G.R. No. 231679 - National Power Corp. vs. Bohol I Electric Cooperative, Inc.

Healthcheck International, Inc. (HCI) is a Health Maintenance Organization (HMO) that provides prepaid health and medical insurance coverage.
Eds Manufacturing, Inc. (EMI), with approximately 5,000 employees in Imus, Cavite, entered into a contract with HCI.
The contract was executed in April 1998 and covered EMI’s 4,191 employees and their 4,592 dependents.
EMI paid a full premium amounting to ₱8,826,307.50 for a one-year coverage running from May 1, 1998, to April 30, 1999.
A Service Program was attached to the Agreement, which detailed the scope of services to be rendered by HCI and the corresponding obligations of EMI, including the surrender of HMO cards under certain conditions.

Shortly after the contract commenced, on July 17, 1998, HCI notified EMI that its accreditation with the De La Salle University Medical Center (DLSUMC) was suspended.
HCI advised EMI to seek services from other accredited facilities, attributing the suspension to difficulties in the HMO industry amid the Asian regional financial crisis.
EMI and HCI entered into a hastily convened meeting resulting in a handwritten 5-point agreement that included:

HCI’s commitment to furnish EMI with a list of procedural enhancements.
A reduction in the number of accredited hospitals to improve oversight.
EMI’s undertaking to study the inclusion of a liability clause for possible contract modification.
A provision that no renewed contract would be allowed if there was another suspension of services.
A deadline for HCI’s decision regarding the proposed changes.

Despite initial remediation measures, DLSUMC resumed services on July 24, only to suspend accreditation once again on August 15 for a period, and a third time on September 9 until the contract’s expiration.
Complaints began to surface from EMI employees regarding the non-acceptance of their HMO cards at DLSUMC and other medical facilities.

On September 3, EMI formally notified HCI of its intention to rescind the April 1998 Agreement, citing HCI’s repeated and serious breaches—including the unjustified non-availability of contracted services.
EMI demanded the return of the premium for the unused portion of the contract (estimated at around ₱6 million).
A critical issue arose when EMI failed to collect all HMO cards from its employees as required by the Agreement.
HCI, on October 12, notified EMI that the continued use of the cards beyond the effective rescission date meant that the contract was still in force, thus impeding the reconciliation of accounts.
In January 1999, EMI sent letters demanding the payment of ₱5,884,205 representing the two-thirds portion of the unutilized premium, based on the computation that HCI rendered only one-third of the services during the contracted period.
HCI preempted EMI’s threats of legal action by filing a case before the Regional Trial Court (RTC) of Pasig, alleging unlawful pretermination of the contract and EMI’s failure to comply with reconciliation procedures.

At trial, the RTC ruled in favor of HCI, compensating it for services rendered and dismissing EMI’s counterclaims for damages and refund of unutilized premium on the ground of an invalid rescission.
EMI subsequently appealed, and the Court of Appeals (CA) reversed the RTC’s decision by dismissing HCI’s complaint while at the same time dismissing EMI’s counterclaim.
EMI then filed a Motion for Partial Reconsideration before the CA, which was denied by Resolution dated March 16, 2004.
The petition for review under Rule 45 of the Rules of Court was eventually raised by EMI, challenging the CA’s decision from multiple angles.

Whether the unilateral act of rescission by EMI, in light of HCI’s substantial breach of contract, complied with the legal requirements for rescission.
Whether the failure of EMI to collect and surrender the HMO cards invalidated their claim of rescission.

Whether, in the absence of an explicit stipulation allowing for automatic rescission, a judicial or notarial act is necessary to effect a valid rescission.
Whether EMI’s extrajudicial declaration of rescission (via letter) was sufficient to terminate the contract under Article 1191 of the Civil Code.

Whether the utilization reports, which evidenced continued consumption of services by EMI’s employees after the alleged rescission, conclusively negated EMI’s claim that the contract had been terminated.
Whether such reports admitted as evidence are double hearsay and should affect the validity of the rescission action.

Whether HCI’s failures in fulfilling the contractual obligation (i.e., repeated suspension of accreditation and non-validation of promised services) constituted grounds for rescission.
How the court should weigh the substantial breach by HCI against EMI’s procedural lapse in effecting a judicial or notarial rescission.