Uniwide Holdings, Inc. vs. Jandecs Transportation Co., Inc.

Rescission under Article 1191 of the Civil Code is available to a party who has fully paid and is ready to comply when the other party fails to deliver on the agreed commencement date, notwithstanding an option to substitute the subject matter; however, where the debtor corporation is under SEC rehabilitation, the action for money claims is suspended and entry of judgment may be held in abeyance.

Uniwide Holdings, Inc. owned and operated the Uniwide Coastal Mall in Parañaque City, while Jandecs Transportation Co., Inc. contracted to operate food and snack stalls therein under an Assignment of Leasehold Rights. The dispute implicated Presidential Decree No. 902-A, as amended, which governs suspension of payments and rehabilitation of corporations under the jurisdiction of the Securities and Exchange Commission.

In January 1997, Uniwide Holdings, Inc. and Jandecs Transportation Co., Inc. entered into a contract of “Assignment of Leasehold Rights” under which Jandecs was to operate food and snack stalls at Uniwide Coastal Mall in Parañaque City. The contract was for a period of 18 years, commencing October 1, 1997 up to September 30, 2015, for a consideration of P2,460,630.15. The parties also agreed that Jandecs’s stalls would be located near the movie houses and would be the only stalls to sell food and beverages in that area.

On February 7, 1997, Jandecs paid the contract price in full. Uniwide, however, failed to turn over the stall units on October 1, 1997 as agreed upon. Jandecs sought the rescission of the contract and the refund of its payment. Uniwide refused both.

On July 23, 1999, Jandecs filed a complaint in the Regional Trial Court, Branch 257 of Parañaque City, for breach of contract, rescission of contract, damages, and issuance of a writ of preliminary attachment. In the complaint, Jandecs claimed that, despite full payment, Uniwide (a) failed to deliver the stall units on the stipulated date; (b) opened its own food and snack stalls near the cinema area; and (c) refused to accommodate its request for the rescission of the contract and the refund of payment. In its answer, Uniwide admitted Jandecs’s full payment of the contract price but denied that it was bound to deliver the stalls on October 1, 1997. According to Uniwide, the contract was clear that it was to turn over the units only upon completion of the mall. It likewise claimed that, under the contract, it had the option to offer substitute stalls to Jandecs, which the latter, however, rejected.

After trial, the RTC found that Uniwide had failed to turn over the units leased to Jandecs, that the 18-year term commenced on October 1, 1997, and that Jandecs had paid the full consideration. It further found that while Jandecs had fully complied with its obligation, Uniwide had not performed its part of the obligation to deliver the two units leased. These findings—no delivery on the agreed commencement date, full payment by Jandecs, and the rejection of the offered substitute stalls—were the factual matters material to the rescission issue.

• Rescission Erroneous: Petitioner insisted that the rescission decreed by the lower courts was erroneous.
• Refund Unwarranted: Petitioner insisted that the order for refund of the P2,460,630.15, with legal interest, to respondent was unwarranted.
• Suspension of Proceedings: Petitioner prayed that the action in this Court be held in abeyance in view of the SEC’s order of suspension of payments and approval of its rehabilitation plan.
• Delivery Not Due on October 1, 1997: Petitioner argued that the contract bound it to turn over the units only upon completion of the mall, and that it had the option to offer substitute stalls, which respondent rejected.

• Rescission: Whether petitioner’s failure to deliver the leased stall units on October 1, 1997 entitled respondent to rescind the Assignment of Leasehold Rights under Article 1191 of the Civil Code.
• Refund: Whether respondent was entitled to the return of the full contract price of P2,460,630.15 with legal interest.
• Effect of Option to Substitute: Whether petitioner’s option to offer substitute stalls precluded respondent’s right to rescind.
• Suspension of Proceedings: Whether the proceedings should be suspended in view of the SEC’s order of suspension of payments and approval of petitioner’s rehabilitation plan.
• Finality and Entry of Judgment: Whether the motion for reconsideration should be denied with finality and entry of judgment held in abeyance pending further orders.

