(k) To prevent rescission, (k) To prevent annulment,

CHAPTER 7 Voidable Contracts

ratification is not required. ratification is required.

Classes of Defective Contracts ---------------------------------------------------------

--------------------------------------------------------- Article 1390. The following contracts are voidable
ANNULMENT or annullable, even though there may have been
DEFINITION: Annulment no damage to the contracting parties:
- is a remedy as well as a sanction
- provided by law, (1) Those where one of the parties is incapable of
- for reason of public interest,
giving consent to a contract;
- for the declaration of the inefficacy of a contract
- based on a defect or (2) Those where the consent is vitiated by
- vice in the consent of one of the contracting mistake, violence, intimidation, undue influence
parties or fraud.
- in order to restore them to These contracts are binding, unless they are
- their original position
- in which they were before the
annulled by a proper action in court. They are
contract was executed. susceptible of ratification. (n)
---------------------------------------------------------
RESCISSION ANNULMENT VOIDABLE CONTRACTS
DEFINITION: Voidable or annullable contracts
(a) The basis here (a) The basis here is - are those which possess all the essential requisites of a
valid contract
is lesion (damage). vitiated consent or - but one of the parties
incapacity to consent. - is legally incapable of giving consent,
- or
(b) The defect here (b) The defect here - consent is vitiated by mistake, violence, intimidation,
undue influence, or fraud.
is external or intrinsic. is intrinsic (in the meeting of
the minds). CHARACTERISTICS of Voidable or annullable contracts

(c) The action (c) The action (a) incapacity to consent

- one of the contracting parties
is subsidiary. is principal. - is incapable of giving consent .
- to a contract
(d) This is (d) This is
(b) vitiated consent
a remedy. a sanction. - consent is vitiated by:
- mistake,
(e) Private interest governs. (e) Public interest governs.
- violence,
(f) Equity predominates. (f) Law predominates. - intimidation,
- undue influence or
(g) Plaintiff may be (g) Plaintiff must be - fraud.
- of one of the contracting parties
a party a party to the contract
- or bound principally
RULE: Repentance at having entered into the transaction is
a third person. - or
NOT a ground for annulment. (Gomez v. Rono, [C.A.] 45 O.G.
a party to the contract
3929, citing Vales v. Villa, 35 Phil. 769)
subsidiarily

(h) damage to the plaintiff (h) Damage to the plaintiff

is material
(i) If plaintiff is indemnified,
rescission cannot prosper.
(j) Contract is valid
is immaterial.
(i) Indemnity here
is no bar to the prosecution
of the action.
(j) Contract is defective
(c)even though there may have been no
damage to the contracting parties
(d) They are binding
- until they are annulled
- by a proper action in court.
(e) They are susceptible of
- convalidation by ratification
- or by prescription.4
• __

NOTE: Their defect or voidable character fraud

- cannot be invoked by third persons.5

NOTE: Their defect or voidable character ACTION TO BRING

- cannot be invoked by third persons.5
(a) For POSITIVE REDRESS,
--------------------------------------------------------- - an action
Article 1391. The action for annulment shall be - (complaint) or
brought within four years. - (counterclaim)
- must be filed;
- otherwise, the contract remains binding. (Art. 1390,
This period shall begin: Civil Code; Llacer v. Muñoz, 12 Phil. 328; and Rone v.
In cases of intimidation, violence or undue Claro, 91 Phil. 250).BETTER
influence, from the time the defect of the consent
ceases. (b) For use as a DEFENSE —
- ordinarily, no affirmative action is needed.
In case of mistake or fraud, from the time of the
discovery of the same. ---------------------------------------------------------
And when the action refers to contracts entered Article 1392. Ratification extinguishes the action
into by minors or other incapacitated persons, to annul a voidable contract. (1309a)
from the time the guardianship ceases. (1301a) ---------------------------------------------------------
--------------------------------------------------------- VOIDABLE CONTRACTS
VOIDABLE CONTRACTS
EFFECTS OF RATIFICATION (1)
PRESCRIPTION OF ACTION
DEFINITION: Ratification
RULE: Effect of Prescription - to cure the defect of lack of authority
- If the action has prescribed, - in an authorized contract (entered into by another).
- the contract can no longer be set aside. (Villanueva v. (Arts. 1317 and 1405, Civil Code).
Villanueva, 91 Phil. 43).
RULE: Effect of Ratification
- (1) extinguishes the action to annul
PRESCRIPTION OF ACTION AGAINST VITIATED CONSENT
- (2) Contract is cleansed of its defect
contracts entered - from the beginning. (Art. 1396, Civil Code).

into by minors
Confirmation Ratification Acknowledgment
contracts entered from the time the
into by other guardianship ceases to cure to cure to remedy
incapacitated
a defect in the defect of lack a deficiency
persons
of authority

a voidable in an authorized of proof

PRESCRIPTION OF ACTION AGAINST VITIATED CONSENT
contract. (Art. contract
1396, Civil Code)
In cases of
intimidation NOTE: Under the New Civil Code, all the three terms are now
uniformly called RATIFICATION
In cases of
from the time the defect of
violence
the consent ceases
In cases of REQUISITES OF CONFIRMATION
undue (cleansing contract of its defect)
influence
(a) The contract must be a voidable one.
In cases of from the time of the discovery
(b) The person ratifying must know
mistake of the same
- the reason for the contract being voidable
- (that is, the cause must be known).
In cases of

2
• __
(c) The cause must not exist or continue to exist anymore at
the time of ratification.
(d) The ratification must have been made expressly
- or by an act implying a waiver of the action to
annul.
(e) The person ratifying must be the injured party.
---------------------------------------------------------
Article 1393. Ratification may be effected
expressly or tacitly. It is understood that there is
a tacit ratification if, with knowledge of the reason
which renders the contract voidable and such
reason having ceased, the person who has a right
to invoke it should execute an act which
necessarily implies an intention to waive his right.
(1311a)
---------------------------------------------------------
VOIDABLE CONTRACTS
KINDS OF RATIFICATION
(a) express [ratification]
- (oral or written)
(b) tacit ratification
- (implied — as from conduct implying a WAIVER).
- REQUISITES:(1)
- (1)with knowledge of the reason
which renders the contract
voidable
- reason having ceased
- (2)the person who has a right to
invoke it should execute an act
- which necessarily implies
an intention to waive his
right
(1) A minor bought land, but sold the same, after reaching 21
years of age, to a 3rd person. (Rosales v. Reyes, 25 Phil. 495
and Atacador v. Silayan, 67 Phil. 674).
(2) A minor sold land, and upon reaching majority age,
collected the unpaid balance of the selling price (Tacalinar v.
Corro, 34 Phil. 898), or spend the greater part of the proceeds
of the sale. (Uy Soo Lim v. Tan Unchuan, 38 Phil. 552).
(3) Use of the proceeds by a person who had been previously
intimidated into selling his property. (Madlambayan v. Aquino,
[C.A.] 51 O.G. 1925, Apr. 1955).
(4) Voluntary performance by the injured party of his own
obligation, after the cause of the nullity was known to him.
(Tan Ah Chan v. Gonzales, 52 Phil. 180).
(c) in Fabie v. Yulo (24 Phil. 240), it was held that remaining
silent for a certain period of time ratifi es such a contract.
---------------------------------------------------------
Article 1394. Ratification may be effected by the
guardian of the incapacitated person. (n)
---------------------------------------------------------
VOIDABLE CONTRACTS
RATIFICATION BY THE GUARDIAN
(CONTRACTS ENTERED INTO BY AN INCAPACITATED
PERSON)
RULE: Art. 1394 does not refer to a rescissible contract entered
into by the guardian in behalf of his ward.
RULE: Since the person entitled to ratify is still incapacitated, his
guardian acts in his behalf. (See Escoto v. Arcilla, 89 Phil. 199).
RULE: Ratification can be made by the injured party himself,
provided he is capacitated, or has become capacitated.
---------------------------------------------------------
Article 1395. Ratification does not require the
conformity of the contracting party who has no
right to bring the action for annulment. (1312)
---------------------------------------------------------
VOIDABLE CONTRACTS
RATIFICATION AS A UNILATERAL ACT
RULE: Ratification
- is a unilateral act
- by which a party waives the defect in his consent.
- does not require the conformity of the
contracting party
- who has no right to bring the action
- that is: the guilty party (who has committed
fraud,mistake,violence,intimidation,undue
influence)
- REASON: Otherwise, he can conveniently disregard his
contract by the simple expedient of refusing to give his
conformity.
---------------------------------------------------------
Article 1396. Ratification cleanses the contract
from all its defects from the moment it was
constituted. (1313)
---------------------------------------------------------
VOIDABLE CONTRACTS
EFFECTS OF RATIFICATION (2)
RETROACTIVITY OF CONFIRMATION
3
• __
EFFECTS OF RATIFICATION
RULE: Effect of Ratification
- (1) extinguishes the action to annul
[1392]
- (2) cleanses the contract from all its
defects
- from the beginning. (Art. 1396, Civil Code)
- THAT IS:from the moment it was
constituted
EXCEPTIONS:
(a) Note the retroactive effect; thus, once ratification has
taken place,
- annulment based on the original defects
- cannot prosper. (Tan Ah Chan v. Gonzales, 52 Phil.
180).
(b) Although there is a retroactive effect,
- the rights of innocent third persons must not be
prejudiced.
EXAMPLE: A minor sold his land to X.
- When he became 22 years old, he became
indebted to Y.
- To avoid paying Y, the former minor decided to ratify
the sale of the land. He then had no other property.
- May Y still rescind the sale although
- at the time it was made he was not yet a
creditor?
- ANS.: Yes. Although ratification has a retroactive
effect, still his rights as an innocent third person must
not be prejudiced.
---------------------------------------------------------
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)
