G.R. No. 185592. June 15, 2015.

*
 
GEORGE C. FONG, petitioner, vs. JOSE V. DUEÑAS,
respondent.

Actions; A well-settled rule in procedural law is that the

allegations in the body of the pleading or the complaint, and not its
title, determine the nature of an action.—A well-settled rule in
procedural law is that the allegations in the body of the pleading or the
complaint, and not its title, determine the nature of an action. An
examination of Fong’s complaint shows that although it was labeled
as an action for a sum of money and damages, it was actually a
complaint for rescission. The following allegations in the complaint
support this finding: 9. Notwithstanding the aforesaid remittances,
defendant failed for an unreasonable length of time to submit a
valuation of the equipment of D.C. Danton and Bakcom x x x. 10.
Worse, despite repeated reminders from plaintiff, defendant failed to
accomplish the organization and incorporation of the proposed
holding company, contrary to his representation to promptly do so.
x  x  x  x 17. Considering that the incorporation of the proposed
holding company failed to materialize, despite the lapse of one
year and four months from the time of subscription, plaintiff has
the right to revoke his pre-incorporation subscription. Such
revocation entitles plaintiff to a refund of the amount of
P5,000,000.00 he remitted to defendant, representing advances made
in favor of defendant to be considered as payment on plaintiff’s
subscription to the proposed holding company upon its incorporation,
plus interest from receipt by defendant of said amount until fully paid.
Civil Law; Obligations; Reciprocal Obligations; Rescission; As a
contractual remedy, rescission is available when one of the parties
substantially fails to do what he has obligated himself to perform.—As
a contractual remedy, rescission is available when one of the parties
substantially fails to do what he has obligated himself to perform. It
aims to address the breach of faith and the violation of reciprocity
between two parties in a contract. Under Article 1191 of

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*  SECOND DIVISION.

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the Civil Code, the right of rescission is inherent in reciprocal

obligations, viz.: 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.
Same; Same; Same; Words and Phrases; 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.—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. Fong and Dueñas’ execution of a joint
venture agreement created between them reciprocal obligations that
must be performed in order to fully consummate the contract and
achieve the purpose for which it was entered into. Both parties
verbally agreed to incorporate a company that would hold the shares of
Danton and Bakcom and which, in turn, would be the platform for
their food business. Fong obligated himself to contribute half of the
capital or P32.5 Million in cash. On the other hand, Dueñas bound
himself to shoulder the other half by contributing his Danton and
Bakcom shares, which were allegedly also valued at P32.5 Million.
Aside from this, Dueñas undertook to process Alliance’s incorporation
and registration with the SEC.
Corporations; Authorized Capital Stocks; Under the Corporation
Code, before a stock corporation may be incorporated and registered,
it is required that at least twenty-five percent (25%) of its authorized
capital stock as stated in the articles of incorporation, be first
subscribed at the time of incorporation, and at least 25% of the total
subscription, be paid upon subscription.—Under the Corporation
Code, before a stock corporation may be incorporated and registered, it
is required that at least twenty-five percent (25%) of its authorized
capital stock as stated in the articles of incorporation, be first
subscribed at the time of incorporation, and at least twenty-five percent
(25%) of the total subscription, be paid upon subscription. To prove
compliance with this requirement, the SEC requires the incorporators
to submit a treasurer’s affidavit and a certificate of bank deposit,
showing the existence of an amount compliant with the prescribed
capital subscription. In this light, we conclude that Fong’s cash
contributions play an indispensable part in Alliance’s
incorporation. The process necessarily requires the money

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414 SUPREME COURT REPORTS ANNOTATED

