Power to rescind obligations IMPLIED in reciprocal ones

Prefatorily, we find that petitioner is mistaken to say that the courts cannot interfere with the decision of a corporations officers and Board of Trustees, nor can a party not be allowed to unilaterally rescind an agreement. The right to rescind is provided for in Article 1191 of the Civil Code, which states:

ART. 1191. 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.
Thus, even if a provision providing for a right to rescind is not in the agreement, a party may still rescind a contract should one obligor fail to comply with its obligations.

While PLRA may have the right to rescind the MOA, treat the contract as cancelled, and communicate the rescission to PRAMA, the cancellation of the MOA is still subject to judicial scrutiny, should the cancellation be contested and brought to court. In University of the Philippines v. De Los Angeles, this Court stressed and explained, thus:

[T]he party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party, injured by the others breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203).

In the instant case, PRAMA judicially questioned the unilateral rescission by PLRA, and the trial court still has to determine whether the unilateral rescission was justified. PLRA is wrong to say that the courts may not interfere with its decision to rescind in the exercise of its management prerogatives. (G.R. No. 156303; December 19, 2007)