Types of Defective Contracts
Contracts can be defective, meaning they suffer from flaws that affect their validity or enforceability. Defective contracts are categorize into four kinds: rescissible, voidable, unenforceable, and void or inexistent. These categories are arranged in decreasing order of validity.
Rescissible Contracts
A rescissible contract is a valid contract until rescinded. It contains an extrinsic defect causing economic damage or lesion to one of the parties or a third person. The action for rescission is subsidiary, meaning it can only be pursued when there is no other legal means to obtain reparation for the damage. Rescissible contracts relate to private interest. The basis for rescission is lesion or damage. Rescissible contracts cannot be annulled but can be rescinded.
Voidable Contracts
A voidable contract is valid until annulled. The defect is intrinsic, primarily relating to a vitiated consent or the incapacity of one of the parties to give consent. Consent is vitiated by mistake, violence, intimidation, undue influence, or fraud. These contracts are binding unless they are annulled by a proper court action. Voidable contracts are susceptible of ratification, which cleanses the contract from all its defects from the moment it was constituted. The action for annulment is principal. Voidable contracts pertain to private interest. The defect is intrinsic, related to the meeting of the minds.
Unenforceable Contracts
An unenforceable contract cannot be sued upon or enforced in court unless it is ratified. It is an intermediate ground between voidable and void contracts. Examples include unauthorized contracts, those that fail to comply with the Statute of Frauds, and those where both parties are incapable of giving consent. While an unenforceable contract has no effect now, it may become effective upon ratification. The defect can be cured by ratification. Unlike rescissible and voidable contracts, unenforceable contracts cannot be enforced unless ratified.
Void or Inexistent Contracts
A void or inexistent contract has no effect at all from the beginning and cannot be ratified. The defect is ordinarily related to public policy. No action is generally required to set it aside, unless it has already been performed. The cause or object is contrary to law, morals, good customs, public order, or public policy, or the object or purpose did not exist at the time of the transaction, or the object is outside the commerce of men, or the object is impossible service, or the intention of the parties relative to the principal object cannot be ascertained, or the contract is expressly prohibited or declared void by law. Absolutely simulated or fictitious contracts are void. The right to set up the defense of inexistence or absolute nullity cannot be waived or renounced. The action or defense for the declaration of their inexistence or absolute nullity is imprescriptible. Void contracts concern public interest.
Key Distinctions
Rescissible contracts are valid until rescinded due to extrinsic damage, while voidable contracts are valid until annulled due to intrinsic vitiated consent or incapacity. Unenforceable contracts cannot be enforced without ratification, occupying an intermediate position, whereas void or inexistent contracts are absolute nullities from the start and cannot be ratified. Rescission is based on lesion or damage and is subsidiary, while annulment is based on vitiated consent or incapacity and is principal. Void contracts generally have no effect, while others produce effects until set aside.