Void Contracts | Defective Contracts | Contracts | OBLIGATIONS AND CONTRACTS

Under Philippine law, void contracts are defined by provisions in the Civil Code, specifically Articles 1409 to 1422. Void contracts are legally inexistent and thus, unenforceable from the beginning. They produce no legal effect, create no rights or obligations, and cannot be ratified, even by mutual consent of the parties involved. Void contracts exist in a category distinct from voidable, rescissible, and unenforceable contracts, and their defects are severe, rendering them without any binding power or legal force from the start.

Key Features of Void Contracts

1. No Legal Effect: A void contract is inexistent and produces no legal effect whatsoever. The law treats it as if it was never formed.

2. No Ratification Possible: Since the contract is null from inception, it cannot be ratified or validated. Neither party can give validity to a void contract by subsequent action or agreement.

3. No Basis for Performance: A void contract cannot be the basis for either party to demand performance. Therefore, if either party does perform, they may demand restitution or recovery of what they have rendered under the principle of unjust enrichment.

4. In Pari Delicto Doctrine: When both parties are at fault (i.e., in equal wrongdoing), the law generally does not allow any remedy for either party. However, exceptions to this principle allow certain parties to recover what they have given or rendered under a void contract.

Grounds for a Contract Being Void (Article 1409 of the Civil Code)

According to Article 1409, contracts are void and inexistent in the following cases:

1. Contrary to Law, Morals, Good Customs, Public Order, or Public Policy: Any contract that contravenes these principles is automatically void. Examples include agreements that aim to commit crimes, contracts that go against moral standards or societal welfare, and contracts that violate prohibitive laws.

2. Lack of an Essential Requisite: Essential requisites of a valid contract include consent, object, and cause. If any of these essential requisites is absent, the contract is void ab initio. For example, a contract to sell a nonexistent object or a contract entered without genuine consent due to force, intimidation, or fraud.

3. Illegality of the Object or Cause: Contracts with an illegal object or unlawful cause are void. For instance, a contract for the sale of illegal drugs or prohibited items is void for having an illegal object. Similarly, a contract entered with an unlawful cause (e.g., bribing a government official) is void.

4. Contracts Expressly Declared Void by Law: Certain contracts are expressly declared void by specific legal provisions. For example:

   • Contracts made under duress or undue influence are void if the coercion nullifies free will.
   • Gambling and wagering contracts (except those legally authorized) are void (Article 1409(6)).
   • Contracts to perform an act already prohibited by law are inherently void.

5. Contractual Stipulations Prohibited by Law: Provisions in a contract that violate mandatory legal requirements or prohibitions render the contract void. For instance, a contract that includes a waiver of the right to recover damages for future fraud is void under Philippine law (Article 1409).

Consequences of a Void Contract

1. No Legal Obligations: Since the contract is void, neither party can demand performance or enforce any obligations from the other party.

2. No Damages or Penalties: If a contract is void, neither party is liable to pay damages or penalties, as the agreement never had legal effect.

3. Unenforceability in Court: Courts will not enforce a void contract. This principle bars the aggrieved party from seeking any form of relief based on the void agreement.

4. Restitution: When a void contract results in one party benefiting at the expense of another, restitution may be demanded. This principle is subject to the limitations of the in pari delicto doctrine, which bars restitution if both parties are equally at fault. However, exceptions allow recovery when public policy favors protecting certain parties, such as minors or those who are incapacitated.

5. Statute of Limitations Not Applicable: Since void contracts are deemed inexistent from the beginning, the statute of limitations does not apply to void contracts. Therefore, a claim for restitution or recovery based on a void contract is not barred by the statute of limitations.

In Pari Delicto Doctrine

Under Article 1411, the in pari delicto doctrine prohibits recovery when both parties are at fault. However, this doctrine has exceptions designed to protect public interest and disadvantaged individuals. The following are instances where restitution is allowed, despite the in pari delicto principle:

1. Protection of Incapacitated Persons: Contracts entered by incapacitated individuals (minors, mentally incapacitated persons, etc.) are void. The incapacitated person may recover what they have given, regardless of the in pari delicto rule, as the law aims to protect vulnerable parties.

