AgPart 925- JV Digest

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



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.



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.



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



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.



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



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.



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.



(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.



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.



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



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



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



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



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



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



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



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.



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



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



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



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.

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