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DEFECTIVE CONTRACTS

1. RESCISSIBLE contract that has caused a particular damage to one of the parties or to a
third person and which for EQUITABLE REASONS may be set aside even if valid
2. VOIDABLE OR ANNULLABLE (contrato nulo) contract in which CONSENT of one of
the parties is defective, either because of WANT OF CAPACITY or because it is
VITIATED , but which contract is VALID until JUDICIALLY set aside
3. UNENFORCEABLE contract that for some reason CANNOT BE ENFORCED, UNLESS
RATIFIED in the manner PROVIDED BY LAW
4. VOID AND NON-EXISTENT (contrato inexistente) contract which is an ABSOLUTE
NULLITY and produces NO EFFECT, as if it had never been executed or entered into

Chapter VI. Rescissible Contracts

Rescissible Contracts - are valid contracts. Of the four of defective kinds of contracts, rescissible
contracts occupy the highest lesion. The contracts are valid but by reason of economic injury
caused either to one of the parties, or to a third person, the contract has to be rescinded. And
unlike 1191, when we speak of rescission, there is no breach of faith in the performance but rather
the ground of rescission is more on the economic injury suffered by the parties or a third person.

Kinds of Rescissible Contracts (Art 1381 The following are rescissible contracts):

1. Entered into by guardians whenever the wards suffer lesion by more than of value of
things object
Guardian: authorized only to manage wards property, no power to dispose without
prior approval of court. Only includes those which are ordinary course of management
of estate of the ward, because if sale, mortgage and other encumbrance AND not
approved by court, it becomes unenforceable.
Sir Labitag: thin band of contracts

2. Agreed upon in representation of absentee, suffer lesion by more than of the value of
things object
Same principle in relation to contracts by guardians

3. In fraud of creditors who cannot collect claims due them


Requisites of Accion Pauliana
1. Plaintiff asking for rescission (subsidiary action) has a credit prior to the
alienation
2. Debtor has made subsequent contract, giving advantage to a 3rd person
3. Creditor has no other remedy but to rescind the debtors contract to the 3rd
person (last resort)
4. Act being impugned is fraudulent
5. 3rd person who received the property is an accomplice in the fraud
Credit must be existing at the time of the fraudulent alienation, although not yet due.
But at the time of accion pauliana, the credit must already be due because it
presupposes a judgment and unsatisfied execution which cannot exist when the
debt is not yet demandable at the time the rescissory action is brought.
GENERAL RULE: Credit is prior to the alienation
EXCEPTION: Credit is after alienation but entitled to accion pauliana because of some
prior right
1. Claims were acknowledged by the debtor after alienation, but origin of which
antedated the alienation
2. Those who become subrogated, after the alienation, in the rights of a creditor
whose credits were prior to the alienation
Even secured creditors are entitled to AP
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Conveyance was intentionally fraudulent which may be established by the presumption
in Art 1387
TEST OF FRAUD: Whether the conveyance was a bona fide transaction or a trick and
contrivance to defeat creditors or whether it conserves to the debtor a special right;
founded on good consideration or is made with bona fide intent. Does it prejudice
the right of creditors??
Good consideration: creditor is not prejudiced becomes the property was merely
replaced or substituted
Badges of fraud applicable

4. Things under litigation, without knowledge and approval of litigant or of competent judicial
authority
To secure the possible effectivity of a claim
Transferee of property in good faith who acquires property for valuable consideration,
without knowledge of the litigation or claim of the plaintiff, cannot be deprived of
property.

