UFC v.

CA

In this case before us, there is no controversy that the provisions of the Bill of Assignment are reciprocal in nature.
The petitioner corporation violated the Bill of Assignment, specifically paragraph 5-(a) and (b), by terminating the
services of the respondent patentee Magdalo V. Francisco, Sr., without lawful and justifiable cause.

Upon the factual milieu, is rescission of the Bill of Assignment proper?

The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very object of the parties in making the agreement. 12 The
question of whether a breach of a contract is substantial depends upon the attendant circumstances. 13 The
petitioner contends that rescission of the Bill of Assignment should be denied, because under article 1383,
rescission is a subsidiary remedy which cannot be instituted except when the party suffering damage has
no other legal means to obtain reparation for the same. However, in this case the dismissal of the
respondent patentee Magdalo V. Francisco, Sr. as the permanent chief chemist of the corporation is a
fundamental and substantial breach of the Bill of Assignment. He was dismissed without any fault or
negligence on his part. Thus, apart from the legal principle that the option — to demand performance or
ask for rescission of a contract — belongs to the injured party, 14 the fact remains that the respondents-
appellees had no alternative but to file the present action for rescission and damages. It is to be
emphasized that the respondent patentee would not have agreed to the other terms of the Bill of
Assignment were it not for the basic commitment of the petitioner corporation to appoint him as its Second
Vice-President and Chief Chemist on a permanent basis; that in the manufacture of Mafran sauce and
other food products he would have "absolute control and supervision over the laboratory assistants and
personnel and in the purchase and safeguarding of said products;" and that only by all these measures
could the respondent patentee preserve effectively the secrecy of the formula, prevent its proliferation,
enjoy its monopoly, and, in the process afford and secure for himself a lifetime job and steady income. The
salient provisions of the Bill of Assignment, namely, the transfer to the corporation of only the use of the
formula; the appointment of the respondent patentee as Second Vice-President and chief chemist on a
permanent status; the obligation of the said respondent patentee to continue research on the patent to
improve the quality of the products of the corporation; the need of absolute control and supervision over the
laboratory assistants and personnel and in the purchase and safekeeping of the chemicals and other
mixtures used in the preparation of said product — all these provisions of the Bill of Assignment are so
interdependent that violation of one would result in virtual nullification of the rest.

4. The petitioner further contends that it was error for the Court of Appeals to hold that the respondent patentee is
entitled to payment of his monthly salary of P300 from December 1, 1960, until the return to him of the Mafran
trademark and formula, arguing that under articles 1191, the right to specific performance is not conjunctive with the
right to rescind a reciprocal contract; that a plaintiff cannot ask for both remedies; that the appellate court awarded the
respondents both remedies as it held that the respondents are entitled to rescind the Bill of Assignment and also that
the respondent patentee is entitled to his salary aforesaid; that this is a gross error of law, when it is considered that
such holding would make the petitioner liable to pay respondent patentee's salary from December 1, 1960 to
"kingdom come," as the said holding requires the petitioner to make payment until it returns the formula which, the
appellate court itself found, the corporation never had; that, moreover, the fact is that the said respondent patentee
refused to go back to work, notwithstanding the call for him to return — which negates his right to be paid his back
salaries for services which he had not rendered; and that if the said respondent is entitled to be paid any back salary,
the same should be computed only from December 1, 1960 to March 31, 1961, for on March 20, 1961 the petitioner
had already formally called him back to work.

Magdalena v. Myrick
It is next argued that contract SJ-639, being a bilateral agreement, in the absence of a stipulation permitting its
cancellation, may not be resolved by the mere act of the petitioner. The fact that the contracting parties herein did not
provide for resolution is now of no moment, for the reason that the obligations arising from the contract of sale being
reciprocal, such obligations are governed by article 1124 of the Civil Code which declares that the power to resolve,
in the event that one of the obligors should not perform his part, is implied. (Mateos vs. Lopez, 6 Phil., 206; Cortez vs.
Bibaño & Beramo, 41 Phil. 298; Cui. vs. Sun Chan, 41 Phil., 523; Po Pauco vs. Siguenza, 49 Phil., 404.) Upon the
other hand, where, as in this case, the petitioner cancelled the contract, advised the respondent that he has been
relieved of his obligations thereunder, and led said respondent to believe it so and act upon such belief, the petitioner
may not be allowed, in the language of section 333 of the Code of Civil Procedure (now section 68 (a) of Rule 123 of
the New Rules of Court), in any litigation the course of litigation or in dealings in nais, be permitted to repudiate his
representations, or occupy inconsistent positions, or, in the letter of the Scotch law, to "approbate and reprobate."
(Bigelow on Estoppel, page 673; Toppan v. Cleveland, Co. & C.R. Co., Fed. Cas. 14,099.)

