DEFECTIVE CONTRACTS
• Rescissible Contracts
• Voidable Contracts
• Unenforceable Contracts
• Void Contracts
RESCISSIBLE CONTRACTS
• Valid because all the essential requisites of a contract exist but by
reason of economic injury or damage to one of the parties or to
3rd persons, such as creditors, the contract may be rescinded .
Recission
-A remedy granted by law to the contracting parties and sometimes
even to 3rd persons in order to secure the reparation of damages
caused them by a valid contract, by means of the restoration of
things to their condition in which they were prior to the celebration
of said contract.
The following contracts are rescissible:
• Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
• Those agreed upon in representation of absentees, if the latter suffer
the lesion stated in the preceding number;
• Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
• Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the
litigants or of competent judicial authority;
• All other contracts specially declared by law to be subject to
rescission.
The following contracts are rescissible:
• Article 1382. Payments made in a state of insolvency for
obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also rescissible.
G is the guardian of M (a minor). G sells the property of M worth
P20,000 for only P15,000.
The contract of sale cannot be rescinded because the lesion It's not
more than 1/4. However, if the property is sold for less than
P15,000, M can receive the sale by proper action in court upon
reaching the age of majority.
VOIDABLE CONTRACTS
• Those which possess all the essential elements for validity but the
consent is vitiated either by lack of legal capacity of one of the
contracting parties or by mistake violence, intimidation, undue
influence or fraud even though there may have been no damage to
the contracting parties.
• Valid until annulled.
Cause- The following contracts are
voidable or annullable:
• Those where ONE of the parties is incapable of giving consent to a
contract;
• Those where the consent is vitiated by mistake, violence,
intimidation, undue influence of fraud (Art. 1390)
Example/s:
• A 16-year-old signs a Deed of Absolute Sale buying a parcel of
land.
• A person forced to sign an agreement
• Fraud has been defined to include an inducement through
insidious machination. Insidious machination refers to a deceitful
scheme or plot with an evil or devious purpose.
Who May Institute Action For Annulment
Action for annulment may be instituted by all who are thereby
obliged principally or subsidiarily. A stranger to the contract cannot
institute an action for annulment. [Article 1397]
Requisites For Action For Annulment:
1. Plaintiff must have interest in the contract; and
2. Plaintiff is the victim and not the party responsible for the vice or
defect.
UNENFORCEABLE CONTRACTS
• Those that cannot be enforced or given effect in court of
law or sued upon by reason of certain defects provided by
law until and unless they are ratified according to law.
• Those entered into the name of another by one without, or
acting in excess of, authority;
• Those that do not comply with the Statute of Frauds; and
• Those were both parties are incapable of giving consent.
• Unauthorized contracts
- Those entered into the name of another person by one who has been
given no authority or legal representation or who has acted beyond
powers.
An employee of ABC Ltd., without being granted authority, signs a purchase
agreement for equipment on behalf of the company. The company did not
authorize this transaction and does not later ratify it.
Two minors, both under the age of 18, enter into a contract for the sale of a
used bicycle. One agrees to sell it; the other agrees to buy it.
VOID CONTRACTS
In general, they are those which lack absolutely either in fact or in
law one or some of the elements essential for its validity.
Note: The defense of illegality of contract is not available to third
persons whose interests are not directly affected (Art. 1421)
A contract which is the direct result of a previous illegal contract, is
also void and inexistent (Art. 1422)
Contracts which are INEXISTENT and VOID
AB INITIO
• Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
• Those which are absolutely simulated or fictitious;
• Those whose cause or object did not exist at the time of the
transaction;
• Those whose object is outside the commerce of men;
• Those which contemplate an impossible service;
• Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained; and
• Those expressly prohibited or declared void by law. [Article 1409]
Examples of void contracts:
1. A contract to sell a public road or a river.
2. A contract where a party agrees to bribe a public official.
3. A person already married contracts another marriage without the first
being annulled or declared void.
