MODULE 5
DEFECTIVE CONTRACTS
1. RESCISSIBLE – contract that has caused a particular damage to one of the parties or to a third person and which for
EQUITABLE REASONS may be set aside even if valid
2. VOIDABLE OR ANNULLABLE (contrato nulo) – contract in which CONSENT of one of the parties is defective, either because
of WANT OF CAPACITY or because it is VITIATED , but which contract is VALID until JUDICIALLY set aside
3.
UNENFORCEABLE – contract that for some reason CANNOT BE ENFORCED, UNLESS RATIFIED in the manner
PROVIDED BY LAΩ
4.
VOID AND NON-EXISTENT (contrato inexistente) – contract which is an ABSOLUTE NULLITY and produces NO EFFECT,
as if it had never been executed or entered into.
Chapter VI. Rescissible Contracts
Kinds Of Rescissible COntracts
Art 1381 The following are rescissible contracts:
1. Entered into by guardians whenever the wards suffer lesion by more than ¼ of value of things object
•Guard
i
an: author
i
zed on
l
y to “manage" ward
´
s property, no power to d
i
spose w
i
thout pr
i
or approva
l
of court. Only
includes those which are “ordinary course" of management of estate of the ward, because if sale, mortgage and other
encumbrance AND not approved by court, it becomes unenforceable.
2. Agreed upon in representation of absentee, suffer lesion by more than ¼ of the value of things object
•Same principle in relation to contracts by guardians
3.
In fraud Of creditors who cannot collect claims due them
•Requisites Of Accion Pauliana
1. Plaintiff asking for rescission (subsidiary action) has a credit prior to the alienation
2. Debtor has made subsequent contract, giving advantage to a 3rd person
3. Cred
i
t
o
r has n
o
O
t h e r re m e d y but t
o
resc
i
nd the debt
o
r
’
s c
o
ntract t
o
the 3
rd
pers
o
n (
l
ast res
o
rt)
4. Act being impugned is fraudulent
5. 3rd person who received the property is an accomplice in the fraud
•
Credit must be existing at the time Of the fraudulent alienation, although not yet due. But at the time Of
accion pauliana, the credit must already be due because it presupposes a judgment and unsatisfied
execution which cannot exist when the debt is not yet demandable at the time the rescissory action is
brought.
•GENERAL RULE: Credit is prior to the alienation
•EXCEPTION: Credit is after alienation but entitled to accion pauliana because of some prior right
1. Claims were acknowledged by the debtor after alienation, but origin of which antedated the
alienation
2. Those who become subrogated, after the alienation, in the rights of a creditor whose credits were
prior to the alienation
•Even secured creditors are entitled to AP
•Conveyance was intentionally fraudulent which may be established by the presumption in Art 138⁄
•TEST OF FRAUD: Whether the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors or
whether it conserves to the debtor a special right; founded on good consideration or is made with bona fide intent. □
Does it prejudice the right of creditors??
•Good consideration: creditor is not prejudiced becomes the property was merely replaced or substituted
•Badges of fraud applicable
4. Things under litigation, without knowledge and approval of litigant or of competent judicial authority
•To secure the possible effectivity of a claim
•Transferee of property in good faith who acquires property for valuable consideration, without knowledge of the
litigation or claim of the plaintiff, cannot be deprived of property.
