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RELIANCE COMMODITIES INC. v. INTERMEDIATE appealed to the IAC, which rendered a decision in their favor.

SC said
APPELLATE COURT (GR 74729) that pursuant to Article 1191 of the Civil Code, the injured party was
Promulgated: May 31 2000 RCI because Paez did not deliver the manganese ores promised while
Petitioners: Reliance Commodities Inc. & Provincial Sherriff of RCI provided what it promised. Thus, RCI is the one that can rescind
Nueva Ecija the contract & recover damages.
Respondents: Intermediate Appellate Court, Marvin Paez, & Rosa
Valino Facts:
 Marvin Paez entered into a contract (and later on another contract
Relevant Provisions: entitled Addendum to the Operating Contract) with Samuel Chuason
Art. 1191 of the Civil Code [president & general manager of Reliance Commodities Inc (RCI)]
The power to rescind obligations is implied in reciprocal ones, in case where Chuason will provide Paez with funds & equipment for the
one of the obligors should not comply with what is incumbent upon operation of the manganese mining claims in Gabaldon, Nueva Ecija
him. in exchange with a delivery of manganese ores to the RCI. They also
The injured party may choose between the fulfilment and the agreed that RCI will give cash advances for the operation expenses.
rescission of the obligation with the payment of damages in either  RCI gave Paez money to hire laborers & buy the necessary tools &
case. He may also seek rescission, even after he has chosen fulfilment, supplies. RCI also supplied Paez with a bulldozer, dump truck, &
if the latter should become impossible xxx cobra drill. It also gave the agreed cash advances.
 Paez & wife Rosa Valino executed a deed of first real estate
Quick Summary of the Case: mortgage on their property to RCI as the security.
Paez & RCI entered into 2 contracts wherein RCI would give funds,  A difference arose bet. Paez & RCI which caused RCI to demand the
equipments, & cash advances to Paez for the mining of manganese in return of the bulldozer, dump truck, & cobra drill.
exchange for delivery of manganese ores. Paez & Valino (his wife)  RCI foreclosed the mortgage of Paez’s property. Provincial Sheriff
mortgaged their property as security. RCI & Paez had a falling out (PS) of Nueva Ecija served notice on Paez that the property would
which caused RCI to demand the return of the equipment and to be sold at a public auction.
foreclose the mortgaged property. Spouses filed a petition in the CFI of  Paez & Valino filed in the CFI of Nueva Ecija praying for:
Nueva Ecija. CFI rendered a decision in favor of RCI. Spouses
1. Writ of preliminary injunction to enjoin the PS from proceeding Paez with the money, equipment, and cash advances while Paez never
with the auction sale made even a single delivery of manganese ores and there was no
2. Order annulling the Deed of First Real Estate Mortgage mining operation at all. Thus, RCI had the right to rescind the contract.
3. Directive to require RCI to make further cash advances plus
moral damages, attorney’s fees & costs RULING
 CFI of Nueva Ecija rendered a decision in favor of RCI wherein RCI Court grants the petition for review on certiorari, reverses the decision
would be paid by the spouses the cash advances plus 12% interest, of the IAC, revives & affirms the decision of the CFI, with the
₱5000 & attorneys fees, & foreclosure of mortgaged property (if the modification that the sum to be restituted to RCI shall earn legal
spouses cannot pay the cash advances) interest only from the finality of this decision.
 Spouses filed an appeal to the Intermediate Appellate Court (IAC).
 IAC set aside the CFI’s decision
 RCI & PS filed this petition for review on certiorari in the SC.

Issue:
W/N the IAC erred in finding that it was RCI who gave cause for
rescission of the contract and that restitution was not available for
rescission of contracts under Article 1191 of the Civil Code?

Held/Ratio:
YES.
Provision applicable is Article 1191 of the Civil Code. The article
provides that the injured party has the power to rescind/resolve the
obligation. Rescission of contracts requires that the parties restore to
each other what they have received because of the contract. The
rescission has the effect of abrogating the contracts in all parts. In the
case at bar, the injured party is RCI. This is because RCI provided