SPECIES OF PARTNERSHIP. CONSTRUED AS CONTRACT. TYPES.

JOINT VENTURES
JOINT VENTURES: SPECIES OF PARTNERSHIP ................................... 2
Kilosbayan v Guingona Jr ............................................................. 2
Information Technology Foundation of the Philippines vs.
COMELEC..................................................................................... 4
Realubit vs. Jaso .......................................................................... 8
JVA MUST BE CONSTRUED AS CONTRACT ...................................... 10
Torres v CA ................................................................................ 10
TYPES OF JOINT VENTURE AGREEMENTS ....................................... 12
Mendoza v Henaez .................................................................... 12
Philex Mining v CIR .................................................................... 14
MARSMAN DRYSDALE v PHIL GEOANALYTICS............................. 15
TIOSEJO v ANG .......................................................................... 16
Aurbach v. Sanitary Wares ......................................................... 18
JG Summit v CA.......................................................................... 20

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JOINT VENTURES: SPECIES OF PARTNERSHIP

Kilosbayan v Guingona Jr
(1994)
[PCSO, on-line lottery]
Doctrines:
When a Contract of Lease mandates contribution into the
venture on the part of the purported lessee, and makes the lessee
participate not only in the revenues generated from the venture
and in fact absorb most of the risks involved therein, then a joint
venture has really been constituted between the purported
lessor and lessee, since under the Law on Partnership, whenever
there is an agreement to contribute money, property and
industry to a common fund, with an agreement to share the
profits and losses therein, then a partnership arises.
Facts:
PCSO decided to establish an on- line lottery system for the
purpose of increasing its revenue base anddiversifying its
sources of funds. After learning that the PCSO was interested in
operating an on-line lottery system, the Berjaya Group Berhad,
thru its subsidiary, Sports Toto Malaysia, with its "affiliate, the
International Totalizator Systems, Inc became interested to offer
its services and resources to PCSO. As an initial step, Berjaya
Group Berhad organized with some Filipino investors a
Philippine corporation known as the Philippine Gaming
Management Corporation (PGMC), which was intended to be the
medium through which the technical and management services
required for the project would be offered and delivered to PCSO.

PCSO formally issued a Request for Proposal (RFP) for the Lease
Contract of an on-line lottery system for the PCSO. PGMC then
submitted its bid to PCSO. The submission was preceded by
complaints by the Bid and Awards Committee's Chairperson. On
21 October 1993, the Office of the President announced that it
had given the respondent PGMC the go-signal to operate the
country's on-line lottery system. KILOSBAYAN sent an open
letter to Presidential Fidel V. Ramos strongly opposing the
setting up to the on-line lottery system on the basis of serious
moral and ethical considerations Kilosbayan requested for
copies of the documents pertaining to the lottery award from
then Exec Sec Guingona Jr. but before release of the documents,
the Contract of Lease was finally executed by PCSO and PGMC. To
stop Malacanang, Kilosbayan with co-petitioners filed this
petition.
Petitioners submit that the PCSO cannot validly enter into the
assailed Contract of Lease with the PGMC because it is an
arrangement wherein the PCSO would hold and conduct the online lottery system in "collaboration" or "association" with the
PGMC, in violation of Section 1(B) of R.A. No. 1169, as amended
by BP 42, which prohibits the PCSO from holding and conducting
charity sweepstakes races, lotteries, and other similar activities
"in collaboration, association, or joint venture with any person,
association, company, or entity, foreign or domestic
Issue:
W/N the challenged Contract of Lease violate or contravene the
exception in Section 1 of R.A. No. 1169, as amended by BP 42,
which prohibits the PCSO from holding and conducting lotteries
"in collaboration, association, or joint venture with" another.
Held/Ratio:
YES.

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Sec. 1 of RA 1169 as amended by BP 42 prohibits the PCSO from
holding and conducting lotteries "in collaboration, association, or
joint venture with any person, association, company, or entity,
whether domestic or foreign." The language of the section is
indisputably clear that with respect to its franchise or privilege
"to hold and conduct charity sweepstakes races, lotteries, and
other similar activities," the PCSO cannot exercise it "in
collaboration, association, or joint venture" with any other party.
This is the unequivocal meaning and import of the phrase
"except for the activities mentioned in the preceding paragraph
(A)," namely, "charity sweepstakes races, lotteries, and other
similar activities."
A careful analysis and evaluation of the provisions of the contract
and a consideration of the contemporaneous acts of the PCSO
and PGMC indubitably disclose that the contract is not in reality a
contract of lease under which the PGMC is merely an
independent contractor for a piece of work, but one where the
statutorily proscribed collaboration or association, in the least,
or joint venture, at the most, exists between the contracting
parties. Collaboration is defined as the acts of working together
in a joint project. Association means the act of a number of
persons in uniting together for some special purpose or business.
Joint venture is defined as an association of persons or
companies jointly undertaking some commercial enterprise;
generally all contribute assets and share risks. It requires a
community of interest in the performance of the subject matter,
a right to direct and govern the policy in connection therewith,
and duty, which may be altered by agreement to share both in
profit and losses.
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 would have it "at no expense or

risks to the government." In short, the only contribution the

PCSO would have is its franchise or authority to operate the online lottery system. The PCSO, however, makes it clear in its RFP
that the proponent can propose a period of the contract which
shall not exceed fifteen years, during which time it is assured of a
"rental" which shall not exceed 12% of gross receipts. The socalled Contract of Lease is not, therefore, what it purports to be.
(actually a joint venture)
This joint venture is further established by the following:
a. Rent is not actually a fixed amount. Although it is stated to be
4.9% of gross receipts from ticket sales, payable net of taxes
required by law to be withheld, it may be drastically reduced or,
in extreme cases,nothing may be due or demandable at all
because the PGMC binds itself to "bear all risks if the revenue
from the ticket sales, on an annualized basis, are insufficient to
pay the entire prize money." This risk bearing provision is
unusual in a lessor-lessee relationship, but inherent in a joint
venture.
b. In the event of pre-termination of the contract by the PCSO, or
its suspension of operation of the on-line lottery system in
breach of the contract and through no fault of the PGMC, the
PCSO binds itself "to promptly, and in any event not later than
sixty (60) days, reimburse the Lessor the amount of its total
investment cost associated with the On-Line Lottery System,
including but not limited to the cost of the facilities, and further
compensate the LESSOR for loss of expected net profit after tax,
computed over the unexpired term of the lease." If the contract
were indeed one of lease, the payment of the expected profits or
rentals for the unexpired portion of the term of the contract
would be enough.

