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Rescissible Voidable Unenforceable Void

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

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

But ​if lost through fortuitous event​,


-No rescission​ shall take place
he ​only has to pay for the value
when ​the things which are the without interest​ ​because he is in
object of the contract are good faith.
legally in the possession of
third persons who did not act -If ​defect​ consists of​ incapacity of
in bad faith​. The prejudiced one party​, ​incapacitated person is not
creditor may instead demand for obliged to make any restitution​. Like if
damages from the person who he squanders the thing or lost it but
not due to his fault or fraud. (Art.
caused such damage.
1399)
Exception​:​ insofar as he has been
-Restitution ​only applies to​ Art. benefited by disposal of the thing​ or
1381 paragraphs: price received by him.​ Or has ​kept the
thing​. T
​ herefrom, there must be
1, 2 and 3​. ​Exception​: onerous restoration.​ ​(Art. 1241)
and good faith.
-​Innocent third parties cannot be
4.​ ​Exception​: obliged to restore. (Acquired
1.] You are the complainant 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 -Yes,​ prescription​ ​of the action -N​ot by prescription​. -No. There is no prescription as to the
cured? action to rescind​. Action to to annul​ cures the defect.​ Action action or defense to declare the contract
claim rescission ​must be must be brought within 4 years. -​Can be cured tacitly or void. (Art. 1410)
commenced within four years. (Art. 1391 & 1392) expressly.
(Art. 1389) 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.​
unenforceability.)

Who may May be ​a party​ or a ​3rd person The action for the annulment of Only the parties to the Available to anybody - ​3rd persons or
institute whose rights or interests have contracts may be instituted by all contract​ since no 3rd party​ - ​provided that their interests are
action? been prejudiced (economic or who are thereby​ obliged:​(Art. party may be prejudiced affected. ​(Art. 1421)
financial) as a result of the 1397) by it.
rescissible contract. -In Pari Delicto rule, ​When the​ nullity
1.]​PRINCIPALLY​ or proceeds​ from​ illegality​ of the ​cause​ or
2.]​SUBSIDIARILY object of the contract​ and b ​ oth
constitute a criminal​ offence​,​ ​both
Exception​: being in pari delicto​, they shall have​ ​NO
A person not obliged principally or ACTION​ against each othe​r and​ both
subsidiarily ​may exercise an shall be prosecuted​. (Art. 1411)
action for nullity if he is Exception​: There is still recovery even if
PREJUDICED IN HIS RIGHTS parties are in pari delicto if the contract be
with respect to one of the repudiated by one of the parties ​before​:
contracting parties. (Art. 1414)

-​Can only be invoked​ by the A.] The purpose has been accomplished;
aggrieved party​. Not the or
capacitated person or the one who B.] Damage has been caused to any 3rd
employed vices of person.
consent.(Estoppel)
Exception:​ ​ A
​ ctive misrepresentation Ex. Kill contract. A gives B 10k to kill C. If
on the part of ​the incapacitated A changes his heart and repudiates the
person. contract, he may recover the 10k given to
B. ​BEFORE​ ​purpose has been
-​Creditors of victim​ ​cannot​ ask accomplished​ and ​when public interest
for annulment ​except when it will be subserved​.
prejudice them and the debtor has
no other property​. Rule also applies:
A.] When parties are not equally guilty.
-The​ action for annulment of B.] Where public policy would be
contracts​ shall be ​extinguished
when the​ thing which is ​the advanced by allowing the suit of relief.
object​ thereof i​ s lost​ through the
fraud or fault​ of the ​person​ ​who State shall seize the effects of the
has a right to institute the Crime and its instruments​. Provisions of
proceeding​. (Art. 1401, par. 2) Penal Code relative to the ​disposal of
effects or instruments​ of a crime shall be
If lost through fortuitous event​, the ​ rice of the
applicable​ to the​ things​ or the p
action may still prosper if​ the person contract.​ (Art. 1411, pa.r 1)
who has the right to institute the
action​ and who has ​lost the thing
This rule shall be applicable when ​only
through fortuitous event offers to
pay​ for the value of the thing lost​.
one of the parties is guilty​; but ​the
Basis for the value:​ The ​value​ of the innocent one may claim what he has
thing ​at the time of the loss of the given, and shall not be bound to
object​. comply with his promise​. (Art. 1411,
par. 2)
-If the right of action is ​based on
incapacity of one of the Ex. Sale of illegal drugs.
contracting parties​,​ ​loss​ of the
thing ​shall not​ be an ​obstacle to -If act in which the unlawful or forbidden
the success of the action​. (Art. cause consists does not constitute a
1401, par. 2) ​Exception:​ ​Said criminal offense: (Art. 1412)
loss took place​ through the ​fraud
or ​fault ​of the ​plaintiff​. 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)
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.

Other -​Presumption of Fraud​ (Art. Requisites of Ratification: -When the price of any article or
Notes 1387) commodity is determined by statute, or by
1.] Contract is voidable; authority of law, any person paying any
[Par. 1]​ Gratuitous Alienation is amount in excess of the maximum price
presumed fraudulent when: 2.] Person ratifying must know the allowed may recover such excess. (Art.
reason for the contract being voidable
1417)
(cause is known);
1.] debtor did not reserve
sufficient property to pay all 3.] Cause must not exist/continue to Ex. Basic necessities that were sold
debts contracted “before” the exist anymore at the time of beyond the price permitted by DTI. The
donation. ratification; buyer may recover such excess by
complaining to DTI.
[Par. 2]​Onerous Alienation is 4.] Ratification is made expressly or
presumed fraudulent when: by an act implying a waiver of action
to annul;
1.] Against whom some 5.] Person ratifying must be the
judgment has been rendered in injured party.
any instances (even if not final);
or
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.