Obligations and Contracts TITLE II Contracts Chapter 6 Rescissible Contracts 4 types of Defective contracts 1. Rescissible ca!

sed a particular damage to one of the parties or to a third person" and #hich for e$!itable reasons %ay be set aside even if it is valid &. Voidable or Annullable consent of one party is defective either beca!se of #ant of capacity or beca!se it is vitiated" b!t #hich contract is valid !ntil set aside by a co%petent co!rt '. Unenforceable for% so%e reason cannot be enforced" !nless it is ratified in the %anner provided by la# 4. Void or inexistent an absolute nullity and prod!ces no effect" as if it had never been e(ec!ted or entered into ). Relatively ineffective ineffective only #ith respect to certain parties b!t are effective as to other persons a. *ssign%ent of the lease by the lessee #itho!t consent of lessor+ ineffective only for lessor b. Transfer of debt by debtor to another #itho!t consent of creditor+ ineffective as to creditor c. ,ay%ent by debtor to his creditor after credit has been attached by a third party+ ineffective as to third party -oidable vs. relatively ineffective . -oidable beco%es inoperative O/L0 #hen there is an action to ann!l it is instit!ted . Ineffectiveness of relatively ineffective contracts are prod!ced ipso 1!re -oid vs. relatively ineffective . Ineffectiveness of void contracts is absol!te" cannot be ratified . Relatively ineffective can be %ade co%pletely effective thro!gh the consent of the person to #ho% it is ineffective OR by cessation of i%pedi%ent preventing co%plete effectiveness *rticle 1'23 Contracts validly agreed !pon %ay be rescinded in the cases established by la# Rescission . Re%edy granted by la# to contracting parties and 'rd persons

To sec!re the reparation of da%ages ca!sed to the% by a contract 4even if valid5 . 6y %eans of restoration of things to their condition at the %o%ent prior to the celebration of the said contract . ,rotection of+ o Contracting parties and third persons fro% all in1!ry and da%age ca!sed by contract o 7o%e inco%patible preferent right created by contract o I8,LIE7 that even if contract is initially valid" b!t it prod!ces a lesion or pec!niary da%age to so%eone Lesion in1!ry s!ffered as a conse$!ence of ine$!ality . Sets aside the act or contract for justifiable reasons of equity . /at!re+ valid and voidable contracts %ay be rescinded . Different fro% 8!t!al dissent 4both parties agree to cancel contract and %!t!ally ret!rn the ob1ect and the ca!se5 o ,resent article does not refer to contracts rescinded by %!t!al consent for the %!t!al convenience of the parties o 7i%ply another contract for the dissol!tion of the previo!s and its effects . Rescission of obligations /OT the sa%e as rescission of contracts o In Reciprocal Obligations 1191 states that po#er to rescind obligations is i%plied in reciprocal ones #hen one of the obligors does not co%ply #ith #hat is inc!%bent !pon hi% Rescissible obligations Rescissible Contracts ,res!ppose contracts validly entered into and e(isting :vs. ann!l%ent #here there is a defect #hich vitiates the contract; 6oth re$!ire %!t!al restit!tion #hen declared po#er 1191 %ay be de%anded only by 8ay be de%anded only by a third a party to the contract party pre1!diced by the contract 8ay be denied by the co!rt #hen <!stified e(tension of ti%e /OT a there is s!fficient 1!stification to reason e(tend ti%e for perfor%ance Only gro!nd for rescission+ /O/. -ario!s reasons of e$!ity as perfor%ance gro!nds *pplies only to reciprocal *pplies to !nilateral or reciprocal obligations #herein one party has obligations and even #hen not perfor%ed contract has been f!lly f!lfilled Re$!isites 4%!st al#ays conc!r before rescission5

1. 8!st be a rescissible contract %entioned in 1'21 and 1'2& &. ,arty as=ing for rescission %!st have no other legl %eans to obtain reparation for da%ages s!ffered by hi% 1'2' '. ,arty de%anding rescission %!st be able to ret!rn #hatever he %ay be obliged to restore if rescission is granted 1'2) 4. Things #hich are the ob1ect of the contract %!st not have passed legally to the possession of a third person acting in good faith 1'2) ). *ction for rescission %!st be bro!ght #ithin prescriptive period of 4 yrs 1'29 Direct proceedings to Rescind+ . Rescissible contracts *RE /OT -OID> !ntil set aside in a rescissory action" they are legally effective" convey title" and cannot be attac=ed collaterally. . o#ever" in 1!stice to the party #ho #o!ld be entitled to as= for rescission" co!rt %ay e(pressly reserve s!ch right of rescission so that s!ch rescission%ay be noted !pon in the certificate of title. *rticle 1'21 The follo#ing contracts are rescissible+ 1. Those #hich are entered into by g!ardians #henever the #ards #ho% they represent s!ffer lesion by %ore than one fo!rth of the val!e of the things #hich are the ob1ect thereof> &. Those agreed !pon in representation of absentees" if the latter s!ffer the lesion stated in the preceding n!%ber> '. Those !nderta=en in fra!d of creditors #hen the latter cannot in any other %anner collect the clai%s d!e the%> 4. Those #hich refer to things !nder litigation if they have been entered into by the defendant #itho!t the =no#ledge and approval fo the litigants or of co%petent 1!dicial a!thority> ). *ll other contracts specially declared by la# to be s!b1ect to rescission * -*LID contract can be rescinded only for LE?*L C*@7E Contracts #ith LE7IO/ . ,aragraphs 1 and & of the article+ rescissible if the party represented s!ffers lesion by more than one-fourth of the value of the things #hich are the ob1ects of the contracts . Lesion+ in1!ry #hich one of the parties s!ffers by virt!e of a contract #hich is disadvantageo!s for hi% o 8!st be =no#n or co!ld have been =no#n at the ti%e of %a=ing the contract

