VOIDABLE CONTRACTS Voidable Contract Not Void Ab Initio

A contract where consent is vitiated, such as

by violence or intimidation, is not void ab
ARTICLE 1390 initio but only voidable, and is binding upon
Distinctions Between a Rescissible and a the parties unless annulled by proper action
Voidable Contract in court; so, in a case where the plaintiff
corporation’s stockholders sold their entire
Rescission Annulment stocks to a Japanese corporation in 1943, it
(a) The basis here is (a) The basis here is cannot recover its former properties which
lesion (damage). vitiated consent or were, after liberation, turned over to the
(b) The defect here is incapacity to Republic as enemy-owned properties. A
external or intrinsic. consent. mere allegation that the sale to the Japanese
(c) The action is (b) The defect here is firm had been perfected thru intimidation
subsidiary. intrinsic (in the will not ipso facto revert to stockholders of
(d) This is a remedy. meeting of the the plaintiff the ownership of the stocks
(e) Private interest minds). without any judicial declaration. Indeed, one
governs. (c) The action is who desires to recover lands as the owner
(f) Equity principal. from another upon the theory that the deeds
predominates. (d) This is a sanction. held by the other are null and void, must first
(g) Plaintiff may be a (e) Public interest ask that such alleged fraudulent deeds be set
party or a third governs. aside.
person. (f) Law
(h) There must be predominates. Grounds for Annulment (Declaration of
damage to the (g) Plaintiff must be a Nullity)
plaintiff. party to the contract (a) incapacity to consent
(i) If plaintiff is (whether bound (b) vitiated consent
indemnified, principally or NOTE: Repentance at having entered into the
rescission cannot subsidiarily). transaction is NOT a ground for annulment.
prosper. (h) Damage to the The reason given is that it is not the function
(j) Compatible with plaintiff is of the law to protect or relieve a man from
the perfect validity of immaterial. the consequences of a bad bargain.
the contract. (i) Indemnity here is
(k) To prevent no bar to the The Action to Bring
rescission, prosecution of the (a) For POSITIVE REDRESS, an action
ratification is not action. (complaint, or counterclaim) must be filed;
required. (j) Here, a defect is otherwise, the contract remains binding.
presupposed. (b) For use as a DEFENSE — ordinarily, no
(k) To prevent affirmative action is needed.
annulment,
ratification is Effect of Prescription
required. If the action has prescribed, the contract can
no longer be set aside.
 Illustrative Problems Confirmation, Ratification, Acknowledgment
(a) A was intimidated into signing a contract Distinguished
on June 1, 1999. The intimidation continued
until Sept. 1, 2001. From what time should Confirmation Ratification Acknowledgement
we compute the four-year period for
to cure a defect to cure the to remedy a
annulment?
in a voidable defect of lack of deficiency of
ANS.: From Sept. 1, 2001, the time the
contract. (Art. authority in an proof (Art.
intimidation ceased.
1396, Civil Authorizedcont 1405, Civil
Code). ract (entered Code) (thus, an
(b) On June 1, 2005, A entered into a
into by oral loan may
contract with B. On Jan. 4, 2006, A
another). (Arts. be put in
discovered that fraud had been present at
1317 and 1405, writing, or
the time he entered into the contract. Such a
Civil Code). when a private
fraud vitiated his consent. Within what time
instrument is
must A bring the action for annulment?
made a public
ANS.: Within 4 years from Jan. 4, 2006 A
instrument).
must bring action for annulment; otherwise,
his right to sue for said annulment will have
Term in the Civil Code
prescribed. Jan. 4, 2006 should be the
starting point because it was on this date Under the New Civil Code, all the three terms
are now uniformly called RATIFICATION.
that the fraud was discovered.
NOTE: A sale made to a buyer by a seller who
would be entitled to the land only when a
(c) In the case of contracts entered into by
minors or incapacitated persons, from what certain suspensive condition is fulfilled, but
which sale was made prior to the fulfillment
time will the period within which to bring the
annulment begin? of said condition is confirmed when, after the
fulfillment of the condition, the seller
ANS.: From the time the guardianship ceases.
executes an affidavit acknowledging the
transfer of the property to the buyer.

Effects of Ratification
(a) The action to annul is extinguished
(Art.1392, Civil Code); thus, the contract
becomes a completely valid one.
(b) The contract is cleansed of its defect from
the beginning. (Art. 1396, Civil Code).

