RESCISSIBLE

Valid until rescinded. The defect is extrinsic defect consisting of an economic damage or lesion.

VOIDABLE
Valid until annulled. Annullable unless ratified. If ratified, the contract is cleansed of its defect. This contract is effective now, but may invalidate. Those which possess all the essential requisites of a valid contract but one of the parties are incapable of giving consent, or consent is vitiated by mistake, violence, intimidation, undue influence or fraud. NULLITY it is imperfection of a contract derived from the determinate vices or capacity, or of the consent of the parties which gives rise to an action of nullity, which if exercised successfully, produces the destruction of the act with retroactive effect.

UNENFORCEABLE
Cannot be sued upon or enforced unless it is ratified. These are validable contracts. No effect now, but they may be effective upon ratification Those that cannot be enforced in court or sued upon by reason or defects provided by law until and unless they are ratified according to law. CONCEPT: An unenforceable contract is ne which cannot be enforced unless it is first ratified. These are called contracts without effect, but it ratified, they are valid contracts. Sometimes are called VALIDABLE contracts.

VOID
One that has no effect at all. It cannot be ratified or validated. This is also called INEXISTENCE CONTRACTS.

RESCISSION Is a process to render inefficacious a contract validly entered into and normally binding, by reason of external conditions, causing an economic prejudice to a party or to his creditor. Is a relief to protect one of the parties or a third person from all injury and damages which the contract may cause, to protect some preferential right. REQUISITES OF RESCISSION 1. 2. 1. A contract initially valid A lesion or pecuniary prejudice 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; Those agreed upon in the 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 defendants without the knowledge and approval of the litigants or of competent judicial

These are contracts which have absolutely no force and effect and are inexistent from the beginning. The maxims is No Contract At All

Even though there may have been no damage to the contracting parties: 1. 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 or fraud;

2.

2.

3.

*Contracts are BINDING, unless they are ANNULLED by a proper action in court. They are susceptible of ratification.

4.

Unless they are ratified: 1. Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; 2. Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing or a

1.

2. 3.

4. 5.

6.

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 the intention of the parties relative to the principal object of the contract cannot be ascertained; Those expressly prohibited or declared void by law.

5.

authority; All other contracts specially declared by law are subject to rescission.

DISTINGUISH RESCISSION FROM ANNULMENT ( OR RESCISSIBLE FROM VOIDABLE CONTRACTS) RESCISSIBLE/RESCISSION The basis is lesion or damage. The basis is external in meeting of minds. The action is subsidiary. Is a remedy. There must be damage to the plaintiff. To prevent rescission, ratification is not required. VOIDABLE/ ANNULMENT It is vitiated consent or incapacity to consent. It is intrinsic in meeting of minds. The action is principal Is a sanction. Damage is immaterial. Ratification is required. DISTINGUISH VOIDABLE TO UNENFORCEABLE VOIDABLE Valid and enforceable until annulled. Capable of being sued upon until annulled. UNENFORCEABLE Not enforceable unless ratified. Cannot be sued upon unless they are ratified.

secondary evidenced of its contents; a. An agreement that by its terms is not to be performed within a year from the making thereof; A special promise to answer for the debt, default or miscarriage of another; An agreement made in consideration of marriage, other than a mutual promise to marry; An agreement for the sale of goods, chattels or things in action, at a price not less than 500.00, unless the buyer accept and receive part of such goods and chattels, the evidenced, or some of them, of such things in action, or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, or the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is sufficient memorandum; An agreement for the leasing for a longer period than one year or for the sale of real property or of interest therein;

SPECIAL CLASSIFICATION OF VOID CONTRACTS 2 Kinds of Void Contracts a. The inexistence ones. The formalities required by law were not met. The contract has no effect at all Donation of land in a private instrument. b. Illegal of illicit ones Donation made with immoral condition such as sexual intercourse.

LESION injury suffered, in consequence of inequality of situation, by one who does not receive the full equivalent for what he gave in a commutative contract. REQUISITES OF PREMATURE PAYMENT A. B. Debtor or the person paying must be in the state of insolvency The debt is not yet due or demandable.

b.

c.

d.

REQUISITES TO CONCUR BEFORE ACTION FOR RESCISSION CAN BE INSTITUTED a. The party seeking rescission can return what he received by virtue of the contract. The object of the contract is not in the legal possession of a third person who acted in good faith There must be no other legal remedy The action must be brought within the proper prescriptive period.

