Philippine Defective Contracts (Art. 1380-1430) PDF

DEFECTIVE CONTRACTS CHAPTER 6: RESCISSIBLE CONTRACTS (Art. 1380 - 1422) (Art. 1380 - 1389) Defective contracts - contracts that are not perfectly Article 1380. Contracts validly agreed upon may be va...

DEFECTIVE CONTRACTS CHAPTER 6: RESCISSIBLE CONTRACTS (Art. 1380 - 1422) (Art. 1380 - 1389) Defective contracts - contracts that are not perfectly Article 1380. Contracts validly agreed upon may be valid rescinded in the cases established by law. The following are the defective contracts, arranged according to the gravity of their defect (least to most Rescind - to revoke, cancel or repeal (a contract) defective): 1. Rescissible Contracts 2. Voidable Contracts A rescissible contract is one which has all the essential 3. Unenforceable Contracts requisites of a contract but which may be set aside by 4. Void Contracts reason of equity on account of damage to one of the parties or upon a third person. (1) Rescissible contracts. — They are the least infirm or Rescissible contracts are those validly agreed defective. They are valid because all the essential upon because all the essential elements exist requisites of a contract exist but by reason of injury or and, therefore, legally effective, but in the cases damage to one of the parties or to third persons, such as established by law, the remedy of rescission is creditors, the contract may be rescinded. Thus, the granted in the interest of equity defect is external. Until such contracts are rescinded in an appropriate proceeding, they remain valid and binding Binding force of rescissible contracts upon the parties thereto (Chap. 6.); Rescissible contracts are valid and enforceable, although subject to rescission by the court when there is (2) Voidable contracts. — They are also valid until economic damage or prejudice to one of the parties. annulled unless there has been a ratification. In a Economic damage or prejudice: lesion or voidable contract, the defect is caused by vice of pagkalugi. This should be material enough to consent (Chap. 7.); rescind a contract. (3) Unenforceable contracts. — They cannot be sued Meaning of rescission. upon or enforced unless they are ratified. As regards the Rescission is an equitable remedy granted by law to the degree of defectiveness, voidable contracts are further contracting parties and sometimes even to third persons away from absolute nullity than unenforceable contracts. in order to secure reparation of damages caused by a In other words, an unenforceable contract occupies an valid contract, by means of the restoration of things to intermediate ground between a voidable and a void their condition prior to the celebration of said contract. contract (Chap. 8.); and Babalik sila sa kung ano sitwasyon nila bago pinasok ang kontrata. (4) Void or inexistent contracts. — They are absolutely null and void. They have no legal effect at all and cannot Requisites of rescission: (Lahat ng requisite ay dapat be ratified. (Chap. 9.) masunod bago ka makapag-rescind ng kontrata) 1. The contract must be validly agreed upon. ○ Dapat walang vice of consent 2. There must be lesion or pecuniary prejudice or damage to one of the parties or to a third person 3. The rescission must be based upon a case especially provided by law 4. There must be no other legal remedy to obtain reparation for the damage ----------------------------------------------------------------- 5. The party asking for rescission must be able to return what he is obliged to restore by reason of the contract OBLICON - Art. 1380-1430 | adrian gulapa | 1  6. The object of the contract must not legally be in Sobra sobra ang lesion kung — When they suffer the possession of third persons who did not act lesion by more than one-fourth of the value of in bad faith the things that are the object. 7. The period for filing the action for rescission ○ P200,000 is not more than ¼, so hindi must not have prescribed. siya sobra-sobra. The party asking for rescission must be able to return Question: What if naibenta ito ni Ms. Minchin ng what he is obliged to restore and it must not be legally in P750,000, ano ang status ng contract? — The contract is the possession of third persons who did not act in bad perfectly valid. One-fourth na yung lesion but it is stated faith and the period for filing the action must be not that it should be by more than one-fourth of the value. prescribed yet. Question: What if naibenta ito ni Ms. Minchin ng P740,000, ano ang status ng contract? — The contract is Article 1381. The following contracts are rescissible: a rescissible contract because the lesion is more than one-fourth of the value. (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more Question: Bakit pinapayagan ng batas na may ganito? — than one-fourth of the value of the things which are the Pinapayagan ito ng batas dahil si Sarah ang may-ari ng object thereof; kotseng naibenta pero hindi siya yung nakapag-decide Wards: alaga, minors kung itutuloy ba ng contract o hindi— ibang tao ang ○ A ward is a person under guardianship nag-decide, yung guardian. At nalugi siya ng material by reason of some incapacity. yung amount — more than one-fourth of the value. Guardians: parents or other people that is Later on at the right age, pag-narealize ni Sarah appointed by the court to be their guardian na mali ang nangyari, mabibigyan siya ng pagkakataon ng batas na ipa-rescind o ipa-set As a rule, the powers of the guardian with respect to the aside o i-cancel ang kontrata na pinasok ni Ms. property of the ward are limited to mere acts of Minchin para sa kanya. In a way, maitatama ang administration. Contracts involving real property must be maling ginawa ni Ms. Minchin noong bata pa si approved by the court; otherwise, they are Sarah. unenforceable. Example: G, the guardian of M, sold the corn harvested Rescissible ang isang kontrata na pinasok ng isang from M's farm for P40,000. The value of the corn is guardian regarding sa property ng kanyang ward. P60,000. The sale is rescissible because the lesion of Ang may-ari ng property ay si ward pero dahil P20,000.00 is more than 1/4 of P60,000, or P15,000. hindi niya pa kayang makapag-desisyon para sa sarili niya, ang nakapag-transact para sa kanya ay yung kanyang guardian. Example: G is the guardian of W (ward). G sells the property of W worth P20,000.00 for only P15,000.00. Example: Si Sarah (ward) ay may kotse na The contract of sale cannot be rescinded nagkakahalaga ng P1,000,000. Samantalang binenta ito because the lesion is not more than one-fourth. ni Ms. Minchin (guardian) ng P800,000. Nalugi si Sarah, However, if the property is sold for less than ang tawag ng batas sa pagkalugi na ito ay lesion P15,000.00, W can rescind the sale by proper (P200,000). action in court upon reaching the age of majority Question: Ano ang status ng contract na pinasok ni Ms. (2) Those agreed upon in representation of absentees, if Minchin with the third person involving the property of the latter suffer the lesion stated in the preceding Sarah? — The contract is perfectly valid. Hindi porket number; nalugi ka sa isang transaction ay magiging defective na yung kontrata. Minsan nalulugi ka, kasama sa buhay An absentee is a person who disappears from his iyon. Walang masama kung may lesion, basta hindi ito domicile, his whereabouts being unknown, and without sobra-sobra. leaving an agent to administer his property. A court may appoint a person to represent him specifying his powers OBLICON - Art. 1380-1430 | adrian gulapa | 2 and obligations in accordance with the rules concerning (4) Those which refer to things under litigation if they guardians. Likewise, the absentee must suffer lesion by have been entered into by the defendant without the more than one-fourth of the value of the property object knowledge and approval of the litigants or of competent of the contract to entitle him to the remedy of rescission. judicial authority; Kapag ang ibinenta ay isang property na Thus, if it was the representative of an absentee who pinag-aawayan pa pala sa korte at hindi man sold the corn in the preceding example, the sale is lang pinaalam sa korte o sa mga litigants rescissible. (parties sa contract); later on, pwedeng Absentee: isang taong biglang nawala sa lugar ipa-cancel ang kontrata dahil kawawa naman nila (by any reason) at dahil doon may mga yung mananalo sa kaso — dahil nanalo nga siya, properties siya na hindi na maalagaan. In this pero di naman pala makukuha ang property case, nag-aappoint ang korte kung sino ang (wala na ang property na makukuha niya) magiging administrator