Fong vs. Dueñas

 not only to fund Alliance’s registration with the SEC but also its
initial capital subscription.
Civil Law; Obligations; Reciprocal Obligations; Rescission; After
rescission, the parties must go back to their original status before they
entered into the agreement.—As the Court cannot precisely determine
who between the parties first violated the agreement, we apply the
second part of Article 1192 which states: “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.” In these
lights, the Court holds that the joint venture agreement between Fong
and Dueñas is deemed extinguished through rescission under
Article 1192 in relation with Article 1191 of the Civil Code. Dueñas
must therefore return the P5 Million that Fong initially contributed
since rescission requires mutual restitution. After rescission, the
parties must go back to their original status before they entered
into the agreement. Dueñas cannot keep Fong’s contribution as this
would constitute unjust enrichment. No damages shall be awarded to
any party in accordance with the rule under Article 1192 of the Civil
Code that in case of mutual breach and the first infractor of the
contract cannot exactly be determined, each party shall bear his own
damages.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
  Tan, Acut, Lopez & Pizon for petitioner.
  Pedro N. Tanchuling for respondent.

BRION, J.:
 
We resolve in this petition for review on certiorari1 the
challenge to the September 16, 2008 decision2 and the Decem-

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1  Rollo, pp. 33-67.

2   Penned by Associate Justice Andres B. Reyes, Jr., and concurred in by
Associate Justices Jose C. Mendoza (now a member of this Court) and
Sesinando E. Villon; id., at pp. 69-90.

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Fong vs. Dueñas

ber 8, 2008 resolution3 of the Court of Appeals (CA) in

C.A.-G.R. CV No. 88396.
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. Dueñas (Dueñas) to pay Five Million Pesos
(P5 Million) to petitioner George C. Fong (Fong), and imposed
a six percent (6%) annual interest on this amount.
 
Factual Antecedents
 
Dueñas is engaged in the bakery, food manufacturing, and
retailing business, which are all operated under his two
companies, D.C. DANTON, Inc. (Danton) and Bakcom Food
Industries, Inc. (Bakcom). He was an old acquaintance of Fong
as they were former schoolmates at the De La Salle University.6
Sometime in November 1996, Dueñas and Fong entered into
a verbal joint venture contract where they agreed to engage in
the food business and to incorporate a holding company under
the name Alliance Holdings, Inc. (Alliance or the proposed
corporation). Its capitalization would be Sixty-Five Million
Pesos (P65 Million), to which they would contribute in equal
parts.7
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.

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3  Id., at p. 92.
4  Id., at pp. 239-249.
5  Id., at pp. 255-257.
6  Id., at p. 37.
7  Id., at p. 214.
8  Id., at p. 71.

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416 SUPREME COURT REPORTS ANNOTATED

Fong vs. Dueñas

On November 25, 1996, Fong started remitting in tranches

his share in the proposed corporation’s capital. He made the
remittances under the impression that his contribution would be
applied as his subscription to fifty percent (50%) of Alliance’s
total shareholdings. On the other hand, Dueñas started
processing the Boboli9 international license that they would use
in their food business. Fong’s cash contributions are
summarized below.10
 
 On June 13, 1997, Fong sent a letter to Dueñas informing
him of his decision to limit his total contribution from P32.5
Million to P5 Million. This letter reads:

June 13, 1997

Mr. Jose Dueñas
c/o Camira Industries
Re: Proposed JV in Bakcom, D.C. Danton and Boboli
Dear Jojit,
Enclosed is our check for P919,534.80 representing our additional
advances to subject company in process of incorporation. This will
make our total advances to date amounting to P5 million.

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9   Boboli is an international food enterprise.

10  Rollo, pp. 445-446.

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Fong vs. Dueñas

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.
Together with our business advisers and legal counsel, we came to
a decision to hold our commitment (from advances to investment)
at P5 million only for now from the original plan of P32.5 million,
if this is acceptable to you.
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.
Thank you for your kind understanding and consideration.
With best regards.
(Signed) George Fong11

 
Fong observed that despite his P5 Million contribution,
Dueñas still failed to give him the financial documents on
the valuation of the Danton and Bakcom shares.