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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 it obtains the latter's prior
written consent." If the PGMC is engaged in the business of
leasing equipment and technology for an on-line lottery system,
we fail to see any acceptable reason why it should allow a
restriction on the pursuit of such business.
d. The PGMC shall provide the PCSO the audited Annual Report
sent to its stockholders, and within two years from the efficacy of
the contract, cause itself to be listed in the local stock exchange
and offer at least 25% of its equity to the public. If the PGMC is
merely a lessor, this imposition is unreasonable and whimsical,
and could only be tied up to the fact that the PGMC will actually
operate and manage the system; hence, increasing public
participation in the corporation would enhance public interest.
f. The PCSO shall designate the necessary personnel to monitor
and audit the daily performance of the on-line lottery system;
and promulgate procedural and coordinating rules governing all
activities relating to the on-line lottery system. The first further
confirms that it is the PGMC which will operate the system and
the PCSO may, for the protection of its interest, monitor and
audit the daily performance of the system. The second admits the
coordinating and cooperative powers and functions of the
parties.
All of the foregoing unmistakably confirm the indispensable role
of the PGMC in the pursuit, operation, conduct, and management
of the On-Line Lottery System. It is even safe to conclude that the
actual lessor in this case is the PCSO and the subject matter
thereof is its franchise to hold and conduct lotteries since it is, in
reality, the PGMC which operates and manages the on-line
lottery system for a period of eight years.

Information Technology Foundation of the

Philippines vs. COMELEC
Facts: Congress passed RA 8046 authorizing Comelec oconduct
a nationwide demonstration of a computerized election system
and allowed the poll body to pilot-test the system in 1996
elections in ARMM. Congress enacted RA 8436 authorizing
comelec to use automated election system (AES) for the process
of voting, counting votes and canvassing or consolidating the
results of the national and local election. But it failed in Sulu, so
they conducted a manual count.
In 2003, Pres. Arroyo issued EO 172 allocating 2.5 Billion to fund
the AES for 2004 elections. She authorized the release of
additional P500M upon request of Comelec. The commission
issued an Invitation to Apply for Eligibility and to Bid and laid
down the requirements and qualifications.
The Comelec reserves the right to review the qualifications of the
bidders after bidding and before the contract is executed. Joint
ventures were allowed as long as it is 60% owned by Filipinos.
The public bidding was conducted under a 2-envelope/2-stage
system. The 1st envelop is the eligibility envelop (eligibility to
bid and its qualifications to perform the acts if accepted) and the
2nd envelop would be the bid envelope itself.
Out of the 57 bidders, Bids and Awards Committee (BAC) found
MPC and TIMC (Total Investment Information Management
Corporation eligible. The technical evaluation were made by
BACs Technical working group (TWG) and Department of
Science and Technology (DOST). The evaluators said that both

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MPC and TIMC have the same number of failed marks. Despite
that, Comelec awarded the project to MPC.
5 individuals and TIMC protested the award due to glaring
irregularities in the maneer in which the bidding process had
been conducted. Because of the noncompliance with eligibility as
well as technical and procedural requirements, they sought a rebidding. Comelec rejected the protest. Hence, this petition.
Issue: W/N Comelec gravely abused its discretion when in
the exercise of its administrative functions, it awarded to
MPC the contract for the 2nd phase of teh comprehensive
automated election system.
Held: Yes
Ratio:
I.

Locus Standi of the petitioners: they are suing in their

capacities as taxpayers. The issue is of transcendental
importance and of national interest. Comelecs flawed
bidding and questionable award o fhte contract to an
unqualified entity would impact directly on success
or failure of electoral process. It involves
disbursement of public funds. It is matter of public
concern.
II. Alleged prematurity due to non-exhaustion of
administrative remedies: Comelec contends that
any protest should have been resolved before any
award is made. TIMC and others did not questioned
the eligibility of MPC and recommendation of the
award. But the court said that the award was made

before a written report was made, so how can they

appeal. Comelec insists that report must not have to
be in writing, but the court said that how can TIMC
appeal, they can only appeal upon discovery the
putting of it in written report.
III. Observations in the report:
a. Date: April 15 (award) and April 21 (report),
comelec never explained the nature of its dire
neet to act immediately without waiting the
formal written report of BAC.
b. Exhaustion of remedies: the letter (protest)
itself was sufficient compliance with the
requirement. In the case of Paat vs. CA, it outlined
the instances wherein there is no need to exhaust
and the case at bar falls within these; (7) when it
(exhaustion) is unreasonable; (10) rule does not
provide a plain, speedy and adequate remedy,
and (11) circumstances indicating the urgency of
judicial intervention.
IV. Validity of the award:
a. Failure to establish the identity, existence and
eligibility of the alleged Consortium as a
bidder: the bidder was not Mega Pacific
eSolutions, Inc. (MPEI) but Mega Pacific
Consortium (MPC) on which MPEI is a part. But
the letter attached was signed only by Willy Yu,
president of MPEI without any proof that it was
on behalf of MPC. To assure itself properly of the
due existence, Comelecs BAC should have
examined the bidding documents submitted on
behalf of MPC.

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b. 2-envelop, 2-stage system: the evelope given
does not include a copy of the joint venture
agreement, the consortium agreement nor
memorandum agreement nor business plan
establishing the existence, composition and scope
of aggrupation. There was neither any indication
that MPEI was the lead company duly authorized
to act on behalf of the others.
c. Because of these, Comelec gravely abused its
discretion in failing to observe its own rules,
policies and guidelines with respect to bidding
process.
V. Commissioners not aware of consortium: there were 4
agreements between the parties in the consortium
instead of having only 1. But the problem is not that
there were 4 agreements but that Comelec never
bothered to check and based its decision on
documents that would establish the existence of the
consortium. The parties submitted financial
statements of each but still not enough to support
that there is a consortium.
VI. Sufficiency of the 4 agreements: agreements between
MPEI and SK C&C (MOA), MPEI and WeSolv (MOA),
MPEI and Election.com Ltd. (teaming agreement),
and MPEI and ePLDT (teaming agreement). MPEI
dealt separately with the members and they had
nothing to do with one another.
VII. Deficiencies have not been cured: it was argued that
the agreements were supplementary contract to
support the consortium. But it was unpersuasive.

VIII.

