Business Law Contracts: Comparative Table of Defects

Contracts and Remedies

• A defective contract may be rescissible, voidable, unenforceable, or void, depending on the defect.
• Rescissible contracts can be rescinded by a competent court, and the contracting parties and third persons who are prejudiced or damaged by the contract can institute an action for rescission.
  • Examples: contracts entered into by guardians that cause lesion to wards, contracts agreed upon in representation of absentees that cause lesion, and contracts undertaken in fraud of creditors.
  • Period to bring an action: within four years from gaining capacity, knowledge of fraudulent contract, or knowledge of domicile.
• Voidable contracts can be annulled by a competent court, and the party who is incapacitated or whose consent was vitiated by mistake, violence, intimidation, or fraud can institute an action for annulment.
  • Examples: contracts where one party is incapable of giving consent, contracts where consent is vitiated by mistake, violence, intimidation, or fraud.
  • Period to bring an action: within four years from gaining or regaining capacity to act.
• Unenforceable contracts cannot be enforced by a proper action in court, and ratification is possible in some cases.
  • Examples: contracts entered into in the name of another person without authority, contracts that do not comply with statutory requirements.
  • Period to bring an action: at any time when one party attempts to enforce the contract through court action.
• Void contracts do not produce any legal effect and are considered null and inexistent.
  • Examples: contracts whose cause, object, or purpose is contrary to law, good customs, morals, or public policy, contracts that lack essential requisites, contracts that contemplate an impossible service.
  • Period to bring an action: imprescriptible.

Natural Obligations

• Natural obligations are not based on positive law but on equity and natural law.
• They do not grant a right of action to enforce their performance, but after voluntary fulfillment, they authorize the retention of what has been delivered or rendered.
• Examples of natural obligations: performance after the civil obligation has prescribed, reimbursement of a third person for a debt that has prescribed, restitution by a minor after annulment of a contract.

Estoppel

• Estoppel is a condition or state by virtue of which an admission or representation is rendered conclusive upon the person making it.
• Requisites of estoppel:
  • Conduct that amounts to a false representation or concealment of material facts, or is calculated to convey the impression that the facts are otherwise.
  • Intention or at least the expectation that such conduct shall be acted upon or influence the other party.
  • Knowledge, actual or constructive, of the real facts.
  • Ignorance or lack of knowledge and of the means of knowledge of the truth as to the facts in question.
  • Reliance in good faith upon the conduct or statement of the party to be estopped.
  • Action or inaction based thereon of such a character as to change the position or status of the party claiming the estoppel, to his injury, detriment, or prejudice.

Trust

• A trust is a fiduciary relationship between a person who establishes a trust (trustor), one in whom confidence is reposed as regards property for the benefit of another person (trustee), and a person for whose benefit the trust has been created (beneficiary).
• Characteristics of a trust:
  • It is a relationship.
  • It is fiduciary.
  • It is created by law or agreement.
  • It involves property, not merely personal duties.
  • The legal title is held by one, and the equitable title or beneficial title is held by another.
  • It involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of another.

Contracts and Remedies

• A defective contract may be rescissible, voidable, unenforceable, or void, depending on the defect.
• Rescissible contracts can be rescinded by a competent court, and the contracting parties and third persons who are prejudiced or damaged by the contract can institute an action for rescission.
  • Examples: contracts entered into by guardians that cause lesion to wards, contracts agreed upon in representation of absentees that cause lesion, and contracts undertaken in fraud of creditors.
  • Period to bring an action: within four years from gaining capacity, knowledge of fraudulent contract, or knowledge of domicile.
• Voidable contracts can be annulled by a competent court, and the party who is incapacitated or whose consent was vitiated by mistake, violence, intimidation, or fraud can institute an action for annulment.
  • Examples: contracts where one party is incapable of giving consent, contracts where consent is vitiated by mistake, violence, intimidation, or fraud.
  • Period to bring an action: within four years from gaining or regaining capacity to act.
• Unenforceable contracts cannot be enforced by a proper action in court, and ratification is possible in some cases.
  • Examples: contracts entered into in the name of another person without authority, contracts that do not comply with statutory requirements.
  • Period to bring an action: at any time when one party attempts to enforce the contract through court action.
• Void contracts do not produce any legal effect and are considered null and inexistent.
  • Examples: contracts whose cause, object, or purpose is contrary to law, good customs, morals, or public policy, contracts that lack essential requisites, contracts that contemplate an impossible service.
  • Period to bring an action: imprescriptible.

Natural Obligations

• Natural obligations are not based on positive law but on equity and natural law.
• They do not grant a right of action to enforce their performance, but after voluntary fulfillment, they authorize the retention of what has been delivered or rendered.
• Examples of natural obligations: performance after the civil obligation has prescribed, reimbursement of a third person for a debt that has prescribed, restitution by a minor after annulment of a contract.

Estoppel

• Estoppel is a condition or state by virtue of which an admission or representation is rendered conclusive upon the person making it.
• Requisites of estoppel:
  • Conduct that amounts to a false representation or concealment of material facts, or is calculated to convey the impression that the facts are otherwise.
  • Intention or at least the expectation that such conduct shall be acted upon or influence the other party.
  • Knowledge, actual or constructive, of the real facts.
  • Ignorance or lack of knowledge and of the means of knowledge of the truth as to the facts in question.
  • Reliance in good faith upon the conduct or statement of the party to be estopped.
  • Action or inaction based thereon of such a character as to change the position or status of the party claiming the estoppel, to his injury, detriment, or prejudice.

Trust

• A trust is a fiduciary relationship between a person who establishes a trust (trustor), one in whom confidence is reposed as regards property for the benefit of another person (trustee), and a person for whose benefit the trust has been created (beneficiary).
• Characteristics of a trust:
  • It is a relationship.
  • It is fiduciary.
  • It is created by law or agreement.
  • It involves property, not merely personal duties.
  • The legal title is held by one, and the equitable title or beneficial title is held by another.
  • It involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of another.

Learn about the different types of defects in contracts and the remedies available in business law. This quiz covers the concepts of rescissible, voidable, unenforceable, and void contracts.