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1. 2. 3. 4.
4 Classes of defective contracts: Rescissible contracts – which is a contract that has caused a particular damage to one of the parties or to a 3 rd person and which for equitable reasons may be set aside even if it is valid. Voidable contracts – which is a contract in which the consent of one party is defective, either because of want of capacity or because it is vitiated, but which contract is valid until set aside by the competent court. Unenforceable Contracts – which is a contract that for some reason cannot be enforced, unless it is ratified in the manner provided by law Void or Inexistent Contracts – which is an absolute nullity and produces no effect, as if it had never been executed or entered into. As to defect: As to effect: Considered valid and enforceable until they are rescinded by a competent court Considered valid and enforceable until they are annulled by a competent court Cannot be enforced by a proper action in court As to prescriptibility of action or defense: The action for rescission may prescribe As to susceptibility of ratification: Not susceptible ratification of As to who may assail contracts May be assailed not only by a contracting party but even by a 3rd person who is prejudiced or damaged by the contract Can be assailed only by a contracting party As to how contracts may be assailed May be assailed directly only, and not collaterally
There is damage or injury either to one of the contracting parties or to third persons. There is vitiation of consent or legal incapacity of one of the contracting parties. The contract is entered into in excess or without any authority, or does not comply with the Statute of Frauds, or both contracting parties are legally incapacitated One or more of the essential requisites of a valid contract are lacking either in fact or law
VOID OR INEXISTENT
As a general rule, do not produce any legal effect
The action for annulment or the defense of annulability may prescribe. The corresponding action for recovery, if there was total or partial performance of the unenforceable contract under No. 1 or No. 3 of Art. 1403, may prescribe The action for declaration of nullity or inexistence or the defense of nullity or inexistence does not prescribed
May be assailed directly or collaterally
May be assailed only by a contracting party
May be assailed directly or collaterally
May be assailed not only by a contracting party but even by a 3rd person whose interest is directly affected
May be assailed directly or collaterally
4. 3. 4. because it cannot be ratified. Art. and its effects. but not by Articles 1385. (5) All other contracts specially declared by law to be subject to rescission. they are valid and therefore. by means of the restoration of things to their condition prior to the celebration of the contract. (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority. should be determined by the agreement made by the parties. 1380. (1291a) . and even to 3 rd persons. as a consequence of which it may be rescinded by means of a proper action for rescission. and not collaterally They can be attacked only either by a contracting party or by a 3rd person who is injured or defrauded They are susceptible of convalidation only by prescription and not by ratification TOLENTINO: Requisites of Rescission: The contract must be a rescissible contract. with respect to the party concerned. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof. Characteristics: Their defect constitutes in injury or damage either to one of the contracting parties or to 3rd persons Before rescission. is produced ipso jure. – a contract with is valid because it contains all of the essential requisites prescribed by law. but by reason of injury or damage to either of the contracting parties or to 3rd persons. whether unilateral or reciprocal. such as creditors. or by the application of other legal provisions. It differs from the void or inexistent contract. which is not applicable. may be rescinded Resolution The action may be instituted only by a party to the contract The only ground is failure of one of the parties to comply with what is incumbent upon him In resolution the law expressly declares that courts shall have a discretionary power to grant an extension for performance provided that there is a just cause Only reciprocal contracts may be resolved As to contract which may be rescinded or resolved: • Neither must rescission be confused with rescission of a contract by mutual consent of the contracting parties – Rescission by mutual consent is simply another contract for the dissolution of a previous one. or by the cessation of the impediment which prevents its complete effectiveness. even if the same should be valid. to secure the reparation of damages caused to them by a contract. • 1.Art. 2. 5. if the latter suffer the lesion stated in the preceding number. legally effective They can be attacked directly only. (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them. 2. • • Remission – a remedy granted by law to the contracting parties. (2) Those agreed upon in representation of absentees. while a voidable contract does not become inoperative unless an action to annul it is instituted and allowed. 5. • 1. in relation to the contract so dissolved. in that the ineffectiveness of the latter is absolute. 1191 of the Code – similarities both with respect to validity and effects Rescission As to party who may institute action: As to causes: As to power of the courts: The action may be instituted not only by a party to the contract but even a 3rd person There are several causes or grounds such as lesion. 3. fraud and others expressly specified by law In rescission there is no power of the courts to grant an extension of time for performance of the obligation so long as there is a ground for rescission In rescission any contract. while the relatively ineffective contract can be made completely effective by the consent of the person as to whom it is ineffective. TOLENTINO: Relatively Ineffective Contract – is distinguished from the voidable contract in that its ineffectiveness. Contracts validly agreed upon may be rescinded in the cases established by law. Rescission distinguished from resolution of reciprocal obligations under Art. such as those mentioned in Art. 1381. Rescissible C. 1381 and 1382 The party asking for rescission must have no other legal means to obtain reparation for the damages suffered by him The person demanding rescission must be able to return whatever he may be obliged to restore if rescission is granted The things which are the object of the contract must not have passed legally to the possession of a 3rd person acting in good faith The action for rescission must be brought within the prescriptive period of 4 years. but which is defective because of injury or damage to either of the contracting parties or to 3rd persons. (1290) • • • Rescissible Contracts – all of the essential requisites of a contract exist and the contract is valid. it may be rescinded.
