v. Rescission

Newly-discovered Documents

When the parties compromise generally on all differences which they might have with each other, the discovery of documents referring to one or more but not to all of the questions settled shall not itself be a cause for annulment or rescission of the compromise, unless said documents have been concealed by one of the parties.

But the compromise may be annulled or rescinded if it refers only to one thing to which one of the parties has no right, as shown by the newly-discovered documents. [Art. 2039, CC]

Effect of rescission on earnest money received

When the seller seeks to rescind the sale, he is obliged to return the price received with interest; the buyer must return the thing sold with its fruits, subject to Article 1385. (NCC, Art. 1385)

Rescission of Adoption

Who may file: For domestic adoption, only the adoptee may petition the National Authority for Child Care (NACC) for rescission of the administrative adoption order under RA 11642.

• The adopters may disinherit the adoptee for causes provided in Art. 919 NCC.

NOTE: If the adoptee is a minor or if over 18 years old but is incapacitated, he/she must be assisted by the Department of Social Welfare and Development as guardian/counsel.

Grounds for Rescission of Adoption: (MASA)

• Repeated physical and verbal Maltreatment by the adopters despite having undergone counseling
• Attempt on the life of the adoptee
• Sexual assault or violence
• Abandonment and failure to comply with parental obligations.

Effects of the Rescission of the Adoption

• The parental authority of the adoptee's biological parents, if known, OR the legal custody of the DSWD shall be restored if the adoptee is still a minor or incapacitated.
• The reciprocal rights and obligations of the adopters and the adoptee to each other shall be extinguished.
• Upon rescission of a domestic adoption under R.A. No. 11642, the NACC shall direct the Civil Registrar to cancel the amended certificate of birth of the adoptee and restore his/her original birth certificate.
• Succession rights shall revert to its status prior to adoption as of the effective date of rescission under R.A. No. 11642. Vested rights acquired prior to rescission shall be respected.

Inter-Country Adoption under R.A. No. 11642 – [R.A. No. 8043 (repealed)](/e42731f3948f45a79dc8c9625eb9281f?pvs=25)

Remedy of an Heir Who has Alienated the Property Adjudicated to Him

An heir who has alienated the whole or a considerable part of the real property adjudicated to him cannot maintain an action for rescission on the ground of lesion, but he shall have a right to be indemnified in cash. (Art. 1102)

Two Kinds of Rescission

• The rescission mentioned in Art. 1380 of the New Civil Code
• The rescission under Art. 1191 of the Civil Code, commonly distinguished as resolution of a reciprocal obligation.

Rescission under Art. 1380 concerns valid contracts made rescissible by law, including cases of lesion or fraud of creditors under Art. 1381; resolution under Art. 1191 instead rests on noncompliance with a reciprocal obligation. Rescission under Art. 1380 shall be only to the extent necessary to cover the damages caused. (NCC, Art. 1384)

Nature of an action for rescission

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. (NCC, Art. 1383) Hence, it must be availed of as the last resort, availed only after all legal remedies have been exhausted and proven futile. (Khe Hong Cheng v. CA, G.R. No. 144169, March 28, 2001)

Rationale: In order not to disturb other contracts and to comply with the principle of relativity of contracts

However, if it can be proven that the property alienated was the only property of the debtor at the time of the transaction, the action for rescission is certainly maintainable because it is clear that the creditor has no other remedy under the circumstances. (Pineda, 2009 citing Regalado vs. Luchsinger, 5 Phil. 625)

NOTE: Rescission shall be only to the extent necessary to cover the damages. (NCC, Art. 1384)

Prescriptive period of action for rescission

• Under Art. 1381, no.1 – within 4 years from the time the termination of the incapacity of the ward;
• Under Art. 1381, no. 2- within 4 years from the time the domicile of the absentee is known; or
• Under Art. 1381, nos. 3 & 4 & Art. 1382 – within 4 years under Art. 1389; discovery of fraud is not a blanket starting point for these rescission grounds. Art. 1381, no. 3 concerns fraud of creditors; no. 4 concerns things under litigation; and Art. 1382 concerns payments made in a state of insolvency.

Requisites that must concur before a contract may be rescinded on the ground of lesion

Whether the contract is entered into by a guardian on behalf of his ward or by a legal representative on behalf of an absentee, before it can be rescinded on the ground of lesion, it is indispensable that the following requisites must concur:

• The contract must be entered into by the guardian on behalf of his ward or by the legal representative on behalf of an absentee.
• The ward or absentee suffered lesion of more than 1/4 of the value of the property which is the object of the contract.
• The contract must be entered into without judicial approval.
• There must be no other legal means for obtaining reparation for the lesion.
• The person bringing the action must be able to return whatever he may be obliged to restore.
• The object of the contract must not be legally in the possession of a third person who did not act in bad faith.

Statutory presumptions of Fraud in Article 1387

• Alienation by gratuitous title.

When a debtor donates his property without reserving a sufficient property to pay all his pre-existing debts, the law presumes that the gratuitous dispositions are made in fraud of creditors.

• Alienation by onerous title

The contract is presumed fraudulent if, at the time of alienation, some judgment has been rendered against him, whether it is on appeal or has already become final and executory; or some writ of attachment has been issued against him in any case.

NOTE: The decision or writ of attachment need not refer to the very property subject of alienation. The person who obtained the judgment or writ of attachment need not be the same person seeking the rescission.

These presumptions are rebuttable, which means, they may be overcome by clear, strong, and convincing evidence.

An alienation made during the pendency of a suit is not enough. There must be a decision or a writ of attachment

Requisites before a contract entered into in fraud of the creditors may be rescinded

• There must be a credit existing prior to the constitution of the said fraudulent contract;
• There must be fraud, or at least, the intent to commit fraud to the prejudice of the creditor seeking rescission;
• The creditor cannot in any legal manner collect his credit (subsidiary character of rescission);
• The object of the contract must not be legally in possession of a third person in good faith.

NOTE: If the object of the contract is legally in the possession of a third person who did not act in bad faith, rescission cannot take place; indemnity for damages may instead be demanded from the person causing the loss under Article 1385 of the Civil Code.

The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the following requisites must be present:

• The plaintiff asking for rescission has a credit prior to the alienation;
• The debtor has made a subsequent contract conveying a patrimonial benefit to a third person;
• The creditor has no other legal remedy to satisfy his claim;
• The act being impugned is fraudulent;
• The third person who received the property conveyed, if it is by onerous title, has been an accomplice in fraud. (Siguan vs Lim, G.R. No. 134685, November 19, 1999)

Resolution v. Rescission

NOTE: While Article 1191 uses the term “rescission,” the original term which was used in the old Civil Code, from which the article was based, was “resolution.” (Ong v. CA, G.R. No. 97347, July 6, 1999)

Effect of Rescission

• Obligation of mutual restitution (but not absolute);
• Rescission affects the contract only to the extent necessary to cover the damages caused; it may therefore be partial (Civil Code, Art. 1384);
• Rescission cannot take place when the object is legally in the possession of a third person who did not act in bad faith; damages may instead be demanded from the person causing the loss (Civil Code, Art. 1385).

Mutual Restitution

Rescission of contract creates an obligation of mutual restitution of the objects of the contract, their fruits, and the price with interest.

NOTE: Rescission is possible only when the person demanding rescission can return whatever he may be obliged to restore. A court of equity will not rescind a contract unless there is restitution, that is, the parties are restored to the status quo ante. (NCC, Art. 1385)