Defective Contracts Explained: Rescissible, Voidable, Unenforceable & Void

DEFECTIVE CONTRACTS
NATURAL OBLIGATIONS
& DAMAGES
DEFECTIVE CONTRACTS
The least defective contract is RESCISSIBLE.
The 2
nd
least defective contract is VOIDABLE.
The 2
nd
most defective contract is
UNENFORCEABLE.
The MOST DEFECTIVE CONTRACT is VOID.
RESCISSIBLE CONTRACTS
Rescissible Contracts: (Arts. 1380-1389)
Meaning of Rescission: Rescission is a remedy granted by
law to the contracting parties and even to third
persons, to secure the reparation of damages caused
to them by a contract, even if the same should be
valid, by means of restoration of their condition prior
to the celebration of the contract. (8 Manresa 748-
749)

This is different from the rescission referred to at Article
1191 which applies specifically as one of the remedies
in reciprocal obligations. This remedy is principal,
immediate and premised on breach of contract that is
reciprocal in character like sale or lease
Rescission under Article 1191
"Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.

Article 1191, unlike Article 1385, is not predicated on
economic prejudice to one of the, parties but on
breach of faith by one of them that violates the
reciprocity between them.

The grounds for rescissible contracts are found in
Articles 1381 and 1382.
2. Who may file action for rescission?
The contracting party who may
have suffered injury or damage by
virtue by the execution of the
contract, or
By a third person who may have
suffered injury or damage by virtue
of the contract
Requisites of Rescission:
There must be a case established by
law.
There must be LESION or
PECUNIARY PREJUDICE OR damage
to the one of the contracting parties
of to a third person.
There is no other legal remedy
available to the injured party.

The party who has the right of rescission
must be able to return what he has
received under the contract.
The object of the contract must not be
legally in the possession of a third person
who acquired it in good faith.
Action for rescission must be filed within
the legal prescriptive period.
Grounds: Arts. 1381par. 1 & 2
Those which are entered into by guardians
whenever the wards whom they represent
suffer lesion by more than one fourth of the
value of the things which are the object
thereof;
Those agreed upon in representation of
absentees, if the latter suffer the lesion more
than one fourth of the value of the things
which are object of the contract;
* If any of the above contract is approved by the
courts, rescission is not proper. (Art. 1386)
Those undertaken in fraud of the
creditors when the latter cannot in
any other manner collect the claims
due them; Art. 1381 par. 3
Those which refer to things under
litigation if they have been entered
into by the defendant without the
knowledge and approval of the
litigants or of a competent judicial
authority; (Art. 1381 par. 4)

All other contracts especially declared by
law to be subject to rescission. (Art. 1381
par. 5)
A partition, judicial or extra-judicial, may
also be rescinded on account of lesion,
when any one of the co-heirs received
things whose value is less than at least one
fourth than the share to which he is
entitled considering the value of the thing
at the time they were adjudicated. (Art.
1098)
Payment made in a state of insolvency for
obligation to whose fulfillment the debtor could
not be compelled at the time they were effected,
are also Rescissible. (Art. 1382)
Under art 1382 - Payments made in a state of insolvency
Requisite for premature payment:
a. The debtor or the person paying must be in the state
of insolvency;
b. The debt is not due and demandable
c. That preferred creditor has no other remedy to
collect from the debtor
d. File within the prescribed period.
SOME APPLICABLE RULES:
The defect consists of economic injury or
damage (Lesion) either to one of the
contracting parties or third persons;
Before rescission, the contract is valid and
therefore legally effective;
It can be cured only by prescription and not
by ratification;
It can attack directly not collaterally; and
It can be attacked directly by a contracting
party who suffers injury or third person who
is defrauded.
Rescission shall only be to the extent
necessary to cover the damaged caused.
(Article 1384)
The action for rescission is subsidiary; it
cannot be instituted except when the party
suffering damage has no other legal means
to obtain reparation for the same.

Restitution means
When the court declares rescission, the
parties must return to each other (1)
the object of the contract with the
fruits and (2) the price thereof with
legal interest.
If mutual restitution cannot be
undertaken as the object is already in a
person who acquires the same in good
faith, rescission is cannot be made
possible.

The action to claim rescission must be
commenced within four years from the date
contract was entered into. Exceptions:
For persons under guardianship and for
absentees, the period of four years shall not
begin until the termination of the formers
incapacity, or until the domicile of the latter
is known. ( Art. 1389)

Alienation presumed in fraud of creditors (Art. 1387)
a) Contracts entered by debtor involving alienation of
gratuitous title are presumed to in fraud of creditors,
when the debtor-donor did not reserve sufficient
property to a pay all debts contracted before
donation.
b) Alienation by onerous title are presumed fraudulent
when made by debtor against whom some judgment
has been rendered in any instance or some writ of
attachment is issued

What are the requisites for rescission of contracts in
fraud of creditors?
a. The existence of a credit
b. The said credit must be prior to the contract to be
rescinded;
c. The existence of fraud or bad faith on the part of
the debtor which can either be presumed or
proved; and
d. The creditors cannot recover their credit in any
other manner.
Circumstances denominated as badges of fraud:
In the consideration of whether or not certain
transfers are fraudulent, courts have laid down
certain rules by which the fraudulent character of
the transaction may be determined. The following
are some of the circumstances attending sales,
which have been denominated by the courts as
badges of fraud:
The fact that the consideration of the conveyance
is fictitious or inadequate;
A transfer made by a debtor after suit has been
begun and while it is pending against him;
A sale upon credit by an insolvent debtor;
The transfer of all his property by a debtor,
especially when he is insolvent or greatly
embarrassed financially;
The fact that the transfer is made between father
and son, when there are present some or any of
the above circumstances;
The failure of the vendee to take exclusive
possession of all the property;
It was known to the vendee that the vendor had no
properties other than that sold to him
Liability of Purchaser in bad faith
The purchaser in bad faith, who acquired the
object of the contract alienated in fraud of
creditors, must return the same if the sale is
rescinded (art. 1383) and should it be impossible
for him to return it, due to any cause, he must
indemnify the former.
Should there be two or more alienations, the first
acquirer shall be liable and so on successively. ( Art.
1388)

