defective contracts(1)

8/6/2019 Defective Contracts(1)

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CHAPTER 6

RESCISSIBLE CONTRACTS

4 Classes of defective contracts:

1. Rescissible contracts which is a contract that has case! a "articlar !a#a$e to one o% the "arties or to a & r!"erson an! which %or e'itable reasons #a( be set asi!e e)en i% it is)ali!.

*. +oi!able contracts which is a contract in which the consent o% one "art( is !e%ecti)e, either becase o% want o% ca"acit( or becase it is )itiate!, bt which contract is )ali! ntilset asi!e b( the co#"etent cort.

&. -nen%orceable Contracts which is a contract that %or so#e reason cannot be en%orce!, nless it is rati%ie! in the #anner "ro)i!e! b( law

. +oi! or Ine/istent Contracts which is an absolte nllit( an! "ro!ces no e%%ect, as i% it ha! ne)er been e/ecte! or entere! into.

As to defect: As to effect: As to

prescriptibility of

action or defense:

As to susceptibility

of ratification:

As to who may assail

contracts

As to how contracts

may be assailed

RESCISSIBLE There is !a#a$e or

in0r( either to one o%

the contractin$ "arties

or to thir! "ersons.

Consi!ere! )ali! an!

en%orceable ntil the(

are rescin!e! b( a

co#"etent cort

The action %or

rescission #a(

"rescribe

Not ssce"tible o%

rati%ication

a( be assaile! not

onl( b( a contractin$

"art( bt e)en b( a &r!

"erson who is

"re0!ice! or !a#a$e!

b( the contract

a( be assaile! !irectl(

onl(, an! not

collaterall(

!I"ABLE There is )itiation o%

consent or le$al

inca"acit( o% one o% the

contractin$ "arties.

Consi!ere! )ali! an!

en%orceable ntil the(

are annl le! b( a

co#"etent cort

The action %or

annl#ent or the

!e%ense o%

annlabilit( #a(

"rescribe.

Ssce"tible Can be assaile! onl( b(

a contractin$ "art(


or collaterall(

#$E$%!RCEABL

E

The contract is entere!

into in e/cess or

withot an( athorit(,

or !oes not co#"l( with

the Statte o% 2ra!s, orboth contractin$ "arties

are le$all( inca"acitate!

Cannot be en%orce! b( a

"ro"er action in cort

The corres"on!in$

action %or reco)er(, i%

there was total or

"artial "er%or#ance

o% the nen%orceablecontract n!er No. 1

or No. & o% Art. 13&,

#a( "rescribe

Ssce"tible a( be assaile! onl( b(

a contractin$ "art(


or collaterall(

!I" !R

I$E&IS'E$'

One or #ore o% the

essential re'isites o% a

)ali! contract are

lac4in$ either in %act or

law

As a $eneral rle, !o

not "ro!ce an( le$al

e%%ect

The action %or

!eclaration o% nllit(

or ine/istence or the

!e%ense o% nllit( or

ine/istence !oes not

"rescribe!

Not ssce"tible a( be assaile! not

onl( b( a contractin$

"art( bt e)en b( a &r!

"erson whose interest is

!irectl( a%%ecte!


or collaterall(


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Art. 1&53. Contracts )ali!l( a$ree! "on #a( be rescin!e! in the cases establishe! b( law. 1*738

Rescissible Contracts ( all o% the essential re'isites o% a contract e/ist an! the contract is )ali!, bt b( reason o%

in0r( or !a#a$e to either o% the contractin$ "arties or to & r!"ersons, sch as cre!itors, it #a( be rescin!e!.

Rescissible C) a contract with is )ali! becase it contains all o% the essential re'isites "rescribe! b( law, bt which is

!e%ecti)e becase o% in0r( or !a#a$e to either o% the contractin$ "arties or to & r!"ersons, as a conse'ence o% which it#a( be rescin!e! b( #eans o% a "ro"er action %or rescission.

'!LE$'I$!: Relatively Ineffective Contract ( is !istin$ishe! %ro# the )oi!able contract in that its

ine%%ecti)eness, with res"ect to the "art( concerne!, is "ro!ce! i"so 0re, while a )oi!able contract !oes not beco#eino"erati)e nless an action to annl it is institte! an! allowe!. It !i%%ers %ro# the )oi! or ine/istent contract, in that

the ine%%ecti)eness o% the latter is absolte, becase it cannot be rati%ie!, while the relati)el( ine%%ecti)e contract can be

#a!e co#"letel( e%%ecti)e b( the consent o% the "erson as to who# it is ine%%ecti)e, or b( the cessation o% thei#"e!i#ent which "re)ents its co#"lete e%%ecti)eness.

Characteristics:

1. Their !e%ect constittes in in0r( or !a#a$e either to one o% the contractin$ "arties or to &r!"ersons

*. Be%ore rescission, the( are )ali! an! there%ore, le$all( e%%ecti)e&. The( can be attac4e! !irectl( onl(, an! not collaterall(

. The( can be attac4e! onl( either b( a contractin$ "art( or b( a &r!"erson who is in0re! or !e%ra!e!

