CHAPTER 6: Rescissible Contracts Arctile 1380. Contracts validly agreed upon may be rescinded in the cases established by law.

(1290) Definitions Rescissible contracts validly agreed upon because all requisites exist therefore legally effective but by reason of external facts (damage or prejudice to one party or to 3rd persons) its enforcement would cause injustice. Rescission remedy granted by law to parties or third persons to secure reparation of damages caused by a valid contract by restoring things to previous condition Requisites of Rescission a. Contract must be validly agreed upon b. There must be lesion or financial prejudice to one of the parties or 3rd person c. Rescission must be based on a case especially provided by law d. There must be no other legal remedy to obtain compensation for damages e. Party asking for rescission must be able to return what he is obliged to restore by reason of contract f. Object of contract must not legally be in possession of 3rd person who did not act in bad faith g. Period for filing for rescission must not have lapsed Article 1381. The following contracts are rescissible: 1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than oneforth of the value of the things which are the object thereof; 2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; 3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; 4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; 5) All other contracts specially declared by law to be subject to rescission. (1291a) Cases of Rescissible Contracts 1. contracts entered in behalf of wards ward is person under guardianship because of some incapacity . 2. contracts agreed upon in representation of absentees absentee is person who disappears from his home, his whereabouts unknown and without leaving an agent to administer his property. Lesion must also be greater than of value of thing/property *general rule lesion does not invalidate contract unless specified by law 3. contracts undertaken in fraud of creditors the following requisites must also be present: a. there must be a credit prior to the contract to be rescinded although not yet due b. there must be fraud on part of debtor which may be presumed or proved c. creditor cannot recover his credit in any other manner, not required that debtor be insolvent *when fraud charged is not the one used to obtain consent, it can only be fraud of creditors that gives rise to a rescission of the offending contract 4. contracts which refer to things under litigation 5. other instances a. judicial or extrajudicial partition may be rescinded on account of lesion when any one of co-heirs received less than of the share which he is entitled b. lessor or lessee should not comply with obligations in article 1654 (obligations of lessor) and 1657 (lessee), aggrieved party can ask for rescission and indemnification or only indemnification and contract will still remain in force c. vendee may rescind when lack in the area of real estate sold be not less than 1/10 of that stated or when inferior value of thing sold exceeds 1/10 of price agreed upon Article 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected are also rescissible. (1292) *when insolvent debtor pays for obligations that are not yet demandable, payment is rescissible. *debtor is insolvent when he does not have sufficient properties to meet his obligations, need not be judicially declared Article 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. (1294) *rescission can only be availed when there is no other legal means to obtain compensation for damage received *if damage is repaired, as in lesion suffered by ward or absentee, rescission cannot take place Article 1384. Rescission shall be only to the extent necessary to cover the damage caused. (n) *policy of law is only to preserve or respect contract, not extinguish it. Thus, if partial rescission can cover damage, then only partial rescission will take place. Article 1385. Rescission creates the obligation to return the things which were the object of the contract. Together with their fruits and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. (1295) *rescission takes place to restore the parties to original situation, thus, parties must return to each other object of contract with fruits, and the price with legal interest. *he who demands rescission also applies to 3rd persons but if he has nothing to return, then article does not apply. Rescission is not allowed

1. if party who demands rescission cannot return what he is obliged to restore under the contract 2. if property is legally in the possession of 3rd person who acted in good faith. Remedy would be indemnity for damages from person who caused the loss. Article 1386. Rescission referred to in Nos 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts. (1296) *when approved by courts, rescission cannot take place because it is assumed that court is acting in the interest of the ward or absentee. 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. Alienation 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)

established prima facie presumptions of fraud in case of alienation by debtor of his property 1. Alienation by gratuitous title when debtor donates property to another after which his remaining property is no longer enough to pay for his debts 2. alienation by onerous title instead of donation, there is contract of sale. Sale by debtor is not fraudulent unless proven by creditors that sale will prejudice their rights. However, if there is some judgment issued against debtor, sale is considered fraudulent. Circumstances denominated as badges of fraud 1. consideration of the conveyance is fictitious or inadequate 2. transfer made by debtor after suit has been begun and while pending against him 3. sale upon credit by an insolvent debtor 4. transfer of all property by debtor, especially if insolvent 5. transfer is made between father and son, when there are present some or any of the above 6. failure of vendee to take exclusive possession of all the property 7. vendee knows that the vendor had no properties other than that sold to him Article 1388. Whoever acquires in bad faith the things alienated in fraud of creditors shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them. If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1298a) *purchaser in bad faith must return the object if sale is rescinded and if he is unable to return thing due to any cause, he must indemnify the former. *the first acquirer is liable and so on. Article 1389. The action to claim rescission must be commenced within four years. For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the formers incapacity, or until the domicile of the latter is known. (1299) Exceptions for period of filing action 1. when person is under guardianship, period shall start from end of incapacity 2. for absentees, from time when domicile is known Persons entitled to bring action 1. injured party or defrauded creditor 2. heirs, assigns, successors in interest 3. creditors of the above entitled to subrogation