DISCUSSION OF ARTICLE 1394-1398

ART 1394. Ratification may be effected by the guardian of the incapacitated person.

Who may ratify?

This provision clearly states that the following can ratify a voidable contracts:

For incapacitated person:

-it can be ratified by the guardian or the injured party or the incapacitated person itself, let’s say a minor
upon ceasing of incapability or when he reached the majority age.

-Also the legal representative of their wards

Wards-are minor or incapacitated adults who are unable to manage their affairs independently, they are
placed under guardianship or protection of someone else.

Other persons who may ratify are those whose consent is vitiated, or the victims of vices of consent,
those who are forced, intimidated, victim of fraud, mistake and undue influence.

Please take note that these are also the parties who can annul a voidable contracts.

For example here

If Dyosa, an insane person, entered into a contract with a carpenter to repair the roof of her house, this
contract can be annulled as it has been entered into by a person who is incapacitated. However, Dyosa is
Diwata’s ward, and Diwata can make an express or tacit ratification of the repair, especially if it will
redound to the benefit of her incapacitated ward.

So that’s it for ART 1394, again, this provision states that only the injured party has the right to ratify a
voidable contracts, either the minor thru their guardian or themselves upon reaching majority age, and
the victims of the vices of consent.

Now, let’s move to ART 1395. Ratification does not require the conformity of contracting party who has
no right to bring the action for annulment.

Inline with Art 1394 where injured parties are the ones who has the right to bring the action for
annulment and ratification, here it states that the consent of the other party or the guilty party is not
require for the ratification to take place. As ratification is a unilateral act by which a party waives the
defect in his consent.

Who are the guilty party? These the ones who entered into contracts with a minor, or those who
employed force, intimidation, fraud, mistake, and undue influence against the injured party to get their
consent for the contract.

To simplify it, the injured party does not need to get the consent of the guilty party in order to ratify the
defect in their consent.
Now, Article 1396 Ratification cleanses the contract from all its defects from the moment it was
constituted.

Here, it tackles about the effect of ratification.

As a general rule, ratification has retroactive effect which makes the contract valid from the time of its
inception.

In relation to Art 1392 and 1396, ratification extinguishes the action to annul the contract, and it
cleanses the contract of its defects from the moment it was constituted.

However, exception to the general rule is that the rule of retroactivity shall not prejudice the rights of
innocent third person, for that will result in injustice which is not the intention of the law.

Example:

Juana who is a minor sold his property to Pedro. The sale is voidable due to Juana’s minority. After
reaching the age of majority, Juana borrowed money from Jose. Disgusted with Jose’s charges of high
interest, Juana ratified the sale he made in a favor of Pedro. Juana’s intention was to avoid paying his
obligation to Jose.

Jose may rescind the sale made by Juana when she was still a minor. The retroactive effect of the
ratification which cleanses the voidable contract of its defect from its inception will not affect or
prejudice the rights of Jose who is an innocent third person.

Article 1397. The action for 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.

As I’ve mentioned earlier in Article 1394, the party who may ratify are also the party who may institute
the action of annulment of contract.

Two requisites are required to confer the necessary capacity for the exercise of the action for
annulment.

1. The plaintiff must have an interest in the contract

With the first requisite, the Supreme Court in leading case, declared:

“From the legal provisions (referring to what are now Articles 1390 and 1397 of the Civil Code) it is
deduced that it is the interest had in a given contract, that is the determining reason of the right which
lies in favor of the party obligated principally or subsidiarily to enable him to bring an action for the
annulment of the contract in which he intervened and therefore he who has no right in contract is not
entitled to prosecute an action for annulment, for according to the precedents established by the courts
the person who is not a party to a contract, or who has no cause of action or representation from those
who intervened therein, is manifestly without right of action and personality such as to enable him to
assail the validity of the contract”

The second requisite, on the other hand, is based on the well known principle of equity that whoever
goes to court must do so with clean hands. Some commentators say that only the party who is
prejudiced can institute the action. This statement, however, is misleading for the simple reason that the
action for annulment is independent of the lesion or damages suffered by the plaintiff. This is clear from
the provision of Article 1390 which states that the contracts enumerated therein in are voidable, even
though there may have been no damage to the contracting parties.

