Rescission refers to the cancellation of an agreement or contract either

through mutual agreement of the parties or for cause.

A party can rescind a contract when the other party fails to comply with his
legal obligation. This is done through judicial rescission (in court).
Applicable provision:
Art. 1191 of the Civil Code. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.
The Supreme Court had the occasion to decide that judicial rescission was
proper in a case where the owner of a construction project sought to rescind
its construction contract plus damages.
The Supreme Court explained: Article 1191, is not predicated on economic
prejudice to one of the, parties but on breach of faith by one of them that
violates the reciprocity between them. and affirmed the lower courts
decision in favor of the respondents.
The seller of a property (apartment, house, land) has the obligation to inform the buyer.
What information the seller is it transmitted ?
Generally speaking, the seller must disclose all the information he has about the real estate.
Certain information must be given according to law. The courts punish any failure by the seller to meet this general obligation.
If the seller conceals important information, the buyer may obtain a price reduction or cancel the sale in more serious situations. The seller is
then ordered to repay the price and sometimes to pay compensation to the buyer who has suffered prejudice (removal expenses, cost of
finding alternative housing). It is therefore very important to comply with these requirements. The list of information the seller must give to the
buyer is constantly increasing.
What are these kinds of information ?
The information to be provided is of both legal and technical nature.
In legal terms, the seller must, for example, inform the buyer of the existence of easements (right of way, visibility, drainage), mortgages or
liens (held by a bank to guarantee a loan) or other encumbrances (preliminary promise to sell or advertising display contract).
In technical terms, the seller of an apartment in commonhold must, for example, under the rules laid down by the Carrez law, specify the exact
surface area of the apartment. The maintenance logbook, which is compulsory for buildings in commonhold, must be given to the potential
buyer. Under certain circumstances, the seller must also point out the presence of termites, lead or asbestos.
If the sale concerns a piece of building land which the buyer intends to develop for residential or residential/professional purposes, the seller
must specify whether the boundaries have been marked and inform the buyer of the town planning rules applicable to the land and of the
construction possibilities.
In addition, if the building land is a housing development plot, results from a division made within a designated development area by the
public or private corporation in charge of the development or results from land consolidation performed by a non-profit making urban land
organisation, a description of the land based on the boundary marking must be included in the promise or agreement. The aforementioned
boundary marking does not constitute a boundary marking according to Article 646 of the French Civil Code. It cannot be a joint boundary
marking, other than the limit of the outer perimeter of the plots.
The buildings surroundings must also be taken into consideration: the existence of any natural risks to which the area is susceptible
(flooding, landslides), town planning easements, compliance of the houses individual sewerage system, polluting activities carried out in the
vicinity.
Lastly, private individuals (natural persons or companies to whom capital gains tax on private individuals applies) selling land which is part of
their private property and which has been granted the status of building land, may be subject to flat-rate tax, if the municipal council with
jurisdiction (or its authorised decision-making body) has decided accordingly. Under these circumstances, the seller will be liable for the tax.
The tax will be 10% of 2/3 of the selling price of the land which the notaire will pay on behalf of the seller when the deed of sale is recorded
as part of the land registration process.
The seller is under an obligation to provide a great deal of information for which he/she has considerable liability. The information must be
given to the buyer when the preliminary contract is signed. It is therefore important to be advised by a legal and property specialist before
putting property on sale. Contact your notaire and, above all, do not sign anything without firs
- See more at: http://www.notaires.fr/en/obligations-relating-sale#sthash.4STTH28S.dpuf

Article 1144. The following actions must be brought within ten years from the time the right of action
accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n
escission is an equitable remedy which abrogates a contract and places the parties in the position they occupied prior to executing the contract.[1]
There can be no partial rescission. The contract is either valid or void in toto.[2] Generally, a contract may be rescinded due to mutual mistake,
unilateral mistake, fraud, lack of capacity to contract, duress, or undue influence. However, generally an amicable agreement is only reached in the
case of mutual mistake and the other bases often require court intervention.
Mutual Mistake
A mutual mistake occurs when both parties at the time of contracting share a misconception about a vital fact upon which they based their
bargain.[3] In such instances, the parties can mutually agree to rescind the contract.
A recent example of mutual mistake leading to a rescission springs to mind: a financier advertised that he purchases property with subject to
financing. A homeowner gave the financier a grant, bargain, sale deed and a power of attorney to sell his property. No agreement concerning the
financiers obligation to pay the current mortgages was made. The financier held the deed and power of attorney; they were not recorded. The belief
of the parties was that the financier would flip the house and profit from the spread. The financier leased the house to a tenant. The mortgages went
unpaid. An appraisal showed the value of the property as equal to the mortgages. The homeowner consulted an attorney concerning the situation and
whether he could sell the house to the tenant himself.
