'arvin ('ahaba talaga yung case) *ote: Wellex is a corporation established under !hilippine law and it maintains airline operations in the !hilippines. $t owns shares of stoc+ in several corporations including Air #$%&': Rescission as efect o Fraud !hilippin !hilippines es $nternatio $nternational nal orporatio orporation n (A!$), (A!$), !hilippi !hilippine ne -statess orpor orporati ation on (!-), (!-), and -#pres -#presss aving avingss %an+ %an+ For Article 1191 to be applicable, however, there must be -state reci recipr proc ocal al pres presta tati tion onss as dist distin ingu guis ishe hed d from from mutu mutual al (-%). /elle# alleges that it owns all shares of stoc+ of Air obligations between or among the parties. A prestation is !hilippines orporation (A!). the object of an obligation, and it is the conduct required by the parties to do or not to do, or to give. 1 !arties may be U-Land Airlines 'o. L(d. (02and) 3is a corporation duly mutually mutually obligated obligated to each other, but the prestations prestations of organi4ed and e#isting under the laws of "aiwan, registered thes thesee obli obliga gati tion onss are are not not nece necess ssar arily ily reci recipr proc ocal al.. "he "he to do business . . . in the !hilippines.3 $t is engaged in the "aiwan and in other Asian reciprocal reciprocal prestations prestations must necessarily necessarily emanate emanate from the business of air transportation in "aiwan same cause that gave rise to the e#istence of the contract. countries. "his "his dist distin inct ctio ion n is best best illu illust stra rate ted d by an esta establ blis ishe hed d *ote: "his case distinguished rescission under Art. authority in civil law, the late Arturo "olentino: "his article applies only to reciprocal obligations. $t has no 11915resolution6 and rescission under Art. 1781, 1787 and application to every case where two persons are mutually 178. debtor and creditor of each other. "here must be reciprocity between them. %oth relations must arise from the same /hen a party see+s the relief of rescission as provided in cause, such that one obligation is correlative to the other. Article 1781, there is no need for reciprocal prestations to "hus, a person may be the debtor of another by reason of an e#ist between or among the parties. All that is required is that the contra contract ct sho shoul uld d be among among those those enumer enumerate ated d in agency agency,, and his credit creditor or by reason reason of a loan. loan. "hey "hey are that mutually obligated, but the obligations are not reciprocal. Article 1781 for the contract to be considered rescissible. 1191, rescission under Article 1781 must be a &eciprocity arises from identity of cause, and necessarily 0nli+e Article 1191, subsidiary action because of Article 1787. the two obligations are created at the same time. ti me. )A'#*+ /elle# and 02and agreed to develop a longterm business relationship through the creation of joint interest in airline operations and property development projects in the !hilippines. "he agreement includes: $. Acquisition of A!$ and !- shares $$. ;peration and management of A!$ shares of stoc+ of ->!&- A=$*? %A*@ (3-%3) up to B of the outstanding capital stoc+ of -% of 02and. "he provisions of the memorandum were agreed to be e#ecuted within days from its e#ecution date. 024 Wellex Group vs. U-Land Airlines G.R. No. 167519 !anuar" 14 2015
"he day period lapsed but /elle# /elle# and 02and were not able to enter into any share purchase agreement although drafts were e#changed between the two. Cowever, Despite the absence of a share purchase agreement, 02and remitted to /elle# elle# a total total of 0E,99,9 0E,99,9. .. . /elle# /elle# ac+nowledged ac+nowledged the receipt receipt of these these remittance remittancess in a confirmat confirmation ion letter letter addressed to 02and and allegedly delivered stoc+ certificates and ""s of subject properties. Despite these transactions, /elle# and 02and still failed to enter into the share purchase agreement and the joint development agreement. "hus, 0 2and filed a omplaint G praying for rescission of the First 'emorandum of Agreement and damages against /elle# and for the issuan issuance ce of a /rit rit of !relim !relimina inary ry Attachm Attachment ent.. No(e+ After After verificati verification on with the ecuritie ecuritiess and -#change ommission, 02and discovered that 3A!$ did not own a single share of stoc+ in A!. &": &uled $n favor of 0land and ordered rescission of contract under Art. 1911 of the civil code. %asis of rescission: /elle#Hs /elle#Hs misrepresentation misrepresentation that A!$ was a majority shareholder of A! that compelled it to enter into the agreement.. 5 Notwithstanding the said remittances, remittances, APIC does not own a single share of APC. On the other hand, defendant could not even satisfactorily substantiate its claim that at least it had the intention to cause the transfer of APC shares to APIC. Defendant obviously did not enter into the stipulated PA because because it did not have the shares of APC transferred transferred to APIC despite its representation representations. s. !nder the circumstances, circumstances, it is clear that defendant fraudulently violated the provisions of the MOA MOA." ;n appeal, the ourt of Appeals affirmed the ruling of the &egional "rial ourt. Cence this petition. !etitioners invo+es uria v. Intermediate Appellate Court , which held that an 3action for rescission is not a principal action that is retaliatory in character under Article 1191 of the ivil ode, but a subsidiary one which is available only in the absence of any other legal remedy under Article 178 of the ivil ode &espondent 0land avers that this case was inapplicable because the pertinent provision in uria was not Article 1191 but rescission under Article 1787 of the ivil
