February 27, 2013 CONTRACTS OBJECTS Objects Things, services and rights may be the object of a contract.

t. The things must not be outside the 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. Services must 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 men b. Not impossible, legally or physically c. Must be in existence or capable of coming into existence d. Determinate or determinable without the need for a new contract Requisite of services as object: a. Must be within the commerce of men b. Must not be impossible, physically or legally c. 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 are void, except: a. Donations by reason of marriage between future spouses b. 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 need of 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 at the time of entering into the contract. In a bilateral or reciprocal contract like purchase and sale, the cause for one is the subject matter or object for the other, and vice versa. The distinction is a matter of viewpoint. Classifications of Contracts as to Cause a. 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 obligated b. 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 party has 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 be rescinded.

Requisites of Cause: a. Must exist at the time the contract is entered into b. Must be lawful c. 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 is not converted into one without a cause.

Falsity of cause means that the contract states a valid consideration but such statement is not true. False causes are either erroneous or simulated. Erroneous cause renders the contract void because no cause exists. Simulate cases may not necessarily result in a void contract if the real cause is sufficient to support the contract. In which case the parties are bound by their true agreement. Even if the cause is not stated it is presumed to exist and is valid and legal unless the debtor proves otherwise. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, 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 and therefore, legally effective, but it the cases established by law, the remedy of rescission is granted in 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 contract 6. 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 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 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 proved 3. The creditor cannot recover his credit in any other manner, it not being required that the debtor be insolvent.

4. Contracts which refer to things under litigation if they have been entered into by the defendant 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 the debtor 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 extent necessary to cover the damages caused. Example: The guardian of a minor was authorized by the court to sell two parcels of land valued at 200,000 each. 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 to one 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 object of 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 that the party who received the object of the contract has enjoyed the fruits thereof whole the other has used 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 extent that they were benefited. Rescission is not allowed: 1. If the party who demands rescission cannot return what he is obliged to resort under the contract. 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 donation 2. 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 by the party seeking the rescission. Other badges of fraud: 1. Fact that consideration is fictitious or inadequate 2. Transfer is made after a suit has begun and is pending 3. 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 attendant 6. Failure of the buyer to take exclusive possession of the property 7. 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 be impossible for him to return them. If there are two or more alienations, the first acquirer shall be liable first and so on successively.

The action to claim rescission must be commenced within four years. For guardianships and absentees the period starts from the time the ward becomes capacitated and when the absentees domicile is known. DEFECTIVE CONTRACTS VOIDABLE Voidable or annullable contracts are those which possess all the essential requisites of a valid contract 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 become absolutely valid and cannot be annulled. Annulment is a remedy provided by law for the declaration of the inefficacy of a contract based on a defect or vice in consent of one of the parties in order to restore them to their original positions before 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 some defective 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 is aware 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 voidable 2. Such reason must have ceased 3. 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. The requisites are 1) the plaintiff must have an interest in the contract and 2) the victim and not the party responsible for the defect is the person who must assert the same. Strangers cannot bring an action to annul. Upon the grant of the annulment the parties shall restore to each other the things which have been the subject matter of the contract, with fruits and the price with its interest, except in cases provided 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 any restitution except insofar as he has been benefitted by the thing or price received by him. If the thing cannot be returned due to a partys (defendant) fault, he shall return t he fruits plus the value of the thing due.

If the thing is lost due to the fraud or fault of the plaintiff, the action for annulment shall be extinguished. If the thing is lost due to a fortuitous event, annulment cannot take place as the other party cannot be obligated to comply with what is incumbent upon him.