5. Specially declared by law to be subject of rescission

Characteristics of Rescissible Contracts

1. Their defect consist in injury or damage either to one of the contracting parties or to third
persons

LESION: injury which one of the parties suffers by virtue of contract that is
disadvantageous to him; must be known or could have been known at the birth of contract
and not due to subsequent thereto or unknown to the parties.
- disparity between price and the value.
- mere inadequacy of price, unless shocking to the conscience is not a sufficient ground for
setting aside a sale, if there is no showing that, in the event of a resale, a better price can
be obtained
E.g.
Art 1098 Partition, judicial and extra-judicial may be rescinded on account of lesion
Art 1539 Sale of real estate of inferior thing
Art 1542 Sale of real estate made for a lump sum

2. They are valid before rescission


3. They can be attacked directly only, 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 can be convalidated only by prescription and not by ratification

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

Definition 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 this should be valid, by means of
the restoration of things to their condition at the moment prior to the celebration of said contract.

Relief for the protection of one of the contracting parties AND third persons from all injury
and damages the contract may cause OR protect some incompatible and preferent right
created by the contract
Implies a contract which, even if initially valid, produces a lesion or pecuniary damage to
someone
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Set asides the act or contract for justifiable reasons of equity
Grounds for rescission can only be for legal cause
Voidable contracts may also be rescinded

Rescission Art 1380 Distinguished from Resolution Art 1191

Art 1191 Resolution Art 1380 Rescission


Similarities 1. Presuppose contracts validly entered into and existing
Rescission v. Annulment: the latter there is a defect which
vitiates/invalidates the contract
2. Mutual restitution when declared proper
Who may Only by a party to the contract Party to the contract suffering
demand lesion
Third parties prejudiced by the
contract
Grounds Non-performance (implied tacit condition Various reasons of equity
in reciprocal obligation) provided by the grounds, mainly
economic injury or lesions
Scope of Court determines sufficiency of reason to Sufficiency of reason does not
judicial control justify extension of time to perform affect right to ask for rescission
obligation (whether slight or casual (cannot be refused if all the
breach) requisites are satisfied)
Kind of obli Only to reciprocal Unilateral, reciprocal
applicable to Even when contract is fully
fulfilled
Character Principal Remedy Secondary/Subsidiary

MUTUAL DISSENT not the same with rescission, because mutual dissent is tantamount to a
simple creation of new contract for the dissolution of the previous one. In order for rescission to
take place, the requisites must first be satisfied:

Requisites for Rescission

1. The contract is rescissible - There must be at the beginning either a valid or a voidable
contract.
Art 1381 Kinds of rescissible contracts
Art 1382 Payments made in a state of insolvency for obligations to whose fulfillment the
debtor could not be compelled at the time (has not yet matured) they were effected, are
also rescissible.

2. The party asking for rescission has no other legal means to obtain reparation
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.

3. He is able to return whatever he may be obliged to restore if rescission is granted


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

4. The object of the contract has not passed legally to the possession of a third person acting
in good faith
Art 1385 consequently, it can be carried out only when he who demands rescission can
return whatever he may be obliged to restore.
Art 1385 Par 3 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.
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5. The action for rescission is brought within the prescriptive period of four years
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 formers incapacity or until the domicile of the latter is known.
o Period commences on the termination of the wards incapacity or absentees
domicile is known

Notes:

- Fictitious contract cannot be rescinded since it is null and void. What rescission
presupposes is a valid contract
- Rescission under 1381 is a subsidiary remedy, especially if it is found in number 3 of 1381.
You have to prove before the court that you have exhausted all the remedies available to
you as a creditor before you are given a right to institute an action for rescission.

Effect of Rescission
If in fraud of the creditors: Property alienated reverts to the patrimony of the debtor and
becomes liable to creditor who sought rescission, under its original liability as a guaranty of
the debtors obligation
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.

