DEFECTIVE CONTRACTS IN PHILIPPINE CIVIL LAW Prof. Rubén F. Balane Abstrat! In the Spanish Civil Code, contracts can be rescinded in certain cases and certain contracts are considered defective for want of any of the three essential requisites—consent, requisites—consent, subject-matter, and cause. The hilippine Civil Code, Code, enacted in !"#", sou$ht to re%ne this by providin$ a more %nely tuned classi%cation of these defective contracts. Thus, in the hilippine Civil Code, defective contracts are enumerated in a more or less meticulously $raduated order of irre$ularity& '!( the rescissible, ')( the voidable, '*( the unenforceable, and '#( the void or ine+istent. In this paper, the author discusses the four inds of defective contracts in the hilippine le$al system. lon$ with discussin$ the requisites for the applicability of each defective contract, the author outlines the important hilippine jurisprudential $uidelines that evolved since the hilippine Civil Codes enactment about si+-and-a-half decades a$o. "e#$or%s! hilippines, hilippine Civil Code, /efective Contracts, 0escissible 0escissible Contracts, 1oidable Contracts, 2nenforceable Contracts, 1oid Contracts, Ine+istent Contracts. Intro%ut&on The word 3contract4 literally means a drawin$ to$ether 'cum'cumtrahere(. trahere(. In the hilippine Civil Code a contract is de%ned as 3a meetin$ of minds between two persons whereby one binds himself, with respect to the other, to $ive somethin$ or to render some service.4 'rticle !*56, Civil Code(. In hilippine civil law it is elementary that all contracts have three
common requisites& consent, subjectmatter, and cause. 'S'ouses 'S'ouses Le(u&n ). S'ouses V&*on%e, V&*on%e, 75* SC0 #58 9)55":(. rt. !*!; accordin$ly provides& 3Art. +,+-. There is no contract unless the followin$ requisites concur& !. Consen Consentt of of the the contra contracti ctin$ n$ parties< ). =bject =bject certai certain n whic which h is the subject matter of the contract< *. Cause Cause of of the the obli$ obli$ati ation on which which is established.4 lac or vitiation of any of these three results in some ind of defect in the contract. In addition, there is a special $roup of contracts which, thou$h possessed of all the essential requisites, cause a particular ind of economic dama$e and are, for that reason, treated by law as defective. In the civil law tradition, the concept of defective contracts $oes bac very far. far. It was already nown in the ancient 0oman law. Contracts in the 0oman law could be set aside for total want of capacity 'as in the case of children below seven(, or if entered into throu$h force or fear 'visor visor metus( metus( or fraud 'dolus 'dolus(, (, or mistae 'error (, (, or for an ille$al object or purpose, and so forth. The Civil Code of Spain—which was also also our law until !"65—liewise !"65—liewise already re$ulated defective contracts. Thus, contracts could be rescinded in certain cases 'rt. !)"!, Spanish Code(, and certain contracts defective for want of any of the three essential requisites were invalid. There was some ambi$uity in the old code, however, between contratosthat contratosthat were referred to as nulos and nulos and those referred to as anulables. anulables. >hen, in !"#8 'just a year after the birth of the hilippine 0epublic, followin$ more than three centuries of Spanish rule and half-a-century half-a-century of merican soverei$nty(, a Code Commission was created to draft
a Civil Code for the infant 0epublic, one of the features proposed by the codi%ers was a clearer distinction of the defective contracts. The result was the cate$ori?ation of such contracts into four& '!( the rescissible, ')( the voidable, '*( the unenforceable, and '#( the void.
of economic dama$e enumerated under rts. !*;! and !*;). Aor a contract to be rescissible, four requisites are required&
Te %efet&)e ontrats
!. it must fall under either rt. !*;! or !*;) 'Causa'&n ). CA, )** SC0 7!6 9!""#:(<
These defective contracts are arran$ed, presented, and re$ulated 'rticles !*;5 to !#))( in ascendin$ order of defectiveness.
). the party seein$ rescission must have no other le$al means to obtain reparation for dama$es su@ered by him 'rt. !*;*(<
The classi%cation has been done with a not inconsiderable amount of e@ort and an attempt at thorou$hness. Thus, each of these defective contracts has its own requisites and consequences. Ideally, one would suppose, the distinctions should serve as water-ti$ht compartments. Aor the most part — but not always — they have functioned well in the jurisprudence that has been laid down in the si+-and-a-half decades since the e@ectivity of the Code. res&ss&blecontract is one, which, thou$h possessin$ all the essential requisites of contracts, has caused a particular economic dama$e either to one of the contractin$ parties or to a third person. )o&%ablecontract is one in which the consent of one party is defective, either because of want of capacity, or because consent is vitiated. n unenforeablecontract is one that, for lac of authority or of the required writin$, or for incompetence of both parties, cannot be $iven e@ect unless properly rati%ed. )o&%contract is one which su@ers from absence of object or cause and is therefore an absolute nullity and produces no e@ect. I.