and The object of the contract must not be legally in the possession of a 3rd person who did not act in bad faith If the object of the contract is legally in the possession of a 3 rd person who did not act in bad faith. here there is a real right involved. are also rescissible. 6. or at least. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected. if he enters into a contract falling within the scope of his powers as guardian of the person and property. judicial approval is indispensable. or at least. 1177 of the Code which states that one of the remedies available to the creditor after he has exhausted all the property in possession of the debtor is to impugn the acts which the latter may have done to defraud him. 2. a judicial guardian entering into a contract with respect to the property of his ward must ordinarily secure the approval of a competent court Also in case of a father or mother considered as a natural guardian of the property of a child under parental authority where such property is worth more than P2000. Here the purpose is to secure the possible effectivity of a claim. TOLENTINO: A guardian is authorized only to manage the estate of his ward. 2. (1292) • • • • • • TOLENTINO: A valid contract can be rescinded only for legal cause. The ward or absentee must have suffered lesion of more than one-fourth of the value of the property which is the object of the contract The contract must have been entered into without judicial approval There must be no other legal means for obtaining reparation for the lesion The person bringing the action must be able to return whatever he may be obliged to restore.Art. the principles enunciated in the preceding section are also applicable here. 1381 of the Code The second is contracts in behalf of Absentees – However. the question in every case is whether the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors. • • • • 1. 4. and not rescissible even if the latter suffers lesion or damage of more than onefourth of the value of the property. 2. the intent to commit fraud to the prejudice of the creditor seeking the rescission. he has no power to dispose of any portion thereof without approval of the court. Contract involves the sale or encumbrance of real property. while in the preceding number the purpose is to guarantee an existing credit. express judicial approval is not necessary. 4. mortgages or otherwise encumbers real property belonging to his war without judicial approval. such contracts are not rescissible if they have been approved by the courts Same as those of the guardians. The first of the rescissible contracts are those which are entered into by guardians. 1386 which states that rescission shall not take place with respect to contracts approved by the courts. or only of the property. The fourth is contracts referring to things under litigation – The case contemplated in this number is different from that contemplated in the preceding number. the remedy available to the creditor is to proceed against the person causing the loss for damages. TOLENTINO: Signs of Fraud: The fact that the consideration of the conveyance is inadequate A transfer made by a debtor after suit has been begun and while it is pending against him A sale upon credit by an insolvent debtor Evidence pf large indebtedness or complete insolvency The transfer of all or nearly all of his property by a debtor. while in the • • • • 1. such as when the contract involves acts of administration. hence. TOLENTINO: Test of Fraud – In determining whether or not a certain conveyance is fraudulent. However. 3. 4. or whether it conserves to the debtor a special right. the intent to commit fraud. • • . 6. the contract is unenforceable. the remedy available to the person suffering the lesion is indemnification for damages and not rescission The third is contracts in fraud of creditors – this complements Art. 5. 5. 3. Under the Rules of Court. Requisites for contracts entered into by guardians in behalf of his ward or by a legal representative in behalf of an absentee: The contract must have been entered into by a guardian in behalf of his ward or by a legal representative in behalf of an absentee. if a guardian sells. when there are present any of the above circumstances The failure of the vendee to take exclusive possession of all the property Requisites before a contract can be rescinded on the ground that it has been entered into in fraud of creditors: There must be a credit existing prior to the celebration of the contract There must be a fraud. This is without prejudice to the provision of Art. in which case the contract is rescissible if the latter suffers the lesion or damage mentioned in No. of his ward. 7. 1382. • 1. 3. The creditor cannot in any other legal manner collect his credit The object of the contract must not be legally in the possession of a 3rd person who did not act in bad faith If the object of the contract is legally in the possession of a 3 rd person who did not act in bad faith. Consequently. especially when he is insolvent or greatly embarrassed financially The fact that the transfer is made between father and son. 1 of Art.
