Remedies of Parties for Breach of Obligation and Enforcement of Rights

Rescission under Article 1191

Rescission or resolution refers to the cancellation of an reciprocal obligation.

Rescission is a remedy granted by law to the contracting parties, and even to third persons, to secure the reparation of damages caused to them by a contract, even if the same should be valid, by means of the restoration of things to their condition prior to the celebration of the contract.

Note: Rescission of rescissible contracts must not be confused with the rescission or resolution of reciprocal obligations under Art. 1191 of the CodeAlthough there are similarities both with respect to validity and effects, they are distinguished from each other in the following ways:

  1. As to party who may institute action: In rescission the action may be instituted not only by a party to the contract but even by a third person, while in resolution the action may be instituted only by a party to the contract.
  2. As to causes: In rescission there are several causes or grounds such as lesion, fraud and others expressly specified by law, while in resolution the only ground is failure of one of the parties to comply with what is incumbent upon him.
  3. As to power of the courts: In rescission there is no power of the courts to grant an extension of time for performance of the obligation so long as there is a ground for rescission, while in resolution the law expressly declares that courts shall have a discretionary power to grant an extension for performance provided that there is a just cause.
  4. As to contracts which may be rescinded or resolved: In rescission any contract, whether unilateral or reciprocal, may be rescinded, while in resolution only reciprocal contracts may be resolved.

Article 1191 (a)

The power to rescind obligations is implied in reciprocal obligations in case one of the obligors should not comply with his obligation.  

General Rule #1: Article 1191 only applies to reciprocal obligations/contracts with no resolutory provision by virtue of which obligation may be cancelled or extinguished by the injured party in case of breach.

XPN: 

  • Reciprocal obligations/contracts with resolutory provision by virtue of which obligation may be cancelled or extinguished by the injured party in case of breach.
  • Contract of Partnership: only in cases where there are obligation to contribute in common fund because it is governed by Article 1786 and 1788 of Law on Partnership.
  • Contract of Lease: As this is governed by Article 1659.
  • Contract of Sales of Real Property: Governed by the Recto Law (Article 1484-1486)
  • Contract of Sales of Personal Property by installments: Governed by the Maceda Law (RA. 6552)

Rationale for the non-applicability: Special provisions prevail over general provisions.

General Rule #2: Rescission will not be permitted for a slight or casual breach of contract but only for such breaches as are substantial and fundamental as to defeat the object of the parties in making the agreement. 

Hence, a mere delay is not a violation of an essential condition of the contract as warrants rescission for non-performance. 

Article 1191 (b)

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.

General Rule #3: The right for rescission is incumbent upon the injured party and he may choose:

  • Fulfillment of obligation damages; or
  • Rescission of obligation damages

General Rule # 4: Both remedies are alternative in nature, not cumulative. Thus, injured party cannot sought both remedies. 

XPN: where, initially, fulfillment is sought but such fulfillment became impossible; in such case, the injured party may seek for rescission. 

Note: Right to choose between the two is not incompatible with alternative prayer for both remedies. Meaning, if injured party seeks to avail both remedies the presumption is that he is leaving the matter to the sound discretion of the court. (Mindanao Prospecting Ass. Inc vs. Golden Gate Mining Co.)

Article 1191 (c)

The court shall decree the rescission claimed unless there be just cause authorizing the fixing of a period.

General Rule # 5: mere failure of the party to comply with his obligation does not ipso jure produce the rescission of obligation. It is the judgment of the court not the mere will of the party produces rescission of obligation.

XPN: Where the contract itself contains a resolutory provision by virtue of which obligation may be cancelled or extinguished by the injured party in case of breach.

Note: If the exception applies, Judicial decree to cancel or rescind is no longer necessary.

Article 1191 (c)

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.

Effects of Rescission:

Between Contracting Parties: Upon rescission, it is the duty of of the court to require the parties to surrender the values that they may have received from each other and they must be placed as far as practicable to their original situation.

General Rule # 6: In case of breach of both parties, the first infractor shall be equitably tempered by the courts.

XPN: if the court cannon be determined who violated first, same shall be extinguished and each shall bear their own expenses.

Third Persons: 

Rescission can no longer be demanded in the ff:

1.) When he who demands it is no longer in position to return whatever he may be obliged to restore;

2.) When the thing which is the object of the contract is already legally in possession of a third person who did not act in bad faith.

XPN for 2: Third party acquired the thing in bad faith, in which case, injured party may still go after the property.

XPN to the XPN for 2: If the thing can no longer be recovered, he may avail for damages as the only remedy.

Principal Remedy: Creditor to exhaust all properties in the possession of the debtor. 

