DefectiveContracts

Outline:
I.
Contracts
II.
Essentialelements
a. Consent
b. Object
c. CauseorConsideration
III.
Form
IV.
V.
VI.

DefectiveContracts
a. Kinds
Comparison
Summary

*It would be good to established first a good ground on contracts and its essential
elementsbecauseindefectivecontractsthesameisdiscussed.
Goal:Minimumof5pages
I.Contracts
Contract is one of the sources of Civil Obligation. Under the Civil Code of
Philippineitisdefinedasameetingofmindsbetweentwopersonswherebyonebinds
himself,withrespecttotheother,togivesomethingortorendersomeservice.Ina
contract, oneormore persons bindhimselforthemselves with respect toanother or
others,orreciprocally,tofulfillmentofaprestationtogive,todo,ornottodo.Inshort,it
isanagreemententeredintobyparties.
II.EssentialElements/requisites
Foracontracttoexistitmusthavethefollowingessentialrequisites:1)Consent
ofthecontractingparties;2)Objectwhichisthesubjectmatterofthecontract;and3)
Causeoftheobligationwhichisestablished.Absentoneoftheserequisiteswillrender
thecontractasvoid.
Consent ismanifestedbythemeetingoftheofferandtheacceptanceuponthe
thingandthecausewhicharetoconstitutethecontract.Theoffermustbecertainandthe
acceptanceabsolute.Asarule,whenoneofthepartysconsentisgivenbyonewhois
legallyincapable,i.e.,vicesofcapacity,orthatthesameisvitiatedeitherbymistake,
violence, intimidation, undue influence, or fraud, i.e., vices of will, the contract is
voidable.
Objectisthethingorthesubjectmatterofthecontract.TheCivilCoderequires
thattheobjectofthecontractmust:1)notbeoutsidethecommerceofmen;2)notbe
contrary to law, morals, good customs, public order or public policy; 3) not be
impossible;and4)bedeterminateordeterminableastoitskind.Hence,iftheobjectof
thecontractisnotinaccordancewiththeseitisvoid.
Causeorconsiderationistheimmediate,direct,andproximateoressentialreason
thatmovesthepartiestoenterintoacontract.ItisrequiredunderthePhilippinelawsthat

thecausemustbelawful,thatis,itmustnotbecontrarytolaw,morals,goodcustoms,
publicorderorpublicpolicy.Again,ifthecauseorconsiderationisinvalidorunlawful
therecanbenocontractbecauseitisvoid.
III.Form
TheConstitutionrecognizestheautonomyofcontracts:"Nolawimpairingthe
obligationsofcontractsshallbepassed."Indeed,thepolicyofthelawisthatthefreedom
ofpersonstoenterintocontractsshouldnotbelightlyinterferedwith.Consequently,the
CivilCodeprovides:Thecontractingpartiesmayestablishsuchstipulations,clauses,
termsandconditionsastheymaydeemconvenient,providedtheyarenotcontrarytolaw,
morals,goodcustoms,publicorderorpublicpolicy.Also,theCivilCodeprovidesthat
contractsshallbeobligatory,inwhateverformtheymayhavebeenenteredinto,provided
alltheessentialrequisitesfortheirvalidityarepresent.However,whenthelawrequires
thatacontractbeinsomeforminorderthatitmaybevalidorenforceable,orthata
contractbeprovidedinacertainway,thatrequirementisabsoluteandindispensable.
Generally,nospecificformisrequiredforacontracttoobligatorybetweentheparties.
Butasprovidedforbylaw,thereisanexemptiontothatrulewhichdonotviolatethe
autonomyofcontractsprotectedbytheConstitution.
Asageneralrule,contractsexecutedorallyarevalid.Buttheresomecontracts
thatneedtobeexpressedinspecificformsforittobevalidsuchas:Thosewhichneedto
beexpressedinwriting:1)Donationofimmovableorrightofimmovable;2)Donationof
movablewithvaluemorethanP5000;3)Inpenalclause,anypromisetopayinterest;4)
Inpartnership,whenonepartycontributesarealestateorproperty;and5)Saleofland
throughanagent,theagencyshallbeinformofSpecialPowerofAttorney;IfnoSPA,
thesaleisvoidandtheprincipalcannotratifythesame.
Acontractmaybevalidbutisunenforceable.Itisbecauseacontractcanbevalid
because it complied with the essential elements, but neither party can demand the
prestationbecausenothingiswritten.Forexample,anoralsaleoflandisvalidbutis
unenforceabletoanothertherebeingaspecificformwhichneedtobefollowedtobe
demandable.Thelawspecificallyandexclusivelyprovidesforcontractsoragreements
whichneedtobedoneinwriting.Thestatuteoffraudsprovidethatsomecontractsbe
doneinwritingtobedemandableandenforceable;andthoseprovidedforunderitare
exclusive.MENTIONTHESUMMARIZEDSTATUTEOFFRAUDS
Acontractisbindingonlyastothepartiesregardlessofform.Andthereare
instanceswhenathirdpartyisinvolvedinwhichasageneralrulethesamecannotbe
boundinthecontract.Assuch,forthecontracttobindathirdpartyitmustbedonein
writingandbedulynotarized.
IV.DefectiveContracts
Adefectoneithertheessentialelementsoraformisrequiredbutnotadheredto
wouldmakeacontractdefective.Therearefourkindsofdefectivecontracts:Recissible,
Voidable,Unenforceable,andVoid.Recissiblecontractsarevalidbuttheperformance

