Rescission - is a remed emedy y grant ranted ed by law law to cont contra rac cting ting part partie ies s and and to thir third d pers person ons s in orde orderr to secu securre repar eparat atio ion n of dama damage ges s caused them by a contract, even if the contract be valid, by means of the restoration of things to their condition prior to the celebration of said contract
Requisites for Rescission 1. There There must be at the beginnin beginning g either a valid or a voidab voidable le contract (not (not a void one); 2. ut there there is an economi economic c or !nanci !nancial al pre"udi pre"udice ce to someone someone (a party or a third person); #. $e%ui e%uire res s mutual restitution
Two Kinds of Rescission 1. Rescission in general (Art. 1380) a) &s based on lesion or fraud upon creditors; b) 'ere, the action is instituted by either of the contracting parties or by third persons; c) her here, the the court ourts s cann cannot ot grant a period or term within which to comply; d) 'ere, non-performance by the other party is immaterial 2. Rescission under Art. 1191 (resolution) a) &s base based d on non-p non-perf erfor orma manc nce e or nonnon-ful ful!l !llm lment ent of the obligation; b) 'ere, the action may be instituted only by the in"ured party to the contract; c) 'ere, in some cases, the courts may grant a term; d) 'ere, non-performance by the other party is important.
rt. 1#*1. The following contracts contra cts are rescissible+
1. Those which are entered into by the guardians whenever the wards whom they represent suer lesion by more than onefourth of the value of the things which are the ob"ect thereof; 2. Those agreed upon in representation of absentees, if the latter suer the lesion stated in the preceding number; #. Those undertaen 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 nowledge and approval of the litigants or of competent "udicial authority; /. ll other contracts specially declared by law to be sub"ect to rescission 0 Lesion damage or in"ury to the party asing for rescission (generally, disparity between the price and the value).
Requisites before accion pauliana can be brought: 1) There must be a creditor who became such $&3$ to the contract sought to be rescinded (whether the party asing for rescission is a "udgment creditor already or not, is liewise immaterial). 2) There must be an alienation made subsequent to such credit. #) The party alienating must be in 4 5&T' (that is, he kne that damages would be caused his creditors !et!er or not !e intended to cause such damage). ) There must be no other remedy for the pre"udiced creditor 6inability to collect the claims due them
Premature Payments Made in a State of Insolvency Two re%uisites are essential under this rticle+
(a) The debtor-payer must have been insol"ent (the insolvency need not be a "udicially declared one); (b) The debt was not yet due and demandable
Necessity of Mutual Restitution The obligation of restitution does not obviously apply to creditors who see to impugn fraudulent transactions of their debtors. The obligation of mutual restitution applies to 3T'7$8 so that the status quo may be restored.
Requisites rought
efore
the
!ction
for
Rescission
"an
e
(a) 9enerally, the plainti must be able to $7T:$ what has been received by virtue of the rescissible contract. (#$ception% pre&udiced creditors.) (b) The thing ob"ect of the contract is not in t!e legal possession of third persons in good 'ait!. (c) There must be no other legal remedy (d) The action must be brought it!in the proper prescriptive period
adges of #raud - There are some circumstances indicating that a certain alienation has been made in fraud of creditors. These are called 4978 35 5$:4. The following are some of the circumstances attending sales which have been denominated by the courts as badges of fraud+ 1) The fact that the consideration of the conveyance is !ctitious or inade%uate; 2) transfer made by a debtor after suit has been begun and while it is pending against him;
#) sale upon credit by an insolvent debtor; ) The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed !nancially; /) 7vidence of large indebtedness or complete insolvency; <) The fact that the transfer is made between father and son (!en t!is 'act is considered toget!er it! preceding circumstances) =) The failure of the vendee to tae e>clusive possession of all the property.
ad #aith has been de!ned as a state of mind a?rmatively operating with furtive design or with some motive or self-interest or ill-will or for an ulterior purpose, and implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obli%uity. $%ect of ad #aith (a) The ac%uirer must return or indemni'. (b) 64ue to any cause@ includes a fortuitous event.
