VOIDABLE CONTRACTS

Article 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.

Voidable or annullable contracts are existent, valid and binding, although they can be annulled
or made void because of lack of capacity or because of the vitiated consent of one of the parties. This is
a defect which when brought forth will annul the contract. Before annulment, the contract is valid and
binding. The validity must be assailed or challenged only in an action for that purpose.

There is an annullable or voidable contract. Spanish jurist teach us, when an act has all formal
requirements of a valid transaction, and has the appearances of one. It is annullable only because an
inquiry into its constitutive elements, particularly consent, reveals vitiation. (Iruzubieta 1189)

An Italian jurist, commenting on an identical provision in the Italian Civil Code on annullable
contracts teaches: Because contracts entered into by persons incapable of giving consent are not void,
but merely voidable, they produce juridical effects as long as they are not annulled at the instance of the
person lacking capacity to give consent, or one allowed by law to bring an action for annulment.
(Franzoni, 1057)

An annullable or voidable contract can be cured by ratification which action cleanses it of its
defect from the beginning.

Rescissions and Annulment Compared and Contrasted:

Similarity: Both render the contract inefficacious.

Differences:

1. Nullity declares the inefficacy which the contract already carries in itself.
Rescissions produces the inefficacy which did not exist essentially in the contract.
2. Nullity to be cured must be ratified.
Rescissions to be ineffective does not need ratification.
3. In nullity, the direct influence of the public interests is noted.
In rescission it is solely private interest that governs.
4. In nullity, there is a vice in the contract which invalidates it.
In rescission, there need not be any vice nor defect; it may be a perfectly valid contract.
5. Nullity is a sanction wherein the law predominates.
Rescissions is a remedy wherein equity prevails.
6. Only parties to a contract or to a transaction can resort to nullity.
Rescission maybe demanded by third persons affected by the contract.
Grounds for annulling a contract:

1. Where one party is incapable of giving his consent:

a. Minors mesmerizing
b. People of unsound mind
c. Those in a state of drunkenness
d. Those under a hypnotic spell
2. Where there is vitiation of consent due to mistake violence, intimidation, undue, influence or
fraud.
If a contract is sought to be annulled, the court must annul or set aside the contract
through the petition of the party and such court must order the mutual restitution of
the things they received.
The attack against the validity of a voidable contract must be direct in an action or
counter claim for the purpose. This article clearly states the annulment is by proper
action of the court. There is therefore a difference between judicial declaration of the
nullity of a contract, and its annulment insofar as the requisite action is concerned. In
adjudicating, for example, on successional rights, the court may collaterally declare null
a contract between parties that effectively deprive compulsory heirs of their legitimates.
While the main action then is for the determination of the successional rights, the
declaration of the nullity of a sale or a contract maybe sought and obtained. It is quite a
different matter with regard to annulment of contracts, for a direct action for the
purpose of obtaining an annulment must be instituted. There is no such thing as a
collateral annulment.

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 consent
ceases.

In cases of mistake or fraud, from the time 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.

Tolentino advances the view that this article lays down an extinctive prescription which
concerns not only the action from annulment but likewise to the defense of the nullity of the contract.
Paras and Pineda do not include this on their comment on the article. In fact, Iruzubieta, commenting on
exactly the same provision in the Spanish Civil Code, expressly teaches that this prescriptive period does
not apply to nullity cases- since the contract is, from its very inception (ab initio) void. (Iruzubieta, 1191)
The simple precept of statutory construction, the rule of verbalegis(the words of the law), seem to make
it clear that the article was meant to apply to “actions for annulment”.

The action prescribes in four years, after which the action to annul a voidable contract can no
longer be availed of.
 The prescriptive period imposed here of four years applies also in case of fraud but affects only
Athe parties to the contract, not third persons. This is important: Third persons-persons who were not
privy to the contract, when they are allowed by law to assail a contract are not bound by this
prescriptive period.

