Illustrations by Paolo Quebral (@paoloquebral)
Are you providing services and products for other people? If yes, then you may want to buckle down and listen to this.
As a legal advisor, there’s a rookie mistake I see over and over again while people consult with me, and that’s the Filipino tendency to enter a deal without a contract. This is everywhere and most of the cases where I can’t do anything about fall into this category.
From interviewing people, I’ve found that there are 3 main reasons why they don’t use contracts in their dealings:
1. It’s embarrassing
This reason has a variation of this: “Nakakahiya Attorney. My client is a very good friend. It’s embarrassing to ask them to enter into a contract.”
You feel that the person you are dealing with is a good friend or even part of your extended family. The thinking here is: we don’t need contracts between each other because our bond is stronger… our word is our contract, and that should be enough for you.
You may even hear “Contract? Bakit pa. Para ka namang iba…” The unspoken claim here is that I trust you enough that I don’t need to put anything in place in case you don’t comply with what you said. I have a 100% certainty you will be true to your word.
How I wish this were true. But most of the people who end up in courts were typically close friends or even relatives. Why do you think they entered into the contract in the first place? They trusted each other… and when things fell apart, they had no means of resolving the issue except by going to court.
Lesson is that bonds are a good starting point, but you should protect yourself with the right paperwork. But how do you answer the concern that you don’t need a contract between you?
Turn it around
Let me offer another way of thinking about this so you get over the embarrassment. Putting the deal in written form is not a form of disrespect or a badge of untrustworthiness, but a compliment. In fact, I would say that this is a good sign of respect for the person because you are willing to take the time to treat their transaction as a professional.
Professionals ensure that all the terms of the contract are organized, noted, and complete. You want to ensure that you have understood their needs correctly, and you are willing to give time and effort to put things into order.
Putting things down in writing doesn’t mean I don’t trust you. Take this as an outward sign of me saying, “You can trust me with the transaction because I’m being a professional about this.” That’s the healthy way of going about your business.
2. Is a contract really necessary?
Let me offer you some legal trivia: Did you know that written contracts are optional under Philippine law?
A handshake, an agreement is enough to constitute a contract and hold people accountable? That’s because generally speaking, the moment there is a meeting of the minds and you give your consent, a contract is created between people. (Article 1305 and 1315, Civil Code of the Philippines) A written version of the agreement is therefore generally not necessary to bind people to obligations.
I’ll give you an example of how this plays out in real life. In my example, you are a web developer and you meet with your friend who says his startup needs a website.
You meet, discuss the requirements and shake hands that you will be creating a web page for him. After closing that deal, you scurry off to your favorite coffee shop to get started. You spend a week creating the most awesome site you can conjure.
After you complete the entire page complete with the bells and whistles, and when you call the client to set up a meeting for you to present, they suddenly say, “Sorry, we won’t push thru.”
You’re dumb-founded. You spent all of last week working on his company’s website, you turned away other contracts just to devote time to this project, and now, you’re left high and dry.
What can you do?
Here’s the lowdown. Legally speaking, the verbal contract is enough to hold them accountable for the work you already put in. But here’s the challenge. How do you prove that the verbal contract exists?
In this scenario, a lawyer would probably ask you to recount your story in an affidavit and use that as evidence to file in court. But guess what? Your ex-client could also execute an affidavit saying that no such thing happened. The affidavit may cancel the other affidavit’s value as evidence.
Can you see the challenge here? What you know is different from what you can prove. And proving things convincingly so you can legally make claims is essential to winning your case.
The smart way to go about this
If we had the chance to do things over again in the given scenario, what could we do differently?
For starters, I would insist that the whole deal be reduced to a contract. That way, there are no questions on the existence of the deal and what the deal entails. Documentary evidence is harder to push down with a simple affidavit.
Now, let’s play the previous scenario. You’ve finished with the first draft of the project, and you’re ready to present. Your client now backs out. You now file a case in court to recover the time and expense you already spent on the project.
You now present a copy of the contract. Now it’s a different ballgame. A mere affidavit from your ex-client may not be sufficient to overturn the signed document you are presenting. He has a lot of explaining to do.
See how much easier that was to prove? And you couldn’t have done it so elegantly without the written evidence.
3. I don’t know what to put in the contract
Well, you’re in luck. There are definite steps you can take to remedy this part.
The best way is still to ask for professional help. If you have access to a great legal team, then ask your friendly lawyer to draft something for you. The nice thing about contracts is that you have them drafted once and you can keep using it over and over again. You just have your lawyer review them from time to time to keep them relevant.
Next, you may take the Do-it-Yourself route. There are dozens of forms you can use from Google. This isn’t ideal because the contracts weren’t drafted specifically for your needs, but it’s a good start. I would much rather start with a bad contract than no contract at all. Use it as a starting point, and improve from there.
Finally, stay tuned because we plan to roll out more articles dealing with contracts and other business concerns here in WhenInManila.com
I hope I was able to simplify things for you so you can now make better choices. Let us know what you think in the comments!