9. The( are ssce"tible o% con)ali!ation onl( b( "rescri"tion an! not b( rati%ication

'!LE$'I$!: Re*uisites of Rescission:

1. The contract #st be a rescissible contract, sch as those #entione! in Art. 1&51 an! 1&5*

*. The "art( as4in$ %or rescission #st ha)e no other le$al #eans to obtain re"aration %or the !a#a$es s%%ere! b( hi#

&. The "erson !e#an!in$ rescission #st be able to retrn whate)er he #a( be obli$e! to restore i% rescission is $rante!. The thin$s which are the ob0ect o% the contract #st not ha)e "asse! le$all( to the "ossession o% a &r!"erson actin$ in

$oo! %aith

9. The action %or rescission #st be bro$ht within the "rescri"ti)e "erio! o% (ears.

Remission ( a re#e!( $rante! b( law to the contractin$ "arties, an! e)en to & r!"ersons, to secre the re"aration o%

!a#a$es case! to the# b( a contract, e)en i% the sa#e shol! be )ali!, b( #eans o% the restoration o% thin$s to their

con!ition "rior to the celebration o% the contract.

Rescission distin+uished from resolution of reciprocal obli+ations under Art),,-, of the Code ( si#ilarities both

with res"ect to )ali!it( an! e%%ects

Rescission Resolution

As to party who may institute action: The action #a( be institte! not onl( b(a "art( to the contract bt e)en a & r!

"erson

The action #a( be institte! onl( b( a"art( to the contract

As to causes: There are se)eral cases or $ron!s sch

as lesion, %ra! an! others e/"ressl(s"eci%ie! b( law

The onl( $ron! is %ailre o% one o% the

"arties to co#"l( with what is inc#bent"on hi#

As to power of the courts: In rescission there is no "ower o% thecorts to $rant an e/tension o% ti#e %or

"er%or#ance o% the obli$ation so lon$ as

there is a $ron! %or rescission

In resoltion the law e/"ressl( !eclaresthat corts shall ha)e a !iscretionar(

"ower to $rant an e/tension %or

"er%or#ance "ro)i!e! that there is a 0stcase

As to contract which may be rescinded

or resolved:

In rescission an( contract, whethernilateral or reci"rocal, #a( be

rescin!e!

Onl( reci"rocal contracts #a( beresol)e!

$either must rescission be confused with rescission of a contract by mutual consent of the contractin+ parties (

Rescission b( #tal consent is si#"l( another contract %or the !issoltion o% a "re)ios one, an! its e%%ects, in relationto the contract so !issol)e!, shol! be !eter#ine! b( the a$ree#ent #a!e b( the "arties, or b( the a""lication o% otherle$al "ro)isions, bt not b( Articles 1&59, which is not a""licable.

Art. 1&51. The %ollowin$ contracts are rescissible:

18 Those which are entere! into b( $ar!ians whene)er the war!s who# the( re"resent s%%er lesion b( #ore than

one;%orth o% the )ale o% the thin$s which are the ob0ect thereo%, an! 1697 o% the Co!e

Art. 1&5&. The action %or rescission is sbsi!iar(< it cannot be institte! e/ce"t when the "art( s%%erin$ !a#a$e has no other

le$al #eans to obtain re"aration %or the sa#e. 1*78

Be%ore a "art( who is "re0!ice! can a)ail hi#sel% o% this re#e!(, it is essential that he has e/haste! all o% the other

le$al #eans to obtain re"aration

I% it can be establishe! that the "ro"ert( which is alienate! or trans%erre! b( the !ebtor to another was his onl( "ro"ert(

at the ti#e o% the transaction, an action %or rescission can certainl( be #aintaine! becase it is clear that in sch case

the cre!itor can ha)e no other re#e!(.

.arties who may institute action:1. The "erson who is "re0!ice!, sch as the "art( s%%erin$ the lesion in rescissor( actions on the $ron! o% lesion, the

cre!itor who is !e%ra!e! in rescissor( action on the $ron! o% %ra!, an! other "ersons athori=e! to e/ercise the sa#e

in other rescissor( actions.*. Their re"resentati)es

&. Their heirs a ri$ht to the le$iti#e is si#ilar to a cre!it o% a cre!itor8 he #a( !o so as a re"resentati)e o% the "erson

who s%%ers %ro# lesion or o% the cre!itor who is !e%ra!e!. Howe)er, i% it can be establishe! that the !ece!ent entere!into a contract with another in or!er to !e%ra! hi# o% his le$iti#e, he has no ri$ht to institte the action.

. Their cre!itors b( )irte o% the sbro$ator( action !e%ine! in Art. 11>> o% the Co!e

Art. 1&5. Rescission shall be onl( to the e/tent necessar( to co)er the !a#a$es case!. n8


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The "r"ose o% rescission is re"aration %or the !a#a$e or in0r( which is s%%ere! either b( a "art( to the contract or b(

a &r!"erson. Rescission nee! not be total in character, it #a( also be "artial.

