Académique Documents
Professionnel Documents
Culture Documents
2.ID.; ID.; ID.; LIMITED PARTNERSHIP.—Those who 10. ID.; ID.; ID.; ID.; ID.; ID.; TEST OF
seek to avail themselves of the protection of laws PARTNERSHIP.— The legal intention deducible from
permitting the creation of limited partnerships must the acts of the parties controls in determining the
show a substantially full compliance with such laws. A existence of a partnership. If they intend to do a thing
limited partnership that has not complied with the law which in law constitutes a partnership, they are
of its creation is not considered a limited partnership at partners, although their purpose was to avoid the
all, but a general partnership in which all the members creation of such relation.
are liable.
11. ID.; ID.; ID.; ID.; ID.; ID.; BANKRUPTCY AND
3.ID.; ID.; ID.; ID.—To establish a limited partnership, INSOLVENCY; LIABILITY OF PARTNERSHIP AND
there must be, at least, one general partner and the PARTNERS.—If a firm be insolvent, but one or more
name of at least one of the general partners must partners thereof are solvent, the creditors may proceed
appear in the firm name. (Code of Commerce, arts. 122 both against the firm and against the solvent partner or
[2], 146, 148.) partners, first exhausting the assets of the firm before
seizing the property of the partners. Jo Chung Cang vs.
4.ID.; ID.; ID.; DEFECTS IN THE ORGANIZATION; Pacific Commercial Co., 45 Phil. 142, No. 19892
FIRM NAME; ARTICLE 126 OF THE CODE OF September 6, 1923
COMMERCE, CONSTRUED.—Article 126 of the Code
of Commerce requires the general copartnership to
transact business under the name of all its members,
or of several of them, or of one only. The object of the
article is manifestly to protect the public against
imposition and fraud.
6.ID.; ID.; ID.; ID.; ID.; ID.—The civil law and the
common law alike point to a difference between the
rights of the partners who have failed to comply with
the law and the rights of third persons who have dealt
with the partnership.
That the social reason be called "Teck Seing The shareholder Mr. Lim Yogsing will be in
& Co., Ltd." and will have its main domicile at charge, jointly with Mr. Vicente Jocson Jo, the
Calle Magallanes No. 94, of the City of Cebu, administration of the Company, who will be
Province of Cebu, Philippine Islands. That the able to use the social signature indistinctly,
capital stock will be thirty thousand pesos and therefore amobs are authorized to do on
(P30,000) legal currency of the Philippine behalf of it all transactions, business and
Islands, divided into five shares of P6,000 as mercantile speculations, practicing judicial and
follows: extra-judicialment as many acts are required
for the good of the company, appoint
attorneys or attorneys for claims and
Santiago Jo Chung Cang . P6,000.00 collection of credits and propose the lawsuits,
agreements, transactions and exceptions
Go Tayco . . . . . .. 6,000.00 procdentes. In the event of absence, illness or
any other impediment of the managing
Yap Gueco . . . . . . . . .. 6,000.00 shareholder Mr. Lim Yogsing, he may confer
general or special power to the shareholder aforementioned Province, IF, today October
he deems appropriate so that together with 31, 1919, AD, before me, a Notary Public who
the assistant administrator Mr. Vicente Jocson subscribes, personally understood Santiago
Jo, both could conveniently manage the Jo Chung Cang, Go Tayco, Yap Gueco, Lim
business of the society. That the Yogsing and Jo Ybec, represented by the
administrators could have the necessary latter by Ho Seng Sian, as authorized in a
employees for the best that these employees telegram dated September 27, 1919 that has
should perceive for services rendered to been presented to me in this same act, of
society. which I attest that I know them because they
are the same persons who granted the pre-
That both administrators could have one document document, ratifying ant emi its
thousand pesos (P1,200) Philippine currency, content and claiming to be the same an act of
annually, for their private expenses, said its free and voluntary bestowal. Mr. Santiago
amount being P1,200 corresponding to each Jo Chung Cang showed me his personal
of said administrators, as emoluments or cedula issued in Cebu, Cebu, I.F. On
salaries that are assigned to one, for his work September 19, 1919 under No. H77742, Go
in the management of society. Understanding Tayco also showed me his issued in Cebu,
that, the shareholders will be able to dispose Cebu, IF, on October 9, 1919 under No.
at each end of the year the gratification that G2042490, Yap Gueco also showed me his
will be granted to each manager, if the issued in Cebu, Cebu, IF On January 20,
business of the year is buoyant and justify the 1919 under No. F1452296, Lim Yogsing also
granting of a special gratification, apart from exhibited his issued in Cebu, Cebu, IF, on
the salary here provided and specified. February 26, 1919 under No. F1455662, and
Ho Seng Sian representative of Jo Ybec, He
After the expiration of six years, and it is for showed me his personal cedula issued in
the convenience of the shareholders the Cebu, Cebu, If on February 4, 1919 under No.
continuation of the business of this company, F1453733.
said term will be extended for the same
number of years, without needing the granting Ante mi,
of further deeds, remaining in force until the
end. arranged by all the shareholders. (Fdo.) "F.V.ARIAS
"Notario Publico
That the differences that may arise between "Hasta el 1.º de enero de 1920
the shareholders, whether by reason of the
provisions herein included, shall be arranged
between them amicably and extrajudicially, "Asiento No. 157
and if an agreement is not reached in this Pagina No. 95 de mi
way, said shareholders shall appoint an Registro Notarial
arbitrator, whose resolution they are all bound Serie 1919
and hereby undertake and bind themselves to Libro 2.º
abide by it in all its parts, renouncing further
resources. Presented at ten forty-three in the morning,
according to the seat No. 125, page 9 of
In whose terms we formalized this deed of Volume 1 of the Daily Book. Cebu, February
mercantillimitada society, and we promise to 11, 1920.
fulfill it faithfully and strictly according to the
pacts that we have established.
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio"
In testimony of all of which, we signed in the
City of Cebu, Province of Cebu, the Philippine
Islands, today, October 31, one thousand nine Inscribed the document that precedes folio 84
hundred and ten and nine. sheet No. 188, inscription 1st of Volume 3 of
the Registry Book of Mercantile Societies.
Cebu, February 11, 1920. Fees thirty pesos
(Fdos.) "LIM YOGSING with fifty cents. Art. 197, Law No. 2711,
"Jo YBec por Ho Seng Sian Administrative Code.
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO (Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio"
Firnando en presencia de:
(Fdos.) "ATILANO LEYSON Proceeding by process of elimination, it is self-evident
"JULIO DIAZ that Teck Seing & Co., Ltd., is not a corporation.
Neither is it contended by any one that Teck Seing &
"ESTADOS UNIDOS DE AMERCA Co., Ltd., is accidental partnership
"ISLAS FILIPINAS denominated cuenta en participacion (joint account
"PROVINCIA DE CEBU association).
Of course, the form required by the Code for Articles 127 and 237 of the Code of Commerce make
the adoption of the firm name does not all the members of the general copartnership liable
prevent the addition thereto of any other title personally and in solidum with all their property for the
connected with the commercial purpose of the results of the transactions made in the name and for
association. The reader may see our the account of the partnership. Section 51 of the
commentaries on the mercantile registry about Insolvency Law, likewise, makes all the property of
the business names and firm names of the partnership and also all the separate property of
associations, but it is proper to establish here each of the partners liable. In other words, if a firm be
that, while the business name may be insolvent, but one or more partners thereof are
alienated by any of the means admitted by the solvent, the creditors may proceed both against the
law, it seems impossible to separate the firm firm and against the solvent partner or partners, first
names of general partnerships from the exhausting the assets of the firm before seizing the
juridical entity for the creation of which it was property of the partners. (Brandenburg of
formed. (Vol. 2, pp. 197, 213.) Bankcruptcy, sec. 108; De los Reyes vs. Lukban and
Borja [1916], 35 Phil., 757; Involuntary Insolvency of
On the question of whether the fact that the firm name Campos Rueda & Co. vs. Pacific Commercial Co.
"Teck Seing & Co., Ltd." does not contain the name of [1922], 44 Phil., 916).
all or any of the partners as prescribed by the Code of
Commerce prevents the creation of a general We reach the conclusion that the contract of
partnership, Professor Jose A. Espiritu, as amicus partnership found in the document hereinbefore
curiæ, states: quoted established a general partnership or, to be
more exact, a partnership as this word is used in the
My opinion is that such a fact alone cannot Insolvency Law.
and will not be a sufficient cause of preventing
the formation of a general partnership, Wherefore, the order appealed from is reversed, and
especially if the other requisites are present the record shall be returned to the court of origin for
and the requisite regarding registration of the further proceedings pursuant to the motion presented
articles of association in the Commercial by the creditors, in conformity with the provisions of
Registry has been complied with, as in the the Insolvency Law. Without special findings as to the
present case. I do not believe that the costs in this instance, it is ordered.
adoption of a wrong name is a material fact to
be taken into consideration in this case; first, Araullo, C.J., Johnson, Street, Avanceña, Villamor,
because the mere fact that a person uses a Johns and Romualdez, JJ., concur.
name not his own does not prevent him from
being bound in a contract or an obligation he
voluntarily entered into; second, because such
a requirement of the law is merely a formal
and not necessarily an essential one to the
existence of the partnership, and as long as
the name adopted sufficiently identity the firm
or partnership intended to use it, the acts and
contracts done and entered into under such a
name bind the firm to third persons; and third,
because the failure of the partners herein to
G.R. No. L-42115 March 30, 1935
Suit was brought in the Court of First Instance of Lim Sieng alias Lim Siengco 22,000.00
Manila by Tec Bi & Company, Inc., against the
Collector of Internal Revenue to recover the sum of Lim Sang King 16,500.00
P4,387.75 paid under protest as income taxes by Yu
Lim Chiw 5,500.00
Yiong & Co. (the predecessor of the said corporation)
for the calendar years 1921, 1923, 1924, 1926 and
1927. Judgment was rendered requiring the collector Total 451,000.00
to refund the taxes paid for the years 1921, 1923 and
1924 only. Both parties have appealed to this court.
The cause was submitted and must be determined on 4. That by the 1920s or 1921 Heng Shiu Nian
the following agreed statement of facts: filed a lawsuit against Yu Yiong and other
brothers of this (Civil No. 19578 of the Court
of First Instance of Manila) reciting the
1. That on September 30, 1910, a regular
inheritance rights that corresponded to him as
collective mercantile society called "Tec Bi y participation of the late Yu Hiang Co within of
Compañia" was organized in this city of the social reason Yu Yiong and Company,
Manila, of which the deceased Yu Hiang Co and this matter was compromised by a
was one of the collective partners and whose stipulation submitted by the parties to the
company was duly registered in the Court on November 1, 1921, which was
Commercial Registry of this City. approved by this on the same date, which
agreed to transfer in favor of plaintiff Heng
2. That having died during the social period Shiu Hian a share worth p9,500 that the
the partner Yu Hiang Co., in accordance with defendants had in the company Yu Yiong and
the terms of paragraph XVII of the company.
aforementioned social deed, which reads:
5. That on the same date, November 1, 1921
Yu Yiong transferred in favor of his brother
"XVII In the event that a member dies Tee Huan aka Yu Siong a share in the sum of
in China or in another territory that is P9,011.23 in the relict capital by his late father
not included within the jurisdiction of in the company Yu Yiong and Company,
the Philippine Islands, his legal heirs whose deed was ratified before the public
must, within a month after the death of notary Mr. Salvador Zaragoza.
the deceased member, direct a letter
to the Society stating that its cause, 6. That on February 21, 1924, the partners of
partner of this Society has passed Yu Yiong y Compañia in public deed granted
away and authorizing any of his heirs before the notary public Antonio Alfonso,
to succeed him in the rights and registered as document 161, on page 69,
actions of the deceased. " And having Book III of the notarial register of said notary,
duly notified the company of this fact, recognized and admitted to the referred ones
it recognized Yu Yiong as successor Tee Huan alias Yu Siong and to the
of the late Yu Hiang Co in the denominated Heng Shiu Nian alias Ang Shiu
aforementioned company called Tec Lian like partners of the company Yu Yiong
Bi y Compañia. and Company with a capital of P19,011.23
and P9,500, respectively.
3. That on November 9 of the year 1920, the
aforementioned company was reorganized 7. In view of the fact that on said date
under the collective name of Yu Yiong y February 21, 1924 the aforementioned Heng
Compañia, whose deed was registered on Shiu Nian aka Ang Shiu Lian was absent from
November 12, 1920, and it was noted that the the Philippine Islands and could not therefore
deed of the partner Yu Hiang Co had died. He sign the above document, said Heng Shiu
was replaced by his heir Yu Yiong, the latter Nian alias Ang Shiu Lian dated 27 of
appearing in the new company with a capital December of 1924 and in document granted
of P137,500 that was the same capital as his before the notary Lorenzo Sunico, registered
father Yu Hiang Co in the previous company. with the No. 211 in the page 79, Book IV, of
The partners and their respective the notarial registry of said notary, I lend its
contributions to the share capital according to conformity to the writing of that it is mentioned
article 2 of said deed were the following: previously.
The judgment appealed from must be modified in the . . . It can not be said that the imposition of the
sense that the additional income tax and penalties is cruel or
defendant-appellant Collector of Internal Revenue be inhuman. The law is clear that unregistered
adjudged and required to refund to the plaintiff- concerns must pay income taxes as entities,
appellant Tec Bi & Company, Inc. the sum of while registered ones do not. The law was
P4,387.75 income tax and charges paid under protest adopted for the very purpose of encouraging
as set out in paragraph 11 of the agreed statement of registration of partnerships. The courts would
facts, without special pronouncement as to costs in render poor service to the business
this instance. So ordered. community if they did not strictly enforce the
law.
Abad Santos, Hull, Imperial, Goddard, and Diaz, JJ.,
concur. The case was appealed to the Supreme Court, and
I certify that Justice Villa-Real voted with the majority. the decision is found in volume 55, page 439, with the
— MALCOLM, Acting C.J. result that the decision of the trial court was affirmed.
The trial judge in the instant case has only
Separate Opinions endeavoured to give application to the decision in
the Tan Senguan & Co. vs. Collector of Internal
MALCOLM and VICKERS, JJ., dissenting: Revenue case, or otherwise stated, has simply given
application to a doctrine now found in our mercantile
and tax laws.
With so much of the majority decision as overrules the
appeal by the Government, we are in agreement; but
with so much of the majority decision as conforms to Much more might be said about the appeals, but
the appeal by the plaintiff, we are not in agreement. inasmuch as it is desirable to have the decision
Possibly the last statement needs one modification, promulgated without delay, we will confine final
for when the majority decision states that comment to the statement that in our opinion the
"uncertainties and confusion in trade and commerce judgment appealed from should be affirmed without
would necessarily arise if the public could not rely change.
upon the Mercantile Register to ascertain the status of
a registered commercial partnership," that is
substantially our stand. In other words, we believe
that, since an unregistered general copartnership is
subject to payment of the income tax, while a
registered general copartnership is exempt, when,
secretly or otherwise, the partnership changes its form
without the transfers being recorded in the Mercantile
Register, the partnership must suffer the
consequences. Public policy demands that those
constituting a partnership deal openly and not secretly
so as not to nullify the purpose of the law.
DECISION
PEREZ, J.: Served with summons, the Spouses Realubit filed
their Answer dated 21 October 1998, specifically
The validity as well as the consequences of an denying the material allegations of the foregoing
assignment of rights in a joint venture are at issue in complaint. Claiming that they have been engaged in
this petition for review filed pursuant to Rule 45 of the the tube ice trading business under a single
1997 Rules of Civil Procedure,1 assailing the 30 April proprietorship even before their dealings with Biondo,
2007 Decision2rendered by the Court of Appeals’ (CA) the Spouses Realubit, in turn, averred that their said
then Twelfth Division in CA-G.R. CV No. 73861,3 the business partner had left the country in May 1997 and
dispositive portion of which states: could not have executed the Deed of Assignment
which bears a signature markedly different from that
WHEREFORE, the Decision appealed from is SET which he affixed on their Joint Venture Agreement;
ASIDE and we order the dissolution of the joint that they refused the Spouses Jaso’s demand in view
venture between defendant-appellant Josefina of the dubious circumstances surrounding their
Realubit and Francis Eric Amaury Biondo and the acquisition of Biondo’s share in the business which
subsequent conduct of accounting, liquidation of was established at Don Antonio Heights,
assets and division of shares of the joint venture Commonwealth Avenue, Quezon City; that said
business. business had already stopped operations on 13
January 1996 when its plant shut down after its power
supply was disconnected by MERALCO for non-
Let a copy hereof and the records of the case be
payment of utility bills; and, that it was their own tube
remanded to the trial court for appropriate
ice trading business which had been moved to 66-C
proceedings.4
Cenacle Drive, Sanville Subdivision, Project 6,
Quezon City that the Spouses Jaso mistook for the
The Facts ice manufacturing business established in partnership
with Biondo.9
On 17 March 1994, petitioner Josefina Realubit
(Josefina) entered into a Joint Venture Agreement The issues thus joined and the mandatory pre-trial
with Francis Eric Amaury Biondo (Biondo), a French conference subsequently terminated, the RTC went
national, for the operation of an ice manufacturing on to try the case on its merits and, thereafter, to
business. With Josefina as the industrial partner and render its Decision dated 17 September 2001,
Biondo as the capitalist partner, the parties agreed discounting the existence of sufficient evidence from
that they would each receive 40% of the net profit, which the income, assets and the supposed
with the remaining 20% to be used for the payment of dissolution of the joint venture can be adequately
the ice making machine which was purchased for the reckoned. Upon the finding, however, that the
business.5 For and in consideration of the sum of Spouses Jaso had been nevertheless subrogated to
₱500,000.00, however, Biondo subsequently Biondo’s rights in the business in view of their valid
executed a Deed of Assignment dated 27 June 1997, acquisition of the latter’s share as capitalist
transferring all his rights and interests in the business partner,10 the RTC disposed of the case in the
in favor of respondent Eden Jaso (Eden), the wife of following wise:
respondent Prosencio Jaso.6 With Biondo’s eventual
departure from the country, the Spouses Jaso caused
WHEREFORE, defendants are ordered to submit to
their lawyer to send Josefina a letter dated 19
plaintiffs a complete accounting and inventory of the
February 1998, apprising her of their acquisition of
assets and liabilities of the joint venture from its
said Frenchman’s share in the business and formally
inception to the present, to allow plaintiffs access to
demanding an accounting and inventory thereof as
the books and accounting records of the joint venture,
well as the remittance of their portion of its profits.7
to deliver to plaintiffs their share in the profits, if any,
and to pay the plaintiffs the amount of ₱20,000. for
Faulting Josefina with unjustified failure to heed their moral damages. The claims for exemplary damages
demand, the Spouses Jaso commenced the instant and attorney’s fees are denied for lack of basis.11
suit with the filing of their 3 August 1998 Complaint
against Josefina, her husband, Ike Realubit (Ike), and
On appeal before the CA, the foregoing decision was
their alleged dummies, for specific performance,
set aside in the herein assailed Decision dated 30
accounting, examination, audit and inventory of
April 2007, upon the following findings and
assets and properties, dissolution of the joint venture,
conclusions: (a) the Spouses Jaso validly acquired
appointment of a receiver and damages. Docketed as
Biondo’s share in the business which had been
Civil Case No. 98-0331 before respondent Branch
transferred to and continued its operations at 66-C
257 of the Regional Trial Court (RTC) of Parañaque
Cenacle Drive, Sanville Subdivision, Project 6,
City, said complaint alleged, among other matters,
Quezon City and not dissolved as claimed by the
that the Spouses Realubit had no gainful occupation
Spouses Realubit; (b) absent showing of Josefina’s
or business prior to their joint venture with Biondo;
knowledge and consent to the transfer of Biondo’s
that with the income of the business which earned not
share, Eden cannot be considered as a partner in the
less than ₱3,000.00 per day, they were, however,
business, pursuant to Article 1813 of the Civil Code of
able to acquire the two-storey building as well as the
the Philippines; (c) while entitled to Biondo’s share in
land on which the joint venture’s ice plant stands,
the profits of the business, Eden cannot, however,
another building which they used as their office and/or
interfere with the management of the partnership,
residence and six (6) delivery vans; and, that aside
require information or account of its transactions and
from appropriating for themselves the income of the
inspect its books; (d) the partnership should first be
business, the Spouses Realubit have fraudulently
dissolved before Eden can seek an accounting of its
concealed the funds and assets thereof thru their
transactions and demand Biondo’s share in the
relatives, associates or dummies.8
business; and, (e) the evidence adduced before the
RTC do not support the award of moral damages in presumptions and the testimonies elicited from
favor of the Spouses Jaso.12 Eden20 and Notary Public Rolando Diaz.21 As for the
Spouses’ Realubit’s bare assertion that Biondo’s
The Spouses Realubit’s motion for reconsideration of signature on the same document appears to be
the foregoing decision was denied for lack of merit in forged, suffice it to say that, like fraud,22 forgery is
the CA’s 28 June 2007 Resolution,13 hence, this never presumed and must likewise be proved by clear
petition. and convincing evidence by the party alleging the
same.23 Aside from not being borne out by a
The Issues comparison of Biondo’s signatures on the Joint
Venture Agreement24 and the Deed of
Assignment,25 said forgery is, moreover debunked by
The Spouses Realubit urge the reversal of the
Biondo’s duly authenticated certification dated 17
assailed decision upon the negative of the following
November 1998, confirming the transfer of his interest
issues, to wit:
in the business in favor of Eden.26
A. WHETHER OR NOT THERE WAS A
Generally understood to mean an organization formed
VALID ASSIGNMENT OF RIGHTS TO THE
for some temporary purpose, a joint venture is likened
JOINT VENTURE.
to a particular partnership or one which "has for its
object determinate things, their use or fruits, or a
B. WHETHER THE COURT MAY ORDER specific undertaking, or the exercise of a profession or
PETITIONER [JOSEFINA REALUBIT] AS vocation."27 The rule is settled that joint ventures are
PARTNER IN THE JOINT VENTURE TO governed by the law on partnerships28 which are, in
RENDER [A]N ACCOUNTING TO ONE WHO turn, based on mutual agency or delectus
IS NOT A PARTNER IN SAID JOINT personae.29 Insofar as a partner’s conveyance of the
VENTURE. entirety of his interest in the partnership is concerned,
Article 1813 of the Civil Code provides as follows:
C. WHETHER PRIVATE RESPONDENTS
[SPOUSES JASO] HAVE ANY RIGHT IN THE Art. 1813. A conveyance by a partner of his whole
JOINT VENTURE AND IN THE SEPARATE interest in the partnership does not itself dissolve the
ICE BUSINESS OF PETITIONER[S].14 partnership, or, as against the other partners in the
absence of agreement, entitle the assignee, during
The Court’s Ruling the continuance of the partnership, to interfere in the
management or administration of the partnership
We find the petition bereft of merit. business or affairs, or to require any information or
account of partnership transactions, or to inspect the
The Spouses Realubit argue that, in upholding its partnership books; but it merely entitles the assignee
validity, both the RTC and the CA inordinately gave to receive in accordance with his contracts the profits
premium to the notarization of the 27 June 1997 Deed to which the assigning partners would otherwise be
of Assignment executed by Biondo in favor of the entitled. However, in case of fraud in the management
Spouses Jaso. Calling attention to the latter’s failure of the partnership, the assignee may avail himself of
to present before the RTC said assignor or, at the the usual remedies.
very least, the witnesses to said document, the
Spouses Realubit maintain that the testimony of In the case of a dissolution of the partnership, the
Rolando Diaz, the Notary Public before whom the assignee is entitled to receive his assignor’s interest
same was acknowledged, did not suffice to establish and may require an account from the date only of the
its authenticity and/or validity. They insist that last account agreed to by all the partners.
notarization did not automatically and conclusively
confer validity on said deed, since it is still entirely From the foregoing provision, it is evident that "(t)he
possible that Biondo did not execute said deed or, for transfer by a partner of his partnership interest does
that matter, appear before said notary public.15 The not make the assignee of such interest a partner of
dearth of merit in the Spouses Realubit’s position is, the firm, nor entitle the assignee to interfere in the
however, immediately evident from the settled rule management of the partnership business or to receive
that documents acknowledged before notaries public anything except the assignee’s profits. The
are public documents which are admissible in assignment does not purport to transfer an interest in
evidence without necessity of preliminary proof as to the partnership, but only a future contingent right to a
their authenticity and due execution.16 portion of the ultimate residue as the assignor may
become entitled to receive by virtue of his
It cannot be gainsaid that, as a public document, the proportionate interest in the capital."30 Since a
Deed of Assignment Biondo executed in favor of Eden partner’s interest in the partnership includes his share
not only enjoys a presumption of regularity17 but is in the profits,31 we find that the CA committed no
also considered prima facie evidence of the facts reversible error in ruling that the Spouses Jaso are
therein stated.18 A party assailing the authenticity and entitled to Biondo’s share in the profits, despite
due execution of a notarized document is, Juanita’s lack of consent to the assignment of said
consequently, required to present evidence that is Frenchman’s interest in the joint venture. Although
clear, convincing and more than merely Eden did not, moreover, become a partner as a
preponderant.19 In view of the Spouses Realubit’s consequence of the assignment and/or acquire the
failure to discharge this onus, we find that both the right to require an accounting of the partnership
RTC and the CA correctly upheld the authenticity and business, the CA correctly granted her prayer for
validity of said Deed of Assignment upon the dissolution of the joint venture conformably with the
combined strength of the above-discussed disputable
right granted to the purchaser of a partner’s interest xxx
under Article 1831 of the Civil Code.32 1âwphi1
SO ORDERED.
Footnotes
Same; View that the purpose of the sixty per centum Same; Same; Same; Grandfather Rule; View that the
requirement is obviously to ensure that corporations or Foreign Investments Act (FIA) and its implementing
associations allowed to acquire agricultural land or to rules notwithstanding, the Department of Justice
exploit natural resources shall be controlled by (DOJ), in DOJ Opinion No. 20, Series of 2005, still
Filipinos.—The rationale for nationalizing the
posited that the Grandfather Rule is still applicable, latter corporation, albeit indirectly or through the former
“only when the 60-40 Filipino-foreign equity ownership corporation.
is in doubt.”—The Foreign Investments Act and its
implementing rules notwithstanding, the Department of Same; Same; Same; Same; View that as against each
Justice, in DOJ Opinion No. 20, series of 2005, still other, it is the Control Test, rather than the Grandfather
posited that the Grandfather Rule is still applicable, Rule, which better serves to ensure that Philippine
albeit “only when the 60-40 Filipino-foreign equity Nationals control a corporation.—As against each
ownership is in doubt.” Anchoring itself on DOJ Opinion other, it is the Control Test, rather than the Grandfather
No. 20, series of 2005, the SEC En Banc found the Rule, which better serves to ensure that Philippine
Grandfather Rule applicable in its March 25, 2010 Nationals control a corporation. As is illustrated by the
decision in Redmont Consolidated Mines Corp. v. SEC’s September 21, 1990 opinion addressed to
McArthur Mining Corp. (subject of the petition in G.R. Carag, Caballes, Jamora, Rodriguez and Somera Law
No. 205513). It asserted that there was “doubt” in the Offices, the application of the Grandfather Rule does
compliance with the requisite 60-40 Filipino-foreign not guarantee control by Filipino stockholders. In
equity ownership: Such doubt, we believe, exists in the certain instances, the application of the Grandfather
instant case because the foreign investor, MBMI, Rule actually undermines the rationale (i.e., control) for
provided practically all the funds of the remaining the nationalization of certain economic activities.
appellee-corporations.
Same; Same; Same; Same; View that Section 3(aq) of
Same; View that the 1987 Constitution is silent on the the Mining Act deems as a qualified person (for
precise means through which foreign equity in a purposes of a mineral agreement) a “corporation, at
corporation shall be determined for the purpose of least sixty per centum (60%) of the capital of which is
complying with nationalization requirements in each owned by citizens of the Philippines.”—The Foreign
industry.—The 1987 Constitution is silent on the Investments Act’s reckoning of a Philippine national on
precise means through which foreign equity in a the basis of control and the requisite application of the
corporation shall be determined for the purpose of Control Test are reinforced by the Mining Act. Section
complying with nationalization requirements in each 3(aq) of the Mining Act deems as a qualified person (for
industry. If at all, it militates against the supposed purposes of a mineral agreement) a “corporation, x x x
preference for the Grandfather Rule that, its mention in at least sixty per centum (60%) of the capital of which
the Constitutional Commission’s deliberations is owned by citizens of the Philippines.” Insofar as the
notwithstanding, the 1987 Constitution was, ultimately, controlling equity requirement is concerned, this is
inarticulate on adopting a specific test or means. The practically a restatement of Section 3(a) of the Foreign
1987 Constitution is categorical in its omission. Its Investments Act.
meaning is clear. That is to say, by its silence, it chose
to not manifest a preference. Had there been any such Same; Same; Same; Grandfather Rule; View that the
preference, the Constitution could very well have said Grandfather Rule may be used as a supplement to the
it. Control Test, that is, as a further check to ensure that
control and beneficial ownership of a corporation is in
Same; Foreign Investments Act; Philippine Nationals; fact lodged in Filipinos.—In Gamboa, “[f]ull beneficial
Words and Phrases; View that Section 3(a) of the ownership of 60 percent of the outstanding capital
Foreign Investments Act (FIA) defines a “Philippine stock, coupled with 60 percent of the voting rights, is
national” as including “a corporation organized under required.” With this in mind, the Grandfather Rule may
the laws of the Philippines of which at least sixty per be used as a supplement to the Control Test, that is,
cent (60%) of the capital stock outstanding and entitled as a further check to ensure that control and beneficial
to vote is owned and held by citizens of the ownership of a corporation is in fact lodged in Filipinos.
Philippines.”—Section 3(a) of the Foreign Investments
Act defines a “Philippine national” as including “a Remedial Law; Civil Procedure; Judgments; Litis
corporation organized under the laws of the Philippines Pendentia; Words and Phrases; View that litis
of which at least sixty per cent (60%) of the capital pendentia “refers to that situation wherein another
stock outstanding and entitled to vote is owned and action is pending between the same parties for the
held by citizens of the Philippines.” This is a definition same cause of action, such that the second action
that is consistent with the first part of paragraph 7 of the becomes unnecessary and vexatious.”—Litis
1967 SEC Rules, which, as proffered by DOJ Opinion pendentia “refers to that situation wherein another
No. 20, Series of 2005, articulates the Control Test: action is pending between the same parties for the
“[s]hares belonging to corporations or partnerships at same cause of action, such that the second action
least 60 per cent of the capital of which is owned by becomes unnecessary and vexatious.” It requires the
Filipino citizens shall be considered as of Philippine concurrence of three (3) requisites: (1) the identity of
nationality.” parties, or at least such as representing the same
interests in both actions; (2) the identity of rights
Same; Same; Same; Control Test; View that it is a asserted and relief prayed for, the relief being founded
matter of transitivity that if Filipino stockholders control on the same facts; and (3) the identity of the two cases
a corporation which, in turn, controls another such that judgment in one, regardless of which party is
corporation, then the Filipino stockholders control the successful, would amount to res judicata in the other.
latter corporation, albeit indirectly or through the former In turn, prior judgment or res judicata bars a
corporation.—The application of the Control Test is by subsequent case when the following requisites concur:
no means antithetical to the avowed policy of a (1) the former judgment is final; (2) it is rendered by a
“national economy effectively controlled by Filipinos.” court having jurisdiction over the subject matter and the
The Control Test promotes this policy. It is a matter of parties; (3) it is a judgment or an order on the merits;
transitivity that if Filipino stockholders control a (4) there is — between the first and the second actions
corporation which, in turn, controls another
corporation, then the Filipino stockholders control the
— identity of parties, of subject matter, and of causes
of action.
NOTE:
Petitioner McArthur, through its predecessor-in- (aq) "Qualified person" means any citizen of the
interest Sara Marie Mining, Inc. (SMMI), filed an Philippines with capacity to contract, or a corporation,
application for an MPSA and Exploration Permit (EP) partnership, association, or cooperative organized or
with the Mines and Geo-Sciences Bureau (MGB), authorized for the purpose of engaging in mining, with
Region IV-B, Office of the Department of Environment technical and financial capability to undertake mineral
and Natural Resources (DENR). resources development and duly registered in
accordance with law at least sixty per cent (60%) of
Subsequently, SMMI was issued MPSA-AMA-IVB-153 the capital of which is owned by citizens of the
covering an area of over 1,782 hectares in Barangay Philippines: Provided, That a legally organized
Sumbiling, Municipality of Bataraza, Province of foreign-owned corporation shall be deemed a
Palawan and EPA-IVB-44 which includes an area of qualified person for purposes of granting an
3,720 hectares in Barangay Malatagao, Bataraza, exploration permit, financial or technical assistance
Palawan. The MPSA and EP were then transferred to agreement or mineral processing permit.