Requisites of Ratification (Properly,

Confirmation of a Voidable Contract)
(a) The contract must be a voidable one.
(b) The person ratifying must know the
reason for the contract being voidable (that
is, the cause must be known).
(c) The cause must not exist or continue to
exist anymore at the time of ratification.
(d) The ratification must have been made Ratification by the Injured Party Himself
expressly or by an act implying a waiver of Ratification can be made by the injured party
the action to annul. himself, provided he is capacitated, or has
(e) The person ratifying must be the injured become capacitated.
party.
Distinguished from Action to Rescind
ARTICLE 1393 Art. 1394 does not refer to a rescissible
contract entered into by the guardian in
Kinds of Ratification
behalf of his ward.
(a) Express (oral or written)
(b) Tacit (implied — as from conduct implying
a WAIVER). ARTICLE 1395
Conformity of Guilty Party Not Needed
Examples of Tacit Ratification Reason: The guilty party’s consent is not
(a) A minor bought land, but sold the same, needed; otherwise, he may find a way of
after reaching 21 years of age, to a 3rd getting out of the contract by the simple
person. expedient of refusing to ratify.
(b) A minor sold land, and upon reaching
majority age, collected the unpaid balance of ARTICLE 1396
the selling price, or spend the greater part of
Retroactive Effect of Ratification
the proceeds of the sale.
(a) Note the retroactive effect; thus, once
(c) Use of the proceeds by a person who had
ratification has taken place, annulment based
been previously intimidated into selling his
on the original defects cannot prosper.
property.
(b) Although there is a retroactive effect, the
(d) Voluntary performance by the injured
rights of innocent third persons must not be
party of his own obligation, after the cause of
prejudiced.
the nullity was known to him.
Example
Lapse of Time
A minor sold his land to X. When he became
In the case of Tipton v. Velasco (6 Phil. 67),
22 years old, he became indebted to Y. To
the Supreme Court said that mere lapse of
avoid paying Y, the former minor decided to
time does not legalize a voidable contract;
ratify the sale of the land. He then had no
but in Fabie v. Yulo (24 Phil. 240), it was held
other property. May Y still rescind the sale
that remaining silent for a certain period of
although at the time it was made he was not
time ratifies such a contract.
yet a creditor?
ANS.: Yes. Although ratification has a
ARTICLE 1394 retroactive effect, still his rights as an
Ratification by Guardian innocent third person must not be
(a) This Article refers to the ratification of a prejudiced.
contract entered into by the incapacitated
person.
(b) Since the person entitled to ratify is still ARTICLE 1397
incapacitated, his guardian acts in his behalf.
Persons Who May Ask for Annulment or subsidiarily.
The victim (principal or subsidiary party) may Problem: A minor forces X to sign a contract.
ask for annulment, not the guilty person or May the minor later on ask for annulment?
his successor. ANS.: No, because he himself is at fault.
Reason: He who comes to equity must come
with clean hands. Intimidation or Fraud by a Minor
If a minor misrepresents his age and the
FACTS: A minor contracted with X. X’s heir, Y, other party is misled as to his age, may the
sues for annulment on the ground that the minor later on sue for annulment?
other party was a minor. (a) No, because of estoppel. (Mercado v.
HELD: Annulment cannot prosper, for just as Espiritu, 37 Phil. 37).
X has no right to sue, being the capacitated (b) Later on, the Supreme Court had a
party, so also Y, who merely derives any right different view and answered YES, because
he has from his predecessor-in-interest, X. according to it, a minor can never be guilty of
estoppel since he is not liable for his conduct
 The general rule is that the action for the or act. (Young v. Tecson, 39 O.G. 953).
annulment of contracts can only be (c) Still later on, the Court again changed its
maintained by those who are bound mind and answered NO, reiterating the
either principally or subsidiarily by virtue Mercado case. (Sia Suan & Chao v. Alcantara,
thereof. (Art. 1397, Civil Code). There is, GR L-1720, March 4, 1950, 47 O.G. 4561,
however, an exception to the rule: A where the minor, nearly 20 years old,
person who is not obliged principally or appeared to be very clever.)
subsidiarily in a contract may exercise an
action for nullity of the contract if he is ARTICLE 1398
prejudiced in his rights with respect to
Effects of Annulment
one of the contracting parties, and can
(a) If the contract has not yet been complied
show the detriment which could
with, the parties are excused from their
positively result to him from the contract
obligations.
in which he had no intervention.