Effects of bad faith in case of alienation
a. First transfer
1. The transferee must return or indemnify.
2. Loss due to any cause includes fortuitous event
B. Subsequent Transfer
1. If the first transferee is in good faith, the good faith
or bad faith of the next transferee is not important.
2. If the first transferee is in bad faith, the next
transferee is liable only if he is also in bad faith.
Illustration
D in fraud of C, sold his specific house to B, who is in
bad faith. B in turn sold it to X, then X to Y. X and Y are
also in bad faith. Later, the contract was rescinded but
the house got burned.
Who is liable for damages?
B. If B cannot pay, then X, if X cannot pay, then Y
because the law says, If there are two or more
alienations, the first acquirer shall be liable first, and so
on successively.
Voidable Contracts
(Articles 1390-1402)
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.
Voidable Contracts
Grounds:
a) Those where one party is incapacitated to give
consent. (Art.1327)
- Unemancipated minors exception is when contract is
the sale and delivery of necessities to a minor
(Article 1489 paragraph 2 of the Civil Code)
- Insane or demented persons unless entered during
lucid interval. As such contract is valid (Art. 1328)

Voidable Contracts
- Deaf-mutes who do not know how to write
(and read).
- Those in the state of drunkenness (Art.1328)
- Those entered into during a hypnotic spell
- Special disqualifications (those under civil
interdiction, insolvent etc.)
Voidable Contracts

* Guardians, agents and executor and administrators
unless authorized by the court are incapacitated to
enter into a contract of sale under Article 1491
paragraphs 1 to 3 because private interests are
affected. Contracts entered in violation of this
prohibition are only VOIDABLE. The defect can be
cured by ratification.

Voidable Contracts
b) Those where consent of one party has been vitiated. (Arts.
1330-1334)

Causes of Vitiated Consent
1) Mistake (or error) False belief about
something
2) Fraud (or deceit) referring to DOLO
CAUSANTE or CAUSAL FRAUD
3) Violence physical coercion
4) Intimidation mental coercion
5) Undue influence

Voidable Contracts
The procedure or REMEDY to
invalidate a voidable contract is
known as ANNULMENT.

Voidable Contracts
When?

The action for annulment shall be brought within 4
years. In case of intimidation, violence or undue
influence, four years is counted from the time the
defect of the consent ceases.
In case of mistake or fraud, four years from the time
of discovery of the same.
When the action refers to contracts entered by
minor or other incapacitated persons, four years
from the time the guardianship ceases.

Voidable Contracts
Ratification extinguishes the action to annul a
voidable contract (Art. 1392)
Meaning:
Ratification means that one voluntarily adopts
some defective or unauthorized act or
contract which without his subsequent
approval or consent, would not be binding
on him.

Voidable Contracts
Effect of RATIFICATION
it cleanses the contract from all its
defects from the moment it was
constituted.

(Art. 1396)- It extinguishes the right of
action to annul and shall be retroactive
from the inception of the contract.
Voidable Contracts
Under the new Civil Code, Ratification now
includes the following:
. Confirmation the act of purging the
voidable contracts of its defect through the
renunciation of the action of annullity made
by the person who can invoke the vice or
defect of said contract.
Acknowledgment is the act of curing the
deficiency of proofs when in a document
whereby an agreement made verbally is
admitted or a private document is made a
public document
Voidable Contracts

Ratification is done expressly ( manifested in
writing or words or impliedly (tacitly)
through the action, silence of the person
implying acceptance. (Art. 1393)
Voidable Contracts
Ratification may be effected by the guardian of the
incapacitated person (art. 1394) and ratification
does not require the conformity of the contracting
who has no right to bring action for annulment.
( Art. 1395)
Who may ratify a voidable contract
a. The guardian of the incapacitated person during
the latters incapacity;
b. The incapacitated person after he has attained
capacity
c. The party whose consent is vitiated by mistake,
violence, intimidation, undue influence or fraud

Voidable Contracts
Art. 1397. The action for the annulment of
contracts may be instituted by all who are
thereby obliged principally or subsidiarily.
However, persons who are capable cannot
allege the incapacity of those with whom they
contracted; nor can those who exerted
intimidation, violence, or undue influence, or
employed fraud, or caused mistake basing their
action upon these flaws of the contract.

Voidable Contracts
Consequence of Annulment of the Contract

If contract is executory, the parties are not
bound to comply with their prestation.

If the contract is annulled, the parties, as
general rule, must restore to each other (a)
the subject matter with its fruits and (b) the
price thereof with legal interest.
Voidable Contracts

In personal obligations, where the service has
already been rendered, the value of the
thereof (services) with the corresponding
interest is the basis for damages
recoverable from the party benefited by the
service. (Art. 1398)
Voidable Contracts
The incapacitated person is obliged to make
restitution only to the extent he was
benefited by the thing or the price received
by him. This is an exception to the general
rule in restitution (Art. 1399)
General Rule: If the contract is annulled on the
ground of the incapacity of one party, such
incapacitated person, as a rule, is not obliged
to make any restitution. This is an exception
to the rule under Art. 1398 requiring mutual
restitution.