ng mga kanyang ○ Pwedeng ipa-rescind para may makuha ari-arian. pa ang parties During the time na wala siya, pwedeng mapilitan ang Here, the purpose is to make effective the claim of a administrator na i-dispose o ibenta yung ibang property. party litigant over a thing under litigation which was the Dahil kung hindi ito dinipose, mas lalo ito masasayang, object of a contract entered into by the other party with bababa ang value— hindi mama-maximize ang property. another person. May pagkakataon na nai-dispose ang property ni absentee, dahil nga hindi maiiwasan na ang The right to file the action for rescission arises in favor lesion niya ay posibleng more than one-fourth. of the plaintiff when the defendant enters into a contract Pag bumalik si absentee (na-trap pala siya sa over the thing in litigation without the knowledge or isla), maaari siyang mag-request for rescission approval of the plaintiff or the court. at ma-cancel yung mga kontrata na pinasok ng kanyang tagabantay/administrator. Example: C sued D to recover some pieces of jewelry. While the case was pending, D, without authority from It must be noted that paragraphs 1 and 2 refer only to the court or from C, sold the jewelry to T who was aware transactions by guardians and absentees’ that the jewelry was the subject of litigation. The sale is representatives. Rescission cannot take place if the rescissible. contracts have been approved by the court. As a general rule, lesion does not invalidate a contract except only in Example: S sues B for the recovery of a parcel of land. In special cases specified by law. (see Art. 1355.) this case, the land is a “thing under litigation.” If, during the pendency of the case, B sells the (3) Those undertaken in fraud of creditors when the land to C without the approval of S or of the latter cannot in any other manner collect the claims due court, the sale is rescissible at the instance of S them; in case he wins in his suit for the recovery of Accion pauliana — remedy ng creditor; The action to said land unless C is in legal possession of the rescind in fraud of creditors land in good faith. (Art. 1385, par. 2.) S, however, ex. Pumasok si debtor sa isang simulated may protect his right by filing a notice of lis contract para maitago ang kanilang property. pendens. (Sec. 14, Rule 13, Rules of Court.) Bilang isang creditor, kapag nahuli mo si debtor, If the action involves personal property, S may pwede mong ipa-rescind ang kontrata na petition the court for the issuance of an order of pinasok nila attachment (Secs. 1, 2, Rule 57, Ibid.) or the appointment of a receiver (Sec. 1, Rule 59, Ibid.) Example: D owes C. To defraud C, D sells his only lot to T to place the property in custodia legis. who knows of the fraudulent intention of D. The sale is rescissible. However, the sale is not rescissible if T was (5) All other contracts specially declared by law to be in good faith, i.e., he was not aware of D's fraudulent subject to rescission. intention when he bought the property. “Art. 1098. A partition, judicial or extrajudicial, may also be rescinded on account of lesion, when any one of the OBLICON - Art. 1380-1430 | adrian gulapa | 3 co-heirs received things whose value is less, by at least nagbayad ka sa hindi pa due, yung ginawa mong one-fourth, than the share to which he is entitled, pagbabayad ay RESCISSIBLE. considering the value of the things at the time they were adjudicated.” Rescissible Payment, requisites: 1. The debtor is insolvent “Art. 1659. If the lessor or the lessee should not comply 2. The obligation is not yet due with the obligations set forth in Articles 1654 [referring 3. The debtor makes the payment to obligations of the lessor] and 1657 [referring to obligations of the lessee], the aggrieved party may ask Payments made in a state of insolvency. for the rescission of the contract and indemnification for The present article speaks of “payments” not exactly of damages, or only the latter, allowing the contract to a contract. A debtor is insolvent if he does not have remain in force.” sufficient properties to meet his obligations. It is not necessary that the debtor's insolvency be judicially Under Article 1539, the vendee may exercise the remedy declared. of rescission, when the lack in the area of the real estate sold be not less than one-tenth of that stated or when Under this article, the payments must have been made the inferior value of the thing sold exceeds one tenth of “for obligations to whose fulfillment the debtor could not the price agreed upon. (see also Arts. 1526, 1534, 1539, be compelled at the time they were effected.” Such 1542, 1556, 1560, 1567, 1599.) payments are also rescissible. Included in the obligations referred to are not only those that have not Note: Rescission with respect to lesion in items 1 and 2 yet become due and demandable (i.e., obligations with a shall not take place if the contract is approved by the suspensive period or condition) but also those which court which is presumed to have taken appropriate steps cannot legally be demanded such as natural obligations to safeguard the interest of the ward or the absentee. and those that have been prescribed. Article 1382. Payments made in a state of Article 1383. The action for rescission is subsidiary; insolvency for obligations to whose fulfillment the it cannot be instituted except when the party suffering debtor could not be compelled at the time they were damage has no other legal means to obtain reparation effected, are also rescissible. for the same. Insolvent: mga taong mas marami na ang liability kaysa Note: subsidiary is not primary sa assets Kapag ang isang tao na insolvent ay bigla The action for rescission is subsidiary. Hence, if the nagbayad ng utang during the time na hindi pa debtor has property other than that for which rescission siya required magbayad (not yet due) —yung is being brought, rescission will not prosper. ginawa niyang pagbabayad is RESCISSIBLE. Hindi maganda ang tingin ng batas sa mga Kapag may other means para mabawi mo ang pagkalugi, taong insolvent na nga, yet kahit hindi pa hindi ito agad rescission or cancellation ng kontrata. required magbayad ay nagbayad na agad. Ito’y dahil parang namimili yung debtor kung sinong Example: Kung nalugi ka ng P260,000 at kung kaya pa creditor ang babayaran nila, which is unfair. maibalik ang pagkalugi na P260,000, ibalik muna — this Kapag may utang sila na due na, yung available is the primary remedy. cash nila ay dapat ibayad sa mga creditors na But kung hindi na maibabalik, it is subject to nagpautang na due na. Di dapat unahin ang mga rescission — subsidiary or pangalawang remedy utang na hindi pa matured. Wala namang problema kung hindi ka insolvent Nature of action for rescission. (Assets>liability). Rescission under article 1383 is not a principal remedy. Pero kung insolvent ka, limited na yung funds It is only subsidiary and can be availed of only if the mo kaya dapat yung funds mo ibayad mo sa injured party proves that he has no other legal means mga utang na due or matured na. Kapag aside from rescinding the contract to obtain satisfaction OBLICON - Art. 1380-1430 | adrian gulapa | 4 for his claim or redress for the damage caused (see Art. Under Article 1384, only the creditor who brought action 1177.) even if the contract is covered by Article 1381. for rescission benefit from the rescission; those who are strangers to the action cannot benefit from its effects. If the damage is repaired, as in the case of lesion suffered by the ward or absentee, rescission cannot take Article 1385. Rescission creates the obligation to place. return the things which were the object of the contract, together with their fruits, and the price with its interest; Article 1384. Rescission shall be only to the extent consequently, it can be carried out only when he who necessary to cover the damages caused. demands rescission can return whatever he may be obliged to restore. Not necessarily yung buong value but only to the extent Neither shall rescission take place when the things of the lesion. which are the object of the contract are legally in the possession of third persons who did not act in bad Example: G, guardian, sold 100 sacks of rice harvested faith. from the farm of M, his ward, for P700.00 per sack, or a total price of P70,000.00 to B. However, the value of In this case, indemnity for damages may be each sack is P1,000.00, or total value of P100,000.00. demanded from the person causing the loss. The rescission of the sale of 30 sacks of rice is sufficient to cover the damage of P30,000.00 (which is