---------------------------------------------------------
VOIDABLE CONTRACTS
Persons Who May Ask for Annulment
RULE: by all who are thereby
- obliged principally or subsidiarily
- The victim (principal or subsidiary party) may
ask for annulment
Persons Who May NOT Ask for Annulment
(1) the guilty person or his successor
(2) The creditors of the victim cannot ask for annulment for
they are not bound by the contract
(3) minor misrepresents his age and the other party is misled
as to his age
- (a) No, because of estoppel. (Mercado v. Espiritu, 37
Phil. 37).
- (b) Later on, the Supreme Court had a
different view and answered YES, because
according to it, a minor can never be guilty
of estoppel since he is not liable for his
conduct or act. (Young v. Tecson, 39 O.G.
953).
- (c) Still later on, the Court again changed its mind
and answered NO, reiterating the Mercado case.
(Sia Suan & Chao v. Alcantara, GR L-1720, March 4,
1950, 47 O.G. 4561, where the minor, nearly 20 years
old, appeared to be very clever.)
---------------------------------------------------------
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)
---------------------------------------------------------
VOIDABLE CONTRACTS
EFFECTS OF ANNULMENT
MUTUAL RESTITUTION
RULE: MUTUAL RESTITUTION
- both of the contracting parties
- returning to the proper owner property or the monetary
value of loss
A. If the contract has not yet been complied with,
the parties are excused from their obligations
B. If the contract has already been performed,
GENERAL RULE: there must be MUTUAL RESTITUTION:
- the contracting parties shall restore to
each other
- (1) the things which have been the
subject matter of the contract
- RULE: Even if the land has already been
registered, Art. 1398 still applies, provided
there has been no estoppel. (Tinsay v.
Yusay and Yusay, 47 Phil. 639).
- doctrine of estoppel (which may prevent a
4
• __
party from asserting a right) [waiving one’s
right to annul?]
- RULE: Personal Obligations
- Here the value of the service shall
be the basis for damages. (Art.
1398, 2nd par.)
- In obligations to render
service, the value thereof
shall be the basis for
damages.
- (2) fruits
- natural, industrial and civil fruits?
- does it also include accessions obtained by
the thing?
- (3) and interest
- legal interest?
RULE: Non-availability to Strangers [me: what if in bad faith?]
- Art. 1398 cannot be availed of by strangers to the
contract. (Gov’t. v. Wagner, 5 Phil. 132). Innocent
third parties cannot be obliged to restore. (Dia v.
Finance & Mining, Inc., Corp., [C.A.] 46 O.G. 127)
RULE: It must be observed that Art. 1399 cannot be applied to
those cases where the incapacitated person can still return
the thing which he has received.
except in cases provided by law.
Article 1426. When a minor between eighteen and twenty-
one years of age
- who has entered into a contract without the
consent of the parent or guardian,
- after the annulment of the contract voluntarily
- returns the whole thing or price received,
- notwithstanding the fact that he has not been
benefited thereby,
- there is no right to demand the thing or price thus
returned.
---------------------------------------------------------
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)
---------------------------------------------------------
VOIDABLE CONTRACTS
EXCEPTION TO MUTUAL RESTITUTION
INCAPACITATED PERSON
WHEN iNCAPACITATED IS NOT WHEN iNCAPACITATED IS
OBLIGED FOR RESTITUTION OBLIGED FOR RESTITUTION
GENERAL is
RULE: not EXCEPTION RULE: IF HE
obliged to make BENEFITED
except insofar as he
has been benefited by
the thing or price
received by him.
RULE: [The right of a minor to rescind, upon attaining his majority],
a contract entered into during his minority is subject to the
conditions (a) that the election to rescind must be made within
a reasonable time after attaining majority and (b) that all of the
consideration which was in the minor’s possession upon his
reaching majority must be returned. The disposal of any part of
the consideration after the attainment of majority imports an affi
rmance or ratifi cation of the contract. (Uy Soo Lim vs. Tan
Unchuan, 38 Phil. 552 [1918].)
RULE: [implied ratification] When the defect of the contract
consists in the incapacity of one of the contracting parties, the
incapacitated person is not obliged to make any
restitution
- RULE:except insofar as he has been benefited by
the thing or price received by him
- RULE: Hence, if after attaining capacity, it is established
that
- he not only failed to ask for the annulment of the
contract
- but he also squandered that part of the consideration
which remained,
- RULE: it is clear that there is already an implied
ratification or confirmation.
---------------------------------------------------------
Article 1400. 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 shall return the fruits received and the value of
the thing at the time of the loss, with interest from
the same date. (1307a)
---------------------------------------------------------
VOIDABLE CONTRACTS
MUTUAL RESTITUTION
WHEN THE THING TO BE RETURNED IS LOST
LOST IS DUE TO FAULT OF DEFENDANT
RULE: It is evident that this rule is applicable only when the loss of
the thing is due to the fault of
- the party against whom the action for annulment may
be instituted. [8 Manresa, 6th Ed., Bk. 2, p. 658.]
RULE: When the thing itself that was lost thru his fault. (the
party’s)
- he shall return below as a substitute:
5
• __
- (1) the fruits received
- at the time of the loss
- (2a) the value of the thing
- at the time of the loss
