GR 149338; (July, 2008) (Digest)
G.R. No. 149338 ; July 28, 2008
UNLAD RESOURCES DEVELOPMENT CORPORATION, ET AL., Petitioners, vs. RENATO P. DRAGON, ET AL., Respondents.
FACTS
Respondents, as controlling stockholders of the Rural Bank of Noveleta, entered into a Memorandum of Agreement (MOA) with petitioner Unlad Resources Development Corporation on December 29, 1981. Under the MOA, respondents agreed to transfer control and management of the bank to Unlad Resources. In turn, Unlad Resources bound itself to invest ₱4.8 million in the bank as additional equity, with an immediate initial payment of ₱1.2 million upon signing. Respondents complied by transferring control, and the bank was renamed Unlad Rural Bank of Noveleta, Inc. Petitioners, however, failed to infuse the stipulated capital.
Subsequent actions by petitioners, including entering into a lease agreement over a mango plantation between the bank and petitioner Helena Z. Benitez (where a subsidiary managed the property for 80% of profits), and a plan to retire preferred shares held by the Development Bank of the Philippines, were contested by respondents. These acts were viewed as further evidence of mismanagement and bad faith. Consequently, respondents filed a complaint for rescission of the MOA and damages.
ISSUE
The primary issue is whether the Regional Trial Court had jurisdiction over the complaint for rescission and whether the Court of Appeals correctly affirmed the rescission of the MOA and the award of damages.
RULING
The Supreme Court affirmed the CA decision. On jurisdiction, the Court held that the case involved an ordinary breach of a contractual agreement, not an intra-corporate dispute. The action was for rescission based on petitioners’ failure to perform their principal obligation under the MOA, which is within the general jurisdiction of regular courts. The allegation of mismanagement was merely incidental to the main cause of action for breach of contract.
On the merits, the Court upheld the rescission under Article 1191 of the Civil Code. Petitioners’ failure to invest the stipulated capital constituted a substantial breach, which went to the very essence of the agreement. Respondents’ transfer of control was a reciprocal obligation, and their performance was rendered in vain by petitioners’ non-payment. The subsequent acts, particularly the lease agreement which was grossly disadvantageous to the bank, demonstrated bad faith, justifying the award of moral and exemplary damages. The lease, where the bank received only 20% of profits from its own leased property, was a clear act of fraud against the bank and its minority stockholders (the respondents). The trial court’s factual findings on these matters, affirmed by the CA, are binding and supported by evidence.