2. Public Interest: If the contract involves matters against public interest, the law may allow recovery despite the wrongdoing of the parties. For example, if the government seeks to recover proceeds from a void contract that violates public policy, it may do so.

3. Protection Against Illegal Exaction or Oppression: If a party was forced to enter into an illegal contract through oppression, coercion, or fraud, they may be entitled to recover what they have rendered. For example, if one party was pressured into paying illegal fees or charges, they may recover their payment.

4. Exceptions by Specific Provision of Law: Certain contracts, although void, allow one party to recover under specific legal provisions. For example, a deposit given under an illegal agreement may be reclaimed in some cases.

Instances of Void Contracts (Illustrative Cases)

1. Marriage Contracts: Any contract entered into solely for obtaining citizenship, which undermines the sanctity of marriage, is void.

2. Contracts Involving Immoral Activities: Any agreement to facilitate an immoral act, such as prostitution or bribery, is void.

3. Simulated Contracts: A contract executed as a mere façade or sham (i.e., with no intent of actual performance) is void.

4. Contracts Waiving Future Fraud Liability: Agreements where a party attempts to waive liability for future fraud are null.

5. Illegal Sale of Goods or Property: The sale or transfer of prohibited or illegal items (such as narcotics or smuggled goods) renders the contract void.

6. Employment of Minor in Hazardous Work: Any employment contract that engages a minor in hazardous or unhealthy work is considered void by law.

Summary of Void Contracts Provisions in the Civil Code

The following Civil Code Articles govern void contracts and related doctrines:

1. Article 1409: Lists grounds for a contract to be void and inexistent.
2. Articles 1411 and 1412: Establish the in pari delicto doctrine, its exceptions, and when restitution may be allowed.
3. Articles 1413 to 1422: Provide additional rules regarding certain types of void agreements and the restitution of benefits received.

These provisions ensure that contracts contravening the essential principles of law, morals, public order, and public policy are rendered legally inexistent, providing a basis for rejecting any enforceable rights or obligations under such agreements.

Unenforceable Contracts | Defective Contracts | Contracts | OBLIGATIONS AND CONTRACTS

Unenforceable Contracts in Philippine Civil Law

Unenforceable contracts are a subset of defective contracts under Philippine civil law, particularly governed by the Civil Code of the Philippines. Unenforceable contracts are valid in form and substance but cannot be enforced in court due to certain defects in their execution, primarily because of the incapacity of the parties or a lack of required formalities. The concept is critical in the study of obligations and contracts because it draws the line between what can be legally upheld and what is barred from enforcement due to procedural or substantive issues.

Here’s a detailed breakdown of unenforceable contracts as provided by the Civil Code of the Philippines:

1. Definition and General Characteristics of Unenforceable Contracts

Unenforceable contracts are legally defective agreements which, although not inherently illegal or void, cannot be enforced by legal action due to procedural or relational deficiencies. These contracts may become enforceable if the underlying defect is cured or corrected under certain legal conditions. They differ from void and voidable contracts in that they are not nullified entirely, nor can they be rescinded based solely on consent issues or defects in the parties' legal capacity.

2. Governing Articles

The specific provisions on unenforceable contracts are found in Articles 1403 to 1408 of the Civil Code of the Philippines. The law classifies unenforceable contracts into three distinct categories:

• Contracts entered into in the name of another person without authority or without legal representation.
• Contracts that do not comply with the Statute of Frauds.
• Contracts where both contracting parties are incapacitated.

3. Types of Unenforceable Contracts

(a) Contracts Without Authority or Exceeding Authority

• Nature: These are contracts where a person, acting on behalf of another, does so without any actual authority, legal representation, or apparent authorization. This lack of authority renders the contract unenforceable.
• Legal Basis: Article 1403(1) of the Civil Code specifies this type of unenforceable contract. The law bars enforcement because the principal did not authorize the agent to enter into the contract, making it unauthorized.
• Effect: The contract remains unenforceable unless ratified by the party on whose behalf it was executed. Ratification can either be explicit or implicit through actions that signify acceptance of the agreement's terms.

