Ch. 10 - Rescissible Contracts Flashcards
Enumerate kinds of defective contracts
- Rescissible contracts;
- Voidable contracts;
- Unenforceable contracts; and
- Void and inexistent contracts
(Art. 1380) Contracts validly agreed upon may be
rescinded in the cases established by law
What is a rescission?
is a remedy granted by law to contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by restoration of things to their condition at the moment prior to the celebration of the contract. It implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to someone
What is the effect of rescission
has the effect of “unmaking a contract, or its undoing from the beginning, and not merely its termination”
Distinguish cancellation of contract and rescission
To rescind is to declare a contract void in its inception and to put an end to it as though it never were. The termination or cancellation of a contract would necessarily entail enforcement of its terms prior to the declaration of its cancellation in the same way that before a lessee is ejected under a lease contract, he has to fulfill his obligations thereunder that had accrued prior to his ejection.
Distinguish Rescission from resolution
Rescission is a subsidiary action based on injury to the plaintiff’s economic interests. Resolution, on the other hand, is based on the defendant’s breach of faith, a violation of the reciprocity between the parties.
Rescission under Art. 1191 prescribes in
10 years
Rescission under Art. 1381 must be commenced within
4 years
(Art. 1381) The following contracts are rescissible:
- 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;
- Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;
- Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;
- Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority;
- All other contracts specially declared by law to be subject to rescission
Rescissible contracts, not being void, they remain
legally effective until set aside in a rescissory action and may convey title
Who is a ward?
A person, usually a minor, who is under a guardian’s charge or protection
Who is an absentee?
A person who disappears from his domicile, his whereabouts being unknown, and without leaving an agent to administer his property.
(Art. 1382) Are payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the same time they were effected rescissible?
Yes they are rescissible
(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
What is a subsidiary remedy?
has been defined as “the exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is resorted to”
(Art. 1384) Rescission shall be only to the
extent necessary to cover the damages caused
Rationale behind Art. 1384
This is because the purpose of rescission is to repair the damages 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;
(Art. 1385) Consequently, rescission can be carried out only
when he who demands rescission can return whatever he may be obliged to restore
(Art. 1385) 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
(Art. 1385) When it is no longer possible to return the object of the contract, or when it is in possession of a third party who did not act in bad faith then,
an indemnity for damages may be demanded from the person causing the loss and operates as restitution
What is a mutual restitution?
Entails the return of the benefits that each party may have received as a result of the contract. This means bringing the parties back to their original status prior to the inception of the contract.
(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
(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
(Art. 1387) 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
(Art. 1387) In addition to these presumptions, the design to defraud creditors may be proved in
any other manner recognized by law of evidence
What is accion pauliana?
The action to rescind contracts in fraud of creditors
The following requisites must be present for accion pauliana to occur:
- The plaintiff asking for rescission has a credit prior to alienation, although demandable later;
- The debtor has made a subsequent contract conveying a patrimonial benefit to a third person
- The creditor has no other legal remedy to satisfy his claim;
- The act being impugned is fraudulent; and
- The third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud
Presumption of fraud is
not conclusive
(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.
(Art. 1388) If there are two or more alienations,
the first acquirer shall be liable first, and so on successively
(Art. 1389) The action to claim rescission must be commenced within four years except for persons under guardianship which is
Within four years from the time of the termination of the incapacity of the ward
(Art. 1389) The action to claim rescission must be commenced within four years except for absentees which is
Within four years from the time the domicile of the absentee is known
