CHAPTER 6 – Rescissible Contracts (Articles 1380-1389)

CHAPTER 6
RESCISSIBLE CONTRACTS
(Arts. 1380-1389)

STUDY GUIDE :

1. What is rescission?
 Rescission is a remedy granted by law to contracting parties and third persons
alike to render inefficacious a contract validly entered into in order to secure reparation for
pecuniary injury or damage caused them by the contract.

2. What are the basic preconditions for the rescission of a contract?

(a) The contract must be valid. (Art. 1380)
(b) There must be lesion or pecuniary prejudice to one of the parties or to a
third person. (Art. 1381)

(c) The rescission must be based upon a case especially provided by law . (Arts.
1380, 1381 & 1382)

(d) There must be no other legal remedy to obtain reparation for the damage.
- Rescission, therefore, is a subsidiary remedy. (Art. 1383) It cannot be availed of
where, for example, a party is willing to pay for the damage suffered.
(e) Mutual restitution must still be possible. (Art. 1385, par. 1)
(f) The thing object of the contract must not be in the legal possession of third persons
who acted in good faith. (Art. 1385, par. 2)
(g) The action must have been timely filed, i.e., not yet prescribed. (Art. 1389)

3. What are the rescissible contracts? (Art. 1381)

(a) A contract entered into by a guardian in behalf of a ward where there is lesion by
more than one-fourth [Art. 1381(1)].
(b) A contract entered into in behalf of an absentee when there is lesion by more than
one-fourth [Art. 1381(2)].

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NOTE: In Articles 1381 (1) & (2), if the contract is entered into with the
approval of the court, the contract is VALID, regardless of lesion. (Art. 1386)
(c) A contract made to defraud a creditor who has been left with no other means of
collecting his credit [Art. 1381 (3)].
(d) A contract made by the defendant disposing of a property under litigation without the
knowledge and approval of the plaintiff or of competent judicial authority [Art. 1381(4)].

(e) Premature payments made in a state of insolvency (Art. 1382).

 Article 1382 does not exactly speak of a contract. It refers to payment. Hence, it
is not included under Article 1381.

 Prerequisites for premature payments to be rescissible :

1. The debtor-payor must have been insolvent; and

2. The debt was not yet due and demandable at the time of payment.

4. Under Article 1381(3), the action to rescind contracts made in fraud of creditors is called
“accion pauliana.” (See also Art. 1177, the last sentence of which speaks of accion
pauliana.) The requisites for accion pauliana are :
(a) There must be a credit prior to the contract to be rescinded.
(b) There must be fraud on the part of the debtor.
(c) There must be no other remedy for the prejudiced creditor.

5. In the second requirement for accion pauliana above outlined, it must be proven that
there was fraud on the part of the debtor, i.e., that the debtor acted in bad faith in
entering into the contract knowing that it would cause damage to his creditor(s).
 There are, however, instances when the existence of fraud is presumed and
need not be proven by the creditor in an accion pauliana. What are some of these
instances when fraud on the part of the debtor is presumed? (Art. 1387)

 Gratuitous Alienations – (Art. 1387, par. 1) PRESUMED FRAUDULENT when the

debtor did not reserve sufficient property to pay all debts
contracted before the donation.

 Onerous Alienations – (Art. 1387, par. 2) PRESUMED FRAUDULENT when made

by persons :

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(a) against whom some judgment has been rendered, even if not yet final; OR
(b) against whom some writ of attachment has been issued.

 Bear in mind that in the case of onerous alienations :

(i) The decision or attachment need not refer to the property alienated (i.e., the
judgment-debtor cannot sell ANY property).
Example : In a case, D’s house at No. 1 Juan Luna Street was attached by the court.
After the attachment, D sold his other house at No. 2 Jose Rizal Street to B. C, the creditor of
D, now says that the sale is presumed fraudulent. D counters by saying that there is no such
presumption because, after all, the house which had been attached was not the same house
sold to B.
 D’s argument is not justifiable. It is true that the house D sold to B was not the one
levied upon or attached. The fact, however, remains that D is a person against whom some
writ of attachment has been issued. Article 1387, par. 2, states that the attachment need not
refer to the property alienated.

(ii) The decision or attachment need not have been obtained by the party seeking
the rescission (i.e., NOT ONLY the judgment creditor can rescind).
Example : C1 brought an action against D, his debtor. C1 won. After judgment, D sold his
property to B. C2, another creditor of D, wants to rescind this sale to B. Both D and B claim
that C2 does not have the right to interfere because, after all, it was C1, not C2, who had won
a judgment against D.
 The claim of D and B has no legal basis. It is true that it was C1, not C2, who won the
judgment. This is, however, immaterial since Article 1387, par. 2 states that the decision
need not have been obtained by the party seeking the rescission.