With respect to third persons who acquired the thing in good faith
Transferee of property in good faith who acquires property for valuable consideration, without
knowledge of the litigation or claim of the plaintiff, cannot be deprived of property.
Art 1385 Par 2 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.
Art 1385 Par 3 In this case, indemnity for damages may be demanded from the person
causing the loss.
Right of transferee to retain alienation:
Nature of transfer
o ONEROUS
Good faith no rescission
Bad faith rescissible because of his complicity in the fraud not entitled
for reimbursement because in pari delicto; if not possible to return,
indemnify the plaintiff;
o GRATUITOUS
Good faith does not protect him because he gave nothing; rescissible,
though not required to restore the fruits
Bad faith rescissible because of his complicity in the fraud; if not possible
to return, indemnify the plaintiff

Who may bring action for rescission


1. Creditor injured
2. Heirs of creditor injured
3. Creditors of creditor injured (by virtue of accion subrogatoria)

EFFECT OF CONTRACTS ENTERED IN BEHALF OF WARD


(1) If an act ownership, Court approval is required otherwise it is unenforceable whether there is
lesion or not.

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(2) If act of administration
i. With Court approval valid regardless of lesion
ii. W/out Court approval rescissible, if lesion is more than

- contract may be rescinded on the ground of lesion is a partition of inheritance

(3) Accion Pauliana action to rescind made in fraud of creditors.


Requisites
a. There must be a creditor who became such Prior to the contract sought to be rescinded
(a person asking for a rescission is a judgment creditor immaterial)
b. There must be an alienation made subsequent to such credit.
c. The party alienating must be in bad faith (he knew that damages would be caused)
d. There must be no other remedy for the prejudiced creditor inability to collect to the
claims due them.

- Action to rescind may be brought even if debtor has not been judicially declared insolvent and
even if the creditor has not yet brought an action to collect.

(4) THINGS IN LITIGATION (eg. A sues B for recovery of ring pendente ite, B sells ring to C
sale to C is rescissible)
- Property is in litigation after defendant received service of summons.

1381: #1 and 2: The guardian with respect to the ward, and the representative with respect to the
absentee are only given the powers of administration. The powers mentioned in 1381 are powers
of administration and the representative or the guardian entered into a contract and the object of
the contract resulted to the economic injury of either the ward or the absentee. By more than 1/4 of
value of the object thereof.

So example, you wanted to enhance the development of the farm, so what you did was to buy an
equipment, a tractor. But you also have other motives in mind. And you tell now the dealer, "can
you increase the price by 30%? You get 5%, I get 25%", so in that case the contract entered into
by the administrator can be rescinded because it will result to the economic injury of the ward by
more than 1/4 of the value of the object which is the tractor. But, even if it exceeds more than 1/4,
but the administrator obtained judicial authorization, then there can be no rescission. Only in cases
where there has been no judicial authorization obtained by the representative or the guardian. But
what if the guardian or the representative speaks of getting money in order to develop the
property. He now mortgaged the property. What kind of a contract is that? Unenforceable contract,
beyond his authority.

Now, if you remember in your Family Code, when can you consider a person an
absentee for purposes of administration? 2 years if without administrator, and 5 years if there
is an administrator. In those cases there is a need for judicial declaration as an absentee. And
normally the spouse is given priority. So the spouse' authority only includes powers of
administration, it does not include acts of ownership. Because if you co-relate that with the
provisions of the Family Code and there is a need to encumber or dispose a portion of the property
of the absentee, what will you do? For purposes of supporting the family? You gain judicial
authority in a summary proceeding, otherwise that act of the other spouse is void but it is a
continuing offer between the spouse who did not give consent and the offeree unless earlier
revoked. Pag third person ang magbenta, ano? Unenforceable. If the representative is a third
person, unenforceable. But if it were the spouse, void yan.

summary:
-This only refers to acts of administration, and not acts of ownership

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- if the guardian or representative would exercise acts of ownership beyond what is authorize, the
act will not be rescissible but rather unenforceable. That is acted without or in excess of the
authority granted to him. But if the representative is the spouse, the act is void. But such act prior
to the effectivity of the family code is not void, but voidable. So this would only refer to in excess of
the authority granted to the present spouse and the encumbrance/alienation refers to the
paraphernal property and the capital(?) property of the absentee.

