Wellex V U-Land

SECOND DIVISION
[G.R. No. 167519. January 14, 2015]
THE WELLEX GROUP, INC. , petitioner, vs. U-LAND AIRLINES,

CO., LTD., respondent.
DECISION
LEONEN, J : p
This is a Petition 1 for Review on Certiorari under Rule 45 of the Rules

of Court. The Wellex Group, Inc. (Wellex) prays that the Decision 2 dated July
30, 2004 of the Court of Appeals in CA-G.R. CV No. 74850 be reversed and
set aside. 3
The Court of Appeals affirmed the Decision 4 of the Regional Trial
Court, Branch 62 of Makati City in Civil Case No. 99-1407. The Regional Trial
Court rendered judgment in favor of U-Land Airlines, Co., Ltd. (U-Land) and
ordered the rescission of the Memorandum of Agreement 5 between Wellex
and U-Land. 6
Wellex is a corporation established under Philippine law and it
maintains airline operations in the Philippines. 7 It owns shares of stock in
several corporations including Air Philippines International Corporation
(APIC), Philippine Estates Corporation (PEC), and Express Savings Bank
(ESB). 8 Wellex alleges that it owns all shares of stock of Air Philippines
Corporation (APC). 9
U-Land Airlines Co. Ltd. (U-Land) "is a corporation duly organized and
existing under the laws of Taiwan, registered to do business . . . in the
Philippines." 10 It is engaged in the business of air transportation in Taiwan
and in other Asian countries. 11
On May 16, 1998, Wellex and U-Land entered into a Memorandum of
Agreement 12 (First Memorandum of Agreement) to expand their respective
airline operations in Asia. 13
Terms of the First Memorandum of Agreement
The preambular clauses of the First Memorandum of Agreement state:
WHEREAS, U-LAND is engaged in the business of airline
transportation in Taiwan, Philippines and/or in other countries in the
Asian region, and desires to expand its operation and increase its
market share by, among others, pursuing a long-term involvement in
the growing Philippine airline industry;
WHEREAS, WELLEX, on the other hand, has current airline
operation in the Philippines through its majority-owned subsidiary Air
Philippines International Corporation and the latter's subsidiary, Air
Philippines Corporation, and in like manner also desires to expand its
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operation in the Asian regional markets, a Memorandum of
Agreement on ______, a certified copy of which is attached hereto as
Annex "A" and is hereby made an integral part hereof, which sets
forth, among others, the basis for WELLEX's present ownership of
shares in Air Philippines International Corporation.
WHEREAS, the parties recognize the opportunity to develop a
long-term profitable relationship by combining such of their
respective resources in an expanded airline operation as well as in
property development and in other allied business activities in the
Philippines, and desire to set forth herein the basic premises and their
understanding with respect to their joint cooperation and
undertakings. 14
In the First Memorandum of Agreement, 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. 15 This long-term business relationship would be implemented
through the following transactions, stated in Section 1 of the First
Memorandum of Agreement:
(a) U-LAND shall acquire from WELLEX, shares of stock of AIR
PHILIPPINES INTERNATIONAL CORPORATION ("APIC") equivalent to at
least 35% of the outstanding capital stock of APIC, but in any case,
not less than 1,050,000,000 shares . . . [;]
(b) U-LAND shall acquire from WELLEX, shares of stock of
PHILIPPINE ESTATES CORPORATION ("PEC") equivalent to at least
35% of the outstanding capital stock of PEC, but in any case, not less
than 490,000,000 shares . . . [;]
(c) U-LAND shall enter into a joint development agreement with
PEC . . . [; and]
(d) U-LAND shall be given the option to acquire from WELLEX
shares of stock of EXPRESS SAVINGS BANK ("ESB") up to 40% of the
outstanding capital stock of ESB . . . under terms to be mutually
agreed. 16
I. Acquisition of APIC and PEC shares
The First Memorandum of Agreement stated that within 40 days from
its execution date, Wellex and U-Land would execute a share purchase
agreement covering U-Land's acquisition of the shares of stock of both APIC
(APIC shares) and PEC (PEC shares). 17 In this share purchase agreement, U-
Land would purchase from Wellex its APIC shares and PEC shares. 18
Wellex and U-Land agreed to an initial purchase price of P0.30 per
share of APIC and P0.65 per share of PEC. However, they likewise agreed
that the final price of the shares of stock would be reflected in the actual
share purchase agreement. 19
Both parties agreed that the purchase price of APIC shares and PEC
shares would be paid upon the execution of the share purchase agreement
and Wellex's delivery of the stock certificates covering the shares of stock.
The transfer of APIC shares and PEC shares to U-Land was conditioned on the
full remittance of the final purchase price as reflected in the share purchase
agreement. Further, the transfer was conditioned on the approval of the
Securities and Exchange Commission of the issuance of the shares of stock
and the approval by the Taiwanese government of U-Land's acquisition of
these shares of stock. 20
Thus, Section 2 of the First Memorandum of Agreement reads:
2. Acquisition of APIC and PEC Shares. — Within forty (40) days
from date hereof (unless extended by mutual agreement), U-LAND
and WELLEX shall execute a Share Purchase Agreement ("SHPA")
covering the acquisition by U-LAND of the APIC Shares and PEC
Shares (collectively, the "Subject Shares"). Without prejudice to any
subsequent agreement between the parties, the purchase price for
the APIC Shares to be reflected in the SHPA shall be THIRTY
CENTAVOS (P0.30) per share and that for the PEC Shares at SIXTY
FIVE CENTAVOS (P0.65) per share.
The purchase price for the Subject Shares as reflected in the
SHPA shall be paid in full upon execution of the SHPA against delivery
of the Subject Shares. The parties may agree on such other terms and
conditions governing the acquisition of the Subject Shares to be
provided in a separate instrument.
The transfer of the Subject Shares shall be effected to U-LAND
provided that: (i) the purchase price reflected in the SHPA has been
fully paid; (ii) the Philippine Securities & Exchange Commission (SEC)
shall have approved the issuance of the Subject Shares; and (iii) any
required approval by the Taiwanese government of the acquisition by
U-LAND of the Subject Shares shall likewise have been obtained. 21
II. Operation and management of APIC/PEC/APC
U-Land was "entitled to a proportionate representation in the Board of
Directors of APIC and PEC in accordance with Philippine law." 22 Operational
control of APIC and APC would be exercised jointly by Wellex and U-Land "on
the basis of mutual agreement and consultations." 23 The parties intended
that U-Land would gain primary control and responsibility for the
international operations of APC. 24 Wellex manifested that APC is a
subsidiary of APIC in the second preambular clause of the First Memorandum
of Agreement. 25
Section 3 of the First Memorandum of Agreement reads:
3. Operation/Management of APIC/APC. — U-LAND shall be
entitled to a proportionate representation in the Board of Directors of
APIC and PEC in accordance with Philippine law. For this purpose,
WELLEX shall cause the resignation of its nominated Directors in APIC
and PEC to accommodate U-LAND's pro rata number of Directors.
Subject to applicable Philippine law and regulations, operational
control of APIC and Air Philippines Corporation ("APC") shall be lodged
jointly to WELLEX and U-LAND on the basis of mutual agreement and
consultations. Further, U-LAND may second technical and other
consultants into APIC and/or APC with the view to increasing service,
productivity and efficiency, identifying and implementing profit-
service opportunities, developing technical capability and resources,
and installing adequate safety systems and procedures. In addition,
U-LAND shall arrange for the lease by APC of at least three (3)
aircrafts owned by U-LAND under such terms as the parties shall
mutually agree upon. It is the intent of the parties that U-LAND shall
have primary control and responsibility for APC's international
operations. 26
III. Entering into and funding a joint development agreement
Wellex and U-Land also agreed to enter into a joint development
agreement simultaneous with the execution of the share purchase
agreement. The joint development agreement shall cover housing and other
real estate development projects. 27
U-Land agreed to remit the sum of US$3 million not later than May 22,
1998. This sum was to serve as initial funding for the development projects
that Wellex and U-Land were to undertake pursuant to the joint development
agreement. In exchange for the US$3 million, Wellex would deliver stock
certificates covering 57,000,000 PEC shares to U-Land. 28
The execution of a joint development agreement was also conditioned
on the execution of a share purchase agreement. 29
4. Joint Development Agreement with PEC. — Simultaneous with
the execution of the SHPA, U-LAND and PEC shall execute a joint
development agreement ("JDA") to pursue property development
projects in the Philippines. The JDA shall cover specific housing and
other real estate development projects as the parties shall agree. All
profits derived from the projects covered by the JDA shall be shared
equally between U-LAND and PEC. U-LAND shall, not later than May
22, 1998, remit the sum of US$3.0 million as initial funding for the
aforesaid development projects against delivery by WELLEX of
57,000,000 shares of PEC as security for said amount in accordance
with Section 9 below. 30
In case of conflict between the provisions of the First Memorandum of
Agreement and the provisions of the share purchase agreement or its
implementing agreements, the terms of the First Memorandum of
Agreement would prevail, unless the parties specifically stated otherwise or
the context of any agreement between the parties would reveal a different
intent. 31 Thus, in Section 6 of the First Memorandum of Agreement:
6. Primacy of Agreement. — It is agreed that in case of conflict
between the provisions of this Agreement and those of the SHPA and
the implementing agreements of the SHPA, the provisions of this
Agreement shall prevail, unless the parties specifically state
otherwise, or the context clearly reveal a contrary intent. 32
Finally, Wellex and U-Land agreed that if they were unable to agree on
the terms of the share purchase agreement and the joint development
agreement within 40 days from signing, then the First Memorandum of
Agreement would cease to be effective. 33
In case no agreements were executed, the parties would be released
from their respective undertakings, except that Wellex would be required to
refund within three (3) days the US$3 million given as initial funding by U-
Land for the development projects. If Wellex was unable to refund the US$3
million to U-Land, U-Land would have the right to recover on the 57,000,000
PEC shares that would be delivered to it. 34 Section 9 of the First
Memorandum of Agreement reads:
9. Validity. — In the event the parties are unable to agree on
the terms of the SHPA and/or the JDA within forty (40) days from date
hereof (or such period as the parties shall mutually agree), this
Memorandum of Agreement shall cease to be effective and the
parties released from their respective undertakings herein, except
that WELLEX shall refund the US$3.0 million provided under Section 4
within three (3) days therefrom, otherwise U-LAND shall have the
right to recover on the 57,000,000 PEC shares delivered to U-LAND
under Section 4. 35
The First Memorandum of Agreement was signed by Wellex Chairman
and President William T. Gatchalian (Mr. Gatchalian) and U-Land Chairman
Ker Gee Wang (Mr. Wang) on May 16, 1998. 36
Annex "A" or the Second Memorandum of Agreement
Attached and made an integral part of the First Memorandum of
Agreement was Annex "A," as stated in the second preambular clause. It is a
document denoted as a "Memorandum of Agreement" entered into by
Wellex, APIC, and APC. 37
The Second Memorandum of Agreement states:
This Memorandum of Agreement, made and executed this ___th
day of _________ at Makati City, by and between:
THE WELLEX GROUP, INC., a corporation duly
organized and existing under the laws of the Philippines,
with offices at 22F Citibank Tower, 8741 Paseo de Roxas,
Makati City (hereinafter referred to as "TWGI"),
AIR PHILIPPINES INTERNATIONAL CORPORATION
(formerly FORUM PACIFIC, INC.), likewise a corporation
duly organized and existing under the laws of the
Philippines, with offices at 8F Rufino Towers, Ayala
Avenue, Makati City (hereinafter referred to as "APIC"),
- and -
AIR PHILIPPINES CORPORATION, corporation duly
organized and existing under the laws of the Philippines,
with offices at Multinational Building, Ayala Avenue,
Makati City (hereinafter referred to as "APC").
WITNESSETH: That —
WHEREAS, TWGI is the registered and beneficial owner, or has
otherwise acquired _____ (illegible in rollo) rights to the entire issued
and outstanding capital stock (the "APC SHARES") of AIR PHILIPPINES
CORPORATION ("APC") and has made stockholder advances to APC for
the (illegible in rollo) of aircraft, equipment and for working capital
used in the latter's operations (the "_______ (illegible in rollo)
ADVANCES").
WHEREAS, APIC desires to obtain full ownership and control of
APC, including all of ______ (illegible in rollo) assets, franchise,
goodwill and operations, and for this purpose has offered to acquire
the ____ (illegible in rollo) SHARES of TWGI in APC, including the APC
ADVANCES due to TWGI from APC, with _____ (illegible in rollo) of
acquiring all the assets, franchise, goodwill and operations of APC;
and TWGI has ______ (illegible in rollo) to the same in consideration of
the conveyance by APIC to TWGI of certain investments, ____ (illegible
in rollo) issuance of TWGI of shares of stock of APIC in exchange for
said APC SHARES and the _____ (illegible in rollo) ADVANCES, as more
particularly described hereunder.
NOW, THEREFORE, the parties agree as follows:
1. TWGI agrees to transfer the APC ADVANCES in APIC in
exchange for the ______ (illegible in rollo) by APIC to TWGI of
investment shares of APIC in Express Bank, PetroChemical _____
(illegible in rollo) of Asia Pacific, Republic Resources & Development
Corporation and Philippine _______ (illegible in rollo) Corporation (the
"APIC INVESTMENTS").
2. TWGI likewise agrees to transfer the APC SHARES to APIC in
exchange solely ____ (illegible in rollo) the issuance by APIC of One
Billion Seven Hundred Ninety Seven Million Eight Hundred Fifty Seven
Thousand Three Hundred Sixty Four (1,797,857,364) shares of its
capital stock of a _____ (illegible in rollo) value of P1.00 per share (the
"APIC SHARES"), taken from the currently authorized but ____
(illegible in rollo) shares of the capital stock of APIC, as well as from
the increase in the authorized capital ____ (illegible in rollo) of APIC
from P2.0 billion to P3.5 billion.
3. It is the basic understanding of the parties hereto that the
transfer of the APC ____ (illegible in rollo) as well as the APC
ADVANCES to APIC shall be intended to enable APIC to obtain ____
(illegible in rollo) and control of APC, including all of APC's assets,
franchise, goodwill and ____ (illegible in rollo).
4. Unless the parties agree otherwise, the effectivity of this
Agreement and transfers _____ (illegible in rollo) APC ADVANCES in
exchange for the APIC INVESTMENTS, and the transfer of the ____
(illegible in rollo) SHARES in exchange for the issuance of new APIC
SHARES, shall be subject to _____ (illegible in rollo) due diligence as
the parties shall see fit, and the condition subsequent that the _____
(illegible in rollo) for increase in the authorized capital stock of the
APIC from P2.0 billion to P3.5 _____ (illegible in rollo) shall have been
approved by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties have caused these presents
to be signed on the date _____ (illegible in rollo) first above written. 38
(Emphasis supplied)
This Second Memorandum of Agreement was allegedly incorporated
into the First Memorandum of Agreement as a "disclosure to [U-Land] [that] .
. . [Wellex] was still in the process of acquiring and consolidating its title to
shares of stock of APIC." 39 It "included the terms of a share swap whereby
[Wellex] agreed to transfer to APIC its shareholdings and advances to APC in
exchange for the issuance by APIC of shares of stock to [Wellex]." 40
The Second Memorandum of Agreement was signed by Mr. Gatchalian,
APIC President Salud, 41 and APC President Augustus C. Paiso. 42 It was not
dated, and no place was indicated as the place of signing. 43 It was not
notarized either, and no other witnesses signed the document. 44
The 40-day period lapsed on June 25, 1998. 45 Wellex and U-Land were
not able to enter into any share purchase agreement although drafts were
exchanged between the two.
Despite the absence of a share purchase agreement, U-Land remitted
to Wellex a total of US$7,499,945.00. 46 These were made in varying
amounts and through the issuance of post-dated checks. 47 The dates of
remittances were the following:
Date Amount (in US$)
June 30, 1998 990,000.00

