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Republic of the Philippines 

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-BATAAN BRANCH
Mariveles, Bataan 

LAW ON OBLIGATIONS AND CONTRACTS 

LAW 20013 
Module # 10 

Overview 

This module start the discussion of Kinds of Defective Contracts, particularly  the
Rescissible Contracts and the Voidable Contracts. 

Module Objective 

At the end of this module, you are expected to: 

1. Enumerate and define the kinds of defective contracts; 

2. Define Rescissible Contracts, know its nature and effects; and 3.

Define Voidable Contracts, know its nature and effects. Reading Assignment 

Kinds of Defective Contracts 

Rescissible Contracts (Art. 1380-1389) 
Voidable Contracts (Art. 1390-1402) 
Pages 416-443, Recommended Book 

Questionnaire 
Note: Answers should be hand-written. 

Define. (5 pts) 
1. Rescissible Contracts 
 Rescissible contracts are those validly agreed upon because all the essential
elements exist and, therefore, legally effective, but in the cases established by
law, the remedy of rescission is granted in the interest of equity.

2. Rescission 
 Rescission is 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 in which
they were prior to the celebration of said contract. (see 8 Manresa 748-749.)

3. Voidable Contracts 
 Voidable or annullable contracts are those which possess all the essential
requisites of a valid contract but one of the parties is incapable of giving consent,
or consent is vitiated by mistake, violence, intimidation, undue influence, or
fraud.

4. Annulment 
 Annulment is a remedy 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.
 5. Ratification 
 Ratification means that one voluntarily adopts or approves some defective or
unauthorized act or contract which, without his subsequent approval or consent,
would not be binding on him. It indicates an intention on the part of the ratifier to
be bound to the provisions of the contract.

Enumerate. (25 pts.) 

1. Cases of Rescissible Contracts. (5 pts.) 
 Contracts entered into in behalf of wards;
 Contracts agreed upon in representation of absentees;
 Contracts undertaken in fraud of creditors;
 Contracts which refer to things under litigation; and
 Other instances.

2. Requisites of Rescission. (7 pts.) 

 The contract must be validly agreed upon (Art.1380);
 There must be lesion or pecuniary prejudice to one of the parties or to a third
person (Art.1381.);
 The rescission must be based upon a case especially provided by law
(Arts.1380,1381,1382.);
 There must be no other legal remedy to obtain reparation for the damage
(Art.1383.);
 The party asking for rescission must be able to return what he is obliged to restore
by reason of the contract (Art.1385, par.1.);
 The object of the contract must not legally be in the possession of third persons
who did not act in bad faith (Ibid., par. 2.); and
 The period for filing the action for rescission must not have prescribed.
(Art.1389.)

3. Five (5) Badges of Fraud. (5 pts.) 

 The fact that the consideration of the conveyance is fictitious or inadequate;
 A transfer made by a debtor after suit has been begun and while it is pending
against him;
 A sale upon credit by an insolvent debtor;
 The transfer of all of his property by a debtor, especially when he is insolvent or
greatly embarrassed financially; and
 The fact that the transfer is made between father and son, when there are present
some or any of the above circumstances.

4. Kinds of Voidable Contracts (2 pts.)

 Legal incapacity to give consent, where one of the parties is incapable of giving
consent to the contract; or
 Violation of consent, where the vitiation is done by mistake, violence,
intimidation, undue influence, or fraud.

5. Requisites of Implied Ratification. (3 pts.) 

 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 necessarily implies an
intention to waive his right.

6. Rules regarding the Period for filing action for Annulment. (3 pts.)
 In cases of intimidation, violence, or undue influence, from the time the
intimidation, etc., ceases. Before that time, the consent is still being vitiated
and, therefore, the victim cannot be expected to bring an action in court.
 In case of mistake or fraud, from the time it is 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 cannot also be
expected to bring an action in court. Furthermore, the guilty party should not
be rewarded for successfully hiding the mistake or fraud.
 In the case of contracts entered into by minors or incapacitated persons,
from the time to time the guardianship ceases. An incapacitated person has
no capacity to sue.

Essay. (20 pts.) 

1. Give a concrete example for each case of Rescissible Contracts under Art.

1381. Explain. (10 pts.) 

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;

 For example: Lyca is the guardian of Purple (ward). Lyca sells the property of
Purple worth 20M for only 14M. In this case, the contract of sale can be
rescinded because the lesion is more than one-fourth. Purple can rescind the sale
by proper action in court upon reaching the age of majority.