Principle enunciated by the Supreme Court:

In legal contemplation, discovery of fraud must be reckoned to have taken place from the time
the document was registered in the office of the register deeds, for the familiar rule is that aregistration
is a notice to the whole world. Armentia v. Partiarca, 18 SCRA 1253; Carantes v. Court of Appeals, 76
SCRA 574; Balbin v. Medalla, 108 SCRA 666.

Article 1392. - Ratification extinguishes the action to annul a voidable contract. (1309a)

Strictly, there is a difference between ratification and confirmation. Confirmation refers to the
act of one who has the knowledge of the cause of annulment and who is entitled to bring an action for
annulment and after it has ceased to exist validates the contract either expressly or impliedly.
Ratification is the act of approving a contract entered into by another who is without authority or who
has acted beyond the scope of authority given by him by the person in whose name the contract was
entered into. It is the latter who must ratify. It is said that confirmation applies to annullable contracts
whereas ratification applies to unenforceable contracts or to a contracts where consent is totally absent.
Confirmation and acknowledgement give efficacy to a contract or an obligation which suffers from a vice
of curable nullity. On the other hand, acknowledgement remedies deficiency of proof.

In effect, the ratifying party renounces the right to impugn the contract, which he could
otherwise do, with the result that it is as if the contract had never been afflicted by an infirmity.

Principles enunciated by the Supreme Court in decided case:

1. A contract is cured of its infirmity though it was entered into through error, if the party, after
discovering his error, confirms or ratified the said contract.
2. If the parties enter into a contract orally but later decide to reduce to writing their agreement or
when a contract is in a private document and such is converted into a public instrument there is
acknowledgement.
3. In Dalayv. Aquatin, 47 Phil. 951: Villarin owed Gomez, evidenced by a mortgage of a piece of
land. Villarin promise to assign Gomez the land if debt was not paid at maturity. No payment
was made. Even before the land, however, could be formally assigned to him, Gomez already
transferred the land to Dalay. A few days after this transfer, Villarin executed an affidavit
acknowledging that the land has been transferred by a real and absolute sale to Gomez.

Issue:Was the transfer from Gomez to Dalay valid, considering that at the time Gomez
transferred the land, Villarin had not yet formally assigned to Gomez?
 Held: the transfer from the Gomez to Dalay was defective because it was made before the
actual assignment of property to Gomez. The transfer is not void per se since Villarin, the owner
consented to the passing to Gomez in payment of his unpaid debt. The defect is that Villarin did
not yet execute the deed of assignment as he promised. This defect was cured when Villarin
executed the affidavit acknowledging real and absolute transfer.

Requisites of Ratification to be affective:

1. There must be a voidable or annullable contract.

2. Ratification is made with the knowledge of cause of nullity.
3. At the time of ratification the cause of nullity has already cease.
4. The ratifying party is the injured party, or the prejudiced party.
5. The ratification is accomplished expressly, or implicitly by a waiver of action to annul.
The right to ratify is transferable to the heirs of the party who has the right to ratify.

Article 1393. – Ratification maybe effected expressly or tacitly. It is understood that there is
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. (1311a)

The article treats of two kinds of ratification: express or implied. With respect to express
ratification it maybe oral or written. This is done by him who has the right to seek for annulment; but he
refers to be bound by the agreement. Implied ratification can be gathered from the conduct or acts of
the party entitled to annul.

It may come in different forms like:

a. Silence or acquiescence
b. Acts showing approval
c. Adoption of contract
d. Acceptance or retention of benefits from the contract

Cases decided by the Supreme Court:

1. Rosales v. Reyes, 25 Phil. 495; Atacador v. Silayan, 67 Phil. 674

When a minor buys a piece of land subject to the vendor’s right to repurchase, he
cannot ask for annulment of the safe if, after reaching majority, he transfers his right to the
property to a third person; such transfer constitutes a confirmation or ratification of the first
contract.