July 2, 1998 990,000.00
20,000.00
July 30, 1998 990,000.00
490,000.00
490,000.00
August 1, 1998 990,000.00
490,000.00
490,000.00
August 3, 1998 990,000.00
70,000.00
September 25, 1998 399,972.50
99,972.50
––––––––––––––
Total US$7,499,945.00 48
============
Wellex acknowledged the receipt of these remittances in a

confirmation letter addressed to U-Land dated September 30, 1998. 49
According to Wellex, the parties agreed to enter into a security
arrangement. If the sale of the shares of stock failed to push through, the
partial payments or remittances U-Land made were to be secured by these
shares of stock and parcels of land. 50 This meant that U-Land could recover
the amount it paid to Wellex by selling these shares of stock and land titles
or using them to generate income.
Thus, after the receipt of US$7,499,945.00, Wellex delivered to U-Land
stock certificates representing 60,770,000 PEC shares and 72,601,000 APIC
shares. 51 These were delivered to U-Land on July 1, 1998, September 1,
1998, and October 1, 1998. 52
In addition, Wellex delivered to U-Land Transfer Certificates of Title
(TCT) Nos. T-216769, T-216771, T-228231, T-228227, T-211250, and T-
216775 covering properties owned by Westland Pacific Properties
Corporation in Bulacan; and TCT Nos. T-107306, T-115667, T-105910, T-
120250, T-1114398, and T-120772 covering properties owned by Rexlon
Realty Group, Inc. 53 On October 1, 1998, 54 U-Land received a letter from
Wellex, indicating a list of stock certificates that the latter was giving to the
former by way of "security." 55
Despite these transactions, Wellex and U-Land still failed to enter into
the share purchase agreement and the joint development agreement.
In the letter 56 dated July 22, 1999, 10 months 57 after the last formal
communication between the two parties, U-Land, through counsel,
demanded the return of the US$7,499,945.00. 58 This letter was sent 14
months after the signing of the First Memorandum of Agreement.
Counsel for U-Land claimed that "[Wellex] ha[d] unjustifiably refused to
enter into the. . . Share Purchase Agreement." 59 As far as U-Land was
concerned, the First Memorandum of Agreement was no longer in effect,
pursuant to Section 9. 60 As such, U-Land offered to return all the stock
certificates covering APIC shares and PEC shares as well as the titles to real
property given by Wellex as security for the amount remitted by U-Land. 61
Wellex sent U-Land a letter 62 dated August 2, 1999, which refuted U-
Land's claims. Counsel for Wellex stated that the two parties carried out
several negotiations that included finalizing the terms of the share purchase
agreement and the terms of the joint development agreement. Wellex
asserted that under the joint development agreement, U-Land agreed to
remit the sum of US$3 million by May 22, 1998 as initial funding for the
development projects. 63
Wellex further asserted that it conducted extended discussions with U-
Land in the hope of arriving at the final terms of the agreement despite the
failure of the remittance of the US$3 million on May 22, 1998. 64 That
remittance pursuant to the joint development agreement "would have
demonstrated [U-Land's] good faith in finalizing the agreements." 65
Wellex averred that, "[s]ave for a few items, [Wellex and U-Land]
virtually agreed on the terms of both [the share purchase agreement and
the joint development agreement.]" 66 Wellex believed that the parties had
already "gone beyond the 'intent' stage of the [First Memorandum of
Agreement] and [had already] effected partial implementation of an over-all
agreement." 67 U-Land even delivered a total of 12 post-dated checks to
Wellex as payment for the APIC shares and PEC shares. 68 "[Wellex] on the
other hand, had [already] delivered to [U-Land] certificates of stock of APEC
[sic] and PEC as well as various land titles to cover actual remittances."69
Wellex alleged that the agreements were not finalized because U-Land was
"forced to suspend operations because of financial problems spawned by the
regional economic turmoil." 70
Thus, Wellex maintained that "the inability of the parties to execute
the [share purchase agreement] and the [joint development agreement]
principally arose from problems at [U-Land's] side, and not due to [Wellex's]
'unjustified refusal to enter into [the] [share purchase agreement] [.]'" 71
On July 30, 1999, U-Land filed a Complaint 72 praying for rescission of
the First Memorandum of Agreement and damages against Wellex and for
the issuance of a Writ of Preliminary Attachment. 73 From U-Land's point of
view, its primary reason for purchasing APIC shares from Wellex was APIC's
majority ownership of shares of stock in APC (APC shares). 74 After
verification with the Securities and Exchange Commission, U-Land
discovered that "APIC did not own a single share of stock in APC." 75 U-Land
alleged that it repeatedly requested that the parties enter into the share
purchase agreement. 76 U-Land attached the demand letter dated July 22,
1999 to the Complaint. 77 However, the 40-day period lapsed, and no share
purchase agreement was finalized. 78
U-Land alleged that, as of the date of filing of the Complaint, Wellex
still refused to return the amount of US$7,499,945.00 while refusing to enter
into the share purchase agreement. 79 U-Land stated that it was induced by
Wellex to enter into and execute the First Memorandum of Agreement, as
well as release the amount of US$7,499,945.00. 80
In its Answer with Compulsory Counterclaim, 81 Wellex countered that
U-Land had no cause of action. 82 Wellex maintained that under the First
Memorandum of Agreement, the parties agreed to enter into a share
purchase agreement and a joint development agreement. 83 Wellex alleged
that to bring the share purchase agreement to fruition, it would have to
acquire the corresponding shares in APIC. 84 It claimed that U-Land was fully
aware that the former "still ha[d] to consolidate its title over these shares."
85 This was the reason for Wellex's attachment of the Second Memorandum
of Agreement to the First Memorandum of Agreement. Wellex attached the

Second Memorandum of Agreement as evidence to refute U-Land's claim of
misrepresentation. 86
Wellex further alleged that U-Land breached the First Memorandum of
Agreement since the payment for the shares was to begin during the 40-day
period, which began on May 16, 1998. 87 In addition, U-Land failed to remit
the US$3 million by May 22, 1998 that would serve as initial funding for the
development projects. 88 Wellex claimed that the remittance of the US$3
million on May 22, 1998 was a mandatory obligation on the part of U-Land.
89
Wellex averred that it presented draft versions of the share purchase

agreement, which were never finalized. 90 Thus, it believed that there was
an implied extension of the 40-day period within which to enter into the
share purchase agreement and the joint development agreement since U-
Land began remitting sums of money in partial payment for the purchase of
the shares of stock. 91
In its counterclaim against U-Land, Wellex alleged that it had already
set in motion building and development of real estate projects on four (4)
major sites in Cavite, Iloilo, and Davao. It started initial construction on the
basis of its agreement with U-Land to pursue real estate development
projects. 92
Wellex claims that, had the development projects pushed through, the
parties would have shared equally in the profits of these projects. 93 These
projects would have yielded an income of P2,404,948,000.00, as per the
study Wellex conducted, which was duly recognized by U-Land. 94 Half of
that amount, P1,202,474,000.00, would have redounded to Wellex. 95
Wellex, thus, prayed for the rescission of the First Memorandum of
Agreement and the payment of P1,202,474,000 in damages for loss of profit.
96 It prayed for the payment of moral damages, exemplary damages,
attorney's fees, and costs of suit. 97

In its Reply, 98 U-Land denied that there was an extension of the 40-
day period within which to enter into the share purchase agreement and the
joint development agreement. It also denied requesting for an extension of
the 40-day period. It further raised that there was no provision in the First
Memorandum of Agreement that required it to remit payments for Wellex's
shares of stock in APIC and PEC within the 40-day period. Rather, the
remittances were supposed to begin upon the execution of the share
purchase agreement. 99
As for the remittance of the US$3 million, U-Land stated that the
issuance of this amount on May 22, 1998 was supposed to be
simultaneously made with Wellex's delivery of the stock certificates for
57,000,000 PEC shares. These stock certificates were not delivered on that
date. 100
With regard to the drafting of the share purchase agreement, U-Land
denied that it was Wellex that presented versions of the agreement. U-Land
averred that it was its own counsel who drafted versions of the share
purchase agreement and the joint development agreement, which Wellex
refused to sign. 101
U-Land specifically denied that it had any knowledge prior to or during
the execution of the First Memorandum of Agreement that Wellex still had to
"consolidate its title over" its shares in APIC. U-Land averred that it relied on
Wellex's representation that it was a majority owner of APIC shares and that
APIC owned a majority of APC shares. 102
Moreover, U-Land denied any knowledge of the initial steps that Wellex
undertook to pursue the development projects and denied any awareness of
a study conducted by Wellex regarding the potential profit of these projects.
103
The case proceeded to trial.

