Study Guide

I. Definitions

Define or give the meaning of the following:

1. Unenforceable contract

Unenforceable contracts are those that cannot be enforced or given

effect in court of law or sued upon by reason of certain defects provided by
law until and unless they are ratified according to law.

2. Statute of Frauds

Statute of Frauds defined (Article 1403, paragraph 2) requires that

certain contracts be in writing, and that they be signed by all parties to be
bound by the contract. Although there can be significant variation between
jurisdictions, the most common types of contracts to which a statute of fraud
applies is:

o Contracts in consideration of marriage.

o Contracts which cannot be performed within one year.

o Contracts for the sale of an interest in land.

o Contracts by the executor of a will to pay a debt of the estate with his own
money.

o Contracts for the sale of goods above a certain value.

o Contracts in which one party becomes a surety (acts as guarantor) for

another party’s debt

or other obligation.

The Statute does not require that the contract be contained in a formal
written document.

The writing may be embodied in a slip of paper, a letter, a note or

memorandum by means of pen, a pencil, or any mechanical device as long
as it is intelligible and records the intent of the parties.
3. Unauthorized Contract

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.

II. Discussions

1. What are the kinds of unenforceable contract?

Under the Article 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.

2. How many contracts violating the Statute of frauds be ratified?

Under the Article 1405, 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 has been reduced to writing. The requirement of a
written form is for evidential purpose only; and

(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.

3. State the purpose of the Statute of Frauds.

The Statute of Frauds has been enacted not only to prevent fraud but also to
guard against the mistakes of honest men by requiring that certain
agreements specified that are susceptible to fraud must be in writing;
otherwise, they are unenforceable by action in court.

III. Problems

Explain or state briefly the rule or reason for your answer.

1. I, an insane person, entered into a contract with M, a minor. What is the

effect of ratification

(a) by either; and

(b) by both, after becoming incapacitated?

(A) Based on the Article 1407, the contract is unenforceable where both
parties to a contract are incapable of giving consent. However, in this case, if
one of the parties after attaining or regaining capacity, ratifies the contract,
it becomes voidable.

(B) If the ratification is made by both contracting parties after attaining or

regaining capacity, the contract is validated and its validity retroacts to the
time it was entered into.

2. D (debtor) owes C (creditor) P 10,000. T (third person) orally

promised to assume the obligation of D. Can the promise of T be
proved by the testimony of a witness who was present when T made
the same?

Yes, because T binds himself directly and primary responsible for the debt of
D and this promise can be proved by oral evidence. Verbally made promises
are enforceable as it is not a collateral “promise to answer for the debt,
default, or miscarriage of another.”

3. S orally agreed to sell his piano for P 7,000 to B who made a

partial payment of P 1,000. Later, S denied there was such a sale.
Can B enforce the sale considering that the contract was oral and
the price was more than P 500?

Yes, B can enforce the sale even though the contract was oral because there
was a partial payment made by B. In this case, the partial payment is taken
out of the operation of the Statute of Frauds and the contract may be
enforced even if it was made orally
 VOID OR INEXISTENT CONTRACTS

Study Guide

I. Definitions

Define or give the meaning of the following:

1. Void Contract

Void contracts are those which, because of certain defects, generally produce
no effect at all. They are considered inexistent from its inception or from the
very beginning. The expression “void contract” is, therefore, a contradiction
in terms. However, the expression is often loosely used to refer to an
agreement tainted with illegality

2. Inexistent Contract

Inexistent contracts refer to agreements which lack one or some or all of the
elements (consent, object, and cause) or do not comply with formalities
which are essential for the existence of a contract. An illegal contract may
produce effects under certain circumstances where the parties are not of
equal guilt.

3. Indivisible Contract

Indivisible contracts are contracts which cannot be separated into parts.

II. Discussions

1. What are the characteristics of a void or inexistent contract?

Under the Articles 1409, 1410, 1421, and 1422, the following are the
characteristics of a void or inexistent contract:

(1) Generally, it produces no force and effect whatsoever;

(2) It cannot be ratified;

(3) The right to set up the defense of illegality cannot be waived;

(4) The action or defense for the declaration of its inexistence does not
prescribe;

(5) The defense of illegality is not available to third persons whose interests
are not directly affected; and

(6) It cannot give rise to a valid contract.

2. Give the rules where the contract is unlawful and the act
constitutes a crime, and both parties are equally guilty.

Under the Article 1411, the following are the rules where a contract is
unlawful and whose cause or objects constitutes a criminal offense and both
parties are equally guilty:

(a) The parties shall have no action against each other;

(b) Both shall be prosecuted; and

(c) The things or the price of the contract, as the effects or instruments of
the crime, shall be confiscated in favor of the government.

3. Give the rules where the contract is unlawful but the act does not
constitute a criminal offense, and only one party is guilty or both
parties are not equally guilty.