Enforcement of Liabilities Problematic: the role or

position of MPEI or anyone else performing on its
behalf, is that of an independent contractor.
IX. Enforcement of Liabilities under the Civil Code not
possible: MPEI claimed that they are partners
therefore, solidarily liable but SK C&C, WeSolve,
Election.com and EPLDT never represented
themeselves as partners and members of MPC. And it
was stated in the agreement their extent of liabilities.
X. Eligibility of a Consortium Based on the collective
qualification of its members: members of MPC
should be evaluated on a collective basis. The
arrangements between MPEI and members does not
quealify them to be treated as consortium, at least of
type that government agencies like comelec should
be dealing with.
XI. DOST technical Tests Flunked by the automated
counting machines: TIM obtained 12 failed marks
and mostly bexuase of the counting machine itself.
Mega Pacific failed in 8 items but mostly on the
software which can be corrected by reprogramming.
a. Failure to meet the required accuracy rating.
There was confusion on W/N it is 99.9995
percent or 99.995 percent, however, the
machines failed to even reach the lesser of the
two. The court said that the essence of public
bidding is violated bec. It was awarded even
when the specifications were not met.
b. Failure of software to detect previously
downloaded data. Both companies failed to
meet to be able to detect previously

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downlaoaded precinct results and to prevent
these from being entered again into the counting
machine.
c. Inability to print audit trail. Both companies
failed. This is significant becuase it affects
credible elections.
d. Inadequacy of Post facto remedial measures.
Mega Pacific contends that it can be cured by
reprogramming. Comelec simply took the word of
the BAC as gospel truth, without even bothering
to inquire from DOST W/N it was true that the
deficiencies can be remedied by reprogramming
the software. It was alleged that the one used is
only the demo version and not the final version
yet! (court dismayed kasi nga nmn diba!!) it was
clear that it was awarded without comelec having
seen, much less evaluated, the final product the
software that would finaly be utilized come
election day.
e. Correction of defects: Certifications from DOST
fail to divulge in what manner andy by what
standards the condition were re-evaluated and
re-appraised and thereafter given a passing mark.
f. No explanation for lapses in the 2nd type of
software. Nothing on the record shows that the
tests and re-tests were intended to address the
serious deficiencies noted.
The Comelec violated the public policy on public biddings
(1) allowing MPC/MPEI to participate int eh biddingeven
though it was not qualified; (2) awarding the contract to

MPC/MPEI. And permitting the winning bidder to change

and alter the subject of the contract (software), in effect
allowing a substantive amendment without public bidding.
Before the country can hope to have a speedy and fraud free
automated election, it must be able to procure the proper
computerized harware and software legally, based on a
transparent and valid system of public bidding.
Concurring Opinion:
Ynares-Santiago: serious defects in the bidding process indicate
a grave abuse of discretion onthe part of comelec which seemed
to dispaly a marked bias in favor of awarding hte contract to
MPEI or consortium. Whereas automated counting might greatly
speed up our election process, we should take great pains to
make certain that the machines used are not flawed.
Sandoval-gutterrez: if the computer science community
remains mute and allow unreliable voting systems to be
procured, then it abdicates what may be its only opportunity to
ensure the democratic process in elections. Gov. Officials need
help in understanding hte risks inherent in computer-related
elections system.
Separate Opinion:
Davide: it should be dismissed. Court did not issue TRO, because
allegations were insufficient to justify or warrant the grant of a
TRO. Parties were not barred from performing their obligations.
Comelec has already paid a large portion of its obligation and the
other party delivered the equipment. Setting aside the contract
in question at this late hour may have distrubing effect.

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Vitug: issue is legality of comelecs award of contract. The SC is
not a trier of facts, indeed, a review of evidence is not the proper
office of a petition for certiorari, prohibition or mandamus.
Dissenting Opinion:
Tinga: No re-bidding. There were more than 50 bidders, out of
which MPC was qualified as the lowest calculated bid. There is no
basis to conclude that there was a failure of bidding and the
contract should be re-advertised and re-bid. The losing bidders
have conceded MPCs eligibility and qualifications and deferred
to the decision of comelec.
Regarding the nonsubmission of consortium agreements, it was
debunked by the consortium agreements themselves which were
notarized before the bidding deadline. To ignore it is to unfairly
ascribe bad faith. MPEI was also authorized to sign in behalf of
other members. Dismiss the petition.

Realubit vs. Jaso

G.R. No. 178782
September 21, 2011
PETITIONER: JOSEFINA P. REALUBIT
RESPONDENTS: PROSENCIO D. JASO and EDEN G. JASO
FACTS:

20% to be used for the payment of the ice making machine which
was purchased for the business.
For and in consideration of the sum of P500,000.00, however,
Biondo subsequently executed a Deed of Assignment,
transferring all his rights and interests in the business in favor
Eden, the wife of Jaso. With Biondos eventual departure from
the country, the Spouses Jaso caused their lawyer to send
Josefina a letter apprising her of their acquisition of said
Frenchmans share in the business and formally demanding an
accounting, inventory, and remittance of their portion of its
profits.
Sps. Jaso filed a Complaint against Sps. Realubit, and their alleged
dummies, for specific performance, accounting, examination,
audit and inventory of assets and properties, dissolution of the
joint venture, and appointment of a receiver with the RTC.
In its decision, the RTC ruled in favor of the Sps. Jaso; that the
latter had been subrogated to Biondos rights in the business in
view of their valid acquisition of the latters share as capitalist
partner.
The CA ordered the dissolution of the joint venture between
Realubit and Biondo and the subsequent conduct of accounting,
liquidation of assets and division of shares of the joint venture
business.
ISSUE(S):

Josefina Realubit entered into a Joint Venture Agreement with

Biondo, a French national, for the operation of an ice
manufacturing business. With Realubit as the industrial partner
and Biondo as the capitalist partner, the parties agreed that they
would each receive 40% of the net profit, with the remaining

(1) Whether or not there was a valid assignment of rights to the

joint venture.
(2) Whether the court may order Josefina Realubit as partner in
the joint venture to render an accounting to one who is not a
partner in said joint venture.

