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Ryan Jeremiah D. Quan, J.D.
Commercial Law Department
Forms of Contracts
FORM – in some kinds of contracts only; as contracts are generally consensual; form is a manner in which a contract is executed or manifested • Informal – may be entered into whatever form as long as there is consent, object and cause
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Forms of Contracts
• Formal – required by law to be in certain specified form such as: donation of real property, stipulation to pay interest, transfer of large cattle, sale of land thru agent, contract of antichresis, contract of partnership, registration of chattel mortgage, donation of personal prop in excess of 500 • Real – creation of real rights over immovable prop must be written
When Form is Important • For validity (formal/solemn contracts) • For enforceability (statute of frauds) • For convenience Powerpoint Templates Page 4 .
need ratification to be enforceable Powerpoint Templates Page 5 .Statute of Frauds. contract is valid but right to enforce cannot be exercised.donation and acceptance of real property • Law requires contract to be in some form to be enforceable .Forms of Contracts Gen. Rule: contract is valid and binding in whatever form provided that 3 essential requisites concur Exceptions: • Law requires contract to be in some form for validity .
transmission or reformation of real rights over immovables – Cession. – All other docs where amount involved is in excess of 5000 (must be written even private docs) Powerpoint Templates Page 6 . needed only to bind 3rd parties Ex: public documents needed for the ff: – Contracts w/c object is creation.contract is valid and enforceable. repudiation.Forms of Contracts Exceptions: • Law requires contract to be in some form for convenience . renunciation of hereditary rights/CPG – Power to administer property for another – Cession of action of rights proceeding from an act appearing in a public inst.
Reformation of Contracts • remedy to conform to real intention of parties due to: – mistake – fraud – inequitable conduct – accident Powerpoint Templates Page 7 .
Reformation of Contracts • Causes/Grounds 1. Mutual: instrument includes something w/c should not be there or omit what should be there – Mutual – Mistake of fact – clear and convincing proof – causes failure of instrument to express true intention Powerpoint Templates Page 8 .
negligence . clerk. bad faith of drafter. lack of skill. Unilateral – one party was mistaken – other either acted fraudulently or inequitably or knew but concealed – party in good faith may ask for reformation 3. Powerpoint Templates typist Page 9 . Mistake by 3rd persons – due to ignorance.Reformation of Contracts 2.
Facts put in issue in pleadings • NOTE: prescribes in 10 years from date of execution of instrument Powerpoint Templates Page 10 . Clear and convincing proof e. There is meeting of minds c. There is a written instrument b. True intention not expressed in instrument d. Others specified by law – to avoid frustration of true intent • Requisites: a.Reformation of Contracts 4.
3.Reformation of Contracts • WHEN REFORMATION NOT AVAILABLE: 1. 2. 4. Simple donation inter vivos Wills When real agreement is void Estoppel when party has brought suit to enforce it Powerpoint Templates Page 11 .
Kinds of Defective Contracts 1. It may be set aside in whole or in part. RESCISSIBLE CONTRACTS – Those which have caused a particular economic damage either to one of the parties or to a 3rd person and which may be set aside even if valid. to the extent of the damage caused' Powerpoint Templates Page 12 .
Entered into by guardian whenever ward suffers damage by more than 1/4 of value of object Powerpoint Templates Page 13 .Rescissible Contracts • REQUISITES: a. Contract must be rescissible i. Under art 1381: Contracts entered into by persons exercising fiduciary capacity: 1.
Contracts where rescission is based on fraud committed on creditor (accion pauliana) Powerpoint Templates Page 14 . if absentee suffers lesion by more than ¼ of value of property 3. Agreed upon in representation of absentees.Rescissible Contracts 2.
Payment by an insolvent – on debts w/c are not yet due. contract entered into by defendant w/o knowledge or approval of litigants or judicial authority 5. Provided for by law . 1556.Rescissible Contracts 4. 1567 and 1659 Powerpoint Templates Page 15 . prejudices claim of others 6. 1539. 1534. Objects of litigation.art 1526. 1538. 1560. 1542.
