Agency, Trust & Partnership - Case Digest - S.Y. 2018 - 2019: (341 SCRA 740)

AGENCY,
TRUST & PARTNERSHIP| CASE DIGEST | S.Y. 2018 - 2019

• Private respondent sought relief before the Court of Appeals.
I. INTRODUCTION – JOINT VENTURES
• CA- Reversed. There was no partnership between Tan Eng Keep and Tan
Eng Lay.

Case #1 Heirs of Tan Eng Kee vs. CA
ISSUE: Whether the Tan Eng Kee and Tan Eng Lay are joint adventurers
(341 SCRA 740)
and/or partners in a business venture and/or particular partnership called
Benguet Lumber and as such should share in the profits and/or losses of the
DOCTRINE: A particular partnership is distinguished from a joint adventure, business venture or particular partnership. (NO)
to wit:
RULING:
(a) A joint adventure (an American concept similar to our joint accounts) is a
sort of informal partnership, with no firm name and no legal personality. In a A particular partnership is distinguished from a joint adventure, to wit:
joint account, the participating merchants can transact business under their
own name, and can be individually liable therefor. (a) A joint adventure (an American concept similar to our joint accounts) is a
sort of informal partnership, with no firm name and no legal personality. In a
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE joint account, the participating merchants can transact business under their
TRANSACTION, although the business of pursuing to a successful termination own name, and can be individually liable therefor.
may continue for a number of years; a partnership generally relates to a
continuing business of various transactions of a certain kind. (b) Usually, but not necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a successful termination
A joint adventure presupposes generally a parity of standing between the may continue for a number of years; a partnership generally relates to a
joint co-ventures or partners, in which each party has an equal proprietary continuing business of various transactions of a certain kind.
interest in the capital or property contributed, and where each party
exercises equal rights in the conduct of the business. Nontheless, a joint A joint adventure presupposes generally a parity of standing between the
adventure may be likened to a particular partnership, thus: joint co-ventures or partners, in which each party has an equal proprietary
interest in the capital or property contributed, and where each party
xxxx The main distinction cited by most opinions in common law jurisdiction exercises equal rights in the conduct of the business.
is that the partnership contemplates a general business with some degree of
continuity, while the joint adventure is formed for the execution of a single Nonetheless, a joint adventure may be likened to a particular partnership,
transaction, and is thus of a temporary nature. It would seem therefore that thus:
under Philippine law, a joint adventure is a form of partnership and should
thus be governed by the law of partnerships. The Supreme Court has The legal concept of a joint adventure is of common law origin. It has no
however recognized a distinction between these two business forms, and has precise legal definition, but it has been generally understood to mean an
held that although a corporation cannot enter into a partnership contract, it organization formed for some temporary purpose. (Gates v. Megargel, 266
may however engage in a joint adventure with others. Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their
elements are similar-community of interest in the business, sharing of profits
FACTS: and losses, and a mutual right of control. The main distinction cited by most
opinions in common law jurisdiction is that the partnership contemplates a
• After the death of Tan Eng Kee , his heirs, Matilde Abubo, his common-law general business with some degree of continuity, while the joint adventure is
spouse joined by their children, filed suit against his brother TAN ENG LAY, formed for the execution of a single transaction, and is thus of a temporary
before the Trial Court of Baguio City for accounting, liquidation and winding nature. This observation is not entirely accurate in this jurisdiction, since
up of the alleged partnership formed after World War II between Tan Eng under the Civil Code, a partnership may be particular or universal, and a
Kee and Tan Eng Lay. particular partnership may have for its object a specific undertaking. (Art.
1783, old Civil Code - Now under art.1776) It would seem therefore that
• Petitioners alleged that after the second World War, Tan Eng Kee and Tan under Philippine law, a joint adventure is a form of partnership and should
Eng Lay, pooling their resources and industry together, entered into a thus be governed by the law of partnerships.
partnership engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise Benguet Lumber which Partnership presupposes the following elements:
they jointly managed until Tan Eng Kees death.
1) a contract, either oral or written. However, if it involves real property or
• They claimed that in 1981, Tan Eng Lay and his children caused the where the capital is P3,000.00 or more, the execution of a contract is
conversion of the partnership Benguet Lumber into a corporation called necessary;
Benguet Lumber Company. The incorporation was purportedly a ruse to
deprive Tan Eng Kee and his heirs of their rightful participation in the profits 2) the capacity of the parties to execute the contract;
of the business.
3) money property or industry contribution;
• Petitioners also filed Criminal Case against Tan Eng Lay and Wilborn Tan for 4) community of funds and interest, mentioning equality of the partners or
the use of allegedly falsified documents, consisting of payrolls indicating that one having a proportionate share in the benefits; and
Tan Eng Kee was a mere employee of Benguet Lumber. Trial Court of Baguio
City, rendered judgment dismissing the cases for insufficiency of evidence. 5) intention to divide the profits, being the true test of the partnership.

• RTC of Baguio City rendered judgment in favor of petitioners declaring that The intention to join in the business venture for the purpose of obtaining
Benguet Lumber is a joint adventure which is akin to a particular partnership profits thereafter to be divided, must be established. We cannot see these
and that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers elements from the testimonial evidence of the appellees.
and/or partners in a business venture and/or particular partnership.

UC COLLEGE OF LAW | By: Kong | Caharian | Galinato | Yase | Gatillo | Escuzar | Ismael | Nillas | Rabaya | Vivar | Cañete | Mondigo | Ortiz | Escatron | Ruaya | Lanzaderas | Muego
1
AGENCY, TRUST & PARTNERSHIP| CASE DIGEST | S.Y. 2018 - 2019

In order to constitute a partnership, it must be established that
Case #2 Realubit vs. Jaso
(1) two or more persons bound themselves to contribute money, property, (G.R. No. 178782, 658 SCRA 146)
or industry to a common fund, and

Facts:
(2) they intend to divide the profits among themselves.
1. Petitioner Josefina Realubit (Josefina) entered into a Joint Venture

Agreement with Francis Eric Amaury Biondo (Biondo), a French national, for
The agreement need not be formally reduced into writing, since statute
the operation of an ice manufacturing business; the latter as the industrial
allows the oral constitution of a partnership, save in two instances when
partner and the former as the capitalist partner, each will receive 40% of the
public instrument is required:
net profit and the 20% for the expenses.

(1) when immovable property or real rights are contributed, and
2. Biondo subsequently executed a Deed of Assignment transferring all his

rights and interests in the business in favor of respondent Eden Jaso (Eden),
(2) when the partnership has a capital of three thousand pesos or more. In
the wife of respondent Prosencio Jaso.
both cases, an inventory to be signed by the parties and attached to the

public instrument is also indispensable to the validity of the partnership
3. The Spouses Jaso caused their lawyer to send Josefina a letter, apprising
whenever immovable property is contributed to the partnership.
her of their acquisition of said Frenchmans share in the business and formally

demanding an accounting and inventory thereof as well as the remittance of
Undoubtedly, the best evidence would have been the contract of partnership
their portion of its profits.
itself, or the articles of partnership but there is none. The alleged

partnership, though, was never formally organized. To determine whether a
4. Faulting Josefina with unjustified failure to heed their demand, the
partnership existed based purely on circumstantial evidence. The evidence
Spouses Jaso commenced the instant suit against the petitioners for specific
presented by petitioners falls short of the quantum of proof required to
performance, accounting, examination, audit and inventory of assets and
establish a partnership.
properties, dissolution of the joint venture, appointment of a receiver and

damages in RTC Paranaque City.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside

from Tan Eng Lay, could have expounded on the precise nature of the
5. RTC Paranaque City in favor of the Spouses Jaso; CA set aside the decision
business relationship between them.In the absence of evidence, we cannot
of the trial court but the spouses are entitled to Binondos share of profit, but
accept as an established fact that Tan Eng Kee allegedly contributed his
Eden cannot, however, interfere with the management of the partnership,
resources to a common fund for the purpose of establishing a
require information or account of its transactions and inspect its books.
partnership.The testimonies to that effect of petitioners witnesses is directly

controverted by Tan Eng Lay. It should be noted that it is not with the
ISSUE: Whether or not, petitioner Josefina Realubit as partner in the joint
number of witnesses wherein preponderance lies; the quality of their
venture has to render an accounting to one who is not a partner in said joint
testimonies is to be considered. None of petitioners witnesses could suitably
venture.
account for the beginnings of Benguet Lumber Company, except perhaps for

Dionisio Peralta whose deceased wife was related to Matilde Abubo. He
RULING: NO.
stated that when he met Tan Eng Kee after the liberation, the latter asked
1. Art. 1813. A conveyance by a partner of his whole interest in the
the former to accompany him to get 80 pieces of G.I. sheets supposedly
partnership does not itself dissolve the partnership, or, as against the other
owned by both brothers. Tan Eng Lay, however, denied knowledge of this
partners in the absence of agreement, entitle the assignee, during the
meeting or of the conversation between Peralta and his brother. Tan Eng Lay
continuance of the partnership, to interfere in the management or
consistently testified that he had his business and his brother had his, that it
administration of the partnership business or affairs, or to require any
was only later on that his said brother, Tan Eng Kee, came to work for him.
information or account of partnership transactions, or to inspect the
Be that as it may, co-ownership or co-possession (specifically here, of the G.I.
partnership books; but it merely entitles the assignee to receive in
sheets) is not an indicium of the existence of a partnership.
accordance with his contracts the profits to which the assigning partners

would otherwise be entitled. However, in case of fraud in the management
Besides, it is indeed odd, if not unnatural, that despite the forty years the
of the partnership, the assignee may avail himself of the usual remedies.
partnership was allegedly in existence, Tan Eng Kee never asked for an
In the case of a dissolution of the partnership, the assignee is entitled to
accounting. The essence of a partnership is that the partners share in the
receive his assignors interest and may require an account from the date only
profits and losses. Each has the right to demand an accounting as long as the
of the last account agreed to by all the partners.
partnership exists.A demand for periodic accounting is evidence of a

partnership. During his lifetime, Tan Eng Kee appeared never to have made
2. From the foregoing provision, it is evident that (t)he transfer by a partner
any such demand for accounting from his brother, Tang Eng Lay.
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
The aforesaid circumstances when taken together are not persuasive indicia
of the partnership business or to receive anything except the assignees
of a partnership. They only tend to show that Tan Eng Kee was involved in
profits. The assignment does not purport to transfer an interest in the
the operations of Benguet Lumber, but in what capacity is unclear. We
partnership, but only a future contingent right to a portion of the ultimate
cannot discount the likelihood that as a member of the family, he occupied a
residue as the assignor may become entitled to receive by virtue of his
niche above the rank-and-file employees. He would have enjoyed liberties
proportionate interest in the capital.
otherwise unavailable were he not kin, such as his residence in the Benguet

