GR 162802; (October, 2013) (Digest)
G.R. No. 162802, October 9, 2013
EDS Manufacturing, Inc. vs. Healthcheck International Inc.
FACTS
EDS Manufacturing, Inc. (EMI) entered into a one-year agreement with Healthcheck International Inc. (HCI), a health maintenance organization, to provide medical coverage for EMI’s employees and dependents from May 1, 1998, to April 30, 1999. EMI paid the full premium. HCI subsequently suffered multiple suspensions of its accreditation with key hospitals, including De La Salle University Medical Center, due to its failure to settle accounts, leading to service disruptions for EMI’s members. On September 3, 1998, EMI sent HCI a letter rescinding the agreement due to these breaches and demanded a refund of the unutilized premium. However, EMI did not judicially or notarially effect the rescission and failed to collect and surrender the HMO cards from its employees as contractually required. HCI later sued for unlawful pretermination, while EMI counterclaimed for a refund.
ISSUE
Whether EMI validly rescinded the Agreement through its unilateral letter of September 3, 1998, thereby entitling it to a refund of the unutilized premium.
RULING
No, EMI did not effect a valid rescission. The Supreme Court affirmed the Court of Appeals, ruling that the rescission was invalid. For contracts where specific legal modes are not prescribed, rescission under Article 1191 of the Civil Code must be done judicially or, as established in jurisprudence, through a notarial act when demanded by the other party. A party cannot unilaterally and extrajudicially resolve a contract based solely on its own assertion of breach; it must secure a court decree declaring the rescission. EMI’s mere letter was insufficient. Furthermore, EMI’s conduct contradicted its claim of rescission. It failed to surrender the HMO cards, and its employees continued to avail of HCI’s services for months after the purported rescission, as evidenced by utilization reports. This continued use, with EMI’s apparent acquiescence, demonstrated that the contract remained in effect. Consequently, EMI was not entitled to a refund, and HCI was justified in seeking payment for services rendered.