2.
Any other person with interest, such as solidary co-debtor, person subsidiarily liable,
2. The heirs of these persons
3. Their creditors by virtue of the right granted by Art. 1177
- Art. 1385: Rescission creates the obligation to return the things which were the object of
the contract, together with their fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return whatever he may be obliged to
restore.
- Neither shall rescission take place when the things which are the object of the contract are
legally in the possession of third persons who did not act in bad faith.
- In this case, indemnity for damages may be demanded from the person causing the loss.
- Mutual Restitution: The only possible application of the rule that the party seeking
rescission must offer to restore that which he has received from the other, is in contracts
executed by guardians or administrators in Ar. 1381 (1) and (2).
Prescriptive Period:
- Art. 1389. The action to claim rescission must be commenced within four years.
- Minority of Party: A minor who is a party to a contract of sale must bring the action for
rescission within four years after attaining the age of majority.
VOIDABLE CONTRACTS Voidable or Annullable Contracts:
- Existent, valid, and binding, although they can be annulled because of want of capacity or
vitiated consent of one of the parties; but before the annulment, they are effective and
obligatory between the parties.
- When applicable: 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.
Rescission and Annulment, distinguished:
1. Nullity, as its name implies, declares the inefficacy which the contract already carries in
itself, while rescission merely produces that inefficacy, which did not exist essentially in the
contract.
2. Nullity, to be cured, requires an act of ratification, while rescission, to be ineffective, needs
no ratification.
3. In nullity, the direct influence of the public interest is noted, while in rescission private
interest alone governs.
4. Nullity based on a vice of the contract which invalidates it, while rescission is compatible
with the perfect validity of the contract.
5. Nullity is a sanction, while rescission is a remedy, the law predominating in the former, and
equity in the latter.
6. While nullity can be demanded only by the parties to the contract, rescission may be
demanded even by third parties affected by it.
Annulment as a Remedy:
- Must be declared by the court by final judgment.
- It is also a sanction imposed by law who entered into contract by bad faith.
- As defense: It can also be invoked as defense by defendant-innocent party when sued for
performance of contract.
Who May Bring:
1. Only innocent party on file or his guardian or representative
accommodation mortgagors.
Prescriptive period: the action for annulment shall be brought within four years.
- When it commences:
a. In cases of intimidation, violence or undue influence, from the time the defect of the
consent ceases.
b. In case of mistake or fraud, from the time of the discovery of the same.
c. And when the action refers to contracts entered into by minors or other incapacitated
persons, from the time the guardianship ceases.
- Application of period: The period of prescription provided in this article applies to the
parties to the contract but not to third persons.
- Registered documents: 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, for the familiar
rule is that registration is a notice to the whole world.
- 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.
Effects:
1. Liability for damages
2. Mutual restitution (status quo ante)
- It must be contemporaneous restitution.
- When mutual restitution not applicable: (as only one party will only restitute)
a. Annulled contract involving incapacitated
b. If the plaintiff lost the object of contract, action is barred
c. If the defendant lost the object, he must return the value of the object.
d. When there will be unjust enrichment
Ratification / Confirmation
- Definition: It is that act or means by which efficacy is given to a contract or an obligation
which suffers from a vice of curable nullity.
- It extinguishes the action to annul voidable contract. There is no need for juridical action for
the same to take effect.
- Distinguished from acknowledgement: Confirmation or ratification cures a defect of
nullity, while acknowledgement remedies deficiency of proof.
Requisites of Confirmation:
1. That the contract is voidable or annullable, or one in which the consent of one party is
defective, either because of lack of capacity to contract or because of error, fraud, violence,
intimidation or undue influence.
2. That the ratification is made with knowledge of the cause for nullity.
3. That at the time the ratification is made, the cause of nullity has already ceased to exist.
How Made: Express or Implied
1. Express ratification:
a. As to nature: it seems clear that any oral or written manifestation of the person entitled
to ask for annulment that he agrees to be bound by the contract or that he will not seek its
annulment, would be express ratification.
b. As to requisites: They are the same as those for implied ratification it is only in the form
that these two kinds of ratification differ.
2. Implied ratification::
- It may be implied from the conduct or acts of the party entitled to ask for annulment.
- Examples:
By silence or acquiescence
b. By acts showing the approval or adoption of the contract
c. By acceptance and retention of benefits flowing therefrom
Who May Ratify:
1. Injured party after attaining capacity
2. Guardian of injured party even if the latter is still incapacitated
Effects of Ratification:
- After a contract has been validly ratified, no action to annul the same can be maintained
based upon defects relating to its original validity.