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(3) Whether Sps. Jaso have any right in the joint venture and in
the separate ice business of Sps. Realubit.
RULING:
(1) YES. (2) YES. (3) YES.
The petition is DENIED, the CA Decision is AFFIRMED.
RATIO:
Generally understood to mean an organization formed for some
temporary purpose, a joint venture is likened to a particular
partnership or one which has for its object determinate things,
their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation. The rule is settled that joint ventures
are governed by the law on partnerships which are, in turn,
based on mutual agency or delectus personae. Insofar as a
partners conveyance of the entirety of his interest in the
partnership is concerned, Article 1813 of the Civil Code provides
as follows:
Art. 1813. A conveyance by a partner of his whole
interest in the partnership does not itself dissolve the
partnership, or, as against the other partners in the
absence of agreement, entitle the assignee, during the
continuance of the partnership, to interfere in the
management or administration of the partnership business
or affairs, or to require any information or account of
partnership transactions, or to inspect the partnership
books; but it merely entitles the assignee to receive in
accordance with his contracts the profits to which the
assigning partners would otherwise be entitled. However,
in case of fraud in the management of the partnership, the
assignee may avail himself of the usual remedies.

In the case of a dissolution of the partnership, the assignee

is entitled to receive his assignors interest and may
require an account from the date only of the last account
agreed to by all the partners.
From the foregoing provision, it is evident that the transfer by a
partner of his partnership interest does not make the assignee of
such interest a partner of the firm, nor entitle the assignee to
interfere in the management of the partnership business or to
receive anything except the assignees profits. The assignment does
not purport to transfer an interest in the partnership, but only a
future contingent right to a portion of the ultimate residue as the
assignor may become entitled to receive by virtue of his
proportionate interest in the capital.
Since a partners interest in the partnership includes his share in
the profits, the CA committed no reversible error in ruling that
the Spouses Jaso are entitled to Biondos share in the profits,
despite Juanitas lack of consent to the assignment of said
Frenchmans interest in the joint venture.
Although Eden did not, moreover, become a partner as a
consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA
correctly granted her prayer for dissolution of the joint venture
conformably with the right granted to the purchaser of a
partners interest under Article 1813 of the Civil Code.

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JVA MUST BE CONSTRUED AS CONTRACT
Torres v CA
ANTONIA TORRES assisted by her husband, ANGELO
TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
G.R. No. 134559 December 9, 1999

The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent
Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of
Sale covering the said parcel of land in favor of respondent, who
then had it registered in his name. By mortgaging the property,
respondent obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was to be used for the
development of the subdivision. 4 All three of them also agreed to
share the proceeds from the sale of the subdivided lots.
The project did not push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because of
"respondent's lack of funds or means and skills." They add that
respondent used the loan not for the development of the
subdivision, but in furtherance of his own company, Universal
Umbrella Company.

10

On the other hand, respondent alleged that he used the loan to

implement the Agreement. With the said amount, he was able to
effect the survey and the subdivision of the lots. He secured the
Lapu Lapu City Council's approval of the subdivision project
which he advertised in a local newspaper. He also caused the
construction of roads, curbs and gutters. Likewise, he entered
into a contract with an engineering firm for the building of sixty
low-cost housing units and actually even set up a model house on
one of the subdivision lots. He did all of these for a total expense
of P85,000.
Respondent claimed that the subdivision project failed, however,
because petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests,
petitioners refused to cause the clearing of the claims, thereby
forcing him to give up on the project. 5
Subsequently, petitioners filed a criminal case for estafa against
respondent and his wife, who were however acquitted.
Thereafter, they filed the present civil case which, upon
respondent's motion, was later dismissed by the trial court in an
Order dated September 6, 1982. On appeal, however, the
appellate court remanded the case for further proceedings.
Thereafter, the RTC issued its assailed Decision, which, as earlier
stated, was affirmed by the CA.
Issue:
Whether or not a partnership exist between the petitioners and
respondent?
Held:
Yes.

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SPECIES OF PARTNERSHIP. CONSTRUED AS CONTRACT. TYPES. JOINT VENTURES

Petitioners deny having formed a partnership with respondent.
They contend that the Joint Venture Agreement and the earlier
Deed of Sale, both of which were the bases of the appellate
court's finding of a partnership, were void.

First, they argue that the Joint Venture Agreement is void under
Article 1422 14 of the Civil Code, because it is the direct result of
an earlier illegal contract, which was for the sale of the land
without valid consideration.

In the same breath, however, they assert that under those very
same contracts, respondent is liable for his failure to implement
the project. Because the agreement entitled them to receive 60
percent of the proceeds from the sale of the subdivision lots, they
pray that respondent pay them damages equivalent to 60
percent of the value of the property. 9

This argument is puerile. The Joint Venture Agreement clearly

states that the consideration for the sale was the expectation of
profits from the subdivision project. Its first stipulation states
that petitioners did not actually receive payment for the parcel of
land sold to respondent. Consideration, more properly
denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another. 15

Under the above-quoted Agreement, petitioners would

contribute property to the partnership in the form of land which
was to be developed into a subdivision; while respondent would
give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said
project would be divided according to the stipulated percentage.
Clearly, the contract manifested the intention of the parties to
form a partnership. 11
It should be stressed that the parties implemented the contract.
Thus, petitioners transferred the title to the land to facilitate its
use in the name of the respondent. On the other hand,
respondent caused the subject land to be mortgaged, the
proceeds of which were used for the survey and the subdivision
of the land. As noted earlier, he developed the roads, the curbs
and the gutters of the subdivision and entered into a contract to
construct low-cost housing units on the property.
Obviously, both parties did their part in the contribution to a
common fund and a partnership clearly existed between the two.
For the contention that the partnership is void:

11

Second, Petitioners argue that the Joint Venture Agreement is

void under Article 1773 of the Civil Code, which provides:
Art. 1773. A contract of partnership is void,
whenever immovable property is contributed
thereto, if an inventory of said property is not
made, signed by the parties, and attached to the
public instrument.
They contend that since the parties did not make, sign or attach
to the public instrument an inventory of the real property
contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect
third persons. Thus, the eminent Arturo M. Tolentino states that
under the aforecited provision which is a complement of Article
1771, 12 "The execution of a public instrument would be useless
if there is no inventory of the property contributed, because
without its designation and description, they cannot be subject
to inscription in the Registry of Property, and their contribution
cannot prejudice third persons. This will result in fraud to those
who contract with the partnership in the belief [in] the efficacy of

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the guaranty in which the immovables may consist. Thus, the
contract is declared void by the law when no such inventory is
made." The case at bar does not involve third parties who may be
prejudiced.
Second, petitioners themselves invoke the allegedly void contract
as basis for their claim that respondent should pay them 60
percent of the value of the property. 13 They cannot in one breath
deny the contract and in another recognize it, depending on what
momentarily suits their purpose.
In short, the alleged nullity of the partnership will not
prevent courts from considering the Joint Venture
Agreement an ordinary contract from which the parties'
rights and obligations to each other may be inferred and
enforced.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will
not relieve parties thereto of their obligations. They cannot now
disavow the relationship formed from such agreement due to
their supposed misunderstanding of its terms.

