G.R. No.

L-25532 February 28, 1969 premeditated scheme or design to use the partnership
as a business conduit to dodge the to laws.
COMMISSIONER OF INTERNAL
Regularity, not otherwise, is presumed. The limited
REVENUE, petitioner,
partnership is taxable on its income and to require
vs.
that income to be included in the indiviual tax return of
WILLIAM J. SUTER and THE COURT OF TAX
respondent is to overstretch the letter and intent of the
APPEALS, respondents.
law.
Partnership; Where respondent company in the case
Same; Same; Members and not firm are taxable in
at bar is considered a particular partnership and not
case of compañias colectivas.—In fact, it would even
universal.—The respondent company was not a
conflict with what it specifically provides in its Section
universal partnership, but a particular one. As appears
24: for the appellant’s stand results in equal
f rom Articles 1674 and 1675 of the Spanish Civil
treatment, taxwise, of a general copartnership
Code of 1889 (law in force when firm organized in
(compania colectiva) and a limited partnership, when
1947), a universal partnership requires either that the
the code plainly differentiates the two. Thus, the code
object of the association be all the present property of
taxes the latter on its income, but not the former,
the partners, as contributed by them to the common
because it is in the case of compañias colectivas that
fund, or else “all that the partners may acquire by their
the members, and not the firm, are taxable in their
industry or work during the existence of the
individual capacities for any dividend or share of the
partnership.” Respondent company was not such a
profit derived from the duly registered general
universal partnership, since the contributions of the
partnership (Section 26, N.I.R.C.; Arañas, Anno. &
partners were fixed sums of money and neither one of
Juris on the N.I.R.C., As Amended, Vol. 1, pp. 88–89).
them was an industrial partner. It follows that
respondent company was not a partnership that Same; Same; Income of limited partnership forming
spouses were forbidden to enter by Article 1677 of the part of the conjugal partnership is not wholly correct.
Civil Code of 1889. Nor could the subsequent —That the income of the limited partnership is
marriage of the partners operate to dissolve it, such actually or constructively the income of the spouses
marriage not being one of the causes provided for that and forms part of the conjugal partnership of gains is
purpose either by the Spanish Civil Code or the Code not wholly correct. The fruits of the wife’s paraphernal
of Commerce. become conjugal only when no longer needed to
defray ,the expenses for the administration and
Same; Where marriage of partners does not make the
preservation of the paraphernal capital of the wife.
company a single proprietorship.—The capital
Then again, the appellant’s argument erroneously
contributions of respondents-partners were separately
conf ines itself to the question of the legal personality
owned and contributed by them before their marriage;
of the limited partnership since the law taxes the
and after they were joined in wedlock, such
income of ‘even joint accounts that have no
contributions remained their respective separate
personality of their own. (Agapito v. Molo, 59 Phil.
property under the Spanish Civil Code.
779; People’s Bank v. Register of Deeds of Manila, 60
Same; Partnership has distinct and separate Phil. 167; V. Evangelista v. Collector of Internal
personality from that of its partners; Section 24 of Revenue, 102 Phil. 140; Collector v. Batangas
Internal Revenue Code is exception to the rule.—The Transportation Co., 102 Phil. 822.)
basic tenet of ,the Spanish and Philippine law is that
Same; Same; What is taxable is income of both
the partnership has a juridical personality of its own,
spouses, not the conjugal partnership.—Appellant is,
distinct and separate from that of its partners, the
likewise, mistaken in that it assumes that the conjugal
bypassing of the existence of the limited partnership
partnership of gains is a taxable unit, which it is not.
as a taxpayer can only be done by ignoring or
What is taxable is the “income of both spouses”
disregarding clear statutory mandates and basic
(Section 45 [d]) in their individual capacities. Though
principles of our law. The limited partnership’s
the amount of income (income of the conjugal
separate individuality makes it impossible to equate
partnernership vis-a-vis the joint income of husband
its income with that of the component members. True,
and wife) may be the same for a given taxable year,
section 24 of the Internal Revenue Code merges
their consequences would ,be different, as their
registered general copartnerships with the personality
contributions in the business partnership are not .the
of the individual partners for income tax purposes. But
same.
this rule is exceptional in its disregard of a cardinal
tenet of our partnership laws, and can not be Same; Same; Revenue code does not authorize
extended by mere implication to limited partnerships. consolidation of income of limited partnership and
income of spouses.—The diff erence in tax rates
Same; Taxation; Change in membership does not
between the income of the limited partnership being
remove partnership from coverage of section 24.—
consolidated with, and when split from the income of
The limited partnership is not a mere business conduit
the spouses, is not a justification for requiring
of the partner-spouses; it was organized for legitimate
consolidation; the revenue code, as it presently
business purposes; it conducted its own- dealings
stands, does not authorize it, and even bars it by
with its customers prior to appellee’s marriage, and
requiring the limited partnership .to pay tax on its own
had been filing its own income tax returns as such
income. Commissioner of Internal Revenue vs. Suter,
independent entity. The change in its membership,
27 SCRA 152, No. L-25532 February 28, 1969
brought about by the marriage of the partners and
their subsequent acquisition of all interest therein. is
no ground for withdrawing the partnership from the
coverage of Section 24 of the tax code, requiring it to
pay income tax. As far as the records show, the
partners did not enter into matrimony and thereafter
buy the interests of the remaining partner with the
A limited partnership, named "William J. Suter
'Morcoin' Co., Ltd.," was formed on 30 September
1947 by herein respondent William J. Suter as the
general partner, and Julia Spirig and Gustav Carlson,
as the limited partners. The partners contributed,
respectively, P20,000.00, P18,000.00 and P2,000.00
to the partnership. On 1 October 1947, the limited
partnership was registered with the Securities and
Exchange Commission. The firm engaged, among
other activities, in the importation, marketing,
distribution and operation of automatic phonographs,
radios, television sets and amusement machines,
their parts and accessories. It had an office and held
itself out as a limited partnership, handling and
carrying merchandise, using invoices, bills and
letterheads bearing its trade-name, maintaining its
own books of accounts and bank accounts, and had a
quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited
partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his
share in the partnership to Suter and his wife. The
sale was duly recorded with the Securities and
Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax
returns as a corporation, without objection by the
herein petitioner, Commissioner of Internal Revenue,
until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual
incomes of the partners-spouses Suter and Spirig
resulting in a determination of a deficiency income tax
against respondent Suter in the amount of P2,678.06
for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and
requested its cancellation and withdrawal, as not in
accordance with law, but his request was denied.
Unable to secure a reconsideration, he appealed to
the Court of Tax Appeals, which court, after trial,
rendered a decision, on 11 November 1965, reversing
that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the
Commissioner of Internal Revenue, of the tax court's
aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the
William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that
respondent William J. Suter and his wife, Julia Spirig
Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after
the marriage of the partners, respondent William J.
Suter and Julia Spirig Suter and the subsequent sale
to them by the remaining partner, Gustav Carlson, of
his participation of P2,000.00 in the partnership for a
nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal
Revenue, is that the marriage of Suter and Spirig and
their subsequent acquisition of the interests of
remaining partner Carlson in the partnership dissolved
the limited partnership, and if they did not, the fiction
of juridical personality of the partnership should be
disregarded for income tax purposes because the
spouses have exclusive ownership and control of the
business; consequently the income tax return of
respondent Suter for the years in question should
have included his and his wife's individual incomes
and that of the limited partnership, in accordance with
Section 45 (d) of the National Internal Revenue Code,
which provides as follows:
(d) Husband and wife. — In the case of
married persons, whether citizens, residents
or non-residents, only one consolidated return
for the taxable year shall be filed by either
spouse to cover the income of both
spouses; ....
In refutation of the foregoing, respondent Suter
maintains, as the Court of Tax Appeals held, that his
marriage with limited partner Spirig and their
acquisition of Carlson's interests in the partnership in
1948 is not a ground for dissolution of the partnership,
either in the Code of Commerce or in the New Civil
Code, and that since its juridical personality had not
been affected and since, as a limited partnership, as
contra distinguished from a duly registered general
partnership, it is taxable on its income similarly with
corporations, Suter was not bound to include in his
individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J.
Suter "Morcoin" Co., Ltd., has been dissolved by
operation of law because of the marriage of the only
general partner, William J. Suter to the originally
limited partner, Julia Spirig one year after the
partnership was organized is rested by the appellant
upon the opinion of now Senator Tolentino in
Commentaries and Jurisprudence on Commercial
Laws of the Philippines, Vol. 1, 4th Ed., page 58, that
reads as follows:
A husband and a wife may not enter into a
contract of general copartnership, because
under the Civil Code, which applies in the
absence of express provision in the Code of
Commerce, persons prohibited from making
donations to each other are prohibited from
entering into universal partnerships. (2
Echaverri 196) It follows that the marriage of
partners necessarily brings about the
dissolution of a pre-existing partnership. (1
Guy de Montella 58)
The petitioner-appellant has evidently failed to
observe the fact that William J. Suter "Morcoin" Co.,
Ltd. was not a universal partnership, but a particular
one. As appears from Articles 1674 and 1675 of the
Spanish Civil Code, of 1889 (which was the law in
force when the subject firm was organized in 1947),
a universal partnership requires either that the object
of the association be all the present property of the
partners, as contributed by them to the common fund,
or else "all that the partners may acquire by
their industry or work during the existence of the
partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the
contributions of the partners were fixed sums of
money, P20,000.00 by William Suter and P18,000.00
by Julia Spirig and neither one of them was an
industrial partner. It follows that William J. Suter
"Morcoin" Co., Ltd. was not a partnership that
spouses were forbidden to enter by Article 1677 of the
Civil Code of 1889.
The former Chief Justice of the Spanish Supreme
Court, D. Jose Casan, in his Derecho Civil, 7th
Edition, 1952, Volume 4, page 546, footnote 1, says
with regard to the prohibition contained in the
aforesaid Article 1677:
 The spouses, according to this, can not
celebrate the universal society contract with
each other, but can they constitute a private
company? Although the point has been much
debated, we tend to the permissive thesis of
private partnership contracts between
spouses, since no provision of our Code
prohibits them, and we must be to the general
rule according to which everyone is able to
hire as long as it is not declared incapable by
law. The jurisprudence of the Direction of the
Records was favorable to this same thesis in
its resolution of February 3, 1936, but seems
to change course in the March 9, 1943.
Nor could the subsequent marriage of the partners
operate to dissolve it, such marriage not being one of
the causes provided for that purpose either by the
Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both
partners the company became a single proprietorship,
is equally erroneous. The capital contributions of
partners William J. Suter and Julia Spirig were
separately owned and contributed by
them before their marriage; and after they were joined
in wedlock, such contributions remained their
respective separate property under the Spanish Civil
Code (Article 1396):
The following shall be the exclusive property
of each spouse:
(a) That which is brought to the marriage as
his or her own; ....
Thus, the individual interest of each consort in William
J. Suter "Morcoin" Co., Ltd. did not become common
property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine
law that the partnership has a juridical personality of
its own, distinct and separate from that of its partners
(unlike American and English law that does not
recognize such separate juridical personality), the
bypassing of the existence of the limited partnership
as a taxpayer can only be done by ignoring or
disregarding clear statutory mandates and basic
principles of our law. The limited partnership's
separate individuality makes it impossible to equate
its income with that of the component members. True,
section 24 of the Internal Revenue Code merges
registered general co-partnerships (compañias
colectivas) with the personality of the individual
partners for income tax purposes. But this rule is
exceptional in its disregard of a cardinal tenet of our
partnership laws, and can not be extended by mere
implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal
Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.],
Inc. vs. Yatco, 77 Phil. 504) as authority for
disregarding the fiction of legal personality of the
corporations involved therein are not applicable to the
present case. In the cited cases, the corporations
were already subject to tax when the fiction of their
corporate personality was pierced; in the present
case, to do so would exempt the limited partnership
from income taxation but would throw the tax burden
upon the partners-spouses in their individual
capacities. The corporations, in the cases cited,
merely served as business conduits or alter egos of
the stockholders, a factor that justified a disregard of
their corporate personalities for tax purposes. This is
not true in the present case. Here, the limited
partnership is not a mere business conduit of the
partner-spouses; it was organized for legitimate
business purposes; it conducted its own dealings with
its customers prior to appellee's marriage, and had
been filing its own income tax returns as such
independent entity. The change in its membership,
brought about by the marriage of the partners and
their subsequent acquisition of all interest therein, is
no ground for withdrawing the partnership from the
coverage of Section 24 of the tax code, requiring it to
pay income tax. As far as the records show, the
partners did not enter into matrimony and thereafter
buy the interests of the remaining partner with the
premeditated scheme or design to use the partnership
as a business conduit to dodge the tax laws.
Regularity, not otherwise, is presumed.
As the limited partnership under consideration is
taxable on its income, to require that income to be
included in the individual tax return of respondent
Suter is to overstretch the letter and intent of the law.
In fact, it would even conflict with what it specifically
provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax
wise, of a general copartnership (compañia colectiva)
and a limited partnership, when the code plainly
differentiates the two. Thus, the code taxes the latter
on its income, but not the former, because it is in the
case of compañias colectivas that the members, and
not the firm, are taxable in their individual capacities
for any dividend or share of the profit derived from the
duly registered general partnership (Section 26,
N.I.R.C.; Arañas, Anno. & Juris. on the N.I.R.C., As
Amended, Vol. 1, pp. 88-89). lawphi1 .nêt
But it is argued that the income of the limited
partnership is actually or constructively the income of
the spouses and forms part of the conjugal
partnership of gains. This is not wholly correct. As
pointed out in Agapito vs. Molo 50 Phil. 779, and
People's Bank vs. Register of Deeds of Manila, 60
Phil. 167, the fruits of the wife's parapherna become
conjugal only when no longer needed to defray the
expenses for the administration and preservation of
the paraphernal capital of the wife. Then again, the
appellant's argument erroneously confines itself to the
question of the legal personality of the limited
partnership, which is not essential to the income
taxability of the partnership since the law taxes the
income of even joint accounts that have no
personality of their own. 1 Appellant is, likewise,
mistaken in that it assumes that the conjugal
partnership of gains is a taxable unit, which it is not.
What is taxable is the "income of both spouses"
(Section 45 [d] in their individual capacities. Though
the amount of income (income of the conjugal
partnership vis-a-vis the joint income of husband and
wife) may be the same for a given taxable year, their
consequences would be different, as their
contributions in the business partnership are not the
same.
The difference in tax rates between the income of the
limited partnership being consolidated with, and when
split from the income of the spouses, is not a
justification for requiring consolidation; the revenue
code, as it presently stands, does not authorize it, and
even bars it by requiring the limited partnership to pay
tax on its own income.
FOR THE FOREGOING REASONS, the decision
under review is hereby affirmed. No costs.

G.R. No. L-2888 October 23, 1906

HUNG-MAN-YOC, in the name of KWONG-WO-

SING, plaintiff-appellee,
vs.
KIENG-CHIONG-SENG, ET AL., defendants-
appellants.

Chicote and Miranda, for appellants.

Win. Tutherly and Gabriel and Borbon, for appellee.

GENERAL PARTNEKSIHP.—K.-C.-S. was not proven

the firm name, but rather the designation of the
partnership. It can not, therefore, be the firm name of
a general partnership, because this should contain the
names of all the partners, or some of them, or at least
one of them, to be followed in the two latter cases by
the words "and company."

2.LIMITED PABTNERSHIP.—It is not the firm name of

a limited partnership for the reason that this should
contain 'the same requisites as the firm name of a
general partnership. and in addition thereto, the word
"limited."

3.DE JURE PARTXERSHIP.—The organization of the

partnership in question was not evidenced by any
public document, nor has the partnership been
recorded in the Mercantile Registry. It has, therefore,
never had any legal existence, and has acquired no
juridical personality .in the acts and contracts
executed and made by it.

4.DE FACTO PARTNERSHIP.—The partnership

under consideration, not being included in any of the
classes of partnership defined by the Code of
Commerce, there should be applied to it the general
provisions applicable to all partnerships. In such case
"the persons in charge of the management of the
association are responsible for the business
transacted in the name of the same." (Article 120,
Code of Commerce.) As the defendant was not so "in
charge of the management of the association," he has
incurred no liability.

Hung-Man-Yoc vs. Kieng-Chiong-Seng, 6 Phil., 498,

No. 2888 October 23, 1906

ARELLANO, J.:
The court below entered judgment against each and
all of the defendants, Chua-Che-Co, Yu-Yec-Pin, and
Ang-Chu-Keng for the sum of 7,962.14 pesos,
Mexican, equivalent to 7,372.75 pesos, Philippine
currency, with interest at the rate 6 per cent per
annum from December 7, 1903, and costs.
Chua-Che-Co is the only one who appealed.
The court below found that Chu-Che-Co, Yu-Yec-Pin,
and Ang-Chu-Keng were partners of Kiong-Tiao-Eng,
under the firm name of Kieng-Chiong-Seng.
It has been not proved that Kieng-Chiong-Seng was
the firm name, but rather the designation of the
partnership.
It can not be the firm name of a general partnership
because this should contain the names of all the
partners, or some of them, or at least one of them to
be, followed in the two latter cases by the words "and
company" (art. 126 of the Code of Commerce),
whereas in this case none of the four names of those
it is alleged were members of the firm appear in the
firm name of the partnership. Neither can it be
considered as the firm name of a limited partnership
for the reason that this should contain the same
requisites as the firm name of a general partnership,
and in addition thereto the word "limited." (Art. 146.)
The firm name in question has absolutely none of
these requisites.
Anonymous partnership (corporations) do not require
a firm name or signature; a designation adequate, for
the object or objects of the business to which it is
dedicated, is sufficient. (Art. 151 and 152.)
The fact is, as alleged by the plaintiff and appellee in
his brief, that "there is no doubt that the partnership of
Kieng-Chiong-Seng was a mercantile partnership
organized for the purpose of engaging in commercial
pursuits, although such organization was not
evidenced by any public document as required by
article 119 of the Code of Commerce, nor was it
registered as required by article 17 of the said code"
(p.5).
All these statements are correct.
The partnership in question was a mercantile one, as
it was engaged in the importation of goods for sale
here at a profit. It was so testified to by its manager,
Yu-Yec-Pin, and Kiong-Tiao-Eng. But its organization
is not evidenced by any public document. The agent
Yu-Yec-Pin himself and some of his so-called partners
have merely noted in the books of the partnership,
which by the way, were not introduced in evidence,
the capital which each had contributed. The agent
further testified that the partnership was not record in
the Mercantile Registry but in the Internal Revenue
office.
All this being so, the alleged partnership never had
any legal existence nor has it acquired any judicial
personality in the acts and contracts executed and
made by it. (Art. 116, par. 2.)
But as the said partnership was a partnership de
facto, although it had no legal standing, and
contracted obligations in favor of the plaintiff, the
liability arising from such obligations must enforcible
against some one.
lawphil.net
The partnership in question not being included in any
of the classes of partnership defined by the Code of
Commerce there should be applied to it the general
provisions applicable to all partnerships contained in
article 120 of the Code of Commerce, which reads as
follows:
The persons in charge of the management of
the association who do not comply with the
provisions of the foregoing article (art. 119,
which requires that the articles of partnership
be recorded in a public instrument, and that
the partnership be registered in the Mercantile
Register) shall be responsible together with
the persons not members of the association
with whom they may have transacted
business in the name of the same.
The defendant, Chua-Che-Co, was in charge of the
management of the association, nor did he make any
contract at all with the plaintiff, as clearly appears
from the testimony of the various witnesses, the agent
of the partnership, Yu-Yec-Pin, being the person who
made all the contracts for the partnership; also Kieng-
Tiao-Eng according to two of the witnesses. It is
evident, therefore, that he has incurred no liability and
that he can not be held individually responsible for the
payment of plaintiff's claims as the court below found.
We accordingly reverse the judgment of the court
below and acquit the defendant, Chua-Che-Co,
without special condemnation as to costs in both
instances.
After the expiration of ten days from the date of final
judgment the record will be remanded to the Court of
First Instance for execution. So ordered.
Arellano, Mapa, Johnson, Carson, Willard and Tracey,
JJ., concur.
 the law and the rights of third persons who have dealt
with the partnership.

7.ID.; ID.; ID.; ID.; ID.; ID.—According to the Spanish

G.R. No. 19892 September 6, 1923
TECK SEING AND CO., LTD., petitioner-appellee.
SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET
AL., creditors-appellants.
1.MERCANTILE LAW; CONTRACTS;
PARTNERSHIP; INSTANT CASE.—Held: That the
mercantile establishment which operated under the
name of Teck Seing & Co., Ltd., and which was by the
document set forth in the decision, is not a
corporation, nor a cuenta en participación (joint
account association), nor a sociedad anóníma, nor a
sociedad en comandita (limited partnership), nor a de
facto commercial association, but is a general
partnership.
2.ID.; ID.; ID.; LIMITED PARTNERSHIP.—Those who
seek to avail themselves of the protection of laws
permitting the creation of limited partnerships must
show a substantially full compliance with such laws. A
limited partnership that has not complied with the law
of its creation is not considered a limited partnership
at all, but a general partnership in which all the
members are liable.
3.ID.; ID.; ID.; ID.—To establish a limited partnership,
there must be, at least, one general partner and the
name of at least one of the general partners must
appear in the firm name. (Code of Commerce, arts.
122 [2], 146, 148.)
4.ID.; ID.; ID.; DEFECTS IN THE ORGANIZATION;
FIRM NAME; ARTICLE 126 OF THE CODE OF
COMMERCE, CONSTRUED.—Article 126 of the
Code of Commerce requires the general
copartnership to transact business under the name of
all its members, or of several of them, or of one only.
The object of the article is manifestly to protect the
public against imposition and fraud.
civil law, defects in the organization cannot affect
relations with third persons. Contracts entered into by
commercial associations defectively organized are
valid when they are voluntarily executed by the
parties, if the only controversy relates to whether or
not they complied with the agreement.
8.ID.; ID.; ID.; ID.; ID.; ID.; FAILURE OF REGISTRY,
EFFECT.—While the failure to register in the
commercial registry necessarily precludes the
members from enforcing rights acquired by them
against third persons, such failure cannot prejudice
the rights of third persons. (Decisions of the supreme
court of Spain of December 6, 1887, January 25,
1888, November 10, 1890, and January 26, 1900.)
9. ID.; ID.; ID.; ID.; ID.; ID.; DECISION IN HUNG-
MAN-Yoc vs. KIENG-CHIONG-SENG,
DISTINGUISHED.—There is a marked difference
between the facts of the case of Hung-Man-Yoc vs.
KiengChiong-Seng ([1906], 6 Phil., 498), and the facts
of the instant case.
10. ID.; ID.; ID.; ID.; ID.; ID.; TEST OF
PARTNERSHIP.— The legal intention deducible from
the acts of the parties controls in determining the
existence of a partnership. If they intend to do a thing
which in law constitutes a partnership, they are
partners, although their purpose was to avoid the
creation of such relation.
11. ID.; ID.; ID.; ID.; ID.; ID.; BANKRUPTCY AND
INSOLVENCY; LIABILITY OF PARTNERSHIP AND
PARTNERS.—If a firm be insolvent, but one or more
partners thereof are solvent, the creditors may
proceed both against the firm and against the solvent
partner or partners, first exhausting the assets of the
firm before seizing the property of the partners. Jo
Chung Cang vs. Pacific Commercial Co., 45 Phil. 142,
No. 19892 September 6, 1923

5.ID.; ID.; ID.; ID.; ID.; ID.—Article 126 of the Code of

Commerce was intended more for the protection of
the creditors than of the partners themselves. A
distinction can be drawn between the right of the
alleged partnership to institute action when failing to
live up to the provisions of the law, or even the rights
of the partners as among themselves, and the right of
a third person to hold responsible a general
partnership which merely lacks a firm name, in order
to make it a partnership de jure. The law should be
construed as rendering contracts made in violation of
it unlawful and unenforceable at the instance of the
offending party only, but not as designed to take away
the rights of innocent parties who may have dealt with
the offenders in ignorance of their having violated the
law.

6.ID.; ID.; ID.; ID.; ID.; ID.—The civil law and the
common law alike point to a difference between the
rights of the partners who have failed to comply with

MALCOLM, J.:
Following the presentation of an application to be
adjudged an insolvent by the "Sociedad Mercantil,
Teck Seing & Co., Ltd.," the creditors, the Pacific
Commercial Company, Piñol & Company, Riu
Hermanos, and W. H. Anderson & Company, filed a
motion in which the Court was prayed to enter an
order: "(A) Declaring the individual partners as
described in paragraph 5 parties to this proceeding;
(B) to require each of said partners to file an inventory
of his property in the manner required by section 51 of
Act No. 1956; and (C) that each of said partners be
adjudicated insolvent debtors in this proceeding." The
trial judge first granted the motion, but, subsequently,
on opposition being renewed, denied it. It is from this
last order that an appeal was taken in accordance
with section 82 of the Insolvency Law.
There has been laid before us for consideration and
decision a question of some importance and of some
intricacy. The issue in the case relates to a
determination of the nature of the mercantile
establishment which operated under the name of Teck
Seing & co., Ltd., and this issue requires us to look
into, and analyze, the document constituting Teck
Seing & Co., Ltd. It reads:
ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA
Know all hereby:
That we, Santiago Jo Chung Cang, an elderly
merchant, neighbor and resident of the
municipality of Tabogon Province of Cebu,
Philippine Islands, Go Tayco, of legal age,
merchant, neighbor and resident of the
municipality of Cebu Province of Cebu,
Philippine Islands, Yap Gueco, of legal age,
merchant, neighbor and resident of the
municipality and province of Cebu, Philippine
Islands, Lim Yogsing, elderly trader, neighbor
and resident of the municipality of Cebu,
Province of Cebu, Philippine Islands, and Jo
Ybec, older of age, merchant, neighbor and
resident of the municipality of Jagna, Province
of Bohol, Philippine Islands,
We hereby state that we constitute and form a
limited commercial partnership, under the
laws in force in the Philippine Islands and to
be registered in accordance with the current
regulations of the Commercial Code in the
Philippines.
That the social reason be called "Teck Seing &
Co., Ltd." and will have its main domicile at
Calle Magallanes No. 94, of the City of Cebu,
Province of Cebu, Philippine Islands. That the
capital stock will be thirty thousand pesos
(P30,000) legal currency of the Philippine
Islands, divided into five shares of P6,000 as
follows:
Santiago Jo Chung Cang . P6,000.00
Go Tayco . . . . . .. 6,000.00
Yap Gueco . . . . . . . . .. 6,000.00
Jo Ybec . . . . . . . . . . . .. 6,000.00
Lim Yogsing . . . . . . . . 6,000.00
Total . . . . . . . . . . . . 30,000.00
That the duration of the company will be six
years, counting from the date of this deed,
and this time may be extended at the
unanimous discretion of all the shareholders.
The object of the society will be the purchase
and sale of merchandise in general.
The administrator or administrators of the
company may, with prior agreement of the
shareholders, establish as many branches or
establishments as they deem necessary to
facilitate their business and the greater
development of the business to which the
company is engaged, verifying all the
operations that they believe are convenient for
the promotion of your capital.
The profits or losses that result during each
commercial year will be distributed
proportionally among the shareholders, in
accordance with the capital contributed by
each one of them.
The profits that result in each commercial
year, if any profits result, can not be withdrawn
by the shareholders until within the term of
three years from the date of the first annual
balance of the business, therefore these
reserves are not in reserve, to expand the
capital contributed by the shareholders and
therefore expand the sphere of action
undertaken by the same company. Upon the
expiration or expiration of the term of three
years, each shareholder may withdraw or
deposit in the possession of the company, the
profits that should correspond to him during
said term of three years.
That the shareholders may not extract or
dispose at any time any amount or amounts of
the company, which has been contributed by
them, to meet their particular expenses or
even paying any fee on the amount they
intend to dispose of or extract from said
company.
The shareholder Mr. Lim Yogsing will be in
charge, jointly with Mr. Vicente Jocson Jo, the
administration of the Company, who will be
able to use the social signature indistinctly,
and therefore amobs are authorized to do on
behalf of it all transactions, business and
mercantile speculations, practicing judicial and
extra-judicialment as many acts are required
for the good of the company, appoint
attorneys or attorneys for claims and
collection of credits and propose the lawsuits,
agreements, transactions and exceptions
procdentes. In the event of absence, illness or
any other impediment of the managing
shareholder Mr. Lim Yogsing, he may confer
general or special power to the shareholder
he deems appropriate so that together with
the assistant administrator Mr. Vicente Jocson
Jo, both could conveniently manage the
business of the society. That the
administrators could have the necessary
employees for the best that these employees
should perceive for services rendered to
society.
That both administrators could have one
thousand pesos (P1,200) Philippine currency,
annually, for their private expenses, said
amount being P1,200 corresponding to each
of said administrators, as emoluments or
salaries that are assigned to one, for his work
in the management of society. Understanding
that, the shareholders will be able to dispose
at each end of the year the gratification that
will be granted to each manager, if the
business of the year is buoyant and justify the
granting of a special gratification, apart from
the salary here provided and specified.
After the expiration of six years, and it is for
the convenience of the shareholders the
continuation of the business of this company,
said term will be extended for the same
number of years, without needing the granting
of further deeds, remaining in force until the
end. arranged by all the shareholders.
That the differences that may arise between
the shareholders, whether by reason of the
provisions herein included, shall be arranged
between them amicably and extrajudicially,
and if an agreement is not reached in this
way, said shareholders shall appoint an
arbitrator, whose resolution they are all bound
and hereby undertake and bind themselves to
abide by it in all its parts, renouncing further
resources.
In whose terms we formalized this deed of
mercantillimitada society, and we promise to
fulfill it faithfully and strictly according to the
pacts that we have established.
In testimony of all of which, we signed in the
City of Cebu, Province of Cebu, the Philippine
Islands, today, October 31, one thousand nine
hundred and ten and nine.
(Fdos.) "LIM YOGSING
"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO
Firnando en presencia de:
(Fdos.) "ATILANO LEYSON
"JULIO DIAZ
"ESTADOS UNIDOS DE AMERCA
"ISLAS FILIPINAS
"PROVINCIA DE CEBU
In the Municipality of Cebu, of the
aforementioned Province, IF, today October
31, 1919, AD, before me, a Notary Public who
subscribes, personally understood Santiago
Jo Chung Cang, Go Tayco, Yap Gueco, Lim
Yogsing and Jo Ybec, represented by the
latter by Ho Seng Sian, as authorized in a
telegram dated September 27, 1919 that has
been presented to me in this same act, of
which I attest that I know them because they
are the same persons who granted the pre-
document document, ratifying ant emi its
content and claiming to be the same an act of
its free and voluntary bestowal. Mr. Santiago
Jo Chung Cang showed me his personal
cedula issued in Cebu, Cebu, I.F. On
September 19, 1919 under No. H77742, Go
Tayco also showed me his issued in Cebu,
Cebu, IF, on October 9, 1919 under No.
G2042490, Yap Gueco also showed me his
issued in Cebu, Cebu, IF On January 20,
1919 under No. F1452296, Lim Yogsing also
exhibited his issued in Cebu, Cebu, IF, on
February 26, 1919 under No. F1455662, and
Ho Seng Sian representative of Jo Ybec, He
showed me his personal cedula issued in
Cebu, Cebu, If on February 4, 1919 under No.
F1453733.
Ante mi,
(Fdo.) "F.V.ARIAS
"Notario Publico
"Hasta el 1.º de enero de 1920
"Asiento No. 157
Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2.º
Presented at ten forty-three in the morning,
according to the seat No. 125, page 9 of
Volume 1 of the Daily Book. Cebu, February
11, 1920.
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio"
Inscribed the document that precedes folio 84
sheet No. 188, inscription 1st of Volume 3 of
the Registry Book of Mercantile Societies.
Cebu, February 11, 1920. Fees thirty pesos
 with fifty cents. Art. 197, Law No. 2711,
Administrative Code.
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio"
Proceeding by process of elimination, it is self-evident
that Teck Seing & Co., Ltd., is not a corporation.
Neither is it contended by any one that Teck Seing &
Co., Ltd., is accidental partnership
denominated cuenta en participacion (joint account
association).
Counsel for the petitioner and appellee described his
client in once place in his opposition to the motion of
the creditors as "una verdadera sociedad anonima" (a
true anonymous society). The provisions of the Code
of Commerce relating to sociedades anonimas were,
however, repealed by section 191 of the Corporation
Law (Act No. 1459), with the exceptions
the sociedades anonimas lawfully organized at the
time of the passage of the Corporation Law were
recognized, which is not our case.
The document providing for the partnership purported
to form "a limited commercial partnership," and
counsel for the petitioner's first contention was that
Teck Seing & Co., Ltd., was not "a collective regular
partnership, not even a limited partnership, but a
partnership limited commercial. " Let us see if the
partnership contract created a "limited partnership,"
or, as it is known in English, and will hereafter be
spoken of, "a limited partnership."
To establish a limited partnership there must be, at
least, one general partner and the name of the least
one of the general partners must appear in the firm
name. (Code of Commerce, arts. 122 [2], 146, 148.)
But neither of these requirements have been fulfilled.
The general rule is, that those who seek to avail
themselves of the protection of laws permitting the
creation of limited partnerships must show a
substantially full compliance with such laws. A limited
partnership that has not complied with the law of its
creation is not considered a limited partnership at all,
but a general partnership in which all the members
are liable. (Mechem, Elements of Partnership, p. 412;
Gilmore, Partnership, pp. 499, 595; 20 R C. L. 1064.)
The contention of the creditors and appellants is that
the partnership contract established a general
partnership.
Article 125 of the Code of Commerce provides that
the articles of general copartnership must estate the
names, surnames, and domiciles of the partners; the
firm name; the names, and surnames of the partners
to whom the management of the firm and the use of
its signature is instrusted; the capital which each
partner contributes in cash, credits, or property,
stating the value given the latter or the basis on which
their appraisement is to be made; the duration of the
copartnership; and the amounts which, in a proper
case, are to be given to each managing partner
annually for his private expenses, while the
succeeding article of the Code provides that the
general copartnership must transact business under
the name of all its members, of several of them, or of
one only. Turning to the document before us, it will be
noted that all of the requirements of the Code have
been met, with the sole exception of that relating to
the composition of the firm name. We leave
consideration of this phase of the case for later
discussion.
The remaining possibility is the revised contention of
counsel for the petitioners to the effect that Teck
Seing & Co., Ltd., is "una sociedad mercantil "de
facto" solamente" (only a de facto commercial
association), and that the decision of the Supreme
court in the case of Hung-Man-Yoc vs. Kieng-Chiong-
Seng [1906], 6 Phil., 498), is controlling. It was this
argument which convinced the trial judge, who gave
effect to his understanding of the case last cited and
which here must be given serious attention.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-
Seng, supra, discloses that the firm Kieng-Chiong-
Seng was not organized by means of any public
document; that the partnership had not been recorded
in the mercantile registry; and that Kieng-Chiong-
Seng was not proven to be the firm name, but rather
the designation of the partnership. The conclusion
then was, that the partnership in question was
merely de facto and that, therefore, giving effect to the
provisions of article 120 of the Code of Commerce,
the right of action was against the persons in charge
of the management of the association.
Laying the facts of the case of Hung-Man-Yoc vs.
Kieng-Chiong-Seng, supra, side by side with the facts
before us, a marked difference is at once disclosed. In
the cited case, the organization of the partnership was
not evidenced by any public document; here, it is by a
public document. In the cited case, the partnership
naturally could not present a public instrument for
record in the mercantile registry; here, the contract of
partnership has been duly registered. But the two
cases are similar in that the firm name failed to
include the name of any of the partners.
We come then to the ultimate question, which is,
whether we should follow the decision in Hung-Man-
Yoc vs. Kieng-Chiong-Seng, supra, or whether we
should differentiate the two cases, holding Teck Seing
& Co., Ltd., a general copartnership, notwithstanding
the failure of the firm name to include the name of one
of the partners. Let us now notice this decisive point in
the case.
Article 119 of the Code of Commerce requires every
commercial association before beginning its business
to state its article, agreements, and conditions in a
public instrument, which shall be presented for record
in the mercantile registry. Article 120, next following,
provides that the persons in charge of the
management of the association who violate the
provisions of the foregoing article shall be
responsible in solidum to the persons not members of
the association with whom they may have transacted
business in the name of the association. Applied to
the facts before us, it would seem that Teck Seing &
Co., Ltd. has fulfilled the provisions of article 119.
Moreover, to permit the creditors only to look to the
person in charge of the management of the
association, the partner Lim Yogsing, would not prove
very helpful to them.
What is said in article 126 of the Code of Commerce
relating to the general copartnership transacting
business under the name of all its members or of
several of them or of one only, is wisely included in
our commercial law. It would appear, however, that
this provision was inserted more for the protection of
the creditors than of the partners themselves. A
distinction could well be drawn between the right of
the alleged partnership to institute action when failing
to live up to the provisions of the law, or even the
rights of the partners as among themselves, and the
right of a third person to hold responsible a general
copartnership which merely lacks a legal firm name in
order to make it a partnership de jure.
The civil law and the common law alike seem to point
to a difference between the rights of the partners who
have failed to comply with the law and the rights of
third persons who have dealt with the partnership.
The supreme court of Spain has repeatedly held that
notwithstanding the obligation of the members to
register the articles of association in the commercial
registry, agreements containing all the essential
requisites are valid as between the contracting
parties, whatever the form adopted, and that, while
the failure to register in the commercial registry
necessarily precludes the members from enforcing
rights acquired by them against third persons, such
failure cannot prejudice the rights of third persons.
(See decisions of December 6, 1887, January 25,
1888, November 10, 1890, and January 26, 1900.)
The same reasoning would be applicable to the less
formal requisite pertaining to the firm name.
The common law is to the same effect. The State of
Michigan had a statute prohibiting the transaction of
business under an assumed name or any other than
the real name of the individual conducting the same,
unless such person shall file with the county clerk a
certificate setting forth the name under which the
business is to be conducted and the real name of
each of the partners, with their residences and post-
office addresses, and making a violation thereof a
misdemeanor. The supreme Court of Michigan said:
The one object of the act is manifestly to
protect the public against imposition and
fraud, prohibiting persons from concealing
their identity by doing business under an
assumed name, making it unlawful to use
other than their real names in transacting
business without a public record of who they
are, available for use in courts, and to punish
those who violate the prohibition. The object
of this act is not limited to facilitating the
collection of debts, or the protection of those
giving credit to persons doing business under
an assumed name. It is not unilateral in its
application. It applies to debtor and creditor,
contractor and contractee, alike. Parties doing
business with those acting under an assumed
name, whether they buy or sell, have a right,
under the law, to know who they are, and who
to hold responsible, in case the question of
damages for failure to perform or breach of
warranty should arise.
The general rule is well settled that, where
statutes enacted to protect the public against
fraud or imposition, or to safeguard the public
health or morals, contain a prohibition and
impose a penalty, all contracts in violation
thereof are void. . . .
As this act involves purely business
transactions, and affects only money
interests, we think it should be construed as
rendering contracts made in violation of it
unlawful and unforceable at the instance of
the offending party only, but not as designed
to take away the rights of innocent parties
who may have dealt with the offenders in
ignorance of their having violated the statute.
(Cashin vs. Pliter [1912], 168 Mich., 386; Ann.
Cas. [1913-C, 697.)
The early decision of our Supreme Court in the case
of Prautch Scholes & Co. vs. Hernandez [1903], 1
Phil., 705), contains the following pertinent
observations:
Another case may be supposed. A partnership
is organized for commercial purposes. It fails
to comply with the requirements of article 119.
A creditor sues the partnership for a debt
contracted by it, claiming to hold the
partners severally. They answer that their
failure to comply with the Code of Commerce
makes them a civil partnership and that they
are in accordance with article 1698 of the Civil
Code only liable jointly. To allow such liberty of
action would be to permit the parties by a
violation of the Code to escape a liability
which the law has seen fit to impose upon
persons who organized commercial
partnership; "Because it would be contrary to
all legal principles that the nonperformance of
a duty should redound to the benefit of the
person in default either intentional or
unintentional." (Mercantile Law, Eixala, fourth
ed., p. 145.)" (See also Lichauco vs. Lichauco
[1916], 33 Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de
Comercio, includes the following comment after
articles 121 and 126 of the Code:
From the decisions cited in this and in the
previous comments, the following is deduced:
1st. Defects in the organization cannot affect
relations with third persons. 2d. Members who
contract with other persons before the
association is lawfully organized are liable to
these persons. 3d. The intention to form an
association is necessary, so that if the
intention of mutual participation in the profits
and losses in a particular business is proved,
and there are no articles of association, there
is no association. 4th. An association, the
articles of which have not been registered, is
valid in favor of third persons. 5th. The private
pact or agreement to form a commercial
association is governed not by the commercial
law but by the civil law. 6th. Secret
stipulations expressed in a public instrument,
but not inserted in the articles of association,
do not affect third persons, but are binding on
 the parties themselves. 7th. An agreement
made in a public instrument, other than the
articles of association, by means of which one
of the partners guarantees to another certain
profits or secures him from losses, is valid
between them, without affecting the
association. 8th. Contracts entered into by
commercial associations defectively
organized are valid when they are voluntarily
executed by the parties, if the only
controversy relates to whether or not they
complied with the agreement.
xxx xxx xxx
The name of the collective merchant is called
firm name. By this name, the new being is
distinguished from others, its sphere of action
fixed, and the juridical personality better
determined, without constituting an exclusive
character of the general partnership to such
an extent as to serve the purpose of giving a
definition of said kind of a mercantile
partnership, as is the case in our Code.
Having in mind that these partnerships are
prevailingly of a personal character, article
126 says that they must transact business
under the name of all its members, of some of
them, or of one only, the words "and
company" to be added in the latter two cases.
It is rendered impossible for the general
partnership to adopt a firm name appropriate
to its commercial object; the law wants to link,
and does link, the solidary and unlimited
responsibility of the members of this
partnership with the formation of its name, and
imposes a limitation upon personal liberty in
its selection, not only by prescribing the
requisites, but also by prohibiting persons not
members of the company from including their
names in its firm name under penalty of civil
solidary responsibility.
Of course, the form required by the Code for
the adoption of the firm name does not
prevent the addition thereto of any other title
connected with the commercial purpose of the
association. The reader may see our
commentaries on the mercantile registry about
the business names and firm names of
associations, but it is proper to establish here
that, while the business name may be
alienated by any of the means admitted by the
law, it seems impossible to separate the firm
names of general partnerships from the
juridical entity for the creation of which it was
formed. (Vol. 2, pp. 197, 213.)
On the question of whether the fact that the firm name
"Teck Seing & Co., Ltd." does not contain the name of
all or any of the partners as prescribed by the Code of
Commerce prevents the creation of a general
partnership, Professor Jose A. Espiritu, as amicus
curiæ, states:
My opinion is that such a fact alone cannot
and will not be a sufficient cause of preventing
the formation of a general partnership,
especially if the other requisites are present
and the requisite regarding registration of the
articles of association in the Commercial
Registry has been complied with, as in the
present case. I do not believe that the
adoption of a wrong name is a material fact to
be taken into consideration in this case; first,
because the mere fact that a person uses a
name not his own does not prevent him from
being bound in a contract or an obligation he
voluntarily entered into; second, because such
a requirement of the law is merely a formal
and not necessarily an essential one to the
existence of the partnership, and as long as
the name adopted sufficiently identity the firm
or partnership intended to use it, the acts and
contracts done and entered into under such a
name bind the firm to third persons; and third,
because the failure of the partners herein to
adopt the correct name prescribed by law
cannot shield them from their personal
liabilities, as neither law nor equity will permit
them to utilize their own mistake in order to
put the blame on third persons, and much
less, on the firm creditors in order to avoid
their personal possibility.
The legal intention deducible from the acts of the
parties controls in determining the existence of a
partnership. If they intend to do a thing which in law
constitutes a partnership, they are partners, although
their purpose was to avoid the creation of such
relation. Here, the intention of the persons making up
Teck Seing & co., Ltd. was to establish a partnership
which they erroneously denominated a limited
partnership. If this was their purpose, all subterfuges
resorted to in order to evade liability for possible
losses, while assuming their enjoyment of the
advantages to be derived from the relation, must be
disregarded. The partners who have disguised their
identity under a designation distinct from that of any of
the members of the firm should be penalized, and not
the creditors who presumably have dealt with the
partnership in good faith.
Articles 127 and 237 of the Code of Commerce make
all the members of the general copartnership liable
personally and in solidum with all their property for the
results of the transactions made in the name and for
the account of the partnership. Section 51 of the
Insolvency Law, likewise, makes all the property of the
partnership and also all the separate property of each
of the partners liable. In other words, if a firm be
insolvent, but one or more partners thereof are
solvent, the creditors may proceed both against the
firm and against the solvent partner or partners, first
exhausting the assets of the firm before seizing the
property of the partners. (Brandenburg of
Bankcruptcy, sec. 108; De los Reyes vs. Lukban and
Borja [1916], 35 Phil., 757; Involuntary Insolvency of
Campos Rueda & Co. vs. Pacific Commercial Co.
[1922], 44 Phil., 916).
We reach the conclusion that the contract of
partnership found in the document hereinbefore
quoted established a general partnership or, to be
more exact, a partnership as this word is used in the
Insolvency Law.
Wherefore, the order appealed from is reversed, and
the record shall be returned to the court of origin for
further proceedings pursuant to the motion presented
by the creditors, in conformity with the provisions of
the Insolvency Law. Without special findings as to the
costs in this instance, it is ordered.
Araullo, C.J., Johnson, Street, Avanceña, Villamor,
Johns and Romualdez, JJ., concur.
omission to register the resolutions or acts of a
mercantile association which modify or alter the
conditions of the recorded articles of association.
5.ID.; ID.; CASE OVERRULED.—The case of Tan
Senguan & Co. vs. Collector of Internal Revenue (55
Phil., 439), insofar as it may be in conflict with this
decision, is to be considered overruled. APPEAL from
a judgment of the Court of First Instance of Manila.
Mapa, J.

Tec Bi & Co. vs. Collector of Internal Revenue, 61

Phil., 351, No. 42115 March 30, 1935

G.R. No. L-42115 March 30, 1935

TEC BI & COMPANY, INC., plaintiff-appellant,

vs.
THE COLLECTOR OF INTERNAL
REVENUE, defendant-appellant.

Cardenas and Casal for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-
appellant.

1.INCOME TAX; REGISTERED AND

UNREGISTERED GENERAL COPARTNERSHIPS.—
Under sections 10 (a) and 8 (e) of the Income Tax
Law (Act No, 2833 as amended by Acts Nos. 2926
and 3605) a regis-tered general copartnership is
exempted from the payment of income tax but an
unregistered general copartnership is subject to the
payment of income tax.

2.ID. ; ID. ; UNREGISTERED TRANSFERS OF

INTERESTS.—Having regard to the requirements of
the articles of association and the provisions of article
143 of the Code of Commerce, it is clear that the
transfers made on November 1, 1921, referred to in
the decision, had no effect as regards the partnership
until February 21, 1924, and the trial court was correct
in so holding, regardless of the indicental fact that by
agreement of the parties the assignees received the
accumulated dividends -upon their respective shares
since November 1, 1921.

3.ID. ; ID. ; ADMISSION OF ADDITIONAL

PARTNERS.—The admission of Y. S., H. Sh. N. and
U. Q. as additional partners in the firm under the
circumstances mentioned in the decision did not have
the effect of dissolving the duly registered general
partnership of Y. Y. & Co. and of creating a new
unregistered copartnership for the interval between
February 21, 1924, and July 11, 1927.

