Contract Management

ATTY. RASHID B. LOKINES, MSc.

Assistant Professor - Benguet State University
Lawyer/ Notary Public - Rm. 215, 2/F, BSU Entrep
Building, Km. 5 La Trinidad, Benguet
[email protected]/ 0919-785-8557
 Outline
I. Definition of Contracts
II. Requisites of Contracts
III. Importance of Contracts
IV. Important Principles in Contracts
V. Forms of Contracts
VI. Interpretation of Contracts
VII. Defective Contracts
VIII. Legal Tips
 I. DEFINITION OF CONTRACT

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.
(Article 1305 of the New Civil Code)
 II. REQUISITES OF A CONTRACT
Accordingly, for a contract to be valid,
it must have three essential elements:
(1) consent of the contracting parties;
(2) object certain which is the subject
matter of the contract; and (3) cause
of the obligation which is established.
(Sps. Lequin v. Sps. Vizconde, G.R. No.
177710, October 12, 2009)
 Perfection of Contracts
▪ General Rule: Contracts are perfected
by mere consent.
▪ Exception:
– Real contracts - are not perfected until the
delivery of the object of the obligation.
– Solemn contracts - compliance with
certain formalities prescribed by law is
essential in order to make the act valid.
 1. Consent
▪ Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the
cause which are to constitute the contract.
▪ The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a
counter-offer
▪ Incapacitated to give consent: Minor, Insane,
Demented persons, Deaf-mutes who do not
know how to write
 Vices of consent
Vices of Remarks
Consent
Mistake Misunderstanding of the meaning or implication of something

Violence Serious or irresistible force is employed.

Intimidation one of the contracting parties is compelled by a reasonable and
well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his
spouse, descendants or ascendants, to give his consent.
Undue a person takes improper advantage of his power over the will of
Influence another, depriving the latter of a reasonable freedom of choice.

Fraud (Dolo Insidious words or machinations of one of the contracting

causante) parties, the other is induced to enter into a contract which,
without them, he would not have agreed to
 2. Object of the Contract
• Object: Things, rights and/or services
• Requisites
• Lawful
• Within the commerce of men
• Possible
• Determinate as to its kind
• Must not be contrary to law, morals, good
customs, public order, public policy
 3. Cause of the contract
▪ ONEROUS CONTRACTS - the cause is
understood to be, for each contracting
party, the prestation or promise of a thing
or service by the other;
▪ REMUNERATORY - the service or benefit
which is remunerated
▪ CONTRACTS OF PURE BENEFICENCE - the
mere liberality of the benefactor.
(Art. 1350)
 III. IMPORTANCE OF “WRITTEN”
CONTRACT
▪ Prevent misunderstanding from
arising
▪ Official record of the agreement
▪ State the expectations of both
parties
▪ Evidence in court
 IV. IMPORTANT PRINCIPLES IN
CONTRACTS
1. Freedom of Contracts
2. Mutuality of Contracts
3. Relativity in Contracts
 1. Freedom of Contracts
The contracting parties may establish
such stipulations, clauses, terms and
conditions as they may deem
convenient, provided they are not
contrary to law, morals, good customs,
public order, or public policy. (Article
1306, NCC)
 2. Mutuality of Contracts
(Art. 1308)

The contract must bind both

contracting parties; its validity
or compliance cannot be left to
the will of one of them.
GF Equity, Inc. vs. Valenzona,
G.R. No. 156841, June 30, 2005

The contracting parties made this

stipulation: "if the coach, in the sole
opinion of the corporation, fails to
exhibit sufficient skill or competitive
ability to coach the team, the
corporation may terminate the contract.

Is the stipulation valid?

GF Equity, Inc. vs. Valenzona,
G.R. No. 156841, June 30, 2005

• The assailed condition clearly

transgresses the principle of mutuality
of contracts.
• The corporation was given an unbridled
prerogative to pre-terminate the
contract irrespective of the soundness,
fairness or reasonableness, or even lack
of basis of its opinion.
 Validity of Escalation clause
(1) There can be an increase in interest if
increased by law or by the Monetary
Board,
(2) It must include a provision for
reduction of the stipulated interest in the
event that the applicable maximum rate
of interest is reduced by law or by the
Monetary Board.
(Llorin v. Court of Appeals,
G.R. No. 103592, February 4, 1993)
3. Relativity in Contracts (Art. 1311)
xxx Contracts take effect only
between the parties, their assigns
and heirs, except in case where the
rights and obligations arising from
the contract are not transmissible
by their nature, or by stipulation or
by provision of law. xxx
 V. FORMS OF CONTRACTS