TYPES OF JOINT VENTURE AGREEMENTS

Mendoza v Henaez
G.R. No. 175885
February 13, 2009
ZENAIDA G. MENDOZA, Petitioner, vs. ENGR. EDUARDO
PAULE, ENGR. ALEXANDER COLOMA and NATIONAL

12

IRRIGATION ADMINISTRATION (NIA MUOZ, NUEVA ECIJA),

Respondents.
G.R. No. 176271
February 13, 2009
MANUEL DELA CRUZ, Petitioner, vs. ENGR. EDUARDO M.
PAULE, ENGR. ALEXANDER COLOMA and NATIONAL
IRRIGATION ADMINISTRATION (NIA MUOZ, NUEVA ECIJA),
Respondents.
FACTS:
Paule is the proprietor of E.M. Paule Construction and Trading
(EMPCT). On May 24, 1999, PAULE executed an SPA authorizing
Mendoza to participate in the pre-qualification and bidding of a
National Irrigation Administration (NIA) project and to
represent him in all transactions related thereto. Mendoza was
able to participate and win in the NIA bidding which involved the
construction of a road system, among others.
When Manuel dela Cruz learned that Mendoza is in need of heavy
equipment for use in the NIA project, he met up with her
resulting to a concluded transaction wherein Mendoza signed
two Job Orders/Agreement for the lease of the latters heavy
equipment (dump trucks for hauling purposes) to EMPCT.
On April 27, 2000, PAULE revoked the SPA he previously issued
in favor of Mendoza; consequently, NIA refused to make payment
to her on her billings. Dela Cruz, therefore, could not be paid for
the rent of the equipment. Upon advice of Mendoza, dela Cruz
addressed his demands for payment of lease rentals directly to
NIA but the latter refused to acknowledge the same and
informed Cruz that it would be remitting payment only to
EMPCT as the winning contractor for the project.
Dela Cruz then instituted an action for collection of sum of
money with damages. In her cross-claim, Mendoza alleged that
because of Paules "whimsical revocation" of the SPA, she was

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barred from collecting payments 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 claimed that
estafa and B.P. Blg. 22 cases were filed against her; that she could
no longer finance her childrens education; that she was evicted
from her home; that her vehicle was foreclosed upon; and that
her reputation was destroyed, thus entitling her to actual and
moral damages in the respective amounts of P3 million and P1
million.
Meanwhile, and after the institution of the complaint by dela
Cruz, PAULE again constituted MENDOZA as his attorney-in-fact,
this time with much broader authority.
ISSUE:
Whether or not there an agency is in existence, where Paule is
the principal and Mendoza is the agent, under the SPA and Paule
is thus liable for obligations (unpaid construction materials, fuel
and heavy equipment rentals) incurred by the latter for the
purpose of implementing and carrying out the NIA project
awarded to EMPCT
RULING/RATIO:
Yes, there exists an agency. Records show that PAULE (or, more
appropriately, EMPCT) and MENDOZA had entered into a
partnership in regard to the NIA project. PAULEs contribution
thereto is his contractors license and expertise, while MENDOZA
would provide and secure the needed funds for labor, materials
and services; deal with the suppliers and sub-contractors; and in
general and together with PAULE, oversee the effective
implementation of the project. For this, PAULE would receive as
his share three per cent (3%) of the project cost while the rest of
the profits shall go to MENDOZA.

13

Moreover, it does not speak well for PAULE that he reinstated

MENDOZA as his attorney-in-fact, this time with broader powers,
even after CRUZ has already filed his complaint. Despite
knowledge that he was already being sued on the SPAs, he
proceeded to execute another in MENDOZAs favor, and even
granted her broader powers of administration than in those
being sued upon. If he truly believed that MENDOZA exceeded
her authority with respect to the initial SPA, then he would not
have issued another SPA. If he thought that his trust had been
violated, then he should not have executed another SPA in favor
of MENDOZA, much less grant her broader authority.
Given the present factual milieu, CRUZ has a cause of action
against PAULE and MENDOZA.
There was no valid reason for PAULE to revoke MENDOZAs
SPAs. Since MENDOZA took care of the funding and sourcing of
labor, materials and equipment for the project, it is only logical
that she controls the finances, which means that the SPAs issued
to her were necessary for the proper performance of her role in
the partnership, and to discharge the obligations she had already
contracted prior to revocation. PAULEs revocation of the SPAs
was done in evident bad faith. Admitting all throughout that his
only entitlement in the partnership with MENDOZA is his 3%
royalty for the use of his contractors license, he knew that the
rest of the amounts collected from NIA was owing to MENDOZA
and suppliers of materials and services, as well as the laborers.
Yet, he deliberately revoked MENDOZAs authority such that the
latter could no longer collect from NIA the amounts necessary to
proceed with the project and settle outstanding obligations.
Notwithstanding the immutable character of PAULEs liability to
MENDOZA, however, the exact amount thereof is yet to be
determined by the trial court, after receiving evidence for and in

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behalf of MENDOZA on her counterclaim, which must be
considered pending and unresolved.

Philex Mining v CIR

Facts:
Petitioner Philex Mining Corporation, entered into an agreement
with Baguio Gold Mining Company for the former to manage and
operate the latter's mining claim, known as the Sto. Nino mine,
located in Benguet Province. The parties' agreement was
denominated as "Power of Attorney". In the course of managing
and operating the project, Philex Mining made advances of cash
and property in accordance with paragraph 5 of the agreement.
However, the mine suffered continuing losses over the years
which resulted to petitioner's withdrawal as manager of the
mine and in the eventual cessation of mine operation.
A few months after, the parties executed an "Amendment to
Compromise with Dation in Payment" where the parties
determined that Baguio Gold's indebtedness to petitioner
actually amounted to P259,137,245.00, which sum included
liabilities of Baguio Gold to other creditors that petitioner had
assumed as guarantor. These liabilities pertained to long-term
loans contracted by Baguio Gold from the Bank of America NT &
SA and Citibank N.A. This time, Baguio Gold undertook to pay
petitioner in two segments by first assigning its tangible assets
and then transferring its equitable title in its Philodrill assets.
The parties then ascertained that Baguio Gold had a remaining
outstanding indebtedness to petitioner in the amount of
P114,996,768.00.

