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Fil-Estate Golf and Development, Inc. vs. Vertex Sales and Trading, Inc.

, 698 SCRA 272, June 10, 2013


Article 1191
Doctrine:
Mutual restitution is required in cases involving rescission under Article 1191 of the Civil Code as to bring back the parties
to their original situation, prior to the inception of the contract.
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.
FACTS:

FEGDI is a stock corporation primarily engaged in the development of golf courses.


As developer of the Forest Hill Golf and Country Club and in consideration of its financing support, FEGDI was
issued several shares of stock of Forest Hill.
FEGDIs Forest Hills stocks were later sold to, RSACC (a third party), which prior to full payment sold the shares
to Vertex (respondent).
17 months after the sale and after the full payment of Vertex, the share remained in the name of FEGDI.
Vertex made a final demand which remained unheeded, thus a complaint for rescission (with damages) against
FEGDI, FELI and Forest Hill was filed, alleging that they defaulted in their obligations as sellers.
During the pendency of this case, a certificate of stock was issued in Vertexs name but the latter refused to
accept it.
Position of Petitioner - FEGDI argued that the delay cannot be considered a substantial breach because Vertex
was unequivocally recognized as a shareholder of Forest Hills.
Position of Respondent - Vertex alleged that the fulfillment of its obligation to pay the purchase price called into
action the petitioners reciprocal obligation to deliver the stock certificate. Since there was delay in the issuance of
a certificate for more than three years, then it should be considered a substantial breach warranting the rescission
of the sale.

ISSUE:

W/N the delay in the issuance of stock certificate can be considered a substantial breach as to warrant rescission
of the contract of sale.

HELD:

YES, delay in issuance constitute a substantial breach because physical delivery is necessary to transfer
ownership of stocks as previously held in Raquel-Santos v. Court of Appeals.
o Theres no valid transfer of shares where there is no delivery of the stock certificate, under the Corp Code
o Corp Code - SEC. 63 Certificate of stock and transfer of shares. xxx Shares of stock so issued are
personal property and may be transferred by delivery of the certificate No transfer shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation
In this case, Vertex fully paid the purchase price by February 1999 but the stock certificate was only delivered on
January 2002 after Vertex filed an action for rescission against FEGDI.
o FEGDI clearly failed to deliver the stocks within a reasonable time. This was a substantial breach of their
contract that entitles Vertex the right to rescind the sale under Article 1191 of the Civil Code.
o The sale is not considered consummated due to the issuance of the certificates. It does not suffice
because the law requires a specific form to transfer ownership.
Mutual restitution is required in cases involving rescission under Article 1191 of the Civil Code as to bring back
the parties to their original situation, prior to the inception of the contract.
Final Ruling:
o CA order is affirmed
Petitioners should return the amounts paid by Vertex.
The prolonged issuance of the stock certificate is a substantial breach that served as basis for
Vertex to rescind the sale
o No award of damages bec. Vertex failed to prove by sufficient evidence that it suffered actual damage
due to the delay
o FELI is absolved from liability - bec. no privity of contract exists between Vertex and FELI