LECTURE 8: UNENFORCEABLE CONTRACTS Statute of Fraud – for certain documents or contracts, there is a

  requirement that it be in writing to be enforceable.

Art. 1403. The following contracts are unenforceable, unless
they are ratified: The enumeration of the contracts involved, from (a) to (f) is
(1) Those entered into in the name of another person by one EXCLUSIVE.
who has been given no authority or legal representation, or
who has acted beyond his powers; A document of partition, being not included in (a) to (f), is not an
example of statute of fraud.
See: Regal Films v. Concepcion, G.R. No. 139532, Aug 9, 2001.
If it is not in writing, it is not enforceable.
(2) Those that do not comply with the Statute of Frauds as set
forth in this number. In the following cases an agreement But remember, all these can be ratified by the parties.
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing, To be enforceable, the following requisites must concur:
and subscribed by the party charged, or by his agent; 1. It is in writing, whether the written document is only one, two
evidence, therefore, of the agreement cannot be received or 3, provided that the elements of contract are inside those
without the writing, or a secondary evidence of its contents: document.
(a) An agreement that by its terms is not to be performed 2. It must be subscribed by the person charged
within a year from the making thereof; a. The person charged is the person who has an
(b) A special promise to answer for the debt, default, or obligation under the contract
miscarriage of another; b. In reciprocal obligations, both parties must sign it.
(c) An agreement made in consideration of marriage, other
than a mutual promise to marry; The statute of fraud only applies to executory contracts.
(d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the (a) An agreement that by its terms is not to be performed
buyer accept and receive part of such goods and chattels, or within a year from the making thereof;
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 Example: “I will sign it now but it will be performed next year.”
sale is made by auction and entry is made by the auctioneer The contract will be constituted and perfected today but it will be
in his sales book, at the time of the sale, of the amount and performed next year.
kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it This should be in writing. If it is not in writing, it is valid but
is a sufficient memorandum; unenforceable.
(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; Example: I engage Mr. X to construct a building and its
(f) A representation as to the credit of a third person. performance will start 1 and ½ years from now. We sign the
document now. It is perfected, then, it is removed from the
statute of fraud.
But if I only shook hands with Mr. X, that will be unenforceable. Mr. A’s payment is only P200,000,000.00 (200 Million), that is
still under the statute of fraud as it is not considered partial
Partial Execution removes it from the statute of fraud. execution for purposes of (2)(a).

The statute of fraud essentially involves executory contracts. However, if it is unenforceable, Mr. X should give back the
payment because nothing happened in the contract.
Those which have already been executed partially, is removed
from the statute of fraud. That can already be enforced even For purposes of (2)(b)-(f), partial performance is literally
though it is not in writing, although it is included in the just partial execution.
enumeration. As long as it is already executed partially, it is
removed from the statute of fraud. (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;
What constitutes partial execution?
For purposes of (2) (a), partial execution happens when the Example: There is a contract of lease longer than 1 year. The
obligation of one party has been fully executed; but the other rent is P10,000.00 per month. The lessee pays P5,000.00 for
party has not yet executed. the first monthly rental, that is already partial execution.

Q: If Mr. A already gave P1,000,000,000.00 (1 Billion), the total (b) A special promise to answer for the debt, default, or
price, to Mr. B for a contract to start 1 ½ years from now, is the miscarriage of another;
contract enforceable?
Yes. It is already removed from the statute of fraud because A This special promise is a collateral agreement like a guaranty
has already paid the total price of the contract. which means that when somebody promises, the creditor must
exhaust all means to collect first from the debtor. Only when all
Q: If Mr. A only paid a partial payment of P200,000,000.00 (200 the means to collect from the debtor have already been
Million), will the contract still be enforceable? exhausted, and there is still a failure to pay, will the special
A: No. This is not contemplated as partial execution for promise will apply.
purposes of (2)(a). (Sta. Maria, p. 646 citing Babao v. Perez,
G.R. No. L-8334, Dec 28, 1957) Therefore, a guaranty is a special promise because it is a
collateral agreement where, as a general rule, the guarantor can
Babao v. Perez only be liable after exhaustion of all the means to collect from
SC: Contracts which by their terms are not to be performed the debtor by the creditor.
within one year, may be taken out of the statute through
performance by one party thereto. All that is required in such Being a solidary debtor DOES NOT involve a special promise
case is complete performance within the year by one because a creditor can directly go against you. That is a direct
party..." obligation.
Complete. If the consideration of the contract is
P1,000,000,000.00 (1 Billion) for Mr. X to build a tower 1 ½ (c) An agreement made in consideration of marriage, other
years from now, Mr. A has already fulfilled by paying the full than a mutual promise to marry;
amount. That is already removed from the statute of fraud. But if
 If one party is incapable of giving consent, that is an annullable
This contemplates a marriage settlement but under the Family contract; but if two parties are incapable of giving consent,
Code, all marriage settlements must be in writing otherwise it is that is an unenforceable contract.
VOID.

(d) An agreement for the sale of goods, chattels or things in Art. 1404. Unauthorized contracts are governed by Article
action, at a price not less than five hundred pesos, unless 1317 and the principles of agency in Title X of this Book.
the buyer accept and receive part of such goods and chattels,
or the evidences, or some of them, of such things in action or Art. 1405. Contracts infringing the Statute of Frauds, referred
pay at the time some part of the purchase money; but when a to in No. 2 of Article 1403, are ratified by the failure to
sale is made by auction and entry is made by the auctioneer object to the presentation of oral evidence to prove the
in his sales book, at the time of the sale, of the amount and same, or by the acceptance of benefit under them.
kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it Remember, these are VALID but unenforceable contracts, and,
is a sufficient memorandum; therefore, they can ratified.

An agreement for the sale of goods, chattels or things in action, What can be the form of ratification?
at a price not less than P500.00 must be in writing, otherwise, it Failure to object to the presentation of that evidence during trial.
is unenforceable.
Art. 1406. When a contract is enforceable under the Statute of
Remember, all these can be ratified by the parties. Frauds, and a public document is necessary for its registration
in the Registry of Deeds, the parties may avail themselves of
(e) An agreement of the leasing for a longer period than one the right under Article 1357.
year, or for the sale of real property or of an interest therein;
Art. 1407. In a contract where both parties are incapable of
“for the sale of real property or of an interest therein” giving consent, express or implied ratification by the parent, or
guardian, as the case may be, of one of the contracting
Example: Co-ownership. Four co-owners. Sale of a co-owner’s parties shall give the contract the same effect as if only one of
¼ share is an interest in that real property and, therefore, it them were incapacitated.
should be in writing.
If ratification is made by the parents or guardians, as the case
(f) A representation as to the credit of a third person. may be, of both contracting parties, the contract shall be
validated from the inception.
That’s the last one.
Art. 1408. Unenforceable contracts cannot be assailed by
(3) Those where both parties are incapable of giving consent third persons.
to a contract.
A third party can rescind a rescissible contract and assail a void
contract; but no third person can assert that a contract is
unenforceable.