MENDIOLA, ROSSEANNE GAYLE THERESE

Fong v. Dueñas
757 SCRA 412 (2015)

Area of Law on Partnerships Covered: Status of the Joint Venture Agreement

Prior to the Incorporation of the Joint Venture Corporation

SALIENT FACTS:

1. Dueñas and Fong entered a verbal joint venture contract where they agreed to
engage in the food business and to incorporate a holding company under the
name Alliance Holdings, Inc. whose capitalization would be P65 Million which
Dueñas and Fong would contribute in equal parts.

2. The parties agreed that Fong would contribute P32.5 million in cash while
Dueñas would contribute his shares in his two companies Danton and Bakcom
which he says are valued at P32.5 million; Fong agreed and required Dueñas
to submit the financial documents supporting the valuation of the shares.

3. Acting on the belief that his contribution would be applied as his subscription to
50% of Aliiance’s total shareholdings, Fong started remitting in tranches his
share in the proposed corporation’s capital.

4. Due to delays in the implementation of the joint venture, in June 1997, Fong
sent a letter to Dueñas informing him of his decision to limit his total
contribution from P32.5 million to P5 million.

5. In October 1997, Fong wrote to Dueñas cancelling the joint venture agreement
because Fong observed that despite his P5 million contribution, Dueñas still
failed to give him the financial documents on the valuation of the Danton and
Bakcom shares so Fong had nothing to rely on to verify that the shares were
really valued at P32.5 million and Dueñas also failed to incorporate and
register Alliance with the Securities and Exchange Commission.

6. Fong also asked for the refund of his P5 million contribution, but Dueñas
admitted that he could not immediately return the money since he used it to
defray the business expenses of Danton and Bakcom.

7. Since Fong and Dueñas could not agree on a payment scheme and Dueñas
still did not pay despite final demand, Fong filed a complaint against him for
collection of a sum of money and damages.

ISSUES: Whether or not the joint venture agreement can be rescinded?

SUPREME COURT HELD:

 Resolution of the Issue: Yes, the joint venture agreement is rescinded due to
the mutual breach of Fong and Dueñas.
Law Applicable to the ISSUE and FACTS: Article 1191 provides that the
power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him, while Article 1192 provides that
in case both parties have committed a breach of the obligation and it cannot be
determined which of the parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages. Article 1767 provides that a
contract of partnership is where two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the
profits among themselves.

Application of the Law Cited to the Facts of the Problem: The verbal Joint
Venture Agreement between the parties is a valid agreement as the failure to reduce
the agreement to writing does not affect its validity or enforceability because there is
no law that provides that an agreement to incorporate must be in writing. The
execution of a joint venture agreement created between Fong and Dueñas reciprocal
obligations that must be performed to fully consummate the contract and achieve the
purpose for which it was entered into. Dueñas failed to incorporate the proposed
company and erroneously invested Fong’s contribution to his two companies while
Fong reneged in his original promise to contribute P32.5 million; these acts
constitute substantial breach which will entitle the parties to rescission under Article
1192 in relation with Article 1191.

Doctrine of the Case: The Joint Venture Agreement need not be in writing to
be valid and binding and will still give rise to reciprocal obligations which, upon
breach or default prior to its incorporation, can be rescinded which will entitle the
parties to mutual restitution.

MY CRITIQUE AND ANALYSIS:

A joint venture, being in the nature of a partnership, is first and foremost a

contractual agreement. Thus, prior to its incorporation, it need not be extinguished or
subjected to a winding down. As a contract (verbal or written), it can be validly
rescinded upon breach or delay of any of the parties who, upon agreement and
acceptance, obligated themselves to contribute to the joint venture.

—oOo—