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Rationale of Statute of Frauds

The document discusses the rationale and purpose of the Statute of Frauds, which requires that certain types of contracts be in writing to be enforceable. It aims to prevent fraud that could arise from contracts based solely on oral agreements. The Statute only applies to executory contracts, not contracts that have been partially or fully performed, as enforcing it in those cases could promote fraud. The document then examines different types of contracts that fall under the Statute, including agreements that cannot be fully performed in one year, guarantees, agreements related to marriage besides a mutual promise to marry, and agreements for the sale of goods over 500 pesos.

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148 views5 pages

Rationale of Statute of Frauds

The document discusses the rationale and purpose of the Statute of Frauds, which requires that certain types of contracts be in writing to be enforceable. It aims to prevent fraud that could arise from contracts based solely on oral agreements. The Statute only applies to executory contracts, not contracts that have been partially or fully performed, as enforcing it in those cases could promote fraud. The document then examines different types of contracts that fall under the Statute, including agreements that cannot be fully performed in one year, guarantees, agreements related to marriage besides a mutual promise to marry, and agreements for the sale of goods over 500 pesos.

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Rationale of Statute of Frauds

The rationale of the requirement in the Statute of Frauds that the


contracts therein enumerated must be in writing 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 Frauds is a cautious qualification to the general rule that contracts,
no matter in what form they are entered into, are valid and enforceable.
(Vide Arts. 1315 and 1356).

Thus Art. 1403, par. 2 provides:

“Art. 1403. The following contracts are unenforceable, unless


they are ratified:”

x x x x x x x x x
“(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 for the leasing for a longer period than
one year, or for the sale of real property or of an interest therein;

1. A representation as to the credit of a third person.”


Purpose of Statute of Frauds

Since the purpose of the Statute of Frauds is, quite obviously, to


prevent, and not to promote fraud (PNB v. Philippine Vegetable Oil Co., 49
Phil. 857 [1927]; Shoemaker v. La Tondeña, 68 Phil. 24 [1939]; Carbonel v.
Poncio, 103 Phil. 655 [1958], Mactan Cebu International Airport Authority
v. CA, 263 SCRA 736 [1996]), the application of the Statute has been limited
to contracts which are wholly unperformed on both sides, i.e. to executory
contracts, not to those executed in whole or in part on either side. Otherwise
stated, if there has been so much as partial execution on either side, the
contract is taken out of the scope of the Statute of Frauds and oral evidence is
admissible to prove it. (Vide Sps. Camara v. Sps. Malabao, 455 Phil. 385
[2003]). The reason for this rule is clearly explained in an extended discussion
in Carbonel v. Poncio (103 Phil. 655 [1958]), which deserves to be quoted at
length:

“x x x. It is well settled in this jurisdiction that the Statute of


Frauds is applicable only to executory contracts (Facturan vs. Sabanal, 81
Phil., 512), not to contracts that are totally or partiallyperformed (Almirol, et al.,
vs. Monserrat, 48 Phil., 67, 70; Robles vs. Lizarraga Hermanos, 50 Phil., 387;
Diana vs. Macalibo, 74 Phil., 70).”

“‘Subject 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 effect, subject to certain conditions
concerning the nature and extent of the acts constituting performance and the
right to equitable relief generally, of taking such contract from the operation of
the statute of frauds, so that chancery may decree its specific performance or
grant other equitable relief. It is well settled in Great Britain and in this country,
with the exception of a few states, that a sufficient 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. (49 Am. Jur., 722-723.)’”

“In the words of former Chief Justice Morán: ‘The reason is


simple. In executory contracts there is a wide field for fraud because unless
they be in writing there is no palpable evidence of the intention of the
contracting parties. The statute has precisely been enacted to prevent fraud.’
(Comments on the Rules of Court, by Morán, Vol. III [1957 ed.], p. 178.)
However, if a contract has been totally or partially performed, the exclusion of
parol evidence would promote fraud or bad faith, for it would enable the
defendant to keep the benefits already derived by him from the transaction in
litigation, and, at the same time, evade the obligations, responsibilities or
liabilities assumed or contracted by him thereby.”

“For obvious reasons, it is not enough for a party to allege partial performance
in order to hold that there has been such performance and to render a
decision declaring that the Statute of Frauds is inapplicable. But neither is
such party required to establish such partial performance
by documentary proof before he could have the opportunity to
introduce oral testimony on the transaction. Indeed, such oral testimony would
usually be unnecessary if there were documents proving partial performance.
Thus, the rejection of any and all testimonial evidence on partial performance,
would nullify the rule that the Statute of Frauds is inapplicable to contracts
which have been partly executed, and lead to the very evils that the statute
seeks to prevent.”

“‘The true basis of the doctrine of part performance according to the


overwhelming weight of authority, is that it would be a fraud upon the plaintiff if
the defendant were permitted to escape performance of his part of the oral
agreement after he has permitted the plaintiff to perform in reliance upon the
agreement. 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, namely,
for the prevention of fraud, and arose from the necessity of preventing the
statute from becoming an agent of fraud for it could not have been the
intention of the statute to enable any party to commit a fraud with impunity.
(49 Am. Jur., 725-726; italics supplied.)’”

“When the party concerned has pleaded partial performance, such


party is entitled to a reasonable chance to establish by parol evidence the
truth of this allegation, as well as the contract itself. ‘The recognition of the
exceptional effect of part performance in taking 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.’ (49
Am. Jur., 927.)”

Contracts Falling Under the Statute of Frauds

Now, then, let us look at the contracts falling under the Statute of
Frauds:

1. Art. 1403 -
“(2) x x x x x x x x x
(a) An agreement that by its terms is not to be performed within a year
from the making thereof;”

This paragraph has, in various cases, been interpreted to refer to


contracts which, by their terms, cannot be fully performed within a year
(Vide Babao v. Perez, 102 Phil. 756 [1957]; PNB v. Philippine Vegetable Oil
Co., 79 Phil. 857 [1927]; Shoemaker v. La Tondeña, 68 Phil. 24 [1939]).
There are those, however, who doubt the correctness of this
interpretation. They propose instead that the provision should be understood
as referring to contracts whose performance cannot be commenced within
one year. If interpreted thus, an inconsistency between this provision and the
rule on partial performance will be avoided.

2. Art. 1403(2)(b) -

“(2) x x x x x x x x x
(b) A special promise to answer for the debt, default or miscarriage of
another;”

This contract is a guaranty. (Vide Art. 2047). Thus, all guaranties,


whether simple or solidary, must be in writing to be enforceable.

3. Art. 1403(2)(c) -

“(2) x x x x x x x x x
(c) An agreement made in consideration of marriage, other than a mutual
promise to marry.”

The law has very wisely, and very compassionately, excluded from the rule of
writing a mutual promise to marry, because the universal experience of
mankind 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. Of course, we are all aware that a mutual promise to marry—whether
oral or in writing—is not enforceable by specific performance, since that would
be involuntary servitude in its cruellest form. Damages, however, may, in
certain cases, be recoverable.

Nevertheless, agreements in consideration of marriage, other than a mutual


promise to marry, may give rise to a cause of action, but to be enforceable,
such must be in writing. (Cabague v. Auxilio, 92 Phil. 294 [1952])
4. Art. 1403(2)(d) -

“(2) x x x x x x x x x
(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;”

The minimum amount of five hundred pesos for the requirement of


writing in sales of personalty is probably too small at present. In 1949, when
the Code was drafted, that amount could probably purchase a good Rolex
watch. Now, what can it buy—a keychain?

5. Art. 1403(2)(e) -

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