Dizon, Christopher John T.

MWF/5:30-6:30

LAW001 CONTRACTS AND OBLIGATIONS

SUMMARY TO CHAPTER 6, 7, 8, AND 9

CHAPTER 6: RESCISSIBLE CONTRACTS
Rescissible contracts are those validly agreed upon because all the
essential elements exist and, therefore, legally effective but in the cases
established by law, the remedy of rescission is granted in the interest of
equity.
Binding force of rescissible contract. They are valid although subjects
to rescission by the court when there is economic damage to one of the
parties or to the third person.
Rescission is a remedy granted by the law to the contracting parties
and sometimes even to third persons in order to secure reparation of
damages.
Requisites of rescission. (1) The contract must be validly agreed upon.
(2) There must be lesion or pecuniary prejudice to one or to a 3rd person. (3)
The rescission must be based upon a case especially provided by a law. (4)
There must be no other legal remedy to obtain reparation for the damage.
(5) The party asking for rescission must be able to return what he is obliged
to restore by reason of the contract. (6) The object of the contract must not
legally in the possession of third persons who did not act in bad faith and; (7)
The period for filing the action for rescission must not have prescribed.
Cases of Rescissible Contracts.(1); Contracts entered into in behalf of
wards (2); Contracts agreed upon in the representation of absentees (3);
Contracts undertaken in fraud of creditors. (4); Contracts which refer to
things under litigation.
Payments made in the state of insolvency. Payments must have been
made for the obligation to whose fulfillment the debtor could not be
compelled at the time they were effected.
Nature of action for rescission. Rescission is not a principal remedy. It is
only subsidiary.
Extent of rescission. The entire contract need bot to be set aside by
rescission if the damage can be repaired by partial rescission.
Rescission creates obligation of mutual restitution. The object of the contract
with its fruits and, the price thereof with legal interest.
When rescission not allowed. The remedy of rescission cannot be
availed of if the party who demands rescission cannot return what he is
obliged to restore under the contract.
Contracts approved by the courts. If a contract entered into in behalf or a
ward or absentee has been approved by the court.
When alienation in fraud of creditors. Alienation by gratuitous title and
alienation by onerous title. This provision establishes prima facie
presumptions of fraud.
Period for filing action for rescission. For person under guardianship the
period shall begin from the termination of incapacity. For absentees, from the
time domicile is known
Persons entitled to bring action. (1) the injured party or the defrauded
creditor; (2) his heirs assigns, or successors in interest; or (3) the creditors of
the above entitled to subrogation.

CHAPTER 7: VOIDABLE CONTRACTS

Voidable or annullable contracts are those which possess all the
essential of a valid contracts but one of the parties is incapable of giving
consent or consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
Binding force of voidable contracts. They are valid and binding
between the parties unless annulment by a proper action in court.
Kinds of voidable contracts. (1) Legal incapacity to give consent, where
one of the parties is incapable of giving consent to the contract; or (2)
Violation of consent, where the vitiation is done by mistake, violence,
intimidation, undue influence, or fraud.
Annulment is a remedy provided by law, for reason of public interest,
for the declaration of inefficacy of a contract based on a defect or vice in the
consent of one of the contracting parties in order to restore them to their
original position in which they were before the contract was executed.
Period for filing action for annulment. (1) In case of intimidation,
violence or undue influence, from the time intimidation etc., ceases. (2) In
case of mistake or fraud, from the time it is discovered. (3) In case of
contracts entered into by minors or incapacitated persons from the time the
guardianship ceases.
Meaning and effect of ratification. Ratifications means that one
voluntarily adopts some defective contracts which, without his subsequent
consent. Ratification cleanses the contract from all its defects from the
moment it was constituted.
Kinds of ratification. Express and implied or tacit.
Requisites of ratification. (1) There must be knowledge of the reason
which renders the contract voidable: (2) such reason must have ceased
Conformity of guilty party to ratification not required. Ratification is
unilateral act by which party waives the defect in his consent.
Effect of ratification retroactive. Ratification cleanses the contract of all
its defect from the moment it was executed.
Partly entitled to bring an action to annul. (1) The plantiff must have an
interest in the contract; and (2) The victim and not the party responsible for
the defect is the person who must assert the same.
Right of strangers to bring action. One who is not a party to the
contract or an assignee thereunder, or does not represent those who took
part therein, has, no legal capacity to challenge the validity of such contract.
Guilty party without right to bring action. The guilty party, including his
successor in interest cannot ask for annulment. This rule is sustained by the
principle that he who comes to court must come with clean hands.
Duty of mutual restitution upon annulment. (1) if the contract is
annulled, the parties, as general rule, must restore to each other the subject
matter of the contract with its fruits.
Restitution by an incapacitated person. The incapacitated person is
obliged to make restitution only to the extent that he was benefited by the
thing received by him.
Effect of loss of thing to be returned. If the thing to be returned is lost
without the fault of the person obliged to make restitution there is no more
obligations to return such thing.

