Blaw1 Defective Contracts

DEFECTIVE CONTRACTS (ARTS.
13801422)
Rescissible contracts (Chap. 6)
Voidable contracts (Chap. 7)
Unenforceable contracts (Chap. 8)
Void or inexistent contracts (Chap. 9)
RESCISSIBLE CONTRACTS
Valid because all essential requisites of a
contract are present

By reason of injury/damage to one party/ 3rd
persons, contract may be rescinded.
VOIDABLE CONTRACTS
Valid until annulled unless there has been a
ratification
Caused by vices of consent
UNENFORCEABLE CONTRACTS
cannot be sued upon or enforced unless
they have been ratified
VOID OR INEXISTENT CONTRACTS

Absolutely null and void
No effect at all and cannot be ratified
OVERVIEW ON DEFECTIVE CONTRACTS

Consideration
Defective Contracts
As to defect
Rescissible - Injury or damage

Voidable - Vitiation of consent or legal
capacity
Unenforceable - In excess of authority or do
not comply with Statute of Fraud
Void - Lack of an element of a valid contract
As to effect
Rescissible and Voidable - Valid until

annulled
Unenforceable - Cannot be enforced by
action in court
Void - No legal effects at all
As to parties who can file Rescissible and Void May be attack directly
action
By contracting parties or by third parties
Voidable and Unenforceable - Cannot be
attacked by third persons
RESCISSIBLE CONTRACTS
Those validly agreed upon because all the essential
elements exist hence legally effective BUT in the

cases established by law, the remedy of rescission is
granted in the interest of equity.
Remedy to secure reparation of damages caused by
a valid contract by means of restoration of things
to their condition in which they were prior to the
celebration of said contract.
1.
2.
3.
4.
5.
6.
7.
REQUISITES OF RESCISSION
Contract must be validly agreed up

There must be lesion or pecuniary prejudice to one of the parties or
to a 3rd person
The rescission must be based upon a case especially provided by law
There must be no other legal remedy to obtain reparation for the
damage
Party asking for rescission must be able to return what he is obliged
to restore by reason of the contract
Object of the contract must not be legally be in the possession of 3rd
persons who did not act in bad faith
Action to file rescission not yet prescribed
RESCISSIBLE CONTRACTS (ART. 1381)

(1) Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the things
which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into
by the defendant without the knowledge and approval of the litigants or of

competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
OTHER INSTANCES:
Partition (judicial/extrajudicial) by co-heirs with
lesion (Art. 1098)

Failure to comply with the obligations of lessor/
lessee (Art. 1659)
Vendee suffered 1/10 lesion (land area or price)
under Art. 1539
Payments made in state of insolvency (Art. 1382)
NATURE OF THE ACTION FOR RESCISSION

(ART. 1383)
Subsidiary, not principal
Proof that there is no legal means to obtain redress
for the damage caused
EXTENT OF RESCISSION
If damage can be repaired partial rescission
covering the creditors unsatisfied credit

If damage cannot be repaid- rescission of contract
MUTUAL RESTITUTION (ART. 1385)

Return to each other:
1. things together with their fruits

2. price with its interest
Rescission NOT possible when:
1. restoration is possible
2. possession of 3rd persons in good faith
CONTRACTS APPROVED BY THE COURT

(ART. 1386)
On behalf of the ward or absentee
The law presumes that the court is acting in the
interest of the ward/absentee
ALIENATION AS FRAUD OF CREDITORS

(ART. 1387)
gratuitous title: when the donor did not reserve
sufficient property to pay all debts contracted

before the donation.
onerous title: when made by persons against whom
some judgment has been issued (The decision or
attachment need not refer to the property
alienated, and need not have been obtained by the
party seeking the rescission )
BADGES OF FRAUD (CIRCUMSTANCES)

Consideration is fictitious or inadequate
Transfer by the debtor after suit has begun and while
pending
Sale by an insolvent creditor
Transfer of all properties of the debtor
Transfer between family members
Failure of the vendee to take possession of all the property
Vendees knowledge that the vendor had no properties
other than that sold to him
PURCHASER IN BAD FAITH (ART. 1388)

1. return the property in case the sale is rescinded
2. if restitution is not possible, indemnify damages
PERIOD FOR FILING ACTION (ART. 1389)
Rule: 4 years from the date the contract was entered
into.
Exceptions:
1. persons under guardianship (termination of incapacity)

2. absentee (when domicile is known)
Persons entitled to file;
1. injured party/ defrauded creditor

2. heirs, assigns, successors in interest
3. other creditors by subrogation
VOIDABLE CONTRACTS (ARTS. 1390-1402)

(1) Those where one of the parties is incapable of
giving consent to a contract

(2) Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud
Annulment is the legal remedy for the declaration of
the inefficacy of a contract based on a defect or
vice of consent
ACTION FOR ANNULMENT (ART. 1391)

4 -year period:
In cases of intimidation, violence or undue
influence, from the time it ceases

In cases of mistake or fraud, from the time of
discovery
In case of minors or incapacitated persons, from
the time the guardianship ceases
RATIFICATION (ARTS. 1392-1393)

