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1.

Kilosbayan vs Guingona
Same; Same; Same; The challenged Contract of Lease violates or contravenes the
exception in Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42.We agree with
the petitioners that it does, notwithstanding its denomination or designation as a
Contract of Lease. We are neither convinced nor moved or fazed by the insistence
and forceful arguments of the PGMC that it does not because in reality it is only an
independent contractor for a piece of work, i.e., the building and maintenance of a
lottery system to be used by the PCSO in the operation of its lottery franchise.
Whether the contract in question is one of lease or whether the PGMC is merely an
independent contractor should not be decided on the basis of the title or
designation of the contract but by the intent of the parties, which may be gathered
from the provisions of the contract itself. Animus hominis est anima scripti. The
intention of the party is the soul of the instrument. In order to give life or effect to
an instrument, it is essential to look to the intention of the individual who executed
it. And, pursuant to Article 1371 of the Civil Code, to determine the intention of the
contracting parties, their contemporaneous and subsequent acts shall be principally
considered. To put it more bluntly, no one should be deceived by the title or
designation of a contract. Kilosbayan, Incorporated vs. Guingona, Jr., 232 SCRA 110,
G.R. No. 113375 May 5, 1994
Same; Same; Same; Same; The contract is not in reality a contract of lease but one
where the statutorily proscribed collaboration or association or joint venture exists
between the contracting parties.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 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.
Same; Same; Same; Same; Court declares the contract of lease invalid for being
contrary to law.We thus declare that the challenged Contract of Lease violates the
exception provided for in paragraph B, Section 1 of R.A. No. 1169, as amended by
B.P. Blg. 42, and is, therefore, invalid for being contrary to law. This conclusion
renders unnecessary further discussion on the other issues raised by the
petitioners.

Constitutional Law; Franchise; The contract of lease is a joint venture between PCSO
and PGMC.On a slightly different plane and, perhaps simplified, I consider the
agreement or arrangement between the PCSO and PGMC a joint venture because
each party to the contract contributes its share in the enterprise or project. PGMC
contributes its facilities, equipment and know-how (expertise). PCSO contributes
(aside from its charter) the market, directly or through dealersand this to me is
most importantin the totality or mass of the Filipino gambling elements who will
invest in lotto tickets. PGMC will get its 4.9% of gross receipts (with assumption of
certain risks in the course of lotto operations); the residue of the whole exercise will
go to PCSO. To any person with a minimum of business know-how, this is a joint
venture between PCSO and PGMC, plain and simple. Kilosbayan, Incorporated vs.
Guingona, Jr., 232 SCRA 110, G.R. No. 113375 May 5, 1994

Kilosbayan v. Guingona
Facts:
This is a special civil action for prohibition and injunction, with a prayer for a
temporary restraining order and preliminary injunction which seeks to prohibit and
restrain the implementation of the Contract of Lease executed by the PCSO and the
Philippine Gaming Management Corporation in connection with the on-line lottery
system,
also
know
as
lotto.
Petitioners strongly opposed the setting up of the on-line lottery system on the basis
of serious moral and ethical considerations. It submitted that said contract of lease
violated Section 1 of R. A. No. 1169, as amended by B. P. Blg. 42.
Respondents contended, among others, that, the contract does not violate the
Foreign Investment Act of 1991; that the issues of wisdom, morality and propriety of
acts of the executive department are beyond the ambit of judicial reviews; and that
the
petitioners
have
no
standing
to
maintain
the
instant
suit.
ISSUES:
1. Whether or not petitioners have the legal standing to file the instant petition.
2.
Whether
or
not
the
contract
of
lease
is
legal
and
valid.
RULING: As to the preliminary issue, the Court resolved to set aside the procedural
technicality in view of the importance of the issues raised. The Court adopted the
liberal policy on locus standi to allow the ordinary taxpayers, members of Congress,
and even association of planters, and non-profit civic organizations to initiate and
prosecute actions to question the validity or constitutionality of laws, acts,
decisions, or rulings of various government agencies or instrumentalities.

As to the substantive issue, the Court agrees with the petitioners whether the
contract in question is one of lease or whether the PGMC is merely an independent
contractor should not be decided on the basis of the title or designation of the
contract but by the intent of the parties, which may be gathered from the provisions
of the contract itself. Animus homini est anima scripti. The intention of the party is
the
soul
of
the
instrument.
Therefore the instant petition is granted and the challenged Contract of Lease is
hereby declared contrary to law and invalid.

2. Information Tech of the Phil vs COMELEC


Same; Same; Words and Phrases; Joint Venture; Definition.This Court in Kilosbayan
v. Guingona defined joint venture 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 [a] duty, which
may be altered by agreement to share both in profit and losses.
Same; Same; Public Bidding; Rationale; The essence of public bidding is, after all,
the opportunity for fair competition, and a fair basis for the precise comparison of
bids.The essence of public bidding is, after all, an opportunity for fair competition,
and a fair basis for the precise comparison of bids. In common parlance, public
bidding aims to level the playing field. That means each bidder must bid under
the same conditions; and be subject to the same guidelines, requirements and
limitations, so that the best offer or lowest bid may be determined, all other things
being equal. Information Technology Foundation of the Philippines vs. Commission
on Elections, 419 SCRA 141, G.R. No. 159139 January 13, 2004
Same; Same; Joint Venture; A joint venture may be likened to a partnership.The
legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for
some temporary purpose. It is hardly distinguishable from the partnership, since
their elements are similarcommunity of interest in the business, sharing of profits
and losses, and a mutual right of control. The main distinction cited by most
opinions in common law jurisdiction 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. The Supreme Court has however recognized a distinction between

these two business forms, and has held that although a corporation cannot enter
into a partnership contract, it may however engage in a joint venture with others.
Facts: On June 7, 1995, Congress passed Republic Act 8046, which authorized
Comelec to conduct a nationwide demonstration of a computerized election system
and allowed the poll body to pilot-test the system in the March 1996 elections in the
Autonomous Region in Muslim Mindanao (ARMM).
On October 29, 2002, Comelec adopted in its Resolution 02-0170 a
modernization program for the 2004 elections. It resolved to conduct biddings for
the three (3) phases of its Automated Election System; namely, Phase I Voter
Registration and Validation System; Phase II Automated Counting and Canvassing
System; and Phase III Electronic Transmission.
On January 24, 2003, President Gloria Macapagal-Arroyo issued Executive Order
No. 172, which allocated the sum of P2.5 billion to fund the AES for the May 10,
2004 elections. Upon the request of Comelec, she authorized the release of an
additional P500 million.
On January 28, 2003, the Commission issued an "Invitation to Apply for Eligibility
and to Bid".
On May 29, 2003, five individuals and entities (including the herein Petitioners
Information Technology Foundation of the Philippines, represented by its president,
Alfredo M. Torres; and Ma. Corazon Akol) wrote a letter to Comelec Chairman
Benjamin Abalos Sr. They protested the award of the Contract to Respondent MPC
"due to glaring irregularities in the manner in which the bidding process had been
conducted." Citing therein the noncompliance with eligibility as well as technical
and procedural requirements (many of which have been discussed at length in the
Petition), they sought a re-bidding.

Issue: Whether the bidding process was unconstitutional;


Whether the awarding of the contract was unconstitutional;
Whether the petitioner has standing; and
Whether the petition is premature.

Held: WHEREFORE, the Petition is GRANTED. The Court hereby declares NULL and
VOID Comelec Resolution No. 6074 awarding the contract for Phase II of the CAES to
Mega Pacific Consortium (MPC). Also declared null and void is the subject Contract
executed between Comelec and Mega Pacific eSolutions (MPEI). 55 Comelec is
further ORDERED to refrain from implementing any other contract or agreement
entered into with regard to this project.

Ratio: Comelec awarded this billion-peso undertaking with inexplicable haste,


without adequately checking and observing mandatory financial, technical and legal
requirements. It also accepted the proferred computer hardware and software even
if, at the time of the award, they had undeniably failed to pass eight critical
requirements designed to safeguard the integrity of elections:
1. Awarded the Contract to MPC though it did not even participate in the
bidding
2. Allowed MPEI to participate in the bidding despite its failure to meet the
mandatory eligibility requirements
3. Issued its Resolution of April 15, 2003 awarding the Contract to MPC despite
the issuance by the BAC of its Report, which formed the basis of the assailed
Resolution, only on April 21, 2003 31
4. Awarded the Contract, notwithstanding the fact that during the bidding
process, there were violations of the mandatory requirements of RA 8436 as well as
those set forth in Comelec's own Request for Proposal on the automated election
system IHaECA
5. Refused to declare a failed bidding and to conduct a re-bidding despite the
failure of the bidders to pass the technical tests conducted by the Department of
Science and Technology
6. Failed to follow strictly the provisions of RA 8436 in the conduct of the
bidding for the automated counting machines
After reviewing the slew of pleadings as well as the matters raised during the Oral
Argument, the Court deems it sufficient to focus discussion on the following major
areas of concern that impinge on the issue of grave abuse of discretion:
A. Matters pertaining to the identity, existence and eligibility of MPC as a bidder
B. Failure of the automated counting machines (ACMs) to pass the DOST technical
tests
C. Remedial measures and re-testings undertaken by Comelec and DOST after the
award, and their effect on the present controversy
In view of the bidding process
Unfortunately, the Certifications from DOST fail to divulge in what manner and
by what standards or criteria the condition, performance and/or readiness of the
machines were re-evaluated and re-appraised and thereafter given the passing
mark.
The Automated Counting and Canvassing Project involves not only the
manufacturing of the ACM hardware but also the development of three (3) types of
software, which are intended for use in the following:
1. Evaluation of Technical Bids
2. Testing and Acceptance Procedures
3. Election Day Use."

In short, Comelec claims that it evaluated the bids and made the decision to
award the Contract to the "winning" bidder partly on the basis of the operation of
the ACMs running a "base" software. That software was therefore nothing but a
sample or "demo" software, which would not be the actual one that would be used
on election day.
What then was the point of conducting the bidding, when the software that was
the subject of the Contract was still to be created and could conceivably undergo
innumerable changes before being considered as being in final form?
In view of awarding of contract
The public bidding system designed by Comelec under its RFP (Request for
Proposal for the Automation of the 2004 Election) mandated the use of a twoenvelope, two-stage system. A bidder's first envelope (Eligibility Envelope) was
meant to establish its eligibility to bid and its qualifications and capacity to perform
the contract if its bid was accepted, while the second envelope would be the Bid
Envelope itself.
The Eligibility Envelope was to contain legal documents such as articles of
incorporation, business registrations, licenses and permits, mayor's permit, VAT
certification, and so forth; technical documents containing documentary evidence to
establish the track record of the bidder and its technical and production capabilities
to perform the contract; and financial documents, including audited financial
statements for the last three years, to establish the bidder's financial capacity.
However, there is no sign whatsoever of any joint venture agreement,
consortium agreement, memorandum of agreement, or business plan executed
among the members of the purported consortium.So, it necessarily follows that,
during the bidding process, Comelec had no basis at all for determining that the
alleged consortium really existed and was eligible and qualified; and that the
arrangements among the members were satisfactory and sufficient to ensure
delivery on the Contract and to protect the government's interest.
In view of standing
On the other hand, petitioners suing in their capacities as taxpayers,
registered voters and concerned citizens respond that the issues central to this
case are "of transcendental importance and of national interest." Allegedly,
Comelec's flawed bidding and questionable award of the Contract to an unqualified
entity would impact directly on the success or the failure of the electoral process.
Thus, any taint on the sanctity of the ballot as the expression of the will of the
people would inevitably affect their faith in the democratic system of government.
Petitioners further argue that the award of any contract for automation involves
disbursement of public funds in gargantuan amounts; therefore, public interest

requires that the laws governing the transaction must be followed strictly.
Moreover, this Court has held that taxpayers are allowed to sue when there is a
claim of "illegal disbursement of public funds," 22 or if public money is being
"deflected to any improper purpose"; 23 or when petitioners seek to restrain
respondent from "wasting public funds through the enforcement of an invalid or
unconstitutional law."
In view of prematurity
The letter addressed to Chairman Benjamin Abalos Sr. dated May 29, 2003 28
serves to eliminate the prematurity issue as it was an actual written protest against
the decision of the poll body to award the Contract. The letter was signed by/for,
inter alia, two of herein petitioners: the Information Technology Foundation of the
Philippines, represented by its president, Alfredo M. Torres; and Ma. Corazon Akol.
Such letter-protest is sufficient compliance with the requirement to exhaust
administrative remedies particularly because it hews closely to the procedure
outlined in Section 55 of RA 9184.
Paat v. Court of Appeals enumerates the instances when the rule on exhaustion
of administrative remedies may be disregarded, as follows:
"(1) when there is a violation of due process,
(2) when the issue involved is purely a legal question,
(3) when the administrative action is patently illegal amounting to lack or
excess of jurisdiction,
(4) when there is estoppel on the part of the administrative agency concerned,
(5) when there is irreparable injury,
(6) when the respondent is a department secretary whose acts as an alter ego
of the President bears the implied and assumed approval of the latter,
(7) when to require exhaustion of administrative remedies would be
unreasonable,
(8) when it would amount to a nullification of a claim,
(9) when the subject matter is a private land in land case proceedings,
(10) when the rule does not provide a plain, speedy and adequate remedy, and
(11) when there are circumstances indicating the urgency of judicial
intervention."

3. WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and


CHARLES
CHAMSAY, petitioners,
vs.
SANITARY
WARES
MANUFACTURING
CORPORATOIN,
ERNESTO
V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE

F. LEE, RAUL A.
CRUZ,respondents.

BONCAN,

BALDWIN

YOUNG

and

AVELINO

V.

G.R. No. 75951 December 15, 1989


SANITARY
WARES
MANUFACTURING
CORPORATION,
ERNESTO
R.
LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN,
BALDWIN
YOUNG
and
AVELINO
V.
CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM, CHARLES CHAMSAY and LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO
E.
SALAZAR, petitioner,
vs.
SANITARY
WARES
MANUFACTURING
CORPORATION,
ERNESTO
V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE
F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the
COURT OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:


These consolidated petitions seek the review of the amended decision of the Court
of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three
(3) nominees; that, on the other hand, the Filipino stockholders can nominate only
six (6) candidates and in the event they cannot agree on the six (6) nominees, they
shall vote only among themselves to determine who the six (6) nominees will be,
with cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, 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. On August 15, 1962, 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:
xxx xxx xxx
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 AmericanStandard 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. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as
a minority group, including the grant of veto powers over a number of corporate
acts and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned by
Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a

deterioration of the initially harmonious relations between the two groups.


According to the Filipino group, a 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 joint venture groups in the countries where Philippine
exports were contemplated. On March 8, 1983, the annual stockholders' meeting
was held. The meeting was presided by Baldwin Young. The minutes were taken by
the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda,
the stockholders then proceeded to the election of the members of the board of
directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John
Griffin and David P. Whittingham. The Philippine investors nominated six, namely;
Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and
Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in
turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last
two nominations out of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-member board of directors,
and the legal advice of Saniwares' legal counsel. The following events then,
transpired:
... There were protests against the action of the Chairman and heated
arguments ensued. An appeal was made by the ASI representative to
the body of stockholders present that a vote be taken on the ruling of
the Chairman. The Chairman, Baldwin Young, declared the appeal out
of order and no vote on the ruling was taken. The Chairman then
instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine
Investors and the 3 nominees of ASI, thus effectively excluding the 2
additional persons nominated, namely, Luciano E. Salazar and Charles
Chamsay. The ASI representative, Mr. Jaqua protested the decision of
the Chairman and announced that all votes accruing to ASI shares, a
total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles Chamsay,
and instructed the Secretary to so vote. Luciano E. Salazar and other
proxy holders announced that all the votes owned by and or
represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No.
05617) were being voted cumulatively in favor of Luciano E. Salazar.
The Chairman, Baldwin Young, nevertheless instructed the Secretary to
cast all votes equally in favor of the three ASI nominees, namely,
Wolfgang Aurbach, John Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo,
Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F.
Lee, and Baldwin Young. The Secretary then certified for the election of
the following Wolfgang Aurbach, John Griffin, David Whittingham
Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo,

George F. Lee, Raul A. Boncan, Baldwin Young. The representative of


ASI then moved to recess the meeting which was duly seconded. There
was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This
motion to adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the meeting
adjourned. Protests against the adjournment were registered and
having been ignored, Mr. Jaqua the ASI representative, stated that the
meeting was not adjourned but only recessed and that the meeting
would be reconvened in the next room. The Chairman then threatened
to have the stockholders who did not agree to the decision of the
Chairman on the casting of votes bodily thrown out. The ASI Group,
Luciano E. Salazar and other stockholders, allegedly representing 53 or
54% of the shares of Saniwares, decided to continue the meeting at
the elevator lobby of the American Standard Building. The continued
meeting was presided by Luciano E. Salazar, while Andres Gatmaitan
acted as Secretary. On the basis of the cumulative votes cast earlier in
the meeting, the ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay.
Luciano E. Salazar voted for himself, thus the said five directors were
certified as elected directors by the Acting Secretary, Andres
Gatmaitan, with the explanation that there was a tie among the other
six (6) nominees for the four (4) remaining positions of directors and
that the body decided not to break the tie. (pp. 37-39, Rollo of 7597576)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for
preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A.
Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No.
2417. The second petition was for quo warranto and application for receivership by
Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles
Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No.
2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets
of parties except for Avelino Cruz claimed to be the legitimate directors of the
corporation.
The two petitions were consolidated and tried jointly by a hearing officer who
rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.

The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court
in its decision ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED
ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF
DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION
AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM
EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE
NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS
AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS
WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS
PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT
THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on
the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding
contractual agreements entered into by stockholders and the
replacement of the conditions of such agreements with terms never
contemplated by the stockholders but merely dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of
the property rights of stockholders without due process of law in order
that a favored group of stockholders may be illegally benefitted and
guaranteed a continuing monopoly of the control of a corporation. (pp.
14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:

I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE
RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED
INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF
THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT
PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS
DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF
SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
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.
The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation depends upon
their actual intention which is determined in accordance with the rules governing
the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B.
and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg.
Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the
parties hereto partners or joint venturers in respect of any transaction
hereunder. (At P. 66, Rollo-GR No. 75875)

They object to the admission of other evidence which tends to show that the
parties' agreement was to establish a joint venture presented by the Lagdameo and
Young Group on the ground that it contravenes the parol evidence rule under
section 7, Rule 130 of the Revised Rules of Court. According to them, the Lagdameo
and Young Group never pleaded in their pleading that the "Agreement" failed to
express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have
been reduced to writing, it is to be considered as containing all such
terms, and therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement
other than the contents of the writing, except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to
express the true intent and agreement of the parties or the validity of
the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their
Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed
to express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that
the parties thereto disclaim being partners or joint venturers such
disclaimer is directed at third parties and is not inconsistent with, and
does not preclude, the existence of two distinct groups of stockholders
in Saniwares one of which (the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the minority stockholder. In
any event, the evident intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint venture enterprise,
and if some words in the Agreement appear to be contrary to the
evident intention of the parties, the latter shall prevail over the former
(Art. 1370, New Civil Code). The various stipulations of a contract shall
be interpreted together attributing to the doubtful ones that sense
which may result from all of them taken jointly (Art. 1374, New Civil
Code). Moreover, in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be
principally considered. (Art. 1371, New Civil Code). (Part I, Original
Records, SEC Case No. 2417)

It has been ruled:


In an action at law, where there is evidence tending to prove that the
parties joined their efforts in furtherance of an enterprise for their joint
profit, the question whether they intended by their agreement to
create a joint adventure, or to assume some other relation is a
question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N
Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George,
27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our 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. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he
negotiated the Agreement with ASI in behalf of the Philippine nationals.
He testified that ASI agreed to accept the role of minority vis-a-vis the
Philippine National group of investors, on the condition that the
Agreement should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were
included to protect the interests of ASI as the minority. For example,
the vote of 7 out of 9 directors is required in certain enumerated
corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually
entitled to designate a member of the Executive Committee and the
vote of this member is required for certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the
amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv)
and (b) (iii)]. ASI is also given the right to designate the president and
plant manager [Sec. 5 (6)]. The Agreement further provides that the
sales policy of Saniwares shall be that which is normally followed by
ASI [Sec. 13 (a)] and that Saniwares should not export "Standard"
products otherwise than through ASI's Export Marketing Services [Sec.
13 (6)]. Under the Agreement, ASI agreed to provide technology and
know-how to Saniwares and the latter paid royalties for the same. (At
p. 2).
xxx xxx xxx

It is pertinent to note that the provisions of the Agreement requiring a


7 out of 9 votes of the board of directors for certain actions, in effect
gave ASI (which designates 3 directors under the Agreement) an
effective veto power. Furthermore, the grant to ASI of the right to
designate certain officers of the corporation; the super-majority voting
requirements for amendments of the articles and by-laws; and most
significantly to the issues of tms case, 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.
Premises considered, we believe that under the Agreement there are
two groups of stockholders who established a corporation with
provisions for a special contractual relationship between the parties,
i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture.
Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing
herein contained shall be construed to constitute any of the parties hereto partners
or joint venturers in respect of any transaction hereunder" was merely to obviate
the possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a
firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole or monopolistic
operations and merely uses the joint venture arrangement to gain a foothold or test
the Philippine waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the foreign group
undermines the local majority ownership and actively tries to completely or
predominantly take over the entire company. This undermining of joint ventures is
not consistent with fair dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend protection especially in

industries where constitutional


ownership to Filipino citizens.

and

legal

requirements

reserve

controlling

The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of
stockholders to enter into agreements regarding the exercise of their
voting rights.
Sec. 100. Agreements by stockholders.xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and
signed by the parties thereto, may provide that in exercising any
voting rights, the shares held by them shall be voted as therein
provided, or as they may agree, or as determined in accordance with a
procedure agreed upon by them.
Appellants contend that the above provision is included in the
Corporation Code's chapter on close corporations and Saniwares
cannot be a close corporation because it has 95 stockholders. Firstly,
although Saniwares had 95 stockholders at the time of the disputed
stockholders meeting, these 95 stockholders are not separate from
each other but are divisible into groups representing a single
Identifiable interest. For example, ASI, its nominees and lawyers count
for 13 of the 95 stockholders. The YoungYutivo family count for another
13 stockholders, the Chamsay family for 8 stockholders, the Santos
family for 9 stockholders, the Dy family for 7 stockholders, etc. If the
members of one family and/or business or interest group are
considered as one (which, it is respectfully submitted, they should be
for purposes of determining how closely held Saniwares is there were
as of 8 March 1983, practically only 17 stockholders of Saniwares.
(Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder
Memorandum dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close
corporation because it has more than 20 stockholders, the undeniable
fact is that it is a close-held corporation. Surely, appellants cannot
honestly claim that Saniwares is a public issue or a widely held
corporation.
In the United States, many courts have taken a realistic approach to
joint venture corporations and have not rigidly applied principles of

corporation law designed primarily for public issue corporations. These


courts have indicated that express arrangements between corporate
joint ventures should be construed with less emphasis on the ordinary
rules of law usually applied to corporate entities and with more
consideration given to the nature of the agreement between the joint
venturers (Please see Wabash Ry v. American Refrigerator Transit Co.,
7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n.
247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C.
495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903;
Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571;
Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand Law Rev. p. 680,1958). These American cases
dealt with legal questions as to the extent to which the requirements
arising from the corporate form of joint venture corporations should
control, and the courts ruled that substantial justice lay with those
litigants who relied on the joint venture agreement rather than the
litigants who relied on the orthodox principles of corporation law.
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 (See I O' Neal,
Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of
SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not
necessarily imply that agreements regarding the exercise of voting
rights are allowed only in close corporations. As Campos and LopezCampos explain:
Paragraph 2 refers to pooling and voting agreements in particular.
Does this provision necessarily imply that these agreements can be
valid only in close corporations as defined by the Code? Suppose that a
corporation has twenty five stockholders, and therefore cannot qualify
as a close corporation under section 96, can some of them enter into
an agreement to vote as a unit in the election of directors? It is

