Parties in a contract
Incapacitated to give consent- voidable (valid until annulled)
Can be:
1. annulled in court
2. can be ratified by the aggrieved party (unless it is prohibited by law)
Incapacitated persons:
1. Minors
-estoppel applies here
Latches- barred because for a very long time (no fixed period) the person may have slept on the right by reason of inaction
Pahes- by reason of a particular act which the person benefits he will be denied the right to question such act (tihag vs sibonganoy)
This applies when a minor actively misrepresents his age. (not by omission)
-sale and delivery of necessaries to minors
-payment by a minor is valid as long as accepted by the creditor in good faith
2. Insane or demented
-all is presumed sane
-valid if entered into during lucid interval
-if there is a judicial declaration of insanity the burden of proof shifts (presumed to be insane and the insane has to prove that he is sane during the time he entered into contract)
-Manresa adds drunkenness and hypnotic spell as similar to insanity
Vices of consent
Fraud/deceit
-must come from the parties
-use of insidious words or machinations
-must be employed by either one of the parties (3rd parties not allowed)
-failure to disclose facts when there is duty to do so: YES
-caveat emptor is not fraud when you have the opportunity to ascertain such facts: NO
-mere expression of opinion is not per se fraudulent except when it is made by an expert and you relied by such statement: NO- GR
-3rd person misrepresentations is also not fraudulent- NO
Intimidation/threat/duress
-must produce a reasonable and well founded fear and must be imminent
-should be made against the ff persons ONLY:
1. party (person) or his property
2. spouse and descendant or ascendants
3. fiancé: there 2 schools of thought
-reverential fear is not included
-threat to file a case is not the kind of violence or intimidation that vitiates a contract, it is not a grave threat rather it is a right or remedy
-the intimidation may come from a third party
Violence
-violence vs intimidation: violence includes the serious and irresistible physical force (no physical force in intimidation)
-would the party enter into the contract without the violence? If no, then the consent has been vitiated!
Error or mistake
-must refer to error in facts but not in law (you believe that you bought a property 10000 sq meters when in fact it is only 9500 sq meters) (had you known of the fact that it is not 10000 sq meters you would have not bought it)
-mistake in law: you thought that it is pacto de retro (right to repurchase, can buy the property within a certain period of time, must file for consolidation of ownership if the original seller is not able to repurchase the property) (conditional sale compared to pacto de retro= there is no sale only subject to a suspensive condition) when it is not
-mutual mistake of the legal effect of an instrument will vitiate the consent- go to court and ask for a reformation of contract
-mistake must be substantial
-ignorance of the law excuses no one
-reason why a law should be published (notice to the world)
Undue influence
- advantage must be improper
There can be UI:
-employee and employer
-parents to children
-financial distress
-mental weakness
-confidential relationship
Simulation of contracts
1. Absolute- void
2. Relatively simulated- the true agreement is valid between the parties (except if it cause damage to a third party or for an unlawful purpose)
Absolute
-there is intentional employment of a means to produce the appearance of a contract but there is really no contract to speak of (selling a property to a dummy= no transfer of ownership)
-there is no consideration (money or promise)
-a valid title cannot spring from a void title
Relatively simulated:
-parties are bound by their true agreement (read above exceptions)
-there are 2 contracts
1. true intent
2. apparent (ostensible)
Object
Public property and illegal drugs- beyond commerce of man
Must not be impossible:
Objectively impossible- ball that is same time a square
Relative impossibility- it is impossible to perform by the subject
Future object is valid
Must be determinate or at least determinable
Cause
- why a party assumes obligation
Case of Liguez:
-motive is important only when it becomes the cause (if it predetermines the existence of the contract)
-the cause of donation is generosity but when Lopez made the so called donation it was for a consideration (cohabitation)
-pari delicto: guilty parties cannot go to court and assail the validity of the cause (he who comes to court must come with clean hands)
1350 : the object in-
-onerous: promise of a thing or service
-remunatory: past service/ recoverable debt
-gratuitous: beneficence/ pure donation
1351
-motive is not same as cause
1352
-requirements of cause:
1. present
2. true
3. lawful
Effect of illegal cause
-if both are guilty, they cannot sue the other/ each other
1354
-cause is presumed to exist and to be lawful (even if consideration is not specifically mentioned it is presumed to be there)
READ CASE: ong vs ong
Promissory notes
-if it is anchored on preventing the prosecution from filing the case then such is void because it is against public policy
1355
-lesion must be with fraud, mistake or undue influence
FORM
-marga recitation:
1. check if such contract needs to be in writing or needs to be delivered or just plain consent
2. check if it is needed to be able to make contract valid or enforceable or for convenience
Validity= form as a requirement is indispensable
Enforceability= statute of frauds, valid but cannot be enforced
Convenience= to bind 3rd persons (can’t ask/compel the register of deeds to change the name of the owner in the tct) or if 3rd persons are affected
| Donation of real and immovable property and acceptance | In a PUBLIC instrument for VALIDITY |
| Donation of personal property exceeding 5k | Needs to be IN WRITING for VALIDITY |
| Stipulation to pay moratory interest on loans | Must be IN WRITING for VALIDITY |
| Transfer of large cattles | Transfer of cert of reg for VALIDITY |
| Authority of an agent in sale of land (makes the authority and sale void) | Must be IN WRITING for VALIDITY |
| Principal loan and interest on contract of anti chrisis- payment will be from proceeds form certain farm or rent? | Must be IN WRITING for VALIDITY |
| Chattel mortgage | Must be registered in the RD for VALIDITY of the mortgage |
| REM | Needs to be registered in the RD for CONVENIENCE (bind 3rd persons) |
1356
-general rule: form is not required
EXCEPT:
- Solemn
- Real
1358
-needs to be in a PUBLIC DOCUMENT for CONVENIENCE
1. object is the creation, transmission, modification, extinguishment of real rights over IMMOVABLE property
2. Cession, repudiation, renunciation of HEREDITARY rights and CPG
3. power to administer properties
4. contracts where the amount involved exceeds 500 pesos needs to be in writing (can be private or public)
-last paragraph is related to statute of frauds
-remember: unless the buyer accepts and receives part of such good= if it is PARTIALY EXECUTED= ratification
Statute of frauds only applies to executory contracts!
