BSA31KB1
SUMMARY
Kinds of Defective Contracts
-
Rescissible
Contracts
Valid unless
rescinded.
Basis is lesion or
damage.
Rescission is a
remedy.
Basis is external
The action is
subsidiary
The rescissible
character of a
contract may be
assailed by third
persons.
Voidable
Contracts
Unenforceable
Contracts
Void or Inexistent
Contracts
Valid unless it is
annulled.
Basis is vitiated
consent or
incapacity to
consent.
Annulment is
sanction.
Basis is intrinsic.
The action is
principal.
The defense of
annulability is not
available to third
persons.
Voidable is
susceptible of
ratification.
Cannot be sued
upon or enforced
unless it is
ratified.
Cannot be
assailed by third
person.
Unenforceable is
susceptible of
ratification.
Absolutely null
and void; no effect
at all and cannot
be ratified.
The action for
declaration of the
nullity or
inexistence of a
contract is
imprescriptible.
The former is not
susceptible of
ratification.
The defect of the
former consists in
absolute lack in
fact or in law of
one or some or all
of the essential
elements of a
contract.
RESCISSIBLE CONTRACTS
Meaning of Rescissible Contracts
-
Are those validly agreed upon because all the essential elements exist and,
therefore, legally effective.
Meaning of Rescission
-
A remedy granted by law to the contracting parties and to third persons in order to
secure reparation of damages caused by a valid contract.
Requisites of Rescission
1.
2.
3.
4.
5.
6.
7.
Contract is valid.
There must be lesion or pecuniary prejudice.
Rescission must be based upon a case especially provided by law.
No other legal remedy.
Party asking for rescission must be able to return what he is obliged to restore.
Object must not legally be in the possession of third persons.
Period for filing must not have prescribed.
iii. The creditor cannot recover his credit in any other manner, it not
being required that the debtor be insolvent.
4. Things under litigation, without knowledge and approval of litigant or of
competent judicial authority.
5. All other contracts specially declared by law to be subject of rescission.
a. Some of the specific contracts subject to rescission are as follows:
i. The right to rescind as provided in Article 1189 of the Civil Code in
case of deterioration of the thing to be delivered.
ii. The right to rescind given to an unpaid seller as provided for in
Article 1562 of the Civil Code.
iii. The right to rescind given to a vendee in a sale of real property per
unit for measure or lump sum price.
6. Article refers to payments paid. What is rescissible are the payments for
obligations which are not yet due. Payment must have been made by a debtor who
is in a state of insolvency.
a. State of insolvency a person considered insolvent when it is impossible
for him to fulfill his obligations because of financial constraints.
b. Requisites of premature payment:
i. The debtor or the person paying must be in the state of insolvency.
ii. The debt is not yet due or demandable.
Nature of Rescission
-
Rescission is only a subsidiary remedy, which means that there should be no other
recourse for the injured party but to rescind the contract
It shall cover only the extent of the lesion and not the whole obligation. The
contract can still exist as long as the extrinsic defect of the contract can be
repaired.
As a general rule, the action to claim rescission must be commenced within four
(4) years from the date the contract was entered into. The exceptions are:
1. For persons under guardianship, the period shall begin from the
termination of incapacity
2. For absentees, from the time the domicile in known.
VOIDABLE CONTRACTS
Are those which possess al the essential requisites of a valid contract but one of
the parties is incapable of giving consent, or consent is vitiated by mistake,
violence, intimidation, undue influence, or fraud.
Unenforceable Contracts
Meaning of Annulment
-
Annulment is a remedy provided by law, for reason of public interest, for the
declaration of the inefficacy of a contract based on a defect or vice in the consent
of one of the contracting parties in order to restore them to their original position
in which they were before the contract was executed.
The action for annulment shall be brought within four (4) years. This period shall
begin:
1. In cases of intimidation, violence or undue influence, from the time the
defect of the consent ceases.
2. In case of mistake or fraud, from the time of the discovery of the same.
3. In the case of contracts entered into by minors or other incapacitated
persons, from the time the guardianship ceases. An incapacitated person
has no capacity to sue.
The victim or injured party in a voidable contract can ask for annulment.
