G.R. No. 70310 -11 June 1, 1993
MASSIVE CONSTRUCTION, INC., ENRIQUE P. SYQUIA, RAMON P. SYQUIA, JOSE MA. MENDIETA, JAIME SANTAMARIA, and JESUS P. SYQUIA, petitioners, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT and JAIME C. UY, respondents.

FACTS

Massive Construction, Inc. (MASSIVE) was in financial distress and indebted to Super Highway Lumber and Construction Supply, Inc. (SUPER HIGHWAY), a company connected to Jaime C. Uy. To settle the obligation and bail out MASSIVE, its stockholders (Enrique P. Syquia, Ramon P. Syquia, Jose Ma. Mendieta, Jaime Santamaria, and Jesus P. Syquia) entered into an Agreement with Uy on December 16, 1971. The Agreement stipulated that Uy would purchase the entire shares of stock of MASSIVE for P250,000.00, payable in installments. Key conditions included: Uy’s payment of P20,000.00 earnest money; his obligation to make available to MASSIVE such materials and capital as needed for its projects; and, upon payment of the P20,000.00, the transfer of P25,000.00 worth of shares to Uy and his election as a director. Uy paid the P20,000.00 but the stockholders did not immediately transfer the shares or elect him as director. Uy also failed to provide the substantial materials and capital needed for MASSIVE’s ongoing projects, delivering only P6,085.69 worth. MASSIVE made demands and eventually aborted its projects due to lack of capital and materials. Two cases ensued: Civil Case No. 87006 where MASSIVE sued Uy for damages from breach of contract, and Civil Case No. 87511 where Uy sued the stockholders for rescission and damages. The trial court ruled in favor of MASSIVE in the first case, awarding damages, and in the second case, declared the Agreement rescinded due to breach by both parties but awarded no damages. The Intermediate Appellate Court reversed both decisions, finding that the stockholders first breached the Agreement by not transferring the shares and electing Uy as director, and ordered MASSIVE to refund Uy’s payment and pay for the materials delivered.

ISSUE

Who between the parties first committed a substantial breach of the reciprocal obligations under the Agreement, thereby justifying rescission?

RULING

The Supreme Court reversed the decision of the Intermediate Appellate Court. It held that Uy committed the first and substantial breach of the Agreement. His failure to make available the necessary construction materials and capital for MASSIVE’s projects, as required under paragraph 3(h) of the Agreement, was a serious breach that defeated the very object of the agreement, which was to provide MASSIVE with the means to continue its operations. The Court found that the stockholders’ failure to immediately transfer the P25,000.00 worth of shares and elect Uy as a director was not a substantial breach, especially since Uy did not initially raise it as a defense and showed no urgency for it. Under Article 1191 of the Civil Code, rescission requires a serious breach. The Court reinstated the trial court’s decisions: in Civil Case No. 87006, Uy was liable to pay MASSIVE damages for unrealized profits (P20,000.00 for the Republic Flour Mills project and P80,000.00 for the Queen’s Row Subdivision project) and attorney’s fees; in Civil Case No. 87511, the dismissal of monetary reliefs sought by both parties was affirmed.