U-Land presented Mr. David Tseng (Mr. Tseng), its President and Chief
Executive Officer, as its sole witness. 104 Mr. Tseng testified that "
[s]ometime in 1997, Mr. William Gatchalian who was in Taiwan invited [U-
Land] to join in the operation of his airline company[.]" 105 U-Land did not
accept the offer at that time. 106 During the first quarter of 1998, Mr.
Gatchalian "went to Taiwan and invited [U-Land] to invest in Air
Philippines[.]" 107 This time, U-Land alleged that subsequent meetings were
held where Mr. Gatchalian, representing Wellex, "claimed ownership of a
majority of the shares of APIC and ownership by APIC of a majority of the
shares of [APC,] a domestic carrier in the Philippines." 108 Wellex, through
Mr. Gatchalian, offered to sell to U-Land PEC shares as well. 109

According to Mr. Tseng, the parties agreed to enter into the First
Memorandum of Agreement after their second meeting. 110 Mr. Tseng
testified that under this memorandum of agreement, the parties would enter
into a share purchase agreement "within forty (40) days from its execution
which [would] put into effect the sale of the shares [of stock] of APIC and
PEC[.]" 111 However, the "[s]hare [p]urchase [a]greement was not executed
within the forty-day period despite the draft . . . given [by U-Land to
Wellex]." 112
Mr. Tseng further testified that it was only after the lapse of the 40-day
period that U-Land discovered that Wellex needed money for the transfer of
APC shares to APIC. This allegedly shocked U-Land since under the First
Memorandum of Agreement, APIC was supposed to own a majority of APC
shares. Thus, U-Land remitted to Wellex a total of US$7,499,945.00 because
of its intent to become involved in the aviation business in the Philippines.
These remittances were confirmed by Wellex through a confirmation letter.
Despite the remittance of this amount, no share purchase agreement was
entered into by the parties. 113
Wellex presented its sole witness, Ms. Elvira Ting (Ms. Ting), Vice
President of Wellex. She admitted her knowledge of the First Memorandum
of Agreement as she was involved in its drafting. She testified that the First
Memorandum of Agreement made reference, under its second preambular
clause, to the Second Memorandum of Agreement entered into by Wellex,
APIC, and APC. She testified that under the First Memorandum of Agreement,
U-Land's purchase of APIC shares and PEC shares from Wellex would take
place within 40 days, with the execution of a share purchase agreement. 114
According to Ms. Ting, after the 40-day period lapsed, U-Land Chairman
Mr. Wang requested sometime in June of 1998 for an extension for the
execution of the share purchase agreement and the remittance of the US$3
million. As proof that Mr. Wang made this request, Ms. Ting testified that Mr.
Wang sent several post-dated checks to cover the payment of the APIC
shares and PEC shares and the initial funding of US$3 million for the joint
development agreement. She testified that Mr. Wang presented a draft of
the share purchase agreement, which Wellex rejected. Wellex drafted a new
version of the share purchase agreement. 115 However, the share purchase
agreement was not executed because during the period of negotiation,
Wellex learned from other sources that U-Land "encountered difficulties
starting October of 1998." 116 Ms. Ting admitted that U-Land made the
remittances to Wellex in the amount of US$7,499,945.00. 117
Ms. Ting testified that U-Land was supposed to make an initial payment
of US$19 million under the First Memorandum of Agreement. However, U-
Land only paid US$7,499,945.00. The total payments should have amounted
to US$41 million. 118
Finally, Ms. Ting testified that Wellex tried to contact U-Land to have a
meeting to thresh out the problems of the First Memorandum of Agreement,
but U-Land did not reply. Instead, Wellex only received communication from
U-Land regarding their subsequent negotiations through the latter's demand
letter dated July 22, 1999. In response, Wellex wrote to U-Land requesting
another meeting to discuss the demands. However, U-Land already filed the
Complaint for rescission and caused the attachment against the properties of
Wellex, causing embarrassment to Wellex. 119
In the Decision dated April 10, 2001, the Regional Trial Court of Makati
City held that rescission of the First Memorandum of Agreement was proper:
The first issue must be resolved in the negative. Preponderance
of evidence leans in favor of plaintiff that it is entitled to the issuance
of the writ of preliminary attachment. Plaintiff's evidence establishes
the facts that it is engaged in the airline business in Taiwan, was
approached by defendant, through its Chairman William Gatchalian,
and was invited by the latter to invest in an airline business in the
Philippines, Air Philippines Corporation (APC); that plaintiff became
interested in the invitation of defendant; that during the negotiations
between plaintiff and defendant, defendant induced plaintiff to buy
shares in Air Philippines International Corporation (APIC) since it owns
majority of the shares of APC; that defendant also induced plaintiff to
buy shares of APIC in Philippine Estates Corporation (PEC); that the
negotiations between plaintiff and defendant culminated into the
parties executing a MOA (Exhs. "C" to "C-3", also Exh. "1"); that in the
second "Whereas" clause of the MOA, defendant represented that it
has a current airline operation through its majority-owned subsidiary
APIC, that under the MOA, the parties were supposed to enter into a
Share Purchase Agreement (SPA) within forty (40) days from May 16,
1998, the date the MOA in order to effect the transfer of APIC and PEC
shares of defendant to plaintiff; that plaintiff learned from defendant
that APIC does not actually own a single share in APC; that plaintiff
verified with the Securities and Exchange Commission (SEC), by
obtaining a General Information Sheet therefrom (Exh. "C-
Attachment"); that APIC does not in fact own APC; that defendant
induced plaintiff to still remit its investment to defendant, which
plaintiff did as admitted by defendant per its Confirmation Letter
(Exh. "D") in order that APC shares could be transferred to APIC; that
plaintiff remitted a total of US$7,499,945.00 to defendant; and that
during the forty-day period stipulated in the MOA and even after the
lapse of the said period, defendant has not entered into the SPA, nor
has defendant caused the transfer of APC shares to APIC.
In the second "Whereas" clause of the MOA (Exh. "C"),
defendant's misrepresentation that APIC owns APC is made clear, as
follows:
"WHEREAS, WELLEX, on the other hand, has current
airline operation in the Philippines through its majority-
owned subsidiary Air Philippines International Corporation
(Exh. "C") and the latter's subsidiary, Air Philippines
Corporation, and in like manner also desires to expand its
operation in the Asian regional markets; . . ." (Second
Whereas of Exh. "C")
On the other hand, defendant's evidence failed to disprove
plaintiff's evidence. The testimony of defendant's sole witness Elvira
Ting, that plaintiff knew at the time of the signing of the MOA that
APIC does not own a majority of the shares of APC because another
Memorandum of Agreement was attached to the MOA (Exh. "1")
pertaining to the purchase of APC shares by APIC is unavailing. The
second "Whereas" clause of the MOA leaves no room for
interpretation. . . . The second MOA purportedly attached as Annex
"A" of this MOA merely enlightens the parties on the manner by which
APIC acquired the shares of APC. Besides, . . . the second MOA was
not a certified copy and did not contain a marking that it is an Annex
"A" when it was supposed to be an Annex "A" and a certified copy per
the MOA between plaintiff and defendant. As can be also gathered
from her testimony, Ms. Ting does not have personal knowledge that
plaintiff was not informed that APIC did not own shares of APC during
the negotiations as she was not present during the negotiations
between plaintiff and defendant's William Gatchalian. Her
participation in the agreement between the parties [was] merely
limited to the preparation of the documents to be signed. Ms. Ting
testified, as follows:
"Q During the negotiation, you did not know anything about that?"
A I was not involved in the negotiation, sir.
Q And you are just making your statement that U-Land knew about the
intended transfer of shares from APC to APIC because of this
WHEREAS CLAUSE and the Annex to this Memorandum of
Agreement?
A Yes, it was part of the contract."
(TSN, Elvira Ting, June 6, 2000, pp. 8-10)
Defendant's fraud in the performance of its obligation under the
MOA is further revealed when Ms. Ting testified on cross-examination
that notwithstanding the remittances made by plaintiff in the total
amountn [sic] of US$7,499,945.00 to partially defray the cost of
transferring APC shares to APIC even as of the year 2000, as follows:
"Q Ms. Ting, can you please tell the Court if you know who owns shares
of Air Philippines Corporation at this time?
A Air Philippines Corporation right now is own [sic] by Wellex Group
and certain individual.
Q How much shares of Air Philippines Corporation is owned by Wellex
Group?
A Around twenty . . . at this moment around twenty five percent (25%).
Q Can you tell us if you know who are the other owners of the shares of
Air Philippines?
A There are several individual owners, I cannot recall the names.
Q Could [sic] you know if Air Philippines Int'l. Corporation is one of the
owners?
A As of this moment, no sir."
(Ibid. , p. 16)
That defendant represented to plaintiff that it needed the
remittances of plaintiff, even if no SPA was executed yet between the
parties, to effect the transfer of APC shares to APIC is admitted by its
same witness also in this wise:
"Q You said that remittances were made to the Wellex Group,
Incorporated by plaintiff for the period from June 1998 to
September 1998[,] is that correct?
A Yes, Sir.
Q During all these times, that remittances were made in the total
amount of more than seven million dollars, did you ever know if
plaintiff asked for evidence from your company that AIR
PHILIPPINES INTERNATIONAL CORPORATION has already acquired
shares of AIR PHILIPPINES CORPORATION?
A There were queries on the matter.
Q And what was your answer to those queries, Madam Witness?
A We informed them that the decision was still in the process.
Q Even up to the time that plaintiff U-Land stopped the remittances
sometime in September 1998 you have not effected the transfer
of shares of AIR PHILIPPINES CORPORATION to AIR PHILIPPINES
INTERNATIONCAL [sic] CORPORATION[,] am I correct?
A APC to APIC, well at that time it's still in the process.
Q In fact, Madam Witness, is it not correct for me to say that one of the
reasons why U-Land Incorporated was convinced to remit the
amounts of money totalling seven million dollars plus, was that
your company said that it needed funds to effect these transfers,
is that correct?
A Yes, sir."
(Ibid. , pp. 25-29)
As the evidence adduced by the parties stand, plaintiff has
established the fact that it had made remittances in the total amount
of US$7,499,945.00 to defendant in order that defendant will make
good its representation that APC is a subsidiary of APIC. The said
remittances are admitted by defendant.
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 . [D]efendant 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. 120 (Emphasis supplied)
On appeal, the Court of Appeals affirmed the ruling of the Regional
Trial Court. 121 In its July 30, 2004 Decision, the Court of Appeals held that
the Regional Trial Court did not err in granting the rescission:
Records show that in the answer filed by defendant-appellant,
the latter itself asked for the rescission of the MOA. Thus, in effect, it
prays for the return of what has been given or paid under the MOA, as
the law creates said obligation to return the things which were the
object of the contract, and the same could be carried out only when
he who demands rescission can return whatever he may be obliged
to restore. The law says:
"Rescission creates the obligation to return the
things which were the object of the contract, together
with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be
obliged to restore."
Appellant, therefore, cannot ask for rescission of the MOA and
yet refuse to return what has been paid to it. Further, appellant's
claim that the lower court erred in ruling for the rescission of the MOA
is absurd and ridiculous because rescission thereof is prayed for by
the former. . . .
This Court agrees with the lower court that appellee is the
injured party in this case, and therefore is entitled to rescission,
because the rescission referred to here is predicated on the breach of
faith by the appellant which breach is violative of the reciprocity
between the parties. It is noted that appellee has partly complied
with its own obligation, while the appellant has not. It is, therefore,
the right of the injured party to ask for rescission because the guilty
party cannot ask for rescission.
The lower court . . . correctly ruled that:
". . . This Court agrees with plaintiff that
defendant's misrepresentations regarding APIC's not
owning shares in APC vitiates its consent to the MOA.
Defendant's continued misrepresentation that it will
cause the transfer of APC shares in APIC inducing plaintiff
to remit money despite the lapse of the stipulated forty
day period, further establishes plaintiff's right to have the
MOA rescinded.
Section 9 of the MOA itself provides that in the
event of the non-execution of an SPA within the 40 day
period, or within the extensions thereof, the payments
made by plaintiff shall be returned to it, to wit:
"9 Validity. — In the event that the parties are
unable to agree on the terms of the SHPA and/or JDA
within forty (40) days from the date hereof (or such
period as the parties shall mutually agree), this
Memorandum of Agreement shall cease to be effective
and the parties released from their respective
undertakings herein, except that WELLEX shall refund the
US$3.0 million under Section 4 within three (3) days
therefrom, otherwise U-LAND shall have the right to
recover the 57,000,000 PEC shares delivered to U-LAND
under Section 4."
Clearly, the parties were not able to agree on the terms of the
SPA within and even after the lapse of the stipulated 40 day period.
There being no SPA entered into by and between the plaintiff and
defendant, defendant's return of the remittances [of] plaintiff in the
total amount of US$7,499,945 is only proper, in the same vein,
plaintiff should return to defendant the titles and certificates of stock
given to it by defendant. 122 (Citations omitted)
Hence, this Petition was filed.
Petitioner's Arguments
Petitioner Wellex argues that contrary to the finding of the Court of
Appeals, respondent U-Land was not entitled to rescission because the latter
itself violated the First Memorandum of Agreement. Petitioner Wellex states
that respondent U-Land was actually bound to pay US$17.5 million for all of
APIC shares and PEC shares under the First Memorandum of Agreement and
the US$3 million to pursue the development projects under the joint
development agreement. In sum, respondent U-Land was liable to petitioner
Wellex for the total amount of US$20.5 million. Neither the Court of Appeals
nor the Regional Trial Court made any mention of the legal effect of
respondent U-Land's failure to pay the full purchase price. 123
On the share purchase agreement, petitioner Wellex asserts that its
obligation to deliver the totality of the shares of stock would become
demandable only upon remittance of the full purchase price of US$17.5
million. 124 The full remittance of the purchase price of the shares of stock
was a suspensive condition for the execution of the share purchase
agreement and delivery of the shares of stock. Petitioner Wellex argues that
the use of the term "upon" in Section 2 of the First Memorandum of
Agreement clearly provides that the full payment of the purchase price must
be given "simultaneously" or "concurrent" with the execution of the share
purchase agreement. 125
Petitioner Wellex raises that the Court of Appeals erred in saying that
the rescission of the First Memorandum of Agreement was proper because
petitioner Wellex itself asked for this in its Answer before the trial court. 126
It asserts that "there can be no rescission of a non-existent obligation, such
as [one] whose suspensive condition has not yet happened[,]" 127 as held in
Padilla v. Spouses Paredes . 128 Citing Villaflor v. Court of Appeals 129 and
Spouses Agustin v. Court of Appeals, 130 it argues that "the vendor. . . has no
obligation to deliver the thing sold. . . if the buyer. . . fails to fully pay the
price as required by the contract." 131 In this case, petitioner Wellex
maintains that respondent U-Land's remittance of US$7,499,945.00
constituted mere partial performance of a reciprocal obligation. 132 Thus,
respondent U-Land was not entitled to rescission. The nature of this
reciprocal obligation requires both parties' simultaneous fulfillment of the
totality of their reciprocal obligations and not only partial performance on
the part of the allegedly injured party.
As to the finding of misrepresentations, petitioner Wellex raises that a
seller may sell a thing not yet belonging to him at the time of the
transaction, provided that he will become the owner at the time of delivery
so that he can transfer ownership to the buyer. Contrary to the finding of the
lower courts, petitioner Wellex was obliged to be the owner of the shares
only when the time came to deliver these to respondent U-Land and not
during the perfection of the contract itself. 133
Finally, petitioner Wellex argues that respondent U-Land could have
recovered through the securities given to the latter. 134 Petitioner Wellex
invokes Suria v. Intermediate Appellate Court, 135 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]." 136
Respondent's Arguments
Respondent U-Land argues that it was the execution of the share
purchase agreement that would result in its purchase of the APIC shares and
PEC shares. 137 It was not the full remittance of the purchase price of the
shares of stock as indicated in the First Memorandum of Agreement, as
alleged by petitioner Wellex. 138 Respondent U-Land asserts that the First
Memorandum of Agreement provides that the exact number of APIC shares
and PEC shares to be purchased under the share purchase agreement and
the final price of these shares were not yet determined by the parties. 139
Respondent U-Land reiterates that it was petitioner Wellex that
requested for the remittances amounting to US$7,499,945.00 to facilitate
APIC's purchase of APC shares. 140 Thus, it was petitioner Wellex's refusal to
enter into the share purchase agreement that led to respondent U-Land
demanding rescission of the First Memorandum of Agreement and the return
of the US$7,499,945.00. 141 Respondent U-Land further argues before this
court that petitioner Wellex failed to present evidence as to how the money
was spent, stating that Ms. Ting admitted that the Second Memorandum of
Agreement "was not consummated at any time." 142
Respondent U-Land raises that petitioner Wellex was guilty of fraud by
making it appear that APC was a subsidiary of APIC. 143 It reiterates that, as
an airline company, its primary reason for entering into the First
Memorandum of Agreement was to acquire management of APC, another
airline company. 144 Under Article 1191 of the Civil Code, respondent U-
Land, as the injured party, was entitled to rescission due to the fatal
misrepresentations committed by petitioner Wellex. 145
Respondent U-Land further asserts that the "shareholdings in APIC and
APC were never in question." 146 Rather, it was petitioner Wellex's
misrepresentation that APIC was a majority shareholder of APC that
compelled it to enter into the agreement. 147
As for Suria, 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. 148 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. 149 Thus, the rescission that is relevant to the present case is that
of Article 1191, which involves breach in a reciprocal obligation. It is, in fact,
resolution, and not rescission as a result of fraud or lesion, as found in
Articles 1381, 1383, and 1384 of the Civil Code. 150
The Issue
The question presented in this case is whether the Court of Appeals
erred in affirming the Decision of the Regional Trial Court that granted the
rescission of the First Memorandum of Agreement prayed for by U-Land.
The Petition must be denied.
I
The requirement of a share
purchase agreement
The Civil Code provisions on the interpretation of contracts are
controlling to this case, particularly Article 1370, which reads:
ART. 1370. If the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.
If the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former.
I n Norton Resources and Development Corporation v. All Asia Bank
Corporation: 151
The cardinal rule in the interpretation of contracts is embodied
in the first paragraph of Article 1370 of the Civil Code: "[i]f the terms
of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall
control." This provision is akin to the "plain meaning rule" applied by
Pennsylvania courts, which assumes that the intent of the parties to
an instrument is "embodied in the writing itself, and when the words
are clear and unambiguous the intent is to be discovered only from
the express language of the agreement." It also resembles the "four
corners" rule, a principle which allows courts in some cases to search
beneath the semantic surface for clues to meaning. A court's purpose
in examining a contract is to interpret the intent of the contracting
parties, as objectively manifested by them. The process of
interpreting a contract requires the court to make a preliminary
inquiry as to whether the contract before it is ambiguous. A contract
provision is ambiguous if it is susceptible of two reasonable
alternative interpretations. Where the written terms of the contract
are not ambiguous and can only be read one way, the court will
interpret the contract as a matter of law. If the contract is determined
to be ambiguous, then the interpretation of the contract is left to the
court, to resolve the ambiguity in the light of the intrinsic evidence.
152 (Emphasis supplied)
As held in Norton, this court must first determine whether a provision