General rule is that, a third person who is a stranger to the contract cannot institute an action for its
annulment. There is however, an exception to this rule. According to Supreme Court, a person who is not
a party obliged principally or subsidiarily under a contract may exercise an action for annulment of the
contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show
detriment which would positively result to him from the contract in which he has no intervention.

Example is the case of DBP VS CA, 96 SCRA 342

FACTS: On March 18, 1955, the DBP's Board of Governors allocated funds for a housing project by
purchasing land in Quezon City. This land was intended for employee housing, with the plan to build
houses and sell them to employees over 20 years. The DBP bought 91,188.30 square meters of land on
October 20, 1955, with a down payment of P400,000. However, doubts arose about the legality of the
acquisition due to Republic Act No. 85. The matter was referred to the Secretary of Justice for an
opinion. In the meantime, a portion of the property was segregated and a separate title issued to PHHC.
Lots 2 and 4, part of the purchased land, became subject to dispute. Despite objections from DBP, PHHC
attempted to sell Lots 2 and 4 to Honesto G. Nicandro. DBP refused to exclude these lots, but PHHC
proceeded with the sale anyway. Although DBP's Chairman objected, the sale went through, and deeds
were prepared for the Nicandros. The DBP attempted to register the sale, but encountered obstacles,
including legal opinions against the sale's validity. Despite these challenges, PHHC signed the deeds of
sale for Lots 2 and 4. Subsequent legal opinions and legislative changes further complicated the
situation. Eventually, the Court of Appeals affirmed the nullification of the sale, citing violation of DBP's
charter. Despite appeals and motions for reconsideration, the decision stood, with no provision for
refunding the purchase price to DBP.

ISSUE:WON rescission of contract requires mutual restitution. Hence, since the respondent spouses are
neither principally nor subsidiarily bound under the sales agreement between the PHHC and the DBP,
they are not in a position to make any restitution on the questioned contract and, consequently, they
have no right to ask for its annulment

RULING:

The standard principle dictates that only those who are directly or indirectly bound by a contract may
pursue its annulment. However, there exists an exception to this rule. As established in Teves v. People's
Homesite and Housing Corporation, a party not obligated under a contract can seek its nullification if
they suffer prejudice due to it, demonstrating the harm they face from an agreement in which they had
no involvement. This exception has been applied in various cases, including Yturralde v. Vagilidad, De
Santos v. City of Manila, and Bañez v. Court of Appeals. In the present case, the respondent spouses
could be adversely affected by their full payment for lots also sold to the petitioner, justifying their
standing to bring legal action. The resolution of this case hinges on the retroactivity of the amendment
to Section 13 of Republic Act No. 85 by Republic Act No. 3147. Therefore, whether the sale to the DBP
was initially void under Section 13 becomes a secondary consideration. The Court of Appeals' decision
not to apply retroactive effect to Republic Act No. 3147 was based on the absence of an explicit
retroactive provision in the amendment. Consequently, the amended section cannot be retroactively
enforced.

Curative statutes, in general, rectify past errors or irregularities, rendering previously ineffective actions
valid. Republic Act No. 3147, enacted amid legal uncertainty surrounding DBP's land acquisition, aimed
to resolve doubts about the legality of the transaction. By amending Section 13, Congress intended to
validate DBP's acquisition of the lots from PHHC for employee housing projects. However, such statutes
cannot impair vested rights. Thus, the crucial question arises: do the respondent spouses possess vested
rights that could be affected by the statutory amendment? Notably, the respondent spouses were
unable to register their deeds of sale, rendering their claimed rights ineffective against third parties.
Registration, under the Torrens system, validates property transfers, and it was the sale to the DBP that
was registered and resulted in the issuance of a transfer certificate of title to the DBP. Consequently, the
respondent spouses did not hold complete and unconditional rights over the property at the time of
Republic Act No. 3147's enactment.

In the course of this case's proceedings, PHHC has been dissolved, and its functions transferred to the
National Housing Authority. Despite the prolonged litigation period, the constitutional right to a speedy
trial necessitates rendering judgment without awaiting the substitution of parties. Hence, the court
reverses the Court of Appeals' decision and dismisses the complaint filed by the respondent spouses.
Additionally, the Development Bank of the Philippines is ordered to reimburse the respondent spouses
for their payments to PHHC concerning the lots, with interest, to be deducted from the property's
purchase price balance. No special pronouncement as to costs is made.

