Defective Contracts (Online Lecture) 1 Flashcards
how to directly assail/challenge the CONTRACT
note
- not for a title
- a case is filed in court and
- the main relief/action is precisely the rescission of the contract
how to indirectly or collaterally assail/challenge the CONTRACT
raise the defect of the contract by way of defense when you file an ANSWER
note
- applies to void, unenforceable, rescission, and voidable
characteristic of VOID
the action to declare a contract null and void is IMPRESCRPTIBLE,
if there is a prescriptive period, it would become valid by mere lapse of time. That cannot be allowed
void vs other defective other contracts
void cannot be ratified
ex. if contract is declared void against public policy or law, the void of a contract is not the interest of the party’s interest
ex. even if the wages in the contract agreed in a void contract are below minimum wage and parties agree to it, that cannot be done because of a far more important reason way above the interest of the parties of the contract.
1381 rescission from 1191 rescission
1381
- subsidiary (only resort to rescission if you have no longer any other means of repairing the damage you have suffered)
- ex. Creditor suffered lesion because of a Debtor with a contract to defraud
1191 (resolution)
- ground is substantial breach.
- contract is perfectly valid
- principal action
note
the fact that a contract prejudices other parties does not necessarily mean it gives rise to rescission unless provided by law.
1381 (3) basically accion pauliana
in violation of the right of first refusal, the court ruled that even if the right of first is not provided in 1381 but it is likened to 1381 (3)
Contract is valid; (1380)
- There is Lesion or Damage as defined by law; (1381)
- in paragraph (2), it must be more than 1/4 in order that it may be considered lesion
- (3) mere fraud constitute lesion
- The law allows rescission; (1381, 1382)
- Rescission is subsidiary [no other legal remedy to repair damage]; (1383)
- There must be restitution, unless (1) there is nothing to return; (1385) or (2) other party is unable or unwilling to return, or (3) property is in possession of an innocent third person.
- The object of the contract must not be in the legal possession of a third person who acted in good faith; (1385) (see also Rosencor Dev’t. case)
- Only to the extent necessary; (1384)
- Filed within the prescriptive period of four (4) years from the time action accrues, to be reckoned from the time action is legally possible (e.g. termination of guardianship, actual or constructive discovery of fraud); (1389) cf. Khe Hong Cheng *
- By Direct Action only (vs. “collateral action”)
- By the Proper Party only (injured party, heirs, assigns, successors-in-interest, creditors) see also Velarde vs. Paez and Rosencor Dev’t. vs. Inquing)
it depends on the COA
if COA is rescission, it is 4 years. but when does it reckon?
⚠️⚠️
‘from the time the action accrues’ what does that mean? ->in the case of Khe Hong Cheng, the action for rescission accrues when that action becomes LEGALLY POSSIBLE. when possible?
1381 (under guardianship and the guardiansihp terminates when the minor becomes the age of minority) START from there, because it is legally possible to file an action of rescission. (this presupposes that the guilty party is the guiardian)
in 1382, when is an insolvent debtor committing fraud?
when the debtor has a preferred creditor.
ex. assets of D is 20mil and the collectible is 50mil of all in all creditors
C1 is entitled to 20 million
C2 is entitled to 30 million
iD gives 20 million to C1
this prejudices the other party and C2 has to wait for the D to be rehabiliated.
**under the insolvency law, it is VOID!
insolvency OUTSIDE of FRIA = RESCISSIBLE**
insolvency within FRIA
only to the extent necessary
⚠️
the purpose of rescission is to repair damage. it goes without saying that the effect of that rescissino is only to the extent brought about.
ex. D has four (4) parcels of land in total amount of 20mil. 5 mil each.
D disposes ALL properties to someone else to hide it from his Cs. Since the purpose to sell is to hide it from a collecting creditor, that is a contract to defraud,
let’s say however that the C has a claim of 5 mil. There can be sale of property in just one document. (debtor sold the four parcel of land and all are listed in one deed of absolute sale with 4 properties )
Q: C is trying to rescind that prior sale entered into the debtor. wil the rescission case prosper?
Q2: should the entire DOS be rescinded?
A2 : no, not the entire (1384 states only to the extent necessary)
so it can be PARTIALLY RESCINDED. the judge is compelled to say only the first parcel land will be affected by the rescission but the three others will be valid.
it depends on the COA
if COA is rescission, it is 4 years. but when does it reckon?
⚠️⚠️
‘from the time the action accrues’ what does that mean? ->in the case of Khe Hong Cheng, the action for rescission accrues when that action becomes LEGALLY POSSIBLE. when possible?
1381 (under guardianship and the guardiansihp terminates when the minor becomes the age of minority) START from there, because it is legally possible to file an action of rescission. (this presupposes that the guilty party is the guiardian)
In Khe Hong Cheng speaking about prescriptive period and accion pauliana,
the time for prescription for all kinds of actions xxx shall be counted from the day they may be brought”
An accion pauliana thus presupposes the following:
1) A judgment;
2) the issuance by the trial court of a writ of execution for the satisfaction of the judgment, and
3) the failure of the sheriff to enforce and satisfy the judgment of the court. It requires that the creditor has exhausted the property of the debtor. (Khe Hong Cheng v. CA)
relevance
⚠️
As a matter of practice, we avail the rule that if the diposing of the property of a minor, if it is with the approval of the court, even if there is lesion the court nonehtelss allowed the sale. the contract is NOT RESCISSIBLE
even if there was lesion, but the court nonehtelss allowed the sale, the contract IS NOT RESCIBIEL because it was approved by the court
because a guardian is limited ot acts of administration i(maintenance, etc) whichi need not court approval
[guardian enters into contract with cleaner, no need]
act of ownersihp (selling disposition, donation of the artpemtn). as a matter of practice, guardians who sell the property of minors, ask the court for approval such that if there is a lesion or the minor suffering more than 1/4 of the property, it would not be rescissible.
the role of the court is to always look after the welfare of the minor,
Rescissible Contracts > Prematrue Payments by INsolvent
it’s premature because it wasn’t due and demandable and there was payment by the debtor. that is RESCISSIBLE. (clear act of preferring one creditor to the other)
Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible
in a case of a co-ownership and there is partitiont but such partittion is not equal or fair
one co-owner may suffer lesion in the partition process, HE CAN RESCIND.
it need not be equally subdivide
violation of right of first refusal is simiarl to accion pauliana
lessor (owner) has the right to sell the leased property like an apartment
but in a situation the lessor decides to dispose the leased premises, the lessor MUST FIRST OFFER to the lessee..
if lessor violates that sells that to a buyer without first offering to the lessee, then the lessee has the RIGHT OT RESCIND the DOS executed by the lessor
the lessee would be wise to include right of first refusal clause