Art. 1&59. Rescission creates the obli$ation to retrn the thin$s which were the ob0ect o% the contract, to$ether with their %rits,

an! the "rice with its interest< conse'entl(, it can be carrie! ot onl( when he who !e#an!s rescission can retrn whate)er he

#a( be obli$e! to restore. ;;; rescissor( action on the $ron! o% lesion

Neither shall rescission ta4e "lace when the thin$s which are the ob0ect o% the contract are le$all( in the "ossession o% thir!

"ersons who !i! not act in ba! %aith.

In this case, in!e#nit( %or !a#a$es #a( be !e#an!e! %ro# the "erson casin$ the loss. 1*798

The %irst "ara$ra"h is a""licable onl( to rescissor( actions on the $ron! o% lesion an! not to rescissor( actions on the

$ron! o% %ra!. This is so becase in the latter there can certainl( be no obli$ation on the "art o% the "lainti%%;cre!itor

to restore an(thin$ since he has not recei)e! an(thin$.

Rescission is not "ossible, nless he who !e#an!s it can retrn whate)er he #a( be obli$e! to restore.

i.e. where a $ar!ian alienates the "ro"erties o% a #inor %or P59,333 to a certain "erson, an! sbse'entl(, the #inor

"on reachin$ the a$e o% #a0orit(, brin$s an action %or the rescission o% the contract on the $ron! o% lesion, the e%%ect

i% rescission is $rante! wol! be the restoration o% thin$s to their con!ition "rior to the celebration o% the contract. Bt

i% the "lainti%% cannot re%n! the a#ont incl!in$ interest, the action will certainl( %ail becase "ositi)e stattor( law,no less than ni%or# cort !ecisions, re'ire, as a con!ition "rece!ent to rescission, that the consi!eration recei)e!

shol! be re%n!e!.

%ruits of the thin+ (re%er not onl( to natral, in!strial an! ci)il %rits bt also to other accessions obtaine! b( the

thin$, while interestre%ers to le$al interest.

It #st be obser)e! that as %ar as the obli$ation to restore the %rits is concerne!, the rles on "ossession shall be

a""lie!. The !eter#ination o% the $oo! or ba! %aith o% the "art( obli$e! to restore is o% transcen!ental i#"ortance in or!er to

assess the %rits or the )ale thereo% which #st be retrne! as well as the e/"enses which #st be rei#brse!.

i.e. as a con!ition to the rescission o% a contract o% sale o% a "arcel o% lan!, the )en!or #st re%n! the )en!ees who

are in $oo! %aith8 an a#ont e'al to the "rchase "rice, "ls the s# e/"an!e! b( the# in i#"ro)in$ the lan!.

The secon! "ara$ra"h this a""lies to all 4in!s o% rescissible contracts.

/ re*uisites in order that the ac*uisition of the thin+ which consitutues the ob0ect of the contract by a 1 rdperson

shall defeat an action for rescission:

1. That the thin$ #st be le$all( in the "ossession o% the &r!"erson

*. That sch "erson #st not ha)e acte! in ba! %aith.

I% the thin$ is #o)able, the concrrence o% these re'isites o%%er no !i%%iclt( becase o% the "rinci"le that "ossession o%

#o)able "ro"ert( ac'ire! in $oo! %aith is e'i)alent to a title.

I% the thin$ is i##o)able, the ri$ht o% the &r!"erson #st be re$istere! or recor!e! in the "ro"er re$istr( be%ore we can

sa( that the thin$ is le$all( in his "ossession or what a#onts to the sa#e thin$, be%ore he is "rotecte! b( law.

A &r!"erson to who# the realt( has been trans%erre! who has not re$istere! his ri$ht in the "ro"er re$istr( cannot be

"rotecte! a$ainst the e%%ects o% a 0!$#ent ren!ere! in the action %or rescission. Howe)er, where he has re$istere! his

ri$ht o)er the realt( n!er the Lan! Re$istration Act, there wol! be no le$al obstacles to the trans%er o% the title o% the

sai! "ro"ert(, an! %or this reason the sai! trans%er cannot be rescin!e!.

The i#"ossibilit( o% #aintainin$ an action %or the rescission o% the contract where the ob0ect is le$all( in the "ossession

o% a &r!"erson in $oo! %aith, the "erson who is "re0!ice! is not le%t withot an( re#e!(. He #a( still brin$ an action

%or in!e#nit( %or !a#a$es a$ainst the "erson who case! the loss.

Art. 1&56. Rescission re%erre! to in Nos. 1 an! * o% Article 1&51 shall not ta4e "lace with res"ect to contracts a""ro)e! b( the

corts. 1*76a8Art. 1&5>. All contracts b( )irte o% which the !ebtor alienates "ro"ert( b( $ratitos title are "res#e! to ha)e been entere! into

in %ra! o% cre!itors, when the !onor !i! not reser)e s%%icient "ro"ert( to "a( all !ebts contracte! be%ore the !onation.