14

In its 1982 annual income tax return, petitioner deducted from

its gross income the amount of P112,136,000.00 as "loss on
settlement of receivables from Baguio Gold against reserves and
allowances."However, the Bureau of Internal Revenue (BIR)
disallowed the amount as deduction for bad debt and assessed
petitioner a deficiency income tax of P62,811,161.39.
Petitioner emphasized that the debt arose out of a valid
management contract it entered into with Baguio Gold. The bad
debt deduction represented advances made by petitioner which,
pursuant to the management contract, formed part of Baguio
Gold's "pecuniary obligations" to petitioner. It also included
payments made by petitioner as guarantor of Baguio Gold's longterm loans which legally entitled petitioner to be subrogated to
the rights of the original creditor.
Issue:
W/N the contractual relationship created was that of a
partnership or joint venture
Held:
An examination of the "Power of Attorney" reveals that a
partnership or joint venture was indeed intended by the parties.
Under a contract of partnership, two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
themselves. While a corporation, like petitioner, cannot generally
enter into a contract of partnership unless authorized by law or
its charter, it has been held that it may enter into a joint venture
which is akin to a particular partnership. Perusal of the
agreement denominated as the "Power of Attorney" indicates
that the parties had intended to create a partnership and

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establish a common fund for the purpose. They also had a joint
interest in the profits of the business as shown by a 50-50
sharing in the income of the mine.

MARSMAN DRYSDALE v PHIL GEOANALYTICS

G.R. No. 183374/183376
June 29, 2010
MARSMAN DRYSDALE LAND, INC. (MARSMAN), petitioner, vs.
PHILIPPINE GEOANALYTICS, INC (PGI). AND GOTESCO
PROPERTIES, INC., respondents. / GOTESCO PROPERTIES, INC.,
petitioner, vs. MARSMAN DRYSDALE LAND, INC. AND PHILIPPINE
GEOANALYTICS, INC., respondents.
FACTS
Marsman and Gotesco entered into a JV Agreement for
the construction and development of an office building on a
Makati property owned by Marsman. The terms were to invest
on a 50:50 basis, where Marsman will contribute the property
and Gotesco will contribute P420m in cash, which shall be
payable P50m initially and the balance paid upon progress
billings.
Said terms also provide the following:

Construction funding shall be obtained from the said cash

contribution
All funds advanced by a party shall be repaid by the JV.
If any Party agrees to make an advance to the Project but fails
to do so (in whole or in part) the other party may advance the
shortfall and the Party in default shall indemnify the Party
making the substitute advance on demand for all of its losses,
costs and expenses incurred in so doing.

15

Based on a Technical Service Contract (TSC), the JV

engaged PGI to provide a subsurface soil exploration, seismic
study and geotechnical engineering for the project. PGI was only
able to complete the seismic study. It failed to perform the
exploration, only able to drill four of five boreholes, arguing that
the parties failed to clear the area where the exploration was to
be made. PGI billed the JV for the partial exploration but the JV
failed to pay. The project was eventually shelved because of
unfavorable economic conditions.
PGI then proceeded to file a case for collection of a sum of
money against the parties. Marsman argued that Gotesco, under
the agreement, was solely liable for the monetary expenses of the
project. In its defense, Gotesco claims that PGI has yet to
complete its services and that Marsman failed to clear the
property which prevented PGI from completing its work.
The QC RTC ruled that Marsman and Gotesco are liable
jointly to PGI. The CA modified the decision ordering Gotesco to
pay PGI, with Marsman reimbursing him 50% of the aggregate
sum due PGI. According to the CA, notwithstanding the terms of
the JVA, the JV cannot avoid payment of PGI's claim since the JVA
could not affect third persons like [PGI] because of the basic civil
law principle of relativity of contracts.

ISSUE
WON Marsman is jointly liable to PGI

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HELD / RATIO
YES. PGI entered into a contract with the JV and was
never a party to the JVA. While the JVA clearly spelled out, inter
alia, the capital contributions of Marsman Drysdale (land) and
Gotesco (cash) as well as the funding and financing mechanism
for the project, the same cannot be used to defeat the lawful
claim of PGI against the two joint venturers-partners.
Based on Art. 1207 and 1208, their obligation to PGI is
presumed to be joint. The terms of their contract only affect the
liability of the joint venturers as against each other.
A joint venture being a form of partnership, it is to be
governed by the laws on partnership. Art. 1797 provides: The
losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has
been agreed upon, the share of each in the losses shall be in
the same proportion.
In the absence of stipulation, the share of each in the
profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also receive
a share in the profits in proportion to his capital.
In the JVA, the parties did not provide for the splitting of
losses. Applying Art. 1797, they are liable to PGI based on the
proportion to their profits, which is 50:50.

16

The CAs decision, however, must be modified There is no

need for Gotesco to reimburse Marsman. Allowing Marsman to
recover from Gotesco what it paid to PGI would not only be
contrary to the law on partnership on division of losses but
would partake of a clear case of unjust enrichment at Gotesco's
expense.

TIOSEJO v ANG
J. TIOSEJO INVESTMENT CORP., Petitioner
vs
SPOUSES BENJAMIN AND ELEANOR ANG, respondents
G.R. No. 174149, September 8, 2010

TIOSEJO entered into a Joint Venture Agreement (JVA) with

Primetown Property Group, Inc. (PPGI) for the development of a
residential condominium project on TIOSEJOsproperty.TIOSEJO
contributed the property to the joint venture and PPGI
undertook to develop the condominium. The JVA provided that
the developed units shall be shared by Tiosejo and the PPGI at a
certain ratio.
Both parties were allowed to pre-sell the units pertaining to
them. By virtue of a License to Sell issued by the Housing and
Land Use Regulatory Board (HLURB), PPGI executed Contract to
Sell with Spouses Ang over condo Unit A-1006, and
another Contract to Sell over a certain parking space in the
condo.
Later, Spouses Ang filed against TIOSEJO and PPGI the complaint
for the rescission of the aforesaid Contracts to Sell , contending
that they were assured by TIOSEJO and PPGI that the subject

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condominium unit and parking space would be available for
turn-over and occupancy in December 1998.
The spouses averred that they have instructed TIOSEJO and PPGI to
stop depositing the post-dated checks they issued and to cancel
said Contracts to Sell; and, that despite several demands,
TIOSEJO and PPGI have failed and refused to refund the amount
that they already paid.
PPGI alleged that the delay in the completion of the project was
due to the economic crisis which affected the country at the time
and that the unexpected and unforeseen inflation as well as
increase in interest rates and cost of building materials
constitute force majeure and were beyond its control.

