Article 1380 ? 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. ? Rescission ? 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 . 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 Article 1381 ? 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 Contracts undertaken in fraud of creditors a. existing credit prior to the contract to be rescinded b. fraud on the part of the debtor c. creditor cannot recover his credit in any other manner 4.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 . All other contracts specially declared by law to be subject to rescission Article 1382 ? 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. *** Article 1383 ? 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. Article 1385 ? Rescission creates obligation of mutual restitution o When the court declares a contract rescinded, the parties must return to each other: 1.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. Article 1386 ? 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. Article 1387 ? When alienation presumed in fraud of creditors 1. Alienation by gratuitous title gt; 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 Article 1388 ? Liability of purchaser in bad faith o The purchaser in bad faith, who acquired the object of contract alienated in fraud of creditors, must return the same if the sale is rescinded and should it be impossible for him to return it, he must indemnify the former. Should there be two or more alienations; the first acquirer shall be liable first, and so on, successively. Article 1389 ? Period for filing action for rescission ? The action to claim rescission must be commenced within four years from the date the contract was entered into. The exceptions are: 1. For guardianship: shall begin from the termination of incapacity 2. For absentees: from the tome the domicile is known ?
Persons entitled to bring action 1. the injured party or the defrauded creditor; 2. his heirs, assigns, or successors in interest; or 3. he creditors of the above entitled to subrogation Article 1390 ? Voidable or annullable contracts ? Those which possess all the essential requisites of a valid contract but one of the parties is incapable of giving consent, or consent is vitiated by mistake, violence, intimidation, undue influence, or fraud. ? They are valid and binding unless annulled by a proper action in court. Once ratified, they become absolutely valid and can no longer be annulled. ? Kinds of voidable contracts 1. Legal incapacity to give consent 2. Violation of consent ? Annulment A remedy provided by law, for reason of public interest, for the declaration of the inefficacy of a contract based on a defect or vice in the consent of one of the contracting parties in order to restore them to their original position in which they were before the contract was executed Article 1391 ? Period for filing action for annulment ? The four-year period for bringing an action for annulment of a voidable contract is reckoned: 1. Intimidation, violence, or undue influence: from the time the intimidation, etc. , ceases 2. Mistake or fraud: from the time it is discovered 3.
Minors or Incapacitated persons: from the time the guardianship ceases Article 1392 ? Ratification ? Means that one voluntarily adopts some defective or unauthorized act or contract ? Cleanses the contract from all its defects from the moment it was constituted; contract becomes valid; action to annul is extinguished Article 1393 ? Kinds of ratification 1. Express 2. Implied or tacit ? Requisites of ratification 1. Knowledge of the reason which renders contract voidable; 2. Such reason must have ceased; 3. Injured party must have executed an act which necessarily implies/expresses an intention to waive his right
Article 1394 ? Who may ratify 1. Contract entered into by an incapacitated person: a. the guardian; or b. the injured party himself when already capacitated 2. In case the contract is voidable on the ground of mistake, etc. , ratification can be made by the party whose consent is vitiated Article 1395 ? Conformity of guilty party to ratification not required Article 1396 ? Effect of ratification retroactive ? The effect of ratification is to make the contract valid from its inception subject to prior rights of third persons Article 1397 ? Party entitled to bring an action to annul
Requisites: 1. The plaintiff must have an interest in the contract; and 2. The victim and not the party responsible for the defect is the person who must assert the same ? Right of strangers to bring action One who is not a party to the contract or an assignee has no legal capacity to challenge the validity of such contract. Strangers are without right or personality to bring the action for they are not obliged by the contract, principally or subsidiarily ? Guilty party without right to bring action The guilty party, including his successor in interest, cannot ask for annulment
Article 1398 ? Duty of mutual restitution upon annulment 1. If the contract is annulled, the parties must restore to each other (a) the subject matter of the contract with its fruits and (b) the price thereof with legal interest 2. In personal obligations where the service had already been rendered, the value of the service with corresponding interest is the basis for damages Article 1399 ? Restitution by incapacitated person o The incapacitated person is obliged to make restitution only to the extent that he was benefited by the thing or price received by him.
Article 1400 ? Effect of loss of the thing to be returned 1. Lost without the fault of the person obliged to make restitution; no more obligation to return such thing. 2. Lost through his fault; obligation is not extinguished but is converted into indemnity for damages Article 1401 ? Extinguishment of action for annulment 1. When the thing which is the object is lost through the fraud or fault of the person who has a right to institute the proceedings 2. The right of action is based upon the incapacity of any one of the contracting parties
Article 1402 ? Effect where a party cannot restore what he is bound to return o The return by one party of what he is obliged to restore by the decree of annulment may be regarded as a condition to the fulfilment by the other of what is incumbent upon him. There will be no annulment if the party cannot restore what he is bound to return, even if the loss is due to a fortuitous event Article 1403 ? Unenforceable contract ? Those that cannot be enforced in court or sued upon by reason of certain defects provided by law Although valid, they are unenforceable in court unless they are cured or ratified. Once ratified, they may then be enforceable ? Kinds of unenforceable contracts 1. Those entered into in the name of another by one without, or acting in excess, of authority
2. Those who do not comply with the Statute of Frauds 3. Those where both parties are incapable of giving ? Unauthorized contracts ? Those entered into in the name of another person by one who has been given no authority or legal representation or who has acted beyond his powers ? Statute of Frauds . History … 2. Purpose > The Statute of Frauds has been enacted not only to prevent fraud but also to guard against the mistakes of honest men by requiring that certain agreements specified that are susceptible to fraud must be in writing; otherwise, they are unenforceable by action in court. 3. Application a. Not applicable in actions which are neither for damages because of a violation of a contract, nor for the specific performance thereof b. Applicable only to executory contracts and not to contracts which are totally or partially performed c.
Not-applicable where the contract is admitted expressly, or impliedly by the failure to deny specifically its existence, no further evidence thereof being required in such case d. Applicable only to the agreements enumerated therein e. Not applicable where a writing does not express the true agreement of the parties f. Does not declare that contracts infringing it are void but merely unenforceable g. Defense may be waived h. Defense is personal to the parties and cannot be interposed by strangers to the contract ? Agreements within the scope of the Statute of Frauds 1.
Agreement not to be performed within one year from the making thereof 2. Promise to answer for the debt, default, or miscarriage of another 3. Agreement in consideration of marriage other than mutual promise to marry 4. Agreement for sale of goods, etc. at price not less than ? 500 5. Agreement for leasing for a longer period than one year 6. Agreement for the sale of real property or of an interest therein 7. Representation as to the credit of a third person Article 1404 Unauthorized contracts are governed by article 1317 and the principles of agency in Title X of this Book.