Article 1191: Power of Rescission

Article 1191. The power to rescind the obligation 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 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.

Note: In the case of Vermen Realty Development Corporation, G.R. No. 101762, July 6, 1993, the Supreme Court held, “The general rule is that rescission of a contract will not be permitted for a slight or causal breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in executing the agreement. The question of whether a breach of contract is substantial depends upon the attendant circumstances.”

Note: In the case of Gotesco Properties, Inc. vs. Spouses Fajardo, it was held that “rescission does not merely terminate the contract and release the parties from further obligations to each other, but abrogates the contract from its inception and restores the parties to their original positions as if no contract has been made.”

The right to cancel or dissolve a contract or a reciprocal obligation in cases of nonfulfillment on the part of one of the parties is also known as the “power to rescind.” The rescission referred to in Article 1191 is different from that which is referred to in Article 1380 and Article 1381. Articles 1380 and 1381 speak of cancellation anchored on injurious effects to the economic interests on the part of the plaintiff. Rather, Article 1191 makes reference to mere breach of contract or breach of trust, such breach which violates the reciprocity of obligations between the contracting parties.

Note: (Universal Food Corp. vs. Court of Appeals, G.R. No. L-29155, May 13, 1970) Justice J.B.L. Reyes, in his concurring opinion, made a distinction between a rescission for breach of contract under Article 1191 of the Civil Code and a rescission by reason of lesion or economic prejudice, under Article 1381.

Incoming examples:

Juan and Maria entered into a contract where the latter would sell a parcel of land to Maria and in turn, the former would pay in “two gives,” each payment a month a part. This means that if the parcel of land was deliver on January 1, the first payment would be February 1 and the second, March 1. The first part of the payment was made. However, the last payment was not.

Juan rescinded the contract, invoking the special provision grating him the power to rescind in cases of nonfulfillment. Was the rescission valid?

Yes, the rescission was valid. There is no doubt that Maria violated the reciprocity of obligations between her and Juan. This same non-fulfillment gives rise to Juan’s right to cancel or dissolve the contract. Justice Panganiban introduced the decision of the Supreme Court, which he penned, with the following lines: “A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract, entitled the injured party to rescind the obligation. Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received.”
Note: 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 obligated to restore.
Declaring a rescission of contract is declaring it void from the beginning. It puts the contract in so a state that it is deemed to have never existed. Said the Supreme Court in one case, “It is not merely to terminate it and release parties from further obligations to each other but to abrogate it from the beginning and restore parties to relative positions which they would have occupied had no contract ever been made.” (See Pryce Corporation vs. PAGCOR, G.R. No. 157480, May 6, 2005)

Another question: What if Maria contends that, although there really is a special provision in the contract giving Juan power to rescind in cases of breach, the fact remains that judicial decree was not sought first? Would this be a valid argument?

No, such argument is not meritorious. There is also nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to resort to court for rescission of the contract. Judicial action is needed where there, is absence of special provision in the contract granting to a party the right of rescission. (See Froilan vs. POSC, G.R. No. L-11897, October 31, 1964) Termination of a contract need not undergo judicial intervention. (See Pryce Corporation vs. PAGCOR, G.R. No. 157480, May 6, 2005)

Article 1191 speaks of reciprocal obligations. This alludes to those obligations where two parties are mutually obliged to do, not to do or give something. An example of this is a contract of sale where Party A is obliged to deliver Object X and Party B is obliged to pay for said object. In such cases, the reason of the obligations is the same and such obligations arise simultaneously, except when there is an express stipulation that the other obligation may be fulfilled later on.

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