QUIJANO NOTES 2015

CONTRACTS

REFORMATION OF INSTRUMENTS
*REFORMATION- is a remedy allowed by law by means of which a written instrument is
amended to express the real intention of parties if the instrument fails to
express such.
REQUISITES: 1. must be a meeting of the minds of parties (consent).
2. true intention is not expressed in the instrument
3. failure due to mistake, fraud, inequitable conduct or accident.
4. there must be a clear and convincing evidence of fraud, mistake,
inequitable conduct of accident.
5. the facts upon which relief by way of reformation of the instrument is
sought are put in issue by the pleadings.
-

REFORMATION VS. ANNULMENT

Meeting of the minds (consent)
- No meeting of the minds (no consent)
Contract exist but does not express
- Consent of one of the parties being
intention of parties
vitiated
WHAT MAY BE REFORMED:

1. Mutual mistake of parties cause failure to disclose real agreements.

2. One party mistaken and the other acted fraudulently or inequitably.
3. One party was mistaken and the other knew that instrument did not state real agreement,
yet concealed it.
4. Ignorance, lack of skill, negligence or bad faith on the part of person drafting the
instrument.
5. Where parties agree on mortgage, but instrument states property is sold absolutely or with
right to repurchase.

WHAT MAY NOT BE REFORMED:

1.
2.
3.
4.

Simple donation with no condition

Wills
Those where real agreement is void
One party has brought an action to enforce the instrument

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MUTUAL MISTAKE- is mistake of fact that is common to both parties of the instrument
which cause failure of the instrument to express their true intention.
REQUISITES OF MUTUAL MISTAKE:
1.
2.
3.
4.

Mistake must be of fact

Must be proved by clear and convincing evidence
Must be mutual
Mistake must be the cause of failure

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DEFECTIVE CONTRACTS
*4 KINDS OF DEFECTIVE CONTRACTS:
1. Rescissible contracts
2. Voidable contracts
3. Unenforceable contracts
4. Void or inexistent contracts

DEFECTIVE CONTRACTS AS TO:

*AS TO DEFECT
1. Rescissible - Injury or damage
2. Voidable - Vitiation of consent or legal capacity
3. Unenforceable - In excess of authority or do not comply with S of Fraud
-4. Void - Lack of an element of avalid contract
*AS TO EFFECT
1. Rescissible and Voidable - Valid until annulled
2. Unenforceable - Cannot be enforced by action in court
3. Void - No legal effects at all
*AS TO PARTIES WHO CAN FILE ACTION
1. Rescissible and Void Maybe attack directly by contracting parties or by third parties
2. Voidable and Unenforceable - Cannot be attacked by third persons

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CONTRACTS

RESCISSIBLE CONTRACTS
RESCISSIBLE CONTRACTS- those validly agreed upon because all the essential elements
exist and, therefore, legally effective
*RESCISSION- a remedy granted by law to the contracting parties and sometimes event to third
persons in order to secure reparation of damages caused them by a valid
contract.
REQUISITES OF RESCISSION:

NOTE: NOT PRINCIPAL, ONLY SUBSIDIARY

(LAST RESORT)

1. Contract must be validly agreed upon

2. There must be lesion
3. Must be based upon a case especially provided
by law
4. There must be no other legal remedy
5. The party asking for rescission must be able to
return what he is obliged to restore
6. The object of the contract must not legally be in
possession of third person who did not act in
bad faith
7. The period for filing rescission must not have
prescribed

THERE IS NO RESCISSION IF:

1. The party asking for rescission cannot return what he is obliged to restore
2. The object of the contract is legally in the possession of third person who did not act in
bad faith
TYPES OF RESCISSIBLE CONTRACT:
WITH
LESION<

1. Contracts entered into in behalf of WARDS (WARDS= persons under guardianship)

2. Contracts agreed upon in representation of ABSENTEES. (ABSENTEE= persons who
disappear from their domicile)
3. Contracts undertaken in FRAUD OF CREDITORS.
REQUISITES OF FRAUD OF CREDITORS:
-There must be fraud on the part of the debtor
-There must be an existing credit although not yet due
-Creditor cannot recover his credit in any manner
RESCISSION IS NOT VALID WHEN: Contracts entered into in behalf of wards and
absentees is approved by court

4. Contracts which refer to things under litigation

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CONTRACTS

5. Payment made in state of insolvency where debt not yet due

6. Other cases.
2 KINDS OF ALIENATION IN PRESUMPTION OF FRAUD
1. Alienation by gratuitous title
2. Alienation by onerous title
BADGES OF FRAUD
1. Cause or consideration is inadequate
2. Transfer made after suit has begun or pending
3. Sale on credit by an insolvent debtor
4. Evidence of large indebtedness or complete insolvency
5. Transfer of all or nearly all if debtors properties
6. between father and son, with any of the circumstances above
7. Failure of vendee to take exclusive possession

PERIOD FOR FILING THE ACTION FOR RESCISSION

GENERAL RULE= 4 years
for persons UNDER GUARDIANSHIP= period shall begin from the termination of incapacity.
for ABSENTEES= from the time the domicile is known.