Voidable Contracts
By way of exception, the incapacitated person
is required make restitution only up to the
extent that he has been benefited by the
thing or service received by him. This is true
if the thing is no longer in the possession of
the incapacitated person. If the thing is still
in his possession, he is obliged to return it;
otherwise he is deemed to have ratified the
contract.
Voidable Contracts
Exception to rule jurisprudence displayed flip
flop decision regarding minor, if guilty of
misrepresentation. The prevailing rule as
interpreted by Supreme Court is if the minor
misrepresented his age inducing the other
party to believe he can enter into a contract,
the minor cannot annul the contract on the
basis of estoppel.
Voidable Contracts
If it is lost through the fault of the person
required to return, it is converted to
indemnity for damages consisting of the
value of the thing at the time of the loss
with interest from the same date and fruits
received from the thing was given to him to
the time of its loss. (Art. 1400)

Voidable Contracts
Example :
B forced S to sell to him a specific taxi for P
400,000. S filed an action for annulment of
the contract of sale and the same was
annulled on June 30, 2014. Meantime, on
June 26, the taxi got lost.
What is the liability of B?
Voidable Contracts
Answer
Effect of loss of the thing while in the possession of
the party at fault.
a. If due to his fault:
1. To return the value of the thing at the time of
loss
2. Interest on the value of the thing
3. Fruits received
b. If due to fortuitous event
1. The value of the thing at the time of loss but no
interest
2. Fruits received
Voidable Contracts
The action of annulment is lost when the thing
which is the oblect thereof is lost through
fault or fraud of the person who has the right
of action to institute annulment. (Art. 1401)
Voidable Contracts
As long as one of the contracting parties does
not restore what in virtue of the annulment,
he is bound to return, the other cannot be
compelled to comply with what is incumbent
upon him (Art. 1402)
This article reiterates mutuality and reciprocity
principles.
Unenforceable Contracts (Articles 1403-1408)
Meaning of Unenforceable contract
(VALIDABLE) are those that
cannot be enforced in court or sued
upon by reason of defects provided
by law until and unless they are
ratified according to law.
Although, valid these contracts cannot
be sued upon or enforced in court
unless RATIFIED. Hence, it is cured
by ratification.

Unenforceable Contracts (Articles 1403-
1408)
Kinds of Unenforceable Contracts:
Those entered into in the name of
another by one without or acting in
excess of authority (Unauthorized
Contracts);

1408)

Those that do not comply with the
Statute of Fraud; - Formal
requirement which must appear some
note or memorandum thereof, be in
writing signed by the person charged

1408)
Those where both parties are
incapable of giving consent.
In a contract where both parties are
incapable of giving consent, express or
implied, ratification by the parent, or
guardian, as the case may be, of one of
the contracting parties shall give the
contract the same effect as if only one of
them were incapacitate ( meaning the
contract is voidable).
Unenforceable Contracts
In a contract where both parties are incapable of giving
consent, express or implied, ratification by the
parent, or guardian, as the case may be, of one of
the contracting parties shall give the contract the
same effect as if only one of them were
incapacitated ( meaning the contract is voidable).
If ratification is made by the parents or guardians,
as the case may be, of both the contracting parties,
the contract shall be validated from the inception.
(Art. 1407)

Unenforceable contracts cannot be assailed by
third persons.
(Art. 1408)
Void or Inexistent Contracts
(Art. 1409-1422)
Meaning of Void Contracts are those, which, because
of certain defects, generally produce no effect at all.
They are considered as inexistent from the very
beginning.

Meaning of Inexistent Contracts refer to agreements,
which lack one or some or all of the elements (i.e.,
consent, object and cause) or do not comply with the
formalities, which are essential for the existence of a
contract.
(Art. 1409-1422)
Characteristics of a void or inexistent contract.
Generally, it produces no effect whatsoever;
It cannot be ratified (Art. 1409 par. 2)
The right to set up the defense of illegality cannot be
waived;
The action or defense for declaration of its inexistent
does not prescribe (Art.1410);
The defense of illegality is not available to third
persons whose interests are not directly affected.
It cannot give rise to a valid contract.

(Art. 1409-1422)
Instances of void or inexistent contracts (Art.
1409)
Contracts whose cause, object or purpose is
contrary to law, morals, good customs, public
order or public policy; (void)
Those which are absolutely simulated or
fictitious; (void)
Those whose cause or object did not exist at
the time of the transaction; (inexistent)
(Art. 1409-1422)
Those whose object is outside the commerce
of men; (void)
Those which contemplate impossible service
(Void);
Those where the intention of the parties
relative to the principal object of the contract
cannot be ascertained (void)
Those expressly prohibited or declared void
by law.
(Art. 1409-1422)
Rules where contract is illegal and the act
constitutes a criminal offense:
Where both are in pari delicto (at fault)
a. The parties shall have no action against
each other
b. Both shall be prosecuted.
c. The things or the price of the contract, as
the effects or instruments of the crime,
shall be confiscated in favor of the
government.

(Art. 1409-1422)
Example: Sale of Shabu
Effects:
a. No right of action against each
other
b. Both will be prosecuted.
c. Effects or instrument of the crime
will be confiscated in
favor of the government.
(Art. 1409-1422)
Where only one party is guilty.
If only one party is guilty or both parties are not
equally guilty, the innocent one or less guilty may
claim what he has given and shall not be bound to
comply with his promise. (Art. 1411)
Example:
S sold a government property to B, who is in good
faith.
a. The guilty party will be prosecuted.
b. Property sold will be confiscated by the
government
c. Innocent party can claim what he has given.
(Art. 1409-1422)
Pari-delicto concept:
It is a universal doctrine which holds that no
action arises, in equity or law, from an illegal
contract; no suit can be maintained for its specific
performance, or to recover the property agreed
to be sold or delivered, or the money agreed to
be paid, or damages for its violation; and where
the parties are in pari-delicto, no affirmative relief
of any kind will be given to one against the other.

