❖ Rescissible Contracts
➢ Those validly agreed upon because all the essential elements exist and, therefore, legally effective.
➢ They are valid and enforceable although subject to rescission by the court when there is economic damage or prejudice to one of the parties or to a third person.
➢ A remedy granted by law to the contracting parties and to third persons in order to secure reparation of damages caused by a valid contract
▪ Requisites of rescission
1. Contract is valid
2. There is lesion/ pecuniary prejudice
3. Based upon a case especially provided by law
4. No other legal remedy
5. Party asking for rescission must be able to return what he is obliged to restore 6. Object not in legal possession of another
7. Period to file not prescribed
▪ 5 types of rescissible contracts
1. Contracts entered into in behalf of wards
2. Contracts agreed upon in representation of absentees
3. Contracts undertaken in fraud of creditors
a. existing credit prior to the contract to be rescinded b. fraud on the part of the debtor
c. creditor cannot recover his credit in any other manner 4. Contracts which refer to things under litigation
5. All other contracts specially declared by law to be subject to rescission
▪ Payments made in a state of insolvency
***Payments made in state of insolvency for obligations to whose fulfilment the debtor could not be compelled at the time of they were effected, are also rescissible.***
▪ Nature of action for rescission
o Rescission is not a principal remedy; only subsidiary, meaning that it can be availed of only if the injured party proves that he has no other legal means aside from rescinding the contract to obtain redress for the damage caused. Article 1384
▪ Extent of rescission
o The rescission shall only be to the extent of the creditor’s unsatisfied credit.
▪ Rescission creates obligation of mutual restitution
o When the court declares a contract rescinded, the parties must return to each other: 1. The object of the contract with its fruits
2. The price thereof with legal interest
▪ Obligation of third person to restore
o The clause “he who demands rescission” applies to a third person. If the third person has nothing to restore, the article does not apply. ▪ When rescission does not apply
1. If the party who demands rescission can’t return what he is obliged to restore under the contract 2. If the property is legally in the possession of a third person who acted in good faith. In such case, the remedy would be to demand indemnity for damages from the person who caused the loss.
▪ Contracts approved by the courts
o If a contract entered into in behalf of a ward or absentee has been approved by court, rescission cannot take place because it is valid whether there is lesion or not.
▪ When alienation presumed in fraud of creditors
1. Alienation by gratuitous title
> When the donor did not reserve sufficient property to pay all debts contracted before the donation 2. Alienation by onerous title
> When made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued ▪ Circumstances denominated as badges of fraud
1. Consideration of the conveyance is fictitious or 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. The transfer of all his properties by a debtor, especially when he is insolvent or greatly embarrassed financially; 5. The transfer is made between father and son, when there are present some or any of the above circumstances 6. The failure of the vendee to take exclusive possession of all the property; and 7. It was unknown to the vendee that the vendor had no properties other than that sold to him...
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