Res&ss&ble Contrats
rescissible contract has all the requisites required by law for valid contracts 'rt. !*;5(. >hat maes it rescissible is economic dama$e, not just any economic dama$e, but those inds
*. the party seein$ rescission must be able to return whatever he may have obtained by reason of the contract 'rt. !*;6, par. !(< and #. the thin$s object of the contract must not have passed le$ally to a third person in $ood faith 'rt. !*;6, pars. ) and *(. Bet us now tae the requisites one by one. !. The contract must be one of those enumerated under rt. !*;! or !*;). 3Art. +,-+. The followin$ contracts are rescissible& '!( Those which are entered into by $uardians whenever the wards whom they represent su@er lesion by more than one-fourth of the value of the thin$s which are the object thereof< ')( Those a$reed upon in representation of absentees, if the latter su@er the lesion stated in the precedin$ number< '*( Those undertaen in fraud of creditors when the latter cannot in any other manner collect the claims due them< '#( Those which refer to thin$s under liti$ation if they have been entered into by the defendant without the nowled$e and approval of the liti$ants or of competent judicial authority< '6( ll other contracts specially declared by law to be subject to rescission.4
3Art. +,-/. ayments made in a state of insolvency for obli$ations to whose ful%llment the debtor could not be compelled at the time they were e@ected, are also rescissible.4 !. The %rst two contracts enumerated in rt. !*;! are entered into by representatives '$uardians on behalf of wards, and administrators representin$ absentees( where the ward or absentee su@ers lesion e+ceedin$ )6 of the value of the property which he parts with. Les&onhas been de%ned as the 3injury which one of the parties su@ers by virtue of a contract which is disadvanta$eous to him4 'I1 rturo D. Tolentino, Commentaries and Eurisprudence on the Civil Code of the hilippines 68# '!";8(, citin$ * Camus )56-57(. Aor the contract to be rescissible, the lesion must e+ceed )6 of the value of the thin$ owned by the ward or absentee. The theory of lesion is simple enou$h but its application has been stron$ly critici?ed. Aoremost amon$ the critics is Eustice EFB 0eyes, perhaps the hilippines $reatest civilist, who, in his comments on the Civil Code, observed& 3Dodern doctrine does not re$ard favorably the rule of economic prejudice 'lesion( bein$ a $round of rescission, considerin$ that $oods do not have a %+ed true value because value is always variable and Guctuatin$, bein$ a function of supply and demand. The modern codes tend to view lesion of certain proportions '!H#, etc.( as merely raisin$ a presumption of undue inGuence, that vitiates consent and renders the contract voidablewhenever the lesion is coupled with e+ploitation of one party by the other. 'cf. Jerman Civ. C., rt. !*;< De+ico, rt. !8(.4 'EFB 0eyes, Observations on the New Civil Code, Fifth Installment, Bawyers E., Ean. *!, !"6!< 9c.f. 0uben A. Falane, EFB Ipse Boquitur )*" ')55)(:(. This provision on lesion had been hotly debated by the framers of the Arench Code, the reason for its %nal inclusion bein$ the personal intervention of Kapoleon Fonaparte. Danresa
critici?es its adoption in the Spanish Code in no uncertain terms. Le calls lesion 3un absurdo económico evidente4 'a patent economic absurdity(. It must be noted that, as a rule, dispositions by $uardians or administrators of real property of wards or absentees require court approval '0ules "6, "7, and !58, 0ules of Court 9!"7#:(, and without such approval, the contract would be unenforceable 'rt. !#5*9!:(, and not rescissible. =n the other hand, if prior court approval is obtained, the contract would be valid, re$ardless of the presence of lesion 'rt. !*;7(. 3Art. +,-0. 0escission referred to in Kos. ! and ) of article !*;! shall not tae place with respect to contracts approved by the courts.4 The only instance, it seems, in which these para$raphs will apply is when no court approval is required for the contract, as in dispositions amountin$ to mere acts of administration '0ule "6, Sec. ! and 0ule "7, Sec. ), 0ules of Court(. !. The third para$raph 'rt. !*;!(— contracts in fraud of creditors— refers to the ancient remedy of actio pauliana. 9rts. !!88 and !*!* provide for the same thin$.: The requisites for actio pauliana are $iven in S&1uan ). L&2 '*!; SC0 8)6 9!""":(& !. the plainti@ asin$ for rescission has a credit prior to the alienation, althou$h demandable later< ). the debtor has made a subsequent contract conveyin$ a patrimonial bene%t to a third person< *. the creditor has no other le$al remedy to satisfy his claim< #. the act bein$ impu$ned is fraudulent< and 6. the third person who received the property conveyed, if it is b y onerous title, has been an accomplice in the fraud. !. The fourth para$raph has essentially the same purpose as
