Overview
Unenforceable contracts are a type of defective contract. These contracts cannot be enforced by a proper court action. They are not binding or obligatory unless they are ratified. While they may be considered valid, they have no effect unless ratified. The defect in an unenforceable contract is generally permanent.
Kinds of Unenforceable Contracts
Pursuant to Article 1403 of the Civil Code, there are three main kinds of unenforceable contracts:
- Unauthorized Contracts: Those entered into in the name of another person by one who has no authority or legal representation, or who has acted beyond their powers. These are unenforceable, not void ab initio, due to the absence of the principal's consent.
- Contracts Infringing the Statute of Frauds: Those which do not comply with the Statute of Frauds as set forth in Article 1403(2). These contracts require certain evidence, typically in writing, to be enforceable.
- Contracts Where Both Parties are Incapacitated: Those where both contracting parties are incapable of giving consent to a contract.
Effect of Unenforceability
An unenforceable contract cannot be sued upon or enforced in court.
Ratification
The ability of an unenforceable contract to be ratified depends on its specific type:
- Unauthorized Contracts (Art. 1403(1)): Unenforceable unless ratified by the person on whose behalf they were executed.
- Contracts Infringing the Statute of Frauds (Art. 1403(2)): These contracts can be ratified. Ratification occurs by the failure to object to the presentation of oral evidence in court to prove the contract, or by the acceptance of benefits under the contract.
- Contracts Where Both Parties are Incapacitated (Art. 1403(3)): These contracts can be ratified. Ratification by the parent or guardian of one of the incapacitated parties gives the contract the same effect as if only one party were incapacitated, making it a voidable contract.
Upon ratification, the unenforceable contract becomes valid and binding.
Effect on Third Parties
Unenforceable contracts cannot be assailed by third persons. The defense of unenforceability under Article 1408 is generally available only to the contracting parties or their representatives/privies.
Examples
- An oral sale of land between parties, where the land has not yet been delivered and the price has not yet been paid. Such a contract is unenforceable by court action unless the defense of the Statute of Frauds is waived.
- An oral agreement to sell and buy a transistor radio to be performed three years from the date of the agreement. This is unenforceable under the Statute of Frauds.
- An oral agreement to build a garage on property after three years. This agreement is unenforceable as it falls under the Statute of Frauds.
- A special promise to answer for the debt, default, or miscarriage of another (a guarantee) made orally is unenforceable unless proven by parol evidence without objection.
Contracts made in the name of another person without authority (Art. 1403(1)) and contracts where both parties are incapacitated (Art. 1403(3)), which are classified as unenforceable by law. However, specific examples of contracts classified as unenforceable directly illustrating these types are not explicitly provided in the manner of the Statute of Frauds examples within the source materials. For instance, acting beyond authority is discussed, but the resulting contract is labeled as void or voidable in one instance. Contracts with incapacitated parties are discussed, but the consequence for a contract with a single incapacitated party is voidability, subject to ratification,.