A shipping line company and a cargo company entered into contract for the charter of a vessel for a

period of two (2) years. Clause 1 of the said contract, describe the subject vessel as “being in every way
fitted for ordinary cargo service.” When the vessel was delivered on the charterers, the vessel was found
to be unseaworthy because the engines were old and the crew were insufficient and incompetent to
maintain the old machinery of the vessel and the captain was confirmed drunkard.

On the first voyage under the contract, the engine of the subject vessel suffered several breakdowns and
required extensive repairs for twenty (20) weeks to make it seaworthy again. But the vessel was not
properly seaworthy, until mid September of 1957 with just seventeen months remaining of the two (2)
year charter contract.

The charterers terminated and filed for a rescission of the contract at the trial court on the ground of
aforementioned breach.

For its defense the shipping line company, challenged the propriety of the extra judicial rescission and
claimed that charterer was entitled only to damages.

The lower court ruled in favor of the shipping company and decided that the breach was not
substantial.

Hence this appeal, whether or not the trial court erred in deciding that the breach was not substantial.

We find the petition meritorious.

Article 1191 of the Civil Code, the power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him. The injured party may
choose between the fulfillment and the rescission of the obligation, with the payment of damages in
either case.

The shipping line company failed to fulfill its obligation when it delivered an unseaworthy vessel
with incompetent crew and drunkard captain to the charters despite its promise as stipulated in clause
one (1) of their contract, that the vessel is in every way fitted for ordinary cargo service.

Apparent from the aforesaid is the fact that the shipping line company acted in bad faith when it
delivered unseaworthy vessel regardless of its obligation to deliver one in a good condition. The action
of the shipping line company constitutes fraud under the Civil Code (Provision).

We agree to the claim of the petitioners that they are entitled to the recession and termination
of the charter of the contract vessel and they are entitled of indemnity of the damages under Article
1170 of the Civil Code; “Article 1170 of the Civil Code states that those guilty of fraud, delay, or
negligence, in the performance of their obligations, or those who, in any way, contravene the tenor of
their obligations can be held liable for damages.”

WHEREFORE, the instant petition is GRANTED and the decision of the RTC is hereby REVERSED and SET
ASIDE. The petitioners claim for rescission and damages is GRANTED.
Dogelio:

Separate Concurring Opinion - Doguiles : The decision of the lower court is reversed. As a general rule,

There was breach of contract, not found under Article 1190, but in Article 1380. Article 1380 states that
Contracts validly agreed upon may be rescinded in the cases established by law.

The elements of a rescissible contract are as follows:

It has all the elements of a valid contract;

It has a defect consisting in an injury to one of the contracting parties or third person, generally in the
form of economic damage or lesion, fraud, alienation of property subject of case in court without the
consent of the litigants or of the court;

It is valid and effective until rescinded;

It can be attacked only directly, either by one of the contracting parties or by an affected third person,
who is injured or defrauded by the contract;

It is susceptible of convalidation only by prescription. Ratification process does not apply.

In the case of Vermen Realty Development Corporation, G.R. No. 101762, July 6, 1993, the Supreme
Court held, “The general rule is that rescission of a contract will not be permitted for a slight or causal
breach, but only for such substantial and fundamental breach as would defeat the very object of the
parties in executing the agreement.

CJ – Concurring (jurisprudence)

Esquibal: Concurring

In the present case, lower court found that there was an absence of substantial breach on the part of
respondent that will warrant rescission. petitioner failed to discharge the burden of showing that a
substantial breach, not a mere casual breach, of their contract, was committed.

The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but
only for such breaches as are so substantial and fundamental as to defeat the object of the parties in
making the agreement.

General rule is that recission will not be permitted for a slight or casual breach of contract, but only for
such breaches as are so substantial and fundamental as to defeat the object of the parties in making the
agreement.

In this case the vessel was delivered and was found unseaworthy by the charterers and upon their
information the vessel was repaired extensively to be seaworthy for 7 months still the charterers has a
17 months remaining. Thus there was no any substantial or repeated failure to comply with the Service
Specification and the conditions specified in this Agreement.

Linao: Not substantial

for rescission (resolution) and terminated the charter.

owner of the vessel and charterers

A cargo company That a Contract for the charter of a vessel for a period of two years (commencing in
Feb 1957) described the vessel as “being in every way fitted for ordinary cargo service.”

Case problem:

Clause 1 of a contract for the charter of a vessel for a period of two years (commencing in Feb 1957)
described the vessel as “being in every way fitted for ordinary cargo service.” When delivered to the
charterers, the vessel was unseaworthy, because her engines were old and her crew were insufficient
and incompetent to maintain the old machinery, while the captain was a confirmed drunkard. On her
first voyage under the charter, the engine suffered several breakdowns and required extensive repairs
for 20 weeks to make it seaworthy again, and the vessel was not properly seaworthy until mid-
September 1957, with just 17 months remaining , of the 2 year charter party agreement. However, the
charterers had treated the breach as a ground for rescission (resolution) and terminated the charter.
The shipping line company, owner of the vessel, challenged the propriety of the extra judicial rescission
and claimed that charterer was entitled only to damages. After the lower court judge found that the
breach was NOT substantial, the charterers appealed the case.

Assume that your group are all members of the Supreme Court, decide whether or not the judge was in
error in not finding the breach substantial enough to be a ground for extra judicial rescission under Art
1191 CC.

Facts:

- Contract for the charter of a vessel for a period of two years (commencing in Feb 1957)
described the vessel as “being in every way fitted for ordinary cargo service.”
- When delivered to the charterers, the vessel was unseaworthy,
o because her engines were old and
o her crew were insufficient and incompetent to maintain the old machinery,
o while the captain was a confirmed drunkard.
On her first voyage under the charter,
o the engine suffered several breakdowns and required extensive repairs for 20 weeks to
make it seaworthy again, and
o the vessel was not properly seaworthy until mid-September 1957, with just 17 months
remaining, of the 2 year charter party agreement.
- However, the charterers had treated the breach as a ground for rescission (resolution) and
terminated the charter.
- The shipping line company, owner of the vessel, challenged the propriety of the extra judicial
rescission and claimed that charterer was entitled only to damages.
 - After the lower court judge found that the breach was NOT substantial, the charterers appealed
the case.

MJ: In bad faith, it should be delivered “seaworthy”

Issue: Whether the lower court erroneously decided on the breach was NOT substantial, the charterers
appealed the case.

Decision: MJ: Reverse decision of the lower court,

Legal Basis:

- Contract for the charter

o “Contract of Carriage”
o Time charter
- Substantial breach
- Unseaworthiness
-

Conclusion:

Dissenting:

Ruling:

Note:

Herbert: Dissenting, question of ordinary vessel. “Seaworthy”

Linao: Sea trial should come first?