Contracts-C7

Voidable Contracts
ARTICLE 1390: Grounds for Annulment
The following contracts are voidable or annullable, even - Actions for the annulment of contracts prescribe in four years. If the
though there may have been no damage to the contracting ground for annulment is vitiation of consent by intimidation, the four-
parties: year period starts from the time such defect ceases. The running of this
(1) Those where one of the parties is incapable of giving prescriptive period cannot be interrupted by an extrajudicial demand
consent to a contract; made by the party whose consent was vitiated. If the facts demonstrating
(2) Those where the consent is vitiated by mistake, violence, the lapse of the prescriptive period are apparent from the records, the
intimidation, undue influence or fraud. complaint should be dismissed.
These contracts are binding, unless they are annulled by a
proper authority action in court. They are susceptible of Incapacity to Consent
ratification. (n) - The capacity to consent is not a requisite sine qua non of the contract, but
the want is the ground for annulment.
Ang kasunduan ay walang bisa kung ang mga ito ay:
1) walang kapahintulutan ang batas sa kanila; How Annulment is obtained
2) ito ay isang pagkakamali, kaguluhan, at pinilit ang isang - Directly by an action for that purpose
partido. - Indirectly by way of defense to an action to enforce the same.
Ang kasundun may bisa kung hindi tumutugon sa mga
nabanggit. Rescission vs. Annulment
Rescission Annulment
Discussion:
1. The basis here is lesion (damage) 1. The basis here is vitiated consent
Voidable contracts are governed by Arts. 1390 to 1402. Consent is one of the
or incapacity to consent
three essential elements of contracts. If the consent of one of the parties is
defective or vitiated, the contract is voidable. Defect or vitiation of consent is 2. The defect here is external or 2. The defect here is intrinsic (in the
caused by either internal or external factors. intrinsic meeting of the minds).
3. The action is subsidiary 3. The action is principal
Consent, as an element of contracts, must be intelligent and free. If either 4. This is a remedy 4. This is a sanction
attribute is impeded or impaired, then consent is said to be vitiated, and the 5. Private interest governs 5. Public interest governs
contract voidable.
6. Equity predominates 6. Law predominates
The factors that impair intelligence are: 7. Plaintiff may be a party or a third 7. Plaintiff must be a party to the
1) minority (Art. 1327, par.) The age of emancipation, previously 21 under Person contract (whether bound
both the Civil Code and the Family Code, has been reduced by RA 6089 principally or subsidiary).
to 18; 8. There must be damage to the 8. Damage to the plaintiff is
2) insanity, deaf-mutism coupled with illiteracy, intoxication, and plaintiff immaterial
hypnotic spell (Arts. 1327, par. 2 and 1328) 9. If plaintiff is indemnified, rescission9. Indemnity here is no bar to the
Cannot prosper prosecution of the action.
The mistake must be caused by facts of which the party demanding 10. Compatible with the perfect 10. Here, a defect is presupposed
annulment did not know. As held in Alcasid v. CA (237 SCRA 419 Validity of the contract
[1994]): insanity, deaf-mutism coupled with illiteracy, intoxication, and 11. To prevent rescission, ratification 11. To prevent annulment,
hypnotic spell (Arts. 1327, par. 2 and 1328) Is not required. ratification is required.