Plaintiff has no other means to obtain reparation.Payments made in a state of insolvency 1. Under art 1382 . 1. Plaintiff must be able to return whatever he may be obliged to return due to rescission Powerpoint Templates Page 16 .Rescissible Contracts ii.
The things must not have been passed to 3rd parties who did not act in bad faith 4. It must be made within the prescribed period (of 4 years) Powerpoint Templates Page 17 .Rescissible Contracts 3.
Things w/c are the objects of the contract and their fruits b. Price with interest Powerpoint Templates Page 18 .Rescissible Contracts • OBLIGATION CREATED BY THE RESCISSION OF THE CONTRACT: Mutual Restitution a.
if there are 2 or more alienations – liability of 1st infractor Powerpoint Templates Page 19 . thing already in possession of party in good faith. subject to indemnity only.Rescissible Contracts • MUTUAL RESTITUTION NOT APPLICABLE WHEN a. creditor did not receive anything from contract b.
consideration of the conveyance is inadequate or fictitious b.Rescissible Contracts • BADGES OF FRAUD a. transfer was made by a debtor after a suit has been begun and while it is pending against him Powerpoint Templates Page 20 .
evidence of indebtedness or complete insolvency e. sale upon credit by an insolvent debtor d.Rescissible Contracts c. transfer of all his property by a debtor when he is financially embarrassed or insolvent Powerpoint Templates Page 21 .
failure of the vendee to take exclusive possession of the property Powerpoint Templates Page 22 . transfer made between father and son where there is present any of the above circumstances h.Rescissible Contracts g.
thus allowing partial rescission of the contract Powerpoint Templates Page 23 . Court cannot grant extension of time for fulfillment of the obligation Only a party to the contract may demand fulfillment or seek the rescission of the contract Court may fix a period or grant extension of time for the fulfillment of the obligation Its purpose is to cancel the contract Its purpose is to seek reparation for the damage or injury caused.Rescissible Contracts Rescission in Art 1191 It is a principal action retaliatory in character Only ground is non-performance of one’s obligation or what is incumbent upon him Applies only to reciprocal obligation Rescission Proper in Art 1381 it is a subsidiary remedy There are 5 grounds to rescind. Nonperformance by the other is not important Applies to both unilateral and reciprocal obligations Even a third person who is prejudiced by the contract may demand the rescission of the contract.
VOIDABLE CONTRACTS – intrinsic defect. defect is due to vice of consent or legal incapacity Powerpoint Templates Page 24 . valid until annulled.Voidable Contracts 2.
May be assailed or attacked only in an action for that purpose Powerpoint Templates Page 25 .Voidable Contracts • CHARACTERISTICS: a. Effective until set aside b.
Voidable Contracts c. Can be confirmed ( NOTE: confirmation is the proper term for curing the defect of a voidable contract) d. Can be assailed only by the party whose consent was defective or his heirs or assigns Powerpoint Templates Page 26 .
In state of drunkenness f. Deaf mute who can’t read or write d.Voidable Contracts WHAT CONTRACTS ARE VOIDABLE: a. Persons specially disqualified: civil interdiction e. Insane unless acted in lucid interval c. Minors ( below 18 ) b. In state of hypnotic spell Powerpoint Templates Page 27 .
Voidable Contracts • MISTAKE – false belief into something REQUISITES: a. Refers to the principal conditions in an agreement Powerpoint Templates Page 28 . Refers to the subject of the thing which is the object of the contract b. Refers to the nature of the contract c.
when mistake is mutual and frustrates the real purpose of parties Powerpoint Templates Page 29 . Error as to legal effect .when it is the principal consideration of the contract e.Voidable Contracts d. Error as to person .
Voidable Contracts • VIOLENCE – serious or irresistible force is employed to wrest consent Powerpoint Templates Page 30 .
ascendants or descendants (moral coercion) Powerpoint Templates Page 31 .Voidable Contracts • INTIMIDATION – one party is compelled by a reasonable and well-grounded fear of an imminent and grave danger upon person and property of himself. spouse.