then the latter can rescind the payment. Their representatives . the recognition does not give rise to the credit. but merely confirms its existence. TOLENTINO: There are parties who may appear to have become creditors after the alienation. Suspensive condition – let us assume that A is indebted to B for P10. 1556. there is no question that the payment is rescissible. 2. 1189. 1534. It is clear that the basis of the rescissible character of the transaction is fraud as in the case of No. The obligation in favor of C is subject to a suspensive condition. Absolute Simulation There is no alienation but a mere pretense that one has been made By all creditors. For instance. Can B rescind the payment? Under art. both of which deserve the protection of the law. before or after the simulation Not required Does not seek to set aside the simulated contract. While in a state of insolvency. TOLENTINO: Rescission is a subsidiary action. 2. They are similar in the sense that in both cases the person who can avail of the remedy of rescission is a stranger to the contract • • 1. an action for rescission can certainly be maintained because it is clear that in such case the creditor can have no other remedy. in the rights of creditors whose credit were prior to the alienation Other rescissible contracts – Arts. A pays his obligation to C before the expiration of the term or period. then the latter cannot rescind the payment even if such payment was effected before the expiration of the period. before the alienation. 1381 Insolvency – it refers to the financial situation of the debtor by virtue of which is is impossible for him to fulfill his obligations. but who may be considered as having a prior right and entitled to the accion pauliana: Those whose claims were acknowledged by the debtor after the alienation. The action for rescission is subsidiary. it is indispensable: That it must have been made in a state of insolvency That the obligation must have been one which the debtor could not be compelled to pay at the time such payment was effected. but if the obligation with a period became due after the obligation to the creditor seeking the rescission became due. A judicial declaration of insolvency is not. 1382 In order that the payment can be rescinded. Before a party who is prejudiced can avail himself of this remedy. but it is fraudulent Can be alleged only by the creditors prior to the act Impossibility of satisfying the plaintiff’s claim is required An action to set aside a valid contract • • 1. and 1659 of the Code • Art. however. 1383. it is essential that he has exhausted all of the other legal means to obtain reparation If it can be established that the property which is alienated or transferred by the debtor to another was his only property at the time of the transaction. but the origin of which antedated the alienation. Parties who may institute action: The person who is prejudiced. According to Manresa. Simulation Accion Pauliana There is real alienation. but then this conclusion would be in direct conflict with the provision of No. the obligations contemplated by this article comprehend not only those with a term or which are subject to a suspensive condition. 1382. 1567.000. the creditor who is defrauded in rescissory action on the ground of fraud. 2. 1542. 1 of Art. TOLENTINO: Lesion – is the injury which one of the parties suffers by virtue of a contract which is disadvantageous to him. which presupposes that the creditor has exhausted the property of the debtor. such as the party suffering the lesion in rescissory actions on the ground of lesion. (1294) • • • 1. but even void and natural obligations as well as those which are condoned or which have prescribed. necessary. 3 and 4 of Art. 1560. 1539.preceding number there is a personal right. but merely declare its inexistence • • • • • TOLENTINO: Accion Pauliana vs. According to Manresa.000 and to C for P5. 1198 of the Code under which A can be compelled by C to pay the obligation even before the expiration of the stipulated term or period since by his insolvency he has already lost his right to the benefit of such term or period. but acknowledged by the debtor only after the alienation Those who becomes subrogated. EX. • Contracts by insolvent – under Art. and other persons authorized to exercise the same in other rescissory actions. which is impossible on credits which cannot be enforced because of the term or condition. the conflict can easily be resolved by considering the priority of dates between the two debts. If the obligation with a period became due before the obligation to the creditor seeking the rescission became due. it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. 1526. 1098. therefore. claims for damages arising before the alienation.
require. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors.3. 1386. the action will certainly fail because positive statutory law. In this case. i. where he has registered his right over the realty under the Land Registration Act. The second paragraph – this applies to all kinds of rescissible contracts. the effect if rescission is granted would be the restoration of things to their condition prior to the celebration of the contract. indemnity for damages may be demanded from the person causing the loss. (1296a) Art. the concurrence of these requisites offer no difficulty because of the principle that possession of movable property acquired in good faith is equivalent to a title. However. industrial and civil fruits but also to other accessions obtained by the thing. However. Their creditors by virtue of the subrogatory action defined in Art. that the consideration received should be refunded. This is so because in the latter there can certainly be no obligation on the part of the plaintiff-creditor to restore anything since he has not received anything. plus the sum expanded by them in improving the land. A 3rd person to whom the realty has been transferred who has not registered his right in the proper registry cannot be protected against the effects of a judgment rendered in the action for rescission. 4. if it can be established that the decedent entered into a contract with another in order to defraud him of his legitime. 1387. and subsequently. Art. 2. The decision or attachment need not refer to the property alienated. But if the plaintiff cannot refund the amount including interest. while interest refers to legal interest. (1295) • • The first paragraph is applicable only to rescissory actions on the ground of lesion and not to rescissory actions on the ground of fraud. In addition to these presumptions.e. there would be no legal obstacles to the transfer of the title of the said property. (1297a) . i. and for this reason the said transfer cannot be rescinded. the minor upon reaching the age of majority. (n) • The purpose of rescission is reparation for the damage or injury which is suffered either by a party to the contract or by a 3rd person. Rescission creates the obligation to return the things which were the object of the contract. If the thing is immovable.e. Their heirs – (a right to the legitime is similar to a credit of a creditor) he may do so as a representative of the person who suffers from lesion or of the creditor who is defrauded. 1 and 2 of Article 1381 shall not take place with respect to contracts approved by the courts. and need not have been obtained by the party seeking the rescission. and the price with its interest. Rescission referred to in Nos. The determination of the good or bad faith of the party obliged to restore is of transcendental importance in order to assess the fruits or the value thereof which must be returned as well as the expenses which must be reimbursed. he has no right to institute the action. the rules on possession shall be applied. • • • • Art. the person who is prejudiced is not left without any remedy.000 to a certain person. 1384. the vendor must refund the vendees (who are in good faith) an amount equal to the purchase price. • • • • • • • 1. 1385. Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. 1177 of the Code Art. The impossibility of maintaining an action for the rescission of the contract where the object is legally in the possession of a 3rd person in good faith. no less than uniform court decisions. it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. – as a condition to the rescission of a contract of sale of a parcel of land. brings an action for the rescission of the contract on the ground of lesion. He may still bring an action for indemnity for damages against the person who caused the loss. It must be observed that as far as the obligation to restore the fruits is concerned. before he is protected by law. Rescission shall be only to the extent necessary to cover the damages caused. Fruits of the thing – refer not only to natural. – where a guardian alienates the properties of a minor for P85.rescissory action on the ground of lesion Neither shall rescission 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. If the thing is movable. 2 requisites in order that the acquisition of the thing which consitutues the object of the contract by a 3 rd person shall defeat an action for rescission: That the thing must be legally in the possession of the 3rd person That such person must not have acted in bad faith. it may also be partial. --. consequently. as a condition precedent to rescission. the design to defraud creditors may be proved in any other manner recognized by the law of evidence. together with their fruits. unless he who demands it can return whatever he may be obliged to restore. Rescission is not possible. when the donor did not reserve sufficient property to pay all debts contracted before the donation. the right of the 3rd person must be registered or recorded in the proper registry before we can say that the thing is legally in his possession or what amounts to the same thing. Rescission need not be total in character.
the presumption of fraud is overthrown. The test as to whether or not a conveyance is fraudulent is – does it prejudice the rights of creditors? In the consideration of whether or not certain transfers or conveyances are fraudulent. 2. But where the sale is founded on a fictitious cause or consideration it would be futile for such creditor to invoke its rescission since such action presupposes the existence of a valid. which was his only attachable property. Consequently. • i. – where it is proved that a certain corporation. In such case the creditor who is prejudiced can still proceed after the property. and that he paid the purchase price in the belief that the latter could freely dispose of the said property. the presumption is not applicable. it is rescissible as far as the creditors are concerned. some of which were for far more than their actual value. It must be observed that the above presumptions are disputable. The contract or conveyance is not rescissible • If the acquisition by the 3rd person in bad faith – the contract or conveyance is rescissible. • The mere fact of relationship between vendor and vendee. it should be .Art. 6.000 to the vendee for only P36. 1387 in order to prove the existence of fraud or the intention to defraud According to the 3rd paragraph of the same article. it should be impossible for him to return them. although good between the parties. 