Sangguniang Panlungsod ng Baguio City v.

Jadewell Parking
Systems Corporation
G.R. no. 160025, April 23, 2014
Sereno, CJ.

Facts:
Baguio City and Jadewell Parking Systems Corporation agreed, through
a Memorandum of Agreement, that the Jadewell will be in-charge for the on-
street parking as well as the installation of modern parking meters (DG4S
Pay and Display Prking Meter) in the City. Due to the failure to install the
meters and to remit the stipulated share in the City, the City Council through
a resolution expressed its intent to rescind their MOA.

Baguio City informed Jadewell through its President, Rogelio Tan, in a

letter of the rescission. In compliance with the provisions of their MOA, sixty
(60) days was given to Jadewell prior to its effectivity. Jadewell then filed with
the RTC Baguio a Petition for Certiorari, Prohibition and Mandamus assailing
the validity of the resolution. The RTC ruled in favor of Jadewell holding that
the act of the Sanggunian rescinding the MOA was unlawful. On appeal, the
CA affirmed RTCs decision.

Issue:
Whether or not the remedy of rescission based on breach of reciprocal
obligation is proper.

Ruling:
The rescission under Article 1191 is the exercise of the unilateral right
to rescind a bilateral contract on the part of a party who believes that it has
been injured by a breach substantial enough to warrant revocation. Where
one party allegedly failed to comply with his obligations under a contract, the
injured party may rescind the obligation if the other does not perform or is
not ready and willing to perform. It takes place through either of two modes:
(1) through an extrajudicial declaration of rescission; or (2) upon the grant of
a judicial decree of rescission.

Extrajudicial declaration of rescission is recognized as a power which

does not require judicial intervention. If the rescission is not opposed,
extrajudicial declaration of rescission produces legal effect such that the
injured party is already relieved from performing the undertaking.

However, the power of declaring extrajudicial rescission conferred upon

the injured party is regulated by the Civil Code. If the extrajudicial rescission
is impugned by the other party, it shall be subject to a judicial determination
where court action must be taken, and the function of the court is to declare
the rescission as having been properly or improperly made, or to give a
period within which the debtor must perform the obligation alleged to be
breached. A unilateral cancellation of a contract may be questioned in courts
by the affected party to determine whether or not cancellation is warranted.
Thus, in an extrajudicial decree of rescission, revocation cannot be
completely exercised solely on a partys own judgment that the other has
committed a breach of the obligation but always subject to the right of the
other party to judicially impugn such decision.

In this case, the Court held that the first act of rescission by the City of
Baguio may be valid even if there is a stipulation against it within the first
five years of the MOAs existence. Article 1191 of the New Civil Code
provides a party the right to rescind the agreement and clearly overrides any
stipulation to the contrary. However, the grounds that would serve as basis
to the application of the said article must be clearly established.