Alecsandra S.

Quisto Business Law

BSOA 3-3N

What are the kinds of defective contracts? Discuss each thoroughly and give examples.
According to De Leon’s Obligations and Contracts, there are four kinds of defective contracts
namely:
1. Rescissible contracts
Are those contracts which are validly agreed upon because all the essential elements
exist, therefore, makes it effective, but in the cases established by law, the remedy of
rescission is granted in the interest of equity. They are valid because all the essential
requisites of a contract exists but by reason of injury or damage to one of the parties or
to third persons, such as creditors, the contract may be rescinded. Thus, the defect is
external. Until such contracts are rescinded in an appropriate proceeding, they remain
valid and binding upon the parties. From my own understanding, rescissible contracts
are valid in nature. They will only become defective if it causes injury or damage to one
of the parties of that contract.

Requisites of Rescission (Art. 1380)

(1) The contract must be validly agreed upon (Art. 1380; see Onglengco vs. Ozaeta and
Hernandez, 70 Phil. 43 [1940].);
(2) There must be lesion or pecuniary prejudice or damage to one of the parties or to a
third person (Art. 1381.);
(3) The rescission must be based upon a case especially provided by law (Arts. 1380,
1381, 1382.); (4) There must be no other legal remedy to obtain reparation for the
damage (Art. 1383.);
(5) The party asking for rescission must be able to return what he is obliged to restore
by reason of the contract (Art. 1385, par. 1.);
(6) The object of the contract must not legally be in the possession of third persons who
did not act in bad faith (Ibid., par. 2.); and (
7) The period for filing the action for rescission must not have prescribed. (Art. 1389.

The following contracts are rescissible: (Art. 1381)

(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 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.

Example:
A is the guardian of B(ward). A sell the property of B worth P50,000 for only P45,000.

The contract of sale cannot be rescinded because the lesion is not more than one-fourth.
However, if the property is sold for less than P45,000, let’s say A sells it for only P20,000
or less, B can rescind the sale by proper action in court upon reaching the age of
majority.

2. Voidable contracts
Voidable or annullable contracts are those possesses all the essential requisites of a
valid contract just like the rescissible contracts but one of the parties is legally incapable
of giving consent, or consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
Those contracts which are also valid until annulled unless there has been a ratification.
Ratification defines as the international act whereby a state indicates its consent to be
bound to a treaty if the parties intended to show their consent by such an act. In a
voidable contract, the defect is caused by vice of consent. It is a procedure to correct a
voidable contract and requires all parties to the contract to negotiate new terms that
eliminate the issue that made it voidable.

The following contracts are voidable or annullable, even though there may have been
no damage to the contracting parties: (Art. 1390)
(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.

Differences between action for annulment and action for rescission. They are the
following: (Art 1390)
(1) The first is based on vitiation of consent (Art. 1390.), while the second, on lesion to
one of the parties or to a third person (Art. 1381.);
(2) The first may be brought only by a party to the contract (Arts. 1390, 1397.), while the
second, also by a third person who suffered damage by reason of the contract (Art.
1381.);
(3) The first is a principal action (Art. 1390.), while the second is merely subsidiary (Art.
1383.); (4) The first presupposes that the contract is legally defective (Art. 1390.), while
the second, that the contract was validly entered into (Art. 1380.);
 (5) The first seeks the imposition of sanction by law on the guilty party for reason of
public interest (Ibid.), while the second, is a remedy allowed by law on ground of equity
(see Art. 1383.);
(6) The first is allowed even if the plaintiff has been indemnified (see Art. 1390.), while
the second is barred by such indemnification (Arts. 1383, 1384).

Example:
C and D agreed to enter into a contract. However, C is underage.

Therefore, the contract is voidable since one of the party is legally incapable of giving
consent because he is underage. However, the contract can be ratified when he turns 18.
If one or both parties no longer wishes to be bound by the contract, it can be voided on
the grounds that one party could not legally sign.