The contract of sale, contract SJ-639, contains no provision authorizing the vendor, in the event of failure of the
vendee to continue in the payment of the stipulated monthly installments, to retain the amounts paid to him on account
of the purchase price. The claim, therefore, of the petitioner that it has the right to forfeit said sums in its favor is
untenable. Under article 1124 of the Civil Code, however, he may choose between demanding the fulfillment of the
contract or its resolution. These remedies are alternative and not cumulative, and the petitioner in this case, having to
cancel the contract, cannot avail himself of the other remedy of exacting performance.

UP v. De los Angeles

The basic issue in this case is whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may
disregard the same before any judicial pronouncement to that effect. Respondent ALUMCO contended, and the lower
court, in issuing the injunction order of 25 February 1966, apparently sustained it (although the order expresses no
specific findings in this regard), that it is only after a final court decree declaring the contract rescinded for violation
of its terms that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of
no force or effect.

We find that position untenable.

In the first place, UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner
of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider,
the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit." As to such
special stipulation, and in connection with Article 1191 of the Civil Code, this Court stated in Froilan vs. Pan
Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276:

there is 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.

Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the
contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.
In other words, the 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 conclusively 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 other's 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).

We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a reciprocal obligation,1 since in every case where the
extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle
whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should
become barred by acquiescence, estoppel or prescription.

Zulueta v. Mariano

skipped.

Palay v. Clave
Well settled is the rule, as held in previous jurisprudence, 2 that judicial action for the rescission of a contract is not
necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and
conditions. However, even in the cited cases, there was at least a written notice sent to the defaulter informing him of
the rescission. As stressed in University of the Philippines vs. Walfrido de los Angeles 3 the act of a party in treating
a contract as cancelled should be made known to the other.

This was reiterated in Zulueta vs. Mariano 5 where we held that extrajudicial rescission has legal effect where the
other party does not oppose it.6 Where it is objected to, a judicial determination of the issue is still necessary.

In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in Court.
If the debtor impugns the declaration, it shall be subject to judicial determination. 7

Angeles v. Calasanz
In this case, private respondent has denied that rescission is justified and has resorted to judicial action. It is now for
the Court to determine whether resolution of the contract by petitioners was warranted.

Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon the failure of the
other to perform the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the parties
from entering into an agreement that violation of the terms of the contract would cause its cancellation even without
court intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA 276)—
 Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary
where the contract provides that it may be revoked and cancelled for violation of any of its terms and
conditions' (Lopez v. Commissioner of Customs, 37 SCRA 327, and cases cited therein)

We hold that resolution by petitioners of the contract was ineffective and inoperative against private respondent for
lack of notice of resolution, as held in the U.P. vs. Angeles case, supra.

Solomon Boysaw v. Interphil

rescission was the only remedy.

Pilipinas Bank v.IAC

Hence, this Petition For Review on Certiorari, raising the main issue of whether or not the Contract to Sell No. VV-
18(a) was rescinded or cancelled, under the automatic rescission clause contained therein.

We find the petition meritless. While it is true that in the leading case of Luzon Brokerage Co., Inc. vs. Maritime
Building Co., Inc. and Myers Building Co., 43 SCRA 93 the Supreme Court reiterated among other things that a
contractual provision allowing "automatic rescission" (without prior need of judicial rescission, resolution or
cancellation) is VALID, the remedy of one who feels aggrieved being to go to Court for the cancellation of the
rescission itself, in case the rescission is found unjustified under the circumstances, still in the instant case there is a
clear WAIVER of the stipulated right of "automatic rescission," as evidenced by the many extensions granted private
respondents by the petitioner. In all these extensions, the petitioner never called attention to the proviso on "automatic
rescission."

