Rescission

RESCISSION
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. 24 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."25
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. 26 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.27 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. 28 As elucidated in Froilan
v. Pan Oriental Shipping Co.,29 "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."30 Similarly, in Dela Rama Steamship Co.,
Inc. v. Tan,31 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.32
With this in mind, the Court therefore affirms the correctness of the
CA’s Decision upholding PMC’s unilateral rescission of the OA due
to GVEI’s non-payment of royalties considering the parties’ express
stipulation in the OA that said agreement may be cancelled on such
ground. This is found in Section 8.01, Article VIII 33 in relation to
Section 5.01, Article V34 of the OA which provides:
EDS MANUFACTURING, INC. v. HEALTHCHECK

INTERNATIONAL INC.,
G.R. No. 162802, October 09, 2013
First, Article 1191 of the Civil Code

states:chanRoblesvirtualLawlibrary
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.5
The general rule is that rescission (more appropriately, resolution) 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.6
In his concurring opinion in Universal Food Corporation v. Court of

Appeals,7 Justice J.B.L. Reyes clarifies:chanRoblesvirtualLawlibrary
It is probable that the petitioner’s confusion arose from the defective

technique of the new Code that terms both instances as “rescission”
without distinction between them; unlike the previous Spanish Code
of 1889 that differentiated between “resolution” for breach of
stipulations from “rescission” by reason of lesion or damage. But the
terminological vagueness does not justify confusing one case with the
other, considering the patent difference in causes and results of either
action.8
Reiterating the aforementioned pronouncement, this Court in Pryce

Corporation v. Philippine Amusement Gaming Corporation 9 held
that:chanRoblesvirtualLawlibrary
Relevantly, it has been pointed out that resolution was originally

used in Article 1124 of the old Civil Code, and that the term became
the basis for rescission under Article 1191 (and conformably, also
Article 1659).10
Thus, the rescission referred to in Article 1191, more appropriately

referred to as resolution, is on the breach of faith by one of the parties
which is violative of the reciprocity between them. 11
In the present case, it is apparent that HCI violated its contract with
EMI to provide medical service to its employees in a substantial way.
As aptly found by the CA, the various reports made by the EMI
employees from July to August 1998 are living testaments to the
gross denial of services to them at a time when the delivery was
crucial to their health and lives.
However, although a ground exists to validly rescind the contract

between the parties, it appears that EMI failed to judicially rescind
the same.
In Iringan v. Court of Appeals,12 this Court reiterated the rule that in the

absence of a stipulation, a party cannot unilaterally and
extrajudicially rescind a contract. A judicial or notarial act is
necessary before a valid rescission (or resolution) can take place.
Thus –chanrobleslaw
Clearly, a judicial or notarial act is necessary before a valid rescission

can take place, whether or not automatic rescission has been
stipulated. It is to be noted that the law uses the phrase “even
though” emphasizing that when no stipulation is found on automatic
rescission, the judicial or notarial requirement still applies.
x x x
But in our view, even if Article 1191 were applicable, petitioner

would still not be entitled to automatic rescission. In Escueta v. Pando,
we ruled that under Article 1124 (now Article 1191) of the Civil Code,
the right to resolve reciprocal obligations, is deemed implied in
case one of the obligors shall fail to comply with what is
incumbent upon him. But that right must be invoked
judicially. The same article also provides: “The Court shall decree
the resolution demanded, unless there should be grounds which
justify the allowance of a term for the performance of the obligation.”
This requirement has been retained in the third paragraph of Article

1191, which states that “the court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a period.”
Consequently, even if the right to rescind is made available to the

injured party, the obligation is not ipso facto erased by the failure of
the other party to comply with what is incumbent upon him. The
party entitled to rescind should apply to the court for a decree of
rescission. The right cannot be exercised solely on a party’s own
judgment that the other committed a breach of the obligation. The
operative act which produces the resolution of the contract is the
decree of the court and not the mere act of the vendor. Since a judicial
or notarial act is required by law for a valid rescission to take place,
the letter written by respondent declaring his intention to rescind did
not operate to validly rescind the contract.13

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More accurately referred to as resolution, the right of rescission

As a general rule, the power to rescind an obligation must be invoked

EDS MANUFACTURING, INC. v. HEALTHCHECK

First, Article 1191 of the Civil Code

The power to rescind obligations is implied in reciprocal ones, in case

This is understood to be without prejudice to the rights of third

The general rule is that rescission (more appropriately, resolution) of

In his concurring opinion in Universal Food Corporation v. Court of

It is probable that the petitioner’s confusion arose from the defective

Reiterating the aforementioned pronouncement, this Court in Pryce

Relevantly, it has been pointed out that resolution was originally

Thus, the rescission referred to in Article 1191, more appropriately

However, although a ground exists to validly rescind the contract

In Iringan v. Court of Appeals,12 this Court reiterated the rule that in the

Clearly, a judicial or notarial act is necessary before a valid rescission

But in our view, even if Article 1191 were applicable, petitioner

This requirement has been retained in the third paragraph of Article

Consequently, even if the right to rescind is made available to the

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