OBLICON.table of Contracts and Other Notes

DLSU-COL| OBLIGATIONS AND CONTRACTS | ATTY. JOYCE CRUZ | KAREN MAE CRUZ | 1

RESCISSIBLE CONTRACTS VOIDABLE CONTRACTS UNENFORCEABLE CONTRACTS

VOID/ NON-EXISTENT CONTRACTS

DEFINITION A contract that is valid because it contains all the essential requisites prescribed by law, but which is defective because of the injury or damage to either of the contracting parties or to 3rd persons, as a consequence of which it may be rescinded by means of a proper action for rescission.

A contract that has all of the essential elements for validity are present, although the element of consent is vitiated either by: (1) lack of legal capacity of

one of the contracting parties, or

(2) mistake, violence, intimidation, undue influence or fraud (vices of consent).

A contract that cannot be enforced by a proper action in court, unless they are ratified.

Void- refer to those where all of the requisites of a contract are present, but the cause, object or purpose is: (1) contrary to law,

morals, good customs, public order or public policy, or

(2) contract itself is prohibited or declared void by law.

Inexistent- refer to those where one or some or all of those requisites which are essential for the validity of a contract are absolutely lacking.

AS TO KINDS Include: (1) Those which are

entered into by guardians whenever the wards whom they represent suffer lesion by more than of the value of the things which are the object thereof;

(2) Those agreed upon in

Include: (1) Those where one of

the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

Include: (1) Those entered into in

the of another person by one who has:

(a) Been given no authority, or

(b) Been given no legal representation, or

(c) Acted beyond his powers.

NOTE: (1) are called the

Include: (1) Those whose cause,

object or purpose is contrary to law, morals, good customs, public order or public policy (void);

(2) Those which are absolutely simulated or fictitious


representation of absentees, if the latter suffer the lesion stated in (1);

(3) Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them (the action to rescind a contract that defraud creditors is called accion pauliana);

(4) Those which refer to things under lititgation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contract

specially declared by law to be subject of rescission.

unauthorized contracts

(2) Those that do not comply with the Statute of Frauds;

(3) Those where both parties are incapable of giving consent to a contract.

(inexistent); (3) Those whose cause or

object did not exist at the time of the transaction (inexistent);

(4) Those whose object is outside the commerce of men (void);

(5) Those which contemplate an impossible service (void);

(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained (void);

(7) Those expressly prohibited or declared void by law (void).

AS TO DEFECT Damage/injury to either: (1) One of the

(1) Vitiation of consent, or (2) Legal incapacity of one

Contract is entered into: (1) In excess or without

One or some or all of the essential requisites are


contracting parties, or

(2) 3rd persons.

of the contracting parties.

any authority; (2) Without compliance

with the Statute of Frauds, or

(3) With both parties not legally capacitated.

lacking either in fact or in law.

AS TO ORIGIN OF DEFECT

Economic damage or lesion

(1) Incapacity of one of the contracting parties to give consent, or

(2) Vitiated consent due to the presence of the vices of consent.

(1) Entered into in behalf of another person, without authority or in excess thereof, or

(2) Non-compliance with the Statute of Frauds, or

(3) Incapacity of both contracting parties to give consent.

Absence of any of the essential requisites of a contract.

AS TO DAMAGE/ INJURY/PREJUDICE

Necessary. Not necessary. Not necessary. Not necessary.

AS TO EFFECT Considered valid and enforceable until rescinded by a competent court.

Considered valid and enforceable until annulled by a competent court.

Can be considered as a validable transaction that is, it has no effect now, but it may be effective upon ratification. However, it cannot be enforced by a proper action in court.

As a general rule, produces no legal effects.

REMEDY OR CAUSE OF ACTION

Rescission. Annulment. A personal defense only when the plaintiff pursues a specific action or performance or complaint for damages based on

Declaration of nullity of the contract.


breach of contract. AS TO

PRESCRIPTIBILITY OF ACTION OR

DEFENSE

The action to claim rescission must be commenced within 4 years. (1) For persons under

guardianship: 4-year period shall not begin until the termination of the formers incapacity, or until the domicile of the latter is shown.

(2) For absentees: 4-year period shall not begin until the absentees domicile is known.

The action for annulment shall be brought within 4 years. (1) in cases of

intimidation, violence or undue influence: the 4-year period shall begin from the time the defect of the consent ceases.

(2) In case of mistake or fraud,: the 4-year period shall start from the time of the discovery of the same.

(3) When the action refers to contracts entered into by minors or other incapacitated persons: the 4-year period shall start from the time the guardianship ceases.

The corresponding action for recovery, if there was total or partial performance of the unenforceable contract under Article 1403, nos. 1 and 3, may prescribe.

Does not prescribe.

