Eds Manufacturing v. Healthcheck
Eds Manufacturing v. Healthcheck
Eds Manufacturing v. Healthcheck
DECISION
PERALTA J :
PERALTA, p
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking
the reversal of the Decision 1 dated November 28, 2003 and Resolution 2 dated March 16,
2004 of the Court of Appeals (CA) in CA-G.R. CV No. 69420.
The facts, as found by the CA, are as follows:
The plaintiff Healthcheck Inc. is a Health Maintenance Organization (HMO)
that provides prepaid health and medical insurance coverage to its clients. To
undergird its program, it maintains a network of accredited hospitals and medical
clinics, one of which is the De La Salle University Medical Center located at
Dasmariñas, Cavite. Being within the access of this medical facility, the
defendant Eds Manufacturing, Inc. with about 5,000 employees at Imus, Cavite
saw t in April 1998 to obtain insurance coverage from it. They entered into a
one-year contract from May 1, 1998 to April 30, 1999 in which HCI was to provide
the 4,191 employees of EMI and their 4,592 dependents as host of medical
services and bene ts. Attached to the Agreement was a Service Program which
listed the services that HCI would provide and the responsibilities that EMI would
undertake in order to avail of the services. Putting the Agreement into effect, EMI
paid the full premium for the coverage in the staggering amount of
P8,826,307.50. IcESaA
Only two months into the program, problems began to loom in the horizon.
On July 17, HCI noti ed EMI that its accreditation with DLSUMC was suspended
and advised it to avail of the services of nearby accredited institutions. A more
detailed communication to subscribers came out days later informing them of the
problems of the HMO industry in the wake of the Asian regional nancial crisis
and proposing interim measures for the unexpired service contracts. In a quickly
convened meeting, EMI and HCI hammered out this handwritten 5-point
agreement:
Until the di culties between HCI and its client came to a head in
September 1998, complaints from EMI employees and workers were pouring in
that their HMO cards were not being honored by the DLSUMC and other hospitals
and physicians. On September 3, EMI formally noti ed HCI that it was rescinding
their April 1998 Agreement on account of HCI's serious and repeated breach of its
undertaking including but not limited to the unjusti ed non-availability of
services. It demanded a return of premium for the unused period after September
3, giving a ballpark figure of P6 million. DaHISE
What went in the way of the rescission of the contract, the y in the
ointment so to speak, was the failure of EMI to collect all the HMO cards of the
employees and surrender them to HCI as stipulated in the Agreement. HCI had to
tell EMI on October 12, 1998 that its employees were still utilizing the cards even
beyond the pretermination date set by EMI. It asked for the surrender of the cards
so that it could process the pretermination of the contract and nalize the
reconciliation of accounts. Until we have received the IDs, HCI said, we will
consider your account with us ongoing and existing, thus subject for inclusion to
present billing and payment.
Without responding to this reminder, EMI sent HCI two letters in January
1999 demanding for the payment of P5,884,205 as the 2/3 portion of the
premium that remained unutilized after the Agreement was rescinded in the
previous September. The computation was made on the basis of these
observations:
HCI pre-empted EMI's threat of legal action by instituting the present case
before the Regional Trial Court of Pasig. The cause of action it presented was the
unlawful pretermination of the contract and failure of EMI to submit to a joint
reconciliation of accounts and deliver such assets as properly belonged to HCI.
EMI responded with an answer alleging that HCI reneged on its duty to provide
adequate medical coverage after EMI paid the premium in full. Having rescinded
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the contract, it claimed that it was entitled to the unutilized portion of the
premium, and that the accounting required by HCI could not be undertaken until it
submitted the monthly utilization reports mentioned in the Agreement. EMI asked
for the dismissal of the complaint and interposed a counterclaim for damages
and unutilized premium of P5,884,205. SEACTH
In September 2000, after trial, the court ruled in favor of HCI. It found that
EMI's rescission of the Agreement on September 3, 1998 was not done through
court action or by a notarial act and was based on casual or slight breaches of
the contract. Moreover, despite the announced rescission, the employees of EMI
continued to avail of HCI's services until March 1999. The services rendered by
HCI from May 1998 to March 1999 purportedly came to a total of P10,149,821.13.