Alienations b( oneros title are also "res#e! %ra!lent when #a!e b( "ersons a$ainst who# so#e 0!$#ent has been isse!.The !ecision or attach#ent nee! not re%er to the "ro"ert( alienate!, an! nee! not ha)e been obtaine! b( the "art( see4in$ the

rescission.In a!!ition to these "res#"tions, the !esi$n to !e%ra! cre!itors #a( be "ro)e! in an( other #anner reco$ni=e! b( the law o%e)i!ence. 1*7>a8

Art. 1&55. @hoe)er ac'ires in ba! %aith the thin$s alienate! in %ra! o% cre!itors, shall in!e#ni%( the latter %or !a#a$es s%%ere!

b( the# on accont o% the alienation, whene)er, !e to an( case, it shol! be i#"ossible %or hi# to retrn the#.I% there are two or #ore alienations, the %irst ac'irer shall be liable %irst, an! so on sccessi)el(. 1*75a8

.roof of %raud ( %ra! or intent to !e%ra! #a( be either "res#e! in accor!ance with Art. 1&5> o% the Co!e or !l(

"ro)e! in accor!ance with the or!inar( rles o% e)i!ence.

.resumption of %raud 2fraud of creditors in the followin+ cases3:

1. Alienations o% "ro"ert( b( $ratitos title i% the !ebtor has not reser)e! s%%icient "ro"ert( to "a( all o% his !ebts

contracte! be%ore sch alienations.


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*. Alienations o% "ro"ert( b( oneros title i% #a!e b( a !ebtor a$ainst who# so#e 0!$#ent has been ren!ere! in an(

instance or so#e writ o% attach#ent has been isse!. The !ecision or attach#ent nee! not re%er to the "ro"ert( alienate!an! nee! not ha)e been obtaine! b( the "art( see4in$ the rescission.

Ths, where the !ebtor alienate! a certain "ro"ert(, which was his onl( attachable "ro"ert(, to his son a%ter 0!$#ent

ha! been ren!ere! a$ainst hi# an! a writ o% e/ection ha! been isse!, there is "res#"tion that sch alienation is

%ra!lent in accor!ance with the rle state! in the *n!"ara$ra"h o% Art. 1&5>. This "res#"tion beco#es stron$erwhen it is establishe! that the con)e(ance b( the 0!$#ent !ebtor is %or the "r"ose o% "re)entin$ the 0!$#ent

cre!itor or other cre!itors %ro# sei=in$ the "ro"ert(. Bt where no 0!$#ent or "reli#inar( attach#ent e/ists a$ainst

the !ebtor, the "res#"tion is not a""licable.

It #st be obser)e! that the abo)e "res#"tions are !is"table, an! there%ore #a( be rebtte! b( satis%actor( an!con)incin$ e)i!ence to the contrar(. Ths, i% it can be establishe! that the trans%eree ac'ire! the "ro"ert( in $oo!

%aith, withot the least intention o% i#"airin$ the 0!$#ent obtaine! b( the cre!itor a$ainst the trans%eror, an! that he

"ai! the "rchase "rice in the belie% that the latter col! %reel( !is"ose o% the sai! "ro"ert(, the "res#"tion o% %ra! iso)erthrown.

It is not in!is"ensable that the cre!itor shall ha)e to !e"en! "on the two "res#"tions establishe! in the 1 stan! *n!

"ara$ra"hs o% Art. 1&5> in or!er to "ro)e the e/istence o% %ra! or the intention to !e%ra!

Accor!in$ to the &r!"ara$ra"h o% the sa#e article, the !esi$n to !e%ra! cre!itors #a( be "ro)e! in an( other #anner

reco$ni=e! b( the law o% e)i!ence.

Ths, in !eter#inin$ whether or not a certain con)e(ance is %ra!lent the 'estion in e)er( case is whether the

con)e(ance was a bona fidetransaction or #erel( a tric4 or contri)ance to !e%eat cre!itors. It is not s%%icient that it is%on!e! on a $oo! or )alable case or consi!eration or is #a!e with bona fideintent: it #st ha)e both ele#ents. I%

!e%ecti)e in either o% these "articlars, altho$h $oo! between the "arties, it is rescissible as %ar as the cre!itors areconcerne!.

The test as to whether or not a con)e(ance is %ra!lent is !oes it "re0!ice the ri$hts o% cre!itors In the consideration of whether or not certain transfers or conveyances are fraudulent the followin+

circumstances have been denominated by the courts as bad+es of fraud)

1. The %act that the case or consi!eration o% the con)e(ance is ina!e'ate.

*. A trans%er #a!e b( a !ebtor a%ter sit has been be$n an! while it is "en!in$ a$ainst hi#&. A sale on cre!it b( an insol)ent !ebtor

. E)i!ence o% lar$e in!ebte!ness or co#"lete insol)enc(9. The trans%er o% all or nearl( all o% his "ro"ert( b( a !ebtor, es"eciall( when he is insol)ent or $reatl( e#barrasse!