8!st not be d!e to circ!%stances s!bse$!ent thereto or !n=no#n to the parties ,rice is less than the tr!e val!e of the thing at the ti%e of perfection of the contract o Deter%ination and appreciation is diffic!lt beca!se of the s!b1ective character o Idea is to establish parity bet#een the val!e of the thing and its price Cases of lesion in the code+ o 1&21 o 1392 on partition of inheritance o 1)'9 on sales o 1)4& on sales o

?!ardians 415 . *!thoriAed only to manage/administer the estate of his #ard> no po#er to dispose of any portion ithout the approval of the court . The re$!isites" proced!re and co!rt approval as provided in R!les of Co!rt for sale! mortgage or other encumbrance of real estate are indispensable o If not co%plied #ith" contract is @/E/BORCE*6LE !nder 143' o @nenforceable+ contracts entered into in behalf of another #itho!t the otherCs consent 4itCs ratifiable5 . ,resent article li%ited to contracts of g!ardians constit!ting administration o E(. ,!rchase of e$!ip%ent to c!ltivate far%> sale of harvest o Do not re$!ire co!rt approval beca!se %ade in the ordinary co!rse of estate %anage%ent o If lesion e(ists D rescissible> o Even if lesion e(ists D contract cannot be rescinded IB g!ardian has sec!red approval of the g!ardianship co!rt for s!ch contract 7a%e #ith contracts entered into by legal reps of an absentee4&5 appointed by co!rt" #ithin his po#ers and d!ties In fra!d of creditors 4'5 . Contracts e(ec!ted #ith the I/TE/TIO/ TO ,RE<@DICE rights of creditors . 7ho!ld not be conf!sed #ith those entered into #itho!t s!ch intention" even if there #as da%age ca!sed to creditor

To deter%ine intention+ o 1'2E alienation by grat!ito!s title" by onero!s title #hen %ade by person against #ho% so%e 1!dg%ent has been %ade rendered or #rit of attach%ent iss!ed" and any other %anner !nder la# of evidence o 6y proofs presented in the trial o Re%ission of credits

*ccion ,a!liana . Rescissory action to set aside contracts in fra!d of creditors *ccion ,a!liana vs. declaration of si%!lated or fictitio!s contract . accion pa!liana cannot be bro!ght #hen debt is not yet d!e and de%andable o *ccion pa!liana pres!pposes a 1!dg%ent and an !nsatisfied e(ec!tion of that 1!dg%ent o Rescission is 7@67IDI*R0+ pres!pposing that the creditor already e(ha!sted the estate of the debtor . *vailable #hen alienation occ!rs before the credit #as constit!ted" beca!se the debtor ,@R,O7EL0 and in 6*D B*ITF deprives hi%self of the ability to %eet the obligations he intends to inc!r in the f!t!re o 7!ch alienation can be rescinded if deter%ined+ *lienation #as %ade precisely in vie# of f!t!re obli 8ade for the p!rpose of depring in advance the creditor of the g!aranty ,a!liana 7i%!lated Real alienation 8ere pretense of alienation> no real alienation Can be alleged O/L0 by Can be alleged by *LL creditors 6EBORE the act of creditors" before or after the alienating property in fra!d act of creditors Re$!ired+ i%possible to /ot re$!ired that it is satisfy the clai% of the i%possible for creditor to creditor.plaintiff satisfy clai% *ction to set aside a -*LID /ot to set aside the contract si%!lated contract b!t to DECL*RE it as ine(istent Re$!isites of Rescission of contracts in fra!d of creditors+