- (2b) with interest from the
same date
EXAMPLE: A forced B to sell him (A) the house of B. B brought an
action to annul the contract. The contract was annulled on the
ground of fraud. A was asked by the court to return to B
whatever he (A) has received. But the house had been
destroyed through the fault of A. What should A now give?
- ANS.: A should give all of the following:
- (1) the fruits or rentals of the house received
- from the time the house was given to him to
the time of its loss;
- (2a) the value of the house at the time of the loss;
- (2b) interest at 6% per annum on the value of
the house from the time the house was
destroyed
---------------------------------------------------------
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. (1314a)
---------------------------------------------------------
VOIDABLE CONTRACTS
MUTUAL RESTITUTION
WHEN THE THING TO BE RETURNED IS LOST
FAULT OF PLAINTIFF OR BY FRAUD
THREE MODES WHEREBY SUCH ACTION FOR ANNULMENT MAY
BE EXTINGUISHED.
(1) prescription;
(2) ratification; and
(3) the 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
WHEN THE THING TO BE RETURNED IS LOST THRU
FAULT OF PLAINTIFF
fault of the
RULE: This is so because if the loss is due to the
person who has a right to institute the
proceedings, the provision of Art. 1401 shall apply
RESULT:action for annulment of contracts (mutual
restitution) shall be extinguished
WHEN THE THING TO BE RETURNED IS LOST THRU
FRAUD OF THE PLAINTIFF
RULE: the object thereof is lost through the fraud
RULE:action for annulment of contracts (mutual
restitution) shall be extinguished
WHEN THE THING TO BE RETURNED IS LOST
BY FORTUITOUS EVENT [DEFENDANT SIDE]
RULE: Unfortunately, the Code in Arts. 1400 and 1401 does not
provide for the effect of the loss of the object of the contract
through a fortuitous event upon the right to ask for the
annulment of the contract. In spite of this omission, it is,
however, possible to apply the general principles regarding
the effects of fortuitous events to any problem that may arise.
RESULT: the contract can still be annulled, but with this
difference —
- the defendant can be held liable only for the value
of the thing at the time of the loss, but without
interest thereon.
RULE: The defendant, and not the plaintiff,
- must suffer the loss because he was still the owner of
the thing at the time of the loss;
- he should, therefore, pay the value of the thing,
- but not the interest thereon because the loss was not
due to his fault.[614 Tolentino, Civil Code, 1956 Ed.,
pp. 559-559]
WHEN THE THING TO BE RETURNED IS LOST
BY FORTUITOUS EVENT [PLAINTIFF SIDE]
RULE: Unfortunately, the Code in Arts. 1400 and 1401 does not
provide for the effect of the loss of the object of the contract
through a fortuitous event upon the right to ask for the
annulment of the contract. In spite of this omission, it is,
however, possible to apply the general principles regarding
the effects of fortuitous events to any problem that may arise.
RULE: the contract may still be annulled, but with this
difference —
6
• __
- he must pay to the defendant the value of the thing
at the time of the loss,
- but without interest thereon.
- According to Dr. Tolentino, if the plaintiff offers to
pay the value of the thing at the time of its loss as a
substitute for the thing itself, the annulment of the
contract would still be possible,
- REASON: because, otherwise,
- 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.[614
Tolentino, Civil Code, 1956 Ed., pp. 557-
558.]
CONCLUSION: As things now stand, the two paragraphs in Art.
1401 mean the same thing.
The second paragraph of Art. 1401,
on the other hand, which at first blush seems to be an
exception to the rule stated in the first paragraph, has
created a legal absurdity.
Under the old Code, the provision was as follows: [Art. 1401,
- “If the cause of action is the incapacity of any of the
contracting parties,
- the loss of the thing
- shall not be an obstacle to the success of the
action,
- unless it has occurred through
- the fraud
- or fault of the plaintiff
- after having acquired capacity.”60
NEW CODE:
- 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.
- _________________
“after having acquired capacity.”60”
OLD CIVL CODE GENERAL RULE: Hence, under the old law, if
the loss of the thing was due to the fraud or fault of the plaintiff
- after he had acquired capacity,
- the general rule was applicable; in other words, the
action was extinguished.
OLD CIVL CODE EXCEPTION RULE: But if the loss was due to
the fraud or fault of the plaintiff
- during his incapacity,
- the exception was applicable; in other words, the
loss would not be an obstacle to the success of the
action.
NEW CIVIL CODE RULE: However, with the deletion of the
phrase “after having acquired capacity.”60” from the
provision of the second paragraph of Art. 1401 of the present
Code, the result is an absolute redundancy.
NEW CIVIL CODE GENERAL RULE: Hence, under the old law, if
the loss of the thing was due to the fraud or fault of the plaintiff
- after he had acquired capacity,
- annulment would be extinguished
OLD CIVIL CODE EXCEPTION RULE: But if the loss was due to
the fraud or fault of the plaintiff
- during his incapacity,
- annulment would be extinguished
CONCLUSION: As things now stand, the two paragraphs in Art.
1401 mean the same thing.
---------------------------------------------------------
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. (1308)
---------------------------------------------------------
VOIDABLE CONTRACTS
MUTUAL RESTITUTION
RECIPROCAL OBLIGATION
7
• __