SOME OF THE CHARACTERISTICS OF A VOID CONTRACT 1. 2. 3. Defense or illegality cannot be waived. They are not subject to ratification. The action to declare the contract inexistence does not prescribe. Generally no action to declare them void is needed. The defense of illegality of contracts is not available to third persons whose interests are not directly affected.

b.

c. d.

4. 5.

REQUISITES FOR RESCISSION OF CONTRACTS IN FRAUD O CREDITORS 1. 2. 3. The existence of a credit. That said credit must be prior to the contract to be rescinded. The existence of fraud or bad faith on the part of the debtor which can be either be presumed or proved. 4. The creditors cannot recover their credits in any other manner.

DISTINGUISH VOID AND INEXESTINE CONTRACTS FROM THE OTHER DEFECTIVE CONTRACTS void or inexistence contract may be distinguished from a rescissible contract in the following ways: a. A void or inexistence contract produces as a rule, no effect, even if it is not set aside by a

e.

4.

DISTINGUISH VOIDABLE TO VOID AD INITIO 3. VOIDABLE Valid until annulled by a proper action in court All the essential requisites are present but there is a defect in the consent Susceptible of ratification Attacked only by the parties and their privies The action to declare the nullity prescribes VOID No court action is required Not all essential requisites are present because either the consent is missing or fictitious, or there is want of cause or the cause is illicit Cannot be ratified rd Attacked by 3 persons whose interests are directly infected The action to declare a contract does not prescribe CONFIRMATION- Is the act of purging the voidable contracts of its defect through the renunciation of the action of nullity made by the person who can invoke the vice or defect of said contract. ACKNOWLEDGEMENT- is the act of curing the deficiency of proof when in a document whereby an agreement made verbally is admitted or a private document is made a public document. KINDS OF RATIFICATION A. EXPRESS ( Oral or Written) B. Tacit (Implied)

f.

A representation as to the credit of a third person Those where both parties are incapable of giving consent to a contract.

b.

DISTINGUISH UNENFORCEABLE FROM VOIDABLE AND RESCISSIBLE Voidable and rescissible are valid and binding until annulled or rescinded, while unenforceable contracts are without effect unless ratified.

direct action, whereas a rescissible contract is valid unless it is rescinded. The defect of the former consists in absolute lack in fact or in law of one or some or all of the essential elements of a contract

c. KINDS OF UNENFORCEABLE CONTRACTS 1. Those executed by one in the name of another without any authority or in excess of such authority. Those that do not comply with The Statute of Fraud. Those were both parties are incapable of giving consent.

ENUMERATE SOME INSTANCES CONSIDERED BY THE COURT AS BADGES OF FRAUD A. The fact that the consideration of the conveyance is fictitious or inadequate. A transfer made by a debtor after suit has begun and while it is pending against him. A sale on credit by an insolvent debtor. Evidence of large indebtedness or complete insolvency Transfer of all or nearly of his property by a debtor, especially when he is insolvent or greatly embarrassed financially. The fact that the transfer is made between father and son, when the above circumstances are present. The failure of the vendee to take exclusive possession of all the property. Gross disparity between the price

d.

B.

2. 3.

C. D. E.

UNAUTHORIZED OR DISAUTHORIZED CONTRACTS Contracts entered into in the name of another person by one who has been given no authority or legal representation or who has acted beyond his power are unenforceable unless ratified. STATUTE OF FRAUDS It is a law which requires that certain contracts must be in writing, otherwise unenforceable.

The action for the declaration of the nullity or inexistence of a contract is imprescriptibly, whereas the action for the rescission of a contract is prescriptive. The nullity or inexistence of a contract cannot, as a rule, be assailed by third persons whose interests are not directly affected, whereas the rescissible character of a contract may be assailed by third persons.

VOID CONTRACT MAY BE DISTINGUISHED FROM VOIDABLE CONTRACT IN THE FOLLOWING WAYS a. A void or inexistence contract produces, as a rule, no effect even if it is not set aside by a direct action, whereas voidable contract is binding unless it is annulled.

F.

G.

H.

and real value of the property.

Purpose: Since memory is many times unreliable, oral agreement may sometimes result in injustice. To aid human memory and to discourage intentional misrepresentations are the principal aims of the Statute of Frauds.

b.