1. ,laintiff as=ing for rescission has a credit ,RIOR to the alienation" altho!gh de%andable later o EGCE,TIO/+ ,arties #ho appear to be creditors after the alienation b!t %ay already be considered as having a prior right and entitled to the accion pa!liana 1. Those #hose clai%s #ere ac=no#ledged by the debtor after the alienation" b!t the origins of #hich antedated the alienation> recognition does not give rise to the credit %erely confir%s e(istence &. those #ho beco%e s!brogated in the rights of the creditors after alienation> the rights of creditors being %ade prior to the alienation b!t s!brogation occ!rs after o Debtor does not o#e 1!st any person #ho files a s!it against hi% o Even 7EC@RED creditors or lienholders are entitled to pa!liana o Hhere an estate in the co!rse of ad%inistration" appears to be insolvent" any creditor #ho believes that a conveyance of property e(ec!ted d!ring lifeti%e of the decedent #as %ade in fra!d of creditors" %ay bring an action to recover property th!s fra!d!lently conveyed o Hitho!t prior e(isting debts" there can be neither in1!ry or fra!d o Credit %!st be e(isting at the ti%e of the fra!d!lent alienation" even if it is not yet d!e o 6!t at the ti%e accion pa!liana is bro!ght" credit %!st already be d!e o Date of 1!dg%ent enforcing accion pa!liana is i%%aterial beca!se it is %erely declaratory and retroactive to the date #hen the credit #as constit!ted o Bor $!asi delicts" the act or o%ission #hich res!lted to the liability for inde%nification %!st have happened 6EBORE the alienation" even if 1!dg%ent declaring it rendered co%es after#ard &. Debtor %ade a s!bse$!ent contract conveying a patri%onial benefit to a third person '. Creditor has no other legal re%edy to satisfy his clai% b!t #o!ld benefit fro% the rescission of the conveyance to the third person

/ECE77*R0 for creditors to prove that they C*//OT RECO-ER in any other %anner fro% the debtor #hat is d!e the% o *lienation %!st have been pre1!dicial to the% in s!ch a #ay that it %ade the debtor I/7OL-E/T or has di%inished property of debtor to an e(tent that debtor cannot pay his debt 4. *ct being i%p!gned is fra!d!lent o 8!st be sho#n that the conveyance #as fraudulent " ith intent to prejudice creditors o The fra!d %ay be established by+ ,res!%ption 1'2E credit %!st still prove facts sho#ing act!al fra!d!lent intent of the debtor Bro% the #hole of the evidence # If the case is not one #hich the la# establishes a pres!%ption of fra!d" creditor bringing action 8@7T prove via co%petent evidence the e(istence of s!ch fra!d o Hitho!t proof of fra!d!lent intent" contract cannot be rescinded o /ot fra!d+ #hen the sale #as %ade to one of the creditors of the debtor to settle his debt #ith that creditor o /ot fra!d+ #hen sale #as %ade #ith s!fficient consideration IB there is no 1!dg%ent or attach%ent against the debtor o Test of Bra!d+ Does it pre1!dice the rights of creditorsI 6ona fide transactionI Or tric= and contrivance to defeat creditorsI Does it conserve to the debtor a special rightI /o need to re$!ire intent to ca!se da%age to creditors> s!fficient that debtor J/EH his action #o!ld pre1!dice and ca!se da%age creditors beca!se he =ne# of his insolvency and his property cannot be alienated #itho!t ca!sing evident in1!ry to creditors #ith e(isting clai%s" #hether alienation #as grat!ito!s or onero!s o 7igns of Bra!d set do#n by co!rts+ 1. Consideration of conveyance is inade$!ate &. Transfer %ade by a debtor after s!it has beg!n and pending against hi% o

'. 7ale !pon credit by an insolvent debtor 4. Evidence of large indebtedness or co%plete insolvency ). Transfer of all or nearly all of his property by a debtor especially #hen he is insolvent 6. Transfer is %ade bet#een father and son #hen above circ!%stances are present E. Bail!re of vendee to ta=e e(cl!sive possession of all the property ). Third person #ho received property IB by onero!s title is an acco%plice in the fra!d o Transferee ?rat!ito!s good faith of transferee i%%aterial beca!se he gave nothing so he #onCt be pre1!diced by the rescission Onero!s transferee %!st be a party to the fra!d for the rescission to ta=e place> if he acted in good faith" then he is in the sa%e position as creditor and alienation cannot be rescinded beca!se he is in possession of his ac$!isition 6enefit . & vie#s+ 1. @pon rescission" property #ill be reverts to the patri%ony of the debtor !nder its original liability as a legal g!aranty to debtorCs obligations &. ,roperty sho!ld /OT reverted to the debtor /OR be converted to a general sec!rity of all creditors relative effect of benefitting only that creditor #ho bro!ght action" to the e(tent of his creditKto the e(tent he #as pre1!diced '. Tolentino 8IDDLE ?RO@/D+ . ?en R!le+ sho!ld benefit only the creditor #ho bro!ght action for rescission" #hich is 1!stified by 1'24 . If there is anything left after satisfying the clai% of the creditor #ho bro!ght action" other creditors can then be given benefit of rescission" #itho!t re$!iring the% to bring a separate action Contracts on Things in Litigation 4paragraph 45 . Contract e(ec!ted by defendant in a s!it involving the o#nership or possession of a thing" #hen s!ch contract is %ade HITFO@T J/OHLED?E and *,,RO-*L of plaintiff OR of the court . Li=e in cases of fra!d of creditors" re%edy of rescission in this case is given to third persons not a party to the contract

. . .