4.ID.; ID.; PROVISIONS OF THE CODE OF

COMMERCE CONSTRUED TOGETHER.—Articles
24 and 25 of the Code of Commerce, construed
together, plainly contemplate the continued existence
of the association in the manner and form in which it
appears in the Mercantile Register regardless of the
unregistered changes therein. Article 25 specifically
provides in its last paragraph the consequences of the

BUTTE, J.:
Suit was brought in the Court of First Instance of
Manila by Tec Bi & Company, Inc., against the
Collector of Internal Revenue to recover the sum of
P4,387.75 paid under protest as income taxes by Yu
Yiong & Co. (the predecessor of the said corporation)
for the calendar years 1921, 1923, 1924, 1926 and
1927. Judgment was rendered requiring the collector
to refund the taxes paid for the years 1921, 1923 and
1924 only. Both parties have appealed to this court.
The cause was submitted and must be determined on
the following agreed statement of facts:
1. That on September 30, 1910, a regular
collective mercantile society called "Tec Bi y
Compañia" was organized in this city of
Manila, of which the deceased Yu Hiang Co
was one of the collective partners and whose
company was duly registered in the
Commercial Registry of this City.
2. That having died during the social period
the partner Yu Hiang Co., in accordance with
the terms of paragraph XVII of the
aforementioned social deed, which reads:
"XVII In the event that a member dies
in China or in another territory that is
not included within the jurisdiction of
the Philippine Islands, his legal heirs
must, within a month after the death of
the deceased member, direct a letter
to the Society stating that its cause,
partner of this Society has passed
away and authorizing any of his heirs
to succeed him in the rights and
actions of the deceased. " And having
duly notified the company of this fact,
it recognized Yu Yiong as successor of
the late Yu Hiang Co in the
aforementioned company called Tec Bi
y Compañia.
3. That on November 9 of the year 1920, the
aforementioned company was reorganized
under the collective name of Yu Yiong y
Compañia, whose deed was registered on
November 12, 1920, and it was noted that the
deed of the partner Yu Hiang Co had died. He
was replaced by his heir Yu Yiong, the latter
appearing in the new company with a capital
of P137,500 that was the same capital as his
father Yu Hiang Co in the previous company.
The partners and their respective
contributions to the share capital according to
article 2 of said deed were the following:
Yu Yiong P137,500.00
Faustino Ang Chong Jua 57, 750.00
Uy Quioco 99,000.00
Uy Piu Ki alias Uy Piuco 44,000.00
Tan Guioc Beng 41,250.00
Gaw Chay Lay 27,500.00
Lim Sieng alias Lim Siengco 22,000.00
Lim Sang King 16,500.00
Lim Chiw 5,500.00
Total 451,000.00
4. That by the 1920s or 1921 Heng Shiu Nian
filed a lawsuit against Yu Yiong and other
brothers of this (Civil No. 19578 of the Court
of First Instance of Manila) reciting the
inheritance rights that corresponded to him as
participation of the late Yu Hiang Co within of
the social reason Yu Yiong and Company, and
this matter was compromised by a stipulation
submitted by the parties to the Court on
November 1, 1921, which was approved by
this on the same date, which agreed to
transfer in favor of plaintiff Heng Shiu Hian a
share worth p9,500 that the defendants had in
the company Yu Yiong and company.
5. That on the same date, November 1, 1921
Yu Yiong transferred in favor of his brother
Tee Huan aka Yu Siong a share in the sum of
P9,011.23 in the relict capital by his late father
in the company Yu Yiong and Company,
whose deed was ratified before the public
notary Mr. Salvador Zaragoza.
6. That on February 21, 1924, the partners of
Yu Yiong y Compañia in public deed granted
before the notary public Antonio Alfonso,
registered as document 161, on page 69,
Book III of the notarial register of said notary,
recognized and admitted to the referred ones
Tee Huan alias Yu Siong and to the
denominated Heng Shiu Nian alias Ang Shiu
Lian like partners of the company Yu Yiong
and Company with a capital of P19,011.23
and P9,500, respectively.
7. In view of the fact that on said date
February 21, 1924 the aforementioned Heng
Shiu Nian aka Ang Shiu Lian was absent from
the Philippine Islands and could not therefore
sign the above document, said Heng Shiu
Nian alias Ang Shiu Lian dated 27 of
December of 1924 and in document granted
before the notary Lorenzo Sunico, registered
with the No. 211 in the page 79, Book IV, of
the notarial registry of said notary, I lend its
conformity to the writing of that it is mentioned
previously.
8. That the aforementioned documents were
not submitted to the mercantile registry for
registration until July 7, 1927 and were not
registered until the 11th of the same month.
9. That by virtue of the transfers mentioned in
the paragraphs prior to the aforementioned Yu
Siong Heng Shiu Nian, the corresponding
dividends were credited to the Company's
books since 1921 in relation to the capital
recognized to them.
10. That on November 12, 1927, for
consideration of value, Yu Siong sold his
participation in the firm Yu Yiong y Compañia
in favor of Uy Quioco and this sale was only
registered in the Mercantile Registry on June
9, 1928.
11. That on October 27, 1928 the Internal
Revenue Collector demanded that Yu Yiong y
Compañia pay the internal income tax
corresponding to the years 1921, 1923, 1924,
1926 and 1927, which represent the sums
detailed below, namely:
Año
1921 . . . . . . . . . . . . . . . . . P119.66
1923 . . . . . . . . . . . . . . . . . 283.32
1924 . . . . . . . . . . . . . . . . . 1,763.40
1926 . . . . . . . . . . . . . . . . . 968.14
1927 . . . . . . . . . . . . . . . . . 967.86
plus the sum of P285.37 in interest and
surcharges, making a total of p4,387.75 that
the plaintiff paid under protest on September
24, 1931 and whose protest was later
dismissed by the demanded Collector of
Revenue.
12. That dated January 15, 1932 and in a
public document issued in the City of Manila,
Quirino Uy quico in its concept of liquidator of
the company Yu Yiong y Compañia whose
period of social existence had expired sold all
the ASSETS and LIABILITIES of the same in
favor of Tec Bi & Co. another domestic
corporation organized in accordance with the
laws of the Philippine Islands.
13. That one of the items of the ASSETS thus
transferred is the right to recover from the
Collector of Revenue the aforementioned sum
of P4,387.75.
Manila, 25 de septiembre de 1933.
Under sections 10 (a) and 8 (e) of the Income Tax
Law (Act No. 2833 as amended by Acts Nos. 2926
and 3605) a registered general copartnership is
exempted from the payment of income tax but an
unregistered general copartnership is subject to the
payment of income tax. It is admitted by the
defendant-appellant, the Collector of Internal
Revenue, that Yu Yiong and Company was a duly
registered general copartnership, its articles of
association having been registered in the Mercantile
Register on November 12, 1920. But it is argued that
the association Yu Yiong and Company ceased to be
a registered general copartnership during the years
1921 to 1927 inclusive for the purposes of the income
tax law because the copartnership failed to register
until July 11, 1927, the transfers made on November
1, 1921, by Yu Yiong and Company of the following
interests in the association: P9,500 to Heng Shiu Nian
and P9,022.23 to Tee Huan as set out in the above
agreed statement of facts. It is to be noted, however,
that these transfers were not recognized by the
association until February 21, 1924, when Yu Yiong
and Company, by a notarial document, admitted the
said assignees as new partners. Having regard to the
requirements of the articles of association and the
provisions of article 143 of the Code of Commerce, it
is clear that the transfers made on November 1, 1921,
as aforesaid, had no effect as regards the partnership
until February 21, 1924, and we think that the trial
court was correct in so holding, regardless of the
incidental fact that by agreement of the parties the
assignees received the accumulated dividends upon
their respective shares since November 1, 1921.
We come now to the principal question of the case,
namely: Did the failure of the association to record
these transfers in the Mercantile Register until July 11,
1927, have the legal effect of converting the
registered association of Yu Yiong and Company into
an unregistered association? or, stated differently: Did
the admission of Yu Siong, Heng Shiu Nian and Uy
Quioco as additional partners in the firm under the
circumstances mentioned, have the effect of
dissolving the duly registered general partnership of
Yu Yiong and Company and of creating a new
unregistered copartnership for the interval between
February 21, 1924, and July 11, 1927?
We have come to the conclusion that it did not have
that effect for the following reasons: First, there is no
provision in the Code of Commerce that such a
conversion should take place. Second, there is no
provision in the Code of Commerce that the
registration of the transfers in the Mercantile Register
on July 11, 1927, should have the effect of reviving or
recreating the alleged extinct registered general
copartnership of Yu Yiong and Company; in other
words, the Code of Commerce does not recognize the
existence of a hiatus such as the Government argues
in this case. Third, articles 24 and 25 of the Code of
Commerce, construed together, plainly contemplate
the continued existence of the association in the
manner and form in which it appears in the Mercantile
Register regardless of the unregistered changes
therein. Article 25 specifically provides in its last
paragraph the consequences of the omission to
register the resolutions or acts of a mercantile
association which modify or alter the conditions of the
recorded articles of association; that is to say, any
changes not so registered are binding between the
members of the association but shall not prejudice
third persons, who, on the other hand, may avail
themselves thereof insofar as it may be advantageous
to them. Fourth, uncertainties and confusion in trade
and commerce would necessarily arise if the public
could not rely upon the Mercantile Register to
ascertain the status of a registered commercial
partnership.
There is not the slightest indication that the transfers
in question were dishonest or fraudulent, or, that the
delay in registering them has caused loss or
disadvantage to the Government or any one else.
The case of Tan Senguan & Co. vs. Collector of
Internal Revenue (55 Phil., 439), insofar as it may be
in conflict with this decision, is to be considered
overruled.
The judgment appealed from must be modified in the
sense that the
defendant-appellant Collector of Internal Revenue be
adjudged and required to refund to the plaintiff-
appellant Tec Bi & Company, Inc. the sum of
P4,387.75 income tax and charges paid under protest
as set out in paragraph 11 of the agreed statement of
facts, without special pronouncement as to costs in
this instance. So ordered.
Abad Santos, Hull, Imperial, Goddard, and Diaz, JJ.,
concur.
I certify that Justice Villa-Real voted with the majority.
— MALCOLM, Acting C.J.
Separate Opinions
MALCOLM and VICKERS, JJ., dissenting:
With so much of the majority decision as overrules the
appeal by the Government, we are in agreement; but
with so much of the majority decision as conforms to
the appeal by the plaintiff, we are not in agreement.
Possibly the last statement needs one modification,
for when the majority decision states that
"uncertainties and confusion in trade and commerce
would necessarily arise if the public could not rely
upon the Mercantile Register to ascertain the status of
a registered commercial partnership," that is
substantially our stand. In other words, we believe
that, since an unregistered general copartnership is
subject to payment of the income tax, while a
registered general copartnership is exempt, when,
secretly or otherwise, the partnership changes its form
without the transfers being recorded in the Mercantile
Register, the partnership must suffer the
consequences. Public policy demands that those
constituting a partnership deal openly and not secretly
so as not to nullify the purpose of the law.
The case of Tan Seaguan & Co. vs. Collector of
Internal Revenue (55 Phil., 439), presented a similar
question for decision. In the Court of First Instance of
Manila, Judge Edmund Block in rendering judgment
very appropriately said:
. . . merchants must make their records speak
the truth. Merchants who sell to them have the
right to know when partners withdraw capital
and when other partners are admitted.
Dealing with partnerships are on the faith of
appearances.
It is true that when a partner borrows from a
firm, he does not necessarily decrease his
share of the capital. But there may be an
agreement among the partners that he does.
The best evidence of this agreement is the
book. When the book shows a partner has
withdrawn all of his capital, he can not
thenceforth be a partner unless he is an
industrial one — and that fact should appear
in the registry.
When a new partner is introduced into a firm,
persons dealing with it have the right to know
it and to decide whether they wish to continue
dealing.
. . . It can not be said that the imposition of the
additional income tax and penalties is cruel or
inhuman. The law is clear that unregistered
concerns must pay income taxes as entities,
while registered ones do not. The law was
adopted for the very purpose of encouraging
registration of partnerships. The courts would
render poor service to the business
community if they did not strictly enforce the
law.
The case was appealed to the Supreme Court, and
the decision is found in volume 55, page 439, with the
result that the decision of the trial court was affirmed.
The trial judge in the instant case has only
endeavoured to give application to the decision in
the Tan Senguan & Co. vs. Collector of Internal
Revenue case, or otherwise stated, has simply given
application to a doctrine now found in our mercantile
and tax laws.
Much more might be said about the appeals, but
inasmuch as it is desirable to have the decision
promulgated without delay, we will confine final
comment to the statement that in our opinion the
judgment appealed from should be affirmed without
change.

G.R. No. 178782 September 21, 2011
JOSEFINA P. REALUBIT, Petitioner,
vs.
PROSENCIO D. JASO and EDEN G.
JASO, Respondents.
Evidence; Public Documents; Notarial Law; It is a
settled rule that documents acknowledged before
notaries public are public documents which are
admissible in evidence without necessity of
preliminary proof as to their authenticity and due
execution.—The Spouses Realubit argue that, in
upholding its validity, both the RTC and the CA
inordinately gave premium to the notarization of the
27 June 1997 Deed of Assignment executed by
Biondo in favor of the Spouses Jaso. Calling attention
to the latter’s failure to present before the RTC said
assignor or, at the very least, the witnesses to said
document, the Spouses Realubit maintain that the
testimony of Rolando Diaz, the Notary Public before
whom the same was acknowledged, did not suffice to
establish its authenticity and/or validity. They insist
that notarization did not automatically and
conclusively confer validity on said deed, since it is
still entirely possible that Biondo did not execute said
deed or, for that matter, appear before said notary
public. The dearth of merit in the Spouses Realubit’s
position is, however, immediately evident from the
settled rule that documents acknowledged before
notaries public are public documents which are
admissible in evidence without necessity of
preliminary proof as to their authenticity and due
execution.
Same; Same; Same; A public document 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.—It cannot be
gainsaid that, 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 Realubit’s 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 Eden and Notary Public Rolando Diaz.
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 partner’s 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
assignor’s 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
assignee’s profits.—From the foregoing provision, it is
evident that “(t)he 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
assignee’s 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 partner’s 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 Biondo’s share in the
profits, despite Juanita’s lack of consent to the
assignment of said Frenchman’s 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 partner’s
interest under Article 1831 of the Civil Code.

Appeals; Evidence; As a rule, findings of fact of the

Court of Appeals are binding and conclusive upon the
Supreme Court and will not be reviewed or disturbed
on appeal; Exceptions.—Based on the evidence on
record, moreover, both the RTC and the CA ruled out
the dissolution of the joint venture and concluded that
the ice manufacturing business at the aforesaid
address was the same one established by Juanita
and Biondo. As a rule, findings of fact of the CA are
binding and conclusive upon this Court, and will not
be reviewed or disturbed on appeal unless the case
falls under any of the following recognized exceptions:
(1) when the conclusion is a finding grounded entirely
on speculation, surmises and conjectures; (2) when
the inference made is manifestly mistaken, absurd or
impossible; (3) where there is a grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact
are conflicting; (6) when the CA, in making its
findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant
and appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings of fact
are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth
in the petition as well as in the petitioners’ main and
reply briefs are not disputed by the respondents; and,
(10) when the findings of fact of the CA are premised
on the supposed absence of evidence and
contradicted by the evidence on record. Unfortunately
for the Spouses Realubit’s cause, not one of the
foregoing exceptions applies to the case. Realubit vs.
Jaso, 658 SCRA 146, G.R. No. 178782 September
21, 2011

DECISION

PEREZ, J.:
The validity as well as the consequences of an
assignment of rights in a joint venture are at issue in
this petition for review filed pursuant to Rule 45 of the
1997 Rules of Civil Procedure,1 assailing the 30 April
2007 Decision2rendered by the Court of Appeals’ (CA)
then Twelfth Division in CA-G.R. CV No. 73861,3 the
dispositive portion of which states:
WHEREFORE, the Decision appealed from is SET
ASIDE and we order the dissolution of the joint
venture between defendant-appellant Josefina
Realubit and Francis Eric Amaury Biondo and the
subsequent conduct of accounting, liquidation of
assets and division of shares of the joint venture
business.
Let a copy hereof and the records of the case be
remanded to the trial court for appropriate
proceedings.4
The Facts
On 17 March 1994, petitioner Josefina Realubit
(Josefina) entered into a Joint Venture Agreement
with Francis Eric Amaury Biondo (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.5 For and in consideration of the sum of
₱500,000.00, however, Biondo subsequently
executed a Deed of Assignment dated 27 June 1997,
transferring all his rights and interests in the business
in favor of respondent Eden Jaso (Eden), the wife of
respondent Prosencio Jaso.6 With Biondo’s eventual
departure from the country, the Spouses Jaso caused
their lawyer to send Josefina a letter dated 19
February 1998, apprising her of their acquisition of
said Frenchman’s share in the business and formally
demanding an accounting and inventory thereof as
well as the remittance of their portion of its profits.7
Faulting Josefina with unjustified failure to heed their
demand, the Spouses Jaso commenced the instant
suit with the filing of their 3 August 1998 Complaint
against Josefina, her husband, Ike Realubit (Ike), and
their alleged dummies, for specific performance,
accounting, examination, audit and inventory of
assets and properties, dissolution of the joint venture,
appointment of a receiver and damages. Docketed as
Civil Case No. 98-0331 before respondent Branch
257 of the Regional Trial Court (RTC) of Parañaque
City, said complaint alleged, among other matters,
that the Spouses Realubit had no gainful occupation
or business prior to their joint venture with Biondo;
that with the income of the business which earned not
less than ₱3,000.00 per day, they were, however, able
to acquire the two-storey building as well as the land
on which the joint venture’s ice plant stands, another
building which they used as their office and/or
residence and six (6) delivery vans; and, that aside
from appropriating for themselves the income of the
business, the Spouses Realubit have fraudulently
concealed the funds and assets thereof thru their
relatives, associates or dummies.8
Served with summons, the Spouses Realubit filed
their Answer dated 21 October 1998, specifically
denying the material allegations of the foregoing
complaint. Claiming that they have been engaged in
the tube ice trading business under a single
proprietorship even before their dealings with Biondo,
the Spouses Realubit, in turn, averred that their said
business partner had left the country in May 1997 and
could not have executed the Deed of Assignment
which bears a signature markedly different from that
which he affixed on their Joint Venture Agreement;
that they refused the Spouses Jaso’s demand in view
of the dubious circumstances surrounding their
acquisition of Biondo’s share in the business which
was established at Don Antonio Heights,
Commonwealth Avenue, Quezon City; that said
business had already stopped operations on 13
January 1996 when its plant shut down after its power
supply was disconnected by MERALCO for non-
payment of utility bills; and, that it was their own tube
ice trading business which had been moved to 66-C
Cenacle Drive, Sanville Subdivision, Project 6,
Quezon City that the Spouses Jaso mistook for the
ice manufacturing business established in partnership
with Biondo.9
The issues thus joined and the mandatory pre-trial
conference subsequently terminated, the RTC went
on to try the case on its merits and, thereafter, to
render its Decision dated 17 September 2001,
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
Biondo’s rights in the business in view of their valid
acquisition of the latter’s share as capitalist
partner,10 the RTC disposed of the case in the
following wise:
WHEREFORE, defendants are ordered to submit to
plaintiffs a complete accounting and inventory of the
assets and liabilities of the joint venture from its
inception to the present, to allow plaintiffs access to
the books and accounting records of the joint venture,
to deliver to plaintiffs their share in the profits, if any,
and to pay the plaintiffs the amount of ₱20,000. for
moral damages. The claims for exemplary damages
and attorney’s fees are denied for lack of basis.11
On appeal before the CA, the foregoing decision was
set aside in the herein assailed Decision dated 30
April 2007, upon the following findings and
conclusions: (a) the Spouses Jaso validly acquired
Biondo’s share in the business which had been
transferred to and continued its operations at 66-C
Cenacle Drive, Sanville Subdivision, Project 6,
Quezon City and not dissolved as claimed by the
Spouses Realubit; (b) absent showing of Josefina’s
knowledge and consent to the transfer of Biondo’s
share, Eden cannot be considered as a partner in the
business, pursuant to Article 1813 of the Civil Code of
the Philippines; (c) while entitled to Biondo’s share in
the profits of the business, Eden cannot, however,
interfere with the management of the partnership,
require information or account of its transactions and
inspect its books; (d) the partnership should first be
dissolved before Eden can seek an accounting of its
transactions and demand Biondo’s share in the
business; and, (e) the evidence adduced before the
RTC do not support the award of moral damages in
favor of the Spouses Jaso.12
The Spouses Realubit’s motion for reconsideration of
the foregoing decision was denied for lack of merit in
the CA’s 28 June 2007 Resolution,13 hence, this
petition.
The Issues
The Spouses Realubit urge the reversal of the
assailed decision upon the negative of the following
issues, to wit:
A. WHETHER OR NOT THERE WAS A VALID
ASSIGNMENT OF RIGHTS TO THE JOINT
VENTURE.
B. WHETHER THE COURT MAY ORDER
PETITIONER [JOSEFINA REALUBIT] AS
PARTNER IN THE JOINT VENTURE TO
RENDER [A]N ACCOUNTING TO ONE WHO
IS NOT A PARTNER IN SAID JOINT
VENTURE.
C. WHETHER PRIVATE RESPONDENTS
[SPOUSES JASO] HAVE ANY RIGHT IN THE
JOINT VENTURE AND IN THE SEPARATE
ICE BUSINESS OF PETITIONER[S].14
The Court’s Ruling
We find the petition bereft of merit.
The Spouses Realubit argue that, in upholding its
validity, both the RTC and the CA inordinately gave
premium to the notarization of the 27 June 1997 Deed
of Assignment executed by Biondo in favor of the
Spouses Jaso. Calling attention to the latter’s failure
to present before the RTC said assignor or, at the
very least, the witnesses to said document, the
Spouses Realubit maintain that the testimony of
Rolando Diaz, the Notary Public before whom the
same was acknowledged, did not suffice to establish
its authenticity and/or validity. They insist that
notarization did not automatically and conclusively
confer validity on said deed, since it is still entirely
possible that Biondo did not execute said deed or, for
that matter, appear before said notary public.15 The
dearth of merit in the Spouses Realubit’s position is,
however, immediately evident from the settled rule
that documents acknowledged before notaries public
are public documents which are admissible in
evidence without necessity of preliminary proof as to
their authenticity and due execution.16
It cannot be gainsaid that, as a public document, the
Deed of Assignment Biondo executed in favor of Eden
not only enjoys a presumption of regularity17 but is
also considered prima facie evidence of the facts
therein stated.18 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.19 In view of the Spouses Realubit’s
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
Eden20 and Notary Public Rolando Diaz.21 As for the
Spouses’ Realubit’s bare assertion that Biondo’s
signature on the same document appears to be
forged, suffice it to say that, like fraud,22 forgery is
never presumed and must likewise be proved by clear
and convincing evidence by the party alleging the
same.23 Aside from not being borne out by a
comparison of Biondo’s signatures on the Joint
Venture Agreement24 and the Deed of
Assignment,25 said forgery is, moreover debunked by
Biondo’s duly authenticated certification dated 17
November 1998, confirming the transfer of his interest
in the business in favor of Eden.26
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."27 The rule is settled that joint ventures are
governed by the law on partnerships28 which are, in
turn, based on mutual agency or delectus
personae.29 Insofar as a partner’s 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 assignor’s interest
and may require an account from the date only of the
last account agreed to by all the partners.
From the foregoing provision, it is evident that "(t)he
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 assignee’s 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."30 Since a
partner’s interest in the partnership includes his share
in the profits,31 we find that the CA committed no
reversible error in ruling that the Spouses Jaso are
entitled to Biondo’s share in the profits, despite
Juanita’s lack of consent to the assignment of said
Frenchman’s 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 partner’s interest
under Article 1831 of the Civil Code.32 1âwphi1
(10) when the findings of fact of the CA are premised
on the supposed absence of evidence and
contradicted by the evidence on record.40Unfortunately
for the Spouses Realubit’s cause, not one of the
foregoing exceptions applies to the case.
WHEREFORE, the petition is DENIED for lack of
merit and the assailed CA Decision dated 30 April
2007 is, accordingly, AFFIRMED in toto.
SO ORDERED.
Footnotes
27
Art. 1783, Civil Code of the Philippines.
31
Art. 1812, Civil Code of the Philippines.
32
Art. 1831. On application by or for a partner,
the court shall decree a dissolution x x x
xxx

On the application of the purchaser of

Considering that they involve questions of fact, neither a partner’s interest under Article 1813
are we inclined to hospitably entertain the Spouses or 1814:
Realubit’s insistence on the supposed fact that
Josefina’s joint venture with Biondo had already been (1) After the termination of the
dissolved and that the ice manufacturing business at specified term or particular
66-C Cenacle Drive, Sanville Subdivision, Project 6, undertaking;
Quezon City was merely a continuation of the same
business they previously operated under a single (2) At any time if the partnership was a
proprietorship. It is well-entrenched doctrine that partnership at will when the interest
questions of fact are not proper subjects of appeal by was assigned or when the charging
certiorari under Rule 45 of the Rules of Court as this order was issued.
mode of appeal is confined to questions of law.33 Upon
the principle that this Court is not a trier of facts, we
are not duty bound to examine the evidence
introduced by the parties below to determine if the trial
and the appellate courts correctly assessed and
evaluated the evidence on record.34 Absent showing
that the factual findings complained of are devoid of
support by the evidence on record or the assailed
judgment is based on misapprehension of facts, the
Court will limit itself to reviewing only errors of law.35

Based on the evidence on record, moreover, both the

RTC36 and the CA37 ruled out the dissolution of the
joint venture and concluded that the ice manufacturing
business at the aforesaid address was the same one
established by Juanita and Biondo. As a rule, findings
of fact of the CA are binding and conclusive upon this
Court,38 and will not be reviewed or disturbed on
appeal39 unless the case falls under any of the
following recognized exceptions: (1) when the
conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the
inference made is manifestly mistaken, absurd or
impossible; (3) where there is a grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact
are conflicting; (6) when the CA, in making its
findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant
and appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings of fact
are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth
in the petition as well as in the petitioners' main and
reply briefs are not disputed by the respondents; and,

G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT
CORP., TESORO MINING AND DEVELOPMENT,
INC., and MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES
CORP., Respondent.
Remedial Law; Civil Procedure; Moot and Academic;
A case is said to be moot and/or academic when it
“ceases to present a justiciable controversy by virtue
of supervening events, so that a declaration thereon
would be of no practical use or value.”—Basically, a
case is said to be moot and/or academic when it
“ceases to present a justiciable controversy by virtue
of supervening events, so that a declaration thereon
would be of no practical use or value.” Thus, the
courts “generally decline jurisdiction over the case or
dismiss it on the ground of mootness.” The
“mootness” principle, however, does accept certain
exceptions and the mere raising of an issue of
“mootness” will not deter the courts from trying a case
when there is a valid reason to do so. In David v.
Macapagal-Arroyo (David), 489 SCRA 160
Mercantile Law; Corporations; Control Test;
Grandfather Rule; Basically, there are two
acknowledged tests in determining the nationality of a
corporation: the control test and the grandfather rule.
—Basically, there are two acknowledged tests in
determining the nationality of a corporation: the
control test and the grandfather rule. Paragraph 7 of
DOJ Opinion No. 020, Series of 2005, adopting the
1967 SEC Rules which implemented the requirement
of the Constitution and other laws pertaining to the
controlling interests in enterprises engaged in the
exploitation of natural resources owned by Filipino
citizens, provides: Shares belonging to corporations
or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of
Philippine nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding
to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in
the name of a corporation or partnership at least 60%
of the capital stock or capital, respectively, of which
belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%,
or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to
Filipino citizens, only 50,000 shares shall be counted
as owned by Filipinos and the other 50,000 shall be
recorded as belonging to aliens. The first part of
paragraph 7, DOJ Opinion No. 020, stating “shares
belonging to corporations or partnerships at least 60%
of the capital of which is owned by Filipino citizens
shall be considered as of Philippine nationality,”
pertains to the control test or the liberal rule. On the
other hand, the second part of the DOJ Opinion which
provides, “if the percentage of the Filipino ownership
in the corporation or partnership is less than 60%,
only the number of shares corresponding to such
percentage shall be counted as Philippine nationality,”
pertains to the stricter, more stringent grandfather
rule.
Same; Same; Corporate Layering; “Corporate
layering” is admittedly allowed by the Foreign
Investments Act (FIA); but if it is used to circumvent
the Constitution and pertinent laws, then it becomes
illegal.—“Corporate layering” is admittedly allowed by
the FIA; but if it is used to circumvent the Constitution
and pertinent laws, then it becomes illegal. Further,
the pronouncement of petitioners that the grandfather
rule has already been abandoned must be discredited
for lack of basis. Art. XII, Sec. 2 of the Constitution
provides: Sec. 2. All lands of the public domain,
waters, minerals, coal, petroleum and other mineral
oils, all forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception
of agricultural lands, all other natural resources shall
not be alienated. The exploration, development, and
utilization of natural resources shall be under the full
control and supervision of the State. The State may
directly undertake such activities, or it may enter into
co-production, joint venture or production-sharing
agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital
is owned by such citizens. Such agreements may be
for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and
under such terms and conditions as may be provided
by law.
Constitutional Law; Statutory Construction;
Elementary in statutory construction is when there is
conflict between the Constitution and a statute, the
Constitution will prevail.—Elementary in statutory
construction is when there is conflict between the
Constitution and a statute, the Constitution will prevail.
In this instance, specifically pertaining to the
provisions under Art. XII of the Constitution on
National Economy and Patrimony, Sec. 3 of the FIA
will have no place of application. As decreed by the
honorable framers of our Constitution, the grandfather
rule prevails and must be applied.
Partnership; Words and Phrases; A partnership is
defined as two or more persons who bind themselves
to contribute money, property, or industry to a
common fund with the intention of dividing the profits
among themselves.—A partnership is defined as two
or more persons who bind themselves to contribute
money, property, or industry to a common fund with
the intention of dividing the profits among themselves.
On the other hand, joint ventures have been deemed
to be “akin” to partnerships since it is difficult to
distinguish between joint ventures and partnerships.
Thus: [T]he relations of the parties to a joint venture
and the nature of their association are so similar and
closely akin to a partnership that it is ordinarily held
that their rights, duties, and liabilities are to be tested
by rules which are closely analogous to and
substantially the same, if not exactly the same, as
those which govern partnership. In fact, it has been
said that the trend in the law has been to blur the
distinctions between a partnership and a joint venture,
very little law being found applicable to one that does
not apply to the other.
Mercantile Law; Corporations; Pseudo-Partnerships;
As a rule, corporations are prohibited from entering
into partnership agreements; consequently,
corporations enter into joint venture agreements with
other corporations or partnerships for certain
transactions in order to form “pseudo partnerships.”—
Though some claim that partnerships and joint
ventures are totally different animals, there are very
few rules that differentiate one from the other; thus,
joint ventures are deemed “akin” or similar to a
partnership. In fact, in joint venture agreements, rules
and legal incidents governing partnerships are
applied. Accordingly, culled from the incidents and
records of this case, it can be assumed that the
relationships entered between and among petitioners
and MBMI are no simple “joint venture agreements.”
As a rule, corporations are prohibited from entering
into partnership agreements; consequently,
corporations enter into joint venture agreements with
other corporations or partnerships for certain
transactions in order to form “pseudo partnerships.”
Obviously, as the intricate web of “ventures” entered
into by and among petitioners and MBMI was
executed to circumvent the legal prohibition against
corporations entering into partnerships, then the
relationship created should be deemed as
“partnerships,” and the laws on partnership should be
applied. Thus, a joint venture agreement between and
among corporations may be seen as similar to
partnerships since the elements of partnership are
present. Considering that the relationships found
between petitioners and MBMI are considered to be
partnerships, then the CA is justified in applying Sec.
29, Rule 130 of the Rules by stating that “by entering
into a joint venture, MBMI have a joint interest” with
Narra, Tesoro and McArthur.
Mines and Mining; Panel of Arbitrators; Jurisdiction;
The Panel of Arbitrators (POA) has jurisdiction to
settle disputes over rights to mining areas.—We affirm
the ruling of the CA in declaring that the POA has
jurisdiction over the instant case. The POA has
jurisdiction to settle disputes over rights to mining
areas which definitely involve the petitions filed by
Redmont against petitioners Narra, McArthur and
Tesoro. Redmont, by filing its petition against
petitioners, is asserting the right of Filipinos over
mining areas in the Philippines against alleged
foreign-owned mining corporations. Such claim
constitutes a “dispute” found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the
case by the parties for the decision, the panel shall
have exclusive and original jurisdiction to hear and
decide the following: (a) Disputes involving rights to
mining areas (b) Disputes involving mineral
agreements or permits.
Same; Same; Same; It is clear that the Panel of
Arbitrators (POA) has exclusive and original
jurisdiction over any and all disputes involving rights
to mining areas.—It is clear that POA has exclusive
and original jurisdiction over any and all disputes
involving rights to mining areas. One such dispute is
an MPSA application to which an adverse claim,
protest or opposition is filed by another interested
applicant. In the case at bar, the dispute arose or
originated from MPSA applications where petitioners
are asserting their rights to mining areas subject of
their respective MPSA applications. Since respondent
filed 3 separate petitions for the denial of said
applications, then a controversy has developed
between the parties and it is POA’s jurisdiction to
resolve said disputes. Moreover, the jurisdiction of the
RTC involves civil actions while what petitioners filed
with the DENR Regional Office or any concerned
DENRE or CENRO are MPSA applications. Thus POA
has jurisdiction. Furthermore, the POA has jurisdiction
over the MPSA applications under the doctrine of
primary jurisdiction. Euro-med Laboratories v.
Province of Batangas, 495 SCRA 301 (2006),
elucidates: The doctrine of primary jurisdiction holds
that if a case is such that its determination requires
the expertise, specialized training and knowledge of
an administrative body, relief must first be obtained in
an administrative proceeding before resort to the
courts is had even if the matter may well be within
their proper jurisdiction.
Mercantile Law; Corporations; Control Test; The
“control test” is still the prevailing mode of determining
whether or not a corporation is a Filipino corporation,
within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of
the Philippines.—The “control test” is still the
prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit
of Sec. 2, Art. II of the 1987 Constitution, entitled to
undertake the exploration, development and utilization
of the natural resources of the Philippines. When in
the mind of the Court there is doubt, based on the
attendant facts and circumstances of the case, in the
60-40 Filipino-equity ownership in the corporation,
then it may apply the “grandfather rule.”
Leonen, J., Dissenting Opinion:
Mines and Mining; Grandfather Rule; View that the
so-called “Grandfather Rule” has no statutory basis. It
is the Control Test that governs in determining Filipino
equity in corporations.—The so-called “Grandfather
Rule” has no statutory basis. It is the Control Test that
governs in determining Filipino equity in corporations.
It is this test that is provided in statute and by our
most recent jurisprudence. Furthermore, the Panel of
Arbitrators created by the Philippine Mining Act is not
a court of law. It cannot decide judicial questions with
finality. This includes the determination of whether the
capital of a corporation is owned or controlled by
Filipino citizens. The Panel of Arbitrators renders
arbitral awards. There is no dispute and, therefore, no
competence for arbitration, if one of the parties does
not have a mining claim but simply wishes to ask for a
declaration that a corporation is not qualified to hold a
mining agreement. Respondent here did not claim a
better right to a mining agreement. By forum shopping
through multiple actions, it sought to disqualify
petitioners. The decision of the majority rewards such
actions.
Same; View that mining is an environmentally
sensitive activity that entails the exploration,
development, and utilization of inalienable natural
resources.—Mining is an environmentally sensitive
activity that entails the exploration, development, and
utilization of inalienable natural resources. It falls
within the broad ambit of Article XII, Section 2 as well
as other sections of the 1987 Constitution which
refers to ancestral domains and the environment.
More specifically, Republic Act No. 7942 or the
Philippine Mining Act, its implementing rules and
regulations, other administrative issuances as well as
jurisprudence govern the application for mining rights
among others. Small-scale mining is governed by
Republic Act No. 7076, the People’s Small-scale
Mining Act of 1991. Apart from these, other statutes
such as Republic Act No. 8371, the Indigenous
Peoples Rights Act of 1997 (IPRA), and Republic Act
No. 7160, the Local Government Code (LGC) contain
provisions which delimit the conduct of mining
activities. Republic Act No. 7042, as amended by
Republic Act No. 8179, the Foreign Investments Act
(FIA) is significant with respect to the participation of
foreign investors in nationalized economic activities
such as mining. In the 2012 resolution ruling on the
motion for reconsideration in Gamboa v. Teves, 682
SCRA 397 (2012), this court stated that “The FIA is
the basic law governing foreign investments in the
Philippines, irrespective of the nature of business and
area of investment.” Commonwealth Act No. 108, as
amended, otherwise known as the Anti-Dummy Law,
penalizes those who “allow [their] name or citizenship
to be used for the purpose of evading” “constitutional
or legal provisions requir[ing] Philippine or any other
specific citizenship as a requisite for the exercise or
enjoyment of a right, franchise or privilege.” Batas
Pambansa Blg. 68, the Corporation Code, is the
general law that “provide[s] for the formation,
organization, [and] regulation of private corporations.”
The conduct of activities relating to securities, such as
shares of stock, is regulated by Republic Act No.
8799, the Securities Regulation Code (SRC).
Same; Philippine Mining Act (R.A. No. 7942); Panel of
Arbitrators; View that nowhere in Section 77 of the
Republic Act No. 7942 is there a grant of jurisdiction
to the Panel of Arbitrators (POA) over the
determination of the qualification of applicants.—
Nowhere in Section 77 of the Republic Act No. 7942 is
there a grant of jurisdiction to the Panel of Arbitrators
over the determination of the qualification of
applicants. The Philippine Mining Act clearly requires
the existence of a “dispute” over a mining area, a
mining agreement, with a surface owner, or those
pending with the Bureau or the Department upon the
law’s promulgation. The existence of a “dispute”
presupposes that the party bringing the suit has a
colorable or putative claim more superior than that of
the respondent in the arbitration proceedings. After all,
the Panel of Arbitrators is supposed to provide binding
arbitration which should result in a binding award
either in favor of the petitioner or the respondent.
Thus, the Panel of Arbitrators is a qualified quasi-
judicial agency. It does not perform all judicial
functions in lieu of courts of law.
Same; Same; Mineral Agreements; View that a
mineral agreement shall grant to the contractor the
exclusive right to conduct mining operations and to
extract all mineral resources found in the contract
area.—In Section 26 of the Mining Act, “[a] mineral
agreement shall grant to the contractor the exclusive
right to conduct mining operations and to extract all
mineral resources found in the contract area.” There
are three (3) forms of mineral agreements: 1. Mineral
production sharing agreement (MPSA) “where the
Government grants to the contractor the exclusive
right to conduct mining operations within a contract
area and shares in the gross output [with the]
contractor x x x provid[ing] the financing, technology,
management and personnel necessary for the
implementation of [the MPSA]”; 2. Co-production
agreement (CA) “wherein the Government shall
provide inputs to the mining operations other than the
mineral resource”; and 3. Joint-venture agreement
(JVA) “where a joint-venture company is organized by
the Government and the contractor with both parties
having equity shares. Aside from earnings in equity,
the Government shall be entitled to a share in the
gross output.”
Same; View that the purpose of the sixty per centum
requirement is obviously to ensure that corporations
or associations allowed to acquire agricultural land or
to exploit natural resources shall be controlled by
Filipinos.—The rationale for nationalizing the
exploration, development, and utilization of natural
resources was explained by this court in Register of
Deeds of Rizal v. Ung Siu Si Temple, 97 Phil. 58
(1955), as follows: The purpose of the sixty per
centum requirement is obviously to ensure that
corporations or associations allowed to acquire
agricultural land or to exploit natural resources shall
be controlled by Filipinos; and the spirit of the
Constitution demands that in the absence of capital
stock, the controlling membership should be
composed of Filipino citizens.
Same; Grandfather Rule; View that the conclusion
that the Grandfather Rule “applies only when the 60-
40 Filipino-foreign equity ownership is in doubt” is
borne by that opinion’s consideration of an earlier
Department of Justice (DOJ) opinion (i.e., DOJ
Opinion No. 18, Series of 1989).—The conclusion that
the Grandfather Rule “applies only when the 60-40
Filipino-foreign equity ownership is in doubt” is borne
by that opinion’s consideration of an earlier DOJ
opinion (i.e., DOJ Opinion No. 18, Series of 1989).
DOJ Opinion No. 20, Series of 2005’s quotation of
DOJ Opinion No. 18, Series of 1989, reads: x x x. It is
quite clear x x x that the “Grandfather Rule,” which
was evolved and applied by the SEC in several cases,
will not apply in cases where the 60-40 Filipino-alien
equity ownership in a particular natural resource
corporation is not in doubt.
Same; Foreign Investments Act; Philippine Nationals;
View that the Foreign Investments Act (FIA) Lists the
Persons Included in the term “Philippine National.”—
Under the Foreign Investments Act, a “Philippine
national” is any of the following: 1. a citizen of the
Philippines; 2. a domestic partnership or association
wholly owned by citizens of the Philippines; 3. a
corporation organized under the laws of the
Philippines, of which at least 60% of the capital stock
outstanding and entitled to vote is owned and held by
citizens of the Philippines; 4. a corporation organized
abroad and registered as doing business in the
Philippines under the Corporation Code, of which
100% of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos; or 5. a trustee of
funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine
national and at least 60% of the fund will accrue to the
benefit of Philippine nationals.
Same; Same; Same; Control Test; View that the
Foreign Investments Act’s (FIA’s) implementing rules
and regulations are clear and unequivocal in declaring
that the Control Test shall be applied to determine the
nationality of a corporation in which another
corporation owns stocks.—The Foreign Investments
Act’s implementing rules and regulations are clear
and unequivocal in declaring that the Control Test
shall be applied to determine the nationality of a
corporation in which another corporation owns stocks.
From around the time of the issuance of the SEC’s
May 30, 1990 opinion addressed to Mr. Johnny M.
Araneta where the SEC stated that it “decided to do
away with the strict application/computation of the so-
called ‘Grandfather Rule’ x x x, and instead appl[y] the
so-called ‘Control Test,’” the SEC “has consistently
applied the control test.”
Same; Same; Same; Grandfather Rule; View that the
Foreign Investments Act (FIA) and its implementing
rules notwithstanding, the Department of Justice
(DOJ), in DOJ Opinion No. 20, Series of 2005, still
posited that the Grandfather Rule is still applicable,
“only when the 60-40 Filipino-foreign equity ownership
is in doubt.”—The Foreign Investments Act and its
implementing rules notwithstanding, the Department
of Justice, in DOJ Opinion No. 20, series of 2005, still
posited that the Grandfather Rule is still applicable,
albeit “only when the 60-40 Filipino-foreign equity
ownership is in doubt.” Anchoring itself on DOJ
Opinion No. 20, series of 2005, the SEC En Banc
found the Grandfather Rule applicable in its March 25,
2010 decision in Redmont Consolidated Mines Corp.
v. McArthur Mining Corp. (subject of the petition in
G.R. No. 205513). It asserted that there was “doubt”
in the compliance with the requisite 60-40 Filipino-
foreign equity ownership: Such doubt, we believe,
exists in the instant case because the foreign investor,
MBMI, provided practically all the funds of the
remaining appellee-corporations.
Same; View that the 1987 Constitution is silent on the
precise means through which foreign equity in a
corporation shall be determined for the purpose of
complying with nationalization requirements in each
industry.—The 1987 Constitution is silent on the
precise means through which foreign equity in a
corporation shall be determined for the purpose of
complying with nationalization requirements in each
industry. If at all, it militates against the supposed
preference for the Grandfather Rule that, its mention
in the Constitutional Commission’s deliberations
notwithstanding, the 1987 Constitution was, ultimately,
inarticulate on adopting a specific test or means. The
1987 Constitution is categorical in its omission. Its
meaning is clear. That is to say, by its silence, it chose
to not manifest a preference. Had there been any
such preference, the Constitution could very well have
said it.
Same; Foreign Investments Act; Philippine Nationals;
Words and Phrases; View that Section 3(a) of the
Foreign Investments Act (FIA) defines a “Philippine
national” as including “a corporation organized under
the laws of the Philippines of which at least sixty per
cent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the
Philippines.”—Section 3(a) of the Foreign Investments
Act defines a “Philippine national” as including “a
corporation organized under the laws of the
Philippines of which at least sixty per cent (60%) of
the capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines.” This is
a definition that is consistent with the first part of
paragraph 7 of the 1967 SEC Rules, which, as
proffered by DOJ Opinion No. 20, Series of 2005,
articulates the Control Test: “[s]hares belonging to
corporations or partnerships at least 60 per cent of the
capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality.”
Same; Same; Same; Control Test; View that it is a
matter of transitivity that if Filipino stockholders control
a corporation which, in turn, controls another
corporation, then the Filipino stockholders control the
latter corporation, albeit indirectly or through the
former corporation.—The application of the Control
Test is by no means antithetical to the avowed policy
of a “national economy effectively controlled by
Filipinos.” The Control Test promotes this policy. It is a
matter of transitivity that if Filipino stockholders control
a corporation which, in turn, controls another
corporation, then the Filipino stockholders control the
latter corporation, albeit indirectly or through the
former corporation.
Same; Same; Same; Same; View that as against
each other, it is the Control Test, rather than the
Grandfather Rule, which better serves to ensure that
Philippine Nationals control a corporation.—As
against each other, it is the Control Test, rather than
the Grandfather Rule, which better serves to ensure
that Philippine Nationals control a corporation. As is
illustrated by the SEC’s September 21, 1990 opinion
addressed to Carag, Caballes, Jamora, Rodriguez
and Somera Law Offices, the application of the
Grandfather Rule does not guarantee control by
Filipino stockholders. In certain instances, the
application of the Grandfather Rule actually
undermines the rationale (i.e., control) for the
nationalization of certain economic activities.
Same; Same; Same; Same; View that Section 3(aq)
of the Mining Act deems as a qualified person (for
purposes of a mineral agreement) a “corporation, at
least sixty per centum (60%) of the capital of which is
owned by citizens of the Philippines.”—The Foreign
Investments Act’s reckoning of a Philippine national
on the basis of control and the requisite application of
the Control Test are reinforced by the Mining Act.
Section 3(aq) of the Mining Act deems as a qualified
person (for purposes of a mineral agreement) a
“corporation, x x x at least sixty per centum (60%) of
the capital of which is owned by citizens of the
Philippines.” Insofar as the controlling equity
requirement is concerned, this is practically a
restatement of Section 3(a) of the Foreign
Investments Act.
Same; Same; Same; Grandfather Rule; View that the
Grandfather Rule may be used as a supplement to
the Control Test, that is, as a further check to ensure
that control and beneficial ownership of a corporation
is in fact lodged in Filipinos.—In Gamboa, “[f]ull
beneficial ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of the voting
rights, is required.” With this in mind, the Grandfather
Rule may be used as a supplement to the Control
Test, that is, as a further check to ensure that control
and beneficial ownership of a corporation is in fact
lodged in Filipinos.

Remedial Law; Civil Procedure; Judgments; Litis

Pendentia; Words and Phrases; View that litis
pendentia “refers to that situation wherein another
action is pending between the same parties for the
same cause of action, such that the second action
becomes unnecessary and vexatious.”—Litis
pendentia “refers to that situation wherein another
action is pending between the same parties for the
same cause of action, such that the second action
becomes unnecessary and vexatious.” It requires the
concurrence of three (3) requisites: (1) the identity of
parties, or at least such as representing the same
interests in both actions; (2) the identity of rights
asserted and relief prayed for, the relief being founded
on the same facts; and (3) the identity of the two
cases such that judgment in one, regardless of which
party is successful, would amount to res judicata in
the other. In turn, prior judgment or res judicata bars a
subsequent case when the following requisites
concur: (1) the former judgment is final; (2) it is
rendered by a court having jurisdiction over the
subject matter and the parties; (3) it is a judgment or
an order on the merits; (4) there is — between the first
and the second actions — identity of parties, of
subject matter, and of causes of action.

Same; Same; Forum Shopping; Direct Contempt;

View that willful forum shopping leads not only to an
action’s dismissal with prejudice but “shall [also]
constitute direct contempt, [and is] a cause for
administrative sanctions.—It should also not escape
this court’s attention that the vexatious actions of
Redmont would not have been possible were it not for
the permissiveness of Redmont’s counsels. To
reiterate, willful forum shopping leads not only to an
action’s dismissal with prejudice but “shall [also]
constitute direct contempt, [and is] a cause for
administrative sanctions.” Redmont’s counsels should
be reminded that the parameters established by
judicial (and even administrative) proceedings, such
as the rule against forum shopping, are not to be
trifled with. Narra Nickel Mining and Development
Corp. vs. Redmont Consolidated Mines Corp., 722
SCRA 382, G.R. No. 195580 April 21, 2014

NOTE:

(2006), the Court provided four instances where

courts can decide an otherwise moot case, thus: 1.)
There is a grave violation of the Constitution; 2.) The
exceptional character of the situation and paramount
public interest is involved; 3.) When constitutional
issue raised requires formulation of controlling
principles to guide the bench, the bar, and the public;
and 4.) The case is capable of repetition yet evading
review.

DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari
under Rule 45 filed by Narra Nickel and Mining
Development Corp. (Narra), Tesoro Mining and
Development, Inc. (Tesoro), and McArthur Mining Inc.
(McArthur), which seeks to reverse the October 1,
2010 Decision and the February 15, 2011 Resolution
1 that given that petitioners’ capital stocks were mostly
of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont
Consolidated Mines Corp. (Redmont), a domestic
corporation organized and existing under Philippine
laws, took interest in mining and exploring certain
areas of the province of Palawan. After inquiring with
the Department of Environment and Natural
Resources (DENR), it learned that the areas where it
wanted to undertake exploration and mining activities
where already covered by Mineral Production Sharing
Agreement (MPSA) applications of petitioners Narra,
Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-
interest Sara Marie Mining, Inc. (SMMI), filed an
application for an MPSA and Exploration Permit (EP)
with the Mines and Geo-Sciences Bureau (MGB),
Region IV-B, Office of the Department of Environment
and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153
covering an area of over 1,782 hectares in Barangay
Sumbiling, Municipality of Bataraza, Province of
Palawan and EPA-IVB-44 which includes an area of
3,720 hectares in Barangay Malatagao, Bataraza,
Palawan. The MPSA and EP were then transferred to
Madridejos Mining Corporation (MMC) and, on
November 6, 2006, assigned to petitioner McArthur. 2
Petitioner Narra acquired its MPSA from Alpha
Resources and Development Corporation and Patricia
Louise Mining & Development Corporation (PLMDC)
which previously filed an application for an MPSA with
the MGB, Region IV-B, DENR on January 6, 1992.
Through the said application, the DENR issued
MPSA-IV-1-12 covering an area of 3.277 hectares in
barangays Calategas and San Isidro, Municipality of
Narra, Palawan. Subsequently, PLMDC conveyed,
transferred and/or assigned its rights and interests
over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the
DENR Region IV-B, labeled as MPSA-AMA-IVB-154
(formerly EPA-IVB-47) over 3,402 hectares in
Barangays Malinao and Princesa Urduja, Municipality
of Narra, Province of Palawan. SMMI subsequently
conveyed, transferred and assigned its rights and
interest over the said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel
of Arbitrators (POA) of the DENR three (3) separate
petitions for the denial of petitioners’ applications for
MPSA designated as AMA-IVB-153, AMA-IVB-154
and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of
the capital stock of McArthur, Tesoro and Narra are
owned and controlled by MBMI Resources, Inc.
(MBMI), a 100% Canadian corporation. Redmont
reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving force
behind petitioners’ filing of the MPSAs over the areas
covered by applications since it knows that it can only
participate in mining activities through corporations
which are deemed Filipino citizens. Redmont argued
owned by MBMI, they were likewise disqualified from
engaging in mining activities through MPSAs, which
are reserved only for Filipino citizens.
In their Answers, petitioners averred that they were
qualified persons under Section 3(aq) of Republic Act
No. (RA) 7942 or the Philippine Mining Act of 1995
which provided:
Sec. 3 Definition of Terms. As used in and for
purposes of this Act, the following terms, whether in
singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the
Philippines with capacity to contract, or a corporation,
partnership, association, or cooperative organized or
authorized for the purpose of engaging in mining, with
technical and financial capability to undertake mineral
resources development and duly registered in
accordance with law at least sixty per cent (60%) of
the capital of which is owned by citizens of the
Philippines: Provided, That a legally organized
foreign-owned corporation shall be deemed a
qualified person for purposes of granting an
exploration permit, financial or technical assistance
agreement or mineral processing permit.
Additionally, they stated that their nationality as
applicants is immaterial because they also applied for
Financial or Technical Assistance Agreements (FTAA)
denominated as AFTA-IVB-09 for McArthur, AFTA-
IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which
are granted to foreign-owned corporations.
Nevertheless, they claimed that the issue on
nationality should not be raised since McArthur,
Tesoro and Narra are in fact Philippine Nationals as
60% of their capital is owned by citizens of the
Philippines. They asserted that though MBMI owns
40% of the shares of PLMC (which owns 5,997
shares of Narra), 40% of the shares of MMC (which
3
owns 5,997 shares of McArthur) and 40% of the
4
shares of SLMC (which, in turn, owns 5,997 shares of
Tesoro), the shares of MBMI will not make it the
5
owner of at least 60% of the capital stock of each of
petitioners. They added that the best tool used in
determining the nationality of a corporation is the
"control test," embodied in Sec. 3 of RA 7042 or the
Foreign Investments Act of 1991. They also claimed
that the POA of DENR did not have jurisdiction over
the issues in Redmont’s petition since they are not
enumerated in Sec. 77 of RA 7942. Finally, they
stressed that Redmont has no personality to sue them
because it has no pending claim or application over
the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution
disqualifying petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not
qualified applicants to engage in mining activities. On
the other hand, [Redmont] having filed its own
applications for an EPA over the areas earlier covered
by the MPSA application of respondents may be
considered if and when they are qualified under the
law. The violation of the requirements for the issuance
and/or grant of permits over mining areas is clearly
established thus, there is reason to believe that the
cancellation and/or revocation of permits already
issued under the premises is in order and open the
areas covered to other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the
Respondents, McArthur Mining Inc., Tesoro Mining
and Development, Inc., and Narra Nickel Mining and
Development Corp. as, DISQUALIFIED for being
considered as Foreign Corporations. Their Mineral
Production Sharing Agreement (MPSA) are hereby x x
x DECLARED NULL AND VOID. 6
The POA considered petitioners as foreign
corporations being "effectively controlled" by MBMI, a
100% Canadian company and declared their MPSAs
null and void. In the same Resolution, it gave due
course to Redmont’s EPAs. Thereafter, on February 7,
2008, the POA issued an Order denying the Motion
7
for Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA,
McArthur and Tesoro filed a joint Notice of
Appeal and Memorandum of Appeal with the Mines
8 9
Adjudication Board (MAB) while Narra separately filed
its Notice of Appeal and Memorandum of Appeal.
10 11
In their respective memorandum, petitioners
emphasized that they are qualified persons under the
law. Also, through a letter, they informed the MAB that
they had their individual MPSA applications converted
to FTAAs. McArthur’s FTAA was denominated as
AFTA-IVB-09 on May 2007, while Tesoro’s MPSA
12
application was converted to AFTA-IVB-08 on May13
28, 2007, and Narra’s FTAA was converted to AFTA-
IVB-07 on March 30, 2006.
14
Pending the resolution of the appeal filed by
petitioners with the MAB, Redmont filed a
Complaint with the Securities and Exchange
15
Commission (SEC), seeking the revocation of the
certificates for registration of petitioners on the ground
that they are foreign-owned or controlled corporations
engaged in mining in violation of Philippine laws.
Thereafter, Redmont filed on September 1, 2008 a
Manifestation and Motion to Suspend Proceeding
before the MAB praying for the suspension of the
proceedings on the appeals filed by McArthur, Tesoro
and Narra.
Subsequently, on September 8, 2008, Redmont filed
before the Regional Trial Court of Quezon City,
Branch 92 (RTC) a Complaint for injunction with
16
application for issuance of a temporary restraining
order (TRO) and/or writ of preliminary injunction,
docketed as Civil Case No. 08-63379. Redmont
prayed for the deferral of the MAB proceedings
pending the resolution of the Complaint before the
SEC.
But before the RTC can resolve Redmont’s Complaint
and applications for injunctive reliefs, the MAB issued
an Order on September 10, 2008, finding the appeal
meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines
Adjudication Board hereby REVERSES and SETS
ASIDE the Resolution dated 14 December 2007 of the
Panel of Arbitrators of Region IV-B (MIMAROPA) in
POA-DENR Case Nos. 2001-01, 2007-02 and 2007-
03, and its Order dated 07 February 2008 denying the
Motions for Reconsideration of the Appellants. The
Petition filed by Redmont Consolidated Mines
Corporation on 02 January 2007 is hereby ordered
DISMISSED. 17
Belatedly, on September 16, 2008, the RTC issued an
Order granting Redmont’s application for a TRO and
18
setting the case for hearing the prayer for the
issuance of a writ of preliminary injunction on
September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a
Motion for Reconsideration of the September 10,
19
2008 Order of the MAB. Subsequently, it filed a
Supplemental Motion for Reconsideration on 20
September 29, 2008.
Before the MAB could resolve Redmont’s Motion for
Reconsideration and Supplemental Motion for
Reconsideration, Redmont filed before the RTC a
Supplemental Complaint in Civil Case No. 08-63379.
21
On October 6, 2008, the RTC issued an
Order granting the issuance of a writ of preliminary
22
injunction enjoining the MAB from finally disposing of
the appeals of petitioners and from resolving
Redmont’s Motion for Reconsideration and
Supplement Motion for Reconsideration of the MAB’s
September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second
Order denying Redmont’s Motion for Reconsideration
and Supplemental Motion for Reconsideration and
resolving the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before
the CA, assailing the Orders issued by the MAB. On
October 1, 2010, the CA rendered a Decision, the
dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED.
The assailed Orders, dated September 10, 2008 and
July 1, 2009 of the Mining Adjudication Board are
reversed and set aside. The findings of the Panel of
Arbitrators of the Department of Environment and
Natural Resources that respondents McArthur, Tesoro
and Narra are foreign corporations is upheld and,
therefore, the rejection of their applications for Mineral
Product Sharing Agreement should be recommended
to the Secretary of the DENR.
With respect to the applications of respondents
McArthur, Tesoro and Narra for Financial or Technical
Assistance Agreement (FTAA) or conversion of their
MPSA applications to FTAA, the matter for its
rejection or approval is left for determination by the
Secretary of the DENR and the President of the
Republic of the Philippines.
SO ORDERED. 23
In a Resolution dated February 15, 2011, the CA
denied the Motion for Reconsideration filed by
petitioners.
After a careful review of the records, the CA found
that there was doubt as to the nationality of petitioners
when it realized that petitioners had a common major
investor, MBMI, a corporation composed of 100%
Canadians. Pursuant to the first sentence of
paragraph 7 of Department of Justice (DOJ) Opinion
No. 020, Series of 2005, adopting the 1967 SEC
Rules which implemented the requirement of the
Constitution and other laws pertaining to the
exploitation of natural resources, the CA used the
"grandfather rule" to determine the nationality of
petitioners. It provided:
Shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine
nationality, but if the percentage of Filipino ownership
in the corporation or partnership is less than 60%,
only the number of shares corresponding to such
percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in
the name of a corporation or partnership at least 60%
of the capital stock or capital, respectively, of which
belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%,
or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to
Filipino citizens, only 50,000 shares shall be recorded
as belonging to aliens. (emphasis supplied)
24
In determining the nationality of petitioners, the CA
looked into their corporate structures and their
corresponding common shareholders. Using the
grandfather rule, the CA discovered that MBMI in
effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of
other majority shareholders of petitioners through joint
venture agreements. The CA found that through a
"web of corporate layering, it is clear that one
common controlling investor in all mining corporations
involved x x x is MBMI." Thus, it concluded that
25
petitioners McArthur, Tesoro and Narra are also in
partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the
MPSA applications of petitioners into FTAA
applications suspicious in nature and, as a
consequence, it recommended the rejection of
petitioners’ MPSA applications by the Secretary of the
DENR.
With regard to the settlement of disputes over rights to
mining areas, the CA pointed out that the POA has
jurisdiction over them and that it also has the power to
determine the of nationality of petitioners as a
prerequisite of the Constitution prior the conferring of
rights to "co-production, joint venture or production-
sharing agreements" of the state to mining rights.
However, it also stated that the POA’s jurisdiction is
limited only to the resolution of the dispute and not on
the approval or rejection of the MPSAs. It stipulated
that only the Secretary of the DENR is vested with the
power to approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA in its
December 14, 2007 Resolution which considered
petitioners McArthur, Tesoro and Narra as foreign
corporations. Nevertheless, the CA determined that
the POA’s declaration that the MPSAs of McArthur,
Tesoro and Narra are void is highly improper.
While the petition was pending with the CA, Redmont
filed with the Office of the President (OP) a petition
dated May 7, 2010 seeking the cancellation of
petitioners’ FTAAs. The OP rendered a Decision on 26
April 6, 2011, wherein it canceled and revoked
petitioners’ FTAAs for violating and circumventing the
"Constitution x x x[,] the Small Scale Mining Law and
Environmental Compliance Certificate as well as
Sections 3 and 8 of the Foreign Investment Act and
E.O. 584." The OP, in affirming the cancellation of
27
the issued FTAAs, agreed with Redmont stating that
petitioners committed violations against the
abovementioned laws and failed to submit evidence to
negate them. The Decision further quoted the
December 14, 2007 Order of the POA focusing on the
alleged misrepresentation and claims made by
petitioners of being domestic or Filipino corporations
and the admitted continued mining operation of
PMDC using their locally secured Small Scale Mining
Permit inside the area earlier applied for an MPSA
application which was eventually transferred to Narra.
It also agreed with the POA’s estimation that the filing
of the FTAA applications by petitioners is a clear
admission that they are "not capable of conducting a
large scale mining operation and that they need the
financial and technical assistance of a foreign entity in
their operation, that is why they sought the
participation of MBMI Resources, Inc." The Decision
28
further quoted:
The filing of the FTAA application on June 15, 2007,
during the pendency of the case only demonstrate the
violations and lack of qualification of the respondent
corporations to engage in mining. The filing of the
FTAA application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that
indeed the respondent is not Filipino but rather of
foreign nationality who is disqualified under the laws.
Corporate documents of MBMI Resources, Inc.
furnished its stockholders in their head office in
Canada suggest that they are conducting operation
only through their local counterparts.29
The Motion for Reconsideration of the Decision was
further denied by the OP in a Resolution dated July
30
6, 2011. Petitioners then filed a Petition for Review on
Certiorari of the OP’s Decision and Resolution with
the CA, docketed as CA-G.R. SP No. 120409. In the
CA Decision dated February 29, 2012, the CA
affirmed the Decision and Resolution of the OP.
Thereafter, petitioners appealed the same CA
decision to this Court which is now pending with a
different division.
Thus, the instant petition for review against the
October 1, 2010 Decision of the CA. Petitioners put
forth the following errors of the CA:
I.
The Court of Appeals erred when it did not
dismiss the case for mootness despite the fact
that the subject matter of the controversy, the
MPSA Applications, have already been
converted into FTAA applications and that the
same have already been granted.
II.
The Court of Appeals erred when it did not
dismiss the case for lack of jurisdiction
considering that the Panel of Arbitrators has
no jurisdiction to determine the nationality of
Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not
dismiss the case on account of Redmont’s
willful forum shopping.
IV.
The Court of Appeals’ ruling that Narra, Tesoro
and McArthur are foreign corporations based
on the "Grandfather Rule" is contrary to law,
particularly the express mandate of the
Foreign Investments Act of 1991, as
amended, and the FIA Rules.
V.
The Court of Appeals erred when it applied
the exceptions to the res inter alios acta rule.
VI.
The Court of Appeals erred when it concluded
that the conversion of the MPSA Applications
into FTAA Applications were of "suspicious
nature" as the same is based on mere
conjectures and surmises without any shred of
evidence to show the same. 31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not
rendering the instant case as moot is without merit.
Basically, a case is said to be moot and/or academic
when it "ceases to present a justiciable controversy by
virtue of supervening events, so that a declaration
thereon would be of no practical use or value." Thus,
32
the courts "generally decline jurisdiction over the case
or dismiss it on the ground of mootness." 33
The "mootness" principle, however, does accept
certain exceptions and the mere raising of an issue of
"mootness" will not deter the courts from trying a case
when there is a valid reason to do so. In David v.
Macapagal-Arroyo (David), the Court provided four
instances where courts can decide an otherwise moot
case, thus:
1.) There is a grave violation of the
Constitution;
2.) The exceptional character of the situation
and paramount public interest is involved;
3.) When constitutional issue raised requires
formulation of controlling principles to guide
the bench, the bar, and the public; and
4.) The case is capable of repetition yet
evading review. 34
All of the exceptions stated above are present in the
instant case. We of this Court note that a grave
violation of the Constitution, specifically Section 2 of
Article XII, is being committed by a foreign corporation
right under our country’s nose through a myriad of
corporate layering under different, allegedly, Filipino
corporations. The intricate corporate layering utilized
by the Canadian company, MBMI, is of exceptional
character and involves paramount public interest
since it undeniably affects the exploitation of our
Country’s natural resources. The corresponding
actions of petitioners during the lifetime and existence
of the instant case raise questions as what principle is
to be applied to cases with similar issues. No definite
ruling on such principle has been pronounced by the
Court; hence, the disposition of the issues or errors in
the instant case will serve as a guide "to the bench,
the bar and the public." Finally, the instant case is
35
capable of repetition yet evading review, since the
Canadian company, MBMI, can keep on utilizing
dummy Filipino corporations through various schemes
of corporate layering and conversion of applications to
skirt the constitutional prohibition against foreign
mining in Philippine soil.
Conversion of MPSA applications to FTAA
applications
We shall discuss the first error in conjunction with the
sixth error presented by petitioners since both involve
the conversion of MPSA applications to FTAA
applications. Petitioners propound that the CA erred in
ruling against them since the questioned MPSA
applications were already converted into FTAA
applications; thus, the issue on the prohibition relating
to MPSA applications of foreign mining corporations is
academic. Also, petitioners would want us to correct
the CA’s finding which deemed the aforementioned
conversions of applications as suspicious in nature,
since it is based on mere conjectures and surmises
and not supported with evidence.
We disagree.
The CA’s analysis of the actions of petitioners after
the case was filed against them by respondent is on
point. The changing of applications by petitioners from
one type to another just because a case was filed
against them, in truth, would raise not a few sceptics’
eyebrows. What is the reason for such conversion?
Did the said conversion not stem from the case
challenging their citizenship and to have the case
dismissed against them for being "moot"? It is quite
obvious that it is petitioners’ strategy to have the case
dismissed against them for being "moot."
Consider the history of this case and how petitioners
responded to every action done by the court or
appropriate government agency: on January 2, 2007,
Redmont filed three separate petitions for denial of
the MPSA applications of petitioners before the POA.
On June 15, 2007, petitioners filed a conversion of
their MPSA applications to FTAAs. The POA, in its
December 14, 2007 Resolution, observed this suspect
change of applications while the case was pending
before it and held:
The filing of the Financial or Technical Assistance
Agreement application is a clear admission that the
respondents are not capable of conducting a large
scale mining operation and that they need the
financial and technical assistance of a foreign entity in
their operation that is why they sought the
participation of MBMI Resources, Inc. The
participation of MBMI in the corporation only proves
the fact that it is the Canadian company that will
provide the finances and the resources to operate the
mining areas for the greater benefit and interest of the
same and not the Filipino stockholders who only have
a less substantial financial stake in the corporation.
xxxx
x x x The filing of the FTAA application on June 15,
2007, during the pendency of the case only
demonstrate the violations and lack of qualification of
the respondent corporations to engage in mining. The
filing of the FTAA application conversion which is
allowed foreign corporation of the earlier MPSA is an
admission that indeed the respondent is not Filipino
but rather of foreign nationality who is disqualified
under the laws. Corporate documents of MBMI
Resources, Inc. furnished its stockholders in their
head office in Canada suggest that they are
conducting operation only through their local
counterparts. 36
On October 1, 2010, the CA rendered a Decision
which partially granted the petition, reversing and
setting aside the September 10, 2008 and July 1,
2009 Orders of the MAB. In the said Decision, the CA
upheld the findings of the POA of the DENR that the
herein petitioners are in fact foreign corporations thus
a recommendation of the rejection of their MPSA
applications were recommended to the Secretary of
the DENR. With respect to the FTAA applications or
conversion of the MPSA applications to FTAAs, the
CA deferred the matter for the determination of the
Secretary of the DENR and the President of the
Republic of the Philippines. 37
In their Motion for Reconsideration dated October 26,
2010, petitioners prayed for the dismissal of the
petition asserting that on April 5, 2010, then President
Gloria Macapagal-Arroyo signed and issued in their
favor FTAA No. 05-2010-IVB, which rendered the
petition moot and academic. However, the CA, in a
Resolution dated February 15, 2011 denied their
motion for being a mere "rehash of their claims and
defenses." Standing firm on its Decision, the CA
38
affirmed the ruling that petitioners are, in fact, foreign
corporations. On April 5, 2011, petitioners elevated
the case to us via a Petition for Review on Certiorari
under Rule 45, questioning the Decision of the CA.
Interestingly, the OP rendered a Decision dated April
6, 2011, a day after this petition for review was filed,
cancelling and revoking the FTAAs, quoting the Order
of the POA and stating that petitioners are foreign
corporations since they needed the financial strength
of MBMI, Inc. in order to conduct large scale mining
operations. The OP Decision also based the
cancellation on the misrepresentation of facts and the
violation of the "Small Scale Mining Law and
Environmental Compliance Certificate as well as
Sections 3 and 8 of the Foreign Investment Act and
E.O. 584." On July 6, 2011, the OP issued a
39
Resolution, denying the Motion for Reconsideration
filed by the petitioners.
Respondent Redmont, in its Comment dated October
10, 2011, made known to the Court the fact of the
OP’s Decision and Resolution. In their Reply,
petitioners chose to ignore the OP Decision and
continued to reuse their old arguments claiming that
they were granted FTAAs and, thus, the case was
moot. Petitioners filed a Manifestation and
Submission dated October 19, 2012, wherein they
40
asserted that the present petition is moot since, in a
remarkable turn of events, MBMI was able to
sell/assign all its shares/interest in the "holding
companies" to DMCI Mining Corporation (DMCI), a
Filipino corporation and, in effect, making their
respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been
trying to have this case dismissed for being "moot."
Their final act, wherein MBMI was able to allegedly
sell/assign all its shares and interest in the petitioner
"holding companies" to DMCI, only proves that they
were in fact not Filipino corporations from the start.
The recent divesting of interest by MBMI will not
change the stand of this Court with respect to the
nationality of petitioners prior the suspicious change in
their corporate structures. The new documents filed
by petitioners are factual evidence that this Court has
no power to verify.
The only thing clear and proved in this Court is the
fact that the OP declared that petitioner corporations
have violated several mining laws and made
misrepresentations and falsehood in their applications
for FTAA which lead to the revocation of the said
FTAAs, demonstrating that petitioners are not beyond
going against or around the law using shifty actions
and strategies. Thus, in this instance, we can say that
their claim of mootness is moot in itself because their
defense of conversion of MPSAs to FTAAs has been
discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of
petitioners’ nationality, whether Filipino or foreign. In
their previous petitions, they had been adamant in
insisting that they were Filipino corporations, until they
submitted their Manifestation and Submission dated
October 19, 2012 where they stated the alleged
change of corporate ownership to reflect their Filipino
ownership. Thus, there is a need to determine the
nationality of petitioner corporations.
Basically, there are two acknowledged tests in
determining the nationality of a corporation: the
control test and the grandfather rule. Paragraph 7 of
DOJ Opinion No. 020, Series of 2005, adopting the
1967 SEC Rules which implemented the requirement
of the Constitution and other laws pertaining to the
controlling interests in enterprises engaged in the
exploitation of natural resources owned by Filipino
citizens, provides:
Shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine
nationality, but if the percentage of Filipino ownership
in the corporation or partnership is less than 60%,
only the number of shares corresponding to such
percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in
the name of a corporation or partnership at least 60%
of the capital stock or capital, respectively, of which
belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%,
or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to
Filipino citizens, only 50,000 shares shall be counted
as owned by Filipinos and the other 50,000 shall be
recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020,
stating "shares belonging to corporations or
partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of
Philippine nationality," pertains to the control test or
the liberal rule. On the other hand, the second part of
the DOJ Opinion which provides, "if the percentage of
the Filipino ownership in the corporation or
partnership is less than 60%, only the number of
shares corresponding to such percentage shall be
counted as Philippine nationality," pertains to the
stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners were
constant in advocating the application of the "control
test" under RA 7042, as amended by RA 8179,
otherwise known as the Foreign Investments Act
(FIA), rather than using the stricter grandfather rule.
The pertinent provision under Sec. 3 of the FIA
provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of
the Philippines; or a domestic partnership or
association wholly owned by the citizens of the
Philippines; a corporation organized under the laws of
the Philippines of which at least sixty percent (60%) of
the capital stock outstanding and entitled to vote is
wholly owned by Filipinos or a trustee of funds for
pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and
at least sixty percent (60%) of the fund will accrue to
the benefit of Philippine nationals: Provided, That
were a corporation and its non-Filipino stockholders
own stocks in a Securities and Exchange Commission
(SEC) registered enterprise, at least sixty percent
(60%) of the capital stock outstanding and entitled to
vote of each of both corporations must be owned and
held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of
Directors, in order that the corporation shall be
considered a Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg
to stand on in the instant case since the definition of a
"Philippine National" under Sec. 3 of the FIA does not
provide for it. They further claim that the grandfather
rule "has been abandoned and is no longer the
applicable rule." They also opined that the last
41
portion of Sec. 3 of the FIA admits the application of a
"corporate layering" scheme of corporations.
Petitioners claim that the clear and unambiguous
wordings of the statute preclude the court from
construing it and prevent the court’s use of discretion
in applying the law. They said that the plain, literal
meaning of the statute meant the application of the
control test is obligatory.
We disagree. "Corporate layering" is admittedly
allowed by the FIA; but if it is used to circumvent the
Constitution and pertinent laws, then it becomes
illegal. Further, the pronouncement of petitioners that
the grandfather rule has already been abandoned
must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources
are owned by the State. With the exception of
agricultural lands, all other natural resources shall not
be alienated. The exploration, development, and
utilization of natural resources shall be under the full
control and supervision of the State. The State may
directly undertake such activities, or it may enter into
co-production, joint venture or production-sharing
agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital
is owned by such citizens. Such agreements may be
for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and
under such terms and conditions as may be provided
by law.
xxxx
The President may enter into agreements with
Foreign-owned corporations involving either technical
or financial assistance for large-scale exploration,
development, and utilization of minerals, petroleum,
and other mineral oils according to the general terms
and conditions provided by law, based on real
contributions to the economic growth and general
welfare of the country. In such agreements, the State
shall promote the development and use of local
scientific and technical resources. (emphasis
supplied)
The emphasized portion of Sec. 2 which focuses on
the State entering into different types of agreements
for the exploration, development, and utilization of
natural resources with entities who are deemed
Filipino due to 60 percent ownership of capital is
pertinent to this case, since the issues are centered
on the utilization of our country’s natural resources or
specifically, mining. Thus, there is a need to ascertain
the nationality of petitioners since, as the Constitution
so provides, such agreements are only allowed
corporations or associations "at least 60 percent of
such capital is owned by such citizens." The
deliberations in the Records of the 1986 Constitutional
Commission shed light on how a citizenship of a
corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairman’s
interpretation of an independent national economy is
freedom from undue foreign control? What is the
meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign
control which sacrifices national sovereignty and the
welfare of the Filipino in the economic sphere.
MR. BENNAGEN: Why does it have to be qualified
still with the word "undue"? Why not simply freedom
from foreign control? I think that is the meaning of
independence, because as phrased, it still allows for
foreign control.
MR. VILLEGAS: It will now depend on the
interpretation because if, for example, we retain the
60/40 possibility in the cultivation of natural resources,
40 percent involves some control; not total control, but
some control.
MR. BENNAGEN: In any case, I think in due time we
will propose some amendments.
MR. VILLEGAS: Yes. But we will be open to
improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and foreign
equity; namely, 60-40 in Section 3, 60-40 in Section 9,
and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced
with the question: ‘Where do we base the equity
requirement, is it on the authorized capital stock, on
the subscribed capital stock, or on the paid-up capital
stock of a corporation’? Will the Committee please
enlighten me on this?
MR. VILLEGAS: We have just had a long discussion
with the members of the team from the UP Law
Center who provided us with a draft. The phrase that
is contained here which we adopted from the UP draft
is ‘60 percent of the voting stock.’
MR. NOLLEDO: That must be based on the
subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to
vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in
another corporation, say, a corporation with 60-40
percent equity invests in another corporation which is
permitted by the Corporation Code, does the
Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of the
Committee.
MR. NOLLEDO: Therefore, we need additional
Filipino capital?
MR. VILLEGAS: Yes. (emphasis supplied)
42
It is apparent that it is the intention of the framers of
the Constitution to apply the grandfather rule in cases
where corporate layering is present.
Elementary in statutory construction is when there is
conflict between the Constitution and a statute, the
Constitution will prevail. In this instance, specifically
pertaining to the provisions under Art. XII of the
Constitution on National Economy and Patrimony,
Sec. 3 of the FIA will have no place of application. As
decreed by the honorable framers of our Constitution,
the grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series
of 2005 provides:
The above-quoted SEC Rules provide for the manner
of calculating the Filipino interest in a corporation for
purposes, among others, of determining compliance
with nationality requirements (the ‘Investee
Corporation’). Such manner of computation is
necessary since the shares in the Investee
Corporation may be owned both by individual
stockholders (‘Investing Individuals’) and by
corporations and partnerships (‘Investing
Corporation’). The said rules thus provide for the
determination of nationality depending on the
ownership of the Investee Corporation and, in certain
instances, the Investing Corporation.
Under the above-quoted SEC Rules, there are two
cases in determining the nationality of the Investee
Corporation. The first case is the ‘liberal rule’, later
coined by the SEC as the Control Test in its 30 May
1990 Opinion, and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states,
‘(s)hares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine
nationality.’ Under the liberal Control Test, there is no
need to further trace the ownership of the 60% (or
more) Filipino stockholdings of the Investing
Corporation since a corporation which is at least 60%
Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather
Rule Proper and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states,
"but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage
shall be counted as of Philippine nationality." Under
the Strict Rule or Grandfather Rule Proper, the
combined totals in the Investing Corporation and the
Investee Corporation must be traced (i.e.,
"grandfathered") to determine the total percentage of
Filipino ownership.
to the instances where the stockholdings of non-
Filipino stockholders are more than 40% of the total
stockholdings in a corporation. The corporations
interested in circumventing our laws would clearly
strive to have "60% Filipino Ownership" at face value.
It would be senseless for these applying corporations
to state in their respective articles of incorporation that
they have less than 60% Filipino stockholders since
the applications will be denied instantly. Thus, various
corporate schemes and layerings are utilized to
circumvent the application of the Constitution.
Obviously, the instant case presents a situation which
exhibits a scheme employed by stockholders to
circumvent the law, creating a cloud of doubt in the
Court’s mind. To determine, therefore, the actual
participation, direct or indirect, of MBMI, the
grandfather rule must be used.
McArthur Mining, Inc.
To establish the actual ownership, interest or
participation of MBMI in each of petitioners’ corporate
structure, they have to be "grandfathered."
As previously discussed, McArthur acquired its MPSA
application from MMC, which acquired its application
from SMMI. McArthur has a capital stock of ten million
pesos (PhP 10,000,000) divided into 10,000 common
shares at one thousand pesos (PhP 1,000) per share,
subscribed to by the following: 44

Moreover, the ultimate Filipino ownership of the

shares must first be traced to the level of the Investing
Corporation and added to the shares directly owned in Name Natio Numb Amo Amount
the Investee Corporation x x x. nality er of unt Paid
Shares Subs
cribe
xxxx
d
In other words, based on the said SEC Rule and DOJ Madridejo Filipin 5,997 PhP PhP
Opinion, the Grandfather Rule or the second part of s Mining o 5,997 825,000.00
the SEC Rule applies only when the 60-40 Filipino- Corporatio ,000.
foreign equity ownership is in doubt (i.e., in cases n 00
where the joint venture corporation with Filipino and
MBMI Cana 3,998 PhP PhP
foreign stockholders with less than 60% Filipino
Resource dian 3,998 1,878,174.6
stockholdings [or 59%] invests in other joint venture
s, Inc. ,000. 0
corporation which is either 60-40% Filipino-alien or
0
the 59% less Filipino). Stated differently, where the
60-40 Filipino- foreign equity ownership is not in Lauro L. Filipin 1 PhP PhP
doubt, the Grandfather Rule will not apply. (emphasis Salazar o 1,000 1,000.00
supplied) .00

After a scrutiny of the evidence extant on record, the Fernando Filipin 1 PhP PhP
Court finds that this case calls for the application of B. o 1,000 1,000.00
the grandfather rule since, as ruled by the POA and Esguerra .00
affirmed by the OP, doubt prevails and persists in the Manuel A. Filipin 1 PhP PhP
corporate ownership of petitioners. Also, as found by Agcaoili o 1,000 1,000.00
the CA, doubt is present in the 60-40 Filipino equity .00
ownership of petitioners Narra, McArthur and Tesoro,
since their common investor, the 100% Canadian Michael T. Ameri 1 PhP PhP
corporation––MBMI, funded them. However, Mason can 1,000 1,000.00
petitioners also claim that there is "doubt" only when .00
the stockholdings of Filipinos are less than 60%. 43

Kenneth Cana 1 PhP PhP

Cawkell dian 1,000 1,000.00
The assertion of petitioners that "doubt" only exists .00
when the stockholdings are less than 60% fails to
convince this Court. DOJ Opinion No. 20, which Total 10,000 PhP PhP
petitioners quoted in their petition, only made an 10,00 2,708,174.6
example of an instance where "doubt" as to the 0,000 0
ownership of the corporation exists. It would be .00 (emphasis
ludicrous to limit the application of the said word only supplied)
Interestingly, looking at the corporate structure of
MMC, we take note that it has a similar structure and
composition as McArthur. In fact, it would seem that
MBMI is also a major investor and "controls" MBMI
45
and also, similar nominal shareholders were present,
i.e. Fernando B. Esguerra (Esguerra), Lauro L.
Salazar (Salazar), Michael T. Mason (Mason) and
Kenneth Cawkell (Cawkell):
Madridejos Mining Corporation
respect to the number of shares they subscribed to in
the corporation, which is quite absurd since Olympic
is the major stockholder in MMC. MBMI’s 2006 Annual
Report sheds light on why Olympic failed to pay any
amount with respect to the number of shares it
subscribed to. It states that Olympic entered into joint
venture agreements with several Philippine
companies, wherein it holds directly and indirectly a
60% effective equity interest in the Olympic
Properties. Quoting the said Annual report:
46

On September 9, 2004, the Company and Olympic

Name Nation Numb Amou Amount
Mines & Development Corporation ("Olympic")
ality er of nt Paid
entered into a series of agreements including a
Share Subsc
Property Purchase and Development Agreement (the
s ribed
Transaction Documents) with respect to three nickel
Olympic Filipino 6,663 PhP laterite properties in Palawan, Philippines (the
Mines & 6,663, PhP 0 "Olympic Properties"). The Transaction Documents
000.00 effectively establish a joint venture between the
Develop Company and Olympic for purposes of developing the
ment Olympic Properties. The Company holds directly and
indirectly an initial 60% interest in the joint venture.
Corp. Under certain circumstances and upon achieving
certain milestones, the Company may earn up to a
100% interest, subject to a 2.5% net revenue
MBMI Canadi 3,331 PhP PhP royalty. (emphasis supplied)
47

Resourc an 3,331, 2,803,900.0

es, 000.00 0 Thus, as demonstrated in this first corporation,
McArthur, when it is "grandfathered," company
Inc. layering was utilized by MBMI to gain control over
McArthur. It is apparent that MBMI has more than
60% or more equity interest in McArthur, making the
Amanti Filipino 1 PhP PhP latter a foreign corporation.
Limson 1,000. 1,000.00
00 Tesoro Mining and Development, Inc.
Fernand Filipino 1 PhP PhP
o B. 1,000. 1,000.00 Tesoro, which acquired its MPSA application from
00 SMMI, has a capital stock of ten million pesos (PhP
Esguerr 10,000,000) divided into ten thousand (10,000)
a common shares at PhP 1,000 per share, as
demonstrated below:

Lauro Filipino 1 PhP PhP [[reference

Salazar 1,000. 1,000.00 = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
00 file=/jurisprudence/2014/april2014/195580.pdf]]
Emmanu Filipino 1 PhP PhP
el G. 1,000. 1,000.00
00 Name Natio Number Amo Amou
Hernand nality of unt nt
o Paid
Shares Sub
scri
Michael Americ 1 PhP PhP bed
T. an 1,000. 1,000.00
Mason 00
Kenneth Canadi 1 PhP PhP Sara Marie Filipin 5,997 PhP PhP
Cawkell an 1,000. 1,000.00 o 5,99 825,0
00 Mining, Inc. 7,00 00.00
0.00
Total 10,000 PhP PhP
10,000 2,809,900.0 MBMI Cana 3,998 PhP PhP
,000.0 0 dian 3,99 1,878,
0 8,00 174.6
Resources,
(emphasis Inc. 0.00 0
supplied)

Lauro L. Filipin 1 PhP PhP

Noticeably, Olympic Mines & Development Salazar o 1,00 1,000.
Corporation (Olympic) did not pay any amount with
 0.00 00 ces, 00.00 0.00

Fernando Filipin 1 PhP PhP Inc.

B. o 1,00 1,000.
0.00 00
Esguerra Amanti Filipin 1 PhP PhP
Limson o 1,000.0 1,000.00
0
Manuel A. Filipin 1 PhP PhP
o 1,00 1,000. Fernan Filipin 1 PhP PhP
Agcaoili 0.00 00 do B. o 1,000.0 1,000.00
0
Esguerr
Michael T. Ameri 1 PhP PhP a
Mason can 1,00 1,000.
0.00 00
Lauro Filipin 1 PhP PhP
Kenneth Cana 1 PhP PhP Salazar o 1,000.0 1,000.00
Cawkell dian 1,00 1,000. 0
0.00 00
Emman Filipin 1 PhP PhP
Total 10,000 PhP PhP uel G. o 1,000.0 1,000.00
10,0 2,708, 0
00,0 174.6 Hernan
00.0 0 do
0
(emph
asis Michael Ameri 1 PhP PhP
suppli T. can 1,000.0 1,000.00
ed) Mason 0

Kennet Canad 1 PhP PhP

h ian 1,000.0 1,000.00
Except for the name "Sara Marie Mining, Inc.," the Cawkell 0
table above shows exactly the same figures as the
corporate structure of petitioner McArthur, down to the Total 10,000 PhP PhP
last centavo. All the other shareholders are the same: 10,000, 2,809,90
MBMI, Salazar, Esguerra, Agcaoili, Mason and 000.00 0.00
Cawkell. The figures under "Nationality," "Number of
Shares," "Amount Subscribed," and "Amount Paid" (emphasi
are exactly the same. Delving deeper, we scrutinize s
SMMI’s corporate structure: supplied)

Sara Marie Mining, Inc.

[[reference After subsequently studying SMMI’s corporate

= http://sc.judiciary.gov.ph/pdf/web/viewer.html? structure, it is not farfetched for us to spot the glaring
file=/jurisprudence/2014/april2014/195580.pdf]] similarity between SMMI and MMC’s corporate
structure. Again, the presence of identical
stockholders, namely: Olympic, MBMI, Amanti Limson
(Limson), Esguerra, Salazar, Hernando, Mason and
Name Natio Number Amoun Amount Cawkell. The figures under the headings "Nationality,"
nality of t Paid "Number of Shares," "Amount Subscribed," and
"Amount Paid" are exactly the same except for the
Shares Subscr amount paid by MBMI which now reflects the amount
ibed of two million seven hundred ninety four thousand
pesos (PhP 2,794,000). Oddly, the total value of the
amount paid is two million eight hundred nine
Olympi Filipin 6,663 PhP PhP 0 thousand nine hundred pesos (PhP 2,809,900).
c Mines o 6,663,0
& 00.00 Accordingly, after "grandfathering" petitioner Tesoro
and factoring in Olympic’s participation in SMMI’s
Develo corporate structure, it is clear that MBMI is in control
pment of Tesoro and owns 60% or more equity interest in
Tesoro. This makes petitioner Tesoro a non-Filipino
Corp. corporation and, thus, disqualifies it to participate in
the exploitation, utilization and development of our
natural resources.
MBMI Canad 3,331 PhP PhP
Resour ian 3,331,0 2,794,00 Narra Nickel Mining and Development Corporation
Moving on to the last petitioner, Narra, which is the Agabin
transferee and assignee of PLMDC’s MPSA
application, whose corporate structure’s arrangement Robert Ame 1 PhP PhP
is similar to that of the first two petitioners discussed. L. rican 1,000.00 1,000.00
The capital stock of Narra is ten million pesos (PhP
10,000,000), which is divided into ten thousand
McCurd
common shares (10,000) at one thousand pesos (PhP
y
1,000) per share, shown as follows:

[[reference Kenneth Can 1 PhP PhP

= http://sc.judiciary.gov.ph/pdf/web/viewer.html? Cawkell adia 1,000.00 1,000.00
file=/jurisprudence/2014/april2014/195580.pdf]] n

Total 10,00 PhP PhP

0 10,000,000 2,800,00
Name Nati Numb Amount Amount
.00 0.00
onali er of Paid
(emphasi
ty Subscribe s
Share d supplied)
s

Again, MBMI, along with other nominal stockholders,

Patricia Filipi 5,997 PhP PhP i.e., Mason, Agcaoili and Esguerra, is present in this
Louise no 5,997,000. 1,677,00 corporate structure.
00 0.00
Mining Patricia Louise Mining & Development Corporation
&
Using the grandfather method, we further look and
Develop examine PLMDC’s corporate structure:
ment
Name Nationality Amo Amount
Corp. Numbe unt Paid
r of Subs
Shares cribe
MBMI Can 3,998 PhP PhP d
adia 3,996,000. 1,116,000
Resour n 00 .00 Palawan Filipino 6,596 PhP PhP 0
ces, Alpha 6,596
Inc. South ,000.
Resources 00
Developme
Higinio Filipi 1 PhP PhP nt
C. no 1,000.00 1,000.00 Corporation
MBMI Canadian 3,396 PhP PhP
Mendoz Resources 3,396 2,796,000
a, Jr. , ,000. .00
00
Inc.
Henry Filipi 1 PhP PhP
E. no 1,000.00 1,000.00
Higinio C. Filipino 1 PhP PhP
Fernand Mendoza, 1,000 1,000.00
ez Jr. .00
Fernando Filipino 1 PhP PhP
Manuel Filipi 1 PhP PhP B. Esguerra 1,000 1,000.00
A. no 1,000.00 1,000.00 .00
Henry E. Filipino 1 PhP PhP
Agcaoili Fernandez 1,000 1,000.00
.00

Ma. Filipi 1 PhP PhP Lauro L. Filipino 1 PhP PhP

Elena A. no 1,000.00 1,000.00 Salazar 1,000 1,000.00
.00
Bocalan Manuel A. Filipino 1 PhP PhP
Agcaoili 1,000 1,000.00
.00
Bayani Filipi 1 PhP PhP
H. no 1,000.00 1,000.00 Bayani H. Filipino 1 PhP PhP
Agabin 1,000 1,000.00 agreement, the Company exercises joint control over
.00 the companies in the Alpha Group. (emphasis
48

supplied)
Michael T. American 1 PhP PhP
Mason 1,000 1,000.00 Concluding from the above-stated facts, it is quite
.00 safe to say that petitioners McArthur, Tesoro and
Kenneth Canadian 1 PhP PhP Narra are not Filipino since MBMI, a 100% Canadian
Cawkell 1,000 1,000.00 corporation, owns 60% or more of their equity
.00 interests. Such conclusion is derived from
grandfathering petitioners’ corporate owners, namely:
Total 10,000 PhP PhP MMI, SMMI and PLMDC. Going further and adding to
10,00 2,708,174 the picture, MBMI’s Summary of Significant
0,000 .60 Accounting Policies statement– –regarding the "joint
.00 (emphasis venture" agreements that it entered into with the
supplied) "Olympic" and "Alpha" groups––involves SMMI,
Tesoro, PLMDC and Narra. Noticeably, the ownership
of the "layered" corporations boils down to MBMI,
Yet again, the usual players in petitioners’ corporate
Olympic or corporations under the "Alpha" group
structures are present. Similarly, the amount of money
wherein MBMI has joint venture agreements with,
paid by the 2nd tier majority stock holder, in this case,
practically exercising majority control over the
Palawan Alpha South Resources and Development
corporations mentioned. In effect, whether looking at
Corp. (PASRDC), is zero.
the capital structure or the underlying relationships
between and among the corporations, petitioners are
Studying MBMI’s Summary of Significant Accounting NOT Filipino nationals and must be considered
Policies dated October 31, 2005 explains the reason foreign since 60% or more of their capital stocks or
behind the intricate corporate layering that MBMI equity interests are owned by MBMI.
immersed itself in:
Application of the res inter alios acta rule
JOINT VENTURES The Company’s ownership
interests in various mining ventures engaged in the
Petitioners question the CA’s use of the exception of
acquisition, exploration and development of mineral
the res inter alios acta or the "admission by co-partner
properties in the Philippines is described as follows:
or agent" rule and "admission by privies" under the
Rules of Court in the instant case, by pointing out that
(a) Olympic Group statements made by MBMI should not be admitted in
this case since it is not a party to the case and that it
The Philippine companies holding the Olympic is not a "partner" of petitioners.
Property, and the ownership and interests therein, are
as follows: Secs. 29 and 31, Rule 130 of the Revised Rules of
Court provide:
Olympic- Philippines (the "Olympic Group")
Sec. 29. Admission by co-partner or agent.- The act or
Sara Marie Mining Properties Ltd. ("Sara Marie") declaration of a partner or agent of the party within the
33.3% scope of his authority and during the existence of the
partnership or agency, may be given in evidence
Tesoro Mining & Development, Inc. (Tesoro) 60.0% against such party after the partnership or agency is
shown by evidence other than such act or declaration
Pursuant to the Olympic joint venture agreement the itself. The same rule applies to the act or declaration
Company holds directly and indirectly an effective of a joint owner, joint debtor, or other person jointly
equity interest in the Olympic Property of 60.0%. interested with the party.
Pursuant to a shareholders’ agreement, the Company
exercises joint control over the companies in the Sec. 31. Admission by privies.- Where one derives
Olympic Group. title to property from another, the act, declaration, or
omission of the latter, while holding the title, in relation
(b) Alpha Group to the property, is evidence against the former.

