The Basic Elements of Contracts

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.” 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.

* I originally posted this article at the Pinoy Entrepreneurs blog. There are other discussions on contracts, such as the title, preamble or whereas clause, parties, the term or period, venue, fortuitous events or force majeure, earnest money, option money and downpayment, and equitable mortgage and sales.

7 thoughts on “The Basic Elements of Contracts

  1. switycake

    Atty Fred,

    How do you exactly define outside the commerce of man? The way it was made to understand to us is that outside the commerce of man meant that one thing is illegal, such as having a contract that stipulates you to deliver fake drugs in consideration of money.

    Reply
  2. Wilson

    “Outside the commerce of man” is not limited to those which are illegal. They can also be things that are “out of this world,” e.g. stars, comets, etc. They can also be oceans, icebergs, clouds. Moreover, those which are under public domain are also considered as outside the commerce of men: a road, a mountain, a valley, etc. (Regalian Doctrine – all lands are owned by the State)

    Reply
  3. mark30

    Atty Fred,

    Can my employer sue me for establishing a business similar to his business? In my stay in his office, I have learned all necessary information regarding the process of running such business though I never used any contacts and clients information to run my own. I simply used the trainings on management, service and marketing that I have undergone to establish my own. I am just afraid because he said that he would file “breach of contacts” against me because I signed an employment contract which says ” You shall not use the information you derived from the company for your personal benefit and the undertaking of confidentiality shall extend beyond your tenure with the Company.”

    Reply
  4. Julius

    Atty Fred,
    can you give me an advice for my current employment. i am a probationary and had signed a contract for 1 year and i have a plan to resign now and the HR said that they will file me a breach of contract.
    do i haven’t have the right to resign? please advice me sir. i have also a petition in the US and the HR said he wont let me out of the country if i ddnt finish my contract..

    Julius

    Reply
  5. John

    1.may ask po about your opinion,
    may utang pong 30k ang mother in law ko, and napagkasunduan po na may interest po ang pagbabayad, 3900 po ang interest at may pinirmahang “contract” ang anak po nya na at that time is only 17 years old.

    ang tanong ko po eh pwede po bang pumirma ng contract ang isang minor?

    2. umutang po ang mother in law ko then ang collateral po eh ang land title, then nabayaran na po pero hindi po ibinalik ang title, umutang po ulit ang in law ko, pero wala po sa napaguspaan na ihold muna ang land title,.

    valid po ba ang ginawa nung nagpautang?

    Reply
  6. Lucius

    But of course, misinterpretation and non-compliance are two different matters. Although, it is possible that misinterpretation leads to non-compliance.

    Reply

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