(b) Contracts Falling Under the Statute of Frauds

• Nature: The Statute of Frauds requires certain types of contracts to be in writing to be enforceable. Contracts within the Statute of Frauds must be evidenced by a written document and signed by the party to be charged, to be binding.
• Legal Basis: Article 1403(2) enumerates specific contracts covered by the Statute of Frauds, including:
  1. An agreement that, by its terms, is not to be performed within one year from its making.
  2. A promise to answer for the debt, default, or miscarriage of another.
  3. An agreement made in consideration of marriage, other than a mutual promise to marry.
  4. An agreement for the sale of goods, chattels, or things in action at a price not less than 500 pesos.
  5. An agreement for the leasing of property for a period longer than one year or for the sale of real property.
  6. A representation as to the credit of a third person.
• Effect: If these types of agreements are not in writing, they cannot be enforced in court. However, they may become enforceable if the parties provide a written document or if the court allows exceptions (such as partial performance, estoppel, or unjust enrichment).

(c) Contracts Where Both Parties are Incapacitated

• Nature: These are contracts entered into by parties who both lack the legal capacity to contract, such as minors or persons declared incompetent.
• Legal Basis: Article 1403(3) of the Civil Code governs these contracts, emphasizing that incapacity renders the agreement unenforceable.
• Effect: The incapacity of both parties prevents the contract from being enforced. It does not mean that the contract is void, but rather that the parties cannot pursue legal action to enforce it.

4. Effects of Unenforceable Contracts

Unenforceable contracts have specific effects under Philippine law:

• No Right to Enforce: The primary effect is the inability of either party to enforce the contract through judicial action. This means that courts will not grant a remedy for breach of an unenforceable contract.
• Ratification: Some unenforceable contracts can be ratified, or validated, by the parties. Once ratified, the contract becomes enforceable as if it had originally met the necessary requirements.
• Estoppel: A party who has benefited from the contract may be prevented from later claiming its unenforceability. For example, if a minor enters into a contract and later attains the age of majority while still benefitting from the contract, they may be estopped from claiming that it is unenforceable due to their previous incapacity.
• Partial Performance: In some cases, particularly under the Statute of Frauds, partial performance of the contract can lead to its enforceability. If one party has partly fulfilled the agreement, the court may decide to enforce it to prevent unjust enrichment.

5. Distinctions from Other Defective Contracts

Unenforceable contracts are distinct from other types of defective contracts:

• Void Contracts: Void contracts are those that are inherently invalid from the outset and produce no legal effects. They are unenforceable by their nature and cannot be ratified or enforced under any circumstances.
• Voidable Contracts: Voidable contracts are valid until annulled. They may be enforced unless and until one party decides to annul the contract, typically due to issues like lack of consent, duress, or undue influence. Unlike unenforceable contracts, voidable contracts are not deficient in form or capacity at inception.
• Rescissible Contracts: These contracts are valid but are susceptible to rescission due to equity considerations or harm to third parties.

6. Remedies and Actions Pertaining to Unenforceable Contracts

• Ratification: When a principal ratifies a contract entered into on their behalf without authority, the contract becomes enforceable. Ratification may occur expressly or through implied conduct, such as accepting benefits under the contract.
• Defense of Unenforceability: Parties can raise the unenforceable nature of the contract as a defense in court if the other party attempts to enforce the contract.
• Application of Estoppel: In cases where one party has received benefits under the contract, they may be estopped from asserting the unenforceable nature of the contract.
• Judicial Interpretation: Courts typically interpret the provisions on unenforceable contracts strictly, as they do not favor the enforcement of agreements that do not meet procedural or formal requirements.

7. Important Jurisprudence

Philippine jurisprudence further elucidates the application and limitations of unenforceable contracts:

• Partial Performance: Courts have ruled that partial performance can sometimes override the Statute of Frauds requirement, especially if enforcing the contract would prevent unjust enrichment.
• Ratification and Waiver: Ratification or waiver is essential in validating unenforceable contracts under certain circumstances.
• Authority and Agency Principles: The doctrine of agency applies strictly, especially in cases where unauthorized contracts are entered into without proper authority.

8. Conclusion

Unenforceable contracts occupy a distinct space in Philippine civil law, governed by the principles of legal capacity, procedural requirements, and the Statute of Frauds. These contracts highlight the importance of legal formalities and representation in contractual obligations. While they lack enforceability at their inception, certain curative acts like ratification or partial performance can render them enforceable.