HELD: YES.
RATIO:
HLURB Arbiter and Board correctly held TIOSEJO liable
alongside PPGI for the spouses claims pursuant to Section 20 in
relation to Section 38 of P.D. 957. By the express terms of the
JVA, it appears that TIOSEJO not only retained ownership of the
property pending completion of the condominium project but
had also bound itself to answer liabilities proceeding from
contracts entered into by PPGI with third parties. Article VIII,
Section 1 of the JVA distinctly provides as follows:
Sec. 1. Rescission and damages.

TIOSEJO also denied the allegations, and contended that:

- by the terms of the JVA, each party was individually
responsible for the marketing and sale of the units
pertaining to its share;
- not being privy to the Contracts to Sell executed by PPGI
and the spouses, it did not receive any portion of the
payments by the spouses;
- without any contributory fault and negligence on its part,
PPGI breached its undertakings under the JVA by failing
to complete the condominium project.
The Housing and Land Use (HLU) Arbiter declared the Contracts
to Sell cancelled and rescinded on account of the non-completion
of the condominium project. On the ground that the JVA created
a partnership liability on their part, TIOSEJO and PPGI, as coowners of the condominium project, were ordered to pay the
spouses claim for refund plus damages.

xxx

xxx

xxx

xxx

In the event that the Developer shall be rendered

unable to complete the Condominium Project,
and such failure is directly and solely attributable
to the Developer, the Owner shall send written
notice to the Developer to cause the completion
of the Condominium ProjectIn any case, the
Owner shall respect and strictly comply with any
covenant entered into by the Developer and third
parties with respect to any of its units in the
Condominium Project. To enable the owner to
comply with this contingent liability, the
Developer shall furnish the Owner with a copy of
its contracts with the said buyers on a month-tomonth basis. Finally, in case the Owner would be
constrained to assume the obligations of the
Developer to its own buyers, the Developer shall
lose its right to ask for indemnity for whatever it

ISSUE: W/N TIOSEJO WAS RIGHTFULLY HELD SOLIDARILY

LIABLE WITH PPGI
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may have spent in the Development of the
Project.
Viewed in the light of the foregoing provision of the JVA, TIOSEJO
cannot avoid liability by claiming that it was not in any way privy
to the Contracts to Sell executed by PPGI and the spouses. As
correctly argued by the the spouses, a joint venture is considered
in this jurisdiction as a form of partnership and is, accordingly,
governed by the law of partnerships.
Under Article 1824 of the Civil Code of the Philippines, all
partners are solidarily liable with the partnership for everything
chargeable to the partnership, including loss or injury caused to
a third person or penalties incurred due to any wrongful act or
omission of any partner acting in the ordinary course of the
business of the partnership or with the authority of his copartners. Whether innocent or guilty, all the partners are
solidarily liable with the partnership itself.

Aurbach v. Sanitary Wares

Facts:
Saniwares, a domestic corporation was incorporated for the
primary purpose of manufacturing and marketing sanitary
wares. One of the incorporators, Mr. Baldwin Young went abroad
to look for foreign partners, European or American who could
help in its expansion plans. ASI, a foreign corporation domiciled
in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the
Filipino investors agreed to participate in the ownership of an
enterprise which would engage primarily in the business of

18

manufacturing in the Philippines and selling here and abroad

vitreous china and sanitary wares. The parties agreed that the
business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation
shall initially be "Sanitary Wares Manufacturing Corporation.
The Agreement has the following provisions relevant to the
issues in these cases on the nomination and election of the
directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be
substantially in the form annexed hereto as Exhibit A and, insofar
as permitted under Philippine law, shall specifically provide for
(1) Cumulative voting for directors:
5. Management
(a) The management of the Corporation shall be vested in a Board
of Directors, which shall consist of nine individuals. As long as
American-Standard shall own at least 30% of the outstanding
stock of the Corporation, three of the nine directors shall be
designated by American-Standard, and the other six shall be
designated by the other stockholders of the Corporation.
The joint enterprise thus entered into by the Filipino investors
and the American corporation prospered but their relationship
deteriorated. Their basic disagreement was due to their desire to
expand the export operations of the company to which ASI
objected as it apparently had other subsidiaries of joint venture
groups in the countries where Philippine exports were
contemplated. In their annual stockholders meeting, the ASI group
nominated three persons while the Philippine investors
nominated six. The consistent practice of the parties during the
past annual stockholders' meetings was to nominate only nine
persons as nominees for the nine-member board of directors,
and the legal advice of Saniwares' legal counsel.

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These incidents triggered off the filing of separate petitions by
the parties with the Securities and Exchange Commission (SEC).
The two petitions were consolidated and tried jointly
Issue/s:
The main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders'
meeting held on March 8, 1983. To answer this question the
following factors should be determined: (1) the nature of the
business established by the parties whether it was a joint
venture or a corporation and (2) whether or not the ASI Group
may vote their additional 10% equity during elections of
Saniwares' board of directors.
Held:
An examination of important provisions of the Agreement as well
as the testimonial evidence presented by the Lagdameo and
Young Group shows that the parties agreed to establish a joint
venture and not a corporation. The history of the organization of
Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with
an ordinary corporation. Under the Agreement, ASI agreed to
provide technology and know-how to Saniwares and the latter
paid royalties for the same.
Under the Agreement there are two groupsof stockholders who
established acorporation with provisions for a specialcontractual
relationship between the parties.
The provision that ASI shall designate 3 out of the 9 directors
and the other stockholders shall designate the other 6, clearly
indicate that there are two distinct groups in Saniwares, namely
ASI, which owns 40% of the capital stock and the Philippine
National stockholders who own the balance of 60%, and that 2)
ASI is given certain protections as the minority stockholder.