REFORMATION
1359
-there must be meeting of the minds
-true intention is not expressed due to mistake, fraud, inequitable conduct or accident
Reformation is allowed:
1361- mutual mistake causes the instrument not to disclose real agreement
1362- one party makes a mistake and the other party is guilty of fraud/inequity
1363- ignorance, lack of skill and bad faith on the part of DRAFTER, CLERK, TYPIST
Reformation is NOT allowed:
-inter vivos with no condition: it would seem that while there is a contract it is unilateral so it is purely personal on the part of the donee
-will: personal to the testator
-real agreement is void
Parol Evidence rule:
-a party to a contract is not allowed to present testimonial evidence that would modify, alter or change the terms and conditions of a written instrument
-reformation is an exception to the parole evidence rule: when the party puts in issue in his pleadings the fact that the contract does not show the true intent of the parties (if defendant- put it in the answer)
Interpretation
1370
- Clear/ no doubt- apply literal meaning
- If words of the contract is in conflict with the intent then use the rules of interpretation
1371
-consider contemporaneous and subsequent acts to determine intent (creditor has the TCT of a land= can be deduced that the land is used as a security)
1372
-general words can mean specific
1373
-If capable of several meanings- use the one that fits the entire article- most keeping with the contract
Fine print rule
-valid but if there are ambiguities, construe it in favor of the party who merely signed
Defective contracts (listed according to the degree of defect)
1. Rescissible
-valid but becomes defective due to lesion
-ward, minor, prejudice to creditors
-includes prejudice in right to fist refusal and those filed by compulsory heirs
2. Voidable
-can be ratified
-defective due to vitiated consent or incapacity to give consent
3. Unenforceable (does not follow statute of frauds)
-valid but not enforceable until ratified (cannot be brought to court for performance)
4. Void
-no legal effect and cannot be the subject of ratification
Rescission
-damage resulting from a contract
Difference between 1191 and 1380
1191- None fulfillment
1380- creditors must have no other remedy
Requisites: VLLSRP
1. Valid contract
2. There is lesion or damage (1/4)
3. Law allows rescission
4. Is only a subsidiary remedy
-judgment is rendered and if there is no appeal after 15 days- file for finality of judgment
-ask for writ of execution- sheriff will go after plaintiffs COH, COB, personal prop, real prop
-if still none sheriff will make a report
-rescission can then be availed
5. There must be restitution, unless there is nothing to return (due to unjust enrichment principle)
6. The object of the contract must not be in the legal possession of a 3rd person who acted in good faith (must have no knowledge of the act that makes the contract rescissible)
Mirror principle
-annotations in a TCT/ adverse claims (can be cancelled in 30 days)/ notice of lis pendes (subject of a case)
-buyer in order to be protected by law or to be in good faith must check the annotations, however, he is not required to go beyond what appears in the title
-if there is an issue or claim then you should investigate further
7. direct action only- rescision
Article 1380
| Recsissible | Voidable/annulable |
| Based on lesion or fraud upon creditors | Based on non performance or non fulfillment |
| Can be instituted by a third party | Only the parties can institute |
Article 1381
INSTANCES:
1. Guardian or wards- ¼ of the original value of the thing (if there is court approval the contract entered into by the guardian is valid regardless if there is lesion)
2. Absentees- ¼ of the original value of the thing
3. Fraud of creditors- creditors CANNOT in any other matter collect
4. Those under litigation
5. Premature payments by insolvent (w or w/out judicial declaration)
6. Violation of right of first refusal
7. Others
Article 1382
-payment made is a state of insolvency which is not yet due and demandable maybe rescinded
1383
-rescission is a SUBSIDIARY action
-principal remedy must be unavailing
1384
-partial rescission is allowed
1385
-MUTUAL RESTITUTION
-you must be able to also return the things that were given to you
- object plus fruits and price plus interest
1387
PRESUMPTIONS OF FRAUD
- Gratuitous alienation (IF DID NOT RESERVE SUFFICIENT PROPERTY TO PAY ALL DEBTS B4 DONATION)
- Onerous alienation (if there is JUDGMENT and WRIT OF ATTACHMENT)
Badges of Fraud
-fictitious or inadequate consideration
-transfer or property during pendency of suit against the debtor where there is no other property to satisfy judgment
-sale on credit by an insolvent debtor
-transfer of all or substantially all assets
-complete insolvency or large debt
-Transfer bet parent and child
-failure of vendee to take exclusive possession of all the property
Article 1388
Subsequent transfers