 NOTE: The foregoing presumptions of fraud are mere disputable

presumptions and can be rebutted by evidence to the contrary.

6. Under Article 1385, par. 1, an action for rescission requires the obligation of restitution.
What should be returned by the parties after a contract is rescinded?
(a) The object of the contract, with its fruits.
(b) The price, with its interest.

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7. Under Article 1385, par. 2, for rescission to prosper, the acquirer-possessor of the object
of the contract must have acted in bad faith.
Illustrative Example : To defraud his creditor C, D sold to B a piece of land. B took legal
possession of the land. If C has no other means of collecting his credit, can C rescind the
contract of sale between D and B?  It depends :

(1) If B was in GOOD FAITH, rescission CANNOT take place.

(2) If B was in BAD FAITH, rescission is PROPER.
(a) The acquirer-possessor in BAD FAITH of the object of the contract to be rescinded
must RETURN or INDEMNIFY (in case of loss due to “ANY CAUSE”).
(Art. 1388, par. 1)
(b) In case of subsequent transfers, the first acquirer shall be liable first, and so on
successively.

8. What is the prescriptive period for filing an action for rescission? (Article 1389)
(a) General rule – 4 years from perfection of the contract (par. 1)
(b) Exceptions : (par. 2)
(b.1.) persons under guardianship – 4 years from termination of incapacity
(b.2.) absentees – 4 years from the time the domicile is known

PLEASE MEMORIZE :  Article 1381

APPLICATION/PROBLEMS :

1. D owes C P3M due on March 30, 2013. On February 15, 2013, knowing that he
cannot pay his obligation to C, D sold to B his only property in Makati for P3.5M. When C
tried to collect D’s debt on due date, D was already insolvent. Having been advised of the
earlier sale of the Makati property made by D to B, C now seeks to rescind the sale between
D and B on the ground that the contract was executed by D to escape the payment of his
P3M debt to C. In the meantime, D received notice that he had inherited the properties left
by his childless aunt who had recently died on April 2. The inheritance amounted to P6M. Will
C’s action for rescission in the instant case prosper?  Arts. 1381(3) & 1383

2. P sues D for the recovery of a diamond ring. Pending the proceedings in the case,
D surreptitiously sells the ring to B without informing B that the ring was the subject of a

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pending case. Thereafter, the court rendered judgment in the case adjudicating ownership
over the ring in favor of P. When P learned that the ring had already been sold to B, P filed
an action to rescind the contract of sale. Will P’s action prosper?  Arts. 1385, pars. 2&3.
3. D owes C P1.5M payable on January 30, 2013. He owns a parcel of land valued at
P2M. On January 15, 2013, knowing that he cannot pay his obligation to C, D sold this land
for P2M to his friend B who was aware of D’s obligation and insolvency. On the due date, C
demanded payment from D but the latter is already insolvent. After a year, since D had no
other properties with which to answer for his obligation, C succeeded in having the contract of
sale between D and B cancelled or rescinded. What are now the obligations of D and B to
each other?  Art. 1381, par. 1.

4. D is the owner of two parcels of land: one situated in Manila, and the other in
Quezon City. On September 29, 2012, D borrowed from C the amount of P1M payable two
months thereafter. On maturity date, D failed to pay his debt to C. C then filed an action for
collection, and asked the court to attach the land of D situated in Manila. After the Manila
property of D was attached by the court, D sold his land sited in Quezon City to B. C now
seeks to rescind the contract of sale between D and B on the ground that it is presumed to be
a fraudulent sale. D, however, counters by saying that there is no such presumption because
after all the Manila property which has been attached was not the one sold to B. Does D’s
argument have legal basis?  Art. 1387, par. 2.

5. To defraud his creditors, D sold his house to B who knew of D’s purpose. Later, C,
one of the creditors, sought to have the sale rescinded. Upon investigation, however, C
found out that the house was burned to ashes because of a falling meteorite from space.
Since C could no longer collect his credit as D had no other existing properties, C now
demands from B payment of D’s debt plus damages. B, however, denies liability. B asserts
that aside from the fact that he was never a party to the contract between D and C, the house
which D sold to him (B) perished in a fortuitous event which was without fault on his part. Is
B’s claim justifiable?  Art. 1388, par. 1

6. On January 15, 2009, M celebrated his 15th birthday. On this same day, G, the
guardian of M, sold the harvest of M’s farm to B. The harvest, which was valued at P400,000
was sold for P250,000. On March 15, 2013, M filed an action for rescission of the contract of
sale on the ground that he had thereby suffered lesion by more than one-fourth of the value of
the harvest from his farm. B opposed the action on the ground that M’s action had already
prescribed having been filed more than four years from the time the contract was entered
into. If you were the judge, will you dismiss M’s action for rescission on the ground of
prescription?  Art. 1389, par. 2.

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