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11  Id., at pp. 81-82; emphasis supplied.

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418 SUPREME COURT REPORTS ANNOTATED

Fong vs. Dueñas

Thus, except for Dueñas’ representations, Fong had nothing

to rely on to ensure that these shares were really valued at P32.5
Million. Moreover, Dueñas failed to incorporate and register
Alliance with the Securities and Exchange Commission
(SEC).12
These circumstances convinced Fong that Dueñas would no
longer honor his obligations in their joint venture agreement.13
Thus, on October 30, 1997, Fong wrote Dueñas informing him
of his decision to cancel the joint venture agreement. He also
asked for the refund of the P5 Million that he advanced.14 In
response, Dueñas admitted that he could not immediately
return the money since he used it to defray the business
expenses of Danton and Bakcom.15
To meet Fong’s demand, Dueñas proposed several schemes
for payment of the P5 Million.16 However, Fong did not accept
any of these proposed schemes. On March 25, 1998, Fong
wrote a final letter of demand17 informing Dueñas that he
would file a judicial action against him should he still fail to
pay after receipt of this written demand.
Since Dueñas did not pay, Fong filed a complaint against
him for collection of a sum of money and damages18 on April
24, 1998.
 
The Trial Court’s Ruling
 
In its June 27, 2006 decision, the trial court ruled in favor of
Fong and held that a careful examination of the complaint

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12  Id., at p. 215.
13  Id., at p. 216.
14  Id., at pp. 112-113.
15  Id.
16  Id., at pp. 133-136.
17  Id., at pp. 115-116.
18  Id., at pp. 213-220.

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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.
Since Dueñas was unjustly enriched by Fong’s advance
capital contributions, the trial court ordered him to return the
money amounting to P5 Million and to pay ten percent (10%)
of this amount in attorney’s fees, as well as the cost of the
suit.22
Fong filed a partial motion for reconsideration from the trial
court’s June 27, 2006 decision and asked for the imposition of a
six percent (6%) annual interest, computed from the date of
extrajudicial demand until full payment of the award. The trial
court granted this prayer in its October 30, 2006 order.23

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19  Id., at p. 243.
20  Id., at p. 245.
21  Id.
22  Id., at p. 249.
23  Id., at p. 257.

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420 SUPREME COURT REPORTS ANNOTATED

Fong vs. Dueñas

The CA’s Ruling

 
Dueñas responded to the trial court’s ruling through an
appeal with the CA, which granted the appeal and annulled the
trial court’s ruling.
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
Also, Fong argues that Dueñas’ unjustified retention of the
P5 Million and its appropriation to his (Dueñas’) own business,
amounted to unjust enrichment; and that he contributed

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24  Id., at p. 29.
25  Id., at pp. 29-30.
26  Id., at pp. 452-464.

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Fong vs. Dueñas

to fund Alliance’s capital and incorporation, not to pay for

Danton and Bakcom’s business expenses.27
 
The Case for Dueñas
 
Dueñas contends that he could no longer refund the P5
Million since he had already applied it to his two companies;
that this is proper since Danton and Bakcom’s shares would
also form part of his capital contribution to Alliance.28
 Moreover, the incorporation did not push through because
Fong unilaterally rescinded the joint venture agreement by
limiting his investment from P32.5 Million to P5 Million.29
Thus, it was Fong who first breached the contract, not he.
Consequently, Fong’s failure to comply with his undertaking
disqualified him from seeking the agreement’s rescission.30
 
The Court’s Ruling
 
We resolve to GRANT the petition.
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.
With this as premise, we now address the related issues
raised by the parties.

_______________

27  Id., at p. 465.
28  Id., at p. 477.
29  Id., at p. 489.
30  Id., at p. 490.

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422 SUPREME COURT REPORTS ANNOTATED

Fong vs. Dueñas

The body rather than the title of the complaint determines the
nature of the action.
 