Another example:

Skip sold a piece of land to his nephew Jessa, a minor. One month later, Skip died. Skip’s heirs then
brought an action to annul the sale on the ground that Jessa was a minor and therefore without legal
capacity to contract.

The sale should not be annulled based on the provision of Article 1397. Persons who are capable cannot
allege the incapacity of those with whom they contracted. And two requisites which must concur in
order that a voidable contract may be annulled. 1. That the plaintiff must have an interest in the
contract, and 2. That the victim or the incapacitated party must be the person who must assert the
same. Here, the second requisite is lacking in the instant case.
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.

This provision talks about the effects of annulment of contract.

If the contract is not yet consummated- the contracting parties shall be released from the obligations
arising therefrom

However, if the contract has already been consummated, mutual restitution will take place.

If the obligation is to give, the 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.

If the prestation consisted in obligations to do or not to do, there will have to be an apportionment of
damages based on the value of such prestation with corresponding interest.

Like in recission, the purpose of the law is to restore the parties to their original situation by mutual
restitution. The fruits must be returned because the party who received them had no right to enjoy the
same. The interest must be paid because the party who received the money had no right to use it.

Example:

Skip leased a piece of land for one year, in favor of Jessa, with the land delivered and rent paid in
advance for the full period. And then the contract is annulled after four months.

Jessa has to return the land, but the Skip should not be obliged to return the full amount of rent received
by him but only the corresponding to the unexpired eight months.

In the case of Damasug Vs Modelo, 34 Phil 252

The issue at hand in this legal dispute revolves around the validity of a contract of sale, involving two
parcels of land and a plow carabao. Plaintiff Andrea Dumasug contends that the contract is null and void,
alleging that her consent to the sale was obtained through fraud and deceit by the defendant, Felix
Modelo. On the other hand, Modelo asserts that the contract is legitimate and that he acquired
possession and ownership of the property through it.

The complaint filed by Dumasug's counsel claims that Modelo persuaded her to sign the document
under false pretenses, making her believe it pertained to expenses incurred by him on her behalf.
Dumasug argues that she signed the document without fully understanding its contents due to her
inability to write and that Modelo subsequently took possession of her property without her consent.

In response, Modelo denies the allegations and presents the contract (Exhibit 1) as evidence of the sale,
claiming that Dumasug owed him money for legal expenses related to two lawsuits. He contends that
the sale was made in payment of this debt and was conducted in a lawful manner, with Dumasug's full
knowledge and consent.
The issue is whether Dumasug's consent was obtained under false pretenses

Ruling: Yes. The lower court found Andrea Dumasug's statements to be highly credible and, after careful
consideration of the case, determined that the document she signed around November 1911 pertained
solely to her acknowledgment of owing P101 to Felix Modelo, not to the sale of all her properties.
Dumasug herself mentioned receiving an offer of P120 for her carabao but declined as she relied on it for
her livelihood.

It is evident that Exhibit 1, which Modelo used to claim ownership of the properties, does not
correspond to the debt acknowledgment signed by Dumasug. If it is indeed the same document, its
contents were not properly explained to her during its execution. This fundamental misunderstanding
renders Dumasug's consent null and void under Articles 1265 and 1266 of the Civil Code. The contract is
invalidated because the signer did not truly understand its contents and would not have agreed to it if
she had.

Given the nullity of Dumasug's consent, Exhibit 1 holds no legal value or effect. According to Article 1303
of the Civil Code, upon the nullity of an obligation being declared, the parties must return to each other
the subject matter of the contract along with any benefits derived from it. Modelo is thus obligated to
return the two parcels of land in question with their fruits, or their equivalent value, estimated by the
trial judge at P75.

Regarding the plow carabao, which died while in Modelo's possession, valued at P120, he is obliged
under Article 1307 of the Civil Code to compensate Dumasug for the loss, including interest as indemnity
for the damage caused.

As Modelo has not sought reimbursement for the expenses incurred in defending Dumasug in the Court
of First Instance of Cebu, this matter is not addressed in the current case.

In conclusion, the judgment appealed from is affirmed, and the appellant is ordered to bear the costs of
this instance.