-But if it were acts of administration, to fall whether in number one or number two 1381, it must
exceed 1/4 of the value of the object of the contract.

- But even if it exceeds more than one fourth of the value, but there is court approval or judicial
authorization, then there can be no rescission.

-The exception in #1 and 2 is judicial authorization, no rescission if with court


approval, even if the wife or the absentee suffers lesion by more than one fourth.

3.) Those undertaken in fraud of creditors when teh latter cannot in any other manner collect the
claim due them. Now the creditor cannot ask for annulment precisely because he is not a party to
the contract. He can only ask for rescission. The court cannot just grant rescission since there are
certain requisites that must be complied with. In order that rescission will lie. It will be found in the
cases that i've assigned.

Now if the transfer is onerous, we have to take into account the good faith or bad faith of the
transferee. So the exception in number three would now depend on the kind of transfer. If suppose
it is an onerous transfer, meaning there is an equivalent consideration given. So if it is onerous and
there is good faith from the first transferor to the first transferee (meaning the transferee acted in
good faith), then the creditor who is prejudiced by the transfer could no longer ask for the
rescission of the transfer because of the good faith. His only recourse is to ask damages from the
transferor.

Exception: even if the first transferee acted in GF, subsequent transferee acted in bad faith, and
there is collusion between the transferor and the second transfeee, to cleanse the transfer of any
defect, they would now use the first transferee as an intermediary or a bridge, then there can be
rescission. But if there was no collusion between the transferor and the 2nd transferee, the good
faith of the first transferee will cleanse the transfer, hence there can no longer be rescission, even
if the subsequent transfer is in bad faith. The good faith of the first transfer cures the bad faith of
the second transfer.

Now, if there is bad faith from the first to the 2nd then definitely there can be rescission. OR
suppose there are several transfer. From the 1st transferee who acted in bad faith, to the second
transferee who acted in bad faith, to the third transferee who still acted in bad faith and the
fourth transferee who acted in good faith. Then it ends now to the fourth transferee
regardless of the bad faith of the subsequent transferee because it ended with the person who
acted in good faith, when he received the thing transferred. Then there can be damages, not
rescission because there has been good faith of the last transferee. So all the of the transferee will
be liable, from the first transferee to the third transferee. Now what if the transfer is gratuitous? Do
we also follow the same principle? No. The good faith or bad faith of the transferee is immaterial.
Regardless of the good faith or bad faith of the receiver, the contract has to be rescinded. Why?
There is no consideration given by the transferee, so he cannot be prejudiced by the rescission

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.
(1292)

Requisites:

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(1) The Debtor-payer must have been insolvent (no judicial declaration needed)
(2) Debt was not yet due and demandable.

Now another act which can be the subject of rescission can be found in 1382: obligations not
yet due. That is what is meant by to whom fulfillment the debtor could not be compelled at the
time they were effected, are also rescissible. So it refers to obligations not yet due, yet despite
the fact that the debtor is insolvent pays the obligation, so there can also be rescission.
And that is why we said that the action for rescission is subsidiary, the person who will be
prejudiced by such must show proof before court that he had already exhausted all efforts to
recover what is due him, and he failed, and he found out that the debtor has already
transferred nearly all his property to answer for the credit that is due him. So it cannot be
instituted except when the party suffering damage has no other legal means to obtain
reparation for the same. (1383) And he cannot ask for more than what is due him. He can only
ask to the extent necessary to cover the damages caused. (1384)

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.
(1294)

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

Partial rescission is possible; benefits only the creditor who has asked for rescission

Extent of Rescission
Art 1384 Rescission shall be only to the extent necessary to cover the damages caused.
As to the excess, alienation is maintained even if transferee is in bad faith
Benefits only the plaintiff creditor, not everyone
BUT if transferee is willing to pay, no rescission

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.
(1295)

- Mutual restitution

Requisites before Rescission can be Brought


a) Generally, plaintiff must be able to return what has been received by virtue of
rescissible contract. Except when it is prejudicial to creditors.
b) The thing-object of the contract is not in the legal possession of 3rd persons in good
faith.
c) There must be no other legal remedy.
d) The action must be brought w/in proper prescriptive period.

