You are to make your "OWN" Multiple Choice Questions (MCQs) for all Topics from The given notes below about recessible and voidable contracts

make 1 question - Theory / Principle / Objective type

Make 2 questions - True or False (but still MCQ format)

make 2 questions- Application/Problem Type

RFBT 1

Week 7

RESCISSIBLE AND VOIDABLE CONTRACTS

A. Rescissible(1380-1381,1386)

Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law.

Art. 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 one-fourth 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.

Art. 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts.

i. Definition

- Are those validly agreed upon because all essential elements exist and, therefore, legally effective, but in the cases established by law, the remedy of rescission is granted in the interest of equity.

ii. Requisites

1. The contract must be validly agreed upon.

2. There must be lesion or pecuniary prejudice to one of the parties or to a third person.

3. The rescission must be based upon a case especially provided by law.

4. There must be no other legal remedy to obtain reparation for the damage.

5. The party asking for rescission must be able to return what he is obliged to restore by

reason of the contract.

6. The object of the contract must not legally be in the possession of third persons who did

not act in bad faith.

7. The period for filing the action for rescission must not have prescribed.

iii. Essential features of Rescission:

1. Implied; so, there is no need to stipulate it

2. Not automatic or absolute; injured party must go to court and apply for a decree of

rescission

EXC:

a. When it is stipulated that rescission is automatic

b. When the contract is still executory

3. Court is given the discretionary power to fix a period, instead of rescinding the obli. esp.

if the breach is slight or casual

iv. Examples of Badges of Fraud:

1. The fact that the 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.

3. A sale upon credit by an insolvent debtor.

4. Transfer of all his property especially when the debtor is insolvent.

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5. The fact that the transfer is made between father and son, when there are present any or some of the above circumstances/

6. Failure of the vendee to take exclusive possession of all the property.

7. It was known to the vendee that the vendor had no properties other than that sold to

him.

v. Premature payment (1382)

vi. Action for rescission (1383-1384)

vii. Effects (1385)

Art. 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.

Art. 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.

Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused.

Art. 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.

viii. Rescission of contracts in fraud of creditors; presumptions of fraud (1387)

Art. 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.

Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment 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.

ix. Effects of bad faith in case of loss (1388)

x. Prescriptive period for rescission (1389)

Art. 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.

Art. 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 former's incapacity, or until the domicile of the latter is known.

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- Persons who can bring the action for rescission

1. The injured party or the defrauded creditor;

2. His heirs, assigns, or successors in interest; or

3. The creditors of the above entitled to subrogation.

B. Voidable (1390)

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 mistake, violence, intimidation, undue influence or

fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.

i. Definition

- Are 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.

ii. Examples

- Refer to 1390.

iii. Distinguished from: 1. Rescissible

2. Void or Inexistent

- See separate Table of Comparison of the 4 Defective Contracts.

iv. Prescriptive period for annulment (1391)

Art. 1391. The action for annulment shall be brought within four years. This period shall begin:

In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases.

v. Effects of ratification (1392,1396)

vi. Kinds of ratification (1393)

Art. 1392. Ratification extinguishes the action to annul a voidable contract.

Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted.

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Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right.

- May be effected by guardian (1394)

- Does not require conformity (1395)

vii. Persons who are entitled to ask for annulment (1397)

viii. Effects of annulment (1398-1399)

Art. 1394. Ratification may be effected by the guardian of the incapacitated person.

Art. 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment.

Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract.

Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages.

Art. 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him.

ix. Loss of thing while in possession of party at fault (1400)

x. Loss of thing while in possession of party entitled to annulment (1401)

xi. Mutual restitution (1402)

Art. 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so because it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same date.

Art. 1401. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings.

If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault of the plaintiff.

Art. 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon him.

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