the third, i.e. to prevent injury to a third person 'in this case the party who has lod$ed a claim over the property(. !. Some specially declared rescissible contracts are found in the Title on Sales, vi?& rts. !6)7, !6*#, !6*;, !6*", !6#), !667, !675, and !678. !. 0e& rescissible contracts under rt. !*;), the insolvency there contemplated is factual insolvency, not necessarily involvin$ an insolvency proceedin$. F. The party seein$ rescission must have no other le$al means to obtain reparation for dama$es su@ered by him. The remedy of rescission is subsidiary. This is clear from rt. !*;*& 3Art. +,-,. The action for rescission is subsidiary< it cannot be instituted e+cept when the party su@erin$ dama$e has no other le$al means to obtain reparation for the same.4 In this connection, a careful distinction must be made between rescission of a properly rescissible contract and rescission under rt. !!"!. 3Art. ++3+. The power to rescind obli$ations is implied in reciprocal ones, in case one of the obli$ors should not comply with what is incumbent upon him.4 3The injured party may choose between the ful%llment and the rescission of the obli$ation, with the payment of dama$es, in either case. Le may also see rescission, even after he has chosen ful%llment, if the latter should become impossible.4 3The court shall decree the rescission claimed, unless there be just cause authori?in$ the %+in$ of a period.4 3This is understood to be without prejudice to the ri$hts of third persons who have acquired the thin$, in
accordance with articles !*;6 and !*;; and the Dort$a$e Baw.4 The rescission under rt. !!"!, properly called resolution, is essentially di@erent from rescission under rt. !*;*. It is unfortunate that the distinction in terminolo$y, so scrupulously observed in the Spanish Code 9resolver 'rt. !!)#( versus rescindir 'rt. !)"5(: was so carelessly discarded in the hilippine Code, leadin$ to confusion, even on the part of people who should now better. $ain, Eustice EFB 0eyes steps in to clear up the mess, in his concurrin$ opinion in 4FC ). CA '** SC0 ! 9!"85:(. The relevant portion of that concurrin$ opinion is& 3Mthe ar$ument of petitioner, that the rescission demanded by the respondent-appellee.should be denied because under rticle !*;* of the Civil Code of the hilippines rescission can not be demanded e+cept when the party su@erin$ dama$e has no other le$al means to obtain reparation, is predicated on a failure to distin$uish between a rescission for breach of contract under rticle !!"! of the Civil Code and a rescission by reason of lesión or economic prejudice, rticle !*;!, et. seq. The rescission on account of breach of stipulation is not predicated on injury to the economic interests of the party plainti@ but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and rticle !!"! may be scanned without disclosin$ anywhere that the action for rescission thereunder is subordinated to anythin$ other than the culpable breach of his obli$ations by the defendant. This rescission is a principal action retaliatory in character, it bein$ unjust that a party be held bound to ful%ll his promises when the other violates his. s e+pressed in the old Batin aphorism&MNon servanti dem, non est des servanda. Lence, the reparation of dama$es for the breach is purely secondary.4 =n the contrary, in the rescission by reason of lesión or economic prejudice, the cause of action is subordinated to the e+istence of that prejudice, because it is the raison d!tre as well as the
measure of the ri$ht to rescind. Lence, where the defendant maes $ood the dama$es caused, the action cannot be maintained or continued, as e+pressly provided in rticles !*;* and !*;#. Fut the operation of these two articles is limited to the cases of rescission for lesión enumerated in rticle !*;! of the Civil Code of the hilippines, and does not apply to cases under rticle !!"!. 3It is probable 'EFB concludes( that the petitioners confusion arose from the defective technique of the new Code that terms both instances as Mrescission without distinctions between them< unlie the previous Spanish Civil Code of !;;" that di@erentiated Mresolution for breach of stipulation from Mrescission by reason of lesión or dama$e. Fut the terminolo$ical va$ueness does not justify confusin$ one case with the other, considerin$ the patent di@erence in causes and results of either action.4 ! 3The last comment—parenthetically—is apropos, and codi%ers will do well to avoid, as far as possible, the same identical terms for di@erent concepts. Such terms as rescission, fraud, collation, ratication , etc.—all used in the Code in varyin$ or equivocal senses—can only ensnare students, professors, practitioners, and courts.4 '0uben A. Falane, " #arvest of $i%hteen &ears' " (urve) of *ose +.. e)es eadin% (upreme Court ecisions on Civil aw, /art II, in Civil Baw Florile%ium& Nssays on the hilippine 1ariant of the Civil Code Traditions 6!) ')5!)((. In a nutshell, the essential distinctions between rescission under rts. !*;5!*;" and rescission 'resolution( under rt. !!"! are two& !. 0escission is predicated on economic injury< resolution, on breach< and ). 0escission is a subsidiary action< resolution, a principal one retaliatory in character.
This important di@erentiation was reiterated in On1 ). CA '*!5 SC0 ! 9!""":(. C. The party seein$ rescission must be able to return whatever he may have obtained by reason of the contract. This is required by rt. !*;6, ar. !. 3Art. +,-5. 0escission creates the obli$ation to return the thin$s which were the object of the contract, to$ether with their fruits, and the price with its interest< consequently, it can be carried out only when he who demands rescission can return whatever he may be obli$ed to restore.4 0escission cancels the contract< consequently, the parties must be returned to the status quo ante.Lence, the need for mutual restitution. /. The thin$s object of the contract must not have passed le$ally to a third person in $ood faith. The basis for this requirement is found in rt. !*;6, ara$raphs ) and *& 3Art. +,-5. +++
+++ + + +4
3Keither shall rescission tae place when the thin$s which are the object of the contract are le$ally in the possession of third persons who did not act in bad faith.4 3In this case, indemnity for dama$es may be demanded from the person causin$ the loss.4 II.