A well-settled rule in procedural law is that the allegations
in the body of the pleading or the complaint, and not its title,
determine the nature of an action.31
An examination of Fong’s complaint shows that although it
was labeled as an action for a sum of money and damages, it
was actually a complaint for rescission. The following
allegations in the complaint support this finding:

9. Notwithstanding the aforesaid remittances, defendant

failed for an unreasonable length of time to submit a valuation of
the equipment of D.C. Danton and Bakcom x x x.
10. Worse, despite repeated reminders from plaintiff, defendant
failed to accomplish the organization and incorporation of the
proposed holding company, contrary to his representation to
promptly do so.
x x x x
17. Considering that the incorporation of the proposed
holding company failed to materialize, despite the lapse of one
year and four months from the time of subscription, plaintiff has
the right to revoke his pre-incorporation subscription. Such
revocation entitles plaintiff to a refund of the amount of
P5,000,000.00 he remitted to defendant, representing advances made
in favor of defendant to be considered as payment on plaintiff’s
subscription to the proposed holding company upon its incorporation,
plus interest from receipt by defendant of said amount until fully paid.
[Emphasis supplied]

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31  Gochan v. Gochan, 423 Phil. 491, 501; 372 SCRA 256, 263-264 (2001).

423

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Fong vs. Dueñas

Fong’s allegations primarily pertained to his cancellation

of their verbal agreement because Dueñas failed to perform
his obligations to provide verifiable documents on the
valuation of the Danton’s and Bakcom’s shares, and to
incorporate the proposed corporation. These allegations
clearly show that what Fong sought was the joint venture
agreement’s rescission.
As a contractual remedy, rescission is available when one of
the parties substantially fails to do what he has obligated
himself to perform.32 It aims to address the breach of faith and
the violation of reciprocity between two parties in a contract.33
Under Article 1191 of the Civil Code, the right of rescission is
inherent in reciprocal obligations, viz.:

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. [Emphasis supplied]

 
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

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32  Tumibay v. Lopez, G.R. No. 171692, June 3, 2013, 697 SCRA 21.
33  Id.
34  582 Phil. 61; 560 SCRA 63 (2008).

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424 SUPREME COURT REPORTS ANNOTATED

Fong vs. Dueñas

to it as though it never was. It is not merely to terminate 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.
 Accordingly, when a decree for rescission is handed down, it is
the duty of the court to require both parties to surrender that
which they have respectively received and to place each other as
far as practicable in his original situation.35 [Emphasis supplied]

 
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.
 
Rescission under Art. 1191 is
applicable in the present case
 
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
Fong and Dueñas’ execution of a joint venture agreement
created between them reciprocal obligations that must be
performed in order to fully consummate the contract and
achieve the purpose for which it was entered into.
Both parties verbally agreed to incorporate a company that
would hold the shares of Danton and Bakcom and which, in
turn, would be the platform for their food business. Fong
obligated himself to contribute half of the capital or P32.5

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35  Id., at pp. 79-80; p. 79.

36   Cortes v. Court of Appeals, 527 Phil. 153, 160; 494 SCRA 570, 576
(2006).

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Fong vs. Dueñas
 Million in cash. On the other hand, Dueñas bound himself to
shoulder the other half by contributing his Danton and Bakcom
shares, which were allegedly also valued at P32.5 Million.
Aside from this, Dueñas undertook to process Alliance’s
incorporation and registration with the SEC.
When the proposed company remained unincorporated by
October 30, 1997, Fong cancelled the joint venture agreement
and demanded the return of his P5 Million contribution.
For his part, Dueñas explained that he could not
immediately return the P5 Million since he had invested it in
his two companies. He found nothing irregular in this as
eventually, the Danton and Bakcom shares would form part of
Alliance’s capital.
Dueñas’ assertion is erroneous.
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,
Enclosed is our check for P919,534.80 representing our additional
advances to subject company in process of incorporation. This will
make our total advances to date amounting to P5 million.37 [Emphasis
supplied]

