Understanding the Legalities of Contracts in the Philippines:
A Comprehensive Overview

Are you considering entering into a contract in the Philippines? Understanding the legalities surrounding contracts is essential to protect your rights In this comprehensive overview, we will explore the key aspects of contract law in the Philippines, providing you with valuable insights and guidance.

Contracts in the Philippines are governed by the Civil Code of the Philippines, which outlines the legal requirements for a valid and enforceable Contract. From the essential elements of a contract to the various types of contracts recognized under Philippine law, we will delve into the intricate details you need to know. Additionally, we will explore important concepts such as consent, object, and consideration.


Whether you are a business owner, freelancer, or simply an individual entering into a contract, understanding the legalities is vital to prevent disputes and safeguard your interests. By grasping the fundamental principles and navigating the legal framework, you can confidently engage in contractual relationships in the Philippines.


Join us as we unravel the complexities surrounding contracts in the Philippines and equip you with the knowledge necessary to make informed decisions.

Essential elements of a valid contract

Contracts in the Philippines are governed by the Civil Code of the Philippines, which outlines the legal requirements for a valid and enforceable Contract. To ensure that a contract is binding, certain essential elements must be present. Article 1318 of the Civil Code of the Philippines enumerates the essential elements of a Contract, as follows: (i) Consent of the contracting parties; (ii) Object certain which is the subject matter of the contract; and (iii) Cause of the obligation that is established


In San Miguel Foods Inc v. Magtuto (G.R. No. 225007, July 24, 2019), the Supreme Court of the Philippines defined a Contract in this wise:

“…, for a contract to be valid, it must have the following essential elements: (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 is manifested by the meeting of the offer and the acceptance of the thing and the cause, which are to constitute the contract. The contract is perfected at the moment there is a meeting of the minds upon the thing that is the object of the contract and the price.

Capacity to contract and legal requirements

In order for a contract to be valid, the parties entering into the agreement must have the legal capacity to do so. Capacity to contract refers to the mental and legal ability of an individual to understand and enter into a contract. Some of these factors include, but not limited to


1. Age of Majority: In the Philippines, the age of majority is 18 years old. Individuals below this age are considered minors and have limited capacity to enter into contracts. Please note that contracts entered into by minors are not illegal per se as there are exceptions, such as contracts involving necessities.


2. Capacity to give consent: Parties entering into a contract must have legal capacity to give consent. In the case entitled Heirs of Willing Sevilla v. Sevilla(G.R. No. 150179, April 30, 2003), the Supreme Court of the Philippines held that the legal capacity of the parties is an essential element for the existence of the contract because it is an indispensable condition for the existence of consent. There is no effective consent in law without the capacity to give such consent.


Complying with these legal requirements is essential to ensure that the contract is enforceable and protects the rights and interests of all parties involved.

Offer and acceptance in contract formation

The process of contract formation involves the exchange of an offer and acceptance between the parties. Understanding the principles of offer and acceptance is crucial to determining the validity and enforceability of a contract.


1. Offer: An offer is a proposal made by one party to another, expressing a willingness to enter into a contract on certain terms. The offer must be clear, definite, and communicated to the other party. It should indicate the intention to create legal relations and contain all the essential terms of the Contract.


2. Acceptance: Acceptance is the unequivocal agreement to the terms of the offer. It must be communicated to the offeror in a manner prescribed or indicated by the offer. Silence or inaction does not generally constitute acceptance unless it is specified in the offer or is a common industry practice and subject to strict requirements as may be authorized by law or pertinent jurisprudence.


The offer and acceptance must be in line with the terms of the contract for it to be valid and binding. Any discrepancies or variations may result in a counteroffer or rejection of the original offer.

Consideration and its importance in contracts

Consideration is a fundamental principle in contract law that ensures that there is a mutual exchange of value between the parties involved. It is what distinguishes a contract from a mere gift or gratuitous promise.  The rules on Consideration is embodied in Articles 1350 to 1355 of the Civil Code of the Philippines.


Consideration can be in the form of money, goods, services, or a promise to do or refrain from doing something. It is important because it signifies that each party has given something of value in exchange for the other party’s promise.


Without consideration, a contract may be considered a gift or a moral obligation, which may not be legally enforceable. Therefore, it is crucial to ensure that consideration is present in a contract to make it valid and binding.

Terms and conditions of a contract

The terms and conditions of a contract outline the rights, obligations, and responsibilities of the parties involved. These terms can be express or implied and must be clear, definite, and agreed upon by all parties.


Express terms are those that are explicitly stated in the contract, either orally or in writing. These terms can include the price, payment terms, delivery dates, and any other specific conditions agreed upon by the parties.


Implied terms, on the other hand, are not explicitly stated but are necessary for the contract to be effective. These terms are implied by law or custom and are deemed to be part of the contract.


It is important to carefully review and understand the terms and conditions of a contract before entering into it to avoid any misunderstandings or disputes in the future.

Limitations and restrictions of a One Person Corporation

While the One Person Corporation structure offers numerous advantages, it is not without limitations and restrictions. One of the main limitations is the difficulty in issuing shares of stock to the public. OPCs are restricted to a single shareholder, meaning they cannot raise capital by selling shares to the general public. Should the OPC intends to do so, it needs to convert to an Ordinary Stock Corporation with the Securities and Exchange Commission.


Additionally, OPCs must appoint a nominee and alternate nominee in case of the owner’s death or incapacity. These individuals will assume control of the business and ensure its continuity. Choosing reliable nominees who understand the business and can fulfill their duties effectively is important.


Furthermore, OPCs are subject to certain reporting and compliance requirements, such as submitting annual financial statements and holding annual general meetings. These obligations ensure transparency and accountability but add administrative responsibilities to the owner’s workload.

Importance of understanding contract law in the Philippines

In conclusion, understanding the legalities of contracts in the Philippines is crucial for anyone entering into a contractual agreement. By grasping the essential elements, types of contracts, capacity requirements, offer and acceptance principles, consideration, and terms and conditions, individuals can protect their rights and ensure that their contracts are valid and enforceable.


Whether you are a business owner, freelancer, or an individual entering into a contract, having a comprehensive understanding of contract law in the Philippines will provide you with the necessary knowledge and confidence to engage in contractual relationships while safeguarding your interests.

Remember, being well-informed is key to preventing disputes and ensuring a smooth and successful transaction.

How Ricasio Law can assist you?​

Ricasio Law is an expert in Business and Contract Law. Our team of Contract Law experts in the Philippines can give you useful advice and help you figure out how to craft or review a contract that will protect your rights and interest. Get in touch with us right away to talk about your case and let us help you protect your Contractual rights.

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