Voidable Contracts | Defective Contracts | Contracts | OBLIGATIONS AND CONTRACTS

Here is a detailed analysis of Voidable Contracts under Philippine Civil Law.

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VOIDABLE CONTRACTS IN PHILIPPINE LAW

In Philippine Civil Law, voidable contracts are defined under Article 1390 of the Civil Code of the Philippines. Voidable contracts are considered valid and binding unless they are annulled. They are not void or unenforceable per se; they remain effective unless an action for annulment is successfully pursued by an interested party. Voidable contracts differ from void contracts, which are deemed non-existent and have no legal effect from the outset.

A. Definition and Nature

Voidable contracts are those contracts that, despite having apparent validity, suffer from some legal infirmity or defect. This defect allows the party or parties adversely affected to bring an action to annul the contract. However, unless and until annulled, these contracts produce legal effects as if they were valid.

B. Grounds for Annulment of Voidable Contracts

Under Article 1390 of the Civil Code, contracts may be voidable if:

1. Lack of Capacity - One or both of the parties suffer from some defect in their capacity to contract, such as being a minor or suffering from insanity.
2. Vitiation of Consent - Consent of one or both parties was obtained by means of fraud, intimidation, violence, undue influence, or mistake.

These grounds for annulment stem from the idea that the party giving consent must have the capacity to do so and must give it freely, without any impairment of their autonomy.

C. Characteristics of Voidable Contracts

1. Validity Until Annulled - Voidable contracts are valid and binding upon the parties until annulled. This means that they produce all legal effects as if they were valid.
2. Right of Action for Annulment - The injured party or the party suffering from lack of capacity may bring an action to annul the contract. This action is discretionary and may be waived, expressly or impliedly.
3. Capable of Ratification - Voidable contracts may be ratified, which confirms their validity and bars future annulment.
4. Susceptible to Prescription - Actions to annul voidable contracts are subject to prescription. The right to file an action to annul a contract is not indefinite and may be lost due to the lapse of time.

D. Causes of Voidability

1. Lack of Capacity

   • The Civil Code identifies two primary types of incapacity:
     • Absolute Incapacity: Involves those who cannot contract at all, such as minors below 18 years of age and insane or demented persons.
     • Relative Incapacity: Affects certain classes of people due to particular relationships or circumstances, e.g., contracts between a guardian and ward, or contracts made by a spouse without the other spouse’s consent.

2. Vitiated Consent

   • Voidable contracts due to vitiated consent arise in situations where a party’s consent is obtained through:
     • Mistake (Article 1331) – Refers to error or misunderstanding of a fact that materially affects the agreement.
     • Violence or Intimidation (Articles 1335-1336) – Refers to physical or moral pressure, where one party compels another to agree through fear or threat of harm.
     • Undue Influence (Article 1337) – Refers to taking advantage of the weakness of mind, age, or other circumstances to influence the other party improperly.
     • Fraud (Article 1338) – Refers to deliberate deception to secure unfair or unlawful gain, leading one party to enter into the contract based on misrepresentations.

E. Annulment of Voidable Contracts

1. Right to Annul

   • The right to annul a voidable contract rests with the party adversely affected by the defect or by their representatives (e.g., parents or guardians in the case of minors). Annulment is discretionary and not automatically granted.

2. Effects of Annulment

   • Once a contract is annulled, both parties are restored to their original positions as far as possible (Article 1398). If restoration in kind is not possible, the party entitled to restitution may be compensated with damages.

3. Period for Annulment

   • Under Article 1391, the period to bring an action for annulment varies:
     • For contracts due to incapacity, the period is four years from the time the incapacity ceases.
     • For contracts due to mistake, violence, intimidation, undue influence, or fraud, the period is four years from the time the defect ceases or is discovered.

4. Ratification of Voidable Contracts

   • Voidable contracts may be ratified either expressly or impliedly (Article 1392). Ratification extinguishes the action for annulment. It occurs when the party with the right to annul chooses to affirm the contract despite its defects.

   • Express Ratification - When the party explicitly confirms the contract in a statement.

   • Implied Ratification - Occurs through actions such as accepting benefits under the contract, failing to seek annulment within the prescriptive period, or performing the obligations of the contract despite the defect.

5. Effects of Ratification

   • Ratification purges the defect, rendering the contract entirely valid from the beginning. Thus, the contract can no longer be annulled after ratification.