AS TO SUSCEPTIBILITY TO

RATIFICATION

Cannot be ratified. Can be ratified. Can be ratified. Cannot be ratified.

AS TO SUSCEPTIBILITY TO CONVALIDATION

By prescription only. (1) Ratification, or (2) Prescription.

By ratification only.

NONE. It can neither be ratified nor can it prescribe.

AS TO WHO MAY ASSAIL THE CONTRACT

(1) A contracting party, or

(2) The contracting

Only by a contracting party. Only by a contracting party.

(1) A contracting party, or

(2) A 3rd person whose


partys representative, or

(3) Heirs of the contracting parties, or

(4) Creditors by virtue of their suppletory action defined in art. 1177 of the CC, or

(5) A 3rd person who is prejudiced by the contract.

interest is directly affected.

AS TO HOW CONTRACTS MAY

BE ASSAILED

Direct action only. Direct and collateral action. Direct and collateral action.

Direct and collateral action.


TERM DEFINITION Reformation The remedy in equity by means of which a written instrument is made or construed so as to express or conform to

the real intention of the parties when some error or mistake has been committed. Requisites:

(1) There must be a meeting of the minds. (2) The true intention is not expressed in the instrument. (3) There must be clear and convincing proof thereof (mere preponderance of evidence is insufficient). (4) It must be brought within the proper prescriptive period. (5) The document must not refer to a simple unconditional donation inter vivos (Art. 1366), or to wills (Art.

1366), or to a contract where the real agreement is void (Art. 1366). The proper remedy when there has been a meeting of the minds, but there is mistake, fraud, inequitable conduct or accident in the contract as written. Reformation does not invalidate a contract. Hence, in reforming instruments, courts do not make another contract for the parties. They merely inquire into the intention of the parties and having found it, reform the written instrument (not the content), in order that it may express the real intention of the parties. When Reformation may be asked because of mutual mistake:

(1) Under Art. 1361, the mistake must be mutual. (2) The mistake may be unilateral under the conditions set forth in Arts. 1362 and 1363 of the CC. (3) The mistake must be of fact- usually. Therefore, generally an error of law is not enough.

Failure to convey the true intent because of the:

(1) ignorance (2) lack of skill (3) bad faith of: (1) the drafter of the instrument (2) or the clerk (3) or the typist.

Rescission Scaevola: A process designated 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 creditors.


Manresa: a remedy granted by law to the contracting parties and to 3rd persons in order to secure reparation of damages the contract caused them, even if the contract be valid, by means of the restoration of things to their condition prior to the celebration of said contract. Supreme Court: a relief to protect one of the parties or a 3rd person from all injury and damages which the contract may cause, to protect some preferential right. Requisites for Rescission:

(1) There must be at the beginning either a valid or a voidable contract (not a void one) such as those mentioned in Arts. 1381 and 1382..

(2) But there is an economic or financial prejudice to someone (a party or a 3rd person). (3) Requires mutual restitution (Art. 1385).

(a) Plaintiff must be able to return what has been received by virtue of the rescissible contract (Exception: prejudiced creditors).

(b) The object of the contract must not be in the legal possession of 3rd persons in good faith. (4) There must be no other legal remedy (Art. 1383). (5) The action must be brought within the proper prescriptive period (Art. 1389).

Two Kinds of Rescission:

(1) Art. 1380: rescission. (2) Art. 1191: resolution.

Rescission under Art. 1380 in general:

(1) is based on lesion or fraud upon creditors. (2) The action is instituted by either of the contracting parties or by 3rd persons. (3) The courts cannot grant a period or term within which to comply. (4) Non-performance by the other party is immaterial.

Rescission under Art. 1191:

(1) is based on non-performance or non-fulfillment of the obligation. (2) The action may be instituted only by the injured party to the contract.


(3) In some cases, the court may grant a term. (4) Non-performance by the other party is material.

Rescission v. Mutual Dissent: the latter is an agreement of the parties to cancel their contract and mutually return the object and the cause thereof.

Lesion Damage or injury to the party asking for rescission (generally, disparity between the price and the value) Accion pauliana The rescissory action to rescind contracts in fraud of creditors. The requisites before it can be brought are:

(1) there must be a creditor who became such prior to the contract sought to be rescinded (whether the party asking for rescission is a judgment creditor already or not, is likewise immaterial).

(2) there must be an alienation made subsequent to such credit. (3) The party alienating must be in bad faith (that is, he knew that damages would be caused his creditors

whether or not he intended to cause such damage). (4) There must be no other remedy for the prejudiced creditor- inability to collect the claims due them.

Because of (4), this action is subsidiary. This means that if the creditor can still exhaust the debtors other properties, this action will not be available to the creditor. Rescission via accion pauliana v. Action to declare a contract as absolutely simulated or fictitious: (1) R: there is real alienation but it is fraudulent.