The Philippine companies holding the Alpha Property,
and the ownership interests therein, are as follows:
Alpha- Philippines (the "Alpha Group")
Petitioners claim that before the above-mentioned
Rule can be applied to a case, "the partnership
relation must be shown, and that proof of the fact
must be made by evidence other than the admission
itself." Thus, petitioners assert that the CA erred in
49

Patricia Louise Mining Development Inc. ("Patricia") finding that a partnership relationship exists between
34.0% them and MBMI because, in fact, no such partnership
exists.
Narra Nickel Mining & Development Corporation
(Narra) 60.4% Partnerships vs. joint venture agreements

Under a joint venture agreement the Company holds Petitioners claim that the CA erred in applying Sec.
directly and indirectly an effective equity interest in the 29, Rule 130 of the Rules by stating that "by entering
Alpha Property of 60.4%. Pursuant to a shareholders’ into a joint venture, MBMI have a joint interest" with
Narra, Tesoro and McArthur. They challenged the
conclusion of the CA which pertains to the close
characteristics of
"partnerships" and "joint venture agreements."
Further, they asserted that before this particular
partnership can be formed, it should have been
formally reduced into writing since the capital involved
is more than three thousand pesos (PhP 3,000).
Being that there is no evidence of written agreement
to form a partnership between petitioners and MBMI,
no partnership was created.
We disagree.
A partnership is defined as two or more persons who
bind themselves to contribute money, property, or
industry to a common fund with the intention of
dividing the profits among themselves. On the other
50
hand, joint ventures have been deemed to be "akin" to
partnerships since it is difficult to distinguish between
joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the
nature of their association are so similar and closely
akin to a partnership that it is ordinarily held that their
rights, duties, and liabilities are to be tested by rules
which are closely analogous to and substantially the
same, if not exactly the same, as those which govern
partnership. In fact, it has been said that the trend in
the law has been to blur the distinctions between a
partnership and a joint venture, very little law being
found applicable to one that does not apply to the
other.51
Though some claim that partnerships and joint
ventures are totally different animals, there are very
few rules that differentiate one from the other; thus,
joint ventures are deemed "akin" or similar to a
partnership. In fact, in joint venture agreements, rules
and legal incidents governing partnerships are
applied. 52
Accordingly, culled from the incidents and records of
this case, it can be assumed that the relationships
entered between and among petitioners and MBMI
are no simple "joint venture agreements." As a rule,
corporations are prohibited from entering into
partnership agreements; consequently, corporations
enter into joint venture agreements with other
corporations or partnerships for certain transactions in
order to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered
into by and among petitioners and MBMI was
executed to circumvent the legal prohibition against
corporations entering into partnerships, then the
relationship created should be deemed as
"partnerships," and the laws on partnership should be
applied. Thus, a joint venture agreement between and
among corporations may be seen as similar to
partnerships since the elements of partnership are
present.
Considering that the relationships found between
petitioners and MBMI are considered to be
partnerships, then the CA is justified in applying Sec.
29, Rule 130 of the Rules by stating that "by entering
into a joint venture, MBMI have a joint interest" with
Narra, Tesoro and McArthur.
Panel of Arbitrators’ jurisdiction
We affirm the ruling of the CA in declaring that the
POA has jurisdiction over the instant case. The POA
has jurisdiction to settle disputes over rights to mining
areas which definitely involve the petitions filed by
Redmont against petitioners Narra, McArthur and
Tesoro. Redmont, by filing its petition against
petitioners, is asserting the right of Filipinos over
mining areas in the Philippines against alleged
foreign-owned mining corporations. Such claim
constitutes a "dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the
case by the parties for the decision, the panel shall
have exclusive and original jurisdiction to hear and
decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or
permits
We held in Celestial Nickel Mining Exploration
Corporation v. Macroasia Corp.: 53
The phrase "disputes involving rights to mining areas"
refers to any adverse claim, protest, or opposition to
an application for mineral agreement. The POA
therefore has the jurisdiction to resolve any adverse
claim, protest, or opposition to a pending application
for a mineral agreement filed with the concerned
Regional Office of the MGB. This is clear from Secs.
38 and 41 of the DENR AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of
publication/posting/radio announcements, the
authorized officer(s) of the concerned office(s) shall
issue a certification(s) that the
publication/posting/radio announcement have been
complied with. Any adverse claim, protest, opposition
shall be filed directly, within thirty (30) calendar days
from the last date of publication/posting/radio
announcement, with the concerned Regional Office or
through any concerned PENRO or CENRO for filing in
the concerned Regional Office for purposes of its
resolution by the Panel of Arbitrators pursuant to the
provisions of this Act and these implementing rules
and regulations. Upon final resolution of any adverse
claim, protest or opposition, the Panel of Arbitrators
shall likewise issue a certification to that effect within
five (5) working days from the date of finality of
resolution thereof. Where there is no adverse claim,
protest or opposition, the Panel of Arbitrators shall
likewise issue a Certification to that effect within five
working days therefrom.
xxxx
No Mineral Agreement shall be approved unless the
requirements under this Section are fully complied
with and any adverse claim/protest/opposition is
finally resolved by the Panel of Arbitrators.
Sec. 41.
 xxxx
Within fifteen (15) working days form the receipt of the
Certification issued by the Panel of Arbitrators as
provided in Section 38 hereof, the concerned
Regional Director shall initially evaluate the Mineral
Agreement applications in areas outside Mineral
reservations. He/She shall thereafter endorse his/her
findings to the Bureau for further evaluation by the
Director within fifteen (15) working days from receipt
of forwarded documents. Thereafter, the Director shall
endorse the same to the secretary for
consideration/approval within fifteen working days
from receipt of such endorsement.
In case of Mineral Agreement applications in areas
with Mineral Reservations, within fifteen (15) working
days from receipt of the Certification issued by the
Panel of Arbitrators as provided for in Section 38
hereof, the same shall be evaluated and endorsed by
the Director to the Secretary for
consideration/approval within fifteen days from receipt
of such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions
that the "disputes involving rights to mining areas"
under Sec. 77(a) specifically refer only to those
disputes relative to the applications for a mineral
agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims,
protest, or oppositions to a mining right application is
further elucidated by Secs. 219 and 43 of DENR AO
95-936, which read:
Sec. 219. Filing of Adverse
Claims/Conflicts/Oppositions.- Notwithstanding the
provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said
sections may also be filed directly with the Panel of
Arbitrators within the concerned periods for filing such
claim, protest or opposition as specified in said
Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director
shall also cause the posting of the application on the
bulletin boards of the Bureau, concerned Regional
office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where
the proposed contract area is located once a week for
two (2) consecutive weeks in a language generally
understood in the locality. After forty-five (45) days
from the last date of publication/posting has been
made and no adverse claim, protest or opposition was
filed within the said forty-five (45) days, the concerned
offices shall issue a certification that
publication/posting has been made and that no
adverse claim, protest or opposition of whatever
nature has been filed. On the other hand, if there be
any adverse claim, protest or opposition, the same
shall be filed within forty-five (45) days from the last
date of publication/posting, with the Regional Offices
concerned, or through the Department’s Community
Environment and Natural Resources Officers
(CENRO) or Provincial Environment and Natural
Resources Officers (PENRO), to be filed at the
Regional Office for resolution of the Panel of
Arbitrators. However previously published valid and
subsisting mining claims are exempted from
posted/posting required under this Section.
No mineral agreement shall be approved unless the
requirements under this section are fully complied
with and any opposition/adverse claim is dealt with in
writing by the Director and resolved by the Panel of
Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions
that the "disputes involving rights to mining areas"
under Sec. 77(a) specifically refer only to those
disputes relative to the applications for a mineral
agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims,
protest, or oppositions to a mining right application is
further elucidated by Secs. 219 and 43 of DENRO AO
95-936, which reads:
Sec. 219. Filing of Adverse
Claims/Conflicts/Oppositions.- Notwithstanding the
provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said
sections may also be filed directly with the Panel of
Arbitrators within the concerned periods for filing such
claim, protest or opposition as specified in said
Sections.
Sec. 43. Publication/Posting of Mineral Agreement
Application.-
xxxx
The Regional Director or concerned Regional Director
shall also cause the posting of the application on the
bulletin boards of the Bureau, concerned Regional
office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where
the proposed contract area is located once a week for
two (2) consecutive weeks in a language generally
understood in the locality. After forty-five (45) days
from the last date of publication/posting has been
made and no adverse claim, protest or opposition was
filed within the said forty-five (45) days, the concerned
offices shall issue a certification that
publication/posting has been made and that no
adverse claim, protest or opposition of whatever
nature has been filed. On the other hand, if there be
any adverse claim, protest or opposition, the same
shall be filed within forty-five (45) days from the last
date of publication/posting, with the Regional offices
concerned, or through the Department’s Community
Environment and Natural Resources Officers
(CENRO) or Provincial Environment and Natural
Resources Officers (PENRO), to be filed at the
Regional Office for resolution of the Panel of
Arbitrators. However, previously published valid and
subsisting mining claims are exempted from
posted/posting required under this Section.
No mineral agreement shall be approved unless the
requirements under this section are fully complied
with and any opposition/adverse claim is dealt with in
writing by the Director and resolved by the Panel of
Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power
of the POA to resolve any adverse claim, opposition,
or protest relative to mining rights under Sec. 77(a) of
RA 7942 is confined only to adverse claims, conflicts
and oppositions relating to applications for the grant of
mineral rights.
POA’s jurisdiction is confined only to resolutions of
such adverse claims, conflicts and oppositions and it
has no authority to approve or reject said applications.
Such power is vested in the DENR Secretary upon
recommendation of the MGB Director. Clearly, POA’s
jurisdiction over "disputes involving rights to mining
areas" has nothing to do with the cancellation of
existing mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA
unquestionably has jurisdiction to resolve disputes
over MPSA applications subject of Redmont’s
petitions. However, said jurisdiction does not include
either the approval or rejection of the MPSA
applications, which is vested only upon the Secretary
of the DENR. Thus, the finding of the POA, with
respect to the rejection of petitioners’ MPSA
applications being that they are foreign corporation, is
valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent,
asserts that it is the regular courts, not the POA, that
has jurisdiction over the MPSA applications of
petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is
determined by the statute in force at the time of the
commencement of the action. 54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary
Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.—Regional Trial
Courts shall exercise exclusive original jurisdiction:
1. In all civil actions in which the subject of the
litigation is incapable of pecuniary estimation.
On the other hand, the jurisdiction of POA is
unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.—
x x x Within thirty (30) days, after the
submission of the case by the parties for the
decision, the panel shall have exclusive and
original jurisdiction to hear and decide the
following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or
permits
It is clear that POA has exclusive and original
jurisdiction over any and all disputes involving rights
to mining areas. One such dispute is an MPSA
application to which an adverse claim, protest or
opposition is filed by another interested applicant. In 1âwphi1
the case at bar, the dispute arose or originated from
MPSA applications where petitioners are asserting
their rights to mining areas subject of their respective
MPSA applications. Since respondent filed 3 separate
petitions for the denial of said applications, then a
controversy has developed between the parties and it
is POA’s jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil
actions while what petitioners filed with the DENR
Regional Office or any concerned DENRE or CENRO
are MPSA applications. Thus POA has jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA
applications under the doctrine of primary jurisdiction.
Euro-med Laboratories v. Province of
Batangas elucidates:
55
The doctrine of primary jurisdiction holds that if a case
is such that its determination requires the expertise,
specialized training and knowledge of an
administrative body, relief must first be obtained in an
administrative proceeding before resort to the courts
is had even if the matter may well be within their
proper jurisdiction.
Whatever may be the decision of the POA will
eventually reach the court system via a resort to the
CA and to this Court as a last recourse.
Selling of MBMI’s shares to DMCI
As stated before, petitioners’ Manifestation and
Submission dated October 19, 2012 would want us to
declare the instant petition moot and academic due to
the transfer and conveyance of all the shareholdings
and interests of MBMI to DMCI, a corporation duly
organized and existing under Philippine laws and is at
least 60% Philippine-owned. Petitioners reasoned
56
that they now cannot be considered as foreign-owned;
the transfer of their shares supposedly cured the
"defect" of their previous nationality. They claimed that
their current FTAA contract with the State should
stand since "even wholly-owned foreign corporations
can enter into an FTAA with the State." Petitioners
57
stress that there should no longer be any issue left as
regards their qualification to enter into FTAA contracts
since they are qualified to engage in mining activities
in the Philippines. Thus, whether the "grandfather
rule" or the "control test" is used, the nationalities of
petitioners cannot be doubted since it would pass
both tests.
The sale of the MBMI shareholdings to DMCI does
not have any bearing in the instant case and said fact
should be disregarded. The manifestation can no
longer be considered by us since it is being tackled in
G.R. No. 202877 pending before this Court. Thus,
1âwphi1
the question of whether petitioners, allegedly a
Philippine-owned corporation due to the sale of
MBMI's shareholdings to DMCI, are allowed to enter
into FTAAs with the State is a non-issue in this case.
In ending, the "control test" is still the prevailing mode
of determining whether or not a corporation is a
Filipino corporation, within the ambit of Sec. 2, Art. II
of the 1987 Constitution, entitled to undertake the
exploration, development and utilization of the natural
resources of the Philippines. When in the mind of the
Court there is doubt, based on the attendant facts and
circumstances of the case, in the 60-40 Filipino-equity
ownership in the corporation, then it may apply the
"grandfather rule."
WHEREFORE, premises considered, the instant
petition is DENIED. The assailed Court of Appeals
Decision dated October 1, 2010 and Resolution dated
February 15, 2011 are hereby AFFIRMED.
SO ORDERED.
52
§30, 46 Am Jur 2d – "law relating to
dissolution and termination of partnerships is
applicable to joint ventures"; §17, 46 Am Jur
2d – "In other words, an agreement to
combine money, effort, skill, and knowledge,
and to purchase land for the purpose of
reselling or dealing with it at a profit, is a
partnership agreement, or a joint venture
having in general the legal incidents of a
partnership"; §50, 46 Am Jur 2d – "The
relationship between joint venturers, like that
existing between partners, is fiduciary in
character and imposes upon all the
participants the obligation of loyalty to the joint
concern and of the utmost good faith, fairness,
and honesty in their dealings with each other
with respect to matters pertaining to the
enterprise"; §57 – "It has already been pointed
out that the rights, duties, and liabilities of joint
venturers are governed, in general, by rules
which are similar or analogous to those which
govern the corresponding rights, duties, and
liabilities of partners, except as they are
limited by the fact that the scope of a joint
venture is narrower than that of the ordinary
partnership. As in the case of partners, joint
venturers may be jointly and severally liable to
third parties for the debts of the venture"; §58,
46 Am Jur 2d – "It has also been held that the
liability for torts of parties to a joint venture
agreement is governed by the law applicable
to partnerships."
G.R. No. 134559 December 9, 1999
ANTONIA TORRES assisted by her husband,
ANGELO TORRES; and EMETERIA
BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL
TORRES, respondents.
Civil Law; Contracts; Partnership; The contract
manifested the intention of the parties to form a
partnership.—Under the above-quoted Agreement,
petitioners would contribute property to the
partnership in the form of land which was to be
developed into a subdivision; while respondent would
give, in addition to his industry, the amount needed for
general expenses and other costs. Furthermore, the
income from the said project would be divided
according to the stipulated percentage. Clearly, the
contract manifested the intention of the parties to form
a partnership.
Same; Same; Same; Courts are not authorized to
extricate parties from the necessary consequences of
their acts, and the fact that the contractual stipulations
may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations.—Under
Article 1315 of the Civil Code, contracts bind the
parties not only to what has been expressly stipulated,
but also to all necessary consequences thereof. x x x
It is undisputed that petitioners are educated and are
thus presumed to have understood the terms of the
contract they voluntarily signed. If it was not in
consonance with their expectations, they should have
objected to it and insisted on the provisions they
wanted. Courts are not authorized to extricate parties
from the necessary consequences of their acts, and
the fact that the contractual stipulations may turn out
to be financially disadvantageous will not relieve
parties thereto of their obligations. They cannot now
disavow the relationship formed from such agreement
due to their supposed misunderstanding of its terms.
Same; Same; Same; Parties cannot adopt
inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such
practice.—Petitioners themselves invoke the allegedly
void contract as basis for their claim that respondent
should pay them 60 percent of the value of the
property. They cannot in one breath deny the contract
and in another recognize it, depending on what
momentarily suits their purpose. Parties cannot adopt
inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such
practice.
Same; Same; Sale; Consideration, more properly
denominated as cause, can take different forms, such
as the prestation or promise of a thing or service by
another.—Petitioners also contend that the Joint
Venture Agreement is void under Article 1422 of the
Civil Code, because it is the direct result of an earlier
illegal contract, which was for the sale of the land
without valid consideration. This argument is puerile.
The Joint Venture Agreement clearly states that the
consideration for the sale was the expectation of
profits from the subdivision project. Its first stipulation
states that petitioners did not actually receive
payment for the parcel of land sold to respondent.
Consideration, more properly denominated as cause,
can take different forms, such as the prestation or
promise of a thing or service by another.
Torres vs. Court of Appeals, 320 SCRA 428, G.R. No.
134559 December 9, 1999
 Courts may not extricate parties from the necessary
consequences of their acts. That the terms of a
contract turn out to be financially disadvantageous to
them will not relieve them of their obligations therein.
The lack of an inventory of real property will not ipso
facto release the contracting partners from their
respective obligations to each other arising from acts
executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails

the March 5, 1998 Decision of the Court of
1

Appeals (CA) in CA-GR CV No. 42378 and its June

2

25, 1998 Resolution denying reconsideration. The

assailed Decision affirmed the ruling of the Regional
Trial Court (RTC) of Cebu City in Civil Case No. R-
21208, which disposed as follows:

WHEREFORE, for all the foregoing

considerations, the Court, finding for the
defendant and against the plaintiffs, orders the
dismissal of the plaintiffs complaint. The
counterclaims of the defendant are likewise
ordered dismissed. No pronouncement as to
costs. 3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein

petitioners, entered into a "joint venture agreement"
with Respondent Manuel Torres for the development
of a parcel of land into a subdivision. Pursuant to the
contract, they executed a Deed of Sale covering the
said parcel of land in favor of respondent, who then
had it registered in his name. By mortgaging the
property, respondent obtained from Equitable Bank a
loan of P40,000 which, under the Joint Venture
Agreement, was to be used for the development of
the subdivision. All three of them also agreed to
4

share the proceeds from the sale of the subdivided

lots.

The project did not push through, and the land was
subsequently foreclosed by the bank.

According to petitioners, the project failed because of

"respondent's lack of funds or means and skills." They
add that respondent used the loan not for the
development of the subdivision, but in furtherance of
his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used

the loan to implement the Agreement. With the said
amount, he was able to effect the survey and the
subdivision of the lots. He secured the Lapu Lapu City
Council's approval of the subdivision project which he
advertised in a local newspaper. He also caused the
construction of roads, curbs and gutters. Likewise, he
entered into a contract with an engineering firm for the
building of sixty low-cost housing units and actually
even set up a model house on one of the subdivision
lots. He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project

failed, however, because petitioners and their
relatives had separately caused the annotations of
adverse claims on the title to the land, which
PANGANIBAN, J.: eventually scared away prospective buyers. Despite
his requests, petitioners refused to cause the clearing
of the claims, thereby forcing him to give up on the
project.5
Subsequently, petitioners filed a criminal case for
estafa against respondent and his wife, who were
however acquitted. Thereafter, they filed the present
civil case which, upon respondent's motion, was later
dismissed by the trial court in an Order dated
September 6, 1982. On appeal, however, the
appellate court remanded the case for further
proceedings. Thereafter, the RTC issued its assailed
Decision, which, as earlier stated, was affirmed by the
CA.
Hence, this Petition. 6
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held
that petitioners and respondent had formed a
partnership for the development of the subdivision.
Thus, they must bear the loss suffered by the
partnership in the same proportion as their share in
the profits stipulated in the contract. Disagreeing with
the trial court's pronouncement that losses as well as
profits in a joint venture should be distributed
equally, the CA invoked Article 1797 of the Civil Code
7
which 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.
The CA elucidated further:
In the absence of stipulation, the share of each
partner 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.
The Issue
Petitioners impute to the Court of Appeals the
following error:
. . . [The] Court of Appeals erred in concluding
that the transaction
. . . between the petitioners and respondent was
that of a joint venture/partnership, ignoring
outright the provision of Article 1769, and other
related provisions of the Civil Code of the
Philippines. 8
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership with
respondent. They contend that the Joint Venture
Agreement and the earlier Deed of Sale, both of
which were the bases of the appellate court's finding
of a partnership, were void.
In the same breath, however, they assert that under
those very same contracts, respondent is liable for his
failure to implement the project. Because the
agreement entitled them to receive 60 percent of the
proceeds from the sale of the subdivision lots, they
pray that respondent pay them damages equivalent to
60 percent of the value of the property.9
The pertinent portions of the Joint Venture Agreement
read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at
Cebu City, Philippines, this 5th day of March,
1969, by and between MR. MANUEL R.
TORRES, . . . the FIRST PARTY, likewise,
MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, . . . the SECOND PARTY:
WITNESSETH:
That, whereas, the SECOND PARTY, voluntarily
offered the FIRST PARTY, this property located
at Lapu-Lapu City, Island of Mactan, under Lot
No. 1368 covering TCT No. T-0184 with a total
area of 17,009 square meters, to be sub-divided
by the FIRST PARTY;
Whereas, the FIRST PARTY had given the
SECOND PARTY, the sum of: TWENTY
THOUSAND (P20,000.00) Pesos, Philippine
Currency upon the execution of this contract for
the property entrusted by the SECOND PARTY,
for sub-division projects and development
purposes;
NOW THEREFORE, for and in consideration of
the above covenants and promises herein
contained the respective parties hereto do
hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an
absolute Deed of Sale . . . dated March 5, 1969,
in the amount of TWENTY FIVE THOUSAND
FIVE HUNDRED THIRTEEN & FIFTY CTVS.
(P25,513.50) Philippine Currency, for 1,700
square meters at ONE [PESO] & FIFTY CTVS.
(P1.50) Philippine Currency, in favor of the
FIRST PARTY, but the SECOND PARTY did not
actually receive the payment.
SECOND: That the SECOND PARTY, had
received from the FIRST PARTY, the necessary
amount of TWENTY THOUSAND (P20,000.00)
pesos, Philippine currency, for their personal
obligations and this particular amount will serve
as an advance payment from the FIRST PARTY
for the property mentioned to be sub-divided
and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect
from the SECOND PARTY, the interest and the
 principal amount involving the amount of
TWENTY THOUSAND (P20,000.00) Pesos,
Philippine Currency, until the sub-division
project is terminated and ready for sale to any
interested parties, and the amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine
currency, will be deducted accordingly.
FOURTH: That all general expense[s] and all
cost[s] involved in the sub-division project
should be paid by the FIRST PARTY,
exclusively and all the expenses will not be
deducted from the sales after the development
of the sub-division project.
FIFTH: That the sales of the sub-divided lots will
be divided into SIXTY PERCENTUM 60% for
the SECOND PARTY and FORTY
PERCENTUM 40% for the FIRST PARTY, and
additional profits or whatever income deriving
from the sales will be divided equally according
to the . . . percentage [agreed upon] by both
parties.
SIXTH: That the intended sub-division project of
the property involved will start the work and all
improvements upon the adjacent lots will be
negotiated in both parties['] favor and all sales
shall [be] decided by both parties.
SEVENTH: That the SECOND PARTIES,
should be given an option to get back the
property mentioned provided the amount of
TWENTY THOUSAND (P20,000.00) Pesos,
Philippine Currency, borrowed by the SECOND
PARTY, will be paid in full to the FIRST PARTY,
including all necessary improvements spent by
the FIRST PARTY, and-the FIRST PARTY will
be given a grace period to turnover the property
mentioned above.
That this AGREEMENT shall be binding and
obligatory to the parties who executed same
freely and voluntarily for the uses and purposes
therein stated.10
A reading of the terms embodied in the Agreement
indubitably shows the existence of a partnership
pursuant to Article 1767 of the Civil Code, which
provides:
Art. 1767. By the 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.
Under the above-quoted Agreement, petitioners would
contribute property to the partnership in the form of
land which was to be developed into a subdivision;
while respondent would give, in addition to his
industry, the amount needed for general expenses
and other costs. Furthermore, the income from the
said project would be divided according to the
stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a
partnership.11
It should be stressed that the parties implemented the
contract. Thus, petitioners transferred the title to the
land to facilitate its use in the name of the respondent.
On the other hand, respondent caused the subject
land to be mortgaged, the proceeds of which were
used for the survey and the subdivision of the land. As
noted earlier, he developed the roads, the curbs and
the gutters of the subdivision and entered into a
contract to construct low-cost housing units on the
property.
Respondent's actions clearly belie petitioners'
contention that he made no contribution to the
partnership. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property,
but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind
the parties not only to what has been expressly
stipulated, but also to all necessary consequences
thereof, as follows:
Art. 1315. Contracts are perfected by mere
consent, and from that moment the parties are
bound not only to the fulfillment of what has
been expressly stipulated but also to all the
consequences which, according to their nature,
may be in keeping with good faith, usage and
law.
It is undisputed that petitioners are educated and are
thus presumed to have understood the terms of the
contract they voluntarily signed. If it was not in
consonance with their expectations, they should have
objected to it and insisted on the provisions they
wanted.
Courts are not authorized to extricate parties from the
necessary consequences of their acts, and the fact
that the contractual stipulations may turn out to be
financially disadvantageous will not relieve parties
thereto of their obligations. They cannot now disavow
the relationship formed from such agreement due to
their supposed misunderstanding of its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is
void under Article 1773 of the Civil Code, which
provides:
Art. 1773. A contract of partnership is void,
whenever immovable property is contributed
thereto, if an inventory of said property is not
made, signed by the parties, and attached to
the public instrument.
They contend that since the parties did not make, sign
or attach to the public instrument an inventory of the
real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to
protect third persons. Thus, the eminent Arturo M.
Tolentino states that under the aforecited provision
which is a complement of Article 1771, "The 12
execution of a public instrument would be useless if
there is no inventory of the property contributed,
because without its designation and description, they
cannot be subject to inscription in the Registry of
Property, and their contribution cannot prejudice third
persons. This will result in fraud to those who contract
with the partnership in the belief [in] the efficacy of the
guaranty in which the immovables may consist. Thus,
the contract is declared void by the law when no such
inventory is made." The case at bar does not involve
third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly
void contract as basis for their claim that respondent
should pay them 60 percent of the value of the
property. They cannot in one breath deny the
13
contract and in another recognize it, depending on
what momentarily suits their purpose. Parties cannot
adopt inconsistent positions in regard to a contract
and courts will not tolerate, much less approve, such
practice.
In short, the alleged nullity of the partnership will not
prevent courts from considering the Joint Venture
Agreement an ordinary contract from which the
parties' rights and obligations to each other may be
inferred and enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture
Agreement is void under Article 1422 of the Civil
14
Code, because it is the direct result of an earlier illegal
contract, which was for the sale of the land without
valid consideration.
This argument is puerile. The Joint Venture
Agreement clearly states that the consideration for the
sale was the expectation of profits from the
subdivision project. Its first stipulation states that
petitioners did not actually receive payment for the
parcel of land sold to respondent. Consideration,
more properly denominated as cause, can take
different forms, such as the prestation or promise of a
thing or service by another. 15
In this case, the cause of the contract of sale
consisted not in the stated peso value of the land, but
in the expectation of profits from the subdivision
project, for which the land was intended to be used.
As explained by the trial court, "the land was in effect
given to the partnership as [petitioner's] participation
therein. . . . There was therefore a consideration for
the sale, the [petitioners] acting in the expectation
that, should the venture come into fruition, they
[would] get sixty percent of the net profits."
Liability of the Parties
Claiming that rerpondent was solely responsible for
the failure of the subdivision project, petitioners
maintain that he should be made to pay damages
equivalent to 60 percent of the value of the property,
which was their share in the profits under the Joint
Venture Agreement.
We are not persuaded. True, the Court of Appeals
held that petitioners' acts were not the cause of the
failure of the project. But it also ruled that neither
16
was respondent responsible therefor. In imputing the
17
blame solely to him, petitioners failed to give any
reason why we should disregard the factual findings
of the appellate court relieving him of fault. Verily,
factual issues cannot be resolved in a petition for
review under Rule 45, as in this case. Petitioners
have not alleged, not to say shown, that their Petition
constitutes one of the exceptions to this
doctrine. Accordingly, we find no reversible error in
18
the CA's ruling that petitioners are not entitled to
damages.
WHEREFORE, the Perition is hereby DENIED and
the challenged Decision AFFIRMED. Costs against
petitioners.
SO ORDERED
Melo, Vitug, Purisima and Gonzaga-Reyes, JJ.,
concur.
Footnotes
1 Penned by Justice Ramon U. Mabutas Jr.;
concurred in by Justices Emeterio C. Cui,
Division chairman, and Hilarion L. Aquino,
member.
2 Second Division.
3 CA Decision, p. 1; rollo, p. 15.
4 CA Decision, p. 2; rollo, p. 16.
5 CA Decision, p. 3; rollo, p. 17.
6 The case was deemed submitted for
resolution on September 15, 1999, upon
receipt by the Court of the respective
Memoranda of the respondent and the
petitioners.
7 CA Decision, p. 32; rollo, p. 46.
8 Petition, p. 2; rollo, p. 10.
9 Petitioners' Memorandum, pp. 6-7; rollo, pp.
82-83.
10 CA Decision, pp. 5-6; rollo, pp. 19-20.
11 Jo Chung Cang v. Pacific Commercial Co.,
45 Phil. 142, September 6, 1923.
12 Art. 1771. A partnership may be constituted
in any form, except where immovable property
or real rights are contributed thereto, in which
case a public instrument shall be necessary.
13 Petitioners' Memorandum, pp. 6-7; rollo,
pp. 82-83.
14 Art. 1422. A contract which is the direct
result of a previous illegal contract, is also
void and inexistent.
 15 Art. 1350. In onerous contracts the cause
is understood to be, for each contracting party,
the prestation or promise of a thing or service
by the other; in remuneratory ones, the
service or benefit which is remunerated; and
in contracts of pure beneficence, the mere
liberality of the benefactor.
G.R. No. 148187 April 16, 2008
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 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)
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 petitioner’s 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 agent’s 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 latter’s 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 agent’s
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 one’s 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.
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
Gold’s creditors, we find no reason to depart from the
tax court’s factual finding that Baguio Gold’s debts
were not yet due and demandable at the time that
petitioner paid the same. Verily, petitioner pre-paid
Baguio Gold’s outstanding loans to its bank creditors
and this conclusion is supported by the evidence on
record. 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.
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. 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 Niño 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 petitioner’s
“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.

Same; Taxation; Bad Debt Deductions; 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.—The lower
courts did not err in treating petitioner’s advances as
investments in a partnership known as the Sto. Nino
mine. The advances were not “debts” of Baguio Gold
 DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the June

30, 2000 Decision1 of the Court of Appeals in CA-G.R.
SP No. 49385, which affirmed the Decision2 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 latter’s 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
owner’s 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 owner’s
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 owner’s 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 re-transferred 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 petitioner’s 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 Gold’s tangible
assets to petitioner, transferring to the latter Baguio
Gold’s 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
Gold’s indebtedness to petitioner actually amounted
to P259,137,245.00, which sum included liabilities of
Baguio Gold to other creditors that petitioner had
assumed as guarantor. These liabilities pertained to
long-term loans 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 Gold’s
"pecuniary obligations" to petitioner. It also included
payments made by petitioner as guarantor of Baguio
Gold’s long-term loans which legally entitled petitioner
to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Gold’s
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 petitioner’s
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 project’s 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-1-82-88-003067 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 petitioner’s assertion that the
advances it made for the Sto. Nino mine were in the
nature of a loan. It instead characterized the
advances as petitioner’s 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 petitioner’s 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. Niño
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 owner’s account plus any of
its income that is left in the project, in addition to
its actual mining claim. Meanwhile, petitioner’s
contribution would consist of its expertise in the
management and operation of mines, as well as the
manager’s account which is comprised of P11M in
funds and property and
petitioner’s "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. Niño
project "(w)henever the MANAGERS shall deem it
necessary and convenient in connection with the
MANAGEMENT of the STO. NIÑO MINE."18
The wording of the parties’ agreement as to
petitioner’s 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 petitioner’s 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 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.
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 latter’s 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 agent’s
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 one’s 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 MANAGER’S
account has to the owner’s 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 mine’s 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. Niño 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 manager’s account had to
the owner’s 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 manager’s account had to
the owner’s 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 Niño 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 petitioner’s "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 Niño 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 petitioner’s
"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
petitioner’s 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 Gold’s creditors, we find no reason to depart
from the tax court’s factual finding that Baguio Gold’s
debts were not yet due and demandable at the time
that petitioner paid the same. Verily, petitioner pre-
paid Baguio Gold’s 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 CA-G.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.
Footnotes
15
CIVIL CODE, Art. 1767.
19
CIVIL CODE, Art. 1927. An agency cannot
be revoked if a bilateral contract depends
upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is
appointed manager of a partnership in the
contract of partnership and his removal from
the management is unjustifiable.
Partnership, Agency and Trusts, 1996 Ed.,
20
De Leon and De Leon, Jr., p. 330.
23
CIVIL CODE, Art. 1953.
24
Article 1769 (4) (b) of the Civil Code states:
Art. 1769. In determining whether a
partnership exists, these rules shall
apply:
xxxx
(4) The receipt by a person of a share
of the profits of a business is prima
facie evidence that he is a partner in
the business, but no such inference
shall be drawn if such profits were
received in payment:
xxxx
(b) As wages of an employee or rent
to a landlord;
xxxx
G.R. No. 164205 September 3, 2009
OLDARICO S. TRAVEÑO, ROVEL A. GENELSA,
RUEL U. VILLARMENTE, ALFREDO A.
PANILAGAO, CARMEN P. DANILA, ELIZABETH B.
MACALINO, RAMIL P. ALBITO, REYNALDO A.
LADRILLO, LUCAS G. TAMAYO, DIOSDADO A.
AMORIN, RODINO C. VASQUEZ, GLORIA A.
FELICANO, NOLE E. FERMILAN, JOSELITO B.
RENDON, CRISTETA D. CAÑA, EVELYN D.
ARCENAL and JEORGE M. NONO, Petitioners,
vs.
BOBONGON BANANA GROWERS MULTI-
PURPOSE COOPERATIVE, TIMOG
AGRICULTURAL CORPORATION, DIAMOND
FARMS, INC., and DOLE ASIA
PHILIPPINES, Respondents.
Actions; Pleadings and Practice; Guidelines
respecting non-compliance with the requirements on,
or submission of defective, verification and
certification against forum shopping.—Respecting the
appellate court’s dismissal of petitioners’ appeal due
to the failure of some of them to sign the therein
accompanying verification and certification against
forum-shopping, the Court’s guidelines for the bench
and bar in Altres v. Empleo (573 SCRA 583 [2008]),
which were culled “from jurisprudential
pronouncements,” are instructive: For the guidance of
the bench and bar, the Court restates in capsule form
the jurisprudential pronouncements already reflected
above respecting non-compliance with the
requirements on, or submission of defective,
verification and certification against forum shopping:
1) A distinction must be made between non-
compliance with the requirement on or submission of
defective verification, and non-compliance with the
requirement on or submission of defective certification
against forum shopping. 2) As to verification, non-
compliance therewith or a defect therein does not
necessarily render the pleading fatally defective. The
court may order its submission or correction or act on
the pleading if the attending circumstances are such
that strict compliance with the Rule may be dispensed
with in order that the ends of justice may be served
thereby. 3) Verification is deemed substantially
complied with when one who has ample knowledge to
swear to the truth of the allegations in the complaint or
petition signs the verification, and when matters
alleged in the petition have been made in good faith
or are true and correct. 4) As to certification against
forum shopping, non-compliance therewith or a defect
therein, unlike in verification, is generally not curable
by its subsequent submission or correction thereof,
unless there is a need to relax the Rule on the ground
of “substantial compliance” or presence of “special
circumstances or compelling reasons.” 5) The
certification against forum shopping must be signed
by all the plaintiffs or petitioners in a case; otherwise,
those who did not sign will be dropped as parties to
the case. Under reasonable or justifiable
circumstances, however, as when all the plaintiffs or
petitioners share a common interest and invoke a
common cause of action or defense, the signature of
only one of them in the certification against forum
shopping substantially complies with the Rule. 6)
Finally, the certification against forum shopping must
be executed by the party-pleader, not by his counsel.
If, however, for reasonable or justifiable reasons, the
party-pleader is unable to sign, he must execute a
Special Power of Attorney designating his counsel of Same; Social Justice; The social justice policy of labor
record to sign on his behalf. laws and the Constitution is not meant to be
oppressive of capital.—While the Court commiserates
Labor Law; Cooperatives; Job Contracting; Words with petitioners on their loss of employment,
and Phrases; Job contracting or subcontracting refers especially now that the Cooperative is no longer a
to an arrangement whereby a principal agrees to farm going concern, it cannot simply, by default, hold the
out with a contractor or subcontractor the Cooperative’s co-respondents liable for their claims
performance of a specific job, work or service within a without any factual and legal justification therefor. The
definite or predetermined period, regardless of social justice policy of labor laws and the Constitution
whether such job, work or service is to be performed is not meant to be oppressive of capital. Traveño vs.
or completed within or outside the premises of the Bobongan Banana Growers Multi-Purpose
principal.—The matter of whether the Cooperative is Cooperative, 598 SCRA 27, G.R. No. 164205
an independent contractor or a labor-only contractor September 3, 2009
may not be used to predicate a ruling in this case. Job
contracting or subcontracting refers to an
arrangement whereby a principal agrees to farm out
with a contractor or subcontractor the performance of
a specific job, work or service within a definite or
predetermined period, regardless of whether such job,
work or service is to be performed or completed within
or outside the premises of the principal. The present
case does not involve such an arrangement.

Same; Same; Same; The rules on job contracting are

inapposite where the contract, far from being a job
contracting arrangement, is in essence a business
partnership that partakes of the nature of a joint
venture.—DFI did not farm out to the Cooperative the
performance of a specific job, work, or service.
Instead, it entered into a Banana Production and
Purchase Agreement (Contract) with the Cooperative,
under which the Cooperative would handle and fund
the production of bananas and operation of the
plantation covering lands owned by its members in
consideration of DFI’s commitment to provide financial
and technical assistance as needed, including the
supply of information and equipment in growing,
packing, and shipping bananas. The Cooperative
would hire its own workers and pay their wages and
benefits, and sell exclusively to DFI all export quality
bananas produced that meet the specifications
agreed upon. To the Court, the Contract between the
Cooperative and DFI, far from being a job contracting
arrangement, is in essence a business partnership
that partakes of the nature of a joint venture. The
rules on job contracting are, therefore, inapposite. The
Court may not alter the intention of the contracting
parties as gleaned from their stipulations without
violating the autonomy of contracts principle under
Article 1306 of the Civil Code which gives the
contracting parties the utmost liberality and freedom
to establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided
they are not contrary to law, morals, good custom,
public order or public policy.

Same; Labor Standards; Job Contracting; Employer-

Employee Relationship; Standards.—Petitioners’
claim of employment relationship with the
Cooperative’s herein co-respondents must be
assessed on the basis of four standards, viz.: (a) the
manner of their selection and engagement; (b) the
mode of payment of their wages; (c) the presence or
absence of the power of dismissal; and (d) the
presence or absence of control over their conduct.
Most determinative among these factors is the so-
called “control test.” There is nothing in the records
which indicates the presence of any of the foregoing
elements of an employer-employee relationship.
 DECISION

CARPIO MORALES, J.:

By the account of petitioner Oldarico Traveño and his

16 co-petitioners, in 1992, respondent Timog
Agricultural Corporation (TACOR) and respondent
Diamond Farms, Inc. (DFI) hired them to work at a
banana plantation at Bobongon, Santo Tomas, Davao
Del Norte which covered lands previously planted with
rice and corn but whose owners had agreed to
convert into a banana plantation upon being
convinced that TACOR and DFI could provide the
needed capital, expertise, and equipment. Petitioners
helped prepare the lands for the planting of banana
suckers and eventually carried out the planting as
well.1

Petitioners asseverated that while they worked under

the direct control of supervisors assigned by TACOR
and DFI, these companies used different schemes to
make it appear that petitioners were hired through
independent contractors, including individuals,
unregistered associations, and cooperatives; that the
successive changes in the names of their employers
notwithstanding, they continued to perform the same
work under the direct control of TACOR and DFI
supervisors; and that under the last scheme adopted
by these companies, the nominal individual
contractors were required to, as they did, join a
cooperative and thus became members of respondent
Bobongon Banana Growers Multi-purpose
Cooperative (the Cooperative).2

Continued petitioners: Sometime in 2000, above-

named respondents began utilizing harassment
tactics to ease them out of their jobs. Without first
seeking the approval of the Department of Labor and
Employment (DOLE), they changed their
compensation package from being based on a daily
rate to a pakyawan rate that depended on the
combined productivity of the "gangs" they had been
grouped into. Soon thereafter, they stopped paying
their salaries, prompting them to stop working.3

One after another, three separate complaints for

illegal dismissal were filed by petitioners, individually
and collectively, with the National Labor Relations
Commission (NLRC) against said respondents
including respondent Dole Asia Philippines as it then
supposedly owned TACOR,4 for unpaid salaries,
overtime pay, 13th month pay, service incentive leave
pay, damages, and attorney’s fees.5

DFI answered for itself and TACOR, which it claimed

had been merged with it and ceased to exist as a
corporation. Denying that it had engaged the services
of petitioners,6 DFI alleged that during the corporate
lifetime of TACOR, it had an arrangement with several
landowners in Santo Tomas, Davao Del Norte
whereby TACOR was to extend financial and
technical assistance to them for the development of
their lands into a banana plantation on the condition
that the bananas produced therein would be sold
exclusively to TACOR; that the landowners worked on
their own farms and hired laborers to assist them; that
the landowners themselves decided to form a
cooperative in order to better attain their business
objectives; and that it was not in a position to state
whether petitioners were working on the banana
plantation of the landowners who had contracted with
TACOR.7 a1f
The Cooperative failed to file a position paper despite
due notice, prompting the Labor Arbiter to consider it
to have waived its right to adduce evidence in its
defense.
Nothing was heard from respondent Dole Asia
Philippines.
By consolidated Decision dated October 30,
2002,8 the Labor Arbiter, found respondent
Cooperative guilty of illegal dismissal. It dropped the
complaints against DFI, TACOR and Dole Asia
Philippines. Thus it disposed:
WHEREFORE, judgment is hereby rendered:
1. Declaring respondent Bobongon Banana
Growers Multi-purpose Cooperative guilty of
illegal dismissal;
2. Ordering respondent Bobongon Banana
Growers Multi-purpose Cooperative to pay
complainants full backwages from the time of
their illegal dismissal up to this promulgation,
to be determined during the execution stage;
3. Ordering respondent Bobongon Banana
Growers Multi-purpose Cooperative
to reinstate complainants to their former
positions without loss of seniority rights and if
not possible, to pay them separation pay
equivalent to 1/2 month pay for every year of
service;
4. Ordering respondent Bobongon Banana
Grower Cooperative [sic] to pay 10% of the
total award as Attorney’s fees;
5. All other respondents are hereby dropped
as party-respondents for lack of merit.
(Underscoring supplied)
In finding for petitioners, the Labor Arbiter relied
heavily on the following Orders submitted by DFI
which were issued in an earlier case filed with the
DOLE, viz: (1) Order dated July 11, 1995 of the
Director of DOLE Regional Office No. XI declaring the
Cooperative as the employer of the 341 workers in the
farms of its several members; (2) Order dated
December 17, 1997 of the DOLE Secretary affirming
the Order dated July 11, 1995 of the Director of DOLE
Regional Office No. XI; and (3) Order dated June 23,
1998 of the DOLE Secretary denying the
Cooperative’s Motion for Reconsideration.
On partial appeal to the NLRC, petitioners questioned
the Labor Arbiter’s denial of their money claims and
the dropping of their complaints against TACOR, DFI,
and Dole Asia Philippines.
By Resolution dated July 30, 2003, the NLRC
9
sustained the Labor Arbiter’s ruling that the employer
of petitioners is the Cooperative, there being no
showing that the earlier mentioned Orders of the
DOLE Secretary had been set aside by a court of
competent jurisdiction. It partially granted petitioners’
appeal, however, by ordering the Cooperative to pay
them their unpaid wages, wage differentials, service
incentive leave pay, and 13th month pay. It thus
remanded the case to the Labor Arbiter for
computation of those awards.
Their Motion for Reconsideration having been denied
by Resolution of September 30, 2003,10 petitioners
appealed to the Court of Appeals via certiorari.11
By Resolution dated February 20, 2004,12 the
appellate court dismissed petitioners’ petition for
certiorari on the ground that the accompanying
verification and certification against forum shopping
was defective, it having been signed by only 19 of the
22 therein named petitioners. Their Motion for
Reconsideration having been denied by Resolution of
May 13, 2004,13 petitioners lodged the present Petition
for Review on Certiorari.
Petitioners posit that the appellate court erred in
dismissing their petition on a mere technicality as it
should have, at most, dismissed the petition only with
respect to the non-signing petitioners.
Dwelling on the merits of the case, petitioners posit
that the Labor Arbiter and the NLRC disregarded
evidence on record showing that while the
Cooperative was their employer on paper, the other
respondents exercised control and supervision over
them; that the Cooperative was a labor-only
contractor; and that the Orders of the DOLE Secretary
relied upon by the Labor Arbiter and the NLRC are not
applicable to them as the same pertained to a
certification election case involving different parties
and issues.14
DFI, commenting for itself and TACOR, maintains
that, among other things, it was not the employer of
petitioners; and that it cannot comment on their
money claims because no evidence was submitted in
support thereof.15
It appears that respondent Cooperative had been
dissolved.16
As respondent Dole Asia Philippines failed to file a
comment, the Court, by Resolution of November 29,
2006,17required it to (1) show cause why it should not
be held in contempt for its failure to heed the Court’s
directive, and (2) file the required comment, within 10
days from notice.
Dole Philippines, Inc. (DPI) promptly filed an Urgent
Manifestation18 stating that, among other things, while
its division located in Davao City received the Court’s
Resolution directing Dole Asia Philippines to file a
comment on the present petition, DPI did not file a
comment as the directive was addressed to "Dole
Asia Philippines", an entity which is not registered at
the Securities and Exchange Commission.
Commenting on DPI’s Urgent Manifestation,
petitioners contend that DPI cannot be allowed to take
advantage of their lack of knowledge as to its exact
corporate name, DPI having raised the matter for the
first time before this Court notwithstanding its receipt
of all pleadings and court processes from the
inception of this case.19
Upon review of the records, the Court finds that DPI
never ever participated in the proceedings despite
due notice. Its posturing, therefore, that the court
processes it received were addressed to "Dole Asia
Philippines," a non-existent entity, does not lie. That
DPI is the intended respondent, there is no doubt.
Respecting the appellate court’s dismissal of
petitioners’ appeal due to the failure of some of them
to sign the therein accompanying verification and
certification against forum-shopping, the Court’s
guidelines for the bench and bar in Altres v.
Empleo,20 which were culled "from jurisprudential
pronouncements," are instructive:
For the guidance of the bench and bar, the
Court restates in capsule form the jurisprudential
pronouncements already reflected above respecting
non-compliance with the requirements on, or
submission of defective, verification and certification
against forum shopping:
1) A distinction must be made between non-
compliance with the requirement on or
submission of defective verification, and non-
compliance with the requirement on or
submission of defective certification against
forum shopping.
2) As to verification, non-compliance therewith
or a defect therein does not necessarily
render the pleading fatally defective. The court
may order its submission or correction or act
on the pleading if the attending circumstances
are such that strict compliance with the Rule
may be dispensed with in order that the ends
of justice may be served thereby.
3) Verification is deemed substantially
complied with when one who has ample
knowledge to swear to the truth of the
allegations in the complaint or petition signs
the verification, and when matters alleged in
the petition have been made in good faith or
are true and correct.
4) As to certification against forum shopping,
non-compliance therewith or a defect therein,
unlike in verification, is generally not curable
by its subsequent submission or correction
thereof, unless there is a need to relax the
Rule on the ground of "substantial
compliance" or presence of "special
circumstances or compelling reasons."
5) The certification against forum shopping
must be signed by all the plaintiffs or
petitioners in a case; otherwise, those who did
not sign will be dropped as parties to the case.
Under reasonable or justifiable circumstances,
however, as when all the plaintiffs or
petitioners share a common interest and
invoke a common cause of action or defense,
the signature of only one of them in the
certification against forum shopping
substantially complies with the Rule.
6) Finally, the certification against forum
shopping must be executed by the party-
pleader, not by his counsel. If, however, for
reasonable or justifiable reasons, the party-
pleader is unable to sign, he must execute a
Special Power of Attorney designating his
counsel of record to sign on his behalf.
(Emphasis and underscoring supplied)
The foregoing restated pronouncements were lost in
the challenged Resolutions of the appellate court.
Petitioners’ contention that the appellate court should
have dismissed the petition only as to the non-signing
petitioners or merely dropped them as parties to the
case is thus in order.
Instead of remanding the case to the appellate court,
however, the Court deems it more practical to decide
the substantive issue raised in this petition so as not
to further delay the disposition of this case.21 And it
thus resolves to deviate as well from the general rule
that factual questions are not entertained in petitions
for review on certiorari of the appellate court’s
decisions in order to write finis to this protracted
litigation.
The sole issue is whether DFI (with which TACOR
had been merged) and DPI should be held solidarily
liable with the Cooperative for petitioners’ illegal
dismissal and money claims.
The Labor Code and its Implementing Rules empower
the Labor Arbiter to be the trier of facts in labor
cases.22Much reliance is thus placed on the Arbiter’s
findings of fact, having had the opportunity to discuss
with the parties and their witnesses the factual
matters of the case during the conciliation
phase.23 Just the same, a review of the records of the
present case does not warrant a conclusion different
from the Arbiter’s, as affirmed by the NLRC, that the
Cooperative is the employer of petitioners.
To be sure, the matter of whether the Cooperative is
an independent contractor or a labor-only contractor
may not be used to predicate a ruling in this case. Job
contracting or subcontracting refers to an
arrangement whereby a principal agrees to farm out
with a contractor or subcontractor the performance of
a specific job, work or service within a definite or
predetermined period, regardless of whether such job,
work or service is to be performed or completed within
or outside the premises of the principal.24 The present
case does not involve such an arrangement.
DFI did not farm out to the Cooperative the
performance of a specific job, work, or service.
Instead, it entered into a Banana Production and
Purchase Agreement25 (Contract) with the
Cooperative, under which the Cooperative would
handle and fund the production of bananas and
operation of the plantation covering lands owned by
its members in consideration of DFI’s commitment to
provide financial and technical assistance as needed,
including the supply of information and equipment in
growing, packing, and shipping bananas. The
Cooperative would hire its own workers and pay their
wages and benefits, and sell exclusively to DFI all
export quality bananas produced that meet the
specifications agreed upon.
To the Court, the Contract between the Cooperative
and DFI, far from being a job contracting
arrangement, is in essence a business partnership
that partakes of the nature of a joint venture.26 The
rules on job contracting are, therefore, inapposite. The
Court may not alter the intention of the contracting
parties as gleaned from their stipulations without
violating the autonomy of contracts principle under
Article 1306 of the Civil Code which gives the
contracting parties the utmost liberality and freedom
to establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided
they are not contrary to law, morals, good custom,
public order or public policy.
Petitioners’ claim of employment relationship with the
Cooperative’s herein co-respondents must be
assessed on the basis of four standards, viz: (a) the
manner of their selection and engagement; (b) the
mode of payment of their wages; (c) the presence or
absence of the power of dismissal; and (d) the
presence or absence of control over their conduct.
Most determinative among these factors is the so-
called "control test."27
There being no employer-employee relationship
between petitioners and the Cooperative’s co-
respondents, the latter are not solidarily liable with the
Cooperative for petitioners’ illegal dismissal and
money claims.
While the Court commiserates with petitioners on their
loss of employment, especially now that the
Cooperative is no longer a going concern, it cannot
simply, by default, hold the Cooperative’s co-
respondents liable for their claims without any factual
and legal justification therefor. The social justice policy
of labor laws and the Constitution is not meant to be
oppressive of capital.
En passant, petitioners are not precluded from
pursuing any available remedies against the former
members of the defunct Cooperative as their
individual circumstances may warrant.
WHEREFORE, the petition is DISMISSED.

There is nothing in the records which indicates the

presence of any of the foregoing elements of an
employer-employee relationship.

The absence of the first requisite, which refers to

selection and engagement, is shown by DFI’s total
lack of knowledge on who actually were engaged by
the Cooperative to work in the banana plantation. This
is borne out by the Contract between the Cooperative
and DFI, under which the Cooperative was to hire its
own workers. As TACOR had been merged with DFI,
and DPI is merely alleged to have previously owned
TACOR, this applies to them as well. Petitioners failed
to prove the contrary. No employment contract
whatsoever was submitted to substantiate how
petitioners were hired and by whom.

On the second requisite, which refers to the payment

of wages, it was likewise the Cooperative that paid the
same. As reflected earlier, under the Contract, the
Cooperative was to handle and fund the production of
bananas and operation of the plantation.28 The
Cooperative was also to be responsible for the proper
conduct, safety, benefits, and general welfare of its
members and workers in the plantation.29

As to the third requisite, which refers to the power of

dismissal, and the fourth requisite, which refers to the
power of control, both were retained by the
Cooperative. Again, the Contract stipulated that the
Cooperative was to be responsible for the proper
conduct and general welfare of its members and
workers in the plantation.

