Updated: Aug 13, 2019
Obligations arising from CONTRACTS have the full force of LAW between the contracting parties. Breach by either party shall produce a cause of action against the violator.
The Law on Contracts has always been my favourite – of all the rather interesting law subjects. Sales and Negotiable Instruments would be my close second and third favourites, respectively; although I would hasten to comment that updates are in order for both given the Transformative Age our generation has now entered and for the others, grew up in.
My interest showed in how I excelled in that subject, and it has consistently helped me in this very ‘ac-crual’ world. I’ve dreamt of becoming a lawyer - intensified after being able to memorize verbatim a fair few codal provisions that helped me in my undergrad law courses (i.e., flat 1.00 across the board – highest possible marks, beybeh!) all the way to pre-board and actual CPA board exam on Business Laws. Borrowing from Jadakiss, “I’m not cocky, I’m confident – and if you tell me I’m the best, it’s a compliment.” I relish piecing together case facts and applying the criteria - on this note, the applicable law - prior to arriving on a conclusion. That has been my thought-process for as long as I can remember. I honestly needed to, or else I’ll die trying (as I grew up in an environment where you should neither trust anybody except yourself while being able to recite your rights and ply your will). And whilst I did not sail the path of lawyer-ship, I’m lucky to be close with a few friends, now-lawyers-and-attorneys-at-law. And, safe to say, whenever I needed them and they’re swamped (which is 99% of the time in the world!), there’s always Mr. Google to consult with anyway. Of course, always with the appropriate amount of diligence (of a good father of a family) and with a reasonable amount of skepticism.
Being with one of the Big Four audit and consultancy firms in the world for over seven (7) years now (there’s still a long way to go for me, I know) – has broadened my experience and exposure through reading lots and loads of different contracts as part of the work. With this feather in my cap, I should at least have the basic qualification to proceed with this article. And, so I state, “Allow me to proceed, Your Honours.”
CONTRACT IS AN AGREEMENT
Contract, essentially, is an agreement. An agreement is, in the simplest sense, a scenario where at least two minds meet; a consensus. This means that it is unqualified. No ifs, no buts. Or if there are, both parties had agreed to these "Ifs" and "Buts".
It is when OFFER is met by ACCEPTANCE. In this case, the question, ‘What’s in it for me?’ should be clearly determinable (i.e., CONSIDERATION). Similarly, the OBJECT of the agreement (i.e., subject matter) must not be a thing outside the commerce of man nor contrary to law, good customs, morals, and public order. Incomplete elements may render a contract voidable, unenforceable, or void.
WHEREAS, the laws governing contracts can differ due to significant varying concepts of common and civil laws of the different countries - the basic 'conceptual framework' of how contracts work across the world can be observed by how parties enter into contracts with one another. If one of the parties has a concern overseas, they may agree to add a so-called ‘jurisdiction clause’ for dispute prevention or international arbitration.
PURSUANT TO the literatures in the Peace Palace Library (situated in Netherlands), when parties from different countries enter into a contract particularly in goods - and in the absence of provisions specifically agreeing that the laws of one of the countries will govern their agreement - they are governed by international contract law. International contract law is a branch of private international law. This type of law is frequently applied to as international sales law. International sales contracts are governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG) from 1980. The purpose of the CISG is to provide a set of substantive rules for contracts involving the international sale of goods between the Contracting States (i.e., countries who ratified the CISG). The Convention is developed to promote commercial exchanges between private parties. To date, the Philippines is not yet among the Contracting States.
DAY-TO-DAY CONT(R)ACT (APPLICATION)
Probably one of the very reasons why I’ve always loved Laws on Contract is because I could relate it to daily transactions.
As a general rule, a contract need not be in writing to be enforceable, but given the complexities of present-day transactions, it is good practice to have everything on paper. This would be what everybody goes back to when memories become foggy or interpretations become contradictory.
Prior to engaging one of my most trusted friends, Evan, as my tech consultant for my advocacy/passion project ‘akawnTHINK’, we did ink a consultancy (employment) contract. You gotta’ love the guy since, despite the level of our trust with each other that goes back all the way from 1st year high school, he knows our agreement had to be in WRITING. “Dapat may kontrata tayo, Lan” (translated as ‘Lan, we should have a contract’), I could vividly recall.
My mom, whom I appointed as my agent (alter ego), will handle matters on my behalf through a power-of-attorney (agency). Agency is a type of contract which creates obligations on the part of the person who accepts the agency.
If you are in the finance world, you may have already encountered situations which require you to apply the terms and conditions (T&Cs) of a particular contract into journal entries. As you know, the journal entry would heavily depend on T&Cs - its classification, initial recognition, initial and subsequent measurement, and the disclosures. Cases in point:
International Financial Reporting Standards (IFRS) 15 on sales contract containing several performance obligations on a lump sum sales price where you are the vendor; and on construction contracts that include one-of-a-kind provisions when you’re doing the overtly complex contractor’s books;
IFRS 16 on lease contracts whether you are a lessor, a lessee or both (pick your poison);
IFRS 9 on loan contracts, investment management agreements and derivative contracts;
IFRS 17 on insurance contracts, including unit-linked policies;
IFRS 2 on share-based (incentive) arrangements;
IAS 19 on employment contracts particularly on the salaries, bonuses, paid leaves including sick pay, pensions and other long term benefits, and termination benefits;
IFRS 3 on share purchase agreements, or a mere asset acquisitions;
IFRS 11 on joint arrangements; and
IAS 20 on conditional government grants.
On any social media platform, and on any financial and health information that you provide, you sure are mindfully aware that you are saying Y-E-S on the confidentiality agreement (but for which 99% of the time you don’t really give a d*mn!), NO?
The benefits of having a written contract (agreement) go beyond our imagination. For starters, there is the world’s famous Statute of Frauds where the contract needed to be in writing and signed by the parties for the obligations to be enforceable. Non-compliance makes the contract unenforceable.
LET’S WRAP IT UP Obligations arising from CONTRACTS have the full force of LAW between the contracting parties. Breach by either party shall produce a cause of action against the violator.
The devil, as they say, is always in the details - so don’t just skim, read those fine prints!
There shouldn’t be any excuse for not putting considerable time, effort and money (by engaging legal professionals) to fully read a contract, especially complicated ones and those that involve huge amounts of money). Reading a contract's T&Cs and comprehending them before signing may prevent the party from entering into an iron clad contract – for which he may thank himself at some point later.
People fall into oblivion when the dynamics do not seem to favour their intentions–ill and not-so-ill alike. Henceforth, if you are NOT SO SURE ABOUT IT… lo’ and behold, put that into contract! But, even if you think you’re SURE ENOUGH, all the legal professionals in the world would agree to still put it into writing.
|Proofread performed by my lawyer friends - but big shout out to Atty. Janelle Gomendoza for the valuable insights|