The court deducted from this gure the premium paid by EMI, leaving a net
payable to HCI of P1,323,513.63, in addition to moral damages and attorney's
fees. EMI's counterclaims, on the other hand, were dismissed for lack of merit. 3
On appeal, the CA reversed the decision of the Regional Trial Court (RTC) of Pasig
City and ruled that although Healthcheck International, Inc. (HCI) substantially breached
their agreement, it also appears that Eds Manufacturing, Inc. (EMI) did not validly rescind
the contract between them. Thus, the CA dismissed the complaint led by HCI, while at the
same time dismissing the counterclaim filed by EMI.
Undeterred, EMI led a Motion for Partial Reconsideration against said decision.
However, the same was denied in a Resolution dated March 16, 2004.
Hence, EMI filed the present petition raising the following issues for our resolution:
A
Simply, the issue is whether or not there was a valid rescission of the Agreement
between the parties.
We rule in the negative.
The injured party may choose between the ful llment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen ful llment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
But in our view, even if Article 1191 were applicable, petitioner would still
not be entitled to automatic rescission. In Escueta v. Pando , we ruled that under
Article 1124 (now Article 1191) of the Civil Code, the right to resolve reciprocal
obligations, is deemed implied in case one of the obligors shall fail to
comply with what is incumbent upon him. But that right must be
invoked judicially . The same article also provides: "The Court shall decree the
resolution demanded, unless there should be grounds which justify the allowance
of a term for the performance of the obligation."
This requirement has been retained in the third paragraph of Article 1191,
which states that "the court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period."
What is more, it is evident that EMI had not rescinded the contract at all. As
observed by the CA, despite EMI's pronouncement, it failed to surrender the HMO cards of
its employees although this was required by the Agreement, and allowed them to continue
using them beyond the date of the rescission. The in-patient and the out-patient utilization
reports submitted by HCI shows entries as late as March 1999, signifying that EMI
employees were availing of the services until the contract period were almost over. The
continued use by them of their privileges under the contract, with the apparent consent of
EMI, belies any intention to cancel or rescind it, even as they felt that they ought to have
received more than what they got.
WHEREFORE , premises considered, the Decision dated November 28, 2003 and
Resolution dated March 16, 2004 of the Court of Appeals, in CA-G.R. CV No. 69420, are
hereby AFFIRMED.
AFFIRMED
SO ORDERED.
Velasco, Jr., Abad and Mendoza, JJ., concur.
Leonen, J., see separate concurring opinion.
Separate Opinions
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LEONEN J., concurring:
LEONEN,
I agree that Healthcheck International, Inc.'s violation of its contract with Eds
Manufacturing, Inc. is substantial. Its violation is enough ground for Eds Manufacturing,
Inc. to resolve (or rescind) the contract in accordance with Article 1191 of the Civil Code.
IHTaCE
Our jurisprudence, however, is replete with rulings clarifying when the resolving party
needs to obtain a judicial decree of resolution.
Indeed, We have held that the right to resolve under Article 1191 of the Civil Code
must be invoked judicially. 1 Even if there is a stipulation in the contract that makes
available to the parties the right to resolve, the resolving party must still apply to the court
for a judicial decree of resolution. 2 The court decree is the operative act that produces the
resolution, not the unilateral act of the resolving party. 3 "It cannot be exercised solely on a
party's own judgment that the other has committed a breach of the obligation." 4
However, We have also held that failure to judicially resolve the contract does not
invalidate the resolution and that the right to resolve need not be invoked judicially. This is
based on Article 1191 which makes the power to resolve an implication of reciprocal
obligations. "This means that the power emanates from the quality of the obligation — not
from a stipulation or judicial decree.
Thus interpreted, a party's failure to comply with what is incumbent upon him or her
triggers the other party's right to consider the contract resolved even without instituting
court action. If the party who failed to comply does not contest the resolution, then the
contract is deemed resolved; the resolution produces legal effects. 5
The courts step into the picture only when the party who allegedly violated the
contract disputes the other party's unilateral resolution. 6 In that case, the court
determines whether there is indeed substantial breach of the contract to justify the party's
unilateral resolution of the contract.