The crucial element of control refers to the authority of

the employer to control the employee not only with
regard to the result of the work to be done, but also to
the means and methods by which the work is to be
accomplished.30While it suffices that the power of
control exists, albeit not actually exercised, there must
be some evidence of such power. In the present case,
petitioners did not present any.
[G.R. No. 174149 : September 08, 2010]

J. TIOSEJO INVESTMENT CORP., PETITIONER,

VS. SPOUSES BENJAMIN AND ELEANOR ANG,
RESPONDENTS.

Remedial Law; Appeals; The perfection of an appeal

in the manner and within the period prescribed by law
is not only mandatory but jurisdictional; Considering
that they are requirements which cannot be trifled with
as mere technicality to suit the interest of a party,
failure to perfect an appeal in the prescribed manner
has the effect of rendering the judgment final and
executory.—While the dismissal of an appeal on
purely technical grounds is concededly frowned upon,
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. 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. The perfection of an appeal
in the manner and within the period prescribed by law
is, in fact, not only mandatory but jurisdictional.
Considering that they are requirements which cannot
be trifled with as mere technicality to suit the interest
of a party, failure to perfect an appeal in the
prescribed manner has the effect of rendering the
judgment final and executory.

Same; Same; 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.—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 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. 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, moreover, lawyers cannot expect that their
motions for extension or postponement will be granted
as a matter of course.

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.
J. Tiosejo Investment Corp. vs. Ang, 630 SCRA 334,
G.R. No. 174149 September 8, 2010
DECISION
PEREZ, J.:
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
Meditelon the former's 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
executedContract 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
attorney's 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 on-
going 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 attorney's fees and litigation
expenses.[11]
Petitioner also specifically denied the material
allegations of the complaint in separate answer dated
5 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,
attorney's 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 of P75,000.00; (c) attorney's 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]nbsp; Elevated to the
HLURB Board of Commissioners via the petition for
review filed by petitioner,[16] the foregoing decision
was modified to grant the latter's cross-claim in the 14
September 2004 decision rendered by said
administrative body's 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. Attorney's 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 petitioner's 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 petitioner's appeal on the ground that the
latter's 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 former's 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]
Petitioner's motion for reconsideration of the foregoing
resolution[36] was denied for lack of merit in the CA's
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 PRESIDENT'S
DECISION (A) DISMISSING JTIC'S APPEAL
ON A MERE TECHNICALITY; (B)
AFFIRMING THE HLURB BOARD'S
DECISION INSOFAR AS IT FOUND JTIC
SOLIDARILY LIABLE WITH PRIMETOWN
TO PAY SPOUSES ANG DAMAGES,
ATTORNEY'S FEES AND THE COST OF
THE SUIT; AND (C) AFFIRMING THE
HLURB BOARD'S DECISION INSOFAR AS
IT FAILED TO AWARD JITC ITS
COUNTERCLAIMS AGAINST SPOUSES
ANG.[38]
The Court's 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 Procedureprovides 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 petitioner's 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, petitioner's 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 counsel's 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.

G.R. No. 167379 June 27, 2006

PRIMELINK PROPERTIES AND DEVELOPMENT

CORPORATION and RAFAELITO W.
LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN
T. LAZATIN, JAIME TEODORO T. LAZATIN and
JOSE MARCOS T. LAZATIN, Respondents.

Actions; Pleadings and Practice; A pleading may add

as general prayer for such further or other relief as
may be deemed just and equitable—the prayer in the
complaint for other reliefs equitable and just in the
premises justifies the grant of a relief not otherwise
. specifically prayed for.—We agree with petitioners
that respondents did not specifically pray in their
complaint below that possession of the improvements
on the parcels of land which they contributed to the
JVA be transferred to them. Respondents made a
specific prayer in their complaint that, upon the
rescission of the JVA, they be placed in possession of
the parcels of land subject of the agreement, and for
other “reliefs and such other remedies as are just and
equitable in the premises.” However, the trial court
was not precluded from awarding possession of the
improvements on the parcels of land to respondents
in its decision. Section 2(c), Rule 7 of the Rules of
Court provides that a pleading shall specify the relief
sought but it may add as general prayer for such
further or other relief as may be deemed just and
equitable. Even without the prayer for a specific
remedy, proper relief may be granted by the court if
the facts alleged in the complaint and the evidence
introduced so warrant. The court shall grant relief
warranted by the allegations and the proof even if no
such relief is prayed for. The prayer in the complaint
for other reliefs equitable and just in the premises
justifies the grant of a relief not otherwise specifically
prayed for.

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 Court’s 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
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under
Rule 45 of the 1997 Rules of Civil Procedure of the
Decision1of the Court of Appeals (CA) in CA-G.R. CV
No. 69200 and its Resolution2 denying petitioners’
motion for reconsideration thereof.
The factual and procedural antecedents are as
follows:
Primelink Properties and Development Corporation
(Primelink for brevity) is a domestic corporation
engaged in real estate development. Rafaelito W.
Lopez is its President and Chief Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose
Serafin T. Lazatin, Jaime T. Lazatin and Jose Marcos
T. Lazatin (the Lazatins for brevity), are co-owners of
two (2) adjoining parcels of land, with a combined
area of 30,000 square meters, located in Tagaytay
City and covered by Transfer Certificate of Title (TCT)
No. T-108484 of the Register of Deeds of Tagaytay
City.
On March 10, 1994, the Lazatins and Primelink,
represented by Lopez, in his capacity as President,
entered into a Joint Venture Agreement5 (JVA) for the
development of the aforementioned property into a
residential subdivision to be known as "Tagaytay
Garden Villas." Under the JVA, the Lazatin siblings
obliged themselves to contribute the two parcels of
land as their share in the joint venture. For its part,
Primelink undertook to contribute money, labor,
personnel, machineries, equipment, contractor’s pool,
marketing activities, managerial expertise and other
needed resources to develop the property and
construct therein the units for sale to the public.
Specifically, Primelink bound itself to accomplish the
following, upon the execution of the deed:
a.) Survey the land, and prepare the projects
master plans, engineering designs, structural
and architectural plans, site development
plans, and such other need plans in
accordance with existing laws and the rules
 and regulations of appropriate government income of the Joint Venture project, after
institutions, firms or agencies; deducting all the above-mentioned expenses.8

b.) Secure and pay for all the licenses, permits Primelink submitted to the Lazatins its Projection of
and clearances needed for the projects; the Sales-Income-Cost of the project:

c.) Furnish all materials, equipment, labor and SALES-INCOME-COST PROJECTION

services for the development of the land in
preparation for the construction and sale of
lawphil.net

SELLIN COST DIFFER INCOME

the different types of units (single-detached,
G PRICE ENCE
duplex/twin, cluster and row house);
PRICE
d.) Guarantee completion of the land CLUSTER:
development work if not prevented by force
majeure or fortuitous event or by competent A1 A2 1,940,
P 46,560,0
authority, or other unavoidable circumstances 3,200 - 1,260,0 = 000 x =
00.00
beyond the DEVELOPER’S control, not to ,000 00 24
exceed three years from the date of the TWIN:
signing of this Joint Venture Agreement,
except the installation of the electrical facilities B1 1,540,
B2 36,960,00
which is solely MERALCO’S responsibility; 2,500 - = 000 x =
960,000 0.00
,000 24
e.) Provide necessary manpower resources, SINGLE:
like executive and managerial officers, support
personnel and marketing staff, to handle all C1 C2 2,100,
33,600,00
services related to land and housing 3,500 - 1,400,0 = 000 x =
0.00
development (administrative and construction) ,000 00 16
and marketing (sales, advertising and
promotions).6 ROW-TYPE
TOWNHOMES:
The Lazatins and Primelink covenanted that they shall D1
D2 900,00 21,600,00
be entitled to draw allowances/advances as follows: 1,600 - = =
700,000 0 x 24 0.00
,000
1. During the first two years of the Project, the
DEVELOPER and the LANDOWNER can
draw allowances or make advances not ₱138,720,
exceeding a total of twenty percent (20%) of 000.00
the net revenue for that period, on the basis of (GRO Total Cash Price ₱231,200,
sixty percent (60%) for the DEVELOPER and =
SS) (A1+B1+C1+D1) 000.00
forty percent (40%) for the LANDOWNERS.
Total Building
92,480,00
The drawing allowances/advances are limited Expense =
0.00
to twenty percent (20%) of the net revenue for (A2+B2+C2+D2)
the first two years, in order to have sufficient COMPUTATION OF ADD’L. INCOME ON
reserves or funds to protect and/or guarantee INTEREST
the construction and completion of the
different types of units mentioned above. TCP
x P 69,36 P 69,360,0
=
2. After two years, the DEVELOPER and the 30% 0,000 00.00
LANDOWNERS shall be entitled to drawing D/P
allowances and/or advances equivalent to Balan
sixty percent (60%) and forty percent (40%), 161,840
ce = =
respectively, of the total net revenue or ,000
70%
income of the sale of the units.7
x.
P238,40 238,409,7
They also agreed to share in the profits from the joint 0306 =
9,740 40.00
venture, thus: 9 x 48
P307,769,
1. The DEVELOPER shall be entitled to sixty Total Amount (TCP + int. earn.)
740.00
percent (60%) of the net revenue or income of
the Joint Venture project, after deducting all EXPENSES:
expenses incurred in connection with the land
development (such as administrative less: P 92,480,0
Building expenses
management and construction expenses), and A 00.00
marketing (such as sales, advertising and Commission (8% of 18,496,00
promotions), and B
TCP) 0.00

2. The LANDOWNERS shall be entitled to Admin. & Mgmt. 4,624,000.

C
forty percent (40%) of the net revenue or expenses (2% of TCP) 00
 Advertising & Promo 4,624,000. in these condition: (aa) single detached, one
D completed and two units uncompleted; (bb) cluster
exp. (2% of TCP) 00
houses, one unit nearing completion; (cc) duplex, two
E Building expenses for units completed and two units unfinished; and (dd)
the open row houses, two units, completed; (b) in Phase II
spaces and Amenities thereof, all that was done by the defendants was to
(Development grade the area; the units so far constructed had been
cost not incl. Housing) 12,000,00 the object of numerous complaints by their
400 x 30,000 sqms. 0.00 owners/purchasers for poor workmanship and the use
of sub-standard materials in their construction, thus,
undermining the project’s marketability. Plaintiffs also
TOTAL EXPENSES P132,224, alleged that defendants had, without justifiable
(A+B+C+D+E) 000.00 reason, completely disregarded previously agreed
RECONCILIATION OF INCOME VS. accounting and auditing procedures, checks and
EXPENSES balances system installed for the mutual protection of
both parties, and the scheduled regular meetings
Total Projected Income (incl. P307,769, were seldom held to the detriment and disadvantage
income from interest earn.) 740.00 of plaintiffs. They averred that they sent a letter
through counsel, demanding compliance of what was
agreed upon under the agreement but defendants
132,224,0 refused to heed said demand. After a succession of
less:
00.00 letters with still no action from defendants, plaintiffs
P175,545, sent a letter on October 22, 1997, a letter formally
Total Expenses rescinding the JVA.
740.009

Plaintiffs also claimed that in a sales-income-costs

The parties agreed that any unsettled or unresolved
projection prepared and submitted by defendants,
misunderstanding or conflicting opinions between the
they (plaintiffs) stood to receive the amount
parties relative to the interpretation, scope and reach,
of P70,218,296.00 as their net share in the joint
and the enforcement/implementation of any provision
venture project; to date, however, after almost four (4)
of the agreement shall be referred to Voluntary
years and despite the undertaking in the JVA that
Arbitration in accordance with the Arbitration Law.10
plaintiffs shall initially get 20% of the agreed net
revenue during the first two (2) years (on the basis of
The Lazatins agreed to subject the title over the the 60%-40% sharing) and their full 40% share
subject property to an escrow agreement. thereafter, defendants had yet to deliver these shares
Conformably with the escrow agreement, the owner’s to plaintiffs which by conservative estimates would
duplicate of the title was deposited with the China amount to no less than P40,000,000.00.15
Banking Corporation.11 However, Primelink failed to
immediately secure a Development Permit from
Plaintiffs prayed that, after due proceedings, judgment
Tagaytay City, and applied the permit only on August
be rendered in their favor, thus:
30, 1995. On October 12, 1995, the City issued a
Development Permit to Primelink.12
WHEREFORE, it is respectfully prayed of this
Honorable Court that a temporary restraining order be
In a Letter13 dated April 10, 1997, the Lazatins,
forthwith issued enjoining the defendants to
through counsel, demanded that Primelink comply
immediately stop their land development, construction
with its obligations under the JVA, otherwise the
and marketing of the housing units in the aforesaid
appropriate action would be filed against it to protect
project; after due proceedings, to issue a writ of
their rights and interests. This impelled the officers of
preliminary injunction enjoining and prohibiting said
Primelink to meet with the Lazatins and enabled the
land development, construction and marketing of
latter to review its business records/papers. In another
housing units, pending the disposition of the instant
Letter14 dated October 22, 1997, the Lazatins informed
case.
Primelink that they had decided to rescind the JVA
effective upon its receipt of the said letter. The
Lazatins demanded that Primelink cease and desist After trial, a decision be rendered:
from further developing the property.
1. Rescinding the Joint Venture Agreement
Subsequently, on January 19, 1998, the Lazatins filed, executed between the plaintiffs and the
with the Regional Trial Court (RTC) of Tagaytay City, defendants;
Branch 18, a complaint for rescission accounting and
damages, with prayer for temporary restraining order 2. Immediately restoring to the plaintiffs
and/or preliminary injunction against Primelink and possession of the subject parcels of land;
Lopez. The case was docketed as Civil Case No. TG-
1776. Plaintiffs alleged, among others, that, despite 3. Ordering the defendants to render an
the lapse of almost four (4) years from the execution accounting of all income generated as well as
of the JVA and the delivery of the title and possession expenses incurred and disbursement made in
of the land to defendants, the land development connection with the project;
aspect of the project had not yet been completed, and
the construction of the housing units had not yet made 4. Making the Writ of Preliminary Injunction
any headway, based on the following facts, namely: permanent;
(a) of the 50 housing units programmed for Phase I,
only the following types of houses appear on the site
 5. Ordering the defendants, jointly and
severally, to pay the plaintiffs the amount Forty
Million Pesos (P40,000,000.00) in actual
and/or compensatory damages;
6. Ordering the defendants, jointly and
severally, to pay the plaintiffs the amount of
Two Million Pesos (P2,000,000.00) in
exemplary damages;
7. Ordering the defendants, jointly and
severally, to pay the plaintiffs the amount
equivalent to ten percent (10%) of the total
amount due as and for attorney’s fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable
are likewise being prayed for.16
Defendants opposed plaintiffs’ plea for a writ of
preliminary injunction on the ground that plaintiffs’
complaint was premature, due to their failure to refer
their complaint to a Voluntary Arbitrator pursuant to
the JVA in relation to Section 2 of Republic Act No.
876 before filing their complaint in the RTC. They
prayed for the dismissal of the complaint under
Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order
be issued:
a) dismissing the Complaint on the basis of
Section 1(j), Rule 16 of the aforecited Rules of
Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory
step for arbitration by filing the demand to
arbitrate, and then asking the parties to
resolve their controversies, pursuant to the
Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in
captioned case until the completion of the
arbitration, and
d) denying the plaintiffs’ prayer for the
issuance of a temporary restraining order or
writ of preliminary injunction.
Other reliefs and remedies just and equitable in the
premises are prayed for.17
In the meantime, before the expiration of the
reglementary period to answer the complaint,
defendants, invoking their counsel’s heavy workload,
prayed for a 15-day extension18 within which to file
their answer. The additional time prayed for was
granted by the RTC.19 However, instead of filing their
answer, defendants prayed for a series of 15-day
extensions in eight (8) successive motions for
extensions on the same justification.20 The RTC again
granted the additional time prayed for, but in granting
the last extension, it warned against further
extension.21 Despite the admonition, defendants again
moved for another 15-day extension,22 which, this
time, the RTC denied. No answer having been filed,
plaintiffs moved to declare the defendants in
default,23 which the RTC granted in its Order24dated
June 24, 1998.
On June 25, 1998, defendants filed, via registered
mail, their "Answer with Counterclaim and Opposition
to the Prayer for the Issuance of a Writ of Preliminary
Injunction."25 On July 8, 1998, defendants filed a
Motion to Set Aside the Order of Default.26 This was
opposed by plaintiffs.27 In an Order28 dated July 14,
1998, the RTC denied defendants’ motion to set aside
the order of default and ordered the reception of
plaintiffs’ evidence ex parte. Defendants filed a motion
for reconsideration29 of the July 14, 1998 Order, which
the RTC denied in its Order30dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA
assailing the Order declaring them in default, as well
as the Order denying their motion to set aside the
order of default, alleging that these were contrary to
facts of the case, the law and jurisprudence.31 On
September 16, 1999, the appellate court issued a
Resolution32 dismissing the appeal on the ground that
the Orders appealed from were interlocutory in
character and, therefore, not appealable. No motion
for reconsideration of the Order of the dismissal was
filed by defendants.
In the meantime, plaintiffs adduced ex parte their
testimonial and documentary evidence. On April 17,
2000, the RTC rendered a Decision, the dispositive
part of which reads:
WHEREFORE, judgment is hereby rendered in favor
of the plaintiffs and against the defendants as follows:
1. Ordering the rescission of the Joint Venture
Agreement as of the date of filing of this
complaint;
2. Ordering the defendants to return
possession, including all improvements
therein, of the real estate property belonging
to the plaintiffs which is described in, and
covered by Transfer Certificate of Title No. T-
10848 of the Register of Deeds of Tagaytay
City, and located in Barangay Anulin, City of
Tagaytay;
3. Ordering the defendants to turn over all
documents, records or papers that have been
executed, prepared and retained in
connection with any contract to sell or deed of
sale of all lots/units sold during the effectivity
of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs
the sum of P1,041,524.26 representing their
share of the net income of the P2,603,810.64
as of September 30, 1995, as stipulated in the
joint venture agreement;
5. Ordering the defendants to pay the
plaintiffs’ attorney’s fees in the amount
of P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33
The trial court anchored its decision on the following
findings:
x x x Evidence on record have shown patent
violations by the defendants of the stipulations
particularly paragraph II covering Developer’s
(defendant) undertakings, as well as paragraph III and
paragraph V of the JVA. These violations are not
limited to those made against the plaintiffs alone as it
appears that some of the unit buyers themselves have
their own separate gripes against the defendants as
typified by the letters (Exhibits "G" and "H") of Mr.
Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the
course of the testimony of Mrs. Maminta on August 6,
1998 (Exhibits "N," "O," "P," "Q" and "R" as well as
submarkings, pp. 60 to 62, TSN August 6, 1998) this
court has observed, and is thus convinced, that a
pattern of what appears to be a scheme or plot to
reduce and eventually blot out the net income
generated from sales of housing units by defendants,
has been established. Exhibit "P-2" is explicit in
declaring that, as of September 30, 1995, the joint
venture project earned a net income of
about P2,603,810.64. This amount, however, was
drastically reduced in a subsequent financial report
submitted by the defendants to P1,954,216.39.
Shortly thereafter, and to the dismay of the plaintiffs,
the defendants submitted an income statement and a
balance sheet (Exhibits "R" and "R-1") indicating a net
loss of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit
"P-2") the plaintiffs should have received the sum
of P1,041,524.26 representing their 40% share under
paragraph II and V of the JVA. But this was not to be
so. Even before the plaintiffs could get hold of their
share as indicated above, the defendants closed the
chance altogether by declaring a net loss. The court
perceives this to be one calculated coup-de-grace that
would put to thin air plaintiffs’ hope of getting their
share in the profit under the JVA.
That this matter had reached the court is no longer a
cause for speculation. The way the defendants
treated the JVA and the manner by which they
handled the project itself vis-à-vis their partners, the
plaintiffs herein, there is bound to be certain conflict
as the latter repeatedly would received the losing end
of the bargain.
Under the intolerable circumstances, the plaintiffs
could not have opted for some other recourse but to
file the present action to enforce their rights. x x x34
On May 15, 2000, plaintiffs filed a Motion for
Execution Pending Appeal35 alleging defendants’
dilatory tactics for its allowance. This was opposed by
defendants.36
On May 22, 2000, the RTC resolved the motion for
execution pending appeal in favor of plaintiffs.37 Upon
posting a bond of P1,000,000.00 by plaintiffs, a writ of
execution pending appeal was issued on June 20,
2000.38
Defendants appealed the decision to the CA on the
following assignment of errors:
I
THE TRIAL COURT ERRED IN DECIDING THE
CASE WITHOUT FIRST REFERRING THE
COMPLAINT FOR VOLUNTARY ARBITRATION (RA
NO. 876), CONTRARY TO THE MANDATED
VOLUNTARY ARBITRATION CLAUSE UNDER THE
JOINT VENTURE AGREEMENT, AND THE
DOCTRINE IN "MINDANAO PORTLAND CEMENT
CORPORATION V. MCDONOUGH CONSTRUCTION
COMPANY OF FLORIDA" (19 SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF
EXECUTION PENDING APPEAL EVEN IN THE
ABSENCE OF GOOD AND COMPELLING
REASONS TO JUSTIFY SAID ISSUANCE, AND
DESPITE PRIMELINK’S STRONG OPPOSITION
THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO
DECIDE PRIMELINK’S MOTION TO QUASH THE
WRIT OF EXECUTION PENDING APPEAL AND THE
MOTION FOR RECONSIDERATION, ALTHOUGH
THE COURT HAS RETAINED ITS JURISDICTION
TO RULE ON ALL QUESTIONS RELATED TO
EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE
JOINT VENTURE AGREEMENT ALTHOUGH
PRIMELINK HAS SUBSTANTIALLY DEVELOPED
THE PROJECT AND HAS SPENT MORE OR LESS
FORTY MILLION PESOS, AND DESPITE
APPELLEES’ FAILURE TO PRESENT SUFFICIENT
EVIDENCE JUSTIFYING THE SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT
THE APPELLEES HAVE THE RIGHT TO TAKE
OVER THE SUBDIVISION AND TO APPROPRIATE
FOR THEMSELVES ALL THE EXISTING
IMPROVEMENTS INTRODUCED THEREIN BY
PRIMELINK, ALTHOUGH SAID RIGHT WAS
NEITHER ALLEGED NOR PRAYED FOR IN THE
COMPLAINT, MUCH LESS PROVEN DURING THE
EX PARTE HEARING, AND EVEN WITHOUT
ORDERING APPELLEES TO FIRST REIMBURSE
PRIMELINK OF THE SUBSTANTIAL DIFFERENCE
BETWEEN THE MARKET VALUE OF APPELLEES’
RAW, UNDEVELOPED AND UNPRODUCTIVE LAND
(CONTRIBUTED TO THE PROJECT) AND THE SUM
OF MORE OR LESS FORTY MILLION PESOS
WHICH PRIMELINK HAD SPENT FOR THE
HORIZONTAL AND VERTICAL DEVELOPMENT OF
THE PROJECT, THEREBY ALLOWING APPELLEES
TO UNJUSTLY ENRICH THEMSELVES AT THE
EXPENSE OF PRIMELINK.39
The appeal was docketed in the CA as CA-G.R. CV
No. 69200.
On August 9, 2004, the appellate court rendered a
decision affirming, with modification, the appealed
decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed
decision of the Regional Trial Court of Tagaytay City,
Branch 18, promulgated on April 17, 2000 in Civil
Case No. TG-1776, is hereby AFFIRMED.
Accordingly, Transfer Certificate of Title No. T-10848
held for safekeeping by Chinabank pursuant to the
Escrow Agreement is ordered released for return to
the plaintiffs-appellees and conformably with the
affirmed decision, the cancellation by the Register of
Deeds of Tagaytay City of whatever annotation in TCT
No. 10848 by virtue of the Joint Venture Agreement, is
now proper.
SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary
Wares Manufacturing Corporation,41 the appellate
court ruled that, under Philippine law, a joint venture is
a form of partnership and is to be governed by the
laws of partnership. The aggrieved parties filed a
motion for reconsideration,42 which the CA denied in
its Resolution43 dated March 7, 2005.
Petitioners thus filed the instant Petition for Review on
Certiorari, alleging that:
1) DID THE HONORABLE COURT OF
APPEALS COMMIT A FATAL AND
REVERSIBLE LEGAL ERROR AND/OR
GRAVE ABUSE OF DISCRETION IN
ORDERING THE RETURN TO THE
RESPONDENTS OF THE PROPERTY WITH
ALL IMPROVEMENTS THEREON, EVEN
WITHOUT ORDERING/REQUIRING THE
RESPONDENTS TO FIRST PAY OR
REIMBURSE PRIMELINK OF ALL
EXPENSES INCURRED IN DEVELOPING
AND MARKETING THE PROJECT, LESS
THE ORIGINAL VALUE OF THE PROPERTY,
AND THE SHARE DUE RESPONDENTS
FROM THE PROFITS (IF ANY) OF THE
JOINT VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL
AND CONFISCATORY, OPPRESSIVE AND
UNCONSCIONABLE, CONTRARY TO THE
TENETS OF GOOD HUMAN RELATIONS
AND VIOLATIVE OF EXISTING LAWS AND
JURISPRUDENCE ON JUDICIAL NOTICE,
DEFAULT, UNJUST ENRICHMENT AND
RESCISSION OF CONTRACT WHICH
REQUIRES MUTUAL RESTITUTION, NOT
UNILATERAL APPROPRIATION, OF
PROPERTY BELONGING TO ANOTHER?44
Petitioners maintain that the aforesaid portion of the
decision which unconditionally awards to respondents
"all improvements" on the project without requiring
them to pay the value thereof or to reimburse
Primelink for all expenses incurred therefore is
inherently and essentially illegal and confiscatory,
oppressive and unconscionable, contrary to the tenets
of good human relations, and will allow respondents
to unjustly enrich themselves at Primelink’s expense.
At the time respondents contributed the two parcels of
land, consisting of 30,000 square meters to the joint
venture project when the JVA was signed on March
10, 1994, the said properties were worth not more
than P500.00 per square meter, the "price tag" agreed
upon the parties for the purpose of the JVA. Moreover,
before respondents rescinded the JVA sometime in
October/November 1997, the property had already
been substantially developed as improvements had
already been introduced thereon; petitioners had
likewise incurred administrative and marketing
expenses, among others, amounting to more or
less P40,000,000.00.45
Petitioners point out that respondents did not pray in
their complaint that they be declared the owners and
entitled to the possession of the improvements made
by petitioner Primelink on the property; neither did
they adduce evidence to prove their entitlement to
said improvements. It follows, petitioners argue, that
respondents were not entitled to the improvements
although petitioner Primelink was declared in default.
They also aver that, under Article 1384 of the New
Civil Code, rescission shall be only to the extent
necessary to cover the damages caused and that,
under Article 1385 of the same Code, rescission
creates the obligation to return the things which were
not object of the contract, together with their fruits,
and the price with its interest; consequently, it can be
effected only when respondents can return whatever
they may be obliged to return. Respondents who
sought the rescission of the JVA must place petitioner
Primelink in the status quo. They insist that
respondents cannot rescind and, at the same time,
retain the consideration, or part of the consideration
received under the JVA. They cannot have the
benefits of rescission without assuming its burden. All
parties must be restored to their original positions as
nearly as possible upon the rescission of a contract.
In the event that restoration to the status quo is
impossible, rescission may be granted if the Court can
balance the equities and fashion an appropriate
remedy that would be equitable to both parties and
afford complete relief.
Petitioners insist that being defaulted in the court a
quo would in no way defeat their claim for
reimbursement because "[w]hat matters is that the
improvements exist and they cannot be
denied."46 Moreover, they point out, the ruling of this
Court in Aurbach v. Sanitary Wares Manufacturing
Corporation47 cited by the CA is not in point.
On the other hand, the CA ruled that although
respondents therein (plaintiffs below) did not
specifically pray for their takeover of the property and
for the possession of the improvements on the parcels
of land, nevertheless, respondents were entitled to
said relief as a necessary consequence of the ruling
of the trial court ordering the rescission of the JVA.
The appellate court cited the ruling of this Court in the
Aurbach case and Article 1838 of the New Civil Code,
to wit:
As a general rule, the relation of the parties in joint
ventures is governed by their agreement. When the
agreement is silent on any particular issue, the
general principles of partnership may be resorted to. 48
Respondents, for their part, assert that Articles 1380
to 1389 of the New Civil Code deal with rescissible
contracts. What applies is Article 1191 of the New
Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the
Mortgage Law.
They insist that petitioners are not entitled to
rescission for the improvements because, as found by
the RTC and the CA, it was petitioner Primelink that
enriched itself at the expense of respondents.
Respondents reiterate the ruling of the CA, and argue
as follows:
PRIMELINK argued that the LAZATINs in their
complaint did not allege, did not prove and did not
pray that they are and should be entitled to take over
the development of the project, and that the
improvements and existing structures which were
introduced by PRIMELINK after spending more or
less Forty Million Pesos – be awarded to them. They
merely asked in the complaint that the joint venture
agreement be rescinded, and that the parcels of land
they contributed to the project be returned to them.
PRIMELINK’s argument lacks merit. The order of the
court for PRIMELINK to return possession of the real
estate property belonging to the LAZATINs including
all improvements thereon was not a judgment that
was different in kind than what was prayed for by the
LAZATINs. The order to return the property with all
the improvements thereon is just a necessary
consequence to the order of rescission.
As a general rule, the relation of the parties in joint
ventures is governed by their agreement. When the
agreement is silent on any particular issue, the
general principles of partnership may be resorted to.
In Aurbach v. Sanitary Wares Manufacturing
Corporation, the Supreme Court discussed the
following points regarding joint ventures and
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. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly
distinguishable from the partnership, since elements
are similar – community of interest in the business,
sharing of profits and losses, and a mutual right of
control. (Blackner v. McDermott, 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. (Tuffs v. Mann, 116
Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin,
395 III. 595, 71 N.E.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 laws of partnership. 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) (Emphasis
Supplied)
The LAZATINs were able to establish fraud on the
part of PRIMELINK which, in the words of the court a
quo, was a pattern of what appears to be a scheme or
plot to reduce and eventually blot out the net incomes
generated from sales of housing units by the
defendants. Under Article 1838 of the Civil Code,
where the partnership contract is rescinded on the
ground of the fraud or misrepresentation of one of the
parties thereto, the party entitled to rescind is, without
prejudice to any other right is entitled to a lien on, or
right of retention of, the surplus of the partnership
property after satisfying the partnership liabilities to
third persons for any sum of money paid by him for
the purchase of an interest in the partnership and for
any capital or advance contributed by him. In the
instant case, the joint venture still has outstanding
liabilities to third parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No.
T-10848 which is now held by Chinabank for
safekeeping pursuant to the Escrow Agreement
executed between Primelink Properties and
Development Corporation and Ma. Clara T. Lazatin-
Magat should also be returned to the LAZATINs as a
necessary consequence of the order of rescission of
contract. The reason for the existence of the Escrow
Agreement has ceased to exist when the joint venture
agreement was rescinded.49
Respondents stress that petitioners must bear any
damages or losses they may have suffered. They
likewise stress that they did not enrich themselves at
the expense of petitioners.
In reply, petitioners assert that it is unjust and
inequitable for respondents to retain the
improvements even if their share in the P1,041,524.26
of the net income of the property and the sale of the
land were to be deducted from the value of the
improvements, plus administrative and marketing
expenses in the total amount of P40,000,000.00.
Petitioners will still be entitled to an accounting from
respondents. Respondents cannot deny the existence
and nature of said improvements as they are visible to
the naked eye.
The threshold issues are the following: (1) whether
respondents are entitled to the possession of the
parcels of land covered by the JVA and the
improvements thereon introduced by petitioners as
their contribution to the JVA; (2) whether petitioners
are entitled to reimbursement for the value of the
improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that
respondents did not specifically pray in their complaint
below that possession of the improvements on the
parcels of land which they contributed to the JVA be
transferred to them. Respondents made a specific
prayer in their complaint that, upon the rescission of
the JVA, they be placed in possession of the parcels
of land subject of the agreement, and for other "reliefs
and such other remedies as are just and equitable in
the premises." However, the trial court was not
precluded from awarding possession of the
improvements on the parcels of land to respondents
in its decision. Section 2(c), Rule 7 of the Rules of
Court provides that a pleading shall specify the relief
sought but it may add as general prayer for such
further or other relief as may be deemed just and
equitable. Even without the prayer for a specific
remedy, proper relief may be granted by the court if
the facts alleged in the complaint and the evidence
introduced so warrant.50 The court shall grant relief
warranted by the allegations and the proof even if no
such relief is prayed for.51 The prayer in the complaint
for other reliefs equitable and just in the premises
justifies the grant of a relief not otherwise specifically
prayed for.52
The trial court was not proscribed from placing
respondents in possession of the parcels of land and
the improvements on the said parcels of land. It bears
stressing that the parcels of land, as well as the
improvements made thereon, were contributed by the
parties to the joint venture under the JVA, hence,
formed part of the assets of the joint venture.53 The
trial court declared that respondents were entitled to
the possession not only of the parcels of land but also
of the improvements thereon as a consequence of its
finding that petitioners breached their agreement and
defrauded respondents of the net income under the
JVA.
On the second issue, we agree with the CA ruling that
petitioner Primelink and respondents entered into a
joint venture as evidenced by their JVA which, under
the Court’s ruling in Aurbach, is a form of partnership,
and as such is to be governed by the laws on
partnership.
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.54With 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.55 On
dissolution, the partnership is not terminated but
continues until the winding up of partnership affairs is
completed.56 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.
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.57 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.
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.58 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.
Thus, under Article 1837 of the New Civil Code, the
rights of the parties when dissolution is caused in
contravention of the partnership agreement are as
follows:
(1) Each partner who has not caused
dissolution wrongfully shall have:
(a) All the rights specified in the first
paragraph of this article, and
(b) The right, as against each partner
who has caused the dissolution
wrongfully, to damages for breach of
the agreement.
(2) The partners who have not caused the
dissolution wrongfully, if they all desire to
continue the business in the same name
either by themselves or jointly with others,
may do so, during the agreed term for the
partnership and for that purpose may possess
the partnership property, provided they secure
the payment by bond approved by the court,
or pay to any partner who has caused the
dissolution wrongfully, the value of his interest
 in the partnership at the dissolution, less any
damages recoverable under the second
paragraph, No. 1(b) of this article, and in like
manner indemnify him against all present or
future partnership liabilities.
(3) A partner who has caused the dissolution
wrongfully shall have:
(a) If the business is not continued
under the provisions of the second
paragraph, No. 2, all the rights of a
partner under the first paragraph,
subject to liability for damages in the
second paragraph, No. 1(b), of this
article.
(b) If the business is continued under
the second paragraph, No. 2, of this
article, the right as against his co-
partners and all claiming through them
in respect of their interests in the
partnership, to have the value of his
interest in the partnership, less any
damage caused to his co-partners by
the dissolution, ascertained and paid
to him in cash, or the payment
secured by a bond approved by the
court, and to be released from all
existing liabilities of the partnership;
but in ascertaining the value of the
partner’s interest the value of the
good-will of the business shall not be
considered.
And under Article 1838 of the New Civil Code, the
party entitled to rescind is, without prejudice to any
other right, entitled:
(1) To a lien on, or right of retention of, the
surplus of the partnership property after
satisfying the partnership liabilities to third
persons for any sum of money paid by him for
the purchase of an interest in the partnership
and for any capital or advances contributed by
him;
(2) To stand, after all liabilities to third persons
have been satisfied, in the place of the
creditors of the partnership for any payments
made by him in respect of the partnership
liabilities; and
(3) To be indemnified by the person guilty of
the fraud or making the representation against
all debts and liabilities of the partnership.
The accounts between the parties after dissolution
have to be settled as provided in Article 1839 of the
New Civil Code:
Art. 1839. In settling accounts between the partners
after dissolution, the following rules shall be observed,
subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners
necessary for the payment of all the
liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank
in order of payment, as follows:
(a) Those owing to creditors other than
partners,
(b) Those owing to partners other than
for capital and profits,
(c) Those owing to partners in respect
of capital,
(d) Those owing to partners in respect
of profits.
(3) The assets shall be applied in the order of
their declaration in No. 1 of this article to the
satisfaction of the liabilities.
(4) The partners shall contribute, as provided
by article 1797, the amount necessary to
satisfy the liabilities.
(5) An assignee for the benefit of creditors or
any person appointed by the court shall have
the right to enforce the contributions specified
in the preceding number.
(6) Any partner or his legal representative
shall have the right to enforce the
contributions specified in No. 4, to the extent
of the amount which he has paid in excess of
his share of the liability.
(7) The individual property of a deceased
partner shall be liable for the contributions
specified in No. 4.
(8) When partnership property and the
individual properties of the partners are in
possession of a court for distribution,
partnership creditors shall have priority on
partnership property and separate creditors on
individual property, saving the rights of lien or
secured creditors.
(9) Where a partner has become insolvent or
his estate is insolvent, the claims against his
separate property shall rank in the following
order:
(a) Those owing to separate creditors;
(b) Those owing to partnership
creditors;
(c) Those owing to partners by way of
contribution.
IN LIGHT OF ALL THE FOREGOING, the petition is
DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 69200 are
AFFIRMED insofar as they conform to this Decision of
the Court.
Costs against petitioners.

SO ORDERED.

G.R. NOS. 166299-300 December 13, 2005

AURELIO K. LITONJUA, JR., Petitioner,

vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG,
ANGLO PHILS. MARITIME, INC., CINEPLEX, INC.,
DDM GARMENTS, INC., EDDIE K. LITONJUA
SHIPPING AGENCY, INC., EDDIE K. LITONJUA
SHIPPING CO., INC., LITONJUA SECURITIES, INC.
(formerly E. K. Litonjua Sec), LUNETA THEATER,
INC., E & L REALTY, (formerly E & L INT’L
SHIPPING CORP.), FNP CO., INC., HOME
ENTERPRISES, INC., BEAUMONT DEV. REALTY
CO., INC., GLOED LAND CORP., EQUITY TRADING
CO., INC., 3D CORP., "L" DEV. CORP, LCM
THEATRICAL ENTERPRISES, INC., LITONJUA
SHIPPING CO. INC., MACOIL INC., ODEON
REALTY CORP., SARATOGA REALTY, INC., ACT
THEATER INC. (formerly General Theatrical & Film
Exchange, INC.), AVENUE REALTY, INC., AVENUE
THEATER, INC. and LVF PHILIPPINES, INC.,
(Formerly VF PHILIPPINES),Respondents.

Actions; Civil Law; Partnership; Words and Phrases; A

contract of partnership is defined by the Civil Code as
one where two or more persons bound themselves to
contribute money, property, or industry to a common
fund with the intention of dividing the profits among
themselves.—A partnership exists when two or more
persons agree to place their money, effects, labor,
and skill in lawful commerce or business, with the
understanding that there shall be a proportionate
sharing of the profits and losses between them. A
contract of partnership is defined by the Civil Code as
one where two or more persons bound themselves to
contribute money, property, or industry to a common
fund with the intention of dividing the profits among
themselves. A joint venture, on the other hand, is
hardly distinguishable from, and may be likened to, a
partnership since their elements are similar, i.e.,
community of interests in the business and sharing of
profits and losses. Being a form of partnership, a joint
venture is generally governed by the law on
partnership.

