CONTRACT DRAFTING AMENDMENTS AND RELATED MATTERS

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CONTRACT DRAFTING / AMENDMENTS AND RELATED MATTERS
Maria Trinidad P. Villareal, Esq. Senior
Partner CARAG JAMORA SOMERA VILLAREAL Law
Offices
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Outline
I. Basic information relating to contracts A.
Definition B. Freedom to contract principle C.
Binding Effect D. Essential Requisites of
Contracts E. Interpretation of Documents F.
Reformation of Instruments II. Licensing
Agreements That Are Considered Technology
Transfer Arrangements (TTAs) under the IP Code
of the Philippines
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I. Basic information relating to contracts A.
Definition A contract is a meeting of the minds
between two persons whereby one binds himself,
with respect to the other, to give something, or
to render some service. (Article 1305, Civil
Code) B. Freedom to contract principle  The
contracting parties may establish such
stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not
contrary to law, morals, good customs, public
order, or public policy. (Art. 1306, Civil Code)
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C. Binding Effect Contracts take effect only
between the parties, their assigns and heirs,
except in case where the rights and obligations
arising from the contract are not transmissible
by nature, or by stipulation or by provision of
law. If a contract should contain some
stipulation in favor of a third person, he may
demand its fulfillment provided he communicated
his acceptance to the obligor before its
revocation. A mere incidental benefit or
interest of a person is not sufficient. The
contracting parties must have clearly and
deliberately conferred a favor upon a third
person. (Art. 1311, Civil Code)
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• D. Essential Requisites of Contracts
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• Art. 1318, Civil Code
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• There is no contract, unless the following
  requisites concur
• Consent of the contracting parties
• Object certain which is the subject matter of the
  contract
• Cause of the obligation which is established.

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CONSENT This is manifested by the meeting of
the offer and the acceptance upon the thing and
the cause which are to constitute the contract.
The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a
counter-offer.   Acceptance made by letter or
telegram does not bind the offerer, except from
the time it came to his knowledge. The contract,
in such a case, is presumed to have been entered
into in the place where the offer was made. (Art.
1319, Civil Code)
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An acceptance may be expressed or implied. (Art.
1320, Civil Code)   The person making the offer
may fix the time, place and manner of acceptance,
all of which must be complied with. (Art. 1321,
Civil Code)   However, when the offerer has
allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before
acceptance by communicating such withdrawal,
except when the option is founded upon a
consideration, as something paid or promised.
(Art. 1324, Civil Code).
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A contract where consent is given through
mistake, violence, intimidation, undue influence,
or fraud is voidable. (Art. 1330, Civil
Code)   In order that mistake may invalidate
consent, it should refer to the substance of the
thing which is the object of the contract, or to
those conditions that have principally moved one
or both parties to enter into the
contract.   Mistake as to the identity or
qualifications of one of the parties will vitiate
consent only when such identity or qualifications
have been the principal cause of the contract.
(Art. 1331, Civil Code)
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There is violence when in order to wrest consent,
serious or irresistible force is
employed.   There is intimidation when one of the
contracting parties is compelled by a reasonable
and well-grounded fear of an imminent and grave
evil upon his person or property, or upon the
person or property of his spouse, descendants or
ascendants, to give his consent. (Art. 1335,
Civil Code)   There is undue influence when a
person takes improper advantage of his power over
the will of another, depriving the latter of a
reasonable freedom of choice. (Art. 1337, Civil
Code)
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There is fraud when, through insidious words or
machinations of one of the contracting parties,
the other is induced to enter into a contract
which, without them, he would not have agreed to.
(Art. 1338, Civil Code)   Failure to disclose
facts, when there is a duty to reveal them, as
when the parties are bound by confidential
relations, constitutes fraud. (Art. 1339, Civil
Code)   OBJECTS OF CONTRACTS   All things, which
are not outside the commerce of men, including
future things, may be the object of a contract.
All rights which are not intransmissible may also
be the object of contracts.
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All services which are not contrary to law,
morals, good customs, public order or public
policy may likewise be the object of a contract.
(Art. 1347, Civil Code) CAUSE OF CONTRACTS   In
onerous contracts the cause is understood to be,
for each contracting party, the prestation or
promise of a thing or service by the other in
remuneratory ones, the service or benefit which
is remunerated and in contracts of pure
beneficence, the mere liberality of the
benefactor. (Art. 1350, Civil Code)   Contracts
without a cause, or with unlawful cause, produce
no effect whatsoever. The cause is unlawful if
it is contrary to law, morals, good customs,
public order or public policy. (Art. 1352, Civil
Code)
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• FORM OF CONTRACTS
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• Contracts shall be obligatory, in whatever form
  they may have been entered into, provided all of
  the essential requisites for their validity are
  present. However, when the law requires that a
  contract be in some form in order that it may be
  enforceable, or that a contract be proved in a
  certain way, that requirement is absolute and
  indispensable. (Art. 1357, Civil Code)
• The following must appear in a public document
• Acts and contracts which have for their object
  the creation, transmission, modification or
  extinguishment of real rights over immovable
  property