In fra!d of creditors+ personal right is protected by giving s!ch right 4right of creditor to his credit against debtor5 a g!aranty in the for% of the debtorCs property In litigation+ real right is rendered effective #ith respect to the o#nership of the partic!lar property Transferee o Cannot be deprived of property by rescission #hen+ clai% pending and not yet registered> there is nothing in the land registry sho#ing legal obstacles to the transfer> transferee ac$!ires property in good faith and val!able consideration> and ac$!ired #itho!t =no#ledge or notice of the litigation pending 4first b!llet5 o If transferee =ne# of the clai% either act!ally or constr!ctively thro!gh registry" D bad faith> transfer can be rescinded o If transfer grat!ito!s " transferee loses nothing by rescission> contract %ay be rescinded. Right of the plaintiff #hich #as prior to the transferee sho!ld prevail

Creditor does not need a 1!dg%ent or e(ec!tion to rescind

*rticle 1'2' The action for rescission is s!bsidiary> it cannot be instit!ted e(cept #hen the party s!ffering da%age has no other legal %eans to obtain reparation for the sa%e ,laintiff as=ing for rescission 8@7T ,RO-E that he has no other legal %eans> if he doesnCt sho# this" he is not entitled to rescission Reason+ action for rescission is 7@67IDI*R0 available O/L0 #hen the aggrieved party has no other legal %eans to obtain reparation *rticle 1'24 Rescission shall be only to the e(tent necessary to cover the da%ages ca!sed E(tent 1. Only in favor of the plaintiff creditor &. Only !ntil his credit is satisfied or the a%o!nt of pre1!dice s!ffered E(cess+ alienation is 8*I/T*I/ED> re%ains #ith the transferee E-E/ IB he acted in bad faith . Other creditors that do not have the capacity to bring abo!t accion pa!liana 4beca!se their credit did not arise before the alienation5 cannot benefit fro% the rescission Hho %ay bring action 1. ,erson in1!red by the rescissible contract 4#ard or absentee" creditors pre1!diced and the plaintiff in a pending litigation for o#nership of the property alienated5 &. Feirs of these persons . 8ay bring rescissory action after death of debtor #hen s!ch debtor %ade a fra!d!lent alienation for the p!rpose of depriving his co%p!lsory heir of his legiti%e. 6!t in this case" the heir does not act as a representative of the debtor b!t as a CREDITOR hi%self 4based on ,ar' 1'215 '. Creditors by virt!e of the right granted in 11EE 4accion s!braogatoria5 *rticle 1'2)

*rticle 1'2& ,ay%ents %ade in a state of insolvency for obligations to #hose f!lfill%ent the debtor co!ld not be co%pelled at the ti%e they #ere effected" are also rescissible. Circ!%stances+ 1. Debtor transfers property to a creditor &. To 4allegedly5 settle a debt '. Debt is not yet %at!re 4. Debtor is insolvent at the ti%e of transfer ). Consideration for the property is ?RO77L0 inade$!ate co%pared to the act!al val!e of the property D transfer is fra!d!lent and %ay rescinded IB debt is D@E and o#ing and enforceable at the ti%e of deed of sale #as %ade even if s!ch pay%ent #as allegedly for the p!rpose of satisfying a debt to another creditor . s!ch conveyance #ill not fall !nder 1'2& Insolvency insolvency in B*CT> does not re$!ire 1!dicial proceeding in insolvency . Can be proved by sho#ing that debtor did not have s!fficient properties to satisfy creditorCs clai%

Rescission creates the obligation to ret!rn the things #hich #ere the ob1ect of the contract" together #ith their fr!its" and the price #ith its interest> conse$!ently" it can be carried o!t only #hen he #ho de%ands rescission can ret!rn #hatever he %ay be obliged to restore. /either shall rescission ta=e place #hen the things #hich are the ob1ect of the contract are legally in the possession of third persons #ho did act in bad faith In this case" inde%nity for da%ages %ay be de%anded fro% the person ca!sing the loss 8!t!al restit!tion applicable only to ,ars 1 and & of 1'21> 7C also applied r!le to cases of %!t!al dissent and rescission of reciprocal obligations !nder 1191 Third persons both parties and not parties of the rescissible contract . & Circ!%stances that %!st be present that renders an ac$!isition by a third person as an obstacle to the efficacio!sness of the action for rescission+ 1. Third person is in la#f!l possession of the realty 4he is protected by la# #hen the transfer to hi% has been recorded in the registry5 o If not yet registered" they are not protected against rescission &. Fe did not act in bad faith . third person acted in 6*D B*ITF and he C*//OT RET@R/ the thing !pon rescission D liable for the -*L@E of the property to the party entitled to the benefits of rescission Transferee . ?rat!ito!s good faith of transferee i%%aterial beca!se he gave nothing so he #onCt be pre1!diced by the rescission o Transferee is O6LI?ED to restore the thing. Reason+ no one is allo#ed to enrich hi%self at the e(pense of another Br!its+ not obliged to pay fr!its received by hi% beca!se he #as a possessor in good faith Rei%b!rse%ent+ entitled to rei%b!rse%ent of e(penses inc!rred on the thing Losses or Deteriorations+ /OT liable" e(cept he acted #ith fra!d!lent intent or negligence *BTER 1!dicial s!%%ons

