FACTS:

Petitioner Golden Valley Exploration, Inc. (GVEI) and respondent Pinkian Mining Company (PMC) entered into an Operating Agreement (OA) in which GVEI was granted full possession and control over several mining claims in Kayapa, Nueva Vizcaya for 25 years. However, PMC rescinded the OA due to GVEI's alleged violations, including failure to advance the actual cost for the mining claims, non-reimbursement of expenses, non-disclosure of contracts with other mining companies, and non-performance of necessary works. GVEI argued that its obligation to pay royalties only arises when the mining claims are in commercial production, but PMC did not respond to this objection. Instead, PMC entered into a Memorandum of Agreement (MOA) with respondent Copper Valley, Inc. (CVI), granting CVI the right to explore and develop the mining claims. GVEI filed a complaint before the Regional Trial Court (RTC), seeking specific performance, annulment of contract, and damages. The RTC declared the rescission void, ruling in favor of GVEI. However, the Court of Appeals (CA) reversed the RTC decision, upholding the validity of the rescission and the MOA. Dissatisfied, GVEI filed a petition for review with the Supreme Court, challenging the validity of the rescission. The main issue before the Court is whether there was a valid rescission of the OA.

ISSUES:

1. Whether the contract may be rescinded due to a party's non-payment of royalties.

2. Whether an injured party can rescind a contract without resorting to court action if the contract contains a provision for cancellation or revocation.

3. Whether GVEI's non-payment of royalties is a ground for PMC to rescind the operative agreement (OA).

4. Whether PMC had the right to rescind the OA based on other grounds, aside from non-payment of royalties.

5. Whether PMC's rescission of the OA should have been judicially invoked or if extra-judicial rescission was valid.

6. Whether GVEI can oppose PMC's rescission on the argument that the ground for rescission was only limited to non-payment of royalties.

7. Whether the ipso facto reversion of the donated property upon non-compliance with the conditions is upheld.

8. Whether an extra-judicial rescission based on grounds not specified in the contract would preclude a party from treating the contract as rescinded.

9. Whether the rescinding party is liable for damages when the extra-judicial rescission is questioned in court.

10. Whether a party can treat a contract as cancelled or resolved on account of infractions by the other contracting party without previous court action.

11. Whether the rescinding party's act of treating the contract as cancelled or resolved is provisional and subject to review by the proper court.

12. Whether a party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but proceeds at its own risk.

13. Whether a final judgment of the corresponding court is needed to conclusively settle whether the action taken in treating the contract as rescinded is correct in law.

14. Whether the stipulation allowing extra-judicial rescission in a contract effectively ends the contract and releases the parties from their obligations thereunder.

15. Whether the lack of a judicial decree is a legal impediment to entering into a new contract covering the same subject matter.

RULING:

1. Yes, the contract may be rescinded due to a party's non-payment of royalties. The parties had expressly stipulated in the contract that non-payment of royalties would give the injured party sufficient cause to cancel or rescind the contract. Therefore, PMC's unilateral rescission of the contract was valid.

2. Yes, an injured party can rescind a contract without resorting to court action if the contract contains a provision for cancellation or revocation. The law does not prohibit parties from entering into an agreement that violation of the terms of the contract would cause its cancellation, even without court intervention.

3. GVEI's non-payment of royalties is a ground for PMC to rescind the OA.

4. PMC had the right to rescind the OA based on other grounds, which include violation of the terms of the OA, non-reimbursement of expenses incurred by PMC General Manager, non-disclosure of contracts, being a mere promoter/broker, and non-performance of necessary works on the mining claims.

5. PMC's rescission of the OA did not have to be judicially invoked as there was a stipulation allowing extra-judicial rescission. The effect of the rescission takes place immediately, subject to court reversal if found improper.

6. GVEI cannot oppose PMC's rescission on the argument that the ground for rescission was only limited to non-payment of royalties.

7. Yes, the ipso facto reversion of the donated property upon non-compliance with the conditions is upheld.

8. No, an extra-judicial rescission based on grounds not specified in the contract would not preclude a party from treating the contract as rescinded.

9. Yes, the rescinding party is liable for damages when the extra-judicial rescission is questioned in court.

10. Yes, a party can treat a contract as cancelled or resolved on account of infractions by the other contracting party without previous court action.

11. Yes, the act of treating the contract as cancelled or resolved is provisional and subject to review by the proper court.

12. Yes, a party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but proceeds at its own risk.

13. Yes, a final judgment of the corresponding court is needed to conclusively settle whether the action taken in treating the contract as rescinded is correct in law.

14. Yes, the stipulation allowing extra-judicial rescission in a contract effectively ends the contract and releases the parties from their obligations thereunder.

15. No, the lack of a judicial decree is not a legal impediment to entering into a new contract covering the same subject matter.

PRINCIPLES:

• Reciprocal obligations - either party may rescind the contract upon the other's substantial breach of the obligation/s assumed thereunder (Article 1191, Civil Code).

• Rescission as a retaliatory remedy - given to the contracting party who suffers the injurious breach on the premise that it is "unjust that a party be held bound to fulfill his promises when the other violates his."

• Rescission requires judicial action - except when the contract itself provides for cancellation or revocation upon violation of its terms and conditions.

• Requirement for rescission - rescission of a contract will not be permitted for a slight or casual breach, but only for substantial and fundamental violations that would defeat the very object of the parties in making the agreement.

• The power to rescind obligations is implied in reciprocal contracts when one of the parties fails to comply with what is incumbent upon them.

• Extra-judicial rescission is valid when there is a stipulation allowing for it, and it immediately releases the party from its obligations under the contract.

• Judicial intervention may be necessary to determine whether the rescission was proper and to declare the fact that the contract has been rescinded.

• The ipso facto reversion of the donated property upon non-compliance with the conditions is upheld.

• An extra-judicial rescission based on grounds not specified in the contract does not preclude a party from treating the contract as rescinded.

• The rescinding party is liable for damages when the extra-judicial rescission is questioned in court.

• A party can treat a contract as cancelled or resolved on account of infractions by the other contracting party without previous court action.

• The act of treating the contract as cancelled or resolved is provisional and subject to review by the proper court.

• A party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but proceeds at its own risk.

• A final judgment of the corresponding court is needed to conclusively settle whether the action taken in treating the contract as rescinded is correct in law.

• The stipulation allowing extra-judicial rescission in a contract effectively ends the contract and releases the parties from their obligations thereunder.

• The lack of a judicial decree is not a legal impediment to entering into a new contract covering the same subject matter.