Action for Rescission, in general

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. (Article 1385, Civil Code) It shall only be
to the extent necessary to cover the damages caused. (Article 1384, Civil Code)

Under the provisions of the Civil Code on Obligations and Contracts, there are two types of actions for
rescission, first under Article 1191, and second, under Article 1381, to wit:

Article 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. (1124)

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Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by
more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims
due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without
the knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)

However, the actions under both provisions are not one and the same. According to Justice J.B.L. Reyes:

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 partybe held bound to fulfill his promiseswhen 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 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
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maintained or continued, as expressly provided in Articles 1381 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. (Concuring Opinion of Justice J.B. L. Reyes,
Universal Food Corp. v. Court of Appeals, 33 SCRA 22, cited in Margarita Suria and Gracia R.
Joven v. Hon. Intermediate Appellate Court, G.R. No. 73893, June 30, 1987)

The distinction between the two kinds of rescission has been repeatedly emphasized by the Court in
various cases, to wit:

The remedy of ‘rescission’ is not confined to the rescissible contracts enumerated under Article 1381.
Articles 1191 of the Civil Code gives the injured party in reciprocal obligations, such as what contracts
are about, the option to choose between fulfillment and ‘rescission.’ Arturo M. Tolentino, a well-known
authority in civil law, is quick to note, however, that the equivalent of Article 1191 in the old code actually
uses the term ‘resolution’ rather than the present ‘rescission.’ The calibrated meanings of these terms
are distinct.

“Rescission” is a subsidiary action based on injury to the plaintiff’s economic interests as described in
Articles 1380 and 1381.” Resolution,” the action referred to in Articles 1191, on the other hand, is based
on the defendant’s breach of faith, a violation of the reciprocity between the parties. As an action based
on the binding force of a written contract, therefore, rescission (resolution) under Article 1191 prescribes
in 10 years. Ten years is the period of prescription of actions based on a written contract under Article
1144.

The distinction makes sense. Article 1191 gives the injured party an option to choose between, first, the
fulfillment of the contract, and, second, its rescission. An action to enforce a written contract (fulfillment)
is definitely an “action upon a written contract,” which prescribes in 10 years (Article 1144). It will not be
logical to make the remedy of fulfillment prescribe in 10 years while the alternative remedy of rescission
(or resolution) is made to prescribe after only four years as provided in Article 1389 when the injury form
which the two kinds of actions is the same. (Heirs of Sofia Quirong v. Development Bank of the
Philippines, G.R. No. 173441, December 3, 2009)

But an action for rescission can proceed either from Article 1191 or Article 1381. It has been held that
Article 1191 speaks of rescission in reciprocal obligations within the context of Article 1124 of the Old
Civil Code, which uses the term ‘resolution.’ Resolution applies only to reciprocal obligations such that a
breach on the part of one party constitutes an implied resolutory condition which entitles the other party
to rescission. Resolution grants the injured party the option to pursue, as principal actions, either a
rescission or specific performance of the obligation, with payment of damages in either case.

Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old Civil Code,
which is a subsidiary action, not based on a party’s breach of obligation. The four-year prescriptive
period in Article 1389 applies to rescission under Article 1381. (Vicelet Lalicon and Vicelen Lalicon v.
National Housing Authority, G.R. No. 185440, July 13, 2011)

For rescission under Article 1191, it is necessary that there should be substantial breach, which, unlike
slight or casual breaches, are fundamental breaches that defeat the object of the parties in entering into
an agreement, since the law is not concerned with trifles. (Cannu v. Galang, G.R. No. 139523, May 26,
2005; cited in Maglasang v. Northwestern Inc., University, G.R. No. 188986, March 30, 2013)
However, this substantial breach requirement covers the obligor’s failure to comply with an obligation
already extant, not a failure of a condition to render binding the obligation, such as in the case of
non-payment of an installment in case of contracts to sell. (Mila A. Reyes v. Victoria T. Tuparan, G.R.
No. 188064, June 1, 2011)
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Prescriptive Periods

For rescission under Article 1381, the prescriptive period is four years:

Article 1100. The action for rescission on account of lesion shall prescribe after four years from the time
the partition was made. (1076)

Article 1389. The action to claim rescission must be commenced within four years. For persons under
guardianship and for absentees, the period of four years shall not begin until the termination of the
former's incapacity, or until the domicile of the latter is known. (1299)

For an action for rescission under Article 1191, the prescriptive period is ten years as provided under
Article 1144:

Article 1144. The following actions must be brought within ten years from the time the right of action
accrues:

(1) Upon a written contract;

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