General Rule: Contracts shall be

obligatory in whatever form.
 Formalities which are required for VALIDITY

▪ In writing
– Donation of personal property (>5K)
– Sale of real property by an agent
– Interest on loan of money
▪ Public instrument
– Donation and acceptance of real property
– Partnership where immovable property was
contributed
The following must appear in a public document for
ENFORCEABILITY or GREATER SECURITY of the Parties

▪ Acts and contracts which have for their object

the creation, transmission, modification or
extinguishment of REAL RIGHTS over
immovable property
▪ All other contracts where the amount
involved exceeds five hundred pesos must
appear in writing, even a private one.
 REFORMATION OF INSTRUMENTS
▪ REFORMATION is a remedy in equity which a written
instrument is made or construed so as to express or conform
to the real intention of the parties (NIA vs. Gamit).
▪ Requisites:
– There must have been Meeting of the minds upon the
contract
– Instrument does not express the true agreement between
the parties
– The failure of the instrument to express the agreement
must be due to mistake, fraud, inequitable conduct or
accident.
 VI. INTERPRETATION OF CONTRACTS

▪ If the terms of a contract are clear and leave

no doubt upon the intention of the
contracting parties, the literal meaning of its
stipulations shall control.
▪ If the words appear to be contrary to the
evident intention of the parties, the latter
shall prevail over the former.
 VII. DEFECTIVE CONTRACTS

1. Rescissible
2. Voidable
3. Unenforceable
4. Void
 1. Rescissible
• Defective by reason of lesion or damage
• Mutual restitution
• Rescission is instituted only when the
party suffering damage has no other
legal means to obtain reparation for the
same.
• The action must be commenced within
4 years
Examples of rescissible contracts:
▪ Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one-
fourth of the value of the things which are the object
thereof;
▪ Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
▪ Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
▪ Those which refer to things under litigation if they have
been entered into by the defendant without the knowledge
and approval of the litigants or of competent judicial
authority;
 2. VOIDABLE CONTRACTS
▪ Article 1390. The following contracts are voidable or
annullable, even though there may have been no
damage to the contracting parties:
– Those where one of the parties is incapable of
giving consent to a contract;
– Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.
▪ These contracts are binding, unless they are annulled
by a proper action in court. They are susceptible of
ratification.
Persons who are capable cannot allege
the incapacity of those with whom they
contracted; nor can those who exerted
intimidation, violence, or undue
influence, or employed fraud, or caused
mistake base their action upon these
flaws of the contract.
 3. UNENFORCEABLE
▪ Article 1403. The following contracts are
unenforceable, unless they are ratified:
– Those entered into in the name of another person
by one who has been given no authority or legal
representation, or who has acted beyond his
powers;
– Those that do not comply with the Statute of
Frauds
– Those where both parties are incapable of giving
consent to a contract.
 Statute of Frauds
(Art. 1403 par. 2)
• An agreement that by its terms is not to be performed within a
year;
• A special promise to answer for the debt, 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 not less than five hundred
pesos
• An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein;
• A representation as to the credit of a third person.
 4. VOID CONTRACTS
▪ Article 1409. The following contracts are inexistent and void
from the beginning:
– Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
– Those which are absolutely simulated or fictitious;
– Those whose cause or object did not exist at the time of the
transaction;
– Those whose object is outside the commerce of men;
– Those which contemplate an impossible service;
– Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained;
– Those expressly prohibited or declared void by law.
• These contracts cannot be ratified. Neither can the
right to set up the defense of illegality be waived
(A.1409).
• The action or defense for the declaration of the
inexistence of a contract does not prescribe
(A.1410).
• Principle of In Pari Delicto – generally parties to a
void agreement cannot expect the aid of the law;
the courts leave them as they are.
• The defense of illegality of contract is not available
to third persons whose interests are not directly
affected (A.1421).
 VIII. LEGAL TIPS
▪ Deal with the right person
▪ Written Contract
▪ Clarity in the TERMS of the contract (amount,
dates, termination/ renewal, scope of
obligation)
▪ Understand the contract fully
▪ You may seek the services of a lawyer before
signing a contract
▪ Comply with your undertaking
 Workshop
▪ Group 1 - Demand letter asking the
other contracting party to comply
with his or her obligations.
▪ Group 2 - Simple Loan Agreements
▪ Group 3 - Offer to purchase a
property