Madridejos Mining Corporation (MMC) and, on
November 6, 2006, assigned to petitioner McArthur.2 Additionally, they stated that their nationality as
applicants is immaterial because they also applied for
Petitioner Narra acquired its MPSA from Alpha Financial or Technical Assistance Agreements (FTAA)
Resources and Development Corporation and Patricia denominated as AFTA-IVB-09 for McArthur, AFTA-
Louise Mining & Development Corporation (PLMDC) IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which
which previously filed an application for an MPSA with are granted to foreign-owned corporations.
the MGB, Region IV-B, DENR on January 6, 1992. Nevertheless, they claimed that the issue on
Through the said application, the DENR issued nationality should not be raised since McArthur,
MPSA-IV-1-12 covering an area of 3.277 hectares in Tesoro and Narra are in fact Philippine Nationals as
barangays Calategas and San Isidro, Municipality of 60% of their capital is owned by citizens of the
Narra, Palawan. Subsequently, PLMDC conveyed, Philippines. They asserted that though MBMI owns
transferred and/or assigned its rights and interests 40% of the shares of PLMC (which owns 5,997
over the MPSA application in favor of Narra. shares of Narra),3 40% of the shares of MMC (which
owns 5,997 shares of McArthur)4 and 40% of the
shares of SLMC (which, in turn, owns 5,997 shares of
Another MPSA application of SMMI was filed with the
Tesoro),5 the shares of MBMI will not make it the
DENR Region IV-B, labeled as MPSA-AMA-IVB-154
owner of at least 60% of the capital stock of each of
(formerly EPA-IVB-47) over 3,402 hectares in
petitioners. They added that the best tool used in
Barangays Malinao and Princesa Urduja, Municipality
determining the nationality of a corporation is the
of Narra, Province of Palawan. SMMI subsequently
"control test," embodied in Sec. 3 of RA 7042 or the
conveyed, transferred and assigned its rights and
Foreign Investments Act of 1991. They also claimed
interest over the said MPSA application to Tesoro.
that the POA of DENR did not have jurisdiction over
the issues in Redmont’s petition since they are not
On January 2, 2007, Redmont filed before the Panel enumerated in Sec. 77 of RA 7942. Finally, they
of Arbitrators (POA) of the DENR three (3) separate stressed that Redmont has no personality to sue them
petitions for the denial of petitioners’ applications for because it has no pending claim or application over
MPSA designated as AMA-IVB-153, AMA-IVB-154 the areas applied for by petitioners.
and MPSA IV-1-12.
On December 14, 2007, the POA issued a Resolution
disqualifying petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not But before the RTC can resolve Redmont’s Complaint
qualified applicants to engage in mining activities. On and applications for injunctive reliefs, the MAB issued
the other hand, [Redmont] having filed its own an Order on September 10, 2008, finding the appeal
applications for an EPA over the areas earlier covered meritorious. It held:
by the MPSA application of respondents may be
considered if and when they are qualified under the WHEREFORE, in view of the foregoing, the Mines
law. The violation of the requirements for the issuance Adjudication Board hereby REVERSES and SETS
and/or grant of permits over mining areas is clearly ASIDE the Resolution dated 14 December 2007 of the
established thus, there is reason to believe that the Panel of Arbitrators of Region IV-B (MIMAROPA) in
cancellation and/or revocation of permits already POA-DENR Case Nos. 2001-01, 2007-02 and 2007-
issued under the premises is in order and open the 03, and its Order dated 07 February 2008 denying the
areas covered to other qualified applicants. Motions for Reconsideration of the Appellants. The
Petition filed by Redmont Consolidated Mines
xxxx Corporation on 02 January 2007 is hereby ordered
DISMISSED.17
WHEREFORE, the Panel of Arbitrators finds the
Respondents, McArthur Mining Inc., Tesoro Mining Belatedly, on September 16, 2008, the RTC issued an
and Development, Inc., and Narra Nickel Mining and Order18 granting Redmont’s application for a TRO and
Development Corp. as, DISQUALIFIED for being setting the case for hearing the prayer for the
considered as Foreign Corporations. Their Mineral issuance of a writ of preliminary injunction on
Production Sharing Agreement (MPSA) are hereby x September 19, 2008.
x x DECLARED NULL AND VOID.6
Meanwhile, on September 22, 2008, Redmont filed a
The POA considered petitioners as foreign Motion for Reconsideration19 of the September 10,
corporations being "effectively controlled" by MBMI, a 2008 Order of the MAB. Subsequently, it filed a
100% Canadian company and declared their MPSAs Supplemental Motion for Reconsideration20 on
null and void. In the same Resolution, it gave due September 29, 2008.
course to Redmont’s EPAs. Thereafter, on February
7, 2008, the POA issued an Order7 denying the Motion Before the MAB could resolve Redmont’s Motion for
for Reconsideration filed by petitioners. Reconsideration and Supplemental Motion for
Reconsideration, Redmont filed before the RTC a
Aggrieved by the Resolution and Order of the POA, Supplemental Complaint21 in Civil Case No. 08-63379.
McArthur and Tesoro filed a joint Notice of
Appeal8 and Memorandum of Appeal9 with the Mines On October 6, 2008, the RTC issued an
Adjudication Board (MAB) while Narra separately filed Order22 granting the issuance of a writ of preliminary
its Notice of Appeal10 and Memorandum of Appeal.11 injunction enjoining the MAB from finally disposing of
the appeals of petitioners and from resolving
In their respective memorandum, petitioners Redmont’s Motion for Reconsideration and
emphasized that they are qualified persons under the Supplement Motion for Reconsideration of the MAB’s
law. Also, through a letter, they informed the MAB that September 10, 2008 Resolution.
they had their individual MPSA applications converted
to FTAAs. McArthur’s FTAA was denominated as On July 1, 2009, however, the MAB issued a second
AFTA-IVB-0912 on May 2007, while Tesoro’s MPSA Order denying Redmont’s Motion for Reconsideration
application was converted to AFTA-IVB-0813 on May and Supplemental Motion for Reconsideration and
28, 2007, and Narra’s FTAA was converted to AFTA- resolving the appeals filed by petitioners.
IVB-0714 on March 30, 2006.
Hence, the petition for review filed by Redmont before
Pending the resolution of the appeal filed by the CA, assailing the Orders issued by the MAB. On
petitioners with the MAB, Redmont filed a October 1, 2010, the CA rendered a Decision, the
Complaint15 with the Securities and Exchange dispositive of which reads:
Commission (SEC), seeking the revocation of the
certificates for registration of petitioners on the ground WHEREFORE, the Petition is PARTIALLY
that they are foreign-owned or controlled corporations GRANTED. The assailed Orders, dated September
engaged in mining in violation of Philippine laws. 10, 2008 and July 1, 2009 of the Mining Adjudication
Thereafter, Redmont filed on September 1, 2008 a Board are reversed and set aside. The findings of the
Manifestation and Motion to Suspend Proceeding Panel of Arbitrators of the Department of Environment
before the MAB praying for the suspension of the and Natural Resources that respondents McArthur,
proceedings on the appeals filed by McArthur, Tesoro Tesoro and Narra are foreign corporations is upheld
and Narra. and, therefore, the rejection of their applications for
Mineral Product Sharing Agreement should be
Subsequently, on September 8, 2008, Redmont filed recommended to the Secretary of the DENR.
before the Regional Trial Court of Quezon City,
Branch 92 (RTC) a Complaint16 for injunction with With respect to the applications of respondents
application for issuance of a temporary restraining McArthur, Tesoro and Narra for Financial or Technical
order (TRO) and/or writ of preliminary injunction, Assistance Agreement (FTAA) or conversion of their
docketed as Civil Case No. 08-63379. Redmont MPSA applications to FTAA, the matter for its
prayed for the deferral of the MAB proceedings rejection or approval is left for determination by the
pending the resolution of the Complaint before the Secretary of the DENR and the President of the
SEC. Republic of the Philippines.
SO ORDERED.23 Finally, the CA upheld the findings of the POA in its
December 14, 2007 Resolution which considered
In a Resolution dated February 15, 2011, the CA petitioners McArthur, Tesoro and Narra as foreign
denied the Motion for Reconsideration filed by corporations. Nevertheless, the CA determined that
petitioners. the POA’s declaration that the MPSAs of McArthur,
Tesoro and Narra are void is highly improper.
After a careful review of the records, the CA found
that there was doubt as to the nationality of petitioners While the petition was pending with the CA, Redmont
when it realized that petitioners had a common major filed with the Office of the President (OP) a petition
investor, MBMI, a corporation composed of 100% dated May 7, 2010 seeking the cancellation of
Canadians. Pursuant to the first sentence of petitioners’ FTAAs. The OP rendered a Decision26 on
paragraph 7 of Department of Justice (DOJ) Opinion April 6, 2011, wherein it canceled and revoked
No. 020, Series of 2005, adopting the 1967 SEC petitioners’ FTAAs for violating and circumventing the
Rules which implemented the requirement of the "Constitution x x x[,] the Small Scale Mining Law and
Constitution and other laws pertaining to the Environmental Compliance Certificate as well as
exploitation of natural resources, the CA used the Sections 3 and 8 of the Foreign Investment Act and
"grandfather rule" to determine the nationality of E.O. 584."27 The OP, in affirming the cancellation of
petitioners. It provided: the issued FTAAs, agreed with Redmont stating that
petitioners committed violations against the
Shares belonging to corporations or partnerships at abovementioned laws and failed to submit evidence to
least 60% of the capital of which is owned by Filipino negate them. The Decision further quoted the
citizens shall be considered as of Philippine December 14, 2007 Order of the POA focusing on the
nationality, but if the percentage of Filipino ownership alleged misrepresentation and claims made by
in the corporation or partnership is less than 60%, petitioners of being domestic or Filipino corporations
only the number of shares corresponding to such and the admitted continued mining operation of
percentage shall be counted as of Philippine PMDC using their locally secured Small Scale Mining
nationality. Thus, if 100,000 shares are registered in Permit inside the area earlier applied for an MPSA
the name of a corporation or partnership at least 60% application which was eventually transferred to Narra.
of the capital stock or capital, respectively, of which It also agreed with the POA’s estimation that the filing
belong to Filipino citizens, all of the shares shall be of the FTAA applications by petitioners is a clear
recorded as owned by Filipinos. But if less than 60%, admission that they are "not capable of conducting a
or say, 50% of the capital stock or capital of the large scale mining operation and that they need the
corporation or partnership, respectively, belongs to financial and technical assistance of a foreign entity in
Filipino citizens, only 50,000 shares shall be recorded their operation, that is why they sought the
as belonging to aliens.24(emphasis supplied) participation of MBMI Resources, Inc."28 The Decision
further quoted:
In determining the nationality of petitioners, the CA
looked into their corporate structures and their The filing of the FTAA application on June 15, 2007,
corresponding common shareholders. Using the during the pendency of the case only demonstrate the
grandfather rule, the CA discovered that MBMI in violations and lack of qualification of the respondent
effect owned majority of the common stocks of the corporations to engage in mining. The filing of the
petitioners as well as at least 60% equity interest of FTAA application conversion which is allowed foreign
other majority shareholders of petitioners through joint corporation of the earlier MPSA is an admission that
venture agreements. The CA found that through a indeed the respondent is not Filipino but rather of
"web of corporate layering, it is clear that one foreign nationality who is disqualified under the laws.
common controlling investor in all mining corporations Corporate documents of MBMI Resources, Inc.
involved x x x is MBMI."25 Thus, it concluded that furnished its stockholders in their head office in
petitioners McArthur, Tesoro and Narra are also in Canada suggest that they are conducting operation
partnership with, or privies-in-interest of, MBMI. only through their local counterparts.29
Furthermore, the CA viewed the conversion of the The Motion for Reconsideration of the Decision was
MPSA applications of petitioners into FTAA further denied by the OP in a Resolution30 dated July
applications suspicious in nature and, as a 6, 2011. Petitioners then filed a Petition for Review on
consequence, it recommended the rejection of Certiorari of the OP’s Decision and Resolution with
petitioners’ MPSA applications by the Secretary of the the CA, docketed as CA-G.R. SP No. 120409. In the
DENR. CA Decision dated February 29, 2012, the CA
affirmed the Decision and Resolution of the OP.
Thereafter, petitioners appealed the same CA
With regard to the settlement of disputes over rights to
decision to this Court which is now pending with a
mining areas, the CA pointed out that the POA has
different division.
jurisdiction over them and that it also has the power to
determine the of nationality of petitioners as a
prerequisite of the Constitution prior the conferring of Thus, the instant petition for review against the
rights to "co-production, joint venture or production- October 1, 2010 Decision of the CA. Petitioners put
sharing agreements" of the state to mining rights. forth the following errors of the CA:
However, it also stated that the POA’s jurisdiction is
limited only to the resolution of the dispute and not on I.
the approval or rejection of the MPSAs. It stipulated
that only the Secretary of the DENR is vested with the The Court of Appeals erred when it did not
power to approve or reject applications for MPSA. dismiss the case for mootness despite the fact
that the subject matter of the controversy, the
MPSA Applications, have already been 3.) When constitutional issue raised requires
converted into FTAA applications and that the formulation of controlling principles to guide
same have already been granted. the bench, the bar, and the public; and
The Court of Appeals erred when it concluded We shall discuss the first error in conjunction with the
that the conversion of the MPSA Applications sixth error presented by petitioners since both involve
into FTAA Applications were of "suspicious the conversion of MPSA applications to FTAA
nature" as the same is based on mere applications. Petitioners propound that the CA erred in
conjectures and surmises without any shred of ruling against them since the questioned MPSA
evidence to show the same.31 applications were already converted into FTAA
applications; thus, the issue on the prohibition relating
We find the petition to be without merit. to MPSA applications of foreign mining corporations is
academic. Also, petitioners would want us to correct
This case not moot and academic the CA’s finding which deemed the aforementioned
conversions of applications as suspicious in nature,
The claim of petitioners that the CA erred in not since it is based on mere conjectures and surmises
and not supported with evidence.
rendering the instant case as moot is without merit.
We disagree.
Basically, a case is said to be moot and/or academic
when it "ceases to present a justiciable controversy by
virtue of supervening events, so that a declaration The CA’s analysis of the actions of petitioners after
thereon would be of no practical use or value."32 Thus, the case was filed against them by respondent is on
the courts "generally decline jurisdiction over the case point. The changing of applications by petitioners from
or dismiss it on the ground of mootness."33 one type to another just because a case was filed
against them, in truth, would raise not a few sceptics’
The "mootness" principle, however, does accept eyebrows. What is the reason for such conversion?
certain exceptions and the mere raising of an issue of Did the said conversion not stem from the case
"mootness" will not deter the courts from trying a case challenging their citizenship and to have the case
when there is a valid reason to do so. In David v. dismissed against them for being "moot"? It is quite
Macapagal-Arroyo (David), the Court provided four obvious that it is petitioners’ strategy to have the case
instances where courts can decide an otherwise moot dismissed against them for being "moot."
case, thus:
Consider the history of this case and how petitioners
1.) There is a grave violation of the responded to every action done by the court or
appropriate government agency: on January 2, 2007,
Constitution;
Redmont filed three separate petitions for denial of
the MPSA applications of petitioners before the POA.
2.) The exceptional character of the situation On June 15, 2007, petitioners filed a conversion of
and paramount public interest is involved; their MPSA applications to FTAAs. The POA, in its
December 14, 2007 Resolution, observed this suspect Environmental Compliance Certificate as well as
change of applications while the case was pending Sections 3 and 8 of the Foreign Investment Act and
before it and held: E.O. 584."39 On July 6, 2011, the OP issued a
Resolution, denying the Motion for Reconsideration
The filing of the Financial or Technical Assistance filed by the petitioners.
Agreement application is a clear admission that the
respondents are not capable of conducting a large Respondent Redmont, in its Comment dated October
scale mining operation and that they need the 10, 2011, made known to the Court the fact of the
financial and technical assistance of a foreign entity in OP’s Decision and Resolution. In their Reply,
their operation that is why they sought the petitioners chose to ignore the OP Decision and
participation of MBMI Resources, Inc. The continued to reuse their old arguments claiming that
participation of MBMI in the corporation only proves they were granted FTAAs and, thus, the case was
the fact that it is the Canadian company that will moot. Petitioners filed a Manifestation and
provide the finances and the resources to operate the Submission dated October 19, 2012,40 wherein they
mining areas for the greater benefit and interest of the asserted that the present petition is moot since, in a
same and not the Filipino stockholders who only have remarkable turn of events, MBMI was able to
a less substantial financial stake in the corporation. sell/assign all its shares/interest in the "holding
companies" to DMCI Mining Corporation (DMCI), a
xxxx Filipino corporation and, in effect, making their
respective corporations fully-Filipino owned.
x x x The filing of the FTAA application on June 15,
2007, during the pendency of the case only Again, it is quite evident that petitioners have been
demonstrate the violations and lack of qualification of trying to have this case dismissed for being "moot."
the respondent corporations to engage in mining. The Their final act, wherein MBMI was able to allegedly
filing of the FTAA application conversion which is sell/assign all its shares and interest in the petitioner
allowed foreign corporation of the earlier MPSA is an "holding companies" to DMCI, only proves that they
admission that indeed the respondent is not Filipino were in fact not Filipino corporations from the start.
but rather of foreign nationality who is disqualified The recent divesting of interest by MBMI will not
under the laws. Corporate documents of MBMI change the stand of this Court with respect to the
Resources, Inc. furnished its stockholders in their nationality of petitioners prior the suspicious change in
head office in Canada suggest that they are their corporate structures. The new documents filed
conducting operation only through their local by petitioners are factual evidence that this Court has
counterparts.36 no power to verify.
On October 1, 2010, the CA rendered a Decision The only thing clear and proved in this Court is the
which partially granted the petition, reversing and fact that the OP declared that petitioner corporations
setting aside the September 10, 2008 and July 1, have violated several mining laws and made
2009 Orders of the MAB. In the said Decision, the CA misrepresentations and falsehood in their applications
upheld the findings of the POA of the DENR that the for FTAA which lead to the revocation of the said
herein petitioners are in fact foreign corporations thus FTAAs, demonstrating that petitioners are not beyond
a recommendation of the rejection of their MPSA going against or around the law using shifty actions
applications were recommended to the Secretary of and strategies. Thus, in this instance, we can say that
the DENR. With respect to the FTAA applications or their claim of mootness is moot in itself because their
conversion of the MPSA applications to FTAAs, the defense of conversion of MPSAs to FTAAs has been
CA deferred the matter for the determination of the discredited by the OP Decision.
Secretary of the DENR and the President of the
Republic of the Philippines.37 Grandfather test
In their Motion for Reconsideration dated October 26, The main issue in this case is centered on the issue of
2010, petitioners prayed for the dismissal of the petitioners’ nationality, whether Filipino or foreign. In
petition asserting that on April 5, 2010, then President their previous petitions, they had been adamant in
Gloria Macapagal-Arroyo signed and issued in their insisting that they were Filipino corporations, until they
favor FTAA No. 05-2010-IVB, which rendered the submitted their Manifestation and Submission dated
petition moot and academic. However, the CA, in a October 19, 2012 where they stated the alleged
Resolution dated February 15, 2011 denied their change of corporate ownership to reflect their Filipino
motion for being a mere "rehash of their claims and ownership. Thus, there is a need to determine the
defenses."38 Standing firm on its Decision, the CA nationality of petitioner corporations.
affirmed the ruling that petitioners are, in fact, foreign
corporations. On April 5, 2011, petitioners elevated Basically, there are two acknowledged tests in
the case to us via a Petition for Review on Certiorari determining the nationality of a corporation: the
under Rule 45, questioning the Decision of the CA. control test and the grandfather rule. Paragraph 7 of
Interestingly, the OP rendered a Decision dated April DOJ Opinion No. 020, Series of 2005, adopting the
6, 2011, a day after this petition for review was filed, 1967 SEC Rules which implemented the requirement
cancelling and revoking the FTAAs, quoting the Order of the Constitution and other laws pertaining to the
of the POA and stating that petitioners are foreign controlling interests in enterprises engaged in the
corporations since they needed the financial strength exploitation of natural resources owned by Filipino
of MBMI, Inc. in order to conduct large scale mining citizens, provides:
operations. The OP Decision also based the
cancellation on the misrepresentation of facts and the Shares belonging to corporations or partnerships at
violation of the "Small Scale Mining Law and least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine construing it and prevent the court’s use of discretion
nationality, but if the percentage of Filipino ownership in applying the law. They said that the plain, literal
in the corporation or partnership is less than 60%, meaning of the statute meant the application of the
only the number of shares corresponding to such control test is obligatory.
percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in We disagree. "Corporate layering" is admittedly
the name of a corporation or partnership at least 60% allowed by the FIA; but if it is used to circumvent the
of the capital stock or capital, respectively, of which Constitution and pertinent laws, then it becomes
belong to Filipino citizens, all of the shares shall be illegal. Further, the pronouncement of petitioners that
recorded as owned by Filipinos. But if less than 60%, the grandfather rule has already been abandoned
or say, 50% of the capital stock or capital of the must be discredited for lack of basis.
corporation or partnership, respectively, belongs to
Filipino citizens, only 50,000 shares shall be counted Art. XII, Sec. 2 of the Constitution provides:
as owned by Filipinos and the other 50,000 shall be
recorded as belonging to aliens.
Sec. 2. All lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all
The first part of paragraph 7, DOJ Opinion No. 020, forces of potential energy, fisheries, forests or timber,
stating "shares belonging to corporations or wildlife, flora and fauna, and other natural resources
partnerships at least 60% of the capital of which is are owned by the State. With the exception of
owned by Filipino citizens shall be considered as of agricultural lands, all other natural resources shall not
Philippine nationality," pertains to the control test or be alienated. The exploration, development, and
the liberal rule. On the other hand, the second part of utilization of natural resources shall be under the full
the DOJ Opinion which provides, "if the percentage of control and supervision of the State. The State may
the Filipino ownership in the corporation or directly undertake such activities, or it may enter into
partnership is less than 60%, only the number of co-production, joint venture or production-sharing
shares corresponding to such percentage shall be agreements with Filipino citizens, or corporations or
counted as Philippine nationality," pertains to the associations at least sixty per centum of whose capital
stricter, more stringent grandfather rule. is owned by such citizens. Such agreements may be
for a period not exceeding twenty-five years,
Prior to this recent change of events, petitioners were renewable for not more than twenty-five years, and
constant in advocating the application of the "control under such terms and conditions as may be provided
test" under RA 7042, as amended by RA 8179, by law.
otherwise known as the Foreign Investments Act
(FIA), rather than using the stricter grandfather rule. xxxx
The pertinent provision under Sec. 3 of the FIA
provides:
The President may enter into agreements with
Foreign-owned corporations involving either technical
SECTION 3. Definitions. - As used in this Act: or financial assistance for large-scale exploration,
development, and utilization of minerals, petroleum,
a.) The term Philippine national shall mean a citizen of and other mineral oils according to the general terms
the Philippines; or a domestic partnership or and conditions provided by law, based on real
association wholly owned by the citizens of the contributions to the economic growth and general
Philippines; a corporation organized under the laws of welfare of the country. In such agreements, the State
the Philippines of which at least sixty percent (60%) of shall promote the development and use of local
the capital stock outstanding and entitled to vote is scientific and technical resources. (emphasis
wholly owned by Filipinos or a trustee of funds for supplied)
pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and The emphasized portion of Sec. 2 which focuses on
at least sixty percent (60%) of the fund will accrue to the State entering into different types of agreements
the benefit of Philippine nationals: Provided, That for the exploration, development, and utilization of
were a corporation and its non-Filipino stockholders natural resources with entities who are deemed
own stocks in a Securities and Exchange Commission Filipino due to 60 percent ownership of capital is
(SEC) registered enterprise, at least sixty percent pertinent to this case, since the issues are centered
(60%) of the capital stock outstanding and entitled to on the utilization of our country’s natural resources or
vote of each of both corporations must be owned and specifically, mining. Thus, there is a need to ascertain
held by citizens of the Philippines and at least sixty the nationality of petitioners since, as the Constitution
percent (60%) of the members of the Board of so provides, such agreements are only allowed
Directors, in order that the corporation shall be corporations or associations "at least 60 percent of
considered a Philippine national. (emphasis supplied) such capital is owned by such citizens." The
deliberations in the Records of the 1986 Constitutional
The grandfather rule, petitioners reasoned, has no leg Commission shed light on how a citizenship of a
to stand on in the instant case since the definition of a corporation will be determined:
"Philippine National" under Sec. 3 of the FIA does not
provide for it. They further claim that the grandfather Mr. BENNAGEN: Did I hear right that the Chairman’s
rule "has been abandoned and is no longer the interpretation of an independent national economy is
applicable rule."41 They also opined that the last freedom from undue foreign control? What is the
portion of Sec. 3 of the FIA admits the application of a meaning of undue foreign control?
"corporate layering" scheme of corporations.
Petitioners claim that the clear and unambiguous
wordings of the statute preclude the court from
MR. VILLEGAS: Undue foreign control is foreign MR. VILLEGAS: Yes.42 (emphasis supplied)
control which sacrifices national sovereignty and the
welfare of the Filipino in the economic sphere. It is apparent that it is the intention of the framers of
the Constitution to apply the grandfather rule in cases
MR. BENNAGEN: Why does it have to be qualified where corporate layering is present.
still with the word "undue"? Why not simply freedom
from foreign control? I think that is the meaning of Elementary in statutory construction is when there is
independence, because as phrased, it still allows for conflict between the Constitution and a statute, the
foreign control. Constitution will prevail. In this instance, specifically
pertaining to the provisions under Art. XII of the
MR. VILLEGAS: It will now depend on the Constitution on National Economy and Patrimony,
interpretation because if, for example, we retain the Sec. 3 of the FIA will have no place of application. As
60/40 possibility in the cultivation of natural resources, decreed by the honorable framers of our Constitution,
40 percent involves some control; not total control, but the grandfather rule prevails and must be applied.
some control.
Likewise, paragraph 7, DOJ Opinion No. 020, Series
MR. BENNAGEN: In any case, I think in due time we of 2005 provides:
will propose some amendments.
The above-quoted SEC Rules provide for the manner
MR. VILLEGAS: Yes. But we will be open to of calculating the Filipino interest in a corporation for
improvement of the phraseology. purposes, among others, of determining compliance
with nationality requirements (the ‘Investee
Mr. BENNAGEN: Yes. Corporation’). Such manner of computation is
necessary since the shares in the Investee
Thank you, Mr. Vice-President. Corporation may be owned both by individual
stockholders (‘Investing Individuals’) and by
corporations and partnerships (‘Investing
xxxx
Corporation’). The said rules thus provide for the
determination of nationality depending on the
MR. NOLLEDO: In Sections 3, 9 and 15, the ownership of the Investee Corporation and, in certain
Committee stated local or Filipino equity and foreign instances, the Investing Corporation.
equity; namely, 60-40 in Section 3, 60-40 in Section 9,
and 2/3-1/3 in Section 15.
Under the above-quoted SEC Rules, there are two
cases in determining the nationality of the Investee
MR. VILLEGAS: That is right. Corporation. The first case is the ‘liberal rule’, later
coined by the SEC as the Control Test in its 30 May
MR. NOLLEDO: In teaching law, we are always faced 1990 Opinion, and pertains to the portion in said
with the question: ‘Where do we base the equity Paragraph 7 of the 1967 SEC Rules which states,
requirement, is it on the authorized capital stock, on ‘(s)hares belonging to corporations or partnerships at
the subscribed capital stock, or on the paid-up capital least 60% of the capital of which is owned by Filipino
stock of a corporation’? Will the Committee please citizens shall be considered as of Philippine
enlighten me on this? nationality.’ Under the liberal Control Test, there is no
need to further trace the ownership of the 60% (or
MR. VILLEGAS: We have just had a long discussion more) Filipino stockholdings of the Investing
with the members of the team from the UP Law Corporation since a corporation which is at least 60%
Center who provided us with a draft. The phrase that Filipino-owned is considered as Filipino.
is contained here which we adopted from the UP draft
is ‘60 percent of the voting stock.’ The second case is the Strict Rule or the Grandfather
Rule Proper and pertains to the portion in said
MR. NOLLEDO: That must be based on the Paragraph 7 of the 1967 SEC Rules which states,
subscribed capital stock, because unless declared "but if the percentage of Filipino ownership in the
delinquent, unpaid capital stock shall be entitled to corporation or partnership is less than 60%, only the
vote. number of shares corresponding to such percentage
shall be counted as of Philippine nationality." Under
MR. VILLEGAS: That is right. the Strict Rule or Grandfather Rule Proper, the
combined totals in the Investing Corporation and the
MR. NOLLEDO: Thank you. Investee Corporation must be traced (i.e.,
"grandfathered") to determine the total percentage of
With respect to an investment by one corporation in Filipino ownership.
another corporation, say, a corporation with 60-40
percent equity invests in another corporation which is Moreover, the ultimate Filipino ownership of the
permitted by the Corporation Code, does the shares must first be traced to the level of the Investing
Committee adopt the grandfather rule? Corporation and added to the shares directly owned in
the Investee Corporation x x x.
MR. VILLEGAS: Yes, that is the understanding of the
Committee. xxxx
MR. NOLLEDO: Therefore, we need additional In other words, based on the said SEC Rule and DOJ
Filipino capital? Opinion, the Grandfather Rule or the second part of
the SEC Rule applies only when the 60-40 Filipino-
foreign equity ownership is in doubt (i.e., in cases Corporatio ,000.
where the joint venture corporation with Filipino and n 00
foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture MBMI Cana 3,998 PhP PhP
corporation which is either 60-40% Filipino-alien or Resource dian 3,998 1,878,174.6
the 59% less Filipino). Stated differently, where the s, Inc. ,000. 0
60-40 Filipino- foreign equity ownership is not in 0
doubt, the Grandfather Rule will not apply. (emphasis
Lauro L. Filipin 1 PhP PhP
supplied)
Salazar o 1,000 1,000.00
.00
After a scrutiny of the evidence extant on record, the
Court finds that this case calls for the application of Fernando Filipin 1 PhP PhP
the grandfather rule since, as ruled by the POA and B. o 1,000 1,000.00
affirmed by the OP, doubt prevails and persists in the Esguerra .00
corporate ownership of petitioners. Also, as found by
the CA, doubt is present in the 60-40 Filipino equity Manuel A. Filipin 1 PhP PhP
ownership of petitioners Narra, McArthur and Tesoro, Agcaoili o 1,000 1,000.00
since their common investor, the 100% Canadian .00
corporation––MBMI, funded them. However, Michael T. Ameri 1 PhP PhP
petitioners also claim that there is "doubt" only when Mason can 1,000 1,000.00
the stockholdings of Filipinos are less than 60%.43 .00
The assertion of petitioners that "doubt" only exists Kenneth Cana 1 PhP PhP
when the stockholdings are less than 60% fails to Cawkell dian 1,000 1,000.00
convince this Court. DOJ Opinion No. 20, which .00
petitioners quoted in their petition, only made an Total 10,000 PhP PhP
example of an instance where "doubt" as to the 10,00 2,708,174.6
ownership of the corporation exists. It would be 0,000 0
ludicrous to limit the application of the said word only .00 (emphasis
to the instances where the stockholdings of non- supplied)
Filipino stockholders are more than 40% of the total
stockholdings in a corporation. The corporations
interested in circumventing our laws would clearly Interestingly, looking at the corporate structure of
strive to have "60% Filipino Ownership" at face value. MMC, we take note that it has a similar structure and
It would be senseless for these applying corporations composition as McArthur. In fact, it would seem that
to state in their respective articles of incorporation that MBMI is also a major investor and "controls"45 MBMI
they have less than 60% Filipino stockholders since and also, similar nominal shareholders were present,
the applications will be denied instantly. Thus, various i.e. Fernando B. Esguerra (Esguerra), Lauro L.
corporate schemes and layerings are utilized to Salazar (Salazar), Michael T. Mason (Mason) and
circumvent the application of the Constitution. Kenneth Cawkell (Cawkell):
Obviously, the instant case presents a situation which Madridejos Mining Corporation
exhibits a scheme employed by stockholders to
circumvent the law, creating a cloud of doubt in the Name Nation Numb Amou Amount
Court’s mind. To determine, therefore, the actual ality er of nt Paid
participation, direct or indirect, of MBMI, the Shares Subsc
grandfather rule must be used. ribed
Thus, as demonstrated in this first corporation, Except for the name "Sara Marie Mining, Inc.," the
McArthur, when it is "grandfathered," company table above shows exactly the same figures as the
layering was utilized by MBMI to gain control over corporate structure of petitioner McArthur, down to the
McArthur. It is apparent that MBMI has more than last centavo. All the other shareholders are the same:
60% or more equity interest in McArthur, making the MBMI, Salazar, Esguerra, Agcaoili, Mason and
latter a foreign corporation. Cawkell. The figures under "Nationality," "Number of
Shares," "Amount Subscribed," and "Amount Paid"
are exactly the same. Delving deeper, we scrutinize
Tesoro Mining and Development, Inc.
