Unlad Resources Development Corp. v. Dragon
REITERATIONFacts
The Antecedents: Respondents, as controlling stockholders of Rural Bank of Noveleta, Inc., entered into a Memorandum of Agreement (MOA) with petitioner Unlad Resources Development Corporation (URDC) on December 29, 1981. URDC agreed to invest ₱4,800,000.00 in the bank as additional equity and subscribe to shares. Respondents agreed to transfer control and management of the bank to URDC. Respondents claim they transferred control, but URDC failed to invest the agreed amount and infuse the initial paid-up capital of ₱1,200,000.00. Later, URDC, through its subsidiary Unlad Commodities, Inc., leased a mango plantation from petitioner Helena Z. Benitez, with the bank as lessee and Unlad Commodities as manager. The management contract stipulated 80% of net profits for Unlad Commodities and 20% for the bank, with the bank to turn over permanent improvements to the lessor. Respondents objected to the bank's plan to retire preferred shares, citing a sinking fund and loss of a cheap source of funds. Procedural History: Respondents filed a complaint before the RTC of Makati City for rescission of the MOA, return of control and management, and damages. The RTC ruled for rescission, ordered the return of control to respondents, ordered the bank to return ₱1,003,070.00 to petitioners, appointed a receiver, enjoined the bank from making the retired shares available for subscription, and ordered URDC to pay respondents actual, moral, and exemplary damages, and attorney's fees. The CA affirmed the RTC Decision, dismissing petitioners' appeal. Petitioners' motion for reconsideration was denied. The Petition: Petitioners seek reversal of the CA Decision, arguing that the RTC lacked jurisdiction as the issues were intra-corporate. They also contend the action had prescribed under Article 1389 of the Civil Code. Petitioners claim they complied with their undertaking, but it became impossible due to the bank's insufficient authorized capital stock. They also argue that rescission should not have been ordered without restitution and assail the awards for moral and exemplary damages and attorney's fees for lack of factual and legal basis.
Issue(s)
Whether the Regional Trial Court (RTC) had jurisdiction over the case, considering the alleged intra-corporate nature of the dispute. Whether the action for rescission of the Memorandum of Agreement had prescribed. Whether petitioners failed to comply with their obligations under the Memorandum of Agreement, and if such failure justified rescission. Whether rescission under Article 1191 of the Civil Code requires mutual restitution as provided in Article 1385. Whether the awards for actual compensatory damages, moral damages, exemplary damages, and attorney's fees are justified.
Ruling
The petition is bereft of merit. The assailed Decision and Resolution of the Court of Appeals are affirmed.
Ratio Decidendi
On the issue of jurisdiction: The Supreme Court held that the main issue was the rescission of the Memorandum of Agreement, which is a contractual dispute within the jurisdiction of the RTC, distinct from the issue of receivership based on alleged mismanagement. The Court clarified that while Presidential Decree No. 902-A vested the SEC with jurisdiction over intra-corporate disputes, the RTC's jurisdiction over contractual matters remains. Furthermore, the Court noted that Republic Act No. 8799 transferred jurisdiction over such disputes to the RTC. Therefore, the RTC had jurisdiction over the case, and the argument of lack of jurisdiction was rendered moot by the subsequent law. On the issue of prescription: The Supreme Court ruled that the action for rescission had not prescribed. It distinguished between rescission under Article 1381 (rescissible contracts) which has a four-year prescriptive period under Article 1389, and rescission under Article 1191 (resolution or cancellation of reciprocal obligations), which falls under the ten-year prescriptive period provided by Article 1144 for actions upon a written contract. Since the MOA was a written contract and did not fall under the specific instances of rescissible contracts in Article 1381, Article 1144 was applicable. The complaint was filed within ten years from the accrual of the right of action, which was from the breach of the agreement. On the failure to comply and justification for rescission: The Court found that petitioners failed to fulfill their obligation under the MOA. While petitioners blamed the respondents for the insufficient capital stock, the Court stated that this situation would have given rise to the scenario contemplated by Article 1191, where the injured party may choose between fulfillment and rescission. Respondents chose rescission, which was deemed a proper remedy given petitioners' non-compliance. The Court emphasized that petitioners should have sought fulfillment or rescission themselves instead of simply not performing their part. On mutual restitution: The Supreme Court affirmed that rescission under Article 1191 requires mutual restitution, as provided by Article 1385 of the Civil Code. This means bringing the parties back to their original status quo ante. The Court clarified that rescission "unmakes" a contract from the beginning, requiring the return of what was received under the contract. The RTC's order for the return of control to respondents and the return of ₱1,003,070.00 to petitioners was consistent with this principle. On damages and attorney's fees: The Court found the awards for actual, moral, and exemplary damages, and attorney's fees to be justified. Actual damages were substantiated by testimonial and documentary evidence presented by respondent Dragon. Moral and exemplary damages were based on the findings of the RTC regarding petitioners' mismanagement, diversion of bank assets, and breach of fiduciary duty, which caused undue damage to the bank and its stockholders. The award of attorney's fees was justified by the award of exemplary damages, as provided by Article 2208 of the Civil Code.
Main Doctrine
The rescission of a Memorandum of Agreement is a contractual dispute within the jurisdiction of the Regional Trial Courts, even if the parties are corporate directors. The prescriptive period for an action based on a written contract is ten years under Article 1144 of the Civil Code, not four years under Article 1389, unless the contract falls under the specific instances of rescissible contracts enumerated in Article 1381. Mutual restitution is required in rescission under Article 1191, restoring parties to their original status quo ante. Awards for moral and exemplary damages, and attorney's fees, are justified when supported by evidence of bad faith, breach of fiduciary duty, and demonstrable damages.