Subsidiary remedies – defined as the exhaustion of all remedies by the prejudicial creditor to collect claims due him before rescission is resorted to.

  1. Accion Subrogatoria (Action for Subrogation)

– the right or remedy wherein, the law expressly grants to the creditor the right to exercise (to be subrogated to) all of his rights & bring all of the actions which debtor may have against the third persons. 

Rationale: Because of the inaction or failure to comply in proceeding against 3rd persons, the debtor’s creditors are prejudiced. In order to prevent this, law expressly recognizes the right of a creditor to proceed against such 3rd persons invested as it were the personality of the debtor.

Requisites:

  • Debtor to whom the right or action properly pertains must be indebted to the creditor.
  • Creditor must be prejudiced by the inaction or failure of debtor to proceed against 3rd person.
  • Creditor must have first pursued or exhausted all of the properties of the debtor which are not exempted from execution. 

XPN: Rights which are purely personal to the debtor or right which are inherent only to the debtor. (example: inofficious donation)

2. Accion Pauliana (action to rescind contracts entered in fraud of creditors)

– Right available to the creditor by virtue of which he can secure the rescission of any act of debtor which is in fraud and to the prejudice of his rights as a creditor.

Requisites:

  • Plaintiff asking for rescission has a credit prior to the alienation, although demandable later.
  • Debtor has made a subsequent contract conveying a patrimonial benefit to a third person.
  • Creditor has no other legal remedy to satisfy his claim. 
  • The act being impugned is fraudulent.
  • Third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud.

Note: The Action to rescind contracts entered in fraud of creditors is subsidiary in character and may only be availed after exhausting all other remedies available or in the absence of any other legal remedy to obtain reparation to the injury sustained.

3. Accion Directa (Direct Action)

  • The right of lessor to go directly to a sub-lessee for unpaid rents of the lessee. (1652)

XPN: Sub-lessee  not liable beyond the amount of rent due to him in accordance with the term of the sublease.

  • The right of laborers or persons who furnish materials for a piece of work undertaken by a contractor to go directly to the owner for any unpaid claim due to the contractor. (1729)
  • The right of vendor against every possessor whose right is derived from the vendee. (1608)
  • The right of principal against a substitution appropriately by an agent. (1893)
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National Power Corporation vs. Court of Appeals (1988)

Fortuitous Event

Issue: Whether or not National Power Corporation (NPC) is liable for damages when it opened the spillway gates of the Angat Dam at the height of typhoon “Welming” causing an extraordinary large volume of water rushed out of the gates and hit the installations and construction works of Engineering Construction Inc.

Facts: Engineering Construction Inc. (ECI), a successful bidder, executed a contract with NAWASA whereby ECI undertook to furnish all tools, labor, equipment and materials and to construct a tunnel within 800 calendar days. The project involved two major phase wherein ECI had completed the first, comprising the tunnel work covering through mountain, from the Ipo river. Some portions of the second phase were still under construction as such, all the equipment no longer needed there were transferred to the Ipo site where some projects were yet to be completed. However, typhoon “Welming” hit Central Luzon, passing through Angat Hydro-electric Dam. Strong wind struck and the water in the reservoir of the Angat dam was rising perilously. To prevent an overflow of water from the dam, the NPC caused the opening of the spillway gates when it reached the danger height of 212 meters above sea level which destroyed the equipment and facilities of ECI. NPC assails that the destruction and loss of the ECI’s equipment and facilities were due to force majeure. It further contends that the rapid rise of the water level in the reservoir of Angat Dam due to heavy rains brought about by the typhoon was an extraordinary occurrence that could not have been foreseen – resulting to the subsequent release of water and its resultant effect on ECI’s equipment and facilities – may rightly be attributed to force majeure.

Supreme Court Ruling:

National Power Corporation cannot escape liability because its negligence was the proximate cause of the loss and damage even though the typhoon was an act of God or force majeure.

Rationale: It was already held in Juan Nakpil & Sons v. Court of Appeals  that upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil code, which results in loss or damage, the obligor cannot escape liability. The principle in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and human agencies are to be excluded from creating or entering into the cause of the mischief. Thus, it has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which the loss or damage may have been occasioned.

Based on the previous courts’ contention, NPC was undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the height of typhoon “Welming” when it knew very well that it was safer to have opened the same gradually and earlier as it was also undeniable that NPC knew of the coming typhoon at least four days before it actually struck.

Juan Nakpil & Sons v. Court of Appeals (1986)

Fortuitous Event

Issue: Whether or not an act of God – an unusually strong earthquake – which caused the failure of the building, exempts from liability, parties who are otherwise liable because of their negligence.

