UNENFORCEABLE CONTRACTS

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was revoked by the other contracting party.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

Julian over the subject property cannot be enforced by any action

in court against Perla and/or her successors in interest.
B. Those that do not comply with the Statute of Frauds
It refers to the statute which requires certain classes of contracts to be in writing. The
Statute does not deprive the parties of the right to contract with respect to the matters therein
involved; it merely regulates the formalities of the contract necessary to render it enforceable.
(Rosencor Development Corporation vs. Inquing, 354 SCRA 119)
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;
Ordua, et al. V. Fuentebella, et al.
FACTS: Antonita Ordua purchased a residential lot from Gabriel
Sr. payable in installments but no deed of sale was executed. The
installments were paid to Gabriel Sr. and later to Gabriel Jr. after
the death of the former. Improvements were there after introduced
by petitioner and the latter even paid its real property tax since
1979. Unknown to Ordua, the property has been subject to
further alienations until the same was ceded torespondent,
Fuentebilla, Jr. Ordua, after being demanded by Fuentebilla to
vacate the disputed land, then filed a Complaint for Annulment of
Sale, Title, Reconveyance with Damages with a prayer to acquire
ownership over the subject lot upon payment of their remaining
balance. The Regional Trial Court dismissed the petition because
the verbal sale between Gabriel Sr.
and Orduawas
unenforceable under the Statute of Frauds. This was later affirmed
by the Court of Appeals.
ISSUE: Whether or not the sale of the subject lot by Gabriel Sr. to
Antonita is unenforceable under the Statute of Frauds.
HELD: No. It is a well-settled rule that the Statute of Frauds as
expressed in Article 1403, par. (2), of the Civil Code is applicable
only to purely executory contracts and not to contracts which have
already been executed either totally or partially. Here, the verbal
contract of sale has been partially executed through the partial
payments made by Ordua duly received by both GabrielJr. and
his father. The purpose of the Statute of Fraud is prevention fraud
and perjury in the enforcement of obligations depending for their
evidence on the unassisted memory of witnesses, by requiring
some contracts and transactions to be evidenced by a writing
signed by the party to be charged. Since there is already
ratification of the verbal contract through the acceptance of

benefits through the partial payments, it is thus withdrawn from the

purview of the Statute of Frauds.
(b) A special promise to answer for the debt, default, or miscarriage of another;
This contract is a guaranty (Art. 2047). Thus, all guaranties, whether simple or
solidary, must be in writing to be enforceable.
Whether an oral promise to pay the debt of another is unenforceable under the
Statute of Frauds depends on whether such promise is an original one or collateral
promise. The Statute applies only to a collateral promise, one which is made by a
third party to answer for the debt or obligation of a primary party to a contract if that
party does not perform. If the promise is an original or an independent one, that is, if
the promissory becomes thereby primarily liable for the payment of the debt, the
promise is not within the Statute.
(c) An agreement made in consideration of marriage, other than a mutual promise
to marry;
(Cabague v. Auxilio, 92 Phil. 294 [1952]) GR No. L-5028
FACTS: Felipe Cabague and his son Geronimo sued the
defendant Matias Auxilio and his daughter Socorro to recover
damages resulting from defendants' refusal to carry out the
previously agreed marriage between Socorro and Geronimo. The
complaint alleged, in short: (a) that defendants promised such
marriage to plaintiffs, provided the latter would improve the
defendants' house in Basud and spend for the wedding feast and
the needs of the bride; (b) that relying upon such promises
plaintiffs made the improvement and spent P700; and (c) that
without cause defendants refused to honor their pledged word.
The defendants moved to dismiss, arguing that the contract was
oral, unenforceable under the rule of evidence hereinbefore
mentioned.
ISSUE: WON the agreements in consideration of marriage must
be in writing to be enforceable
RULING: Yes. The understanding between the plaintiffs on one
side and the defendants on the other, really involves two kinds of
agreement. One, the agreement between Felipe Cabague and the
defendants in consideration of the marriage of Socorro and
Geronimo. Another, the agreement between the two lovers, as "a
mutual promise to marry". For breach of that mutual promise to
marry, Geronimo may sue Socorro for damages. This is such
action, and evidence of such mutual promise is admissible.
However Felipe Cabague's action may not prosper, because it is
to enforce an agreement in consideration of marriage. Evidently
as to Felipe Cabague and Matias Auxilio this action could not be
maintained on the theory of "mutual promise to marry". Neither
may it be regarded as action by Felipe against Socorro "on a
mutual promise to marry." The law has very wisely, and very

compassionately, excluded from the rule of writing a mutual

promise to marry, because the universal experience of mankind
attests that mutual promises to marry are made in circumstances
where neither the promissor nor the promissee is in a position, or
a mood, to write. Of course, we are all aware that a mutual
promise to marrywhether oral or in writingis not enforceable
by specific performance, since that would be involuntary servitude
in its cruelest form. Damages, however, may, in certain cases, be
recoverable. Nevertheless, agreements in consideration of
marriage, other than a mutual promise to marry, may give rise to a
cause of action, but to be enforceable, such must be in writing.
(d) An agreement for the sale of goods, chattels, or things in action, at a price not
less than P500;
(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;
Margarita Inigo vs. Estate of Adriana Manoloto
FACTS: On March 29, 1963, pursuant to a verbal understanding
between Plaintiff and Adriana Manoloto, the Plaintiff paid Manoloto
the amount of Php10,000.00 as purchase price for the disputed
house and lot. The Deed of Sale was to be executed later on, with
the help of Manoloto's lawyer, Atty. Sulpicio Palma. Meanwhile,
Plaintiff began to exercise ownership of the said house and lot and
had already improved the property by constructing a retail store
thereon. On two separate occasions, the Plaintiff tried to Plaintiff
tried to get in contact with Atty. Palma for the execution of the
deed of sale, however, Atty. Palma was indisposed at those times.
On October 20, 1963, Adriana died, and then the properties of
Adriana was transferred to her nephews, niece and herein
defendants. The plaintiff made a formal demand for the execution
of the deed of sale for the disputed property, to which the
defendants refused. The Plaintiff filed an action for the execution
of the deed of sale. The Court of First Instance of Iloilo ruled that
the claim on which plaintiff's suit is founded is unenforceable
under the provisions of the Statute of Frauds.
ISSUE: Whether or not the sale was unenforceable because no
written document was executed to record the deed of sale or, for
that matter, the payment of the purchase price of the house and
land.
HELD: The Court held that the Statute of Frauds applies only to
executory contracts not to contracts either partially or fully
performed, which is not the case in the disputed facts of the case.
The complaint here states that the deceased Adriana Maloto sold
the disputed house and land to plaintiff; that consideration thereof
was paid; that by reason of such sale, plaintiff performed acts of
ownership thereon. The facts thus alleged are constitutive of a

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.