In the example described above, the parties agreed to rescind the transaction: a rescission and mutual release agreement was drafted and the
financier returned the deed and power of attorney, unrecorded.
Unilateral Mistake
In order to demonstrate unilateral mistake as a ground for rescission, a party must show that the unilateral mistake was known to the other contracting
party and was encouraged or fostered by that party.[4] Aside from the foregoing, a mistake justifying rescission must be a misapprehension as to a
fact which is material and basic to the agreement.[5]
The existence of unilateral mistakes on the part of buyers may be more prevalent in the context of a real estate purchase agreements because sellers
have more knowledge regarding the property. An example of a unilateral mistake occurs when the seller leads the buyer to believe that the property
has no environmental hazards, but is aware that such hazards existed and/or were not properly remedied.
Fraud
A contract may be rescinded and the purchase price recovered where it is alleged and proven that there was fraud.[6] To establish that a contract
should be rescinded due to fraud, a party must generally demonstrate Silence or concealment as to a material fact, known to one party and unknown
to the other . . . if there is a duty, arising from the circumstances, imposed on the former, to speak and disclose the truth; in the absence of any duty of
disclosure, however, it does not. Whether there is any such duty depends on the circumstances of the particular case.[7]
A buyer may be more likely to allege a mistake due to fraud where a seller has made misrepresentations regarding the condition of the property,
especially when the buyer cannot verify the veracity of the representations through independent sources.

Rescission (vs. resolution) of contract
Posted on January 6, 2010 by Hector M. de Leon Jr. Posted in Civil Law Tagged contract, rescission, sale
If the heirs of a lot buyer were evicted from the lot because of a final judgment based on a right prior to the sale (i.e., the seller did not validly acquire the
lot from the person who sold the lot to the seller), should the evicted heirs file an action for rescission under article 1381 or an action for
rescission/resolution under Article 1191? Within what period should the appropriate action be filed? Should the prescriptive period be four years as
provided under Article 1389 of the Civil Code, which states that the action to claim rescission must be commenced within four years? Or should the
prescriptive period be 10 years as provided under Article 1144 of the Civil Code, which states that actions upon a written contract must be brought
within 10 years from the date the right of action accrues?
In Heirs of Sofia Quirong, etc. vs. Development Bank of the Philippines, G.R. No. 173441, December 3, 2009, the late Emillo Daloppe left a parcel of land
to his wife Felisa and nine children. To enable one of the children (Rosa Dalope-Funcion) to get a loan from the Development Bank of the Philippines
(DBP), Felisa sold the parcel of land to Funcions. The Funcions failed to pay the loan. DBP subsequently foreclosed the mortgage and made a conditional
sale of the land to Sofia Quirong for PhP78,000. In their contract of sale, Sofia Quirong waived any warranty against eviction. The contract provided that
the DBP did not guarantee possession of the property and that it would not be liable for any lien or encumbrance on the same. Quirong gave a down
payment of P14,000.00.
Two months after the conditional sale to Quirong, Felisa and her eight other children subsequently filed an action for partition and declaration of nullity of
documents with damages against DBP and the Funcions before the Regional Trial Court (RTC) of Dagupan City. Notwithstanding the suit, the DBP
executed a deed of absolute sale of the subject lot in Sofia Quirongs favor. The deed of sale carried substantially the same waiver of warranty against
eviction and of any adverse lien or encumbrance.
Sofia Quirong having since died, her heirs filed an answer in intervention in which they asked the RTC to award the lot to them and, should it instead be
given to the Dalopes, to allow the Quirong heirs to recover the lots value from the DBP. Because the heirs failed to file a formal offer of evidence, the trial
court did not rule on the merits of their claim to the lot and, alternatively, to relief from DBP.
The RTC rendered a decision, declaring DBPs sale to Sofia Quirong valid only with respect to the shares of Felisa and Rosa Funcion in the property. It
declared Felisas sale to the Funcions, the latters mortgage to the DBP, and the latters sale to Sofia Quirong void insofar as they prejudiced the shares of
the eight other children of Emilio and Felisa who were each entitled to a tenth share in the subject lot.
The Quirong heirs then filed an action against DBP before the RTC of Dagupan City for rescission of the contract of sale between Sofia Quirong, their
predecessor, and the DBP and praying for the reimbursement of the price of P78,000.00 that she paid the bank plus damages. The heirs alleged that they
were entitled to the rescission of the sale because the decision in Civil Case D-7159 stripped them of nearly the whole of the lot that Sofia Quirong, their
predecessor, bought from DBP. DBP filed a motion to dismiss the action on ground of prescription and res judicata but the RTC denied their motion.