Vo&%able Contrats
1oidable contracts are $overned by rts. !*"5 to !#5). s noted earlier, consent is one of the three essential elements of contracts. If the consent of one of the parties is defective or vitiated, the contract is voidable. /efect or vitiation of consent is caused by either internal or e+ternal factors. These factors are laid down in rts. !*)8 to !*##.
Consent, as an element of contracts, must be intelli$ent and free. If either attribute is impeded or impaired, then consent is said to be vitiated, and the contract voidable. . The factors that impair intelli$ence are&
that this distinction may be applied in some future case to contracts by and with minors. ). insanity, deaf-mutism coupled with illiteracy, into+ication, and hypnotic spell 'rts. !*)8, par. ) and !*);( !. mistae 'rts. !**! and !**#(
!. minority 'rt. !*)8, par. !( The a$e of emancipation, previously )! under both the Civil Code and the Aamily Code, has been reduced by 0 75;" to !;.
To vitiate consent, the mistae or error must relate to& !. the substance of the thin$< ). the principal conditions of the contract<
hilippine law does not e0 professo mae any distinction amon$ minors, as far as contracts entered into by them are concerned. Ko $radations of incapacity are reco$ni?ed. =n purely codal 'statutory( criteria, consent of a minor of seventeen is just as defective as that of a minor of ten. Some hilippine commentators have critici?ed this lac of $radation, proposin$ that a distinction should be drawn between a minor of tender a$e 'an infant( and one who possesses some de$ree of discretion. The distinction drawn in Sections !5# to !57 of the Jerman Code is proposed as the criterion& absolute incompetency 91esch2ftsunf2hi%3eit : and relative or limited incompetency 9+eschr2n3te 1esch2ftsf2hi%3eit :. In the second, there is a measure of consent, thou$h imperfect< in the %rst, there is none. In two cases, the hilippine Supreme Court did mae a distinction between absene of consent and %efet of consent. These cases— #eirs of (evilla v. (evilla, #5) SC0 65! 9)55*: and 1ochan v. #eirs of +aba, #5" SC0 *57 9)55*:—ruled that where there is no consent whatsoever, there is no contract. Lowever, the pronouncement was applied 'erroneously, in this writers opinion( to contracts entered into on behalf of a person by another who had absolutely no authority from the former. 9Such a contract is clearly unenforeable, not )o&%, under hilippine law:. Kevertheless, there e+ists the possibility
*. the identity or quali%cations of one of the parties when such constituted the principal cause of the contract< or #. the le$al e@ect of the a$reement, if the error is mutual and results in the frustration of the parties purpose. The mistae must be caused by facts of which the party demandin$ annulment did not now. s held in Alas&% ). CA ')*8 SC0 #!" 9!""#:(& 3To invalidate consent, the error must be real and not one that could have been avoided by the party alle$in$ it. The error must arise from facts unnown to him. Le cannot alle$e an error which refers to a fact nown to him or which he should have nown by ordinary dili$ent e+amination of the facts. n error so patent and obvious that nobody could have made it, or one which could have been avoided by ordinary prudence, cannot be invoed by the one who made it in order to annul his contract. #.
fraud 'rt. !**;(
Araud, as a vitiatin$ factor of consent, is equivalent to and synonymous with deceit, and is not to be confused with fraud under rt. !!85, which consists in 3the deliberate and intentional evasion of the normal ful%llment of an obli$ation4 'Le1as'& O&l ). CA, ))# SC0 )!* 9!""*:(. That other
fraud is synonymous with malice or bad faith. Dore, fraud as deceit is antecedent to or at least simultaneous with the birth of the contract and for that reason vitiates consent, which must e+ist when the contract is entered into. =n the other hand, fraud as malice occurs subsequent to the constitution of the obli$ation and results, not in the annulment of the obli$ation, but in liability for dama$es 'rt. !!85(. Araud as deceit, in order to vitiate consent, must be serious 'rt. !*##, par. !(, or as commentators call it, dolo causante, to be distin$uished from dolo incidente, incidental fraud. olo causantevitiates consent< dolo incidente only $ives rise to a liability for dama$es. 'rt. !*##, par. )(. In Sa2son ). CA ')*; SC0 *"8 9!""#:(, the Court e+plained& 3In contracts, the ind of fraud that will vitiate consent is one where, throu$h insidious words or machinations of one of the contractin$ parties, the other is induced to enter into a contract which, without them, he would not have a$reed to. This is nown as dolo causante or causal fraud which is basically a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.4 olo causante has the followin$ requisites&
and undue inGuence 'collectively called duress(. !. violence 'rt. !**6, par. !( The elements of violence as a vitiatin$ factor are& a( it must be irresistible or serious< and b( it must be causal, i.e. it must be the operative cause of the $ivin$ of consent. ). par. )( The elements of intimidation are enumerated in De Leon ). CA'!;7 SC0 *#6 9!""5:(& 3In order that intimidation may vitiate consent and render the contract invalid, the followin$ requisites must concur& '!( that the intimidation must be the determinin$ cause of the contract, or must have caused the consent to be $iven< ')( that the threatened act be unjust or unlawful< ) '*( that the threat be real and serious, there bein$ an evident disproportion between the evil and the resistance which all men can o@er, leadin$ to the choice of the contract as the lesser evil< and '#( that it produces a reasonable and well$rounded fear from the fact that the person from whom it comes has the necessary means or ability to inGict the threatened injury.4
!. it must be serious 'rt. !*##(< ). it must have been employed by one party upon the other 'rts. !*#) and !*##(< *. it must have had the e@ect of inducin$ one of the parties to enter into the contract 'rt. !**;(< and #. it must have resulted in dama$e or injury. 'Alas&% ). CA, )*8 SC0 #!" 9!""#:( F. The factors that impair freedom of consent are violence, intimidation,
intimidation 'rt. !**6,
*.