Under the Article 1412, the following are the rules where a contract is
unlawful but the act does not constitute a criminal offense and only one
party is guilty:

(a) The guilty party loses what he has given by reason of the contract;

(b) The guilty party cannot ask for the fulfillment of the other’s undertaking;
and

(c) The innocent party may demand the return of what he has given; and

(d) The innocent party cannot be compelled to comply with his promise.
III. Problems

Explain or state briefly the rule or reason for your answer.

1. S (seller) and B (buyer) entered an absolutely simulated contract

of sale of a parcel of land. S brought action in court to recover the
land only after 20 years. Is it correct for the court to dismiss the
action because of the long lapse of time?

No, because under the Article 1410, the action or defense for the declaration
of inexistence of a contract does not prescribe. Therefore, if a contract is void
or simulated, a party thereto can always bring a court action to declare it
void or inexistent; and a party against whom a void contract is sought to be
enforced, can always raise the defense of nullity, despite the passage of
time.

2. In consideration of P 10,000 given by X to Y, the latter agreed to

burn the house of Z. Later, X told Y to forget the agreement and to
return the money. Y refused. Is X entitled to recover from Y?

Yes, because Article 1414 states that “when money is paid or property
delivered for an illegal purpose, the contract may be repudiated by one of
the parties before the purpose has been accomplished, or before any
damage has been caused to a third person.” Thus, X can still recover from Y
provided that the agreement to burn the house of Z has not been
accomplished yet.

3. W (woman) agreed to stay in the house of M (man) as the latter’s

live-in partner for one year in consideration of the latter’s promise
to pay her P 100,000 after said period. W complied with her part of
the agreement but M reneged on his promise. Is W entitled to
recover from M?
No, because Article 1412 states that “when the fault is on the part of both
contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other’s undertaking.” Hence, W
is not entitled to recover from M and she cannot also ask for the fulfillment of
M’s promise.

Definitions

1. Voidable Contract - A voidable contract is a contractual arrangement

between two parties that can, for a variety of legal reasons, be made
inapplicable. A voidable contract is considered lawful and enforceable but
may be refused by one party if it is discovered that the contract has defects.
When, given the defect, a party with the power to reject the contract decides
not to reject the contract, The Agreement shall remain true and enforceable.
Very frequently, only one party is adversely impacted by agreeing to a
voidable contract under which that party does not recognize the other
party's misrepresentation or fraud.

2. Annulment - A remedy given by law for the declaration of the

ineffectiveness of a contract based on a defect or vice with the consent of
one of the contracting parties for the purpose of returning them to their
original place in which they were before the contract was concluded.

3. Ratification – It is someone willingly adopts any defective or illegal act or

contract that would not be binding on him without his subsequent approval
or consent. Ratification is the approval by a principal of an act by his agent
which lacked the authority to legally bind the principal. Ratification describes
the legal act whereby a State demonstrates its agreement to be bound by a
treaty if the parties agree to demonstrate their agreement by that act.
Discussions

1. Give the requisites for the ratification of a voidable contract.

- According to Art. 1393, the conditions for ratification are: (1) the cause that
renders the contract voidable must be known; (2) the cause must have
ceased; (3) the injured party must have performed an act the obviously
indicates an intention to revoke his right; If the terms allow either or both
parties to engage in an unlawful act, or if a party is unable to fulfill the
conditions, a contract may be considered void. It arises if one of the parties
involved did not actually consent to the contract because he had understood
the true existence of all the aspects of the contract before it was originally
approved.

2. State the rule on the right of strangers to a contract to bring an

action for its annulment.

- According to Art.1397, outsiders are not entitled to bring the action as they
are not bound by the contract, unless they demonstrate some downside to
the contract in which they are not interested or participating.

3. Under the law, what contracts are voidable or annullable?

- If one of the parties involved did not actually consent to the contract
because he had understood the true existence of all the aspects of the
contract before it was originally approved. The aforementioned party has the
right to deny the contract after the fact with the introduction of new
information
Problems

1. S, a minor sold a property to B. Later, the sale is annulled on the

ground of the minority of S. Is S bound to return the price received
by him?

Yes, S is bound to return the price he received from B. From Article 1399, S is
obliged to make restitution only to the extent that he was benefited by the
price he received.

2. In the same problem, suppose S, upon reaching the age of

majority, decided to ratify or respect the contract. Has B the right to
refuse the ratification and demand mutual restitution of the
property and the price?

Yes, B has the right to refuse ratification and demand mutual restitution of
the property and the price. From Article 1395, since S agreed to the contract
while being a minor, he waives his rights in case any defects may
happen to the contract. Because of this, B can just conveniently
disregard the demands of S to honor the contract even though he reaches
the age of maturity.

3. Again, in the same problem, suppose the sale was annulled by the
court, what are the rights of the parties if the property was lost or
destroyed?

a.) without the fault of B?

b.) through the fault of B?

a.) Under Article 1400, if the property was lost or destroyed without the fault
of B, there is no more obligation to return the thing which is the subject
matter of the contract.

b.) If the property was lost or destroyed through the fault of B, his obligation
is not extinguished but he is liable for damages. Under Article 1400, B must
pay damages consisting of the value of the thing at the time of the loss with
interest from the same date