DEFECTIVE CONTRACTS

Professor E. A. Labitag
DEFECTIVE
CONTRACTS

RESCISSIBLE
(Arts 1381 – 1389)
Economic prejudice
or damage to:
- owner
- 3rd person
- litigant
Can generally be
ASSAILED and
CURED by: Injured
Party
EFFECTS:
Mutual restitution

AS TO NATURE OF
DEFECT
Contracts of
guardians (acts of
administration) when
wards they represent
suffer lesion of more
than 25% of the value
of thing
Contracts in
representation of
absentees when
latter suffers lesion of
more than 25% of
value of thing
Contracts entered into
by debtor who is a
state of insolvency,
i.e. contracts entered
into in fraud of
creditors (Accion

EFFECT ON
CONTRACT

VALID
until rescinded

VALID
until rescinded

VALID
until rescinded

Pauliana)

Contracts which refer
to things in
litigation without the
knowledge and
approval of litigants or
competent judicial
authority

VALID
until rescinded

All other contracts
declared by law to
be subject of
rescission E.g. Art
1098 Partition

VALID
until rescinded

ASSAILABLE?
HOW?
YES but only through
DIRECT action for
rescission
No rescission if:
a. plaintiff has other
legal means to obtain
reparation
(subsidiary)
b. plaintiff cannot
return what must be
restored
c. object in the hands
of 3rd persons in good
faith
d. Contract approved
by court (Art 1386)

YES but only through
DIRECT action for
rescission
No rescission if:
a. plaintiff has other
legal means to obtain
reparation
(subsidiary)
b. plaintiff cannot
return what must be
restored
c. object in the hands
of 3rd persons in good
faith

WHO CAN
ASSAIL?

WHEN TO
ASSAIL?

CURABLE?
HOW?

WHO CAN
CURE?

WHEN TO
CURE?

By ward
Or by guardian ad
litem of ward
during incapacity
of ward in action
against original
guardian

By absentee

By plaintiffcreditor
By heirs of
creditor
BY creditors of
creditors injured
(accion
subrogatoria) By

Within 4 years
from gaining
(minor) or
regaining (insane)
capacity

YES
By ratification
(Confirmation by
the ward)

Within 4 years
from knowledge
of domicile of
absentee

YES
By prescription

Within 4 years
from knowledge
of fraudulent
contract

YES
By prescription

Within 4 years
from knowledge
of fraudulent
contract

YES
By prescription

By ward

Within 4 years
from (re)gaining
capacity

By absentee

Within 4 years
from knowledge
of domicile or
knowledge of
fraudulent
contract

By creditor

Within 4 years
from knowledge
of fraudulent
contract

By party litigant

Within 4 years
from knowledge
of fraudulent
contract

other third parties
prejudiced by the
contract

By party litigant

DEFECTIVE
CONTRACTS

AS TO NATURE OF
DEFECT

VOIDABLE

Want of capacity
- age
- insanity

(Arts 1390 – 1402)
Vitiated consent
EFFECT:
Cleanses defect of
contract
Does not prejudice
right of 3P prior to
ratification
Mutual restitution

UNENFORCEABL
E
(Arts 1403 – 1408)

Consent is vitiated by:
- mistake or error
- violence and
intimidation (duress)
- undue influence
- fraud,
misrepresentation

EFFECT ON
CONTRACT

VALID
until annulled
by court action

ASSAILABLE?
HOW?

YES. Both through
direct and collateral
attacks.
Action for annulment

WHO CAN
ASSAIL?

WHEN TO
ASSAIL?