2. to contract. 4. it is also true that such a test would not be applicable if the conveyance is made in good faith or with a bona fide intent and for a valuable cause or consideration. Alienations of property by onerous title if made by a debtor against whom some judgment has been rendered in any instance or some writ of attachment has been issued. shall indemnify the latter for damages suffered by them on account of the alienation. It is not indispensable that the creditor shall have to depend upon the two presumptions established in the 1st and 2nd paragraphs of Art. in determining whether or not a certain conveyance is fraudulent the question in every case is whether the conveyance was a bona fide transaction or merely a trick or contrivance to defeat creditors. as when the vendor is the vendee’s mother. the first acquirer shall be liable first. If defective in either of these particulars. 1388. to his son after judgment had been rendered against him and a writ of execution had been issued. especially when he is insolvent or greatly embarrassed financially The fact that the transfer is made between father and son.000 in spite of the fact that at the time of such sale it did not have any liquidated assets and that all of its other assets were pledged or mortgaged. when there are present others of the above circumstances The failure of the vendee to take exclusive possession of all the property • • • • • • • 1. and therefore may be rebutted by satisfactory and convincing evidence to the contrary. • The test as to whether or not a conveyance is fraudulent is to determine whether or not it is prejudicial to the rights of the creditors. It is not sufficient that it is founded on a good or valuable cause or consideration or is made with bona fide intent: it must have both elements. such circumstances would be sufficient to establish the fraudulent character of the conveyance. the following circumstances have been denominated by the courts as badges of fraud. the acquisition as far as the law is concerned is not fraudulent. not inexistent. The remedy of the creditor in such case would be to ask for a declaration of nullity of the conveyance. The decision or attachment need not refer to the property alienated and need not have been obtained by the party seeking the rescission. if it can be established that the transferee acquired the property in good faith. • If the property is acquired by a purchaser in good faith and for value. If there are two or more alienations. 5. (1298a) • • 1. without the least intention of impairing the judgment obtained by the creditor against the transferor. due to any cause. 3. Thus. Thus. the sale can be set aside by means of an action for rescission at the instance of the creditor. which is heavily indebted to a certain bank. whenever. and so on successively. This presumption becomes stronger when it is established that the conveyance by the judgment debtor is for the purpose of preventing the judgment creditor or other creditors from seizing the property. there is presumption that such alienation is fraudulent in accordance with the rule stated in the 2nd paragraph of Art. is not in itself an element of fraud. if the sale was made for a valuable consideration and said vendor was not at the time of the conveyance insolvent. if for any cause or reason. sold a large tract of land worth P400. A transfer made by a debtor after suit has been begun and while it is pending against him A sale on credit by an insolvent debtor Evidence of large indebtedness or complete insolvency The transfer of all or nearly all of his property by a debtor. Presumption of Fraud (fraud of creditors in the following cases): Alienations of property by gratuitous title if the debtor has not reserved sufficient property to pay all of his debts contracted before such alienations. 7. where the debtor alienated a certain property. Whoever acquires in bad faith the things alienated in fraud of creditors. 1387. 1387 of the Code or duly proved in accordance with the ordinary rules of evidence. the design to defraud creditors may be proved in any other manner recognized by the law of evidence. Proof of Fraud – fraud or intent to defraud may be either presumed in accordance with Art. The fact that the cause or consideration of the conveyance is inadequate. nevertheless. But where no judgment or preliminary attachment exists against the debtor. Thus. However.e.
valid and binding. the first acquirer shall be liable first. For persons under guardianship and for absentees. TOLENTINO: Voidable or annullable contracts are existent. counted from the day of delivery. although the conveyance to D cannot be rescinded. 1389. (1299) • • • TOLENTINO: A minor who is a party to a contract of sale must bring the action for rescission within 4 years after attaining the age of majority. or by mistake. or until the domicile of the latter is known. the period of four years shall not begin until the termination of the former's incapacity. although the element of consent is vitiated either by lack of legal capacity of one of the contracting parties. Rescission Nullity As its name implies. and B. Art.impossible for the acquirer in bad faith to return the property. in turn. conveys his only property to B in fraud of X. against whom a judgment for the payment of a certain debt in favor of X has been rendered. It must be noted that if the reason for the impossibility of returning the property acquired in bad faith is a fortuitous event. 1174 of the Code. 1382. Its validity may be attacked either directly by means of a proper action in court or indirectly by way of defense. CHAPTER 7 VOIDABLE CONTRACTS • • • • • Voidable Contracts – may be defined as those where in which all of the essential elements for validity are present. and the latter. it must be counted from the time of the discovery of the fraud. needs no ratification Private interest alone goven Remedy.e. declares the inefficacy which the contract already carries in itself To be cured. violence. TOLENTINO: Repentance is not a ground for nullification Characteristics: Their defect consists in the vitiation of consent of one of the contracting parties They are binding until they are annulled by a competent court They are susceptible of convalidation by ratification or by prescription Their defect or voidable character cannot be invoked by 3rd persons Rescissible Contracts The defect is external because it consists of damage or prejudice either to one of the contracting parties or to a 3 rd person The contract is not rescissible if