%inanciall(

6. The %act that the trans%er is #a!e between %ather an! son, when there are "resent others o% the abo)e circ#stances>. The %ailre o% the )en!ee to ta4e e/clsi)e "ossession o% all the "ro"ert(

i.e. where it is "ro)e! that a certain cor"oration, which is hea)il( in!ebte! to a certain ban4, sol! a lar$e tract o% lan!

worth P33,333 to the )en!ee %or onl( P&6,333 in s"ite o% the %act that at the ti#e o% sch sale it !i! not ha)e an(

li'i!ate! assets an! that all o% its other assets were "le!$e! or #ort$a$e!, so#e o% which were %or %ar #ore than their

actal )ale, sch circ#stances wol! be s%%icient to establish the %ra!lent character o% the con)e(ance.Conse'entl(, the sale can be set asi!e b( #eans o% an action %or rescission at the instance o% the cre!itor. Bt where

the sale is %on!e! on a %ictitios case or consi!eration it wol! be %tile %or sch cre!itor to in)o4e its rescissionsince sch action "res""oses the e/istence o% a )ali!, not ine/istent, to contract. The re#e!( o% the cre!itor in sch

case wol! be to as4 %or a !eclaration o% nllit( o% the con)e(ance.

The #ere %act o% relationshi" between )en!or an! )en!ee, as when the )en!or is the )en!ees #other, is not in itsel% an

ele#ent o% %ra!, i% the sale was #a!e %or a )alable consi!eration an! sai! )en!or was not at the ti#e o% thecon)e(ance insol)ent.

The test as to whether or not a con)e(ance is %ra!lent is to !eter#ine whether or not it is "re0!icial to the ri$hts o%

the cre!itors, ne)ertheless, it is also tre that sch a test wol! not be a""licable i% the con)e(ance is #a!e in $oo!

%aith or with a bona fideintent an! %or a )alable case or consi!eration.

I% the "ro"ert( is ac'ire! b( a "rchaser in $oo! %aith an! %or )ale, the ac'isition as %ar as the law is concerne! is

not %ra!lent. The contract or con)e(ance is not rescissible

I% the ac'isition b( the &r!"erson in ba! %aith the contract or con)e(ance is rescissible. In sch case the cre!itor who

is "re0!ice! can still "rocee! a%ter the "ro"ert(. Howe)er, i% %or an( case or reason, it shol! be i#"ossible %or the

ac'irer in ba! %aith to retrn the "ro"ert(, he shall in!e#ni%( the cre!itor see4in$ the rescission %or !a#a$es s%%ere!on accont o% the alienation.

I% it ha""ens that there are two or #ore alienations, the %irst ac'irer shall be liable %irst, an! so on sccessi)el(,

i.e. I% A, a$ainst who# a 0!$#ent %or the "a(#ent o% a certain !ebt in %a)or o% ? has been ren!ere!, con)e(s his

onl( "ro"ert( to B in %ra! o% ?, an! B, who is aware o% the %ra!, in trn, con)e(s to the "ro"ert( to C, an! the latter,

who is also aware o% the %ra!, also con)e(s the "ro"ert( to , who is a "rchaser in $oo! %aith an! %or )ale, altho$hthe con)e(ance to cannot be rescin!e!, (et ? can still "rocee! a$ainst B %or !a#a$es s%%ere! b( hi# on accont o%

the %ra!lent alienation, an! i% he %ails to reco)er he can still "rocee! a$ainst C. It #st be note! that i% the reason %or

the i#"ossibilit( o% retrnin$ the "ro"ert( ac'ire! in ba! %aith is a %ortitos e)ent, then n!er the "rinci"leannonce! in Art. 11> o% the Co!e, there can be no liabilit( o% the ac'irer.


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Art. 1&57. The action to clai# rescission #st be co##ence! within %or (ears.

2or "ersons n!er $ar!ianshi" an! %or absentees, the "erio! o% %or (ears shall not be$in ntil the ter#ination o% the %or#erDsinca"acit(, or ntil the !o#icile o% the latter is 4nown. 1*778

'!LE$'I$!: A #inor who is a "art( to a contract o% sale #st brin$ the action %or rescission within (ears a%ter

attainin$ the a$e o% #a0orit(, becase n!er the "resent article the clai# o% rescission "rescribes in (ears %ro#re#o)al o% ones inca"acit(

-n!er no. & an! n!er Art. 1&5*, it #st be conte! %ro# the ti#e o% the !isco)er( o% the %ra!.

In certain cases o% contracts o% sale which are s"eciall( !eclare! b( law to be rescissible, howe)er, the "rescri"ti)e"erio! %or the co##ence#ent o% the action is si/ #onths or e)en %ort( !a(s, conte! %ro# the !a( o% !eli)er(.

CHAPTER >+OIABLE CONTRACTS

oidable Contracts ( #a( be !e%ine! as those where in which all o% the essential ele#ents %or )ali!it( are "resent,

altho$h the ele#ent o% consent is )itiate! either b( lac4 o% le$al ca"acit( o% one o% the contractin$ "arties, or b(

#ista4e, )iolence, inti#i!ation, n!e in%lence, or %ra!.

'!LE$'I$!: +oi!able or annllable contracts are e/istent, )ali! an! bin!in$, altho$h the( can be annlle! becase

o% want o% ca"acit( or )itiate! consent o% one o% the "arties, bt be%ore alienation, the( are e%%ecti)e an! obli$ator(

between the "arties.

