What Makes a Contract Valid in the Philippines? Elements & Examples

We often sign contracts in everyday life—whether employment agreements, rental leases, or business partnerships. But have you ever wondered what makes these contracts legally valid under Philippine law? 

Contracts are fundamental to Philippine legal practice because they govern countless business, property, and employment transactions. Knowing what makes a contract valid ensures these agreements are enforceable and protected by law. 

This article provides a detailed yet accessible explanation of the elements constituting a valid contract under Philippine law, supported by relevant statutes and case law. Read on to deepen your understanding of contract validity and how to recognize legally binding agreements.

What Makes a Contract Valid in the Philippines?

According to the Civil Code of the Philippines, 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." 

A valid contract clarifies the parties' rights and obligations and secures the transaction's legal standing in court. 

The legal foundation of contract validity in the Philippines is primarily found in the Civil Code, specifically 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.”

These provisions outline the requisites that must be present for a contract to be considered valid and enforceable.

• Article 1159 states: "Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith."

• Article 1356 emphasizes: "Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised."

These articles illustrate that formality, such as notarization, is not always necessary for a contract to be valid. What matters most are the core elements of valid consent, lawful object, and cause.

Essential Elements of a Valid Contract in the Philippines

The Civil Code sets out the three fundamental elements required for a contract to be valid:

1. Consent of the Parties

Under Article 1319, “Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.”

Consent must be freely and intelligently given without duress, intimidation, undue influence, or mistake. It must also be spontaneous and informed, meaning the parties understand the nature and consequences of their agreement.

Legal capacity plays a vital role here; parties must have the capacity to contract, otherwise, the contract may be voidable. For example, minors or individuals with mental incapacity generally cannot give valid consent.

2. Object Certain and Lawful

Under Article 1347, “All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts.”

The subject matter or object of the contract must be certain, possible, and lawful. For example, selling illegal drugs renders the contract unlawful and thus void. The object must also be licit and within the parties' rights, such as a valid sale of property where the seller has valid ownership rights.

3. Cause or Consideration

Under Article 1350, “In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.”

This refers to the legal reason or purpose behind the contract. It must be lawful and not contrary to law, morals, or public order. 

For instance, a loan contract must have a lawful cause, such as borrowing money for lawful business purposes.

Valid, Void, and Voidable Contracts

It is crucial to understand the difference between valid, void, and voidable contracts. 

A valid contract fulfills all the essential requisites and is enforceable; a void contract lacks essential elements and has no legal effect; and a voidable contract is valid but can be annulled under certain circumstances, such as duress or fraud.

Valid Contract Examples in Daily Life

Employment Contract

A typical employment contract must involve mutual consent, the employer’s lawful authority to hire, and a clear agreement on compensation. It is valid if all essential requisites are present and comply with Philippine labor laws.

Lease or Rental Agreement

A lease agreement between a landlord and tenant is valid as long as there is consent, a lawful object (the property), and a determinable rent price. Even if unwritten, such agreements are enforceable, provided they meet all requisites.

Business Partnership Contract

A business partnership agreement is valid if all parties consent freely, the purpose is lawful, and the terms are clear. It is enforceable without notarization unless it involves real estate or significant assets requiring public documents.

Difference Between Valid and Enforceable Contracts in the Philippines

While validity pertains to whether a contract satisfies all the legal requisites and is legally binding, enforceability means it can be invoked in court to compel performance.

For example, a contract might be valid but not enforceable if it is subject to a legal defect under specific circumstances, such as duress or mistake. Conversely, a valid contract that meets all formal legal requirements is also enforceable.

Common Issues That Do Not Affect Contract Validity

Certain technical issues—such as the absence of notarization or witnesses—do not necessarily impact the validity of a contract, as long as the essential elements are present. 

The Civil Code emphasizes that contracts are valid regardless of form unless the law requires a specific formal requirement.

For instance, a contract made verbally and not notarized can still be valid and enforceable if it meets the requisites. However, specific contracts, especially those involving real property, often require notarization to be admissible in court.

What Makes Contracts Unenforceable?

