CHAPTER 6 - RESCISSIBLE CONTRACTS (ART 1380- - 1389)

Question 1

What are the four defective contracts?

Answer 1

1. Rescissible contract.
2. Voidable contract.
3. Unenforceable contract.
4. Void contract.

Question 2

Is one which has all the essential requisites of a contract but which may be set aside by reason of equity on account of damage to one of the parties or upon a third person

Answer 2

Rescissible contract

Question 3

Requisites of Rescissible Contracts

Answer 3

1. Must be valid
2. Lesion or economic prejudice (financial disadvantage)
3. Mutual restitution

Question 4

Person under guardianship

Answer 4

Ward

Question 5

Is a person who has custody of the person and property, or of property only, of another person who, not being under parental authority, is incapable of taking care of himself.

Answer 5

Guardian

Question 6

G, the guardian, of M, sold the corn harvested from M’s farm for 40,000. The value of the corn is 60,000. Is the sale rescissible?

Answer 6

Yes, the sale is rescissible because the lesion of 20,000 is more than 1/4 of 60,000, or 15,000.

Those entered into by guardians whenever the ward whom they’ represent suffer lesion by more than one-fourth of the value of the things which are the object thereof. (Art. 1381)

Question 7

A person who disappears from his domicile, his whereabouts being unknown, and without leaving an agent to administer his property.

Answer 7

Absentee

Question 8

What are the following rescissible contracts?

Answer 8

1. Those entered into by guardians whenever the ward whom they’ represent suffer lesion by more than one-fourth of the value of the things which are the object thereof.
2. Those agreed to in representation of absentees; if the latter suffer lesion by more than one-fourth of the value of the things which are the object thereof.
3. Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them.
4. Those which refer to things under litigation it they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority,
5. All other contracts specially declared by law to be subject to rescission.

Question 9

D owes C. To defraud C, D sells his only lot to T who knows of the fraudulent intention of D. Is the sale rescissible?

Answer 9

Yes, the sale is rescissible. However, the sale is not rescissible if T was in good faith, i.e., he was not aware of D’s fraudulent intention when he bought the property.

Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them. (Art. 1381)

Question 10

C sued D to recover some pieces of jewelry. While the case was pending, D, without authority from the court or from C, sold the jewelry to T who was aware that the jewelry was the subject of litigation. Is the sale rescissible?

Answer 10

Yes, the sale is rescissible

Those which refer to things under litigation it they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority. (Art. 1381)

Question 11

What are the other contracts declared by law?

Answer 11

• Art. 1098 – partition
• Art. 1189 – result of deterioration
• Art. 1526 and 1534 – right given to an unpaid seller
• Art. 1539 – sale of real estate

Question 12

What are the requisites under premature payment made in the state of insolvency?

Answer 12

1. The debtor is insolvent.
2. The obligation is not yet due and demandable.
3. The debtor makes the payment.

Question 13

A owes X 50,000 and Y for 50,000. In X, the debt is due on August 12, 2020. And the debt to Y is due on March 20, 2020. Suppose that A is insolvent. If A pays X on March 20, 2020, when debt to X is not yet due. Can it be rescinded? Who will have the right to rescind?

Answer 13

Yes, the law says that the payment may be rescinded by X. By X because it is a pre-mature payment and it will disadvantage Y because the debt of Y is the one that is due and demandable

Question 14

Is the remedy allowed by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if it should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract.

Answer 14

Rescission

Question 15

It is a remedy to make ineffective a contract, validly entered into and therefore obligatory under normal conditions, by reason of external causes resulting in a pecuniary prejudice to one of the contracting parties or their creditors.

Answer 15

Rescission

Question 16

What are the characteristics of rescissible contracts?

Answer 16

1. Their defect consists in injury or damage either to one of the contracting parties or to a third person.
2. They are valid before rescission
3. They can be attacked directly only, and not collaterally
4. They can be attacked only either by a contracting party or by a third person who is injured or defrauded.
5. They can be convalidated only by prescription, and not ratification.

Question 17

Rescission can be availed of only after you have exhausted all remedies.

True or False?

Answer 17

True

Question 18

Requisites for Rescission

Answer 18

1. The party suffering damage must have no other legal means to obtain reparation for the same.
2. The party demanding rescission must be able to return whatever he may be obliged to restore.
3. The thing object of the contract must not be legally in the possession of a third person who acted in good faith.
4. The action for rescission must be brought within the period allowed by law.

Question 19

G, guardian, sold 100 sacks of rice harvested from the farm of M, his ward, for 700 per sack, or a total price of 70,000 to B. However, the value of each sack is 1,000, or total value of 100,000. How much should be rescinded?