ofitleadstoprejudiceofoneofthepartiesorthirdpersons.Voidablecontractsarevalid
untilthesameisannulledorratified.Unenforceablecontractsarevalidbutitcannotbe
enforcedtodemandorcompelanothertoperformthesame.Andlastly,voidorinexistent
contractsarethosewhicharenullandvoidandhavenolegaleffectatallbecauseitlacks
oneoftheessentialelementsofacontractorisdeclaredbylawtobesuch.Thefirstthree
kindsarevalidbecausealltheessentialelementsarepresentbutduetosomeinstances
theperformanceofeffectofthesameisprejudicialtoanother.Thelastkindsimply
meansthatitisvoid,i.e.,nocontracthadexistedfromtheverybeginninginthatthe
agreement between the parties is either contrary to law or that it lacks an essential
element.
Recissible contracts are those validly agreed upon because all the essential
elementsexistand,therefore,legallyeffective,butinthecasesestablishedbylaw,the
remedyofrecissionisgrantedintheinterestofequity.Insuchcontracts,thereisno
defectatallbutbyreasonofsomeexternalfactsorcauses,itsenforcementwouldcause
injustice.
Recission is the remedy for such kinds of contract. Recission is an equitable
remedygrantedbylawbymeansoftherestorationofthingstotheirconditionpriortothe
celebrationofsaidcontract.Itistoputthingsintotheirstatusquoante.
Foracontracttoberecissiblethefollowingrequisitesmustbepresent:1)proofof
avalidandexistingcontract;2)lesionordamagesufferedintobyoneofthepartiesora
thirdpersons;3)plaintiffhastheabilitytorestorethething;4)thattheobjectofthe
contractisnotyetinthepossessionofaninnocentthirdparty;and5)actionmustbefiled
withintheprescriptiveperiodoffouryears.
Thelawspecificallyprovidesthegroundswhencanacontractberecissible.The
CivilCodeprovidesthefollowinggrounds:1)lesionsufferedbythewardinexcessof
onefourthofthefairvalueoftheproperty;2)lesionsufferedbytheabsenteebeingin
excessofonefourthoftheproperty;3)infraudofcreditors;4)allcontractsforthingsin
litigation;5)allpaymentsdoneininsolvency;and6)allcontractsdeclaredbylaw:a)
partitionbetweenheirswhenlesionissufferedbyoneofmorethanonefourthofthe
property;b)contractofleaseviolatedbylessororlessee;andc)contractofsaleofreal
estatewheretheareaislessofonetenthorthevalueisdiminishedasmuchasonetenth.
Voidablecontractsarethosewhichpossessalltheessentialrequisitesofavalid
contractbutoneofthepartiesislegallyincapableofgivingconsent,orconsentisvitiated
bymistake,violence,intimidation,undueinfluence,orfraud.
Theremedyiseitherannulmentorratification.Annulmentisaremedyaswellas
a sanction provided by law, for reason of public interest, for the declaration of the
inefficacyofacontractbasedonadefectorviceintheconsentofoneofthecontracting
partiesinordertorestorethemtotheiroriginalpositioninwhichtheywerebeforethe
contract.Theactionforannulmentshallbebroughtwithinfouryearsandisreckoned
dependingonwhatcause.Incasesofintimidation,violence,undueinfluence,theperiod
startsuponthecessationofthesame.Incaseofmistakeorfraud,thetimeofdiscovery.
Incaseofminorityorotherincapacity,fromthetimetheguardianshipceases.