or stipulation contained in a contract is ambiguous. Absent any ambiguity,
the provision on its face will be read as it is written and treated as the
binding law of the parties to the contract.
The parties have differing interpretations of the terms of the First
Memorandum of Agreement. Petitioner Wellex even admits that "the facts of
the case are fairly undisputed [and that] [i]t is only the parties' respective
[understanding] of these facts that are not in harmony." 153
The second preambular clause of the First Memorandum of Agreement
reads:
WHEREAS, WELLEX, on the other hand, has current airline
operation in the Philippines through its majority-owned subsidiary Air
Philippines International Corporation and the latter's subsidiary, Air
Philippines Corporation, and in like manner also desires to expand its
operation in the Asian regional markets; a Memorandum of
Agreement on ________, a certified copy of which is attached hereto as
Annex "A" and is hereby made an integral part hereof, which sets
forth, among others, the basis for WELLEX's present ownership of
shares in Air Philippines International Corporation. 154 (Emphasis
supplied)
I. Basic Agreement. — The parties agree to develop a long-term
business relationship initially through the creation of joint interest in
airline operations as well as in property development projects in the
Philippines to be implemented as follows:
(a) U-LAND shall acquire from WELLEX, shares of stock of AIR
PHILIPPINES INTERNATIONAL CORPORATION ("APIC") equivalent to at
least 35% of the outstanding capital stock of APIC, but in any case,
not less than 1,050,000,000 shares (the "APIC Shares").
(b) U-LAND shall acquire from WELLEX, shares of stock of
PHILIPPINE ESTATES CORPORATION ("PEC") equivalent to at least
35% of the outstanding capital stock of PEC, but in any case, not less
than 490,000,000 shares (the "PEC Shares").
(c) U-LAND shall enter into a joint development agreement with
PEC to jointly pursue property development projects in the
Philippines.
(d) U-LAND shall be given the option to acquire from WELLEX
shares of stock of EXPRESS SAVINGS BANK ("ESB") up to 40% of the
outstanding capital stock of ESB (the "ESB Shares") under terms to
be mutually agreed. 155
The First Memorandum of Agreement contained the following
stipulations regarding the share purchase agreement:
2. Acquisition of APIC and PEC Shares. — Within forty (40) days
from date hereof (unless extended by mutual agreement), U-LAND
and WELLEX shall execute a Share Purchase Agreement ("SHPA")
covering the acquisition by U-LAND of the APIC Shares and PEC
Shares (collectively, the "Subject Shares"). Without prejudice to any
subsequent agreement between the parties, the purchase price for
the APIC Shares to be reflected in the SHPA shall be THIRTY
CENTAVOS (P0.30) per share and that for the PEC Shares at SIXTY
FIVE CENTAVOS (P0.65) per share.
The purchase price for the Subject Shares as reflected in the
SHPA shall be paid in full upon execution of the SHPA against delivery
of the Subject Shares . The parties may agree on such other terms and
conditions governing the acquisition of the Subject Shares to be
provided in a separate instrument.
The transfer of the Subject Shares shall be effected to U-LAND
provided that: (i) the purchase price reflected in the SHPA has been
fully paid; (ii) the Philippine Securities & Exchange Commission (SEC)
shall have approved the issuance of the Subject Shares; and (iii) any
required approval by the Taiwanese government of the acquisition by
U-LAND of the Subject Shares shall likewise have been obtained . 156
(Emphasis supplied)
As for the joint development agreement, the First Memorandum of
Agreement contained the following stipulation:
4. Joint Development Agreement with PEC. — Simultaneous with
the execution of the SHPA, U-LAND and PEC shall execute a joint
development agreement ("JDA") to pursue property development
projects in the Philippines. The JDA shall cover specific housing and
other real estate development projects as the parties shall agree. All
profits derived from the projects covered by the JDA shall be shared
equally between U-LAND and PEC. U-LAND shall, not later than May
22, 1998, remit the sum of US$3.0 million as initial funding for the
aforesaid development projects against delivery by WELLEX of
57,000,000 shares of PEC as security for said amount in accordance
with Section 9 below. 157 (Emphasis provided)
Finally, the parties included the following stipulation in case of a failure
to agree on the terms of the share purchase agreement or the joint
development agreement:
9. Validity. — In the event the parties are unable to agree on
the terms of the SHPA and/or the JDA within forty (40) days from date
hereof (or such period as the parties shall mutually agree), this
Memorandum of Agreement shall cease to be effective and the
parties released from their respective undertakings herein, except
that WELLEX shall refund the US$3.0 million provided under Section 4
within three (3) days therefrom, otherwise U-LAND shall have the
right to recover on the 57,000,000 PEC shares delivered to U-LAND
under Section 4. 158
Section 2 of the First Memorandum of Agreement clearly provides that
the execution of a share purchase agreement containing mutually agreeable
terms and conditions must first be accomplished by the parties before
respondent U-Land purchases any of the shares owned by petitioner Wellex.
A perusal of the stipulation on its face allows for no other interpretation.
The need for a share purchase agreement to be entered into before
payment of the full purchase price can further be discerned from the other
stipulations of the First Memorandum of Agreement.
In Section 1, the parties agreed to enter into a joint business venture,
through entering into two (2) agreements: a share purchase agreement and
a joint development agreement. However, Section 1 provides that in the
share purchase agreement, "U-LAND shall acquire from WELLEX, shares of
stock of AIR PHILIPPINES INTERNATIONAL CORPORATION ('APIC') equivalent
to at least 35% of the outstanding capital stock of APIC, but in any case, not
less than 1,050,000,000 shares (the 'APIC Shares')." 159
As for the PEC shares, Section 1 provides that respondent U-Land shall
purchase from petitioner Wellex "shares of stock of PHILIPPINE ESTATES
CORPORATION ('PEC') equivalent to at least 35% of the outstanding capital
stock of PEC, but in any case, not less than 490,000,000 shares (the 'PEC
Shares')." 160
The use of the terms "at least 35% of the outstanding capital stock of
APIC, but in any case, not less than 1,050,000,000 shares" and "at least 35%
of the outstanding capital stock of PEC, but in any case, not less than
490,000,000 shares" means that the parties had yet to agree on the number
of shares of stock to be purchased.
The need to execute a share purchase agreement before payment of
the purchase price of the shares is further shown by the clause, "[w]ithout
prejudice to any subsequent agreement between the parties, the purchase
price for the APIC Shares to be reflected in the [share purchase agreement]
shall be. . . P0.30 per share and that for the PEC Shares at. . . P0.65 per
share." 161 This phrase clearly shows that the final price of the shares of
stock was to be reflected in the share purchase agreement. There being no
share purchase agreement executed, respondent U-Land was under no
obligation to begin payment or remittance of the purchase price of the
shares of stock.
Petitioner Wellex argues that the use of "upon" in Section 2 162 of the
First Memorandum of Agreement means that respondent U-Land must pay
the purchase price of the shares of stock in its entirety when they are
transferred. This argument has no merit.
Article 1373 of the Civil Code provides:
ART. 1373. If some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is most
adequate to render it effectual.
It is necessary for the parties to first agree on the final purchase price
and the number of shares of stock to be purchased before respondent U-
Land is obligated to pay or remit the entirety of the purchase price. Thus,
petitioner Wellex's argument cannot be sustained since the parties to the
First Memorandum of Agreement were clearly unable to agree on all the
terms concerning the share purchase agreement. It would be absurd for
petitioner Wellex to expect payment when respondent U-Land did not yet
agree to the final amount to be paid for the totality of an indeterminate
number of shares of stock.
The third paragraph of Section 2 163 provides that the "transfer of the
Subject Shares" shall take place upon the fulfillment of certain conditions,
such as full payment of the purchase price "as reflected in the [share
purchase agreement]." The transfer of the shares of stock is different from
the execution of the share purchase agreement. The transfer of the shares
of stock requires full payment of the final purchase price. However, that final
purchase price must be reflected in the share purchase agreement. The
execution of the share purchase agreement will require the existence of a
final agreement.
In its Answer with counterclaim before the trial court, petitioner Wellex
argued that the payment of the shares of stock was to begin within the 40-
day period. Petitioner Wellex's claim is not in any of the stipulations of the
contract. Its subsequent claim that respondent U-Land was actually required
to remit a total of US$20.5 million is likewise bereft of basis since there was
no final purchase price of the shares of stock that was agreed upon, due to
the failure of the parties to execute a share purchase agreement. In addition,
the parties had yet to agree on the final number of APIC shares and PEC
shares that respondent U-Land would acquire from petitioner Wellex.
Therefore, the understanding of the parties captured in the First
Memorandum of Agreement was to continue their negotiation to determine
the price and number of the shares to be purchased. Had it been otherwise,
the specific number or percentage of shares and its price should already
have been provided clearly and unambiguously. Thus, they agreed to a 40-
day period of negotiation.
Section 9 of the First Memorandum of Agreement explicitly provides
that:
In the event the parties are unable to agree on the terms of the
SHPA and/or the JDA within forty (40) days from date hereof (or such
period as the parties shall mutually agree), this Memorandum of
Agreement shall cease to be effective and the parties released from
their respective undertakings herein . . . 164
The First Memorandum of Agreement was, thus, an agreement to enter
into a share purchase agreement. The share purchase agreement should
have been executed by the parties within 40 days from May 16, 1998, the
date of the signing of the First Memorandum of Agreement.
When the 40-day period provided for in Section 9 lapsed, the efficacy
of the First Memorandum of Agreement ceased. The parties were "released
from their respective undertakings." Thus, from June 25, 1998, the date
when the 40-day period lapsed, the parties were no longer obliged to
negotiate with each other in order to enter into a share purchase agreement.
However, Section 9 provides for another period within which the
parties could still be required to negotiate. The clause "or such period as the
parties shall mutually agree" means that the parties should agree on a
period within which to continue negotiations for the execution of an
agreement. This means that after the 40-day period, the parties were still
allowed to negotiate, provided that they could mutually agree on a new
period of negotiation.
Based on the records and the findings of the lower courts, the parties
were never able to arrive at a specific period within which they would bind
themselves to enter into an agreement. There being no other period
specified, the parties were no longer under any obligation to negotiate and
enter into a share purchase agreement. Section 9 clearly freed them from
this undertaking.
II
There was no express or implied
novation of the First Memorandum
of Agreement
The subsequent acts of the parties after the 40-day period were,
therefore, independent of the First Memorandum of Agreement.
In its Appellant's Brief before the Court of Appeals, petitioner Wellex
mentioned that there was an "implied partial objective or real novation" 165
of the First Memorandum of Agreement. Petitioner did not raise this
argument of novation before this court. In Gayos v. Gayos, 166 this court held
that "it is a cherished rule of procedure that a court should always strive to
settle the entire controversy in a single proceeding leaving no root or branch
to bear the seeds of future litigation[.]" 167
Articles 1291 and 1292 of the Civil Code provides how obligations may
be modified:
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
Article 1292. In order that an obligation may be
extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point
incompatible with each other.
In Arco Pulp and Paper Co. v. Lim, 168 this court discussed the concept
of novation:
Novation extinguishes an obligation between two parties when
there is a substitution of objects or debtors or when there is
subrogation of the creditor. It occurs only when the new contract
declares so "in unequivocal terms" or that "the old and the new
obligations be on every point incompatible with each other."
xxx xxx xxx
For novation to take place, the following requisites
must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new
contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
Novation may also be express or implied. It is
express when the new obligation declares in unequivocal
terms that the old obligation is extinguished. It is implied
when the new obligation is incompatible with the old one
on every point. The test of incompatibility is whether the
two obligations can stand together, each one with its own
independent existence. (Emphasis from the original
omitted)