F. Restitution and the Status Quo Ante

Upon annulment, restitution is mandatory to restore the parties to their pre-contractual positions. This restitution includes returning the benefits received under the contract or, if restoration in kind is not possible, compensation through equivalent value.

1. Restitution in Kind - Returning what has been received under the contract.
2. Restitution through Equivalent Value - If the specific items cannot be returned (e.g., in cases of fungible goods consumed), equivalent monetary value is given.

G. Prescriptive Period for Annulment

As mentioned, the action for annulment is subject to the prescriptive period specified in Article 1391. This highlights the principle that the right to annul is not perpetual and may be waived through inaction over time.

H. Special Cases Involving Voidable Contracts

1. Contracts Involving Minors

   • Contracts entered into by minors are generally voidable. However, contracts for necessities (food, shelter, clothing) are exceptions, and minors are bound to pay for these.

2. Contracts with Persons under Civil Interdiction

   • Persons who are declared incapacitated (e.g., due to mental incapacity) have contracts that may be considered voidable. However, such incapacitation must be judicially declared to trigger this effect.

3. Contracts Involving Deception in Marriage

   • A particular application involves marriage contracts where one party deceives the other in a way that affects the essence of marital consent (e.g., bigamous or fraudulent marriages).

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Summary of Key Points

• Voidable contracts are valid unless annulled.
• Grounds for annulment include lack of capacity and vitiated consent (mistake, fraud, intimidation, violence, undue influence).
• Annulment may be pursued within four years from the discovery of the defect.
• Ratification of a voidable contract cures the defect, making it fully valid.
• Upon annulment, restitution is required to return parties to their original positions.

This framework enables parties to protect themselves from the effects of unfair contracts and addresses the specific needs of those who may have been vulnerable at the time of agreement.

Rescissible Contracts | Defective Contracts | Contracts | OBLIGATIONS AND CONTRACTS

In Philippine civil law, rescissible contracts are a subset of defective contracts under the Civil Code that are valid and binding until they are rescinded due to circumstances that render them legally vulnerable. Rescission is a remedy that seeks to restore the contracting parties to their original state (status quo ante) before the contract was entered into. These contracts are considered rescissible not because they are initially void or voidable but because they cause or threaten to cause damage to one of the parties or to a third person. The detailed regulations concerning rescissible contracts are outlined in Articles 1380 to 1389 of the Civil Code of the Philippines.

Characteristics of Rescissible Contracts

1. Validity: Rescissible contracts are valid and binding from the outset, meaning they produce legal effects and are enforceable until rescission is sought and granted.

2. Ground for Rescission: The key reason for rescission is the presence of "lesion" or damage to one of the parties or to a third person, typically due to an inequitable result or bad faith. However, rescission is not applicable to contracts that are inherently void or voidable.

3. Nature of the Remedy: Rescission is a subsidiary remedy, meaning it cannot be availed of if there are other legal remedies sufficient to address the injury or damage. It also means that rescission will only be granted if restitution to the status quo is feasible.

Grounds for Rescission (Article 1381)

The following contracts are rescissible under Article 1381 of the Civil Code:

1. Contracts Entered into by Guardians: Contracts made by guardians in representation of their wards, if the wards suffer economic prejudice as a result, are rescissible. The law provides special protection for minors and incapacitated persons who are under guardianship, so any contract that prejudices them is subject to rescission.

2. Contracts on Behalf of Absentees: Contracts executed by representatives of absent persons (e.g., those who are not physically present or are otherwise incapacitated) are rescissible if they cause prejudice to the absentee. This typically protects absent heirs, co-owners, or other individuals who are not physically present to protect their interests.

3. Contracts to Defraud Creditors: When contracts are made with the intent to defraud creditors (often called "fraudulent conveyances" or "acts in fraud of creditors"), they are rescissible. This typically occurs when a debtor alienates property to evade fulfilling obligations to creditors.

4. Contracts Relating to Litigious Things: Sales or assignments of items under litigation without notifying the parties involved in the lawsuit are rescissible. This rule aims to prevent contracts that could disrupt the proper administration of justice by transferring assets that are the subject of an ongoing legal dispute.