submitted that there is no reason for denying stockholders of


corporations other than close ones the right to enter into not voting or
pooling agreements to protect their interests, as long as they do not
intend to commit any wrong, or fraud on the other stockholders not
parties to the agreement. Of course, voting or pooling agreements are
perhaps more useful and more often resorted to in close corporations.
But they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of
close corporations to those which comply with the requisites laid down
by section 96, it is entirely possible that a corporation which is in fact a
close corporation will not come within the definition. In such case, its
stockholders should not be precluded from entering into contracts like
voting agreements if these are otherwise valid. (Campos & LopezCampos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the
designation or nomination of directors restricts the right of the
Agreement's signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and binding upon the
signatories thereto, which include appellants. (Rollo No. 75951, pp. 9094)
In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors, the Court of
Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in
the management of the corporation is spelled out in the Agreement.
Section 5(a) hereof says that three of the nine directors shall be
designated by ASI and the remaining six by the other stockholders, i.e.,
the Filipino stockholders. This allocation of board seats is obviously in
consonance with the minority position of ASI.
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. Appellants seem to contend that any
allocation of board seats, even in joint venture corporations, are null
and void to the extent that such may interfere with the stockholder's
rights to cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be prepared to hold that any
agreement which curtails in any way cumulative voting should be
struck down, even if such agreement has been freely entered into by
experienced businessmen and do not prejudice those who are not
parties thereto. It may well be that it would be more cogent to hold, as

the Securities and Exchange Commission has held in the decision


appealed from, that cumulative voting rights may be voluntarily
waived by stockholders who enter into special relationships with each
other to pursue and implement specific purposes, as in joint venture
relationships between foreign and local stockholders, so long as such
agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a
general rule on this question. Rather, all that needs to be done is to
give life and effect to the particular contractual rights and obligations
which the parties have assumed for themselves.
On the one hand, the clearly established minority position of ASI and
the contractual allocation of board seats Cannot be disregarded. On
the other hand, the rights of the stockholders to cumulative voting
should also be protected.
In our decision sought to be reconsidered, we opted to uphold the
second over the first. Upon further reflection, we feel that the proper
and just solution to give due consideration to both factors suggests
itself quite clearly. 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. In
practical terms, as suggested by appellant Luciano E. 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.
Such a ruling will give effect to both the allocation of the board seats
and the stockholder's right to cumulative voting. Moreover, this ruling
will also give due consideration to the issue raised by the appellees on
possible violation or circumvention of the Anti-Dummy Law (Com. Act
No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three
directors. (Rollo-75875, pp. 38-39)

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. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy
Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which
provides:
And provided finally that the election of aliens as members of the
board of directors or governing body of corporations or associations
engaging in partially nationalized activities shall be allowed in
proportion to their allowable participation or share in the capital of
such entities. (amendments introduced by Presidential Decree 715,
section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no
precise legal definition but it has been generally understood to mean
an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from
the partnership, since their elements are similar community of interest
in the business, sharing of profits and losses, and a mutual right of
control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183,
288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most
opinions in common law jurisdictions 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. (Tufts v. Mann 116 Cal. App. 170, 2
P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74
[1947]; Gates v. Megargel 266 Fed. 811 [1920]). 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. (Art. 1783, Civil Code).
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. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95

Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and


Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167)
43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of
the question of whether or not the ASI Group may vote their additional equity lies in
the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the
parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in
the process of determining who the group's nominees would be under Section 3 (a)
(1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement
relates to the manner of nominating the members of the board of directors while
Section 3 (a) (1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the
election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:
... 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.
Such a ruling will give effect to both the allocation of the board seats
and the stockholder's right to cumulative voting. Moreover, this ruling
will also give due consideration to the issue raised by the appellees on
possible violation or circumvention of the Anti-Dummy Law (Com. Act
No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three
directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the

Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner


Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the
board of directors in proportion to their allowance participation of said entity. In the
instant case, the foreign Group ASI was limited to designate three directors. This is
the allowable participation of the ASI Group. Hence, in future dealings, this
limitation of six to three board seats should always be maintained as long as the
joint venture agreement exists considering that in limiting 3 board seats in the 9man board of directors there are provisions already agreed upon and embodied in
the parties' Agreement to protect the interests arising from the minority status of
the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which
were impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach,
John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A.
Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly
elected directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees
separately and not as a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of
directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they
cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest is to increase the
ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists under

its original agreement. Cumulative voting may not be used as a device to enable
ASI to achieve stealthily or indirectly what they cannot accomplish openly. There are
substantial safeguards in the Agreement which are intended to preserve the
majority status of the Filipino investors as well as to maintain the minority status of
the foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED
and the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the
Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David
Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R.
Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly
elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. In
all other respects, the questioned decision is AFFIRMED. Costs against the
petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.

3. JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS,


COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET
PRIVATIZATION TRUST and PHILYARDS HOLDINGS, INC., respondents.
Same; Same; Same; Public Bidding; The requirement of public bidding does not
negate the exercise of the right of first refusal.It is true that properties of the
National Government, as a rule, may be sold only after a public bidding is held.
Public bidding is the accepted method in arriving at a fair and reasonable price and
ensures that overpricing, favoritism and other anomalous practices are eliminated
or minimized. But the requirement for public bidding does not negate the exercise
of the right of first refusal. In fact, public bidding is an essential first step in the
exercise of the right of first refusal because it is only after the public bidding that
the terms upon which the Government may be said to be willing to sell its shares to
third parties may be known. JG Summit Holdings, Inc. vs. Court of Appeals, 412
SCRA 10, G.R. No. 124293 September 24, 2003
Same; Same; A private enterprise doing business not devoted to public use cannot
by legislative enactment or administrative order be converted into a public utility.
Paraphrasing a decision of the United States Supreme Court, a private enterprise
doing business under private contracts with customers of its choice and therefore
not devoted to public use cannot by legislative enactment or administrative order
be converted into a public utility, for that would constitute taking of private property
for public use without just compensation in derogation of the Constitution. JG
Summit Holdings, Inc. vs. Court of Appeals, 412 SCRA 10, G.R. No. 124293
September 24, 2003

JG SUMMIT HOLDINGS, INC., vs. COURT OF APPEALS, COMMITTEE ON PRIVATIZATION,


ASSET PRIVATIZATION TRUST and PHILYARDS HOLDINGS G.R. No. 124293. November
20, 2000
FACTS:
The National Investment and Development Corporation (NIDC), a government
corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. for the construction, operation and management of the Subic
National Shipyard, Inc., later became the Philippine Shipyard and Engineering
Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a
shareholding proportion of 60%-40% and that the parties have the right of first
refusal
in
case
of
a
sale.
Through a series of transfers, NIDCs rights, title and interest in PHILSECO
eventually went to the National Government. In the interest of national economy, it
was decided that PHILSECO should be privatized by selling 87.67% of its total
outstanding capital stock to private entities. After negotiations, it was agreed that
Kawasakis right of first refusal under the JVA be exchanged for the right to top by
five percent the highest bid for said shares. Kawasaki that Philyards Holdings, Inc.
(PHI), in which it was a stockholder, would exercise this right in its stead.
During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of
the right to top by 5% percent the highest bid, it was able to top JG Summits bid. JG
Summit protested, contending that PHILSECO, as a shipyard is a public utility and,
hence, must observe the 60%-40% Filipino-foreign capitalization. By buying 87.67%
of PHILSECOs capital stock at bidding, Kawasaki/PHI in effect now owns more than
40%
of
the
stock.
ISSUE:
o
o

Whether or not PHILSECO is a public utility


Whether or not Kawasaki/PHI can purchase beyond 40% of PHILSECOs stocks
HELD:
In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on
sec. 13, CA No. 146. On the other hand, Kawasaki/PHI argued that PD No. 666
explicitly stated that a shipyard was not a public utility. But the SC stated that
sec. 1 of PD No. 666 was expressly repealed by sec. 20, BP Blg. 391 and when BP
Blg. 391 was subsequently repealed by EO 226, the latter law did not revive sec. 1
of PD No. 666. Therefore, the law that states that a shipyard is a public utility still
stands.
A shipyard such as PHILSECO being a public utility as provided by law is therefore
required to comply with the 60%-40% capitalization under the Constitution.
Likewise, the JVA between NIDC and Kawasaki manifests an intention of the parties
to abide by this constitutional mandate. Thus, under the JVA, should the NIDC opt to

sell its shares of stock to a third party, Kawasaki could only exercise its right of first
refusal to the extent that its total shares of stock would not exceed 40% of the
entire shares of stock. The NIDC, on the other hand, may purchase even beyond
60% of the total shares. As a government corporation and necessarily a 100%
Filipino-owned corporation, there is nothing to prevent its purchase of stocks even
beyond 60% of the capitalization as the Constitution clearly limits only foreign
capitalization.
Kawasaki was bound by its contractual obligation under the JVA that limits its right
of first refusal to 40% of the total capitalization of PHILSECO. Thus, Kawasaki cannot
purchase beyond 40% of the capitalization of the joint venture on account of both
constitutional and contractual proscriptions.
5. Primelink Properties and Development Corporation vs. LazatinMagat, 493 SCRA 444, G.R. No. 167379 June 27, 2006
Partnerships; Joint Venture Agreements (JVAs); A JVA is a form of partnership, and as
such is to be governed by the laws on partnership.We agree with the CA ruling
that petitioner Primelink and respondents entered into a joint venture as evidenced
by their JVA which, under the Courts ruling in Aurbach, is a form of partnership, and
as such is to be governed by the laws on partnership.
Same; Same; Dissolution of Partnerships; On dissolution, the partnership is not
terminated but continues until the winding up of partnership affairs is completed.
When the RTC rescinded the JVA on complaint of respondents based on the evidence
on record that petitioners willfully and persistently committed a breach of the JVA,
the court thereby dissolved/cancelled the partnership. With the rescission of the JVA
on account of petitioners fraudulent acts, all authority of any partner to act for the
partnership is terminated except so far as may be necessary to wind up the
partnership affairs or to complete transactions begun but not yet finished. On
dissolution, the partnership is not terminated but continues until the winding up of
partnership affairs is completed. Winding up means the administration of the assets
of the partnership for the purpose of terminating the business and discharging the
obligations of the partnership.
Same; Same; Same; Unless otherwise agreed, the parties who have not wrongfully
dissolved the partnership have the right to wind up the partnership affairs.The
transfer of the possession of the parcels of land and the improvements thereon to
respondents was only for a specific purpose: the winding up of partnership affairs,
and the partition and distribution of the net partnership assets as provided by law.
After all, Article 1836 of the New Civil Code provides that unless otherwise agreed
by the parties in their JVA, respondents have the right to wind up the partnership
affairs: Art. 1836. Unless otherwise agreed, the partners who have not wrongfully
dissolved the partnership or the legal representative of the last surviving partner,
not insolvent, has the right to wind up the partnership affairs, provided, however,

that any partner, his legal representative or his assignee, upon cause shown, may
obtain winding up by the court.
Same; Same; Same; Until the partnership accounts are determined, it cannot be
ascertained how much any of the parties is entitled to, if at all.It must be stressed,
too, that although respondents acquired possession of the lands and the
improvements thereon, the said lands and improvements remained partnership
property, subject to the rights and obligations of the parties, inter se, of the
creditors and of third parties under Articles 1837 and 1838 of the New Civil Code,
and subject to the outcome of the settlement of the accounts between the parties
as provided in Article 1839 of the New Civil Code, absent any agreement of the
parties in their JVA to the contrary. Until the partnership accounts are determined, it
cannot be ascertained how much any of the parties is entitled to, if at all. It was
thus premature for petitioner Primelink to be demanding that it be indemnified for
the value of the improvements on the parcels of land owned by the joint
venture/partnership. Notably, the JVA of the parties does not contain any provision
designating any party to wind up the affairs of the partnership. Primelink Properties
and Development Corporation vs. Lazatin-Magat, 493 SCRA 444, G.R. No. 167379
June 27, 2006
Business Organization Partnership, Agency, Trust Dissolution and Winding Up
Joint Venture Agreement Rights of Innocent Party
In 1994, Primelink Properties and the Lazatin siblings entered into a joint venture
agreement whereby the Lazatins shall contribute a huge parcel of land and
Primelink shall develop the same into a subdivision. For 4 years however, Primelink
failed to develop the said land. So in 1998, the Lazatins filed a complaint to rescind
the joint venture agreement with prayer for preliminary injunction. In said case,
Primelink was declared in default or failing to file an answer and for asking multiple
motions for extension. The trial court eventually ruled in favor of the Lazatins and it
ordered Primelink to return the possession of said land to the Lazatins as well as
some improvements which Primelink had so far over the property without the
Lazatins paying for said improvements. This decision was affirmed by the Court of
Appeals. Primelink is now assailing the order; that turning over improvements to the
Lazatins without reimbursement is unjust; that the Lazatins did not ask the
properties to be placed under their possession but they merely asked for rescission.
ISSUE: Whether or not the improvements made by Primelink should also be turned
over under the possession of the Lazatins.
HELD: Yes. In the first place, even though the Lazatins did specifically pray for
possession the same (placing of improvements under their possession) is incidental
in the relief they prayed for. They are therefore entitled possession over the parcel
of land plus the improvements made thereon made by Primelink.
In this jurisdiction, joint ventures are governed by the laws of partnership. Under the
laws of partnership, when a partnership is dissolved, as in this case when the trial
court rescinded the joint venture agreement, the innocent party has the right to
wind up the partnership affairs.

