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.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.
(n)
prosper
There are only two kinds of voidable contracts, and these can be annulled by the court even if there may have been no damage to the contracting parties. So one would be when one of the parties is incapable of giving consent to a contract,
2. where any of hte vices of consent is employed in order to obtain the consent by one of the contracting parties.
These contracts are binding, unless there are annulled by a proper action in court. They are susceptible of ratification.
And voidable or annullable contracts cannot be attacked collaterally. You must institute a direct proceeding asking that the contract be annulled. What do you mean by collateral attack? You say, "By the way, the contract is voidable because one of the parties is a minor". When you say direct, you insitute an action asking the court asking the court to annul the contract on the ground of 1 or 2. Or you can state it in the counterclaim if you are a defendant.
And when will you bring the action for annulment? Four years, and the period shall begin
1. If it were intimidation, violence or undue influence, form the time the defect of the consent ceases;
2. In cases of mistake or fraud, from the time of the discovery of the same;
3. and when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. May the guardian bring also an action for annulment? of course. But if it were the minor, then upon reaching the age of majority, if the incapacitated, then from the time of the cessation of guardianship.
What happens if there is ratification? Ratification cleanses the contract of its defects, and it shall retroact to the day of the inception of the contract. It has retroactive effect, and it cleanses the contract of whatever defects it creates. So it becomes a valid contract.
Now ratification may be express or tacit. It is understood as tacit 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. Now who has the right to invoke it? May the capacitated person invoke the incapacity of the other party? Or the person who employed any of the vices of the consent on the ground that the contract is voidable because he used fraud or there was mistake, and he was the one who caused the mistake? No. It can only be brought by the aggrieved party.Who? The minor, the incapacitated, the person upon whom any of the vices of consent were employed.
So when is there tacit ratification? For instance, the minor sells the property during minority. Upon reaching the age of majority, instead of asking for the annulment of the contract, he will now rent the very property. Or he buys the property during minority, and instead of having that contract of sale annulled upon reaching the age of majority, he now donates the property.
Or during the minority the purchase price has not been fully paid, and upon reaching the age of majority, he asks for the balance of the purchase price.
So the guardian may effect the ratification.
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 guardianship ceases. (1301a)
Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a) Requisites of Ratification
1. Contract is voidable
2. Person ratifying must know the reason for the contract being voidable (cause is known) 3. Cause must not exist/continue to exist anymore at time of ratification
4. Ratification is made expressly or by an act implying a waiver of action to annul 5. Person ratifying must be the injured party.
Art. 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. (1311a)
Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n)
Art. 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment.
1395: Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. Ratification does not require the consent of the party who has no right to institute the action for annulment.
So who can ask for annulment? Those who may be obliged either principally or subsidiarily (guarantors, sureties, mortgagors). 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. So we apply the principle of estoppel with respect to those who are capable, they cannot ask for annulment on the ground that the other party is incapacitated. Now the exception there is if there is active misrepresentation on the part of the incapacitated person. Then the incapacitated person cannot be heard later on when asking for annulment that at the time he entered into the contract, he was incapacitated because there was active misrepresentation. Active misrepresentation, for example: "You are a minor" and you say "No, i am 18 and I have a cedula to show you" but the cedula is doctored.
Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. (1313) Retroactive Effect of Ratification
- Once ratified, annulment based on original defect cannot prosper.
- Rights of innocent 3rd persons must not be prejudiced.
Art. 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. (1302a)
WHO MAY ASK FOR ANNULMENT:
o The victim (principal or subsidiary party)
o EXCEPT: If person not obliged principally/ subsidiarily in a contract may exercise an action for nullity if he is prejudiced in his rights w/ respect to one of the contracting parties.
- Creditors of victim cannot ask for annulment except when it prejudice them and the debtor has no other property.
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. (1303a) Effects of Annulment
1. If contract is not complied w/, parties are excused from the obligation.
2. If contract has already been performed . . . Mutual Restitution of:
a. The thing with fruits;
b. The price with interest.
Cannot be availed of by strangers to contract and innocent third parties cannot be obliged to restore.
Husband cannot barter away his wife’s paraphernal properties except when she consents.
1398: If there is annulment, what will be the obligation of the parties, again, mutual restitution. And what shall it consist? The subject matter, the fruits, the price with its interest. But this will only apply to contracts falling under Number 2.