The #ost essential %eatre is that it is bin!in$ ntil it is annlle! b( a co#"etent cort.

Once it is e/ecte! there are onl( two "ossible alternati)es le%t to the "art( who #a( in)o4e its )oi!able character to

attac4 its )ali!it( or to con)ali!ate it either b( rati%ication or b( "rescri"tion. Its )ali!it( #a( be attac4e! either !irectl( b( #eans o% a "ro"er action in cort or in!irectl( b( wa( o% !e%ense. The

action itsel% is calle! annl#ent in or!er to !istin$ish it %ro# an action %or the rescission o% rescissible contracts or

%ro# an action %or the !eclaration o% absolte nllit( or ine/istence o% )oi! or ine/istent contracts, while the !e%enseitsel% is calle! annlabilit( or relati)e nllit( in or!er to !istin$ish it %ro# the !e%ense o% absolte nllit( or ine/istent

in )oi! or ine/istent contracts or the !e%ense o% nen%orceabilit( in nen%orceable contracts

'!LE$'I$!: $ullity vs) Rescission

$ullity Rescission

As its na#e i#"lies, !eclares the ine%%icac( which the contractalrea!( carries in itsel%

erel( "ro!ces that ine%%icac(, which !i! not e/ist essentiall(in the contract

To be cre!, re'ires an act o% rati%ication To be ine%%ecti)e, nee!s no rati%ication

The !irect in%lence o% the "blic interest is note! Pri)ate interest alone $o)en

Sanction< the law "re!o#inatin$ in the %or#er Re#e!(< e'it(

Can be !e#an!e! onl( b( the "arties to the contract a( be !e#an!e! e)en b( &r!"arties a%%ecte! b( it

'!LE$'I$!: Re"entance is not a $ron! %or nlli%ication

Characteristics:

1. Their !e%ect consists in the )itiation o% consent o% one o% the contractin$ "arties

*. The( are bin!in$ ntil the( are annlle! b( a co#"etent cort&. The( are ssce"tible o% con)ali!ation b( rati%ication or b( "rescri"tion

Their !e%ect or )oi!able character cannot be in)o4e! b( & r!"ersons

oidable Contracts Rescissible Contracts

The !e%ect is intrinsic becase it consists o% a )ice which

)itiates consent

The !e%ect is e/ternal becase it consists o% !a#a$e or

"re0!ice either to one o% the contractin$ "arties or to a & r!

"erson

The contract is )oi!able e)en i% there is no !a#a$e or

"re0!ice

The contract is not rescissible i% there is no !a#a$e or

"re0!ice

The annlabilit( o% the contract is base! on the law. Annl#ent

is not onl( a re#e!( bt a sanction. Pblic interest"re!o#inates

The rescissibilit( o% the contract is base! on e'it(. Rescission

is a #ere re#e!(. Pri)ate interest "re!o#inates

The case %or annl#ent are !i%%erent %ro# the cases %or rescission.

Ssce"tible o% rati%ication Not ssce"tible

Annl#ent #a( be in)o4e! onl( b( a contractin$ "art( Rescission #a( be in)o4e! either b( a contractin$ "art( or b(

a &r!"erson who is "re0!ice!.

Art. 1&73. The %ollowin$ contracts are )oi!able or annllable, e)en tho$h there #a( ha)e been no !a#a$e to the contractin$

"arties:18 Those where one o% the "arties is inca"able o% $i)in$ consent to a contractnless the b(er acce"t an! recei)e "art o% sch $oo!s an! chattels, or the e)i!ences, or so#e o% the#, o%sch thin$s in action or "a( at the ti#e so#e "art o% the "rchase #one(< bt when a sale is #a!e b( action

an! entr( is #a!e b( the actioneer in his sales boo4, at the ti#e o% the sale, o% the a#ont an! 4in! o%

"ro"ert( sol!, ter#s o% sale, "rice, na#es o% the "rchasers an! "erson on whose accont the sale is #a!e, itis a s%%icient #e#oran!#. @hen the "rice o% an( article or co##o!it( is !eter#ine! b( statte, or b( athorit( o% law, an( "erson "a(in$ an(a#ont in e/cess o% the #a/i## "rice allowe! #a( reco)er sch e/cess.


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Art. 115. @hen the law %i/es, or athori=es the %i/in$ o% the #a/i## n#ber o% hors o% labor, an! a contract is entere! into

whereb( a laborer n!erta4es to wor4 lon$er than the #a/i## ths %i/e!, he #a( !e#an! a!!itional co#"ensation %or ser)iceren!ere! be(on! the ti#e li#it.

Art. 117. @hen the law sets, or athori=es the settin$ o% a #ini## wa$e %or laborers, an! a contract is a$ree! "on b( which a

laborer acce"ts a lower wa$e, he shall be entitle! to reco)er the !e%icienc(.Art. 1*3. In case o% a !i)isible contract, i% the ille$al ter#s can be se"arate! %ro# the le$al ones, the latter #a( be en%orce!.

