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DEFINITION
Are those contracts that cannot be sued upon or enforced unless ratified; thus, it is as if they
have no effect yet. But they may be ratified; hence, they can have in such a case the effect of
valid contracts.
KINDS OF UNENFORCEABLE CONTRACTS
A. Unauthorized or No sufficient authority
Contract entered into in the name of another when:
i. No authority conferred;
ii. In excess of authority conferred (ultra vires), shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been executed, before it
was revoked by the other contracting party.
Such ratification, however, must be done before the revocation of the contract by the other
party. Once a party revokes the contract, the subsequent ratification made by the other party
shall be ineffectual. Further, ratification is an act that cannot be delegated to the other
contracting party as he is not the source of the authority.
Mercado vs. Allied Banking Corporation
(G.R. No. 171460, July 24, 2007)
FACTS: Perla executed a Special Power of Attorney (SPA) in favor
of her husband, Julian D. Mercado overseveral pieces of real
property registered under her name. On the strength of the
aforesaid SPA, Julian obtained a loan from the respondent. Still
using the subject property as security, Juliann obtained an
additional loan from the respondent. It appears, however, that there
was no property identified in the SPA and registered with the
Registry of Deeds. What was identified in the SPA instead was the
property different from the one used as security for loan.
HELD: Supreme Court ruled that the real estate mortgages
constituted over the subject property are unenforceable and not
null and void, as ruled by the RTC. It is best to reiterate that the
said mortgage was entered into by Julian on behalf of Perla without
the latters authority and consequently, unenforceable under Article
1403(1) of the Civil Code. 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 excess of
authority or they do not comply with the statute of frauds or both of
the contracting parties do not possess the required legal
capacity. An unenforceable contract may be ratified, expressly or
impliedly, by the person in whose behalf it has been executed,
before it is revoked by the other contracting party. Without Perlas
ratification of the same, the real estate mortgages constituted by
consummated
enforeceable.
contract.
Therefore,
the
deed
of
sale
is
Note: In the present case, the CFI of Iloilo ruled that the contract
was unenforceable, because the sale of the real property was
executed by mere verbal agreement. Under the Statute of Frauds,
an agreement of the leasing for a longer period than one year, or
for the sale of real property or of an interest therein, must be in
some note or memorandum. However, due to the sale being
consummated by the payment by the plaintiff of the purchase
price, the Statute of Frauds is no longer applicable.
(f) A representation as to the credit of a third person.
The note or memorandum, in fact, need not be contained in a single document, nor,
when contained in two or more papers, need each paper to be sufficient as to
contents and signature to satisfy the statute. (Berg v. Magdalena Estate, Inc., 92
Phil. 110)
C. Those where both parties are incapable of giving consent to a contract
Both parties are incapable of giving consent, i.e two minors or two insane persons.
However, ratification is also a remedy to make it an enforceable contract. The status of the
contract will differ depending on how the ratification is done. If the ratification is done by one
party, by the parent or guardian of either contracting party or by one of the parties after attaining
or regaining capacity, the contract then becomes voidablevoidable on the part of the party
who did not ratify the contract. The one who did not ratify can therefore enforce the contract
against the party who ratified it. Or, instead of enforcing the contract, he can ask to have it
annulled on the ground of his incapacity.
On the other hand, if it is done by the parents or guardians of both contracting parties, or
by both parties themselves after they have attained or regained capacity, then the contract
becomes valid, the validity of which is retroactive to the time the contract was entered into.
The confirmation by one of the incapacitated parties does not convalidate the contract; it
merely raises the contract one rung higherto the level of a voidable contract.
RATIFICATION OF UNENFORCEABLE CONTRACTS:
1) For contracts infringing the Statute of Frauds, they are ratified either by:
a. Failure to object to the presentation of oral evidence to prove the contract; or
b. Acceptance of benefits under the contract.
2) For contracts which are unenforceable by reason of incapacity of both parties:
a. The ratification may be made by the parents or guardian of the incapacitated;
b. If the contract is ratified by the parent or guardian of one of the contracting parties,
the contract becomes voidable because such ratification shall give the contract the
same effect as if only one of them were incapacitated;
c. If the ratification is made by the parents or guardians of both the contracting parties,
the contract is considered validated from the inception.