• Rescission: Yes. The right of rescission is implied in reciprocal obligations where one party fails to perform while the other is willing and ready to comply; petitioner’s failure to deliver on October 1, 1997 gave respondent the right to rescind after full payment.
• Refund: Yes. The lower courts’ order for return of P2,460,630.15 plus legal interest stands; the CA deleted only the award of attorney’s fees.
• Effect of Option to Substitute: No. The option to substitute stalls did not prevent rescission; petitioner could not force respondent to accept substitution, and the prior default was not obliterated.
• Suspension of Proceedings: Yes. The motion for suspension was granted, and entry of judgment was held in abeyance until further orders, consistent with PD 902-A and rehabilitation jurisprudence.
• Finality and Entry of Judgment: The motion for reconsideration was denied with finality, but entry of judgment was held in abeyance; petitioner was directed to submit quarterly reports, with treble costs.

• Rescission: Article 1191 provides that the power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between fulfillment and rescission, with damages in either case. The contract was reciprocal: Jandecs paid the full contract price, while Uniwide was obliged to deliver the leased units on October 1, 1997, the commencement date of the 18-year lease. Uniwide failed to deliver. Because Jandecs was willing and ready to comply and had already paid in full, Uniwide’s failure gave Jandecs the right to rescind. The RTC and CA found these facts, and the Supreme Court denied the petition for failure to show reversible error. The refund of P2,460,630.15 with legal interest followed from the valid rescission; the CA correctly deleted the attorney’s fees for lack of basis.

• Refund: The RTC ordered return of P2,460,630.15 plus legal interest and P30,000.00 attorney’s fees. The CA affirmed but deleted attorney’s fees. The Supreme Court denied the petition and later the motion for reconsideration. The refund was the necessary consequence of rescission: since Jandecs paid the full consideration but received no stalls, it was entitled to restitution. No basis was shown to reverse the award.

• Effect of Option to Substitute: Respondent’s right to rescind cannot be prevented by the fact that petitioner had the option to substitute the stalls. Even if petitioner had that option, it did not mean that it could insist on the continuance of the contract by forcing respondent to accept the substitution. Neither did it mean that its previous default had been obliterated completely by the exercise of that option. Thus, the option did not bar rescission.

• Suspension of Proceedings: PD 902-A, as amended, governs suspension of payments for money claims against corporations under rehabilitation. A “claim” refers to debts or demands of pecuniary nature; it is the assertion of rights for the payment of money. BF Homes explained that suspension enables the management committee or rehabilitation receiver to effectively exercise its powers free from judicial or extrajudicial interference that might hinder the rescue of the debtor corporation; allowing actions to continue would burden the receiver. PAL held that all actions for claims against a corporation pending before any court, tribunal or board shall ipso jure be suspended in whatever stage upon appointment by the SEC of a management committee or rehabilitation receiver. Although no cogent reason was found to reverse the August 17, 2005 denial even if proceedings were suspended, and such suspension would not affect the denial of the motion for reconsideration, the Court deferred entry of judgment even after finality and suspended execution until further advice, considering the SEC’s appointment of a receivership committee. Petitioner was directed to make quarterly reports on its ongoing rehabilitation.

• Finality and Entry of Judgment: The motion for reconsideration was denied with finality. However, to avoid departing from BF Homes and PAL, and considering the SEC’s appointment of a receivership committee, entry of judgment was held in abeyance. Execution of the RTC decision, affirmed by the CA and the Court, was suspended until further advice. The Court also noted petitioner’s extreme bad faith, lack of good and honest intentions, and evasive manner in frustrating respondent’s claim for a decade; parties cannot engage in double-dealing schemes to dupe those who transact in good faith. Treble costs were imposed.

• Rescission in Reciprocal Obligations — Under Article 1191 of the Civil Code, the power to rescind obligations is implied in reciprocal ones where one obligor fails to comply with what is incumbent upon him. The injured party may choose fulfillment or rescission, with damages in either case. The right exists where one party fails to perform while the other is willing and ready to comply. Applied: Uniwide failed to deliver the stalls on October 1, 1997 despite Jandecs’s full payment; Jandecs could rescind. The option to substitute stalls did not bar rescission or erase the default.