The abo)e article was a""lie! to srios contracts o% loan

.R!BLE: A "artnershi" borrowe! P*3,333 %ro# A at clearl( srios interest. Can the cre!itor reco)er an(thin$

%ro# the !ebtor

Answer:Ges the cre!itor can reco)er %ro# the !ebtor the %ollowin$: the "rinci"al, le$al interest on the "rinci"al %ro#

the !ate o% !e#an!, le$al interest on the le$al interest %ro# the ti#e o% 0!icial !e#an! an! attorne(s %ees, i% "ro"ern!er Art. **35 o% the CC.

'!LE$'I$!: As a $eneral rle, the "ro)isions o% this article #st be a""lie! i% there are se)eral sti"lations in the

contract, so#e o% which are )ali! an! so#e )oi!. I% the sti"lations can be se"arate! %ro# each other, then those whichare )oi! will not ha)e an( e%%ect, bt those which are )ali! will be en%orce!. In case o% !obt, the contract #st be

consi!ere! as !i)isible or se"arable. The rle o% !i)isibilit( $i)en in this article has two e/ce"tions: 18 when the natre

o% the contract re'ires in!i)isibilit(, an! *8 when the intention o% the "arties is that the contract be entire

'!LE$'I$!: The rle o% !i)isibilit( an! "artial en%orceabilit( state! in this article #st (iel! to the contrar(

intention o% the "arties.

'!LE$'I$!: I% the ille$alit( !oes not a%%ect the "rinci"al "art, or that which the "arties #st ha)e conte#"late! as

the !esire! #ini## in relation to the whole contract, as "ro0ecte!, then onl( the ille$al "arts are )oi!.

In a srios contract o% loan, there are alwa(s two sti"lations. The( are: %irst, the "rinci"al sti"lation whereb( the

!ebtor n!erta4es to "a( the "rinci"al< an! secon!, the accessor( sti"lation whereb( the !ebtor n!erta4es to "a( asrios interest. These two sti"lations are !i)isible. Accor!in$ to Art. 1*3 o% the CC, in case o% a !i)isible contract,i% the ille$al ter#s can be se"arate! %ro# the le$al ones, the latter #a( be en%orce!. It is clear that what is ille$al is the

"restation to "a( the sti"late! interest. Hence, bein$ se"arable, the latter onl( shol be !ee#e! )oi!.

issentin$ O"inion in Briones )s. Ca##a(o the then 0stice castro:

o It is #( )iew that in a contract which is tainte! with sr( with a sti"lation to "a( srios interest, the

"restation to "a( sch interest is an inte$ral "art o% the case o% the contract. It is also the controllin$ case,

%or a srer len!s his #one( not 0st ha)e it retrne! bt in!ee! to ac'ire inor!inate $ain.

o The "restation to "a( srios interest bein$ an inte$ral "art an! controllin$ "art o% the case, #a4in$ it

ille$al an! the contract o% loan )oi!, Article 111 o% the CC shol! be a""lie!.

o An e/ce"tion is "ro)i!e! in the *n!sentence o% Art. 179> which states: The borrower #a( reco)er in

accor!ance with the laws on sr(. As an e/ce"tion to the $eneral rle in Art. 111, the !ebtor is allowe! inaccor!ance with the -sr( Law to reco)er the a#ont he has "ai! as srios interest. Ths Art. 11&

e/"licitl( athori=es that Interest "ai! in e/cess o% the interest allowe! b( the sr( law #a( be reco)ere!

b( the !ebtor with interest thereon %ro# the !ate o% "a(#ent. Bt the len!er is not allowe! to reco)er the"rinci"al, becase no e/ce"tion is #a!e< hence he %alls within the $eneral rle in Art. 111

o ORE CORRECT

Art. 1*1. The !e%ense o% ille$alit( o% contract is not a)ailable to thir! "ersons whose interests are not !irectl( a%%ecte!.

'!LE$'I$!: The ri$ht to set " the nllit( o% a )oi! or non;e/istent contract is not li#ite! to the "arties, as in the

case o% annllable or )oi!able contracts< it is e/ten!e! to &r!"ersons who are !irectl( a%%ecte! b( the contract.

Art. 1**. A contract which is the !irect reslt o% a "re)ios ille$al contract, is also )oi! an! ine/istent.

Title III. ; NAT-RAL OBLIFATIONS

Art. 1*&. Obli$ations are ci)il or natral. Ci)il obli$ations $i)e a ri$ht o% action to co#"el their "er%or#ance. Natral

obli$ations, not bein$ base! on "ositi)e law bt on e'it( an! natral law, !o not $rant a ri$ht o% action to en%orce their"er%or#ance, bt a%ter )olntar( %l%ill#ent b( the obli$or, the( athori=e the retention o% what has been !eli)ere! or ren!ere! b(reason thereo%. So#e natral obli$ations are set %orth in the %ollowin$ articles.

