COLLEGE OF ACCOUNTANCY AND BUSINESS ADMINISTRATION
LAW ON CONTRACTS
V. DEFECTIVE CONTRACTS
1. RESCISSIBLE CONTRACT
These are contracts validly constituted but nevertheless
maybe set aside due to a particular economic damage or
lesion caused to either to one of the parties or to a third
person. It may be set aside in whole or in part, or up to the
extent of the damage caused (NCC, Art. 1381).
Contracts that may be rescinded
1. Under Art. 1381, those
2. a. Entered into by guardians whenever the wards whom
they represent suffer lesion by more than ¼ of value of the
property [NCC, Art. 1381(1)]; If a guardian alienates
properties of the ward without judicial approval, the contract
is ”unenforceable” for lack of authority. (NCC, Art. 1403,par.
1)
b. Agreed upon in representation of absentees, if absentee
suffers lesion by more than ¼ of value of property [NCC,
Art. 1381(2)];
c. Contracts where rescission is based on fraud committed
on creditor and cannot collect the claim due (accion
pauliana) [NCC, Art. 1381(3)]; NOTE: Contracts which are
rescissible under the third paragraph of Art. 1381 are valid
contracts, although undertaken in fraud of creditors. If the
contract is ‘‘absolutely simulated’’, the contract is not merely
rescissible but inexistent, although undertaken as well in
fraud of creditors (MBC v. Silverio, 466 SCRA 438, August
11, 2005). In the former, the remedy is rescission; in the
latter, the remedy is an action to declare the contract
inexistent which action is imprescriptible (Rabuya, 2017).
d. Contracts where the object involved is the subject of
litigation; contract entered into by defendant without
knowledge or approval of litigants or judicial authority [NCC,
Art. 1381(4)];
e. Payment by an insolvent – on debts which are not yet
due; prejudices the claim of others (NCC, Art. 1382); f.
Provided for by law (NCC, Arts. 1526, 1534, 1538, 1539,
1542, 1556, 1560, 1567 & 1659)
NOTE: C, D and E are contracts which are not necessarily
entered into by persons exercising fiduciary capacity. In Art.
1381 (1 & 2), the contract must be of administration and
representation.
3. Payments made in state of insolvency (NCC, Art. 1382):
a. Plaintiff has no other means to maintain reparation;
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b. Plaintiff must be able to return whatever he may be
obliged to return due to rescission;
c. The things must not have been passed to third persons
in good faith; d. It must be made within 4 years (NCC, Art
1382).
Characteristics of rescissible contract
1. It has all the elements of a valid contract.
2. It has a defect consisting of an injury (generally in the
form of economic damage or lesion, fraud, and alienation
of the property) to one of the contracting parties or to a
third person.
3. It is valid and effective until rescinded.
4. It can be attacked only directly.
5. It is susceptible of convalidation only by prescription
(De Leon, 2010).
Nature of an action for rescission
The action for rescission is subsidiary. It cannot be instituted
except when the party suffering damage has no other legal
means to obtain reparation for the same (NCC, Art. 1383).
Hence, it must be availed of as the last resort, availed only
after all legal remedies have been exhausted and proven
futile (Khe Hong Cheng v. CA, G.R. No. 144169, March 28,
2001).
Rationale: In order not to disturb other contracts and to
comply with the principle of relativity of contracts.
However, if it can be proven that the property alienated was
the only property of the debtor at the time of the transaction,
the action for rescission is certainly maintainable because it
is clear that the creditor has no other remedy under the
circumstances. (Pineda,2009 citing Regalado vs.
Luchsinger, 5 Phil. 625)
NOTE: Rescission shall be only to the extent necessary to
cover the damages (NCC, Art. 1384).
Prescriptive period of action for rescission
1. Under Art. 1381, no.1 – within 4 years from the time the
termination of the incapacity of the ward;
2. Under Art. 1381, no. 2- within 4 years from the time the
domicile of the absentee is known; or
3. Under Art. 1381, nos. 3 & 4 & Art. 1382 – within 4 years
from the time of the discovery of fraud.
Requisites that must concur before a contract may be
rescinded on the ground of lesion
Whether the contract is entered into by a guardian in behalf
of his ward or by a legal representative in behalf of an
absentee, before it can be rescinded on the ground of
lesion, it is indispensable that the following requisites must
concur:
1. The contract must be entered into by the guardian in
behalf of his ward or by the legal representative in behalf
of an absentee.
2. The ward or absentee suffered lesion of more than 1/4
of the value of the property which is object of the contract.
3. The contract must be entered into without judicial
approval.
4. There must be no other legal means for obtaining