Voidable Contracts • UNDUE INFLUENCE – person takes improper advantage of his power over will of another depriving latter of reasonable freedom of choice Powerpoint Templates Page 32 .
Powerpoint Templates Page 33 .Voidable Contracts • Martinez vs. The doctrine on reluctant consent provides that a contract is still valid even if one of the parties entered it against his wishes or even against his better judgment. Contracts are also valid even though they are entered into by one of the parties without hope of advantage or profit. Hongkong and Shanghai Bank. 12 Phil 252.
other is induced to enter into contract w/o w/c he will not enter (dolo causante) Powerpoint Templates Page 34 .Voidable Contracts • FRAUD – thru insidious words or machinations of contracting parties.
Causal Fraud (dolo causante) – deception of serious character without which the other party would not have entered into. 1338) Powerpoint Templates Page 35 .Kinds of Fraud KINDS OF FRAUD IN THE PERFORMANCE OF OBLIGATION OR CONTRACTS a. contract is VOIDABLE (Art.
Incidental Fraud (dolo incidente) – deception which are not serious and without which the other party would still have entered into the contract.Kinds of Fraud b. 1344) Powerpoint Templates Page 36 . holds the guilty party liable for DAMAGES (Art.
LAWFUL misrepresentation Powerpoint Templates Page 37 . exaggeration of its god qualities and giving it qualities it does not have. Tolerated Fraud – includes minimizing the defects of the thing.Kinds of Fraud c.
Kinds of Fraud • NOTE: • Expression of an opinion – not fraud unless made by expert and other party relied on the former’s special knowledge Powerpoint Templates Page 38 .
Powerpoint Templates Page 39 .Kinds of Fraud • Fraud by third person – does not vitiate consent. or resulted to substantial mistake. mutual between parties. only action for damages except if there is collusion between one party and the third person.
Period to bring an action for Annulment i. violence.Defective Contracts CAUSES OF EXTINCTION OF ACTION TO ANNUL a. PRESCRIPTION . undue influence .4 years from time defect of consent ceases Powerpoint Templates Page 40 . Intimidation.
From time guardianship ceases Carantes vs. fraud – 4 years from time of discovery iii. Incapacity . Mistake. 76 SCRA 514. discovery of fraud must be reckoned to have taken place from the time the document was registered in the office of the register of deeds. Registration constitutes constructive notice to the whole world (9a) Powerpoint Templates Page 41 . CA.Defective Contracts ii.
RATIFICATION – REQUISITES i.Defective Contracts b. Page 42 Powerpoint Templates . knowledge of reason rendering contract voidable ii. such reason must have ceased. except in case of ratification effected by the guardian to contracts entered into by an incapacitated.
the injured party must have executed an act which expressly or impliedly conveys an intention to waive his right Powerpoint Templates Page 43 .Defective Contracts iii.
LOSS OF THE THING which is the object of the contract through fraud or fault of the person who is entitled to annul the contract Powerpoint Templates Page 44 .Defective Contracts c.
• Ratification cleanses the contract of its defects from the moment it was constituted Powerpoint Templates Page 45 . but the person obliged to return the same can be held liable only for the value of the thing at the time of the loss.Defective Contracts • NOTE: Object is lost through a fortuitous event. the contract can still be annulled. but without interest thereon.
produce legal effects only after ratified Powerpoint Templates Page 46 .Unenforceable Contracts 3. UNENFORCEABLE CONTRACT – valid but cannot compel its execution unless ratified. extrinsic defect.
Unenforceable Contracts • KINDS: a. In excess of authority conferred ( ultra vires) Powerpoint Templates Page 47 . Unauthorized or No sufficient authority – entered into in the name of another when: i. No authority conferred ii.
Curable by Ratification Both parties incapable of giving consent -2 minor or 2 insane persons Powerpoint Templates Page 48 .Unenforceable Contracts b.
