GROUP 2- VOIDABLE CONTRACTS(Gonzales, Jordan, Justado, Manalili, Remion & Ubalde)

What are the characteristics of a voidable contract?

Effective until set aside;
May be assailed or attacked only in an action for that purpose;
Can be confirmed; and
Can be assailed only by the party whose consent was defective or his heirs or assigns.
When is there a voidable contract?
When:
one of the parties is incapacitated to give consent; or
consent was vitiated.
Who are the persons incapacitated to give consent?
DIM
Deafmutes who do not know how to read and write (illiterates)
Insane or demented persons, unless the contract was entered into during a lucid interval
Minors except:
Contracts for necessaries
Contracts by guardians or legal representatives & the court having jurisdiction had approved the same
When there is active misrepresentation on the part of the minor (minor is estopped)
Contracts of deposit with the Postal Savings Bank provided that the minor is over 7 years of age
Upon reaching age of majority they ratify the same
What are the vices of consent?
MIVUF
Mistake substantial mistake and not merely an accidental mistake; must refer to the:
substance of the thing which is the subject of the contract; or
to those conditions which have principally moved one or both parties to enter the contract.
Note: Mistake as to identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause
of the contract.
Intimidation An internal moral force operating in the will and inducing performance of an act.
Violence An external, serious or irresistible physical force exerted upon a person to prevent him from doing something or to compel him to do an act.
Undue influence Any means employed upon a party which, under the circumstances could not be resisted and has the effect of controlling his volition
and inducing him to give his consent to the contract, which otherwise, he would not have entered into.
Fraud Use of insidious words or machinations in inducing another party to enter into the contract, which without them, he would not have agreed.
What are the kinds of mistake?
Mistake of fact When one or both of the contracting parties believe that a fact exists when in reality it does not, or that such fact does not exist when in
reality it does.
Mistake of law When 1 or both parties arrive at erroneous conclusion or interpretation of a question of law or legal effects of a certain act or transaction.
Note:
GR: Mistake as a vice of consent refers to mistake of facts and not of law.
XPN: When mistake of law involves error as to the effect of an agreement when the real purpose of the parties is frustrated (Art. 1334, NCC).
To determine the effect of an alleged error, both the objective and subjective aspects of the case which is the intellectual capacity of the person who
committed the mistake.
When will mistake invalidate consent?
Mistake, in order to invalidate consent, should refer to the substance of the thing which is the object of the contract, or to those conditions which have
principally moved one or both parties to enter into the contract.(Leonardo v. CA, G.R. No. 125485, Sept. 13, 2004)
Leonardo is the only legitimate child of the late spouses Tomasina and Balbino. She only finished Grade three and did not understand English.
The Sebastians, on the other hand, are illegitimate children. She filed an action to declare the nullity of the extrajudicial settlement of the estate
of her parents, which she was made to sign without the contents thereof, which were in English, explained to her. She claims that her consent
was vitiated because she was deceived into signing the extrajudicial settlement. Is the extrajudicial settlement of estate of Tomasina valid?
No. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the former. (Art. 1332, NCC) Leonardo was not in a position to give
her free, voluntary and spontaneous consent without having the document, which was in English, explained to her. Therefore, the consent of Leonardo
was invalidated by a substantial mistake or error, rendering the agreement voidable. The extrajudicial partition between the Sebastians and Leonardo
should be annulled and set aside on the ground of mistake. (Leonardo v. CA, G.R. No. 125485, Sept. 13, 2004)
Note: Contracts where consent is given by mistake or because of violence, intimidation, undue influence or fraud are voidable. These circumstances are
defects of the will, the existence of which impairs the freedom, intelligence, spontaneity and voluntariness of the party in giving consent to the agreement.
Art. 1332 was intended to protect a party to a contract disadvantaged by illiteracy, ignorance,
mental weakness or some other handicap. It contemplates a situation wherein a contract is entered into but the consent of one of the contracting parties
is vitiated by mistake or fraud committed by the other.(Leonardo v. CA, G.R. No. 125485, Sept. 13, 2004)
What are the requisites that ignorance of or erroneous interpretation of law (mistake of law) may vitiate consent?
Mistake must be with respect to the legal effect of the agreement;
It must be mutual; and
Real purpose of the parties must have been frustrated.
What are the requisites of intimidation?
One of the parties is compelled to give his consent by a reasonable and well grounded fear of an evil;
The evil must be imminent and grave;
It must be unjust; and
The evil must be the determining cause for the party upon whom it is employed in entering into the contract.
What are the requisites of violence?
It must be:
serious or irresistible; and
the determining cause for the party upon whom it is employed in entering into the contract.
What are the kinds of fraud?
Fraud in the perfection of the contract
Causal fraud (dolo causante)
Incidental fraud (dolo incidente)
Fraud in the performance of an obligation (Art. 1170, NCC)
Requisites:
Fraud, insidious words or machinations must have been employed by one of the contracting parties;
It must have been serious;
It induced the other party to enter into a contract; and
Should not have been employed by both contracting parties or by third persons.

