CHAPTER 6

Rescissible Contract

Article 1380. Contracts validly agreed upon may be rescinded in the cases established by
law.
Binding force of rescissible contracts.
 They are valid and enforceable although subject to rescission by the court when there
is damage or prejudice to one of the parties or to a third person. In a rescissible
contract, there is no defect at all but by reason of some external facts, its enforcement
would cause injustice.

Meaning of rescission.
 Rescission is an equitable remedy granted by law to the contracting parties and
sometimes even to third persons in order to secure reparation of damages caused
them by a valid contract, by means of the restoration of things to their condition prior
to the celebration of said contract.

Requisites:
1. There must be at the beginning either valid or a voidable contract
2. But there is an economic or financial prejudice to someone (a party or third person)
3. Requires mutual restitution

Prescription
 4 years

Article 1191
 Available only in reciprocal obligation;
 When there is a breach of contract or the failure of the contracting party to perform
an obligation;
 The injured party may file an action to compel the performance of an obligation or
rescind the contract plus payment of damages.

Article 1380
 There is an obligation to return the object, the fruits, and the interest.

Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one-fourth of the value of the things which are the object
thereof;
Note: If the lesion is more than 1/4 of the value of the minor, then, it is recissible.
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated
in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)

Article 1382. Payments made in a state of insolvency for obligations to whose

fulfillment the debtor could not be compelled at the time they were effected, are also
rescissible.
Article 1383. The action for rescission is subsidiary; it cannot be instituted except when
the party suffering damage has no other legal means to obtain reparation for the same.
Article 1384. Rescission shall be only to the extent necessary to cover the damages
caused.
Article 1385. Rescission creates the obligation to return the things which were the object
of the contract, together with their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission can return whatever he may be
obliged to restore.
Neither shall rescission take place when the things which are the object of the contract are
legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
Article 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place
with respect to contracts approved by the courts.
Article 1387. All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of creditors, when the
donor did not reserve sufficient property to pay all debts contracted before the
donation.
Alienations by onerous title are also presumed fraudulent when made by persons against
whom some judgment has been rendered in any instance or some writ of attachment has
been issued. The decision or attachment need not refer to the property alienated, and need
not have been obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be proved in
any other manner recognized by the law of evidence.
Article 1388. Whoever acquires in bad faith the things alienated in fraud of creditors,
shall indemnify the latter for damages suffered by them on account of the alienation,
whenever, due to any cause, it should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first, and so on
successively.
Article 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not begin
until the termination of the former's incapacity, or until the domicile of the latter is
known.
Persons under guardianship - 4 years from termination of incapacity;
Absentees - 4 years from the time the domicile is known.

CHAPTER 7 Voidable Contracts

Article 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.

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.Thus,
there are only two (2) types of voidable contracts.

Binding force of voidable contracts:

They are existent, valid and obligatory unless annulled or set aside by a proper
action in court, i.e., an action instituted for that purpose. Once ratified, they become
absolutely valid and can no longer be annulled. The existence of damage is not essential
for their annulment as in the case of rescissible contracts.

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.

Article 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.

Article 1392. Ratification extinguishes the action to annul a voidable contract.

Article 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.

Article 1394. Ratification may be effected by the guardian of the incapacitated

person.
Article 1395. Ratification does not require the conformity of the contracting party
who has no right to bring the action for annulment.
Article 1396. Ratification cleanses the contract from all its defects from the
moment it was constituted.
Article 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.
Article 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.
Article 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. (1304)
Article 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)
Article 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.
(1314a)
Article 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.
CHAPTER 8 Unenforceable Contracts (n)
Article 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 for 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.
Note: Those contract which cannot be brought to the court without being ratified.
Meaning of unenforceable contracts:
Unenforceable contracts are those that cannot be enforced in court or sued upon
by reason of defects provided by law until and unless they are ratified according to law.

Binding force of unenforceable contracts:

While rescissible and voidable contracts are valid and enforceable unless they are
rescinded or annulled, unenforceable contracts, although valid, are unenforceable unless
they are ratified. The mere lapse of time cannot give effect to such a contract. The defect
is of a permanent nature and will exist as long as the unenforceable contract is not duly
ratifi ed by the person in whose name the contract was executed.

Statute of Frauds.
The term “statute of frauds’’ is descriptive of statutes which require certain classes
of contracts to be in writing. This statute does not deprive the parties of the right to
contract with respect to the matters therein involved, but merely regulates the formalities
of the contract necessary to render it enforceable. The effect of non-compliance is simply
that no action can proved unless the requirement is complied with.
Article 1404. Unauthorized contracts are governed by article 1317 and the principles of
agency in Title X of this Book. Article 1405. Contracts infringing the Statute of Frauds,
referred to in No. 2 of article 1403, are ratified by the failure to object to the

presentation of oral evidence to prove the same, or by the acceptance of benefit under
them.
Article 1406. When a contract is enforceable under the Statute of Frauds, and a public
document is necessary for its registration in the Registry of Deeds, the parties may avail
themselves of the right under Article 1357.
Article 1407. In a contract where both parties are incapable of giving consent, express or
implied ratification by the parent, or
guardian, as the case may be, of one of the contracting parties shall give the contract the
same effect as if only one of them were
incapacitated. If ratification is made by the parents or guardians, as the case may be, of
both contracting parties, the contract shall be validated from the inception.
Article 1408. Unenforceable contracts cannot be assailed by third persons.
CHAPTER 9 Void and Inexistent Contracts

Article 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

Article 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.

Article 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense,
both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the
Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be
bound to comply with his promise. (1305)

Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be
observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the
performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the
fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation
to comply his promise. (1306)

Article 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from
the date of the payment.

Article 1414. When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before
the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the courts may, if the public
interest will thus be subserved, allow the party repudiating the contract to recover the money or property.

Article 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so
demands allow recovery of money or property delivered by the incapacitated person.

Article 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the
protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.
Article 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount
in excess of the maximum price allowed may recover such excess.

Article 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into
whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered
beyond the time limit.

Article 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a
laborer accepts a lower wage, he shall be entitled to recover the deficiency.

Article 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced.

Article 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected.

Article 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.