In the Philippines- when something isn’t in writing- it often isn’t honored. Indeed locals, unlike the Japanese, tend to devalue their word. Now here’s the shocker: the law tells a very different thing.
From the legal perspective, a contract is deemed perfected or given force when the components of consent, object and consideration are present. When a seller offers to sell goods at an offer price plus a buyer agrees to the cost, there’s a perfected contract of sale. But, the consummation of a contract is already considered absolute in the sense of consensual contracts – those that no longer requisite the procurement of special forms to be valid and enforceable. Enforceability means the party can bring the case to any competent court of justice to make certain the other party’s performance of the duty.
Some contracts don’t achieve enforceability unless they’re in writing, along with the three components mentioned previously. All these are covered by the Statute of Frauds.
The intention behind the Statute is to prevent fraud and perjury in the enforcement of obligations that rely on evidence of the vague memory of witnesses. These special agreements require specific enumerated transactions to be evidenced by a writing signed by the party to be charged. A note, memorandum and other private in addition to public instruments may suffice. These contracts are enumerated under Chapter 8, Articles 1403 paragraph (2) of the Civil Code of the Philippines. They comprise:
1. An agreement that by its provisions isn’t to be performed within a year from the making thereof;
2. A unique promise to answer for the debt, default, or miscarriage of another;
3. An arrangement made in consideration of union, other than a mutual promise to marry;
4. An arrangement for the selling of products, chattels or things in action, at a cost not less than five hundred pesos;
5. An arrangement for the leasing for a longer period than one year, or for the selling of real property or of an interest therein;
6. A representation regarding the credit of a third person.
Contracts not covered above are considered perfected and absolute upon the meeting of the minds.
Again, in order that contracts entered into via the 6 ways aforementioned may be enforceable, they need to be in written form and subscribed by the party charged. Subscription by the latter’s representative is satisfactory. It should be noted however, that the unenforceability employs only to executory contracts. By executory, this means that either of the party is yet to perform his duties to the contract. If by any means one party has already rendered or carried through his portion of the duty, then the other party has to officially perform his portion of the duty, the deficiency in the understanding (i.e. only in oral form) however.
Let’s take a case. On June 1, 2015, Dan and Paulo entered into an arrangement whereby Dan, being an fish vendor, sell Paulo fish on June 9 2015. The deal was only verbal and neither a note nor an acceptance letter was performed. Come June 9 2015, Paulo couldn’t bring an action for performance against John should the latter refuse due to the deficiency in the type of the contract.
But if Dan has already received payment from Paulo, he’s bound to sell fish.
Rule of Thumb:
Think like a Japanese. Once you give your word, and both parties agree, the contract is deemed enforceable even not in writing- unless the value of the transaction exceeds P500 and partial fulfillment had not been rendered.
Pertinent provisions of the Civil Code
UNENFORCEABLE CONTRACTS (n)
Art. 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.
Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them.
Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357.
Art. 1407. In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated.
If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the inception.
Art. 1408. Unenforceable contracts cannot be assailed by third persons.
VOID AND INEXISTENT CONTRACTS
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise. (1305)
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:
(1) 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;
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply his promise. (1306)
Art. 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of the payment.
Art. 1414. 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. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property.
Art. 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands allow recovery of money or property delivered by the incapacitated person.
Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designated for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.
Art. 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess.
Art. 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit.
Art. 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency.
Art. 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced.
Art. 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected.
Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.