We held in University of the Philippines v. De Los Angeles: 7
In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is only
the nal judgment of the corresponding court that will
conclusively and nally settle whether the action taken was or
was not correct in law. But the law de nitely does not require that
the contracting party who believes itself injured must rst le suit
and wait for a judgment before taking extrajudicial steps to
protect its interest. Otherwise, the party injured by the other's
breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the nal
judgment of rescission is rendered when the law itself requires
that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
There is, therefore, support in saying that a judicial decree is not necessary to
constitute a valid resolution. It is only necessary when the ground for the resolution is in
dispute. A judgment on the validity of the resolution settles whether the unilateral
resolution is proper.
In other words, while resolution may be valid even without a judicial decree, the other
party may question in court the act of resolution in case of abuse by the resolving party.
The party who unilaterally resolves a contract runs the risk of having his or her action
corrected by the court by declaring it as invalid if he or she abuses or erroneously uses his
or her power to resolve.
The application of power to resolve without judicial action is not limited to contracts
that contain a stipulation to that effect. We have clari ed that ". . . even without express
provision conferring the power of cancellation upon one contracting party, the Supreme
Court of Spain, in construing the effect of Article 1124 of the Spanish Civil Code (of which
Article 1191 of our own Civil Code is practically a reproduction), has repeatedly held that a
resolution of reciprocal or synallagmatic contracts may be made extrajudicially unless
successfully impugned in court." 9 ". . . [A]bsent any provision providing for a right to
rescind, the parties may nevertheless rescind the contract should the other obligor fail to
comply with its obligations." 1 0
The invalidity of Eds Manufacturing, Inc.'s resolution of its contract with Healthcheck
International, Inc. based on its failure to institute a judicial action for resolution is,
therefore, disputable. Nevertheless, Eds Manufacturing, Inc.'s resolution is invalid because
of its employees' continued use of Healthcheck International, Inc.'s services even after the
contract period. This contradicts the alleged intention to resolve the contract.
WHEREFORE , I vote to AFFIRM the Court of Appeals Decision dated November 28,
2003 and Resolution dated March 16, 2004.
Footnotes
1.Penned by Associate Justice Mario L. Guariña III, with Associate Justices Martin S. Villarama,
Jr. and Jose C. Reyes, Jr., concurring; rollo, pp. 30-38.
2.Id. at 50.
3.Id. at 30-34.
4.Id. at 16-17.
5.Emphasis supplied.
6.Viloria v. Continental Airlines, Inc., G.R. No. 188288, January 16, 2012, 663 SCRA 57, 86-87.
11.F.F. Cruz & Co., Inc. v. HR Construction Corporation , G.R. No. 187521, March 14, 2012, 668
SCRA 302, 327.
1.Rubio de Larena v. Villanueva , 53 Phil. 923 (1928); Iringan v. Court of Appeals , G.R. No.
129107, September 26, 2001, 366 SCRA 41, 47.
2.Id. at 48.
3.Id.
4.Philippine Amusement Enterprises, Inc. v. Natividad, No. L-21876, September 29, 1967, 21
SCRA 284, 289 cited in Tan v. Court of Appeals, G.R. No. 80479, July 28, 1989, 175 SCRA
656, 662.
5.Adelfa Properties, Inc. v. Court of Appeals , G.R. No. 111238, January 25, 1995, 240 SCRA 565,
588; See also Sps. Eduardo and Agustin v. CA , G.R. No. 84751, June 6, 1990, 186 SCRA
375, 381.
8.Id. at 115.
9.Id. at 116.
10.Casiño, Jr. v. Court of Appeals , G.R. No. 133803, September 16, 2005, 470 SCRA 57, 67-68
citing Multinational Village Homeowners Association, Inc. v. Ara Security & Surveillance
Agency, Inc., G.R. No. 154852, October 21, 2004, 441 SCRA 126, 135.