Voidable contracts Flashcards
Meaning of voidable contracts.
Voidable or annullable contracts are those which possess all the essential requisites of a valid contract but one of the parties is legally incapable of giving consent, or consent is vitiated by mistake, violence, intimidation, undue influence, or fraud.
ART. 1390. The following contracts are voidable or an- nullable, 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, vio- lence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.
Meaning of annulment.
Annulment is a remedy as well as a sanction provided by law, for reason of public interest, for the declaration of the inefficacy of a contract based on a defect or vice in the consent of one of the contracting parties in order to restore them to their original position in which they were before the contract was executed.
Differences between action for annulment and action for rescission.
They are the following:
(1) The first is based on vitiation of consent (Art. 1390.), while the second, on lesion to one of the parties or to a third person (Art. 1381.);
(2) The first may be brought only by a party to the contract (Arts. 1390, 1397.), while the second, also by a third person who suffered damage by reason of the contract (Art. 1381.);
(3) The first is a principal action (Art. 1390.), while the second is merely subsidiary (Art. 1383.);
(4) The first presupposes that the contract is legally defective (Art. 1390.), while the second, that the contract was validly entered into (Art. 1380.);
(5) The first seeks the imposition of sanction by law on the guilty party for reason of public interest (Ibid.), while the second, is a remedy allowed by law on ground of equity (see Art. 1383.);
(6) The first is allowed even if the plaintiff has been indemnified (see Art. 1390.), while the second is barred by such indemnification (Arts. 1383, 1384.)
Period for filing action for annulment.
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 guard- ianship ceases.
Facts: Petitioner M was forced, “through threats and intimidation,’’ to sell at a grossly low price his three parcels of land located near Malaca- ñang during the height of martial law to Development Bank of the Philip- pines (DBP) which, in turn, sold it to the Government, through the Office of the President.
After the late President Marcos left the country on February 14, (sic) 1986 after the EDSA Revolution M made repeated extrajudicial demands upon respondents for the return and reconveyance of subject properties to them, the last being the demand letters dated October 24, 1989.
On March 23, 1990, M filed a complaint for annulment of sale, reconveyance and damages against respondents.
Issue: Has the action for annulment of the contract of sale pre- scribed?
Held: Yes. (1) Alleged threat and intimidation ceased when Marcos left on February 24, 1986. — “Since an action for the annulment of contracts must be filed within four years from the time the cause of vitiation ceases, the suit before the trial court should have been filed anytime on or before February 24, 1990. In this case, petitioner did so only on March 23, 1990. Clearly, his action had prescribed by then.’’
(2) Extrajudicial demands did not interrupt prescription. — “Petitioner asserts that the extrajudical demands pleaded in paragraph 12 of the Complaint legally interrupted prescription in accordance with Article 1155 of the Civil Code, which states:
‘ART. 1155. The prescription of actions is interrupted when they are filed before the court, when there is extrajudicial demand by thecreditors, and when there is any written acknowledgment of the debt by the debtor.’
In other words, petitioner claims that because he is covered by the term ‘creditor,’ the above-quoted provision is applicable to him.
Meaning and effect of ratification.
Ratification cleanses the contract from all its defects from the moment it was constituted.
Kinds of ratification.
(1) Express. — when the ratification is manifested in words or in writing; or
(2) Implied or tacit. — It may take diverse forms, such as by silence or acquiescence; by acts showing adoption or approval of the contract; or by acceptance and retention of benefits flowing therefrom.
Requisites of ratification.
(1) The requisites for implied ratification are the following:
(a) There must be knowledge of the reason which renders the contract voidable;
(b) Such reason must have ceased; and
(c) The injured party must have executed an act which necessarily implies an intention to waive his right.
(2) The requisites for express ratification are the same as those for implied ratification except that the former is effected expressly.
Party who may ratify.
ART. 1394. Ratification may be effected by the guardian of the incapacitated person. As legal representatives of their wards, guardians have the power to contract on their behalf. Hence, they may also ratify con- tracts entered into by their wards.
(2) In case the contract is voidable on the ground of mistake, etc., ratification can be made by the party whose consent is vitiated.
When does ratification take effect?
Ratification purges the contract of all its defects (Art. 1390.) from the moment it was executed. It extinguishes the action to annul. (Art. 1392.) In other words, the effect of ratification is to make the contract valid from its inception subject to the prior rights of third persons.
Facts: As security for his debt, D mortgaged his land in favor of C, under which D promised to assign to C the property if the debt is not paid at maturity. D failed to pay, and C, thinking that he had already owned that property and before any actual assignment was made by D, sold the land to B.
Subsequently, D, made an affidavit in which he acknowledged that title to, and possession of, the aforesaid land had been transferred in a real and absolute sale to C.
Issue: May the sale to B be annulled on the ground that C was not yet the owner of the property in question?
Held: No. The sale was defective because it was made before D should have transferred the property to C, pursuant to the stipulation. The sale, however, was not void per se. Its defect which would have been a ground for annulment, was cured by the act of D in making the affidavit. This confirmation3 gave full effect to the transfer. (Dalay vs. Aquiatin, 47 Phil. 951 [1951].)
Facts: A pacto de retro sale of conjugal real property was effected by H (husband) without the consent of W (wife). It appears that on the occasion of the extension of the period for repurchase, W gave her approval and conformity to the extension by signing the annotation on the margin of the deed of sale.
Issue: What is the effect of this act of W?
Held: The act, in effect, constituted implied ratification of the sale, which ratification validated the act of H from the moment of the execution of said contract. In short, such ratification had the effect of purging the contract of any defect which it might have had from the moment of its execution. (Lanuza vs. De Leon, 20 SCRA 369 [1967].)
Effects of annulment
ART. 1398. An obligation having been annulled, the con- tracting 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. (with corresponding interest)
What is the rule for Restitution by incapacitated person.
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.
Effect of loss of thing to be returned.
(1) If the thing to be returned is lost without the fault of the person obliged to make restitution (defendant), there is no more obligation to return such thing (Art 1400). But in such a case, the other cannot be compelled to restore what in virtue of the decree of annulment he is bound to return. (Art. 1402.)
(2) If it is lost through his fault, his obligation is not extinguished but is converted into an indemnity for damages consisting of the value of the thing at the time of the loss with interest from the same date and the fruits received from the time the thing was given to him to the time of its loss.
