2BA_FMA

Business Law –
Obligations and
Contracts
1s t S e m , S Y 2 0 2 1 -2022

Voidable or annullable contracts

▪ Those where one of the
parties is incapable of
giving consent

▪ Consent is vitiated
by mistake, violence,
intimidation, undue
influence, or fraud

NOTE: These contracts

are valid and binding
between the parties
unless annulled by
proper action in court
by the injured party.

Once ratified, they

become absolutely valid
and can no longer be
annulled.
Kinds of voidable contracts

1. Legal incapacity to give

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

Annulment of contract

Remedy provided by law

for public interest, for
the declaration of
inefficacy of a contract
based on defect or vice
of consent of one of the
parties.
WHEN to bring
action for
annulment of
contract?

Brought within 4 years

▪ In case of intimidation,
violence, or undue
influence, from the time
the defect of consent
ceases
▪ In case of mistake
or fraud, from
time of discovery
of the same

▪ For minors or
incapacitated, from
the time
guardianship ceases
Ratification
extinguishes action
to annul voidable
contract
One who voluntarily adopts or
approves some defective or
unauthorized act or conduct.
Indicates intention on the part of
the rectifier to be bound to the
provisions of the contract.

Voidable contract becomes valid when ratified.

Unilateral act where a party waives the defect in his consent.

May be express or implied. There

must be knowledge of reason which
renders contract voidable, such
reason must have ceased, injured
party executes act showing intention
to waive right.
Party entitled to bring action

1. Party must have an interest in the contract

2. The victim and not the

party responsible for
the defect is the
person who must
assert the action

Note: Guilty party has no

right to bring action for
annulment
Mutual restitution upon annulment
If contract is
annulled, both
parties must restore
to each other the
subject matter of the
contract with its
fruits, and the price,
with legal interest.

If thing has been lost,

but without fault, there
is no duty to return for
both parties. But if
thing is lost and with
fault, he must return
the value of the
thing/object and fruits,
if any.
Unenforceable contracts

Those that cannot

be enforced or
given effect
because of certain
defects provided by
law and unless they
are ratified.
 Unenforceable
contracts, although
valid, are
unenforceable in
court unless they are
cured or ratified. Once
ratified, these
contracts may now be
enforceable.
Kinds of unenforceable contracts

1. Those entered into in the

name of another by one
without, or in excess of
 authority

2. Those that do not comply with

the Statute of Frauds (eg. must
be in writing--an agreement not
to be performed within a year
from the making, promise to
answer for debt of another,
agreement made in
consideration of marriage, lease
agreement for more than 1
year, etc.)

3. Those where both parties

 are incapable of giving
consent
Void or Inexistent contracts

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 intention of the parties

relative to the principal object cannot be
ascertained

7. Those expressly prohibited or declared void by law

Void or Inexistent contracts

Void contracts – because of certain

defects, generally produce no effect at
all. They are considered inexistent from
its inception or from the very beginning.

Inexistent contracts – agreements

which lack one or some or all of the
elements and do not comply with
formalities essential for the contract to
exist.
Characteristics of Void/Inexistent
Contracts Produces no force or effect
Cannot be ratified

Right to set up defense of illegality cannot be waived

Action or defense for declaration of its inexistence does

not prescribe
Defense of illegality is not available to 3rd persons
whose interests are not directly affected
Cannot give rise to valid contract