- 1st transfer: if in good faith (GF and BF of the next transfer is immaterial) (no RESCISSION)
- 1st transfer: if in bad faith (next transfer is liable if also in bad faith)
Article 1389
Prescription:
- 4 yrs from the time the action or accrues and to be reckoned from the time it is legally possible
- 4 yrs after reaching age of majority or after guardianship or after his whereabouts is unknown
Can be instituted by the:
- Injured party
- Heirs (compulsory/forced)
- Etc (succesors)
VIODABLE
Valid until annulled
1390
-incapable of giving of giving consent
-vitiated consent by:
M/V/I/U/F
1391
Prescription
-4 yrs from
a. ceases if through: I/V/U
b. discovery if through: M/F
fraud of registered land: discovery is reckoned from the date of execution of contract (usually notarized)
unregistered land: from the time the contract is submitted to the assessor’s office for purposes of changing the name of the owner for purposes of real property tax payment
c. incapacity: from the time guardianship ceases
1392
-effect of ratification: extinguish the action to annul a voidable contract
-cleanse defect from beginning
1393
-ratification can either be express or tacit
-prescription is also a form of ratification
-loss of the thing due to the fault of the injured party= estoppel
1394
-ratification does not need the consent of the guilty party
1395
-ratification has a retroactive effect
-mutual restitution applies (exception: case of incapacitated)
Who may file a case:
- Party (principally or subsidiary liable)
- Guilty party cannot file the case
1398
-same with rescissible: obj plus fruit/ price plus interest
Difference between Rescission and Voidable contracts
| Rescission | Voidable |
| Lesion/ fraud of creditors | Incapacity of consent |
| Subsidiary action | Principal action |
| 3rd party can institute | 3rd party cannot institute an action |
| Damage is needed | Damage in not needed |
Unenforceable
- Unauthorized
- Statute of frauds
- Both are incapable of giving consent
Unauthorized
- Entered into in the name of another person
-no authority
-legal rep
-acted beyond his powers
Ratification is required to make the contract enforceable, otherwise, if the supposed principal objects to the contract, the supposed “agent” becomes liable for damages, if any.
-a special power of attorney, general power of attorney or an authorization letter is needed
In case of SALE of REAL PROPERTY, and the agent does not have written authority, the sale is VOID, not just unenforceable! (art 1874)
1403
STATUTE of FRAUDS
-intended to prevent fraud and perjury in the enforcement of obligation by requiring certain contracts to be in writing
-evidence of the contract cannot be received w/o the writing or a secondary evidence of its content
2. statute of frauds
a. not to be performed w/in a yr from the making thereof
b. special promise- debt, default, miscarriage (only subsidiary or collaterally liable)
c. made in consideration of marriage
d. sale- more that 500.00
i. goods
ii. Chattels
iii. things in action- intangible
- Leasing for more that 1 yr or sale of real properties
- Representation as to the credit of a 3rd person
Principles:
- Apply only to executory contracts: no performance has yet been made
-oral evidence is OK if there is already partial performance
- Action must be for damages or specific performance (if they filed a case for the deliver of goods and not because of the lease then statue of frauds will no apply)
- Is EXCLUSIVE to the things listed in the code
- Maybe waived
- CANNOT be assailed by third persons (only affected parties)
VOID/INEXISTENT
- If the cause is contrary to law, customs, public morals, public policy
- Absolute simulation
- Cause or object did not exist at the time of the transaction
- Object is outside the commerce of men
- Impossible service
- Intention in relation to the principal object cannot be ascertained
Void
-when an element or elements of contracts are present but it (cause, object, consideration) is contrary to Law, Morals, Customs, Public order/policy
-pari delicto is applicable
-So the law will leave them as they are. No recovery is allowed.
-Either has no cause of action
-Neither party may demand performance
-but if also a criminal act both can be prosecuted
Inexistent
-one, some or all of the elements for validity is/are lacking
-pari delicto is not applicable
Examples:
- Inexistent contracts (absolutely simulated contract/no consideration)
- Not equally guilty
- Prohibited conveyances/ not illegal per se (sale of land to a foreigner)
- Illegal purpose not yet accomplished
- Labor laws
- Against government (illegal acts done by its officers/officials)
Principles
- Right to question it cannot be waived
- Action of defense does not prescribe
- Not available to 3rd parties if they are not prejudiced
- Cannot give rise to a valid contract
- Produces no effect
- No action to declare them void is needed
- Cannot be ratified
- If it is the accessory which is invalid, the principal is still valid
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