reparation for the lesion.
5. The person bringing the action must be able to return
whatever he may be obliged to restore.
6. The object of the contract must not be legally in the
possession of a third person who did not act in bad faith.
Statutory presumptions of Fraud in Article 1387
1. Alienation by gratuitous title. When a debtor donates
his property without reserving sufficient property to pay all
his pre-existing debts, the law presumes that the
gratuitous dispositions are made in fraud of creditors.
2. Alienation by onerous title. The contract is presumed
fraudulent if at the time of alienation, some judgement has
been rendred against him, whether it is on appeal or has
already become final and executory; or some writ of
attachment has been issued against him in any case.
NOTE: The decision or writ of attachment need not refer to
the very property subject of alienation. The person who
obtained the judgement or writ of attachment need not be
the same person seeking the rescission.
These presumptions are rebuttable, which means, they may
be overcome by clear, strong and convincing evidence.
Requisites before a contract entered into in fraud of the
creditors may be rescinded
1. There must be a credit existing prior to the constitution
of the said fraudulent contract;
2. There must be fraud, or at least, the intent to commit
fraud to the prejudice of the creditor seeking rescission;
3. The creditor cannot in any legal manner collect his
credit (subsidiary character of rescission);
4. The object of the contract must not be legally in
possession of a third person in good faith.
NOTE: If the object of the contract is legally in the
possession of a third person who did not act in bad faith, the
remedy available to the creditor is to proceed against the
person causing the loss for damages. Such person is
solidarily liable with that of transferring creditor as both of
them are guilty of fraud.
The action to rescind contracts in fraud of creditors is known
as accion pauliana. For this action to prosper, the following
requisites must be present:
a) The plaintiff asking for rescission has a credit prior to
the alienation;
b) The debtor has made a subsequent contract conveying
a patrimonial benefit to a third person; c) The creditor has
no other legal remedy to satisfy his claim; d) The act being
impugned is fraudulent; e) The third person who received
the property conveyed, if it is by onerous title, has been
an accomplice in fraud (Siguan vs Lim, G.R. No. 134685,
November 19, 1999).
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Badges of fraud
1. Consideration for the conveyance of the property is
inadequate or fictitious;
2. Transfer was made by the debtor after a suit has
commenced and during its pending against him;
3. Sale upon credit by an insolvent debtor;
4. The presence of evidence of large indebtedness or
complete insolvency of the debtor;
5. Transfer of all his property by a debtor when he is
financially embarrassed or insolvent;
6. Transfer is made between father and son, where there
are present some or any of the above circumstances; and
7. Failure of the vendee to take exclusive possession of
the property (Oria v. McMicking, 21 Phil. 243, G. R. No.
7003, January 18, 1912).
Effect of rescission
1. Obligation of mutual restitution (but not absolute);
2. Abrogation of contract (Absolute);
3. Obligation of third person to restore (if third person has
nothing to restore, Article does not apply) (De Leon,
2016).
Mutual Restitution
Rescission of contract creates an obligation of mutual
restitution of the objects of the contract, their fruits, and the
price with interest.
NOTE: Rescission is possible only when the person
demanding rescission can return whatever he may be
obliged to restore. A court of equity will not rescind a
contract unless there is restitution, that is, the parties are
restored to the status quo ante (NCC, Art. 1385).
Mutual restitution is not applicable when:
1. Creditor did not receive anything from contract; or
2. Thing already in possession of third persons in good
faith; subject to indemnity only, if there are two or more
alienations – liability of first infractor.
Q: Reyes (seller) and Lim (buyer) entered into a contract to
sell a parcel of land. Harrison Lumber occupied the property
as lessee. Reyes offered to return the P10 million
downpayment to Lim because Reyes was having problems
in removing the lessee from the property. Lim rejected
Reyes’ offer. Lim learned that Reyes had already sold the
property to another. Both Reyes and Lim are now seeking
rescission of the contract to sell. However, Reyes does not
want to deposit the 10M to the court because according to
him, he has the “right to use, possess and enjoy” of the
money as its owner before the contract to sell is rescinded.
Is Reyes’ contention correct?
A: NO. There is also no plausible or justifiable reason for