2ndue inGuence 'rt.
!**8( ccordin$ to Alas&% ). CA ')*8 SC0 #!" 9!""#:(& 32ndue inGuence, therefore, is any means employed upon a party which, under the circumstances, he could not well resist and which controlled his volition and induced him to $ive his consent to the contract, which otherwise he would not have entered into. It must in some measure destroy the free a$ency of a party and interfere with the e+ercise of that independent discretion which is necessary for determinin$ the
advanta$es or disadvanta$es of a proposed contract.4
process called rati%cation or acnowled$ment.
C. Characteristics of 1oidable Contracts )o&%able contract is, as the term implies, susceptible to annulment< it is not ipso facto inoperative. Some points to bear in mind re$ardin$ these contracts are& !. they are bindin$ unless and until set aside< 'rt. !*"5(< !. they may be assailed only by a proper action in court< 'rt. !*"5(, brou$ht within the speci%ed prescriptive periods< 'rts. !*"!(< ). they are capable of con%rmation< 'rts. !*")-!*"7(< Con%rmation 'or, as somewhat inaccurately called by the Civil Code, rati%cation( can be done either e+pressly or tacitly, but, in either case, only by the party whose consent was vitiated, and only after he has acquired capacity or after the cessation of the vitiatin$ cause.
!. The %rst of the unenforceable contracts is that referred to in rt. !#5*, par. !& 3'!( Those entered into in the name of another person by one who has been $iven no authority or le$al representation, or who has acted beyond his powers.4 To the same e@ect are the provisions of rt. !*!8. 3Art. +,+6. Ko one may contract in the name of another without bein$ authori?ed by the latter, or unless he has by law a ri$ht to represent him.4 3 contract entered into in the name of another by one who has no authority or le$al representation, or who has acted beyond his powers, shall be unenforceable, unless it is rati%ed, e+pressly or impliedly, by the person on whose behalf it has been e+ecuted, before it is revoed by the other contractin$ party.4 Thus also provides rt. !"!5, par.
!. the action for annulment can be maintained only by or on behalf of the incapacitated party, never by the other party< 'rt. !*"8(< and ). similarly to cases of rescission under rt. !*;6, and resolution under rt. !!"!, the $eneral rule in annulment of voidable contracts is mutual restitution, i.e. the parties should be returned to their ori$inal situation. III.
4nenforeable Contrats
Third in the classi%cation of defective contracts are theunenforceable, which are just a notch hi$her than the void. s such, they cannot be $iven e@ect, cannot be the basis of an action for speci%c performance. Their defect, however, is not irremediable< it can be cured in a
). 3s for any obli$ation wherein the a$ent has e+ceeded his power, the principal is not bound e+cept when he rati%es it e+pressly or tacitly.4 The contract is unenforceable whether the authority is only e+ceeded or absolutely absent. The two cases mentioned supra 'He&rs of Se)&lla and7oan( in which it was held that the contract is void if authority is totally wantin$ have no basis in statutory provision. F. The second ind 'althou$h third in the enumeration of the rticle( of unenforceable contracts is found in rt. !#5*, par. *& 3Those where both parties are incapable of $ivin$ consent to a contract.4
The con%rmation by one of the incapacitated parties does not convalidate the contract< it merely raises the contract one run$ hi$her—to the level of a voidable contract. C. The third—and best-nown—ind of the unenforceable contracts includes those enumerated by rt. !#5*, par. )— the provision that is commonly nown as the Statute of Arauds. ationale of (tatute of Frauds The rationale of the requirement in the Statute of Arauds that the contracts therein enumerated must be in writin$ is that the frailty of human memory, or, more frequently perhaps, the mischief of fraud, can impede the honest and accurate enforcement of a contract entered into merely orally. The Statute of Arauds is a cautious quali%cation to the $eneral rule that contracts, no matter in what form they are entered into, are valid and enforceable. '1ide rts. !*!6 and !*67(.