SMMI’s corporate structure:
Tesoro, which acquired its MPSA application from
Sara Marie Mining, Inc.
SMMI, has a capital stock of ten million pesos (PhP
10,000,000) divided into ten thousand (10,000)
common shares at PhP 1,000 per share, as [[reference
demonstrated below: = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/j
urisprudence/2014/april2014/195580.pdf]]
pesos (PhP 2,794,000). Oddly, the total value of the
Name Natio Number Amoun Amount
amount paid is two million eight hundred nine
nality of t Paid
thousand nine hundred pesos (PhP 2,809,900).
Shares Subscr
Accordingly, after "grandfathering" petitioner Tesoro
ibed
and factoring in Olympic’s participation in SMMI’s
Olympi Filipin 6,663 PhP PhP 0 corporate structure, it is clear that MBMI is in control
c o 6,663,0 of Tesoro and owns 60% or more equity interest in
Mines 00.00 Tesoro. This makes petitioner Tesoro a non-Filipino
& corporation and, thus, disqualifies it to participate in
the exploitation, utilization and development of our
natural resources.
Develo
pment
Narra Nickel Mining and Development Corporation
Corp.
Moving on to the last petitioner, Narra, which is the
MBMI Canad 3,331 PhP PhP transferee and assignee of PLMDC’s MPSA
Resour ian 3,331,0 2,794,00 application, whose corporate structure’s arrangement
ces, 00.00 0.00 is similar to that of the first two petitioners discussed.
The capital stock of Narra is ten million pesos (PhP
10,000,000), which is divided into ten thousand
Inc.
common shares (10,000) at one thousand pesos (PhP
Amanti Filipin 1 PhP PhP 1,000) per share, shown as follows:
Limson o 1,000.0 1,000.00
0 [[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/j
Fernan Filipin 1 PhP PhP urisprudence/2014/april2014/195580.pdf]]
do B. o 1,000.0 1,000.00
0
Name Nati Numb Amount Amount
Esguerr onal er of Paid
a ity Subscribe
Share d
Lauro Filipin 1 PhP PhP
s
Salazar o 1,000.0 1,000.00
0
Patricia Filipi 5,997 PhP PhP
Louise no 5,997,000. 1,677,00
Emman Filipin 1 PhP PhP
00 0.00
uel G. o 1,000.0 1,000.00
0 Mining
&
Hernan
do
Develo
Michael Ameri 1 PhP PhP pment
T. can 1,000.0 1,000.00
Mason 0 Corp.
Patricia Louise Mining & Development Corporation JOINT VENTURES The Company’s ownership
interests in various mining ventures engaged in the
Using the grandfather method, we further look and acquisition, exploration and development of mineral
examine PLMDC’s corporate structure: properties in the Philippines is described as follows:
MBMI Canadian 3,396 PhP PhP Pursuant to the Olympic joint venture agreement the
Resources 3,396 2,796,000 Company holds directly and indirectly an effective
, ,000. .00 equity interest in the Olympic Property of 60.0%.
00 Pursuant to a shareholders’ agreement, the Company
Inc. exercises joint control over the companies in the
Higinio C. Filipino 1 PhP PhP Olympic Group.
Mendoza, 1,000 1,000.00
Jr. .00 (b) Alpha Group
Fernando Filipino 1 PhP PhP The Philippine companies holding the Alpha Property,
B. Esguerra 1,000 1,000.00 and the ownership interests therein, are as follows:
.00
Henry E. Filipino 1 PhP PhP Alpha- Philippines (the "Alpha Group")
Fernandez 1,000 1,000.00
.00 Patricia Louise Mining Development Inc. ("Patricia")
34.0%
Lauro L. Filipino 1 PhP PhP
Salazar 1,000 1,000.00
Narra Nickel Mining & Development Corporation
.00
(Narra) 60.4%
Under a joint venture agreement the Company holds Petitioners claim that the CA erred in applying Sec.
directly and indirectly an effective equity interest in the 29, Rule 130 of the Rules by stating that "by entering
Alpha Property of 60.4%. Pursuant to a shareholders’ into a joint venture, MBMI have a joint interest" with
agreement, the Company exercises joint control over Narra, Tesoro and McArthur. They challenged the
the companies in the Alpha Group.48 (emphasis conclusion of the CA which pertains to the close
supplied) characteristics of
Concluding from the above-stated facts, it is quite "partnerships" and "joint venture agreements."
safe to say that petitioners McArthur, Tesoro and Further, they asserted that before this particular
Narra are not Filipino since MBMI, a 100% Canadian partnership can be formed, it should have been
corporation, owns 60% or more of their equity formally reduced into writing since the capital involved
interests. Such conclusion is derived from is more than three thousand pesos (PhP 3,000).
grandfathering petitioners’ corporate owners, namely: Being that there is no evidence of written agreement
MMI, SMMI and PLMDC. Going further and adding to to form a partnership between petitioners and MBMI,
the picture, MBMI’s Summary of Significant no partnership was created.
Accounting Policies statement– –regarding the "joint
venture" agreements that it entered into with the We disagree.
"Olympic" and "Alpha" groups––involves SMMI,
Tesoro, PLMDC and Narra. Noticeably, the ownership A partnership is defined as two or more persons who
of the "layered" corporations boils down to MBMI, bind themselves to contribute money, property, or
Olympic or corporations under the "Alpha" group industry to a common fund with the intention of
wherein MBMI has joint venture agreements with, dividing the profits among themselves.50 On the other
practically exercising majority control over the hand, joint ventures have been deemed to be "akin" to
corporations mentioned. In effect, whether looking at partnerships since it is difficult to distinguish between
the capital structure or the underlying relationships joint ventures and partnerships. Thus:
between and among the corporations, petitioners are
NOT Filipino nationals and must be considered
[T]he relations of the parties to a joint venture and the
foreign since 60% or more of their capital stocks or
nature of their association are so similar and closely
equity interests are owned by MBMI.
akin to a partnership that it is ordinarily held that their
rights, duties, and liabilities are to be tested by rules
Application of the res inter alios acta rule which are closely analogous to and substantially the
same, if not exactly the same, as those which govern
Petitioners question the CA’s use of the exception of partnership. In fact, it has been said that the trend in
the res inter alios acta or the "admission by co-partner the law has been to blur the distinctions between a
or agent" rule and "admission by privies" under the partnership and a joint venture, very little law being
Rules of Court in the instant case, by pointing out that found applicable to one that does not apply to the
statements made by MBMI should not be admitted in other.51
this case since it is not a party to the case and that it
is not a "partner" of petitioners. Though some claim that partnerships and joint
ventures are totally different animals, there are very
Secs. 29 and 31, Rule 130 of the Revised Rules of few rules that differentiate one from the other; thus,
Court provide: joint ventures are deemed "akin" or similar to a
partnership. In fact, in joint venture agreements, rules
Sec. 29. Admission by co-partner or agent.- The act and legal incidents governing partnerships are
or declaration of a partner or agent of the party within applied.52
the scope of his authority and during the existence of
the partnership or agency, may be given in evidence Accordingly, culled from the incidents and records of
against such party after the partnership or agency is this case, it can be assumed that the relationships
shown by evidence other than such act or declaration entered between and among petitioners and MBMI
itself. The same rule applies to the act or declaration are no simple "joint venture agreements." As a rule,
of a joint owner, joint debtor, or other person jointly corporations are prohibited from entering into
interested with the party. partnership agreements; consequently, corporations
enter into joint venture agreements with other
Sec. 31. Admission by privies.- Where one derives corporations or partnerships for certain transactions in
title to property from another, the act, declaration, or order to form "pseudo partnerships."
omission of the latter, while holding the title, in relation
to the property, is evidence against the former. Obviously, as the intricate web of "ventures" entered
into by and among petitioners and MBMI was
Petitioners claim that before the above-mentioned executed to circumvent the legal prohibition against
Rule can be applied to a case, "the partnership corporations entering into partnerships, then the
relation must be shown, and that proof of the fact relationship created should be deemed as
must be made by evidence other than the admission "partnerships," and the laws on partnership should be
itself."49 Thus, petitioners assert that the CA erred in applied. Thus, a joint venture agreement between and
finding that a partnership relationship exists between among corporations may be seen as similar to
them and MBMI because, in fact, no such partnership partnerships since the elements of partnership are
exists. present.
Partnerships vs. joint venture agreements Considering that the relationships found between
petitioners and MBMI are considered to be
partnerships, then the CA is justified in applying Sec.
29, Rule 130 of the Rules by stating that "by entering with and any adverse claim/protest/opposition is
into a joint venture, MBMI have a joint interest" with finally resolved by the Panel of Arbitrators.
Narra, Tesoro and McArthur.
Sec. 41.
Panel of Arbitrators’ jurisdiction
xxxx
We affirm the ruling of the CA in declaring that the
POA has jurisdiction over the instant case. The POA Within fifteen (15) working days form the receipt of the
has jurisdiction to settle disputes over rights to mining Certification issued by the Panel of Arbitrators as
areas which definitely involve the petitions filed by provided in Section 38 hereof, the concerned
Redmont against petitioners Narra, McArthur and Regional Director shall initially evaluate the Mineral
Tesoro. Redmont, by filing its petition against Agreement applications in areas outside Mineral
petitioners, is asserting the right of Filipinos over reservations. He/She shall thereafter endorse his/her
mining areas in the Philippines against alleged findings to the Bureau for further evaluation by the
foreign-owned mining corporations. Such claim Director within fifteen (15) working days from receipt
constitutes a "dispute" found in Sec. 77 of RA 7942: of forwarded documents. Thereafter, the Director shall
endorse the same to the secretary for
Within thirty (30) days, after the submission of the consideration/approval within fifteen working days
case by the parties for the decision, the panel shall from receipt of such endorsement.
have exclusive and original jurisdiction to hear and
decide the following: In case of Mineral Agreement applications in areas
with Mineral Reservations, within fifteen (15) working
(a) Disputes involving rights to mining areas days from receipt of the Certification issued by the
Panel of Arbitrators as provided for in Section 38
(b) Disputes involving mineral agreements or hereof, the same shall be evaluated and endorsed by
permits the Director to the Secretary for
consideration/approval within fifteen days from receipt
We held in Celestial Nickel Mining Exploration of such endorsement. (emphasis supplied)
Corporation v. Macroasia Corp.:53
It has been made clear from the aforecited provisions
The phrase "disputes involving rights to mining areas" that the "disputes involving rights to mining areas"
refers to any adverse claim, protest, or opposition to under Sec. 77(a) specifically refer only to those
an application for mineral agreement. The POA disputes relative to the applications for a mineral
therefore has the jurisdiction to resolve any adverse agreement or conferment of mining rights.
claim, protest, or opposition to a pending application
for a mineral agreement filed with the concerned The jurisdiction of the POA over adverse claims,
Regional Office of the MGB. This is clear from Secs. protest, or oppositions to a mining right application is
38 and 41 of the DENR AO 96-40, which provide: further elucidated by Secs. 219 and 43 of DENR AO
95-936, which read:
Sec. 38.
Sec. 219. Filing of Adverse
xxxx Claims/Conflicts/Oppositions.- Notwithstanding the
provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said
Within thirty (30) calendar days from the last date of
sections may also be filed directly with the Panel of
publication/posting/radio announcements, the
Arbitrators within the concerned periods for filing such
authorized officer(s) of the concerned office(s) shall
claim, protest or opposition as specified in said
issue a certification(s) that the
Sections.
publication/posting/radio announcement have been
complied with. Any adverse claim, protest, opposition
shall be filed directly, within thirty (30) calendar days Sec. 43. Publication/Posting of Mineral Agreement.-
from the last date of publication/posting/radio
announcement, with the concerned Regional Office or xxxx
through any concerned PENRO or CENRO for filing in
the concerned Regional Office for purposes of its The Regional Director or concerned Regional Director
resolution by the Panel of Arbitrators pursuant to the shall also cause the posting of the application on the
provisions of this Act and these implementing rules bulletin boards of the Bureau, concerned Regional
and regulations. Upon final resolution of any adverse office(s) and in the concerned province(s) and
claim, protest or opposition, the Panel of Arbitrators municipality(ies), copy furnished the barangays where
shall likewise issue a certification to that effect within the proposed contract area is located once a week for
five (5) working days from the date of finality of two (2) consecutive weeks in a language generally
resolution thereof. Where there is no adverse claim, understood in the locality. After forty-five (45) days
protest or opposition, the Panel of Arbitrators shall from the last date of publication/posting has been
likewise issue a Certification to that effect within five made and no adverse claim, protest or opposition was
working days therefrom. filed within the said forty-five (45) days, the concerned
offices shall issue a certification that
xxxx publication/posting has been made and that no
adverse claim, protest or opposition of whatever
No Mineral Agreement shall be approved unless the nature has been filed. On the other hand, if there be
requirements under this Section are fully complied any adverse claim, protest or opposition, the same
shall be filed within forty-five (45) days from the last No mineral agreement shall be approved unless the
date of publication/posting, with the Regional Offices requirements under this section are fully complied
concerned, or through the Department’s Community with and any opposition/adverse claim is dealt with in
Environment and Natural Resources Officers writing by the Director and resolved by the Panel of
(CENRO) or Provincial Environment and Natural Arbitrators. (Emphasis supplied.)
Resources Officers (PENRO), to be filed at the
Regional Office for resolution of the Panel of These provisions lead us to conclude that the power
Arbitrators. However previously published valid and of the POA to resolve any adverse claim, opposition,
subsisting mining claims are exempted from or protest relative to mining rights under Sec. 77(a) of
posted/posting required under this Section. RA 7942 is confined only to adverse claims, conflicts
and oppositions relating to applications for the grant of
No mineral agreement shall be approved unless the mineral rights.
requirements under this section are fully complied
with and any opposition/adverse claim is dealt with in POA’s jurisdiction is confined only to resolutions of
writing by the Director and resolved by the Panel of such adverse claims, conflicts and oppositions and it
Arbitrators. (Emphasis supplied.) has no authority to approve or reject said applications.
Such power is vested in the DENR Secretary upon
It has been made clear from the aforecited provisions recommendation of the MGB Director. Clearly, POA’s
that the "disputes involving rights to mining areas" jurisdiction over "disputes involving rights to mining
under Sec. 77(a) specifically refer only to those areas" has nothing to do with the cancellation of
disputes relative to the applications for a mineral existing mineral agreements. (emphasis ours)
agreement or conferment of mining rights.
Accordingly, as we enunciated in Celestial, the POA
The jurisdiction of the POA over adverse claims, unquestionably has jurisdiction to resolve disputes
protest, or oppositions to a mining right application is over MPSA applications subject of Redmont’s
further elucidated by Secs. 219 and 43 of DENRO AO petitions. However, said jurisdiction does not include
95-936, which reads: either the approval or rejection of the MPSA
applications, which is vested only upon the Secretary
Sec. 219. Filing of Adverse of the DENR. Thus, the finding of the POA, with
Claims/Conflicts/Oppositions.- Notwithstanding the respect to the rejection of petitioners’ MPSA
provisions of Sections 28, 43 and 57 above, any applications being that they are foreign corporation, is
adverse claim, protest or opposition specified in said valid.
sections may also be filed directly with the Panel of
Arbitrators within the concerned periods for filing such Justice Marvic Mario Victor F. Leonen, in his Dissent,
claim, protest or opposition as specified in said asserts that it is the regular courts, not the POA, that
Sections. has jurisdiction over the MPSA applications of
petitioners.
Sec. 43. Publication/Posting of Mineral Agreement
Application.- This postulation is incorrect.
WHEREFORE, for all the foregoing In affirming the trial court, the Court of Appeals held
considerations, the Court, finding for the that petitioners and respondent had formed a
defendant and against the plaintiffs, orders the partnership for the development of the subdivision.
dismissal of the plaintiffs complaint. The Thus, they must bear the loss suffered by the
counterclaims of the defendant are likewise partnership in the same proportion as their share in
ordered dismissed. No pronouncement as to the profits stipulated in the contract. Disagreeing with
costs. 3 the trial court's pronouncement that losses as well as
profits in a joint venture should be distributed
The Facts equally, 7 the CA invoked Article 1797 of the Civil
Code which provides:
Sisters Antonia Torres and Emeteria Baring, herein
petitioners, entered into a "joint venture agreement" Art. 1797 — The losses and profits shall be
with Respondent Manuel Torres for the development distributed in conformity with the agreement. If
of a parcel of land into a subdivision. Pursuant to the only the share of each partner in the profits has
contract, they executed a Deed of Sale covering the been agreed upon, the share of each in the
said parcel of land in favor of respondent, who then losses shall be in the same proportion.
had it registered in his name. By mortgaging the
property, respondent obtained from Equitable Bank a The CA elucidated further:
loan of P40,000 which, under the Joint Venture
Agreement, was to be used for the development of In the absence of stipulation, the share of each
the subdivision. 4 All three of them also agreed to partner in the profits and losses shall be in
share the proceeds from the sale of the subdivided proportion to what he may have contributed, but
lots. the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner
The project did not push through, and the land was shall receive such share as may be just and
subsequently foreclosed by the bank. equitable under the circumstances. If besides
his services he has contributed capital, he shall
According to petitioners, the project failed because of also receive a share in the profits in proportion
"respondent's lack of funds or means and skills." They to his capital.
add that respondent used the loan not for the
development of the subdivision, but in furtherance of The Issue
his own company, Universal Umbrella Company.
Petitioners impute to the Court of Appeals the
On the other hand, respondent alleged that he used following error:
the loan to implement the Agreement. With the said
amount, he was able to effect the survey and the . . . [The] Court of Appeals erred in concluding
subdivision of the lots. He secured the Lapu Lapu City that the transaction
Council's approval of the subdivision project which he . . . between the petitioners and respondent was
advertised in a local newspaper. He also caused the that of a joint venture/partnership, ignoring
construction of roads, curbs and gutters. Likewise, he outright the provision of Article 1769, and other
entered into a contract with an engineering firm for the related provisions of the Civil Code of the
building of sixty low-cost housing units and actually Philippines. 8
even set up a model house on one of the subdivision
lots. He did all of these for a total expense of P85,000. The Court's Ruling
Respondent claimed that the subdivision project The Petition is bereft of merit.
failed, however, because petitioners and their
relatives had separately caused the annotations of
Main Issue:
Existence of a Partnership THIRD: That the FIRST PARTY, will not collect
from the SECOND PARTY, the interest and the
Petitioners deny having formed a partnership with principal amount involving the amount of
respondent. They contend that the Joint Venture TWENTY THOUSAND (P20,000.00) Pesos,
Agreement and the earlier Deed of Sale, both of Philippine Currency, until the sub-division
which were the bases of the appellate court's finding project is terminated and ready for sale to any
of a partnership, were void. interested parties, and the amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine
In the same breath, however, they assert that under currency, will be deducted accordingly.
those very same contracts, respondent is liable for his
failure to implement the project. Because the FOURTH: That all general expense[s] and all
agreement entitled them to receive 60 percent of the cost[s] involved in the sub-division project
proceeds from the sale of the subdivision lots, they should be paid by the FIRST PARTY,
pray that respondent pay them damages equivalent to exclusively and all the expenses will not be
60 percent of the value of the property. 9 deducted from the sales after the development
of the sub-division project.
The pertinent portions of the Joint Venture Agreement
read as follows: FIFTH: That the sales of the sub-divided lots
will be divided into SIXTY PERCENTUM 60%
KNOW ALL MEN BY THESE PRESENTS: for the SECOND PARTY and FORTY
PERCENTUM 40% for the FIRST PARTY, and
additional profits or whatever income deriving
This AGREEMENT, is made and entered into at
from the sales will be divided equally according
Cebu City, Philippines, this 5th day of March,
to the . . . percentage [agreed upon] by both
1969, by and between MR. MANUEL R.
parties.
TORRES, . . . the FIRST PARTY, likewise,
MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, . . . the SECOND PARTY: SIXTH: That the intended sub-division project of
the property involved will start the work and all
improvements upon the adjacent lots will be
WITNESSETH:
negotiated in both parties['] favor and all sales
shall [be] decided by both parties.
That, whereas, the SECOND PARTY,
voluntarily offered the FIRST PARTY, this
SEVENTH: That the SECOND PARTIES,
property located at Lapu-Lapu City, Island of
should be given an option to get back the
Mactan, under Lot No. 1368 covering TCT No.
property mentioned provided the amount of
T-0184 with a total area of 17,009 square
TWENTY THOUSAND (P20,000.00) Pesos,
meters, to be sub-divided by the FIRST PARTY;
Philippine Currency, borrowed by the SECOND
PARTY, will be paid in full to the FIRST PARTY,
Whereas, the FIRST PARTY had given the including all necessary improvements spent by
SECOND PARTY, the sum of: TWENTY the FIRST PARTY, and-the FIRST PARTY will
THOUSAND (P20,000.00) Pesos, Philippine be given a grace period to turnover the property
Currency upon the execution of this contract for mentioned above.
the property entrusted by the SECOND PARTY,
for sub-division projects and development
That this AGREEMENT shall be binding and
purposes;
obligatory to the parties who executed same
freely and voluntarily for the uses and purposes
NOW THEREFORE, for and in consideration of therein stated. 10
the above covenants and promises herein
contained the respective parties hereto do
A reading of the terms embodied in the Agreement
hereby stipulate and agree as follows:
indubitably shows the existence of a partnership
pursuant to Article 1767 of the Civil Code, which
ONE: That the SECOND PARTY signed an provides:
absolute Deed of Sale . . . dated March 5, 1969,
in the amount of TWENTY FIVE THOUSAND
Art. 1767. By the contract of partnership two or
FIVE HUNDRED THIRTEEN & FIFTY CTVS.
more persons bind themselves to contribute
(P25,513.50) Philippine Currency, for 1,700
money, property, or industry to a common fund,
square meters at ONE [PESO] & FIFTY CTVS.
with the intention of dividing the profits among
(P1.50) Philippine Currency, in favor of the
themselves.
FIRST PARTY, but the SECOND PARTY did
not actually receive the payment.
Under the above-quoted Agreement, petitioners would
contribute property to the partnership in the form of
SECOND: That the SECOND PARTY, had
land which was to be developed into a subdivision;
received from the FIRST PARTY, the necessary
while respondent would give, in addition to his
amount of TWENTY THOUSAND (P20,000.00)
industry, the amount needed for general expenses
pesos, Philippine currency, for their personal
and other costs. Furthermore, the income from the
obligations and this particular amount will serve
said project would be divided according to the
as an advance payment from the FIRST
stipulated percentage. Clearly, the contract
PARTY for the property mentioned to be sub-
manifested the intention of the parties to form a
divided and to be deducted from the sales.
partnership. 11
It should be stressed that the parties implemented the Tolentino states that under the aforecited provision
contract. Thus, petitioners transferred the title to the which is a complement of Article 1771, 12 "The
land to facilitate its use in the name of the respondent. execution of a public instrument would be useless if
On the other hand, respondent caused the subject there is no inventory of the property contributed,
land to be mortgaged, the proceeds of which were because without its designation and description, they
used for the survey and the subdivision of the land. As cannot be subject to inscription in the Registry of
noted earlier, he developed the roads, the curbs and Property, and their contribution cannot prejudice third
the gutters of the subdivision and entered into a persons. This will result in fraud to those who contract
contract to construct low-cost housing units on the with the partnership in the belief [in] the efficacy of the
property. guaranty in which the immovables may consist. Thus,
the contract is declared void by the law when no such
Respondent's actions clearly belie petitioners' inventory is made." The case at bar does not involve
contention that he made no contribution to the third parties who may be prejudiced.
partnership. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property, Second, petitioners themselves invoke the allegedly
but also industry. void contract as basis for their claim that respondent
should pay them 60 percent of the value of the
Petitioners Bound by property. 13 They cannot in one breath deny the
contract and in another recognize it, depending on
Terms of Contract what momentarily suits their purpose. Parties cannot
adopt inconsistent positions in regard to a contract
and courts will not tolerate, much less approve, such
Under Article 1315 of the Civil Code, contracts bind
practice.
the parties not only to what has been expressly
stipulated, but also to all necessary consequences
thereof, as follows: In short, the alleged nullity of the partnership will not
prevent courts from considering the Joint Venture
Agreement an ordinary contract from which the
Art. 1315. Contracts are perfected by mere
parties' rights and obligations to each other may be
consent, and from that moment the parties are
inferred and enforced.
bound not only to the fulfillment of what has
been expressly stipulated but also to all the
consequences which, according to their nature, Partnership Agreement Not the Result
may be in keeping with good faith, usage and
law. of an Earlier Illegal Contract
It is undisputed that petitioners are educated and are Petitioners also contend that the Joint Venture
thus presumed to have understood the terms of the Agreement is void under Article 1422 14 of the Civil
contract they voluntarily signed. If it was not in Code, because it is the direct result of an earlier illegal
consonance with their expectations, they should have contract, which was for the sale of the land without
objected to it and insisted on the provisions they valid consideration.
wanted.
This argument is puerile. The Joint Venture
Courts are not authorized to extricate parties from the Agreement clearly states that the consideration for the
necessary consequences of their acts, and the fact sale was the expectation of profits from the
that the contractual stipulations may turn out to be subdivision project. Its first stipulation states that
financially disadvantageous will not relieve parties petitioners did not actually receive payment for the
thereto of their obligations. They cannot now disavow parcel of land sold to respondent. Consideration,
the relationship formed from such agreement due to more properly denominated as cause, can take
their supposed misunderstanding of its terms. different forms, such as the prestation or promise of a
thing or service by another. 15
Alleged Nullity of the
In this case, the cause of the contract of sale
Partnership Agreement consisted not in the stated peso value of the land, but
in the expectation of profits from the subdivision
project, for which the land was intended to be used.
Petitioners argue that the Joint Venture Agreement is
As explained by the trial court, "the land was in effect
void under Article 1773 of the Civil Code, which
given to the partnership as [petitioner's] participation
provides:
therein. . . . There was therefore a consideration for
the sale, the [petitioners] acting in the expectation
Art. 1773. A contract of partnership is void, that, should the venture come into fruition, they
whenever immovable property is contributed [would] get sixty percent of the net profits."
thereto, if an inventory of said property is not
made, signed by the parties, and attached to
Liability of the Parties
the public instrument.
Claiming that rerpondent was solely responsible for
They contend that since the parties did not make, sign
the failure of the subdivision project, petitioners
or attach to the public instrument an inventory of the
maintain that he should be made to pay damages
real property contributed, the partnership is void.
equivalent to 60 percent of the value of the property,
which was their share in the profits under the Joint
We clarify. First, Article 1773 was intended primarily Venture Agreement.
to protect third persons. Thus, the eminent Arturo M.
We are not persuaded. True, the Court of Appeals 14 Art. 1422. A contract which is the direct
held that petitioners' acts were not the cause of the result of a previous illegal contract, is also
failure of the project. 16 But it also ruled that neither void and inexistent.
was respondent responsible therefor. 17 In imputing
the blame solely to him, petitioners failed to give any 15 Art. 1350. In onerous contracts the cause
reason why we should disregard the factual findings is understood to be, for each contracting
of the appellate court relieving him of fault. Verily, party, the prestation or promise of a thing or
factual issues cannot be resolved in a petition for service by the other; in remuneratory ones,
review under Rule 45, as in this case. Petitioners the service or benefit which is remunerated;
have not alleged, not to say shown, that their Petition and in contracts of pure beneficence, the
constitutes one of the exceptions to this mere liberality of the benefactor.
doctrine. 18Accordingly, we find no reversible error in
the CA's ruling that petitioners are not entitled to
damages.
SO ORDERED
Footnotes
2 Second Division.
As respondent Dole Asia Philippines failed to file a 4) As to certification against forum shopping,
comment, the Court, by Resolution of November 29, non-compliance therewith or a defect therein,
2006,17required it to (1) show cause why it should not unlike in verification, is generally not curable
be held in contempt for its failure to heed the Court’s by its subsequent submission or correction
directive, and (2) file the required comment, within 10 thereof, unless there is a need to relax the
days from notice. Rule on the ground of "substantial
compliance" or presence of "special
Dole Philippines, Inc. (DPI) promptly filed an Urgent circumstances or compelling reasons."
Manifestation18 stating that, among other things, while
its division located in Davao City received the Court’s 5) The certification against forum shopping
Resolution directing Dole Asia Philippines to file a must be signed by all the plaintiffs or
comment on the present petition, DPI did not file a petitioners in a case; otherwise, those who did
comment as the directive was addressed to "Dole not sign will be dropped as parties to the case.
Asia Philippines", an entity which is not registered at Under reasonable or justifiable circumstances,
the Securities and Exchange Commission. however, as when all the plaintiffs or
petitioners share a common interest and
Commenting on DPI’s Urgent Manifestation, invoke a common cause of action or defense,
petitioners contend that DPI cannot be allowed to take the signature of only one of them in the
advantage of their lack of knowledge as to its exact certification against forum shopping
corporate name, DPI having raised the matter for the substantially complies with the Rule.
first time before this Court notwithstanding its receipt
of all pleadings and court processes from the 6) Finally, the certification against forum
inception of this case.19 shopping must be executed by the party-
pleader, not by his counsel. If, however, for
reasonable or justifiable reasons, the party- that partakes of the nature of a joint venture.26 The
pleader is unable to sign, he must execute a rules on job contracting are, therefore, inapposite. The
Special Power of Attorney designating his Court may not alter the intention of the contracting
counsel of record to sign on his behalf. parties as gleaned from their stipulations without
(Emphasis and underscoring supplied) violating the autonomy of contracts principle under
Article 1306 of the Civil Code which gives the
The foregoing restated pronouncements were lost in contracting parties the utmost liberality and freedom
the challenged Resolutions of the appellate court. to establish such stipulations, clauses, terms and
Petitioners’ contention that the appellate court should conditions as they may deem convenient, provided
have dismissed the petition only as to the non-signing they are not contrary to law, morals, good custom,
petitioners or merely dropped them as parties to the public order or public policy.
case is thus in order.
Petitioners’ claim of employment relationship with the
Instead of remanding the case to the appellate court, Cooperative’s herein co-respondents must be
however, the Court deems it more practical to decide assessed on the basis of four standards, viz: (a) the
the substantive issue raised in this petition so as not manner of their selection and engagement; (b) the
to further delay the disposition of this case.21 And it mode of payment of their wages; (c) the presence or
thus resolves to deviate as well from the general rule absence of the power of dismissal; and (d) the
that factual questions are not entertained in petitions presence or absence of control over their conduct.
for review on certiorari of the appellate court’s Most determinative among these factors is the so-
decisions in order to write finis to this protracted called "control test."27
litigation.
There is nothing in the records which indicates the
The sole issue is whether DFI (with which TACOR presence of any of the foregoing elements of an
had been merged) and DPI should be held solidarily employer-employee relationship.
liable with the Cooperative for petitioners’ illegal
dismissal and money claims. The absence of the first requisite, which refers to
selection and engagement, is shown by DFI’s total
The Labor Code and its Implementing Rules empower lack of knowledge on who actually were engaged by
the Labor Arbiter to be the trier of facts in labor the Cooperative to work in the banana plantation. This
cases.22Much reliance is thus placed on the Arbiter’s is borne out by the Contract between the Cooperative
findings of fact, having had the opportunity to discuss and DFI, under which the Cooperative was to hire its
with the parties and their witnesses the factual own workers. As TACOR had been merged with DFI,
matters of the case during the conciliation and DPI is merely alleged to have previously owned
phase.23 Just the same, a review of the records of the TACOR, this applies to them as well. Petitioners failed
present case does not warrant a conclusion different to prove the contrary. No employment contract
from the Arbiter’s, as affirmed by the NLRC, that the whatsoever was submitted to substantiate how
Cooperative is the employer of petitioners. petitioners were hired and by whom.