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1385: So what must be returned? The object of the contract, the fruits, the price and
the interest. And if you cannot return this then you cannot ask for rescission. It can be
carried out only when he who demands rescission can return whatever he will be
obliged to return. So just like 1191, there is mutual restitution. And you cannot ask for
rescission unless you can return what you have received from the other party.

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.

Now, if the transfer is gratuitous and you acted in good faith, you received the property
believing in good faith that the transfer gratuitously is legal and valid, are you also
obliged to return the thing, the fruits, the price and the interest? If you are a transferee
in good faith, your obligations are to return the thing but not to pay for the fruits already
received. Second, if you have incurred necessary expenses, then you can ask for
reimbursement. Third, you return the thing in the condition that it is found. Meaning if
there has already been deterioration, then you return the thing in that state. Unless, if
the deterioration is caused by your negligence or through fraud after receiving the
summons for rescission. But if it was due to a fortuitous event and before you have
received the summons, then you will not be liable for the deterioration of the thing
which is the subject matter for rescission.

Now, restoration or restoration applies only to what under Art. 1381? #1 and 2 and 3,
exception is onerous and good faith, and in number 4, exception you are the
complainant and you have not annotated it, and the 3rd person who acquired it had no
constructive knowledge of the litigation.

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.

1386: Rescission referred to in Nos. 1 and 3 of 1381 shall not take place with respect
to contracts approved by the courts

Presumptions of Fraud

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. (1297a)

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.
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In addition to these presumptions, the design to defraud creditors may be proved in any other
manner recognized by the law of evidence.
Rebuttal by evidence that conveyance was made:
o In good faith
o For a sufficient cause
Effect of Fraud: Does not necessarily make the alienation rescissible. It is only one of the
requisites for accion pauliana. Can be overruled by a transferee in good faith and for
valuable consideration

PRESUMPTIONS OF FRAUD:

1. Gratuitous Alienations - presumed fraudulent: when debtor did not reserve sufficient
property to pay all debts contracted before the donation.

2. Onerous Alienations - Presumed fraudulent when made by persons:


1. Against whom some judgment has been rendered in any instances (even if not final); or
2. Against whom some writ of attachment has been issued.

Badges of Fraud (indicia of fraud) rules by which fraudlent character of transaction may be
determined
1. Fictitious/insufficient consideration
2. Conveyance is after suit is filed and while it is pending
3. Sale on credit by insolvent debtor
4. Evidence of insolvency or large indebtedness
5. Transfer of All or nearly all of debtors property
6. Transfer is between father and son when some of above is present
7. Failure of vendee to take exclusive possession of the property

- A gratuitous conveyance or donation, validly executed is presumed valid unless it can


be shown that at the time of execution of conveyance, a creditor/s is/are adversely
affected by said transaction.
- Fraud is not sufficient to rescind; for after all transferee may have been in good faith
and is now in legal possession of the property.

1387: Presumptions

Par. 1: It is absolutely necessary when you prepare a deed of donation for the donor to state
that he has reserved sufficient property for himself to answer for his support as well as the
obligations that he has incurred prior to this donation. Otherwise, if that is not found then the
presumption is that you intend to defraud your creditors.

Par. 2: So the first is that, even if it is by onerous title, 1. there is already an on going case filed
against you for collection of money, or 2. there is a writ of attachment ( a writ of attachment is
issued during the pendency of the case asked by the complainant upon the court that the
defendant is about to dispose nearly all his property and which if judgment shall be rendered
by the court in favor of the complainant, the writ of execution issued by the court by reason of
that favorable judgment will be returned unsatisfied by the sheriff)

Par. 3: Badges of fraud

Liability for acquiring in bad faith the things alienated in fraud of creditors

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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. (1298a)

- due to any cause includes fortuitous event.


