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SPECIES OF PARTNERSHIP. CONSTRUED AS CONTRACT. TYPES. JOINT
VENTURES
1 ALOJADO. ATIENZA. BALDERAMA. CAMARAO. CARANDANG. CRUZ.
ESTILLES. GARCIA. GONZAGA. HUI. LAZARO. SENAJON
JOINT VENTURES: SPECIES OF PARTNERSHIP
................................... 2
Kilosbayan v Guingona Jr
............................................................. 2
Information Technology Foundation of the Philippines vs.
COMELEC.....................................................................................
4
Realubit vs. Jaso
..........................................................................
8
JVA MUST BE CONSTRUED AS CONTRACT
...................................... 10
Torres v CA
................................................................................
10
TYPES OF JOINT VENTURE AGREEMENTS
....................................... 12
Mendoza v Henaez
....................................................................
12
Philex Mining v CIR
....................................................................
14
MARSMAN DRYSDALE v PHIL
GEOANALYTICS............................. 15
TIOSEJO v ANG
..........................................................................
16
Aurbach v. Sanitary Wares
......................................................... 18
JG Summit v
CA..........................................................................
20
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SPECIES OF PARTNERSHIP. CONSTRUED AS CONTRACT. TYPES. JOINT
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2 ALOJADO. ATIENZA. BALDERAMA. CAMARAO. CARANDANG. CRUZ.
ESTILLES. GARCIA. GONZAGA. HUI. LAZARO. SENAJON
JOINT VENTURES: SPECIES OF PARTNERSHIP
Kilosbayan v Guingona Jr (1994) [PCSO, on-line lottery]
Doctrines: When a Contract of Lease mandates contribution into the
venture on the part of the purported lessee, and makes the lessee
participate not only in the revenues generated from the venture and
in fact absorb most of the risks involved therein, then a joint
venture has really been constituted between the purported lessor
and lessee, since under the Law on Partnership, whenever there is
an agreement to contribute money, property and industry to a common
fund, with an agreement to share the profits and losses therein,
then a partnership arises. Facts: PCSO decided to establish an on-
line lottery system for the purpose of increasing its revenue base
anddiversifying its sources of funds. After learning that the PCSO
was interested in operating an on-line lottery system, the Berjaya
Group Berhad, thru its subsidiary, Sports Toto Malaysia, with its
"affiliate, the International Totalizator Systems, Inc became
interested to offer its services and resources to PCSO. As an
initial step, Berjaya Group Berhad organized with some Filipino
investors a Philippine corporation known as the Philippine Gaming
Management Corporation (PGMC), which was intended to be the medium
through which the technical and management services required for
the project would be offered and delivered to PCSO.
PCSO formally issued a Request for Proposal (RFP) for the Lease
Contract of an on-line lottery system for the PCSO. PGMC then
submitted its bid to PCSO. The submission was preceded by
complaints by the Bid and Awards Committee's Chairperson. On 21
October 1993, the Office of the President announced that it had
given the respondent PGMC the go-signal to operate the country's
on-line lottery system. KILOSBAYAN sent an open letter to
Presidential Fidel V. Ramos strongly opposing the setting up to the
on-line lottery system on the basis of serious moral and ethical
considerations Kilosbayan requested for copies of the documents
pertaining to the lottery award from then Exec Sec Guingona Jr. but
before release of the documents, the Contract of Lease was finally
executed by PCSO and PGMC. To stop Malacanang, Kilosbayan with
co-petitioners filed this petition. Petitioners submit that the
PCSO cannot validly enter into the assailed Contract of Lease with
the PGMC because it is an arrangement wherein the PCSO would hold
and conduct the on-line lottery system in "collaboration" or
"association" with the PGMC, in violation of Section 1(B) of R.A.
No. 1169, as amended by BP 42, which prohibits the PCSO from
holding and conducting charity sweepstakes races, lotteries, and
other similar activities "in collaboration, association, or joint
venture with any person, association, company, or entity, foreign
or domestic Issue: W/N the challenged Contract of Lease violate or
contravene the exception in Section 1 of R.A. No. 1169, as amended
by BP 42, which prohibits the PCSO from holding and conducting
lotteries "in collaboration, association, or joint venture with"
another. Held/Ratio: YES.
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Sec. 1 of RA 1169 as amended by BP 42 prohibits the PCSO from
holding and conducting lotteries "in collaboration, association, or
joint venture with any person, association, company, or entity,
whether domestic or foreign." The language of the section is
indisputably clear that with respect to its franchise or privilege
"to hold and conduct charity sweepstakes races, lotteries, and
other similar activities," the PCSO cannot exercise it "in
collaboration, association, or joint venture" with any other party.
This is the unequivocal meaning and import of the phrase "except
for the activities mentioned in the preceding paragraph (A),"
namely, "charity sweepstakes races, lotteries, and other similar
activities." A careful analysis and evaluation of the provisions of
the contract and a consideration of the contemporaneous acts of the
PCSO and PGMC indubitably disclose that the contract is not in
reality a contract of lease under which the PGMC is merely an
independent contractor for a piece of work, but one where the
statutorily proscribed collaboration or association, in the least,
or joint venture, at the most, exists between the contracting
parties. Collaboration is defined as the acts of working together
in a joint project. Association means the act of a number of
persons in uniting together for some special purpose or business.
Joint venture is defined as an association of persons or companies
jointly undertaking some commercial enterprise; generally all
contribute assets and share risks. It requires a community of
interest in the performance of the subject matter, a right to
direct and govern the policy in connection therewith, and duty,
which may be altered by agreement to share both in profit and
losses. The contemporaneous acts of the PCSO and the PGMC reveal
that the PCSO had neither funds of its own nor the expertise to
operate and manage an on-line lottery system, and that although it
wished to have the system, it would have it "at no expense or
risks to the government." In short, the only contribution the
PCSO would have is its franchise or authority to operate the
on-line lottery system. The PCSO, however, makes it clear in its
RFP that the proponent can propose a period of the contract which
shall not exceed fifteen years, during which time it is assured of
a "rental" which shall not exceed 12% of gross receipts. The
so-called Contract of Lease is not, therefore, what it purports to
be. (actually a joint venture) This joint venture is further
established by the following: a. Rent is not actually a fixed
amount. Although it is stated to be 4.9% of gross receipts from
ticket sales, payable net of taxes required by law to be withheld,
it may be drastically reduced or, in extreme cases,nothing may be
due or demandable at all because the PGMC binds itself to "bear all
risks if the revenue from the ticket sales, on an annualized basis,
are insufficient to pay the entire prize money." This risk bearing
provision is unusual in a lessor-lessee relationship, but inherent
in a joint venture. b. In the event of pre-termination of the
contract by the PCSO, or its suspension of operation of the on-line
lottery system in breach of the contract and through no fault of
the PGMC, the PCSO binds itself "to promptly, and in any event not
later than sixty (60) days, reimburse the Lessor the amount of its
total investment cost associated with the On-Line Lottery System,
including but not limited to the cost of the facilities, and
further compensate the LESSOR for loss of expected net profit after
tax, computed over the unexpired term of the lease." If the
contract were indeed one of lease, the payment of the expected
profits or rentals for the unexpired portion of the term of the
contract would be enough.