Lumber Company compound.
3. Generally understood to mean an organization formed for some

temporary purpose, a joint venture is likened to a particular partnership or

one which has for its object determinate things, their use or fruits, or a

specific undertaking, or the exercise of a profession or vocation. The rule is

settled that joint ventures are governed by the law on partnerships which

are, in turn, based on mutual agency or delectus personae. Insofar as a

partners conveyance of the entirety of his interest in the partnership is

concerned, Article 1813 of the Civil Code.

2

share risks. It requires a community of interest in the performance of the
II. TYPES OF JV ARRANGEMENTS 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.
Case #1 Kilosbayan, Inc. vs. Guingona
(G.R. No. 113375 May 5, 1994, 232 SCRA 110) 5. The contemporaneous acts of the PCSO and the PGMC reveal that the
PCSO had neither funds of its own nor the expertise to operate and manage

an on-line lottery system, and that although it wished to have the system, it
FACTS: would have it "at no expense or risks to the government." Because of these
serious constraints and unwillingness to bear expenses and assume risks, the
1. Pursuant to its charter, the PCSO decided to establish an on- line lottery PCSO was candid enough to state in its RFP that it is seeking for "a suitable
system for the purpose of increasing its revenue base and diversifying its contractor which shall build, at its own expense, all the facilities needed to
sources of funds. operate and maintain" the system; exclusively bear "all capital, operating
expenses and expansion expenses and risks"; and submit "a comprehensive
2. The Berjaya Group Berhad, a foreign and multinational company became nationwide lottery development plan . . . which will include the game, the
interested to offer its services and resources to PCSO. marketing of the games, and the logistics to introduce the game to all the
cities and municipalities of the country within five (5) years"; and that the
3. Berjaya Group Berhad organized with some Filipino investors in a operation of the on-line lottery system should be "at no expense or risk to
Philippine corporation known as the Philippine Gaming Management the government" — meaning itself, since it is a government-owned and
Corporation (PGMC), which "was intended to be the medium through which controlled agency. The facilities referred to means "all capital equipment,
the technical and management services required for the project would be computers, terminals, software, nationwide telecommunications network,
offered and delivered to PCSO." ticket sales offices, furnishings and fixtures, printing costs, costs of salaries
and wages, advertising and promotions expenses, maintenance costs,
4. An agreement denominated as "Contract of Lease" was executed by PCSO expansion and replacement costs, security and insurance, and all other
and PGMC and was approved by the President. related expenses needed to operate a nationwide on-line lottery system." In
short, the only contribution the PCSO would have is its franchise or authority
5. KILOSBAYAN, and other petitioners, in their capacities as taxpayers and to operate the on-line lottery system; with the rest, including the risks of the
concerned citizens sued the Office of the President thru Teofisto Guingona business, being borne by the proponent or bidder.
Jr., is in his capacity as Executive Secretary for prohibition and injunction,
with a prayer for a temporary restraining order and preliminary injunction, 6. This joint venture is further established by the following:
a. Rent is not limited to the lease of the Facilities where PGMC binds itself to
KILOSBAYAN ARGUMENT: The Contract of Lease with the PGMC beca is an bear all risks if the revenue from the ticket sales. This risk-bearing provision is
arrangement "collaboration" or "association" with the PGMC, in violation of unusual in a lessor-lessee relationship, but inherent in a joint venture.
the PCSO’s charter.
b. In case of pre-termination of the contract by the PCSO, the PCSO binds
PGMC ARGUMENT: PGMC asserts that " [it] is merely an independent itself "to promptly, and in any event not later than sixty (60) days, reimburse
contractor for a piece of work, and (2) as such independent contractor, the Lessor the amount of its total investment cost associated with the On-
PGMC is not a co-operator of the lottery franchise with PCSO, nor is PCSO Line Lottery System,
sharing its franchise, 'in collaboration, association or joint venture' with
PGMC. c. The PGMC cannot "directly or indirectly undertake any activity or business
in competition with or adverse to the On-Line Lottery System of PCSO unless
GUINGONA ARGUMENT: PCSO, as a corporate entity, is vested with the basic it obtains the latter's prior written consent."
and essential prerogative to enter into all kinds of transactions or contracts
as may be necessary for the attainment of its purposes and objectives." The d. The PGMC shall provide the PCSO the audited Annual Report sent to its
joint venture prohibited under the PCSO charter entails community of stockholders, and within two years from the effectivity of the contract, cause
interest in the business, sharing of profits and losses, and a mutual right of itself to be listed in the local stock exchange
control, a characteristic which does not obtain in a contract of lease.
e. The PGMC shall put up an Escrow Deposit to ensure its faithful compliance
ISSUE: WON the Contract of Lease constitutes a joint venture between PCSO with the terms of the contract.
and PGMC? (YES)
f. The PCSO shall designate the necessary personnel to monitor and audit
RULING: the daily performance of the on-line lottery system; and promulgate
procedural and coordinating rules governing all activities relating to the on-
1. A careful analysis and evaluation of the provisions of the contract and a line lottery system. These confirm that it is the PGMC which will operate the
consideration of the contemporaneous acts of the PCSO and PGMC system and the PCSO may, for the protection of its interest, monitor and
indubitably disclose that the contract is not in reality a contract of lease audit the daily performance of the system and that there are coordinating
under which the PGMC is merely an independent contractor for a piece of and cooperative powers and functions of the parties.
work, but one where the statutorily proscribed collaboration or association,
in the least, or joint venture, at the most, exists between the contracting g. The PCSO may validly terminate the contract if the PGMC becomes
parties. insolvent or bankrupt or is unable to pay its debts, or if it stops or suspends
or threatens to stop or suspend payment of all or a material part of its debts.
2. Collaboration is defined as the acts of working together in a joint project.

3. Association means the act of a number of persons in uniting together for
some special purpose or business.

4. Joint venture is defined as an association of persons or companies jointly
undertaking some commercial enterprise; generally all contribute assets and
3

president have been duly pre-authorized by the other members of the
Case #2 Information Technology Foundation vs. COMELEC putative consortium to represent them, to bid on their collective behalf and,
(410 SCRA 141) more important, to commit them jointly and severally to the bid
undertakings.

FACTS: • In the case of a consortium or joint venture desirous of participating in the
• Pursuant to R.A. 8436, which authorized Comelec to use an automated bidding, it goes without saying that the Eligibility Envelope (first envelope)
election system (AES) for the process of voting, canvassing, etc. on the local would necessarily have to include a copy of the joint venture agreement, the
and national elections, Comelec adopted in a Resolution a modernization consortium agreement or memorandum of agreement -- or a business plan
program for the 2004 elections and resolved to conduct biddings for the 3 or some other instrument of similar import -- establishing the due existence,
phases of the AES; then PGMA issued P3B budget to fund the AES. composition and scope of such aggrupation.