Central Bank v. CA

Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M.
Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with
damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary
Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino.

Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of
the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that
the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino
accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal
obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there
is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be
entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to
perform his reciprocal obligation to pay.

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings
Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with
his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of
Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio
M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the
interest thereon.

Unlad Resources v. Dragon

Petitioners contend that they have fully complied with their obligation under the
Memorandum of Agreement. They allege that due to respondents failure to increase the
capital stock of the corporation to an amount that will accommodate their undertaking, it
had become impossible for them to perform their end of the Agreement.

Again, petitioners contention is untenable. There is no question that petitioners herein

failed to fulfill their obligation under the Memorandum of Agreement. Even they admit
the same, albeit laying the blame on respondents.

It is true that respondents increased the Rural Banks authorized capital stock to only P5
million, which was not enough to accommodate the P4.8 million worth of stocks that
petitioners were to subscribe to and pay for. However, respondents failure to fulfill their
undertaking in the agreement would have given rise to the scenario contemplated by
Article 1191 of the Civil Code, which reads:

Article 1191. The power to rescind reciprocal 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.

Thus, petitioners should have exacted fulfillment from the respondents or asked for the
rescission of the contract instead of simply not performing their part of the
Agreement. But in the course of things, it was the respondents who availed of the
remedy under Article 1191, opting for the rescission of the Agreement in order to regain
control of the Rural Bank.

Having determined that the rescission of the subject Memorandum of Agreement was in
order, the trial court ordered petitioner Unlad Resources to return to respondents the
management and control of the Rural Bank and for the latter to return the sum
of P1,003,070.00 to petitioners.

Mutual restitution is required in cases involving rescission under Article 1191. This
means bringing the parties back to their original status prior to the inception of the
contract.[14] Article 1385 of the Civil Code provides, thus:

ART. 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.

Neither shall rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act in
bad faith.

In this case, indemnity for damages may be demanded from the person
causing the loss.
This Court has consistently ruled that this provision applies to rescission under Article
1191:

[S]ince Article 1385 of the Civil Code expressly and clearly states
that 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, the Court finds no justification to sustain petitioners position that
said Article 1385 does not apply to rescission under Article 1191.[15]

Rescission has the effect of unmaking a contract, or its undoing from the beginning, and
not merely its termination.[16] Hence, rescission creates the obligation to return the
object of the contract. It can be carried out only when the one who demands rescission
can return whatever he may be obliged to restore. To rescind is to declare a contract void
at its inception and to put an end to it as though it never was. It is not merely to
terminate it and release the parties from further obligations to each other, but to abrogate
it from the beginning and restore the parties to their relative positions as if no contract
has been made.[17]

Accordingly, when a decree for rescission is handed down, it is the duty of the court to
require both parties to surrender that which they have respectively received and to place
each other as far as practicable in his original situation. The rescission has the effect of
abrogating the contract in all parts.[18]

Clearly, the petitioners failed to fulfill their end of the agreement, and thus, there was
just cause for rescission. With the contract thus rescinded, the parties must be restored to
the status quo ante, that is, before they entered into the Memorandum of Agreement.

Swire Realty v. Jayne

From the foregoing, it is evident that the report on the ocular inspection conducted on the subject condominium project and subject unit shows

that the amenities under the approved plan have not yet been provided as of May 3, 2002, and that the subject unit has not been delivered to

respondent as of August 28, 2002, which is beyond the period of development of December 1999 under the license to sell. Incontrovertibly,
petitioner had incurred delay in the performance of its obligation amounting to breach of contract as it failed to finish and deliver the unit to

respondent within the stipulated period. The delay in the completion of the project as well as of the delay in the delivery of the unit are breaches

of statutory and contractual obligations which entitle respondent to rescind the contract, demand a refund and payment of damages.

Olivarez Realty v. Castillo

In a contract of conditional sale, the buyer automatically acquires title to the property upon full payment of the
purchase price.112 This transfer of title is "by operation of law without any further act having to be performed by the
seller."113 In a contract to sell, transfer of title to the prospective buyer is not automatic.114 "The prospective seller
[must] convey title to the property [through] a deed of conditional sale."115

The distinction is important to determine the applicable laws and remedies in case a party does not fulfill his or her
obligations under the contract. In contracts of conditional sale, our laws on sales under the Civil Code of the
Philippines apply. On the other hand, contracts to sell are not governed by our law on sales116 but by the Civil Code
provisions on conditional obligations.

Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal obligations does not apply to contracts to
sell.117 As this court explained in Ong v. Court of Appeals,118 failure to fully pay the purchase price in contracts to
sell is not the breach of contract under Article 1191.119 Failure to fully pay the purchase price is "merely an event
which prevents the [seller’s] obligation to convey title from acquiring binding force."120 This is because "there can be
no rescission of an obligation that is still nonexistent, the suspensive condition not having [happened]."121

In this case, Castillo reserved his title to the property and undertook to execute a deed of absolute sale upon Olivarez
Realty Corporation’s full payment of the purchase price.122 Since Castillo still has to execute a deed of absolute sale
to Olivarez RealtyCorporation upon full payment of the purchase price, the transfer of title is notautomatic. The
contract in this case is a contract to sell.

As this case involves a contract tosell, Article 1191 of the Civil Code of the Philippines does not apply. The contract
to sell is instead cancelled, and the parties123 shall stand as if the obligation to sell never existed.

NCLPI v. Lica

It is true that NCLP1 and LMI's Contract of Lease does not contain a provision expressly authorizing extrajudicial rescission. LMI can
nevertheless rescind the contract, without prior court approval, pursuant to Art. 1191 of the Civil Code.

Art. 1191 provides that the power to rescind is implied in reciprocal obligations, in cases where one of the obligors should fail to comply with
what is incumbent upon him. Otherwise stated, an aggrieved party is not prevented from extrajudicially rescinding a contract to protect its
interests, even in the absence of any provision expressly providing for such right. 72 The rationale for this rule was explained in the case
ofUniversity of the Philippines v. De los Angeles73 wherein this Court held:
[T]he 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 other's 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).
(Emphasis and underscoring supplied)

We are aware of this Court's previous rulings in Tan v. Court of Appeals,74Iringan v. Court of Appeals,75and EDS Manufacturing, Inc. v.
Healthcheck International, Inc.,76 for example, wherein we held that extrajudicial rescission of a contract is not possible without an express
stipulation to that effect.77 chanroblesvirtuallawlibrary
The seeming "conflict" between this and our previous rulings, however, is more apparent than real.

Whether a contract provides for it or not, the remedy of rescission is always available as a remedy against a defaulting party. When done without
prior judicial imprimatur, however, it may still be subject to a possible court review. In Golden Valley Exploration, Inc. v. Pinkian Mining
Company,78 we explained:

This notwithstanding, jurisprudence still indicates that an extrajudicial rescission based on grounds not specified in the contract
would not preclude a party to treat the same as rescinded. The rescinding party, however, by such course of action, subjects
himself to the risk of being held liable for damages when the extrajudicial rescission is questioned by the opposing party in court.
This was made clear in the case of U.P. v. De los Angeles, wherein the Court held as follows: ChanRoblesVir tualawlibrary

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account
of infractions by the other contracting party must be made known to the other and is always provisional, being
ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is
free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due
hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced
to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the
party prejudiced.

In other words, the 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 conclusively and finally settle whether the action taken was or was not correct in
law. x x x (Emphasis and underscoring in the original)

The only practical effect of a contractual stipulation allowing extrajudicial rescission is "merely to transfer to the defaulter the initiative of

instituting suit, instead of the rescinder."79

chanroblesvirtuallawlibrary

In fact, the rule is the same even if the parties' contract expressly allows extrajudicial rescission. The other party denying the rescission may still

seek judicial intervention to determine whether or not the rescission was proper. 80 chanroblesvirtuallawlibrary

Having established that LMl can extrajudicially rescind its contract with NCLPI even absent an express contractual stipulation to that effect, the

question now to be resolved is whether this extrajudicial rescission was proper under the circumstances.

As earlier discussed, NCLPI's non-payment of rentals and unauthorized sublease of the leased premises were both clearly proven by the records.

We thus confirm LMFs rescission of its contract with NCLPI on account of the latter's breach of its obligations.