To be sure, the matter of whether the Cooperative is On the second requisite, which refers to the payment
an independent contractor or a labor-only contractor of wages, it was likewise the Cooperative that paid the
may not be used to predicate a ruling in this case. Job same. As reflected earlier, under the Contract, the
contracting or subcontracting refers to an Cooperative was to handle and fund the production of
arrangement whereby a principal agrees to farm out bananas and operation of the plantation.28 The
with a contractor or subcontractor the performance of Cooperative was also to be responsible for the proper
a specific job, work or service within a definite or conduct, safety, benefits, and general welfare of its
predetermined period, regardless of whether such job, members and workers in the plantation.29
work or service is to be performed or completed within
or outside the premises of the principal.24 The present As to the third requisite, which refers to the power of
case does not involve such an arrangement. dismissal, and the fourth requisite, which refers to the
power of control, both were retained by the
DFI did not farm out to the Cooperative the Cooperative. Again, the Contract stipulated that the
performance of a specific job, work, or service. Cooperative was to be responsible for the proper
Instead, it entered into a Banana Production and conduct and general welfare of its members and
Purchase Agreement25 (Contract) with the workers in the plantation.
Cooperative, under which the Cooperative would
handle and fund the production of bananas and The crucial element of control refers to the authority of
operation of the plantation covering lands owned by the employer to control the employee not only with
its members in consideration of DFI’s commitment to regard to the result of the work to be done, but also to
provide financial and technical assistance as needed, the means and methods by which the work is to be
including the supply of information and equipment in accomplished.30While it suffices that the power of
growing, packing, and shipping bananas. The control exists, albeit not actually exercised, there must
Cooperative would hire its own workers and pay their be some evidence of such power. In the present case,
wages and benefits, and sell exclusively to DFI all petitioners did not present any.
export quality bananas produced that meet the
specifications agreed upon. There being no employer-employee relationship
between petitioners and the Cooperative’s co-
To the Court, the Contract between the Cooperative respondents, the latter are not solidarily liable with the
and DFI, far from being a job contracting Cooperative for petitioners’ illegal dismissal and
arrangement, is in essence a business partnership money claims.
While the Court commiserates with petitioners on their
loss of employment, especially now that the
Cooperative is no longer a going concern, it cannot
simply, by default, hold the Cooperative’s co-
respondents liable for their claims without any factual
and legal justification therefor. The social justice
policy of labor laws and the Constitution is not meant
to be oppressive of capital.
SO ORDERED.
G.R. No. 167379 June 27, 2006 Same; Same; Same; Unless otherwise agreed, the
parties who have not wrongfully dissolved the
PRIMELINK PROPERTIES AND DEVELOPMENT partnership have the right to wind up the partnership
CORPORATION and RAFAELITO W. affairs.—The transfer of the possession of the parcels
LOPEZ, Petitioners, of land and the improvements thereon to respondents
vs. was only for a specific purpose: the winding up of
MA. CLARITA T. LAZATIN-MAGAT, JOSE partnership affairs, and the partition and distribution of
SERAFIN T. LAZATIN, JAIME TEODORO T. the net partnership assets as provided by law. After all,
LAZATIN and JOSE MARCOS T. Article 1836 of the New Civil Code provides that unless
LAZATIN, Respondents. otherwise agreed by the parties in their JVA,
respondents have the right to wind up the partnership
Actions; Pleadings and Practice; A pleading may add affairs: Art. 1836. Unless otherwise agreed, the
as general prayer for such further or other relief as may partners who have not wrongfully dissolved the
be deemed just and equitable—the prayer in the partnership or the legal representative of the last
complaint for other reliefs equitable and just in the surviving partner, not insolvent, has the right to wind up
premises justifies the grant of a relief not otherwise the partnership affairs, provided, however, that any
specifically prayed for.—We agree with petitioners that partner, his legal representative or his assignee, upon
respondents did not specifically pray in their complaint cause shown, may obtain winding up by the court.
below that possession of the improvements on the
parcels of land which they contributed to the JVA be Same; Same; Same; Until the partnership accounts are
transferred to them. Respondents made a specific determined, it cannot be ascertained how much any of
prayer in their complaint that, upon the rescission of the the parties is entitled to, if at all.—It must be stressed,
JVA, they be placed in possession of the parcels of too, that although respondents acquired possession of
land subject of the agreement, and for other “reliefs and the lands and the improvements thereon, the said
such other remedies as are just and equitable in the lands and improvements remained partnership
premises.” However, the trial court was not precluded property, subject to the rights and obligations of the
from awarding possession of the improvements on the parties, inter se, of the creditors and of third parties
parcels of land to respondents in its decision. Section under Articles 1837 and 1838 of the New Civil Code,
2(c), Rule 7 of the Rules of Court provides that a and subject to the outcome of the settlement of the
pleading shall specify the relief sought but it may add accounts between the parties as provided in Article
as general prayer for such further or other relief as may 1839 of the New Civil Code, absent any agreement of
be deemed just and equitable. Even without the prayer the parties in their JVA to the contrary. Until the
for a specific remedy, proper relief may be granted by partnership accounts are determined, it cannot be
the court if the facts alleged in the complaint and the ascertained how much any of the parties is entitled to,
evidence introduced so warrant. The court shall grant if at all. It was thus premature for petitioner Primelink to
relief warranted by the allegations and the proof even be demanding that it be indemnified for the value of the
if no such relief is prayed for. The prayer in the improvements on the parcels of land owned by the joint
complaint for other reliefs equitable and just in the venture/partnership. Notably, the JVA of the parties
premises justifies the grant of a relief not otherwise does not contain any provision designating any party to
specifically prayed for. wind up the affairs of the partnership. Primelink
Properties and Development Corporation vs. Lazatin-
Partnerships; Joint Venture Agreements (JVAs); A JVA Magat, 493 SCRA 444, G.R. No. 167379 June 27,
is a form of partnership, and as such is to be governed 2006
by the laws on partnership.—We agree with the CA
ruling that petitioner Primelink and respondents
entered into a joint venture as evidenced by their JVA
which, under the Court’s ruling in Aurbach, is a form of
partnership, and as such is to be governed by the laws
on partnership.
1. Ordering the rescission of the Joint Venture Of the reported net income of P2,603,810.64 (Exhibit
Agreement as of the date of filing of this "P-2") the plaintiffs should have received the sum
complaint; of P1,041,524.26 representing their 40% share under
paragraph II and V of the JVA. But this was not to be
so. Even before the plaintiffs could get hold of their
2. Ordering the defendants to return
share as indicated above, the defendants closed the
possession, including all improvements
chance altogether by declaring a net loss. The court
therein, of the real estate property belonging
perceives this to be one calculated coup-de-grace that
to the plaintiffs which is described in, and
would put to thin air plaintiffs’ hope of getting their
covered by Transfer Certificate of Title No. T-
share in the profit under the JVA.
10848 of the Register of Deeds of Tagaytay
City, and located in Barangay Anulin, City of
Tagaytay; That this matter had reached the court is no longer a
cause for speculation. The way the defendants
treated the JVA and the manner by which they
3. Ordering the defendants to turn over all
handled the project itself vis-à-vis their partners, the
documents, records or papers that have been
plaintiffs herein, there is bound to be certain conflict
executed, prepared and retained in
as the latter repeatedly would received the losing end
connection with any contract to sell or deed of
of the bargain.
sale of all lots/units sold during the effectivity
of the joint venture agreement;
Under the intolerable circumstances, the plaintiffs
could not have opted for some other recourse but to
4. Ordering the defendants to pay the plaintiffs
file the present action to enforce their rights. x x x34
the sum of P1,041,524.26 representing their
share of the net income of the P2,603,810.64
as of September 30, 1995, as stipulated in the On May 15, 2000, plaintiffs filed a Motion for
joint venture agreement; Execution Pending Appeal35 alleging defendants’
dilatory tactics for its allowance. This was opposed by
defendants.36
5. Ordering the defendants to pay the
plaintiffs’ attorney’s fees in the amount
of P104,152.40; On May 22, 2000, the RTC resolved the motion for
execution pending appeal in favor of plaintiffs.37 Upon
posting a bond of P1,000,000.00 by plaintiffs, a writ of
6. Ordering the defendants to pay the costs.
execution pending appeal was issued on June 20,
2000.38
SO ORDERED.33
Defendants appealed the decision to the CA on the
The trial court anchored its decision on the following following assignment of errors:
findings:
I
x x x Evidence on record have shown patent
violations by the defendants of the stipulations
THE TRIAL COURT ERRED IN DECIDING THE
particularly paragraph II covering Developer’s
CASE WITHOUT FIRST REFERRING THE
(defendant) undertakings, as well as paragraph III and
COMPLAINT FOR VOLUNTARY ARBITRATION (RA
paragraph V of the JVA. These violations are not
NO. 876), CONTRARY TO THE MANDATED
limited to those made against the plaintiffs alone as it
VOLUNTARY ARBITRATION CLAUSE UNDER THE
appears that some of the unit buyers themselves have
JOINT VENTURE AGREEMENT, AND THE
their own separate gripes against the defendants as
DOCTRINE IN "MINDANAO PORTLAND CEMENT
typified by the letters (Exhibits "G" and "H") of Mr.
CORPORATION V. MCDONOUGH
Emmanuel Enciso.
CONSTRUCTION COMPANY OF FLORIDA" (19
SCRA 814-815).
xxxx
II
Rummaging through the evidence presented in the
course of the testimony of Mrs. Maminta on August 6,
THE TRIAL COURT ERRED IN ISSUING A WRIT OF
1998 (Exhibits "N," "O," "P," "Q" and "R" as well as
EXECUTION PENDING APPEAL EVEN IN THE
submarkings, pp. 60 to 62, TSN August 6, 1998) this
ABSENCE OF GOOD AND COMPELLING
court has observed, and is thus convinced, that a
REASONS TO JUSTIFY SAID ISSUANCE, AND
pattern of what appears to be a scheme or plot to
DESPITE PRIMELINK’S STRONG OPPOSITION
reduce and eventually blot out the net income
THERETO.
generated from sales of housing units by defendants,
III laws of partnership. The aggrieved parties filed a
motion for reconsideration,42 which the CA denied in
THE TRIAL COURT ERRED IN REFUSING TO its Resolution43 dated March 7, 2005.
DECIDE PRIMELINK’S MOTION TO QUASH THE
WRIT OF EXECUTION PENDING APPEAL AND THE Petitioners thus filed the instant Petition for Review on
MOTION FOR RECONSIDERATION, ALTHOUGH Certiorari, alleging that:
THE COURT HAS RETAINED ITS JURISDICTION
TO RULE ON ALL QUESTIONS RELATED TO 1) DID THE HONORABLE COURT OF
EXECUTION. APPEALS COMMIT A FATAL AND
REVERSIBLE LEGAL ERROR AND/OR
IV GRAVE ABUSE OF DISCRETION IN
ORDERING THE RETURN TO THE
THE TRIAL COURT ERRED IN RESCINDING THE RESPONDENTS OF THE PROPERTY WITH
JOINT VENTURE AGREEMENT ALTHOUGH ALL IMPROVEMENTS THEREON, EVEN
PRIMELINK HAS SUBSTANTIALLY DEVELOPED WITHOUT ORDERING/REQUIRING THE
THE PROJECT AND HAS SPENT MORE OR LESS RESPONDENTS TO FIRST PAY OR
FORTY MILLION PESOS, AND DESPITE REIMBURSE PRIMELINK OF ALL
APPELLEES’ FAILURE TO PRESENT SUFFICIENT EXPENSES INCURRED IN DEVELOPING
EVIDENCE JUSTIFYING THE SAID RESCISSION. AND MARKETING THE PROJECT, LESS
THE ORIGINAL VALUE OF THE
V PROPERTY, AND THE SHARE DUE
RESPONDENTS FROM THE PROFITS (IF
ANY) OF THE JOINT VENTURE PROJECT?
THE TRIAL COURT ERRED IN DECIDING THAT
THE APPELLEES HAVE THE RIGHT TO TAKE
OVER THE SUBDIVISION AND TO APPROPRIATE 2) IS THE AFORESAID ORDER ILLEGAL
FOR THEMSELVES ALL THE EXISTING AND CONFISCATORY, OPPRESSIVE AND
IMPROVEMENTS INTRODUCED THEREIN BY UNCONSCIONABLE, CONTRARY TO THE
PRIMELINK, ALTHOUGH SAID RIGHT WAS TENETS OF GOOD HUMAN RELATIONS
NEITHER ALLEGED NOR PRAYED FOR IN THE AND VIOLATIVE OF EXISTING LAWS AND
COMPLAINT, MUCH LESS PROVEN DURING THE JURISPRUDENCE ON JUDICIAL NOTICE,
EX PARTE HEARING, AND EVEN WITHOUT DEFAULT, UNJUST ENRICHMENT AND
ORDERING APPELLEES TO FIRST REIMBURSE RESCISSION OF CONTRACT WHICH
PRIMELINK OF THE SUBSTANTIAL DIFFERENCE REQUIRES MUTUAL RESTITUTION, NOT
BETWEEN THE MARKET VALUE OF APPELLEES’ UNILATERAL APPROPRIATION, OF
RAW, UNDEVELOPED AND UNPRODUCTIVE PROPERTY BELONGING TO ANOTHER?44
LAND (CONTRIBUTED TO THE PROJECT) AND
THE SUM OF MORE OR LESS FORTY MILLION Petitioners maintain that the aforesaid portion of the
PESOS WHICH PRIMELINK HAD SPENT FOR THE decision which unconditionally awards to respondents
HORIZONTAL AND VERTICAL DEVELOPMENT OF "all improvements" on the project without requiring
THE PROJECT, THEREBY ALLOWING APPELLEES them to pay the value thereof or to reimburse
TO UNJUSTLY ENRICH THEMSELVES AT THE Primelink for all expenses incurred therefore is
EXPENSE OF PRIMELINK.39 inherently and essentially illegal and confiscatory,
oppressive and unconscionable, contrary to the tenets
The appeal was docketed in the CA as CA-G.R. CV of good human relations, and will allow respondents
No. 69200. to unjustly enrich themselves at Primelink’s expense.
At the time respondents contributed the two parcels of
land, consisting of 30,000 square meters to the joint
On August 9, 2004, the appellate court rendered a
venture project when the JVA was signed on March
decision affirming, with modification, the appealed
10, 1994, the said properties were worth not more
decision. The fallo of the decision reads:
than P500.00 per square meter, the "price tag" agreed
upon the parties for the purpose of the JVA.
WHEREFORE, in view of the foregoing, the assailed Moreover, before respondents rescinded the JVA
decision of the Regional Trial Court of Tagaytay City, sometime in October/November 1997, the property
Branch 18, promulgated on April 17, 2000 in Civil had already been substantially developed as
Case No. TG-1776, is hereby AFFIRMED. improvements had already been introduced thereon;
Accordingly, Transfer Certificate of Title No. T-10848 petitioners had likewise incurred administrative and
held for safekeeping by Chinabank pursuant to the marketing expenses, among others, amounting to
Escrow Agreement is ordered released for return to more or less P40,000,000.00.45
the plaintiffs-appellees and conformably with the
affirmed decision, the cancellation by the Register of
Petitioners point out that respondents did not pray in
Deeds of Tagaytay City of whatever annotation in
their complaint that they be declared the owners and
TCT No. 10848 by virtue of the Joint Venture
entitled to the possession of the improvements made
Agreement, is now proper.
by petitioner Primelink on the property; neither did
they adduce evidence to prove their entitlement to
SO ORDERED.40 said improvements. It follows, petitioners argue, that
respondents were not entitled to the improvements
Citing the ruling of this Court in Aurbach v. Sanitary although petitioner Primelink was declared in default.
Wares Manufacturing Corporation,41 the appellate
court ruled that, under Philippine law, a joint venture is They also aver that, under Article 1384 of the New
a form of partnership and is to be governed by the Civil Code, rescission shall be only to the extent
necessary to cover the damages caused and that, the RTC and the CA, it was petitioner Primelink that
under Article 1385 of the same Code, rescission enriched itself at the expense of respondents.
creates the obligation to return the things which were Respondents reiterate the ruling of the CA, and argue
not object of the contract, together with their fruits, as follows:
and the price with its interest; consequently, it can be
effected only when respondents can return whatever PRIMELINK argued that the LAZATINs in their
they may be obliged to return. Respondents who complaint did not allege, did not prove and did not
sought the rescission of the JVA must place petitioner pray that they are and should be entitled to take over
Primelink in the status quo. They insist that the development of the project, and that the
respondents cannot rescind and, at the same time, improvements and existing structures which were
retain the consideration, or part of the consideration introduced by PRIMELINK after spending more or
received under the JVA. They cannot have the less Forty Million Pesos – be awarded to them. They
benefits of rescission without assuming its burden. All merely asked in the complaint that the joint venture
parties must be restored to their original positions as agreement be rescinded, and that the parcels of land
nearly as possible upon the rescission of a contract. they contributed to the project be returned to them.
In the event that restoration to the status quo is
impossible, rescission may be granted if the Court can PRIMELINK’s argument lacks merit. The order of the
balance the equities and fashion an appropriate court for PRIMELINK to return possession of the real
remedy that would be equitable to both parties and estate property belonging to the LAZATINs including
afford complete relief. all improvements thereon was not a judgment that
was different in kind than what was prayed for by the
Petitioners insist that being defaulted in the court a LAZATINs. The order to return the property with all
quo would in no way defeat their claim for the improvements thereon is just a necessary
reimbursement because "[w]hat matters is that the consequence to the order of rescission.
improvements exist and they cannot be
denied."46 Moreover, they point out, the ruling of this As a general rule, the relation of the parties in joint
Court in Aurbach v. Sanitary Wares Manufacturing ventures is governed by their agreement. When the
Corporation47 cited by the CA is not in point. agreement is silent on any particular issue, the
general principles of partnership may be resorted to.
On the other hand, the CA ruled that although In Aurbach v. Sanitary Wares Manufacturing
respondents therein (plaintiffs below) did not Corporation, the Supreme Court discussed the
specifically pray for their takeover of the property and following points regarding joint ventures and
for the possession of the improvements on the parcels partnership:
of land, nevertheless, respondents were entitled to
said relief as a necessary consequence of the ruling The legal concept of a joint venture is of common law
of the trial court ordering the rescission of the JVA. origin. It has no precise legal definition, but it has
The appellate court cited the ruling of this Court in the been generally understood to mean an organization
Aurbach case and Article 1838 of the New Civil Code, formed for some temporary purpose. (Gates v.
to wit: Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly
distinguishable from the partnership, since elements
As a general rule, the relation of the parties in joint are similar – community of interest in the business,
ventures is governed by their agreement. When the sharing of profits and losses, and a mutual right of
agreement is silent on any particular issue, the control. (Blackner v. McDermott, 176 F.2d 498 [1949];
general principles of partnership may be resorted to.48 Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley
v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d
Respondents, for their part, assert that Articles 1380 242 [1955]) The main distinction cited by most
to 1389 of the New Civil Code deal with rescissible opinions in common law jurisdictions is that the
contracts. What applies is Article 1191 of the New partnership contemplates a general business with
Civil Code, which reads: some degree of continuity, while the joint venture is
formed for the execution of a single transaction, and is
ART. 1191. The power to rescind obligations is thus of a temporary nature. (Tuffs v. Mann, 116
implied in reciprocal ones, in case one of the obligors Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin,
should not comply with what is incumbent upon him. 395 III. 595, 71 N.E.2d 74 [1947]; Gates v. Megargel,
266 Fed. 811 [1920]) This observation is not entirely
The injured party may choose between the fulfillment accurate in this jurisdiction, since under the Civil
and the rescission of the obligation, with the payment Code, a partnership may be particular or universal,
of damages in either case. He may also seek and a particular partnership may have for its object a
rescission, even after he has chosen fulfillment, if the specific undertaking. (Art. 1783, Civil Code). It would
latter should become impossible. seem therefore that, under Philippine law, a joint
venture is a form of partnership and should thus be
governed by the laws of partnership. The Supreme
The court shall decree the rescission claimed, unless
Court has, however, recognized a distinction between
there be just cause authorizing the fixing of a period.
these two business forms, and has held that although
a corporation cannot enter into a partnership contract,
This is understood to be without prejudice to the rights it may, however, engage in a joint venture with others.
of third persons who have acquired the thing, in (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954];
accordance with articles 1385 and 1388 and the Campos and Lopez – Campos Comments, Notes and
Mortgage Law. Selected Cases, Corporation Code 1981) (Emphasis
Supplied)
They insist that petitioners are not entitled to
rescission for the improvements because, as found by
The LAZATINs were able to establish fraud on the sought but it may add as general prayer for such
part of PRIMELINK which, in the words of the court a further or other relief as may be deemed just and
quo, was a pattern of what appears to be a scheme or equitable. Even without the prayer for a specific
plot to reduce and eventually blot out the net incomes remedy, proper relief may be granted by the court if
generated from sales of housing units by the the facts alleged in the complaint and the evidence
defendants. Under Article 1838 of the Civil Code, introduced so warrant.50 The court shall grant relief
where the partnership contract is rescinded on the warranted by the allegations and the proof even if no
ground of the fraud or misrepresentation of one of the such relief is prayed for.51 The prayer in the complaint
parties thereto, the party entitled to rescind is, without for other reliefs equitable and just in the premises
prejudice to any other right is entitled to a lien on, or justifies the grant of a relief not otherwise specifically
right of retention of, the surplus of the partnership prayed for.52
property after satisfying the partnership liabilities to
third persons for any sum of money paid by him for The trial court was not proscribed from placing
the purchase of an interest in the partnership and for respondents in possession of the parcels of land and
any capital or advance contributed by him. In the the improvements on the said parcels of land. It bears
instant case, the joint venture still has outstanding stressing that the parcels of land, as well as the
liabilities to third parties or the buyers of the property. improvements made thereon, were contributed by the
parties to the joint venture under the JVA, hence,
It is not amiss to state that title to the land or TCT No. formed part of the assets of the joint venture.53 The
T-10848 which is now held by Chinabank for trial court declared that respondents were entitled to
safekeeping pursuant to the Escrow Agreement the possession not only of the parcels of land but also
executed between Primelink Properties and of the improvements thereon as a consequence of its
Development Corporation and Ma. Clara T. Lazatin- finding that petitioners breached their agreement and
Magat should also be returned to the LAZATINs as a defrauded respondents of the net income under the
necessary consequence of the order of rescission of JVA.
contract. The reason for the existence of the Escrow
Agreement has ceased to exist when the joint venture On the second issue, we agree with the CA ruling that
agreement was rescinded.49 petitioner Primelink and respondents entered into a
joint venture as evidenced by their JVA which, under
Respondents stress that petitioners must bear any the Court’s ruling in Aurbach, is a form of partnership,
damages or losses they may have suffered. They and as such is to be governed by the laws on
likewise stress that they did not enrich themselves at partnership.
the expense of petitioners.
When the RTC rescinded the JVA on complaint of
In reply, petitioners assert that it is unjust and respondents based on the evidence on record that
inequitable for respondents to retain the petitioners willfully and persistently committed a
improvements even if their share in the P1,041,524.26 breach of the JVA, the court thereby
of the net income of the property and the sale of the dissolved/cancelled the partnership.54With the
land were to be deducted from the value of the rescission of the JVA on account of petitioners’
improvements, plus administrative and marketing fraudulent acts, all authority of any partner to act for
expenses in the total amount of P40,000,000.00. the partnership is terminated except so far as may be
Petitioners will still be entitled to an accounting from necessary to wind up the partnership affairs or to
respondents. Respondents cannot deny the existence complete transactions begun but not yet finished.55 On
and nature of said improvements as they are visible to dissolution, the partnership is not terminated but
the naked eye. continues until the winding up of partnership affairs is
completed.56 Winding up means the administration of
The threshold issues are the following: (1) whether the assets of the partnership for the purpose of
respondents are entitled to the possession of the terminating the business and discharging the
parcels of land covered by the JVA and the obligations of the partnership.
improvements thereon introduced by petitioners as
their contribution to the JVA; (2) whether petitioners The transfer of the possession of the parcels of land
are entitled to reimbursement for the value of the and the improvements thereon to respondents was
improvements on the parcels of land. only for a specific purpose: the winding up of
partnership affairs, and the partition and distribution of
The petition has no merit. the net partnership assets as provided by law.57 After
all, Article 1836 of the New Civil Code provides that
On the first issue, we agree with petitioners that unless otherwise agreed by the parties in their JVA,
respondents did not specifically pray in their complaint respondents have the right to wind up the partnership
below that possession of the improvements on the affairs:
parcels of land which they contributed to the JVA be
transferred to them. Respondents made a specific Art. 1836. Unless otherwise agreed, the partners who
prayer in their complaint that, upon the rescission of have not wrongfully dissolved the partnership or the
the JVA, they be placed in possession of the parcels legal representative of the last surviving partner, not
of land subject of the agreement, and for other "reliefs insolvent, has the right to wind up the partnership
and such other remedies as are just and equitable in affairs, provided, however, that any partner, his legal
the premises." However, the trial court was not representative or his assignee, upon cause shown,
precluded from awarding possession of the may obtain winding up by the court.
improvements on the parcels of land to respondents
in its decision. Section 2(c), Rule 7 of the Rules of It must be stressed, too, that although respondents
Court provides that a pleading shall specify the relief acquired possession of the lands and the
improvements thereon, the said lands and the dissolution, ascertained and paid
improvements remained partnership property, subject to him in cash, or the payment
to the rights and obligations of the parties, inter se, of secured by a bond approved by the
the creditors and of third parties under Articles 1837 court, and to be released from all
and 1838 of the New Civil Code, and subject to the existing liabilities of the partnership;
outcome of the settlement of the accounts between but in ascertaining the value of the
the parties as provided in Article 1839 of the New Civil partner’s interest the value of the
Code, absent any agreement of the parties in their good-will of the business shall not be
JVA to the contrary.58 Until the partnership accounts considered.
are determined, it cannot be ascertained how much
any of the parties is entitled to, if at all. And under Article 1838 of the New Civil Code, the
party entitled to rescind is, without prejudice to any
It was thus premature for petitioner Primelink to be other right, entitled:
demanding that it be indemnified for the value of the
improvements on the parcels of land owned by the (1) To a lien on, or right of retention of, the
joint venture/partnership. Notably, the JVA of the surplus of the partnership property after
parties does not contain any provision designating satisfying the partnership liabilities to third
any party to wind up the affairs of the partnership. persons for any sum of money paid by him for
the purchase of an interest in the partnership
Thus, under Article 1837 of the New Civil Code, the and for any capital or advances contributed by
rights of the parties when dissolution is caused in him;
contravention of the partnership agreement are as
follows: (2) To stand, after all liabilities to third persons
have been satisfied, in the place of the
(1) Each partner who has not caused creditors of the partnership for any payments
dissolution wrongfully shall have: made by him in respect of the partnership
liabilities; and
(a) All the rights specified in the first
paragraph of this article, and (3) To be indemnified by the person guilty of
the fraud or making the representation against
(b) The right, as against each partner all debts and liabilities of the partnership.
who has caused the dissolution
wrongfully, to damages for breach of The accounts between the parties after dissolution
the agreement. have to be settled as provided in Article 1839 of the
New Civil Code:
(2) The partners who have not caused the
dissolution wrongfully, if they all desire to Art. 1839. In settling accounts between the partners
continue the business in the same name after dissolution, the following rules shall be observed,
either by themselves or jointly with others, subject to any agreement to the contrary:
may do so, during the agreed term for the
partnership and for that purpose may possess (1) The assets of the partnership are:
the partnership property, provided they secure
the payment by bond approved by the court, (a) The partnership property,
or pay to any partner who has caused the
dissolution wrongfully, the value of his interest
(b) The contributions of the partners
in the partnership at the dissolution, less any
necessary for the payment of all the
damages recoverable under the second
liabilities specified in No. 2.
paragraph, No. 1(b) of this article, and in like
manner indemnify him against all present or
future partnership liabilities. (2) The liabilities of the partnership shall rank
in order of payment, as follows:
(3) A partner who has caused the dissolution
wrongfully shall have: (a) Those owing to creditors other than
partners,
(a) If the business is not continued
under the provisions of the second (b) Those owing to partners other than
paragraph, No. 2, all the rights of a for capital and profits,
partner under the first paragraph,
subject to liability for damages in the (c) Those owing to partners in respect
second paragraph, No. 1(b), of this of capital,
article.
(d) Those owing to partners in respect
(b) If the business is continued under of profits.
the second paragraph, No. 2, of this
article, the right as against his co- (3) The assets shall be applied in the order of
partners and all claiming through them their declaration in No. 1 of this article to the
in respect of their interests in the satisfaction of the liabilities.
partnership, to have the value of his
interest in the partnership, less any
damage caused to his co-partners by
(4) The partners shall contribute, as provided
by article 1797, the amount necessary to
satisfy the liabilities.
SO ORDERED.
G.R. NOS. 166299-300 December 13, 2005 respondents] herein. As a consequence, [petitioner’s]
complaint does NOT state a valid cause of action
AURELIO K. LITONJUA, JR., Petitioner, because NOT all the essential elements of a cause of
vs. action are present.”
EDUARDO K. LITONJUA, SR., ROBERT T. YANG,
ANGLO PHILS. MARITIME, INC., CINEPLEX, INC., Same; Same; Same; Statute of Frauds; By force of the
DDM GARMENTS, INC., EDDIE K. LITONJUA statute of frauds, an agreement that by its terms is not
SHIPPING AGENCY, INC., EDDIE K. LITONJUA to be performed within a year from the making thereof
SHIPPING CO., INC., LITONJUA SECURITIES, INC. shall be unenforceable by action, unless the same, or
(formerly E. K. Litonjua Sec), LUNETA THEATER, some note or memorandum thereof, be in writing and
INC., E & L REALTY, (formerly E & L INT’L subscribed by the party charged.—It is at once
SHIPPING CORP.), FNP CO., INC., HOME apparent that what respondent Eduardo imposed upon
ENTERPRISES, INC., BEAUMONT DEV. REALTY himself under the above passage, if he indeed wrote
CO., INC., GLOED LAND CORP., EQUITY Annex “A-1,” is a promise which is not to be performed
TRADING CO., INC., 3D CORP., "L" DEV. CORP, within one year from “contract” execution on June 22,
LCM THEATRICAL ENTERPRISES, INC., 1973. Accordingly, the agreement embodied in Annex
LITONJUA SHIPPING CO. INC., MACOIL INC., “A-1” is covered by the Statute of Frauds and ergo
ODEON REALTY CORP., SARATOGA REALTY, unenforceable for non-compliance therewith. By force
INC., ACT THEATER INC. (formerly General of the statute of frauds, an agreement that by its terms
Theatrical & Film Exchange, INC.), AVENUE is not to be performed within a year from the making
REALTY, INC., AVENUE THEATER, INC. and LVF thereof shall be unenforceable by action, unless the
PHILIPPINES, INC., (Formerly VF same, or some note or memorandum thereof, be in
PHILIPPINES),Respondents. writing and subscribed by the party charged.
Corollarily, no action can be proved unless the
Actions; Civil Law; Partnership; Words and Phrases; A requirement exacted by the statute of frauds is
contract of partnership is defined by the Civil Code as complied with.
one where two or more persons bound themselves to
contribute money, property, or industry to a common Same; Same; Same; Same; A complaint for delivery
fund with the intention of dividing the profits among and accounting of partnership property based on such
themselves.—A partnership exists when two or more void or legally non-existent actionable document is
persons agree to place their money, effects, labor, and dismissible for failure to state a cause of action.—Per
skill in lawful commerce or business, with the the Court’s own count, petitioner used in his complaint
understanding that there shall be a proportionate the mixed words “joint venture/partnership” nineteen
sharing of the profits and losses between them. A (19) times and the term “partner” four (4) times. He
contract of partnership is defined by the Civil Code as made reference to the “law of joint venture/partnership
one where two or more persons bound themselves to [being applicable] to the business relationship . . .
contribute money, property, or industry to a common between [him], Eduardo and Bobby [Yang]” and to his
fund with the intention of dividing the profits among “rights in all specific properties of their joint
themselves. A joint venture, on the other hand, is venture/partnership.” Given this consideration,
hardly distinguishable from, and may be likened to, a petitioner’s right of action against respondents
partnership since their elements are similar, i.e., Eduardo and Yang doubtless pivots on the existence
community of interests in the business and sharing of of the partnership between the three of them, as
profits and losses. Being a form of partnership, a joint purportedly evidenced by the undated and unsigned
venture is generally governed by the law on Annex “A-1.” A void Annex “A-1,” as an actionable
partnership. document of partnership, would strip petitioner of a
cause of action under the premises. A complaint for
Same; Same; Same; Petitioner’s complaint does not delivery and accounting of partnership property based
state a valid cause of action because not all the on such void or legally non-existent actionable
essential elements of a cause of action are present.— document is dismissible for failure to state of action.