• Subsequently, Comelec issued an "Invitation to Apply for Eligibility and to • However, there is no sign whatsoever of any joint venture agreement,
Bid”, which set the guidelines for such bidding, and the Bid and Awards consortium agreement, memorandum of agreement, or business plan
Committee (BAC) gave prospective bidders until March 10, 2003 to submit executed among the members of the purported consortium. The only logical
their respective bids. conclusion is that no such agreement was ever submitted to the Comelec for
its consideration, as part of the bidding process.
• The public bidding was to be conducted under a two-envelope/two stage
system. The bidder’s first envelope or the Eligibility Envelope should establish • It thus follows that, prior the award of the Contract, there was no
the bidder’s eligibility to bid and its qualifications to perform the acts if documentary or other basis for Comelec to conclude that a consortium had
accepted. On the other hand, the second envelope would be the Bid actually been formed amongst MPEI, SK C&C and WeSolv, along with
Envelope itself. Election.com and ePLDT. Neither was there anything to indicate the exact
relationships between and among these firms; their diverse roles,
• Out of 57 bidders, the BAC found Mega Pacific Consortium (MPC) – which undertakings and prestations, if any, relative to the prosecution of the
did not participate in the bidding – and the Total Information Management project, the extent of their respective investments (if any) in the supposed
Corporation (TIMC) eligible; they were referred to DOST for technical consortium or in the project; and the precise nature and extent of their
evaluation. DOST said that both MPC and TIMC had obtained a number of respective liabilities with respect to the contract being offered for bidding.
failed marks in the technical evaluation; despite these failures, Comelec en
banc awarded the project to MPC on April 15, 2003 (NOTE: BAC submitted its • So, it necessarily follows that, during the bidding process, Comelec had no
Report only on April 21, 2003 or 6 days after the Comelec already awarded basis at all for determining that the alleged consortium really existed and was
the contract to MPC– meaning, there is a glaring haste and irregularity in the eligible and qualified; and that the arrangements among the members were
awarding of the contract as per petitioners). satisfactory and sufficient to ensure delivery on the Contract and to protect
the government’s interest.
(IMPORTANT: MPC did not participate in the bidding rather, it was Mega
Pacific eSolutions, Inc. (MPEI) which participated however it was only • True, copies of financial statements and incorporation papers of the alleged
incorporated 11 days before the actual bidding and it failed to meet the "consortium" members were submitted. But these papers did not establish
mandatory eligibility requirements set forth by Comelec. Comelec insisted the existence of a consortium, as they could have been provided by the
that the bidder was MPC, of which MPEI was but a part (a CONSORTIUM), companies concerned for purposes other than to prove that they were part
among others, such as SK C&C, WeSolv, Election.com and ePLDT. As proof of a consortium or joint venture. Despite the absence of competent proof as
thereof, they point to the March 7, 2003 letter of intent to bid, signed by the to the existence and eligibility of the alleged consortium (MPC), its capacity
president of MPEI allegedly for and on behalf of MPC. They also call attention to deliver on the Contract, and the members’ joint and several liability
to the official receipt issued to MPC, acknowledging payment for the bidding therefor, Comelec nevertheless assumed that such consortium existed and
documents, as proof that it was the "consortium" that participated in the was eligible. It then went ahead and considered the bid of MPC, to which the
bidding process. Contract was eventually awarded, in gross violation of the former’s own
bidding rules and procedures.
• Petitioners protested the award of the Contract to MPC "due to glaring
irregularities in the manner in which the bidding process had been Second Issue:
conducted”, sought re-bidding due to noncompliance with eligibility as well COMELEC’s argument on appeal: It is claimed that Comelec may still enforce
as technical and procedural requirements and questioned the identity of the the liability of the "consortium" members under the Civil Code provisions on
petitioner; their protest was denied by the Comelec Chairman. partnership, reasoning that MPEI et al. represented themselves as partners
and members of MPC for purposes of bidding for the Project. They are,
ISSUES: therefore, liable to the Comelec to the extent that the latter relied upon such
1. Whether there was a “consortium” between MPC and MPEI, which will representation. Their liability as partners is solidary with respect to
authorize the latter to represent the latter in the bidding. (NONE) everything chargeable to the partnership under certain conditions.

2. Whether Comelec’s contention that it may still enforce the liability of the • No. . First, it must be recalled that SK C&C, WeSolv, Election.com and
"consortium" members under the Civil Code provisions on partnership is ePLDT never represented themselves as partners and members of MPC,
tenable. (NO) whether for purposes of bidding or for something else. It was MPEI alone
that represented them to be members of a "consortium" it supposedly
3. Assuming there is consortium, whether its eligibility may be based on the headed. Thus, its acts may not necessarily be held against the other
collective qualification of its members. (No) "members."

RULING: • Second, this argument of the OSG in its Memorandum might possibly apply
First Issue: in the absence of a joint venture agreement or some other writing that
• None. The March 7, 2003 letter, signed by only one signatory -- "Willy U. discloses the relationship of the "members" with one another. But precisely,
Yu, President, Mega Pacific eSolutions, Inc., (Lead Company/ Proponent) For: this case does not deal with a situation in which there is nothing in writing to
Mega Pacific Consortium" -- and without any further proof, does not by itself serve as reference, leaving Comelec to rely on mere representations and
prove the existence of the consortium. It does not show that MPEI or its therefore justifying a falling back on the rules on partnership.
4

• In the case of WeSolv and SK C&C, their MOAs state that their liabilities,
while joint and several with MPEI, are limited only to the particular areas of Case #3 Philex Mining Corp. vs. CIR (551 SCRA 349)
work wherein their services are engaged or their products utilized. As for
Election.com and ePLDT, their separate "Teaming Agreements" specifically

ascribe to them the role of subcontractor vis-à-vis MPEI as contractor and, FACTS:
based on the terms of their particular agreements, neither Election.com nor 1. Philex Mining Corp. entered into an agreement (denominated as Power of
ePLDT is, with MPEI, jointly and severally liable to Comelec. It follows then Attorney) with Baguio Gold Mining Corp. for Philex to manage and operate
that in the instant case, there is no justification for anyone, much less Baguio Gold’s mining claim known as the Sto. Nino Mine.
Comelec, to resort to the rules on partnership and partners’ liabilities.
2. In the course of managing and operating the project, Philex Mining made
Third Issue: advances of cash and property in accordance with the agreement. However,
COMELEC’s argument on appeal: Respondents declare that, for purposes of the mine suffered continuing losses over the years which resulted to Philex’s
assessing the eligibility of the bidder, the members of MPC should be withdrawal as manager of the mine and in the eventual cessation of mine
evaluated on a collective basis. Therefore, they contend, the failure of MPEI operations.
to submit financial statements (on account of its recent incorporation)
should not by itself disqualify MPC, since the other members of the 3. Thereafter, to settle Baguio Gold’s liability to Philex, the parties executed a
"consortium" could meet the criteria. Comelec cited the IRR of RA 6957 (the "Compromise with Dation in Payment" which was later on superseded by
Build-Operate-Transfer Law) as amended by RA 7718 such that is stated that: "Amendment to Compromise with Dation in Payment". In the amended
a joint venture/consortium proponent shall be evaluated based on the compromise agreement, Baguio Gold undertook to pay petitioner in 2
individual or the collective experience of the member-firms of the joint segments; the parties then ascertained that Baguio Gold had a remaining
venture/consortium and of the contractors the proponent has engaged for outstanding indebtedness to petitioner in the amount of P114,996,768.00.
the project. Subsequently, petitioner wrote off in its 1982 books of account the
remaining outstanding indebtedness of Baguio Gold by charging
• No. Unfortunately, this argument seems to assume that the "collective" P112,136,000.00 to allowances and reserves that were set up in 1981 and
nature of the undertaking of the members of MPC, their contribution of P2,860,768.00 to the 1982 operations.
assets and sharing of risks, and the "community" of their interest in the
performance of the Contract entitle MPC to be treated as a joint venture or 4. In its 1982 annual income tax return, petitioner deducted from its gross
consortium; and to be evaluated accordingly on the basis of the members’ income the amount of P112,136,000.00 as bad debt. BIR disallowed such
collective qualifications when, in fact, the evidence before the Court suggest deduction for bad debt and assessed petitioner a deficiency income tax of
otherwise. P62,811,161.39.

• This Court in Kilosbayan v. Guingona defined joint venture as "an 5. Petitioner protested before the BIR and argued that the deduction must be
association of persons or companies jointly undertaking some commercial allowed since all requisites for a bad debt deduction were satisfied.
enterprise; generally, all contribute assets and share risks. It requires a
community of interest in the performance of the subject matter, a right to BIR: denied petitioner’s protest for lack of legal and factual basis.
direct and govern the policy in connection therewith, and [a] duty, which
may be altered by agreement to share both in profit and losses." Court of Tax Appeals: Dismissed the petition and ordered Philex Mining to
pay the income tax deficiency. It is not a loan but instead characterized the
• Going back to the instant case, it should be recalled that the automation advances as petitioner’s investment in a partnership with Baguio Gold for the
Contract with Comelec was not executed by the "consortium" MPC -- or by development and exploitation of the Sto. Nino mine; POA is in fact a
MPEI for and on behalf of MPC -- but by MPEI, period. The said Contract partnership agreement.
contains no mention whatsoever of any consortium or members thereof.
This fact alone seems to contradict all the suppositions about a joint CA: Affirmed the decision of CTA.
undertaking that would normally apply to a joint venture or consortium: that
it is a commercial enterprise involving a community of interest, a sharing of ISSUE: WON the parties entered into a joint venture agreement. (YES)
risks, profits and losses, and so on.
RULING:
• Absent any clear-cut statement as to the exact nature and scope of the 1. The lower courts correctly held that the Power of Attorney is the
parties’ respective undertakings, commitments, deliverables and covenants, instrument that is material in determining the true nature of the business
one party or another can easily dodge its obligation and deny or contest its relationship between petitioner and Baguio Gold. Before resort may be had
liability under the Agreement; or claim that it is the other party that should to the two compromise agreements, the parties contractual intent must first
have delivered but failed to. be discovered from the expressed language of the primary contract under
which the parties business relations were founded. It should be noted that
• Likewise, in the absence of definite indicators as to the amount of the compromise agreements were mere collateral documents executed by
investments to be contributed by each party, disbursements for expenses, the parties pursuant to the termination of their business relationship created
the parties’ respective shares in the profits and the like, it seems to the Court under the Power of Attorney. On the other hand, it is the latter which
that this situation could readily give rise to all kinds of misunderstandings established the juridical relation of the parties and defined the parameters of
and disagreements over money matters. their dealings with one another.

• To the Court, this strange and beguiling arrangement of MPEI with the 2. The execution of the two compromise agreements can hardly be
other companies does not qualify them to be treated as a consortium or joint considered as a subsequent or contemporaneous act that is reflective of the
venture, at least of the type that government agencies like the Comelec parties true intent. The compromise agreements were executed eleven years
should be dealing with. With more reason is it unable to agree to the after the Power of Attorney and merely laid out a plan or procedure by which
proposal to evaluate the members of MPC on a collective basis. 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.

