JG SUMMIT HOLDINGS, INC. vs.

COURT OF APPEALS
JOINT VENTURE

September 24, 2003 G.R. No. 124293 PUNO, J.

FACTS

On January 27, 1977, the National Investment and Development Corporation (NIDC), a government corporation,
entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan
(KAWASAKI) for the construction, operation and management of the Subic National Shipyard, Inc. (SNS) which
subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the
NIDC and KAWASAKI will contribute ₱330 million for the capitalization of PHILSECO in the proportion of
60%-40% respectively.1 One of its salient features is the grant to the parties of the right of first refusal should
either of them decide to sell, assign or transfer its interest in the joint venture.

ISSUE

Whether under the 1977 JVA, KAWASAKI can exercise its right of first refusal in the capitalization of
PHILSECO?

RULING

Yes. The parties agreed to arm themselves with protective mechanisms to preserve their respective interests in the
partnership in the event that (a) one party decides to sell its shares to third parties; and (b) new Philseco shares are
issued. Anent the first situation, the non-selling party is given the right of first refusal under section 1.4 to have a
preferential right to buy or to refuse the selling party’s shares. The right of first refusal is meant to protect the
original or remaining joint venturer(s) or shareholder(s) from the entry of third persons who are not acceptable to
it as co-venturer(s) or co-shareholder(s). The joint venture between the Philippine Government and KAWASAKI
is in the nature of a partnership which, unlike an 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.

FALLO

IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED. The impugned Decision
and Resolution of the Court of Appeals are AFFIRMED.

SO ORDERED.