Contract Notarization — Is it Necessary?
Notarization is to certify or attest to a document by a notary public. A duly notarized document carries with it the presumption of regularity, authenticity, and due execution. It essentially converts a private document into a public one so that it is valid and binding not only between the parties but also against third parties.
Not all documents, however, need notarization. For contracts, as long as it has the object, the consent, and the consideration, it is already legally binding between the parties. This was solidified under Chapter 8 of Article 1318 of the New Civil Code. It states:
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
This article will discuss what certain types of documents need notarization to have a legal effect between or among the signatories.
Article 1358 of the Civil Code enumerates the following contracts that have to be made public through a public notary:
- Acts and contracts which have for their object the creation, transmission, modification, or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by Articles 1403, №2, and 1405. This includes Deed of Sales of Real Property/ Motor Vehicle, Real Estate Mortgage, and Chattel Mortgage.
- The cession, repudiation, or renunciation of hereditary rights or of those of the conjugal partnership of gains. Some of these documents include Waiver of Rights, Donation, and Deed of Assignment.
- 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. A very good example of this is the Special Power of Attorney that you use for the bank.
- The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels, or things in action are governed by Articles, 1403, №2, and 1405. (1280a)
Other documents that need to be notarized:
- A contract of partnership where immovable property or real rights are contributed.
- Donation of an immovable property.
- An agent’s authority (special power of attorney) to sell the land or any interest in the land.
- Royalty agreements involving the assignment of patents or patent applications.
- Subordinated loan agreements, i.e., agreements evidencing or governing subordinated borrowing of cash by broker dealers. The requirement applies to all subordinated loan agreements between a lender and a broker dealer.
- Secured demand notes, i.e., a secured demand note evidences the contribution of a secured demand note to a Broker Dealer and the pledge of securities and/or cash with the broker dealer as collateral to secure payment of such secured demand note.
- Application for registration of securities (Form 12–1) with the Securities and Exchange Commission (“SEC”), i.e., every prospectus must also be subscribed under oath by the issuer.
- Several corporate documents submitted to the SEC, such as articles of incorporation, voting trust agreements, applications filed by a foreign corporations for a license to transact business in the Philippines, general information sheets, application for registration securities, and reports and forms submitted by banks to the Bangko Sentral ng Pilipinas;
- Proxies issued by brokers and dealers.
- Tax Returns.
- The cession, repudiation, or renunciation of hereditary rights or of those of the conjugal partnership of gains.
- An agent’s authority over an object which would require public document.
- An assignment of a credit, right or action shall produce no effect as against third persons (although it remains valid between the parties), unless it appears in a public document, or, where the assignment involves real property, the instrument is recorded in the Registry of Property.
Since notarizing documents makes any private document into a public document, it makes it admissible in evidence. Without clear, convincing, and more than preponderant evidence to controvert, the presumption of regularity over the notarized document stands. Also, the notarized document’s evidentiary weight in relation to its execution, the statements made on it, and the authenticity of the signatures, will prevail without incontrovertible evidence.
Further, when the pandemic hit in 2020, notarizing documents became challenging and it greatly impacted a lot of business transactions and processes. This left many people stumped with piles of agreements and documents that needed to be notarized because of the limited to no access to a Notary Public.
The Supreme Court recognized this problem and released the 2020 Interim Rules on Remote Notarization of Paper Documents. The law allows the notarization of documents through video conferencing but only if either the notary public or the person seeking notarial service, or both, are residing, holding office, or located in an area under community quarantine. This applies only to paper documents and instruments with handwritten signatures or marks but not for the execution of notarial wills. You can check out A.M. №20–07–04-SC for the full details.
On the other hand, while notarization makes an agreement formally valid, we must not forget that not all documents necessitate notarization to be enforceable. For those contracts or documents that the law requires to be in writing, a signature would suffice. A digital signature (if done electronically), that is compliant with the PH eCommerce Act and the Supreme Court’s Rules on Electronic Evidence is a good alternative to secure the document and increase its admissibility in court. Electronic and digital signatures allow for the remote signing of documents wherever a person is.
Documents which are required to be in “writing”:
a. Those falling under the Statute of Frauds (Art. 1403, Civil Code);
b. Negotiable instruments (Sec. 1, Negotiable Instruments Law);
c. Donations of personal property with a value in excess of 5,000 pesos (Art. 748, Civil Code);
d. Contract of antichresis where the amount of the principal and interest must be in writing (Art. 2134, Civil Code );
e. Stipulation to pay interest on loans (Art. 1956, Civil Code);
f. Power of attorney to sell land or any interest therein (Art.1874, Civil Code);
g. Assignment of copyright in whole or in part during the lifetime of the author (Section 180.2, Intellectual Property Code);
h. Marriage Settlements (Art. 77, Family Code); and,
i. Stipulations limiting a common carrier’s liability to less than extraordinary diligence (Art. 1744, Civil Code)