(b) If the contract has already been
performed, there must be MUTUAL
Creditors of the Victim
RESTITUTION (in general) of:
The creditors of the victim cannot ask for
1) the thing, with fruits;
annulment for they are not bound by the
2) the price, with interest.
contract.
Illustrative Problem:
Examples
A was forced by B to sign a contract. C, a
(a) Mun. of Cavite v. Rojas
creditor of A, wants to annul the contract. Is
FACTS: A leased a parcel of land from the
C allowed to do so?
Municipality of Cavite. Later the lease was
ANS.: No, C is not allowed to do so. If the
annulled.
contract prejudices him, and A has no other
Issue: What should each of the parties do
property, then C may ask for the rescission of
now?
the contract, not its annulment. C cannot ask
HELD: “The defendant must restore and
for annulment because he is not obliged by
deliver possession of the land described in
the terms of said contract, either principally
the complaint to the Municipality of Cavite, policy shall compensate the latter for the
which in turn must restore to the said damage.
defendant all the sums it may have received
from her in the nature of rentals just as soon Personal Obligations
as she restores the land improperly leased.” Here the value of the service shall be the
basis for damages. (Art. 1398, 2nd par.).
(b) If a sale of land is annulled, the seller
must return the purchase price with legal ARTICLE 1399
interest and the buyer must return the land
Generally, No Restitution by Incapacitated
with its fruits.
Party
(c) However, in the case of Laperal v. Rogers,
(a) The Article applies only if the defect is
L-16590, Jan. 30, 1965, the Supreme Court
INCAPACITY.
held that the buyer of a parcel of land does
(b) This constitutes an exception to the
not have to pay rent, during the time he is in
obligation of mutual restitution under Art.
possession (even if the sale is eventually
1398.
cancelled) for the simple reason that the
(c) Here in Art. 1399, restitution is only to the
seller was himself already enjoying the use of
extent of enrichment (pecuniary or
the money, delivered to such seller, as the
otherwise).
purchase price. The Court further held that in
the absence of a showing that there is
No Presumption of Enrichment
considerable disparity in the benefits derived
The law does not presume this enrichment or
by both parties, equity will presume that
benefit; therefore, the capacitated person
they are, more or less, the same.
has the burden of showing such enrichment.
Just because the property had been
Non-availability to Strangers
delivered, it does not necessarily follow that
Art. 1398 cannot be availed of by strangers
there was enrichment.
to the contract. Innocent third parties cannot
Of course, if the incapacitated person still has
be obliged to restore.
the property, this by itself is a benefit which
he must return and not squander; otherwise,
Effect of Registration of the Land
this will amount to a ratification.
Even if the land has already been registered,
Art. 1398 still applies, provided there has
FACTS: A, a minor, entered into a contract
been no estoppel.
with a person sui juris. After reaching
majority he squandered the money received.
Extra Liability of the Guilty Party
Issue: Why is this an implied ratifi cation?
A guilty party who, for example, used force
HELD: “The privilege granted minors in disaffi
can be held liable for damages under Arts. 20
rming their contracts upon reaching the age
and 21 of the Civil Code: Art. 20. Every
of majority is subject to prompt election on
person who, contrary to law, willfully, or
the matter. . . The exception of infants from
negligently causes damage to another, shall
liability on their contracts proceeds solely
indemnify the latter for the same.
upon the principle that such exemption is
Art. 21. Any person who willfully causes loss
essential to their protection, and the law of
or injury to another in a manner that is
infancy should be so administered that the
contrary to morals, good customs or public
result may be secured. But it has not from the time the house was given to him to
infrequently happened that courts, in their the time of its loss;
anxiety to protect the rights of infants in the (b) the value of the house at the time of the
matter of contracts made by them during loss;
non-age, have, after they have become (c) interest at 6% per annum on the value of
adults, treated them to the same extent as the house from the time the house was
infants still, exempting them from the destroyed.
operation of the rules of law. The strong
tendency of the modern decision, however, Dumasug v. Modelo
is to limit the exemptions of infancy, to the FACTS: A contract between A and B was
principle upon which the disability annulled by the court. But the object of the
proceeds.” contract, a carabao, had died while in B’s
possession.
The Capacitated Person Must Restore Issue: What should B return?
