The Wellex Group, Inc. v. U-Land Airlines Co., Ltd.GR No.
167519, 14 January 2015
FACTS: Wellex and U-Land agreed to develop a long-term business relationship through the creation of joint
interest in airline operations and property development projects in the Philippines. The agreement includes:
Acquisition of APIC and PEC shares; Operation and management of APIC/PEC/APC; Entering into and funding a
joint development agreement; and the option to acquire from WELLEX shares of stock of EXPRESS SAVINGS BANK
("ESB") up to40% of the outstanding capital stock of ESB of U-Land. The provisions of the memorandum were
agreed to be executed within 40 days from its execution date. The 40-day period lapsed but Wellex and U-Land were not
able to enter into any share purchase agreement although drafts were exchanged between the two. However,
despite the absence of a share purchase agreement, U-Land remitted to Wellex a total of US$7,499,945.00.
Wellex acknowledged the receipt of these remittances in a confirmation letter addressed to U-Land and
allegedly delivered stock certificates and TCTs of subject properties. Despite these transactions, Wellex and U-
Land still failed to enter into the share purchase agreement and the joint development agreement. Thus, U-Land filed
a Complaint praying for rescission of the First Memorandum of Agreement and damages against Wellex
and for the issuance of a Writ of Preliminary Attachment. RTC: Ruled In favor of Uland and ordered rescission of contract
under Art. 1911 of the civil code. Basis of rescission: Wellex’s misrepresentation that APIC was a majority
shareholder of APC that compelled it to enter into the agreement. “Notwithstanding the said 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 SPA because it did not have the shares of APC transferred to APIC despite its representations.
Under the circumstances, it is clear that defendant fraudulently violated the provisions of the MOA. ”On appeal,
the Court of Appeals affirmed the ruling of the Regional Trial Court. Hence this petition. Petitioners invokes Suria v.
Intermediate Appellate Court, which held that an "action for rescission is not a principal action that is retaliatory in
character under Article 1191 of the Civil Code, but a subsidiary one which is available only in the absence of any other
legal remedy under Article 1384 of the Civil Code. Respondent U-land avers that this case was inapplicable because
the pertinent provision in Suria was not Article 1191 but rescission under Article 1383 of the Civil Code. The
"rescission" referred to in Article 1191 referred to "resolution" of a contract due to a breach of a mutual obligation,
while Article 1384 spoke of "rescission" because of lesion and damage. Thus, the rescission that is relevant to the
present case is that of Article 1191, which involves breach in a reciprocal obligation.
ISSUE: Whether or not respondent U-Land correctly sought the principal relief of rescission or resolution under
Article 1191.
HELD: YES
RATIO: 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. Article1381 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 1383mandating 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.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. Contrary to petitioner Wellex’s argument, this is not rescission under Article 1381 of the
Civil Code. This case does not involve prejudicial transactions affecting guardians, absentees, or fraud of creditors.
Article1381(3) 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. There is no allegation of fraud for purposes of evading obligations to other creditors. The actions of the
parties involving the terms of the First Memorandum of Agreement do not fall under any of the
enumerated contracts that may be subject of rescission. Furthermore, in the rescission by reason of lesion or economic
prejudice, the cause of action is subordinated to the existence of that prejudice, because it is the raison deter as
well as the measure of the right to rescind. Hence, where the defendant makes good the damages caused,
the action cannot be maintained or continued, as expressly provided in Articles 1383 and1384. But the
operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code
of the Philippines, and does not apply to cases under Article 1191.The 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 expand their respective airline operations in the Philippines and
other neighboring countries
