17/02/2025
Most Business Agreements Need Not Be in Writing to Be Valid.
Do you often rely on informal agreements for your business transactions? Have you faced challenges getting suppliers or clients to honor their commitments because the terms were only discussed in conversations or messages?
The Supreme Court recently ruled that a contract does not always have to be in writing to be valid. This decision came from a case filed in 2012 involving a dealership agreement between Coca-Cola and its dealer. After more than a decade, the Court confirmed that an oral agreement can still be enforced as long as there is enough proof that both parties agreed to the terms.
Under the Civil Code, a contract of sale is perfected by mere consent, meaning it becomes valid the moment both parties agree—even without a written document. Since there is no legal requirement for a contract of sale to be in writing, the Court ruled that Coca-Cola and its supplier had a binding agreement, despite the absence of formal paperwork. The agreement was proven through records of their transactions and the conduct of both parties.
One issue raised in the case was the Statute of Frauds, which generally requires contracts involving sales worth more than Php 500 to be in writing. However, this rule no longer applies once a contract has been partially performed. Since Coca-Cola had already sent deliveries, as evidenced by delivery receipts that were properly received, the contract became enforceable even without a written document.
Why it matters:
While the Supreme Court upheld the oral agreement, the case dragged on for more than ten years, leading to delays, legal costs, and uncertainty for the complainant. If the contract had been properly documented, the dispute could have been resolved faster, with less uncertainty, and with less legal risk. Coca-Cola might have also been able to claim additional awards for damages, such as a higher penalty for delays, which are typically included in written agreements. To add, a well-crafted business agreement usually serves as a deterrent to non-compliance—at least in our opinion.
This ruling is a strong reminder for business owners. While verbal agreements can be valid, they come with risks. Without clear documentation, enforcing terms can become a lengthy and costly process. Having written contracts helps protect businesses, making it easier to avoid disputes and ensure that agreements are upheld.
* This article is for informational purposes only and does not constitute legal advice. Every situation is unique, and businesses should seek professional legal counsel to address their specific needs.