Is that which cures the defect of the contracts celebrated in the name of another
without authority or in excess of authority.
Kinds of Ratification
1. Express (oral or written)
2. Tacit (implied)
Requisites of Ratification
1.
2.
3.
4.
2. If due to a fortuitous event the contract can still be annulled, unless if the
innocent party could no longer restore what, by virtue of the decree of annulment,
he is bound to return.
Meaning of Mutual Restitution
-
If a voidable contract is annulled, the parties shall return to each other what they
have received. If one cannot restore what he is required to return, the other cannot
be compelled to return what he received.
UNENFORCEABLE CONTRACTS
Meaning of Unenforceable Contracts
-
Are those that cannot be enforced in court or sued upon by reason of certain
defects provided by law until and unless they are ratified according to law.
Are those entered into in the name of another person by one who has been given
no authority or legal representation or who has acted beyond his powers.
Statute of Frauds
1. Definition
a. It is a law which requires that certain contracts must be in writing,
otherwise, unenforceable.
2. Purpose
a. To prevent fraud and to guard against the mistake of honest men by
requiring that certain agreements specified that are susceptible to fraud
must be in writing; otherwise, they are enforceable.
3. Application
a. Statute of Frauds is applicable only to executor contracts and not to
contracts totally or partially executed.
Agreements within the scope of the Statute of Frauds
1.
2.
3.
4.
Agreement not to be performed within one year from the making thereof.
Promise to answer for the debt, default, or miscarriage of another.
Agreement in consideration of marriage other than mutual to marry.
Agreement for sale of goods, chattels, or things in action at a price of five hundred
pesos or more.
5. Agreement for the leasing for a longer period than one year, or the sale of real
property or an interest therein.
Instances covered:
a. If the lease is one year or less, oral contract is enforceable even if the
object is real or personal property.
b. If the lease is more than one year and the object is immovable, it must be
in writing, otherwise, unenforceable.
c. If it is a sale of immovable property, irrespective of the price of the sale, it
must be in writing, otherwise, unenforceable.
6. A representation as to the credit of a third person.
Modes of ratification under the Statute
1. By failure to object to the presentation of oral evidence to prove the contract.
2. By acceptance of benefits under the contract. Hence, if the contract is partially or
totally executed, Statute of Frauds will not apply.
Acts considered as partial performance
1.
2.
3.
4.
Possession.
Payment of taxes.
Improving the property.
Tender of payment followed by surveying the lot at the expense of the buyer.
Right of the party to compel the other to execute the needed instrument
-
When a public instrument is required for mere convenience of the parties, the
same may compel each other to execute the necessary document, but only if the
following elements are present:
a. The contract must be valid.
b. The contract is enforceable.
If both parties are incapacitated, the contract is unenforceable but can be ratified
to make it enforceable.
1. Expressly or impliedly by the parent or guardian of one of the parties making the
contract voidable.
2. If both parents or guardian of the contracting parties ratified the contract, it
becomes enforceable, validated from inception.
These are contracts which have absolutely no force and effect and are inexistent
from the beginning. The maxim is No contract at all.
Voidable Contract
No effect
Susceptible of ratification
Unenforceable Contract
No contract at all
Simulated Contracts
-
Simulation takes place when the parties do not really want the contact they have
executed to produce the legal effects expressed by its wordings.
An absolutely simulated contract of sale is void ab initio and transfers no
ownership right.
No remedy could be given to any of the parties, and the court leaves them where
they are. This is a universally accepted principle in law under the maxim he who
comes to court must do so with clean hands.
Exceptions:
a. Fictitious or absolute simulated contracts because they are inexistent.
b. Payment of usurious interest, the law allows recovery of the principal and
the legal interest.
c. When public policy intervenes.
d. Payment of any amount in excess of the maximum price of any article or
commodity fixed by law, the buyer may recover the excess.
e. One of the parties in a contract is less guilty than the other.
Illegal per se
-
Illegal per se contracts are those forbidden contracts because of public interest.
If indivisible, the whole contract is void, even if only some parts or terms are
illegal.
If divisible, the legal terms may be enforced if they can be separated from illegal
terms.