ode. "he 3rescission3 referred to in Article 1191 referred to 3resolution3 of a contract due to a breach of a mutual obligation, while Article 178 spo+e of 3rescission3 because of lesion and damage. "hus, the rescission that is relevant to the present case is that of Article 1191, which involves breach in a reciprocal obligation. $t is, in fact, resolution, and not rescission as a result of fraud or lesion, as found in Articles 1781, 1787, and 178 of the ivil ode. &**U,*: /hether or not respondent 02and correctly sought the principal relief of rescission or resolution under Article 1191. /,L: Ies. &espondent 02and is praying for rescission or resolution under Article 1191, and not rescission under Article 1781. "he failure of one of the parties to comply with its reciprocal prestation allows the wronged party to see+ the remedy of Article 1191. "he wronged party is entitled to rescission or resolution under Article 1191, and even the payment of damages. $t is a principal action precisely because it is a violation of the original reciprocal prestation. Article 1781 and Article 1787, on the other hand, pertain to rescission where creditors or even third persons not privy to the contract can file an action due to lesion or damage as a result of the contract. &escission or resolution under Article 1191, therefore, is a principal action that is immediately available to the party at the time that the reciprocal prestation was breached. Article 1787 mandating that rescission be deemed a subsidiary action cannot be applicable to rescission or resolution under Article 1191. "hus, respondent 02and correctly sought the principal relief of rescission or resolution under Article 1191.
"he order is valid. -nforcement of ection 9 of the First 'emorandum of Agreement has the same effect as rescission or resolution under Article 1191 of the ivil ode. "he parties are obligated to return to each other all that they may have received as a result of the breach by petitioner /elle# of the reciprocal obligation. "herefore, the ourt of Appeals did not err in affirming the rescission granted by the trial court. RA#&$: ontrary to petitioner /elle#Hs argument, this is not rescission under Article 1781 of the ivil ode. "his case does not involve prejudicial transactions affecting guardians, absentees, or fraud of creditors. Article 1781(7) pertains in particular to a series of fraudulent actions on the part of the debtor who is in the process of transferring or alienating property that can be used to satisfy the obligation of the debtor to the creditor. "here is no allegation of fraud for purposes of evading obligations to other creditors. "he actions of the parties involving the terms of the First 'emorandum of Agreement do not fall under any of the enumerated contracts that may be subject of rescission. Further, respondent 02and is pursuing rescission or resolution under Article 1191, which is a principal action. Justice J.%.2. &eyesH concurring opinion in the landmar+ case of 0niversal Food orporation v. ourt of Appeals 18 gave a definitive e#planation on the principal character of resolution under Article 1191 and the subsidiary nature of actions under Article 1781: "he rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. $t is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. "his rescission is a principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As e#pressed in the old 2atin aphorism: 3*on servanti fidem, non est fides servanda.3 Cence, the reparation of damages for the breach is purely secondary. ;n the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the e#istence of that prejudice, because it is the raison detre as well as the measure of the right to rescind. Cence, where the defendant ma+es good the damages caused, the action cannot be maintained or continued, as e#pressly provided in Articles 1787 and 178. %ut the operation of these two articles is limited to the cases of rescission for lesiKn enumerated in Article 1781 of the ivil ode of the !hilippines, and does not apply to cases under Article 1191. &escission or resolution under Article 1191, therefore, is a principal action that is immediately available to the party at the time that the reciprocal prestation was breached. Article 1787 mandating that rescission be deemed a subsidiary action cannot be applicable to rescission or resolution under Article 1191. "hus, respondent 02and correctly sought the principal relief of rescission or resolution under Article 1191. "he obligations of the parties gave rise to reciprocal prestations, which arose from the same cause: the desire of both parties to enter into a share purchase agreement that would allow both parties to e#pand their respective airline operations in the !hilippines and other neighboring countries.
