DEFECTIVE CONTRACTS

Professor E. A. Labitag
DEFECTIVE CONTRACTS 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)

EFFECT ON CONTRACT

ASSAILABLE? HOW?
YES but only through DIRECT action for rescission No rescission if: a. plaintiff has other legal means to obtain reparation (subsidiary) b. plaintiff cannot return what must be restored c. object in the hands of 3rd persons in good faith d. Contract approved by court (Art 1386)

WHO CAN ASSAIL?

By ward Or by guardian ad litem of ward during incapacity of ward in action against original guardian

WHEN TO ASSAIL?
Within 4 years from gaining (minor) or regaining (insane) capacity

CURABLE? HOW?
YES By ratification (Confirmation by the ward)

WHO CAN CURE?

WHEN TO CURE?

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

VALID until rescinded

By ward

Within 4 years from (re)gaining capacity

VALID until rescinded

By absentee

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

VALID until rescinded

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

VALID until rescinded

VALID until rescinded

YES but only through DIRECT action for rescission No rescission if: a. plaintiff has other legal means to obtain reparation (subsidiary) b. plaintiff cannot return what must be restored c. object in the hands of 3rd persons in good faith

By plaintiffcreditor By heirs of creditor BY creditors of creditors injured

(accion subrogatoria) By

Within 4 years from knowledge of fraudulent contract

YES By prescription

By creditor

Within 4 years from knowledge of fraudulent contract

other third parties prejudiced by the contract Within 4 years from knowledge of fraudulent contract Within 4 years from knowledge of fraudulent contract

By party litigant

YES By prescription

By party litigant

DEFECTIVE CONTRACTS

AS TO NATURE OF DEFECT
Want of capacity - age - insanity

EFFECT ON CONTRACT

ASSAILABLE? HOW?

WHO CAN ASSAIL?

All who are obliged principally or subsidiarily (i.e. guarantors and sureties)

WHEN TO ASSAIL?
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 At any time one party attempts to enforce contract against the other through a court action

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?

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

VOIDABLE
(Arts 1390 1402) Vitiated consent EFFECT: Cleanses defect of contract Does not prejudice right of 3P prior to ratification Mutual restitution

By parties themselves By guardian in behalf of an incapacitated party during existence of incapacity

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

Incapacitated party; not the party with capacity Victim; not the party who cause the defect

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

2 By prescription 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 failure to object seasonably to presentation of oral evidence By acceptance of benefits under the contract

By party against whom the contract is being enforced

Both parties are legally incapacitated to act

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

By other party By his privies (heirs, representatives and assigns) By guardian At any time one party attempts to enforce contract against the other through a court action By parents or guardians of both parties By confirmation Both parties after (re)gaining capacity to act

DEFECTIVE CONTRACTS
VOID or INEXISTENT (Arts 1409 1422)

AS TO NATURE OF DEFECT
Cause, object or purpose of contract contrary to law, good customs, morals, public order or public policy (Art 1401, Par 1)

EFFECT ON CONTRACT
DOES NOT CREATE RIGHTS AND CANNOT IMPOSE OBLIGATION

ASSAILABLE? HOW?
YES. By an action for declaration for nullity By defense of nullity

WHO CAN ASSAIL?

By innocent party By 3rd persons whose interest are directly affected (If in pari delicto, neither has an action against each other) By any of the contracting parties By 3rd persons whose interests are directly affected

WHEN TO ASSAIL?
Imprescriptible

CURABLE? HOW?
Cannot be cured

WHO CAN CURE?

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WHEN TO CURE?
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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. Contempla 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

Imprescriptible

Cannot be cured

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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

Imprescriptible

Cannot be cured

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