TYPES OF DEFECTIVE CONTRACTS:

1. Rescissible Contracts
2. Voidable or Annullable Contracts
3. Unenforceable Contracts
4. Void or Inexistent Contracts

RESCISSIBLE CONTRACTS
 Contracts validly agreed upon may be rescinded in cases established by law when there is defect caused by
economic injury/damage either to one of the parties or to a third person.
 Valid and enforceable until they are rescinded by a competent court.

Definition of Terms:

Rescission - revocation or cancellation

Lesion - the damage suffered by one party who does not receive the
adequate equivalent for what he gives in a commutative contract, like a sale.
- an economic injury by inadequacy of price.

Contracts that are rescissible:

a. Those entered into by guardians whenever the wards whom they represent suffer lesion by more
than ¼ of the value of the things which are the object thereof;

Define “ward”: someone placed under the protection of a legal guardian by reason of incapacity.

General rule: when a guardian enters into a contract, involving the disposition of the ward’s property,
he must secure the approval of the guardianship court. A guardian is authorized only to manage the
estate of his ward; hence, he has no power of any portion thereof without approval of the court.

Example:

Bruce’s parents died. He inherited their mansion worth ₱40,000,000.00. Bruce was still a
minor so Alfred was appointed as his guardian. Later, Alfred sold the mansion on behalf of Bruce
for ₱29,000,000.00.

In this case, Alfred sold the mansion for a price lower by more than one-fourth (1/4) of its
market value, to the prejudice of Bruce. Bruce can ask for the rescission of the sale.

b. Those agreed upon in representation of absentees, if the latter suffer lesion by more than ¼ of
the value of the things which are the object thereof;
Example: knowledge & approval of the
litigants or of competent
Bruce, already of legal age, judicial authority;
disappeared and was declared an
absentee. Alfred was appointed as Example:
his representative. Bruce owned a
car worth ₱4,000,000.00. Alfred A and B are a couple. A has an
sold the car for ₱2,900,000.00. exclusive property that she
acquired after marriage. Due to
In this case, Alfred sold the car for circumstances, they separated. B,
a price lower by more than one- then proclaimed that he is the
fourth (1/4) of its market value, to rightful owner of the said
the prejudice of Bruce. Bruce can property. A sues B for the
ask for the rescission of the sale. recovery of the property.

c. Those undertaken in fraud of In this case the property is under

creditors when the latter litigation. If, during the pendency
cannot in any other manner of the case, B sells the land to C
collect the claims due to them; without the approval of A and of
the court, the contract of sale is
Example: rescissible at the instance A wins
the case unless C is in legal
X owed Y ₱1,000,000.00. X did possession in good faith.
not have cash to pay Y. X’s only
property was a lot worth e. All other contracts specially
₱1,000,000.00. X anticipated that declared by law to be subject to
Y would sue him soon for the rescission.
unpaid debt and go after his
property, so he donated the land to
Z to avoid paying Y.

In this case, Y became a creditor of

X before the donation. X donated
his one and only property to Z to
avoid paying Y. Consequently, Y
cannot collect the ₱1,000,000.00
from X in any other manner.

The donation is rescissible because

it was done in fraud of a creditor
can ask for the rescission of the
donation. This is : Accion
Pauliana.

ACCION PAULIANA – an action

where the creditor files an action
in court for the rescission of acts
or contracts entered into by the
debtor designed to defraud the
former

d. Those which refer to things

under litigation if they have
been entered into by the
defendant without the
 consent; and
VOIDABLE OR d. It is sanctioned and therefore requires no
ANNULLABLE damage.

CONTRACTS The action for annulment shall be brought

within 4 years. This period shall begin:

The following contracts are voidable or

annullable, even though there may have a. In case of intimidation, violence or
been no damage to the contracting parties: undue influence, from the time the
defect of the consent ceases.
f. Those where one of the parties is b. In case of mistake or fraud, from the
incapable of giving consent to a time of the discovery of the same.
contract; c. And when the action refers to
g. Those where the consent is vitiated by contracts entered into by minors or
mistake, violence, intimidation, other incapacitated persons, from the
undue influence (state of drunkenness time the guardian ceases.
or under hypnotic spell) or fraud.