S: there is no simulation but a mere pretense that one has been made.

(2) R: can be alleged only by creditor prior to the act. S: can be alleged by all creditors, before or after the simulation.

(3) R: impossibility of satisfying the plaintiffs claim is required. S: impossibility of satisfying the plaintiffs claim is not required.

(4) R: accion pauliana is an action to set aside a valid contract.

S: does not seek to set aside the simulated contract, but merely to declare its inexistence.

Confirmation To cure a defect in a voidable contract (Art. 1396) Ratification To cure the defect of lack of authority in an authorized contract (entered into by another) (Arts. 1317 and 1405)


Requisites of Ratification (properly, confirmation of a voidable contract):

(1) The contract must be a voidable one. (2) The person ratifying must know the reason for the contract being voidable (that is, the cause must be

known). (3) The cause must not exist or continue to exist anymore at the time of ratification. (4) The ratification must have been made expressly or by an act implying a waiver of the action to annul. (5) The person ratifying must be the injured party.

Kinds of Ratification:

(1) Express (oral or written). (2) Tacit (implied- as from conduct implying a waiver).

Acknowledgment To remedy a deficiency of proof (Art. 1405) Badges of Fraud (1) The fact that the consideration of the conveyance is inadequate.

(2) A transfer is made by a debtor after suit ahs been begun and while it is pending against him. (3) A sale upon credit by an insolvent debtor. (4) Evidence of large indebtedness or complete insolvency. (5) The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly

embarrassed financially. (6) The fact that the transfer is made between father and son, when there are present any of the above

circumstances. (7) The failure of the vendee to take exclusive possession of all the property.

NOTE: (1) This list is not exclusive. (2) Art. 1387 is the provision on badges of fraud.

Statute of Frauds Descriptive of statutes which require certain classes of contracts to be in writing. This statute does not deprive the parties of the right to contract with respect to the matters therein involved but merely regulates the formalities of the contract necessary to render it enforceable. It seeks to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidence by a writing signed by the party to be charged.


RESCISSION ANNULMENT BASIS Lesion. Vitiated consent or incapacity to consent.

AS TO DEFECT External or intrinsic. Intrinsic (in the meeting of the minds). AS TO ACTION This action is subsidiary. This action is principal.

AS TO NATURE OF ACTION This is a remedy. This is a sanction. AS TO WHAT INTEREST GOVERNS Private interest governs. Public interest governs. AS TO WHAT PREDOMINATES Equity predominates. Law predominates.

AS TO CHARACTER OF PLAINTIFF Plaintiff may be a party or a 3rd person. Plaintiff must be party to the contract (whether bound principally or subsidiarily).

AS TO DAMAGE Damage to the plaintiff is material. Damage to the plaintiff is immaterial. AS TO WHEN ACTION CAN PROSPER If plaintiff is indemnified, rescission cannot

prosper. Indemnity here is no bar to the prosecution of the action.

AS TO COMPATIBILITY WITH THE CONTRACT

Compatible with the perfect validity of the contract.

Defect is presupposed.

AS TO THE NECESSITY OF RATIFICATION

To prevent rescission, ratification is not required.

To prevent annulment, ratification is required.


CULPA CONTRACTUAL CULPA AQUILIANA CULPA CRIMINAL AS TO THE NATURE OF

NEGLIGENCE Negligence is merely incidental, incident to the performance of an obligation already existing because of a contract.

Negligence here is direct, substantive, and independent.

Negligence here is direct, substantive and independent of a contract.

AS TO THE EXISTENCE OF A PREVIOUS OBLIGATION

There is a pre-existing obligation (a contract, either express or implied).

No pre-existing obligation (except of course the duty to be careful in all human actuations).

No pre-existing obligation (except the duty never to harm others).

AS TO THE REQUIRED QUANTUM OF PROOF

Preponderance of evidence. Preponderance of evidence. Proof of guilt beyond reasonable doubt.

AS TO THE DEFENSE OF A GOOD FATHER OF A FAMILY

This defense in the selection and supervision of employees is not a proper complete defense (though this may mitigate damages). The rule followed is respondeat superior or command responsibility or the master and servant rule.

This defense is a proper and complete defense, insofar as employers or guardians are concerned).

This is not a proper defense. The employees guilt is automatically the employers civil guilt, if the former is insolvent.

AS PRESUMPTION AND BURDEN OF PROOF

As long as it is proved that there was a contract, and that it was not carried out, it is presumed that the debtor is at fault, and it is his duty to prove that there was no negligence in carrying out the terms of the contract.

Ordinarily, the victim has to prove the negligence of the defendant because his action is based on the alleged negligence on the part of the defendant.

Accused is presumed innocent until the contrary is proved, so prosecution has the burden of proving the negligence of the accused.

OBLICON.table of Contracts and Other Notes

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