UNENFORCEABLE CONTRACTS

Modes of ratification under the Statute.

1. By failure to object to the presentation of oral evidence to prove the contract.

2. By acceptance of benefits under the contract.

3. Those where both parties are incapable of giving consent to a contract.

The third kind of unenforceable contract is one where both parties are incapacitated to give consent.

Who are incapacitated persons (defined in Article 1327)

1. Unemancipated minors – persons not yet reach the age of majority (18 years) and are still subject to parental authority

2. Insane or demented persons – the insanity must exist at the time of contracting

3. Deaf-mutes – persons who are dumb, however, if the deaf-mute knows how to write, the contract is valid for he is capable of giving intelligent consent

ART. 1406

ART. 1404

Contracts infringing the Statute of frauds, referred to in No. 2, Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them.

When a contract is enforceable, under the Statute of frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under article 1357. (n)

(f) A representation as to the credit of a third person.

Example

A is seeking a loan from B. C represents to B that A is solvent and has a good credit reputation. Relying upon this representation, B extends a loan to A who, actually, is insolvent. The representation of T, which was made to induce the extension of credit to A, must be in writing to be enforceable.

ART. 1404

ART. 1407

Unauthorized contracts are governed by article 1317 and the principles of agency in the Title X of this book.

In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effects as if only one of them were incapacitated.

(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein;

Two kinds of agreements referred to under this provision:

1. Lease of real property for more than one year

2. Sale of real property (regardless of the price)

Example:

A sale of realty in a private instrument is not valid and enforceable; hence, a public document may be executed so that the sale could be registered. An oral sale of real property is not enforceable; hence, one party cannot compel the other to execute the public document. However, if said oral sale of real property has been ratified, then it is now both valid and enforceable, and a public document may be made so that the sale can be registered.

Notes for Art. 1403 (2)(d)

1. It is intended for SALE Contract and not other contracts.

2. If the price is P500 or above, the contract must be in writing

3. Partial payment takes the contract away from the Statute. If the contract is divisible, the remainder is covered by the Statute.

4. When sale is made in auction and the auctioneer made an entry into his sales book at the time of the sale the:

a) Amount and kind of property sold

b) The terms of sale

c) The price

d) The names of the purchasers and persons on whose account the sale is made

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;

Examples of agreements made in consideration of marriage:

1) Marriage settlements. (Art. 122, Civil Code).

2) Donations proper nuptias (Art. 127, Civil Code)

a) When the law says “in consideration of marriage,” it really means “by reason of the marriage.” Thus, the cause of the donation proper nuptias is not the marriage but the liberality or the generosity of the giver.

b) Note that the law says “other than a mutual promise to marry.” Hence, an oral mutual promise to marry is not embraced by the Statute of Frauds. The injured party may present oral evidence of the promise in an action to obtain actual damages for breach thereof.

If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the inception.

UNENFORCEABLE CONTRACTS

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

In order that this provision be applicable, it must appear that the parties intended when they made the contract that it should not be performed within a year based on the terms of the contract itself and not on its natural or physical impossibility.

Example

On 30 April 2015, A entered into an oral contract with B that the latter will sing on the former’s debut party on 30 May 2016. The contract must be in writing to be enforceable in accordance with Article 1403 par. 2 (a).

ART. 1408

Unenforceable contracts cannot be assailed by third persons.

(b) Promise to answer for debt, default, or miscarriage of another is an undertaking by a person not liable, for the purpose of securing or performing the same duty for which the original debtor continues to be liable. Promise to answer for the debt, default or miscarriage of another, invalidates such as promise where not in writing, of a person not before liable, to pay the debt of a third person, for which the original debtor remains liable.

Example

A owes B P100,000.00 with C as the guarantor. Here, C has a special promise to answer for the debt of A in case A fails to pay the same. This special promise is unenforceable unless it is in writing signed by C.

Agreements within the scope of the STATUTE OF FRAUDS

8. The Statute of Frauds does not determine the credibility or weight of evidence. It merely concerns itself with the admissibility thereof.

9. The Statute of Frauds does not apply if it is claimed that the contact does not express the true agreement of the parties. As long as the true or real agreement is not covered by the Statute of Frauds, it is provable by oral evidence.

4. The defense of the Statute of Frauds maybe waived.

5. The Statute of Frauds is a personal defense, that is, a contract infringing it cannot be assailed by third persons.

6. Contracts infringing the Statute of Frauds are not void; they are merely unenforceable.

7. The Statute of Frauds is a Rule of Exclusion, i.e., oral evidence might be relevant to the agreement enumerated therein and might therefore be admissible were it not for the fact that the law or the statute excludes said oral evidence.

General Rules of Application of the Statute of Frauds

1. Statute of Frauds applies only to contracts where there is no performance has yet been made and not to partially or completely executed contracts. The reason is that partial performance, like the writing, furnishes reliable evidence of the contract. The partial performance maybe proved either by oral or documentary evidence.

2. The Statute of Frauds is not applicable to any other transactions that are not enumerated therein. It is not applicable in actions which are neither for damages because of the violation of the contract, nor for the specific performance thereof.

3. The Statute of Frauds applies only to the agreements or contracts enumerated herein.

STATUTE OF FRAUDS

1. Agreement not to be performed within one year from the making thereof

2. Promise to answer for the debt, default, or miscarriage of another.

3. Agreement in consideration of marriage other than mutual promise to marry.

4. Agreement for sale of goods, etc. at price not less than Php500.00

5. Agreement for leasing for a longer period than one year

6. Agreement for the sale of real property, or of an interest therein.

7. Representation as to be credit of a third person.

Descriptive of statutes which require certain classes of contracts to be in writing. This statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable. The effect of non-compliance is simply that no action can be proved unless the requirement is complied with.

Art. 1403. (1) Those entered into the name of another person by one who has been given no authority or legal representation or who has acted beyond his powers;

Illustrative Case:

Iglesia Filipina Indepediente vs. Heirs of Bernardino Taeza

G.R. No. 179597. February 3, 2014.

Purpose

The Statute of Frauds has been enacted not only to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witness but also to guard against the mistakes of honest men by requiring that certain agreements specified must be in writing signed by the party to be charged; otherwise, they are unenforceable by action in court.

ARTS. 1403-1408

History

In 1677, the English Parliament enacted a statute to counter the evil practice of giving false testimony in actions founded on certain kinds of contracts.

The Philippine Statute of Frauds was originally taken from the Code of Civil Procedure of the State of California. The Statute was introduced in the country by Section 335 of Act No. 190 (Code of Civil Procedure) and subsequently embodied in toto in the old Rules of Court under Evidence as Section 21, Rule 123.

It is now embodied with slight modifications in Article 1403(2) of the new Civil Code under the title “Unenforceable Contracts.”

Unenforceable contacts are valid contracts but cannot be enforced in court or sued upon by reason of defects provided by law until and unless they are ratified according to law. While rescissible and voidable contracts are valid and enforceable unless they are rescinded or annulled, unenforceable contracts, although valid, are unenforceable unless they are ratified.

Kinds of unenforceable contracts

1. Those entered into in the name of another by one without or acting in excess of authority;

2. Those that do not comply with the Statute of Frauds; and

3. Those where both parties are incapable of giving consent.