DISCLAIMER: This article does not create an attorney-client relationship between the author and the reader.  The answer of the author on the issue is just an expression of his general opinion based on Philippine law and hence does not constitute legal advice.

As an accountant and head of finance, part of my job in the corporate for more than 20 years is to review proposed contracts to apprise management and stakeholders on the tax and financial implications of the proposed terms and conditions. It has been my observation that many are of the understanding that a contract begins to exist only after the parties have signed the agreement. In other words, many are of the understanding that there is no contract to speak of unless and until there is a written agreement. Is the understanding correct? 

Unless the law requires a contract to be in writing, a contract is perfected by mere consent (Article 1315 of the Civil Code). Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract (Article 1319 of the Civil Code). In other words, consent is present when the offer of one party has been accepted by the other party without any qualification. As such, a written contract or agreement is just a formality and the absence of it does not prevent a party from enforcing what has been verbally agreed-upon during the negotiation.

However, the following contracts must be in writing to be valid. In other words, the law requires consent plus certain formality:

1. Donation of real property and its acceptance must be in public instrument (Article 749 of the Civil Code).
2. The following contracts must be in writing but not necessarily be in public instrument:
   • Donation of personal property and its acceptance where the amount exceeds PHP5,000 (Article 748 of the Civil Code)
   • A stipulation between the common carrier and the shipper limiting the liability of the former (Article 1744 of the Civil Code)
   • Authority of the agent to sell real property or interest therein (Article 1874 of the Civil Code)
   • Agreement to pay interest (Article 1956 of the Civil Code)
   • Contract of antichresis (Article 2134 of the Civil Code)
   • Contract of insurance (Section 49 of the Insurance Code)
   • Prenuptial agreement (must be in writing but not necessarily be in public instrument).  However, this must be in public instrument and must be registered in the civil registry where the marriage contract is recorded as well as in the proper registries of properties to affect third persons (Section 77 of the Family Code).

A written contract or agreement becomes a public instrument after it has been notarized.

The following contracts are valid between or among the contracting parties even without a written agreement, but the law requires that these must be in public instrument to be enforceable against third persons (Article 1358 of the Civil Code).

1. Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property.
2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains.
3. The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document or should prejudice a third person.
4. The cession of actions or rights proceeding from an act appearing in a public document.

Under the Statute of Frauds (Article 1403(2) of the Civil Code), the following contracts are valid between or among the contracting parties, but the law requires that these must be in writing (but not necessarily be in public instrument) to be enforceable by action in the event the other party refuses to perform its obligation.  In other words, the written agreement serves as a proof of their existence to avoid fraud or perjury whenever a party seeks to enforce its right before a court of competent jurisdiction:

1. An agreement that by its terms is not to be performed within a year from the making thereof.
2. A special promise to answer for the debt, default, or miscarriage of another.
3. An agreement made in consideration of marriage, other than a mutual promise to marry.
4. An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos.
5. An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein.
6. A representation as to the credit of a third person.

The Statute of Frauds applies only if the status of the contract is executory.  If it has been partly or fully executed such that one party has received the benefit of the contract, the requirement that it must be in writing to be enforceable by action is no longer necessary.

As a final note, while certain agreement is not required to be in writing, it best to have it written and signed by the parties for their protection and as future reference.

(October 6, 2024)