Rescission Oblicon

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 suer 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 suer the lesion stated in the preceding number; #. Those undertaen 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 asing 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before accion pauliana can be brought: 1) There must be a creditor who became such $&3$ to the contract sought to be rescinded (whether the party asing for rescission is a "udgment creditor already or not, is liewise immaterial). 2) There must be an alienation made subsequent to such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

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Rescission

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(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; 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 mistae, 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 10* i"il ode)  Ac#nowledgment , to remedy a de!ciency of proof (Art. 10* 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 eect of  valid contracts. &n one sense, therefore, they may be called "alidable. %oidable and rescissible contracts, upon the other hand, produce legal eects 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 maing 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 ist at the time of  the transaction; () Those whose ob"ect is outside the commerce of men; (/) Those which contemplate an impossible service; (