Thus Art. +89,: 'ar. / provides&
3Art. +89,. The followin$ contracts are unenforceable, unless they are rati%ed&4 +++
+++ +++ 3')( Those that do not comply with the Statute of Arauds as set forth in this number. In the followin$ cases an a$reement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writin$, and subscribed by the party char$ed, or by his a$ent< evidence, therefore, of the a$reement cannot be received without the writin$, or a secondary evidence of its contents& 'a( n a$reement that by its terms is not to be performed within a year from the main$ thereof< 'b( special promise to answer for the debt, default, or miscarria$e of another< 'c( n a$reement made in consideration of marria$e, other than a mutual promise to marry< 'd( n a$reement for the sale of $oods, chattels or thin$s in
action, at a price not less than %ve hundred pesos, unless the buyer accept and receive part of such $oods and chattels, or the evidences, or some of them, of such thin$s 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 boo, at the time of the sale, of the amount and ind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a suOcient memorandum< 'e( n a$reement for the leasin$ for a lon$er period than one year, or for the sale of real property or of an interest therein< !. representation as to the credit of a third person.4 Pur'ose of Statute of Frau%s Since the purpose of the Statute of Arauds is, quite obviously, to prevent, and not to promote fraud 'PNB ). P&l&''&ne Ve1etable O&l Co., #" hil. ;68 9!")8:< Soe2a;er ). La Ton%e
3MSubject to a rule to the contrary followed in a few jurisdictions, it is the accepted view that part performance of a parol contract for the sale of real estate has the e@ect, subject to certain conditions concernin$ the nature and e+tent of the acts constitutin$ performance and the ri$ht to equitable relief $enerally, of tain$ such contract from the operation of the statute of frauds, so that chancery may decree its speci%c performance or $rant other equitable relief. It is well settled in Jreat Fritain and in this country, with the e+ception of a few states, that a suOcient part performance by the purchaser under a parol contract for the sale of real estate removes the contract from the operation of the statute of frauds. '#" m. Eur., 8))-8)*.(4 3In the words of former Chief Eustice DorPn& MThe reason is simple. In e+ecutory contracts there is a wide %eld for fraud because unless they be in writin$ there is no palpable evidence of the intention of the contractin$ parties. The statute has precisely been enacted to prevent fraud. 'Comments on the 0ules of Court, by DorPn, 1ol. III 9!"68 ed.:, p. !8;.( Lowever, if a contract has been totally or partially performed, the e0clusion of parol evidence would promote fraud or bad faith, for it would enable the defendant to eep the bene%ts already derived by him from the transaction in liti$ation, and, at the same time, evade the obli$ations, responsibilities or liabilities assumed or contracted by him thereby.4 3Aor obvious reasons, it is not enou$h for a party to alle%e partial performance in order to hold that there has been such performance and to render a decision declarin$ that the Statute of Arauds is inapplicable. Fut neither is such party required to establish such partial performance by documentar) proof before he could have the opportunit) to introduceoral testimony on the transaction. Indeed, such oral testimony would usually be unnecessary if there were documents provin$ partial performance. Thus, the rejection of any and all testimonial evidence on partial performance, would nullify the rule that
the Statute of Arauds is inapplicable to contracts which have been partly e+ecuted, and lead to the ver) evils that the statute see3s to prevent .4 3MThe true basis of the doctrine of part performance accordin$ to the overwhelmin$ wei$ht of authority, is that it would be a fraud upon the plainti@ if the defendant were permitted to escape performance of his part of the oral a$reement after he has permitted the plainti@ to perform in reliance upon the a$reement. The oral contract is enforced in harmony with the principle that courts of equity will not allow the statute of frauds to be used as an instrument of fraud. In other words, the doctrine of part performance was established for the same purpose for which the statute of frauds itself was enacted, namel), for the prevention of fraud, and arose from the necessity of preventin$ the statute from becomin$ an a$ent of fraud for it could not have been the intention of the statute to enable any party to commit a fraud with impunity. '#" m. Eur., 8)6-8)7< italics supplied.(4 3>hen the party concerned has pleaded partial performance, such party is entitled to a reasonable chance to establish by parol evidence the truth of this alle$ation, as well as the contract itself. MThe reco$nition of the e+ceptional e@ect of part performance in tain$ an oral contract out of the statute of frauds involves the principle that oral evidence is admissible in such cases to prove both the contract and the part performance of the contract. '#" m. Eur., ")8.(4 Contracts Fallin% 4nder the (tatute of Frauds Kow, then, let us loo at the contracts fallin$ under the Statute of Arauds& !.
Art. +89, -
3')( +++ +++ ++ + 'a( n a$reement that by its terms is not to be performed within a year from the main$ thereof<4
This para$raph has, in various cases, been interpreted to refer to contracts which, by their terms, cannot be fully performed within a year '1ide Babao ). Pere*, !5) hil. 867 9!"68:< PNB ). P&l&''&ne Ve1etable O&l Co., 8" hil. ;68 9!")8:< Soe2a;er ). La Ton%e
Art. +89,>/?>b? -
3')( +++ + ++ +++ 'b( special promise to answer for the debt, default or miscarria$e of another<4 This contract is a $uaranty. '1ide Art. /986(. Thus, all $uaranties, whether simple or solidary, must be in writin$ to be enforceable. *.
