Qeourt: L/.epublic of Tbe Flbtlippineg
Qeourt: L/.epublic of Tbe Flbtlippineg
SECOND DIVISION
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DECISION
BRION, J.:
These assailed CA rulings annulled the June 27, 2006 decision4 and
October 30, 2006 order5 of the Regional Trial Court of Makati, Branch 64
(trial court), which directed respondent Jose V. Duefias (Duenas) to pay
Five Million Pesos (P5 Million) to petitioner George C. Fong (Fong), and
imposed a six percent (6%) annual interest on this amount.
Designated as Additional Member in lieu of Associate Justice Jose Catral Mendoza, per Raffle
dated June 10, 2015.
1
Rollo, pp. 33-67.
Penned by Associate Justice Andres 8. Reyes, Jr., and concurred in by Associate Justices Jose C.
Mendoza (now a member of this Court) and Sesinando E. Villon; id. at 69-90.
3
Id. at 92.
4
Id. at 239-249.
~
Id. at 255-257.
Decision 2 G.R. No. 185592
Factual Antecedents
The parties agreed that Fong would contribute Thirty Two Million
and Five Hundred Thousand Pesos (P32.5 Million) in cash while Dueñas
would contribute all his Danton and Bakcom shares which he valued at
P32.5 Million.8 Fong required Dueñas to submit the financial documents
supporting the valuation of these shares.
Date Amount
November 25, 1996 P1,980,475.20
January 14, 1997 P1,000,000.00
February 8, 1997 P500,000.00
March 7, 1997 P100,000.00
April 28, 1997 P500,000.00
June 13, 1997 P919,524.80
Total P5,000,000.00
6
Id. at 37.
7
Id. at 214.
8
Id. at 71.
9
Boboli is an international food enterprise.
10
Rollo, pp. 445-446.
Decision 3 G.R. No. 185592
Dear Jojit,
Since we agreed in principal late last year to pursue subject matter, the
delays in implementing the joint venture have caused us to rethink our
position. First, we were faced with the ‘personal’ factor which was
explained to you one time. This has caused us to turn down a number of
business opportunities. Secondly, since last year, the operation of Century
21 has been taking more time from us than anticipated. That is why we
decided to relinquish our original plan to manage and operate ‘Boboli’
knowing this limitation. For us, it does not make sense anymore to go for a
significant shareholding when we cannot be hands on and participate
actively as originally planned. For your information, we will probably be
giving up our subway franchise too.
We know that our decision will somewhat upset the overall plans. But it
will probably be more problematic for us in the long run if we continue
full speed. We have put our money down in trust and good faith
despite the much delayed financials. We continue to believe in your
game plan and capabilities to achieve the desired goals for subject
undertaking. Please permit us instead to be just a modest silent investor
now with a take out plan when time and price is right.
11
Id. at 81-82; emphasis supplied.
12
Id. at 215.
Decision 4 G.R. No. 185592
Since Dueñas did not pay, Fong filed a complaint against him for
collection of a sum of money and damages18 on April 24, 1998.
In its June 27, 2006 decision, the trial court ruled in favor of Fong
and held that a careful examination of the complaint shows that although
it was labeled as an action for collection of a sum of money, it was
actually an action for rescission.19
The trial court noted that Dueñas’ failure to furnish Fong with the
financial documents on the valuation of the Danton and Bakcom shares,
as well as the almost one year delay in the incorporation of Alliance,
caused Fong to rescind the joint venture agreement.20 According to the
trial court, these are adequate and acceptable reasons for rescission.
The trial court also held that Dueñas erroneously invested Fong’s
cash contributions in his two companies, Danton and Bakcom. The
signed receipts,21 presented as evidence, expressly provided that each
remittance should be applied as advance subscription to Fong’s
shareholding in Alliance. Thus, Dueñas’ investment of the money in
Danton and Bakcom was clearly unauthorized and contrary to the
parties’ agreement.
13
Id. at 216.
14
Id. at 112-113.
15
Id.
16
Id. at 133-136.
17
Id. at 115-116.
18
Id. at 213-220.
19
Id. at 243.
20
Id. at 245.
21
Id.
Decision 5 G.R. No. 185592
The CA ruled that Fong’s June 13, 1997 letter evidenced his
intention to convert his cash contributions from “advances” to the
proposed corporation’s shares, to mere “investments.” Thus, contrary to
the trial court’s ruling, Dueñas correctly invested Fong’s P5 Million
contribution to Bakcom and Danton. This did not deviate from the
parties’ original agreement as eventually, the shares of these two
companies would form part of Alliance’s capital.24
Lastly, the CA held that the June 13, 1997 letter showed that Fong
knew all along that he could not immediately ask for the return of his P5
Million investment. Thus, whether the action filed was a complaint for
collection of a sum of money, or rescission, it must still fail.25
The Petition
Fong submits that the CA erred when it ruled that his June 13,
1997 letter showed his intent to convert his contributions from advance
subscriptions to Alliance’s shares, to investments in Dueñas’ two
companies. Contrary to the CA’s findings, the receipts and the letter
expressly mentioned that his contributions should all be treated as his
share subscription to Alliance.26
22
Id. at 249.
23
Id. at 257.
24
Id. at 29.
25
Id. at 29-30.