The former is not susceptible of ratification, whereas the latter is susceptible of ratification

c. WHAT ARE THE PRESUMPTIONS OF FRAUD IN A RESCISSIBLE CONTRACTS A. GRATUITOUS CONTRACTScontracts entered into by the debtor, when he did not reserve sufficient property to pay his debts before donation, are considered fraudulent. ONEROUS CONTRACTS1. Made by persons against whom some judgment has been rendered even if not yet final. 2. Made by persons against whom some writ of attachment has been issued. The decision or attachment need not refer to the property alienated. REQUISITES OF RATIFICATION A. The contract must be voidable B. The person ratifying knew the reason why the contract is voidable C. The ratification must be have been made expressly or impliedly D. The ratification is made by the injured party. *The moment the contract is ratifies, it is cured of its defects and therefore annulment on the original defects cannot prosper. PERSONS WHO ARE ENTITLED TO ASK FOR ANNULMENT The victim or injured party in a voidable contract can ask for annulment. WHAT IS THE EFFECT OF THE ANNULMENT OF A VOIDABLE CONTRACT A. If the contract is executor, the parties are not bound to comply with their prestation FORM REQUIRED Contracts falling under the Statute of Frauds are required to be in writing or there should be a note or memorandum subscribed by the party charged, or his agent. Failure to execute the contract in Writing does not render the contract void but only unenforceable. APPLICATION Statute of Frauds is applicable only to executor contracts and not to contracts totally or partially executed. Contracts covered by Statute of Frauds An agreement by its terms is not to be performed within a year from the making thereof. This statute of Frauds is applicable only to agreements not o be performed within a year from the making thereof. Agreements therefore to be performed within one year from the making are not covered by the law. b. A special promise to answer for the debt, default, or miscarriage of another a.

d.

B.

The action for declaration of the nullity or inexistence of a contract is imprescriptible, whereas the action for the annulment of a contract is prescriptible. The defense of inexistence or absolute nullity is available to third persons whose interests are directly affected, whereas the defense of annulability is not available by third persons.

VOID CONTRACT MAY BE DISTINGUISHED FROM AN UNENFORCEAABLE CONTRACT IN THE FOLLOWING WAYS: a. In void or inexistence contract, there is in law or in reality no contract at all, whereas in an unenforceable contract, there is actually a contract which cannot be enforced by a court action unless it is ratified.

GIVE EXAMPLES OF CONTRACTS SPECIALLY DECLARED BY LAW TO BE RESCISSIBLE A. The unpaid sellers right to rescind if buyer failed to pay the price of the sale Violation of warranty against hidden defects Sale of real estate for a lump sum price, if vendor cannot deliver what is stated within the boundaries.

B.

B. C.

If the contract was already executed, the parties shall restore to each other the object of the contract, that is, the money plus interest, the property together with its fruits. However, if the ground for annulment is incapacity of the other party, the party is in capacitated is bound to return only to the extent he was benefited.

c.

d.

e.

An agreement made in consideration of marriage other than mutual promise to marry An agreement for the sale of goods, chattels, or things in action at a price of 500.00 or more. An agreement for the leasing for a longer period than one year or the sale of real property or an interest therein.

The former is not susceptible of ratification, while the later is susceptible of ratification. c. The former can be assailed by third persons whose interests are directly affected, whereas the latter cannot be assailed by third persons. SIMULATED CONTRACTS Simulation takes place when the parties do not really want the contract they have executed to produce the legal effects expressed by its wordings. Simulation or vices of declaration maybe absolute or relative. An absolutely simulated contract of sale is void ab initio and transfers no ownership right. The purported buyer, not being the owner, cannot validly mortgage the subject property. Consequently, neither does the buyer at the foreclosure sale acquire any title thereto.

b.

ESSENTIAL FEAUTURES OF RESCISSIBLE CONTRACTS A. The action for rescission is subsidiary. It cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same (Art.1383) Rescission shall be only to the extent necessary to cover the damage caused. (Art.1384) Rescission creates the obligation to return the things which were the object of the contract, together with their fruits and the price with its interest. Consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad

C.

The guilty party is liable to answer for damages.