2. UySoo Lim v. Tan Unchuam, 38 Phil. 552.

Where a minor who has entered into a contract of sale, instead of asking for annulment,
uponreaching the age of majority, and with knowledge of nullity spends the greater part of the
proceeds from the sale, there is tacit ratification.
 3. Tacalinar v. Corro, 34 Phil. 898

Where a minor who is entitled to annul the contract upon reaching majority proceeds to collect the
unpaid balance of the purchase price, there is tacit ratification.

4. Madlambayan v. Aquino (CA) 51 O.G. 1925, April 1955

A creditor during the Japanese occupation may have been intimidated to accept payment in
Japanese notes, but if he subsequently made use of said money, he is deemed to have ratified such
payment.

5. Lang ah Chan v. Gonzalez, 52 Phil. 180

There is confirmation of the contract where, with knowledge of the true nature of the transaction
before him or with means available to obtain that knowledge, the party alleged to be defrauded
performs his part of the contract.

6. Fable v. Yulo, 24 Phil. 240

It was even been held that where a mother has assumed in her behalf and in that of her children,
some of whom were then minors, an obligation left by her deceased husband, the children who have
later come of age may be considered as having ratified the contract to pay such indebtedness, where
they have not directly impugned the validity of such contract but have remained silent.

Article 1394. – Ratification may be effected by the guardian of incapacitated person. (n)

The right to ratify pertains to the incapacitated party; so that during the incapacity subsists,
ratification may be exercised by the guardian of the incapacitated for him.

A question left unanswered by our code, however, is whether or not a minor-- who has through
subterfuge, concealed his minority—can, at a later time, sue to annul a contract because of his minority.
There is a general principle invoked by Philippine law that no person may plead his own acts, omissions
or malice as a cause of action. The principle is a principle of equity: He who comes to court must come
with clean hands.Under this principle, a minor would not be allowed to impugn a contract because of
his minority, when he concealed his minority through subterfuge. An argument against this position,
however, is that precisely as a minor, the law cannot attribute to his acts the full consequences of an act
of an adult. So, why should the subterfuge of a child be used against him, to bar his right to bring an
action for annulment? The Modern Italian Civil Code, however, provides an answer expressly: When the
minor, through subterfuge or deceit, conceals his minority, he is barred from assailing the contract;
however, a mere declaration on his part that he is of legal age does not bar him from assailing the
contract. (Art. 1426, Italian Civil Code) With equal clarity, then, when it is apparent that the person
attempting to misrepresent himself as an adult is a child (by physical appearance, etc.) then the
misrepresentation of the child not-withstanding, the contract can later be assailed because of the
minority of the child. Since not even the Modern Spanish Civil Code has provision similar to this, there is
a high degree of likelihood that our Supreme Court will hew its decision- should a case arise along the
same lines.
 Article 1395. – Ratification does not require the conformity of the contracting party who has
no right to bring the action for annulment.

Ratification comes from the side of the aggrieved, be it the party himself or if he is
incapacitated, his guardian. What this article makes unnecessary is the conformity of the other party
who may have been the reason for the infirmity of the contract. It would be for example be utterly
senseless to require a party, who was merely coerced into a contract through violence, to obtain the
consent of the party who visited violence on him before filing the action for annulment.

Article 1396. – Ratification cleanses the contract from all its defects from the moment it was
constituted. (1313)

The effect of ratification is cleansing the contract from its defects and after valid ratification, no
more action to annul the same based on the original defect can be maintained.

The act of ratification cures the defects of the contract and so it is as if the same contract have
no infirmity from the very beginning. It has a retroactive effect therefore. However the retroactivity
cannot prejudice the rights of third persons acquired before the ratification.

Example:

M, a minor sells the same land to A. After reaching legal age he sells the same land to B.
subsequent confirmation in favor of A cannot prejudice the right acquired by B.

