1

The essential features of the different classes of defective contracts are:

1. As to defect:
(a) In rescissible contracts, there is damage or injury either to one of the contracting parties or to third persons;
(b) In voidable contracts, there is vitiation of consent or legal incapacity of one of the contracting parties;
(c) In unenforceable contracts, the contract is entered into in excess or without any authority, or does not comply
with the Statute of Frauds, or both contracting parties are legally incapacitated;
(d) In void or inexistent contracts, one or some of the essential requisites of a valid contract are lacking either in
fact or in law.
2. As to effect:
(a) The rst are considered valid and enforceable until they are rescinded by a competent court;
(b) The second are considered valid and enforceable until they are annulled by a competent court;
(c) The third cannot be enforced by a proper action in court;
(d) The fourth do not, as a general rule, produce any legal effect.
3. As to prescriptibility of action or defense:
(a) In the rst, the action for rescission may prescribe;
(b) In the second, the action for annulment or the defense of annulability may prescribe;
(c) In the third, the corresponding action for recovery, if there was total or partial performance of the
unenforceable contract under No. 1 or No. 3 of Art. 1403, may prescribe.
(d) In the fourth, the action for declaration of nullity or inexistence or the defense of nullity or inexistence does
not prescribed.
4. As to susceptibility of rati cation:
(a) The rst are not susceptible of rati cation;
(b) The second are susceptible of rati cation;
(c) The third are susceptible of rati cation;
(d) The fourth are not susceptible of rati cation.

5. As to who may assail contracts:

(a) The rst maybe assailed not only by a contracting party but even by a third person who is prejudiced or
damaged by the contract;
(b) The second may be assailed only by a contracting party;
(c) The third may be assailed only by a contracting party;
(d) The fourth may be assailed not only by a contracting party but even by a third person whose interest is
directly affected.
6. As to how contracts may be assailed:
(a) The rst may be assailed directly only, and not collaterally;
(b) The second may be assailed directly or collaterally;
(c) The third may be assailed directly or collaterally;
(d) The fourth may be assailed directly or collaterally.
Consequently, if a guardian sells, mortgages or otherwise encumbers real property belonging to his ward without
judicial approval, the contract is unenforceable, and not rescissible even if the latter suffers lesion or damage of
more than one-fourth of the value of the property.
However, if he enters into a contract falling within the scope of his powers as guardian of the person and property,
or only of the property, of his ward, such as when the contract involves acts of administration, express judicial
approval is not necessary, in which case the contract is rescissible if the latter suffers the lesion or damage
mentioned in No. 1 of Art. 1381 of the Code.
Whether the contract is entered into by a guardian in behalf of his ward or by a legal representative in behalf of
an absentee, before it can be rescinded on the ground of lesion, it is indispensable that the following requisites
must concur:
(1) The contract must have been entered into by a guardian in behalf of his ward or by a legal representative in
behalf of an absentee;
(2) The ward or absentee must have suffered lesion of more than one-fourth of the value of the property which is
the object of the contract;
(3) The contract must have been entered into without judicial approval;
(4) There must be no other legal means for obtaining reparation for the lesion;
(5) The person bringing the action must be able to return whatever he may be obliged to restore; and
(6) The object of the contract must not be legally in the possession of a third person who did not act in bad faith.
However, before a contract can be rescinded on the ground that it has been entered into in fraud of creditors, it is
indispensable that the following requisites must concur:
(1) There must be a credit existing prior to the celebration of the contract;
(2) There must be a fraud, or at least, the intent to commit fraud, or at least, the intent to commit fraud to the
prejudice of the creditor seeking the rescission;
(3) The creditor cannot in any other legal manner collect his credit; and
(4) The object of the contract must not be legally in the possession of a third person who did not act in bad faith.
The action for rescission is subsidiary, consequently, it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same. Hence, before a party who is prejudiced can
avail himself of this remedy, it is essential that he has exhausted all of the other legal means to obtain reparation
Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused.
2

Extent of Rescission. It must be observed that the primary purpose of rescission is reparation for the damage
or injury which is suffered either by a party to the contract or by a third person. In order that this purpose may be
realized the rescission does not necessarily have to be total in character; it may also be partial.