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c. The PGMC cannot "directly or indirectly undertake any
activity or business in competition with or adverse to the On-Line
Lottery System of PCSO unless it obtains the latter's prior written
consent." If the PGMC is engaged in the business of leasing
equipment and technology for an on-line lottery system, we fail to
see any acceptable reason why it should allow a restriction on the
pursuit of such business. d. The PGMC shall provide the PCSO the
audited Annual Report sent to its stockholders, and within two
years from the efficacy of the contract, cause itself to be listed
in the local stock exchange and offer at least 25% of its equity to
the public. If the PGMC is merely a lessor, this imposition is
unreasonable and whimsical, and could only be tied up to the fact
that the PGMC will actually operate and manage the system; hence,
increasing public participation in the corporation would enhance
public interest. f. The PCSO shall designate the necessary
personnel to monitor and audit the daily performance of the on-line
lottery system; and promulgate procedural and coordinating rules
governing all activities relating to the on-line lottery system.
The first further confirms that it is the PGMC which will operate
the system and the PCSO may, for the protection of its interest,
monitor and audit the daily performance of the system. The second
admits the coordinating and cooperative powers and functions of the
parties. All of the foregoing unmistakably confirm the
indispensable role of the PGMC in the pursuit, operation, conduct,
and management of the On-Line Lottery System. It is even safe to
conclude that the actual lessor in this case is the PCSO and the
subject matter thereof is its franchise to hold and conduct
lotteries since it is, in reality, the PGMC which operates and
manages the on-line lottery system for a period of eight years.
Information Technology Foundation of the
Philippines vs. COMELEC Facts: Congress passed RA 8046
authorizing Comelec oconduct
a nationwide demonstration of a computerized election system
and allowed the poll body to pilot-test the system in 1996
elections in ARMM. Congress enacted RA 8436 authorizing
comelec to use automated election system (AES) for the
process
of voting, counting votes and canvassing or consolidating
the
results of the national and local election. But it failed in
Sulu, so
they conducted a manual count.
In 2003, Pres. Arroyo issued EO 172 allocating 2.5 Billion to
fund
the AES for 2004 elections. She authorized the release of
additional P500M upon request of Comelec. The commission
issued an Invitation to Apply for Eligibility and to Bid and
laid
down the requirements and qualifications.
The Comelec reserves the right to review the qualifications of
the
bidders after bidding and before the contract is executed.
Joint
ventures were allowed as long as it is 60% owned by
Filipinos.
The public bidding was conducted under a 2-envelope/2-stage
system. The 1st envelop is the eligibility envelop (eligibility
to
bid and its qualifications to perform the acts if accepted) and
the
2nd envelop would be the bid envelope itself.
Out of the 57 bidders, Bids and Awards Committee (BAC) found
MPC and TIMC (Total Investment Information Management
Corporation eligible. The technical evaluation were made by
BACs Technical working group (TWG) and Department of
Science and Technology (DOST). The evaluators said that both
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SPECIES OF PARTNERSHIP. CONSTRUED AS CONTRACT. TYPES. JOINT
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MPC and TIMC have the same number of failed marks. Despite
that, Comelec awarded the project to MPC.
5 individuals and TIMC protested the award due to glaring
irregularities in the maneer in which the bidding process
had
been conducted. Because of the noncompliance with eligibility
as
well as technical and procedural requirements, they sought a
re-
bidding. Comelec rejected the protest. Hence, this petition.
Issue: W/N Comelec gravely abused its discretion when in
the exercise of its administrative functions, it awarded to
MPC the contract for the 2nd phase of teh comprehensive
automated election system.
Held: Yes
Ratio:
I. Locus Standi of the petitioners: they are suing in their
capacities as taxpayers. The issue is of transcendental
importance and of national interest. Comelecs flawed
bidding and questionable award o fhte contract to an
unqualified entity would impact directly on success
or failure of electoral process. It involves
disbursement of public funds. It is matter of public
concern.
II. Alleged prematurity due to non-exhaustion of
administrative remedies: Comelec contends that
any protest should have been resolved before any
award is made. TIMC and others did not questioned
the eligibility of MPC and recommendation of the
award. But the court said that the award was made
before a written report was made, so how can they
appeal. Comelec insists that report must not have to
be in writing, but the court said that how can TIMC
appeal, they can only appeal upon discovery the
putting of it in written report.
III. Observations in the report:
a. Date: April 15 (award) and April 21 (report),
comelec never explained the nature of its dire
neet to act immediately without waiting the
formal written report of BAC.
b. Exhaustion of remedies: the letter (protest)
itself was sufficient compliance with the
requirement. In the case of Paat vs. CA, it outlined
the instances wherein there is no need to exhaust
and the case at bar falls within these; (7) when it
(exhaustion) is unreasonable; (10) rule does not
provide a plain, speedy and adequate remedy,
and (11) circumstances indicating the urgency of
judicial intervention.
IV. Validity of the award:
a. Failure to establish the identity, existence and
eligibility of the alleged Consortium as a
bidder: the bidder was not Mega Pacific
eSolutions, Inc. (MPEI) but Mega Pacific
Consortium (MPC) on which MPEI is a part. But
the letter attached was signed only by Willy Yu,
president of MPEI without any proof that it was
on behalf of MPC. To assure itself properly of the
due existence, Comelecs BAC should have
examined the bidding documents submitted on
behalf of MPC.
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b. 2-envelop, 2-stage system: the evelope given
does not include a copy of the joint venture
agreement, the consortium agreement nor
memorandum agreement nor business plan
establishing the existence, composition and scope
of aggrupation. There was neither any indication
that MPEI was the lead company duly authorized
to act on behalf of the others.
c. Because of these, Comelec gravely abused its
discretion in failing to observe its own rules,
policies and guidelines with respect to bidding
process.
V. Commissioners not aware of consortium: there were 4
agreements between the parties in the consortium
instead of having only 1. But the problem is not that
there were 4 agreements but that Comelec never
bothered to check and based its decision on
documents that would establish the existence of the
consortium. The parties submitted financial
statements of each but still not enough to support
that there is a consortium.
VI. Sufficiency of the 4 agreements: agreements between
MPEI and SK C&C (MOA), MPEI and WeSolv (MOA),
MPEI and Election.com Ltd. (teaming agreement),
and MPEI and ePLDT (teaming agreement). MPEI
dealt separately with the members and they had
nothing to do with one another.
VII. Deficiencies have not been cured: it was argued that
the agreements were supplementary contract to
support the consortium. But it was unpersuasive.
VIII. Enforcement of Liabilities Problematic: the role or
position of MPEI or anyone else performing on its
behalf, is that of an independent contractor.
IX. Enforcement of Liabilities under the Civil Code not
possible: MPEI claimed that they are partners
therefore, solidarily liable but SK C&C, WeSolve,
Election.com and EPLDT never represented
themeselves as partners and members of MPC. And it
was stated in the agreement their extent of liabilities.
X. Eligibility of a Consortium Based on the collective
qualification of its members: members of MPC
should be evaluated on a collective basis. The
arrangements between MPEI and members does not
quealify them to be treated as consortium, at least of
type that government agencies like comelec should
be dealing with.
XI. DOST technical Tests Flunked by the automated
counting machines: TIM obtained 12 failed marks
and mostly bexuase of the counting machine itself.
Mega Pacific failed in 8 items but mostly on the
software which can be corrected by reprogramming.
a. Failure to meet the required accuracy rating.
There was confusion on W/N it is 99.9995
percent or 99.995 percent, however, the
machines failed to even reach the lesser of the
two. The court said that the essence of public
bidding is violated bec. It was awarded even
when the specifications were not met.
b. Failure of software to detect previously
downloaded data. Both companies failed to
meet to be able to detect previously
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SPECIES OF PARTNERSHIP. CONSTRUED AS CONTRACT. TYPES. JOINT
VENTURES
7 ALOJADO. ATIENZA. BALDERAMA. CAMARAO. CARANDANG. CRUZ.
ESTILLES. GARCIA. GONZAGA. HUI. LAZARO. SENAJON
downlaoaded precinct results and to prevent
these from being entered again into the counting
machine.
c. Inability to print audit trail. Both companies
failed. This is significant becuase it affects
credible elections.
d. Inadequacy of Post facto remedial measures.
Mega Pacific contends that it can be cured by
reprogramming. Comelec simply took the word of
the BAC as gospel truth, without even bothering
to inquire from DOST W/N it was true that the
deficiencies can be remedied by reprogramming
the software. It was alleged that the one used is
only the demo version and not the final version
yet! (court dismayed kasi nga nmn diba!!) it was
clear that it was awarded without comelec having
seen, much less evaluated, the final product the
software that would finaly be utilized come
election day.
e. Correction of defects: Certifications from DOST
fail to divulge in what manner andy by what
standards the condition were re-evaluated and
re-appraised and thereafter given a passing mark.
f. No explanation for lapses in the 2nd type of
software. Nothing on the record shows that the
tests and re-tests were intended to address the
serious deficiencies noted.
The Comelec violated the public policy on public biddings
(1) allowing MPC/MPEI to participate int eh biddingeven
though it was not qualified; (2) awarding the contract to
MPC/MPEI. And permitting the winning bidder to change
and alter the subject of the contract (software), in effect
allowing a substantive amendment without public bidding.
Before the country can hope to have a speedy and fraud free
automated election, it must be able to procure the proper
computerized harware and software legally, based on a
transparent and valid system of public bidding.
Concurring Opinion:
Ynares-Santiago: serious defects in the bidding process
indicate
a grave abuse of discretion onthe part of comelec which
seemed
to dispaly a marked bias in favor of awarding hte contract
to
MPEI or consortium. Whereas automated counting might greatly
speed up our election process, we should take great pains to
make certain that the machines used are not flawed.
Sandoval-gutterrez: if the computer science community
remains mute and allow unreliable voting systems to be
procured, then it abdicates what may be its only opportunity
to
ensure the democratic process in elections. Gov. Officials
need
help in understanding hte risks inherent in computer-related
elections system.
Separate Opinion:
Davide: it should be dismissed. Court did not issue TRO,
because
allegations were insufficient to justify or warrant the grant of
a
TRO. Parties were not barred from performing their
obligations.
Comelec has already paid a large portion of its obligation and
the
other party delivered the equipment. Setting aside the
contract
in question at this late hour may have distrubing effect.
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Vitug: issue is legality of comelecs award of contract. The SC
is
not a trier of facts, indeed, a review of evidence is not the
proper
office of a petition for certiorari, prohibition or
mandamus.
Dissenting Opinion:
Tinga: No re-bidding. There were more than 50 bidders, out
of
which MPC was qualified as the lowest calculated bid. There is
no
basis to conclude that there was a failure of bidding and
the
contract should be re-advertised and re-bid. The losing
bidders
have conceded MPCs eligibility and qualifications and
deferred
to the decision of comelec.
Regarding the nonsubmission of consortium agreements, it was
debunked by the consortium agreements themselves which were
notarized before the bidding deadline. To ignore it is to
unfairly
ascribe bad faith. MPEI was also authorized to sign in behalf
of
other members. Dismiss the petition.
Realubit vs. Jaso G.R. No. 178782 September 21, 2011 PETITIONER:
JOSEFINA P. REALUBIT RESPONDENTS: PROSENCIO D. JASO and EDEN G.
JASO
FACTS:
Josefina Realubit entered into a Joint Venture Agreement with
Biondo, a French national, for the operation of an ice
manufacturing business. With Realubit as the industrial partner and
Biondo as the capitalist partner, the parties agreed that they
would each receive 40% of the net profit, with the remaining
20% to be used for the payment of the ice making machine which
was purchased for the business.
For and in consideration of the sum of P500,000.00, however,
Biondo subsequently executed a Deed of Assignment, transferring all
his rights and interests in the business in favor Eden, the wife of
Jaso. With Biondos eventual departure from the country, the Spouses
Jaso caused their lawyer to send Josefina a letter apprising her of
their acquisition of said Frenchmans share in the business and
formally demanding an accounting, inventory, and remittance of
their portion of its profits.
Sps. Jaso filed a Complaint against Sps. Realubit, and their
alleged dummies, for specific performance, accounting, examination,
audit and inventory of assets and properties, dissolution of the
joint venture, and appointment of a receiver with the RTC.
In its decision, the RTC ruled in favor of the Sps. Jaso; that
the latter had been subrogated to Biondos rights in the business in
view of their valid acquisition of the latters share as capitalist
partner.
The CA ordered the dissolution of the joint venture between
Realubit and Biondo and the subsequent conduct of accounting,
liquidation of assets and division of shares of the joint venture
business.
ISSUE(S):
(1) Whether or not there was a valid assignment of rights to the
joint venture.
(2) Whether the court may order Josefina Realubit as partner in
the joint venture to render an accounting to one who is not a
partner in said joint venture.
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(3) Whether Sps. Jaso have any right in the joint venture and in
the separate ice business of Sps. Realubit.
RULING:
(1) YES. (2) YES. (3) YES.
The petition is DENIED, the CA Decision is AFFIRMED.
RATIO:
Generally understood to mean an organization formed for some
temporary purpose, a joint venture is likened to a particular
partnership or one which has for its object determinate things,
their use or fruits, or a specific undertaking, or the exercise of
a profession or vocation. The rule is settled that joint ventures
are governed by the law on partnerships which are, in turn, based
on mutual agency or delectus personae. Insofar as a partners
conveyance of the entirety of his interest in the partnership is
concerned, Article 1813 of the Civil Code provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in
the partnership does not itself dissolve the partnership, or, as
against the other partners in the absence of agreement, entitle the
assignee, during the continuance of the partnership, to interfere
in the management or administration of the partnership business or
affairs, or to require any information or account of partnership
transactions, or to inspect the partnership books; but it merely
entitles the assignee to receive in accordance with his contracts
the profits to which the assigning partners would otherwise be
entitled. However, in case of fraud in the management of the
partnership, the assignee may avail himself of the usual
remedies.
In the case of a dissolution of the partnership, the assignee is
entitled to receive his assignors interest and may require an
account from the date only of the last account agreed to by all the
partners.
From the foregoing provision, it is evident that the transfer by
a partner of his partnership interest does not make the assignee of
such interest a partner of the firm, nor entitle the assignee to
interfere in the management of the partnership business or to
receive anything except the assignees profits. The assignment does
not purport to transfer an interest in the partnership, but only a
future contingent right to a portion of the ultimate residue as the
assignor may become entitled to receive by virtue of his
proportionate interest in the capital.
Since a partners interest in the partnership includes his share
in the profits, the CA committed no reversible error in ruling that
the Spouses Jaso are entitled to Biondos share in the profits,
despite Juanitas lack of consent to the assignment of said
Frenchmans interest in the joint venture.
Although Eden did not, moreover, become a partner as a
consequence of the assignment and/or acquire the right to require
an accounting of the partnership business, the CA correctly granted
her prayer for dissolution of the joint venture conformably with
the right granted to the purchaser of a partners interest under
Article 1813 of the Civil Code.
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JVA MUST BE CONSTRUED AS CONTRACT
Torres v CA
ANTONIA TORRES assisted by her husband, ANGELO TORRES; and
EMETERIA BARING, petitioners, vs. COURT OF APPEALS and MANUEL
TORRES, respondents.
G.R. No. 134559 December 9, 1999
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent Manuel
Torres for the development of a parcel of land into a subdivision.
Pursuant to the contract, they executed a Deed of Sale covering the
said parcel of land in favor of respondent, who then had it
registered in his name. By mortgaging the property, respondent
obtained from Equitable Bank a loan of P40,000 which, under the
Joint Venture Agreement, was to be used for the development of the
subdivision. 4 All three of them also agreed to share the proceeds
from the sale of the subdivided lots.
The project did not push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because of
"respondent's lack of funds or means and skills." They add that
respondent used the loan not for the development of the
subdivision, but in furtherance of his own company, Universal
Umbrella Company.
On the other hand, respondent alleged that he used the loan to
implement the Agreement. With the said amount, he was able to
effect the survey and the subdivision of the lots. He secured the
Lapu Lapu City Council's approval of the subdivision project which
he advertised in a local newspaper. He also caused the construction
of roads, curbs and gutters. Likewise, he entered into a contract
with an engineering firm for the building of sixty low-cost housing
units and actually even set up a model house on one of the
subdivision lots. He did all of these for a total expense of
P85,000.
Respondent claimed that the subdivision project failed, however,
because petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests,
petitioners refused to cause the clearing of the claims, thereby
forcing him to give up on the project. 5
Subsequently, petitioners filed a criminal case for estafa
against respondent and his wife, who were however acquitted.
Thereafter, they filed the present civil case which, upon
respondent's motion, was later dismissed by the trial court in an
Order dated September 6, 1982. On appeal, however, the appellate
court remanded the case for further proceedings. Thereafter, the
RTC issued its assailed Decision, which, as earlier stated, was
affirmed by the CA.
Issue:
Whether or not a partnership exist between the petitioners and
respondent?
Held:
Yes.
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Petitioners deny having formed a partnership with respondent.
They contend that the Joint Venture Agreement and the earlier Deed
of Sale, both of which were the bases of the appellate court's
finding of a partnership, were void.
In the same breath, however, they assert that under those very
same contracts, respondent is liable for his failure to implement
the project. Because the agreement entitled them to receive 60
percent of the proceeds from the sale of the subdivision lots, they
pray that respondent pay them damages equivalent to 60 percent of
the value of the property. 9
Under the above-quoted Agreement, petitioners would contribute
property to the partnership in the form of land which was to be
developed into a subdivision; while respondent would give, in
addition to his industry, the amount needed for general expenses
and other costs. Furthermore, the income from the said project
would be divided according to the stipulated percentage. Clearly,
the contract manifested the intention of the parties to form a
partnership. 11
It should be stressed that the parties implemented the contract.
Thus, petitioners transferred the title to the land to facilitate
its use in the name of the respondent. On the other hand,
respondent caused the subject land to be mortgaged, the proceeds of
which were used for the survey and the subdivision of the land. As
noted earlier, he developed the roads, the curbs and the gutters of
the subdivision and entered into a contract to construct low-cost
housing units on the property.
Obviously, both parties did their part in the contribution to a
common fund and a partnership clearly existed between the two.
For the contention that the partnership is void:
First, they argue that the Joint Venture Agreement is void under
Article 1422 14 of the Civil Code, because it is the direct result
of an earlier illegal contract, which was for the sale of the land
without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly
states that the consideration for the sale was the expectation of
profits from the subdivision project. Its first stipulation states
that petitioners did not actually receive payment for the parcel of
land sold to respondent. Consideration, more properly denominated
as cause, can take different forms, such as the prestation or
promise of a thing or service by another. 15
Second, Petitioners argue that the Joint Venture Agreement is
void under Article 1773 of the Civil Code, which provides:
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property
is not made, signed by the parties, and attached to the public
instrument.
They contend that since the parties did not make, sign or attach
to the public instrument an inventory of the real property
contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to
protect third persons. Thus, the eminent Arturo M. Tolentino states
that under the aforecited provision which is a complement of
Article 1771, 12 "The execution of a public instrument would be
useless if there is no inventory of the property contributed,
because without its designation and description, they cannot be
subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in
fraud to those who contract with the partnership in the belief [in]
the efficacy of
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the guaranty in which the immovables may consist. Thus, the
contract is declared void by the law when no such inventory is
made." The case at bar does not involve third parties who may be
prejudiced.
Second, petitioners themselves invoke the allegedly void
contract as basis for their claim that respondent should pay them
60 percent of the value of the property. 13 They cannot in one
breath deny the contract and in another recognize it, depending on
what momentarily suits their purpose.
In short, the alleged nullity of the partnership will not
prevent courts from considering the Joint Venture Agreement an
ordinary contract from which the parties' rights and obligations to
each other may be inferred and enforced.
Courts are not authorized to extricate parties from the
necessary consequences of their acts, and the fact that the
contractual stipulations may turn out to be financially
disadvantageous will not relieve parties thereto of their
obligations. They cannot now disavow the relationship formed from
such agreement due to their supposed misunderstanding of its
terms.
TYPES OF JOINT VENTURE AGREEMENTS
Mendoza v Henaez G.R. No. 175885 February 13, 2009 ZENAIDA G.
MENDOZA, Petitioner, vs. ENGR. EDUARDO PAULE, ENGR. ALEXANDER
COLOMA and NATIONAL
IRRIGATION ADMINISTRATION (NIA MUOZ, NUEVA ECIJA), Respondents.
G.R. No. 176271 February 13, 2009 MANUEL DELA CRUZ, Petitioner, vs.
ENGR. EDUARDO M. PAULE, ENGR. ALEXANDER COLOMA and NATIONAL
IRRIGATION ADMINISTRATION (NIA MUOZ, NUEVA ECIJA), Respondents.
FACTS: Paule is the proprietor of E.M. Paule Construction and
Trading (EMPCT). On May 24, 1999, PAULE executed an SPA authorizing
Mendoza to participate in the pre-qualification and bidding of a
National Irrigation Administration (NIA) project and to represent
him in all transactions related thereto. Mendoza was able to
participate and win in the NIA bidding which involved the
construction of a road system, among others. When Manuel dela Cruz
learned that Mendoza is in need of heavy equipment for use in the
NIA project, he met up with her resulting to a concluded
transaction wherein Mendoza signed two Job Orders/Agreement for the
lease of the latters heavy equipment (dump trucks for hauling
purposes) to EMPCT. On April 27, 2000, PAULE revoked the SPA he
previously issued in favor of Mendoza; consequently, NIA refused to
make payment to her on her billings. Dela Cruz, therefore, could
not be paid for the rent of the equipment. Upon advice of Mendoza,
dela Cruz addressed his demands for payment of lease rentals
directly to NIA but the latter refused to acknowledge the same and
informed Cruz that it would be remitting payment only to EMPCT as
the winning contractor for the project. Dela Cruz then instituted
an action for collection of sum of money with damages. In her
cross-claim, Mendoza alleged that because of Paules "whimsical
revocation" of the SPA, she was
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barred from collecting payments from NIA, thus resulting in her
inability to fund her checks which she had issued to suppliers of
materials, equipment and labor for the project. She claimed that
estafa and B.P. Blg. 22 cases were filed against her; that she
could no longer finance her childrens education; that she was
evicted from her home; that her vehicle was foreclosed upon; and
that her reputation was destroyed, thus entitling her to actual and
moral damages in the respective amounts of P3 million and P1
million. Meanwhile, and after the institution of the complaint by
dela Cruz, PAULE again constituted MENDOZA as his attorney-in-fact,
this time with much broader authority.
ISSUE: Whether or not there an agency is in existence, where
Paule is the principal and Mendoza is the agent, under the SPA and
Paule is thus liable for obligations (unpaid construction
materials, fuel and heavy equipment rentals) incurred by the latter
for the purpose of implementing and carrying out the NIA project
awarded to EMPCT RULING/RATIO: Yes, there exists an agency. Records
show that PAULE (or, more appropriately, EMPCT) and MENDOZA had
entered into a partnership in regard to the NIA project. PAULEs
contribution thereto is his contractors license and expertise,
while MENDOZA would provide and secure the needed funds for labor,
materials and services; deal with the suppliers and
sub-contractors; and in general and together with PAULE, oversee
the effective implementation of the project. For this, PAULE would
receive as his share three per cent (3%) of the project cost while
the rest of the profits shall go to MENDOZA.
Moreover, it does not speak well for PAULE that he reinstated
MENDOZA as his attorney-in-fact, this time with broader powers,
even after CRUZ has already filed his complaint. Despite knowledge
that he was already being sued on the SPAs, he proceeded to execute
another in MENDOZAs favor, and even granted her broader powers of
administration than in those being sued upon. If he truly believed
that MENDOZA exceeded her authority with respect to the initial
SPA, then he would not have issued another SPA. If he thought that
his trust had been violated, then he should not have executed
another SPA in favor of MENDOZA, much less grant her broader
authority. Given the present factual milieu, CRUZ has a cause of
action against PAULE and MENDOZA. There was no valid reason for
PAULE to revoke MENDOZAs SPAs. Since MENDOZA took care of the
funding and sourcing of labor, materials and equipment for the
project, it is only logical that she controls the finances, which
means that the SPAs issued to her were necessary for the proper
performance of her role in the partnership, and to discharge the
obligations she had already contracted prior to revocation. PAULEs
revocation of the SPAs was done in evident bad faith. Admitting all
throughout that his only entitlement in the partnership with
MENDOZA is his 3% royalty for the use of his contractors license,
he knew that the rest of the amounts collected from NIA was owing
to MENDOZA and suppliers of materials and services, as well as the
laborers. Yet, he deliberately revoked MENDOZAs authority such that
the latter could no longer collect from NIA the amounts necessary
to proceed with the project and settle outstanding obligations.
Notwithstanding the immutable character of PAULEs liability to
MENDOZA, however, the exact amount thereof is yet to be determined
by the trial court, after receiving evidence for and in
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behalf of MENDOZA on her counterclaim, which must be considered
pending and unresolved.
Philex Mining v CIR
Facts:
Petitioner Philex Mining Corporation, entered into an
agreement
with Baguio Gold Mining Company for the former to manage and
operate the latter's mining claim, known as the Sto. Nino mine,
located in Benguet Province. The parties' agreement was denominated
as "Power of Attorney". In the course of managing and operating the
project, Philex Mining made advances of cash and property in
accordance with paragraph 5 of the agreement. However, the mine
suffered continuing losses over the years which resulted to
petitioner's withdrawal as manager of the mine and in the eventual
cessation of mine operation. A few months after, the parties
executed an "Amendment to Compromise with Dation in Payment" where
the parties determined that Baguio Gold's indebtedness to
petitioner actually amounted to P259,137,245.00, which sum included
liabilities of Baguio Gold to other creditors that petitioner had
assumed as guarantor. These liabilities pertained to long-term
loans contracted by Baguio Gold from the Bank of America NT &
SA and Citibank N.A. This time, Baguio Gold undertook to pay
petitioner in two segments by first assigning its tangible assets
and then transferring its equitable title in its Philodrill assets.
The parties then ascertained that Baguio Gold had a remaining
outstanding indebtedness to petitioner in the amount of
P114,996,768.00.