WHO MIGHT APPLY FOR RESCISSION?

1. The injured party or the defrauded creditor
2. His assigns, heirs, or successors in interest
3. The creditors of the above entitled to subrogation

VOIDABLE CONTRACTS

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CONTRACTS

*VOIDABLE CONTRACTS - where on party is incapable of giving consent to a contract

-where the consent is vitiated by mistake, violence, intimidation,
fraud and undue influence
KINDS OF VOIDABLE CONTRACTS:
1. Legal incapacity to give consent,
2. Violation of consent due to vices of consent
*ANNULMENT a remedy provided by law for the declaration of the inefficacy of a contract
based on a defect or vice in the consent in order to restore the interest of the parties.
PERIOD FOR FILING ACTION FOR ANNULMENT: GENERAL RULE= 4 years
-

For vices of consent = from time incapacity ceases

For fraud or mistake = from the discovery of fraud or mistake
For minors or incapacitated persons = from time guardianship ceases

*RATIFICATION- Also known as confirmation

- UNILATERAL
- One voluntarily adopts or approves some defective or unauthorized acts
EEFECTS OF RATIFICATION:
1. Cleanses the contract from all its defects from the moment it was constituted.
2. Contract becomes valid
3. Action to annul is extinguished.
KINDS OF RATIFICATION:
1. Express = words or writing
2. Implied = by silence or acquiescence (acceptance without protest)

REQUISITES OF RATIFICATION:

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For IMPLIED: 1. There must be knowledge of the reason which renders the contract
voidable.
2. Such reason must have ceased.
3. The injured party must have executed an act which necessarily implies
an intention to waive his rights.
For EXPRESS: Same as implied but the former is effected expressly.
WHO MAY RATIFY:
For INCAPACITATED PERSONS:
1. The guardian
2. The injured party provided he is
already capacitated
For REASON OF VICES OF THE WILL:
1. The party whose consent is
vitiated
WHO MAY APPLY FOR ACTION OF ANNULMENT:
1. The plaintiff must have an interest in the contract.
2. The victim and not the party responsible for the defect.
*RESTITUTION = Restoration
LOSS OF THE THING BY THRU THE FAULT OF THE PERSON WHO HAS RIGHT
TO ANNUL:
1. If lost WITHOUT THE FAULT =
obligation extinguished
2. If lost WITH THE FAULT =
obligation not extinguished but converted into indemnity for damages

EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS

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If not consummated, parties released from obligation

If consummated, parties are to restore to each other what they have given, w/ fruits &
interest + damages
If to do or not to do, there will be apportionment of damages (apportionment =
distribution or allotment in proper shares)
Incapacitated party not obliged to make restitution except for what he was benefited.

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UNENFORCEABLE CONTRACTS
UNENFORCEABLE CONTRACTS- those contracts that cannot be enforce or given effect in
a court of law or sued upon by reason of certain defects
until and unless they are ratified
KINDS OF UNENFORCEABLE CONTRACTS:
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
3. those where both parties are incapable of giving
consent.
UNAUTHORIZED CONTRACTS- those entered into the name of another person by one who
has been given authority or legal representation of who has
acted beyond his powers.
STATUTE OF FRAUDS
-

Purpose= to prevent fraud, not to aid the commission of fraud

Be in writing or any manner

BASIC AND FUNDAMENTAL PRINCIPLES OF STATUTE OF FRAUDS

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CONTRACTS

1. Cannot apply if action is nor for damage because of violation of agreement or for specific
performance
2. Exclusive= applicable only to the agreement enumerated therein
3. Applies only to executor contracts
4. Contracts not valid but merely unenforceable
5. Personal defense
6. Concerns admissibility of evidence, not credibility
7. May be waived

THE FOLLOWING MUST BE IN WRITING OR IN SOME NOTES OR

MEMORANDUM:
1. agreement not to be performed within a year from the making thereof
2. a special promise to answer for debt, defaults or miscarriage of another
3. agreement in consideration of marriage
4. sales of goods, chattels, things above P500
5. lease of more than one year
6. agreement for the sale of real property or of an interest therein
7. representation as to credit of another

MODES OF RATIFICATION UNDER THE STATUTE:

1. by failure to object to the presentation of oral evidence to prove the contract
2. by acceptance of benefits under the contract.