Because novation requires that it be clear and unequivocal, it is
never presumed, thus:
In the civil law setting, novatio is literally construed
as to make new. So it is deeply rooted in the Roman Law
jurisprudence, the principle — novatio non praesumitur —
that novation is never presumed. At bottom, for novation
to be a jural reality, its animus must be ever present,
debitum pro debito — basically extinguishing the old
obligation for the new one. 169 (Emphasis from the
original omitted, citations omitted)
Applying Arco, it is clear that there was no novation of the original
obligation.
After the 40-day period, the parties did not enter into any subsequent
written agreement that was couched in unequivocal terms. The transaction
of the First Memorandum of Agreement involved large amounts of money
from both parties. The parties sought to participate in the air travel industry,
which has always been highly regulated and subject to the strictest
commercial scrutiny. Both parties admitted that their counsels participated
in the crafting and execution of the First Memorandum of Agreement as well
as in the efforts to enter into the share purchase agreement. Any
subsequent agreement would be expected to be clearly agreed upon with
their counsels' assistance and in writing, as well.
Given these circumstances, there was no express novation.
There was also no implied novation of the original obligation. InQuinto
v. People: 170
[N]o specific form is required for an implied novation, and all
that is prescribed by law would be an incompatibility between the two
contracts. While there is really no hard and fast rule to determine
what might constitute to be a sufficient change that can bring about
novation, the touchstone for contrariety, however, would be an
irreconcilable incompatibility between the old and the new
obligations.
xxx xxx xxx
. . . The test of incompatibility is whether or not the two
obligations can stand together, each one having its independent
existence. If they cannot, they are incompatible and the latter
obligation novates the first. Corollarily, changes that breed
incompatibility must be essential in nature and not merely accidental.
The incompatibility must take place in any of the essential elements
of the obligation, such as its object, cause or principal conditions
thereof; otherwise, the change would be merely modificatory in
nature and insufficient to extinguish the original obligation. 171
(Citations omitted)
There was no incompatibility between the original terms of the First
Memorandum of Agreement and the remittances made by respondent U-
Land for the shares of stock. These remittances were actually made with the
view that both parties would subsequently enter into a share purchase
agreement. It is clear that there was no subsequent agreement inconsistent
with the provisions of the First Memorandum of Agreement.
Thus, no implied novation took place. In previous cases, 172 this court
has consistently ruled that presumed novation or implied novation is not
deemed favorable. In United Pulp and Paper Co., Inc. v. Acropolis Central
Guaranty Corporation: 173
Neither can novation be presumed in this case. As explained in
Duñgo v. Lopena:
"Novation by presumption has never been favored.
To be sustained, it need be established that the old and
new contracts are incompatible in all points, or that the
will to novate appears by express agreement of the
parties or in acts of similar import." 174 (Emphasis
supplied)
There being no novation of the First Memorandum of Agreement,
respondent U-Land is entitled to the return of the amount it remitted to
petitioner Wellex. Petitioner Wellex is likewise entitled to the return of the
certificates of shares of stock and titles of land it delivered to respondent U-
Land. This is simply an enforcement of Section 9 of the First Memorandum of
Agreement. Pursuant to Section 9, only the execution of a final share
purchase agreement within either of the periods contemplated by this
stipulation will justify the parties' retention of what they received or would
receive from each other.
III
Applying Article 1185 of the Civil
Code, the parties are obligated to
return to each other all they have
received
Article 1185 of the Civil Code provides that:
ART. 1185. The condition that some event will not happen at a
determinate time shall render the obligation effective from the
moment the time indicated has elapsed, or if it has become evident
that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at
such time as may have probably been contemplated, bearing in mind
the nature of the obligation.
Article 1185 provides that if an obligation is conditioned on the non-
occurrence of a particular event at a determinate time, that obligation arises
(a) at the lapse of the indicated time, or (b) if it has become evident that the
event cannot occur.
Petitioner Wellex and respondent U-Land bound themselves to
negotiate with each other within a 40-day period to enter into a share
purchase agreement. If no share purchase agreement was entered into, both
parties would be freed from their respective undertakings.
It is the non-occurrence or non-execution of the share purchase
agreement that would give rise to the obligation to both parties to free each
other from their respective undertakings. This includes returning to each
other all that they received in pursuit of entering into the share purchase
agreement.
At the lapse of the 40-day period, the parties failed to enter into a
share purchase agreement. This lapse is the first circumstance provided for
in Article 1185 that gives rise to the obligation. Applying Article 1185, the
parties were then obligated to return to each other all that they had received
in order to be freed from their respective undertakings.
However, the parties continued their negotiations after the lapse of the
40-day period. They made subsequent transactions with the intention to
enter into the share purchase agreement. Despite that, they still failed to
enter into a share purchase agreement. Communication between the parties
ceased, and no further transactions took place.
It became evident that, once again, the parties would not enter into the
share purchase agreement. This is the second circumstance provided for in
Article 1185. Thus, the obligation to free each other from their respective
undertakings remained.
As such, petitioner Wellex is obligated to return the remittances made
by respondent U-Land, in the same way that respondent U-Land is obligated
to return the certificates of shares of stock and the land titles to petitioner
Wellex.
IV
Respondent U-Land is praying for
rescission or resolution under
Article 1191, and not rescission
under Article 1381
The arguments of the parties generally rest on the propriety of the
rescission of the First Memorandum of Agreement. This requires a
clarification of rescission under Article 1191, and rescission under Article
1381 of the Civil Code.
Article 1191 of the Civil Code provides:
ART. 1191. 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 the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.