Onero!s o if he acted in good faith" then he is in the sa%e position as creditor and alienation cannot be rescinded beca!se he is in possession of his ac$!isition to deprive hi% of the thing #o!ld ca!se hi% in1!ry TO TFE EGTE/T of the consideration he has ,*ID" beca!se he cannot recover fro% the insolvent debtor possessor of property preferred> since in this case" the transferee and the creditor is in the sa%e position o transferee %!st be a party to the fra!d for rescission %!st have J/OHLED?E that the transfer to hi% #o!ld pre1!dice e(isting creditors of the transferor Inde%nity for da%age+ /OT entitled to inde%nity for da%ages fro% the debtor Either beca!se he =no#s of the danger of eviction or beca!se both the transferee and the debtor share a co%%on #rong Recovery of #hat transferee paid to debtor+ /OT entitled 4strengthened by 141& #hich states that parties to an !nla#f!l contract cannot recover fro% each other #hen they are 6OTF ?@ILT05. If #hat has been paid is still in the patri%ony of the debtor" pa!liana #o!ld not have been applied" beca!se then there #o!ld still be so%ething left in the property of the debtor and the creditor has not e(ha!sted all %eans before resorting to rescission If debtor is already insolvent" then there cannot be rei%b!rse%ent any%ore

Da%ages . Hhen the contract cannot be rescinded beca!se the thing has been ac$!ired in good faith by a third person" party #ho ca!sed the loss shall be liable for damages . Incl!des+

o o o o

?!ardian of %inors Representative or ad%in of absentees Transferee in bad faith of things fra!d!lently alienated by debtor Defendant #ho transferred the thing in litigation

e(istence of *CT@*L 8*L* BIDE7> other#ise" contract #ill not be rescinded o 8ala fides+ bad faith 4vs. bona fides or good faith5 ,roof of Bra!d R!les laid do#n by co!rts to deter%ine fra!d!lent character of transaction 4on sales5 1. $onsideration of conveyance is inadequate &. %ransfer %ade by a debtor after suit has begun and pending against hi% '. Sale upon credit by an insolvent debtor 4. Evidence of large indebtedness or complete insolvency ). Transfer of all or nearly all of his property by a debtor especially #hen he is insolvent or greatly e%barrassed financially 4one has no f!nds5 6. Transfer is %ade bet#een father and son #hen above circ!%stances are present E. Bail!re of vendee to ta=e e(cl!sive possession of all the property Co!rts are free to deal #ith fra!d !nder #hatever for% it %ay present itself Effect of fra!d . Hhether proved or pres!%ed" fra!d DOE7 /OT /ECE77*RIL0 %a=e alienation rescissible . Only O/E of the re$!isites of accion pa!liana *rticle 1'22 Hhoever ac$!ires in bad faith the things alienated in fra!d of creditors" shall inde%nify the latter for da%ages s!ffered by the% on acco!nt of the alienation" #henever" d!e to any ca!se" it sho!ld be i%possible for hi% to ret!rn the%. If there are t#o or %ore alienations" the first ac$!irer shall be liable first" and so on s!ccessively. 1st transferee /OT liable to ret!rn> considered as having left the partri%ony of the debtor &nd transferee ?ood faith 6ad faith
/OT liable even if he =ne# that debtor alienated property in fra!d of creditors. @/LE77 1st transferee and debtor CO//I-ED to %a=e 1st transferee an

*rticle 1'26 Rescission referred to in /os. 1 and & of article 1'21 shall not ta=e place #ith respect to contracts approved by the co!rts *rticle 1'2E *ll contracts by virt!e of #hich the debtor alienates property by grat!ito!s title are pres!%ed to have been entered into in fraud of creditors" #hen the donor did not reserve s!fficient property to pay all debts contracted before the donation. *lienations by onero!s title are also pres!%ed fra!d!lent #hen %ade by persons against #ho% so%e judgment has been rendered in any instance or so%e #rit of attachment has been iss!ed. The decision or attach%ent need not refer to the property alienated" and need not have been obtained by the party see=ing the rescission. In addition to these pres!%ptions" the design to defra!d creditors %ay be proved in any other %anner recogniAed by the la# of evidence. Bra!d ,res!%ed . <!dg%ent . absence of proof contrary to the circ!%stances above" alienation held to be fra!d!lent 6EC*@7E it #as %ade *BTER a 1!dg%ent had been rendered against the debtor %a=ing the alienation. o Does not apply #hen alienation %ade before 1!dg%ent #as rendered . *ttach%ent for pres!%ption of fra!d to arise" s!fficient that attach%ent #as I77@ED o Even if alienation is %ade before service or e(ec!tion of attach%ent" as long as it #as %ade *BTER iss!ance of s!ch attach%ent" it is pres!%ed to be fra!d . /OT concl!sive> %ay be reb!tted by 7*TI7B*CTOR0 and CO/-I/CI/? evidence to the contrary+ o /ecessary to establish affir%atively that the conveyance #as %ade in good faith */D for a s!fficient and val!able consideration . Hhen pres!%ption of fra!d has been overthro#n" party as=ing for rescission 8@7T prove by s!fficient evidence the