Effect of Rescission in Case of Lesion. It is evident that the rst paragraph of Art. 1385 is applicable only to
rescissory actions on the ground of lesion and not to rescissory actions on the ground of fraud. This is so because
in the latter there can certainly be no obligation on the part of the plaintiff-creditor to restore anything since he
has not received anything. Once a contract is rescinded on the ground of lesion, there arises an obligation on the
part of both contracting parties to return to the other the object of the contract, including fruits or interests.
Consequently, rescission is not possible, unless he who demands it can return whatever he may be obliged to
restore
Article 1297 of the old Civil Code (now Art. 1387 of the New Civil Code) which was the law in force at the time of
the transaction provides: Contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to be made in fraud of creditors. Alienations by onerous title are also presumed fraudulent when made
by persons against whom some judgment has been rendered in any instance or some writ of attachment has been
issued
The law presumes that there is fraud of creditors in the following cases:
(1) Alienations of property by gratuitous title if the debtor has not reserved sufcient property to pay all of his
debts contracted before such alienations.
(2) Alienations of property by onerous title if made by a debtor against whom some judgment has been rendered
in any instance or some writ of attachment has been issued
This presumption becomes stronger when it is established that the conveyance by the judgment debtor is for the
purpose of preventing the judgment creditor or other creditors from seizing the property.
The fact that a vendor transfers all of his property to a third person when there is a judgment against him is a
strong indication of a scheme to defraud one who may have a valid interest over his properties.
if the property is acquired by one who is not a purchaser in good faith and for value, it is clear that the contract or
conveyance is rescissible. In such case the creditor who is prejudiced can still proceed after the property
Prescriptive Period. As a general rule, the action for the rescission of a contract must be commenced within
four years. Under No. 1 of Art. 1391, this period must be counted from the time of the termination of the
incapacity of the ward; under No. 2, it must be counted from the time the domicile of the absentee is known;
under Nos. 3 and 4 and also under Art. 1382, it must be counted from the time of the discovery of the fraud
Voidable Contracts in General. Voidable contracts may be de ned as 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 in uence, or fraud
In the voidable contract annulability of the contract is based on the law, while in rescissible the rescissibility of the
contract is based on equity. Hence, annulment is not only a remedy but a sanction, while rescission is a mere
remedy. Public interest, therefore, predominates in the rst, while private interest predominates in the second.
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 in uence or fraud. These
contracts are binding, unless they are annulled by a proper action in court. They are susceptible of rati cation
According to Art. 1391, the action for annulment must be commenced within a period of four years. If the action
refers to contracts entered into by incapacitated persons, the period shall be counted from the time the
guardianship ceases; if it refers to those where consent is vitiated by violence, intimidation or undue in uence,
the period shall be counted from the time such violence, intimidation or undue in uence ceases or disappears;
and if it refers to those where consent is vitiated by mistake or fraud, the period shall be counted from the time of
the discovery of such mistake or fraud. If the action is not commenced within such period, the right of the party
entitled to institute the action shall prescribe
Requisites of Rati cation. Rati cation or con rmation requires the concurrence of the following requisites:26
First: The contract should be tainted with a vice which is susceptible of being cured. Second: The con rmation
should be effected by the person who is entitled to do so under the law. Third: It should be effected with
knowledge of the vice or defect of the contract. Fourth: The cause of the nullity or defect should have already
disappeared.
The effects of rati cation or con rmation are clearly pointed out in Arts. 1392 and 1396. In the rst place, rati
cation extinguishes the action to annul the contract; and in the second place, it cleanses the contract of its defects
from the moment it was constituted.37
From Art. 1397 of the Code it can be inferred that two different requisites are required to confer the necessary
capacity for the exercise of the action for annulment. The rst requisite is that the plaintiff must have an interest
in the contract. The second is that the victim and not the party responsible for the vice or defect must be the
person who must assert the same.
