Explanation of Article 107
The subject of this article is judicial rescission for breach of obligation; the court may order rescission even if the contract does not include a rescission clause, provided that the conditions for judicial rescission are met. This is because a rescission clause is implicitly assumed in every contract that is binding on both parties. Reciprocal obligations are based on the interconnection between them, so if one party fails to fulfill their obligation, the other party may suspend the execution of their obligation, which is the defense of non-performance, or may be released from this obligation, which is rescission.
To impose judicial rescission, in addition to the common conditions with consensual rescission previously stated, three conditions must be met: The first condition: The part in which the breach occurred must be substantial in relation to the entire obligation. If the contract does not contain a rescission clause for the breach and the request for rescission is based on the implicit rescission clause, rescission cannot be imposed if this breach, according to the court's assessment, is of little importance in relation to the debtor's obligation. This is because such a breach is so insignificant that it was not intended by the contracting parties to rescind the contract for it, and the court limits the creditor's right to compensation if warranted.
Based on what the article has established, which is the general principle in judicial rescission, whenever a statutory provision grants the contracting party the right to request rescission, the court must verify that what the debtor failed to fulfill is substantial; otherwise, it will reject the request for rescission, even if the provision does not restrict the right to request rescission to the part that the debtor did not fulfill being substantial. This is because what the article has established as a general rule applies to any judicial rescission without the need to repeat these conditions in every instance; restricting rescission to a request submitted to the court and not a unilateral rescission requires that the rescission be judicial according to the conditions set forth in this article, which must be met before the court rules on it, unless the system specifies otherwise in a particular case.
The second condition: The creditor must request the imposition of rescission, which can only be done by filing a lawsuit requesting rescission. This right is established for the creditor or their successor, whether general or specific, or the assignee or the payer with the right of subrogation, as well as for the creditor by indirect action.
As a result, the debtor can avoid rescission by fulfilling their obligation before the final judgment is issued, whether the debtor was warned or not, unless the court finds that this late fulfillment harms the creditor.
The creditor, after filing a rescission lawsuit, may switch to requesting specific performance before the judgment, and similarly, if they filed a lawsuit for specific performance, they may switch to requesting rescission unless they have explicitly or implicitly waived the right to rescission. Merely filing a lawsuit for specific performance and then switching to a request for rescission does not constitute a waiver of the rescission request.
As stated in the first condition, based on what the article has established, which is the general principle in judicial rescission, whenever a statutory provision grants the contracting party the right to request rescission of the contract, it does not prevent them from requesting its execution; the provision for the right to request rescission does not negate their right to request execution, unless the system specifies otherwise in a particular case.
The court has the discretionary power to impose rescission, and before ruling on rescission, it may grant the debtor, in exceptional cases, a reasonable period to fulfill their obligation if their situation requires it and if this delay does not cause significant harm to the creditor, according to what is established in Article (275). It may also reject the rescission request if it finds that the part not executed is of little importance or that the rescission requester is also in breach of their obligations.
The rescission lawsuit is subject to a statute of limitations, as previously stated, of ten years from the creditor's right to request rescission, i.e., from the time of non-performance or from the time of warning if required.
The third condition: Issuance of a rescission judgment, which distinguishes judicial rescission from consensual rescission, as in judicial rescission, rescission only occurs by a judge's ruling, which creates the rescission rather than merely confirming it.
The court, along with the rescission or execution judgment, may require the debtor to compensate if warranted; in the case of a rescission judgment due to one of the contracting parties' fault, this party is not only required to return what they received but also to compensate the other contracting party for the damage caused by this fault. In the case of an execution judgment, whether by the creditor's request for execution, or the rejection of the rescission lawsuit due to the debtor's fulfillment after the lawsuit was filed, or because the part in which the breach occurred does not warrant rescission according to the court's assessment, it may require the debtor to compensate the creditor for the damage caused by this breach.
Related To
Article 107
If a contracting party in a bilateral contract fails to perform his obligation, the other contracting party may, after notifying the breaching party, demand implementation or termination of the contract, and may claim compensation in either case, if applicable. The court may dismiss the petition for termination if the unperformed part is insignificant compared to the obligation.