RESCISSIBLE CONTRACTS

A Rescissible contract is valid until rescinded. Those which have

caused a particular economic damage either to one of the parties or to a third
person and which may be set aside even if valid. It may set aside in whole or
in part, to the extent of damage caused.

Article 1380. Contracts validly agreed upon maybe rescinded in the cases
established by law.

RESCISSION defined:

SCAEVOLA;

“Rescission is a process designated to render inefficacious a contract validly

entered into and normally binding, by any reason of external conditions,
causing an economic prejudice to a party or to his creditors.’’

MANRESA:

“Rescission is a remedy granted by law to the contracting parties both to the

contracting parties and to third persons in order to secure reparation of
damages caused them by a contract, even if the contract be valid, by means of
the restoration of things to their condition prior to the celebration of said
contract.’’

SUPREME COURT:

“it is a relief to protect one of the parties or a third person from all injury or
damages which the contract may cause, to protect some preferential right.”
(Aquino v. Tañedo, Phil. 517)

“To rescind is to declare a contract void at its inception and to put an end to it
as though it never was. It is not merely to terminate it and release the parties
from further obligations to each other, but to abrogate it from the beginning
and restore the parties to their relative positions as if no contract has been
made (citing Ocampo v. Court of Appeals, 233 SCRA 551, June 30, 1994).”
 REQUISITES FOR RESCISSION:

 There must be at the beginning either a valid or a voidable contract (not a void
one)
 But there is an economic or financial prejudice to someone (a party or a third
person)
 Requires mutual restitution.

TWO KINDS OF RESCISSION:

 The recission mentioned in Art. 1380 of the New Civil Code. Properly
speaking, “recission.”
 The recission mentioned in Art. 1191 of the New Civil Code used the term
“recission,” the term, properly speaking, should be “resolution.”

RESOLUTION RESCISSION
ART. 1191 ART. 1380

 Based on non-performance or  Based on lesion or fraud

non-fulfillment of the obligation
 The action may be instituted
only by the injured party to the
contract
 In some cases, the court may
grant a term
 Non-performance by the other
party is important.
 The action is instituted by
either if the contracting parties or
by third person
 The courts cannot grant a
period or term within which to
comply
 Non-performance by the other
party is immaterial

Q: Suppose the parties to a contract mutually agreed to cancel the contract,

is this “rescission” properly so-called?

A: No. Of course, in a loose sense “rescission” may be used here. But

strictly speaking, this is “mutual backing out,” and not the rescission referred
to in Article 1380 of the New Civil Code. In mutual withdrawal, it is the will
of the parties that constitutes the basis, whereas in rescission (properly called),
it is the law that constitutes the basis.

CASES
  Legarda Hermanos v. Suldano (L-26578, Jan 28, 1974)
 Aquino v. Tañedo, 39 Phil. 517
 Luneta Motor Co. v. J.B. Richey
 Noble v. City of Manila, 67 Phil. 1

RESCISSIBLE CONTRACT FROM A VOID CONTRACT

A rescissible contract is not void; it is valid until rescinded. Thus, in the

meantime, it can convey title. Moreover, a rescissible contract cannot be
attacked collaterally (incidentally) upon the grounds for rescission in the
course of a land registration case. (A direct action to rescind is required.) To
avoid injustice, however, the court may allow the aggrieved party to register
his reservation of the right to rescind. The reservation may in fact be noted on
the certificates of title. (Borja v. Addison, 44 Phil. 895)

FICTITIOUS CONTRACT

Q: Is Rescission the proper remedy for a party who wants to rescind a

fictitious contract?

A: No, rescission id not the proper remedy because while the contract here
is fictitious and, therefore, null and void, rescission presupposes a valid
contract. (Onglengco v. Ozaeta & Hernandez, 70 Phil. 43)

RIGHT OF FIRST REFUSAL

Right of first refusal is a contractual term giving its holder the option to
buy or sell something before the owner is allowed to buy or sell the same item
to a third party.

A contract of sale entered into in violation of a right of first refusal of

another person, while valid, is rescissible.

EFFECTS OF RESCISSION

Rescission does not just merely terminates the contract and release the
parties from further obligations to each other. Additionally, rescission
abrogates the contract from its inception and restores the parties to their
original positions as if no contract has been made. (Gotesco Properties, Inc. v.
Fajardo, 692 SCRA 319)

Q: Is the remedy of rescission subsidiary in nature?

A: Yes, for it cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same. (Anchor Savings
[formerly Anchor Finance & Investment Corp.] v. Furigay, 693 SCRA 384)