jv cases

Guiang Notes – Cases on Joint Ventures 1

Realubit v. Jaso Facts: Realubit (as industrial partner) entered into a JVA with Biondo (as capitalist partner) for the operation of an ice manufacturing business. They agreed that they would each receive 40% of the net profit, with the remaining 20% to be used for the payment of the ice making machine which was purchased for the business. Biondo subsequently assigned his rights and interests in the business in favor of Jaso. Jaso demanded an accounting and inventory thereof as well as the remittance of their portion of its profits. Jaso filed complaint for specific performance and dissolution of the JV. Issue: WON the Court may order Realubit as partner in JV to render an accounting to one who is not a partner in said JV? No. Ruling:

- 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 provides 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 partner’s interest in the partnership includes his share in the profits, Spouses Jaso are entitled to Biondo’s share in the profits, despite Juanita’s lack of consent to the assignment of said Biondo’s interest in the joint venture. Issue: WON the assignee may ask for the dissolution of the JV? Ruling: Although Jaso did not become a partner as a consequence of the assignment and/or acquire the right to require an accounting of the partnership business, she may ask for the dissolution of the joint venture conformably with the right granted to the purchaser of a partner’s interest under Article 1831 of the Civil Code.


Narra Nickel Mining and Dev. Corp. v. Redmont Consolidated Mines Corp Facts: Redmont Mines took interest in mining in Palawan. It learned from the DENR that the areas where it wanted to undertake exploration and mining activities were already covered by Mineral Production Sharing Agreement (MPSA) applications of Narra Nickel, Tesoro, and McArthur. Redmont petitioned for the denial of Narra Nickel’s applications for MPSA, alleging that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the areas covered by applications since it knows that it can only participate in mining activities through corporations which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens. Petitioners averred that their nationality as applicants is immaterial because they also applied for Financial or Technical Assistance Agreements (FTAA), which are granted to foreign-owned corporations. In determining the nationality of petitioners, the CA looked into their corporate structures and their corresponding common shareholders. Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks of the petitioners as well as at least 60% equity interest of other majority shareholders of petitioners through joint venture agreements. The CA found that through a “web of corporate layering, it is clear that one common controlling investor in all mining corporations involved is MBMI. Thus, is concluded that petitioners McArthur, Tesoro and Narra are also in a partnership with, or privies-in-interest of, MBMI. Issue: WON CA’s ruling that Narra, Tesoro and McArthur are foreign corporations based on the “Grandfather Rule” is contrary to the Foreign Investments Act? Ruling: No.

- Two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule.

- DOJ Opinion: Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.

- “Corporate layering” is admittedly allowed by the FIA; but if it is used to circumvent the Constitution and pertinent laws, then it becomes illegal.

- Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. The “control test” is still the prevailing mode of determining whether or not a corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution entitled to undertake the exploration, development and utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the grandfather rule. Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that by entering into a joint venture, MBMI have a joint interest with Narra, Tesoro and McArthur. Issue: WON a partnership was created? Yes.

- A partnership is defined as two or more persons who bind themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves. On the other hand, joint ventures have been deemed to be akin to partnerships since it is difficult to distinguish between joint ventures and partnerships.

- Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide: Section 29. Admission by co-partner or agent. — The act or declaration of a partner or agent of the party within the scope of his authority and during the existence of the partnership or agency, may be given in evidence against such party after the partnership or agency is shown by evidence other than such act or declaration. The same rule applies to the act or declaration of a joint owner, joint debtor, or other person jointly interested with the party. (26a) Section 31. Admission by privies. — Where one derives title to property from another, the act, declaration, or omission of the latter, while holding the title, in relation to the property, is evidence against the former. (28)

- The relationship between joint venturers, like that existing between partners, is fiduciary in character and imposes upon all the participants the obligation of loyalty to the joint concern and of the utmost good faith, fairness, and honesty in their dealings with each other with respect to matters pertaining to the enterprise; It has already been pointed out that the rights, duties, and liabilities of joint venturers are governed, in general, by rules which are similar or analogous to those which govern the corresponding rights, duties, and liabilities of partners, except as they are limited by the fact that the scope of a joint venture is narrower than that of the ordinary partnership.


- As in the case of partners, joint venturers may be jointly and severally liable to third parties for the debts of the venture; It has also been held that the liability for torts of parties to a joint venture agreement is governed by the law applicable to partnerships.

