Entrepreneur Guide: Basic Elements of a Contract

If a contract brings you to court, it’s a poorly-prepared contract. The rationale for this statement is this – if the rights and obligations of the parties are clearly provided and defined, there’s a lesser chance of misinterpretation. This, of course, is not necessarily true. Even a carefully drafted contract, prepared by the big law firms, may still end up in court if the parties do not comply in good faith with their respective obligations. Still, it would be better to know the basic elements of a contract.

A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some services. A contract is also defined as “a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do” (see Glossary). A contract binds both contracting parties and has the force of law between them.

There are different kinds of contracts and there may be a host of additional provisions to a basic contract. These flavors and add-ons will be further discussed in this series on contracts. Right now, let’s start with the basics – the 3 elements or requisites of a contract. There can be no contract unless the following requisites are present:

  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.

Consent. Contracts are generally perfected by mere consent, which is the reason why there’s such a thing as oral contracts. It’s a meeting of the minds between the parties: there’s a definite offer by one person and there’s an absolute acceptance by another.

Subject Matter. A thing, right or service may be the object or subject matter of a contract. All things that are outside the commerce of man (e.g., the moon) may not be the object of a contract. Rights that are transmissible (e.g., the right to possess a real property) may be the subject of a contract. Services, on the other hand, must not be contrary to law, morals, good customs, public order of public policy (e.g., services of an assassin or a prostitute).

Cause. The cause varies according to the type of contracts: (a) for onerous contracts, the cause is the promise of a thing or service by the other; (b) for remunatory contracts, the cause is the service or benefit which is being remunerated; and (c) for contracts of pure beneficence, the cause is the mere liberality of the benefactor. These concepts may appear alien, but since this is merely a brief discussion, suffice it to state that a “cause” is technically different from a contract’s object (or subject matter, as discussed above) or motive.

These three requisites are important because there’s no perfected contract without them. This discussion is just the tip of the iceberg, so to speak, and future discussions will hopefully clarify certain matters that may be of interest to Pinoy Entrepreneurs, considering that contracts are inseparable from business transactions.

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