Analysis:

1. When the land was sold to A, the seller was still a minor, hence defective.
2. Upon reaching major age he sells the same land to another person who is in good faith. This
should be valid but for the fact that there was a previous sale which is voidable.
3. Upon reaching major age, seller confirms the third sale done during his minority.
Result: such confirmation does not prejudice the right already acquired by B. the first sale which
was contracted during minority may be rescinded in an auction pauliana if the confirmation has
resulted in the insolvency of the debtor.

Article 1397. – The action for annulment of contracts may be instituted for 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 cause mistake base their action upon these flaws of the contract.
(1302a)

Requisites for the exercise of annulment of contract:

1. Plaintiff has interest in the contract

2. Victim must be the one to seek annulment

One who is not principally or subsidiarily bound cannot attack the validity of an annullable contract
because he has no legal capacity to challenge the validity of such contract. Iruzubeta then identifies the
parties qualified to assail the contract; whoever becomes an obligor because of the contract, and
whoever is obliged, though not principally, but atleast in a subsidiary manner- such as guarantor or a
surety. (Iruzubeta 1193) Italian jurists also remind us that as consequence of this provision, allowing only
parties in interest to assail a voidable contract, the court cannot motuproprio annul a contract afflicted
with an infirmity. (Franzoni, 1068) He who has the capacity to contract may not invoke the incapacity of
theparty with whom he has contracted as a defense against performance. This brings us the basic
principle that he who goes to the court must be with clean hands. The Spanish jurist Iruzubieta puts it
very well: “Lo que no cabedudaesquenadiepuedealegarnisupropriatorpezanisu infraction a la ley, para
perdiluegosuproteccion… “What is clear is that no one can allege his own willfulness or his violation of
the law to invoke its protection.” Once more Italian jurists teach that when one of the heir sues to void
an annullable contract entered into by the decent who lack the capacity to contract, the judicial
annulment of the contract will benefit all heirs, because it would be absurd to hold a contract
contemporaneously voided for the litigating heir, and valid for all other heirs in the same status.
(Franzoni, 1068-1069) The prohibition or rather disqualification to annul an annullable contract goes
down to the successors in interest of thye capacitated party.

Principles enunciated by the Supreme Court in decided case:

1. If the incapacitated person acted with fraud in order to induce the other party to enter into the
contract, neither he nor his legal representative can ask for the annulment of the contract,
unless he was of tender age and wanting in discretion.
2. When an incapacitated employs violence or intimidation on the other party he loses the
privileged of annulling the contract.
3. When a party interested in the contract asks for its annulment, all the other parties must be
made part-defendants.
4. The doctrine of estoppel is applied upon the minor who misrepresents himself as of age on
entering into a contract from asserting his minority later on in annulling the same contract.

To the last, we must however add the qualification that if his minority is apparent, estoppel will not
be a bar against him, because it will be presumed that the other party, seeking to exploit his minority,
did “go along” with the minor’s misrepresentation of age. (Franzoni, 1057)

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 prices
with its interest, except in cases provided by law.

In obligation to render service, the value thereof shall be the basis for damages.

The result of the annulment of the contract is to erase it entirely from existing and return the parties
as far legally and equitably possible to their original position before the contracts.

If there was no performance from either party, the contract simply ceases to exist but should one or
both parties have already performed, then restitution taken place, unless there are lawful reasons
barring restitution.
 Only the parties privy to the contract may invoke restitution; a stranger to the contractual relation
cannot avail of this provision. The mutual restitution principle cannot be applied to all contracts because
the principle of unjust enrichment must be taken into consideration.

Principles enunciated by the Supreme Court in decided cases:

1. Where a scale of land is declared void, the vendor must return the purchase price with interest,
and the vendee must return to the vendor the land sold together with the fruits.
2. Unless estoppel should be established, the registration of the land does not extinguish the
obligation of mutual restitution under this article.
3. If one of the contracting parties received some benefit and he has not given anything for it to
the other, it is equitable that he should return the amount by which he was unjustly enriched. If
the parties had reciprocal prestations, which can compensate each other, the excess in value
can be paid the party to whom it pertains.
4. Where there is no compensation, there must be mutual restitution unless such violates the
principle of unjust enrichment.
5. Rental is not consideration for the land itself but for the use and enjoyment of the land.
6. In contracts services where the service has already been rendered, the party benefited by the
service must pay for its value in spite of the annulment of the contract; otherwise he would be
unjustly enriched to the extent of the benefit derived by him from such service rendered by the
other party.