WHEN UNENFORCEABLE CONTRACTS BECOMES A VOIDABLE CONTRACT

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If the parent or guardian of either party or if one of the parties after regaining capacity,
ratifies the contract

WHEN UNENFORCEABLE CONTRACT BECOMES A VALID CONTRACT

-

If the ratification is made by the parents or guardians of both parties or by both parties
after regaining capacity, the contract is validated and retroacts to the time it was entered.

3rd person cannot question a contract

-

Statute is personal defense

Statute can only be waived by one who is a party

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Does not
VOID OR INEXISTENT CONTRACTS prescribe

VOID CONTRACTS- void because of certain defects, generally produce no effect at all.
INEXISTENT CONTRACTS- agreements which lack one or some or all of the elements, or do
not comply with formalities which are essential for the existence of a contract.
CHARACTERISTICS:
1. No force or effect
2. Cannot be ratified
3. Right to set up the defense of illegality cannot be waived
4. Defense for the declaration of its inexistence does not prescribe
5. Defense of illegality not available to 3rd person
6. Cannot give rise to a valid contract.

Kinds/ Examples/ Instances of void contracts/

Inexistent contracts

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1. No concurrence of offer/ acceptance

2. Cause, object, purpose contrary to law, morals, good customs, public order, or public policy
3. Absolutely simulated or fictitious
4. Cause or object did not exist at the time of transaction
5. Object outside the commerce of men
6. Impossible service
7. Intention of the parties relative to principal object cannot be ascertained
8. Prohibited by law or declared void by law
RULES ON CONTRACTS THAT CONSTITUTES CRIMINAL OFFENSE
If In Pari Delicto (equally guilty) = no action against each other
= both shall be prosecuted
If In Delicto ( One party is guilty and the other is not) = innocent may claim what he has
given and bot bound to comply his
promise
RULES ON CONTRACTS THAT IS ILLEGAL BUT NOT CONSTITUTES CRIMINAL
OFFENSE
If In Pari Delicto (equally guilty) = neither may recover what he has given
= neither may demand performance to the other
If In Delicto ( One party is guilty and the other is not) = guilty party loses what he has
given
= guilty party cannot ask the
innocent for fulfillment
= innocent may demand return of
what he has given
= innocent cannot be compelled to
comply with his promise

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CONTRACTS

REQUISITES FOR RECOVERY WHERE CONTRACT ENTERED INTO FOR

ILLEGAL PURPOSE
1. Contract is for an illegal purpose
2. Contract is repudiated (refuse to accept) before the purpose has been accomplished
3. Court considers that public interest will be (promoted) sub served by allowing recovery.

KINDS OF RECOVERY
1. RECOVERY BY AN INCAPACITATED PERSON
- Exception to In Pari Delicto in contracts that constitutes criminal offense
- Not necessary that illegal purpose has been accomplished
- allowed when interest of justice so demands
2. RECOVERY WHERE CONTRACT NOT ILLEGAL PER SE
- Exception to In Pari Delicto in contracts that constitutes criminal offense
Will be provided if the following requisites are present:
1. Agreement is not illegal per se but merely
prohibited
2. Prohibition is designed for the protection
of the plaintiff
3. Court considers that public policy will be
promoted by allowing recovery
3. RECOVERY OF AMOUNT PAID IN EXCESS OF CEILING PRICE
- provided by ceiling law
- determined by authority of law, as by Executive Order
- PURPOSE= to curb the evils of profiteering or black marketing
4. RECOVERY OF ADDITIONAL COMPENSATION FOR SERVICE RENDERED
BEYOND TIME LIMIT
- governed by labor code

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5. RECOVERY OF AMOUNT OF WAGE LESS THAN MINIMUN FIXED ( PRES.

DECREE NO. 442)
- Employee who receives less than minimum wage can recover the deficiency with legal
interest
-employer shall be criminally liable

EFFECTS OF ILLEGALITY WHERE CONTRACT IS INDIVISIBLE/ DIVISIBLE

1. INDIVISIBLE = part of which is illegal, whole contract is illegal
= void and unenforceable
2. DIVISIBLE = illegal parts can be separated from the legal portions

NOTE: void contracts cannot be novated, thus never presumed.