5. Other Cases Expressly Stated by Law: Some other specific cases not enumerated in Article 1381 are also rescissible when expressly provided for by law.

Procedure for Rescission

1. Petition for Rescission: A party who wishes to rescind a contract must file an action for rescission in court. Rescission is not automatic; it must be judicially decreed through a formal judgment.

2. Return of Benefits Received: The law requires that the parties return to each other what they have received under the contract. Rescission thus aims to restore both parties to their original positions. For instance, if the contract involved a sale, the buyer must return the item purchased, and the seller must return the payment made.

3. Subsidiary Remedy: Rescission is only available as a last resort. If the aggrieved party has other remedies that can rectify the situation (such as damages), rescission will not be granted.

4. Limitations Period: The right to file an action for rescission has a prescription period (statute of limitations) of four years. This period may differ depending on when the contract was entered into and the specific nature of the rescissible ground, such as whether the action involves fraud or other circumstances.

Effects of Rescission

1. Restoration of the Original Status (Status Quo Ante): When a court orders rescission, the objective is to return both parties to their original state as if the contract had not been made. This involves the mutual restitution of the property, money, or benefits received by each party.

2. Protection of Bona Fide Third Parties: If a third party acquires rights in good faith from a party to a rescissible contract, their rights are generally protected. This is particularly important in property transactions, as innocent third-party purchasers are often shielded from the consequences of the rescission.

3. Liability for Damages: If restitution cannot fully restore the injured party to the original condition, the party seeking rescission may be entitled to additional compensation or damages to cover the loss or injury suffered.

Special Considerations

1. Partial Rescission: If the contract has been partly fulfilled and rescission affects only part of it, only that part may be rescinded. For example, if a divisible contract includes rescissible and non-rescissible obligations, the court may rescind only the part of the contract that causes harm or prejudice.

2. Impossibility of Restitution: If restitution becomes impossible (e.g., the subject matter has been destroyed or fundamentally altered), rescission cannot be granted. In such cases, alternative remedies such as indemnity for damages may be awarded to the injured party.

3. Requisites for Successful Rescission:

   • Injury or Damage: There must be proof of injury or damage to justify rescission. The burden of proof rests with the party seeking rescission.
   • Existence of a Rescissible Ground: The contract must fall under one of the categories of rescissible contracts specified in the Civil Code.
   • Absence of Alternative Remedies: The injured party must show that rescission is necessary because no other adequate legal remedies are available.

Limitations on Rescission (Article 1383)

The Civil Code emphasizes that rescission is a subsidiary remedy; hence, it may not be granted if other sufficient remedies exist to repair the injury or damage. Additionally, rescission does not cover all damages or inequalities. Minor discrepancies or unfair terms that do not reach the level of "lesion" or substantial harm are generally insufficient for rescission. For instance, a contract cannot be rescinded merely because one party finds the terms unfavorable or wishes to change their mind.

Alternative Remedies

If a contract does not meet the criteria for rescission but still produces unfair or prejudicial outcomes, other legal remedies may be pursued. These include:

1. Damages: Compensatory damages may be awarded if the injured party can demonstrate a loss directly caused by the contract's performance.

2. Reformation of Contract: If the contract does not reflect the true intent of the parties due to error, fraud, or accident, it may be reformed rather than rescinded to accurately represent the parties' intentions.

3. Reduction of Penalty Clauses: In cases where penalty clauses within a contract are excessive or disproportionate, the court has discretion to reduce them.

4. Rescission vs. Annulment: It is important to distinguish rescission from annulment. Rescission presumes a valid contract that can be rescinded due to injury, whereas annulment applies to contracts that are voidable due to lack of consent, mistake, or fraud.

Conclusion

Rescission is an important legal remedy in Philippine civil law, designed to protect parties and third persons from inequitable contracts that cause substantial harm. The strict procedural and substantive requirements for rescission reflect the courts' intention to use this remedy sparingly and only when truly necessary to correct injustices.