- As a rule, corporations are prohibited from entering into partnership agreements; consequently, corporations enter into joint venture agreements with other corporations or partnerships for certain transactions in order to form pseudo-partnerships. Obviously, as the intricate web of ventures entered into by and among petitioners and MBMI was executed to circumvent the legal prohibition against corporations entering into partnerships, then the relationship created should be deemed as partnerships, and the laws on partnership should be applied.

- Thus, a joint venture agreement between and among corporations may be seen as similar to partnerships since the elements of partnership are present. Thus, CA is justified in applying Sec. 29, Rule 130 of the Rules by stating that by entering into a joint venture, MBMI have a joint interest with Narra, Tesoro and McArthur.


Kilosbayan, Inc. v. Guingona, Jr. Facts: PCSO decided to establish an on- line lottery system to increase its revenue base. Berjaya Group Berhad 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 Proposals for the Lease Contract of an on-line lottery system for the PCSO. PGMC then submitted its bid and won. Later on, the Office of the President announced that it had given PGMC the go-signal to operate the country's on-line lottery system. In this petition, KILOSBAYAN 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 on-line 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 R.A. No. 1169, which prohibits the PCSO from holding and conducting lotteries "in collaboration, association, or joint venture with" another? YES! Held/Ratio:

- A careful evaluation of the provisions of the contract and a consideration of the contemporaneous acts of the PCSO and PGMC disclose that the contract is not in reality a contract of lease, but one where the statutorily proscribed collaboration or association, in the least, or joint venture, at the most, exists between the contracting parties. 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. In short, the only contribution the PCSO would have is its franchise or authority to operate the on-line 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 so-called Contract of Lease is not, therefore, what it purports to be.

- 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. 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 confirms the indispensable role of the PGMC in the pursuit, operation, conduct, and management of the On-Line Lottery System.


Information Technology Foundation v. COMELEC Facts: Congress passed RA 8046 authorizing Comelec to conduct a nationwide demonstration of a computerized election system and allowed the poll body to pilot-test the system in 1996 elections in ARMM. 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 reserved 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. Out of the 57 bidders, Bids and Awards Committee (BAC) found MPC and TIMC (Total Investment Information Management Corporation) eligible. Comelec awarded the project to MPC. TIMC protested the award due to glaring irregularities in the manner in which the bidding process had been conducted. Because of the noncompliance with eligibility as well as technical and procedural requirements, they sought a re-bidding. Comelec rejected the protest. Hence, this petition. Issue: W/N Comelec gravely abused its discretion it awarded to MPC the contract for the 2nd phase of the comprehensive automated election system. Yes. Ratio:

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.

b. 2-envelop, 2-stage system: The envelope 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. 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.

d. 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.

e. Deficiencies have not been cured: It was argued that the agreements were supplementary contract to support the consortium. But it was unpersuasive.

f. Enforcement of liabilities problematic: The role or position of MPEI or anyone else performing on its behalf, is that of an independent contractor.

g. 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 themselves as partners and members of MPC.

h. 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 qualify them to be treated as consortium, at least of type that government agencies like Comelec should be dealing with.


Torres v CA Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be used for the development of the subdivision. All three of them also agreed to share the proceeds from the sale of the subdivided lots. The project did not push through, and the land was subsequently foreclosed by the bank. According to petitioners, the project failed because of "respondent's lack of funds or means and skills." They add that respondent used the loan not for the development of the subdivision, but in furtherance of his own company, Universal Umbrella Company. On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council's approval of the subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of P85,000. Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which 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. Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's finding of a partnership, were void. In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the property. Issue: Whether or not a partnership exists between the petitioners and respondent? Yes. 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. It should be stressed that the parties implemented the contract.

Issue: WON the partnership is void? First, they argue that the Joint Venture Agreement is void under Article 1422 of the Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration. This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another.

Second, petitioners argue that the Joint Venture Agreement is void under Article 1773. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino states that under the aforecited provision which is a complement of Article 1771, "The execution of a public instrument would be useless if there is no inventory of the property contributed, because without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons. This will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared void by the law when no such inventory is made." The case at bar does not involve third parties who may be prejudiced. Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60 percent of the value of the property. They cannot in one breath deny the 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.


