2-27 Law11 Notes

7/30/2019 2-27 Law11 Notes

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February 27, 2013

CONTRACTS – OBJ ECTS

Objects

Things, services and rights may be the object of a contract. The things must not be outsidethe commerce of man and may include future things (the future thing must come in your possession) (except future inheritance). The rights must not be intransmissible. Servicesmust not be contrary to law, morals, good customs, public order or public policy.

Impossible things or services cannot be the object of a contract.

Requisites of things as object:a. Must be within commerce of menb. Not impossible, legally or physicallyc. Must be in existence or capable of coming into existenced. Determinate or determinable without the need for a new contract

Requisite of services as object:

a. Must be within the commerce of menb. Must not be impossible, physically or legallyc. Must be determinate or capable of being made determinate

Future inheritance is any property or right, not existing or capable of determination at the time of the contract that a person may inherit in the future. As a rule contracts on future inheritance arevoid, except:

a. Donations by reason of marriage between future spousesb. Partition of property inter vivos effective after death.

The object of a contract must be determinate as to its kind or at least determinable without the

necessity of a new or further agreement between the parties. The same is true of the quantity of the object of the contract. It is sufficient that it is possible to determine the same without the needof a new contract between the parties.

CONTRACTS – CAUSE OR CONSIDERATION

Cause

It is the essential or more proximate purpose, which the contracting parties have in view atthe time of entering into the contract.

In a bilateral or reciprocal contract like purchase and sale, the cause for one is the subjectmatter or object for the other, and vice versa. The distinction is a matter of viewpoint.

Classifications of Contracts as to Causea. Onerous or one the cause of which, for each contracting party is the presentation or

promise of a thing or service by the other. Reciprocally obligatedb. Remuneratory (rewarding the service) or remunerative or one the cause of which is the

service or benefit which is remunerated. Reward service previously rendered.c. Gratuitous or one the cause of which is the liberality of the benefactor or giver.

Motives are different from cause. Motive is the purely personal or private reason, which a partyhas in entering into a contract. Note also that motive may be unknown, is not an essential requisite

of a contract and may be illegal without affecting the validity of a contract.

Note though that if the motive for a contract is to defraud creditors the contract may berescinded.

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Requisites of Cause:a. Must exist at the time the contract is entered intob. Must be lawfulc. Must be true or real

A contract without a cause is a void contract.

Distinguish from inadequacy of cause and failure of cause. In these cases the contract isnot converted into one without a cause.

Falsity of cause means that the contract states a valid consideration but such statement is nottrue. False causes are either erroneous or simulated. Erroneous cause renders the contract voidbecause no cause exists. Simulate cases may not necessarily result in a void contract if the realcause is sufficient to support the contract. In which case the parties are bound by their trueagreement. Even if the cause is not stated it is presumed to exist and is valid and legal unless thedebtor proves otherwise.

Except in cases specified by law, lesion or inadequacy of cause shall not invalidate acontract, unless there has been fraud, mistake or undue influence. Lesion is any damage

cause by the fact that the price is unjust or inadequate.

DEFECTIVE CONTRACTS – RESCISSIBLE

Rescissible Contracts are those validly agreed upon because all the essential elements exist andtherefore, legally effective, but it the cases established by law, the remedy of rescission is grantedin the interest of equity.

Rescission is a remedy that is available when the effects of the contract, as defined by the law,results in damage or prejudice to one of the parties or third persons. This is to secure reparation of damages by means of restoration of things to their condition, which they were prior to the

celebration of the contract.

Requisites for Rescission:1. The contract must be validly agreed upon;2. There must be lesion or pecuniary prejudice to one of the parties or to a third person;3. The rescission must be based upon a case especially provided by 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 contract6. The object of the contract must not legally be in the possession of third persons who did not

act in bad faith

7. The period for filing the action for rescission must not have prescribed

Rescissible Contracts under Article 1381:1. Unless approved by the court, contracts entered into on behalf of the ward; lesion of ¼ of

the value of the things which are the objects of the contract;2. Unless approved by the court, contracts entered into in representation of absentees; lesion

of ¼ of the value of the things which are the objects of the contract;3. Contracts undertaken in fraud of creditors:

Requisites:1. There must be an existing credit prior to the contract to be rescinded, although is not yet

due or demandable;2. There must be fraud on the part of the debtor which may be presumed or proved3. The creditor cannot recover his credit in any other manner, it not being required that the

debtor be insolvent.