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in
the preceding number;

 For example: Raffy has a resort in Batangas, he left his property without notice
and without leaving a representative to take care of his property. Jason, a family
friend of his, volunteered in taking over on his business. Due to a storm, Raffy
business is greatly affected due to destruction of some of the buildings of the
resort and needs additional funds to recover from such distress. Jason decided to
sell one property of Raffy worth 15M and sold it for only 10M. In this case, Raffy
can rescind the contract of sale made by Jason because the lesion is more than
one-fourth.

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect
the claims due them;

 For example: Michel made a donation of a parcel of land to his cousin Mikie who
was affected by the typhoon. Before the date of the donation, Michel had
contracted several debts. With the donation to Mikie, the remaining property of
Michel is not sufficient to pay all her debts. In this case, the donation can be
rescinded because the alienation is presumed in fraud of creditors. 

(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;

 For example: Sam sues Baron for the recovery of a parcel of land. In this case, the
land is a “thing under litigation.”

If, during the pendency of the case, Baron sells the land to Cameron without the
approval of Sam or of the court, the sale is rescissible at the instance of Sam in
case he wins in his suit for the recovery of said land unless Cameron is in legal
possession of the land in good faith.  Sam, however, may protect his right by
filing a notice of his pendens. 
 (5) All other contracts specially declared by law to be subject to rescission. (1291a)

 For example: Cindy (lessee) borrowed money from Aling Marites (lessor) they
agreed that they would be a monthly interest of 0.8%. If Cindy or Aling Marites
should not comply with the obligations set forth in Article 1654 (referring to
obligations of the lessor) and Article 1657 ( referring to obligations of the lessee),
the a page 421.

2. Give the effects of Ratification. Provide a concrete example and explain. (5

pts.) 

 The effects of Ratification are:

 Ratification means that one voluntarily adopts or approves some defective or
unauthorized act or contract which, without his subsequent approval or
consent, would not be binding on him. It indicates an intention on the part of
the ratifier to be bound to the provisions of the contract.
 Ratification cleanse the contract from all its defects from the moment it was
constituted. (Art. 1396.) The contract thus becomes valid. (Art.1390) Hence,
the action to annul is extinguished. (Art.1392.)

For example: Mariel a 16 years old vlogger signed a contract to purchase a

land, the contract could be voided legally because a contract can only be
signed by people ages 18 years and older. Upon reaching the legal age to sign
a contract, Mariel could ratify the contract and honor the land purchase. 

Mr. Park, a CEO of Bon Factory Corporation, was invited to an art auction in
Australia. He does not want to attend an art auction because he’s too busy in
his company. He instructed his secretary Ms. Kim to go to the auction for
him. Ms. Kim goes to an art auction and bids on some art without speaking to
Mr. Park first.  Or, she signs a contract to purchase some art from a gallery. 
She had no authority to do either of these things at the time so Mr. Park does
not have to purchase the art. But if Mr. Park looks at the art and thinks that
Ms. Kim got a good deal.  Mr. Park then goes ahead and accepts the art, pays
the money, or engages in some other action to show that he approves of what
Ms. Kim did. Mr. Park ratified what Ms. Kim did by approving her actions on
his behalf.

He gives Ms. Kim some instructions and then Ms. Kim, our agent, will have
authority to bid at the auction on behalf of Mr. Park.   If she bids successfully
Mr. Park will have to purchase the art because Ms. Kim acted with authority
on his behalf. But if Ms. Kim goes to an art auction and bids on some art
without speaking to Mr. Park first.  Or, she signs a contract to purchase some
art from a gallery.  She had no authority to do either of these things at the
time so Mr. Park does not have to purchase the art. If Mr. Park looks at the art
and thinks that Ms. Kim got a good deal.  Mr. Park then goes ahead and
accepts the art, pays the money, or engages in some other action to show that
he approves of what Ms. Kim did. Mr. Park ratified what Ms. Kim did by
approving her actions on his behalf.

3. Abby, a minor, sold a real property to Aga for PhP 1M. The sale was then
annulled due to Abby’s minority. Is Abby bound to return the PhP1M she
received from Aga? Explain. (5 pts.)
Yes, Abby is bound to return the PhP1M she received from Aga.
 
Under Article 1398 of the Civil Code of the Philippines, an obligation having
been annulled, the contracting parties shall restore to each other the things which
have been the subject matter of the contract, with their fruits, and the price with
its interest, except in cases provided by law. In obligations to render service, the
value thereof shall be the basis for damages. (1303a)

In this case, because of the annulment of sale due to Abby’s minority, Abby must
return the Php 1 million she received from Aga and Aga must return the real
property he purchased to Abby.