1. Concept
Voidable contracts are binding, unless they are annulled by a proper action in court.(Paragraph 2, Article 1390, Ibid.)
a. Voidable contracts
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. (Article 1390, Ibid.)
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.(Paragraph 2, Article 1390, Ibid.)
2. 4-year prescription
The action for annulment shall be brought within four years.(Article 1391, Ibid.)
a. Intimidation, violence, undue influence
In cases of intimidation, violence or undue influence, the counting of prescription shall be from the time the defect of the consent ceases. (Paragraph 3, Article 1391, Ibid.)
b. Mistake, fraud
In case of mistake or fraud, the counting of prescription shall be from the time of the discovery of the same. (Paragraph 4, Article 1391, Ibid.)
c. Minors or incapacitated persons
When the action refers to contracts entered into by minors or other incapacitated persons, the counting of prescription shall be from the time the guardianship ceases. (Paragraph 5, Article 1391, Ibid.)
3. Ratification
a. Extinguishes action to annual a voidable contract
Ratification extinguishes the action to annul a voidable contract. (Article 1392, Ibid.)
Voidable contracts are susceptible of ratification. (Paragraph 2, Article 1390, Ibid.)
1) Cleanses all defects
Ratification cleanses the contract from all its defects from the moment it was constituted. (Article 1396, Ibid.)
b. How done
Ratification may be effected expressly or tacitly. (Article 1393, Ibid.)
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. (Ibid.)
c. By whom
1) By either/both party
GENERAL RULE: The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. (Article 1397, Ibid.)
LIMITATION: 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. (Article 1397, Ibid.)
2) By a guardian
Ratification may be effected by the guardian of the incapacitated person. (Article 1394, Ibid.)
d. No conformity required from party who has no right to bring action
Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. (Article 1395, Ibid.)
4. Effects of nullity
a. Restoration, restitution
a) Thing subject matter of the contract
b) Fruits
c) Price with interest
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.(Article 1398, Ibid.)
In obligations to render service, the value thereof shall be the basis for damages. (Paragraph 2, Article 1398, Ibid.)
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.(Article 1402, Ibid.)
b. Liability of incapacitated party
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. (Article 1399, Ibid.)
c. Loss of thing through fault of party obliged to return
a) Return fruits
b) Return value of thing at time of loss
c) Pus interest
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. (Article 1400, Ibid.)
d. Extinguishment of action for annulment
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. (Article 1401, Ibid.)
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. (Paragraph 2, Article 1402, Ibid.)
References
⦁ Book IV, Republic Act No. 386, Civil Code
