Rescissible Voidable Unenforceable Void

Basis of Economic or financial
defect Prejudice (Extrinsic defect)
Art. 1381, paragraphs 1-5:
1.] ​incapacitated wards suffer
lesion more than ¼ of the value
of the object due to guardian.
2.] ​absentees suffer lesion due to
representative, same.
Exception: (Art. 1386) With ​court
authorization.
3.]​ intended to defraud creditors
(Art. 1382 & 1387 + Badges of
fraud)
-​If​ Gratuitous​,​ regardless of Bad faith or
Good faith = ​There is rescission​.
-​If ​Onerous​,​ ​Good faith​ = ​No rescission​.
(creditor’s remedy is to demand damages
from transferor)
-​If ​Onerous​,​ Good faith​ but with ​collusion
between the transferor(GF) and 2nd
transferee (BF) = ​There is rescission​.
-​If ​Onerous​, ​Good faith​ ​no collusion
between the transferor (GF) and 2nd
transferee (BF) = ​No rescission​. ​GF cures
subsequent transfer.
4.] ​Refer to things under
litigation entered by defendant
w/o knowledge and approval of
Intrinsic defect ​(Art. 1390) Law ​(Art. 1403)
-​Incapacity of one of the parties 1.]​ Lack of Authority ​or
(Art. 1327) acting beyond the
authority granted to a
A.] Minor representative or agent
(Ultra vires).
B.] Demented or insane persons
C.] Deaf-mute who cannot write​. 2.]​ Does not comply
with statute of frauds:
- ​Vitiation of consent
A.] Mistake A.] An agreement that by its
terms is not to be performed
B.] Violence within a year from the making
thereof;
C.] Undue influence
B.] A special promise to
D.] Intimidation answer for the debt, default, or
miscarriage of another;
E.] Fraud
C.] An agreement made in
consideration of marriage,
other than a mutual promise to
marry;
D.] An agreement for the sale
of goods, chattels, or things in
action, at a price not less than
five hundred pesos, unless the
buyer accept and receive part
of such goods and chattels, or
the evidences, or some of
them, of such purchase
money;
But if sale is made by auction
Public policy/Law​ (Art. 1409)
1.] ​Cause, object or purpose is
contrary to law, morals, good customs,
public order or public policy. ​(Tan vs.
Castro)
2.] ​Those which are absolutely(Art.
1345) simulated or fictitious (Art. 1346)
3.] ​Those whose cause or subject did
not exist at the time of the transaction;
4.]​ Those whose object is outside the
commerce of men; ​(Those properties of
the state not patrimonial in character.)
5.] ​Those which contemplate an
impossible service.
6.] ​Those where the intention of the
parties relative to the principal object
of the contract cannot be ascertained;
(Art. 1349-”object of every contract must
be determinate as to its kind”.
7.] ​Those expressly prohibited or
declared void by law.
 litigants (plaintiff) or court and entry is made by the
authorization. auctioneer in his sales book, at
the time of the sale, of the
amount and kind of property
5.] ​All other contracts declared
sold, terms of sale, price,
by law subject to rescission. names of the purchasers and
person on whose account the
Fraud not sufficient to rescind. (Bad sale is made, it is sufficient
faith good faith) memorandum;

E.] An agreement of the

leasing for a longer period
than one year, or for sale of
real property or of an interest
therein;

F.] A representation as to the

credit of a third person

3.] ​When both parties

are incapable of giving
consent.

Law or Equity predominates Law predominates Law predominates Law predominates

Equity

Must there Yes, economic or financial Not necessary. It is based on Not necessary. Not necessary. It is void by virtue of
be prejudice. intrinsic defect. Executory stage. The public policy and law.
damage? contract’s contents must
be proved in cases of
violation of statute of
fraud.

Nature of Subsidiary ​(Art. 1383) Principal Principal Principal

action Must exhaust all measures
(Anchor savings vs. Furigay)

Ratification Yes, ​by prescription. Can​ be ratified Can​ be ratified ​Tacitly​ or Cannot​ be ratified
 Expressly​ but not by
-Ratification ​may​ ​be effected​ by prescription. (laches?) Exception​:
the ​guardian of the
Contract is void and yet the law says that it can be
incapacitated person​ . (Art. ratified:
1394)
-“Any encumbrance or disposition of the property
by the present/capacitated spouse without the
-​Ratification​ ​does not require written consent of the incapacitated or absentee
the​ ​conformity of the spouse or without judicial authority is void but shall
contracting party​ who has ​no be considered as a perfected contract as soon as
right​ to bring the action for the written consent of the incapacitated spouse or
absent spouse is obtained or judicial authorization.”
annulment​. (Art. 1395)
-“No authority of solemnizing officer. Only Good
-​Retroactive effect of faith is needed to ratify the defect.”
ratification​. Cleanses the contract
from all its defects ​from ​the
moment​ it was ​constituted​. (Art.
1396)
Note:​ Rights of a 3rd party must
not be prejudiced.

