CONTRACT

DRAFTING
What is a contract
Legal definition of a contract under the Civil Code:

Article 1305.
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.
A Contract…
■ A voluntary, deliberate, and legally binding AGREEMENT
between two or more competent parties.

Each party to a contract acquires rights and duties relative to the rights and
duties of the other parties.
Read more: http://www.businessdictionary.com/definition/contract.htm
What is a contract?
Is an AGREEMENT between two or more parties, where at least
one party (or all parties) promises to do (or not to do) something.

Most contracts are binding even if they are not written, and most
written contracts are binding even if they are not notarized.

However, it is very hard to prove a contract unless it is in writing.

And it is easier to prove a written contract if it has been notarized.

Because we are in government, we want everything clear; thus, we

want all contracts to be written and notarized as much as possible.
Written Contracts
The usual parts of a conventional written contract:
1. Title
2. Parties
3. Recitals
4. Substantive Provisions
5. Date and Place of Execution
6. Signatures
7. Acknowledgement
8. Certification
1. Title
■ Title is not essential – you could leave it out and have a perfectly valid
contract.
■ The contract concerns a lease, call it a “LEASE CONTRACT”, or if a sale,
“DEED OF ABSOLUTE SALE”, or if for free use, “USUFRUCT”.
■ MOAs and MOUs – MEMORANDA OF UNDERSTANDING (MOUs) are usually
executed when the parties have come to an agreement in principle, that is,
they have agreed to do something together, but have not yet decided on the
details on how to do it. MEMORANDA OF AGREEMENT (MOAs) are executed
when the details have already been agreed upon.
■ When in doubt on what to call a contract, calling it simply “AGREEMENT” or
“CONTRACT” would be perfect.
■ A document where only one party promises to do something is still a
contract. It is usually called an “UNDERTAKING”.
2. Parties
■ Note that for the contract to be valid, not only should the parties be actually
existing, but they should be clearly identified.
■ Parties may either be natural persons (individuals) or judicial entities
(corporations, partnerships, cooperatives, government agencies,
international organizations, and so on).
■ For judicial entities, make sure you describe what they are.
■ It is standard to write down the address of each party.
■ For a juridical entity, indicate the name and designation [representative] of
the individual who would be signing for it.
■ Just use the acronyms or abbreviated names of the parties. It is much
less confusing.
We recommend describing the DSWD like this:
The DEPARTMENT OF SOCIAL WELFARE AND
DEVELOPMENT, a national government agency with principal
office address at Batasan Road, Quezon City, Metro Manila,
represented by [ designation ] [ name ] (“DSWD”).

■ Finally, DO NOT INCLUDE as parties those who would not be either

entitled to receive something or obliged to do anything under the
contract.
3. Recitals
■ These are the clauses you usually see which start with “Whereas”.

■ They state certain events that lead to the execution of the contract.

■ If a statement involves a party doing something in the future, take it out of

the Recitals and put it under the Substantive Provisions instead.

■ Most of the time, the Recitals are not essential to the contract (like the
Title). However, if a certain substantive provision of the contract is not
clear, the Recitals may be referred to in trying to determine what that
substantive provision means. Of course, you never want a contract to be
unclear, so such occasions should be rare.
■ One instance where it is helpful to include the Recitals is in cases of
AMENDMENT, SUPPLEMENT, EXTENSION, OR RENEWAL of previous
contracts. In those cases, we recommend particularly mentioning (and
even describing) the previous contract in the Recitals.

■ BE JUDICIOUS in deciding what to include in the Recitals. We

have seen four-page contracts where the Recitals alone take up three
pages. Remember, you do not have to recite the entire history of a
certain program, or recall the mandate of the DSWD, every time
around. If possible, leave out the Recitals entirely.
4. Substantive Provisions
■ This is the meat of the contract and contains what the parties have agreed
upon, including what each party is supposed to do.
■ Generally, the parties can agree on anything. However, the parties
CANNOT AGREE on something that would violate the law, public policy,
or public morals.
■ Remember that the law is written into the contract. This means that if the
parties fail to agree on a matter, but there is already a provision of law
regarding that matter, that provision of law would apply, even if the contract
does not mention it.
■ There is no specific order in which the agreements have to be written.
However, the more logical the presentation of the agreements, the better.
■ Agreements can usually be categorized as follows, which
shall be discussed one by one:

a) Purpose, Objective
b) Duties/ Responsibilities/ Obligations of Parties
c) Default, Penalties
d) Effectivity, Term, Pre-termination, Renewal
e) Assurances, Warranties
f) Contacts, Implementors
g) Dispute Resolution
h) Reservations
5. Date and Place of Execution
■ These information are useful to determine the periods referred to in
the contract, to identify which laws would apply, and so on.
6. Signatures
■ Check the individuals executing a contract on behalf of juridical entities have
the authority to sign the contract. For instance, for corporations, ask for a
Secretary’s Certificate. For government agencies, ask for a copy of the
manual of authorities. specifically, for the DSWD, this would be MC 2012-
009, entitled Manual of Delineation of Authority in the DSWD, as amended.

■ Generally, the President, Chief Executive Officer or General

Manager is authorized to execute contracts on behalf of a corporation.
The same goes for the head of an institution (e.g., the Secretary of a
government Department).

■ For the officers, make sure there is proof of their authority (e.g., a Board
Resolution or a Secretary’s Certificate).
■ Indicate the full name of each party, and if possible, its role in the contract
(e.g., for a sale, “Seller” and “Buyer”; for a donation, “Donor” and “Donee”,
etc.). For an organization, indicate the full name and position of its signatory.

■ COUNTERPARTS. If the signatories are far apart (e.g., in different

countries), each signatory could sign a different copy of the contract (called
a Conterpart). All the signed copies taken together would then constitute the
contract.

■ WITNESSES. Only a select few kinds of contracts require witnesses. Most

of the time, witnesses are unnecessary. However, there is no harm in
including them.
7. Acknowledgement
■ When we say that a contract has to be “notarized” (which is often), we
actually mean that it has to be Acknowledged.

■ The Acknowledgement states that the signatories;

(i) personally appeared before the Notary Public,
(ii) were identified by the Notary Public, and
(iii) acknowledged that they knowingly and freely signed the contract.

■ The Acknowledgement must then indicate the competent proof of

identity that the signatories showed to the Notary Public. This must be a
government-issued identification document that bears a photo of the
signatory. Example are Driver’s Licenses, Passports, and Professional
Regulatory Commission (PRC) IDs. Community Tax Certificates are NOT
competent proof of identity.
More reminders
■ We cannot stress this enough: WRITE SIMPLY AND CLEARLY.

■ DO NOT try to sound like a lawyer. There is an ongoing movement for

lawyers to sound less “lawyerly”, and use “Plain English” instead.

■ Acronyms and Abbreviations. If a long term appears several times in a

contract, use an acronym or an abbreviation. But remember to define
or spell out acronyms and abbreviations the first time they appear in
the contract.
■ Make sure that all legal prerequisites have been complied with.
For instance:
 Most contracts involving the expenditure of public funds must
have a Certificate as to Availability of Funds.

 If the DSWD is paying for goods or services, ensure that the

Supplier or Service Provider was selected using the appropriate
procurement process.

 If the DSWD is transferring funds to a civil society organization

(CSO), make sure that the CSO has been duly accredited.
 What is the nature of obligations
that arise from contracts?

 It has the FORCE of LAW!

“Obligations arising from contracts have the

FORCE of LAW between the contracting parties and
SHOULD BE COMPLIED WITH in good faith.”

-Art. 1159, CC