BOOK

IV, TITLE II: CONTRACTS

CHAPTER 6: RESCISSIBLE CONTRACTS
Defective Contracts
Need to know what in particular so you
would know what action to take
1. RESCISSIBLE
2. VOIDABLE
3. UNENFORCEABLE
4. VOID AND INEXISTENT

Distinguish
1. Cause most important
2. Assailability- who may assaild the validity of
the contract
3. Binding efficacy status of the contract
considering the defect, binding and existing?
4. Prescriptibility action or steps that need to
be complied with in order to make it valid
5. Ratification- may it be cured of its defect to
be valid
6. Action need to be taken; is there a need
for a positive action or may be only as a
defense

Rescissible Contracts
all of the essential requisites of a contract
exist; the contract is valid. But by reason of
injury or damage to either of the contracting
parties or to third persons, it may be
rescinded.
A contract which is valid because it contains
all of the essential requisites prescribed by
law, but defective because of injury or
damage to either of the contracting parties
or to third persons
Before it is rescinded, it is valid and legally
effective.

Dist. To Art. 1191: TCR
The tacit resolutory condition uses the word
rescind but it does not really rescind. IT
is a resolution.

RESCISSION
RESOLUTION
(Art. 1380)
(Art. 1191)
Party who may Not only by a
May only be
institute action party to the
instituted by a
contract but
party to the

Causes

Power of the
Courts

also a third
person
Several causes
such as lesion,
fraud, and
others
expressly
specified by
law
No power of
the courts to
grant an
extension of
time for
performance of
the obligation
so long as there
is a ground for
rescission
Any contract,
whether
unilateral or
reciprocal

contract
Only ground is
failure of one
parties to
comply with
what is
incumbment
upon him
Courts shall
have a
discretionary
power to grant
an extension
for
performance
provided with
just cause

Contracts
Reciprocal
which may be
contracts only
rescinded or
resolved

CAUSE OF RESCISSIBILITY:
1. Lesion
2. Fraud
3. Special cases provided by the New Civil
Code (mostly on contracts of Sale)

LESION
means wound or damage

3 types of lesion:
1. Ward
2. Absentee
3. Heir

WARD
Ward suffers a lesion of more than of the
contract entered into by the guardian with
respect to the administrative duties f the
latter
Applicable only to ADMINISTRATIVE
MATTERS; not acts of ownership
If guardian enters into a contract other than
the duties, such as act of ownership, it is not

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a rescissible contract but rather an

unforceable contract.
o EXCEPTION: if with judicial approval
of a competent court; any lesion
suffered would not equate to its
rescissibilty
Acts of management- contracts that
guardians enter into to support the needs of
the ward; may involve the disposing of
personal properties
NOTE: in no case can a guardian be
authorized to sell immovable property;
always need a court approval for such sale;
it is an act of ownership, not of
administration

Rescissibility with the ward
Guardian dispenses property of ward
Lesion is more than
Selling prices is less than actual
value; if less than of actual value it
is rescissibly.
EG: 2M worth of car, sold only at 1M.
lesion. Thus, rescissible
RULES & LIMITATIONS:
1. Only for administrative acts; not
ownership
2. Action for rescission is SUPPLEMENTAL;
not the primary action. It is the last
resort.
- if there are other legal remedies
available to the word, need to avail
of them first
- ward may rescind but if there are
other ways, avail of that first.
- Follow art. 1177: specific
performance, payment by cession( if
not enough), RESCISSION or accion
pauliana
3. Property / sale that was the object of the
contract must not be in the possession
of a 3rd person who did not act in bad
faith; if in possession in good faithnot
rescissible
4. Person asking for rescission must be able
to return whatever was rescinded; back

to status quo.
If Nos. 2 & 3 are missing, it is
rescissible but will not prosper

ABSENTEE
Missing
Presumed absent
Presumption of death will apply
Rules are similar to that of the ward.
Speaks of lesion that is more than of the
value
Requisites are practically the same

REQUISITES:
1. Contract is entered into by guardian or
legal representative
2. Ward/absentee must have suffered a
lesion of more than of a contract
3. No judicial approval of the court
4. No other legal means of remedy for
reparation of the lesion suffered
5. Persons bringing the action must be able to
return what he may be obliged to return
6. Obligation of contract is not in possession
of a 3rd person who did not acquire it in
bad faith

HEIR
Article 1098. A partition, judicial or extra-judicial, may also be
rescinded on account of lesion, when any one of the co-heirs
received things whose value is less, by at least one-fourth, than the
share to which he is entitled, considering the value of the things at
the time they were adjudicated. (1074a)

Law of succession
At least equal to of the property
Legitimes right of an heir to be divided by
the sibilings
If a sibling receives a legitime and less than
, Court partition, rescissible
Heir may ask for rescission of contact if the
lesion is equal to of the amount of the
successional rights he is entitled.