 
Moreover, under the Corporation Code, before a stock
corporation may be incorporated and registered, it is required
that at least twenty-five percent (25%) of its authorized capital
stock as stated in the articles of incorporation, be first
subscribed at the time of incorporation, and at least twenty-

_______________

37  Rollo, p. 81.

426

426 SUPREME COURT REPORTS ANNOTATED

 Fong vs. Dueñas

five percent (25%) of the total subscription, be paid upon

subscription.38
To prove compliance with this requirement, the SEC
requires the incorporators to submit a treasurer’s affidavit and a
certificate of bank deposit, showing the existence of an amount
compliant with the prescribed capital subscription.39
In this light, we conclude that Fong’s cash contributions
play an indispensable part in Alliance’s incorporation. The
process necessarily requires the money not only to fund
Alliance’s registration with the SEC but also its initial capital
subscription. This is evident in the receipts which Dueñas
himself executed, one of which provides:

I, JOSE V. DUEÑAS, hereby acknowledge the receipt on January

14, 1997 of the amount of One Million Pesos (Php1,000,000.00)
Check No. 118 118 7014 Metro Bank, Pasong Tamo branch dated
January 13, 1997 from Mr. George Fong, which amount shall
constitute an advance of the contribution or investment of Mr.
Fong in the joint venture which he and I are in the process of
organizing. Specifically, this amount will be considered as part of Mr.
Fong’s subscription to the shares of stock of the joint venture company
which we will incorporate to embody and carry out our joint venture.40
[Emphasis supplied]

 
Thus, Dueñas erred when he invested Fong’s contributions
in his two companies. This money should have been used in
processing Alliance’s registration. Its incorporation would not
materialize if there would be no funds for its initial capital.
Moreover, Dueñas represented that Danton and Bakcom’s
shares were valued at P32.5 Million. If this was true, then

_______________

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.
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Fong vs. Dueñas

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.
These acts led to Dueñas’ delay in incorporating the
planned holding company, thus resulting in his breach of
the contract.
On this basis, Dueñas’ breach justified Fong’s rescission of
the joint venture agreement under Article 1191. As the Court
ruled in Velarde v. Court of Appeals:41

The right of rescission of a party to an obligation under Article

1191 of the Civil Code is predicated on a breach of faith by the
other party who violates the reciprocity between them. The breach
contemplated in the said provision is the obligor’s failure to comply
with an existing obligation. When the obligor cannot comply with
what is incumbent upon it, the obligee may seek rescission and in
the absence of any just cause for the court to determine the period of
compliance, the court shall decree the rescission.
In the present case, private respondents validly exercised their
right to rescind the contract, because of the failure of petitioners to
comply with their obligation to pay the balance of the purchase price.
Indubitably, the latter violated the very essence of reciprocity in the
contract of sale, a violation that consequently

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41  413 Phil. 360; 361 SCRA 56 (2001).

 428

428 SUPREME COURT REPORTS ANNOTATED

Fong vs. Dueñas

gave rise to private respondents’ right to rescind the same in

accordance with law.42 [Emphasis supplied]

 
However, the Court notes that Fong also breached his
obligation in the joint venture agreement.
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
significant shareholding when we cannot be hands on and participate
actively as originally planned.43 x x x.

 
Although these reasons appear to be valid, they do not
erase the fact that Fong still reneged on his original promise
to contribute P32.5 Million. The joint venture agreement was
not reduced to writing and the evidence does not show if the
parties agreed on valid causes that would justify the limitation
of the parties’ capital contributions. Their only admission was
that they obligated themselves to contribute P32.5 Million each.
Hence, Fong’s diminution of his capital share to P5
Million also amounted to a substantial breach of the joint
venture agreement, which breach occurred be-
_______________

42  Id., at pp. 373-374; p. 68.

43  Rollo, p. 83.

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fore Fong decided to rescind his agreement with Dueñas.