19

Moreover, ASI in its communications referred to the enterprise

as joint venture.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the
joint venture deviate from the traditional pattern of corporation
management. A noted authority has pointed out that just as in
close
corporations,
shareholders'
agreements
in joint venture corporations often contain provisions which do one
or more of the following: (1) require greater than majority vote for
shareholder and director action; (2) give certain shareholders or
groups of shareholders power to select a specified number of
directors;(3) give to the shareholders control over the selection
and retention of employees; and (4)set up a procedure for the
settlement of disputes by arbitration.
The extent of ASI's participation in the management of the
corporation is spelled out in the Agreement: three of the nine
directors shall be designated by ASI and the remaining six by the
other stockholders, i.e., the Filipino stockholders. Having entered
into a well-defined contractual relationship, it is imperative that
the parties should honor and adhere to their respective rights
and obligations thereunder.
This Court should recognize and uphold the division of the stockholders
into two groups, and at the same time uphold the right of the
stockholders within each group to cumulative voting in the
process of determining who the group's nominees would be.
As suggested by Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will be, a vote
would have to be taken among the Filipino stockholders only.
During this voting, each Filipino stockholder can cumulate his
votes. ASI, however, should not be allowed to interfere in the

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voting within the Filipino group. Otherwise, ASI would be able to
designate more than the three directors it is allowed to designate
under the Agreement, and may even be able to get a majority of
the board seats, a result which is clearly contrary to the
contractual intent of the parties. The ASI Group and petitioner
Salazar, now reiterate their theory that the ASI Group has the
right to vote their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a corporation
the right to cumulate their votes in electing directors.
The main distinction is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed
for the execution of a single transaction, and is thus of a
temporary nature. This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular
or universal, and a particular partnership may have for its object a
specific undertaking.
It would seem therefore that under Philippine law, a joint venture is a form
of partnership and should thus be governed by the law of partnerships.

JG Summit v CA
FACTS
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

20

Corporation (PHILSECO). Under the JVA, the NIDC and

KAWASAKI will contribute P330 million for the capitalization of
PHILSECO in the proportion of 60%-40% respectively. One of its
salient features is the grant to the parties of the right of first
refusal should either of them decide to sell, assign or transfer its
interest in the joint venture.
NIDC transferred all its rights, title and interest in PHILSECO to
the Philippine National Bank (PNB). Such interests were
subsequently transferred to the National Government pursuant
to Administrative Order No. 14. President Corazon C. Aquino
issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to
take title to, and possession of, conserve, manage and dispose of
non-performing assets of the National Government. Thereafter, a
trust agreement was entered into between the National
Government and the APT wherein the latter was named the
trustee of the National Government's share in PHILSECO. As a
result of a quasi-reorganization of PHILSECO to settle its huge
obligations to PNB, the National Government's shareholdings in
PHILSECO increased to 97.41% thereby reducing KAWASAKI's
shareholdings to 2.59%.
In the interest of the national economy and the government, the
COP and the APT deemed it best to sell the National
Government's share in PHILSECO to private entities. After a
series of negotiations between the APT and KAWASAKI, they
agreed that the latter's right of first refusal under the JVA be
"exchanged" for the right to top by five percent (5%) the highest
bid for the said shares. They further agreed that KAWASAKI
would be entitled to name a company in which it was a

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stockholder, which could exercise the right to top. KAWASAKI
informed APT that Philyards Holdings, Inc. (PHI) would exercise
its right to top.
At the pre-bidding conference, interested bidders were given
copies of the JVA between NIDC and KAWASAKI, and of the Asset
Specific Bidding Rules (ASBR) drafted for the National
Government's 87.6% equity share in PHILSECO. The provisions
of the ASBR were explained to the interested bidders who were
notified when the bidding would be held.
At the public bidding petitioner J.G. Summit Holdings, Inc.
submitted a bid of Two Billion and Thirty Million Pesos
(P2,030,000,000.00) with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top.
As petitioner was declared the highest bidder, the COP approved
the sale "subject to the right of Kawasaki Heavy Industries,
Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as
specified in the bidding rules."
Petitioner informed APT that it was protesting the offer of PHI to
top its bid on the grounds that: (a) the KAWASAKI/PHI
consortium composed of KAWASAKI, [PHILYARDS], Mitsui,
Keppel, SM Group, ICTSI and Insular Life violated the ASBR
because the last four (4) companies were the losing bidders
thereby circumventing the law and prejudicing the weak winning
bidder; (b) only KAWASAKI could exercise the right to top; (c)
giving the same option to top to PHI constituted unwarranted
benefit to a third party; (d) no right of first refusal can be
exercised in a public bidding or auction sale; and (e) the JG

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Summit consortium was not estopped from questioning the

proceedings.
Petitioner was notified that PHI had fully paid the balance of the
purchase price of the subject bidding. The APT notified
petitioner that PHI had exercised its option to top the highest bid
and that the COP had approved the same. The APT and PHI
executed a Stock Purchase Agreement.

ISSUE
Whether KAWASAKI had a valid right of first refusal over
PHILSECO shares under the JVA considering that PHILSECO
owned land until the time of the bidding and KAWASAKI already
held 40% of PHILSECOs equity.

HELD/RATIO
YES. First of all, the right of first refusal is a property right of
PHILSECO shareholders, KAWASAKI and NIDC, under the terms
of their JVA. This right allows them to purchase the shares of
their co-shareholder before they are offered to a third party. The
agreement of co-shareholders to mutually grant this right to
each other, by itself, does not constitute a violation of the
provisions of the Constitution limiting land ownership to
Filipinos and Filipino corporations. As PHILYARDS correctly
puts it, if PHILSECO still owns land, the right of first refusal can
be validly assigned to a qualified Filipino entity in order to
maintain the 60%-40% ratio. This transfer, by itself, does not
amount to a violation of the Anti-Dummy Laws, absent proof of

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any fraudulent intent. The transfer could be made either to a
nominee or such other party which the holder of the right of first
refusal feels it can comfortably do business with. Alternatively,
PHILSECO may divest of its landholdings, in which case
KAWASAKI, in exercising its right of first refusal, can exceed 40%
of PHILSECOs equity. In fact, it can even be said that if the
foreign shareholdings of a landholding corporation exceeds
40%, it is not the foreign stockholders ownership of the
shares which is adversely affected but the capacity of the
corporation to own land that is, the corporation becomes
disqualified to own land. This finds support under the basic
corporate law principle that the corporation and its stockholders
are separate juridical entities. In this vein, the right of first
refusal over shares pertains to the shareholders whereas the
capacity to own land pertains to the corporation. Hence, the fact
that PHILSECO owns land cannot deprive stockholders of their
right of first refusal. No law disqualifies a person from
purchasing shares in a landholding corporation even if the
latter will exceed the allowed foreign equity, what the law
disqualifies is the corporation from owning land.

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