Reyes to object to the deposit of the P10 million down
payment in court. The contract to sell can no longer be
enforced because Reyes himself subsequently sold the
property. Both Lim and Reyes are seeking for rescission of
the contract. By seeking rescission, a seller necessarily
offers to return what he has received from the buyer. Such
a seller may not take back his offer if the court deems it
equitable, to prevent unjust enrichment and ensure
restitution, to put the money in judicial deposit.
2. VOIDABLE CONTRACTS
Voidable contracts are those where consent is vitiated
either by the incapacity of one of the contracting parties or
by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a
proper action in court. It is susceptible of ratification (NCC,
Art. 1390).
NOTE: Annulment may be had even if there be no damage
to the contracting parties.
Characteristics of a voidable contract
1. Effective until set aside;
2. Can be; and (the word should be ”ratified ”)
3. Can be assailed only by the party whose consent was
defective or his heirs or assigns. NOTE: Third persons
may assail if they are prejudiced. (Development Bank vs.
CA, 96 SCRA 342)
4. A voidable contract, unlike an unenforceable and void
contracts may be attacked indirectly or collaterally, by way
of defense to an action under the contract by way of a
counterclaim (De Leon, 2016).
Classes of voidable contracts
1. Those where one of the parties is incapable of giving
consent; and NOTE: If both parties are incapacitated to
give consent, the contract is unenforceable and not
merely voidable.
2. Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud (NCC, Art.
1390).
Who may institute an action for annulment
1. Real party in interest. – All who are principally or
subsidiarily liable ; and
2. One not responsible for the defect of the contract
NOTE: An action for annulment may be instituted by all who
are thereby obliged principally or subsidiarily.He who has
capacity to contract may not invoke the incapacity of the
party with whom he has 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.
Effects of annulment of a contract
1. If contract not yet consummated – parties shall be
released from the obligations arising therefrom.
2. If contract has already been consummated – rules
provided in Arts. 1398-1402 shall govern.
a. Restitution
GR: Mutual restitution. – the contracting parties shall
restore to each other things which have been the subject
matter of the contract, with their fruits and the price with
its interest except in case provided by law. In an obligation
to render services, the value thereof shall be the basis for
damages (NCC, Art. 1398). Note: No restitution. – The
party incapacitated is not obliged to make any restitution
except insofar as he has been benefited by the thing or
the price received by him (NCC, Art. 1399).
XPN : If and when the application of mutual restitution will
result in unjust enrichment of one party at the expense of
another. (4 Tolentino, 607, [1991])
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b. Whenever the person obliged by the decree of
annulment to return the thing cannot do so because it has
been lost through his fault, he shall return the fruits
received and the value of the thing at the time of the loss,
with interest from the same date (NCC, Art. 1400)
Causes of extinction of action to annul
1. Prescription – the action for annulment must be
commenced within 4 years depending on the ground stated.
NOTE: If the action has prescribed, the contract can no
longer be set aside (Villanueva v. Villanueva, 91 Phil 43).
2. Ratification – cleanses the contract of its defects from the
moment it was constituted. (NCC, Art. 1396).
3. By loss of the thing which is the object of the contract
through fraud or fault of the person who is entitled to annul
the contract (NCC, Art. 1401).
4. If the minor is guilty of active misrepresentation of his age
(Braganza v. De Villa Abrille, 1959).
NOTE: 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 it
took place through the fraud or fault of the plaintiff (NCC,
Art. 1401).
Prescriptive period for an annulment of a voidable
contract
The action for annulment shall be brought within 4 years,
reckoned from:
1. In cases of intimidation, violence or undue influence,
from the time the defect of the consent ceases;
2. In case of mistake or fraud, from the time of the
discovery of the same;
3. And when the action refers to contracts entered into by
minors or other incapacitated persons, from the time the
guardianship ceases (NCC, Art. 1391).
Ratification
It is the act or means by virtue of which, efficacy is given to
a contract which suffers from a vice of curable nullity
(Manresa).
NOTE: Ratification extinguishes the action to annul a
voidable contract (NCC, Art. 1392).
Requisites of ratification
1. The contract involved must be voidable;
2. Person ratifying must know the reason for the
voidability;
