CHAPTER 7 VOIDABLE CONTRACTS

Voidable Contracts in General. —

Definition - those in which all of the essential elements for validity are present, although
the element of consent is vitiated either by lack of legal capacity of one of the
contracting parties, or by mistake, violence, intimidation, undue influence, or fraud.

 most essential feature - binding until it is annulled by a competent court.

 validity may be attacked either directly by means of a proper action in court or
indirectly by way of defense.
Characteristics. —
(1) Their defect consists in the vitiation of consent of one of the contracting parties.
(2) They are binding until they are annulled by a competent court.
(3) They are susceptible of convalidation by ratification or by prescription.

Distinguished from rescissible contracts. —

Voidable Rescissible
The defect is intrinsic because it consists of a vice The defect is external because it consists of damage or
which vitiates consent prejudice either to one of the contracting parties or to
a third person
voidable even if there is no damage or prejudice not rescissible if there is no damage or prejudice
annulability of the contract is based on the law rescissibility of the contract is based on equity
 remedy and sanction  mere remedy
 public interest predominated  private interest predominates
Susceptible of ratification Not susceptible of ratification
may be invoked only by a contracting party may be invoked either by a contracting party or by a
third person who is prejudiced

Art. 1390. The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They
are susceptible of ratification.

Contracts Which Are Voidable. —

1) all of the essential requisites for validity are present, although the requisite of
consent is defective because one of the contracting parties does not possess the
 necessary legal capacity, or because it is vitiated by mistake, violence, intimidation,
undue influence or fraud.
 if consent is absolutely lacking or simulated, the contract is inexistent, not
voidable.
 Guiang vs. Court of Appeals (June 26, 1998, 291 SCRA 372) – Article 1390, par.
2, refers to contracts visited by vices of consent, i.e., contracts which were
entered into by a person whose consent was obtained and vitiated through
mistake, violence, intimidation, undue influence or fraud. In the said case,
private respondent’s consent to the contract of sale of their conjugal property
was totally inexistent or absent. x x x This being the case, said contract properly
falls within the ambit of Article 124 of the Family Code, which was correctly
applied by the two lower courts. x x x In the event that one spouse is
incapacitated or otherwise unable to participate in the administration of the
conjugal properties, the other spouse may assume sole powers of
administration. These powers do not include the powers of disposition or
encumbrance which must have the authority of the court or the written
consent of the other spouse. In the absence of such authority or consent, the
disposition or encumbrance shall be void. However, the transaction shall be
construed as a continuing offer on the part of the consenting spouse and the
third person, and may be perfected as a binding contract upon the acceptance
by the other spouse or authorization by the court before the offer is withdrawn
by either or both offerors.

Art. 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.

Prescriptive Period. —
 Carantes vs. Court of Appeals 76 SCRA 514 –

“The present action is one to annul the contract entitled “Assignment of Right
to Inheritance” on the ground of fraud. “Article 1390 of the new Civil Code
provides that a contract “where the consent is vitiated by mistake, violence,
intimidation, undue infuence or fraud,” is voidable or annullable. Even Article
 1359, which deals on reformation of instruments, provides in its paragraph 2 that
‘If mistake, fraud, inequitable conduct, or accident has prevented a meeting of
the minds of the parties, the proper remedy is not reformation of the instrument
but annulment of the contract.’ When the consent to a contract was fraudulently
obtained, the contract is voidable. Fraud or deceit does not render a contract
void ab initio, and can only be a ground for rendering the contract voidable or
annullable pursuant to Article 1390 of the new Civil Code by a proper action in
court.

“The present action, being one to annul a contract on the ground of fraud, its
prescriptive period is four years from the time of the discovery of the fraud.

“The next question that must be resolved is: from what time must fraud,
assuming that there was fraud, be deemed to have been discovered in the case at
bar? From February, 1958, when according to the private respondents, and as
found by the respondent court, the private respondents actually discovered that
they were defrauded by the petitioner Maximino Carantes when rumors spread
that he was selling the property for half a million pesos? Or from March 16, 1940,
when, as admitted by the parties and found by both the trial court and the
respondent court, the deed of “Assignment of Right to Inheritance” was
registered by the petitioner in the Office of the Register of Deeds?

“The weight of authorities is to the effect that the registration of an

instrument in the Office of the Register of Deeds constitutes constructive notice
to the whole world, and, therefore, discovery of the fraud is deemed to have
taken place at the time of the registration. In this case the deed of assignment
was registered on March 16, 1940, and in fact on the same date T.C.T. No. 2533 in
the names of the heirs of Mateo Carantes was cancelled, and T.C.T. No. 2540 in
the name of the petitioner was issued in lieu thereof. The four-year period within
which the private respondents could have filed the present action consequently
commenced on March 16, 1940; and since they filed it only on September 4,
1958, it follows that the same is barred by the statute of limitations.”

