Defective Contracts

• An instrument may be construed according to usage, in order to determine its true character.
• Besides rescissible contracts, the other defective contracts are voidable contracts, unenforceable contracts, and void contracts.
• Rescissible contracts are the “least in firm,” while the worst is void contracts.
• Contracts validly agreed upon may be rescinded in the cases established by law.
• A rescissible contract is valid; but it is defective because of economic injury or damage caused to (a) one of the contracting parties, who is represented by another in the perfection of the contract, or (b) to a third party like a creditor.
• Rescission, as provided for in Article 1380 and related provisions, of the Civil Code, is a remedy granted to the contracting parties, and even to third persons, to obtain damages for the injury caused to them by a contract by putting them back in their position prior to the contract’s perfection.
• Unless rescinded, the contract is valid.
• Rescission is a remedy provided by the law to only certain instances, as provided in Articles 1381 and 1382.
• The requisites to bring an action to annul a voidable contract are: the action for the annulment of a voidable contract can only be instituted by someone who is obliged either principally or subsidiarily, and only the party whose consent is vitiated can bring the action.
• Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment.
• If an obligation has been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.
• In obligations to render service, the value thereof shall be the basis for damages.
• The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily.
• Persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract.
• Implied ratification is revealed from the acts of petitioner MWSS in sending three demand letters for the payment of the purchase price, accepting P 25,000,000 as downpayment, and accepting a letter of credit for the balance.
• These indicate MWSS’ acceptance and retention of benefits flowing from the sales transactions, which is another form of implied ratification.
• Ratification may be effected by the guardian of the incapacitated person.
• In the MWSS case, there was an express ratification made by MWSS when it passed Resolution No. 36-83 approving the sale of the subject property to respondent Silhouette and authorizing Mr. Ilustre, as General Manager, to sign for and in behalf of the MWSS the contract papers and other pertinent documents relative thereto.
• Ratification cleanses the contract from all its defects from the moment it was constituted.
• Only a party to the contract can file an action to annul a voidable contract.
• The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: those where one of the parties is incapable of giving consent to a contract; those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
• Voidable contracts are susceptible of ratification by the party whose consent is defective or vitiated.
• Consent is given by persons incapable of giving consent under Art. 1327 and Art. 1328, such as minors, insane or demented persons, deaf mutes who do not know how to write, persons under a state of drunkenness, or persons under hypnotic spell.
• Consent is given under the circumstances described under Art. 1330, such as mistake, violence, intimidation, undue influence, or fraud.
• In one case, the court reckoned the period after the creditor sought execution of judgment.
• In case of mistake or fraud, the period for annulment begins from the time of the discovery of the same.
• When the action refers to contracts entered into by minors or other incapacitated persons, the period for annulment begins from the time the guardianship ceases.
• If a guardian entered into a rescissible contract when the ward was five years old, the ward can file action to rescind the contract within four years after she becomes 18; i.e., before she turns 22.
• The action for annulment of a voidable contract is principal not subsidiary.
• In cases of intimidation, violence or undue influence, the period for annulment begins from the time the defect of the consent ceases.
• For the creditor, generally, the four years starts from the time the contract is entered into.
• Voidable contracts are binding, unless they are annulled by a proper action in court.
• For the absentee, the four-year period is counted from the time the absentee reappears, or when his domicile is known.
• The action for annulment of a voidable contract shall be brought within four years.
• A voidable contract does not require lesion or injury to third parties.
• During the emergency situation after Typhoon Ondoy, the government imposed price ceiling on basic commodities to prevent profiteering.
• If the land sold to an alien is subsequently transferred to the hands of a Filipino, or if the foreigner becomes a Filipino through naturalization, then the seller can no longer recover the land.
• Applying the in pari delicto rule with full force, the Court ruled that since the contracts are void ab initio, Alfred was not entitled to recover the properties or the money used to purchase them.
• A contract that is illegal per se is one which “by universally recognized standards is inherently or by its very nature bad, improper, immoral or contrary to good conscience.
• When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit.