Unenforceable Contracts in Philippine Civil Law

Unenforceable contracts are a subset of defective contracts under Philippine civil law, particularly governed by the Civil Code of the Philippines. Unenforceable contracts are valid in form and substance but cannot be enforced in court due to certain defects in their execution, primarily because of the incapacity of the parties or a lack of required formalities. The concept is critical in the study of obligations and contracts because it draws the line between what can be legally upheld and what is barred from enforcement due to procedural or substantive issues.

Here’s a detailed breakdown of unenforceable contracts as provided by the Civil Code of the Philippines:

1. Definition and General Characteristics of Unenforceable Contracts

Unenforceable contracts are legally defective agreements which, although not inherently illegal or void, cannot be enforced by legal action due to procedural or relational deficiencies. These contracts may become enforceable if the underlying defect is cured or corrected under certain legal conditions. They differ from void and voidable contracts in that they are not nullified entirely, nor can they be rescinded based solely on consent issues or defects in the parties' legal capacity.

2. Governing Articles

The specific provisions on unenforceable contracts are found in Articles 1403 to 1408 of the Civil Code of the Philippines. The law classifies unenforceable contracts into three distinct categories:

Contracts entered into in the name of another person without authority or without legal representation.
Contracts that do not comply with the Statute of Frauds.
Contracts where both contracting parties are incapacitated.

3. Types of Unenforceable Contracts

(a) Contracts Without Authority or Exceeding Authority

Nature: These are contracts where a person, acting on behalf of another, does so without any actual authority, legal representation, or apparent authorization. This lack of authority renders the contract unenforceable.
Legal Basis: Article 1403(1) of the Civil Code specifies this type of unenforceable contract. The law bars enforcement because the principal did not authorize the agent to enter into the contract, making it unauthorized.
Effect: The contract remains unenforceable unless ratified by the party on whose behalf it was executed. Ratification can either be explicit or implicit through actions that signify acceptance of the agreement's terms.

(b) Contracts Falling Under the Statute of Frauds

Nature: The Statute of Frauds requires certain types of contracts to be in writing to be enforceable. Contracts within the Statute of Frauds must be evidenced by a written document and signed by the party to be charged, to be binding.
Legal Basis: Article 1403(2) enumerates specific contracts covered by the Statute of Frauds, including:
1. An agreement that, by its terms, is not to be performed within one year from its making.
2. A promise to answer for the debt, default, or miscarriage of another.
3. An agreement made in consideration of marriage, other than a mutual promise to marry.
4. An agreement for the sale of goods, chattels, or things in action at a price not less than 500 pesos.
5. An agreement for the leasing of property for a period longer than one year or for the sale of real property.
6. A representation as to the credit of a third person.
Effect: If these types of agreements are not in writing, they cannot be enforced in court. However, they may become enforceable if the parties provide a written document or if the court allows exceptions (such as partial performance, estoppel, or unjust enrichment).

(c) Contracts Where Both Parties are Incapacitated

Nature: These are contracts entered into by parties who both lack the legal capacity to contract, such as minors or persons declared incompetent.
Legal Basis: Article 1403(3) of the Civil Code governs these contracts, emphasizing that incapacity renders the agreement unenforceable.
Effect: The incapacity of both parties prevents the contract from being enforced. It does not mean that the contract is void, but rather that the parties cannot pursue legal action to enforce it.

4. Effects of Unenforceable Contracts

Unenforceable contracts have specific effects under Philippine law:

No Right to Enforce: The primary effect is the inability of either party to enforce the contract through judicial action. This means that courts will not grant a remedy for breach of an unenforceable contract.
Ratification: Some unenforceable contracts can be ratified, or validated, by the parties. Once ratified, the contract becomes enforceable as if it had originally met the necessary requirements.
Estoppel: A party who has benefited from the contract may be prevented from later claiming its unenforceability. For example, if a minor enters into a contract and later attains the age of majority while still benefitting from the contract, they may be estopped from claiming that it is unenforceable due to their previous incapacity.
Partial Performance: In some cases, particularly under the Statute of Frauds, partial performance of the contract can lead to its enforceability. If one party has partly fulfilled the agreement, the court may decide to enforce it to prevent unjust enrichment.

5. Distinctions from Other Defective Contracts

Unenforceable contracts are distinct from other types of defective contracts:

Void Contracts: Void contracts are those that are inherently invalid from the outset and produce no legal effects. They are unenforceable by their nature and cannot be ratified or enforced under any circumstances.
Voidable Contracts: Voidable contracts are valid until annulled. They may be enforced unless and until one party decides to annul the contract, typically due to issues like lack of consent, duress, or undue influence. Unlike unenforceable contracts, voidable contracts are not deficient in form or capacity at inception.
Rescissible Contracts: These contracts are valid but are susceptible to rescission due to equity considerations or harm to third parties.

6. Remedies and Actions Pertaining to Unenforceable Contracts

Ratification: When a principal ratifies a contract entered into on their behalf without authority, the contract becomes enforceable. Ratification may occur expressly or through implied conduct, such as accepting benefits under the contract.
Defense of Unenforceability: Parties can raise the unenforceable nature of the contract as a defense in court if the other party attempts to enforce the contract.
Application of Estoppel: In cases where one party has received benefits under the contract, they may be estopped from asserting the unenforceable nature of the contract.
Judicial Interpretation: Courts typically interpret the provisions on unenforceable contracts strictly, as they do not favor the enforcement of agreements that do not meet procedural or formal requirements.

7. Important Jurisprudence

Philippine jurisprudence further elucidates the application and limitations of unenforceable contracts:

Partial Performance: Courts have ruled that partial performance can sometimes override the Statute of Frauds requirement, especially if enforcing the contract would prevent unjust enrichment.
Ratification and Waiver: Ratification or waiver is essential in validating unenforceable contracts under certain circumstances.
Authority and Agency Principles: The doctrine of agency applies strictly, especially in cases where unauthorized contracts are entered into without proper authority.

8. Conclusion

Unenforceable contracts occupy a distinct space in Philippine civil law, governed by the principles of legal capacity, procedural requirements, and the Statute of Frauds. These contracts highlight the importance of legal formalities and representation in contractual obligations. While they lack enforceability at their inception, certain curative acts like ratification or partial performance can render them enforceable.