With the rescission of the JVA on account of petitioners fraudulent acts, all authority
of any partner to act for the partnership is terminated except so far as may be
necessary to wind up the partnership affairs or to complete transactions begun but
not yet finished. On dissolution, the partnership is not terminated but continues
until the winding up of partnership affairs is completed. Winding up means the
administration of the assets of the partnership for the purpose of terminating the
business and discharging the obligations of the partnership.
It must be stressed, too, that although the Lazatins acquired possession of the lands
and the improvements thereon, the said lands and improvements remained
partnership property, subject to the rights and obligations of the parties, inter se, of
the creditors and of third parties and subject to the outcome of the settlement of
the accounts between the parties, absent any agreement of the parties in their JVA
to the contrary (here no agreement in the JVA as to winding up). Until the
partnership accounts are determined, it cannot be ascertained how much any of the
parties is entitled to, if at all.
6. PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER
OF INTERNAL REVENUE, respondent.

Partnership; Joint Ventures; 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.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: The
legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for
some temporary purpose. x x x It is in fact hardly distinguishable from the
partnership, since their elements are similarcommunity of interest in the business,
sharing of profits and losses, and a mutual right of control. x x x The main
distinction cited by most opinions in common law jurisdictions 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. x x x 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. x x x It would
seem therefore that under Philippine law, a joint venture is a form of partnership

and should be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms, and has held
that although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others. x x x (Citations omitted)
Same; Agency; Words and Phrases; In an agency coupled with interest, it is the
agency that cannot be revoked or withdrawn by the principal due to an interest of a
third party that depends upon it, or the mutual interest of both principal and agent.
There is no merit to petitioners claim that the prohibition in paragraph 5(c)
against withdrawal of advances should not be taken as an indication that it had
entered into a partnership with Baguio Gold; that the stipulation only showed that
what the parties entered into was actually a contract of agency coupled with an
interest which is not revocable at will and not a partnership. In an agency coupled
with interest, it is the agency that cannot be revoked or withdrawn by the principal
due to an interest of a third party that depends upon it, or the mutual interest of
both principal and agent. In this case, the non-revocation or non-withdrawal under
paragraph 5(c) applies to the advances made by petitioner who is supposedly the
agent and not the principal under the contract. Thus, it cannot be inferred from the
stipulation that the parties relation under the agreement is one of agency coupled
with an interest and not a partnership.
Same; Same; The essence of an agency, even one that is coupled with interest, is
the agents ability to represent his principal and bring about business relations
between the latter and third persons.It should be stressed that the main object of
the Power of Attorney was not to confer a power in favor of petitioner to contract
with third persons on behalf of Baguio Gold but to create a business relationship
between petitioner and Baguio Gold, in which the former was to manage and
operate the latters mine through the parties mutual contribution of material
resources and industry. The essence of an agency, even one that is coupled with
interest, is the agents ability to represent his principal and bring about business
relations between the latter and third persons. Where representation for and in
behalf of the principal is merely incidental or necessary for the proper discharge of
ones paramount undertaking under a contract, the latter may not necessarily be a
contract of agency, but some other agreement depending on the ultimate
undertaking of the parties. In this case, the totality of the circumstances and the
stipulations in the parties agreement indubitably lead to the conclusion that a
partnership was formed between petitioner and Baguio Gold. Philex Mining
Corporation vs. Commissioner of Internal Revenue, 551 SCRA 428, April 16, 2008
Same; Article 1769 (4) of the Civil Code explicitly provides that the receipt by a
person of a share in the profits of a business is prima facie evidence that he is a
partner in the business.Article 1769 (4) of the Civil Code explicitly provides that
the receipt by a person of a share in the profits of a business is prima facie
evidence that he is a partner in the business. Petitioner asserts, however, that no
such inference can be drawn against it since its share in the profits of the Sto Nio

project was in the nature of compensation or wages of an employee, under the


exception provided in Article 1769 (4) (b). On this score, the tax court correctly
noted that petitioner was not an employee of Baguio Gold who will be paid wages
pursuant to an employer-employee relationship. To begin with, petitioner was the
manager of the project and had put substantial sums into the venture in order to
ensure its viability and profitability. By pegging its compensation to profits,
petitioner also stood not to be remunerated in case the mine had no income. It is
hard to believe that petitioner would take the risk of not being paid at all for its
services, if it were truly just an ordinary employee. Consequently, we find that
petitioners compensation under paragraph 12 of the agreement actually
constitutes its share in the net profits of the partnership. Indeed, petitioner would
not be entitled to an equal share in the income of the mine if it were just an
employee of Baguio Gold. It is not surprising that petitioner was to receive a 50%
share in the net profits, considering that the Power of Attorney also provided for
an almost equal contribution of the parties to the St. Nino mine. The
compensation agreed upon only serves to reinforce the notion that the parties
relations were indeed of partners and not employer-employee. Philex Mining
Corporation vs. Commissioner of Internal Revenue, 551 SCRA 428, April 16, 2008
G.R. No. 148187

April 16, 2008

PHILEX
MINING
CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision 1 of the Court
of Appeals in CA-G.R. SP No. 49385, which affirmed the Decision 2 of the Court of Tax
Appeals in C.T.A. Case No. 5200. Also assailed is the April 3, 2001
Resolution3 denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into
an agreement4 with Baguio Gold Mining Company ("Baguio Gold") for the former to
manage and operate the latters mining claim, known as the Sto. Nino mine, located
in Atok and Tublay, Benguet Province. The parties agreement was denominated as
"Power of Attorney" and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall
make available to the MANAGERS (Philex Mining) up to ELEVEN MILLION
PESOS (P11,000,000.00), in such amounts as from time to time may be
required by the MANAGERS within the said 3-year period, for use in the
MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS

(P11,000,000.00) shall be deemed, for internal audit purposes, as the owners


account in the Sto. Nino PROJECT. Any part of any income of the PRINCIPAL
from the STO. NINO MINE, which is left with the Sto. Nino PROJECT, shall be
added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and convenient in
connection with the MANAGEMENT of the STO. NINO MINE, they may transfer
their own funds or property to the Sto. Nino PROJECT, in accordance with the
following arrangements:
(a) The properties shall be appraised and, together with the cash, shall
be carried by the Sto. Nino PROJECT as a special fund to be known as
the MANAGERS account.
(b) The total of the MANAGERS account shall not exceed
P11,000,000.00, except with prior approval of the PRINCIPAL; provided,
however, that if the compensation of the MANAGERS as herein
provided cannot be paid in cash from the Sto. Nino PROJECT, the
amount not so paid in cash shall be added to the MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from the
Sto. Nino PROJECT until termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the
desire of the PRINCIPAL to extend to the MANAGERS the benefit of
subsequent appreciation of property, upon a projected termination of
this Agency, the ratio which the MANAGERS account has to the
owners account will be determined, and the corresponding proportion
of the entire assets of the STO. NINO MINE, excluding the claims, shall
be transferred to the MANAGERS, except that such transferred assets
shall not include mine development, roads, buildings, and similar
property which will be valueless, or of slight value, to the MANAGERS.
The MANAGERS can, on the other hand, require at their option that
property originally transferred by them to the Sto. Nino PROJECT be retransferred to them. Until such assets are transferred to the
MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the net
profit of the Sto. Nino PROJECT before income tax. It is understood that the
MANAGERS shall pay income tax on their compensation, while the PRINCIPAL
shall pay income tax on the net profit of the Sto. Nino PROJECT after
deduction therefrom of the MANAGERS compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS
and, in the future, may incur other obligations in favor of the MANAGERS. This

Power of Attorney has been executed as security for the payment and
satisfaction of all such obligations of the PRINCIPAL in favor of the MANAGERS
and as a means to fulfill the same. Therefore, this Agency shall be irrevocable
while any obligation of the PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS account. After all obligations of the
PRINCIPAL in favor of the MANAGERS have been paid and satisfied in full, this
Agency shall be revocable by the PRINCIPAL upon 36-month notice to the
MANAGERS.
17. Notwithstanding any agreement or understanding between the PRINCIPAL
and the MANAGERS to the contrary, the MANAGERS may withdraw from this
Agency by giving 6-month notice to the PRINCIPAL. The MANAGERS shall not
in any manner be held liable to the PRINCIPAL by reason alone of such
withdrawal. Paragraph 5(d) hereof shall be operative in case of the
MANAGERS withdrawal.
x x x x5
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 petitioners
withdrawal as manager of the mine on January 28, 1982 and in the eventual
cessation of mine operations on February 20, 1982. 6
Thereafter, on September 27, 1982, the parties executed a "Compromise with
Dation in Payment"7 wherein Baguio Gold admitted an indebtedness to petitioner in
the amount of P179,394,000.00 and agreed to pay the same in three segments by
first assigning Baguio Golds tangible assets to petitioner, transferring to the latter
Baguio Golds equitable title in its Philodrill assets and finally settling the remaining
liability through properties that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to Compromise with
Dation in Payment"8 where the parties determined that Baguio Golds 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 amounting to US$11,000,000.00 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 for P127,838,051.00 and then transferring its equitable title in its
Philodrill assets for P16,302,426.00. The parties then ascertained that Baguio Gold
had a remaining outstanding indebtedness to petitioner in the amount of
P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining
outstanding indebtedness of Baguio Gold by charging P112,136,000.00 to
allowances and reserves that were set up in 1981 and P2,860,768.00 to the 1982
operations.

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." 9 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 protested before the BIR arguing that the deduction must be allowed
since all requisites for a bad debt deduction were satisfied, to wit: (a) there was a
valid and existing debt; (b) the debt was ascertained to be worthless; and (c) it was
charged off within the taxable year when it was determined to be worthless.
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
Golds "pecuniary obligations" to petitioner. It also included payments made by
petitioner as guarantor of Baguio Golds long-term loans which legally entitled
petitioner to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible losses, it became
evident that it would not be able to recover the advances and payments it had
made in behalf of Baguio Gold. For a debt to be considered worthless, petitioner
claimed that it was neither required to institute a judicial action for collection
against the debtor nor to sell or dispose of collateral assets in satisfaction of the
debt. It is enough that a taxpayer exerted diligent efforts to enforce collection and
exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of legal and factual
basis. It held that the alleged debt was not ascertained to be worthless since Baguio
Gold remained existing and had not filed a petition for bankruptcy; and that the
deduction did not consist of a valid and subsisting debt considering that, under the
management contract, petitioner was to be paid fifty percent (50%) of the projects
net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment,
as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is
hereby DENIED for lack of merit. The assessment in question, viz: FAS-1-8288-003067 for deficiency income tax in the amount of P62,811,161.39 is
hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to
PAY respondent Commissioner of Internal Revenue the amount of
P62,811,161.39, plus, 20% delinquency interest due computed from February
10, 1995, which is the date after the 20-day grace period given by the
respondent within which petitioner has to pay the deficiency amount x x x up
to actual date of payment.
SO ORDERED.11