5

3. An examination of the Power of Attorney reveals that a partnership or construction of the road system, canal structures and drainage box culverts
joint venture was indeed intended by the parties. Under a contract of and received the Notice of Award which was signed by Coloma, the then
partnership, two or more persons bind themselves to contribute money, Acting Project Manager for the NIA-CMIPP.
property, or industry to a common fund, with the intention of dividing the
profits among themselves. While a corporation, like petitioner, cannot 2. Cruz met up with Mendoza followed by series of meetings in said EMPCT
generally enter into a contract of partnership unless authorized by law or its where the latter was holding his office upon learning of the latter’s need for
charter, it has been held that it may enter into a joint venture which is akin heavy equipment for use in the NIA project; this was followed by the signing
to a particular partnership: of two job orders/agreements for the lease of Cruz’s heavy equipment to
EMPCT.
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 3. Subsequently, Paule revoked the SPA issued to Mendoza and
organization formed for some temporary purpose. x x x It is in fact hardly consequently, NIA refused to make payments to Mendoza on her billings;
distinguishable from the partnership, since their elements are similar thus Cruz could not be paid for the rent of the equipment.
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 4. Upon advice of Mendoza, Cruz addressed his demands for payment of
common law jurisdictions is that the partnership contemplates a general lease rentals directly to NIA but the latter refused to acknowledge the same
business with some degree of continuity, while the joint venture is formed and informed Cruz that it would be remitting payment only to EMPCT as the
for the execution of a single transaction, and is thus of a temporary nature. x winning contractor for the project.
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 5. Cruz demanded from Mendoza and/or EMPCT the outstanding rentals and
partnership may have for its object a specific undertaking. x x x It would sued Paule, Coloma and the NIA; and Paule filed a third-party complaint
seem therefore that under Philippine law, a joint venture is a form of against Mendoza and the latter was impleaded as defendant in the third-
partnership and should be governed by the law of partnerships. The Supreme party complaint.
Court has however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into a Plaintiff’s Argument: She alleged in her cross-claim that because of Paule’s
partnership contract, it may however engage in a joint venture with others. x whimsical revocation of the SPA, she was barred from collecting payments
x x from NIA, thus resulting in her inability to fund her checks which she had
issued to suppliers of materials, equipment and labor for the project. She
4. Perusal of the agreement denominated as the Power of Attorney indicates claimed that estafa and B.P. Blg. 22 cases were filed against her; that she
that the parties had intended to create a partnership and establish a could no longer finance her childrens education; that she was evicted from
common fund for the purpose. They also had a joint interest in the profits of her home; that her vehicle was foreclosed upon; and that her reputation was
the business as shown by a 50-50 sharing in the income of the mine. destroyed, thus entitling her to actual and moral damages.

5. Under the Power of Attorney, petitioner and Baguio Gold undertook to Note: Paule again constituted Mendoza as his attorney-in-fact and at the pre-
contribute money, property and industry to the common fund known as the trial conference, the parties were declared in default.
Sto. Nino mine. In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to the RTC – Without resolving Mendoza’s motion to declare Paule non-suited, and
development and operation of the mine. Pursuant to paragraphs 4 and 5 of without granting her the opportunity to present her evidence ex parte, the
the agreement, petitioner and Baguio Gold were to contribute equally to the court ruled in favor of the plaintiff Cruz.
joint venture assets under their respective accounts. Baguio Gold would
contribute P11M under its owners account plus any of its income that is left CA – Upon appeal of Paule and Mendoza, CA dismissed the complaint of Cruz
in the project, in addition to its actual mining claim. Meanwhile, petitioners and Mendoza’s appeal.
contribution would consist of its expertise in the management and operation
of mines, as well as the managers account which is comprised of P11M in NOTE: In this case, both the trial court and the Court of Appeals are one in
funds and property and petitioners compensation as manager that cannot be ruling that petitioners and private respondent established a business
paid in cash. partnership.

ISSUE/S: Whether or not a joint venture arrangement to undertake one
Case #4 Mendoza vs. Paule (579 SCRA 349) particular government project was pursued among the two partners (Paule
and Mendoza).

DOCTRINE: RULING:
Joint Venture Arrangement Hidden Through Another Form of Contract – • Yes. A joint venture arrangement to undertake one particular government
Sometimes, the parties to a joint venture arrangement, in order to avoid project was pursued among two partners, Paule and Mendoza through the
having to present to the public the real nature of their arrangement, execute use of accredited construction company (a sole proprietorship) of one of the
another form of contract that will either facilitate the implementation of partners. Instead of executing a formal joint venture arrangement, the
their agreement, or that will hide their true intent and arrangement. parties followed the following format: Engineer Eduardo M. Paule (PAULE) is
the proprietor of E.M. Paule Construction and Trading (EMPCT). On May 24,
FACTS: 1999, PAULE executed a special power of attorney (SPA) authorizing Zenaida
Note: This is a consolidated case filed by Mendoza against respondents and G. Mendoza (MENDOZA) to participate in the pre-qualification and bidding of
Cruz against respondents. a National Irrigation Administration (NIA) project and to represent him in all
transactions related thereto.
1. Paule, a proprietor of E.M. Paule Construction and Trading (EMPCT),
executed an SPA authorizing Mendoza to participate in the pre-qualification Although dubbed as an attorney-in-fact arrangement, the Court noted that
and bidding of the National Irrigation Administration (NIA) project and to the real arrangement between Paule and Mendoza was a partnership or joint
represent him in all transactions related thereto; the plaintiff then venture arrangement, thus:
participated in the bidding of NIA-Casecnan Multi-Purpose Irrigation and • Records show that Paule (or, more appropriately, EMPCT) and Mendoza
Power Project (NIA-CMIPP) and was awarded with packages involving the had entered into a partnership in regard to the NIA project. Paule’s
6

contribution thereto is his contractor’s license and expertise, while Mendoza Labor Arbiter: Labor Arbiter, found respondent Cooperative guilty of illegal
would provide and secure the needed funds for labor, materials and services; dismissal.
deal with the suppliers and sub-contractors; and in general and together with
Paule, oversee the effective implementation of the project. For this, PAULE NLRC: NLRC sustained the Labor Arbiters ruling that the employer of
would receive as his share three per cent (3%) of the project cost while the petitioners is the Cooperative, there being no showing that the earlier
rest of the profits shall go to Mendoza. Paule admits to this arrangement in mentioned Orders of the DOLE Secretary, from a case filed earlier, had been
all his pleadings. set aside by a court of competent jurisdiction.

• Although Paule was shown to be the principal of Mendoza, he was made CA: Appellate court dismissed petitioner's petition for certiorari on the
liable for revoking the purported agency arrangement. Thus, Paule should be ground that the accompanying verification and certification against forum
made civilly liable for abandoning the partnership, leaving Mendoza to fend shopping was defective.
for her own, and for unduly revoking her authority to collect payments from
NIA, payments which were necessary for the settlement of obligations ISSUE:
contracted for and already owing to laborers and suppliers of materials and Whether or not an employer-employee relationship exists between
equipment like Cruz, not to mention the agreed profits to be derived from petitioner and respondent or;
the venture that are owing to Mendoza by reason of their partnership
agreement. Whether or not a joint venture exists between the parties

RULING: No employer-employee relationship; rather, joint venture exists
Case #5 Traveno vs. Bobongon Banana Growers Multi-Purpose (INFORMAL/CONTRACTUAL JOINT VENTURE ARRANGEMENT)
Cooperative (598 SCRA 27)
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
DOCTRINE: (this was only was footnoted) A joint venture is an association of would handle and fund the production of bananas and operation of the
persons or companies jointly undertaking some commercial enterprise; plantation covering lands owned by its members in consideration of DFI’s
generally, all contribute assets and share risks. commitment to provide financial and technical assistance as needed,
including the supply of information and equipment in growing, packing, and
FACTS: shipping bananas. The Cooperative would hire its own workers and pay their
wages and benefits, and sell exclusively to DFI all export quality bananas
1. By the account of petitioner Oldarico Traveo and his 16 co-petitioners, in produced that meet the specifications agreed upon.
1992, respondent Timog Agricultural Corporation (TACOR) and respondent
Diamond Farms, Inc. (DFI) hired them to work at a banana plantation. To the Court, the Contract between the Cooperative and DFI, far from being
a job contracting arrangement, is in essence a business partnership that
2. Petitioners asseverated that while they worked under the direct control of partakes of the nature of a joint venture. The rules on job contracting are,
supervisors assigned by TACOR and DFI, these companies used different therefore, inapposite. The Court may not alter the intention of the
schemes to make it appear that petitioners were hired through independent contracting parties as gleaned from their stipulations without violating the
contractors, including individuals, unregistered associations, and autonomy of contracts principle under Article 1306 of the Civil Code which
cooperatives; that the successive changes in the names of their employers gives the contracting parties the utmost liberality and freedom to establish
notwithstanding, they continued to perform the same work under the direct such stipulations, clauses, terms and conditions as they may deem
control of TACOR and DFI supervisors. convenient, provided they are not contrary to law, morals, good custom,
public order or public policy.
3. Without first seeking the approval of the Department of Labor and
Employment (DOLE), respondents changed petitioners’ compensation Petitioners claim of employment relationship with the Cooperatives herein
package from being based on a daily rate to a pakyawan rate that depended co-respondents must be assessed on the basis of four standards, viz: (a) the
on the combined productivity of the gangs they had been grouped into. Soon manner of their selection and engagement; (b) the mode of payment of their
thereafter, they stopped paying their salaries, prompting them to stop wages; (c) the presence or absence of the power of dismissal; and (d) the
working. presence or absence of control over their conduct. Most determinative
among these factors is the so-called control test.
4. Three separate complaints for illegal dismissal were filed by petitioners, There is nothing in the records which indicates the presence of any of the
individually and collectively, with the National Labor Relations Commission foregoing elements of an employer-employee relationship.
(NLRC)
The absence of the first requisite, which refers to selection and engagement,
5. Respondent DFI answered for itself and TACOR, which it claimed had been is shown by DFIs total lack of knowledge on who actually were engaged by
merged with it and ceased to exist as a corporation. the Cooperative to work in the banana plantation. This is borne out by the
Contract between the Cooperative and DFI, under which the Cooperative
Petitioner’s Argument: They were illegally dismissed. 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.
Respondent's Argument: Denied that it had engaged the services of Petitioners failed to prove the contrary. No employment contract
petitioners; DFI contended that during the corporate lifetime of TACOR, it whatsoever was submitted to substantiate how petitioners were hired and
had an arrangement with several landowners in Santo Tomas, Davao Del by whom.
Norte whereby TACOR was to extend financial and technical assistance to
them for the development of their lands into a banana plantation on the On the second requisite, which refers to the payment of wages, it was
condition that the bananas produced therein would be sold exclusively to likewise the Cooperative that paid the same. As reflected earlier, under the
TACOR; that the landowners worked on their own farms and hired laborers Contract, the Cooperative was to handle and fund the production of bananas
to assist them; that the landowners themselves decided to form a and operation of the plantation. The Cooperative was also to be responsible
cooperative in order to better attain their business objectives for the proper conduct, safety, benefits, and general welfare of its members
and workers in the plantation.
7