After hearing the case, the RTC rendered a decision, rescinding the sale between Sofia Quirong and DBP and ordering the latter to return to the Quirong
heirs the PhP78,000.00 Sofia Quirong paid the bank. On appeal by DBP, Court of Appeals (CA) reversed the RTC decision and dismissed the heirs action
on the ground of prescription. The CA concluded that, reckoned from the finality of the December 16, 1992 decision in Civil Case D-7159, the complaint
filed on June 10, 1998 was already barred by the 4-year prescriptive period under Article 1389 of the Civil Code. The Quirong heirs filed a motion for
reconsideration of the decision but the CA court denied it.
According to DBP, the prescriptive period should be 4 years as provided under Article 1389 of the Civil Code, which provides that the action to claim
rescission must be commenced within four years. On the other hand, the Quirong heirs argue that it should be 10 years as provided under Article 1144
which states that actions upon a written contract must be brought within 10 years from the date the right of action accrues.
The Supreme Court agreed with DBP that the prescriptive period was 4 years because the action involved was one for rescission under Article 1381. The
Court distinguished between a rescission under Article 1381 and a rescission under Article 1191:
The remedy of rescission is not confined to the rescissible contracts enumerated under Article 1381. Article 1191 of the Civil Code gives the injured
party in reciprocal obligations, such as what contracts are about, the option to choose between fulfillment and rescission. Arturo M. Tolentino, a well-
known authority in civil law, is quick to note, however, that the equivalent of Article 1191 in the old code actually uses the term resolution rather than
the present rescission. The calibrated meanings of these terms are distinct.
Rescission is a subsidiary action based on injury to the plaintiffs economic interests as described in Articles 1380 and 1381. Resolution, the action
referred to in Article 1191, on the other hand, is based on the defendants breach of faith, a violation of the reciprocity between the parties. As an action
based on the binding force of a written contract, therefore, rescission (resolution) under Article 1191 prescribes in 10 years. Ten years is the period of
prescription of actions based on a written contract under Article 1144.
The distinction makes sense. Article 1191 gives the injured party an option to choose between, first, fulfillment of the contract and, second, its rescission.
An action to enforce a written contract (fulfillment) is definitely an action upon a written contract, which prescribes in 10 years (Article 1144). It will not
be logical to make the remedy of fulfillment prescribe in 10 years while the alternative remedy of rescission (or resolution) is made to prescribe after only
four years as provided in Article 1389 when the injury from which the two kinds of actions derive is the same.
The Court noted that the action filed by the Quirong heirs was an action for rescission (not resolution):
Here, the Quirong heirs alleged in their complaint that they were entitled to the rescission of the contract of sale of the lot between the DBP and Sofia
Quirong because the decision in Civil Case D-7159 deprived her heirs of nearly the whole of that lot. But what was the status of that contract at the time of
the filing of the action for rescission? Apparently, that contract of sale had already been fully performed when Sofia Quirong paid the full price for the lot
and when, in exchange, the DBP executed the deed of absolute sale in her favor. There was a turnover of control of the property from DBP to Sofia
Quirong since she assumed under their contract, the ejectment of squatters and/or occupants on the lot, at her own expense.
Actually, the cause of action of the Quirong heirs stems from their having been ousted by final judgment from the ownership of the lot that the DBP sold to
Sofia Quirong, their predecessor, in violation of the warranty against eviction that comes with every sale of property or thing. Article 1548 of the Civil
Code provides:
Article 1548. Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is
deprived of the whole or of a part of thing purchased.
x x x x
With the loss of 80% of the subject lot to the Dalopes by reason of the judgment of the RTC in Civil Case D-7159, the Quirong heirs had the right to file an
action for rescission against the DBP pursuant to the provision of Article 1556 of the Civil Code which provides:
Article 1556. Should the vendee lose, by reason of the eviction, a part of the thing sold of such importance, in relation to the whole, that he would not have
bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing without other encumbrances than those
which it had when he acquired it. x x x
Finally, the Court concluded that the action for rescission was barred by prescription as it was filed beyond the 4-year prescriptive period:
And that action for rescission, which is based on a subsequent economic loss suffered by the buyer, was precisely the action that the Quirong heirs took
against the DBP. Consequently, it prescribed as Article 1389 provides in four years from the time the action accrued. Since it accrued on January 28, 1993
when the decision in Civil Case D-7159 became final and executory and ousted the heirs from a substantial portion of the lot, the latter had only until
January 28, 1997 within which to file their action for rescission. Given that they filed their action on June 10, 1998, they did so beyond the four-year
period.
A formal agreement between two parties that may be rendered unenforceable for a number of legal reasons. Reasons
that can make a contract voidable include failure by one or both parties to disclose a material fact; a mistake,
misrepresentation or fraud; undue influence or duress; one party's legal incapacity to enter a contract; one or more
terms that are unconscionable; or a breach of contract.