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DEFINITION AND CHARACTERISTICS OF RESCISSIBLE CONTRACT

RESCISSIBLE CONTRACT a contract which is valid because it contains all of the essential requisites prescribed by law, but which is defective because of the injury or damage to either of the contracting parties or to third persons, as a consequence of which it may be rescinded by means of a proper action for rescission.

REQUISITES OF RESCISSION: a) The contract entered into is essentially valid b) There is lesion or pecuniary prejudice.

CHARACTERISTICS OF A RESCISSIBLE CONTRACT: 1. Their defect consists in injury or damage either to one of the contracting parties or to third persons. 2. Before rescission, they are valid and, therefore, legally effective. 3. They can be attacked directly only, and not collaterally. 4. They can be attacked only either by a contracting party or by a third person who is injured or defrauded. 5. They are susceptible of convalidation only by prescription, and not by ratification.

CONCEPT OF RESCISSION: It is a remedy granted by law to the contracting parties, and even to third persons, to secure the reparation of damages caused to them by a contract, even if the same should be valid, by means of the restoration of things to their condition prior to the celebration of the contract.

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; Requisites: 1. The contract must have been entered into by a guardian in behalf of his ward or by a legal representative in behalf of an absentee; 2. The ward or absentee must have suffered lesion of more than one-fourth of the value of the property which is the object of the contract; 3. The contract must have been entered into without judicial approval; 4. There must be no other legal means for obtaining reparation for the lesion; 5. The person bringing the action must be able to return whatever he may be obliged to restore; and 6. The object of the contract must not be legally in the possession of a third person who did not act in bad faith. If the object of the contract is legally in the possession of a third person who did not act in bad faith, the remedy available to the person suffering the lesion is indemnification for damages and not rescission.

Two requisites of premature payment 1. The debtor-payer must have been insolvent Insolvency- financial situation of the debtor by virtue of which it is impossible for him to fulfil his obligation. A judicial declaration is not necessary. 2. The debt was not yet due and demandable Subsidiary Character of action

It cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. Rescission shall be only to the extent necessary to cover the damage caused. (n)

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

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 The article provides for mutual restitution whereby both parties must return what they have received from each other.

Parties must return to each other: (1) The object of the contract with its fruits; (2) The price thereof with legal interest. Circumstances where rescission is not allowed: (a) The remedy of rescission cannot be availed of if the party who demands rescission cannot return what he is obliged to restore under the contract; (b) If the property is legally in the possession of a third person who acted in good faith; (c) In case of loss, the remedy would be to demand indemnity from the person who caused the loss.

Effect of Rescission in Case of Lesion Arises an obligation on the part of both contracting parties to return to the other the object of the contract, including its fruits and interests. Rescission is possible only when the one demanding it can return whatever he may be obliged to restore.

Fruits of the thing refers not only to natural, industrial and civil fruits but also other accessions obtained by the thing.

interests refers to legal interest.

The determination of the good or bad faith of the party obliged to restore is of transcendental importance in order to assess the fruits or the value thereof which must be returned as well as the expenses which must be reimbursed.