26
Id. at 452-464.
27
Id. at 465.
Decision 6 G.R. No. 185592
At the outset, the Court notes that the parties’ joint venture
agreement to incorporate a company that would hold the shares of
Danton and Bakcom and that would serve as the business vehicle for
their food enterprise, is a valid agreement. The failure to reduce the
agreement to writing does not affect its validity or enforceability as there
is no law or regulation which provides that an agreement to incorporate
must be in writing.
28
Id. at 477.
29
Id. at 489.
30
Id. at 490.
31
Gochan v. Gochan, 423 Phil. 491, 501 (2001).
Decision 7 G.R. No. 185592
xxxx
Dueñas submits that Fong’s prayer for the return of his cash
contribution supports his claim that Fong’s complaint is an action
for collection of a sum of money. However, Dueñas failed to
appreciate that the ultimate effect of rescission is to restore the
parties to their original status before they entered in a contract. As
the Court ruled in Unlad Resources v. Dragon:34
Rescission has the effect of “unmaking a contract, or its undoing from the
beginning, and not merely its termination.” Hence, rescission creates the
obligation to return the object of the contract. It can be carried out
only when the one who demands rescission can return whatever he may be
obliged to restore. To rescind is to declare a contract void at its inception
and to put an end to it as though it never was. It is not merely to terminate
32
Spouses Tumibay v. Spouses Lopez, G.R. No.171692, June 3, 2013, 697 SCRA 21.
33
Id.
34
582 Phil. 61 (2008).
Decision 8 G.R. No. 185592
it and release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative
positions as if no contract has been made.
In this light, we rule that Fong’s prayer for the return of his
contribution did not automatically convert the action to a complaint for a
sum of money. The mutual restitution of the parties’ original
contributions is only a necessary consequence of their agreement’s
rescission.
Reciprocal obligations are those which arise from the same cause,
in which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent on the obligation of the other. 36
35
Id. at 79-80.
36
Cortes v. CA, 527 Phil. 153, 160 (2006).
Decision 9 G.R. No. 185592
The parties never agreed that Fong would invest his money in
Danton and Bakcom. Contrary to Dueñas’ submission, Fong’s
understanding was that his money would be applied to his shareholdings
in Alliance. As shown in Fong’s June 13, 1997 letter, this fact remained
to be true even after he limited his contribution to P5 Million, viz:
Dear Jojit,
37
Rollo, p. 81.
38
Section 13, Corporation Code of the Philippines.
39
Registration requirements accessed from:
http://iregister.sec.gov.ph/PDFs/registration%20of%20corporations%20and%20partnerships.pdf
40
Rollo, p. 222.
Decision 10 G.R. No. 185592
was true, then there was no need for Fong’s additional P5 Million
investment, which may possibly increase the value of the Danton and
Bakcom shares.
Under these circumstances, the Court agrees with the trial court
that Dueñas violated his agreement with Fong. Aside from unilaterally
applying Fong’s contributions to his two companies, Dueñas also
failed to deliver the valuation documents of the Danton and Bakcom
shares to prove that the combined values of their capital
contributions actually amounted to P32.5 Million.
In his June 13, 1997 letter, Fong expressly informed Dueñas that
he would be limiting his cash contribution from P32.5 Million to P5
Million because of the following reasons which we quote verbatim:
1. First, we were faced with the ‘personal’ factor which was explained to
you one time. This has caused us to turn down a number of business
opportunities;
2. Secondly, since last year, the operation of Century 21 has been taking
more time from us than anticipated. That is why we decided to
relinquish our original plan to manage and operate ‘Boboli’ knowing
this limitation. For us, it does not make sense anymore to go for a
41
413 Phil. 360 (2001).
42
Id. at 373-374.
Decision 11 G.R. No. 185592
Art. 1192. In case both parties have committed a breach of the obligation,
the liability of the first infractor shall be equitably tempered by the courts.
If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear
his own damages. [Emphasis supplied.]
43
Rollo, p. 83.
Decision 12 G.R. No. 185592
Despite these gray areas, the fact that both Fong and Duenas
substantially contributed to the non-incorporation of Alliance and to
the failure of their food business plans remains certain.
In these lights, the Court holds that the joint venture agreement
between Fong and Duefias is deemed extinguished through rescission
under Article 1192 in relation with Article 1191 of the Civil Code.
Duefias must therefore return the P5 Million that Fong initially
contributed since rescission requires mutual restitution. 44 After
rescission, the parties must go back to their original status before
they entered into the agreement. Duefias cannot keep Fong's
contribution as this would constitute unjust enrichment.
SO ORDERED.
Q{Ujl!JfJa
ARTURO D. BRION
Associate Justice
44
Grace Park Engineering v. Dimaporo, 194 Phil. 253 (1981 ).
45
Bangko Sentral ng Pilipinas Monetary Board Circular No. 799, series of 2013, effective July I,
2013; Dario Nacar v. Gallery Frames and/or Felipe Bordey, Jr., G.R. No. 189871, August 13, 2013, 703
SCRA 439.
Decision 13 G.R. No. 185592
WE CONCUR:
Associate Justice
Chairperson
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.
ANTONIO T. CA
Associate Justice
Chairperson, Second Division
CERTIFICATION