To vitiate consent, the mistake or error must relate to: ARTICLE 1391:
1. the substance of the thing; The action for annulment shall be brought within four years.
2. the principal conditions of the contract; This period shall begin: In cases of intimidation, violence or
3. the identity or qualifications of one of the parties when such constituted undue influence, from the time the defect of the consent
the principal cause of the contract; or ceases.
4. the legal effect of the agreement, if the error is mutual and results in the In case of mistake or fraud, from the time of the discovery of
frustration of the parties’ purpose. the same.
And when the action refers to contracts entered into by
Vices of Consent minors or others incapacitated persons, from the time the
Contracts which were entered into by a person whose consent was obtained guardianship ceases. (1301a)
and vitiated through
1. Mistake; Ang hakbang para sa pagpapawalang bisa ay dapat gawin sa
2. Violence; loob ng apat na taon.
3. Intimidation; Ito ay magsisimula, sa kaso ng intimidasyon, dahas o hindi
4. Undue Influence; or tamang pag impluwensya, mula sa oras ng depekto ng pagpayag
5. Fraud ay natapos.
Sa kaso ng pagkakamali o panloloko, magsimul ng oras ng
Concept of Voidable Contracts pagka diskubre ng pagkakamali o panloloko
- Voidable Contracts include failure by one or both parties to disclose a At kapag ang hakbang ay patukoy sa kontratang pinasok ng mga
material fact; a mistake, misrepresentation or fraud; undue influence or menor de edad o mga taong may kapansanan, mag simula sa
duress; one party’s legal incapacity to enter a contract; one or more terms oras na ang guardianship ay natapos.
that are unconscionable; or a breach of contract.
Discussion:
Voidable contracts are binding unless annulled by a proper action in court. This article only applies to the parties in the contract. It does not apply to a
third person when the law allows them to question the validity of a contract
Rescission and Annulment Failure to pursue an action within the period prescribed by law will have the
- Rescission and Annulment of contract when declared, makes the contract effect of extinguishing the action.
inefficacious.
With regard to fraudulent conveyances with the Registry of Property, the
prescriptive period is counted not from the actual knowledge of the fraud by
the plaintiff but from the registration of the public document with the said
 Contracts-C7
Voidable Contracts
registry. The act of registration is a notice to the whole world. It is the That at the time the ratification is made, the cause of nullity has already
operative acts thatt binds registered land s under the Torrens System. ceased to exist.

Minor’s right to annul. ARTICLE 1393:

- The right of action of a minor to annul a contract made in his minority Ratification may be effected expressly or tacitly. It is
must be exercised within four years following the date when he was understood that there is a tacit ratification if, with
released from guardianship, and if not exercised within this time it knowledge of the reason which renders the contract voidable
prescribes. and such reason having ceased, the person who has a right to
Action to annul in case of fraud. invoke it should execute an act which necessarily implies an
- In case of fraud, the action to annul has to be filed within a period of four intention to waive his right.
years from the date of the discovery of the fraud.
Applicability of Article- Ang ratification ay mabibigyang bisa nang hayagan or
- The Article applies only to the parties in the contract. It does not apply hindi. Malinaw na may di-hayagang ratipikasyon kapag ang
to third persons when the law allows them to question tha validity of the tao na may karapatang mag-apila ay magpapatupad ng aksyong
contract lie document to conform with the formal requisites required nagpapahiwatig ng kanyang pagtalikdan sa kanyang karapatan,