more than one-fourth of the total value of P100,000.00). Thus, B The only time na pwede kang makahingi ng rescission must return 30 sacks of rice to M. na balikan, if ikaw mismo kaya mo rin ibalik yung binigay dati sayo. Extent of rescission The entire contract need not be set aside by rescission if If in good faith ang third person, hindi na pwedeng the damage can be repaired or covered by partial mabawi sa kanya — indemnity for damages na lang ang rescission. The rescission shall only be to the extent of pwedeng idemand. the creditor’s unsatisfied credit. The policy of the law is to preserve or respect the contract, not to extinguish it. The party demanding rescission must be able to return whatever he may be obliged to restore. (Art. 1385) Example: G, the guardian of M, a minor was authorized Rescission creates the obligation to return the by the court to sell two parcels of land valued at things which were the object of the contract, P200,000.00 each. G sold the two properties to B for together with their fruits, and the price with its only P200,000.00. interest. Hence, rescission is not available if the In this case, the entire contract need not be party seeking it cannot comply with such rescinded. Rescission may properly be applied obligation. (Art. 1385). However, the obligation only to one parcel to cover the damage caused to return does not apply to prejudiced creditors by G. (see Art. 1381.) But if G or B is willing to as there is nothing to be returned by them. pay the difference of P200,000.00, rescission is precluded. The thing object of the contract must not be legally in the possession of a third person who acted in good faith. Example: S sold his only property, a parcel of land with (Art. 1385) an area of 3,000 square meters, to B to defraud C, a In this case, indemnity for damages may be creditor of S. demanded from the person causing the loss. If the value of 1/3 of the land is sufficient to (Art. 1385) cover the damage caused to C, then the rescission shall only be to that extent. The Obligation of mutual restitution alienation with respect to the 2/3 portion is valid Rescission creates the obligation of mutual restitution. even if B had acted in bad faith. There is no obligation to restore if nothing has been received. When the court declares a contract rescinded, the parties must return to each other (a) the object of the OBLICON - Art. 1380-1430 | adrian gulapa | 5 contract with its fruits and (b) the price thereof with legal Contracts approved by the courts. interest If a contract entered into in behalf of a ward or absentee has been approved by the court, rescission cannot take The purpose of rescission is to place the parties as far place because it is valid whether there is lesion or not. as practicable in their original situation, that is, the parties are restored to the status quo ante.. The law The law presumes that the court is acting in the interests presumes that the party who received the object of the of the ward or absentee when it approves the contract in contract has enjoyed the fruits thereof while the other spite of the lesion. has used the money which is the price of the object. With respect to the fruits, the rules on possession Article 1387. All contracts by virtue of which the govern. debtor alienates property by gratuitous title are presumed to have been entered into in fraud of Obligation of third person to restore. creditors, when the donor did not reserve sufficient The clause “he who demands rescission” applies also to property to pay all debts contracted before the a third person. Of course, if the third person has nothing donation. to restore, the article does not apply. The law does not require the impossible. Alienations by onerous title are also presumed fraudulent when made by persons against whom Thus, where a contract is rescinded on the ground that it some judgment has been rendered in any instance or has been entered into in fraud of creditors, the some writ of attachment has been issued. The plaintiff-creditor has no obligation to return anything decision or attachment need not refer to the property since he has received nothing. alienated, and need not have been obtained by the party seeking the rescission. When rescission is not allowed. 1. Mutual restitution is required in rescission and In addition to these presumptions, the design to this presupposes that both parties may be defraud creditors may be proved in any other manner restored to their original situation. Hence, the recognized by the law of evidence. remedy of rescission cannot be availed of if the party who demands rescission cannot return what he is obliged to restore under the contract. 1st par: Kapag ang isang debtor na may utang sa isang (par. 1.) creditor, hindi na nga sapat ang kanyang properties para 2. Neither shall rescission take place, if the mabayaran ang kanyang utang, at nag-donate pa ng property is legally in the possession of a third kanyang property sa iba (alienate by gratuitous title) — person who acted in good faith (par. 2.), that is this is a sign that the donation was done in fraud of to say, he acquired the property and registered it creditors. under the Torrens System in the Registry of Property unaware of the flaw in his title or mode Kung ikaw ay baon sa utang, gamitin mo muna yung of acquisition. In such a case, the remedy would property mo para bayaran yung mga utang. Wag mong be to demand indemnity for damages from the i-donate sa iba dahil baon ka pa sa utang. Kapag person who caused the loss. (par. 3.) nag-donate ka, it is considered na sign of panloloko sa creditors mo — fraudulent. Article 1386. Rescission referred to in Nos. 1 and 2 No person in their right mind would donate their of article 1381 shall not take place with respect to properties kung baon na sila sa utang. contracts approved by the courts. Example: D owes his creditors P500,000.00. He has Regarding sa guardians and absentees, kung aprubado assets of P700,000.00. If D donates assets amounting to naman ng korte, hindi ito pwedeng ma-rescind. P300,000.00, such donation is presumed fraudulent because it leaves D with assets of only P400,000.00, which amount is not enough to pay his debts of P500,000.00. OBLICON - Art. 1380-1430 | adrian gulapa | 6 2nd par: Alam mo nang hihilahin na yung property pero (b) Suppose again that C, a creditor of R, has obtained a binenta mo pa sa iba. Yung ginawa mo ay fraudulent. judgment or writ of attachment in his favor. Then R sold to D another parcel of land which has not been levied Example: D owes C P100,000.00. When D defaults, C upon or attached. sues him and obtains a favorable judgment against him. The sale to D is also presumed fraudulent If D sells properties, say to T, the sale is presumed because the law says “the decision or fraudulent because it was made by D who has a decision attachment need not refer to the property rendered against him. C or any other creditor may ask for alienated.” the rescission of the sale. (c) E is another creditor of R. Does he have the right to Example: C files a complaint against D P100,000.00 He rescind the sale to D? asks the court to attach a lot of D (Lot 1). The court Yes, because the law says that “the decision or issues a writ of attachment Later, D sells another lot of attachment... need not have been obtained by his (Lot 2) to T. The sale of Lot 2 is presumed fraudulent the party seeking the rescission.” because it was made by D against whom a writ of attachment has been issued. X, another creditor of D, Circumstances denominated as badges of fraud. may sue for the rescission of the sale of Lot 2. possible In the consideration of whether or not certain transfers because the law says that "(T)he decision or attachment are fraudulent, courts have laid down certain rules by need not refer to the property alienated, and need not which the fraudulent character of the transaction may be have been obtained by the party seeking rescission". (Art. determined. The following are some of the 1387) circumstances attending sales which have been denominated by the courts as “badges of fraud:’’ When alienation presumed in fraud of creditors. 