Same; Same; Same; Petitioner’s complaint does not

state a valid cause of action because not all the
essential elements of a cause of action are present.—
Given the foregoing perspective, what the appellate
court wrote in its assailed Decision about the
probative value and legal effect of Annex “A-1”
commends itself for concurrence: “Considering that
the allegations in the complaint showed that
[petitioner] contributed immovable properties to the
alleged partnership, the “Memorandum” (Annex “A” of
the complaint) which purports to establish the said
“partnership/joint venture” is NOT a public instrument
and there was NO inventory of the immovable
property duly signed by the parties. As such, the said
“Memorandum” . . . is null and void for purposes of
establishing the existence of a valid contract of
partnership. Indeed, because of the failure to comply
with the essential formalities of a valid contract, the
purported “partnership/joint venture” is legally
inexistent and it produces no effect whatsoever.
Necessarily, a void or legally inexistent contract
cannot be the source of any contractual or legal right.
Accordingly, the allegations in the complaint, including
the actionable document attached thereto, clearly
demonstrates that [petitioner] has NO valid
contractual or legal right which could be violated by
the [individual respondents] herein. As a
consequence, [petitioner’s] complaint does NOT state
a valid cause of action because NOT all the essential
elements of a cause of action are present.”
Same; Same; Same; Statute of Frauds; By force of
the statute of frauds, an agreement that by its terms is
not to be performed within a year from the making
thereof shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in
writing and subscribed by the party charged.—It is at
once apparent that what respondent Eduardo
imposed upon himself under the above passage, if he
indeed wrote Annex “A-1,” is a promise which is not to
be performed within one year from “contract”
execution on June 22, 1973. Accordingly, the
agreement embodied in Annex “A-1” is covered by the
Statute of Frauds and ergo unenforceable for non-
compliance therewith. By force of the statute of
frauds, an agreement that by its terms is not to be
performed within a year from the making thereof shall
be unenforceable by action, unless the same, or some
note or memorandum thereof, be in writing and
subscribed by the party charged. Corollarily, no action
can be proved unless the requirement exacted by the
statute of frauds is complied with.
Same; Same; Same; Same; A complaint for delivery
and accounting of partnership property based on such
void or legally non-existent actionable document is
dismissible for failure to state a cause of action.—Per
the Court’s own count, petitioner used in his complaint
the mixed words “joint venture/partnership” nineteen
(19) times and the term “partner” four (4) times. He
made reference to the “law of joint venture/partnership
[being applicable] to the business relationship . . .
between [him], Eduardo and Bobby [Yang]” and to his
“rights in all specific properties of their joint
venture/partnership.” Given this consideration,
petitioner’s right of action against respondents
Eduardo and Yang doubtless pivots on the existence
of the partnership between the three of them, as
purportedly evidenced by the undated and unsigned
Annex “A-1.” A void Annex “A-1,” as an actionable
document of partnership, would strip petitioner of a
cause of action under the premises. A complaint for
delivery and accounting of partnership property based
on such void or legally non-existent actionable
document is dismissible for failure to state of action.
So, in gist, said the Court of Appeals. The Court
agrees. Litonjua, Jr. vs. Litonjua, Sr., 477 SCRA 576,
G.R. Nos. 166299-300 December 13, 2005
DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules
of Court, petitioner Aurelio K. Litonjua, Jr. seeks to
nullify and set aside the Decision of the Court of
Appeals (CA) dated March 31, 2004 in consolidated
1
cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No
78774 and its Resolution dated December 07,
2004, denying petitioner’s motion for reconsideration.
2
The recourse is cast against the following factual
backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein
respondent Eduardo K. Litonjua, Sr. (Eduardo) are
brothers. The legal dispute between them started
when, on December 4, 2002, in the Regional Trial
Court (RTC) at Pasig City, Aurelio filed a suit against
his brother Eduardo and herein respondent Robert T.
Yang (Yang) and several corporations for specific
performance and accounting. In his
complaint, docketed as Civil Case No. 69235 and
3
eventually raffled to Branch 68 of the court, Aurelio
4
alleged that, since June 1973, he and Eduardo are
into a joint venture/partnership arrangement in the
Odeon Theater business which had expanded thru
investment in Cineplex, Inc., LCM Theatrical
Enterprises, Odeon Realty Corporation (operator of
Odeon I and II theatres), Avenue Realty, Inc., owner
of lands and buildings, among other corporations.
Yang is described in the complaint as petitioner’s and
Eduardo’s partner in their Odeon Theater
investment. The same complaint also contained the
5
following material averments:
3.01 On or about 22 June 1973, [Aurelio] and
Eduardo entered into a joint venture/partnership for
the continuation of their family business and common
family funds ….
3.01.1 This joint venture/[partnership] agreement was
contained in a memorandum addressed by Eduardo
to his siblings, parents and other relatives. Copy of
this memorandum is attached hereto and made an
integral part as Annex "A" and the portion referring to
[Aurelio] submarked as Annex "A-1".
3.02 It was then agreed upon between [Aurelio] and
Eduardo that in consideration of [Aurelio’s] retaining
his share in the remaining family businesses (mostly,
movie theaters, shipping and land development) and
contributing his industry to the continued operation of
these businesses, [Aurelio] will be given P1 Million or
10% equity in all these businesses and those to be
subsequently acquired by them whichever is greater. .
..
4.01 … from 22 June 1973 to about August 2001, or
[in] a span of 28 years, [Aurelio] and Eduardo had
accumulated in their joint venture/partnership various
assets including but not limited to the corporate
defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership …
had also acquired [various other assets], but Eduardo
caused to be registered in the names of other
parties….
xxx xxx xxx
4.04 The substantial assets of most of the corporate
defendants consist of real properties …. A list of some
of these real properties is attached hereto and made
an integral part as Annex "B".
xxx xxx xxx
5.02 Sometime in 1992, the relations between
[Aurelio] and Eduardo became sour so that [Aurelio]
requested for an accounting and liquidation of his
share in the joint venture/partnership [but these
demands for complete accounting and liquidation
were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to
believe that Eduardo and/or the corporate defendants
as well as Bobby [Yang], are transferring . . . various
real properties of the corporations belonging to the
joint venture/partnership to other parties in fraud of
[Aurelio]. In consequence, [Aurelio] is therefore
causing at this time the annotation on the titles of
these real properties… a notice of lis
pendens …. (Emphasis in the original; underscoring
and words in bracket added.)
For ease of reference, Annex "A-1" of the complaint,
which petitioner asserts to have been meant for him
by his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K.
Litonjua]:
You have now your own life to live after having been
married. ….
I am trying my best to mold you the way I work so you
can follow the pattern …. You will be the only one left
with the company, among us brothers and I will ask
you to stay as I want you to run this office every time I
am away. I want you to run it the way I am trying to
run it because I will be all alone and I will depend
entirely to you (sic). My sons will not be ready to help
me yet until about maybe 15/20 years from now.
Whatever is left in the corporation, I will make sure
that you get ONE MILLION PESOS (P1,000,000.00)
or ten percent (10%) equity, whichever is greater. We
two will gamble the whole thing of what I have and
what you are entitled to. …. It will be you and me
alone on this. If ever I pass away, I want you to take
care of all of this. You keep my share for my two sons
are ready take over but give them the chance to run
the company which I have built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to
give you first ONE HUNDRED THOUSANDS PESOS:
(P100, 000.00) in cash or asset, like Lt. Artiaga so you
can live better there. The rest I will give you in form of
stocks which you can keep. This stock I assure you is
good and saleable. I will also gladly give you the
share of Wack-Wack …and Valley Golf … because
you have been good. The rest will be in stocks from
all the corporations which I repeat, ten percent (10%)
equity. 6
On December 20, 2002, Eduardo and the corporate
respondents, as defendants a quo, filed a
joint ANSWER With Compulsory
Counterclaim denying under oath the material
allegations of the complaint, more particularly that
portion thereof depicting petitioner and Eduardo as
having entered into a contract of partnership. As
affirmative defenses, Eduardo, et al., apart from
raising a jurisdictional matter, alleged that the
complaint states no cause of action, since no cause of
action may be derived from the actionable
document, i.e., Annex "A-1", being void under the
terms of Article 1767 in relation to Article 1773 of the
Civil Code, infra. It is further alleged that whatever
undertaking Eduardo agreed to do, if any, under
Annex "A-1", are unenforceable under the provisions
of the Statute of Frauds. 7
For his part, Yang - who was served with summons
long after the other defendants submitted their answer
– moved to dismiss on the ground, inter alia, that, as
to him, petitioner has no cause of action and the
complaint does not state any. Petitioner opposed this
8
motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion
to Resolve Affirmative Defenses. To this motion,
9
petitioner interposed an Opposition with ex-Parte
Motion to Set the Case for Pre-trial. 10
Acting on the separate motions immediately adverted
to above, the trial court, in an Omnibus Order dated
March 5, 2003, denied the affirmative defenses and,
except for Yang, set the case for pre-trial on April 10,
2003. 11
In another Omnibus Order of April 2, 2003, the same
court denied the motion of Eduardo, et al., for
reconsideration and Yang’s motion to dismiss. The
12
following then transpired insofar as Yang is
concerned:
1. On April 14, 2003, Yang filed his ANSWER, but
expressly reserved the right to seek reconsideration of
the April 2, 2003 Omnibus Order and to pursue his
failed motion to dismiss to its full resolution.
13
2. On April 24, 2003, he moved for reconsideration of
the Omnibus Order of April 2, 2003, but his motion
was denied in an Order of July 4, 2003. 14
3. On August 26, 2003, Yang went to the Court of
Appeals (CA) in a petition for certiorari under Rule 65
of the Rules of Court, docketed as CA-G.R. SP No.
78774, to nullify the separate orders of the trial court,
15
the first denying his motion to dismiss the basic
complaint and, the second, denying his motion for
reconsideration.
Earlier, Eduardo and the corporate defendants, on the
contention that grave abuse of discretion and
injudicious haste attended the issuance of the trial
court’s aforementioned Omnibus Orders dated March
5, and April 2, 2003, sought relief from the
CA via similar recourse. Their petition
for certiorari was docketed as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003, the CA’s
16
14th Division ordered the consolidation of CA G.R. SP
No. 78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their
respective Memoranda of Authorities, the appellate
court came out with the herein assailed Decision
dated March 31, 2004, finding for Eduardo and Yang,
as lead petitioners therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting
the issuance of the writ of certiorari in these
consolidated cases annulling, reversing and setting
aside the assailed orders of the court a quo dated
March 5, 2003, April 2, 2003 and July 4, 2003 and the
complaint filed by private respondent [now petitioner
Aurelio] against all the petitioners [now herein
respondents Eduardo, et al.] with the court a quo is
hereby dismissed.
SO ORDERED. (Emphasis in the original; words in
17
bracket added.)
Explaining its case disposition, the appellate court
stated, inter alia, that the alleged partnership, as
evidenced by the actionable documents,
Annex "A" and "A-1" attached to the complaint, and
upon which petitioner solely predicates his right/s
allegedly violated by Eduardo, Yang and the corporate
defendants a quo is "void or legally inexistent".
In time, petitioner moved for reconsideration but his
motion was denied by the CA in its equally
assailed Resolution of December 7, 2004. . 18
Hence, petitioner’s present recourse, on the
contention that the CA erred:
A. When it ruled that there was no partnership created
by the actionable document because this was not a
public instrument and immovable properties were
contributed to the partnership.
B. When it ruled that the actionable document did not
create a demandable right in favor of petitioner.
C. When it ruled that the complaint stated no cause of
action against [respondent] Robert Yang; and
D. When it ruled that petitioner has changed his
theory on appeal when all that Petitioner had done
was to support his pleaded cause of action by another
legal perspective/argument.
The petition lacks merit.
Petitioner’s demand, as defined in the petitory portion
of his complaint in the trial court, is for delivery or
payment to him, as Eduardo’s and Yang’s partner, of
his partnership/joint venture share, after an
accounting has been duly conducted of what he
deems to be partnership/joint venture property. 19
A partnership exists when two or more persons agree
to place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that
there shall be a proportionate sharing of the profits
and losses between them. A contract of partnership is
20
defined by the Civil Code as one where two or more
persons bound themselves to contribute money,
property, or industry to a common fund with the
intention of dividing the profits among themselves. A 21
joint venture, on the other hand, is hardly
distinguishable from, and may be likened to, a
partnership since their elements are similar, i.e.,
community of interests in the business and sharing of
profits and losses. Being a form of partnership, a joint
venture is generally governed by the law on
partnership.22
The underlying issue that necessarily comes to mind
in this proceedings is whether or not petitioner and
respondent Eduardo are partners in the theatre,
shipping and realty business, as one claims but which
the other denies. And the issue bearing on the first
assigned error relates to the question of what legal
provision is applicable under the premises, petitioner
seeking, as it were, to enforce the actionable
document - Annex "A-1" - which he depicts in his
complaint to be the contract of partnership/joint
venture between himself and Eduardo. Clearly, then,
a look at the legal provisions determinative of the
existence, or defining the formal requisites, of a
partnership is indicated. Foremost of these are the
following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any
form, except where immovable property or real rights
are contributed thereto, in which case a public
instrument shall be necessary.
Art. 1772. Every contract of partnership having a
capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which
must be recorded in the Office of the Securities and
Exchange Commission.
Failure to comply with the requirement of the
preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an
inventory of said property is not made, signed by the
parties, and attached to the public instrument.
Annex "A-1", on its face, contains typewritten entries,
personal in tone, but is unsigned and undated. As an
unsigned document, there can be no quibbling that
Annex "A-1" does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil
Code. Moreover, being unsigned and doubtless
referring to a partnership involving more than
P3,000.00 in money or property, Annex "A-1" cannot
be presented for notarization, let alone registered with
the Securities and Exchange Commission (SEC), as
called for under the Article 1772 of the Code. And
inasmuch as the inventory requirement under the
succeeding Article 1773 goes into the matter of
validity when immovable property is contributed to the
partnership, the next logical point of inquiry turns on
the nature of petitioner’s contribution, if any, to the
supposed partnership.
The CA, addressing the foregoing query, correctly
stated that petitioner’s contribution consisted of
immovables and real rights. Wrote that court:
A further examination of the allegations in the
complaint would show that [petitioner’s] contribution to
the so-called "partnership/joint venture" was his
supposed share in the family business that is
consisting of movie theaters, shipping and land
development under paragraph 3.02 of the complaint.
In other words, his contribution as a partner in the
alleged partnership/joint venture consisted of
immovable properties and real rights. …. 23
Significantly enough, petitioner matter-of-factly
concurred with the appellate court’s observation that,
prescinding from what he himself alleged in his basic
complaint, his contribution to the partnership
consisted of his share in the Litonjua family
businesses which owned variable immovable
properties. Petitioner’s assertion in his motion for
reconsideration of the CA’s decision, that "what was
24
to be contributed to the business [of the partnership]
was [petitioner’s] industry and his share in the family
[theatre and land development] business" leaves no
room for speculation as to what petitioner contributed
to the perceived partnership.
Lest it be overlooked, the contract-validating inventory
requirement under Article 1773 of the Civil Code
applies as long real property or real rights are initially
brought into the partnership. In short, it is really of no
moment which of the partners, or, in this case, who
between petitioner and his brother Eduardo,
contributed immovables. In context, the more
important consideration is that real property was
contributed, in which case an inventory of the
contributed property duly signed by the parties should
be attached to the public instrument, else there is
legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application
of Article 1773, argues that the immovables in
question were not contributed, but were acquired after
the formation of the supposed partnership. Needless
to stress, the Court cannot accord cogency to this
specious argument. For, as earlier stated, petitioner
himself admitted contributing his share in the
supposed shipping, movie theatres and realty
development family businesses which already owned
immovables even before Annex "A-1" was allegedly
executed.
Considering thus the value and nature of petitioner’s
alleged contribution to the purported partnership, the
Court, even if so disposed, cannot plausibly extend
Annex "A-1" the legal effects that petitioner so desires
and pleads to be given. Annex "A-1", in fine, cannot
support the existence of the partnership sued upon
and sought to be enforced. The legal and factual
milieu of the case calls for this disposition. A
partnership may be constituted in any form, save
when immovable property or real rights are
contributed thereto or when the partnership has a
capital of at least ₱3,000.00, in which case a public
instrument shall be necessary. And if only to stress
25
what has repeatedly been articulated, an inventory to
be signed by the parties and attached to the public
instrument is also indispensable to the validity of the
partnership whenever immovable property is
contributed to it.
Given the foregoing perspective, what the appellate
court wrote in its assailed Decision about the
26
probative value and legal effect of Annex "A-
1" commends itself for concurrence:
Considering that the allegations in the complaint
showed that [petitioner] contributed immovable
properties to the alleged partnership, the
"Memorandum" (Annex "A" of the complaint) which
purports to establish the said "partnership/joint
venture" is NOT a public instrument and there was
NO inventory of the immovable property duly signed
by the parties. As such, the said "Memorandum" … is
null and void for purposes of establishing the
existence of a valid contract of partnership. Indeed,
because of the failure to comply with the essential
formalities of a valid contract, the purported
"partnership/joint venture" is legally inexistent and it
produces no effect whatsoever. Necessarily, a void or
legally inexistent contract cannot be the source of any
contractual or legal right. Accordingly, the allegations
in the complaint, including the actionable document
attached thereto, clearly demonstrates that [petitioner]
has NO valid contractual or legal right which could be
violated by the [individual respondents] herein. As a
consequence, [petitioner’s] complaint does NOT state
a valid cause of action because NOT all the essential
elements of a cause of action are
present. (Underscoring and words in bracket added.)
Likewise well-taken are the following complementary
excerpts from the CA’s equally assailed Resolution of
December 7, 2004 denying petitioner’s motion for
27
reconsideration:
Further, We conclude that despite glaring defects in
the allegations in the complaint as well as the
actionable document attached thereto (Rollo, p. 191),
the [trial] court did not appreciate and apply the legal
provisions which were brought to its attention by
herein [respondents] in the their pleadings. In our
evaluation of [petitioner’s] complaint, the latter
alleged inter alia to have contributed immovable
properties to the alleged partnership but the
actionable document is not a public document and
there was no inventory of immovable properties
signed by the parties. Both the allegations in the
complaint and the actionable documents considered,
it is crystal clear that [petitioner] has no valid or legal
right which could be violated by [respondents]. (Words
in bracket added.)
Under the second assigned error, it is petitioner’s
posture that Annex "A-1", assuming its inefficacy or
nullity as a partnership document, nevertheless
created demandable rights in his favor. As petitioner
succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially
its above-quoted provisions, established an actionable
contract even though it may not be a partnership. This
actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or
whatever, but surely the contract does create rights
and obligations of the parties and which rights and
obligations may be enforceable and demandable. Just
because the relationship created by the agreement
cannot be specifically labeled or pigeonholed into a
category of nominate contract does not mean it is void
or unenforceable.
Petitioner has thus thrusted the notion of an
innominate contract on this Court - and earlier on the
CA after he experienced a reversal of fortune thereat -
as an afterthought. The appellate court, however,
cannot really be faulted for not yielding to petitioner’s
dubious stratagem of altering his theory of joint
venture/partnership to an innominate contract. For, at
bottom, the appellate court’s certiorari jurisdiction was
circumscribed by what was alleged to have been the
order/s issued by the trial court in grave abuse of
discretion. As respondent Yang pointedly
observed, since the parties’ basic position had been
28
well-defined, that of petitioner being that the
actionable document established a partnership/joint
venture, it is on those positions that the appellate
court exercised its certiorari jurisdiction. Petitioner’s
act of changing his original theory is an impermissible
practice and constitutes, as the CA aptly declared, an
admission of the untenability of such theory in the first
place.
[Petitioner] is now humming a different tune . . . . In a
sudden twist of stance, he has now contended that
the actionable instrument may be considered
an innominate contract. xxx Verily, this now changes
[petitioner’s] theory of the case which is not only
prohibited by the Rules but also is an implied
admission that the very theory he himself … has
adopted, filed and prosecuted before the respondent
court is erroneous.
Be that as it may . …. We hold that this new theory
contravenes [petitioner’s] theory of the actionable
document being a partnership document. If anything,
it is so obvious we do have to test the sufficiency of
the cause of action on the basis of partnership law
xxx. (Emphasis in the original; Words in bracket
29
added).
But even assuming in gratia argumenti that Annex "A-
1" partakes of a perfected innominate contract,
petitioner’s complaint would still be dismissible as
against Eduardo and, more so, against Yang. It
cannot be over-emphasized that petitioner points to
Eduardo as the author of Annex "A-1". Withal, even
on this consideration alone, petitioner’s claim against
Yang is doomed from the very start.
As it were, the only portion of Annex "A-1" which
could perhaps be remotely regarded as vesting
petitioner with a right to demand from respondent
Eduardo the observance of a determinate conduct,
reads:
xxx You will be the only one left with the company,
among us brothers and I will ask you to stay as I want
you to run this office everytime I am away. I want you
to run it the way I am trying to run it because I will be
alone and I will depend entirely to you, My sons will
not be ready to help me yet until about maybe 15/20
years from now. Whatever is left in the corporation, I
will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity,
whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo
imposed upon himself under the above passage, if he
indeed wrote Annex "A-1", is a promise which is not to
be performed within one year from "contract"
execution on June 22, 1973. Accordingly, the
agreement embodied in Annex "A-1" is covered by the
Statute of Frauds and ergounenforceable for non-
compliance therewith. By force of the statute of
30
frauds, an agreement that by its terms is not to be
performed within a year from the making thereof shall
be unenforceable by action, unless the same, or some
note or memorandum thereof, be in writing
and subscribed by the party charged. Corollarily, no
action can be proved unless the requirement exacted
by the statute of frauds is complied with.31
Lest it be overlooked, petitioner is the intended
beneficiary of the P1 Million or 10% equity of the
family businesses supposedly promised by Eduardo
to give in the near future. Any suggestion that the
stated amount or the equity component of the promise
was intended to go to a common fund would be to
read something not written in Annex"A-1". Thus,
even this angle alone argues against the very idea of
a partnership, the creation of which requires two or
more contracting minds mutually agreeing to
contribute money, property or industry to a common
fund with the intention of dividing the profits between
or among themselves. 32
In sum then, the Court rules, as did the CA, that
petitioner’s complaint for specific performance
anchored on an actionable document of partnership
which is legally inexistent or void or, at best,
unenforceable does not state a cause of action as
against respondent Eduardo and the corporate
defendants. And if no of action can successfully be
maintained against respondent Eduardo because no
valid partnership existed between him and petitioner,
the Court cannot see its way clear on how the same
action could plausibly prosper against Yang. Surely,
Yang could not have become a partner in, or could not
have had any form of business relationship with, an
inexistent partnership.
As may be noted, petitioner has not, in his complaint,
provide the logical nexus that would tie Yang to him
as his partner. In fact, attendant circumstances would
indicate the contrary. Consider:
1. Petitioner asserted in his complaint that his so-
called joint venture/partnership with Eduardo was "for
the continuation of their family business and common
family funds which were theretofore being mainly
managed by Eduardo." But Yang denies kinship with
33
the Litonjua family and petitioner has not disputed the
disclaimer.
2. In some detail, petitioner mentioned what he had
contributed to the joint venture/partnership with
Eduardo and what his share in the businesses will be.
No allegation is made whatsoever about what Yang
contributed, if any, let alone his proportional share in
the profits. But such allegation cannot, however, be
made because, as aptly observed by the CA, the
actionable document did not contain such provision,
let alone mention the name of Yang. How, indeed,
could a person be considered a partner when the
document purporting to establish the partnership
contract did not even mention his name.
3. Petitioner states in par. 2.01 of the complaint that
"[he] and Eduardo are business partners in the
[respondent] corporations," while "Bobby is his and
Eduardo’s partner in their Odeon Theater investment’
(par. 2.03). This means that the partnership between
petitioner and Eduardo came first; Yang became their
partner in their Odeon Theater investment thereafter.
Several paragraphs later, however, petitioner would
contradict himself by alleging that his "investment and
that of Eduardo and Yang in the Odeon theater
business has expanded through a reinvestment of
profit income and direct investments in several
corporation including but not limited to [six] corporate
respondents" This simply means that the "Odeon
Theatre business" came before the corporate
respondents. Significantly enough, petitioner refers to
the corporate respondents as "progeny" of the Odeon
Theatre business. 34
Needless to stress, petitioner has not sufficiently
established in his complaint the
legal vinculum whence he sourced his right to drag
Yang into the fray. The Court of Appeals, in its
assailed decision, captured and formulated the legal
situation in the following wise:
[Respondent] Yang, … is impleaded because, as
alleged in the complaint, he is a "partner" of [Eduardo]
and the [petitioner] in the Odeon Theater Investment
which expanded through reinvestments of profits and
direct investments in several corporations, thus:
xxx xxx xxx
Clearly, [petitioner’s] claim against … Yang arose from
his alleged partnership with petitioner and the …
respondent. However, there was NO allegation in the
complaint which directly alleged how the supposed
contractual relation was created between [petitioner]
and …Yang. More importantly, however, the foregoing
ruling of this Court that the purported partnership
between [Eduardo] is void and legally inexistent
directly affects said claim against …Yang. Since
[petitioner] is trying to establish his claim against …
Yang by linking him to the legally inexistent
partnership . . . such attempt had become futile
because there was NOTHING that would contractually
connect [petitioner] and … Yang. To establish a valid
cause of action, the complaint should have a
statement of fact upon which to connect [respondent]
Yang to the alleged partnership between [petitioner]
and respondent [Eduardo], including their alleged
investment in the Odeon Theater. A statement of facts
on those matters is pivotal to the complaint as they
would constitute the ultimate facts necessary to
establish the elements of a cause of action against …
Yang. 35
Pressing its point, the CA later stated in its resolution
denying petitioner’s motion for reconsideration the
following:
xxx Whatever the complaint calls it, it is the actionable
document attached to the complaint that is controlling.
Suffice it to state, We have not ignored the actionable
document … As a matter of fact, We emphasized in
our decision … that insofar as [Yang] is concerned, he
is not even mentioned in the said actionable
document. We are therefore puzzled how a person
not mentioned in a document purporting to establish a
partnership could be considered a partner. (Words in
36
bracket ours).
The last issue raised by petitioner, referring to
whether or not he changed his theory of the case, as
peremptorily determined by the CA, has been
discussed at length earlier and need not detain us
long. Suffice it to say that after the CA has ruled that
the alleged partnership is inexistent, petitioner took a
different tack. Thus, from a joint venture/partnership
theory which he adopted and consistently pursued in
his complaint, petitioner embraced the innominate
contract theory. Illustrative of this shift is petitioner’s
statement in par. #8 of his motion for reconsideration
of the CA’s decision combined with what he said in
par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a
partnership, joint venture, or whatever, is a legal
matter. What is determinative for purposes of
sufficiency of the complainant’s allegations, is whether
the actionable document bears out an actionable
contract – be it a partnership, a joint venture or
whatever or some innominate contract … It may be
noted that one kind of innominate contract is what is
known as du ut facias (I give that you may do). 37
43. Contrariwise, this actionable document, especially
its above-quoted provisions, established an actionable
contract even though it may not be a partnership. This
actionable contract is what is known as an innominate
contract (Civil Code, Article 1307). 38
Springing surprises on the opposing party is offensive
to the sporting idea of fair play, justice and due
process; hence, the proscription against a party
shifting from one theory at the trial court to a new and
different theory in the appellate court. On the same
39
rationale, an issue which was neither averred in the
complaint cannot be raised for the first time on
appeal. It is not difficult, therefore, to agree with the
40
CA when it made short shrift of petitioner’s innominate
contract theory on the basis of the foregoing basic
reasons.
Petitioner’s protestation that his act of introducing the
concept of innominate contract was not a case of
changing theories but of supporting his pleaded cause
of action – that of the existence of a partnership - by
another legal perspective/argument, strikes the Court
as a strained attempt to rationalize an untenable
position. Paragraph 12 of his motion for
reconsideration of the CA’s decision virtually relegates
partnership as a fall-back theory. Two paragraphs
later, in the same notion, petitioner faults the appellate
court for reading, with myopic eyes, the actionable
document solely as establishing a partnership/joint
venture. Verily, the cited paragraphs are a study of a
party hedging on whether or not to pursue the original
cause of action or altogether abandoning the same,
thus:

12. Incidentally, assuming that the actionable

document created a partnership between [respondent]
Eduardo, Sr. and [petitioner], no immovables were
contributed to this partnership. xxx

14. All told, the Decision takes off from a false

premise that the actionable document attached to the
complaint does not establish a contractual relationship
between [petitioner] and … Eduardo, Sr. and Roberto
T Yang simply because his document does not create
a partnership or a joint venture. This is … a myopic
reading of the actionable document.
G.R. No. 75875 December 15, 1989
Per the Court’s own count, petitioner used in his
complaint the mixed words "joint venture/partnership"
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
nineteen (19) times and the term "partner" four (4)
WHITTINGHAM and CHARLES
times. He made reference to the "law of joint
CHAMSAY, petitioners,
venture/partnership [being applicable] to the business
vs.
relationship … between [him], Eduardo and Bobby
SANITARY WARES MANUFACTURING
[Yang]" and to his "rights in all specific properties of
CORPORATOIN, ERNESTO V. LAGDAMEO,
their joint venture/partnership". Given this
ERNESTO R. LAGDAMEO, JR., ENRIQUE R.
consideration, petitioner’s right of action against
LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,
respondents Eduardo and Yang doubtless pivots on
BALDWIN YOUNG and AVELINO V.
the existence of the partnership between the three of
CRUZ, respondents.
them, as purportedly evidenced by the undated and
unsigned Annex "A-1". A void Annex "A-1", as an
actionable document of partnership, would strip G.R. No. 75951 December 15, 1989
petitioner of a cause of action under the premises. A
complaint for delivery and accounting of partnership SANITARY WARES MANUFACTURING
property based on such void or legally non-existent CORPORATION, ERNESTO R. LAGDAMEO,
actionable document is dismissible for failure to state ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL
of action. So, in gist, said the Court of Appeals. The A. BONCAN, BALDWIN YOUNG and AVELINO V.
Court agrees. CRUX, petitioners,
vs.
WHEREFORE, the instant petition is DENIED and the THE COURT OF APPEALS, WOLFGANG
impugned Decision and Resolution of the Court of AURBACH, JOHN GRIFFIN, DAVID P.
Appeals AFFIRMED. WHITTINGHAM, CHARLES CHAMSAY and
LUCIANO SALAZAR, respondents.
Cost against the petitioner.
G.R. Nos. 75975-76 December 15, 1989
SO ORDERED.
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.

SYLLABUS

1. COMMERCIAL LAW; JOINT VENTURE;

WHETHER THERE EXISTS A JOINT VENTURE
DEPENDS UPON THE PARTIES’ ACTUAL
INTENTION WHICH IS DETERMINED IN
ACCORDANCE WITH THE RULES COVERING THE
INTERPRETATION AND CONSTRUCTION OF
CONTRACTS. — The rule is that whether the parties
to a particular contract have thereby established
among themselves a joint venture or some other the usual rules as regards the construction and
relation depends upon their actual intention which is operations of contracts generally apply to a contract of
determined in accordance with the rules governing the joint venture. (O’Hara v. Harman 14 App. Dev. (167)
interpretation and construction of contracts. (Terminal 43 NYS 556).
Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65
F Supp 678; Universal Sales Corp. v. California Press 4. ID.; ID.; RIGHT OF STOCKHOLDERS TO
Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668) CUMULATE VOTES IN ELECTING DIRECTORS
LIES IN THE AGREEMENT OF PARTIES. — Bearing
2. ID.; ID.; ESTABLISHED IN CASE AT BAR. — In the these principles in mind, the correct view would be
instant cases, our examination of important provisions that the resolution of the question of whether or not
of the Agreement as well as the testimonial evidence the ASI Group may vote their additional equity lies in
presented by the Lagdameo and Young Group shows the agreement of the parties. The appellate court was
that the parties agreed to establish a joint venture and correct in upholding the agreement of the parties as
not a corporation. The history of the organization of regards the allocation of director seats under Section
Saniwares and the unusual arrangements which 5 (a) of the "Agreement," and the right of each group
govern its policy making body are all consistent with a of stockholders to cumulative voting in the process of
joint venture and not with an ordinary corporation. determining who the group’s nominees would be
Section 5 (a) of the agreement uses the word under Section 3(a) (1) of the "Agreement." As pointed
"designated" and not "nominated" or "elected" in the out by SEC, Section 5(a) of the Agreement relates to
selection of the nine directors on a six to three ratio. the manner of nominating the members of the board
Each group is assured of a fixed number of directors of directors while Section 3 (a) (1) relates to the
in the board. Moreover, ASI in its communications manner of voting for these nominees.
referred to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the 5. ID.; ANTI-DUMMY; LIMITS THE ELECTION OF
Agreement that "Nothing herein contained shall be ALIENS AS MEMBERS OF THE BOARD OF
construed to constitute any of the parties hereto DIRECTORS IN PROPORTION TO THEIR
partners or joint venturers in respect of any ALLOWANCE PARTICIPATION OF THE ENTITY. —
transaction hereunder" was merely to obviate the Equally important as the consideration of the
possibility of the enterprise being treated as contractual intent of the parties is the consideration as
partnership for tax purposes and liabilities to third regards the possible domination by the foreign
parties. investors of the enterprise in violation of the
nationalization requirements enshrined in the
3. ID.; ID.; CONCEPT OF JOINT VENTURE; Constitution and circumvention of the Anti-Dummy
DISTINGUISHED FROM PARTNERSHIP. — The Act. In this regard, petitioner Salazar’s position is that
point of query, however, is whether or not that the Anti-Dummy Act allows the ASI group to elect
provision is applicable to a joint venture with clearly board directors in proportion to their share in the
defined agreements: "The legal concept of a joint capital of the entity. It is to be noted, however, that the
venture is of common law origin. It has no precise same law also limits the election of aliens as
legal definition, but it has been generally understood members of the board of directors in proportion to
to mean an organization formed for some temporary their allowance participation of said entity.
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. McDermott,
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 Ill. 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. Bolaños, 95 Phil. 906 [1954]) (Campos
and Lopez — Campos Comments, Notes and
Selected Cases, Corporation Code 1981). Moreover,
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 American-
Standard shall own at least 30% of the
outstanding stock of the Corporation, three of
the nine directors shall be designated by
American-Standard, and the other six shall be
designated by the other stockholders of the
Corporation. (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 75975-76)
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. That Amended Decision would sanction
the CA's disregard 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 and legal
requirements reserve controlling ownership to Filipino
citizens.
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 Lopez-Campos
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 & Lopez-
Campos, 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. 90-94)
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 9-man 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.
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.

With these findings, we the decisions of the SEC SO ORDERED.

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.
G.R. No. 124293 January 31, 2005

J.G. SUMMIT HOLDINGS, INC., petitioner,

vs.
COURT OF APPEALS; COMMITTEE ON
PRIVATIZATION, its Chairman and Members;
ASSET PRIVATIZATION TRUST; and PHILYARDS
HOLDINGS, INC., respondents.

RESOLUTION

PUNO, J.:

For resolution before this Court are two motions filed

by the petitioner, J.G. Summit Holdings, Inc. for
reconsideration of our Resolution dated September
24, 2003 and to elevate this case to the Court En
Banc. The petitioner questions the Resolution which
reversed our Decision of November 20, 2000, which
in turn reversed and set aside a Decision of the Court
of Appeals promulgated on July 18, 1995.

I. Facts

The undisputed facts of the case, as set forth in our

Resolution of September 24, 2003, are as follows:

On January 27, 1997, the National Investment and

Development Corporation (NIDC), a government
corporation, entered into a Joint Venture Agreement
(JVA) with Kawasaki Heavy Industries, Ltd. of Kobe,
Japan (KAWASAKI) for the construction, operation
and management of the Subic National Shipyard, Inc.
(SNS) which subsequently became the Philippine
Shipyard and Engineering Corporation (PHILSECO).
Under the JVA, the NIDC and KAWASAKI will
contribute ₱330 million for the capitalization of
PHILSECO in the proportion of 60%-40%
respectively. One of its salient features is the grant to
the parties of the right of first refusal should either of
them decide to sell, assign or transfer its interest in
the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or
any part of its interest in SNS [PHILSECO] to any
third party without giving the other under the same
terms the right of first refusal. This provision shall not
apply if the transferee is a corporation owned or
controlled by the GOVERNMENT or by a KAWASAKI
affiliate.
On November 25, 1986, NIDC transferred all its
rights, title and interest in PHILSECO to the Philippine
National Bank (PNB). Such interests were
subsequently transferred to the National Government
pursuant to Administrative Order No. 14. On
December 8, 1986, President Corazon C. Aquino
issued Proclamation No. 50 establishing the
Committee on Privatization (COP) and the Asset
Privatization Trust (APT) to take title to, and
possession of, conserve, manage and dispose of non-
performing assets of the National Government.
Thereafter, on February 27, 1987, a trust agreement
was entered into between the National Government
and the APT wherein the latter was named the trustee
of the National Government's share in PHILSECO. In
1989, as a result of a quasi-reorganization of
PHILSECO to settle its huge obligations to PNB, the
National Government's shareholdings in PHILSECO
increased to 97.41% thereby reducing KAWASAKI's
shareholdings to 2.59%.
In the interest of the national economy and the
government, the COP and the APT deemed it best to
sell the National Government's share in PHILSECO to
private entities. After a series of negotiations between
the APT and KAWASAKI, they agreed that the latter's
right of first refusal under the JVA be "exchanged" for
the right to top by five percent (5%) the highest bid for
the said shares. They further agreed that KAWASAKI
would be entitled to name a company in which it was
a stockholder, which could exercise the right to top.
On September 7, 1990, KAWASAKI informed APT
that Philyards Holdings, Inc. (PHI)1 would exercise its
right to top.
At the pre-bidding conference held on September 18,
1993, interested bidders were given copies of the JVA
between NIDC and KAWASAKI, and of the Asset
Specific Bidding Rules (ASBR) drafted for the
National Government's 87.6% equity share in
PHILSECO. The provisions of the ASBR were
explained to the interested bidders who were notified
that the bidding would be held on December 2, 1993.
A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT)
sale through public bidding is the National
Government's equity in PHILSECO consisting of
896,869,942 shares of stock (representing 87.67% of
PHILSECO's outstanding capital stock), which will be
sold as a whole block in accordance with the rules
herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be
subject to the final approval of both the APT Board of
Trustees and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to
reject any or all bids.
3.0 This public bidding shall be on an Indicative Price
Bidding basis. The Indicative price set for the National
Government's 87.67% equity in PHILSECO is
PESOS: ONE BILLION THREE HUNDRED MILLION
(₱1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the
APT Board of Trustees at its regular meeting following
the bidding, for the purpose of determining whether or
not it should be endorsed by the APT Board of
Trustees to the COP, and the latter approves the
same. The APT shall advise Kawasaki Heavy
Industries, Inc. and/or its nominee, [PHILYARDS]
Holdings, Inc., that the highest bid is acceptable to the
National Government. Kawasaki Heavy Industries,
Inc. and/or [PHILYARDS] Holdings, Inc. shall then
have a period of thirty (30) calendar days from the
date of receipt of such advice from APT within which
to exercise their "Option to Top the Highest Bid" by
offering a bid equivalent to the highest bid plus five
(5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. exercise their "Option to
Top the Highest Bid," they shall so notify the APT
about such exercise of their option and deposit with
APT the amount equivalent to ten percent (10%) of
the highest bid plus five percent (5%) thereof within
the thirty (30)-day period mentioned in paragraph 6.0
above. APT will then serve notice upon Kawasaki
Heavy Industries, Inc. and/or [PHILYARDS] Holdings,
Inc. declaring them as the preferred bidder and they
shall have a period of ninety (90) days from the
receipt of the APT's notice within which to pay the
balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. fail to exercise their
"Option to Top the Highest Bid" within the thirty (30)-
day period, APT will declare the highest bidder as the
winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for
examining with appropriate care these rules, the
official bid forms, including any addenda or
amendments thereto issued during the bidding period.
The bidder shall likewise be responsible for informing
itself with respect to any and all conditions concerning
the PHILSECO Shares which may, in any manner,
affect the bidder's proposal. Failure on the part of the
bidder to so examine and inform itself shall be its sole
risk and no relief for error or omission will be given by
APT or COP. . . .
At the public bidding on the said date, petitioner J.G.
Summit Holdings, Inc.2 submitted a bid of Two Billion
and Thirty Million Pesos (₱2,030,000,000.00) with an
acknowledgment of KAWASAKI/[PHILYARDS'] right to
top, viz:
4. I/We understand that the Committee on
Privatization (COP) has up to thirty (30) days to act on
APT's recommendation based on the result of this
bidding. Should the COP approve the highest bid,
APT shall advise Kawasaki Heavy Industries, Inc.
and/or its nominee, [PHILYARDS] Holdings, Inc. that
the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. shall then have a period
of thirty (30) calendar days from the date of receipt of
such advice from APT within which to exercise their
"Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent
thereof.
As petitioner was declared the highest bidder, the
COP approved the sale on December 3, 1993
"subject to the right of Kawasaki Heavy Industries,
Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid
by 5% as specified in the bidding rules."
On December 29, 1993, petitioner informed APT that
it was protesting the offer of PHI to top its bid on the
grounds that: (a) the KAWASAKI/PHI consortium
composed of KAWASAKI, [PHILYARDS], Mitsui,
Keppel, SM Group, ICTSI and Insular Life violated the
ASBR because the last four (4) companies were the
losing bidders thereby circumventing the law and
prejudicing the weak winning bidder; (b) only
KAWASAKI could exercise the right to top; (c) giving
the same option to top to PHI constituted unwarranted
benefit to a third party; (d) no right of first refusal can
be exercised in a public bidding or auction sale; and
(e) the JG Summit consortium was not estopped from
questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI
had fully paid the balance of the purchase price of the
subject bidding. On February 7, 1994, the APT
notified petitioner that PHI had exercised its option to
top the highest bid and that the COP had approved
the same on January 6, 1994. On February 24, 1994,
the APT and PHI executed a Stock Purchase
Agreement. Consequently, petitioner filed with this
Court a Petition for Mandamus under G.R. No.
114057. On May 11, 1994, said petition was referred
to the Court of Appeals. On July 18, 1995, the Court
of Appeals denied the same for lack of merit. It ruled
that the petition for mandamus was not the proper
remedy to question the constitutionality or legality of
the right of first refusal and the right to top that was
exercised by KAWASAKI/PHI, and that the matter
must be brought "by the proper party in the proper
forum at the proper time and threshed out in a full
blown trial." The Court of Appeals further ruled that
the right of first refusal and the right to top are prima
facie legal and that the petitioner, "by participating in
the public bidding, with full knowledge of the right to
top granted to KAWASAKI/[PHILYARDS] is…
estopped from questioning the validity of the award
given to [PHILYARDS] after the latter exercised the
right to top and had paid in full the purchase price of
the subject shares, pursuant to the ASBR." Petitioner
filed a Motion for Reconsideration of said Decision
which was denied on March 15, 1996. Petitioner thus
filed a Petition for Certiorari with this Court alleging
grave abuse of discretion on the part of the appellate
court.
On November 20, 2000, this Court rendered x x x [a]
Decision ruling among others that the Court of
Appeals erred when it dismissed the petition on the
sole ground of the impropriety of the special civil
action of mandamus because the petition was also
one of certiorari. It further ruled that a shipyard like
PHILSECO is a public utility whose capitalization must
be sixty percent (60%) Filipino-owned. Consequently,
the right to top granted to KAWASAKI under the Asset
Specific Bidding Rules (ASBR) drafted for the sale of
the 87.67% equity of the National Government in
PHILSECO is illegal — not only because it violates
the rules on competitive bidding — but more so,
because it allows foreign corporations to own more
than 40% equity in the shipyard. It also held that
"although the petitioner had the opportunity to
examine the ASBR before it participated in the
bidding, it cannot be estopped from questioning the
unconstitutional, illegal and inequitable provisions
thereof." Thus, this Court voided the transfer of the
national government's 87.67% share in PHILSECO to
Philyard[s] Holdings, Inc., and upheld the right of JG
Summit, as the highest bidder, to take title to the said
shares, viz:
WHEREFORE, the instant petition for review on
certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED
and SET ASIDE. Petitioner is ordered to pay to APT
its bid price of Two Billion Thirty Million Pesos
(₱2,030,000,000.00), less its bid deposit plus interests
upon the finality of this Decision. In turn, APT is
ordered to:
(a) accept the said amount of
₱2,030,000,000.00 less bid deposit and
interests from petitioner;
(b) execute a Stock Purchase Agreement with
petitioner;
(c) cause the issuance in favor of petitioner of
the certificates of stocks representing 87.6%
of PHILSECO's total capitalization;
(d) return to private respondent PHGI the
amount of Two Billion One Hundred Thirty-
One Million Five Hundred Thousand Pesos
(₱2,131,500,000.00); and
(e) cause the cancellation of the stock
certificates issued to PHI.
SO ORDERED.
In separate Motions for Reconsideration, respondents
submit[ted] three basic issues for x x x resolution: (1)
Whether PHILSECO is a public utility; (2) Whether
under the 1977 JVA, KAWASAKI can exercise its right
of first refusal only up to 40% of the total capitalization
of PHILSECO; and (3) Whether the right to top
granted to KAWASAKI violates the principles of
competitive bidding.3 (citations omitted)
In a Resolution dated September 24, 2003, this Court
ruled in favor of the respondents. On the first issue,
we held that Philippine Shipyard and Engineering
Corporation (PHILSECO) is not a public utility, as by
nature, a shipyard is not a public utility4 and that no
law declares a shipyard to be a public utility.5 On the
second issue, we found nothing in the 1977 Joint
Venture Agreement (JVA) which prevents Kawasaki
Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI)
from acquiring more than 40% of PHILSECO’s total
capitalization.6 On the final issue, we held that the
right to top granted to KAWASAKI in exchange for its
right of first refusal did not violate the principles of
competitive bidding.7
On October 20, 2003, the petitioner filed a Motion for
Reconsideration8 and a Motion to Elevate This Case
to the Court En Banc.9 Public respondents Committee
on Privatization (COP) and Asset Privatization Trust
(APT), and private respondent Philyards Holdings,
Inc. (PHILYARDS) filed their Comments on J.G.
Summit Holdings, Inc.’s (JG Summit’s) Motion for
Reconsideration and Motion to Elevate This Case to
the Court En Banc on January 29, 2004 and February
3, 2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve
to end this litigation are the following:
1. Whether there are sufficient bases to
elevate the case at bar to the Court en banc.
2. Whether the motion for reconsideration
raises any new matter or cogent reason to
warrant a reconsideration of this Court’s
Resolution of September 24, 2003.
Motion to Elevate this Case to the
Court En Banc
The petitioner prays for the elevation of the case to
the Court en banc on the following grounds:
1. The main issue of the propriety of the
bidding process involved in the present case
has been confused with the policy issue of the
supposed fate of the shipping industry which
has never been an issue that is determinative
of this case.10
2. The present case may be considered under
the Supreme Court Resolution dated February
23, 1984 which included among en
banc cases those involving a novel question
of law and those where a doctrine or principle
laid down by the Court en banc or in division
may be modified or reversed.11
3. There was clear executive interference in
the judicial functions of the Court when the
Honorable Jose Isidro Camacho, Secretary of
Finance, forwarded to Chief Justice Davide, a
memorandum dated November 5, 2001,
attaching a copy of the Foreign Chambers
Report dated October 17, 2001, which matter
was placed in the agenda of the Court and
noted by it in a formal resolution dated
November 28, 2001.12
Opposing J.G. Summit’s motion to elevate the
case en banc, PHILYARDS points out the petitioner’s
inconsistency in previously opposing PHILYARDS’
Motion to Refer the Case to the Court En
Banc. PHILYARDS contends that J.G. Summit should
now be estopped from asking that the case be
referred to the Court en banc. PHILYARDS further
contends that the Supreme Court en banc is not an
appellate court to which decisions or resolutions of its
divisions may be appealed citing Supreme Court
Circular No. 2-89 dated February 7,
1989.13 PHILYARDS also alleges that there is no novel
question of law involved in the present case as the
assailed Resolution was based on well-settled
jurisprudence. Likewise, PHILYARDS stresses that
the Resolution was merely an outcome of the motions
for reconsideration filed by it and the COP and APT
and is "consistent with the inherent power of courts to
‘amend and control its process and orders so as to
make them conformable to law and justice.’ (Rule
135, sec. 5)"14 Private respondent belittles the
petitioner’s allegations regarding the change in
ponente and the alleged executive interference as
shown by former Secretary of Finance Jose Isidro
Camacho’s memorandum dated November 5, 2001
arguing that these do not justify a referral of the
present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the
Court En Banc should be granted, J.G. Summit further
argued that: its Opposition to the Office of the Solicitor
General’s Motion to Refer is different from its own
Motion to Elevate; different grounds are invoked by
the two motions; there was unwarranted "executive
interference"; and the change in ponente is merely
noted in asserting that this case should be decided by
the Court en banc.15
We find no merit in petitioner’s contention that the
propriety of the bidding process involved in the
present case has been confused with the policy issue
of the fate of the shipping industry which, petitioner
maintains, has never been an issue that is
determinative of this case. The Court’s Resolution of
September 24, 2003 reveals a clear and definitive
ruling on the propriety of the bidding process. In
discussing whether the right to top granted to
KAWASAKI in exchange for its right of first refusal
violates the principles of competitive bidding, we
made an exhaustive discourse on the rules and
principles of public bidding and whether they were
complied with in the case at bar.16This Court
categorically ruled on the petitioner’s argument that
PHILSECO, as a shipyard, is a public utility which
should maintain a 60%-40% Filipino-foreign equity
ratio, as it was a pivotal issue. In doing so, we
recognized the impact of our ruling on the shipbuilding
industry which was beyond avoidance.17
We reject petitioner’s argument that the present case
may be considered under the Supreme Court
Resolution dated February 23, 1984 which included
among en banc cases those involving a novel
question of law and those where a doctrine or
principle laid down by the court en banc or in division
may be modified or reversed. The case was resolved
based on basic principles of the right of first refusal in
commercial law and estoppel in civil law. Contractual
obligations arising from rights of first refusal are not
new in this jurisdiction and have been recognized in
numerous cases.18 Estoppel is too known a civil law
concept to require an elongated discussion.
Fundamental principles on public bidding were
likewise used to resolve the issues raised by the
petitioner. To be sure, petitioner leans on the right to
top in a public bidding in arguing that the case at bar
involves a novel issue. We are not swayed. The right
to top was merely a condition or a reservation made in
the bidding rules which was fully disclosed to all
bidding parties. In Bureau Veritas, represented by
Theodor H. Hunermann v. Office of the President,
et al., 19 we dealt with this conditionality, viz:
x x x It must be stressed, as held in the case of A.C.
Esguerra & Sons v. Aytona, et al., (L-18751, 28 April
1962, 4 SCRA 1245), that in an "invitation to bid, there
is a condition imposed upon the bidders to the
effect that the bidding shall be subject to the right
of the government to reject any and all bids
subject to its discretion. In the case at bar, the
government has made its choice and unless an
unfairness or injustice is shown, the losing
bidders have no cause to complain nor right to
dispute that choice. This is a well-settled doctrine
in this jurisdiction and elsewhere."
The discretion to accept or reject a bid and award
contracts is vested in the Government agencies
entrusted with that function. The discretion given to
the authorities on this matter is of such wide latitude
that the Courts will not interfere therewith, unless it is
apparent that it is used as a shield to a fraudulent
award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x
x The exercise of this discretion is a policy decision
that necessitates prior inquiry, investigation,
comparison, evaluation, and deliberation. This task
can best be discharged by the Government agencies
concerned, not by the Courts. The role of the Courts
is to ascertain whether a branch or instrumentality of
the Government has transgressed its constitutional
boundaries. But the Courts will not interfere with
executive or legislative discretion exercised within
those boundaries. Otherwise, it strays into the realm
of policy decision-making.
It is only upon a clear showing of grave abuse of
discretion that the Courts will set aside the award of a
contract made by a government entity. Grave abuse
of discretion implies a capricious, arbitrary and
whimsical exercise of power (Filinvest Credit Corp. v.
Intermediate Appellate Court, No. 65935, 30
September 1988, 166 SCRA 155). The abuse of
discretion must be so patent and gross as to amount
to an evasion of positive duty or to a virtual refusal to
perform a duty enjoined by law, as to act at all in
contemplation of law, where the power is exercised in
an arbitrary and despotic manner by reason of
passion or hostility (Litton Mills, Inc. v. Galleon Trader,
Inc., et al[.], L-40867, 26 July 1988, 163 SCRA 489).
The facts in this case do not indicate any such grave
abuse of discretion on the part of public respondents
when they awarded the CISS contract to Respondent
SGS. In the "Invitation to Prequalify and Bid" (Annex
"C," supra), the CISS Committee made an express
reservation of the right of the Government to
"reject any or all bids or any part thereof or waive
any defects contained thereon and accept an offer
most advantageous to the Government." It is a
well-settled rule that where such reservation is
made in an Invitation to Bid, the highest or lowest
bidder, as the case may be, is not entitled to an
award as a matter of right (C & C Commercial Corp.
v. Menor, L-28360, 27 January 1983, 120 SCRA 112).
Even the lowest Bid or any Bid may be rejected or, in
the exercise of sound discretion, the award may be
made to another than the lowest bidder (A.C.
Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur.,
788). (emphases supplied) 1awphi1.nét
Like the condition in the Bureau Veritas case, the
right to top was a condition imposed by the
government in the bidding rules which was made
known to all parties. It was a condition imposed on
all bidders equally, based on the APT’s exercise of
its discretion in deciding on how best to privatize
the government’s shares in PHILSECO. It was not a
whimsical or arbitrary condition plucked from the ether
and inserted in the bidding rules but a condition which
the APT approved as the best way the government
could comply with its contractual obligations to
KAWASAKI under the JVA and its mandate of getting
the most advantageous deal for the government. The
right to top had its history in the mutual right of first
refusal in the JVA and was reached by agreement of
the government and KAWASAKI.
Further, there is no "executive interference" in the
functions of this Court by the mere filing of a
memorandum by Secretary of Finance Jose Isidro
Camacho. The memorandum was merely "noted" to
acknowledge its filing. It had no further legal
significance. Notably too, the assailed Resolution
dated September 24, 2003 was decided
unanimously by the Special First Division in favor
of the respondents.
Again, we emphasize that a decision or resolution of a
Division is that of the Supreme Court20 and the
Court en banc is not an appellate court to which
decisions or resolutions of a Division may be
appealed.21
For all the foregoing reasons, we find no basis to
elevate this case to the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the
petitioner’s Motion for Reconsideration. First, that a
fair resolution of the case should be based on contract
law, not on policy considerations; the contracts do not
authorize the right to top to be derived from the right
of first refusal.22 Second, that neither the right of first
refusal nor the right to top can be legally exercised by
the consortium which is not the proper party granted
such right under either the JVA or the Asset Specific
Bidding Rules (ASBR).23 Third, that the maintenance
of the 60%-40% relationship between the National
Investment and Development Corporation (NIDC) and
KAWASAKI arises from contract and from the
Constitution because PHILSECO is a landholding
corporation and need not be a public utility to be
bound by the 60%-40% constitutional limitation.24
On the other hand, private respondent PHILYARDS
asserts that J.G. Summit has not been able to show
compelling reasons to warrant a reconsideration of
the Decision of the Court.25 PHILYARDS denies that
the Decision is based mainly on policy considerations
and points out that it is premised on principles
governing obligations and contracts and corporate law
such as the rule requiring respect for contractual
stipulations, upholding rights of first refusal, and
recognizing the assignable nature of contracts
rights.26 Also, the ruling that shipyards are not public
utilities relies on established case law and
fundamental rules of statutory construction.
PHILYARDS stresses that KAWASAKI’s right of first
refusal or even the right to top is not limited to the
40% equity of the latter.27 On the landholding issue
raised by J.G. Summit, PHILYARDS emphasizes that
this is a non-issue and even involves a question of
fact. Even assuming that this Court can take
cognizance of such question of fact even without the
benefit of a trial, PHILYARDS opines that landholding
by PHILSECO at the time of the bidding is irrelevant
because what is essential is that ultimately a qualified
entity would eventually hold PHILSECO’s real estate
properties.28 Further, given the assignable nature of
the right of first refusal, any applicable nationality
restrictions, including landholding limitations, would
not affect the right of first refusal itself, but only the
manner of its exercise.29 Also, PHILYARDS argues
that if this Court takes cognizance of J.G. Summit’s
allegations of fact regarding PHILSECO’s landholding,
it must also recognize PHILYARDS’ assertions that
PHILSECO’s landholdings were sold to another
corporation.30 As regards the right of first refusal,
private respondent explains that KAWASAKI’s
reduced shareholdings (from 40% to 2.59%) did not
translate to a deprivation or loss of its contractually
granted right of first refusal.31 Also, the bidding was
valid because PHILYARDS exercised the right to top
and it was of no moment that losing bidders later
joined PHILYARDS in raising the purchase price.32
In cadence with the private respondent PHILYARDS,
public respondents COP and APT contend:
1. The conversion of the right of first refusal
into a right to top by 5% does not violate any
provision in the JVA between NIDC and
KAWASAKI.
2. PHILSECO is not a public utility and
therefore not governed by the constitutional
restriction on foreign ownership.
3. The petitioner is legally estopped from
assailing the validity of the proceedings of the
public bidding as it voluntarily submitted itself
to the terms of the ASBR which included the
provision on the right to top.
4. The right to top was exercised by
PHILYARDS as the nominee of KAWASAKI
and the fact that PHILYARDS formed a
consortium to raise the required amount to
exercise the right to top the highest bid by 5%
does not violate the JVA or the ASBR.
5. The 60%-40% Filipino-foreign constitutional
requirement for the acquisition of lands does
not apply to PHILSECO because as admitted
by petitioner itself, PHILSECO no longer owns
real property.
6. Petitioner’s motion to elevate the case to
the Court en banc is baseless and would only
delay the termination of this case.33
In a Consolidated Comment dated March 8, 2004,
J.G. Summit countered the arguments of the public
and private respondents in this wise:
1. The award by the APT of 87.67% shares of
PHILSECO to PHILYARDS with losing bidders
through the exercise of a right to top, which is
contrary to law and the constitution is null and
void for being violative of substantive due
process and the abuse of right provision in the
Civil Code.
a. The bidders[’] right to top was
actually exercised by losing bidders.
b. The right to top or the right of first
refusal cannot co-exist with a genuine
competitive bidding.
c. The benefits derived from the right
to top were unwarranted.
2. The landholding issue has been a
legitimate issue since the start of this case but
is shamelessly ignored by the respondents.
a. The landholding issue is not a non-
issue.
b. The landholding issue does not
pose questions of fact.
c. That PHILSECO owned land at the
time that the right of first refusal was
agreed upon and at the time of the
bidding are most relevant.
d. Whether a shipyard is a public utility
is not the core issue in this case.
3. Fraud and bad faith attend the alleged
conversion of an inexistent right of first refusal
to the right to top.
a. The history behind the birth of the
right to top shows fraud and bad faith.
b. The right of first refusal was,
indeed, "effectively useless."
4. Petitioner is not legally estopped to
challenge the right to top in this case.
a. Estoppel is unavailing as it would
stamp validity to an act that is
prohibited by law or against public
policy.
b. Deception was patent; the right to
top was an attractive nuisance.
c. The 10% bid deposit was placed in
escrow.
J.G. Summit’s insistence that the right to top cannot
be sourced from the right of first refusal is not new
and we have already ruled on the issue in our
Resolution of September 24, 2003. We upheld the
mutual right of first refusal in the JVA.34 We also ruled
that nothing in the JVA prevents KAWASAKI from
acquiring more than 40% of PHILSECO’s total
capitalization.35 Likewise, nothing in the JVA or ASBR
bars the conversion of the right of first refusal to the
right to top. In sum, nothing new and of significance in
the petitioner’s pleading warrants a reconsideration of
our ruling.
Likewise, we already disposed of the argument that
neither the right of first refusal nor the right to top can
legally be exercised by the consortium which is not
the proper party granted such right under either the
JVA or the ASBR. Thus, we held:
The fact that the losing bidder, Keppel Consortium
(composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined PHILYARDS
in the latter's effort to raise ₱2.131 billion necessary in
exercising the right to top is not contrary to law, public
policy or public morals. There is nothing in the ASBR
that bars the losing bidders from joining either the
winning bidder (should the right to top is not
exercised) or KAWASAKI/PHI (should it exercise its
right to top as it did), to raise the purchase price. The
petitioner did not allege, nor was it shown by
competent evidence, that the participation of the
losing bidders in the public bidding was done with
fraudulent intent. Absent any proof of fraud, the
formation by [PHILYARDS] of a consortium is
legitimate in a free enterprise system. The appellate
court is thus correct in holding the petitioner estopped
from questioning the validity of the transfer of the
National Government's shares in PHILSECO to
respondent.36
Further, we see no inherent illegality on PHILYARDS’
act in seeking funding from parties who were losing
bidders. This is a purely commercial decision over
which the State should not interfere absent any legal
infirmity. It is emphasized that the case at bar involves
the disposition of shares in a corporation which the
government sought to privatize. As such, the persons
with whom PHILYARDS desired to enter into business
with in order to raise funds to purchase the shares are
basically its business. This is in contrast to a case
involving a contract for the operation of or
construction of a government infrastructure where the
identity of the buyer/bidder or financier constitutes an
important consideration. In such cases, the
government would have to take utmost precaution to
protect public interest by ensuring that the parties with
which it is contracting have the ability to satisfactorily
construct or operate the infrastructure.
On the landholding issue, J.G. Summit submits that
since PHILSECO is a landholding company,
KAWASAKI could exercise its right of first refusal only
up to 40% of the shares of PHILSECO due to the
constitutional prohibition on landholding by
corporations with more than 40% foreign-owned
equity. It further argues that since KAWASAKI already
held at least 40% equity in PHILSECO, the right of
first refusal was inutile and as such, could not
subsequently be converted into the right to
top. 37 Petitioner also asserts that, at present,
PHILSECO continues to violate the constitutional
provision on landholdings as its shares are more than
40% foreign-owned.38 PHILYARDS admits that it may
have previously held land but had already divested
such landholdings.39 It contends, however, that even if
PHILSECO owned land, this would not affect the right
of first refusal but only the exercise thereof. If the land
is retained, the right of first refusal, being a property
right, could be assigned to a qualified party. In the
alternative, the land could be divested before the
exercise of the right of first refusal. In the case at bar,
respondents assert that since the right of first refusal
was validly converted into a right to top, which was
exercised not by KAWASAKI, but by PHILYARDS
which is a Filipino corporation (i.e., 60% of its shares
are owned by Filipinos), then there is no violation of
the Constitution.40 At first, it would seem that
questions of fact beyond cognizance by this Court
were involved in the issue. However, the records
show that PHILYARDS admits it had owned land up
until the time of the bidding.41 Hence, the only
issue is whether KAWASAKI had a valid right of
first refusal over PHILSECO shares under the JVA
considering that PHILSECO owned land until the
time of the bidding and KAWASAKI already held
40% of PHILSECO’s equity.
We uphold the validity of the mutual rights of first
refusal under the JVA between KAWASAKI and NIDC.
First of all, the right of first refusal is a property right of
PHILSECO shareholders, KAWASAKI and NIDC,
under the terms of their JVA. This right allows them to
purchase the shares of their co-shareholder before
they are offered to a third party. The agreement of
co-shareholders to mutually grant this right to
each other, by itself, does not constitute a
violation of the provisions of the Constitution
limiting land ownership to Filipinos and Filipino
corporations. As PHILYARDS correctly puts it, if
PHILSECO still owns land, the right of first refusal can
be validly assigned to a qualified Filipino entity in
order to maintain the 60%-40% ratio. This transfer, by
itself, does not amount to a violation of the Anti-
Dummy Laws, absent proof of any fraudulent intent.
The transfer could be made either to a nominee or
such other party which the holder of the right of first
refusal feels it can comfortably do business with.
Alternatively, PHILSECO may divest of its
landholdings, in which case KAWASAKI, in exercising
its right of first refusal, can exceed 40% of
PHILSECO’s equity. In fact, it can even be said that
if the foreign shareholdings of a landholding
corporation exceeds 40%, it is not the foreign
stockholders’ ownership of the shares which is
adversely affected but the capacity of the
corporation to own land – that is, the corporation
becomes disqualified to own land. This finds support
under the basic corporate law principle that the
corporation and its stockholders are separate juridical
entities. In this vein, the right of first refusal over
shares pertains to the shareholders whereas the
capacity to own land pertains to the corporation.
Hence, the fact that PHILSECO owns land cannot
deprive stockholders of their right of first refusal. No
law disqualifies a person from purchasing shares
in a landholding corporation even if the latter will
exceed the allowed foreign equity, what the law
disqualifies is the corporation from owning land.
This is the clear import of the following provisions in
the Constitution:
Section 2. All lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources
are owned by the State. With the exception of
agricultural lands, all other natural resources shall not
be alienated. The exploration, development, and
utilization of natural resources shall be under the full
control and supervision of the State. The State may
directly undertake such activities, or it may enter into
co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations
or associations at least sixty per centum of whose
capital is owned by such citizens. Such
agreements may be for a period not exceeding
twenty-five years, renewable for not more than
twenty-five years, and under such terms and
conditions as may be provided by law. In cases of
water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water
power, beneficial use may be the measure and limit of
the grant.
xxx xxx xxx
Section 7. Save in cases of hereditary succession, no
private lands shall be transferred or conveyed
except to individuals, corporations, or
associations qualified to acquire or hold lands of
the public domain.42(emphases supplied)
The petitioner further argues that "an option to buy
land is void in itself (Philippine Banking Corporation v.
Lui She, 21 SCRA 52 [1967]). The right of first refusal
granted to KAWASAKI, a Japanese corporation, is
similarly void. Hence, the right to top, sourced from
the right of first refusal, is also void."43 Contrary to the
contention of petitioner, the case of Lui She did not
that say "an option to buy land is void in itself," for we
ruled as follows:
x x x To be sure, a lease to an alien for a
reasonable period is valid. So is an option giving
an alien the right to buy real property on condition
that he is granted Philippine citizenship. As this
Court said in Krivenko vs. Register of Deeds:
[A]liens are not completely excluded by the
Constitution from the use of lands for residential
purposes. Since their residence in the Philippines is
temporary, they may be granted temporary rights such
as a lease contract which is not forbidden by the
Constitution. Should they desire to remain here
forever and share our fortunes and misfortunes,
Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also
an option to buy, a piece of land, by virtue of
which the Filipino owner cannot sell or otherwise
dispose of his property, this to last for 50 years,
then it becomes clear that the arrangement is a
virtual transfer of ownership whereby the owner
divests himself in stages not only of the right to
enjoy the land (jus possidendi, jus utendi, jus
fruendi and jus abutendi) but also of the right to
dispose of it (jus disponendi) — rights the sum
total of which make up ownership. It is just as if
today the possession is transferred, tomorrow,
the use, the next day, the disposition, and so on,
until ultimately all the rights of which ownership is
made up are consolidated in an alien. And yet this is
just exactly what the parties in this case did within this
pace of one year, with the result that Justina
Santos'[s] ownership of her property was reduced to a
hollow concept. If this can be done, then the
Constitutional ban against alien landholding in the
Philippines, as announced in Krivenko vs. Register
of Deeds, is indeed in grave peril.44 (emphases
supplied; Citations omitted)
In Lui She, the option to buy was invalidated because
it amounted to a virtual transfer of ownership as the
owner could not sell or dispose of his properties. The
contract in Lui She prohibited the owner of the land
from selling, donating, mortgaging, or encumbering
the property during the 50-year period of the option to
buy. This is not so in the case at bar where the mutual
right of first refusal in favor of NIDC and KAWASAKI
does not amount to a virtual transfer of land to a non-
Filipino. In fact, the case at bar involves a right of
first refusal over shares of stock while the Lui
She case involves an option to buy the land itself.
As discussed earlier, there is a distinction between the
shareholder’s ownership of shares and the
corporation’s ownership of land arising from the
separate juridical personalities of the corporation and
its shareholders.
We note that in its Motion for Reconsideration, J.G.
Summit alleges that PHILSECO continues to violate
the Constitution as its foreign equity is above 40%
and yet owns long-term leasehold rights which are
real rights.45It cites Article 415 of the Civil Code which
includes in the definition of immovable property,
"contracts for public works, and servitudes and other
real rights over immovable property."46 Any existing
landholding, however, is denied by PHILYARDS citing
its recent financial statements.47 First, these are
questions of fact, the veracity of which would require
introduction of evidence. The Court needs to validate
these factual allegations based on competent and
reliable evidence. As such, the Court cannot resolve
the questions they pose. Second, J.G. Summit
misreads the provisions of the Constitution cited in its
own pleadings, to wit:
29.2 Petitioner has consistently pointed out in the past
that private respondent is not a 60%-40% corporation,
and this violates the Constitution x x x The violation
continues to this day because under the law, it
continues to own real property…
xxx xxx xxx
32. To review the constitutional provisions involved,
Section 14, Article XIV of the 1973 Constitution (the
JVA was signed in 1977), provided:
"Save in cases of hereditary succession, no private
lands shall be transferred or conveyed except to
individuals, corporations, or associations qualified to
acquire or hold lands of the public domain."
32.1 This provision is the same as Section 7, Article
XII of the 1987 Constitution.
32.2 Under the Public Land Act, corporations qualified
to acquire or hold lands of the public domain are
corporations at least 60% of which is owned by
Filipino citizens (Sec. 22, Commonwealth Act 141, as
amended). (emphases supplied)
As correctly observed by the public respondents, the
prohibition in the Constitution applies only to
ownership of land.48 It does not extend to
immovable or real property as defined under
Article 415 of the Civil Code.Otherwise, we would
have a strange situation where the ownership of
immovable property such as trees, plants and growing
fruit attached to the land49 would be limited to Filipinos
and Filipino corporations only.
III.
WHEREFORE, in view of the foregoing, the
petitioner’s Motion for Reconsideration is DENIED
WITH FINALITY and the decision appealed from is
AFFIRMED. The Motion to Elevate This Case to the
Court En Banc is likewise DENIED for lack of merit.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago,
Corona, and Tinga, JJ., concur.
Footnotes
13
2. A decision or resolution of a Division of
the Court, when concurred in by a majority of
its Members who actually took part in the
deliberations on the issues in a case and
voted thereon, and in no case without the
concurrence of at least three of such
Members, is a decision or resolution of the
Supreme Court (Section 4[3], Article VIII, 1987
Constitution).
3. The Court en banc is not an
Appellate Court to which decisions or
resolutions of a Division may be
appealed.
xxx xxx xxx
5. A resolution of the Division denying
a party’s motion for referral to the
Court en banc of any Division case,
shall be final and not appealable to the
Court en banc.
6. When a decision or resolution is
referred by a Division to the Court en
banc, the latter may, in the absence of
sufficiently important reasons, decline
to take cognizance of the same, in
which case, the decision or resolution
shall be returned to the referring
Division.
7. No motion for reconsideration of the
action of the Court en banc declining
to take cognizance of a referral by a
Division, shall be entertained.
G.R. No. 124293 November 20, 2000
JG SUMMIT HOLDINGS, INC., petitioner,
vs.
COURT OF APPEALS, COMMITTEE ON
PRIVATIZATION, its Chairman and Members;
ASSET PRIVATIZATION TRUST and PHILYARDS
HOLDINGS, INC., respondents.
DECISION
YNARES-SANTIAGO, J.:
On January 27, 1977, the National Investment and
Development Corporation (NIDC), a government
corporation, entered into a Joint Venture Agreement
(JVA) with Kawasaki Heavy Industries, Ltd. of Kobe,
Japan (Kawasaki) for the construction, operation, and
management of the Subic National Shipyard, Inc.
(SNS), which subsequently became the Philippine
Shipyard and Engineering Corporation (PHILSECO).
Under the JVA, NIDC and Kawasaki would maintain a
shareholding proportion of 60%-40%, respectively.
One of the provisions of the JVA accorded the parties
the right of first refusal should either party sell, assign
or transfer its interest in the joint venture. Thus,
paragraph 1.4 of the JVA states:
"Neither party shall sell, transfer or assign all or any
part of its interest in SNS to any third party without
giving the other under the same terms the right of first
refusal. This provision shall not apply if the transferee
is a corporation owned or controlled by the
GOVERNMENT or by a KAWASAKI affiliate." (Italics
supplied.)
On November 25, 1986, NIDC transferred all its
rights, title and interest in PHILSECO to the Philippine
National Bank (PNB). More than two months later or
on February 3, 1987, by virtue of Administrative Order
No. 14, PNB’s interest in PHILSECO was transferred
to the National Government.
Meanwhile, on December 8, 1986, President Corazon
C. Aquino issued Proclamation No. 50 establishing
the Committee on Privatization (COP) and the Asset
Privatization Trust (APT) to take title to and
possession of, conserve, manage and dispose of non-
performing assets of the National Government. On
February 27, 1987, a trust agreement was entered
into between the National Government and the APT
by virtue of which the latter was named the trustee of
the National Government’s share in PHILSECO. In
1989, as a result of a quasi-reorganization of
PHILSECO to settle its huge obligations to PNB, the
National Government’s shareholdings in PHILSECO
increased to 97.41% thereby reducing Kawasaki’s
shareholdings to 2.59%.
Exercising their discretion, the COP and the APT
deemed it in the best interest of the national economy
and the government to privatize PHILSECO by selling
87.67% of its total outstanding capital stock to private
entities. After a series of negotiations between the
APT and Kasawaki, they agreed that the latter’s right
of first refusal under the JVA be "exchanged" for the
right to top by five percent (5%) the highest bid for
said shares. They further agreed that Kawasaki would
be entitled to name a company in which it was a
stockholder, which could exercise the right to top. On
September 7, 1990, Kawasaki informed APT that
Philyards Holdings, Inc. (PHI) would exercise its right
to top by 5%.
At the pre-bidding conference held on September 28,
1993, interested bidders were given copies of the JVA
between NIDC and Kawasaki, and of the Asset
Specific Bidding Rules (ASBR) drafted for the 87.67%
equity (sic) in PHILSECO of the National
1
Government. Salient provisions of the ASBR state:
"1.0. The subject of this Asset Privatization Trust
(APT) sale through public bidding is the National
Government’s equity in PHILSECO consisting of
896,869,942 shares of stock (representing 87.67% of
PHILSECO’s oustanding capital stock), which will
be sold as a whole block in accordance with the rules
herein enumerated.
xxx xxx xxx
3.0. This public bidding shall be on an Indicative Price
Bidding basis. The Indicative price set for the National
Government’s 87.67% equity in PHILSECO
is PESOS: ONE BILLION THREE HUNDRED
MILLION (P1,300,000,000.00).
xxx xxx xxx
12.0. The bidder shall be solely responsible for
examining with appropriate care these rules, the
official bid forms, including any addenda or
amendments thereto issued during the bidding period.
The bidder shall likewise be responsible for informing
itself with respect to any and all conditions concerning
the PHILSECO Shares which may, in any manner,
affect the bidder’s proposal. Failure on the part of the
bidder to so examine and inform itself shall be its sole
risk and no relief for error or omission will be given by
APT or COP. x x x."
The provisions of the ASBR were explained to the
interested bidders who were notified that bidding
would be held on December 2, 1993.
At the public bidding on said date, the consortium
composed of petitioner JG Summit Holdings, Inc.,
Sembawang Shipyard Ltd. of Singapore
(Sembawang), and Jurong Shipyard Limited of
Malaysia (Jurong), was declared the highest bidder at
P2.03 billion. The following day, December 3, 1993,
the COP approved the sale of 87.67% National
Government shares of stock in PHILSECO to said
consortium. It notified petitioner of said approval
"subject to the right of Kawasaki Heavy Industries,
Inc./Philyards Holdings, Inc. to top JGSMI’s
(petitioner’s) bid by 5% as specified in the bidding
rules."
On December 29, 1993, petitioner informed the APT
that it was protesting the offer of PHI to top its bid on
the grounds that: (a) the Kawasaki/PHI consortium
composed of Kawasaki, Philyards, Mitsui, Keppel, SM
Group, ICTSI and Insular Life violated the ASBR
because the last four (4) companies were the losing
bidders (for P1.528 billion) thereby circumventing the
law and prejudicing the weak winning bidder; (b) only
Kawasaki could exercise the right to top; (c) giving the
same option to top to PHI constituted unwarranted
benefit to a third party; (d) no right of first refusal can
be exercised in a public bidding or auction sale, and
(e) the JG Summit Consortium was not estopped from
questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI
had fully paid the balance of the purchase price of the
subject bidding. On February 7, 1994, the APT
notified petitioner that PHI had exercised its option to
top the highest bid and that the COP had approved
the same on January 6, 1994. On February 24, 1994,
the APT and PHI executed a Stock Purchase
Agreement.
Consequently, petitioner filed with this Court a petition
for mandamus under G.R. No. 114057. On May
11,1994, said petition was referred to the Court of
Appeals ---
"x x x for proper determination and disposition,
pursuant to Section 9, paragraph 1 of B.P. 129,
granting the Court of Appeals ‘original jurisdiction to
issue writs of mandamus x x x and auxiliary writs or
processes, whether or not in aid of its appellate
jurisdiction,’ which jurisdiction is concurrent with this
Court, there being no special and important reason for
this Court to assume jurisdiction over the case in the
first instance."
2
On July 18, 1995, the Court of Appeals "denied" for
lack of merit the petition for mandamus. Citing Guanio
v. Fernandez, it held that mandamus is not the proper
3
remedy to "compel the undoing of an act already done
or the correction of a wrong already perpetuated,
even though the action taken was clearly illegal." It
was further ruled that it was not the proper forum for a
"mere petition for mandamus" that aimed to question
the constitutionality or legality of the right of first
refusal and the right to top that was exercised by
Kawasaki/PHI and that the matter must be brought
"by the proper party in the proper forum at the proper
time and threshed out in a full blown trial."
After ruling that the right of first refusal and the right to
top are prima facie legal, the Court of Appeals found
petitioner to be in estoppel for the following reasons:
"5. If petitioner found the right to top to be illegal, it (B) THE RIGHT TO TOP WAS
should not have participated in the public bidding; or it GRANTED TO THE JAPANESE
should have questioned the legality of the rules before CORPORATION AT A TIME WHEN IT
the courts or filed a petition for declaratory relief (Rule MERELY HELD 2.6% EQUITY IN
64, Rules of Court) before the public bidding could PHILSECO.
have taken place.
(C) THE RIGHT OF FIRST REFUSAL
By participating in the public bidding, with full GRANTED TO THE JAPANESE
knowledge of the right to top granted to CORPORATION OVER SHARES OF
Kawasaki/Philyards, petitioner is estopped from STOCK IS CONTRARY TO THE
questioning the validity of the award given to CORPORATION CODE.
Philyards after the latter exercised the right to top and
had paid in full the purchase price of the subject (D) THE RIGHT TO TOP IS
shares, pursuant to the ASBR. CONTRARY TO PUBLIC POLICY AS
IT IS ANATHEMA TO COMPETITIVE
6. The fact that the losing bidder, Keppel Consortium PUBLIC BIDDING FOR BEING
(composed of Keppel, SM Group, Insular Life UNDULY RESTRICTIVE THEREOF,
Assurance, Mitsui and ICTSI) appears to have joined AND, MOREOVER, IS CONTRARY
Philyards in the latter’s effort to raise P2.131 billion TO DUE PROCESS OF LAW AS IT IS
necessary in exercising the right to top by 5% is a AGAINST THE BASIC RUDIMENTS
valid activity in free enterprise that is not contrary to OF FAIR PLAY.
law, public policy or public morals. It should not be a
cause of grievance for petitioner as it is the very (E) THE GRANT OF THE RIGHT TO
essence of free competition in the business world. TOP IS A CRIMINAL VIOLATION OF
Astute businessmen involved in the public bidding in THE ANTI-GRAFT LAW AS IT GIVES
question knew what they were up against. And when A CLEARLY UNWARRANTED
they participated in the public bidding with prior BENEFIT IN FAVOR OF PHILYARDS
knowledge of the right to top, they did so, with full AS SHOWN BY CLEAR AND
knowledge of the eventuality that the highest bidder UNDISPUTED DOCUMENTARY
may still be topped by Kawasaki/Philyards by 5%. It is EVIDENCE.
admitted by petitioner that it likewise represents a
consortium composed of JG Summit, Sembawang II.
Singapore and Jurong of Malaysia. Why should
petitioner then expect Philyards to limit itself to its own
THE COURT OF APPEALS GRIEVOUSLY
resources when the latter can enter into agreements
ERRED IN HOLDING THAT MANDAMUS IS
with other entities to help it raise the money it needed
NOT A PROPER REMEDY IN THIS CASE.
to pay the full purchase price as in fact it had already
paid the National Government in the amount of
P2.131 billion as required under the ASBR?" 4 III.

