DEFECTIVE CONTRACTS Professor E. A. Labitag DEFECTIVE CONTRACTS
RESCISSIBLE (Arts 1381 – 1389) Economic prejudice or damage to: - owner - 3rd person - litigant Can generally be ASSAILED and CURED by: Injured Party EFFECTS: Mutual restitution
AS TO NATURE OF DEFECT Contracts of guardians (acts of administration) when wards they represent suffer lesion of more than 25% of the value of thing Contracts in representation of absentees when latter suffers lesion of more than 25% of value of thing
Contracts entered into by debtor who is a state of insolvency, i.e. contracts entered into in fraud of creditors (Accion Pauliana)
Contracts which refer to things in litigation without the knowledge and approval of litigants or competent judicial authority All other contracts declared by law to be subject of rescission E.g. Art 1098 Partition
EFFECT ON CONTRACT
ASSAILABLE? HOW?
YES but only through DIRECT action for rescission VALID No rescission if: until rescinded a. plaintiff has other legal means to obtain reparation (subsidiary) b. plaintiff cannot return what must be restored VALID c. object in the hands until rescinded of 3rd persons in good faith d. Contract approved by court (Art 1386)
VALID until rescinded YES but only through DIRECT action for rescission No rescission if: a. plaintiff has other legal means to obtain reparation VALID (subsidiary) until rescinded b. plaintiff cannot return what must be restored c. object in the hands of 3rd persons in good faith VALID until rescinded
WHO CAN ASSAIL?
WHEN TO ASSAIL?
CURABLE? HOW?
WHO CAN CURE?
WHEN TO CURE?
By ward Or by guardian ad litem of ward during incapacity of ward in action against original guardian
By absentee
By plaintiffcreditor By heirs of creditor BY creditors of creditors injured (accion subrogatoria) By
Within 4 years from gaining (minor) or regaining (insane) capacity
YES By ratification (Confirmation by the ward)
By ward
Within 4 years from (re)gaining capacity
Within 4 years from knowledge of domicile of absentee
YES By prescription
By absentee
Within 4 years from knowledge of domicile or knowledge of fraudulent contract
Within 4 years from knowledge of fraudulent contract
YES By prescription
By creditor
Within 4 years from knowledge of fraudulent contract
Within 4 years from knowledge of fraudulent contract
YES By prescription
By party litigant
Within 4 years from knowledge of fraudulent contract
other third parties prejudiced by the contract
By party litigant
DEFECTIVE CONTRACTS
VOIDABLE (Arts 1390 – 1402) Vitiated consent EFFECT: Cleanses defect of contract Does not prejudice right of 3P prior to ratification Mutual restitution
AS TO NATURE OF DEFECT
EFFECT ON CONTRACT
ASSAILABLE? HOW?
Want of capacity - age - insanity
Consent is vitiated by: - mistake or error - violence and intimidation (duress) - undue influence - fraud, misrepresentation
VALID until annulled by court action
YES. Both through direct and collateral attacks. Action for annulment
WHO CAN ASSAIL?
WHEN TO ASSAIL?
All who are obliged principally or subsidiarily (i.e. guarantors and sureties)
Within 4 years from cessation of (re)gaining capacity
Incapacitated party; not the party with capacity Victim; not the party who cause the defect
Within 4 years from: - cessation of intimidation, violence, undue influence (consensual defect) - discovery of mistake or fraud
CURABLE? HOW? YES By ratification By prescription YES 1 By ratification - Express - Implied (silence or acquiescence, acts showing approval or adoption of contract, acceptance and retention of benefits)
WHO CAN CURE?
By parties themselves By guardian in behalf of an incapacitated party during existence of incapacity
2 By prescription
UNENFORCEABL E (Arts 1403 – 1408)
Contract entered into name of another without authority or in excess of authority
VALID but cannot be ENFORCED by a proper action in court
Contracts covered by Statute of Frauds and not complying with requirement of a written memo
VALID but cannot be ENFORCED by a proper action in court
YES. Not by direct action but by DEFENSE of unenforceability of contract through motion to dismiss complaint on the ground that contract is unenforceable YES. Not by direct action but by DEFENSE of unenforceability of contract either through: 1. motion to dismiss complaint on the ground that contract is unenforceable 2. objection to presentation of oral evidence to prove contract
By owner of property
At any time one party attempts to enforce contract against the other through a court action
By ratification
Person in whose name the contract was entered into
By other party By his privies (heirs, representatives and assigns)
At any time one party attempts to enforce contract against the other through a court action
By acknowledgement By performance of oral contract
By party against whom the contract is being enforced
By failure to object seasonably to presentation of oral evidence By acceptance of benefits under the contract
WHEN TO CURE? Within 4 years from cessation of (re)gaining capacity Within 4 years from: - cessation of intimidation, violence, undue influence (consensual defect) - discovery of mistake or fraud
Both parties are legally incapacitated to act
DEFECTIVE CONTRACTS VOID or INEXISTENT (Arts 1409 – 1422)
AS TO NATURE OF DEFECT
VALID but cannot be ENFORCED by a proper action in court
EFFECT ON CONTRACT
YES. Not by direct action but by DEFENSE of unenforceability of contract through motion to dismiss complaint on the ground that contract is unenforceable
ASSAILABLE? HOW?
By other party By his privies (heirs, representatives and assigns) By guardian
WHO CAN ASSAIL?
Cause, object or purpose of contract contrary to law, good customs, morals, public order or public policy (Art 1401, Par 1)
DOES NOT CREATE RIGHTS AND CANNOT IMPOSE OBLIGATION
YES. By an action for declaration for nullity By defense of nullity
By innocent party
One or some of essential requisites of valid contract lacking in fact or in law a. Absolutely simulated b. Those whose cause or object did not exist c. Object outside the commerce of man d . C on te mp la te an impossible service e. Where intention of parties re: principal object of contract cannot be ascertained (Art 1402 Pars 2 to 6)
DOES NOT CREATE RIGHTS AND CANNOT IMPOSE OBLIGATION
YES. By an action for declaration for nullity By defense of nullity
By any of the contracting parties By 3rd persons whose interests are directly affected
At any time one party attempts to enforce contract against the other through a court action
WHEN TO ASSAIL?
By parents or guardians of both parties By confirmation Both parties after (re)gaining capacity to act
CURABLE? HOW?
WHO CAN CURE?
WHEN TO CURE?
Imprescriptible
Cannot be cured
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Imprescriptible
Cannot be cured
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By 3rd persons whose interest are directly affected (If in pari delicto, neither has an action against each other)
Contracts expressly prohibited by law (Art 1409 Par 7)
DOES NOT CREATE RIGHTS AND CANNOT IMPOSE OBLIGATION
YES. By an action for declaration for nullity By defense of nullity
By party whose protection the prohibition of the law is designed By 3rd party whose interests are directly affected