?ood faith

innocent inter%ediary> in #hich case" &nd transferee #ill be liable

Bor persons !nder g!ardianship and for absentees" the period of fo!r years shall not begin !ntil the ter%ination of the for%erCs incapacity" or !ntil the do%icile of the latter is =no#n 8inor #ho is a party of the contract of sale %!st bring the action for rescission #ithin 4 years after attaining age of %a1ority 44 years fro% re%oval of oneCs incapacity5 Chapter E -oidable Contracts *rticle 1'93 The follo#ing contracts are voidable or ann!lable" even tho!gh there %ay have been no da%age to the contracting parties+ 1. Those #here one of the parties is incapable of giving consent in a contract> &. Those #here the consent is vitiated by %ista=e" violence" inti%idation" !nd!e infl!ence or fra!d. These contracts are binding" !nless they are ann!lled by a proper action in co!rt. They are s!sceptible of ratification. -oidable or ann!lable contracts . E(istent" valid and binding b!t can be ann!lled beca!se of+ o #ant of C*,*CIT0> or o -ITI*TED consent of one of the parties . 6efore ann!l%ent" they are effective and obligatory bet#een the parties . -alid !ntil set aside . -alidity %ay be assailed O/L0 in an action for that p!rpose . They can be CO/BIR8ED or R*TIBIED RE7CI77IO/ /@LLIT0 Renders contract inefficacio!s #hen declared ,rod!ces the inefficacy #hich Declares the inefficacy #hich DID /OT EGI7T essentially in the CO/TR*CT *LRE*D0 the contract C*RRIE7 in itself /eeds no ratification C!re+ ratification ,rivate interest alone governs ,!blic interest has direct infl!ence Co%patible #ith ,ERBECT 6ased on a -ICE #hich -*LIDIT0 of the contract invalidates contract * re%edy" predo%inated by * sanction" predo%inated by e$!ity la# 8ay be de%anded even by Can be de%anded O/L0 by third parties affected parties to the contract

Inde%nity for da%ages ?ood faith. onero!s

Transfer cannot be rescinded property cannot be ret!rned /OT liable for da%ages Can be re$!ired to ret!rn property> liable for da%ages after 1st transferee Can be re$!ired to ret!rn property> liable for da%ages after 1st transferee

6ad Baith

/ot liable for da%ages #hen property is ret!rned If property /OT ret!rned> liable for da%ages /ot liable for da%ages #hen property is ret!rned If property /OT ret!rned> liable for da%ages

?ood faith . grat!ito!s

6ad Baith

6ad faith of transferee . /ot re$!ired to have connived to defra!d creditors of debtor . 7!fficient to have J/OHLED?E of the intention of the transferorKdebtor to defra!d creditors . To deter%ine" co!rt %!st consider + 1. REL*TIO/ of the parties &. Conditions of the sale '. Other circ!%stances fro% #hich the =no#ledge of the transferee %ay be inferred . Co!nted as =no#ledge #hen circ!%stances a#a=ens s!spicion on the part of the vendee b!t he does not %a=e an in$!iry to verify *rticle 1'29 The action to clai% rescission %!st be co%%enced #itho!t fo!r years.

?ro!nds for *nn!l%ent 1. Incapacity to consent

not a re$!isite sine $!a non

Discovery of Bra!d rec=oned to have ta=en place fro% the ti%e the doc!%ent #as registered in the office of the register of deeds Reason+ registration is a notice to the #hole #orld *rticle 1'9& Ratification e(ting!ishes the action to ann!l a voidable contract Confir%ation a person #ith =no#ledge of the ca!se of ann!l%ent validates the contract either e(pressly or i%pliedly after the ca!se ceases to e(ist . %ore applicable to voidable contracts Ratification approving a contract entered into by another #itho!t a!thoriAation fro% the person in #hose na%e it #as entered into . %ore applicable to !nenforceable contracts Code %a=es no distinction bet#een ratification and confir%ation Confir%ationKratification act or %eans by #hich efficacy is given to a contract or an obligation #hih s!ffers fro% a -ICE OB C@R*6LE /@LLIT0. . C@RE7 a defect . -s. ac=no#ledge%ent+ re%edies deficiency of proof 4#hen oral agree%ents is p!t into #riting or a private doc is converted to p!blic5 Re$!isites of ratification+ 1. Contract is voidable or ann!llable" or #hen consent is defective beca!se either+ a. Lac= of capacity b. Error" fra!d" violence" inti%idation or !nd!e infl!ence &. Ratification is %ade #ith =no#ledge of the ca!se for n!llity '. *t the ti%e of ratification" ca!se of n!llity has ceased to e(ist Right to ratify %ay be trans%itted to heirs of the party entitled to s!ch right *rticle 1'9' Ratification %ay be effected e(pressly or tacitly. It is !nderstood that there is a tacit ratification if" #ith =no#ledge of the reason #hich renders the contract voidable and s!ch reason having ceased" the person #ho has a right to invo=e it sho!ld e(ec!te an act #hich necessarily i%plies an intention to #aive his right.