Articles 1380 and 1381, on the other hand, provide an enumeration of
rescissible contracts:
ART. 1380. Contracts validly agreed upon may be rescinded in the
cases established by law.
ART. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in
any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission.
Article 1383 expressly provides for the subsidiary nature of rescission:
ART. 1383. The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other legal
means to obtain reparation for the same.
Rescission itself, however, is defined by Article 1385:
ART. 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and
the price with its interest; consequently, it can be carried out only
when he who demands rescission can return whatever he may be
obliged to restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss.
Gotesco Properties v. Fajardo 175 categorically stated that Article 1385
is applicable to Article 1191:
At this juncture, it is noteworthy to point out that rescission
does not merely terminate the contract and release the parties from
further obligations to each other, but abrogates the contract from its
inception and restores the parties to their original positions as if no
contract has been made. Consequently, mutual restitution, which
entails the return of the benefits that each party may have received
as a result of the contract, is thus required. To be sure, it has been
settled that the effects of rescission as provided for in Article 1385 of
the Code are equally applicable to cases under Article 1191, to wit:
xxx xxx xxx
Mutual restitution is required in cases involving
rescission under Article 1191. This means bringing the parties
back to their original status prior to the inception of the contract.
Article 1385 of the Civil Code provides, thus:
ART. 1385. Rescission creates the obligation to
return the things which were the object of the
contract, together with their fruits, and the price
with its interest; consequently, it can be carried
out only when he who demands rescission can
return whatever he may be obligated to restore.
Neither shall rescission take place when the things
which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be
demanded from the person causing the loss.
This Court has consistently ruled that this provision applies to
rescission under Article 1191:
[S]ince Article 1385 of the Civil Code expressly and clearly
states that "rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and
the price with its interest," the Court finds no justification to sustain
petitioners' position that said Article 1385 does not apply to rescission
under Article 1191. . . . 176 (Emphasis from the original, citations
omitted)
Rescission, as defined by Article 1385, mandates that the parties must
return to each other everything that they may have received as a result of
the contract. This pertains to rescission or resolution under Article 1191, as
well as the provisions governing all forms of rescissible contracts.
For Article 1191 to be applicable, however, there must be reciprocal
prestations as distinguished from mutual obligations between or among the
parties. A prestation is the object of an obligation, and it is the conduct
required by the parties to do or not to do, or to give. 177 Parties may be
mutually obligated to each other, but the prestations of these obligations are
not necessarily reciprocal. The reciprocal prestations must necessarily
emanate from the same cause that gave rise to the existence of the
contract. This distinction is best illustrated by an established authority in
civil law, the late Arturo Tolentino:
This article applies only to reciprocal obligations. It has no
application to every case where two persons are mutually debtor and
creditor of each other. There must be reciprocity between them. Both
relations must arise from the same cause, such that one obligation is
correlative to the other. Thus, a person may be the debtor of another
by reason of an agency, and his creditor by reason of a loan. They are
mutually obligated, but the obligations are not reciprocal. Reciprocity
arises from identity of cause, and necessarily the two obligations are
created at the same time. 178 (Citation omitted)
Ang Yu Asuncion v. Court of Appeals 179 provides a clear necessity of
the cause in perfecting the existence of an obligation:
An obligation is a juridical necessity to give, to do or not to do
(Art. 1156, Civil Code). The obligation is constituted upon the
concurrence of the essential elements thereof, viz.: (a) The vinculum
juris or juridical tie which is the efficient cause established by the
various sources of obligations (law, contracts, quasi-contracts, delicts
and quasi-delicts); (b) the object which is the prestation or conduct,
required to be observed (to give, to do or not to do); and (c) the
subject-persons who, viewed from the demandability of the
obligation, are the active (obligee) and the passive (obligor) subjects.
180
The cause is the vinculum juris or juridical tie that essentially binds the
parties to the obligation. This linkage between the parties is a binding
relation that is the result of their bilateral actions, which gave rise to the
existence of the contract.
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. InOng v. Court of
Appeals, 181 this court defined rescission:
Rescission, as contemplated in Articles 1380, et seq., of the
New Civil Code, is a remedy granted by law to the contracting parties
and even to third persons, to secure the reparation of damages
caused to them by a contract, even if this should be valid, by
restoration of things to their condition at the moment prior to the
celebration of the contract. It implies a contract, which even if initially
valid, produces a lesion or a pecuniary damage to someone. 182
(Citations omitted)
Ong elaborated on the confusion between "rescission" or resolution
under Article 1191 and rescission under Article 1381:
On the other hand, Article 1191 of the New Civil Code refers to
rescission applicable to reciprocal obligations. Reciprocal obligations
are those which arise from the same cause, and in which each party
is a debtor and a creditor of the other, such that the obligation of one
is dependent upon the obligation of the other. They are to be
performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other. Rescission
of reciprocal obligations under Article 1191 of the New Civil Code
should be distinguished from rescission of contracts under Article
1383. Although both presuppose contracts validly entered into and
subsisting and both require mutual restitution when proper, they are
not entirely identical.
While Article 1191 uses the term "rescission," the original term
which was used in the old Civil Code, from which the article was
based, was "resolution." Resolution is a principal action which is
based on breach of a party, while rescission under Article 1383 is a
subsidiary action limited to cases of rescission for lesion under Article
1381 of the New Civil Code, which expressly enumerates the
following rescissible contracts:
1. Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one
fourth of the value of the things which are the object
thereof;
2. Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
3. Those undertaken in fraud of creditors when the latter cannot
in any manner collect the claims due them;
4. Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
[and]
5. All other contracts specially declared by law to be subject to
rescission. 183 (Citations omitted)
When a party seeks the relief of rescission as provided in Article 1381,
there is no need for reciprocal prestations to exist between or among the
parties. All that is required is that the contract should be among those
enumerated in Article 1381 for the contract to be considered rescissible.
Unlike Article 1191, rescission under Article 1381 must be a subsidiary
action because of Article 1383.
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. Article
1381 (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.
Further, respondent U-Land is pursuing rescission or resolution under
Article 1191, which is a principal action. Justice J.B.L. Reyes' concurring
opinion in the landmark case of Universal Food Corporation v. Court of
Appeals 184 gave a definitive explanation on the principal character of
resolution under Article 1191 and the subsidiary nature of actions under
Article 1381:
The rescission on account of breach of stipulations is not
predicated on injury to economic interests of the party plaintiff but on
the breach of faith by the defendant, that violates the reciprocity
between the parties. It is not a subsidiary action, and Article 1191
may be scanned without disclosing anywhere that the action for
rescission thereunder is subordinated to anything other than the
culpable breach of his obligations by the defendant. This rescission is
a principal action retaliatory in character, it being unjust that a party
be held bound to fulfill his promises when the other violates his. As
expressed in the old Latin aphorism: "Non servanti fidem, non est
fides servanda." Hence, the reparation of damages for the breach is
purely secondary.
On the contrary, 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 detre 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 and 1384. But the
operation of these two articles is limited to the cases of rescission for
lesión enumerated in Article 1381 of the Civil Code of the Philippines,
and does not apply to cases under Article 1191. 185
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 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.
V
The jurisprudence relied upon by
petitioner Wellex is not applicable
The cases that petitioner Wellex cited to advance its arguments
against respondent U-Land's right to rescission are not in point.
Suria v. Intermediate Appellate Court is not applicable. In that case,
this court specifically stated that the parties entered into a contract of sale,
and their reciprocal obligations had already been fulfilled: 186
There is no dispute that the parties entered into a contract of
sale as distinguished from a contract to sell.
By the contract of sale, the vendor obligates himself to transfer
the ownership of and to deliver a determinate thing to the buyer, who
in turn, is obligated to pay a price certain in money or its equivalent
(Art. 1458, Civil Code). From the respondents' own arguments,
we note that they have fully complied with their part of the
reciprocal obligation. As a matter of fact, they have already
parted with the title as evidenced by the transfer certificate
of title in the petitioners' name as of June 27, 1975.
The buyer, in turn, fulfilled his end of the bargain when he
executed the deed of mortgage. The payments on an installment
basis secured by the execution of a mortgage took the place of a cash
payment. In other words, the relationship between the parties is no
longer one of buyer and seller because the contract of sale has been
perfected and consummated. It is already one of a mortgagor and a
mortgagee. In consideration of the petitioners' promise to pay on
installment basis the sum they owe the respondents, the latter have
accepted the mortgage as security for the obligation.
The situation in this case is, therefore, different from that
envisioned in the cited opinion of Justice J.B.L. Reyes. The petitioners'
breach of obligations is not with respect to the perfected contract of
sale but in the obligations created by the mortgage contract. The
remedy of rescission is not a principal action retaliatory in character
but becomes a subsidiary one which by law is available only in the
absence of any other legal remedy. (Art. 1384, Civil Code).
Foreclosure here is not only a remedy accorded by law but, as
earlier stated, is a specific provision found in the contract between
the parties. 187 (Emphasis supplied)
In Suria, this court clearly applied rescission under Article 1384 and not
rescission or resolution under Article 1191. In addition, the First
Memorandum of Agreement is not a contract to sell shares of stock. It is an
agreement to negotiate with the view of entering into a share purchase
agreement.
Villaflor v. Court of Appeals is not applicable either. In Villaflor, this
court held that non-payment of consideration of contracts only gave rise to
the right to sue for collection, but this non-payment cannot serve as proof of
a simulated contract. 188 The case did not rule that the vendor has no
obligation to deliver the thing sold if the buyer fails to fully pay the price
required by the contract. In Villaflor:
Petitioner insists that nonpayment of the consideration in the
contracts proves their simulation. We disagree. Nonpayment, at most,
gives him only the right to sue for collection. Generally, in a contract
of sale, payment of the price is a resolutory condition and the remedy
of the seller is to exact fulfillment or, in case of a substantial breach,
to rescind the contract under Article 1191 of the Civil Code. However,
failure to pay is not even a breach, but merely an event which
prevents the vendor's obligation to convey title from acquiring
binding force. 189 (Citations omitted)
This court's statement in Villaflor regarding rescission under Article
1191 was a mere obiter dictum. In Land Bank of the Philippines v. Suntay, 190
this court discussed the nature of an obiter dictum:
An obiter dictum has been defined as an opinion expressed by a
court upon some question of law that is not necessary in the
determination of the case before the court. It is a remark made, or
opinion expressed, by a judge, in his decision upon a cause by the
way, that is, incidentally or collaterally, and not directly upon the
question before him, or upon a point not necessarily involved in the
determination of the cause, or introduced by way of illustration, or
analogy or argument. It does not embody the resolution or
determination of the court, and is made without argument, or full
consideration of the point. It lacks the force of an adjudication, being
a mere expression of an opinion with no binding force for purposes of
res judicata. 191 (Citations omitted)
Petitioner Wellex's reliance on Padilla v. Spouses Paredes and Spouses