$(er a((ers+ 1. "he ';A is ambiguous. "he parties were never able to arrive at a specific period within which they would bind themselves to enter into an agreement. G. "here was no e#press or implied novation of the First 'emorandum of Agreement. "here was no incompatibility between the original terms of the First 'emorandum of Agreement and the remittances made by respondent 0 2and for the shares of stoc+. "hese remittances were actually made with the view that both parties would subsequently enter into a share purchase agreement. $t is clear that there was no subsequent agreement inconsistent with the provisions of the First 'emorandum of Agreement. "here being no novation of the First 'emorandum of Agreement, respondent 02and is entitled to the return of the amount it remitted to petitioner /elle#. !etitioner /elle# is li+ewise entitled to the return of the certificates of shares of stoc+ and titles of land it delivered to respondent 02and. 7. Applying Article 118 of the ivil ode, the parties are obligated to return to each other all they have received. petitioner /elle# is obligated to return the remittances made by respondent 02and, in the same way that respondent 02and is obligated to return the certificates of shares of stoc+ and the land titles to petitioner /elle#. . "he jurisprudence relied upon by petitioner /elle# is not applicable. . !etitioner /elle# was not guilty of fraud but of violating Article 119 of the ivil ode. "he absence of fraud in a transaction does not mean that rescission under Article 1191 is not proper. "his case is not an action to declare the First 'emorandum of Agreement null and void due to fraud at the inception of the contract or dolo causante. "his case is not an action for fraud based on Article 1781 of the ivil ode. &escission or resolution under Article 1191 is predicated on the failure of one of the parties in a reciprocal obligation to fulfill the prestation as required by that obligation. $t is not based on vitiation of consent through fraudulent misrepresentations. L. &espondent 02and was not bound to pay the 0E7 million under the joint development agreement. . &espondent 02and was not obligated to e#haust the 3securities3 given by petitioner /elle# %rovisions+ A&". 1191. "he power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. "he injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. Ce may also see+ rescission, even after he has chosen fulfillment, if the latter should become impossible. "he court shall decree the rescission claimed, unless there be just cause authori4ing the fi#ing of a period. "his is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 178 and 1788 and the 'ortgage 2aw. Articles 178 and 1781, on the other hand, provide an enumeration of rescissible contracts: A&". 178. ontracts validly agreed upon may be rescinded in the cases established by law. A&". 1781. "he following contracts are rescissible: (1) "hose which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one fourth of the value of the things which are the object thereof (G) "hose agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number (7) "hose underta+en in fraud of creditors when the latter cannot in any other manner collect the claims due them () "hose which refer to things under litigation if they have been entered into by the defendant without the +nowledge and approval of the litigants or of competent judicial authority () All other contracts specially declared by law to be subject to rescission. Article 1787 e#pressly provides for the subsidiary nature of rescission: A&". 1787. "he action for rescission is subsidiary it cannot be instituted e#cept when the party suffering damage has no other legal means to obtain reparation for the same. &escission itself, however, is defined by Article 178: A&". 178. &escission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. *either shall rescission ta+e place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. 'A*, LAW3 $'#R&N,: &escission or resolution under Article 1191 is a principal action that is immediately available to the party at the time that the reciprocal prestation was breached. 'utual restitution is required in cases involving rescission under Article 1191. "his means bringing the parties bac+ to their original status prior to the inception of the contract. Determining the e#istence of fraud is not necessary in an action for rescission or resolution under Article 1191. "he e#istence of fraud must be established if the rescission prayed for is the rescission under Article 1781. &**,N#&NG3'$N'URR&NG $%&N&$N*:
