You Have My Word - The Strength of Oral Contracts

Contracts have become indispensable tools for anyone who has negotiated or engaged in a transaction. They are necessary to bind the parties involved, as contracts protect their interests and serve as a record of what they agree upon. But is a contract still valid and enforceable if it was orally agreed upon?

Under the New Civil Code, contracts may be entered into in any form as long as there is consent of the contracting parties, object certain which is the subject matter of the contract, and cause of the obligation which is established. With these elements present, a contract becomes valid even if it was made orally. 

That said, certain contracts are still required to be written or evidenced by some note or memorandum for it to be enforceable. The Statute of Frauds under the Civil Code provides a list of those transactions that must be reduced in writing. Its aim is to merely safeguard the parties to a contract from fraud or perjury “in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses” (Swedish Match, AB v. Court of Appeals, G.R. No. 128120). This means that even if the contract itself is valid, its provisions cannot be carried out unless this requirement is complied with. 

The most common types of contracts falling under the Statute of Frauds are those in consideration of marriage, contracts which cannot be performed within one year, contracts for the sale of real property, contracts for the sale of goods at a price not lower than five hundred pesos, contracts where one party agrees to be a surety or guarantor for another party’s debt or other obligation. 

However, it is settled that the Statute of Frauds is limited to executory and not to completed, executed, or partially executed contracts. Thus, where the buyer in a contract of sale of real property has already paid at least part of the purchase price, the seller cannot anymore invoke the Statute of Frauds in a proceeding where the buyer seeks to have the subject property transferred in his or her name. 

The Supreme Court supported this in the case of Heirs of Alido v. Campano, G.R. No,. 226065, ruling that the Statute of Frauds was already inapplicable since the verbal sale between the respondent and petitioner had been executed: “From the time of the purported sale in 1978, respondent peacefully possessed the property and had in her custody OCT No. F-16558. Further, she had been the one paying the real property taxes and not Alido. Possession of the property, making improvements therein and paying its real property taxes may serve as indicators that an oral sale of a piece of land had been performed or executed.” 

In other words, once a party performs his or her obligation in accordance with the oral contract, the other party is then compelled to perform his or her side of the obligation as well. The latter cannot conveniently hide behind the Statute of Frauds to mislead and deceive others just because the contract was made orally. A party cannot use the Statute of Frauds to do exactly what it was made to prevent. 

Moreover, oral contracts have a prescriptive period of six years from the time the right of action accrues (Art. 1145 of the New Civil Code). This allows the injured party to file a case against the other party and compel him or her to fulfill contractual obligations within six years from the time that it was executed or partially executed. Thus, for as long as such time has not yet lapsed, the injured party has every right to enforce the provisions of the oral contract. 

Even with these protective measures, however, one must still exercise caution. A written contract is not only convenient for the parties involved, but it also embodies the complete agreement between or among them. It thus prevents the parties from attempting to commit any fraudulent acts or from evading their obligations. With this in mind, anyone who wishes to enter into a transaction should always opt for written contracts and not settle for less. Such contracts, of course, are best written by a lawyer - and we at Batocabe and Partners can help with that.