by the law. kahit na alam nya ang kadahilanan para mapawalang bisa ang
- kontrata ay natigil na.
The Supreme Court distinguished the three concepts base on the case
Luna vs Linatoc- Discussion:
“ Confirmation tends to cure a vice of nullity, and ratification is for the Ratification is an act or means by which efficacy is given to a contract which
purpose of giving authority to aperson who previously acted in the name of suffers from a vice of curable nullity. It is an act of curing the defect of lack or
another without authority. Recognition,on the other hand, merely to cure the excess of authority of the party who entered into the contract through another
defect of proof. In recognition, there is no vice to be remedied such as fraud, without the latter’s authorization. It covers voidable contracts, and
violence or mistake, so that the case is distinguished from confirmation. In specifically refers to unenforceable contracts.
recognition, the person acting on behalf of another is duly authorized to do so,
sot the situation is different from ratification. Requisites of Ratification
1. The contract is a voidabe one.
Confirmation Distinguished from Ratification 2. The confirmation is made by the injured contracting party.
- When a person confirmsavoidable contract. It is presupposed that he has 3. The confirming party has full knowledge of the vice or defect of the contract.
participated in the very act which is the object of the action for 4. The cause of voidability should have already ceased or disappeared at the
annulment. Whereas, a personwho ratifies has no participation in the time of the ratification. Otherwise, if the cause of voidability is still
act but only approves the act executed by another. present (subsisting intimidation), the act of confirmation would also suffer
from the very vice or defect it is attempting to cure.
ARTICLE 1392:
Ratification extinguishes the action to annul a voidable Effects of Ratification
contract. - The contract is purged or cleansed of its defects from its constitution or
establishment, and the validation is retroactive to the day of its creation.
Ang pagpapatibay ay mawawala ang aksyon upang - Any action for its annulment is extinguished.
mapawalang bisa ang isang kontrata.
ARTICLE 1394:
Discussion Ratification may be effected by the guardian of the
Confirmation incapacitated person.
- Is the act by which a person, entitled to bring an action for annulment,
with knowledge of the cause of annulment and after it has ceased to exist, Ang ratipikasyon ay maaring maisagawa ng guardian ng taong
validates the contract either expressly or impliedly. nawalan ng kapasidad.
- Is properly applicable only to annullable contracts.
Ratification Discussion:
- Is the act of approving a contract entered into by another without the Incapacitated persons includes unemancipated minors and insane or demented
authorization of the person in whose name it was entered into, or beyond persons, and deaf-mutes who do not know how to write.
the scope of the authority of the former If incapacitated enters into a contract, the contract is voidable if the other
- Applies to unenforceable contracts, or contracts where consent is totally party is capacitated. If both are incapacitated, the contract becomes void.
absent. The guardians however may ratify the defective contract in their behalf. If the
Acknowledgement incapacitated person becomes capacitated, they themselves may ratify their
- To remedy a deficiency of proof defective contracts.
- When what has been agreed upon orally is put in writing, or when a
private document is converted into a public instrument there is ARTICLE 1395:
acknowledgement Ratification does not require the conformity of the
Example: An oral loan may be put in writing, or when a private contracting party who has no right to bring the action for
instrument is made a public instrument annulment.