As a rule, when the contract is unlawful, whether or
not it constitute a criminal offense, recovery by
either party is not allowed if both parties are in
pari delicto.

(Art. 1409-1422)
Rules where the contract is illegal but the act
does not constitute a criminal offense.
Where both parties are in pari-delicto. - If the
cause of the contract is unlawful or forbidden
but there is no criminal offense, the rules are
as follows:
a) Neither party may recover what he has
given by virtue of the contract; and
b) Neither party may demand performance of
the others undertaking.

(Art. 1409-1422)
Example:
M, a man ands W, a woman, who are under no
legal impediment to marry each, entered into
an agreement whereby W agreed to live with
M, as Ms wife, without the benefit of
marriage in exchange for Ms giving to her a
monthly support of P 20,000.
The contract is illegal for being contrary to morals
but the illegality does not constitute a crime.
M cannot compel W to live with him and W
cannot demand that N give the her the
promised support. If M has already given the
support to W, he cannot recover it.
(Art. 1409-1422)
Where only one is guilty:
a) The guilty party loses what he has given by
reason of the contract.
b) The guilty party cannot ask for the
fulfillment of the others undertaking.
c) The innocent party may demand the return
of what he has given; and
d) The innocent party cannot be compelled to
comply with his promise.

(Art. 1409-1422)
Example: S sold and delivered to B for P 15,000 a
cow which S knew was suffering from a
contagious disease. The sale is void under
Article 1575 but the illegality does not
constitute a crime. If B has paid the price, he
can recover it. If he has not yet paid it, he
cannot be compelled to make payment. S, the
guilty party cannot recover the cow. Since, it is
suffering from contagious disease, it will be
condemned by the proper authorities.
(Art. 1409-1422)
Interest paid in excess of the interest allowed by the usury laws
may be recovered by the debtor, with interest thereon from
date of payment.
Usury provides for the maximum amount of interest that may be
charged by lender.
Presently suspended:

SECTION 1. The rate of interest, including commissions,
premiums, fees and other charges, on a loan or forbearance
of any money, goods, or credits, regardless of maturity and
whether secured or unsecured, that may be charged or
collected by any person, whether natural or juridical, shall not
be subject to any ceiling prescribed under or pursuant to the
Usury Law, as amended. December 10, 1982, CBP CIRCULAR
NO. 905-82

(Art. 1409-1422)
The Bangko Sentral ng Pilipinas (BSP) has lowered
to six from 12 percent the rate financial
institutions may charge on loans and other
credit obligations with no specific interest rate.
In general , financial institutions are governed by
Republic Act No. 3765 or the Truth in Lending
Act, which mandates them to disclose to
borrowers all information about their loans,
including the interest.

(Art. 1409-1422)
The Circular issued by the Bangko Sentral ng Pilipinas
(BSP) that effectively removed the ceiling on interest
rates does not give lenders the freedom to raise
interest rates to the point of hemorrhaging
borrowers, the Supreme Court clarified.

In its decision promulgated Jan. 15 , 2015 , the high
court dismissed the petition filed by Eduardo Olaguer
and the Advocate for Truth in Lending Inc. (AFTIL).
The high court, through Associate Justice Bienvenido
Reyes, said even if borrowers and lenders agree on
excessive interest rates on debt, it is still not allowed
for being immoral and unjust.

(Art. 1409-1422)
Petitioners argued that CB Circular 905 was
promulgated without the benefit of public hearing
and violated Article 5 of the New Civil Code which
states that acts executed against the provisions
of mandatory or prohibitory laws shall be void
except when the law itself authorizes their
validity. They said with the issuance of the
Circular, the benchmark 91-day Treasury bills (T-
Bills) shot up to 40 percent per annum while
banks re-priced their loan rates higher than the T-
bills.

(Art. 1409-1422)
But the high court, in its ruling said stipulations
authorizing iniquitous or unconscionable interests
have been invariably struck down for being
contrary to morals, if not against the law. The
high court pointed out that under Article 1409 of
the Civil Code such contracts are considered
inexistent and void ab initio (void from the
beginning) and therefore cannot be ratified nor
may the right to set up their illegality as a defense
be waived.

(Art. 1409-1422)
Still, the high court said, if interest rates are
excessive, lenders are still protected because it
will not affect the other terms of the credit. The
debt due is considered as without the stipulated
excessive interest and a legal interest of 12
percent ( now 6 percent) per annum will be
added in place of the excessive interest formerly
imposed, the high court said.

(Art. 1409-1422)
Recovery where contract entered into for illegal
purpose
When money is paid or property delivered for
an illegal purpose, the contract may be
repudiated by one of the parties before the
purpose has been accomplished, or before the
damage has been caused to a third person. In
such case, the courts, may, if the public
interest will thus sub-served, allow the party
repudiating the contract to recover the money
or property. (Art. 1414)

(Art. 1409-1422)
Example:
D contracted the services of C for the latter to kill
X. D gave him Php 500,000 for the said
purpose. Before C could kill X, D changed his
mind and told C not to kill X. Here, D MAY be
allowed to recover the amount he gave to C if
public interest is subserved at the discretion of
the court. If C has already killed X, any
repudiation made by D will serve no purpose.
D will be prosecuted as principal by
inducement and C as principal by direct
participation

(Art. 1409-1422)
Recovery where contracts are merely prohibited by not
illegal
When the agreement is not illegal per se but is
merely prohibited, and the prohibition by the law is
designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he
has paid or delivered. (Art. 1416)

F, a Filipino sold his lot to J, a Japanese national. The
latter not knowing that owning real property by alien
in the Philippines is prohibited and so transaction
shall be void. J, by reason of public policy, may be
allowed to recover the payment made.