Philex Mining v CIR (informal JV) Facts: 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. 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 long-term 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 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.


Mendoza v. Paule (informal JV) Paule is the proprietor of E.M. Paule Construction and Trading (EMPCT). He 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, and most importantly, to collect payments. Mendoza was able to participate and win in the NIA bidding which involved the construction of a road system, among others. When 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 latter’s heavy equipment (dump trucks for hauling purposes) to EMPCT. Later on, Paule revoked the SPA he previously issued in favor of Mendoza; consequently, NIA refused to make payment to her on her billings. Cruz, therefore, could not be paid for the rent of the equipment. Upon advice of Mendoza, 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. Cruz then instituted an action for collection of sum of money with damages. In her cross-claim, Mendoza alleged that because of Paule’s "whimsical revocation" of the SPA, she was 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. 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: Records show that Paule (or, more appropriately, EMPCT) and Mendoza had entered into a partnership in regard to the NIA project. PAULE‘s contribution thereto is his contractor’s 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. There was an agency, as well, with Mendoza as the agent. Although the SPAs limit Mendoza’s authority to such acts as representing EMPCT in its business transactions with NIA, participating in the bidding of the project, receiving and collecting payment in behalf of EMPCT, and performing other acts in furtherance thereof, the evidence shows that when Mendoza and Cruz met and discussed (at the EMPCT office) the lease of the latter’s heavy equipment for use in the project, Paule was present and interposed no objection to Mendoza’s actuations. Mendoza’s actions were in accord with what she and Paule originally agreed upon, as to division of labor and delineation of functions within their partnership. Under the Civil Code, every partner is an agent of the partnership for the purpose of its business; each one may separately execute all acts of administration, unless a specification of their respective duties has been agreed upon, or else it is stipulated that any one of them shall not act without the consent of all the others. At any rate, Paule does not have any valid cause for opposition because his only role in the partnership is to provide his contractor’s license and expertise, while the sourcing of funds, materials, labor and equipment has been relegated to Mendoza. 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 Mendoza’s 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. There was no valid reason for Paule to revoke Mendoza’s 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. Paule’s 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 contractor’s 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 Mendoza’s authority such that the latter could no longer collect from NIA the amounts necessary to proceed with the project and settle outstanding obligations.


Traveno v. Bobongon Banana Growers Cooperative (informal JV) Doctrine: In an informal joint venture arrangement, because no separate firm or business enterprise has been constituted as to the dealing public, then the effects of the attributes of “mutual agency” and “unlimited liability” are not made to apply with respect to creditors. Facts: Petitioners: Petitioners were hired by TACOR and DFI to work in a banana plantation. The landowners agreed to convert the land into a banana plantation upon being convinced that DFI and TACOR will provide the needed capital, expertise and equipment. They were later on required to join the Bobongon Cooperative. Later on, DFI stopped paying their salaries. Petitioners filed complaints for illegal dismissal. DFI (respondent): DFI had an arrangement with the several landowners whereby it would extend financial and technical assistance to them for the development of their lands into a banana plantation, with the condition that the bananas produced would be sold exclusively to them. The landowners worked on their own farms and had laborers to assist them. The landowners themselves decided to form a cooperative. Labor Arbiter found Cooperative guilty of illegal dismissal. It relied heavily on the DOLE statement declaring the Cooperative as the employer to 300 farmworkers. Petitioners posit that the Labor Arbiter and the NLRC disregarded evidence on record showing that while the Cooperative was their employer on paper, the other respondents exercised control and supervision over them. Issues: WON DFI and petitioners had an employer-employee relationship? No. Cooperative and petitioners, yes. WON DFI and Dole Philippines should be held solidarily liable with the Cooperative for petitioners’ illegal dismissal? No. Held: The Court held that DFI did not farm out to the Cooperative the performance of a specific job, work, or service. Instead, it entered into a Banana Production and Purchase Agreement