Defective Contracts | Contracts | OBLIGATIONS AND CONTRACTS

Under Philippine civil law, contracts can become defective in various ways, potentially invalidating them or limiting their enforceability. Defective contracts are addressed in Book IV, Title II, Chapter 7 of the Civil Code of the Philippines. A contract's defectiveness can arise due to issues with its validity, consent, object, cause, or form. Defective contracts are primarily categorized as (1) Rescissible Contracts, (2) Voidable Contracts, (3) Unenforceable Contracts, and (4) Void or Inexistent Contracts. Each type has distinct features, grounds, and effects, which are as follows:

1. Rescissible Contracts

Rescissible contracts are initially valid and binding, but they may be rescinded, or canceled, due to certain external factors that prejudice the rights of a party or a third person. Articles 1380–1389 of the Civil Code govern these contracts.

Grounds for Rescission

A contract may be rescinded on the following grounds:

• Contracts entered into by guardians where the ward suffers a lesion (injury) exceeding one-fourth of the value of the objects in the contract (Art. 1381).
• Contracts by representatives in cases where the person represented suffers a lesion exceeding one-fourth of the value (Art. 1381).
• Contracts made in fraud of creditors when the latter cannot otherwise collect the claims (Art. 1381).
• Contracts concerning things under litigation that are entered into without court approval (Art. 1381).
• Other cases specifically provided by law (Art. 1381).

Effects and Conditions of Rescission

• Rescission does not apply to cases where the party seeking rescission has no other legal remedy to protect their interest (Art. 1383).
• The action for rescission must be brought within four years (Art. 1389).
• Rescission is limited to the extent of the damage caused, making it a partial relief (Art. 1384).

2. Voidable Contracts

Voidable contracts are valid until they are annulled. These contracts contain vitiated consent, meaning the consent of one of the parties was affected by mistake, violence, intimidation, undue influence, or fraud (Articles 1390–1402).

Grounds for Annulment

A contract is voidable if:

• One party was incapacitated to give consent (e.g., minor or mentally incapacitated) (Art. 1390).
• Consent was vitiated by mistake, violence, intimidation, undue influence, or fraud (Art. 1390).

Effects and Conditions for Annulment

• A voidable contract is binding until annulled by a court.
• The action to annul based on incapacity or vitiated consent must be filed within four years (Art. 1391).
• If annulled, parties must return what they have received under the contract (Art. 1398).
• Ratification can validate a voidable contract, extinguishing the grounds for annulment (Art. 1392–1396).

3. Unenforceable Contracts

Unenforceable contracts are agreements that cannot be enforced by action in court unless they are ratified. These are covered under Articles 1403–1408.

Types of Unenforceable Contracts

• Contracts entered into without authority or exceeding the authority of the agent.
• Contracts that do not comply with the Statute of Frauds (Art. 1403).
• Contracts where both parties are incapable of giving consent (Art. 1403).

Effects and Ratification of Unenforceable Contracts

• They are unenforceable in court unless ratified.
• Ratification makes the contract enforceable (Art. 1405).
• In pari delicto rule applies, meaning neither party can sue the other if both are at fault (Art. 1406).

4. Void or Inexistent Contracts

Void contracts have no effect from the beginning and cannot be ratified. Articles 1409–1422 discuss void contracts.

Grounds for Void Contracts

A contract is void if it:

• Lacks an essential requisite (e.g., consent, object, or cause) (Art. 1318).
• Is contrary to law, morals, good customs, public order, or public policy (Art. 1409).
• Is simulated, meaning the parties do not intend the contract to be legally binding (Art. 1345–1346).
• Involves impossible or unlawful objects (Art. 1409).
• Is expressly prohibited or declared void by law (Art. 1409).

Effects of Void Contracts

• A void contract produces no legal effect (Art. 1409).
• Parties to a void contract cannot compel performance or seek damages.
• If the contract involves illegal cause or object, and both parties are at fault (in pari delicto), neither party can recover what they have given under the contract (Art. 1411).
• Exceptions exist where public interest is involved, allowing innocent parties to recover under certain circumstances (Art. 1412).

Special Rules for Void Contracts Involving Immoral Considerations

• Contracts involving acts against public policy or that encourage illegal activities are void.
• Recovery is permitted under certain exceptions, such as when public interest or the innocent party is at risk (Art. 1414–1422).

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Summary and Practical Implications

In practice, understanding the classification of a defective contract is crucial as it affects how one may contest or enforce the contract. Key differences between these defective contracts are based on their validity, the possibility of ratification, the need for annulment or rescission, and the enforceability of obligations arising from the agreement.