When damages may be recovered aside from the object or amount restored:

1. If the injured party before discovering the fraud employed by the other party has already
incurred expenses which become useless by the annulment.
2. Where there has been intimidation and the property transferred has suffered damage in the
hands of the defendant before the annulment of the contract;

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. (1304)

The incapacity referred to in this article is any form of incapacity, including mental debility, and
not merely to minority. When a thing of value, by an annullable contract, is conveyed to a minor, or
to one who is incapacitated, this fact alone of the conveyance of a valuable object will not make
restitution necessary, because the very same strayed by the minor, or the incapacitated person,
resulting in no benefit to him. (Iruzubieta, 1196) this is exclusively incapacity of one of the contracting
parties, should the contract be annulled is only bound to return what he has profited from by the sale
of the thing sold or by the price received. The benefit received is not necessarily a material and
permanent increase in fortunate but any prudent and beneficial use thereof, and the proof or
benefit.

If the thing received by the incapacitated still exists and is in his possession or ownership at the
time his incapacity ceases, the presumption is that he benefited, so that should he ask for annulment,
he must return same to the other party. If he alienates or squanders the thing instead of annulling,
he is deemed to have ratified the contract.

In connection with incapacity, Article 1427 has a connection here but since the age of majority
has been lowered to eighteen, therefore a person who is eighteen is already capacitated, so that
whatever contract he entered into is no longer voidable due to minority and whatever he delivers
cannot be recovered even if not spent or consumed in good faith.

Article 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.

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 fault or fraud of the plaintiff.

Article 1402. – As long as one of the contracting parties does not restore what is virtue of the
decree of annulment he is bound to return, the other can not compelled to comply with what is
incumbent upon him.

The three foregoing article has been consolidated and are thereby explained together. The first
topic herein for explanation is loss of the object which must be restored or restituted.
Article 1400 provides that if the object to be restored is lost through the fault of the party in
whose possession it was, he must give the fruits received and the value of the thing at the same time
of the loss with interest starting from the date of loss. This is so following the principles that he who
is at the fault must bear the price of the loss.
Article 1401 lays down the rule through that if the object is lost through the fault or fraud of the
plaintiff such party has no right to ask for annulment. Again, we go back to the principle of equity
that he who comes to court must do so with clean hands. Instead therefore, the action for annulment
is extinguished. This holds true even if at the time of loss the plaintiff was a minor or was insane. It is
to be noted the Article 1401 limit the extinguishment of the annulment action only to cases where
the lost is due to the fault or fraud of the plaintiff. Here, in this case, the defendant is not obliged to
restore whatever he may have received from the plaintiff. The reason for this is that the voidable or
annullable contract was valid and as such, produced legal effect. At the time of loss, the plaintiff held
possession of the object in question, hence he is considered the owner; as such he being the owner
bears the loss due to fortuitous event, following the principle of the “res perit domino”. Such being
the case, Article 1402 must now apply at the defendant cannot be compelled to restore what he
 received since the plaintiff cannot return what he received. Equity and justice play their designated
roles beautifully.
If, however, the plaintiff should offer to pay the value of the thing at the time of loss to take its
place, then the defendant must restitute as provided for in Article 1400 but plaintiff must not be
made to pay interest open the value of the thing since its loss because the loss is no fault of his. On
the other hand, if the object was loss through the fault of the defendant, the full provision of Article
1400 applies without requiring the defendant to pay interest; so that he suffers the loss he was the
owner at the time but must not be punished by paying interest since he was not at fault. As regards
fruit and accession, Article 1400 applies in that the party obliged to restore them must pay for their
value of they cannot be restored.

voidable