Wellex Group Vs U-Land - Case Digest - Oblicon

Topic: Rescission as effect of Fraud against Wellex and for the issuance of a Writ of
Preliminary Attachment. After verification with

Wellex Group vs. U-Land Airlines the Securities and Exchange Commission, U-Land
G.R. No. 167519, January 14, 2015 discovered that "APIC did not own a single share
of stock in APC.
CASE DOCTRINE:
Rescission or resolution under Article 1191 is a RTC ruled In favor of Uland and ordered
principal action that is immediately available to rescission of contract under Art. 1911 of the civil
the party at the time that the reciprocal prestation code. Basis of rescission: Wellex’s
was breached. Mutual restitution is required in misrepresentation that APIC was a majority
cases involving rescission under Article 1191. shareholder of APC that compelled it to enter into
This means bringing the parties back to their the agreement, viz:
original status prior to the inception of the
contract. Determining the existence of fraud is not “Notwithstanding the said remittances, APIC does
necessary in an action for rescission or resolution not own a single share of APC. On the other hand,
under Article 1191. The existence of fraud must defendant could not even satisfactorily substantiate its
be established if the rescission prayed for is the claim that at least it had the intention to cause the
rescission under Article 1381. transfer of APC shares to APIC. Defendant obviously
did not enter into the stipulated SPA because it did
FACTS: not have the shares of APC transferred to APIC
despite its representations. Under the circumstances,
Wellex and U-Land agreed to develop a long- it is clear that defendant fraudulently violated the
term business relationship through the creation of provisions of the MOA.”
joint interest in airline operations and property
development projects in the Philippines. The On appeal, the Court of Appeals affirmed the
agreement includes: I. Acquisition of APIC and ruling of the Regional Trial Court. Hence this
PEC shares; II. Operation and management of petition.
APIC/PEC/APC; III. Entering into and funding a
joint development agreement; and IV. The option Petitioners invokes Suria v. Intermediate Appellate
to acquire from WELLEX shares of stock of Court, which held that an "action for rescission is
EXPRESS SAVINGS BANK ("ESB") up to 40% of not a principal action that is retaliatory in
the outstanding capital stock of ESB of U-Land. character under Article 1191 of the Civil Code,
The provisions of the memorandum were agreed but a subsidiary one which is available only in the
to be executed within 40 days from its execution absence of any other legal remedy under Article
date. 1384 of the Civil Code Respondent U-land avers
that this case was inapplicable because the
The 40-day period lapsed but Wellex and U-Land pertinent provision in Suria was not Article 1191
were not able to enter into any share purchase but rescission under Article 1383 of the Civil
agreement although drafts were exchanged Code. The "rescission" referred to in Article 1191
between the two. However, Despite the absence referred to "resolution" of a contract due to a
of a share purchase agreement, U-Land remitted breach of a mutual obligation, while Article 1384
to Wellex a total of US$7,499,945.00. Wellex spoke of "rescission" because of lesion and
acknowledged the receipt of these remittances in damage. Thus, the rescission that is relevant to
a confirmation letter addressed to U-Land and the present case is that of Article 1191, which
allegedly delivered stock certificates and TCTs of involves breach in a reciprocal obligation. It is, in
subject properties. Despite these transactions, fact, resolution, and not rescission as a result of
Wellex and U-Land still failed to enter into the fraud or lesion, as found in Articles 1381, 1383,
share purchase agreement and the joint and 1384 of the Civil Code.
development agreement. Thus, U-Land filed a
Complaint72 praying for rescission of the First
Memorandum of Agreement and damages
ISSUE: WON respondent U-Land correctly
sought the principal relief of rescission or
resolution under Article 1191.
RULING: Yes. Respondent U-Land is praying for

rescission or resolution under Article 1191, and
not rescission under Article 1381. The failure of
one of the parties to comply with its reciprocal
prestation allows the wronged party to seek the
remedy of Article 1191. The wronged party is
entitled to rescission or resolution under Article
1191, and even the payment of damages. It is a
principal action precisely because it is a violation
of the original reciprocal prestation. Article 1381
and Article 1383, 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.
Rescission 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 1383
mandating that rescission be deemed a subsidiary
action cannot be applicable to rescission or
resolution under Article 1191. Thus, respondent
U-Land correctly sought the principal relief of
rescission or resolution under Article 1191.
The order is valid. Enforcement of Section 9 of the

First Memorandum of Agreement has the same
effect as rescission or resolution under Article
1191 of the Civil Code. The parties are obligated
to return to each other all that they may have
received as a result of the breach by petitioner
Wellex of the reciprocal obligation. Therefore, the
Court of Appeals did not err in affirming the
rescission granted by the trial court.

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Topic: Rescission as effect of Fraud against Wellex and for the issuance of a Writ of

Preliminary Attachment. After verification with

RULING: Yes. Respondent U-Land is praying for

The order is valid. Enforcement of Section 9 of the

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