Introduction

In the Philippine legal system, contracts form the backbone of civil and commercial transactions, governed primarily by the Civil Code of the Philippines (Republic Act No. 386, as amended). A contract is defined under Article 1305 as a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Once perfected, contracts are binding and enforceable, embodying the principle of pacta sunt servanda—agreements must be kept.

However, the concept of one party withdrawing from a contract raises critical questions about the contract's continued validity. Withdrawal can occur at various stages: before perfection, during performance, or through formal rescission. This article explores the validity of contracts in the Philippine context when one party attempts to withdraw, drawing from statutory provisions, jurisprudence, and doctrinal principles. It examines the requisites for contract formation, the effects of withdrawal, remedies available to the non-withdrawing party, and special considerations in different types of contracts.

Requisites for Contract Validity and the Point of Perfection

To understand the impact of withdrawal, it is essential to recall the elements of a valid contract under Philippine law. Article 1318 of the Civil Code enumerates three essential requisites:

Consent of the contracting parties;
Object certain which is the subject matter of the contract;
Cause of the obligation which is established.

Contracts are generally perfected by mere consent (Article 1315), making them consensual in nature. For real contracts (e.g., deposit, pledge), perfection occurs upon delivery of the object. Solemn contracts (e.g., donations of immovable property) require compliance with formalities like notarization.

If withdrawal happens before perfection—such as revoking an offer before acceptance—no contract exists, and thus no validity issue arises. Article 1319 states that consent is manifested by the meeting of the offer and acceptance. An offer may be withdrawn at any time before acceptance is communicated (Article 1324), rendering any subsequent "contract" invalid ab initio.

Once perfected, however, unilateral withdrawal by one party does not automatically invalidate the contract. The contract remains valid and binding, but the withdrawing party's action may constitute a breach, triggering legal consequences.

Effects of Unilateral Withdrawal After Perfection

General Rule: Contract Remains Valid

Under Philippine law, a perfected contract creates obligations that are enforceable by law (Article 1159). Unilateral withdrawal post-perfection is not a ground for invalidating the contract; instead, it is treated as a breach of contract. The Supreme Court in cases like University of the Philippines v. Philab Industries, Inc. (G.R. No. 152411, September 29, 2004) has emphasized that parties cannot unilaterally rescind a contract without judicial intervention or mutual agreement, except in cases expressly allowed by law.

The withdrawing party may face liability for damages under Article 1170, which holds those who in the performance of their obligations are guilty of fraud, negligence, or delay, or who contravene the tenor thereof, liable for damages. The non-withdrawing party can seek specific performance (Article 1165), rescission with damages (Article 1191), or damages alone.

Exceptions Allowing Unilateral Withdrawal

Certain scenarios permit one party to withdraw without invalidating the contract entirely or incurring liability:

Contracts with a Resolutory Condition or Period: If the contract includes a resolutory condition (Article 1181) or a period for fulfillment (Article 1193), fulfillment of the condition or expiration of the period may allow withdrawal. For instance, in lease contracts, a lessee may withdraw upon notice if the lease is indefinite (Article 1687).
Agency Contracts: An agency may be revoked by the principal at any time before the agent has begun performance (Article 1920), but if revocation is without just cause after performance has started, the principal is liable for damages.
Partnerships: In partnerships at will (Article 1830), a partner may withdraw without liability, dissolving the partnership but not invalidating prior obligations. However, in fixed-term partnerships, premature withdrawal may lead to dissolution with damages.
Sales with Right to Repurchase (Pacto de Retro): The vendor may withdraw (repurchase) within the stipulated period (Article 1601), but failure to do so vests absolute ownership in the vendee.
Labor Contracts: Under the Labor Code (Presidential Decree No. 442), employees may resign with notice, but employers cannot unilaterally withdraw without due process, potentially leading to illegal dismissal claims.

In these cases, the contract's validity persists until the withdrawal's legal effect, after which obligations may be modified or extinguished.

Grounds for Invalidation Due to Withdrawal-Related Issues

While unilateral withdrawal does not per se invalidate a contract, certain withdrawal scenarios may lead to annulment or rescission if they reveal defects in formation:

Vitiated Consent: If withdrawal exposes that consent was obtained through mistake, violence, intimidation, undue influence, or fraud (Articles 1330-1344), the contract may be annulled within four years from discovery or cessation of the vice.
Simulation: Absolute simulation (where no real agreement exists) renders the contract void (Article 1345). If one party's "withdrawal" demonstrates the contract was fictitious, it is invalid from the beginning.
Illegality: If withdrawal relates to an illegal object or cause (Article 1409), the contract is void and produces no effect.

Jurisprudence, such as Tongoy v. Court of Appeals (G.R. No. L-45645, June 28, 1983), illustrates that courts will scrutinize withdrawals to determine if they indicate underlying invalidity.

Remedies for the Non-Withdrawing Party

When one party withdraws unlawfully, the aggrieved party has several remedies under Article 1191:

Specific Performance: Compel the withdrawing party to fulfill obligations, applicable to obligations to give specific things (Article 1165).
Rescission: Judicially rescind the contract with mutual restitution and damages. This is available in reciprocal obligations where one party fails to comply.
Damages: Actual, moral, exemplary, or nominal damages, depending on the circumstances (Articles 2199-2220).

In addition, provisional remedies like attachment or injunction may be sought to prevent further harm.

Special Considerations in Different Contract Types

Bilateral vs. Unilateral Contracts

In bilateral contracts (e.g., sale), withdrawal by one party affects reciprocity, often leading to rescission. In unilateral contracts (e.g., donation), the donor cannot withdraw after acceptance unless grounds for revocation exist (Article 765, e.g., ingratitude).

Government Contracts

Under the Government Procurement Reform Act (Republic Act No. 9184), withdrawal by a bidder before award invalidates their bid, but post-award withdrawal by the government requires just cause, else liability ensues.

International Contracts

If involving foreign elements, the validity may be governed by choice-of-law principles under Article 1306, but Philippine public policy prevails.

Electronic Contracts

Under the Electronic Commerce Act (Republic Act No. 8792), withdrawal in e-contracts follows similar rules, with electronic signatures binding unless repudiated validly.

Jurisprudential Developments

Philippine courts have consistently upheld contract validity despite unilateral withdrawals. In Republic v. Sandiganbayan (G.R. No. 115748, July 29, 1996), the Supreme Court ruled that unilateral repudiation does not extinguish obligations. More recently, in Spouses Lim v. Court of Appeals (G.R. No. 192188, March 20, 2013), it was held that withdrawal from a compromise agreement requires mutual consent or judicial approval.

Conclusion

In the Philippines, a contract's validity is not extinguished by one party's unilateral withdrawal after perfection; rather, such action typically constitutes a breach, entitling the other party to remedies. Withdrawal is only effective without consequences in specific legal exceptions or before perfection. Parties are advised to incorporate clear termination clauses and seek legal counsel to navigate these complexities, ensuring compliance with the Civil Code's emphasis on autonomy of contracts balanced with justice and equity. Understanding these principles safeguards transactional integrity in a dynamic legal landscape.