In its 1982 annual income tax return, petitioner deducted from
its gross income the amount of P112,136,000.00 as "loss on
settlement of receivables from Baguio Gold against reserves and
allowances."However, the Bureau of Internal Revenue (BIR)
disallowed the amount as deduction for bad debt and assessed
petitioner a deficiency income tax of P62,811,161.39. Petitioner
emphasized that the debt arose out of a valid management contract
it entered into with Baguio Gold. The bad debt deduction
represented advances made by petitioner which, pursuant to the
management contract, formed part of Baguio Gold's "pecuniary
obligations" to petitioner. It also included payments made by
petitioner as guarantor of Baguio Gold's long-term loans which
legally entitled petitioner to be subrogated to the rights of the
original creditor. Issue: W/N the contractual relationship created
was that of a partnership or joint venture Held:
An examination of the "Power of Attorney" reveals that a
partnership or joint venture was indeed intended by the parties.
Under a contract of partnership, two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
While a corporation, like petitioner, cannot generally enter into a
contract of partnership unless authorized by law or its charter, it
has been held that it may enter into a joint venture which is akin
to a particular partnership. Perusal of the agreement denominated
as the "Power of Attorney" indicates that the parties had intended
to create a partnership and
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establish a common fund for the purpose. They also had a joint
interest in the profits of the business as shown by a 50-50 sharing
in the income of the mine.
MARSMAN DRYSDALE v PHIL GEOANALYTICS G.R. No. 183374/183376 June
29, 2010
MARSMAN DRYSDALE LAND, INC. (MARSMAN), petitioner, vs.
PHILIPPINE GEOANALYTICS, INC (PGI). AND GOTESCO
PROPERTIES, INC., respondents. / GOTESCO PROPERTIES, INC.,
petitioner, vs. MARSMAN DRYSDALE LAND, INC. AND PHILIPPINE
GEOANALYTICS, INC., respondents.
FACTS
Marsman and Gotesco entered into a JV Agreement for
the construction and development of an office building on a
Makati property owned by Marsman. The terms were to invest
on a 50:50 basis, where Marsman will contribute the property
and Gotesco will contribute P420m in cash, which shall be
payable P50m initially and the balance paid upon progress
billings.
Said terms also provide the following:
Construction funding shall be obtained from the said cash
contribution
All funds advanced by a party shall be repaid by the JV. If any
Party agrees to make an advance to the Project but fails
to do so (in whole or in part) the other party may advance the
shortfall and the Party in default shall indemnify the Party making
the substitute advance on demand for all of its losses, costs and
expenses incurred in so doing.
Based on a Technical Service Contract (TSC), the JV
engaged PGI to provide a subsurface soil exploration,
seismic
study and geotechnical engineering for the project. PGI was
only
able to complete the seismic study. It failed to perform the
exploration, only able to drill four of five boreholes, arguing
that
the parties failed to clear the area where the exploration was
to
be made. PGI billed the JV for the partial exploration but the
JV
failed to pay. The project was eventually shelved because of
unfavorable economic conditions.
PGI then proceeded to file a case for collection of a sum of
money against the parties. Marsman argued that Gotesco,
under
the agreement, was solely liable for the monetary expenses of
the
project. In its defense, Gotesco claims that PGI has yet to
complete its services and that Marsman failed to clear the
property which prevented PGI from completing its work.
The QC RTC ruled that Marsman and Gotesco are liable
jointly to PGI. The CA modified the decision ordering Gotesco
to
pay PGI, with Marsman reimbursing him 50% of the aggregate
sum due PGI. According to the CA, notwithstanding the terms
of
the JVA, the JV cannot avoid payment of PGI's claim since the
JVA
could not affect third persons like [PGI] because of the basic
civil
law principle of relativity of contracts.
ISSUE
WON Marsman is jointly liable to PGI
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HELD / RATIO
YES. PGI entered into a contract with the JV and was
never a party to the JVA. While the JVA clearly spelled out,
inter
alia, the capital contributions of Marsman Drysdale (land)
and
Gotesco (cash) as well as the funding and financing
mechanism
for the project, the same cannot be used to defeat the
lawful
claim of PGI against the two joint venturers-partners.
Based on Art. 1207 and 1208, their obligation to PGI is
presumed to be joint. The terms of their contract only affect
the
liability of the joint venturers as against each other.
A joint venture being a form of partnership, it is to be
governed by the laws on partnership. Art. 1797 provides: The
losses and profits shall be distributed in conformity with
the
agreement. If only the share of each partner in the profits
has
been agreed upon, the share of each in the losses shall be
in
the same proportion.
In the absence of stipulation, the share of each in the
profits and losses shall be in proportion to what he may
have
contributed, but the industrial partner shall not be liable for
the
losses. As for the profits, the industrial partner shall receive
such
share as may be just and equitable under the circumstances.
If
besides his services he has contributed capital, he shall also
receive
a share in the profits in proportion to his capital.
In the JVA, the parties did not provide for the splitting of
losses. Applying Art. 1797, they are liable to PGI based on
the
proportion to their profits, which is 50:50.
The CAs decision, however, must be modified There is no
need for Gotesco to reimburse Marsman. Allowing Marsman to
recover from Gotesco what it paid to PGI would not only be
contrary to the law on partnership on division of losses but
would partake of a clear case of unjust enrichment at
Gotesco's
expense.
TIOSEJO v ANG J. TIOSEJO INVESTMENT CORP., Petitioner vs SPOUSES
BENJAMIN AND ELEANOR ANG, respondents G.R. No. 174149, September 8,
2010 TIOSEJO entered into a Joint Venture Agreement (JVA) with
Primetown Property Group, Inc. (PPGI) for the development of a
residential condominium project on TIOSEJOs property. TIOSEJO
contributed the property to the joint venture and PPGI undertook to
develop the condominium. The JVA provided that the developed units
shall be shared by Tiosejo and the PPGI at a certain ratio. Both
parties were allowed to pre-sell the units pertaining to them. By
virtue of a License to Sell issued by the Housing and Land Use
Regulatory Board (HLURB), PPGI executed Contract to Sell with
Spouses Ang over condo Unit A-1006, and another Contract to Sell
over a certain parking space in the condo. Later, Spouses Ang filed
against TIOSEJO and PPGI the complaint for the rescission of the
aforesaid Contracts to Sell , contending that they were assured by
TIOSEJO and PPGI that the subject
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condominium unit and parking space would be available for
turn-over and occupancy in December 1998. The spouses averred that
they have instructed TIOSEJO and PPGI to stop depositing the
post-dated checks they issued and to cancel said Contracts to Sell;
and, that despite several demands, TIOSEJO and PPGI have failed and
refused to refund the amount that they already paid. PPGI alleged
that the delay in the completion of the project was due to the
economic crisis which affected the country at the time and that the
unexpected and unforeseen inflation as well as increase in interest
rates and cost of building materials constitute force majeure and
were beyond its control. TIOSEJO also denied the allegations, and
contended that:
- by the terms of the JVA, each party was individually
responsible for the marketing and sale of the units pertaining to
its share;
- not being privy to the Contracts to Sell executed by PPGI and
the spouses, it did not receive any portion of the payments by the
spouses;
- without any contributory fault and negligence on its part,
PPGI breached its undertakings under the JVA by failing to complete
the condominium project.
