FACTS:

Fong and Dueñas entered into a joint venture agreement to incorporate a company named Alliance, which would hold the shares of Danton and Bakcom as part of their food business. Fong made a cash contribution of P5 million as an advance subscription for his shareholding in Alliance. However, Dueñas failed to provide Fong with financial documents on the valuation of the shares, and there was a delay in the incorporation of Alliance. Fong decided to rescind the joint venture agreement due to these reasons.

The trial court ruled in favor of Fong, stating that he had valid reasons for rescinding the agreement and that Dueñas' investment of the money in Danton and Bakcom was unauthorized. The trial court ordered Dueñas to return the P5 million and pay attorney's fees and costs. Fong requested for the imposition of 6% annual interest from the date of extrajudicial demand, which the trial court granted.

Dueñas appealed to the Court of Appeals (CA), and the CA annulled the trial court's ruling. The CA found that Fong's letter expressed his intention to convert his contributions to investments in Danton and Bakcom. Fong then filed a petition with the Supreme Court arguing that the letter actually stated that his contributions should be treated as a share subscription to Alliance and that Dueñas' retention of the money constituted unjust enrichment.

Dueñas claimed that he could not refund the P5 million as he had already used it for Danton and Bakcom, which would also form part of his capital contribution to Alliance. He also argued that Fong breached the contract by limiting his investment and unilaterally rescinding the agreement.

The Supreme Court granted Fong's petition, recognizing that the joint venture agreement was valid and enforceable. The Court found that Fong's complaint was actually a complaint for rescission based on the allegations in the body of the pleading.

ISSUES:

1. Whether the nature of an action is determined by its title or by the allegations in the body of the pleading or complaint.

2. Whether the complaint filed by the plaintiff is an action for rescission or an action for a sum of money.

3. Whether the prayer for the return of the plaintiff's cash contribution automatically converts the action into a complaint for a sum of money.

4. Did the breach of the joint venture agreement by Dueñas justify Fong's rescission of the contract?

5. Whether the joint venture agreement between Fong and Dueñas is deemed extinguished through rescission under Article 1192 in relation with Article 1191 of the Civil Code.

6. Whether Dueñas must return the P5 Million that Fong initially contributed.

7. Whether damages shall be awarded to any party.

RULING:

1. The nature of an action is determined by the allegations in the body of the pleading or complaint, and not by its title.

2. The complaint filed by the plaintiff is an action for rescission.

3. The prayer for the return of the plaintiff's cash contribution does not automatically convert the action into a complaint for a sum of money.

4. Yes, the breach of the joint venture agreement by Dueñas justified Fong's rescission of the contract. Dueñas violated his agreement with Fong by using Fong's contributions for his own companies instead of using it for the registration and initial capital of Alliance, the planned holding company. Dueñas also failed to provide valuation documents to prove the combined value of Danton and Bakcom shares. Dueñas' breach of the agreement resulted in the delayed incorporation of Alliance, thus justifying Fong's rescission of the joint venture agreement.

5. The joint venture agreement between Fong and Dueñas is deemed extinguished through rescission under Article 1192 in relation with Article 1191 of the Civil Code.

6. Dueñas must return the P5 Million that Fong initially contributed since rescission requires mutual restitution.

7. No damages shall be awarded to any party.

PRINCIPLES:

• The body rather than the title of the complaint determines the nature of the action.

• Rescission is available as a contractual remedy when one of the parties substantially fails to perform their obligations in a contract.

• Rescission aims to restore the parties to their original status before entering into a contract and involves the mutual restitution of their original contributions.

• Reciprocal obligations arise from the same cause, where each party is a debtor and a creditor of the other.

• The obligation of one party is dependent on the obligation of the other in reciprocal obligations.

• The power to rescind obligations is implied in reciprocal obligations, in case one party fails to comply with their obligations.

• Rescission under Article 1191 of the Civil Code applies to contracts with reciprocal obligations.

• Rescission is meant to abrogate the contract from the beginning and restore the parties to their original positions as if no contract had been made.

• Under Article 1191 of the Civil Code, the right of rescission of a party to an obligation is predicated on a breach of faith by the other party, who violates the reciprocity between them.

• When the obligor fails to comply with an existing obligation, the obligee may seek rescission of the contract.

• When both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts.

• In case it cannot be determined which party first violated the contract, the same shall be declared resolved.

• Parties to a contract are bound to perform their respective obligations, and if they fail to do so, the other party may rescind the contract.

• Rescission of a contract requires mutual restitution.

• If it cannot be determined which party first violated the contract, the contract shall be deemed extinguished, and each party shall bear their own damages.

• Unjust enrichment must be avoided and the parties must be returned to their original status before entering into the agreement.