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Defective Contracts

DEFECTIVE CONTRACTS

Defective contracts are those which may be relatively ineffective in relation to certain parties. The following are the kinds of defective contracts:

  1. Rescissible Contracts
  2. Voidable Contracts
  3. Unenforceable Contracts(as discussed in this article)
  4. Void or inexistent contracts(as discussed in this article)

RESCISSIBLE CONTRACTS

Rescissible Contracts are those validly agreed upon but, by reason of lesion or economic prejudice may be rescinded in cases established by law. These are contracts which can be rescinded as a remedy given by law to prevent damage by restoration of their condition at the moment prior to time of the celebration of the contract.

Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)

What contracts are rescissible?

Art. 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;

*Lesion is the injury which one of the parties may suffer by virtue of a contract disadvantageous to him. The lesion must be made known or could have been made known at the time of the making of the contract for contract to be rescinded. Guardians must only manage the property of the ward and must resort to guardianship court for any acts of administration.

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;

*Legal representatives of absentees have the same powers and duties with guardians.

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;

*The contract must have been executed with the intention of prejudicing the rights of creditors. This intention must be proved since, despite causing damage if the fraudulent intent is not present then the contract cannot be rescinded.

(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;

*This contract refer to those that are executed by defendants involving ownership or possession of a thing and such contract is made without the knowledge or approval of the plaintiff or the court.

(5) All other contracts specially declared by law to be subject to rescission. (1291a)

 VOIDABLE CONTRACTS

Voidable contracts are those in which all of the essential elements for validity are present, although the element of consent is vitiated. A contract will be voidable of annullable due to certain instances such as when there is want of capacity or consent. Until invalidated, the contract remains to be valid and binding between the parties. The law expressly provides that:

Art. 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. (n)

What contracts are voidable?

  1. Those where one of the parties is incapable of giving consent to a contract;
Art. 1327. The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)
  1. Those where the consent is vitiated by
Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. (1265a)

UNENFORCEABLE CONTRACTS

Unenforceable contracts are those which cannot be enforced by proper action in court unless they are ratified. This kind of contract does not produce any legal effect unless ratified.

What contracts are unenforceable?

The following article is an enumeration of what are unenforeceable contracts:

Art. 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 of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making thereof; (b) A special promise to answer for the debt, default, or miscarriage of another; (c) An agreement made in consideration of marriage, other than a mutual promise to marry; (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; (e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; (f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.

What is the Statute of Frauds?

The Statute of Frauds is a legal provision which requires agreements for the sale of real estate to be in writing in order to be enforceable.The contracts/agreements under the Statute of Frauds require that the same be evidenced by some note, memorandum or writing, subscribed by the party charged or his agent, otherwise, the said contracts shall be enforceable.The Statute of Frauds apply only to executory contracts, not to those that are partially or completely fulfilled.

VOID CONTRACTS

Void contracts are those where all of the requisites of a contract are present but the cause, object or purpose is contrary to law, morals, good customs, public order or public policy, or contract itself is prohibited or declared void by law.

What contracts are void?

The following article is an enumeration of what are void contracts:

Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. 

What are inexistent contracts?

Inexistent contracts those where one or some or all of the requisites essential for the validity of a contract are absolutely lacking. This is equivalent to nothing like that of a void contract. It is absolutely wanting in civil effects. Void and inexistent contracts are terms which may be interchanged.

References:

Tolentino, A. (2002). Commentaries and Jurisprudences on the Civil Code of the Philippines. Quezon City: Central Lawbook Publishing Co., Inc.

Jurado, D. (1999). Civil Law Reviewer. Quezon City: Rex Printing Company, Inc.

The New Civil Code of the Philippines

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