• Suspension of Actions for Money Claims Against Corporations Under Rehabilitation — Under PD 902-A, as amended, a “claim” refers to debts or demands of pecuniary nature, or the assertion of rights for payment of money. All actions for claims against a corporation pending before any court, tribunal or board shall ipso jure be suspended in whatever stage upon appointment by the SEC of a management committee or rehabilitation receiver. The rationale is to enable the receiver to rescue the debtor free from judicial or extrajudicial interference. Applied: the Court granted suspension and held entry of judgment in abeyance, with quarterly reports.

• Entry of Judgment Held in Abeyance Despite Finality — The Court may defer entry of judgment even after finality and suspend execution to align with the rehabilitation suspension and avoid departing from BF Homes and PAL. Applied: execution of the RTC decision was suspended until further advice.

• Bad Faith in Contractual Dealings — Parties cannot engage in double-dealing schemes to dupe those who transact in good faith. Applied: petitioner’s extreme bad faith and decade-long frustration of respondent’s claim warranted treble costs.

• "The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him." — The Court quotes Article 1191 of the Civil Code as the statutory basis for rescission of reciprocal obligations.
• "From the foregoing, the right of rescission is implied in every reciprocal obligation where one party fails to perform what is incumbent upon him while the other is willing and ready to comply." — This is the Court’s ratio on why Jandecs could rescind after Uniwide failed to deliver despite Jandecs’s full payment.
• "Furthermore, respondent's right to rescind the contract cannot be prevented by the fact that petitioner had the option to substitute the stalls. Even if petitioner had that option, it did not, however, mean that it could insist on the continuance of the contract by forcing respondent to accept the substitution. Neither did it mean that its previous default had been obliterated completely by the exercise of that option." — The passage rejects petitioner’s argument that the substitution option barred rescission.
• "However, so as not to run counter to or depart from the well-established doctrines in BF Homes, Inc. and PAL, and considering further the SEC's appointment of a receivership committee, we will defer the entry of judgment in this case even after this resolution attains finality. In effect, the execution of the RTC decision (which the CA and this Court have affirmed) is suspended until further advice from us." — This states the Court’s disposition on suspension of proceedings and entry of judgment in light of corporate rehabilitation.

• BF Homes, Inc. vs. CA, G.R. Nos. 76879 and 77143, October 3, 1990, 190 SCRA 262 — Cited as the controlling precedent explaining the rationale for suspending actions for claims against a corporation under rehabilitation; the Court relied on it to defer entry of judgment and suspend execution.
• Philippine Air Lines, Incorporated vs. Zamora — Cited for the rule that all actions for claims against a corporation pending before any court, tribunal or board shall ipso jure be suspended in whatever stage upon appointment by the SEC of a management committee or rehabilitation receiver. (Citation not supplied in the text.)
• Sobrejuanite vs. ASB Development Corporation, G.R. No. 165675, September 30, 2005, 471 SCRA 763 — Cited for the definition of “claim” under PD 902-A as debts or demands of pecuniary nature, or the assertion of rights for payment of money.

• Article 1191, Civil Code — Provides that the power to rescind obligations is implied in reciprocal ones where one obligor fails to comply with what is incumbent upon him; the injured party may choose fulfillment or rescission, with damages. Applied to uphold rescission because Uniwide failed to deliver while Jandecs had paid in full and was ready to comply.
• Presidential Decree No. 902-A, as amended, Section 6(c) — The relevant law on suspension of payments for money claims against corporations under rehabilitation; defines “claim” as debts or demands of pecuniary nature. Applied to grant suspension of proceedings and hold entry of judgment in abeyance.
• Rule 45, Rules of Court — The procedural basis for petitioner’s petition for review on certiorari assailing the CA decision. The petition was denied for failure to show reversible error.

Puno, C.J. (Chairperson), Sandoval-Gutierrez, Azcuna, and Leonardo-De Castro, JJ., concur.