Law on Contracts

1. Defective contracts a. Rescissible contract – valid until rescinded; b. Voidable contract – valid until annulled; c. Unenforceable contract – cannot be sued upon or enforced unless ratified; d. Void contract – no effect at all, cannot be ratified or validated 2. Rescission Rescission is the remedy granted by law to the contracting parties and sometimes even to third persons in order to recover indemnity for damages caused them by a contract, even if such contract be valid, by means of restoration of things to their condition prior to the celebration of contract. 3. Requisites for the rescission of contract 1.

The party seeking rescission can return what he received by virtue of the contract. 2. The object of the contract is not in the legal possession of a third person who acted in good faith. 3. There must be no other legal remedy. 4. The action must be brought within the proper prescriptive period. 4. Prescriptive period for rescission Action for rescission must be commenced within 4 years from the date it was entered into. (Guardianship – from the time guardianship ceases; Absentees – from the time the domicile is known) 5. Rescissible contracts a. Those made by guardians when their wards suffer lesion by more than ?

of the value of the things which are the object thereof; b. Those agreed upon in behalf of absentees if the latter suffer the lesion stated above; c. Those made in fraud of creditors provided the following requisites are present: i. There must be credit prior to the contract to be rescinded; ii. Fraud on the part of the debtor; iii. Creditor cannot recover his credit in any other manner. d. Those which refer to things under litigation made by defendants without the knowledge and approval of the litigants or of competent judicial authority. e. All other contracts especially declared by law to be subject to rescission.

6. Voidable contract It is a contract which possesses all 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. Prescriptive period The action for annulment must commence within 4 years (intimidation, violence or undue influence – from the time the defect of the consent ceases; mistake or fraud – from the time of the discovery of the same). Requisites for ratification 1. Contract must be voidable 2. Person ratifying knew the reason why the contract is voidable 3.

Ratification must have been made expressly or impliedly 4. Ratification is made by injured party Effects of annulment of voidable contract a. If the contract is executor, the parties are not bound to comply with their prestation. b. If the contract is already executed, the parties shall restore to each other the object of the contract. c. The guilty party is liable to answer for damages. 7. Unenforceable contract It is a contract that cannot be enforced in court or sued upon by reason of defects provided by law until they are ratified according to law. Kinds of unenforceable contracts 1.

Those executed by one in the name of another without any authority or in excess of such authority; 2. Those that do not comply with the Statute of Frauds; 3. Those where both parties are incapable of giving consent/ Statute of Frauds The Statute of Frauds, found in Art. 1403, No. 2, Civil Code, is the rule which requires that certain agreements or some note or memo thereof, shall be in writing and subscribed by the party charged or by his agent; otherwise, such agreement shall be unenforceable by action because evidence of the same cannot be received without the writing or a secondary evidence of its contents.

Agreements that must appear in writing to be enforceable 1. Agreement that by its terms is not to be performed within a year from making thereof; 2. Special promise to answer for the debt, default or miscarriage of another; 3. Agreement made in consideration or marriage other mutual promise to marry 4. Agreement for sale of goods, chattels or things in action at a price not less than 500, unless there has been partial delivery of payment; 5. Agreement for the leasing for more than 1 year, or for the sale of real property or of an interest therein, unless it has been partially executed; 6.

Representation as to the credit of a third person 8. Void contract It is a contract which has absolutely no force and effect and is inexistent from the beginning Classes of void contracts 1. Inexistent contracts or those where a requisite or some of the essential requisites of a contract are lacking or where the formalities prescribed by law for validity are not complied with. 2. Illegal or illicit contracts or those where the essential requisites of a contract are present but the cause, object or purpose is contrary to law, morals, etc.

In legal effect, there is no distinction between a void and an inexistent contract. Examples 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 (but future things may legally be the object of a contract). 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 by law. Characteristics of void contract 1. It produces no effect. 2. It cannot be ratified. 3. It cannot give rise to valid contract. 4. The right to set up the defense of illegality cannot be waived. 5. The defense of illegality is available to the third persons only when their interests are directly affected. 6. The action does not prescribe.