FRAUD
Against a 3rd party
Not involved in a contract
Known as the creditor
It is accion pauliana

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Debtor enters into a contract that was found

out by C; C to satisfy the debtlooks for the
properties for payment by cession; however,
none can be found, if there is a basis for
rescission, it will prosper.
If the property was already sold, no more
payment by cession

show proof that cession and specific

performance were availed
3. Fraud entered into by creditor when he was
insolvent -- fulfillment of a debt not
satisfied to which could not have been
enforced.
Conditions:
A. Payment was made at the time when he
was INSOLVENT
B. Obligation cannot be enforced against
debtor; DEBT NOT YET DUE
Note: Action by a 3rd party must have no
other legal remedy; similar to lesion and
fraud(1).

Example:
D has a debt to C1 and C2. D pays C2. C1
may rescind if C1 has no other remedy to
collect from D

Requisites initiated by creditor against contract of
debtor:
1. Contract/obligation of debtor to creditor
must have been existing prior to the
contract entered into
2. It was sold with FRAUD or intent to defraud
Involves the badges or presumption
of fraud; need to establish.
BADGES OF FRAUD:
1. The fact that the consideration of the
conveyances is fictitious or is inadequate.

2. A transfer made by a debtor after suit has

INSOLVENCY
been begun and while it is pending against
No need for judicial declatarion
him.
Insolvency in fact is sufficient
3. A sale upon credit by an insolvent debtor.
if you find out that debts are greater
4. Evidence of large indebtedness or
complete insolvency.
than the assets, there is insolvency
5. The transfer of all or nearly all of his
If D is insolvent, C1 and C2 will be
property by a debtor, especially when he is
prejudiced
insolvent or greatly embarrassed financially.
If there is a judicial declaration,
6. The fact that the transfer is made
Court will decide to whom it will be
between father and son, where there are
paid.
present other of the above circumstances.
Art. 1381(3) C1 may rescind C2 and
7. The failure of the vendee to take exclusive
D will pay
possession of all the property.

3. Creditor cannot in any other legal manner collect
ISSUE: Art. 1198(1) Debtor loses the right to a
the credit supplemental and not the primary
period if insolvent
action
Presumption of whose benefit the terms is
4. Object of the contract must not be in possession
fixed
of 3rd person who did not act in bad faith
General rule: both creditor & debtor


3 TYPES OF FRAUD
What if Ds obligation to C2 is with a term?
1. Contract entered into to defraud
C2 invokes Art. 1198(1), that D loses the
2. Fraud entered into a by a litigant that is the
right to the term. Thus, may enforce
subject of the litigation without consent of
obligation
the Court or without agreement with the
C1 finds out that it cannot be enforced yet
other fraudulent sale
because the term has not arrived yet,
Aggrieved party need other
therefor, may rescind.
remedies; this is the primary action.
There is fraudlent payment
The first cause of action; need not
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may recover from the buyer damages for any loss

occasioned by the breach of the contract.
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has
manifested by notice to the buyer or by some other
overt act an intention to rescind. It is not necessary
that such overt act should be communicated to the
buyer, but the giving or failure to give notice to the
buyer of the intention to rescind shall be relevant in
any issue involving the question whether the buyer
had been in default for an unreasonable time
before the right of rescission was asserted. (n)

Article 1539. The obligation to deliver the thing sold
includes that of placing in the control of the vendee
all that is mentioned in the contract, in conformity
with the following rules:
If the sale of real estate should be made with a
statement of its area, at the rate of a certain price
for a unit of measure or number, the vendor shall
be obliged to deliver to the vendee, if the latter
should demand it, all that may have been stated in
the contract; but, should this be not possible, the
vendee may choose between a proportional
reduction of the price and the rescission of the
contract, provided that, in the latter case, the lack
in the area be not less than one-tenth of that
stated.
The same shall be done, even when the area is the
same, if any part of the immovable is not of the
quality specified in the contract.
The rescission, in this case, shall only take place at
the will of the vendee, when the inferior value of
the thing sold exceeds one- tenth of the price
agreed upon.
Nevertheless, if the vendee would not have bought
the immovable had he known of its smaller area of
inferior quality, he may rescind the sale. (1469a)

