Law on Obligation and

Contract
GROUP 2
Members:
Ja-rune Avila
Marj Nicole Isleta
Francine Salunga
Romelene Mae Villahermosa
 VOIDABLE
CONTRACTS
 ARTICLE 1390
The following contracts are voidable or annullable, even
though there may have been no damage to the contracting
parties

01 Those where one of the parties is incapable of

giving consent to a contract;

Voidable
Contracts 02
Those where the consent is vitiated by
mistake, violence, intimidation, undue influence
or fraud.

02 These contracts are binding, unless they are

annulled by a proper action in court. They are
susceptible of ratification.
Voidable Contracts
Voidable or annullable contracts are those which possess all the essential
requisites of a valid contract but one of the parties is legally incapable of giving
consent, or consent is vitiated by mistake, violence, intimidation, undue influence,
or fraud.

The two types of voidable contracts are contracts signed without capacity and
contracts signed without mutual assent.
Binding force of Voidable
contracts

 They are existent, valid and obligatory un-

less annulled or set aside by a proper action in
court, i.e., an action instituted for that purpose.
Once ratified, they become absolutely valid
and can no longer be annulled. The existence
of damage is not essential for their annulment as
in the case of rescissible contracts.
Annulment
Annulment is a remedy as well as a sanction
provided by law, for reason of public interest, for the
declaration of the inefficacy of a contract based on a
defect or vice in the consent of one of the contracting
parties in order to restore them to their original position
in which they were before the contract was executed.
Differences between action for annulment and action for rescission

The first is based on vitiation of consent (Art. 1390.), while

the second, on lesion to one of the parties or to a third person (Art.
1381.);

The first may be brought only by a party to the contract

(Arts. 1390, 1397.), while the second, also by a third person
who suffered damage by reason of the contract (Art. 1381.);

The first is a principal action (Art. 1390.), while the second

is merely subsidiary (Art. 1383.);

The first presupposes that the contract is legally defective (Art.

1390.), while the second, that the contract was validly entered into
(Art. 1380.);
Differences between action for annulment and action for rescission

The first presupposes that the contract is legally defective (Art.

1390.), while the second, that the contract was validly entered into
(Art. 1380.);

The first seeks the imposition of sanction by law on the

guilty party for reason of public interest (Ibid.), while the second,
is a remedy allowed by law on ground of equity (see Art. 1383.)

The first is allowed even if the plaintiff has been indemnified (see
Art. 1390.), while the second is barred by such indemnification
(Arts. 1383, 1384.)
 ARTICLE. 1391
“The action for annulment shall be brought
within four years”

This period shall begin:

In cases of intimidation, violence or undue
influence, from the time the defect of the consent
ceases

In case of mistake or fraud, from the time of the

discovery of the same. And when the action refers to
contracts entered into by minors or other incapacitated
persons, from the time the guardianship ceases.
 Period for filing action for
annulment

Direct court action is necessary to annul a voidable

contract, and until annulled or set aside by the court, a party
cannot relieve himself from the obligations arising therefrom.
A voidable contract may be collaterally attacked by way of
defense to an action under the contract.

The four-year period for bringing an action for annulment is reckoned:

(1) In case of intimidation, violence, or undue influence, from the

time the intimidation, etc. ceases. Before that time, the consent is still
being vitiated and, therefore, the victim cannot be expected to bring an
action in court. The running of the prescriptive period cannot be
interrupted by an extrajudicial demand made by the party whose consent was vitiated.
 (2) In case of mistake or fraud, from the time in
discovered. This must be so because before the time of
discovery, the innocent party is unaware of the reason
which renders the contract voidable (Art. 1393.) and
cannot also be expected to bring an action in court.
Furthermore, the guilty party should not be
rewarded for successfully hiding the mistake or
fraud.

The time of the discovery of the alleged mistake or fraud, must be clear
from the allegations of the complaint.