Answer 19

The rescission of the sale of 30 sacks of rice is sufficient to cover the damage of 30,000 (which is more than one-fourth of the total value of 100,000.00. Thus, B must return 30 sacks of rice to M, while the sale 70 sacks which is equivalent to 70,000 (70 sacks x 1,000) will remain.

Question 20

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. Hence, rescission is not available if the party seeking it cannot comply with such obligation.

True or False?

Answer 20

True

Question 21

However, the obligation to return does not apply to prejudiced creditors as there is nothing to be returned by them.

True or False?

Answer 21

True

Question 22

In fraud of P’s creditor, he sold his land in favor of G. May the sale in favor of G be rescinded?

Answer 22

 It depends upon whether G is in good faith or bad faith
 If G acted in good faith, her right is protected and the contract cannot be rescinded
 If G acted in bad faith, rescission can be made

Question 23

In fraud of P’s creditor, he sold his land in favor of G. If the sale cannot be rescinded because G acted in good faith. Therefore, the creditors cannot rescind the contract, what is their remedies?

Answer 23

 Indemnity for damages may be demanded from the person causing the loss

Question 24

What are the two alienations in fraud of creditors?

Answer 24

1. Alienations by gratuitous title
2. Alienations by onerous title (such as sale or exchange)

Question 25

These are presumed to have been entered into in fraud of creditors if the debtor did not reserve sufficient property to pay all debts contracted before the donation.

Answer 25

Alienations by gratuitous title

Question 26

D owes his creditors 500,000. He has assets of 700,000. If D donates assets amounting to 300,000, what is the presumption?

Answer 26

Such donation is presumed fraudulent because it leaves D with assets of only P400,000.00, which amount is not enough to pay his debts of P500,000.00

Question 27

P donated his entire properties to G without reserving any for the payment of his debts. Later, P incurred debts after donation. Can presumption in Art. 1387 be applied?

Answer 27

No, Art. 1387 is not applicable

Question 28

These are presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking rescission.

Answer 28

Alienations by onerous title (such as sale or exchange)

Question 29

D owes C 100,000. When D defaults, C sues him and obtains a favorable judgment against him. If D sells properties, say to T, what is the presumption?

Answer 29

The sale is presumed fraudulent because it was made by D who has a decision rendered against him. C or any other creditor may ask for the rescission of the sale.

Question 30

C files a complaint against D to collect 100,000. He asks the court to attach a lot of D (Lot 1). The court issues a writ of attachment. Later, D sells another lot of his (Lot 2) to T. What is the presumption?

Answer 30

The sale of Lot 2 is presumed fraudulent because it was made by D against whom a writ of attachment has been issued.

X, another creditor of D, may sue for the rescission of the sale of Lot 2. This is possible because the law says that “(T)he decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking rescission”.

Question 31

Judgment has been rendered against P. P sold his property to G. Is the sale presumed fraudulent?

Answer 31

 Yes
 However, if before judgment, P sold his property, then there are no presumption that it is fraudulent

Question 32

Creditor file a case against P, and obtained favorable judgment. Later on, P sold his property to G. B, another creditor of P, wants to rescind the contract of sale between P and G. P and G then claim that B has no right to rescind the contract after all she is not the judgment creditor. Is P and G’s claim valid?

Answer 32

 No, P and G are not justified
 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)

Question 33

If the purchase was made in bad faith, what is the effect?

Answer 33

The purchaser in bad faith shall indemnify the creditors for damages suffered by them on account of the alienation whenever due to any cause, it would be impossible for him to return them.

This rule applies even if the cause of the loss is a fortuitous event.

Question 34

If there are two or more alienations, the first acquirer shall be liable first, and so on successively provided they are also in bad faith.

 If it is impossible to return, then he is liable for damage

True or False?

Answer 34

True

Question 35

In fraud of his creditors, P sold his property in favor of G. G is also in bad faith. G then transfer the property in favor of B. Defrauded creditors file for rescission of the contract, and the contract was rescinded. However, the property is damage by fire and cannot be returned. Who is liable to pay for damages?

Answer 35

 Here, G is the first person who is liable for damages
 If G cannot pay for damages, B will be liable (B is the subsequent transfer)
 If there are two or more alienations, the first acquirer shall be liable first, and so on successively provided they are also in bad faith. (Art. 1388).

Question 36

2. If the purchase was made in good faith, what is the effect?

Answer 36

The purchaser in good faith shall not be liable notwithstanding the fraudulent intention of the debtor in disposing the property. Hence, rescission will not be available. If there are subsequent transfers, the transferees shall not be liable even if they were in bad faith.

Question 37

The prescriptive period is four (4) years from the date of the contract, except in what following?

Answer 37

a. For persons under guardianship - Four (4) years from termination of incapacity.
b. For absentees - Four (4) years from the time the absentee’s domicile is known.