Fundamental difference of Confirmation and Ratification Ang pagpapatibay ay hindi kaylangang humingi ng
pagsangayon ng nagkasundong partido na walang karapatan na
CONFIRMATION RATIFICATION magdala ng aksyon sa pag sasawalang bisa.
The person who confirms has The person who ratifies approves an
participated in the act which is the act executed by another *The one who caused the vice of consent personally or through a third person
object of the action for annulment is not allowed to file a case of annulment

Requisite of Ratification *The innocent party has the prerogative to annul or not to annul a voidable
That the contract is a voidable or annullable contract, or one in which the contract.
consent of one party is defective, either because of lack of capacity to contract
or because of error, fraud, violence, intimidation or undue influence. Note: There is no case indicated on this article.
That the ratification is made with knowledge of the cause for nullity

Illustration: Enrico is the owner of the famous hardware in Laguna. He
rented the warehouse of Rafael to become one of his bodega.
Cesar buy the materials that he needed for the construction of
his own house to Enrico, since the other materials is on the
warehouse of Rafael and Enrico already rented it therefore the
consent of Rafael is not needed for the delivery of the materials
that Cesar needed.
ARTICLE 1396:
Ratification cleanses the contract from all its defects from
the moment it was constituted. (1313)
Ang pagtitibay ay nagpapalinis sa mga kontrata sa lahat ng
mga depekto nito sa oras na maitatag ito.
Discussion:
What are the consequences of ratification?
One of the consequences of ratification of the contract is its legal purification
and its being made as a regular and untainted contract.
From what time shall the cleansing of the voidable contract retroacts?
The cleansing of the voidable contract retroacts to the time of its constitution.
ARTICLE 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 base their
action upon these flaws of the contract. (1302a)
PARTY ENTITLED TO BRING AN ACTION TO ANNUL
Two different requisites are required to confer the necessary capacity to bring
an action for annulment of a contract, to wit:
(1) The plaintiff must have an interest in the contract; and
(2) The victim and not the guilty party or the party responsible for the defect
is the person who must assert the same.
In an action for the annulment of contracts, the real parties in interest are those
who are parties to the contract, or are bound either principally or subsidiarily,
or are prejudiced in their rights with respect to one of the contracting parties
and can show the detriment which would positively result to them from the
contract even though they did not intervene in it, or who claim a right to take
part in a public bidding but have been illegally excluded from it.
The guilty party, including his successors-in-interest, cannot ask for
annulment. This rule is sustained by the principle that he who comes to court
must do so with clean hands. Thus, a person who employed fraud cannot base Discussion:
his action for annulment of a contract upon such flaw of the contract.
General Rule: The action for the annulment of contracts may be instituted by
all who are thereby obliged principally or subsidiary.
Requisites:
1. The plaintiff must have an interest in the contract; and
2. The action must be brought by the victim and not the party responsible
for the defect.
ARTICLE 1398:
An obligation having been annulled, the contracting
parties shall restore to each other the things which have
been the subject matter of the contract, with their fruits,
and the price with its interest, except in cases provided
by law.
In obligations to render service, the value thereof shall
be the basis for damages. (1303a)
Mutual Restitution upon annulment
- If the contract is annulled, the parties, as a general rule, must restore
to each other the subject matter of the contract with its fruits and the
price thereof with legal interest. Unless there are fundamental reasons
recognized by the law which will prevent such restitution.
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Voidable Contracts
Who may invoke Restitution
- Only the between the parties who are privity with the contract. A stranger
to the actual contractual relation cannot invoke the benefit of this
provision.
Contracts not covered
- If one of the contracting parties received some benefit, and he has not
given anything for it to the other, it is only equitable that he should return
the amount by which he unjustly enriched.
- If the parties had reciprocal prestations, which can compensate each other,
the excess in value can be paid to the party to whom it pertains.
Example: If a piece of land is leased for one year, with the land delivered
and rent paid in advance for full period, and then the contract is
annulled after four months, the mutual restitution cannot be total.
The lessee has to return the land, but the lessor should not be
obliged to return the full amount of rent received by him but only
the corresponding to the unexpired eight months.
Restitution of fruits and interests
- Article 1398 can be applied without qualification, only when the cause of
nullity does not involved an illicit act, such as error and incapacity
unknown to the other party. But when the cause of nullity is illicit, such
as fraud, violence, intimidation, or undue influence, the other party who
employed those means must be considered as a possessor in bad faith,
and must be obliged to restore not only the fruits received but also those
which might have been received; on the other hand, the innocent party
must be deemed a possessor in good faith and should not be required to
return fruits or pay interest.
Liability for damages
- There are cases where losses occasioned by the contract cannot be erased or
compensated by its annulment.
Example: The injured party, before discovering the fraud, has already
incurred in expenses which become useless by the annulment; or
where there has been intimidation, the property transferred has
suffered damages in the hands of the defendant before annulment
of the contract. In such cases, the injured party should be entitled
to recover also indemnity for damages.
ARTICLE 1399:
When the defect of the contract consists in the incapacity of
one of the parties, the incapacitated person is not obliged to
make any restitution except insofar as he has been benefited
by the thing or price received by him. (1304)
Kung ang depekto ng kontrata ay naglalaman ng kapasidad ng
isang partido, ang may kapansanang tao ay hindi
kinakailangang gumawa ng ano mang restitution maliban sa
napakinabangang bagay o premyong natanggap niya.
Incapacitated or Disadvantaged Person is generally favored by Law; No
restoration is required of him (Article 24 of the code provides “In all
contractual, property or other relations, when one of the parties is at
disadvantage on account of his moral dependence, ignorance, indigence,
mental weakness, tender age or other handicap, the courts must be vigilant for
his protection.
Exception: However, to balance things, where the minor had received
something by virtue of a contract, which is voidable solely and
exclusively because of his incapacity, he must make a
restoration insofar as he has been benefited by the thing or price
received by him. If did not benefit, he has no duty to make
restoration.
If the nullity of the contract, however, is due to other reasons, the general rule
os mutual restitution in Art. 1398 apply.
Example: 2 minors, together w/ their mother, borrowed money during the
Japanese occupation from Villa Abrille. The money was used
for the support of the minors. While the promisory note signed
by the minors promising to pay P10,000.00 in the Phil.
Currency 2 yrs. After the cessation of the hostilesxxx, is
voidableand annulled by the Court, the minors were required to
return the money they received from the Villa abrille as they
profited by the use thereof.