3. The cause for the voidability must immediately cease
after the ratification; and
4. Ratification must be express or through an act implying
a waiver of the action to annul;
NOTE: Ratification entered into by the incapacitated person
may be effected by the guardian of the incapacitated person
(NCC, Art. 1394). However, this rule does not pertain to a
rescissible contract entered into by the guardian in behalf of
his ward.
The right to ratify is transmitted to the heirs of the party
entitled to such right (Tolentino, 2002).
Party who may ratify
1. In contracts entered into by incapacitated persons. (a)
guardian ; (b) injured party himself, provided he is already
capacitated.
2. In contracts voidable on the ground of mistake. – party
whose consent was vitiated (De Leon, 2016).
Kinds of ratification
1. Express –the desire of the innocent party to convalidate
the contract, or his waiver or renunciation of his right to
annul the contract is clearly manifested verbally or
formally in writing (Pineda, 2000).
2. Implied (tacit) – it is the 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 (NCC, Art. 1393).
Effects of ratification
Ratification cleanses the contract from all its defects from
the moment it was constituted, thereby extinguishing the
action to annul a voidable contract. It results therefore that
after a contract is validly ratified, no action to annul the same
can be maintained based upon defects relating to its original
validity (Rabuya, 2017).
Retroactivity in ratification of contracts GR: Retroactivity
applies in ratification of contracts. XPN: When the rights of
innocent third persons will be prejudiced, ratification will not
take effect.
NOTE: Ratification does not require the conformity of the
contracting party who has no right to bring the action for
annulment.
3. UNENFORCEABLE CONTRACTS
Those contracts which cannot be enforced by action or
complaint, unless they have been ratified by the party or
parties who did not give consent thereto (Jurado, 2009).
Characteristics of unenforceable contract
a. It cannot be enforced by a proper action in court;
b. It may be ratified;
c. It cannot be assailed by third person; and
d. May only be assailed as a way of defense, not by direct
action.
e. The defect of an unenforceable contract is of a
permanent nature and it will exist as long as the contract
is not duly ratified. The mere lapse of time cannot give
efficacy to the contract (Rabuya, 2017).
NOTE: An unenforceable contract is valid although it
produces no legal effect (Tolentino, 2002).
Kinds of unenforceable contracts
The following contracts are unenforceable unless they are
ratified:
1. Those entered into the name of another person by one
who has been given no authority/legal representation or
acted beyond his powers; “Unauthorized contracts”;
NOTE: A contract of sale over a piece of land entered by
an agent whose authority is not in writing, even if he acted
beyond the scope of his authority is void, not merely
unenforceable (NCC, Art. 1874).
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2. Those that do not comply with the Statute of Frauds;
and
3. Those where both parties are incapable of giving
consent to a contract (NCC, Art. 1403).
Statute of Frauds
The term "Statute of Frauds" [Article 1403, (2)] is descriptive
of statutes which require certain classes of contracts to be
in writing. It requires certain contracts enumerated therein
to be evidenced by some note or memorandum subscribed
by the party charged or by his agent in order to be
enforceable. The Statute does not deprive the parties of the
right to contract with respect to the matters therein involved,
but merely regulates the formalities of the contract
necessary to render it enforceable. Evidence of the
agreement cannot be received without the writing or a
secondary evidence of its contents (Swedish Match, AB v.
CA, G.R. No. 128120, October 20, 2004).
The Statute of Frauds applies only to executory contracts,
not to those that are partially or completely fulfilled. Where
a contract of sale is alleged to be consummated, it matters
not that neither the receipt for the consideration nor the sale
itself was in writing. Oral evidence of the alleged
consummated sale is not forbidden by the Statute of Frauds
and may not be excluded in court (Victoriano v. CA, G.R.
No. 87550, February 11, 1991).
Purpose of the Statute of Frauds
It is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the unassisted
memory of witnesses, by requiring certain enumerated
contracts and transactions to be evidenced by a writing
signed by the party to be charged (Swedish Match, AB v.
CA, G.R. No. 128120, October 20, 2004).
NOTE: The statute of Frauds simply provides the method
by which the contracts enumerated therein may be proved.
It does not declare the said contracts are invalid because
they are not reduced to writing. A contract exists and is valid