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4. Contracts which refer to things under litigation if they have been entered into by thedefendant without knowledge and approval of the litigants or of competent judicial authority;

5. Other instances provided by law.

Under Article 1382. Payments made in a state of insolvency for obligations to whose fulfillment thedebtor could not be compelled at the time they were affected, are also rescissible.

Rescission shall only be granted if there are no other remedies and only up to the extentnecessary to cover the damages caused.

Example:

The guardian of a minor was authorized by the court to sell two parcels of land valued at 200,000each. The guardian sold both to B for only 200,000.

In this case the entire contract need not be rescinded. Rescission may be properly applied only toone parcel of land to cover the damage caused by the guardian. But…

When the court declared a contract rescinded, the parties must return to each other (1) the objectof the contract with its fruits and (2) the price thereof with legal interest.

The purpose of rescission is to restore the parties to their original situation. The law presumes thatthe party who received the object of the contract has enjoyed the fruits thereof whole the other hasused the money which is the price of the object.

For incapacitated persons though it is surmised that they are obligated to return up to the extentthat they were benefited.

Rescission is not allowed:

1. If the party who demands rescission cannot return what he is obliged to resort under thecontract.

2. If the property is legally in the possession of a third part…

When is a transfer of property presumed to be in fraud of creditors:1. Alienation by gratuitous title, when the donor did not reserve sufficient property to pay all

debts contracted before the donation2. Alienation by onerous title when made by person against whom some judgment has been

rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained bythe party seeking the rescission.

Other badges of fraud:1. Fact that consideration is fictitious or inadequate2. Transfer is made after a suit has begun and is pending3. Sale upon credit by an insolvent debtor 4. Transfer of all assets by an insolvent or greatly embarrassed debtor 5. Transfers between parents and children where other items above are attendant6. Failure of the buyer to take exclusive possession of the property7. When vendee knew that the property sold to him was the only one owned by the vendor

Whoever acquires in bad faith the things alienated in fraud of creditors shall indemnify the latter for

damages suffered by them on account of the alienation, whenever, due to any cause, it should beimpossible for him to return them. If there are two or more alienations, the first acquirer shall beliable first and so on successively.

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The action to claim rescission must be commenced within four years. For guardianships andabsentees the period starts from the time the ward becomes capacitated and when the absenteesdomicile is known.

DEFECTIVE CONTRACTS – VOIDABLE

Voidable or annullable contracts are those which possess all the essential requisites of a validcontract but one of the parties is incapable of giving consent or consent is vitiated by mistake,violence, intimidation, undue influence or fraud.

These contracts are binding unless annulled by a proper court. Once ratified, they becomeabsolutely valid and cannot be annulled.

Annulment is a remedy provided by law for the declaration of the inefficacy of a contract based ona defect or vice in consent of one of the parties in order to restore them to their original positionsbefore the contract was executed.

The action for annulment shall be brought within 4 years. The period begins from the time the

defect of consent ceases (intimidation, violence, undue influence), from discovery of the same(mistake or fraud) or from the time the guardianship ceases (minors or incapacitated persons).

Ratification extinguishes the right to annul a contract. This is the voluntary adoption of somedefective or unauthorized act or contract which, without such subsequent approval or consent,would not have been binding on him.

Ratification may be effected by the guardian.

Ratification may be express or implied. In implied ratification the person with the right to annul isaware of such right and performs an act which implies an intention to waive this right.

Requisites for implied ratification are:1. There must be knowledge of the reason which renders the contract voidable2. Such reason must have ceased3. The injured party must have executed an act which necessarily implies an intention to

waive his right.

Ratification does not need the consent of the party who has no right to bring a case for annulment.

Ratification cleanses the contract from all defects from the time it was constituted.

The action for annulment may be brought by those who are obliged principally or subsidiarily. Therequisites are 1) the plaintiff must have an interest in the contract and 2) the victim and not theparty responsible for the defect is the person who must assert the same. Strangers cannot bringan action to annul.

Upon the grant of the annulment the parties shall restore to each other the things which have beenthe subject matter of the contract, with fruits and the price with its interest, except in casesprovided by law. For contracts of service the value thereof shall be the basis for damages.

1399 is the exception as it states that incapacitated persons are not obliged to make anyrestitution except insofar as he has been benefitted by the thing or price received by him.

If the thing cannot be returned due to a party’s (defendant) fault, he shall return the fruits plus thevalue of the thing due.

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If the thing is lost due to the fraud or fault of the plaintiff, the action for annulment shall beextinguished.

If the thing is lost due to a fortuitous event, annulment cannot take place as the other party cannotbe obligated to comply with what is incumbent upon him.

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2-27 Law11 Notes