Petitioner filed a motion for the reconsideration of said FOLLOWING ITS OWN FINDINGS, THE
Decision which was denied on March 15, 1996. COURT OF APPEALS GRIEVOUSLY ERRED
Petitioner thus filed the instant petition for review (A) IN NOT DIRECTING THAT TRIAL BE
on certiorari, raising the following arguments: HELD ON ALLEGED ISSUES OF FACT AND
(B) IN NOT APPOINTING AN AMICUS
CURIAE FROM AMONG THE LAWYERS IN
I.
THE COMMISSION ON AUDIT TO
DETERMINE THE APPLICABILITY OF ITS
THE COURT OF APPEALS GRIEVOUSLY REQUIREMENTS TO THE TRANSACTIONS
ERRED IN HOLDING THAT PETITIONER JG IN THIS CASE. 5

SUMMIT IS LEGALLY ESTOPPED FROM

CHALLENGING THE LEGALITY OF THE
In their comment on the petition, private respondent
RIGHT TO TOP, INSERTED IN THE BIDDING
PHI contends that the real party in interest which
RULES, AS WELL AS THE RIGHT OF FIRST
should have filed the petition for mandamus is the JG
REFUSAL FROM WHICH THE RIGHT TO
Summit Consortium and not solely petitioner JG
TOP WAS ADMITTEDLY SOURCED, BY
Summit Holdings, Inc. which is just a part of that
SIMPLY STATING THAT THOSE RIGHTS
consortium. Since Sembawang and Jurong, the other
ARE VALID AND ENFORCEABLE WITHOUT
members of the consortium, are indispensable parties
RULING ON ANY OF THE IMPORTANT
to the petition, petitioner’s failure to implead them as
6

LEGAL AND CONSTITUTIONAL GROUNDS

co-petitioners warranted the dismissal of the petition.
RAISED BY THE PETITIONER AS
FOLLOWS:
Public respondents’ contention must fail. While it is
true that Rule 3, Section 2 of the Rules of Court
(A) THE RIGHT OF FIRST REFUSAL,
provides that "(a)ll persons having an interest in the
GRANTED TO A JAPANESE
subject of the action and in obtaining the relief
CORPORATION AT A TIME WHEN IT
demanded shall be joined as plaintiffs," petitioner may
HELD 40% EQUITY IN PHILSECO, A
file the petition alone. In the first place, Sembawang
LANDHOLDING CORPORATION, IS
and Jurong are not indispensable parties, such that
NULL AND VOID FOR BEING
their non-joinder as petitioners will not necessarily
CONTRARY TO THE
result in a failure to arrive at a final determination of
CONSTITUTION.
the case. They may be necessary parties as they
7
were members of the consortium that won the public
bidding prior to the exercise of the right to top by
private respondent, but the petition may be resolved
even without their active participation. Secondly, there
is a doubt as to whether or not said foreign
corporations are "subject to the jurisdiction of the
court as to both service of process and
venue." Thirdly, petitioner may be deemed to
8
represent Sembawang and Jurong. The admission of
petitioner’s counsel that said foreign corporations are
underwriting his and the other counsel’s fees reflects
this fact. By the nexus that binds the members of the
9
consortium, in the event that petitioner succeeds in
pursuing this case, it is bound to respect the existence
of the consortium and the corresponding
responsibilities arising therefrom.
Public respondents also contend that petitioner has
no standing to question the legality of a provision of
the JVA in which it is not a party. However, as this
10
Court held in Kilosbayan v. Morato, there is a
11
difference between the rule on real-party-in-interest
and the rule on standing, as the latter has
constitutional underpinnings. In the case at bar,
petitioner has sufficiently alleged constitutional
ramifications in the questioned public bidding of the
PHILSECO that merit the attention of the Court.
Moreover, the prospect of financial gains arising from
the award of the sale of PHILSECO is enough
personal stake in the outcome of the controversy to
vest upon petitioner the locus standi to file the petition
for mandamus. Besides, without Kawasaki-PHI’s right
to top the highest bid, petitioner would have been
awarded the sale as the highest bidder. A winning
bidder has personality to initiate proceedings to
prevent setting at naught his right; otherwise, his right
to due process would be violated. As such winning
12
bidder, petitioner has "a present substantial interest,"
or such interest in the subject matter of action as will
entitle it, under substantive law, to recover if the
evidence is sufficient.13
With respect to the propriety of the remedy availed by
petitioner, the Court of Appeals correctly held that the
special civil action of mandamus is not the proper
remedy to question the legality of the exercise of the
right to top by private respondent. It does not lie to
compel the award of a contract subject of bidding to
an unsuccessful bidder. Mandamus applies as a
14
remedy only where petitioner’s right is founded clearly
in law and not when it is doubtful. Thus:
15
"In order that a writ of mandamus may issue, it is
essential that the person petitioning for the same has
a clear legal right to the thing demanded and that it is
the imperative duty of the respondent to perform the
act required. It neither confers powers nor imposes
duties and is never issued in doubtful cases. It is
simply a command to exercise a power already
possessed and to perform a duty already imposed." 16
The Court of Appeals cannot declare petitioner as the
winning bidder in this case and direct the COP/APT to
award the sale to it without first determining the
validity of the right to top stipulated in the ASBR.
Moreover, the sale of government share in
PHILSECO is a fait accompli, in view of the execution
of the Stock Purchase Agreement between APT and
PHI. Mandamus may not be availed to direct the
exercise of judgment or discretion in a particular way
or to retract or reverse an action already taken in the
exercise of either.17
Be that as it may, the Court of Appeals erred when it
dismissed the petition on the sole ground of the
impropriety of the special civil action of mandamus. It
must be stressed that the petition was also one
for certiorari, seeking to nullify the award of the sale to
private respondent of the PHILSECO shares. Verily,
the petition alleges that "respondents COP and APT
have committed such a grave abuse of discretion
tantamount to lack or excess of their jurisdiction in
insisting on awarding the bid to Philyards, for the
various reasons stated herein, particularly since the
right of first refusal and the right to top the bid are
unconstitutional, contrary to law and public
policy." Petitioner’s failure to include certiorari in its
18
caption should not negate the fact that the petition
charged public respondent with grave abuse of
discretion in awarding the sale to private respondent.
Well-settled is the rule that it is not the caption of the
pleading but the allegations therein that determine the
nature of the action and the Court shall grant relief
warranted by the allegations and the proof even if no
such relief is prayed for.19
Petitioner’s main contention is that PHILSECO, as a
shipyard, is a public utility and, hence, could be
operated only by a corporation at least 60% of whose
capital is owned by Filipino citizens, in accordance
with Article XII, Section 10 of the Constitution.
Petitioner asserts that a shipyard is a public utility
pursuant to Section 13 (b) of Commonwealth Act No.
146. Respondents, on the other hand, contend that
20
shipyards are no longer public utilities by express
provision of Presidential Decree No. 666, which
provided incentives to the shipbuilding and ship repair
industry.
Indeed, P.D. No. 666 dated March 5, 1975 explicitly
stated that a "shipyard" was not a "public utility."
Section 1 thereof provide as follows:
"d) Registration required but not as Public
Utility. – The business of constructing and repairing
vessels or parts thereof shall not be considered a
public utility and no Certificate of Public Convenience
shall be required therefor. However, no shipyard,
graving dock, marine railway or marine repair shop
and no person or enterprise shall engage in the
construction and/or repair of any vessel, or any phase
or part thereof, without a valid Certificate of
Registration and license for this purpose from the
Maritime Industry Authority, except those owned or
operated by the Armed Forces of the Philippines or by
foreign governments pursuant to a treaty or
agreement." (Underscoring supplied.)
However, Section 1 of P.D. No. 666 was expressly
repealed by Section 20 of Batas Pambansa Blg. 391,
the Investment Incentive Policy Act of
1983. Subsequently, Executive Order No. 226, the
21
Omnibus Investments Code of 1987, was issued and
Section 85 thereof expressly repealed B.P. Blg. 391. 22
The express repeal of B.P. Blg. 391 by E.O. No. 226
did not revive Section 1 of P.D. No. 666, declassifying
the shipbuilding and ship repair industry as a public
utility, as said executive order did not provide
otherwise. When a law which expressly repeals a
prior law is itself repealed, the law first repealed shall
not be thereby revived unless expressly so
provided. Consequently, when the APT drafted the
23
ASBR sometime in 1993, P.D. No. 666 no longer
existed in our statute books. While it is true that the
repeal of a statute does not operate to impair rights
that have become vested or accrued while the statute
was in force, there are no vested rights of the parties
that should be protected in the case at bar. The
reason is simple: said decree was already inexistent
when the ASBR was issued.
A shipyard such as PHILSECO being a public utility
as provided by law, the following provision of the
Article XII of the Constitution applies:
"Sec. 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to
corporations or associations organized under the laws
of the Philippines at least sixty per centum of whose
capital is owned by such citizens, nor shall such
franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years.
Neither shall any such franchise or right be granted
except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall
encourage equity participation in public utilities by the
general public. The participation of foreign investors
in the governing body of any public utility enterprise
shall be limited to their proportionate share in its
capital, and all the executive and managing officers of
such corporation or association shall be citizens of
the Philippines." (Italics supplied.)
The progenitor of this constitutional provision, Article
XIV, Section 5 of the 1973 Constitution, required the
same proportion of 60%-40% capitalization. The JVA
between NIDC and Kawasaki entered into on January
27, 1977 manifests the intention of the parties to
abide by the constitutional mandate on capitalization
of public utilities. Paragraph 1.3 of the JVA, as
24
amended by Addendum No. 2 dated December 28,
1983, provides:
25
"The authorized capital stock of PHILSECO shall be
P330 milion. The parties shall thereafter increase their
subscription in PHILSECO as may be necessary and
as called by the Board of Directors, maintaining a
proportion of 60%-40% for NIDC and KAWASAKI,
respectively, up to a total subscribed and paid-up
capital stock of P312 million." (Underscoring
supplied.)
A joint venture is an association of persons or
companies jointly undertaking some commercial
enterprise with all of them generally contributing
assets and sharing 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. Persons
26
and business enterprises usually enter into a joint
venture because it is exempt from corporate income
tax. Considered more of a partnership, a joint
27 28
venture is governed by the laws on contracts and on
partnership. The joint venture created between NIDC
and Kawasaki falls within the purview of an
"association" pursuant to Section 5 of Article XIV of
the 1973 Constitution and Section 11 of Article XII of
the 1987 Constitution. Consequently, a joint venture
that would engage in the business of operating a
public utility, such as a shipyard, must observe the
proportion of 60%-40% Filipino-foreign capitalization.
Notably, paragraph 1.4 of the JVA accorded the
parties the right of first refusal "under the same
terms." This phrase implies that when either party
exercises the right of first refusal under paragraph 1.4,
they can only do so to the extent allowed them by
paragraphs 1.2 and 1.3 of the JVA or under the
proportion of 60%-40% of the shares of stock. Thus,
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 of
SNS or PHILSECO. 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.
Parenthetically, the Maritime Industry Authority
(MARINA) which has been tasked to regulate the
operation of shipbuilding and ship repair
yards, abides by the Filipino capitalization
29
requirement as far as corporations and partnerships
are concerned. However, Section 2.3.1 (a) of its
Memorandum Circular No. 95, Series of 1994, setting30
out the Revised Implementing Guidelines on the
Licensing of Shipbuilders, Ship Repairers, Afloat
Repairers, Boatbuilders and Shipbreakers, seems to
exempt joint ventures registered with the SEC, the
BOI and the EPZA from the 60% requirement of
Filipino ownership. The said provision states:
31
"The applicant must be a Filipino citizen or a
corporation/partnership at least 60% of the authorized
capital stock of which is owned by Filipino citizens
except for joint ventures which are registered with the
Securities and Exchange Commission, the Board of
Investments and/or Export Processing Zone
Authorities."32
The constitutionality of said MARINA guideline,
however, is not in issue here. 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.
From the facts on record, it appears that at the outset,
the APT and Kawasaki respected the 60%-40%
capitalization proportion in PHILSECO. However, APT
subsequently encouraged Kawasaki to participate in
the public bidding of the National Government’s
shareholdings of 87.67% of the total PHILSECO
shares, definitely over and above the 40% limit of its
shareholdings. In so doing, the APT went beyond the
ambit of its authority.
It is well settled that the role of courts is to ascertain
whether a branch or instrumentality of Government
has transgressed its constitutional or statutory
boundaries. The courts, must examine those
boundaries in the light of provisions of the law.
Otherwise, it would stray into the realm of policy
decision-making. 33
Proclamation No. 50, creating the COP and the APT,
was issued by President Corazon C. Aquino pursuant
to her legislative powers under the Provisional
Constitution of 1986. Section 12 of said Proclamation
vested the APT with the following powers:
(1) To formulate and, after approval by the
Committee, implement a program for the
disposition of assets transferred to it under
this Proclamation, such program to be
completed within a period of five years from
the date of the issuance of this Proclamation;
(2) Subject to its having received the prior
written approval of the Committee to sell such
asset at a price and on terms of payment and
to a party disclosed to the Committee, to sell
each asset referred to it by the Committee to
such party and on such terms as in its
discretion are in the best interest of the
National Government, and for such purpose to
execute and deliver, on behalf and in the
name of the National Government, such
deeds of sale, contracts and other instruments
as may be necessary or appropriate to convey
title to such assets;
xxx xxx xxx
(7) To adopt its internal rules and regulations,
to adopt, alter and use a seal which shall be
judicially noticed; to enter into contracts; to
sue and be sued;
xxx xxx x x x"
Pursuant to these provisions, the APT drafted the
ASBR. Since the APT’s rule-making authority is
merely delegated, the ASBR should be measured by
the standard set by said proclamation. Notably, the
34
discretion granted by the proclamation to the APT for
the sale of government property is circumscribed only
by the "best interest of the National Government."
Implicitly written in any delegated legislative authority,
such as that provided for in Proclamation No. 50, is
the requisite that the rules and regulations which an
administrative body adopts must respect pertinent
provisions of the Constitution and the law. Article XII,
35
Section 11 of the Constitution providing for a 60%
Filipino capitalization in order that public utilities may
be granted a franchise should thus be deemed a
paramount consideration in drafting the ASBR. In this
regard, worth noting is paragraph 15.0 of the ASBR,
which provides that:
"In the event that the winning bidder is a 100%
foreign-owned corporation, it may name its nominee
corporation to whom the NG shares shall be
conveyed, provided it owns 40% equity in the
nominee corporation, so as not to affect PHILSECO’s
qualification to own real estate properties in the
Philippines."
This rule is fraught with dangerous implications. It
allows a completely foreign corporation to participate
in the public bidding of more than 60% of the total
shares of a public utility corporation without setting a
period within which the foreign bidder should name its
nominee. As it is, the rule allows a totally foreign
investor to engage in the business of operating a
public utility for an unlimited period of time in total
disregard of the constitutional proscription on the
percentage of Filipino ownership of corporations
engaged therein. Paragraph 15.0 of the ASBR is thus
directly and openly repugnant to the Constitution
considering that it allows foreign corporations to
operate a public utility for an unlimited period of time.
In carrying out its objective of disposing of
government property, the APT should take into
account the pertinent laws. Since the method of
disposing the PHILSECO that the APT had adopted
was through public bidding, it was duty-bound to
follow the rules and regulations on competitive public
bidding, in order to uphold the elementary rule on
fairness in such disposition. As this Court once said:
"x x x. A competitive public bidding aims to protect the
public interest by giving the public the best possible
advantages through open competition. It is a
mechanism that enables the government agency to
avoid or preclude anomalies in the execution of public
contracts."36
The word "bidding" in its comprehensive sense means
making an offer or an invitation to prospective
37
contractors whereby the government manifests its
intention to make proposals for the purchase of
38
supplies, materials and equipment for official business
or public use, or for public works or repair. The three
39
principles in public bidding are: the offer to the public;
an opportunity for competition; and a basis for exact
comparison of bids. The distinctive character of the
system is destroyed and the purpose of its adoption is
thwarted when a regulation thereon excludes any of
these principles. Public bidding of government
40
contracts and for the disposition of government assets
should have the same principles and objectives. Their
only difference, if at all, is that in the public bidding for
public contracts, the award is generally given to the
lowest bidder while in the disposition of government
assets, the award is to the highest bidder. The term
41
"public bidding" imports a sale to the highest bidder
with absolute freedom for competitive bidding. 42
Under Section 504 of the Government Auditing Rules
and Regulations, a public auction, which is the mode
of divestment or disposal of government property,
shall adhere to established mechanics and
procedures in public bidding. In such public auction
43
sales, the presence of a Commission on Audit (COA)
representative who shall see to the proper
observance of auditing rules is imperative. In this
44
case, there is no record that a COA representative
witnessed the public auction on December 2, 1993.
Neither is there a showing that the APT observed the
requirement of COA Circular No. 89-296, to the effect
that a government entity that is disposing of
government property shall furnish the COA with the
disposal procedure adopted. Likewise, nowhere in the
record is it stated that the APT heeded the suggestion
of Secretary of Finance and COP Chairman Jayme
that its decision to grant Kawasaki the right to top the
highest bid be made "known to the Commission on
Audit." What appears on record is that the COA did
not approve the ASBR, specifically the provision on
the right to top the highest bidder. Thus, then COA
Chairman Pascasio S. Banaria, replying to the query
of petitioner’s counsel on whether or not the COA had
approved the right to top the highest bid by 5%,
stated:
"Per information received from our Auditor at APT, no
prior approval was issued by their Office regarding
said preferential option. We have instructed our
Auditor thereat to advise this Office of the result of the
review of the Corporation’s procedures for the sale of
the assets including the review of the bidding
documents pertaining to the subject public bidding
pursuant to the provisions of the Commission on Audit
Circular No. 89-296 dated January 27, 1989." 45
In according the KHI/PHI the right to top, the APT
violated the rule on competitive public bidding, under
which the highest bidder is declared the winner
entitled to the award of the subject of the auction sale.
In effect, the grant to KHI/PHI of the right to top can
be likened to a second bidding, which, however, is
allowed only if there is a failure of bidding, such as
when there is only one bidder or none at all. By
46
placing KHI/PHI in the advantageous position of
topping the highest bidder, the APT set aside the
basic rule in public bidding that there be an
opportunity for competition.
While it may be argued that the right to top was aimed
at giving the best financial advantage to the
government, the manner by which that right was
conceived and arrived at in this case manifested bias
in favor of KHI, thereby clearly brushing aside the rule
on fair competition. More importantly, the ASBR
provision on the right to top the highest bidder
completely disregarded the stipulation in the JVA
between NIDC and KHI to comply with the 60%-40%
capitalization arrangement whereby KHI, the foreign
investor, would be able to exercise its right of first
refusal to the extent of only 40% of the total
capitalization of the PHILSECO. Thus, KHI, whose
investment exposure was already diminished to only
2.59% of the total PHILSECO shares, was given the
privilege, through its nominee PHI, of exercising the
right to top the highest bid to 87.67% of those shares
or definitely over and above its 40% contractual right
to PHILSECO shares under the JVA. Consequently,
the APT rendered nugatory the constitutional and
contractual proscriptions clearly to favor a foreign
investor.
Furthermore, while the right of first refusal entitled KHI
to priority in the award of the contract, that right
cannot bar another bidder from submitting a bid
because, precisely, the law requires public bidding in
government contracts. Thus, by engrafting in the
47
provisions of the ASBR the right to top, which was
only an offshoot of the right of first refusal, the APT
effectively did away with pubic bidding insofar as
KHI/PHI was concerned. To be sure, the right to top is
different from the right to match. In the latter, a
qualified bidder is given the privilege of offering the
same bid as that of the highest bidder. In the former,
48
as provided for by the ASBR, a non-bidder is
accorded the right to top the highest bid. There is
reason, therefore, for the petitioner to complain that
the APT made a show of a public bidding in order to
elicit the highest bid, only to award the sale to a non-
bidder. The unfair manner by which the purported
public bidding was conducted by the APT is even
made more blatant by the fact that after the "public
bidding," KHI exercised the right to top through its
nominee, private respondent PHI, which has among
its stockholders some losing bidders.
In drafting the ASBR, the APT should have noted the
fact that foreign investors were competing in the
bidding. While it is true that foreign investment should
be encouraged in this country, however, the ASBR
provision on the right to top is unfair to all competitors,
be they foreign or local, in the public auction of
87.67% of PHILSECO shares as it provided for a
method that would set at naught the entire public
bidding.
It was thus error for the Court of Appeals to conclude
that petitioner was estopped from contesting the
validity of the ASBR and the bidding procedure
conducted pursuant to it. It is clear from the provisions
of the ASBR itself that the basic rules on fair
competition in public biddings have been disregarded.
Although petitioner had the opportunity to examine the
ASBR before it participated in the bidding, it cannot be
estopped from questioning the unconstitutional, illegal
and inequitable provisions thereof. Estoppel is
unavailing in this case; otherwise, it would stamp
validity to an act that is prohibited by law or against
public policy.
49
WHEREFORE, the instant petition for review
on certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED
and SET ASIDE. Petitioner is ordered to pay to APT
its bid price of Two Billion Thirty Million Pesos
(P2,030,000,000.00), less its bid deposit plus interests
upon the finality of this Decision. In turn, APT is
ordered to:
(a) accept said amount of P2,030,000,000.00
less bid deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with
petitioner;
(c) cause the issuance in favor of petitioner of
the certificates of stocks representing 87.67%
of PHILSECO’s total capitalization;
(d) return to private respondent PHI the
amount of Two Billion One Hundred Thirty
One Million Five Hundred Thousand Pesos
(P2,131,500,000.00); and
(e) cause the cancellation of the stock
certificates issued to PHI.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and
Pardo, JJ., concur.
Footnotes
The term "public service" includes every
20
person that now or hereafter may own,
operate, manage, or control in the Philippines,
for hire or compensation, with general or
limited clientele, whether permanent,
occasional or accidental, and done for general
business purposes, any common carrier,
railroad, street railway, traction railway, sub-
way motor vehicle, either for freight or
passenger, or both with or without fixed route
and whatever may be its classification, freight
or carrier service of any class, express
service, steamboat, or steamship line,
pontines, ferries, and water craft, engaged in
the transportation of passengers or freight or
both, shipyard, marine railway, marine repair
shop, wharf or dock, ice plant, ice-refrigeration
plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power,
petroleum, sewerage system, wire or wireless
communications system, wire or wireless
broadcasting stations and other similar public
services x x x. (Emphasis supplied)
21
The repealing clause states:
"Sec. 20. The following provisions are
hereby repealed:
1) Section 53, P.D. 463 (Mineral
Resources Development Decree);
2) Section 1, P. D. 666 (Shipbuilding
and Ship Repair Industry);
3) Section 6, P. D. 1101 (Radioactive
Minerals);
4) LOI 508 extending P.D. 791 and
P.D. 924 (Sugar); and
5) The following articles of Presidential
Decree 1789: 2, 18, 19, 22, 28, 30, 39,
49(d), 62, and 77. Articles 45, 46 and
48 are hereby amended only with
respect to domestic and export
producers.
All other laws, decrees, executive
orders, administrative orders, rules
and regulations or parts thereof which
are inconsistent with the provisions of
this Act are hereby repealed,
amended or modified accordingly.
All other incentive systems which are
not in any way affected by the
provisions of this Act may be
restructured by the President so as to
render them cost-efficient and to make
them conform with the other policy
guidelines in the declaration of policy
provided in Section 2 of this Act."
"ART. 85. Repealing Clause. – The following
22
provisions or laws are hereby repealed:
1) Batas Pambansa 44
2) Batas Pambansa 391 (1983)
3) Presidential Decree No. 218
4) Presidential Decree No. 1419
5) Presidential Decree No. 1623, as
amended
6) Presidential Decree No. 1789
(1981)
7) Presidential Decree No. 2032
8) Executive Order No. 815
9) Executive Order No. 1945 (1985)
All other laws, decrees, executive
orders, administrative orders, rules
and regulations or parts thereof which
are inconsistent with the provisions of
this Code are hereby repealed,
amended or modified accordingly."
Chapter II, Book II of Executive Order No.
31
226 provides:
ART. 46. Permitted Investments. – (1)
Without need of prior authority, anyone
not a Philippine national as that term
is defined in Article 15 of this Code,
and not otherwise disqualified by law,
may invest:
(a) In any enterprise registered under
Book One hereof, to the extent that
the total investment of non-Philippine
nationals therein would not affect its
status as a registered enterprise under
the law;
(b) In an enterprise not registered
under Book One hereof, to the extent
that the total investment of non-
Philippine nationals herein shall not
exceed forty percent (40%) of the
outstanding capital of that enterprise,
unless existing law forbids any non-
Philippine ownership in the enterprise
or limits ownership by non-Philippine
national to a percentage smaller than
forty percent (40%).
(2) Within thirty (30) days after notice
of the investment is received by it, the
enterprise in which any investment is
made by a non-Philippine national
shall register the same with the Board
of Investments for purposes of record.
Investments made in the form of
foreign exchange or other assets
actually transferred to the Philippines
shall also be registered with the
Central Bank. The Board shall assess
and appraise the value of such assets
other than foreign exchange.
There is no record showing that the joint
32
venture between NIDC and Kawasaki was
registered with the SEC, the Board of
Investments and/or Export Processing Zone
Authorities.

The pertinent provision of COA Circular No.

44

89-296 states:

"VII. COA ROLE DURING DISPOSAL:

-

In all modes or instances of disposal

of government property or assets as
hereinabove contemplated, the
proceedings shall be undertaken by
the appropriate authority in the
presence of the Auditor or other COA
representative who shall act as an
intelligent, responsible and articulate
witness thereto. The said act of
witnessing shall not be confined
merely to seeing what is being done
during the proceedings but shall be
related to the more meaningful
discharge by the Auditor of his/her
constitutional duty to examine, audit
and settle all accounts pertaining to G.R. No. 124293 September 24, 2003
the expenditures or uses of
government funds and property. Thus, JG SUMMIT HOLDINGS, INC., Petitioner,
the Auditor acting as such witness vs.
may verbally advise the agency head COURT OF APPEALS, COMMITTEE ON
or his duly authorized representative PRIVATIZATION, its Chairman and Members;
of any objectionable feature/s of the ASSET PRIVATIZATION TRUST and PHILYARDS
proceedings. Otherwise, he may sign HOLDINGS, INC., Respondents.
documents and other papers pertinent
only to those proceedings which he
Administrative Law; Public Utilities; Definition; To
witnessed with his comments which
constitute a public utility, the facility must be
he deems necessary under the
necessary for the maintenance of life and occupation
circumstances. Related advices
of the residents.—A “public utility” is “a business or
and/or comments done in writing
service engaged in regularly supplying the public with
should invariably be sent officially to
some commodity or service of public consequence
and duly receipted for by the head of
such as electricity, gas, water, transportation,
the agency or his duly authorized
telephone or telegraph service.” To constitute a public
representative concerned. These
utility, the facility must be necessary for the
written advices or comments shall
maintenance of life and occupation of the residents.
form part of the bases of action to be
However, the fact that a business offers services or
taken by the auditor in the pre-audit or
goods that promote public good and serve the interest
post audit of the subject transactions."
of the public does not automatically make it a public
utility. Public use is not synonymous with public
Manila Prince Hotel v. GSIS, supra, at p.
48
interest. As its name indicates, the term “public utility”
100. In that case, the bidding rules provided implies public use and service to the public. The
that "if for any reason, the Highest Bidder principal determinative characteristic of a public utility
cannot be awarded the Block of Shares, GSIS is that of service to, or readiness to serve, an
may offer this to the other Qualified Bidders indefinite public or portion of the public as such which
that have validly submitted bids provided that has a legal right to demand and receive its services or
these Qualified Bidders are willing to match commodities. Stated otherwise, the owner or person
the highest bid in terms of price per share." in control of a public utility must have devoted it to
such use that the public generally or that part of the
public which has been served and has accepted the
service, has the right to demand that use or service so
long as it is continued, with reasonable efficiency and
under proper charges. Unlike a private enterprise
which independently determines whom it will serve, a
“public utility holds out generally and may refuse
legitimate demand for service.”