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 ISSUE:
the Cooperative. Again, the Contract stipulated that the Cooperative was to Whether or not there exists a joint venture/partnership between the
be responsible for the proper conduct and general welfare of its members petitioner and respondent?
and workers in the plantation.
RULING: Yes. There formed a partnership between the two on the basis of
The crucial element of control refers to the authority of the employer to joint-venture agreement and deed of sale. A reading of the terms of
control the employee not only with regard to the result of the work to be agreement shows the existence of partnership pursuant to Art 1767 of Civil
done, but also to the means and methods by which the work is to be Code, which states “By the contract of partnership two or more persons bind
accomplished. While it suffices that the power of control exists, albeit not themselves to contribute money, property, or industry to a common fund,
actually exercised, there must be some evidence of such power. In the with the intention of dividing the profits among themselves.” In the
present case, petitioners did not present any. agreement, petitioners would contribute property to the partnership in the
form of land which was to be developed into a subdivision; while respondent
There being no employer-employee relationship between petitioners and the would give, in addition to his industry, the amount needed for general
Cooperatives co-respondents, the latter are not solidarily liable with the expenses and other costs. Furthermore, the income from the said project
Cooperative for petitioners illegal dismissal and money claims. would be divided according to the stipulated percentage. Clearly, the
contract manifested the intention of the parties to form a partnership.

Case #6 Torres vs. CA
(G.R. No. 134559 December 9, 1999, 320 SCRA 428) Case #7 Primelink Properties and Dev. Corp. vs. Lazatin-Magat
(493 SCRA 444)

FACTS:

Petitioners Torres and Baring entered into a “joint venture agreement” with FACTS:
Respondent Torres for the development of a parcel of land into a subdivision. 1. In 1994, Primelink, through its President Rafaelito Lopez, and Lazatin
They executed a Deed of Sale covering the said parcel of land in favor of siblings entered into a Joint Venture Agreement (JVA) whereby the latter
respondent Manual Torres, who then had it registered in his name. By would contribute a huge parcel of land for the former to develop into a
mortgaging the property, respondent Manuel Torres obtained from residential subdivision.
Equitable Bank a loan of P40,000, which was supposed to be used for the
development of subdivision as per the JVA. However, the project did not 2. However, in 1998, the Primelink failed to comply its obligations under the
push through and the land was subsequently foreclosed by the bank. JVA which prompted the Lazatins to file before the RTC the rescission
accounting and damages, with prayer for temporary restraining order and/or
Petitioners Antonia Torres alleged that it was due to respondent’s lack of preliminary injunction against Primelink and Lopez.
funds/skills that caused the project to fail, and that respondent use the loan
in the furtherance of his own company. On the other hand, respondent 3. The Lazatins allege that despite the lapse of 4 years from the execution of
Manuel Torres alleged that he used the loan to implement the JVA – the JVA and the delivery of title and possession of the land to Primelink, the
surveying and subdivision of lots, approval of the project, advertisement, and development of the project has not yet been completed and that Primelink
construction of roads and the likes, and that he did all of these for a total of had, without justifiable reason, completely disregarded previously agreed
P85,000. accounting and auditing procedures, checks and balances system installed for
the mutual protection of both parties.
Petitioners filed a case for estafa against respondent but failed. They then
instituted a civil case, which was dismissed by the court. And on appeal, the 4. Before the expiration of the reglementary period to answer the complaint,
CA affirmed the RTC decision. Primelink prayed for a 15-day extension but as RTC granted the same it
prayed for another 8 succeeding motions for extension, the last one denied
Trial Court Decision: The trial court acquitted the respondent and his wife thus declaring Primelink in default.
from the criminal case of estafa. The trial court also dismissed the civil case.
Court of Appeals Decision: In affirming the trial court, the Court of Appeals 5. CA affirmed decision with modification, ordering Primelink to return to the
held that petitioners and respondent had formed a partnership for the Lazatins the land as well as some improvements which Primelink had so far
development of the subdivision. Thus, they must bear the loss suffered by over the property without the Lazatins paying for the same.
the partnership in the same proportion as their share in the profits stipulated
in the contract.Disagreeing with the trial courts pronouncement that losses ISSUE:
as well as profits in a joint venture should be distributed equally, the CA Whether or not the improvements made by Primelink should also be turned
invoked Article 1797 of the Civil Code which provides: over under the possession of the Lazatins.(Yes)

Article 1797 - The losses and profits shall be distributed in conformity with Whether or not Primelink is entitled to reimbursement for the value of the
the agreement. If only the share of each partner in the profits has been improvements. (Demand to be indemnified is premature.)
agreed upon, the share of each in the losses shall be in the same proportion.
RULING:
The CA elucidated further: 1. Yes. Although the Lazatins did not specifically pray in their complaint that
In the absence of stipulation, the share of each partner in the profits and possession of the improvements on the parcels of land be transferred to
losses shall be in proportion to what he may have contributed, but the the,they have prayed for other reliefs just and equitable which justifies the
industrial partner shall not be liable for the losses. As for the profits, the grant of relief not otherwise specified.
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 2. The JVA entered is a form of partnership and such is to be governed by
also receive a share in the profits in proportion to his capital. the laws on partnership. When the RTC rescinded the JVA, the court thereby
dissolved/cancelled the partnership on account of petitioner’s fraudulent
acts, all authority of any partner to act for the partnership is terminated so
far as may be necessary to wind up the partnership affairs or to complete
8

transactions begun but not yet finished. On dissolution, the partnership is
not terminated but continues until the winding up of partnership affairs is CA: affirmed with modification, deleted the award for exemplary damages.
completed. The transfer of possession of the parcels of land and the
improvements to the Lazatins was only for specific purpose: the winding up ISSUE: Which between the joint venturers bears the liability to pay PGI its
of partnership affairs, and the partition and distribution of the net unpaid claims? [BOTH, jointly]
partnership assets as provided by law.]
RULING: The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.
3. It must be stressed that although the Lazatins acquired possession of the
lands and the improvements thereon, the said lands and improvements PGI executed a technical service contract with the joint venture and was
remained partnership property, subject to the rights and obligations of the never a party to the JVA. While the JVA clearly spelled out, inter alia, the
parties, inter se, of the creditors and of the third parties and subject to the capital contributions of Marsman Drysdale (land) and Gotesco (cash) as well
outcome of the settlement of the accounts between the parties absent any as the funding and financing mechanism for the project, the same cannot be
agreement of the parties in their JVA to the contrary. Until the partnership used to defeat the lawful claim of PGI against the two joint venturers-
accounts are determined, it cannot ascertained how much any of the parties partners.
is entitled to, if at all.
A joint venture, being a form of partnership, is to be governed by the laws on
4.It was thus premature for Primelink to be demanding that it be indemnified partnership. Specifically in this case, Article 1797 of the Civil Code which
for the value of improvement on the land owned by the joint provides:
venture/partnership. Notably, the JVA of the parties does not contain “The losses and profits shall be distributed in conformity with the agreement.
provisions to wind up the affairs of the partnership. 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 JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the
Case #8 Marsman Drysdale Land, Inc. vs. Philippine Geoanalytics, proceeds of the project. They did not provide for the splitting of losses,
Inc. (622 SCRA 281) however. Applying the provision of Article 1797 then, the same ratio applies
in splitting the P535,353.50 obligation-loss of the joint venture.

DOCTRINE: A joint venture being a form of partnership, it is to be governed Marsman Drysdale was not precluded from advancing funds to pay for PGI’s
by the laws on partnership. Article 1797 of the Civil Code provides: contracted services to abate any legal action against the joint venture itself.
“The losses and profits shall be distributed in conformity with the agreement. It was in fact hardline insistence on Gotesco having sole responsibility to pay
If only the share of each partner in the profits has been agreed upon, the for the obligation, despite the fact that PGIs services redounded to the
share of each in the losses shall be in the same proportion…” benefit of the joint venture, that spawned the legal action against it and
Gotesco.
FACTS:
1. In 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco
Properties, Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for Case #9 J. Tiosejo Investment Corp. vs. Ang
the construction and development of an office building on a land owned by (630 SCRA 334)
Marsman Drysdale in Makati City.

2. Under the JVA. The parties are to invest in the project on a 50-50 basis. DOCTRINE:
Marsman Drysdale shall contribute the property, with an appraised value of A joint venture is considered in this jurisdiction as a form of partnership and
P420 Million, while Gotesco shall contribute the amount of P420 Million. is accordingly, governed by the law on partnerships.