Collateral Cannot be collaterally Cannot be collaterally attacked No, since no third Can be attacked collaterally
attack? attacked person can be
prejudiced.

Effects of Valid ​until rescinded Valid ​until annulled Contract exists​ but Void​ from the beginning. No legal effect.
the defect cannot be enforced cannot bind parties.
in the through court action​.
Contract -Right to setup illegality cannot be
-Still executory stage. waived;
There is a perfected
contract but no
-Appealable even if not raised in trial
performance yet.
court;
-There can be no
compulsion for specific

Effects of -​Only to the extent of damage​.
the
Judgment/ Partial Rescission​ is possible
Defect(for whereby only the creditor who
Unenforcea asked for rescission can benefit.
ble)
-Mutual Restitution ​(Art. 1385)
Note: No Return = No
Rescission.
What to return?
If ​gratuitous​ and ​good faith​:
1.] Return of the thing but not to
pay for the fruits already received.
2.] If necessary expenses have
been incurred for improvement, can
ask for reimbursement.
3.] Must be returned in condition it
was found.
If ​gratuitous​ and ​bad faith​:
-Contract is annulled.
-If contract is not complied with,
parties are excused​ from the
obligation.
-Mutual Restitution ​(Art. 1398)
only for those contracts falling
under Number 2
As long as one of the parties does
not restore​ what in virtue of the
decree of annulment he is ​bound to
return​, the ​othe​r ​cannot be
compelled​ t​ o comply​ with what is
incumbent upon him. (Art. 1402)
What to return?
1.] ​The things​ which have been the
subject matter of the contract​,
2.] with their fruits​, and the
3.]​ ​price with its interest​, ​except in
cases provided by law.
performance since the
contents of the contract
must be proved first
(ratified) before it can be
enforced.
-Cannot be proved through
parol or oral evidence.
(Purely executory
agreement involving the
sale of real property)
-Cannot be enforced
through court action.
-Agent assumes
personal liability.
-Contract is void.
1.] If no performance yet,​ ​still in purely
executory stage​, no need to declare
nullity by the competent court​.
2.] If there is partial or full performance
already, ​there is a need to go to court
and let the court declare that the contract
is void.
-A contract which is the ​direct result of a
previous illegal contract​, i​ s also void
and inexistent​. (Art. 1422)
-​On unconscionable interests.​ There’s no
longer Usury Law and that parties can now
agree with respect to the rate of interest
provided that it is not unconscionable and
iniquitous. However, ​even if it the interest​ is
iniquitous​,​ the debt shall subsist​.
-Recovery is permitted provided that: (Art.
1416)
1.] Return of the thing, price
interest, fruits and damage.
2.] No reimbursement
3.] Responsible for deterioration.(?)
For deterioration​, depends if:
1.] ​After receiving summons​,
deterioration is ​due to negligence
or​ fault​ = ​Liable​.
2.] If ​before summons​ and
caused by​ ​fortuitous event​ = ​Not
Liable​.
NOTE:
-In obligations to render service,
the ​value​ thereof shall be the ​basis for
damage​.
-Whenever ​person obliged to return
the thing​ (By virtue of the decree of
annulment) ​cannot do so because it
has been lost ​through his fault​, he
shall return:
1.] fruits received,​ and the
2.]​ ​value of the thing at the time of
the loss​,
3.] with interest ​from the ​same date​.
(Art. 1400)
A.] Contract is not illegal per se;
B.] Prohibition is for protection of plaintiff;
C.] Public policy is enhanced;
Ex. Donation of all properties of the donor.
Not illegal per se but prohibited because 1.] It
will prejudice creditors. 2.] You may no longer
have anything to support your needs when
you will be giving all your properties. This is to
protect the donor and therefore, even if he
has donated all his properties already, he may
recover.