The CTA rejected petitioners assertion that the advances it made for the Sto. Nino
mine were in the nature of a loan. It instead characterized the advances as
petitioners investment in a partnership with Baguio Gold for the development and
exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney"
executed by petitioner and Baguio Gold was actually a partnership agreement.
Since the advanced amount partook of the nature of an investment, it could not be
deducted as a bad debt from petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the long-term loan
obligations of Baguio Gold could not be allowed as a bad debt deduction. At the
time the payments were made, Baguio Gold was not in default since its loans were
not yet due and demandable. What petitioner did was to pre-pay the loans as
evidenced by the notice sent by Bank of America showing that it was merely
demanding payment of the installment and interests due. Moreover, Citibank
imposed and collected a "pre-termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA. 12 Hence, upon denial of its
motion for reconsideration,13petitioner took this recourse under Rule 45 of the Rules
of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by Philex in
the management of the Sto. Nino Mine pursuant to the Power of Attorney
partook of the nature of an investment rather than a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the net
profits of the Sto. Nino Mine indicates that Philex is a partner of Baguio Gold
in the development of the Sto. Nino Mine notwithstanding the clear absence
of any intent on the part of Philex and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney and in
completely disregarding the Compromise Agreement and the Amended
Compromise Agreement when it construed the nature of the advances made
by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the propriety
of the bad debts write-off.14
Petitioner insists that in determining the nature of its business relationship with
Baguio Gold, we should not only rely on the "Power of Attorney", but also on the
subsequent "Compromise with Dation in Payment" and "Amended Compromise with
Dation in Payment" that the parties executed in 1982. These documents, allegedly

evinced the parties intent to treat the advances and payments as a loan and
establish a creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument that is
material in determining the true nature of the business relationship between
petitioner and Baguio Gold. Before resort may be had to the two compromise
agreements, the parties contractual intent must first be discovered from the
expressed language of the primary contract under which the parties business
relations were founded. It should be noted that the compromise agreements were
mere collateral documents executed by the parties pursuant to the termination of
their business relationship created under the "Power of Attorney". On the other
hand, it is the latter which established the juridical relation of the parties and
defined the parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be considered as a
subsequent or contemporaneous act that is reflective of the parties true intent. The
compromise agreements were executed eleven years after the "Power of Attorney"
and merely laid out a plan or procedure by which petitioner could recover the
advances and payments it made under the "Power of Attorney". The parties entered
into the compromise agreements as a consequence of the dissolution of their
business relationship. It did not define that relationship or indicate its real character.
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. 15 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:
The legal concept of a joint venture is of common law origin. It has no precise
legal definition, but it has been generally understood to mean an organization
formed for some temporary purpose. x x x It is in fact hardly distinguishable
from the partnership, since their elements are similar community of interest
in the business, sharing of profits and losses, and a mutual right of control. x
x x The main distinction cited by most opinions in common law jurisdictions 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. x x x 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. x x x It would seem therefore that under
Philippine law, a joint venture is a form of partnership and should be
governed by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others. x x x (Citations omitted) 16

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.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute
money, property and industry to the common fund known as the Sto. Nio mine. 17 In
this regard, we note that there is a substantive equivalence in the respective
contributions of the parties to the development and operation of the mine. Pursuant
to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to
contribute equally to the joint venture assets under their respective accounts.
Baguio Gold would contribute P11M under its owners account plus any of its
income that is left in the project, in addition to its actual mining claim. Meanwhile,
petitioners contribution would consist of its expertise in the management and
operation of mines, as well as the managers account which is comprised ofP11M in
funds and property and petitioners "compensation" as manager that cannot be
paid in cash.
However, petitioner asserts that it could not have entered into a partnership
agreement with Baguio Gold because it did not "bind" itself to contribute money or
property to the project; that under paragraph 5 of the agreement, it was only
optional for petitioner to transfer funds or property to the Sto. Nio project
"(w)henever the MANAGERS shall deem it necessary and convenient in connection
with the MANAGEMENT of the STO. NIO MINE." 18
The wording of the parties agreement as to petitioners contribution to the common
fund does not detract from the fact that petitioner transferred its funds and property
to the project as specified in paragraph 5, thus rendering effective the other
stipulations of the contract, particularly paragraph 5(c) which prohibits petitioner
from withdrawing the advances until termination of the parties business relations.
As can be seen, petitioner became bound by its contributions once the transfers
were made. The contributions acquired an obligatory nature as soon as petitioner
had chosen to exercise its option under paragraph 5.
There is no merit to petitioners claim that the prohibition in paragraph 5(c) against
withdrawal of advances should not be taken as an indication that it had entered into
a partnership with Baguio Gold; that the stipulation only showed that what the
parties entered into was actually a contract of agency coupled with an interest
which is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked or
withdrawn by the principal due to an interest of a third party that depends upon
it, or the mutual interest of both principal and agent. 19 In this case, the nonrevocation or non-withdrawal under paragraph 5(c) applies to the advances made
by petitioner who is supposedly the agent and not the principal under the contract.
Thus, it cannot be inferred from the stipulation that the parties relation under the
agreement is one of agency coupled with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication that the
relationship of the parties was one of agency and not a partnership. Although the

said provision states that "this Agency shall be irrevocable while any obligation of
the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS
account," it does not necessarily follow that the parties entered into an agency
contract coupled with an interest that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of Attorney" was not to
confer a power in favor of petitioner to contract with third persons on behalf of
Baguio Gold but to create a business relationship between petitioner and Baguio
Gold, in which the former was to manage and operate the latters mine through the
parties mutual contribution of material resources and industry. The essence of an
agency, even one that is coupled with interest, is the agents ability to represent his
principal and bring about business relations between the latter and third
persons.20 Where representation for and in behalf of the principal is merely
incidental or necessary for the proper discharge of ones paramount undertaking
under a contract, the latter may not necessarily be a contract of agency, but some
other agreement depending on the ultimate undertaking of the parties. 21
In this case, the totality of the circumstances and the stipulations in the parties
agreement indubitably lead to the conclusion that a partnership was formed
between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to return
the advances made by petitioner under the agreement. Paragraph 5 (d) thereof
provides that upon termination of the parties business relations, "the ratio which
the MANAGERS account has to the owners account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO MINE, excluding the
claims" shall be transferred to petitioner. 22 As pointed out by the Court of Tax
Appeals, petitioner was merely entitled to a proportionate return of the mines
assets upon dissolution of the parties business relations. There was nothing in the
agreement that would require Baguio Gold to make payments of the advances to
petitioner as would be recognized as an item of obligation or "accounts payable" for
Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a
distribution of assets of the Sto. Nio mine upon termination, a provision that is
more consistent with a partnership than a creditor-debtor relationship. It should be
pointed out that in a contract of loan, a person who receives a loan or money or any
fungible thing acquires ownership thereof and is bound to pay the creditor an equal
amount of the same kind and quality. 23 In this case, however, there was no
stipulation for Baguio Gold to actually repay petitioner the cash and property that it
had advanced, but only the return of an amount pegged at a ratio which the
managers account had to the owners account.
In this connection, we find no contractual basis for the execution of the two
compromise agreements in which Baguio Gold recognized a debt in favor of
petitioner, which supposedly arose from the termination of their business relations
over the Sto. Nino mine. The "Power of Attorney" clearly provides that petitioner
would only be entitled to the return of a proportionate share of the mine assets to
be computed at a ratio that the managers account had to the owners account.
Except to provide a basis for claiming the advances as a bad debt deduction, there

is no reason for Baguio Gold to hold itself liable to petitioner under the compromise
agreements, for any amount over and above the proportion agreed upon in the
"Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business corporation
to lend hundreds of millions of pesos to another corporation with neither security, or
collateral, nor a specific deed evidencing the terms and conditions of such loans.
The parties also did not provide a specific maturity date for the advances to become
due and demandable, and the manner of payment was unclear. All these point to
the inevitable conclusion that the advances were not loans but capital contributions
to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is the
fact that it would receive 50% of the net profits as "compensation" under paragraph
12 of the agreement. The entirety of the parties contractual stipulations simply
leads to no other conclusion than that petitioners "compensation" is actually its
share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of
a share in the profits of a business is prima facie evidence that he is a partner in the
business." Petitioner asserts, however, that no such inference can be drawn against
it since its share in the profits of the Sto Nio project was in the nature of
compensation or "wages of an employee", under the exception provided in Article
1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not an employee of
Baguio Gold who will be paid "wages" pursuant to an employer-employee
relationship. To begin with, petitioner was the manager of the project and had put
substantial sums into the venture in order to ensure its viability and profitability. By
pegging its compensation to profits, petitioner also stood not to be remunerated in
case the mine had no income. It is hard to believe that petitioner would take the risk
of not being paid at all for its services, if it were truly just an ordinary employee.
Consequently, we find that petitioners "compensation" under paragraph 12 of the
agreement actually constitutes its share in the net profits of the partnership.
Indeed, petitioner would not be entitled to an equal share in the income of the mine
if it were just an employee of Baguio Gold. 25 It is not surprising that petitioner was
to receive a 50% share in the net profits, considering that the "Power of Attorney"
also provided for an almost equal contribution of the parties to the St. Nino mine.
The "compensation" agreed upon only serves to reinforce the notion that the
parties relations were indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioners advances as investments
in a partnership known as the Sto. Nino mine. The advances were not "debts" of
Baguio Gold to petitioner inasmuch as the latter was under no unconditional
obligation to return the same to the former under the "Power of Attorney". As for the
amounts that petitioner paid as guarantor to Baguio Golds creditors, we find no
reason to depart from the tax courts factual finding that Baguio Golds debts were
not yet due and demandable at the time that petitioner paid the same. Verily,

petitioner pre-paid Baguio Golds outstanding loans to its bank creditors and this
conclusion is supported by the evidence on record. 26
In sum, petitioner cannot claim the advances as a bad debt deduction from its gross
income. Deductions for income tax purposes partake of the nature of tax
exemptions and are strictly construed against the taxpayer, who must prove by
convincing evidence that he is entitled to the deduction claimed. 27 In this case,
petitioner failed to substantiate its assertion that the advances were subsisting
debts of Baguio Gold that could be deducted from its gross income. Consequently, it
could not claim the advances as a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CAG.R. SP No. 49385 dated June 30, 2000, which affirmed the decision of the Court of
Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner Philex Mining
Corporation is ORDERED to PAY the deficiency tax on its 1982 income in the
amount of P62,811,161.31, with 20% delinquency interest computed from February
10, 1995, which is the due date given for the payment of the deficiency income tax,
up to the actual date of payment.
SO ORDERED.

7. Marsman Drysdale Land, Inc. vs. PHilippine Geoanalytics, Inc.,


622 SCRA 281, G.R. No. 183376 June 29, 2010
Civil Law; Contracts; Partnership; Joint Ventures; A joint venture being a form of
partnership it is to be governed by the laws on partnership.A joint venture being a
form of partnership, it is to be governed by the laws on partnership. Marsman
Drysdale Land, Inc. vs. PHilippine Geoanalytics, Inc., 622 SCRA 281, G.R. No. 183376
June 29, 2010
CARPIO MORALES, J.:
On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and
Gotesco Properties, Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for
the construction and development of an office building on a land owned by
Marsman Drysdale in Makati City.[1]
The JVA contained the following pertinent provisions:
SECTION 4. CAPITAL OF THE JV
It is the desire of the Parties herein to implement this Agreement
by investing in the PROJECT on a FIFTY (50%) PERCENT- FIFTY
(50%) PERCENT basis.

4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall


contribute the Property.
The total appraised value of the Property is PESOS: FOUR HUNDRED
TWENTY MILLION (P420,000,000.00).
For this purpose, [Marsman Drysdale] shall deliver the Property in a
buildable condition within ninety (90) days from signing of this
Agreement barring any unforeseen circumstances over which
[Marsman Drysdale] has no control. Buildable condition shall mean that
the old building/structure which stands on the Property is demolished
and taken to ground level.
4.2.

Contribution of [Gotesco]- [Gotesco] shall contribute the


amount of PESOS: FOUR HUNDRED TWENTY MILLION
(P420,000,000.00) in cash which shall be payable as follows:
4.2.1.

The amount of PESOS: FIFTY MILLION (P50,000,000.00)


upon signing of this Agreement.

4.2.2.

The balance of PESOS: THREE HUNDRED SEVENTY


MILLION (P370,000,000.00) shall be paid based on
progress billings, relative to the development and
construction of the Building, but shall in no case exceed
ten (10) months from delivery of the Property in a
Buildable condition as defined in section 4.1.
A joint account shall be opened and maintained by both
Parties for handling of said balance, among other Project
concerns.