The Housing and Land Use (HLU) Arbiter declared the Contracts to
Sell cancelled and rescinded on account of the non-completion of
the condominium project. On the ground that the JVA created a
partnership liability on their part, TIOSEJO and PPGI, as co-owners
of the condominium project, were ordered to pay the spouses claim
for refund plus damages. ISSUE: W/N TIOSEJO WAS RIGHTFULLY HELD
SOLIDARILY LIABLE WITH PPGI
HELD: YES. RATIO: HLURB Arbiter and Board correctly held TIOSEJO
liable alongside PPGI for the spouses claims pursuant to Section 20
in relation to Section 38 of P.D. 957. By the express terms of the
JVA, it appears that TIOSEJO not only retained ownership of the
property pending completion of the condominium project but had also
bound itself to answer liabilities proceeding from contracts
entered into by PPGI with third parties. Article VIII, Section 1 of
the JVA distinctly provides as follows: Sec. 1. Rescission and
damages. xxx xxx xxx xxx
In the event that the Developer shall be rendered unable to
complete the Condominium Project, and such failure is directly and
solely attributable to the Developer, the Owner shall send written
notice to the Developer to cause the completion of the Condominium
ProjectIn any case, the Owner shall respect and strictly comply
with any covenant entered into by the Developer and third parties
with respect to any of its units in the Condominium Project. To
enable the owner to comply with this contingent liability, the
Developer shall furnish the Owner with a copy of its contracts with
the said buyers on a month-to-month basis. Finally, in case the
Owner would be constrained to assume the obligations of the
Developer to its own buyers, the Developer shall lose its right to
ask for indemnity for whatever it
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may have spent in the Development of the Project.
Viewed in the light of the foregoing provision of the JVA,
TIOSEJO cannot avoid liability by claiming that it was not in any
way privy to the Contracts to Sell executed by PPGI and the
spouses. As correctly argued by the the spouses, a joint venture is
considered in this jurisdiction as a form of partnership and is,
accordingly, governed by the law of partnerships. Under Article
1824 of the Civil Code of the Philippines, all partners are
solidarily liable with the partnership for everything chargeable to
the partnership, including loss or injury caused to a third person
or penalties incurred due to any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners. Whether
innocent or guilty, all the partners are solidarily liable with the
partnership itself.
Aurbach v. Sanitary Wares Facts: Saniwares, a domestic
corporation was incorporated for the primary purpose of
manufacturing and marketing sanitary wares. One of the
incorporators, Mr. Baldwin Young went abroad to look for foreign
partners, European or American who could help in its expansion
plans. ASI, a foreign corporation domiciled in Delaware, United
States entered into an Agreement with Saniwares and some Filipino
investors whereby ASI and the Filipino investors agreed to
participate in the ownership of an enterprise which would engage
primarily in the business of
manufacturing in the Philippines and selling here and abroad
vitreous china and sanitary wares. The parties agreed that the
business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall
initially be "Sanitary Wares Manufacturing Corporation. The
Agreement has the following provisions relevant to the issues in
these cases on the nomination and election of the directors of the
corporation: 3. Articles of Incorporation (a) The Articles of
Incorporation of the Corporation shall be substantially in the form
annexed hereto as Exhibit A and, insofar as permitted under
Philippine law, shall specifically provide for (1) Cumulative
voting for directors: 5. Management (a) The management of the
Corporation shall be vested in a Board of Directors, which shall
consist of nine individuals. As long as American-Standard shall own
at least 30% of the outstanding stock of the Corporation, three of
the nine directors shall be designated by American-Standard, and
the other six shall be designated by the other stockholders of the
Corporation. The joint enterprise thus entered into by the Filipino
investors and the American corporation prospered but their
relationship deteriorated. Their basic disagreement was due to
their desire to expand the export operations of the company to
which ASI objected as it apparently had other subsidiaries of joint
venture groups in the countries where Philippine exports were
contemplated. In their annual stockholders meeting, the ASI group
nominated three persons while the Philippine investors nominated
six. The consistent practice of the parties during the past annual
stockholders' meetings was to nominate only nine persons as
nominees for the nine-member board of directors, and the legal
advice of Saniwares' legal counsel.
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These incidents triggered off the filing of separate petitions
by the parties with the Securities and Exchange Commission (SEC).
The two petitions were consolidated and tried jointly Issue/s: The
main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders' meeting
held on March 8, 1983. To answer this question the following
factors should be determined: (1) the nature of the business
established by the parties whether it was a joint venture or a
corporation and (2) whether or not the ASI Group may vote their
additional 10% equity during elections of Saniwares' board of
directors. Held: An examination of important provisions of the
Agreement as well as the testimonial evidence presented by the
Lagdameo and Young Group shows that the parties agreed to establish
a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern
its policy making body are all consistent with a joint venture and
not with an ordinary corporation. Under the Agreement, ASI agreed
to provide technology and know-how to Saniwares and the latter paid
royalties for the same. Under the Agreement there are two groupsof
stockholders who established acorporation with provisions for a
specialcontractual relationship between the parties. The provision
that ASI shall designate 3 out of the 9 directors and the other
stockholders shall designate the other 6, clearly indicate that
there are two distinct groups in Saniwares, namely ASI, which owns
40% of the capital stock and the Philippine National stockholders
who own the balance of 60%, and that 2) ASI is given certain
protections as the minority stockholder.