Art. 1392. Ratification extinguishes the action to annul a voidable contract.

Art. 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.
Art. 1394. Ratification may be effected by the guardian of the incapacitated person.

Art. 1395. Ratification does not require the conformity of the contracting party who has
no right to bring the action for annulment.

Art. 1396. Ratification cleanses the contract from all its defects from the moment it was
constituted.

Concept of Ratification. —
2) Ratification or confirmation as it is known in the Spanish Civil Code is defined as the
act or means by virtue of which efficacy is given to a contract which suffers from a
vice of curable nullity.
Requisites of Ratification. —
1) The contract should be tainted with a vice which is susceptible of being cured. –
else, contract void or inexistent
2) The confirmation should be effected by the person who is entitled to do so under
the law. – implied from the provisions of Arts. 1394 and 1395
 if the contract was entered into by an incapacitated person, the confirmation can
be effected only by such person upon attaining or regaining capacity or by his
guardian if he has not yet attained or regained capacity
 if the contract was executed through mistake, violence, intimidation, undue
influence, or fraud, it can be effected only by the innocent party.
3) It should be effected with knowledge of the vice or defect of the contract. – clear
from the provision of Art. 1393
 If the contract is tainted with several vices – e.g. executed through mistake and
fraud  if the person entitled to effect the confirmation ratifies or confirms the
contract with knowledge of the mistake, but not of the fraud, his right to ask for
annulment is not extinguished thereby since the ratification or confirmation has
only purged the contract of mistake, but not of fraud
4) The cause of the nullity or defect should have already disappeared – otherwise the
act of confirmation would also suffer from the very vice or defect which it seeks to
cure.
 It must be observed, however, that in the case of contracts entered into by
incapacitated persons, this is not indispensable in a sense, because even while
 the incapacity continues to exist, the con rmation may be effected by the
guardian of the incapacitated person.

Forms of Ratification. —
3) no special form required for confirmation, but, as the law provides, it may be
effected expressly or tacitly.
 express confirmation -- 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 expressly declare his desire to convalidate it, or what amounts to
the same thing, to renounce his right to annul the contract.
 tacit confirmation -- 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.
 Uy Soo Lim vs. Tan Unchuan , 38 Phil. 552 – where it is established that a
minor who had entered into a contract of sale, not only failed to repudiate it
upon reaching the age of majority, but also disposed of the greater part of
the proceeds after he became of age and after he had knowledge of the facts
which he now seeks to disaffirm, it was held that there was a tacit ratification
or confirmation of the contract.
 Tacalinar vs. Corro, 34 Phil. 8898 – if the person who can effect the
confirmation, instead of demanding the annulment of a contract of sale,
should proceed to collect the greater part of the purchase price, as set out in
a promissory note, it is clear that there is already a tacit confirmation of the
contract.
Effects of Ratification. — clearly pointed out in Arts. 1392 and 1396
1) extinguishes the action to annul the contract; and
2) cleanses the contract of its defects from the moment it was constituted

Art. 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.
Who May Institute Action. —
Requisites to confer the necessary capacity for the exercise of the action for annulment:
1) The plaintiff must have an interest in the contract
2) The victim and not the party responsible for the vice or defect must be the person
who must assert the same.
 Ibañez vs. Hongkong & Shanghai Bank , 22 Phil. - “From these legal provisions
(referring to what are now Arts. 1390 and 1397 of the Civil Code) it is deduced that
it is the interest had in a given contract, that is the determining reason of the right
which lies in favor of the party obligated principally or subsidiarily to enable him to
bring an action for the annulment of the contract in which he intervened and
therefore he who has no right in a contract is not entitled to prosecute an action
for annulment, for according to the precedents established by the courts the
person who is not a party to a contract, or who has no cause of action or
representation from those who intervened therein, is manifestly without right of
action and personality such as to enable him to assail the validity of the contract.’’
 a third person who is a stranger to the contract cannot institute an action for its
annulment. There is, however, an exception to this rule:
 Teves vs. People’s Homesite & Housing Corp ., 23 SCRA 1141; De Santos vs. City
of Manila, 45 SCRA 409; Singsong vs. Isabela Sawmill, 88 SCRA 623 – a person
who is not a party obliged principally or subsidiarily under a contract may
exercise an action for annulment of the contract if he is prejudiced in his rights
with respect to one of the contracting parties, and can show detriment which
would positively result to him from the contract in which he has no intervention.
 Singsong vs. Isabela Sawmill, 88 SCRA 623 – where the remaining partners of a
partnership executed a chattel mortgage over the properties of the partnership
in favor of a former partner to the prejudice of creditors of the partnership, the
latter have a perfect right to file the action to nullify the chattel mortgage.
 Second requisite - based on the well-known principle of equity that whoever goes
to court must do so with clean hands. (Bastida vs. Dy Buncio & Co., 93 Phil. 195)

Art. 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.
Art. 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.

