Unenforceable-contracts-article-1403

UNENFORCEABLE CONTRACTS

(Art. 1403 – 1408, New Civil Code)

UNENFORCEABLE CONTRACTS Are those contracts that cannot be enforced in courts or sued upon by reason of defects provided by law, unless they are ratified.

Though unenforceable, these contracts are nevertheless considered as valid contracts.

Why a Valid Contract? An unenforceable contract is still a valid contract because all the essential requisites of a valid contract are present.

Example: “A sold his parcel of land to B for P1 million. A and B entered into an oral contract of sale for the said land.

Here, the contract of sale between A and B has been perfected contract when all of the essential requisites for a valid contract concur. However, B cannot enforce against A the delivery of the said land, and A cannot enforce against B the payment of P 1 million because a sale of a real property made orally is unenforceable. To be enforceable, the contract of sale must be in a public document pursuant to Art. 1403 (par. 2, e) in relation to Art. 1358 of NCC.

CLASSES OF ENFORCEABLE CONTRACTS: > 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 (Art. 1403, par. 1, in relation to Art. 1317)

> Those that do not comply with the Statute of Frauds (Art. 1403, Par. 2) > Those where both parties are incapable of giving consent to a contract (Art. 1403, Par. 3)

Class 1: Without or In Excess of Authority (Unauthorized contracts) Art. 1403, par. 1 provides that those contracts 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 are unenforceable, unless ratified. The principles under Article 1317 and the principles of agency shall govern these kind of contracts pursuant to Article 1404.

Principles applicable: • No one may contract in the name of another without being authorized by the latter or unless he has a right provided by law to represent him. • A contract entered by one in the name of another 1) without being authorized either by the law or by the person or 2) in excess of the given authority is UNENFORCEABLE. • Unenforceable contract may be ratified, either expressly or impliedly, by the person whose behalf it has been executes, before revocation of the other contracting party.

Example: Without Authority: “A sold B’s specific car to C for P1.5 million, without the

knowledge and consent of B”.

Here, C cannot enforce against B the delivery of his car for A acted without authority. Unless B, the person whose in behalf it has been executed, ratified the said contract, either expressly or impliedly, before it is revoked by the other contracting party, C, the contract remains to be unenforceable.

In Excess of Authority: “B, the owner of a specific watch, authorized A to sell

the said watch for P 200, 000.00 in cash. However, instead of selling the said watch in cash, A sold it to C in ten (10) monthly installments of P20,000.00.” In this case, A is only authorized to sell the watch for cash. When A sold the watch to C in installments, A, therefore, acted in excess of authority given by B. C cannot enforce against B the delivery of the watch, unless B ratified the same.

Class 2: Infringing the Statute of Frauds What is STATUTE OF FRAUDS? --- Statute designed to prevent the commission

of fraud by requiring certain contracts to be in writing and properly subscribed by the party charged.

Contracts covered by Statute of Frauds • 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; and • f) A representation as to the credit of a third person.

Important points to remember in SOF: • The Statute of Frauds (SOF) are only applicable to wholly executory contracts, and not to those partially or totally consummated contracts. • Contracts covered by the SOF are exclusive, meaning, only to those aforementioned contracts in the previous slides the SOF is applicable. • Contracts infringing the SOF cannot be sued for damages or specific performance

Contracts covered by Statute of Frauds a) An agreement that by its terms is not to be performed within a year from the making thereof. --- This refers to agreements which by its terms are not to

be performed on either side within a year from execution thereof. Meaning, when one of the contracting parties in an oral contract already complied with the obligations imposed to him within 1 year from its execution, the other party cannot evade from the fulfillment of his part of the contract by invoking Statute of Frauds.

Example:

b) A special promise to answer for the debt, default, or miscarriage of another ---- It is to be noted that the special promise referred to in this subsection (b) of the Statute of Frauds are those COLLATERAL promises, and not those independent and original agreements by the parties. Collateral Promisor – surety, subsidiarily liable Covered by Statute of Frauds

Original and Independent Promisor – primarily liable Not covered by Statute of Frauds

Example:

c) An agreement made in consideration of marriage, other than a mutual promise to marry; Example: --- Marriage Settlements and Donations by reason of Marriage

Contracts covered by Statute of Frauds • 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; •

Contracts covered by Statute of Frauds Example: 1. X and Y mutually promised to buy and sell a piano at a price of P4,000.00. This contract must be in writing to be enforceable against either of the party unless there is delivery or partial or full payment, in which case, it is taken out of the operation of the Statute of Frauds and the contract may be enforced even if it is made orally. 2. If Y denies a contract of sale of goods worth P500.00 but X claims the price is only P450.00 ( which is less than P500.00), oral evidence of the sale is admissible in as much as the true agreement claimed is not covered by the Statute of Frauds.

Contracts covered by Statute of Frauds 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; Sample Case: In the case of Syquia vs. CA (151 SCRA 507), the Supreme Court ruled that an alleged oral assurance or promise of the representatives of the lessor that the lessee should be given priority or a renewal of the lease cannot be enforceable. This is because under Article 1403, No. 2(e), of the New Civil Code, an agreement for the leasing for a longer period than one year is 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.

Contracts covered by Statute of Frauds 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; Furthermore: In the case of Zaide vs. CA (163 SCRA 705), the SC reiterated the principle enunciated in Syquia case and further ruled that the writing be in the form of a public document, thus it held: “If the agreement concerns “the sale of land or of an interest therein,’’ the law requires not only that “the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged,’’ in order that it may be enforceable by action (Article 1403 [2]), but also that the writing be in the form of a “public document’’

Contracts covered by Statute of Frauds f) A representation as to the credit of a third person. Example: Consuelo is seeking a loan from Gregoria. Gabriela represents to Gregoria that Consuelo is solvent and has a good reputation. Relying upon this representation, Gregoria extends a loan to Consuelo who, actually, is insolvent. The representation of Gabriela which was made to induce the extension of credit to Consuelo, must be in writing to be enforceable. Here there is no promise by Gabriela to answer the debt of Consuelo. Note that there is no agreement involved.

3. Those where both parties are incapable of giving consent to a contract. Contracts where both parties are legally incapacitated are also unenforceable. If only one of the parties is incapacitated, the contract is voidable. Refer to provision of this code which provides the enumerated persons who are incapacitated to contract UNLESS THEY ARE RATIFIED.