Given the foregoing perspective, what the appellate So, in gist, said the Court of Appeals. The Court
court wrote in its assailed Decision about the probative agrees. Litonjua, Jr. vs. Litonjua, Sr., 477 SCRA 576,
value and legal effect of Annex “A-1” commends itself G.R. Nos. 166299-300 December 13, 2005
for concurrence: “Considering that the allegations in
the complaint showed that [petitioner] contributed
immovable properties to the alleged partnership, the
“Memorandum” (Annex “A” of the complaint) which
purports to establish the said “partnership/joint
venture” is NOT a public instrument and there was NO
inventory of the immovable property duly signed by the
parties. As such, the said “Memorandum” . . . is null
and void for purposes of establishing the existence of
a valid contract of partnership. Indeed, because of the
failure to comply with the essential formalities of a valid
contract, the purported “partnership/joint venture” is
legally inexistent and it produces no effect whatsoever.
Necessarily, a void or legally inexistent contract cannot
be the source of any contractual or legal right.
Accordingly, the allegations in the complaint, including
the actionable document attached thereto, clearly
demonstrates that [petitioner] has NO valid contractual
or legal right which could be violated by the [individual
DECISION xxx xxx xxx
43. Contrariwise, this actionable document, especially WHEREFORE, the instant petition is DENIED and the
its above-quoted provisions, established an actionable impugned Decision and Resolution of the Court of
contract even though it may not be a partnership. This Appeals AFFIRMED.
actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).38 Cost against the petitioner.
c) nothing herein contained shall be construed In an action at law, where there is evidence
to constitute any of the parties hereto partners tending to prove that the parties joined their
or joint venturers in respect of any transaction efforts in furtherance of an enterprise for their
hereunder. (At P. 66, Rollo-GR No. 75875) joint profit, the question whether they intended
by their agreement to create a joint adventure,
or to assume some other relation is a question
They object to the admission of other evidence which
of fact for the jury. (Binder v. Kessler v 200 App.
tends to show that the parties' agreement was to
Div. 40,192 N Y S 653; Pyroa v. Brownfield
establish a joint venture presented by the Lagdameo
(Tex. Civ. A.) 238 SW 725; Hoge v. George, 27
and Young Group on the ground that it contravenes
Wyo, 423, 200 P 96 33 C.J. p. 871)
the parol evidence rule under section 7, Rule 130 of
the Revised Rules of Court. According to them, the
Lagdameo and Young Group never pleaded in their In the instant cases, our examination of important
pleading that the "Agreement" failed to express the provisions of the Agreement as well as the testimonial
true intent of the parties. 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 selection of the nine directors on a six to three ratio.
organization of Saniwares and the unusual Each group is assured of a fixed number of directors
arrangements which govern its policy making body in the board.
are all consistent with a joint venture and not with an
ordinary corporation. As stated by the SEC: Moreover, ASI in its communications referred to the
enterprise as joint venture. Baldwin Young also
According to the unrebutted testimony of Mr. testified that Section 16(c) of the Agreement that
Baldwin Young, he negotiated the Agreement "Nothing herein contained shall be construed to
with ASI in behalf of the Philippine nationals. He constitute any of the parties hereto partners or joint
testified that ASI agreed to accept the role of venturers in respect of any transaction hereunder"
minority vis-a-vis the Philippine National group was merely to obviate the possibility of the enterprise
of investors, on the condition that the being treated as partnership for tax purposes and
Agreement should contain provisions to protect liabilities to third parties.
ASI as the minority.
Quite often, Filipino entrepreneurs in their desire to
An examination of the Agreement shows that develop the industrial and manufacturing capacities of
certain provisions were included to protect the a local firm are constrained to seek the technology
interests of ASI as the minority. For example, and marketing assistance of huge multinational
the vote of 7 out of 9 directors is required in corporations of the developed world. Arrangements
certain enumerated corporate acts [Sec. 3 (b) are formalized where a foreign group becomes a
(ii) (a) of the Agreement]. ASI is contractually minority owner of a firm in exchange for its
entitled to designate a member of the Executive manufacturing expertise, use of its brand names, and
Committee and the vote of this member is other such assistance. However, there is always a
required for certain transactions [Sec. 3 (b) (i)]. danger from such arrangements. The foreign group
may, from the start, intend to establish its own sole or
The Agreement also requires a 75% super- monopolistic operations and merely uses the joint
majority vote for the amendment of the articles venture arrangement to gain a foothold or test the
and by-laws of Saniwares [Sec. 3 (a) (iv) and Philippine waters, so to speak. Or the covetousness
(b) (iii)]. ASI is also given the right to designate may come later. As the Philippine firm enlarges its
the president and plant manager [Sec. 5 (6)]. operations and becomes profitable, the foreign group
The Agreement further provides that the sales undermines the local majority ownership and actively
policy of Saniwares shall be that which is tries to completely or predominantly take over the
normally followed by ASI [Sec. 13 (a)] and that entire company. This undermining of joint ventures is
Saniwares should not export "Standard" not consistent with fair dealing to say the least. To the
products otherwise than through ASI's Export extent that such subversive actions can be lawfully
Marketing Services [Sec. 13 (6)]. Under the prevented, the courts should extend protection
Agreement, ASI agreed to provide technology especially in industries where constitutional and legal
and know-how to Saniwares and the latter paid requirements reserve controlling ownership to Filipino
royalties for the same. (At p. 2). citizens.
xxx xxx xxx The Lagdameo Group stated in their appellees' brief
in the Court of Appeal
It is pertinent to note that the provisions of the
Agreement requiring a 7 out of 9 votes of the In fact, the Philippine Corporation Code itself
board of directors for certain actions, in effect recognizes the right of stockholders to enter into
gave ASI (which designates 3 directors under agreements regarding the exercise of their
the Agreement) an effective veto power. voting rights.
Furthermore, the grant to ASI of the right to
designate certain officers of the corporation; the Sec. 100. Agreements by stockholders.-
super-majority voting requirements for
amendments of the articles and by-laws; and xxx xxx xxx
most significantly to the issues of tms case, the
provision that ASI shall designate 3 out of the 9 2. An agreement between two or more
directors and the other stockholders shall stockholders, if in writing and signed by the
designate the other 6, clearly indicate that there parties thereto, may provide that in exercising
are two distinct groups in Saniwares, namely any voting rights, the shares held by them shall
ASI, which owns 40% of the capital stock and be voted as therein provided, or as they may
the Philippine National stockholders who own agree, or as determined in accordance with a
the balance of 60%, and that 2) ASI is given procedure agreed upon by them.
certain protections as the minority stockholder.
Appellants contend that the above provision is
Premises considered, we believe that under the included in the Corporation Code's chapter on
Agreement there are two groups of close corporations and Saniwares cannot be a
stockholders who established a corporation with close corporation because it has 95
provisions for a special contractual relationship stockholders. Firstly, although Saniwares had
between the parties, i.e., ASI and the other 95 stockholders at the time of the disputed
stockholders. (pp. 4-5) stockholders meeting, these 95 stockholders
are not separate from each other but are
Section 5 (a) of the agreement uses the word divisible into groups representing a single
"designated" and not "nominated" or "elected" in the Identifiable interest. For example, ASI, its
nominees and lawyers count for 13 of the 95 Corporations, 1971 ed., Section 1.06a, pp. 15-
stockholders. The YoungYutivo family count for 16) (Decision of SEC Hearing Officer, P. 16)
another 13 stockholders, the Chamsay family
for 8 stockholders, the Santos family for 9 Thirdly paragraph 2 of Sec. 100 of the
stockholders, the Dy family for 7 stockholders, Corporation Code does not necessarily imply
etc. If the members of one family and/or that agreements regarding the exercise of
business or interest group are considered as voting rights are allowed only in close
one (which, it is respectfully submitted, they corporations. As Campos and Lopez-Campos
should be for purposes of determining how explain:
closely held Saniwares is there were as of 8
March 1983, practically only 17 stockholders of Paragraph 2 refers to pooling and voting
Saniwares. (Please refer to discussion in pp. 5 agreements in particular. Does this provision
to 6 of appellees' Rejoinder Memorandum dated necessarily imply that these agreements can be
11 December 1984 and Annex "A" thereof). valid only in close corporations as defined by
the Code? Suppose that a corporation has
Secondly, even assuming that Saniwares is twenty five stockholders, and therefore cannot
technically not a close corporation because it qualify as a close corporation under section 96,
has more than 20 stockholders, the undeniable can some of them enter into an agreement to
fact is that it is a close-held corporation. Surely, vote as a unit in the election of directors? It is
appellants cannot honestly claim that submitted that there is no reason for denying
Saniwares is a public issue or a widely held stockholders of corporations other than close
corporation. ones the right to enter into not voting or pooling
agreements to protect their interests, as long as
In the United States, many courts have taken a they do not intend to commit any wrong, or
realistic approach to joint venture corporations fraud on the other stockholders not parties to
and have not rigidly applied principles of the agreement. Of course, voting or pooling
corporation law designed primarily for public agreements are perhaps more useful and more
issue corporations. These courts have indicated often resorted to in close corporations. But they
that express arrangements between corporate may also be found necessary even in widely
joint ventures should be construed with less held corporations. Moreover, since the Code
emphasis on the ordinary rules of law usually limits the legal meaning of close corporations to
applied to corporate entities and with more those which comply with the requisites laid
consideration given to the nature of the down by section 96, it is entirely possible that a
agreement between the joint venturers (Please corporation which is in fact a close corporation
see Wabash Ry v. American Refrigerator will not come within the definition. In such case,
Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry its stockholders should not be precluded from
v. Des Moines Union Ry; 254 Ass'n. 247 US. entering into contracts like voting agreements if
490'; Seaboard Airline Ry v. Atlantic Coast Line these are otherwise valid. (Campos & Lopez-
Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Campos, op cit, p. 405)
Harris, 207 Md., 212,113 A 2d 903; Hathway v.
Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 In short, even assuming that sec. 5(a) of the
N.W. 571; Beardsley v. Beardsley, 138 U.S. Agreement relating to the designation or
262; "The Legal Status of Joint Venture nomination of directors restricts the right of the
Corporations", 11 Vand Law Rev. p. 680,1958). Agreement's signatories to vote for directors,
These American cases dealt with legal such contractual provision, as correctly held by
questions as to the extent to which the the SEC, is valid and binding upon the
requirements arising from the corporate form of signatories thereto, which include appellants.
joint venture corporations should control, and (Rollo No. 75951, pp. 90-94)
the courts ruled that substantial justice lay with
those litigants who relied on the joint venture In regard to the question as to whether or not the ASI
agreement rather than the litigants who relied group may vote their additional equity during elections
on the orthodox principles of corporation law. of Saniwares' board of directors, the Court of Appeals
correctly stated:
As correctly held by the SEC Hearing Officer:
As in other joint venture companies, the extent
It is said that participants in a joint venture, in of ASI's participation in the management of the
organizing the joint venture deviate from the corporation is spelled out in the Agreement.
traditional pattern of corporation management. Section 5(a) hereof says that three of the nine
A noted authority has pointed out that just as in directors shall be designated by ASI and the
close corporations, shareholders' agreements in remaining six by the other stockholders, i.e., the
joint venture corporations often contain Filipino stockholders. This allocation of board
provisions which do one or more of the seats is obviously in consonance with the
following: (1) require greater than majority vote minority position of ASI.
for shareholder and director action; (2) give
certain shareholders or groups of shareholders Having entered into a well-defined contractual
power to select a specified number of directors; relationship, it is imperative that the parties
(3) give to the shareholders control over the should honor and adhere to their respective
selection and retention of employees; and (4) rights and obligations thereunder. Appellants
set up a procedure for the settlement of seem to contend that any allocation of board
disputes by arbitration (See I O' Neal, Close seats, even in joint venture corporations, are
null and void to the extent that such may to nominate more than three directors. (Rollo-
interfere with the stockholder's rights to 75875, pp. 38-39)
cumulative voting as provided in Section 24 of
the Corporation Code. This Court should not be The ASI Group and petitioner Salazar, now reiterate
prepared to hold that any agreement which their theory that the ASI Group has the right to vote
curtails in any way cumulative voting should be their additional equity pursuant to Section 24 of the
struck down, even if such agreement has been Corporation Code which gives the stockholders of a
freely entered into by experienced businessmen corporation the right to cumulate their votes in electing
and do not prejudice those who are not parties directors. Petitioner Salazar adds that this right if
thereto. It may well be that it would be more granted to the ASI Group would not necessarily mean
cogent to hold, as the Securities and Exchange a violation of the Anti-Dummy Act (Commonwealth
Commission has held in the decision appealed Act 108, as amended). He cites section 2-a thereof
from, that cumulative voting rights may be which provides:
voluntarily waived by stockholders who enter
into special relationships with each other to And provided finally that the election of aliens
pursue and implement specific purposes, as in as members of the board of directors or
joint venture relationships between foreign and governing body of corporations or associations
local stockholders, so long as such agreements engaging in partially nationalized activities shall
do not adversely affect third parties. be allowed in proportion to their allowable
participation or share in the capital of such
In any event, it is believed that we are not here entities. (amendments introduced by
called upon to make a general rule on this Presidential Decree 715, section 1,
question. Rather, all that needs to be done is to promulgated May 28, 1975)
give life and effect to the particular contractual
rights and obligations which the parties have The ASI Group's argument is correct within the
assumed for themselves. context of Section 24 of the Corporation Code. The
point of query, however, is whether or not that
On the one hand, the clearly established provision is applicable to a joint venture with clearly
minority position of ASI and the contractual defined agreements:
allocation of board seats Cannot be
disregarded. On the other hand, the rights of The legal concept of ajoint venture is of
the stockholders to cumulative voting should common law origin. It has no precise legal
also be protected. definition but it has been generally understood
to mean an organization formed for some
In our decision sought to be reconsidered, we temporary purpose. (Gates v. Megargel, 266
opted to uphold the second over the first. Upon Fed. 811 [1920]) It is in fact hardly
further reflection, we feel that the proper and distinguishable from the partnership, since their
just solution to give due consideration to both elements are similar community of interest in
factors suggests itself quite clearly. This Court the business, sharing of profits and losses, and
should recognize and uphold the division of the a mutual right of control. Blackner v. Mc
stockholders into two groups, and at the same Dermott, 176 F. 2d. 498, [1949]; Carboneau v.
time uphold the right of the stockholders within Peterson, 95 P. 2d., 1043 [1939]; Buckley v.
each group to cumulative voting in the process Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289
of determining who the group's nominees would P. 2d. 242 [1955]). The main distinction cited by
be. In practical terms, as suggested by most opinions in common law jurisdictions is
appellant Luciano E. Salazar himself, this that the partnership contemplates a general
means that if the Filipino stockholders cannot business with some degree of continuity, while
agree who their six nominees will be, a vote the joint venture is formed for the execution of a
would have to be taken among the Filipino single transaction, and is thus of a temporary
stockholders only. During this voting, each nature. (Tufts v. Mann 116 Cal. App. 170, 2 P.
Filipino stockholder can cumulate his votes. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595,
ASI, however, should not be allowed to interfere 71 NE 2d. 74 [1947]; Gates v. Megargel 266
in the voting within the Filipino group. Fed. 811 [1920]). This observation is not
Otherwise, ASI would be able to designate entirely accurate in this jurisdiction, since under
more than the three directors it is allowed to the Civil Code, a partnership may be particular
designate under the Agreement, and may even or universal, and a particular partnership may
be able to get a majority of the board seats, a have for its object a specific undertaking. (Art.
result which is clearly contrary to the contractual 1783, Civil Code). It would seem therefore that
intent of the parties. under Philippine law, a joint venture is a form of
partnership and should thus be governed by the
Such a ruling will give effect to both the law of partnerships. The Supreme Court has
allocation of the board seats and the however recognized a distinction between these
stockholder's right to cumulative voting. two business forms, and has held that although
Moreover, this ruling will also give due a corporation cannot enter into a partnership
consideration to the issue raised by the contract, it may however engage in a joint
appellees on possible violation or circumvention venture with others. (At p. 12, Tuazon v.
of the Anti-Dummy Law (Com. Act No. 108, as Bolanos, 95 Phil. 906 [1954]) (Campos and
amended) and the nationalization requirements Lopez-Campos Comments, Notes and Selected
of the Constitution and the laws if ASI is allowed Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction should always be maintained as long as the joint
and operations of contracts generally apply to a venture agreement exists considering that in limiting 3
contract of joint venture. (O' Hara v. Harman 14 App. board seats in the 9-man board of directors there are
Dev. (167) 43 NYS 556). provisions already agreed upon and embodied in the
parties' Agreement to protect the interests arising
Bearing these principles in mind, the correct view from the minority status of the foreign investors.
would be that the resolution of the question of whether
or not the ASI Group may vote their additional equity With these findings, we the decisions of the SEC
lies in the agreement of the parties. Hearing Officer and SEC which were impliedly
affirmed by the appellate court declaring Messrs.
Necessarily, the appellate court was correct in Wolfgang Aurbach, John Griffin, David P
upholding the agreement of the parties as regards the Whittingham, Emesto V. Lagdameo, Baldwin young,
allocation of director seats under Section 5 (a) of the Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique
"Agreement," and the right of each group of Lagdameo, and George F. Lee as the duly elected
stockholders to cumulative voting in the process of directors of Saniwares at the March 8,1983 annual
determining who the group's nominees would be stockholders' meeting.
under Section 3 (a) (1) of the "Agreement." As pointed
out by SEC, Section 5 (a) of the Agreement relates to On the other hand, the Lagdameo and Young Group
the manner of nominating the members of the board (petitioners in G.R. No. 75951) object to a cumulative
of directors while Section 3 (a) (1) relates to the voting during the election of the board of directors of
manner of voting for these nominees. the enterprise as ruled by the appellate court and
submits that the six (6) directors allotted the Filipino
This is the proper interpretation of the Agreement of stockholders should be selected by consensus
the parties as regards the election of members of the pursuant to section 5 (a) of the Agreement which uses
board of directors. the word "designate" meaning "nominate, delegate or
appoint."
To allow the ASI Group to vote their additional equity
to help elect even a Filipino director who would be They also stress the possibility that the ASI Group
beholden to them would obliterate their minority status might take control of the enterprise if the Filipino
as agreed upon by the parties. As aptly stated by the stockholders are allowed to select their nominees
appellate court: separately and not as a common slot determined by
the majority of their group.
... ASI, however, should not be allowed to
interfere in the voting within the Filipino group. Section 5 (a) of the Agreement which uses the word
Otherwise, ASI would be able to designate designates in the allocation of board directors should
more than the three directors it is allowed to not be interpreted in isolation. This should be
designate under the Agreement, and may even construed in relation to section 3 (a) (1) of the
be able to get a majority of the board seats, a Agreement. As we stated earlier, section 3(a) (1)
result which is clearly contrary to the contractual relates to the manner of voting for these nominees
intent of the parties. which is cumulative voting while section 5(a) relates to
the manner of nominating the members of the board
Such a ruling will give effect to both the of directors. The petitioners in G.R. No. 75951 agreed
allocation of the board seats and the to this procedure, hence, they cannot now impugn its
stockholder's right to cumulative voting. legality.
Moreover, this ruling will also give due
consideration to the issue raised by the The insinuation that the ASI Group may be able to
appellees on possible violation or circumvention control the enterprise under the cumulative voting
of the Anti-Dummy Law (Com. Act No. 108, as procedure cannot, however, be ignored. The validity
amended) and the nationalization requirements of the cumulative voting procedure is dependent on
of the Constitution and the laws if ASI is allowed the directors thus elected being genuine members of
to nominate more than three directors. (At p. 39, the Filipino group, not voters whose interest is to
Rollo, 75875) increase the ASI share in the management of
Saniwares. The joint venture character of the
Equally important as the consideration of the enterprise must always be taken into account, so long
contractual intent of the parties is the consideration as as the company exists under its original agreement.
regards the possible domination by the foreign Cumulative voting may not be used as a device to
investors of the enterprise in violation of the enable ASI to achieve stealthily or indirectly what they
nationalization requirements enshrined in the cannot accomplish openly. There are substantial
Constitution and circumvention of the Anti-Dummy safeguards in the Agreement which are intended to
Act. In this regard, petitioner Salazar's position is that preserve the majority status of the Filipino investors
the Anti-Dummy Act allows the ASI group to elect as well as to maintain the minority status of the
board directors in proportion to their share in the foreign investors group as earlier discussed. They
capital of the entity. It is to be noted, however, that the should be maintained.
same law also limits the election of aliens as
members of the board of directors in proportion to WHEREFORE, the petitions in G.R. Nos. 75975-76
their allowance participation of said entity. In the and G.R. No. 75875 are DISMISSED and the petition
instant case, the foreign Group ASI was limited to in G.R. No. 75951 is partly GRANTED. The amended
designate three directors. This is the allowable decision of the Court of Appeals is MODIFIED in that
participation of the ASI Group. Hence, in future Messrs. Wolfgang Aurbach John Griffin, David
dealings, this limitation of six to three board seats Whittingham Emesto V. Lagdameo, Baldwin Young,
Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique
Lagdameo, and George F. Lee are declared as the
duly elected directors of Saniwares at the March
8,1983 annual stockholders' meeting. In all other
respects, the questioned decision is AFFIRMED.
Costs against the petitioners in G.R. Nos. 75975-76
and G.R. No. 75875.
SO ORDERED.
G.R. No. 124293 January 31, 2005 increased to 97.41% thereby reducing KAWASAKI's
shareholdings to 2.59%.
J.G. SUMMIT HOLDINGS, INC., petitioner,
vs. In the interest of the national economy and the
COURT OF APPEALS; COMMITTEE ON government, the COP and the APT deemed it best to
PRIVATIZATION, its Chairman and Members; sell the National Government's share in PHILSECO to
ASSET PRIVATIZATION TRUST; and PHILYARDS private entities. After a series of negotiations between
HOLDINGS, INC., respondents. the APT and KAWASAKI, they agreed that the latter's
right of first refusal under the JVA be "exchanged" for
RESOLUTION the right to top by five percent (5%) the highest bid for
the said shares. They further agreed that KAWASAKI
PUNO, J.: would be entitled to name a company in which it was
a stockholder, which could exercise the right to top.
On September 7, 1990, KAWASAKI informed APT
For resolution before this Court are two motions filed
that Philyards Holdings, Inc. (PHI)1 would exercise its
by the petitioner, J.G. Summit Holdings, Inc. for
right to top.
reconsideration of our Resolution dated September
24, 2003 and to elevate this case to the Court En
Banc. The petitioner questions the Resolution which At the pre-bidding conference held on September 18,
reversed our Decision of November 20, 2000, which 1993, interested bidders were given copies of the JVA
in turn reversed and set aside a Decision of the Court between NIDC and KAWASAKI, and of the Asset
of Appeals promulgated on July 18, 1995. Specific Bidding Rules (ASBR) drafted for the
National Government's 87.6% equity share in
PHILSECO. The provisions of the ASBR were
I. Facts
explained to the interested bidders who were notified
that the bidding would be held on December 2, 1993.
The undisputed facts of the case, as set forth in our A portion of the ASBR reads:
Resolution of September 24, 2003, are as follows:
1.0 The subject of this Asset Privatization Trust (APT)
On January 27, 1997, the National Investment and sale through public bidding is the National
Development Corporation (NIDC), a government Government's equity in PHILSECO consisting of
corporation, entered into a Joint Venture Agreement 896,869,942 shares of stock (representing 87.67% of
(JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, PHILSECO's outstanding capital stock), which will be
Japan (KAWASAKI) for the construction, operation sold as a whole block in accordance with the rules
and management of the Subic National Shipyard, Inc. herein enumerated.
(SNS) which subsequently became the Philippine
Shipyard and Engineering Corporation (PHILSECO).
xxx xxx xxx
Under the JVA, the NIDC and KAWASAKI will
contribute ₱330 million for the capitalization of
PHILSECO in the proportion of 60%-40% 2.0 The highest bid, as well as the buyer, shall be
respectively. One of its salient features is the grant to subject to the final approval of both the APT Board of
the parties of the right of first refusal should either of Trustees and the Committee on Privatization (COP).
them decide to sell, assign or transfer its interest in
the joint venture, viz: 2.1 APT reserves the right in its sole discretion, to
reject any or all bids.
1.4 Neither party shall sell, transfer or assign all or
any part of its interest in SNS [PHILSECO] to any 3.0 This public bidding shall be on an Indicative Price
third party without giving the other under the same Bidding basis. The Indicative price set for the National
terms the right of first refusal. This provision shall not Government's 87.67% equity in PHILSECO is
apply if the transferee is a corporation owned or PESOS: ONE BILLION THREE HUNDRED MILLION
controlled by the GOVERNMENT or by a KAWASAKI (₱1,300,000,000.00).
affiliate.
xxx xxx xxx
On November 25, 1986, NIDC transferred all its
rights, title and interest in PHILSECO to the Philippine 6.0 The highest qualified bid will be submitted to the
National Bank (PNB). Such interests were APT Board of Trustees at its regular meeting following
subsequently transferred to the National Government the bidding, for the purpose of determining whether or
pursuant to Administrative Order No. 14. On not it should be endorsed by the APT Board of
December 8, 1986, President Corazon C. Aquino Trustees to the COP, and the latter approves the
issued Proclamation No. 50 establishing the same. The APT shall advise Kawasaki Heavy
Committee on Privatization (COP) and the Asset Industries, Inc. and/or its nominee, [PHILYARDS]
Privatization Trust (APT) to take title to, and Holdings, Inc., that the highest bid is acceptable to the
possession of, conserve, manage and dispose of non- National Government. Kawasaki Heavy Industries,
performing assets of the National Government. Inc. and/or [PHILYARDS] Holdings, Inc. shall then
Thereafter, on February 27, 1987, a trust agreement have a period of thirty (30) calendar days from the
was entered into between the National Government date of receipt of such advice from APT within which
and the APT wherein the latter was named the trustee to exercise their "Option to Top the Highest Bid" by
of the National Government's share in PHILSECO. In offering a bid equivalent to the highest bid plus five
1989, as a result of a quasi-reorganization of (5%) percent thereof.
PHILSECO to settle its huge obligations to PNB, the
National Government's shareholdings in PHILSECO
6.1 Should Kawasaki Heavy Industries, Inc. and/or the same option to top to PHI constituted unwarranted
[PHILYARDS] Holdings, Inc. exercise their "Option to benefit to a third party; (d) no right of first refusal can
Top the Highest Bid," they shall so notify the APT be exercised in a public bidding or auction sale; and
about such exercise of their option and deposit with (e) the JG Summit consortium was not estopped from
APT the amount equivalent to ten percent (10%) of questioning the proceedings.
the highest bid plus five percent (5%) thereof within
the thirty (30)-day period mentioned in paragraph 6.0 On February 2, 1994, petitioner was notified that PHI
above. APT will then serve notice upon Kawasaki had fully paid the balance of the purchase price of the
Heavy Industries, Inc. and/or [PHILYARDS] Holdings, subject bidding. On February 7, 1994, the APT
Inc. declaring them as the preferred bidder and they notified petitioner that PHI had exercised its option to
shall have a period of ninety (90) days from the top the highest bid and that the COP had approved
receipt of the APT's notice within which to pay the the same on January 6, 1994. On February 24, 1994,
balance of their bid price. the APT and PHI executed a Stock Purchase
Agreement. Consequently, petitioner filed with this
6.2 Should Kawasaki Heavy Industries, Inc. and/or Court a Petition for Mandamus under G.R. No.
[PHILYARDS] Holdings, Inc. fail to exercise their 114057. On May 11, 1994, said petition was referred
"Option to Top the Highest Bid" within the thirty (30)- to the Court of Appeals. On July 18, 1995, the Court
day period, APT will declare the highest bidder as the of Appeals denied the same for lack of merit. It ruled
winning bidder. that the petition for mandamus was not the proper
remedy to question the constitutionality or legality of
xxx xxx xxx the right of first refusal and the right to top that was
exercised by KAWASAKI/PHI, and that the matter
12.0 The bidder shall be solely responsible for must be brought "by the proper party in the proper
examining with appropriate care these rules, the forum at the proper time and threshed out in a full
official bid forms, including any addenda or blown trial." The Court of Appeals further ruled that
amendments thereto issued during the bidding period. the right of first refusal and the right to top are prima
The bidder shall likewise be responsible for informing facie legal and that the petitioner, "by participating in
itself with respect to any and all conditions concerning the public bidding, with full knowledge of the right to
the PHILSECO Shares which may, in any manner, top granted to KAWASAKI/[PHILYARDS]
affect the bidder's proposal. Failure on the part of the is…estopped from questioning the validity of the
bidder to so examine and inform itself shall be its sole award given to [PHILYARDS] after the latter exercised
risk and no relief for error or omission will be given by the right to top and had paid in full the purchase price
APT or COP. . . . of the subject shares, pursuant to the ASBR."
Petitioner filed a Motion for Reconsideration of said
Decision which was denied on March 15, 1996.
At the public bidding on the said date, petitioner J.G.
Petitioner thus filed a Petition for Certiorari with this
Summit Holdings, Inc.2 submitted a bid of Two Billion
Court alleging grave abuse of discretion on the part of
and Thirty Million Pesos (₱2,030,000,000.00) with an
the appellate court.
acknowledgment of KAWASAKI/[PHILYARDS'] right
to top, viz:
On November 20, 2000, this Court rendered x x x [a]
Decision ruling among others that the Court of
4. I/We understand that the Committee on
Appeals erred when it dismissed the petition on the
Privatization (COP) has up to thirty (30) days to act on
sole ground of the impropriety of the special civil
APT's recommendation based on the result of this
action of mandamus because the petition was also
bidding. Should the COP approve the highest bid,
one of certiorari. It further ruled that a shipyard like
APT shall advise Kawasaki Heavy Industries, Inc.
PHILSECO is a public utility whose capitalization must
and/or its nominee, [PHILYARDS] Holdings, Inc. that
be sixty percent (60%) Filipino-owned. Consequently,
the highest bid is acceptable to the National
the right to top granted to KAWASAKI under the Asset
Government. Kawasaki Heavy Industries, Inc. and/or
Specific Bidding Rules (ASBR) drafted for the sale of
[PHILYARDS] Holdings, Inc. shall then have a period
the 87.67% equity of the National Government in
of thirty (30) calendar days from the date of receipt of
PHILSECO is illegal — not only because it violates
such advice from APT within which to exercise their
the rules on competitive bidding — but more so,
"Option to Top the Highest Bid" by offering a bid
because it allows foreign corporations to own more
equivalent to the highest bid plus five (5%) percent
than 40% equity in the shipyard. It also held that
thereof.
"although the petitioner had the opportunity to
examine the ASBR before it participated in the
As petitioner was declared the highest bidder, the bidding, it cannot be estopped from questioning the
COP approved the sale on December 3, 1993 unconstitutional, illegal and inequitable provisions
"subject to the right of Kawasaki Heavy Industries, thereof." Thus, this Court voided the transfer of the
Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid national government's 87.67% share in PHILSECO to
by 5% as specified in the bidding rules." Philyard[s] Holdings, Inc., and upheld the right of JG
Summit, as the highest bidder, to take title to the said
On December 29, 1993, petitioner informed APT that shares, viz:
it was protesting the offer of PHI to top its bid on the
grounds that: (a) the KAWASAKI/PHI consortium WHEREFORE, the instant petition for review on
composed of KAWASAKI, [PHILYARDS], Mitsui, certiorari is GRANTED. The assailed Decision and
Keppel, SM Group, ICTSI and Insular Life violated the Resolution of the Court of Appeals are REVERSED
ASBR because the last four (4) companies were the and SET ASIDE. Petitioner is ordered to pay to APT
losing bidders thereby circumventing the law and its bid price of Two Billion Thirty Million Pesos
prejudicing the weak winning bidder; (b) only (₱2,030,000,000.00), less its bid deposit plus interests
KAWASAKI could exercise the right to top; (c) giving
upon the finality of this Decision. In turn, APT is warrant a reconsideration of this Court’s
ordered to: Resolution of September 24, 2003.