Problem No. 1 X, of age, entered into a contract with Y, a minor. X knew and the contract speci cally stated the
age of Y. May X successfully demand annulment of the contract? Reason. (1971 Bar Problem)
Answer X cannot successfully demand annulment of the contract. True, said contract is voidable because of the
fact that at the time of the celebration of the contract, Y, the other contracting party, was a minor, and such
minority was known to X (Arts. 1327, No. 1, 1390 CC). However, the law is categorical with regard to who may
institute the action for annulment of the contract. In addition to the requirement that the action may be instituted
only by the party who has an interest in the contract in the sense that he is obliged thereby either principally or
subsidiarily, Art. 1397 of the Civil Code further requires that in case of contracts voidable by reason of incapacity
of one of the contracting parties, the party who has capacity cannot allege the incapacity of the party with whom
3

he contracted. Because of this additional requisite, it is clear that Y and not X can institute the action for
annulment.
Problem No. 2. Pedro sold a piece of land to his nephew Quintin, a minor. One month later, Pedro died. Pedros
heirs then brought an action to annul the sale on the ground that Quintin was a minor and therefore without legal
capacity to contract. If you are the judge, would you annul the sale? (1974 Bar Problem) .
Answer If I am the judge, I will not annul the sale. The Civil Code in Art. 1397 is explicit. Persons who are
capable cannot allege the incapacity of those with whom they contracted. True, Pedro who sold the land to the
minor Quintin is already dead, and it is his heirs who are now assailing the validity of the sale. However, under the
principle of relativity of contracts recognized in Art. 1311 of the Civil Code, the contract takes effect not only
between the contracting parties, but also between their assigns and heirs.
( Note: Another way of answering the above problem would be to state the two requisites which must concur in
order that a voidable contract may be annulled. These requisites are: (a) that the plaintiff must have an interest in
the contract; and (b) that the victim or the incapacitated party must be the person who must assert the same. The
second requisite is lacking in the instant case.)
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.45 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 bene ted by the thing or price received by him.46
On the other hand, 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.48 In other words,
upon annulment the contracting parties should be restored to their original position by mutual restitution.49
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 bene ted by the thing or price
received by him
It must be observed that Art. 1399 cannot be applied to those cases where the incapacitated person can still
return the thing which he has received. Thus, according to the Supreme Court, 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 disaf rming 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 rati cation
or con rmation
what is the effect upon the right of the party who, ordinarily, is entitled to institute the action for annulment?
Where loss is due to fault of defendant. According to Art. 1400, when the person obliged by the decree of
annulment to return the thing cannot 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. It is evident that this
rule is applicable only when the loss of the thing is due to the fault of the party against whom the action for
annulment may be instituted.
However, if the loss of the thing is due to the fraud or fault of the party who is entitled to institute the
proceedings, according to the rst paragraph of Art. 1401, the action for annulment shall be extinguished. There
are, therefore, three modes whereby such action may be extinguished. They are: (1) prescription; (2) rati 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.
Unenforceable Contracts in General. Unenforceable contracts are those which cannot be enforced by a proper
action in court, unless they are rati ed, because, either they are entered into without or in excess of authority or
they do not comply with the statute of frauds or both of the contracting parties do not possess the required legal
capacity.
There are three general classes of unenforceable contracts. They are: rst, those contracts entered into in the
name of another person by one without any authority or in excess of his authority; second, those which do not
comply with the Statute of Frauds; and third, those where both contracting parties are legally incapacitated
Distinguished from rescissible contracts. An unenforceable contract may be distinguished from a rescissible
contract in the following ways: (1) An unenforceable contract cannot be enforced by a proper action in court,
while a rescissible contract can be enforced, unless it is rescinded. (2) The causes for the unenforceable
character of the former are different from the causes for the rescissible character of the latter. (3) The former is
susceptible of rati cation, while the latter is not. (4) The former cannot be assailed by third persons, while the
latter may be assailed by third persons who are prejudiced. Idem; Distinguished from voidable contracts. An
unenforceable contract may be distinguished from a voidable contract in the following ways: (1) An unenforceable
contract cannot be enforced by a proper action in court, while a voidable contract can be enforced, unless it is
annulled.
(2) The causes for the unenforceable character of the former are different from the causes for the voidable
character of the latter.