On the other hand, ratification means that one under no disability voluntarily
adoptsandgivessanctiontosomedefectiveorunauthorizedcontract,act,orproceeding
which,withouthissubsequentsanctionorconsent,wouldnotbebindingonhim.Inthe
caseratificationistheremedysought,theotherremedyofannulmentcannotanymorebe
sought because ratification applies retroactively. It cleanses the contract from all its
defectsfromthemomentitwasconstituted.
Ratificationiseitherexpresslyorimpliedlydoneanddoesnotrequirejudicial
declaration.Thereisexpressratificationwhenratificationismanifestedinwordsorin
writing;andthereisimpliedratificationwhenoneactsinsilenceoracquiescence;orby
showingactsofadoptionorapproval;oracceptanceandretentionofbenefitsflowing
therefrom.Hence,anactionforannulmentwhennottakenupwithintheprescriptive
period,itshallconstituteanimpliedratification.
Unenforceablecontractsarethosethatcannotbeenforcedincourtorsuedupon
byreasonofdefectsprovidedbylawuntilunlesstheyareratifiedaccordingtolaw.There
are three kinds of unenforceable contracts namely: unauthorized contract, contracts
enteredintobybothincapacitatedparties,andcontractsinfringingthestatuteoffrauds.
Thefirstrefertothosecontractsenteredintointhenameofanotherbuyonewithoutor
actinginnexcessofauthority.Thesecondreferstocontractswherebothpartieswere
incapacitatedofgivingconsent.Andthethirdreferstothosethatdonotcomplywiththe
statuteoffrauds.
Onunauthorizedcontractstheremedyiseitheranactionfornullificationbythe
person whose name was used or an action for damages against the person who
misrepresentedorusedthenameofanotherbytheinnocentparty.Oncontractsentered
bytwoincapacitatedpartiestheremedyisannulmentorratification.Onthosecontracts
infringingthestatuteoffraudstheremedyisforperformancetoputintowritingtheoral
contractenteredintotobedemandabletotheother.
Voidcontractsarethosewhich,becauseofcertaindefects,generallyproduceno
effect at all. They are considered as inexistent from its inception or from the very
beginning.Theyarevoidbecausetheiragreementistaintedwithillegalityoriscontrary
topublicpolicy.Suchcontracts aretaintedwithillegalityoris prohibitedbylawor
declaredbylawasvoid.
Inexistentcontracts refertoagreementswhichlackoneorsomeorallofthe
essential elements or do not comply with the formalities which are essential for the
existenceofacontract.
Voidorinexistentcontractsconfernoright,imposesnoobligation,recognizesno
officeorfunction.Inshort,ithasnolegaleffect.Itwasnevervalid.Assuchitcannotbe
ratifiedorcured.Itcannotalsobenovatedbecauseitisvoidfromtheverybeginning.
Noactionfornullityisnecessarybecausethenullityexistsipsojure.Ajudgment
ofnullitywouldmerelybedeclaratory.Suchactionhasnoprescriptionperiod.Andit
maybefiledeitherbythepartiesorthirdpersonsdirectlyaffectedbythecontract.

V.Comparison

Kind

Remedy

Whomayfile Whentofile(prescription)

Effect

RecissileCRecissionInnocentpartywithin4yearsfromtheperfectionstatusquoante
VoidaleCAnnulment/Ratificationdependsonwhatgroundinnocentpartyorathirdpartywho
suffereddamge
Minorityminor/wardreachingtheageofminority/perfectionannulled/ratified
Insanity insane during lucid interval/guardian lucid interval/upon perfection
annulled/ratified
Mistakemistakenpartyupondiscovery*ifmutual,both
Violence/UF/Intimidationinnocentpartyupontermination/cessationofthesame
Fraudinnocentpartyupondiscovery
UnenforceableCratification
Voidalble,unenforceableandrecissblearevalidbec.Allelementsarepresentbutvoidorinexitentcontract
isnotvalidbecauseiteitherlacksoneoftheessentialelementsorthatthecontrac
Who?
WhereRecissibleandvoidablecontractsarevalidandenforceableunlesstheyarerescindedor
annulled,whileunenforceablecontracts,althoughvalid,areunenforceableunlesstheyareratified.
In Recissible and unenforceable contracts, an action can only be availed of by one of the
contractingpartieseitherpersonallyorthroughaguardianoranadministrator.Inavoidablecontract,a
thirdpartywhosuffereddamagemayfileforanaction.
When?

VI.Conclusion
Adefectivecontractisnotperseavoidcontract.