WHO CAN FILE THE ACTION FOR ANNULMENT A. For incapacity the person incapacitated B. For vitiated consent the injured party LOSS OF THE THING WHILE IN THE POSSESSION OF THE PARTY AT FAULT A.IF DUE TO HIS FAULT 1. To return the value of the thing at the time of loss 2. Interest on the value of the thing 3. Fruits received B. IF DUE TO FORTUITOUS EVENT 1. The value of the thing at the time of loss but no interest 2. Fruits received

B.

C.

INSTANCES COVERED: 1. If the lease or one year or less, oral contract is enforceable even if the object is real or personal property. 2. If the lease is for more than one year and the object is immovable, it must be in writing, otherwise unenforceable. 3. If it is sale of immovable property, irrespective of the price of the sale, it must be in writing, otherwise unenforceable. SUFFICIENCY OF THE NOTE OR MEMORANDUM The note or memorandum is sufficient if it contains the name of the contracting parties, the date, and the place of the contract, the terms and condition, the description of the object. And the signature of the party assuming the obligation.

EFFECTS OF CONTRACTS WHERE THERE IS A CRIME OFFENSE 1. Those where both parties are guilty SALE OF OPIUM Effects; No right of action against each other Both will be prosecuted

D.

faith. Indemnity for damages may be demanded from the person causing the loss. The action to claim rescission must be commenced within 4 years. For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the formers incapacity, or until the domicile of the latter is known. (Art. 1389)

LOSS OF THE THING WHILE IN THE POSSESSION OF THE PARTY WHO AN ANNUL THE CONTRACT A. IF DUE TO HID FAULT- the right to annul is extinguished. In short, the party has no more right o annul. IF DUE TO FORTUITOUS EVENT- the contract can still be annulled, unless if the innocent party could no longer restore what, by virtue of the decree of annulment, he is bound to return. 2.

Effects or instrument of the crime will be confiscated in favor of the government

B.

EFFECTS OF BAD FAITH IN CASE OF ALIENATION A. FIRST TRANSFER 1. The transfer must return or indemnify. 2. Loss due to any cause induces fortuitous event. SUBSEQUENT TRANSFER 1. If the transferee is in good faith, the good faith or bad faith of the next transferee is not important. 2. If the transferee is in bad faith, the next transferee is liable only if he is also in bad faith.

Only one party is guilty S sold a government property to B, who is in good faith Effects; The guilty party will be prosecuted Property sold, as the instrument of the crime, will be confiscated in favor of the government Innocent party can claim what he has given.

B.

MUTUAL RESTITUTION - If a voidable contract is annulled, the parties shall return to each other what they have received. Such that if one cannot restore what he is required to return, the other cannot be compelled to return what he received. This article reiterates the principle of mutuality and reciprocity.

PRESCRIPTIVE PERIOD FOR RESCISSION Action for rescission shall be commenced within 4 years from the date it was entered into: a. If the person is under guardianship, within 4 years from the time guardianship ceases. b. In case of absentees within 4 years from the time the domicile is known.

Art. 1412 If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: 1. When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the others undertaking 2. When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.

THE FOLLOWING PERSON CAN BRING THE ACTION FOR RESCISSION a. Injured party b. Heirs of the injured party c. Creditors, if the transaction is fraudulent.

EFFECTS OF CONTRACTS WHERE THERE IS NO CRIMINAL INTENT 1. Those where both c parties are guilty, neither party may recover what he has given by virtue of the contract, or demand the performance of the others undertaking Those when only one is guilty or at fault or one party is less guilty than the other: a. The guilty party cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him b. The party not at fault may demand the return of what he has given, without any obligation to comply with his promise.

2.

PRINCIPLE OF IN PARI DELICTO Where the defect of a void contract is the illegality of the cause or object of the contract, both parties are at fault or in pari delicto. No remedy could be given to any of the parties, and the court leaves them where they are. This is universally accepted principle in law under the maxim he who comes to court must do so with clean hands. This is not absolute and the following are some of the exceptions: a. Fictitious or absolute simulated contracts because they are inexistence Payment of usurious interest, the law allows recovery of the principaland the legal interest.

b.

c.

d.

e.

When public policy intervenes Example: In sale of homestead land, the owner may recover the land under the principle, land for the landless Payment of any amount in excess of the maximum price of any article or commodity fixed by law, the buyer may recover the excess. One of the parties in a contract is less guilty than the other.