n this connection, a careful distinction must be made between rescission of a

properly rescissible contract and rescission under Art. 1191.

“Art. 1191. The power to rescind obligations is implied in reciprocal ones, in

case one of the obligors should not comply with what is incumbent upon him.”

“The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages, in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.”

“The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.”

“This is understood to be without prejudice to the rights of third persons who

have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.”

The rescission under Art. 1191, properly called resolution, is

essentially different from rescission under Art. 1383. It is unfortunate that the
distinction in terminology, so scrupulously observed in the Spanish Code
[resolver (Art. 1124) versus rescindir (Art. 1290)] was so carelessly discarded
in the Philippine Code, leading to confusion, even on the part of people who
should know better.

Again, Justice JBL Reyes steps in to clear up the mess, in his

concurring opinion in UFC v. CA (33 SCRA 1 [1970]). The relevant portion of
that concurring opinion is:

“‘…the argument of petitioner, that the rescission demanded by

the respondent-appellee….should be denied because under Article 1383 of
the Civil Code of the Philippines rescission can not be demanded except
when the party suffering damage has no other legal means to obtain
reparation, is predicated on a failure to distinguish between a rescission for
breach of contract under Article 1191 of the Civil Code and a rescission by
reason of lesión or economic prejudice, Article 1381, et. seq. The rescission
on account of breach of stipulation is not predicated on injury to the economic
interests of the party plaintiff but on the breach of faith by the defendant, that
violates the reciprocity between the parties. It is not a subsidiary action, and
Article 1191 may be scanned without disclosing anywhere that the action for
rescission thereunder is subordinated to anything other than the culpable
breach of his obligations by the defendant. This rescission is a principal action
retaliatory in character, it being unjust that a party be held bound to fulfill his
promises when the other violates his. As expressed in the old Latin
aphorism:‘Non servanti fidem, non est fides servanda.’ Hence, the reparation
of damages for the breach is purely secondary.’”

On the contrary, in the rescission by reason of lesión or economic prejudice,

the cause of action is subordinated to the existence of that prejudice, because
it is the raison d’être as well as the measure of the right to rescind. Hence,
where the defendant makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in Articles 1383 and 1384. But
the operation of these two articles is limited to the cases of rescission
for lesiónenumerated in Article 1381 of the Civil Code of the Philippines, and
does not apply to cases under Article 1191.

“It is probable (JBL concludes) that the petitioner’s confusion

arose from the defective technique of the new Code that terms both instances
as ‘rescission’ without distinctions between them; unlike the previous Spanish
Civil Code of 1889 that differentiated ‘resolution’ for breach of stipulation from
‘rescission’ by reason of lesión or damage. But the terminological vagueness
does not justify confusing one case with the other, considering the patent
difference in causes and results of either action.’” 1

“The last comment—parenthetically—is apropos, and codifiers will do well to

avoid, as far as possible, the same identical terms for different
concepts. Such terms as rescission, fraud, collation, ratification, etc.—all
used in the Code in varying or equivocal senses—can only ensnare students,
professors, practitioners, and courts.” (Ruben F. Balane, A Harvest of
Eighteen Years: A Survey of Jose B.L. Reyes’ Leading Supreme Court
Decisions on Civil Law, Part II, in Civil Law Florilegium: Essays on the
Philippine Variant of the Civil Code Traditions 512 (2012)).

In a nutshell, the essential distinctions between rescission under Arts. 1380-

1389 and rescission (resolution) under Art. 1191 are two:

1. Rescission is predicated on economic injury; resolution, on breach; and

2. Rescission is a subsidiary action; resolution, a principal one retaliatory
in character.

This important differentiation was reiterated in Ong v. CA (310 SCRA

1 [1999]).
C. The party seeking rescission must be able to return whatever he may
have obtained by reason of the contract.

This is required by Art. 1385, Par. 1.

“Art. 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.”

Rescission cancels the contract; consequently, the parties must be

returned to the status quo ante.Hence, the need for mutual restitution.

D. The things object of the contract must not have passed legally to a
third person in good faith.

The basis for this requirement is found in Art. 1385, Paragraphs 2 and
3:

“Art. 1385. xxx xxx x x x”

“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.”

