DEFECTIVE CONTRACTS:

Voidable or annullable contracts are those which possess all the

essential requisites of a valid contract [ COC] but one of the parties is
legally incapable of giving consent, or consent is vitiated by mistake,
violence, intimidation, undue influence or fraud. [De Leon]
GROUNDS FOR ANNULMENT:

1. Party is legally incapable of giving consent.

2. Consent of one party is vitiated by mistake, violence, intimidation,

undue influence or fraud.
VOIDABLE CONTRACTS ARE VALID
UNTIL ANNULLED meaning they are
existent, valid and obligatory unless
annulled or set aside by a proper
action in court
Who are incapable of giving consent?
 VICES OF CONSENT
a. Mistake (Error) affects the
b. Fraud (Deceit) INTELLECT
c. Violence
d. Intimidation affects the
e. Undue Influence WILL
Previously, we all know
that CONSENT must
always be IFS
• Thus: if any of the vices of
Intelligent consent (VOC) is present, it will
Free make the contract VOIDABLE
(A1330)
Spontaneous
• The presence of VOC must be
clear and convincing
Mistake- false belief about something
Requisites for mistake [error] to vitiate consent:

Object of the contract

a. M/E regarding the – conditions which induced one of the parties must be substantial
identity or qualifications

b. M/E must be unexcusable (and not caused by negligence)

c. M/E must be of fact not of law
*M/E is substantial if because of it, the party to a contract gave his/her consent
*M/E caused by negligence, it will not vitiate consent
*M/E must be of fact not of law, for ignorance of the law excuses no one
[exception:mutual error]
SITUATION on mutual error:

B borrows P10,000 from L.

As security for the debt, it was agreed that B should mortgage his parcel
of land in favor of L. They then executed a contract of antichresis,
believing that it has the same effect as a real estate mortgage.

The contract of antichresis here is voidable.

This is an exception to the general rule that mistake of law is not a
ground. The exception would be mutual error as to the effect of an
agreement when the real purpose of the parties is frustrated, then it
may vitiate consent.
Examples of Mistake [Error]

• as to object: a party entered into a contract of sale thinking it was

only a contract of loan
• as to condition: error in knowledge of the true boundaries of a land
offered for sale
• as to quality: “A” bought a fountain pen thinking it to be made of
solid gold, but it turned out to be gold plated only
• As to quantity: “A” desired to buy a land consisting of 100 hec. but,
discovered it is 60 hec. only
• As to qualifications: hiring of a pre-bar reviewer as a singer in a
concert
Art. 1332 gives us exceptions to the presumption
that one always acts with due care and signs with
full knowledge of all the contents of a document.
• The presumption does not apply;
a. when one of the parties is unable to read
b. if the contract is in a language not understood by one of the
parties
Remedy: the party enforcing the contract must show that the terms of
the contract have been fully explained to the other party
Art. 1333 simply means that knowledge of
doubt or risk does not vitiate consent.
e.g.

“A” represented to “B” that the pen he was selling can write even
underwater. “B” despite his doubt as to the representation made, still
bought it.

-correlate A1333 with aleatory contract

Mutual error may vitiate consent
Requisites:

a. There must be mutual error

b. The error must refer to the legal effect of the agreement
c. The real purpose of the parties is frustrated

e.g.
A and B entered into a contract intending to create co-ownership yet the said contract
turned out to be a mortgage contract.

Correlate with slide number 8

Violence is to physical coercion,
Intimidation is to moral coercion

• Illustration:
“A” signs the contract only because a gun is pointed at him, this is
intimidation, because he is afraid he might be killed. But if he signs
because his left hand is being twisted painfully, this is violence or force.

• Violence/intimidation committed by a 3rd person can vitiate consent.