1. The fact that the consideration of the Article 1387 establishes presumptions of fraud in the conveyance is fictitious or inadequate; case of alienation by the debtor of his property. (pars. 1 2. transfer made by a debtor after suit has been and 2.) However, the instances mentioned are not begun and while it is pending against him exclusive of others that may be proved in any other 3. A sale upon credit by an insolvent debtor; manner recognized by the law of evidence. (par. 3; see 4. The transfer of all or nearly all of his property by Art. 1177.) The presumptions are disputable and may be a debtor, especially when he is insolvent or rebutted by contrary evidence. greatly embarrassed financially; 5. The fact that the transfer is made between Example: Alienation by gratuitous title. — R made a father and son, when there are present some or donation of a parcel of land to E. Before the date of the any of the above circumstances; donation, R had contracted several debts. With the 6. The failure of the vendee to take exclusive donation to E, the remaining property of R is not possession of all the property sufficient to pay all his debts. (see Arts. 750, 759.) 7. It was known to the vendee that the vendor had Under the first paragraph, the donation is no properties other than that sold to him presumed fraudulent unless proved otherwise. Article 1388. Whoever acquires in bad faith the Example: Alienation by onerous title. — things alienated in fraud of creditors, shall indemnify (a) Suppose in the preceding example, the contract is a the latter for damages suffered by them on account of sale the alienation, whenever, due to any cause, it should Under the second paragraph, the sale to E is not be impossible for him to return them. presumed fraudulent. The creditors of R must show that the conveyance will prejudice their If there are two or more alienations, the first acquirer rights. However, the presumption of fraud will shall be liable first, and so on successively. arise in case the sale was made by R after some judgment has been rendered against him or some writ of attachment has been issued Liable ang bumili (buyer) because he acquired them in against him. bad faith. Wag makisama sa mga debtor na gustong manloko ng creditors, dahil ikaw mismo na OBLICON - Art. 1380-1430 | adrian gulapa | 7  buyer kung alam mo yung sitwasyon (pumasok Example: Suppose, B transferred the car to D who also sila sa sale para makapangloko ng creditor), acted in bad faith. Then D sold it to E who did not know magiging liable ka mismo sa creditor dahil sa of the purpose behind the previous conveyance. ginawa niyong fraudulent contract. As the first acquirer. B is liable first. If he cannot pay, then D will be liable. Bad faith does not simply connote bad judgments or If B acted in good faith, the good or bad faith of negligence. It imports a dishonest purpose or some D is not important, except where D connived with moral obliquity and conscious doing of wrong. It means S to make B a mere innocent intermediary in breach of a known duty through some motive or interest which case D can be held liable. or ill-will. It partakes of the nature of fraud. Example: Without making any inquiry, B bought a parcel Liability for damages of persons acquiring things in of land from S, who is not the registered owner, although alienations in fraud of creditors the land object of the transaction is registered. May B be 1. If the purchase was made in bad faith considered a purchaser in good faith? The purchaser in bad faith shall indemnify the creditors No. “One who buys from one who is not the for damages suffered by them on account of the registered owner is expected to examine not alienation whenever due to any cause, it would be only the certificate of title but all factual impossible for him to return them. (Art. 1388) This rule circumstances necessary for him to determine if applies even if the cause of the loss is a fortuitous event. there are any flaws in the title of the transferor or in his capacity to transfer the land.” If there are two or more alienations, the first acquirer shall be liable first, and so on successively (Art. 1388) Article 1389. The action to claim rescission must be provided they are also in bad faith. commenced within four years. 2. If the purchase was made in good faith For persons under guardianship and for absentees, The purchaser in good faith shall not be liable the period of four years shall not begin until the notwithstanding the fraudulent intention of the debtor in termination of the former's incapacity, or until the disposing the property. Hence, rescission will not be domicile of the latter is known. available. If there are subsequent transfers, the transferees shall not be liable even if they were in bad faith. 1st par: Kung gusto mo magpa-rescind ng contract, kailangan mo itong gawin within four years. Liability of purchaser in bad faith. The purchaser in bad faith, who acquired the object of 2nd par: Kung nung time na binenta ni Ms. Minchin yung the contract alienated in fraud of creditors, must return kotse ni Sara nang palugi (lesion is more than the same if the sale is rescinded (see Art. 1383.) and one-fourth). should it be impossible for him to return it due to any cause, he must indemnify the former. Question: Kung 7 years old pa lang si Sarah, hanggang ilang taon na si Sarah para mapa-rescind niya ang Should there be two or more alienations, the first contract? acquirer shall be liable first, and so on successively Four years from the time na nawala yung incapacity ni Sarah. Hindi pwede ang 7 + 4 = 11 Example: S sold his car to B in order to avoid the years old. payment of his debt to C, his creditor. B knew of S’s Hangga’t hindi pa 18 years old si Sarah, wala pa purpose. siyang kakakayahan na mag-decide sa sarili niya If the sale is rescinded, B must return the car. at mag-file ng rescission. Should the car be destroyed with or without his Tatakbo lang yung four-year period from the fault, then C is entitled to be indemnified for time na mawalan siya ng incapacity (18 years damages by B. old). Hanggang siya ay mag 22, iyon ang four-year period para icontest niya at iparescind niya ang contract. OBLICON - Art. 1380-1430 | adrian gulapa | 8  Tatakbo lang ang four-year period to rescind CHAPTER 7: VOIDABLE CONTRACTS from the time na makabalik ang absentee— from (Art. 1390 - 1402) the time the domicile of the absentee is known Voidable: valid until annulled. (malaman kung nasaan na siya) Article 1390. The following contracts are voidable or Example: 10 years siya nawala at after 10 years bigls annullable, even though there may have been no lang siya bumalik, doon lang tatakbo yung period niya to damage to the contracting parties: rescind the contract entered into ng administrator ng kanyang property. Hindi tatakbo yung four-year period (1) Those where one of the parties is incapable of from the time na nawala siya, pero magsisimula ito from giving consent to a contract; the time na nakabalik siya at alam kung saan siya nakatira. (2) Those where the consent is vitiated by mistake, The action to claim rescission must be violence, intimidation, undue influence or fraud. commenced within four years. After this, nag-prescribe na ang karapatan mo to contest. These contracts are binding, unless they are annulled Pag hindi ka nag-contest within four years, ibig by a proper action in court. They are susceptible of sabihin okay lang sayo ang nangyaring ratification. pagkalugi mo o ang ginawang pagbebenta. Rescissible contracts are valid but you have the A voidable contract is one that is defective by reason of window of time (four-year period) to contest. If the incapacity or vitiated consent of the parties. It is you did not contest, it is a sign na okay lang binding unless annulled by a proper action in court. It is yung pagkalugi mo nang more than ¼ o susceptible to ratification. panloloko sayo ng debtor mo Voidable or annullable contracts are those Prescriptive period within four years from the which possess all the essential requisites of a time na nangyari yung rescissible contract. valid contract but one of the parties is legally incapable of giving consent, or consent is For guardianship: from the time na ma-termination yung vitiated by mistake, violence, intimidation, undue incapacity ni ward influence, or fraud For absentees: from the time na malaman yung domicile (1) Those where one of the parties is incapable of giving ni absentee consent to a contract. Example: Pumasok ka sa isang kontrata with a minor or Period for filing action for rescission. an incapacitated person (baliw) The prescriptive period is 4 years from the date Question: Bakit under the law, voidable or of the contract, except in the following: annullable ang isang contract kapag ang a. For persons under guardianship - 4 kasama mo ay minor? -- Ito ay para years from termination of incapacity. maprotektahan ang mga menor de edad sa mga b. For absentees - 4 years from the time transactions that may seem unfavorable to the absentee's domicile is known. them. Maaari kasi silang i-take advantage. Pwedeng ipa-cancel or ipa-annul ng mga Persons entitled to bring the action for rescission. magulang or guardian later on. The action for rescission may be brought by: ○ This is just in general. 