Whether or not the capacitated party has benefited from what he received
from a minor, he must return the same except when he received the thing from
the minor in the performance of the latter’s natural obligation, and what had
been received had been spent or consumed in good faith.
ARTICLE 1400:
Whenever the person obliged by the decree of annulment to
return the thing cannot do so because it has been lost
through his fault, he shall return the fruits received and the
value of the thing at the same time of the loss, with interest
from the same date.
Kung kelan na ang tao ay obligado ng batas para sa
pagpapawalang bisa na ibalik ang bagay na hindi pwede sa
kadahilanang ito ay nawala sa pamamagitan ng kanyang
kapabayaan, dapat lamang na ibalik nya at bunga na kanyang
tinanggap at ang halaga ng bagay na kung saan ay nawala rin,
para sa kapakanan ng naturang kaperehong petsa.
Discussion:
Effect when the thing was lost through the fault of the obligor
- it will not apply if the thing ordered to be returned which is determinate was
destroyed or got lost without the fault of the debtor.
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Voidable Contracts
ARTICLE 1402:
As long as one of the contracting parties does not restore
what in virtue of the decree of annulment he is bound to
return, the other cannot be compelled to comply with what is
incumbent upon him.
Hangga’t ang isa sa mga partido ay hindi pa binabalik ang
kaniyang responsibilidad na ibalik, ang kabilang partido ay
hindi pwedeng piliting gawin ang nakatoka niyang gawain.
Discussion:
If an obligation is annulled, the parties shall restore to each other the things
which have been the object the contract, with their fruits, and the price with
its interest. Hence, if one of the parties does not restore what he is required to
restore, the other cannot be compelled to make restitution.
Example: C was forced by B to enter into a contract to barter whereby
B exchanged his iphone with C’s Tablet. If the contract is
annulled B is required to return the tablet to C and C is required
to return the iphone to B. if the iphone is lost due to a fortuitous
event, the C’s right to annulment shall subsist but B is not
required to return the tablet to C unless the value of the iphone
at the time of its loss is returned by C to B.

Example: X by force and threat, was able to purchase the apartment Question: What will be the consequences when the contracting parties
house of Y. Later, Y brought an action to annul the contract do not restore what in virtue of the decree of annulment he
which action was granted by the court. X was ordered by the is bound to return?
court return to Y the apartment house but X cannot do so
because the apartment house had been destroyed by fire Answers: The other party cannot be compelled to comply with what
through his fault . In this case, therefore, X has the following is incumbent upon him.
obligation:
1- To give Y the fruits or rentals of the apartment house,
if any, from the time the house was delivered to him;
2- To give to Y the value of the apartment house at the
time of the loss plus interest on the value of the house.

ARTICLE 1401:
The action for annulment of contracts shall be extinguished
when the thing which is the object thereof is lost through
the fraud or fault of the person who has a right to institute
the proceedings.
If the right of action is based upon the incapacity of any
one of the contracting parties, the loss of the thing shall not
be an obstacle to the success of the action, unless said loss
took place through the fraud or fault of the plaintiff

Ang aksyon para sa pagwawalang bisa ng kontrata ay

matatapos kapag ang bagay na pinag-uugatan ng kontrata ay
nawala dahil sa pandaraya o sa pagkakamali ng taong may
karapatang isulong ang paglilitis.
Kung ang karapatan sa pag-aksyon ay naaayon sa kakulangan
ng isa sa mga partido, ang pagkawala ng bagay ay hindi
hadlang sa tagumpay ng aksyon, maliban na lamang kung ang
pagkawala nito ay dahil sa pandaraya o sa pagkakamali ng
nagsasakdal.

Discussion:
Loss of the thing while in the possession of the party who can annul the
contract
A- Due to his fault or fraud
- The right to annul is extinguished if the thing is lost through the fraud or fault
of the party who has the right of annulment
B- Due to fortuitous event
- The contract can still be annulled. But the other party cannot be compelled to
make restitution unless the innocent party restores what in virtue of the decree
of annulment he is bound to return.

Example: C was forced by B to enter into a contract of barter

whereby B exchanges his fountain pen with C’s ring. If the
fountain pen is lost due to the fault of C. C’s right of the
annulment is extinguished.