- Rescission is merely a secondary remedy --- only if debtor cannot pay.

Transfers
- If transferee is in good faith; good/ bad faith of next transferee is immaterial;
- If transferee is in bad faith; the next transferee is only liable if he is in bad faith.

1388: So in this case, the first acquirer shall be liable, then as we said, he transfers it to T2
and then to T3, the liability will be only up to T3. He will not be liable to return, precisely
because he has transferred it, but he will be liable for damages. Because of the impossibility
to return what he is supposed to return to the debtor for purposes of answering the liabilities of
the debtor

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. (1299)

WHO CAN BRING ACTION?


1. The injured party (or defrauded creditor)
2. His heir or successor-in-interest
3. Creditors of (a) and (b) by virtue of Art. 1177 of C.C

1389: Now when do you institute the action for rescission? Must be commenced within four
years. For persons under guardianship and for absentees, the four years shall not begin until
the termination of the former's incapacity, or until the domicile of the latter is known.

Now suppose it does not fall under numbers 1 and 2. When shall you start counting the four
year period? That was answered in the case of Cheng vs. CA.

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Article 1191, as presently worded, speaks of the remedy of rescission in reciprocal obligations within the
context of Article 1124 of the Old Civil Code which uses the term resolution. The remedy of resolution
applies only to reciprocal obligations [8] such that a partys breach thereof partakes of a tacit resolutory
condition which entitles the injured party to rescission. The present article, as in the Old Civil Code,
contemplates alternative remedies for the injured party who is granted the option to pursue, as principal
actions, either a rescission or specific performance of the obligation, with payment of damages in each case.
On the other hand, rescission under Article 1381 of the Civil Code, taken from Article 1291 of the Old Civil
Code, is a subsidiary action, and is not based on a partys breach of obligation.

The esteemed Mr. Justice J.B.L. Reyes, ingeniously cuts through the distinction in his concurring opinion
in Universal Food Corporation v. CA:[9]

I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add
that the argument of petitioner, that the rescission demanded by the respondent-appellee,
Magdalo Francisco, should be denied because under Article 1383 of the Civil Code of the
Philippines[,] rescission can not be demanded except when the party suffering damage has
no other legal means to obtain reparation, is predicated on a failure to distinguish between a
rescission for breach of contract under Article 1191 of the Civil Code and a rescission by
reason of lesin or economic prejudice, under Article 1381, et seq. The rescission on account
of breach of stipulations is not predicated on injury to economic interests of the party
plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the
parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing
anywhere that the action for rescission thereunder is subordinated to anything other than the
culpable breach of his obligations by the defendant. This rescission is a principal action
retaliatory in character, it being unjust that a party be held bound to fulfill his promises
when the other violates his. As expressed in the old Latin aphorism: Non servanti fidem, non
est fides servanda. Hence, the reparation of damages for the breach is purely secondary.

On the contrary, in the rescission by reason of lesin or economic prejudice, the cause of
action is subordinated to the existence of that prejudice, because it is the raison d etre as
well as the measure of the right to rescind. Hence, where the defendant makes good the
damages caused, the action cannot be maintained or continued, as expressly provided in
Articles 1383 and 1384. But the operation of these two articles is limited to the cases of
rescission for lesin enumerated in Article 1381 of the Civil Code of the Philippines, and
does not apply to cases under Article 1191.

It is probable that the petitioners confusion arose from the defective technique of the new
Code that terms both instances as rescission without distinctions between them; unlike the
previous Spanish Civil Code of 1889, that differentiated resolution for breach of stipulations
from rescission by reason of lesin or damage. But the terminological vagueness does not
justify confusing one case with the other, considering the patent difference in causes and
results of either action.

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