P ERFECTION S TAGE : O FFER AND A CCEPTANCE
3. STATUTE OF FRAUDS: W HEN F ORM I S I MPORTANT FOR
ENFORCEABILITY
a. Nature and Purpose of Statute of Frauds
The Statute was introduced in the Philippines by Section 335 of Act No. 190 (Code of Civil Procedure) and subsequently found in Section 21, Rule 123 of the old Rules of Court.206 It is now contained in Article 1403(2) of the Civil Code. Torcuator v.
Bernabe,207 well described the Statute in the following manner: The term “Statute of Frauds” is descriptive of the statutes which require certain classes of contracts, such as agreements for the sale of real property, to be in writing, the purpose being to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. The written note or memorandum, as contemplated by Article 1403 of the Civil Code, should embody the essentials of the contract.
The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses.208
205514 SCRA 228 (2007).
206Barcelona v. Barcelona, 53 O.G. 373. 207459 SCRA 439 (2005).
Since the rules under the Statute of Frauds pertain not to perfection, but to enforceability and proof, then they operate only when there is an underlying contract that is validly perfected.
Firme v. Bukal Enterprises and Dev. Corp.,209 held that “[t]he application of the Statute of Frauds presupposes the existence of a perfected contract.”
b. Sales Coverage in Statute of Frauds
Insofar as applicable to sales, Article 1403(2) of the Civil Code provides that the following agreements 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:”
(a) A sale agreement which by its terms is not to be performed within a year from the making thereof;
(b) An agreement for the sale of goods, chattels or things in action, at a price not less than 5500.00; and
(c) A sale of real property or of an interest therein.
In any of the above transactions, evidence of the agreement cannot be received without the writing, or a secondary evidence of its contents.210
c. Exceptions to Coverage of Statute in Sales Contracts
Although a sale transaction may fall under any of the foregoing covered transactions under the Statute of Frauds, the following sales would still not be covered and would be enforceable:
(a) When there is a note or memorandum thereof in writing, and subscribed by the party charged or his agent;211
209 414 SCRA 190, (2003). 210Art. 1403, Civil Code. 211Art. 1403, Civil Code.
(b) When there has been partial consummation of the sale;212
(c) When there has been a failure to object to the presentation of evidence aliunde as to the existence of a contract;213 and
(d) When sales are effected through electronic commerce.214
d. Nature of Memorandum
Article 1403 of the Civil Code clearly states the nature of the memorandum that would take the transaction out of the coverage of the Statute of Frauds against proof by oral evidence: it must be in writing and subscribed by the party charged. The party charged of course would either be the seller or buyer against whom the sale is sought to be enforced.
Berg v. Magdalena Estate, Inc.,215 held that the suffi cient memorandum may be contained in two or more documents. In
First Philippine International Bank v. Court of Appeals,216 it was held that various correspondences when taken together would constitute suffi cient memorandum — since they include the names of the parties, the terms and conditions of the contract, the price and a description of the property as the object of the contract.217 In addition, Paredes v. Espino,218 held that for the memorandum to take the sale transaction out of the coverage of the Statute of Frauds, it must contain “all the essential terms of the contract” of sale.
Yuvienco v. Dacuycuy,219 makes it clear that it is not enough that “the total price or consideration is mentioned in some
212Ibid.
213Barretto v. Manila Railroad Co., 46 Phil. 964 (1924); Limketkai Sons Milling, Inc.
v. Court of Appeals, 250 SCRA 523 (1995); Lacanilao v. Court of Appeals, 262 SCRA 486
(1996).
214The Electronic Commerce Act, Republic Act 8792. 21592 Phil. 110, 115 (1952).
216252 SCRA 259 (1996).
217Reiterated in City of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999). 21822 SCRA 1000 (1968).
note or memorandum and there is no need of any indication of the manner in which such total price is to be paid;”220 that the manner by which the price is to be paid has to be found in the or memorandum, thus —
... In the reality of the economic world and the exacting demands of business interest monetary in character, payment or installments or staggered payment of the total price is entirely a different matter from cash payment, considering the unpredictable trends in the sudden fl uctuation of the rate of interest. In other words, it is indisputable that the value of money varies from day to day, hence the indispensability of providing in any sale of the terms of payment when not expressly or impliedly intended to be in cash.221
Yuvienco thus held that “in any sale of real property
on installment, the Statute of Frauds read together with the perfection requirements of Article 1475 of the Civil Code must be understood and applied in the sense that the idea of payment on installments must be in the requisite of a note or memorandum therein contemplated.”222
In spite of the Yuvienco ruling, the Court held in David v.
