What are rescissible contracts?

Those which have caused a particular economic damage either to one of the parties or to a third person and which may be set aside even if valid. It may be set aside in whole or in part, to the extent of the damage caused. (Art. 1381, NCC)

Which contracts are rescissible?

1. Entered into by persons exercising fiduciary capacity:

     a. Entered into by guardian whenever ward suffers damage more than ¼ of value of property.

     b. Agreed upon in representation of absentees, if absentee suffers lesion by more than ¼ of value of property.

     c. Contracts where rescission is based on fraud committed on creditor (accion pauliana)

     d. Objects of litigation; contract entered into by defendant without knowledge or approval of litigants or judicial authority

     e. Payment by an insolvent – on debts which are not yet due; prejudices claim of others f. Provided for by law (Arts. 1526, 1534, 1538, 1539, 1542, 1556, 1560, 1567 & 1659, NCC)

2. Payments made in state of insolvency:

     a. Plaintiff has no other means to maintain reparation

     b. Plaintiff must be able to return whatever he may be obliged to return due to rescission

     c. The things must not have been passed to third persons in good faith

     d. It must be made within 4 yrs.

What are the requisites before a contract entered into in fraud of creditors may be rescinded?

1. There must be credit existing prior to the celebration of the contract;

2. There must be fraud, or at least, the intent to commit fraud to the prejudice of the creditor seeking rescission;

3. The creditor cannot in any legal manner collect his credit (subsidiary character of rescission); and

4. The object of the contract must not be legally in possession of a third person in good faith.