G.R. No. L-21876 September 29, 1967

PHILIPPINE AMUSEMENT ENTERPRISES, INC., plaintiff-appellant,
vs.
SOLEDAD NATIVIDAD and MARIANO NATIVIDAD, defendants-appellees.

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First. 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. So the Civil Code provides.³ But it is equally settled that, in the absence of a stipulation to the contrary, this power must be invoked judicially; it cannot be exercised solely on a party's own judgment that the other has committed a breach of the obligation.⁴ Hence, as there is nothing in the contract of lease empowering the defendants to rescind it without resort to the courts, the defendants' action in unilaterally terminating the contract is unjustified. As this Court said in Escueta v. Pando:⁵

The defendant could not, by himself alone and without judicial intervention, resolve or annul the agreement. Under article 1124 [now art. 1191] of the Civil Code, the right to resolve reciprocal obligations, in case one of the obligors shall fail to comply with that which is incumbent upon him, is deemed to be implied. But that right must be invoked judicially for 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."

Second. Rescission will be ordered only where the breach complained of is substantial as to defeat the object of the parties in entering into the agreement. It will not be granted where the breach is slight or casual.⁶ The defendants asked the plaintiff to retrieve its phonograph, claiming that there were times when the coins dropped into the slot would get stuck, resulting in its failure to play the desired music. But apart from this bare statement, there is nothing in the evidence which shows the frequency with which the jukebox failed to function properly. The expression "there are times" connotes occasional failure of the phonograph to operate, not frequent enough to render it unsuitable and unserviceable. As a matter of fact, there is not even a claim that, as a result of unsatisfactory performance thereof, the income therefrom dropped to such a level that the defendants could not even pay the plaintiff its guaranteed share of P50 a week. On the contrary, the evidence (Stipulation of Facts, Annexes J, K, L, M, N, and O) shows that, during the period complained of, the operation of the jukebox was quite profitable to both parties.⁷

Third. We believe that the defendants actually bought a jukebox only in 1961 after they had signed the lease contract in question, although they might have expressed a desire to buy one the year before, for otherwise they would not have entered into a three-year lease. But certainly their decision to buy a jukebox and operate it themselves was made long before they ever complained in July, 1961 of any defect in the rented jukebox. To be sure, it is not shown when the rented phonograph supposedly developed trouble; presumably it was early in July, 1961, since the defendants' first letter of complaint was written on July 17. But if, as defendants admit, they began operating their own jukebox "sometime in July, 1961" (presumably on July 24, 1961 when they removed the rented jukebox from where it was installed), then the defendants' pretense that they decided to buy their own jukebox only after the rented one had failed to function properly becomes highly improbable. The jukebox which they ordered from the United States could not have arrived in so short a time as to enable them to operate it on July 24.

G.R. No. 176868 July 26, 2010

SOLAR HARVEST, INC., Petitioner,
vs.
DAVAO CORRUGATED CARTON CORPORATION, Respondent.

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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.

The right to rescind a contract arises once the other party defaults in the performance of his obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the same law, which provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties’ respective obligations should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his obligation and the other party does not fulfill his, the latter automatically incurs in delay. But when different dates for performance of the obligations are fixed, the default for each obligation must be determined by the rules given in the first paragraph of the present article,¹⁹ that is, the other party would incur in delay only from the moment the other party demands fulfillment of the former’s obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue.

Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only alleged that petitioner made a "follow-up" upon respondent, which, however, would not qualify as a demand for the fulfillment of the obligation. Petitioner’s witness also testified that they made a follow-up of the boxes, but not a demand. Note is taken of the fact that, with respect to their claim for reimbursement, the Complaint alleged and the witness testified that a demand letter was sent to respondent. Without a previous demand for the fulfillment of the obligation, petitioner would not have a cause of action for rescission against respondent as the latter would not yet be considered in breach of its contractual obligation.

Rescission under Article 1191

IS THE SUBSIDIARY AND EQUITABLE REMEDY OF RESCISSION AVAILABLE IN THE PRESENCE OF A REMEDY OF FORECLOSURE IN THE LIGHT OF THE EXPRESS PROVISION OF ARTICLE 1383 OF THE CIVIL CODE THAT: 'THE ACTION FOR RESCISSION IS SUBSIDIARY; IT CANNOT BE INSTITUTED EXCEPT WHEN THE PARTY SUFFERING DAMAGE HAS NO OTHER LEGAL MEANS TO OBTAIN REPARATION FOR THE SAME?

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The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. This rescission is a principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda," Hence, the reparation of damages for the breach is purely secondary.

On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the existence of that prejudice, because it is the raison d 'etre as well as the measure of the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the Philippines, and does not apply to cases under Article 1191.

It is probable that the petitioner's confusion arose from the defective technique of the new Code that terms both instances as "rescission" without distinctions between them; unlike the previous Spanish Civil Code of 1889, that differentiated "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.

According to the private respondents, the applicable law is Article 1191 of the Civil Code which provides:

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 fulfilment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfiument, 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.

G.R. No. 73893 June 30, 1987

MARGARITA SURIA AND GRACIA R. JOVEN, petitioners,
vs.
HON. INTERMEDIATE APPELLATE COURT, HON. JOSE MAR GARCIA (Presiding Judge of the RTC of Laguna, Branch XXIV, Biñan, Laguna), and SPOUSES HERMINIO A. CRISPIN and NATIVIDAD C. CRISPIN, respondents.