Facts: Philippine Bar Association (PBA) decided to construct an office building. The construction was undertaken by the United Construction Inc. (UCI) for which the proposal was approved by PBA’s board of directors and signed by its President, Roman Ozaeta. The plans and specifications were prepared by the Juan Nakpil & Sons (Nakpil). In 1968, an unusually strong earthquake hit Manila for which the building in question sustained major damage – front columns of the building buckled, causing the building to tilt forward dangerously. Nakpil then filed an action for the recovery of damages arising from the partial collapse against UCI for which, the latter, in turn, filed a third-party complaint against the architects who prepared the plans and specifications. Upon joining of issues, a commissioner was ultimately appointed by the Trial Court to assess the damage sustained by the PBA building for which, his submitted report indicated that while the damage sustained by the PBA building was caused directly by the earthquake, they were also caused by the defects in the plans and specifications, deviations from said plans and specifications by the contractors and failure of the latter to observe requisite workmanship in the construction of the building and of the contractors, architects and even the owners to exercise the requisite degree of supervision in the construction of subject building. On appeal to IAC, United Architects of the Philippines (UAP) together with the other institutions related to the said field filed a motion to intervene as amicus curiae proposing to present a position paper on the liability of architects when a building collapses for which the said amicus curiae gave the opinion that the plans and specifications of the Nakpils were not defective. Thereafter, the Nakpils claimed that it was an act of God that caused the failure of the building which should exempt them from responsibility.

Supreme Court Ruling:

Nakpil and UCI are liable for the damage resulting from the partial and eventual collapse of the PBA building as a result of the earthquake.

Rationale: The applicable law is Article 1723 of the New Civil Code where the general rule is that no person shall be responsible for events which could not be foreseen or which though foreseen, were inevitable. An act of God is defined as an accident, due directly and exclusively to natural causes without the human intervention, no amount of foresight, pains or care, reasonably to have been expected, could have been prevented. To exempt the obligor from liability for a breach of an obligation due to an “act of God” the following requisites must concur: a) cause of the breach must be independent of the will of the debtor; b) event must be unforeseeable or unavoidable; c) event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and d) must be free from participation in, or aggravation, of the injury to the creditor. The principle embodied in the act of God doctrine requires that the act must be occasioned exclusively by the violence of the nature and all human agencies are to be excluded from creating into the cause of the mischief. In cases of active intervention, neglect or failure to act, the whole occurrence is thereby humanized and removed from the rules applicable to the acts of God. Thus upon the happening of a fortuitous event concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of tenor of the obligation, the obligor cannot escape liability. When the negligence of a person concurs with an act of God in producing a loss, he is not exempt from liability. To be exempt from liability, he must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned.

Applying the doctrine in this case, it was firmly established beyond dispute by the previous courts that the negligence of the defendant are present wherein they were found to have made substantial deviations from the plans and specifications and that they have failed to observe the requisite workmanship in the construction as well as to exercise the requisite degree of supervision. While it is not possible to state with certainty that the building would not have collapsed were those defects not present, fact remains that several buildings in the same area withstood the earthquake to which the building of the plaintiff was similarly subjected. Evidence sufficiently supports a conclusion that the negligence and fault of both UCI and Nakpil, not a mysterious act of an inscrutable God, were responsible for the damages. As the facts were implied, it clearly indicate the wanton negligence of the defendants which the supreme court hold as equivalent to bad faith in the performance of their respective tasks. Hundreds of ancient buildings in the vicinity were hardly affected. Only one thing spells out the fatal difference; gross negligence and evident bad faith without which the damage would not have occurred.

Breach Due to Fortuitous Event

Acts of God are those of which are absolutely independent of human intervention while Force Majeure (Acts of Men) are events which arise from legitimate or illegitimate acts of persons other than (or beyond the control of) the obligor. Distinction is merely technical because essentially, no substantial difference between the two; both refer to an event independent of the will of the obligor.

Requisites:

  1. Cause of the breach of obligation must be independent of the will of the debtor;
  2. Occurrence must render it impossible for the debtor to fulfill its obligation in a normal manner; and that
  3. Obligor must be free of participation in or aggravation of the injury to the creditor.

Note: Another essential requisite applied in Lasam v. Smith and Juan Nakpil & Sons v. Court of Appeals is that the event must be unforeseeable or inevitable. However, this is not needed to be enumerated anymore since it is the very definition (or the very concept) itself of fortuitous event.

General Rule: No person shall be responsible for those events that are unforeseeable (extraordinary) or inevitable (ordinary).  Ergo, the obligation is extinguished.

