Legal Basis for Rescission of Contracts in the Philippine Civil Code

Rescission refers to the cancellation of an agreement or contract either through mutual agreement of the parties or for cause.

A party can rescind a contract when the other party fails to comply with his legal obligation.  This is done through judicial rescission (in court).

Applicable provision:

Art. 1191 of the Civil Code. “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 Supreme Court had the occasion to decide that judicial rescission was proper in a case where the owner of a construction project sought to rescind its construction contract plus damages.

The Supreme Court explained: “Article 1191, is not predicated on economic prejudice to one of the, parties but on breach of faith by one of them that violates the reciprocity between them.”  and affirmed the lower court’s decision in favor of the respondents. 

Florido & Associates was counsel for the respondents.

 (ERNESTO DEIPARINE, JR, Petitioner vs. THE HON. COURT OF APPEALS, CESARIO CARUNGAY and ENGR. NICANOR TRINIDAD, Respondents ; G.R. No. 96643. April 23, 1993)   Read the full text and syllabus of the Court’s decision here.

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