Untitled Quiz

Defective Contracts

• Four kinds: rescissible, voidable, unenforceable, and void or inexistent contracts
• Rescissible contracts (Chapter 6): contracts validly agreed upon but can be rescinded due to injury or damage to one of the parties or third parties (like creditors)
• Voidable contracts (Chapter 7): contracts are binding until annulled by court; consent is vitiated by mistake, violence, intimidation, undue influence, or fraud; susceptible of ratification
• Unenforceable contracts (Chapter 8): contracts that cannot be enforced in court; ratification is required.
• Void or inexistent contracts (Chapter 9): contracts are inexistent from the beginning; cannot be ratified

Rescissible Contracts

• Article 1380: Contracts can be rescinded in cases established by law (1290)
• Contracts are valid due to all essential requisites but rescinded due to injury or damage to parties or third parties (like creditors)
• Rescission is a legal remedy to restore parties to their original position before the contract

Requisites of Rescission

• Validly agreed upon contract

• Lesion (pecuniary prejudice) to one party or a third party

• Based on a case specifically provided by law

• No other legal remedy for reparation

• Party asking for rescission must return what they're obligated to restore

• Object of the contract must not legally be in possession of third party not acting in bad faith

• Prescription period for filing action: 4 years

Enumeration of Rescissible Contracts

• Contracts entered into by guardians when wards suffer lesion by more than 1/4 of the value of the object
• Contracts agreed upon in representation of absentees suffering similar lesion
• Contracts made in fraud of creditors when creditors cannot collect in another way
• Contracts that refer to things under litigation entered into by the defendant without knowledge/approval of the parties involved
• All other contracts specially declared by law to be subject to rescission

Meaning of Rescission

• Rescission is a legal remedy to restore contracting parties or third parties to their prior position before contract

Enumeration of Rescissible Contracts (Cont'd)

• Case for wards (lesion cases)
• Case in representation of absentees
• Case in fraud of creditors (accion pauliana)
• Case for things under litigation
• Other contracts declared by law to be subject to rescission

Other Badges of Fraud

• Inadequate consideration
• Transfer by a debtor after lawsuit
• Sale upon credit by insolvent debtor
• Evidence of large indebtedness/insolvency
• Transfer of all/nearly all assets by debtor, especially if insolvent
• Transfer between father and son if preceded by above circumstances
• Lack of exclusive possession of property by the vendee

Fourth Case – Things in Litigation

• A sues B for a diamond ring; B sells the ring to C without court approval, and C is not in good faith
• The sale to C is rescissible if A wins the initial litigation

Premature Payments Made in a State of Insolvency

• Article 1382: Payments made in a state of insolvency for obligations that the debtor could not be compelled to fulfill are rescissible

Rescission Not a Principal Remedy

• Article 1383: Rescission is subsidiary means to obtain reparation; only used when other legal means are unavailable

Partial Rescission

• Article 1384: Rescission limited to the extent necessary to cover damages caused

Necessity of Mutual Restitution (Cont'd)

• Article 1385: Rescission obligates parties to return things, fruits and price with interest
• Rescission does not occur when objects are legally in the possession of a third party without bad faith.

Necessity of Mutual Restitution

• Rescission requires the parties to return the original subject matter, fruits, and price/interest, only if the person seeking rescission is able to restore what they must return
• Third parties in good faith are unaffected in the rescission process.

Effect if Contracts Were Judicially Approved

• Article 1386: No rescissions from approved contracts (in case 1 or 2 of Article 1381)

Presumptions of Fraud

• Article 1387: Gratuitous title alienations presumed fraudulent unless sufficient assets remaining after

• Transfers during ongoing court proceedings (ongoing litigation), with writ of attachment or judgment are presumed fraudulent

• Similar presumption if made by a judgment debtor/attachable property owner

• Additional presumptions of fraud for evidentiary purposes beyond those listed above

Presumptions of Fraud — Gratuitous Alienations

• Presumption of fraud: debtor alienates property gratuitously without sufficient property remaining to satisfy existing debts before donation.
• Example: A donates land to B while owing multiple debts. The donation can be presumed fraudulent due to inadequacy of remaining assets

Presumptions of Fraud— Onerous Alienations

• (a) Presumed fraudulent when made to person against whom judgment or writ of attachment issued.

Presumptions of Fraud —Examples

• After a court judgment, A sells property to B. The sale is presumed fraudulent if the buyer did not act in good faith.

Prescriptive Period for Rescission/Annulment

• Article 1389: Four years from the date of contract EXCEPT when a guardian/absentee is involved in the circumstances

• Article 1391: Four years from the time of disability, fraud or discovery of mistake on intimidation

This list is a summary and not comprehensive. Further study is recommended for full understanding of the topic.

Void or Inexistent Contracts

• Article 1409: Contracts are void from the beginning -Illegal cause, object or purpose -Simulated or fictitious -Non-existent cause/object -Object outside commerce of men -Impossible service -Intention of parties cannot be determined -Expressly forbidden or declared void by law

Simulated Contracts

• (a) Absolutely simulated: no actual consent, no valid contract
• (b) Relatively simulated: contract exists but the intention was otherwise; hidden agreement is usually binding

Action for Declaration of Inexistence of a Contract

• Article 1410: The action to determine that a contract is void does not prescribe

.### The 'Pari Delicto' Rule

-Article 1411: Both parties are equally guilty in an illegal contract; neither can compel the other to perform, and the object or price is subject to legal action.

Illegal Contract with Criminal Offense

• Both parties are equally guilty; they have no legal recourse, and the contract's object/price is confiscated by the government.
• If one party is guilty, the innocent party can recover what they've given, and is not obliged to perform their end of the agreement.

Exceptions to Pari Delicto

• Article 1413-1419: Exceptions to the "pari delicto" rule(both parties at fault)
  • Interest paid beyond legal limits
  • Money/property given for an illegal purpose that is still ongoing or damage not yet incurred. Can be recovered before the purpose is complete or harm has been done
  • Incapacity of one party

Effect of Illegal Terms in a Contract

-In a divisible contract; the legal terms can be enforced separately from the illegal ones

Defense of Illegality Not Generally Available to Third Persons

• Article 1421: The illegality of a contract is not available to third parties unless their interests are directly affected

Persons Entitled to Raise Defense of Illegality or Nullity

• Contracts bind only contracting parties, heirs, or assigns, unless a third party's interests are directly affected.

Contract That Is the Direct Result of a Previous Illegal Contract

• Article 1422: A contract directly deriving from a prior unlawful contract is void and unenforceable

Electronic Commerce Act of 2000

• Recognizes the validity of electronic transactions and documents

"Electronic Documents"

• Information can be presented in symbolic/numerical form (digital data) and represent any right or obligation, that can be electronically created, modified and/or retrieved, with proof of its creation/transmission/preservation.

Legal Recognition of Electronic Documents

• Electronic documents effectively validated and usable
  • Must be completely unaltered from its original form
  • Documentation proof of the document's integrity must be maintained