Whether He Benefited or Not, Except if Art. HELD: “With respect to the plow carabao
1427 of the Civil Code Applies that died while in defendant’s possession,
Art. 1427 reads: “When a minor between 18 the value of which is P120, defendant is
and 21 years of age who has entered into a obliged pursuant to the provision of Art.
contract without the consent of the parent 1307 (now Art. 1400 of the New Civil Code)
or guardian voluntarily pays a sum of money to pay and deliver to plaintiff the value of
or delivers a fungible thing in fulfillment of said animal, with interest as an indemnity for
the obligation (natural obligation), there shall the detriment caused to its owner.”
be no right to recover the same from the
obligee who has spent or consumed it in ARTICLE 1401
good faith.”
Historical Notes on Effect of Loss of Object
Through Fraud or Fault of the Victim
ARTICLE 1400 (a) This is a substantial restatement of Art.
Value May Be Substituted for Thing Itself 1314 of the old Civil Code, except that the
In the duty of mutual restitution, the value of phrase “after having acquired capacity” after
the thing with interest substitutes for the the word “plaintiff” in the second paragraph
thing itself that was lost thru the party’s has been omitted, implying that under the
fault. new Civil Code, fraud or fault on the part of
the aggrieved party may exist even during his
Example minority. Whereas Art. 1401 of the new Civil
A forced B to sell him (A) the house of B. B Code refers to fraud or fault on the part of
brought an action to annul the contract. The the person who can bring the action for
contract was annulled on the ground of annulment, Art. 1400 of the new Civil Code
fraud. A was asked by the court to return to refers to the fault on the part of the person
B whatever he (A) has received. But the who cannot bring the action to have the
house had been destroyed through the fault contract declared annulled.
of A. What should A now give? (b) As things now stand, the two paragraphs
ANS.: A should give all of the following: in Art. 1401 mean the same thing.
(a) the fruits or rentals of the house received
Query on Squandering by Insane Person fraud or fault.
An insane person sold his house, and
squandered the proceeds while insane. Can ARTICLE 1402
he ask for annulment later on and recover
the house?
Reason Why One Party Cannot Be Compelled
ANS.: Under the second paragraph of Art.
if Other Party Does Not Restore
1401, he cannot sue for annulment and
A reciprocal obligation of restitution has
recover the house because the proceeds
been created.
were squandered away by him. Thus,
according to the members of the Code
Example
Commission, the action cannot prosper, even
A forced B to take A’s car in exchange for B’s
if at the time of loss, the plaintiff was still
ring. B asked for annulment, and the court
insane or a minor. AND YET, this would
gave the decree of annulment ordering each
contradict Art. 1399, because there, the
to return what had been received. B refused
incapacitated person is not obliged to make
to give A the car. May A be compelled to give
any restitution except insofar as he has been
back the ring? No.
benefited by the thing or price received by
him. Being insane, he could not have profited
Effect of Loss Thru Fortuitous Event
by squandering the money.
Suppose the innocent party cannot restore
It is thus believed that the answer of the
because of a loss thru a fortuitous event,
Code Commission is NOT accurate for even
may he still compel the other to return what
were we to apply Art. 1401 (2ndparagraph),
he had given?
it is clear that the loss during the insanity
ANS.: It would seem that the answer is NO,
could not be due to “fraud” or “fault.”
because before annulment, the contract is
valid, and the innocent party, being the
Problems
owner of the thing lost by a fortuitous event,
(a) A was forced to sign a contract with B. In
must bear the loss. There is however an
said contract, A was given a house. But A
exception, and it occurs when he offers to
destroyed the house. May A still bring the
give the value of the thing. (He does not have
action for annulment?
to give interest in view of the fortuitous
ANS.: No more. His act of destroying the
event.) He must be allowed this remedy;
house extinguished his right to bring the
otherwise, he would be in a worse position
action for annulment.
than one who had destroyed the thing thru
(b) A, a minor, was sold a house by B. The
his fault. Once he exercises this remedy, he
house was destroyed by a fortuitous event.
can recover from the other what has been
May A still annul the contract so as to
previously given.
recover from B the price (and interest) he (A)
had given?
Problem
ANS.: Yes. As a rule, if the right of action is
A forced B to sell to him (A) his (B’s) ring. B
based upon the incapacity of anyone of the
sued for annulment, but A had already lost
contracting parties, the loss of the thing shall
the ring thru a fortuitous event.
not be an obstacle to the success of the
What is B’s remedy?
action. Here, the minor was not guilty of
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.