even though it is not clothed with the necessary form (De
Leon, 2010).
Contracts or agreements covered by the Statute of
Frauds
1. An agreement that by its terms is not to be performed
within a year from the making thereof;
2. A special promise to answer for the debt, default or
miscarriage of another;
3. An agreement made in consideration of marriage, other
than a mutual promise to marry;
4. An agreement for the sale of goods, chattels or things
in action, at a price not less than 500 pesos, unless the
buyer accepts and receives part of such goods and
chattels, or the evidences, or some of them, of such things
in action, or pay at the time some part of the purchase
money; but when a sale is made by an auction and entry
is made by the auctioneer in his sales book, at the time of
the sale, of the amount and kind of property sold, terms of
sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient
memorandum;
5. An agreement for the leasing for a longer period than
one (1) year, or for the sale of real property or of an
interest therein;
6. A representation as to the credit of a third person (NCC,
Art. 1403)
NOTE: The enumeration is EXCLUSIVE.
Fundamental principles governing Statute of Frauds
1. It only applies to executory contracts and not partially
or completely executed.
2. It cannot apply if the action is neither for damages
because of violation of an agreement nor for the specific
performance of said agreement
3. It is exclusive as it applies only to the agreements or
contracts enumerated in Art. 1403.
4. The defense of Statute of Frauds may be waived.
5. It is a personal defense; it cannot be assailed by third
persons.
6. Contracts infringing the Statute of Frauds are not void;
they are merely unenforceable.
7. It is a Rule of Exclusion as it excludes oral testimony.
8. It does not determine the credibility or weight of
evidence. It merely concerns itself with the admissibility.
9. It does not apply if the claim is that the contract does
not express the true agreement of the parties (Paras,
2008).
Q: Cenido, as an heir of Aparato and claiming to be the
owner of a house and lot, filed a complaint for ejectment
against spouses Apacionado. On the other hand, spouses
Apacionado alleged that they are the owners of the house
and lot which are unregistered purchased by them from its
previous owner, Aparato. Their claim is anchored on a 1-
page typewritten document entitled "Pagpapatunay,"
executed by Aparato. Is the “Pagpapatunay” entered into by
Bonifacio and spouse Apacionado valid and enforceable?
A: YES, it is valid and enforceable. Generally, contracts are
obligatory, in whatever form such contracts may have been
entered into, provided all the essential requisites for their
validity are present. When, however, the law requires that a
contract be in some form for it to be valid or enforceable,
that requirement must be complied with. The sale of real
property should be in writing and subscribed by the party
charged for it to be enforceable. The "Pagpapatunay" is in
writing and subscribed by Aparato, hence, it is enforceable
under the Statute of Frauds. Not having been subscribed
and sworn to before a notary public, however, the
"Pagpapatunay" is not a public document, and therefore
does not comply with par. 1, Art. 1358.
behalf it has been executed, before it is revoked by the other
contracting party (NCC, Art. 1317).
2. Contracts infringing the Statute of Frauds are ratified: a.
By failure to object to the representation of oral evidence to
prove the same; or b. By the acceptance of benefits under
them; the contract is already executed. (NCC, Art. 1317). c.
By cross-examining the witness who is testifying on the oral
contract. (Pineda, 2009 citing Abrenica vs. Gonda, 24 Phil.
739)
3. In a contract where both parties are incapable of giving
consent, express or implied ratification by the parents or
guardian, as the case may be, of one of the contracting
parties, or one of the contracting parties upon attaining
capacity, shall give the contract the same effect as if only
one of them is incapacitated. Hence, the contract becomes
voidable and the rules on voidable contracts should govern.
If the ratification is made by the parents or guardians as the
case may be, of both contracting parties, or both of the
contracting parties upon attaining capacity, the contract
shall be validated from the inception (Jurado, 2011).
Contracts enforceable under Statute of Frauds
If the contract is enforceable under Statute of Frauds
because it is duly evidenced by writing, nore, or
memorandum, but it cannot be registered because it not in
a pblic instrument, the party concerned may compel the
opposite party to formalize it in the proper form required by
law. If the latter refuses, the court will issue necessary
oreder to that effect. (Art. 1406; Pineda, 2009)
Note: The article applies only when the contract involved is
both valid and enforceable.