(a) accept the said amount of Motion to Elevate this Case to the
₱2,030,000,000.00 less bid deposit and
interests from petitioner; Court En Banc
(b) execute a Stock Purchase Agreement with The petitioner prays for the elevation of the case to
petitioner; the Court en banc on the following grounds:
(c) cause the issuance in favor of petitioner of 1. The main issue of the propriety of the
the certificates of stocks representing 87.6% bidding process involved in the present case
of PHILSECO's total capitalization; has been confused with the policy issue of the
supposed fate of the shipping industry which
(d) return to private respondent PHGI the has never been an issue that is determinative
amount of Two Billion One Hundred Thirty- of this case.10
One Million Five Hundred Thousand Pesos
(₱2,131,500,000.00); and 2. The present case may be considered under
the Supreme Court Resolution dated February
(e) cause the cancellation of the stock 23, 1984 which included among en
certificates issued to PHI. banc cases those involving a novel question
of law and those where a doctrine or principle
SO ORDERED. laid down by the Court en banc or in division
may be modified or reversed.11
In separate Motions for Reconsideration, respondents
submit[ted] three basic issues for x x x resolution: (1) 3. There was clear executive interference in
Whether PHILSECO is a public utility; (2) Whether the judicial functions of the Court when the
under the 1977 JVA, KAWASAKI can exercise its right Honorable Jose Isidro Camacho, Secretary of
of first refusal only up to 40% of the total capitalization Finance, forwarded to Chief Justice Davide, a
of PHILSECO; and (3) Whether the right to top memorandum dated November 5, 2001,
granted to KAWASAKI violates the principles of attaching a copy of the Foreign Chambers
competitive bidding.3 (citations omitted) Report dated October 17, 2001, which matter
was placed in the agenda of the Court and
In a Resolution dated September 24, 2003, this Court noted by it in a formal resolution dated
ruled in favor of the respondents. On the first issue, November 28, 2001.12
we held that Philippine Shipyard and Engineering
Corporation (PHILSECO) is not a public utility, as by Opposing J.G. Summit’s motion to elevate the
nature, a shipyard is not a public utility4 and that no case en banc, PHILYARDS points out the petitioner’s
law declares a shipyard to be a public utility.5 On the inconsistency in previously opposing PHILYARDS’
second issue, we found nothing in the 1977 Joint Motion to Refer the Case to the Court En
Venture Agreement (JVA) which prevents Kawasaki Banc. PHILYARDS contends that J.G. Summit should
Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) now be estopped from asking that the case be
from acquiring more than 40% of PHILSECO’s total referred to the Court en banc. PHILYARDS further
capitalization.6 On the final issue, we held that the contends that the Supreme Court en banc is not an
right to top granted to KAWASAKI in exchange for its appellate court to which decisions or resolutions of its
right of first refusal did not violate the principles of divisions may be appealed citing Supreme Court
competitive bidding.7 Circular No. 2-89 dated February 7,
1989.13 PHILYARDS also alleges that there is no
On October 20, 2003, the petitioner filed a Motion for novel question of law involved in the present case as
Reconsideration8 and a Motion to Elevate This Case the assailed Resolution was based on well-settled
to the Court En Banc.9 Public respondents Committee jurisprudence. Likewise, PHILYARDS stresses that
on Privatization (COP) and Asset Privatization Trust the Resolution was merely an outcome of the motions
(APT), and private respondent Philyards Holdings, for reconsideration filed by it and the COP and APT
Inc. (PHILYARDS) filed their Comments on J.G. and is "consistent with the inherent power of courts to
Summit Holdings, Inc.’s (JG Summit’s) Motion for ‘amend and control its process and orders so as to
Reconsideration and Motion to Elevate This Case to make them conformable to law and justice.’ (Rule
the Court En Banc on January 29, 2004 and February 135, sec. 5)"14 Private respondent belittles the
3, 2004, respectively. petitioner’s allegations regarding the change in
ponente and the alleged executive interference as
shown by former Secretary of Finance Jose Isidro
II. Issues
Camacho’s memorandum dated November 5, 2001
arguing that these do not justify a referral of the
Based on the foregoing, the relevant issues to resolve present case to the Court en banc.
to end this litigation are the following:
In insisting that its Motion to Elevate This Case to the
1. Whether there are sufficient bases to Court En Banc should be granted, J.G. Summit further
elevate the case at bar to the Court en banc. argued that: its Opposition to the Office of the Solicitor
General’s Motion to Refer is different from its own
2. Whether the motion for reconsideration Motion to Elevate; different grounds are invoked by
raises any new matter or cogent reason to the two motions; there was unwarranted "executive
interference"; and the change in ponente is merely that necessitates prior inquiry, investigation,
noted in asserting that this case should be decided by comparison, evaluation, and deliberation. This task
the Court en banc.15 can best be discharged by the Government agencies
concerned, not by the Courts. The role of the Courts
We find no merit in petitioner’s contention that the is to ascertain whether a branch or instrumentality of
propriety of the bidding process involved in the the Government has transgressed its constitutional
present case has been confused with the policy issue boundaries. But the Courts will not interfere with
of the fate of the shipping industry which, petitioner executive or legislative discretion exercised within
maintains, has never been an issue that is those boundaries. Otherwise, it strays into the realm
determinative of this case. The Court’s Resolution of of policy decision-making.
September 24, 2003 reveals a clear and definitive
ruling on the propriety of the bidding process. In It is only upon a clear showing of grave abuse of
discussing whether the right to top granted to discretion that the Courts will set aside the award of a
KAWASAKI in exchange for its right of first refusal contract made by a government entity. Grave abuse
violates the principles of competitive bidding, we of discretion implies a capricious, arbitrary and
made an exhaustive discourse on the rules and whimsical exercise of power (Filinvest Credit Corp. v.
principles of public bidding and whether they were Intermediate Appellate Court, No. 65935, 30
complied with in the case at bar.16This Court September 1988, 166 SCRA 155). The abuse of
categorically ruled on the petitioner’s argument that discretion must be so patent and gross as to amount
PHILSECO, as a shipyard, is a public utility which to an evasion of positive duty or to a virtual refusal to
should maintain a 60%-40% Filipino-foreign equity perform a duty enjoined by law, as to act at all in
ratio, as it was a pivotal issue. In doing so, we contemplation of law, where the power is exercised in
recognized the impact of our ruling on the shipbuilding an arbitrary and despotic manner by reason of
industry which was beyond avoidance.17 passion or hostility (Litton Mills, Inc. v. Galleon Trader,
Inc., et al[.], L-40867, 26 July 1988, 163 SCRA 489).
We reject petitioner’s argument that the present case
may be considered under the Supreme Court The facts in this case do not indicate any such grave
Resolution dated February 23, 1984 which included abuse of discretion on the part of public respondents
among en banc cases those involving a novel when they awarded the CISS contract to Respondent
question of law and those where a doctrine or SGS. In the "Invitation to Prequalify and Bid" (Annex
principle laid down by the court en banc or in division "C," supra), the CISS Committee made an express
may be modified or reversed. The case was resolved reservation of the right of the Government to
based on basic principles of the right of first refusal in "reject any or all bids or any part thereof or waive
commercial law and estoppel in civil law. Contractual any defects contained thereon and accept an offer
obligations arising from rights of first refusal are not most advantageous to the Government." It is a
new in this jurisdiction and have been recognized in well-settled rule that where such reservation is
numerous cases.18 Estoppel is too known a civil law made in an Invitation to Bid, the highest or lowest
concept to require an elongated discussion. bidder, as the case may be, is not entitled to an
Fundamental principles on public bidding were award as a matter of right (C & C Commercial Corp.
likewise used to resolve the issues raised by the v. Menor, L-28360, 27 January 1983, 120 SCRA 112).
petitioner. To be sure, petitioner leans on the right to Even the lowest Bid or any Bid may be rejected or, in
top in a public bidding in arguing that the case at bar the exercise of sound discretion, the award may be
involves a novel issue. We are not swayed. The right made to another than the lowest bidder (A.C.
to top was merely a condition or a reservation made in Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur.,
the bidding rules which was fully disclosed to all 788). (emphases supplied) 1aw phi1.nét
Again, we emphasize that a decision or resolution of a In cadence with the private respondent PHILYARDS,
Division is that of the Supreme Court20 and the public respondents COP and APT contend:
Court en banc is not an appellate court to which
decisions or resolutions of a Division may be 1. The conversion of the right of first refusal
appealed.21 into a right to top by 5% does not violate any
provision in the JVA between NIDC and
For all the foregoing reasons, we find no basis to KAWASAKI.
elevate this case to the Court en banc.
2. PHILSECO is not a public utility and
Motion for Reconsideration therefore not governed by the constitutional
restriction on foreign ownership.
Three principal arguments were raised in the
petitioner’s Motion for Reconsideration. First, that a 3. The petitioner is legally estopped from
fair resolution of the case should be based on contract assailing the validity of the proceedings of the
law, not on policy considerations; the contracts do not public bidding as it voluntarily submitted itself
authorize the right to top to be derived from the right to the terms of the ASBR which included the
of first refusal.22 Second, that neither the right of first provision on the right to top.
refusal nor the right to top can be legally exercised by
the consortium which is not the proper party granted 4. The right to top was exercised by
such right under either the JVA or the Asset Specific PHILYARDS as the nominee of KAWASAKI
Bidding Rules (ASBR).23 Third, that the maintenance and the fact that PHILYARDS formed a
of the 60%-40% relationship between the National consortium to raise the required amount to
Investment and Development Corporation (NIDC) and exercise the right to top the highest bid by 5%
KAWASAKI arises from contract and from the does not violate the JVA or the ASBR.
Constitution because PHILSECO is a landholding
corporation and need not be a public utility to be 5. The 60%-40% Filipino-foreign constitutional
bound by the 60%-40% constitutional limitation.24 requirement for the acquisition of lands does
not apply to PHILSECO because as admitted
On the other hand, private respondent PHILYARDS by petitioner itself, PHILSECO no longer owns
asserts that J.G. Summit has not been able to show real property.
compelling reasons to warrant a reconsideration of
the Decision of the Court.25 PHILYARDS denies that 6. Petitioner’s motion to elevate the case to
the Decision is based mainly on policy considerations the Court en banc is baseless and would only
and points out that it is premised on principles delay the termination of this case.33
governing obligations and contracts and corporate law
such as the rule requiring respect for contractual
In a Consolidated Comment dated March 8, 2004,
stipulations, upholding rights of first refusal, and
J.G. Summit countered the arguments of the public
recognizing the assignable nature of contracts
and private respondents in this wise:
rights.26 Also, the ruling that shipyards are not public
utilities relies on established case law and
fundamental rules of statutory construction. 1. The award by the APT of 87.67% shares of
PHILYARDS stresses that KAWASAKI’s right of first PHILSECO to PHILYARDS with losing
refusal or even the right to top is not limited to the bidders through the exercise of a right to top,
40% equity of the latter.27 On the landholding issue which is contrary to law and the constitution is
raised by J.G. Summit, PHILYARDS emphasizes that null and void for being violative of substantive
this is a non-issue and even involves a question of due process and the abuse of right provision
fact. Even assuming that this Court can take in the Civil Code.
cognizance of such question of fact even without the
benefit of a trial, PHILYARDS opines that landholding a. The bidders[’] right to top was
by PHILSECO at the time of the bidding is irrelevant actually exercised by losing bidders.
because what is essential is that ultimately a qualified
entity would eventually hold PHILSECO’s real estate b. The right to top or the right of first
properties.28 Further, given the assignable nature of refusal cannot co-exist with a genuine
the right of first refusal, any applicable nationality competitive bidding.
restrictions, including landholding limitations, would
not affect the right of first refusal itself, but only the c. The benefits derived from the right
manner of its exercise.29 Also, PHILYARDS argues to top were unwarranted.
that if this Court takes cognizance of J.G. Summit’s
allegations of fact regarding PHILSECO’s landholding, 2. The landholding issue has been a
it must also recognize PHILYARDS’ assertions that legitimate issue since the start of this case but
PHILSECO’s landholdings were sold to another is shamelessly ignored by the respondents.
corporation.30 As regards the right of first refusal,
private respondent explains that KAWASAKI’s a. The landholding issue is not a non-
reduced shareholdings (from 40% to 2.59%) did not issue.
translate to a deprivation or loss of its contractually
granted right of first refusal.31 Also, the bidding was
b. The landholding issue does not legitimate in a free enterprise system. The appellate
pose questions of fact. court is thus correct in holding the petitioner estopped
from questioning the validity of the transfer of the
c. That PHILSECO owned land at the National Government's shares in PHILSECO to
time that the right of first refusal was respondent.36
agreed upon and at the time of the
bidding are most relevant. Further, we see no inherent illegality on PHILYARDS’
act in seeking funding from parties who were losing
d. Whether a shipyard is a public utility bidders. This is a purely commercial decision over
is not the core issue in this case. which the State should not interfere absent any legal
infirmity. It is emphasized that the case at bar involves
3. Fraud and bad faith attend the alleged the disposition of shares in a corporation which the
conversion of an inexistent right of first refusal government sought to privatize. As such, the persons
to the right to top. with whom PHILYARDS desired to enter into business
with in order to raise funds to purchase the shares are
basically its business. This is in contrast to a case
a. The history behind the birth of the
involving a contract for the operation of or
right to top shows fraud and bad faith.
construction of a government infrastructure where the
identity of the buyer/bidder or financier constitutes an
b. The right of first refusal was, important consideration. In such cases, the
indeed, "effectively useless." government would have to take utmost precaution to
protect public interest by ensuring that the parties with
4. Petitioner is not legally estopped to which it is contracting have the ability to satisfactorily
challenge the right to top in this case. construct or operate the infrastructure.
a. Estoppel is unavailing as it would On the landholding issue, J.G. Summit submits that
stamp validity to an act that is since PHILSECO is a landholding company,
prohibited by law or against public KAWASAKI could exercise its right of first refusal only
policy. up to 40% of the shares of PHILSECO due to the
constitutional prohibition on landholding by
b. Deception was patent; the right to corporations with more than 40% foreign-owned
top was an attractive nuisance. equity. It further argues that since KAWASAKI already
held at least 40% equity in PHILSECO, the right of
c. The 10% bid deposit was placed in first refusal was inutile and as such, could not
escrow. subsequently be converted into the right to
top. 37 Petitioner also asserts that, at present,
J.G. Summit’s insistence that the right to top cannot PHILSECO continues to violate the constitutional
be sourced from the right of first refusal is not new provision on landholdings as its shares are more than
and we have already ruled on the issue in our 40% foreign-owned.38 PHILYARDS admits that it may
Resolution of September 24, 2003. We upheld the have previously held land but had already divested
mutual right of first refusal in the JVA.34 We also ruled such landholdings.39 It contends, however, that even if
that nothing in the JVA prevents KAWASAKI from PHILSECO owned land, this would not affect the right
acquiring more than 40% of PHILSECO’s total of first refusal but only the exercise thereof. If the land
capitalization.35 Likewise, nothing in the JVA or ASBR is retained, the right of first refusal, being a property
bars the conversion of the right of first refusal to the right, could be assigned to a qualified party. In the
right to top. In sum, nothing new and of significance in alternative, the land could be divested before the
the petitioner’s pleading warrants a reconsideration of exercise of the right of first refusal. In the case at bar,
our ruling. respondents assert that since the right of first refusal
was validly converted into a right to top, which was
Likewise, we already disposed of the argument that exercised not by KAWASAKI, but by PHILYARDS
which is a Filipino corporation (i.e., 60% of its shares
neither the right of first refusal nor the right to top can
legally be exercised by the consortium which is not are owned by Filipinos), then there is no violation of
the Constitution.40 At first, it would seem that
the proper party granted such right under either the
JVA or the ASBR. Thus, we held: questions of fact beyond cognizance by this Court
were involved in the issue. However, the records
show that PHILYARDS admits it had owned land
The fact that the losing bidder, Keppel Consortium up until the time of the bidding.41 Hence, the only
(composed of Keppel, SM Group, Insular Life issue is whether KAWASAKI had a valid right of
Assurance, Mitsui and ICTSI), has joined first refusal over PHILSECO shares under the JVA
PHILYARDS in the latter's effort to raise ₱2.131 billion considering that PHILSECO owned land until the
necessary in exercising the right to top is not contrary time of the bidding and KAWASAKI already held
to law, public policy or public morals. There is nothing 40% of PHILSECO’s equity.
in the ASBR that bars the losing bidders from joining
either the winning bidder (should the right to top is not
exercised) or KAWASAKI/PHI (should it exercise its We uphold the validity of the mutual rights of first
right to top as it did), to raise the purchase price. The refusal under the JVA between KAWASAKI and
petitioner did not allege, nor was it shown by NIDC. First of all, the right of first refusal is a property
competent evidence, that the participation of the right of PHILSECO shareholders, KAWASAKI and
losing bidders in the public bidding was done with NIDC, under the terms of their JVA. This right allows
fraudulent intent. Absent any proof of fraud, the them to purchase the shares of their co-shareholder
formation by [PHILYARDS] of a consortium is 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 granted to KAWASAKI, a Japanese corporation, is
constitute a violation of the provisions of the similarly void. Hence, the right to top, sourced from
Constitution limiting land ownership to Filipinos the right of first refusal, is also void."43 Contrary to the
and Filipino corporations. As PHILYARDS correctly contention of petitioner, the case of Lui She did not
puts it, if PHILSECO still owns land, the right of first that say "an option to buy land is void in itself," for we
refusal can be validly assigned to a qualified Filipino ruled as follows:
entity in order to maintain the 60%-40% ratio. This
transfer, by itself, does not amount to a violation of the x x x To be sure, a lease to an alien for a
Anti-Dummy Laws, absent proof of any fraudulent reasonable period is valid. So is an option giving
intent. The transfer could be made either to a an alien the right to buy real property on condition
nominee or such other party which the holder of the that he is granted Philippine citizenship. As this
right of first refusal feels it can comfortably do Court said in Krivenko vs. Register of Deeds:
business with. Alternatively, PHILSECO may divest of
its landholdings, in which case KAWASAKI, in [A]liens are not completely excluded by the
exercising its right of first refusal, can exceed 40% of Constitution from the use of lands for residential
PHILSECO’s equity. In fact, it can even be said that purposes. Since their residence in the Philippines is
if the foreign shareholdings of a landholding temporary, they may be granted temporary rights
corporation exceeds 40%, it is not the foreign such as a lease contract which is not forbidden by the
stockholders’ ownership of the shares which is Constitution. Should they desire to remain here
adversely affected but the capacity of the forever and share our fortunes and misfortunes,
corporation to own land – that is, the corporation Filipino citizenship is not impossible to acquire.
becomes disqualified to own land. This finds support
under the basic corporate law principle that the
But if an alien is given not only a lease of, but also
corporation and its stockholders are separate juridical
an option to buy, a piece of land, by virtue of
entities. In this vein, the right of first refusal over
which the Filipino owner cannot sell or otherwise
shares pertains to the shareholders whereas the
dispose of his property, this to last for 50 years,
capacity to own land pertains to the corporation.
then it becomes clear that the arrangement is a
Hence, the fact that PHILSECO owns land cannot
virtual transfer of ownership whereby the owner
deprive stockholders of their right of first refusal. No
divests himself in stages not only of the right to
law disqualifies a person from purchasing shares
enjoy the land (jus possidendi, jus utendi, jus
in a landholding corporation even if the latter will
fruendi and jus abutendi) but also of the right to
exceed the allowed foreign equity, what the law
dispose of it (jus disponendi) — rights the sum
disqualifies is the corporation from owning land.
total of which make up ownership. It is just as if
This is the clear import of the following provisions in
today the possession is transferred, tomorrow,
the Constitution:
the use, the next day, the disposition, and so on,
until ultimately all the rights of which ownership is
Section 2. All lands of the public domain, waters, made up are consolidated in an alien. And yet this is
minerals, coal, petroleum, and other mineral oils, all just exactly what the parties in this case did within this
forces of potential energy, fisheries, forests or timber, pace of one year, with the result that Justina
wildlife, flora and fauna, and other natural resources Santos'[s] ownership of her property was reduced to a
are owned by the State. With the exception of hollow concept. If this can be done, then the
agricultural lands, all other natural resources shall not Constitutional ban against alien landholding in the
be alienated. The exploration, development, and Philippines, as announced in Krivenko vs. Register
utilization of natural resources shall be under the full of Deeds, is indeed in grave peril.44 (emphases
control and supervision of the State. The State may supplied; Citations omitted)
directly undertake such activities, or it may enter into
co-production, joint venture, or production-sharing
In Lui She, the option to buy was invalidated because
agreements with Filipino citizens, or corporations
it amounted to a virtual transfer of ownership as the
or associations at least sixty per centum of whose
owner could not sell or dispose of his properties. The
capital is owned by such citizens. Such
contract in Lui She prohibited the owner of the land
agreements may be for a period not exceeding
from selling, donating, mortgaging, or encumbering
twenty-five years, renewable for not more than
the property during the 50-year period of the option to
twenty-five years, and under such terms and
buy. This is not so in the case at bar where the mutual
conditions as may be provided by law. In cases of
right of first refusal in favor of NIDC and KAWASAKI
water rights for irrigation, water supply, fisheries, or
does not amount to a virtual transfer of land to a non-
industrial uses other than the development of water
Filipino. In fact, the case at bar involves a right of
power, beneficial use may be the measure and limit of
first refusal over shares of stock while the Lui
the grant.
She case involves an option to buy the land itself.
As discussed earlier, there is a distinction between
xxx xxx xxx the shareholder’s ownership of shares and the
corporation’s ownership of land arising from the
Section 7. Save in cases of hereditary succession, no separate juridical personalities of the corporation and
private lands shall be transferred or conveyed its shareholders.
except to individuals, corporations, or
associations qualified to acquire or hold lands of We note that in its Motion for Reconsideration, J.G.
the public domain.42(emphases supplied) Summit alleges that PHILSECO continues to violate
the Constitution as its foreign equity is above 40%
The petitioner further argues that "an option to buy and yet owns long-term leasehold rights which are
land is void in itself (Philippine Banking Corporation v. real rights.45It cites Article 415 of the Civil Code
Lui She, 21 SCRA 52 [1967]). The right of first refusal which includes in the definition of immovable property,
"contracts for public works, and servitudes and other Members, is a decision or resolution of the
real rights over immovable property."46 Any existing Supreme Court (Section 4[3], Article VIII, 1987
landholding, however, is denied by PHILYARDS citing Constitution).
its recent financial statements.47 First, these are
questions of fact, the veracity of which would require 3. The Court en banc is not an
introduction of evidence. The Court needs to validate Appellate Court to which decisions or
these factual allegations based on competent and resolutions of a Division may be
reliable evidence. As such, the Court cannot resolve appealed.
the questions they pose. Second, J.G. Summit
misreads the provisions of the Constitution cited in its xxx xxx xxx
own pleadings, to wit:
5. A resolution of the Division denying
29.2 Petitioner has consistently pointed out in the past a party’s motion for referral to the
that private respondent is not a 60%-40% corporation, Court en banc of any Division case,
and this violates the Constitution x x x The violation shall be final and not appealable to the
continues to this day because under the law, it Court en banc.
continues to own real property…
6. When a decision or resolution is
xxx xxx xxx referred by a Division to the Court en
banc, the latter may, in the absence of
32. To review the constitutional provisions involved, sufficiently important reasons, decline
Section 14, Article XIV of the 1973 Constitution (the to take cognizance of the same, in
JVA was signed in 1977), provided: which case, the decision or resolution
shall be returned to the referring
"Save in cases of hereditary succession, no private Division.
lands shall be transferred or conveyed except to
individuals, corporations, or associations qualified to 7. No motion for reconsideration of the
acquire or hold lands of the public domain." action of the Court en banc declining
to take cognizance of a referral by a
32.1 This provision is the same as Section 7, Article Division, shall be entertained.
XII of the 1987 Constitution.
III.
SO ORDERED.
Footnotes
Exercising their discretion, the COP and the APT On December 29, 1993, petitioner informed the APT
deemed it in the best interest of the national economy that it was protesting the offer of PHI to top its bid on
and the government to privatize PHILSECO by selling the grounds that: (a) the Kawasaki/PHI consortium
87.67% of its total outstanding capital stock to private composed of Kawasaki, Philyards, Mitsui, Keppel, SM
entities. After a series of negotiations between the Group, ICTSI and Insular Life violated the ASBR
APT and Kasawaki, they agreed that the latter’s right because the last four (4) companies were the losing
of first refusal under the JVA be "exchanged" for the bidders (for P1.528 billion) thereby circumventing the
right to top by five percent (5%) the highest bid for law and prejudicing the weak winning bidder; (b) only
said shares. They further agreed that Kawasaki would Kawasaki could exercise the right to top; (c) giving the
be entitled to name a company in which it was a same option to top to PHI constituted unwarranted
stockholder, which could exercise the right to top. On benefit to a third party; (d) no right of first refusal can
be exercised in a public bidding or auction sale, and Astute businessmen involved in the public bidding in
(e) the JG Summit Consortium was not estopped from question knew what they were up against. And when
questioning the proceedings. they participated in the public bidding with prior
knowledge of the right to top, they did so, with full
On February 2, 1994, petitioner was notified that PHI knowledge of the eventuality that the highest bidder
had fully paid the balance of the purchase price of the may still be topped by Kawasaki/Philyards by 5%. It is
subject bidding. On February 7, 1994, the APT admitted by petitioner that it likewise represents a
notified petitioner that PHI had exercised its option to consortium composed of JG Summit, Sembawang
top the highest bid and that the COP had approved Singapore and Jurong of Malaysia. Why should
the same on January 6, 1994. On February 24, 1994, petitioner then expect Philyards to limit itself to its own
the APT and PHI executed a Stock Purchase resources when the latter can enter into agreements
Agreement. with other entities to help it raise the money it needed
to pay the full purchase price as in fact it had already
Consequently, petitioner filed with this Court a petition paid the National Government in the amount of
for mandamus under G.R. No. 114057. On May P2.131 billion as required under the ASBR?"4
11,1994, said petition was referred to the Court of
Appeals --- Petitioner filed a motion for the reconsideration of said
Decision which was denied on March 15, 1996.
"x x x for proper determination and disposition, Petitioner thus filed the instant petition for review
pursuant to Section 9, paragraph 1 of B.P. 129, on certiorari, raising the following arguments:
granting the Court of Appeals ‘original jurisdiction to
issue writs of mandamus x x x and auxiliary writs or I.
processes, whether or not in aid of its appellate
jurisdiction,’ which jurisdiction is concurrent with this THE COURT OF APPEALS GRIEVOUSLY
Court, there being no special and important reason for ERRED IN HOLDING THAT PETITIONER JG
this Court to assume jurisdiction over the case in the SUMMIT IS LEGALLY ESTOPPED FROM
first instance."2 CHALLENGING THE LEGALITY OF THE
RIGHT TO TOP, INSERTED IN THE
On July 18, 1995, the Court of Appeals "denied" for BIDDING RULES, AS WELL AS THE RIGHT
lack of merit the petition for mandamus. Citing Guanio OF FIRST REFUSAL FROM WHICH THE
v. Fernandez,3 it held that mandamus is not the proper RIGHT TO TOP WAS ADMITTEDLY
remedy to "compel the undoing of an act already done SOURCED, BY SIMPLY STATING THAT
or the correction of a wrong already perpetuated, THOSE RIGHTS ARE VALID AND
even though the action taken was clearly illegal." It ENFORCEABLE WITHOUT RULING ON ANY
was further ruled that it was not the proper forum for a OF THE IMPORTANT LEGAL AND
"mere petition for mandamus" that aimed to question CONSTITUTIONAL GROUNDS RAISED BY
the constitutionality or legality of the right of first THE PETITIONER AS FOLLOWS:
refusal and the right to top that was exercised by
Kawasaki/PHI and that the matter must be brought (A) THE RIGHT OF FIRST REFUSAL,
"by the proper party in the proper forum at the proper GRANTED TO A JAPANESE
time and threshed out in a full blown trial." CORPORATION AT A TIME WHEN IT
HELD 40% EQUITY IN PHILSECO, A
After ruling that the right of first refusal and the right to LANDHOLDING CORPORATION, IS
top are prima facie legal, the Court of Appeals found NULL AND VOID FOR BEING
petitioner to be in estoppel for the following reasons: CONTRARY TO THE
CONSTITUTION.
"5. If petitioner found the right to top to be illegal, it
should not have participated in the public bidding; or it (B) THE RIGHT TO TOP WAS
should have questioned the legality of the rules before GRANTED TO THE JAPANESE
the courts or filed a petition for declaratory relief (Rule CORPORATION AT A TIME WHEN IT
64, Rules of Court) before the public bidding could MERELY HELD 2.6% EQUITY IN
have taken place. PHILSECO.
By participating in the public bidding, with full (C) THE RIGHT OF FIRST REFUSAL
knowledge of the right to top granted to GRANTED TO THE JAPANESE
Kawasaki/Philyards, petitioner is estopped from CORPORATION OVER SHARES OF
questioning the validity of the award given to STOCK IS CONTRARY TO THE
Philyards after the latter exercised the right to top and CORPORATION CODE.
had paid in full the purchase price of the subject
shares, pursuant to the ASBR. (D) THE RIGHT TO TOP IS
CONTRARY TO PUBLIC POLICY AS
6. The fact that the losing bidder, Keppel Consortium IT IS ANATHEMA TO COMPETITIVE
(composed of Keppel, SM Group, Insular Life PUBLIC BIDDING FOR BEING
Assurance, Mitsui and ICTSI) appears to have joined UNDULY RESTRICTIVE THEREOF,
Philyards in the latter’s effort to raise P2.131 billion AND, MOREOVER, IS CONTRARY
necessary in exercising the right to top by 5% is a TO DUE PROCESS OF LAW AS IT IS
valid activity in free enterprise that is not contrary to AGAINST THE BASIC RUDIMENTS
law, public policy or public morals. It should not be a OF FAIR PLAY.
cause of grievance for petitioner as it is the very
essence of free competition in the business world.
(E) THE GRANT OF THE RIGHT TO and the rule on standing, as the latter has
TOP IS A CRIMINAL VIOLATION OF constitutional underpinnings. In the case at bar,
THE ANTI-GRAFT LAW AS IT GIVES petitioner has sufficiently alleged constitutional
A CLEARLY UNWARRANTED ramifications in the questioned public bidding of the
BENEFIT IN FAVOR OF PHILYARDS PHILSECO that merit the attention of the Court.