3. The parties further agreed that the construction funding for the project Under Article 1824 of the Civil Code of the Philippines, all partners are
shall be obtained from the cash contribution of Gotesco, and Marsman solidarily liable with the partnership for everything chargeable to the
Drysdale shall not be obligated to fund such project as its contribution is partnership, including loss or injury caused to a third person or penalties
limited to the property. 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
4. The joint venture then engaged the services of Philippine Geoanalytics, Inc. co-partners.
(PGI) to provide subsurface soil exploration, laboratory testing, seismic study
and geotechnical engineering for the project. However, PGI was only able to FACTS:
drill four of five boreholes needed to conduct its subsurface soil exploration 1.Petitioner entered into a Joint Venture Agreement (JVA) with Primetown
and laboratory testing, claiming that the joint venture failed to clear the area Property Group, Inc. (PPGI) for the development of a residential
where the drill was to be made. condominium project to be known as The Meditel Mandaluyong City.

5. PGI billed the joint venture, however, it failed to pay its obligations despite 2. Petitioner contributed the lot while PPGI undertook to develop the
repeated demands. PGI then filed with RTC Quezon a complaint for collection condominium and agreed to a sharing of 17%-83%, respectively.
of sum of money and damages against Marsman Drysdale and Gotesco.
3. PPGI further undertook to use all proceeds from the pre-selling of its
Marsman’s argument: Under the JVA, Gotesco is solely liable for the saleable units for the completion of the Condominium Project. Sometime in
monetary expenses of the project. 1996, PPGI executed a Contract to Sell with Spouses Ang on a certain
condominium unit and parking slot for P2,077,334.25 and P313,500.00,
Gotesco’s argument: PGI has no cause of action against it as PGI had yet to respectively.
complete the services enumerated in the contract; and that Marsman failed
to clear the property of debris which prevented PGI from completing its 4. Respondents filed against petitioner and PPGI the complaint for the
work. rescission of the aforesaid Contracts to Sell with a contention that they were
assured by petitioner and PPGI that the subject condominium unit and
RTC: In favor of PGI. Marsman and gotesco are ordered to pay PGI jointly. parking space would be available for turn-over and occupancy in December
9

1998. Respondents averred, among other matters, that in view of the non- in the partnership, or any penalty is incurred, the partnership is liable
completion of the project according to said representation, respondents therefor to the same extent as the partner so acting or omitting to act.
instructed petitioner and PPGI to stop depositing the post-dated checks they x x x x
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. Article 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and 1823.
5. PPGI filed an answer alleging that the delay in the completion of the
project was attributable to the economic crisis which affected the country at FACTS:
the time; that the unexpected and unforeseen inflation as well as increase in 1. Jebson, an entity engaged in the real estate business, entered into a JVA
interest rates and cost of building materials constitute force majeure and with Sps. Salonga where the latter, who owns parcels of land, agreed for the
were beyond its control; that aware of its responsibilities, it offered several former to construct thereon high-end single detached residential units, to be
alternatives to its buyers like respondents for a transfer of their investment known as Brentwoods.
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 2. Jebson entered into a Contract to Sell with Buenviaje over the subject unit
complaint was prematurely filed in view of the on-going negotiations it is (Unit 5) without the conformity of Sps. Salonga but, despite full payment of
undertaking with its buyers and prospective joint venture partners. Aside the contract price, Jebson was unable to complete Unit 5 in violation of its
from the dismissal of the complaint, PPGI sought the readjustment of the contractual stipulation to finish the same.
contract price and the grant of its counterclaims for attorneys fees and
litigation expenses. 3. Buenviaje filed before the HLURB a Complaint for Specific Performance
against Jebson, Bañez, and Sps. Salonga (respondents) and, in the alternative,
Housing and Land Use (HLU)=declaring the subject Contracts to Sell cancelled he prayed for the rescission of the subject CTS, and the return of all
and rescinded on account of the non-completion of the condominium payments made thereunder.
project. On the ground that the JVA created a partnership liability on their
part, petitioner and PPGI, as co-owners of the condominium project. 4. In their defense, Jebson and Bañez claimed that they were ready to
comply with all their contractual obligations but were not able to secure the
Office of the President (OP) rendered a decision dismissing petitioners appeal necessary government permits because Sps. Salonga stubbornly refused to
on the ground that the latters appeal memorandum was filed out of time and cause the consolidation of the parcels of land covered by TCT No. T-9000,
that the HLURB Board committed no grave abuse of discretion in rendering and their partition into ten (10) individual lots.
the appealed decision
5. Sps. Salonga averred that they were not liable to the complainants since
CA=resolve to DENY the second extension motion and rule to DISMISS the there was no privity of contract between them, adding that the contracts to
petition for being filed late. sell were unenforceable against them as they were entered into by Jebson
without their conformity, in violation of the JVA.
ISSUE: WON J. Tiosejo Investment Corp is exempt from liability by claiming it
waa not a privy to the Contract to Sell executed by its JV partner PPGI and HLURB-Region IV - found Sps. Salonga solidarily liable with Jebson and Bañez
spouses Ang. as joint venture partners liable to the general buying public.

RULING: No. HLURB-BOC – reversed, found no basis to hold Sps. Salonga solidarily liable
Viewed in the light of the foregoing provision of the JVA, petitioner cannot with Jebson under the Contract to Sell
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, OP –affirmed HLURB-BOC
moreover, a joint venture is considered in this jurisdiction as a form of
partnership and is, accordingly, governed by the law of partnerships. CA – affirmed OP

Under Article 1824 of the Civil Code of the Philippines, all partners are ISSUE: WON Sps. Salonga, as co-venturer, are solidarily liable with Jebson to
solidarily liable with the partnership for everything chargeable to the Buenviaje for the completion of the construction and delivery of the unit
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 RULING: NO.
ordinary course of the business of the partnership or with the authority of his 1. Evidently, Arts. 1822 & 1824 pertain to the obligations of a co-partner in
co-partners. Whether innocent or guilty, all the partners are solidarily liable the event that the partnership to which he belongs is held liable. In this case,
with the partnership itself Buenviaje never dealt with any partnership constituted by and between
Jebson and Sps. Salonga. As previously mentioned, the subject Contract to
Sell, which was the source of the obligations relative to the completion and
Case #10 Buenviaje vs. Sps. Salonga delivery of Unit 5, solely devolved upon the person of Jebson. As there was
(805 SCRA 369) no partnership privy to any obligation to which Buenviaje is a creditor,
Articles 1822 and 1824 of the Civil Code do not apply.

DOCTRINE: 2. While Jebson, as developer, and Sps. Salonga, as land owner, entered into
Although a joint venture may be considered as a form of partnership, when a joint venture, which - based on case law may be considered as a form of
the joint venture is not privy with any obligation with a third person, liability partnership, the fact remains that their joint venture was never privy to any
cannot be imputed against the joint venture based on the principle of obligation with Buenviaje; hence, liability cannot be imputed against the joint
relativity embodied in the following provisions of partnership – venture based on the same principle of relativity as above-mentioned.

Article 1822. Where, by any wrongful act or omission of any partner acting in 3. Besides, it should be pointed out that the JVA between Jebson and Sps.
the ordinary course of the business of the partnership or with the authority Salonga was limited to the construction of the residential units under the
of his co-partners, loss or injury is caused to any person, not being a partner Brentwoods Project and that Jebson had the sole hand in marketing the units
allocated to it to third persons, such as Buenviaje. In fact, under the express
10