Agreement made in consideration of promise to marry Powerpoint Templates Page 49 .Unenforceable Contracts c. default or miscarriage of another iii. Special promise to answer for debt. Curable by Acknowledgment Failure to comply with Statute of Frauds i. Agreement to be performed within a year after making contract ii.
Representation as to credit of another Powerpoint Templates Page 50 . exception: auction when recorded sale in sales book v. Agreement for sale of goods.Unenforceable Contracts iv. Agreement for lease of property for more than one year and sale of real property regardless of price vi. chattels or things in action at price not less than 500.
Unenforceable Contracts • TWO WAYS OF CURING UNENFORCEABLE CONTRACTS: a. If there is performance in either part and there is acceptance of performance. Failure of defendant to object in time. also estoppel sets in by accepting performance. the defect of unenforceability is cured b. the defect is waived Powerpoint Templates Page 51 . it takes it out of unenforceable contracts. to the presentation of parole evidence in court. Acceptance of benefits under the contract.
A judicial declaration to that effect is merely a declaration Powerpoint Templates Page 52 . There is no action for annulment necessary as such is ipso jure.Void Contracts • VOID OR INEXISTENT – of no legal effect CHARACTERISTICS: a. It produces no effect whatsoever either against or in favor of anyone b.
If performed. It cannot be confirmed. ratified or cured d. restoration is in order. The right to set up the defense of nullity cannot be waived Powerpoint Templates Page 53 .Void Contracts c. except if pari delicto will apply e.
Void Contracts f. Imprescriptible g. Anyone may invoke the nullity of the contract whenever its juridical effects are asserted against him Powerpoint Templates Page 54 .
Kinds of Void Contracts • KINDS OF VOID CONTRACTS: a. no object. Those lacking in essential elements: no consent. no cause (inexistent ones) essential formalities are not complied with ( ex: donation propter nuptias – should conform to formalities of a donation to be valid ) Powerpoint Templates Page 55 .
Kinds of Void Contracts i. Those which cause or object did not exist at the time of the transaction – no cause/object iii. Those w/c are absolutely simulated or fictitious – no cause ii.Those whose object is outside the commerce of man – no Powerpoint object Templates Page 56 .
Kinds of Void Contracts iv. Those w/c intention of parties relative to principal object of the contract cannot be ascertained Powerpoint Templates Page 57 . Those w/c contemplate an impossible service – no object v.
whether it amounts to a crime or not Powerpoint Templates Page 58 . Those expressly prohibited or declared void by law Contracts w/c violate any legal provision.Kinds of Void Contracts b. Prohibited by law c.
good customs. public order or public policy . Ex: Contract to sell marijuana Powerpoint Templates Page 59 .Kinds of Void Contracts d. Illegal/Illicit ones – Those whose cause. morals. object or purpose is contrary to law.
No action for specific performance Innocent party is entitled to restitution Guilty party is not entitled to restitution Powerpoint Templates Page 60 . No confiscation Only one party is guilty a. b. c. DOES NOT CONSTITUTE CRIMINAL OFFENSE but is ILLEGAL /UNLAWFUL PER SE a. No action for restitution on either side. The law will leave you where you are c.Both shall be prosecuted c. No action for specific performance a.KINDS OF ILLEGAL CONTRACTS CONTRACT CONSTITUTE CRIMINAL OFFENSE Parties are in pari delicto a. Instrument of crime will be confiscated in favor of gov’t. Innocent party is entitled to restitution c.No action for restitution on either side. The law will leave you where you are b. Thing/price to be confiscated in favor of government a. Guilty party will be prosecuted e. Guilty party is not entitled to restitution d. No action for specific performance b. No action for specific performance b.
no action against each other. applies only to illegal contracts and not to inexistent contracts.Illegal Contracts PARI DELICTO DOCTRINE • Both parties are guilty. does not apply when a superior public policy intervenes Powerpoint Templates Page 61 . those who come in equity must come with clean hands.
If purpose has not yet been accomplished and If damage has not been caused to any 3rd person Powerpoint Templates Page 62 .Illegal Contracts • EXCEPTION TO PARI DELICTO RULE .