1. the injured party or the defrauded creditor; 2. his heirs, assigns, or successors in interest; or Example: Binili mo yung singsing sa isang incapacitated 3. the creditors of the above entitled to subrogation person, pero di niya naman talaga dapat ito binebenta. (accion subrogatoria). This is voidable. Example: Yung pagbili mo noong bata ka sa canteen. Kahit bata ka pa, it would still be considered as a contract of sale. Ikaw bata pa, samantalang yung tindera ay matanda na. OBLICON - Art. 1380-1430 | adrian gulapa | 9  Question: What is the status of the contract? -- Note that the existence of economic damage is not The contract is voidable/annullable. Valid until essential for their annulment as in the case of annulled. rescissible contracts. Question: Pero pina-annul ba ng nanay ko yung mga contract of sale na pinasukan ko nung bata Kinds of Voidable Contracts ako? -- No, hinayaan ng nanay ko. Hindi naman A contract otherwise legal in object and operation is nag-take advantage yung tindahan sa akin o voidable because of a defect cause by either: hindi naman tayo naagrabyado, nagbenefit 1. Legal incapacity to give consent, where one of naman ako (sa pagkain) the parties is incapable of giving consent to the contract; or Example: Binili ng isang tao yung cellphone mo nung 2. Violation of consent, where the vitiation is done bata ka na worth P20,000 sa halagang P1,000. Tinake by mistake, violence, intimidation, undue advantage ng tao na iyon yung kamusmusan mo kaya influence, or fraud. later on, pwede ito ipa-annul ng magulang mo. The following are voidable or annullable contracts (2) Those where the consent is vitiated by mistake, 1. Those where one of the parties is incapable of giving violence, intimidation, undue influence or fraud. consent to a contract. Kapag niloko ka, sinaktan ka, tinakot ka o The following are incapable of giving consent to na-influence ka para makuha ang consent mo -- a contract: the contract is voidable. ○ Unemancipated minors. Kahit na pinilipit na ang kamay mo, voidable lang ○ Insane or demented persons. ito (valid). Kasi pwedeng gusto mo rin naman ○ Deaf-mutes who do not know how to matuloy ang kontrata. write. (Art. 1327) 2. Those where the consent is vitiated by mistake, These contracts are binding, unless they are annulled by a violence, intimidation, undue influence or fraud. (Art. proper action in court. They are susceptible to ratification. 1390) Ratification: kabaliktaran ng annulment. Sa 3. Those where consent is given in a state of annulment, pinapa-cancel. Sa ratification, parang drunkenness. (Art. 1328) pinapa-cleanse mo yung kontrata sa kung 4. Those where consent is given during a hypnotic spell. anuman ang defect niya. (Art. 1328.) Sino ang pwedeng magratify? -- minors → parents; incapacitated persons → guardians; Annulment, concept yung mga tinakot, sinaktan, etc. Annulment is the action brought to set aside a voidable ○ Kung pinatawad nila yung pagkakamali, contract. panloloko, pananakot na ginawa sa kanila, pwede nilang ipa-ratify ang Annulment is a remedy as well as a sanction provided by kontrata. law, for reason of public interest, for the declaration of ○ Kapag na-ratify na, yung dating voidable the inefficacy of a contract based on a defect or vice in ay mananatiling nang valid contract. the consent of one of the contracting parties in order to Hindi na ito pwedeng i-cancel or i-annul. restore them to their original position in which they were before the contract was executed. Annulment and rescission, distinguished Binding force of voidable contracts. 1. Annulment is brought to declare the inefficacy They are valid and binding between the parties unless inherent in the contract. Rescission is availed of annulled by a proper action in court by the injured party. to produce the inefficacy which did not exist in Once ratified, they become absolutely valid and can no the contract. longer be annulled. 2. Annulment is based on vitiated consent; hence, damage is immaterial. Rescission is based on lesion or damage. OBLICON - Art. 1380-1430 | adrian gulapa | 10  3. In annulment, the action is principal. In In case of mistake or fraud, from the time of the discovery rescission, the action is subsidiary. of the same. 4. Annulment is a sanction where the law Hindi from the time of the commission of the predominates. Rescission is a remedy where fraud dahil kung dito magsisimula, mas lalo equity predominates. silang maeenganyo na manloko ng iba kasi alam 5. Annulment is available only to the parties, nila na kapag hindi nalaman agad yung fraud whether bound principally or subsidiarily. within the period, pwedeng mag-prescribe yung Rescission is available not only to the action. contracting parties but also to third persons Not from the time of the commission of the whose interests are affected. fraud; rather, from the time na nalaman na niloko 6. Ratification is required to prevent annulment, ka. Doon pa lang tatakbo ang four year period while ratification is not required to prevent para ipawalang-bisa ang napasok niyong rescission. kontrata. And when the action refers to contracts entered into by Article 1391. The action for annulment shall be minors or other incapacitated persons, from the time the brought within four years. guardianship ceases. If minor, from the time na mag 18 years old siya This period shall begin: hanggang maging 22 siya, pwede niyang ipa-annul yung pinasok niya na kontrata noong In cases of intimidation, violence or undue influence, bata pa siya. from the time the defect of the consent ceases. If incapacitated, from the time na gumaling ang pagkakabaliw niya. In case of mistake or fraud, from the time of the discovery of the same. When action must be brought (prescriptive period); otherwise the contract can no longer be set aside And when the action refers to contracts entered into by minors or other incapacitated persons, from the The action for annulment must be brought within four (4) time the guardianship ceases. years which period shall begin: a. In cases of intimidation, violence or undue Halos pareho sa rescissible contracts, magkakaiba nga influence, from the time the defect in the lang ng starting point. consent ceases. b. In case of mistake or fraud, from the time of In cases of intimidation, violence or undue influence, from discovery of the same. the time the defect of the consent ceases. c. In cases of minority or other incapacity of a Hindi from the time nasimula kang bugbugin, party, from the time guardianship ceases. (Art. takutin, o saktan. Possible kasi na umabot ng 1391) isang taon ang pananakot. Dapat from the time na tumigil ang defect ng consent. Period for filing action for annulment. Example: Limang taon ka nang binubugbog para The four-year period for bringing an action for annulment makuha yung consent mo. Sa pagtatapos lang is reckoned: nung limang taon magsisimula yung four years. ○ Kung sa loob ng four years, hindi ka (1) In case of intimidation, violence, or undue influence, nag-file ng remedy of annulment, ibig from the time of the intimidation, etc. ceases. Before sabihin yung karapatan mo ay that time, the consent is still being vitiated and, nag-prescribe na. therefore, the victim cannot be expected to bring an ○ Binibigyan ka ng apat na taon na action in court. ipa-annull ang kontrata. Kapag pinalagpas mo yung apat na taon, it is a (2) In case of mistake or fraud, from the time it is sign na okay lang sayo ang nangyari. discovered. This must be so because before the time of discovery, the innocent party is unaware of the reason which renders the contract voidable (Art. 1393.) and OBLICON - Art. 1380-1430 | adrian gulapa | 11 cannot also be expected to bring an action in court. Article 1393. Ratification may be effected expressly Furthermore, the guilty party should not be rewarded for or tacitly. It is understood that there is a tacit successfully hiding the mistake or fraud. ratification if, with knowledge of the reason which renders the contract voidable and such reason having (3) In the case of contracts entered into by minors or ceased, the person who has a right to invoke it should other incapacitated persons, from the time the execute an act which necessarily implies an intention guardianship ceases. In the case of a minor, to waive his right. guardianship ceases upon reaching the age of majority. An incapacitated