Agustin v. Court of Appeals is also misplaced. In these cases, this court held
that there can be no rescission for an obligation that is non-existent,
considering that the suspensive condition that will give rise to the obligation
has not yet happened. This is based on an allegation that the contract
involved is a contract to sell. In a contract to sell, the failure of the buyer to
pay renders the contract without effect. A suspensive condition is one whose
non-fulfillment prevents the existence of the obligation. 192 Payment of the
purchase price, therefore, constitutes a suspensive condition in a contract to
sell. Thus, this court held that non-remittance of the full price allowed the
seller to withhold the transfer of the thing to be sold.
In this case, the First Memorandum of Agreement is not a contract to
sell. Entering into the share purchase agreement or the joint development
agreement remained a stipulation that the parties themselves agreed to
pursue in the First Memorandum of Agreement.
Based on the First Memorandum of Agreement, the execution of the
share purchase agreement was necessary to put into effect respondent U-
Land's purchase of the shares of stock. This is the stipulation indicated in
this memorandum of agreement. There was no suspensive condition of full
payment of the purchase price needed to execute either the share purchase
agreement or the joint development agreement. Upon the execution of the
share purchase, the obligation of petitioner Wellex to transfer the shares of
stock and of respondent U-Land to pay the price of these shares would have
arisen.
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.
VI
Petitioner Wellex was not guilty of
fraud but of violating Article 1159
of the Civil Code
In the issuance of the Writ of Preliminary Attachment, the lower court
found that petitioner Wellex committed fraud by inducing respondent U-Land
to purchase APIC shares and PEC shares and by leading the latter to believe
that APC was a subsidiary of APIC.
Determining the existence of fraud is not necessary in an action for
rescission or resolution under Article 1191. The existence of fraud must be
established if the rescission prayed for is the rescission under Article 1381.
However, the existence of fraud is a question that the parties have
raised before this court. To settle this question with finality, this court will
examine the established facts and determine whether petitioner Wellex
indeed defrauded respondent U-Land.
I n Tankeh v. Development Bank of the Philippines , 193 this court
enumerated the relevant provisions of the Civil Code on fraud:
Fraud is defined in Article 1338 of the Civil Code as:
. . . fraud when, through insidious words or machinations
of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not
have agreed to.
This is followed by the articles which provide legal examples
and illustrations of fraud.
xxx xxx xxx
Art. 1340. The usual exaggerations in trade, when the
other party had an opportunity to know the facts, are not
in themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not
signify fraud, unless made by an expert and the other
party has relied on the former's special knowledge. (n)
Art. 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual (n)
Art. 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error. (n)
The distinction between fraud as a ground for rendering a
contract voidable or as basis for an award of damages is provided in
Article 1344:
In order that fraud may make a contract voidable, it
should be serious and should not have been employed by
both contracting parties.
Incidental fraud only obliges the person employing it to
pay damages. (1270) 194
Tankeh further discussed the degree of evidence needed to prove the
existence of fraud:
[T]he standard of proof required is clear and convincing
evidence. This standard of proof is derived from American common
law. It is less than proof beyond reasonable doubt (for criminal cases)
but greater than preponderance of evidence (for civil cases). The
degree of believability is higher than that of an ordinary civil case.
Civil cases only require a preponderance of evidence to meet the
required burden of proof. However, when fraud is alleged in an
ordinary civil case involving contractual relations, an entirely
different standard of proof needs to be satisfied. The imputation of
fraud in a civil case requires the presentation of clear and convincing
evidence. Mere allegations will not suffice to sustain the existence of
fraud. The burden of evidence rests on the part of the plaintiff or the
party alleging fraud. The quantum of evidence is such that fraud must
be clearly and convincingly shown. 195
To support its allegation of fraud, Mr. Tseng, respondent U-Land's
witness before the trial court, testified that Mr. Gatchalian approached
respondent U-Land on two (2) separate meetings to propose entering into an
agreement for joint airline operations in the Philippines. Thus, the parties
entered into the First Memorandum of Agreement. Respondent U-Land
primarily anchors its allegation of fraud against petitioner Wellex on the
existence of the second preambular clause of the First Memorandum of
Agreement.
In its Appellant's Brief before the Court of Appeals, petitioner Wellex
admitted that "[t]he amount of US$7,499,945.00 was remitted for the
purchase of APIC and PEC shares." 196 In that brief, it argued that the parties
were already in the process of partially executing the First Memorandum of
Agreement.
As held in Tankeh, there must be clear and convincing evidence of
fraud. Based on the established facts, respondent U-Land was unable to
clearly convince this court of the existence of fraud.
Respondent U-Land had every reasonable opportunity to ascertain
whether APC was indeed a subsidiary of APIC. This is a multimillion dollar
transaction, and both parties admitted that the share purchase agreement
underwent several draft creations. Both parties admitted the participation of
their respective counsels in the drafting of the First Memorandum of
Agreement. Respondent U-Land had every opportunity to ascertain the
ownership of the shares of stock.
Respondent U-Land itself admitted that it was not contesting petitioner
Wellex's ownership of the APIC shares or APC shares; hence, it was not
contesting the existence of the Second Memorandum of Agreement. Upon
becoming aware of petitioner Wellex's representations concerning APIC's
ownership or control of APC as a subsidiary, respondent U-Land continued to
make remittances totalling the amount sought to be rescinded. It had the
option to opt out of negotiations after the lapse of the 40-day period.
However, it proceeded to make the remittances to petitioner Wellex and
proceed with negotiations.
Respondent U-Land was not defrauded by petitioner Wellex to agree to
the First Memorandum of Agreement. To constitute fraud under Article 1338,
the words and machinations must have been so insidious or deceptive that
the party induced to enter into the contract would not have agreed to be
bound by its terms if that party had an opportunity to be aware of the truth.
197
Respondent U-Land was already aware that APC was not a subsidiary
of APIC after the 40-day period. Still, it agreed to be bound by the First
Memorandum of Agreement by making the remittances from June 30 to
September 25, 1998. 198 Thus, petitioner Wellex's failure to inform
respondent U-Land that APC was not a subsidiary of APIC when the First
Memorandum of Agreement was being executed did not constitute fraud.
However, the absence of fraud does not mean that petitioner Wellex is
free of culpability. By failing to inform respondent U-Land that APC was not
yet a subsidiary of APIC at the time of the execution of the First
Memorandum of Agreement, petitioner Wellex violated Article 1159 of the
Civil Code. Article 1159 reads:
ART. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith.
In Ochoa v. Apeta, 199 this court defined good faith:
Good faith is an intangible and abstract quality with no
technical meaning or statutory definition, and it encompasses, among
other things, an honest belief, the absence of malice and the absence
of design to defraud or to seek an unconscionable advantage. It
implies honesty of intention, and freedom from knowledge of
circumstances which ought to put the holder upon inquiry. The
essence of good faith lies in an honest belief in the validity of one's
right, ignorance of a superior claim and absence of intention to
overreach another. 200 (Citations omitted)
It was incumbent upon petitioner Wellex to negotiate the terms of the
pending share purchase agreement in good faith. This duty included
providing a full disclosure of the nature of the ownership of APIC in APC.
Unilaterally compelling respondent U-Land to remit money to finalize the
transactions indicated in the Second Memorandum of Agreement cannot
constitute good faith.
The absence of fraud in a transaction does not mean that rescission
under Article 1191 is not proper. This case is not an action to declare the
First Memorandum of Agreement null and void due to fraud at the inception
of the contract or dolo causante. This case is not an action for fraud based
on Article 1381 of the Civil Code. Rescission or resolution under Article 1191
is predicated on the failure of one of the parties in a reciprocal obligation to
fulfill the prestation as required by that obligation. It is not based on vitiation
of consent through fraudulent misrepresentations.
VII
Respondent U-Land was not bound
to pay the US$3 million under the
joint development agreement
The alleged failure of respondent U-Land to pay the amount of US$3
million to petitioner Wellex does not justify the actions of the latter in
refusing to return the US$7,499,945.00.
Article 1374 of the Civil Code provides that:
ART. 1374. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result
from all of them taken jointly.
The execution of the joint development agreement was contingent on
the execution of the share purchase agreement. This is provided for in
Section 4 of the First Memorandum of Agreement, which stated that the
execution of the two agreements is "[s]imultaneous." 201 Thus, the failure of
the share purchase agreement's execution would necessarily mean the
failure of the joint development agreement's execution.
Section 9 of the First Memorandum of Agreement provides that should
the parties fail to execute the agreement, they would be released from their
mutual obligations. Had respondent U-Land paid the US$3 million and
petitioner Wellex delivered the 57,000,000 PEC shares for the purpose of the
joint development agreement, they would have been obligated to return
these to each other.
Section 4 and Section 9 of the First Memorandum of Agreement must
be interpreted together. Since the parties were unable to agree on a final
share purchase agreement and there was no exchange of money or shares
of stock due to the continuing negotiations, respondent U-Land was no
longer obliged to provide the money for the real estate development
projects. The payment of the US$3 million was for pursuing the real estate
development projects under the joint development agreement. There being
no joint development agreement, the obligation to deliver the US$3 million
and the delivery of the PEC shares for that purpose were no longer
incumbent upon the parties.
VIII
Respondent U-Land was not
obligated to exhaust the "securities"
given by petitioner Wellex
Contrary to petitioner Wellex's assertion, there is no obligation on the
part of respondent U-Land to exhaust the "securities" given by petitioner
Wellex. No such meeting of the minds to create a guarantee or surety or any
other form of security exists. The principal obligation is not a loan or an
obligation subject to the conditions of sureties or guarantors under the Civil
Code. Thus, there is no need to exhaust the securities given to respondent
U-Land, and there is no need for a legal condition where respondent U-Land
should pursue other remedies.
Neither petitioner Wellex nor respondent U-Land stated that there was
already a transfer of ownership of the shares of stock or the land titles.
Respondent U-Land itself maintained that the delivery of the shares of stock
and the land titles were not in the nature of a pledge or mortgage. 202 It
received the certificates of shares of stock and the land titles with an
understanding that the parties would subsequently enter a share purchase
agreement. There being no share purchase agreement, respondent U-Land is
obligated to return the certificates of shares of stock and the land titles to
petitioner Wellex.
The parties are bound by the 40-day period provided for in the First
Memorandum of Agreement. Adherence by the parties to Section 9 of the
First Memorandum of Agreement has the same effect as the rescission or
resolution prayed for and granted by the trial court.
Informal acts are prone to ambiguous legal interpretation. This will be
based on the say-so of each party and is a fragile setting for good business
transactions. It will contribute to the unpredictability of the market as it
would provide courts with extraordinary expectations to determine the
business actor's intentions. The parties appear to be responsible
businessmen who know that their expectations and obligations should be
clearly articulated between them. They have the resources to engage legal
representation. Indeed, they have reduced their agreement in writing.
Petitioner Wellex now wants this court to define obligations that do not
appear in these instruments. We cannot do so. This court cannot interfere in
the bargains, good or bad, entered into by the parties. Our duty is to affirm
legal expectations, not to guarantee good business judgments.
WHEREFORE, the petition is DENIED. The Decision of the Regional
Trial Court in Civil Case No. 99-1407 and the Decision of the Court of Appeals
in CA-G.R. CV No. 74850 are AFFIRMED. Costs against petitioner The Wellex
Group, Inc.
SO ORDERED.
Carpio, Velasco, Jr., * Del Castillo and Mendoza, JJ., concur.
Footnotes
* Designated acting member per S.O. No. 1910 dated January 12, 2015.
1. Rollo , pp. 12-43.