(Art. 1409-1422)
Recovery of amount paid in excess of ceiling price.
When the price of any article or commodity is
determined by statute, any person paying in excess
the price is allowed to recover the excess.

Assuming an Executive Order is passed fixing the price of
NFA rice to only P 32.00 and it was sold at Php 40.00,
the excess of the maximum price can be recovered.
(Art. 1409-1422)
When the law fixes or authorizes the fixing of the maximum number
of hours of labor, and a contract is entered into whereby a
laborer undertakes to work longer than the maximum thus
fixed, he may demand additional compensation for service
rendered beyond the time limit. (Art. 1418)
Under the Labor Code , Art. 83 ( BP. No. 442 as amended), the
normal working hours per day is 8 hours. Employees who
rendered work beyond eight hours a day is entitled of overtime
pay.
Hours worked include:
a. All the time during which an employee is required to be on duty
or to be at the prescribed workplace, and
b. All the time during which he is suffered or permitted to work.
Rest periods of short duration during working hours shall be
counted as hours worked. (Art. 84, Labor Code)

(Art. 1409-1422)
When the employee performs work beyond 8 hours a day,
he is entitled to an additional compensation of
equivalent to his regular wage plus at least 25%
thereof. Work beyond 8 hours on a holiday or rest day
shall be paid additional compensation equivalent to
rate of the first 8 hours on a holiday or rest day rate
plus 30% thereof.

Example: Thus if a worker agreed to work for 10 hours
without compensation for the excess of 2 hours
worked, he shall be entitled to recover additional
compensation for such excess 2 hours. This is true
even if he and the employer are in pari-delicto.
(Art. 1409-1422)
When the law sets or authorizes a minimum wage
for laborers, if the latter receive less than the
minimum is entitled of differential.
CURRENT DAILY MINIMUM WAGE RATES
REGION XI, Davao Region a/
Per Wage Order No. RTWPB-XI-18 b/

Effective June 1, 2014
UPON EFFECTIVITY OF THIS WAGE ORDER:
Sector/Industry New
Minimum Wage
Non-Agriculture P 312.00
Agriculture P 302.00
Retail/Service
Employing more than 10 workers P 312.00
Employing not more than 10 workers P 281.00

Sector/Industry Basic Wage COLA New
Minimum Wage
Non-Agriculture P 312.00 P 5.00 P 317.00
Agriculture P 302.00 P 5.00 P 307.00
Retail/Service
Employing more than 10 workers P 312.00 P 5.00 P 317.00
Employing not more than 10 workers P 302.00 P 5.00 P 286.00

EFFECTIVE DECEMBER 1, 2014:
Covers the Cities of Davao, Digos, Island
Garden of Samal, Tagum, Panabo, Mati and the
Provinces of Davao del Sur, Davao del Norte,
Davao Oriental and Compostela Valley.

PHP 11.00 basic wage increase per day
COLA of P15.00/day under WO No. RBXI-17 was integrated into
the basic pay.
A new COLA of P5.00/day effective December 1, 2014
Date of Effectivity: June 1, 2014
Published in Sunstar Davao on May 17, 2014
(Art. 1409-1422)
Effect of illegality where contract is divisible
a. When the consideration is entire and single, the
contract is indivisible so that if part of such
consideration is illegal, the whole contract is void
and unenforceable.
(Art. 1409-1422)

a. When the contract is divisible or severable, that is,
the consideration made up of several parts, and the
illegal ones can be taken from the legal portions, the
latter may be enforced. This rule however is subject
to the evident intention of the parties.

NOTES ON NATURAL OBLIGATIONS
Article 1423 provides:
Obligations are civil or natural. Civil obligations
give aright of action to compel their
performance. Natural obligations, not being
based on positive law, do not grant a right of
action to enforce their performance, but after
voluntary fulfillment by the obligor, they
authorize the retention of what has been
delivered or rendered by reason thereof.
Natural obligation is based on equity or natural
law while civil obligation is based in positive
law. The latter gives right of action to compel
their performance (juridical necessity) while
natural obligation do not grant such right of
action to enforce their performance.

Article 1424: When the right to sue upon a civil
obligation has lapsed by extinctive prescription,
the obligor who voluntarily performs the contract
cannot recover what he has delivered or the value
of the service he has rendered.

The following actions must be brought within 10
years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment (Art. 1144)

The following actions must be commenced
within 6 years:
(1) Upon oral contract
(2) Upon a quasi-contract (Art. 1145)
The following actions must be instituted within 4
years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi delict (Art. 1146)

Article 1425: If the third person pays the
prescribed debt of the debtor without his
knowledge or against his will, the latter is not
legally bound to pay hi, But the debtor cannot
recover what he has paid in case he voluntarily
reimburses the third person.

Article 1428: Where a debtor who has failed to
pay his obligation, is sued by the creditor and
instead of losing the case, he has won it. If,
notwithstanding this fact, the debtor voluntarily
performs his obligation, he cannot demand the
return what he has delivered or the payment of
the value of the service he has rendered. He
must be deemed to have considered it his
moral duty to fulfill his obligation.

Article 1429: When a testate or intestate heir
voluntarily pays a debt of the decedent
exceeding the value of his property which he
received by will or by the law of intestacy from
the estate of the deceased, the payment is valid
and cannot be rescinded by the payer.