person has no capacity to sue. a) Express - when the ratification is manifested in words or in writing; Article 1392. Ratification extinguishes the action to b) Tacit / implied – as from conduct implying a waiver annul a voidable contract. Example: Tinakot ka o sinaktan ka para ibenta yung Sa ratification, sinasabi mo na okay lang sayo ang kotse mo. Yung ibinayad sayo na P1,000,000 para sa nangyari at i-consider na okay ang contract. kotse mo, kung wala kang kabalak-balak na matuloy ang kontrata you could easily keep na P1,000,000. And then Ratification, concept within the four-year period from the time na tumigil ang Ratification is the adoption or affirmation of a contract pananakit, you could ask for the annulment of the sale which is defective because of a party’s vitiated consent sa korte. or incapacity. Ginagamit mo yung remedy mo na annulment But instead na pumalag ka o pumunta ka sa Effects of ratification [Soriano] korte para ipawalang bisa ang contract, a. It extinguishes the action to annul a voidable contract. nanahimik ka at ginamit mo yung pera sa iba't (Art. 1392) ibang bagay. Nagmove-on ka sa buhay mo at ginamit mo ang perang ibinayad sayo. Once the party who has the right to seek annulment of Question: Ano ang ibig sabihin ng actions mo na the contract ratifies it, he can no longer subsequently iyon? -- It is deemed as a ratification nung defect annulment. bring the action for sa consent. Kung anuman ang naging defect sa iyong consent (tinakot ka o sinaktan ka), the fact b. It cleanses the contract from all its defects from the na hindi ka pumapalag within the four-year moment it was constituted. In other words, the contract period at ginamit mo pa yung pera, it is a sign is validated from inception. na okay lang sayo ang nangyari. Okay lang na sinaktan ka, okay lang sayo yung kontrata. ○ Kapag in-annul ang isang voidable Meaning and effect of ratification. [De Leon] contract, balikan ito. Ibabalik mo yung (1) Ratification means that one under no disability pera niya at ibabalik niya yung property voluntarily adopts and gives sanction to some defective mo. or unauthorized contract, act, or proceeding which, without his subsequent sanction or consent, would not Rules on ratification be binding on him. It is this voluntary choice, knowingly 1. How ratification is made made, which amounts to a ratification of what was a. Express - When orally or in writing. heretofore unauthorized and becomes the authorized act b. Implied or tacit. - There is tacit ratification if with of the party making the ratification. knowledge of the reason which renders the contract voidable and such reason having (2) Ratification cleanses the contract from all its defects ceased, the person who has a right to invoke it from the moment it was constituted. (Art. 1396.) The executes an act which necessarily implies an contract thus becomes valid. (Art. 1390.) Hence, the action to waive his right. (Art. 1393) action to annul is extinguished. (Art. 1392) Example: S, 17 years old, sold his computer to B, 25, for P50,000.00 payable in 10 equal monthly installments. When S turned 18 years old, 6 installments were still due. OBLICON - Art. 1380-1430 | adrian gulapa | 12 If S continues to collect the remaining installments Ratification: when one voluntarily adopts some defective instead of suing for annulment, he is deemed to have or unauthorized act or contract which, without his ratified the contract. subsequent approval or consent, would not be binding on him. 2. Who may ratify (the same persons who may annul the This ratification will cleanse the contract of the contract) defects. a. The guardian of the incapacitated person during the latter's incapacity. Sino ang pwedeng mag-ratify ng isang defective contact: b. The incapacitated person after he has attained A contract entered into by an incapacitated capacity. person may be ratified by: c. The party whose consent is vitiated by mistake, 1. Guardian violence, intimidation, undue influence or fraud 2. Injured party provided he is already capacitated. (hence, the person who employed such vices of consent cannot ratify). Example: kapag minor o incapacitated person ang pumasok sa isang kontrata. Note: Ratification does not require the conformity of the Pwedeng guardian ang mag-ratify; o person who has no right to bring the action for Yung minor mismo pag tumanda na siya annulment. (Art. 1395) (emancipated), o kapag gumaling na ang isang baliw. Requisites of ratification. (1) The requisites for implied ratification are the Party who may ratify. following: (1) A contract entered into by an incapacitated person (a) There must be knowledge of the reason which may be ratifi ed by: renders the contract voidable; (b) Such reason (a) the guardian; or must have ceased; and (c) The injured party (b) the injured party himself, provided, he is already must have executed an act which necessarily capacitated. implies an intention to waive his right. As legal representatives of their wards, guardians have Examples: the power to contract on their behalf. Hence, they may (a) S, a minor, sold his land to B. Upon reaching the age also ratify contracts entered into by their wards. (see Art. of majority, S, with full knowledge of his rights in the 1407.) premises, instead of repudiating the contract, disposed of the greater part of the proceeds, or collected the (2) In case the contract is voidable on the ground of unpaid balance of the purchase price from B. mistake, etc., ratification can be made by the party In this case, there is tacit ratification by S. whose consent is vitiated. (b) In an action for annulment of a contract of sale, S Article 1395. Ratification does not require the alleged that the sale was executed by him through the conformity of the contracting party who has no right threat and intimidation of B. It appears, however, that S to bring the action for annulment. deposited the check for the purchase price and withdrew the money from time to time. The contract is deemed ratified. Kapag nagkabentahan ang isang matanda at bata (minor), ang may karapatan lang to file an (2) The requisites for express ratification are the same action for ratification ay yung bata. as those for implied ratification except that the former is ○ Kapag yung magulang o siya pagdating effected expressly. niya ng 18 years old ay nag-file ng action for ratification, hindi kailangan na mag-conform o pumayag yung other Article 1394. Ratification may be effected by the contracting party (yung matanda). Hindi guardian of the incapacitated person. siya yung kailangan magsabi na okay lang pala iyon, hindi kailangan ng consent niya para matuloy ang contract. OBLICON - Art. 1380-1430 | adrian gulapa | 13  The guilty party’s consent is not needed Article 1397. The action for the annulment of otherwise he may find a way of getting out of the contracts may be instituted by all who are thereby contract by the simple expedient of refusing to obliged principally or subsidiarily. However, persons ratify. who are capable cannot allege the incapacity of those with whom they contracted; nor can those who Conformity of guilty party to ratification not required. exerted intimidation, violence, or undue influence, or Ratification is a unilateral act by which a party waives employed fraud, or caused mistake base their action the defect in his consent. The consent of the guilty party upon these flaws of the contract. is not required; otherwise, he can conveniently disregard his contract by the simple expedient of refusing to give his conformity. Sinasabi sa article na ito sa kung sino sa dalawang party ang may karapatan na magpa-annul ng kontrata. Article 1396. Ratification cleanses the contract from Example: Nagkabentahan ang isang matanda at isang all its defects from the moment it was constituted. 