FOUR (4) KINDS OF DEFECTIVE CONTRACTS

RESCISSIBLE Valid until rescinded Based on lesion or fraud upon creditors The action to rescind is done by contracting parties or by third persons Courts cannot grant a period or term within which to comply Non-performance by the other party is immaterial The action is subsidiary Rescission is only up to the extent necessary to cover damages No rescission when the object of the contract is legally in the possession rd of 3 person who did not act in bad faith Indemnity for damages may be demanded from the person who caused the loss. There must be damage to the plaintiff If plaintiff is indemnified, rescission cannot prosper VOIDABLE Valid till annulled One party is incapable of giving consent Consent is vitiated by mistake, violence, intimidation, undue influence or fraud May be ratified only by the injured party impliedly or expressly Ratification may be effected by the guardian of the incapacitated person Plaintiff must be party to the contract May be cured by prescription UNENFORCEABLE Cannot be sued upon or enforced, unless ratified. No effect but may be effective upon ratification. Unauthorized contracts Fails to comply with the Statute of Frauds Both parties are incapable of giving consent rd Cannot be assailed by 3 person May be ratified There is a contract but the court cannot enforce it VOID or INEXISTENT No effect at all Cannot be ratified or validated. Void from the beginning Cannot be cured by prescription Can be assailed by anybody directly affected Cause, object or purpose is contrary to laws and morals. Fictitious Cause or object is nonexistent at the time of transaction Object is outside the commerce of men Obligation is impossible Intention of the parties cannot be ascertained Obligation is unlawful No action to declare them void is needed since they are inexistent from the beginning

Prescriptive Period: From the time the defect of consent ceases: in cases of intimidation. Violence or undue influence From the time of the discovery of fraud: in cases of fraud From the time the guardianship ceases: in cases of contracts entered into by minors/incapacitated persons Effects of Ratification: Action to annul is extinguished

Requisites for Rescission: There must be at the beginning either a valid or a voidable contract There is an economic or financial prejudice to party/ies. Requires mutual

restitution Effects of Rescission: The object of the contract is returned, together with its fruits and price with interest Prescriptive Period: General Rule: 4 years from the date the contract was entered into. Persons under guardianship: 4 years from termination of incapacity. Absentees: 4 years from the time the domicile is known. Who can bring the Action? Injured party (defrauded creditor) Heir or successor-ininterest Creditors of the injured party or of the heir or successor-in-interest

Contract is cleansed of its defect from the beginning

Who may Annul? The victim (principal or subsidiary party) Effects of Annulment Parties have no obligation if contract has not yet complied with There must be Mutual Restitution of the thing, with fruits and the price, with interest if contract has already been performed