4. A marriage performed by someone who is not authorized (e.g., not a
judge, priest, imam, etc.).
5. A "company" that has not been legally registered enters into a
construction agreement with another firm.
6. A person donates real property orally or in writing without a public
instrument and written acceptance.
7. A 17-year old entered a contract of marriage
Natural Obligations
-those based on equity and natural law, which are not enforceable
by means of a court action, but which, after voluntary fulfillment by
the obligor, authorize the retention by the obligee of what has been
delivered or rendered by reason thereof.
Reimbursement for payment by third
person for a prescribed civil obligation
• When without the knowledge or against the will of the debtor, a third
person pays a debt which the obligor is not legally bound to pay
because the action thereon has prescribed, but the debtor later
voluntarily reimburses the third person, the obligor cannot recover
what he has paid. (Article 1425)
Requisites
1. a debt;
2. the right of action over the debt having prescribed;
3. payment made by a third person;
4. such payment being against the will or without the knowledge of the debtor; and
5. debtor's act of reimbursing the third person for the payment made. In this case,
the debtor can no longer recover what he has paid; this is a natural obligation.
D owes C ₱500,000 under a written loan contract. The prescriptive
period of 10 years has passed. C cannot sue in court anymore.
D, knowing the debt is prescribed, voluntarily pays the ₱500,000.
D cannot recover what was paid. This is a natural obligation — it
cannot be enforced by action, but once voluntarily performed, it
produces legal effects.
Voluntary performance despite
failed action
• When, after an action to enforce a civil obligation has failed, the
defendant voluntarily performs the obligation, he cannot demand the
return of what he has delivered or the payment of the value of the
service he has rendered. (Article 1428)
Example:
Carla owed Juan ₱300,000. The obligation has prescribed (10 years
passed without judicial action). Carla voluntarily pays the debt anyway.
Effect: She cannot recover the amount. Payment of a prescribed civil
obligation is a natural obligation.
Payment by heir
When a testate or intestate heir voluntarily pays a debt of the
decedent exceeding the value of the property which he received by
will or by the law of intestacy from the estate of the deceased, the
payment is valid and cannot be rescinded by the payer. (Article
1429)
Requisites:
1. the decedent incurred a debt;
2. his heir voluntary pays the debt;
3. and the debt exceeds the value of the heir's share.
Example:
Mario is the son and heir of his late father, Juan, who passed away leaving an
estate valued at ₱300,000. However, at the time of his death, Juan owed a debt
of ₱500,000 to a creditor. According to Philippine law, an heir is only liable for
the debts of the deceased up to the value of the inheritance. Therefore, Mario is
legally responsible for paying the ₱300,000 of his father's debt, but not the full
₱500,000. Despite this, Mario, out of his own sense of duty and generosity,
decides to pay the remaining ₱200,000 of his father’s debt, even though the
estate does not cover this amount. Although Mario was not legally required to
pay the excess debt, his decision to voluntarily do so creates a natural
obligation under Article 1428 of the Civil Code of the Philippines. In this case,
the payment, while not enforceable by the creditor, is irrevocable because
Mario made the payment voluntarily. As a result, Mario cannot recover the
₱200,000 he paid beyond the inheritance’s value, as it was a voluntary
performance of a moral duty rather than a legally compelled action.
• Eduardo borrowed ₱100,000 from his friend Carla. After 12 years,
Eduardo has not paid the debt, and the creditor (Carla) did not file
any suit during the prescriptive period. Eduardo later, of his own
free will, decides to pay Carla the full ₱100,000.
1. Is Eduardo required to pay the debt, even though the obligation is
already prescribed?
2. What legal effect does his voluntary payment have under
Philippine law?
• Javier and Martin enter into a contract where Javier agrees to sell
Martin a large quantity of illegal drugs. The contract is signed, but
both parties know that the object of the contract is illegal under
Philippine law.
1. Is the contract between Javier and Martin valid?
2. What is the legal status of the contract under Philippine law, and
what consequences arise from such an agreement?