But ​if lost through fortuitous event​,

-No rescission​ shall take place
when ​the things which are the
object of the contract are
legally in the possession of
third persons who did not act
in bad faith​. The prejudiced
creditor may instead demand for
damages from the person who
caused such damage.
-Restitution ​only applies to​ Art.
1381 paragraphs:
1, 2 and 3​. ​Exception​: onerous
and good faith.
4.​ ​Exception​:
1.] You are the complainant
he ​only has to pay for the value
without interest​ ​because he is in
good faith.
-If ​defect​ consists of​ incapacity of
one party​, ​incapacitated person is not
obliged to make any restitution​. Like if
he squanders the thing or lost it but
not due to his fault or fraud. (Art.
1399)
Exception​:​ insofar as he has been
benefited by disposal of the thing​ or
price received by him.​ Or has ​kept the
thing​. T
​ herefrom, there must be
restoration.​ ​(Art. 1241)
-​Innocent third parties cannot be
obliged to restore. (Acquired
properties in good faith)
 2.] You have not annotated it
(property under litigation object
of the rescissible contract)
3.] The 3rd person who
acquired it had no constructive
knowledge of the litigation.
Can be -Yes,​ by prescription of the
cured? action to rescind​. Action to
claim rescission ​must be
commenced within four years.
(Art. 1389)
-Yes,​ prescription​ ​of the action -N​ot by prescription​. -No. There is no prescription as to the
to annul​ cures the defect.​ Action action or defense to declare the contract
must be brought within 4 years. -​Can be cured tacitly or void. (Art. 1410)
(Art. 1391 & 1392) expressly.
Exception: Can be defeated by​ Laches​.
Prescription starts: -There are also ways to
waive the defense of
In case of ​intimidation​, ​violence​, or
undue influence​,​ from the time the defect unenforceability of
of the consent ceases​. contract via Statue of
Frauds, hence ratify or
In case of​ mistake​ or ​fraud​,​ from the time
of the discovery of the same. cure it: (Art. 1405)
In case of​ minority​ or ​incapacity​, ​from 1.] Failure to timely
the time the guardianship ceases. object to the presentation
of oral evidence to prove
-By ratification​, tacit or express.
oral argument about the
(Art. 1393)
existence of the
unenforceable contract.
1.] ​Express​ if: Actions expressly done
to ratify the voidable contract.
2.] Acceptance of
2.]​Tacit ​if: ​With knowledge of the benefits under the
reason which renders the contract contract. (Since the
voidable​ and such reason​ having contract is totally or
ceased,​ the ​person who has a right to partially performed and
invoke it should execute an act which hence no longer in its
necessarily implies an intention to
executory stage. Beyond
waive his right.​

Who may May be ​a party​ or a ​3rd person
institute whose rights or interests have
action? been prejudiced (economic or
financial) as a result of the
rescissible contract.
The action for the annulment of
contracts may be instituted by all
who are thereby​ obliged:​(Art.
1397)
1.]​PRINCIPALLY​ or
2.]​SUBSIDIARILY
Exception​:
A person not obliged principally or
subsidiarily ​may exercise an
action for nullity if he is
PREJUDICED IN HIS RIGHTS
with respect to one of the
contracting parties.
-​Can only be invoked​ by the
aggrieved party​. Not the
capacitated person or the one who
employed vices of
consent.(Estoppel)
Exception:​ ​ A
​ ctive misrepresentation
on the part of ​the incapacitated
person.
-​Creditors of victim​ ​cannot​ ask
for annulment ​except when it
prejudice them and the debtor has
no other property​.
-The​ action for annulment of
contracts​ shall be ​extinguished
unenforceability.)
Only the parties to the Available to anybody - ​3rd persons or
contract​ since no 3rd party​ - ​provided that their interests are
party may be prejudiced affected. ​(Art. 1421)
by it.
-In Pari Delicto rule, ​When the​ nullity
proceeds​ from​ illegality​ of the ​cause​ or
object of the contract​ and b ​ oth
constitute a criminal​ offence​,​ ​both
being in pari delicto​, they shall have​ ​NO
ACTION​ against each othe​r and​ both
shall be prosecuted​. (Art. 1411)
Exception​: There is still recovery even if
parties are in pari delicto if the contract be
repudiated by one of the parties ​before​:
(Art. 1414)
A.] The purpose has been accomplished;
or
B.] Damage has been caused to any 3rd
person.
Ex. Kill contract. A gives B 10k to kill C. If
A changes his heart and repudiates the
contract, he may recover the 10k given to
B. ​BEFORE​ ​purpose has been
accomplished​ and ​when public interest
will be subserved​.
Rule also applies:
A.] When parties are not equally guilty.
B.] Where public policy would be
when the​ thing which is ​the
object​ thereof i​ s lost​ through the
fraud or fault​ of the ​person​ ​who
has a right to institute the
proceeding​. (Art. 1401, par. 2)
If lost through fortuitous event​, the
action may still prosper if​ the person
who has the right to institute the
action​ and who has ​lost the thing
through fortuitous event offers to
pay​ for the value of the thing lost​.
Basis for the value:​ The ​value​ of the
thing ​at the time of the loss of the
object​.
-If the right of action is ​based on
incapacity of one of the
contracting parties​,​ ​loss​ of the
thing ​shall not​ be an ​obstacle to
the success of the action​. (Art.
1401, par. 2) ​Exception:​ ​Said
loss took place​ through the ​fraud
or ​fault ​of the ​plaintiff​.
advanced by allowing the suit of relief.
State shall seize the effects of the
Crime and its instruments​. Provisions of
Penal Code relative to the ​disposal of
effects or instruments​ of a crime shall be
​ rice of the
applicable​ to the​ things​ or the p
contract.​ (Art. 1411, pa.r 1)
This rule shall be applicable when ​only
one of the parties is guilty​; but ​the
innocent one may claim what he has
given, and shall not be bound to
comply with his promise​. (Art. 1411,
par. 2)
Ex. Sale of illegal drugs.
-If act in which the unlawful or forbidden
cause consists does not constitute a
criminal offense: (Art. 1412)
1.] When the fault is on the part of both
contracting parties, neither may recover what
he has given by virtue of the contract, or
demand the performance of other’s
undertaking; (Art. 1412, par. 1)
2.] When only one of the contracting parties is
at fault, he cannot recover what he has given
by reason of contract, or ask for the fulfillment
of what has been promised him. The other,
who is not at fault, may demand the return of
what he has given without any obligation to
comply his promise. (Art. 1412, par. 2)