there is no damage or • Voidable Contracts The defect is intrinsic because it consists of a vice which vitiates consent The contract is voidable even if there is no damage or . – If A. who is a purchaser in good faith and for value. who is also aware of the fraud. intimidation. who is aware of the fraud. yet X can still proceed against B for damages suffered by him on account of the fraudulent alienation. also conveys the property to D. 3 and 4 under Art. however. undue influence. requires an act of ratification The direct influence of the public interest is noted Sanction. there can be no liability of the acquirer. he shall indemnify the creditor seeking the rescission for damages suffered on account of the alienation. The most essential feature is that it is binding until it is annulled by a competent court. the prescriptive period for the commencement of the action is six months or even forty days. equity May be demanded even by 3rd parties affected by it • TOLENTINO: Nullity vs. Once it is executed there are only two possible alternatives left to the party who may invoke its voidable character – to attack its validity or to convalidate it either by ratification or by prescription. the law predominating in the former Can be demanded only by the parties to the contract • • 1. 2. but before alienation. they are effective and obligatory between the parties. then under the principle announced in Art. which did not exist essentially in the contract To be ineffective. conveys to the property to C. 3. while the defense itself is called annulability or relative nullity in order to distinguish it from the defense of absolute nullity or inexistent in void or inexistent contracts or the defense of unenforceability in unenforceable contracts Rescission Merely produces that inefficacy. In certain cases of contracts of sale which are specially declared by law to be rescissible. because under the present article the claim of rescission prescribes in 4 years from removal of one’s incapacity Under no. The action itself is called annulment in order to distinguish it from an action for the rescission of rescissible contracts or from an action for the declaration of absolute nullity or inexistence of void or inexistent contracts. although they can be annulled because of want of capacity or vitiated consent of one of the parties. and if he fails to recover he can still proceed against C. and so on successively. • If it happens that there are two or more alienations. or fraud. The action to claim rescission must be commenced within four years. • i.
prejudice prejudice The annulability of the contract is based on the law. 1390. Since there was no active fraud or misrepresentation on his part at the time of • • • • . from the time the guardianship ceases. actions for annulment of voidable contracts shall prescribe after 4 years. When sued for the amount. He cannot be absolved entirely from the monetary responsibility. not voidable.000 from PG. the promissory note is voidable because of minority. The rescissibility of the contract is based on equity. as far as Mario’s share in the obligation is concerned. 1– The defense should be sustained. signed the promissory note for the loan. Art. Private interest predominates predominates The cause for annulment are different from the causes for rescission. In other words. Mario cannot be bound by his signature in the promissory note. 1391. HEIRS OF ALDON (page. It must be noted that the action for annulment was instituted by PG against Mario when the latter was already 26 years old. undue influence or fraud. (n) • • • It must be observed that in a voidable contract all of the essential requisites for validity are present. which note did not say anything about the capacity of the signers. more than four years have already elapsed from the time that Mario had attained the age of 21. S borrowed P20. it can always be annulled by a proper action in court. however. After 7 years. – Mrs. 2 – The defense should not be sustained. from the time the defect of the consent ceases. Under the Civil Code. Here Mario is merely interposing his minority as an excuse from liability. since the basis of the action and the basis of the defense are identical In Braganza vs. Mario raised the defense: that he signed the note when he was still a minor. there is no active fraud or misrepresentation. (2) Those where the consent is vitiated by mistake. he can no longer interpose his minority as a defense. If consent is absolutely lacking or simulated the contract is inexistent. Villa Abrille. intimidation. the right of the party entitled to institute the action shall prescribe. The action for annulment shall be brought within four years. S made partial payments little by little. These contracts are binding. Mrs. In the case of contracts which are voidable by reason of minority or incapacity. – only an assumption but more just and logical i. The promissory note would then have all the effects of a perfectly valid note. undue influence or fraud. 521) • Art. Answer No. that where minority is sued as a defense and no positive relief is prayed for. there is merely silence or constructive fraud or misrepresentation. (1301a) • • If the action is not commenced within such period. Spanish commentators advance the view that the defense shall also prescribe after the lapse of 4 years. It would have been different if the note says that Mario is of age. without the minors asking for any positive relief from the contract. Hence. PG demanded payment from Mario who refused to pay. even if his written contract is voidable because of minority he shall make restitution to the extent that he may have been benefited by the money received by him (Art. According to the CC. unless they are annulled by a proper action in court. from the time of the discovery of the same. 1391 of the Civil Code where minority is set up only as a defense to an action. his right to interpose the defense has already prescribed. violence or undue influence. 