4.3. Funding and Financing


4.3.1

Construction funding for the Project shall be


obtained from the cash contribution of [Gotesco].
4.3.2
Subsequent funding shall be obtained from the preselling of units in the Building or, when necessary, from
loans from various banks or financial institutions.
[Gotesco] shall arrange the required funding from such
banks or financial institutions, under such terms and
conditions which will provide financing rates favorable to
the Parties.
4.3.3

[Marsman Drysdale] shall not be obligated to


fund the Project as its contribution is limited to the
Property.

4.3.4

If the cost of the Project exceeds the cash contribution


of [Gotesco], the proceeds obtained from the pre-selling

of units and proceeds from loans, the Parties shall agree


on other sources and terms of funding such excess as
soon as practicable.
4.3.8

All funds advanced by a Party (or by third parties


in substitution for advances from a Party) shall be
repaid by the JV.

4.3.9

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.
(emphasis supplied; underscoring in the original)

Via Technical Services Contract (TSC) dated July 14, 1997, [2] the joint venture
engaged the services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface
soil exploration, laboratory testing, seismic study and geotechnical engineering for
the project. PGI, was, however, able to drill only four of five boreholes needed to
conduct its subsurface soil exploration and laboratory testing, justifying its failure
to drill the remaining borehole to the failure on the part of the joint venture
partners to clear the area where the drilling was to be made. [3] PGI was able to
complete its seismic study though.
PGI then billed the joint venture on November 24, 1997 for P284,553.50
representing the cost of partial subsurface soil exploration; and on January 15,
1998 for P250,800 representing the cost of the completed seismic study. [4]
Despite repeated demands from PGI, [5] the joint venture failed to pay its
obligations.
Meanwhile, due to unfavorable economic conditions at the time, the joint
venture was cut short and the planned building project was eventually shelved. [6]
PGI subsequently filed on November 11, 1999 a complaint for collection of
sum of money and damages at the Regional Trial Court (RTC) of Quezon City
against Marsman Drysdale and Gotesco.

In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed


the responsibility of paying PGI to Gotesco which, under the JVA, was solely liable
for the monetary expenses of the project. [7]
Gotesco, on the other hand, countered that PGI has no cause of action
against it as PGI had yet to complete the services enumerated in the contract; and
that Marsman Drysdale failed to clear the property of debris which prevented PGI
from completing its work.[8]
By Decision of June 2, 2004,[9] Branch 226 of the Quezon City RTC rendered
judgment in favor of PGI, disposing as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered in favor of plaintiff [PGI].
The defendants [Gotesco] and [Marsman Drysdale] are ordered
to pay plaintiff, jointly:
(1)

the sum of P535,353.50 with legal interest from the


date of this decision until fully paid;

(2)

the sum of P200,000.00 as exemplary damages;

(3)

the sum of P200,000.00 as and for attorneys fees;


and

(4)

costs of suit.

The cross-claim of defendant [Marsman Drysdale] against


defendant [Gotesco] is hereby GRANTED as follows:
a)

Defendant [Gotesco] is ordered to reimburse codefendant [Marsman Drysdale] in the amount of


P535,353.[50] in accordance with the [JVA].

b)

Defendant [Gotesco] is further ordered to pay codefendant [Marsman Drysdale] the sum of P100,000.00 as
and for attorneys fees.

SO ORDERED. (underscoring in the original; emphasis supplied)


Marsman Drysdale moved for partial reconsideration, contending that it
should not have been held jointly liable with Gotesco on PGIs claim as well as on

the awards of exemplary damages and attorneys fees. The motion was, by
Resolution of October 28, 2005, denied.
Both Marsman Drysdale and Gotesco appealed to the Court of Appeals
which, by Decision of January 28, 2008, [10] affirmed with modification the
decision of the trial court. Thus the appellate court disposed:
WHEREFORE, premises considered, the instant appeal
is PARTLY GRANTED. The assailed Decision dated June 2, 2004 and
the Resolution dated October 28, 2005 of the RTC of Quezon City,
Branch 226, in Civil Case No. Q99-39248 are hereby AFFIRMED with
MODIFICATION deleting the award of exemplary damages in favor of
[PGI] and the P100,000.00 attorneys fees in favor of [Marsman
Drysdale]
and
ordering
defendant-appellant
[Gotesco]
to REIMBURSE [Marsman Drysdale] 50% of the aggregate sum due
[PGI], instead of the lump sum P535,353.00 awarded by the RTC. The
rest of the Decision stands.
SO
ORDERED. (capitalization
original; underscoring supplied)

and

emphasis

in

the

In partly affirming the trial courts decision, the appellate court ratiocinated
that notwithstanding the terms of the JVA, the joint venture cannot avoid payment
of PGIs claim since [the JVA] could not affect third persons like [PGI] because of the
basic civil law principle of relativity of contracts which provides that contracts can
only bind the parties who entered into it, and it cannot favor or prejudice a third
person, even if he is aware of such contract and has acted with knowledge thereof.
[11]

Their motions for partial reconsideration having been denied, [12] Marsman
Drysdale and Gotesco filed separate petitions for review with the Court which were
docketed as G.R. Nos. 183374 and 183376, respectively. By Resolution of
September 8, 2008, the Court consolidated the petitions.
In G.R. No. 183374, Marsman Drysdale imputes error on the appellate court
in

A. ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY


AFTER CONCEDING THAT [GOTESCO] SHOULD ULTIMATELY BE SOLELY
LIABLE TO [PGI].
B. AWARDING ATTORNEYS FEES IN FAVOR OF [PGI]
C. IGNORING THE FACT THAT [PGI] DID NOT COMPLY WITH THE
REQUIREMENT OF SATISFACTORY PERFORMANCE OF ITS PRESTATION
WHICH, PURSUANT TO THE TECHNICAL SERVICES CONTRACT, IS THE
CONDITION SINE QUA NON TO COMPENSATION.
D. DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN
DRYSDALES] ENTITLEMENT TO AN AWARD OF ATTORNEYS FEES. [13]
On the other hand, in G.R. No. 183376, Gotesco peddles that the appellate
court committed error when it
ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE
WORK PERFORMED BY [PGI] AND P100,000.00 [AS] ATTORNEYS FEES
[AND] TO REIMBURSE [MARSMAN DRYSDALE] 50% OF P535,353.50
AND PAY [MARSMAN DRYSDALE] P100,000.00 AS ATTORNEYS
FEES. [14]

On the issue of whether PGI was indeed entitled to the payment of services
it rendered, the Court sees no imperative to re-examine the congruent findings of
the trial and appellate courts thereon. Undoubtedly, the exercise involves an
examination of facts which is normally beyond the ambit of the Courts functions
under a petition for review, for it is well-settled that this Court is not a trier of
facts. While this judicial tenet admits of exceptions, such as when the findings of
facts of the appellate court are contrary to those of the trial courts, or when the
judgment is based on a misapprehension of facts, or when the findings of facts are
contradicted by the evidence on record, [15] these extenuating grounds find no
application in the present petitions.
AT ALL EVENTS, the Court is convinced that PGI had more than sufficiently
established its claims against the joint venture. In fact, Marsman Drysdale had long
recognized PGIs contractual claims when it (PGI) received a Certificate of
Payment[16] from the joint ventures project manager [17] which was endorsed to
Gotesco for processing and payment.[18]

The core issue to be resolved then is which between joint venturers


Marsman Drysdale and Gotesco bears the liability to pay PGI its unpaid claims.
To Marsman Drysdale, it is Gotesco since, under the JVA, construction
funding for the project was to be obtained from Gotescos cash contribution, as its
(Marsman Drysdales) participation in the venture was limited to the land.
Gotesco maintains, however, that it has no liability to pay PGI since it was
due to the fault of Marsman Drysdale that PGI was unable to complete its
undertaking.
The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.
PGI executed a technical service contract with the joint venture 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.
The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as
the beneficial owner of the project, [19] and all billing invoices indicated the
consortium therein as the client.
As the appellate court held, Articles 1207 and 1208 of the Civil Code, which
respectively read:
Art. 1207. The concurrence of two or more creditors or of two or
more debtors in one and the same obligation does not imply
that each one of the former has a right to demand, or that
each one of the latter is bound to render, entire compliance
with the prestations. There is a solidary liability only when the
obligation expressly so states, or when the law or nature of the
obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary does not
appear, the credit or debt shall be presumed to be divided into
as many equal shares as there are creditors or debtors, the
credits or debts being considered distinct from one another, subject to
the Rules of Court governing the multiplicity of suits. (emphasis and
underscoring supplied),

presume that the obligation owing to PGI is joint between Marsman Drysdale and
Gotesco.
The only time that the JVA may be made to apply in the present petitions is
when the liability of the joint venturers to each other would set in.
A joint venture being a form of partnership, it is to be governed by the laws
on partnership.[20] Article 1797 of the Civil Code provides:
Art. 1797. 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. (emphasis and underscoring supplied)

In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the
proceeds of the project.[21] They did not provide for the splitting of losses,
however. Applying the above-quoted provision of Article 1797 then, the same ratio
applies in splitting the P535,353.50 obligation-loss of the joint venture.
The appellate courts decision must be modified, however. Marsman Drysdale
and Gotesco being jointly liable, there is no need for Gotesco to reimburse
Marsman Drysdale for 50% of the aggregate sum due to PGI.
Allowing Marsman Drysdale 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 Gotescos expense. The grant
by the lower courts of Marsman Drysdale cross-claim against Gotesco was thus
erroneous.

Marsman Drysdales supplication for the award of attorneys fees in its favor
must be denied. It cannot claim that it was compelled to litigate or that the civil
action or proceeding against it was clearly unfounded, for the JVA provided that, in
the event a party advances funds for the project, the joint venture shall repay the
advancing party. [22]
Marsman Drysdale was thus not precluded from advancing funds to pay for
PGIs contracted services to abate any legal action against the joint venture itself. It
was in fact hardline insistence on Gotesco having sole responsibility to pay for the
obligation, despite the fact that PGIs services redounded to the benefit of the joint
venture, that spawned the legal action against it and Gotesco.
Finally, an interest of 12% per annum on the outstanding obligation must be
imposed from the time of demand[23] as the delay in payment makes the obligation
one of forbearance of money, conformably with this Courts ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals. [24] Marsman Drysdale and Gotesco should
bear legal interest on their respective obligations.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals
are AFFIRMED with MODIFICATION in that the order for Gotesco to reimburse
Marsman Drysdale is DELETED, and interest of 12% per annum on the respective
obligations of Marsman Drysdale and Gotesco is imposed, computed from the last
demand or on January 5, 1999 up to the finality of the Decision.
If the adjudged amount and the interest remain unpaid thereafter, the
interest rate shall be 12% per annum computed from the time the judgment
becomes final and executory until it is fully satisfied. The appealed decision is, in all
other respects, affirmed.
Costs against petitioners Marsman Drysdale and Gotesco.
SO ORDERED.
8. J. TIOSEJO INVESTMENT CORP., petitioner,
BENJAMIN AND ELEANOR ANG, respondents.

vs.

SPOUSES

Contracts; Joint Ventures; By the express terms of the Joint Venture


Agreement (JVA), it appears that petitioner 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.Even prescinding from the foregoing procedural considerations, we also
find that the HLURB Arbiter and Board correctly held petitioner liable alongside PPGI
for respondents claims and the P10,000.00 administrative fine imposed pursuant to
Section 20 in relation to Section 38 of P.D. 957. By the express terms of the JVA, it
appears that petitioner 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.
Civil Law; Partnership; 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.
Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid
liability by claiming that it was not in any way privy to the Contracts to Sell
executed by PPGI and respondents. As correctly argued by the latter, moreover, 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.

Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for
review at bench seeks the reversal of the Resolutions dated 23 May 2006 and 9
August 2006 issued by the Third Division of the Court of Appeals (CA) in CA-G.R. SP
No. 93841 which, respectively, dismissed the petition for review of petitioner J.
Tiosejo Investment Corp. (JTIC) for having been filed out of time [1] and denied the
motion for reconsideration of said dismissal.[2]

The Facts

On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with
Primetown Property Group, Inc. (PPGI) for the development of a residential
condominium project to be known as The Meditel on the formers 9,502 square
meter property along Samat St., Highway Hills, Mandaluyong City.[3] With petitioner
contributing the same property to the joint venture and PPGI undertaking to develop

the condominium, the JVA provided, among other terms and conditions, that the
developed units shall be shared by the former and the latter at a ratio of 17%-83%,
respectively.[4] While

both

parties

were

allowed,

at

their

own

individual

responsibility, to pre-sell the units pertaining to them, [5] PPGI further undertook to
use all proceeds from the pre-selling of its saleable units for the completion of the
Condominium Project.

