Kinds OF Defective Contract PDF

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Kinds of defective contracts.In order of their defectiveness:(1) 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reason of economic injury or damage to one of the parties or to third persons , such as creditors, the contract may be rescinded  Rescinded ...

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 Consent is defective  It can be ratified or the defect can be cured  The remedy to avoid it is annulment

Kinds of defective contracts. In order of their defectiveness: (1) 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reason of economic injury or damage to one of the parties or to third persons, such as creditors, the contract may be rescinded  Rescinded – take away, remove, cancel, void (2) Voidable contracts - also valid until annulled unless there has been a ratification. In a voidable contract, the defect is cause by vice of consent. (3) Unenforceable contracts - cannot be sued upon or enforced unless they are ratified. As regards the degree of defectiveness, voidable contracts are farther away from absolute nullity than unenforceable contracts. In other words, an unenforceable contract occupies an intermediate ground between a voidable and a void contract. (4) Void or inexistent contracts - they are absolutely null and void. Void contracts have no effect at all and cannot be ratified.

Rescissible Voidable Unenforceable Void

Valid ✓ ✓ ✓ X

Binding ✓ ✓ X X

Enforceable ✓ ✓ ✓ and X X

Unenforceable Contracts  Defective because of lack of authority or necessary form  Although valid, are unenforceable in court unless they are cured or ratified. Once ratified, these contracts may then be enforceable.  No remedy to avoid

Void Contracts  Defective because there are missing essential elements  It can no longer be ratified  No remedy to avoid, because there is no effect in the first place.

Valid Contracts - are those that meet all the legal requirements and limitations for the type of agreement involved and are, therefore, legally binding and enforceable.

Rescissible Contracts - are those validly agreed upon because all the essential elements exist and therefore, legally effective, but in the cases established by law, the remedy of rescission is granted in the interest of equity.

Rescissible Contracts Rescission  Defective because it causes economic damage or prejudice (harm or injury that results or may result from some action or judgment) to one of the parties or to a 3rd person.  It can be ratified or the defect can be cured  The remedy to avoid is through the process of rescission.

Voidable Contracts

- is a remedy granted by law to the contracting parties and sometimes even to third persons in order to secure 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.

Article 1381. The following contracts are rescissible:

(1) 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;  Ward - minor or incapacitated adult placed under the protection of a legal guardian or government entity.  Lesion - it is any damage caused by the fact that the price is unjust or inadequate. Example: G is the guardian of W, ward. G sold to X the property of W for P250,000. The value of the property is P500,000. Ward can rescind the contract (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;  Absentee - a person who is expected or required to be present at a place or event but is not. Example: R is the representative of A, absentee. R sold to X the property of A for P250,000. The value of the property is P500,000. Absentee can rescind the contract (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; Example: D is a debtor of C, creditor. Fearing that he won’t be able to pay his debts to C and his land levied, D sold his land to X without the intention of using proceeds to pay C. Here, C can rescind to the contract. Levied: The obtaining of money by legal process through seizure and sale of property; the raising of the money for which an execution has been issued. Proceeds: proceeds. 1. (Commerce) the profit or return derived from a commercial transaction, investment, etc. 2. (Commerce) the result, esp the revenue or total sum, accruing

from some undertaking or course of action, as in commerce. (4) 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 competent judicial authority; Example: S sues B for the recovery of a parcel of land. In this case, the land is a “thing under litigation.” Supposed B sold to X the parcel of land. Litigation - a legal proceeding in a court; a judicial contest to determine and enforce legal rights. judicial proceeding. Litigants - a party to a lawsuit; someone involved in litigation. Lawsuit - a claim or dispute brought to a court of law for adjudication or formal judgment on a disputed matter. (5) All other contracts specially declared by law to be subject to rescission.

Voidable Contracts - those which possess 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. Vitiated (meaning): destroy or impair the legal validity of.

Binding force of voidable contracts. They are valid and binding between the parties unless annulled by a proper action in court by the injured party. But once ratified, they become absolutely valid and can no longer be annulled. Note: the existence of economic damage is not essential for their annulment as in the case of rescissible contracts.  Annulled – to officially announce that something such as a law, agreement, or marriage no longer exists.

 Ratified - If a person communicates to another person, either in action or words, the first individual approves of and accepts the other individual's conduct. Known as an "agreement to adopt" an act.  Economic damage - tangible damages that can easily be quantified, and their value does not change depending on the jury that is evaluating them. Example: past and future medical expenses, past and future lost wages, household services, vocational rehabilitation, property damages, outof-pocket expenses, and lost earning capacity.

Kinds of voidable contracts (1) Legal incapacity to give consent (2) Violation of consent, where the vitiation is done by mistake, violence, intimidation, undue influence, or fraud.

Violence or force - requires the employment of physical force. Under Article 1335, to make consent defective, the force employed must be either serious or irresistible. In either case, consent is not free. Example: If X signs a document because every time he refuses he is hit by a gun which causes blood to flow from his head.

Undue Influence - it is an influence of a kind that so overpowers the mind of a party as to prevent him from acting understandingly and voluntarily to do what he would have done if he had been left to exercise freely his own judgement and discretion. (1) confidential, family, spiritual and other relations between the parties, (2) mental weakness, (3) ignorance, or (4) financial distress of the person alleged to have been unduly influenced.

Mistake or Error - is the false notion of a thing or a fact material to the contract. - Example: (1) Mistake regarding object – A is buying form B a breeding cow but B is selling a barren cow (cannot have babies). (2) Mistake regarding condition of a contract – A is selling his parcel of land for P200,000 cash but B is buying the land thinking that the price is payable in installments. (3a) Mistake regarding qualification – A sold his car to B. A thought that B, who is a lawyer, was a doctor. The mistake here is not material as to avoid the contract. (3b) Mistake regarding identity – A donated his car to B. A thought that B was his half-brother. It turned out that B is not related to A.

Example: X is in need of P10,000 to pay his landlord who is seeking to eject him for failure to pay the rents. X tries to borrow from Y but the latter instead tells him to sell his piano for P10,000. If X does not want to sell the piano but he is compelled to sell it because of his financial condition, the sale may be avoided on the ground of undue influence.

Exceptions in undue influence - If gained by kindness and affection or argument and persuasion, the influence will not vitiate consent.

Causal fraud - the fraud committed by one (1) party before or at the time of the celebration of the contract to secure the consent of the other. It is the fraud used by a party to induce the other to enter into a contract without the latter would not have agreed to.

Example: S offered to sell to B a ring, claiming that the stone on the ring is diamond. S knows that it is not diamond but ordinary glass. If B buys the ring, relying on the truth of the representation of S, the sale may be annulled in the ground of fraud.

Simulation of a contract - is the act of deliberately deceiving others, by feigning or pretending by agreement, the appearance of a contract which is either non-existent or concealed.

Kinds of simulation (1) Absolute simulation - when the contract does not really exist and the parties do not intend to be bound at all. Absolutely simulated or fictitious contracts are inexistent and void. Example: D is indebted to C. Upon learning that C is going to enforce his credit, D pretended to sell his land to B, his father-in-law. D did not receive a single centavo for the transaction and he continued in possession of the land as the contract was merely simulated or fictitious. (2) Relative simulation – when the contract entered by the parties is different from their true agreement. Example: D and C entered into a contract of mortgage. But wanting to hide the mortgage, it was made to appear in the form of a deed of sale. Here, there are two acts involved; the ostensible or apparent act (contract of sale) and the concealed or hidden act (contract of mortgage)...