Law Students

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. (Art. 1305 of the Civil Code of the Philippines)

One of the most important subjects in law school and even one of the most applied legal provisions in real life involve contracts. The first lesson taught in this class are the types of contracts people can enter into because understanding the transactions you are involved in ensures that you are protected. Further, it also serves as the basic introduction into the world of legal relations between or among individuals. 

Now, you no longer have to wait for the first day of law school to learn more about the types of contracts.

What is a Contract in Philippine Law?

A contract is when one or more persons bind themselves to give, to do, or not to do something with respect to other individuals. As quoted above, it entails “a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service” according to the Article 1305 of the Civil Code. This article is better understood when broken down into smaller elements:

• Meeting of Minds

The meeting of the minds, also referred to as the consensual nature of contracts, marks the beginning of the perfection of contracts. What is important is that the parties to a contract have to agree to the subject matter and the cause or consideration in the contract.

• Two Persons

Persons in this case must be competent or capable to enter into contracts. To know if one is capable, legal provisions on the matter may be consulted such as when one is insane or a minor as stated in Article 1327 of the Civil Code.

• To give something or to render some service 

The subject matter/s of a contract may be those involving things, rights, credits, or services. The possible objects of contracts are very broad & are only subject to the prohibitions set out in Articles 1347 & 1348 of the Civil Code: outside the commerce of men, including future things, intransmissible rights, future inheritance, those contrary to law, morals, good customs, public order or public policy, and impossible things or services.

• Cause or Consideration

While this is not part of the legal provision cited, this is the reason why a contract is created in the first place. This may be for profit, payment, or even out of just pure generosity of the party/ies.

What are the Basic Characteristics of Contracts in the Philippines?

• Obligatory Force between the Parties

Contracts are generally binding between the two parties and thus, they are to fulfill the obligations set out in the terms and conditions. Failure to do so will cause a breach. 

• Mutuality

Both parties of the contract are bound by the terms of the agreement. It cannot be left to the will of only one or binding on only one of them.

• Relativity or Privity

The binding effect of contracts are only applicable to the contracting parties.

Formatting a Contract

While contracts have multiple types, a common format can be followed to ensure that all the essential elements of a valid and binding document are present. A sample format can be found below:

Types of Contracts in the Philippines

Contract Law covers a vast subject matter where different types of contracts may arise from one category. Here are the most common ones:

1. According to Subject Matter

2. According to Name

3. According to Form

4. According to Cause/Consideration

5. According to Risk

6. According to Obligatory Force

Common Mistakes in Contract-Writing to Avoid 

With all the intricacies involved in making a contract, it is common to make errors. However, even if it is common to make mistakes, it is easier to avoid them altogether. Below are some usual blunders seen in contract drafting:

Ambiguous Provisions

Discussed above is the essential requisite of contracts which is consent or the meeting of the minds. Such cannot take place if the contractual provisions involved lack clarity on what are the obligations of each party in a contract. To avoid this, always read back the provisions over and over again to make sure that no further clarification is needed beyond the four corners of the contract.

Lack of Legal Support

Contracts are highly regulated by laws and as such, must adhere to the set limitations. To avoid unnecessary suits before the Courts for contractual provisions that violate legal provisions, you must always countercheck the legality of each statement in the contract.

No definition of terms

Legal terms are complicated enough as it is thus terms and conditions to be agreed upon between the parties must be clarified before any signing of the instrument takes place. In this manner, future conflicts between them can be avoided because it is already understood that they freely and consciously agreed to the terms in the contract.

Top 3 Tools to Support Lawyers in Contract Writing

On top of all the tasks a lawyer must accomplish, he/she must also be available to assist in drafting a contract in case a client needs it. However, this need not be added to that pile of neverending to-dos. Below are just some of the best platforms to aid in contract writing:

1. Digest AI

Last but definitely not the least, Digest AI is a 3-in-1 legal research platform where you can find legal sources, explain confusing legal provisions, and ask complicated legal questions. Consult this platform today for the best features in legal research.

2. Grammarly

While the law requires no standard format for contracts, it is important to use legal terminologies as well as words that both parties can understand. Grammarly, or other grammar and style checkers may prove to be helpful in removing the burden of rechecking formal statements made in a contract.

3. Zotero

Zotero, on the other hand, helps a lawyer keep track of all the legal bases he/she has consulted thus far. It also helps in the mechanical tasks of citation generation and reference management.

Key Takeaways

• A contract in the Philippine law 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.”

• The essential elements of a valid and binding contract are: valid consent between the parties, a legal subject matter, and cause or consideration.

• Types of contract law include classifications by subject matter, form, cause, risk, and obligatory force.

• Contracts may be classified according to subject matter, name, form, cause/consideration, risk, and obligatory force. 

Frequently Asked Questions (FAQs)

What is RA 386 all about?

RA 386, also known as the Civil Code of the Philippines, contains the provisions that govern obligations and contracts entered into by individuals.

What are the 4 C's of contracts?

The 4 C’s of contracts are their essential elements: Consent, Cause/Consideration, Capacity, and Compliance with the provisions of the Civil Code 

What are the 4 types of innominate contracts?

The 4 types of contracts with no names are: Do ut des (I give that you may give), Do ut facias (I give that you may do), Facio ut des (I do that you may give), and Facio ut facias (I do that you may do).

Conclusion

While the law on the types of contracts are important to learn for law students, it is also essential to know for individuals since we enter into contracts everyday, sometimes not even knowing that we did. Learning the basics takes us a long way away from being scammed into contracts we do not fully agree to.

Main References

• Civil Code of the Philippines

• De Leon, Hector S.. (2021). The Law on Obligations and Contracts (Twelfth Edition): REX Book Store.

• Paras, Edgardo L. (2021). Civil Code of the Philippines, Annotated. Vol. 4: Prescriptions, Obligations and Contracts: REX Book Store.