XPN: 

    1. When expressly specified by the law (OBDAMP)
      1. If the Obligor delays or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for fortuitous event until he has effected the delivery. (Art. 1165, par.3)
      2. The Bailee is liable for the loss of the thing, even if it should be through a fortuitous event when certain conditions are met. (Art.1942)
      3. The Depositary is liable for the loss of the thing through a fortuitous events when certain conditions are met. (Art. 1979)
      4. The Act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is done with the use of arms or through an irresistible force. (Art. 2001)
      5. The officious Manager (in cases of Negotiorum Gestio) shall be liable for any fortuitous events when certain conditions are met. (Art. 2147)
      6. A possessor in good faith shall not be liable for the deterioration or loss of the thing possessed, except in fraud or negligence, while a Possessor in bad faith shall be liable for deterioration or loss in every case, even if caused by a fortuitous event. (Art. 552)
    2. When otherwise declared by stipulation.
    3. When the nature of the obligation requires the assumption of risk

Sagrada Orden de Predicadores del Santismo Rosario Filipinas vs. National Coconut Corporation, 97 SCRA 503 (1952)

ISSUE:
 Whether or not National Coconut Corporation has an obligation to pay rentals to Sagrada Orden for its occupation of the property belonging to the latter.
FACTS:
Sagrada Orden has the legal title on a piece of real property and the same is registered to it before the war. During the Japanese military occupation, the land was acquired by a Japanese corporation, Taiwan Tekkosho. After liberation, US took possession, control and custody of the said real property under the Trading with the Enemy Act (TEA) for the reason that it belonged to an enemy national. Thereafter, it was occupied by Copra Export Management Company (CEMC) under a custodian agreement. When CEMC vacated the property, it was then occupied by the National Coconut Corporation (NCC) for which the Philippine government made representations for its use. NCC was authorized to repair the warehouse and thereafter authorized the leasing of one-third of the warehouse to one Dioscoro Sarile.
Sagrada Orden made claim to the property before the US Alien Property Custodian (USAPC) but it was denied; it then brought an action to the Court of First Instance of Manila to annul the sale of property of Tekkosho and recover its possession. Republic of the Philippines intervened in the action where the case did not come for trial as the parties presented a joint petition for which the court rendered judgment releasing the defendant and the intervenor from the liability but reversing to the Sagrada right to recover from NCC reasonable rentals for the use and occupation of the premises. NCC does not contest its liability for the rentals but resists the claim prior to the date of judgment in civil case interposing that it occupied the property in good faith, under no obligation whatsoever to pay rentals for the use and occupation of the warehouse.
TRIAL COURT RULING:
NCC is liable for reasonable rents from August 1946 to the date the defendant vacates the premises as the court declares that (1) Sagrada has always been the owner, (2) sale of Japanese purchaser was void ab initio,  (3) USAPC only held the property in trust until determination of the citizenship of the alleged enemy citizen and (4) NCC cannot claim any better rights than USAPC as it used the property, hence, it must pay reasonable rentals for its occupation.
SUPREME COURT RULING:
NCC is not guilty of any offense at all as it entered the premises and occupied it with the permission of the entity which had legal control and administration, the USAPC and neither there was negligence on its part.
Rationale:
     Obligations must arise from any of the four sources of obligations: Law, Contract, Quasi-contract, crime or Negligence. (Art. 1089, Spanish Civil Code)
There was no privity of contract or obligation between USAPC and Taiwan Tekkosho, which secured the possession of the property by the use of duress. US APC acquired the control and administration of the property not as a successor to Tekkosho but by express provision of the law, TEA. Neither is it a trustee of the former owner but a trustee of the then Government of the US. Even if NCC were to assumed to be liable to the Alien Property Administration for rentals, these would not accrue to the benefit of Sagrada Orden but to the United States Government.
Also, there was no agreement between the APC and the NCC for the latter to pay rentals on the property. CEMC, which preceded the NCC, does not appear to have paid rentals as it occupied it in a “custodianship agreement”. TEA was purely a measure of conversation, hence, it is very unlikely that rentals were demanded for the use of the property.
Claim for rentals may not also be predicated on any negligence or offense of NCC or any contract, express or implied, because USAPC was neither a trustee nor a privy to the obligations of the Tekkosho –  title is based by legal provision as that of authority to seizure enemy property. NCC entered without any expectation of liability ofr such use and occupation, thus, it is only fair and just it may not be held liable.

Aim Higher

Hi,

I’m Ian (or Tranks to some), a law school student, and this blogspot is created for note-keeping purposes. You may see various notes, case digests and anything under the sun that might help you, and me, attain that “Attorney” before our first names.

Thanks,

Soon-to-be-Attorney Ian.

Do not wait: the time will never be ‘just right’. Start where you stand, and work whatever tools you may have at your command and better tools will be found as you go along.” ― Napoleon Hill