Defective Contracts
Kinds Which contract?
RESCISSIBLE Art. 1381
validly a. Those agreed upon in
agreed upon representation of absentees, or
because all those which are entered into by
the essential guardians whenever the wards
elements whom they represent suffer lesion
exist but may by more than of the value of the
be set aside things which are the object thereof;
because of b. Those undertaken in fraud of
lesion or creditors when the latter cannot in
economic any other manner collect the claims
damage due them;
cause to one c. Those which refer to things under
of the parties litigation if they have been entered
or upon a into by the defendant without the
third person knowledge and approval of the
litigants or of competent judicial
authority;
d. Sale in case of breach by the seller of
warranty against hidden defects
e. Sale of animals with redhibitory
defects
f. Contract of partition when an heir
received things whose value is less
than at least than his entitled
share
g. Contract where the lessee or lessor
fails to comply with his obligations,
the aggrieved party may ask for
rescission and indemnification for
damages.
Art 1382. Payments made in the state of
insolvency for obligations to whose
fulfilment the debtor could not be
compelled at the time they were
effected
What is the nature of defect? What is the remedy? Who avails of the When to avail of the
remedies? remedy?
a. Contract must be validly agreed upon Art 1383 -1384. Rescission is Art 1383. If the injured Art 1389. The action
b. Lesion or economic damage or pecuniary the subsidiary remedy party proves that he has to claim rescission
prejudice to one of the parties or to a third person allowed by law to repair the no other legal means must be commenced
c. The rescission must be based upon cases (art. damages caused to the aside from rescinding the within 4 years from
1381-1383) especially provided by law injured party by contracting contract to obtain redress the date the contract
d. There must be no other legal remedy to obtain parties or third persons, for the damage caused. was entered into.
reparation for the damage who must not have other Art 1388. Whoever For persons under
e. The party asking for rescission must be able to legal remedy of reparation. acquires in bad faith the guardianship, the
return what he is obliged to restore by reason of It shall only be to the extent things alienated in fraud period of 4 years
the contract necessary to cover the of creditors, shall begin from the
f. The object of the contract must not legally be in damages caused. indemnify the latter for termination of
the possession of third persons who did not act in Minor can rescind the damages on the account incapacity.
bad faith sale by proper court of alienation whenever For absentees,
g. The period for filing the action for rescission must action upon reaching due to any cause including from the time the
not have prescribed. the age of majority if the thing is lost in domicile is known.
*d. Contracts undertaken in fraud of creditors: Art 1385. fortuitous event. The first
a. Existing credit prior to the contract to be Parties must return acquirer shall be liable
rescinded objects of the contract, first and so on
b. Fraud on the part of the debtor maybe with their fruits and successively provided
presumed or proved price with its interest, theyre also I bad faith if
c. Creditor cannot recover his credit in any other only if he who demands there are two or more
manner rescission can return he alienations. If purchaser in
Art 1387. Gratuitous or onerous alienations in fraud of is obliged to restore good faith and even if
creditors. Badges of fraud: Indemnity for damages there are subsequent
Consideration of conveyance is fictitious or may be demanded from transfers, they shall not be
inadequate the person causing the liable even if transferees
Transfer made by a debtor after suit has been loss (excluding the were in bad faith.
begun and while it is pending against him contracting third person Art 1389.
Sale upon credit made by an insolvent debtor acted in good faith) a. Injured party or the
Evidence of large indebtedness or complete Art 1386 (art 1381 a&b) no defrauded creditor
insolvency remedy of rescission if the b. His heirs, assigns, or
Transfer of all or nearly all of his property by a contract has been approved successors in interest;
debtor, esp. when he is insolvent by the courts. c. Creditors of the above
Transfer is made between father and son entitled to
Failure of the vendee to take exclusive possession subrogation
of all the property
 Defective Contracts
2.VOIDABLE- Art 1390 Incapacity of one of the parties Art 1392. Art 1394. Art 1391
binding a. Legal incapacity to give consent or one a. Emancipated minors Ratification extinguishes the The guardian or the Within 4 years
unless of the contracting parties is incapable of b. Insane or demented persons action to annul voidable injured party himself From the time the
annulled by giving consent to a contract c. Deaf-mutes who dont know how to write contract. provided he is already defect of the
proper b. Violation of consent - consent is Vitiated consent Art 1396. Ratification capacitated consent ceases (
Action in vitiated by mistake, violence, cleanses the contract from By the party whose intimidation,
court and intimidation, undue influence, or fraud all its defects from the consent is vitiated violence, or undue
susceptible c. where consent is given in state of moment it was constituted Art1395. Conformity of influence)
of drunkenness, or during a hypnotic spell. and also makes the contract the contracting/guilty From the time of
ratification. perfectly valid. party is not required for the discovery of
Art 1398. If annulled, parties he has no right to bring the same (mistake
must restore to each other action for annulment. or fraud)
the object with its fruits and Art1397. May be From the time the
the price with its interest. In instituted by all who are guardianship
personal obligations, the thereby obliged principally ceases (contracts
value thereof with its or subsidiarily. The victim entered into by
interest, shall be the basis or plaintiff must have an the minors or
for damages recoverable interest in the contract incapacitated
from the party benefitted by and is the person, who persons)
the service must assert, and not the
Art 1399. If annulled on the guilty party or his
ground of the incapacity of successor, or strangers or
one party, such person is assignee.