(Contract) with the Cooperative,

under which the Cooperative would handle and fund the production of bananas and operation of the plantation covering lands owned by its members in consideration of DFI’s commitment to provide financial and technical assistance as needed, including the supply of information and equipment in growing, packing, and shipping bananas. The Cooperative would hire its own workers and pay their wages and benefits, and sell exclusively to DFI all export quality bananas produced that meet the specifications agreed upon. The Contract between the Cooperative and DFI (partners), far from being a job contracting arrangement, is in essence a business partnership that partakes of the nature of a joint venture. The Court may not alter the intention of the contracting parties as gleaned from their stipulations without violating the autonomy of contracts principle. The claim of employment relationship (petitioners as employees and DFI as employer) must be assessed on the basis of four standards:

the manner of their selection – DFI had a total lack of knowledge on who actually were engaged by the Cooperative to work in the banana plantation. No employment contract whatsoever was submitted to substantiate how petitioners were hired and by whom.

the mode of payment of their wages – Under the Contract, the Cooperative was to handle and fund the production of bananas and operation of the plantation. The Cooperative was also to be responsible for the proper conduct, safety, benefits, and general welfare of its members and workers in the plantation.

the presence or absence of the power of dismissal – retained by the Cooperative.

the presence or absence of control over their conduct – also retained by the Cooperative. There being no employer-employee relationship between petitioners and the DFI, the latter is not solidarily liable with the Cooperative for petitioners’ illegal dismissal and money claims. CLV Opinion: One of the issues that could have been raised in Traveno is that even when the arrangement between DFI and the Cooperative was a joint venture one rather than a job-contracting arrangement, it was still possible to have made DFI liable for the labor claims poised against the Cooperative on the principle of "mutual agency" applicable to all forms of partnership. In other words, when the Cooperative hired the laborers in the plantation, and eventually terminated their services purportedly in an unlawful manner, it may be considered as binding on DFI also, since the act of a partner or co-venturer binds not only the acting party, but also the partnership and the other partners. Hence, the doctrine.


Marsman Drysdale Land, Inc. v. Philipine Geoanalytics, Inc. 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: 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 JVA also provided 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. 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. 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? Yes. RATIO: PGI entered into a contract with the JV (Marsman-Gotesco) and was never a party to the JVA. While the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and Gotesco (cash) as well as the funding and financing mechanism for the project, the same cannot be used to defeat the lawful claim of PGI against the two joint venturers-partners. The 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. The CA’s 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. CLV thinks that Art. 1797 was wrongly applied in this case because the issue of profits and losses is clearly an internal matter not binding on third parties who deal in good faith with the partnership. (Distinguish: loss and liability). CLV thinks that the proper ruling should be: even if the JVA provided that one venturer is liable for the funding of the project, while the other is limited to contributing the land, a supplier who has a claim on the joint venture may rightfully sue both venturers and hold them jointly liable


J. Tiosejo Investment Corp. v. Ang Facts: Tiosejo entered into a Joint Venture Agreement (JVA) with Primetown Property Group, Inc. (PPGI) for the development of a residential condominium project on Tiosejo’s property. Tiosejo contributed the property 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 HLURB, PPGI executed a CTS with Spouses Ang over condo Unit A-1006, and another CTS over a certain parking space in the condo. Later, Spouses Ang filed against Tiosejo and PPGI the complaint for the rescission of the aforesaid CTS, contending that they were assured by Tiosejo and PPGI that the subject condominium unit and parking space would be available for turn-over and occupancy in December 1998 but the unit was still unfinished. 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. 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 HLURB 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 co-owners of the condominium project, were ordered to pay the spouses’ claim for refund plus damages. ISSUE: WON Tiosejo was rightfully held solidarily liable with PPGI? Yes. RATIO: By the express terms of the JVA, 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.

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

- 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 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 in relation to Article 1822 of the Civil Code of the Philippines, all partners are solidarily liable with the partnership for everything chargeable to the partnership, including loss or injury caused to a third person or penalties incurred due to any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners. Whether innocent or guilty, all the partners are solidarily liable with the partnership itself. Hontiveros-Baraquel v. Toll Regulatory Board (JVCorp) RULING: The creation of the TRB and the grant of franchise to PNCC were made in recognition on the part of the government that the private sector had to be involved as an alternative source of financing for the pursuance of national infrastructure projects. This is where joint ventures with private investors become necessary. In joint ventures with investor companies, PNCC contributes the franchise it possesses, while the partner contributes the financing – both necessary for the construction, maintenance, and operation of the toll facilities. PNCC did not thereby lease, transfer, grant the usufruct of, sell, or assign its franchise or other rights or privileges. This remains true even though the partnership acquires a distinct and separate personality from that of the joint venturers or leads to the formation of a new company that is the product of such joint venture, such as PSC and SOMCO in this case. Hence, when we say that the approval by the DOTC Secretary in this case was approval by the President, it was in connection with the powers of the TRB to enter into contracts on behalf of the government as provided under Section 3(a) of P.D. 1112.