Subsequent Transfers (a) &f the !rst transferee is in good 'ait!* the good or bad faith of the ne>t transferee is not important. (b) &f the !rst transferee is in bad 'ait!* the ne>t transferee is liable only if he is also in bad faith
Prescri&tive Period for Rescission (a) +eneral rule , years from the date the contract was entered into. (b) #$ceptions% 1) ersons under guardians!ip years from termination of incapacity
2) Absentees years from the time the domicile is nown
'ho "an ring the !ction( (a) The in"ured party (or the defrauded creditor). (b) 'is heir or successor-in-interest. (c) Areditors of (a) and (b) by virtue of rt. 11== of the Aivil Aode (accion subrogatoria)
Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistae, violence, intimidation, undue inBuence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of rati!cation. contract where consent is vitiated, such as by violence or intimidation, is not void ab initio but only voidable, and is binding upon the parties unless annulled by proper action in court.
)rounds for !nnulment *+eclaration of Nullity, (a) incapacity to consent (b) vitiated consent
on!rmation to cure a defect in a "oidable contract (Art.139-* i"il ode) "ati!cation , to cure the defect of lac of authority in an aut!ori/ed contract (entered into by another). (Arts. 131 and 10* i"il ode) Ac#nowledgment , to remedy a de!ciency of proof (Art. 10* i"il ode) (thus, an oral loan may be put in writing, or when a private instrument is made a public instrument)
Requisites of Rati-cation (roperl* on4rmation o' a 5oidable ontract) (a) The contract must be a "oidable one. (b) The person ratifying must now the reason for the contract being voidable (that is, the cause must be nown). (c) The cause must not e$ist or continue to e>ist anymore at the time of rati!cation. (d) The rati!cation must have been made e>pressly or by an act implying a waiver of the action to annul. (e) The person ratifying must be the in"ured party.
$nenforceable contracts cannot be sued upon or enforced unless rati!ed; thus, it is as if they have no e6ect yet. ut they may be rati!ed; hence, they can have in such a case the eect of valid contracts. &n one sense, therefore, they may be called "alidable. %oidable and rescissible contracts, upon the other hand, produce legal eects until they are annulled or rescinded. Thus, unenforceable contracts are nearer absolute nullity than the other two.
Kinds of .nenforceable "ontracts (a) :nauthoriCed contracts. (b) Those that fail to comply with the 8tatute of 5rauds. (c) Those where both parties are incapable of giving consent to a contract.
The Statute of #rauds (a) urpose to prevent fraud, and not to encourage the same. Thus, certain agreements are re%uired to be in writing so that they may be enforced. (b) 7o t!e tatute o' rauds re"ents raud 8ince memory is many times unreliable, oral agreements may sometimes result in in"ustice.
S&eci-c !greements of Statute of #rauds 1. n greement that by its terms is not to be performed within a year from the maing thereof. 2. special promise to answer for the debt, default, or miscarriage of another #. n agreement made in consideration of marriage other than a mutual promise to marry . n agreement for the sale of goods, chattels, or things in action, at a price not less t!an 4"e !undred pesos . n agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein <. representation as to the credit of a third person.
!rt/ 0123/ The following contracts are ine4istent and void from the beginning: (1) Those whose cause, ob"ect or purpose is contrary to law, morals, good customs, public order, or public policy; (2) Those which are absolutely simulated or !ctitious; (#) Those whose cause or ob"ect did not e>ist at the time of the transaction; () Those whose ob"ect is outside the commerce of men; (/) Those which contemplate an impossible service; (<) Those where the intention of the parties relative to the principal ob"ect of the contract cannot be ascertained; (=) Those e>pressly prohibited or declared void by law.
These contracts cannot be rati!ed. either can the right to set up the defense of illegality be waived.
