KINDS OF DEFECTIVE CONTRACTS

1. Rescissible Contracts
2. Voidable Contracts
3. Unenforeceable Contracts
4. Void and inexistent Contracts

CHAPTER 6 – RESCISSIBLE CONTRACTS

ART 1380. Contracts validly agreed upon may be rescinded in the cases established by law.
RESCISSION – is a relief which law grants on the premise that the contract is valid for the
protection of one of the contracting parties and third persons from all injury and damage the
contract may cause, or to protect some incompatible and preferential right created by the
contract.
EFFECT OF RESCISSION
Rescission has the effect of “unmaking a contract, or its undoing from the beginning and not
merely its termination”. Hence, rescission creates obligation to return the object of the 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;
2. Those agreed upon in the representation of absentees, if the latter suffer the lesion stated
in the preceding number;
3. Those undertaken in fraud of creditors when the latter cannot in any other manner collect
the claims due them;
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 of competent judicial
authority;
5. All other contracts specially declared by law to be subject to rescission.
WARD – a person usually a minor, who is under a guardian’s charge or protection.
ABSENTEE – a person who disappears from his domicile, his whereabouts being unknown, and
without leaving an agent to administer his property.
ELEMENTARY – is the principle that the validity of a contract does not preclude its rescission.
ARTICLE 1385. 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 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 faith.
In this case, indemnity for damages may be demanded from the persons causing the loss.

MUTUAL RESTITUTION – entails the return of the benefits that each party may have received as a
result of the contract. This means bringing the parties back to their original status prior to the
inception of the contract.

ARTICLE 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not reserve
sufficient property to pay all debts contracted before all donation.
Alienations by onerous title are also presumed fraudulent when made by persons against
whom some judgment has been issued. The decisions or attachment need not refer to the
property alienated, and need not have been obtained by the party seeking the rescission.

ACCION PAULIANA – the action to rescind contracts in fraud of creditors.

REQUISITES:
1. The plaintiff asking for rescission has a credit prior to the alienation, although
demandable later;
2. The debtor has made a subsequent contract conveying a patrimonial benefit to a third
person.
3. The creditor has no other legal remedy to satisfy his claim;
4. The act being impugned is fraudulent;
5. The third person who received the property conveyed, if it is by onerous title, has been
an accomplice in the fraud.
ACCION PAULIANA thus presupposes the following:
1. A judgment;
2. The issuance by the trial court of a writ of execution for the satisfaction of the judgment,
and;
3. The failure of the sheriff to enforce and satisfy the judgment of the court.

ARTICLE 1389. The action to claim rescission must be commenced within four years.
 For persons under guardianship and for absentees, the period of four years shall not begin
until termination of the former’s incapacity or until the domicile of the latter is known.
EXCEPTIONS:
1. For persons under guardianship
Within four years from the time of the termination of the incapacity of the ward.
2. For absentees
Within four years from the time the domicile of the absentee is known.

CHAPTER 7. VOIDABLE CONTRACTS

ARTICLE 1390. The following contracts are voidable or annullable, 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;
2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence
or fraud.
These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification.

VOIDABLE OR ANNULLABLE CONTRACTS – are existent, valid, and binding, although they can be
annulled because of want of capacity or vitiated consent of one of the parties, but before
annulment, they are effective and obligatory between parties. Hence, it is valid until it is set
aside and its validity may be assailed only in an action for the purpose. They can be confirmed or
ratified.
RATIFICATION – ratification, or confirmation, is defined as the act due or means by virtue of
which efficacy is given to a contract which suffers from a vice of curable nullity.

CHAPTER 8. UNENFORCEABLE CONTRACTS

ARTICLE 1403. The following contracts are unenforceable, 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
Unenforceable Contracts- a valid contract that, because of some technical detect, cannot be fully
enforced; a contract that has some legal consequences but that may not be enforced in an
action for damages or specific performance in the face of certain defenses, such as the Statute of
Fraud.