Distinguish dolo causante from dolo

incidente.

DOLOCAUSANTE DOLOINCIDENTE

(ART. 1338) (ART. 1344)

Refers to fraud which is Refers to fraud which is

serious in character not serious in character

It is the cause which It is not the cause which

induces the party to induces the party to

enter into a contract enter into a contract

Renders the contract Renders the party liable

voidable for damages

Note: In contracts, the kind of fraud that will vitiate consent is one where, through insidious words or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without them, he would not have agreed to. This is known as dolo causante or causal fraud which is basically
a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other. (Samson v. CA, G.R. No. 108245,
Nov. 25, 1994)
Santos lease contract was about to expire but it was extended and he continued to occupy the leased premises beyond the extended term.
Samson offered to buy Santos store and his right to the lease. Santos stated that the lease contract between him and the lessor was impliedly
renewed and that formal renewal thereof would be made upon the arrival of a certain Tanya Madrigal, based on the letter to him given by the
lessor. When Samson occupied the premises, he was forced to vacate for Santos failure to renew his lease. He filed an action for damages
against Santos for fraud and bad faith claiming that the misrepresentation induced him to purchase the store and the leasehold right. Decide.
No, Santos was not guilty of fraud nor bad faith in claiming that there was implied renewal of his contract of lease with his lessor. The letter given by the
lessor led Santos to believe and conclude that his lease contract was impliedly renewed and that formal renewal thereof would be made upon the arrival
of Tanya Madrigal. Thus, from the start, it was known to both parties that, insofar as the agreement regarding the transfer of Santos leasehold right to
Samson was concerned, the object thereof relates to a future right. It is a conditional contract, the efficacy of which depends upon an expectancy the
formal renewal of the lease contract between Santos and lessor. The efficacy of the contract between the parties was thus made dependent upon the
happening of this suspensive condition. (Samson v. CA, G.R. No. 108245, Nov. 25, 1994)
What are the causes of extinction of action to annul?
Prescription the action must be commenced within 4 years from the time the:
incapacity ends; guardianship ceases;
violence, intimidation or undue influence ends; or
mistake or fraud is discovered
Ratificationcleanses the contract of its defects from the moment it was constituted
Requisites:there must be knowledge of the reason which renders the contract voidable;
such reason must have ceased; and
the injured party must have executed an act which expressly or impliedly conveys an intention to waive his right
By loss of the thing which is the object of the contract through fraud or fault of the person who is entitled to annul the contract
Who may institute action for annulment?
By all who are thereby obliged principally or subsidiarily.
He who has capacity to contract may not invoke the incapacity of the party with whom he has contracted.
A third person who is a stranger to the contract cannot institute an action for annulment.
What are the effects of annulment?
If contract not yet consummated parties shall be released from the obligations arising therefrom.
If contract has already been consummated rules provided in Arts. 13981402, NCC, shall govern.
What is confirmation?
It is an act by which a voidable contract is cured of its vice or defect.
What is recognition?
It is an act whereby a defect of proof is cured such as when an oral contract is put into writing or when a private instrument is converted into a public
instrument.
What is ratification?
It is an act by which a contract entered into in behalf of another without or in excess of authority is cured of its defect.
What are the modes of ratification?
For contracts infringing the Statute of Frauds:
expressly
impliedly by failure to object to the presentation of oral evidence to prove the contract, or by the acceptance of benefits under the contract.
If both parties are incapacitated, ratification by their parents or guardian shall validate the contract retroactively.