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2. There must be lesion or pecuniary damage or prejudice to one of the parties or to a third person (Art 1381); 3. The rescission must be based upon a case especially provided by law (Art 1380-1382); 4. There must be no other legal remedy to obtain reparation for the damage (Art 1383);
Who May Institute the Action: Who May Institute the Action: injured party to the contract either of the contracting parties or a 3rd person
Non-performance by the other Non-performance by the other party: important party: immaterial
Governed by: agreement or other legal provisions Governed by: Chapter 6, Articles 1380-1389, Civil Code
Whether the donation was entered into in fraud of the creditors of respondent.
Held
For this action to prosper, the following requisites must be present: 1. The plaintiff asking for rescission has a credit prior to the alienation;
2. The debtor has made a subsequent contract conveying a patrimonial benefit to a third person;
Held
3. The creditor has no other legal remedy to satisfy his claim; 4. The act being impugned is fraudulent; 5. The third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud.
Held
The Court was not convinced that the notarized Deed of Donation was antedated. Notarial documents are public documents and are evidence of the facts that gave rise to their execution and of their date. In the present case, the fact that the questioned Deed was registered only of July 2, 1991 is not enough to overcome the presumption as to the truthfulness of the statement of the date of the deed, which is August 10, 1989. Thus, first and second requisites are absent.
Held
Petitioner neither alleged nor proved that she had exhausted all remedies to collect claims due her before rescission was resorted to. Third requisite is also absent. Evidence disclosed that after the Deed of Donation was executed, Lim has still some other properties.
Held
Petitioner did not adduce any evidence that the price of these other properties were lower. Therefore, presumption of fraud did not come into play, the fourth requisite. Accordingly, since four requirements for the rescission of a gratuitous contract are not present in this case, petitioners action must fail.
Purpose: to guarantee an existing claim Involved: personal right that deserves the protection of law Person who can avail the remedy of rescission: stranger to the contract
Where X has brought an action to recover possession of a piece of land from Y, and during the pendency of the action, Y sells the land to Z, the sale is rescissible and may be set aside at the instance of X, when he obtains a judgment in his favor in his action against Y.
vs.
COURT OF APPEALS, HON. JOSE O. RAMOS, FRANCISCO BARENG and SATURNINO BARENG, respondents., 116 SCAD 189, 319 SCRA 200 [1999]
On August 27, 1986, private respondent sold 3000 sq. m. of said lot to Jose Ramos, to which lot the portion occupied by Petitioners are contained.
Whether the sale of land between Private Respondent Bareng to Private Respondent Jose Ramos is fraudulently prepared and executed as to warrant the rescission of said contract in favor of petitioner.
It further settled that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent sale: 1. exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution;
Held
Without availing of the 1st and 2nd remedies, i.e., exhausting the properties of the debtor or subrogating themselves in Francisco Barengs transmissible rights and actions, petitioners simply undertook the third measure and filed an action for annulment of the sale. This cannot be done.
Indeed, an action for rescission is a subsidiary remedy; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same.
Extent of Rescission
ARTICLE 1384. Rescission shall only be to the extent necessary to cover the damages caused.
Extent of Rescission
Partial Rescission
The entire contract need not be set aside by rescission if the damage can be repaired or covered by partial rescission. The rescission shall only be to the extent of the creditors unsatisfied credit. The policy of the law is to preserve or respect the contract, not extinguish it.
Extent of Rescission
Illustrative Case
G, the guardian of M, a minor, was authorized by the court to sell two (2) parcels of land valued at P500,000 each. G sold the 2 properties for only P500,000. The entire contract need not be rescinded. Rescission may properly be applied only to one parcel to cover the damage caused by G. But if G or B is willing to pay the difference of P500,000, rescission is precluded.
Effect of Rescission
ARTICLE 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.
