Retaliatory remedy of resolution or rescission in reciprocal obligations

In reciprocal obligations, either party may rescind the contract upon the other’s substantial breach of the obligation/s he had assumed thereunder. The basis therefor is Article 1191 of the Civil Code which states as follows:
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.

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.
More accurately referred to as resolution, the right of rescission under Article 1191 is predicated on a breach of faith that violates the reciprocity between parties to the contract.[1] This retaliatory remedy is given to the contracting party who suffers the injurious breach on the premise that it is “unjust that a party be held bound to fulfill his promises when the other violates his.”[2]

As a general rule, the power to rescind an obligation must be invoked judicially and cannot be exercised solely on a party’s own judgment that the other has committed a breach of the obligation.[3] This is so because rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement.[4] As a well-established exception, however, an injured party need not resort to court action in order to rescind a contract when the contract itself provides that it may be revoked or cancelled upon violation of its terms and conditions.[5] As elucidated in Froilan v. Pan Oriental Shipping Co.,[6] “there is x x x 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.”[7] Similarly, in Dela Rama Steamship Co., Inc. v. Tan,[8] it was held that judicial permission to rescind an obligation is not necessary if a contract contains a special provision granting the power of cancellation to a party.[9]

[1] See Spouses Cannu v. Spouses Galang, 498 Phil. 128, 145 (2005); citing the Concurring Opinion of Justice Jose B.L. Reyes in Universal Food Corp. v. CA, 144 Phil. 1, 21-22 (1970).

[2] Universal Food Corp. v. CA, id.

[3] See Phil. Amusement Enterprises, Inc. v. Natividad, 128 Phil. 320, 325 (1967).

[4] Eds Manufacturing, Inc. vs. Healthcheck International, Inc., G.R. No. 162802, October 9, 2013. See also Spouses Cannu v. Spouses Galang, supra note 24, at 140.

[5] See Spouses Faustino and Josefina Garcia v. CA, G.R. No. 172036, April 23, 2010, 619 SCRA 280, 286-290.

[6] 120 Phil. 1066 (1964).

[7] Id. at 1078.

[8] 99 Phil. 1034 (1956) unreported case.

[9] Id. See also Hon. Enrile v. CA, 140 Phil. 199, 206 (1969).

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