When we started our discussion on the basic elements of contracts, we mentioned that the article is the first in the series of articles on contracts. This is intended to give Pinoy Entrepreneurs a working knowledge on something that they will definitely bump into in the course of business transactions - contracts. To provide order to the chaotic world of contracts, let's discuss the parts or basic provisions one by one.  

From the basic elements of a contract, let's proceed with the NAME or TITLE of the contract. The contract title is generally the first line of the document containing the contract. The title could be generic (e.g., Agreement, Contract) or specific (e.g., Contract of Sale, Contract to Sell, Contract of Lease, Loan Agreement with Real Estate Mortgage, Subscription Agreement, Assignment of Shares, Deed of Donation, etc.).

 

The title or name is basically a description of the nature of the document or contract. For instance, when you read that the title is a "Contract of Sale," you are immediately made aware that it most likely involves the full transfer of a property's ownership. We used "most likely" because while the title asssists you in identifying the nature of the contract, it's not conclusive.

The nature of a contract is generally determined from the provisions contained in the written agreement. For instance, a contract denominated as a "Contral to Sell" may be treated as a "Contract of Sale" if the provisions point to the latter. In a contract of sale, the title to the property passes to the buyer. The seller loses ownership over the property and cannot recover it until and unless the contract is rescinded. A contract without any reservation of title over the property until full payment of the purchase price or giving the seller the right to unilaterally rescind the contract in case of non-payment, is one of sale. In a contract to sell, the parties agree to reserve the ownership in the seller until full payment of the purchase price. This charectization, however, is easier said than done because the contract must be interpreted in its entirety.

Another example is a contract denominated as a "Contract of Sale," which may be treated as an equitable mortgage if the intention of the parties is to secure an existing debt by way of a mortgage. Under the law, a contract, even if it purports to be a contract of absolute sale, is presumed to be an equitable mortgage in the following instances: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In sum, the parties to a contract should ensure that the title or name fairly characterize the intent of the parties and the provisions contained in the written agreement. Again, the title is not conclusive as to the exact nature of the contract. Just like the cliche about not judging a book by its cover, a Pinoy Entrepreneur should also refrain from judging a contract by its title.