Other -​Presumption of Fraud​ (Art.
Notes 1387)
[Par. 1]​ Gratuitous Alienation is
presumed fraudulent when:
1.] debtor did not reserve
sufficient property to pay all
debts contracted “before” the
donation.
[Par. 2]​Onerous Alienation is
presumed fraudulent when:
1.] Against whom some
judgment has been rendered in
any instances (even if not final);
or
Requisites of Ratification:
1.] Contract is voidable;
2.] Person ratifying must know the
reason for the contract being voidable
(cause is known);
3.] Cause must not exist/continue to
exist anymore at the time of
ratification;
4.] Ratification is made expressly or
by an act implying a waiver of action
to annul;
5.] Person ratifying must be the
injured party.
Ex. Contract of sale of land to a foreigner.
Government​ will ​take back the property​ if
found that you violate the undertaking.
If you were the one who bought it​, you can
no longer take back the money as a
punishment.
-​Purely​ or​ absolutely simulated​ contracts do
not apply here in 1411 and 1412.. (Modina vs
CA and Guan vs ong-Absolutely simulated)
because Inexistent contracts DOES NOT
EXIST.
-When the price of any article or
commodity is determined by statute, or by
authority of law, any person paying any
amount in excess of the maximum price
allowed may recover such excess. (Art.
1417)
Ex. Basic necessities that were sold
beyond the price permitted by DTI. The
buyer may recover such excess by
complaining to DTI.
2.] Against whom some writ of
attachment has been issued.

[Par. 3]​ Badges of Fraud

1.] The fact that consideration of

the conveyance is fictitious or
inadequate;

2.] A transfer made by a debtor

after suit has been began and
while it is pending against him;

3.] A sale upon credit by an

insolvent debtor;

4.] The transfer of all or nearly

all of his property by a debtor,
especially when he is insolvent
or greatly embarrassed
financially;

5.] Evidence of large

indebtedness or complete
insolvency;

6.] The fact that the transfer is

made between parent and child
(Father and son nakalagay pero
not necessary);

7.] The failure of vendee to take

exclusive possession of all the
property.

A gratuitous conveyance or
donation, validly executed is
presumed valid unless it can be
shown that at the time of
execution of conveyance, a
creditor/s is/are adversely
affected by said transaction.

-There must be 2 or more of the

cases in Badges of Fraud.

-Fraud is not sufficient to

rescind​; after all transferee may
have been in good faith and is
now in legal possession of the
property. (Art. 1385 par. 2)

Accion Pauliana Requisites:

1.] There must be a ​creditor

who became such prior to the
contract sought to be
rescinded, ​although
demandable later; (a person
asking for rescission being a
judgment creditor is immaterial.)

2.] There must be ​alienation

made ​subsequent to such
credit​;
3.] The ​party alienating must
be in bad faith​ (knew the
damages would be caused);

4.] There must be no other

remedy for the prejudiced
creditor - “Inability to collect to
the claims due them”.

5.] That the action being

impugned is fraudulent

Action to rescind may be

brought even if debtor has not
yet been judicially declared
insolvent and even if the
creditor has not yet brought an
action to collect.

Requisites of rescission:

1.] Generally, plaintiff must be

able to return what has been
received by virtue of rescissible
contract, except when it is
prejudicial to the creditors.

2.] The thing-object of the

contract is not in the legal
possession of the 3rd person in
good faith.

3.] There must be no other legal

remedy.

4.] The action must be brought

within the proper prescriptive
period.