Tiongson,223 that the sale of real property on installments even when the receipt or memorandum evidencing the same does not provide for the stated installments, when there has already been partial payment, the Statute of Frauds is not applicable because it only applies to executory and not to completed, executed, or partially executed contracts.
In Limketkai Sons Milling, Inc. v. Court of Appeals,224 the Court agreed with the reasoning of the Court of Appeals that when in the series of exhibits there is a patent absence of any deed of sale categorically conveying the subject property and
was not subscribed by the party charged, it did not constitute the
memoranda required by law, thus —
220Ibid, at p. 680. 221Ibid.
222Ibid, at pp. 680-681. 223313 SCRA 63 (1999). 224255 SCRA 626 (1996).
To consider them suffi cient compliance with the Statute of Frauds is to betray the avowed purpose of the law to prevent fraud and perjury in the enforcement of the obligations. ... In adherence to the provisions of the Statute of Frauds, the examination and evaluation of the notes or memoranda adduced by the petitioner was confi ned and limited to within the four corners of the documents. To go beyond what appears on the face of the documents constituting the notes or memoranda, stretching their import beyond what is written in black and white, would certainly be uncalled for, if not violative of the Statute of Frauds and opening the doors to fraud, the very evil sought to be avoided by the statute. In fi ne, considering that the documents adduced by the petitioner do not embody the essentials of the contract of sale aside from not having been subscribed by the party charged or its agent, the transaction involved defi nitely falls within the ambit of the Statute of Frauds.
In addition, the Court found that the exhibits failed to establish the perfection of the sale, and therefore oral testimony could not take their place without violating the parol evidence rule. It held that it was irregular for the trial court to have admitted in evidence testimony to prove the existence of a sale of a real property between the parties despite the persistent objection made by alleged seller’s counsel as early as the fi rst scheduled hearing.225
e. Partial Performance
Partial performance of the sale would take the same outside the coverage of the Statute of Frauds. When it comes to sale of goods, chattels, or things in action, Article 1403 of the Civil Code specifi cally states that the Statute of Frauds shall not apply when “the buyer accept[s] and receive[s] a part of such goods and chattels, or the evidence, or some of them, of such things in action, or pay at the time some part of the purchase money.”
Although Article 1403 does not state the same principle applicable to sale of real property or interest therein, the doctrine of partial performance should also apply to such contracts, especially when Article 1405 specifi cally states that contracts covered by the Statute of Frauds “are ratifi ed . . . by acceptance of benefi ts under them.”
Earlier on Baretto v. Manila Railroad Co.,226 held that delivery of the deed to the agent of the buyer, with no intention to part with the title until the purchase price is paid, does not constitute partial performance and does not take the case out of the Statute of Frauds.
Vda. de Jomoc v. Court of Appeals,227 held that the partial execution of a sale over real property takes the transaction out of the provisions of the Statute of Frauds, and consequently even when not complete in form, so long as the essential requisites of consent of the contracting parties, object and cause of the obligation concur and they were clearly established to be present (even by parol evidence), the sale is valid and binding.
In Alfredo v. Borras,228 the Court reiterated the principle that the Statute of Frauds applies only to executory contracts and not to contracts either partially or totally performed.229 It
held that where one party has performed his obligation, oral evidence will be admitted to prove the agreement; and that in addition, a contract that violates the Statute of Frauds is ratifi ed by the acceptance of benefi ts under the contract, such as the acceptance of the purchase price and using the proceeds to pay outstanding loans.