II. Voidable Contracts

Voidable contracts are governed by Arts. 1390 to 1402. As noted

earlier, consent is one of the three essential elements of contracts. If the
consent of one of the parties is defective or vitiated, the contract is voidable.
Defect or vitiation of consent is caused by either internal or external factors.
These factors are laid down in Arts. 1327 to 1344.

Consent, as an element of contracts, must be intelligent and free. If

either attribute is impeded or impaired, then consent is said to be vitiated, and
the contract voidable.

A. The factors that impair intelligence are:

1. minority (Art. 1327, par. 1)

The age of emancipation, previously 21 under both the Civil Code and the
Family Code, has been reduced by RA 6089 to 18.

Philippine law does not ex professo make any distinction among minors, as
far as contracts entered into by them are concerned. No gradations of
incapacity are recognized. On purely codal (statutory) criteria, consent of a
minor of seventeen is just as defective as that of a minor of ten.

Some Philippine commentators have criticized this lack of gradation,

proposing that a distinction should be drawn between a minor of tender age
(an infant) and one who possesses some degree of discretion. The distinction
drawn in Sections 104 to 106 of the German Code is proposed as the
criterion: absolute incompetency [Geschäftsunfähigkeit] and relative or limited
incompetency [Beschränkte Geschäftsfähigkeit]. In the second, there is a
measure of consent, though imperfect; in the first, there is none.

In two cases, the Philippine Supreme Court did make a distinction

between absence of consent and defect of consent. These cases—Heirs of
Sevilla v. Sevilla, 402 SCRA 501 [2003] and Gochan v. Heirs of Baba, 409
SCRA 306 [2003]—ruled that where there is no consent whatsoever, there is
no contract. However, the pronouncement was applied (erroneously, in this
writer’s opinion) to contracts entered into on behalf of a person by another
who had absolutely no authority from the former. [Such a contract is
clearly unenforceable, not void, under Philippine law]. Nevertheless, there
exists the possibility that this distinction may be applied in some future case to
contracts by and with minors.

2. insanity, deaf-mutism coupled with illiteracy, intoxication, and hypnotic

spell (Arts. 1327, par. 2 and 1328)

1. mistake (Arts. 1331 and 1334)

To vitiate consent, the mistake or error must relate to:

1. the substance of the thing;

2. the principal conditions of the contract;
3. the identity or qualifications of one of the parties when such constituted
the principal cause of the contract; or
4. the legal effect of the agreement, if the error is mutual and results in the
frustration of the parties’ purpose.
The mistake must be caused by facts of which the party demanding
annulment did not know. As held in Alcasid v. CA (237 SCRA 419 [1994]):

“To invalidate consent, the error must be real and not one that could have
been avoided by the party alleging it. The error must arise from facts unknown
to him. He cannot allege an error which refers to a fact known to him or which
he should have known by ordinary diligent examination of the facts. An error
so patent and obvious that nobody could have made it, or one which could
have been avoided by ordinary prudence, cannot be invoked by the one who
made it in order to annul his contract.

4. fraud (Art. 1338)

Fraud, as a vitiating factor of consent, is equivalent to and synonymous

with deceit, and is not to be confused with fraud under Art. 1170, which
consists in “the deliberate and intentional evasion of the normal fulfillment of
an obligation” (Legaspi Oil v. CA, 224 SCRA 213 [1993]). That other fraud is
synonymous with malice or bad faith. More, fraud as deceit is antecedent to or
at least simultaneous with the birth of the contract and for that reason vitiates
consent, which must exist when the contract is entered into. On the other
hand, fraud as malice occurs subsequent to the constitution of the obligation
and results, not in the annulment of the obligation, but in liability for damages
(Art. 1170).
Fraud as deceit, in order to vitiate consent, must be serious (Art. 1344,
par. 1), or as commentators call it, dolo causante, to be distinguished
from dolo incidente, incidental fraud. Dolo causantevitiates
consent; dolo incidente only gives rise to a liability for damages. (Art. 1344,
par. 2).

In Samson v. CA (238 SCRA 397 [1994]), the Court explained:

“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.”