2. Id. at 46-54.
3. Id. at 40.
4. Id. at 89-102.
5. Id. at 59-62.
6. Id. at 102.
7. Id. at 59.
8. Id. at 59-60.
9. Id. at 63.
10. Id. at 14.
11. Id. at 15.

12. There are two memoranda of agreement. We refer to the Memorandum of
Agreement between Wellex and U-Land as the First Memorandum of
Agreement. We then refer to Annex "A" or the Memorandum of Agreement
among Wellex, APIC, and APC as the Second Memorandum of Agreement.
13. Id. at 59.
14. Id.
15. Id.
16. Id. at 59-60.
17. Id. at 60.
18. Id. at 59-60. In the First Memorandum of Agreement, the second preambular
clause states that Wellex has a "majority-owned subsidiary Air Philippines
International Corporation and the latter's subsidiary, Air Philippines
Corporation[.]"

1. Basic Agreement. — The parties agree to develop a long-term business
relationship initially through the creation of joint interest in airline operations
as well as in property development projects in the Philippines to be
implemented as follows:
(a) U-LAND shall acquire from WELLEX, shares of stock of AIR PHILIPPINES
INTERNATIONAL CORPORATION ("APIC") equivalent to at least 35% of the
outstanding capital stock of APIC, but in any case, not less than
1,050,000,000 shares (the "APIC Shares").
(b) U-LAND shall acquire from WELLEX, shares of stock of PHILIPPINE
ESTATES CORPORATION ("PEC") equivalent to at least 35% of the
outstanding capital stock of PEC, but in any case, not less than 490,000,000
shares (the "PEC Shares").
19. Id. at 60.
20. Id.
21. Id.
22. Id.
23. Id.
24. Id. at 61.
25. Id. at 59.
26. Id. at 60-61. First Memorandum of Agreement, sec. 4 provides:
U-LAND shall, not later than May 22, 1998 remit the sum of US$3.0 million as
initial funding for the aforesaid development projects against delivery by
WELLEX of 57,000,000 shares of PEC as security for said amount in
accordance with Section 9 below. (Rollo , p. 61.)
27. Id. at 61.
28. Id.
29. Id.
30. Id.
31. Id.
32. Id.
33. Id.
34. Id.
35. Id.
36. Id. at 59 and 61.

37. Id. at 63.
38. Id. at 63-64.
39. Id. at 222.
40. Id.
41. First name is illegible in rollo.
42. Id. at 64.
43. Id. at 63-65.

44. Id. at 65.
45. Id. at 80.
46. Id. at 49.
47. Id. at 97.

48. Id. at 324.
49. Id. at 96 and 147.
50. Id. at 412.

51. Id. at 49.
52. Id. at 90.
53. Id. at 49.

54. Id. at 90.
55. Id. at 90-91 and 96.
56. Id. at 66-67.
57. Id. at 226.

58. Id. at 66.
59. Id.
60. Id. at 66-67.

61. Id. at 67.
62. Id. at 68-69.
63. Id. at 68.

64. Id.
65. Id.
66. Id. at 69.
67. Id.
68. Id.
69. Id.
70. Id.
71. Id.
72. Id. at 70-75.

73. Id. at 73.
74. Id. at 322.
75. Id. at 72.

76. Id.
77. Id.
78. Id. at 71.

79. Id. at 72.
80. Id. at 91.
81. Id. at 76-88.

82. Id. at 78.
83. Id. at 92.
84. Id. at 92-93.
85. Id. at 93.

86. Id. at 78.
87. Id. at 80.
88. Id.
89. Id. at 95.
90. Id. at 77.
91. Id. at 80.

92. Id. at 83.
93. Id. at 84.
94. Id.
95. Id.
96. Id. at 86.
97. Id. at 87.
98. Id. at 363-367.

99. Id. at 363.
100. Id. at 363-364.
101. Id. at 364-365.
102. Id. at 365.
103. Id. at 366.

104. Id. at 96.
105. Id.
106. Id.
107. Id.
108. Id.
109. Id.
110. Id.
111. Id.
112. Id.
113. Id.
114. Id. at 96-97.
115. Id.
116. Id. at 97.

117. Id.
118. Id.
119. Id.
120. Id. at 98-100.
121. Id. at 54.
122. Id. at 52-54.
123. Id. at 399-400.

124. Id. at 400. According to petitioner, the amount of US$17.5 million was based
on this: 1,050,000,000 APIC shares were to be purchased at the price of
P0.30/share and 490,000,000 PEC shares were to be purchased at the price
of P0.65 per share, at the exchange rate of P36.00 to US$1.00.
125. Id. at 401-402.

126. Id. at 403.
127. Id. at 402.
128. 385 Phil. 128, 140 (2000) [Per J. Quisimbing, n Second Division].
129. 345 Phil. 524 (1997) [Per J. Panganiban, Third Division].
130. 264 Phil. 744 (1990) [Per J. Regalado, Second Division].
131. Rollo , p. 403.
132. Id.
133. Id. at 410-411.
134. Id. at 411.

135. 235 Phil. 661, 667 (1987) [Per J. Gutierrez, Jr., Second Division].
136. Rollo , p. 411.
137. Id. at 332.
138. Id.
139. Id. at 333.
140. Id. at 335.

141. Id.
142. Id. at 337.
143. Id. at 339.
144. Id. at 340.
145. Id. at 272-273.
146. Id. at 353.
147. Id. at 352-353.

148. Id. at 355.
149. Id. at 356.
150. Id.
151. 620 Phil. 381 (2009) [Per J. Nachura, Third Division].
152. Id. at 388, citing Benguet Corporation, et al. v. Cabildo, 585 Phil. 23, 34-35
(2008) [Per J. Nachura, Third Division].
153. Rollo , p. 417.
154. Id. at 59.
155. Id. at 59-60.
156. Id. at 60.
157. Id.
158. Id. at 61.
159. Id. at 59-60.
160. Id. at 60.
161. Id.

162. Sec. 2, par. 2 of the First Memorandum of Agreement reads:
The purchase price for the Subject Shares as reflected in the SHPA shall be
paid in full upon execution of the SHPA against delivery of the Subject
Shares. The parties may agree on such other terms and conditions governing
the acquisition of the Subject Shares to be provided in a separate
instrument. (Emphasis supplied)
163. Sec. 2, par. 3 of the First Memorandum of Agreement reads:
The transfer of the Subject Shares shall be effected to U-LAND provided that:
(i) the purchase price reflected in the SHPA has been fully paid; (ii) the
Philippine Securities & Exchange Commission (SEC) shall have approved the
issuance of the Subject Shares; and (iii) any required approval by the
Taiwanese government of the acquisition by U-LAND of the Subject Shares
shall likewise have been obtained. (Emphasis provided)
164. Rollo , p. 61.

165. Id. at 126.
166. 160-A Phil. 285 (1975) [Per J. Aquino, Second Division].
167. Id. at 292-293, citing Marquez v. Marquez , 73 Phil. 74, 78 (1941) [Per J. Moran,
En Banc].
168. G.R. No. 206806, June 25, 2014

<http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/june2014/206806.pdf> [Per J. Leonen, Third
Division].
169. Id. at 7-8.
170. 365 Phil. 259 (1999) [Per J. Vitug, Third Division].
171. Id. at 267-268.
172. Magdalena Estates v. Rodriguez , 125 Phil. 151, 157 (1966) [Per J. Regala, En
Banc]; Vda. de Mondragon v. Intermediate Appellate Court, 263 Phil. 261,
268 (1990) [Per J. Griño-Aquino, First Division].
173. 664 Phil. 65 (2012) [Per J. Mendoza, Third Division].
174. Id. at 77, citing Duñgo v. Lopena , 116 Phil. 1305, 1313-1314 (1962) [Per J.
Regala, En Banc].
175. G.R. No. 201167, February 27, 2013, 692 SCRA 319 [Per J. Perlas-Bernabe,
Second Division].
176. Id. at 329-330.
177. Ang Yu Asuncion v. Court of Appeals, G.R. No. 109125, December 2, 1994,
238 SCRA 602, 610. [Per J. Vitug, En Banc].
178. IV ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE
CIVIL CODE OF THE PHILIPPINES 174-175 (1987).
179. G.R. No. 109125, December 2, 1994, 238 SCRA 602 [Per J. Vitug, En Banc].
180. Id. at 610.

181. 369 Phil. 243 (1999) [Per J. Ynares-Santiago, First Division].
182. Id. at 251-252.
183. Id. at 252-253.

184. 144 Phil. 1 (1970) [J. Castro, En Banc].
185. J. J.B.L. Reyes, concurring opinion in Universal Food Corporation v. Court of
Appeals, 144 Phil. 1, 21-22 (1970) [J. Castro, En Banc].
186. Suria v. Intermediate Appellate Court, 235 Phil. 661, 668-669 (1987) [Per J.
Gutierrez, Jr., Second Division].
187. Id.
188. 345 Phil. 524, 570 (1997) [Per J. Panganiban, Third Division].
189. Id.
190. G.R. No. 188376, December 14, 2011, 662 SCRA 614 [Per J. Bersamin, First
Division].
191. Id. at 647-648.
192. Diego v. Diego , G.R. No. 179965, February 20, 2013, 691 SCRA 361, 378 [Per
J. Del Castillo, Second Division], citing Luzon Development Bank v. Enriquez,
G.R. Nos. 168646 & 168666, January 12, 2011, 639 SCRA 332, 351. [Per J.
Del Castillo, First Division].
193. G.R. No. 171428, November 11, 2013, 709 SCRA 19 [Per J. Leonen, Third
Division].
194. Id. at 44-45.

195. Id. at 52.
196. Rollo , p. 127.
197. Tankeh v. Development Bank of the Philippines, G.R. No. 171428, November
11, 2013, 709 SCRA 19, 50 [Per J. Leonen, Third Division], citing Viloria v.
Continental Airlines, G.R. No. 188288, January 16, 2012, 663 SCRA 57, 81.
[Per J. Reyes, Second Division].
198. Rollo , pp. 99-100 and 324.

199. 559 Phil. 650 (2007) [Per. J. Sandoval-Gutierrez, First Division].
200. Id. at 655-656.
201. Rollo , p. 61.
202. Id. at 325.
n Note from the Publisher: Copied verbatim from the official document.
"Quisimbing" should read as "Quisumbing".

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SECOND DIVISION

[G.R. No. 167519. January 14, 2015]

THE WELLEX GROUP, INC. , petitioner, vs. U-LAND AIRLINES,

This is a Petition 1 for Review on Certiorari under Rule 45 of the Rules

June 30, 1998 990,000.00

Wellex acknowledged the receipt of these remittances in a

of Agreement to the First Memorandum of Agreement. Wellex attached the

Wellex averred that it presented draft versions of the share purchase

attorney's fees, and costs of suit. 97

The case proceeded to trial.

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As held in Norton, this court must ﬁrst determine whether a provision

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1. Rollo , pp. 12-43.

11. Id. at 15.

Section 1 of the First Memorandum of Agreement reads:

36. Id. at 59 and 61.

43. Id. at 63-65.

47. Id. at 97.

50. Id. at 412.

53. Id. at 49.

57. Id. at 226.

60. Id. at 66-67.

63. Id. at 68.

72. Id. at 70-75.

75. Id. at 72.

78. Id. at 71.

81. Id. at 76-88.

85. Id. at 93.

91. Id. at 80.

98. Id. at 363-367.

103. Id. at 366.

116. Id. at 97.

123. Id. at 399-400.

125. Id. at 401-402.

134. Id. at 411.

140. Id. at 335.

147. Id. at 352-353.

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164. Rollo , p. 61.

168. G.R. No. 206806, June 25, 2014

180. Id. at 610.

183. Id. at 252-253.

194. Id. at 44-45.

198. Rollo , pp. 99-100 and 324.

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