Same; Same; “Public Use”; Definition; The true

criterion by which to judge the character of the use is
whether the public may enjoy it by right or only by
permission.—“Public use” means the same as “use by
the public.” The essential feature of the public use is
that it is not confined to privileged individuals, but is
open to the indefinite public. It is this indefinite or
unrestricted quality that gives it its public character. In
determining whether a use is public, we must look not
only to the character of the business to be done, but
also to the proposed mode of doing it. If the use is
merely optional with the owners, or the public benefit
is merely incidental, it is not a public use, authorizing
the exercise of jurisdiction of the public utility
commission. There must be, in general, a right which
the law compels the owner to give to the general
public. It is not enough that the general prosperity of
the public is promoted. Public use is not synonymous
with public interest. The true criterion by which to
judge the character of the use is whether the public
may enjoy it by right or only by permission. (emphasis
supplied)
Same; Same; “Bidding”; Definition; Principles.—The
word “bidding” in its comprehensive sense means
making an offer or an invitation to prospective
contractors whereby the government manifests its
intention to make proposals for the purpose of
supplies, materials and equipment for official business
or public use, or for public works or repair. The three
principles of public bidding are: (1) the offer to the
public; (2) an opportunity for competition; and (3) a
basis for comparison of bids. As long as these three
principles are complied with, the public bidding can be
considered valid and legal. It is not necessary that the
highest bid be automatically accepted. The bidding
rules may specify other conditions or the bidding
process be subjected to certain reservation or
qualification such as when the owner reserves to
himself openly at the time of the sale the right to bid
upon the property, or openly announces a price below
which the property will not be sold. Hence, where the
seller reserves the right to refuse to accept any bid
made, a binding sale is not consummated between
the seller and the bidder until the seller accepts the
bid. Furthermore, where a right is reserved in the
seller to reject any and all bids received, the owner
may exercise the right even after the auctioneer has
accepted a bid, and this applies to the auction of
public as well as private property.
Same; Same; Same; Where the invitation to bid
contains a reservation for the Government to reject
any or all bids, the lowest or the highest bidder, as the
case may be, is not entitled to an award as a matter of
right for it does not become a ministerial duty of the
Government to make such an award.—It is a settled
rule that where the invitation to bid contains a
reservation for the Government to reject any or all
bids, the lowest or the highest bidder, as the case
may be, is not entitled to an award as a matter of right
for it does not become a ministerial duty of the
Government to make such an award. Thus, it has
been held that where the right to eject is so reserved,
the lowest bid or any bid for that matter may be
rejected on a mere technicality, that all bids may be
rejected, even if arbitrarily and unwisely, or under a
mistake, and that in the exercise of a sound
discretion, the award may be made to another than
the lowest bidder. And so, where the Government—as
advertiser, availing itself of that right, makes its choice
in rejecting any or all bids, the losing bidder has no
cause to complain nor right to dispute that choice,
unless an unfairness or injustice is shown.
Accordingly, he has no ground of action to compel the
Government to award the contract in his favor, nor
compel it to accept his bid.
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.
TINGA, J., Separate Opinion:
Administrative Law; “Public Service”; Definition;
Distinguished from “Public Utility”; Public service is
different from public utility.—The definition of “public
service” in the Public Service Act, as last amended by
Republic Act No. 2677, includes every person who
owns, operates, manages or controls, for hire or
compensation, and done for general business
purposes, any common carrier, railroad, street railway,
traction railway, sub-way motor vehicle, either for
freight or passenger, or both with or without fixed
route and whatever may be its classification, freight or
carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries, and
water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine
railway, marine repair shop, wharf or dock, ice plant,
ice refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power,
petroleum, sewerage system, wire or wireless
communications systems, broadcasting stations and
other similar public services. A “public utility,” on the
other hand, is a business or service engaged in
regularly supplying the public with some commodity or
service of public consequence such as electricity, gas,
water, transportation, telephone or telegraph service.
Simply stated, a public utility provides a service or
facility needed for present day living which cannot be
denied to anyone who is willing to pay for it.
Same; Same; Same; All public utilities are public
services but the converse is not true.—Another
dissimilarity is that a public utility requires a franchise,
aside from a certificate of public necessity and
convenience, for its operation, while a public service
which is not a public utility requires only a certificate of
public convenience. The dichotomy in requirements
flows from the enforced indeterminacy of the market
for the service provided by a public utility. Thus, it may
be pointed out that all public utilities are public
services but the converse is not true. This is so
because the term “public utility” connotes public use
and service to the public.
Same; Public Utilities; Whether or not a given
business or industry is a public utility depends upon
the nature of the business or service rendered.—“* * *
Whether or not a given business, industry, or service
is a public utility does not depend upon legislative
definition, but upon the nature of the business or
service rendered, and an attempt to declare a
company or enterprise to be a public utility, where it is
inherently not such, is, by virtue of the guaranties of
the federal constitution, void whenever it interferes
with private rights of property or contract. So a
legislature cannot by mere fiat or regulatory order
convert a private business or enterprise into a public
utility, and the question whether or not a particular
company or service is a public utility is a judicial one,
and must be determined as such by a court of
competent jurisdiction, * * *.” (51 C.J., sec. 3, p. 5)
[Emphasis supplied]

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

RESOLUTION

PUNO, J.:

The core issue posed by the Motions for

Reconsideration is whether a shipyard is a public
utility whose capitalization must be sixty percent
(60%) owned by Filipinos. Our resolution of this issue
will determine the fate of the shipbuilding and ship
repair industry. It can either spell the industry’s
demise or breathe new life to the struggling but
potentially healthy partner in the country’s bid for
economic growth. It can either kill an initiative yet in its
infancy, or harness creativity in the productive
disposition of government assets.

The facts are undisputed and can be summarized

briefly as follows:

On January 27, 1977, the National Investment and

Development Corporation (NIDC), a government
corporation, entered into a Joint Venture Agreement
(JVA) with Kawasaki Heavy Industries, Ltd. of Kobe,
Japan (KAWASAKI) for the construction, operation
and management of the Subic National Shipyard, Inc.
(SNS) which subsequently became the Philippine
Shipyard and Engineering Corporation (PHILSECO).
Under the JVA, the NIDC and KAWASAKI will
contribute ₱330 million for the capitalization of
PHILSECO in the proportion of 60%-40%
respectively. One of its salient features is the grant to
1

the parties of the right of first refusal should either of

them decide to sell, assign or transfer its interest in
the joint venture, viz:

1.4 Neither party shall sell, transfer or assign all or

any part of its interest in SNS [PHILSECO] to any
third party without giving the other under the same
terms the right of first refusal. This provision shall not
apply if the transferee is a corporation owned or
controlled by the GOVERNMENT or by a KAWASAKI
affiliate.
2
On November 25, 1986, NIDC transferred all its
rights, title and interest in PHILSECO to the Philippine
National Bank (PNB). Such interests were
subsequently transferred to the National Government
pursuant to Administrative Order No. 14. On
December 8, 1986, President Corazon C. Aquino
issued Proclamation No. 50 establishing the
Committee on Privatization (COP) and the Asset
Privatization Trust (APT) to take title to, and
possession of, conserve, manage and dispose of non-
performing assets of the National Government.
Thereafter, on February 27, 1987, a trust agreement
was entered into between the National Government
and the APT wherein the latter was named the trustee
of the National Government’s share in PHILSECO. In
1989, as a result of a quasi-reorganization of
PHILSECO to settle its huge obligations to PNB, the
National Government’s shareholdings in PHILSECO
increased to 97.41% thereby reducing KAWASAKI’s
shareholdings to 2.59%. 3
In the interest of the national economy and the
government, the COP and the APT deemed it best to
sell the National Government’s share in PHILSECO to
private entities. After a series of negotiations between
the APT and KAWASAKI, they agreed that the latter’s
right of first refusal under the JVA be "exchanged" for
the right to top by five percent (5%) the highest bid for
the said shares. They further agreed that KAWASAKI
would be entitled to name a company in which it was
a stockholder, which could exercise the right to top.
On September 7, 1990, KAWASAKI informed APT
that Philyards Holdings, Inc. (PHI) would exercise its
right to top. 4
At the pre-bidding conference held on September 18,
1993, interested bidders were given copies of the JVA
between NIDC and KAWASAKI, and of the Asset
Specific Bidding Rules (ASBR) drafted for the
National Government’s 87.6% equity share in
PHILSECO. The provisions of the ASBR were
5
explained to the interested bidders who were notified
that the bidding would be held on December 2, 1993.
A portion of the ASBR reads:
1.0 The subject of this Asset Privatization
Trust (APT) sale through public bidding is the
National Government’s equity in PHILSECO
consisting of 896,869,942 shares of stock
(representing 87.67% of PHILSECO’s
outstanding capital stock), which will be sold
as a whole block in accordance with the rules
herein enumerated.
...
2.0 The highest bid, as well as the buyer, shall
be subject to the final approval of both the
APT Board of Trustees and the Committee on
Privatization (COP).
2.1 APT reserves the right in its sole
discretion, to reject any or all bids.
3.0 This public bidding shall be on an
Indicative Price Bidding basis. The Indicative
price set for the National Government’s
87.67% equity in PHILSECO is PESOS: ONE
BILLION THREE HUNDRED MILLION
(₱1,300,000,000.00).
...
6.0 The highest qualified bid will be submitted
to the APT Board of Trustees at its regular
meeting following the bidding, for the purpose
of determining whether or not it should be
endorsed by the APT Board of Trustees to the
COP, and the latter approves the same. The
APT shall advise Kawasaki Heavy Industries,
Inc. and/or its nominee, Philyards Holdings,
Inc., that the highest bid is acceptable to the
National Government. Kawasaki Heavy
Industries, Inc. and/or Philyards Holdings, Inc.
shall then have a period of thirty (30) calendar
days from the date of receipt of such advice
from APT within which to exercise their
"Option to Top the Highest Bid" by offering a
bid equivalent to the highest bid plus five (5%)
percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc.
and/or Philyards Holdings, Inc. exercise their
"Option to Top the Highest Bid," they shall so
notify the APT about such exercise of their
option and deposit with APT the amount
equivalent to ten percent (10%) of the highest
bid plus five percent (5%) thereof within the
thirty (30)-day period mentioned in paragraph
6.0 above. APT will then serve notice upon
Kawasaki Heavy Industries, Inc. and/or
Philyards Holdings, Inc. declaring them as the
preferred bidder and they shall have a period
of ninety (90) days from the receipt of the
APT’s notice within which to pay the balance
of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc.
and/or Philyards Holdings, Inc. fail to exercise
their "Option to Top the Highest Bid" within the
thirty (30)-day period, APT will declare the
highest bidder as the winning bidder.
...
12.0 The bidder shall be solely responsible for
examining with appropriate care these rules,
the official bid forms, including any addenda
or amendments thereto issued during the
bidding period. The bidder shall likewise be
responsible for informing itself with respect to
any and all conditions concerning the
PHILSECO Shares which may, in any manner,
affect the bidder’s proposal. Failure on the
part of the bidder to so examine and inform
itself shall be its sole risk and no relief for
error or omission will be given by APT or COP.
. ..
6
At the public bidding on the said date, petitioner J.G.
Summit Holdings, Inc. submitted a bid of Two Billion
and Thirty Million Pesos (₱2,030,000,000.00) with an
acknowledgement of KAWASAKI/Philyards’ right to
top, viz:
4. I/We understand that the Committee on
Privatization (COP) has up to thirty (30) days to act on
APT’s recommendation based on the result of this
bidding. Should the COP approve the highest bid,
APT shall advise Kawasaki Heavy Industries, Inc.
and/or its nominee, Philyards Holdings, Inc. that the
highest bid is acceptable to the National Government.
Kawasaki Heavy Industries, Inc. and/or Philyards
Holdings, Inc. shall then have a period of thirty (30)
calendar days from the date of receipt of such advice
from APT within which to exercise their "Option to Top
the Highest Bid" by offering a bid equivalent to the
highest bid plus five (5%) percent thereof. 7
As petitioner was declared the highest bidder, the
COP approved the sale on December 3, 1993
"subject to the right of Kawasaki Heavy Industries,
Inc./Philyards Holdings, Inc. to top JGSMI’s bid by 5%
as specified in the bidding rules."8
On December 29, 1993, petitioner informed APT that
it was protesting the offer of PHI to top its bid on the
grounds that: (a) the KAWASAKI/PHI consortium
composed of Kawasaki, Philyards, Mitsui, Keppel, SM
Group, ICTSI and Insular Life violated the ASBR
because the last four (4) companies were the losing
bidders thereby circumventing the law and prejudicing
the weak winning bidder; (b) only KAWASAKI could
exercise the right to top; (c) giving the same option to
top to PHI constituted unwarranted benefit to a third
party; (d) no right of first refusal can be exercised in a
public bidding or auction sale; and (e) the JG Summit
consortium was not estopped from questioning the
proceedings. 9
On February 2, 1994, petitioner was notified that PHI
had fully paid the balance of the purchase price of the
subject bidding. On February 7, 1994, the APT
notified petitioner that PHI had exercised its option to
top the highest bid and that the COP had approved
the same on January 6, 1994. On February 24, 1994,
the APT and PHI executed a Stock Purchase
Agreement. Consequently, petitioner filed with this
10
Court a Petition for Mandamus under G.R. No.
114057. On May 11, 1994, said petition was referred
to the Court of Appeals. On July 18, 1995, the Court
of Appeals denied the same for lack of merit. It ruled
that the petition for mandamus was not the proper
remedy to question the constitutionality or legality of
the right of first refusal and the right to top that was
exercised by KAWASAKI/PHI, and that the matter
must be brought "by the proper party in the proper
forum at the proper time and threshed out in a full
blown trial." The Court of Appeals further ruled that
the right of first refusal and the right to top are prima
facie legal and that the petitioner, "by participating in
the public bidding, with full knowledge of the right to
top granted to KASAWASAKI/Philyards is . .
.estopped from questioning the validity of the award
given to Philyards after the latter exercised the right to
top and had paid in full the purchase price of the
subject shares, pursuant to the ASBR." Petitioner filed
a Motion for Reconsideration of said Decision which
was denied on March 15, 1996. Petitioner thus filed a
Petition for Certiorari with this Court alleging grave
abuse of discretion on the part of the appellate court. 11
On November 20, 2000, this Court rendered the now
assailed Decision ruling among others that the Court
of Appeals erred when it dismissed the petition on the
sole ground of the impropriety of the special civil
action of mandamus because the petition was also
one of certiorari. It further ruled that a shipyard like
12
PHILSECO is a public utility whose capitalization must
be sixty percent (60%) Filipino-owned. Consequently,
13
the right to top granted to KAWASAKI under the Asset
Specific Bidding Rules (ASBR) drafted for the sale of
the 87.67% equity of the National Government in
PHILSECO is illegal---not only because it violates the
rules on competitive bidding--- but more so, because
it allows foreign corporations to own more than 40%
equity in the shipyard. It also held that "although the
14
petitioner had the opportunity to examine the ASBR
before it participated in the bidding, it cannot be
estopped from questioning the unconstitutional, illegal
and inequitable provisions thereof." Thus, this Court
15
voided the transfer of the national government’s
87.67% share in PHILSECO to Philyard Holdings,
Inc., and upheld the right of JG Summit, as the
highest bidder, to take title to the said shares, viz:
Wherefore, the instant petition for review on certiorari
is GRANTED. The assailed Decision and Resolution
of the Court of Appeals are REVERSED and SET
ASIDE. Petitioner is ordered to pay to APT its bid
price of Two Billion Thirty Million Pesos
(₱2,030,000,000.00 ), less its bid deposit plus
interests upon the finality of this Decision. In turn, APT
is ordered to:
(a) accept the said amount of
₱2,030,000,000.00 less bid deposit and
interests from petitioner;
(b) execute a Stock Purchase Agreement with
petitioner;
(c) cause the issuance in favor of petitioner of
the certificates of stocks representing 87.6%
of PHILSECO’s total capitalization;
(d) return to private respondent PHGI the
amount of Two Billion One Hundred Thirty-
One Million Five Hundred Thousand Pesos
(₱2,131,500,000.00); and
(e) cause the cancellation of the stock
certificates issued to PHI.
SO ORDERED. 16
In separate Motions for
Reconsideration, respondents submit three basic
17
issues for our resolution: (1) Whether PHILSECO is a
public utility; (2) Whether under the 1977 JVA,
KAWASAKI can exercise its right of first refusal only
up to 40% of the total capitalization of PHILSECO;
and (3) Whether the right to top granted to
KAWASAKI violates the principles of competitive
bidding.
I.
Whether PHILSECO is a Public Utility.
After carefully reviewing the applicable laws and
jurisprudence, we hold that PHILSECO is not a public
utility for the following reasons:
First. By nature, a shipyard is not a public utility.
A "public utility" is "a business or service engaged in
regularly supplying the public with some commodity or
service of public consequence such as electricity, gas,
water, transportation, telephone or telegraph
service." To constitute a public utility, the facility must
18
be necessary for the maintenance of life and
occupation of the residents. However, the fact that a
business offers services or goods that promote public
good and serve the interest of the public does not
automatically make it a public utility. Public use is not
synonymous with public interest. As its name
indicates, the term "public utility" implies public use
and service to the public. The principal determinative
characteristic of a public utility is that of service to, or
readiness to serve, an indefinite public or portion of
the public as such which has a legal right to demand
and receive its services or commodities. Stated
otherwise, the owner or person in control of a public
utility must have devoted it to such use that the public
generally or that part of the public which has been
served and has accepted the service, has the right to
demand that use or service so long as it is continued,
with reasonable efficiency and under proper
charges. Unlike a private enterprise which
19
independently determines whom it will serve, a "public
utility holds out generally and may not refuse
legitimate demand for service." Thus, in Iloilo Ice and
20
Cold Storage Co. vs. Public Utility Board, this Court
21
defined "public use," viz:
"Public use" means the same as "use by the public."
The essential feature of the public use is that it is not
confined to privileged individuals, but is open to the
indefinite public. It is this indefinite or unrestricted
quality that gives it its public character. In determining
whether a use is public, we must look not only to the
character of the business to be done, but also to the
proposed mode of doing it. If the use is merely
optional with the owners, or the public benefit is
merely incidental, it is not a public use, authorizing the
exercise of jurisdiction of the public utility commission.
There must be, in general, a right which the law
compels the owner to give to the general public. It is
not enough that the general prosperity of the public is
promoted. Public use is not synonymous with public
interest. The true criterion by which to judge the
character of the use is whether the public may enjoy it
by right or only by permission. (emphasis supplied)
22
Applying the criterion laid down in Iloilo to the case at
bar, it is crystal clear that a shipyard cannot be
considered a public utility.
A "shipyard" is "a place or enclosure where ships are
built or repaired." Its nature dictates that it serves but
23
a limited clientele whom it may choose to serve at its
discretion. While it offers its facilities to whoever may
wish to avail of its services, a shipyard is not legally
obliged to render its services indiscriminately to the
public. It has no legal obligation to render the services
sought by each and every client. The fact that it
publicly offers its services does not give the public a
legal right to demand that such services be rendered.
There can be no disagreement that the shipbuilding
and ship repair industry is imbued with public interest
as it involves the maintenance of the seaworthiness of
vessels dedicated to the transportation of either
persons or goods. Nevertheless, the fact that a
business is affected with public interest does not imply
that it is under a duty to serve the public. While the
business may be regulated for public good, the
regulation cannot justify the classification of a purely
private enterprise as a public utility. The legislature
cannot, by its mere declaration, make something a
public utility which is not in fact such; and a private
business operated under private contracts with
selected customers and not devoted to public use
cannot, by legislative fiat or by order of a public
service commission, be declared a public utility, since
that would be taking private property for public use
without just compensation, which cannot be done
consistently with the due process clause. 24
It is worthy to note that automobile and aircraft
manufacturers, which are of similar nature to
shipyards, are not considered public utilities despite
the fact that their operations greatly impact on land
and air transportation. The reason is simple. Unlike
commodities or services traditionally regarded as
public utilities such as electricity, gas, water,
transportation, telephone or telegraph service,
automobile and aircraft manufacturing---and for that
matter ship building and ship repair--- serve the public
only incidentally.
Second. There is no law declaring a shipyard as a
public utility.
History provides us hindsight and hindsight ought to
give us a better view of the intent of any law. The
succession of laws affecting the status of shipyards
ought not to obliterate, but rather, give us full picture
of the intent of the legislature. The totality of the
circumstances, including the contemporaneous
interpretation accorded by the administrative bodies
tasked with the enforcement of the law all lead to a
singular conclusion: that shipyards are not public
utilities.
Since the enactment of Act No. 2307 which created
the Public Utility Commission (PUC) until its repeal by
Commonwealth Act No. 146, establishing the Public
Service Commission (PSC), a shipyard, by legislative
declaration, has been considered a public utility. A25
Certificate of Public Convenience (CPC) from the
PSC to the effect that the operation of the said service
and the authorization to do business will promote the
public interests in a proper and suitable manner is
required before any person or corporation may
operate a shipyard. In addition, such persons or
26
corporations should abide by the citizenship
requirement provided in Article XIII, section 8 of the
1935 Constitution, viz:
27
Sec. 8. No franchise, certificate, or any other form or
authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to
corporations or other entities organized under the
laws of the Philippines, sixty per centum of the capital
of which is owned by citizens of the Philippines, nor
shall such franchise, certificate or authorization be
exclusive in character or for a longer period than fifty
years. No franchise or right shall be granted to any
individual, firm or corporation, except under the
condition that it shall be subject to amendment,
alteration, or repeal by the National Assembly when
the public interest so requires. (emphasis supplied)
To accelerate the development of shipbuilding and
ship repair industry, former President Ferdinand E.
Marcos issued P.D. No. 666 granting the following
incentives:
SECTION 1. Shipbuilding and ship repair yards duly
registered with the Maritime Industry Authority shall be
entitled to the following incentive benefits:
(a) Exemption from import duties and taxes.-
The importation of machinery, equipment and
materials for shipbuilding, ship repair and/or
alteration, including indirect import, as well as
replacement and spare parts for the repair
and overhaul of vessels such as steel plates,
electrical machinery and electronic parts, shall
be exempt from the payment of customs duty
and compensating tax: Provided, however,
That the Maritime Industry Authority certifies
that the item or items imported are not
produced locally in sufficient quantity and
acceptable quality at reasonable prices, and
that the importation is directly and actually
needed and will be used exclusively for the
construction, repair, alteration, or overhaul of
merchant vessels, and other watercrafts;
Provided, further, That if the above machinery,
equipment, materials and spare parts are sold
to non-tax exempt persons or entities, the
corresponding duties and taxes shall be paid
by the original importer; Provided, finally, That
local dealers and/or agents who sell
machinery, equipment, materials and
accessories to shipyards for shipbuilding and
ship repair are entitled to tax credits, subject
to approval by the total tariff duties and
compensating tax paid for said machinery,
equipment, materials and accessories.
(b) Accelerated depreciation.- Industrial plant
and equipment may, at the option of the
shipbuilder and ship repairer, be depreciated
for any number of years between five years
and expected economic life.
(c) Exemption from contractor’s percentage
tax.- The gross receipts derived by
shipbuilders and ship repairers from
shipbuilding and ship repairing activities shall
be exempt from the Contractor’s Tax provided
in Section 91 of the National Internal Revenue
Code during the first ten years from
registration with the Maritime Industry
Authority, provided that such registration is
effected not later than the year 1990;
Provided, That any and all amounts which
would otherwise have been paid as
contractor’s tax shall be set aside as a
separate fund, to be known as "Shipyard
Development Fund", by the contractor for the
purpose of expansion, modernization and/or
improvement of the contractor’s own
shipbuilding or ship repairing facilities;
Provided, That, for this purpose, the
contractor shall submit an annual statement of
its receipts to the Maritime Industry Authority;
and Provided, further, That any disbursement
from such fund for any of the purposes
hereinabove stated shall be subject to
approval by the Maritime Industry Authority.
In addition, P.D. No. 666 removed the
shipbuilding and ship repair industry from the
list of public utilities, thereby freeing the
industry from the 60% citizenship requirement
under the Constitution and from the need to
obtain Certificate of Public Convenience
pursuant to section 15 of C.A No. 146. Section
1 (d) of P.D. 666 reads:
(d) Registration required but not as a Public
Utility.- The business of constructing and
repairing vessels or parts thereof shall not
be considered a public utility and no
Certificate of Public Convenience shall be
required therefor. However, no shipyard,
graving dock, marine railway or marine repair
shop and no person or enterprise shall
engage in construction and/or repair of any
vessel, or any phase or part thereof, without a
valid Certificate of Registration and license for
this purpose from the Maritime Industry
Authority, except those owned or operated by
the Armed Forces of the Philippines or by
foreign governments pursuant to a treaty or
agreement. (emphasis supplied)
Any law, decree, executive order, or rules and
regulations inconsistent with P.D. No. 666 were
repealed or modified accordingly. Consequently,
28
sections 13 (b) and 15 of C.A. No. 146 were repealed
in so far as the former law included shipyards in the
list of public utilities and required the certificate of
public convenience for their operation. Simply stated,
the repeal was due to irreconcilable inconsistency,
and by definition, this kind of repeal falls under the
category of an implied repeal. 29
On April 28, 1983, Batas Pambansa Blg. 391, also
known as the "Investment Incentive Policy Act of
1983," was enacted. It laid down the general policy of
the government to encourage private domestic and
foreign investments in the various sectors of the
economy, to wit:
Sec. 2. Declaration of Investment Policy.- It is the
policy of the State to encourage private domestic and
foreign investments in industry, agriculture, mining
and other sectors of the economy which shall: provide
significant employment opportunities relative to the
amount of the capital being invested; increase
productivity of the land, minerals, forestry, aquatic and
other resources of the country, and improve utilization
of the products thereof; improve technical skills of the
people employed in the enterprise; provide a
foundation for the future development of the economy;
accelerate development of less developed regions of
the country; and result in increased volume and value
of exports for the economy.
It is the policy of the State to extend to projects which
will significantly contribute to the attainment of these
objectives, fiscal incentives without which said
projects may not be established in the locales,
number and/or pace required for optimum national
economic development. Fiscal incentive systems shall
be devised to compensate for market imperfections,
reward performance of making contributions to
economic development, cost-efficient and be simple
to administer.
The fiscal incentives shall be extended to stimulate
establishment and assist initial operations of the
enterprise, and shall terminate after a period of not
more than 10 years from registration or start-up of
operation unless a special period is otherwise stated.
The foregoing declaration shall apply to all investment
incentive schemes and in particular will supersede
article 2 of Presidential Decree No. 1789. (emphases
supplied)
With the new investment incentive regime, Batas
Pambansa Blg. 391 repealed the following laws, viz:
Sec. 20. The following provisions are hereby
repealed:
1) Section 53, P.D. 463 (Mineral Resources
Development Decree);
2.) Section 1, P.D. 666 (Shipbuilding and
Ship Repair Industry);
3) Section 6, P.D. 1101 (Radioactive
Minerals);
4) LOI 508 extending P.D. 791 and P.D. 924
(Sugar); and
5) The following articles of Presidential
Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49 (d),
62, and 77. Articles 45, 46 and 48 are hereby
amended only with respect to domestic and
export producers.
All other laws, decrees, executive orders,
administrative orders, rules and regulations or parts
thereof which are inconsistent with the provisions of
this Act are hereby repealed, amended or modified
accordingly.
All other incentive systems which are not in any way
affected by the provisions of this Act may be
restructured by the President so as to render them
cost-efficient and to make them conform with the
other policy guidelines in the declaration of policy
provided in Section 2 of this Act. (emphasis supplied)
From the language of the afore-quoted provision, the
whole of P.D. No. 666, section 1 was expressly and
categorically repealed. As a consequence, the
provisions of C.A. No. 146, which were impliedly
repealed by P.D. No. 666, section 1 were revived. In
30
other words, with the enactment of Batas Pambansa
Blg. 391, a shipyard reverted back to its status as a
public utility and as such, requires a CPC for its
operation.
The crux of the present controversy is the effect of the
express repeal of Batas Pambansa Blg. 391 by
Executive Order No. 226 issued by former President
Corazon C. Aquino under her emergency powers.
We rule that the express repeal of Batas Pambansa
Blg. 391 by E.O. No. 226 did not revive Section 1 of
P.D. No. 666. But more importantly, it also put a
period to the existence of sections 13 (b) and 15 of
C.A. No. 146. It bears emphasis that sections 13 (b)
and 15 of C.A. No. 146, as originally written, owed
their continued existence to Batas Pambansa Blg.
391. Had the latter not repealed P.D. No. 666, the
former should have been modified accordingly and
shipyards effectively removed from the list of public
utilities. Ergo, with the express repeal of Batas
Pambansa Blg. 391 by E.O. No. 226, the revival of
sections 13 (b) and 15 of C.A. No. 146 had no more
leg to stand on. A law that has been expressly
repealed ceases to exist and becomes inoperative
from the moment the repealing law becomes
effective. Hence, there is simply no basis in the
31
conclusion that shipyards remain to be a public utility.
A repealed statute cannot be the basis for classifying
shipyards as public utilities.
In view of the foregoing, there can be no other
conclusion than to hold that a shipyard is not a pubic
utility. A shipyard has been considered a public utility
merely by legislative declaration. Absent this
declaration, there is no more reason why it should
continuously be regarded as such. The fact that the
legislature did not clearly and unambiguously express
its intention to include shipyards in the list of public
utilities indicates that that it did not intend to do so.
Thus, a shipyard reverts back to its status as non-
public utility prior to the enactment of the Public
Service Law.
This interpretation is in accord with the uniform
interpretation placed upon it by the Board of
Investments (BOI), which was entrusted by the
legislature with the preparation of annual Investment
Priorities Plan (IPPs). The BOI has consistently
classified shipyards as part of the manufacturing
sector and not of the public utilities sector. The
enactment of Batas Pambansa Blg. 391 did not alter
the treatment of the BOI on shipyards. It has been, as
at present, classified as part of the manufacturing and
not of the public utilities sector.
32
Furthermore, of the 441 Ship Building and Ship
Repair (SBSR) entities registered with the
MARINA, none appears to have an existing
33
franchise. If we continue to hold that a shipyard is a
pubic utility, it is a necessary consequence that all
these entities should have obtained a franchise as
was the rule prior to the enactment of P.D. No. 666.
But MARINA remains without authority, pursuant to
P.D. No. 474 to issue franchises for the operation of
34
shipyards. Surely, the legislature did not intend to
create a vacuum by continuously treating a shipyard
as a public utility without giving MARINA the power to
issue a Certificate of Public Convenience (CPC) or a
Certificate of Public Convenience and Necessity
(CPCN) as required by section 15 of C.A. No. 146.
II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECO’s total capitalization.
A careful reading of the 1977 Joint Venture Agreement
reveals that there is nothing that prevents KAWASAKI
from acquiring more than 40% of PHILSECO’s total
capitalization. Section 1 of the 1977 JVA states:
1.3 The authorized capital stock of Philseco shall be
₱330 million. The parties shall thereafter increase
their subscription in Philseco as may be necessary
and as called by the Board of Directors, maintaining a
proportion of 60%-40% for NIDC and KAWASAKI
respectively, up to a total subscribed and paid-up
capital stock of ₱312 million.
1.4 Neither party shall sell, transfer or assign all or
any part of its interest in SNS [renamed PHILSECO]
to any third party without giving the other under the
same terms the right of first refusal. This provision
shall not apply if the transferee is a corporation owned
and controlled by the GOVERMENT [of the
Philippines] or by a Kawasaki affiliate.
1.5 The By-Laws of SNS [PHILSECO] shall grant the
parties preemptive rights to unissued shares of SNS
[PHILSECO]. 35
Under section 1.3, the parties agreed to the amount of
₱330 million as the total capitalization of their joint
venture. There was no mention of the amount of their
initial subscription. What is clear is that they are to
infuse the needed capital from time to time until the
total subscribed and paid-up capital reaches ₱312
million. The phrase "maintaining a proportion of 60%-
40%" refers to their respective share of the burden
each time the Board of Directors decides to increase
the subscription to reach the target paid-up capital of
₱312 million. It does not bind the parties to maintain
the sharing scheme all throughout the existence of
their partnership.
The parties likewise agreed to arm themselves with
protective mechanisms to preserve their respective
interests in the partnership in the event that (a) one
party decides to sell its shares to third parties; and (b)
new Philseco shares are issued. Anent the first
situation, the non-selling party is given the right of first
refusal under section 1.4 to have a preferential right to
buy or to refuse the selling party’s shares. The right of
first refusal is meant to protect the original or
remaining joint venturer(s) or shareholder(s) from the
entry of third persons who are not acceptable to it as
co-venturer(s) or co-shareholder(s). The joint venture
between the Philippine Government and KAWASAKI
is in the nature of a partnership which, unlike an
36
ordinary corporation, is based on delectus
personae. No one can become a member of the
37
partnership association without the consent of all the
other associates. The right of first refusal thus
ensures that the parties are given control over who
may become a new partner in substitution of or in
addition to the original partners. Should the selling
partner decide to dispose all its shares, the non-
selling partner may acquire all these shares and
terminate the partnership. No person or corporation
can be compelled to remain or to continue the
partnership. Of course, this presupposes that there
are no other restrictions in the maximum allowable
share that the non-selling partner may acquire such
as the constitutional restriction on foreign ownership
in public utility. The theory that KAWASAKI can
acquire, as a maximum, only 40% of PHILSECO’s
shares is correct only if a shipyard is a public utility. In
such instance, the non-selling partner who is an alien
can acquire only a maximum of 40% of the total
capitalization of a public utility despite the grant of first
refusal. The partners cannot, by mere agreement,
avoid the constitutional proscription. But as afore-
discussed, PHILSECO is not a public utility and no
other restriction is present that would limit the right of
KAWASAKI to purchase the Government’s share to
40% of Philseco’s total capitalization.
Furthermore, the phrase "under the same terms" in
section 1.4 cannot be given an interpretation that
would limit the right of KAWASAKI to purchase
PHILSECO shares only to the extent of its original
proportionate contribution of 40% to the total
capitalization of the PHILSECO. Taken together with
the whole of section 1.4, the phrase "under the same
terms" means that a partner to the joint venture that
decides to sell its shares to a third party shall make a
similar offer to the non-selling partner. The selling
partner cannot make a different or a more onerous
offer to the non-selling partner.
The exercise of first refusal presupposes that the non-
selling partner is aware of the terms of the conditions
attendant to the sale for it to have a guided choice.
While the right of first refusal protects the non-selling
partner from the entry of third persons, it cannot also
deprive the other partner the right to sell its shares to
third persons if, under the same offer, it does not buy
the shares.
Apart from the right of first refusal, the parties also
have preemptive rights under section 1.5 in the
unissued shares of Philseco. Unlike the former, this
situation does not contemplate transfer of a partner’s
shares to third parties but the issuance of new
Philseco shares. The grant of preemptive rights
preserves the proportionate shares of the original
partners so as not to dilute their respective interests
with the issuance of the new shares. Unlike the right
of first refusal, a preemptive right gives a partner a
preferential right over the newly issued shares only to
the extent that it retains its original proportionate
share in the joint venture.
The case at bar does not concern the issuance of new
shares but the transfer of a partner’s share in the joint
venture. Verily, the operative protective mechanism is
the right of first refusal which does not impose any
limitation in the maximum shares that the non-selling
partner may acquire.
III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.
We also hold that the right to top granted to
KAWASAKI and exercised by private respondent did
not violate the rules of competitive bidding.
The word "bidding" in its comprehensive sense means
making an offer or an invitation to prospective
contractors whereby the government manifests its
intention to make proposals for the purpose of
supplies, materials and equipment for official business
or public use, or for public works or repair. The three
38
principles of public bidding are: (1) the offer to the
public; (2) an opportunity for competition; and (3) a
basis for comparison of bids. As long as these three
39
principles are complied with, the public bidding can be
considered valid and legal. It is not necessary that the
highest bid be automatically accepted. The bidding
rules may specify other conditions or the bidding
process be subjected to certain reservation or
qualification such as when the owner reserves to
himself openly at the time of the sale the right to bid
upon the property, or openly announces a price below
which the property will not be sold. Hence, where the
seller reserves the right to refuse to accept any bid
made, a binding sale is not consummated between
the seller and the bidder until the seller accepts the
bid. Furthermore, where a right is reserved in the
seller to reject any and all bids received, the owner
may exercise the right even after the auctioneer has
accepted a bid, and this applies to the auction of
public as well as private property. Thus:
40
It is a settled rule that where the invitation to bid
contains a reservation for the Government to reject
any or all bids, the lowest or the highest bidder, as the
case may be, is not entitled to an award as a matter of
right for it does not become a ministerial duty of the
Government to make such an award. Thus, it has
been held that where the right to reject is so reserved,
the lowest bid or any bid for that matter may be
rejected on a mere technicality, that all bids may be
rejected, even if arbitrarily and unwisely, or under a
mistake, and that in the exercise of a sound
discretion, the award may be made to another than
the lowest bidder. And so, where the Government as
advertiser, availing itself of that right, makes its choice
in rejecting any or all bids, the losing bidder has no
cause to complain nor right to dispute that choice,
unless an unfairness or injustice is shown.
Accordingly, he has no ground of action to compel the
Government to award the contract in his favor, nor
compel it to accept his bid.41
In the instant case, the sale of the Government shares
in PHILSECO was publicly known. All interested
bidders were welcomed. The basis for comparing the
bids were laid down. All bids were accepted sealed
and were opened and read in the presence of the
COA’s official representative and before all interested
bidders. The only question that remains is whether or
not the existence of KAWASAKI’s right to top destroys
the essence of competitive bidding so as to say that
the bidders did not have an opportunity for
competition. We hold that it does not.
The essence of competition in public bidding is that
the bidders are placed on equal footing. This means
that all qualified bidders have an equal chance of
winning the auction through their bids. In the case at
bar, all of the bidders were exposed to the same risk
and were subjected to the same condition, i.e., the
existence of KAWASAKI’s right to top. Under the
ASBR, the Government expressly reserved the right
to reject any or all bids, and manifested its intention
not to accept the highest bid should KAWASAKI
decide to exercise its right to top under the ABSR.
This reservation or qualification was made known to
the bidders in a pre-bidding conference held on
September 28, 1993. They all expressly accepted this
condition in writing without any qualification.
Furthermore, when the Committee on Privatization
notified petitioner of the approval of the sale of the
National Government shares of stock in PHILSECO, it
specifically stated that such approval was subject to
the right of KAWASAKI Heavy Industries,
Inc./Philyards Holdings, Inc. to top JGSMI’s bid by 5%
as specified in the bidding rules. Clearly, the approval
of the sale was a conditional one. Since Philyards
eventually exercised its right to top petitioner’s bid by
5%, the sale was not consummated. Parenthetically, it
cannot be argued that the existence of the right to top
"set for naught the entire public bidding." Had
Philyards Holdings, Inc. failed or refused to exercise
its right to top, the sale between the petitioner and the
National Government would have been
consummated. In like manner, the existence of the
right to top cannot be likened to a second bidding,
which is countenanced, except when there is failure to
bid as when there is only one bidder or none at all. A
prohibited second bidding presupposes that based on
the terms and conditions of the sale, there is already a
highest bidder with the right to demand that the seller
accept its bid. In the instant case, the highest bidder
was well aware that the acceptance of its bid was
conditioned upon the non-exercise of the right to top.
To be sure, respondents did not circumvent the
requirements for bidding by granting KAWASAKI, a
non-bidder, the right to top the highest bidder. The fact
that KAWASAKI’s nominee to exercise the right to top
has among its stockholders some losing bidders
cannot also be deemed "unfair."
It must be emphasized that none of the parties
questions the existence of KAWASAKI’s right of first
refusal, which is concededly the basis for the grant of
the right to top. Under KAWASAKI’s right of first
refusal, the National Government is under the
obligation to give preferential right to KAWASAKI in
the event it decides to sell its shares in PHILSECO. It
has to offer to KAWASAKI the shares and give it the
option to buy or refuse under the same terms for
which it is willing to sell the said shares to third
parties. KAWASAKI is not a mere non-bidder. It is a
partner in the joint venture; the incidents of which are
governed by the law on contracts and on partnership.
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
42
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. It is only after the public bidding that the
1âwphi1
Government will have a basis with which to offer
KAWASAKI the option to buy or forego the shares.
Assuming that the parties did not swap KAWASAKI’s
right of first refusal with the right to top, KAWASAKI
would have been able to buy the National
Government’s shares in PHILSECO under the same
terms as offered by the highest bidder. Stated
otherwise, by exercising its right of first refusal,
KAWASAKI could have bought the shares for only
₱2.03 billion and not the higher amount of ₱2.1315
billion. There is, thus, no basis in the submission that
the right to top unfairly favored KAWASAKI. In fact,
with the right to top, KAWASAKI stands to pay higher
than it should had it settled with its right of first refusal.
The obvious beneficiary of the scheme is the National
Government.
If at all, the obvious consideration for the exchange of
the right of first refusal with the right to top is that
KAWASAKI can name a nominee, which it is a
shareholder, to exercise the right to top. This is a valid
contractual stipulation; the right to top is an
assignable right and both parties are aware of the full
legal consequences of its exercise. As aforesaid, all
bidders were aware of the existence of the right to
top, and its possible effects on the result of the public
bidding was fully disclosed to them. The petitioner,
thus, cannot feign ignorance nor can it be allowed to
repudiate its acts and question the proceedings it had
fully adhered to. 43
The fact that the losing bidder, Keppel Consortium
(composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined Philyards in
the latter’s effort to raise ₱2.131 billion necessary in
exercising the right to top is not contrary to law, public
policy or public morals. There is nothing in the ASBR
that bars the losing bidders from joining either the
winning bidder (should the right to top is not
exercised) or KAWASAKI/PHI (should it exercise its
right to top as it did), to raise the purchase price. The
petitioner did not allege, nor was it shown by
competent evidence, that the participation of the
losing bidders in the public bidding was done with
fraudulent intent. Absent any proof of fraud, the
formation by Philyards of a consortium is legitimate in
a free enterprise system. The appellate court is thus
correct in holding the petitioner estopped from
questioning the validity of the transfer of the National
Government’s shares in PHILSECO to respondent.
passengers or freight or both, shipyard, marine
railway, marine repair shop, wharf or dock, ice
plant, ice refrigeration plant, canal, irrigation
system, gas, electric light, heat and power, water
supply and power petroleum, sewerage system,
wire or wireless communications systems, wire or
wireless broadcasting stations and other similar
public services. x x x" (Underscoring supplied).
27
This provision is substantially reproduced in Article
XIV, section 5 of the 1973 Constitution and in
Article XII, section 11 of the 1987 Constitution.
29
A declaration in the statute, usually in its repealing
clause, that a particular and specific law, identified
by its number of title, is repealed is an express
repeal; all other repeals are implied repeals. See
Mecano v.Commission on Audit, 216 SCRA 500
(1992) citing Agpalo, Statutory Construction, 289
(1986).
30
Book I, Chapter 5, section 22 provides: "Revival of
Law Impliedly Repealed. When a law which
impliedly repeals a prior law is itself repealed, the
prior law shall thereby be revived, unless the
repealing law provides otherwise."

Finally, no factual basis exists to support the view that 36

Supra note 1 at 157-158. The assailed Decision
the drafting of the ASBR was illegal because no prior
approval was given by the COA for it, specifically the
provision on the right to top the highest bidder and
that the public auction on December 2, 1993 was not
witnessed by a COA representative. No evidence was
proffered to prove these allegations and the Court
cannot make legal conclusions out of mere
allegations. Regularity in the performance of official
duties is presumed and in the absence of competent
44
evidence to rebut this presumption, this Court is duty
bound to uphold this presumption.
IN VIEW OF THE FOREGOING, the Motion for
Reconsideration is hereby GRANTED. The impugned
Decision and Resolution of the Court of Appeals are
AFFIRMED.
reads: "A joint venture is an association of persons
or companies jointly undertaking some commercial
enterprise with all of them generally contributing
assets and 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 or losses.
Persons and business enterprises enter into a joint
venture because it is exempt from corporate
income tax. Considered more of a partnership, a
joint venture is governed by the laws on contracts
and on partnership."

SO ORDERED.

Footnotes

25
Act No. 2307 was amended by Act No. 2694. It was
subsequently repealed by Act No. 3108. Later
however, Act No. 3108 was also repealed by
Commonwealth Act No. 146. The series of
amendments and repeals did not alter the
character of shipyards as public utilities. Section
13 (b) of C.A. No. 146 provides that:

"The term ‘public service’ includes every person

that now or hereafter may own, operate, manage,
or control in the Philippines, for hire or
compensation, with general or limited clientele,
whether permanent, occasional or accidental, and
done for general business purposes, any common
carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier
service of any class, express service, steamboat,
or steamship, or steamship line, pontines, ferries
and water craft, engaged in the transportation of
G.R. No. 183374 June 29, 2010

MARSMAN DRYSDALE LAND, INC., Petitioner,

vs.
PHILIPPINE GEOANALYTICS, INC. AND GOTESCO
PROPERTIES, INC., Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 183376

GOTESCO PROPERTIES, INC., Petitioner,

vs.
MARSMAN DRYSDALE LAND, INC. AND
PHILIPPINE GEOANALYTICS, INC., Respondents.

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

DECISION

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
pre-selling 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.
4.3.5 x x x x.
4.3.6 x x x x.
4.3.7 x x x x.
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 ₱284,553.50 representing the cost of partial
subsurface soil exploration; and on January 15, 1998
for ₱250,800 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
attorney’s 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 co-defendant [Marsman Drysdale]
in the amount of P535,353.[50] in accordance
with the [JVA].
b) Defendant [Gotesco] is further ordered to
pay co-defendant [Marsman Drysdale] the
sum of P100,000.00 as and for attorney’s
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 PGI’s claim as well as on the
awards of exemplary damages and attorney’s 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,
2008,10affirmed 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
attorney’s 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 and emphasis in the
original; underscoring supplied)
In partly affirming the trial court’s decision, the
appellate court ratiocinated that notwithstanding the
terms of the JVA, the joint venture cannot avoid
payment of PGI’s claim since "[the JVA] could not
affect third persons like [PGI] because of the basic
civil law principle of relativity of contracts 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 ATTORNEY’S 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 DRYSDALE’S]
ENTITLEMENT TO AN AWARD OF
ATTORNEY’S 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] ATTORNEY’S FEES …[AND] TO
REIMBURSE [MARSMAN DRYSDALE] 50% OF
P535,353.50 AND PAY [MARSMAN DRYSDALE]
P100,000.00 AS ATTORNEY’S 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 Court’s 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 court’s, or when the judgment is based on a
misapprehension of facts, or when the findings of
facts are contradicted by the evidence on
record,15these 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 PGI’s contractual claims when it (PGI)
received a Certificate of Payment16 from the joint
venture’s project manager17 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 Gotesco’s cash contribution, as its
(Marsman Drysdale’s) 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,19and 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
1avvphi1
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
₱535,353.50 obligation-loss of the joint venture.
The appellate court’s 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
Gotesco’s expense. The grant by the lower courts of
Marsman Drysdale cross-claim against Gotesco was
thus erroneous.
Marsman Drysdale’s supplication for the award of
attorney’s 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 PGI’s 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 PGI’s 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 demand23 as the delay in payment makes the
obligation one of forbearance of money, conformably
with this Court’s 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.

CONCHITA CARPIO MORALES

Associate Justice

Footnotes

19
In the Technical Services Contract’s SC-1
Definitions portion, it was stated that "OWNER
means Marsman-Drysdale Land, Inc./Gotesco
Properties, Inc., a Joint Venture and its
authorized representatives and successors in
interest."

Aurbach v. Sanitary Wares Manufacturing

20

Corp., G.R. No. 75875, December 15, 1989,

180 SCRA 130, 146-147.

21
I Records, p. 107. Section 8 of the JVA
states that: "x x x x. a) proceeds from the JV
shall be shared equally on a 50:50 ratio
between the Parties unless such ratio is
changed due to additional investments as
provided in Section 4.3; x x x x."

22
I Records, p. 105. The JVA states that: "x x x
x. 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 [joint venture].
x x x x."