- Retroactivity of ratification: Its effect retroact to the moment when the contract was
entered into.
UNENFORCEABLE CONTRACTS
- One which cannot be enforced unless it is first ratified in the manner provided by law.
- The contract is valid and there is no vice in consent, but neither of the party can enforce the
same.
- Distinguished from annullable and rescissible contract: These two contracts produce
legal effects unless they are set aside by a competent court, while the unenforceable
contract does not produce any effect unless it is ratified.
Kinds of Unenforceable Contracts:
1. Unauthorized Contracts
- Art. 1403 (1): Those entered into in the name of another person by one who has been
given no authority or legal representation, or who has acted beyond his powers;
- Governed by Art. 1317 and principles of agency
- When: When a person enters into a contract for and in the name of another, without
authority to do so, the contract does not bind the latter, unless he ratifies the same.
- Example: The agent, who has entered into the contract in the name of the purported
principal, but without authority from him, is liable to third persons upon the contract. It must
have been the intention of the parties to bind someone, and, as the principal was not bound,
the agent should be.
- In corporation law: The contract entered by an unauthorized officer, that is other than the
Board, is unenfcorceable.
2. Contracts Infringing the Statute of Frauds
- Art. 1403(2): Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of its contents:
- (a) An agreement that by its terms is not to be performed within a year from the making
thereof;
- (b) A special promise to answer for the debt, default, or miscarriage of another;
- (c) An agreement made in consideration of marriage, other than a mutual promise to marry;
- (d) An agreement for the sale of goods, chattels or things in action, at a price not less than
five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or
the evidences, or some of them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made by the auctioneer in
his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale,
price, names of the purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
- (e) An agreement of the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
- (f) A representation as to the credit of a third person.
- Statute of Frauds: is descriptive of statutes which require certain classes of contracts to
be in writing.
- Nature: The statute does not deprive the parties of the right to contract with respect to the
matters therein involved, but merely regulates the formalities of the contract necessary to
render it enforceable.
- Purpose: To prevent fraud and perjury in the enforcement of obligations depending for
their evidence upon an unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by the party to be charged.
- Validity of contracts: The statute of frauds simply provides for the manner in which
contracts under it shall be proved. It does not attempt to make such contracts invalid if not
executed in writing, but only makes ineffective the action for specific performance.
- Defense is Personal: Statute of frauds is personal to the party of the agreement.
Unenforceable contracts cannot be assailed by third persons.
- Oral evidence: Oral evidence of the contract will be excluded upon timely objection.
- Parole Evidence Rule:
a. Failure to Object: But if the parties to the action, during the trial, make no objection to
the admissibility of oral evidence to support the contract covered by the statute, and thereby
permit such contract to be proved orally, it will be just as binding upon the parties as if it had
been reduced to writing.
b. When there is estoppel; When the party received or accepted benefits derived from the
unwritten contract.
- Note or memorandum: No particular form of language or instrument is necessary to
constitute a memorandum or note as a writing under the statute of frauds. It includes even
electronic evidences pursuant to E-Commerce Act.
- When there is partial performance: The defense of Statute of Frauds is unavailable.
- Wholly executory contracts: statute of frauds applies to this and not to executed or
partially executory contracts.
3. Contracts Entered by Both Incapacitated Parties
- Art. 1403(3): Those where both parties are incapable of giving consent to a contract.
- In this case, neither party nor his representative can enforce the contract unless it has been
previously ratified.
- Ratification by one party: Converts the contract into a voidable contract voidable at the
option of the party who has not ratified; the latter, therefore, can enforce the contract against
the party who has already ratified. Or, instead of enforcing the contract, the party who has
not ratified it may ask for annulment on the ground of incapacity.
VOID / INEXISTENT CONTRACTS
- It is one which has no force and effect from the very beginning, as if it had never been
entered into, and which cannot be validated either by time or ratification.
- Distinguished from rescissible contracts:
1. In rescissible contract, the defect is in their effects, either to one of the parties or to a third
party; while in void contracts, the defect is inherent in the contract itself.
2. The nullity of the inexistent contract is a matter of law and public interest, while rescission 4. The action to rescind prescribes while the action to declare the nullity of void contracts
is based on equity and is more a matter of private interest. never prescribes.
3. If no action is taken to set aside a rescissible contract, it remains valid and produces all its
effects; in void contracts, there are no legal effects even if no action is taken to set it aside.