Effect of Rescission
Obligation of Mutual Restitution Rescission creates the obligation of mutual restitution. When the court declares a contract rescinded, the parties must return to each other:
Effect of Rescission
Obligation of Mutual Restitution The purpose of rescission is to place the parties as far as practicable in their original situation, that is the parties are restored to the status quo ante. The law presumes that the party who received the object of the contract has enjoyed the fruits thereof while the other has used the money which is the price of the object.
Effect of Rescission
Requisites of the Action for Rescission 1. The plaintiff must be able to return what has been received. 2. The thing object of the contract is not in the legal possession of third persons in good faith, (that is, he acquired the property and registered it in the Registry of Property unaware of the flaw in his title or mode of acquisition).
Effect of Rescission
Requisites of the Action for Rescission 3. There must be no other legal remedy. 4. The action must be brought within the proper prescriptive period.
Effect of Rescission
Illustrative Case A sold a parcel of land owned by B, a minor, to C for P10,000, when the true value is 20,000. Upon reaching the age of majority, B can ask for the rescission of the sale on the ground of lesion. If the contract is rescinded, C must return the land with the fruits received by him therefrom while B must return the P10,000 plus legal interest. However, if B cannot return the price with the interest, he cannot rescind the contract. If C sells the land to D, a third person who acted in good faith, rescission cannot take place. The remedy of B is to file an action against A.
Presumptions of Fraud
ARTICLE 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.
Presumptions of Fraud
ARTICLE 1387. In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence.
Presumptions of Fraud
Gratuitous Alienation Presumed Fraudulent - when the debtor did not reserve sufficient property to pay all debts contracted before the donation. Presumed Valid a gratuitous conveyance or donation validly executed (prima facie). It cannot be declared fraudulent and be subject to rescission, unless it can be shown that at the time of the execution of the conveyance, there was a creditor whom said transaction may affect adversely.
Presumptions of Fraud
Gratuitous Alienation Example: A donated his land to B. Before the time he made the donation, he had several debts but he did not reserve enough property to pay all these debts. Instead, he made the donation. Is the donation presumed fraudulent? The donation is presumed fraudulent. However, the presumption may be rebutted by adequate proof.
Presumptions of Fraud
Onerous Alienation Presumed Fraudulent - when made by persons: 1. against whom some judgment has been rendered in any instance (even if not yet a final judgment); or 2. against whom some writ of attachment has been issued.
Presumptions of Fraud
Onerous Alienation Example: A brought an action against B, his debtor. A won. B's property was attached by the court. After judgment, B sold to C another property which has not been levied upon or attached. D, another creditor of B, wants to rescind this sale to C. The sale to C is also presumed fraudulent because the law says that the decision need not have been obtained by the party seeking rescission; and the attachment need not refer to the property alienated.
Presumptions of Fraud
Badges of Fraud Existence of fraud may be shown by circumstantial evidence Direct evidence of fraud is seldom available because of the concomitant deceit, deception and cunning, which are usually hidden. Courts have laid down certain rules by which the fraudulent character of the transaction may be determined.
Presumptions of Fraud
Badges of Fraud The following are some of the circumstances attending sales which have been denominated by the courts as badges of frauds: 1. The fact that the consideration of the conveyances is fictitious or is 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;
Presumptions of Fraud
Badges of Fraud 4. Evidence of large indebtedness or complete insolvency; 5. The transfer of all or nearly all of his properties by a debtor, especially when he is insolvent or greatly embarrassed financially; 6. The fact that the transfer is made between father and son, where there are present some or any of the above circumstances;
Presumptions of Fraud
Badges of Fraud 7. The failure of the vendee to take exclusive possession of all the property; 8. At the time of conveyance, the vendee was living with the vendor and the former knew that there was a judgement against the latter; 9. It was known to the vendee that the vendor has no properties other than that sold to him;
Presumptions of Fraud
Badges of Fraud The above enumeration is not an exclusive list. When clear and unmistakable, badges of fraud will serve to destroy the camouflage of validity of a contract.