Moreover, the requirement of a public document in Article

1358 is not for the validity of the instrument but for its
efficacy. Although a conveyance of land is not made in a
public document, it does not affect the validity of such
conveyance. The private conveyance of the house and lot
is therefore valid between Aparato and the spouses. For
greater efficacy of the contract, convenience of the parties
and to bind third persons, respondent spouses have the
right to compel the vendor or his heirs to execute the
necessary document to properly convey the property
(Cenidon v. Spouses Apacionado, G.R.No. 132474,
November 19, 1999).

Enforceability of Electronic Transactions (RA. No. 8792)

The Electronic Commerce Act of 2000 hsd given legal

recognition to the following:
a. Electronic Data Message
b. Electronic Documents
c. Electronic Signatures

Unenforceable contract is ratifiable

1. A contract entered into in the name of another by one

who has no authority, legal representation or who acted
beyond his powers shall be unenforceable, unless it is
ratified expressly or impliedly, by the person on whose

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4. VOID/INEXISTENT CONTRACTS
In general, void and inexistent contracts may be defined as
those which lack absolutely either in fact and or in law one
or some or all of those elements which are essential for its
validity. Void contracts are those which have no force and
effect from the beginning and which cannot be ratified or
validated by lapse of time (Pineda, 2000).
NOTE: The principle of in pari delicto is applicable in cases
of void contracts but not in inexistent contracts.
Consequently, void contracts may produce effects (NCC,
Arts. 1411-1412), but inexistent contracts do not produce
any effect whatsoever (Jurado, 2009).
Characteristics of void/inexistent contracts
1. It produces no legal force and effect;
2. It cannot be cured or validated by prescription or
ratification (NCC, Art. 1409);
3. The right to set up the defense of illegality cannot be
waived (NCC, Art. 1409).
4. The defense of illegality of contracts is not available to
third persons whose interests are not directly affected
(NCC, Art. 1421).
5. Cannot give rise to a valid contract (NCC, Art. 1422).
6. Can be assailed either directly or collaterally.
7. Parties to a void agreement cannot expect the aid of
the law. (in pari delicto)
NOTE : In case of a divisible contract, if the illegal terms can
be separated from the legal ones, the latter may be
enforced. (Art. 1420).
Kinds of void contracts
Those lacking in essential elements:
a. Those whose cause, object or purpose is contrary to
law, morals, good customs, public order or public policy:
illicit cause, or object;
b. Those which are absolutely simulated or fictitious: no
cause;
c. Those whose cause or object did not exist at the time
of the transaction: no cause or object;
d. Those whose object is outside the commerce of man:
no object;
e. Those which contemplate an impossible service: no
object;
f. Those where the intention of parties relative to principal
object of the contract cannot be ascertained.
Contracts prohibited by law
a. Pactum commisorium – the creditor appropriates to
himself the things given by way of pledge or mortgage to
fulfill the debt.
b. Pactum de non alienando – an agreement prohibiting
the owner from alienating the mortgaged immovable.
c. Pactum leonina – a stipulation in a partnership
agreement which excludes one or more partners from any
share in the profits or losses.
d. Illegal or illicit contracts (e.g. contract to sell marijuana).
Q: Judie sold one-half of their lot to Guiang under a deed
of transfer of rights without the consent and over the
objection of his wife, Gilda and just after the latter left for
abroad. When Gilda returned home and found that only
her son, Junie, was staying in their house. She then
gathered her other children, Joji and Harriet and went to
stay in their house. For staying in their alleged property,
the spouses Guiang complained before the barangay
authorities for trespassing. Is the deed of transfer of rights
