Civil Liability After Rescission of a Contract of Sale
(Philippine Law)
“Rescission is a remedy aimed at undoing a legally valid yet inequitable contract, restoring the parties as far as practicable to the status quo ante.” —Philippine Civil Code, Arts. 1380 & 1191 (in pari materia)
1. Two Statutory Bases for Rescission of a Sale
| Basis | Governing Articles | Nature | Typical Ground in a Sale |
|---|---|---|---|
| Rescissible contracts | Arts. 1380–1389 | An equitable remedy against contracts that, while valid, cause lesion or prejudice to one party or to third persons (e.g., creditors, wards, absentee owners). | (a) Lesion > ¼ of value when a guardian sells property of a ward (Art. 1381 (3)); (b) Sale by an absentee’s representative that prejudices creditors (Art. 1381 (4)). |
| Resolution of reciprocal obligations | Art. 1191, in relation to Arts. 1654–1655 (seller’s duties) & 1657 (buyer’s duties) | A sanction for substantial breach of a promise in a bilateral contract. | Material breach—e.g., failure to deliver the thing or to pay the price. |
Practice tip: Cite both articles in pleadings when grounds may overlap to avoid dismissal on mere technicality.
2. Requisites
| Under Arts. 1380–1389 | Under Art. 1191 |
|---|---|
| 1. Valid contract; 2. Ground for rescission expressly listed in Art. 1381; 3. The lesion or prejudice exists and is serious; 4. No other legal remedy would fully protect the injured party; 5. Action filed within 4 years (Art. 1389). | 1. Bilateral contract with reciprocal prestations; 2. Party in default commits a substantial breach; 3. Injured party is ready and willing to perform; 4. Judicial or extrajudicial rescission (extrajudicial requires prior demand and possible judicial confirmation if contested). |
3. Immediate Civil Effects
Mutual Restitution (Art. 1385; echoing Art. 1191 last par.)
- Seller returns the price plus legal interest from the date of payment.
- Buyer returns the thing plus fruits received (natural, industrial, civil) or, if lost or deteriorated by his fault, value at time of loss + interest.
Accessory Transfers Reversed
- Real‐estate mortgages, chattel mortgages, or annotations made to secure the sale are cancelled.
- Possessory rights revert; possession ex lege becomes in conceptu commodati (mere tolerance) pending surrender.
Improvements & Deteriorations (Art. 1189 analogically; Art. 1385 ¶ 2)
- Necessary improvements: reimbursable to the possessor in good faith.
- Useful improvements: reimburse at choice of owner (value or removal).
- Purely ornamental: not reimbursable; may be removed if possible without damage.
Third Persons
- Rescission cannot prejudice third parties who acquired in good faith for value (Art. 1385 ¶ 3).
- Injured party may instead claim damages from the counterpart who caused impossibility of restitution.
4. Measure of Liability When the Thing Is Lost or Impaired
| Scenario | Civil Liability of the Buyer | Civil Liability of the Seller |
|---|---|---|
| Thing lost without buyer’s fault before rescission suit | Return of price impossible; action fails (risk had passed) unless seller in mora. | Must refund price + interest (if seller received the thing and then lost it). |
| Thing lost through buyer’s fault or after being in mora | Buyer pays value at time of loss + interest + fruits he failed to deliver. | Refund price + interest offset by value received, if any. |
| Thing deteriorated by mere lapse of time | Buyer bears no liability; ordinary wear and tear is risk of seller once rescission decreed. | Refund price minus depreciation if equitable. |
5. Prescription & Laches
Four (4)-year period counted:
- From capacity regained (minors, incapacitated) or
- From date of contract in other cases (Art. 1389).
Art. 1145 (for actions arising from implied contracts) still applies subsidiary for interest or fruits.
Equity of laches may bar relief where delay is inexcusable despite not reaching 4 years.
6. Concurrence with Damages
Under Art. 1191, rescission “shall be without prejudice to the right to demand damages.” Courts may award:
- Actual/compensatory – proven losses (e.g., storage cost, broker’s fees).
- Moral – bad-faith sales causing anxiety or reputational harm.
- Exemplary – when breach was wanton or fraudulent (Art. 2232).
- Attorney’s fees – when action is compelled by obstinate resistance (Art. 2208).
7. Insolvency & Preferential Right of Creditors
- Creditors of an insolvent vendor may sue for rescission in their own names (Art. 1381 (3), 1387).
- Rescissory action may subsist independently of insolvency proceedings (distinct from rehabilitation avoidance powers).
- Upon decree, price returned to the mass of assets and distributed per Civil Code preference order (Arts. 2241–2242).
8. Registration & Torrens Title
- Notice of Lis Pendens advisable immediately upon filing to bind subsequent purchasers.
- A final judgment rescinding a registered sale must be annotated; Register of Deeds cancels the buyer’s TCT and revives the seller’s.
- A buyer in good faith whose TCT has been issued before lis pendens is insulated (Art. 1385; §53, Property Registration Decree).
9. Comparative Remedies
| Nullity | Annulment | Rescission | Specific Performance |
|---|---|---|---|
| Void ab initio; no restitution if equally at fault. | Voidable; defect of consent or capacity. | Valid but inequitable; mutual restitution. | Enforce performance instead of set aside. |
10. Leading Jurisprudence
| Case | G.R. No. | Key Doctrine on Civil Liability |
|---|---|---|
| Spouses Crisostomo v. CA (1991) | 108946 | A buyer who fails to pay the price on due date commits a substantial breach entitling seller to Art. 1191 rescission plus damages. |
| Gotesco Properties v. Chatto (2003) | 146434 | Art. 1191 rescission may be exercised extrajudicially by clear notice of resolution; judicial confirmation needed only if contested. |
| Tormon v. Khodr (2017) | 214631 | Mutual restitution includes return of improvements or their value; court may fix indemnity where return in natura impossible. |
| Philippine Global Communications v. Relucto (2009) | 156585 | Four-year prescription for rescission is strict; equity cannot override an express statutory period. |
| Garciano v. Rosario (2015) | 169642 | Good-faith third-party buyer with TCT prior to lis pendens is protected; proper remedy is damages against vendor. |
11. Procedural Notes
- Plead both causes (Arts. 1191 & 1385) in the alternative when facts permit.
- Implead indispensable parties (creditors, subsequent buyers).
- Prayer must include (a) rescission, (b) mutual restitution, (c) damages, (d) cancellation of liens/TCT.
- Bond may be required when preserving status quo (Rule 57, provisional remedies).
- Execution: Sheriff enforces delivery of thing or payment of equivalent value; Registrar acts on annotation orders.
12. Practical Checklist for Counsel
- ✅ Verify validity of sale (void contracts need no rescission).
- ✅ Ascertain cause (breach vs lesion) to select proper article.
- ✅ Compute fruits, interest, improvements, deterioration for pleadings.
- ✅ Calendar 4-year prescriptive period; corroborate with receipts.
- ✅ File lis pendens or secure restraining orders to stop transfers.
- ✅ Prepare to offset mutual liabilities during execution.
13. Conclusion
Rescission, whether under Art. 1191 or Arts. 1380–1389, is more than a simple cancellation—it triggers a complex web of civil liabilities: returning performance, paying fruits and interest, indemnifying for loss, and respecting the rights of good‐faith third persons. Mastery of these consequences—and the tight procedural timelines that govern them—empowers practitioners to protect clients from inequitable sales and to navigate the Philippine courts with precision.