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• The cession, repudiation or renunciation of
  hereditary rights or of those of the conjugal
  partnership of gains
• The power to administer property, or any other
  power which has for its object an act appearing
  or which should appear in a public document, or
  should prejudice a third person
• The cession of actions or rights proceeding from
  an act appearing in a public document.
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• All other contracts where the amount involved
  exceeds five hundred pesos must appear in
  writing, even a private one. (Art. 1358, Civil
  Code)

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• Public documents are
• The written official acts, or records of the
  official acts of the sovereign authority,
  official bodies and tribunals, and public
  officers, whether of the Philippines or of a
  foreign country
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• Documents acknowledged before a notary public
  except last wills and testaments and
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• Public records kept in the Philippines, of
  private documents required by law to be entered
  therein.
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• (Sec. 19, Rule 132, Revised Rules of Evidence)

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E. Interpretation of Documents The language of
a writing is to be interpreted according to the
legal meaning it bears in the place of its
execution, unless the parties intended otherwise.
(Sec. 10, Rule 130, Revised Rules of
Evidence)   If the terms of a contract are clear
and leave no doubt upon the intention of the
contracting parties, the literal meaning of its
stipulations shall control. (Art. 1370, Civil
Code)   In the construction of an instrument,
where there are several provisions or
particulars, such a construction is, if possible,
to be adopted as will give effect to all. (Sec.
11, Rule 130, Revised Rules of Evidence)
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If some stipulation of any contract should admit
of several meanings, it shall be understood as
bearing that import which is most adequate to
render it effectual. (Art. 1373, Civil Code) In
the construction of an instrument, the intention
of the parties is to be pursued and when a
general and particular provision are
inconsistent, the latter is paramount to the
former. So a particular intent will control a
general one that is inconsistent with it. (Sec.
12, Rule 130, Revised Rules of Evidence)   In
order to judge the intention of the contracting
parties, their contemporaneous and subsequent
acts shall be principally considered. (Art. 1371,
Civil Code)
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The terms of a writing are presumed to have been
used in their primary and general acceptation,
but evidence is admissible to show that they have
a local, technical, or otherwise peculiar
signification, and were so used and understood in
the particular instance, in which case the
agreement must be construed accordingly. (Sec.
14, Rule 130, Revised Rules of Evidence) When
the terms of an agreement have been intended in a
different sense by the different parties to it,
that sense is to prevail against either party in
which he is supposed the other understood it, and
when different constructions of a provision are
otherwise equally proper, that is to be taken
which is the most favorable to the party in whose
favor the provision was made. (Sec. 17, Rule 130,
Revised Rules of Evidence)
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F. Reformation of Instruments   When there have
been a meeting of the minds of the parties to a
contract, their true intention is not expressed
in the instrument purporting to embody the
agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the
parties may ask for the reformation of the
instrument to the end that such intention may be
expressed.   If mistake, fraud, inequitable
conduct, or accident has prevented a meeting of
the minds of the parties, the proper remedy is
not reformation of the instrument, but annulment
of the contract. (Art. 1359, Civil Code)
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II. Licensing Agreements That Are Considered
Technology Transfer Arrangements (TTAs) under
the IP Code of the Philippines   Section 4.2 of
our Republic Act No. 8293 (the "Intellectual
Property Code of the Philippines" or the "IP
Code"), provides for the definition of what are
considered "technology transfer arrangements"
("TTAs"), to cover "contracts or agreements
involving the transfer of systematic knowledge
for the manufacture of a product, the application
of a process, or rendering of a service,
including management contracts and the transfer,
assignment, or licensing of all forms of
intellectual property rights, including licensing
of computer software for mass market. (Emphases
supplied).
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Thusly, in the event that an agreement between
certain parties are contemplating on entering
into will contain stipulations on, among others,
the transfer, assignment or licensing of all
forms of intellectual property rights, or if such
agreement involves the transfer of systematic
knowledge for the manufacture of a product, the
application of a process or rendering of a
service, including management contracts, the
contemplated agreement will be considered as a
TTA.   In this connection, Section 88 of our IP
Code provides for the "mandatory clauses" that
are required to be included as part of a TTA, to
wit
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Sec.88. Mandatory Provisions   The following
provisions shall be included in voluntary license
contracts   1. That the laws of the Philippines
shall govern the interpretation of the same and
in the event of litigation, the venue shall be