15 years old. Ang may karapatan lang na magpa-annul ang contract ay yung taong naagrabyado (ang bata). Cleanses the contract: as if walang issue ang contract or Dahil supposedly wala pa siyang kakayahan as if hindi nagkaroon ng defect magdesisyon para sa sarili niya. Effect of Ratification [Soriano] Example: Binenta ng isang 15 years old ang kanyang Ratification cleanses the contract of all its kotse for P1,000,000 pero ang totoong halaga pala ay defects from the moment it was executed. It P800,000 lang. Nagulangan ng P200,000 yung matanda. extinguishes the right of action to annul. In other Later on, pag na-realize ng matanda na naloko words, the effect of ratification is to make the siya nung bata, hindi pwedeng mag-request ng contract valid from its inception subject to the annulment ang matanda. prior rights of third person. Ikaw na matanda ang nag-take advantage sa kamusmusan ng bata (ikaw na nanakot o Effect of ratification retroactive. [De Leon] nanakit o nanloko) ay walang karapatan na Ratification purges the contract of all its defects humingi ng annulment. (Art. 1390.) from the moment it was executed. It Hindi pwedeng ikaw ang humingi ng annulment extinguishes the action to annul. (Art. 1392.) In mula sa isang bagay o problema na ikaw lang other words, the effect of ratification is to make din naman ang naging puno’t dulo. the contract valid from its inception subject to Ikaw yung nag-take advantage sa bata at kapag the prior rights of third persons. na-realize mong ikaw ay nalugi o naloko, tapos ikaw pa ang may gustong humingi ng Examples: annulment? bawal na ikaw ang manghingi ng (1) B forced S to sell the latter’s horse. Later, the horse annulment, the audacity. gave birth to a colt. If S should ratify the contract after the birth of the colt, who is entitled to the colt? B, Ang pwede lang humingi ng annulment ay yung bata, because ratification has a retroactive effect. It validates baliw, tinakot, niloko, sinaktan. the contract from the date of its execution. Persons entitled to file an action to annul If the horse had been sold by B to C who acted in good a. the plaintiff must have an interest in the faith, the subsequent ratification by S of the sale to B contract; cannot prejudice C. The sale to B is valid until annulled b. the victim and not the party responsible for the by a proper action in court (Art. 1390) defect is the person who must assert the same. (2) In a state of drunkenness, S sold a parcel of land to Who may bring action for annulment B. Later, S sold the same land to C. The subsequent The action for annulment may be instituted by all who ratification by S of the sale to B cannot prejudice C. are thereby obliged principally or subsidiarily. (Art. 1397) Hence, it cannot be brought by third persons. It may be brought by the following: OBLICON - Art. 1380-1430 | adrian gulapa | 14  a. The guardian of the incapacitated person during Guilty party without right to bring action the latter's incapacity. The guilty party, including his successor in interest, b. The incapacitated person after he has attained cannot ask for annulment. This rule is sustained by the capacity. principle that he who comes to court must come with c. The party whose consent is vitiated by mistake, clean hands. violence, intimidation, undue influence or fraud. (Thus, persons who employed such vices of Article 1398. An obligation having been annulled, the consent cannot base their actions on such flaws contracting parties shall restore to each other the of the contract. This is based on the principle things which have been the subject matter of the that "(H)e who comes to court must come with contract, with their fruits, and the price with its clean hands." This principle applies also to interest, except in cases provided by law. capacitated persons who cannot seek the annulment of the contract on the ground of the In obligations to render service, the value thereof shall incapacity of the other party. be the basis for damages. Right of strangers to bring action. (1) Persons without material interest in contract. — One Balikan ng mga bagay. Babalik kayo sa itsura bago kayo who is not a party to the contract or an assignee pumasok sa kontrata. thereunder, or does not represent those who took part therein, has, under Article 1397 (and Art. 1311.), no legal Duty of mutual restitution upon annulment. capacity to challenge the validity of such contract. (1) If the contract is annulled, the parties, as a general rule, must restore to each other (a) the subject matter of (2) Creditors of victim or aggrieved party. — Strangers, the contract with its fruits (see Art. 544, et seq.) and (b) therefore, even the creditors of the victim or aggrieved the price thereof with legal interest. party, are without right or personality to bring the action for they are not obliged by the contract, principally or Like in rescission (see Art. 1385.), the purpose of the law subsidiarily, unless they can show detriment which is to restore the parties to their original situation by would positively result to them from the contract in mutual restitution. The fruits must be returned because which they had no intervention or participation. the party who received them had no right to enjoy the same. Legal interest must be paid because the party Examples: who received the money had no right to use it. (1) S sold to B a parcel of land. The consent of S was vitiated by fraud. (see Art. 1390.) Subsequently, S sold (2) In personal obligations, where the service had already the same lot to C. been rendered, the value thereof with the corresponding In this case, C can bring an action to annul the interest, is the basis for damages (par. 2.) recoverable sale to B. from the party benefited by the service. (2) S sold a piece of urban land to B. On grounds Article 1399. When the defect of the contract provided by law, S or B can bring an action to annul the consists in the incapacity of one of the parties, the contract. But C, an adjoining owner of S, cannot ask for incapacitated person is not obliged to make any the annulment of the sale as C is not obliged principally restitution except insofar as he has been benefited by nor subsidiarily under the contract. the thing or price received by him. However, C may question the sale if under the law (Art. 1622) he has a right of redemption, i.e., the right to Required lang mag-reimburse yung incapacitated repurchase the property from B. In this case, C would be person kapag ang napunta sa kanya na bagay ay prejudiced, if the sale is not set aside. nakinabang siya (example, pagkain -- value ng pagkain na nakuha niya based on the transaction ay required Note: The exercise of the right of redemption by C will in niyang bayaran dahil nakinabang naman siya) effect annul the contract of sale between S and B. OBLICON - Art. 1380-1430 | adrian gulapa | 15 Example: Luxury items-- luho lang at hindi naman talaga b. if due to fortuitous event nakinabang o kailangan, hindi siya obliged to make any ○ the value of the thing at the time of loss restitution. but no interest Kasalanan kasi iyon ng kausap niya. Bakit siya ○ fruits received nakikipag-deal sa isang bata/baliw? Effect of loss of thing to be returned. Effect of annulment of a voidable contract (1) If the thing to be returned is lost without the fault of a. if the contract is executory, the parties are not the person obliged to make restitution (defendant), there bound to comply with their prestation. is no more obligation to return such thing. But in such a b. if the contract is already executed, the parties case, the other cannot be compelled to restore what in shall restore to each other the object of the virtue of the decree of annulment he is bound to return. contract, that is, the money plus interest, the (Art. 1402.) property together with its fruits. However, if the ground for annulment is incapacity of the other (2) If it is lost through his fault, his obligation is not party, the party incapacitated is bound to return extinguished but is converted into an indemnity for to the extent he was benefited. damages consisting of the value of the thing at the time of the loss with interest from the same date and the No Restitution by Incapacity Party fruits received from the time the thing was given to him a. this applies if the defect is incapacity. to the time of its loss. b. this constitutes an exception to the obligation of mutual restitution under Art. 1398. Example: c. Restitution is only to the extent of enrichment S sold his plow carabao to B. On the petition of S, the (pecuniary or otherwise). contract was annulled by the court. But the carabao died in the possession of B through his fault. Restitution by incapacitated person. This provision is an exception to the general rule of Under Article 1400, B must pay the value of the carabao mutual restitution under the preceding article. The at the time of its death, with interest from the same date. incapacitated person is obliged to make restitution only If the carabao had given birth, the young must also be to the extent that he was benefited by the thing or price delivered as the fruit of the said animal. received by him. It results, therefore, that if he was not benefited, he is not obliged to restore what he had Article 1401. The action for annulment of contracts received but the other contracting party is still bound to shall be extinguished when the thing which is the return what he had received, whether he was benefited object thereof is lost through the fraud or fault of the or not. person who has a right to institute the proceedings. An exception to the rule of mutual restitution is also If the right of action is based upon the incapacity of provided in Article 1427. any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, Article 1400. Whenever the person obliged by the unless said loss took place through the fraud or fault decree of annulment to return the thing can not do so of the plaintiff. 