Art. +89,>/?>? -
3')( +++ + ++ +++ 'c( n a$reement made in consideration of marria$e, other than a mutual promise to marry.4 The law has very wisely, and very compassionately, e+cluded from the rule of writin$ a mutual promise to marry, because the universal e+perience of manind 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. =f course, we are all aware that a mutual promise to marry—whether oral or in writin$—is not enforceable by speci%c performance, since that would be involuntary servitude in its cruellest form. /ama$es, however, may, in certain cases, be recoverable. Kevertheless, a$reements in consideration of marria$e, other than a
mutual promise to marry, may $ive rise to a cause of action, but to be enforceable, such must be in writin$. 'Caba1ue ). Au@&l&o, ") hil. )"# 9!"6):( #.
Art. +89,>/?>%? -
3')( +++ ++ + +++ 'd( n a$reement for the sale of $oods, chattels or thin$s in action, at a price not less than %ve hundred pesos, unless the buyer accept and receive part of such $oods and chattels, or the evidences, or some of them, of such thin$s 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 boo, at the time of the sale, of the amount and ind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a suOcient memorandum<4 The minimum amount of %ve hundred pesos for the requirement of writin$ in sales of personalty is probably too small at present. In !"#", when the Code was drafted, that amount could probably purchase a $ood 0ole+ watch. Kow, what can it buy—a eychainQ 6.
Art. +89,>/?>e? -
3')( +++ ++ + +++ 'e( n a$reement for the leasin$ for a lon$er period than one year, or for the sale of real property or of an interest therein<4 The amount involved in the sale of the realty is immaterial for the transaction to fall under the Statute of Arauds. The writin$ that is required for the sale of the real property, so that the requirement of the Statute of Arauds is ful%lled, is, ordinarily, the written contract of sale itself. Fut the sense of the statute is broad enou$h to include some note or memorandum of the a$reement. Thus, in C&t# of Cebu ). He&rs of Rub& '*57 SC0 #5;9!""":(, the requirement of writin$ was deemed met by the fact that, althou$h no deed
of sale was ever formali?ed, there was an e+chan$e of correspondence between the parties in which the object and the price had been a$reed upon.
Aourth in the enumeration of defective contracts are the void orine+istent contracts, the most seriously defective of all&
Kot all a$reements a@ectin$ realty fall under the Statute of Arauds. The statute refers only to 3sales of real property or of an interest therein.4 Thus, in Hernan%e* ). CA '!75 SC0 ;)! 9!";;:(, the Court held&
3Art. +893. The followin$ contracts are ine+istent and void from the be$innin$&
3+ + +. 2nder the Statute of Arauds, rticle !#5*')('e( of the Civil Code, such formality is only required of contracts involvin$ leases for lon$er than one year, or for the sale of real property or of an interest therein. Lernande?s testimony is thus admissible to establish his a$reement with Ar. Jarcia as to the boundary of their estates.4 Similarly, the Statute of Arauds was held inapplicable to an a$reement of partition amon$ co-owners of parcels of land 'Es'&na ). Aba#a, !"7 SC0 *!) 9!""!:( or to one creatin$ an easement of ri$ht of way 'Western =&n%anao Lu2ber ). =e%alle, 8" SC0 85* 9!"88:(. Dore recently, it has been held that a ri$ht of %rst refusal relatin$ to the purchase of a house-and-lot need not be written to be enforceable 'Rosenor ). In(u&n1, *6# SC0 !!" 9)55!:(. !. Art. +89,>/?>f? R 3')( +++ + ++ +++ 'f( representation as to the credit of a third person.4 This para$raph is misplaced here—the act referred to is not a contract. The representation, if made the basis of liability, is quasi-delictual in nature. Instead of par. 'f(, rt. !##* should have been included in the enumeration& 3Art. +88,. Ko e+press trusts concernin$ an immovable or any interest therein may be proved by parol evidence.4 I1.
Vo&% Contrats
'!( Those whose cause, object or purpose is a contrary to law, morals, $ood customs, public order or public policy< ')( Those which are absolutely simulated or %ctitious< '*( Those whose cause or object did not e+ist at the time of the transaction< '#( Those whose object is outside the commerce of men< '6( Those which contemplate an impossible service< '7( Those where the intention of the parties relative to the principal object of the contract cannot be ascertained< '8( Those e+pressly prohibited or declared void by law. These contracts cannot be rati%ed. Keither can the ri$ht to set up the defense of ille$ality be waived.4 . Contracts
Characteristics of 1oid
The followin$ rules re$ardin$ void contracts may be mentioned& !. They produce no e@ect whatsoever either a$ainst or in favor of anyone '5uod nullum est nullum producit e6ectum(. ). Ko action for annulment is necessary. Their nullity e+ists eoipso and therefore any jud$ment of nullity is merely declaratory. *. They can neither be con%rmed nor rati%ed. 'rt. !#5"( #. If performance is made, restoration of what has been delivered is required, e+cept when the pari delicto rule is applicable. 6. The ri$ht to set up the defense of nullity cannot be waived. 'rt. !#5"( 7. The action or defense of nullity does not prescribe. 'rt. !#!5( 8. The defense of nullity may be invoed by anyone a$ainst
whom the e@ects of the contract are asserted. 'rt. !#)!< Ton1o# ). CA, !)* SC0 "" 9!";*:( F.