*ttac=s on validity of a contract+ 1. Directly by an action for that p!rpose &. Indirectly by #ay of co!nterclai% 4defense5 to an action to enforce that contract . Co!nterclai% as=es for positive action of the co!rt to set aside the contract . Co!rt cannot 1!st declare that contract is voidable co!rt %!st declare contract as -OID and set it aside and order %!t!al restit!tion in accordance #ith 1'92 -OID*6LE Co!rt needs to set aside and ann!l the contract by 1!dg%ent before defendant can be e(e%pt fro% co%pliance . 6eca!se it #as valid in the first place *ttac= on validity %!st be %ade directly+ action or co!nterclai% -OID Co!rt %erely declares contract void" #hich is the condition fro% the beginning

*ttac= can be %ade collaterally or indirectly

*rticle 1'91 The action for ann!l%ent shall be bro!ght #ithin fo!r years. This period shall begin+ In cases of Inti%idation" -iolence or @nd!e Infl!ence" fro% the ti%e the defect of the consent ceases. In case of 8ista=e or Bra!d" fro% the ti%e of the discovery of the sa%e *nd #hen the action refers to contracts entered into by %inors or other incapacitated persons" fro% the ti%e the g!ardianship ceases ,rescription of /!llity applies to+ 4e(tinctive prescription5 1. action for ann!l%ent and . after action has prescribed" contract can no longer be set aside &. defense of n!llity . if period of prescription has e(pired" n!llity can no longer be set !p as a defense to an action to enforce it *pplication to parties" not to third persons

E(press ratification code is silent as to nat!re and re$!isites b!t it can be pres!%ed that any OR*L or HRITTE/ ratification #ill do *7 LO/? *7 the person entitled to as= for ann!l%ent agrees to be bo!nd by the contract and that he #ill not see= for ann!l%ent. I%plied ratification ratification %ay be i%plied fro% the cond!ct or acts of the party entitled to as= for ann!l%ent . */0 act evidencing I/TE/T to abide by the contract is ta=en as affir%ation to contract and a #aiver of right to ann!l. . Bor%s+ o 7ilence or ac$!iescence o *cts sho#ing approval or adoption of the contract o 6y acceptance and retention of benefits flo#ing therefro% *rticle 1'94 Ratification %ay be effected by the g!ardian of the incapacitated person. E(ercise of ratification right to ratify pertains to the I/C*,*CIT*TED ,ER7O/ . D!ring incapacity" s!ch right %ay be e(ercised by the g!ardian for the incapacitated person *rticle 1'9) Ratification does not re$!ire the confor%ity of the contracting party #ho has no right to bring the action for ann!l%ent. *rticle 1'96 Ratification cleanses the contract fro% all its defects fro% the %o%ent it #as constit!ted Effect of ratification after a contract has been -*LIDL0 ratified" cannot ann!l based on defects relating to its original validity Retroactivity effects retroact to the %o%ent #hen the contract #as entered into . EGCE,T #hen retroactivity #ill pre1!dice rights of third persons ac$!ired before ratification o E(. G sells land to 0 #hen he #as a %inor. Hhen he attained %a1ority" he sells the sa%e land to L. *fter selling to L" he confir%s his sale of the land to 0. The confir%ation cannot pre1!dice the rights of 0 . Reason+ ratificationKconfir%ation %erely declaratory