Unenforceable contracts cannot be enforced by proper court action unless ratified. The Civil Code of the Philippines, Article 1403, enumerates specific types:

Unauthorized Contracts

Contracts entered into by a person without authority or who acted beyond their powers. Governed by Article 1317 and agency principles, they can be ratified before revocation by the other party.

Contracts Not Complying with the Statute of Frauds

Certain contracts require written evidence to be enforceable, as outlined in Article 1403, No. 2.

• Prevents fraud and perjury by requiring written proof for specific contracts.

• Noncompliance bars enforcement but does not invalidate the contract.

• Ratification can occur if the parties accept benefits or fail to object to oral proof.

Case Example: In Heirs of Lopez vs. Spouses Empaynado, the Court held that the Statute applies only to executory contracts, excluding partially executed ones.

Contracts Where Both Parties Are Incapable of Giving Consent

If both lack the capacity to consent, contracts are unenforceable unless ratified by parents or guardians.

Unenforceable contracts generally cannot be assailed by third persons.

Which Contracts Are Required to Be Written?

Contracts are generally valid regardless of form if essential requisites exist. However, some require writing for enforceability under the Statute of Frauds (Article 1403, No. 2):

• Agreements not to be performed within one year.

• Special promises for another’s debt.

• Agreements in consideration of marriage (except mutual promises).

• Sale of goods over ₱500 unless partial payment or possession.

• Leases for more than one year or the sale of real property.

• Representations on the credit of third persons.

Additionally, Article 1358 requires acts/contracts affecting real rights over immovable property or hereditary rights to appear in public documents for efficacy:

(1) Acts and contracts which have for their object the creation, transmission, modification, or extinguishment of real rights over immovable property; sales of real property or of an interest therein are governed by articles 1403, No. 2, and 1405;

(2) The cession, repudiation, or renunciation of hereditary rights or of those of the conjugal partnership of gains;

(3) 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, or should prejudice a third person;

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

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels, or things in action are governed by articles 1403, No. 2, and 1405.

Other laws require writing for:

• Donations of movables above ₱5,000.

• Contracts to pay interest (mutuum).

• Specific agreements under Articles 1744, 1773, 1874, 2134.
   

How Digest AI Helps in Understanding Contract Validity

Digest AI is an advanced AI-powered chatbot for Filipino legal professionals and students. It delivers accurate answers from an extensive legal database, including Philippine case laws, statutes, and doctrines.

As an AI legal research assistant built for Philippine law, Digest AI simplifies contract analysis by summarizing case law, identifying legal elements, and answering complex bar-related questions instantly.

For law students, mastering the requisites of valid contracts is fundamental to your Obligations and Contracts syllabus and exam success.

Key Takeaways

• Contracts require consent, lawful object, and lawful cause to be valid.

• Valid contracts are enforceable; void contracts have no legal effect; voidable contracts can be annulled.

• Not all contracts need notarization, but some require writing or public documents for enforceability.

• Unenforceable contracts, like unauthorized agreements or those violating the Statute of Frauds, can be ratified.

• Digest AI is valuable for mastering contract validity and Philippine law research.

Frequently Asked Questions

Is a contract valid without notary in the Philippines?

Yes, contracts can be valid without notarization unless specifically required by law, such as real estate sales.

Can I resign even if I signed a contract in the Philippines?

You may resign, but check contract terms and labor laws, or seek legal advice, as rights and obligations may vary.

What are the three elements required for a valid contract?

Consent, lawful object, and lawful cause.

How do you make a legal contract in the Philippines?

Ensure mutual consent, lawful object and cause, clear terms, and comply with formal requirements if applicable.

What is the difference between valid and enforceable?

Validity means the contract meets legal requisites; enforceability means the contract can be upheld in court.

Strengthen Your Legal Understanding

Grasping what makes a contract valid in the Philippines is essential for law students and practitioners. You can better navigate legal obligations and protections by understanding the essential requisites, recognizing unenforceable contracts, and knowing when contracts must be written.

For efficient and reliable legal research, use Digest AI—your smart assistant for Philippine law. Subscribe to Digest PH today and use the promo code LEXDIGEST for discounts on premium legal content and tools.