The contract is legally binding, but could

become void. If there is an injured party
involved, the injured party or the defrauded
must take action, otherwise the contract is
considered valid.

Example

A contract entered into with a minor could

be voidable.

Example:

A promises to sell his car to B for

200,000. His consent is obtained by use of
force. The contract is voidable at the
option of A. He may void the contract or
elect to be bound by it because it was
obtained by violence and intimidation.

Definition of Terms:

□ Ratification - the action of signing or

giving formal consent to a treaty,
contract, or agreement, making it
officially valid. (In this case)
Ratification cleanses the contract of
its defects.

Characteristics of Voidable Contracts:

a. It is valid until set aside by a competent

court;
b. It is subject to ratification;
c. It is based on incapacity or vitiated
 if either refuses to complete the bargain
What is the difference between a voidable (either the prostitute after being paid or the
and rescissible contract? payer after receiving the services), the
court will not assist the disappointed party.
Their binding force. Rescissible contract
renders it defective due to external facts
that may prejudice a contracting party or Definition of Terms:
even a third person. While voidable
contract becomes defective due to the vice □ Statute of Frauds - the requirement
of consent. that certain kinds of contracts be
memorialized in writing, signed by the
UNENFORCEABLE party to be charged, with sufficient
content to evidence the contract.
CONTRACTS
The following contracts are unenforceable,
unless they are ratified:

a. 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;
b. Those were both parties are incapable
of giving consent to a contract; and
c. Those that do not comply with the
Statute of Frauds
d. Defect is caused by lack of form,
authority or capacity of both parties
not cured by prescription.
e. Cannot be enforced by a proper
action in court. Note: The statue of
fraud applies only to executory
contracts, not to those that are
partially or completely fulfilled.

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.

Example:
An example of a transaction which is an
unenforceable contract is a contract for
prostitution under English law. Prostitution
is not actually a crime under English law,
but both soliciting a prostitute and living
off the earnings of a prostitute are criminal
offences.[1] Yet so long as the contract is
fully performed, it remains valid. However,
 d. The defense of illegality of contracts
VOID OR INEXISTENT is not available to 3rd persons whose
interests are not directly affected; and
CONTRACTS e. A contract which is the direct result of a
previous illegal contract is also void.
The following contracts are inexistent and
void:

a. Those whose cause, object or purpose

is contrary to law, morals, good
customs, public order or public policy;
b. Those which are absolutely simulated
or fictitious;
c. Those whose cause or object did not
exist at the time of transaction;
d. Those whose object is outside the
commerce of men;
e. Those which contemplate an impossible
service;
f. Those where the intention of the
parties relative to the principal object
of the contract cannot be ascertained;
and
g. Those expressly prohibited or declared
void by law.

Example:

A contract that was between an illegal drug

dealer and an illegal drug supplier to purchase
a specified number of drugs for a specified
amount. Either one of the parties could void the
contract since there is no lawful objective
and hence missing one of the elements of a
valid contract.

Technical distinction:

In void contract, all the requisites are present

but one or some of them are unlawful or
prohibited by law.

In inexistent contract, one, some or all the

requisites are absent.

Basic features of void contracts:

a. A void contract cannot be ratified;
b. The right to raise the defense of
illegality cannot be waived;
c. The action or defense to declare the
inexistence of a contract does not
prescribe;
Principle of Pari Delicto

Latin for "in equal fault"

• When the defect of a void contract consists in

the illegality of the cause or object of the
contract and the act constitutes a criminal
offense, both parties being in pari delicto, they
shall have no action against each other, and
both shall be prosecuted.

• When only one of the parties is guilty, the

innocent one may claim what he has given, and
shall not be bound to comply with his promise.

