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.
Ratification—any defect or infirmity causing its annullable nature can be cured by the party aggrieved or injured
The effects of an annulment operate prospectively and do not retroact to the time the contract, such as sale, was made
1391. The action for annulment shall be brought within 4 years. This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.
And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases.
Prescriptive period—time within which an aggrieved party can file a case in court to make a claim or to assert a right or to correct a wrong
It is a rule that an extra-judicial demand by a creditor shall interrupt the running of a prescriptive period. However, this rule only applies to a determinate conduct that can be demanded.
1392. Ratification extinguishes the action to annul a voidable contract. 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.
Ratification—the act of curing the defect which made the contract annullable
There can be no ratification by a corporation of acts performed by an officer if he has not been given apparent authority by the corporation, or if his acts are not later validated by the corporation
1394. Ratification may be effected by the guardian of the incapacitated person.
Guardian—tasked with the administration of the person and properties of the ward
1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment.
Ratification is a unilateral act
o Generally done by the injured party and not by the party causing the injury
1396. Ratification cleanses the contract from all its defects from the moment it was constituted.
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.
Thus, strangers to a contract cannot sue either or both of the contracting parties to annul and set aside that contract
This provision follows Art. 1311 which provides that ―contracts take effect only between the parties, their assigns and heirs […]‖
It is the existence of an interest in a particular contract that is the basis of one’s right to sue for nullification of that contract and that essential interest in a given contract is, in general, possessed only by one who is a party to the contract
Exception: when a person, who is not the party obligated principally or subsidiarily in a contract, is prejudiced in his rights with respect to one of the contracting parties
o But, it is indispensable to show the detriment which positively would result to him from the contract in which he had no intervention o Limitation of the exception: that contract may be nullified only to the
extent that such nullification is absolutely necessary to protect the plaintiff’s lawful rights
Preemptive or Redemptive Rights of a lessee—under PD 1517, this exists only in respect of the urban land under lease on which he had resided for 10 years or more
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.
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.
It must be noted that the bank cannot file a case against the minor
It can only recover by way of a counterclaim in a complaint for annulment filed by the minor when he reaches the age of majority
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.
When the object to be returned cannot be returned, because it was lost by the person obliged to return it due to the fault of the said person, the value of the object, its fruits and interest shall be given instead to satisfy the order of restitution
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.
It is a rule that no one can come to court with unclean hands
If an incapacitated person purchases a car and later he files a case to annul the contract of sale, the mere fact that the car has been lost will not abate the proceedings for annulment
o This is so because the incapacitated person is not obliged to make any restitution except when it has benefited him
However, if the incapacitated person loses the car through his own fault, then the case will be dismissed
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.
Summary of Voidable Contracts
VOIDABLE CONTRACTS – intrinsic defect; valid until annulled; defect is due to vice of consent or legal incapacity
CHARACTERISTICS: 1. Effective until set aside
2. May be assailed or attacked only in an action for that purpose
3. Can be confirmed ( NOTE: confirmation is the proper term for curing the defect of a voidable contract)
4. Can be assailed only by the party whose consent was defective or his heirs or assigns
WHAT CONTRACTS ARE VOIDABLE: 1. Minors ( below 18 )
2. Insane unless acted in lucid interval 3. Deaf mute who can‘t read or write
4. Persons specially disqualified: civil interdiction 5. In state of drunkenness
6. In state of hypnotic spell MISTAKE
o false belief into something o REQUISITES:
1. Refers to the subject of the thing which is the object of the contract 2. Refers to the nature of the contract
3. Refers to the principal conditions in an agreement
4. Error as to person - when it is the principal consideration of the contract
5. Error as to legal effect - when mistake is mutual and frustrates the real purpose of parties
VIOLENCE
o serious or irresistible force is employed to wrest consent INTIMIDATION
o one party is compelled by a reasonable and well grounded fear of an imminent and grave danger upon person and property of himself, spouse, ascendants or descendants (moral coercion)
UNDUE INFLUENCE
o person takes improper advantage of his power over will of another depriving latter of reasonable freedom of choice
o Martinez vs. Hongkong and Shanghai Bank
The doctrine on reluctant consent provides that a contract is still valid even if one of the parties entered it against his wishes or even against his better judgment. Contracts are also valid even though they are entered into by one of the parties without hope of advantage or profit.
FRAUD
o thru insidious words or machinations of contracting parties, other is induced to enter into contract w/o w/c he will not enter (dolo causante)
KINDS OF FRAUD IN THE PERFORMANCE OF OBLIGATION OR CONTRACTS
1. Causal Fraud (dolo causante) – deception of serious character without which the other party would not have entered into; contract is VOIDABLE (Art. 1338)
2. Incidental Fraud (dolo incidente) – deception which are not serious and without which the other party would still have entered into the contract; holds the guilty party liable for DAMAGES (Art. 1344) 3. Tolerated Fraud – includes minimizing the defects of the thing,
exaggeration of its good have; LAWFUL misrepresentation o NOTE:
Expression of an opinion – not fraud unless made by expert and other party relied on the former‘s special knowledge
Fraud by third person – does not vitiate consent; only action for damages except if there is collusion between one party and the third person, or resulted to substantial mistake, mutual between parties
CAUSES OF EXTINCTION OF ACTION TO ANNUL 1. PRESCRIPTION - Period to bring an action for Annulment
a. Intimidation, violence, undue influence - 4 years from time defect of consent ceases
b. Mistake, fraud – 4 years from time of discovery c. Incapacity - From time guardianship ceases
Carantes vs. CA, 76 SCRA 514, discovery of fraud must be reckoned to have taken place from the time the document was registered in the office of the register of deeds. Registration constitutes constructive notice to the whole world
2. RATIFICATION o REQUISITES
a. knowledge of reason rendering contract voidable
b. such reason must have ceased, except in case of ratification effected by the guardian to contracts entered into by an incapacitated,
c. the injured party must have executed an act which expressly or impliedly conveys an intention to waive his right
3. LOSS OF THE THING which is the object of the contract through fraud or fault of the person who is entitled to annul the contract o NOTE:
Object is lost through a fortuitous event, the contract can still be annulled, but the person obliged to return the same can be held liable only for the value of the thing at the time of the loss, but without interest thereon.
Ratification cleanses the contract of its defects from the moment it was constituted.