Mayumi R.

Villavicencio 2015-05908

Example 1:

Jay has a lending company that has been operating for several years now. He lends money
to OFWs. Because of the company’s minimal requirements, many OFWs go to his company for
convenience purposes. The OFWs can get the approved loan amount in just an hour or so.
However, the company requires a cheque to be issued by the borrower in advance with an amount
equal to one-month amortization as a collateral to the loan since the company is bearing high risk
in releasing money in such short amount of time. Apo, an OFW engineer from Bahrain, went to
the office and loaned 20,000 pesos. The company only asked for 2 valid IDs and his certificate of
employment in Bahrain. Before releasing the money, the staff of the company asked for the cheque.
Apo affixed his signature on his cheque and then he received his 20,000 pesos. After several
months, the company asked for payments for his loan, but Apo defaulted. As a result, the company
tried to recover the amount using the cheque Apo issued. The check “bounced”, meaning the bank
account did not have sufficient funds for them to collect the amount Apo loaned. After the check
bounced, the company sued Apo in the grounds that he issued a bouncing cheque as payment for
his loan. The regional trial court favored the company because it is illegal to issue a check without
sufficient funds. Apo filed an appeal on the grounds that the contract of loan should be voided
because it is unfair that they made him issue a blank cheque and that he claims this was against his
will.

Issue: Is the contract of loan voidable?

According to article 1305, a contract exists where there is the meeting of the minds between
two persons whereby one binds himself, with respect to the other, to give something or to render
some service. In this case, Apo as the borrower agreed to the company’s policies and conditions.
Apo is knowledgeable of the implications of the said collateral which he agreed to. He knows that
when he issues a cheque, the one holding the check may claim the money on the date stipulated.
According to article 1390, a contract is voidable if those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud or when one of the parties is incapable of giving
consent to a contract. It was clear in the narrative that this was done on his free will. He cannot
simply claim that the company forced or tricked him to issue a cheque because he applied for the
loan and knew the company’s terms and could have just walked away and not avail the loan if he
does not agree with its policies. There was also a fault on his side by not paying the loan. Therefore,
the contract of loan is not voidable, and therefore still binding. Apo should pay his loan plus
interests and penalty fees.

Example 2:

John is a very rich businessman. He donates regularly to different charities, builds

foundations for the poor, and supports students to go to college. One night, he attended a meeting
at the Grand Hyatt Manila with a possible business partner, Pau, that presented a business proposal.
The meeting went well that night. They ate fancy food and tasted finest wines from all over the
world. Little did he know that he already reached his limit. Nevertheless, he was impressed with
the innovation of the new business presented to him, so he agreed for a partnership. Initially, he
really wanted to have 70% of the company as share since he will fund everything—from the
building, staffs, and registration fees. On the other hand, his partner would handle all the
operations. Unfortunately, because he’s a little more generous that night, he signed and agreed to
have 50-50 share. Pau was very happy that he got John’s approval. In fact, they both were that
night. The next day, Pau registered the company to the SEC and indicated the 50-50 share between
him and John.

Issue: Is the contract valid?

When talking about the validity of the contract perfected, we must look at the requisites of a
contract. The three important elements of a contract are consent, object, and cause. In John’s case,
consent was obtained during a state of drunkenness. Therefore, it is voidable. A voidable contract
has all the essential requisites but there exists a defect in consent (Article 1390). Although a
voidable contract appears to be valid unless it is annulled by John through a proper action in court
(Article 1390). A voidable contract may also be ratified. Suppose John did not really care whether
he had 50 or 70 share and let it slide, this is a case of ratification. Ratification occurs when John
would voluntarily accept the contract even though there are some defects. In this scenario
specifically, it would occur when John accepts the 50% instead of his initial desired share which
is 70%. Here, the contract will become absolutely valid and therefore can not be annulled. On the
other hand, if John does not agree with the 50% after he became sober, he may file an action for
annulment. This option is only given to the injured party and must be brought within four
years(Article 1391).