If the act in which the unlawful or forbidden

cause consists doesn’t constitute a criminal
offense, the ff rules shall be observed:

• When the fault is on the part of both

contracting parties, neither may recover what
he has given by virtue of the contract, or
demand the performance of the other’s
undertaking;

• When only one of the contracting parties is at

fault, he cannot recover what he has given by
reason of contract, or ask for the fulfillment of
what has been promised. The other who is not
at fault, may demand the return of what he has
given without any obligation to comply with
his promise.
TYPES OF DAMAGES: another, there being fault or
negligence, is obliged to pay for
Damages are monetary awards. In in a legal the damage done. Such fault or
sense, “damages” refers to monetary negligence, if there is no pre-
compensation that is claimed by a person or existing contractual relation
awarded by a court in a civil action to a person between the parties, is called a
who has been injured or suffered loss because quasi-delict).
of the wrongful conduct of another party. c. Seduction, abduction, rape, or other
lascivious acts;
1. Actual or Compensatory d. Adultery or concubinage;
2. Moral e. Illegal or arbitrary detention or
3. Nominal arrest;
4. Temperate or Moderate f. Illegal search;
5. Liquidated g. Libel, slander or other form of
6. Exemplary or Corrective defamation;
h. Malicious prosecution
1. Actual or Compensatory Damages i. the parents of the female seduced,
abducted, raped or abused may
 pecuniary loss as well as unrealized also recover moral damages.
profit

Example:

If at the local gym a defendant drops a barbell

on the foot of a plaintiff who is a construction
worker, the plaintiff could recover
consequential damages for the loss of income
resulting from the injury.

These consequential damages are based on the

resulting harm to the plaintiff’s personal
income. They are not based on the injury itself,
which was the direct result of the defendant’s
conduct.

2. Moral Damages

 physical and mental anguish

Example:

Young adult motorcyclist fell on illegally

placed advertising board in highway. The
municipality was condemned in 2010 to pay
the parents for moral damages 350.000 Euros
for moral damage.

Moral damages may be recovered in the

following & analogous cases:
a. A criminal offense resulting in
physical injuries;
b. Quasi-delicts causing physical
injuries; (Whoever by act or
omission causes damage to
3. Nominal Damages that if either of them does not follow the terms
of the contract, the other person gets the $5,000
 vindicate a right, when no other kind of deposit. If Gerald fails to follow through with
damages may be recovered the purchase, Reta gets to keep the $5,000. If
Reta decides she does not want to sell her home
Example: to Gerald, she must return the $5,000.

Someone was using your land and you wanted Liquidated damages clauses act as insurance
them to stay off, you may be awarded $1 for for both parties. The person who breaks the
you suffered no loss but merely wanted to contract knows ahead of time how much they
assert your rights. would owe the other party. Similarly, the other
party can negotiate an amount that would
Juan slaps Matthew in a heated argument. In adequately cover their loss without having to
court, it is shown that even though Juan go to court. However, the purpose of a
wrongfully slapped Matthew, Matthew suffered liquidated damages clause is not to punish the
no serious injury. The court awarded $1 in person that breaches the contract.
nominal damages to Matthew.
6. Exemplary or Corrective Damages

4.Temperate or Moderate Damages

 are more than nominal but less than

compensatory damages
 exact amount cannot be determined
Example:
My brother was a passenger in a bus going to
our province when an accident happened. He
lost his limbs. He can no longer work and,
recently, the company he worked with was
bombed and lost its files. My question is, since
we cannot produce copies of the documents
that will show his pay from his work, because
of what happened to their firm recently, may
we still be able to get damages for his loss of
earning capacity?
Temperate damages in lieu of actual damages
for loss of earning capacity may be awarded
where earning capacity is plainly established
but no evidence was presented to support the
allegation of the injured party’s actual income.
5. Liquidated Damages

 predetermined by an agreement
 those agreed upon by the parties to a
contract, to be paid in case of breach
thereof.

Example:

Gerald has agreed to purchase Reta’s home for

$50,000. As part of the agreement, he must put
down a deposit of $5,000. Both parties agree
  corrective or to set an example

 plaintiff must show that he is entitled

to moral, temperate or compensatory
damages before the court may consider
the question of whether or not
exemplary damages should be awarded

Example:
A libel was committed by an author and his
publisher against a distinguished naval officer.
The officer sued for damages. he was awarded
£15000 compensatory and £ 25000 exemplary
damages against both attendants.
These damages are awarded both as a
punishment and to set a public example. They
reward the plaintiff for the horrible nature of
what she/he went through or suffered.
Although often requested, exemplary damages
are seldom awarded.