Status of Contracts

Depending on their status, there are five types of contracts, namely: (a) valid contracts, (b) rescissible contracts, (c) void contracts, (D) voidable contracts, and (e) unenforceable contracts.

Valid Contract – A valid contract is one that complies with the requisites for a perfected contract required by law. As contracts are generally consensual, most agreements are valid so long as there is consent, object, and consideration. Further, if a certain contract is required by law to be in writing (e.g. sale of real property) and it is followed, then such an agreement is valid. A valid contract is enforceable as it grants rights and creates obligations on the parties.

Rescissible Contract – A rescissible contract is one wherein a party is allowed to rescind or terminate the contract due to the other party’s failure to comply with the obligations set forth in their agreement.

To be clear, a rescissible contract is a valid contract. However, due to a party’s failure to comply with the contractual obligations, the injured party is entitled to terminate the contract. Thus, while a contract is valid, it may be rescinded in cases provided for by law. If not terminated, a rescissible contract remains valid and enforceable.

Voidable Contract – A voidable contract is one where consent was given through mistake, violence, intimidation, undue influence, or fraud. Similar to a rescissible contract, a voidable contract remains valid and binding. Unlike a rescissible contract, a voidable contract may only be annulled by a proper action in court.

Unenforceable Contract – An unenforceable contract is one where there is an absence of authority on the part of one or both of the contracting parties, including those falling in the Statute of Frauds.

Void Contract – A void contract is one where an essential requisite to constitute an agreement is lacking. In general, these are the requisites of a contract: consent, object, and consideration. By way of added requisite, a written agreement is required by law for formal contracts. Should any of the requisites be missing, the contract is void producing no legal effect. As a void contract did not produce rights and obligations, it cannot be enforced.

Catholic school wins tax case

A Catholic school wins a tax case against the Bureau of Internal Revenue (BIR). Before a Makati RTC, the school challenged the BIR revenue memorandum circular requiring non-stock, non-profit educational school to secure a tax exemption. The Makati Court ruled in favor of the school citing the constitutional provision granting exemption takes precedence over a circular.

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10 Rules of Contract Interpretation

These are the 10 rules of contract interpretation:

1. A clearly written contract does not need interpretation. Hence, if the terms are clear and does not leave any doubt as to the intention of the contract parties, the literal meaning of the stipulations prevails and controls.

2. If there is a conflict with the words and the evident intention of the parties, it is the latter that will prevail. The intention of the parties is principally determined and considered based on their contemporaneous and subsequent acts. That is to say, the actions of the parties at the time of preparing the contract and their subsequent acts will determine their true intentions.

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