What makes a Contract Valid? 2 years ago

When you start a business and eventually make agreements or enter into partnerships, 'promises' are no longer acceptable. Everything has to be legally binding now. 

Contracts will become necessary–from employing people to closing deals with clients. 

According to the Civil Code, 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." It is a legally enforceable agreement between two or more parties.

What Makes a Contract Legally binding?

There must be an offer and an acceptance from the other party or parties for something to be considered an agreement; otherwise, there is no agreement. An agreement, however, does not have to be a contract in and of itself.

A contract becomes enforceable after both parties consent to its terms or when one party makes an offer, and the other party accepts it. This is why starting with a clear and detailed contract proposal can help prevent misunderstandings later. However, take note that no contract will be established if the party retracts the proposal before the other party accepts it.

Who can enforce it?

According to the civil code, a contract is legal and enforceable if all its elements are present:

1. Contracting parties or consent

2. The subject matter of the contract or object

3. The cause of the said contract.

As long as these conditions are met, the contract is enforceable even if it is not notarized. 

What contracts need notarization?

There are certain types of contracts that need to appear in public documents or be notarized–making them admissible in court without additional verification of their authenticity such as the following:

• Acts and agreements whose purpose is the establishment, transfer, modification, or extinction of real rights over real property, including sales of real property 

• Cession, repudiation, or renunciation of hereditary rights or of those of the conjugal partnership of gains

• The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document (Example: Sell a land or property that needs a power of attorney)

• The cession of actions or rights proceeding from an act appearing in a public document.

What contact needs to be in writing?

Even though contracts don't have to be in writing–it is advisable to make sure that the agreements are clear and that everyone is aware of their responsibilities. Also, there are contracts covered by the 'statute of frauds' which must be in writing, such as the following:

• An agreement that is not to be performed within a year from its making

• A special promise to answer for the debt, default, or miscarriage of another, default, or miscarriage of another;

• an agreement made in consideration of marriage other than a mutual promise to marry

• An agreement for the sale of goods, chattels, or things in action at a price not less than five-hundred pesos (P500)

• An agreement of the leasing for a longer period than one year or for the sale of real property.

• A representation as to the credit of a third person.

Is having a witness necessary? 

No, a witness is not necessary. A contract that has been signed but not witnessed is valid unless it can be proven in court that the signature was forged. One popular exception to this rule is notarial wills which require witnesses if you are planning to give your properties to your heirs. You can read more about signing agreements/contracts here.

While as for shake-hand and verbal agreements or those that weren't in writing may require a witness. 

Whether you are a business owner or not, part of adulting is dealing with tons of papers and agreements to sign. But contracts are important these days because it helps several businesses to transact legally and protect both parties involved. 

To ensure that all agreements and contracts in your business are legally binding, you can contact our legal experts and browse resources from Digest.ph that will be helpful to your business.