(employment of any of the vices of consent)
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.
1399: Contract entered into by the incapacitated (number 1). He is only obliged to restore in so far as he has been benefited by the thing or price received by him. In relation to that 1241, if he has kept the thing delivered, or if he has disposed the thing and the disposal was to his benefit, those are the exception. No restoration except if he has kept the thing delivered, or if he has disposed of it and was benefited by the disposal. So those are the only instances wherein restoration will be possible with respect to the incapacitated.
The defendant in an annullable contract would either be the capacitated or the person who employed the vices of the consent. Now, if he were the one who lost the thing which is the object of the contract which is annullable, then he shall have the obligation to return the fruits received, the price or the value of the thing plus the interest. So those are the object that he would have to return in case annulment is possible but he could no longer do it because it has been lost by fault (or fraud), then he has to return the value, the price and the interest.
Now what happens if the thing is lost and the person obliged to return it is the incapacitated, or the person upon whom any of the vices of consent were employed? 1401 says that if the thing is lost through the fault of the person who has the right to institute the action, then the petition for annulment is extinguished.
Now, if the lost is fortuitous, then the action will prosper because the law says through the fault or fraud. So it were lost through fortuitous event, however the defendant cannot be compelled to restore what he is obliged to restore because the essence of mutual restitution becomes untenable in as much as there can be no mutual restitution. But it will prosper if the plaintiff if the person who has the right to institute the action for annulment offers to pay the value of the thing that he has lost.
Now, what will be the basis of the valuation? The value at the time of the loss of the object. Now the defendant will be obliged to return, but the plaintiff will only be obliged to pay the value. He is exempt from paying the value because the lost is through fortuitous event.
Art. 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. (1307a)
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.
1401 2nd paragraph speaks of the action instituted by the incapacitated. So the loss shall not be an obstacle to the success of the action. If you remember also, if it were the incapacitated who lost or squandered the object he is not under obligation to return it. The law only obliges him to return it if it has redounded to his benefit or he has kept the thing. So here, under the 2nd par of 1401, it shall not be an obstacle to the action, unless the loss is through the fault or fraud of the incapacitated.
Now what if the defendant loss the object of the contract through a fortuitous event and a petition for annulment is filed by the party who has the right to institute the action? Is he still obliged to pay the value, interest and fruits? No. Because he is in good faith, and the loss is not due to his fault, then he is only obliged to pay the value no longer the interest.
Art. 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. (1308)
Principle of mutual restitution
1402: As long as one of the contracting parties doesn 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. There is that mutual obligation to restore. And if the thing is lost, and the party who lost it has the right to institute the action, and it is lost through fortuitous event, he can still compel if he offers to pay the value of the object of what he is bound to return. If the thing is lost through the fault or negligence of the defendant or the capacitated or the person who excercised the fraud, then he is obliged to pay the value, plus interest, plus damages because there was negligence.
CHAPTER 8
UNENFORCEABLE CONTRACTS (n)
Contracts that cannot be sued upon or enforced unless RATIFIED --- no effect yet.
KINDS OF UNENFORCEABLE CONTRACTS a) Unauthorized contracts
b) Those that fail to comply with the Statute of Frauds
c) Those where both parties are incapable of giving consent to a contract.
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(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;
(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.
(3) Those where both parties are incapable of giving consent to a contract.
Mere lapse of time, no matter how long, is not the ratification required by law.
W/out ratification, the “agent” assumes personal liability.
STATUTE OF FRAUDS
Purpose: to prevent fraud; thus some agreement are required to be in writing.
Waivable (defense)
Personal defense, cannot be assailed by 3rd persons
Does not apply to contracts fully or partially performed.
Does not apply to contract of loan.
2 Ways to Waive This Defense
(1) Timely failure to object to presentation of oral evidence to prove the oral agreement.
(2) Acceptance of benefits under them (as where contract is totally or partially performed)
Art. 1403;2 (b) - special promise refers to a subsidiary/collateral promise to pay like contract of guaranty.
2(c) – agreements in consideration of marriage – marriage settlement; donations propter nuptias
STATUTE OF FRAUDS – laws, statutes or provisions w/c require certain agreements to be in writing before they can be enforced in a judicial action.
statutes are applicable only to executory contracts, not to partially or totally executed or performed contracts.
It may be invoked in actions for damages for breach of said agreement or for specific performance.