UNENFORCEABLE CONTRACTS
Ts one, which, though possessing all the essenllal requisites of]
contracts, has caused a particular economic damage either to one of|
the contracting parties or te a third person,
fz one in which the consent of one party is defective, either Because
‘of want of capaci use consent is vitiated
is one that cannot be sued upon or enforced uniess they are rated
[is one which suffers from absence of object or cause and is therefore
an absolute nullity and produces no effect.
Unenforceable contracte are nearer absolute nullity than resciesible and voidable
‘contracts. (Report of the Code Commission, p.130)
Rescissible and Voidable Contracts vs. Unenforceable Contract
Resciseible ond Voldable Contracts | Unenferceatle Contracts
~ Valid and produce legal offeae Cannot be enforced and products
‘they! are rescinded or po legal effect unless ratified.
annulled,
“Unenforceable contracts are those which cannot be enforced by a proper action
In court, unless they are ratified, because either they are entered into without or in
exess of authority or they do not comply with the Statue of frauds or boik of the
contracting parties do not passes the required legal capacity. An inenforceable contract
may be ratified, expressly or impliedly, by the person in whose behalf it has been
executed, before itis revoked by the other contracting party.”
(Mercado v, Allied Banking Corp., GR. No. 171460, July 24, 2007)
Kinds of Unenforceable Contracts (Overview)
a. Unauthorized contracts, — lack or in excess of authority or legal representation
b. Those that fail to comply with the Statute of Frauds.
cc. Those where both parties are incapable of giving consent to 2 contract.
(Civil Code of the Philippines, Article 1403)
A party to an unenforceable contract may bring an action to enforce it subject to
the defense of the lack of the requized form (Statute of Frauds) or absence of authority
‘or in excess thereof. The law expressly provides that such a contract cannot be assailed
bya third person. (Article 1408)
‘The mere lapse of time cannot give effect to such a contract, The defect is of
permanent nature and will exist as long as the unenforceable contract is not duly ratified
by the person in whose name the contract was executed. (Tipton v. Velasco, 6 Phil. 67)
Article 1409. The following contracts are unenforceable, unless they are
ratified:
(2) Those ont
no authority oF
1d into in the name of another person by one who has be
al representation, or who has acted beyond his powers;
given
(2) Those that do not comply with the Statute of Frauds asset forth in this number.
In the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum, thereof, be in writing, and
ibseribed by the party charged, or by his agent; evidence, therefore, of the
‘agreement canaot be received without the writing, or a secondary evidence of its
contents:(a) An agreement that by its terms is not to be performed within a year from the
making thereof;
(0) special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise
te marry;
(4) An agreoment for the sale of goods, chattels or things in action, at « price not
less than five hundred pesos, unless the buyer accept and receive part of auch
goods and chattels, or the evidences, or some of them, of such things in action or
pay at the time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price, names of the
Purchasers and person on whose account the sale is made, it is a sufficient
‘memorandum;
(c} An agreement for the leasing for a longer period than one year, or for the sale
‘of real property or of an interest therein;
(4) A representation as to the credit of a third person,
(3) Those where both parties are incapable of giving consent to a contract.
Unauthorized contracts are those entered into in the name of another person
by one who has been given no authority or legal representation or who has acted beyond
his powers. They are governed by Article 1317 and the principles of agency.
“Art, 1917, No one may contract in the namo of | Requlte for « Person to Contract In the
another without being authorized by the latter, | Name of Another
‘orunless he has by law aright to represent him, |°- ems eduls authorize expresiy or
imi
bi Hamat have be ta sch to epeesent
bys oe ne authority or legal |" jin” guaran or administrator
representation, or who has acted beyond ls |< The contract must be. subsequently
Fetified, expressly or impliedly. by the person | wardriy'asat Pn
fon whose behalf ithas been executed, before {t ‘les mony: Ore 24 i 9)
[Is revoked by the ether contracting party.”