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. Par 1. Yung bata, baliw, tinakot, sinaktan o niloko ang rason kung bakit nasira yung object, mawawala na yung Loss of the thing while in the possession of the party at karapatan niya. Parang mao-offset yung obligation fault a. If due to his fault Par 2. Saka lang mawawala lang yung karapatan niyang ○ to return the value of the thing at the maghabol kapag siya (yung bata) mismo ang naging time of loss dahilan kung bakit nawala o nasira yung subject matter. ○ interest on the value of the thing ○ fruits OBLICON - Art. 1380-1430 | adrian gulapa | 16 Loss of the thing while in the possession of the party In effect, there will be no annulment if the party cannot who can annul the contract restore what he is bound to return. This is true even if the a. if due to his fault – the right to annul is loss is due to a fortuitous event. (see comments under extinguished in short, the party has no more Art. 1400.) right to annul. b. if due to a fortuitous event – the contract can Example: B forced S to sell the latter’s horse. The still be annulled, unless if the innocent party contract was annulled by the court at the instance of S. could no longer restore what in virtue of the If the horse died through the fault of B, Article decree of annulment he is bound to return. 1400 governs. If the horse died due to a fortuitous event, S can refuse to return the Extinguishment of action for annulment. purchase price. With or without the fault of B, S, (1) If the person, who has a right to institute an action for as injured party, has the right to demand the annulment (Art. 1397.), will not be able to restore the value of the horse with damages. thing which he may be obliged to return in case the contract is annulled because such thing is lost through Effects of annulment his fraud or fault, his right to have the contract annulled a. Obligations created by annulment is extinguished. If the loss is not due to his fault or fraud, Article 1402 applies. 1) In obligations to give, the contracting párties shall restore to each other, except in cases provided by law, The action for annulment shall be extinguished only if the following: the loss is through the fault or fraud of the plaintiff. a) The things which have been the subject matter of the contract, with their fruits. (2) Under the second paragraph, the right of action is b) The price with its interest. (Art. 1398) based upon the incapacity of any one of the contracting parties. Whether the right of action is based upon 2) In obligations to render service, the value thereof shall incapacity or not, the rule is the same. be the basis of damages. (Art. 1398) 3) Restitution when one of the parties is incapacitated Article 1402. As long as one of the contracting The incapacitated person is not obliged to make any parties does not restore what in virtue of the decree of restitution except insofar as he has been benefited by annulment he is bound to return, the other cannot be the thing or price received by him. (Art. 1399) compelled to comply with what is incumbent upon him. 4) When the thing is lost through the fault of the party obliged by the decree of annulment to return it The said Hangga’t hindi pa naibabalik nung isa ang kanyang party shall return the following: nakuha, hindi required magbalik ang other contracting party kasi ang goal is restitution -- ibabalik sa isa’t isa a. Fruits received. kung ano ang naibigay para bumalik sa estado nila bago b. Value of the thing at the time of the loss. sila magkakilala. c. Interest from the time of the loss. (Art. 1400) One party cannot be compelled if other party does not 5) Mutual restitution restore If one party cannot restore what he is bound to return in the decree of annulment, the other Effect where a party cannot restore what he is bound to cannot be compelled to comply with what is return. incumbent upon him. (Art. 1402) When a contract is annulled, a reciprocal obligation of restitution is created. The return by one party of what he Effect of loss of thing while in the possession of the is obliged to restore by the decree of annulment may be party who has right to bring the action for annulment regarded as a condition to the fulfillment by the other of a. If lost through his fault, the action for annulment what is incumbent upon him. (see Art. 1191.) is extinguished, whether such party is incapacitated or his consent is vitiated. OBLICON - Art. 1380-1430 | adrian gulapa | 17  b. If lost without his fault and such party is Kung okay sa inyo ang presyong nakuha sa incapacitated, he can still bring an action for pagbenta ng property mo kahit hindi authorized, annulment. However, he will be required to return o kung mas mataas ang presyo na naibenta niya, the value of the thing and its fruits (Art. 1398) pwedeng ituloy ang kontrata kahit di kayo and only up to the extent that he has been nagbigay ng authority. benefited. (Art. 1399) Ngunit kung hindi mo naman inutusan at hindi ka sang-ayon sa presyo nung binenta (dahil lugi or hindi ka lang sang-ayon) hindi ka required CHAPTER 8: UNENFORCEABLE CONTRACTS (Art. 1403 - 1408) respetuhin yung kontrata na pinasok nung third person. This is because hindi naman siya authorized in the first place. Unenforceable contracts are those that cannot be ○ Question: What if sabihin nung buyer enforced in court or sued upon by reason of defects i-dedemanda ko kayo dahil binentahan provided by law until and unless they are ratified ako nung katulong niyo? Dadalhin daw according to law. kayo sa korte. -- Hindi mo kailangang One that cannot be enforced unless ratified. matakot dahil ito ay isang unenforceable Valid siya, pero if ever na di sumunod yung other contract. contracting party, hindi mo siya pwedeng dalhin ○ Hindi maaaring ibenta ng third person sa korte. ang isang bagay na hindi naman sa Valid kung gustong sundin ng both parties, pero kanya at hindi rin pwedeng sabihin ni kung ayaw sundin ng isa, di siya pwedeng third person na agent mo siya dahil hindi kasuhan. naman siya authorized. ○ Hindi ito diringgin ng korte at ibabasura Binding force of unenforceable contracts. ang kaso dahil ito ay unenforceable. While rescissible and voidable contracts are valid and ○ Dapat yung buyer ay humingi muna ng enforceable unless they are rescinded or annulled, special power of attorney (SPA) kay unenforceable contracts, although valid, are third person bilang katibayan na ang unenforceable unless they are ratified. Once ratified, third person ay authorized na magbenta these contracts may then be enforceable. nung object. ○ Wala kang legal repercussion dahil hindi Article 1403. The following contracts are ito pwedeng i-enforce sa korte kung unenforceable, unless they are ratified: ayaw mong respetuhin ang kontrata. Under 1317, no one may contract in the name of another (1) Those entered into in the name of another person by without being authorized by the latter, or unless he has one who has been given no authority or legal by law a right to represent him. Such contract, if entered representation, or who has acted beyond his powers; into, shall be unenforceable, unless it is ratified expressly or impliedly, by the person in whose behalf it has been Unauthorized contracts are those entered into in the executed, before it is revoked by the other contracting name of another person by one who has been given no party. authority or legal representation or who has acted beyond his powers. Example: A sells P's car to B in the name of P without P's authority. B cannot enforce the contract against P unless Example: Kapag ibinenta ng ibang tao ang iyong P ratifies it. property nang hindi mo naman siya ino-authorize, the contract is an unenforceable contract. Example: P authorizes A to sell P's car for P100,000.00 cash. A sells the same to B for P100,000.00 in Example: kapag yung katulong niyo ay ibinenta ang installments. B cannot enforce the contract against P kotse niyo nang di niyo naman siya inuutusan o unless P ratifies it because although A had the authority binibigyan