G.R. No. L-28602 September 29, 1970
UNIVERSITY OF THE PHILIPPINES, petitioner, vs. WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT OF FIRST INSTANCE IN QUEZON CITY, et al., respondents.

FACTS

The University of the Philippines (UP) was granted a timber concession (Land Grant) to generate income. On November 2, 1960, UP entered into a logging agreement with Associated Lumber Manufacturing Company, Inc. (ALUMCO), granting it exclusive logging rights until December 31, 1965, extendible for five more years. ALUMCO incurred unpaid accounts totaling P219,362.94 as of December 8, 1964. After notice of rescission, ALUMCO executed an “Acknowledgment of Debt and Proposed Manner of Payments” on December 9, 1964, stipulating that UP had the right to consider the logging agreement rescinded without judicial suit if ALUMCO failed to comply. ALUMCO again incurred an unpaid account of P61,133.74 from December 9, 1964, to July 15, 1965. On July 19, 1965, UP informed ALUMCO it considered the logging agreement rescinded. UP filed a collection case (Civil Case No. 9435) and obtained a preliminary injunction restraining ALUMCO’s logging operations. UP then advertised for bids and awarded a new logging contract to Sta. Clara Lumber Company, Inc. on February 16, 1966. ALUMCO petitioned to enjoin UP from awarding logging rights to another party. The respondent Judge issued an order on February 25, 1966, enjoining UP from awarding logging rights. On January 14, 1967, the court adjudged UP in contempt and directed Sta. Clara Lumber Company to refrain from logging operations. UP’s motion for reconsideration was denied on December 12, 1967.

ISSUE

Whether UP can treat its contract with ALUMCO as rescinded and disregard it without a prior judicial pronouncement to that effect.

RULING

Yes. The Supreme Court granted the writ of certiorari and set aside the respondent court’s order of February 25, 1966. The Court ruled that nothing in the law prohibits parties from agreeing that a violation of contract terms would cause cancellation even without court intervention. The “Acknowledgment of Debt” expressly stipulated that UP had the right to consider the logging agreement rescinded without judicial suit upon ALUMCO’s default. A party who deems a contract violated may consider it resolved and act accordingly without prior court action, but it proceeds at its own risk. It is only the final judgment of a competent court that will conclusively settle whether the extrajudicial rescission was proper. Without such a stipulation, judicial action is necessary for the resolution of a reciprocal obligation. In this case, UP made a prima facie case of breach and default by ALUMCO, and the lower court had issued a preliminary injunction against ALUMCO. The excuses offered by ALUMCO did not constitute sufficient justification for non-payment. Any prejudice to ALUMCO was compensable in damages. The respondent court’s acts in enjoining UP’s protective measures without first receiving evidence constituted grave abuse of discretion, correctible by certiorari. The Court abstained from ruling on the contempt order as it was pending appeal in the Court of Appeals.