A agrees to sign a contract with B after the latter threaten to harm his family.

This is another example of a voidable contract because A only give B his consent because
B is threatening to harm his family if he doesn’t sign the contract.

3. Unenforceable contracts
Unenforceable contracts cannot be sued upon or enforced unless they are ratified. As
regards the degree of defectiveness, voidable contracts are further away from absolute
nullity than unenforceable contracts. In other words, an unenforceable contract
occupies an intermediate ground between a voidable contract and a void contract. It
may be an oral or written agreement that will not be enforced by courts. There are
many different reasons that a court may not enforce a contract. Contracts may be
unenforceable because of their subject matter, because one party to the agreement
unfairly took advantage of the other party, or because there is not enough proof of the
agreement. An unenforceable contract or transaction is one that is valid but one the
court will not enforce. Unenforceable is usually used in contradiction to void (or void ab
initio) and voidable. If the parties perform the agreement, it will be valid, but the court
will not compel them if they do not.

The following contracts are unenforceable, unless they are ratified: (Art. 1403)
(1) Those entered into 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 for 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.

Kinds of unenforceable contracts. Under Article 1403, the following contracts are
unenforceable:
(1) Those entered into in the name of another by one without or acting in excess of
authority.
(2) Those that do not comply with the Statute of Frauds; and
(3) Those where both parties are incapable of giving consent.

Example:
For example, courts will not enforce an agreement to purchase illegal drugs. Nor will
courts enforce a landlord-tenant agreement that requires a tenant to agree to live in
conditions that do not meet health and safety code requirements.  The purpose of
public policy and illegality grounds for non-enforcement is to protect society as a
whole. 

Two or more people make an agreement or contractual obligation that allows one of the
parties to lawfully force the other to do something.

To be enforceable, a contract needs to have both an offer from one party and an
acceptance from another party.

4. Void or inexistent contracts

They are absolutely null and void. They have no legal effect at all and cannot be ratified.
Void contracts are those which, because of certain defects, generally produce no effect
at all. They are considered as inexistent from its establishment or from the very
beginning. Voidable contracts can still be ratified while void contracts cannot. In a legal
sense, a void contract is treated as if it was never created and becomes unenforceable
in court.

Inexistent Contracts, on the other hand, refer to agreements which lack one or some or
all of the elements such as consent, object or cause or do not comply with the
formalities which are essential for the existence of a contract.

The following contracts are inexistent and void from the beginning: (Art. 1409)
(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.

Neither of these contracts can be ratified. Neither can the right to set up the defense of
illegality be waived.

Characteristics of a void or inexistent contract. They are as follows: (1409)

(1) Generally, it produces no effect whatsoever, being void or inexistent from the
beginning;
(2) It cannot be cured or validated either by time or ratification1 (Art. 1409, par. 2.);
(3) The right to set up the defense of illegality, inexistence, or absolute nullity cannot be
waived (Ibid.);
(4) The action or defense for the declaration of its illegality, inexistence, or absolute
nullity does not prescribe (see Art. 1410.);
(5) The defense of illegality, inexistence, or absolute nullity is not available to third
persons whose interests are not directly affected (see Art. 1421.);
(6) It cannot give rise to a valid contract. (see Art. 1422.); and
(7) Its invalidity can be questioned by anyone affected by it.

The above characteristics distinguish a void contract from the other defective contracts
Example:
Bob enters into an agreement with a music label to split royalties from his new album
50/50. However, at the time of this agreement, Bob’s been drinking at the bar for
several hours and is heavily inebriated.

Due to the fact that Bob was incompetent at the time the contract was agreed to, it is a
void contract.

A and B entered into a contract wherein A is obliged to kill someone as per B’s
instruction to him. B, in return, will pay A as long as the latter successfully do whatever
is inside in their contract.

Automatically the contract is void because it is legally invalid from the moment the two
parties sign it because it’s illegal or violates public policy.