In Soliva v. The Intestate Estate of Marcelo M. Villalba,230
the Court held that “the admission by the petitioner that she had accepted payments under the oral contract of sale took the case
22646 Phil. 964 (1924). 227200 SCRA 74 (1991). 228404 SCRA 145 (2003).
229Reiterated in Ainza v. Padua, 462 SCRA 614 (2005); Arrogante v. Deliarte, 528 SCRA 63 (2007).
out of the scope of the Statute of Frauds . . . [rendering] it valid and enforceable.”231
f. Effect of Partial Execution on Third Parties
The doctrine of partial execution when covering sale of real properties cannot be applied to third parties, who are granted legal remedies against the contract. The earliest pronouncement on this point was in Gorospe v. Ilayat,232 where the Court held that since the enactment of the Statute of Frauds —
. . . a contract of sale of realty cannot be proven by means of witnesses, but must necessarily be evidenced by a written instrument, duly subscribed by the party charged, or by his agent, or by secondary evidence of the contents of such document. No other evidence, therefore, can be received except the documentary evidence referred to, in so far as regards such contracts, and these are valueless as evidence unless they are drawn up in writing in the manner aforesaid.233
and this was especially so when the claimants-alleged-buyers were not even in possession of the subject realty.
Fule v. Court of Appeals,234 in explaining the nature of a sale as a consensual contract, noted that “[f]ormal requirements are, therefore, for the benefi t of third parties,” but as to the immediate parties to the sale, “[n]on-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder.”235
Claudel v. Court of Appeals,236 reiterated the rule that a sale of land once consummated, is valid regardless of the form it may have been entered into; for nowhere does the law or jurisprudence prescribe that the sale be put in writing before such contract can validly cede or transmit rights over a certain real property between
231Ibid at pp. 284-285. 23229 Phil. 21 (1914). 233Ibid, at p. 23. 234286 SCRA 698 (1998). 235Ibid, at p.713. 236199 SCRA 113 (1991).
the parties themselves. The Court however held that in the event that a third party disputes the ownership of the property, the person against whom that claim is brought cannot present any proof of such sale and hence has no means to enforce the contract. Thus, the Statute of Frauds was precisely devised to protect the parties in a sale of real property so that no such contract is enforceable unless certain requisites, for purpose of proof, are met.237
The Court in Claudel, after premising that the “rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may have been entered into,” held that “in the event that a third party, as in this case, disputes the ownership of the property, the person against whom that claim is brought can not present any proof of such sale and hence has no means to enforce the contract.”238 In reaching such conclusion, the Court quoted directly Article 1403, which provides that only a note or memorandum can take the sale of real property out of the provisions of the Statute of Frauds. It will be recalled that nothing in the subparagraph pertaining to the sale of real property contains any provisions on partial performance, unlike the subparagraph pertaining to sale of movables.
This confi rms the variance in principles involving movables and immovables, and seemingly recognized under Article 1403 which treats partial execution as applicable only to goods. Under Article 559 of the Civil Code “possession of movable property acquired in good faith is equivalent to a title.” No similar provisions apply to immovables. Consequently, when an alleged buyer has been given possession of a movables, even third parties would be bound to recognized and expect that he must be the proper owner of the movable. In the case of immovables, specially under the Torrens system, recording of the sale or its being evidenced by a written instrument are usually the accepted means of informing the public of the sale or disposition of the immovable.
237See also Diama v. Macalibo, 74 Phil. 70 (1942); Zaide v. Court of Appeals, 163 SCRA 713 (1988).
In Alba Vda. De Rax v. Court of Appeals,239 the Court held that reliance on testimony of witnesses as secondary evidence to prove a sale, will not prosper against counter-evidence disputing such sale, because a sale must necessarily be evidenced by a written instrument when it involves third parties.
Recently, in Londres v. Court of Appeals,240 the Court summarized the prevailing rulings on the matter —
A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith with their respective contractual commitments. Article 1358 of the Civil Code, which requires certain contracts to be embodied in a public instrument, is only for convenience, and registration of the instrument is needed only to adversely affect third parties. Formal requirements are, therefore, for the purpose of binding or informing third parties. Non-compliance with formal requirements does not adversely affect the validity of the contract or the contractual rights and obligations of the parties. Consequently, the wrong designation of the lot in the Deed of Absolute Sale even when notarized will not diminish the right of the buyer to the title and possession of the actual subject matter of their meeting of minds with the seller.
However, under the Torrens system, the execution of a public instrument on dealings with registered land is not even suffi cient by itself to bind third parties, since registration is the operative act. The more pertinent, and thereby prevailing, doctrine is what the Court held in Secuya v. Vda. De Selma:241 that while the sale of land appearing in a private deed is binding between the parties, it cannot be considered binding on a third
239314 SCRA 36, 54-55 (1999). 240394 SCRA 133 (2002). 241326 SCRA 244 (2000).