Moreover, ASI in its communications referred to the enterprise
as joint venture. As correctly held by the SEC Hearing Officer: It
is said that participants in a joint venture, in organizing the
joint venture deviate from the traditional pattern of corporation
management. A noted authority has pointed out that just as in close
corporations, shareholders' agreements in joint venture
corporations often contain provisions which do one or more of the
following: (1) require greater than majority vote for shareholder
and director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of directors;(3)
give to the shareholders control over the selection and retention
of employees; and (4)set up a procedure for the settlement of
disputes by arbitration. The extent of ASI's participation in the
management of the corporation is spelled out in the Agreement:
three of the nine directors shall be designated by ASI and the
remaining six by the other stockholders, i.e., the Filipino
stockholders. Having entered into a well-defined contractual
relationship, it is imperative that the parties should honor and
adhere to their respective rights and obligations thereunder. This
Court should recognize and uphold the division of the stockholders
into two groups, and at the same time uphold the right of the
stockholders within each group to cumulative voting in the process
of determining who the group's nominees would be. As suggested by
Salazar himself, this means that if the Filipino stockholders
cannot agree who their six nominees will be, a vote would have to
be taken among the Filipino stockholders only. During this voting,
each Filipino stockholder can cumulate his votes. ASI, however,
should not be allowed to interfere in the
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voting within the Filipino group. Otherwise, ASI would be able
to designate more than the three directors it is allowed to
designate under the Agreement, and may even be able to get a
majority of the board seats, a result which is clearly contrary to
the contractual intent of the parties. The ASI Group and petitioner
Salazar, now reiterate their theory that the ASI Group has the
right to vote their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a corporation the
right to cumulate their votes in electing directors. The main
distinction is that the partnership contemplates a general business
with some degree of continuity, while the joint venture is formed
for the execution of a single transaction, and is thus of a
temporary nature. This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for
its object a specific undertaking. It would seem therefore that
under Philippine law, a joint venture is a form of partnership and
should thus be governed by the law of partnerships.
JG Summit v CA
FACTS
The National Investment and Development Corporation (NIDC),
a government corporation, entered into a Joint Venture
Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of
Kobe,
Japan (KAWASAKI) for the construction, operation and
management of the Subic National Shipyard, Inc. (SNS) which
subsequently became the Philippine Shipyard and Engineering
Corporation (PHILSECO). Under the JVA, the NIDC and
KAWASAKI will contribute P330 million for the capitalization
of
PHILSECO in the proportion of 60%-40% respectively. One of
its
salient features is the grant to the parties of the right of
first
refusal should either of them decide to sell, assign or transfer
its
interest in the joint venture.
NIDC transferred all its rights, title and interest in PHILSECO
to
the Philippine National Bank (PNB). Such interests were
subsequently transferred to the National Government pursuant
to Administrative Order No. 14. President Corazon C. Aquino
issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT)
to
take title to, and possession of, conserve, manage and dispose
of
non-performing assets of the National Government. Thereafter,
a
trust agreement was entered into between the National
Government and the APT wherein the latter was named the
trustee of the National Government's share in PHILSECO. As a
result of a quasi-reorganization of PHILSECO to settle its
huge
obligations to PNB, the National Government's shareholdings
in
PHILSECO increased to 97.41% thereby reducing KAWASAKI's
shareholdings to 2.59%.
In the interest of the national economy and the government,
the
COP and the APT deemed it best to sell the National
Government's share in PHILSECO to private entities. After a
series of negotiations between the APT and KAWASAKI, they
agreed that the latter's right of first refusal under the JVA
be
"exchanged" for the right to top by five percent (5%) the
highest
bid for the said shares. They further agreed that KAWASAKI
would be entitled to name a company in which it was a
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SPECIES OF PARTNERSHIP. CONSTRUED AS CONTRACT. TYPES. JOINT
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21 ALOJADO. ATIENZA. BALDERAMA. CAMARAO. CARANDANG. CRUZ.
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stockholder, which could exercise the right to top. KAWASAKI
informed APT that Philyards Holdings, Inc. (PHI) would
exercise
its right to top.
At the pre-bidding conference, interested bidders were given
copies of the JVA between NIDC and KAWASAKI, and of the
Asset
Specific Bidding Rules (ASBR) drafted for the National
Government's 87.6% equity share in PHILSECO. The provisions
of the ASBR were explained to the interested bidders who
were
notified when the bidding would be held.
At the public bidding petitioner J.G. Summit Holdings, Inc.
submitted a bid of Two Billion and Thirty Million Pesos
(P2,030,000,000.00) with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top.
As petitioner was declared the highest bidder, the COP
approved
the sale "subject to the right of Kawasaki Heavy Industries,
Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as
specified in the bidding rules."
Petitioner informed APT that it was protesting the offer of PHI
to
top its bid on the grounds that: (a) the KAWASAKI/PHI
consortium composed of KAWASAKI, [PHILYARDS], Mitsui,
Keppel, SM Group, ICTSI and Insular Life violated the ASBR
because the last four (4) companies were the losing bidders
thereby circumventing the law and prejudicing the weak
winning
bidder; (b) only KAWASAKI could exercise the right to top;
(c)
giving the same option to top to PHI constituted unwarranted
benefit to a third party; (d) no right of first refusal can
be
exercised in a public bidding or auction sale; and (e) the
JG
Summit consortium was not estopped from questioning the
proceedings.
Petitioner was notified that PHI had fully paid the balance of
the
purchase price of the subject bidding. The APT notified
petitioner that PHI had exercised its option to top the highest
bid
and that the COP had approved the same. The APT and PHI
executed a Stock Purchase Agreement.
ISSUE
Whether KAWASAKI had a valid right of first refusal over
PHILSECO shares under the JVA considering that PHILSECO
owned land until the time of the bidding and KAWASAKI
already
held 40% of PHILSECOs equity.
HELD/RATIO
YES. First of all, the right of first refusal is a property
right of
PHILSECO shareholders, KAWASAKI and NIDC, under the terms
of their JVA. This right allows them to purchase the shares
of
their co-shareholder before they are offered to a third party.
The
agreement of co-shareholders to mutually grant this right to
each other, by itself, does not constitute a violation of
the
provisions of the Constitution limiting land ownership to
Filipinos and Filipino corporations. As PHILYARDS correctly
puts it, if PHILSECO still owns land, the right of first refusal
can
be validly assigned to a qualified Filipino entity in order
to
maintain the 60%-40% ratio. This transfer, by itself, does
not
amount to a violation of the Anti-Dummy Laws, absent proof
of
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22 ALOJADO. ATIENZA. BALDERAMA. CAMARAO. CARANDANG. CRUZ.
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any fraudulent intent. The transfer could be made either to
a
nominee or such other party which the holder of the right of
first
refusal feels it can comfortably do business with.
Alternatively,
PHILSECO may divest of its landholdings, in which case
KAWASAKI, in exercising its right of first refusal, can exceed
40%
of PHILSECOs equity. In fact, it can even be said that if
the
foreign shareholdings of a landholding corporation exceeds
40%, it is not the foreign stockholders ownership of the
shares which is adversely affected but the capacity of the
corporation to own land that is, the corporation becomes
disqualified to own land. This finds support under the basic
corporate law principle that the corporation and its
stockholders
are separate juridical entities. In this vein, the right of
first
refusal over shares pertains to the shareholders whereas the
capacity to own land pertains to the corporation. Hence, the
fact
that PHILSECO owns land cannot deprive stockholders of their
right of first refusal. No law disqualifies a person from
purchasing shares in a landholding corporation even if the
latter will exceed the allowed foreign equity, what the law
disqualifies is the corporation from owning land.