only obliged to make
restitution to the extent
that he was benefited by the
thing or price, but if the
thing is still in his possession
he is obliged to return it.
art 1400. Effect when thing
is lost through the fault of
party obliged to return
a. * value of the thing
at the time of loss
b. * fruits received
from the time the
thing was given to
him to the time of
its loss
 Defective Contracts
3.UNENFORC a. entered into the name of another by
EABLE one without authority or legal
Cannot be representation & acted beyond his
enforced in powers (unauthorized contracts)
court or sued b. where both parties are incapable of
upon due to giving consent to a contract
its defect b. those do not comply with the Statute
unless of Frauds:
ratified * agreement not to be performed within
one year from the making thereof
* special promise to answer for the debt,
default, or miscarriage of another
* agreement in consideration of
c. interest on the
value of the thing at
time of loss
If lost due to fortuitous
event, * only is to be
returned.
Art1401. Loss of the thing
while in the possession of
victim/ plaintiff and lost
through his fraud or fault,
action for annulment is
extinguished.
Art 1402. lost without his
fault, incapacitated party
can still bring action for
annulment but the other
party cannot be compelled
to make restitution unless
the innocent party can
restore thing bound to be
returned
If one of the parties cannot
restore what is bound to
return, the other cannot be
compelled to make
restitution.
* unless it is partially executed or paid
* be in writing or orally * made depending on
situations
** special promise, agreement for sale of goods
 Defective Contracts
marriage other than mutual promise to
marry
* agreement for sale of goods, chattels,
or things in action at price not less than
P500.
* agreement for leasing for a longer
period than one year;
for the sale of real property or of an
interest therein
*a representation as to the credit of a
third person
c. Both parties are incapable of giving
consent art 1327
4. VOID/ Art 1409 1. Produce no effect at all Art 1410
INEXISTENT a. cause, object or purpose is contrary to 2. Cnnot be ratified A party can always bring
law, morals, good customs, public order 3. Right to set up the defense of illegality cannot court action or defense to
* produce no or policy; be waived declare a contract void or
effect at all b. absolutely simulated or fictitious 4. Action or defense for the declaration of its inexistent
because of contracts inexistence does not prescribe
certain c. cause or object did not exist at the 5. Defense of illegality is not available to third A party against whom a void
defects time of the transaction; persons whose interests are not directly contract is sought to be
*lack one or d. object is outside the commerce of affected enforce, can raise the
some or all of men, not including future things 6. Cannot give rise to a valid contract defense of nullity, despite
the elements e. contemplates impossible service; the passage of time
or do not f. intention of the parties relative to the
comply with principal object of the contract cannot
formalities be ascertained;
essential for g. contracts upon future inheritance
its existence except expressly authorized by law;
h. sale of property between spouses
except when there is separation of
property
i. purchase of property by specially
disqualified persons by law (guardians,
agents, executors, administrators, public
officers, employees, judges, lawyers)
due to their relation with the person or
property under their care
j. donation between spouses during
Defective Contracts
marriage except moderate gifts
k. testamentary provision in favour of a
disqualified person, although made
under the guise of an onerous contract,
or made through an intermediary.
l. any stipulation that household service
is without compensation
m. members of congress are prohibited
from being financially interested,
directly or indirectly, in any contract
with the government or any subdivision
or instrumentality thereof.
Art 1413 stipulation for the payment of
usurious interest
Art 1422 contract which is the direct
result of a previous illegal contract
Defective Contracts