MODULE I-WEEK 4

Title II. - CONTRACTS

CHAPTER 8- UNENFORCEABLE CONTRACTS
Article 1403-1408

Mindanao State University-Iligan Institute

of Technology
Class: HTM108

Topic: Law on Obligations and Contracts

Title II. - CONTRACTS

CHAPTER 1 GENERAL PROVISIONS Article 1305-1317
CHAPTER 2 ESSENTIAL REQUISITES OF CONTRACTS Articles 1318
SECTION 1. Consent Article 1319-1346
SECTION 2. Object of Contracts Article 1347-1349
SECTION 3. Cause of Contracts Article 1350-1355
CHAPTER 3 FORM OF CONTRACTS Article 1356-1358
CHAPTER 4 REFORMATION OF INSTRUMENTS Article 1359-1369
CHAPTER 5 INTERPRETATION OF CONTRACTS Article 1370-1379
CHAPTER 6 RESCISSIBLE CONTRACTS Article 1380-1389
CHAPTER 7 VOIDABLE CONTRACTS Article 1390-1402
CHAPTER 8 UNENFORCEABLE CONTRACTS Article 1403-1408
CHAPTER 9 VOID AND INEXISTENT CONTRACTS Article 1409-1422
II. Learning Objectives
At the end of the Chapter, the student should be able to:

1. Master the basic principles of Contract of law;

2. Understand the requisites of a perfected contract;
3. Understand the different types and classes of contracts under the New Civil Code.

CHAPTER 8
UNENFORCEABLE CONTRACTS

Unenforceable contracts are those that cannot be enforced in court or sued upon by reason of defects provide by
law until unless they are ratified according to law.
They are contracts either entered into without or in excess of authority or do not comply with the statue of frauds
or both of the contracting parties do not possess the required legal capacity.

Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) 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;

(2) Those that do not comply with the Statute of Frauds as set 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 subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot 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;
(b) A 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 to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such 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;

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

(f) 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
These 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.”
Ex. Without my authority, my brother sold my car, in my name to XANDER. The contract is unauthorized
and cannot affect me unless I ratify the same expressly or implicitly, as by accepting the proceeds of the
sale.

NOTE: Mere lapse of time, no matter how long, is not the ratification required by law of an unenforceable contract.
Without ratification, the “agent” assumes personal liability.

THE STATUTE OF FRAUDS:

The PURPOSE is to prevent fraud, and not to encourage the same. Thus, certain agreements are required to be in
writing so that they may be enforced.

NOTE: The Statute of Frauds applies only to executor contracts and not to consummated sales where oral
evidence may be admitted.

HOW THE STATUTE OF FRAUDS PREVENTS FRAUD

Since memory is many times unreliable, oral agreements may sometimes result in injustices. To aid human
memory, to prevent the commission of injustices dues to faulty memory, to discourage intentional
misrepresentations, are the principal aims of the Statute of Frauds.

CHIEF CHARACTERISTIC
Its chief characteristic is the provision that no suit or action shall be maintained on certain classes of contracts or
engagements unless there is a note or memorandum thereof in writing signed by the party to be charged or by his
authorized agent.

BASIC AND FUNDAMENTAL PRINCIPLES CONCERNING THE STATUTE OF FRAUDS

1. The Statute of Frauds applies only EXECUTORY CONTRACTS (contracts where no performance has
yet been made) and not to partially or completely executed contracts.
 REASON: The possibility for fraud in executor contracts is much greater.
2. The Statute of Frauds cannot apply if the action is neither for damages because of the violation of an
agreement nor for the specific performance of said agreement.
3. The Statute of Frauds is exclusive, that is, it applies only to the agreements or contracts enumerated
herein.

NOTE: Contract of loan is not one those enumerated in the Statute.

4. The defense of the Statute of Frauds may be waived.
5. TWO WAYS to Waive the Defense of Statute of Fraud:
a. Timely failure to object to the presentation of oral evidence to prove the oral agreement;
b. Acceptance of benefits under them
6. The Statute of Frauds is a personal defense, that is, a contract infringing it cannot be assailed by
third persons.
7. Contracts infringing the Statute of Frauds are not void; they are merely unenforceable.
8. The Statute of Frauds is a Rule of Exclusion. 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.
9. The Statute of Frauds does not determine the credibility or weight of evidence. It merely concerns
itself with the admissibility thereof.
10. The Statute of Frauds does not apply if it is claimed that contract 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.

NOTE: Contracts infringing the Statute of Frauds are ratified by the acceptance of benefits under them.

THE SPECIFIC AGREEMENTS UNDER THE STATUTE OF FRAUDS

1. An agreement that by its terms is not to be performed within a year from the making thereof.
The broad view is that the Statute of Frauds applies only to agreement not to be performed on either side within a
year from the making thereof. Agreements to be fully performed on one side within a year are taken out of the
operation of the Statute of Frauds.

NOTE: It would seem that while in general partially executed contracts are not covered by the Statute of Frauds,
still under No. 1 SPECIFIC AGREEMENT, only full or complete performance by one side will take the case out of the
operation of the Statute.
2. A special promise to answer for the debt, default, or miscarriage of another.

Example: JACE borrowed money from SILVER, with TITUS as guarantor. The contract of guaranty
must be in writing to be enforceable.
“SPECIAL PROMISE” refers to a subsidiary or collateral promise to pay, like a contract of guaranty.
3. An agreement made in consideration of marriage, other than a mutual promise to marry.

Examples of Agreements Made in Consideration Marriage:

a. Marriage Settlements
b. Donations Propter Nuptias

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

NOTE: 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.
 Ex. ACE and BEN mutually promised to marry each other. The promise need not be in writing, UNLESS
the marriage be deferred till after the lapse of one year from the agreement.
4. An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred
pesos.