AS SHOWN BY CLEAR AND Moreover, the prospect of financial gains arising from
UNDISPUTED DOCUMENTARY the award of the sale of PHILSECO is enough
EVIDENCE. personal stake in the outcome of the controversy to
vest upon petitioner the locus standi to file the petition
II. for mandamus. Besides, without Kawasaki-PHI’s right
to top the highest bid, petitioner would have been
THE COURT OF APPEALS GRIEVOUSLY awarded the sale as the highest bidder. A winning
ERRED IN HOLDING THAT MANDAMUS IS bidder has personality to initiate proceedings to
NOT A PROPER REMEDY IN THIS CASE. prevent setting at naught his right; otherwise, his right
to due process would be violated.12 As such winning
bidder, petitioner has "a present substantial interest,"
III.
or such interest in the subject matter of action as will
entitle it, under substantive law, to recover if the
FOLLOWING ITS OWN FINDINGS, THE evidence is sufficient.13
COURT OF APPEALS GRIEVOUSLY
ERRED (A) IN NOT DIRECTING THAT TRIAL
With respect to the propriety of the remedy availed by
BE HELD ON ALLEGED ISSUES OF FACT
petitioner, the Court of Appeals correctly held that the
AND (B) IN NOT APPOINTING AN AMICUS
special civil action of mandamus is not the proper
CURIAE FROM AMONG THE LAWYERS IN
remedy to question the legality of the exercise of the
THE COMMISSION ON AUDIT TO
right to top by private respondent. It does not lie to
DETERMINE THE APPLICABILITY OF ITS
compel the award of a contract subject of bidding to
REQUIREMENTS TO THE TRANSACTIONS
an unsuccessful bidder.14Mandamus applies as a
IN THIS CASE.5
remedy only where petitioner’s right is founded clearly
in law and not when it is doubtful.15Thus:
In their comment on the petition, private respondent
PHI contends that the real party in interest which
"In order that a writ of mandamus may issue, it is
should have filed the petition for mandamus is the JG
essential that the person petitioning for the same has
Summit Consortium and not solely petitioner JG
a clear legal right to the thing demanded and that it is
Summit Holdings, Inc. which is just a part of that
the imperative duty of the respondent to perform the
consortium. Since Sembawang and Jurong, the other
act required. It neither confers powers nor imposes
members of the consortium, are indispensable parties
duties and is never issued in doubtful cases. It is
to the petition,6 petitioner’s failure to implead them as
simply a command to exercise a power already
co-petitioners warranted the dismissal of the petition.
possessed and to perform a duty already imposed."16
Public respondents’ contention must fail. While it is
The Court of Appeals cannot declare petitioner as the
true that Rule 3, Section 2 of the Rules of Court
winning bidder in this case and direct the COP/APT to
provides that "(a)ll persons having an interest in the
award the sale to it without first determining the
subject of the action and in obtaining the relief
validity of the right to top stipulated in the ASBR.
demanded shall be joined as plaintiffs," petitioner may
Moreover, the sale of government share in
file the petition alone. In the first place, Sembawang
PHILSECO is a fait accompli, in view of the execution
and Jurong are not indispensable parties, such that
of the Stock Purchase Agreement between APT and
their non-joinder as petitioners will not necessarily
PHI. Mandamus may not be availed to direct the
result in a failure to arrive at a final determination of
exercise of judgment or discretion in a particular way
the case.7 They may be necessary parties as they
or to retract or reverse an action already taken in the
were members of the consortium that won the public
exercise of either.17
bidding prior to the exercise of the right to top by
private respondent, but the petition may be resolved
even without their active participation. Secondly, there Be that as it may, the Court of Appeals erred when it
is a doubt as to whether or not said foreign dismissed the petition on the sole ground of the
corporations are "subject to the jurisdiction of the impropriety of the special civil action of mandamus. It
court as to both service of process and must be stressed that the petition was also one
venue."8 Thirdly, petitioner may be deemed to for certiorari, seeking to nullify the award of the sale to
represent Sembawang and Jurong. The admission of private respondent of the PHILSECO shares. Verily,
petitioner’s counsel that said foreign corporations are the petition alleges that "respondents COP and APT
underwriting his and the other counsel’s fees reflects have committed such a grave abuse of discretion
this fact.9 By the nexus that binds the members of the tantamount to lack or excess of their jurisdiction in
consortium, in the event that petitioner succeeds in insisting on awarding the bid to Philyards, for the
pursuing this case, it is bound to respect the existence various reasons stated herein, particularly since the
of the consortium and the corresponding right of first refusal and the right to top the bid are
responsibilities arising therefrom. unconstitutional, contrary to law and public
policy."18 Petitioner’s failure to include certiorari in its
caption should not negate the fact that the petition
Public respondents also contend that petitioner has
charged public respondent with grave abuse of
no standing to question the legality of a provision of
discretion in awarding the sale to private respondent.
the JVA in which it is not a party.10 However, as this
Well-settled is the rule that it is not the caption of the
Court held in Kilosbayan v. Morato,11 there is a
pleading but the allegations therein that determine the
difference between the rule on real-party-in-interest
nature of the action and the Court shall grant relief franchise, certificate, or authorization be exclusive in
warranted by the allegations and the proof even if no character or for a longer period than fifty years.
such relief is prayed for.19 Neither shall any such franchise or right be granted
except under the condition that it shall be subject to
Petitioner’s main contention is that PHILSECO, as a amendment, alteration, or repeal by the Congress
shipyard, is a public utility and, hence, could be when the common good so requires. The State shall
operated only by a corporation at least 60% of whose encourage equity participation in public utilities by the
capital is owned by Filipino citizens, in accordance general public. The participation of foreign investors in
with Article XII, Section 10 of the Constitution. the governing body of any public utility enterprise shall
Petitioner asserts that a shipyard is a public utility be limited to their proportionate share in its capital,
pursuant to Section 13 (b) of Commonwealth Act No. and all the executive and managing officers of such
146.20 Respondents, on the other hand, contend that corporation or association shall be citizens of the
shipyards are no longer public utilities by express Philippines." (Italics supplied.)
provision of Presidential Decree No. 666, which
provided incentives to the shipbuilding and ship repair The progenitor of this constitutional provision, Article
industry. XIV, Section 5 of the 1973 Constitution, required the
same proportion of 60%-40% capitalization. The JVA
Indeed, P.D. No. 666 dated March 5, 1975 explicitly between NIDC and Kawasaki entered into on January
stated that a "shipyard" was not a "public utility." 27, 1977 manifests the intention of the parties to
Section 1 thereof provide as follows: abide by the constitutional mandate on capitalization
of public utilities.24Paragraph 1.3 of the JVA, as
"d) Registration required but not as Public amended by Addendum No. 2 dated December 28,
Utility. – The business of constructing and repairing 1983,25 provides:
vessels or parts thereof shall not be considered a
public utility and no Certificate of Public Convenience "The authorized capital stock of PHILSECO shall be
shall be required therefor. However, no shipyard, P330 milion. The parties shall thereafter increase their
graving dock, marine railway or marine repair shop subscription in PHILSECO as may be necessary and
and no person or enterprise shall engage in the as called by the Board of Directors, maintaining a
construction and/or repair of any vessel, or any phase proportion of 60%-40% for NIDC and KAWASAKI,
or part thereof, without a valid Certificate of respectively, up to a total subscribed and paid-up
Registration and license for this purpose from the capital stock of P312 million." (Underscoring
Maritime Industry Authority, except those owned or supplied.)
operated by the Armed Forces of the Philippines or by
foreign governments pursuant to a treaty or A joint venture is an association of persons or
agreement." (Underscoring supplied.) companies jointly undertaking some commercial
enterprise with all of them generally contributing
However, Section 1 of P.D. No. 666 was expressly assets and sharing risks. It requires a community of
repealed by Section 20 of Batas Pambansa Blg. 391, interest in the performance of the subject matter, a
the Investment Incentive Policy Act of right to direct and govern the policy in connection
1983.21 Subsequently, Executive Order No. 226, the therewith, and duty, which may be altered by
Omnibus Investments Code of 1987, was issued and agreement to share both in profit and
Section 85 thereof expressly repealed B.P. Blg. 391.22 losses.26 Persons and business enterprises usually
enter into a joint venture because it is exempt from
The express repeal of B.P. Blg. 391 by E.O. No. 226 corporate income tax.27 Considered more of a
did not revive Section 1 of P.D. No. 666, declassifying partnership,28 a joint venture is governed by the laws
the shipbuilding and ship repair industry as a public on contracts and on partnership. The joint venture
utility, as said executive order did not provide created between NIDC and Kawasaki falls within the
otherwise. When a law which expressly repeals a purview of an "association" pursuant to Section 5 of
prior law is itself repealed, the law first repealed shall Article XIV of the 1973 Constitution and Section 11 of
not be thereby revived unless expressly so Article XII of the 1987 Constitution. Consequently, a
provided.23 Consequently, when the APT drafted the joint venture that would engage in the business of
ASBR sometime in 1993, P.D. No. 666 no longer operating a public utility, such as a shipyard, must
existed in our statute books. While it is true that the observe the proportion of 60%-40% Filipino-foreign
repeal of a statute does not operate to impair rights capitalization.
that have become vested or accrued while the statute
was in force, there are no vested rights of the parties Notably, paragraph 1.4 of the JVA accorded the
that should be protected in the case at bar. The parties the right of first refusal "under the same
reason is simple: said decree was already inexistent terms." This phrase implies that when either party
when the ASBR was issued. exercises the right of first refusal under paragraph 1.4,
they can only do so to the extent allowed them by
A shipyard such as PHILSECO being a public utility paragraphs 1.2 and 1.3 of the JVA or under the
as provided by law, the following provision of the proportion of 60%-40% of the shares of stock. Thus,
Article XII of the Constitution applies: should the NIDC opt to sell its shares of stock to a
third party, Kawasaki could only exercise its right of
first refusal to the extent that its total shares of stock
"Sec. 11. No franchise, certificate, or any other form of
would not exceed 40% of the entire shares of stock of
authorization for the operation of a public utility shall
SNS or PHILSECO. The NIDC, on the other hand,
be granted except to citizens of the Philippines or to
may purchase even beyond 60% of the total shares.
corporations or associations organized under the laws
As a government corporation and necessarily a 100%
of the Philippines at least sixty per centum of whose
Filipino-owned corporation, there is nothing to prevent
capital is owned by such citizens, nor shall such
its purchase of stocks even beyond 60% of the each asset referred to it by the Committee to
capitalization as the Constitution clearly limits only such party and on such terms as in its
foreign capitalization. discretion are in the best interest of the
National Government, and for such purpose to
Parenthetically, the Maritime Industry Authority execute and deliver, on behalf and in the
(MARINA) which has been tasked to regulate the name of the National Government, such
operation of shipbuilding and ship repair deeds of sale, contracts and other instruments
yards,29 abides by the Filipino capitalization as may be necessary or appropriate to convey
requirement as far as corporations and partnerships title to such assets;
are concerned. However, Section 2.3.1 (a) of its
Memorandum Circular No. 95, Series of 1994,30 setting xxx xxx xxx
out the Revised Implementing Guidelines on the
Licensing of Shipbuilders, Ship Repairers, Afloat (7) To adopt its internal rules and regulations,
Repairers, Boatbuilders and Shipbreakers, seems to to adopt, alter and use a seal which shall be
exempt joint ventures registered with the SEC, the judicially noticed; to enter into contracts; to
BOI and the EPZA from the 60% requirement of sue and be sued;
Filipino ownership.31 The said provision states:
xxx xxx x x x"
"The applicant must be a Filipino citizen or a
corporation/partnership at least 60% of the authorized Pursuant to these provisions, the APT drafted the
capital stock of which is owned by Filipino citizens ASBR. Since the APT’s rule-making authority is
except for joint ventures which are registered with the merely delegated, the ASBR should be measured by
Securities and Exchange Commission, the Board of the standard set by said proclamation.34 Notably, the
Investments and/or Export Processing Zone discretion granted by the proclamation to the APT for
Authorities."32 the sale of government property is circumscribed only
by the "best interest of the National Government."
The constitutionality of said MARINA guideline,
however, is not in issue here. Kawasaki was bound by Implicitly written in any delegated legislative authority,
its contractual obligation under the JVA that limits its such as that provided for in Proclamation No. 50, is
right of first refusal to 40% of the total capitalization of the requisite that the rules and regulations which an
PHILSECO. Thus, Kawasaki cannot purchase administrative body adopts must respect pertinent
beyond 40% of the capitalization of the joint provisions of the Constitution and the law.35 Article XII,
venture on account of both constitutional and Section 11 of the Constitution providing for a 60%
contractual proscriptions. Filipino capitalization in order that public utilities may
be granted a franchise should thus be deemed a
From the facts on record, it appears that at the outset, paramount consideration in drafting the ASBR. In this
the APT and Kawasaki respected the 60%-40% regard, worth noting is paragraph 15.0 of the ASBR,
capitalization proportion in PHILSECO. However, APT which provides that:
subsequently encouraged Kawasaki to participate in
the public bidding of the National Government’s "In the event that the winning bidder is a 100%
shareholdings of 87.67% of the total PHILSECO foreign-owned corporation, it may name its nominee
shares, definitely over and above the 40% limit of its corporation to whom the NG shares shall be
shareholdings. In so doing, the APT went beyond the conveyed, provided it owns 40% equity in the
ambit of its authority. nominee corporation, so as not to affect PHILSECO’s
qualification to own real estate properties in the
It is well settled that the role of courts is to ascertain Philippines."
whether a branch or instrumentality of Government
has transgressed its constitutional or statutory This rule is fraught with dangerous implications. It
boundaries. The courts, must examine those allows a completely foreign corporation to participate
boundaries in the light of provisions of the law. in the public bidding of more than 60% of the total
Otherwise, it would stray into the realm of policy shares of a public utility corporation without setting a
decision-making.33 period within which the foreign bidder should name its
nominee. As it is, the rule allows a totally foreign
Proclamation No. 50, creating the COP and the APT, investor to engage in the business of operating a
was issued by President Corazon C. Aquino pursuant public utility for an unlimited period of time in total
to her legislative powers under the Provisional disregard of the constitutional proscription on the
Constitution of 1986. Section 12 of said Proclamation percentage of Filipino ownership of corporations
vested the APT with the following powers: engaged therein. Paragraph 15.0 of the ASBR is thus
directly and openly repugnant to the Constitution
(1) To formulate and, after approval by the considering that it allows foreign corporations to
Committee, implement a program for the operate a public utility for an unlimited period of time.
disposition of assets transferred to it under
this Proclamation, such program to be In carrying out its objective of disposing of
completed within a period of five years from government property, the APT should take into
the date of the issuance of this Proclamation; account the pertinent laws. Since the method of
disposing the PHILSECO that the APT had adopted
(2) Subject to its having received the prior was through public bidding, it was duty-bound to
written approval of the Committee to sell such follow the rules and regulations on competitive public
asset at a price and on terms of payment and bidding, in order to uphold the elementary rule on
to a party disclosed to the Committee, to sell fairness in such disposition. As this Court once said:
"x x x. A competitive public bidding aims to protect the be likened to a second bidding, which, however, is
public interest by giving the public the best possible allowed only if there is a failure of bidding, such as
advantages through open competition. It is a when there is only one bidder or none at all.46 By
mechanism that enables the government agency to placing KHI/PHI in the advantageous position of
avoid or preclude anomalies in the execution of public topping the highest bidder, the APT set aside the
contracts."36 basic rule in public bidding that there be an
opportunity for competition.
The word "bidding" in its comprehensive sense means
making an offer37 or an invitation to prospective While it may be argued that the right to top was aimed
contractors whereby the government manifests its at giving the best financial advantage to the
intention to make proposals38 for the purchase of government, the manner by which that right was
supplies, materials and equipment for official business conceived and arrived at in this case manifested bias
or public use,39 or for public works or repair. The three in favor of KHI, thereby clearly brushing aside the rule
principles in public bidding are: the offer to the public; on fair competition. More importantly, the ASBR
an opportunity for competition; and a basis for exact provision on the right to top the highest bidder
comparison of bids. The distinctive character of the completely disregarded the stipulation in the JVA
system is destroyed and the purpose of its adoption is between NIDC and KHI to comply with the 60%-40%
thwarted when a regulation thereon excludes any of capitalization arrangement whereby KHI, the foreign
these principles.40 Public bidding of government investor, would be able to exercise its right of first
contracts and for the disposition of government assets refusal to the extent of only 40% of the total
should have the same principles and objectives. Their capitalization of the PHILSECO. Thus, KHI, whose
only difference, if at all, is that in the public bidding for investment exposure was already diminished to only
public contracts, the award is generally given to the 2.59% of the total PHILSECO shares, was given the
lowest bidder while in the disposition of government privilege, through its nominee PHI, of exercising the
assets, the award is to the highest bidder.41 The term right to top the highest bid to 87.67% of those shares
"public bidding" imports a sale to the highest bidder or definitely over and above its 40% contractual right
with absolute freedom for competitive bidding.42 to PHILSECO shares under the JVA. Consequently,
the APT rendered nugatory the constitutional and
Under Section 504 of the Government Auditing Rules contractual proscriptions clearly to favor a foreign
and Regulations, a public auction, which is the mode investor.
of divestment or disposal of government property,
shall adhere to established mechanics and Furthermore, while the right of first refusal entitled KHI
procedures in public bidding.43 In such public auction to priority in the award of the contract, that right
sales, the presence of a Commission on Audit (COA) cannot bar another bidder from submitting a bid
representative who shall see to the proper because, precisely, the law requires public bidding in
observance of auditing rules is imperative.44 In this government contracts.47Thus, by engrafting in the
case, there is no record that a COA representative provisions of the ASBR the right to top, which was
witnessed the public auction on December 2, 1993. only an offshoot of the right of first refusal, the APT
Neither is there a showing that the APT observed the effectively did away with pubic bidding insofar as
requirement of COA Circular No. 89-296, to the effect KHI/PHI was concerned. To be sure, the right to top is
that a government entity that is disposing of different from the right to match. In the latter, a
government property shall furnish the COA with the qualified bidder is given the privilege of offering the
disposal procedure adopted. Likewise, nowhere in the same bid as that of the highest bidder.48 In the former,
record is it stated that the APT heeded the suggestion as provided for by the ASBR, a non-bidder is
of Secretary of Finance and COP Chairman Jayme accorded the right to top the highest bid. There is
that its decision to grant Kawasaki the right to top the reason, therefore, for the petitioner to complain that
highest bid be made "known to the Commission on the APT made a show of a public bidding in order to
Audit." What appears on record is that the COA did elicit the highest bid, only to award the sale to a non-
not approve the ASBR, specifically the provision on bidder. The unfair manner by which the purported
the right to top the highest bidder. Thus, then COA public bidding was conducted by the APT is even
Chairman Pascasio S. Banaria, replying to the query made more blatant by the fact that after the "public
of petitioner’s counsel on whether or not the COA had bidding," KHI exercised the right to top through its
approved the right to top the highest bid by 5%, nominee, private respondent PHI, which has among
stated: its stockholders some losing bidders.
"Per information received from our Auditor at APT, no In drafting the ASBR, the APT should have noted the
prior approval was issued by their Office regarding fact that foreign investors were competing in the
said preferential option. We have instructed our bidding. While it is true that foreign investment should
Auditor thereat to advise this Office of the result of the be encouraged in this country, however, the ASBR
review of the Corporation’s procedures for the sale of provision on the right to top is unfair to all competitors,
the assets including the review of the bidding be they foreign or local, in the public auction of
documents pertaining to the subject public bidding 87.67% of PHILSECO shares as it provided for a
pursuant to the provisions of the Commission on Audit method that would set at naught the entire public
Circular No. 89-296 dated January 27, 1989."45 bidding.
In according the KHI/PHI the right to top, the APT It was thus error for the Court of Appeals to conclude
violated the rule on competitive public bidding, under that petitioner was estopped from contesting the
which the highest bidder is declared the winner validity of the ASBR and the bidding procedure
entitled to the award of the subject of the auction sale. conducted pursuant to it. It is clear from the provisions
In effect, the grant to KHI/PHI of the right to top can of the ASBR itself that the basic rules on fair
competition in public biddings have been disregarded. "Sec. 20. The following provisions are
Although petitioner had the opportunity to examine the hereby repealed:
ASBR before it participated in the bidding, it cannot be
estopped from questioning the unconstitutional, illegal 1) Section 53, P.D. 463 (Mineral
and inequitable provisions thereof. Estoppel is Resources Development Decree);
unavailing in this case; otherwise, it would stamp
validity to an act that is prohibited by law or against 2) Section 1, P. D. 666 (Shipbuilding
public policy.49 and Ship Repair Industry);
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and "ART. 85. Repealing Clause. – The following
22
20
The term "public service" includes every 2) Batas Pambansa 391 (1983)
person that now or hereafter may own,
operate, manage, or control in the Philippines, 3) Presidential Decree No. 218
for hire or compensation, with general or
limited clientele, whether permanent, 4) Presidential Decree No. 1419
occasional or accidental, and done for general
business purposes, any common carrier,
5) Presidential Decree No. 1623, as
railroad, street railway, traction railway, sub-
amended
way motor vehicle, either for freight or
passenger, or both with or without fixed route
and whatever may be its classification, freight 6) Presidential Decree No. 1789
or carrier service of any class, express (1981)
service, steamboat, or steamship line,
pontines, ferries, and water craft, engaged in 7) Presidential Decree No. 2032
the transportation of passengers or freight or
both, shipyard, marine railway, marine repair 8) Executive Order No. 815
shop, wharf or dock, ice plant, ice-refrigeration
plant, canal, irrigation system, gas, electric 9) Executive Order No. 1945 (1985)
light, heat and power, water supply and
power, petroleum, sewerage system, wire or All other laws, decrees, executive
wireless communications system, wire or orders, administrative orders, rules
wireless broadcasting stations and other and regulations or parts thereof which
similar public services x x x. (Emphasis are inconsistent with the provisions of
supplied) this Code are hereby repealed,
amended or modified accordingly."
21
The repealing clause states:
Chapter II, Book II of Executive Order No.
31
and settle all accounts pertaining to
226 provides: the expenditures or uses of
government funds and property. Thus,
ART. 46. Permitted Investments. – (1) the Auditor acting as such witness
Without need of prior authority, may verbally advise the agency head
anyone not a Philippine national as or his duly authorized representative
that term is defined in Article 15 of this of any objectionable feature/s of the
Code, and not otherwise disqualified proceedings. Otherwise, he may sign
by law, may invest: documents and other papers pertinent
only to those proceedings which he
(a) In any enterprise registered under witnessed with his comments which he
Book One hereof, to the extent that deems necessary under the
the total investment of non-Philippine circumstances. Related advices and/or
nationals therein would not affect its comments done in writing should
status as a registered enterprise under invariably be sent officially to and duly
the law; receipted for by the head of the
agency or his duly authorized
representative concerned. These
(b) In an enterprise not registered
written advices or comments shall
under Book One hereof, to the extent
form part of the bases of action to be
that the total investment of non-
taken by the auditor in the pre-audit or
Philippine nationals herein shall not
post audit of the subject transactions."
exceed forty percent (40%) of the
outstanding capital of that enterprise,
unless existing law forbids any non-
48
Manila Prince Hotel v. GSIS, supra, at p.
Philippine ownership in the enterprise 100. In that case, the bidding rules provided
or limits ownership by non-Philippine that "if for any reason, the Highest Bidder
national to a percentage smaller than cannot be awarded the Block of Shares, GSIS
forty percent (40%). may offer this to the other Qualified Bidders
that have validly submitted bids provided that
these Qualified Bidders are willing to match
(2) Within thirty (30) days after notice
the highest bid in terms of price per share."
of the investment is received by it, the
enterprise in which any investment is
made by a non-Philippine national
shall register the same with the Board
of Investments for purposes of record.
Investments made in the form of
foreign exchange or other assets
actually transferred to the Philippines
shall also be registered with the
Central Bank. The Board shall assess
and appraise the value of such assets
other than foreign exchange.
32
There is no record showing that the joint
venture between NIDC and Kawasaki was
registered with the SEC, the Board of
Investments and/or Export Processing Zone
Authorities.
89-296 states:
In the interest of the national economy and the 6.1 Should Kawasaki Heavy Industries, Inc.
government, the COP and the APT deemed it best to and/or Philyards Holdings, Inc. exercise their
sell the National Government’s share in PHILSECO to "Option to Top the Highest Bid," they shall so
private entities. After a series of negotiations between notify the APT about such exercise of their
the APT and KAWASAKI, they agreed that the latter’s option and deposit with APT the amount
right of first refusal under the JVA be "exchanged" for equivalent to ten percent (10%) of the highest
bid plus five percent (5%) thereof within the consortium was not estopped from questioning the
thirty (30)-day period mentioned in paragraph proceedings.9
6.0 above. APT will then serve notice upon
Kawasaki Heavy Industries, Inc. and/or On February 2, 1994, petitioner was notified that PHI
Philyards Holdings, Inc. declaring them as the had fully paid the balance of the purchase price of the
preferred bidder and they shall have a period subject bidding. On February 7, 1994, the APT
of ninety (90) days from the receipt of the notified petitioner that PHI had exercised its option to
APT’s notice within which to pay the balance top the highest bid and that the COP had approved
of their bid price. the same on January 6, 1994. On February 24, 1994,
the APT and PHI executed a Stock Purchase
6.2 Should Kawasaki Heavy Industries, Inc. Agreement.10 Consequently, petitioner filed with this
and/or Philyards Holdings, Inc. fail to exercise Court a Petition for Mandamus under G.R. No.
their "Option to Top the Highest Bid" within the 114057. On May 11, 1994, said petition was referred
thirty (30)-day period, APT will declare the to the Court of Appeals. On July 18, 1995, the Court
highest bidder as the winning bidder. of Appeals denied the same for lack of merit. It ruled
that the petition for mandamus was not the proper
... remedy to question the constitutionality or legality of
the right of first refusal and the right to top that was
12.0 The bidder shall be solely responsible for exercised by KAWASAKI/PHI, and that the matter
examining with appropriate care these rules, must be brought "by the proper party in the proper
the official bid forms, including any addenda forum at the proper time and threshed out in a full
or amendments thereto issued during the blown trial." The Court of Appeals further ruled that
bidding period. The bidder shall likewise be the right of first refusal and the right to top are prima
responsible for informing itself with respect to facie legal and that the petitioner, "by participating in
any and all conditions concerning the the public bidding, with full knowledge of the right to
PHILSECO Shares which may, in any top granted to KASAWASAKI/Philyards is . .
manner, affect the bidder’s proposal. Failure .estopped from questioning the validity of the award
on the part of the bidder to so examine and given to Philyards after the latter exercised the right to
inform itself shall be its sole risk and no relief top and had paid in full the purchase price of the
for error or omission will be given by APT or subject shares, pursuant to the ASBR." Petitioner filed
COP. . ..6 a Motion for Reconsideration of said Decision which
was denied on March 15, 1996. Petitioner thus filed a
Petition for Certiorari with this Court alleging grave
At the public bidding on the said date, petitioner J.G.
abuse of discretion on the part of the appellate court.11
Summit Holdings, Inc. submitted a bid of Two Billion
and Thirty Million Pesos (₱2,030,000,000.00) with an
acknowledgement of KAWASAKI/Philyards’ right to On November 20, 2000, this Court rendered the now
top, viz: assailed Decision ruling among others that the Court
of Appeals erred when it dismissed the petition on the
sole ground of the impropriety of the special civil
4. I/We understand that the Committee on
action of mandamus because the petition was also
Privatization (COP) has up to thirty (30) days to act on
one of certiorari.12 It further ruled that a shipyard like
APT’s recommendation based on the result of this
PHILSECO is a public utility whose capitalization must
bidding. Should the COP approve the highest bid,
be sixty percent (60%) Filipino-owned.13 Consequently,
APT shall advise Kawasaki Heavy Industries, Inc.
the right to top granted to KAWASAKI under the Asset
and/or its nominee, Philyards Holdings, Inc. that the
Specific Bidding Rules (ASBR) drafted for the sale of
highest bid is acceptable to the National Government.
the 87.67% equity of the National Government in
Kawasaki Heavy Industries, Inc. and/or Philyards
PHILSECO is illegal---not only because it violates the
Holdings, Inc. shall then have a period of thirty (30)
rules on competitive bidding--- but more so, because
calendar days from the date of receipt of such advice
it allows foreign corporations to own more than 40%
from APT within which to exercise their "Option to Top
equity in the shipyard.14 It also held that "although the
the Highest Bid" by offering a bid equivalent to the
petitioner had the opportunity to examine the ASBR
highest bid plus five (5%) percent thereof.7
before it participated in the bidding, it cannot be
estopped from questioning the unconstitutional, illegal
As petitioner was declared the highest bidder, the and inequitable provisions thereof."15 Thus, this Court
COP approved the sale on December 3, 1993 voided the transfer of the national government’s
"subject to the right of Kawasaki Heavy Industries, 87.67% share in PHILSECO to Philyard Holdings,
Inc./Philyards Holdings, Inc. to top JGSMI’s bid by 5% Inc., and upheld the right of JG Summit, as the
as specified in the bidding rules."8 highest bidder, to take title to the said shares, viz:
On December 29, 1993, petitioner informed APT that Wherefore, the instant petition for review on certiorari
it was protesting the offer of PHI to top its bid on the is GRANTED. The assailed Decision and Resolution
grounds that: (a) the KAWASAKI/PHI consortium of the Court of Appeals are REVERSED and SET
composed of Kawasaki, Philyards, Mitsui, Keppel, SM ASIDE. Petitioner is ordered to pay to APT its bid
Group, ICTSI and Insular Life violated the ASBR price of Two Billion Thirty Million Pesos
because the last four (4) companies were the losing (₱2,030,000,000.00 ), less its bid deposit plus
bidders thereby circumventing the law and prejudicing interests upon the finality of this Decision. In turn, APT
the weak winning bidder; (b) only KAWASAKI could is ordered to:
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 Summit
(a) accept the said amount of "Public use" means the same as "use by the public."
₱2,030,000,000.00 less bid deposit and The essential feature of the public use is that it is not
interests from petitioner; confined to privileged individuals, but is open to the
indefinite public. It is this indefinite or unrestricted
(b) execute a Stock Purchase Agreement with quality that gives it its public character. In determining
petitioner; whether a use is public, we must look not only to the
character of the business to be done, but also to the
(c) cause the issuance in favor of petitioner of proposed mode of doing it. If the use is merely
the certificates of stocks representing 87.6% optional with the owners, or the public benefit is
of PHILSECO’s total capitalization; merely incidental, it is not a public use, authorizing the
exercise of jurisdiction of the public utility commission.
There must be, in general, a right which the law
(d) return to private respondent PHGI the
compels the owner to give to the general public. It is
amount of Two Billion One Hundred Thirty-
not enough that the general prosperity of the public is
One Million Five Hundred Thousand Pesos
promoted. Public use is not synonymous with public
(₱2,131,500,000.00); and
interest. The true criterion by which to judge the
character of the use is whether the public may enjoy it
(e) cause the cancellation of the stock by right or only by permission.22 (emphasis supplied)
certificates issued to PHI.
Applying the criterion laid down in Iloilo to the case at
SO ORDERED.16 bar, it is crystal clear that a shipyard cannot be
considered a public utility.
In separate Motions for
Reconsideration,17 respondents submit three basic A "shipyard" is "a place or enclosure where ships are
issues for our resolution: (1) Whether PHILSECO is a built or repaired."23 Its nature dictates that it serves but
public utility; (2) Whether under the 1977 JVA, a limited clientele whom it may choose to serve at its
KAWASAKI can exercise its right of first refusal only discretion. While it offers its facilities to whoever may
up to 40% of the total capitalization of PHILSECO; wish to avail of its services, a shipyard is not legally
and (3) Whether the right to top granted to obliged to render its services indiscriminately to the
KAWASAKI violates the principles of competitive public. It has no legal obligation to render the services
bidding. sought by each and every client. The fact that it
publicly offers its services does not give the public a
I. legal right to demand that such services be rendered.
Whether PHILSECO is a Public Utility.
There can be no disagreement that the shipbuilding
After carefully reviewing the applicable laws and and ship repair industry is imbued with public interest
jurisprudence, we hold that PHILSECO is not a public as it involves the maintenance of the seaworthiness of
utility for the following reasons: vessels dedicated to the transportation of either
persons or goods. Nevertheless, the fact that a
First. By nature, a shipyard is not a public utility. business is affected with public interest does not imply
that it is under a duty to serve the public. While the
A "public utility" is "a business or service engaged in business may be regulated for public good, the
regularly supplying the public with some commodity or regulation cannot justify the classification of a purely
service of public consequence such as electricity, gas, private enterprise as a public utility. The legislature
water, transportation, telephone or telegraph cannot, by its mere declaration, make something a
service."18 To constitute a public utility, the facility must public utility which is not in fact such; and a private
be necessary for the maintenance of life and business operated under private contracts with
occupation of the residents. However, the fact that a selected customers and not devoted to public use
business offers services or goods that promote public cannot, by legislative fiat or by order of a public
good and serve the interest of the public does not service commission, be declared a public utility, since
automatically make it a public utility. Public use is not that would be taking private property for public use
synonymous with public interest. As its name without just compensation, which cannot be done
indicates, the term "public utility" implies public use consistently with the due process clause.24
and service to the public. The principal determinative
characteristic of a public utility is that of service to, or It is worthy to note that automobile and aircraft
readiness to serve, an indefinite public or portion of manufacturers, which are of similar nature to
the public as such which has a legal right to demand shipyards, are not considered public utilities despite
and receive its services or commodities. Stated the fact that their operations greatly impact on land
otherwise, the owner or person in control of a public and air transportation. The reason is simple. Unlike
utility must have devoted it to such use that the public commodities or services traditionally regarded as
generally or that part of the public which has been public utilities such as electricity, gas, water,
served and has accepted the service, has the right to transportation, telephone or telegraph service,
demand that use or service so long as it is continued, automobile and aircraft manufacturing---and for that
with reasonable efficiency and under proper matter ship building and ship repair--- serve the public
charges.19 Unlike a private enterprise which only incidentally.
independently determines whom it will serve, a "public
utility holds out generally and may not refuse Second. There is no law declaring a shipyard as a
legitimate demand for service."20 Thus, in Iloilo Ice and public utility.