1391 speaks only of the action. although the requisite of consent is defective because one of the contracting parties does not possess the necessary legal capacity. since more than 4 years already elapsed from the time Mario had attained the age of 21. Therefore. therefore. Rescission Annulment is not only a remedy but a sanction. violence. She and her 19-year old son. It must be observed that the promissory note does not say anything about the capacity of the signers. And when the action refers to contracts entered into by minors or other incapacitated persons. CC) does not apply. Mario. In the instant case. even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract. Should the defense be sustained? Why? Answer No. They are susceptible of ratification. The following contracts are voidable or annullable. The principle of estoppel would then apply. intimidation. It has been held. True. the SC declared that “there is reason to doubt the pertinency of the period fixed by Art. the 4-year period shall be counted from the time the guardianship ceases (Art.000 on the note. Public interest is a mere remedy.e. 1391). Susceptible of ratification Not susceptible Annulment may be invoked only by a contracting party Rescission may be invoked either by a contracting party or by a 3rd person who is prejudiced. It would have been different if four year had not yet elapsed from the time Mario had attained the age of 21. 1391. Should the defense also prescribe within the same period as the action for annulment? Although Art. Mario would not be allowed to invoke the defense of minority. Whether a contract which the law considers as voidable has already been consummated or is merely executory is immaterial. Apparently. The same rule should also be applied to the defense. This period shall begin: In cases of intimidation. In case of mistake or fraud. the 4-year period (Art. the right of Mario to invoke his minority as a defense has already prescribed. she died leaving a balance of P10. however. CC). violence. or because it is vitiated by mistake. 1399. READ FELIPE VS.
the latter have a perfect right to file the action to nullity the chattel mortgage. with knowledge of the reason which renders the contract voidable and such reason having ceased. The confirmation should be effected by the person who is entitled to do so under the law – implied from the provisions of Arts. nor can those who exerted intimidation. it is clear that the contract is voidable as far as he is concerned. (1312) Art. such vice should be susceptible of being cured because otherwise the contract would be void or inexistent and not susceptible of confirmation. Ratification extinguishes the action to annul a voidable contract. 3. Art. entitled to bring an action for annulment. • . the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. persons who are capable cannot allege the incapacity of those with whom they contracted. 3rd person cannot institute an action for its annulment. such as when it has been executed through mistake or fraud. Ratification or confirmation – the act or means by virtue of which efficacy is given to a contract which suffers from a vice of curable nullity. Furthermore. although it does not require the conformity of the other party who has no right to invoke the nullity of the contract. his right to ask for annulment is not extinguished thereby since the ratification or confirmation has only purged the contract of mistake. the defense of minority should then be sustained. Ratification may be effected by the guardian of the incapacitated person. if the person entitled to effect the confirmation ratifies or confirms the contract with knowledge of the mistake. • Effects of ratification: • • • Art 1392 – ratification extinguishes the action to annul the contract Art. 1397. but not of fraud. Generally. 1396. or caused mistake base their action upon these flaws of the contract. • • Express R. However. but not of fraud The cause of the nullity or defect should have already disappeared • Ratification: • • • • • 1. 1393. or what amounts to the same thing. or undue influence. Ratification may be effected expressly or tacitly. TOLENTINO: Retroactivity of Ratification – its effects retroact to the moment where the contract was entered into. – where the remaining partners of a partnership executed a chattel mortgage over the properties of the partnership in favor of a former partner to the prejudice of creditors of the partnership. as such it requires. with knowledge of the reason which renders the contract voidable and such reason having ceased. 4. In such case. Requisites of Ratification: The contract should be tainted with a vice which is susceptible of being cured – presupposes the existence of a vice in the contract because otherwise it would not have any object. (1311a) Art. 1395. 1394 and 1395 It should be effected with knowledge of the vice or defect of the contract – Art. validates the contract either expressly or impliedly TOLENTINO: Ratification – is the act of approving a contract entered into by another without the authorization of the person in whose name it was entered into. Exception according to SC. or beyond the scope of the authority of the former. or employed fraud. a person who is not a party obliged principally or subsidiarily under a contract may exercise an action for annulment of the contract if he is prejudiced in his rights with respect to one of the contracting parties. knowledge and charity which consent also requires. Since confirmation is above all a form of expressing the will. 1396 – it cleanses the contract of its defect from the moment it was constituted. TOLENTINO: Confirmation – is the act by which a person. It is understood that there is a tacit ratification if. (1302a) • 1. If the contract is tainted with several vices. Tacit R. with knowledge of the reason which renders the contract voidable and such reason having ceased. the action for annulment of a voidable contract may also be extinguished by ratification. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. and can show the detriment which would positively result to him from the contract in which he has no intervention – i. the person who has a right to invoke it should expressly declare his desire to convalidate it. the same conditions of freedom. with knowledge of the cause of annulment and after it has ceased to exist. 1394. (1309a) Art. Requisites to confer the necessary capacity for the exercise of the action for annulment: The plaintiff must have an interest in the contract That the victim and not the party responsible for the vice or defect must be the person who must assert the same. In such case. violence. Ratification cleanses the contract from all its defects from the moment it was constituted. – if. 1392.e.execution of the promissory note. (n) Art. 1393. – if. the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. Art. 2. The code makes no more distinction between confirmation and ratification. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. 2. independently of the act to which it refers. to renounce his right to annul the contract. (1313) • Besides prescription.