terms of the JVA, Jebson, as the developer, had even stipulated to hold Sps. Million since he had invested it in his two companies. He found nothing
Salonga free from any liability to third parties for non-compliance with irregular in this as eventually, the Danton and Bakcom shares would form
HLURB rules and regulations. As things stand, only Jebson should be held part of Alliance’s capital.
liable for its obligations to Buenviaje under the subject Contract to Sell.
SC ruled that Fong’s cash contributions play an indispensable part in
Alliance’s incorporation. The process necessarily requires the money not only
Case #11 Fong vs. Duenas to fund Alliance’s registration with the SEC but also its initial capital
(757 SCRA 412) subscription. Thus, Dueñas erred when he invested Fong’s contributions in
his two companies. This money should have been used in processing
Alliance’s registration. Its incorporation would not materialize if there would
FACTS: be no funds for its initial capital.
Dueñas is engaged in the bakery, food manufacturing, and retailing business,
all operated under his 2 companies, D.C. DANTON, Inc. (Danton) and Bakcom Under these circumstances, the Court agrees with the trial court that Dueñas
Food Industries, Inc. (Bakcom). Fong is Duenas’ old acquaintance and violated his agreement with Fong. Aside from unilaterally applying Fong’s
schoolmate. They entered into a verbal joint venture contract to engage in contributions to his two companies, Dueñas also failed to deliver the
the food business and to incorporate a holding company under the name valuation documents of the Danton and Bakcom shares to prove that the
Alliance Holdings, Inc. Its capitalization would be P65 M , to which they combined values of their capital contributions actually amounted to P32.5
would contribute in equal parts. Million. These acts led to Dueñas’ delay in incorporating the planned holding
company, thus resulting in his breach of the contract.
Both verbally agreed to incorporate a company that would hold the shares of
Danton and Bakcom and which, in turn, would be the platform for their food On this basis, Dueñas’ breach justified Fong’s rescission of the joint venture
business. Fong obligated himself to contribute half of the capital or P32.5 agreement under Article 1191.
Million in cash. On the other hand, Dueñas bound himself to shoulder the
other half by contributing his Danton and Bakcom shares, which were In the present case, private respondents validly exercised their right to
allegedly also valued at P32.5 Million. Aside from this, Dueñas undertook to rescind the contract, because of the failure of petitioners to comply with
process Alliance’s incorporation and registration with the SEC. their obligation to pay the balance of the purchase price. Indubitably, the
latter violated the very essence of reciprocity in the contract of sale, a
Later on, Fong sent a letter to Dueñas informing him of his decision to limit violation that consequently gave rise to private respondents’ right to rescind
his total contribution from P32.5 Million to P5 Million. Despite this, Dueñas the same in accordance with law.
still failed to give him the financial documents on the valuation of the Danton
and Bakcom shares. Moreover, Dueñas failed to incorporate and register However, Fong is also to blame for he only invested P5M contrary to the
Alliance with the Securities and Exchange Commission (SEC). originally agreed P32.5M. This in turn, caused the lack of funds to create
Alliance which is also the breach of the original agreement. Fong also
Subsequently, Fong wrote Dueñas that he wants to cancel the joint venture contributed to the non-incorporation of Alliance that needed P65 Million as
agreement. He also asked for the refund of the P5 Million that he advanced. capital to operate.
In response, Dueñas admitted that he could not immediately return the
money since he used it to defray the business expenses of Danton and The SC holds that the joint venture agreement between Fong and Dueñas is
Bakcom. deemed extinguished through rescission under Article 1192 in relation with
Article 1191 of the Civil Code. Dueñas must therefore return the P5 Million
Fong filed a complaint against him for collection of a sum of money and that Fong initially contributed since rescission requires mutual restitution.
damages. After rescission, the parties must go back to their original status before they
entered into the agreement. Dueñas cannot keep Fong’s contribution as this
TC ruled in favor of Fong and held that although it was labeled as an action would constitute unjust enrichment.
for collection of a sum of money, it was actually an action for rescission. It
also held that Dueñas erroneously invested Fong’s cash contributions in his No damages shall be awarded to any party in accordance with the rule under
two companies, Danton and Bakcom. Article 1192 of the Civil Code that in case of mutual breach and the first
infractor of the contract cannot exactly be determined, each party shall bear
CA ruled that Fong’s June 13, 1997 letter evidenced his intention to convert his own damages.
his cash contributions from “advances” to the proposed corporation’s shares,
to mere “investments.” Thus, contrary to the trial court’s ruling, Dueñas
correctly invested Fong’s P5 Million contribution to Bakcom and Danton. This Case #12 Aurbach vs. Sanitary Wares Manufacturing Corp.
did not deviate from the parties’ original agreement as eventually, the shares (180 SCRA 130)
of these two companies would form part of Alliance’s capital.

Fong's arguments: CA erred when it ruled that his letter showed his intent to FACTS:
convert his contributions from advance subscriptions to Alliance’s shares, to 1. Sanitary Wares Manufacturing Corporation (Saniwares), a domestic
investments in Dueñas’ two companies. Contrary to the CA’s findings, the corporation, entered into an agreement with American Standard Inc. (ASI), a
receipts and the letter expressly mentioned that his contributions should all foreign corporation with some Filipino investors, whereby they were to
be treated as his share subscription to Alliance. engage in the manufacturing and selling of vitreous china and sanitary wares
under an incorporated enterprise named "Sanitary Wares Manufacturing
ISSUE: Whether or not Fong has the right to cancel their verbal agreement. Corporation."

RULING: 2. The Agreement provided that the board of directors shall consist of nine
Yes. Fong and Dueñas’ execution of a joint venture agreement created individuals, three of which shall be designated by ASI, and the others shall be
between them reciprocal obligations. When the proposed company designated by the remaining stockholders.
remained unincorporated by October 30, 1997, Fong cancelled the joint
venture agreement and demanded the return of his P5 Million contribution. 3. The dispute arose from the annual stockholders' meeting, where the
For his part, Dueñas explained that he could not immediately return the P5 meeting was adjourned by the Chairman after the election Aurbach, Griffin,
11

Whittingham, 3 Lagdameos, Lee, Boncan, and Young; but the ASI
representative contended that it was merely recessed and was continued the Case #13 JG Summit Holdings, Inc. vs. CA
meeting together with the other ASI group, presided by Salazar and held the (G.R. No. 124293, September 24, 2003, 412 SCRA 10)
election of Aurbach, Griffin, Whittingham, Chamsay, and Salazar.

4. This led to the filing of separate petitions with the Security Exchange DOCTRINE: RIGHT OF FIRST REFUSAL; BASED ON DELECTUS PERSONAE; CASE
Commission: a preliminary injunction by Lagdamaeos, Young, and Lee against AT BAR.
Salazar and Chamsay while a petition for quo warranto and receivership was
filed by the newly elected directors against Young’s group. FACTS:
1. The National Investment and Development Corporation [NIDC], which is a
5. SEC upheld the validity of the election of the Lagdameo group and government corporation, entered into a Joint Venture Agreement with
dismissed the petitions of Salazar and Chamsay, however, the CA amended Kawasaki Heavy Industries, Ltd, for the construction, operation and
its decision holding that there was no valid election and remanded the case management of the Subic National Shipyard, which subsequently became the
back to SEC. Philippine Shipyard and Engineering Corporation.

ISSUE: Whether or not the nature of the business between Sanitary Wares 2. Under the JVA, the government corporation will contribute 330 million for
and ASI is a joint venture the capitalization of the PHILSECO in the proportion of 60 – 40 respectively,
and the JVA also provides, that neither party shall sell, transfer or assign all
RULING: or any part of its interest in SNS to any third party without giving the others
1. YES, it is considered a joint venture. The rule is that whether the parties to the right of first refusal.
a particular contract have thereby established among themselves a joint
venture or some other relation depends upon their actual intention which is 3. However, despite of the said agreement, NIDC transferred all its rights,
determined in accordance with the rules governing the interpretation and title and interest in PHILSECO to the Philippine National Bank, which were
construction of contracts. subsequently transferred to the National Government pursuant to
Administrative Order 14.
2. While the Agreement provided that “nothing herein contained shall be
construed to constitute any of the parties hereto partners or joint 4. Subsequently, the Committee on Privatization and the Asset Privation
venturers,” an examination of important provisions of the Agreement and Trust deemed it best to sell the National Government’s Shares in PHILSECO
the testimonial evidence presented by the Lagdameo and Young Group to private entities, which was later agreed by KAWASAKI to exchange its right
shows that the parties agreed to establish a joint venture and not a of first refusal for the right to top by 5% the highest bid for the shares and
corporation. The history of the organization of Saniwares and the unusual including such company in which KAWASAKI was a stockholder to exercise
arrangements which govern its policy making body are all consistent with a the right to top.
joint venture and not with an ordinary corporation.
5. Petitioner, JGI was declared the highest bidder [20, 030, 000, 000.00],
3. "The legal concept of a joint venture is of common law origin. It has no approved by the COP which was subject to the right to top of KAWASAKI
precise legal definition, but it has been generally understood to mean an including Philyards, however the offer of PHI was protested by JGI
organization formed for some temporary purpose. It is in fact hardly contending that KAWASAKI only shall exercise the right to top and giving
distinguishable from the partnership, since their elements are similar — such option to PHI constitutes an unwarranted benefit to a third party.
community of interest in the business, sharing of profits and losses, and a
mutual right of control. The main distinction cited by most opinions in 6. Despite the protests, petitioner was notified that PHI had fully paid the
common law jurisdictions is that the partnership contemplates a general balance of the purchase price through exercising its right to top the highest
business with some degree of continuity, while the joint venture is formed bid, that APT and PHI already executed a Stock Purchase Agreement.
for the execution of a single transaction, and is thus of a temporary nature.
This observation is not entirely accurate in this jurisdiction, since under the 7. Court of Appeals: while JG Summit’s petition for Mandamus was referred
Civil Code, a partnership may be particular or universal, and a particular to the CA, CA denied it for lack of merit, then, filed for a Motion for
partnership may have for its object a specific undertaking. (Art. 1783, Civil Reconsideration, however denied.
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. 8. Hence, this petition in court.
The Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into a ISSUES:
partnership contract, it may however engage in a joint venture with others. Syllabus Topic 2: Whether the existing Joint Venture Agreement is treated in
the Nature of Partnership?
4. ASI should not be allowed to interfere in the voting within the Filipino
group. Otherwise, ASI would be able to designate more than the three Syllabus Topic 3: Whether the exchange of the right of first refusal with the
directors it is allowed to designate under the Agreement, and may even be right to top including the right to name a nominee is a valid contractual
able to get a majority of the board seats, a result which is clearly contrary to stipulation?
the contractual intent of the parties. "Such a ruling will give effect to both RULING:
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 SYLLABUS TOPIC 2:
raised by the appellees on possible violation or circumvention of the YES. The joint venture between the Philippine Government and KAWASAKI is
AntiDummy Law and the nationalization requirements in the nature of a partnership which, unlike an ordinary corporation, is based
on delectus personae. No one can become a member of the 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.
12