Cold Storage Co. vs. Public Utility Board,21 this Court
defined "public use," viz:
History provides us hindsight and hindsight ought to by the original importer; Provided, finally, That
give us a better view of the intent of any law. The local dealers and/or agents who sell
succession of laws affecting the status of shipyards machinery, equipment, materials and
ought not to obliterate, but rather, give us full picture accessories to shipyards for shipbuilding and
of the intent of the legislature. The totality of the ship repair are entitled to tax credits, subject
circumstances, including the contemporaneous to approval by the total tariff duties and
interpretation accorded by the administrative bodies compensating tax paid for said machinery,
tasked with the enforcement of the law all lead to a equipment, materials and accessories.
singular conclusion: that shipyards are not public
utilities. (b) Accelerated depreciation.- Industrial plant
and equipment may, at the option of the
Since the enactment of Act No. 2307 which created shipbuilder and ship repairer, be depreciated
the Public Utility Commission (PUC) until its repeal by for any number of years between five years
Commonwealth Act No. 146, establishing the Public and expected economic life.
Service Commission (PSC), a shipyard, by legislative
declaration, has been considered a public utility.25 A (c) Exemption from contractor’s percentage
Certificate of Public Convenience (CPC) from the tax.- The gross receipts derived by
PSC to the effect that the operation of the said service shipbuilders and ship repairers from
and the authorization to do business will promote the shipbuilding and ship repairing activities shall
public interests in a proper and suitable manner is be exempt from the Contractor’s Tax provided
required before any person or corporation may in Section 91 of the National Internal Revenue
operate a shipyard.26 In addition, such persons or Code during the first ten years from
corporations should abide by the citizenship registration with the Maritime Industry
requirement provided in Article XIII, section 8 of the Authority, provided that such registration is
1935 Constitution,27 viz: effected not later than the year 1990;
Provided, That any and all amounts which
Sec. 8. No franchise, certificate, or any other form or would otherwise have been paid as
authorization for the operation of a public utility shall contractor’s tax shall be set aside as a
be granted except to citizens of the Philippines or to separate fund, to be known as "Shipyard
corporations or other entities organized under the Development Fund", by the contractor for the
laws of the Philippines, sixty per centum of the capital purpose of expansion, modernization and/or
of which is owned by citizens of the Philippines, nor improvement of the contractor’s own
shall such franchise, certificate or authorization be shipbuilding or ship repairing facilities;
exclusive in character or for a longer period than fifty Provided, That, for this purpose, the
years. No franchise or right shall be granted to any contractor shall submit an annual statement of
individual, firm or corporation, except under the its receipts to the Maritime Industry Authority;
condition that it shall be subject to amendment, and Provided, further, That any disbursement
alteration, or repeal by the National Assembly when from such fund for any of the purposes
the public interest so requires. (emphasis supplied) hereinabove stated shall be subject to
approval by the Maritime Industry Authority.
To accelerate the development of shipbuilding and
ship repair industry, former President Ferdinand E. In addition, P.D. No. 666 removed the
Marcos issued P.D. No. 666 granting the following shipbuilding and ship repair industry from the
incentives: list of public utilities, thereby freeing the
industry from the 60% citizenship requirement
SECTION 1. Shipbuilding and ship repair yards duly under the Constitution and from the need to
registered with the Maritime Industry Authority shall obtain Certificate of Public Convenience
be entitled to the following incentive benefits: pursuant to section 15 of C.A No. 146. Section
1 (d) of P.D. 666 reads:
(a) Exemption from import duties and taxes.-
The importation of machinery, equipment and (d) Registration required but not as a Public
materials for shipbuilding, ship repair and/or Utility.- The business of constructing and
alteration, including indirect import, as well as repairing vessels or parts thereof shall not
replacement and spare parts for the repair be considered a public utility and no
and overhaul of vessels such as steel plates, Certificate of Public Convenience shall be
electrical machinery and electronic parts, shall required therefor. However, no shipyard,
be exempt from the payment of customs duty graving dock, marine railway or marine repair
and compensating tax: Provided, however, shop and no person or enterprise shall
That the Maritime Industry Authority certifies engage in construction and/or repair of any
that the item or items imported are not vessel, or any phase or part thereof, without a
produced locally in sufficient quantity and valid Certificate of Registration and license for
acceptable quality at reasonable prices, and this purpose from the Maritime Industry
that the importation is directly and actually Authority, except those owned or operated by
needed and will be used exclusively for the the Armed Forces of the Philippines or by
construction, repair, alteration, or overhaul of foreign governments pursuant to a treaty or
merchant vessels, and other watercrafts; agreement. (emphasis supplied)
Provided, further, That if the above machinery,
equipment, materials and spare parts are sold Any law, decree, executive order, or rules and
to non-tax exempt persons or entities, the regulations inconsistent with P.D. No. 666 were
corresponding duties and taxes shall be paid repealed or modified accordingly.28 Consequently,
sections 13 (b) and 15 of C.A. No. 146 were repealed 5) The following articles of Presidential
in so far as the former law included shipyards in the Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49 (d),
list of public utilities and required the certificate of 62, and 77. Articles 45, 46 and 48 are hereby
public convenience for their operation. Simply stated, amended only with respect to domestic and
the repeal was due to irreconcilable inconsistency, export producers.
and by definition, this kind of repeal falls under the
category of an implied repeal.29 All other laws, decrees, executive orders,
administrative orders, rules and regulations or parts
On April 28, 1983, Batas Pambansa Blg. 391, also thereof which are inconsistent with the provisions of
known as the "Investment Incentive Policy Act of this Act are hereby repealed, amended or modified
1983," was enacted. It laid down the general policy of accordingly.
the government to encourage private domestic and
foreign investments in the various sectors of the All other incentive systems which are not in any way
economy, to wit: affected by the provisions of this Act may be
restructured by the President so as to render them
Sec. 2. Declaration of Investment Policy.- It is the cost-efficient and to make them conform with the
policy of the State to encourage private domestic and other policy guidelines in the declaration of policy
foreign investments in industry, agriculture, mining provided in Section 2 of this Act. (emphasis supplied)
and other sectors of the economy which shall: provide
significant employment opportunities relative to the From the language of the afore-quoted provision, the
amount of the capital being invested; increase whole of P.D. No. 666, section 1 was expressly and
productivity of the land, minerals, forestry, aquatic and categorically repealed. As a consequence, the
other resources of the country, and improve utilization provisions of C.A. No. 146, which were impliedly
of the products thereof; improve technical skills of the repealed by P.D. No. 666, section 1 were revived.30 In
people employed in the enterprise; provide a other words, with the enactment of Batas Pambansa
foundation for the future development of the economy; Blg. 391, a shipyard reverted back to its status as a
accelerate development of less developed regions of public utility and as such, requires a CPC for its
the country; and result in increased volume and value operation.
of exports for the economy.
The crux of the present controversy is the effect of the
It is the policy of the State to extend to projects which express repeal of Batas Pambansa Blg. 391 by
will significantly contribute to the attainment of these Executive Order No. 226 issued by former President
objectives, fiscal incentives without which said Corazon C. Aquino under her emergency powers.
projects may not be established in the locales,
number and/or pace required for optimum national We rule that the express repeal of Batas Pambansa
economic development. Fiscal incentive systems shall Blg. 391 by E.O. No. 226 did not revive Section 1 of
be devised to compensate for market imperfections, P.D. No. 666. But more importantly, it also put a
reward performance of making contributions to period to the existence of sections 13 (b) and 15 of
economic development, cost-efficient and be simple C.A. No. 146. It bears emphasis that sections 13 (b)
to administer. and 15 of C.A. No. 146, as originally written, owed
their continued existence to Batas Pambansa Blg.
The fiscal incentives shall be extended to stimulate 391. Had the latter not repealed P.D. No. 666, the
establishment and assist initial operations of the former should have been modified accordingly and
enterprise, and shall terminate after a period of not shipyards effectively removed from the list of public
more than 10 years from registration or start-up of utilities. Ergo, with the express repeal of Batas
operation unless a special period is otherwise stated. Pambansa Blg. 391 by E.O. No. 226, the revival of
sections 13 (b) and 15 of C.A. No. 146 had no more
The foregoing declaration shall apply to all investment leg to stand on. A law that has been expressly
incentive schemes and in particular will supersede repealed ceases to exist and becomes inoperative
article 2 of Presidential Decree No. 1789. (emphases from the moment the repealing law becomes
supplied) effective.31 Hence, there is simply no basis in the
conclusion that shipyards remain to be a public utility.
With the new investment incentive regime, Batas A repealed statute cannot be the basis for classifying
Pambansa Blg. 391 repealed the following laws, viz: shipyards as public utilities.
Sec. 20. The following provisions are hereby In view of the foregoing, there can be no other
repealed: conclusion than to hold that a shipyard is not a pubic
utility. A shipyard has been considered a public utility
1) Section 53, P.D. 463 (Mineral Resources merely by legislative declaration. Absent this
Development Decree); declaration, there is no more reason why it should
continuously be regarded as such. The fact that the
legislature did not clearly and unambiguously express
2.) Section 1, P.D. 666 (Shipbuilding and
its intention to include shipyards in the list of public
Ship Repair Industry);
utilities indicates that that it did not intend to do so.
Thus, a shipyard reverts back to its status as non-
3) Section 6, P.D. 1101 (Radioactive public utility prior to the enactment of the Public
Minerals); Service Law.
4) LOI 508 extending P.D. 791 and P.D. 924 This interpretation is in accord with the uniform
(Sugar); and interpretation placed upon it by the Board of
Investments (BOI), which was entrusted by the The parties likewise agreed to arm themselves with
legislature with the preparation of annual Investment protective mechanisms to preserve their respective
Priorities Plan (IPPs). The BOI has consistently interests in the partnership in the event that (a) one
classified shipyards as part of the manufacturing party decides to sell its shares to third parties; and (b)
sector and not of the public utilities sector. The new Philseco shares are issued. Anent the first
enactment of Batas Pambansa Blg. 391 did not alter situation, the non-selling party is given the right of first
the treatment of the BOI on shipyards. It has been, as refusal under section 1.4 to have a preferential right to
at present, classified as part of the manufacturing and buy or to refuse the selling party’s shares. The right of
not of the public utilities sector.32 first refusal is meant to protect the original or
remaining joint venturer(s) or shareholder(s) from the
Furthermore, of the 441 Ship Building and Ship entry of third persons who are not acceptable to it as
Repair (SBSR) entities registered with the co-venturer(s) or co-shareholder(s). The joint venture
MARINA,33 none appears to have an existing between the Philippine Government and KAWASAKI
franchise. If we continue to hold that a shipyard is a is in the nature of a partnership36 which, unlike an
pubic utility, it is a necessary consequence that all ordinary corporation, is based on delectus
these entities should have obtained a franchise as personae.37 No one can become a member of the
was the rule prior to the enactment of P.D. No. 666. partnership association without the consent of all the
But MARINA remains without authority, pursuant to other associates. The right of first refusal thus
P.D. No. 47434 to issue franchises for the operation of ensures that the parties are given control over who
shipyards. Surely, the legislature did not intend to may become a new partner in substitution of or in
create a vacuum by continuously treating a shipyard addition to the original partners. Should the selling
as a public utility without giving MARINA the power to partner decide to dispose all its shares, the non-
issue a Certificate of Public Convenience (CPC) or a selling partner may acquire all these shares and
Certificate of Public Convenience and Necessity terminate the partnership. No person or corporation
(CPCN) as required by section 15 of C.A. No. 146. can be compelled to remain or to continue the
partnership. Of course, this presupposes that there
II. are no other restrictions in the maximum allowable
Whether under the 1977 Joint Venture Agreement, share that the non-selling partner may acquire such
KAWASAKI can purchase only a maximum of 40% as the constitutional restriction on foreign ownership
of PHILSECO’s total capitalization. in public utility. The theory that KAWASAKI can
acquire, as a maximum, only 40% of PHILSECO’s
shares is correct only if a shipyard is a public utility. In
A careful reading of the 1977 Joint Venture
such instance, the non-selling partner who is an alien
Agreement reveals that there is nothing that prevents
can acquire only a maximum of 40% of the total
KAWASAKI from acquiring more than 40% of
capitalization of a public utility despite the grant of first
PHILSECO’s total capitalization. Section 1 of the 1977
refusal. The partners cannot, by mere agreement,
JVA states:
avoid the constitutional proscription. But as afore-
discussed, PHILSECO is not a public utility and no
1.3 The authorized capital stock of Philseco shall be other restriction is present that would limit the right of
₱330 million. The parties shall thereafter increase KAWASAKI to purchase the Government’s share to
their subscription in Philseco as may be necessary 40% of Philseco’s total capitalization.
and as called by the Board of Directors, maintaining a
proportion of 60%-40% for NIDC and KAWASAKI
Furthermore, the phrase "under the same terms" in
respectively, up to a total subscribed and paid-up
section 1.4 cannot be given an interpretation that
capital stock of ₱312 million.
would limit the right of KAWASAKI to purchase
PHILSECO shares only to the extent of its original
1.4 Neither party shall sell, transfer or assign all or proportionate contribution of 40% to the total
any part of its interest in SNS [renamed PHILSECO] capitalization of the PHILSECO. Taken together with
to any third party without giving the other under the the whole of section 1.4, the phrase "under the same
same terms the right of first refusal. This provision terms" means that a partner to the joint venture that
shall not apply if the transferee is a corporation owned decides to sell its shares to a third party shall make a
and controlled by the GOVERMENT [of the similar offer to the non-selling partner. The selling
Philippines] or by a Kawasaki affiliate. partner cannot make a different or a more onerous
offer to the non-selling partner.
1.5 The By-Laws of SNS [PHILSECO] shall grant the
parties preemptive rights to unissued shares of SNS The exercise of first refusal presupposes that the non-
[PHILSECO].35 selling partner is aware of the terms of the conditions
attendant to the sale for it to have a guided choice.
Under section 1.3, the parties agreed to the amount of While the right of first refusal protects the non-selling
₱330 million as the total capitalization of their joint partner from the entry of third persons, it cannot also
venture. There was no mention of the amount of their deprive the other partner the right to sell its shares to
initial subscription. What is clear is that they are to third persons if, under the same offer, it does not buy
infuse the needed capital from time to time until the the shares.
total subscribed and paid-up capital reaches ₱312
million. The phrase "maintaining a proportion of 60%- Apart from the right of first refusal, the parties also
40%" refers to their respective share of the burden have preemptive rights under section 1.5 in the
each time the Board of Directors decides to increase unissued shares of Philseco. Unlike the former, this
the subscription to reach the target paid-up capital of situation does not contemplate transfer of a partner’s
₱312 million. It does not bind the parties to maintain shares to third parties but the issuance of new
the sharing scheme all throughout the existence of Philseco shares. The grant of preemptive rights
their partnership. preserves the proportionate shares of the original
partners so as not to dilute their respective interests In the instant case, the sale of the Government shares
with the issuance of the new shares. Unlike the right in PHILSECO was publicly known. All interested
of first refusal, a preemptive right gives a partner a bidders were welcomed. The basis for comparing the
preferential right over the newly issued shares only to bids were laid down. All bids were accepted sealed
the extent that it retains its original proportionate and were opened and read in the presence of the
share in the joint venture. COA’s official representative and before all interested
bidders. The only question that remains is whether or
The case at bar does not concern the issuance of new not the existence of KAWASAKI’s right to top destroys
shares but the transfer of a partner’s share in the joint the essence of competitive bidding so as to say that
venture. Verily, the operative protective mechanism is the bidders did not have an opportunity for
the right of first refusal which does not impose any competition. We hold that it does not.
limitation in the maximum shares that the non-selling
partner may acquire. The essence of competition in public bidding is that
the bidders are placed on equal footing. This means
III. that all qualified bidders have an equal chance of
Whether the right to top granted to KAWASAKI winning the auction through their bids. In the case at
in exchange for its right of first refusal violates bar, all of the bidders were exposed to the same risk
the principles of competitive bidding. and were subjected to the same condition, i.e., the
existence of KAWASAKI’s right to top. Under the
We also hold that the right to top granted to ASBR, the Government expressly reserved the right
KAWASAKI and exercised by private respondent did to reject any or all bids, and manifested its intention
not violate the rules of competitive bidding. not to accept the highest bid should KAWASAKI
decide to exercise its right to top under the ABSR.
This reservation or qualification was made known to
The word "bidding" in its comprehensive sense means
the bidders in a pre-bidding conference held on
making an offer or an invitation to prospective
September 28, 1993. They all expressly accepted this
contractors whereby the government manifests its
condition in writing without any qualification.
intention to make proposals for the purpose of
Furthermore, when the Committee on Privatization
supplies, materials and equipment for official business
notified petitioner of the approval of the sale of the
or public use, or for public works or repair.38 The three
National Government shares of stock in PHILSECO, it
principles of public bidding are: (1) the offer to the
specifically stated that such approval was subject to
public; (2) an opportunity for competition; and (3) a
the right of KAWASAKI Heavy Industries,
basis for comparison of bids.39 As long as these three
Inc./Philyards Holdings, Inc. to top JGSMI’s bid by 5%
principles are complied with, the public bidding can be
as specified in the bidding rules. Clearly, the approval
considered valid and legal. It is not necessary that the
of the sale was a conditional one. Since Philyards
highest bid be automatically accepted. The bidding
eventually exercised its right to top petitioner’s bid by
rules may specify other conditions or the bidding
5%, the sale was not consummated. Parenthetically, it
process be subjected to certain reservation or
cannot be argued that the existence of the right to top
qualification such as when the owner reserves to
"set for naught the entire public bidding." Had
himself openly at the time of the sale the right to bid
Philyards Holdings, Inc. failed or refused to exercise
upon the property, or openly announces a price below
its right to top, the sale between the petitioner and the
which the property will not be sold. Hence, where the
National Government would have been
seller reserves the right to refuse to accept any bid
consummated. In like manner, the existence of the
made, a binding sale is not consummated between
right to top cannot be likened to a second bidding,
the seller and the bidder until the seller accepts the
which is countenanced, except when there is failure to
bid. Furthermore, where a right is reserved in the
bid as when there is only one bidder or none at all. A
seller to reject any and all bids received, the owner
prohibited second bidding presupposes that based on
may exercise the right even after the auctioneer has
the terms and conditions of the sale, there is already a
accepted a bid, and this applies to the auction of
highest bidder with the right to demand that the seller
public as well as private property. 40 Thus:
accept its bid. In the instant case, the highest bidder
was well aware that the acceptance of its bid was
It is a settled rule that where the invitation to bid conditioned upon the non-exercise of the right to top.
contains a reservation for the Government to reject
any or all bids, the lowest or the highest bidder, as the
To be sure, respondents did not circumvent the
case may be, is not entitled to an award as a matter of
requirements for bidding by granting KAWASAKI, a
right for it does not become a ministerial duty of the
non-bidder, the right to top the highest bidder. The
Government to make such an award. Thus, it has
fact that KAWASAKI’s nominee to exercise the right to
been held that where the right to reject is so reserved,
top has among its stockholders some losing bidders
the lowest bid or any bid for that matter may be
cannot also be deemed "unfair."
rejected on a mere technicality, that all bids may be
rejected, even if arbitrarily and unwisely, or under a
mistake, and that in the exercise of a sound It must be emphasized that none of the parties
discretion, the award may be made to another than questions the existence of KAWASAKI’s right of first
the lowest bidder. And so, where the Government as refusal, which is concededly the basis for the grant of
advertiser, availing itself of that right, makes its choice the right to top. Under KAWASAKI’s right of first
in rejecting any or all bids, the losing bidder has no refusal, the National Government is under the
cause to complain nor right to dispute that choice, obligation to give preferential right to KAWASAKI in
unless an unfairness or injustice is shown. the event it decides to sell its shares in PHILSECO. It
Accordingly, he has no ground of action to compel the has to offer to KAWASAKI the shares and give it the
Government to award the contract in his favor, nor option to buy or refuse under the same terms for
compel it to accept his bid.41 which it is willing to sell the said shares to third
parties. KAWASAKI is not a mere non-bidder. It is a
partner in the joint venture; the incidents of which are approval was given by the COA for it, specifically the
governed by the law on contracts and on partnership. provision on the right to top the highest bidder and
that the public auction on December 2, 1993 was not
It is true that properties of the National Government, witnessed by a COA representative. No evidence was
as a rule, may be sold only after a public bidding is proffered to prove these allegations and the Court
held. Public bidding is the accepted method in arriving cannot make legal conclusions out of mere
at a fair and reasonable price and ensures that allegations. Regularity in the performance of official
overpricing, favoritism and other anomalous practices duties is presumed44 and in the absence of competent
are eliminated or minimized.42 But the requirement for evidence to rebut this presumption, this Court is duty
public bidding does not negate the exercise of the bound to uphold this presumption.
right of first refusal. In fact, public bidding is an
essential first step in the exercise of the right of first IN VIEW OF THE FOREGOING, the Motion for
refusal because it is only after the public bidding that Reconsideration is hereby GRANTED. The impugned
the terms upon which the Government may be said to Decision and Resolution of the Court of Appeals are
be willing to sell its shares to third parties may be AFFIRMED.
known. It is only after the public bidding that the
1âwphi1
It is the desire of the Parties herein to implement this 4.3.8 All funds advanced by a Party (or by third
Agreement by investing in the PROJECT on a FIFTY parties in substitution for advances from a Party) shall
(50%) PERCENT- FIFTY (50%) PERCENT basis. be repaid by the JV.
4.1. Contribution of [Marsman Drysdale]-[Marsman 4.3.9 If any Party agrees to make an advance to the
Drysdale] shall contribute the Property. Project but fails to do so (in whole or in part) the other
party may advance the shortfall and the Party in
The total appraised value of the Property is PESOS: default shall indemnify the Party making the substitute
FOUR HUNDRED TWENTY MILLION advance on demand for all of its losses, costs and
(P420,000,000.00). expenses incurred in so doing. (emphasis supplied;
underscoring in the original)
For this purpose, [Marsman Drysdale] shall deliver the
Property in a buildable condition within ninety (90) Via Technical Services Contract (TSC) dated July 14,
days from signing of this Agreement barring any 1997,2 the joint venture engaged the services of
unforeseen circumstances over which [Marsman Philippine Geoanalytics, Inc. (PGI) to provide
Drysdale] has no control. Buildable condition shall subsurface soil exploration, laboratory testing, seismic
mean that the old building/structure which stands on study and geotechnical engineering for the project.
the Property is demolished and taken to ground level. PGI, was, however, able to drill only four of five
boreholes needed to conduct its subsurface soil
exploration and laboratory testing, justifying its failure
4.2. Contribution of [Gotesco]- [Gotesco] shall
to drill the remaining borehole to the failure on the part
contribute the amount of PESOS: FOUR HUNDRED
of the joint venture partners to clear the area where
TWENTY MILLION (P420,000,000.00) in cash which
the drilling was to be made.3 PGI was able to
shall be payable as follows:
complete its seismic study though.
4.2.1. The amount of PESOS: FIFTY MILLION
PGI then billed the joint venture on November 24,
(P50,000,000.00) upon signing of this Agreement.
1997 for ₱284,553.50 representing the cost of partial
subsurface soil exploration; and on January 15, 1998
4.2.2. The balance of PESOS: THREE HUNDRED for ₱250,800 representing the cost of the completed
SEVENTY MILLION (P370,000,000.00) shall be paid seismic study.4
Despite repeated demands from PGI,5 the joint Both Marsman Drysdale and Gotesco appealed to the
venture failed to pay its obligations. Court of Appeals which, by Decision of January 28,
2008,10affirmed with modification the decision of the
Meanwhile, due to unfavorable economic conditions trial court. Thus the appellate court disposed:
at the time, the joint venture was cut short and the
planned building project was eventually shelved.6 WHEREFORE, premises considered, the instant
appeal is PARTLY GRANTED. The assailed Decision
PGI subsequently filed on November 11, 1999 a dated June 2, 2004 and the Resolution dated October
complaint for collection of sum of money and 28, 2005 of the RTC of Quezon City, Branch 226, in
damages at the Regional Trial Court (RTC) of Quezon Civil Case No. Q99-39248 are hereby AFFIRMED
City against Marsman Drysdale and Gotesco. with MODIFICATION deleting the award of exemplary
damages in favor of [PGI] and the P100,000.00
In its Answer with Counterclaim and Cross-claim, attorney’s fees in favor of [Marsman Drysdale] and
Marsman Drysdale passed the responsibility of paying ordering defendant-appellant [Gotesco] to
PGI to Gotesco which, under the JVA, was solely REIMBURSE [Marsman Drysdale] 50% of the
liable for the monetary expenses of the project.7 aggregate sum due [PGI], instead of the lump sum
P535,353.00 awarded by the RTC. The rest of the
Decision stands.
Gotesco, on the other hand, countered that PGI has
no cause of action against it as PGI had yet to
complete the services enumerated in the contract; SO ORDERED. (capitalization and emphasis in the
and that Marsman Drysdale failed to clear the original; underscoring supplied)
property of debris which prevented PGI from
completing its work.8 In partly affirming the trial court’s decision, the
appellate court ratiocinated that notwithstanding the
By Decision of June 2, 2004,9 Branch 226 of the terms of the JVA, the joint venture cannot avoid
Quezon City RTC rendered judgment in favor of PGI, payment of PGI’s claim since "[the JVA] could not
disposing as follows: affect third persons like [PGI] because of the basic
civil law principle of relativity of contracts which
provides that contracts can only bind the parties who
WHEREFORE, in view of all the foregoing, judgment
entered into it, and it cannot favor or prejudice a third
is hereby rendered in favor of plaintiff [PGI].
person, even if he is aware of such contract and has
acted with knowledge thereof."11
The defendants [Gotesco] and [Marsman Drysdale]
are ordered to pay plaintiff, jointly:
Their motions for partial reconsideration having been
denied,12 Marsman Drysdale and Gotesco filed
(1) the sum of P535,353.50 with legal interest separate petitions for review with the Court which
from the date of this decision until fully paid; were docketed as G.R. Nos. 183374 and 183376,
respectively. By Resolution of September 8, 2008, the
(2) the sum of P200,000.00 as exemplary Court consolidated the petitions.
damages;
In G.R. No. 183374, Marsman Drysdale imputes error
(3) the sum of P200,000.00 as and for on the appellate court in
attorney’s fees; and
A. …ADJUDGING [MARSMAN DRYSDALE]
(4) costs of suit. WITH JOINT LIABILITY AFTER CONCEDING
THAT [GOTESCO] SHOULD ULTIMATELY
The cross-claim of defendant [Marsman Drysdale] BE SOLELY LIABLE TO [PGI].
against defendant [Gotesco] is hereby GRANTED as
follows: B. …AWARDING ATTORNEY’S FEES IN
FAVOR OF [PGI]…
a) Defendant [Gotesco] is ordered to
reimburse co-defendant [Marsman Drysdale] C. …IGNORING THE FACT THAT [PGI] DID
in the amount of P535,353.[50] in accordance NOT COMPLY WITH THE REQUIREMENT
with the [JVA]. OF "SATISFACTORY PERFORMANCE" OF
ITS PRESTATION WHICH, PURSUANT TO
b) Defendant [Gotesco] is further ordered to THE TECHNICAL SERVICES CONTRACT,
pay co-defendant [Marsman Drysdale] the IS THE CONDITION SINE QUA NON TO
sum of P100,000.00 as and for attorney’s COMPENSATION.
fees.
D. …DISREGARDING CLEAR EVIDENCE
SO ORDERED. (underscoring in the original; SHOWING [MARSMAN DRYSDALE’S]
emphasis supplied) ENTITLEMENT TO AN AWARD OF
ATTORNEY’S FEES.13
Marsman Drysdale moved for partial reconsideration,
contending that it should not have been held jointly On the other hand, in G.R. No. 183376, Gotesco
liable with Gotesco on PGI’s claim as well as on the peddles that the appellate court committed error when
awards of exemplary damages and attorney’s fees. it
The motion was, by Resolution of October 28, 2005,
denied.
…ORDERED [GOTESCO] TO PAY P535,353.50 AS has a right to demand, or that each one of the latter is
COST OF THE WORK PERFORMED BY [PGI] AND bound to render, entire compliance with the
P100,000.00 [AS] ATTORNEY’S FEES …[AND] TO prestations. There is a solidary liability only when the
1avv phi 1
REIMBURSE [MARSMAN DRYSDALE] 50% OF obligation expressly so states, or when the law or
P535,353.50 AND PAY [MARSMAN DRYSDALE] nature of the obligation requires solidarity.
P100,000.00 AS ATTORNEY’S FEES. 14
Art. 1208. If from the law, or the nature or the wording
On the issue of whether PGI was indeed entitled to of the obligations to which the preceding article refers
the payment of services it rendered, the Court sees the contrary does not appear, the credit or debt shall
no imperative to re-examine the congruent findings of be presumed to be divided into as many equal shares
the trial and appellate courts thereon. Undoubtedly, as there are creditors or debtors, the credits or debts
the exercise involves an examination of facts which is being considered distinct from one another, subject to
normally beyond the ambit of the Court’s functions the Rules of Court governing the multiplicity of suits.
under a petition for review, for it is well-settled that (emphasis and underscoring supplied),
this Court is not a trier of facts. While this judicial tenet
admits of exceptions, such as when the findings of presume that the obligation owing to PGI is joint
facts of the appellate court are contrary to those of the between Marsman Drysdale and Gotesco.
trial court’s, or when the judgment is based on a
misapprehension of facts, or when the findings of The only time that the JVA may be made to apply in
facts are contradicted by the evidence on the present petitions is when the liability of the joint
record,15these extenuating grounds find no application venturers to each other would set in.
in the present petitions.
A joint venture being a form of partnership, it is to be
At all events, the Court is convinced that PGI had governed by the laws on partnership.20 Article 1797 of
more than sufficiently established its claims against the Civil Code provides:
the joint venture. In fact, Marsman Drysdale had long
recognized PGI’s contractual claims when it (PGI)
Art. 1797. The losses and profits shall be distributed
received a Certificate of Payment16 from the joint
in conformity with the agreement. If only the share of
venture’s project manager17 which was endorsed to
each partner in the profits has been agreed upon, the
Gotesco for processing and payment.18
share of each in the losses shall be in the same
proportion.
The core issue to be resolved then is which between
joint venturers Marsman Drysdale and Gotesco bears
In the absence of stipulation, the share of each in the
the liability to pay PGI its unpaid claims.
profits and losses shall be in proportion to what he
may have contributed, but the industrial partner shall
To Marsman Drysdale, it is Gotesco since, under the not be liable for the losses. As for the profits, the
JVA, construction funding for the project was to be industrial partner shall receive such share as may be
obtained from Gotesco’s cash contribution, as its just and equitable under the circumstances. If besides
(Marsman Drysdale’s) participation in the venture was his services he has contributed capital, he shall also
limited to the land. receive a share in the profits in proportion to his
capital. (emphasis and underscoring supplied)
Gotesco maintains, however, that it has no liability to
pay PGI since it was due to the fault of Marsman In the JVA, Marsman Drysdale and Gotesco agreed
Drysdale that PGI was unable to complete its on a 50-50 ratio on the proceeds of the project.21 They
undertaking. did not provide for the splitting of losses, however.
Applying the above-quoted provision of Article 1797
The Court finds Marsman Drysdale and Gotesco then, the same ratio applies in splitting the
jointly liable to PGI. ₱535,353.50 obligation-loss of the joint venture.
PGI executed a technical service contract with the The appellate court’s decision must be modified,
joint venture and was never a party to the JVA. While however. Marsman Drysdale and Gotesco being
the JVA clearly spelled out, inter alia, the capital jointly liable, there is no need for Gotesco to
contributions of Marsman Drysdale (land) and reimburse Marsman Drysdale for "50% of the
Gotesco (cash) as well as the funding and financing aggregate sum due" to PGI.
mechanism for the project, the same cannot be used
to defeat the lawful claim of PGI against the two joint Allowing Marsman Drysdale to recover from Gotesco
venturers-partners. what it paid to PGI would not only be contrary to the
law on partnership on division of losses but would
The TSC clearly listed the joint venturers Marsman partake of a clear case of unjust enrichment at
Drysdale and Gotesco as the beneficial owner of the Gotesco’s expense. The grant by the lower courts of
project,19and all billing invoices indicated the Marsman Drysdale cross-claim against Gotesco was
consortium therein as the client. thus erroneous.
As the appellate court held, Articles 1207 and 1208 of Marsman Drysdale’s supplication for the award of
the Civil Code, which respectively read: attorney’s fees in its favor must be denied. It cannot
claim that it was compelled to litigate or that the civil
Art. 1207. The concurrence of two or more creditors action or proceeding against it was clearly unfounded,
or of two or more debtors in one and the same for the JVA provided that, in the event a party
obligation does not imply that each one of the former
advances funds for the project, the joint venture shall from a Party) shall be repaid by the [joint
repay the advancing party. 22 venture]. x x x x."
SO ORDERED.
Footnotes