Payment of Usurious interest b. where the party who paid or delivered repudiates the contract before the purpose has been accomplished. payment of money or delivery of property for an illegal purpose. or before any damage has been caused to a 3rd person Powerpoint Templates Page 63 .Illegal Contracts • OTHER EXCEPTIONS: a.
payment of any amount in excess of the maximum price of any article or commodity fixed by law or regulation by Powerpoint competent authority Templates Page 64 . agreement or contract which is not illegal per se and the prohibition is esigned for the protection of the plaintiff e.Illegal Contracts c. payment of money or delivery of property made by an incapacitated person d.
one who lost in gambling because of fraudulent schemes practiced on him is allowed to recover his losses (Art. 313 RPC) even if gambling is prohibited.Illegal Contracts f. contract whereby a laborer undertakes to work longer than the maximum number of hours fixed by law g. Powerpoint Templates Page 65 .
Contract must be repudiated by any of the parties before purpose is accomplished or damage is caused to 3rd parties Powerpoint Templates Page 66 .Illegal Contracts REQUISITES OF ILLEGAL CONTRACTS: a. Contract is for an illegal purpose b.
before it takes effect – party w/c is remorseful prevents it Powerpoint Templates Page 67 .Illegal Contracts c. Court believes that public interest will be served by allowing recovery (discretionary upon the court ) – based on remorse. illegality is accomplished when parties entered into contract.
USURY LAW a. LABOR. Consumer protection – if price of commodity is determined by statute.Illegal Contracts WHERE LAWS ARE ISSUED TO PROTECT CERTAIN SECTORS: CONSUMER PROTECTION. any person paying an amount in excess of the maximum price allowed may recover such excess Powerpoint Templates Page 68 .
Illegal Contracts b. Labor – if law sets the minimum wage for laborers. any laborer who agreed to receive less may still be entitled to recover the deficiency. if law set max working hours and laborer who undertakes to work longer may demand additional compensation Powerpoint Templates Page 69 .
Interest paid in excess of the interest allowed by the usury law may be recovered by debtor with interest from date of payment Powerpoint Templates Page 70 .Illegal Contracts c.
property delivered by incapacitated person in the interest of justice. unable to understand the consequences of his own action Powerpoint Templates Page 71 . courts may allow recovery of money. pari delicto cannot apply because an incapacitated person does not know what he is entering into. If one party is incapacitated.Effects of Illegal Contracts a.
If agreement is not illegal per se but merely prohibited and prohibition is designated for the protection of the plaintiff – may recover what he has paid or delivered by virtue of public policy Powerpoint Templates Page 72 .Effects of Illegal Contracts b.
Mutual Restitution in Void Contracts
• GENERAL RULE: parties should return to each other what they have given by virtue of the void contract in case
• Where nullity arose from defect in essential elements
a. return object of contract and fruits b. return price plus interest
Mutual Restitution in Void Contracts
• EXCEPTION: No recovery can be had in cases where nullity of contract arose from illegality of contract where parties are in pari delicto; except:
a. incapacitated – not obliged to return what he gave but may recover what he has given b. other party is less guilty or not guilty
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• they are real obligations to which the law denies an action, but which the debtor may perform voluntarily. • It is patrimonial, and presupposes a prestation. • The binding tie of these obligations is in the conscience of man, for under the law, they do not have the necessary efficacy to give rise to an action.
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restitution by minor after annulment of contract 4. reimbursement of a third person for a debt that has prescribed 3. Delivery by minor of money or fungible thing in fulfillment of obligation Powerpoint Templates Page 76 .Natural Obligations • EXAMPLES: 1. Performance after the civil obligation has prescribed 2.
payment by heir of debt exceeding value of property inherited 7. Performance after action to enforce civil obligation has failed 6.√Natural Obligations 5. payment of legacy after will have been declared void Powerpoint Templates Page 77 .
Maraming salamat. Powerpoint Templates Page 78 .
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