UNENFORCEABLE CONTRACTS

Meaning of unenforceable contracts.

Unenforceable contracts are those that cannot be enforced in court or sued upon by reason of defects
provided by law until and unless they are ratifi ed according to law.

UNENFORCEABLE CONTRACTS
The following contracts are unenforceable, unless they are ratified:
(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;
(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 for 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.

Kinds of unenforceable contracts.

Under Article 1403, the following contracts are unenforceable:
(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.

Meaning of unauthorized contracts.

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.

Statute of Frauds.
The term “statute of frauds’’ is 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 proved unless the requirement is complied with.

Purpose of Statute of Frauds.

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 (Art. 1403, No.
2[a-f].) must be in writing signed by the party to be charged; otherwise, they are unenforceable by action
in court. Unless they be in writing, there may be no palpable evidence of the intention of the contracting
parties and the court must perforce rely upon no other evidence than the mere recollection or memory of
witnesses, which in many times faulty and unreliable. Thus, by requiring that such agreements can only
be proved by a writing, the object is effectually attained since the writing becomes its own interpreter.

Some fundamental principles relative to the Statute of Frauds:

(a) The application of the Statute of Frauds presupposes the existence of a perfected contract and requires
only a note or memorandum be executed in order to compel judicial enforcement
thereof. Where there is no perfected contract, there is no basis for the application of the statute.
(b) The Statute of Frauds refers to specific kinds of transactions and cannot apply to any other transaction
that is not enumerated therein. It is not applicable in actions which are neither for damages because of a
violation of a contract, nor for the specific performance thereof.
(c) It is applicable only to executory contracts (where no performance has as yet been made by both
parties) and not to contracts which are totally (consummated) or partially performed.
(d) It is not applicable where the contract is admitted, by the failure to deny specifically its existence, no
further evidence thereof being required.
(e) It is not applicable where a writing does not express the true agreement of the parties. This is so
because the Statute cannot be used as a shield for fraud or as a means for the perpetration of it.
(f) It does not declare that contracts infringing it are void and of no effect but merely unenforceable. The
form required is for evidential purposes only.
(g) It does not determine the credibility or weight of evidence but merely regulates the admissibility
thereof.
(h) The defense of the Statute of Frauds is subject to waiver.
(i) The defense of the Statute of Frauds is personal to the parties and cannot be interposed by strangers to
the contract.

Agreements within the scope of the 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 a mutual promise to marry.
Note:
Marriage settlements (also called ante-nuptial contracts) are agreements entered into the
future spouses before the celebration of marriage and in consideration thereof, for the
purpose of fixing the conditions of their property relations both with respect to their
present and future property. (See Arts. 74-76, Family Code.)

Donations propter nuptias or donations by reason of marriage are those which are made
before its celebration, in consideration of the same and in favor of one or both of the
future spouses. (Art. 82, Ibid.)

Both are agreements made in consideration of marriage and are, therefore, covered by the
Statute of Frauds.

(4) Agreement for sale of goods, etc. at price not less than P500.00.
(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 the credit of a third person.
(8) Express trusts concerning an immovable or any interest therein.

Modes of satisfaction of the Statute.

The Statute specifi es three ways in which a contract of sale of goods within its terms may be made
binding, namely:
(1) the giving of a note or memorandum;
(2) acceptance and receipt of part of the goods (or things in action) sold; and
(3) payment at the time some part of the purchase price.

Modes of ratifi cation under the Statute.

The ratification of contracts infringing the Statute of Frauds may be effected in two ways:
(1) by failure to object to the presentation of oral evidence to prove the contract. The failure to so
object amounts to a waiver and makes the contract as binding as if it had been reduced to writing.
(2) by acceptance of benefits under the contract. In this case, the contract is no longer executory and,
therefore, the Statute does not apply. This rule is based upon the familiar principle that one who
has enjoyed the benefits of a transaction should not be allowed to repudiate its burdens.

When unenforceable contract becomes a voidable contract.

Where both parties to a contract are incapable of giving consent, the contract is unenforceable. (Art.
1403[3].) However, if the parent or guardian, as the case may be, of either party, or if one of the parties
after attaining or regaining capacity, ratifies the contract, it becomes voidable.

When unenforceable contract becomes a valid contract.

If the ratification is made by the parents or guardians, as the case may be, of both contracting parties, or
by both contracting parties after attaining or regaining capacity, the contract is validated and its validity
retroacts to the time it was entered into.

Unenforceable contracts cannot be assailed by third persons.

Strangers to a voidable contract cannot bring an action to annul the same (see Art. 1397.); neither can
they assail a contract because of its unenforceability. The benefit of the Statute can only be claimed or
waived by one who is a party or privy to the oral contract, not by a stranger.