Eds Manufacturing v. Healthcheck International

Summary

EDS Manufacturing Inc. contracted with Healthcheck International Inc. for HMO services covering over 4,000 employees but sought rescission when the HMO's hospital accreditations were repeatedly suspended due to unpaid bills. The Supreme Court ruled that while Healthcheck substantially breached the contract by failing to provide adequate medical coverage, EDS failed to validly rescind the agreement under Article 1191 of the Civil Code, which requires judicial or notarial action for rescission of reciprocal obligations. The Court emphasized that continued employee use of HMO services after the alleged rescission date, with EDS's apparent consent, negated any intention to terminate the contract. Both the complaint and counterclaim were ultimately dismissed, establishing important precedent on the proper procedure for contract rescission in Philippine law.