In the case of contracts entered into by minors or other

incapacitated persons, from the time the guardianship ceases. In the case of a
minor, guardianship ceases upon reading the age of majority. An incapacitated
person has no capacity to sue.

A voidable contract, like unenforceable and void contracts (infra.), may be

attacked indirectly or collaterally by way of defense. Article 1391
presupposes, however, that no acquisitive prescription has set in, for after the
favorable effects of acquisitive prescription have set in, rights of ownership over
a property are rendered indisputable
Article 1392
“Ratification extinguishes the action to annul a voidable contract”

Meaning and effect of ratification

Ratification is the international act by which a state expresses its willingness to be

bound by a treaty or agreement if the parties intended for such an act to be performed.

Ratification cleanses the contract from all its defects from the moment it was
constituted. The contract thus becomes valid. Hence, the action to annul is extinguished.
 Kinds of Ratification
Express Implied or tacit

- when the ratification is - It may take diverse forms, such as by

manifested in words or in silence or acquiescence; by acts showing
writing; adoption or approval of the contract; or by
acceptance and retention of benefits flowing
there
Ex. from a seller of property cannot
negotiate for an increase in the price in one
breath and in the same breath contend that
the contract of sale is void.
 Requisites of ratification
A.
There must be knowledge of the
reason which renders the contract
voidable;

B.
Such reason must have ceased;

C.
The injured party must have
executed an act which
necessarily implies an intention to
waive his right
 Confirmation, ratification,
and recognition or
acknowledgment
Under the old Civil Code, there was a distinction
between confirmation and ratification.

The Confirmation was the term used to refer to the act

by which a person entitled to bring an action for annulment
validates a voidable contract, either expressly or impliedly,
while the Ratification, to the act by which an
unauthorized contract is approved by the person in whose
name it was entered into. Recognition, on the other hand,
refers to an act whereby a defect of proof is remedied,
such as when an oral contract falling under the Statute
of Frauds is put in writing.
 Article 1394
“Ratification may be affected by the
guardian of the incapacitated person”
Party who may ratify

- A contract entered into by an incapacitated person may be ratified by:

 the guardian; or
 the injured party himself, provided, he is already capacitated
 As legal representatives of their wards, guardians have the power to contract on their behalf.
Hence, they may also ratify contracts entered into by their wards

- In case the contract is voidable on the ground of mistake, etc., ratification can be
made by the party whose consent is vitiated.
Article 1395
“Ratification does not require the conformity of the
contracting party who has no right to bring the
action for annulment”

Conformity of guilty party to ratification not required:

- Ratification is a unilateral act by which a party waives

the defect in his consent. The consent of the guilty party is
not required; 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”

Effect of ratification retroactive:

 Ratification purges the contract of all its defects from
the moment it was executed. It extinguishes the action
to annul. In other words, the effect of ratification is to
make the contract valid from its inception subject to
the prior rights of third persons.
Article 1397
The action for the annulment of contracts may be
instituted by all who are thereby obliged principally or
subsidiary. 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
Party entitled to bring an action to annul

- Two different requisites are required to confer the

necessary capacity to bring an action for annulment of a
contract, to with:

 The plaintiff must have an interest in the contract;

and;

 The victim and not the guilty party or the party

responsible for the defect is the person who must
assert the same
Coffee
 In an action for the annulment of contracts, the real parties
in interest are those who are parties to the contract, or are
bound either principally or subsidiarily, or are prejudiced in
their rights with respect to one of the contracting parties and
can show the detriment which would positively result to them
from the contract even though they did not intervene in it, or
who claim a right to take part in a public bidding but have been
illegally excluded from it.
 23

The guilty party, including his successors-in-

interest, cannot ask for annulment. This rule is
sustained by the principle that he who comes to
court must do so with clean hands. Thus, a
person who employed fraud cannot base his
action for annulment of a contract upon such
flaw of the contract
 24

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
 25

Duty of mutual restitution upon annulment:

 If the contract is annulled, the parties, as a general rule, must restore to each other (a) the subject
matter of the contract with its fruits and (b) the price thereof with legal interest. Like in rescission, the
purpose of the law is to restore the parties to their original situation by mutual restitution. The fruits
must be returned because the party who received them had no right to enjoy the same. Legal interest must
be paid because the party who received the money had no right to use it.

