CHAPTER 6 - RESCISSIBLE CONTRACTS (ART 1380- - 1389) Flashcards
What are the four defective contracts?
- Rescissible contract.
- Voidable contract.
- Unenforceable contract.
- Void contract.
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
Rescissible contract
Requisites of Rescissible Contracts
- Must be valid
- Lesion or economic prejudice (financial disadvantage)
- Mutual restitution
Person under guardianship
Ward
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.
Guardian
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?
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)
A person who disappears from his domicile, his whereabouts being unknown, and without leaving an agent to administer his property.
Absentee
What are the following rescissible contracts?
- 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.
- 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.
- Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them.
- 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,
- All other contracts specially declared by law to be subject to rescission.
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?
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)
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?
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)
What are the other contracts declared by law?
- Art. 1098 – partition
- Art. 1189 – result of deterioration
- Art. 1526 and 1534 – right given to an unpaid seller
- Art. 1539 – sale of real estate
What are the requisites under premature payment made in the state of insolvency?
- The debtor is insolvent.
- The obligation is not yet due and demandable.
- The debtor makes the payment.
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?
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
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.
Rescission
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.
Rescission
What are the characteristics of rescissible contracts?
- Their defect consists in injury or damage either to one of the contracting parties or to a third person.
- They are valid before rescission
- They can be attacked directly only, and not collaterally
- They can be attacked only either by a contracting party or by a third person who is injured or defrauded.
- They can be convalidated only by prescription, and not ratification.
Rescission can be availed of only after you have exhausted all remedies.
True or False?
True
Requisites for Rescission
- The party suffering damage must have no other legal means to obtain reparation for the same.
- The party demanding rescission must be able to return whatever he may be obliged to restore.
- The thing object of the contract must not be legally in the possession of a third person who acted in good faith.
- The action for rescission must be brought within the period allowed by law.
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?
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.
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?
True
However, the obligation to return does not apply to prejudiced creditors as there is nothing to be returned by them.
True or False?
True
In fraud of P’s creditor, he sold his land in favor of G. May the sale in favor of G be rescinded?
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
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?
Indemnity for damages may be demanded from the person causing the loss
What are the two alienations in fraud of creditors?
- Alienations by gratuitous title
- Alienations by onerous title (such as sale or exchange)
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.
Alienations by gratuitous title
D owes his creditors 500,000. He has assets of 700,000. If D donates assets amounting to 300,000, what is the presumption?
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
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?
No, Art. 1387 is not applicable
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.
Alienations by onerous title (such as sale or exchange)
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?
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.
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?
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”.
Judgment has been rendered against P. P sold his property to G. Is the sale presumed fraudulent?
Yes
However, if before judgment, P sold his property, then there are no presumption that it is fraudulent
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?
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)
If the purchase was made in bad faith, what is the effect?
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.
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?
True
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?
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).
- If the purchase was made in good faith, what is the effect?
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.
The prescriptive period is four (4) years from the date of the contract, except in what following?
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.