[6]

On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued
License to Sell No. 96-06-2854 in favor of petitioner and PPGI as project owners.
[7]

By virtue of said license, PPGI executed Contract to Sell No. 0212 with Spouses

Benjamin and Eleanor Ang on 5 February 1997, over the 35.45-square meter
condominium unit denominated as Unit A-1006, for the agreed contract price
of P52,597.88 per square meter or a total P2,077,334.25.[8] On the same date PPGI
and respondents also executed Contract to Sell No. 0214 over the 12.50 square
meter parking space identified as Parking Slot No. 0405, for the stipulated
consideration of P26,400.00 square meters or a total of P313,500.00.[9]

On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the
rescission of the aforesaid Contracts to Sell docketed before the HLURB as HLURB
Case No. REM 072199-10567. Contending that they were assured by petitioner and
PPGI that the subject condominium unit and parking space would be available for
turn-over and occupancy in December 1998, respondents averred, among other
matters, that in view of the non-completion of the project according to said
representation, respondents instructed petitioner and PPGI to stop depositing the
post-dated checks they issued and to cancel said Contracts to Sell; and, that despite
several demands, petitioner and PPGI have failed and refused to refund
the P611,519.52 they already paid under the circumstances.Together with the
refund of said amount and interests thereon at the rate of 12% per annum,
respondents prayed for the grant of their claims for moral and exemplary damages
as well as attorneys fees and the costs.[10]

Specifically denying the material allegations of the foregoing complaint, PPGI filed
its 7 September 1999 answer alleging that the delay in the completion of the
project was attributable to the economic crisis which affected the country at the
time; 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; that aware of its responsibilities, it offered several alternatives to its buyers
like respondents for a transfer of their investment to its other feasible projects and
for the amounts they already paid to be considered as partial payment for the
replacement unit/s; and, that the complaint was prematurely filed in view of the ongoing negotiations it is undertaking with its buyers and prospective joint venture
partners. Aside from the dismissal of the complaint, PPGI sought the readjustment
of the contract price and the grant of its counterclaims for attorneys fees and
litigation expenses.[11]

Petitioner also specifically denied the material allegations of the complaint in


separate

answer dated

February

2002[12] which

it

amended

on

20

May

2002.Calling attention to the fact that its prestation under the JVA consisted in
contributing the property on which The Meditel was to be constructed, petitioner
asseverated that, by the terms of the JVA, each party was individually responsible
for the marketing and sale of the units pertaining to its share; that not being privy
to the Contracts to Sell executed by PPGI and respondents, it did not receive any
portion of the payments made by the latter; and, that without any contributory fault
and negligence on its part, PPGI breached its undertakings under the JVA by failing
to complete the condominium project. In addition to the dismissal of the complaint
and the grant of its counterclaims for exemplary damages, attorneys fees, litigation
expenses and the costs, petitioner interposed a cross-claim against PPGI for full
reimbursement of any sum it may be adjudged liable to pay respondents. [13]

Acting on the position papers and draft decisions subsequently submitted by the
parties,[14] Housing and Land Use (HLU) Arbiter Dunstan T. San Vicente went on to
render the 30 July 2003 decision declaring the subject 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, petitioner and PPGI,
as co-owners of the condominium project, were ordered to pay: (a) respondents
claim for refund of the P611,519.52 they paid, with interest at the rate of 12% per
annum from 5 February 1997; (b) damages in the sum ofP75,000.00; (c) attorneys
fees in the sum of P30,000.00; (d) the costs; and, (e) an administrative fine in the
sum of P10,000.00 for violation of Sec. 20 in relation to Sec. 38 of Presidential
Decree No. 957.

[15]

Elevated to the HLURB Board of Commissioners via the petition

for review filed by petitioner,[16] the foregoing decision was modified to grant the
latters cross-claim in the 14 September 2004 decision rendered by said
administrative bodys Second Division in HLURB Case No. REM-A-031007-0240, [17] to
wit:

Wherefore, the petition for review of the respondent Corporation is


dismissed. However, the decision of the Office below dated July 30,
2003 is modified, hence, its dispositive portion shall read:
1. Declaring the contracts to sell, both dated February 5,
1997, as cancelled and rescinded, and ordering the
respondents to immediately pay the complainants the
following:
a.

The amount of P611,519.52, with interest at


the legal rate reckoned from February 5, 1997
until fully paid;
b.
Damages of P75,000.00;
c.
Attorneys fees equivalent to P30,000.00; and
d.
The Cost of suit;
2. Ordering respondents to pay this Office administrative
fine of P10,000.00 for violation of Section 20 in relation
to Section 38 of P.D. 957; and
3. Ordering respondent Primetown to reimburse the entire
amount which the respondent Corporation will be
constrained to pay the complainants.
So ordered.[18]

With the denial of its motion for reconsideration of the foregoing decision,
[19]

petitioner filed a Notice of Appeal dated 28 February 2005 which was docketed

before the Office of the President (OP) as O.P. Case No. 05-B-072. [20] On 3 March

2005, the OP issued an order directing petitioner to submit its appeal memorandum
within 15 days from receipt thereof. [21] Acting on the motion therefor filed, the OP
also issued another order on the same date, granting petitioner a period of 15 days
from 28 February 2005 or until 15 March 2005 within which to file its appeal
memorandum.[22] In view of petitioners filing of a second motion for extension dated
15 March 2005,[23] the OP issued the 18 March 2005 order granting the former an
additional 10 days from 15 March 2005 or until 25 March 2005 within which to file
its appeal memorandum, provided no further extension shall be allowed. [24] Claiming
to have received the aforesaid 3 March 2005 order only on 16 March 2005, however,
petitioner filed its 31 March 2005 motion seeking yet another extension of 10 days
or until 10 April 2005 within which to file its appeal memorandum. [25]

On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for
extension of petitioner[26] which eventually filed its appeal memorandum by
registered mail on 11 April 2005 in view of the fact that 10 April 2005 fell on a
Sunday.[27] On 25 October 2005, the OP rendered a decision dismissing petitioners
appeal on the ground that the latters appeal memorandum was filed out of time and
that the HLURB Board committed no grave abuse of discretion in rendering the
appealed decision.[28] Aggrieved by the denial of its motion for reconsideration of the
foregoing decision in the 3 March 2006 order issued by the OP, [29] petitioner filed
before the CA its 29 March 2006 motion for an extension of 15 days from 31 March
2006 or until 15 April 2006 within which to file its petition for review. [30] Accordingly,
a non-extendible period of 15 days to file its petition for review was granted
petitioner in the 31 March 2006 resolution issued by the CA Third Division in CA-G.R,
SP No. 93841.[31]

Maintaining that 15 April 2006 fell on a Saturday and that pressures of work
prevented its counsel from finalizing its petition for review, petitioner filed a motion
on 17 April 2006, seeking for an additional time of 10 days or until 27 April 2006
within which to file said pleading. [32] Although petitioner filed by registered mail a
motion to admit its attached petition for review on 19 April 2006, [33] the CA issued

the herein assailed 23 May 2006 resolution, [34] disposing of the formers pending
motion for extension as well as the petition itself in the following wise:
We resolve to DENY the second extension motion and rule
to DISMISS the petition for being filed late.
Settled is that heavy workload is by no means excusable (Land
Bank of the Philippines vs. Natividad, 458 SCRA 441 [2005]). If the
failure of the petitioners counsel to cope up with heavy workload
should be considered a valid justification to sidestep the reglementary
period, there would be no end to litigations so long as counsel had not
been sufficiently diligent or experienced (LTS Philippine Corporation vs.
Maliwat, 448 SCRA 254, 259-260 [2005], citing Sublay vs. National
Labor Relations Commission, 324 SCRA 188 [2000]).
Moreover, lawyers should not assume that their motion for
extension or postponement will be granted the length of time they
pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]).
SO ORDERED.[35]

Petitioners motion for reconsideration of the foregoing resolution [36] was


denied for lack of merit in the CAs second assailed 9 August 2006 resolution,
[37]

hence, this petition.

The Issues

Petitioner seeks the reversal of the assailed resolutions on the following


grounds, to wit:
I. THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION
ON MERE TECHNICALITY;
II. THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE
THE PETITION ON THE MERITS THEREBY AFFIRMING THE
OFFICE OF THE PRESIDENTS DECISION (A) DISMISSING
JTICS APPEAL ON A MERE TECHNICALITY; (B) AFFIRMING
THE HLURB BOARDS DECISION INSOFAR AS IT FOUND JTIC
SOLIDARILY LIABLE WITH PRIMETOWN TO PAY SPOUSES
ANG DAMAGES, ATTORNEYS FEES AND THE COST OF THE

SUIT; AND (C) AFFIRMING THE HLURB BOARDS DECISION


INSOFAR
AS
IT
FAILED
TO
AWARD
JITC
ITS
COUNTERCLAIMS AGAINST SPOUSES ANG.[38]
The Courts Ruling

We find the petition bereft of merit.

While the dismissal of an appeal on purely technical grounds is concededly frowned


upon,[39] it bears emphasizing that the procedural requirements of the rules on
appeal are not harmless and trivial technicalities that litigants can just discard and
disregard at will.[40] Neither being a natural right nor a part of due process, the rule
is settled that the right to appeal is merely a statutory privilege which may be
exercised only in the manner and in accordance with the provisions of the law.
[41]

The perfection of an appeal in the manner and within the period prescribed by

law is, in fact, not only mandatory but jurisdictional. [42] Considering that they are
requirements which cannot be trifled with as mere technicality to suit the interest of
a party,[43] failure to perfect an appeal in the prescribed manner has the effect of
rendering the judgment final and executory. [44]

Fealty to the foregoing principles impels us to discount the error petitioner imputes
against the CA for denying its second motion for extension of time for lack of merit
and dismissing its petition for review for having been filed out of time. Acting on
the 29 March 2006 motion filed for the purpose, after all, the CA had already
granted petitioner an inextendible period of 15 days from 31 March 2006 or until 15
April 2006 within which to file its petition for review. Sec. 4, Rule 43 of the 1997
Rules of Civil Procedure provides as follows:
Sec. 4. Period of appeal. The appeal shall be taken within fifteen (15)
days from notice of the award, judgment, final order or resolution, or
from the date of its last publication, if publication is required by law for
its effectivity, or of the denial of petitioners motion for new trial or
reconsideration duly filed in accordance with the governing law of the

court or agency a quo. Only one (1) motion for reconsideration shall be
allowed. Upon proper motion and payment of the full amount of the
docket fee before the expiration of the reglementary period, the Court
of Appeals may grant an additional period of fifteen (15) days only
within which to file the petition for review. No further extension shall be
granted except for the most compelling reason and in no case to
exceed fifteen (15) days. (Underscoring supplied)

The record shows that, having been granted the 15-day extension sought in its first
motion, petitioner filed a second motion for extension praying for an additional 10
days from 17 April 2006 within which to file its petition for review, on the ground
that pressures of work and the demands posed by equally important cases
prevented its counsel from finalizing the same. As correctly ruled by the CA,
however, heavy workload cannot be considered as a valid justification to sidestep
the reglementary period[45] since to do so would only serve to encourage needless
delays and interminable litigations. Indeed, rules prescribing the time for doing
specific

acts

or

for

taking

certain

proceedings

are

considered

absolutely

indispensable to prevent needless delays and to orderly and promptly discharge


judicial business.[46] Corollary to the principle that the allowance or denial of a
motion for extension of time is addressed to the sound discretion of the court,
[47]

moreover,

lawyers

cannot

expect

that

their

motions

for

extension

or

postponement will be granted[48] as a matter of course.

Although technical rules of procedure are not ends in themselves, they are
necessary for an effective and expeditious administration of justice and cannot, for
said reason, be discarded with the mere expediency of claiming substantial merit.
[49]

This holds particularly true in the case at bench where, prior to the filing of its

petition for review before the CA, petitioners appeal before the OP was likewise
dismissed in view of its failure to file its appeal memorandum within the extensions
of time it had been granted by said office. After being granted an initial extension of
15 days to do the same, the records disclose that petitioner was granted by the OP
a second extension of 10 days from 15 March 2005 or until 25 March 2005 within
which to file its appeal memorandum, on the condition that no further extensions
shall be allowed. Aside from not heeding said proviso, petitioner had, consequently,
no more time to extend when it filed its 31 March 2005 motion seeking yet another

extension of 10 days or until 10 April 2005 within which to file its appeal
memorandum.