The /ari elicto 0ule
word on the pari delicto rule. The old ma+im says& In pari delicto non oritur actio,or $0 dolo malo, non oritur actio, or In pari delicto potior est condicio defendentis. Fasically the pari delicto rule mandates that in a void contract, if both parties are at fault, neither can maintain an action for performance nor recover what he has delivered. The law, in short, will leave the parties e+actly where they are. The rationale of the pari delicto rule has been e+pressed as follows 3The principle of pari delicto is $rounded on two premises — %rst that courts should not lend their $ood oOces to mediatin$ disputes amon$ wron$doers< second, that denyin$ relief to an admitted wron$doer is an e@ective means of deterrin$ ille$ality. This principle of ancient vinta$e is not a principle of justice but one of policy as articulated in !886 by Bord Dans%eld4 'Aabal ). Aabal, #6# SC0 666 9)556:(. Thus provide rts. !#!!, par. ! and the %rst two para$raphs of !#!)& 3Art. +8++. >hen the nullity proceeds from the ille$ality of the cause or object of the contract, and the act constitutes a criminal o@ense, both parties bein$ in pari delicto, they shall have no action a$ainst each other, and both shall be prosecuted. Doreover, the provisions of the enal Code relative to the disposal of e@ects or instruments of a crime shall be applicable to the thin$s or the price of the contract.4 3Art +8+/. If the act in which the unlawful or forbidden cause consists does not constitute a criminal o@ense, the followin$ rules shall be observed& '!( >hen the fault is on the part of both contractin$ parties, neither may recover what he has $iven by virtue of
the contract, or demand the performance of the others undertain$<4 In u Bun 7uan ). On1 '*78 SC0 66" 9)55!:(, the Supreme Court reiterated the settled doctrine that the pari delictorule applies to cases where the nullity of the contract arises from the ille$ality of the object or cause '1ide =o%&na ). CA, *!8 SC0 7"7 9!""":< Castro ). Esut&n, "5 SC0 *#" 9!"8":(. The statement in these cases that the pari delictorule does not apply to void or ine+istent contracts is, to put it indly, less than accurate. There are some void contracts to which it applies and others to which it does not. The correct formulation of the rule is contained in Vas(ue* ). Porta '"; hil. #"5 9!"67:(& 3the ma+im applies only in case of e+istin$ contracts with ille$al consideration, and is not applicable to simulated or %ctitious contracts nor to those that are ine+istent for lac of an essential requisite.4 I2'ortane of lass&at&on Thus are defective contracts classi%ed in our Code. >e should be reminded that the cate$ories are wellde%ned and mutually e+clusive. It is necessary to bear this in mind because the nature, e@ects, and consequences of these defective contracts are essentially di@erent and distinct. Aor e+ample, a contract cannot be both voidable and void, since a voidable contract can be cured of its defect while a void contract is irremediable. Eurisprudence has often, but not always, been helpful. Some cases can be somewhat perple+in$. The case of Co2ele ). Pa%&lla 'the hotoina case( '*"; SC0 *6* 9)55):( is well-nown. The issue there was clearly stated by the Court& 3Day a successful bidder compel a $overnment a$ency 'i.e., the Commission on Nlections 9C=DNBNC:( to formali?e a contract with it notwithstandin$ that its bid e+ceeds the amount appropriated by Con$ress for the projectQ4 hotoinas winnin$ bid far e+ceeded the amount of funds appropriated for the purpose. C=DNBNC
had issued a 0esolution approvin$ the Kotice of ward to hotoina, which in turn accepted the same. s thin$s turned out, the transaction did not carry throu$h, owin$ to objections raised by the Chairman of the C=DNBNC. In refusin$ to $rant hotoinas petition, the /ecision variously characteri?es the contract as 3void4 'p. !;, /ecision(, and as 3unenforceable4 'Ibid.(. t the same time, the /ecision in e@ect states that there was as yet no perfected contract '3>e cannot accede to L=T=IKs contention that there is already a perfected contract.4 9p. )5, /ecision:(. Then the /ecision reiterates that the contract is 3ine+istent and void ab initio.4 'p. )6, /ecision(. Then it $oes bac to the concept of unenforceable contracts '3otherwise stated, the proposed contract is unenforceable as to the Jovernment.4 9p. )7, /ecision:(. To round thin$s out, the /ecision closes with the statement& 3In %ne, we rule thatthe proposed contract is not bindin$ upon the C=DNBNC and is considered void.4 'p. )7, /ecision(. Conlus&on The fore$oin$ paper, almost purely e+pository in nature, is meant to $ive a basic presentation of an aspect of hilippine contract law.
It may also provide a little window on how the private law of the hilippines has acquired the blended character that it possesses& predominantly civil '0oman( law, but mared by features of the common 'n$lo-merican( law tradition. 7 8he distinctions drawn b) *ustice *+ e)es in the 4FC case9as to the n ature, purpose, and requisites ofrescission :resolution; under "rt. 77<7 and rescission under "rts. 7=>?-7=><9 have since been reiterated and conrmed in subsequent decisions' Ong v. CA, =7? (C" 7 @7<<? @??DAB RaquelSantos v. CA, D< (C" 7< @??