Article 1430: When a will is declared void
because it has not be executed in accordance
with the formalities required by law, but one
of the intestate heirs, after the settlement of
the debts of the deceased, pays a legacy in
compliance with a clause in the defective will,
the payment is effective and irrevocable.

SUMMARY ON THE LAW ON
DAMAGES

General Provisions on Damages
Latin Term is DAMNUM or DEMO which
means to take away.
Meaning of Damages: It is the sum of money
which the law awards or imposes as pecuniary
compensation or satisfaction for an injury done or
wrong sustained as a consequence of the breach of
some duty or the violation of some right. ( 15 Am.
Jur. 387)

It is compensation in money imposed by a
court for loss or injury caused by the fault o
another. (Hemphills Dictionary of Practical Law).

BASIS OR RATIONALE:

The fundamental principal of the law on
damages is that one injured by a breach of
contract or by a wrongful or negligent act or
omission shall have a fair and just compensation
commensurate with the loss sustained as a
consequence of the defendants act.

Hence actual pecuniary compensation is the
general rule, whether the action is based on
contract or in tort, except where the
circumstances warrant the allowance of other
kinds of damages.

In general the damages awarded should be
equal to, and precisely commensurate with the
injury sustained. However, rules of law
respecting the recovery of damages are framed
and reference to just rights of BOTH PARTIES,
not merely what may be right for an injured
person to receive, but also what is just to
compel the other party, to accord just
compensation for the injury.

Distinction between DAMAGES and INJURY

Injury denotes the illegal act, while damages
mean the total amount recoverable for the injury
committed.
Damages are measure of recovery while Injury is
the legal wrong to be redressed.
There may be damages without an injury, and an
injury without damages.

Note: There can be damage without injury
(Damnum absque injuria)

Article 2195
This provision provides that the Chapter on
Damages shall be applicable to all obligations
mentioned in Article 1157. Obligations arise
from the following sources in accordance with
said provision:
Law
Contracts
Quasi-contracts
Acts or omission punishable by
law; and
Quasi-delicts

Article 1296: It is to be observed that in case of
conflict between the Civil Code and the Special
Laws, it is the Civil Code that prevails insofar as
damages are concerned. Exception in the case
of compensation for workmen and other
employees.
Article 2197: Damages are the following:
Actual or compensatory;
Moral
Nominal
Temperate or moderate
Liquidated; or
Exemplary or corrective

Article 1298 The principle of the general law on
damages are hereby adopted insofar as they are
not inconsistent with the Civil Code.

ACTUAL OR COMPENSATORY DAMAGES (Articles 2199-2215)

They are those recoverable because of pecuniary loss (in
business, trade, property, profession, job or occupation. They
include:

The value of the loss suffered (Dao Emergente)
Profits which were not obtained or realized (Lucro Cesante)

The above are also identified as the kinds of actual or
compensatory damages. (Article 2200)

Examples of Dao Emergente
Destruction of things
Fines or penalties that had to be paid
Medical and hospitalization expenses

Examples of Lucro Cesante

Profits that could have been earned had
there been interruption in the plaintiffs
business evidenced by the reduced
receipts of the enterprise.
Interest on rentals that were not paid.

Article 2201 provides fir the liability of debtor in
contracts and quasi-contracts:

Liability of debtor if there is good faith but
damages are sustained by the injured party: It is
essential that the damages be the NATURAL and
PROBABLE CONSEQUENCES of the act or omission
complained of.

The party suffering loss or injury must exercise the
diligence of a good father of a family to minimize
the damages resulting from the act or omission in
question. (Art.2202).

Article 2206 - The amount of damages for death
caused by a crime or quasi-delict shall be at least
three thousand pesos (now P 50,000*), even
though there may have been mitigating
circumstances. In addition :

The defendant shall be liable for the loss of the
earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter
such indemnity shall in every case be assessed
and awarded by court, unless the deceases on
account of permanent physical disability not
caused by the defendant, had no earning capacity
at the time of his death;

If the deceased was obliged to give support in
according to the provisions of Article 291, the
recipient who is not an heir called to the decedents
inheritance by the law of testate or intestate
succession, may demand support from the person
causing the death, for ap reiod not exceeding five
years, the exact duration to be fixed by the court.

The spouse, legitimate and illegitimate descendants
and ascendants of the deceased may demand moral
damages for mental anguish by reason of the death
of the deceased.

PP vs. Ortis, 361 SCRA 274, July 17, 2001, PP vs.
Maxion, 361 SCRA 414, July 19, 2001. These are
jurisprudences of the Supreme Court stating
that in case of death, the indemnity for actual
damages is P 50,000.
civil indemnity for the death of husband,
which has been fixed by current jurisprudence
at P50,000.00 (PHILIPPINE HAWK
CORPORATION VS VIVIAN TAN LEE, G.R. No.
166869, February 16, 2010)

No proof of pecuniary loss is necessary in order that
MORAL, NOMINAL, TEMPERATE, LIQUIDATED OR
EXEMPLARY DAMAGES may be adjudicated. The
assessment of such damages, except liquidated
ones, is left to the discretion of the court, according
to the circumstances of each case. (Art. 2216)

Note: Proof of pecuniary loss is only
necessary in actual or compensatory damages but
not so in other damages above mentioned. Such
damages then can be recovered based on the
sound discretion of the court after evaluating the
circumstances of such cases.

A. MORAL DAMAGES.- (Articles 2217-2220)

Article 2216 : Moral damages include
physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation,
wounded feelings, moral shock, social
humiliation and similar injury. Though incapable
of pecuniary computation, moral damages may
be recovered if they are the proximate result of
the defendants wrongful act or omission.