With the foregoing procedural antecedents, the initial 15-day extension granted by
the CA and the injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil
Procedure against further extensions except for the most compelling reason, it was
clearly inexcusable for petitioner to expediently plead its counsels heavy workload
as ground for seeking an additional extension of 10 days within which to file its
petition for review. To our mind, petitioner would do well to remember that, rather
than the low gate to which parties are unreasonably required to stoop, procedural
rules are designed for the orderly conduct of proceedings and expeditious
settlement of cases in the courts of law. Like all rules, they are required to be
followed[50] and utter disregard of the same cannot be expediently rationalized by
harping on the policy of liberal construction [51] which was never intended as an
unfettered license to disregard the letter of the law or, for that matter, a convenient
excuse to substitute substantial compliance for regular adherence thereto. When it
comes to compliance with time rules, the Court cannot afford inexcusable delay. [52]

Even prescinding from the foregoing procedural considerations, we also find that the
HLURB Arbiter and Board correctly held petitioner liable alongside PPGI for
respondents claims and the P10,000.00 administrative fine imposed pursuant
to Section 20 in relation to Section 38 of P.D. 957. By the express terms of the JVA, it
appears that petitioner not only retained ownership of the property pending
completion of the condominium project [53] 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. Non-performance by either party of
its obligations under this Agreement shall be excused when the same
is due to Force Majeure. In such cases, the defaulting party must
exercise due diligence to minimize the breach and to remedy the same
at the soonest possible time. In the event that either party defaults or
breaches any of the provisions of this Agreement other than by reason
of Force Majeure, the other party shall have the right to terminate this
Agreement by giving notice to the defaulting party, without prejudice

to the filing of a civil case for damages arising from the breach of the
defaulting party.
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 Project. If
the developer fails to comply within One Hundred Eighty (180) days
from such notice or, within such time, indicates its incapacity to
complete the Project, the Owner shall have the right to take over the
construction and cause the completion thereof. If the Owner exercises
its right to complete the Condominium Project under these
circumstances, this Agreement shall be automatically rescinded upon
written notice to the Developer and the latter shall hold the former free
and harmless from any and all liabilities to third persons arising from
such rescission. In 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.
Nevertheless, with respect to the buyers of the Developer for the First
Phase, the area intended for the Second Phase shall not be bound
and/or subjected to the said covenants and/or any other liability
incurred by the Developer in connection with the development of the
first phase. (Underscoring supplied)

Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid
liability by claiming that it was not in any way privy to the Contracts to Sell
executed by PPGI and respondents. As correctly argued by the latter, moreover, a
joint venture is considered in this jurisdiction as a form of partnership and is,
accordingly, governed by the law of partnerships. [54] 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.[55] Whether innocent or guilty, all the partners are solidarily liable
with the partnership itself.[56]

WHEREFORE, premises considered, the petition for review is DENIED for lack of
merit.
SO ORDERED.

9. JOSEFINA P. REALUBIT vs. PROSENCIO D. JASO and EDENG JASO


G.R. No. 178782

September 21, 2011

Joint Ventures; Partnership; Agency; Words and Phrases; 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.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.
Same; Same; Same; 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.From the foregoing provision, it is evident that (t)he
trans fer 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, we find that 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 1831 of the Civil
Code. Realubit vs. Jaso, 658 SCRA 146, G.R. No. 178782 September 21, 2011

FACTS
Petitioner Josefina Realubit entered into a Joint Venture Agreement with
Francis Eric Amaury Biondo, a French national, for the operation of an ice
manufacturing business. With Josefina 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 of
respondent Eden Jaso, the wife of respondent Prosencio 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 and inventory thereof as well as the remittance
of their portion of its profits.

Faulting Josefina with unjustified failure to heed their demand, the Spouses
Jaso commenced the instant suit for specific performance, accounting, examination,
audit and inventory of assets and properties, dissolution of the joint venture,
appointment of a receiver and damages. The said complaint alleged that the
Spouses Realubit had no gainful occupation or business prior to their joint venture
with Biondo and that aside from appropriating for themselves the income of the
business, they have fraudulently concealed the funds and assets thereof thru their
relatives, associates or dummies. The Spouses Realubit claimed that they have
been engaged in the tube ice trading business under a single proprietorship even
before their dealings with Biondo.

The RTC rendered its Decision discounting the existence of sufficient evidence
from which the income, assets and the supposed dissolution of the joint venture can
be adequately reckoned. Upon the finding, however, that the Spouses Jaso had been
nevertheless subrogated to Biondos rights in the business in view of their valid
acquisition of the latters share as capitalist partner. On appeal before the CA, the
foregoing decision was set aside
upon the following findings that the Spouses Jaso validly acquired Biondos share in
the business which had been transferred to and continued its operations and not
dissolved as claimed by the Spouses Realubit.

ISSUES
1.

Whether there was a valid assignment or rights to the joint venture

2.

Whether the joint venture is a contract of partnership

3.
Whether Jaso acquired the title of being a partner based on the Deed of
Assignment

RULING
1.
Yes. As a public document, the Deed of Assignment Biondo executed in favor
of Eden not only enjoys a presumption of regularity but is also considered prima
facie evidence of the facts therein stated. A party assailing the authenticity and
due execution of a notarized document is, consequently, required to present
evidence that is clear, convincing and more than merely preponderant. In view of
the Spouses Realubits failure to discharge this onus, we find that both the RTC and
the CA correctly upheld the authenticity and validity of said Deed of
Assignment upon the combined strength of the above-discussed disputable
presumptions and the testimonies elicited from Edenand Notary Public Rolando
Diaz.

2.
Yes. 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.

3.
No. 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, we find that 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 1831 of the Civil Code
10.
J. M. TUASON & CO., INC., represented by it Managing
PARTNER,
GREGORIA
ARANETA,
INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon
City Branch, to recover possesion of registered land situated in barrio Tatalon,
Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint described the
land as a portion of a lot registered in plaintiff's name under Transfer Certificate of
Title No. 37686 of the land record of Rizal Province and as containing an area of 13
hectares more or less. But the complaint was amended by reducing the area of 6
hectares, more or less, after the defendant had indicated the plaintiff's surveyors
the portion of land claimed and occupied by him. The second amendment became
necessary and was allowed following the testimony of plaintiff's surveyors that a
portion of the area was embraced in another certificate of title, which was plaintiff's
Transfer Certificate of Title No. 37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino Feria, had testified that the area
occupied and claimed by defendant was about 13 hectares, as shown in his Exhibit
1, plaintiff again, with the leave of court, amended its complaint to make its
allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in dispute) under

claim of ownership, adverse to the entire world by defendant and his predecessor in
interest" from "time in-memorial". The answer further alleges that registration of the
land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or
error and without knowledge (of) or interest either personal or thru publication to
defendant and/or predecessors in interest." The answer therefore prays that the
complaint be dismissed with costs and plaintiff required to reconvey the land to
defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January,
1940, until he vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved,
defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case
was not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the
litigation.
V. The trial court erred in holding that the land in dispute is covered by
transfer certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and
lawful owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay the
plaintiff the amount of P132.62 monthly from January, 1940, until he vacates
the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in
litigation to the defendant.
As to the first assigned error, there is nothing to the contention that the present
action is not brought by the real party in interest, that is, by J. M. Tuason and Co.,
Inc. What the Rules of Court require is that an action be broughtin the name of, but
not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice
is for an attorney-at-law to bring the action, that is to file the complaint, in the name
of the plaintiff. That practice appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff"
and commences with the statement "comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the plaintiff is "represented
herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but

there is nothing against one corporation being represented by another person,


natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can
not act as managing partner for plaintiff on the theory that it is illegal for two
corporations to enter into a partnership is without merit, for the true rule is that
"though a corporation has no power to enter into a partnership, it may nevertheless
enter into a joint venture with another where the nature of that venture is in line
with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs.
Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in
the record to indicate that the venture in which plaintiff is represented by Gregorio
Araneta, Inc. as "its managing partner" is not in line with the corporate business of
either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may
be answered by mere reference to section 4 of Rule 17, Rules of Court, which
sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. When issues not raised by the
pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects, as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform
to the evidence and to raise these issues may be made upon motion of any
party at my time, even of the trial of these issues. If evidence is objected to
at the trial on the ground that it is not within the issues made by the
pleadings, the court may allow the pleadings to be amended and shall be so
freely when the presentation of the merits of the action will be subserved
thereby and the objecting party fails to satisfy the court that the admission of
such evidence would prejudice him in maintaining his action or defense upon
the merits. The court may grant a continuance to enable the objecting party
to meet such evidence.
Under this provision amendment is not even necessary for the purpose of rendering
judgment on issues proved though not alleged. Thus, commenting on the provision,
Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of
Civil Procedure, ruled that where the facts shown entitled plaintiff to relief
other than that asked for, no amendment to the complaint is necessary,
especially where defendant has himself raised the point on which recovery is
based, and that the appellate court treat the pleadings as amended to
conform to the evidence, although the pleadings were not actually amended.
(I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early
stage of the trial, that the land in dispute "is that described or represented in Exhibit
A and in Exhibit B enclosed in red pencil with the name Quirino Bolaos," defendant
later changed his lawyer and also his theory and tried to prove that the land in
dispute was not covered by plaintiff's certificate of title. The evidence, however, is
against defendant, for it clearly establishes that plaintiff is the registered owner of

lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3
square meters, more or less, covered by transfer certificate of title No. 37686 of the
land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio,
having an area of 74,789 square meters, more or less, covered by transfer
certificate of title No. 37677 of the land records of the same province, both lots
having been originally registered on July 8, 1914 under original certificate of title
No. 735. The identity of the lots was established by the testimony of Antonio
Manahan and Magno Faustino, witnesses for plaintiff, and the identity of the portion
thereof claimed by defendant was established by the testimony of his own witness,
Quirico Feria. The combined testimony of these three witnesses clearly shows that
the portion claimed by defendant is made up of a part of lot 4-B-3-C and major on
portion of lot 4-B-4, and is well within the area covered by the two transfer
certificates of title already mentioned. This fact also appears admitted in
defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was
registered in 1914, the decree of registration can no longer be impugned on the
ground of fraud, error or lack of notice to defendant, as more than one year has
already elapsed from the issuance and entry of the decree. Neither court the decree
be collaterally attacked by any person claiming title to, or interest in, the land prior
to the registration proceedings. (Sorogon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor
could title to that land in derogation of that of plaintiff, the registered owner, be
acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse,
notorious and continuous possession under claim of ownership for the period fixed
by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac, 2 etc.,
45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure
possession under a decree of registration does not prescribed. (Francisco vs. Cruz,
43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that
rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This
disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January,
1940, until he vacates the premises.' But it appears from the record that that
reasonable compensation for the use and occupation of the premises, as stipulated
at the hearing was P10 a month for each hectare and that the area occupied by
defendant was 13.2619 hectares. The total rent to be paid for the area occupied
should therefore be P132.62 a month. It is appears from the testimony of J. A.
Araneta and witness Emigdio Tanjuatco that as early as 1939 an action of ejectment
had already been filed against defendant. And it cannot be supposed that defendant
has been paying rents, for he has been asserting all along that the premises in
question 'have always been since time immemorial in open, continuous, exclusive
and public and notorious possession and under claim of ownership adverse to the
entire world by defendant and his predecessors in interest.' This assignment of error
is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.

During the pendency of this case in this Court appellant, thru other counsel, has
filed a motion to dismiss alleging that there is pending before the Court of First
Instance of Rizal another action between the same parties and for the same cause
and seeking to sustain that allegation with a copy of the complaint filed in said
action. But an examination of that complaint reveals that appellant's allegation is
not correct, for the pretended identity of parties and cause of action in the two suits
does not appear. That other case is one for recovery of ownership, while the present
one is for recovery of possession. And while appellant claims that he is also involved
in that order action because it is a class suit, the complaint does not show that such
is really the case. On the contrary, it appears that the action seeks relief for each
individual plaintiff and not relief for and on behalf of others. The motion for
dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.