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executed by Judie Corpuz and the spouses Guiang void
or voidable?
A: It is void. Gilda’s consent to the contract of sale of their
conjugal property was totally inexistent or absent. Thus,
said contract properly falls within the ambit of Article 124
of the FC. The particular provision in the old Civil Code
which provides a remedy for the wife within 10 years
during the marriage to annul the encumbrance made by
the husband was not carried over to the Family Code. It
is thus clear that any alienation or encumbrance made
after the Family Code took effect by the husband of the
conjugal partnership property without the consent of the
wife is null and void (Spouses Guiang v. CA, G.R. No.
125172, June 26, 1998).
Q: On July 6, 1976, Honorio and Vicente executed a deed
of exchange. Under this instrument, Vicente agreed to
convey his 64.22-square-meter lot to Honorio, in
exchange for a 500-square-meter property. The contract
was entered into without the consent of Honorio’s wife. Is
the deed of exchange null and void?
A: The deed is valid until and unless annulled. The deed
was entered into on July 6, 1976, while the Family Code
took effect only on August 3, 1998. Laws should be
applied prospectively only, unless a legislative intent to
give them retroactive effect is expressly declared or is
necessarily implied from the language used. Hence, the
provisions of the NCC, not the FC are applicable.
According to Art. 166 of the NCC, the husband cannot
alienate or encumber any real property of the conjugal
partnership without the wife’s consent. This provision,
however, must be read in conjunction with Art. 173 of the
same Code. The latter states that an action to annul an
alienation or encumbrance may be instituted by the wife
during the marriage and within ten years from the
transaction questioned. Hence, the lack of consent on her
part will not make the husband’s alienation or
encumbrance of real property of the conjugal partnership
void, but merely voidable (Villaranda v. Villaranda, G.R.
No. 153447, February 23, 2004).
Principle of in pari delicto
When the defect of a void contract consists in the illegality
of the cause or object of the contract, and both of the
parties are at fault or in pari delicto, the law refuses them
every remedy and leaves them where they are. This rule
which is embodied in Arts. 1141 & 1142 of the NCC is
what is commonly known as the principle in pari delicto.
 DEFECTIVE CONTRACTS
BASIS RESCISSIBLE VOIDABLE UNENFORCEABLE VOID/INEXISTENT
Origin of the defect Economic damage or Incapacity of one of Entered without Illegality (void) or
lesion to either one of parties to give authority or in excess absence of any of
the parties or to 3rd consent or vitiated thereof; non- essential requisites of
persons; declaration consent. compliance with a contract (inexistent).
by law. Statute of Frauds;
incapacity of both
parties to give
consent.
Necessity of Suffered by – either As to the other Not necessary Not necessary
Damage/ prejudice one of parties or 3rd contracting party - not
person necessary.
Curable by Curable Curable Not curable Not curable
Prescripiton
Legal effect Valid & legally Valid & legally Inoperative until None
enforceable until enforceable until ratified; not
judicially rescinded. judicially annulled enforceable in court
without proper
ratification.

Remedy Rescission or Annulment of Only personal defense Declaration of nullity

rescissory action. contract. of contract.

Who can file the GR: Contracting Contracting party Contracting party 3rd persons cannot
action party; XPN: file unless their
Defrauded Creditors interest are directly
affected
Susceptibility of Susceptible but not of Susceptible Susceptible Not Susceptible
ratification ratification proper.

Susceptibility Action for rescission Action for annulment Action for recovery; Action for declaration
prescription prescribes after 4 prescribes after 4 specific performance of nullity or putting of
years. years. or damages defense of nullity
prescribes (10 years if does not prescribe.
based on a written
contract; 6 years if
unwritten).