Thus, Fong also contributed to the non-incorporation of
Alliance that needed P65 Million as capital to operate.
Fong cannot entirely blame Dueñas since the substantial
reduction of his capital contribution also greatly impeded the
implementation of their agreement to engage in the food
business and to incorporate a holding company for it.
As both parties failed to comply with their respective
reciprocal obligations, we apply Article 1192 of the Civil Code,
which provides:

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]

 
Notably, the Court is not aware of the schedule of
performance of the parties’ obligations since the joint venture
agreement was never reduced to writing. The facts, however,
show that both parties began performing their obligations after
executing the joint venture agreement. Fong started remitting
his share while Dueñas started processing the Boboli
international license for the proposed corporation’s food
business.
The absence of a written contract renders the Court unsure
as to whose obligation must be performed first. It is possible
that the parties agreed that Fong would infuse capital first and
Dueñas’ submission of the documents on the Danton and
Bakcom shares would just follow. It could also be the other way
around. Further, the parties could have even agreed to
simultaneously perform their respective obligations.

430

430 SUPREME COURT REPORTS ANNOTATED

Fong vs. Dueñas

Despite these gray areas, the fact that both Fong and
Dueñas substantially contributed to the non-incorporation
of Alliance and to the failure of their food business plans
remains certain.
As the Court cannot precisely determine who between the
parties first violated the agreement, we apply the second part of
Article 1192 which states: “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.”
In these lights, the Court holds that the joint venture
agreement between Fong and Dueñas is deemed extinguished
through rescission under Article 1192 in relation with
Article 1191 of the Civil Code. Dueñas 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. Dueñas cannot keep Fong’s contribution
as this would constitute unjust enrichment.
No damages shall be awarded to any party in accordance
with the rule under Article 1192 of the Civil Code that in case
of mutual breach and the first infractor of the contract cannot
exactly be determined, each party shall bear his own damages.
WHEREFORE, premises considered, we hereby GRANT
the petition and reverse the September 16, 2008 decision and
December 8, 2008 resolution of the Court of Appeals in C.A.-
G.R. CV No. 88396. Respondent Jose V. Dueñas is ordered to
RETURN Five Million Pesos to petitioner George C. Fong.
This amount shall incur an interest of six percent (6%) per
annum from the date of finality of this judgment until fully

_______________
 44   Grace Park Engineering v. Dimaporo, 194 Phil. 253; 107 SCRA 266
(1981).

431

VOL. 757, JUNE 15, 2015 431

Fong vs. Dueñas

paid.45 The parties’ respective claims for damages are

deemed EXTINGUISHED and each of them shall bear his
own damages.
SO ORDERED.

Carpio (Chairperson), Del Castillo, Leonen and

Jardeleza,** JJ., concur.

Petition granted, judgment and resolution reversed.

Notes.—In reciprocal obligations, either party may rescind

the contract upon the other’s substantial breach of the
obligation/s he had assumed thereunder. (Golden Valley
Exploration, Inc. vs. Pinkian Mining Company, Inc., 726 SCRA
259 [2014])
As held in Martinez v. Court of Appeals, 438 SCRA 130
(2004), the mere ownership by a single stockholder of even all
or nearly all of the capital stocks of a corporation is not by itself
a sufficient ground to disregard the separate corporate
personality. (WPM International Trading, Inc. vs. Labayen, 735
SCRA 297 [2014])
——o0o——

_______________

45  Bangko Sentral ng Pilipinas Monetary Board Circular No. 799, Series of

2013, effective July 1, 2013; Nacar v. Gallery Frames, G.R. No. 189871,
August 13, 2013, 703 SCRA 439.
* * Designated as additional member in lieu of Associate Justice Jose Catral
Mendoza, per Raffle dated June 10, 2015.
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