Con rmation was a term used to designate the act by which a voidable contract was cured of its vice or defect,
while rati cation was used exclusively to designate the act by which a contract entered into by a person in behalf
of another without or in excess of authority is cured of its defect. Under the present Code, the term rati cation is
now used to designate the act of validating any kind of defective contract.
The second class of unenforceable contracts are those which do not comply with the Statute of Frauds. The
Statute of Frauds, being essentially a rule of substantive law, is now found in No. 2 of the Art. 1403 of the Civil
Code, thus superseding the statute as enunciated in Sec. 21 of Rule 123 of the old Rules of Court
4

Under the Statute of Frauds, the only formality required is that the contract or agreement must be in writing and
subscribed by the party charged or by his agent.
In case of noncompliance with the Statute of Frauds, the contract or agreement is unenforceable by action. This
is clear from the statute itself which states that evidence of the agreement cannot be received without the writing,
or a secondary evidence of its contents. What is, therefore, affected by the defect of the contract or agreement is
not its validity, but its enforceability.
Consequently, the effect of non-compliance with the requirement of the statute is simply that no action can be
enforced unless the requirement is complied with.17 It is, therefore, clear that the form required is for evidential
purposes only. Hence, if the parties permit a contract to be proved, without any objection, it is then just as binding
as if the statute has been complied with.
A special promise to answer for the debt, default or miscarriage of another. It is well-settled that a promise in
order to fall under the statute must be collateral, not independent or original. if the promise is collateral to the
agreement of another and the promisor becomes thereby merely a surety, the promise must be in writing.
The Statute of Frauds refers to speci c kinds of transactions and cannot apply to any that is not enumerated
therein. The transactions or agreements covered by said statute are the following: (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
ve 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 purchasers and person on whose account the sale is made, it is suf
cient memorandum; (e) An agreement for the leasing for a longer period than one year, for the sale of real
property or of an interest therein; (f) A representation as to the credit of a third person.
Problem A and B entered into a verbal contract whereby A agreed to sell to B his only parcel of land for
P20,000.00 and B agreed to buy at the aforementioned price. B went to the bank, withdrew the necessary
amount, and returned to A for the consummation of the contract. A, however, had changed his mind and
refused to go through with the sale. Is the agreement valid? Will an action by B against A for speci c
performance prosper? Reason. (1982 Bar problem) Answer It must be observed that there are two questions
which are asked. They are: (1) Is the agreement valid? The answer is yes. It is a time honored rule that even a
verbal agreement to sell land is valid so long as there is already an agreement with respect to the object and the
purchase price. (2) Will an action by B against A for speci c performance prosper? The answer is no, unless it
is rati ed. The reason is obvious. The agreement, being an agreement of sale of real property, is covered by the
Statute of Frauds. It cannot, therefore, be enforced by a court action because it is not evidenced by any note or
memorandum or writing properly subscribed by the party charged.
Problem Can an oral sale of land be judicially enforced as between the contracting parties, if the land has not
been delivered but the buyer has paid ten percent (10%) of the purchase price? (1974 Bar problem) Answer
Yes, an oral sale of land where the land has not been delivered but the buyer has paid ten percent (10%) of the
purchase price may be judicially enforced. Well-settled is the rule that the Statute of Frauds by virtue of which
oral contracts are unenforceable by court action is applicable only to those contracts which are executory and not
to those which have been consummated either totally or partially. The reason is obvious. In effect, there is already
a rati cation of the contract because of acceptance of bene ts. As a matter of fact, this reason is now embodied
in the New Civil Code. According to Art. 1405 of said Code, contracts infringing the Statute of Frauds are rati ed
by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of bene ts
under them.
Problem O verbally leased his house and lot to L for two years at a monthly rental of P250.00 a month. After
the rst year, O demanded a rental of P500.00 claiming that due to the energy crisis, with the sudden increase
in the price of oil, which no one expected, there was also a general increase in prices. O proved an in ation rate
of 100%. When L refused to vacate the house, O brought an action for ejectment. O denied that they had
agreed to a lease for two years. Question No. 1 Can the lessee testify on a verbal contract of lease? Reason.
