Creating a contract is a crucial step in formalizing agreements between parties. However, the process doesn't end there. Post-contract creation actions are equally vital to ensure compliance, smooth execution, and legal protection for all parties involved. This guide provides a comprehensive overview of what steps to take after creating a contract namely, affixing signatures, keeping original copies together with their attachments, and registration before the relevant governmental institution, or undergoing the necessary notarization.
A contract is defined under the law as a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. This means that a written contract sets forth the agreement between two or more persons and the terms and conditions thereon with which the parties must comply.
A contract may also be verbally made, but it is advised that it be formalized in written form to enable the parties to remember what was agreed upon and to make sure that the covenants and promises made therein will be kept. For purposes of this guide, what should be done after creating a written contract will be explained.
To make the agreement valid, the parties must affix their signatures. The parties' signatures signify that they have agreed on what has been stipulated in the contract. Affixing one's signature may be done by hand, or via electronic signature if the parties agree or allow for affixing the signatures electronically. After signing the contract and from the definition of a contract, the parties have to give something or render some service (for example when a Service Agreement is signed, the parties can expect that the service will be provided by one party and the corresponding payment will be made by the other).
The persons who sign are the parties themselves. However, in case a party is incapacitated to do certain legal acts, their representative should sign on their behalf. The following are the persons who are generally incapacitated to do legal acts or are unable to make legal decisions:
- Minors: Individuals who are below the age of 18 are generally considered minors in the Philippines. They are deemed incapacitated to act in certain legal matters. In such cases, their parents or legal guardians are usually the ones who must act and sign on their behalf.
- Persons with Mental Incapacity: This includes individuals who have been declared legally incompetent due to mental illness or other factors that impair their decision-making capacity. In such cases, a legal guardian or a court-appointed representative may be required to act or sign on their behalf.
- Persons with Physical Disabilities: If someone has a severe physical disability that prevents them from taking certain actions independently, they may be considered incapacitated in those specific areas. In such cases, they might require a legal representative or advocate to act or sign on their behalf.
- Persons Declared Incompetent by Court Order: In some cases, a court of law may officially declare an individual as legally incompetent, such as being punished with a penalty of civil interdiction if such an individual was imprisoned. This means they are incapacitated to act in various legal matters. The court will typically appoint a guardian or trustee to handle their affairs including signing contracts on their behalf.
- Individuals under Specific Legal Circumstances: If a party is a company, corporation, partnership or other form of organization that is a legal entity separate from the individual persons making up such organization, the person or officer authorized to act on behalf of such organization should sign the contract. Proof of authorization of a representative to act on behalf of a party should generally be attached to the contract itself. This may be in the form of a Secretary's Certificate if the organization is a corporation, a Partners' Certificate if the organization is a partnership, or a Special Power of Attorney if the organization is a sole proprietorship. Attachments to a contract are further discussed in section 3.
2. Originals and Copies
It is important for every party to the contract to have their own original copy, thus at the time of signing the contract. The number of original copies should correspond to the number of parties, and each party must sign the original copies by hand or electronically if allowed by the parties.
Further, if a contract is acknowledged before a notary public, another original copy should be presented to the notary public apart from the original copies for the records of each party. It must be noted that for contracts that will be acknowledged before a notary public, electronic signatures are not allowed, all copies together with the copy given to the notary public must be signed in the presence of the notary public by hand.
To learn more about the process of acknowledging a contract before a notary public, the following guide should be studied: When and how to Notarize a Document?. In said guide, the benefits and the process of notarizing a contract will be explained. The main benefit of notarizing a contract or acknowledging the same before a notary public is that the parties can easily make sure that the stipulations thereon are complied with and respected, not only by the parties themselves but also by those who are not parties thereto.
There is certain information that may be too voluminous to include in the contract itself, which is why it is a sound practice to stipulate in the contract that there are other documents attached to the contract. These are generally called attachments, which may be additional contracts, photographs, or other documents that state what could not be stated in the main contract. The attachments are part of the contract.
For example, in a Motor Vehicle Lease Agreement, the details concerning the motor vehicle to be leased may be included by attaching the relevant supporting document called Certificate of Registration and Official Receipt of the motor vehicle concerned.
It must be noted that for every original copy of the contract, the necessary supporting documents should also be attached thereto.
4. Intervention of Governmental Institutions
There are certain contracts that must be registered or submitted to various government agencies to formalize their agreement, for the parties to uphold what has been stipulated thereon, and to maintain their validity.
4.1 Securities and Exchange Commission
The Securities and Exchange Commission (SEC) serves as a central repository for the registration of contracts that establish certain kinds of organizations, for purposes of overseeing the operations of such organizations. The following are the general examples of contracts that must be submitted and registered before the SEC:
- Articles of Partnership. In case of the creation of a Partnership, an Articles of Partnership is used, which is a type of contract that formalizes the agreement of the parties to contribute money, property, or industry to a common fund for the purpose of conducting business and with the intention that the profits and losses will be divided among them.
- Articles of Incorporation. In case of the incorporation of a Corporation, an Articles of Incorporation is used, which is a type of contract that lays down how the corporation will be formed including the circumstances of the persons who will incorporate the same.
There are several other contracts that are similar to Articles of Partnership or Articles of Incorporation with respect to the requirement that they be registered with the SEC and these may be found in the following guide: How to Register a Company?
4.2 Local Civil Registry
A Marriage Contract serves as the fundamental document required for the official registration of a marriage and serves as the legal documentation of a marriage. This contract sets forth vital information about the spouses involved and formalizes the union in legal terms.
To ensure the validity and recognition of the marriage, it is imperative that this contract be promptly submitted to the Local Civil Registry situated in the place where the spouses hold their respective residences. This ensures that the marriage is duly recognized and acknowledged under the law, affording the spouses the full array of rights and responsibilities that come with the marital institution.
4.3 Register of Deeds
The functions of the Register of Deeds include receiving and processing various contracts and instruments concerning land and property ownership, ensuring their legality and authenticity. The following contracts need to be registered before the Register of Deeds situated in the place where such real property is located:
- Deed of Absolute Sale. This contract transfers ownership of real property from the seller to the buyer. It outlines the terms and conditions of the sale, including the purchase price and other relevant details.
- Deed of Donation. If a real property is being donated, a Deed of Donation is executed to formalize the transfer of ownership from the donor to the donee.
- Mortgage Contract. When a property owner uses their real property as collateral for a loan, a Mortgage Contract is created. This document is registered to establish the mortgagee's rights over the property.
- Lease Contracts with a Term Exceeding One Year. If a lease agreement has a term of more than one year, it is required to be registered to protect the rights of both the lessor and lessee. This is regardless if the real property leased is residential or commercial.
- Extrajudicial Settlement of Estate. When there is no will, the heirs of a deceased person may execute an Extrajudicial Settlement of Estate to distribute the property among themselves. This is registered to effectuate the transfer of titles of the real property concerned.
4.4 Land Transportation Office
There are certain contracts related to motor vehicles that need to be registered with the Land Transportation Office (LTO) in order to facilitate the registration of the transfer of ownership or some other form of transfer of rights. These contracts are the following:
- Deed of Sale or Absolute Sale. When ownership of a motor vehicle is transferred from one person to another, a Deed of Sale or Absolute Sale must be executed and registered with the LTO. This document establishes the legal transfer of ownership.
- Deed of Donation. If a motor vehicle is given as a gift or donation, a Deed of Donation must be executed, notarized, and registered with the LTO.
- Contract of Lease or Chattel Mortgage. If a motor vehicle is leased or used as collateral in a loan agreement (chattel mortgage), the contract must be registered with the LTO. This helps establish the legal rights and responsibilities of the parties involved.
5. Intervention of a Notary Public
The Civil Code provides for certain contracts to be contained in a public instrument for them to be valid. This means that these kinds of contracts should be acknowledged before a Notary Public as explained in the following guide: When and how to Notarize a Document?
To illustrate, under the Civil Code, for the donation of a real property to be valid, the act of the donor in donating to the donee, and the donee's acceptance must be formalized in a public document which is commonly done through a Deed of Donation of Real Property. If this is not followed, the act of donating becomes invalid and the donee cannot force the donor to uphold his promise to donate the property.
It must be noted that all of the contracts mentioned in section 4 and other similar contracts, must be acknowledged before a notary public before they can be submitted and registered before a public registry or the government institution concerned.
Creating a contract is just the beginning before the parties can expect each other to comply with what was agreed upon. It is vital that the parties affix their signature to the contract to signify that they have agreed to what was stipulated thereon. If a party to a contract is incapacitated to sign by reason of personal or legal circumstances, then a representative should sign on such party's behalf.
Further, the parties must ensure that each of them has their own original copies for their records together with their attachments if there are any.
Lastly, if the contract is required under the law to be notarized or contained in a public instrument, the parties must accomplish the same for its validity. Additionally, there are several contracts that should be registered or submitted before the relevant government institution for their validity.
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