Moral damages may be awarded to compensate
one for manifold injuries such as physical
suffering, mental anguish, serious anxiety,
besmirched reputation, wounded feelings and
social humiliation. These damages must be
understood to be in the concept of grants, not
punitive or corrective in nature, calculated to
compensate the claimants for the injury
suffered.

Although incapable of exactness and no proof of
pecuniary loss is necessary in order that moral
damages may be awarded, the amount of
indemnity being left to the discretion of the court, it
is imperative nevertheless, that (1) injury must have
been suffered by the claimant and (2) such injury
must have been sprung from any cases expressed in
Articles 2219 and 2220 of the Civil Code. A causal
relation must exist between the actor omission
referred in the Code which underlines or gives rise
to, the case or proceeding, on the one hand, and
the resulting injury, on the other; i.e. the first must
be the proximate cause and latter the direct
consequence thereof. (Del Mundo v. Court of
Appeals, G.R. No. 104576, January 20, 1995).

In the adjudication of moral damages, the
sentimental value of the property, real or personal,
may be considered. (Art. 2218)
Moral damages may be recovered on the
following and analogous cases:
A criminal offense resulting to physical injuries;
Quasi-delicts causing physical injuries;
Seduction, abduction, rape and other lascivious
acts;
Adultery or concubinage;
Illegal or arbitrary detention or arrest;
Illegal search;
libel, slander, or any other form of defamation;
Malicious prosecution;
Acts mentioned in Article 309;
Acts and action referred to in Articles 21, 26,
27, 28, 29, 30, 32, 34 and 35.

The spouse, descendants, ascendants, and
brothers and sisters may bring the action
mentioned in no. 9 of this article, in the order
named. (Art. 2218)

Willful injury to the property may be a legal ground
for awarding moral damages if the court should find
that, under the circumstances, such damages are
justly due. The same rule applies to breaches of
contract where the defendant acted fraudulently or
in bad faith.

References: The below stated articles indicate
instances where moral damages may be claimed in
addition to the indemnity which the court may grant:

Article 309 : Any person who shows
disrespect to the dead, or wrongfully interferes
with a funeral shall be liable to the family of the
deceased for damages, material and moral.
Article 21: Any person who willfully
causes loss or injury to another in a manner that
is contrary to morals, good customs or public
policy shall compensate the latter the damage.

Article 26: Every person shall respect the
dignity, personality, privacy and peace of mind of
his neighbors and other persons. The following
and similar acts, though they may not constitute
criminal offense, shall produce a cause of action
for damages, prevention and other relief:
Prying into the privacy of anothers residence;
Meddling with or disturbing the private life or
family relations of another;
Intriguing to cause another to be alienated from
his friends;
Vexing or humiliating another on account of his
religious beliefs, lowly station in life, place of
birth, physical defect or other personal
condition..

Article 27: Any person suffering material or
moral loss because a public servant or employee
refuses or neglects without just cause, to perform
his official duty may file an action for damages and
other relief against the latter, without prejudice to
any disciplinary administrative action that may be
taken.

Article 28: Unfair competition on agricultural
and commercial or industrial enterprises or in labor
through the use of force, intimidation, deceit,
machinations or any other unjust, oppressive or
highhanded method shall give rise to a right of
action by the person who thereby suffers damage.

Article 29: When the accused in a criminal
prosecution is acquitted on the ground that his guilt
has not been proved beyond reasonable doubt, a
civil action for damages for the same act or
omission may be instituted. Such action requires
only preponderance of evidence. Upon motion of
the defendant, the court may require the plaintiff to
file a bond to answer for damages in case the
complaint should be found malicious. If in the
criminal case the judgment of acquitted is based on
reasonable doubt, the court shall declare so. In the
absence of any declaration to that effect, it may be
inferred from the text of the decision whether or
not the acquittal is due to that ground.

Article 30: When a separate civil action is
brought to demand civil liability arising from the
criminal offense, and no criminal proceedings are
instituted during the pendency of the civil case, a
preponderance of evidence shall likewise be
sufficient to prove the act complained of.

Article 32: Any public officer or employee, or
any private individual, who directly or
indirectly obstructs, defeats, violates or in any
manner impedes or impairs any of the
following rights and liberties of another
person shall be liable to the latter for
damages:
Freedom of religion;
Freedom of speech;
Freedom to write for the press or to maintain
a periodical publication;

Freedom from arbitrary or illegal detention;
Freedom to suffrage;
The right against deprivation of property
without due process of law;
The right to a just compensation when the
private property is taken for public use;
The right to equal protection of the laws;
The right to secure in ones person, house,
papers and effects against unreasonable
searches and seizures;

The liberty of abode and changing the same;
The privacy of communication and
correspondence;
The right to become a member of
associations or societies for purpose not
contrary to law;
The right to take part in a peaceful assembly
to petition the government for redress of
grievances;
The right to be free from involuntary servitude
to any form;
The right of the accused against excessive bail;

The right of the accused to be heard by himself and
counsel, to be informed of the nature and cause of the
accusation against him; to have a speedy and public
trial; to meet the witnesses face to face and to have
compulsory process to secure the attendance of
witness in his behalf;
Freedom from being compelled to be a witness against
ones self, or from being forced to confess guilt, or from
being induced by a promise of immunity or reward to
make such confession, except when the person
confessing becomes a state witness;
Freedom from excessive fines or cruel and unusual
punishment, unless the same is imposed or inflicted in
accordance with a statute which has not been judicially
declared unconstitutional; and freedom of access to
the courts.