“As for any obligation whecein the agent has excected his | ‘The contract is unenforceable
potwer, the prinipal is nor bound except when he r ‘shother the autherity is only
Hexpresely or tacith.” (Article 1910, par.2) recoded or abeoltely abecn
Ratification cleanses the contract from all its defects from the moment the
co as entered into. (Aricle 1396) Hence, there is a retroactive effeet. (Tacalinar
v, Como, 34 Phil. 898)
For example: Quennie, in Ryan's name bat without consent, sald his makeup set to
Marjoerie. Here the sale ofthe makeup set is urautherized, thereore, unenforceable
However, it will now be a diferent story if Ryan subsequently ratified the sale. Tau it
can now be enforced
Statute of Frauds
‘The ratlonale of the requirement in the Statue of Frauds that the comtracts
therein enumerated must be in writing is that the frailty of human memory, or, more
frequently perhaps, the mischief of fraud, con impede the honest and accurate
enforcement of a contract entered into merely orally. The Statute of Frauels isa cautious
‘qualification to the general rule that contracts, no matter in what form they are entered
into, are valid and enforceable‘The purpose of the Statute is to prevent fraud and in the enforcement o
obligations depending for their evidence on the unassisted memony of witnesses, bi
requiring certain enumerated contracts end wansactiens to be evidenced by a writin
Signed by the party to be charged Tae Statute requires certain contracts to be evidenced
by some note or memorandum in order to be enforceable, (Asia Productions Co., Inc. v
Pao, G.R. No. 51058, January 27, 1992)
Statute of Fravds is applicable only to executory contracts, not to partially or
totally executed or performed contracts. It may be invoked in actions for damages for
breach of said agreement or for specific performance therecf, and not in any ather
matter. (Pacturan . Sabandal, 81 Phil. 512)
In executory contracts there is a wide fleld for fraud because unless they be in
‘writing there is no palpable evidence of the intention of the contracting parties. The
statute has precisely deen enacted to prevent fraud, (Comments on the Rules of Court,
by Moran, Vol. Ill {1957 ed, p. 178.)
‘Anthony Orda, et al, vs. Bdaardo J, Puentebella, ot al G.R. No, 176841, June 29,2010,
‘The Statute of Frauds expressed in Article 1403, par. (2), of the Civil Code, provides that
‘contract for the sale of real propery eof an interest therein shall be unenferceable unless the
‘ale or some nete or memorarsdum thereo isin writing and subscribed by the party or hie agent
However, where the verbal_contract_of sale-has-been. partially executed through. the partial
payments made by one party duly received by the vendor, asin the present case, the contract is
taken out of the scope of the Statute.
‘The purpese of the Stanute i to prevent fraud ané perjury in the enforcement of
obligations depending for their evidence on the unassisted memory of winesses, hy requiring
certain enumerated contracts and transactions to be evidenced br a writing signed by the party
to be charged, The Statute requires certain contracts. 10 be evidenced by some note or
rmemeranduim in order to be enforceable. The term “Statute of Frauds” is descriptive of
‘statutes that requize certain classes of contracts to be in writing. The Statute does aot
‘deprive the parties of the right to contract with respect to the matters therein involved,
‘but merely repulates the formalities of the contract necessary te render It enforceable.
Since contracts are generally obligatory in whatever form they may have been entered
into, provided al the essential requisites fr their validity are present, the Statute simply provides
the method by which the contracts enumerated in Art. 1403 (2) maybe proved but dors not
‘declare. them invalid because they-are-nol reduced to-writing, In fine, the form required unser
the Statute is for convenience or evidentiary purposes only.
‘There can be no serious argument about the partial execution ofthe ssle in question,
‘The records show that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel J.
sums of money as partial payments of the purchase price.
Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the
accepiance of benefits under the contract. Evident, Gabriel, Jr., as his father earlier, had
benefited fom the partial payments made by the petitioners. Thus, nether Gabriel Jr. ror the
bother respondents—successive purchasers of subject lots—could plausibly et up the Statute of
Frauids to thwert peittoners’ efforts towards establishing their lawful right over the subject lot
land removing any cloud ln their te. As it were, petloners need only to pay the oulstanding
balance of the purchase price and that would complete the execution of the oral sale,
Contracts Falling Under Statute of Frauds
‘The first statute pertains to an agreement whose terms are not to be performed
‘within a year from its making,
In Viewmaster Construction Corporation v, Rovas (G.R No. 133576, 13 July 2000),
the Supreme Court found that a verbal agreement to act as guarantor for a loan ~~ only
after the borroner sells fifty percent of his shareholdings in @ corporation; and
undertake a joint venture over two real estate properties —- was clear to be performed
more than a year from the making thereof.