REMEDY OF RESCISSION

(RESOLUTION)
Rescission as contemplated under Article 1381 et seq pertaining to
rescissibile contracts is not contemplated in this chapter.
The remedy of rescission covered in this chapter is that referred to in Article
1191, which states
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.
 Article 1592. In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time agreed
upon the rescission of the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as long as no demand
for rescission of the contract has been made upon him either judicially or
by a notarial act. After the demand, the court may not grant him a new
term.

Article 1592 is construed to apply to all sales of immovables even

when there is no stipulation on automatic rescission.
 RESCISSION (Article 1381 et RESCISSION (Resolution,
seq) Article 1191)

GROUNDS: lesion and fraud

GROUND: breach of contract
Subsidiary remedy
Primary remedy
PRESCRIPTIVE PERIOD: four years
PRESCRIPTIVE PERIOD: ten years
Exception
When Principles of Rescission (Article 1381) Applied to Resolution
of Sale

Suria v. Intermediate Appellate Court

The case involved a contract of sale where a mortgage in
favor of the seller was constituted on the subject matter to
secure the payment of the purchase price. When thw buyer
defaulted, the sellers sought to rescind the contract, instead
of foreclosing on the mortgage.
The Supreme Court ruled that that sellers could not avail of
rescission (resolution) under Article 1191. According to the
Court, by the execution of the deed of mortgage, the buyer
was deemed to have fulfilled his obligation.
However, the aforementioned was dissented to by Justice
J.B.L. Reyes.
When Rescission Should Have Been Applied

Uy v. Court of Appeals
A contract of sale covered the purchase of eight residential
lots. It was determined that three of lots delivered were
subject to landslide and could not be used for the construction
of residential building.
The Supreme Court held that the NHA was justified in
cancelling the contract, since the realization of the mistake
as regards the quality of the land resulted in the negation of
the motive or cause; thus rendering the contract inexistent
under Article 1318 of the Civil Code.
 However, Article 1545 (1) provides
Where the obligation of either party to a contract of sale is subject to any
condition which is not performed, such party may refuse to proceed with
the contract or he may waive performance of the condition. If the other
party has promised that the condition should happen or be performed,
such first mentioned party may also treat the nonperformance of the
condition as a breach of warranty.
Breach of warranty against hidden defects may have
justified the application of rescission under Article 1191.
Nature of the Remedy of Rescission
(Resolution)
According to the Supreme Court, to rescind is to declare a contract
void in its inception and to put an end to it as though it never were.
Romero v. Court of Appeals
Rescission (resolution) is premised on the breach of faith by the pther party
that violates the reciprocity between the parties.
Gil v. Court of Appeals
It was characterized that the failure of a party to comply with his obligation
in reciprocal contracts as the happening of a resolutory condition for which
the rescission or specific performance under Article 1191.
However, the happening of a resolutory condition ipso facto extinguishes
thw contract without the need for rescission.
A. Generally Judicial in Nature
General Rule:
No man may, even one with a valid and lawful cause of action,
take the law into his own hands and must resort to the aid of
courts to enforce his rights.

Exception:
An express stipulation by the parties to a reciprocal contract
that rescission in case of default by one party, may be
resorted to by the other party extrajudicially.
When Extrajudicial Rescission
Allowed
Froilan v. Pan Oriental Shipping Co .
The contract did not explicitly give the mortgagee the right to rescind the
contract.
However, it was provided in the terms that the mortgagee as it may see
fit, in case of breach of the terms thereof by the mortgagor.
Pangilinan v. Court of Appeals
Rationale for the exception: Judicial intervention is not necessary for
purposes of obtaining a judicial declaration rescinding a contract already
deemed rescinded by virtue of an agreement peoviding for rescission
without judicial intervention, but in order to determine whether or not the
rescission was proper. Where such propriety is sustained, the
decision of the court will br merely declaratory of the revocation,
but it is jot in itself the revocatory act.
 Iringan v. Court of Appeals
A stipulation in a sale allowing rescission (resolution) valid.
However, it does not grant automatic rescission since the said
remedy must be invoked judicially. Also, the courts are
granted the power to deny rescission should there be
justifying grounds for the allowwnce of a term for the
performance if the obligation.
Spouses Benito v. Saquitan-Ruiz
A seller cannot unilaterally and extrajudicially rescind a sale
where there is no express stipulation authorizing it.
Unilateral rescission will not be judicially favored if the breach
is not substantial and fundamental to the fulfillment of the
obligation.
B. Who may demand rescission?
The power to rescind is given only to the injured party.

Mutual restitution is required.

However, the party demanding rescission must be able
to return whatever he may be obliged to restore.
C. Rescission Must Be Based on Substantial Breach;
But Courts Have the Power to Grant Repreive

Article 1234 provides,

If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
Even when based on substantial breach, the right to rescission in
reciprocal contracts is NOT absolute. According to Article 1191
(3),
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
In case of immovable, Article 1592 shall prevail over Article 1191.
D. Rescission Requires a Positive Act
Rescission requires a positive act on the part of the
injured party.
RATIONALE: It is legally possible that the injured party may
waive rescission and proceed with specific performance.
City of Cebu v. Heirs of Candido Rubi
The buyer failed to pay the stipulated purchase price.
However, the seller did not give a notice of rescission. The
only notice given was a demand to vacate the premises.
Co v. Court of Appeals
The failure of the buyer to pay the balance of the purchase
price was a breach. However, the seller did not sue for either
rescission or specific performance.
 Olympia Housing v. Panasiatic Travel Corp.
Rescission to resolve a conract of sale cannot be deemed
necessarily included in an action for reconveyance to recover
possession of the subject matter.
Although a judicial resolution of a contract would in turn give
rise to mutual restitution, it would noy necessarily arise when
the action filed was for reconveyance.
In an action for rescission, the court may find just cause for
fixing of a period instead of decreeing rescission.
E. Restitution as a Consequence of
Rescission
Article 1385 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; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged 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.
When Forfeiture of Payments
Allowed in Rescission
As an exception, the effect of restitution in rescission may be
stipulated against. Such stipulation would be enforcaeable to the
extent that is reasonable.
Manila Racing Club v. Manila Jockey Club
A contractual provision for forfeiture of the ampunts paid in a sales is
valid being in the nature of a penal clause and witthun the ambit of the
freedom of the parties to stipulate in a contract.
Pangilinan v. Court of Appeals
The sellers right in a contract to sell with reserved title to extrajudically
cancel the sale upon installments the buyer to pay the stipulated
installments and retain the sums and installments already received has
long been recognized by the well-establish doctrine.
 Article 1486 provides,
xxx a stipulation that the installments or rents paid shall not be returned
to the vendee or lessee shall be valid insofar as the same may not be
unconscionable under the circumstances.
However, the courts may still allow such forfeiture even
in the absence of a forfeiture clause as a reasonable
compensation for the use of the subject matter of the
contract.