In any of the cases referred to in this article,
whether or not the defendants act or omission
constitutes a criminal offense, the aggrieved party
has the right to commence an entirely separate and
distinct civil action for damages and other relief.
Such civil action shall proceed independently of any
criminal prosecution (if the latter be instituted),
and may be proved by a preponderance of
evidence.

The indemnity shall include moral damages.
Exemplary damages may also be adjudicated. The
responsibility herein set forth is not demandable from
a judge unless his act or omission constitutes a
violation of the Penal Code or other penal statute.

Article 34: When a member of a city or
municipal police force refuses or fails to
render aid or protection to any person in case
of danger to life or property, such peace
officer shall be primarily liable for damages
and the city or municipality shall be
subsidiarily responsible therefore. The civil
action herein recognized shall be independent
of the criminal proceedings and a
preponderance of evidence shall suffice to
support such action.

Article 35: When the person claiming to be injured
by a criminal offense, charges another with the same, for
which no independent civil action is granted in this Code
or any special law, but the justice of peace finds no
reasonable grounds to believe that a crime has been
committed, or the prosecuting attorney refuses or fails to
institute criminal proceedings, the complainant may bring
a civil action for damages against the offender. Such civil
action may be supported by a preponderance of evident.
Upon he defendants motion, the court may require the
plaintiff to file a bond to indemnify the defendant in case
the complaint should be found to be malicious. If during
the pendency of the civil action, an information should be
presented by the prosecuting attorney, the civil action
shall be suspended until the termination of the criminal
proceedings.

Article 2221 - Nominal damages are adjudicate in order
that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.

Article 2222 - The court may award nominal damages in
every obligation arising from any source enumerated in
Article 1157, or in every case where any property right
has been invaded.

Article 2223 - The adjudication of nominal damages shall
preclude further contest upon the right involved and all
accessory questions as between the parties to the suit or
their respective heirs and assigns.

Nominal damages are granted as there are
instances when the vindication or recognition of the
plaintiffs right is of utmost importance to him as in
the case of trespass upon real property.

If compensatory and exemplary damages
have been awarded, this award is by itself a judicial
declaration that the plaintiffs right has been
violated. Therefore a further ward of nominal
damages, is unnecessary and improper. It should
be remembered that nominal damages are merely
for the VINDICATION of a right that has been
violated, not for the indemnification of the loss
suffered.

The assessment of nominal damages is left
to the discretion of the court, according to the
circumstances of the case. An award of nominal
damages precludes the recovery of actual,
moral, temperate or moderates damages, In
fact, nominal damages may be awarded
although plaintiff is not entitled to actual, oral,
temperate or exemplary damages.

C. TEMPERATE OR MODERATE DAMAGES

Article 2224 - Temperate or moderate
damages, which are more than nominal but
less than compensatory damages, may be
recovered when the court finds that some
pecuniary loss has been suffered but its
amount cannot, from the nature of the case,
be proved with certainty.

Explanation: There are cases where from the
nature of the case, definite proof of pecuniary
loss cannot be offered, although the court is
convinced that there has been such loss. For
instance, injury to ones commercial credit or
goodwill of a business firm is often hard to show
with certainty in terms of money. Now the
query is should damages be denied on this
reason? In this instance, the court should be
empowered to calculate moderate damages in
such cases, rather than that the plaintiff should
suffer, without redress, from the defendants
wrongful act.

Article 225: Temperate damages must be
reasonable under circumstances.
What is reasonable is a question of fact,
depending to the relevant circumstances.

D. LIQUIDATED DAMAGES (Articles 2226-2228)

Article 2226 - Liquidated damages are those
agreed upon by the parties to a contract, to be
paid in case of breach thereof.

In effect, liquidated damages and penalty
are the same. Neither requires proof of actual
damages. After all, they had been previously
agreed upon.

Article 2227 - Liquidated damages, whether
intended as an indemnity or a penalty, shall be
equitably reduced if they are iniquitous or
unconscionable.

Article 2228 - When the breach of the contract
committed by the defendant is not the one
contemplated by the parties in the agreeing upon
the liquidated damages, the law shall determine the
measure of damages, and not the stipulation.

E. EXEMPLARY OR CORRECTIVE DAMAGES

Article 2229- Exemplary or corrective damages are
imposed, by way of example or correction, for the
public good, in addition to moral, temperate,
liquidated or compensatory damages.

Exemplary damages are also called as
punitive damages. They are required by public
policy for wanton acts must be suppressed.

In the absence of moral, temperate, liquidated
or compensatory damages, no exemplary
damages can be granted, ffor exemplary damages
are allowed only in addition to any of the four
kinds of damages mentioned.

Exemplary damages are designed to provide
example or correction for the public good.

Examples:

1. A corporation which persisted in
oppressively invading anothers rights despite cease
and desist orders from the Public Service
Commission. The imposition of exemplary damages
would be a reminder that economic power will
never justify a reckless disregard of the rights of
others.

2. . Exemplary damages may be awarded if
the dismissal is effected in a wanton, oppressive or
malevolent manner. (Lopez vs. NLRC, 297 SCRA
508)

Exemplary damages may be imposed as part of
the civil liability in criminal offenses, when the
crime committed is accompanied with one or
more aggravating circumstances. It is separate
and distinct from the other damages or fine the
offender has to pay (Art. 2230). It can also be
granted in quasi-delicts in case defendant acted
with gross negligence (Art. 2231) and in contracts
and quasi contracts, if the defendant acted in a
wanton, fraudulent, reckless, oppressive or
malevolent manner (Art. 2232).

Exemplary damages cannot be recovered as a
matter of right; the court will decide whether or not
they should be adjudicate. (Art. 2233)

Defective Contracts Explained: Rescissible, Voidable, Unenforceable & Void

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