One voluntarily adopts some defective or unauthorized
contract which without his subsequent approval or consent

would not be binding on him
Cleanses the contract from all its defects from the moment
it is constituted thus becomes a valid contract.
The action to annul is extinguished
KINDS OF RATIFICATION
Express in words or writings
Implied/tacit by silence or acquiescence, acts showing adoption or
approval, acceptance and retention of the benefits with the following

requisites:
(1)knowledge of the reason which renders the contact voidable
(2)Reason must have ceased
(3)Injured party must have executed an act which necessarily implies an
intention to waive his rights
PERSONS WHO CAN RATIFY (ART. 1394)

A contract entered by an incapacitated person:
(1)The guardian
(2)The incapacitated person provided he is already capacitated
A contract entered with the vices of consent, by
the person whose consent was vitiated
EFFECTS OF ANNULMENT OF VOIDABLE

CONTRACT
If not consummated, then parties are released from obligation
If consummated, parties are to restore to each other what
they have given, with fruits and interests, plus damages

If to do or not to do, there will be apportionment of damages
Incapacitated party not obliged to make restitution except for
what he was benefited
UNENFORCEABLE CONTRACTS
Cannot be enforced in court or sued upon by reason of
defects provided by law until and unless they are ratified

according to law
Kinds:
(1)Entered into in the name of another by one without or
acting in excess of authority (unauthorized contracts);
(2)Do not comply with the Statute of Frauds (SOF)
(3)Both parties are incapable of giving consent
STATUTE OF FRAUDS (ART. 1403 PAR. 2)

(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

(e) An agreement of the leasing for a longer period than one year, or for
the sale of real property or of an interest therein;

(f) A representation as to the credit of a third person
RATIFICATION UNDER THE S.O.F.

By failure to object to the presentation of oral evidence to
prove the contract

By acceptance of the benefits under the contract
WHEN AN UNENFORCEABLE CONTRACT

BECOMES:
A voidable contract when ONE of the parties (both
incapacitated0, their guardians/parents /party himself who

becomes capacitated ratifies the contract
A valid contract after the ratification is made by BOTH
parties/parents/guardians
THIRD PERSON VS. UNENFORCEABLE

CONTRACT
Art. 1408. Unenforceable contracts cannot be
assailed by third persons.
VOID OR INEXISTENT CONTRACTS

Generally produce no effect at all
Inexistent when lack one/some/all essential elements of a
contract ; do not comply with the formalities
CHARACTERISTICS OF VOID CONTRACTS

(1) No effect whatsoever;
(2) It cannot be ratified;
(3) Right to set up defense of illegality cannot be waived;
(4) Action does not prescribe;
(5) Defense of illegality is not available to 3rd persons who are
not directly affected;

(6) It cannot give rise to a valid contract.
INSTANCES OF VOID CONTRACTS

(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;

(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;

(7) Those expressly prohibited or declared void by law.
Action or defense of void contract is

IMPRESCRIPTIBLE (Art. 1410)

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DEFECTIVE CONTRACTS (ARTS.

contract are present

they have been ratified

VOID OR INEXISTENT CONTRACTS

OVERVIEW ON DEFECTIVE CONTRACTS

Rescissible - Injury or damage

Rescissible and Voidable - Valid until

elements exist hence legally effective BUT in the

Contract must be validly agreed up

RESCISSIBLE CONTRACTS (ART. 1381)

lesion stated in the preceding number;

manner collect the claims due them;

by the defendant without the knowledge and approval of the litigants or of

lesion (Art. 1098)

NATURE OF THE ACTION FOR RESCISSION

for the damage caused

covering the creditors unsatisfied credit

MUTUAL RESTITUTION (ART. 1385)

1. things together with their fruits

CONTRACTS APPROVED BY THE COURT

interest of the ward/absentee

ALIENATION AS FRAUD OF CREDITORS

sufficient property to pay all debts contracted

BADGES OF FRAUD (CIRCUMSTANCES)

PURCHASER IN BAD FAITH (ART. 1388)

PERIOD FOR FILING ACTION (ART. 1389)

Rule: 4 years from the date the contract was entered

1. persons under guardianship (termination of incapacity)

1. injured party/ defrauded creditor

VOIDABLE CONTRACTS (ARTS. 1390-1402)

giving consent to a contract

ACTION FOR ANNULMENT (ART. 1391)

influence, from the time it ceases

RATIFICATION (ARTS. 1392-1393)

contract which without his subsequent approval or consent

approval, acceptance and retention of the benefits with the following

PERSONS WHO CAN RATIFY (ART. 1394)

the person whose consent was vitiated

EFFECTS OF ANNULMENT OF VOIDABLE

they have given, with fruits and interests, plus damages

what he was benefited

defects provided by law until and unless they are ratified

STATUTE OF FRAUDS (ART. 1403 PAR. 2)

from the making thereof;

price not less than five hundred pesos

the sale of real property or of an interest therein;

RATIFICATION UNDER THE S.O.F.

prove the contract

WHEN AN UNENFORCEABLE CONTRACT

incapacitated0, their guardians/parents /party himself who

THIRD PERSON VS. UNENFORCEABLE

assailed by third persons.

VOID OR INEXISTENT CONTRACTS

contract ; do not comply with the formalities

CHARACTERISTICS OF VOID CONTRACTS

not directly affected;

INSTANCES OF VOID CONTRACTS

good customs, public order or public policy;

object of the contract cannot be ascertained;