Published — September 22, 2017
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: Frequently Asked Questions on the Law on Contracts
We can be quite certain that most of those who are reading this article have already heard the age-old maxim, “no man is an island”. Not surprisingly, that adage is likewise applicable to businesses, as no enterprise will survive without dealing with others. In these dealings, agreements are entered into, which necessarily create rights and obligations for the parties involved. These agreements are what we commonly refer to as contracts.
Contract, in its technical sense, 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.
Though verbal agreements are valid contracts, it is still highly advisable that, for business purposes, contracts should be reduced in writing. There are simply too much to risk if agreements are not documented, as an entrepreneur’s cash and property, and other proprietary rights, may be lost simply because of unfulfilled commitments.
Contract as tool for conflict resolution
Indeed, obligations arising from contracts have the force of law between the parties and should be complied with in good faith [Art. 1159, Civil Code]. There are times, however, when conflicts arise as to the rights and obligations created by the agreements, making their enforcement, as well as exacting performance of corresponding obligations quite difficult and problematic. Because of frailty of human memory, or even bad faith, the contracting parties may have disagreements as to what their pact really was, and it could be possible that neither would give in as a result of their conflicting ideas. Without any proof as to the exact terms and conditions agreed upon, the conflict may never come to an end.
If the parties have a written contract to prove exactly what was promised to whom, then all disagreements may be ruled out by the clear terms of the contract. When both parties are acting in good faith, compliance with the terms will follow as a matter of course, or if one of them is unable to deliver, new concessions may be agreed upon between them. At any rate, the bottom line is that the conflict the parties originally had regarding the terms of their agreement was put to rest.
Contract as reference for voluntary compliance
Without a doubt, written contracts are more reliable than verbal contracts. Setting forth in a document the details of the parties’ agreement can foster not only peace of mind, but also peaceful relationships between them, as it promotes greater probability of voluntary compliance by the parties.
Contract as an actionable document
An “actionable document” is a written instrument or document on which an action or defense is founded [See: G.R. No. 185590]. Certainly, written contracts exactly fit the said description.
Considering that obligations arising from contracts are the law between the parties, the same may be used as evidence of such obligations created by the parties through their mutual agreement. As such, the contract may serve as the basis in a legal action to enforce a claim, or to resist a claim. Therefore, the concept of actionable document gains significance when the parties are unable to resolve by themselves whatever contractual conflict they may have, and take their disputes for resolution in a legal forum such as the court. In such instances, documenting agreements would make all the difference between actual dispute resolution and a never-ending impasse.
Other benefits
There are potentially countless of benefits that may be derived from written contracts, which include the following among so many others:
- Better risk management and lower risks of breach;
- Promotes better understanding of the terms;
- Reduces instances of confusion between the parties;
- Clear definition of the parties’ respective powers and limitations;
- Encourages honest dealings and reduces misrepresentations;
- Improves enforcement of terms;
- More defined scope and coverages;
- May be subjected to review, legal or otherwise;
While the convenience inherent in verbal contracts has its own value, which some businesses would still gladly choose to avail, it cannot be denied that written contracts are more appropriate for businesses if by the terms of the agreement one or more parties would be exposed to substantial risk. Since business itself is already a gamble, going through a more secured route by documenting agreements would usually be more advisable. After all, contracts are tools for business growth, and therefore it must be used in a manner that will best achieve success for the enterprise.
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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