the proper court in the place where the licensee
has its principal office 2. Continued access
to improvements in techniques and processes
related to the technology shall be made available
during the period of the technology transfer
arrangement
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3. In the event the technology transfer
arrangement shall provide for arbitration, the
Procedure for Arbitration of the Arbitration Law
of the Philippines or the Arbitration Rules of
the United Nations Commission on International
Trade Law (UNCITRAL) or the Rules of Conciliation
and Arbitration of the International Chamber of
Commerce (ICC) shall apply and the venue of
arbitration shall be the Philippines or any
neutral country and 4. The Philippine taxes on
all payments relating to the technology transfer
arrangement shall be borne by the licensor.
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The general rule is that a TTA is not required to
be registered in the Philippines. However,
following Section 92 of our IP Code, it is
provided that if a TTA contains provisions that
are not in conformity with the provisions of
Sections 87 and 88 of the IP Code, said TTA shall
be considered unenforceable, unless said
agreement is approved and registered with the
Intellectual Property Office of the Philippines'
Documentation, Information, and Technology
Transfer Bureau ("DITTB"), citing the provisions
of Section 91 of the IP Code on "exceptional
cases". Section 91 of the IP Code provides that
"In exceptional or meritorious cases where
substantial benefits will accrue to the
(Philippine) economy, such as high technology
content, increase in foreign exchange earnings,
employment generation, regional dispersal of
industries and/or substitution with or use of
local raw materials, or in the case of (our)
Board of Investments-registered companies with
pioneer status, exemption from (the Section 87
prohibited clauses) may be allowed by the DITTB,
after evaluation thereof on a case by case
basis." In such instances when a TTA contains
Section 87 prohibited clauses, and the parties
thereto wish to retain such clauses in a TTA, the
parties will have to seek approval to retain such
clauses from the DITTB.
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The provisions of Section 87 of our IP Code are
as follows, to wit Sec. 87. Prohibited
Clauses   xxx, the following provisions shall be
deemed prima facie to have an adverse effect on
competition and trade (1) Those which impose
upon the licensee, the obligation to acquire from
a specific source capital goods, intermediate
products, raw materials, and other technologies,
or of permanently employing personnel indicated
by the licensor
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(2) Those pursuant to which the licensor reserves
the right to fix the sale or resale prices of the
products manufactured on the basis of the
license   (3) Those that contain restrictions
regarding the volume and structure of production
  (4) Those that prohibit the use of competitive
technologies in a non-exclusive technology
transfer arrangement   (5) Those that establish
a full or partial purchase option in favor of the
licensor
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(6) Those that obligate the licensee to transfer
for free to the licensor, the inventions or
improvements that may be obtained through the use
of the licensed technology   (7) Those that
require payment of royalties to the owners of
patents, for patents which are not used   (8)
Those that prohibit the licensee to export the
licensed products unless justified for the
protection of the legitimate interest of the
licensor such as exports to countries where
exclusive licenses to manufacture and/or
distribute the licensed product(s) have already
been granted
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(9) Those which restrict the use of the
technology supplied after the expiration of the
technology transfer arrangement, except in cases
of early termination of the technology transfer
arrangement due to reason(s) attributable to the
licensee   (10) Those which require payments
for patents and other industrial property rights
after the expiration, termination arrangement
  (11) Those which require that the technology
recipient shall not contest the validity of any
of the patents of the technology supplier
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(12) Those which restrict the research and
development activities of the licensee designed
to absorb and adapt the transferred technology to
local conditions or to initiate research and
development programs in connection with new
products, processes or equipment (13) Those
which prevent the licensee from adapting the
imported technology to local conditions, or
introducing innovation to it, as long as it does
not impair the quality standards prescribed by
the licensor (14) Those which exempt the
licensor for liability for non-fulfillment of his
responsibilities under the technology transfer
arrangement and/or liability aising from third
party suits brought about by the use of the
licensed product or the licensed technology and
(15) Other causes with equivalent effects."
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The pertinent provisions of our IP Code on TTAs
do not specify which party should register a TTA,
hence if there are Section 87 prohibited clauses
in the agreement and the parties thereto wish to
retain such provisions, either the
franchisor/licensor or the franchisee/licensee
may apply to the DITTB for the grant of
exemptions from falling under said prohibitions,
citing the "exceptional circumstances" provided
under Section 91 of the IP Code. As
previously-stated, following Sec. 92 of the IP
Code, the inclusion of Section 87 prohibited
clauses in a TTA, without DITTB approval for
exemption, will be considered unenforceable.