Chapter 6.

– RESCISSIBLE CONTRACTS

1. Define rescission.
Rescission is the remedy granted by law to the contracting parties and
sometimes even to third persons in order to recover indemnity for damages caused them
by a contract, even if such contract is valid, by means of the restoration of things to their
condition prior to the celebration of the contract.

2. Give the requisites (in general) for the rescission of a contract.

They are:
(1) The contract must be validly agreed upon (Art. 1380.)
(2) There must be lesion or pecuniary prejudice to one of the parties or to a third person
(Art. 1380, 1381. );
(3) The rescission must be based upon a case especially provided by law (Arts. 1380,
1381)
(4) The rescission must be no other legal remedy to obtain reparation for damage; so,
rescission is only a subsidiary remedy (Art. 1383.); it cannot be availed of where, for
example, a party is willing to pay for the damage suffered;
(5) The party asking for rescissions must be able to return what he is obliged to restore
by reason of the contract (Art. 1385.);
(6) The object of the contract must not legally be in the possession of third persons who
did not act in bad faith(Ibid.); and
(7) The period for filing the action must not have prescribed. (see Art. 1389)

3. What are rescissible contracts?

They are:
(1) Those made by guardians when their wards (i.e., persons under guardianship by
reason of some incapacity, such as minors and insane persons) suffer lesion (see
Chap. 2, Sec. 3, question No. 7.) by more than ¼ of the value of the things which are
the object;
(2) Those agreed upon in behalf of absentees (i.e., persons who disappear from their
domicile, their whereabouts being unknown, and without leaving an agent to
administer their property) if the latter suffer the lesion stated above;
(3) Those made in fraud of creditors provided the following requisites are present:
(a) There must be a credit prior to the contract to be rescinded:
(b) There must be fraud on the part of the debtor which may be prove or presume
(Art. 1387)., and
(c) The creditor cannot recover his credit in any other manner;
(4) Those which refer to things under litigation made by defendants without the
knowledge and approval of the litigants or of competent judicial authority; and
(5) All other contracts especially declared by law to be subject to rescission. (Art. 1381.)
 EXAMPLES:
(a) Payments made in a state of insolvency for obligations to whose fulfillment
the debtor could not compelled at the time they were effected.(Art. 1382.)
(b) The vendee may exercise the remedy when the lack in the area of the real
estate sold been not less that 1/10 of that stated or when the inferior value of
the thing sold exceeds 1/10th of the price agreed upon. (Art.1539)
(c) An unpaid seller may rescind the sale. (Art. 1526)
(d) In case the immovable sold should be encumbered with a non-apparent
burden or servitude, the vendee may rescind the sale. (Art. 1550)
(e) In case of violation of the warranty against hidden defects of or encumbrance
upon the things sold, the vendee may rescind the sale. (Art.1567)
(f) If the lessor or the lessee should not comply with this obligation, the
aggrieved party may ask for the rescission of the contract of indemnification
for the damages, or only the latter, allowing the contract to remain in force.
(see Arts. 1654, 1657, 1659.)
(4) Give the effects of rescission
They are:
(1) The thing, object of the contract must be returned together with its fruits and the price
together with its interest (Art. 1385.);
(2) In case of alienation in fraud of creditor -
(a) transferee acted in good faith.- The remedy of the creditor is merely an action for
damages against the person causing the loss or injury (Ibid.); and
(b) transferee acted in bad faith.- The transferee must return the thing with its fruits,
if return is impossible due to any cause, he must pay indemnity for damages; and
if there are two (2) or more alienations, the first acquirer (transferee) shall be
liable first, and so on successively. (Art.1388)
EXAMPLE: To defraud C, his creditor, X, sold his car to B who, in turn, sold the car to D.
If both B and D acted in bad faith, B, ask the first acquirer, is liable first. If he cannot
pay, then D will be liable. If B acted in good faith, the good or bad faith of D is not
important.
(5) When is an alienation presume in fraud of creditors?
(1) Alienation by gratuitous title. – When the debtor did not preserved sufficient property
to pay of the debts contracted before the donation;
(2) Alienation by onerous title. – When made by persons against whom some judgement
(even if not yet final) or writ of attachment has been issued, and the said judgement
need not refer to the property alienated and need not have been obtained by the
party seeking the rescission. (Art.1387); and
(3) Alienation indicating bad faith. – When it is attended by circumstances that have
been denominated by our courts us “badges of fraud”

(6) Mention some circumstances that have been denominated by our courts as
“badges of fraud.”
They are:
(1) Consideration of the conveyance is fictitious or inadequate;
(2) Transfer is made by the debtor after suit has ben began and while it is spending
against him;
(3) Sale upon credit by an insolvent debtor;
(4) Transfer of all nearly all of his property by a debtor especially when he is
insolvent or greatly embarrassed financially;
(5) Evidence or large indebtedness or complete insolvency;
(6) The close relationship between the vendor and the vendee, such as where the
transfer made is between father and son, when there are present any of the
above circumstances; and
(7) Failure of vendee (in an absolute sale) to take exclusive possession of the
property sold. (Oria vs. McMicking, 4 Phil. 243)