Published — August 2, 2018
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
Related Topic: Key Benefits of Written Contracts in Business
An entrepreneur’s dealings with other parties will necessarily have to deal with some legal aspects, which make it necessary for businessmen to be aware of the legalities that might be involved in entering into contracts.
Contracts play a very important role, as no one can proceed with the enterprise without entering into dealings and agreements with other businesses and/or individuals such as but not limited to suppliers, contractors, distributors, key personnel and other professionals who may be engaged to render services to the enterprise.
Contract, as defined, is the meeting of the minds between two or more parties, where one party binds himself with respect to the other, or where both parties bind themselves reciprocally, in favor of one another, to fulfill an obligation to give, to do or not to do [Pineda, Obligations and Contracts, 2000]. As may be gleaned from the said definition, contracts are described as meeting of the minds, and thus may come in whatever form—whether oral or written. As long as there is an agreement between the parties on a particular object for a certain consideration, then a contract is perfected.
Form of contracts
As mentioned, contracts may come either verbally or in writing. However, when the law requires that a contract should be in some specified form as a condition of its validity, then that form has to be observed [See: Art. 1356, Civil Code].
Relative to this, the law, however, requires the following contracts to be in writing, and has to be notarized:
- Contracts involving rights and obligations over real property;
- Waiver of right to inherit; waiver of right over shares in conjugal partnership;
- Grant of power to administer property;
- Transfer of rights proceeding from an act appearing in a public document [See: Art. 1358].
What may be stipulated
The freedom of contract is a right, and the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient. It is however subject to limitation that the provisions agreed upon should not be contrary to law, morals, good customs, public order, or public policy [See: Art. 1358].
It is very important to consider carefully the terms and conditions of a contract before entering into it, because the law will not relieve a party from the effects of an unwise or unfavorable contract freely entered into [See: G.R. No. 137378]. It must always be remembered that equity is not an antidote against the disadvantages of a bad bargain [See: G.R. No. L-55187].
Contracts are obligatory
Obligations arising from contracts have the force of law between the parties, and thus, the parties should comply with its provisions in good faith [See: Art. 1159]. This need for compliance makes these agreements obligatory as far as the parties are concerned. Unless the stipulations in a contract are contrary to law, morals, good customs, public order or public policy (as discussed above), the same shall bind the parties [See: G.R. No. 152072], who are now obliged to honor their respective commitments.
The principle of mutuality
Under the principle of mutuality, the contract must bind both the contracting parties; its validity or compliance cannot be left to the will of one of them [See: Art. 1308]. It has to bind both, as it would be the height of unfairness if only one of the contracting parties will be bound by its obligatory force.
The principle of mutuality between the parties is based essentially on their equality under which it is unacceptable to have one party bound by the contract while leaving the other free from it [See: G.R. No. 161718].
Relativity of contracts
The basic principle of relativity of contracts is that contracts can only bind the parties who entered into it, and cannot favor or prejudice a third person, even if such third person is aware of such contract and has acted with his knowledge. Where there is no privity of contract, there is likewise no obligation or liability to speak about [See: G.R. No. 182128].
By way of exception, however, obligations created by contracts may likewise take effect not only between the parties, but may also bind their assigns and heirs, as the obligations that contracts create may be assigned or assumed by another. However, contractual rights and obligations are not transmissible if the obligations involved are purely personal in nature [See: Art. 1311].
Given the foregoing, taking into consideration the essential characteristics of contracts, one can readily conclude that when a person enters into an agreement with another, certain rights and obligations are created, which both contracting parties are bound to observe and respect in the course of pursuing the objectives of business relationships. This should be the guiding principle for entrepreneurs, as their growth and success largely depend upon the dealings that they enter into, and the transactions they make, in the course of their businesses.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding contracts and enforcement of contractual rights, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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