Operation Agreement (STOA) designating the ff obligations: CMMTC for the
The court recognized the partnership arrangement between the original design and construction of the project roads and PNCC Skyway Corp (PSC), a
parties in the joint venture company, and characterized the right of first subsidiary of PNCC which undertook the latter’s obligations, for the
refusal clause in the JVA as a protective mechanism to preserve their operation and maintenance of the project roads.
respective interests in the partnership in the event that one party decides to
sell its shares to third parties and new PHISECO shares are issued. This was later on amended to provide for the assumption of Skyway O & M
Corporation (SOMCO) of the operations and maintenance of the Stage 1 of
SYLLABUS TOPIC 3: the project which was previously under PSC.
YES. 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 Petitioners PTMSDWO and PNCC Skyway Corporation Employees Union
shareholder, to exercise the right to top. This is a valid contractual (PSCEU) filed before the Regional Trial Court of Paranaque City a complaint
stipulation; against respondents TRB, PNCC, PSC, CMMTC, and SOMCO seeking to
prohibit the implementation of the ASTOA and the MOA, as well as the
The right to top is an assignable right and both parties are aware of the full assumption of the toll operations by SOMCO.
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 RTC denied the prayer for the issuance of a temporary restraining order
public bidding was fully disclosed to them. and/or writ of preliminary injunction. According to the RTC, petitioners were
seeking to enjoin a national government infrastructure project.
The petitioner, thus, cannot feign ignorance nor can it be allowed to
repudiate its acts and question the proceedings it had fully adhered to. The ISSUE: WON the assumption by SOMCO of the obligations of PNCC under the
fact that the losing bidder, Keppel Consortium (composed of Keppel, SM agreement is valid
Group, Insular Life Assurance, Mitsui and ICTSI), has joined Philyards in the
latter's effort to raise P2.131 billion necessary in exercising the right to top is RULING: YES, SOMCO may validly assume the toll operations.
not contrary to law, public policy or public morals.
There is no need for a public bidding where a franchisee undertakes the
There is nothing in the ASBR that bars the losing bidders from joining either tollway projects of construction, rehabilitation and expansion of the tollways
the winning bidder (should the right to top is not exercised) or under its franchise. In pursuing the projects with the vast resource
KAWASAKI/PHI (should it exercise its right to top as it did), to raise the requirements, the franchisee can partner with other investors, which it may
purchase price. The petitioner did not allege, nor was it shown by competent choose in the exercise of its management prerogatives. In this case, no public
evidence, that the participation of the losing bidders in the public bidding bidding is required upon the franchisee in choosing its partners as such
was done with fraudulent intent. Absent any proof of fraud, the formation by process was done in the exercise of management prerogatives and in pursuit
Philyards of a consortium is legitimate in a free enterprise system. The of its right of delectus personae. Thus, the subject tollway projects were
appellate court is thus correct in holding the petitioner estopped from undertaken by companies, which are the product of the joint ventures
questioning the validity of the transfer of the National Government's shares between PNCC and its chosen partners.
in PHILSECO to respondent.
Under the STOA in this case, PNCC partnered with CMMTC in Stages 1 and 2
of the South Metro Manila Skyway. The STOA gave birth to PSC, which was
Case #14 Hontiveros-Baraquel vs. TRB put in charge of the operation and maintenance of the project roads. The
(751 SCRA 271) Amended STOA had to be executed for Stage 2 to accommodate changes and
modifications in the original design. The ASTOA then brought forth the
incorporation of SOMCO to replace PSC in the operations and maintenance
FACTS: of Stage 1 of the South Metro Manila Skyway. Clearly, no public bidding was
The Toll Regulatory Board and Philippine National Construction and necessary because PNCC, the franchisee, merely exercised its management
Development Corp (PNCC) entered into a Toll Operation Agreement, which prerogative when it decided to undertake the construction, operation, and
prescribed the operating conditions of the right, privilege, and authority to maintenance of the project roads through companies which are products of
construct, operate, and maintain toll facilities in the North and South Luzon joint ventures with chosen partners.
Toll Expressways for a period of 30 years starting 1 May 1977 granted to
PNCC under P.D. 1113 which was later on amended by PD 1894 to include
the Metro Manila Expressways.

PNCC then entered into two agreements with PT Citra Lamtoro Gung Persada
(CITRA),whereby the latter committed to provide PNCC with a pre-feasibility
study on the proposed MME project and to finance and undertake the
preparation, updating, and revalidation of previous studies on the
construction, operation, and maintenance of the projects.

As a result of the feasibility and related studies, PNCC and CITRA submitted,
through the TRB, a Joint Investment Proposal (JIP) to the Republic of the
Philippines.

Later on, PNCC and CITRA entered into a Business and Joint Venture
Agreement and created the Citra Metro Manila Tollways Corporation
(CMMTC), a joint venture corporation organized to serve as a channel
through which CITRA shall participate in the construction and development
of the project.

Subsequently, the Republic of the Philippines, through the TRB as Grantor,
CMMTC as Investor, and PNCC as Operator executed a Supplemental Toll
13

III. ASPECTS WHICH INFLUENCE CHOICE OF JV SCHEME 2. Thus, the tax court correctly concluded that the agreement provided for a
distribution of assets of the Sto. Nio mine upon termination, a provision that
is more consistent with a partnership than a creditor-debtor relationship. It
Case #1 JG Summit Holdings, Inc. vs. CA should be pointed out that in a contract of loan, a person who receives a loan
(412 SCRA 10) 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. In this case,

TN: Refer to Topic 2-Case 13 above. J however, there was no stipulation for Baguio Gold to actually repay
petitioner the cash and property that it had advanced, but only the return of
an amount pegged at a ratio which the managers account had to the owners
account.
Case #2 Philex Mining Corp. vs. CIR

(551 SCRA 428)
3. In this connection, The Court find no contractual basis for the execution of
the two compromise agreements in which Baguio Gold recognized a debt in
FACTS: favor of petitioner, which supposedly arose from the termination of their
1. Philex Mining Corp. entered into an agreement (denominated as Power of business relations over the Sto. Nino mine. The Power of Attorney clearly
Attorney) with Baguio Gold Mining Corp. for Philex to manage and operate provides that petitioner would only be entitled to the return of a
Baguio Gold’s mining claim known as the Sto. Nino Mine. proportionate share of the mine assets to be computed at a ratio that the
managers account had to the owners account. Except to provide a basis for
2. In the course of managing and operating the project, Philex Mining made claiming the advances as a bad debt deduction, there is no reason for Baguio
advances of cash and property in accordance with the agreement. However, Gold to hold itself liable to petitioner under the compromise agreements, for
the mine suffered continuing losses over the years which resulted to Philex’s any amount over and above the proportion agreed upon in the Power of
withdrawal as manager of the mine and in the eventual cessation of mine Attorney.
operations.
4. Next, the tax court correctly observed that it was unlikely for a business
3. Thereafter, to settle Baguio Gold’s liability to Philex, the parties executed a corporation to lend hundreds of millions of pesos to another corporation
"Compromise with Dation in Payment" which was later on superseded by with neither security, or collateral, nor a specific deed evidencing the terms
"Amendment to Compromise with Dation in Payment". In the amended and conditions of such loans. The parties also did not provide a specific
compromise agreement, Baguio Gold undertook to pay petitioner in 2 maturity date for the advances to become due and demandable, and the
segments; the parties then ascertained that Baguio Gold had a remaining manner of payment was unclear. All these point to the inevitable conclusion
outstanding indebtedness to petitioner in the amount of P114,996,768.00. that the advances were not loans but capital contributions to a partnership.
Subsequently, petitioner wrote off in its 1982 books of account the
remaining outstanding indebtedness of Baguio Gold by charging 5. The strongest indication that petitioner was a partner in the Sto Nino mine
P112,136,000.00 to allowances and reserves that were set up in 1981 and is the fact that it would receive 50% of the net profits as compensation under
P2,860,768.00 to the 1982 operations. paragraph 12 of the agreement. The entirety of the parties contractual
stipulations simply leads to no other conclusion than that petitioners
4. In its 1982 annual income tax return, petitioner deducted from its gross compensation is actually its share in the income of the joint venture. Article
income the amount of P112,136,000.00 as bad debt. BIR disallowed such 1769 (4) of the Civil Code explicitly provides that the receipt by a person of a
deduction for bad debt and assessed petitioner a deficiency income tax of share in the profits of a business is prima facie evidence that he is a partner
P62,811,161.39. in the business.

5. Petitioner protested before the BIR and argued that the deduction must be 6. The lower courts did not err in treating petitioners advances as
allowed since all requisites for a bad debt deduction were satisfied. 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
BIR: denied petitioner’s protest for lack of legal and factual basis. no unconditional obligation to return the same to the former under the
Court of Tax Appeals: Dismissed the petition and ordered Philex Mining to Power of Attorney. As for the amounts that petitioner paid as guarantor to
pay the income tax deficiency. It is not a loan but instead characterized the Baguio Golds creditors, we find no reason to depart from the tax courts
advances as petitioner’s investment in a partnership with Baguio Gold for the factual finding that Baguio Golds debts were not yet due and demandable at
development and exploitation of the Sto. Nino mine; POA is in fact a the time that petitioner paid the same. Verily, petitioner pre-paid Baguio
partnership agreement. Golds outstanding loans to its bank creditors and this conclusion is supported
by the evidence on record.
CA: Affirmed the decision of CTA.
7. In sum, petitioner cannot claim the advances as a bad debt deduction from
ISSUE: WON Philex may claim the advances made as bad debts from their its gross income. Deductions for income tax purposes partake of the nature
gross income. (NO) 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
RULING: this case, petitioner failed to substantiate its assertion that the advances
1. It does not appear that Baguio Gold was unconditionally obligated to were subsisting debts of Baguio Gold that could be deducted from its gross
return the advances made by petitioner under the agreement which provides income. Consequently, it could not claim the advances as a valid bad debt
that upon termination of the parties business relations, the ratio which the deduction.
MANAGERS account has to the owners account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO MINE,
excluding the claims shall be transferred to petitioner. As pointed out by the
Court of Tax Appeals, petitioner was merely entitled to a proportionate
return of the mines assets upon dissolution of the parties business relations.
There was nothing in the agreement that would require Baguio Gold to make
payments of the advances to petitioner as would be recognized as an item of
obligation or accounts payable for Baguio Gold.
14

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