$atural !bli+ations ( are those base! on e'it( an! natral law, which !o not $rant a ri$ht o% action to en%orce their

"er%or#ance, bt a%ter )olntar( %l%ill#ent b( the obli$or, athori=e the retention o% what has been !eli)ere! orren!ere! b( reason thereo%

'!LE$'I$!: 2ro# the natre o% #an an! o% thin$s, as well as %ro# law an! reason, there arises a NAT-RAL LA@,

which is i##table an! in!e"en!ent o% all h#an re$lations< it is also calle! RATIONAL LA@.

'!LE$'I$!: This incl!es those rles which are neither written nor "ro#l$ate!, bt are !eri)e! %ro# reason an!

natre.

'!LE$'I$!: 4 types of obli+ations:


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1. oral !bli+ations (which are !ties o% conscience co#"letel( otsi!e o% the %iel! o% law*. $atural !bli+ations (which are not sanctione! b( an( action bt ha)e a relati)e 0ri!ical e%%ect&. Civil !bli+ations (which are 0ri!ical obli$ations which a""arentl( are in con%or#it( with "ositi)e law bt are

contrar( to 0ri!ical "rinci"les an! ssce"tible o% bein$ annlle!

. i7ed !bli+ations (which ha)e 0ri!ical e%%ect '!LE$'I$!: ris"r!ence has re!ce! this classi%ication into two onl(: natral an! ci)il obli$ations. The ci)il

obli$ations incl!e the #i/e!.

'!LE$'I$!:Natral obli$ations are #i!wa( between the ci)il obli$ations an! the "rel( #oral obli$ations. Ci)il

obli$ations are en%orceable b( action, while #oral obli$ations rest entirel( "on conscience. It is !istin$ishe! %ro# the

#oral in that i% "ro!ces so#e 0ri!ical e%%ects, sch as the ri$ht to retain what has been )olntaril( "ai! b( the !ebtor. The en#eration o% the %ollowin$ cases o% i#"lie! trst !oes not e/cl!e others establishe! b( the $eneral law o% trst,

bt the li#itation lai! !own in Article 1* shall be a""licable.Art. 15. There is an i#"lie! trst when "ro"ert( is sol!, an! the le$al estate is $rante! to one "art( bt the "rice is "ai! b(

another %or the "r"ose o% ha)in$ the bene%icial interest o% the "ro"ert(. The %or#er is the trstee, while the latter is the

bene%iciar(. Howe)er, i% the "erson to who# the title is con)e(e! is a chil!, le$iti#ate or ille$iti#ate, o% the one "a(in$ the "riceo% the sale, no trst is i#"lie! b( law, it bein$ !is"tabl( "res#e! that there is a $i%t in %a)or o% the chil!.

Art. 17. There is also an i#"lie! trst when a !onation is #a!e to a "erson bt it a""ears that altho$h the le$al estate is

trans#itte! to the !onee, he ne)ertheless is either to ha)e no bene%icial interest or onl( a "art thereo%.Art. 193. I% the "rice o% a sale o% "ro"ert( is loane! or "ai! b( one "erson %or the bene%it o% another an! the con)e(ance is #a!e

to the len!er or "a(or to secre the "a(#ent o% the !ebt, a trst arises b( o"eration o% law in %a)or o% the "erson to who# the#one( is loane! or %or who# its is "ai!. The latter #a( re!ee# the "ro"ert( an! co#"el a con)e(ance thereo% to hi#.

Art. 191. @hen lan! "asses b( sccession to an( "erson an! he cases the le$al title to be "t in the na#e o% another, a trst is

establishe! b( i#"lication o% law %or the bene%it o% the tre owner.Art. 19*. I% two or #ore "ersons a$ree to "rchase "ro"ert( an! b( co##on consent the le$al title is ta4en in the na#e o% one o%

the# %or the bene%it o% all, a trst is create! b( %orce o% law in %a)or o% the others in "ro"ortion to the interest o% each.

Art. 19&. @hen "ro"ert( is con)e(e! to a "erson in reliance "on his !eclare! intention to hol! it %or, or trans%er it to another or

the $rantor, there is an i#"lie! trst in %a)or o% the "erson whose bene%it is conte#"late!.Art. 19. I% an absolte con)e(ance o% "ro"ert( is #a!e in or!er to secre the "er%or#ance o% an obli$ation o% the $rantor

towar! the $rantee, a trst b( )irte o% law is establishe!. I% the %l%ill#ent o% the obli$ation is o%%ere! b( the $rantor when itbeco#es !e, he #a( !e#an! the recon)e(ance o% the "ro"ert( to hi#.

Art. 199. @hen an( trstee, $ar!ian or other "erson hol!in$ a %i!ciar( relationshi" ses trst %n!s %or the "rchase o%

"ro"ert( an! cases the con)e(ance to be #a!e to hi# or to a thir! "erson, a trst is establishe! b( o"eration o% law in %a)or o%the "erson to who# the %n!s belon$.

Art. 196. I% "ro"ert( is ac'ire! thro$h #ista4e or %ra!, the "erson obtainin$ it is, b( %orce o% law, consi!ere! a trstee o% ani#"lie! trst %or the bene%it o% the "erson %ro# who# the "ro"ert( co#es.

Art. 19>. An i#"lie! trst #a( be "ro)e! b( oral e)i!ence.

defective contracts(1)

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