Dolo causante has the following requisites:

1. it must be serious (Art. 1344);

 2. it must have been employed by one party upon the other (Arts. 1342
and 1344);
3. it must have had the effect of inducing one of the parties to enter into
the contract (Art. 1338); and
4. it must have resulted in damage or injury. (Alcasid v. CA, 237 SCRA
419 [1994])

B. The factors that impair freedom of consent are violence, intimidation,

and undue influence (collectively called duress).

1. violence (Art. 1335, par. 1)

The elements of violence as a vitiating factor are:

a) it must be irresistible or serious; and

b) it must be causal, i.e. it must be the operative cause of the giving of
consent.

2. intimidation (Art. 1335, par. 2)

The elements of intimidation are enumerated in De Leon v. CA(186

SCRA 345 [1990]):

“In order that intimidation may vitiate consent and render the contract invalid,
the following requisites must concur: (1) that the intimidation must be the
determining cause of the contract, or must have caused the consent to be
given; (2) that the threatened act be unjust or unlawful; 2 (3) that the threat be
real and serious, there being an evident disproportion between the evil and
the resistance which all men can offer, leading to the choice of the contract as
the lesser evil; and (4) that it produces a reasonable and well-grounded fear
from the fact that the person from whom it comes has the necessary means or
ability to inflict the threatened injury.”

3. Undue influence (Art. 1337)

According to Alcasid v. CA (237 SCRA 419 [1994]):

“Undue influence, therefore, is any means employed upon a party which,

under the circumstances, he could not well resist and which controlled his
volition and induced him to give his consent to the contract, which otherwise
he would not have entered into. It must in some measure destroy the free
agency of a party and interfere with the exercise of that independent
discretion which is necessary for determining the advantages or
disadvantages of a proposed contract.”

C. Characteristics of Voidable Contracts

A voidable contract is, as the term implies, susceptible to annulment;

it is not ipso facto inoperative.
Some points to bear in mind regarding these contracts are:

1. they are binding unless and until set aside; (Art. 1390);

1. they may be assailed only by a proper action in court; (Art. 1390),

brought within the specified prescriptive periods; (Arts. 1391);
2. they are capable of confirmation; (Arts. 1392-1396);

Confirmation (or, as somewhat inaccurately called by the Civil Code,

ratification) can be done either expressly or tacitly, but, in either case, only by
the party whose consent was vitiated, and only after he has acquired capacity
or after the cessation of the vitiating cause.

1. the action for annulment can be maintained only by or on behalf of the

incapacitated party, never by the other party; (Art. 1397); and
2. similarly to cases of rescission under Art. 1385, and resolution under
Art. 1191, the general rule in annulment of voidable contracts is mutual
restitution, i.e. the parties should be returned to their original situation.

III. Unenforceable Contracts

Third in the classification of defective contracts are the unenforceable,

which are just a notch higher than the void. As such, they cannot be given
effect, cannot be the basis of an action for specific performance. Their defect,
however, is not irremediable; it can be cured in a process called ratification or
acknowledgment.

1. The first of the unenforceable contracts is that referred to in Art. 1403,

par. 1:

“(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.”

To the same effect are the provisions of Art. 1317.

 “Art. 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has by law a right to
represent him.”

“A contract entered into in the name of another by one who has no authority or
legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other
contracting party.”

Thus also provides Art. 1910, par. 2.

“As for any obligation wherein the agent has exceeded his power, the principal
is not bound except when he ratifies it expressly or tacitly.”

The contract is unenforceable whether the authority is only exceeded or

absolutely absent. The two cases mentioned supra (Heirs of
Sevilla and Gochan) in which it was held that the contract is void if authority
is totally wanting have no basis in statutory provision.

B. The second kind (although third in the enumeration of the

Article) of unenforceable contracts is found in Art. 1403, par. 3:

“Those where both parties are incapable of giving consent to a

contract.”

The confirmation by one of the incapacitated parties does not convalidate the
contract; it merely raises the contract one rung higher—to the level of a
voidable contract.

C. The third—and best-known—kind of the unenforceable contracts

includes those enumerated by Art. 1403, par. 2—the provision that is
commonly known as the Statute of Frauds.