Persons who are capable cannot allege the incapacity of those with whom they contracted. a minor. In order to determine this. therefore. Tolentino. since it is presumed in the absence of proof that no such benefit has accrued to the incapacitated person Art. • If the person obliged by the decree of annulment to return the thing cannot do so because it has been lost through a fortuitous event. the contracting parties shall restore to each other the things which have been the subject matter of the contract. When the defect of the contract consists in the incapacity of one of the parties. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return. 3. it is necessary to know his necessities. but with this difference – the defendant can be held liable only for the value of the thing at the time of the loss. the defendant can only be compelled to pay the value thereof at the time of the loss. 1401. Pedro died. Interest refers to the legal interest. instead of being compelled to restore the thing. and the price with its interest. unless said loss took place through the fraud or fault of the plaintiff. 1397 is explicit. with interest from the same date. 1398 – obligation of mutual restitution. X knew and the contract specifically stated the age of Y. The requisites are lacking. his social position as well as his duties as a consequence thereof to others. if the plaintiff offers to pay the value of the thing at the time of its loss as a substitute for the thing itself. An obligation having been annulled. a minor. therefore pay the value of the thing. 1399 cannot be applied to cases where the incapacitated person can still return the thing which he has received. the other cannot be compelled to comply with what is incumbent upon him. 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. Art.e. the other contracting party. otherwise. but without interest thereon. the exception was applicable. In obligations to render service. the value thereof shall be the basis for damages. – X. 1398. we would arrive at the absurd conclusion that an action for annulment would in effect be extinguished by the loss of the thing through a fortuitous event. The loss of the thing which constitutes the object of the contract through the fault of the party whom the action for annulment may be instituted shall not. he shall return the fruits received and the value of the thing at the time of the loss. 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 would not be an obstacle to the success of the action. If you are the judge. 2. (1308) • • • • 1. extinguish the action for annulment The only difference from an ordinary action for annulment is that.e. was a minor and such minority was known to X. True that the contract is voidable because of the fact that at the time of the celebration of the contract. i. The benefit in Art. . May X successfully demand annulment of the contract? – No. 1399. They are: prescription Ratification Loss of the thing which is the object of the contract through the fraud or fault of the person who is entitled to institute the action • If the loss was due to the fraud or fault of the plaintiff during his incapacity. One month later. because. the loss of the thing shall not be an obstacle to the success of the action. It is clear that the proof of such benefit is cast upon the person who has capacity. 1399 which obliges the incapacitated person to make restitution does not necessarily presuppose a material and permanent augmentation of fortune. would you annul the sale? No. 1400. the second is not in the case. the contract can still be annulled. (1307a) Art. • According to Dr. but not the interest therein because the loss was not due to his fault. i. of age. not the plaintiff. The CC in Art. 1402. with their fruits. except in cases provided by law. Pedro’s heirs then brought an action to annul the sale on the ground that Quintin was a minor and therefore without legal capacity to contract. Whenever the person obliged by the decree of annulment to return the thing can not do so because it has been lost through his fault. he should. (1314a) Art. it is sufficient if there has been a prudent and beneficial use by the incapacitated person of the thing which he has received. 20 and 21 • • • Art. (1303a) Art. must suffer the loss because he was still the owner of the thing at the time of the loss.• • • The second requisite is based on the well-known principle of equity that whoever goes to court must do so with clean hands. (1304) • • • Art. entered into a contract with Y. Where loss is due to fault of plaintiff – the action for annulment is extinguished There are three modes whereby such action may be extinguished. Y. TOLENTINO: Liability can even be based on Art. – Pedro sold a piece of land to his nephew Quintin. The defendant. the annulment of the contract would still be possible.
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