Presumptions of Fraud
Illustrative Case - Badges of Fraud To defraud his Creditors, a father sold a certain real property to his son for a very small sum. That property, although apparently sold, was nevertheless still occupied by the father. The transfer was made after suit by the creditors had been instituted against the father. It was also proved that the father had no other property. The contract may be rescinded as being in fraud of creditors.
Presumptions of Fraud
Evidence to Overcome Presumption of Fraud The presumptions are disputable and may be rebutted by contrary evidence. It is incumbent upon the transferee to establish affirmatively by satisfactory and convincing evidence that the conveyance was executed in good faith for a good and valuable consideration.
Should the car be destroyed with or without his fault, then Yvo is entitled to be indemnified for damages by Yves.
Facts
Petitioner Khe Hong Cheng is the owner of Butuan Shipping Lines. On or about October 4, 1985, the Philippine Agricultural Trading Corporation shipped on board the vessel M/V PRINCE ERIC, owned by Petitioner Khe Hong Cheng, 3,400 bags of copra. The said shipment of copra was covered by a marine insurance policy issued by American Home Insurance Company. M/V PRINCE ERlC, however, sank, resulting in the total loss of the shipment. Because of the loss, the insurer, American Home, paid the amount of P354,000.00 (the value of the copra) to the consignee.
Having been subrogated into the rights of the consignee, American Home instituted a civil case to recover the money paid to the consignee. While the case was still pending, or on December 20, 1989, Petitioner Khe Hong Cheng executed deeds of donations of parcels of land in favor of his children, herein co-petitioners Sandra Joy and Ray Steven. On the basis of said deeds, the Transfer Certificate of Titles of said lands were cancelled and new ones were issued in favor of Petitioner Khe Hong Chengs children.
On December 29, 1993 or four years after the donations were made and the TCTs were registered in the donees' names, the trial court rendered judgment against Petitioner Khe Hong Cheng. A writ of execution was issued on September 14, 1995. Thereafter, an alias writ of execution was granted in October 1996. Despite earnest efforts, the sheriff found no property under the name of Butuan Shipping Lines and/or Petitioner Khe Hong Cheng to levy or garnish for the satisfaction of the trial court's decision.
When the sheriff, accompanied by counsel of Respondent Philam, went to Butuan City on January 17, 1997, to enforce the alias writ of execution, they discovered that Petitioner Khe Hong Cheng no longer had any property and that he had conveyed the subject properties to his children.
On February 25, 1997, Respondent Philam filed a Complaint for the rescission of the deeds of donation executed by Petitioner Khe Hong Cheng in favor of his children and for the nullification of their titles. In their Answer, Petitioners moved for the Complaints dismissal on the ground that the action had already prescribed. They posited that the registration of the deeds of donation on December 27, 1989 constituted constructive notice and since the Complaint court a quo was only filed on February 25, 1997, or more than four (4) years after said registration, the action was already barred by prescription.
The trial court denied the motion to dismiss. The Court of Appeals affirmed RTCs decision. Hence, this Petition.
No. Article 1389 of the Civil Code provides that, "The action to claim rescission must be commenced within four years." Since this provision of law is silent as to when the prescriptive period would commence, the general rule, i.e., from the moment the cause of action accrues, therefore, applies. Article 1150 of the Civil Code provides: The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal possibility of bringing the action which determines the starting point for the computation of the prescriptive period for the action.
Respondent Philam only learned about the unlawful conveyances made by Petitioner in January 1997 when its counsel accompanied the sheriff to Butuan City to attach the properties of Petitioner. There they found that he no longer had any properties in his name. It was only then that Respondent Philam's action for rescission of the deeds of donation accrued.
The End
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Adolfo, Alphecca Generoso, Enrique Dan Anonuevo, Christ Edgardo Gregorio, Divina Gracia Basa, Yvonne Michelle Calma, Ricky Etcubanez, Emilson Gabato, Vinson Lance Madrid, Melben Rey Medina, Mae Chelle