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CHAPTER 6

RESCISSIBLE CONTRACTS

the defendant without the knowledge and


approval of the litigants or of competent
judicial authority;

Art. 1380. Contracts validly agreed upon may be


rescinded in the cases established by law. (1290)
Rescissible Contract those validly agreed upon, all
essential requisites exists and legally effective but in
the case established by law, the remedy of rescission
is grated in the interest of equity.
Rescission equitable remedy granted by law to the
contracting parties and sometimes even to third
persons in order to secure reparation of damages
caused hem by a valid contract, by means of the
restoration of things to their condition prior to the
celebration of said contract.
Requisites of Rescission:
1. The contact must be validly agreed upon.
2. There must be lesion or pecuniary prejudice
or damage to one of the parties or to a third
person.
3. The rescission must be based upon a case
especially provided by law.
4. There must be no other legal remedy to
obtain reparation for damage.
5. The party asking for rescission must be able
to return what he is obliged to restore by
reason of the contract.
6. The object of the contract must not legally
be in the possession of third persons who did
not act in bad faith.
7. The period of filing the action for rescission
must not have prescribed.
Art. 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;
(2) Those agreed upon in representation
of absentees, if the latter suffer the lesion
stated in the preceding number;
(3) Those undertaken in fraud of
creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those which refer to things under
litigation if they have been entered into by

(5) All other contracts specially declared


by law to be subject to rescission. (1291a)
Susceptible for Rescission:
1.
2.
3.

Because of lesion or prejudice


On account of fraud or bad faith.
By special provisions of law.

Cases of Rescissible contracts:


1. Contracts entered into in behalf of words
by reason of some incapacity.
2. Contracts agreed upon in representation of
absentees the absentee must suffer a lesion
by more than of the value of the property
object of the contract to entitle him to the
remedy of rescission.
Absentee a person who
disappears from his domicile, his
whereabouts being unknown, and without
leaving an agent to administer his property
3.

Contracts undertaken in fraud of creditors


with the intention to prejudice the rights of
creditors. Such contracts are usually made
without the knowledge of the creditors
Requisites:
i. There must be an existing
credit prior to the contract
to be rescinded, although
it is not yet due and
demandable later.
ii. The subsequent contract
made by the debtor
conveys a patrimonial
benefit to a third person
iii. There must be fraud on
the part of the debtor
which may be presumed
or proved
iv. If the contract is by
onerous title, the third
person has been a party to
the fraud.
v. If the contract has no other
legal remedy to satisfy his
claim.

4.

Contracts which refer to things under


litigation to secure the payment of an
existing credit of a third person against a
party to a contract sought to be rescinded.

Rescission for breach of


contract
Is not predicated on
injury
to
economic
interests of the party
plaintiff but on the
breach of faith by the
defendant that violates
the reciprocity between
the parties.

Rescission of lesion
Retaliatory in character,
it being unjust that a
party be held bound to
fulfill his promises when
the other violates his.

Art. 1382. Payments made in a state of insolvency


for obligations to whose fulfillment the debtor
could not be compelled at the time they were
effected, are also rescissible. (1292)
-

Obligation referred to are not only those that


have not yet become due and demandable.
But also those which cannot legally be
demanded such as natural obligations and
tose that have prescribed.

Art. 1383. The action for rescission is subsidiary;


it cannot be instituted except when the party
suffering damage has no other legal means to
obtain reparation for the same. (1294)
Art. 1384. Rescission shall be only to the extent
necessary to cover the damages caused. (n)
Subsidiary Liability
- Can be availed of only if the injured party
proves that he has no other legal means
aside from rescinding the contract to obtain
satisfaction for his claim or redress for the
damage caused.
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.
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. (1295)
Mutual Restitution must return to each other the
object of the contract with its fruits and the price
thereof with legal interest.
Status Quo Ante place the parties as far as
practicable in their original situation.
-

When it is no longer possible to return the


object of the contract, an indemnity for
damages operates as restitution.

Rescission not allowed?


1. If the party who demands rescission cannot
return what he is obliged to restore under the
contract
2. If the property is legally in the possession of
a third party who acted in good faith that
the third party acquired and registered it in
ROP unaware of the flaw in his title or mode
of acquisition.
Art. 1386. Rescission referred to in Nos. 1 and 2 of
Article 1381 shall not take place with respect to
contracts approved by the courts. (1296a)
-

The law presumes that the court is acting in


the interests of the ward or absentee when it
approves the contract in spite of the lesion.

Art. 1387. All contracts by virtue of which the


debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of
creditors, when the donor did not reserve
sufficient property to pay all debts contracted
before the donation.
Alienations by onerous title are also presumed
fraudulent when made by persons against whom
some judgment has been issued. The decision or
attachment need not refer to the property
alienated, and need not have been obtained by the
party seeking the rescission.
In addition to these presumptions, the design to
defraud creditors may be proved in any other
manner recognized by the law of evidence. (1297a)
-

Fraud is criminal in nature, it must be


proved by clear and preponderance of
evidence.

Only actual creditors can ask for rescission.


Test: Does it prejudice the right of creditors?
Conveyance of property by an insolvent debtor:
Valid? he may still dispose of his property for a
valuable consideration in good faith.
- BUT he will not be permitted to alienate his
property and place it in a position where it is
not subject in behalf of his creditors, unless
there had been received a full and dair
consideration, and the transfer has been
made in good faith.
Art. 1388. Whoever acquires in bad faith the
things alienated in fraud of creditors, shall
indemnify the latter for damages suffered by them
on account of the alienation, whenever, due to any
cause, it should be impossible for him to return
them.
If there are two or more alienations, the first
acquirer shall be liable first, and so on
successively. (1298a)
Bad faith it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong. It
means breach of known duty though some motive or
interest or ill-ill. It partakes of the nature of fraud.
Purchaser in Good Faith one who buys the property
of another w/o notice that some other person has a
right to, or interest in, such property and pays a full
and fair price for the same, at the time of such
purchase, or before he has notice of the claim or
interest of some other person in the property.
Art. 1389. The action to claim rescission must be
commenced within four years.
For persons under guardianship and for
absentees, the period of four years shall not begin
until the termination of the former's incapacity, or
until the domicile of the latter is known. (1299)
Prescription Period:
GR: commenced within 4 years from the date the
contract was entered into.
XPN:
1.
2.

Under guardianship commence from the


termination of incapacity.
Absentees the time the domicile is known.

Laches bar and action for rescission or annulment


of a contract.
Rescission = Action of Last Resort.
- When the creditor discovers that he has no
other legal remedy for the satisfaction of his
claim against the debtor other than an accion
pauliana to rescind the conveyance to a third
person.
Who may bring the action for rescission?
1. Injured party or defrauded creditor
2. Heirs, assigns, or successors in interest
3. The creditors of the above entitled to
subrogation