Article 1556. Should the vendee lose, by reason of
the eviction, a part of the thing sold of such
importance, in relation to the whole, that he would
not have bought it without said part, he may
demand the rescission of the contract; but with the
obligation to return the thing without other
encumbrances that those which it had when he
acquired it.
He may exercise this right of action, instead of
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Does C1 also have a legal basis to rescind?
Yes.
Who has a better right?
Jurado: Whoevers contract was first
created. THIS IS WRONG
DEAN ULAN: The date of who first filed the
action shall prevail; person who first
initiated the claim.
ART. 1198(1) WILL PREVAIL. IT IS THE
PRIORITY OVER ART. 1381(3)

Example: D will pay C2 if C2 graduates from college
of law; at that time D is already insolvent, pays to
C1. Clear that Art. 1381(3) because there is no
obligation due and it was insolvent.
If with Art. 1198(2): with a period, not yet due no
longer applies

Special Cases provided by Law

Article 1189. When the conditions have been
imposed with the intention of suspending the
efficacy of an obligation to give, the following rules
shall be observed in case of the improvement, loss
or deterioration of the thing during the pendency of
the condition:
(4) If it deteriorates through the fault of the debtor,
the creditor may choose between the rescission of
the obligation and its fulfillment, with indemnity for
damages in either case;

Article 1526. Subject to the provisions of this Title,
notwithstanding that the ownership in the goods
may have passed to the buyer, the unpaid seller of
goods, as such, has:
(4) A right to rescind the sale as likewise limited by
this Title.

Article 1534. An unpaid seller having the right of
lien or having stopped the goods in transitu, may
rescind the transfer of title and resume the
ownership in the goods, where he expressly
reserved the right to do so in case the buyer should
make default, or where the buyer has been in
default in the payment of the price for an
unreasonable time. The seller shall not thereafter
be liable to the buyer upon the contract of sale, but

enforcing the vendor's liability for eviction.

The same rule shall be observed when two or more
things have been jointly sold for a lump sum, or for
a separate price for each of them, if it should clearly
appear that the vendee would not have purchased
one without the other. (1479a)
*supplementary but not appear in test

Article 1560. If the immovable sold should be encumbered with
any non-apparent burden or servitude, not mentioned in the
agreement, of such a nature that it must be presumed that the
vendee would not have acquired it had he been aware thereof,
he may ask for the rescission of the contract, unless he should
prefer the appropriate indemnity. Neither right can be exercised
if the non-apparent burden or servitude is recorded in the
Registry of Property, unless there is an express warranty that
the thing is free from all burdens and encumbrances.
Within one year, to be computed from the execution of the
deed, the vendee may bring the action for rescission, or sue for
damages.
One year having elapsed, he may only bring an action for
damages within an equal period, to be counted from the date
on which he discovered the burden or servitude. (1483a)
Article 1567. In the cases of articles 1561, 1562, 1564, 1565
and 1566, the vendee may elect between withdrawing from the
contract and demanding a proportionate reduction of the price,
with damages in either case. (1486a)
Article 1659. If the lessor or the lessee should not comply with
the obligations set forth in articles 1654 and 1657, the
aggrieved party may ask for the rescission of the contract and
indemnification for damages, or only the latter, allowing the
contract to remain in force. (1556)

Assailability: not just the ward or absentee, also

by a 3rd person creditor or plaintiff

Presumption

Article 1387. All contracts by virtue of which the debtor alienates

property by gratuitous title are presumed to have been entered into
in fraud of creditors, when the donor did not reserve sufficient
property to pay all debts contracted before the donation.
Alienations by onerous title are also 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 the rescission.
In addition to these presumptions, the design to defraud creditors
may be proved in any other manner recognized by the law of
evidence. (1297a)

BADGES OF FRAUD:
1. The fact that the consideration of the
conveyances is fictitious or is inadequate.

2. A transfer made by a debtor after suit has been
begun and while it is pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete
insolvency.

5. The transfer of all or nearly all of his property by
a debtor, especially when he is insolvent or greatly
embarrassed financially.

6. The fact that the transfer is made between father
and son, where there are present other of the
above circumstances.

7. The failure of the vendee to take exclusive
possession of all the property.

*Use the badges of fraud to prove presumption of
fraud
Examples:
1. Contracts entered into in arms length
2. Vendee knows that vendor sold last
property

PRESCRIPTION:
4 years
reckon from the date when the contract is
on its executor stage
Exceptions:
o Action may be initiated by the ward
4 years reckoning upon reaching the
age of majority
o Absentee may initiate the action 4
years reckoning from the time the
absentees domicile is known
All other cases, 4 years from the executor
period.
NOT THE DISCOVERY OF FRAUD


Binding Efficacy: no extrinsic defect of contract;
only intrinsic that may be waived; totally valid
and no need for ratification

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