Extinguishment of action for annulment. If the person who has a right

to institute an action for annulment, will not be able to restore the thing
which he may be obliged to return in the case the contract is annulled.
Effect where a party cannot restore what he is bound to return. When a
contract is annulled, a reciprocal obligation of restitution is created.
CHAPTER 8: UNENFORCEABLE CONTRACTS
Unenforceable contracts are those that cannot be enforced in court or
sued upon by reason of certain defects provided by law until and unless they
are ratified according to law.
Binding force of unenforceable contracts. While rescissible and
voidable contracts are valid and enforceable unless they are rescinded,
unenforceable contracts, although valid, are unenforceable in court unless
they are cured.
Kinds of unenforceable contracts. (1) Those entered into in the name of
another by one without, or acting in excess of authority; (2) Those that do
not comply with the statute of frauds; (3) Those where both parties are
incapable of giving.
Meaning of unauthorized contracts. Are those entered into the name of
another person by one who has been given no authority or legal
representation beyond his power.
Statute of Frauds. History, Purpose and Application.
Agreement within the scope of the Statute of Frauds. (1) Agreements
not to be performed within one year; (2) Promise to answer for the debt,
default or miscarriage of another; (3) Agreement in consideration of marriage
other than mutual promise to marry; (4) Agreement for sale of goods etc. at
the price not less than 500.00; (5) Agreement for leasing for a longer period
than one year; (6) agreement for the sale of real property or an interest
therein; (7) Representation as to the credit of a third person.
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.
Right of a party where contract enforceable. (1) Accordingly, a party to
an oral sale or real property cannot compel the other to put the contract in
public document for purposes of registration; (2) Similarly, the right of one
party to have the other execute a public document is not available in a
donation of realty when it is in private instrument because the donation is
void.
When unenforceable contract becomes a valid contract. If the
ratification is made by the parents or guardians, as the case may be, of both
contracting parties, or by the both contracting parties after attaining or
regaining capacity the contract is validated and its validity retroacts to the
time it was entered into.
Right of the third person to assail an unenforceable contract. Strangers
to a voidable contract cannot bring an action to annual the same neither can
they assail or question a contract because of its unenforceability.
CHAPTER 9: VOID OR INEXISTENT CONTRACTS

Void contracts are those which, because or certain defects, generally

produce no effect at all. Inexistent contracts refer to agreements which lack
one or some or all of the elements or do not comply with formalities which
are essentials for the existence of a contract.
Characteristics of a void or inexistent contract. (1) Generally, it
produces no force and effect whatsoever; (2) It cannot be ratified; (3) The
right to set up the defense of illegality cannot be waived; (4) The action or
defense for the declaration of its inexistence does not prescribe; (5) The
defense of illegality is not available to third persons whose interests are not
directly affected; and (6) It cannot give rise to a valid contract.
Instances of void or inexistent contracts. (1) Contracts whose cause,
object or purpose is contrary to law; (2) Contracts which are absolutely
simulated or fictitious; (3) Contracts without cause or object; (4) Contracts
whose object is outside the commerce of men; (5) Contracts which
contemplate an impossible service; (6) Contracts where the intention of the
parties relative to the object cannot be ascertained; (7) Contracts expressly
prohibited or declared void by the law.
Action or defense is imprescriptible. If a contract is void, a party
thereto can always bring a court action to declare it void or inexistent; and a
party against whom a void a contract is sought to be enforced, can always
raise the defense of nullity, despite the passage of time.
Rules where the contract is illegal and the act constitutes a criminal
offense. (1) where both parties are in pari delicto; (2) where only one party is
guilty.
Recovery usurious interest. Any rate of interest of interest in excess of
the maximum allowed under the Usury Law is usurious and if paid, may be
recovered together with interest thereon from the date of payment in a
proper action for the same.
Recovery where contract entered into for illegal purpose. (1) the
contract is for illegal purpose; (2) the contract is repudiated before the
purpose has been accomplished or before any damage has been caused to a
third person; (3) the court considers that public interest will be subserved by
allowing recovery.
Recovery by an incapacitated person. Recovery can be allowed if one
of the parties is incapacitated and the interest of justice so demands.
Recovery where contract not illegal per se. (1) The agreement is not
illegal per se but merely prohibited; (2) The prohibition is designed for the
protection of the plaintiff; and (3) public policy would be enhance by allowing
the plantiff to recover what he has paid or delivered
Prohibited sale of land. (1) A land sold in violation of the constitutional
prohibition against the transfer of lands to aliens may be recovered; (2) the
principle of in pari delicto is not applicable to a homestead which has been
illegally sold within period of five years in violation of the homestead law.
Recovery of amount paid in excess of ceiling price. A statute fixing the
maximum price of any article or commodity is usually known as the ceiling
law.
Recovery of additional compensation for service rendered beyond time
limit. Presidential Decree No. 442, otherwise known as the labor code sets
forth that the normal hours of work of any employees shall not exceed eight
hours a day.

Recovery of amount of wage less than minimum fixed. If an employee

receives less than the minimum wage rate, he can still recover the deficiency
with legal interest, and the employer shall be criminally liable.
Effects of illegality where contract indivisible/divisible. (1) When the
consideration is entire or single, the contract indivisible; (2); Where the
contract is divisible or severable, that is, the consideration is made up of
several parts.
Divisible contracts distinguished from divisible obligation. The test of
the former is divisibility of its cause while the latter, its susceptibility of
partial fulfillment
Persons entitled to raise defense of illegality or nullity. In voidable and
unenforceable contracts, third persons are not allowed to bring an action to
annul or to assail, as the case may be, said contracts.
Void contracts cannot be novated. An illegal contract is void and
inexistent and cannot, therefore, give rise to a valid contract.