(1981 Bar problem) Answer Yes, the lessee L may testify on the verbal contract of lease. Well-settled is the
rule that the Statute of Frauds by virtue of which oral contracts (such as the contract in the instant case) are
unenforceable by court action is applicable only to those contracts which have not been consummated, either
totally or partially. The reason for this is obvious. In effect, there is already a rati cation of the contract by
acceptance of bene ts. Here L has been paying to O a monthly rental of P250.00 for one year. The case is,
therefore, withdrawn from the coverage of the Statute of Frauds.
Void and Inexistent Contracts in General. In general, a void or inexistent contract may be de ned as one which
lacks absolutely either in fact or in law one or some of the elements which are essential for its validity.1 Thus, if
there is absolutely no consent, object or cause, or if the formalities which are essential for validity are not
complied with, or even if there is a cause and an object, if such cause or object is contrary to law, morals, good
customs, public order or public policy, or if the contract is expressly prohibited or declared by law to be void, the
contract is void or inexistent.
Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or
purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely
simulated or ctitious; (3) Those whose cause or object did not exist at the time of the transaction; (4) Those
whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (6) Those
where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those
expressly prohibited or declared void by law.
5

those which are the direct results of previous illegal contracts,20 those where there is no concurrence between
the offer and the acceptance with regard to the object and the cause of the contract, and those which do not
comply with the required form when such form is essential for validity.21
Problem (a) Cite an example of a contract which is contrary to morals. (b) Can the nullity of the stipulation on
the usurious interest affect (i) the lenders rights to recover the principal loan; (ii) the terms of the real estate
mortgage? Answer (a) Stipulations authorizing iniquitous or unconscionable interests are contrary to morals, if
not against the law. Under Art. 1409 of the New Civil Code, these contracts are inexistent and void from the very
beginning. They cannot be rati ed nor the right to set up their illegality as a defense be waived. (b) The nullity
of the stipulation on the usurious interest does not, however, affect the lenders right to recover the principal loan.
Nor would it affect the terms of the real estate mortgage (REM). The right to foreclose the mortgage remains with
the creditors and said right can be exercised upon the failure of the debtors to pay the debt due. The debt due is
to be considered without the stipulation of the excessive interest. A legal interest of 12% per annum will be added
in place of the excessive interest formerly imposed.
Principle of In Pari Delicto. When the defect of a void contract consists in the illegality of the cause or object of
the contract, and both of the parties are at fault or in pari delicto, the law refuses them every remedy and leaves
them where they are. This rule which is embodied in Arts. 1411 and 1412 of the Code is what is commonly known
as the principle of in pari delicto. Of course, this presupposes that the fault of one party is more or less equal or
equivalent to the fault of the other party.38
In onerous contracts the cause is understood to be for each contracting party, the prestation or promise of a
thing or service by the other. (Italics supplied.)
Problem A partnership borrowed P20,000.00 from A at clearly usurious interest. Can the creditor recover
anything from the debtor? Explain. Answer Yes, the creditor can recover from the debtor the following: the
principal, legal interest on the principal from the date of demand (Art. 2209, CC), legal interest on the legal
interests from the time of judicial demand (Art. 2212, CC), and attorneys fees, if proper, under Art. 2208 of the
Civil Code.
Art. 1421. The defense of illegality of contracts is not available to third persons whose interests are not directly
affected.83 Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and
inexistent.84
two essential distinctions between such obligations and civil obligations.3 They are: rst, natural obligations are
based on equity and natural law, while civil obligations are based on positive law; and second, natural obligations
are not enforceable by court action, while civil obligations are enforceable by court action.4
in natural obligations there is a juridical tie between the parties which is not enforceable by court action, while in
moral obligations there is no juridical tie whatsoever,5 and second, voluntary ful llment of natural obligations by
the obligor produces legal effects which the courts will recognize and protect, while voluntary ful llment of moral
obligations, on the other hand, does not produce any legal effect which courts will recognize and protect.6
Art. 1427. When a minor between eighteen and twentyone years of age, who has entered into a contract without
the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in ful llment
of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in
good faith.
estoppel may be de ned as a condition or state by virtue of which an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon.