In Philippine civil law, rescissible contracts are a subset of defective contracts under the Civil Code that are valid and binding until they are rescinded due to circumstances that render them legally vulnerable. Rescission is a remedy that seeks to restore the contracting parties to their original state (status quo ante) before the contract was entered into. These contracts are considered rescissible not because they are initially void or voidable but because they cause or threaten to cause damage to one of the parties or to a third person. The detailed regulations concerning rescissible contracts are outlined in Articles 1380 to 1389 of the Civil Code of the Philippines.

Characteristics of Rescissible Contracts

Validity: Rescissible contracts are valid and binding from the outset, meaning they produce legal effects and are enforceable until rescission is sought and granted.
Ground for Rescission: The key reason for rescission is the presence of "lesion" or damage to one of the parties or to a third person, typically due to an inequitable result or bad faith. However, rescission is not applicable to contracts that are inherently void or voidable.
Nature of the Remedy: Rescission is a subsidiary remedy, meaning it cannot be availed of if there are other legal remedies sufficient to address the injury or damage. It also means that rescission will only be granted if restitution to the status quo is feasible.

Grounds for Rescission (Article 1381)

The following contracts are rescissible under Article 1381 of the Civil Code:

Contracts Entered into by Guardians: Contracts made by guardians in representation of their wards, if the wards suffer economic prejudice as a result, are rescissible. The law provides special protection for minors and incapacitated persons who are under guardianship, so any contract that prejudices them is subject to rescission.
Contracts on Behalf of Absentees: Contracts executed by representatives of absent persons (e.g., those who are not physically present or are otherwise incapacitated) are rescissible if they cause prejudice to the absentee. This typically protects absent heirs, co-owners, or other individuals who are not physically present to protect their interests.
Contracts to Defraud Creditors: When contracts are made with the intent to defraud creditors (often called "fraudulent conveyances" or "acts in fraud of creditors"), they are rescissible. This typically occurs when a debtor alienates property to evade fulfilling obligations to creditors.
Contracts Relating to Litigious Things: Sales or assignments of items under litigation without notifying the parties involved in the lawsuit are rescissible. This rule aims to prevent contracts that could disrupt the proper administration of justice by transferring assets that are the subject of an ongoing legal dispute.
Other Cases Expressly Stated by Law: Some other specific cases not enumerated in Article 1381 are also rescissible when expressly provided for by law.

Procedure for Rescission

Petition for Rescission: A party who wishes to rescind a contract must file an action for rescission in court. Rescission is not automatic; it must be judicially decreed through a formal judgment.
Return of Benefits Received: The law requires that the parties return to each other what they have received under the contract. Rescission thus aims to restore both parties to their original positions. For instance, if the contract involved a sale, the buyer must return the item purchased, and the seller must return the payment made.
Subsidiary Remedy: Rescission is only available as a last resort. If the aggrieved party has other remedies that can rectify the situation (such as damages), rescission will not be granted.
Limitations Period: The right to file an action for rescission has a prescription period (statute of limitations) of four years. This period may differ depending on when the contract was entered into and the specific nature of the rescissible ground, such as whether the action involves fraud or other circumstances.

Effects of Rescission

Restoration of the Original Status (Status Quo Ante): When a court orders rescission, the objective is to return both parties to their original state as if the contract had not been made. This involves the mutual restitution of the property, money, or benefits received by each party.
Protection of Bona Fide Third Parties: If a third party acquires rights in good faith from a party to a rescissible contract, their rights are generally protected. This is particularly important in property transactions, as innocent third-party purchasers are often shielded from the consequences of the rescission.
Liability for Damages: If restitution cannot fully restore the injured party to the original condition, the party seeking rescission may be entitled to additional compensation or damages to cover the loss or injury suffered.

Special Considerations

Partial Rescission: If the contract has been partly fulfilled and rescission affects only part of it, only that part may be rescinded. For example, if a divisible contract includes rescissible and non-rescissible obligations, the court may rescind only the part of the contract that causes harm or prejudice.
Impossibility of Restitution: If restitution becomes impossible (e.g., the subject matter has been destroyed or fundamentally altered), rescission cannot be granted. In such cases, alternative remedies such as indemnity for damages may be awarded to the injured party.
Requisites for Successful Rescission:
- Injury or Damage: There must be proof of injury or damage to justify rescission. The burden of proof rests with the party seeking rescission.
- Existence of a Rescissible Ground: The contract must fall under one of the categories of rescissible contracts specified in the Civil Code.
- Absence of Alternative Remedies: The injured party must show that rescission is necessary because no other adequate legal remedies are available.

Limitations on Rescission (Article 1383)

The Civil Code emphasizes that rescission is a subsidiary remedy; hence, it may not be granted if other sufficient remedies exist to repair the injury or damage. Additionally, rescission does not cover all damages or inequalities. Minor discrepancies or unfair terms that do not reach the level of "lesion" or substantial harm are generally insufficient for rescission. For instance, a contract cannot be rescinded merely because one party finds the terms unfavorable or wishes to change their mind.

Alternative Remedies

If a contract does not meet the criteria for rescission but still produces unfair or prejudicial outcomes, other legal remedies may be pursued. These include:

Damages: Compensatory damages may be awarded if the injured party can demonstrate a loss directly caused by the contract's performance.
Reformation of Contract: If the contract does not reflect the true intent of the parties due to error, fraud, or accident, it may be reformed rather than rescinded to accurately represent the parties' intentions.
Reduction of Penalty Clauses: In cases where penalty clauses within a contract are excessive or disproportionate, the court has discretion to reduce them.
Rescission vs. Annulment: It is important to distinguish rescission from annulment. Rescission presumes a valid contract that can be rescinded due to injury, whereas annulment applies to contracts that are voidable due to lack of consent, mistake, or fraud.

Conclusion

Rescission is an important legal remedy in Philippine civil law, designed to protect parties and third persons from inequitable contracts that cause substantial harm. The strict procedural and substantive requirements for rescission reflect the courts' intention to use this remedy sparingly and only when truly necessary to correct injustices.