All who are
obliged principally
or subsidiarily
(i.e. guarantors
and sureties)

Within 4 years
from cessation of
(re)gaining
capacity

Incapacitated
party; not the
party with
capacity
Victim; not the
party who cause
the defect

Contract entered
into name of
another without
authority or in excess
of authority

VALID
but cannot be
ENFORCED
by a proper
action in court

Contracts covered by
Statute of Frauds
and not complying
with requirement of a
written memo

VALID
but cannot be
ENFORCED
by a proper
action in court

YES. Not by direct
action but by
DEFENSE of
unenforceability of
contract through
motion to dismiss
complaint on the
ground that contract
is unenforceable
YES. Not by direct
action but by
DEFENSE of
unenforceability of
contract either
through:
1. motion to
dismiss complaint
on the ground that
contract is
unenforceable
2. objection to
presentation of
oral evidence to
prove contract

Within 4 years
from:
- cessation of
intimidation,
violence, undue
influence
(consensual
defect)
- discovery of
mistake or fraud

By owner of
property

At any time one
party attempts to
enforce contract
against the other
through a court
action

By other party
By his privies
(heirs,
representatives
and assigns)

At any time one
party attempts to
enforce contract
against the other
through a court
action

CURABLE?
HOW?
YES
By ratification
By prescription
YES
1 By ratification
- Express
- Implied
(silence or
acquiescence, acts
showing approval or
adoption of
contract,
acceptance and
retention of
benefits)

2 By prescription
By ratification

By
acknowledgement
By performance
of oral contract
By failure to
object seasonably
to presentation of
oral evidence
By acceptance of
benefits under the
contract

WHO CAN
CURE?

By parties
themselves
By guardian in
behalf of an
incapacitated
party during
existence of
incapacity

Person in whose
name the
contract was
entered into

By party against
whom the
contract is being
enforced

WHEN TO
CURE?
Within 4 years
from cessation of
(re)gaining
capacity
Within 4 years
from:
- cessation of
intimidation,
violence, undue
influence
(consensual
defect)
- discovery of
mistake or fraud

Both parties are
legally incapacitated
to act

DEFECTIVE
CONTRACTS
VOID or
INEXISTENT
(Arts 1409 – 1422)

VALID
but cannot be
ENFORCED
by a proper
action in court

YES. Not by direct
action but by
DEFENSE of
unenforceability of
contract through
motion to dismiss
complaint on the
ground that contract
is unenforceable

ASSAILABLE?
HOW?

By other party
By his privies
(heirs,
representatives
and assigns)
By guardian

AS TO NATURE OF
DEFECT

EFFECT ON
CONTRACT

WHO CAN
ASSAIL?

Cause, object or
purpose of contract
contrary to law, good
customs, morals,
public order or public
policy (Art 1401, Par
1)

DOES NOT
CREATE
RIGHTS AND
CANNOT
IMPOSE
OBLIGATION

YES.
By an action for
declaration for
nullity
By defense of
nullity

By innocent party

One or some of
essential requisites
of valid contract
lacking in fact or in
law
a. Absolutely
simulated
b. Those
whose cause or
object did not
exist
c. Object
outside the
commerce of man
d. Contempla
te an impossible
service
e. Where
intention of
parties re:
principal object of
contract cannot
be ascertained
(Art 1402 Pars 2 to 6)

DOES NOT
CREATE
RIGHTS AND
CANNOT
IMPOSE
OBLIGATION

YES.
By an action for
declaration for
nullity
By defense of
nullity

By any of the
contracting
parties
By 3rd persons
whose interests
are directly
affected

At any time one
party attempts to
enforce contract
against the other
through a court
action

WHEN TO
ASSAIL?

By parents or
guardians of both
parties
By confirmation
Both parties after
(re)gaining
capacity to act

CURABLE?
HOW?

WHO CAN
CURE?

WHEN TO
CURE?

Imprescriptible

Cannot be cured

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Imprescriptible

Cannot be cured

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By 3rd persons
whose interest
are directly
affected
(If in pari delicto,
neither has an
action against
each other)

Contracts expressly
prohibited by law
(Art 1409 Par 7)

DOES NOT
CREATE
RIGHTS AND
CANNOT
IMPOSE
OBLIGATION

YES.
By an action for
declaration for
nullity
By defense of
nullity

By party whose
protection the
prohibition of the
law is designed
By 3rd party
whose interests
are directly
affected

Imprescriptible

Cannot be cured

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