Effects of Annulment. —

 If the contract has not yet been consummated  the contracting parties shall be
released from the obligations arising therefrom
 If the contract has already been consummated  the rules provided for in Arts.
1398 to 1402 of the Code shall govern.

Obligation of mutual restitution. —

 If the prestation thereof consisted in obligations to give  the 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.
 If the prestation consisted in obligations to do or not to do, there will have to be an
apportionment of damages based on the value of such prestation with
corresponding interests
 Cadwallader & Co. vs. Smith, Bell & Co ., 7 Phil. 461 – upon annulment the
contracting parties should be restored to their original position by mutual
restitution.
 practically no difference between the effect of rescission based on lesion as
enunciated in the first paragraph of Art. 1385 of the Code and the general effect of
annulment as enunciated in Art. 1398. As in the case of rescission, the question of
fruits shall be governed by the rules on possession. Interest of course, refers to the
legal interest.

Rule in case of incapacity. —

 The principle of mutual restitution (Art. 1398) modified by Art. 1399.

 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 except insofar as he has been benefited by the thing or price received
by him.
  this rule applies only and exclusively to those cases where the nullity arises
from the incapacity of one of the contracting parties.
 if the nullity should arise from some other cause, the general rule enunciated
in Art. 1398 shall govern
 benefit spoken of in Art. 1399 = not necessarily mean a material and permanent
augmentation of fortune
 it is sufficient if there has been a prudent and beneficial use by the incapacitated
person of the thing which he has received.
 such benefit is present if the thing received is used for food, clothing, shelter,
health, and others of a similar character; the proof of such benefit is cast
upon the person who has capacity, since it is presumed in the absence of
proof that no such benefit has accrued to the incapacitated person.
 Braganza vs. Villa Abrille, 105 Phil. 456 – where two minors borrowed a
certain amount from the creditor during the Japanese occupation, and such
indebtedness is evidenced by a promissory note, while it is true that they
cannot be bound by their signatures because of their minority, they can still
be compelled to make restitution to the extent that they may have been
benefited by the money which they received. Since there is proof that the
funds were used for their support during the Japanese occupation, it is but
fair to hold that they had profited to the extent of the value of such money.
They must, therefore, reimburse the creditor the value of such money, which
value must be computed in accordance with the Ballantyne Schedule.
 Art. 1399 cannot be applied to those cases where the incapacitated person can
still return the thing which he has received.
 Uy Soo Lim vs. Tan Unchuan, 38 Phil. 552. – whatever difference may exist in
the authorities as to the obligation of an incapacitated person to return the
entire consideration received by virtue of a contract of sale as a condition
precedent to disaffirming the contract, they are unanimous in holding that he
must return such portion thereof as remains in his possession upon reaching
or attaining capacity. 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, it is clear that there
is already an implied ratification or confirmation.
Art. 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.

Art. 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.

Art. 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 of Failure to Make Restitution. — object of the contract is lost prior to the
commencement of the action,

 Where loss is due to fault of defendant. (Art. 1400) —he shall return the fruits
received and the value of the thing at the time of the loss, with interest from the
same date
 this rule applies only when the loss of the thing is due to the fault of the party
against whom the action for annulment may be instituted.
 shall not extinguish the action for annulment
 The only difference from an ordinary action for annulment is that, instead of
being compelled to restore the thing, the defendant can only be compelled to
pay the value thereof at the time of the loss.
 Where loss is due to fault of plaintiff. — (1st paragraph, Art. 1401)
 if the loss of the thing is due to the fraud or fault of the party who is entitled to
institute the proceedings  the action for annulment shall be extinguished
 Modes whereby action for annulment may be extinguished:

(1) prescription;
(2) ratifi cation; 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.
 2nd paragraph, Art. 1401 – redundant; under old code, provision read:
 “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.”
 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. 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.
 with the deletion of the phrase “after having acquired capacity” from the
provision of the second paragraph of Art. 1401 of the present Code  no
difference with 1st paragraph -- whether the loss occurred during the
plaintiff’s incapacity or after he had acquired capacity, the action for
annulment would still be extinguished
Where loss is due to fortuitous event. —

 Arts. 1400 and 1401 do 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.
 apply the general principles regarding the effects of fortuitous events:
 If the person obliged by the decree of annulment to return the thing cannot do
so because it has been lost through a fortuitous event, 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. 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.
 If it is the plaintiff who cannot return the thing because it has been lost through a
fortuitous event, the contract may still be annulled, but with this difference — he
must pay to the defendant the value of the thing at the time of the loss, but
without interest thereon.
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Cases:
Bael vs IAC, 169 SCRA 617
Braganza vs Villa Abrille, 105 Phil. 456
De Santos vs City of Manila, 45 SCRA 409
Talag vs Tankengco, 92 Phil. 1066