THINGS IN ACTION means incorporated or intangible personal property.

NOTE: The law says “SALES” not other contracts.

NOTE: If the price is exactly P500, the contract must be in writing to be enforceable. PARTIAL PAYMENT takes the
contract away from the Statute of Frauds except if said part payment corresponds to the part delivered, in which
case, the contract is divisible, the remaining is covered by the Statute.

RULE IN CASE OF AUCTION SALE:

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:
a. The amount and kind of property sold;
b. The terms of the sale;
c. The price;
d. The names of the purchasers and persons on whose amount the sale is made...

The entry is considered a sufficient memorandum even if the same is not signed by the party sought to be charged.
5. 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 AGREEMENT REFERRED TO:

a. Lease of real property for more than one year (not a personal property);
b. Sale of Real property (regardless of price)

NOTE: If lease of real property is exactly one year, and made orally, lease is still enforceable, for the period here
does not exceed one year. INTEREST in REAL PROPERTY may include easement or usufruct.
6. A representation as to the credit of a third person.
Example: JOSEPH was borrowing money from GREG, and gave ISAIAH as his reference. When ISAIAH
was asked regarding JOSEPH’s credit, ISAIAH said: “You can safely lend money to JOSPEH because
JOSEPH is the owner of a parcel of land and I have the title deeds in my possession.” This was made
orally. Incidentally, JOSEPH was ISAIAH’s client, ISAIAH being a lawyer. This representation by ISAIAH
is not enforceable against him it is not in writing. JOSPEH representation as to the credit of a third
person must be in writing to be enforceable.

DUTY OF ATTORNEY FOR THE DEFENDANT – If an agreement violates the Statute of Frauds
a. File a motion to dismiss;
b. Plead the Statute of Frauds as an affirmative defense;
c. Make a timely objection in the course of the trial.

DUTY OF THE ATTORNEY FOR THE PLAINTIFF – who seeks to enforce a contract embraced under the Statute
of Frauds
a. Present the written agreement or contract;
b. If this cannot be done, as when the contract is lost, present a MEMORANDUM or

NOTE IN WRITING where the important details of the contract are set forth but most important of all, the party
sought to be charged or his agent must have signed the note or memorandum, UNLESS it is an auction sale where
entry need not be signed by the party being charged.
c. If the written agreement has been lost and there is no note or memorandum, there is still a
 remedy; present SECONDARY EVIDENCE OF THE WRITTEN CONTRACT in the form of oral
testimony or parol evidence. But this does not mean that an oral contract is being proved. The
fact is, a written contract now lost or destroyed, is being proved orally.

SUFFICIENT MEMORANDUM
No particular form or language or instrument is necessary to constitute a memorandum or note in writing
under the Statute of Frauds; any document or note in writing under the contract or for another purpose,
which complies will all the statutory requirements of the statutes as to contents and signature may be
considered as sufficient memorandum.

RULE ON AUTHORITY OF THE AGENT TO SELL LAND OR ANY INTEREST THEREIN

Under the Civil Code, “when a sale of a piece of land or any interest therein is thru an agent, the authority
of the latter shall be in writing; otherwise, the sale shall be void.” (Article 1874) Note that the law says
“void”, not merely unenforceable.

THE THIRD KIND OF UNEFORCEABLE CONTRACT – where both parties are incapacitated to give consent
Example: A contract entered into by two unemancipated minors without parental consent.

Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this
Book.

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the
failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under
them.

Two ways of ratification of contracts infringing the Statute of Frauds:

a. Failure to object the presentation of oral evidence – this is deemed a waiver.
b. Acceptance of benefits under them – thus the Statute does not apply to executed or partially executed or
performed contracts.

Art. 1406. 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.

It must be stressed here that the right of one party to have the other to execute the public document needed for
convenience in registration, is given only when the contract is both valid and enforceable.
Example: An oral sale of real property is not enforceable; hence, one party cannot compel the other party to
execute the public document. However, if said oral sales of real property have been ratified, then it is now
valid and enforceable, and a public document may be made so that the sale can be registered.

Art. 1407. 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
effect as if only one of them were incapacitated.
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.

Art. 1408. Unenforceable contracts cannot be assailed by third persons.

VOIDABLE CONTRACTS versus VOID CONTRACTS

 VOIDABLE VOID
1. This may be ratified. 1. It cannot be ratified.
2. It produces effects till annulled. 2. Generally, effects are not produced at all.
3. Defect is due to incapacity or vitiated 3. The Defect here is that ordinarily, public policy
consent. is militated against.
4. Valid until annulled. 4. Void from very beginning, so generally, no
action is required to set it aside, unless the
contract has already been performed.
5. May be cured by prescription. 5. Cannot be cured by prescription.
6. Defense may be invoked only by the 6. Defense may be availed of by anybody, whether
parties or their successors-in-interest he is a party to the contract or not, as long as
and privies. his interest is directly affected.
7. Referred to a relative or conditional 7. Referred to as absolute nullity.
nullity.
UNENFORCEABLE CONTRACTS versus VOID CONTRACTS
UNENFORCEABLE VOID
1. This may be ratified. 1. It cannot be ratified.
2. There is a contract but it cannot be 2. No contract at all.
enforced by a court action.
3. It cannot be assailed by third parties. 3. It can be assailed by anybody directly affected.

1. Cabulay, D. and Carpio, C. (2014). Philippine Tourism Laws, (2nd ed.). Philippines. Rex Bookstore, Inc
2. Javier, Nancy Joan M.,(2012).Tourism Laws, 3rd ed.Philippines. Central Bookstore
3. Soriano, Fidelito R.(2011).Obligations and Contracts.GIC Enterprises
4. www.lawphil.net
5. www.supremecourt.gov.ph