WE LIVE in a society where businesses
thrive and flourish based on so-called gentlemen’s agreements and adhere
to a close-knit paradigm of intrapersonal relationships. Most
businessmen today fail to recognize the value of a written and signed
contract. While not all contracts need to be in writing and subscribed
by or signed by the parties to be enforceable, the Statute of Frauds,
found in paragraph 2 of Article 1403 of our Civil Code, enumerates six
classes of statutes which describe transactions required by law to be in
writing.
The Statute of Frauds finds its roots in
the Parliament of England in the 1600s. It was then adopted in our Civil
Code. The rationale behind the Statute of Frauds is to prevent fraud
and perjury in the enforcement of obligations. Without a written
contract, parties will depend on their sheer memory or that of their
witnesses. Without any palpable evidence of the intention of the parties
when the contract is executed, there is a high probability of fraud.
The first statute pertains to an agreement whose terms are not to be
performed within a year from its making. In Viewmaster Construction
Corp. v. Roxas (G.R. No. 133576, July 13, 2000), the Supreme Court found
that a verbal agreement to act as guarantor for a loan -- only after
the borrower sells 50% of his shareholdings in a corporation; and
undertake a joint venture over two real estate properties -- was clear
to be performed more than a year from the making thereof. As the
circumstances behind the agreement fell squarely within the coverage of
this statute, the verbal agreement was declared to be unenforceable.
The second statute applies to a special promise to answer for the debt,
default or miscarriage of another. It must be noted however that for
this statute to apply, the promise must be merely collateral. Thus, if
the promisor becomes thereby primarily liable for the payment of the
debt, the Supreme Court held in Reisse v. Jemije (G.R. No. 5447, March
1, 1910) that the transaction need not be made in writing to be
enforceable.
The third statute involves transactions made in consideration of
marriage. To clarify, this statute does not cover instances where there
is a breach of a mutual promise to marry. Consequently, a groom may sue
his bride for damages based on a verbal promise (Cabague v. Auxilio,
G.R. No. 5028, Nov. 26, 1952). What the statute contemplates is a
promise by third persons to one of the parties contemplating the
marriage. In the case of Domalagan v. Bolifer (G.R. No. 8166, Feb. 8,
1916), the Supreme Court held that a father who verbally agreed and gave
money to his son’s fiancé cannot seek the return thereof because the
agreement was not evidenced by a note or memorandum.
The fourth statute relates to sale of personal property for a price not
less than P500. While this amount may be considered unsubstantial at
this age and time, the value of P500 still controls, since there has
been no amendment to this provision of law.
The fifth statute pertains to an agreement for a lease longer than one
year. Consequently, a tenant cannot demand for the execution of a
supplemental contract of lease for a period longer than of one year
based on the landlord’s verbal promise.
The statute also applies to transactions involving the sale of real
property or an interest therein. However, where part of the purchase
price in an oral contract of sale of real estate had been paid, said
partial performance takes the transaction out of the coverage of the
statute. This statute only applies to interests involving a perfected
contract of sale.
Lastly, the sixth statute applies to representations made to the credit
of a third person. Thus, as a general rule, a representation made by a
corporate officer to bind a corporation to a verbal agreement may be
impugned for being unenforceable if such was not made in writing.
However, such objections must be timely made and no benefit must have
been derived by the corporation from the said transaction.
If the parties fail to reduce in writing their agreement, such a defect
may nevertheless be ratified. Also, partial performance of any of the
obligations in the agreement will no longer make it susceptible to being
challenged under the Statute of Frauds.
In conclusion, knowing which transactions are covered by the Statute of
Frauds is relevant to either ensure the enforceability of contractual
obligations or challenge any obligation or liability not agreed upon.
Clearly, the failure to present a written contract may have far reaching
consequences as no evidence of the transaction will be admitted in
court, unless the party enforcing presents a note or memorandum which is
duly subscribed by the party obligated. In either case, it is safer to
have a written contract, note or memorandum which clearly defines the
terms of the obligation -- especially since, there may be instances when
a handshake may not be enough.
(The author is an Associate of Angara Abello Concepcion Regala &
Cruz Law Offices [ACCRALAW]. She can be contacted at 830-8000 or jcalegre@accralaw.com.
The views and opinions expressed in this article are those of the
author. This article is for general informational and educational
purposes and not offered as and does not constitute legal advice or
legal opinion.)
source: Businessworld
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