Aurbach v. Sanitary Wares Manufacturing. Corp. FACTS: Saniwares (domestic corporation) was incorporated for the purpose of manufacturing and marketing sanitary wares. American Standard Inc., a foreign corporation, entered into an Agreement with Saniwares and some Filipino investors whereby they agreed to participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation”. The Agreement has the following provisions relevant to the nomination and election of the directors of the corporation:

(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 stockholder’s 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. These incidents triggered the filing of separate petitions by the parties with the SEC. Issue/s: Who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders' meeting? (Was there a joint venture or a corporation; WON ASI may vote their additional 10% equity during elections of Saniwares' board of directors?) Held: 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. There are two groups of stockholders who established a corporation with provisions for a special contractual 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 1) 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. Moreover, ASI in its communications referred to the enterprise as joint venture.

- It is said that participants in a joint venture, in organizing the joint venture, deviate from the traditional pattern of corporation management. 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.

- SC upheld the division of the stockholders into two groups, and the right of the stockholders within each group to cumulative voting in the process of determining who the group's nominees would be. This means that if the Filipino stockholders cannot agree who their six nominees will be, a vote would have to be taken among the Filipino stockholders only. During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties.

- 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. SC said this provision is not applicable to a JV with well-defined agreements.

- Equally important is the consideration as regards the possible domination by the foreign investors of the enterprise in violation of the nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to their share in the capital of the entity. It is to be noted,


however, that the same law also limits the election of aliens as members of the board of directors in proportion to their allowance participation of said entity. In the instant case, the foreign Group ASI was limited to designate three directors.

JG Summit Holdings, Inc. v. Court of Appeals Partners: National Investment and Development Corporation (NIDC), a government corporation, and Kawasaki Heavy Industries. Project: Construction, operation and management of the Philippine Shipyard and Engineering Corporation (PHILSECO). Terms: NIDC and KAWASAKI (Japanese company) will contribute money for the capitalization of PHILSECO (60% and 40%, respectively). The JVA granted 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. Conflict: NIDC transferred all its rights, title and interest in PHILSECO to PNB, who in turn, transferred such to the National Government pursuant to an Administrative Order. Asset Privatization Trust (APT) was established to take title to, and possession of, conserve, manage and dispose of non-performing assets of the National Government; it 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, 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 KAWASAKI’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 (thru PHI). 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. At the public bidding, J.G. Summit Holdings, Inc. submitted the highest bid with an acknowledgment of KAWASAKI/[PHILYARDS'] right to top, and the sales was approved subject to Kawasaki’s right to top. J.G. Summit Holdings informed APT that it was protesting the offer of PHI to top its bid. Issue: WON KAWASAKI had a valid right of first refusal over PHILSECO shares under the JVA considering that PHILSECO owned land until the time of the bidding and KAWASAKI already held 40% of PHILSECO’s equity? Held: YES. Nothing in the JVA prevents KAWASAKI from acquiring more than 40% of PHILSECO’s total capitalization. Moreover, the right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA. This right allows them to purchase the shares of their co-shareholder before they are offered to a third party. The agreement of co-shareholders to mutually grant this right to each other, by itself, does not constitute a violation of the provisions of the Constitution limiting land ownership to Filipinos and Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still owns land, the right of first refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio. This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent. The transfer could be made either to a nominee or such other party which the holder of the right of first refusal feels it can comfortably do business with. Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in exercising its right of first refusal, can exceed 40% of PHILSECO’s equity. In fact, it can even be said that if the foreign shareholdings of a landholding corporation exceeds 40%, it is not the foreign stockholders’ ownership of the shares which is adversely affected but the capacity of the corporation to own land – that is, the corporation becomes disqualified to own land. This finds support under the basic corporate law principle that the corporation and its stockholders are separate juridical entities. In this vein, the right of first refusal over shares pertains to the shareholders whereas the capacity to own land pertains to the corporation. Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right of first refusal. No law disqualifies a person from purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign equity; what the law disqualifies is the corporation from owning land.

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