(A1336)
 REQUISITES OF INTIMIDATION:
1) that the intimidation must be the determining cause of the contract, or
must have caused the consent to be given;

(2) that the threatened act be unjust or unlawful;

(3) that the threat be real and serious, there being an evident
disproportion between the evil and the resistance which all men can
offer, leading to the choice of the contract as the lesser evil; and

(4) that it produces a reasonable and well-grounded fear from the fact
that the person from whom it comes has the necessary means or ability
to inflict the threatened injury. [ De Leon vs. CA]
Art. 1335:
Take note of the last par. of A1335, to illustrate it:

The debtor consents to pay under a threat of recourse

to court or filing of a civil or criminal case to the court.
It means that the threat of a court action to enforce a
legal claim is justified and does not vitiate consent.
 • G.R. No. 207176               June 18, 2014
READ:• SPOUSES VICTOR and EUNA BINUA, Petitioners,
vs.
LUCIA P. ONG, Respondent.
Undue Influence (A1337)
• Requisites:
a. improper advantage
b. power over the will of another
c. deprivation of the latter’s will of reasonable freedom of choice
• Undue influence caused by a 3rd person vitiates consent, like in
violence and intimidation
• If the influence is gained by kindness and affection, or argument and
persuasion, the influence will not vitiate consent.
SITUATION:

B, an uneducated man, is in need of P200,000 to pay the hospital bill of

his son who is in the ICU. B tried to borrow from L, but instead of
letting B borrow money, L tells B to sell his land to her for only a small
amount. B has nobody to turn to. If B does not want to sell his land,
but he is compelled because of his unfortunate financial condition, the
sale between B and L may be avoided on the ground of undue
influence.
Fraud (A1338)
• KINDS:
a. dolo causante (causal fraud) is the fraud referred to in A 1338
effect: contract is voidable
-is the use of insidious word and machinations by one of the
contracting parties to induce the other party to enter into a contract,
which, without them, he would not have agreed to
e.g. misrepresentation by the vendor of the boundaries of his land
by including properties not included in his title
b. dolo incidente (incidental fraud)
effect: contract is still valid, will give rise to an action for damages
Take note: if both parties committed causal fraud , the contract is valid
Examples of causal fraud cited in the case of Spouses Carmen S. Tongson and Jose C.
Tongson, et al., v. Emergency Pawnshop Bula, Inc.,

(1) when the seller, who had no intention to part with her property, was
"tricked into believing" that what she signed were papers pertinent to her
application for the reconstitution of her burned certificate of title, not a deed
of sale;
(2) when the signature of the authorized corporate officer was forged; or
(3) when the seller was seriously ill, and died a week after signing the deed of
sale raising doubts on whether the seller could have read, or fully understood,
the contents of the documents he signed or of the consequences of his act
CONCEALMENT (A1339)
• Concealment constitutes fraud only when there is duty to reveal,
otherwise the principle of caveat emptor (let the buyer beware)
applies
• There is duty to reveal between partners because they are bound by
confidential relations (one of the characteristics of partnership is
fiduciary)
Mere expression of opinion, does not signify fraud,
unless made by an expert and the other party has
relied on the former’s special knowledge. (A1341)

e.g. A, on buying a watch, was assured by the seller that it is a good

watch, etc., (opinion-no fraud); but if the seller is a watch expert and
the only reason A bought it was because of the representation of the
seller, the contract is voidable.

The reason is because the opinion of an expert is considered a FACT.

Requisites of fraud to vitiate consent:

a. The fraud [dolo causante]must be serious; and

b. The parties must not be in pari delicto (mutual guilt)

Simulation-it is the process of intentionally deceiving
others by producing the appearance of a contract that
really does not exist (absolute simulation) or which is
different from the true agreement (relative simulation)
Effect:
Absolute simulation – the contract is inexistent and void
Relative simulation – the parties are bound to their true agreement,
except:
a. if the contract should prejudice a 3rd person
b. If the purpose is contrary to law, morals, good customs, public
order or public policy.
e.g.
• Absolute simulation:
A and B, as a joke, entered into a contract of sale.

• Relative simulation:
a. A and B entered into a contract of sale, though their true intent is to enter
into a contract of donation.
b. A and B entered into a contract of sale for 200,000, though the true price is
P500,000.
ANNULMENT OF VOIDABLE
CONTRACTS:

When to File an Action For Annulment of Voidable Contracts?