RULE: Mutual restitution is a reciprocal obligation

- As long as one of the contracting parties
does not restore

- the other cannot be compelled to

RESULT:
comply with what is incumbent upon him.

EXAMPLE: A forced B to take A’s car in exchange for B’s ring. B

asked for annulment, and the court gave the decree of
annulment ordering each to return what had been received. B
refused to give A the car. May A be compelled to give back the
ring?
- ANSWER: No.

RULE: IF THE OTHER PARTY LOST THROUGH FORTUITOUS EVENT,

HE CAN

EXAMPLE: Suppose the innocent party cannot restore

because of a loss thru a fortuitous event, May the other party
be compelled to give back still?
- ANSWER: STILL No.

REASON: because before annulment, the contract is valid,

- and the innocent party,
- being the owner of the thing lost by a
fortuitous event,
- must bear the loss.

EXCEPTION RULE: There is however an exception, and

- it occurs when he (INNOCENT PARTY) offers to give
the value of the thing.
- (He does not have to give interest in view
of the fortuitous event.)
- He must be allowed this remedy;
- otherwise, he would be in a worse position than one
who had destroyed the thing thru his fault.
- Once he exercises this remedy, he can recover from
the other what has been previously given.

EXAMPLE: A forced B to sell to him (A) his (B’s) ring.

- B, the innocent party, sued for annulment,
- but A had already lost the ring thru a fortuitous
event.
- What is B’s remedy?
- ANS.: A can be compelled to pay its value or
damages,
- for it is as if A was a possessor in bad faith who bears
the loss even in case of a fortuitous event. (See Art.
1522, Civil Code)

---------------------------------------------------------