 A contract which the law denounces as void is necessarily no contract whatever. The parties and
subject matter of the contract remain in all particulars just as they did before any act was performed in
relation thereto. The rule is that if a contract is declared a nullity and both parties have no fault or are not
guilty, the restoration of was given by each of them to the other is in order.

 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 affirmance or ratification of the contract.
 26

 If there has been no performance yet by both contracting parties, it is obvious that there is no duty of
mutual restitution.

 In personal obligations, where the service had already been rendered, the value thereof with the
corresponding interest, is the basis for damages (par. 2.) recoverable from the party benefited by the
service.

 The effects of an annulment operate prospectively and do not, as a rule, retroact to the time the sale was
made. Thus, where S sold to B shares of stock but for one reason or another, the corporate secretary of the
corporation failed to record the transfer in the corporate books, and S later sold the same shares of stock to
C, even if the sale to C were to be annulled later on, C had in the meantime, title over the shares from the
time the sale was perfected until the time such sale is annulled.
 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.
Restitution by incapacitated person

This provision is an exception to the general rule of mutual restitution under

the preceding article. The incapacitated person is obliged to make restitution only
to the extent that he was benefited by the thing or price received by him. It results,
therefore, that if he was not benefited, he is not obliged to restore what he had
received but the other contracting party is still bound to return what he had
received, whether he was benefited or not.

It is not necessary for the minor to be considered benefited that he

invested the thing or amount received. It is sufficient if he has kept it.
The party who has capacity has the burden of proving the benefit or
profit received by the incapacitated person. Enrichment of the
incapacitated party is not presumed.

An exception to the rule of mutual restitution is also provided in

Article 1427.
 30

Article 1400

“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.”
 31

Effect of loss of thing to be returned

- If the thing to be returned is lost without the fault of the person obliged to make
restitution (defendant), there is no more obligation to return such thing. But in such a
case, the other cannot be compelled to restore what in virtue of the decree of
annulment he is bound to return.

- If it is lost through his fault, his obligation is not extinguished but is converted
into an indemnity for damages consisting of the value of the thing at the time of the
loss with interest from the same date and the fruits received from the time the thing
was given to him to the time of its loss.
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.
 Extinguishment of action for annulment
 If the person, who has a right to institute an action for
annulment will not be able to restore the thing which he
may be obliged to return in case the contract is
annulled because such thing is lost through his fraud or
fault, his right to have the contract annulled is
extinguished. If the loss is not due to his fault or
fraud, Article 1402 applies.

 Under the second paragraph, the right of action is based

upon the incapacity of any one of the contracting parties.
Whether the right of action is based upon incapacity or
not, the rule is the same. It is no longer necessary that
the fraud or fault on the part of the plaintiff (the
incapacitated person) resulting in the loss must have
occurred “after having acquired capacity” as under the old
Code. This qualification has been deleted in the present
article. The deletion has made the second paragraph
redundant.
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.”
Effect where a party cannot restore what he is bound to return:

When a contract is annulled, a reciprocal obligation of restitution is created.

The return by one party of what he is obliged to restore by the decree of annulment
may be regarded as a condition to the fulfillment by the other of what is incumbent
upon him. (see Art. 1191.) In effect, there will be no annulment if the party cannot
restore what he is bound to return. This is true even if the loss is due to a fortuitous
event.

However, if the party who lost the thing through a fortuitous event offers
to pay its value with the fruits received if any (there is no liability to pay interest
since the loss is without his fault), the other can be required to make
restitution
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