 4 (four) years from
• In cases of intimidation, violence or undue influence, from the time
the defect of the consent ceases.
• In cases of mistake or fraud, from the time of the discovery of the
same.
• In the case of contracts entered into by minors or other incapacitated
persons from the time the guardianship ceases.
READ:
• THIRD DIVISION
• [ G.R. No. 108991. March 20, 2001 ]
• WILLIAM ALAIN MIAILHE, PETITIONER, VS. COURT OF
APPEALS AND REPUBLIC OF THE PHILIPPINES,
RESPONDENTS.
ANNULMENT OF VOIDABLE
CONTRACTS:
WHO MAY FILE AN ACTION FOR ANNULMENT OF VOIDABLE
CONTRACTS
The victim (principal or subsidiary party) may ask for annulment, not
the guilty person or his successor.
E.g.
A, minor, contracted with X, of legal age, X’s heir sues for annulment on
the ground that A is a minor.
 Annulment will not prosper because X and his heir are capacitated
parties.
Think about these:
• A was forced by B to sign a contract. C, creditor of A wants to annul
the contract. Is C allowed to do so?

• A minor forces X to sign a contract. May the minor later ask for
annulment?

• If a minor misrepresent his age, and the other party is misled of his
age, may the minor later on sue for annulment.
RATIFICATION OF A VOIDABLE
CONTRACT:
 Ratification means that one under no disability voluntarily adopts
and gives sanction to some defective or unauthorized contact, act or
proceeding which, without his subsequent sanction or consent would
not be binding on him.

Effects of Ratification: the action to annul is extinguished (A1329)

thus the contract becomes a completely valid one. The contract is
cleansed of its defect from the beginning.
RATIFICATION:

Rule in ratification:
 there must be knowledge of the reason which renders the contract
voidable.

The cause must not exist or continue to exist anymore at the time of
ratification.
EFFECTS OF ANNULMENT:

If the contract has not been complied with, the parties are excused
from their obligations
If the contract has already been performed, there must be mutual
restitution

Generally, no restitution by incapacitated party [this presupposes that the

defect is incapacity] [ restitution is to the extent of enrichment]
EFFECTS OF ANNULMENT:
A forced B to sell him (A) the house of B. B brought an action for
annulment. 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
now A give?
 
A should give all of the following:

1. Fruits (rentals) from the time the house was given to him to the time of its loss
2. Value of the house at the time of the loss
3. Interest (6% p.a.) from the time the house was destroyed
 
A1401, 1st par
Action for annulment of contract shall be extinguished when the object thereof is
lost through the fraud or fault of the party who has a right to institute the
proceedings.

e.g.
A was forced to sign a contract with B. In said contract, A was given a house.
But A destroyed the house. May A still bring the action for annulment?
 
No more. His act of destroying the house extinguished his right to bring the
action for annulment.
 
A1401, 2nd par.
e.g.
A, minor, was sold a house by B. The house was destroyed by a
fortuitous event. May A still annul the contract, so as to recover
from B the price he had given?

Yes. As a rule, if the right of action is based upon the incapacity of

anyone of the contracting parties, the loss of the thing shall not be
an obstacle to the success of the action. Here, the minor was not
guilty of fraud or fault.
• Art. 1402:

Effect of loss thru fortuitous event:

A forced B to sell to him (A) his (B’s) ring. B sued for the annulment,
but A had already lost the ring thru fortuitous event. What is B’s
remedy?

A can be compelled to pay its value or damages. (not liable for

damages, because the same was lost thru FE.
• Vendor, entered into a contract of sale of his lots while suffering from
senile dementia.
• Seller – If married, the spouse must signify his or her consent. 
Otherwise, the sale is void. Under the family Code, if the
spouse sold the property without the consent and
knowledge of the other spouse, then the sale is void. 
However, the transaction shall be considered as a continuing
offer and may be perfected upon acceptance of the other
spouse. On the other hand, if the spouse sold the community
property with the knowledge but without the consent of the
other, the contract is merely annullable.  The other spouse has
5 years from the date of the contract to go to court and seek the
annulment of the contract.
 As advertised, for sale is a condominium unit identified as x x x with an
area of 95 sq.m. Located at x x x. The title was verified. After
sometime, it was discovered that the total area is only 74 sq.m. B
bought the unit for its spacious area. [dolo causante]