Reliance Commodities, Inc. v. Marvin Paez
REITERATIONFacts
The Antecedents: Marvin Paez entered into a contract with Reliance Commodities, Inc. (Reliance) for the operation of mining claims. An addendum to the operating agreement was executed. Reliance provided cash advances and equipment. Paez executed a deed of first real estate mortgage in favor of Reliance as security for further cash advances. A dispute arose concerning cash advances, and Reliance demanded the return of equipment. Paez's laborers refused to release the equipment due to unpaid wages. Reliance provided funds for the laborers' salaries and subsequently foreclosed the mortgage extrajudicially. Procedural History: Paez and his wife filed an action for injunction, annulment of the mortgage and addendum, and damages. The trial court rendered a decision in favor of Reliance, ordering Paez to pay the cash advances with interest and attorney's fees, and setting aside the restraining order to allow foreclosure. Paez appealed to the Intermediate Appellate Court (IAC). The Petition: The IAC set aside the trial court's decision, declaring the mortgage and addendum null and void, and ordering Reliance to pay Paez for unrealized profits and attorney's fees. Reliance filed a petition for review on certiorari with the Supreme Court.
Issue(s)
Whether the Intermediate Appellate Court erred in finding that the petitioner, not respondent, gave cause for rescission of the contracts. Whether restitution is available in rescission of contracts under Article 1191 of the Civil Code.
Ruling
The Court GRANTS the petition for review on certiorari, REVERSES the decision of the Intermediate Appellate Court, and REVIVES and AFFIRMS the decision of the trial court, with the modification that the sum to be restituted to petitioner Reliance Commodities, Inc. shall earn legal interest only from the finality of this decision until fully paid.
Ratio Decidendi
On the issue of who caused the rescission: The Court found that the petitioner, Reliance Commodities, Inc., did not err in rescinding the contracts. Under the agreement, Reliance was to pay Paez for delivered manganese ores and advance expenses, deductible from the consideration. Reliance made cash advances totaling P41,130.00 and provided heavy equipment. However, respondent Paez failed to make any delivery of manganese ores, and no mining operation actually took place. This failure constituted a breach of the contract, giving Reliance the right to rescind. On the availability of restitution in rescission: The Court ruled that in reciprocal obligations, the power to rescind or resolve is given to the injured party. Furthermore, the rescission of contracts requires the parties to restore to each other what they have received by reason of the contracts. This principle is fundamental to rescission, as it aims to abrogate the contracts in all their parts, returning the parties to their original positions before the contract was entered into. The appellate court's ruling that restitution was not available was contrary to established legal principles governing rescission under Article 1191 of the Civil Code.
Main Doctrine
In reciprocal obligations, the power to rescind or resolve is given to the injured party, and rescission requires the parties to restore to each other what they have received by reason of the contracts, abrogating the contracts in all parts.