*rticle 1'9E The action for the ann!l%ent of contracts %ay be instit!ted by all #ho are thereby obliged principally or s!bsidiarily. Fo#ever" persons #ho are capable cannot allege the incapacity of those #ith #ho% they contracted> nor can those #ho e(erted inti%idation" violence" or !nd!e infl!ence" or e%ployed fra!d" or ca!sed %ista=e base their action !pon these fla#s of the contract. ,ersonal re$!isites 1. ,laintiff %!st have interest in the contract . * person not principally or s!bsidiarily bo!nd has /O legal capacity to challenge the validity of the contract &. The victi% and /OT the party responsible for the defect is the person #ho %!st assert the sa%e . Even the s!ccessor in interest of one #ho contracted #ith a %inor cannot avoid the contract on the gro!nd of the %inority of the one he conracted #ith Incapacitated person at fa!lt . If the incapacitated person has acted #ith BR*@D in order to ind!ce the other party to enter into the contract o /either FE /OR FI7 LE?*L RE, can as= for the ann!l%ent @/LE77 he is of tender age and #anting in discretion . *lso applicable if an incapacitated e%ployed -IOLE/CE or I/TI8ID*TIO/ on the other party o Faving e%ployed ILLICIT %eans to %a=e the other party enter into the contract Fe cannot be conferred the privilege of ann!lling the contract . Other codes %aintain that the %ere fact that an incapacitated person %isrepresents hi%self as having capacity to the person #ith #ho% he contracts" does not prevent hi% fro% asserting his incapacity to ann!l the contract o O!r code+ E7TO,,EL o 7C has r!led that the %inor is E7TO,,ED !nder s!ch circ!%stances" to assert his %inority 4there are so!nd and strong dissents to this vie#5. *rticle 1'92 *n obligation having been ann!lled" the contracting parties shall restore to each other the things #hich have been the s!b1ect %atter

of the contract #ith their fr!its" and the price #ith its interest" e(cept in cases provided by la#. In obligations to render service" the val!e thereof shall be the basis for da%ages. 8!t!al restit!tion effect of ann!l%ent #iping it o!t of e(istence and restoring to the parties in so far as LE?*LL0 and EM@IT*6L0 possible to their ORI?I/*L sit!ation before entering into contract. . If /O perfor%ance by either party D contract ceases to have any force and effect . One or both parties perfor%ed D each party %!st ret!rn to the other #hatever he %ay have received by reason of the contract o @/LE77 the la# prevents s!ch restit!tion o E(. Registration of land does not e(ting!ish the obligation of %!t!al restit!tion Hho %ay invo=e restit!tionI Only the parties> stranger to contract cannot invo=e benefit of this provision Contracts not covered . 1'92 not applicable to all contracts . ,rinciple of !n1!st enrich%ent o If one of the parties received so%e benefit and he has not given anything for it to the other Only e$!itable that he ret!rn the a%o!nt by #hich he #as !n1!stly enriched o If reciprocal prestations #hich compensate each other The e(cess can be paid to the party to #hich it pertains If there is no co%pensation" there %!st be %!t!al restit!tion @nless 8R #o!ld violate principle against !n1!st enrich%ent o 6asis of &nd paragraph covering services rendered If service has already been rendered even if contract is ann!lled" the party benefited by the service %!st pay for the val!e Other#ise" party #ho benefited #ill be !n1!stly enriched Restit!tion of Br!its and Interest

Can be applied #itho!t $!alification D #hen ca!se of the n!llity does not involve an illicit act. E(. Error and incapacity . #hen ca!se of n!llity is illicit 4li=e fra!d" violence" inti%idation or !nd!e infl!ence5 o party #ho e%ployed s!ch %eans considered a ,O77E77OR in 6*D B*ITF obliged to restore /OT O/L0 the fr!its received b!t also those #hich 8I?FT F*-E 6EE/ received o innocent party %!st be dee%ed a ,O77E77OR I/ ?OOD B*ITF /ot re$!ired to ret!rn fr!its or pay interest Liability for Da%ages . ?eneral r!le+ ann!l%ent of contract and the res!lting %!t!al restit!tion ELI8I/*TE7 possibility of da%age s!ffered by in1!red party o E(ception+ cases #herein losses occasioned by the contract cannot be erased or co%pensated by ann!l%ent o E(. 6efore discovery of fra!d in1!red party already inc!rred e(penses #hich beca%e !seless beca!se of the ann!l%ent . Da%ages incl!de the follo#ing ele%ents 4ta=en fro% ?er%an code b!t applicable to ,hils5 1. E(penses inc!rred in the e(ec!tion of the contract &. Reasonable disb!rse%ents %ade by the in1!red party in connection #ith the contract *BTER its e(ec!tion" li=e preparations to carry o!t the contract '. Da%ages s!ffered by the thing #hich %!st be ret!rned" #hen i%p!table tot eh defendant 4. Losses s!ffered by the plaintiff fro% the possession of the thing beca!se of its $!alities and the da%ages occasioned to hi% by it restit!tion 4e(. In1!ries ca!sed by rene#al5 Liability can be based on *rts &3 and &1+ *rticle &3 every person #ho" contrary to la#" #illf!lly or negligently ca!ses da%age to Danother" shall inde%nify the latter after the sa%e *rticle &1 any person #ho #illf!lly ca!ses loss or in1!ry to another in a %anner that is contrary to %orals" good c!sto%s and p!blic policy shall co%pensate the latter for the da%age.

*rticle 1'99 Hhen the ob1ect of the contract consists in the incapacity of one of its parties" the incapacitated person is not obliged to %a=e any restit!tion e(cept insofar as he has been benefited by the thing or price received by hi%.